International Commercial Arbitration – Professor Brower Fall 2011
International Arbitration in Context
I. Dispute Resolution and Int’l Agreements
a. Arbitration and Mediation
i. The main differences between arbitration and mediation stem from the fact that with mediation, the parties never give up responsibility/control/power over the dispute.
ii. Outcome determined by:
1. Arbitration – The applicable law (objective standard) à Rights-based procedure
2. Mediation – The will of the parties à Interest-based procedure
b. Arbitration and Litigation
i. Why is arbitration so prevalent in int’l disputes?
1. Predictability – No need to worry about a race to get judgments in each respective country
2. Competence – Arbs will theoretically have specialized knowledge
3. Party participation
4. Finality – Award subject to relatively low risk of bein set aside or altered by a court.
5. Enforceability – NYC makes an arb award easier to enforce than a foreign judgment
6. Costs (to some extent) – No costly depositions, but still might be expensive to pay good arbs
7. Privacy (up to a point)
ii. Why might a party prefer litigation?
1. If parties can’t agree on terms/place of arbitration
2. Might be unwieldy if related arbitrations can’t be consolidated
3. Hard to predict if one side might need access to broader judicial discovery.
4. If parties can agree on forum selection clause, might eliminate the risks which give rise to the desire to arbitrate.
iii. Factors to consider in selecting dispute res. Mechanism:
1. What are the sorts of disputes most likely to arise?
a. Who is the likely claimant?
b. Who will be holding the money or goods?
c. Who will be holding records/other evidence?
2. Will one party have leverage, like dependence of the other party on them for parts/services?
3. In what language will the parties be dealing?
4. What will be the governing law of the contract?
5. Does either party have a substantial base of operations in a third country and familiarity with its legal system?
II. Institutional and Ad Hoc Arbitration
i. Institutional Arbitration – The proceedings are administered by an organization, usually in accordance with its own rules. (ex – ICC)
a. Drafting the Arb Agreement
i. Ease of incorporation of the institution’s rules in K
1. ICC’s broad recommended arb clause is construed to encompass a broad scope of arbitral issues
ii. Available in 7 major languages
b. Arbitrator Selection (most important service an admin. agency can perform)
i. Institutions are good at it / Ad Hoc arbitrators usually find it difficult:
1. Parties often cannot agree b/c of heightened tensions/mutual distrust
2. Sometimes parties simply lack familiarity with good candidates.
ii. Parties are spared burden of negotiating fees
1. Most don’t know $$$ arbs generally make
2. Avoid fraud on part of arbitrators
3. Administrative referee provided to arbitrators are truly independent
4. Disclosure/challenge procedures provided
c. Professional Administration
i. Professional staff available to guide disputants through arbitration process
1. Provide routine services
2. Provide help on unusual requests
3. Help out when a losing party fails to honor an award
d. Judicial Recognition of Institutional Arbitration
i. Due to their proven track records, arbitral institutions have received increasingly favorable recognition of national courts.
ii. Most important when party must seek enforcement
iii. National courts are much more comfortable conforming commercial awards where there is some assurance that a neutral body has fairly referred the controversies to the court.
iv. Ad hoc arbitration does not usually provide the same level of comfort.
e. Default Award
i. The ability to proceed in the absence of a defaulting party with the assurance that the party was given ample notice
ii. Enforcing courts have given due recognition to default awards
ii. Ad Hoc Arbitration – No formal administration by any established arbitral agency. Parties have opted to create their own procedures for a given arbitration.
b. Cost and Speed
i. No institutional fees
ii. Avoiding institutions’ internal procedures and time periods minimizes delays
iii. UNCITRAL has no fees
a. Ad Hoc requires cooperation; without it, theoretical advantages prove illusory.
b. Although UNCITRAL is free, you still have to pay attorney/arbitrator fees. Also, since institutions compete, their fees are going down; and it might be worth the cost.
Sources of Relevant Norms
I. The Sources
a. Party Autonomy
i. The basis of the jurisdiction of an arbitral tribunal lies in the consent of the parties, instead of procedural norms of a state (like a court’s)
ii. Other factors which depend on party agreement:
1. Composition of arbitral tribunal
3. Rules of proceeding
b. Institutional Rules Other Than State of Origin
i. Institutional rules like those of the ICC help streamline the process of arbitration
ii. Even within the framework of ad hoc arbitration, pre-established rules and sets of solutions may play an important role (i.e. UNCITRAL)
c. National Arbitration Law
i. ICA is essentially self-contained/reliant, but it has not entirely escaped from the control—albeit very limited—of national arbitration law
ii. Arbitration tribunals may freely follow procedural rules drafted (or chosen) by the parties, as long as they observe basic req. of due process
iii. Local procedural framework also becomes important when recognition of foreign awards is sought
iv. Conflict of laws questions arise, like which national arbitration law governs in particular situations
1. Where recognition of an award is sought, the laws of the recognizing country (or int’l agreet’s ratified by that country) apply
2. The law governing the arbitration proceedings (lex arbitri) is generally that of the country in which the arbitration tribunal has its seat
v. The Model Law on International Commercial Arbitration (Model Law)
1. Created by UNCITRAL in an effort to harmonize the various states’ rules on ICA.
2. Goal was a set of rules which would be accepted world-wide and progressively adopted by national legislators
a. 2008, legislation based on the Model Law has been enacted in 56 jurisdictions, plus 5 states in the USA
b. The number of Model Law countries is growing
d. International Agreements
i. ICA cannot be a success without some int’l framework which provides for recognition of the arbitration process and of its result (award)
ii. Two highly important global international conventions have been adobted by 100+ countries world-wide:
1. 1958 New York Convention
2. 1965 Washington convention
II. Conflicts between various sources
i. Problems can emerge when
1. The procedural mechanism conceived by the parties contradicts particular solutions contained in the institutional rules
a. Example—parties agree that arbitrators must hear all proposed witnesses (this undermines the efficient functioning and even the fairness of the institutionally designed decision-making process)
b. Since the authority of the arbitrators is derived from the agreement of the parties, the tribunal cannot disregard the explicit requirements stated in the arbitration clause; they could only invite the parties to change their stipulation or refuse to arbitrate under the given conditions
2. When the party stipulation, though compatible with institution rules, is inapplicable in the given circumstances,
a. Example—In ICC arbitration, parties agree to designate a separate appointing authority. This might be compatible, but what happens if the chosen appointing authority fails to make
o arbitrators. Since there was no disagreement there was no need to appoint an arbitrator. An award was given in favor of Sally. Sally tried to enforce it but the Court of Appeals of Florence refused to enforce it.
2. Rule: An arbitration tribunal’s decision to follow the lex arbitri does NOT supersede the intent of the parties.
3. This rule is supported by Van Den Berg’s article that V1d was designed to limit the law of the lex arbitri – that the law of the place of arbitration should not overrule party agreement.
4. Further, “the conformity of the composition of the arbitral tribunal with the law of the country where the arbitration takes place must be observed for the enforcement of the award only if the parties have not provided for a different composition of the arbitral tribunal.”
iii. Termarea v. Sally (Queen’s Bench, England)
1. Facts: As above
2. Rule: Since the parties agreed to arbitrate in London and under English law, the agreement to appoint a third arbitrator was overridden by English law. English law stated that where an agreement provided for the appointment of a third arbitrator, an umpire would be appointed instead. In addition, the umpire does not have to be appointed if the two arbitrators agree. Therefore, since the two arbitrators (correctly appointed) agreed, there was no need to appoint an umpire.
3. If Tarmarea wanted to dispute the failure to appoint an umpire, it should have done so within six weeks of publication of the award on the basis that the failure amounted to technical misconduct. Proceedings to enforce an award as a judgment are not appropriate for raising the issue of misconduct.
4. Dicta: It would have been better to appoint an umpire, but failure to do so did not render the award unenforceable. The failure was only a ““procedural mishap” without any consequential effect upon the award.”
5. Res Judicata? Arb decision was in UK. Enforcement in the UK for an arb decision in the UK – domestic — not the same case b/c the NY convention doesn’t apply. Similarly, the Italian decision is different from the UK review of the arb decision b/c the NY convention applies. Therefore the 2 decisions are different.
iv. “NY Convention – Toward a uniform Judicial Interpretation”
1. The purpose of V (1) (d) is to restrict the role of the law of the country where the arbitraiton took place.
a. Moral of the Salley/Tamarea cases is that parties have to be VERY careful in drafting agreements.
b. However, if we don’t take into consideration mandatory law, may have problems of enforcement. E.g. In Sally, if arbitrators had appointed a third arbitrator they would have been in violation of English law and an English court could have set aside the award thereby making it difficult to enforce it in Italy pursuant to V(1)(e).
2. Cyrilla & Caribdus Problem
a. Where the parties agreement says one thing and the lex arbitri law of the country mandates another, there is conflict.
b. What will most likely happen is that the arb decision will be set aside.
c. Why can’t you just go to another country to enforce the arb award?
i. V(1)(e) – can’t be enforced if it has already been set aside in the country it was made in.
d. But we also know that set aside doesn’t automatically mean that it can’t be R&E (Ex/ France under Art VII)