Key words

Source

Preface in Gary B. Born, International Arbitration:Law and Practice,(© Kluwer LawInternational; KluwerLaw International 2012)pp. xxvii - xxviii

This book aims to provide an introduction to international arbitration– including international commercial arbitration, internationalinvestment arbitration and state-to-state arbitration. The bookfocuses on the basic legal framework for international arbitration andthe contemporary practice of international arbitration. Throughout,the emphasis is on introducing the key legal principles andcustomary practices in an accessible and straightforward manner,tailored to the needs of general practitioners, law students andothers seeking an introduction to the international arbitral process.

Chapter 1 of the book provides an overview of the legal framework forinternational commercial arbitration, including the United NationsConvention on the Recognition and Enforcement of Foreign ArbitralAwards (or “New York Convention”) and the United NationsCommission on International Trade Law's Model Law on InternationalCommercial Arbitration (“UNCITRAL Model Law”). Throughout thebook, the New York Convention and the UNCITRAL Model Law areused as the basis for discussion, reflecting their central andincreasing importance in the international commercial arbitrationprocess. The book focuses in particular on international andcomparative authorities and practices, rather than approaches fromany single jurisdiction, aiming to introduce the emergingconstitutional structure and practice on international arbitrationrather than the domestic approach to arbitration in particularjurisdictions.

The body of the book is divided into three main parts, structured onthe chronology of an international arbitration. Part I addressesinternational arbitration agreements, including their formation,enforcement and interpretation; Part II address international arbitralproceedings, examining how arbitrations are conducted in practice;and Part III addresses international arbitral awards, including theirrecognition and enforcement. All three Parts focus principally oninternational commercial arbitration, with comparisons where usefulto international investment or state-to-state arbitration.

Chapter 18 of the book provides an overview of investment and state-to-state arbitrations, focusing in particular on distinctions betweenthese forms of arbitration and international commercial arbitration.Among other things, the chapter introduces the International Centrefor the Settlement of Investment Disputes (“ICSID”) and the networkof international investment treaties (including bilateral investmenttreaties or “BITs”) which are central to the contemporary process ofinternational investment arbitration.

This book is not meant to replace more detailed treatments ofinternational arbitration in lengthier treatises and commentaries.These authorities are referred to in the notes accompanying

page "xxvii" Chapter 1 and the book's three Parts and readersshould consult these materials for more detailed discussions of thesubject.

As already noted, this book contains mistakes and over-simplifications, for which the author apologizes. Future editions willseek to correct these shortcomings and readers are encouraged toprovide comments, criticisms and queries by email to bornbookcomments@wilmerhale.com.

Gary Born

London, England

October 2012

page "xxviii"

Key words

Source

Preface

Acknowledgments

Acknowledgments inGary B. Born ,International Arbitration:Law and Practice,(© Kluwer LawInternational; KluwerLaw International 2012)pp. xxix - xxix

This book would never have been written without the able assistanceand comments by colleagues, friends, students and competitorsfrom around the world. I owe thanks in particular for Katrin Frach'sexceptional secretarial and organizational talents, as well as theassistance of Thomas Snider and Elizabeth Song, both of whomprovided invaluable contributions. Able assistance was also providedby Suzanne Spears, Marc Epstein, David Khachvani, Marc AkioLee, Justin Li, Giulio Valz-Gen, Tiago Andreotti E Silva, SashaSharif, Constantin Klein, Marija Scekic, Mary Arutyunyan, EmaGojkovic, Christina von Post, Julia Bassett and Kathleen Kundt. Allmistakes are of course mine alone.

The book benefitted in particular from comments on draft chapterfrom friends who have given generously of their time and experience,including Guillermo Aguilar-Alvarez, José Alvarez, Arthur Appleton,Frédéric Bachand, Pieter Bekker, Andrea K. Bjorklund, HeatherBray, Devin Bray, Chip Brower, David Caron, James Carter, DougCassel, Tai-Heng Cheng, Jack Coe, Tony Cole, Brooks Daly, Maria-Krystyna Duval, Oscar Garibaldi, Fabien Gélinas, JonathanGreenblatt, Horacio Grigera Naón, Leah Harhay, Mark Kantor, HegeElisabeth Kjos, Jan Kleinheisterkamp, Johannes Koepp, SabineKonrad, Barry Leon, Joseph Matthews, John Lorn McDougall QC,Maurice Mendelson QC, Ludovit Micinsky, Julian Mortenson,Lawrence Newman, Mona Pinchis, Lucia Raimanova, CatherineRogers, Stephan Schill, Stacie Strong, Christopher Thomas QC,Maria Vicien-Milburn, Janet Walker, Sarah Wheeler and StephanWilske. As always, my editor, Gwen de Vries, was unfailinglyhelpful and practical and, without her, the book would not haveprogressed beyond a thought. Again, all mistakes are mine alone,and result primarily from the inability to take good advice whenoffered.

Like international arbitration itself, this book is a work in progress. Itaddresses a complex field that is continuously evolving in responseto changing conditions and needs. The book inevitably containserrors, omissions and confusions, which will require correction,clarification and further development in future editions, to keep pacewith the field. Corrections, comments and questions areencouraged, by email to bornbookcomments@wilmerhale.com.

page "xxix"

Source

Part I: InternationalArbitration Agreementsin Gary B. Born ,International Arbitration:Law and Practice,(© Kluwer LawInternational; KluwerLaw International 2012)pp. 1 - 2

The foundation of almost every international arbitration – and of theinternational arbitral process itself – is an international arbitrationagreement. In the words of one commentator, “[o]bviously, noarbitration is possible without its very basis, the arbitrationagreement.”(1) Absent a valid agreement to arbitrate, there aregenerally no legal grounds for requiring a party to arbitrate a disputeor for enforcing an arbitral award against a party. “Arbitration ‘is amatter of contract and a party cannot be required to submit toarbitration any dispute which he has not agreed to so submit.’”(2)

International arbitration agreements can be drafted in countlessdifferent ways. Typically, an arbitration agreement is a provision inan underlying commercial contract, requiring arbitration of any futuredisputes relating to the contract.(3) Such a provision can be eithershort and standardized or longer and tailor-made for a particulartransaction. As models of brevity, if not prudence, Europeancommentators sometimes cite clauses that provided “English law –arbitration, if any, London according ICC Rules,”(4) and “Arbitration –Hamburg, Germany.”(5) A U.S. counterpart read: “Arbitration; ifrequired in New York City.”(6)

At the opposite end of the spectrum are multi-paragraph arbitrationprovisions, recommended by assiduous practitioners for inclusion incommercial contracts, or specially-drafted for a particulartransaction. It is also possible for entire agreements to be devotedexclusively to the arbitration of disputes under a series of relatedcontracts, typically involving multiple parties. Falling between theseextremes are model clauses promulgated by leading internationalarbitral institutions, including the International Chamber ofCommerce (“ICC”), London Court of International Arbitration (“LCIA”)and International Centre for Dispute Resolution (“ICDR”), whichprovide generic, but typically concise and well-tested, formulae.

Whatever form they take, international arbitration agreements are

Part I: International Arbitration Agreements

vitally important to the international arbitral process. Properlydrafted, they can provide the basis for a relatively smooth andefficient arbitration; less carefully drafted, they can give rise to ahost of legal and practical page "1" issues; badly drafted,arbitration agreements can be pathological, either incapable ofenforcement or precursors to uncertain and costly litigation innational courts.

The Chapters which follow in this Part explore the principal legal andpractical issues arising from international arbitration agreements.Chapter 2 discusses the legal framework for international arbitrationagreements, including the jurisdictional requirements for the NewYork Convention and national arbitration legislation, the presumptivevalidity of international arbitration agreements, the separability ofarbitration agreements, the competence-competence doctrine, thechoice of law governing the arbitration agreement and the effects ofinternational arbitration agreements.

Chapter 3 discusses the substantive rules governing the formation,validity and legality of international arbitration agreements. Itaddresses the formal validity of international arbitration agreements,including requirements for a “writing,” as well as the rules ofsubstantive law applicable to issues of formation, includingstandards of proof and consent, and to issues of capacity andsubstantive validity, including fraud, unconscionability, duress,mistake, waiver, termination and illegality. The Chapter alsoconsiders the so-called “non-arbitrability” doctrine and related issuesof public policy.

Chapter 4 addresses the interpretation of international arbitrationagreements. In particular, it considers the rules applicable tointerpreting the scope of arbitration agreements which have beendeveloped in different national legal systems.

Chapter 5 discusses issues relating to parties bound byinternational arbitration agreements. It examines the various legaltheories that have been used to give binding effect to arbitrationagreements vis-à-vis non-signatories, including agency, alter egostatus, the group of companies theory, estoppel, guarantor relations,third party beneficiary rights and miscellaneous other grounds. TheChapter also examines the choice of law governing the foregoingissues and the allocation of competence to decide such disputesbetween national courts and arbitral tribunals.

page "2"

1 A. van den Berg, The New York Arbitration Convention of 1958144–45 (1981).2 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (U.S.S.Ct. 2002) (quoting Steelworkers of Am. v. Warrior & GulfNavigation Co., 363 U.S. 574, 582 (U.S. S.Ct. 1960)).3 It is also possible for parties to an existing dispute, not otherwisesubject to arbitration, to agree to submit that dispute to arbitration.The agreement doing so is typically a stand-alone arbitrationagreement, often called a “submission agreement” or “compromis.”4 Arab African Energy Corp. Ltd v. Olieprodukten Nederland BV[1983] 2 Lloyd's Rep. 419 (Q.B.).5 Judgment of 24 January 2003, 2003 SchiedsVZ 284, 287(Hanseatisches Oberlandesgericht Hamburg).6 Oriental Commercial and Shipping Co. v. Rosseel, NV, 609F.Supp. 75 (S.D.N.Y. 1985).

Key words

Source

Chapter 1: Introductionto InternationalArbitration in Gary B. Born , InternationalArbitration: Law andPractice, (© Kluwer Law

International arbitration provides an efficient and effective means ofresolving international disputes – including international commercial,investment and state-to-state disputes. This Chapter summarizesthe legal framework for international commercial arbitration, which isaddressed in greater detail in Chapters 2 through 17. It alsointroduces investor-state arbitration and state-to-state arbitration,which are discussed in greater detail in Chapter 18.

Chapter 1: Introduction to InternationalArbitration

International; KluwerLaw International 2012)pp. 3 - 42

§1.01. Definition of International Arbitration

As discussed below, the United Nations Convention on theRecognition and Enforcement of Foreign Arbitral Awards (“New YorkConvention”) and most national arbitration statutes prescribe aneffective “pro-arbitration” regime that ensures the enforceability ofinternational arbitration agreements and awards. In general, thislegal regime applies only if the parties have made an agreement toresolve their disputes by “international arbitration” – as opposed toan agreement for some other form of dispute resolution (such asexpert determination or mediation).

There is a surprising lack of guidance on what constitutes an“arbitration agreement.” Article II(1) of the New York Conventionrefers to an agreement to arbitrate as “an agreement in writing underwhich the parties undertake to submit to arbitration all or anydifferences which have arisen or which may arise between them inrespect of a defined legal relationship, whether contractual or not.”Similarly, Article 7(1) of the United Nations Commission onInternational Trade Law Model Law on International CommercialArbitration (“UNCITRAL Model Law”) provides that “[a]n ‘arbitrationagreement’ is an agreement by the parties to submit to arbitrationall or certain disputes which have arisen or which may arise betweenthem in respect of a defined legal relationship, whether contractualor not.”

These definitions are minimally useful. They make clear that anarbitration agreement involves a contractual relationship betweenparties; that this agreement deals with disputes, either future orexisting; and that these disputes will be submitted to and resolvedby “arbitration.” At the same time, these definitions provide littleguidance in determining precisely what constitutes an “arbitration”agreement, as distinguished from an agreement concerning otherforms of dispute resolution. This has left national courts, arbitraltribunals and commentators with the task of defining whatconstitutes “arbitration.”

page "3"

[A]. What Is “Arbitration”?

Preliminarily, the label adopted by the parties for a disputeresolution mechanism is not decisive in defining the true character ofthat mechanism.(1) Parties are free to call a forum selection clauseor an expert determination mechanism an “agreement to arbitrate,”but this (mis-)label does not alter the mechanism's nature. It is stillnecessary to examine the substance of a dispute resolutionprovision to determine, objectively, whether it constitutes anagreement to arbitrate under applicable law. Nonetheless, as apractical matter, if the parties' agreement provides for somethinglabeled “arbitration,” it is likely that this will be categorized as anarbitration agreement.

There is general agreement on what the term “arbitration” means.With some variations, virtually all authorities accept that arbitrationis – and only is – a process by which parties consensually submit adispute to a non-governmental decision-maker, selected by or for theparties, to render a binding decision resolving a dispute inaccordance with neutral, adjudicatory procedures affording eachparty an opportunity to present its case. Most authorities haveadopted similar definitions:

– “Consistent with the traditional notion of private arbitration, onemay define [the arbitration clause] as an agreement according towhich two or more specific or determinable parties agree in abinding way to submit one or several existing or future disputesto an arbitral tribunal, to the exclusion of the originalcompetence of state courts and subject to a (directly orindirectly) determinable legal system.”(2)

– “a contractual method of resolving disputes. By their contractthe parties agree to entrust the differences between them to thedecision of an arbitrator or panel of arbitrators, to the exclusionof the Courts, and they bind themselves to accept that decision,once made, whether or not they think it right.”(3)

– “An agreement to arbitrate before a specified tribunal is, ineffect, a specialized kind of forum-selection clause that positsnot only the situs of suit but also the procedure to be used inresolving the dispute.”(4)

Each of the various elements of these definitions of arbitration isimportant.

[1]. Consensual Means to Resolve Disputes

It is elementary that “arbitration” is a consensual process thatrequires the agreement of the parties. Article II of the New YorkConvention applies only to an “agreement … under which the partiesundertake to submit to arbitration,”(5) while Article 8 of theUNCITRAL Model Law applies only page "4" where there is “anagreement by the parties to submit to arbitration all or certaindisputes.”(6) Similarly, national courts uniformly hold that “arbitrationis a creature that owes its existence to the will of the partiesalone,”(7) and that “arbitration is a matter of contract and a partycannot be required to submit to arbitration any dispute which he hasnot agreed so to submit.”(8)

[2]. Non-Governmental Decision-Maker Selected by or for theParties

Another fundamental attribute of “arbitration” is that it involves thesubmission of disputes to a non-governmental decision-makerselected by or for the parties. A defining characteristic of arbitrationis the selection of particular “arbitrators” to resolve a dispute, ordefined category of disputes; typically, arbitrators are chosen by theparties themselves or, in the absence of agreement by the parties,by an arbitral institution chosen by the parties.(9) In contrast,“arbitration” does not extend to forum selection agreements, whereparties agree to submit their disputes to a specified nationalcourt.(10)

[3]. Final and Binding Decision

A third defining characteristic of arbitration is that it produces abinding award that decides the parties' dispute in a final manner andis subject only to limited grounds for challenge in national courts.Arbitration does not produce a non-binding, advisoryrecommendation, which the parties are free to accept or reject; italso is not merely a process of negotiation, during which the partiesare free to agree (or not) to settle their disputes. Instead, arbitrationresults in a final and binding decision by a third-party decision-maker – the arbitrator – that can be coercively enforced against theunsuccessful party or its assets.(11)

page "5"

[4]. Use of Adjudicatory Procedures

Finally, a defining characteristic of “arbitration” is the use of impartialadjudicative procedures which afford each party the opportunity topresent its case. Forms of dispute resolution that do not provideparties the opportunity to present their views (e.g., valuation, wherethe decision-maker proceeds with an independent investigation) donot generally constitute arbitration.(12) Similarly, contractualprovisions that give one party the right to unilaterally decide aparticular issue do not constitute arbitration.

[B]. Forum Selection Clauses and National Courts

In practice, international contracts frequently contain “forumselection” or “choice of court” agreements. These provisions provideeither that (a) specified disputes may be resolved in a specifiedcourt, without excluding litigation in other forums (so-called“jurisdiction” or “prorogation” agreements); or (b) specified disputesmust be resolved exclusively in the specified courts (so-called“exclusive jurisdiction” or “derogation” agreements). A forumselection clause is not an arbitration agreement, and vice versa: thisis because a forum selection clause provides for resolution ofdisputes by litigation in a national court, not by arbitration before anon-governmental arbitrator selected by or for the parties.(13)

EXCLUSIVE FORUM SELECTION CLAUSE:

“The courts of ________ shall have exclusivejurisdiction over all disputes relating to thisAgreement.”

NON-EXCLUSIVE FORUM SELECTION CLAUSE:

“The parties submit to the non-exclusive jurisdictionof the courts of ________ for any disputes relating tothis Agreement.”

Forum selection agreements do not benefit from the protections of

the “pro-arbitration” legal regime established by the New YorkConvention and contemporary arbitration legislation. Instead, forumselection agreements are typically subject to national law (orregional regimes such as Regulation 44/2001 in the EuropeanUnion). The Hague Convention on Choice of Court Agreements,adopted in 2005, may in the future provide international standards forenforcing page "6" forum selection agreements; at present,however, only a limited number of states have ratified the Conventionand prospects for its successful implementation remain unclear.(14)

[C]. Other Forms of Alternative Dispute Resolution

Arbitration is only one of many forms of alternative dispute resolution(i.e., mechanisms for resolution of disputes outside of nationalcourts). Other forms of “ADR” adopt a variety of proceduralmechanisms, aimed at different types of problems and parties.

[1]. Mediation and Conciliation

Arbitration agreements differ fundamentally from agreements for“conciliation,” “mediation,” early neutral evaluation and the like.These procedures do not provide for a binding decision to beimposed on the parties; rather, they provide for a non-bindingprocess that may (or may not) assist the parties in reaching aconsensual settlement.(15) The mediator or conciliator is notempowered to decide the parties' dispute, but simply to discuss andnegotiate with the parties in an effort to persuade them to reach amutually agreeable resolution of their dispute. This does notconstitute “arbitration” because it does not produce a final third-partydecision that resolves the parties' dispute.

Many leading arbitral institutions have adopted rules of conciliation.These include the International Chamber of Commerce, AmericanArbitration Association and World Intellectual Property Organization.In some jurisdictions, separate legislation has also been adopted togovern mediation, conciliation and related forms of ADR.(16) Theselegislative regimes differ from those governing international arbitrationagreements and awards (most notably, they lack any provision forthe enforcement of third-party decisions).

[2]. Expert Determination

Commercial contracts may also contain provisions for the resolutionof certain categories of disputes by an expert selected by or for theparties and authorized to render a binding decision on an issue.(17)

Such provisions can involve accounting (or other financial)calculations by an accountant; quality assessment by an industryexpert; oil and gas reserve estimates by a geologist; or constructionevaluations by an architect or engineer.

In many national legal systems, an important distinction is drawnbetween “arbitration” and binding “expert determination,” “appraisal,”or “valuation.”(18) The latter do not necessarily require page "7"the use of adjudicative procedures, which is a defining feature ofarbitration, but instead entail only the decision-maker's owninvestigations and use of existing expertise. Moreover, expertdeterminations frequently involve narrowly-defined and circumscribedfactual or technical issues, unlike arbitral proceedings, which seekto resolve broader legal disputes between the parties (e.g., whethera contract or statutory protection has been breached and whatconsequences flow from that breach).(19)

[3]. Mini-Trials and Neutral Evaluation

Parties sometimes seek to resolve disputes through “mini-trials,”which typically involve relatively brief presentations of each party'scase to a “judge” or panel of “judges,” who are authorized to makean advisory decision or otherwise encourage settlement. Likemediation, the decisions in mini-trials are usually non-binding.Neutral evaluation involves a similar process, in which a third partyhears the parties' presentations, on either their dispute or selectedissues, and provides a neutral assessment of the strengths andweaknesses of each parties' position.

[4]. “Baseball” or “Final-Offer” Arbitration

Some forms of ADR narrowly limit the decision-maker's authority todecide the parties' dispute. So-called “baseball” arbitration refers toa process where, at the conclusion of the parties' submissions,each side submits its “final offer” (or “best offer”) in a sealedenvelope.(20) The tribunal is then authorized only to select one or the

other party's “offer” in resolution of the dispute, rather than makingan independent determination of the “correct” resolution underapplicable law. Alternatively, in “high/low arbitration,” the partiesagree on the minimum and maximum amounts that the arbitratorcan award.

[D]. “International” Arbitration

The New York Convention (and other international arbitrationconventions) applies only to arbitration agreements that have some“foreign” or “international” element, and not to purely domesticagreements.(21) The same is true under many national legalregimes, where “international” or “foreign” arbitration agreements areoften subject to legislative and/or judicial regimes distinct page"8" from those applicable to domestic arbitration agreements. Thatis true, for example, under the UNCITRAL Model Law, which islimited by Article 1(3) to “international” matters.(22) In thesejurisdictions, domestic arbitration agreements, arbitral proceedingsand awards are often subject to separate, non-international legalregimes.(23) This is consistent with the purpose of the Conventionand the Model Law, which is to facilitate the international arbitralprocess, without disturbing regulation of domestic arbitrationmatters.

§1.02. Reasons for International Arbitration

Arbitration is widely regarded as the preferred means of resolvinginternational commercial disputes. That is true for a number ofreasons. In summary, international arbitration provides a neutral,speedy and expert dispute resolution process, largely subject to theparties' control, in a single, centralized forum, with internationally-enforceable dispute resolution agreements and decisions. While farfrom perfect, international arbitration is rightly regarded as sufferingfewer ills than litigation of international disputes in national courtsand as affording parties more practical, efficient and neutral disputeresolution than available in other forums.

Reasons For International Arbitration– Neutrality– Centralized Dispute Resolution– Enforceability of Agreements and Awards– Commercial Competence and Expertise– Finality of Decisions– Party Autonomy and Procedural Flexibility– Cost and Speed– Confidentiality or Privacy of Dispute Resolution– Arbitration Involving States and State-Entities

page "9"

[A]. Neutrality

One of the central objectives of international arbitration agreementsis to provide a neutral forum for dispute resolution, detached from theparties and their respective home-state governments.(24) Partiesoften begin to negotiate dispute resolution mechanisms with theobjective of ensuring that disputes are resolved in the forum theyperceive to be the most favorable to them – often the local courts inthat party's principal place of business. These courts will beconvenient and familiar to the home-town party; they will alsoprobably be inconvenient and unfamiliar to the counter-party.However, the characteristics that make one party's local courtsattractive to it will often make them unacceptable to counter-parties.As a consequence, outside of lending and similar transactions, it isoften impossible for either party to obtain agreement to disputeresolution in its local courts.

In these circumstances, the reaction is almost always to seekagreement on a suitable neutral forum – a forum for disputeresolution that does not favor either party, but affords each theopportunity to present its case to an objective and impartial tribunal.The result, in most instances, is an agreement to arbitrate (or, lessfrequently, litigate) in a neutral forum.(25) For example, a French anda Mexican company may agree to arbitrate their disputes in Miami,Spain or England, while a U.S. and a Japanese or German companymight agree to dispute resolution in Switzerland, England, Canada,or Singapore. Put simply, a party typically does not agree toarbitrate because arbitration is the most favorable possible forum,but because it is the least unfavorable forum that the party canobtain in arm's length negotiations.

[B]. Centralized Dispute Resolution

Another basic objective of international arbitration is to avoid thejurisdictional disputes, choice-of-law debates and multiplicitouslitigation in different national courts that attend internationallitigation.(26) Instead, international arbitration offers a centralizeddispute resolution in a single contractually selected forum. As theU.S. Supreme Court has put it:

Much uncertainty and possibly great inconvenience toboth parties could arise if a suit could be maintained inany jurisdiction [where jurisdiction could beestablished]. The elimination of all such uncertaintiesby agreeing in advance on a forum acceptable to bothparties is an indispensable element in internationaltrade, commerce and contracting.(27)

page "10"

Empirical findings are to the same effect.(28) At the same time, incases of pathologically-drafted arbitration agreements, disputes overthe validity or scope of the agreement can lead to uncertainty andexpense rivaling that in international litigation – illustrating theimportance of well-negotiated and drafted international arbitrationagreements.

[C]. Enforceability of Agreements and Awards

One of the objectives of contemporary legal regimes for internationalarbitration is facilitating the enforcement of arbitration agreementsand awards. In particular, both international arbitration conventions(particularly, the New York Convention) and arbitration legislation(particularly, the UNCITRAL Model Law) ensure that internationalarbitration agreements are more readily, expeditiously enforced andmore broadly interpreted than forum selection clauses.(29) This isconsistently cited as a key benefit of international arbitration.(30)

In contrast, there are only a few regional arrangements that seek toestablish effective international enforcement regimes for forumselection clauses. The most notable is the Brussels I Regulation inthe European Union, which provides for the enforceability of forumselection agreements designating an EU Member State's courts,subject to only limited exceptions.(31) There are also a few industry-specific arrangements providing enforcement mechanisms forinternational forum selection clauses (such as treaties governingcarriage of goods by sea).(32) In general, however, forum selectionagreements do not benefit from anything comparable to theenforcement mechanism of the New York Convention.

Like agreements to arbitrate, international arbitral awards enjoy theprotection of the New York Convention, as well as favorablearbitration legislation in many countries. As discussed below, theseinstruments provide a “pro-enforcement” regime, with expeditedrecognition procedures and only limited grounds for denyingrecognition to an arbitral award.(33)

In contrast, there are again only a few regional arrangements for theenforcement of foreign court judgments (in particular, the Brussels IRegulation), and there is no global counterpart to the New YorkConvention for foreign judgments. Some major trading states,including the United States, are party to no bilateral or multilateralagreement on the enforceability of foreign judgments. In the absenceof international treaties, the recognition of foreign judgments issubject page "11" to local law, which often makes it difficult, ifnot impossible, to effectively enforce them.(34) As a consequence,there is generally a significantly greater likelihood that an arbitralaward will be enforced abroad (and thereby conclude the parties'dispute) than a foreign judgment. Together with the comparativelygreater enforceability of arbitration agreements, the more reliableenforce-ability of arbitral awards is one of the basic objectives, andattractions, of international arbitration.

[D]. Commercial Competence and Expertise

Another essential objective of international arbitration is to provide acompetent, expert dispute resolution process. Arbitration washistorically favored by users because it offered a more expert,experienced means of resolving commercial disputes.(35) Thiscontinues to be the case today, with empirical studies emphasizingthe importance of arbitrators' commercial expertise in decisions tomake use of international arbitration.(36) In a survey of users, onerespondent summarized the issue as follows:

for a French party, the big advantage is thatinternational commercial arbitration offers “de luxejustice” … instead of having a $600 million disputebefore the Commercial Court in Paris, where eachparty has only one hour for pleading and where youcan't present witnesses and have no discovery; for adispute of that importance it may well be worth thecosts to get a type of justice that is more internationaland more “luxurious”; what you get is more extensiveand thorough examination of witness testimony.(37)

Similarly, in the words of the former President of the French Cour decassation, explaining why he admired arbitration: “in many fields youare more professional than we are.”(38)

It is a harsh, but undeniable, fact that many national court systemsare ill-equipped to resolve international commercial disputes. Inmany states, local courts have little experience in resolving complexinternational disputes and face serious challenges in reliablyresolving commercial page "12" disputes. Moreover, in somestates, basic standards of judicial integrity, competence andindependence are lacking.

Of course, some national judiciaries include talented judges withconsiderable international experience. The courts of England,Switzerland, New York, Japan, Singapore and a few otherjurisdictions are able to resolve complex transnational disputes witha fairly high degree of reliability. Nevertheless, even in thesejurisdictions, local practices (like the jury trial or split legalprofession) may obstruct efficient and objective dispute resolution.Moreover, in most legal traditions, judges are randomly assigned tocases, regardless of their experience. Judges are also ordinarilygeneralists, often without specialization in complex commercialmatters, much less a particular type of transaction (e.g., M&A, jointventures) or industry (e.g., oil and gas, insurance).

In contrast, in international arbitration, the parties are able toparticipate in the selection of the arbitral tribunal for their dispute.This aspect of the arbitral process is intended to enable the parties– who have the most intimate knowledge of their disagreements andthe greatest incentive to choose a capable tribunal – to selectarbitrators with the best experience, abilities and availability for theirdispute (as discussed below). Moreover, in most substantialinternational arbitrations, tribunals consist of three members (ratherthan a single trial judge), permitting a mix of legal and technicalexperience, as well as extra sets of eyes.

[E]. Finality of Decisions

Another salient feature of international arbitration is the absence, inmost cases, of extensive appellate review of arbitral awards. Judicialreview of awards in most developed countries is narrowly confined toissues of jurisdiction, procedural fairness and public policy, andhighly deferential to the arbitrators' substantive decisions (asdiscussed below). This contrasts markedly with the availability ofappellate review of first instance judgments, where national lawsallow either de novo or fairly searching review of legal, and oftenfactual, matters.

There are both advantages and disadvantages to the generalunavailability of appellate review of awards. Dispensing withappellate review significantly reduces litigation costs and delays(particularly when a successful appeal means that the case must beretried in the first instance court). On the other hand, it also meansthat a badly wrong arbitral decision cannot readily be corrected. Ingeneral, anecdotal and empirical evidence indicate that businessusers prefer the efficiency and finality of arbitral procedures, even atthe expense of appellate rights.(39) There are also some legalsystems in which the parties have the possibility, by contracting intoor out of judicial review, to obtain a measure of appellate review ofthe arbitrators' substantive decisions, or to select a procedure thatincludes arbitral appeals.

[F]. Party Autonomy and Procedural Flexibility

A further objective, and perceived advantage, of internationalarbitration is its facilitation of party autonomy and proceduralflexibility. As discussed below, international arbitration conventionsand page "13" national laws accord parties broad autonomy toagree upon the substantive laws and procedures applicable to “their”arbitrations.(40)

In practice, one of the principal reasons for granting the partiesprocedural autonomy is to enable them to dispense with the

technical formalities of national court proceedings and instead totailor the procedures to their particular disputes. Some categories ofdisputes call for specialized procedures for presenting expertevidence, “fast track” procedures where time is of the essence, ormechanisms designed for particular commercial markets. Moregenerally, parties are typically free to agree upon the timetable forthe arbitral process, the existence and scope of disclosure, themodes for presentation of fact and expert evidence, the length of thehearing(s) and other matters. The parties' ability to adopt flexibleprocedures is a central attraction of international arbitration – again,as evidenced by empirical findings.(41)

[G]. Cost and Speed

It has long been said that arbitration offers a cheaper, quickermeans of dispute resolution than litigation.(42) At the same time, ithas become fashionable, at least in some circles, to describearbitration as a slower, costlier alternative.(43) In reality, bothinternational arbitration and international litigation can involvesignificant expense and delay, and it is wrong to make sweepinggeneralizations about which mechanism is necessarily quicker orcheaper.

Although arbitration is sometimes lauded for its speed and cost-effectiveness, it can be an expensive process. This is particularlytrue in major international disputes, which may involve longer writtensubmissions, more extensive factual and expert evidence, andlengthier hearings than international litigation – in part because, incomplex matters, parties often affirmatively want extensive, thoroughproceedings. Moreover, in international arbitration, the parties arerequired (subject to later allocation of costs by the tribunal) to paythe fees of the arbitrator(s) and, usually, an arbitral institution. Theparties will also have to pay for renting hearing rooms, travel to thearbitral situs, lodging and the like.

Nonetheless, in actual practice, the expenses of arbitration will oftenpale in comparison with the costs associated with parallel ormultiplicitous proceedings in national courts. This can be the casewhere the parties have not agreed upon an exclusive forum selectionclause, or where such a clause is held unenforceable orinapplicable. Likewise, the expenses of arbitration will typically notapproach those associated with relitigating factual issues in nationaltrial and appellate courts. In addition, arbitration is less likely toinvolve costly, scorched-earth discovery, or prolonged disputes overservice, evidentiary matters, immunity and other litigation formalities.

page "14"

International commercial arbitration is also not always speedy.Outside of some specialized contexts, major commercial disputescan require between 18 and 36 months to reach a final award, withlimited possibilities for summary dispositions. Procedural mishaps,challenges to arbitrators and jurisdictional disputes can delay eventhese fairly stately timetables, as can crowded diaries of busyarbitrators and counsel. It is possible to expedite the proceedings,through drafting a “fast-track” arbitration clause or adroit arbitratorselection and procedural planning, but there are limits to howquickly a major commercial arbitration realistically can be resolved.

Nonetheless, in many jurisdictions, national court proceedings arealso subject to significant delays. Judicial dockets in manycountries are over-burdened and obtaining a trial date and finaldecision may take years. Further, as already noted, arbitrationrarely involves the delays inherent in appellate proceedings and therisk that new trial proceedings will be required.

On balance, international arbitration does not necessarily have eitherdramatic speed and cost advantages or disadvantages as comparedto national court proceedings. Broadly speaking, the absence ofappellate review means that arbitration is usually less slow and lessexpensive than litigation – and preferable, in part, for that reason.Nonetheless, there will clearly be exceptions to this generalizationin particular cases, where arbitrators are unusually slow or particularnational courts are especially fast.

[H]. Confidentiality and Privacy of Dispute Resolution

Another objective of international arbitration is to provide aconfidential, or at least private, dispute resolution mechanism. Mostnational court proceedings are not confidential. Hearings and courtdockets are open to the public, competitors, press and regulators inmany countries, and parties are often free to disclose submissionsand evidence to the public. Public disclosure can encourage “trial bypress release” and may impede compromises, by hardening

positions, aggravating tensions, or provoking collateral disputes.

In contrast, international arbitration is substantially more private, andoften more confidential, than national court proceedings. Arbitralhearings are virtually always closed to the press and public, and inpractice the parties' submissions and tribunals' awards often remainconfidential. In some (but by no means all) jurisdictions,confidentiality obligations are implied in international arbitrationagreements as a matter of law, while some arbitration agreementsor institutional arbitration rules impose such duties expressly.(44) Ingeneral, most international businesses prefer, and actively seek, theprivacy and confidentiality that the arbitral process offers.(45)

Confidentiality reduces the risks of aggravating the parties' dispute,limits the collateral damage of a dispute and focuses the parties onan amicable, business-like resolution of their disagreements.

page "15"

[I]. Arbitration Involving States and State-Entities

Finally, arbitration offers particular benefits in cases involving statesand state-entities. Under most legal systems, a state's agreementto arbitrate constitutes a waiver of state or sovereign immunity –almost always with regard to enforcement of the parties' arbitrationagreement and resulting awards and sometimes with regard toenforcement of awards against state assets.(46) Moreover, a neutralinternational tribunal is often a more appropriate decision-maker thana national court for disputes between states or state-entities andprivate parties. In practice, therefore, commercial contracts betweenprivate parties and foreign states or state-related entities veryfrequently contain arbitration provisions.(47)

§1.03. Popularity of International Arbitration

The aspirations of the arbitral process to accomplish the variousobjectives described above lead proponents of internationalarbitration to proclaim:

In th[e] realm of international commercial transactions,arbitration has become the preferred method of disputeresolution. Arbitration is preferred over judicialmethods of dispute resolution because the partieshave considerable freedom and flexibility with regard tochoice of arbitrators, location of the arbitration,procedural rules for the arbitration, and the substantivelaw that will govern the relationship and rights of theparties.(48)

Equally vigorous are some critics, including those who regardarbitration as “the slower, more expensive alternative,”(49) orconclude that “arbitration sometimes involves perils that evensurpass the ‘perils of the seas.’”(50)

In fact, the truth about contemporary international commercialarbitration is less clear-cut and lies somewhere between theseextremes: “The more enthusiastic of [its] sponsors have thought ofarbitration as a universal panacea. We doubt whether it will curecorns or bring general beatitude. Few panaceas work as well asadvertised.”(51) At bottom, international arbitration is much likedemocracy; it is nowhere close to ideal, but it is generally a gooddeal better than the alternatives. Litigation of complex internationaldisputes in national courts is often distinctly unappealing –particularly where litigation occurs in courts that have not beenselected in advance for their neutrality, integrity, competence andconvenience. Indeed, the risks of corruption, incompetence,

page "16" or procedural arbitrariness make litigation ofcommercial disputes in some national courts an unacceptableoption. Despite procedural, choice of law and other uncertainties,international arbitration often offers the least ineffective anddamaging means to finally settle the disputes that arise wheninternational transactions go awry.

Dispute resolution mechanisms must fulfill difficult, often thankless,tasks, particularly in international disputes: parties who are oftenbent upon (mis-)using every procedural and other opportunity todisadvantage one another simultaneously demand rapid, expert andobjective results at minimal cost. Despite these generally unrealisticexpectations, arbitration has for centuries been perceived as themost effective – if by no means flawless – means for resolvinginternational commercial disputes. That perception has notdiminished, but rather been strengthened, in recent decades. In thewords of one authority: arbitration is “‘the’ ordinary and normalmethod of settling disputes of international trade.”(52)

The enduring popularity of international arbitration as a means ofdispute resolution is reflected by a number of developments. Theseinclude steadily increasing case-loads at leading arbitral institutions,with the number of reported cases increasing between three and five-fold in the past 25 years.

1992 1997 2002 2005 2007 2008 2009 2010AAA(ICDR)

204 320 672 580 621 703 836 888

CIETAC 267 723 684 979 1118 1230 1482 1352HKIAC 185 218 320 281 448 602 649 624ICC 337 452 593 521 599 663 817 793JCAA 5 13 9 11 15 12 17 26KCAB 30 51 47 53 59 47 78 52KLRCA 4 5 2 6 2 8 7 N/ALCIA 21 52 88 118 137 221 272 246SIAC* 7 43 38 45 70 99 150 140SCC 44 82 55 56 84 176 215 197Total 1104 1959 2508 2650 3153 3761 4523 4339

The same preference for, and increasing use of, internationalcommercial arbitration is reflected in empirical studies on the use ofarbitration clauses in international commercial agreements.(53)

Similarly, the use of arbitration as a means of resolving new(previously “un-arbitrated”) categories page "17" of disputes,including investment treaty claims, on-line disputes, class actions,tax disputes and human rights claims, attests to its enduring andincreasing popularity.

§1.04. Contemporary International Arbitration Conventions

International commercial arbitration is governed by a complex legalregime. That regime includes (a) international arbitrationconventions, particularly the New York Convention, (b) nationalarbitration legislation, particularly local enactments of the UNCITRALModel Law, (c) institutional arbitration rules, incorporated by parties'arbitration agreements, and (d) arbitration agreements, given effectby international arbitration conventions and national arbitrationlegislation.

These various elements of the legal regime for internationalarbitration, and representative examples of each of these elements,are summarized in the following sections.

[A]. New York Convention

The first modern international commercial arbitration conventionswere the 1923 Geneva Protocol on Arbitration Clauses in

Commercial Matters(54) and the 1927 Geneva Convention page"18" for the Execution of Foreign Arbitral Awards.(55) The Protocolprovided for the recognition of international commercial arbitrationagreements, requiring contracting states to refer parties to suchagreements to arbitration. The Convention, on the other hand,provided for the recognition of arbitral awards made in othercontracting states (subject to a number of exceptions). In partbecause of the outbreak of WWII, the Protocol and Convention hadlimited practical impact.

The Geneva Protocol and Convention were succeeded by the 1958United Nations Convention on the Recognition and Enforcement ofForeign Arbitral Awards.(56) Generally referred to as the “New YorkConvention,” the Convention is the most significant contemporarylegislative instrument relating to international commercial arbitration.It provides a universal constitutional charter for the internationalarbitral process, whose expansive terms have enabled both nationalcourts and arbitral tribunals to develop durable, effective means forenforcing international arbitration agreements and awards.

The Convention was adopted – like many national arbitrationstatutes – to address the needs of the international businesscommunity, and in particular to improve the legal regime provided bythe Geneva Protocol and Geneva Convention. The Convention wasnegotiated principally at a three-week conference – the UnitedNations Conference on Commercial Arbitration – attended by 45states in the Spring of 1958.(57) The conference resulted in adocument – the New York Convention – a radically innovativeinstrument that created for the first time a comprehensive legalregime for the international arbitral process.

The Convention is set forth in English, French, Spanish, Russianand Chinese texts, all of which are equally authentic. TheConvention is only a few pages long, with the instrument's essentialsubstance contained in five concise provisions (Articles I through V).Despite its brevity, the Convention is widely regarded as “thecornerstone of current international commercial arbitration.”(58) In theapt words of Judge Stephen Schwebel, “It works.”(59)

It is often said that the Convention did not provide a detailedlegislative regime for all aspects of international arbitration (as, forexample, the 1985 UNCITRAL Model Law would later do(60) ).Rather, the Convention's provisions focused on the recognition andenforcement of arbitration agreements and arbitral awards, withoutspecifically regulating the conduct of the arbitral proceedings orother aspects of the arbitral process.

A key objective of the Convention was uniformity: the Convention'sdrafters sought to establish a single set of international legalstandards for the enforcement of arbitration agreements andawards.(61) In particular, the Convention's provisions prescribeuniform international rules that: (a) require national courts torecognize and enforce foreign arbitral awards (Articles III and

page "19" IV), subject to a limited number of specifiedexceptions (Article V); (b) require national courts to recognize thevalidity of arbitration agreements, subject to specified exceptions(Article II); and (c) require national courts to refer parties toarbitration when they have entered into a valid agreement to arbitratethat is subject to the Convention (Article II(3)). The permissibleexceptions to the obligation to recognize foreign awards are limitedto issues of jurisdiction, procedural regularity and fairness,compliance with the parties' arbitration agreement and public policy;they do not include review by a recognition court of the merits of thearbitrators' substantive decision.

The New York Convention made a number of significantimprovements in the regime of the Geneva Protocol and GenevaConvention for international arbitration. Particularly important werethe Convention's shifting of the burden of proving the invalidity ofarbitral awards to the party resisting enforcement,(62) its recognitionof substantial party autonomy with respect to choice of arbitralprocedures and law applicable to the arbitration agreement,(63) andits abolition of the previous “double exequatur” requirement (whichrequired that awards be confirmed in the arbitral seat before beingrecognized abroad(64) ).

Despite the Convention's brevity and focus on arbitration agreementsand awards, the significance of its terms can scarcely beexaggerated. The Convention's provisions effected a fundamentalrestructuring of the legal regime for international commercialarbitration, combining the separate subject matters of the GenevaProtocol and Geneva Convention into a single instrument whichprovided a legal framework that covered international arbitrationsfrom their inception (the arbitration agreement) until their conclusion(the award). In so doing, the Convention established for the first time

a comprehensive international legal framework for internationalarbitration agreements, arbitral proceedings and arbitral awards.

Despite its present significance, the New York Convention initiallyattracted few ratifications. Over time, however, states from allregions of the globe reconsidered their position, and today 146nations have ratified the Convention.(65) The Convention's partiesinclude virtually all major trading states and many Latin American,African, Asian, Middle Eastern and former socialist states. Duringthe past decade, numerous states (including a number in the MiddleEast and Latin America) have overcome traditions of distrust ofinternational arbitration and ratified the Convention.(66) TheConvention has thus realized its drafters' aspirations and come toserve as a global charter or constitution for international arbitration.

Article VII of the New York Convention provides that the Conventiondoes not affect the validity of any bilateral or other multilateralarrangements concerning the recognition and enforcement of foreignarbitral awards (except the Geneva Protocol and Geneva Convention,which are page "20" terminated as between ContractingStates).(67) Article VII(1) also provides that the Convention “shall not… deprive any interested party of any right he may have to availhimself of an arbitral award in the manner and to the extent allowedby the law or treaties of the country where such award is sought tobe relied upon.”(68) Article VII has been interpreted in a “pro-enforcement” fashion, to permit agreements and awards to beenforced under either the Convention, or another treaty, or nationallaw, if more favorable than the Convention.(69)

In virtually all Contracting States, the Convention has beenimplemented through national legislation. The practical effect of theConvention is therefore often dependent on both the content of suchnational legislation and the interpretations given by national courts tothe Convention and national implementing legislation.(70) In somestates, the Convention may also have direct (or self-executing)effects in national courts, without the need for implementinglegislation.

As noted above, an important aim of the Convention's drafters wasuniformity. The fulfillment of that aim is dependent upon nationallegislatures and courts, in different Contracting States, to adoptuniform interpretations of the Convention. In general, national courtshave risen to this challenge. That process has accelerated in recentdecades, as national court decisions have become increasinglyavailable in foreign jurisdictions and national courts have increasinglycited authorities from foreign and international sources in interpretingthe Convention.(71)

[B]. Inter-American Convention

In the early years of the 20th century, much of South Americaturned its back on international arbitration. Despite this, in 1975 theUnited States and most South American nations negotiated, andlater ratified, the Inter-American Convention on InternationalCommercial Arbitration (“Inter-American Convention”), also known asthe “Panama Convention.”(72) Like the New York Convention, theInter-American Convention provides for the presumptive validity andenforce-ability of arbitration agreements and arbitral awards, subjectto specified exceptions similar to those in the New YorkConvention.(73)

The Inter-American Convention introduces significant innovations,not present in the New York Convention. It does so by providing (inArticle 3) that, where the parties have not agreed to any institutionalarbitration rules, the rules of the “Inter-American CommercialArbitration Commission” (“IACAC”) will govern. In turn, theCommission has adopted rules that are almost page "21"identical to the UNCITRAL Arbitration Rules. The Convention alsointroduces provisions (again, in Article 3) regarding the constitutionof the arbitral tribunal and the parties' freedom to appoint arbitratorsof their choosing (regardless of nationality). Less desirably, the Inter-American Convention departs from the New York Convention byomitting provisions prohibiting the courts of Contracting States fromentertaining suits brought in breach of an international arbitrationagreement.(74)

[C]. European Convention

The 1961 European Convention on International CommercialArbitration(75) entered into force in 1964, and 31 states are currentlyparty to it. Most European states (but not the United Kingdom, theNetherlands, or Finland) are party to the Convention, while some tennon-EU states are parties, including Russia, Cuba and Burkina

Faso. The Convention consists of 19 articles and an annex.

The Convention addresses the three principal phases of theinternational arbitral process – arbitration agreements, arbitralprocedure and awards. With regard to arbitration agreements, theConvention does not expressly provide for their presumptive validity,but instead (in Articles V and VI) confirms the arbitrators'competence-competence and the authority of national courts toconsider jurisdictional objections on an interlocutory basis. Withregard to the arbitral procedure, Articles III-VII of the Conventionconfirm the autonomy of the parties and the arbitrators (or arbitralinstitution) to conduct the arbitral proceedings. With regard toawards, the Convention is designed to supplement the New YorkConvention, dealing in Article IX only with the effects of a judicialdecision annulling an award in the arbitral seat in other jurisdictions(and not with other obligations of courts to recognize awards). Inpractice, the Convention's impact has been modest, owing to thelimited number of Contracting States, all of whom are also party tothe New York Convention.

§1.05. Contemporary National Arbitration Legislation

It is essential to the effective functioning of the arbitral process, andthe realization of the parties' objectives in agreeing to arbitrate, thatnational courts give effect to arbitration agreements and awards, andprovide support for the arbitral process. The enactment of legislationaccomplishing these ends has been a major objective – andachievement – of developed states over the past 50 years.(76) Thesenational arbitration statutes generally implement the New YorkConvention (and other international arbitration conventions) andprovide the basis for national court decisions dealing withinternational arbitration agreements and awards.

Particularly in civil law jurisdictions, arbitration legislation often tookthe form of a chapter in the national Code of Civil Procedure (forexample, in Germany, France, Italy, the Netherlands and Austria). Incommon law jurisdictions, the tendency has been to enact separatelegislation dealing specifically with arbitration (for example, in theUnited States, England, Singapore and page "22" Australia).The growing popularity of the UNCITRAL Model Law has made thelatter approach of stand-alone arbitration legislation increasinglycommon.

As discussed below, in many cases, national arbitration statutesare applicable only to international (not domestic) arbitrations, orcontain separate parts for domestic and international arbitration.This approach has been adopted to permit “pro-arbitration” rules inthe international context, which may not (for historical or otherreasons) be appropriate for domestic matters. Nevertheless, anumber of countries (e.g., England, Germany and Spain) haveadopted the same legislation for both domestic and internationalarbitrations with different provisions for particular subjects.

Broadly speaking, there are two categories of arbitration legislation:statutes which are supportive of the arbitral process (increasingly,but not always, modeled on the UNCITRAL Model Law) and statuteswhich are not supportive of the arbitral process. Both types oflegislation are discussed below.

[A]. Supportive National Arbitration Legislation

Most states in Europe, North America and Asia have adoptedlegislation that provides effective support for the arbitral process. Inmany cases, states have progressively refined their nationalarbitration statutes, adopting either amendments or new legislationto make their arbitration regimes maximally supportive for theinternational arbitral process. Thus, over the past 40 years, virtuallyevery developed country has substantially revised or entirelyreplaced its international arbitration legislation, in every case, tofacilitate the arbitral process and promote the use of internationalarbitration.(77)

Paralleling the New York Convention, the pillars of modern arbitrationstatutes are provisions that affirm the freedom of parties to enter intovalid and binding agreements to arbitrate future commercialdisputes, provide mechanisms for the enforcement of suchagreements by national courts (through orders to stay litigation orcompel arbitration), prescribe procedures for confirming or annullingawards and require the recognition and enforcement of foreignawards. In many cases, arbitration statutes also authorize limitedjudicial assistance to the arbitral process; this assistance caninclude selecting arbitrators, enforcing a tribunal's orders forevidence-taking and granting provisional relief in aid of arbitration. Inaddition, most modern arbitration legislation affirms the parties'

autonomy to agree upon arbitral procedures and, sometimes, thesubstantive law governing the parties' dispute, while limiting thepower of national courts to intervene in the arbitral process, eitherwhen arbitral proceedings are pending or in reviewing awards.

The central objective of contemporary international arbitrationstatutes has been to facilitate international trade and investment byproviding more secure means of dispute resolution. Recognizing thatinternational transactions are subject to unique legal uncertaintiesand risks, page "23" states have sought to promote the use ofarbitration as a way of mitigating such risks. In the words of theIndian Supreme Court, “[t]o attract the confidence of the internationalmercantile community and the growing volume of India's trade andcommercial relationship with the rest of the world …, [the] IndianParliament was persuaded to enact the Arbitration and ConciliationAct of 1996 in UNCITRAL Model.”(78)

[B]. 1985 UNCITRAL Model Law and 2006 Revisions

The 1985 UNCITRAL Model Law is the single most importantstatutory instrument in the field of international commercialarbitration. It has been adopted in a substantial (and growing)number of jurisdiction and served as a model for legislation in manyothers. Recent revisions to the Model Law (in 2006) sought toimprove its legislative framework.

The Model Law was preceded by extensive consultations involvingstates, the business and international arbitration community, andregional organizations (e.g., Asian-African Legal ConsultativeCommittee). These discussions produced the current draft of theModel Law, which UNCITRAL approved in a resolution in 1985; theModel Law was approved by a U.N. General Assembly resolutionlater the same year.(79)

The Model Law was designed to be implemented by nationallegislatures, with the objective of harmonizing the treatment ofinternational commercial arbitration in different countries. The Lawconsists of 36 articles, which deal comprehensively with theinternational arbitral process. Among other things, the law containsprovisions concerning the enforcement of arbitration agreements(Articles 7–9), appointment of and challenges to arbitrators (Articles10–15), jurisdiction of arbitrators (Article 16), provisional measures(Article 17), conduct of the arbitral proceedings, including language,seat of arbitration and procedures (Articles 18–26), evidence-taking(Article 27), applicable substantive law (Article 28), arbitral awards(Articles 29–33), setting aside awards (Article 34), and recognitionand enforcement of foreign awards, including bases for non-recognition (Articles 35–36).

Under the Model Law, written international arbitration agreementsare presumptively valid and enforceable, subject to limited, specifiedexceptions.(80) Article 8 of the Law provides for the enforcement ofvalid arbitration agreements, regardless of the arbitral seat, by wayof a dismissal or stay of national court litigation. The Law alsoadopts the separability doctrine (Article 16), and grants arbitratorsauthority (competence-competence) to consider their ownjurisdiction (also in Article 16).

Article 5 of the Model Law prescribes a principle of judicial non-intervention in arbitral proceedings. The Law also affirms the parties'autonomy (subject to due process limits) with regard to the arbitralprocedures (Article 19(1)) and, absent agreement between theparties, the tribunal's authority to prescribe such procedures (Article19(2)). The basic approach of the Model page "24" Law to thearbitral proceedings is to define a basic set of procedural rules which– subject to a very limited number of mandatory principles offairness, due process and equality of treatment(81) – the parties arefree to alter by agreement. The Law also provides for judicialassistance to the arbitral process in prescribed and limitedrespects, including provisional measures, constitution of a tribunaland evidence-taking (Articles 9, 11–13 and 27).

Article 34 of the Model Law mandates the presumptive validity ofinternational arbitral awards, subject to a limited, exclusive list ofgrounds for annulment of awards in the arbitral seat; these groundsparallel those available under the New York Convention for non-recognition of an award (i.e., lack or excess of jurisdiction, non-compliance with arbitration agreement, due process violations,public policy, non-arbitrability). In a parallel provision, Articles 35 and36 of the Model Law require the recognition and enforcement offoreign awards (made in arbitral seats located outside therecognizing state), again on terms identical to those prescribed inthe Convention.

In 2006, UNCITRAL adopted a limited number of amendments to the

1985 Model Law.(82) The principal revisions were made to Article 2(the addition of general interpretative principles), Article 7 (writtenform of arbitration agreement), Article 17 (the availability of andstandards for provisional measures from arbitral tribunals andnational courts) and Article 35 (procedures for recognition ofawards).

The Model Law does not have independent legal effect and mustinstead be adopted by individual national legislatures. Some 50jurisdictions have adopted legislation based on the Model Law,including Australia, Bermuda, Bulgaria, Canada, Cyprus, Germany,Hong Kong, India, Mexico, New Zealand, Nigeria, Norway, Russia,Scotland, Singapore, Spain, Tunisia and various U.S., Canadian andAustralian states or provinces.(83) At least as important, the ModelLaw has set the agenda for reform of arbitration statutes even incountries such as England, France and Switzerland where it wasnot adopted. Moreover, decisions by courts in jurisdictions that haveadopted the Model Law are beginning to produce a reasonablyuniform international body of precedent concerning its meaning.(84)

[C]. Less Supportive National Legislation

Some nations regarded international arbitration with a mixture ofsuspicion and hostility during much of the 20th century.(85) Thishostility arose from a reluctance to compromise perceived principlesof national sovereignty and from doubts concerning the neutralityand efficacy of international arbitration. Although distrust forinternational arbitration has waned substantially in page "25"recent decades, it has not entirely disappeared and continuesintermittently to influence legislation and judicial decisions in a fewcountries.

Historically, some developing countries refused to enforceagreements to arbitrate future disputes. This was particularly true inLatin America and the Middle East. Some states took the positionthat arbitration agreements were an unjustifiable infringement uponnational sovereignty, which was to be vigorously resisted. In manycases, arbitration agreements were valid only if they concerned anexisting (not a future) dispute, which was the subject of asubmission agreement committing the parties to resolve the disputeby arbitration.

In 19th century Latin America, the Calvo doctrine declared thatforeign nationals were mandatorily subject to the jurisdiction of localcourts, which could not be ousted by arbitration agreements. Thedoctrine was incorporated into national legislation, which notinfrequently rendered international arbitration agreements per seinvalid. Political declarations also reflected the hostility of somedeveloping states towards international arbitration well into the 20thcentury.(86)

Against this background, arbitration legislation in a few developingstates still does not provide effective enforcement of agreements toarbitrate future disputes; these agreements are sometimesrevocable at will or unenforceable in broad categories of disputes.(87)

Similarly, in a number of states, arbitral awards are subject to eitherde novo judicial review or to similarly rigorous scrutiny on othergrounds.(88) Finally, some national courts have interfered in theinternational arbitral process – for example, by purporting to removearbitrators, to resolve “preliminary” issues, or to enjoinarbitrations.(89)

Nonetheless, during the last 20 years, a number of states that oncedistrusted international arbitration have ratified the New YorkConvention and/or enacted legislation supportive of the arbitralprocess.(90) This includes India, China, Saudi Arabia, Argentina,Algeria, Bahrain, Brazil, Tunisia, Turkey, Nigeria, Peru, Russia and(at least for a time) Ecuador and Venezuela. Although there hasbeen limited practical experience with the application of arbitrationlegislation in such states, these statutes have the potential forproviding a more stable framework for international arbitration.

Unfortunately, even where national law may appear to support theinternational arbitral process, some national courts have displayed areadiness to hold arbitration agreements or awards invalid or tointerfere with the arbitral process. That is particularly true whennational courts are requested to do so by local parties or stateentities. Moreover, the early years of the 21st century have seen amodest resurgence of ideological opposition to the internationalarbitral process, page "26" with a few developing states(91)

questioning the legitimacy of aspects of the process. It remains tobe seen whether this trend will continue, although it has thus farattracted little interest outside a limited number of states.

§1.06. Ad Hoc and Institutional Arbitration

International arbitrations may be either “institutional” or “ad hoc.”There are important differences between these two forms ofarbitration, both theoretical and practical.

Institutional arbitrations are conducted pursuant to institutionalarbitration rules, which have been incorporated by the parties'arbitration agreement (and which, absent such incorporation, haveno independent legal effect). Institutional arbitrations are conductedpursuant to institutional rules and in practice are almost alwaysoverseen by an appointing authority with responsibility forconstituting the arbitral tribunal, fixing the arbitrators' compensationand similar matters. In contrast, ad hoc arbitrations are conductedwithout the benefit of an appointing authority or (generally) pre-existing arbitration rules, subject only to the parties' arbitrationagreement and applicable national arbitration legislation.

[A]. Institutional Arbitration

Institutional arbitrations are administered by specialized arbitralinstitutions. A number of organizations provide institutionalarbitration services for international users, sometimes tailored toparticular commercial or other needs. The best-known internationalcommercial arbitration institutions are the International Chamber ofCommerce (“ICC”), the American Arbitration Association (“AAA”)and its International Centre for Dispute Resolution (“ICDR”), theLondon Court of International Arbitration (“LCIA”) and the SingaporeInternational Arbitral Centre (“SIAC”).

These (and other) arbitral institutions have promulgated sets ofprocedural rules that apply where parties have agreed to arbitrationpursuant to such rules, typically by incorporating such rules in theirarbitration agreements. These rules set out the basic proceduralframework for arbitral proceedings and typically authorize the arbitralinstitution to assist in selecting arbitrators in particular disputes(that is, to serve as “appointing authority”), to resolve challenges toarbitrators, to designate the place of arbitration, to fix the feespayable to the arbitrators and (sometimes) to review the arbitrators'awards to reduce the risk of unenforceability. Each institution has astaff, with the size varying significantly from one institution toanother, and a decision-making body.

It is fundamental that arbitral institutions do not themselves arbitratethe merits of the parties' dispute. This is the responsibility of theindividuals selected by the parties or institution as arbitrators. Inpractice, arbitrators are almost never employees of the arbitralinstitution, but instead are private persons selected by the parties. Ifparties cannot agree upon an arbitrator, most page "27"institutional rules provide that the host institution will act as an“appointing authority,” to choose the arbitrators in the absence of theparties' agreement.

[B]. Ad Hoc Arbitration

Ad hoc arbitrations are not conducted under the auspices orsupervision of an arbitral institution. Instead, parties simply agree toarbitrate, without designating any institution to administer theirarbitration. Ad hoc arbitration agreements often select an arbitratoror arbitrators to resolve the dispute without institutional supervision.The parties will sometimes also select a pre-existing set ofprocedural rules designed for ad hoc arbitrations. For internationalcommercial disputes, UNCITRAL has published a set of such rules,the UNCITRAL Arbitration Rules, which are discussed below.

In ad hoc arbitrations, parties usually designate an appointingauthority to select the arbitrator(s) if the parties cannot agree and toconsider any subsequent challenges to members of the tribunal. Ifthe parties fail to select an appointing authority, then arbitrationstatutes in many states permit national courts to appoint arbitrators,but this may be less desirable than having an experiencedappointing authority do so.

[C]. Relative Advantages and Disadvantages of Institutional andAd Hoc Arbitration

Both institutional and ad hoc arbitration have strengths. Institutionalarbitration is conducted under a standing set of procedural rules andsupervised by professional staff. As a practical matter, this reducesthe risks of procedural breakdowns, particularly at the beginning ofthe arbitral process, and of technical defects in the arbitrationproceedings and award. The institution's involvement can beparticularly constructive in the appointment of arbitrators, challenges

to arbitrators, selection of an arbitral seat and fixing of arbitrators'fees, where specialized staff provide better service than ad hocdecisions by national courts with little experience in suchmatters.(92) Equally important, many institutional rules containprovisions that make the arbitral process more effective. Thisincludes provisions concerning competence-competence,separability, provisional measures, disclosure, arbitrator impartiality,corrections and challenges to awards, replacement of arbitrators andcosts.

On the other hand, ad hoc arbitration is arguably more flexible andpotentially more confidential than institutional arbitration. Moreover,the growing size and sophistication of the international arbitrationbar and the efficacy of legal regimes for arbitration arguably reducethe advantages of institutional arbitration. Nonetheless, most usersprefer the more predictable character of institutional arbitration, thebenefits of institutional rules and appointment mechanisms and thereduced roles of national courts, at least absent unusualcircumstances.

page "28"

[D]. UNCITRAL Arbitration Rules

The UNCITRAL Arbitration Rules occupy an important position incontemporary arbitration practice. The objective of the Rules was tocreate a predictable procedural framework for internationalarbitrations which was acceptable to common law, civil law andother legal systems, as well to capital-importing and exportinginterests.(93) The Rules, which were first promulgated by the U.N.General Assembly in December 1976, were revised in 2010.

Like most institutional rules, the UNCITRAL Rules prescribe a basicprocedural framework for arbitrations. This includes provisions forinitiating an arbitration (Articles 3 and 4), selection and challenge ofarbitrators (Articles 7–16), conduct of the arbitral proceedings(Articles 17–32), choice of applicable law (Article 35), awards(Articles 33–39) and arbitration costs (Articles 40–43). The Rulesalso contain provisions (in Article 23) confirming the separability ofthe arbitration clause and the tribunal's power (competence-competence) to consider jurisdictional objections. Under the Rules,the PCA serves a sui generis function of designating an appointingauthority when requested, unless the parties have agreed to adifferent appointment mechanism.(94)

The UNCITRAL Rules were revised in 2010. The revised Rules allowfor more liberal joinder of parties and specify that the tribunal's powerincludes the authority to grant injunctions and order the preservationof evidence. In a departure from the approach of other arbitrationrules, the revised Rules give the parties the option to waive recourseagainst an award (while most other sets of rules provide for suchwaivers as a default rule).

[E]. Leading International Arbitral Institutions

If institutional arbitration is desired, the parties must choose aparticular arbitral institution and refer to it and its rules in theirarbitration clause (often by using an institution's model clause). Inpractice, parties ordinarily rely on one of a few establishedinstitutions. This avoids the uncertainty that comes frominexperienced arbitrator appointments and administrative efforts.

All leading international arbitral institutions are prepared to, androutinely do, administer arbitrations seated almost anywhere in theworld, and not merely in the place where the institution itself islocated. There is therefore no need to select an institutionheadquartered in the parties' desired arbitral seat (e.g., the LCIA orVienna International Arbitral Centre can readily administer anarbitration seated in Paris or New York, while the AAA canadminister arbitrations seated in Vienna or London).

The services rendered by professional arbitration institutions comeat a price, which is in addition to the fees of the arbitrators. Everyinstitution has a fee schedule that specifies what that price is. Theamounts charged by institutions for particular matters varysignificantly, as does the basis for calculating such fees. Forexample, some institutions use hourly charges while others chargebased upon a percentage of the amount in dispute.

page "29"

[1]. International Chamber of Commerce

Based in Paris, with a branch office in Hong Kong, the International

Chamber of Commerce (“ICC”) is, by most accounts, the world'sleading international arbitration institution. The ICC has promulgateda set of ICC Rules of Arbitration (which are periodically revised, mostrecently as of 2012) as well as the ICC Rules of OptionalConciliation and the ICC Rules for Expertise. Under the ICCArbitration Rules, the ICC (through its International Court ofArbitration (“ICC Court”)) is extensively involved in the administrationof arbitrations. Despite its name, the ICC Court is not a “court” anddoes not act as an arbitrator. Rather, the ICC Court is anadministrative body that acts in a supervisory and appointingcapacity; it is the arbitrators that the ICC Court appoints that decidecases, not the ICC Court itself.

Under the ICC Rules, the ICC Court and its Secretariat areresponsible for service of the initial Request for Arbitration (Articles4–5); fixing advances on costs of the arbitration (Article 36);confirming parties' nominations of arbitrators (Articles 11–13);appointing arbitrators if the parties are unable to agree upon apresiding arbitrator or sole arbitrator (Article 13); consideringchallenges to the arbitrators (Article 14); approving so-called “Termsof Reference,” which define the issues in the arbitration (Article 23);reviewing tribunals' draft awards for defects (Article 33); and fixingthe arbitrators' fees (Article 37).

The ICC Rules are similar to the UNCITRAL Rules in providing abroad procedural framework for arbitral proceedings. As with mostinstitutional rules, only a skeletal procedural framework is provided,with the parties and arbitrators accorded substantial freedom toadopt procedures tailored to particular disputes. Unusually, the ICCRules require a “Terms of Reference” and procedural timetable to beadopted by the tribunal at the outset of proceedings and that anaward be rendered within six months (absent extensions, which arefreely granted). Also unusually, the ICC Rules provide for the ICCCourt to review draft awards before they are finalized.

The ICC Rules were extensively revised as of 2012, with theobjective of making the arbitral process more efficient. Under therevised Rules, tribunals are required to conduct a case managementconference and granted express authority to conduct the arbitrationefficiently (Articles 22, 24). The revised Rules also streamline theprocess of constituting the tribunal (Articles 11–13) and establish an“Emergency Arbitrator” mechanism to deal with interim relief prior toconstitution of the tribunal (Article 29). In addition, the 2012 Rulespermit liberal joinder of parties and consolidation of disputes(Articles 7–10).

The ICC's annual case load was roughly 300 cases per year duringmuch of the 1990s, increasing to more than 600 cases per year inthe following decade, with 793 new cases being filed in 2010.(95)

Most of these cases are international disputes, many involving verysubstantial sums. The ICC's caseload of 1485 pending cases in2010 involved disputes with parties from 140 countries orterritories.(96) ICC arbitrations are conducted throughout the world. In2010, for example, ICC arbitrations were conducted in 53countries.(97) The ICC does not maintain a list page "30" ofarbitrators and its Secretariat instead selects arbitrators with theassistance of local “National Committees” in individual countries –often, that of the arbitral seat.

The ICC's administrative fees and the fees of the arbitrators arebased principally on the amount in dispute between the parties. TheICC Rules require (in Article 36) that the parties pay an advance onthe costs of the arbitration calculated by the ICC Court. The advanceon costs is equally divided between the claimant and therespondent, although one party may pay the full amount in order toenable the arbitration to proceed if the other party defaults.

The ICC Rules have sometimes been criticized as expensive andcumbersome, although recent amendments reflect concerted effortsto address this concern.(98) Despite criticism, the ICC clearlyremains the institution of preference for many sophisticatedcommercial users.

[2]. London Court of International Arbitration

Founded in 1892, the LCIA is, by many accounts, the second mostpopular European institution for international commercial arbitration.The LCIA's annual caseload has exceeded 200 disputes in recentyears, with 246 disputes referred to arbitration in 2010. The LCIAhas made a largely successful effort in recent years to overcomeperceptions that it is a predominantly English institution. In recentyears, fewer than 20% of the LCIA's cases have involved a U.K.party, with the number declining to 17% in 2010.

The LCIA administers a set of arbitration rules, the LCIA Arbitration

Rules, which were extensively revised in 1998. Although identifiablyEnglish in drafting style and procedural approach, the LCIA Rulesprovide a sound basis for international dispute resolution, particularlyfor parties desiring common law procedures (e.g., disclosure,security for costs). Broadly speaking, LCIA arbitrations areadministered in a less comprehensive fashion than ICC cases.Among other things, the LCIA Rules contain no Terms of Referenceprocedure and do not provide for institutional review of draft awards.

Most LCIA arbitrations are seated in London. Absent contraryagreement by the parties, London will ordinarily be selected as thearbitral seat under Article 16(1) of the LCIA Rules. A particularprocedural advantage of the LCIA Rules is their provision forexpedited formation of the tribunal. The LCIA Rules also permitintervention of third parties in arbitrations, subject to prescribedconditions (Article 22(1)(h)). Unusually, the LCIA publishesdecisions of the LCIA Court on challenges to arbitrators (in aredacted form), providing enhanced predictability about arbitratorchallenges.

Like the ICC, the LCIA does not maintain a standing list ofarbitrators. The LCIA's appointments of arbitrators have been drawnpredominantly from the English bar and retired judiciary, in partbecause many LCIA cases have involved contracts governed byEnglish law. In 2010, roughly 60% of the arbitrators nominated bythe LCIA were U.K. nationals. The LCIA calculates arbitrators' feesaccording to the time expended by arbitrators at the hourly ratespublished by the LCIA and fixed by agreement between thearbitrators and the LCIA.

page "31"

[3]. American Arbitration Association/International Centre forDispute Resolution

The AAA is the leading U.S. arbitral institution, and reportedlyhandles one of the largest numbers of arbitral disputes in the world.The primary arbitration rules administered by the AAA are the AAACommercial Arbitration Rules; these rules are used in a largenumber of domestic U.S. arbitrations.(99)

In recent years, the AAA has taken steps aimed at enhancing itsposition as an international arbitral institution. In 1996, the AAAestablished an International Centre for Dispute Resolution (“ICDR”),with responsibility for administering international arbitrations. TheICDR International Dispute Resolution Procedures (“ICDR Rules”)are applied where parties have agreed to them or have agreed to anAAA arbitration in an “international” dispute, but without specifying aparticular set of AAA rules. Where the parties have agreed to adifferent set of AAA rules, such as the AAA Commercial Rules, thatchoice will prevail.

The AAA's case load has increased significantly over recentdecades. In 1997, it reported a total case load of 11,130 cases(under its Commercial Rules), rising to 15,232 cases in 1998 and to20,711 in 2007. Similar growth is reported in international cases,from 453 international cases filed in 1999 to 888 new internationalfilings in 2010.(100)

The ICDR Rules are based on the UNCITRAL Rules. Under allversions of AAA rules, the AAA/ICDR administrative staff plays aless significant supervisory role than does the ICC Secretariat.Among other things, the AAA/ICDR does not receive or serve initialrequests for arbitration; does not require a Terms of Reference; andplays a less significant role in setting the arbitrators' fees. TheAAA's administrative charges are based on the amount in dispute.With respect to the arbitrators' fees, arbitrators fix their own rates,which are provided for parties to consider when receiving a list ofpotential arbitrators. Compensation under the ICDR Rules (Article32) is based on the arbitrators' “amount of service,” taking intoaccount their stated rates and the “size and complexity of the case.”

In practice, most ICDR appointments of arbitrators are based on alist procedure, with names drawn from a list of some 500 namesmaintained by the ICDR and presented to the parties for expressionsof preference. Although the AAA's lists have historically beendominated by U.S. practitioners, the ICDR increasingly seeks toappoint arbitrators with international experience. Nonetheless, someusers have found the AAA/ICDR appointment procedures andselections patchy, with less involvement of experienced internationalpractitioners than other leading institutions.

[4]. Singapore International Arbitral Centre

The Singapore International Arbitration Centre (“SIAC”) wasestablished in 1990, initially focused on disputes arising out ofconstruction, shipping, banking and insurance. In recent years, theSIAC has taken steps to enhance its international reputation and, bymany accounts, is now the leading Asian international arbitralinstitution. The SIAC's case load saw a substantial increase over the

page "32" past decade, rising from 58 in 2000 to 198 cases filed in2010.(101) The SIAC Rules are based largely on the UNCITRALRules, and the most recent version came into force on 1 July 2010.

[5]. ICSID

The International Centre for Settlement of Investment Disputes(“ICSID”) administers arbitrations and conciliations pursuant to theso-called “ICSID Convention” or “Washington Convention” of1965.(102) As discussed below, ICSID jurisdiction is confinedgenerally to “investment” disputes, involving claims by foreigninvestors against host states; investment disputes typically ariseunder contracts containing ICSID arbitration clauses or pursuant tobilateral investment treaties (discussed below). ICSID's case loadhas increased significantly over the past several decades, risingfrom roughly 1 case filed per year in the 1970s to roughly 30 casesper year in 2010 and 2011.

[6]. Permanent Court of Arbitration

The PCA in the Hague was founded under the Hague Convention of1899 on the Pacific Settlement of Disputes, initially to administerstate-to-state arbitrations. The PCA has promulgated several sets ofrules based largely on the UNCITRAL Rules, applicable to disputesbetween both states and (more recently) private parties.(103) Alimited number of state-to-state arbitrations, including several verysignificant disputes, have been conducted under the auspices of thePCA.(104) The PCA is also designated under the UNCITRAL Rulesas the default mechanism for choosing an appointing authority in theevent the parties are unable to agree upon the choice of arbitratorsor appointing authority.

[7]. Other International Arbitral Institutions

There are a number of other international arbitral institutions,typically with either a regional or industry focus. Regionalinstitutions include the Arbitration Institute of the StockholmChamber of Commerce, Japan Commercial Arbitration Association,Hong Kong International Arbitration Centre, Swiss Chambers'Arbitration Institution, German Institution of Arbitration, ViennaInternational Arbitral Centre, China International Economic and TradeArbitration Commission, Cairo Regional Centre for InternationalCommercial Arbitration, Australian Centre for InternationalCommercial Arbitration, Kuala Lumpur Regional Centre forArbitration and Indian Council of Arbitration.

page "33"

There are also a number of specialized arbitral institutions, dealingwith industry-specific matters, such as intellectual property,maritime, commodities, construction, insurance and labor matters.These include the World Intellectual Property Organization, LondonMaritime Arbitration Association, National Grain and FeedAssociation, AIDA Reinsurance and Insurance ArbitrationAssociation (“ARIAS”) and similar organizations. In each case,these institutions have adopted institutional rules and administerarbitrations conducted pursuant to those rules.

§1.07. Elements of International Arbitration Agreements

As already discussed, international arbitration is almost alwaysconsensual: arbitration generally occurs pursuant to an arbitrationagreement between the parties.(105) Parties are largely free to drafttheir arbitration agreements in whatever terms they wish and inpractice this freedom is liberally exercised. Like other contractualclauses, the terms of arbitration agreements are largely a product ofthe parties' interests, negotiations and drafting skills.

Article 7(1) of the UNCITRAL Model Law provides that “[a]narbitration agreement may be in the form of an arbitration clause in acontract or in the form of a separate agreement.” Using this freedom,parties draft arbitration agreements that are either clauses withinunderlying commercial contracts or stand-alone “arbitrationagreements,” and that are either very short, very long, or somewherein between. National courts have upheld arbitration clauses that areas brief as “English law – arbitration, if any, London according ICC

Rules,” or “arbitration – Hamburg, Germany.” At the other extreme,arbitration agreements in large transactions sometimes take theform of separately-executed documents running to dozens of pagesand (purportedly) addressing every procedural eventuality.

[A]. Submission Agreement versus Arbitration Clause

It is possible for parties to agree to submit a dispute that hasalready arisen between the parties to arbitration. The resultingagreement is called a “submission agreement” or “compromise.”When an existing dispute is submitted to arbitration, the parties'agreement must define that dispute and will also typically select thearbitrators and procedures for resolving the dispute. Typically, it isdifficult to negotiate a submission agreement once a dispute hasarisen and litigation tactics have been explored. As a consequence,the overwhelming majority of international arbitration agreementstake the form of clauses included in a commercial contract.Arbitration clauses of this character typically apply to futuredisputes related to the parties' contract. The arbitration clauseprovides a mechanism for resolving future disputes, which have notyet arisen (and may, hopefully, never arise).

page "34"

[B]. Critical Elements of International Arbitration Agreements

International arbitration agreements ordinarily address: (a) theagreement to arbitrate; (b) the scope of disputes submitted toarbitration; (c) the use of an arbitral institution and its rules; (d) theseat of the arbitration; (e) the method of appointment, number andqualifications of the arbitrators; (f) the language of the arbitration;and (g) a choice-of-law clause.

Critical Elements of International Arbitration Agreement1. Agreement to Arbitrate2. Scope of Disputes Submitted to Arbitration3. Institutional Arbitration Rules4. Arbitral Seat5. Arbitrators' Number, Qualifications and Selection6. Language of Arbitration7. Choice-of-Law ClauseOther Provisions of International Arbitration Agreements1. Allocation of Legal Costs2. Interest and Currency of Award3. Disclosure4. Fast-Track or Other Procedures5. Multi-Tier Dispute Resolution6. State/Sovereign Immunity7. Confidentiality8. Waiver of Annulment

[1]. The Agreement to Arbitrate

It seems tautological – but not always the case in practice – thatany arbitration clause must set forth the parties' agreement toarbitrate. As a drafting matter, this means that arbitrationagreements should (and usually do) expressly refer disputes to“arbitration” – and not to expert determination, mediation, “ADR,” orsome other form of dispute resolution. These other forms ofalternative dispute resolution are not categorized as “arbitration”under many international treaties and arbitration statutes, and willoften not qualify for the “pro-enforcement” safeguards provided bythese instruments. Accordingly, a critical element of anyinternational arbitration agreement is the parties' undertaking that “alldisputes shall be finally resolved by arbitration ….”

Similarly, most arbitration agreements provide that disputes shouldbe referred to arbitration for a “binding” or “final” disposition (and notto an advisory recommendation). In addition, arbitration clausesshould treat arbitration as mandatory and not a possible futureoption, applicable if the parties so agree after a dispute arises. Thus,arbitration clauses usually (and should) provide that “all disputesshall be finally resolved by arbitration ….”

page "35"

[2]. Scope of Arbitration Agreement

Critical to any arbitration clause is its “scope” – that is, thecategories of disputes that will be subject to arbitration. Forexample, an agreement to arbitrate may provide that all disputesbetween the parties, bearing any connection to their contractualrelations, are subject to arbitration. Alternatively, the parties mayagree that only contract claims that arise under the express termsof their agreement (or particular provisions of that agreement) will bearbitrated or that particular types of claims are to be excluded froman otherwise broad arbitration agreement. Alternatively, in the caseof a submission agreement, parties may agree to arbitrate only asingle, pre-existing dispute.

As a general rule, parties draft arbitration clauses broadly, to coverall disputes having any connection with the parties' dealings. Doingso avoids the expense arising from parallel proceedings (wherecertain contractual disputes are arbitrated and other contractual, ornon-contractual, disputes are litigated). It also avoids theuncertainties resulting from potentially inconsistent judgments andjurisdictional disputes over the scope of the various proceedings.

There are a handful of formulae that are commonly used to definethe scope of arbitration clauses. These formulae include “any” or “all”disputes: (i) “arising under this Agreement”; (ii) “arising in connectionwith this Agreement”; or (iii) “relating to this Agreement.” Alternativeformulations include: (iv) “all disputes relating to this Agreement,including any question regarding its existence, validity, breach ortermination”; or (v) “all disputes relating to this Agreement or thesubject matter hereof.”

Even where the parties have agreed in principle to a broad arbitrationclause, there may be claims or disputes that one party does notwant submitted to arbitration. This can include matters such asintellectual property rights or payment obligations, which aresometimes excluded or carved out of the scope of the arbitrationclause.(106) It is often better to avoid efforts to exclude particulartypes of disputes from arbitration, except in unusual circumstances.Such exclusions can lead (undesirably) to parallel proceedings inboth the arbitral forum and national courts, and to jurisdictionaldisputes over the application of a clause to particular claims.

[3]. Institutional Arbitration Rules

As discussed above, institutional arbitration is conducted pursuantto procedural rules of a particular arbitral institution. If institutionalarbitration is desired, the parties' arbitration agreement must selectand refer to an arbitral institution and its rules. In general, everyarbitral institution provides its own model arbitration clause (withexamples below); parties wishing to invoke the institution's rulesshould ordinarily use this clause as the basis for their agreement,departing from it only with care and for considered reasons.

page "36"

Model ICC Arbitration Clause“All disputes arising out of or in connection with the presentcontract shall be finally settled under the Rules of Arbitration of theInternational Chamber of Commerce by one or more arbitratorsappointed in accordance with the said Rules.”Model UNCITRAL Arbitration Clause“Any dispute, controversy or claim arising out of or relating to thiscontract, or the breach, termination or invalidity thereof, shall besettled by arbitration in accordance with the UNCITRAL ArbitrationRules.”

In cases where the parties do not desire institutional arbitration, theywill sometimes select a pre-existing set of procedural rules designedfor ad hoc arbitrations (such as the UNCITRAL Rules). Arbitrationclauses frequently do so by references such as “all disputes shallbe settled by arbitration in accordance with the UNCITRALArbitration Rules ….”

[4]. Seat or Place of the Arbitration

Another vital element of any international arbitration agreement isdesignation of the “seat” (or “place”) of the arbitration. This is thestate where the arbitration has its formal legal or juridical seat, andwhere the arbitral award will formally be made. The text ofcontractual provisions selecting the arbitral seat is not complex,usually providing only “The seat of the arbitration shall be[Singapore].”

As discussed below, there are a number of legal and practicalconsequences that follow from selection of an arbitral seat, making

this one of the most important aspects of any internationalarbitration agreement. These consequences include the selection ofthe procedural law of the arbitration and the national courtsresponsible for applying that law, the national courts responsible forissues relating to constitution of the tribunal and the national courtsresponsible for (and arbitration law applicable to) annulment ofarbitral awards.(107) All of these issues are of substantial importanceto the arbitral process in international matters.

[5]. Number, Method of Selection and Qualifications ofArbitrators

It is common for arbitration agreements to address the number,means of appointment and qualifications of the arbitrators.(108)

Selection of the arbitrators is one of the most critical issues in anyarbitration. Addressing this issue in the arbitration agreement isvitally-important to the effectiveness of the process.

Arbitration clauses often specify the number of persons who willcomprise the tribunal in the event of future disputes. If the parties donot agree upon the number of arbitrators, institutional rules generallygrant the institution power to do so; otherwise, national courts willhave the power page "37" to decide, pursuant to default rules inarbitration legislation. Nonetheless, relying on a judicial orinstitutional decision regarding the number of arbitrators can result indelays or disputes. As a consequence, parties often specify thenumber of arbitrators (usually one or three) in their arbitrationclause.(109)

It is also important for an arbitration clause to include a method forselecting the arbitrator(s). Some clauses identify a specific individualas arbitrator (e.g., “The arbitrator shall be George Martin.”). Themost common provision for selection of the arbitrator is designationof an “appointing authority,” which will select a sole arbitrator orpresiding arbitrator in the event that the parties cannot do so; inthree-person tribunals, many arbitration clauses permit each party toselect a party-nominated arbitrator, with the appointing authoritychoosing the presiding arbitrator. Most institutional rules provide forsuch a role by the sponsoring institution when parties agree toarbitrate under the institution's rules,(110) and no special wording(aside from adopting the institution's rules) is necessary to selectthe institution as appointing authority.

[6]. Language of the Arbitration

Arbitration clauses also frequently specify the language (orlanguages) of the arbitral proceedings and award. This is a point ofvital importance, which can have a profound practical effect on theselection of the arbitrators and character of the arbitralproceedings.(111)

Absent the parties' agreement, institutional rules usually authorizethe tribunal to select a language (or languages) of the arbitration.This will often be the language of the underlying contract, althoughsome regional institutional rules provide that the default language ofthe arbitration shall be that of the country where the institution isbased (e.g., for CIETAC, Chinese). Even if institutional rules do notaddress the issue, national law will ordinarily give the tribunalauthority to select a language for the arbitration. Nonetheless, thereis seldom any reason to leave this issue to chance, particularlygiven the simplicity of a provision to the effect that “the language ofthe arbitration shall be [English].”

[7]. Choice-of-Law Clauses

International arbitration can give rise to tortuous choice-of-lawquestions. As a consequence, many arbitration agreements areaccompanied by a choice-of-law clause, specifying the substantivelaw applicable to the parties' contract and related disputes.(112) Acommon formulation is “This Agreement will be governed by, and alldisputes relating to or arising in connection with this Agreementshall be resolved in accordance with, the laws of [State X].”

page "38"

[C]. Other Provisions of International Arbitration Agreements

Many arbitration agreements also contain other provisions, inaddition to the elements discussed above. The character of theseprovisions varies from case to case, depending on the parties'interests. The most common additional elements include: (a) legalcosts; (b) interest and currency of award; (c) disclosure powers of

tribunal; (d) fast-track or other procedural rules, including so-calledescalation clauses; (e) state/sovereign immunity waivers; (f)confidentiality; and (g) waivers of rights to seek annulment of anaward.(113)

§1.08. Overview of Choice of Law in International CommercialArbitration

Choice-of-law issues play an important role in internationalcommercial arbitration. It is necessary to distinguish between fourchoice-of-law issues that can arise in connection with aninternational arbitration: (a) the substantive law governing the meritsof the parties' underlying contract and other claims; (b) thesubstantive law governing the parties' arbitration agreement; (c) thelaw applicable to the arbitral proceedings (also called the “procedurallaw of the arbitration,” the “curial law” or the “lex arbitri”); and (d) theconflict of laws rules applicable to select each of the foregoing laws.Although not common, it is possible for each of these four issues tobe governed by a different national (or other) law.

Choices of Law in International Arbitration1. Substantive Law Governing Merits of Parties' Dispute (Including

Underlying Contract)2. Substantive Law Governing Arbitration Agreement3. Procedural Law Applicable to Arbitral Proceedings4. Conflict of Laws Rules

Each of the foregoing choice-of-law issues can have a vital influenceon international arbitral proceedings. Different national laws providedifferent – sometimes dramatically different – rules applicable atdifferent stages of the arbitral process. Understanding which nationalrules will potentially be applicable can therefore be critical.

[A]. Law Applicable to the Substance of the Parties' Dispute

The parties' underlying dispute will ordinarily(114) be resolved underthe rules of substantive law of a particular national legal system. Inthe first instance, it will usually be the arbitrators who determine thesubstantive law applicable to the parties' dispute. As discussed indetail below, page "39" international arbitral awards typicallygive effect to the parties' agreements concerning applicablesubstantive law (“choice-of-law clauses”).(115) The principalexception is where mandatory national laws or public policiesoverride contractual arrangements.

Where the parties have not agreed upon the substantive lawgoverning their dispute, the arbitral tribunal must select such a law.In so doing, the tribunal will sometimes refer to national orinternational conflict of laws rules.(116) Although the historicalpractice was to apply the national conflict of laws rules of the arbitralseat, more recent practice is diverse. Some tribunals andcommentators adhere to the traditional approach, while others lookto the conflicts rules of all states having a connection with thedispute; additionally, some authorities adopt either internationalconflict of laws rules or validation principles.

[B]. Law Applicable to the Arbitration Agreement

As discussed elsewhere, arbitration agreements are universallyregarded as presumptively “separable” from the underlying contractin which they appear. One consequence of this is that the parties'arbitration agreement may be governed by a different national lawthan that of the underlying contract. The governing law may bechosen by the parties or determined by applying conflict of lawsrules (which may select different laws for the parties' arbitrationagreement and underlying contract).

As described below, four alternatives for the law governing anarbitration agreement are of particular importance: (a) the lawchosen by the parties to govern the arbitration agreement itself; (b)the law of the arbitral seat; (c) the law governing the parties'underlying contract; and (d) international principles, either applied asa substantive body of contract law (as in France) or as rules of non-discrimination (as in most U.S. authority).(117)

[C]. Procedural Law Applicable to the Arbitral Proceedings

The arbitral proceedings themselves are subject to legal rules,governing both “internal” procedural matters and “external” relationsbetween the arbitration and national courts. In most instances, thelaw governing the arbitral proceeding is the arbitration statute of the

arbitral seat.(118)

Among other things, the law of the arbitral seat typically deals withsuch issues as the appointment and qualifications of arbitrators, thequalifications and professional responsibilities of parties' legalrepresentatives, the extent of judicial intervention in the arbitralprocess, the availability of provisional relief, the procedural conductof the arbitration, the form of an award and standards for annulmentof an award. Different national laws take different approaches tothese various issues. In some countries, national law imposessignificant limits or requirements on the conduct of the arbitrationand local courts have broad powers to supervise arbitralproceedings. Elsewhere, and in most developed jurisdictions, locallaw affords international arbitrators virtually unfettered freedom toconduct the arbitral process – subject only to basic requirements ofprocedural regularity (“due process” or “natural justice”).

page "40"

In many jurisdictions, parties are free to select the procedural law ofthe arbitration (as discussed below). This includes, in somejurisdictions, the freedom to agree to the application of a differentprocedural law than that of the arbitral seat. This occurs only in veryrare cases and is ordinarily avoided because of the uncertainties itcreates, including as to which national courts may select andremove arbitrators or annul awards.

[D]. Choice of Laws Rules Applicable in InternationalArbitration

Selecting each of the bodies of law identified in the foregoing threesections – the law applicable to the merits of the underlyingcontract, the arbitration agreement and the arbitral proceedings –ordinarily requires application of conflict of laws rules. In order toselect the substantive law governing the parties' dispute, forexample, the tribunal must ordinarily apply a conflict of lawssystem. A tribunal must therefore decide at the outset what set ofconflicts rules to apply to select each of these systems of law. Thepractice of tribunals in selecting the law applicable to each of theforegoing issues varies significantly. As discussed in greater detailbelow, approaches include application of (a) the arbitral seat'sconflict of laws rules; (b) “international” conflict of laws rules; (c)successive application of the conflict of laws rules of all interestedstates; and (d) “direct” application of substantive law (without anyexpress conflicts analysis).

§1.09. Investor-State Arbitration

Most international arbitrations are international commercialarbitrations, arising from commercial dealings between privateparties. Another significant, if less common, category ofinternational arbitration involves “investor-state” or “investment”arbitrations, usually conducted pursuant to the arbitration provisionsof a specialized multilateral or bilateral investment treaty, or, lessfrequently, pursuant to the arbitration clauses in state contracts.

Investment arbitrations involve “investment disputes” between foreigninvestors and host states. As discussed in Chapter 18 below,investment disputes usually involve claims of expropriation withoutfull compensation, unfair or inequitable treatment, or discriminatorytreatment of a foreign investor by a host state. In most cases,investment arbitrations involve only claims by investors against thehost state (and not counterclaims against the investor).

[A]. ICSID Convention

As noted above, the ICSID Convention is a specialized internationaltreaty (with 147 Contracting Parties from all regions of the world)designed to facilitate the settlement of “investment disputes” (i.e.,“legal dispute[s] arising directly out of … investment[s]”).(119) TheICSID Convention provides a stand-alone legal regime for ICSIDarbitration agreements and arbitral awards (which are generally notsubject to the New York Convention or generally-applicable nationalarbitration legislation). Arbitrations under the ICSID Convention areadministered by ICSID, a specialized page "41" arbitralinstitution, which has promulgated the ICSID Arbitration Rules (andrelated conciliation rules). The ICSID Convention and ArbitrationRules are discussed in greater detail below.(120)

[B]. Bilateral Investment Treaties

Investment arbitrations can also arise under Bilateral InvestmentTreaties (“BITs”), which became common during the 1980s and

1990s as a means of encouraging capital investment in developingmarkets. More than 2,800 BITs are presently in force, with additionalBITs being concluded each year.(121)

As discussed below, most BITs provide significant substantiveprotections for investments made by foreign investors, includingguarantees against expropriation and denials of fair and equitabletreatment. BITs also frequently contain dispute resolution provisionswhich permit foreign investors to require international arbitration(typically referred to as “investor-state arbitration”) of specifiedcategories of investment disputes with the host state;(122) theseprovisions permit investors to require arbitration of investmentdisputes in the absence of a traditional contractual arbitrationagreement with the host state (so-called “arbitration withoutprivity”).(123) Unlike ICSID arbitrations, BIT arbitral awards are oftensubject to the New York Convention and general national arbitrationlegislation. The role of BITs in investor-state arbitration is discussedin Chapter 18 below.

§1.10. State-to-State Arbitration

An even more specialized category of international arbitrationinvolves “state-to-state” or “interstate” arbitrations, also discussed inChapter 18 below. Interstate arbitrations typically involve disputesbetween two states or state-like entities and often raise issues ofpublic international law. Many state-to-state arbitrations involveboundary disputes (involving either land or maritime boundaries).(124)

Many state-to-state arbitrations are ad hoc and conducted pursuantto specially-negotiated procedural rules. Alternatively, someinterstate arbitrations are conducted pursuant to the PCA's rules forarbitrations between states (discussed above). Interstate arbitrationagreements and awards are, in many cases, not subject toenforcement under the New York Convention, in large part becauseof reservations limiting the Convention to “commercial” matters, ornational arbitration legislation. Nonetheless, where states or stateentities arbitrate commercial or financial disputes, arbitral awardsare in principle subject to recognition and enforcement under theNew York Convention and legislation in many states.

page "42"

1 See Benson Pump Co. v. S. Cent. Pool Supply, Inc., 325F.Supp.2d 1152, 1155 (D. Nev. 2004) (“no magic words such as‘arbitrate’ … are required to obtain the benefits of the FAA … [I]f theparties have agreed to submit a dispute for a decision by a thirdparty, they have agreed to arbitration”); Taylor v. Yielding (1912) 56Sol Jo 253 (Ch.) (“you cannot make a valuer an arbitrator by callinghim so, or vice versa”).2 Judgment of 21 November 2003, DFT 130 III 66, cons. 3.1 (SwissFederal Tribunal).3 Motunui Ltd v. Methanex Spellman [2004] 1 NZLR 95 (AucklandHigh Court).4 Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 (U.S. S.Ct.1974).5 New York Convention, Arts. II(1) & II(3) (emphasis added).6 UNCITRAL Model Law, Arts. 8(1) & 7(1) (emphasis added).7 Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34,at ¶51 (Canadian S.Ct.).8 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (U.S.S.Ct. 2002) (quoting Steelworkers v. Warrior & Gulf Nav. Co., 363U.S. 574, 582 (U.S. S.Ct. 1960)). See Judgment of 8 July 2003,DFT 129 III 675, 679 (Swiss Federal Tribunal) (“The statute does notdefine the minimal content of an arbitration agreement. It resultsfrom the purpose of the arbitration agreement that the intent of theparties must be expressed to submit certain existing or futuredisputes to an arbitral tribunal, i.e. not a state court.”).9 See infra pp. 121–29. In cases when no agreement on either thearbitrator(s) or an institutional appointing authority is possible,national courts can provide a default mechanism for appointment ofarbitrators. See infra pp. 129.10 See infra pp. 45, 70–73.11 See, e.g., Judgment of 17 June 2004, Le Parmentier v. LaSociété Miss France, XXX Y.B. Comm. Arb. 119, 123–124 (ParisCour d'appel) (2005) (Uniform Domain Name Resolution Policydispute resolution proceeding is not arbitration because it “allows fora recourse to state courts to have the dispute re-adjudged, bothbefore the administrative proceeding is commenced and after it isconcluded and, … during the proceeding.”); Salt Lake Tribune

Publishing Co., LLC v. Mgt Planning, Inc., 390 F.3d 684, 689 (10thCir. 2004) (“[O]ne feature that must necessarily appertain to aprocess to render it an arbitration is that the third party's decisionwill settle the dispute.”); Walkinshaw v. Diniz [2000] 2 All E.R.(Comm.) 237 (Q.B.) (agreement “must contemplate that the tribunalwhich carries on the process will make a decision which is bindingon the parties”).12 See, e.g., Portland Gen. Elec. Co. v. U.S. Bank Trust Nat'lAss'n, 218 F.3d 1085, 1090 (9th Cir. 2000) (“arbitration agreementspermit arbitrators to resolve pending disputes generally throughadversary hearings at which evidence is admitted and the arbitratorplays a quasi-judicial role”); Walkinshaw v. Diniz [2000] 2 All E.R.(Comm.) 237 (Q.B.) (“It is a characteristic of arbitration that theparties should have a proper opportunity of presenting their case.”).13 See Omni Tech Corp. v. MPC Solutions Sales, LLC, 432 F.3d797, 799 (7th Cir. 2005) (“many contracts have venue or forum-selection clauses. These do not call for arbitration but are routinelyenforced.”); Sonatrach Petroleum Corp. (BVI) v. Ferrell Int'l Ltd[2002] 1 All E.R. (Comm.) 627 (Q.B.) (agreement to arbitrate mustestablish the parties' objective intention to arbitrate rather than referdisputes to national courts).14 Hague Convention of 30 June 2005 on Choice of CourtAgreements, available at www.hcch.net. G. Born & P. Rutledge,International Civil Litigation in United States Courts 468 & 1085 (5thed. 2011).15 G. Born, International Commercial Arbitration 234–40 (2009).See also Report of the Secretary-General on the Possible UniformRules on Certain Issues Concerning Settlement of CommercialDisputes Conciliation, UN Doc, A/CN.9/WG.II/WP.108, ¶11 (2000),available at www.uncitral.org.16 See, e.g., UN General Assembly, Resolution adopted by the 750Meeting on the UNCITRAL Adoption of the Model on InternationalCommercial Conciliation, UN Doc. A/57/17, Annex 1, available at www.uncitral.org.17 See G. Born, International Commercial Arbitration 222–33(2009); J. Kendall, Expert Determination ¶8.7.1 (3d ed. 2001).18 See G. Born, International Commercial Arbitration 223 (2009).19 See, e.g., Portland Gen. Elec. Co. v. U.S. Bank Trust Nat'lAss'n, 218 F.3d 1085, 1090 (9th Cir. 2000) (appraisal provision “didnot attempt to usurp the judiciary's power to resolve the case as awhole, [but is] typically limited to ministerial determinations such asthe ascertainment of quality or quantity of items, the ascertainmentof loss or damage to property or the ascertainment of the value ofproperty”); Judgment of 9 November 1999, Syndicat desCoproprietaires du 35, rue Jouvent v. Halpern, 2001 Rev. arb. 159(Paris Cour d'appel) (expert's determinations were not to resolvedispute but only to “perfect” a compromise).20 The name is derived from a form of dispute resolution used infixing the salaries of professional athletes in the United States. SeeG. Born, International Commercial Arbitration 244–46 (2009).21 As discussed below, by virtue of Article I(1), the New YorkConvention is applicable to specified categories of “foreign” or “non-domestic” arbitral awards. See supra pp. 370–73. The Conventiondoes not define expressly the arbitration agreements to which itapplies; it is best interpreted as applying to all “international”arbitration agreements, wherever they are seated, rather than topurely domestic arbitration agreements. See G. Born, InternationalCommercial Arbitration 275–77 (2009).22 Article 1(3) of the Model Law provides: “An arbitration isinternational if (a) the parties to an arbitration agreement have, at thetime of the conclusion of that agreement, their places of business indifferent States; or (b) one of the following places is situated outsidethe State in which the parties have their places of business: (i) theplace of arbitration if determined in, or pursuant to, the arbitrationagreement; (ii) any place where a substantial part of the obligationsof the commercial relationship is to be performed or the place withwhich the subject-matter of the dispute is most closely connected;or (c) the parties have expressly agreed that the subject matter ofthe arbitration agreement relates to more than one country.” Similardefinitions apply in the United States, France, England, andelsewhere. G. Born, International Commercial Arbitration 284–99(2009).23 In a few jurisdictions, arbitration legislation applies to bothdomestic and international arbitrations. For example, England,Spain and Germany's enactments of the UNCITRAL Model Lawdeleted provisions limiting the legislation's application to“international” arbitrations, extending it to all arbitrations. GermanZPO, §1025; English Arbitration Act, 1996, §2. Even then, suchlegislation often has specific provisions that treat international anddomestic arbitration differently with regard to particular subjects.See G. Born, International Commercial Arbitration 109–10 (2009).24 G. Born, International Commercial Arbitration 71–73 (2009).Users of international arbitration identify neutrality as one of the

most important benefits of the process. Buehring-Uhle, A Survey onArbitration and Settlement in International Business Disputes, in C.Drahozal & R. Naimark, Towards a Science of InternationalArbitration: Collected Empirical Research 33 (2005).25 Sometimes parties will not agree upon any dispute resolutionprovisions, leaving it to post-dispute litigation to determine the place(or places) where their dispute will be resolved. That approach isusually disfavored by commercial parties because it producessubstantial uncertainties and inefficiencies.26 G. Born, International Commercial Arbitration 73 (2009). Asdiscussed below, international arbitration agreements are typicallydrafted expansively and given broad effect, including to preclude theparallel litigation of the same or similar claims in national courts.This facilitates the parties' objective of centralizing their disputes in asingle forum for prompt, efficient resolution. See infra pp. 62–67.27 Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 13–14 (U.S. S.Ct.1972) (in context of a forum selection clause). See also Judgment of15 March 1990, DFT 116 1a 56, 58 (Swiss Federal Tribunal).28 C. Bühring-Uhle, A Survey on Arbitration and Settlement inInternational Business Disputes, in C. Drahozal & R. Naimark,Towards a Science of International Arbitration: Collected EmpiricalResearch 31, 35 (2005); PriceWaterhouseCoopers, InternationalArbitration: Corporate Attitudes and Practices 6–7 (2006), availableat www.pwc.com/arbitrationstudy.29 As discussed below, Article II of the New York Convention andArticle 8 of the UNCITRAL Model Law provide for the presumptivevalidity and enforceability of international arbitration agreements.See infra pp. 48–49.30 C. Bühring-Uhle, A Survey on Arbitration and Settlement inInternational Business Disputes, in C. Drahozal & R. Naimark,Towards a Science of International Arbitration: Collected EmpiricalResearch 31, 35 (2005) (one of the “two most significant advantages[of] arbitration as a means of international commercial disputeresolution [is] … the superiority of its legal framework with treatieslike the New York Convention”); PriceWaterhouseCoopers,International Arbitration: Corporate Attitudes and Practices 6–7(2006), available at www.pwc.com/arbitrationstudy.31 EC Regulation 44/2001, O.J. L 012, 16/01/2001, Art. 23.32 See, e.g., Warsaw Convention for the Unification of CertainRules Relating to International Carriage by Air, Signed at Warsaw,12 October 1929, as Amended at the Hague, 1955, and by ProtocolNo. 4 of Montreal, 1975, ICAO Doc. 9148.33 See infra pp. 303–307.34 The draft Hague Convention on Choice of Court Agreementswould prescribe broadly-applicable international standards applicableto the recognition and enforcement of judgments based on forumselection agreements. G. Born & P. Rutledge, International CivilLitigation in United States Courts 468 & 1085 (5th ed. 2011). This is,however, conditional on ratification of the Convention by significantnumbers of states, which has not yet occurred. Even if it did, theConvention is subject to important exceptions and limitations, whichwill likely detract materially from its efficacy. At least for theforeseeable future, like arbitration agreements, arbitral awards willtherefore enjoy a substantial “enforceability premium” as comparedto national court judgments.35 See G. Born, International Commercial Arbitration 79–80 (2009).36 Naimark & Keer, International Private Commercial Arbitration –Expectations and Perceptions of Attorneys and Business People, inC. Drahozal & R. Naimark, Towards a Science of InternationalArbitration: Collected Empirical Research 45, 49 (2005) (expertiseas one of several significant objectives); PriceWaterhouseCoopers,International Arbitration: Corporate Attitudes and Practices 6 (2006),available at www.pwc.com/arbitrationstudy (“The ability of partiesto select arbitrators with the necessary skills and expertise and whoare well suited to the appropriate cultural and legal context was alsoranked highly.”).37 Bühring-Uhle, A Survey on Arbitration and Settlement inInternational Business Disputes, in C. Drahozal & R. Naimark,Towards a Science of International Arbitration: Collected EmpiricalResearch 34 & n.28 (2005).38 Lazareff, International Arbitration: Towards a CommonProcedural Approach, in S. Frommel & B. Rider (eds.), ConflictingLegal Cultures in Commercial Arbitration 31, 33 (1999).39 Bühring-Uhle, A Survey on Arbitration and Settlement inInternational Business Disputes, in C. Drahozal & R. Naimark,Towards a Science of International Arbitration: Collected EmpiricalResearch 32, 35 (2005); Shavell, Alternative Dispute Resolution: AnEconomic Analysis, 24 J. Legal Studies 1, 6 (1995).40 See infra pp. 244–46; G. Born, International CommercialArbitration 81–83 (2009).41 CPR Institute for Dispute Resolution Comm'n on the Future ofArbitration, Commercial Arbitration at its Best: Successful

Strategies for Business Users xxiii (2000) (“Ultimately, manybusiness users regard control over the process – the flexibility tomake arbitration what you want it to be – as the single mostimportant advantage of binding arbitration and other forms of ADR.”).42 See G. Born, International Commercial Arbitration 83–85 (2009);Stipanowich, Rethinking American Arbitration, 63 Ind. L.J. 425,438–40 (1987) (“speed and efficiency” of arbitral process).43 Lyons, Arbitration: The Slower, More Expensive Alternative, TheAmerican Lawyer 107 (Jan. /Feb. 1985); Blue Tee Corp. v. KoehringCo., 999 F.2d 633 (2d Cir. 1993) (“This appeal … makes one wonderabout the alleged speed and economy of arbitration in resolvingcommercial disputes.”).44 See infra pp. 196–202. Even where such obligations exist, theyare subject to exceptions which have the effect that arbitral awardsare sometimes made public, either in enforcement actions orotherwise.45 Empirical research suggests that confidentiality is a material,but not primary, motivation for international arbitration agreements.Buehring-Uhle, A Survey on Arbitration and Settlement inInternational Business Disputes, in C. Drahozal & R. Naimark,Towards a Science of International Arbitration: Collected EmpiricalResearch 35 (2005) (confidentiality third in list of 11 reasons forarbitration).46 Under some national laws, agreements to arbitrate are regardedas waivers of foreign state immunity. This is true, for example, underthe Foreign Sovereign Immunities Act in the United States. (28U.S.C. § 1605(a)(6)). Nonetheless, it is prudent to include expresssovereign immunity waivers in commercial contracts with foreignstates and their companies. See G. Born, International Arbitrationand Forum Selection Agreements: Drafting and Enforcing 101 (2ded. 2006).47 “Investment contracts” between foreign investors and their hoststate are discussed in Chapter 18 below. See infra pp. 411–439.48 Buchanan, Public Policy and International CommercialArbitration, 26 Am. Bus. L.J. 511, 512 (1988).49 Lyons, Arbitration: The Slower, More Expensive Alternative, TheAmerican Lawyer 107 ( Jan. /Feb. 1985).50 In re Canadian Gulf Line, 98 F.2d 711, 714 (2d Cir. 1938)(Learned Hand, J.).51 Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978,987 n.32 (2d Cir. 1942).52 Lalive, Transnational (or Truly International) Public Policy inArbitration, in P. Sanders (ed.), Comparative Arbitration Practiceand Public Policy in Arbitration 257, 293 (1987).53 C. Drahozal & R. Naimark, Towards a Science of InternationalArbitration: Collected Empirical Research 59 (2005) (88% ofsurveyed international joint venture agreements contain arbitrationclauses); PriceWaterhouseCoopers, International Arbitration:Corporate Attitudes and Practices 2, 5 (2006), available at www.pwc.com/arbitrationstudy.54 Geneva Protocol on Arbitration Clauses in Commercial Matters(“Geneva Protocol”), 27 L.N.T.S. 158 (1924).55 Geneva Convention on the Execution of Foreign Arbitral Awards(“Geneva Convention”), 92 L.N.T.S. 302 (1929). See G. Born,International Commercial Arbitration 58–63 (2009).56 330 U.N.T.S., No. 4739; www.uncitral.org.57 Sanders, The History of the New York Convention, in A. van denBerg (ed.), Improving the Efficiency of Arbitration Agreements andAwards: 40 Years of Application of the New York Convention 11, 12(ICCA Congress Series No. 9 1999).58 A. van den Berg, The New York Arbitration Convention of 1958 1(1981). See also G. Born, International Commercial Arbitration 95(2009).59 Schwebel, A Celebration of the United Nations New YorkConvention on the Recognition and Enforcement of Foreign ArbitralAwards, 12 Arb. Int'l 83, 85 (1996).60 See infra pp. 24–25.61 A. van den Berg, The New York Arbitration Convention of 19581, 54–55, 168–69, 262–63, 357–58 (1981).62 See New York Convention, Arts. III, IV, V; infra pp. 377–79. Theshift in the burden of proof was accomplished by Articles III and V,which required the award-creditor to present only minimal evidencein support of recognition of an award (in Article III), while specifyingonly limited grounds, which needed affirmatively to be proven, thatcould result in non-recognition (in Article V). See infra pp. 375–79.63 See New York Convention, Arts. V(1)(a), 1(d); supra pp. 13–14 &infra pp. 148–49.64 See supra pp. 19–20 & infra pp. 275, 381.65 See www.uncitral.org for a list of states that have ratified theConvention.66 In ratifying the Convention, many states have attached

reservations that can have significant consequences in privatedisputes. These reservations frequently deal with reciprocity andlimiting the Convention's applicability to disputes arising from“commercial” relations. See infra pp. 45–46.67 New York Convention, Arts. VII(1), VII(2). See G. Born,International Commercial Arbitration 99, 208–09, 500–01 (2009).68 New York Convention, Arts. VII(1), VII(2).69 See also G. Born, International Commercial Arbitration 99,2397–2403, 2722–25 (2009).70 See infra pp. 55–58, 58–67.71 For representative examples, see Fiona Trust & Holding Corp. v.Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal),aff'd, [2007] UKHL 40 (House of Lords) (citing U.S. and Germanauthority); Karaha Bodas Co. v. Perusahaan Pertambangan MinyakDan Gas Bumi Negara, 364 F.3d 274 (5th Cir. 2004) (English, HongKong, Swedish, and Swiss authorities); Hebei Imp. & Exp. Corp. v.Polytek Eng'g Co., XXIVa Y.B. Comm. Arb. 652, 668 (H.K. Court ofAppeal, High Court 1999) (1999) (U.S. and Indian authorities).72 Inter-American Convention on International CommercialArbitration, signed in Panama on January 30, 1975. The Conventionis reprinted at III Y.B. Comm. Arb. 15 (1978) and www.sice.oas.org. The United States ratified the Convention in 1990.Other parties include Mexico, Brazil, Argentina, Venezuela,Columbia, Chile, Ecuador, Peru, Costa Rica, El Salvador,Guatemala, Honduras, Panama, Paraguay and Uruguay.73 Inter-American Convention, Arts. 1, 4, 5.74 Compare New York Convention, Art. II(3); infra pp. 62–67.75 European Convention on International Commercial Arbitration,21 April 1961, 484 U.N.T.S. 349. See G. Born, InternationalCommercial Arbitration 102–03 (2009).76 See G. Born, International Commercial Arbitration 109 (2009).77 Important new enactments, or revisions, have occurred in Algeria(1993), Australia (1989 and 2009), Austria (2005), Bahrain (1994),Bangladesh (2001), Brazil (1996), Bulgaria (1993), Cambodia (2006),China (1991 and 1994), Colombia (1991), Costa Rica (1997), Croatia(2001), Czech Republic (1994), Denmark (2005), Egypt (1994),England (1996), Finland (1992), Germany (1998), Greece (1999),Hong Kong (2011), India (1996), Indonesia (1990), Ireland (1998),Italy (1994), Mexico (1989 and 1993), New Zealand (1996);Nicaragua (2005), Norway (2004), Peru (1992), Poland (2005),Russia (1993), Scotland (2009), Singapore (2002), Spain (2003 and2011), Tunisia (1993), Turkey (2001) and the United Arab Emirates(1992).78 See Konkan Railways Corp. v. Mehul Constr. Co., (2000) 7 SCC201 (Indian S.Ct.).79 UN General Assembly Resolution No. 40/72, Model Law onInternational Commercial Arbitration of the UNCITRAL (1985),available at www.uncitral.org.80 UNCITRAL Model Law, Arts. 7–8; infra pp. 48–49, 77–81. Theoriginal 1985 Model Law's “writing” requirement for arbitrationagreements is broadly similar to, but somewhat less demandingthan, Article II of the New York Convention. See UNCITRAL ModelLaw, Art. 7(2). The 2006 revisions include options that substantiallyreduce or eliminate any writing requirement.81 UNCITRAL Model Law, Art. 18 (“The parties shall be treated withequality and each party shall be given a full opportunity of presentinghis case.”); infra pp. 152–54.82 UNCITRAL Model Law, 2006 Revision; Menon & Chao,Reforming the Model Law Provisions on Interim Measures ofProtection, 2 Asian Int'l Arb. J. 1 (2006).83 For jurisdictions adopting the Model Law, seewww.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration_status.html.84 H. Alvarez, N. Kaplan & D. Rivkin, Model Law Decisions: CasesApplying the UNCITRAL Model Law on International CommercialArbitration (2003); Case Law on UNCITRAL Texts (“CLOUT”)UNCITRAL Model Law on International Commercial Arbitration, www.org/english/clout/MAL-thesaurus/cloutsearch-etm.85 E.g., Shalakany, Arbitration and the Third World: A Plea forReassessing Bias Under the Specter of Neo-Liberalism, 41 Harv.Int'l L.J. 419 (2000); Sornarajah, The Climate of InternationalArbitration, 8 J. Int'l Arb. 47 (1991).86 Decision 24 of the Andean Commission Concerning Treatment ofForeign Capital, Article 51, 10 Int'l Leg. Mat. 15 (1971) (“[Noagreement concerning foreign investment shall] withdraw possible …controversies from the national jurisdiction of the recipient country.”).87 See infra pp. 77–82; Grigera Naón, Argentine Law and the ICCRules: A Comment on the ECOFISA Case, 3 World Arb. & Med.Rep. 100 (1992); Brazilian Arbitration Law, Arts. 6–7 (arguablyrequiring post-dispute compromise).88 See infra pp. 328–33; Judgment of 1 August 2002,Electrificadora del Atlantico SA ESP v. Termorio SA ESP, Expte.11001-03-25-000-2001-004601 (21041) (Consejo de Estado de

Colombia).89 See infra pp. 67, 154–55.90 Alfaro & Guimarey, Who Should Determine Arbitrability?Arbitration in a Changing Economic and Political Environment, 12Arb. Int'l 415, 424–26 (1996); Asouzu, The Adoption of theUNCITRAL Model Law in Nigeria: Implications on the Recognitionand Enforcement of Arbitral Awards, (1999) J. Bus. Law. 185;Grigera Naón, Arbitration and Latin America: Progress andSetbacks, 21 Arb. Int'l 127, 149–76 (2005).91 See ICSID News Release, Bolivia Submits a Notice underArticle 71 of the ICSID Convention (16 May 2007), available at http://icsid.worldbank.org (Bolivia's denunciation of ICSIDConvention); Trade benefits at risk as Ecuador scraps US Treaty,Reuters, www.reuters.com (7 May 2007) (Ecuador threatenstermination of BIT with United States).92 As discussed below, national courts will generally have thepower, under most developed arbitration statutes, to assist thearbitral process by appointing arbitrators, considering challenges toarbitrators and fixing compensation of arbitrators (where nototherwise agreed). See infra pp. 126–127, 129, 140–41; G. Born,International Commercial Arbitration 150 (2009).93 Report of the Secretary General on the Revised Draft Set ofArbitration Rules, UNCITRAL, 9th Session, Introduction, ¶17, UNDoc. A/CN.9/112 (1975); G. Born, International CommercialArbitration 151–53 (2009).94 UNCITRAL Rules, Art. 7; infra pp. 126–29. The parties canspecify an arbitral institution (like the ICC, AAA, or LCIA) orindividual as appointing authority (without adopting that institution'srules more generally).95 ICC Statistical Report 2010, available at www.iccdrl.com;Statistics, 20(1) ICC Ct. Bull. 5 (2009).96 Fifty percent of parties were from Europe, 24% from theAmericas, 20% from Asia and the Pacific (with a record of 36 partiesfrom Asia), and 6% from Africa. ICC Statistical Report 2010,available at www.iccdrl.com.97 ICC Statistical Report 2010, available at www.iccdrl.com. Themost common seats for ICC arbitrations are France, Switzerland,England, other Western European states and the United States, aswell as Singapore and Hong Kong.98 A recent ICC task force studied ways to reduce costs and delayin ICC arbitrations. See ICC, Techniques for Controlling Time andCosts in Arbitration (ICC Publication No. 843 2007).99 See www.adr.org/sp.asp?id=22440. Numerous other sets ofAAA arbitration rules also exist, in particular for specialized types ofdisputes (such as construction, energy, health care, insurance,securities, labor and intellectual property), and can be selected inthe parties' arbitration agreement. See www.adr.org/sp.asp?id=28780.100 AAA Annual Report 2010, available at www.adr.org.101 SIAC Annual Report 2000 and 2010, available at www.siac.org.sg.102 Convention on the Settlement of Investment Disputes BetweenStates and Nationals of Other States, produced at Washington,D.C., 18 March 1965, available at www.worldbank.org/icsid.ICSID is based at the Washington D.C. headquarters of theInternational Bank for Reconstruction and Development (or “WorldBank”). The ICSID Arbitration Rules are available at www.worldbank.org/icsid.103 PCA Optional Rules for Arbitrating Disputes between TwoStates, available at www.pca-cpa.org/upload/files/2STATENG.pdf;PCA Optional Rules for Arbitrating Disputes between Two Parties ofWhich Only One Is a State, available at www.pca-cpa.org/upload/files/1STATENG.pdf. See also infra pp. 42, 436–37,442.104 Among other things, the PCA administered arbitrations betweenSudan and the Sudan People's Liberation Movement/Army andEthiopia and Eritrea, available at www.pca-cpa.org/showpage.asp?pag_id=1029.105 There is a small, but important, category of cases in whichinternational investment arbitrations may result without a consensualagreement, by virtue of provisions in international investmentprotection or other conventions or legislation. This category ofarbitrations (without “privity”) is unusual, however, and underscoresthe essential requirement that international arbitration is consensualin character. See infra pp. 42, 415–16.106 For examples of exclusions for particular types of issues, seeG. Born, International Arbitration and Forum Selection Agreements:Drafting and Enforcing 42–44 (3d ed. 2010).107 See infra pp. 308 & 311.108 See infra pp. 124–38.109 The text of provisions designating the number of arbitrators is

not complex. For example, a typical clause would provide: “Anydispute shall be finally resolved under the [– Rules] by [threearbitrators][one arbitrator] appointed in accordance with the saidRules.” An alternative provides “the number of arbitrators shall be[three][one].”110 See infra p. 128. An institution will also appoint an arbitrator onbehalf of a party which fails to exercise its right under the parties'arbitration agreement to do so.111 See infra p. 161.112 For a discussion of the drafting of such choice-of-law clauses,see G. Born, International Arbitration and Forum SelectionAgreements: Drafting and Enforcing 79–80 (3d ed. 2010). See infrapp. 39–41, 55–56.113 G. Born, International Arbitration and Forum SelectionAgreements: Drafting and Enforcing 82–110 (3d ed. 2010).114 Parties sometimes agree to permit arbitrators to resolve theirdispute without reference to law, that is, ex aequo et bono or asamiable compositeur, see infra pp. 255–56, or by reference to anon-national legal system, see infra pp. 253–55.115 See infra pp. 244–46; UNCITRAL Model Law, Art. 28(1);UNCITRAL Rules, Art. 33(1).116 See infra pp. 237–42.117 See infra pp. 152–54.118 See infra pp. 111–14.119 ICSID Convention, Art. 25(1). As discussed below, investmentdisputes are defined as controversies that arise out of an“investment” and are between a Contracting State or state entity (butnot merely a private entity based in a Contracting State) and anational of another Contracting State. See infra pp. 420–27.120 See infra pp. 412, 420–25, 436–37.121 UNCTAD, Bilateral Investment Treaties 1995–2006: Trends inInvestment Rulemaking 1 (UNCTAD/ITE/IIA/2006/5), available at www.unctad.org; UNCTAD World Investment Report 2011, availableat www.unctad-docs.org/files/UNCTAD-WIR2011-Full-en.pdf122 See infra p. 415.123 See Paulsson, Arbitration Without Privity, 10 ICSID L. Rev. 232(1995). See infra pp. 415–16.124 See infra pp. 439–44. Other interstate arbitrations involve suigeneris disputes, such as the France-New Zealand arbitration overthe Rainbow Warrior, U.S.-France arbitrations over air transportissues or arbitrations involving financial claims. See G. Born,International Arbitration: Cases and Materials 92–93 (2011).

Key words

Source

Chapter 2: InternationalArbitrationAgreements: LegalFramework in Gary B. Born , InternationalArbitration: Law andPractice, (© Kluwer LawInternational; KluwerLaw International 2012)pp. 43 - 67

Although parties frequently agree to arbitrate, in practice they alsosometimes reconsider that commitment after disputes arise. Inparticular, notwithstanding their agreement to arbitrate, parties mayseek either to litigate their dispute in local courts or to obstruct thearbitral process. Ultimately, the efficacy of an arbitration agreementoften depends on the parties' ability to enforce that agreement.

The legal framework for enforcing international arbitrationagreements has undergone important changes over the pastcentury, evolving from a position of relative disfavor to one ofessentially universal support. That legal regime consists ofinternational conventions (principally the New York Convention),national law (such as the UNCITRAL Model Law) and institutionalarbitration rules. When their jurisdictional requirements are satisfied,these instruments provide a robust and highly effective framework forenforcing international arbitration agreements.

§2.01. Disputes Concerning International ArbitrationAgreements

Disputes over the enforceability of international arbitrationagreements can take a variety of forms (e.g., to the existence,validity and scope of the arbitration agreement). They can also arisein different procedural settings, including both arbitral proceedingsand national courts.

[A]. Challenges to Existence, Validity and Scope of International

Chapter 2: International ArbitrationAgreements: Legal Framework

Commercial Arbitration Agreements

There are a variety of possible challenges to the enforceability of aninternational commercial arbitration agreement. These challengesinclude (a) claims by a party that it never consented to anyagreement, including any arbitration agreement, with its counter-party, and therefore that no agreement to arbitrate exists; (b) claimsthat any arbitration agreement between the parties is invalid, eitheron grounds of formal invalidity (i.e., failure to satisfy requirements fora written form) or substantive invalidity (i.e., unconscionability,termination, frustration, fraud); or (c) claims that, while the partiesagreed to arbitrate some disputes, they did not agree to arbitrate thedispute which has actually arisen (e.g., the parties' arbitrationagreement covers disputes relating to a lease agreement, but notclaims for libel or unfair competition).

page "43"

[B]. Procedural Settings for Jurisdictional Objections

Challenges to the existence, validity or scope of an internationalarbitration agreement can arise in a variety of different proceduralsettings.

[1]. Consideration of Jurisdictional Objections by Arbitrators

In some cases, the respondent in an arbitration will raise ajurisdictional objection in the arbitration itself, arguing to thearbitrators that it is not bound by a valid arbitration agreement or thatthe arbitration agreement does not encompass the parties' dispute.As discussed below, it is universally recognized that arbitrators havethe authority to consider such jurisdictional objections and to makea decision on them (as provided, for example, by Article 16 of theUNCITRAL Model Law and parallel provisions of other arbitrationstatutes).(1) In practice, tribunals will resolve jurisdictional disputesconducted in proceedings much like those to resolve substantivedisputes – with written submissions, evidentiary hearings andwitness testimony, followed by a decision of the arbitrators. If thearbitral tribunal upholds the jurisdictional objection, it will dismissthe claimant's claims and the arbitration will conclude (with thearbitrators' negative jurisdictional award potentially subject to judicialreview). Conversely, if the tribunal rejects the objections, it will makea positive jurisdictional award (which will potentially be subject tojudicial review) and the arbitration will proceed to the merits.

[2]. Consideration of Jurisdictional Objections by NationalCourts

In other cases, one of the parties to a dispute may commencelitigation in a national court (often its own home courts),notwithstanding its putative agreement to arbitrate. In that event, theother party will often invoke the arbitration agreement, requestingthat the national court stay any litigation and “refer” the parties toarbitration. As discussed below, this relief is contemplated byArticle II of the New York Convention and Article 8 of the UNCITRALModel Law (and parallel provisions of other national arbitrationstatutes).(2) In determining whether or not to refer the parties toarbitration, a national court will generally consider whether theparties are bound by a valid arbitration agreement which applies totheir dispute.

Alternatively, a party may choose not to appear in the arbitralproceedings or to commence parallel litigation, and insteadsubsequently either seek annulment of any arbitral award or resistenforcement of any award (in both cases, on jurisdictional grounds,as provided for by Articles 34(2)(a)(i) and (iii) and 36(1)(a)(i) and (iii)of the Model Law). In each case, a national court will be required toconsider whether the parties are bound by a valid arbitrationagreement which encompassed their dispute.

page "44"

§2.02. Jurisdictional Requirements of International and NationalCommercial Arbitration Regimes

The New York Convention and most national arbitration statutes are“pro-arbitration,” providing robust mechanisms for enforcinginternational arbitration agreements and awards. In particular, ArticleII of the Convention imposes obligations on Contracting States torecognize international arbitration agreements and enforce them byreferring the parties to arbitration; like many other arbitrationstatutes, Articles 7, 8 and 16 of the Model Law provide a parallel

enforcement mechanism for international arbitration agreements.

Both international arbitration conventions and national arbitrationstatutes contain jurisdictional requirements that define whicharbitration agreements are (and are not) subject to thoseinstruments' substantive rules. These jurisdictional requirementshave important consequences, because they determine when thepro-enforcement regimes of the New York Convention and manyarbitration statutes are applicable – rather than other means ofenforcement, which are sometimes archaic and often ineffective.

There are many arbitration agreements to which the New YorkConvention does not apply. In particular, seven jurisdictionalrequirements must be satisfied for an agreement to be subject to theConvention; there must be: (1) an agreement to “arbitrate”; (2) adifference arising out of “commercial” relationships; (3) a “dispute” or“difference”; (4) an agreement to arbitrate differences which “havearisen or which may arise”; (5) an agreement “in respect of a definedlegal relationship, whether contractual or not”; (6) an internationalarbitration agreement or, alternatively, an agreement that wouldproduce a “foreign” or “non-domestic” award; and (7) a showing thatany reciprocity requirement must be satisfied.

Like the Convention, most international arbitration statutes containjurisdictional limitations. These jurisdictional requirements havesubstantial practical importance, because they determine when thegenerally “pro-arbitration” provisions of contemporary arbitrationlegislation apply to arbitration agreements (and arbitral awards). Thejurisdictional requirements of national arbitration statutes vary fromstate to state. In general, however, these limits are broadly similar tothose contained in the Convention.

[A]. “Arbitration” Agreement Requirement

As discussed above, Article II(1) and II(2) of the New YorkConvention limit the Convention's coverage to “arbitrationagreement[s]” and “arbitral clause[s].” Article 7 of the Model Lawcontains a similar requirement, as do other arbitration statutes.These requirements for an “arbitration” agreement are discussedabove.(3) As a consequence, the Convention and most nationalarbitration legislation only apply to agreements to arbitrate, asdistinguished from other agreements (e.g., mediation agreements,forum selection clauses).

[B]. “Commercial” Relationship Requirement

The Convention and many arbitration statutes potentially apply onlyto “commercial” relationships. Article 1(3) of the Convention providesthat Contracting States may declare that the Convention page"45" applies only to “relationships … which are considered ascommercial under the national law of the State making [the]declaration.” A number of nations, including the United States, havemade declarations under Article 1(3).(4)

Similarly, many arbitration statutes are limited to “commercial”matters. Article 1(1) of the Model Law limits the Law's application to“international commercial arbitration,” while §1 of the FAA is limitedto arbitration agreements in “transaction[s] involving commerce.” Ingeneral, national courts have adopted broad definitions of the“commercial” requirement, including almost any profit-makingactivity within its scope.

[C]. “Disputes” or “Differences” Requirement

Article II(1) of the Convention and Article 7 of the Model Law (likemany other arbitration statutes) applies to agreements to arbitrate“disputes” or “differences.” These provisions impliedly require that areal “dispute” or “difference” exists before an arbitration agreementmay be enforced. In general, national courts and arbitral tribunalshave found this requirement satisfied when a party seeks relief thatits counter-party refuses to comply with.(5)

[D]. “Existing or Future” Disputes Requirement

Article II(1) of the Convention provides for the recognition ofagreements to arbitrate “differences which have arisen or may arise”;Article 7 of the Model Law contains a similar requirement. Theseprovisions are more in the nature of clarifications than limitations: byconfirming that arbitration agreements may apply to either “existingor future” disputes, these provisions supersede the historicreluctance of courts in some jurisdictions to enforce agreements toarbitrate future disputes.

[E]. “Defined Legal Relationship” Requirement

Article II(3) of the Convention requires that an arbitration agreementbe “in respect of a defined legal relationship, whether contractual ornot”; Article 7 of the Model Law contains a parallel requirement. Invirtually all cases, arbitration agreements relate to a written contractand Article II(3)'s requirement is clearly satisfied. Indeed, it is difficultto envisage circumstances in which an arbitration agreement wouldnot arise in connection with a “defined legal relationship.” Therequirement is more relevant in confirming that international arbitraltribunals may decide non-contractual, as well as contractual,disputes.(6)

[F]. “Foreign” or “International” Arbitration AgreementsRequirement

Both the Convention and most statutes that regulate internationalarbitration apply only to arbitration agreements that have some sortof “foreign” or “international” connection. This requirement isconsistent with the purpose of both types of instruments, which is tofacilitate the international arbitral process, without disturbingdomestic arbitration matters.

page "46"

New York ConventionArticle I1. This Convention shall apply to the recognition and enforcement

of arbitral awards made in the territory of a State other than theState where the recognition and enforcement of such awardsare sought, and arising out of differences between persons,whether physical or legal. It shall also apply to arbitral awardsnot considered as domestic awards in the State where theirrecognition and enforcement are sought.

Article I(1) of the Convention provides a definition of the arbitralawards to which the Convention applies. Under that definition, theConvention is applicable only to awards that: (i) are “made” in astate other than the Contracting State where recognition is sought,or (ii) are “not considered as domestic awards” under the law of therecognizing state.(7) In contrast, the Convention does not provide anyequivalent definition of those arbitration agreements to which itapplies. Different approaches have been adopted to defining thescope of the Convention as applied to arbitration agreements. Someauthorities have applied Article I(1) by analogy to arbitrationagreements, holding that Article II applies only to arbitrationagreements with a foreign seat (outside the state asked to enforcethe agreement), while other authorities have correctly extended theConvention more broadly to any “international” arbitrationagreements (even if the arbitration is seated in the relevantContracting State).([8])

The limitation of the Convention to international arbitrationagreements is paralleled by similar jurisdictional requirements inmany arbitration statutes. For example, Article 1(1) of the ModelLaw provides that the Law applies only to “international commercialarbitration”; in turn, Article 1(3) defines “international” to includealmost any agreement or relationship involving parties from differentstates or conduct in different states. Most other national laws adoptsimilarly broad definitions.

[G]. Reciprocity Requirements

Article I(3) of the Convention permits Contracting States to make“reciprocity reservations,” undertaking the Convention's obligationsonly towards other Contracting States. Nearly two-thirds ofContracting States have made reciprocity reservations. The U.S.reservation provides that the United States will apply the Convention,on the basis of reciprocity, to the recognition and enforcement of“only those awards made in the territory of another ContractingState.”(9) Other reciprocity reservations are similar. In addition,Article XIV of the Convention contains a separate, more generalreciprocity provision, limiting a Contracting State's rights under theConvention to those it “is itself bound to apply.”(10) In practice,because almost all trading states have ratified the Convention(except Taiwan, Libya and Ethiopia), the reciprocity exception hasvery limited importance.

page "47"

§2.03. Presumptive Validity of International ArbitrationAgreements

One of the main objectives of the New York Convention was tooverturn historic mistrust of arbitration and render internationalarbitration agreements more readily enforceable. Thus, Article II ofthe Convention (and parallel provisions of other arbitrationconventions) provides that international arbitration agreements arepresumptively valid and shall be recognized. This rule is subject toan exclusive and limited number of bases for invalidity, whereagreements are “null and void,” “inoperative,” or “incapable of beingperformed.”(11)

Most states have enacted legislation that parallels the Convention.Examples include Article 8 of the UNCITRAL Model Law and §2 ofthe FAA.(12) Like Article II of the Convention, this legislation typicallyprovides that arbitration agreements are presumptively valid andshall be recognized, subject only to defined grounds for challengingthe validity of such agreements. This skepticism was first overcomein the 1923 Geneva Protocol on Arbitration Clauses in CommercialMatters (and the related 1927 Geneva Convention for the Executionof Foreign Arbitral Awards), which provided for the presumptivevalidity of international arbitration agreements (and arbitralawards).(13)

[A]. Historic Rules of Unenforceability

It is frequently said that arbitration agreements were historicallydisfavored. The U.S. view in the 19th century was that “the judgmentof arbitrators is but rusticum judicium,” and that arbitrationagreements were not specifically enforceable.(14) Similar viewsprevailed in France, England (except where overridden by statute)and elsewhere.(15) These views reflect a skepticism about arbitrationthat prevailed in many jurisdictions until the early 20th century.

[B]. New York Convention

The New York Convention confirmed the abandonment of historicobstacles to the enforcement of arbitration agreements and insteadprovided for the presumptive validity and enforceability of agreementsto arbitrate. In particular, Article II(1) of the Convention set forth amandatory obligation that Contracting States “shall recognize”agreements in writing under which the parties undertake “to submitto arbitration all or any differences which have arisen or which mayarise between them in respect of a defined legal relationship,whether contractual or not, concerning a subject matter capable ofsettlement by arbitration.” This obligation extends to all materialterms of an agreement to arbitrate (including, for example, theparties' selection of the arbitral seat, the scope of the arbitrationclause, the selection of the arbitrators, the designation ofinstitutional rules and the like).

page "48"

The Convention went on to provide an enforcement mechanism foragreements to arbitrate in Article II(3), requiring specific performanceof such agreements, subject only to a limited set of enumeratedexceptions based on generally-applicable contract law principles:“The court of a Contracting State, when seized of an action in amatter in respect of which the parties have made an agreementwithin the meaning of this article, shall … refer the parties toarbitration, unless it finds that the said agreement is null and void,inoperative or incapable of being performed.” In so doing, theConvention permitted non-recognition of arbitration agreements onlyin limited cases – where they are “null and void, inoperative orincapable of being performed” or where they concern a “subjectmatter not capable of settlement by arbitration”;(16) the Convention'sdrafters left no room for national courts to invent additional bases forholding an international arbitration agreement invalid.

[C]. National Arbitration Legislation

Legislation in most states also provides for the presumptive validityof agreements to arbitrate and the mandatory recognition of suchagreements. Paralleling Article II(3) of the Convention, Article 8(1) ofthe Model Law provides: “A court before which an action is broughtin a matter which is the subject of an arbitration agreement shall, if aparty so requests … refer the parties to arbitration unless it findsthat the agreement is null and void, inoperative or incapable of beingperformed.” Courts have uniformly interpreted Article 8 as imposing amandatory obligation to specifically enforce arbitration agreements,subject only to limited and specific exceptions.(17)

Legislation in developed jurisdictions that have not adopted the

Model Law similarly guarantees the presumptive validity ofinternational arbitration agreements, typically subject only togenerally-applicable contract defenses. In the United States, §2 ofthe FAA provides that arbitration agreements “shall be valid,irrevocable, and enforceable, save upon such grounds as exist at lawor in equity for the revocation of any contract.” Applying §206 of thesecond chapter of the FAA, U.S. courts have underscored thenarrow grounds that are available for challenging the validity orenforceability of international arbitration agreements.(18) Similarly,courts in most civil law jurisdictions apply generally-applicable rulesof contract formation and validity to international arbitrationagreements, typically construing exceptions to the presumptivevalidity of such agreements narrowly.(19)

page "49"

§2.04. Separability of International Arbitration Agreements

[A]. Separability Presumption

In the international context, arbitration clauses are presumptively“separable” or “severable” from the contract within which they arefound (sometimes termed the “main” or “underlying” contract). The“separability presumption” is provided for by legislation or judicialdecisions in virtually all jurisdictions, and by leading institutionalarbitration rules. The separability presumption provides that anarbitration agreement, even though included in and related closely toan underlying commercial contract, is presumptively a separate andautonomous agreement. According to a leading arbitral award: “thearbitral clause is autonomous and juridically independent from themain contract in which it is contained ….”(20)

[B]. Rationale for Separability Presumption

The rationale for the separability presumption is that the parties'agreement to arbitrate consists of promises that are independentfrom the underlying contract: “the mutual promises to arbitrate[generally] form the quid pro quo of one another and constitute aseparable and enforceable part of the agreement.”(21) Thepresumption is also supported by practical justifications, includinginsulating the arbitration agreement and arbitrators' jurisdiction fromchallenges to the underlying contract. These rationales haveprovided the basis for provisions in many national arbitrationstatutes, confirming the presumptive separability of arbitrationagreements; Article 16(1) of the Model Law is representative,providing that “an arbitration clause which forms part of a contractshall be treated as an agreement independent of the other terms ofthe contract.”(22)

[C]. Consequences of Separability Presumption

The separability presumption is correctly seen as having vitalconsequences for the arbitral process. Among other things, thepresumption is understood as providing for (a) the validity of anarbitration clause notwithstanding defects in or termination of theparties' underlying contract; (b) the potential validity of the underlyingcontract, notwithstanding defects in the arbitration clause; (c) thepotential application of different substantive laws to the arbitrationagreement and the underlying contract; and (d) the potentialapplication of different form requirements to the arbitrationagreement and the underlying contract.

page "50"

Separability Presumption: Consequences1. Invalidity or non-existence of underlying contract does not

necessarily mean invalidity or non-existence of arbitrationagreement.

2. Invalidity of arbitration agreement does not necessarily meaninvalidity of main or underlying contract.

3. Law governing main or underlying contract is not necessarilythe same as law governing arbitration agreement.

4. Different form requirements for main or underlying contract andarbitration agreement.

Suppose, for example, that two parties conclude a sale agreement,containing an arbitration clause, and disputes arise, leading totermination of the contract; thereafter, one party claims damages,alleging breach of the contract (e.g., because the goods weredefective or payment was not made). Notwithstanding termination of

the underlying sales contract, the separability presumption providesfor the continued validity of the arbitration agreement, with thearbitral tribunal having jurisdiction to decide claims regardingtermination of the underlying contract; it also provides for thepossible application of a different law to the arbitration agreement(for example, the law of the arbitral seat), than to the underlyingcontract.

Similarly, if one party claims that the parties' underlying contractwas procured by fraud (e.g., misrepresentations about quality ofgoods or assets in a sales contract), the separability presumptionprovides that this claim does not impeach the validity of theseparable arbitration agreement, and is for resolution by thearbitrators.(23) Conversely, a claim that the parties' arbitrationagreement itself is invalid (for example, because its terms give oneparty an unconscionably disproportionate influence on choice of thearbitrators or arbitral procedure) does not affect the validity of theunderlying contract.(24)

§2.05. Allocation of Competence to Decide Disputes OverExistence, Validity and Interpretation of International ArbitrationAgreements

Another basic issue affecting the enforceability of internationalarbitration agreements is the allocation of authority betweenarbitrators and national courts to decide disputes over theinterpretation, validity and enforceability of arbitration agreements,including the “competence-competence” doctrine.

page "51"

[A]. Competence-Competence Doctrine

The competence-competence doctrine is almost universallyaccepted in arbitration legislation, judicial decisions and otherauthorities. Under this doctrine, an arbitral tribunal presumptivelypossesses jurisdiction to consider and decide on its ownjurisdiction.

Arbitration legislation in many states specifically provides for thearbitrators' competence-competence. Article 16 of the UNCITRALModel Law is entitled “Competence of arbitral tribunal to rule on itsjurisdiction,” and grants arbitrators competence-competence toconsider challenges to their own jurisdiction, including challenges tothe arbitration agreement: “The arbitral tribunal may rule on its ownjurisdiction, including any objections with respect to the existence orvalidity of the arbitration agreement.” Arbitration legislation, orjudicial authority, in other states uniformly recognizes the sameprinciple.(25) In practice, the competence-competence doctrinemeans that, if a party argues to the arbitral tribunal that it lacksjurisdiction (i.e., because the arbitration agreement is invalid orterminated), the tribunal presumptively has the authority to considerand rule upon the jurisdictional challenge, subject to at least ameasure of subsequent judicial review of the arbitrators' decision.

Leading institutional rules also almost uniformly recognize thecompetence-competence of arbitrators. The UNCITRAL Rules arerepresentative, providing in Article 21(1) that: “The arbitral tribunalshall have the power to rule on objections that it has no jurisdiction,including any objections with respect to the existence or validity ofthe arbitration clause or of the separate arbitration agreement.”Other institutional rules are similar.(26)

[B]. Allocation of Competence to Decide Jurisdictional Disputes

A related issue is the allocation of competence between nationalcourts and arbitrators to decide disputes over the interpretation,validity and enforceability of arbitration agreements. In particular, acritically-important issue is whether, when a jurisdictional objectionis raised, a national court must initially decide the issue or,alternatively, whether an arbitral tribunal may initially to decide thejurisdictional objection, subject to subsequent (or no) judicial review.Different states adopt different approaches to this issue.

[1]. France: Prima Facie Jurisdiction

In France, statutory provisions and judicial authority recognize a“prima facie” approach to challenges to arbitral jurisdiction. If ajurisdictional objection is raised in a French court (e.g., if a partyseeks to litigate a claim allegedly subject to arbitration), the courtwill refer the parties to arbitration unless the putative arbitrationagreement is “manifestly null”(27) ; if an arbitral tribunal has already

been constituted, a French court will not even consider whether thearbitration page "52" clause is manifestly null, and will insteadsimply refer the parties to arbitration – where the jurisdictionalobjection may be raised before the tribunal. The arbitrators'jurisdictional decision is later subject to de novo review in Frenchcourts – but those courts will virtually never initially decide ajurisdictional objection.

[2]. United States: Interlocutory Judicial Decisions

In the United States, the FAA generally permits interlocutory judicialdetermination of jurisdictional objections, with the court making abinding decision on such issues. Thus, if a party seeks to refer aclaim, asserted in litigation, to arbitration, a U.S. court will ordinarilymake a final decision whether or not the claim is subject a validarbitration agreement before referring the parties to arbitration. If acourt decides that no valid arbitration agreement exists, or that theagreement does not apply to the parties' dispute, then it will not referthe parties to arbitration and will instead allow litigation of theparties' dispute to proceed.

The allocation of competence to decide jurisdictional disputes in theUnited States is significantly affected by the separabilitypresumption. As discussed above, the separability presumptionprovides that an arbitration agreement is separable from theunderlying contract and that challenges to the validity of theunderlying contract do not affect or impeach the validity of thecontract's arbitration clause.(28) As a consequence, where a partychallenges the validity of the underlying contract (e.g., on thegrounds that it is void for fraud, unconscionability or mistake), butdoes not specifically challenge the validity of the arbitration clauseitself, U.S. courts hold that there is no jurisdictional challenge andthat the parties' dispute over the validity of the underlying contractmust be referred to arbitration.

For example, the U.S. Supreme Court held in Buckeye CheckCashing, Inc. v. Cardegna that claims challenging the legality of theparties' underlying contract were for initial resolution by thearbitrators: “because respondents challenge the [underlying]Agreement, and not specifically its arbitration provisions, thoseprovisions are enforceable apart from the remainder of the contract,”and “should therefore be considered by an arbitrator, not a court.”(29)

Consistent with this analysis, U.S. courts have held that claims ofinvalidity (e.g., unconscionability, mistake), illegality, or terminationare for judicial determination only when they are “specifically”directed at the arbitration agreement itself, and not when they aredirected at the underlying contract or generally at both theunderlying contract and the arbitration agreement.(30)

A more difficult category of cases involves challenges to theexistence (as distinguished from the validity) of the underlyingcontract. The Supreme Court noted this issue in Buckeye CheckCashing, reasoning that: “The issue of the contract's validity isdifferent from the issue of whether any agreement between thealleged obligor and obligee was ever concluded.”(31) The Courtreferred in particular to lower court decisions holding that “it is forcourts to decide whether the alleged obligor ever signed thecontract, whether the signed lacked authority to commit the allegedprincipal and whether the signor lacked the mental capacity toassent.”(32) Applying this analysis, page "53" U.S. courts havegenerally held that, where a party denies that any contract was everconcluded, the challenge may be resolved initially by the court andmust not first be referred to arbitration.(33)

The foregoing rules regarding the allocation of competence under theFAA are subject to an important exception, where parties haveagreed to arbitrate jurisdictional disputes. The U.S. Supreme Courtheld, in First Options of Chicago, Inc. v. Kaplan, that parties mayvalidly agree to submit jurisdictional disputes to final resolution byan arbitral tribunal, but that such an agreement will be found onlywhere there is “clear and unmistakable” evidence of the parties'intention.(34) If such an agreement exists, U.S. courts will refer theparties' jurisdictional objections to arbitration and subject theresulting decision to only minimal judicial review.(35) In many cases,arbitration agreements incorporating institutional arbitration rules willbe treated as clear and unmistakable evidence of an agreement toarbitrate jurisdictional disputes.(36)

[3]. UNCITRAL Model Law: Diversity of Approaches

It is uncertain how competence to decide jurisdictional objections isallocated under the UNCITRAL Model Law. Article 8(1) of the ModelLaw provides that, where a suit is brought “in a matter which is the

subject of an arbitration agreement,” the national court “shall … referthe parties to arbitration,” unless “it finds that the agreement is nulland void, inoperative, or incapable of being performed.” The ordinarymeaning of this language suggests that the court's mission underArticle 8(1) includes making a final determination (“find[ing]”) whetheror not the agreement is valid.(37)

Despite the language of Article 8, courts in several Model Lawjurisdictions have held that only a “prima facie inquiry” intojurisdiction should be conducted by a court before referring parties toarbitration. Under this analysis, if there is any plausible argumentthat a valid arbitration agreement exists, the arbitrators should bepermitted initially to resolve the jurisdictional issue (subject tosubsequent judicial review); only if it is clear that there is no validarbitration agreement, may a claim be litigated.(38) It is uncertainwhich approach to the allocation of jurisdictional competence underthe Model Law will ultimately prevail.

page "54"

§2.06. Law Applicable to Formation, Validity and Interpretationof International Arbitration Agreements

The law applicable to the formation, validity and interpretation of anarbitration agreement may be different from both the law applicableto the substance of the parties' underlying contract and the lawapplicable to the arbitral procedure.(39) Given the separabilitypresumption, a separate choice of law analysis is required todetermine the law governing the substantive validity of the arbitrationagreement itself (as distinguished from the underlying contract). Fiveoptions exist: (a) the law of the forum where judicial enforcement ofthe agreement is sought; (b) the law expressly or impliedly chosenby the parties to govern the arbitration agreement itself; (c) the lawof the arbitral seat; (d) a “validation” principle; and (e) internationallaw.

Law Applicable to Substantive Validity of ArbitrationAgreement1. Law of Judicial Enforcement Forum2. Law Chosen by the Parties3. Law of Arbitral Seat4. “Validation” Principle5. International Law

[A]. Law of Judicial Enforcement Forum

Historically, many authorities held that an arbitration agreement wasgoverned by the law of the judicial forum where enforcement of theagreement was sought (typically the forum in which one partysought to litigate the parties' dispute, leading its counter-party toinvoke the arbitration clause). That approach regarded the validity ofan arbitration agreement as a “procedural” or “remedial” matter.Application of the law of the judicial enforcement forum has beenlargely superseded by alternative choice-of-law rules.

[B]. Law Chosen by Parties

There is almost uniform acceptance of the parties' autonomy tochoose the law governing an international arbitration agreement. Thisposition is reflected in Article V(1)(a) of the New York Convention,which permits non-recognition of an arbitral award only if the parties'agreement to arbitrate is invalid “under the law to which the partieshave subjected it or, failing any indication thereon, under the law ofthe country where the award was made”; the same rule is reflectedin Articles 34(2)(a)(i) and 36(1)(a)(i) of the UNCITRAL Model Law.(40)

Most authorities have page "55" applied this rule – whichgoverns the recognition of awards – to disputes over recognition ofarbitration agreements.

It is uncertain when parties will be found to have selected the lawgoverning an arbitration agreement. In most cases, parties do notagree upon a choice-of-law clause specifically applicable to theirarbitration agreement (e.g., “This arbitration agreement (Article X)shall be governed by [X] law.”), and instead agree only to a generalchoice-of-law clause, applicable to their underlying contract (e.g.,“This contract shall be governed by [X] law.”). In thesecircumstances, some authorities have held that the parties' choice-of-law clause does not extend to the “separable” agreement toarbitrate; other authorities have held that the choice-of-law clausenecessarily extends to all the provisions of the parties' contract,including its arbitration agreement.(41)

[C]. Law of Arbitral Seat

If the parties have not selected a law to govern their arbitrationagreement, many authorities adopt a default rule applying the law ofthe putative arbitral seat. This rule is again contained in Article V(1)(a) of the Convention, providing that, in the absence of a choice-of-law agreement, the “law of the country where the award was made”shall apply; the same rule is adopted in Articles 34(2) (a)(i) and36(1)(a)(i) of the Model Law.(42) Other authorities have reached thesame result by concluding that the parties' choice of the arbitral seatreflects an implied choice of the law of the seat to govern thearbitration agreement. Alternatively, applying the separabilitypresumption, some authorities have held that the seat has theclosest connection to the agreement to arbitrate (as distinguishedfrom the underlying contract) and that the law of the seat shouldtherefore govern the arbitration agreement.

[D]. “Validation” Principle

Some authorities hold that traditional choice of law rules are ill-suited to international arbitration agreements and have insteadapplied a “validation” principle. The validation principle provides that,if the arbitration agreement is valid under any of several laws whichare potentially applicable to it, then the agreement will be upheld.Examples of the validation principle include Article 178(2) of theSwiss Law on Private International Law, providing that an arbitrationagreement will be given effect if it is valid under any of the lawschosen by the parties, the law applicable to the underlying contract,or Swiss law.(43)

[E]. International Law

Some national courts and arbitral tribunals hold that internationalarbitration agreements are not subject to national law and areinstead governed by international law. French courts hold thatinternational arbitration agreements are autonomous from nationallegal systems and subject to “international law,” which gives effectto the parties' intentions (subject only to very limited, page "56"overriding rules of public policy).(44) U.S. courts adopt a comparableapproach, holding that the New York Convention permits applicationonly of “internationally neutral” rules of general contract law – notidiosyncratic domestic rules that invalidate agreements toarbitrate.(45) Like the validation principle, application of rules ofinternational law serves to maximize the enforceability and efficacyof international commercial arbitration agreements.

[F]. Other Choice-of-Law Issues

Article V(1)(a) of the New York Convention and Articles 34(2)(a)(i)and 36(1)(a)(i) of the Model Law apply to the formation, substantivevalidity and interpretation of arbitration agreements. Different choice-of-law rules are applicable to other issues.

[1]. Formal Validity

The formal validity of arbitration agreements is typically governed byseparate choice-of-law rules. As discussed below, Articles II(1) andII(2) of the Convention are interpreted as prescribing a uniforminternational rule, imposing a maximum form requirement whichContracting States may not supplement with additionalrequirements.(46) Similarly, Article 7 of the 1985 Model Law (andrevised Article 7 of the 2006 Model Law) imposes a rule of formalvalidity applicable to agreements subject to the Law.(47) Theseprovisions prescribe substantive rules and specialized choice-of-lawrules for formal validity, which differ from the choice-of-law rulesapplicable to the substantive validity of arbitration agreements.

[2]. Capacity

The capacity of parties to conclude valid international arbitrationagreements is also governed by separate choice-of-law rules, whichdiffer from those applicable to the substantive (and formal) validity ofsuch agreements. Article V(1)(a) of the Convention provides that anarbitral award may be denied recognition if “the parties to the[arbitration agreement] were, under the law applicable to them,under some incapacity.” Article V(1)(a) has generally beeninterpreted as requiring application of the national law of the party'sdomicile or place of incorporation to questions of capacity.(48)

page "57"

[3]. Non-Arbitrability

As discussed below, the New York Convention and most arbitrationstatutes provide that, in exceptional cases, an otherwise validarbitration agreement may be denied enforcement because theparties' dispute is “not capable of settlement by arbitration” – i.e.,the dispute is “non-arbitrable.” The law applicable to questions ofnon-arbitrability is addressed, with respect to recognition of awards,in Article V(2)(a) of the Convention, which provides that an awardneed not be recognized in a Contracting State if “the subject matterof the dispute is not capable of settlement by arbitration under thelaw of that country.” The same rule is contained in Article 36(1)(b)(i)of the Model Law. Most authorities have applied this rule by analogyto the enforcement of arbitration agreements, holding that a statemay apply its own non-arbitrability rules in deciding to refer adispute to arbitration.(49)

[4]. Non-Signatory Issues

As discussed below, arbitration agreements are sometimes arguedto apply to non-signatories (i.e., parties that did not sign thearbitration agreement, but who are nonetheless bound by it). A non-signatory may be subject to an arbitration agreement on variouslegal theories, including alter ego, agency, succession, andestoppel.(50) When one of these grounds is asserted as the basis forsubjecting a non-signatory to an arbitration agreement, choice-of-lawissues are raised.

In many instances, the law governing a particular issue (e.g.,merger, alter ego status) will be different from that governing theagreement to arbitrate. For example, if A (incorporated in State A)and B (incorporated in State B) agree to arbitrate in State C, theeffect of a merger between A and D (also incorporated in State A) onthe parties' arbitration agreement will often be subject to the law ofState A, and, specifically, State A's merger legislation. Similarly, ifA were alleged to be the alter ego or agent of D, the law governingthe alter ego or agency relationship might differ from that governingthe validity of the arbitration agreement.

§2.07. Effects of International Arbitration Agreements

A valid arbitration agreement produces important legal effects for itsparties. These effects are both positive and negative: the positiveeffects include an obligation to participate in good faith in thearbitration of disputes pursuant to the arbitration agreement, whilethe negative effects include an obligation not to pursue litigation innational courts or similar fora.

An important aspect of these legal effects is the mechanism toenforce them. During some historical periods, arbitration agreementswere rendered ineffective because they were not susceptible toenforcement through orders for specific performance and becausemonetary damages provided inadequate disincentives forbreaches.(51) Contemporary arbitration regimes have altered this,making it possible to obtain orders of specific performance fromnational courts of both the negative and positive obligations imposedby arbitration agreements. These remedies vary page "58"among legal systems, but, in developed jurisdictions, provide highlyeffective means of enforcing international arbitration agreements:these means include stays of litigation, orders to compel arbitration,anti-suit injunctions, actions for monetary damages and non-recognition of judgments.

[A]. Positive Effects of Arbitration Agreement: Obligation toArbitrate in Good Faith

The most fundamental effect of an arbitration agreement is toobligate the parties to participate in good faith in the arbitration oftheir disputes. This obligation is a sui generis one – requiring partieswhose underlying commercial or other relations have deteriorated tothe point of litigation to cooperate together, in good faith, in anadjudicatory procedure that will finally resolve their disputes, eitherfor or against one of the parties.

[1]. Source of Positive Obligations to Arbitrate

The positive obligations imposed by an arbitration agreement havetheir source in that agreement itself, which is given effect by theNew York Convention and national law. In agreeing to arbitrate, theparties do not merely negatively waive their access to judicialremedies, but also affirmatively agree to participate in the resolution

of their disputes through the arbitral process. This positive obligationto participate cooperatively in a mutually-established, adjudicativedispute resolution process is central to the arbitration agreement.

In turn, the New York Convention requires Contracting States to“recognize” agreements by which parties have undertaken “to submitto arbitration” specified disputes.(52) The parties' positive obligationto participate in arbitrating their differences is also given effect bynational legal systems, which parallel and implement the approachtaken by the Convention. Thus, Article 7(1) of the UNCITRAL ModelLaw defines an arbitration agreement as “an agreement by theparties to submit to arbitration all or certain disputes,” while Article8 requires that agreements to arbitrate be enforced by “refer[ring]”the parties to arbitration.” Other arbitration legislation deals similarlywith the positive obligations imposed by an agreement toarbitrate.(53)

[2]. Content of Positive Obligation to Arbitrate

The content of the positive obligation to arbitrate is dealt with underthe Convention and national arbitration legislation by giving effect tothe parties' agreement – that is, by requiring “recognition” of thatagreement – rather than by stating a generally-applicable andabstract “obligation to arbitrate.” This approach to the positive dutyto arbitrate is consistent with the contractual character of the arbitralprocess. As discussed elsewhere, party autonomy is one of theessential characteristics of international arbitration. This autonomy,and hence the contents of the positive obligation to arbitrate, extendto the disputes to be arbitrated, the parties to the arbitration, the

page "59" constitution of the arbitral tribunal, the selection of thearbitral seat, the arbitral procedures and the choice of the applicablelaw(s).(54)

The positive obligation to participate in the resolution of disputes byarbitration includes duties to participate in good faith andcooperatively in the arbitral process. An arbitration agreement is notmerely a negative undertaking not to litigate, but a positive obligationto take part in a sui generis process which requires a substantialdegree of cooperation (e.g., in constituting a tribunal, paying thearbitrators, agreeing upon an arbitral procedure, obeying the arbitralprocedure and complying with the award). When a party agrees toarbitrate, it impliedly agrees to participate cooperatively in all ofthese aspects of the arbitral process.

In a few jurisdictions, these obligations are contained in nationalarbitration legislation.(55) Even absent such legislative provisions,national courts have emphasized that an arbitration agreementimposes obligations to make use of, and participate cooperatively in,the arbitral process. For example, it is well settled under English lawthat there is an implied term in an agreement to arbitrate that theparties must cooperate in the conduct of the arbitration:

[T]he obligation is, in my view, mutual: it obliges eachparty to cooperate with the other in taking appropriatesteps to keep the procedure in the arbitration moving… [I]t is in my view a necessary implication from theirhaving agreed that the arbitrator shall resolve theirdispute that both parties, respondent as well asclaimant, are under a mutual obligation to one anotherto join in applying to the arbitrator for appropriatedirections to put an end to the delay.(56)

A Swiss Federal Tribunal decision adopted similar conclusions,emphasizing the parties' obligations of good faith: “One of the aimsof arbitration is to come to a fast resolution of the disputessubmitted to it. The parties who agree to arbitration are bound by therules of good faith to avoid any conduct which might delay withoutabsolute necessity the normal conduct of the arbitralproceedings.”(57)

The precise contours of the obligation to participate cooperatively inthe arbitral process are unsettled. They have been held to includeparticipating in the constitution of the tribunal, paying the arbitrators'fees, cooperating in relation to procedural matters, not obstructingthe arbitral process, obeying confidentiality obligations relating tothe arbitration and complying with disclosure requests and otherorders.(58) As with other aspects of the arbitral process, theseobligations are the subject of party autonomy, and can be altered byagreement.

page "60"

[3]. Remedies for Breach of Positive Obligation to Arbitrate

As noted above, Article II(3) of the New York Convention and Article8(1) of the UNCITRAL Model Law provide that, if a valid arbitrationagreement exists, courts shall “refer the parties to arbitration.” Thewording of these provisions indicate an obligation on national courtsaffirmatively to direct the parties to proceed with the arbitration oftheir dispute (rather than merely an obligation not to permit litigationto proceed). Despite that, virtually none of the Convention'sContracting States or Model Law's adherents enforce arbitrationagreements by way of orders affirmatively directing a party toarbitrate; rather, the consistent approach is to dismiss or stay (i.e.,suspend) litigation brought in breach of an agreement to arbitrate.(59)

The only major exception to this approach is the United States,where the FAA provides for the issuance of orders compellingarbitration (under §4 and §206 of the FAA).(60) These provisionsempower U.S. courts to grant orders requiring parties to arbitratepursuant to their arbitration agreements. In the words of one U.S.lower court, a request under §4 (or §206) “is simply a request for anorder compelling specific performance of part of a contract.”(61)

Pursuant to §§4 and 206 of the FAA, U.S. courts have frequentlyordered parties to comply with the positive obligations under theirarbitration agreements. In so doing, they have emphasized that theissuance of such an order is not a matter of discretion, but amandatory legal right (guaranteed by the FAA):

So long as the parties are bound to arbitrate and thedistrict court has personal jurisdiction over them, thecourt is under an unflagging, nondiscretionary duty togrant a timely motion to compel arbitration andthereby enforce the New York Convention as providedin chapter 2 of the FAA, even though the agreement inquestion requires arbitration in a distant forum.(62)

U.S. courts have issued orders compelling arbitration in botharbitrations seated in the United States and in other states.(63) Incontrast, as already noted, most states do not provide for specificperformance of the positive obligations of arbitration agreements.Instead, the mechanism for enforcing such obligations is through astay or dismissal of litigation, thereby allowing a party to commenceand proceed with an arbitration, potentially obtaining a default awardwithout its counter-party's participation.

page "61"

[B]. Negative Effects of Arbitration Agreement: Obligation Notto Litigate

An arbitration agreement also has negative effects, which are almostprecisely the mirror-image of its positive effects. That is, with regardto virtually all of the disputes that a party is obligated positively toresolve by arbitration, a comparable negative obligation forbidslitigation of such matters.(64)

[1]. Negative Obligations under Agreement to Arbitrate

As discussed above, Articles II(1) and II(3) of the New YorkConvention provide for Contracting States to “recognize” agreementsto arbitrate and to “refer the parties to arbitration.”(65) Theseprovisions enforce the negative effects of an arbitration agreement,by requiring either the stay or dismissal of national court litigation.Any other action by a national court, dealing with the substance ofan arbitrable dispute, is contrary to the obligation to “refer the partiesto arbitration.” Where the Convention applies, many authorities holdthat Article II(1) and II(3) impose a mandatory (not discretionary)obligation to give effect to arbitration agreements.(66)

Most arbitration legislation gives identical effect to the negativeobligations imposed by arbitration agreements. Article 8(1) of theModel Law is representative, requiring that courts “refer the partiesto arbitration.” Article 8(1) impliedly precludes a national court fromentertaining a dispute on the merits if the parties have agreed toarbitrate it, and instead requires that the parties be referred toarbitration. National courts have consistently held that this obligationis mandatory.(67) As with Article II(3) of the Convention, Article 8applies to agreements providing for arbitration seated abroad, as wellas locally.(68) Other national arbitration legislation is similar.(69)

Although arbitration clauses typically do not provide expressly that“all disputes shall be resolved by arbitration, to the exclusion ofnational courts,” this negative obligation is the clear page "62"intent of virtually all arbitration agreements. One of the fundamentalpurposes of international arbitration agreements is to centralize the

parties' disputes in a single forum for final resolution – an objectivethat would be frustrated if parallel litigation was permitted. A party'scommencement of litigation on claims, subject to an arbitrationagreement, is therefore a breach of that agreement and, inparticular, its negative obligations. That breach, like other violationsof contractual obligations, entitles the non-breaching party to relief,including specific enforcement through a stay or dismissal of thelitigation, and exposes the breaching party to contractual liability orinjunctive and other remedies.

[2]. Remedies for Breach of Negative Obligation Not to LitigateArbitrable Disputes: Stay or Dismissal of Litigation

As discussed above, some courts historically refused to staylitigation of arbitrable disputes, either holding that arbitrationagreements were revocable or not subject to specific performance.In contrast, the principal contemporary remedies for breach of anarbitration agreement's negative obligation not to litigate arbitrabledisputes are either dismissal of the improperly-commenced litigationor a mandatory stay of that litigation.

As discussed above, Article II(3) of the Convention provides for thedismissal or stay of proceedings in national courts brought in breachof an arbitration agreement. Article II(3) does not leave courts withany discretion to deny a dismissal or stay of judicial proceedingswhere an arbitration agreement is enforceable under the Convention.Rather, it mandatorily requires that national courts “shall” referparties to arbitration.(70)

Some arbitration legislation expressly provides for a stay of litigationbrought in violation of an arbitration agreement, including in theUnited States, England, Canada, Singapore and other common lawjurisdictions.(71) In other countries (principally civil law jurisdictions,including France, Switzerland and Germany), legislation requirescourts to decline jurisdiction over arbitrable disputes.(72) Whetherthrough a stay or a dismissal of litigation, it is the almost uniformpractice of national courts to refuse to hear the merits of claims,initiated in litigation, which are properly subject to arbitration. As onenational court put it:

The [FAA] “leaves no room for the exercise ofdiscretion by a district court, but instead mandatesthat district courts shall direct the parties to proceedto an arbitration on issues as to which an arbitrationagreement has been signed.”(73)

The imposition of this obligation on courts to order specificperformance of the negative duties imposed by internationalarbitration agreements, which were historically often not enforceable

page "63" in this manner, was one of the central achievements ofthe New York Convention and modern arbitration statutes.

As already discussed, the negative effects of an arbitrationagreement are almost precisely the mirror-image of the positiveeffects of such an agreement. Accordingly, insofar as an arbitraltribunal is vested with jurisdiction to hear disputes, then nationalcourts must cease to exercise parallel jurisdiction to decide suchdisputes (save for their roles in supporting the arbitral process orreviewing an award). Where one jurisdictional ambit stops (e.g., thecourt's) then the other (e.g., the arbitral tribunal's) generallybegins.(74)

[3]. Remedies for Breach of Negative Obligation Not to LitigateArbitrable Disputes: Antisuit Injunction

A party's ability to obtain a stay of litigation is not always sufficientto effectively enforce an arbitration agreement. That is because aparty may be able to pursue litigation of the underlying dispute in anational court which does not honor, or fully honor, its undertakingsin the New York Convention. In that event, a stay of the underlyinglitigation in one (or several) national courts, which do honor theConvention, may ultimately be an ineffective remedy for fullyenforcing the arbitration agreement.

Accordingly, some states permit additional means of enforcement ofthe negative obligation to refrain from litigating arbitrable disputes. Inparticular, courts in some common law jurisdictions are prepared toissue “anti-suit injunctions” to prohibit litigation in a foreign forum.Anti-suit orders are directed against the parties to a litigation (notthe foreign court), but are intended to preclude a litigation fromproceeding in the foreign court.(75) In practice, antisuit injunctionscan be powerful tools for compelling compliance with an agreementto arbitrate.

English courts have long been prepared to enjoin foreign litigationsbrought in violation of an arbitration agreement. Under English law,an injunction may ordinarily be granted against a foreign litigation if(a) the English forum has a sufficient interest in the matter, (b) theforeign proceeding causes sufficient prejudice to the applicant, and(c) the antisuit injunction would not unjustly deprive the claimant inthe foreign court of a legitimate advantage.(76) One English decisionaffirmed the existence of this power in emphatic terms, reasoning:

in my judgment there is no good reason for diffidencein granting an injunction to restrain foreign proceedings[brought in violation of an arbitration agreement] on theclear and simple ground that the defendant haspromised not to bring them. … I cannot accept theproposition that any Court would be offended by thegrant of an injunction to restrain a party from invokinga jurisdiction which he had promised not to invoke andwhich it was its own duty to decline.(77)

page "64"

English courts have sometimes given consideration to notions ofcomity, as justifying the withholding of an antisuit injunction againstparties to a foreign litigation, but nonetheless generally have beenvery willing to issue antisuit orders.(78)

Courts in other common law jurisdictions, including Singapore,Canada, Bermuda and Australia, have also issued antisuit orders toenforce the negative obligations of arbitration agreements.(79) TheSingapore High Court explained the rationale for these orders asfollows:

[An antisuit order] is entirely consistent with theprinciple that parties be made to abide by theiragreement to arbitrate. Furthermore, the New YorkArbitration Convention obliges state parties to upholdarbitration agreements and awards. Such anagreement is often contravened by a partycommencing an action in its home courts. Once thisCourt is satisfied that there is an arbitrationagreement, it has a duty to uphold that agreement andprevent any breach of it.(80)

U.S. courts have also been prepared to grant antisuit injunctionsprohibiting parties from proceeding with foreign litigation in violationof a valid arbitration agreement, but subject to greater restrictionsthan in other common law jurisdictions. Some U.S. courts will grantan antisuit injunction based upon only a showing of seriousinconvenience or risk of inconsistent judgments,(81) while others aremore demanding and require a clear showing that the foreignlitigation would threaten the jurisdiction or public policies of the U.S.forum.(82) Even U.S. courts that are reluctant to issue anti-suitinjunctions will sometimes do so where foreign litigation is brought inviolation of the parties' agreement to arbitrate, based on U.S.policies favoring international arbitration:

The enjoining forum's strong public policy in favor ofarbitration, particularly in international disputes, wouldbe threatened if [the respondent] were permitted tocontinue to pursue the [action in its home courts],particularly in light of the court's decision hereingranting [the plaintiff's] motion to compelarbitration.(83)

page "65"

In contrast to the common law approach, civil law jurisdictions havegenerally refused to grant antisuit orders, whether to enforcearbitration agreements or otherwise.(84) In most cases, civil lawcourts are not even requested to issue antisuit orders, because it isclear that no such remedy is available.

[4]. Remedies for Breach of Negative Obligation Not to LitigateDisputes: Damages for Breach of Obligation Not to Litigate

Another means of enforcing the negative effects of an arbitrationagreement is damages for breaches of the undertaking not to litigatedisputes that have been submitted to arbitration. Indeed, in historicalcontexts when arbitration agreements were not capable of specificperformance, damages were the only remedy for their breach.(85)

It was frequently (and correctly) remarked that damages for breachof an arbitration agreement are an uncertain and inadequate remedy(because calculating the quantum of damages is speculative). Whileinadequate when considered alone, damages for breach of an

arbitration agreement can be an appropriate supplementary meansof enforcing arbitration agreements, by increasing the disincentivesfor such conduct. A few contemporary judicial decisions in theUnited States and England have either awarded damages for thebreach of an arbitration agreement or indicated that the possibilityfor doing so existed.(86)

[5]. Remedies for Breach of Negative Obligation Not to LitigateDisputes: Non-Recognition of Judgments

If a party pursues litigation in breach of a valid arbitration agreement,then the resulting judgment should not be entitled to recognition.Indeed, it would violate the New York Convention for a ContractingState to enforce a judgment obtained in breach of a valid agreementto arbitrate, which is subject to the Convention. Contracting Statesare committed under Articles II(1) and II(3) of the Convention torecognize arbitration agreements and to refer parties to suchagreements to arbitration. Where a judgment is obtained in breachof an agreement protected by the Convention, a Contracting Statewould violate these commitments by giving effect to that judgment,rather than ordering the parties to arbitrate their disputes, as ArticleII requires. A Singapore court explained this rationale:

page "66"

By virtue of [the parties' agreement, the respondent]had agreed to submit disputes to arbitration inSingapore upon election by any party and the Plaintiffshave so elected. In the circumstances it would bemanifestly against public policy to give recognition tothe foreign judgment at the behest of the Defendantswho have procured it in breach of an order emanatingfrom this Court.(87)

Similarly, Swiss courts have held that they will not recognize foreignjudgments that are obtained in a litigation that violated theConvention. In one decision, the Swiss Federal Tribunal refused toannul an award on the grounds that it conflicted with a foreignjudgment, reasoning that the judgment had been issued inproceedings conducted in breach of an arbitration agreement:

A foreign state court which, notwithstanding thepresence of the conditions of Art. II of the Convention,does not refer the parties to arbitration but takes thedispute into its own hands lacks thus indirectjurisdiction [necessary for recognition of a foreignjudgment] and its decision cannot be recognized inSwitzerland, unless the lack of jurisdiction of thearbitral tribunal is determined by the tribunal itself or inthe context of a review by a state court.(88)

Other courts have also made it clear that they will not recognizejudgments rendered in breach of a valid arbitration agreement. Inparticular, both U.S. and English courts have refused to recognizeforeign judgments made in violation of an arbitration agreement.(89)

[C]. Anti-Arbitration and Anti-Suit Orders

In rare cases, courts may issue “anti-arbitration” injunctions,forbidding a party from pursuing its claims in arbitral proceedings.Such orders generally rest on the court's conclusion that there is novalid arbitration agreement providing a basis for the arbitration toproceed. There are doubts as to the legitimacy of anti-arbitrationinjunctions (because they interfere with the arbitral tribunal'scompetence-competence).(90) Conversely, in even rarer cases, anarbitral tribunal may issue an “antisuit” order, forbidding one partyfrom pursuing arbitrable claims in a litigation. Again, the basis forsuch orders is usually a conclusion that the parties are bound toarbitrate, not litigate, their dispute.

page "67"

1 See infra pp. 52.2 See infra pp. 63–64.3 See supra p. 35.4 G. Born, International Commercial Arbitration 258–75, 2361–63(2009).5 G. Born, International Commercial Arbitration 301 (2009).6 See G. Born, International Commercial Arbitration 303 (2009).

7 See infra pp. 370–73.[8] See G. Born, International Commercial Arbitration 277–84(2009).9 U.S. FAA, 9 U.S.C. §201.10 There is divergent authority on the meaning of Article XIV,including on the question whether it applies in litigation betweenprivate parties. See G. Born, International Commercial Arbitration303–05 (2009).11 See infra p. 77; G. Born, International Commercial Arbitration204 (2009).12 See infra p. 77; G. Born, International Commercial Arbitration206 (2009).13 G. Born, International Commercial Arbitration 58–65 (2009).14 Tobey v. County of Bristol, 23 Fed.Cas. 1313, 1321–23 (C.C.D.Mass. 1845) (Story, J.).15 G. Born, International Commercial Arbitration 26–38, 48–55(2009).16 These grounds for non-recognition are discussed below. Seeinfra pp. 77–86.17 See, e.g., Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B.Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994); BoartSweden AB v. Nya Stromnes AB, 41 B.L.R. 295, ¶4 (Ontario S.Ct.1988).18 See, e.g., Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (3d Cir.2000) (“The FAA establishes a strong federal policy in favor ofcompelling arbitration over litigation [which] carries ‘special force’when international commerce is involved”); Deloitte Noraudit A/S v.Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1063 (2d Cir. 1993)(policy in favor of arbitration “is even stronger in the context ofinternational transactions”).19 See, e.g., Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (3d Cir.2000) (“The FAA establishes a strong federal policy in favor ofcompelling arbitration over litigation [which] carries ‘special force’when international commerce is involved”); Deloitte Noraudit A/S v.Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1063 (2d Cir. 1993)(policy in favor of arbitration “is even stronger in the context ofinternational transactions”).20 Final Award in ICC Case No. 8938, XXIVa Y.B. Comm. Arb. 174,176 (1999). See also G. Born, International Commercial Arbitration313–22, 344 (2009).21 Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402,409 (2d Cir. 1959).22 See G. Born, International Commercial Arbitration 360–62(2009).23 See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S.395 (U.S. S.Ct. 1967); G. Born, International Commercial Arbitration357–404 (2009).24 See G. Born, International Commercial Arbitration 404–05(2009).25 See, e.g., Judgment of 26 May 1988, 1988 NJW-RR 1526, 1527(German Bundesgerichtshof); Fiona Trust & Holding Corp. v.Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal),aff'd, [2007] UKHL 40 (House of Lords). See G. Born, InternationalCommercial Arbitration 863–69, 877–966 (2009).26 See, e.g., ICC Rules 2012, Art. 6(5) (“[A]ny decision as to thejurisdiction… shall be taken by the arbitral tribunal itself.”); LCIARules, Art. 23(1) ICDR Rules, Art. 15(1).27 French Code of Civil Procedure, Art. 1448(1).28 See supra pp. 50–51.29 546 U.S. 440, 446 (U.S. S.Ct. 2006); G. Born, InternationalCommercial Arbitration 938–43 (2009).30 See G. Born, International Commercial Arbitration 938–43(2009).31 Buckeye Check Cashing, 546 U.S. at 444, n.132 Buckeye Check Cashing, 546 U.S. at 444, n.133 G. Born, International Commercial Arbitration 944–48 (2009).34 First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942(U.S. S.Ct. 1995).35 G. Born, International Commercial Arbitration 917–19 (2009).36 See G. Born, International Commercial Arbitration 932–34(2009).37 Some national courts have adopted this view. See, e.g.,Judgment of 7 October 2002, 2003 NJW-RR 354 (Bavarian OberstesLandesgericht); Yawata Ltd v. Powell, [2000] D.C.R. 334 (WellingtonDist. Ct.); Walter Rau Neusser Oel und Fett AG v. Cross Pac.Trading Ltd, XXXI Y.B. Comm. Arb. 559 (Australian Fed. Ct. 2005)(2006). See also G. Born, International Commercial Arbitration 880–81 (2009).38 See, e.g., Shin-Etsu Chem. Co. v. Aksh Optifibre Ltd, XXXI Y.B.Comm. Arb. 747, 784 (Indian S.Ct. 2005) (2006); Gulf CanadaResources Ltd v. Arochem Int'l Ltd, 66 BCLR2d 113, 114 (B.C.

Court of Appeal 1992); Skandia Int'l Ins. Co. v. Al Amana Ins. &Reins. Co., XXIV Y.B. Comm. Arb. 615 (Bermuda S.Ct. 1994)(1999).39 The law governing an arbitration agreement is applicable to theagreement's: (a) formation; (b) substantive validity; and (c)interpretation. As discussed below, issues of formal validity, non-arbitrability and the effects of the arbitration agreement on non-signatories are subject to different choice-of-law rules.40 See infra pp. 304–05.41 G. Born, International Commercial Arbitration 443–51 (2009).42 See infra pp. 312–28.43 Other authorities adopt the same rule. G. Born, InternationalCommercial Arbitration 497–504 (2009).44 See, e.g., Judgment of 20 December 1993, Municipalité deKhoms El Mergeb v. Société Dalico, 1994 Rev. arb. 116, 117(French Cour de cassation civ. 1e).45 See, e.g., Rhone Mediterranee Compagnia Franchese diAssicurazioni e Riassicurazioni v. Achille Lauro, 712 F.2d 50 (3dCir. 1983); Chloe Z Fishing Co. v. Odyssey Re (London) Ltd, 109F.Supp.2d 1236 (S.D. Cal. 2000).46 See infra p. 75; G. Born, International Commercial Arbitration534–46, 586–99 (2009).47 See infra pp. 74–75; G. Born, International CommercialArbitration 547–49, 600–06 (2009).48 G. Born, International Commercial Arbitration 552–53, 624–29(2009). See also Judgment of 23 April 1997, Dalmine SpA v. M & MSheet Metal Forming Machinery AG, XXIVa Y.B. Comm. Arb. 709(Italian Corte di Cassazione) (1999) (capacity for the purposes ofArticle V(1)(a) “means not only the capacity of a physical person toperform an act, but any capacity, both a legal capacity to perform anact – with an eye to the so-called special legal incapacities – andthe capacity of physical and legal persons; in the latter case,special attention is given to representation by organs [of an entity]and their representation powers.”).49 G. Born, International Commercial Arbitration 515 et seq. (esp.515–22), 706–07, 768–76 (2009).50 See infra pp. 95–99; G. Born, International CommercialArbitration 1210–19 (2009).51 See supra pp. 61, 63–64; G. Born, International CommercialArbitration 34–37, 39–49, 565, 1045–46 (2009).52 In the words of Article II(1), Contracting States “shall recognizean agreement in writing under which the parties undertake to submitto arbitration all or any differences.” The premise of Article II(1) isthat the parties' obligation to arbitrate includes the affirmative duty toaccept the submission of their disputes to arbitration (“undertake tosubmit”) and to participate cooperatively in arbitral proceedings toresolve such disputes.53 U.S. FAA, 9 U.S.C. §4; English Arbitration Act, 1996, §9; SwissLaw on Private International Law, Art. 7; Singapore InternationalArbitration Act, §6. See G. Born, International CommercialArbitration 1004–07 (2009).54 See infra pp. 114–15, 121–24, 148–49, & 244–51; G. Born,International Commercial Arbitration 1007–13 (2009).55 See, e.g., English Arbitration Act, 1996, §40(1) (“The partiesshall do all things necessary for the proper and expeditious conductof the arbitral proceedings.”); Victoria Commercial Arbitration Act,§37 (“The parties to an arbitration agreement shall at all times do allthings which the arbitrator or umpire requires to enable a just awardto be made and no party shall wilfully do or cause to be done anyact to delay or prevent an award being made.”).56 Bremer Vulkan Schiffbau und Maschinenfabrik v. South IndiaShipping Corp. [1981] A.C. 909, 982–83, 985 (House of Lords)(emphasis added).57 Judgment of 10 May 1982, DFT 108 Ia 197, 201 (Swiss FederalTribunal). See G. Born, International Commercial Arbitration 1009–11 (2009).58 See G. Born, International Commercial Arbitration 1011–13(2009).59 See G. Born, International Commercial Arbitration 1013–20(2009).60 U.S. FAA, 9 U.S.C. §206 (“A court having jurisdiction under thischapter may direct that arbitration be held in accordance with theagreement at any place therein provided for….”). See G. Born,International Commercial Arbitration 380 (2d ed. 2001).61 Joseph Muller Corp. v. Commonwealth Petrochem., Inc., 334F.Supp. 1013 (S.D.N.Y. 1971).62 InterGen NV v. Grina, 344 F.3d 134, 142 (1st Cir. 2003).63 See G. Born, International Commercial Arbitration 1013–17(2009). See Invista N. Am. SARL v. Rhodia PolyamideIntermediates SAS, 503 F.Supp.2d 195, 207 (D.D.C. 2007) (orderingparties to arbitrate in Switzerland); Sea Bowld Marine Group, LDC v.Oceanfast Pty, Ltd, 432 F.Supp.2d 1305, 1319 (S.D. Fla. 2006)

(ordering parties to arbitrate in Australia); Acosta v. NorwegianCruise Line, Ltd, 303 F.Supp.2d 1327, 1332 (S.D. Fla. 2003)(ordering parties to arbitrate in the Philippines).64 There are very limited exceptions to this principle, involvingprovisional measure and jurisdictional issues, where the possibilityof concurrent jurisdiction or proceedings in national courts exists.See supra pp. 52–54 & infra pp. 213–17.65 See supra pp. 59–61.66 See Judgment of 7 September 2005, XXXI Y.B. Comm. Arb.791, 794–95 (Israeli S.Ct.) (2006) (“Article II(3) of the Conventionstates in mandatory language that the court ‘shall … refer’ theparties to arbitration, unless one of the exceptions listed in thesection is present. … if one of the three exceptions mentioned inArticle II(3) does not appear, the court is as a rule required to order astay of the proceedings…”); Lonhro Ltd v. Shell Petroleum Co., IVY.B. Comm. Arb. 320 (Ch.) (1979) (“the effect of Section I [of theEnglish Arbitration Act, 1975, implementing Article II(3)] is to deprivethe court of any discretion whether a claim within a non-domesticarbitration agreement should be arbitrate or litigated … The Sectionis mandatory.”).67 See, e.g., PetroKazakhstan Inc. v. Lukoil Overseas KumkolBV, 2005 ABQB 789 (Alberta Q.B.) (“Courts in this jurisdiction arerequired not to intervene in matters governed by arbitration:UNCITRAL Model Law, Article 8(1).”); Dalimpex Ltd v. Janicki,[2003] Ont. Rep. LEXIS 132 (Ontario Court of Appeal) (“The wordingof article 8 is mandatory.”). See also G. Born, InternationalCommercial Arbitration 1021 (2009).68 See supra pp. 59–61.69 See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (U.S.S.Ct. 1985) (terms of §3 “leave no place for the exercise ofdiscretion by a district court, but instead … mandate that districtcourts shall direct the parties to proceed to arbitration on issues asto which an arbitration agreement has been signed”); Asghar v.Legal Serv. Comm'n [2004] EWHC 1803 (Ch) (investigation by theLegal Services Commission stayed in respect of all matters whichunder contract should be referred to arbitration); G. Born,International Commercial Arbitration 1022–23 (2009).70 See supra p. 61; InterGen NV v. Grina, 344 F.3d 134, 141 (1stCir. 2003) (“Given this regime, it clearly appears that enforcingarbitration clauses under the New York Convention is an obligation,not a matter committed to district court discretion.”); Hi-Fert Pty Ltdv. Kiukiang Maritime Carriers Inc., 86 FCR 374, 393 (N.S.W. Dist.1998) (“the Court must stay the proceedings and refer the parties toarbitration”).71 G. Born, International Commercial Arbitration 1025–26 (2009).72 G. Born, International Commercial Arbitration 1026 (2009).73 Danisco A/S Denmark v. Novo Nordisk A/S, 2003 U.S. Dist.LEXIS 1842 (S.D.N.Y. 2003).74 Nonetheless, as discussed below, there are limitedcircumstances where both arbitral tribunals and national courtssimultaneously possess jurisdiction to consider and decideparticular matters (e.g., jurisdictional issues or a request forprovisional measures). See supra pp. 52–54 and infra pp. 213–17. Inthese circumstances, the jurisdiction of the arbitrators does notcease where that of national courts begin.75 G. Born, International Commercial Arbitration 1035 (2009).76 See Airbus Indus. GIE v. Patel [1998] 1 Lloyd's Rep. 631(House of Lords).77 Aggeliki Charis Compania Maritime SA v. Pagnan SpA (TheAngelic Grace) [1995] 1 Lloyd's Rep. 87, 96 (English Court ofAppeal).78 World Pride Shipping Ltd v. Daiichi Chuo Kisen Kaisha [1984] 2Lloyd's Rep. 489 (Q.B.) (“the American court has not yet ruled onthe joint motion for continuance [of litigation]. … It seems to me thatin those circumstances it would be much better that the [U.S.]District Court should itself rule on the motion for continuance and, ifit thinks fit, stay all further proceedings on [the counterclaim' …rather than that I should seek to preempt, and perhaps even seem todictate the decision of a foreign Court.”).79 G. Born, International Commercial Arbitration 1038 (2009).80 WSG Nimbus Pte Ltd v. Board of Control for Cricket in SriLanka [2002] 3 Sing. L.R. 603, 637 (Singapore High Court). See G.Born, International Commercial Arbitration 1037–38 (2009).81 See, e.g., Karaha Bodas Co. v. Perusahaan PertambanganMinyak Dan Gas Bumi Negara, 335 F.3d 357 (5th Cir. 2003);MacPhail v. Oceaneering Int'l, Inc., 302 F.3d 274 (5th Cir. 2002);Kaepa, Inc. v. Achilles Corp., 76 F.3d 624 (5th Cir. 1996).82 See, e.g., Goss Int'l Corp. v. Man Roland Druckmaschinen AG,2007 U.S. App. LEXIS 14306 (8th Cir. 2007); Quaak v. KlynveldPeat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11 (1st Cir.2004); Stonington Partners v. Lernout & Hauspie Speech Prod. NV,310 F.3d 118 (3d Cir. 2002).

83 SG Avipro Fin. Ltd v. Cameroon Airlines, 2005 U.S. Dist. LEXIS11117 (S.D.N.Y. 2005).84 G. Petrochilos, Procedural Law in International Arbitration 105(2004) (“Orders enjoining a party from continuing with proceedingscommenced by that party in another forum (commonly called‘antisuit injunctions’) are peculiar to Anglo-American common lawsystems.”).85 This was the position in much of the United States prior to theFAA. See Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109 (U.S.S.Ct. 1924) (“an agreement to arbitrate was legal in New York anddamages were recoverable for a breach thereof”); Payton v. TheHurst Eye, Ear, Nose & Throat Hos., 318 S.W.2d 726 (Tex. Ct. App.1958) (under Texas common law, a party “could not compel anarbitration … and is relegated to a suit for damages for any breachof the arbitration clause”).86 See, e.g., Ball v. Versar, Inc., 2006 WL 2568057 (S.D. Ind.2006); Indosuez Int'l Fin., BV v. Nacional Reserve Bank, 758N.Y.S.2d 308 (N.Y. App. Div. 2003); Schiffahrtsgesellschaft Detlevvon Appen GmbH v. Voest Alpine Intertrading GmbH [1997] 2Lloyd's Rep. 279 (English Court of Appeal); Mantovani v. CaparelliSpA [1980] 1 Lloyd's Rep. 375 (English Court of Appeal).87 WSG Nimbus Pte Ltd v. Board of Control for Cricket in SriLanka [2002] 3 Sing. L.R. 603 (Singapore High Court).88 Judgment of 19 December 1997, Compañia Minera Condesa SAet Compañia de Minas Buenaventura SA v. BRGM-Pérou SAS, DFT124 III 83, 86–87 (Swiss Federal Tribunal).89 CBS Corp. v. WAK Orient Power & Light Ltd, 168 F.Supp.2d 403(E.D. Pa. 2001) (“WAK's expressed intention to attempt to obtainand register in the courts of the United States of America, withoutleave of this court, a foreign judgment arising from a subject matterrelating to the arbitral award would run afoul of this court's judgmentenforcing the Arbitral Award as well as the fundamental principlesundergirding the Convention.”); Tracomin SA v. Sudan Oil Seeds[1983] Lloyd's Rep. 384 (English Court of Appeal).90 G. Born, International Commercial Arbitration 1049–55 (2009).

Key words

Source

Chapter 3: Formationand Validity ofInternational ArbitrationAgreements in Gary B. Born , InternationalArbitration: Law andPractice, (© Kluwer LawInternational; KluwerLaw International 2012)pp. 69 - 86

A central issue in the enforcement of international arbitrationagreements concerns the standards for formation and validity. Thesestandards play an essential role in ensuring that internationalarbitration agreements are enforced in an effective and efficientmanner and are of substantial practical importance in the arbitralprocess.

§3.01. Formation of International Arbitration Agreements

Arbitration agreements, like other categories of contracts, give riseto questions of contract formation (particularly issues of consent).An agreement to arbitrate cannot be recognized or enforced unlessit has been validly formed.(1) The formation of arbitration agreementsraises several related issues: (a) consent to the agreement toarbitrate; (b) the essential terms required for an arbitrationagreement; and (c) defects in the arbitration agreement (or so-called“pathological” arbitration clauses).

[A]. Consent to Arbitration Agreement

In order for an arbitration agreement to exist, the parties must havevalidly consented to that agreement. The question whether partieshave validly consented to an arbitration agreement is governed inmost legal systems by generally-applicable principles of contractlaw, and specifically, contract formation.(2)

In practice, consent in international commercial transactions isusually evidenced by written instruments, typically with theexecution of a formal contract with a corporate officer's signature.Nonetheless, other modes of establishing consent are alsofrequently encountered, including by less formal writings, exchangesof writings (including electronic or other communications), page"69" oral communications and conduct or acquiescence. Note thatthere is a distinction between the existence of consent to an

Chapter 3: Formation and Validity ofInternational Arbitration Agreements

arbitration agreement (evidenced, for example, by oralcommunications) and the formal validity of the arbitration agreement(which may require a writing or signature).(3)

In most cases, consent to an arbitration clause will be evidenced byconsent to the parties' main or underlying contract (containing thearbitration clause); notwithstanding the separability presumption, aparty's acceptance of the underlying contract will almost alwaysentail consent to the arbitration clause in that contract.Nonetheless, cases arise in which one party argues either that (a) inconsenting to the main or underlying contract, it did not alsoconsent to the arbitration clause (for example, because it wasunaware of the clause or because it indicated nonacceptance of theclause); or (b) while the underlying contract was never executed, theparties agreed separately to the arbitration clause (for example, tocover disputes involving conduct in contractual negotiations). Inthese instances, courts and arbitral tribunals consider whether theparties sufficiently manifested their consent to the separablearbitration agreement, regardless of their consent to the underlyingcontract.

A party's commencement of arbitral proceedings, or its participationwithout protest in such proceedings, can be the basis for findingvalid consent to an arbitration agreement. Article 16(2) of theUNCITRAL Model Law requires that any objection to a tribunal'sjurisdiction be raised no later than the statement of defense, failingwhich the jurisdictional objection is waived. Other national laws aresimilar. Under these authorities, a party's tacit acceptance of itscounterparty's initiation of arbitration, through participation in thearbitral proceedings without raising a jurisdictional objection, canprovide the basis for an agreement to arbitrate.(4) As a practicalmatter, waivers of jurisdictional objections frequently occur, providinga valid basis for subsequent arbitral proceedings and arbitral awards.

[B]. Standard of Proof for International Arbitration Agreements

Different approaches have been taken to the standard of proofrequired to establish the existence of an arbitration agreement.Some authorities have required a heightened standard of proof, ascompared to other contracts, holding that the parties' agreement toarbitrate must be clearly demonstrated or that waiver of access tonational courts must be express. Other authorities have required arelaxed standard of proof, relying on the pro-arbitration policies of theNew York Convention and national arbitration legislation. Finally, afew authorities apply the same standard of proof required for theformation of other types of contracts.(5)

[C]. Essential Terms of Arbitration Agreements

In order for a valid international arbitration agreement to be formed,the parties must reach agreement on a core of essential issues.Absent agreement on these essential terms, the arbitrationagreement will generally be void for indefiniteness or uncertainty.

page "70"

[1]. Agreement to Arbitrate

The essential core of an arbitration agreement is simple: it consistsof nothing more than an obligation to resolve certain disputes withanother party by “arbitration” and the right to demand that suchdisputes be resolved in this fashion. These rights and duties can becontained in nothing more than the word “arbitration,” included in acontract, letter, or email, by which the parties commit to resolvedisputes relating to their transaction by arbitration; alternatively, theessential terms of an arbitration agreement are contained in thephrase “All disputes shall be finally resolved by arbitration.”

[2]. Incidental Terms

As discussed above, international arbitration agreements typicallydo, and should, contain additional important terms, including thescope of the obligation to arbitrate, the arbitral seat, institutionalrules, language and the like.(6) Nonetheless, failure to include theseterms does not render the arbitration clause indefinite. Rather, inalmost all jurisdictions, national law provides default mechanismsthat will give effect to the parties' agreement (i.e., by providing forjudicial selection of arbitrators and by authorizing the arbitral tribunalto perform various functions, such as selecting the arbitral seat andlanguage).

[3]. Blank Clauses

Some authorities hold that a so-called “blank clause,” which doesnot specify either the arbitral seat or the means of choosing thearbitrators, is indefinite and void. These authorities reason that ablank clause provides no means for either selecting an arbitraltribunal (absent agreement by the parties) or the seat (at whichjudicial assistance to appoint arbitrators can be sought). Otherauthorities hold that a blank clause impliedly authorizes theclaimant to designate the arbitral seat.(7)

[D]. Pathological Arbitration Clauses

Although model arbitration clauses are readily available from mostarbitral institutions (or other sources(8) ) in practice, parties notinfrequently include so-called “pathological” arbitration clauses intheir contracts. These provisions contain a variety of defects, whichare often argued to render the arbitration agreement invalid.

page "71"

“Pathological” Arbitration Clauses– “Jurisdiction. In case of disputes, the parties undertake to

submit them to arbitration as provided for by the FédérationFrançaise de la Publicité. In case of disputes, the Tribunal de laSeine would have exclusive jurisdiction.”

– “The parties may refer any dispute under this agreement toarbitration.”

– “Any dispute may be resolved by arbitration under the ICCRules, applying the UNCITRAL Arbitration Rules.”

– “The arbitration shall be seated in Miami; the seat of thearbitration shall be at the ICC in Paris.”

[1]. Indefinite Arbitration Agreements

Parties frequently draft arbitration agreements that lack specificity(for example, agreeing on “Arbitration – New York”). National courtsand arbitral tribunals generally seek to give effect to arbitrationagreements lacking specificity, holding that only the essentialrequirement of an agreement to arbitrate is required, with incidentalterms either being implied or provided by national law.(9) Forexample, one court cited the “general principle that Courts shoulduphold arbitration, by striving to give effect to the intention of partiesto submit disputes to arbitration, and not allow any inconsistenciesor uncertainties in the wording or operation of the arbitration clauseto thwart that intention.”(10)

[2]. Arbitration Agreements Referring to Non-Existent ArbitralInstitutions, Arbitration Rules, or Arbitrators

National courts and arbitral tribunals have also generally upheldarbitration clauses that refer to non-existent arbitral institutions orappointing authorities (e.g., referring to an institution that has neverexisted, such as the “Transnational Arbitration Institute”). Someauthorities have deleted references to non-existent entities assurplusage, while others have sought to correct or supplementinaccurate references. In the words of one court: “an agreement on anon-existent arbitration forum is the equivalent of an agreement toarbitrate which does not specify a forum; since the parties had theintent to arbitrate even in the absence of a properly designatedforum.”(11) Alternatively, a Swiss arbitral tribunal construed areference to the “international trade association organization inZurich” (there is none) to mean arbitration under the Zurich Chamberof Commerce International Arbitration Rules.(12)

A related set of problems concerns arbitration clauses that selectarbitral institutions that once existed, but have ceased operations;that select arbitrators who once were competent, but have sincebecome incapacitated or passed away; or that select appointingauthorities which refuse to fulfill the contemplated functions. Again,most courts endeavor to preserve the parties' basic page "72"agreement to arbitrate, even if the particular mechanics that theyhave chosen to implement this agreement cannot function or cannotfunction as intended.

[3]. Internally Contradictory Arbitration Agreements

A similar set of issues arises from internally contradictory arbitrationprovisions. These can involve clauses that select two differentarbitral seats (i.e., “The arbitration shall be seated in Miami; the seat

of the arbitration shall be at the ICC in Paris”), or two differentinstitutions or mechanisms for selecting arbitrators (i.e., “Thearbitration shall be conducted in accordance with the ICC Rules andunder the auspices of the LCIA”), or agreements that appear toprovide for both arbitration and litigation of the same disputes.

As with indefinite or ambiguous clauses, tribunals and courts havegenerally found ways to enforce these provisions, either by deletinglanguage as surplusage or by reconciling inconsistent terms throughliberal interpretation. In the words of one award, “when inserting anarbitration clause in their contract the intention of the parties mustbe presumed to have been willing to establish an effective machineryfor the settlement of disputes covered by the arbitration clause.”(13)

For example, if an agreement provides for both arbitration andlitigation in a specified court, decisions have generally construed theforum selection clause narrowly, to apply only to litigation in supportof the arbitration.(14)

[4]. “Optional” or Non-Mandatory Arbitration Agreements

Parties sometimes agree to provisions that appear only to treatarbitration as an optional means of dispute resolution, but not torequire mandatory submission of future disputes to arbitration (e.g.,“the parties may elect to submit disputes to arbitration”). Mostcourts and arbitral tribunals treat even ambiguously-draftedprovisions as “mandatory,” thereby either obliging parties to submittheir disputes to arbitration (and to refrain from litigation of arbitrabledisputes) or granting either party the option to initiate arbitration(such that, if the option is exercised by either party, both parties arethen bound to arbitrate(15) ). The basis for this conclusion is that itwould make little sense for parties to agree to optional arbitration inan entirely non-mandatory sense, leaving both parties free to decidewhen disputes arise whether or not they wish to arbitrate.

[E]. Formal Validity of International Arbitration Agreements

Like other types of contracts, international arbitration agreementsare subject to form requirements. The most significant and prevalentof these is the “writing” or “written form” requirement, together withrelated requirements for a “signature” and/or an “exchange” of writtencommunications, which is contained in the New York Convention. Inaddition, some national laws purport to page "73" impose otherform requirements, including requirements concerning the size andlocation of type in which the arbitration clause is printed, the needfor separate execution of arbitration agreements, the need for aselection of arbitrators and the like.

[1]. Written Form Requirement – New York Convention

The most universal written form requirement for internationalarbitration agreements is imposed by the Convention. As provided inArticle II(1), the Convention applies only to “agreements in writing,”which are then defined by Article II(2) to include “an arbitral clause ina contract or an arbitration agreement, signed by the parties orcontained in an exchange of letters or telegrams.”

Article II(2) does not merely require that arbitration agreements be in“written” form, but also that such agreements be either “signed bythe parties” or contained in an “exchange of letters or telegrams.”Under Article II(2), not merely a written record of the parties'agreement, but also a contract that is signed or contained in anexchange of writings is required. Article II(2) has generally been heldto exclude not just oral agreements, but also arbitration agreementsinvolving oral or tacit acceptance of written instruments andunsigned, but orally agreed written contracts. On the other hand, afew courts have held that Article II(2) is satisfied by tacit acceptanceof a written offer containing an arbitration provision, particularlywhere performance of contractual obligations is also accepted.

Authorities are divided over the relationship between Articles II(1)and II(2). Some authorities have held that Article II(2) provides anexhaustive definition of Article II(1)'s requirement for an agreement in“writing”: only if an agreement satisfies the Article II(2) definition willit be formally valid under the Convention. In contrast, otherauthorities hold that Article II(2) only lists representative examples ofwritten arbitration agreements and that Article II(1) can also besatisfied by other types of writings (without a signature orexchange). The latter view is adopted by an UNCITRALRecommendation, discussed below.

[2]. Written Form Requirement – National ArbitrationLegislation

Most national arbitration legislation imposes some sort of writtenform requirement on arbitration agreements. Many statutes parallelArticle II(2) of the Convention, although often modernizing theConvention's approach by reference to email and other moderncommunications; other jurisdictions have taken steps to minimizethe role of form requirements, in some cases eliminating (e.g.,France, Sweden) or virtually eliminating (e.g., England) any writtenform requirement at all for international arbitration agreements.(16)

[3]. UNCITRAL Model Law, Article 7 (and Revisions)

The Model Law originally contained a writing requirement that wassimilar to that of Article II(2) of the Convention. Article 7(2) of theoriginal 1985 Model Law provided: page "74"

The arbitration agreement shall be in writing. Anagreement is in writing if it is contained in a documentsigned by the parties or in an exchange of letters,telexes, telegrams or other means oftelecommunications which provide a record of theagreement, or in an exchange of statements of claimand defense in which the existence of an agreement isalleged by one party and not denied by another.

Like Article II(2), Article 7(2) requires either a signed written contractor an exchange of written communications that record the arbitrationagreement. This excludes oral agreements and purely tacitacquiescence to one party's written proposal of an arbitrationagreement. Under Article 7(2), the “writing” requirement is acondition of contractual validity.

The 2006 Revisions to the Model Law adopt two “Options” for Article7, which materially reduce or eliminate any writing requirement.Option II provides that an “arbitration agreement” is “an agreement tosubmit to arbitration all or certain disputes which have arisen orwhich may arise between them in respect of a defined legalrelationship, whether contractual or not.” The effect of Option II is toeliminate any written form requirement, leaving only substantiveissues of consent; under Option II, oral and tacit consent would bothbe sufficient for a valid arbitration agreement.

Option I for Article 7 is less sweeping. It retains the requirement thatthe “[a]n arbitration agreement shall be in writing,” but then providesa liberalized definition of a writing: “an arbitration agreement is inwriting if its content is recorded in any form, whether or not thearbitration agreement or contract has been concluded orally, byconduct, or by other means.” This provision eliminates anyrequirements for an “exchange” of writings or for “signatures,” andmerely requires that there be a written record of the agreement toarbitrate (even if that agreement is concluded orally or tacitly). Forexample, Option I would be satisfied where a party had, in aninternal email, recorded the terms of what had been agreed orally.

[4]. Relationship between New York Convention and NationalLaw

The relationship between the writing requirements in the Conventionand national arbitration legislation is complex. Authorities uniformlyhold that Article II of the Convention prescribes a mandatory“maximum” form requirement, which Contracting States may notexceed. Thus, if a State purported to impose a heightened formrequirement (e.g., arbitration agreements must be in a separatecontract, in capital letters), this requirement would be contrary toand superseded by the Convention's maximum form requirement.

Authorities are divided as to whether the Convention also prescribesa mandatory “minimum” form requirement. Some authorities holdthat an arbitration agreement is invalid if it does not comply withArticle II's form requirement – even if it satisfies the reduced formrequirement of national law applicable to the arbitration clause (e.g.,Article 7 of the 2006 Model Law); these authorities reason that theConvention supersedes less demanding national form requirements.The weight of authority adopts a different position, holding thatContracting States are free to adopt less demanding formrequirements (by virtue of Article VII of the Convention). This view isadopted by the UNCITRAL Recommendations, discussed below.

page "75"

[5]. 2006 UNCITRAL Recommendations

In 2006, UNCITRAL adopted two “Recommendations” forinterpretation of the New York Convention's writing requirement.(17)

The first Recommendation provided that Article II(2) of the

Convention should be interpreted in a non-exhaustive manner. Underthe Recommendation, Article II(1)'s writing requirement can besatisfied by agreements that do not comply with Article II(2)'srequirements for a signature or exchange of letters (e.g., by anunsigned written contract recording the parties' agreement).

2006 UNCITRAL RecommendationsThe United Nations Commission on International Trade Law,…1. Recommends that article II, paragraph 2, of the Convention on

the Recognition and Enforcement of Foreign Arbitral Awards,done in New York, 10 June 1958, be applied recognizing thatthe circumstances described therein are not exhaustive;

2. Recommends also that article VII, paragraph 1, of theConvention on the Recognition and Enforcement of ForeignArbitral Awards, done in New York, 10 June 1958, should beapplied to allow any interested party to avail itself of rights itmay have, under the law or treaties of the country where anarbitration agreement is sought to be relied upon, to seekrecognition of the validity of such an arbitration agreement.

Under UNCITRAL's second Recommendation, Article VII(1) of theConvention should be interpreted to permit less demanding nationalform requirements than that under Article II of the Convention. Thus,the Convention would not impose a “minimum” form requirement, butwould instead permit Contracting States to adopt legislation (like the2006 Revisions to the Model Law) eliminating or relaxing the formrequirement of Article II of the Convention.

[6]. Incorporation of Arbitration Agreement

International contracts frequently seek to incorporate arbitrationagreements or rules from other instruments, including othercontracts (between the same or different parties), trade associationrules or by-laws, or one party's standard terms and conditions. Forexample, a sales contract may provide “all disputes arising underthis contract shall be resolved by arbitration pursuant to Article XI ofthe Master Agreement” or “all disputes shall be resolved pursuant toArticles X to XIII of the [relevant trade association's rules].”Provisions incorporating arbitration clauses from other instrumentsgive rise to issues of both formal and substantive validity.

The formal validity of incorporated arbitration agreements usuallyinvolves straightforward issues: the “writing” requirements of theConvention and national law are simply applied to the incorporatinginstrument (e.g., to determine whether it has a signature or is anexchange of page "76" letters). In addition, some national lawscontain provisions specifically addressing the formal validity ofincorporated arbitration agreements. For example, Article 7(2) of the1985 Model Law provides “The reference in a contract to a documentcontaining an arbitration clause constitutes an arbitration agreementprovided that the contract is in writing and the reference is such asto make that clause part of the contract.” The provision confirms thatthe incorporated arbitration provisions need not separately satisfyrequirements for a signature or exchange of letters (although it mustbe contained in a “document”).

[F]. Substantive Validity of International Arbitration Agreements

An arbitration agreement, like other contracts, also gives rise toissues of substantive validity. The categories of substantive invalidityof arbitration agreements contained in the Convention and mostarbitration legislation are limited to cases where such agreementsare invalid on generally-applicable contract law grounds (e.g.,mistake, fraud, unconscionability, waiver). These grounds forchallenging the substantive validity of arbitration agreements areexclusive: they provide exceptions to the presumptive validity ofagreements to arbitrate.

In addition, special rules of unenforceability apply to somecategories of disputes. These rules are reflected in the language ofArticles II(1) and V(2)(a) of the Convention, which provide that certaincategories of disputes are “not capable of settlement by arbitration.”These “non-arbitrability” rules are discussed separately below.(18)

[1]. “Null and Void,” “Inoperable” and “Incapable of BeingPerformed”

Article II(3) of the Convention and Article 8(2) of the UNCITRALModel Law provide that an arbitration agreement need not berecognized and enforced if it is “null and void,” “inoperative,” or“incapable of being performed.” Similar provisions exist in other

jurisdictions.(19) These categories of substantive invalidity have beeninterpreted by reference to traditional rules of general contract law.The term “null and void” permits defenses based onunconscionability, fraud, mistake, lack of capacity and illegality. Theterm “inoperative” permits defenses based on termination, waiver,changed circumstances and repudiation. The term “incapable ofbeing performed” refers to impossibility and similar defenses.

Each of these defenses focuses, by reason of the separabilitypresumption, on the arbitration agreement itself, rather than theunderlying contract. For example, in considering claims ofunconscionability, the only relevant question is whether the terms ofthe arbitration clause – not the commercial terms of the underlyingcontract – are oppressive and unconscionable. Similarly, inconsidering claims of impossibility, the relevant question is whetherit is possible to perform the agreement to arbitrate – not to performthe underlying commercial contract. Finally, in considering each ofthese defenses, the governing law is that applicable to theagreement to arbitrate, not necessarily the law applicable to theunderlying contract.

page "77"

[2]. Unconscionability and Duress

Basic principles of contract law provide that unconscionableagreements are invalid. Although formulations of unconscionabilityvary, unconscionability generally requires grossly unfair substantiveterms of an agreement and an abuse of significantly strongerbargaining power.

As a consequence of the separability presumption, courts andtribunals almost always hold that claims that the parties' underlyingcontract is unconscionable do not implicate the validity of theassociated arbitration clause. Unconscionability is a ground forchallenging an agreement to arbitrate only in cases where a partychallenges the terms of the arbitration agreement itself (e.g., agrossly unfair seat, biased means of selecting the arbitral tribunal,grossly one-sided arbitral procedures) and/or the manner in whichthe arbitration agreement was negotiated (e.g., undue pressuretactics or deception);(20) unconscionable commercial terms in theunderlying contract (e.g., price) are generally irrelevant to theseinquiries.

Courts are generally skeptical of unconscionability challengesdirected at arbitration agreements in commercial settings. The factthat an arbitration clause was included in a form contract or generalterms and conditions; the fact that there was a disparity ofbargaining power; and the fact that the contract was in a foreignlanguage are virtually never grounds for finding unconscionability. Inrare cases, often involving individuals or small businesses, courtshave found that grossly one-sided arbitration procedures are invalidas unconscionable (for example, clauses permitting one party tounilaterally select the arbitrator(s)).

A few courts have held that so-called “asymmetrical” or “non-mutual”arbitration agreements are void on unconscionability or lack ofmutuality grounds. These agreements provide that one party, but notthe other, has the option of requiring arbitration of the parties'disputes. The weight of authority takes a contrary view and upholdsasymmetrical arbitration clauses.(21)

Asymmetrical Arbitration Agreement“The courts of [England] shall have exclusive jurisdiction to resolveall disputes relating to this Agreement, provided that [Party A] shallhave the option of submitting any such dispute for resolution byarbitration under the UNCITRAL Arbitration Rules.”

The validity of arbitration agreements may also be challenged on thegrounds of duress (or wrongful threat). Duress has generally requiredthe showing of a wrongful act or threat compelling involuntarysubmission. In practice, most efforts to meet this standard forarbitration agreements in commercial settings have failed, althoughthere are exceptions (particularly in cases involving individuals).Claims of duress must, in principle, be directed at the agreement toarbitrate itself, as opposed to the underlying contract; in someinstances, however, it is difficult to distinguish between duressdirected at the arbitration clause and duress directed at theunderlying contract (i.e., signature of a contract at gunpoint).

page "78"

[3]. Fraudulent Inducement or Fraud

Fraud and fraudulent inducement are not specifically mentioned asgrounds for non-enforcement of an arbitration agreement in theConvention or most arbitration statutes. Nonetheless, courts andarbitral tribunals have uniformly concluded that fraud and fraudulentinducement are bases for holding an arbitration agreements invalidor null and void.

Under the separability presumption, claims that the parties'underlying contract was fraudulently induced do not affect thevalidity of an arbitration clause included in the contract. The fact thatone party may have fraudulently misrepresented the quality of itsgoods, services, or balance sheet generally does not impeach theparties' separable dispute resolution mechanism.(22) As aconsequence, only fraud directed at the agreement to arbitrate itselfwill impeach that agreement. These circumstances seldom arise: inpractice, it is very unusual that a party will seek to procure anagreement to arbitrate by fraud.

[4]. Impossibility and Frustration

Impossibility and frustration are grounds for challenging thesubstantive validity of arbitration agreements.(23) As with othergenerally-applicable contract law defenses, the relevant issue iswhether the separable agreement to arbitrate has been frustrated,not whether the underlying contract has become impossible toperform. Claims of impossibility or frustration typically arise wherean arbitrator, named specifically in the arbitration agreement, dies orbecomes unable to fulfill his or her mandate; alternatively, thearbitral institution specified in the parties' agreement may cease toexist or be merged into another institution. In both cases, courtshave generally been reluctant to find frustration or impossibility, oftenappointing a substitute arbitrator or holding that another institution(or ad hoc arbitration) implements the parties' basic agreement toarbitrate.

[5]. Illegality

It is elementary in most jurisdictions that an illegal agreement is notenforceable. In most instances, courts and tribunals rely on theseparability presumption to conclude that claims attacking thelegality of the underlying contract do not affect the arbitrationagreement.(24) In rare cases, courts have suggested that sometypes of illegality of the underlying contract may also render theassociated arbitration agreement invalid: “The English court wouldnot recognize an agreement between … page "79" highwaymento arbitrate their differences any more than it would recognize theoriginal agreement to split the proceeds.”(25) Claims of illegality arealso sometimes directed at the parties' arbitration agreement itself.These claims typically involve the doctrine of “non-arbitrability,”discussed below.

[6]. Lack of Capacity

The existence of capacity to conclude an arbitration agreement is arequirement in most legal systems for the validity of the resultingagreement. Article V(1)(a) of the New York Convention permits anational court to deny recognition of an award if the parties to thearbitration agreement “were, under the law applicable to them, undersome incapacity.”(26) Although Article II of the Convention does notrefer expressly to incapacity as a defense, it has been held toincorporate Article V(1)(a)'s reference to a lack of capacity. Articles8, 34(2)(a)(i) and 36(1)(a)(i) of the UNCITRAL Model Law containparallel provisions.

Neither the Convention nor the Model Law prescribe additionalsubstantive or choice-of-law rules with regard to capacity. In theabsence of legislative guidance, the requirement that a party havecapacity to enter into an arbitration agreement is often identical torequirements for capacity for other contracts. For example,generally-applicable contract defenses going to capacity – such asmental incompetence, minority and limitations in constitutivecorporate documents – apply to arbitration agreements, just as theydo to other acts.

A recurrent issue arises from agreements entered into by states orstate-related entities. In some instances, states attempt to disavowtheir international arbitration agreements, citing provisions of nationallaw restricting the power of government entities to conclude suchagreements. Most authorities disfavor such efforts, providing that astate may not invoke its own law to deny its capacity to have madea binding agreement to arbitrate.(27)

[7]. Termination and Repudiation

An agreement to arbitrate may be challenged on grounds oftermination or repudiation. Like other issues of validity, questions oftermination and repudiation must be considered in the context of theseparability presumption. Most courts and tribunals have held thatthe termination, expiration, rescission, or repudiation of theunderlying contract does not affect the separable arbitrationagreement. In the words of a leading Swiss decision:

the arbitration agreement does not necessarily share… the outcome of the main contract. … [T]his alsoapplies where the parties terminate the principalcontract by mutual agreement, but in that case, as ageneral rule, one should accept that insofar as theparties have not expressly provided otherwise, theyalso intend to retain their arbitration agreement fordisputes concerning the consequences of thetermination of the contract.(28)

page "80"

Although termination of the underlying contract does not terminatethe separable arbitration clause, it is possible for parties toseparately terminate an arbitration agreement. Doing so typicallyrequires express agreement by both parties.

In some legal systems, an arbitration agreement may also beterminated by a repudiation, or a repudiatory breach, which isaccepted; of course, the repudiation must involve the arbitrationagreement, not the underlying contract. In general, only thecommencement of litigation in deliberate breach of an agreement toarbitrate will constitute a repudiatory breach; lesser breaches, suchas failure to comply with a tribunal's procedural directions, will notordinarily constitute a repudiation of the arbitration agreement(although it may result in the arbitral tribunal imposing proceduralsanctions against the non-complying party).(29)

[8]. Waiver of Right to Arbitrate

It is clear that rights to arbitrate may be waived, just as othercontractual rights may be waived. The Convention does notexpressly refer to waiver of the right to arbitrate, but Article II(3)arguably includes waiver when referring to arbitration agreementsthat are “inoperable.”

Article 8(1) of the Model Law is more specific, providing for theenforcement of arbitration agreements by national courts (through astay of litigation), subject to the requirement that the party invokingthe agreement has requested its enforcement “not later than whensubmitting his first statement on the substance of the dispute” in thenational court proceedings. Article 8 establishes a reasonablydefinite definition of waiver, which applies regardless of the intentionsof the “waiving” party or prejudice to the “non-waiving” party. Failureto comply with Article 8(1)'s requirement has frequently been held toresult in the loss of a party's right to invoke the arbitration agreementwith regard to a particular dispute.

Some legal systems are more reluctant to find the waiver of anarbitration agreement. For example, the FAA has been interpretedby U.S. courts as disfavoring waivers of a party's right to arbitrate. Afinding of waiver under the FAA typically requires knowledge of aright to arbitrate, actions inconsistent with that right (typically,commencement of litigation or protracted delay) and (less clearly)prejudice to the adverse party. Moreover, the party seeking toestablish waiver bears a heavy burden of proof under the FAA anddoubts are resolved against finding a waiver.

[9]. Inconvenient Arbitral Seat

An arbitration agreement will sometimes select an arbitral seat thatis (or becomes) highly inconvenient to one party. It is occasionallysuggested that this inconvenience provide sufficient grounds forchallenging the validity of the arbitration agreement, including on thebasis of unconscionability or mistake. In practice, national courtsand arbitral tribunals have virtually always rejected such claims (atleast outside the consumer context), frequently questioning whetherapplicable international or national instruments even recognize sucha basis for challenging the validity of an arbitration agreement.(30) Incontrast, where national hostilities or radical political page "81"changes result in serious doubts about the impartiality of courts inthe arbitral seat, the contractual specification of the seat is morelikely to be invalidated.(31)

§3.02. The Non-Arbitrability Doctrine

As described above, the New York Convention contains variousexceptions to the general obligation, set forth in Article II, to enforcewritten arbitration agreements. One of these exceptions is the so-called non-arbitrability doctrine, which provides that certain types ofdisputes may not be arbitrated, notwithstanding an otherwise validarbitration agreement.

[A]. Basis for Non-Arbitrability Doctrine

Article II(1) of the Convention provides an exception to thepresumptive obligation of Contracting States to recognize arbitrationagreements. Under Article II(1), a state is not obligated to referdisputes to arbitration if they are not “capable of settlement byarbitration.” Similarly, Article V(2)(a) provides that an award need notbe recognized if “[t]he subject matter of the difference is not capableof settlement by arbitration under the law” of the state whererecognition is sought. Together, these provisions permit theassertion of non-arbitrability defenses to both arbitration agreementsand awards under the Convention.

Like the Convention, legislation in most states treats somecategories of claims as incapable of resolution by arbitration. TheModel Law is representative, with Article 1(5) providing that specifiedtypes of disputes may be treated as not capable of settlement byarbitration (or “non-arbitrable”). Virtually all states have provided, bylegislation or judicial decisions, that certain categories of disputesare non-arbitrable: even if the parties have concluded a validarbitration agreement, which extends to a dispute, the agreementwill not be enforceable as applied to these “non-arbitrable” matters.

[B]. Applications of Non-Arbitrability Doctrine

The types of disputes that are non-arbitrable differ from nation tonation. In general, disputes or claims are deemed “non-arbitrable”because of their public importance or a perceived need for judicialprotections. Among other things, various nations refuse to permitarbitration of at least some disputes concerning criminal law, laborgrievances; intellectual property; real estate; bankruptcy; anddomestic relations.

The non-arbitrability doctrine was frequently invoked during the 20thcentury. National courts concluded that a variety of claims were non-arbitrable, applying expansive, sometimes ill-defined, conceptions ofpublic policy. More recently, courts in most developed jurisdictionshave materially narrowed the non-arbitrability doctrine, typicallyapplying it only where statutory provisions expressly require.(32) Inmost instances, this has involved a limited set of “mandatory law”claims, which parties are not free to contract out of in advance andwhich fairly clearly require resolution in judicial or other specializedforums.

page "82"

[1]. Competition and Antitrust Claims

During the mid-20th century, many national courts sometimes heldantitrust and competition claims non-arbitrable. More recently, thatapproach has been rejected by U.S., EU and other courts; as aconsequence, many categories of civil antitrust claims are nowarbitrable. Thus, in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., the U.S. Supreme Court held that federal antitrustclaims were arbitrable, provided that they arose from an“international” transaction. The Court reasoned that “[t]he utility ofthe [New York] Convention in promoting the process of internationalcommercial arbitration depends upon the willingness of nationalcourts to let go of matters they normally would think of as theirown.”(33) A similar approach has been taken by the European Courtof Justice, which declared in Eco Swiss China Time Ltd v. BenettonInt'l NV, that an arbitration agreement could validly be given effectwith respect to EU competition claims.(34) Courts in EU MemberStates have also held that EU and Member State competition lawclaims may validly be the subject of an international arbitrationagreement.

[2]. Securities Claims

Like competition claims, claims arising from securities regulationswere historically regarded as non-arbitrable in many jurisdictions. Inthe United States, early decisions held that private civil claims underU.S. securities laws were non-arbitrable, at least in domestic

transactions. In Scherk v. Alberto-Culver Co., however, the U.S.Supreme Court held that claims under the securities laws werearbitrable, again provided they arose from an “international”transaction. The Court reasoned that “[a] parochial refusal by thecourts of one country to enforce an international arbitrationagreement would not only frustrate [the Convention's] purposes, butwould invite unseemly and mutually destructive jockeying by theparties to secure tactical litigation advantages.”(35) Approaches inother jurisdictions are mixed, with some states providing thatarbitration agreements are unenforceable as applied to futuredisputes arising under domestic securities regulatory legislation; inother jurisdictions, securities claims may be the subject of a validagreement to arbitrate.

[3]. Bankruptcy

In most jurisdictions, only courts (often specialized courts) have theauthority to commence, administer and conclude bankruptcy cases,including proceedings that liquidate a bankrupt company,reschedule its debts, operate it under some form of receivership, ordistribute pro rata payments to creditors. Disputes concerning these“core” bankruptcy functions are almost universally considered non-arbitrable, whether in domestic or international arbitrations.(36)

It is much more controversial, however, whether disputes merelyinvolving a bankrupt entity as a party (e.g., a dispute arises betweenthe debtor and a counter-party, under a contract containing anarbitration clause) or raising questions of bankruptcy law (e.g., thecontinued effect of a contract), may be resolved in arbitration.Different legislative regimes reach different page "83"conclusions about these types of disputes. In many such cases, thedesirability of a centralized, usually “pro-debtor,” forum for resolvingall or most disputes involving the debtor is weighed against thatentity's pre-existing commitment to resolve disputes by internationalarbitration, with different legal systems adopting different resolutions.The weight of authority supports narrow non-arbitrability rules in thiscontext, with international arbitration agreements of bankrupt entitiesoften being given effect.

[4]. Employment Contracts

Historically, many legal systems treated some employment-relatedclaims as non-arbitrable. Despite the evolution of the non-arbitrabilitydoctrine in other contexts, that remains the case in a number ofjurisdictions, including Belgium, Italy and Japan.(37) In contrast, U.S.law affirmatively encourages arbitration of many labor disputes, whileimposing only limited non-arbitrability restrictions on employer-employee disputes. Thus, §1 of the U.S. FAA excludes from theAct's coverage agreements arising from a limited range ofemployment relations – involving “contracts of employment ofseamen, railroad employees, or any other class of workers engagedin foreign or interstate commerce.” Consistent with its text, thisexclusion has been limited exclusively to transportation workers.(38)

[5]. Consumer Disputes

As with employment disputes, different legal systems take differentapproaches towards the arbitration of “consumer” disputes.(39) U.S.law currently recognizes the validity of agreements to arbitratebetween consumers and businesses and permits the arbitration ofboth existing and future consumer disputes, subject to fairly limitedrestrictions based on principles of unconscionability and due notice.The FAA has been interpreted as extending to agreements betweenconsumers and merchants, with the U.S. Supreme Court repeatedlyupholding both the validity of such agreements and the arbitrability ofconsumer claims.(40)

In contrast, other jurisdictions forbid or regulate (through statutoryprovisions) agreements to arbitrate future consumer disputes. Underthe EU's Unfair Terms in Consumer Contracts Directive, a provisionin a standard form consumer contract is prima facie invalid if it“requir[es] the consumer to take disputes exclusively to arbitrationnot covered by legal provision.”(41) Various EU Member States haveimplemented this provision by adopting legislation that deemsarbitration clauses in standard form contracts unfair (and thereforeinvalid) if they require binding arbitration page "84" of futuredisputes involving claims for less than specified sums (e.g.,approximately $10,000). Legislation in other jurisdictions, includingQuebec, Ontario, New Zealand and Japan, also provides for theunenforceability of specified categories of consumer contracts.

[6]. Other Non-Arbitrable Disputes

Legislation in other states provides for a variety of categories of non-arbitrable disputes, although these are usually limited in scope andpractical importance. Virtually all states regard criminal matters asnon-arbitrable (in the sense that arbitrators may not impose criminalsanctions, although in deciding civil disputes they may considerallegations of conduct that would amount to a criminal offense). Afew states treat limited issues of intellectual property law as non-arbitrable (e.g., patent validity), while allowing other civil disputesover IP rights to be arbitrated (e.g., royalty disputes, infringementclaims). Other states treat disputes arising from trade sanctions orembargoes as non-arbitrable, although the more frequent approachis to treat such disputes in the same manner as antitrust disputes.

[C]. Choice of Law Governing Non-Arbitrability

The law applicable to questions of non-arbitrability is addressed inArticle V(2)(a) of the Convention, which provides that an award neednot be recognized in a Contracting State if “the subject matter of thedispute is not capable of settlement by arbitration under the law ofthat country.” The same rule is reflected in Article 36(1)(b)(i) of theModel Law. As discussed above, most authorities have applied thisrule by analogy to the enforcement of arbitration agreements,holding that, when a court is requested to refer a dispute toarbitration, it may apply its own non-arbitrability rules.(42)

[D]. Non-Arbitrability Issues in Annulment or Enforcement ofAwards

The non-arbitrability doctrine is also relevant at the stage ofenforcing arbitral awards. In particular, as discussed below, awardsmay be either annulled or denied recognition if they concern amatter that is non-arbitrable (“not capable of settlement byarbitration”).(43)

Although national courts have held that competition, securities andother mandatory law claims are arbitrable, they have also suggestedthat awards dealing with these matters may be subject toheightened judicial review. In Mitsubishi Motors, for example, theU.S. Supreme Court held that U.S. courts would take a “secondlook” at an arbitrator's decision applying the antitrust laws at thestage of award enforcement: “Having permitted the arbitration to goforward, the national courts of the United States will have theopportunity at the award enforcement stage to ensure that thelegitimate interest in the enforcement of the antitrust laws has beenaddressed.”(44) The Eco Swiss decision of the ECJ attached thesame caveat to the enforcement of an arbitration agreement withregard to EU competition claims. Similar approaches have beenadopted in other contexts.(45)

page "85"

The level of judicial review of awards dealing with mandatory lawclaims has been relatively limited. Courts have sometimesscrutinized the substance of the arbitrators' decisions, but typicallyafforded awards a substantial measure of discretion, even indeciding mandatory law claims.(46)

page "86"

1 Article II of the New York Convention applies only to an“agreement … under which the parties undertake to submit toarbitration,” while Article 8 of the Model Law applies only wherethere is an “arbitration agreement,” defined as requiring “anagreement by the parties to submit to arbitration all or certaindisputes.” These provisions require the existence of a validly-formedagreement to arbitrate, failing which there will be nothing for nationalcourts or arbitrators to enforce.2 G. Born, International Commercial Arbitration 639–41 (2009).3 Issues of formal validity of the arbitration agreement arediscussed below. See infra pp. 73–77. See also G. Born,International Commercial Arbitration 579 et seq., 642–43 (2009).4 G. Born, International Commercial Arbitration 671–73 (2009).5 G. Born, International Commercial Arbitration 644–55 (2009).6 See supra pp. 34–39.7 G. Born, International Commercial Arbitration 659–60 (2009).Some national arbitration legislation permits judicial assistance inselecting an arbitral tribunal even for a blank clause, provided the

parties have some connection to the judicial forum. Id. at 1703–38.8 See, e.g., G. Born, International Arbitration and Forum SelectionAgreements: Drafting and Enforcing (3d ed. 2010); J. Paulsson etal., The Freshfields Guide to Arbitration Clauses in InternationalContracts (3d ed. 2010).9 G. Born, International Commercial Arbitration 674–78 (2009).10 Marnell Corrao Assoc. Inc. v. Sensation Yachts Ltd, (2000) 15PRNZ 608 (Auckland High Court).11 Warnes SA v. Harvic Int'l Ltd, 1993 WL 228028 (S.D.N.Y. 1993).12 Preliminary Award in Zurich Chamber of Commerce of 25November 1994, XXII Y.B. Comm. Arb. 211 (1997).13 Preliminary Award in ICC Case No. 2321, I Y.B. Comm. Arb. 133(1976).14 See G. Born, International Commercial Arbitration 682–86(2009).15 See, e.g., Three Shipping Ltd v. Harebell Shipping Ltd [2004] AllE.R. (D) 152 (Q.B.); Thorn Security (Hong Kong) Ltd. v. Cheung FeeFung Cheung Constr. Co., [2005] 1 HKC 252 (H.K. Court of Appeal,High Court); Austin v. Owens-Brockway Glass Container Inc., 78F.3d 875, 880 (4th Cir. 1996) (agreement that “all disputes … maybe referred to arbitration” triggers mandatory arbitration when disputeis referred to arbitration).16 See G. Born, International Commercial Arbitration 613–14(2009). In some states (e.g., Switzerland), written form requirementsare a condition or requirement for contractual validity, while in otherjurisdictions (e.g., United States, England), arbitration agreementsmay be valid under general contract law principles even if the formalrequirements for application of national arbitration legislation are notsatisfied.17 UN General Assembly Resolution No. 61/33, Recommendationregarding the Interpretation of Article II, paragraph 2, and Article VII,paragraph 1, of the Convention on the Recognition and Enforcementof Foreign Arbitral Awards (2006), available at www.uncitral.org .18 See infra pp. 82–86.19 See, e.g., FAA, 9 U.S.C. §2 (a written arbitration agreement“shall be valid, irrevocable and enforceable, save upon such groundsas exist at law or in equity for the revocation of any contract”);English Arbitration Act, 1996, §7; Singapore International ArbitrationAct, §§3(1), 31(2)(b).20 G. Born, International Commercial Arbitration 723–31 (2009).21 G. Born, International Commercial Arbitration 731–35 (2009).22 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395(U.S. S.Ct. 1967) (claim that the parties' underlying contract(containing an arbitration clause) had been fraudulently induced didnot involve a challenge to the arbitration clause itself; arbitraltribunal, rather than a U.S. court, was competent under U.S. FAA torule upon the fraudulent inducement claim); Fiona Trust & HoldingCorp. v. Privalov [2007] UKHL 40 (House of Lords) (“the doctrine ofseparability requires direct impeachment of the arbitrationagreement before it can be set aside. This is an exacting test.”).23 There are references to the impossibility doctrine in Article II(3)of the Convention, which contemplates nonrecognition of arbitrationagreements which are “incapable of being performed,” and Article 8of the UNCITRAL Model Law, which contains the same formula. SeeG. Born, International Commercial Arbitration 751–53 (2009).24 See, e.g., Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.440 (U.S. S.Ct. 2006) (claim that underlying contract was void forillegality did not impeach arbitration clause); Fincantieri-CantieriNavali Italiani SpA v. M and Arbitration Tribunal, XX Y.B. Comm.Arb. 766 (Swiss Federal Tribunal) (1995).25 Soleimany v. Soleimany [1998] Q.B. 785, 797 (English Court ofAppeal).26 See infra pp. 384–86.27 G. Born, International Commercial Arbitration 630–35 (2009).28 Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd,1990 Rev. arb. 921 (Swiss Federal Tribunal). See also UnionmutualStock Life Ins. Co. of Am. v. Beneficial Life Ins. Co., 774 F.2d 524,528–29 (1st Cir. 1985) (“[t]he arbitration clause is separable from thecontract and is not rescinded by … [defendant]'s attempt to rescindthe entire contract based on … frustration of purpose.”);Commonwealth Edison Co. v. Gulf Oil Corp., 541 F.2d 1263, 1271(7th Cir. 1976).29 G. Born, International Commercial Arbitration 750–51 (2009).30 G. Born, International Commercial Arbitration 764–65, 1723–28(2009).31 G. Born, International Commercial Arbitration 1728–32 (2009).32 See G. Born, International Commercial Arbitration 787–90, 836–40 (2009).33 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473U.S. 614, 639 n.21 (U.S. S.Ct. 1985).34 Eco Swiss China Time Ltd v. Benetton Int'l NV, C-126/97 [1999]

E.C.R. I-3055 (E.C.J.).35 Scherk v. Alberto-Culver Co., 417 U.S. 506, 515–16 (U.S. S.Ct.1974).36 G. Born, International Commercial Arbitration 808–16 (2009).37 G. Born, International Commercial Arbitration 816–19 (2009).38 See, e.g., Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 107(U.S. S.Ct. 2001) (“As for the residual exclusion of ‘any other classof workers engaged in foreign or interstate commerce,’ it would berational for Congress to ensure that workers in general would becovered by the FAA, while reserving for itself more specificlegislation for transportation workers”).39 “Consumer” disputes are defined generally as disputes betweena consumer (or a non-merchant) and a merchant or commercialparty, sometimes with a limited amount in controversy.40 See Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265 (U.S.S.Ct. 1995) (consumer contract for pest control); Green Tree Fin.Corp. v. Randolph, 531 U.S. 79 (U.S. S.Ct. 2000) (mobile homefinancing agreement).41 EU Council Directive 93/13/EEC, O.J. L 095, 23/04/1993, at 29,Annex 1(q) (“Requiring the consumer to take disputes exclusively toarbitration not covered by legal provision.”).42 G. Born, International Commercial Arbitration 515–22, 833–34(2009).43 See infra pp. 326–27.44 Mitsubishi Motors, 473 U.S. at 638.45 These include securities and IP disputes. G. Born, InternationalCommercial Arbitration 788–834 (2009).46 See infra pp. 322–23.

Key words

Source

Chapter 4:Interpretation ofInternational ArbitrationAgreements in Gary B. Born , InternationalArbitration: Law andPractice, (© Kluwer LawInternational; KluwerLaw International 2012)pp. 87 - 93

Agreements to arbitrate are endlessly varied. As a practical matter,arbitration clauses can be very short (a few words) or quite long;they may be drafted in various languages and with varying degreesof skill and linguistic proficiency. Arbitration agreements mayincorporate model clauses, either in whole or part, or start fromscratch; they may provide for arbitration of some contractualdisputes, all contractual disputes, or virtually all disputes(contractual, tort, or otherwise) connected to the parties'relationship; they may provide for ad hoc or for institutionalarbitration; they may designate an arbitral seat; and they mayotherwise structure the arbitral process.

The variety of arbitration agreements frequently gives rise toquestions of interpretation. Questions of interpretation most oftenconcern the “scope” of arbitration clauses, but can also includeother topics (such as the incorporation of institutional rules or thetreatment of procedural provisions). The interpretation of arbitrationagreements also gives rise to questions regarding the allocation ofcompetence between national courts and arbitral tribunals.

§4.01. Scope of Arbitration Agreements

The most frequent, and important, issue that arises in theinterpretation of arbitration agreements concerns the “scope” of theagreement; that is, assuming that the parties are bound by a validarbitration agreement, what categories of disputes or claims havethe parties agreed to submit to arbitration? In particular, areparticular contract claims, or non-contractual claims based upon tortor statutory protections, subject to arbitration pursuant to theparties' arbitration agreement or not?

“Scope” of Arbitration Agreement

Chapter 4: Interpretation of InternationalArbitration Agreements

– “All disputes arising under this First Sales Agreement shall befinally resolved by arbitration…”

– Seller's fraudulent misrepresentation of quality of goods deliveredunder Agreement

– Seller's failure to provide goods that comply with statutoryproduct quality and safety regulations

– Unfair competition and/or slander/libel claims because buyerpublicly criticized seller's goods

– Claims for breach of Second Sales Agreement

page "87"

[A]. Rules of Construction

General rules of interpretation and presumptions about the parties'intent play an important role in ascertaining the meaning ofarbitration agreements. In most jurisdictions, the starting point forthe interpretation of international arbitration agreements is generally-applicable contract law and its principles of contract interpretation.In the words of an Australian court, “[a]rbitration clauses arecontractual provisions … and are governed by the ordinary rules ofcontractual interpretation.” (1) These principles typically include thecontra preferentem rule, specific terms prevailing over general terms,giving effect to all parts of the parties' agreement, and trade usage ofterms. In addition to these generally-applicable rules, some statesapply rules of construction relevant specifically to internationalarbitration agreements.

[1]. Pro-Arbitration Rules of Construction

In many jurisdictions, national law provides that internationalarbitration agreements should be construed in light of a “pro-arbitration” presumption. This presumption provides that anarbitration clause should be interpreted expansively and, in cases ofdoubt, extended to encompass disputed claims. That is particularlytrue where an arbitration clause encompasses some of the parties'disputes and the question is whether the clause also applies torelated disputes, so that all such controversies can be resolved in asingle proceeding (rather than in multiple proceedings in differentforums).

In the United States, the Supreme Court has declared that “anydoubts concerning the scope of arbitrable issues should be resolvedin favor of arbitration.” (2) In England, the House of Lords reasonedsimilarly: “The proposition that any jurisdiction or arbitration clausein an international commercial contract should be liberally construedpromotes legal certainty. It serves to underline the golden rule that ifthe parties wish to have issues as to the validity of their contractdecided by one tribunal and issues as to its meaning or performancedecided by another, they must say so expressly. Otherwise theywill be taken to have agreed on a single tribunal for the resolution ofall such disputes.” (3) Courts in other states adopt similarpresumptions.

[2]. Anti-Arbitration Rules of Construction

A few authorities have held that arbitration clauses must beinterpreted restrictively, resolving doubts about the coverage ofparticular disputes against coverage. The “restrictive” presumption isgenerally explained on the grounds that arbitration is a derogationfrom otherwise available access to civil justice, and that suchderogations must be construed narrowly. Thus, in an older decision,a French appellate court declared that “[t]he arbitration agreementmust be strictly interpreted as it departs from the norm – and inparticular from the usual rules as to the jurisdiction of the page"88" courts.” (4) This anti-arbitration interpretative presumption isarchaic and generally not applied in contemporary decisions.

[B]. Recurrent Issues

In practice, a number of issues recur in interpreting the scope ofarbitration agreements. These issues involve the application of anumber of relatively standard contractual formulae.

[1]. Commonly-Used Formulae in Arbitration Agreements

The most common terms used in arbitration agreements include (a)“all” or “any”; (b) “disputes,” “differences,” “claims,” or“controversies”; (c) “arising out of,” “in connection with,” “under,” or“relating to”; (d) the parties' “agreement,” “contract,” the “works,” or

some broader set of contractual arrangements between the parties.(5)

Model ICC Arbitration Clause“All disputes arising out of or in connection with the presentcontract shall be finally settled under the [ICC] Rules.”Model UNCITRAL Clause“Any dispute, controversy or claim arising out of or relating to thiscontract, or the breach, termination or invalidity thereof, shall besettled by arbitration in accordance with the UNCITRAL ArbitrationRules.”

Some arbitration clauses provide for arbitration of “all” or “any”disputes or differences without any further qualification ordescription. For example, an agreement may provide “[a]ll disputesrelating to this contract shall be decided by arbitration.” In contrast,other arbitral clauses refer only to “disputes” (as in, “Disputesrelating to this contract …”). Some authorities have interpreted the“all disputes” or “any disputes” formulae more broadly than a simplereference to “disputes,” concluding that these terms extend to alldisputes having any plausible factual or legal relation to the parties'agreement or dealings. (6)

Most arbitration clauses refer to “disputes” and “differences.” A fewcourts have held that a “dispute” does not exist unless there is agenuine controversy between the parties, sometimes examining themerits of the parties' positions and holding that an arbitrable“dispute” does page "89" not exist where one party's position isfrivolous. (7) In contrast, most courts have adopted broadinterpretations of the terms “dispute,” “difference” and “controversy,”and refused to inquire into the reasonableness or plausibility ofeither party's position.

Many arbitration agreements use the phrase “relating to” (as in“disputes relating to this contract”). Courts in most jurisdictions haveheld that this term extends an arbitration clause to a broad range ofdisputes. U.S. courts have repeatedly concluded that the “relatingto” formula encompasses non-contractual, as well as contractual,claims and that it reaches any disputes that “touch” or have afactual relationship to the parties' contract. (8) Courts in otherjurisdictions have also interpreted the phrase “relating to” broadly. (9)

Similar conclusions have been reached with respect to the phrase“in connection with.”

Authorities have reached divergent interpretations of agreements toarbitrate all disputes “arising under” or “arising out of” a contract.Some courts have concluded that clauses using the formulation“arising under” or “arising out of” are broad (comparable to “relatingto”) while other courts have held that the formulation is “narrow.” Inthe latter category, some courts have concluded that the “arisingunder” formula does not encompass tort claims that did not directlyinvolve application of the parties' contractual commitments, claimsbased on pre-contractual conduct, or claims about contractformation. (10)

[2]. “Broad” versus “Narrow” Arbitration Clauses

Some U.S. courts have distinguished between “broad” and “narrow”arbitration clauses. Among other things, some courts have said thata “broad” (but not a “narrow”) clause will attract a “pro-arbitration”rule of construction and grant the arbitrators competence-competence to decide disputes over the clause's scope. Otherauthority holds that a sharp distinction between “broad” and “narrow”clauses is difficult to justify and that the general pro-arbitrationapproach to construction of arbitration agreements should apply inall cases.

[3]. Tort Claims

There is no prohibition in most jurisdictions against the arbitration ofnon-contractual claims. On the contrary, Article II(1) of the New YorkConvention (and many arbitration statutes) defines an arbitrationagreement as including differences arising from a relationship“whether contractual or not.” National courts have generallyapproached the question whether a particular non-contractual claimfalls within an arbitration clause by applying the pro-arbitrationpresumptions and other rules of construction that are used in othercontexts.

page "90"

National courts have frequently addressed cases where conductrelating to the parties' contractual relationship leads to tort claims

(such as fraud, defamation, or unfair competition). The “pro-arbitration” presumption under most national laws is generallyapplicable to these tort claims. In addition, it is frequently said that aparty may not defeat an arbitration clause by casting its claims intort, rather than contract. Taking this approach, many decisionshave held on particular facts that various tort claims were within thescope of particular arbitration agreements. (11) In other cases, tortclaims have been held to fall outside the scope of the parties'arbitration agreement. (12)

[4]. Statutory Claims

There is also generally no prohibition against arbitration of claimsbased on statutory protections. (13) The U.S. Supreme Court hasalso held that the application of arbitration clauses to statutoryclaims should be subject to no different rules of interpretation thancontract claims. The Court declared in Mitsubishi Motors that“[t]here is no reason to depart from these [pro-arbitrationinterpretative] guidelines where a party bound by an arbitrationagreement raises claims founded on statutory rights.” (14) A numberof courts have also said that the scope of an arbitration clause isdetermined by reference to the factual allegations underlying theparties' claims, regardless of the “legal labels” for those claims. (15)

On the other hand, some national courts have remarked that “anarbitration clause is no doubt designed primarily to cover claims forbreach of contract.” (16) This view is archaic, and reflects a minorityposition that is no longer followed in most jurisdictions.

[5]. Multiple Contracts

A recurrent factual setting involves the same parties entering into aseries of contracts related to a single enterprise, some of whichcontain dispute resolution provisions. In these cases, the questionarises whether an arbitration clause in one agreement coversdisputes under other agreements. In general, so long as the partiesto the contracts are the same, and the underlying contracts relate toa single project, courts have usually held that an arbitration clausein one agreement extends to related agreements (e.g., Contract Awith an LCIA arbitration clause; Contract B with no dispute page"91" resolution clause) – provided that the other agreements do notcontain inconsistent arbitration or forum selection clauses (e.g.,Contract A with an ICC arbitration clause; Contract B with a NewYork forum selection clause). (17) Despite this, where theagreements lack a sufficiently close relationship, then an arbitrationclause in one contract is likely to be held inapplicable to disputesunder the other contract.

Different conclusions apply if the identities of the parties to relatedcontracts differ. In these circumstances, except where all partiescan be bound through non-signatory principles to an arbitrationagreement (as discussed in Chapter 5 below), there is little prospectfor applying an arbitration clause in one agreement to disputes undera different contract with different parties.

Similarly, the existence of dissimilar arbitration provisions in relatedagreements has generally been held to be strong evidence thatdisputes under the various agreements were meant to be resolvedunder different dispute resolution provisions. This is particularly truewhere different contracts contain different arbitration clauses (e.g.,Contract A with an ICC clause and Contract B with an AAA clause;Contract A with a Swiss arbitral seat and Contract B with a Tokyoseat). Even where an identical arbitration clause is repeatedverbatim in multiple contracts, that clause is sometimes said not tobe the “same” clause, giving rise to the possibility of separatearbitrations (and arbitral tribunals) under each separate substantivecontract, with each arbitration limited to a single, specificagreement. Arbitral tribunals have often sought to avoid this latterresult, at least where different contracts involve the same parties.(18)

A related factual scenario involves successive contracts entered intoat different times between the same or similar parties (asdistinguished from related contracts entered into at the same time).Where one, but not all, of the successive contracts contains anarbitration clause, questions can arise as to whether such a clauseextends to disputes under subsequent (or earlier) contracts. As inother contexts, courts have looked to the language and relationshipof the parties' agreements in order to determine their intent, whilepresuming that the parties desired a single, efficient disputeresolution mechanism. In general, courts have held that anarbitration clause in the earlier of two or more related agreementsextends to disputes under the later contracts, provided that there is

a sufficiently close connection between the agreements; if thesubsequent contracts have their own different, inconsistent disputeresolution provisions, the opposite conclusion is much more likely.(19)

§4.02. Incorporation of Institutional Arbitration Rules

As discussed elsewhere, arbitration clauses frequently refer toinstitutional arbitration rules and provide that the arbitration shall beconducted in accordance with those rules. The incorporation ofinstitutional rules by reference is in principle effective in all developedjurisdictions: parties that agree to arbitrate under institutional rulesare bound by those rules.

page "92"

Many institutional rules grant the administering institution the powerto interpret and apply its rules, typically with an exclusion of judicialreview. (20) Courts have generally afforded arbitral institutions broaddiscretion in interpreting their own rules. (21) In limited instances,exclusions of judicial review may be ineffective (e.g., precludingjudicial consideration of challenges to arbitrators on grounds ofpartiality).

A recurrent practical question is whether a general reference to a setof institutional arbitration rules (e.g., “All disputes shall be resolvedby arbitration under the ICC Arbitration Rules”) refers to the versionof the institutional rules in force at the time the contract wasconcluded or the version in force at the time the arbitration iscommenced. Some institutional rules specifically address the issue(often providing for application of the version of institutional rules inforce at the time an arbitration is commenced (22) ). Absent suchlanguage, courts and arbitrators reach divergent results.

§4.03. Allocation of Competence to Interpret InternationalArbitration Agreements

As discussed above, different legal systems take differentapproaches to the allocation of competence to decide jurisdictionaldisputes. The same rules that apply generally to the allocation ofjurisdictional competence also apply to interpretation of the scope ofarbitration agreements.

As discussed above, U.S. courts have held that parties may agreeto submit jurisdictional disputes to the arbitrators for final resolution,applying the standard adopted by the U.S. Supreme Court in FirstOptions v. Kaplan. (23) Most courts have held that an agreement toarbitrate under institutional rules, which grant the arbitratorscompetence to decide their own jurisdiction, satisfies the FirstOptions requirement for “clear and unmistakable” evidence,particularly for disputes over the scope of a concededly validarbitration clause. (24) In the words of one U.S. court, when “partiesexplicitly incorporate rules that empower an arbitrator to decideissues of arbitrability, the incorporation serves as clear andunmistakable evidence of the parties' intent to delegate[jurisdictional disputes] to an arbitrator.” (25)

page "93"

1 Walter Rau Neusser Oel und Fett AG v. Cross Pac. Trading Ltd,XXXI Y.B. Comm. Arb. 559 (Australian Fed. Ct. 2005) (2006).2 Mitsubishi Motors, 473 U.S. at 626.3 Fiona Trust & Holding Corp. v. Privalov [2007] UKHL 40 (House ofLords). See also G. Born, International Commercial Arbitration1067–76 (2009).4 Judgment of 11 March 1986, Compagnie d'assurance La Zurich v.Bureau central français, Gaz. Pal. 1986 1.298 (Paris Cour d'appel).See also Hi-Fert Pty Ltd v. Kiukiang Maritime Carriers Inc., (1998)90 FCR 1 (Australian Fed. Ct.).5 The intent of most model institutional arbitration clauses is toexpansively encompass all disputes relating to a particular contract,regardless of legal formulation. That is consistent with the practicalobjective of providing a single, neutral and expert forum for efficientlyresolving the parties' disputes.6 Most arbitration clauses provide for arbitration of all “disputes” or“differences,” while some clauses also (or instead) refer to “claims”or “controversies.” These formulations encompass any sort ofdisagreement, dispute, difference, or claim that may be asserted inarbitral proceedings.

7 See, e.g., Guangdong Agri. Co. v. Conagra Int'l (Far East) Ltd,XVIII Y.B. Comm. Arb. 187 (H.K. High Court, S.Ct. 1992) (1993). Asdiscussed above, leading international arbitration conventions andnational arbitration legislation apply only to agreements to arbitrate“disputes.” See supra pp. 35–36, 46. See also G. Born, InternationalCommercial Arbitration 1091–92 (2009).8 See, e.g., Pennzoil Explor. and Prod. Co. v. Ramco Energy Ltd,139 F.3d 1061 (5th Cir. 1998) (“relating to” language in arbitrationagreement is “broad”; clause reaches claims that “‘touch’ matterscovered by” the contract); McDonnell Douglas Corp. v. Kingdom ofDenmark, 607 F.Supp. 1016, 1019 (E.D. Mo. 1985) (“‘relating to’ isgenerally regarded as broad rather than narrow language”).9 G. Born, International Commercial Arbitration 1092–93 (2009).10 G. Born, International Commercial Arbitration 1095–96 (2009).11 See, e.g., Ferro Corp. v. Garrison Indus., Inc., 142 F.3d 926,927–18 (6th Cir. 1998) (refusing to interpret arbitration agreement toexclude fraudulent inducement claims); Mar-Len of La., Inc. v.Parsons-Gilbane, 773 F.2d 633, 637 (5th Cir. 1985) (arbitrationagreement covering “any dispute arising under” the agreement or“with respect to the interpretation or performance of” the agreementheld to cover duress claims); Ulysess Compania Naviera SA v.Huntingdon Petroleum Serv., The Ermoupolis [1990] 1 Lloyd's Rep.160 (Q.B.).12 See, e.g., Tracer Research Corp. v. National Env. Serv. Co., 42F.3d 1292 (9th Cir. 1994) (misappropriation of trade secrets claimnot within scope of arbitration agreement covering disputes “arisinghereunder”); Judgment of 4 September 1987, JLMB 88/309, 309–10(Liege Cour d'appel) (arbitration clause covering disputes “arising outof the contract” does not cover tort claims related to the maincontract).13 As discussed above, in limited circumstances, claims based onmandatory law protections may be treated as non-arbitrable, butthese are exceptions.14 Mitsubishi Motors, 473 U.S. at 626.15 J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, SA, 863 F.2d315, 319 (4th Cir. 1988); Osteomed, LP v. Koby Indus., LP, 2006U.S. Dist. LEXIS 84639, at *3 (N.D. Tex. 2006) (“whether a claim issubject to the arbitration clause depends on the factual allegationscontained in the complaint, not the causes of action asserted”).16 Lonrho Ltd v. Shell Petroleum Co. Ltd, IV Y.B. Comm. Arb. 320,321–22 (Ch. D. 1978) (1979).17 G. Born, International Commercial Arbitration 1109–17 (2009).See also B. Hanotiau, Complex Arbitrations ¶281 (2005).18 Institutional arbitration rules also sometimes permitconsolidation of arbitrations in these circumstances. G. Born,International Commercial Arbitration 1110–11 (2009).19 G. Born, International Commercial Arbitration 1115–17 (2009).20 See, e.g., ICC Rules 2012, Art. 1(2); LCIA Rules, Art. 29(1);ICDR Rules, Art. 36.21 See, e.g., Koch Oil, SA v. Transocean Gulf Oil Co., 751 F.2d551 (2d Cir. 1985) (AAA Commercial Rules give AAA reasonablediscretion to interpret time limits in Rules); Reeves Bros., Inc. v.Capital-Mercury Shirt Corp., 962 F.Supp. 408 (S.D.N.Y. 1997)(“Where … the parties have adopted [institutional] rules, the partiesare also obligated to abide by the [relevant institution's]determinations under those rules.”); Judgment of 15 May 1985,Raffinerie de pétrole d'Homs et de Baninas v. Chambre decommerce internationale, 1985 Rev. arb. 141 (Paris Cour d'appel)(“the provisions of the [ICC Rules], which constitute the law betweenthe parties, must be applied to the exclusion of all other rules”).22 E.g., UNCITRAL Rules, Art. 1(2); LCIA Rules, Preamble.23 First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942(U.S. S.Ct. 1995).24 For example, a number of decisions rely on Article 6(3) of the2012 ICC Rules (or its predecessors), which provides that “anyquestion of jurisdiction … shall be decided directly by the arbitraltribunal.” See Qualcomm, Inc. v. Nokia Corp., 466 F.3d 1366, 1374(Fed. Cir. 2006) (“the parties clearly and unmistakably intended todelegate arbitrability questions to an arbitrator as evidenced by theirincorporation of the AAA Rules”); Shaw Group Inc. v. Triplefine Int'lCorp., 322 F.3d 115, 118 & 125 (2d Cir. 2003) (ICC arbitrationclause “clearly and unmistakably evidences the parties' intent toarbitrate questions of arbitrability”).25 Contec Corp. v. Remote Solutions Co., 398 F.3d 205, 208 (2dCir. 2005).

Chapter 5: International Arbitration

Key words

Source

Chapter 5: InternationalArbitrationAgreements: Non-signatory Issues in GaryB. Born , InternationalArbitration: Law andPractice, (© Kluwer LawInternational; KluwerLaw International 2012)pp. 95 - 101

As discussed above, international arbitration is fundamentallyconsensual. As a consequence, an arbitration agreement binds (andbenefits) only the agreement's parties, and not others.Presumptively, and in most instances, the parties to an arbitrationagreement are its formal signatories. Nonetheless, there arecircumstances in which non-signatories may be held to be parties to– and consequently both bound and benefited by – an arbitrationagreement.

§5.01. Non-Signatories to Arbitration Agreements

As already noted, the parties to an arbitration agreement are usuallyits formal signatories. Conversely, it is also clear that entities thathave not formally executed an arbitration agreement, or theunderlying contract containing an arbitration clause, may be boundby the agreement to arbitrate. As one court explained: “Arbitration isconsensual by nature …. It does not follow, however, that … anobligation to arbitrate attaches only to one who has personallysigned the written arbitration provision. … A non-signatory party maybe bound to an arbitration agreement if so dictated by the ‘ordinaryprinciples of contract and agency.’”(1)

A variety of legal theories have been invoked under different legalsystems to bind entities that have not executed an arbitrationagreement. These include alter ego, agency (actual and apparent),“group of companies,” estoppel, legal succession, third-partybeneficiary, guarantor, ratification, assignment and assumptiontheories. In each instance, non-signatories of a contract can bebound by, and may invoke, the contract's arbitration clause.

Bases for Subjecting Non-Signatory to Arbitration Agreement1. Agency2. Alter Ego and Veil-Piercing3. “Group of Companies”4. Succession (Merger,

Business Combination”)

5. Assignment or Transfer6. Estoppel7. Corporate Officers and

Directors8. Other

page "95"

[A]. Agency

The simplest circumstance in which a non-signatory is bound by anarbitration agreement is when an agent executes a contract for itsprincipal. It is well-settled, in most legal systems, that one party (an“agent”) may in certain circumstances legally bind another party (a“principal”) by its acts. Among other things, an agent may enter intocontracts, including arbitration agreements, which will be legally-binding on its principal, although not necessarily on the agent. Forthe most part, general principles of agency law have been applied inthe specific context of international arbitration agreements. In thewords of one court, “[the] theories under which non-signatories maybe bound to the arbitration agreements of others … arise out ofcommon law principles of contract and agency law.”(2)

Closely related to agency is the doctrine of ostensible or apparentauthority. Under this doctrine, a party may be bound by anotherentity's acts, even where those acts were unauthorized, if theputative principal created the appearance of authorization, leading acounter-party reasonably to believe that an agency relationshipexisted. The theory of apparent authority can bind the “apparent”principal to a contract (including an arbitration agreement) enteredinto putatively on its behalf by the “apparent” agent.

[B]. Alter Ego and Veil-Piercing

Many authorities hold that a party who has not assented to acontract containing an arbitration clause may nonetheless be boundby the clause if that party is an “alter ego” of an entity that didexecute, or was otherwise a party to, the agreement. The alter egodoctrine is referred to in German as “Durchgriff,” in French as “leveedu voile social” and in some English language contexts as “veil-piercing” or “lifting the corporate veil.”

Definitions of “alter ego” vary widely and are applied in a number ofdifferent contexts. In the context of arbitration agreements,

Agreements: Non-signatory Issues

demonstrating an “alter ego” relationship in most legal systemsrequires convincing evidence that one entity dominated the day-to-day actions of another and that it exercised this power to work fraudor other injustice on a third party or to evade statutory or otherobligations.(3) The alter ego doctrine differs from principles ofagency, in that the parties' intentions are not decisive; rather, thedoctrine rests on overriding considerations of fairness and equity,which mandate disregarding an entity's separate legal identity inspecified circumstances. Courts are circumspect in applying thealter ego doctrine: an alter ego relationship may generally be foundonly in exceptional cases, where the corporate form is abused toevade mandatory legal obligations or frustrate legitimate third partyrights.

page "96"

[C]. Group of Companies

A significant, but controversial, basis for binding non-signatories toan arbitration agreement is the “group of companies” doctrine. Underthis principle, non-signatories of a contract may be deemed partiesto the associated arbitration clause based on factors which areroughly comparable to those relevant to alter ego analysis. Inparticular, where a company is part of a corporate group, is subjectto the control of (or controls) a corporate affiliate that has executed acontract, and is involved in the negotiation or performance of thatcontract, then it may in some circumstances invoke or be subjectedto an arbitration clause contained in that contract, notwithstandingthe fact that it has not executed the contract.(4)

A seminal group of companies decision was Interim Award in ICCCase No. 4131. There, an arbitral tribunal concluded that“irrespective of the distinct juridical identity of each of its members,a group of companies constitutes one and the same economicreality,” and that the arbitration clause bound all of the companies ina corporate group, which, “by virtue of their role in the conclusion,performance, or termination of the contracts containing saidclauses, and in accordance with the mutual intention of all parties tothe proceedings, appear to have been veritable parties to thesecontracts or to have been principally concerned by them and thedisputes to which they may give rise.”(5) Other awards (and in a fewcases, court decisions) have adopted similar conclusions.

In contrast, a number of national courts have rejected the group ofcompanies doctrine, albeit often with limited analysis. One Englishcourt held that “the Group of Companies doctrine … forms no part ofEnglish law”(6) and other courts have annulled awards which reliedon the group of companies doctrine to hold a non-signatory partybound by an arbitration agreement.(7)

[D]. Succession

An entity that does not execute an arbitration agreement maybecome a party thereto by way of legal succession. The mostcommon means of such succession is by a company's merger orcombination with the original party to an agreement. In many states,the consequence of a “merger” between two companies is that the“surviving” entity will be the owner of all the assets and liabilities(including contract rights and obligations) of the previously-existingentities. When such a combination occurs, most national lawsprovide that the surviving entity succeeds by operation of law as aparty to the contracts, including the arbitration agreements, of thepreviously-existing entities. Thus, if A and B enter into a contract,containing an arbitration clause, and B later merges into C, then Cordinarily becomes a party to both the contract and the arbitrationagreement, by operation of law.

page "97"

[E]. Assignment or Transfer

Contracts are frequently transferred from one party to another byway of assignment, novation, or assumption. Some early decisionssuggested that arbitration agreements were not capable of beingtransferred, apparently on the theory that they were “personal”obligations, which were binding upon only the original parties.(8)

These decisions have been superseded, and it is now universallyaccepted that parties have the contractual autonomy to transfer orassign arbitration agreements, just as they have the power totransfer other types of contracts.

In principle, the assignment of a contract should have the effect ofconveying the arbitration clause associated with the underlying

contract to the assignee (at least absent a contractual or legalprohibition that renders the assignment ineffective).(9) Thus, in manyjurisdictions, there is a presumption of “automatic” assignment ofthe arbitration clause together with the underlying contract.(10)

There are often contractual limits on assignment in commercialagreements that may forbid one party from assigning the underlyingcontract, either absolutely or without its counter-party's consent. Ifthe assignment of the underlying contract and the arbitration clauseare in violation of a contractual restriction, then the putative assigneearguably has no rights under the arbitration clause (since thecontract and arbitration clause were arguably never assigned).(11)

[F]. Estoppel

A number of authorities have recognized estoppel or relateddoctrines as a basis for either permitting a non-signatory to invokean arbitration agreement or holding that a non-signatory is bound byan arbitration agreement. These authorities have held that, where anon-signatory claims or exercises rights as a party under a contract,which contains an arbitration clause, the non-signatory will typicallybe estopped from denying that it is a party to the arbitration clause.As one U.S. court put it: “In short, [plaintiff] cannot have it bothways. It cannot rely on the contract when it works to its advantageand ignore it when it works to its disadvantage.”(12) Similarly, wherea party invokes an arbitration clause in national court proceedings,claiming rights under that clause, it will ordinarily be estopped fromsubsequently denying that it is bound by the arbitration agreementin other proceedings.(13)

page "98"

Some U.S. courts have gone further, adopting a theory of “equitableestoppel” and holding that a party that receives a “direct benefit”under a contract is estopped from denying that it is a party to thecontract's arbitration clause.(14) Outside the United States, courtsare often more reluctant to apply estoppel principles broadly in thecontext of arbitration agreements.

[G]. Corporate Officers and Directors

Some U.S. courts have permitted the officers and directors of acorporate party to invoke the arbitration clause in that party'sunderlying commercial contracts, notwithstanding the fact thatindividual officers and directors are not parties to the underlyingcontract under ordinary contractual principles; for example, ifCompany A and Company B conclude an arbitration agreement,then the Chief Executive of Company B may be permitted to invokethe agreement if he or she is sued personally by Company A.(15)

Decisions in a few other jurisdictions adopt similar reasoning.(16)

These decisions are not unanimously followed even in the UnitedStates. One U.S. court rejected them on the following grounds:“courts must not offer contracts to arbitrate to parties who failed tonegotiate them before trouble arrives. To do so frustrates the abilityof persons to settle their affairs against a predictable backdrop oflegal rules – the cardinal principle to all dispute resolution.”(17)

Outside the United States, and a few other jurisdictions, thisapproach of permitting corporate employees or agents to invokearbitration agreements, to which they are not parties, has not beenwidely considered.

§5.02. Formal Validity and Non-Signatories

Application of an arbitration agreement to a non-signatory raisesquestions of formal requirements, under many legal regimes, for a“written” arbitration agreement. Those authorities which haveaddressed the issue have adopted a variety of means of satisfying oravoiding applicable form requirements in non-signatory contexts.

There is no rule forbidding an agreement from being signed by oneentity on behalf of another entity (most obviously, in the case ofagency relations). For example, although Article II(2) of the NewYork Convention requires an arbitration agreement “signed by theparties,” it is clear that a “party's” signature can be provided byanother entity on its behalf (most obviously, an agent, alter ego ormerger partner). To the same effect, one may also reason that the“writing” requirement of the Convention and most national laws canbe satisfied by the existence of a written arbitration agreement,which is consented to by a non-signatory via an “exchange” ofwritings (e.g., guarantees, assignments, agency agreements, otherwritten communications). More broadly, some authorities have heldthat form requirements apply only to the initial arbitration agreement

itself page "99" and not to extra-contractual mechanisms bywhich an entity may succeed to or assume a party's obligations andrights under that agreement (e.g., by merger, group of companies,alter ego); this reduces the relevance of form requirements in non-signatory contexts to a very small set of cases.(18)

§5.03. Choice of Law Governing Non-Signatory Issues

The choice of law governing non-signatory issues is poorly-defined.Some authorities have held that non-signatory issues are governedby the law governing the existence and substantive validity of thearbitration agreement.(19)

In many instances, however, courts and tribunals have not appliedthe law governing the substantive validity of the arbitration agreementto non-signatory issues. Instead, courts and tribunals havefrequently applied international principles to claims made under thegroup of companies, estoppel and alter ego doctrines. In othercontexts, involving issues of agency, assignment, merger andguarantee/ratification, courts and tribunals have generally appliednational law to non-signatory issues – typically applying a nationallaw chosen to govern the agency, assignment, succession orguarantee relationship itself, rather than the law governing thesubstantive validity of the arbitration agreement.

§5.04. Allocation of Competence to Decide Non-SignatoryIssues

Determining the identities of the parties to an arbitration agreementgives rise to questions concerning the allocation of jurisdictionalcompetence between courts and arbitrators. Consistent with thecompetence-competence doctrine, courts and arbitral tribunals haveuniformly concluded that arbitrators have the authority to considerwhether the arbitration agreement was binding on particular entities(under Article 16 of the Model Law and equivalent provisions in otherarbitration statutes(20) ). Similarly, courts have applied generally-applicable principles of national law to the allocation of competencebetween courts and tribunals to decide non-signatory issues.(21) Inpractice, arbitral tribunals frequently consider and resolve claimsthat non-signatories are subject to their jurisdiction, hearingevidence and argument in the same manner that other jurisdictionaland substantive issues are considered.

page "100"

§5.05. Non-Signatory Issues and Institutional Arbitration Rules

Non-signatory issues often arise in the course of institutionalarbitrations, particularly at the outset of arbitral proceedings. Someinstitutional rules contain provisions regarding selection of arbitratorsin multi-party cases(22) or consolidation and intervention,(23) whichcan affect the handling of non-signatory issues. Moreover, someinstitutional rules contain provisions regarding institutional review ofprima facie jurisdiction, which can also affect the handling of non-signatory issues.(24) For the most part, however, it is the arbitraltribunal, rather than the arbitral institution, that has the authority toaddress non-signatory issues in institutional arbitrations, as well asin ad hoc arbitrations.

page "101"

1 Thomson-CSF, SA v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2dCir. 1995).2 Thomson-CSF SA, 64 F.3d at 776. See G. Born, InternationalCommercial Arbitration 637–38, 1142–48 (2009).3 See G. Born, International Commercial Arbitration 1152–54(2009). In the United States, overcoming the presumption ofseparateness requires showing: (a) the domination and control of acorporate affiliate, including disregard of corporate formalities, suchthat it has no separate identity or existence, and (b) fraudulent orcollusive misuse of that control, or equivalent misconduct, to theinjury of other parties. Id. at 1156–61.4 G. Born, International Commercial Arbitration 1165–77 (2009).5 Interim Award in ICC Case No. 4131, IX Y.B. Comm. Arb. 131(1984).6 Peterson Farms Inc. v. C&M Farming Ltd [2004] 2 Lloyd's Rep.603 (Q.B.).7 Judgment of 20 January 2006, C04/174HR (Netherlands Hoge

Raad) (affirming annulment of arbitral award binding non-signatoryaffiliates). See G. Born, International Commercial Arbitration 1175–76 (2009).8 See, e.g., Cotton Club Estates Ltd v. Woodside Estates Co.[1928] 2 K.B. 463 (K.B.).9 G. Born, International Commercial Arbitration 1187–91 (2009).10 See, e.g., Asset Allocation and Mgt. Co. v. Western EmployersIns. Co., 892 F.2d 566, 574 (7th Cir. 1989) (arbitration agreementmay be invoked against the assignee); Star-Kist Foods, Inc. v.Diakan Hope, SA, 423 F.Supp. 1220, 1222–23 (C.D. Cal. 1976);Judgment of 9 May 2001, 20 ASA Bull. 80 (Swiss Federal Tribunal)(2002).11 See, e.g., Judgment of 16 October 2001, 2002 Rev. arb. 753(Swiss Federal Tribunal). In some jurisdictions, however, anassignment in breach of a contractual prohibition is presumptivelynot invalid, even if it is wrongful, but rather is effective while givingrise to a damages claim for breach of the anti-assignment provision.See, e.g., Bel-Ray Co. v. Chemrite Ltd, 181 F.3d 435 (3d Cir. 1999)(following “general rule that contractual provisions limiting orprohibiting assignment operate only to limit a party's right to assignthe contract, but not their power to do so, unless the partiesmanifest an intent to the contrary with specificity”; assignment inviolation of contractual provision ordinarily “remains valid andenforceable against both the assignor and the assignee”).12 Tepper Realty Co. v. Mosaic Tile Co., 259 F.Supp. 688, 692(S.D.N.Y. 1966).13 See G. Born, International Commercial Arbitration 1192–97(2009).14 See, e.g., Am. Bureau of Shipping v. Tencara Shipyard SPA,170 F.3d 349, 353 (2d Cir. 1999) (“A party is estopped from denyingits obligation to arbitrate when it receives a ‘direct benefit’ from acontract containing an arbitration clause.”). See also G. Born,International Commercial Arbitration 1195 (2009).15 See, e.g., Hirschfeld Prod. Inc. v. Mirvich, 88 N.Y.2d 1054 (N.Y.1996); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d1110 (3d Cir. 1993) (company can only act through employees andofficers, and “an arbitration agreement would be of little value if it didnot extend to them”).16 See G. Born, International Commercial Arbitration 1198–1200(2009). Examples include Canada and Germany.17 Westmoreland v. Sadoux, 299 F.3d 462, 467 (5th Cir. 2002).18 See Judgment of 16 October 2003, 22 ASA Bull. 364 (SwissFederal Tribunal) (2004) (“this formal [writing] requirement onlyapplies to the arbitration agreement itself, that is to the agreement… by which the initial parties have reciprocally expressed theircommon will to submit the dispute to arbitration. As to the questionof the subjective scope of an arbitration agreement formally valid[under this writing requirement] the issue is to determine which arethe parties which are bound by the agreement and eventuallydetermine if one or several third parties which are not mentionedtherein nevertheless enter into its scope ratione personae ….”).19 See G. Born, International Commercial Arbitration 1210–19(2009).20 See supra pp. 52–54; G. Born, International CommercialArbitration 1220–23 (2009).21 See supra pp. 44, 100 (para. above); G. Born, InternationalCommercial Arbitration 877 et seq., 1219–22 (2009).22 See, e.g., 2012 ICC Rules, Arts. 12(6–8), 13.23 See, e.g., 2012 ICC Rules, Arts. 12(6–8), 13.24 See, e.g., 2012 ICC Rules, Art. 6(3–7); ICSID Convention Art. 36(3).

© 2015 Kluwer Law International BV (All rights reserved).Kluwer Arbitration is made available for personal use only. All content is protected by copyright andother intellectual property laws. No part of this service or the information contained herein may bereproduced or transmitted in any form or by any means, or used for advertising or promotionalpurposes, general distribution, creating new collective works, or for resale, without prior writtenpermission of the publisher.If you would like to know more about this service, visit www.kluwerarbitration.com or contact ourSales staff at sales@kluwerlaw.com or call +31 (0)172 64 1562.