International arbitrations take place within a complex and vitally-important international legal framework. As summarized in this introductory chapter, contemporary international conventions, national arbitration legislation, and institutional arbitration rules provide a specialized and highly-supportive enforcement regime for most contemporary international commercial arbitrations and international investment arbitrations. A significantly less detailed legal framework exists for inter-state arbitrations, although international law instruments provide a workable enforcement regime even in this context.
The international legal regimes for international commercial and investment arbitrations have been established, and progressively refined, with the express goal of facilitating international trade and investment by providing a stable, predictable and effective legal framework in which these commercial activities may be conducted:
The New York Convention and the Model Law deal with one of the most important aspects of international commerce—the resolution of disputes between commercial parties in an international or multinational context, where those parties, in the formation of their contract or legal relationship, have, by their own bargain, chosen arbitration as their agreed method of dispute resolution…. An ordered efficient dispute resolution mechanism leading to an enforceable award or judgment by the adjudicator, is an essential underpinning of commerce …. The recognition of the importance of international commercial arbitration to the smooth working of international commerce and of the importance of enforcement of the bilateral bargain of commercial parties in their agreement to submit their disputes to arbitration was reflected in both the New York Convention and the Model Law.1
This chapter summarizes the principal components of the contemporary international legal framework for international commercial, investment, and state-to-state arbitrations. First, the chapter provides an overview of leading international arbitration conventions, including particularly the New York Convention (with regard to international commercial arbitration) and the ICSID Convention (with regard to international investment arbitration). Second, the chapter briefly describes leading national arbitration statutes (including particularly the UNCITRAL Model Law). Third, the chapter summarizes the differences between ad hoc arbitration and institutional arbitration, particularly in the context of international commercial arbitration, including a summary of leading international arbitral institutions. Fourth, the chapter describes the principal elements that are typically found in contemporary international arbitration agreements. Fifth, the chapter summarizes the principal choice-of-law issues that arise in the international arbitration process (including the law governing the parties’ underlying agreement, whether a contract or treaty, the law governing the arbitration agreement and the procedural law governing the arbitral proceedings). Finally, the chapter summarizes leading research tools and sources for international arbitration.
A. HISTORICAL OVERVIEW OF INTERNATIONAL ARBITRATION
A brief consideration of the history of arbitration in international matters is useful as an introduction to contemporary international arbitration. In particular, this review identifies some of the principal themes and objectives of international arbitration and places contemporary developments in context. An historical review also underscores the extent to which state-to-state and international commercial arbitration developed in parallel, with strikingly similar objectives, institutions and procedures.
1. Historical Development of Arbitration Between States
The origins of international arbitration are sometimes traced, if uncertainly, to ancient mythology. Early instances of dispute resolution among the Greek gods, in matters at least arguably international by then-prevailing standards, involved disputes between Poseidon and Helios over the ownership of Corinth (which was reportedly split between them by Briareus, a giant),2 Athena and Poseidon over possession of Aegina (which was awarded to them in common by Zeus),3 and Hera and Poseidon over ownership of Argolis (which was awarded entirely to Hera by Inachus, a mythical king of Argos).4 Egyptian mythology offers similar accounts of divine arbitrations, including a dispute between Seth and Osiris, resolved by Thot (“he who decides without being partial”).5
a. Inter-State Arbitration in Antiquity
Deities aside, international arbitration was a favored means for peacefully settling disputes between states and state-like entities in Antiquity: “arbitration is the oldest method for the peaceful settlement of international disputes.”6 Historical scholarship provides no clear conclusions regarding the first recorded instance of international arbitration between states (or state-like entities). In the state-to-state context, some cite what contemporary reporters would denominate as the case of Lagash v. Umma, apparently settled in 2550 B.C. by King Mesilim of Kish,7 or the 2100 B.C. case of Ur v. Lagash, in which the King of Uruk ordered one city to return territory seized by force from another.8 Others look to two disputes decided in the 8th century B.C. by Eriphyle, a noblewoman, over Argos’s plans to wage war on Thebes,9 a 650 B.C. dispute between Andros and Chalcis over posession of a deserted city,10 or a controversy between Athens and Megara in 600 B.C. over the island of Salamis.11
In one authority’s words, “arbitration was used throughout the Hellenic world for five hundred years.” 12 This included the frequent inclusion of arbitration clauses in state-to-state treaties, providing for specified forms of arbitration to resolve future disputes that might arise under the treaty,13 as well as submission agreements with regard to existing “inter-state” disputes.14
The procedures used in many ancient arbitrations between Greek city-states would not be unfamiliar to contemporary litigants. The parties were represented by agents, who acted as counsel (in a dispute between Athens and Megara, Solon represented the former),15 the parties presented documentary evidence and witness testimony (or sworn witness statements), oral argument was presented through counsel, with time limits imposed on counsel’s arguments, and the arbitrators rendered written, signed and reasoned awards.16
One aspect of ancient state-to-state arbitration that would strike contemporary observers as unusual was the number of arbitrators. Although most tribunals apparently consisted of three members, there were instances where tribunals consisted of large numbers (variously, 600 Milesians, 334 Larissaeans, and 204 Cnidians), which arguably reflect a quasi-legislative, rather than adjudicatory, function.17 Other “arbitrations” appear to have been more in the nature of non-binding mediation, or political consultation, than true arbitration.18
Arbitration was also used to settle disputes between state-like entities during the Roman age. Although commentators observe that the use of arbitration declined from Hellenic practice,19 it was by no means abandoned. Territorial units of Rome, as well as vassal states and allies, appealed to the Roman Senate, to Roman proconsuls, or to other Roman institutions for “arbitral” decisions or the appointment of arbitrators to resolve territorial and other disputes.20 In general, however, the historical record indicates that Rome preferred political or military solutions, within the Empire, to inter-state arbitration or adjudication.
b. Inter-State Arbitration in the European Middle Ages
After an apparent decline in usage under late Roman practice, international arbitration between state-like entities in Europe experienced a revival during the Middle Ages. Although historical records are incomplete, scholars conclude that international arbitration “existed on a widespread scale” during the Middle Ages, that “the constant disputes that arose in those warlike days were very frequently terminated by some kind of arbitration,” and that “it is surprising to learn of the great number of arbitral decisions, of their importance and of the prevalence of the ‘clause compromissoire.’”21 The states of the Swiss Confederation22 and the Hanseatic League,23 as well as German and Italian principalities,24 turned with particular frequency to arbitration to settle their differences, often pursuant to agreements to resolve all future disputes by arbitration.25
Determining the precise scope and extent of international arbitration between states or state-like entities during the Medieval era is difficult, in part because a distinction was not always drawn between judges, arbitrators, mediators and amiables compositeurs.26 Indeed, one of the most famous “arbitrations” of the age—Pope Alexander VI’s division of the discoveries of the New World—appears not to have been an arbitration at all, but rather a negotiation or mediation.27 On the other hand, numerous treaties throughout this period drew quite clear distinctions between arbitration (in the sense of an adjudicative, binding process) and conciliation or mediation (in the sense of a non-binding procedure).28
The procedures used during arbitral proceedings in Medieval times bore important resemblances to those used today. Both parties presented arguments through counsel, evidence and testimony was received by the tribunal, the tribunal deliberated and a written award was made.29 There is even evidence that written briefs were a standard element of inter-state arbitral procedures.30 Parties appear to have placed importance on the prompt resolution of their disputes, including by imposing time limits in their agreements on the arbitrators’ mandates.31 And, if a losing party flouted the arbitrator’s decision, the arbitrator or another authority was sometimes empowered to impose sanctions to enforce compliance.32
During the 16th, 17th and 18th centuries, the popularity of international arbitration as a means of resolving inter-state disputes apparently declined significantly. Although by no means entirely abandoned, the rising tide of nationalism apparently chilled historic reliance on arbitration: “nor is arbitration the immediate jewel of Tudor souls.”33 It was only at the end of the 18th century, with Jay’s Treaty between the newly-founded United States and Great Britain (discussed below),34 that international arbitration in the state-to-state context saw a new resurgence.
c. Inter-State Arbitration in the 18th and 19th Centuries
Great Britain’s North American colonies appear to have embraced inter-state arbitration from at least the moment of their independence. The 1781 Articles of Confederation provided a mechanism for resolving inter-state disputes between different American states, through what can only be categorized as arbitral procedures.35
More significantly, “the modern era of arbitral or judicial settlement of international disputes, by common accord among all writers upon the subject, dates from the signing on 19 November 1794 of Jay’s Treaty between Great Britain and the United States.”36 Among other things, in a determined effort to restore amicable relations between the United States and Great Britain, Jay’s Treaty provided for the establishment of three different arbitral mechanisms, dealing with boundary disputes, claims by British merchants against U.S. nationals and claims by U.S. citizens against Great Britain.37 This was a remarkable step, between recent combatants, which ushered in a new age of inter-state arbitration.
The United States continued its tradition of arbitrating international disputes throughout the 19th century. It included an arbitration clause (albeit an optional one) in the 1848 Treaty of Guadalupe Hidalgo, which provided for resolution of future disputes between the United States and Mexico “by the arbitration of commissioners appointed on each side, or by that of a friendly nation.”38 The United States did the same in the 1871 Treaty of Washington with Great Britain, excerpted in the Documentary Supplement at pp. 65–71, providing the basis for resolving a series of disputes provoked by the Civil War; the Treaty provided for arbitration of the disputes before a five-person tribunal, with one arbitrator nominated by each of the United States and Great Britain, and three arbitrators nominated by neutral states.39 One product of the Treaty of Washington was the so-called “Alabama Arbitration,” in which Great Britain was ordered to pay $15.5 million in gold (equivalent to roughly Great Britain’s annual government budget) for having permitted the outfitting of a Confederate privateer that caused substantial damage to Union shipping. 40 The United States and Great Britain also repeatedly resorted to arbitration to settle various boundary and other disputes during the 19th and early 20th centuries.41
Agreements to arbitrate in the Americas were not confined to matters involving the United States. On the contrary, between 1800 and 1910, some 185 separate treaties among Latin American states included arbitration clauses, dealing with everything from pecuniary claims to boundaries and to general relations.42 For example, an 1822 agreement between Colombia and Peru, which was intended to “draw more closely the bonds which should in future unite the two states,” provides that “a general assembly of the American states shall be convened … as an umpire and conciliator in their disputes and differences.”43 Moreover, many Latin American states engaged in inter-state arbitrations arising from contentious boundary disputes inherited from colonial periods, which the disputing parties submitted to a foreign sovereign or commission for resolution.44 Arbitration of such matters was not always successful, especially when the disputed territory was rich in natural resources or minerals,45 and boundary disputes at times required additional arbitrations to interpret an initial award.46
d. Arbitral Procedures in Inter-State Arbitrations
As outlined above, arbitral procedures have varied substantially, both over time and in different geographic and political settings. At least in part, that reflects the inherent flexibility of the arbitral process, which leaves the parties (and arbitrators) free to devise procedures tailored to a particular dispute and legal or cultural setting.
Despite this inherent flexibility, the procedures used in state-to-state arbitrations have also displayed, with remarkable consistency, certain enduring common characteristics. These have included an essentially adversarial procedure, with states being free—and required—to present their respective cases, often through counsel and/or agents; an adjudicative procedure, with decisions being based on the evidentiary and legal submissions of the parties; and continuing efforts to devise procedures that would provide a fair, efficient and expeditious arbitral process.47 As already noted, historic approaches towards the inter-state arbitral process often produced procedures that were not dissimilar to those used in contemporary state-to-state arbitrations.
Arbitral procedures that evolved in state-to-state arbitrations during the 19th century bore even closer resemblance to contemporary proceedings, with international tribunals more systematically exercising their power to establish rules governing pleadings and proceedings.48 Governments were generally represented by an agent, who represented the interests of the state, and a counsel, who provided advice, managed the case and appeared before the tribunal.49 Cases were initiated by a written memorial, which asserted the basic legal claims and alleged sufficient facts to establish jurisdiction; the opposing party’s response then could come in the form of an answer, a plea, a motion to dismiss, or an exception.50
Although rules for evidence varied, tribunals generally preferred documentary evidence to live witnesses and, rather than excluding certain types of evidence, would accept all evidence and weigh it at their discretion.51 With the increased frequency of state-to-state arbitration over the course of the 19th century, practices of civil and common law countries converged, eventually giving way to the partial codification of these procedures in international instruments.52 Again, the procedures outlined in these 19th century instruments bear striking similarities to contemporary procedural regimes in international arbitration.
One of the enduring features of international arbitration procedure in the state-to-state context, regardless of time or cultural setting, has been the nomination of members of the tribunal by the individual parties. From almost the beginning of recorded modern history—through every age until the present—party-nominated arbitrators have been an enduring, essential feature of the international arbitral process. Thus:
a. In a 1254 treaty of peace among various German states, future disputes were to be settled by mixed tribunals composed of judges of equal number of the two parties and presided over by a “gemeiner Manri” (umpire).53 Northern Italian states and Swiss cantons adopted the same approach during the 12th, 13th and 14th centuries, with the occasional variation that each party was required to select a national of the counter-party as co-arbitrator.54
b. In one of the earliest Medieval plans for institutional international arbitration of state-to-state disputes, in 1306, Pierre Dubois proposed a means of settling disputes among European principalities, involving each party nominating three arbitrators, to be joined by three additional ecclesiastics.55
c. The 1343 Arbitral Convention between King Waldemar of Denmark and King Magnus of Sweden provided for each state to select three bishops and three knights and, if the resulting tribunal was unable to resolve matters, to select two (one each) of its number to make a final decision.56
d. The 1516 Treaty of Perpetual Peace between the Swiss Cantons and Francis I provided for arbitration before “four men of substance, two named by each party,” and “if their opinions are divided, the plaintiff may choose from the neighboring counties a prud’homme beyond suspicion and who will meet with the arbitrators to decide the difficulty.”57
e. The 1655 Treaty of Westminster between France and England provided for resolution of future disputes by six arbitrators, three named by each side, with unresolved matters being referred to the Republic of Hamburg, which was charged with selecting a further tribunal.58
f. The 1781 Articles of Confederation, of the American colonies, provided for the arbitral resolution of disputes between states by an arbitral process, with the concerned states being involved in selection of the tribunal, either by agreement or through an innovative list system.59
g. Jay’s Treaty of 1794, between the United States and Great Britain, provided for three arbitral mechanisms, with the tribunals consisting of either three arbitrators (one appointed by the United States and one by Great Britain, with the two party-nominated arbitrators selecting a third, either by agreement or a prescribed list system) or five arbitrators (two appointed by the King of England, two by the President of the United States and the fifth by agreement or through the use of a prescribed list system).60
h. The Treaty of April 11, 1839, between the United States and Mexico provided for a tribunal of five, with two arbitrators appointed by each state and (absent agreement) the fifth arbitrator being selected by the King of Prussia.61 A large number of other treaties between the United States and various Latin American states provided for party-nominated arbitrators on either three or five-person tribunals.62
i. The so-called Portendick claims, between Great Britain and France (concerning an allegedly unlawful French blockade of the Moroccan coast), were referred to the King of Prussia, who in turn referred implementation of his award to a tribunal consisting of one arbitrator nominated by each state and a third whom he selected.63
j. The 1871 Treaty of Washington provided (with regard to U.S. claims against Great Britain) for two party-nominated arbitrators on a tribunal of five, with the remaining three arbitrators being nominated by neutral states.64 To resolve claims by private citizens against either of the two signatory nations, the treaty provided for three-person tribunals, with each state nominating one arbitrator and an umpire being selected by agreement or by a neutral third party. 65 Other arbitration provisions between the United States and Great Britain very frequently involved party-nominations of members of the tribunal.66
k. An 1897 reference to arbitration between Austria and Hungary, relating to territorial claims near Lake Meerauge, was referred to a tribunal consisting of two party-nominated arbitrators and an umpire.67
l. “Mixed” claims tribunals have been repeatedly used, in a wide variety of contexts, to resolve claims arising out of war, unrest, or similar circumstances. The invariable procedure for constituting a tribunal was for one arbitrator to be nominated by each side, and a presiding arbitrator or umpire to be selected by agreement or by a neutral power.68
m. The 1899 Hague Convention for the Pacific Settlement of International Disputes and the 1907 Hague Convention for the Pacific Settlement of International Disputes established rules for the constitution of arbitral tribunals, including provisions for each party to nominate two co-arbitrators and for the co-arbitrators to select an umpire, failing which a neutral party would be chosen to make the selection.69
n. Both the Permanent Court of International Justice and its eventual successor, the International Court of Justice, provided mechanisms for the constitution of the Court that included ad hoc judges nominated by each party.70
o. Under the 2000 Eritrea-Ethiopia Boundary Commission Arbitration Agreement, each party appointed two commissioners and the president of the Commission was selected by the party-appointed commissioners, failing which the Secretary-General of the United Nations would have appointed the president in consultation with the parties. 71
p. The 2008 arbitration agreement between the Government of Sudan and the Sudan People’s Liberation Movement/Army (the representatives of which would become the Republic of South Sudan in 2011) provided that each party would appoint two arbitrators and the party-appointed arbitrators would appoint a fifth arbitrator, or the Secretary-General of the Permanent Court of Arbitration would do so.72
A scholar of state-to-state arbitrations during the 19th century concluded his discussion of the procedural aspects of the subject by referring to:
the very common idea that the sovereign power of the contestants should find representation on the court, an idea which finds illustration even in the Permanent Court of International Justice. The theory is that the representatives of the parties can speak with authority within the bosom of the court with regard to the law and contentions of their governments, an idea which would not be tolerated because of manifest evils within the bosom of a national court.73
As discussed below, this approach was also an enduring feature of international commercial arbitrations between private parties and in international investment arbitrations between private parties and states.74
2. Historical Development of Commercial Arbitration
Just as arbitration between states has an ancient, rich history, so arbitration of commercial disputes can be traced to the beginning of recorded human society. It is occasionally suggested that “as a technocratic mechanism of dispute settlement, with a particular set of rules and doctrines, international commercial arbitration is a product of this century [i.e., the 20th century].”75 Insofar as this implies that international commercial arbitration is a recent phenomenon, it is contradicted by a detailed historical record, which leaves no serious doubt as to the long tradition—stretching for many centuries—of arbitration and related forms of dispute resolution as a means for resolving international business disputes.
a. Commercial Arbitration in Antiquity
As in the state-to-state context, some of the earliest reports of commercial arbitration are from the Middle East. Archaeological research reports that clay tablets from contemporary Iraq recite a dispute between one Tulpunnaya and her neighbor, Killi, over water rights in a village near Kirkuk, which was resolved by arbitration (with Tulpunnaya being awarded ten silver shekels and an ox).76 Arbitration was also apparently well known in ancient Egypt, with convincing examples of agreements to arbitrate future disputes (used alongside what amount to forum selection clauses) included in funerary trust arrangements in 2500 B.C. and 2300 B.C.77
Arbitration was no less common in ancient Greece for the resolution of commercial and other “private” disputes than for state-to-state disputes.78 Homer describes an 8th century B.C. resolution of a blood debt through a public arbitral process, where the disputants appealed to a man “versed in the law,” of their mutual choice, who presided over a tribunal of elders which publicly heard the parties’ claims and rendered reasoned oral opinions.79 The example suggests the use of arbitration to resolve disputes between private parties in Antiquity, but also indicates the lack of clear boundaries in some periods between governmental dispute resolution mechanisms and “private,” consensual arbitration.
The reasons for resorting to arbitration in Antiquity appear to be remarkably modern. Historical research indicates that ancient Greek courts—like today’s courts in many countries—suffered from congestion and back-logs, which led to the use of arbitrators, retained from other city states (rather like foreign engineers or mercenaries), to resolve pending cases.80 Similarly, a summary of the basic legal rules governing commercial arbitration in ancient Greece is not far distant from contemporary legislation in the area:
If any parties are in dispute concerning private contracts, and wish to choose any arbitrator, it shall be lawful for them to choose whomsoever they wish. But when they have chosen by mutual agreement, they shall abide by his decisions and shall not transfer the same charges from him to another court, but the judgments of the arbitrator shall be final.81
Arbitral procedures in ancient Greece appear to have been largely subject to the parties’ control, including with regard to the subject matter of the arbitration, the arbitrators, the choice of law and other matters.82 Although sole arbitrators were not uncommon, parties frequently agreed to arbitrate before three or five arbitrators, with each party selecting one (or two) arbitrator(s) and the party-nominated arbitrators choosing a presiding arbitrator (a “koinos”).83
Arbitration of commercial matters in ancient Roman times was more common than Roman state-to-state arbitrations, with compliance with arbitration agreements and awards enforceable in Roman courts, sometimes through a penalty mechanism or sanctions. 84 A leading scholar on Roman law summarizes the subject as follows:
from the beginning of the empire, Roman law allowed citizens to opt out of the legal process by what they called compromissum. This was an agreement to refer a matter to an arbiter, as he was called, and at the same time the parties bound themselves to pay a penalty if the arbitrator’s award was disobeyed. Payment of the penalty could be enforced by legal action.85
As in Greece, awards in Roman practice were reasoned, binding and apparently subject to little judicial review: “The award of the arbiter which he makes with reference to the matter in dispute should be complied with, whether it is just or unjust; because the party who accepted the arbitration had only himself to blame.”86 Parties could seek enforcement of arbitral awards in the courts (or other government forums), although the enforcement mechanisms that were available varied over time.87
It appears that arbitral procedures in Roman times were not dissimilar to those in more modern eras. In a parallel to modern arbitral practice, the arbitrator’s jurisdiction was strictly limited to “the terms of the agreement for arbitration (compromissum), and, therefore, he cannot decide anything he pleases, nor with reference to any matter that he pleases, but only what was set forth in the agreement for arbitration, and in compliance with the terms of the same.”88 Arbitrators in the Classical age reportedly remained entirely free in their decisions: “they were not bound by any rules of substantive law.”89 Parties enjoyed substantial autonomy with regard to the arbitral procedures. 90
Among other things, and paralleling state-to-state practice, historical records reveal the widespread use of party-nominated arbitrators: “a common practice … [was] to refer the matter to two arbitrators and the praetor is bound to compel them, if they disagree, to choose a third person themselves and his authority can be obeyed.”91 If an arbitrator agreed to hear a dispute (receptum arbitrum), but subsequently refused to do so, local judicial officials could apparently compel him to fulfil his duties.92
Although few records of ordinary commercial disputes from this era have survived, historians nonetheless conclude that arbitration was widely used in ancient Rome. 93 There were few limits on the subjects of arbitration, and in practice a wide range of commercial and family matters were arbitrated.94
In the post-Classical period, arbitration became increasingly popular because of deficiencies in state court systems, which were characterized as unreliable, cumbersome and costly, and which faced particular difficulties in inter-state matters.95 During this era, the enforceability of arbitration agreements was progressively recognized, even without a penalty mechanism. 96 This result was generally based on the principle of pacta sunt servanda, which was developed and applied by canonical jurists in the context of agreements to arbitrate.97
The Church began to play a leading role in the later Roman Empire, with arbitral jurisdiction frequently being exercised by Christian bishops (episcopalis audentia). Once parties had agreed to “Episcopal” arbitration, a subsequent award was enforceable without judicial review.98 Simultaneously, arbitral tribunals established within Jewish congregations were granted similar powers, enabling them to decide not only religious, but also commercial, disputes.99
Arbitration continued to play—so far as the historical record can be understood—an important role in commercial matters in the Byzantine period, in Egypt and elsewhere. Although the records and details of such arbitrations are uncertain, those materials that survived involve merchants, family feuds, inheritance disputes and other private law matters being submitted to binding arbitration, with the results being enforced through penalty mechanisms (as in Roman times).100
b. Commercial Arbitration in the European Middle Ages
A wide variety of regional and local forms of arbitration were used to resolve private law disputes throughout the Middle Ages in Europe. A recurrent theme of this development was the use of arbitration by merchants in connection with merchant guilds, trade fairs, or other forms of commercial or professional organizations. As in the state-to-state context,101 arbitration was particularly common during Medieval times in the Swiss Confederation, Northern Italy, Germany and neighboring regions (the Hanseatic League, in particular), France and England. Indeed, it is “very common,” if inaccurate, “to say that commercial arbitration had its beginning with the practices of the market and fair courts and in the merchant gilds.”102
In Medieval England, the charters of numerous guilds—such as the Company of Clothworkers or the Gild of St. John of Beverley of the Hans House103—provided for mandatory arbitration of disputes among members. The guilds “entertain actions of debt and covenant and trespass, and hardly dare we call such assemblies mere courts of arbitration, for they can enforce their own decrees.”104 Where merchants did business with one another at trade fairs, outside the context of a guild, arbitration also played a role. Indeed, because fairs involved numerous itinerant or foreign merchants, this appears to have been a direct forbearer of more modern forms of international commercial arbitration. 105
Arbitration of “international” disputes of this sort was preferred for reasons of expedition and commercial expertise, as well as, increasingly, the inadequacy of the local courts or other decision-makers to deal with the special jurisdictional and enforcement obstacles presented by foreign or “international” litigation. In Blackstone’s words, which again might be uttered almost equally well today:
The reason of their original institution seems to have been, to do justice expeditiously among the variety of persons that resort from distant places to a fair or market; since it is probable that no inferior court might be able to serve its process, or execute its judgments, on both or either of the parties.…106
The guilds and fairs developed their respective arbitral mechanisms with substantial independence from local court systems. That is reflected in the explanation provided by Gerard Malynes, a 17th century English authority on the law merchant:
The second meane or rather ordinarie course to end the questions and controversies arising between Merchants, is by way of Arbitrement, when both parties do make choice of honest men to end their causes, which is voluntarie and in their own power, and therefore called Arbitrium, or free will, whence the name Arbitrator is derived: and these men (by some called Good men) give their judgments by Awards, according to Equitie and Conscience, observing the Custome of Merchants, and ought to be void of all partialitie or affection more nor lesse to the one, than to the other, having onely care that right may take place according the truth, and that the difference may bee ended with brevitie and expedition….107
It also appears that English courts were quite prepared during this early period to give effect to arbitration agreements by enforcing penalty clauses associated with them, by barring litigation on claims within the scope of arbitration agreements and by a robust enforcement of arbitral awards.108
Arbitration appears to have been equally important to commercial affairs in Germany, Switzerland, Northern Italy and France. The Edict of 1560, promulgated by Francis II, made arbitration mandatory for the resolution of commercial disputes among merchants; at the same time, it declared arbitration agreements valid, even without a penalty clause, thereby moving beyond Roman law requirements for a compromissum.109 Although successive French Parliaments apparently fought to restrict the binding character of commercial arbitration, the practice remained well-established until the French Revolution.110
Commercial arbitration was also prevalent in the Swiss cantons and German principalities.111 In these areas of Europe, arbitration developed from two principal sources, which began to fuse in the 14th and 15th centuries. On the one hand, local traditions of arbitration were integrated into the feudal system; on the other, the Catholic Church offered arbitral mechanisms and practices which were developed under canonical law.112
Whatever its sources, it is clear that commercial arbitration was very widely used in these regions of Europe during the Middle Ages. Consistent with this, early codifications of procedural law dating from the 14th, 15th and 16th centuries provided for arbitration as a supplement to local court proceedings.113 Research in Southern Germany, Switzerland and Austria also reveals thousands of “arbitration deeds” (“Schiedsurkunde ”) evidencing a rich and varied arbitral practice in these regions during the Middle Ages.114 A representative example was Bavaria, where there is substantial evidence of commercial arbitration in the 13th and 14th centuries.115 Another anecdotal example is drawn from the archives of the principality of Furstenberg, which contain more than 500 arbitral deeds for the period between 1275 and 1600 (compared to records for some 25 court proceedings).116
Despite its deep historical roots, commercial arbitration also encountered recurrent challenges, often in the form of political and judicial mistrust or jealousy. These challenges have sometimes been overstated, and they have almost always been overcome by the perceived benefits of the arbitral process in commercial settings and the (eventual) acceptance of these benefits by governmental bodies. Moreover, the enforceability of arbitration agreements appears frequently to have been achieved, in historical commercial settings, largely through non-legal sanctions, such as commercial, religious and other sanctions effectuated via guilds or similar bodies.117 Nonetheless, the historical record is not complete without addressing some of the more significant challenges that have sporadically emerged to the legal enforcement of arbitration agreements and awards.
c. Commercial Arbitration in England
In the common law world, Lord Coke’s 1609 decision in Vynior’s Case enjoys the greatest notoriety for its treatment of agreements to arbitrate. The case involved a suit by Vynior against Wilde, seeking payment on a bond, which had secured the parties’ promise to submit a dispute over a parish tax to arbitration.118 Coke granted judgment for Vynior on the bond, but added the following reasoning:
[A]lthough … the defendant was bound in a bond to … observe [the] arbitrament, yet he might countermand it; for a man cannot by his act make such authority … not counter-mandable, which is by the law and of its own nature countermandable; as if I make a letter of attorney … so if I make my testament and last will irrevocable[.] And therefore … in both cases [i.e., both where an arbitration agreement is supported by a bond and where the agreement incorporates no bond] the authority of the arbitrator may be revoked; but then in the one case he shall forfeit his bond and in the other he shall lose nothing.119
As long as penalty bonds remained enforceable, Coke’s dictum was of limited practical import; parties could, and routinely did, include penalty provisions in their agreements to arbitrate.120
The common law’s treatment of such provisions was changed, however, in 1687, when Parliament enacted the Statute of Fines and Penalties, which disallowed recovery of penalties generally, limiting bond-holders to the recovery of actual damages.121 Apparently to correct the effect of this statute on commercial arbitration, Parliament soon thereafter enacted one of the world’s first arbitration statutes, adopting what is sometimes called the 1698 Arbitration Act.122 Reflecting an objective of promoting commerce that would recur in later eras, the Act’s objects were:
promoting trade, and rendering the awards of arbitrators more effectual in all cases, for the final determination of controversies referred to them by merchants and traders, or others, concerning matters of account or trade, or other matters.123
These objects were realized by providing that parties could make their arbitration agreement “a rule of any of His Majesty’s Courts of Record,” which would permit enforcement by way of a judicial order that “the parties shall submit to, and finally be concluded by the arbitration and umpirage.”124 This legislation sought to remedy, at least in part, the damage effected by the combination of Coke’s dicta in Vynior’s Case and the Statute against Fines, allowing Blackstone to conclude:
[I]t is now become the practice to enter into mutual bonds, with condition to stand to the award or arbitration of the arbitrators or umpire therein named. And experience having shown the great use of these peaceable and domestic tribunals, especially in settling matters of account, and other mercantile transactions, which are difficult and almost impossible to be adjusted on a trial at law; the legislature has now established the use of them.125
It nonetheless remained the case that, at English common law, an arbitration agreement was—on the authority of the dicta in Vynior’s Case, which later hardened into solid precedent—“revocable” at will. Although damages were in theory recoverable when an arbitration agreement was revoked, damages could not readily be proven or recovered for breach of an arbitration agreement—rendering such agreements nearly unenforceable in cases where the 1698 Arbitration Act did not apply.126
Outside the statutory “safe haven” of the 1698 Arbitration Act, common law enforcement of arbitration agreements was made even more problematic by the decision in Kill v. Hollister. There, the court permitted an action on an insurance policy to proceed, notwithstanding an arbitration clause, on the grounds that “the agreement of the parties cannot oust this court.”127 In subsequent centuries, that doctrine—which appeared to raise a broad-based public policy objection to arbitration (and forum selection) agreements—provided ample support for both English and U.S. proponents of judicial hostility to arbitration.128
Nonetheless, subsequent legislative reforms in England gradually introduced greater support for commercial arbitration agreements and arbitral tribunals’ powers. The 1833 Civil Procedure Act restated the rule that an arbitration agreement which was made a rule of court could not be revoked, while providing arbitrators with a mechanism to summon witnesses and the power to administer oaths.129
At the same time, in the middle of the 19th century, English courts revisited the analysis in Kill v. Hollister, arriving at a very different view. The leading authority is Scott v. Avery, where Lord Campbell said:
Is there anything contrary to public policy in saying that the Company shall not be harassed by actions, the costs of which might be ruinous, but that any dispute that arises shall be referred to a domestic tribunal, which may speedily and economically determine the dispute? … I can see not the slightest ill consequences that can flow from such an agreement, and I see great advantage that may arise from it…. Public policy, therefore, seems to me to require that effect should be given to the contract.130
He also disposed of the “ousting the court of jurisdiction” adage—proffered in Kill v. Hollister—by remarking dismissively that “it probably originated in the contests of the different courts in ancient times for extent of jurisdiction, all of them being opposed to anything that would altogether deprive every one of them of jurisdiction.”131 In a subsequent case, decided the same year, Lord Campbell declared:
Somehow the Courts of law had, in former times, acquired a horror of arbitration; and it was even doubted if a clause for a general reference of prospective disputes was legal. I never could imagine for what reason parties should not be permitted to bind themselves to settle their disputes in any manner on which they agreed.132
While Lord Campbell’s derisory description of the English courts’ historical attitude towards commercial arbitration appears to have been overstated,133 the more enduring point is his own resounding endorsement of the arbitral process in commercial matters—a point of view that was formulated with increasing vigor by English courts and legislatures in succeeding decades.
This was confirmed in the 1854 Common Law Procedure Act, one of the first modern efforts at a comprehensive arbitration statute.134 Among other things, the Act provided (albeit circuitously) for the irrevocability of any arbitration agreement, by permitting it to be made a rule of court, regardless whether the parties had so agreed.135 At the same time, however, the statute introduced new limits on the arbitral process by providing for fairly extensive judicial review of the substance of arbitrators’ awards, through a “case stated” procedure that permitted any party to obtain judicial resolution of points of law arising in the arbitral proceedings.136
At the end of the 19th century, England enacted the 1889 Arbitration Act, which was in turn widely adopted throughout the Commonwealth.137 The Act confirmed the irrevocability of agreements to arbitrate future disputes,138 while granting English courts discretion whether or not to stay litigations brought in breach of such agreements (effectively permitting specific performance of arbitration agreements to be ordered).139 At the same time, the Act preserved previous features of English arbitration law, including the “case stated” procedure for judicial review and the powers of the English courts to appoint arbitrators and assist in taking evidence.140
d. Commercial Arbitration in France
A broadly similar set of historical developments occurred in France as in England. There, as discussed above, the Edict of 1560 and merchant practice led to widespread use of arbitration for resolving commercial disputes.
The French Revolution changed this, like much else. Consistent with more general notions of social contract and democratic choice, the arbitration agreement was initially afforded enhanced dignity. Arbitration was described as producing “pure, simple and pacific justice,”141 which was legislatively declared to be “the most reasonable means for the termination of disputes arising between citizens.”142 In due course, arbitration was elevated to constitutional status in the Constitution of 1793 (Year I) and the Constitution of 1795 (Year III).143
As with many other things, the French Revolution soon turned on these progeny, with arbitration eventually being considered (ironically) a threat to the rule of law and the authority of the revolutionary state.144 With this hostility in the air, the 1806 Napoleonic Code of Civil Procedure imposed numerous procedural and technical restrictions on arbitration agreements and procedures. In particular, Article 2059 of the Civil Code and Article 1006 of the Code of Civil Procedure generally provided that agreements to arbitrate future disputes were unenforceable.145 The Commercial Code permitted agreements to arbitrate future disputes only in limited circumstances, consisting of maritime insurance contracts and certain corporate and partnership contexts.146 More generally, as one commentator observes:
[A]ll the provisions of the [Napoleonic Code of Civil Procedure] do appear to reflect, so to speak, a hatred of arbitration agreements and provide evidence of a secret desire to eliminate their existence.147
This hostility towards the arbitral process was reflected in contemporaneous French legal commentary, which held that “arbitration is a rough draft of the institutions and the judicial guarantees”148 and “[a] satire of judicial administration.”149
French courts did little during the 19th century to ameliorate this hostility. An 1843 decision of the Cour de Cassation in Cie l’Alliance v. Prunier, excerpted below at pp. 178–79, held broadly that agreements to arbitrate future disputes were not binding unless they identified the particular dispute and specified the individuals who were to serve as arbitrators.150 The stated rationale, which would recur in other historical and geographical settings, was that parties should be protected against the advance and abstract waiver of access to judicial protections and guarantees.151 That was coupled with a parallel perception that “[o]ne does not find with an arbitrator the same qualities that it is assured to find with a magistrate: the probity, the impartiality, the skillfulness, [and] the sensitivity of feelings necessary to render a decision.”152 The judicial decisions that followed upon these observations significantly limited the practicality and usefulness of arbitration agreements in 19th (and early 20th) century France.
As discussed below, it took some eight decades before this judicial hostility was moderated by the French courts and legislature—first in international cases and later in domestic ones.153 Indeed, it was only with France’s ratification of the Geneva Protocol of 1923, discussed below, that agreements to arbitrate future international commercial disputes became fully enforceable in French courts.154
e. Commercial Arbitration in the United States of America
A broadly similar course to that in England and France was followed with regard to commercial arbitration in the United States during the 18th and 19th centuries. Consistent with America’s role in the development of state-to-state arbitration in the 18th century, arbitration was widely used to resolve commercial (and other) disputes during Colonial times and the early years of the Republic.
Despite this, over the course of the 19th century, significant judicial (and legislative) hostility to arbitration agreements developed, as American courts developed a peculiarly radical interpretation of historic English common law authority. Importantly, the resulting judicial hostility to the arbitral process did not prevent the use of extra-judicial and commercial mechanisms for enforcing arbitration agreements and awards,155 but it nonetheless undoubtedly obstructed use of arbitration in the 19th century United States. This hostility was only fully overcome in the early 20th century, when determined efforts by America’s business community resulted in enactment of the Federal Arbitration Act (“FAA”) and similar state arbitration legislation.
Difficulties in resolving private disputes existed from the earliest days of European settlement in North America—which was hardly surprising, in light of the lack of governmental administrative structures and trained lawyers in the colonies, coupled with the fluid, sometimes chaotic dynamism of colonial life. Equally unsurprising is the use of various forms of arbitration to address these difficulties. Early Dutch settlers in New York, frustrated with efforts to replicate wholesale European judicial institutions, turned to the election of a council of “arbitrators,” which was in fact a form of judicial body whose jurisdiction appears in at least some cases to have been mandatory.156
[T]he arbitrators were left to the choice of the litigants, or appointed by the court…. These references were frequent upon every court day, and … though the amount involved was frequently considerable, or the matter in dispute highly important, … appeals to the court from the decision of the arbitrators were exceedingly rare.157
Some commentators conclude that, after the 1664 hand-over of administration in New York to the English, the use of arbitration in commercial matters was one of the enduring features of continuing Dutch influence.158
Arbitration of commercial matters was widespread in the American colonies during the 17th and 18th centuries. Drawing on English, as well as Dutch, practice, the colonists found the flexibility, practicality and speed of arbitral processes well-suited to their conditions: “From whatever source they derived the practice, the colonists engaged in extensive arbitration throughout the period of English rule.”159 Relying on court files (relatively sparse and terse), newspaper accounts (more fulsome), merchants books and chamber of commerce records, historians have sketched a picture of widespread, routine use of arbitration in Colonial commercial matters, including in transactions between businesses in different colonies, typically by agreement between the parties after disputes had arisen. 160
Following the American Revolution, the routine use of arbitration to resolve commercial disputes did not diminish. On the contrary, as New York developed over the course of the 19th century from a small, closely-knit colonial town into a cosmopolitan center of commerce, the use of arbitration grew apace with the expansion of commercial affairs.161 One commentator concludes:
[I]t is clear that arbitration has been in constant use in New York from its beginnings to 1920. It did not suddenly come into being at that time because of the passage of a statute making agreements to arbitrate future disputes enforceable. Rather, it has existed with and without the benefit of statutes, and both separate from, and in connection with, court adjudication.162
The driving motivation for arbitration in commercial matters during this period continued to be the perception by businesses “that government courts of the period did not apply commercial law in what the merchant community considered to be a just and expeditious fashion.”163
As its role as the dominant U.S. commercial and financial center would suggest, New York practice was representative of the country as a whole at the time. Research into specific jurisdictions, including New Jersey, Pennsylvania, Connecticut, Massachusetts, Delaware, Virginia and Ohio, reveals a history similar to that in New York.164 As one early 19th century commentator noted, the commercial arbitration system established by New York merchants offered a lead that “has been taken by the merchants of [Philadelphia] and other cities.”165
Some early legislative efforts were made to support the arbitral process in commercial matters. In 1791, the New York legislature enacted a statute virtually identical to England’s 1698 Arbitration Act,166 providing for the enforcement of agreements to arbitrate future disputes where they had been made a rule of court.167 A 1793 American insurance policy contained an arbitration clause, making it clear that the legislation had a practical orientation.168
Nonetheless, it appears that the principal means by which arbitration agreements and arbitral awards were enforced during the Colonial era was through non-legal or extra-legal commercial, professional and other mechanisms.169 That is in part because of the character of U.S. commercial affairs at the time, and in part because of the general lack of satisfactory legal or judicial enforcement mechanisms.
Despite the prevalence of commercial arbitration as a means of dispute resolution, and the existence of some early legislative and judicial support, many 19th century U.S. courts developed a puritanical version of English common law hostility to agreements to arbitrate future disputes. Indeed, for some decades, U.S. courts held flatly that agreements to arbitrate future disputes were contrary to public policy and revocable at will; unlike England, U.S. courts appear to have developed no alternative legal mechanisms, whether through the use of penalty clauses or rules of court, to make such agreements enforceable.170
Joseph Story, a preeminent U.S. authority in a wide range of legal fields, reflected 19th century judicial hostility to arbitration agreements in the United States. In 1845, he stated the common law position in the United States, inherited from England and elaborated with particular vigor:
Now we all know that arbitrators, at the common law, possess no authority whatsoever, even to administer an oath, or to compel the attendance of witnesses. They cannot compel the production of documents and papers and books of account, or insist upon a discovery of facts from the parties under oath. They are not ordinarily well enough acquainted with the principles of law or equity, to administer either effectually, in complicated cases; and hence it has often been said, that the judgment of arbitrators is but rusticum judicium. Ought then a court of equity to compel a resort to such a tribunal, by which, however honest and intelligent, it can in no case be clear that the real legal or equitable rights of the parties can be fully ascertained or perfectly protected? … [An arbitration agreement is not specifically enforceable because it] is essentially, in its very nature and character, an agreement which must rest in the good faith and honor of the parties, and like an agreement to paint a picture, to carve a statue, or to write a book … must be left to the conscience of the parties, or to such remedy in damages for the breach thereof, as the law has provided.171
While this left open the possibility of recovering money damages for breach of an arbitration agreement,172 this was virtually never an effective (or even very plausible) means of enforcement, since adequate proof of injury resulting from a refusal to arbitrate was virtually impossible.173
Relying on literal interpretations of the English common law in Vynior’s Case and Kill v. Hollister, and evidencing a disdain for the arbitral process reminiscent of early 19th century French authors,174 Story’s influential academic commentaries adopted similar reasoning:
[W]here the stipulation, though not against the policy of the law, yet is an effort to divest the ordinary jurisdiction of the common tribunals of justice, such as an agreement, in case of any disputes, to refer the same to arbitrators, Court of Equity will not, any more than Courts of Law, interfere to enforce that agreement, but they will leave the parties to their own good pleasure in regard to such agreements…. The regular administration of justice might be greatly impeded or interfered with by such stipulations if they were specifically enforced. And at all events courts of justice are presumed to be better capable of administering and enforcing the rights of the parties than any mere private arbitrators, as well from their superior knowledge as from their superior means of sifting the controversy to the very bottom.175
Citing this and other similar rationales, American courts applied an extreme interpretation of English common law precedents to withhold meaningful judicial enforcement of arbitration agreements throughout much of the 19th century.176
Moreover, U.S. courts and legislatures did not quickly follow the path of Scott v. Avery or the 1889 English Arbitration Act, which had taken steps to facilitate the enforcement of arbitration agreements in England.177 As the Second Circuit once wrote, “[one] of the dark chapters in legal history concerns the validity, interpretation and enforceability of arbitration agreements” by U.S. courts in the 19th century.178
Importantly, even while many U.S. courts refused to enforce commercial arbitration agreements during the middle and late 19th century, arbitration remained both popular and effective in American commercial settings: “The use of commercial arbitration developed during the colonial and post-revolutionary periods in spite of this [judicial] hostility.”179 As already noted, it did so on the basis of non-legal commercial sanctions and enforcement mechanisms, including through membership in commercial guilds, societies, or religious groups, all of which proved sufficiently resilient to overcome judicial hostility.180
Moreover, even with regard to judicial enforcement, other movements were afoot in the United States by the late 19th century. Courts in a number of U.S. jurisdictions rejected the common law notion that arbitration agreements were either unenforceable or revocable, and instead upheld them,181 while also enforcing arbitral awards with minimal judicial review.182 Rejecting Story’s doctrinal authority, an 1858 Virginian decision declared, in terms that could have been written 150 years later, that:
The only ground on which [the arbitration agreement] can be said to be unlawful is, that in referring all disputes and difficulties arising under the contract to the engineer or inspector, it tends to oust the courts of law of their jurisdiction; and is therefore against the policy of the law and void…. I am certainly not disposed to extend the operation of a rule which appears to me to have been founded on very narrow grounds, directly contrary to the spirit of later times, which leaves parties at full liberty to refer their disputes at pleasure to public or private tribunals.183
Soon thereafter, the U.S. Congress enacted legislation encouraging efforts to use arbitration to resolve international commercial disputes, although it does not appear that the statute had significant practical effects. 184 What did continue to have practical effect, though, were commercial and professional associations, which ensured that arbitration remained a central part of commercial life, even during the “dark chapters in legal history,” when U.S. courts were most hostile to arbitration and agreements to arbitrate.185
U.S. judicial and legislative hostility to commercial arbitration substantially eroded in the late 19th and early 20th centuries. Judicial opinions in the United States began increasingly to question the wisdom of Story’s views,186 while commercial pressure for legislative reform built.187 This pressure eventually had its effect, and in 1920, New York enacted legislation providing for the validity and specific enforcement of arbitration agreements. That was followed in 1925 by similar provisions in the FAA (which are discussed in detail below), which paralleled negotiation and adoption of the 1923 Geneva Protocol (also discussed below).188 While the New York arbitration legislation and the FAA allowed the annulment of awards for fraud, corruption and similar grounds, they enacted a sea change from the American common law by instituting a default rule that contracts to arbitrate should be enforced by the courts.189
f. Commercial Arbitration in Other European Jurisdictions in the 18th and 19th Centuries
The history of commercial arbitration in other nations did not always involve the same degree of judicial or legislative hostility as occasionally demonstrated in 18th and 19th century England, France and the United States. Historically, commercial arbitration was commonly used by merchants in what is today Germany, perhaps particularly because of the lack of a centralized government (until comparatively recently) and the demands of inter-state commerce.190 Thus, a German commentator at the beginning of the 20th century could observe, with regard to historic German experiences: “arbitral tribunals have at all times been regarded as an urgent necessity by the community of merchants and legislation has always granted them a place alongside the ordinary courts….”191
The role of arbitration in commercial matters was recognized, and given effect, in the civil codes of Baden (in 1864), Prussia (in 1864) and Bavaria (in 1869). All of these statutory codifications confirmed the role of arbitration in the resolution of commercial disputes, while granting arbitrators varying degrees of freedom from local procedural and substantive requirements and judicial control.192 These various developments led to the treatment of arbitration in the first German Code of Civil Procedure of 1877 (which would remain the fundamental basis for Germany’s legal regime for arbitration until 1998).
The 1877 German Code of Civil Procedure incorporated provisions that freed arbitrators from the obligation to apply strict legal rules (and, concurrently, from judicial review of the substance of awards). The drafters of the Code explained:
By submitting themselves to arbitration the parties want to escape from the difficulties and complexities arising from the application of the law. They intend that the law as between them should be what the arbitrators, according to their conscientious conviction—ex aequo et bono—determine. They will therefore as a rule consider the arbitrators to be friendly mediators—amiables compositeurs, as the Belgian draft says—and it is obvious that they do so consider them whenever they appoint as arbitrators persons who are not learned in the law. As a rule therefore the goal of arbitration is attained only when the arbitrators are not bound to follow the ordinary rules of law when giving their awards.193
At the same time, at the end of the 19th and beginning of the 20th centuries, German courts gave active support to the arbitral process, including by pioneering the development of what would later be termed the separability doctrine, in order to facilitate the enforcement of arbitration agreements.194
By the turn of the 20th century, permanent arbitral tribunals, organized under the auspices of trade organizations, became a common feature of German business life. In 1909, 1,030 cases were pending before such arbitral tribunals in Berlin alone.195 Contemporaneous authors generally praised the arbitral process, highlighting its efficiency, trustworthiness and the commercial good sense of arbitrators with industry experience.196
Like some common law courts, however, the German courts came in the 1920s and 1930s to “guard their rights with extreme jealousy, and were only too inclined to set aside awards [on the basis of] even a slight failure to comply with the provisions of the Code.”197 The provisions of the German Code of Civil Procedure left considerable leeway to local courts to interfere with the arbitral process, which they not infrequently did, curtailing the practical value of arbitration.198
As already described, the Napoleonic Code of Civil Procedure (and Cour de Cassation, in an 1843 decision) had adopted a similarly anti-arbitration course in France, which persisted until the 1920s.199 Belgian courts refused, unusually, to follow the approach of the French Cour de Cassation and gave effect to agreements to arbitrate future disputes.200 The Netherlands took a similar approach, enacting an Arbitration Act as part of its Code of Civil Procedure in 1838 to provide a comprehensive legal framework for commercial arbitration. 201 The Dutch and Belgian approach reflected the Low Countries’ historical fondness for arbitration,202 which can be attributed in significant part to their mercantile cultures and the influence of Roman law.203 Swiss cantonal legislation and constitutions were also generally supportive of arbitration during this era.204
B. CONTEMPORARY INTERNATIONAL ARBITRATION CONVENTIONS
With this historical background, the foundations for the contemporary legal regime for international arbitration were laid at the end of the 19th and beginning of the 20th centuries. As discussed below, the basic legal framework for international commercial arbitration was established in the first decades of the 20th century, with the 1923 Geneva Protocol and 1927 Geneva Convention, with the enactment of national arbitration legislation that paralleled these instruments and with the development of effective institutional arbitration rules.
Building on these foundations, the current legal regime for international commercial arbitration was developed in significant part during the second half of the 20th century, with countries from all parts of the globe entering into international arbitration conventions (particularly the New York Convention) and enacting national arbitration statutes designed specifically to facilitate the arbitral process; at the same time, national courts in most states gave robust effect to these legislative instruments, often extending or elaborating on their terms. As discussed below, this avowedly “pro-arbitration” regime ensures the enforceability of both international arbitration agreements and arbitral awards, gives effect to the parties’ procedural autonomy and the arbitral tribunal’s procedural discretion and seeks to insulate the arbitral process from interference by national courts or other governmental authorities.
At the same time, during the past several decades, the current legal regime for international investment arbitration was developed, particularly through the adoption of the ICSID Convention 205 and an extensive network of “bilateral investment treaties” (“BITs”).206 Similarly, if less extensively and comprehensively, the 1899 Hague Peace Conference adopted the Convention for the Pacific Settlement of International Disputes (which was subsequently amended in 1907),207 followed by the 1929 General Act for the Pacific Settlement of International Disputes. 208 These instruments reflected a robust, “pro-arbitration” approach to the use of international arbitration to peacefully resolve inter-state disputes, while setting forth a basic legal framework in which international arbitrations could be conducted.
1. 1899 and 1907 Conventions for the Pacific Settlement of International Disputes
By the beginning of the 20th century, proposals for more universal state-to-state arbitration mechanisms became credible. Although seldom discussed in today’s literature, an 1875 project of the Institut de Droit International produced a draft procedural code, based on existing inter-state arbitral practice and designed to provide basic procedural guidelines and mechanisms for future ad hoc arbitrations.209 The project provides impressive testimony to both the frequency of inter-state arbitrations and the perceived desirability of more consistent, transparent and internationally-neutral procedures for such arbitrations.
In 1899, the Hague Peace Conference produced the Hague Convention of 1899 on the Pacific Settlement of Disputes, which included chapters on international arbitration and established a “Permanent Court of Arbitration” to administer state-to-state arbitration under the Convention.210 These provided the foundation for more formal inter-state adjudication, in the Permanent Court of International Justice and International Court of Justice,211 as well as the founding of the Permanent Court of Arbitration (“PCA”).212 At the same time, arbitration remained a preferred method of resolving inter-state disputes, often selected by states during the 20th century in preference to standing international judicial bodies.213
Thus, Article 16 of the 1899 Convention recorded the Contracting States’ recognition that “[i]n questions of a legal nature, and especially in the interpretation or application of International Conventions,” international arbitration was the “most effective, and at the same time the most equitable, means of settling disputes which diplomacy has failed to settle.” Articles 15 to 19 prescribed a set of rules regarding the constitution of inter-state arbitral tribunals and the conduct of inter-state arbitrations; among other things, the 1899 Convention established the PCA (seated in the Hague), for administering inter-state arbitrations.
The 1899 Convention was revised in 1907, with the new Convention for the Pacific Settlement of International Disputes including the addition or amendment of a number of provisions regarding international arbitral proceedings.214 In 1929, a “General Act on Pacific Settlement of International Disputes” was negotiated (with a number of states, principally Western European, ultimately ratifying the Act).215 As with the 1899 and 1907 Conventions, the Act sets forth a basic legal framework (subject to contrary agreement by the parties) for international arbitrations between state parties.
2. Geneva Protocol and Geneva Convention
During the first decades of the 20th century, businessmen and lawyers in developed states called for legislation to facilitate the use of arbitration in resolving domestic and, particularly, international commercial disputes.216 These appeals emphasized the importance of reliable, effective and fair mechanisms for resolving international disputes to the expansion of international trade and investment.
In 1923, initially under the auspices of the newly-founded International Chamber of Commerce (“ICC”), major trading nations negotiated the Geneva Protocol on Arbitration Clauses in Commercial Matters.217 The Protocol was ultimately ratified by the United Kingdom, Germany, France, Japan, India, Brazil and about two dozen other nations.218 Although the United States did not ratify the Protocol, the nations that did so represented a very significant portion of the international trading community at the time.
The Geneva Protocol played a critical—if often underappreciated—role in the development of the legal framework for international commercial arbitration. Among other things, Article I of the Geneva Protocol declared:
Each of the Contracting States recognizes the validity of an agreement whether relating to existing or future differences between parties subject respectively to the jurisdiction of different Contracting States by which the parties to a contract agree to submit to arbitration all or any differences that may arise in connection with such contract relating to commercial matters or to any other matter capable of settlement by arbitration, whether or not the arbitration is to take place in a country to whose jurisdiction none of the parties is subject.219
This provision was complemented by Article IV, which provided:
The tribunals of the Contracting Parties, on being seized of a dispute regarding a contract made between persons to whom Article 1 applies and including an arbitration agreement whether referring to present or future differences which is valid by virtue of the said article and capable of being carried into effect, shall refer the parties on the application of either of them to the decision of the arbitrators.220
In these two provisions, the Geneva Protocol planted the seeds for a number of principles of enormous future importance to the international arbitral process—including the presumptive validity of agreements to arbitrate future (as well as existing) disputes, the obligation of national courts to refer parties to arbitration, the concept of arbitrating “commercial” disputes and disputes “capable of settlement by arbitration” and the obligation to recognize international arbitration agreements on an equal footing with domestic arbitration agreements. As discussed below, all of these basic themes reappeared repeatedly in international conventions and national legislation over the next 90 years and remain the foundation of the contemporary legal framework for international commercial arbitration. 221 The Protocol also established standards which made international arbitration agreements more enforceable than domestic arbitration agreements had historically been in many nations,222 reflecting a deliberate policy of promoting the use of arbitration to resolve international commercial disputes.
Each Contracting State undertakes to ensure the execution by its authorities and in accordance with the provisions of its national laws of arbitral awards made in its own territory….223
This provision was extremely limited, providing only for Contracting States to enforce awards made on their own territory (i.e., not “foreign” awards, made in other countries). Even then, enforcement was required only in accordance with local law—effectively making the commitment dependent on each individual state’s arbitration legislation. In contrast to the simple, but dramatic, provisions of the Geneva Protocol regarding arbitration agreements, Article III’s treatment of arbitral awards was at best tentative and incomplete.
The Geneva Protocol was augmented by the Geneva Convention for the Execution of Foreign Arbitral Awards of 1927.224 Recognizing the Protocol’s deficiencies in dealing with this issue, the Geneva Convention expanded the enforceability of arbitral awards rendered pursuant to arbitration agreements subject to the Geneva Protocol. It did so by requiring the recognition and enforcement of such “foreign” awards within any Contracting State (rather than only within the state where they were made, as under the Protocol), and forbidding substantive judicial review of the merits of such awards in recognition proceedings.225
Regrettably, the Convention placed the burden of proof in recognition proceedings on the award-creditor, requiring the award-creditor to demonstrate both the existence of a valid arbitration agreement,226 concerning an arbitrable subject matter,227 and that the arbitral proceedings had been conducted in accordance with the parties’ agreement.228 The Convention also required the award-creditor to show that the arbitral award had become “final” in the place of arbitration229 and was not contrary to the public policy of the recognizing state.230 This requirement of finality led to the so-called “double exequatur’” requirement—whereby an award could effectively only be recognized abroad under the Geneva Convention if it had been confirmed by the courts of the place of the arbitration.231 This proved a major source of uncertainty regarding the finality of international arbitral awards.
Despite these shortcomings, the Geneva Protocol and Geneva Convention were major steps towards today’s legal framework for international commercial arbitration. Most fundamentally, both instruments established, if only imperfectly, the basic principles of the presumptive validity of international arbitration agreements232 and arbitral awards,233 and the enforceability of arbitration agreements by specific performance,234 as well as recognition of the parties’ autonomy to select the substantive law governing their relations235 and to determine the arbitration procedures.236
Further, the Geneva Protocol and Convention both inspired and paralleled national legislation and business initiatives to augment the legal regime governing international commercial arbitration agreements. In 1920, New York enacted arbitration legislation, largely paralleling the Protocol, to ensure the validity and enforceability of commercial arbitration agreements.237 With an eye towards ratification of the Geneva Protocol, France adopted legislation in 1925 that made arbitration agreements valid in commercial transactions,238 while similar legislation was enacted in England.239
Also in 1925, the United States enacted the Federal Arbitration Act—providing the first federal legislation in the United States governing domestic (and international) arbitration agreements. The centerpiece of the FAA was §2, which provided that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract,”240 while §§9 and 10 of the Act provided for the presumptive validity and enforceability of arbitral awards.241 Much like the 1923 Geneva Protocol, the stated purpose of the FAA was to reverse decades of judicial mistrust in the United States of arbitration and render arbitration agreements enforceable on the same terms as other contracts.242
3. New York Convention
The Geneva Protocol and the Geneva Convention were succeeded by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. 243 Generally referred to as the “New York Convention,” the treaty is by far the most significant contemporary legislative instrument relating to international commercial arbitration. It provides what amounts to a universal constitutional charter for the international arbitral process, and whose sweeping terms have enabled both national courts and arbitral tribunals to develop durable, effective means for enforcing international arbitration agreements and arbitral awards.
The Convention was adopted—like many national arbitration statutes—specifically to address the needs of the international business community, and in particular to improve the legal regime provided by the Geneva Protocol and Geneva Convention for the international arbitral process.244 The first draft of what became the Convention was prepared by the International Chamber of Commerce in 1953. The ICC introduced the draft with the observation that “the 1927 Geneva Convention was a considerable step forward, but it no longer entirely meets modern economic requirements,” and with the fairly radical objective of “obtaining the adoption of a new international system of enforcement of arbitral awards.”245
Preliminary drafts of a revised Convention were prepared by the ICC and the United Nations’ Economic and Social Council (“ECOSOC”), which then provided the basis for a three-week conference in New York—the United Nations Conference on Commercial Arbitration—attended by 45 states in the spring of 1958.246 The New York Conference resulted in a document—the New York Convention—that was in many respects a radically innovative instrument, which created for the first time a comprehensive legal regime for the international arbitral process.
The original drafts of the New York Convention were focused entirely on the recognition and enforcement of arbitral awards, with no serious attention to the enforcement of international arbitration agreements247 This drafting approach paralleled that of the Geneva treaties (where the Geneva Protocol dealt with arbitration agreements and the Geneva Convention addressed awards).248 It was only late in the Conference that the delegates recognized the limitations of this approach and considered a proposal from the Dutch delegation to extend the treaty from the recognition of awards to also address international arbitration agreements. That approach, which was eventually adopted, and the resulting provisions regarding the recognition and enforcement of international arbitration agreements form one of the central elements of the Convention.249
The text of the Convention was approved on June 10, 1958 by a unanimous vote of the Conference (with only the United States and three other countries abstaining).250 The Convention is set forth in English, French, Spanish, Russian and Chinese texts, all of which are equally authentic.251 The text of the Convention is only a few pages long, with the instrument’s essential substance being contained in five concisely-drafted provisions (Articles I through V).
Despite its brevity, the Convention is now widely regarded as “the cornerstone of current international commercial arbitration.”252 In the apt words of Judge Stephen Schwebel, former President of the International Court of Justice: “It works.”253 Or, as the late Sir Michael Kerr put it, the New York Convention “is the foundation on which the whole of the edifice of international arbitration rests.”254
It is often said that the Convention did not provide a detailed legislative regime for all aspects of international arbitrations (as, for example, the UNCITRAL Model Law would later do255). Rather, the Convention’s provisions focused on the recognition and enforcement of arbitration agreements and arbitral awards, without specifically regulating the conduct of the arbitral proceedings or other aspects of the arbitral process. As one national court has observed, the Convention was designed to “encourage the recognition and enforcement of commercial arbitration agreements in international contracts and to unify the standards by which agreements to arbitrate are observed and arbitral awards are enforced in the signatory nations.”256
Within these fields, an essential objective of the Convention was uniformity; the Convention’s drafters sought to establish a single uniform set of international legal standards for the enforcement of arbitration agreements and arbitral awards. 257 In particular, the Convention’s provisions prescribe uniform international rules that: (a) require national courts to recognize and enforce foreign arbitral awards (Articles III and IV), subject to a limited number of specified exceptions (Article V);258 (b) require national courts to recognize the validity of arbitration agreements, subject to specified exceptions (Article II);259 and (c) require national courts to refer parties to arbitration when they have entered into a valid agreement to arbitrate that is subject to the Convention (Article II(3)).260 The Convention’s exceptions to the obligation to recognize foreign arbitral awards are limited to issues of jurisdiction, procedural regularity and fundamental fairness, compliance with the parties’ arbitration agreement and public policy; they do not include review by a recognition court of the merits of the arbitrators’ substantive decision.261
The New York Convention made a number of significant improvements in the regime of the Geneva Protocol and Geneva Convention for the enforcement of international arbitration agreements and arbitral awards. Particularly important were the New York Convention’s shifting of the burden of proving the validity or invalidity of arbitral awards away from the party seeking enforcement to the party resisting enforcement,262 its recognition of substantial party autonomy with respect to choice of arbitral procedures and law applicable to the arbitration agreement,263 and its abolition of the previous “double exequatur” requirement (which had required that arbitral awards be confirmed in the arbitral seat before being recognized abroad).264 The Convention’s various improvements were summarized by the President of the U.N. Conference on the Convention as follows:
[I]t was already apparent that the document represented an improvement on the Geneva Convention of 1927. It gave a wider definition of the awards to which the Convention applied; it reduced and simplified the requirements with which the party seeking recognition or enforcement of an award would have to comply; it placed the burden of proof on the party against whom recognition or enforcement was invoked; it gave the parties greater freedom in the choice of the arbitral authority and of the arbitration procedures; it gave the authority before which the award was sought to be relied upon the right to order the party opposing the enforcement to give suitable security.265
More generally, these provisions of the Convention were intended to promote the use of arbitration as a means of resolving international commercial disputes, in order to facilitate international trade and investment.266
Despite the Convention’s brevity and focus on arbitration agreements and arbitral awards, the significance of its terms can scarcely be exaggerated. The Convention’s provisions effected a fundamental restructuring of the international legal regime for international commercial arbitration, combining the separate subject matters of the Geneva Protocol and Geneva Convention into a single instrument which provided a legal framework that covered international arbitrations from their inception (the arbitration agreement) until their conclusion (recognition of the award). In so doing, the Convention established for the first time a comprehensive international legal framework for international arbitration agreements, arbitral proceedings and arbitral awards.
Moreover, the terms of this legal framework were important and remarkably innovative. Considering only the Convention’s provisions mandating recognition of arbitral awards, subject to a limited, exclusive list of exceptions, one delegate to the New York Conference termed the Convention a “very bold innovation.”267 Equally, the Convention’s introduction of uniform international legal standards mandatorily requiring the recognition and enforcement of international arbitration agreements, subject to only specified exceptions, was also a bold advance.268 Taken together, the Convention’s provisions regarding the recognition of arbitral awards and agreements also had the indirect, but nonetheless innovative, effect of providing an international legal framework within which the arbitral proceedings could be conducted largely in accordance with the parties’ desires and the arbitrators’ directions.
Despite its present significance, the New York Convention initially attracted relatively few signatories or ratifications. Only 26 of the 45 countries participating in the Conference signed the Convention prior to its entry into force on June 7, 1959. Many of the countries that did sign the Convention prior to June 1959, such as Belgium, the Netherlands, Sweden and Switzerland, did not ratify it for several years thereafter. Other nations, including the United Kingdom and most Latin American and African states, did not accede to the Convention until many years later.269 The United States did not ratify the Convention until 1970.270
Over time, however, states from all regions of the globe reconsidered their position,271 and as of 2014, some 153 nations had ratified the Convention.272 The Convention’s parties include virtually all major trading states and many Latin American, African, Asian, Middle Eastern and former socialist states. During the past decade, numerous states (including a number in the Middle East and Latin America) have departed from traditions of distrust of international arbitration and ratified the Convention.273 The Convention has thus realized its drafters’ original aspirations and come to serve as a global charter for international arbitration.
Article VII of the New York Convention provides that the Convention does not affect the validity of any bilateral or other multilateral arrangements concerning the recognition and enforcement of foreign arbitral awards (except the Geneva Protocol and Geneva Convention, which are terminated as between Contracting States to the New York Convention).274 Article VII(1) of the Convention also provides that the Convention “shall not … deprive any interested party of any right he may have to avail himself of an arbitral award in the manner and to the extent allowed by the law or treaties of the country where such award is sought to be relied upon.”275 Article VII has been interpreted by many national courts in a “pro-enforcement” fashion, to permit agreements and awards to be enforced under either the Convention, as well as under another treaty (if that treaty is by its terms applicable), or under national law, provided that it is more favorable than the Con-vention.276
In virtually all Contracting States, the New York Convention has been implemented through national legislation. The practical effect of the Convention is therefore dependent on both the content of such national legislation and the interpretations given by national courts to the Convention and national implementing legislation. 277
As noted above, an important aim of the Convention’s drafters was uniformity.278 The fulfillment of that aim is dependent upon the willingness of national legislatures and courts, in different Contracting States, to adopt uniform interpretations of the Convention. In general, national courts have risen to the challenge of adopting uniform interpretations of the Convention’s provisions.279 That process has accelerated in recent decades, as national court decisions have become increasingly available in foreign jurisdictions and national courts have increasingly cited authorities from foreign and international sources in interpreting the Convention.280
It also bears emphasis that the Convention is a “constitutional” instrument.281 The Convention’s text is drafted in broad and general terms, designed for application in a multitude of states and legal systems, over a period of decades. By necessity, as well as design, the interpretation of the Convention must evolve and develop over time, as national courts and arbitral tribunals confront new issues, develop more refined analyses and implement the treaty’s underlying objectives.
The process of interpretation and application of the Convention can be uneven and slow, but it is very well-adapted to the evolving needs of the international arbitral process, which by its nature is characterized by changing commercial demands and conditions. It is also well-adapted to the nature of the Convention’s constitutional structure, which leaves a substantial role for national law and national courts to play in the international arbitral process, but within the international framework and limitations imposed by the Convention’s provisions.
4. Inter-American Convention
In the early years of the 20th century, much of South America effectively turned its back on international commercial arbitration. Only Brazil ratified the Geneva Protocol, and even it did not adopt the Geneva Convention. South American states were very reluctant to ratify the New York Convention, for the most part only beginning to do so in the 1980s.
Nevertheless, in 1975, the United States and most South American nations negotiated the Inter-American Convention on International Commercial Arbitration (“Inter-American Convention”), also known as the “Panama Convention.”282 The United States ratified the Convention in 1990; other parties include Mexico, Brazil, Argentina, Venezuela, Colombia, Chile, Ecuador, Peru, Costa Rica, El Salvador, Guatemala, Honduras, Panama, Paraguay, Uruguay, Dominican Republic, Nicaragua and Bolivia.283
The Inter-American Convention is similar to the New York Convention in many respects; indeed, the Convention’s drafting history makes clear that it was intended to provide the same results as the New York Convention. 284 Among other things, the Inter-American Convention provides for the presumptive validity and enforceability of arbitration agreements285 and arbitral awards,286 subject to specified exceptions similar to those in the New York Convention.287
The Inter-American Convention nonetheless introduces significant innovations, not present in the New York Convention. It does so by providing that, where the parties have not expressly agreed to any institutional or other arbitration rules, the rules of the Inter-American Commercial Arbitration Commission (“IACAC”) will govern.288 In turn, the Commission has adopted rules that are similar to the UNCITRAL Arbitration Rules.289 The Convention has also introduced provisions regarding the constitution of the arbitral tribunal and the parties’ freedom to appoint arbitrators of their choosing (regardless of nationality).290 Less desirably, the Inter-American Convention departs from the New York Convention by omitting provisions dealing expressly with judicial proceedings brought in national courts in breach of an arbitration agreement.291
5. European Convention
The 1961 European Convention on International Commercial Arbitration292 is one of the world’s most important regional commercial arbitration treaties. Drafting of the European Convention began in 1954, aimed at producing a treaty that would improve upon the then-existing legal framework for international arbitration involving parties from European states and particularly East-West trade.293 The drafting process was protracted (and delayed by the intervening New York Convention), but ultimately concluded with the signing of the Convention in Geneva on April 21, 1961.294
The European Convention entered into force in 1964, and as of 2014, 31 states were party to it. Most European states (but not the United Kingdom, the Netherlands, Norway, or Sweden) are party to the Convention, while some ten non-EU states are parties, including Russia, Cuba and Burkina Faso.295 The Convention consists of ten articles and a detailed annex (dealing with certain procedural matters).
The Convention addresses the three principal phases of the international arbitral process—arbitration agreements, arbitral procedure and arbitral awards. With regard to arbitration agreements, the Convention does not expressly provide for their presumptive validity, but instead provides for a specified, limited number of bases for the invalidity of such agreements in proceedings concerning recognition of awards.296 The Convention also addresses the allocation of competence between arbitral tribunals and national courts over jurisdictional challenges, to the existence, validity, or scope of the arbitration agreement.297 With regard to the arbitral procedure, the Convention limits the role of national courts and confirms the autonomy of the parties and the arbitrators (or arbitral institution) to conduct the arbitration proceedings.298 With regard to arbitral awards, the Convention is designed to supplement the New York Convention, essentially dealing only with the effects of a judicial decision annulling an award in the arbitral seat in other jurisdictions (and not with other recognition obligations).299
The Convention’s impact in actual litigation has not been substantial (owing to the limited number of Contracting States, all of whom are also party to the New York Convention). Nonetheless, the Convention’s effects on international arbitration doctrine have been significant. This is particularly true with regard to the arbitrators’ jurisdiction to consider challenges to their own jurisdiction (so-called “competence-competence”)300 and the parties’ (and arbitrators’) autonomy to determine the arbitral procedures.301 The Convention is currently somewhat dated—reflecting its origins during the Cold War—and efforts have been proposed, thus far unsuccessfully, to revise its provisions.302
6. ICSID Convention
A central pillar of the international investment regime is the so-called “ICSID Convention” or “Washington Convention” of 1965. The Convention established the International Centre for Settlement of Investment Disputes (“ICSID”), a specialized arbitral institution, which administers arbitrations and conciliations, both pursuant to the Convention and otherwise.303
The ICSID Convention was negotiated and opened for signature in 1965 and, as of 2014, has 150 Contracting States from every geographic region of the world. 304 The Convention is designed to facilitate the settlement of “investment disputes” (i.e., “legal dispute[s] arising directly out of … investments]”) that the parties have agreed to submit to ICSID.305 Investment disputes are defined as controversies that arise out of an “investment” and are between a Contracting State (or “host State”) or a designated state-related entity from that state and a national of another Contracting State (or “investor”). The Convention does not apply to disputes not involving a Contracting State and an investor from another Contracting State or to disputes between private parties; it also does not apply to purely commercial disputes that do not involve an investment.
As to investment disputes that fall within its terms, the Convention provides both conciliation and arbitration procedures. The Convention does not provide an independent, stand-alone basis for arbitrating particular disputes under the Convention. Instead, an ICSID arbitration cannot be pursued without separate consent to ICSID arbitration by the foreign investor and host state, which usually takes the form of either an arbitration clause contained within an investment contract or consent provided in a foreign investment law, BIT (discussed below at pp. 511–16), or another treaty.306
If parties agree to submit a dispute to ICSID arbitration, the ICSID Convention (and related ICSID Arbitration Rules) provide a comprehensive, stand-alone regime, almost entirely detached from national law and national courts, for the conduct of ICSID arbitral proceedings. This regime differs materially from that applicable in international commercial arbitrations (under the New York Convention) and most other investment arbitration contexts.
Under the ICSID Convention regime, arbitral tribunals are granted exclusive competence to resolve jurisdictional challenges (subject to limited subsequent review by ICSID-appointed annulment committees (and not by national courts)).307 This differs from international commercial arbitrations, where national courts play a significant role in considering and resolving jurisdictional disputes.
Likewise, ICSID awards are subject to immediate recognition and enforcement in the courts of Contracting States without setting aside proceedings or any other form of other review in national courts, either in the arbitral seat or elsewhere (but subject to local rules of state immunity of state assets).308 Instead, ICSID awards are subject to a specialized internal annulment procedure, in which ad hoc committees selected by ICSID are mandated, in limited circumstances, to annul awards for jurisdictional or grave procedural violations;309 if an award is annulled it may be resubmitted to a new ICSID arbitral tribunal.310 This is a substantial difference from the New York Convention model, where awards are subject to annulment (in the national courts of the arbitral seat) and non-recognition (in national courts elsewhere).311
Moreover, ICSID (and not a national court) serves as the appointing authority in ICSID arbitrations, when necessary, selecting and replacing arbitrators from a list of individuals selected by individual Contracting States.312 Again, this differs materially from appointment mechanisms in at least some non-ICSID settings (particularly ad hoc arbitrations, where national courts can be involved in the appointment and challenge process313).
Finally, the ICSID Convention provides that, absent agreement by the parties, ICSID arbitrations are governed by the law of the state that is party to the dispute (including its conflict of laws rules) “and such rules of international law as may be applicable.”314 In contrast, neither the New York nor Inter-American Convention contains comparable substantive choice-of-law provisions.
As of June 2014, ICSID had registered 473 cases (14 new cases in the first half of 2014), and ICSID tribunals had issued 180 awards.315
7. Bilateral Investment Treaties and Other Investment Protection Agreements
Bilateral Investment Treaties (“BITs”) or Investment Protection Agreements (“IPAs”) became common during the 1980s and 1990s as a means of encouraging capital investment in developing markets.316 Capital-exporting states (including the United States, most Western European states and Japan) were the earliest and most vigorous proponents of the negotiation of BITs, principally with countries in developing regions. More recently, states from all regions of the world and in all stages of development have entered into BITs.317 A recent study concluded that more than 2,800 BITs are presently operative.318
Most BITs provide significant substantive protections for investments made by foreign investors, including guarantees against expropriation and denials of fair and equitable treatment.319 BITs also frequently contain provisions that permit foreign investors to require international arbitration (typically referred to as “investor-State arbitration”) of specified categories of investment disputes with the host state—including in the absence of a traditional contractual arbitration agreement with the host state. 320 The possibility of “arbitration without privity” is an important option in some international disputes, and represents a substantial development in the evolution of international arbitration. 321 In addition, many BITs contain provisions dealing with the finality and enforceability of international arbitral awards issued pursuant to the treaty.322 A sample BIT (between the United Kingdom and Bosnia-Herzegovina) is included in the Documentary Supplement at pp. 73–78.
C. OVERVIEW OF NATIONAL ARBITRATION LEGISLATION
Many nations have enacted arbitration legislation, which implements the New York Convention (or other regional arbitration treaties) and provides a basic legal framework for international arbitration agreements, arbitral proceedings and arbitral awards. These statutory regimes are directed primarily at international commercial arbitration, but, in some instances, extend to international investment or inter-state arbitration. National arbitration statutes are of fundamental importance in giving effect to—or creating obstacles to—the functioning of the international arbitral process. Despite occasional rhetoric as to the “autonomy” of the international arbitral process,323 it is essential to the efficient functioning of the arbitral process, and the realization of the parties’ objectives in agreeing to arbitrate, that national courts give effect to such agreements and provide support for the arbitral process. The enactment of legislation accomplishing these ends has been a major objective—and achievement—of developed trading states during the last 50 years.324
Over the past several decades, most developed and less-developed states have enacted revised or improved legislation dealing with international commercial arbitration. The extent of these legislative revisions is striking, both in number and diversity. Important new enactments, or thorough revisions, have occurred in Algeria (1993, 2008), Argentina (1981, 2001), Australia (1974, 1989, 2010), Austria (2005, 2013), Azerbaijan (1999), Bahrain (1994), Bangladesh (2001), Belarus (1999), Belgium (2013), Bolivia (1997), Brazil (1996), Bulgaria (1993, 2007), Cambodia (2006), Canada (2014), Chile (2004), China (1982, 1991, 1994), Colombia (1996, 1998, 2012), Costa Rica (1997, 2011), Cyprus (1987), Czech Republic (1994, 2012), Denmark (2005), Djibouti (1984), Dominican Republic (2008), Ecuador (1997), Egypt (1994), El Salvador (2002), Estonia (2006), England (1996), Finland (1992), France (2011), Germany (1998), Greece (1999), Hong Kong (1997, 2011), India (1996), Indonesia (1999), Iran (1997), Ireland (1998, 2010), Israel (1968, 2008), Italy (1994, 2006), Japan (2004), Jordan (2001), Kazakhstan (2004), Kenya (1995, 2009), Kuwait (1995), Lebanon (1985, 2002), Libya (2010), Malaysia (2006, 2011), Malta (1996), Mauritius (2008), Mexico (1989, 1993, 2011), Moldova (2008), Morocco (2008), Netherlands (1985, 2004, 2015), New Zealand (2007), Nigeria (1988), Norway (2004), Peru (1996, 2008), Philippines (2004), Poland (2005), Portugal (2012), Qatar (1990), Romania (2013), Russia (1993), Saudi Arabia (2012), Scotland (2010), Senegal (1998), Singapore (1994, 2010, 2012), South Africa (1965), South Korea (1999), Spain (2004, 2011), Sri Lanka (1995), Sweden (1999), Switzerland (1987, 2011), Syria (2008), Taiwan (2002), Tanzania (2002), Thailand (2002), Tunisia (1993), Turkey (2001), Ukraine (1994), United Arab Emirates (1992), Uruguay (1988, 2013), Venezuela (1998), Vietnam (2011) and Yemen (1992, 1997).
Particularly in civil law jurisdictions, early arbitration legislation was often a part or chapter within the national Code of Civil Procedure.325 This continues to be the case in a number of jurisdictions even today.326 In common law jurisdictions, the tendency was (and remains) to enact separate legislation dealing specifically with arbitration (or international arbitration).327 The growing popularity of the UNCITRAL Model Law on International Commercial Arbitration328 has made the latter approach of stand-alone arbitration legislation increasingly common.
As discussed below, in many, but not all,329 cases, national arbitration statutes are applicable only to international (not domestic) arbitrations, or contain separate parts dealing differently with domestic and international arbitration. This approach has generally been adopted in order to permit the application of particularly “pro-arbitration” rules and procedures in the international context, which may not (for historical or other reasons) be appropriate for purely domestic matters. 330 Nevertheless, a number of countries have adopted the same legislation for both domestic and international arbitrations (even then, however, with specific provisions that treat the two fields differently with regard to particular subjects).331
Broadly speaking, there are two categories of national arbitration legislation: statutes which are supportive of the international arbitral process (increasingly, but not always, modeled on the UNCITRAL Model Law) and statutes which are not supportive of the arbitral process. Both of these types of legislation are discussed below.
1. Supportive National Arbitration Legislation
Most states in Europe, North America and Asia have adopted legislation that provides effective and stable support for the arbitral process. In many cases, developed jurisdictions have progressively refined their national arbitration statutes, adopting either amendments or new legislation to make their arbitration regimes maximally supportive for the international arbitral process and attractive to users. Thus, over the past 50 years, virtually every major developed country has substantially revised or entirely replaced its international arbitration legislation, in every case, to facilitate the arbitral process and promote the use of international arbitration.332
Paralleling the main features of the New York Convention, the pillars of modern arbitration statutes are provisions that affirm the capacity and freedom of parties to enter into valid and binding agreements to arbitrate future commercial disputes, 333 provide mechanisms for the enforcement of such agreements by national courts (through orders to stay litigation or to compel arbitration),334 prescribe procedures for confirming or annulling arbitral awards 335 and require the recognition and enforcement of foreign arbitral awards.336 In many cases, national arbitration statutes also authorize limited judicial assistance to the arbitral process; this assistance can include selecting arbitrators, enforcing a tribunal’s orders with respect to evidence-taking or discovery and granting provisional relief in aid of arbitration.337 In addition, most modern arbitration legislation affirms the parties’ autonomy to agree upon arbitral procedures and, sometimes, the applicable substantive law governing the parties’ dispute, while narrowly limiting the power of national courts to interfere in the arbitral process, either when arbitral proceedings are pending or in reviewing arbitral awards.338
As one distinguished authority put it:
[One focus of national legislative developments over the past four decades] is found in the widening of the parties’ autonomy in regulating qualifying aspects of the arbitration (number and manner of appointment of arbitrators; seat and language of the arbitration; rules applicable to the proceedings; rules applicable to the merits of the dispute; and waiver of means of recourse against the award).339
The central objective of these legislative enactments has been to facilitate international trade and investment by providing more secure means of dispute resolution. Recognizing that international transactions are subject to unique legal uncertainties and risks, developed and other states have sought to promote the use of arbitration expressly as a way of mitigating such risks.340 Among other things, they have done so through enacting modern arbitration statutes, giving effect to the constitutional principles of the New York Convention, ensuring the validity and enforceability of international arbitration agreements and awards, and facilitating the autonomy of the arbitral process.
a. UNCITRAL Model Law and 2006 Revisions