[2.01] The agreement to arbitrate is the foundation stone of international arbitration.1 It records the consent of the parties to submit to arbitration—a consent that is indispensable to any process of dispute resolution outside national courts.2 Such processes depend for their very existence upon the agreement of the parties. Many attach great importance to the wishes of the parties—to l’autonomie de la volonté. Indeed, some go so far as to suggest that this consent, together with an appropriate set of rules, is sufficient to turn international arbitration into an autonomous, delocalised process that takes place independently of national law. For most, this goes too far.3 It attaches too much importance to the wishes of the parties and not enough to the framework of national laws within which the arbitral process must take place. Nevertheless, the consent of the parties remains the essential basis of a voluntary system of international arbitration.4
[2.02] There are two basic types of arbitration agreement: the arbitration clause and the submission agreement. An arbitration clause looks to the future, whereas a submission agreement looks to the past. The first, which is most common, is usually contained in the principal agreement between the parties and is an agreement to submit future disputes to arbitration. The second is an agreement to submit existing disputes to arbitration.
[2.03] In this book, the terms ‘arbitration clause’ and ‘submission agreement’ are used according to these descriptions. Arbitration clauses are usually short, whilst submission agreements are often long. This is not because of any particular legal requirement; it is simply a reflection of the practicalities of the situation. An arbitration clause that deals with disputes that may arise in the future does not usually go into too much detail, since it is not known what kind of disputes will arise and how they should best be handled. Indeed, although the parties to a contract may agree to an arbitration clause, they hope that there will be no need to invoke it. Usually, they insert a short model clause, recommended by an arbitral institution, as a formality. By contrast, a submission agreement deals with a dispute that has in fact already arisen—and so it can be tailored to fit precisely the circumstances of the case. In addition to indicating the place of arbitration and the substantive law, it generally names the arbitrators, sets out the matters in dispute, and even (if thought appropriate) provides for the exchange of written submissions and other procedural matters.5
[2.04] Most international commercial arbitrations take place pursuant to an arbitration clause in a commercial contract.6 These clauses are often ‘midnight clauses’—that is, the last clauses to be considered in contract negotiations, sometimes late at night or in the early hours of the morning. Insufficient thought is given to how disputes are to be resolved (possibly because the parties are reluctant to contemplate falling into dispute), and an inappropriate and unwieldy compromise is often adopted,7 for example a wrong choice (or no choice at all) of the substantive law or of the place of arbitration. If a dispute arises and arbitration proceedings begin, these matters must consequently be dealt with before any progress can be made with the real issues.
[2.05] Later, this chapter deals separately with arbitration clauses and submission agreements, since different considerations apply to each. First, however, some general observations should be made. They apply equally to both types of arbitration agreement and derive from the international conventions governing arbitration.
[2.06] Although this topic is considered in Chapter 1, it is worth giving a brief summary here. The 1923 Geneva Protocol and the 1927 Geneva Convention dealt with the recognition and enforcement of international arbitration agreements and the execution of foreign arbitral awards. These were then followed by various regional conventions,8 until eventually the most important convention in the field of international commercial arbitration, the New York Convention, was promulgated in 1958.
[2.07] The New York Convention continued where the Geneva treaties left off.9 Its title as a ‘Convention on the Recognition and Enforcement of Foreign Arbitral Awards’ is a partial misnomer. The Convention’s starting point is, in fact, the recognition and enforcement of arbitration agreements.10 Having provided for recognition of the validity and enforceability of arbitration agreements, it also provides for the international enforcement of awards that comply with the specified criteria.11
[2.08] Closely modelled12 on the New York Convention, the 1975 Panama Convention13 was signed by the United States and a significant number of Latin American states, and marked another step forward in the recognition of arbitration as an established method of resolving disputes in a regional context.
[2.09] The effect of these and other conventions on arbitration,14 whether international or regional, has been to establish the requirement for a valid international arbitration agreement and to indicate the parameters within which such an agreement will operate.
[2.10] Unlike Venus, these Conventions did not arise fully formed from the sea.15 Instead, they reflect the provisions to be found in developed arbitration laws and in the practice of arbitral institutions, such as the International Chamber of Commerce (ICC). In turn, they—together with the Model Law—have played an important part in modernising and harmonising state laws governing arbitration. An arbitration agreement that provides for international arbitration must take account of these international requirements. If it fails to do so, the arbitration agreement, and any award made under it, may not qualify for international recognition and enforcement.
[2.11] In seeking to establish the ‘international requirements’, the starting point has to be the New York Convention. This has been described as ‘the single most important pillar on which the edifice of international arbitration rests’,16 and one that ‘perhaps could lay claim to be the most effective instance of international legislation in the entire history of commercial law’.17 Under the Convention, each contracting state undertakes to recognise and give effect to an arbitration agreement when the following requirements are fulfilled:
• the agreement is in writing;
• it deals with existing or future disputes;
• these disputes arise in respect of a defined legal relationship, whether contractual or not; and
• they concern a subject matter capable of settlement by arbitration.
[2.12] These are the four positive requirements of a valid arbitration agreement, laid down in Article II(1) of the New York Convention.18 A further two requirements are, in effect, added by the provisions of Article V(1)(a),19 which stipulates that recognition or enforcement of an award may be refused if the party requesting refusal is able to prove that the arbitration agreement was made by a person under incapacity or that the agreement was invalid under the applicable law. Expressed positively,20 these represent additional requirements to the effect that:
• the parties to the arbitration agreement must have legal capacity under the law applicable to them;
• the arbitration agreement must be valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made. (In the words used earlier in the New York Convention, in Article II(3), the agreement must not be ‘null and void, inoperative or incapable of being performed’.)
In Part B of this chapter, each of these requirements is considered in turn.
[2.13] All of the international conventions on arbitration that have already been mentioned, as well as Option 1 of the Model Law, require that an agreement to arbitrate shall be ‘in writing’. The reason for imposing this requirement is self-evident. A valid agreement to arbitrate excludes the jurisdiction of the national courts21 and means that any dispute between the parties must be resolved by a private method of dispute resolution—namely, arbitration. This is a serious step to take, albeit one that has become increasingly commonplace. Good reasons therefore exist for ensuring that the existence of such an agreement should be clearly established. This is best done by producing evidence in writing, although, as already noted in Chapter 1, the trend in modern national legislation has moved towards the relaxation of this formal requirement.22
[2.14] Article II(2) of the New York Convention defines ‘writing’ as follows: ‘The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.’
[2.15] The requirement for signature by the parties has given rise to problems in some states,23 but the general view is that a signature is not necessary, provided that the arbitration agreement is in writing.24
[2.16] There has, however, been a revolution in communications since the New York Convention was drawn up in 1958. Telegrams, which were a frequent method of communicating an urgent message in writing, were largely replaced first by telex, later by fax, and now by email. This change is reflected in the Model Law, which goes much further than the New York Convention in its definition of ‘writing’, and has itself been the subject of important recommended interpretations and revisions.25
[2.17] As revised in December 2006, the version of the Model Law now contains both a long and a short form option for Article 7. Option 1 provides as follows:26
(4) The requirement that an arbitration agreement be in writing is met by an electronic communication if the information contained therein is accessible so as to be useable for subsequent reference; ‘electronic communication’ means any communication that the parties make by means of data messages; ‘data message’ means information generated, sent, received or stored by electronic, magnetic, optical or similar means, including, but not limited to, electronic data interchange (EDI), electronic mail, telegram, telex or telecopy.
(5) Furthermore, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other.
(6) The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause part of the contract.
[2.18] Option 1 has brought the Model Law into line with current practice, as reflected by national legislation and court decisions. For instance, an exchange of telexes between two firms of brokers in Paris containing the simple statement ‘English law—arbitration, if any, London according ICC Rules’ has been held to be a valid arbitration agreement, providing for arbitration in London under the ICC Rules, with English law as the substantive law of the contract.27
[2.19] However, whilst the formal requirements may be relaxed, there is almost inevitably a requirement for at least a permanent record (‘useable for subsequent reference’ in the terms of the Model Law) from which a written transcription can be made. For example, the Netherlands Arbitration Act 1986 requires that the arbitration agreement shall be proven by an instrument in writing expressly or impliedly accepted by the parties.28 For its part, as mentioned in Chapter 1, Swiss law requires an agreement to be made in writing or by means of communication that allows it to be evidenced by a text. Section 178(1) of the Swiss Private International Law Act 1987 (Swiss PIL) states simply: ‘As regards its form, an arbitration agreement shall be valid if made in writing, by telegram, telex, telecopier or any other means of communication which permits it to be evidenced by a text.’29
[2.20] Thus, for the purposes of the Model Law Option 1, the requirement for writing may now be satisfied where there is a record ‘in any form’ of the content of the arbitration agreement.
[2.21] Moreover, where a party takes part in an arbitration without denying the existence of an arbitration agreement,30 it will, in the normal course, be bound by implied consent. In some systems of law, an oral agreement to arbitrate will be regarded as being ‘in writing’ if it is made ‘by reference to terms which are in writing’, or if an oral agreement ‘is recorded by one of the parties, or by a third party, with the authority of the parties to the agreement’.31 In these modern arbitration laws, there has, in effect, been a triumph of substance over form: as long as there is some written evidence of an agreement to arbitrate, the form in which that agreement is recorded is immaterial.32
[2.22] Option 2 goes a step further. It does not refer to a writing requirement at all, but rather provides that it is sufficient to show ‘agreement by the parties to submit to arbitration all or certain disputes’.33 This reflects the latest position under some systems of law that arbitration agreements are not subject to any requirements of form. For instance, article 1507 of French Decree 2011-48 provides that ‘an arbitration agreement shall not be subject to any requirements as to its form’.34
[2.23] However, a degree of caution is necessary. First, even courts in jurisdictions familiar with international arbitration still sometimes refuse to enforce arbitration agreements that are not in a written document signed by the parties or otherwise contained in an exchange of communications between the parties.35 Secondly, an arbitration agreement that is regarded as valid by an arbitral tribunal or court in one country may not be so regarded by the courts of the country in which the award falls to be enforced.36 By way of example, the Norwegian Court of Appeal refused recognition of an award rendered in London because an exchange of emails did not, in its view, satisfy the writing requirement of Article II(2) of the New York Convention. Although such an electronic exchange was valid and sufficient to evidence the existence of an arbitration agreement as a matter of the law of the place of arbitration—that is, English law—the Court held that the validity of the arbitration agreement was to be separately assessed by the local enforcement authority and that ‘it should not be sufficient for enforcement that the arbitral award is valid according to the law of the country in question’ (in this case, England, the place of arbitration).37
[2.24] Finally, there remain states in which special requirements of form are imposed in respect of agreements to arbitrate.38 Accordingly, the relevant national law must be examined if there is reason to believe that the formal validity of an arbitration agreement is likely to be questioned under that law.
[2.25] Almost all international arbitrations arise out of contractual relationships between the parties. However, for the purposes of both the New York Convention and the Model Law, it is sufficient that there should be a ‘defined legal relationship’ between the parties, whether contractual or not. Plainly, there has to be some contractual relationship (real or implied) between the parties, since there must be an agreement to arbitrate to form the basis of the arbitral proceedings. Given the existence of such an agreement, the dispute submitted to arbitration may be governed by principles of delictual or tortious liability rather than (as is usually the case) by the law of contract.
[2.26] Thus, in Kaverit Steel Crane Ltd v Kone Corporation,39 Kaverit commenced court proceedings alleging that Kone had breached certain licence and distribution agreements. Kone sought a stay and a reference to arbitration pursuant to the arbitration clause in the agreements. The clause stated that all disputes ‘arising out of or in connection with this contract’ would be referred to arbitration. The Alberta Queen’s Bench Division refused the stay on the grounds that some of the claims by Kaverit contained allegations that went beyond breach of contract, for example conspiracy and inducing breach of contract. The court held that these tort-based claims fell outside the scope of the arbitration clause.
[2.27] However, the Alberta Court of Appeal held that the wording of the arbitration clause was wide enough to bring within its scope any claim that relied on the existence of a contractual relationship, even if the claim itself was a claim in tort.40 To give an example: because the claim alleging ‘conspiracy by unlawful means to harm [Kaverit]’ relied upon a breach of contract as the source of the ‘unlawfulness’, that dispute should be referred to arbitration. However, it was held that those claims that were not based on the existence of a contract should proceed to trial, not arbitration.41
[2.28] Thus, subject to any provisions of the relevant applicable law, the terms of an arbitrator’s jurisdiction and powers in any particular case depend on a proper construction of the arbitration agreement. The arbitral tribunal must consider the dispute in question and then elicit from the arbitration agreement whether or not the parties intended a dispute of the kind in question to be resolved by arbitration.42
[2.29] In determining whether a dispute is capable of settlement by arbitration, one is asking whether a dispute is ‘arbitrable’. Arbitrability, in the sense in which it is used both in this book and generally, involves determining which types of dispute may be resolved by arbitration and which belong exclusively to the domain of the courts. Both the New York Convention and the Model Law are limited to disputes that are ‘capable of settlement by arbitration’.43
[2.30] This requirement is dealt with in more detail later in this chapter.44 Suffice to say for now that, in principle, any dispute should be just as capable of being resolved by a private arbitral tribunal as by the judge of a national court. However, it is precisely because arbitration is a private proceeding with public consequences45 that some types of dispute are reserved for national courts, the proceedings of which are generally in the public domain. It is in this sense that they are not ‘capable of settlement by arbitration’. National laws establish the domain of arbitration as opposed to that of the local courts. Each state decides which matters may or may not be resolved by arbitration in accordance with its own political, social, and economic policy.
[2.31] Parties to a contract must have legal capacity to enter into that contract, otherwise it is invalid. The position is no different if the contract in question happens to be an arbitration agreement. The general rule is that any natural or legal person who has the capacity to enter into a valid contract has the capacity to enter into an arbitration agreement. Accordingly, the parties to such agreements include individuals, as well as partnerships, corporations, states, and state agencies.
[2.32] If an arbitration agreement is entered into by a party who does not have the capacity to do so, the provisions of the New York Convention (or the Model Law, where applicable) may be brought into operation, either at the beginning or at the end of the arbitral process. At the beginning, the requesting party asks the competent court to stop the arbitration on the basis that the arbitration agreement is void, inoperative, or incapable of being performed.46 At the end of the arbitral process, the requesting party asks the competent court to refuse recognition and enforcement of the award on the basis that one of the parties to the arbitration agreement is ‘under some incapacity’47 under the applicable law.
[2.33] The rules governing capacity to contract can be found in the standard textbooks on the law of contract. They vary from state to state. In the context of an arbitration agreement, it is generally necessary to have regard to more than one system of law. In practice, the issue of capacity rarely arises in international arbitration. Nevertheless, it may be helpful to look briefly at the kind of questions that may arise, first in relation to individuals and corporate entities, and secondly—more importantly perhaps—in relation to states and state entities.