A Practical Guide To International Commercial Arbitration

aT ae Coruna Ke ; {! ro ny COMMERCIAL — ARBITRATION |. SdInformation contained in this work has been obtained by Oceana Publications from sources believed to be reliable. However, neither the Publisher nor its authors guaran. tee the accuracy or completeness of any information published herein, and neither Oceana nor its authors shall be responsible for any errors, omissions or damages aris ing from the use of this information. This work is published with the unders that Oceana and its authors are supplying information, but are not attemptin det legal or other professtonal services. such services are required, the as an appropriate professional should be sought You may otder this or any other Oceana publications by visiting Oceana’s website at hetp/www.oceanalaw-com Library of Congress Cataloging-in-Publication Data A practical guide to international commercial arbitration / Richard Garnett .. [et al. p. cm. Includes bibliographical references, ISBN 0-379-21396-6 (alk. paper) 1. Arbitration and award, International. L. Garnett, Richard L. K2400.P 341 9.50150 © 2000 by Oceana Publications, Inc. All rights reserved. No part of this publication may be reproduced or transmitted in iy way or by any means, electronic or mechanical, including photocopy, recording xerography, or any information storage and retrieval system, without permission in ‘writing from the publisher. Manufactured in the United States of America on acid-free paper TABLE OF CONTENTS EE Preface. Chapter 1: The Nature of Arbitration 1.1 Introduction 1.2 International commerce and the role of law 1.3.The Nature of 1.4 Defining international commercial arbitratio sbitration, the Applicable Law, and the Courts chapter 2: The Advantages and Disadvantages of International Commercial Arbitration. ......- ane 2.1 Advantages of Arbitration 2.1.1 Enforceability 2.1.2 Speed 24 2.1.4 Choice of Arbitrators and Arbitral Center and Arbitral Rules 2.1.5 Language 2. 2. 2. Costs 1.6 Neutrality 1.7 informality 1.8 Confidentiality 2.2 Disadvantages af Arbitration 2.2.1 Lack of Coercive Powers 2.2.2 Multiparty Disputes. 2.3 Alternative dispute resolution and international commerce Chapter 3: Legal Framework of International Commercial Arbitration 3.1 The Role of the Arbitration Agreement 3.2 The Importance of the Arbitral Award 3.3 The Role of National Laws and Their Interaction 3.3.1 The Lex Arbitri (the Law Governing the Arbitral Procedure) 3.3.2 The Law Applicable to the Substance of the Dispute 3.5.3 No Choice of Substantive Law vii 20 20 23PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, 3.3.4 The Law Governing the Arbitration Agreement 33. 5 The Law of the Place of Enforcement Chapter 4: Arbitration Agreements 4.1 Introduction 4.2 Key elements of the arbitration agreement 4.2.1 Which dispute settlement method is to be applied? 4.2.2 Ad hoc versus institutional arbitration 2.3 Which disputes are to be covered? 4.2.4 Where is the arbitration to be held? 4.2.5 Separability of the Arbitration Agreement 4.2.6 Choice of arbitrators 4.2.7 What substantive and procedural law is to apply? 4.2.8 Interim measures 4.2.9 Language of arbitration. 2.10 Representation 4.2.11 Awards, remedies and damages 4.2.12 Interest and Costs 4.2.13 Multiparty arbitration 4.2.14 Requirements as to form 4,5 Effective arbitration agreements 4.4 The effect of an arbitration agreement on court proceedings Chapter 5: Procedure... . . - ee Bb 5.1 Introduction 5.2 Procedural Choices—the Influence of Legal Tradition 5.3 Commencing the Arbitration 5.4 Composition of the Arbitral Tribunal—Appointment at of Arbitrators 5.4.1 Method of selection 5.4.2 Time of appointment 5.4.3 Independence of the arbitrator 5.5 Place of Arbitration 5.6 Language 5.7 Challenge to Arbitrators 5.8 Preliminary Conference 5.9 Interim or Provisional Measures 5.10 Preliminary Determinations ‘Table of Con 5.10.1 Jurisdiction 5.10.2 Procedural law of the arbitration 5.10.3 Substantive Law 5.11 Initiation: Documents §.11.1 Claimant's document 5.11.2 Respondent's document 5.12 Time Limits. 5.13 Default of parties 5.14 Amendment 5.15 Proving the Facts and Law 5.15.1 Establishing facts 5.15.2 Documents 5.15.3 Confidentiality of Documents 5.15.4 Witnesses 5.15.5 Expert Witnesses 5.16 Site Inspections and Experiments 5.17 Closure 5.18 Legal Submissions Chapter 6: The Role and Standards of Conduct of the Arbitrator . 6.1 The Role of the Arbitrator 6.2 Standard of Conduct of Arbitrators. 6.2.1. Duty of Competency 6.2.2 Duty of Impartiality. 6.2.3 The Duty to Uphold the Integrity and Fairness of the Proceeding 6.2.4 Duty of Disclosure 6.2.5 Duty to Communicate 6.2.6 Duty to Act Professionally 6.2.7 Duty to Render a Decision 6.2.8 Duty to Act in A Fiduciary Manner 6.2.9 Compensation 6.2.10 The Position of the Party Appointed Arbitrator Chapter 7.1 Awards. 7.1.1 Preliminary Awards. 7.1.2 Consent AwardsJIDE TO INTERNATIONAL COMMERCIAL ARBITRAT 7.1.3 Default Awards 7.1.4 Final Awards 7.2 Remedies 7.2.1 Declarations 7.2.2 Monetary Damages 7.2.3 Punitive Damages 7.2.4 Specific Performance 7.2.5 Injunctions 7.2.6 Interest 7.2.7 Costs Chapter 8: The Enforceability of Arbitral Awards . . . « 8.1 The New York Convention: Introductory Remarks 8.2 Grounds for Refusal of Enforcement Under Article V(1) and (2) 8.2.1 Incapacity of A Party: V(1)(a) 8.2.2 Invalidity of Agreement: V(1)(a) 93 94 04 95 95 95 96 96 o7 98 - 101 101 104 104 104 8.2.3 Party Not Given Proper Notice/Unable to Present Its cease: V(1)(b) 104 8.2.4 Tribunal Has Exceeded Its Jurisdiction: (1)(¢) 8.2.5 Defects In Arbitral Tribunal Composition/Procedure: V(1)(d). 8.2.6 Award Not Binding/Set Aside: V(1)(e) 8.2.7 Non-Arbitrability: V(2)(@) 8.2.8 Public Policy: V(2)(b) Chapter 9: Challenge and Modification of Awards 9.1 Challenge of Awards 9.1.1 Methods of Challenge 9.1.2 Bases of Challenge 9.2 Modification of Awards, 9.2.1 National Arbitration Laws 9.2.2 Institutional Arbitral Rules APPENDICES . CONVENTIONS ‘The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) (1958) ‘The Inter-American Convention on Intemational Commercial Arbitration (The Panama Convention) (1975) 106 106 107 108 109 113 113 4 115 118, 118 120 123 ‘Table of Contents ‘MODEL LAW 1, UNCITRAL Model Law on International Commercial Arbitration (1985) 135 2, UNCITRAL Secretariat Explanation of Model Law on International Commercial Arbitration (1985) Te 149 ARBITRATION RULES 1. UNCITRAL Arbitration Rules (1982) 161 2, Rules of Arbitration ofthe International Chamber of Commerce (1998) 181 MODEL ARBITRATION CLAUSES 1, The Standard ICC Arbitration Clause 2, UNCITRAL Model Arbitration Clause MAJOR ARBITRAL CENTERS . PARTIES TO THE NEW YORK CONVENTION: With Declarations and Reservations . . . oo LEGISLATION BASED ON THE UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION INDEX ....ur professional endeavours have convinced us of the need for a compact and concise single volume treatise covering the basics of international commercial arbitration that will serve both as a guide to the novice to the field as well as a useful reference for the more seasoned practitioner. We hope this book fills that need. We have attempted to address the major issues that might be confronted at ‘any stage in international commercial arbitration. Thus, for those who are deciding whether arbitration is the appropr.ate form of dispute resolution in their transaction, we start with a discussion of the nature of arbitration, and then move into a discussion of the benefits and detriments of arbitration in the international arena. Within this discussion, we examine arbitration as it compares with other forms of dispute resolution. We also consider the legal framework in which arbitration functions For those who have decided to use arbitration as a means of dispute resolution, we examine the key points of an effective arbitration agreement. For those confronted with an arbitration, we present a detailed analysis of the procedures of arbitration and the role of the arbitrators. We conclude with a detailed analysis of the types of awards that are available, as well as the enforceability, modification and appealability of the awards. For ready reference we have included in the appendix the full text of two of the most widely used rules of arbitration: the UNCITRAL Arbitration Rules and the Arbitration Rules of the International Chamber of Commerce. Also, because of its widespread use in international commercial arbitrations, we have included the UNCITRAL Model Law on International Commercial Arbi- tration as well as the official commentary that accompanies the Model Law. TTo spare the reader the necessity of having to hunt down some other primary resources, we have also included the complete texts of the New York Conven- tion, the Panama Convention, as well as model UNCITRAL and ICC arbitration clauses. We conclude with the names and information about the major arbitral centers throughout the world,We would like to thank the International Chamber of Commerce for permission to reproduce the arbitration rules of that Organization. We would also like to thank Susan DeMaio at Oceana Publications for her encouragement of this project. Hows: CHAPTER 1 Richard Garnett THE NATURE OF ARBITRATION Monash University, Australia Jeff Waincymer Deakin University, Australia Henry Gabriel Loyola University, United States 1.1 Introduction Arbitration is a dispute resolution mechanism where private parties, by way of agreement, submit their existing or future disputes for binding resolution by an appointed arbitrator or arbitrators. Arbitration is the dominant method of resolving private party disputes in international commerce. There are a number of reasons for this. First, there is the ability of arbitration to respond to the potentially divergent needs of disputants who may come from different legal and cultural backgrounds. In particular, the parties are free to choose the time and place of arbitration and the rules by which the arbitration will be conducted. This choice allows the parties to make the process as fair, eff cient and culturally neutral as possible. Second, arbitration can be conducted in an environment of confidentiality. And finally, it may be easier to enforce an arbitral award in a foreign jurisdiction than it is to enforce a court order. While freedom of choice is to be highly valued, many parties would not wish to negotiate such procedures on a case by case basis. This may be time consuming and problematic if the negotiation is to be held once a dispute becomes apparent. As a result, in addition tc the parties’ overriding freedom to make these choices on an ad hoc basis, a number of institutions have been established and provedural models developed, which can be selected in advance or adopted when particular disputes arise. 1.2 International commerce and the role of law Both domestic and international commerce require certain forms of legal support. Legal systems provide the necessary infrastructure for commerce through substantive laws, such as laws of property, contract, finance, trans- Port and insurance, and through adjudicatory mechanisms for the settlement 1 The key international and national institutions that offer arbitration services are briefly outlined in the Appendices.PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, of disputes. However, there are two legal features that distinguish international commercial transactions from domestic ones. First, in international commerce there is always a preliminary question as to which procedural and substantive legal rules, supported by which national le gal systems, apply to the transaction and to disputes arising under it. There is, often no natural geographical location in which to hold a dispute resolution process. In a purely national based contractual arrangement, we take for granted the role of domestic courts and domestic contract law principles. The second key variant is that trade which occurs across national boundaries gives rise to far more significant legal risks than is normally the case with purely national transactions. There is the physical need to transport goods over large distances and the resultant need to apportion risk between sellers, buyers and multi-modal carriers. There is the need for at least one party to op. erate in a foreign currency. There is the potential involvement of foreign governments in taxing and regulating the transaction. There may also be different attitudes to and understandings of basic legal rights and obligations. Finally, there is no international legal authority that provides the infrastruc ture to ensure that adjudicatory procedures are propetly undertaken and that the outcomes are effectively enforced National legal rules and institutions resolve some of these problems of international commercial transactions. Specific principles of property law and finance law have been developed to facilitate trade that would otherwise have been fraught with difficulties. For example, a seller of goods may not wish to ship them before being assured of payment. On the other hand, a buyer may not wish to pay for the goods without assurance that they will be safely trans- ported and without being able to inspect them. Domestic legal systems have developed such mechanisms as bills of lading, letters of credit and insurance contracts to resolve these tensions. These domestic principles have been to a great extent effectively transferred into the international realm, usually in the form of international conventions or model acts. However, domestic legal rules do not adequately resolve all of the tensions inherent in international commercial transactions. There are also significant differences in the underlying substantive laws that apply to international commercial transactions. ‘Where contract law is concerned, some civil law systems have had a greater tradition of trying to keep breached contracts viable than is the case with common law systems.? Religious legal systems will often add another dimen- sion by seeking to impose a greater ethical overlay on both substantive and procedural issues. 2 An example is the nach/fise principle from German law, allowing for an extension of time for a seller to complete the contract obligations, now encapsulated in Article 47 of the Vi enna Convention on Contracts for the International Sale of Goods. ‘THE NATURE OF ARBITRATION. In addition to substantive law principles, there is a further role for the law in providing effective means of dispute prevention and resolution. If parties do not have confidence in the mechanisms for dispute settlement and enforcement, this will again operate as a disincentive to trade or lead to increased transaction costs. Yet it is not so easy to identify optimal dispute settlement principles and procedures. If traders come from different counties, they are likely to have different legal cultures and experiences. Differences in cultural background may even give rise to fundamentally different views about dispute resolution itself. For example, those from an Anglo-American common Jaw background may be used to a more adversarial dispute resolution processes, On the other hand, many Asian legal systems seek to promote consensual dispute resolution as the primary mechanism. As a result they will often place greater importance on the ongoing commercial relationship than on the historical terms of the contract in any dispute. They may, as a result, prefer alternative dispute resolution mechanisms such as mediation or conciliation rather than litigation or arbitration, ‘Thus a major challenge with international commercial transactions is to find ‘a way to develop efficient processes that are culturally neutral or at least minimise cultural biases. International commercial arbitration is one dispute resolution option that seeks to accommodate these problems in the most efficient and equitable manner, primarily by giving the greatest deference to party ANA 4.3 The Nature of Arbitration, the Applicable Law, and the Courts ‘A fundamental aspect of arbitration is that itis based on consent. The parties therefore have significant freedom to adapt the particular arbitration to the needs of their contractual relationship. This “party autonomy” means that even if a contract has no arbitration agreement, arbitration can still be agreed upon when a dispute arises. Conversely, if the contract has a binding arbitration agreement, the parties can still agree not to use it, but instead can litigate or use an alternative dispute resolution model if they prefer Because of the high degree of party autonomy in arbitration, a recurring problem is the way in which domestic courts interact with these privately ar- ranged agreements. Domestic laws and domestic court systems may become involved at a number of stages because parties are only effectively free to engage in certain arrangements if appropriate legal systems will recognise them. ‘An agreement to submit an existing dispute to arbitration Is described as a submission agreement or compromis ALAN REDFERN AND MaxTin HUNTER, LAW AND PRACTICE OF INTERNA. TIONAL COMMERCIAL ARBMTRATION 6 (3d. ed. 1999). In the past, some legal systems have only allowed for arbitration based on a compromés, on the principle that an agreement is only truly consensual when the parties are aware ofthe actual dispute that i required to bere solved. Virtually all systems have abandoned this rue.PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION Certainly if private parties agree to arbitrate and if the loser voluntarily com- plies with any award made, few if any domestic legal systems would seek to interfere. ‘The situation is quite different, however, if one party refuses to abide by the agreement, or if there is a dispute about its essential nature or if a party chooses to use a domestic court system notwithstanding the arbitration clause. In these situations, there are a number of infrastructure requirements for domestic legal systems for arbitration to be fully effective. Domestic systems should not allow court proceedings to be brought in relation to a dispute that falls within the terms of an arbitration agreement. Arbitral procedures may at times require positive support of national court systems for such things as a stay of conflicting proceedings, assistance with the appointment of arbitrators, injunctions and rights to discovery of documents. Effective arbitration also requires domestic legal systems to recognise and enforce the outcomes of arbitral awards. Where international commercial arbitration is concerned, the problems of the interplay between the arbitration and domestic legal systems is more complex as there is no obvious legal jurisdiction to provide any necessary infrastructure support+ There is also no guarantee that the different domestic legal systems involved will have the same attitudes to private party arbitration and will provide assistance to each other in supporting it. Thus, effective international commercial arbitration requires the interplay of a number of national legal systems to provide that infrastructure. The first legal system involved may be the legal system of the place of arbitration. An arbitration could not be held in a particular geographical area if the national law did not permit it. The law of the place of arbitration generally governs the arbitral procedure. Thus by selecting the venue, the parties have usually selected the procedural method, although in most cases this also Some of the leading works on international commercial arbitration include E GaLiaro and J Savace (eds), FOUCHARD GAILLARD GOLDMAN ON INTERNATIONAL COMMERCIAL ARBITRATION (1999) Kluwer; Redfern and Hunter, id, KP BERGER, INTERNATIONAL Economic ARBITRATION (1993) Kluwer; G B BORN, INTERNATIONAL COMMERCIAL ARBITRATION IN THE UNITED STATES (1994) Kluwer; W Crate, W PaRs, and} PAULSSON, INTERNATIONAL CHAMBER OF COMMERCE ARB ‘TRATION (2nd ed 1990) Oceana Publications; W Cua, W PARK, and J PAULSSON, CRAIG, PARK AND PAULSSON'S AKNOTATED GUIDE TO THE 1998 ICC RULES wa Commentary (1998) Oceana Publications; R Davib, AROMRATION IN INTERNATIONAL TRADE (1985) Kluwer; Y DERAINS AND E Scrswanrz, A Guive 10 THE New ICC RULES OP ARBITRATION (1998) Kluwer; H HOLTZMANN AND J Nevaavs, A GuiDg To THE UNCITRAL MovsL Law ov INTERNATIONAL COMMERCIAL ARBITR ‘ToN—LesisLanve HistoRy AND CommesTaRy (1989) Kluwer; M MusTiL. axo S BOYD, COMMER. cI, ARarRATION (2nd ed 1989) Butterworths; M RUBINO SAMMARTAND, INTERNATIONAL ARBK ‘Trarion Law (1990) Kluwer; AJ VAN DEN BERG, THE New YORK ARBITRATION CONVENTION OF 1958 (1981) Kluwer ‘THE NATURE OF ARBITRATION entails a right of the parties to make any procedural choices or modifications they desire. Determining the appropriate procedural law is distinct from the determination of the applicable substantive law. In a contract dispute, the substantive law will be the system or systems of contract law that govern questions such as contract formation, validity, rights and obligations, breach and remedies. Be- ‘cause any international commercial uansaction involves traders from differ- ‘ent countries, there may be different substantive laws that could apply. Each domestic system has its own choice of law rules used by the courts in resolving such potential conflicts and determining the extent to which party choice {s to be respected. The same issue arises with arbitration although national arbitration statutes and institutional arbitration rules provide specific mechanisms for this process. ‘Where substantive law is concerned, parties are usually given a choice, In many cases the substantive law might be any specified national system of law chosen by the parties. The parties might also choose an established set of contract principles such as the Vienna Convention on Contracts for the Interna- tional Sale of Goods® or the UNIDROIT Principles of International Commercial Contracts.” It might be a hybrid of such systems and general principles. It has also been suggest that there is a commonly agreed hybrid of substantive law that has been accepted by traders as the core of common practice, These general principles are commonly known as lex mercatoria. Their nature and content is the subject of much debate. Other laws may be relevant in resolving a dispute besides the procedural and substantive laws selected by the parties or the arbitrator. The substantive is sues in the dispute or challenges to jurisdiction may bring into question domestic statutes and case law and other international treaties. For example, certain types of disputes are determined by some countries to be inappropriate 5 Leading treatises on conflicts of laws include L Couns (ed), Dicey ano Monts on THE Con ‘ur oF Laws (13th ed 2000) Sweet and Maxwell; R A LEFLAR, AMERICAN CoNFLIcrS Lav (4th ced 1986) Michie and Co; E 1 Ses and M C PRYLES, AUSTRALIAN PRIVATE INTERNATIONAL LAW (Gd ed 1991) Law Book Co, See, for a fuller discussion of the issues of applicable law in International arbitration, chapter 3 below. ‘This Convention is often referred to in the abbreviated form, the CISG. 7 MJ Bonell, The UNIDROIT Initiative for the Progressive Codification of International Trade Law 27 Inve. & Cone L.Q. 413 (1978); UNIDROIT Principles for international Commercial Contracts: A New Lex Mercatoria? ICC PusuicxtoN No. 490/1 (1995); M J Bonell, The LUNIDROIT Principles in Practice: The Experience of the First Two Years UNIroRM L REV 34 (1997), again, see below, chapter 3. 8 See K P Bencer, THE CREEPING MODIFICATION OF THE Lex MERCATORIA (1999); E Gaillard, Thirey Years of Lex Mercacoria: Towards the Selective Apolication of Transnational Rules 10 1CS1D Rev—Fonencw Inv L] 208 (1995); M Mustill, The New Lex Mercatoria: The First Twenty Five Years 4 AREN INTL 86 (1988),PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, for resolution by arbitration. These may include antitrust disputes, intellec tual property disputes, labour rights, consumer rights, shipping disputes and property rights, although the categories are diminishing over time.° Certain types of parties may also not have the capacity to enter into arbitration agreements. An example might be a receiver or liquidator, at least without the permission of the court with supervisory jurisdiction over the corporation. There may also be separate laws determining whether a party has capacity to enter into an arbitration agreement. Domestic legal systems may have different views as to the degree to which parties to an arbitration can deal with such issues by agreement. This is a further aspect of the problem of the relationship between domestic courts and international arbitration. These problems cannot be overcome merely by trying to have domestic courts refrain from interfering with arbitration agreements, For arbitration to be fully effective it will at times require the conscious support of domestic legal and court systems. This is particularly so in relation to ensuring that international arbitral agreements and awards are binding and enforceable. An arbitrator, as a private person, has no direct ability to enforce an award. If a party refuses to honour the arbitration agreement or refuses to comply with an award, the aggrieved party may need to resort to domestic court systems for redress. It would be undesirable to leave these issues to be determined by national parliaments and courts in different ways, or to even be determined in different ways by different judges within those courts. The latter position can arise where there is a broad discretion provided to stay court proceedings in the face of an arbitral agreement. As a response, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("New York Conven- tion")10 seeks to provide a solid infrastructure for arbitration by binding Con- tracting States to recognise and make effective international commercial arbitration agreements that meet the express requirements of the Convention. While there is a strong trend to support consensual arbitration by circum- scribing the entitlements of domestic courts to interfere with the process, there will inevitably be limits to deal with extreme cases. On the one hand, arbitration would be meaningless as an alternative dispute resolution method if courts could interfere whenever they felt that they would come to a different conclusion on any matter. On the other hand, forcing courts to stand by and accept the outcome of all arbitrations, would mean that individuals could ‘These issues ate discussed further in Chapter 4 {As of March 2000, there were 115 parties to the New York Convention. The Convention is included in the Appendices. For an examination of the defenses to enforcement of awards under the Convention, see Chapter & below. ‘THE NATURE OF ARBITRATION bypass principles that are thought to be fundamental to any just outcome. Such domestic discretions and international conventions will inevitably contain exceptions, for example where arbitral awards were based on improper procedures. Some determination of standards is necessary. Yet the definition of those limits will invariably be of sufficient generality to allow for some domestic differences in policies of intervention to reappeat.'! In some jurisdictions, there is an inherent concern with any attempt by pri: vate parties to bypass the domestic court system. At the extreme, courts have at times been concerned to assert their primacy as adjudicatory bodies. !2 In common law jurisdictions, elegant forms of contractual drafting were at times employed to encourage the courts to support arbitration without offending such notions of primacy. For example, contractual clauses were developed which identified arbitration as a condition precedent to any liability under the contract, or which stipulated that the only money that needed to be paid between the parties was that awarded by an arbitrator.> More recently, other judges have cited trends in international commerce as a justification for a more supportive approach to arbitration agreements. Ken- nedy J of the United States Supreme Court in Vimar Seguros y Reaseguros SA v MIV Sky Reefer suggested that to encourage the expansion of business and industry, courts must not “insist upon a parochial concept that all disputes ‘must be resolved under our laws and in our courts’."4 He suggested that na tional courts must “shake off the old judicial hostility to arbitration” and their “unwillingness to cede jurisdiction of a claim arising under domestic law toa foreign or transnational tribunal”. Whatever view is taken about these competing judicial perspectives, they again point out that the potential for domestic courts to interfere with the smooth operation of arbitral processes cannot easily be constrained 1.4 Defining international commercial arbitration Many governments are inclined to regulate more strictly purely domestic arbitration, that is arbitration taking place within the jurisdiction between locally resident parties. Because of the differences in governmental attitudes between domestic and international arbitration, there are invariably different regula tory regimes, However, this creates a need to identify when an arbitration can 11 The specific grounds for challenge are analysed in Chapter 9. 42 For example, Lord Cranworth LC in the English case of Scott v Avery refered to“... the ‘general policy of the law, that parties cannot enter into a contract which gives rise to a right of action forthe breach of it, and then withdraw such a case from the jurisdiction of the ordinary tribunal." HLC 809 at 847 (1856), 13 i 14 515 US 528, 538 (1995). See also M/S Bremen v Zapata Offshore Co 407 US 1,8 (1972). 7PRACTICAL IDE TO INTERNATIONAL COMMERCIAL ARBITRATION truly be said to be éncernational. There is no obvious test that can be identified. For example, what if an Austrian company constructing a building in Australia has a dispute with a United States engineering company that provided advice through an Australian joint venture vehicle? Is this a truly international dispute because of the different nationalities of the key parties, or is it a national dispute because all of the activities occurred within Australia? In deciding whether a transaction should be seen as international, attention needs to be given to the particular features, whether pertaining to geography, residence or ownership, which will determine that character Each feature is at times used in various legal systems. Thus the same transac tion will not necessarily be treated as international under different international arbitral rules. In addition, even if a dispute is not considered as international under a particular legal definition, some jurisdictions allow parties to opt in to such a system.'8 International Chamber of Commerce Rules and French law look to the nature of the business transaction itself. The ICC Rules seek to cover “business disputes of an international character”.!® The French law speaks of “the interests of international trade”.1? The 1996 English Arbitration Act defines "international” indirectly through the notion of residence.'® The UNCITRAL Model Law'9 incorporates both notions into a broad definition of international. Un- der Article 1(3) of the Model Law, an arbitration is international if the parties have their places of business in different States, or the place of arbitration or any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject matter of the dispute is most commonly connected, is outside the State in which the parties have their place of business. Where corporations are concerned, the place of central management and control is relevant in addition to the place of incor- Similar definitional problems arise when we consider the notion of commerciality as this also will distinguish between transactions where governments are more or less likely to interfere with private decision making, For example, AAA International Arbitration Rules Article 1.1 16 ICC Arbitration Rules Article 1.1 17 Anticle 1492, French New Cade of civil Procedure. 18 Section 85(2). 19 The United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (une 1985) has wide intemational acceptance, having been adopted in the following jurisdictions: Australia, Bahrain, Bermuda, Bulgaria, Canada, Cyprus, Egypt, Germany, Guatemala, Hong Kong SAR, Hungary, India, Iran. treland, Kenya, Lithuania, Malta, Mexico, New Zealand, Nigetia, Oman, Peru, Russian Federation, Singapore, Sti Lanka, Tunisia, Ukraine, Scotland, and within the USA: California, Con- Recticut, Oregon and Texas and Zimbabwe; see CLOUT database at www.uncitral org. 8 International commercial arbitration is one aspect of the relationship between commerce and law. While court and contractual systems in different countries have varied attitudes to such questions as whether to re-balance contractual rights and obligations because of unconscionability, duress and the like, the fact remains that the primary principle underlying most contractual systems is autonomy of the parties.2° The role of the State is often limited to regulating market distorting behaviour through company law, insolvency law and competition law. Conversely, the State and its legal institutions will often seek to foster such relationships as an important element in attracting interna tional investment. This is not so with other relationships. Non-commercial aspects of the relationship between law and society are coloured by general societal values and at times, religious beliefs. These often have very strict reg- ulatory parameters within nation States that may not allow for party chosen arbitral resolutions. Thus in addition to the need to define the criteria that make a transaction international in nature, there is a similar need to define the notion of commerctality. On the one hand, the definition should be wide enough to encompass all of the myriad forms of modern commercial arrangements. On the other hand, it should not be defined so widely so as to offend against some State notions of the distinction between commercial and non-commercial transactions, particularly where those states are required to be involved in the enforcement of the outcomes of the disputes. Thus while the notion of “commercial” is defined widely in the UNCITRAL Model Law,?! a reservation to the New York Conven- tion taken by some countries is to the effect that they only need to apply the Convention to disputes which are regarded as commercial by their own internal legal system.22 Thus for practical purposes of enforcement, note must also be taken of the meaning given to commercial in the domestic law of many enforcement countries as well as to the meaning in arbitral laws and conventions. 20. This has been manifested in the civil aw family by the longstanding dispute berween var ious members as to whether they should havea separate commercial code or whether par ties to commercial transactions should be subject to the same contract code as consumers. 21 A footnote to Article 1(1) of the UNCITRAL Medel Law states that: “the term ‘commercial’ should be given a wide interpretation so as to cover matters arising from all relationships of commercial nature, whether contractual cr not, Relationships of a commercial nature Include, but are not limited to, the following zansactions: any trade transactions for the supply or exchange of goods or services; distibution agreement; commercial representation or agency; factoring; leasing; constructicn of work; consulting; engineering; licens ing; investment; financing; banking; Insurance; exploitation agreement or concession Joint venture and other forms of industrial or business co-operation; carriage of goods or passengers by air, sea, rail or road. 22 New York Convention, Article 13.CHAPTER 2 THE ADVANTAGES AND DISADVANTAGES OF INTERNATIONAL COMMERCIAL ARBITRATION ‘There are relative advantages and disadvantages to international commercial arbitration over other forms of dispute resolution. These considerations should be taken into account when decidirg whether to incorporate binding arbitration agreements in commercial contacts. The decision depends upon the nature of the parties, the type of contract, the type of disputes that might be anticipated and the domestic and international legal systems that may be involved both in adjudication and enforcement. There is no dispute settlement method that is optimal in all situations. However, there are some general matters to consider in deciding whether to choose arbitration. 2.1 Advantages of Arbitration 2.1.1 Enforceability The question of enforcement is generally one of the primary concerns in the decision to choose arbitration. There would be little value in international commercial arbitration if awards could not be validly enforced, and arbitrators have no inherent ability to enforce awards. However, in most situations, enforcement of international commercial arbitration awards is made possible as a result of the wide adoption of the New York Convention.23 Under this Convention, countries agree to allow their domestic courts and institutions to be used for the enforcement of arbitral awards.24 This is dependent on the award meeting the core criteria of the Convention, which primarily means that the arbitration followed appropriate processes and procedures. 25 The New York Convention is discussed in detail in chapter 8 24CHAPTER 2 THE ADVANTAGES AND DISADVANTAGES OF INTERNATIONAL COMMERCIAL ARBITRATION ‘There are relative advantages and disadvantages to international commercial arbitration over other forms of dispute resolution. These considerations should be taken into account when deciding whether to incorporate binding arbitration agreements in commercial contracts. The decision depends upon the nature of the parties, the type of contract, the type of disputes that might be anticipated and the domestic and international legal systems that may be involved both in adjudication and enforcement. There is no dispute settlement method that is optimal in all situations. However, there are some general mat tets to consider in deciding whether to choose arbitration. 2.1 Advantages of Arbitration 2.1.1 Enforceability ‘The question of enforcement is generally one of the primary concerns in the decision to choose arbitration. There would be little value in international commercial arbitration if awards could not be validly enforced, and arbitra tors have no inherent ability to enforce awerds. However, in most situations, enforcement of international commercial arbitration awards is made possible a a result of the wide adoption of the New York Convention.28 Under this Convention, countries agree to allow their domestic courts and institutions to be used for the enforcement of arbitral awards.24 This is dependent on the award meeting the core criteria of the Convention, which primarily means that the arbitration followed appropriate processes and procedures. 25. The New York Convention is discussed in detail in chapter 8. 24 i.PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION Enforcement under the New York Convention creates an advantage of arbitra tion over litigation because of the absence of a similar universal international convention covering litigation judgments. However, a possible example of such an international convention, the Draft Hague Convention on Jurisdic- tion, Recognition and Enforcement of Judgments in Civil and Commercial Matters is presently under consideration. If it, or a similar convention be: comes widely adopted, the relative benefits of arbitration over litigation in international commercial transactions may change. In cases where there is no international agreement supporting the enforcement of litigation judgments, enforceability will depend upon domestic court rules. While there is a growing trend to enforcement via registration based on reciprocal treatment?5 in many cases, a foreign judgment is merely an evidentiary element of a claim for damages in the country where enforcement is sought. Other factors regarding enforcement in international arbitration include the question of the enforcement of the arbitration agreement itself, for example, if one party simply refuses to arbitrate. The question here is whether the arbitration can proceed in this event and still give rise to an enforceable award. This factor would rarely play a part in the determination to choose ar. bitration at the time of contracting, but may well be relevant to consider when choosing arbitration as the method for dispute resolution after a dispute has arisen. ‘There is also a need to consider practical as well as purely legal issues analysing the strengths and weaknesses of arbitration. For example, prob- Jems with court enforcement may not always be of concern as enforcement can arise in ways other than through the courts. In many commercial areas, a failure to comply with an arbitral award could give rise to great concerns ‘amongst other traders considering dealing with the offending party. Thus, as in much of public international law, an arbitral system can have strong nor- mative effect without necessarily having a fully effective court based enforcement mechanism. Problems of enforcing court decisions will also tend to disappear if the losing party has sufficient assets in the forum country. 2.1.2 Speed Arbitration generally provides for greater speed than litigation in the resolution of disputes. However, this is not always the case. For example, court proceedings may also be quicker if they provide for summary judgment for liquidated damages. 25 See, m the Australian context, the Foreign Judgments Act 1991 (Cth. 2 “THE ADVANTAGES AND DISADVANTAGES OF INTERNATIONAL COMMERCIAL ARBITRATION It should also be considered that one reason why arbitrations may be more expeditious is that there is generally no avenue for appeal.2° Thus, this speed must be balanced against the disadvantage of not having the benefits of an appeal. This concern is partly overcome by the tendency to have a three-per- gon arbitral panel in significant disputes. In addition, arbitrators can be se Tected at an appropriate level of expertise necessary to ensure confidence in a binding determination. 2.1.3 Costs Costs are also a consideration in arbitration. First there is the need to pay the atbitrators themselves.2? There is also the cost to use the resources of the ar- pitral institutions.2® There are also the physical costs of travel to the arbitral ocation, although at least one of the parties would have incurred the costs in litigating in a foreign country in any event. 2.1.4 Choice of Arbitrators and Arbitral Center and Arbitral Rules ‘The parties are free to choose from any of the myriad of potential arbitral centers that specialize in commercial arbitration. Moreover, the parties are generally free to pick the arbitral rules that govern the proceedings.2? Often, the parties have substantial control over who will be the arbitrators themselves. These are choices that parties rarely have in litigation. The freedom to choose the arbitrators may be particularly useful because the adjudicator need not necessarily be a legal expert but can instead be selected because of some other field of expertise parcicularly beneficial to the dispute in issue. 2.1.5 Language ‘Arbitration allows the parties to select the language in which the dispute will be heard. In litigation, the particular national language will be mandated regardless of the language of the contract and commercial documents. This may require expensive translation of documents and the need to brief foreign lawyers, 26 In some jurisdictions, this remains a’ possibilty. See, ¢.g,, section 69 of the English Arbi tration Act of 1996. 27 The question of appropriate fees is discussed in chapter 5. 28 The names, addresses and contact information of the major arbitral centers are set out in the Appendices, information on costs is readily available from the centers. 29 often this is determined by the choice of the arbitral institution by the partes, as some a bitral instcurions generally apply their own promulgated rules, 13PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION 2.1.6 Neutrality International traders from diverse legal cultures may feel that a foreign court is unlikely to treat them with equal fairness to a domestic party. Given the ability to pick neutral third party arbitrators, this concern can be mini- mized by arbitration. While one study has questioned this in the United States at least, finding that foreigners fared better before American courts than domestic parties,3° even inappropriate perceptions may still be important considerations. 2.1.7 Informality Arbitration can be conducted in a more informal setting without the accoutre- ments of advocacy required before courts, Less formal language and processes may also help the parties feel more in control of the process. 2.1.8 Confidentiality Unlike the public nature of traditional litigation, arbitration can be confidential. This can be particularly important when the issues in dispute are highly sensitive financial and technological details.>! It is also important not to be too general with the assertion that arbitration is confidential. There are different issues as to confidentiality of documents and confidentiality as to the arbitrators’ knowledge and role in the process. While arbitration aims to provide as much confidentiality as the parties wish, it must in some circum. stances at least, defer to other national public policies advocating openness and transparency.*? An arbitral procedure cannot make something confidential that otherwise is in the public domain. Furthermore, certain aspects of the outcome of an arbitral process may need to be notified to other authorities such as stock exchanges, securities regulators, company receivers and liquidators, and competition law authorities. 30K Clermont and T Eisenberg, Xenophilia in American Courts 109 HaRM L. Rev, 1122 (1996), 31 Although confidentiality is invariably seen as a positive factor tothe partes in dispute, it has had a negative impact on the development of standardization of commercial prac tices, Confidentiality prevents the dissemination of details of rulings and reasons, and be cause arbitration awards do not lead to any official precedent or newly established legal principle, it may remove a highly valued feature underlying commercial relationships, namely certainty and consistency. Traders in specific areas will often value the develop ment of a body of principles setting out how particular difficult situations are to be con: sistently resolved. 52. For example, in the recent decision of the High Court of Australia in Esso Australia Re- sources Ltd v Plowman (1995) 185 CLR 10, it was suggested that the duty of confidential ity may be subject to a public interest exception “4 “THE ADVANTAGES AND DISADVANTAGES OF INTERNATIONAL COMMERCIAL ARBITRATION 2.2 Disadvantages of Arbitration 2.2.1 Lack of Coercive Powers ‘A major disadvantage to arbitration is the lack of any coercive powers that may be practically necessary to support the process. Such powers might be re quired to compel discovery, the attendance of witnesses, or, in the extreme, control over the movement of parties and their assets. An arbitrator has no direct coercive power over third parties. However, the presence of an arbitration ‘agreement may discourage courts from providing interim assistance such as through the granting of an injunction against shifting assets out of the jurisdiction. 2.2.2 Multiparty Disputes Multi-party disputes are another area where the tools of traditional litigation may be more helpful than arbitration. In many complicated commercial disputes, particularly in the building and engineering spheres, there may be many interrelated contracts and parties each with the potential for bilateral but related disputes. From the perspective o” efficiency it may be desirable to hear all related disputes concurrently, This is usually easy to achieve in most domestic litigation systems through joinder rules. By contrast, because the arbitral process depends on party autonomy, a number of the parties may consider that they have only agreed to arbitrate with their direct contrac tual partners. Few arbitration regimes alow for forced consolidation of similar claims. This may at times make litigation a preferred option, particularly where one of the parties involved does not have any arbitration agree ment at all 2.3 Alternative dispute resolution and international commerce Commercial arbitration has developed many of the features of litigation, pri marily because, like litigation, it involves a third party binding adjudication on the merits. While arbitration may be the preferred means of dispute resolution in international commerce, there are a number of different, more informal, mechanisms, generally denoted as altemative dispute resolution (‘ADR’), that are also being used. At the most informal end of the spectrum, disputes are usually sought to be resolved in the first instance by negotiation between the parties. In this case, ho third party needs to be involved. Parties might also seek to negotiate through their lawyers. Negotiation is inexpensive and consensual, and it tends to be an efficient primary method of dispute resolution Ifa negotiated solution has not been possible through bilateral discussions, the parties might use a third party as a facilitator to help achieve a settlement. Conciliation and mediation are the main methods for this. Generally, a 15PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION mediator seeks to facilitate a settlement without seeking to provide advice about the merits of the dispute, while a conciliator is encouraged and entitled to facilitate settlement by providing advice and even by suggesting a recom. mended settlement where appropriate ‘Another form of alternative dispute resolution is the mini trial. This involves a condensed presentation of a case being provided to a panel, including a fa. cilitator, in the hope that this will encourage a clearer understanding of the re- spective rights and obligations and a more likely framework for a negotiated settlement, ‘Another approach is to use a technical expert to advise the parties on key is sues, in the hope that this would allow the parties to better appreciate the key factual findings and hence achieve a negotiated settlement.5 Unless the parties specifically empower the expert to resolve the dispute, the expert may only make recommendations. Finally, litigation and arbitration are the two forms of dispute resolution dis- tinguished by the fact that there is a binding determination provided for by a third party. ‘The choice to employ ADR will involve many considerations. ADR often in- vites compromise rather than an all or nothing determination of right and wrong. To some, that compromise is a meritorious preference for a “win-win” solution and the ongoing contractual relationship rather than the adversarial zero-sum approach of litigation and much arbitration. To others, it involves unjustifiable pressure on a party who is in the right to give away some part of those rights. ‘The choice may depend on the type of dispute. For example, ADR may be less appropriate when the dispute presents conflicting expert evidence or when the dispute requires a technical legal interpretation of some legal rules o principles. ‘There are also other practical problems. Different jurisdictions have different views as to whether ADR clauses are enforceable. If ADR is unsuccessful, there is still a need to turn to a more formalised dispute resolution technique that in tum may unduly extend the process. in addition, there are few developed rules of procedure to support these alternative dispute resolution forms, The most notable are the UNCITRAL Conciliation Rules. The ICC also has conciliation rules.55 in addition, international commercial dispute The ICC has promulgated Rules of Technical Expertise. 1, Paris, 1977, 34. UNCITRAL Conciliation Rules extracted in VI YEARBOOK OF COMMERCIAL ARBITRATION 165 (1981) and Gerold Herrmann, Commentary on the UNCITRAL Conciliation Rules in id at P1709. 35 ICC Rules of Conciliation and Arbitration, ICC Pusuicarion No, 447 (1987). 16 “THE ADVANTAGES AND DISADVANTAGES OF INTERNATIONAL COMMERCIAL ARBITRATION. resolution will always be strongly biased in favour of whichever mechanisms can best provide for enforcement of settlements or awards. There is no enforcement mechanism for international ADR similar in scope to the New York Convention although in certain circumstances such techniques can feed into arbitral awards by consent, which are then enforceable under that Convention. ‘There remains the possibility of trying to combine some of the positive features of the different methods. The different techniques are not necessarily mutually exclusive. Of particular relevance to this book is the ongoing debate as to whether an arbitrator should accept additional roles of conciliation or mediation when requested to do so by the parties. On the one hand, adopting a range of methods may best achieve a mutually agreeable outcome. On the other hand, adopting such alternative processes may lead to the arbitrator being challenged for lack of neutrality. Some sce a difference between the roles of conciliator and that of mediator when added to an arbitrator's residual function. If a classic mediation were conducted looking for a prospective solution without in any way seeking to give guidance as to the merits of the dispute, that might not be seen as a process that would taint the neutrality of the arbitrator. On the other hand, ifhe or she embarked upon a conciliatory function that called for some preliminary views about the dispute, it would be very difficult to do so and then proceed (oa full and unbiased arbitration. Another issue is whether an arbitrator might be empowered to provide for a more compromise- based solution via the parties agreeing to appropriate adjudicatory methods and remedies. Unless an arbitrator is empowered by the parties to decide the matter ex aequo et bono, of as amiable compositeur, arbitration, like litigation constitutes a zero sum game where one party's win equates to another party's loss. Amiable compositions involve empowering arbitrators to depart from strict rules of law if the outcome would be seen to give rise to an unfair result. Even in these circumstances, those powers re. main constrained by notions of procedural justice and the public policy principles in various jurisdictions, particularly that of the site of arbitration. Some jurisdictions, until recently, were not willing to recognise the notion of amiable compositeur36 The general position now under most national arbitral laws and institutional rules is that a tribunal may exercise such power where the parties so agree 36 For example, England, but see now section 46(1)(b) of the Arbitration Act 1996 which, most writers have argued, confers a power on parties to agree to amiable composition, See chapter 3 below. 7CHAPTER 3 LEGAL FRAMEWORK OF INTERNATIONAL COMMERCIAL ARBITRATION —_——— 3.1 The Role of the Ar! ‘The legal basis of arbitration lies in an agreement by the parties to submit disputes fo an arbitration tribunal. If no such agreement exists, there can be no arbitration. In addition, the agreement is the source of the rights, powers and duties of the arbitral tribunal, The jurisdiction of the tribunal as well as what issues are to be determined is defined by the arbitration agreement. In addi tion, it is now well established that the arbitration agreement is a separate and distinct contract from the principal agreement in which it is often contained, Consequently, the arbitral tribunal retains full competence to pro- ounce on questions relating to the validity of the principal contract. 57 ration Agreement ‘The arbitration agreement also evidences tke consent of the parties to arbi trate and so, in general, where a dispute arises between parties who have entered into a contract containing an arbitration agreement, the parties, subject to few exceptions, are obligated to resolve their disputes according to the agreement, If in the event of a dispute arising between the parties, one party seeks to bring court proceedings notwithstanding having entered an arbitration agree ment, the other is then entitled to apply to the court to stay its action so as to enable the arbitration to proceed.’ Nationel laws have become increasingly sympathetic to the enforcement of arbitration agreements due to the influence of the New York Convention that provides, with few exceptions, for mandatory enforcement.52 37 See discussion on “separability” in Chapter 4 below. 58 See discussion in chapter 4 below: 59° See Article 1 (1) of the Convention,CHAPTER 3 LEGAL FRAMEWORK OF INTERNATIONAL COMMERCIAL ARBITRATION eee 3.1 The Role of the Arbi ation Agreement ‘The legal basis of arbitration lies in an agreement by the parties to submit dis putes to an arbitration tribunal. If no such agreement exists, there can be no arbitration. In addition, the agreement is the source of the rights, powers and duties of the arbitral tribunal. The jurisdiction of the tribunal as well as what issues are to be determined is defined by the arbitration agreement. In addition, it is now well established that the arbitration agreement is a separate and distinct contract from the principal agreement in which it is often contained, Consequently, the arbitral tribunal retains full competence to pro: ounce on questions relating to the validity of the principal contract ‘The arbitration agreement also evidences the consent of the parties to arbitrate and so, in general, where a dispute arises between parties who have en: feted into a contract containing an arbitration agreement, the parties, subject to few exceptions, are obligated to resolve their disputes according to the agreement. If, in the event of a dispute arising between the parties, one party seeks to bring court proceedings notwithstanding having entered an arbitration agree ment, the other is then entitled to apply to the court to stay its action so as to enable the arbitration to proceed.$* National laws have become increasingly sympathetic to the enforcement of arbitration agreements due to the influence of the New York Convention that provides, with few exceptions, for mandatory enforcement.s? 37 See discussion on “separability” in Chapter 4 below. 38 See discussion in chapter 4 below. 59 See Anicle Il (1) of the Convention.CHAPTER 3 LEGAL FRAMEWORK OF INTERNATIONAL COMMERCIAL ARBITRATION 3.1 The Role of the Arbitration Agreement ‘The legal basis of arbitration lies in an agreement by the parties to submit disputes to an arbitration tribunal. If no such agreement exists, there can be no arbitration. In addition, the agreement is the source of the rights, powers and duties of the arbitral tribunal. The jurisdiction of the tribunal as well as what issues are to be determined is defined by the arbitration agreement. In addition, it is now well established that the arbitration agreement is a separate and distinct contract from the principal agreement in which it is often con. tained. Consequently, the arbitral tribunal retains full competence to pro. ounce on questions relating to the validity of the principal contract.57 The arbitration agreement also evidences the consent of the parties to arbi trate and so, in general, where a dispute arises between parties who have entered into a contract containing an arbitraticn agreement, the parties, subject to few exceptions, are obligated to resolve their disputes according to the agreement. If, in the event of a dispute arising between the parties, one party seeks to bring court proceedings notwithstanding having entered an arbitration agree- ‘ment, the other is then entitled to apply to the court to stay its action so as to enable the arbitration to proceed.3® National laws have become increasingly sympathetic to the enforcement of arbitration agreements due to the influence of the New York Convention that provides, with few exceptions, for manda tory enforcement.3? 37 See discussion on “separability” in Chapter 4 below. 38 See discussion in chapter 4 below. 59. See Article (1) of the Convention,PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, 3.2 The Importance of the Arbitral Award ‘An arbitral tribunal does not have the coercive powers of a court, ample, cannot hold a party in contempt. However, itis characteristic of the arbitral process that any decision reached by the tribunal will be considered final and binding on the parties, subject to the requirements of procedural fairness. The decision of an arbitral tribunal is known as an “award” and may be enforced in a court where a party refuses to comply with its terms. Further- more, in the context of international arbitration, which frequently involves parties from different countries, it may be necessary to enforce the award in a ’ country other than the place of arbitration, if for example, a party has greater assets there. The New York Convention has again been valuable in assisting this cause in its provision for recognition and enforcement of foreign awards, that is, awards made in a country other than the seat of arbitration.49 3.3 The Role of National Laws and Their Interaction National domestic laws may affect arbitration in a number of ways. First, na~ tional laws provide a means of enforcement of international commercial arbitration agreements and awards and, due to the widespread adoption of the New York Convention, there has been a strong movement towards uniformity of approach. Second, national laws may be relevant for resolving issues in the arbitration itself, for example, the procedure of the arbitration, the substance of the dispute (the merits) and the construction and validity of the arbitration agreement. Each of these may be governed by a separate and distinct national legal system which, in theory, could lead to great complexity in intemational arbitration with a tribunal having to apply a number of different laws in the one proceeding, While, in theory, it may seem desirable to have all aspects of an arbitration proceeding governed by a single law to prevent complication, in practice, in negotiations between parties of different countries, compromise must often be reached about the applicable law. As a result, one party's law may apply to substance and the other to procedure, or the law of a third (neutral) country may be chosen. 3.3.1 The Lex Arbitri (the Law Governing the Arbitral Procedure) ‘The law governing the arbitration is the /ex ardi¢ri. This law is important in international commercial arbitration because all matters relating to the conduct and procedure of the arbitration are subject to this law. For example, questions such as how arbitrators are appointed, how they can be challenged, their powers for the admission of evidence, and what remedies they can give are all subject to the ultimate control of the law of the arbitration, 40 See Article V of the Convention. LEGAL FRAMEWORK OF INTERNATIONAL COMMERCIAL ARBITRATION, Under the choice of law rules of almost all national legal systems, the basic rule applied is the “seal theory; that is, the law of the arbitration will be the Jaw of the place where the arbitration is situated.*" It is also well established that the lex arbitri may be a different national law to that governing the substance of the parties’ dispute or governing the arbitration agreement. In international commercial arbitration practice, it will be rare for parties specifically to choose the lex arbieri; and the choice of the place of arbitration is now recognised as a shorthand method for selection of that law. In international commercial arbitration a number of complex issues have arisen about the application of the lex arbitr. First, there is the question of ‘whether the parties can choose a procedural law that is foreign to the place of arbitration. While party autonomy in choice cf law is a well-established principle (that is, giving parties as much freedom as possible to select the laws they wish), a number of courts have concluded that such a choice, while legally possible, would be practically unwise.*? Choice of a procedural law foreign (0 the place of arbitration would have the effect that, for example, if a party made application to a court at the seat of arbitration for provisional re- fief the court would have to apply foreign law to resolve the issue. This outcome would not only add great complexity to the arbitral process but also conflict with the internationally recognised principle of private international Jaw that matters of procedure are governed by the law of the forum in which the case is being heard. ‘Another more significant question is whether parties can agree to have a delocalized” or “anational” arbitration, that is, an arbitration without any supervisory control of a /ex arbitri, but on2 entirely subject to the agreed rules of the parties. This issue has become particularly relevant with the development of arbitration institutions such as UNCITRAL, the ICC and the AAA which provide not only facilities for arbitration but also sets of rules which parties can incorporate into their agreements. Typically these rules regulate matters of procedure, such as how parties may present evidence, and how many arbitrators will sit in a case, and are often comprehensive in coverage. In support of delocalization is the principle that party autonomy should be applied to its fullest to allow parties, in effect, to create their own procedural AY See for example, james Miler v Whitworth tc Estates [1970] AC 583 (English House of Lords) 42. See, for example, Naviera Amazonica v Compania Internacional (1988] 1 Luovos Rev 116 (English Court of Appeal}; Union of India v McDonnell Douglas Corporation [1993] 2 Lunvos Rep 48 (English Queer’ Bench Commercial Cour), 45 Such as an order of attachment in respect of the assets of the other party or an interlocu: ‘ory injunction,PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, law of arbitration without reference to the law of the place of arbitration.*4 ‘The rationale for this theory is that in a world of still vastly differing arbitration laws, delocalization acts to assist in the creation of a truly international law of arbitration procedure without domestic law interference. Proponents of the theory do however recognise that a delocalized arbitration is not completely unregulated. Courts at the seat of arbitration still have the power to ensure that the conduct of an arbitration conforms to “transnational mint mum standards of justice."*5 While the laws of a number of European countries now recognise delocalized arbitration,46 Anglo-American courts and commentators have been tradition. ally wary of the concept, and have shown a preference instead for the jurisdictional or seat theory of arbitration.” Under the “seat” theory,4® every arbitral proceeding, whether domestic or international in nature, is subject to the law of the place of arbitration, the lex arbitri, and the supervision of the local courts. The effect of this is, that while parties are entitled to choose their own rules to govern the internal conduct of the arbitration, they cannot oust mandatory rules of law at the seat of arbitration. A possible example of a mandatory procedural rule would be a provision that grants a party a right to request court intervention during the arbitral proceeding to order interim relief. If an arbitration agreement were concluded that contained a clause that took away this right, the provision would be invalid A major justification of the seat theory is that an arbitral tribunal cannot function effectively without there being a right of access to the local courts in specific situations. Arbitrators, as creations of the parties’ agreement, do not 44 The local lay, for example, may be inflexible or hostile to arbitration by allowing for ex cessive Judicial Intervention In the process. See, for example, Jan Paulsson, Arbitration Unbound: Award Detached From the Law of Is Country of Origin 30 Iwr'. & Cow 1.0. 358 (1981) and Detocalization of International Commercial Arbitration: Why and When Ie Mat ters 32 PLE CoM L.O, 55 (1983). 45. Paulsson, id, 370. 46 See, for example, Belgium in Article 1717 of the Code Judiciaire and France in Article 1494 of the Code of civil Procedure. 47 See, for example, Bank Mellat v Helleniki Techniki (1983) 3 WLR 783, 789 (English Court of Appeal per Kerr L}); Scherk v Alberto Culver 417 US 506, 519 (1974) (US Supreme Court}; American Diagnostica Inc v Gradipore Ld (1998) 44 NSWLR 312 (Supreme Court cof New South Wales, Australia). See generally, Richard Garnet, ‘International’ Arbitration but Subject to ‘National’ Law: the Relection of Delocalisation in Australia 28 Aust BUS L Rev 351 (2000). Interestingly, Article 16.3 of the LCIA Rules expressly endorses the "seat" 48 Among a long list of writers the following may be cited: BA. Mann, Lex Fete Arbitrum in PIERRE” SANDERS (ed), INTERNATIONAL ARBITRATION: Li2ER AMICORLM FOR MARTIN DowKE 153 (1967) and Wiliam W Park, The Lex Loct Arbitri and International Commercial Arbitration 52 INTL& Coun LO. 21 (1983). LEGAL FRAMEWORK OF INTERNATIONAL COMMERCIAL ARBITRATION have the power to make determinations on all matters that arise in the con duct of an arbitration, such as the issuing o” injunctions against a patty. Inev- itably, therefore, a tribunal may require the assistance of courts at the seat.49 It must be said that this view has force and may have been a significant factor in the drafters of the UNCITRAL Model Law expressly rejecting the delocalised model. However, it may be that the gap between the delocalisation and jurisdictional schools is more apparent than real, Given that most modern national arbitral laws now embody the spirit of party and arbitrator autonomy and allow only limited judicial intervention in the process, in practice, there is unlikely to be any significant difference between territorial and delocalised arbitrations. 4.3.2 The Law Applicable to the Substance of the Dispute ‘Once the /ex arbitri has been determined and the arbitration tribunal has been constituted, the dispute between the parties must then be resolved. However, before doing so, the tribunal will have to note carefully the terms of the arbi tration clause to determine whether the parcies' claims fall within its scope. If a dispute falls outside the terms of the clause, then a tribunal has no jurisdiction to act unless the parties confer jurisdiction upon it by further agreement. If the tribunal has jurisdiction over the parties’ claims, the next issue is what law is to be applied to resolve the substantive issues such as the interpretation and validity of the contract and the rights and obligations of the parties. Commonly parties will have included in their principal contract (whether itis for sale of goods or transport etc) a clause that specifies a law to govern their agreement. This provision is known as a “choice of law", governing law" or “proper law” clause. All major national legal systems accept and give effect to such clauses on the basis of the principle of "party autonomy”, a doctrine which provides tha:, where parties have made an exptess choice of applicable law, this will be accepted and enforced, absent exceptional circumstances.®° International model laws and institutional arbitral rules also recognise the right of parties to choose the law applicable to the substance of the dispute.st ‘There are exceptional circumstances in which a contractual choice of law will not be given effect. The most frequently cited example is when the chosen law infringes on the public policy or “mandatory rules” of the country where the 49 Redfern and Hunter, n3 above, 90-91. 50 JULIAN Lew, APPLICABLE LAW IN INTERNATIONAL COMMERCIAL ARBITRATION 75 (1978) 51 See, for example, UNCITRAL Model Law Artide 28(1); AAA International Arbitration Rules Article 28(1); UNCITRAL Rules Article 33.1; ICC Rules, Article 17(1); LCIA Rules Arti dle 22.5,PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION arbitration is to take place.5? An example of a mandatory rule would be a statutory provision that required local law to be applied to a contract regardless of any express choice of law of the parties, or alternatively, a provision that, prohibited arbitration of certain matters. Mandatory rules are common in the areas of consumer protection and labour relations, and they are often enacted to protect local residents from being exposed to the law of tribunals of a foreign country. However, given that international arbitration agreements are usually entered into between parties of relatively equal bargaining power the scope of operation of mandatory rules in this area may be limited in practice. Courts have also generally strived to give a narrow interpretation of such statutory rules so as to reinforce and not undermine the international arbitral process. In addition to mandatory rules of the seat of arbitration, there are other limi tations to the types of law parties may choose to govern the substance of their dispute. In most international arbitration agreements, parties will choose the law of a country or the law of a State or province within a federal nation. However, a question arises whether parties have the freedom to choose some. thing other than the law of a country, such as the usages and practices of international trade (lex mercatoria) ot the principles of equity and good con: science (amiable composition) to govern the merits of their dispute. In theory, if party autonomy is to be given full effect subject to the operation of mandatory rules then, assuming such concepts are capable of being applied by arbitrators, a choice of either principle by parties should be valid. Moreover, if international arbitration is to strive truly to reflect the business needs of nationally diverse parties, then commercially flexible and culturally neutral alternatives to national law should be welcomed. However, such an analysis assumes that both the /ex mercatoria and amiable composition are capable of clear identification and application and that there exists at least a roughly universal understanding as to their content. ‘The lex mercatoria was said to be based on the medieval law merchant where traders had created their own rules of law which were independent of national legal systems and enforced through the traders’ own courts. Today, itis, suggested by supporters of the lex mercatoria that a modern version of this, principle has developed based on general principles of law, the customs, us: ages and laws of international trade and the decisions of international arbitral tribunals. However, the response of a number of commentators has been to doubt whether each of these sources is sufficiently identifiable and tangible Note Article 7 of the 1980 Rome Convention on the Law with Respect to Contractual Obli gations (applicable in the European Union) which refers to mandatory rules of the forum (paragraph 2) which may be applied to exclude the otherwise applicable substantive law. 24 LEGAL FRAMEWORK OF INTERNATIONAL COMMERCIAL ARBITRATION to be applied by an arbitral tribunal or recognised by a court.55 while certain, more specific, principles have been identified as forming part of the lex ‘mercatoria,S* the criticism has been that they are too few in number and pitched at too abstract a level to be capable of application as rules of law.55 ‘Among national laws there has traditionally been a split between common Jaw and civil law countries as to the acceptability of lex mercatoria. While in civil law jurisdictions the principle is widely accepted,5° in common law countries such as England, the general attitude remains negative. While in 1987 an English court did enforce an award made in Switzerland based on “internationally accepted principles of law governing contractual relations" srEnglish law remains equivocal on whether parties may be permitted to choose such principles to govern the substantive issues in an arbitral proceeding in England. Section 46(1)(b) of the Arbitration Act 1996 gives the ar bitral tribunal the power to decide the dispute, if the parties agree, “ accordance with such other considerations as are agreed by them.” Commen- tators ate divided as to whether this provision amounts to an authorisation of lex mercatoria. One view is that clearer words would have been required to achieve this result.5® International model laws and rules are similarly ambiguous. The UNCITRAL Model Law, for example, provides that the arbitral tribunal “shall take into 55 Sec, for example, OxEZIE CHURWUMERIE, CHOICE OF LAW 1s INTERNATIONAL COMERCIAL ARBITRA, THON 112-114 (1994). 54 Concepts such as pacta sunt servanda (agreements are binding on partes), rebus sic stantibus (parties may be released from contractual obligations by a radical change of cir cumstances) are often cited as examples of such universally recognized principles. 55 Lord Justice Mustil, The New Lex Mercatoria: The First Twengy Five Years it M Bos aN | [BROWNE (eds), Li Aurconut FOR LonD WILBERFORCE 149, 174-177 (1987) 56 See, for example the writings of Goldman, La Ler Mercatoria dans les Contrats Arbitrage Internationauc: Realite et Perspectives CLUNeT JOURNAL DU Dror INTERNATIONAL 475 [1979] ‘The national arbitration statutes of civil law countries do not expressly refer to the lex ‘mercatoria but authorise the tribunal to apply the “rules of law" as chosen by the parti ‘The use of the plural here may suggest that the tribunal has the capacity to apply more than a single legal system; see, for example, French Cade of civil Procedure Article 1474, Netherlands Arbitration Act 1986 Article 1054(1) and (2) and the Swiss Private Interna tional Law Act 1987 Article 187(1). 57 Deutsche Schachtbau Tiefsbohrgesellschaft mbH v Ras Al Khaimah National Oil Co [1987] 3 WLR 1025. 58 _Ronenr Mensa, THe ARBITRATION Act 1996: AN AuNovateD Gute 76 (1996); but Cf. Redfern & Hunter, n3 above, 128 who consider that this provision would “plainly” authorize a choice of lex mercataria.LEGAL FRAMEWORK OF INTERNATIONAL COMMERCIAL ARBITRATION PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, account the usages of the trade applicable to the transaction.”S? This state- 3.3.3 No Choice of Substantive Law ment may amount only to a direction to the tribunal to take into account the commercial context of the transaction in resolving the dispute, something that arguably, is undertaken in any action. ‘When the parties fail to provide a clause choosing the substantive law the arbitral tribunal must find the governing law for itself. An approach well ac cepted in the conflict of laws rules of most national legal systems is to investigate whether an “implied” choice of law has been made by the patties. Locating an implied choice requires ascertaining an intention of the parties drawn from the terms of the contract and the surrounding circumstances. A good example of this approach is to deduce the applicable law from the choice of the place of arbitration; that is, if partizs have chosen to arbitrate in a country, then it may be inferred that they intended the law of that country to govern the substantive issues. While many courts have applied this rule,®® it has been criticized as ignoring the fact that parties usually choose an arbitral seat for reasons other than the desire to have the law of that place govern the substantive transaction.‘? For instance, a common reason for choosing a place of arbitration is its geographic convenience to the parties or its reputa- tion as an arbitration centre. Courts have acknowledged these criticisms and there now seems to be a general trend to place less weight on the arbitral seat as the basis for determining the substantive law. ‘The other alternative to choosing a national system of law (or laws) is known as amiable composition. This involves parties directing an arbitrator to decide on the basis of equity and good conscience. This principle is also well recog nized in civil law countries®® and institutional arbitral rules but its accep tance has been slower in common law systems. In early English decisions it was said that the common law did not recognise amiable composition and required arbitrators to “apply a fixed and recognisable system of law." ¢2How- ever, the position now appears to have changed with the enactment of section 46(1)(b) of the 1996 Act. Under this provision, an arbitration tribunal is granted the power to decide the dispute “if the parties so agree, in accordance with such other considerations as are agreed by them or determined by the tri bunal.” It is generally agreed that the inclusion of paragraph (b) was intended to provide for amiable composition, a result which would bring English law into line with other common law counties that have adopted the principle.® In addition to the place of arbitration as a factor in determining the applicable law, there are other inquiries available to arbitrators to determine the substantive law in the absence of a choice by the parties. Unlike a national court, an international tribunal is not bound by the conflict of laws (or choice of Jaw) rules of the jurisdiction in which it sits. As a result, it is now accepted that the tribunal has a discretion about how it should select the applicable law However, although the tribunal is not required to apply the conflict of Jaw rules at the seat of arbitration, the tribunal may certainly do so. In addition, arbitral tribunals have on occasion azplied”! the conflicts rules of all parties with connections to the dispute to see if the same substantive law is However, what remains unclear in all jurisdictions in which the doctrine has been accepted is the extent of the powers of the tribunal under this provision, in particular what degree of freedom it has in departing from legal principles. The majority of commentators reject the view that the doctrine of amiable composition allows arbitrators to dispense with rules of law completely. We concur that the better view is that the principle allows a tribunal to consider the applicable legal rules but then depart from them where they appear to operate unjustly or harshly in a given case. It is also well accepted that, however liberal a mandate an amiable compositeur has been vested with, he or she will still be bound by mandatory rules at the seat of arbitration.6s ‘Article 28(4). See also Article 28(2) of the AAA International Arbitration Rules; Article 17(2) of the ICC Rules (expressed in similar terms); Article 22.5 of the LCIA Rules. See, for example, French Code of Civil Procedure Article 1474; Swiss Private International Law Act Article 187(2) and Netherlands Arbitration Act Article 1054(3). AAA International Arbitration Rules Article 28(2); ICC Rules Article 17(3); LCIA Rules, Ar- ticle 22.4 orion Compania Espanola de Seguros v Belfort Maatschappij Voor Algemene Verzekgringen [1962] 2 Luowys Rep 257, 264 per Megaw J ‘See Merkin, n58 above, 76 and Redfern and Hunter, n3 above, 128. In the uniform arbt- tration legislation in Australia, separately enacted in each State, there is express recogni tion of the doctrine, see, for example, section 22(2) of the Commercial Arbitration Act 1984 (Victoria). See, eg., Chukwumerlje, n53 above, 118, i, 119, ‘See Tzortzis v Monark Line A/B [1968] 1 WLR 406 (English Court of Appeal) For a discus: sion of the French and German cases which have applied this principle see Ole Lando, The Law Applicable to the Merits of the Dispute in PETER SARCEVC (et) ESSAYS ON INTERNATIONAL Commtencia AnsrrRATION 129, 136 (1989), Redfern and Hunter, 13 above, 150. i In Compagnie d’Armement Maritime SA v Compagnie Tunisienne de Navigation SA [197 1] AC 572, 600 Lord Wilberforce stated that an arbitration clause “always . . . will be a strong indication" as to the substantive law but that “in some cases it must give way Where other indications are clea.” For example, Article 28(2) of the UNCITRAL Model Law instructs the tribunal to “apply the law determined by the conflict of laws rules which it considers applicable." See also Art cle 35 of the UNCITRAL Arbitration Rules which is in identical form. See, generally, Chukwumerlje,n53 above, 127-154. 27PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, chosen.7? Alternatively, generally accepted conflict of laws rules in the international community or the lex mercatoria without reference to any national choice of law rules have also been applied. In the absence of party choice, there is a generally accepted international choice of law rule for contracts that the law having the closest connection with the parties and the transaction should govern.’ However, it would be hoped that in most cases the parties would have spared the tribunal the difficulty of locating the applicable law by nominating one in advance in the agreement. Another possible issue that may arise in relation to the substantive law is the problem of gaps. If, for example, the parties have agreed that Australian law shall govern their contract but a claim in tort of restitution is brought before the arbitral tribunal, what law is then applied? The problem is that the parties’ choice of Australian law only applies to contractual issues; not other laims. In such a situation the tribunal is confronted with a choice of law problem and would have to consider, before choosing which law to apply, what system of choice of law rules should be selected to effect that choice. In other words, would Australian choice of law rules or those of another country be applied to determine which law governed the non-contractual issues? As noted above, it is now well accepted that an arbitral tribunal has a discretion in this matter but may well apply the conflicts rules of the place of arbitration. Once this issue is resolved the tribunal will then apply the relevant choice of law rule for the particular cause of action (such as that tort matters are referred to the law of the place of the tort) and in that way locate the applicable law. This may well turn out to be a different national law to that governing the contractual issues. The problem can become even more complex if characterisation issues arise, namely where different countries’ laws classify particular forms of action differently. For example, what is considered a tort in Australia may be considered part of the French law of contract etc, Hopefully, for the sake of both the parties and the tribunal, such issues will appear rarely. 3. 4 The Law Governing the Arbitration Agreement Another law that may be of significance in international commercial arbitration is the law governing the validity, scope and interpretation of the arbitration agreement. Questions as to the validity or interpretation of an arbitration agreement can arise at a number of points in the arbitral proceeding. First, at the time of enforcement of the agreement (such as where a stay of ‘This approach is also known as the “false conflict" doctrine. see Article 4(2) of the Rome Convention and, under the common law, Bonython v Com ‘monwealth (1951) AC 201 (English House of Lords) and in the United States, Seron Re. STATEMENT ON TE ConFLicr OF Laws sections 187-88. 28 LEGAL FRAMEWORK OF INTERNATIONAL COMMERCIAL ARBITRATION proceedings is sought), second, where a challenge to the arbitrator's jurisdiction is made, third, where an application is made to set aside an award of the tribunal in the place of arbitration, and fourth, where enforcement of an award is sought. Inall of these situations, the law governing the arbitration agreement will be applied to resolve questions governing the validity and construction of the agreement. In determining the law governing the arbitration agreement, effect will be given to an express choice of law by the parties. Absent a choice, the conflict of laws rules of most countries and arbitral practice suggest that the law governing the arbitration agreement shall be the law of the place of arbitration or (particularly where the arbitration agreement is contained within a larger contract) the law governing the substantive issues.” However, where recognition and enforcement of an award under the New York Convention is sought, then Article V (1)(a) of the Convencion creates a new choice of law tule. This paragraph provides that, in the absence of a choice by the parties, the validity or scope of an arbitration clause shall be resolved by application of the law of the place where the award was made.75 4.3.5 The Law of the Place of Enforcement A final legal system of relevance to international arbitration is the law of the country in which enforcement of any award is sought. While in many cases, enforcement will be attempted in the place of arbitration, if the losing party has no assets there or is a transnational corporation with assets in many ju risdictions, it becomes important to know which law would be applied in the country of intended enforcement. Of course, if a party seeks to enforce its award in the place of arbitration, the requirements of local law will apply. There is now a general trend, as discussed more fully below,’6 for national Jaws to restrict the scope for challenge to a final award on the basis of party autonomy and desire for finality of proceedings. Generally, it will only be in cases of serious procedural irregularity in the arbitration that enforcement of a local award will be denied.’” In this respect, national laws on enforcement of domestic awards have been influenced strongly by the provisions of the New York Convention that deal with the enforcement of foreign awards. As Will be discussed later,’ the range of defences to enforcement under the Con- Yention is limited and they have generally been narrowly construed 74 See generally, Chukwumerie, n53 above, 54-37. 75. This provision was also adopted in Article 36(1)(a)i) of the Model Lave 76 Sce chapter 9 below. 7 ‘See, for example, Article 34 of the UNCITRAL Model Law that allows challenges to awards ‘on exactly the same bases as provided under Article V of the New York Convention, which lists defenses to enforcement of foreign arbitral awards. 78 See chapter & below. 29PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, The provisions of the New York Convention, given its widespread adoption,’ will now, in almost all international arbitrations, also govern the question of enforcement of an award in a foreign country. Once again, because the defences to enforcement under the Convention have been narrowly inter- preted, the successful party to an arbitration should generally have few difficulties in having its award upheld. CHAPTER 4 ARBITRATION AGREEMENTS 4.1 Introduction Because international commercial arbitration is voluntary and depends upon the agreement of the parties, the actual terms of the agreement are vital for the effectiveness, efficiency and enforceability of the arbitration itself. This agreement will not only contain the required consent, but will also provide the tribuna! with jurisdiction and will provide for the parameters and pro cesses of ti- arbitration. In the extreme, a poorly drawn arbitration agree. ment may simply be ineffective. in this chapté'Wé consider the requirements for an effective arbitration agreement, particularly theissues of general valid. lity, recognition and enforcement and also the procedural issues that parties Fwould wish to have covered directly or indirectly in their agreements.®° While there are a number of elements that must be considered in an effective agreement, parties can still agree to arbitrate their disputes in various ways. An arbitration agreement can be contained within the substantive contract as an express clause, can be ifigdtporated by reference to other documents such as industry standard terms atid conditions, cr can constitute a separate agreement. The agreement could be a prospective arbitration agreement seeking to cover future potential disputes or it could ccnstitute a submission agreement in which the parties agree to resolve an existing dispute by way of arbitration. ‘The agreement could be oral or in writing, although the New York Convention Tequires it to be in writing to support worldwide recognition and enforceability. The UNCITRAL Model Law also has a writing requirement. The arbitration agreement is the actual agreement between the parties to the dispute. A separate and necessary agreement is the agreement between the Parties and the arbitrators that forms the basis of the arbitration itself.8! Without the latter agreement there would simply be no arbitration. 80 More general questions of the procedure are deal with in Chapter 5. 81 Rubino-Sammartano, n4 above, 116. This is described as the “terms of reference” by the ic.PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, ‘The provisions of the New York Convention, given its widespread adoption,” will now, in almost all international arbitrations, also govern the question of enforcement of an award in a foreign country. Once again, because the defences to enforcement under the Convention have been narrowly inter- preted, the successful party to an arbitration should generally have few diffi- CHAPTER 4 culties in having its award upheld. ARBITRATION AGREEMENTS 4.4 Introduction Because international commercial arbitration is voluntary and depends upon the agreement of the parties, the actual terms of the agreement are vital for the effectiveness, efficiency and enforceability of the arbitration itself. This, agreement will not only contain the required consent, but will also provide the tribuna! with jurisdiction and will provide for the parameters and processes of ti- arbitration. In the extreme, a poorly drawn arbitration agreement may simply be ineffective. In this chaptéf we consider the requirements for an effective arbitration agreement, particalatly the issues of general valid- lity, recognition and enforcement and also the procedural issues that parties Hwould wish to have covered directly or indirectly in their agreements.*° While there are a number of elements that must be considered in an effective agreement, parties can still agree to arbitrate their disputes in various ways. An arbitration agreement can be contained within the substantive contract as, an express clause, can be ifigBtporated by reference to other documents such as industry standard terms and conditions, or can constitute a separate agree ment, The agreement could be a prospective arbitration agreement seeking to cover future potential disputes or it could constitute a submission agreement in which the parties agree to resolve an existing dispute by way of arbitration, ‘The agreement could be oral ot in writing, although the New York Convention Tequires it to be in writing to support worldwide recognition and enforceability. The UNCITRAL Model Law also has a writing requirement. ‘The arbitration agreement is the actual agresment between the parties to the dispute. A separate and necessary agreement is the agreement between the parties and the arbitrators that forms the basis of the arbitration itself! Without the latter agreement there would siraply be no arbitration, {80 More general questions of the procedure are dealt with in Chapter 5 81 Rubino-Sammartano, né above, 116. This Is described as the “terms of reference” by the cc.PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, ‘There are a number of specific issues to consider in drafting arbitration agreements, An optimal arbitration agreement is one which will be enforced by national courts where a party seeks to litigate in breach of it, which pro- duces an award which is enforceable by national courts and which provides for clearly articulated and efficient arbitral processes. Because challenges to the validity of an arbitration agreement or the enforceability of an award will invariably arise in domestic courts, those courts’ approach and policies to ar bitration, conflict of laws rules and public policy criteria will have a signifi cant impact. An appropriately drafted agreement needs to consider the domestic legal principles in the various jurisdictions that may be relevant to the substantive contract, the place of arbitration and the place of enforcement, These considerations will identify the major requirements of an appro. priately drafted arbitration agreement Too often practitioners are asked to consider the eflect of inadequate drafting of an arbitration agreement and the degree to which defects can be remedied. Whatever choice as to the terms of the agreement is made initially, it needs to be remembered that the choice can be subsequently altered if there is mutual agreement between the parties. However, when an actual dispute arises, it is too ofien the case that one party will be reluctant to make any changes even if they are arguably in both parties’ best interests. In many contracts, the express arbitration agreement is a relatively short clause. This will often be a recommended clause as developed by a particular international arbitral institution. These clauses can be brief because they merely refer to a particular procedural rule system. By incorporating these clauses the parties will be considered to have agreed to those specific procedures as part of their voluntary arbitration. 4.2 Key elements of the arbitration agreement In this section, we discuss the elements that may need to be covered in an arbitration agreement to ensure necessary jurisdiction, adequate procedures and an enforceable award. A failure to deal with some of these issues may lead to uncertainty, unnecessary disputes about procedural matters, excessive costs and may even undermine the entire arbitration process. On the other hand, giving too great attention to drafting for all possible eventualities may add significantly to the costs of the contract negotiation stage. Thus there is no mandate that each and every item be included in all interna tional commercial contracts. Rather, drafters should at least consider the various issues to decide which matters should be expressly covered from the outset. ARBITRATION AGREEMENTS 4.2.1 Which dispute settlement method is to be applied? ‘An appropriately drafted contract would consider which of a range of dispute settlement methods should be employed. If there is to be more than one, for example mediation followed by arbitration, the contractual agreement should stipulate the order, the appropriate timing of each stage and identify who may determine that each stage has come to an end. ‘The agreement should clearly specify whether each particular stage is mandatory or optional. In some jurisdictions this might require separate consideration to be enforceable. ‘The agreement should indicate whether the mediator is precluded from acting as the arbitrator. While it would potentially save time and expense to have the same independent expert act as mediator and, if necessary, as arbitrator, actions undertaken as mediator could lead to claims of bias or prejudice,®? which in turn could potentially invalidate the award, ‘One might wish to impose a contractual obligation to negotiate or mediate in good faith. However, any express provisions in that regard could lead to ‘wasteful disputes about whether one or both parties have complied with the obligation. Thus it would seem sensible to set out time frames for those processes and allow one or both parties to automatically move the dispute to the arbitration phase where it feels that the alternatives have not been productive. 4.2.2 Ad hoc versus institutional arbitration The parties must decide whether they wish to refer to and adopt the pro cesses of a particular institution or to tailor make a process on an ad hoc basis. Depending on which form is chosen, parties might use recommended clauses of arbitral institutions® or draft a special clause to suit their desired ad hoc arbitration format. Parties might also use standard form contracts in particular industries. These will commonly contain a standard form arbitration agreement If institutional arbitration is to occur, care must be taken to ensure clear and accurate reference to the relevant institution. Some arbitrations have foun- dered at the outset simply because of an incorrect description of an international institution. There ate also numerous cases where tribunals have 82 In the case of the appearance of bias, it may well be that the mediator should preclude himself without the request ofthe partes. The standards a potential arbitrator should use to make this determination are discussed in chapter 6, 85 Several sample arbitration clauses are contained in the Appendices. 33PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION reinterpreted the misdescription to cover a known institution, in the belief that this gives effect to the true intent of the parties.°¢ ‘An agreement for institutional arbitration can resolve most procedural and jurisdictional questions simply through reference to the institution and its procedural rules. If ad Aoc arbitration is to be used, greater care needs to be given in identifying the various procedural issues. A simpler alternative to trying to design a complete ad hoc procedural system is to designate one of the established procedural rule systems. Among the more appropriate would be the UNCITRAL Arbitration Rules as they are general rules not linked to any particular institution. If, instead, the parties were to designate a particu- Jar institution's arbitration rules, such as the ICC Arbitration Rules, the parties must recognize that these rules commonly refer back to the institution itself in terms of various stages and processes. If institutional arbitration is to be chosen, it is not only important to consider its current features but also the likelihood that it will still be in existence when a dispute might arise 4.2.3 Which disputes are to be covered? ‘The agreement should clearly specify which potential disputes are subject to arbitration. For example, the parties may decide that certain disputes are not be submitted to arbitration. If some disputes are to be handled by arbitration while others are to be left to litigation, great care needs to be taken in defining each category so that there will be no scope for disputes about classifica- jon at a later stage. Ina significant number of cases, inadequately drafted arbitration agreements have led to particular types of disputes being held to fall outside the agree- ‘ment.®® If, for example, an arbitration agreement only indicated that issues of terpretation of the contract” are to be referred to arbitration, this might not cover disputes about preliminary negotiations, collateral promises or is sues of performance and damages. It would also not cover non-contractual issues such as tortious liability or restitutionary claims such as unjust enrichment. Thus if the parties wish for the widest range of disputes to be subject to arbitration, they might use a form of words which stipulates that “disputes arising out of or relating to or in connection with this contract including questions as to the existence, validity ot the breach or termination of the contract shall be finally settled by arbitration”, 84 Eg., Tennessee Imports, Inc v Pler Paulo Filippi, 745 F Surp 1514; see also Jean Benglia, Inaccurate Reference to the ICC ICC BULLEN Vol 7, No 2 (1996) 85 This is discussed more fully in a later section dealing with ineffective arbitration agreements, RATION AGREEMENTS 4.2.4 Where is the arbitration to be held? ‘While it is not necessary to specify the situs in the arbitration agreement for it to be enforceable, a choice must be made at some stage. The possibilities include either party's country of business or residence or a neutral country. ‘While each party might be inclined to resolve disputes within its own jurisdiction, there are many factors that need to be considered in selecting an optimal arbitration site.®° Attention should be given to costs, convenience, expertise available, the degree of support or interference by courts in the arbitral forum and the impact of the choice of the site of arbitration on the applicable proce dural law and the ultimate enforceability of the award. Costs are relatively straightforward. This includes the physical location of the ‘yenue and the resultant cost of travel for the parties, witnesses and arbitra: tors, the cost of appropriate premises for hearing the dispute, the costs of ac- commodation and the like ‘Two significant issues are the questions of arbitrability and enforceability ‘The question of arbitrability is whether the dispute may be arbitrated under the domestic law of the forum. The key questions include whether there is an appropriate framework for arbitration within the forum, what are the prelimi nary requirements for a valid arbitration uncer that structure and whether the substantive nature of the dispute is capable of being the subject of arbitration within that forum ‘The first question is to determine the ex arbitré ot procedural law of the arbi tration that will usually mean the national law in force at the situs of arbitra tion.” Ideally, in the situs, there will be a respected and effective domestic legislative structure to support international commercial arbitration. The adoption of the UNCITRAL Model Law as ler arbitri by a growing number of countries is assisting this process.®8 While the United States has not adopted the UNCITRAL Model Law at a federal level, a number of individual American states have done so.® The lex arbitri in force federally in the United States is the Federal Arbitration Act® and this applies to both domestic and international arbitration. England recently revised its arbitration law in the 1996 ‘Arbitration Act with a number of its provisions being closely based on the Model Law. Once the legislative structure is identified, the next question is to identify ‘what criteria are contained within that structure which are the preconditions 86 See K Iwasaki, Selection of Situs: Criteria and Priorities 2 ARBITRATION INTL 57 (1986) 87 Fora discussion of this concept see chapter 3 above. 88 Foralist of the countries that have adopted the Model Law, see n19 above, 89 See the states of the US listed id, 90 9 USC §§ 1 (2000),PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION for establishing an international commercial arbitration. Where the Model Law is concerned, one essential requirement is that the arbitration agreement be in writing, ‘An important issue is the effect that the choice of forum has on the ultimate enforceability of any award. If the forum is a Contracting State to the New York Convention, this itself will prima facie allow for recognition and enforcement of the arbitral award in other Convention countries, even if one of the parties’ own countries is not a signatory to it.9! ‘There is the need to consider the questions of potential enforceability along- side the practical need to have real and sufficient assets in a particular juris diction to enforce against. In most instances, those assets will be located in the defendant's main place of business. Thus, there may be some incentive to conduct the arbitration in that forum even if that country is not a party to the Convention in the hope that courts in that jurisdiction would recognise the arbitration by some other means. Obviously a choice that may be in one party's best interests might not be in the best interests of the other. The value of the choice may also depend on the outcome of the arbitration. For example, if the defending party wins a case in a non-Convention country and is entitled to something under the award, at least in relation to costs, courts in the claimant's country may not recognise the award from a non-signatory country. This is because many countries that have adopted the New York Convention did so under a reservation as to reciprocity.9? These countries only recognise and enforce an arbitral award from a country that is also a signatory, Other issues relating to the choice of arbitral venue go to the effectiveness of. the arbitral process. For example, do the courts of that forum provide appro: priate assistance to arbitrations in the form of assisting with discovery, in- junctive assistance, compelling of witnesses and the like? Who may represent the parties in arbitrations within that forum? Must parties use local lawyers? ‘To what extent do courts in that jurisdiction exercise any discretion to interfere with the process of arbitration when either party makes challenges? Does that legal system allow for appeals on questions of law? To what extent do courts in that jurisdiction allow for delay in recognition and enforcement of awards? Finally, if multiparty arbitration or consolidation of separate arbitral ‘This depends upon whether a signatory has declared that it will only recognise and enforce awards on a reciprocal basis from other contracting states. New York Convention At- ticle 13. Wid. ARBITRATION AGREEMENTS. hearings may be desirable, attention might be given to selecting a forum that provides expressly for such a possibility.% Where procedural issues are concerned, unless the parties make any selection to the contrary, the procedural law applicable to an arbitration will be that of the seat or place of arbitration.% Thus, parties should also consider the likely procedural law that flows from making a particular selection unless there is to be a specific agreement to the contrary. 4.2.5 Separability of the Arbitration Agreement Itisimportant to understand also that the arbitration agreement is considered as a separate agreement to the substantive contract even if it is merely a term found within it (as is usually the case). This principle ensures that the jurisdiction of the arbitrator under the arbitral agreement remains intact even in the face of challenges to the validity of the principal contract in which the agreement is contained. For example, suppose one of the parties alleges that the principal contract is void, perhaps on the basis of fraud inducing entry {nto the contract or incapacity of one of the parties. If the arbitration agreement is a term of this contract, then it will be considered void as well. Because the basis of the arbitrator's jurisdiction is derived from the arbitration agreement, it might therefore be thought that he or she would be unable to decide a matter concerning the validity of the principal contract. However recognition of the separability of the arbitration clause overcomes this problem. This principle is now accepted in most national arbi:ration laws®> and institutional rules and is also referred to as the doctrine of competence/competence. Less commonly, issues may arise as to (i) the existence of the principal contract, where, for instance, one party denies ever entering the agreement or (ii) the Validity of che arbitration clause itself as distinct from the principal contract. It remains unclear as to whether an arbitrator has the power to pronounce on such issues, with the better view being that the doctrine of competence/com- Petence does not extend this far.” The reason for this conclusion is that, on 93 See for example the Florida International Arbitration Act 1988, section 684.12 referred to {in Redfern and Hunter, n3 above, 180. 94 Some academic commentators argue against this, suggesting that there is an interna: tional or atleast an “anational” procedural law for international commercial arbitrations. 95 See, eg., Article 16 ofthe UNCITRAL Model Law, section 30 of the English Arbitration Act; see also the decision of the New South Wales Court of Appeal (Australia) in Ferris v Plaister (1994) 34 NSWLR 474, 487 per Kirby P 96 See, e.g, AAA International Arbitration Rules Artie 15(1); ICC Rules of Arbitration Article (6(2); LIA Rules Article 23.1; UNCITRAL Rules Article 21(1) 97 Note the decision of the Court of Appeal of Bermua in Sojuznefieexport (SNE) (USSR) v Joc Oil Ltd (Bermuda) 15 Yex Cow Ans 384 (1988) cited with approval by Kirhy P in Fer: tis v Plaister id; Redfern and Hunter, n3 above, 156. 37PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION these questions, the alleged invalidity attacks the very basis of the tribunal's jurisdiction. Such matters must therefore be submitted to the courts. 4.2.6 Choice of arbitrators ‘An arbitration agreement will either directly prescribe the number and identity of the arbitrators or will provide a mechanism for that choice. If the written agreement does not contain either a choice or a mechanism for making the choice, the parties will need to agree on the identity of the arbitrators before the arbitration can proceed.°8 It is preferable to cover these issues within the arbitration agreement itself. The normal method is to specify a procedural law that incorporates a mechanism for choice. Here questions include how many arbitrators are desirable, who is to make the choice, what qualifications should they hold, what challenges might appropriately be made to the selection of arbitrators and by what method are vacancies to be filled. Inadequate consideration of these issues can at times lead to total invalidity of the arbitration award. The selection of arbitrators with some historical relationship with either party might also allow for an accusation of bias. A selection mechanism that did not provide roughly equal choice to each of the parties, might lead some jurisdictions to deny recognition and enforceability on public policy grounds. Notions of bias and impartiality may differ considerably between different legal cultures, which in turn could affect enforceability of awards in foreign jurisdictions.°° Where the number of arbitrators is concerned, it is preferable to provide for an odd number of arbitrators to ensure that a clear majority decision can be reached. The most common choices are either one or three arbitrators. Obvi- ously the less money involved and the less complex the arguments, the more justification for selecting an individual arbitrator. Yet these factors will not be known when the arbitration agreement is initially drafted. 10° ‘Where three arbitrators are used, it is common for each party to select one arbitrator and then have these party selected arbitrators appoint a neutral third arbitrator. A further question is whether the two party-selected arbitrators should have unlimited rights to choose the third arbitrator or whether the parties should have some veto right. Given the essentially consensual nature of arbitration, it would be less than ideal if the neutral third arbitrator were a 98 Even where the parties agree, there cannot be an actual arbitration without the separate agreement of the arbitrator. 99 This is discussed further in Chapter 9 dealing with challenges to arbitrators and awards. 100 The ICC Rules of Arbitration seek to deal with this problem by providing that in the absence of agreement there will be a sole arbitrator save where It appeats to the Court that the dispute is such as to warrant the appointment of three arbitrators. Article 8.2. 38 TRATION AGREEMENTS. person strongly opposed by one of the parties. One possible way to overcome this concern is to allow for the choice to be made from a short list of mutually acceptable candidates. ‘A related question is whether the identity of the arbitrators should be chosen at the outset or during the dispute. Choosing individuals at the outset would create a problem if they become unavailable, which may in turn affect the va lidity of the arbitration agreement itself if a court were to interpret the agree ment as conditional upon the availability of the stipulated arbitrator. This could be overcome by stipulating an express mechanism to deal with the fill- ing of vacancies, 101 Even if the parties have selected an ad hoc arbitration, arbitral institutes are also usually prepared to assist in selecting arbitrators for a fee. The parties ‘might also delegate the task of selecting arbitrators to the president of a particular professional body relevant to the substance of the dispute. ‘The next issue is the qualifications of the arbitrators. In most disputes it ‘would be appropriate to have legally qualified arbitrators. In other disputes it may be more appropriate to have particular professional expertise that is relevant to the questions in dispute. In either event, parties might stipulate the required qualifications at the outset. Where there is to be more than one arbitrator, there is a possibility of selecting a panel with a range of qualifications.1°2 4.2.7 What substantive and procedural law is to apply? A number of legal systems and complex choice of law issues may have to be considered in both drafting and applying arbitration agreements. The parties would need to consider at least the following. First, the dex arbitri, or law gov erning the arbitral procedure, second, the substantive law applicable to the contract as a whole, third, the law governing the arbitration agreement itself, fourth, any mandatory legal rules of the foram (place of arbitration) ang fifth, the law and public policy in the place of enforcement.103 101 Such a mechanism is found in all of the key rules. UNCITRAL Model Law Article 15; AAA International Arbitration Rules Article 10; ICC Rules Article 12; LCIA Rules Article 11 102 On the one hand, this has the advantage of providing wide expertise relevant to the dis pute. On the other hand, this may cause problems if the non-legally trained arbitrators feel pressured to agree with the legal assertions of the lawyer arbitrator and that person feels pressured to adopt the non-lawyer's conclusions about substantive Issues. Non-law- yrs and lawyers can as arbitrators, rely on the others as expert witnesses to solve this problem. Over time, there Is likely to be a growing number of international arbitrators With dual qualifications, which would also alleviate this potential problem to some ‘extent, 105 ‘These issues are discussed fully In chapter 3, 39PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION ‘The law governing the substantive issues is important because it will supply the principles that will resolve the actual dispute between the parties. The procedural law (and any provisions or institutional rules in the parties’ agreement) will determine matters relating to the conduct of the arbitration and the powers of the arbitral tribunal. Parties should also aim to choose interna- i Uonally accepted procedures that will allow little scope for challenging enforceability of the award in other countries on public policy grounds. 4.2.8 Interim measures The parties may also wish to consider whether arbitrators are to have the # power to award interim measures. These might include allowing for security for the full claim or security for costs. t©# The parties must also consider what, rights should be granted to seek interim measures from a court where an arbitral tribunal has no power to issue the relief in question such as an injunction against a third party. An example of a provision in an arbitral procedural law that permits court-ordered interim measures is Article 9 of the UNCITRAL, Model Law, which expressly indicates that a request for interim measures to a judicial authority will not be deemed incompatible with the agreement to arbitrate. However, whatever the parties put in their arbitration agreement, consideration also needs to be given to domestic courts’ willingness to be involved in this way. The issue of the relationship between the arbitral panel and the courts therefore arises once again. An interesting example occurred recently in respect of the construction of the Channel Tunnel in Europe. The parties concluded a construction agreement that contained a Belgian arbitration clause. After a dispute arose, the plaintiff sought an injunction from the Eng- lish House of Lords to require the defendant to return to work. The injunction however was refused on the ground that it would be an inappropriate interference in the jurisdiction of the arbitral tribunal.‘ Parties should therefore be aware of what attitude particular courts are likely to take in regard to ap- plications for interim or protective measures. 4.2.9 Language of arbitration If parties come from different countries with different languages, there is a need to indicate in which language the arbitration will be held. Costs may be relevant to this decision, particularly if there is the need for the use of inter- preters or the necessity and the obligation to provide translations of written documents 4104 Interim measures are more fully discussed in chapter 7 105. See Channel Tunnel Group Ld v Balfour Beatty Construction Lid [1993] AC 334, 40 If the parties have not selected the language, most rules provide for the tribunal to make the determination. 10 The language of the contract would likely be given significant weight given that it was the first agreed reference to language by the parties, although the language of the applicable law may also be chosen 4.2.10 Representation ‘The parties may need to consider whom they are entitled to have to represent them in the proceedings. In some jurisdictions there is a requirement to use local lawyers. This will affect the choice of venue if this is considered undesirable. 4.2.11 Awards, remedies and damages Remedies and methods of measuring damages can vary significantly between different legal systems. Arbitration rules rarely give clear guidance on these issues, preferring to provide broad discretions to arbitrators. Parties may thus seek to develop some consensus on the raage of remedies and damages at the outset. For example, consideration might be given to whether arbitrators should be entitled to award punitive damages. As these are allowed for in some jurisdictions, a party to arbitration in that jurisdiction might wish to provide an express exclusion, ‘The agreement might provide for adaptation of the contract through a hard- ship provision, which in turn would empower the arbitrator to make the appropriate adaptation. While normally this question would be considered as part of a general aspect of the substantive law to be chosen, it may need to be considered as a related aspect of the arbitrator's express powers. This might be by way of empowering the arbitretor to merely recommend appropriate adaptation, or to allow for a binding ruling to that effect. Although provided for in most rules, the agreement might also specify whether the arbitrator is to give reasons in the award 4.2.12 Interest and Costs Ifthere is no agreement by the parties, costs and interest will generally be left to the discretion of the arbitrators on a case-by-case basis.!°7 It must be remembered that the costs include the expenses and fees of the arbitrators and 106 See, -g,, ICC Rules Article 16; LCIA Rules Article 17; UNCITRAL Arbitration Rules Article 17; AAA International Arbitration Rules Article 14 107 ‘The question of costs is discussed further in chapter 7 aPRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, the separate costs of each party's legal advisers, and the agreement should make clear which of these costs is to be covered.108 4.2.13 Multiparty arbitration One problem with arbitration as compated to litigation arises in cases where efficiency would require multiparty involvement in the dispute settlement process. In most litigation systems, courts are able to join third parties where it is appropriate, Because arbitration is based on the consent of the parties, care needs to be taken in the drafting of arbitration agreements to ensure that there is scope for consolidation or joinder where it is likely to be appropriate. The need may arise where there are more than two parties to the one contract, for example, with certain joint venture agreements. More often, it arises with a chain of contracts where there may be a contractor and various subcontrac- tors. If there is a dispute about the quality of the work done and the ultimate liability of the supplier of goods, services or materials, it might be desirable to hear all evidence at one time and resolve all parties’ rights and obligations concurrently. When there are numerous parties, at times with their separate contractual relationships, there would be a need to build in special provisions into each contract to allow for multiparty arbitration in appropriate circumstances. On the one hand, care needs to be taken to ensure that this is possible where appropriate. On the other hand, care also needs to be taken to ensure that the drafting does not impose multiparty arbitrations on people in inappropriate circumstances, ‘Another potential pitfall with multiparty arbitration that needs to be considered in the agreement is the need to ensure that each party has sufficient involvement in selecting the arbitrators. If one party has less choice it may even affect the enforceability of the ultimate award. If a claimant sued two related defendant companies there would also be a question of whether each defendant should be able to appoint its own arbitrator. On the one hand, each party involved ought to have equal choice. On the other hand, if the two defendants are truly related, this may lead to an imbalance of arbitrators between the claimant’s side and the defendants’ side.1® One approach would 108 While itis not common for parties to give serious consideration to these issues in drafting an arbitration agreement, the fac remains that one of the greatest criticisms of legal adj dication, whether through the courts or arbitration, is its overall cost. In too many cases, the tora legal costs rise to such a proportion of the amount in dispute thatthe two parties Involved would, with hindsight, have preferred to negotiate a settlement in their own mutual best interests than engage in an adjudicatory process. Thus some consideration of costs issues ought to be appropriate, at least atthe outset of a particular dispute 109 See Redfern and Hunter, n3 above, 176. ARBITRATION AGREEMENTS _ be to allow institutions to pick arbitrators ia these circumstances so that no party has less say than the others. 4.2.14 Requirements as to form ‘The question of the form of the arbitration agreement requires consideration of both domestic law and international ccnventions. The most significant form requirements are found in the New York Convention and the UNCITRAL. Model Law. Under the Convention and the Model Law, there are a number of elements to consider about the form of the agreement. A:ticle Il.1 of the Convention stipulates that each Contracting State is to recognise “. . . an agreement in writing in respect of a defined legal relationship, whether contractual or not, con cerning a subject matter capable of settlement by arbitration.” Article 11.2 defines “agreement in writing” to “include an arbitral clause in a contract or an arbitration agreement, signed by the parties ot contained in an exchange of letters or telegrams.” Article 11 also makes clear that it applies to both existing and future disputes because it refers to the parties’ submission to arbitration of “all or any differences which have arisen or which may arise between them.” The Convention calls for Contracting States to recognise these arbitration agreements and calls for courts of that State when seized of an action under an agreement to refer the parties to arbitration if requested to do so by one of them, unless the agreement is “null and void, inoperative or incapable of being performed.""10 A “defined legal relationship” in Article II is not limited to contractual relationships. Thus, an arbitration clause drafted widely enough would allow for claims in tort or unjust enrichment to be covered. If, on the other hand, the drafting of the arbitration agreement too narrowly refers to such things as disputes “in relation to the contract” itself, these disputes would not be allowed.'1! If the clause were drafted too widely, it might be challenged on the basis that there was no particular defined legal relationship that supported it, although a court could read the provision down to ensure validity.'12 Certain provisions of the Convention show how challenges to recognition and enforcement can be made as a result of defects in drafting of the arbitration agreement. For example, Article V (1)(c) allows for a challenge where the award deals with a difference not contemplated by or not falling within 110 Antcie 1.3 111 Redfern and Hunter, n3 above, 140, footnote 30. 112 M Pryles, Drafting Arbitration Agreements, 67 Aust Lj 503, 505 (1995) referring to Roose Industries Ltd v Ready Mixed Concrete Ltd [1974] 2 NZLR 241 43INTERNATIONAL COMMERCIAL ARBIIRA' the terms of the submission to arbitration. Article V(1)(d) provides for refusal if the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or failing such agreement, was not in accordance with the law of the country where the arbitration took place.113 With reference to “a subject matter capable of settlement by arbitration’, various national legislatures and courts have taken different views over time about certain areas of legal dispute that raise general societal interests over and above the rights and obligations of the parties themselves. This principle is known as arbitrability and is based on public policy concerns. Areas of law, which have been described as non-arbitrable, include insolvency, anti compet itive practices, securities, intellectual property, labor, consumer protection and family law. Other instances may be where there are allegations of fraud, brib- ery of corruption. A question arises as to whether the parties’ express wish to resolve all aspects of their disputes by arbitration will prevail, or the general public policy concerns in the place of arbitration that certain matters should be excluded from arbitration. While the earlier approach was to be reluctant to accept the right of arbitrators to deal with such issues, the trend over time is to support the right for arbitrations in these areas.'4 ‘The definition and form of the arbitration agreement is outlined in Article 7 of the Model Law. Article 7(1) indicates that an arbitration agreement “is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not."*!5 The agreement may be in the form of an arbitration clause in a contract or in a separate agreement.'!5 Article 7(2) provides a writing requirement and also defines a number of means by which this can be satisfied. An arbitration agreement is in writing “if itis contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by another or through a reference in a contract to a document containing an arbitration clause provided that the contract is in writing and the reference is. Other grounds for refusing recognition and enforcement as outlined in the Convention are discussed in Chapter 8 ‘See, ¢g,, Mitsubishi Motors Corp v Soler Chrysler Plymouth Inc 473 US 614 (1985) with regard (0 arbitrability of antitrust issues; Scherk v Alberto-Culver 417 US 506 (1974) with regard to securities transactions; Gaillard and Savage, n4 above, para 580ft ‘Thus, as with the New York Convention it may apply to existing or future disputes and is not confined to contractual relationships LUNCITRAL Model Law, Art. 7) ARBITRATION AGREEMENTS such as to make that clause part of the ccntract."!17 Whether the writing needs merely to evidence an arbitration agreement that could have been concluded orally, or whether the agreement itself must be in writing is unclear.11® Because the express writing requirements in the Model Law and the New York Convention have not been consistently applied, there is a need to consider how the country of arbitration would view the requirements, how the country where a stay of legal proceedings might be sought would view them and finally how the country of enforcement would respond. In many cases the arbi tration agreement was not found valid or enforceable because the agreement, did not comply with the writing requirements.1"9 The differences between the writing requirements of the UNICTRAL Model Law and the New York Convention also raise a problem of the relationship between validity and enforceability. The Model Law has a more liberal definition of the writing requirement than the Convention. Thus an arbitration agreement that satisfies the Model Law may be a valid agreement for the purpose of allowing for arbitration under the Model Law provisions. At the same time, if the agreement does not satisfy the stricter writing requirement of the New York Convention, the arbitral award may not be enforceable. If the challenge is made at the outset, the arbitrator could simply apply the Model Law provisions and conclude that if these are satisfied, the person bringing the com- plaint has a right to proceed. However, the arbitrator could consider his or her duty to provide an enforceable award and might choose to refrain from exer- cising jurisdiction. For example, if he or she believes that the New York Con- vention provisions are not satisfied or are in such doubt as to ensure a lengthy and expensive challenge process at the enforcement stage Other legislative systems have relaxed the writing requirement, For example, the English Arbitration Act 1996 includes agreements where there are references to terms that are in writing and where the parties authorise a record of fan agreement. "20 One should still always compare the form requirements of the country of enforcement with the country where the arbitration took place. 4.3 Effective arbitration agreements In this section, we discuss the type of errors that have been made in arb tion agreements and the common response by courts to these errors. 117 UNCITRAL Model Law, Art. 72) 118 Forexample, whether a confirmatory leter that attests to the completion of an oral agree- ‘ment meets the writing requirement. Holtzman and Neuhaus suggest that the agreement itself must be in writing, Holtamann and Neuhaus, n4 above 260. A contrary view Is taken by Gaillard and Savage, n4 above, para 620. 119 Redfern and Hunter n3 above, 141. 120 English Arbitration Act 1996, ss 5(8) and 5(4). 45,_ PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION [ARBITRATION AGREEMENTS A significant problem is the interpretation of agreements when there is challenges are kept to a minimum, it is better to have both parties sign the ambiguity.!2! A number of widely accepted principles of interpretation are agreement.(26 commonly employed, and two principles deserve specific mention. First, there is the principle of effective interpretation; ambiguous provisions are to be in- terpreted in a way that makes them effective.'22 Another common principle of interpretation is the conera proferentem rule; the agreement should be inter- preted against the party who was responsible for drafting the clause, For example, a party should not be able rely on its own poor drafting to suggest that the agreement is not sufficiently widely drafted to cover a particular ‘Two other common questions arising out of agreements are first, whether the dispute.125 parties have compulsorily bound themselves to go to arbitration, as opposed R to providing it only as an option and secon¢, whether the actual dispute falls, ‘Another significant concern is the failure of the parties to meet the writing te- Hoe ere of intepretaton, within the tenne ofthe agreement to arbitrate, quirement, Courts Have shown a signilicant number of approaches, fol ‘To avoid these problems, it is important to ensure that an arbitration agree- problem. Principles of good faith may be involved where it could be alleged pent is mandatory and exclusive, The agreement should not say that disputes that it is an abuse of rights to challenge the validity of an arbitration agree- “may” be referred to arbitration. The agreement should also specify whether ment after acquiescing in its creation. Courts have also looked to the histori- all possible disputes are to be covered. If pre-contractual promises and issues cal relationship between the parties to see if the writing requirement is such as tortious and restitutionary claims, pre-contractual mistepresentation, satisfied in an instant case through a long course of in writing dealings.124 It ‘warranties and rectification are to be provided for, the agreement should not is also possible to look at closely related companies and to allow for binding merely refer to the contract or disputes under it but should use words such as arbitration against a company not directly satisfying the writing requirement in connection with” the contract.128 on the basis that a related party did so satisfy it.125 Even if there is doubt about whether the writing requirements are satisfied, it may be possible that an agreement would be enforceable, in any event, if the domestic law would recognise an award that did not comply with the Conven: tion, Such an outcome is contemplated by Article VII of the New York Conven- tion and is discussed more fully below.127 Where there are significant concerns about the drafting or coverage of the ar- To ensure that the writing requirement is met, care should be taken not bitration agreement it needs to be remembered that any problems can be recti- merely to cross-reference any industry standard terms and conditions, but fied by the agreement of the parties. also to refer to the arbitration agreement itself. If there is more than one contract, the arbitration agreement should be mentioned in each, To ensure that 4,4 The effect of an arbitration agreement on court proceedings In looking at the effect of an arbitration agreement on court proceedings that are brought in relation to the same dispute, we are looking at the direct or indirect enforceability of the agreemert to arbitrate as opposed to the 121 In looking at how courts might resolve ambigultes or challenges in favor ofa valid arb final award tation obligation, neds be bore in mind tha heel eal enon between (Wo soreed Competing ouinapes, Because afraion Is vounary and jurdlcdon depends upon Arbitration agreements cannot generally be directly enforced in the same way clear agreement, a fallue to satisfy various formal requirements raises a strong presump as ordinary contracts, Few legal systems provide for specific performance of tion against arbitration. On the other hand, in the face of a dispute, there is too much In- the obligation, with most instead providing a mechanism to constitute the ar- centive for one party to take casustic challenges to the form requitements. I these Pitral panel in accordance with the partie" agreement, when one party re- challenges are 100 readily upheld, the rea substantive agreement of the parties in favor of arbitration could be subverted, There is as a result a tension facing an arbitrator seeking fuses to submit to arbitration. This is an indirect form of specific performance. to honor a true agreement but also provide for an enforceable award and give appropriate For example, under Article 11 of the UNCITRAL Model Law a party may consideration tothe way both recognition and enforcement would be handled in various national court systems 126 IF they have filed to do so, note should be taken of the fact that Article 1.2 of the New Gaillard and Savage, n¢ above, para 478 York Convention is an incusive definition, ts allowing forthe argument that other Gaillard and Savage, n above para 479, forms of writing might also be acceptable. Berge, nf above, 148 ; 127 see chapter 8 below ‘bid, 159, This is common where the technical status ofthe parties has changed and the tri 12 above, 07, bomow 10, as docesed eal, theres als ths eed to cone question is whether the new entity ean substitute forthe eny that saisted the weiing ey ae au tataer poe az te Gotomcmal nepec of po tential dispute requirement.PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, request a court at the place of arbitration to appoint a arbitrator where either the other party refuses to do so or the two selected arbitrators are unable to agree on appointment of a third.12° Such an order has the effect of constituting the arbitration and the tribunal may proceed to an award in the absence of the other party. 159 ‘An alternative approach to enforcing an international arbitration agreement is provided in Article Il of the New York Convention and Article 8 of the UNCITRAL Model Law. Both of these enactments seek to provide for such indirect enforceability by removing the alternate avenue of court proceedings brought én breach of an arbitration agreement. Article II of the Convention provides that a Contracting State should recognise such an arbitration agreement where it meets the form requirements. Article 11.3 then provides that courts in a Contracting State in which proceedings have been filed in breach of a arbitration agreement are to refer the parties to arbitration at the request. of one of the parties unless the agreement is null and void, inoperative or in. capable of being performed. ‘The UNCITRAL Model Law also directs courts to refer such matters although it is more restrictive than the New York Convention in providing an express time limit for a request to be lodged. Article 8.1 stipulates that a court hearing a matter the subject of an arbitration agreement “shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration.” This would be the preliminary defence document in most litigation systems. Of course, if neither party objects to the court's jurisdiction, the court may hear a case notwithstanding a binding arbitration agreement. Both the Model Law and the New York Convention expressly refer to a party's “request” for a stay. In such a case the parties would be considered to have waived their rights under the agreement to arbitrate. While the Model Law and New York Convention provisions are mandatory in language, some variations in the courts’ attitudes are discernible. First there is the question of how the arbitration agreement itself is to be construed by a court when requested to do so. If the court finds the arbitration agreement de- fective or limited, the court may refuse to grant the stay or only grant a partial stay. In particular a stay of proceedings will not be awarded if the court finds the arbitration agreement to be null and void, inoperative or incapable of being performed.t51 It could be null and void where there is mandatory 129 similar powers of court appointment exist under national arbitration statues, eg English ‘Arbitration Act section 18; French Code of Civil Procedure 1981 Article 1495; Swiss Private International Law Act 1987 Article 179, 130 See Article 25 of the UNCITRAL Model Law. 131 1b ARBITRATION AGREEMENTS legislation in the forum that expressly proscribes arbitration of particular disputes. "82 At other times, general public policy oriented legislation might be in- terpreted to preclude arbitration agreements.'53 In most countries, however, the categories of non-arbitrable disputes have been severely restricted. Where a particular country has not adopted the New York Convention or the UNCITRAL Model Law, its courts may still retain a general discretion to stay legal proceedings in appropriate circumstances. At times certain courts will also purport to have extraterritorial jurisdiction and might seek to deliver an injunction in one country seeking to stop litigation in another, but these or- ders will occasionally be ineffective.'3* Such an “anti-suit injunction” does not purport to stop the foreign courts from hearing a particular matter, but is rather directed to a particular party to cease from litigating. That party must be subject to the jurisdiction of the court which has issued the injunction. While mandatory stays of proceedings are en important means of supporting international commercial arbitration, they pose particular problems in multi party disputes where there is an absence of a comprehensive range of arbitra tion agreements between all of the parties. If a court feels compelled to stay proceedings between those parties subject to a binding arbitration agreement, leaving the rest to engage in litigation, there will be inevitable inefficiencies and potential for injustice. Some courts might consider whether they are able to stay the entire litigation until the arbitration of the particular issues is completed. At other times, courts have considered whether the arbitrator can also be appointed as a court referee over those aspects that are to be considered under the concurrent litigation.'35 152 An example is section 11(2) of the Australian Carriage of Goods by Sea Act 1991 (Cth), 183 For example consumer protection of labor statutes may prohibit arbitration, see, eg, Aus- tralian Insurance Contracts Act 1984 (Cth) section 43. 134 Eg, Aggeliki Charis Compania Maritima SA v Pagnan Spa ("The Angelic Grace”) [1995] 1 Luows Rer 87 (English Court of Appeal) 135 See, for example, Aerospatiale Holdings Australia v Elspan International Ltd (1992) 28 NSWLR 521 (Supreme Court of New South Wales, Australia) 49CHAPTER 5 PROCEDURE 5.1 Introduction Among the advantages of arbitration are the fexibility of the process and the ability of the parties to adopt a set of procedures which best suit their individual needs. The principle of party autonomy prevails and parties are free, subject to limitations within the rules or general principles, to devise their own procedural norms, Decisions about the particular procedure permeate any given dispute, but there are three particular stages that deserve special consideration. The first stage is during the drafting of a commercial contract, when attention is directed to the adoption of a dispute resolution clause. If the choice is made to embrace arbitration as the method of dispute resolution, that is the first op- portunity for the parties, before any dispute arises, to decide on the nature and on the steps of any eventual arbitration.'5° When a dispute has already arisen, and no dispute resolution clause was originally included in the agreement, the parties can then direct their attention to the form that their arbitration should take with the added advantage of tailoring the procedure to the exact issues in dispute. The second point at which a decision about the rules of procedure becomes important is at commencement of an arbitra:ion pursuant to an arbitration clause. The principle of party autonomy applies and parties at this stage are free to meet with each other and to make decisions for the steps to be followed in their particular arbitration. ‘The third stage at which attention must be ditected to procedure is during the unfolding of the arbitration itself. As the dispated issues become crystallised, as offers of proof are required, as legal issues need attention, procedural 136 The arguments in favour of and against the inclusion of a detailed arbitration clause be fore any dispute arises are considered in chapter 4. In brief, while the detailed clause minimises the chance of intractable disagreements once the dispute has arisen, it may wo the costo lad to napproprine chokes brause the naire of the isp as yt unknown,PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION decisions will have to be made about which form the arbitration should take. At this stage the responsibility for decision making continues to rest with the parties but, if they cannot agree, then it falls to the arbitrator or the arbi tral panel. There are basically three overall models of choice in procedural rules. The parties may choose to adopt in totality the rules of a particular arbitral institu. tion ot organization,*®7 the parties may, toa greater or lesser degree, derogate from the framework provided by the arbitral organisation, or the parties may decide on an ad hoc set of principles. 5.2 Procedural Choices—the Influence of Legal Tradition In international trade and commerce, parties may come from different legal systems that have different attitudes to procedure, Parties who seek to choose appropriate procedures at the outset or atthe time that a dispute arises may find it difficult to agree upon procedural steps when the choice favors one le. gal tradition over another. If decisions are left to the discretion of an arbitra. tor, the arbitrator may have difficulty justifying any choice as being neutral. In this section, we outline the procedural traditions of the common law and the civil law.'°8 Though the distinction between common law and civil law was more marked historically than in present day practice, it remains worth considering when, as is common in international arbitration, the parties may come from these different traditions. These distinctions are important as they influence both the choice of arbitral rules and the differing expectations of the Parties about how the arbitration will proceed even after agreement as to procedures. At the core of common law procedure is the adversary system, This system is characterised by party control; the responsibility for presentation of the case lies with the parties, with the consequent relative passivity of the judge. TI manifests itself in all stages of the proceeding: notification of the dispute, identification of the facts and areas of law is through private ordering, The notification of the defendant is the responsibility of the plaintiff; subsequently each party ensures that the opposite side gains knowledge of the existence of all claims, their nature and the remedies sought. This goes on 157 The most commonly used are the UNCITRAL Rules of Arbitration, the Arbitration Rules of the International Chamber of Commerce, the Rules of Atbitration of the Ametican Arbitia. tion Association, and the Rules of Arbitration of the London Court of International Atbitration, 158 Even countries that are not thought to belong traditionally to either legal family, for in- Stance, counties whose legal system is based upon Islamic law or other religious or philo. Sophical bases, have been greatly influenced by one or the other ofthe two developed national legal systems for commercial law and forthe resolution of disputes. 52 PROCEDURE without the cognisance of a judicial officer and the court or tribunal is only called to play its role in case of an interlocucory dispute between the parties. Each of the parties is in charge of deciding what issues separate them, which legal theory will be employed and what means of proof will be used. The pace of the proceeding is governed by the free wil! of each party. Each of the interlocutory steps takes place between the parties. Fact-finding after the closing of pleadings, such as discovery of documents, interrogatories, oral depositions, examination or inspection all occur through private ordering with the court only involved to the extent that a party alleges that the other has not com plied with the rules. ‘The hearing in the common law also reflects party presentation with the pas- sive role of the arbiter. The proof of facts is entirely the responsibility of the parties. Witnesses are chosen by the parties and presented by the parties. The choice of which witnesses are to appear, the order in which the witnesses are to appear, and the questioning of the witnesses is the domain of the competing parties. The selection of expert witnesses is the province of the parties as well. Submissions of law are also left to the individual parties. The parties through written memoranda and oral advocacy introduce their own case, and sum up the factual and legal structure of the case. The judge or arbitrator intended to make a decision only on the bas's of the evidence presented and Not on the basis of their own knowledge or belief. ‘5° In the civil law model, the responsibility for the ascertainment of fact and law and the clarification of the issues that sepacate the parties is more diffuse. ile the claimant has the responsibility to initiate matters, itis the responsibility of the trier of fact thereafter to ensure compliance with the rules and to assist so that the necessary matters are placed before the tribunal. In contrast to the common law, notification to the respondent is generally carried out by officers of the court or tribunal. The choice of parties is initially left to the decision of the claimant and the respondent but judicial personnel check to see 139 Our discussion has been at the most generalized level, and we recognize that members of the common law family do not follow a monolithic model. Common law proceedings in England and Australia for example, resemble cach thet much more than they do proceed {ngs in North America. Two examples of this diversity are inthe area of pleadings and in the discovery of documents, n pleadings in Anglo Australian jurisprudence, a catise of ac tion must be completely pleaded. This requires the claimant to include in the statement of claim every material fact that must be alleged and 2roven in order forthe claimant to suc- eed. The contents ofthe pleadings then control the remaining interlocutory steps and the Admission of evidence at trial. Only material facts and particulars of those facts are to be pleaded; evidence and conclusions of law are either secondary ot prohibited. In North ‘America, which, of course, has its own diversity, notice pleading prevails. The claimant heed only plead the jurisdictional basis, give note of the natute of the claim and the Temedy requested in order to enable the case to commence. Pre-trial fact finding will clar- iff the factual issues that are to be determined eventually by the trier of fact. 53PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION that the rules of joinder and capacity have been observed; that the proper parties are assembled and have been notified of the nature of the claim. ‘The judge shares the responsibility for the unfolding of the proceeding with the parties. There is no clear division between interlocutory matters and the hearings. The assembling of the means of proof of fact is characterised by the collective efforts of the judge and the parties. The choice as to the legal theories and the facts to be assembled to support the legal theories is left to the parties. It is the initiative of the arbiter, aided by the parties, who decides whether witnesses are needed, which witnesses should be assembled and what documen- tary evidence should be adduced. It is the role of the court to decide on the order in which the evidence is to be presented. Witnesses are presented as court witnesses rather than witnesses for the claimant or the respondent. The parties share the collective responsibility and may put supplementary ques. tions or request that the judge pose further questions. Expert witnesses are usually selected and appointed by the tribunal. Parties may also nominate their own experts. Compliance with time limits is the responsibility of the tribunal. The schedul- ing of any hearings and sessions for the ascertainment of fact and law is undertaken by the trier of fact after consultation with the patties. The judge is taken to know the law though the parties may submit written memoranda and oral arguments to have their view of the law properly placed before the ultimate decision-maker.'40 Although these distinctions between the legal traditions do inform the expectations of the parties to some extent, we believe it is probably becoming less so. It would no longer be accurate to blithely declare that arbitrators, and practitioners coming from common law systems would expect arbitrations to follow the common law model nor for their counterparts from the civil law tradition to any longer expect a replication of their litigation patterns in international commercial arbitration. Parties who engage in international 140 As with our discussion of the common law, our discussion of the civil law has been at a highly general level, and we recognize that substantial diversities exist within individual nations within the civil law system. The historical sources of civil procedure in continen- tal Europe included both jus commune and canon law; the degree to which one prevailed over another in a given nation, was influential in shaping its civil procedure. In the nine- teenth and twentieth centuries, during the era of national codifications, the civil proce dure codes of, say, France and Germany, heightened differences. This diversity of view ‘was passed on wherever the major civil law colonial powers exerted their influence on procedural norms within their former colonies. Two examples chosen at random can ilus- trate this diversity. In some countries the norm is to have a single judge in charge of the first instance proceedings—in others a panel of three judges prevails. In certain countries the parties themselves are ineligible to Serve as witnesses or to provide testimony in support oftheir claims; in others, parties may serve as witnesses or at least provide evidence. 34 PROCEDURE commerce are becoming increasingly familiar with the values and methods of dispute resolution of their commercial partners. It is no longer expected that a practitioner or an arbitrator will be familiar only with his or her own legal tradition and its notions of justice and procedure. An internationalisation of procedural norms is developing within commercial arbitration. In choosing which particular procedural rule should be used in a given arbitration, a party or its representative may be as influenced by strategic considerations as by familiarity with its own legal system. It may be very important to consider the issues within the dispute, how they are best resolved, and which procedures are more likely to result in an award in its favour. A party may, whether by reasons of language, familiarity with the process, or time pressures, favour oral proceedings rather than a proceeding based upon documents only or vice versa. The protection of trade secrets may transcend the importance of any particular dispute. The availability of cross-examination and witness credibility may be particularly relevant. In a particular arbitration, the legal and other costs which can be sensibly invested in the resolution of the dispute, given the amount of money in controversy, may well be at least as influen’ ' in choosing the procedural rules as considerations of legal training and tradition. 5.3 Commencing the Arbitration Acdlaimant commences an arbitration proceeding by completing the documentation which signals recourse to arbitration. Natural justice and due process require that the respondent and any other patties to an arbitration are entitled to notice that there is a dispute, the nature of that dispute and instructions about how to make representations on their own behalf. Failure to comply with the rules for giving notice may render the award unenforceable. ‘The method of commencement is usually found within the arbitration agreement itself. Ifthe arbitration is subject to the rules of one of the international arbitral institutions, the content and process will be detailed in those rules. in the case of an ad hoc arbitration, one may look to see if the parties have adopted a particular procedural regime, failing which, reference will have to be made to the law of the country of the intended seat of the arbitration (the lex arbiert, The information to be conveyed to the respondent (and to the institution, if any) does not vary greatly from arbitration :o arbitration, Using the rules of the ICC as an example,'4! the request for arbitration shall contain the name and address of each of the parties, a description of the nature and circumstances of the dispute giving rise to the claim, a statement of the relief sought 441 ICC Rules of Arbitration Article 4(3)(a-, 55,and particulars of the composition of the arbitral tribunal. That is, the number of arbitrators and the method by which they are to be appointed. There should also be reference to the place of the arbitration, the applicable rules of law and the language of the arbitration. Some systems draw a distinction between a request or notice of arbitration and a subsequent statement of claim. The reason for separating a notice of arbitration and then having a statement of claim issued later is that, in many cases, the claimant may not know enough at this point to be able to complete a statement of claim at the outset of the arbitration. 42 ‘The choice of who should send the notification to the respondent varies. Some procedural laws and rules provide that the claimant should send the notice directly to the respondent. #8 Other Rules use the intermediary of the institution itself and have the registry of the institution forward the documentation to the respondent, The method by which service of the notification has been ac- complished has been expanded over the last decades, Registered post may still be used; some institutional rules today include telex, facsimile and email ‘The object intended to be secured is that notice be given to the respondent. ‘The use of the registry of an arbitral organisation is intended to heighten the likelihood that actual notice will be conveyed to the respondent. When the Claimant itself is responsible for effecting service of process that may save time and cost but may result in the occasional claim by the respondent that it did not receive actual notice. Receipt of the request or notification of arbitration marks the date on which the arbitration is deemed to commence. Time limits for subsequent written submissions are dated from that time.'*4 Sometimes a complication arises when the respondent fails to acknowledge receipt or the respondent has become unavailable, The aim of service is to give actual notice to the respondent, Where the respondent has made itself unavailable, for instance, by failing to leave a forwarding address, where an entity has been wound up or dissolved, a balance must be reached between enabling an intending claimant to commence arbitration as against the right or desirability of a 142 See Berger, n4 above, 380. 143 UNCITRAL Model Law Article 3; ICC Rules Article 4; LCIA Rules Article 1; UNCITRAL Atbi tration Rules, Article 3. The UNCITRAL Model Law provides for direct contact between, patties, Article 3, The ICC Rules provide that notice is given to both the respondents and the Institution, Article 3. The AAA International Arbitration Rules Article 2 provides both but Article 18 envisages direct contact to the opposite party. The LCIA Rules provides information to go to the Registrar until the arbitral tribunal is formed and still through the Registrar until otherwise notified, Article 13. The UNCITRAL Arbitration Rules provide that the party initiating shail give to the respondent a notice of arbitration, ticle 3 144 UNCITRAL Model Law Article 21, unless otherwise agreed by the parties; AAA Rules, Arti- cle 2(2); 16C Rules, Article 4(2); LCtA Rules, Attcle 1.2; UNCITRAL Arbitration Rules Article 3.2 PROCEDURE respondent receiving actual notice. The rules are less than precise in address ing this issue.'45, 5.4 Composition of the Arbitral Tribunal—Appointment of Arbitrators ‘The arbitration cannot begin until the composition of the tribunal has been decided and the arbitrator(s) have been appointed. Matters for decision include the number of arbitrators, the method of their appointment, the qualifi- cation of the arbitrators and the method of payment. If the details of the appointment of the arbitrators and their number have not been addressed in the arbitration agreement!46 then these issues are preliminary matters to be decided immediately upon commencement. If the parties can agree on the number and mode of aprointment, even after the dispute arises, the principle of party autonomy allows them to do so. In default, in ar. bitrations under institutional rules, the number and method of appointment is stated within the rules. In an ad hoc arbitration, in the absence of party agreement, the appointment procedure will be derived from the procedural law of the seat of arbitration (the lex arbitr) 5.4.1 Method of selection Selection of arbitrators will be based on party choice, the rules of the selected institution or the arbitral procedural law. The most common method of ap: pointment is where each of the parties nominates its own arbitrator and those two arbitrators then meet and nominate a third person to serve as chairperson.147 The relevant rules reveal a variety of methods by which institutions appoint arbitrators. Sometimes it is done by the registry of the organisation itself, Sometimes by a system of national committees or by a court of arbitration. ‘There may be consultation with parties as, for example, where a list of names will be proposed and the parties can indicate assent to particular hames or may veto some of the persons on the list. Some organisations re- serve the right to confirm the selection made by the parties themselves. In an ad hoc arbitration conducted under the UNCITRAL Rules the appointment 145 See Model Law, Article 24(2); AAA International Arbitration Rules, Article 23(1); 10¢ Rules, Article 6(2); LIA Rules, Article 15.8; UNCIRAL Arbitration Rules Article 28.1 146 Is usual that the composition of the tribunal panel is decided in any arbitration clause contained within a contract. For example, the parties agreed in approximately 70% of ‘cases referred to the International Chamber of Commerce. See 8 ICC Cour BULLETIN 10 (1997), 147 This, for example, is the procedure under Article 11 of the UNCITRAL Model Law. 37PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION may be made with the assistance of the Permanent Court of Arbitration at The Hague." 5.4.2 Time of appointment ‘There may be a time limit for the appointment or nomination of an arbitrator contained within the arbitration clause itself. In the absence of this, a period may be provided by the arbitral procedural law. ‘There is a danger that the respondent may use dilatory tactics and fail to coop- erate in the appointment of an arbitrator or arbitral panel. All arbitral rules and statutes provide a form of appointment in the instance of a default by one of the parties.14° 5.4.3 Independence of the arbitrator ‘A non-waivable mandatory principle is that all arbitrators must be independent; no arbitrator should be predisposed to a particular party.!® This principle may be difficult to reconcile with the idea of a party appointed arbitrator but such a person has been generally subject to the same standard as a non party-appointed arbitrator. The institutional rules do not define independence of an arbitrator—it is left to a case by case analysis of what constitutes a suitable appointment.15! Some institutional rules require that the nominated arbitrator sign a statement of independence disclosing any previous relationship with either of the parties or with the subject matter.'5? Some of the institutional rules require that an arbitrator not be of the same nationality as either of the parties, "8° or provide other qualifications, 154 Article 7200) AAA Rules Article 6(3); ICC Rules Article 8(8) and (4); LCIA Rules Article 7.2; UNCITRAL ‘Model Law Article 11(8) and 4; English Atbitration Act sections 17 and 18; French Code of Civil Procedure Article 1444, This is discussed further in chapter 6. Some commentators have embraced a narrow view. For example “No arbitrator who has, or who has had, with either of the partes, close relations liable o affect his freedom of judgment often reflected in terms of economic interest, can be construed to be “independ: ent” within the meaning of the rules." Robert, J ICC DOC 420/179 at 5 (1978). Similarly, an arbitrator “cannot be of have been employed or have dealt with the parties in any other capacity”. Basel Convention Arbitration Procedure Article 3 Annex 3 cop-1. On the other hand, the more pragmatic would not disqualify any person who may have a sympathy or a predilection towards a particular position as long as the arbitrator is able to listen and to deliberate at the end of the day on the basis of the evidence presented. See, e.., WC Rules Article 7(2) and LCIA Rules Article 5.3, ‘See, eg, 1CC Rules Article 9(5) (inthe case of the chairman or a sole arbitrator) and LCA Rules Article 6.1. Under both provisions, the principle applies unless the parties agree otherwise For example, the ICSID rules require an arbitrator to be a petson of high moral character, recognised competence in law, commerce, industry or finance, who may be relied upon to ‘exercise Independent judgment. ICSID Article 39; 14(1), 58. 5,5 Place of Arl In the majority of instances, the place where the arbitration will be held will be named in the arbitration agreement. Although the nomination of a particular institution, such as the ICC or the LCIA does not necessarily mean that the headquarters of the organisations—Paris or London—will be chosen as the place of arbitration, in the absence of party choice, the institutions will take into account their nomination as an indication of possible preference for place of arbitration. 155 Absent an express party choice or institutional preference, the ibunal may make the decision.15¢ ‘The nationality of the parties is an important consideration in this respect, as general practice is to hold the arbitration in a neutral country. Other considerations, such as the costs of getting witnesses to the hearings, and other economic factors should bear on the decision. A final consideration is whether the seat of the arbitration is intended to be the exclusive site in which all meetings are held. Almost all institutional rules provide that hearings can be held in places other than the seat of arbitration but it would be good to clarify this at the outset, however, because the seat of the erbitration normally supplies the applicable procedural law.'57 5.6 Language In most cases the language in which the arbitration is to be conducted is specified in the arbitration agreement or agreed subsequently by the parties. When the parties have been unable to decide upon the language, the institutional rules or the arbitral procedural law of the country of arbitration generally supply a method to determine the language of the arbitration. Some institutional rules provide that the language of the arbitration shall be the language of the arbitration clause or the language of the contract itself.'8® This method of 185 See, eg., LCIA Rules Article16.1 156 AAA international Arbivration Rules Article 13(1}; UNCITRAL Rules Article 16(1). Under the ICC Rules, the place of arbitration shall be fixed by the ICC International Court of Arbi tration; Article 14(1), 187 This is discussed fully in chapter 3 above. 158 Under the UNCITRAL Model Law, Article 22, the arbitral tribunal is to decide and may or der documents to be translated. Under the AAA Imernational Arbitration Rules, Article 14, the language shall be that of the document containing the arbitration agreement subject to the agreement of the parties or other circumstances. Documents may be ordered to be translated into the language ofthe arbitration. Under the 1CC Rules, Article 14, the arbitral tribunal is to determine the language looking at the relevant circumstances including the language of the contract. Under the LCIA Rules, Article 17, the inital language is to be that of the arbitration agreement, A subsequent language may be chosen as appropriate and the tribunal may order documents to be translated, Under the UNCITRAL Arbitration Rules, Article 17.1 provides for the arbitral tribunal to determine the language or lan guages to be used in the proceedings. Article 17.2 allows the tribunal to order that docu: ments be translated, 59__PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION choice may be purely fortuitous and there may be times in which the original contract or the arbitration clause has been translated into multiple languages. ‘The declaration of the language of the arbitration does not necessarily mean that only that language may be used. When arbitrators and parties are capable of following a second or subsequent languages it is much less expensive to leave original documents in their original language without the necessity of translation. The testimony of witnesses may be more reliable and certainly less expensive and time consuming if witnesses are allowed to testify in their own first language without the necessity of translation. 5.7 Challenge to Arbitrators Either party may challenge preliminary decisions that have been made at the time of establishing the arbitration and the constitution of the tribunal. 159 ‘The aggrieved party must direct his or her attention to the source of law gov- ering a challenge. In an institutional arbitration, the rules of the institution will govern,16° subject to the overall supervisory control of the law governing the arbitral procedure (the lex arbitr’). In the case of an ad hoc arbitration, unless parties have included provisions in their agreement dealing with challenges, the question will be governed exclusively by the dex arbitr, The applicable law or rule will specify to whom the challenge should be addressed. '©1 The principal choice is to the organisation or to the arbitral tribunal itself, or to its chairperson. Some national arbitration laws will also 189 The usual grounds for challenge of an arbitrator or of an arbitral panel include that the arbitrator or panel in question is unlikely to be impartial or independent, or thatthe arbi trator appears to be unavailable or unwilling to pursue the arbitration with sufficient dili- gence. In a number of cases involving Eastern bloc countries a party has challenged the independence of a government official in a dispute concerning a State enterprise ot agency or a director ofa State enterprise in a dispute involving another. The ICC Court of Arbitration has been extremely reluctant to disqualify in those situations because it is believed that the political and economic structure of a country involved cannot allow For the same degree of separation as might be required in other cases. W. Michael Tupman, Chal- lenge and Disqualfication of Arbitrators in International Commercial Arbitration 38 INT". Come L.Q. 26, 45 (1989). 160 AAA International Arbitration Rules, Article 8; ICC Rules, Article 11; LCIA Rules, Article 10; UNCITRAL Arbitration Rules, Article 10. 161 Under the Model Law the challenge is first made to the arbitral tribunal, afer which an aggrieved party can then appeal tothe coutt on the question; Article 13(2), Under the AAA International Arbitration Rules, Article 8, the challenge goes to the opposite party first and then according to Article 9, to the administrator. Under the ICC Rules, Article 11, the challenge goes to the International Court of Arbitration of the ICC. Under the LCIA Rules, Atcles 10.3 and 10.4, {¢ goes to the LCIA Court. Under the UNCITRAL Arbitration Rules, Article 11.2, the challenge is notified to the other party and to the arbitral tribunal, Undet Article 12 the decision on the challenge will be made by che appointing authority or its substitute, PROCEDURE allow recourse to be had to the courts of the country in which the arbitration is pending. 62 ‘The challenge will be by written submission. institutions vary as to the transparency or confidentiality of the challenge proceedings, and whether the parties put in supporting memoranda or whether the matter is conducted by the institution itself. Any challenge to the arbitrator or objection to the proceedings must be raised in a timely fashion. A party that fails to raise an objection as soon as know!- edge of an irregularity comes to hand is deemed to have waived any objec tion that it has.165 The question of whether an objection is timely is to be decided on a case by case basis. The irregularity may be one that is allegedly committed by the other party, by a member of the arbitral panel or in relevant cases, by the arbitral organisation, In the instance of a successful challenge to an arbitrator who has not yet sat, a new appointment is made using the original method of appointment. It is more complicated where a challenge is successful after hearings have already taken place. The usual solution is to replace the arbitrator and to repeat the steps that took place before the now dismissed arbitrator. A repetition is advisable where submissions are made or evidence was admitted in order to al- Jow each arbitrator to reach a reasoned decision. ‘The alternative is for the arbitration to proceed as a truncated panel. Towards the end of an arbitration, or especially after all the hearings have been completed and the arbitrators are in the deliberation stage, it is common to allow the two remaining arbitrators to consider their decision in a truncated panel.'® If one arbitrator on a panel of three refuses to participate in the 162 See UNCITRAL Model Law, Article 15(2); English Arbitration Act 1996 section 24. 165 AAA Intemational Arbitration Rules, Article 25; 1C2 Rules, Article 33; LCIA Rules, Article 32.1; UNCITRAL Arbitration Rules, Article 30; UNCTRAL Model Law, Article 4 164 UNCITRAL Model Law, Article 11; 1CC Rules, Article 12(5}: AAA Rules, Article 11; LCIA Rules, Article 12. UNCITRAL Arbitration Rules, Article 14, merely says “If any other arbitrator (other than the sole or presiding arbitrator] is replaced, such prior hearings may be ‘epeated at the discretion of the arbitral tribunal. AAA International Arbitration Rules, Ar ticle 11, arbitrators have the discretion to continue the arbitration. ICC Rules, Article 12.5, ‘once proceedings have closed, the Court may have a truncated panel rather than replacing an arbitrator. LIA Rules, Article 12.1, two remaining arbitrators have the power to con tinue the arbitration, UNCTTRAL Arbitration Rules, article 14, if the presiding arbitrator is replaced any hearings held previously shall be repeated; if any other arbitrator is replaced Prior hearings may be repeated at the discretion ofthe arbitral tribunal. UNCITRAL Model Law, Article 15, a substitute arbitrator shall be appointed (ao truncated tribunal Is pro: vided for)PRACTICAL GUIDE TO INTERNATIONAL COMMERCIAL ARBITRATION, deliberations of the tribunal, the remaining two may proceed with the arbitration and make an award without the third arbitrator.'65 ‘The situation of an arbitrator who dies or resigns during this period is equiva- lent to a successful challenge. Because of the considerable expense of repeat- ing the steps—expenses that must be borne by the parties—the trend is towards allowing the truncated tribunal to proceed to save the parties time and expense. 16° 5.8 Preliminary Conference Often an arbitration clause will provide only a framework rather than a detailed step by step account of the procedural steps to be taken. Therefore a preliminary meeting or preliminary conference may be advisable after the original exchange of documentation. The parties can use this to develop a clear outline of the steps to be taken so that each can prepare thoroughly and an agenda and timetable can be set and the arbitration given a priority in ev- eryone's diary. A decision that must be reached is whether the meeting should be held with only the parties present or whether the arbitrators should be present as well ‘A topic that may dominate the future steps of any arbitration and the parties’ decisions on preparation and participation is the amount of fees and the responsibility for bearing those fees. In an ad hoc arbitration or in some arbitrations pursuant to institutional rules, arbitral fees may not be specified or may be described only in principle. In those cases the parties may wish to meet together before approaching an arbitrator with the idea of producing an agreed plan with regard to the payment of arbitral fees. In an arbitration pursuant to institutional rules, often an advance against arbitration fees is called for and the calculation of such a fee is prescribed in the rules or supple- ment to the rules. ‘The latest time at which a prospective arbitrator or arbitrators should consider whether they should serve is at the preliminary conference. 67 Until this time, it is advisable that the person nominated sign all correspondence as “nominee”. This keeps any party from being confused as to whether the arbitrator has, in fact, entered upon the réference and taken on the capacity of arbitrator. 165A Winstanley, The New Rules ofthe London Court of International Arbitration 8 Tit. AMER- "EAN REVIEW OF INTERNATIONAL ARBITRATION 59, 60 (1997) 166 See, for example, section 12(5) ofthe ICC Rules. 167 See Clive Croft, The Preliminary Conférence and Legal Representation 17 TWE ARBITRATOR 99, 100 (1998). The considerations would include whether they have the requisite expertise, whether they have the time to serve and whether any arbitrator will be a necessary witness for a party in the arbitration PROCEDURE. ‘The preliminary conference should also be used to determine whether the issues in dispute fall within the terms of the arbitration agreement and whether the issues are genuine rather than a pretext ‘There are a variety of matters that might be resolved at the preliminary hearing if these issues are not already specified in the agreement, First, the choice of the procedural and substantive law and the rules to be applied, second, the language and place of arbitration and third, any need for translation of pre-existing documents. The means of information exchange could be clarified—whether that includes registered mail, document exchange, email, etc—as well as a tentative timetable. Any timetable devised in the absence of arbitrators would of course be tentative only, but a preliminary timetable decided by the parties could carry considerable weight. Clarification should be made about representation and about assistance and compliance with any rules as to whether foreign lawyers are permitted and whether proof of admis: sion for these purposes is required.'® Further matters for the preliminary meeting or meetings could be the form of written submissions and the means by which evidence will be taken. The length of oral hearings, if any, and whether there is to be a transcript or contemporary record and by whom it is to be paid, are other suitable subjects for a preliminary meeting, Preliminary meetings need not necessarily require the presence of either the arbitrators or the parties. A preliminary meeting could be held by video conference, by telephone conference call, by the internet or otherwise, A preliminary conference or meeting is generally an informal session which results in the production of a written document which records the agreements and directions which have been taken by the parties themselves or by the arbitral tribunal.'7° In some institutional arbitrations a preliminary document is more formalised,!7! The rules of the International Chamber of Commerce provide that a “Terms of Reference" will be drawn up. The Terms of Reference is a document which is prepared by the arbitral tribunal in consultation with the parties and gives considerable direction as to the matters above as well as at- tempting to define the issues to be determined by the arbitral tribunal, 168 Even though it may appear prima facie that the claimant's contention is il founded, that {is no ground for dismissing it summarily. Genuine belief by the party is the test, not the prospect of success, StankeY and DoRTER, COMMERCIAL ARBITRATION 79-80 (1986), 169 Parties will sometimes choose a local lawyer familiar with the rules of the forum. In-house counsel may represent parties or indeed they may be represented by a person, ‘without any legal training, 170 Berger provides a useful example of a typical procedural order issuing from a preliminary conference. See Berger, n4 above, 403-404 171 See 1CC Rules, Article 18 entitled “Terms of Reference; Proceducal Timetable” 635.9 Interim or Provisional Measures The parties may require preliminary assistance from the arbitral tribunal!72 or, where the arbitral tribunal has no such power,175 then assistance from the local courts. It may be necessary that the detention, preservation and/or inspection of property is required, that the issuance of an interim injunction would be useful, that it is necessary to appoint a receiver or to make provision for appropriate security. In each case, the tribunal has to ascertain whether it has the competence to issue the requested measure. If it does have the power, the tribunal will further have to consider the grounds for the request and whether the criteria are met for the exercise of this discretion, In the absence of such power, a party requesting an interim measure may have recourse to the local courts. One of the factors in selecting the seat of the arbitration would be to determine whether the courts have adequate powers to issue anticipated preliminary assistance. Recourse to the courts for interim or provisional measures is almost never considered inconsistent with the request for an arbitration nor an infringement of the tribunal’s powers.174 5.10 Preliminary Determinations ‘A possible issue is whether the arbitral tribunal should make a preliminary determination at the request of a party, or whether it should only decide all matters at the time it makes its award. A careful balance needs to be struck between determining issues that eliminate the need for further expenditure and lengthy hearings or, on the other hand, prematurely deciding matters without all the facts yet proven. There ate, however, three issues that are often the subject of a preliminary determination and warrant discussion: juris diction, the applicable procedural law ot laws, and the applicable substantive law or laws of the arbitration. 5.10.1 Jurisdiction The respondent may, by its earliest submission, raise the issue of whether the arbitral tribunal has jurisdiction. Less often the arbitral tribunal itself may raise the matter of its own jurisdiction. Each of the rules of the major arbitral organisations, the UNCITRAL Model Law and many major national 172 UNCITRAL Model Law, Article 17; AAA International Arbitration Rilles, Article 21; 100 Rules, Article 25; LCIA Rules, Article 25; UNCITRAL Arbitration Rules Article 26, 173 Unlike the court, an arbitral tribunal has such power as is conferred upon it by the agree ment of the parties. Its powers may also be limited either by agreement or by the applica ble law. Third persons who have not consented to be part of the arbitration are not subject to the commands of the arbitral tribunal 174 See further discussion below in Chapter 7. 64 arbitration statutes, provide that an arbitral tribunal is competent to determine its own jurisdiction. 175 This is referred to as the competence/competence principle. When a jurisdictional challenge is posed, the arbitral tribunal must decide when it should make the determination. It is usually preferable to determine any challenge to jurisdiction as a preliminary issue so as to save time and money should the arbitral panel find that they do not have jurisdiction. Some- times, however, the question of the arbitral tribunal's jurisdiction may depend upon a determination of the facts in issue. Until evidence is admitted and the contested facts are determined it may be premature or inappropriate to finally determine the jurisdictional question, When the jurisdiction issue is raised as a preliminary matter the arbitral tribunal must also determine the standard that the challenger must satisfy. Under most rules it is the arbitral tribunal that will both decide the standard to be applied and will answer the jurisdictional issue.'76 Less frequently the jurisdictional challenge may be referred to the registry of an international arbitration organisation ot to one of its component parts rather than to the arbitral tribunal itself.177 Alternatively, under most national arbitration laws, including the UNCITRAL Model Law, an appeal may be taken on the question of the arbitrator's jurisdiction to a designated court. Once again, assuming that the “seat” or jurisdictional theory of international arbitration applies, 78 the presence of such a provision under the lex arbier’ allowing court appeals would be additional to (or override, in the event of inconsistency) any rules in the parties’ arbitration agreement. In practice, however, it is relatively unusual that an arbitral tribunal will find that it is without jurisdiction. Arbitrators have a predilection towards tenta- tively declaring that they have jurisdiction. When an arbitration tribunal finds it has or may have competence to proceed, it means the tribunal may proceed to hear the case on the merits. The arbitral tribunal may then decide the case on the merits and may, when all the evidence is in, revisit the jurisdiction issue. 175 UNCITRAL Model Law, Article 16; English Arbltration Act section 30; French Code of Civil Procedure Article 1466; AAA Rules, Article 15(1); ICC Rules, Article 6(4); LCIA Rules UNCITRAL Arbitration Rules Article 21.1 176 id. 177 £g., under Article 6(2) LCC. Rules, The International Court of Arbitration (rather than the
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