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INTERNATIONAL COMMERCIAL ARBITRATION

CHAPTER I: INTRODUCTION
Introduction
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The subject most akin to Arbitration is civil procedure. The difference between
the two is that arbitration involves the consent of parties as contained in the
contract.

Other ways in which arbitration differs from court litigation?


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Enforcement problems are common to both.


A main difference is in the types of adjudicators in both forms of dispute
resolution.

Advantages of arbitration:
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You can tailor your tribunal to fit your needs in terms of skills and language.

i.

Arbitrators are also generally not bound by precedent or complex systems of law
(e.g. conflicts of laws rules), although arbitrators still nevertheless look at how
national laws handle a particular problem.

ii.

In principle, arbitrations are confidential, but there are collections of awards


although not systematic in nature. The rule of confidentiality stands in the way of
going into too much detail of the court.

iii.

Arbitration is, in principle, a one level system with a limited right of appeal.

iv.

Arbitration is meant to be expeditious. But when recognition of the award is


sought, the enforcing court will scrutinize the award to some extent. Certain legal
orders can set aside the award under the NY convention. NY convention
generally, the individual enforcing state only has the choice of whether to enforce
the award or not, but not to set it aside.

v.

But the seat of the arbitration or the state of which procedure was adopted then
you also have a right to set aside the award. There is considerable discussion on
this point. Recent development is that if the jurisdiction under the NY Convention
can set aside the award, the other courts may not have to accept that decision as a
final word on the matter.

Litigation or Arbitration?

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Dispute resolution and international agreements, James Carter, pg 24.

1) Why is arbitration so prevalent?


(a) Predictability dispute will be resolved in one place
rather than in multiple courts
(b) Competence in theory arbitrators will have the
specialist commercial and technical skills to resolve the
dispute
(c) Party participation procedures are shaped by the
parties rather than dictated by detailed rules as in
litigation
(d) Finality resulting award will be subject to relatively
little risk of being set aside or altered by the court
(e) Enforceablity easy to enforce worldwide due to NY
Convention
(f) Costs to some extent may result in less cost
(g) Privacy no open hearings or filings, but public
ancillary litigation may defeat this.
2) Drawbacks
(a) Panel must be selected before anything can be done.
This is likely to take some time.
(b) Not all courts provide provisional remedies in aid of
arbitration.
(c) Courts that do provide such remedies often only do this
to the extent of preserving the status quo and no more.
(d) Litigation may result in a bid to prevent arbitration.
(e) Arbitration tends to split the difference rather than
deciding whether one side is totally right or totally
wrong.
3) Litigation may be preferable if one party will not agree to arbitration in
a place or under terms which the other will accept
(a) but arbitration may be equally unwieldy if, for example,
the transaction involves several parties or if related
proceedings cannot be consolidated.
(b) A party may require broader judicial discovery; for
example, discovery in relation to non-parties.
Factors to consider in selecting a dispute resolution mechanism:
(a)
(b)
(c)

who is the likely claimant?


who will be holding the money or goods?
who will be holding records and other evidence?

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(d)
(e)
(f)
(g)
(h)
(i)

will there be other leverage at the time of dispute, such as dependence


by one party on the other for spare parts or service?
Where are the parties assets?
Is there security in the form of guarantees or letters of credit?
In which language will the parties be dealing?
What will be the governing law of the contract?
Does either party have a substantial base of operations in a third
country and familiarity with its legal system?

Status of arbitration in western legal theory?


-

Arbitration is a very old form of dispute resolution, which existed before national
legal systems. On the other hand, over time, at various periods, there was the view
that arbitration ousted the jurisdiction of the courts - that private individuals
should not have the power to deprive the courts of the jurisdiction that the state
gives it.

Federal Arbitration Act (1925)


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First signs of change. Before then, in most US jurisdictions, an arbitration clause


was revocable at any time before the commencement of the arbitration you
could not bind yourself to submit the dispute to arbitrators. The federal legislation
introduced the proposition that you could be challenged on the grounds available
to any other ground of contract (s.2).
1924 was a period when many states were going through the same process and
introducing arbitration after refusing it for a considerable period of time.
We will see that the French system at the time of the revolution that the best way
to resolve disputes was by arbitration. Consistent with revolution revolt against
complicated legal systems. This illustrates how political thinking impacted on
arbitration. But then, curiously, there was a reaction against this. Cour de
cassation held that it was contrary to principle that you could deprive yourself of
the judge that society provided for you.
There is still the feeling that the arbitration process can be abused by stronger
parties can enforce a certain dispute resolution process on parties which may not
be well equipped to handle such a process. There is therefore the protection of
employees in disputes between them and businesses. This will be discussed in
further detail.
The Act does, however, have a significant omission it does not deal with the
issues of recognition and enforcement.

New York Convention On the Recognition and Enforcement of Arbitral Awards


(Supplement p.1)

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Probably the most successful instrument in creation of law.


Remarkably effective document ratified by more than 100 countries.
It initiated a new idea in that it deals with issue of jurisdiction and
authority of arbitrators (if it satisfies certain standards) and goes on to
say that the resulting award is also enforceable elsewhere. A single
document regulates both exercise and recognition of this exercise.
There are considerable differences in views involving certain
provisions but still very effective regime.
- A double convention- deals with both the adjudicatory authority and
recognition and enforcement.
Established the adjudicatory authority of private tribunals set up by
party agreement.
Deals with the effects that other foreign institutions must give to the
award of the tribunal.
- Convention says that certain legal orders have the right to set aside the
award:
The state in which the order was handed down
The state whose law applied.
- Article V (procedural efficiencies): When it comes to recognition and
enforcement of the award, unless you are a state that has the right to
set aside the award then you can only set it aside if there are severe
procedural problems.
- Reservation by the US that it will only apply to commercial disputes.
Problem is that in some legal systems, there is a sharp distinction
between commercial and non-commercial disputes language not
meant to deal with commercial in narrow sense. This is not really a
crucial point.

Change in national laws


-

If you look back at history of national arbitration laws after the NY


Convention, one notices that the national laws become more user
friendly. Case-stated in an arbitration refer matter to the judge and
suspend arbitration till the judge adjudicated interfered greatly with
what most arbitration users wanted. English arbitration act
Change of national rules dealing with arbitration motivated by
arbitration business going elsewhere. Now, for example, you can allow
the arbitrators to chose the laws to apply and to act as compositors.
Certain expansion NY Convention stimulated the American
convention for American continent but this has not been as
successful, as parties could also use the NY convention. Something we
will discuss at some length.
Enforcement of awards in the US governed by state law. Will also be
examined.

Basis of arbitration
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Arbitration lies in principle of consent party to arbitration is entitled


to name an arbitrator.
In a standard two party case, the party bringing an arbitration can each
appoint one or they could nominate an arbitral institution to nominate
the arbitrators; or the court could do it.
In multi-party cases, it can be difficult to combine separate
arbitrations could have inconsistent results also benefits of
expediency and expense.
There is no problem if the parties agree, but if the parties do not agree
can the state or institution appoint arbitrators or order consolidation
of disputes? California, for example, has statutes on this.
In certain matters, you have to arbitrate. Different animals parties
have no freedom to select arbitrators and does not allow them to
establish their own choice of law rules etc. It is a different kind of
situation one which has not been very successful but if it is
successful, it will not be an offshoot of arbitration in the traditional
sense.

Patterns of problem solving Thomas M. Frank The Structure of impartiality:


examining the riddle of one law in a fragmented world (pg 2.)
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Types of dispute resolution:


i.

One Party dispute resolution: Power. One party imposes its will on
the other (cannot create predictable law)
ii.
Two Party dispute resolution- works within the legal system. Based
on consent and agreement (Compromise principle). Parties have to agree
and arrive at a decision. Difficult to generate rules of law or derive any
principles from it.
iii.
Third party dispute resolution- third party who is impartial who
attempts to resolve disputes between parties. Based on principles of law.
Society needs standards that can justify impartial principles that govern the
decision (Impartiality principle)
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Hybrid two/three party systems give mediator a certain authority but parties
retain control of the process. It is difficult for such a process to generate rules.

Difference between arbitration and other forms of dispute resolution

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Mediation: result is still consensual and not forced upon them. No result unless
parties agree. Arbitration is the only one which can finally resolve the dispute
as it does not depend on the parties willingness to compromise.
Mediation when is this attractive? In case where there is parties wish to
preserve strong business relationships.
Another difference is that the procedure and result need not be one mandated by
law. In arbitration, the outcome is determined in accordance with an objective
standard the applicable law.
Mediation is an interests-based procedure, whereas arbitration is a rights-based
procedure.
In arbitration, one attempts to convince the tribunal; in mediation, one attempts
to convince the other side.

Facilitative vs. Evaluative approaches to mediation: see Guide to WIPO mediation


(p.9)
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Facilitative approach tries to get both parties to reach their own conclusion
whereas the evaluative process analyzes the situation and provides a nonbinding opinion which the parties are then free to accept or reject as the
settlement of the dispute.
Some dispute resolutions combine both facilitative and evaluative processes- try
to mediate a conclusion but provide an outlet for evaluation if that fails.
Mediation can also be turned into arbitration if the parties want the arbitral
tribunal to make an award based on the mediated agreement so it has the effect
of an arbitral award.

Zurich arbitration device


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High level executives participate in the proceedings and claims are explored by
both sides. What can this achieve which you would not necessarily achieve in
the case of arbitration. Give each side a better understanding of the other sides
case.
Insofar as arbitration is concerned, is there any effort to conciliate generated in
the course of an arbitration? Arbitral tribunal may express the view that they are
inclined to decide in a certain way and to let the parties negotiate on this basis.
May be a sign of weakness but not necessarily so if this is suggested by the
arbitral tribunal.
Problem that an arbitrator may, in a sense, be bound to a particular view if he
expresses a preliminary view early on.

Pressures on arbitrators
- Fees to what extent do they play a part? It is unusual for arbitrators to rule that
the dispute is outside the scope of the dispute. This may suggest that fees do
play a part in the decision making process, even though it should not.

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A number of pressures operate on arbitrators - Arbitrators like to have a result


which gives something to the losing party. This is perhaps to give a certain
degree of compromise between the parties.

Selecting the mediator WIPO Guide to mediation (pg 13)


i.
ii.

iii.
iv.

v.
vi.

In the mediation process, the most important step is the selection of the
mediator. What should the parties do or look for?
Parties should consider the following matters when deciding who to appoint as
mediator (as listed on pg 13):
Role of mediator? Which is the most important purpose facilitative or
evaluative? Facilitation role added value of attempting to bring the parties
together, which the whole reason why they chose mediation to begin with.
Technical competence of mediator? Do they want a mediator with substantial
training and experience in the subject matter of the dispute? Or do they want
someone who is particularly skilled in mediation? This probably depends on
how technical the dispute is.
Do they want a single or more than one mediator? Esp in complex of
specialized or highly technical disputes, they could have co-mediators; or
where the parties have different cultural or linguistic backgrounds.
What nationality should the mediator have? To what extent should nationality
of the mediator matter? It matters in some bits of the world international
arbitration at least in part founded on mistrust of the courts choosing
someone from the country but its because for govt contracts in particular, it
may be that they just do not want the courts of country X to decide a case
involving the govt of country X.
Are the potential mediators independent?
What professional qualifications, experience, training or areas of
specialization should the mediators have?

Main steps in mediation


i.
ii.
iii.
iv.
v.
vi.

Agreement to mediate
Commencement: request for mediation
Appointment of mediator
Initial contacts between mediator and parties (setting up first meeting and
agreeing any preliminary exchange of documents)
First and subsequent meetings (agreeing ground rules for process, gathering
information and identifying issues, exploring interests of parties, developing
options for settlement, evaluating options)
Concluding

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Med-Arb
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Should same person act as both mediator and arbitrator? Unless the parties
approve, the two should not be combined. The arbitrator in such cases will not
have the same impartiality after seeing the evidence and hearing the arguments.
The benefit of such an approach is that the process continues and does not come
to an end if mediation fails.

Technical Expertise
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International Chamber of Commerce Technical Expertise Rules adopted in 1993


(p. 279 of the supplement). Rules that provide for appointment of experts & for
their basic functions, if parties choose to submit their expertise questions (if any)
to the ICC Centre for expertise.
Expertise & arbitral proceedings are different In order for the ICC rules on
expertise to apply, parties must have inserted a clause providing for ICC expertise,
in addition to the arbitration clause.
Attention!! Art. 83 of ICC Rules on expertise: Unless otherwise agreed the
findings or recommendations of the expert shall not be binding upon the
parties1. But of course the parties CAN provide in their agreement that the
findings will be binding. (Questions 1 & 2, p. 18)

Quote from American Almond Products v Consolidated Pecan Sales (Learned


Hand) (Pg 23)
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Arbitration may or may not be a desirable substitute for trials in courts; as to


that the parties must decide in each instance. But when they have adopted it,
they must be content with its informalities; they may not hedge it about with
those procedural limitations which it is precisely its purpose to avoid. They
must content themselves with looser approximations to the enforcement of their
rights than those that the law accords them, when they resort to its machinery.
You can make up your own rules in arbitration and you cannot expect to have
the same type of process or thinking in courts. It maybe an advantage or
disadvantage, but you just have to live with it.

International Commercial Arbitration (Pros and Cons)


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Why has there been an increase in the role of arbitration in modern commercial
life? Neutrality of forum and enforceability of awards are the most important
advantages of arbitration. It has been driven by the lack of predictability of
procedures of national courts and the fear that certain courts are not reliable.
i) Impartiality- The forum is international not domestic- It is neutral.

Emphasis added !

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(a) Important in some international transactions like when the government
is one party and a private entity is another. The government
perspective is that it would not want to be sued by the courts of
another state and the private party would not want to be sued in the
governments court. Especially true with courts of questionable
impartiality.
(b) Can also solve this problem by having the parties agree to have the
dispute submitted to a court system in which both parties have
confidence.
ii) Choice of Rules- Parties can choose the rule of the arbitration and the
arbitrators.
(a) Parties can shape the procedure according to their preferences and
needs.
iii) Speed- final decision reached faster
iv) Confidentiality- arbitration can be confidential
(a) Less clear than it has been suggested.
v) Selection of arbitrators- choose arbitrators that are skilled in the area of the
dispute and bring expertise to the tribunal.
vi) Treaties ensure enforcement of results abroad
vii) Cost- may or may not be less expensive
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Survey of advantages of arbitration (Text p. 26)


Two major advantages are that:
(1) the forum is neutral and
(2) treaties ensure enforcement of results abroad.
Other advantages:
(1) forum has expertise
(2) results are more predictable
(3) greater degree of voluntary compliance
(4) confidential procedure
(5) limited discovery
(6) no appeal
(7) procedure is less costly
(8) less time consuming
(9) more amicable

Problems with arbitration


i.
ii.
iii.

A lot depends on the arbitrator- no developed law like a domestic court


system.
There is no appellate review within the system itself. Can only seek to have
the award set aside or should not be recognized under Art. V. If the
arbitrators badly handle the matter, parties are in a worse off position.
If the arbitral process does not yield a result or the award is set aside, the
whole process has to be restarted. In order to enforce the award, litigation

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iv.
v.

may be inevitable. The possibility of long arbitration followed by long


judicial proceedings in some cases.
Tendency of the arbitrators to split the baby.
If one party does not want to arbitrate on terms which the other will accept,
then litigation is again necessary.

Ad Hoc vs- Institutional Arbitration (e.g. ICC, London, Stockholm etc.) (pg 27)
a. Ad Hoc- parties shape the process of the arbitration
i. If it is well-done it have the advantage of specific tailoring.
ii. The advantage of the UNCITRAL Rules provides the ad hoc arbitrations
with rules that can be used.
iii.
Do not provide the setting of compensation. If the fees of the arbitrators
are not set beforehand then the arbitrators can set whatever they want.
iv. Saves the administrative costs of the institutional arbitration.
v. Now less important because competition has lowered these charges.
vi. Requires the parties to set up rules and agree when they are in a dispute,
which isnt always easy.
vii. UNCITRAL Rules do not provide for compensation.
b. Institutional- parties submit the dispute to an institution that uses its set of rules
and processes.
i. Provides general known rules that parties can depend on.
ii. Provides institutional support to the arbitration.
iii.
Allows the parties to have a third party make decisions about
processes so they do not have to agree when they are in the dispute.
Whatever is not decided beforehand can be decided by the institution.
iv. Unless parties are really experienced in setting up arbitrations, should
go with institutions.
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Question is whether if you are going to arbitrate, should you do ad hoc arbitration
not under the care of an established arbitration center?
Main advantage of institutional arbitration is that there is a well regarded system of
rules and staff which can apply and facilitate these rules. These institutions also
select arbitrators for the parties which is often the most difficult part of the
process.
ICC used to charge very exorbitant fees which were a percentage of the award.
Now, because of competition, the ICC has capped its fees for arbitration at $75k.
Review of awards by ICC supposed to be only a procedural review. Some doubt
as to whether that is true in practice. Most people think this is not useful.
Are parties bound by arbitral precedents rendered by the same institution?
Most important things are controlled by the parties. For example, the parties are free
to choose the procedure applicable to the proceedings.

Adaptation of Contracts

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Frydman v. Cosmair, Inc, US District Court of NY, 1995


o Facts: P & D entered into an agreement to arbitrate the value of Ps
shares. Later on they entered into a contract where by D agreed to buy
Ps holdings at a price to be determined by the same person who had been
appointed for the arbitration. The price determination was to be made
pursuant to French Civil Code, art. 1592.
o Procedure: French court held that there was fraud in the valuation of the
stock & the valuation was quashed. The shareholders brought suit in
state court and the corporation had the suit removed to federal court
pursuant to 9 U.S.C.S. 205 because the action related to arbitration. The
shareholders filed a motion to remand the case to state court.
o Question at issue: Whether the decision on price value of the shares
constituted an arbitral award OR a simple price fixation conducted as part
of a contract formation. If it constituted an arbitral award, suit should
be examined by federal courts because the action relates to arbitration &
falls under NY Convention (pursuant to 9 USCS 205). If this is not an
award but simply part of the contract formation, then it does not fall under
NY Convention and US State Courts may very well be seized of the
matter.
o Courts holding:
Court granted the motion to remand.
It found that the price appraisal decision did not relate to
arbitration falling under the NY Convention. Court underlined 2
major differences between arbitration & art. 1592 procedure: i)
General arbitrations: conducting as means of resolving disputes
Art. 1592 price arbitrations: means of providing the price term for
contracting parties. ii) General arbitration awards: take status of a
judgment Art. 1592 price appraisal: NEVER statute of a
judgment. Art 1592 procedure was conducted as part of a
contract formation and not for the purpose of resolving a dispute.
The court concluded that the signing of the contract for price
valuation changed the case from arbitration to a contract. The
action did not relate to an arbitration falling under the NY
Convention & there was no other basis for federal subject matter
jurisdiction, so state court was the proper venue.

Several attempts to design special procedures for adaptation of contracts Eg.


ICC adopted Rules for Adaptation of Contracts BUT rules were not a success
and, therefore, abrogated.
When such adaptation of the contract is provided by means of arbitration, it may
not be an award but remains binding on the parties as a provision of the contract
It is binding just like any other provision of the contract.
Art. 1020 of Dutch Arbitration Act also provides for adaptation of the contract by
arbitration and the result of such arbitration seems to be binding upon the parties
(Question n3, p. 23).

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Institutional & Ad Hoc Arbitration


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George AKSEN, Ad Hoc v. Institutional arbitration 1991:


o Intl comm. arb. (ICA) as the generally acceptable method of resolving
disputes between transnational contracting parties. ICA fortified by NY
Convention.
o BUT Question whether to arbitrate under institutional OR ad hoc
arbitration.
o Definitions of the 2 types of arbitration:
Institutional arbitration: proceedings administered by an
organization (usually in accordance with its own rules of
arbitration), eg. ICC, LCIA, AAA.
Ad hoc arbitration: no formal administration by any established
arbitral agency The parties opt to create their own procedures
for a given arbitration (eg. By drafting a set of ad hoc procedures
OR by reference to Uncitral rules etc). Parties can even use
institutional arbitration rules without being formally engaged in an
institutional arbitration.
o FOR ad hoc arbitration:
Flexibility: Ad hoc procedure can be shaped to meet the wishes of
the parties & facts of the particular dispute.
Cost & Time saved when ad hoc arbitration (as opposed to instit.
arbitration).
Possibility to use Uncitral Rules (adopted in 1976): Sort of a
substitute for the rules of arbitral institutions, while avoiding
inconveniences of institutional arbitration.
BUT for ad hoc arbitration to be effective, parties, counsels &
arbitrators have to work together.
o FOR institutional arbitration:
Drafting the arbitration agreement:
Ease of incorporating by reference the institutions rules in
an intl contract. All ready made rules which have
proven to be effective in past arbitrations.
Use of ICC rules for example is valuable in preventing
parties from successfully asserting in national courts that
the claims are non-arbitrable.
ICC rules available in 7 major languages.
Arbitrator selection:
It is the most important service of an administrative agency.
Institution will select the most appropriate arbitrator.
Thus, problems deriving out of parties disagreement on
arbitrators are avoided.

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Instit. arbitration provides an administrative referee to


ensure that all arbitrators are truly independent.
Professional Administration
Instit. arbitration has staff to guide parties through the
arbitration process & provide a variety of routine services.
Arbitators fees are easier negotiable & more predictable in
institutional arbitrations.
Helpful service when a losing party fails to honor an award.
Judicial Deference to Institutional Arbitration
Arbitral awards receive the increasingly favourable
recognition of national courts. Judicial respect for the
integrity of arbitral awards.
Default award
Ability to proceed in the absence of a defaulting party (Ad
hoc arbitration: more difficult to enforce a default award)
o Conclusion:
Ad hoc arbitration is good choice when the parties are able to
select experienced arbitrators & cooperation between counsel and
parties.
BUT prudent advice is to opt for institutional arbitration. Many
more guaranties.
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Prof. Von Mehren also recommends institutional arbitration for the fix & solid
background it provides.
Question of conflict between party stipulations AND national rules OR
Institutional Rules Prof. V.M: If conflict between partys agreement & other
rules (institutional or national), the partys agreement will prevail ONLY if the
other rule is not mandatory.
o Example: Requirement of an uneven panel is basically for arbitrators to be
able to reach a decision. But Prof. finds that if arbitrators manage to reach
a decision, why hold that the partys agreement providing for appointment
of 2 arbitrators is against public order? As long as the (national or
institutional) rule for uneven panel is not mandatory, award should be
valid & enforced. BUT for ex. In Italy, there is a mandatory rule that the
arbitration panel CAN NOT be constituted by 2 arbitrators. Therefore,
under Italian law any award rendered by uneven number of arbitrators
could not be enforced.

Fast-Track Arbitration
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Prof. Von Mehren on Fast-Track Arbitration:


o The whole procedure is speeded up.

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o It is not a usual situation. Parties normally opt (should opt) for fasttrack arbitration ONLY when time is an imperative.
o Requirements for fast-track arbitration:
Find arbitrators fully available for a short period of time.
Parties & arbitrators willing to rely more on documentation than on
witnesses.
Parties & arbitrators willing to focus on the pre-arbitral phase (i.e.
on the preparation of the case).
-

Hans SMIT, Fast-Track Arbitration, 1991:


o Fast-track arbitration was initially conceived for long-term contracts
between international business enterprises BUT with efforts of ICC
it has a wider use.
o An arbitration can be fast-track i) if the parties provided so in their
agreement OR ii) if the institutional rules applicable to the arbitration
provide for such a possibility. Smit suggests that is preferable for fasttrack to be provided by institutional rules (as opposed to provided by the
parties in their arbitration agreement).
o Regime to be created for institutional fast-track arbitration must have the
following features:
Regime should be set forth is separate rules dealing only with fasttrack.
Rules should shorten the time limits & institution or the tribunal
should be given authority to modify them (According to Prof.,
tribunal should be able to modify time limits for flexibility reasons
cf. question 2, p. 40 case book).
Rules should set out the procedure to be followed for submissions
& hearings.
Rules should allow extension of the contractual time limit for
rendition of the award.
Rules should specify for which issues fast-track treatment is
possible.
Tribunal should be granted general authority to modify the rules
for processing the case when justice so requires.

Stockholm rules for expedited arbitrations, adopted by the Stockholm


Chamber of Commerce, 1999 (p. 270 supplement):
o Fast-track reserved to minor disputes, matters of limited importance.
o Prof.: Question if there really is an extensive use of these rules? NO. Prof.
thinks that these rules apply mostly for domestic arbitrations and not that
much for international arbitrations. BUT on p. 41 of the case book, proof
of wide use of the fast-track rules.

On the evolution of the standing of arbitration within the legal system

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Tibor VARADY, The standing of arbitration within the legal system, 1995
o Arbitration is an exception to regular court litigation.
o BUT arbitration is the dominant method of settling intl trade disputes &
intl commercial arbitration arbitration (here-in, ICA) has become an
almost completely self-sufficient institution.
o ICA: follows a more simple, flexible & speedy procedure than courts do.
o ICA: founded on the autonomy of the parties will Adaptability to party
needs.
o Increasing development of ICA: Network of intl instruments pertaining to
arbitration has emerged (ex. NY Convention, ICSID Convention)
Arbitration agreements have become more reliable & arbitration awards
more efficient and enforceable Courts have become more supportive of
arbitration.

A glimpse back in history A French Case


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LAlliance v. Prunier, Cour de cassation franaise, 1843


o Facts : Insurance contract between an insurance company & a private
person (insured). Contract contained an arbitration clause (clause
compromissoire, which was part of the contract signed in advance of the
dispute, as opposed to compromis which is an arbitration agreement
signed ONCE the dispute has already arisen). French code of civil
procedure of the time had only provisions on the compromis and did not
provide for arbitration agreement signed in advance (clause
compromissoire).
o Question at issue : Whether the clause compromissoire was valid
even though it did not specify the subject matter to be arbitrated nor the
names of the arbitrators.
o Procedure: Lower court found the arbitration clause void because the
names of the arbitrators were not given.
o Courts holding : Court held the clause compromissoire to be invalid. It
applied art. 1006 of French Code civ. Pro. (which is on compromis) to
the clause compromissoire in dispute. Art. 1006 required i) that the
arbitration agreement specify the subject matter to be arbitrated AND ii)
the names of the arbitrators. Court found that neither requirement was
satisfied in the present case & therefore, that the arbitration clause was not
valid.
o Obviously none of the 2 requirements could have been satisfied by the
arbitration clause since it was a clause compromissoire by which the
contracting parties in advance submit themselves to arbitrators for all the
disputes not foreseen that may arise under their contract. Probably
Cour de cassation did not want to open the door to such arbitration
clauses because feared that individual parties are not really aware of the

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existence of such arbitration clauses when signing such adhesion
contracts Cour de cassation wants to protect these weaker parties.
o Purnier rule (nullifying all arbitration clauses concluded before the
dispute arose) had a disastrous effect on ICA. Flagrant example of
mistrust of arbitration.
o But later on French Statute & case law recognized the validity of clauses
compromissoires. French Code de commerce art. 631 was amended in
1925 to provide that parties may, when they contract, agree to submit to
arbitration when they arise the following cases of controversies ().
A note on the relevance of the international dimension
-

A. Von Mehren, ICA: The contribution of the French jurisprudence, 1986:


o France: development of an acceptable regime for ICA was quicker that the
comparable regime for internal commercial arbitration.
o Disastrous consequences of the Prunier rule on ICA. End of 19th
century, French courts began creating a distinct legal regime for intl
arbitration (as opposed to internal arbitration) in order to avoid the Prunier
rule.
o French Court of Appeal (Migout v. Arguad, 1865) overturned the
Prunier rule on the ground of choice-of-law rules. If arbitration agreement
was subject to French law, then it was void. If subject to another law
which considered such clauses valid, then clause valid.
o Separate & distinct legal regime for intl arbitration began to emerge in
French law.
o BUT question arose where the line lies between national & intl
arbitrations. Mardele case (Cour de cassation, 1930): intl arbitration
if the situation involves the interests of intl commerce
o Cour de cassation no longer relied on choice-of-law analysis to escape the
Prunier rule As long as the situation had some connexion to intl
commerce, the arbitration clause was valid.
o Conclusions drawn from French case law: i) Various aspects of the legal
regime applicable to domestic arbitrations do not apply to arbitration
which involve interest of intl commerce. AND ii) rules that apply to intl
commerce need not be contained in any national law.

Another glimpse back in history A U.S. Case


-

Kulukundis Shipping Co v. Amtorg Trading Corp., US Court of Appeals,


1942 (extract):
o Court elaborates on history of the judicial attitude towards arbitration.
English courts: Strong judiciail hostility to arbitration agreements
For a long-period beginning end of 17th century, English courts
would do little or nothing for breaches of arbitration agreements.

17

78 years later, Coke held in a dictum that for a breach of an


agreement to arbitrate the damages were only nominal In all,
the ordinary arbitration agreement lost all real efficacy in the UK
since it was not specifically enforceable in equity. Midst of 18th
cent. arbitration agreements were considered against public policy
because they oust the jurisdiction of the courts. Lord
Campbell explained this british judicial hostility toward arbitration
agreements as due to the desire of the judges to avoid loss of
income. (Prof. Von Mehren added in class that today UK has an
advanced system of arbitration).
US Courts, 19th century: Took over british hostile attitude towards
arbitration & were in general unfriendly to executory arbitration
agreements. BUT the lower federal courts became critical of this
judicial hostility & effective state arbitration acts started being
enacted Also, US Arbitration Act 1925 was enacted which
placed arbitration agreement upon the same footing as other
contracts. The 1925 Act provides that arbitration agreements
ought to be enforced & provides a procedure in the federal courts
for their enforcement. The 1925 act was mainly enacted to
make injunctive relief possible in case of breach of an arbitration
agreement.

A comparative historical survey on the standing of arbitration within the legal


system
-

Arthur VON MEHREN, A general view of contract, 1982:


o Standing of arbitration within a legal system depends on the status &
efficiency of court litigation in that same legal system (example: if official
tribunal are slow & costly, arbitration is favored).
o France: Beginning of 19th century, French legislator was very favourable
to arbitration since at the time France was recovering from the Revolution
and courts were not well organized.
o Germany: During same period, arbitration was at a low point in Germany
& the very validity of arbitration clauses was disputed.
o Common Law Countries: Very restrictive position towards arbitration &
arbitration clauses were in principle void. Why? Because official courts
in these countries were able to establish their supremacy relatively early &
provided a tolerably efficient administration of justice.
o French law (Von Mehren repeats what was summarized previously)
o German law: German law moved from a restrictive approach to a position
affording a very wide scope to private autonomy. Today, German law is
among the legal orders most favourably disposed towards arbitration.
o English law: English law recognizes arbitration but still maintains a
significant judicial control over the arbitral decision. However, 1979 act

18
still allows judicial review of an arbitral award but in a more restricted
form.
o US law: 19th century: arbitration agreements were generally
unenforceable. Progressively, rules more favourable to arbitration were
first introduced by statutes providing for specific enforcement of
arbitration agreements & for the enforcement of awards. 1955:
Uniform Arbitration Act which serves as a model of contemporary
American legislation favourable to legislation.
o Postscript: Trend towards acceptance & facilitation of arbitration as an
essentially party-designed & controlled dispute resolution process still
continues:
1981: reform of the French Code civ. Pro in a way that strengthens
the position of intl arbitration conducted in France.
1985: adoption of the UNCITRAL model law on intl commercial
arbitration.
1996: enactment of the UK arbitration act.
1998: German arbitration act.
Questions & Comments - Comment n1 (p. 61):
In all, agreements providing for arbitration of an already existing speicif dispute
received earlier recognition than agreements submitting to arbitration possible future
disputes.
State (court) control has been declining, while the readiness of the courts to enforce
arbitration agreements has increased.
Prof. Von Mehrens appreciations on the evolution of the standing of arbitration
within the legal system (class notes):
o Attraction of NY Convention favours status of arbitration (BUT possibility
to set aside an award).
o Arbitration conceived as a rival of national courts whereas on the
international level jurisdiction is not that easily determined. Therefore,
arbitration developed more on the international level than on the national.
o ICA has been reinforced as from the 70s and on.
o NY Statute 1920 & Federal Arbitration Act 1925: arbitration clauses shall
be valid & enforceable UNLESS reasons to set it aside.
o Steady march towards recognition & more user-friendly arbitration
arrangements. That is connected with the growth of international
commerce. Convergence of arbitration through international
instruments.
On the sources of relevant norms

19
-

Arbitration has been regarded as a creation of the parties BUT such a creation can
only function within the framework of a legal system. Arbitration relies both i)
on party autonomy AND ii) on court assistance (when party cooperation is
lacking).
Question: What norms control the process of ICA? What is the hierarchical
relationship among these rules?
Party autonomy: Basic difference between arbitration & courts lies on the fact that
the basis of the jurisdiction of an arbitral tribunal is the will of the parties. This
wide freedom of the parties is limited by mandatory norms of certain countries
AND by intl agreements.
Institutional rules of other than state origin: Institutional rules offer a preestablished set of procedural rules & provide solutions of various typical problem
patterns. Parties rely a lot on these prefabricated patterns. These rules apply
only if i) parties designate the institution that administers the rules (in an
institutional arbitration) OR ii) if parties choose them (in an ad hoc arbitration).
In ad hoc arbitrations, the UNCITRAL arbitration rules (adopted by the UN
General Assembly in 1976) are widely adopted by the parties. Parties may
even combine pre-established institutional rules with solutions designed by
themselves.
Municipal Procedural Rules: ICA has become a self-contained & self-reliant
decision making structure BUT has not entirely escaped from the control of
certain municipal procedural rules.
o ex. Art. 182 of Swiss Private Intl law act 1987 : (in substance) arbitration
tribunals may freely follow procedural rules chosen by the parties as long
as they observe basic requirements of due process.
o Local procedural rules become very important when recognition of foreign
awards is sought.
o Model Law on ICA adopted by Uncitral on 1985: Aim was to provide a set
of rules which would be acceptable world-wide & which could be
progressively adopted by national legislations. In August 2002,
legislation based on the Model law had been enacted in 38 jurisdictions
and many other legislations enacted under the influence of the model law.
Model Law has brought about a worldwide trend towards convergence
in the domain of ICA.
Intl agreements:
o Effect of intl agreements on intl arbitration: ICA needs an intl
framework which provides for recognition of the arbitration process & of
the award beyond the boundaries of a particular country. Today, ICA is
backed up & guided by a unique network of intl conventions which
makes possible an almost worldwide recognition of arbitral awards.
o Effects of intl agreements on domestic / national arbitration: In many
countries, the acceptance of intl conventions led to new and improved
standards in municipal procedural rules.
o Examples of intl conventions on arbitrations:
NY Convention 1958
ICSID Convention 1965

20
Inter-American Convention on ICA 1975
o Many bilateral agreements have also been contributing to the worldwide
standing of ICA.
Party stipulation v. Institutional Rules
-

Preliminary award in 1974 ICC case (p. 68):


o Facts: Dispute between i) 2 enterprises (claimants) & ii) a State other than
their own & a public authority of this state (Defendants)Contract
between the parties provided for an ICC arbitration by one or more
arbitrators appointed in accordance with ICC Rules. BUT annex to the
contract provided that the appointment of the arbitrator should be made by
an authority other than the Court of Arbitration of the ICC This other
authority refused & ICC Court of Arbitration considered that it was up to
it to proceed to the nomination of the arbitrator. Arbitrator was finally
nominated by the ICC.
o Question at issue: Question of the regularity of the nomination of the
arbitrator by the ICC since the parties had stipulated for another
appointing authority which refused.
o Preliminary award: Arbitrator held that he had validly been appointed by
the ICC. He bases his decision on art. 7.2. of the ICC Rules according to
which failing agreement between the parties (on the nomination of a sole
arbitrator) within a period of 30 days (), the arbitrator shall be appointed
by the Court. Arbitrator held that the present case qualified as failing
agreement between the parties on the nomination of a sole arbitrator.
So, the arbitrator was validly appointed by the Court.
Ecofisa v. Societe Gas del Estado, French Cour de cassation, 1990
(question n7, p. 70-71):
o Facts : ICC arbitration clause by which parties agreed on 3 arbitrators.
According to the clause, each side was to select 1 arbitrator, the 2
arbitrators were to select the chairman & if ever they did not agree on the
chairman, he was to be appointed by the President of the ICJ. BUT the
arbitration clause stated that the constitution of the arbitral tribunal as
well as the applicable procedure shall be governed by the ICC rules.
When dispute arose the claimants asked directly the President of the ICJ to
constitute the tribunal. BUT the ICC applied its institutional rules &
nominated all 3 arbitrators. Arbitrators confirmed their jurisdiction &
rendered an award.
o Procedure: Paris Court of Appeal refused to recognize the award on the
grounds that the agreement of the parties regarding the constitution of the
arbitral tribunal was not respected. In other words, parties agreement
overrides institutional rules.
o Court: The Cour de cassation confirmed the CAs holding.

21
Party stipulation v. State Norms
-

Al Haddad Bros Entreprises v. M/S Agapi, US District Court Delaware,


1986 (in substance):
o Facts: Arbitral award rendered by an arbitral tribunal which was not
composed in accordance w/ the alleged agreement. According to the
agreement, each party was to nominate an arbitrator. Defendant nominated
an arbitrator & plaintiff did not react. Defendant, therefore, asked his
arbitrator to serve as a sole arbitrator. Notice of this appointment was
sent to the plaintiff Award was rendered in favour of defendant.
Plaintiff sought to ignore the award and filed a motion to re-open the
litigation in the US district court of Delaware. In response, defendant
filed a counterclaim seeking to enforce the award.
o Question at issue: Question whether a London arbitration award should
be enforced when arbitral tribunal was not composed in accordance with
the parties agreement but in accordance with the British arbitration
statute.
o Court: Court answers YES. The fact that the award was not rendered in
accordance w/ the parties agreement does not invalidate the award. Under
the British arbitration statute, a sole arbitrator appointed by one of the
parties may decide a dispute when the other party fails to appoint an
arbitrator under the agreement. In other words, Court holds that the law
of the country where the arbitration took place overrides the parties
agreement. Award was recognized & enforced.
o Note: Von Mehren believes this interpretation is not necessarily the best
one. The parties agreement should count more than that.

Rederi Aktiebolaget Sally v. SRL Termarea, Italy, Court of Appeal of


Florence, 1978 & Tarmarea SRL v. Rederiaktiebolaget Sally, QBD,
England, 1979:
o Interpretation of Section 8 and 9 of the 1950 English Arbitration Act.

Section 8: (1) Unless contrary agreement, where two


arbitrators are provided for, presumption that the 2 shall appoint an
umpire.; (2) Unless contrary agreement, umpire may decide the
award if the two arbitrators cannot agree.

Section 9: If the agreement requires three arbitrators, one to


be appointed by each party & 3d to be appointed by the 2 appointed
by the parties, agreement shall have effect as if it provided for the
appointment of an umpire (and not of a 3d arbitrator).

These two situations seem very different. Abolished by the


1968 English Arbitration Act.
o
Facts: Dispute arose between the 2 parties Their
agreement contained an arbitration clause which provided for a panel of 3
arbitrators (one by each party & one by the two arbitrators chosen by the
parties). 2 arbitrators were appointed and never a third one. The 2

22

o
o

o
o
o

arbitrators rendered their award. One party sought to enforce the award in
Italy.
Question at issue: Can the award be enforced?
Holding of CA Florence: The award is not
enforceable under NY Convention because the parties did not contemplate
a two party but a 3-party arbitral tribunal. The arbitral tribunal was not in
conformity with the parties desires so the award could not be enforced.
The UK arbitration act (under which the composition of the tribunal was
valid) would apply and thus validate the agreement only if the parties
had not provided for a different composition of the tribunal Agreement
of the parties prevails over the law of the country where the arbitration
took place.
Holding of the English Court: The award rendered
by only 2 arbitrators can be enforced under the UK arbitration act, even if
the parties agreement provided for a tribunal of 3 arbitrators. As long
as the 2 arbitrators agreed, they had jurisdiction under the UK arbitration
act to render an award without calling in an umpire. The law of the
country where the arbitration took place prevails over the parties
agreement.
Result: there may not be a way to enforce the
judgment because the courts have contrary holdings. It can be enforced in
England and not in Italy so if there are no assets in England, then too bad.
Van den Berg says that the moral of the story is
that parties should be very careful in drafting the arbitral clause.
Note: Under Art. V (1), d of the NY Convention,
the law of the country where the arbitration took place should be examined
with respect to the composition of the tribunal ONLY if the parties
agreement did not provide for the composition of the tribunal. So,
Delaware Court & English court erred in the application of the NY
Convention. Only the Italian court applied art. 5 correctly. The
Delaware & English court defeat the purpose of art. 5 which is to restrict
the law of the country where the arbitration took place.

CHAPTER II
ON THE AUTHORITY OF ARBITRATION TRIBUNALS
II.1. ARBITRATION AGREEMENT
Variations of the arbitration agreement
The authority of arbitration tribunals rests on an agreement between the parties. They can
take two forms:

23
-

Clause comprimissoire submits to arbitration disputes that may arrive in the


future. It is much more frequent in practice.
Compromis submits to arbitration an already existing dispute. After the dispute
has arisen, it is difficult for the parties to agree about the site of arbitration,
applicable law, etc It happens only when there is a common interest in finding
a quick solution.

Referring the parties to arbitration


After a valid agreement is signed, there are mechanisms for compelling arbitration. There
are two situations in which courts refer cases to arbitration:
- Independent suits discuss only the validity of the arbitration agreement.
- Embedded suits issue of arbitration and effectiveness arises as a defense in an
action. Ex: in a lawsuit for damages, the defendant contests the jurisdiction of the
court based on the arbitration agreement.
NY Convention, article II (3) it undertake a clear commitment to refer the case to
arbitration at the request of one of the parties, unless the agreement is null and void,
inoperative or incapable of being performed. Some national statutes go even further,
and mandate a referral ex officio, without parties request (Hungary).
Existence and validity issues before courts and arbitrators
Arbitrators have competence to decide upon their own competence to arbitrate
(competence-competence principle). However, courts can review this decision.
The NY Convention takes no position, leaving national legal systems do determine,
whether a court should decide the issue of the existence and validity of the arbitration
agreement or allow it to be solved in arbitration. There are two different approaches:
- US approach the court will just decide if the invalidating defect goes
specifically to the arbitration clause itself. Thus, if the party alleges that the
container contract is invalid, consequently the arbitration clause, the court will
send this question to the arbitrators. However, before referring to arbitration, the
court will analyze the existence of the whole contract (ex: the absence of a proper
offer or acceptance). This is pro-arbitration response, because it is easier to
fabricate an invalidating complaint about the container contract than about the
arbitration clause.
- French approach competence between judge and arbitrator is regulated in the
French New Code of Civil Procedure, art. 1458. If an arbitration tribunal has
already been established, the court will refuse jurisdiction and leave validity and
existence questions to the arbitrators. If the tribunal has NOT been seised, then the
court will retain jurisdiction ONLY if the arbitration agreement is MANIFESTLY
NULL. The expression manifestly null is too subjective and the French courts
dont usually recognize an agreement as being null, referring the parties to
arbitration. Judicial review will be available in post-award enforcement
proceeding.

24
Different national approaches also exist concerning the conclusiveness of a decision by
arbitrators declining jurisdiction. While some jurisdictions provide a plea against this
decision, others do not accept this remedy.
Formal requirements
A widely established requirement is that there be a written arbitration agreement. This
provision can be interpreted flexibly, for example, the condition can be fulfilled by an
exchange of letters, telexes
NY Convention, article II (2) has set to the contracting States a minimum and
maximum international standards, national statutes cannot impose stricter requirements,
nor can it accept flexible ones. German courts have taken a completely different
approach, not requiring the written clause, allowing a tacit agreement when arbitration is
a trade usage within a particular branch of trade.
It is important to allow and facilitate arbitration when the parties really wanted and to
disallow it when the expressed intention of the parties is not clear or when there is no
operative structure for decision making. The maintenance of some border controls is
prudent, since institutional structure of arbitration is malleable, giving a lot of liberty to
the parties.
If there is no valid agreement, but both parties do not object to the arbitration, is it
valid? The UNCITRAL Model Law, article 7 (2), determines that the exchange of
statement of claims is equivalent to a written agreement. However, the NY Conventions
does not recognize implicit submission.
Scope
Since litigation is the presumed method of settling disputes, it is essential for the
agreement to determine what issues are going to be submitted to arbitration. It is
important to avoid splitting related claims between arbitration and litigation. The scope
can be problematic when the parties renew the contract without explicitly adopting its
arbitration clause.
Compelling the reluctant party to arbitrate
- Tennessee v. PP Filippo and Prix Italia, US District Court, Tennessee, 1990
-

Facts: Prix appointed Tennessee its exclusive distributor for the US, Canada and
Mexico. Prix notified to terminate the contract, but Tennessee wants two more
years. Tennessee suit Prix for breach of contract and for false and intentionally
incorrect statements.
Legal issue: The parties had an arbitration agreement, according to which the
Arbitration Court of the Chamber of Commerce in Venice (Italy) would resolve
the disputes. The district court had to decide about the dismissal of the action.
Holding: the language of the arbitration clause was very broad, thus all claims
were inside its scope, even the contract-based tort claim. Tennessee failed to

25
demonstrate that it would be inconvenienced and prejudiced so significantly as to
overcome a valid arbitration clause. The contract was negotiated at arms length,
the arbitration clause was the price paid by Tennessee to become Prixs exclusive
distributor. Also the clause was not hidden. Since the clause was valid, operative
and capable of being performed, the parties were referred to arbitration, with the
exception of PP Filippi, because he wasnt a party to the agreement. Nevertheless,
his action was determined to wait the result of the arbitration. The clause did
not mentioned the ICC but a Chamber of Commerce in Venice, however, Prix
affirmed that the clause referred to the ICC arbitration court, and Tennessee did
not oppose this assertion.
- Pepsico v. Oficina Central, US District Court, New York, 1996
- Facts: Pepsico contracted with Oficina, which represented the bottling
Venezuelan companies, granting these companies the exclusive right to bottle
Pepsi. The laws of Venezuela governed the agreement. The contract provided that:
(a) any party prematurely terminating the contract would be liable for specified
liquidated damages, and (b) all the disputes would be resolved by NY ICC.
Oficina terminated the contract. Consequently, Pepsico demanded the payment of
$118,400,940 for liquidated damages. Oficina petitioned a civil court in
Venezuela for a declaration that the amount of liquidated damages was much
smaller (embedded suit). Pepsico answered by filling a formal request for
arbitration with the ICC and a petition before the District Court to declare the
validity of the arbitration clause (independent suit).
- Legal issue: the district court had to decide about the validity of the arbitration
clause in order to refer the parties to arbitration, taking in consideration a previous
lawsuit on the same matter.
- Holding: the Venezuelan court already had the issue of arbitrability before it,
thus, it should have the initial opportunity to resolve the question of Venezuelan
law before a non-Venezuelan court is called upon to do so. Such deference is
consistent with considerations of legal economy, international harmony and
parties intentions, once they chosen Venezuelan law to govern the contract. The
Court decided to retain jurisdiction, but suspended the proceedings for 60 days, in
order to afford the Venezuelan court to decide.
- Menorah v. Inx Reinsurance, US Court of Appeals, First Circuit, 1995
- Facts: Menorah and Inx had seven reinsurance contracts, according to which the
disputes would be arbitrated in Tel Aviv and would be settled by equity. Menorah
made a claim to Inx that the latter did not accept. Menorah tried to seek arbitration
but Inx responded that it would not arbitrate. Menorah filed a suit against Inx,
who chose not to respond or contest. Menorah filed an exequatur action in the
Superior Court in San Juan to enforce the Tel Aviv judgment. Only during
exequatur, Inx moved to dismiss the claim affirming that the parties had an
arbitration agreement. Inx removed the action to US federal court, which found
that Inx had waived arbitration.
- Legal issue: whether a party can waive arbitration or not.

26
-

Holding: the explicit waiver came when Inx was invited to arbitrate and expressly
declined it. The implicit waiver came from Inxs entire course of conduct, since
after three years of proceeding there was no attempt to go to arbitration. To
require the parties to arbitrate, despite their advance in court, would be unfair, and
would also give Inx a second chance in another forum. Menorah suffered
prejudice from the incurred expenses as a direct result of Inxs dilatory behavior.
Most important of all, arbitration clauses were not meant to be another weapon for
imposing delay and costs. Test to determine when a party waives its right to
arbitrate: (1) party was aware of its right to arbitration; (2) acted in a manner
inconsistent with the exercise of that right; (3) prejudiced the opposing party as a
result.
Party autonomy allows explicit waiver of arbitration. Spanish definition of waiver
requires explicit action taken indicating waiver, so INX would not waive by not doing
anything. However, if it had participated in the judicial process without bring up
arbitration, it would had waived arbitration under Spanish law.
In US law, it is important to show prejudice, that the other side was adversely affected
by not going to arbitration. This preserves the involuntary loss of right. Here, there was
prejudice to Menorah in their litigation costs.
Kompetenz-Kompetenz and separability
- Texaco and California Asiatic oil v. Libya, preliminary award, 1975
- Facts: the parties signed a contract with an arbitration clause determining that
each party should provide one arbitrator who would appoint a third. If one of the
parties did not indicate his arbitrator, the President of the International Court of
Justice had the power to designate a Sole Arbitrator. Libya refuses to appoint their
arbitrator and challenges the President of ICJ s power to solve the problem.
- Legal issue: Sole Arbitrators power to define his own jurisdiction.
- Holding: it is for the Sole Arbitrator to render a decision on his own jurisdiction.
According to the jurisdictional nature of arbitration, the arbitrator has the duty to
state the law and, as any other judge, he is the judge of his own jurisdiction. In
respect to the contractual nature of arbitration, when the duty is found directly in
the agreement of parties, there is a paragraph that established that the Sole
Arbitrator would determine the applicability of the clause and the procedure in the
arbitration. Also, unilateral cancellation of a contract has no effect on the
arbitration clause, which continues to be operative.
Today, answers to this kind of questions are typically derived from interpretation of
applicable rule, rather than from legal nature of arbitration.
Kompetenz-Kompetenz and Separability is designed to ensure the success of the
arbitration. For arbitration to be effective, it must be able to handle issues without turning
to national courts. Only when it is time to enforce a judgment should the arbitration
tribunal turn to national courts. Arbitration must be separate from government
intervention to maintain the integrity of the process.
Fiat (p. 117) Arbitration held that a person that was not yet a party to the arbitration
contract was nonetheless subject to the jurisdiction of the arbitrators. This determination

27
was challenged in court and the court held that non-party was not subject to the authority
of the arbitrators.
How much deference should a national court show to what the arbitrators have done.
There are two issues: (1) to what extent can the national court review the issue at all; (2)
what weight should they give to the arbitrators determination? The French system gives
the greatest weight to what the arbitrators have done. They take the position that unless
the arbitrators authority is manifestly improper, they will not intervene. The US system
does not go as far. For the court to accept the award there must be clear and convincing
evidence that the parties intended to arbitrate.
- American Bureau v. Jules, Cour de cassation, France, 2001
- Legal issue: declaration that the civil court is competent to decide a compensation
damage lawsuit, since the plaintiff is not a part of the arbitration agreement.
- Holding: since there is no claim for manifest nullity, the arbitral tribunal is the
one competent to decide the existence, validity and scope of the arbitration
agreement.
- SNE v. Joc Oil, Court of appeal, Bermuda, 1990
- Facts: the parties entered a long-term sale and purchase contract for oil and oil
products, which had an arbitration agreement. SNE made 39 shipments of oil to
Joc and the latter only paid 3 of them. SNE began proceedings at the FTAC
against Joc, who defended itself by saying that the container contract was invalid
because the two obligatory representatives of SNE did not sign it, consequently,
the arbitration agreement was also invalid. The FTAC, when deciding about its
own competence, ruled that it had good jurisdiction to decide. The arbitrators also
determined that, although the container contract was invalid, Joc should pay SNE
a substantial sum of money, in order to prevent unjust enrichment. SNE began
proceedings in Bermuda seeking to enforce the award.
- Legal issue: should the formal validity requisites of the container contract be
applied also to the arbitration agreement? Principle of separability.
- Holding: the doctrine of separability determines that the invalidity of the main
contract does not entail the invalidity of the arbitral clause, allowing the tribunal
to declare a contract invalid and yet retain jurisdiction to decide a dispute. The
doctrine of separability has an effect on the practice of the competencecompetence, because if separability is accepted the arbitral tribunal will only be
compelled to deny its own jurisdiction in few circumstances. However, there are
two main exceptions to this principle: when the container contract is inexistent
and when the arbitral clause itself is invalid. The burden of demonstrating that
there never was a contract will be a heavy one, particularly if at any stage the
parties acted as if there were a contract between them. Since the contract existed,
although it was invalid for the lack of the required signatures, the arbitration
clause is separable and does not require the same formality, thus, it is valid and
enforceable.
The lower court said that the burden was on SNE to prove the separability under
Soviet law. The appeal court reverses this in order to enforce NY Convention, article V

28
(1), which puts the burden of the proof on the party seeking to refuse the enforcement of
the award.
- Harbour Assurance v. Kansas General, Court of Appeal, UK, 1993
- Facts: the orthodox view in English law has always been that if the contract is
void, the arbitration clause contained in it must also be void. For this reason, the
lower court decided that the arbitrator couldnt decide if the container contract
was void ab initio. The defendants appealed.
- Legal issue: the container contract is void, under UK law, is the arbitration clause
void too? Is it possible top give jurisdiction to arbitrators to decide a dispute over
the initial invalidity of a contract?
- Holding: the court decided that the principle of separability gives power to the
arbitrators to decide whether a contract is valid or invalid, even when the ground
of invalidity was initial illegality. An arbitration clause has been held to be a selfcontained contract, collateral to the containing contract. The decision was also
based on various decisions from different countries, showing the importance of
comparative law.
Although the principle of separability is adopted by international law, therefore this
problem would not easily occur, in the hypothesis that the law of the contract does not
recognize separability, and, at the same time, the law applicable to the arbitration clause
does, to decide the question we would have to use the contact law.
- Republic of Nicaragua v. Standard Fruit, 9th Circuit, USA, 1991
- Facts: the parties signed a memorandum of intent that had an arbitration clause
with a non-existent arbitration institution. Nicaragua began an action in federal
district court against Standard Fruit claiming breach of contract and moving to
compel arbitration. The district court rendered summary judgment affirming that
the memorandum was not a biding contract and that the arbitration clause was just
a provision declaring expectations. Nicaragua appealed.
- Legal issue: it was contested if the Memorandum represented a biding contract
and if the arbitration had enough information to be performed.
- Holding: first, the court decided that the clause of invalidity of a container
contract had no effect on the arbitration clause. Therefore, although the
Memorandum was just an agreement to agree, the arbitration clause was valid.
Second, it established that the most minimal indication of the parties intent to
arbitrate must be given full effect. The court made use of the scope rule any
doubts concerning the scope of arbitral issues should be resolved in favor of
arbitration to determine the existence of the clause itself. Nicaraguas motion
to compel arbitration was granted, leaving the arbitrators to decide whether a
valid arbitration agreement existed.
It was a clear that the parties had the intention to arbitrate, but is this enough? Is the
agreement capable of being performed? To what arbitral tribunal should claimant go, who
has the power to decide that?

29

The form of the arbitration agreement an agreement in writing


As already seen, there are formal requirements for an arbitral provision, one of them is
that it must be in writing. This is not merely a requirement that there be written evidence,
but the agreement itself must be in writing, each party have to declare in writing its
consent to arbitration. This requirement has three functions: evidentiary, cautionary and
channeling.
After the NY Convention many other means of communications arose, thus, some
countries are being more flexible in this matter. Ex. France allows oral arbitration
agreements.
Uncitral Model Law, article 7 (2) - Article II of the NY Convention specifies that the
agreement must be in writing. Art. II (2) sets out further requirements. UNCITRAL Art. 7
dilutes NY Convention Article II by expanding what is a valid arbitration agreement
beyond mere writing.
Various efforts have been made to loosen the provisions in the NY Convention without
changing the Convention. The UNICTRAL Model law tries to do this. But Article IV of
the NY Convention says that you need the original award or the original agreement or
certified copies. So you need the written documents at the very least.
Neil Kaplan: Art. 7 of the UNICTRAL is slightly more extensive than Art. II (2) of the
NY Convention, but both fail to provide solution to practical problems. In commercial
practice, an arbitration clause should not have a higher degree of proof than the contract
that it is inserted on.
-

Robobar Limited (UK) v. Finncold SAS (Italy), Supreme Court of Italy 1993

Facts:
1989-1991 Finncold supplied refrigerating units to Robobar for the manufacture of
refrigerators for European and US hotels.
The purchase confirmations sent by Robobar contained a clause (in Italian) stating the
following: any dispute arising out of this order shall be exclusively referred to
arbitration by a person to be appointed by the President of the Law Society.
1991: Robobar suspended payment alleging that the units delivered by Finncold were
defective and of a poor quality. Upon answering client complaints, Robobar mentioned
the faulty performance of the Finncold units.
Finncold initiated proceedings seeking payment of the purchase price plus damages for
loss of reputation.
Robopar requested a preliminary ruling on jurisdiction by the Supreme Court which held
that the Italian court had jurisdiction as the arbitration agreement was not valid.
Issue:

Does the clause satisfy the writing requirement?

30

Holding:

No.

Reasoning: Art. II of the NY Convention recognizes as valid an arbitral clause for


foreign arbitration contained in a document signed by the parties or in an exchange of
letters or telegrams. There is no doubt that none of these formalities has been met in this
case, since the clause is only contained in Robobars confirmations, upon which Finncold
does not seem to have agreed by letter or by telegram.
The court states the agreement to arbitrate contained in an arbitral clause in a contract is
an independent agreement; its validity and efficacy must be ascertained independently of
the validity and efficacy of the contract.
Treating the formality of the underlying contract as enough to satisfy the arbitration
clause ignores the concept of separability. You need to meet the independent formalities
of each.
The Brussels convention does not apply to arbitration and the argument that the validity
of the arbitral clause must be maintained on a good faith basis after having performed
under the contract in which that clause is contained equally fails, since the formal
requirement cannot be derogated from.
-

Compagnie de Navigation et Transports SA (France) v. Mediterranean


Shipping Co. SA (Switzerland), Swiss Supreme Court, 1995

Facts:
The matter concerns a maritime carriage contract. The general conditions (along with the
arbitration clause article 2 of the general conditions) were printed on the back of the bill
of lading. Upon discovery of the fact that packages were missing and damaged, the
French company filed a request with its insurance company for indemnification. The
insurance company commenced proceedings against Med. Shipping Co. before the Court
of First Instance of Geneva. Med. Shipping objected that the State court lacked
jurisdiction because of the arbitration clause in the bill of lading.
Court of First Instance found that it had jurisdiction. Court of Appeal reversed the Court
of First Instances decision.
The Supreme Court affirmed the appellate decision, finding that a valid arbitration clause
had been concluded between the parties although the shipper had not signed the bill of
lading.
Issue:

Was this a valid written arbitration agreement under Article II?

31
Holding:
There was a bill of lading so that counts for one party. But the carrier had
not signed it so technically it does not satisfy the requirements of Art. II. Nonetheless, the
court held that because the parties were experienced traders and had prior interactions,
the arbitration agreement was valid. The parties, for several years, always made use of the
general conditions as printed on the back of the bill of lading. Even though there wasnt
a formal written agreement, there was enough additional evidence to conclude that both
parties were aware of the agreement and agreed to it.
Analysis:
There is no question that the NY Convention applies. Both France and
Switzerland are signatories. The Swiss Court reasons that Article II(2) of the NY
Convention must be interpreted in light of Art 7(2) of the Model Law [UNCITRAL
Model Law] which provides that [t]he arbitration agreement shall be in writing. An
agreement is in writing if it is 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.
The Court goes on to state that Art. 178 of the Swiss Private International Law Act
(PILA) was inspired by Art 7(2) and by Article II(2) of the NY Convention. The question
remains however, why did the Swiss Court even look at 178 in order for this provision
to apply, the seat of the arbitration tribunal must be in Switzerland but it was in London
(answer to question 3 on page 150).
Policy:
What is the extent to which the arbitration tribunal is willing to read the
text broadly. This can lead to ambiguity, which may appropriate because of the difficulty
of changing the convention. It may be possible to lessen the formal requirements if there
is evidence the parties intended for there to be an agreement (parties were repeat players,
were sophisticated).
Conclusion: The tribunal may look at who the parties are when deciding when the
agreement is valid. The tribunal may be willing to lessen the formal requirements if there
is evidence that the parties intended for there to be an agreement.
-

Sphere Drake Insurance v. Marine Towing US Court of Appeals 1994

Facts:
Marine Towing contacted an insurance company to acquire protection and indemnity
service for its vessels. A policy is eventually secured from Sphere Drake. Vessel sinks
prior to insurance policy being received by the insured. Marine Towing sues Sphere
Drake and another insurance company that Marine Towing had initially contacted (not
relevant). What is relevant is the fact that Marine Towing filed its suit in state court.
Sphere Drake removed the case to federal court and moved to compel arbitration and to
stay the litigation pending arbitration.

32
Marine Towing argued that the district court lacked jurisdiction under the Convention
because Marine Drake and Sphere Towing had no agreement in writing to arbitrate.
Issue:

Interpretation of the language of the NY Convention Art. II.

Holding:
The Court interprets Art. II of the Convention definition of agreement in
writing to include either (1) the arbitral clause in a contract, or (2) and arbitration
agreement (a) signed by the parties, or (b) contained in an exchange of letters or
telegrams. Basically the judge read the writing requirements differently. He read it
disjunctively. Theres either an arbitration clause or a separate arbitration agreement that
must be signed by the parties or contained in an exchange of letters or telegrams.
Analysis:
Does this reading make sense? It allows for a free-standing arbitration
clause, which allows the parties to circumvent the formal requirements. Seems to ignore
the policy underlying the formal requirements. (question 8 page 151)
Note: bad holding because it removes the signature requirement from the arbitral clause.
Can a battle of the forms yield an arbitration agreement? (page 151 of text)
A battle of forms: The offer and acceptance do not match. A makes an offer to B. B
replies by accepting the offer but under certain conditions. What happens if A doesnt
respond? Is there a contract? Which contract governs A, B? Under the UCC, there is a
contract for what is substantively similar, and what is different is thrown out.
-

Nokia-Maillefer SA v. Mazzer Tribunal Cantonal Swiss Court of Appeal, 1993

Facts:
Battle of the forms began with Swiss confirmation of an Italian order
which referred to Confirming party general conditions of sale. Difference between the
offer and acceptance at this stage was that it was a forum selection clause not an
arbitration agreement. The initial contract was a purchase order that provided for a forum
of Milan. The Swiss company returned the purchase order and replaced Milan with the
ICC, Paris. By telex, the Italian buyer accepted the modification. Dispute arose between
the buyer and the supplier. Nokia argued that the dispute should be referred to arbitration.
Issue:

Was there an arbitration clause?

Holding:
Court of the First Instance refused on the grounds that there was no valid
arbitration clause. On appeal, the court affirmed the lower courts decision.
ANALYSIS: No common intention of the parties was established. An arbitration clause
can only be validly concluded only where there is a common intention of the parties to
refer a possible dispute to arbitration. In this case it was not possible to determine the

33
possible intent of the parties. The court concluded the parties did not have a valid
arbitration agreement.
NOTE: There were several defects in the transaction, which was a major one? Court
states (page 153): there is no common intent on arbitration unless the final arbitration
clause has manifest and certain meaning; it is not possible to ascertain the common
intent of the parties, in particular as to the arbitration agreement; the word arbitrator or
arbitration does not appear and the ICC itself does not act as an arbitrator; appellant
must bear the consequences of the ambiguity and obscurity which it modified. Was
this a messy transaction? Another issue is to what extent should the courts make
Herculean efforts to solve the problems created by the parties messiness.
-

I.T.A.D. Associates, Inc. v. Podar Brothers (notes section on page 154)

Facts:
Contract between the NY company and the Bombay Company. Both
companies provided for arbitration but NY company for the arbitration in NY and
Bombay Company for arbitration in Bombay. A dispute arose and NY company sued in
US courts.
Issue:

was there a valid arbitration clause?

Holding:

The court compelled arbitration

Analysis:
Both parties wanted arbitration but there was no agreement on where the
arbitration should be held.
NOTE: the case is bizarre according to vonMehren! What business does the court have to
step in and decide that there should be arbitration because the parties wanted general
arbitration- the parties didnt have a complete arbitration agreement. The site was the
only element of the arbitration process that was specified. This case carries the courts
desire to arbitration further than makes sense.
Jurisdiction by Virtue of Tacit or Post-Agreement Submission or Estoppel
-

William Co. v. Guangzhov Ocean Shipping Co. High Court of Hong Kong,
1993

HISTORY:
Many companies send commercial activity to HK not China because it has
superior legal system. Lead to proliferation of cases from HK.
Facts:
A cargo owner brought an action for damages to cargo against the
defendant ship owner in HK. Important: the plaintiff brought the action in the High Court
of Hong Kong. Bill of lading issued in HK provided all disputes arising out of

34
controversy shall in accordance with Chinese law shall be tried in Chinese courts or
arbitrated there. Defendant seeks in HK courts to refer the dispute to arbitration in China.
The plaintiff argued that the matter could not go to arbitration for two specific reasons:
1. the clause was unenforceable because it was uncertain (it did not choose
arbitration or litigation to the exclusion of the other) and
2. the arbitration was not formally valid because the defendant had signed the bill of
lading but the plaintiff had not
Issue:

Was there a valid arbitration clause?

Holding:
Yes, even though the acknowledgement post-dated the arbitration clause,
this is a sufficient record of agreement.
Analysis:
Plaintiff argues that: the clause was too uncertain (provided for both
arbitration and litigation) and that it was not formally valid (document signed by one
party). Validity of the proceedings was governed by the UNCITRAL Model Law because
HK had adopted the Model Law before the bill of lading was issued.
Arbitration/Litigation: In general, the plaintiff has the right to choose the forum. In this
case the plaintiff did not choose a valid forum so it lost the choice. The court said that it
was up to the defendant in the HK action to determine whether there should be
adjudication or arbitration in China.
Formal Requirements: Model Laws formal requirement could be satisfied only if (1)
there were either letters that provided a record of the agreement or (2) an exchange of
statements of claim and defense by which the existence of an agreement was alleged by
one party and not denied by another. Issue is that after the arbitration agreement, the
exchange was made. Does this comply with the model law? Yes, the phrase record of
agreement is wide enough to include correspondence which post-dates the arbitration
agreement. Therefore there is a valid arbitration agreement. Therefore the proceedings
were stayed and the case is sent to arbitration. HK Court reads Art. 7 very broadly.
(bottom of page 157)
Court accepted the defendants argument that exchange of statements of claim and
defense (Art. 7(2)) applied to courts as well as to arbitration proceedings.
The court also says that what is clear from this article 7 is that the agreement cannot be
oral. The written agreement however, can be entered into by the partys agent.
NOTE: Raises problem of tacit submission. In litigation, if a defendant appears and
participates, it assumes the court gets adjudicatory authority. Court does not get
jurisdiction if the defendant denies jurisdiction. If defendant does not do so, then the
court get jurisdiction.

35
Problem: award from an arbitration tribunal that lacks jusrisdiction what happens?
What if there is an award from an arbitration tribunal that lacked jurisdiction? Since the
authority of the arbitrator is based on party agreement, there is no authority when there is
no agreement, even if a party participates, it seems.
Von Mehren thinks the drafters of the NY Convention never thought about this kind of
problem. Possible solution is that is the party participates in the tribunal without
challenging the tribunals authority, then it is deemed to have consented. But this ignores
the technical problem of having an agreement.
Sometimes a party will participate in the arbitration so as to protect itself from an adverse
award, even though it does not recognize the authority of the tribunal.
-

Jiangxi Provincial Metal and Minerals Import/Export v. Sulanser, Supreme


Court of HK, 1995

Facts:
Corporation concludes contract for sale of cement. Agreement was
reduced to writing but not signed by the parties. Jiangxi brings the dispute to court - the
other party wants to invoke the arbitration clause. In view of the fact that Sulanser insists
on invoking the arbitration clause before the court, Jiangxi agrees to file a request for
arbitration. The court declines jurisdiction and refers the parties to arbitration. After both
parties had appointed arbitrators, Sulanser (the same party that had initially challenged
the jurisdiction of the court on the basis of the existence of an arbitration clause)
challenged jurisdiction because of the absence of a signed agreement. The arbitrators
determined that they had jurisdiction and that there was a valid arbitration agreement.
There was an award for the claimant. Application for enforcement of the award in HK
court. Losing party (Sulanser) wants the enforcement order set aside because there was
no arbitration agreement and therefore no arbitration jurisdiction.
Issue:

was there a valid arbitration agreement?

Holding:
Yes there was a valid arbitration agreement. The exchange of letters does
not have to be between two parties. Can be between the court also.
Analysis:
Even though the NY Convention formality requirement was not satisfied,
the court could still recognize and enforce the award if the provisions of the Model Law
Art. 7 were satisfied.
Exchange of letters: Although there must be an exchange of letters to prove that both
parties agreed to arbitration the exchange does not need to between two parties. Copies of
documents submitted between each party to the Wuhan Court and to CIETAC were
received by the other. This is sufficient to the court for an exchange of letters.
It should also be noted that the court relies on an argument of good faith when it states
that within a little less than three months, the respondent concluded three contracts with
the claimant with essentially identical wording but never signed the acknowledgment of

36
the orders together with the arbitration clause contained therein that did not prevent
the respondent from relying on the clause in another two situations.
Estoppel: Estoppel is not contained in the NY Convention, its a background provision
thats available in most legal systems.
Note: Its better to rely on the exchange of letters rationale because it will be more likely
(than the estoppel argument) to be upheld when it comes to enforce the award.
NOTE: Is Art. II Para. 2 of the NY Convention an exclusive provision? (p. 164) Different
languages have different meanings.
1. Definition in English is not exclusive as it says includes
2. French definition is means which indicates exclusive.
3. Five authentic texts that are not in agreement which creates
a problem of interpretation of the convention.
4. Strong argument is that there is no reason in policy on why
Art II(2) should be exclusive. It seems appropriate to allow
a legal system to enforce an agreement that does not satisfy
the article if it is prepared to do so. Not impose the
requirement on the arbitration clause, but simply mean that
if you meet the requirement of Art. II(2) you are guaranteed
enforcement, otherwise it is a matter of national law.
-

Claimant (Austria) v. Respondent (Germany) Federal Economic Chamber,


Vienna 1994. page 161

Facts:
Austrian Company requested arbitration against German company. Claim
was breach of contract (failing to deliver steel). The contract and the arbitration clause
existed only in the acknowledgment of an order sent by the claimant to the respondent
the respondent never having countersigned (only one party signed it).
It was submitted that the respondent had not fulfilled its obligations of
the basis of two contracts for the delivery of cold-rolled sheet concluded with the
claimant, since it had either not taken delivery of or had not paid for part of the goods
purchased.
Issue:

Was arbitration clause valid?

Holding:

Yes the arbitration clause was valid.

Analysis:
An agreement to arbitrate signed by the parties or contained in an
exchange of their letters is sufficient. The requirement is also met if the addressee replies
in writing to the acknowledgement of an order in such a way that need only conclusively
show that he accepts acknowledgement of the order together with the arbitration clause

37
mentioned therein. This is what happened in this case, therefore the arbitration agreement
was valid.
Court states that according to the NY Convention, the agreement must be in writing but
this does not mean that the arbitration clause must be contained in a contractual
document signed by both parties. Though initially the respondent only tacitly accepted
the two acknowledgments of the order by the claimant, it subsequently to be precise in
a letter to the claimant of January 1993 expressly referred to the relevant contracts []
and thus satisfied the requirement as to the written form of the arbitration clause
contained therein.
The court also relies on good faith and points to the fact that the respondent has also
relied on the specific arbitration clause before the courts in other matters.
It looks that the court is really using estoppel to enforce the arbitration clause to prevent
the claimant from both relying and denying the existence of the contract.
-

UNICTRAL Proposal to Amend Model Law Article 7


ii. See p. 167 #3 should such an amendment be adopted?
iii. If you simply adopt the interpretive, non-binding resolution, then
you are simply confirming a situation exacerbate the problem of
different interpretations.
iv. Alternatively you could amend the NY Convention but that would
open up the Convention to amendment in other areas which you
would want to avoid.
v. There is no authoritative tribunal which can provide interpretation
of the various conventions. This it is difficult to gain judicial
interpretation and control when youre dealing with and
international convention such as the NY Convention. Amendments
may only make the situation worse.

Practically, it sounds as though the best strategy is to simply deal with the provision
(II(2)) of the NY Convention as it stands.
Scope of the Arbitration Clause- Settlements and Renewals
-

Mediterranean Enterprises Inc. v. Ssangyong Corp. US Court of Appeals,


Ninth Circuit, 1983 (page 168)

This dispute illustrates the importance of having a clear arbitration clause.


Facts:
MEI and Ssangyong essentially entered into a preliminary agreement for a
joint venture. Arbitration clause was accounted for. The venture went sour and MEI
alleged that Ssangyong used the venture in order to gain access to certain projects.

38
Among the allegations raised by MEI is the allegation that Ssangyong fraudulently
inserted the words arising hereunder or into the arbitration clause. District court
ordered the action stayed pending receipt by the court of the arbitration between the
two parties on certain issues essentially, the court forced the parties to go to
arbitration on certain issues by ruling that several arguments being raised by MEI
were arbitrable.
Ssangyong contends that the district court improperly interpreted the scope of the
arbitration clause between the parties. Ssangyong wanted the matter stayed before
the court on all issues and wanted arbitration to take place on all issues.
Issue: What is the scope of the arbitration clause?
The clause read any dispute arising hereunder shall be settled by arbitration.
Arising hereunder was read very narrowly and excludes peripheral matters that may
emerge but may not technically arise under the contract (such as quantum meruit
claim). The clause should have been written more broadly (any dispute arising under
or relating to the contract)
Unjust enrichment and conspiracy to breach the contract were peripheral claims.
Since the arbitration and the court proceedings would likely deal with the same issues
then there are three possible ways to deal with it:
1. Stay the court proceeding and go with arbitration first
a. This is the preferred order because the parties agreed to arbitrate, so that
agreement should hold weight.
b. Also, the issues to be adjudicated in court are dependant on the issues in
arbitration.
c. It also takes the cases off the docket.
2. Stay the arbitration and go with the court proceeding
3. Do both the arbitration and the litigation at the same time
What would the scope of the arbitration clause have been if the joint venture had been
formed?
The court would likely have included only issues related in some way to the joint venture.
Interesting to note the courts comment mid-page 172: the arbitrators award, if it
clearly exceeds the scope of his authority by deciding a matter not within the ambit of the
arbitration clause, will not be given effect by the court almost seems that the court is
assuring parties that the arbitrator can only rule on the issues sent to it by the court
-

Ermenegildo Zegna Corp v. Lanificio Mario Zegna US District Court 1996

Facts:
Companies broke up in 1941 and created an agreement in 1949 to
determine the use of the name in Italy and US. In mid-80s, plaintiff initiated an action in
SDNY for trademark infringement. In connection with the litigation, the parties

39
negotiated a settlement that included an arbitration clause and a no-contest clause. The
arbitration clause provided for arbitration in Milan under Italian Civil Code. The US
branch of the family (defendant) took the position that recent changes in the Italian law
made the provisions of the settlement unfair. The defendant claims that the dispute is
within the scope if the arbitration provision, the plaintiff argues that the no-contest clause
excludes the dispute from arbitration and that this arbitration constitutes a violation of
the Agreements no-contest clause. (page 173)
Issue:
Is the arbitration clause negated by the no-contest clause?
Holding:
No. The dispute is within the scope of the arbitration clause because it is
not excluded by the no-contest clause. The no contest clause prohibits the parties from
contesting the agreement in its entirety but does not prohibit the parties from contesting
certain provisions contained in the agreements. Court points to a severability clause in
the agreement and also states that the parties are sophisticated if they wanted to
preclude the exclusion of specific provisions, they would have said so.
Interesting comment by the court on page 175: when assessing whether or not the matter
was arbitrable as a result of falling under the rights, duties and obligations of the parties
as stipulated in the second clause of the arbitration provision, the court states any doubts
concerning the scope of arbitrable issues should be resolved in favour of arbitration.
Provisions that exclude certain disputes from arbitration must be clear and
unambiguous (page 175).
Analysis:
What is the effect of a no-contest clause when it arises in connection with
the arbitration? The parties had submitted to arbitration the issue on which there is
supposed to be no-contest, which poses a Kompetenz-Kompetenz problem because it
requires arbitrators to determine their authority. The solution to the no-contest problem
which emerges from litigation is different from what is appropriate in arbitration. In
arbitration it is an issue that relates to whether the parties have conferred on the tribunal
adjudicatory authority. The court only has the authority to look at the arbitration clause,
the no-contest clause falls to the arbitrators to interpret.
To take the same approach to the meaning of the no-contest provision in arbitration that is
given to it in judicial decisions runs contrary to the first option principle that the court
should decide whether the issue is submitted to arbitration. The parties must be explicit
about what they intended. This is an issue to be decided by the courts unless the parties
have made absolutely clear that they confer authority on the tribunal.
NOTE: What issues are arbitrable in the Ssangyong case if they adopted the language
from Zegna? With the broader language the claim for quantum meruit would be included
but the other issues would still be outside because they relate to the joint venture
agreement but do not arise from it. This is all about the subtleties of language.
Court states that in the Zegna case, it is not clear and unambiguous that the parties
wanted to exclude the underlying dispute from arbitration and when one considers the

40
strong policy favoring arbitration as an alternative means of dispute resolution, the
court sent the matter to arbitration.
-

Hart Enterprises International v. Anhui Provincial Import & Export - US


Dist. Crt. 1995 (page 177)

Facts:
NY textile distributor buys goods from Chinese Supplier. Sues for
damages for deficiencies of goods and breach of contract. Defendant moves for a stay
pending arbitration in China pursuant to an arbitration clause contained in the defendants
confirmation of the sales. The motion is granted.
Hart had signed the document that included the arbitration clause. Hart failed to make the
required payments. A settlement agreement was entered into. The original agreement said
you must try to settle and if no settlement can be reached you go to arbitration. They
reached a settlement that was subsequently breached by Hart. Hart resisted arbitration
even though the settlement agreement said they should go to arbitration under previous
contract. Hart argues that the issue should go to litigation because there was a new and
distinct contract. Further, they claimed the prerequisite for arbitration had not been met.
Basic problem: A settlement was reached but not carried through. Hart no argues that
there was no recourse for arbitration because there was no arbitration clause in the
settlement agreement and that the settlement agreement represents a contract distinct
from the initial agreement. (As an aside, Hart also raises undue hardship.)
Issue:
Was there recourse to arbitration? Had the plaintiff lost its right to
arbitration because it entered into a settlement agreement, even though the settlement
agreement turned out not to be performed?
Holding:
Yes, there was recourse to arbitration. Even if the settlement agreement
governed, that agreement provided for the full rights under the original agreement, so
there is still a right to arbitration. The settlement agreement and the original agreement
are inexorably linked. If the settlement agreement did not govern, then there was a
right to arbitration based on the original contract. The settlement agreement was merely
the extension of the original agreement therefore incorporated some of the rights granted
under the original agreement.
Court draws a distinction between this case and another (First Options) in that case,
there were four documents and only one of the documents contained an arbitration
agreement. The party disputing the application of arbitration did not sign the one
document containing the arbitration clause.
Hart also argued that arbitration in China would provide undue hardship. This is not a
persuasive argument- Hart should have taken this into account in the first place. He
agreed to arbitrate and now he is stuck with it.

41
-

Becker Autoradio v. Becker Autoradiowerk US Court of Appeals 3rd circuit,


1978 (page 180)

Facts: US firm entered into an exclusive distributorship agreement with German supplier.
Contract terminated on June 30, 1976. In early 1977, Becker USA fought this action in
federal district court alleging the German company had promised to renew the agreement
provided that Becker USA fulfill certain conditions. Becker Germany moved to stay
judicial proceedings and compel arbitration. Court of appeals granted this motion.
The initial arbitration agreement provided for arbitration of all disputes arising out of
and about this agreement.
In reaching its conclusions, the court distinguished cases, in which the disputed
transaction occurred prior to the expiration of the contract whose arbitration was invoked,
from cases in which the disputed transaction occurred after expiration. (page 180) In
the former type (at least where a renewal would cause the entire agreement to be carried
forward), it can be said that the dispute as to termination and renewal arises out of or is
about the agreement that contains rge arbitration clause. (page 181)
NOTE: Why does Becker Germany want arbitration while Becker USA prefers court
adjudication? Choice of law in federal court is determined by the court rather than by the
parties. Adjudication might include a jury trial (jury might be more willing to accept the
story than the arbitrators would).
Does Becker Germany have a strong argument as to why this matter should go to
arbitration?
Did the original agreement contain provisions that said that unless the parties indicate
otherwise, the contract will automatically be renewed? No. The agreement said that to
renew the agreement, negotiations should begin 6 months prior to termination.
In the absence of a tacit agreement provision, is an oral agreement effective to renew the
contract?
No- the formal requirement under Art. II of the NY Convention is not met for any
arbitration clause to be in force.
Can one say that when there is an existing contract that it can be completely renewed
(along with the arbitration agreement) then there is no need for the formality under Art.
II?
Generally, the formal agreements must always be met with every contract.
In terms of policy, without explicitly providing for a tacit agreement, there would need to
be a complete formal renewal of the contract.
To what extent is it significant whether the renewal occurred before the expiration of the
contract? It depends on how you read the arbitration clause: If you read it as only
applying to disputes that arose during the life of the agreement versus if you read it as
also applying to disputes that arise after the termination of the agreement. This issue does
not relate to the formality requirements.

42
Von Mehren thinks the court should be looking first at the formal requirements and only
second at when the renewal occurred.
NOTE: Von Mehren thinks that the district court was right, but that the 3rd circuit has
gone to extreme efforts to make the arbitration available. If the plaintiff really wanted to
get into PA courts so as to have a jury trial, then the 3rd circuit is really going to try to
block this by providing arbitration. Arbitrators are not going to be as sympathetic as a
jury to the implausible story.
Is an oral agreement sufficient to renew a previous agreement. District court says no, 3rd
circuit says yes to protect the arbitration. Von Mehren says district court was right, but 3rd
circuit went too far.
II.1.g The Position of the Parties Who Are Not Signatories of the Arbitration
Agreement
a) Cosmotek Case (United States District Court, District of CT, 1996, p. 183)
Facts:

Cosmotek USA and Cosmotek Turkey entered into an agreement (containing


an arbitration clause) whereby Cosmotek Turkey became USAs distributor for
the sale of units, which were manufactured by APSI who was neither a
signatory nor a party to the contract. Cosmotek Turkey argues having claims
against both Cosmotek USA and APSI.

Issue:

Cosmotek Turkey argues that both claims should be heard together in federal
court, notwithstanding the arbitration clause, because APSI (the not signatory
party) cannot be compelled to arbitrate. Cosmotek USA and APSI move to
stay the proceeding before the District Court because of the arbitration clause.
The issue is whether the court can merge what was supposed to be submitted
to arbitration into the court proceedings.

Holding: The Court did not accept to merge both proceedings. It granted the motion for
a stay of the court proceedings, subject to the reporting to the court as to the
progress of the arbitration proceedings and subject to the absence of any delay
or hindrance in the arbitration proceedings. The reasoning of the Court was
the following:
o The Federal Arbitration Act (FAA) does not apply to the plaintiffs
claims against the not signatory party.
o An arbitration agreement must be enforced notwithstanding the
presence of other persons who are parties to the underlying dispute but
not to the arbitration agreement. Because there is a valid arbitration
clause, the court has no discretion to merge both proceedings.
o The Court rejected the plaintiffs argument that APSI, the not signatory
party, was bound by the arbitration agreement under agency law.
Indeed, the Court rejected the plaintiffs agency theory (i.e. that the
signatory contracted as APSIs agent) on the ground that the agentprincipal relationship was not disclosed in the contract.

43
o Since the court decided not to bring the not signatory party into the
arbitration proceedings, the question of the sequence of both
proceedings arose. The court granted the stay of its proceedings
because the not signatory party would not suffer any hindrance or
obstruction in an expeditious determination of its claims by a stay and
relegation to arbitration. If the court had not stayed its proceedings,
there could have been different decisions on the same issue.
To sum up, the Court stayed the litigation to wait the results of the arbitration and ordered
safeguards in order to avoid undue delay. The consolidation of both proceedings would
have resulted in more difficulties (in particular at the enforcement stage) than advantages.
b) The theories for binding non-signatories to arbitration agreements
The two following situations should be distinguished, the first one being far more
common than the second:
Situation where a signatory tries to force a nonsignatory to join the arbitration
proceedings as a party (Cosmotek case);
Situation where a nonsignatory wants to intervene in an arbitration against the
objection of one or both parties.
As to the first situation, US case law has recognized the 5 following theories under which
non-signatories may be bound to arbitration agreements of others (see in particular
Thomson-CFS, SA v. American Arbitration Association):
1. Incorporation by reference: A nonsignatory may compel arbitration against a party
to an arbitration agreement when that party has entered into a separate contractual
relationship with the nonsignatory which incorporates the existing arbitration
clause.
Case law examples:
o Separate agreement with nonsignatory expressly assuming all the
obligations and privileges of signatory party under an agreement
constitutes grounds for enforcement of the arbitration clause by
nonsignatory.
o If a partys arbitration clause is expressly incorporated into a bill of lading,
nonsignatories who are linked to that bill through general principles of
contract law or agency law may be bound.
2. Assumption: In the absence of a signature, a party may be bound by an arbitration
clause if its subsequent conduct indicates that it is assuming the obligation to
arbitrate.
3. Agency: (this argument was made in Cosmotek) Traditional principles of agency
law may bind a nonsignatory to an arbitration agreement. An agent who signs a

44
contract on behalf of a disclosed principal will not be individually bound absent
explicit evidence of the agents intention to bind himself instead of or as well as
the principal. When an agent signs a contract and does not indicate in the contract
that he is signing on behalf of a disclosed principal, as its agent, the agent is
deemed to be acting on his own behalf.
4. Veil Piercing / Alter Ego: In some instances, the corporate relationship between a
parent and its subsidiary is sufficiently close to justify piercing the corporate veil
and holding one corporation legally accountable for the actions of the other.
Courts generally pierce the corporate veil in two broad situations: to prevent fraud
or other wrong and where a parent dominates and controls a subsidiary. It should
be noted however that veil piercing determinations are fact specific and differ
with the circumstances of each case.
5. Estoppel: Nonsignatories can also be bound to arbitration agreement under the
estoppel theory: if a party does not sign the agreement but knowingly exploits it,
then it may be bound to the arbitration clause.
Those theories developed in connection with a signatorys effort to join a nonsignatory as
a party in an arbitration are not decisive in case of a nonsignatorys effort to intervene in
an arbitration against the objection of one or both parties.
In several cases, a signatory was bound to arbitrate with a nonsignatory at the latters
insistence because of the close relationship between the entities involved, as well as the
relationship of the alleged wrongs to the nonsignatorys obligations and duties in the
contract and the fact that the claims were intimately founded in and intertwined with the
underlying contract obligations.
The following problems arise in connection with enlarging the arbitration to
nonsignatories:

Arbitrators: the principle of arbitration that each party should have right to name
an arbitrator can be violated. If there are different parties that have the same
interest, then their position can be represented by one arbitrator. If the positions
are not identical, more arbitrators are needed.

Enforceability: The legal order may not recognize and enforce an award rendered
against someone who is not a party to the arbitration agreement. It is questionable
whether the above discussed theories for binding not signatories are compatible
with the agreement in writing requirement of Article II(2) NY Convention and
of Article 7(2) Model Law. Prof. von Mehren did not answer the question!

Often, persons who are the real debtors tend to remain behind the scene and the
temptation has grown quite unsuccessfully to reach for the real personae dramatis. For
example, an award rendered by an ICC tribunal which asserted jurisdiction over 4 states

45
when the party signing the arbitration agreement was an organization created by these
states was set aside by Swiss Courts.
Split Arbitration Clauses
a) Astra Footwear Industry v. Harwin International Inc (United States District Court,
Southern District of NY, 1978, p. 193)
Facts:

The sale contract entered into between the two parties contained the following
split arbitration clause: For all claims of disputes arising out of this
agreement which could not be amicably settled between the parties, is
competent the arbitrage for export trade at the Federal Chamber of
Commerce in Beograd (sic). In the case that the buyer is accused, the
Chamber of Commerce in New York is competent. A dispute arose between
the parties and Astra sought to compel arbitration before the International
Chamber of Commerce in New York.

Issue:

The issue was the identification of the arbitration institution chosen by the
parties: did they agreed upon the New York branch of the ICC or upon the
New York Chamber of Commerce, which at the time of the conclusion of the
contract provided arbitration services but had ceased doing so?

Holding: The Court granted the petitioner motion to arbitrate. It ordered arbitration
before an ad hoc tribunal and asked the parties to submit the names of possible
alternate arbitrators, saying that in the event the parties fail to agree on one
arbitrator, the Court would designate one. The reasoning of the Court was the
following:
o An arbitration agreement was made and the making of such agreement
was not in issue in the present case.
o The parties intended the New York Chamber of Commerce (and not
the ICC office in New York).
o Since the New York Chamber of New York no longer operates as an
arbitral institution, the court had to set the details of the arbitration, in
particular regarding the appointment of the arbitrators. In view of the
federal policy to construe liberally arbitration clause and to resolve
doubts in favor of arbitration, the court relied on section 5 of the 9
U.S.C., which provides for assistance when the arbitrator selected by
the parties cannot or will not perform. This rule was extended to a
situation in which the institution selected by the parties cannot perform
arbitration functions.
According to Prof. von Mehren, 9 U.S.C. section 5 does not really apply to this case (the
situation where an institution disappears is quite different from the situation where a party
fails to appoint an arbitrator). In this situation you get an ad hoc (not an institutional)

46
arbitration and you get one arbitrator instead of three. The case shows the courts
willingness to save arbitration if it is reasonable.
b) YugoslaviaCo v. PDR Korea CO (Arbitration Court of the GDR, 1982, p. 197)
Facts:

The arbitration clause provided for arbitration in China, in Poland or in


Germany (those countries had state arbitration courts): If no mutual consent
is reached the arbitration of Peoples Republic of China, the Peoples
Republic of Poland and the GDR will be adopted. The Plaintiff filed a
petition with the Arbitration Court of the GDR. He mentioned that it had filed
the same petition with the Polish Arbitration Court before, which had declared
himself incompetent after the Defendant had challenged its competence. As
Defendant refused to participate in the arbitration proceedings, the Plaintiff
moved for the issue of an interim award concerning the competence of the
Arbitration Court.

Issue:

The issue is whether the arbitration clause may be regarded as an effective


arbitration agreement and thereby as a basis for the competence of the
arbitration court. The Defendants argues that the parties agreed upon a twostep procedures, i.e. that the clause is a preliminary agreement to arbitrate, but
that it required a further agreement in order to be effective.

Holding: The Court found the arbitration clause as being valid and effective and
interpreted it as an optional one which allows the Plaintiff the choice of
applying to any arbitration court of the three mentioned countries.
c) Comments
Split arbitration clauses were often used in the CMEA.
A split arbitration clause is a clause providing that different institutions have jurisdictions
over different issues of the case.
The allocation criterion in split arbitration clauses is typically the position of the parties
in the lawsuit or the nature of the dispute (e.g. technical v. legal or non-technical
disputes). Other distinguishing criteria are also used. One of the main problems in
connection with split arbitration clauses is the inherent difficulty in drawing the dividing
line. Difficulties also arise in case of counterclaims.
Changed Circumstances
a) Partial decision of April 2, 1992 (Landgericht Kassel)

47

Facts:

The contract provided for arbitration in Belgrade. By the time the dispute
arose between the parties, the Socialist Federal Republic of Yugoslavia
(SFRY) had broken up and war turmoil made it impossible to get to Belgrade,
so that the Claimant decided not to file its claim before the arbitration tribunal
in Belgrade but before the German Court. At the same time, Claimant
informed the defendant that it terminated the arbitration agreement for cause.

Issue:

The question is whether the Claimant can terminate the arbitration agreement
because of the changed circumstances.

Holding: The Court found that claimant had the right to terminate the contract because
of the changed circumstances. The courts reasoning was the following:
o Should an arbitration agreement become for whatever reason
practically unfulfillable, each party shall have the right to terminate
it for cause. Although by concluding an arbitration agreement a
party renounces to a large extent the legally guarantied judge, this
does not yield, however, a renunciation of legal protection of state
courts in the event the arbitration clause becomes impossible to
carry out.
o In the present case, an effective legal protection from arbitration
can no longer be expected because of the totally changed
circumstances (all telephone and postal communications with
Belgrade were interrupted; it was almost impossible for claimant to
get to Belgrade; SFRY was in a state of war).
It should be noted that another German Court was also faced with the impact of the
breakup of Yugoslavia on arbitration. The Belgrade Tribunal rendered an arbitral award in
favor of a Croatian Claimant against the German Respondent after the breakup. The
Claimant sought recognition and enforcement in Germany. The Court did not accept
Respondents argument that the arbitration agreement lost its validity after Croatia
became a separate state.
II.2

LIMITS ON ARBITRABILITY

National decision-makers (legislatures or courts) have essentially been left to their


own discretion in defining the disputes that can be settled by arbitration. Indeed,
the NY Convention (see articles II(1), II(3) and V(2)) and the UNCITRAL Model
Law (see articles 8(1), 34(2)(b) and 36(1)(b)) both acknowledge that non
arbitrability may defeat an arbitration agreement or prevent enforcement of an
award, but they do not attempt to define the concept.

Countries have traditionally been reluctant to allow arbitration in spheres where


there is a strong public interest at stake, i.e. in areas regulated by mandatory rules
of law designed to protect important public interest.

48

Civil-law countries rely largely on legislation to mark the borderline between


what is and what is not arbitrable. The touchstone in this legislation is often
the distinction between claims that are, and those that are not, within the free
disposition of the parties (see the French Code Civil: rights of which one can
dispose freely; Swiss Private International Law Act: any dispute involving an
economic interest).

Common-law countries rely largely on case law to delimit arbitrability (see the
US cases discussed below).

In both civil-law and common-law countries court disputes in the following areas,
which are generally regulated by mandatory rules of law designed to protect
important public interest, have sometimes been found nonarbitrable:
o Antitrust
o Securities law
o Intellectual property
o Damage from unilateral termination of exclusive distributorship
agreements
o Political embargoes
o Damage to cargo carried under a bill of lading (COGSA claims)
o Bankruptcy
o Administrative contracts.

The trend in most legal systems is in the direction of sharply limiting the
nonarbitrability doctrine.

The arbitrability issue can arise at 4 points in the life of an arbitrated dispute:
o Before a national court deliberating whether to enforce an arbitration
agreement
o Before the arbitrators as they try to decide the scope of their competence
o Before a court, generally in the country where the arbitration has taken
place, in an action to set aside the award
o Before a court asked to recognize and enforce the award.

II.2.b Statutory Definitions of Arbitrability and Their Interpretation


See pp. 210-212 for examples of statutory definitions of arbitrability.
a) Fincantieri-Cantieri v. Ministry of Defense of Iraq (Court of Appeal of Genoa, 1994)
Facts:

This case involved a number of contracts concluded between the Republic of


Iraq and Italian shipbuilders for the supply of corvettes (ships). All contracts
contained a standard ICC arbitration clause. Embargo legislation against Iraq

49
was then issued by the European Union and Italy. The Italian parties
commenced proceedings against Iraq in the Court of Italy, alleging frustration
of contract and seeking termination and damages. The Iraqi ministry objected
to the courts jurisdiction arguing that the dispute should have been referred to
arbitration.
Issue:

In light of the newly adopted Italian embargo legislation, is the dispute


arbitrable?

Holding: The Court hold that the dispute was not arbitrable due to Italian embargo
legislation. The courts reasoning was the following:
o It is beyond doubt that the rights deriving from those contracts
could be freely disposed at the time when the arbitral clause was
stipulated. It is equally beyond doubt that they could not when this
action was commenced because of the embargo legislation. But is
this dispute arbitrable in the circumstances of this case?
o The answer to the question whether the arbitral clause contained in
the contracts was null and void, inoperative or incapable of being
performed under article II(3) of the NY Convention must be
sought in Italian Law (article 806 Code of Civil Procedure), as this
question directly affects jurisdiction, and the court can only deny
jurisdiction on the basis of its own legal system.
o The court found that under Italian law the dispute was not
arbitrable. The court did not agree with the lower courts reasoning
that any dispute on the validity or the termination of the contract,
which does not lead to a decision on diritti indisponibility (rights
of which the parties may not freely dispose) cannot be deemed to
fall outside the jurisdiction of the arbitrators. In this case, referral
of the dispute to arbitrators could have affected rights which
international and national embargo legislation had made
indisponibili. Also, an hypothetical arbitral award against the
claimants, denying termination of the contract, would have
recognized the continuing validity of the contracts, thereby
affecting dritti indisponibili.
It seems that the court says that Italian law invalidates any arbitration clause under which
arbitrator might reach a result inconsistent with Italian mandatory law.
b) Covem SpA v. Compagnie Franaise des Isolants (Court of Appeal of Bologna, 1993,
p. 219)
Facts:

In Covem an exclusive distribution contract barred the distributor in Italy


from selling similar products for a period of 2 years after the termination of
the contract. It provided for ICC arbitration in Paris under French substantive
law. After termination of the distribution contract, the Italian distributor sued

50
before the Court of first instance in Bologna to have the non-competition
clause declared invalid, arguing that it violated European antitrust law.
Issue:

Is this antitrust dispute arbitrable?

Holding: The Court of first Instance applied Italian Law to the question of arbitrability
(following the lex fori principle), noted that European antitrust law is
mandatory and found that Italian law barred arbitration. The reasoning was
similar to that in Fincantieri. On appeal however, the Court of Appeal
reversed and referred the parties to arbitration. The reasoning was the
following:
o The court applied Italian Law not based on a lex fori principle, but
because the French party had not shown that French law differed form
Italian Law.
o The court said that according to a recent Supreme Court decision, for
the arbitral clause concerning disputes on diritti indisponibili to be null
and void - and consequently for the contract to be null and void- it is
necessary that the contract containing the arbitration clause affect the
diritti indisponibili by transferring, waiving them etc, thereby
disposing of them in violation of the law. Therefore, all other disputes,
including those disputes concerning the validity of a contract having as
its object diritti indisponibility, are arbitrable just as are arbitrable all
other disputes concerning the contracts validity- insofar as they do not
affect diritti indisponibili.
o Since the arbitral clause is autonomous with respect to the contract, the
court hold that the disputes concerning the contracts validity (more
specifically the validity of the non-competition clause) were arbitrable.
The Covem and Fincantieri decisions both discussed the following Italian Supreme Court
decision:
c) Italian Supreme Court Decision of May 19, 1989 (p. 220)
Facts:

Epargne had agreed to sell its business to Quarker, including know-how and
an important trademark. In return, Quarker had agreed to pay royalties to
Epargne. Under Italian mandatory law, it is forbidden to sell a trademark
without also selling the firm that make the product to which the trademark
attaches.
The agreement was not carried out and the parties went to arbitration. Epargne
asked for execution of the contract and payment of royalties. Quarker sought
to avoid performance under the agreement, but without challenging the
validity of the agreement under Italian Law. The arbitral tribunal, considering
the validity of the agreement not in question, rendered an award in favor of
Epargne ordering the payment of royalties. Quarker sought to set aside the
award.

51
Issue:

Should the arbitral award be set aside on the ground that the dispute was not
arbitrable and that the arbitration agreement was invalid?

Holding: The court did not set aside the award for the following reasons:
o First, the arbitration would be invalid , if two conditions were met: (i)
the container contract, in which it was found, actually transferred
rights that the law prohibited to be transferred and (ii) any party
settlement or arbitral award concerning the contract actually
transferred a non-disposable right.
o Second, the arbitration clause would be invalid if it expressly
authorized the arbitrators to decide whether the container contract
transferred a non-disposable right and hence was invalid.
o Because the award in that case only ordered the payment of royalties
and because the arbitration clause was of a generic, non-specific
nature, the court found the arbitration agreement valid.
o The court also noted that if arbitration proceeds under a valid, general
arbitration clause and in that proceeding a party raises a claim of
invalidity because a non-disposal right has been transferred, then the
award will be annulled if the arbitrators do not apply the mandatory
law correctly.
Which court of appeal decision, Coveme or Fincantieri, seems more consistent with this
Italian Supreme Court decision?
II.2.c Arbitrability Tested in Court Practice
The following case is the leading United States decision on arbitrability.
a) Mitsubishi Motors Corporation v. Soler Chrysler-Plymouth (US Supreme Court,
1985, p. 221)
Facts:

Soler entered into an exclusive distributor and sales agreement with CISA, a
Swiss company wholly owned by Mitsubishi and Chrysler. The agreement
contained a choice-of-law clause providing for application of Swiss law.
A dispute arose that led Mitsubishi to file a request for arbitration before the
Japan Commercial Arbitration Association, as provided in the arbitration
clause contained in the agreement. Mitsubishi also brought an action before
the US Courts seeking an order to compel arbitration.
Soler responded by making antitrust counterclaims under that the Sherman
Act2. It alleged that Mitsubishi and CISA had conspired to divide markets in

Under the Sherman Act, the validity of territorial restrictions in exclusive distribution
agreements is governed by what is called the rule of reason. Under the rule of reason, a
court must weight the anticompetitive tendencies of a given agreement against the pro-

52
restraint of trade by refusing to permit Soler to resell cars to buyers in other
areas3. The District Court ordered the parties to arbitrate. The Court of Appeal
hold the antitrust counterclaims nonarbitrable.
Issue:

The Issue is the arbitrability, pursuant to the Federal Arbitration Act and the
NY Convention, of claims arising under the Sherman Act and encompassed
within a valid arbitration clause in an agreement embodying an international
commercial arbitration.

Holding: The Supreme Court considered Solers antitrust claims arbitrable.


o The court of appeal, which found that the antitrust claims were
nonarbitrable, based its decision on the American Safety Equipment case.
In American Safety Equipment, which involved domestic arbitration, the
2nd District Court found that antitrust claims are nonarbitrable for the 4
following reasons:
1. Private parties play a pivotal role in aiding the government
enforcement of antitrust law by means of the private action
for treble damages (the Sherman Act provides that damages
are 3 times the amount that the fact-finder determines is
owed). Indeed, the Sherman Act provides for two kinds of
enforcement: private enforcement (by parties) and public
enforcement (by judicial system).
2. The strong possibility that the contracts which generate
antitrust disputes may be contracts of adhesion militates
against automatic arbitration. Review should proceed
before the courts rather than the arbitrators.
3. Antitrust issues tend to be complicated and require
sophisticated legal and economic analysis and thus are illadapted to strengths of the arbitration process (i.e.
expedition, simplicity, minimum requirements, common
sense, equity). In other words, the arbitrators skills may
not be sufficient to deal with antitrust issues.
4. The antitrust law is too important to be decided by private
arbitrators, especially if they are foreign.
o The Supreme Court expressed skepticism regarding the American Safety
doctrine, saying that there is no reason to assume at the outset of the
dispute that international arbitration will not provide an adequate
mechanism. It further said that the tribunal is bound effectuate the
intentions of the parties. Where the parties have decided that the arbitral
competitive and other welfare-enhancing aspects of the transaction. Antitrust law is
violated only if on balance the anticompetitive aspects predominate.
3

Soler did this to improve its bargaining position by increasing pressure on the other side to settle. If there is
any merit to the antitrust action, the proceedings in the courts could potentially result in large damages.

53
body is to decide a definite set of claims, which includes claims arising
from the application of American antitrust law, the tribunal therefore
should be bound to decide that dispute in accord with the national law
giving rise to the claim.
o The Supreme Court noted that having permitted the arbitration to go
forward, the national courts of the US will have the opportunity at the
awards-enforcement stage to ensure that the legitimate interest in the
enforcement of the antitrust laws has been addressed (see article V(2)(b)
of the NY Convention, which reserves public policy of the country where
enforcement is sought).
In the present case, the parties agreement also included a choice-of-law clause providing
for application of Swiss law. The Supreme Court is in fact saying that it is perfectly
permissible to arbitrate foreign antitrust claims so long as the arbitrators will, no matter
what the law chosen by the parties for governing their dispute says, apply US laws to
such claims. Otherwise enforcement of the award may well be denied. This is the socalled Second-look doctrine: We will let these issues go to arbitration, but we reserve
the right to review the award if they dont respect the public policy of the national law.
Prof. von Mehren notes however that, as a practical matter, it is not likely that the US
courts will have a second look at the stage of the enforcement of the award. Once there
is an arbitral award, the distributor would have to pursue further litigation which is
unlikely to happen.
Commenting the Mitsubishi decision, J. Werner said that it is very unlikely that
arbitrators would accept to apply US antitrust law to claims to be ruled, according to the
parties clear will, by Swiss law. The ICC said however that it is more likely (but not
sure) that arbitrators would consider the antitrust claims under US law because
according to leading German and French authorities, there is a growing tendency of
international arbitrators to take into account the antitrust laws and other mandatory legal
rules expressing public policy enacted by a state, even though that states law does not
govern the contract by virtue of the parties choice or applicable conflicts rules.
Some commentators said after Mitsubishi that it was likely that litigants in international
arbitration would be tempted by the Courts reference to the possible invalidation of
awards that improperly resolve antitrust claims to raise antitrust claims and defenses with
the intention of using them in later attacks upon the award. But apparently there has been
no particular increase in the assertion of antitrust claims.
It should also be noted that the Court of Justice of the European Communities (ECJ), in
Benetton, held that a Dutch court was required to annul an award (and in a relevant case
to refuse to recognize or enforce such an award) where it violated European Union
antitrust law, even though the parties and the arbitrators did no raise antitrust issues
during the arbitration proceedings, and even though under Dutch law an awards
inconsistency with Dutch antitrust law would not have risen to the level of public policy
needed to annul the award.

54

55
II.2.d Law Applicable to Arbitrability
a) MSA (Belgium) v. Company M (Switzerland) (Court of Appeal of Brussels, 1985) (p.
247)
Facts:

This case involved an exclusive distributorship agreement having its effects,


inter alia, in Belgium and containing an arbitration clause and a choice-of-law
clause saying that Swiss law applies. The Belgian party stated court
proceedings in Belgium. The Swiss party objected to the Courts jurisdiction
on the basis of the arbitration clause. The Tribunal de Commerce found the
arbitration clause invalid under Art. II(1) of the NY Convention, on the
ground that under mandatory Belgian law the matter was not arbitrable (under
the Statute on Unilateral Termination of Concessions for Exclusive
Distributorship agreement, Belgian Court are competent and Belgian Law
applies). The Swiss party appealed and the lower court decision was reversed.

Issue:

Is this dispute arbitrable?

Holding: The Court held that the dispute was arbitrable and that Swiss law applied to
this question. The courts reasoning was the following:
o The arbitrability of a dispute must be ascertained according to
different criteria, depending on whether the question arises when
deciding on the validity of the arbitration agreement or when
deciding on the recognition and enforcement of the arbitral award.
o When the arbitrability of the dispute is considered only from the
point of view of the validity of the arbitration agreement, i.e. when
the issue arises before the arbitral tribunal or before a court
requested to decide only on this issue (and hence independently
from any enforcement proceedings), it is sufficient for the
arbitrator or the court - to ascertain whether the law of autonomy
authorizes the submission of the dispute to arbitration.
o According to the NY Convention, the arbitrability of the dispute
under the law of the forum must be taken into consideration only at
the stage of recognition and enforcement of the award and not
when examining the validity of the arbitration agreement (article
II(1)).
o In casu, the parties have agreed that the contract is governed by
Swiss Law. Swiss law therefore applies to the question of
arbitrability.
NOTE: The Cour de Cassation has overruled the decision of the Court of Appeal. Thus,
arbitrability can only be decided under Belgian law. An issue can not be found arbitrable
unless the parties agree that the issue be governed by Belgian law (Maude).

56
Would the Belgian courts be required under the NY Convention to recognize an award
rendered in such a case? No. In a case with facts similar to those of the above-mentioned
case, a German manufacturer sought recognition of a Swiss arbitral award to bar a
Belgian distributors court action in Belgium based on mandatory Belgium Law. The
Belgium Supreme Court relied on Article V(2)(a) to refuse to recognize the award on the
ground that under Belgian Law the matter was not capable of settlement by agreement
and that Belgian law was mandatory.
Van den Berg has criticized the solution adopted in MSA v. Company. His position is the
following: For the enforcement of the arbitral award, the NY Convention refers in Article
V(2)(a) to the law of the country where the enforcement is sought, i.e. the lex fori. For
the enforcement of the arbitration agreement, the Convention is silent to this point:
Article II (2) merely states that the agreement must concern a subject matter capable of
settlement by arbitration. Notwithstanding this silence, it is must be presumed that for the
enforcement of the arbitration agreement also the lex fori governs the question of
arbitrability.
b) Consultant (France) v. Egyptian Local Authority (ICC arbitral award, 1990)
Facts:

The parties entered into a contract according to which the consultant had to
make technical and financial studies to prepare the book of a tender for a
construction project in Egypt. The contract provided for arbitration in Geneva
under the ICC Rules and for Egyptian Law to be applicable. The Egyptian
authority argued that the contract was an administrative contract and that the
administrative courts well exclusively competent, the dispute being therefore
non-arbitrable.

Issue:

Is this dispute arbitrable?

Holding: The Arbitral Tribunal held that the dispute was arbitrable. Wihtout
determining whether the parties contract was an administrative contract, the
arbitrator concluded that because the seat of the arbitration was Geneva, it is
necessary to determine to which extent the Swiss rules governing international
arbitration apply to decide the issue of arbitrability and enable an arbitral
tribunal to refuse to apply foreign legal provisions according to which the
dispute would not be arbitrable. Applying Article 177(2) Swiss Private
International Law Act, the arbitrator concluded that it was not possible to
invoke Egyptian Law to contest the arbitrability of the dispute.

CHAPTER III : THE ARBITRATORS


III.1

The Arbitators - Qualifications, rights and responsibilities

57

III.1.a Note

Arbitration can provide a truly neutral ground for the settlement of dispute. One
of the most important elements of this neutrality is the arbitrators. The parties can
choose their arbitrators and in doing so may combine or choose between the two
main types of fairness in third-party decision making: impartiality or balance.
Neutrality is not synonymous with impartiality. It is an exterior sign or an
indication of likely impartiality. There are 2 dimensions in the neutrality: the
personal level (the absence of family and business ties) and the general level
(based on the group of affiliation, e.g. Nationality, religion, ethnic background).
Arbitral institutions often discuss those issues in practical guidelines. Guidelines
may also be found in the lex arbitri.
Legislators have generally refrained from posing requirements based on groupaffiliation, in particular nationality (see e.g. aricle 11(1) UNCITRAL Model Law:
no person shall be precluded by reason of his nationality from acting as
arbitrator). Institutional rules have shown more sensitivity to appearance of bias
on the ground of nationality (e.g. Article 9(5) ICC Rules provides that the sole
arbitrator or the third arbitrator shall be chosen from a country other than those
which parties are nationals).
Often, potential arbitrators are expected to help the parties in their choice by
disclosing any circumstances which may give rise to justifiable doubts as to their
impartiality (see on p. 270, an example of the statement of independence
arbitrators often have to sign).
The number of arbitrators: In the majority of countries, the number of arbitrators
must be uneven. The Cour dappel the Paris held that an arrangement of the
parties to submit the dispute to 2 arbitrators and to engage a third one (an umpire)
only in the event that the 2 arbitrators could not agree is contrary to French
mandatory law.
1 or 3 arbitrators? The relative merits of these 2 options are still debated.
According to Redfern/Hunter, arbitrations are usually most effective when the
arbitral tribunal is composed by 3 arbitrators. It may be more expensive, it may
take longer, but a tribunal of 3 arbitrators is likely to prove more satisfactory to
the parties and the ultimate award is likely to be more acceptable to them. The
ICC Rules give a certain priority to the sole arbitrator (see article 8(2)), contrary
to the UNCITRAL Rules (see article 5).
If 3 arbitrators are to be appointed, the predominant practice it that each party
appoints one of the three and that the 2 appointed arbitrators select the presiding
arbitrator.
Once selected, the arbitrators enjoy rather wide powers, which are not limited by
appellate level scrutiny. Under many national laws, an award can only rarely and
with difficulty be vacated on the ground of improper or unskilled behavior of the
arbitrators (note that the NY Convention does not govern vacation of an award).
The safeguards are: scrutiny before choice, challenge procedure, and a limited
number of grounds for setting aside or refusing recognition of the award.

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Some questions emerging in the context of standards of expected behavior, as


well as rights and responsibilities of the arbitrators have an answer in the lex
arbitri, while other are beyond the legal norms. Codes of Ethics also play an
important role.

III.1.c Considerations on neutrality, independence, and disclosure


a) Bernini: Report on Neutrality, Impartiality and Independence

Independence is the result of the two following basic features, traditionally


referred to the arbitrators, which are not univocally appraised in different arbitral
environments :
Neutrality, which is an objective status, the likelihood for the arbitrator
to be and remain wholly equidistant in thought an action during the
whole process.
and
Impartiality, which is a subjective status to be actually tested on the
context of the concrete relations existing between the arbitrators and
each party. This can only happen as the outcome of some conduct carried
in bad faith. Thus, one can be impartial without being neutral;
conversely, no arbitrator may be deemed neutral if he is behaving
partially.
Lacking such perquisites, the arbitrators should decline the appointment as
arbitrator.
But should the requirements of neutrality, impartiality and independence also be
referred to party-appointed arbitrators?
According to Bernini, impartiality is expected from both the partyappointed arbitrators and the presiding arbitrator, unless the parties have
agreed otherwise beforehand.
As to neutrality however, in the light of the existing practices, a margin
of discretion in allowing departure from the basic canon of neutrality is
possible. It is acceptable that one party seek, in terms of legal and
cultural extraction, greater intellectual propinquity with its appointed
arbitrator.
In other words, the parties are free to set their rules and can choose that
the arbitrators may not be neutral and therefore may not be expected to
remain totally impartial and independent of the appointing party.
However, if the parties elect not to depart from the classic criteria of
neutrality and impartiality, the arbitrators are strictly duty-bound to
comply with this choice and remain fully independent.
Note that the US position is that the party-appointed arbitrators are not
fully neutral. Unless the parties have agreed otherwise, its appropriate
for a certain amount of favorable consideration on the part of party
appointed arbitrator toward the appointing party.
Examples touching on independence:

59
-

Generally speaking, attention should focus on the existence of personal,


affective or financial interests and ties with one party. The mere negative
appearance may also be harmful. The sole subjective conviction of the
arbitrator that a given circumstance is not going to alter his independence
is not sufficient.
If the arbitrator has rendered a prior opinion on specific points, without
possible variables concerning special factual details or circumstances,
and such points are clearly the object of the award to be rendered, it is
proper that the designated arbitrator decline the appointment. Pending
the proceedings, the arbitrator shall also have to refrain from expressing
opinions on issues which are before him for decision.
The presiding arbitrator should not be a so-called arbitrator-dictator, i.e. an
arbitrator who tends to act alone without prior consultation with the parties and
the other co-arbitrators. The duty of impartiality demands that all arbitrators and
parties enjoy the same opportunity to participate in all procedural activities, and
therefore implies a minimum of prior consultation and agreement.
Communications with the parties: No arbitrator should entertain direct relations
with the parties. Written communications should be sent in copies to all arbitrators
who should also be privy to any oral exchanges between the arbitrator(s) the
party/parties. As a rule, without the delegation of special powers, the presiding
arbitrator is to be deemed a primus inter pares.
The need for impartiality reaches its peak at the moment of the decision
(arbitrators should resist any pressure from external sources; the award should
remain secret before it is handed down; an arbitrator should not slow down the
decision by adopting dilatory tactics).

c) Lowenfeld, The party-appointed arbitrator in international controversies: some


reflections (p. 263)

An arbitrator is a judge, not a member of a partys team. While he is expected to


be receptive to the position of the party that appointed him, an arbitrator is not
supposed to approach a controversy with mind made up.
Often, when a party-appointed arbitrator seems too zealous in the defense of the
party that nominated him, he looses credibility with the chairman, which may lead
the chairman to rely on the analysis and advice of the other party-appointed
arbitrator who is trying to sort out the facts and the law fairly.
Once the party-appointed arbitrators are chosen, one of their first tasks it to select
the presiding arbitrator. While the selection of the president is in the first instance
for the party-appointed arbitrators, there seems to be an unwritten rule saying that
consultation between counsel and arbitrator concerning a prospective chairman is
permissible, so long as it is limited in time and in subject matter (e.g. they should
not discuss how a candidate would react to a specific argument of the case).
Lowenfeld suggests that it would be helpful if the various rule-making authorities
would provide expressly a) that contacts concerning the selection of a chairman
are permissible and b) that contacts after the tribunal is finally constituted are not
permissible except as directed by the presiding arbitrator.

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The role of the party-appointed arbitrator: The presence of a party-appointed


arbitrator gives some confidence to the party (and its counsel) who appointed him
that at least one of the members of the arbitral tribunal will listen to his case
carefully and sympathetically. Moreover, the party-appointed arbitrator can serve
as a translator of legal culture, when matters that are self-evident to lawyers
from one country are puzzling to lawyers from another.

III.1.c How to get (or not to get) the right arbitrator (p. 273)
a) Hacking, Well, did you get the right arbitrator? (p. 273)

In international arbitrations, arbitrators are either appointed by the parties or by


one of the international arbitration institutions (e.g. ICC, LCIA, AAA). When
appointing arbitrators, the institutions go trough a similar process on the line of:
Is the appointee neutral and independent?
Does he have the right linguistic skills?
Does he have the right knowledge for applying the governing law of the
arbitration?
Does he have the right professional expertise in the subject matter of the
arbitration?
Most arbitration institutions rules provide also that the appointee shall be suitable
for being appointed in the arbitration in question (art. 9.1 ICC, art. 6.4 AAA, art.
7.1 LCIA).
But according to the author, there is a dissatisfaction in the appointment of
arbitrators by arbitration institutions for the following reasons:
While the arbitration institutions know more than the parties about the
arbitrators, they dont know as much as the parties about the dispute (e.g.
is technical expertise needed).
There is insufficient information known about the availability of the
arbitrators for conducting the arbitration on a reasonable timetable.
There is a lack of knowledge about the personal qualities of the
prospective arbitrator (does he have good management skills, is he good
on procedural issues, is he sound in judgment, is he up to the job of
being arbitrator in this arbitration?).
Some of the difficulties arise out of the different ways institutions select the
arbitrators:
The ICC works through national committees: for example, when a
French arbitrator is requested, the ICC national committee of France
makes the recommendation. Some national committees are good, other
not. (Von Mehren does not like this system, in particular because the ICC
appoints the arbitrators without really knowing the facts of the case.)
As to the AAA, the Secretariat of the AAA, after having consulted the
parties on the qualities they are seeking in the arbitrator, provides a list to
the parties from which they are invited to select their preferences (a list
of 10 arbitrators if a sole arbitrator must be appointed and a list of 15

61

arbitrators if a three person arbitral tribunal must be set up). Each party
is given the opportunity to strike out 3 (or 5 in the case of a 3 person
panel) without giving reasons. Then, the parties must select in order of
preference their preferred arbitrators (1st, 2nd, etc). The arbitrator with the
lowest count is selected. According to the author, the drawback in such a
system is that, rather than selecting the arbitrators on the basis of the
highest common denominator, it can end up by selecting them on the
lowest common denominator. Also, the AAA has no power to refuse to
make the appointment of the party-chosen arbitrator even if it knows
that he is a lousy arbitrator, which Hacking considers as a lacuna of the
AAA Rules.
The LCIA runs its selection on a consultation process in which the
Secretariat proposes to its Board its preferred choice and the Board then
decides. This make it hard for new younger and more innovative
arbitrators to be selected.
The same problem prevails when the parties must appoint a sole arbitrator or a
third arbitrator. The basic problem in the selection process of the arbitrators is that
there is not enough information available to the parties and their advisers. There
are directories, it is possible to ask for resumes, but the community of arbitrators
can provide more help in the following ways:
all potential arbitrators should be willing to be interviewed by the parties
wanting to appoint them. But the meeting should take place in a neutral
place, the merits of the case should not be argued and the arbitrator
should, after the interview, make a note and disclose it to his fellow
arbitrators.
Parties can ask to see examples of awards written by the potential
arbitrator.
Parties should ask for references.
Parties should consider the written publications of a potential arbitrator.

Note: Lord Hacking views the selection process in an institutional setting. In ad hoc
arbitrations, methods of appointment may be different, but the qualities and
characteristics that make an arbitrator acceptable are essentially the same.
Von Mehrens comments about the possibility to interview potential arbitrators: You can
certainly ask general questions (education, previous experience in arbitration etc), but no
questions about the facts of the case. The arbitrator should avoid answering hypothetical
questions related to the case, because this would involve a kind of psychological
commitment toward such position. Can the parties ask if the arbitrator believes in a strict
interpretation of the statutes? Arbitrators generally refrain from answering such
questions, because it may be considered as a kind of psychological commitment to take
such position in the arbitration. Von Merhen says that it is now a universal practice for
prospective arbitrators to be willing to meet with and be interviewed by the parties who
whish to select them.

62
b) Nathan, Well, did you get the right arbitrator? (p. 278)

Nathan criticizes the fact that arbitrators from developing countries and women
are underrepresented in the arbitration world. What makes a successful arbitration
is not the fact that arbitration proceedings and deliberations went smoothly
because all were from the same club, but that justice was done although the
deliberations were rough an bumpy.
What are the right linguistic skills to qualify as arbitrator? The ability to address
rally with clarity and precision and in perfect grammar, but one should not
confuse advocacy skills with judicial skills. Listening, observing and writing
skills are far more important to an arbitrator than oral skills.
Often, arbitrators from Academia are better qualified to be arbitrators.
Titles should not be used at all in an international arbitral context because the
recognition of these titles places both arbitrators and counsels from developing
countries in a disadvantaged position.
Rather than management skills, what an arbitrator needs is good inter-personal
skills.

III.1.e Codes of Ethics (p. 284)


a) The IBA Rules of ethics for international arbitrators, Introductory note (p. 284)

International arbitrators should be impartial, independent, competent, diligent and


discreet. These rules seek to establish the manner in which these abstract qualities
may be assessed in practice.
The Rules reflect internationally acceptable guidelines developed by practicing
lawyers from all continents.
The Rules cannot be binding either on arbitrators or on the parties, unless they are
adopted by agreement.
The IBA takes the position that international arbitrators should in principle be
granted immunity from suit under national laws, except in cases of willful or
reckless disregard of their legal obligations. The normal sanction for breach of an
ethical duty is removal from office, with consequent loss of entitlement to
remuneration.

b) Coulson, An American Critique of the IBA Ethics for intl arbitrators (p. 285)

The IBA Rules of Ethics state that they reflect internationally acceptable
guidelines developed by practicing lawyers from all continents. Coulson says
however that some of the IBA rules are in conflict with US practice and the AAAABA Code of Ethics. For example US parties tend to be skeptical about the
impartiality of party appointed arbitrators.

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The AAA-ABA code provides for neutral and non-neutral party appointed
arbitrators, but it states a general presumption of non-neutrality for partyappointed arbitrators unless other specified.
Thus, in the US, some party-appointed arbitrators are expected to favor their
appointing partys point of view. They are not strictly neutral. In Vantage v.
Commerce Tanker Corp., the court held upheld an award in a case in which the
arbitrator was an attorney for the party, a stockholder for the party, related to the
president of the corporation and had advised on the contract.
The AAA-ABA code does not impose certain minimum obligations upon nonneutral arbitrators. A party-appointed arbitrator can be predisposed towards a
party, but he is obliged to act in good faith, with integrity and fairness. The partyappointed arbitrators disclosures need be sufficient only to describe the general
nature and scope of any interest or relationship.
Neutral arbitrators should be independent and impartial. Facts that might lead to
reasonable doubts about their impartiality should be disclosed. The IBA rules
require disclosures about past or present business relationships with a party or
with potentially important witnesses. The AAA-ABA code goes further, including
existing or past financial, business, family or social relationships which are likely
to affect impartiality or which might reasonably create an appearance of bias.
The AAA-ABA code states that when all parties request an arbitrator to resign, the
arbitrator should do so. Where one party makes such a request, the arbitrator
should withdraw, unless the parties agreement provide for challenge procedure or
the arbitrator decides that reason for the challenge is not substantial and that
withdrawal would cause unfair delay or expense to another party and would be
contrary to the end of justice. The IBA Rules contain no such procedures. Note: If
an arbitrator withdraws, it is necessary to start the proceedings over again with the
new arbitrator if a party so wishes. The same applies in case an arbitrator dies. It
can therefore be costly and time-consuming.
The IBA Rules instruct a potential arbitrator who is approached by one of the
parties to make sufficient enquiries in order to determine whether there may be
any justifiable doubts about his impartiality or independence. But would not such
a conversation oblige a prospective arbitrator to discuss the merits of the case?
The IBA Rules instruct the party-appointed arbitrator to avoid unilateral
communications about the case with the parties. If such communications occur, he
must inform the other arbitrators and parties of its substance. In case of violation
of this rule, the appropriate initial course of action is to request the arbitrator to
refrain form making such communications. If such unilateral communications
continue, the remaining arbitrators may inform the innocent party. But is it an
accurate picture of current practice? How many party-appointed arbitrators have
resigned because of unilateral communications? The AAA-ABA code, with its
non-neutral arbitrators, reflects a more pragmatic approach.
Where the IBA rules state that no unilateral arrangements should be made for
arbitrators fees, the AAA-ABA code allows party-appointed arbitrators to
negotiate compensation with their party. Note: In case of institutional arbitration,
institutional rules generally provide for rules regarding fees. According to von

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Mehren, if there is no provision for the fees, fees should be discussed by the
parties before the appointment of the arbitrators. He also thinks that allowing
separate fee arrangements between a party and that partys appointed arbitrator is
not appropriate.
Another difference concerns arbitrators participation in settlement discussion. A
neutral arbitrator under the AAA-ABA code should not initiate proposals for
settlement, discuss settlement with one party in the absence of another, but may
act as mediator or conciliator if asked to do so by the parties. Party-appointed
arbitrators, on the other hand, are free to discuss possible settlements with their
party, unless the parties agree otherwise. The IBA Rules provide that the
arbitrators can make proposals for settlement. If an arbitrator discusses settlement
terms unilaterally with one party, he should normally be disqualified from any
further participation in the arbitration.
Both the IBA Rules and the AAA-ABA code impose a duty of confidentiality
upon the arbitrators, during and after the arbitration.
Arbitrators are directed not to assist in post-arbitration proceedings.
Will these rules encourage litigation against the arbitrators? The question will be
answered through experience. It will also be interesting to see whether the fiction
that party-appointed arbitrators are totally impartial will survive in practice.

b) Lutz, Partisan arbitrators and the case against bias in intl arbitration (p. 291)

The current AAA-ABA code provides for neutral and non-neutral party appointed
arbitrators, but it states a general presumption of non-neutrality for partyappointed arbitrators unless other specified. The revision of the AAA-ABA code,
still in draft form, recognizes and allows the existence of non-neutral arbitrators in
commercial arbitration.
The continued sanctioning of non-neutral arbitrators creates both practical and
ethical problems;
allowing an arbitrator to act as an advocate for the party that appoints
him has adverse practical solution because it directly conflicts with the
international trend against bias in commercial arbitration
Holding all arbitrators to the same standard of neutrality helps to ensure
the fairness of the process and at the validity of arbitral awards, and
enhances confidence in the system
The proposed revision would create different standards for arbitrators in
domestic commercial arbitration than for those in international ones
Permitting party-appointed arbitrators to act as non-neutral advocates for
one side is contrary to the established and respected ethical norms of fair
and impartial decision making.

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October 16, 2003
Rights and Responsibilities of the arbitrators
Fouchard article: Relationships between the arbitrator and the parties and the
arbitral institution
- assesses the relationship btwn the parties and the arbitrator says that the arbitrator
is really a judge by virtue of a contract
- Fouchard describes it as a triangular relationship btwn all three parties
a. Responsibilities of the arbitrator towards the parties
i. Equality & Impartiality: When the parties appoint arbitrators
theres a contract. The arbitrator assumes obligations to the parties
and is bound to behave equitably and impartially throughout the
proceeding. He must ensure that they have the opportunity to plead
the case.
ii. The arbitrator has the duty to fulfill his responsibilities with due
diligence (ie reasonable time limits - page 295 this does not
require that the arbitrator be available for an indefinite time in the
future it is not simply there for the convenience of the parties but
nonetheless, must be done within a reasonable time period)
VM says that in practice, the chairman of the panel is the one that
really has the most control over the schedule. If the parties agree
that they would like to have a matter dealt with in a certain period
of time does that mean that the arbitrators must carry this out
even if it is not convenient for their schedule? No.
iii. The arbitrators must carry out his task until completion unless
some grave excuse (for example: he dies!).
iv. The arbitrator must respect the confidentiality of the arbitration.
b. The parties have three main responsibilities to the arbitrator
v. The parties must pay the arbitrators fees. (pecuniary obligation).
This includes both expenses and fees. This can at times, be
regulated under National laws, other times it can be the actual
institution that has rules regarding fees schedule of fees. In this
regard, it is worth noting that most institutions use a scale of fees
that take into account the commercial amount in dispute and
possibly, the difficulty of the case and the time spent by the
arbitrators in deciding it (page 297).
Fundamental principle: prohibition of any unilateral financial
arrangement between the arbitrator and the party who nominated
him. Less certain whether, if requested by the parties, a national
judge could check, and where applicable, reduce the amount of the
arbitrators fees (page 298). Text states that the parties would have

66
to maintain that the pre-established provisions of standard form
contract were imposed on them by economic abuse.
Errors: arbitrators fees may be reduced or refunded in whole or in
part. This is a consequence of the bilateral nature of the arbitration
agreement and there are several French and Italian decisions to this
effect. VM states that it would have to truly be a clear case of error
a party cannot simply allege error because they dont like the
ultimate decision.
vi. The parties acting alone may not dismiss the arbitrators. The party
who appoints the arbitrator does not continue to have control over
the arbitrator.
vii. The arbitrator has the right to continue the work until completion.
Agency theory: VM does not seem to like this theory he states
that there is a question as to whether the relationship between the
parties and the arbitrator is contractual certain systems assume
that the relationship is really one of agency but VM says that
unless the arbitrator is really performing nothing more than
administrative tasks, this seems incompatible with the arbitrators
role as adjudicator. For certain kinds of special problems, this may
be done in practice but as arbitration has developed, this has
become less of a possible way in which to define the relationship
between the parties and the arbitrator.
b. When theres an institution involved, then there is a relationship among
the arbitrators, the parties and the institution.
i. Institution/Arbitrator: The institution is bound to carry out its
obligations of organization, administration, and supervision of the
arbitration, and to pay the arbitrators fees, provide technical
assistance and provide technical support (there are questions as to
how far these obligations go he notes that even if the institute
goes quite far in assisting in these matters, it should not be
perceived as a problem at all). It must treat the arbitrator
accordingly and respect the arbitrators distinct provisions ie. the
institution should allow the arbitrator to rule on all matters there
would be an inherent interest for the ICC to get involved in matters
of competence/kompetenz as the ICC has a clear interest in seeing
the matter arbitrated. There is a question as to whether this
relationship is actually a contractual one can be interpreted as the
center being the agent of the parties charged with the simple
mandate of naming the arbitrator OR in other circumstances, it
has been interpreted as a contractual relationship between the
center and the arbitrator in which both are bound by the applicable
arbitration rules.

67
VM says remember: the institute does not actually arbitrate. We
accept that the institution does not perform any acts in the
adjudicative sense (and he at this point refers to article 27 of the
ICC whereby the decision must be reviewed before the ICA for
purposes of control that article 27 provides can only review the
decision with respect to the form and not the substance ICA is
only competent as to modifications to the form). VM states that
this review is not judicial but more of an administrative review and
it is permissible as long as the review does not go to the merits.
What about the arbitrator? He guarantees that he will remain
impartial and that he will perform all of his duties and see the
matter through to the end.
At the end of the article, Fouchard discusses the manner in which the relationship
btwn the arbitrator and the institution is contractual. He states that it is based on
twofold consent: consent of the institution that names the arbitrator and sends him the
rules and the consent of the arbitrator when he reads the rules and agrees to fulfill his
task. Fouchard goes on to describe it as an innominate contract in which party,
separately undertakes to provide and does provide the other with intellectual
services (page 302).
Arbitrators Fees
K/S Norjarl v. Hyundai Heavy Industries Queens Bench Commercial Court 1991
ii. FACTS: Contract between Korean company to build a drilling rig
for the Norwegian limited partnership. Norwegian limited
partnership rejected the rig. The parties go to arbitration. The
arbitrators seek commitment fee.
iii. Commitment fee: Assume there is an arbitration contract, and the
arbitrators are appointed but the parties settle. The arbitrators who
were appointed dont have any claim for compensation unless it
was specified in the agreement. Arbitrators are upset by this (they
have to keep their schedule open, they have to turn down other
opportunities because of the expectation they would be arbitrating
this case). To protect themselves, arbitrators ask for a payment
regardless of whether the parties settle- this is a commitment fee (a
fee for agreeing to be available for the arbitration, whether or not
the case actually goes to arbitration). Such an arrangement would
be enforceable.
iv. ISSUE: Are the arbitrators entitled to a commitment fee?
v. HOLDING: There wasnt a provision for a commitment fee in the
agreement. Therefore it is difficult to make a claim for a
commitment fee. On the other hand, they may not be obligated to
set aside time to arbitrate the case two years later. They simply

68
have to do the best they can do to accommodate the parties (the
original terms). But it would be appropriate for the arbitrators to
ask for a commitment fee to set aside a specific amount of time for
the parties (this goes above and beyond the original terms). So they
are not entitled to a commitment fee under the original contract,
but it is not wrong for them to ask for a commitment fee now.
vi. ISSUE 2: One party is prepared to pay a commitment fee, the other
party is not. The Norwegian party is willing to pay the
commitment fee upfront, the Korean party objects out of fear that
the arbitrators will be biased in favor of the Norwegian party. Is it
permissible for one party to pay the commitment fee
vii. HOLDING 2: No obligation to pay a commitment fee. It would
probably be acceptable for the Norwegian party to pay the
commitment fee, but that is not what is requested. The arbitrators
decided they would not accept the commitment fee from
Norwegian party unless Korean party agrees so as not to expose
themselves to the perception of bias. Therefore the arbitration
could not go forward.
1. The judge releases the arbitrators from the agreement and
approves of what the arbitrators are saying.
viii. NOTE: Judge says that more precise contractual arrangements are
needed for the service contracts with the arbitrators. Once an
arbitrator has been appointed it is highly undesirable to negotiate
fees or anything that affects him personally with one party,
especially if the other party objects.
ix. NOTE: the judge applies the principles of contract to the case at
hand. Von Mehren thinks there might be another framework to
apply, but the judge doesnt say what it is (p. 305)
VM states that the judge is emphatic about one thing: (bottom of page 308 and top pf
page 309) an arbitrator should not agree with one party re his fees and not with the
other. Court says that this is not desirable before the arbitrator is nominated and it is
even less desirable once he has been nominated.
2. Note on Arbitrators fees (Varady)
a. The issue of renumeration usually is not addressed openly. When the party
representative or the arbitration institution approaches the potential
arbitrator, there is usually no discussion of fees at this stage.
b. If its an institutional arbitration, then there are clear rules on
compensation.
c. If it is an ad hoc arbitration under the UNCITRAL Rules, then there are no
fee scales. Theres a suggestion that fees should be reasonable taking
several factors into account. In reality, the arbitrators usually announce
their fees to the parties but they do so after the agreement has been
concluded. This is problematic for the parties- if they object, they must
rely on the language of the UNCITRAL rules and they might prevail, but
they probably do not want to object out of fear that it will anger the

69
arbitrators. As a result, parties are stuck paying whatever the arbitrators
demand (and fees seem to be higher than they would be under the ICC pay
scale).
d. The arbitrators can decide their own fees and what is appropriate
according to the award. They cannot decide if there is a dispute over the
fees as they are one party to the dispute- there is no neutral third party. It
does not have the qualities of the adjudication, so the issue cannot go to
the arbitrators. Negotiation is allowed but the authority cannot be
delegated to them to make a binding decision.
e. The applicable law for the arbitration may provide for the adjustment of
the arbitral fees.
f. There is a similar problem as that of Hyundai with respect to the practices
of the arbitral tribunals of institutions. ICC requires deposits be made to
cover the costs of the tribunal. Provisions in the tribunal say that where
one party refuses to make a payment the other party may put up the
advance so the arbitration can go forward. Is this inconsistent with
Hyundai? No because it has been accepted by the parties before hand so it
is part of the original contract if they agree to abide by the ICC provisions.
This may cause potential prejudice of the arbitrators. The alternative it to
allow the unwilling party to stop the arbitration.
Rights and Responsibilities of the Arbitral Institution
Cubic Defense Systems v. ICC Court of Appeal of Paris, 1998 (page 317)
i. Article 27 of the ICC Rules (Supplement p. 197) requires the ICA
to scrutinize the award and point out elements of substance. The
purpose is to avoid having a technical defect render the award
void.
ii. ISSUE: Is it appropriate for the ICA to review the award? Yes- the
ICA is not a court and they are not determining the substance of
the award so they are not adjudicating.
iii. FACTS: Parties agreed on ICC arbitration. Cubic argues that the
ICC did not show promptness in resolving the dispute (it took 5
years to arbitrate the case). The ICA is supposed to extend the time
limits when it is appropriate to do so. In this case, the task was
performed mechanically, which is what dragged out the arbitration.
iv. There is also an argument that Art. 27 mandates that the
administrative functions be kept separate from the adjudicatory
tasks. States that the fundamental principle of separating the
administrative and judicial tasks have been violated. Cubic states
that article 27 breaches this separation.
v. The French Court of first instance concluded that there was no
liability on the part of the ICC and that the ICC had fulfilled all of
its obligations.
vi. Cubic appealed on a number of grounds.

70
vii. Now there is a provision in the ICC Rules that provides there
should be no liability on the part of the arbitrators or the ICC for
issues relating to the conduct of the arbitration. In most countries
arbitration is like a court proceeding- cannot sue the court for bad
decisions. Cannot impose liability on the arbitrators because they
did not handle the arbitration well. A few recent cases have
overcome this presumption which is why the rules now contain the
provision.
October 23, 2003
Begins class by asking what is a truncated tribunal? Situation in which one of the
arbitrators does not complete his functions.
This can happen for a valid reason or for an invalid reason by invalid, we mean a
situation in which the arbitrator steps down or refuses to sign the award (as we will see
herein) because he does not agree with the decision taken by the other arbitrators.
Once the award has been taken and then one of the arbitrators refuses to sign the award,
the refusal does not go to the substance of the matter in other words, this would not
put the award in question.
There are 2 situations in which we seem to have universal rules:
A - at the very end of the arbitration once the award has been taken we are then in a
situation as above
B before evidence has been taken
1. Can Arbitrators Abandon their function?
a. Ivan Milutinovic v. Deutsche Babcock
i. FACTS: Arbitration that was scheduled to be in the final hearing.
One of the parties moved to re-introduce some testimony and
present some new evidence. The arbitrators decided, 2-1, that this
additional information should not come in before the arbitrators
rendered their award. The dissenting arbitrator withdrew from the
arbitration. The Yugoslavian professor felt that the majority had
sacrificed truth for simplicity in light of the fact that new evidence
had come to light.
ii. ISSUE: What should happen now?
iii. HOLDING: The Swiss Federal Court held that the matter had not
been decided pursuant to the agreement of the parties. The decision
required an arbitration tribunal composed of three arbitrators, the
actual decision was only made by two arbitrators. Therefore they
did not carry out the arrangement that was contemplated by the
arbitration agreement. The award is not valid. A new tribunal was

71
therefore established under the ICC and they had to begin over
again.
VM what consideration should we give due process in this case?
iv. NOTE: Generally, one arbitrators refusal to sign an award is not
ground for saying that the arbitration was not concluded, the
arbitration is to be considered valid. This case is different because
a two-person tribunal was never contemplated by the parties, they
provided for a three person tribunal.
v. REMEDY: To get an enforceable award, the resigning arbitrator
either had to reconsider or he had to be replaced. If you replaced
the arbitrator, you couldnt proceed immediately to an award. The
parties would either have to start over or they would have to agree
on a way for the new arbitrators to catch up. VM asks the question
as to whether the arbitrator could be forced to continue? Specific
performance seems to be an impossibility in this type of a
situation.
vi. RULES ABOUT THIS PROBLEM VM asks the question
whether there are any rules that regulate the matter? there are
rules in the ICC that deal with the resignation of an arbitrator but
there are no rules that deal with the situation in which an arbitrator
refuses to sign an award.
1. Why isnt this kind of problem (truncated tribunals)
regulated in the arbitration agreement? Its impossible to
recreate a comparable arbitral tribunal, you have to start
over. Its a nasty problem which parties and institutions
have failed to address.
2. Art 13 1998 London Court of Arbitration- includes a
specific provision on truncated tribunals. Two remaining
arbitrators have the right to continue and make decisions
and awards. In determining whether to continue the
arbitration, the two other arbitrators should consider the
stage of arbitration and the reigning arbitrators reason for
resigning. If the two remaining arbitrators determine not to
continue the arbitration, then the two arbitrators should
inform the parties and the London Court of Arbitration.
3. No comparable provisions in the ICC Rules.
4. Article 12: leaves it in the hands of the reconstituted
tribunal to replace the arbitrator or decide to what extent
the arbitration can continue.
What solution do the ICC and Schwebel propose in this situation?
VM - You cant say that Schwebels argument of estoppel really fits anywhere
here. After all, what can you say was their conduct in this matter that would favor
estoppel? The fact that the party did not challenge the resignation?

72
How can you argue the application of the New York convention in this case?
Article 5 (1)(d) you can argue that it was not constituted pursuant to the
agreement of the parties once the arbitrator stepped down.
VM says that it is worthwhile looking at the Swedish attempts to deal with the
problem. (page 341): the new (1999) Swedish Arbitration act directly deals with
with the issue of truncated tribunals at section 30. The problem (according to VM)
is the use of the terms without valid cause. The other problem arises in the
situation of the chairman walking out section 30 states that if one of the
arbitrators walks out and no clear majority has been attained, the decision will
then rest with the chairman. No consideration is made of the fact that he may the
arbitrator that ultimately walks out.
VM states that there are numerous differences between the various national laws
regarding the manner in which appointment is dealt with.
2. Appointment and Appointing Arbitrators (p. 357, #5)
a. FACTS: There was an arbitration in which neither the seat was in France
nor was it governed by French procedural law. (These are the two
conditions for a court to deal with an arbitration). May the French
organization appoint an arbitrator? The arbitration clause provided for the
appointing authority, the President of the ICC, to only have the authority
for the third arbitrator. The parties were to appoint the other two
arbitrators. They sought a remedy in Israel, but that court refused to
exercise its authority and make an appointment. It was not considered
feasible to ask the Iranian court to make an appointment.
b. ISSUE: Does the Paris court have the power to appoint the second
arbitrator?
c. HOLDING: French court can make the appointment. Judge can intervene
where there is a denial of justice as long as there is some connection with
France. The right of arbitration is a matter of public policy and using ICC
creates the link with France.
d. Analysis: Under Article 1493 of the French Code, court intervention is
allowed if there is difficulty in constituting and arbitral tribunal. The
conditions are: (1) arbitration is taking place in France or (2) French Code
applies. Nonetheless, the French Court made the appointment on the
grounds that a denial of justice had taken place in another country and
there were ties to France. The right of a party to submit their dispute to
arbitration is a matter of public policy, since they designated the ICC as
the authority for the third arbitrator, and since the ICC has its seat in Paris,
a link to France was established. So Israel could nominate its arbitrator
and the court would make the appointment if Israel failed to do so.
e. COMMENT: Von Mehren thinks that the links to France through ICC does
not satisfy the requirement of Article 1493 of French law. Could the ICC
make the default appointment? Under Article 8(4) of the ICC Rules (See
Supplement p. 188), if a party fails to nominate an arbitrator, a nomination

73
shall be made by the ICC. But Article 9(6) provides that when this comes
about, the appointment should be made by the national committee, which
in this case would have been the Israeli committee. So the solution
provided by the ICC Rules is not satisfactory. Using the ICC would take
the matter back to Israel , but Israel has already to cooperate. Nonetheless,
this approach would avoid the criticism that what was done in this case
puts in the hands of the French an issue which should have bee regulated
under the law of the seat of arbitration or under the law which governs
arbitration proceedings (which in this case was not covered by
international law).
f. COMMENT 2: The Belgian Code imposes certain conditions with respect
to the substantive provisions of their procedural devices. The Belgian
Code requires that there be formal validity and that the arrangement
cannot provide a privileged position in the appointment process for the
arbitration agreement. See p. 358 #7. The Yugoslav requirement insists
that one member of the arbitral tribunal should be from Yugoslavia. Does
this place one of the parties (the foreign party) in a privileged position?
This is an unusual requirement, usually there is no special requirement
with respect to substantive validity.
3. Appointing Arbitrators Chosen by the Parties.
a. Sapphire International Petroleum v. National Iranian Oil Company
(page 358)
What we have here is a decision made by a sole arbitrator. He asks what is the
problem that arises here: we have a request to the Swiss federal court
i.

FACTS: There had been a contract of development and


production between Sapphire and NIOC. A problem arose and they
went to arbitration. But a problem arose with the request to the
selection of arbitrators. NIOC was supposed to appoint one
arbitrator and Sapphire was supposed to appoint one, and the two
were supposed to agree on a chair. But in reality, Sapphire
appointed an arbitrator. NIOC did not appoint an arbitrator.
Sapphire withdrew its arbitration the grounds that that the default
mechanism had been invoked. The default mechanism was that the
President of the Swiss Federal Court should appoint a sole
arbitrator. After the President made the appointment NIOC was
supposed to appoint an arbitrator but they argued that there was a
problem because there wasnt proper notice given for the time
delay due to the replacement of one party by another. So the
provision providing for the appointment of the sole arbitrator
should not have come into play.
ii. ISSUE: What should the sole arbitrator have done? Did he have the
power to examine the issue himself.

74
iii. HOLDING: The sole arbitrator has no authority to review an order
of the court. He has received the authority as a result of a binding
judicial decision, whose correctness it is not for him to question,
and since he is also bound to decide the merits of the plaintiffs
claim.
iv. QUESTION: Why didnt the sole arbitrator have the ability to
answer the question of whether the default provision was correctly
applied? The NIOC position is that the time sequence is such that
the default provision was applied prematurely. Why didnt the sole
arbitrator to decide whether he had the power or whether the
default provision was applied prematurely. This decision did not
have the nature and character of a judicial decision because it was
made by a judge not in his official authority but in his individual
authority. So didnt the sole arbitrator have a duty to evaluate the
competence? Von Mehren thinks one answer is in 1967, the law
was unclear as to whether the arbitrators had the kompetenzkompetenz power to question his authority. Another possible
answer (the one Von Mehren believes is accurate) is that the sole
arbitrator really wanted to be the arbitrator so he glossed over the
issue of his competence. It was convenient for him to avoid the
issue, although he shouldnt have used this technique to avoid the
issue of whether under the facts of the case the appointment
provision was operative. The stronger argument is that the
provision has not yet come into force, although it could potentially
become available.
v. JUDICIAL v. PRIVATE CAPACITY: If the arbitration seat had
been in France and the President of the Chamber of Cassation has
been asked to make the appointment, then when the arbitration
agreement spoke of the appointment by the President, then it is
ambiguous if the appointment is being made in his judicial or
private capacity. If he makes the appointment in his judicial
capacity, would he have a duty to make a determination with
respect to the validity of the appointment (ie. If his appointment
will be binding, shouldnt he have to analyze whether the use of
the provision was in accordance with the parties agreement)? Von
Mehren thinks that yes, he does have a duty to make this
determination If he doesnt make this determination, then one of
the important obligations has not been satisfied and therefore is not
res judicata.
vi. Even if the judge was in an official capacity, should the arbitrator
rule on his authority under the arbitration agreement if the
appointer did not address the issue? Arent arbitrators authorized to
determine their adjudicatory authority? Just because a case is
referred to arbitration, that doesn't mean the arbitration should go
ahead. It may still be appropriate for the arbitrators to address the
issue of whether they have authority under the arbitration clause.

75
vii. Von Mehren thinks the analysis in the Sapphire case is incomplete
and unsatisfactory.
b. Elf Aquitane Iran v. NIOC (page 364)
i. The difference between the two cases. In Sapphire, there was no
attack on the validity of the contract or the arbitration clause, its
simply a question of whether the clause on default appointments
had been properly carried out. In Elf, the underlying contract has
been set aside so the question is whether the arbitration clause
must also be set aside.
ii. FACTS: When NIOC refused to appoint its arbitrator, the President
of the Danish Supreme Court appointed a sole arbitrator. NIOC
objected on various grounds to the sole arbitrators competence.
The underlying had been declared void, so NIOC claimed the
arbitration clause was also void.
iii. ISSUE: Is it up to the judge to determine whether the arbitration
clause was valid, or should he just appoint someone.
iv. HOLDING: The Danish judge said it was not up to him to decide
whether the arbitration clause was void, he was just appointing the
arbitrator.
v. NOTE: The arbitrator then rejected NIOCs objections and
declared himself competent to decide the issue.
Conclusion: So the issue is whether the judge is supposed to assess the
validity of the arbitration agreement or whether he is just supposed to appoint
someone, and the arbitrator will then, under the principle of KompetenzKompetenz, determine whether he has the authority to arbitrate. Under
Sapphire, the court held that if judge appoints an arbitrator, that implies that
the arbitrator has the authority and the arbitrator should not analyze whether in
fact he does have the authority. Von Mehren thinks that decision was based
more on the idea that the arbitration wanted to arbitrate the case than on the
relevant law.
4. An appointing authority no relied upon
a. Philips Hong Kong (HK) v. Hyundai Electronics (HK)
He begins by asking what is the peculiarity in this case? States that there are 2
appointing authorities this can raise a problem depending on the manner in
which it is framed. In other words, is it framed in such a manner as to make it
alternative? If not, which one will have precedence over the other?
He says that this case is somewhat unusual because there are questions that
arise regarding how long they should wait prior to requesting for the
assistance of the ICC.

76
There are complications that arise based on the payment of the fees.
i. FACTS: Contract with an arbitration clause that provides that if a
dispute arose, there are two default procedures: (1) HK institution
makes an appointment of (2) ICC makes an appointment. One
party requested that the local HK institution make the appointment,
and the institution failed to do so. Then there was a discussion
about the ICC, but the ICC was never asked to make an
appointment. Instead, one party has gone before the HK Court and
asked the court to step in as a default mechanism for the
appointment of the arbitrator. The court does not look at the
validity of the agreement to arbitrate, but it does examine the
operative provisions as far as the ICC is concerned. One party
challenges the default ICC because its provisions are inconsistent
with the provisions agreed to by the parties. But the court does not
have to decide this because the ICC rules provide that the ICC can
appoint arbitrators without the ICC rules applying.
ii. ISSUE: Does the court have the authority to make an appointment?
Should the ICC have made the appointment?
iii. HOLDING: The court did not have the authority to make the
appointment. The parties had to turn to the ICC before they could
come to court.
iv. NOTE: If the ICC did not have the provisions for appointment
outside the rules, then the court might have been willing to step in
to appoint an arbitrator. But if the default mechanisms can be used
then they must be exhausted.
v. This is a split default provision. Either the HK Court or the ICC
can make appointments. What if one party goes to one and the
other party goes to another? Might create difficulties about who
has primacy in the appointing process. Probably be the HK Court
because it is first in the agreement.
vi. What id the ICC was requested to make an appointment but it
hasnt done so because it hasnt received its fee? Court will not
step in because the parties should have known about the fee when
they contracted.
5. An appointing authority that ceased to exist
a. Gatoil International (Panama) v. NIOC (Iran)
i. FACTS: Contract between Gatoil and NIOC with contract
providing that if the two party appointed arbitrators would agree on
a third arbitrator, but they cannot agree. The President of the
Appeal Court of Tehran supposed to be the default arbitrator but
that court has not existed since the revolution. Gatoil argues that
the arbitration clause has been null and void since it was written
(since the Appeal Court no longer existed) therefore the arbitration
should be in England. Also Gatoil says that there are no

77
appropriate arbitrators that are willing to go to Tehran to do the
arbitration.
ii. ISSUE: was the arbitration clause valid?
iii. HOLDING: Yes
iv. ANALYSIS: The argument that Gatoil cannot find arbitrators to go
to Tehran is premature- Gatoil has not exhausted its attempts to
find acceptable arbitrators who are willing to go to Tehran. The
parties mutual intentions was to arbitrate. (the standard form
contract worked into their files and they were not careful about
adapting the technical provisions of the arbitration clause). Only
after all feasible opportunities have been exhausted will the court
allow the arbitration in London. Court feels Gatoil did not try hard
enough to find someone.
6. Multi-Party Arbitration and the Selection of Arbitrators.
a. Siemans AG and BKMI v. Dutco Construction
i. Set aside the decision of the Paris Court of Appeals.
ii. Two parties who are respondents were forced to share a single
arbitrator even though their positions were not exactly the same. In
the arbitration clause, the parties seem to agree to three arbitrators
under the ICC rules.
iii. ISSUE: Must the respondents share an arbitrator?
iv. HOLDING: No,
ANALYSIS: Parties can agree to situation by expressing agreement that relates to the
multi-party context, but it is not open to the arbitrators to reach the conclusion that by
agreeing to one context you are also agreeing to another. The clause did not contemplate
the situation in which they found themselves, so the agreement of the other context did
not carry over.

78
III.3 CHALLENGES
Reports on the Challenge Procedure, van den Berg (p. 379)
The arbitrator should always try to avoid the challenge: first, he must decline the
invitation to be an arbitrator if there is any objective ground to question his impartiality
or independence. Second, if he plans to accept, he must disclose all relevant information
to the parties and institutions involved, if there is a serious challenge, he must then resign.
The reasons for the increase of challenge procedures:
1. Interpretation of what constitutes impartiality and independence has become
stricter.
2. Parties, who are not used to arbitrate, may misconceive the requirements of
impartiality and independence.
3. The challenge of an arbitrator can be a powerful delaying tactic. And also may
influence the further conduct of the challenged arbitrator.
4. International arbitration became more litigious in procedural aspects.
The law of the place of arbitration governs the challenge procedure. Also, when there
is an institution involved, the challenge procedure is provided by the arbitral agreement
and the governing institution, in accordance with the law governing the procedure of the
arbitration (law of the place of arbitration).
Exception: the ICSID system stands outside the general rules. ICSID is an
international convention dealing with investment by private companies in a state
system. Investment can be submitted to arbitration under ICSID as it is designed
to provide a neutral international form of dispute resolution for these prospects
because ordinary arbitration doesnt give the same degree of protection. It seeks to
disconnect the process from national law and national courts. There can be no
challenge to the award at the level of recognition. Once the process has concluded
a final award, then the award is enforceable everywhere.
A. The Court Control:
Most arbitration laws provide that a party can challenge an arbitrator during the
arbitration before a court. However, in the US, courts generally do not remove arbitrators
before or during the arbitration proceeding, although they have an inherent power to do
so. In practice, judicial review of the qualifications of arbitrators usually occurs after an
award has been rendered, when one party seeks to set aside the award.
To avoid delaying tactics, modern arbitration laws provide that the court decision on the
challenge is not subject to appeal.
In Sweden, a party may bring a challenge before the arbitral tribunal itself and that if the
arbitral tribunal rejects the challenge, the impartiality or independence of the arbitrator
can be questioned before a court only after the award.
1. Advantages: delay in the arbitration proceeding is minimized. Especially if the arbitral
tribunal accepts the challenge, since no further proceeding will take place.
2. Disadvantages: if the arbitral tribunal rejects the challenge, a court may have a different
view, resulting in a refusal to enforce it, or even a setting aside of the award. It is

79
preferable to avoid direct confrontation between the arbitral tribunal and one of the
parties, therefore, it is better if a third party judges the question.
The control of such issue is not confined to the courts of the country where the arbitration
is taking place, it can also be analyzed by the foreign courts where the enforcement is
attempted (NY Convention, art. V (2)(b)). However, there is no account of a decision that
refused enforcement based on lack of independence or impartiality of an arbitrator.
B. Institutional Challenge Procedures
Most arbitral institution provide for a challenge procedure within the framework of the
institution, which must be compatible with the applicable arbitration law (law of the place
of arbitration).
Challenges can be decided:
1. Exclusively by a court: (Swiss Concordat Court) the advantage is that it will not
have two instances. The disadvantage is that, in international arbitration, a court
from one country can have different views on the impartibility compared to a
court of a different country. There will be no uniformity.
2. Exclusively by arbitral institutions: (French law) the same advantage of a oneinstance decision. If more countries adopted this rule, uniformity could be
obtained more easily. The disadvantage is that the legal status of the institutions
decision may be uncertain, especially if enforcement is going to be in a different
country. The author believes that the State court should have a final word after the
award is made, due to the importance of the topic.
3. Arbitral institution with possibility of an appeal to a court: usually the challenge
can be brought before the court, since the examination cannot be excluded by
agreement of the parties (UNCITRAL, art. 13). The court will be able to do its
own examination. The advantage is that in case of respectable institution it is
likely that the court will follow the decision. Also, after the court has decided this
issue will no longer arise during arbitration and after the award. The disadvantage
is that there will be delay due to the two instances decision. The author prefers
this system.
C. Other Procedural Aspects
Some arbitration acts contain a time limit for bringing a challenge against an arbitrator.
Others allow this constrain to be decided by the parties. Pros and cons of the timing issue:
- The challenge process is important to maintain the integrity of the tribunal and the
confidence in its neutrality and impartiality.
- But the challenge process can be used as a delaying tactic. If the challenge could
be made at any time and should be decided by the courts, then a recalcitrant party
could challenge, the proceedings would have to be stayed and the process would
be extended indefinitely.
Party appointed arbitrators:
1. There are limits on parties challenging the arbitrators that they appointed, unless
information is discovered after the appointment is made.

80
2. This view might be theoretically wrong, if you take the position that the arbitrator
has no connection to the party that appointed. Should be treated no different that
third party arbitrator.
3. The ICC rules are silent on the issue. The French Act is also silent on the issue.
The arbitral tribunal has a discretionary power to suspend the proceedings in the case of a
challenge.
When are the challenges to arbitrators permitted and where?
1. The basic issue is whether the control should be exercised during the arbitral
proceeding. If court control is exercised during the arbitration proceeding, should the
proceeding be stayed or not.
2. The best solution would be to have the arbitral tribunal have the right to determine
whether or not a proceeding should be stayed during the challenge. If the arbitration
goes on, the tactical delay is avoided.
But if the arbitration continues and the challenge is valid, then you have to start the
arbitration over again, making the process costly.

Location of the Challenge: where the arbitration is located, where the award is sought to
be enforced:
1.
Most arbitration laws allow for control during the
arbitration. The FAA does not explicitly provide for judicial control, but it is viewed
as an inherent power of the court so a statutory provision is not necessary.
2. Courts can control the exercise not only by the state where the arbitration is
conducted, but also where the recognition of the award is sought. This is rare in
practice, though.
Standard of Review in Challenge
1. If the challenge fails, then the issue remains and the model law provides for
control by the court.
2. If such control is exercised, what is the nature of the review that the court will
conduct under Art. 13(3): is it de novo, or whether there is a significant basis for
the conclusion that there should have been a challenge.
a. Usually the court reviews the challenge de novo. This is because this is an
important issue. If you leave the issue in the hands of the arbitral institution,
that institution would naturally be based in favor of continuing the

81
arbitration. Courts should have greater objectivity. Most systems use de
novo
b. Need to be strict on theses issues because they go to the integrity and the
reason for the process.
The NY Convention
1. Grounds for the challenge procedure in Art. V(1)d: if an arbitration was biased by
an arbitrators lack of impartiality, then you can argue that the arbitral tribunal
was not constituted according to the agreement of the parties (to have an unbiased
tribunal).
2. Art. V(2)(b): public policy objection could also be involved.
Challenges and Court Control
* Refineries of Homs and Banias v. ICC, Court of Appeal, Paris, 1986 (p. 389)
- Facts: The ICC granted a request for the removal of the party nominated
arbitrator. The party filed a suit to annul the ICC decision and claimed for
damages.
- Legal issue: whether the rules of the ICC were properly observed. The ICC
provides for final determination of the challenge by the arbitrators. Would that
determination be binding on the courts, or could the French Courts address the
issue of bias?
- Decision: The court determined that the parties chose to have the ICC to decide
their arbitration controversies. Therefore, the court had only to reassure if all the
ICC rules were followed to remove the arbitrator. The rules were followed, the
parties agreed to the rules so the decision is binding.
The French Court gives a lot of deference to the ICC, which is very influential in the
French legal system. The Court will likely accept decisions as long as they are not
unreasonable.
The result is not a final answer to whether or not a court must respect the
determination that the tribunal can reach a verdict that the court cannot then analyze.
When you accept a challenge, there is no prejudice to the party by a decision by a biased
arbitrator. Perhaps the ICC rule was not properly followed, but the objective does not go
to the question whether there was bias that affected the rights of the party. The only issue
that remains is whether we should fault the ICC because it leads to this result. But that is
a question of the ICC institutional arguments, not of the bias of the arbitrators.
* State of Qatar v. Creighton LTD, Supreme Court, France, 1999
- Facts: There was a construction contract between Qatar and Creighton, which
provided for settlement of all disputes by arbitration following Qatar law. Dispute
and ICC arbitration. There were three awards in Creightons favor. Creighton
sought to enforce the awards in France and US. US refused on jurisdiction. In
France, Qattar sought to prevent enforcement because of the bias of the arbitrator
appointed by Creighton. The challenge failed. The reason for the challenge was
that the arbitrator helped Creightons lawyer and Creighton appointed the

82

arbitrator in another arbitration and that these contacts constituted at least a basis
for the appearance of bias.
Legal issue: Was the arbitrator bias in his decision?
Decision: The French court took jurisdiction to review the issue but it was, again,
very deferential towards the ICC determination that the arbitrator was sufficiently
neutral and objective to withstand the challenge that was made. The only analysis
was if the, in the end, the award had any trace of lack of independence or
impartiality. Therefore, the actual conduct of the arbitrator was not questioned.
Does this suggest that national courts are hesitant to intervene in regards to a
decision made by the ICC?
CHAPTER IV
FOCAL POINTS IN THE ARBITRATION PROCESS

IV.1. PROCEDURE BEFORE ARBITRATION TRIBUNALS


Selected Elements of Procedure before arbitration tribunals.
a. The governing principle with respect to the nature of the arbitral process depends
on party autonomy. But usually the parties choice is not made through the preexisting norms such as the rules of arbitral institutions or rules such as
UNCITRAL. There are also provisions of municipal law, but these are generally
less important.
b. Lex arbitri can also be relevant. Lex Arbitri is the law that governs the procedure
of the arbitration, which is most of the time the law of the place of arbitration.
The Scope and Relative Importance of Lex Arbitri
* India v. McDonnell Douglas, award, 1992 (p. 412)
- Facts: Arbitration between India and McDonnell Douglas. The parties chose the
law of India to govern the contract and affirmed that the arbitration shall be
conducted in accordance with the procedure provided by the Indian Arbitration
Act. However, the place of arbitration was London.
- Legal issue: What law governed the arbitration proceedings?
- Decision: The lex arbitri should be the law of the seat of the arbitration. Indian
law would apply when it is not inconsistent with English law.
To the extent that you choose the law, various laws come into play. Theres the law
applicable to the contract (basic choice of law with respect to substantive issues). Theres
the law applicable to the arbitration proceeding. Theres the law applicable to the external
proceeding.
It is normal for the substantive law to differ from the law of the proceedings (which
are usually based on the seat of the arbitration).
When dealing with the law regulating the arbitral procedure, more than one law could
be involved. There could be internal procedure (internal deadlines, hearings, how to deal
with evidence everything procedural in the sense that a procedural code would specify
who had to do what and the admissibility and weight of the evidence) and the external

83
procedure (i.e. the external controls/monitoring on the arbitration). In this case, where the
arbitration is in London, if you say that the law of India governs the external proceedings,
it would be very impractical. Youd have to stop the proceedings in London so you could
go to India and argue there, and there could be conflicting local rules on party agreement.
The administrability of such a decision would be so inconvenient and impractical,
therefore, should be avoided.
The contract can import certain things into English law (supervisory law) by party
agreement. It needs to be done with the approval of the English Court. If there is a
conflict between party choice of law and public policy convenience by the court, the
court will like to go against the agreement. The parties could refuse to arbitrate in the
event the Lex Arbitri cant be chosen, but otherwise it would just be considered a defect
on the contract.
There are three kinds of law:
1. The one that governs the contract.
2. The one that governs the arbitration
3. The one that governs the procedure of arbitration, which are divided into two: a)
internal which can be chosen by the party. In the case was the Indian Act, and
the b) external which is the national law of the place where the arbitration is
being held. It is the supervision enforced by the courts. The internal law
chosen by the parties cannot go against the public policy of the external law of the
place of the arbitration.
Guide to the UNCITRAL Model Law H. Holtzmann & J. Neuhaus (p. 418)
Article 19 establishes the principle of the autonomy of the parties and the arbitrators in
governing the procedural conduct of arbitration. It contains 3 rules:
1. The parties are free to agree on the arbitral procedure to be followed, subject to
the mandatory provisions of the Model Law;
2. Absent such an agreement, the arbitral tribunal may conduct the arbitration as it
considers appropriate;
3. The arbitral tribunal power includes the power to determine the admissibility,
relevance materiality and weigh of evidence, unless the parties have agreed
otherwise. As a result, if the parties agree that certain evidence should be
inadmissible, it should be respected.
During the deliberations of article 19, it was pointed out that the Article might be thought
to conflict with Article 28, which allows the parties to choose the substantive law that
will govern the dispute. Under some legal systems, the issues regarding evidence are
considered substantive law. The question was if the tribunal would be bound to follow the
substantive rules of evidence or could it decide differently. It was decided that the
discretion of the arbitrators, determined in art. 19 (2), should not be affected by the
choice of law applicable to the substance of the dispute under art. 28.

84
The Flexibility of Evidentiary Rules Roger Ward (p. 428)
International trade dispute arbitration uses the civilian procedures in the admission of
evidence, which can make things quite difficult for American-trained lawyers. The
differences are the following:
1. Inquisitorial nature of the proceedings the judges are not passive, but rather an
active participant in the proceedings.
2. The relative absence of discovery, such as interrogatories and depositions.
Terms of Reference
A particularity of the ICC procedure: the institution is proud of having them. The
analogue in other institutional arbitration is pre-trial meetings to the extent that you shape
the procedure and organize the case.
1. How did the ICC come to develop the terms of reference procedure? In the days
before the clause compromisoire was enforceable, you needed a compromis to
establish the authority of the arbitrator. The term of reference was the contract of
the specific dispute that gave the arbitrator authority.
2. The terms of reference also serve the function of getting the claims and attaching
amounts to then to determine the costs and charges of the ICC for the parties.
Help in terms of compliance and enforcing the award.
3. The disadvantages of the terms of reference:
a. Limits the flexibility of the arbitration to deal with new issues as they
come up. This problem has been removed by the 1998 ICC Rules, Art. 19,
which gives the tribunal the ability to provide for more claims.
4. How the terms of reference are drawn up: theyre supposed to be drawn up by the
tribunal (by the third party arbitrator). This raises a significant problem: the third
party arbitrator only has a very general idea of what the dispute is about, less
amount of knowledge. Having the parties to propose the terms of reference to the
tribunal solves this problem. The tribunal discusses the proposals and then drafts
the official terms of reference for the parties to sign. Of course, even the parties
havent gone through the full process, so they might not even understand all the
issues that are going to arise. Also the process could take a long time, especially if
the parties are not fully cooperative.
5. Art. 18 has a description of what the terms of reference covers. Unless the tribunal
considers it to be inappropriate, there should be a list of the issues to be
determined. Today, it requires a summary of the claims and the relief sought.
6. Timetable: 1998 Rules contain an innovation (compared to the 1988 Rules): the
procedural timetable. While drawing up the terms, or immediately thereafter, the
tribunal should establish a timetable.
7. One of the problems of arbitration is the problem of blame. In arbitration it
becomes difficult to impose strict time limits. It depends on how the parties deal
with each other and how the tribunal exercises its discretion. So the provisional
timetable becomes a hope rather than a reality.

85
* Carte Blanche (Singapore) v. Carte Blanche International, NY (1998) (p. 443)
- Facts: Carte Blanche Singapore could have asked the tribunal to admit a new
claim for consequential damages. If the tribunal had done that, it would have been
ok and the tribunal could have made an award on the claim. But under the old
rules, the tribunal could only add claims if the parties agreed to add them.
- Legal issue: Has a new claim been made by Carte Blanche Singapore, or whether
one can interpret the terms of reference to encompass one particular claim.
- Decision: The new claim did fall under the terms of reference. They interpret the
terms of reference as especially broad so as to accommodate this claim of
consequential damages (damages were provided for in the terms of reference).
The terms of reference were very general. So the new claim could be determined to fit
in the terms of reference. But if the 98 Rules had been in force, it would have been easier
to include a new claim because it wouldnt have required the consent of the other party.
The decision does not raise the question formally may have been based on the desire
to save the parties money. But it turned out to be a good thing for Carte Blanche
Singapore.
a. P. 449, #2. Under the 98 Rules, the arbitrators can accept claims that fall
outside the terms of reference, even if the parties had initially signed the
terms of reference. Is this good, or is the 88 system better?
b. P. 449, #3. If the terms of reference are broader than the scope of the
arbitration clause, which is governing? Probably the terms of reference
govern because they are agreed to by the parties after the arbitration
clause. The terms of reference have the effect of amending the parts of the
arbitration agreement that are extended. If the terms of reference broaden
the scope of the arbitration it is enforceable because the parties agreed to
it.
Records and Minutes of the Hearing (p. 450)
ICC Comparative Arbitration Practice and Public Policy in Arbitration (extract from
project discussing the different legal systems)
1. Countries have various approaches:
a. US: there tends to be a stenographic record. This produces a transcript. It
could be very expensive and a skilled group of specialists. Unrealistic in a
location outside of NY or London that does not have the conditions
available in major centers. Will not work very well.
b. England: mainly a question of expenses.
c. ICC: No stenographic record in the majority of the cases. Only evidence
would likely get a transcript.
d. Poland: Minutes kept by the proceeding arbitrator which indicate who was
present, what business was accomplished, what pieces of evidence were
submitted.
2. If you are not in the common law arena and the parties do not have the money for
stenographers. What record would be most useful?
a.
Minutes- gives a record of what happened and who
was present. Far from a record of the proceedings.

86
b.

The Cairo Approach- tape recording provided and a


summarized minutes dictated by the arbitrators of what the witness says.
That will be looked at by the arbitrators and the parties who suggest
changes. Once that is done you have a statement signed by the parties that
gives a good summary of what was said and done.
c.
The German court system is similar- judge gives
summary of what the witness says which is showed to the witness who
makes the appropriate changes. Lawyers and judges can also comment
before it is finalized.
d.
In some respects it is more manageable than
transcripts but it might have some defects.
Presentation of the Case Problems with Discovery (p. 455)
Application of Technostroyexport, a foreign economic association under the laws of the
Russian Federation.
- Facts: Russian seller petitioned SDNY with respect to discovery that the party
wants for use in arbitration proceedings pending in Russia and Sweden.
If there were discovery proceeding in US court, the discover proceeding
would be initiated by each party. There would be no need to go to court because
each party could go out and do discovery. This procedure is consistent with a
party-driven system for getting evidence.
If this were in a continental European court, discovery would be initiated
by the judges. The parties would have to get an order from the court in order to
get evidence. This is a court-driven system for getting evidence. Lawyers cannot
talk to witnesses for the other side.
When it comes to arbitration, in the continental European system,
evidence would be arbitrator driven. It would be appropriate for the arbitral
tribunal to determine the contact between the party and its counsel and witnesses.
If the particular system in question says that there should not be direct contact
between the counsel and the witnesses, then that should be respected.
Using this as the background, shouldnt it follow that the court should be
prepared to give judicial assistance to a request by the arbitrator. Discover is
regulated by the rules of the arbitral tribunal, it is not permissible to do what the
claimant would like (ie. To go without an order of the arbitral tribunal and to take
testimony).
- Legal issue: In arbitration, the arbitral tribunal should determine whether
discovery is available and the form and extent of the discovery. Until the tribunal
requests judicial assistance, self-help by the parties is not appropriate. Self-help is
not appropriate- need to go through the appropriate channels. Rejected the Malev
decision.
Experts (p. 462)
The use of experts in regular court proceedings
1. Types of systems

87
a. In the US, the parties choose the experts who present their findings and
opinions through written reports and testimony (direct and crossexamination).
b. In continental Europe it is the court that chooses the experts and asks them
different questions. The parties can ask them additional questions if
needed. It is a less adversarial process.
c. These different approaches derive from the adversarial system vs.
inquisitorial system.
2. Paying the experts
a. In continental Europe, the losing party pays for the experts called by the
court.
b. Court in the US cannot name experts and charge the parties. You need
special legislation to establish such a situation. In the US system the losing
party does not have to pay the expenses of the winner. Each party bears
their own costs.
i. The existence of the jury
The same arguments for ordinary evidence (that it should be
presented by direct and cross-examination when a jury is present)
applies for experts.
3. The difference between arbitration and court proceedings
a. Practices in arbitration used to mirror the practices in litigation. But this is
no longer the case. (UNCITRAL Art. 26,27, AAA Art. 22)
b. Common law: shift from party appointed experts to where the tribunal will
appoint the experts and the parties would split the costs. The question
remains whether the parties requests are honored.
i. After the tribunal appointed experts have testified, the parties have
the option of questioning this expert and appointing their own
experts. (UNCITRAL Art. 26, AAA Art. 22)
ii. Thus we see an international standard emerging that makes the role
of the tribunal vis--vis experts much more significant than the role
of the court in expert proceedings in the US.
4. Conclusion: the version of the continental European approach to experts has
become the norm in ICA.
Representation in the proceedings: Is local counsel required? (p. 486)
1.
To represent someone in court, you must be a member of
the bar of that country (although this is breaking down in the EU). But this is not
the case for arbitration.
2.
The local bar seeks to deny the right of lawyers who have
not been admitted to the local bar to proceed before the local court. Policy for
this: lack of legal background, possible incompetence, not subject to disciplinary
control, protection of the public, economic (local bar wants a monopoly).
3. Generally, to represent someone in an arbitration, you do not have to be a member
of the local bar.

88
a. But in Singapore, you have to be a member of the local bar (Turner Case)
This case created quite an international uproar because it went against the
common view and could influence other countries. Singapore was trying
to become an arbitration center and this shut it down before legislation
was passed. This has been legislated out to allow foreign lawyers.
November 7 and 13, 2003
Privacy and Confidentiality (p. 495)
b. General proposition that arbitrations are confidential.
c. The arbitration hearing is confidential and must be conducted in private
(this has been clearly established).
d. Hassneh Insurance v. Mew, QBD 1992 (p.495)
i. FACTS: An arbitral tribunal rendered an interim award in which
the def. was substantially unsuccessful Defendant wanted to
continue its claim against a third party and, therefore, wanted to
disclose the interim award and its reasons as well as proceedings
transcripts of witness statements, pleadings, and other documents
from the arbitration. Plaintiff sought an injunction to restrain
disclosures on the grounds that it would be a breach of confidence
by the defendant.
ii. HOLDING: In general, arbitration is conducted in private based on
an implied obligation (implied term of the contract). BUT
exception to the duty of confidentiality: If reasonably necessary for
the protection of an arbitrating partys rights vis--vis a third party
that the award should be disclosed to that third party, so disclosure
is possible (including its reasons). BUT Pleadings, witness
statements, disclosed documents in the arbitration and transcripts
should remain private. Otherwise, breach of duty of confidence.
Limited exception to the principle of confidentiality.
iii. ANALYSIS:
1. Award is an identification of the parties respective rights &
obligations.
2. For awards to be enforced there has to be a judgment.
Thus courts reproduce contents of the award in the
judgment which will be public.
iv. NOTE: Why does the court set the line where it does? Why does it
allow the reasoning of the award to be public (in such
circumstances, i.e. when necessary for the protection of a partys
rights) but keeps the rest of the arbitration private?
1. The court wants to have an easily administered rule that
deals with the most common needs with respect to relaxing
the confidentiality. The award and the reasoning for the
award are the only two aspects of the arbitration that justify
breaking the confidentiality principle.

89
2. The line drawing is purely efficiency. Confidentiality
should be observed where it is compatible with the needs of
real life.
v. NOTE: Who is bound by the obligation of confidentiality? The
parties in the arbitration & other people participating in the
arbitration proceeding. BUT arbitrators and third parties are
normally not bound (However, arbitrators may be obliged to
respect confidentiality under institutional or ethical rules).
vi. NOTE: Von Mehren finds that this English theory is not solid
enough because puts too much weight on the idea of implied
obligation.
vii. NOTE: Published awards often delete identifying information of
the parties because of the confidentiality principle.
1. Some countries keep confidential the facts of court cases
that are not legal issues or omit the names of the parties
(ex. in Germany). So idea of privacy is one that has
application also in the field of judicial adjudication.
e. As a result of the confidentiality, there is no satisfactory official collection
of arbitral awards.
a. Esso Australia v. Plowman, Supreme Court of Victoria, 1993 (p.501)
i. FACTS-ISSUE: Question whether information disclosed by a party
in the course of an arbitration is subject to an obligation of
confidence. Question to what extent the arbitration proceedings
are confidential?
ii. Lower court: The law doesnt provide that disclosure of
information arising in an arbitration is restricted. Appeal.
iii. Supreme Court HOLDING: Australian court takes a different
approach than the English court did (in the Hasnneh case). Both
courts agree that the issue of confidentiality is determined in part
by the customs of the country. Both agree that the hearing is
confidential. Australian court doesnt base this on an implied
obligation but on Australian customs clearly established.
Australian court rejects the implied obligation analysis of
confidentiality.
iv. Australian analysis is different from the English system. The
Australian concern is that it is hard to draw the line between what
ought to be confidential and what not. The hearing is confidential
but the confidentiality requirement does not extend further unless it
can be clearly defined and it is thought by the community that the
disclosure is confidential. This standard is not clearly defined and
too vague (objection that Australian court makes to the English
court).
v. English vs. Australian Analysis
1. English analysis seems more stringent & extends the scope
of confidentiality, where the Australian analysis seems

90
more circumstantial (based on community standards, based
on facts of each case) and reluctant to confidentiality (as
long as no clearly defined standard).
b. Von Mehren thinks confidentiality problem is overblown. Party will be
able to disclose if it wants to. Arbitrators assume obligation not to disclose
confidentiality because they made a contract.
c. Von Mehren thinks UK position is idiosyncratic. Most national courts take
position of Australian court. Nowadays, other than the hearing, all the
rest is not really confidential. But of course, if arbitrators run around
giving out all the information on a specific arbitration, there reputation
will be wounded (real sanction for breach of confidentiality).
d. If parties sign special agreement with arbitrators on obligation of
confidentiality, does that provide the parties with a more solid ground if
violation of this obligation by the arbitrators? Not really. WHY? I) Cause
this violation wouldnt prevent the award to be enforced under the NY
Convention, ii) Cause it would be difficult to obtain damages under
general contract law for breach of the confidentiality obligation. How
would these damages be quantified? Realistically, the violation of such
an obligation would have as an effect to affect the arbitrators reputation.
Choice of law issues before the arbitrators (p. 550)
1.

Choice of arbitration simplifies some of the problems of


private international law that arise in disputes before courts (eg. Issue of
jurisdiction over the parties) BUT the choice of law problems may be more
complicated in arbitration. WHY? Because of the anational character of
international arbitration (i.e. because of the absence of a specific forum).
Applicable procedural law: Most problems solved through party
autonomy (or institutional arbitration rules) Party procedural
arrangements are usually subject to the basic standards of due process.
Applicable law to the agreement: Mainly problems are solved through
private autonomy. BUT question of the validity of the agreement is
usually resolved by application of the law of the country were the
award was made (under influence of art. V, I, a of NY Convention).
Applicable substantive law: Mainly party autonomy.
Role of the lex arbitri: Facilitates & supervises the arbitration
proceedings. In principle, parties are free to choose the lex arbitri
but rarely do. So, usually courts & arbitrators apply the lex arbitri of
the place of arbitration (as a vestige of the jurisdictional theory of
international arbitration).
The problem of mandatory law of country A (when parties have
chosen law of country B).
2. Focus on applicable substantive law Basically, the parties are given
possibility to choose substantive applicable law. If we were talking about this

91
75 years ago, we would say that ICA DOES have a forum (jurisdictional theory),
and that forum would be the place of the arbitration.
a. 1961 European Geneva Convention on ICA, Article 7: Freedom of the
parties to agree on applicable substantive law. If no such agreement,
arbitrators apply the law designated by the choice-of-law rules that the
arbitrators deem applicable. Arbitrators may also act as amiables
compositeurs under certain conditions.
b. 1998 ICC Rules of arbitration, Article 17: Freedom of the parties to
agree on applicable substantive law. If no such agreement, arbitrators
apply the law under the choice-of-law rules that the arbitrators deem
appropriate. Parties may give power to arbitrators to act as amiables
compositeurs or to decide ex aequo et bono.
c. Uncitral Model Law, Article 28: Freedom of the parties to agree on
applicable substantive law. If no such agreement, arbitrators apply the law
under the choice-of-law rules that the arbitrators deem applicable.
Parties may give power to arbitrators to act as amiables compositeurs or
to decide ex aequo et bono.
i. Holtzmann Commentary on Model Law: Problem of selecting
the rules applicable to the substance of the dispute is more
complicated in ICA than it is for a domestic court or for an arbitral
tribunal in a purely domestic arbitration (because in the latter case
there is generally a single set of choice of law rules that govern the
choice). Model Law (like other international conventions on
ICA) provide guidelines on determination of applicable substantive
law.
1. Paragraph 1: Allows the parties to make a binding choice
of law to govern the dispute. The working group adopted
view that under this provision the parties could choose not
only the body of law in force in a particular jurisdiction but
also parts of other legal codes or sets of rules not in force as
such elsewhere. Thats why 1 uses term rules of law
(as opposed to simply laws). Expression rules of law
covers: national law(s) of one or many States, rules
embodied in a convention (even if not in force) BUT
expression doesnt extend to general legal principles or law
developed in arbitration awards. Why limit the parties
choice? To ensure that the rules chosen are reasonably
ascertainable by the arbitral tribunal.
2. Paragraph 2: Arbitral tribunals power to choose the
applicable law in the absence of a designation by the
parties. Working group decided that arbitrators have to
have recourse to choice of law rules, which in turn
command application of a law. This approach was
chosen to provide greater predictability & certainty & help
ensure that the arbitral tribunal gave reasons for its choice
of law.

92
3. Paragraph 3: Gives effect to the parties agreement to
have the arbitral tribunal decide ex aequo et bono or as
amiables compositeurs. Even if this type of arbitration is
not known in all legal systems, provision seemed
appropriate in the Model Law for several reasons.
4. Paragraph 4: Arbitral tribunal shall decide in accordance
with the terms of the contract and shall take into account
the usages of the trade applicable to the transaction.
Occasionally reservations raised about the appropriateness
of having a provision to this effect ( i) because reference to
contract terms might be misleading when they are
conflicting with mandatory provisions & ii) because
reference to trade usage considered redundant and
dangerous). But Working Group finally decided to keep
this provision. Why? i) Because provision well known,
ii) Provision which appears also in the Geneva Convention
& iii) provision that ensures that the parties expectations
were fulfilled.
3. The role of Lex Mercatoria (p.574)
Norsolor (France) v. Pabalk (Turkey), p. 574
a. FACTS: Norsolor, French corporation, terminated an agency agreement
with Pabalk. Pabalk started arbitration against Norsolor in Vienna
under the ICC rules & won an award for damages. In this award,
arbitrators did not apply the law of a particular country but they based
their award on the lex mercatoria and relied on equity for certain issues.
Pabalk sought enforcement of the award in France by the Tribunal de
Grande Instance de Paris. Norsolor argued violation of art. 13 ICC because
allegedly arbitrators had acted as amiables compositeurs without the
agreement of the parties.
b. ISSUE: Can the arbitrators apply the lex mercatoria as substantive law to
an arbitration? If yes, when they choose so, to they act as amiables
compositeurs?
c. Tribunal de Grande Instance Holding (1981) : Arbitrators can apply the lex
mercatoria as substantive law to an arbitration. By doing so they do not act
as amiables compositeurs. Therefore, art. 13 ICC has not been violated.
d. Court of Appeal of Paris Holding (1981, 1982): Norsolor appealed & also
sought a a stay of the French proceedings pending the outcome of the
decision of the Court of Appeal of Vienna (where Norsolor had instituted a
parallel proceeding to set the award aside). Court of Appeal of Paris
granted Norsolors request for a stay on the ground that if the award were
annulled by the Court in Vienna, the action for leave to enforce would be
deprived of its purpose. Court of Appeal of Vienna set aside the award
& therefore the Court of Appeal of Paris rescinded the order for leave to
enforce the award.

93
e. Cour de cassation (1984) Holding : Reversed the decision of the Court of
Appeal of Paris on the ground that under NY Convention & French
procedural law the Court of Appeal had to determine whether French
law would allow enforcement of the award independently of the Austrian
ruling.
f. NOTE: French courts have ruled that in the inverse situation (i.e. where
the arbitration agreement expressly grants the power to the arbitrators to
decide as amiables compositeurs, but they instead apply a national law)
the award should be set aside. (c.f. Halbout et societe Matenec v. Epoux
Hanin, 2001).
g. NOTE: At the time the case was decided, it was very controversial to
apply rules that did not derive from a sovereign legal system of rules.
Question if the idea that there has to be a connection with a sovereign still
persists. According to the Vienna Court (in this same case), YES. But
then, further question if such setting aside of the award prevents other
courts from enforcing the award. French Court says NO.
4. The Problem of Mandatory Law
a. Should arbitrators ever apply the mandatory laws of a country other than
the proper law of the contract?
b. When third country law involves strong public policy issues, then those
laws should be applied along with the appropriate law of the contract.
c. Principal (Italy) v. Distributor (Belgium), ICC Award, 1990 (p. 585)
i. FACTS: Exclusive distributorship agreement between an Italian &
a Belgian party containing an arbitration clause. Arbitration
The award is given by a arbitral tribunal sitting in Germany. The
contract provided for application of Italian law and jurisdiction
clause refers to rules of ICC and recourse to court is excluded.
ii. ISSUE: Should Belgian mandatory law be applied even though the
contract provided for application of Italian law?
iii. HOLDING: Arbitrator held that Italian law applied to the contract
& that he should disregard mandatory Belgian law provisions.
iv. ANALYSIS: The parties provided that the controlling law is that of
the seat of the manufacturer. The common intention of the parties
cannot be disregarded except in exceptional circumstances. This is
not an exceptional circumstance. According to Italian law, Belgian
law does not prevail. Therefore the arbitration clause is valid.
v. Is there anything illogical with the theory that the parties can
exclude the application of mandatory law of states, even if the
states have a connection with the underlying transaction?
1. A mandatory rule will be observed by the court even if the
parties agree otherwise. Here we are talking about the
application of a mandatory rule in an arbitration when the
choice of law does not include the mandatory law.
vi. The arbitrators apply the law that the parties have chosen. The
question then becomes whether the award is enforceable. It may

94
not be enforceable in countries where mandatory law has not been
applied,
or
where
public
policy
has
been
violated by this award.
d. Award introduces as dictum the Lando approach (theory exposed on p.
602, Art. 9): Arbitrators have a right to go beyond the designation of
applicable law made by the parties when there is a serious policy objection
on the ground of a legal order that has not be chosen by the parties but that
arises in connection with the case.
e. There are some cases where there is actual fraud or offense against the law
that the parties are trying to reach by their choice of the applicable law,
and the arbitrator knows it. What should he do? The appropriate thing
would be for the arbitrator to resign. When there is a conflict between
what you think is morally right and proper and enforcing the clause, then it
would be appropriate to withdraw.
5. Lando (Ole), Conflict-of-laws rules for arbitrators, 1981 Proposal on the
Law Applicable to Intl Contracts prepared by the ICC Working group.
(p.600)
a. First proposal Question raised: Should arbitrators act like parties and
have the autonomy to choose the applicable law OR should they be
governed by rules on how to choose the applicable law?
i. Lando suggests that the parties choose the applicable law,
otherwise the tribunal would choose it with a provision that
governs how it would select the law. This, however, would change
the UNCITRAL Rules because the arbitrators would not fill in the
rules determining the applicable law. It would also change the
result under the ICC rules whereby the arbitrators can determine
directly the rules of law.
1. This (1) prescribes a methodology and (2) takes from the
arbitral tribunal the ability to directly choose the applicable
rules of law (which the ICC allows).
ii. This proposed change would make the arbitrators more like judges.
By analyzing through the general approach, the arbitrators would
determine the applicable law.
iii. The results of this will be case-specific.
iv. Is it preferable to have the ICC version of the rules, which puts the
arbitrators in the position of the parties (selecting the rule of law),
OR to have an approach whereby the arbitrators must follow a rule
that governs how to choose the applicable law?
1. Von Mehren thinks its an advantage to have the most
significant connection test (proposed art.2, p. 601). It will
avoid a lot of discussion as to what system should be used,
its pretty flexible, and its an approach thats used by a lot
of court systems, which makes it more likely that the
results will be accepted by the courts.
b. Second proposal

95
i. This proposal permits the arbitrator to take into account and give
effect to the mandatory rules of the applicable law as determined
by the most significant connection test and also give effect to laws
of other legal orders that have a direct and real concern with a
particular situation.
ii. Von Mehren dislikes this idea; he thinks it is important to maintain
discipline over arbitrators.
iii. Landos Article 9 is controversial because it says that the arbitrator
can give effect on mandatory rules of the country if the contract or
the parties have close contact to that country. Arbitration might
suffer if it becomes known that it is being used as a device for
evading the public policy of states which have a governmental
interest in regulating certain business transactions. Von Mehren:
Art. 9 is essentially another version of Article 7 of the Rome
convention. In Europe there is a prevailing rule that the parties
should not be as in control of the situation.
Chapter V: The effects and limits of awards rendered in ICA
1. There would be self-contained finality of arbitral awards if i) award in principle
enforced AND ii) award not able to be set aside or refused enforcement by any
court. The present status of ICA satisfies in general the 1st requirement (awards
have in principle effects from the moment they are rendered; requirements of
confirmation are very rare nowadays) BUT not the second one (awards can
always be set aside or refused enforcement) although the more you see judicial
review to be deferential to arbitrators, the more we advance towards a full status
of self-contained finality of arbitral awards.
2. Question if ICA will ever become independent of national courts? Not likely.
The real question is that of the depth & degree of control that national courts
exercise over awards. Today, tendency to defer more and more to arbitrators
but national courts are still careful with matters of strong public policy &
jurisdictional issues (of the arbitral tribunal).
3. Recognition & enforcement can take place in all contracting states of the NY
Convention without prior confirmation in the country of origin.
4. In most countries, awards must be confirmed to be enforceable but have
preclusive effects without court scrutiny. But the lex arbitri may pose a timelimit within which confirmation can be sought. If this time-limit has expired,
holder of the unconfirmed (and unconfirmable) award may not even be able to
restart an arbitration proceeding upon the same claim (cf. In Protocom Devices
Inc. v. Antonio Figueroa, App. Div.1991).
5. Standard that is very much advocated for independence of the arbitration is: the
award is enforceable and has preclusive effects without court scrutiny. (standard
c, p. 608).
6. Domesticity of Arbitral Awards
a. Should awards be considered domestic, or not? If the award is domestic
then it is judged according to the laws of the state not the NY Convention

96

b.

c.

d.

e.

f.

(because art. I,1 of the NY Convention excludes domestic awards from its
scope of application).
Domestic award OR awards home country: Each national law has
different criteria for determining whether an award is domestic or not. In
general, homes country award is that where award was handed down OR
that under whose lex arbitri the award was rendered. But, national legal
systems may be very severe with the qualification of home country and,
thus, an award may have no home country at all. But even if there is no
home country, award can be set aside under art. V,I,e by the court of which
law was applied.
At the time NY Convention was adopted, there was a 2ble exequatur of
arbitral awards: i) recognition of the award in the country were it was
made (based on jurisdictional theory), ii) recognition of this foreign
judgment that emerged from the arbitration award. 2ble exequatur.
Since NY Convention, we do not look at arbitral awards as if they exercise
a sovereigns power. NY Convention steps in & provides authority that the
arbitration process can claim. One part of the NY Convention supports the
idea that the award can be set aside: privilege the courts of the situs of the
arbitration. We continue to recognize setting aside jurisdiction : because it
is desirable to have one legal order to determine whether award can be
recognized & enforced. Question if other states can recognize an award
which has been set aside in another country: Art. 5 (I,e) says that the
recognition and enforcement may be refused if there is proof that the
award has been set aside. Setting aside is not regulated by the NY
Convention but by national law.
Judicial control over the award: setting aside
i. In most countries, judicial control over the award occurs in 2
settings: i) opposition to recognition & enforcement in a country in
which the winner chooses to rely on the award, & ii) claim for
setting aside in a country in which the award was made or that
considers the award to be domestic.
1. Grounds for challenge in recognition & enforcement
proceedings are specified in art. V of NY Convention &
have practically become world law.
2. Grounds for setting aside: no international treaty exists but
strong trend toward convergence anchored in the Uncitral
Model Law (Art. 34). These grounds for setting aside
are more or less the same as the grounds for refusing
recognition & enforcement set out in art. V of NY
Convention (for recognition and enforcement). But
standards for setting aside are not regulated by NY
Convention.
Problems pertaining to setting aside (p. 645).
i. Which awards are domestic awards?

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ii.

iii.

iv.

v.

vi.

1. If the award is domestic then it is judged according to the


national laws of that country. NY Convention doesnt apply
(Art. I-1).
2. NY Convention indicates only indirectly the criteria for
determining domesticity Art. V-I-e seems to indicate
that an award may be domestic in the country where award
made OR under the law of which the award was rendered
(but the NY Convention doesnt provide for grounds for
setting aside an award). However, these implicit criteria
for domesticity lack clarity (eg. in which country is an
award exactly made, does under the law of which refer
to substantive or procedural law or to the law applicable to
the arbitration agreement?).
3. Model Law: opts for the territorial criterion (place of
arbitration) for defining domestic awards. Most national
laws have opted for the territorial criterion.
4. (added from note n. 4, p. 675) Although both NY
Convention & the Model Law use the territorial criterion,
they formulate it differently. The Model Law stresses the
place of the arbitration whereas the NY Convention refers
to the country in which the award was made. But the
country where arbitration takes place and the country where
the award may need not be the same.
What decisions may be subject to setting aside?
1. By its nature, setting aside applies to awards with respect to
which the arbitration process has been completed (i.e. final
awards even if partial, as long as the process is completed
with regards to that particular subject).
2. Problem with interim awards that settle a preliminary
question, such as that of jurisdiction. National
Arbitration Acts deal with the problem differently.
The issue of standard of review
1. Usually, scrutiny is restricted essentially to a listed number
of procedural issues. But the question is whether a court is
free to substitute its own view of the facts and of the law
for those of the arbitrators.
Is the right to seek setting aside waivable ?
1. This is a question of national law. Tendency towards
permission of waiver.
2. The Swiss, Tunisian, Belgian & Swedish acts allow for
such a waiver (under different conditions).
Is the right to seek setting aside expandable ?
1. Question whether the parties are allowed to broaden
options of recourse French courts have been hostile to
such an expansion.
The consequences of setting aside

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1. An award set aside has no effects in the country where it
was vacated.
2. The award may not have effect in all State-Members of NY
Convention if setting aside occurred in a country in which,
or under the law of which, the award was made.
3. Question whether the arbitrators are functus officio after the
setting aside is pronounced or whether they retain
jurisdiction to rehear the case. Different national
solutions.
vii. Are there relevant procedural standards superior to those of
national courts?
1. In rare cases, courts have invoked the norms embodied in
human rights convention sin connection with arbitration
proceedings.
g. Is there of setting aside to judicial decisions? Perhaps.
i. Analogy for setting aside would be judicial review. But not very
clear analogy.
ii. Von Mehren thinks that the issue should not be whether an award
should be set aside but whether there is enforcement and
recognition. Historically, when there was a territorial notion of
arbitration, then it was logical to say that there was a hierarchy
with respect to the work of the arbitral tribunal, which consisted of
the arbitrators as well as the courts of the seat of arbitration. But
now that the arbitration may not have any connection in the law of
the place where the arbitration takes place it doesnt make any
sense to say that you can explain the phenomenon of setting aside
in the same way we explain reversal in judicial proceedings. The
reversal would have to be within the arbitral system itself, not
within the national courts. Once the arbitration is seen as
independent and self-sufficient, the question becomes not reversal
but simply, is it appropriate to recognize and enforce.
iii. One possible solution is to eliminate the setting aside mechanism
(except in very rare situations, when there is an appellate arbitral
tribunal who can review the work of the arbitral tribunal of the first
instance) and rely solely on the recognition and enforcement
mechanism. This is not what has developed under the NY
Convention however.
iv. NY Convention allows for setting aside- Von Mehren thinks it is
bad.
7. International Standard Electric Corp v. Bridas, US District Court, 1990, p. 651
i. FACTS: ISEC petitioned to have the award (arbitration took place
in Mexico and award rendered in Paris) set aside by the US courts
& to refuse recognition & enforcement. Its argument was that
under the NY Convention, the court of the place where the
substantive law has been applied can set aside the award. And

99
since US law applied, US courts can set aside the award Bridas:
cross-petitioned to dismiss ISECs petition to vacate on the
grounds that this Court lacks subject matter jurisdiction to grant
such relief under the Convention.
ii. ISSUE: Whether the phrase in the NY Convention the country
under the laws of which that award was made refers to procedural
law or to substantive law?
iii. HOLDING: The phrase in the NY Convention the country under
the laws of which that award was made refers to procedural law
and not to substantive law. Here, the situs of the arbitration is
Mexico & the governing procedural law is that of Mexico. So, only
Mexican Courts have jurisdiction under the Convention to vacate
the award. Court adds that any suggestion that this phrase refers
to the substantive law defies the logic both of the Convention
debates & of the final text. The whole point of arbitration is that
the merits of the dispute will not be reviewed in the courts,
wherever they be located.
iv. NOTE: If they had held that the curial law that could be applied
was that of another state, what would have happened? If that third
state had set aside the award, but the state where the award was
made had not set aside the award, then what? Can the award be
enforced by the US courts or not under the NY Convention? Does
one of these jurisdictions have priority?
1. The Convention does not give priority to either jurisdiction
2. The state that chooses to enforce the award may do so, even
if the other state has set the award aside.
3. The general view is that the setting aside need not be
recognized. Its left to the discretion of the court.
b. SUMMARY
i. If you are either the territorial situs (ie the seat of the arbitral
tribunal) or the curial situs (ie the country whose procedural law
has been applied, then you can use your own national law to trump
Art. V (i.e. Your courts can set aside the award).
ii. If an award is not considered a domestic award (ex: rendered in the
US but not domestic because French law applied to the
arbitration), under Art. V(1)e, those non-domestic awards could
still be set aside by the domestic courts.
c. NOTE: The tendency to use setting aside as a way to avoid recognition of
the award is a problem that occurs more frequently in emerging countries.
This leads to tow issues: are these complications all the heritage of a
different philosophy of arbitration? Does one really need setting aside or is
it just a burden on the international system?
8. Standard of Review
a. Transport Vekoma (Netherlands) v. Maran Coal (USA), Swiss Federal
Court, 1995, p. 694.

100
i. FACTS: Language of the arbitration agreement said that dispute
may be referred to arbitration This suggests that the arbitration is
a possible (with a certain time limit of 30 days after end of
settlement attempts) but not obligatory. But at what point has the
time limit for arbitrating expired? Seller petitioned the Swiss
Federal Court to set aside the award on several grounds, mainly
claiming that the arbitration was time barred because the buyer had
not met the 30 day contractual deadline for resorting to arbitration.
ii. ISSUE: Question whether the arbitration was time barred and
therefore ought to be set aside. Did the Swiss tribunal exceed its
power of review? Is this an issue of law under the authority of the
Swiss tribunal or is it a question of fact so that the factual finding
made by the arbitrators is to be respected?
iii. HOLDING: the 30-day time limit for arbitration starts running as
soon as it becomes obvious to the parties from an objective point
of view that no amicable settlement can be reached.
iv. NOTE: This case, once again, suggests the importance of clear
drafting. The best arbitration clauses are those that eliminate all
ambiguities.
v. NOTE: Was what the court did correct? Is the court re-examining
objective facts or is the court evaluating the meaning of these
events?
1. The court adopted all the facts of the arbitration tribunal,
they simply gave them a different meaning. It was a mixed
question of law and fact- accepted the facts and determined
the law. This is more than mere factual determination.
Paul Friedland criticized the Swiss Supreme court for doing
a sort of second guessing since it disagreed with the
arbitrators (on the question of whether the arbitration was
time barred) without having heard the testimonies.
2. Von Mehren: What one could say in favor of Swiss
approach is that the court wants to be sure that the parties
had agreed upon arbitration.
b. Egypt v. Southern Pacific Properties, Paris Court of Appeals, 1984, p.
698.
i. FACTS: Contract signed by the Minister of Tourism of Egypt.
Question whether the Egyptian state was a party to the arbitration.
ICC Award held that the Egyptian state WAS bound by the
arbitration clause contained in the contract between SPP &
EGOTH. Question before the Paris Court of Appeals.
ii. ISSUE: Was the state a party to the arbitration? If Egypt is a party
in the arbitration, does it lose the right to deny the arbitral
tribunals jurisdiction on the basis of its State immunity
jurisdiction?

101
iii. HOLDING: Court of Appeals ruled that the ministers signature
did not express a commitment by the State to enter into the
contract but rather a simple approval by the supervising authority.
Therefore, there was no arbitration agreement binding on the State.
Sets aside the award.
iv. ANALYSIS:
1. Part of the argument is based on the participation of Egypt
in the arbitration. Making the analogy to judicial
proceedings- if you participate without objections then you
lose the right to state immunity jurisdiction. Here, Egypt
objected all along, but it did participate. York. v. Texas held
that if you wanted to object, you had to submit to general
jurisdiction. If you participated you were taken to have
waived your jurisdictional immunity. Current law: no state
in the US that takes this position. You can simultaneously
object to jurisdiction and defend against the claim.
2. The issue of whether the parties agreed to arbitrate is so
crucial that unless the parties agreed otherwise it should be
decided by the courts not by the arbitrators.
v. NOTE: This is a de novo determination of the jurisdictional issue.
The court didnt feel bound by any finding of the arbitration
tribunal & absolutely no deference to the arbitrators.
vi. NOTE: However, Dutch courts were also seized of the matter &
followed the arbitrators judgment finding that Egypt was bound
by the agreement signed by its minister ( French Court).
9. Can the parties provide for heightened judicial scrutiny of arbitral awards?
a. Lapine Technology v. Kyocera Corp, US Court of Appeals, 1997, p.
706.
i. FACTS: Parties entered into an agreement that provided for
arbitration and that the courts should apply a heightened judicial
scrutiny in reviewing the award (review for errors of fact or law).
Basically, the parties provide for control by the confirming court
that goes beyond what is required by the FAA.
ii. ISSUE: Is federal court review of the arbitration agreement
necessarily limited to the grounds set forth in the FAA OR can it
apply greater scrutiny if the parties have so agreed?
iii. District Court: Held that its review of the award is necessarily
limited to the grounds set forth in the FAA, even the parties had
provided for a heightened judicial scrutiny standard. However,
the parties agreement on heightened standard of review doesnt
invalidate the arbitration provision because the part of it dealing
with the heightened standard of review was separable of the rest.
Court confirmed the award.
iv. Court of appeals HOLDING: The court is not bound by the FAA,
so it can apply greater scrutiny if the parties have so agreed.
v. ANALYSIS: Three different views expressed in the opinion.

102
1. Party autonomy should govern
2. The standard is known to the court (its the same as for
bankruptcy courts) Given the policy behind the FAA (to
ensure enforcement of private agreements in accordance
with the agreements terms), Court should not object to this
agreement. Arbitration under the FAA is a matter of
consent, not coercion and parties are generally free to
structure their arbitration agreement as they see fit.
3. Dissenting opinion: Parties can decide whether, what, how
and when to arbitrate. But they can not dictate how a court
may review an arbitration decision.
vi. NOTE: If we accept the majoritys opinion, result would be that
the process of arbitration wouldnt have an effective result. And
would go against the general tendency to defer to arbitration &
limit review. This decision leads to great complications &
doesnt fit into pre-established patterns.
vii. Model Law: precludes use of such a clause in an arbitration
agreement.
viii. French Case law: Agreements seeking to expand the grounds for
judicial review would be rejected in France as against public
policy.
Judicial control over the award: Recognition and Enforcement
Awards subject to the NY Convention
-

Awards have practical value only if they are recognized & enforced in national
courts.
Major purpose of the NY Convention: to ensure the efficacy of awards by limiting
the grounds upon which a national court could refuse to recognize or enforce an
award.
Question: Which awards are governed by the NY Convention? Under art. 1, two
types of awards: i) those made in the territory of a State other than the State where
the recognition & enforcement of such awards are sought & ii) those not
considered as domestic awards in the State where their recognition and
enforcement are sought. 2 standards of applicability of the Convention, which
dont necessarily coincide. This arrangement came around because some of the
European Countries had tradition that applicable law wasnt place of arbitration
but a different one. Germany & France didnt want to give up that situation.
So, Convention adopted both criteria. The effect of that is to expand the scope
of the NY Convention.
NY Convention is a Universal Convention: No reciprocity requirement in
principle, unless if a contracting state chooses to make the reservation of
reciprocity allowed under art. I-3.
Sigval Bergesen v. Joseph Muller Corporation, US Court of Appeals, 1983, p.
734.

103

o FACTS: Dispute between two contracting parties (one Norwegian & one
Swiss). Arbitration takes place in NY & the award is in favor of
Norwegian party, which seeks to enforce the award in the US, pursuant to
the NY Convention. Party had been trying to enforce the award for over
2 years outside the US. So, now, effort to enforce the award within the US.
The other party contends that the NY Convention doesnt cover
enforcement of an award made in the US because neither territorially a
foreign award nor a non domestic award.
o ISSUE: Whether the NY Convention is applicable before a US Court with
regards to an award rendered in the US but involving two foreign entities.
o District Court: Held that the NY Convention applies to arbitration awards
rendered in the US involving foreign interests.
o US Court of Appeals: Examines whether the NY Convention covers the
enforcement of the award under art. I: i) Since the award was rendered in
the US and enforcement was sought in the US, the award doesnt meet the
territorial criterion The award was not rendered outside the country
where enforcement is sought. ii) But this award is not domestic, and
therefore Convention applies. The Court held that awards not considered
as domestic denotes awards which are subject to the Convention not
because made abroad but because made within the legal framework of
another country. Here, the case involves 2 foreign entities, therefore, the
award is not domestic. Court adds that the fact that this award could
also have been enforced under the FAA is not significant because there is
no reason to assume that Congress did not intend to provide overlapping
coverage between the Convention & the FAA.
o NOTE: Court extends scope of NY Convention.
o NOTE: Party sought enforcement under the NY Convention because
longer statute of limitations (3 years to bring an action) than the FAA
( 2years).
o German Act 1961 which implemented the NY Convention (no longer in
force) dealt with the issue of 2ble criteria But new act uses only the
territorial standard.
German Supreme Court, Dec. of Oct. 8, 1981, p. 741.
o Facts: Action brought before German Courts under the NY Convention to
enforce an award rendered in Italy in an arbitrato irrituale.
o Court of 1st instance: Denied recognition of the award.
o Court of Appeals: Recognized the award.
o Supreme Court: Denied recognition because an award rendered in an
arbitrato irrituale is not an arbitral award for the purposes of the NY
Convention. The language of the Convention supports not applying its
provisions to proceedings that, though similar to arbitration, produce only
the effects of an obligation, and the award in question has only such
effects. Applying the Convention to an irrituale award would jeopardize
uniformity, since the award would be recognized under the NY
Convention but under Italian law the irrituale award engenders only

104
obligational effects. The Convention can not go beyond the national
laws & create additional arbitral awards which are incapable of execution
in their state of origin.
o NOTE: Arbitrato irrituale: Provides for a procedure which is arbitral in
nature but doesnt result in an award but in a contract. One could say that
there is room to accommodate the first stage of this process under the NY
Convention (the process of ordering the arbitration to proceed but not the
process of the award rendering). Very theoretical exposition with no
practical benefits. BUT Von Mehren thinks that these awards can not
benefit at all of the NY Convention.
o NOTE: These arbitrato irrituale awards are different than mediation.
Because in mediation the parties are not obliged to accept the result
whereas here they are.
NOTE: Italian Supreme Court (decision of Sept. 18, 1978) held that irrituale awards DO
fall under the NY Convention. (note n4, p. 744) But if we hold such awards to be
within the scope of the NY Convention, then art. V, 1,e which speaks of the need for a
binding award would still serve as a ground for not recognizing & not enforcing the
award, if binding in the NY Convention denotes a judgment-effect rather than just a
contractual effect.
Nov. 14, 2003
1. Grounds under the Convention for refusing recognition and enforcement
a. Parsons & Whittemore v. RAKTA, US Court of Appeals, 1974
i. FACTS: Parsons had entered into a contract with Egyptian
company. They were well along on the work when the 6-day war
broke out. Most Parsons employees returned to the US rather than
get the special visas necessary to stay in Egypt. The war ended
quickly. Egyptian company claims breach of contract.
Parsons argued that the force majeure clause allowed them to leave
and not remain on the job. Parties went to arbitration. Award
recognized breach of contract & held Parsons liable to Egyptian
corporation.
ii. US District Court: Confirmed the award holding Parsons liable for
breach of contract. Appeal.
iii. US Court of Appeals: Affirms lower courts decision.
iv. ANALYSIS:
1. Bases on which enforcement could be denied (but it is
finally granted).
a. Public Policy (Art. V.2.b): The public policy
exception should be read very narrowly, given the
general pro-enforcement aim of the NY Convention.
Enforcement should only be denied when it violates
the states most basic notions of morality and
justice. Violation of national policy (not reason

105
to deny enforcement) violation of public policy
(reason to deny enforcement).
i. Note: if the US had ordered Parsons not to
return to Egypt, perhaps then the public
policy exception would have applied.
b. Non-arbitrability (V.2.a): The concept of nonarbitrability is different in international agreements
than in domestic agreements. Court takes a
favorable position towards the enforcement of the
award.
c. Inadequate opportunity to present a defense (i.e. due
process) (V.1.b): Argument rested on the availability
of a major witness for the construction company
due to a conflicting engagement. Court says that
this is a weak argument. You must recognize the
difficulty of scheduling a hearing that everyone will
be able to attend. The court should not have to
change the scheduling decisions once they have
been made. Further, there are other ways that
evidence could have been made available.
d. Arbitration in excess of jurisdiction (V.1.c): This
defense should also be narrowly interpreted. District
court properly refused to second guess the
arbitrators decision that it had subject matter
jurisdiction. This was a question of interpretation of
the contract which is the domain of the arbitrator.
e. Award in manifest disregard of the law: Raises
the issue whether the defense, which had been
developed under the FAA, is available under the NY
Convention. In the context of the FAA, manifest
disregard of the law is a grounds for setting aside.
But the court here says that this is clearly not a case
of manifest disregard for the law so it doesnt
address the decision of whether the NY Convention
allows for this defense.
v. NOTE: One of the 1st awards handed down by a US court after
ratification by the US of the NY Convention. Very proarbitration decision. Court construes very narrowly all the
grounds for non-enforcement claimed by the plaintiff. Indicates
that clearly the direction of thinking of the US judiciary was and is
pro-arbitration.
vi. NOTE on manifest disregard of the law argument: Court rejects
a close scrutiny for errors of fact or law.
2. Procedural Grounds under the Convention for refusing enforcement and
recognition

106
a. These grounds are listed in Art. V 1 & 2.
b. Art. V2: De novo review. The enforcing court is to apply its own
law on these questions regardless of the law the arbitrators applied in
rendering their award one might conclude that the enforcing court will
be forced to consider these issues de novo, w.o. deference to the
arbitrators decision.
c. Art. V1: No de novo review. But question what standard of review
should be applied. How much deference should be given to the arbitrators
decision?
d. Basic change btw Geneva Convention 1927 & NY Convention 1958:
While the Geneva Convention placed the burden of proof on the party
seeking enforcement of a foreign arbitral award & did not circumscribe
the range of available defenses to those enumerated in the Convention, the
1958 Convention clearly shifts the burden of proof to the party defending
against enforcement & limited his defenses to 7 set forth in article V.
e. American Construction Machinery v. Mechanized Construction of
Pakistan, US District Court, 1987
i. FACTS: Motion to confirm a foreign arbitration award. Party
challenging the award raised several grounds for refusal of
recognition or enforcement of the award.
ii. ISSUE: What degree of weight does the court assign to the
arbitrators determination for purposes of the action to refuse
recognition and enforcement? What standard of review does the
court apply (arbitrators will not be reviewed at all, arbitrators will
be upheld unless manifestly wrong, deferential to the arbitrators,
First Options case: de novo with no weight assigned to the
decision)?
iii. HOLDING: Court chooses to use a deferential standard It
confirms the award.
iv. ANALYSIS: Is the court justified in using a deferential standard
with respect to the issue of the applicability of the effects of the
agreement on the authority of the tribunal? Should there be judicial
de novo review of this issue, or is this the type of issue that should
be left to the arbitrators? Basically, its a jurisdictional issue (our
opinion). Is the arbitrator passing on the tribunals authority to deal
with the issues? Should the court determine this issue, or should
the arbitrator be able to speak with considerable weight? This is
really a jurisdictional issue.
v. NOTE: Manifest disregard goes to issue of validity of arbitration
agreement and not to a q of substantive law (as it did in PArsosns
case). Highly deferential standard in substantive law issues BUT
less deferential when q whether parties agreed to arbitration. If it is
established that the parties did agree to arbitration, then courts
should defer more to arbitrators (since u know that parties wanted
their issue to be decided by arbitration).
f. Southern Pacific Properties v. Egypt, District Court of Amsterdam, 1984

107
i. Court of Appeals of Paris had set aside the award in question on
the basis that there was no arbitration agreement binding the
Egyptian State (the ministers signature was not binding on the
Egyptian State). Dutch Court found that there was an arbitration
agreement binding the Egyptian State.
ii. Egypt has asked for refusal to enforce. Question whether Egypt
is justified in invoking the grounds for refusal mentioned in art. V
of NY Convention.
1. Egypt claims that there is no valid agreement, so refusal on
basis of V,1,a Court holds that such a contention is not
proven but the contrary seems to be proven by the use of
the 3 verbs.
2. Egypt claims that the award is not yet binding & that its
enforcement is suspended within the meaning of art. V,1,e
of the Convention because an action for setting aside the
award was intitiated before French courts Court answers
that the mere initiation of an action for setting aside doesnt
have as a consequence that the award be considered as not
binding.
iii. An example of the middle ground approach by the court towards
the tribunal.
iv. Dutch court takes a halfway / middle-way position: They dont say
that the burden of persuasion falls on the party that wants to
establish that the authority of the tribunal included authority over
the Egyptian government, but they dont say that it is de novo
review either. They consider a middle range whether its a
plausible case for saying there wasnt jurisdiction.
v. If the court is involved in setting aside an award, does that affect
the standard of review? To the extent that the standard is derived
from the NY Convention- even thought he NY Convention does
not apply to setting aside except perhaps by analogy- its more
difficult to challenge a de novo review in the setting aside. Its a
matter for national law of the court. If the national law is more
permissive than the NY Convention, then so it goes, you cannot
challenge it.
g. NOTE: On jurisdictional cases, the court has a higher standard of review
(i.e. de novo)
h. NOTE: The French CA clearly had a de novo determination of the issue.
Did not defer at all to the arbitrators. French court shows little
deference to the arbitrators. Matters that depend from one system to
another. Scale of different degrees of control.
3. Scope of Parties Submissions to Arbitration
a. Management & Technical Consultants SA v. Parsons-Jurden Intl, US
Court of Appeals, 1987
i. FACTS: Petition to enforce a foreign arbitral award. Defendant
contends that the arbitrators lacked authority to make the award in

108
that they decided subject matter not within the scope of the
agreement to arbitrate. Parties agree that the arbitrators had
authority to determine whether the gross billings exceeded $350
million BUT they disagree on whether the arbitrators had the
further authority to determine the amount of additional
compensation due.
ii. District Court : Enforced the foreign award.
iii. UC Court of Appeals: Affirms & enforces the award. Court
finds that by agreeing to arbitrate the dec. of whether there had
been $350 million in sales & by using such broad language (any
dispute) in the letter agreement, the parties had conferred arbitral
authority to determine the amount of additional compensation.
iv. NOTE: Here court doesnt defer to the arbitrators? Court stated
that they reviewed de novo the contention that the subject matter of
the arbitration lies outside the scope of the contract. But they
announce that they construe arbitral authority broadly to comport
with the enforcement facilitating thrust of the Convention and the
policy favoring arbitration.
b. First Options v. Kaplan, US Supreme Court, 1995
i. ISSUE 1: How should a district court review an arbitrators
decision that the parties agreed to arbitrate a dispute.
ii. HOLDING 1:
1. Who has the primary power to determine arbitrability
depends on what the parties decided.
a. If the parties submitted the arbitrability questions to
arbitration, then the court should give considerable
leeway to the arbitrator.
b. If the parties did not agree to submit the arbitration
question itself to arbitration, then the court should
decide the question just as it would decide any other
question that the parties did not submit to
arbitration, i.e. independently
c. Courts should not assume that the parties agreed to
arbitrate arbitrability unless there is clear and
unmistakable evidence that they did so.
2. In this case, because the Kaplans did not clearly agree to
submit the question of arbitrability to arbitration, the Court
of Appeals was correct in finding that the arbitrability of
the dispute was subject to independent review by the
courts.
iii. ISSUE 2: How a court of appeal should review a district courts
decision confirming or refusing to vacate an arbitration award.
iv. HOLDING 2: Courts of appeal should apply ordinary standards
when reviewing district court decisions upholding arbitration
awards. (Theres no review to the facts, but a de novo review on
the law).

109
1. One of the circuits wanted the appellate court to apply a
looser standard when the district court upheld the
arbitration because of the pro-arbitration stance of the law.
But all the other circuits rejected this idea.
c. Von Mehren likes this case- clear and makes sense.
d. NOTE: Arbitrators tend to want to decide the issue & tend to look to ways
to do this. Therefore, less deference to the arbitrators & standard of review
should be de novo w/ regards to the q of arbitrability. Court makes
fundamental distinction btw jurisdictional issue & substantive law issue.
e. NOTE: Need to strike balance btw i) integrity of the arbitration process &
ii) assure that they do their job. Stimulates arbitrators to think about
this problem.
4. An award set aside in the Country in Which, or Under the Law of Which, That
Award was Made
a. Party might prefer to have the award set aside rather than to ask for
recognition and enforcement (see p. 787). Van den Berg argues that setting
aside has the advantage of erasing the award completely. But this is not the
case.
b. Company A v. Company b (Slovenia), Supreme Court of Austria 1993
i. Award rendered in Belgrade. Award was set aside by the
Supreme Court of Slovenia. However, A requested enforcement
of the award in Austria. B, relying on the decision of the
Slovene Supreme Court, requested the Court to refuse
enforcement.
ii. Austrian court of 1st instance granted enforcement CA refused
enforcement Supreme Court granted enforcement, even though
award had been set aside in Slovenia.
iii. If you can get a setting aside, you will have the advantage of not
being vulnerable to the enforcement acts. NY Convention only
allows (and doesnt require) a Convention country to refuse to
enforce an award that has been set aside BUT doesnt allow a
Convention country to refuse to enforce an award on the basis that
another Convention country has refused to enforce it. So, more
chances to avoid enforcement if award is set aside. But no
guarantee.
iv. BUT for ex. France has found a way to bypass the NY Convention,
Article V-1-e so that it doesnt operate as a separate ground for
refusing to enforce a foreign arbitral award. The French statute
on enforcement of foreign awards does not include the awards
having been set aside in a foreign court as a ground for nonenforcement.
v. The advantage may also be that the award will be set aside on
grounds that are not recognized by Art. V of the NY Convention (if

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you had taken the recognition and enforcement route). The award
can only be set aside if it is a domestic case. If it is a domestic
case, it can apply national law and go beyond the laws of the
convention.
c. One of the objections of setting aside procedures in Art. V is that they
import grounds that are not recognized by the NY Convention but that
comes from the recognition and enforcement language in Art. V.2 & from
the fact that NY Convention has chosen not to regulate the setting aside
grounds (but to defer to national law).
d. The 1961 Geneva European Convention endeavors to identify & limit the
grounds on which an award can be set aside (since no unified grounds for
setting aside in a treaty). It says that if another state has set aside an award,
the second state can only accept the setting aside if it was done under Art.
V.1.a-d. It requires that a state limits its setting aside procedures to
grounds that are recognized in Art. V.1 of the NY Convention. This allows
control of the setting aside procedures.
i. The complexity of applying the setting aside provisions when there
are political and territorial changes such as those that have
occurred in Eastern Europe at the end of the last century. What is
the law under which the award is rendered? If it is one law when
the parties entered into the contract but subsequently changes, what
should happen?
e. Note (p. 798): Another approach through the national arbitration clauses
(ie French clause)
Nov. 20 & 21, 2003
5. Relevance of enforcing States national arbitration law
a. Chromalloy v. Egypt, US District Court, 1996
i. FACTS: Ct btw Air Force of Egypt & Chromalloy (US
Corporation). Egypt terminated the ct & CAS rejected the
cancellation of the contract Arbitration Award in favor of
CAS CAS petitioned the court to recognize & enforce an
arbitral award.
ii. Holding: Court granted the petition. The NY Convention
requires recognition and enforcement unless there it is proven that
a ground for denying recognition & enforcement under the
Convention is met. Finally, the denial of recognition and
enforcement is a matter of the discretion of the court (recognition
& enforcement may be refused). Here, award was nullified in
Egypt, so US Court may deny recognition & enforcement. But
under art. 7 of the Convention, CAS maintains all rights to the
enforcement of the award that it would have in the absence of the
NY Convention If Convention didnt exist, the FAA would
provide CAS w/ a legitimate claim to enforcement of the award.
Plus, a decision to recognize the decision of the Egyptian court

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would violate the clear US policy in favor of final & binding
arbitration of disputes. Award valid.
iii. NOTE: Arbitration clause provided that the award is final &
binding & cannot be made subject to any appeal or other recourse
Q if the parties have the right to waive this right. Q what law
should decide this q.
iv. NOTE: Fce & Netherlands interpret art. 7 of the NY Convention
the same way. But, in Italy & Switzerland, art. V is incorporated in
substance into their national laws, so this interpretation of art. 7
can no longer stand.
v. NOTE: Court cites US public policy in favor of final & binding
arbitration of commercial disputes as one of its justifications for
refusing to recognize & give res judicata effect to the Egyptian set
aside judgment. But on this test, it may never be possible to give
res judiciata effect to a foreign court judgment setting aside an
award.
vi. NOTE: Could the party with the award bring an enforcement
action either under the FAA OR under the NY Convention? NY
Convention has 3 year statute of limitations; FAA has a 4 year
statute of limitations. Its likely that you could bring an action
under either one, so if one is time-barred, you could still bring the
other.
b. P. 814, #9 Baker Marine
i. This court refused to follow the Chromalloy approach. The court
refused recognition and enforcement of an award because the
award had been set aside where it had been made (in Nigeria).
ii. Court agreed with van den Bergs argument that the setting aside
process protects the loser from the risk of enforcement in some
court The loosing party must be afforded the right to have the
validity of the award finally adjudicated in one jurisdiction So,
FOR keeping art. V, 1, e in the NY Convention.
iii. 2 objections to Van der Bergs argument: i) BUT art. V, 1, e
undermines the limited character of the grounds for refusal of art.
V (cause as an award can be set aside in the country of origin on all
grounds contained in the arbitration law of that country, including
the public policy of that country, the grounds for refusal of
enforcement under the Convention may indirectly be extended to
include all kinds of particularities of the arbitration law of the
country of origin). ii) But does the setting aside process actually
put an end to the risk of enforcement of the award against the
losing party? No because the Convention provides that
enforcement could still be made in some countries (see V(e), may
be) & several cases prove that discretion of the courts. So, Van
den Bergs argument of convenience for the loser to have one final
dec. on the award isnt persuasive.

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iv. Geneva Convention Art. 9: Makes setting aside limited to
grounds V, 1, a-d of the NY Convention.
v. NY Convention: Doesnt regulate grounds for setting aside. At the
stade of discussion this issue arose, it was too late to negotiate.
Plus, already, art. V, 1, e is a compromise. Plus, at the time very
much under the influence of the jurisdictional theory.
vi. Another solution to the problem: French system 1981
legislative reform: same -standards of non enforcement for
domestic awards as in NY Convention for non domestic awards.
French treat national & intl awards under the same standards.
vii. Court says that in the present case Baker Marine is not a US citizen
and that therefore US court has less interest in refusing to enforce
the award.
6. Review of the merits under the Convention Art. V.1 Standards
a. Fertilizer Corp of India v. IDI, US District Court, 1981, p. 821
i. FACTS: Action brought under the NY Convention for recognition
and enforcement of arbitral award rendered in India.
ii. ISSUE: Whether the arbitral tribunal exceeds its authority in
awarding consequential damages? The parties ct expressly
excluded from damages any amount for loss profits BUT the Q of
consequential damages was included in the Terms of Reference.
Is the award awarding consequential damages, therefore,
unenforceable under Art. V.1.c?
iii. HOLDING:
1. On the theory of common law breach, it is as if the whole
contract was annulled, so the arbitrator could decide on the
damages according to what happened. Doctrine of
fundamental breach: its as though the contract has
disappeared so the limitation of damages clause (to those
other than consequential) no longer applied.
2. Is this within the interpretation of the arbitrator?
3. The standard of review is extremely narrow. So long as the
theory that the arbitrators chose was reasonable, then the
court cannot review it. The Court found that the
arbitrators did not exceed their authority in granting
consequential damages.
4. The arbitrators were supposed to interpret the contract. The
court cannot second-guess that. In this case the arbitrators
interpreted the contract in a certain way (fundamental
breach, contract was dissolved, so consequential damages
should be applied).
5. What if the arbitral tribunal simply said that it was
appropriate to give consequential damages (without
explaining that the contract has been dissolved)?

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a. If their reasoning is plausible, then the court should
give deference to the arbitrators.
b. But they havent given a reasonable explanation
then maybe they are acting outside the arbitration
agreement and the court wouldnt give them
deference.
6. The court suspended the proceedings until the Indian court
reached its decision. Court concluded that Indian law
applied to the arbitration so, if under Indian law, the theory
of fundamental breach is erroneous, & Indian court sets
aside the award, US Court will defer to the Indian court.
Von Mehren: Court decides to defer to the Indian Court
and await to see if they will not defer as much to the
arbitrators. So this shows that although we have been
talking of a strong deferral policy to the arbitrators for
issues of substantive law (and NY Convention provides very
limited grounds for the courts to examine substantive
issues), here court seems to accept that the Indian Court
might not defer as much.
7. Question here is of substantive law, i.e. how one interprets
the contract. BUT under the NY Convention courts can
not examine substantive law issues. If parties wanted to
exclude from arbitration the issue of consequential
damages, they should have inserted the following in the
arbitration clause: The issue of consequential damages is
not submitted to the arbitrators.
7. Review of the merits for manifest disregard for the law.
a. Brandeis Intsel v. Calabrian Chemicals, US District, 1987
i. FACTS: Petition to confirm an arbitral award.
ii. ISSUE: Was the award made in manifest disregard for the law?
1. Can you read into the FAA (manifest disregard) a ground
for refusing recognition and enforcement from Art. V
(public policy)? They are trying to equate the two.
iii. ANALYSIS: The judge refused to read the manifest disregard
language into the NY Convention. Manifest disregard of the law
does not rise to the level of contravening public policy. If it did,
it would require a US Court to consider whether foreign arbitrators
manifestly disregarded the internal, substantive law of a foreign
nation by which the parties agreed in their contract to be bound
Even if it were available, the arbitrators in this case did not act in
manifest disregard of the law. Petition to confirm the award was
granted.
b. Von Mehren: basic philosophy of the NY Convention is that conclusions
of law and fact by the arbitrators, unless there is procedural flaw, should
not be subject to review (ex. if arbitrators were behaving in a despotic
fashion). Manifest disregard can only be a basis for non-recognition if it is

114
brought in as a procedural flaw in the arbitration process (and not as a
public policy ground).
c. In the Parsons case, this issue was left open. So, now the question is
answered. Manifest disregard of the law is not a ground for non
enforcement
8. Review of the Merits under Art. V.2.b- Public Policy Standard
a. Hilmarton v Omnium de Traitement/Valorisation v. QBD 1999, p. 832
i. FACTS: Agreement between the parties that compensation would
be paid to one party for the partys assistance in obtaining contacts
in Algeria. Arbitrator made award valid under Swiss law by not
valid under Algerian law (where ct was performed). There was no
suggestion of fraud or criminal behavior but it was contrary to the
fraud of Algeria.
ii. ISSUE: Was such a compensation improper under the public policy
ground of NY Convention?
iii. HOLDING: There are no public policy grounds on which
enforcement of the award could be refused (since Swiss law
applicable to the arbitration & under swiss law, award valid).
Court applies its International public policy and not its internal
public policy. Von Mehren thinks the English Court would have
reached a different result if the contract provided for instance
bribery or smuggling for obtaining contract. But here the
English Court says that this situation from the point of view of
England doesnt rise to the dignity of intl public policy. Court
seems to imply that the result might have been different if the
award was a domestic award (a UK award) since in that case the
Court would apply the internal public policy which is stricter.
iv. Lando would probably reach a different result: he thinks that
arbitrators should take into account the mandatory laws of the
other countries involved in the arbitration.
v. This illustrates the tendency to prevent the courts from invalidating
the realm of the arbitral decisions.
vi. French commentators speak of the standard under NY Convention
Art. V(2)b as requiring a violation of international public policy.
Question to Prof. Von Mehren on a previous exam question on the distinction between
setting aside & recognition and enforcement procedure.
- Setting aside: simply permitted by the NY Convention but Convention doesnt
regulate the grounds for setting aside.
- Recognition & enforcement: Convention does regulate the grounds for refusing
recognition & enforcement (Art. 5)
- Should we eliminate this distinction: In other words, should we amend the
Convention to eliminate art. V, 1, e (i.e. if we eliminate this article courts will not

115
be able any more to refuse enforcement of an award because this award would
have been set aside somewhere else). Von Mehren thinks that art. V, 1, e should
be eliminated because the ground provided for setting aside (court of situs of
arbitration) is no longer as relevant.
Question on distinction between recognition & enforcement
- Enforcement: the special procedure of art. 5 has to be followed
- Recognition: can be obtained incidentally.
Question if ICA has really become anational ? Arbitral process is being more and
more removed from the connection w/ national systems except for the very last stage
(enforcement), which has to be done by national courts.

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