[1.01] Arbitration is now the principal method of resolving international disputes involving states, individuals, and corporations. This is one of the consequences of the increased globalisation of world trade and investment. It has resulted in increasingly harmonised arbitration practices by specialised international arbitration practitioners who speak a common procedural language, whether they practise in England, Switzerland, Nigeria, Singapore, or Brazil.
[1.02] These harmonised practices rest on sophisticated rules of arbitration, which are administered by institutions ranging from the International Chamber of Commerce (ICC), the American Arbitration Association (AAA), and the London Court of International Arbitration (LCIA), to a host of more recently established regional arbitration centres located in Europe, Asia, the Middle East, and elsewhere.1 The sophisticated rules themselves are supported by enlightened national arbitration laws inspired by the United Nations Commission on International Trade Law (UNCITRAL) Model Law. The aim is to maximise the effectiveness of the arbitral process, whilst minimising judicial intervention, other than when it is needed to support arbitration agreements and awards.
[1.03] The result is an impressive edifice of laws and procedures, supported by treaties such as the New York Convention of 1958, which impose an obligation on national courts around the world to recognise and enforce both arbitration agreements and arbitration awards.2
[1.04] Arbitration is essentially a very simple method of resolving disputes. Disputants agree to submit their disputes to an individual whose judgment they are prepared to trust. Each puts its case to this decision maker, this private individual—in a word, this ‘arbitrator’. He or she listens to the parties, considers the facts and the arguments, and makes a decision. That decision is final and binding on the parties—and it is final and binding because the parties have agreed that it should be, rather than because of the coercive power of any state.3 Arbitration, in short, is an effective way of obtaining a final and binding decision on a dispute, or series of disputes, without reference to a court of law (although, because of national laws and international treaties such as the New York Convention, that decision will generally be enforceable by a court of law if the losing party fails to implement voluntarily).
[1.05] It is hardly surprising that such an informal and essentially private and consensual system of dispute resolution came to be adopted by a local tribe or community—or even by a group of dealers or merchants trading within a particular area or market, or attached to a particular chamber of commerce.4 It is rather more surprising that such a simple system of resolving disputes has come to be accepted worldwide (and not merely by individuals, but by major corporations and states) as the established method of resolving disputes in which millions, or even hundreds of millions, of dollars are at stake. The way in which this has happened is one of the major themes of this book.
[1.06] Arbitral proceedings take place in many different countries, with parties, counsel, and arbitrators of many different nationalities, who mix together freely during breaks in the proceedings. There is a striking lack of formality. An arbitral hearing is not like proceedings in a court of law. There are no ushers, wigs, or gowns; no judge or judges sitting in solemn robes upon a dais; no outward symbols of authority—no flags, maces, orbs, or sceptres. There is simply a group of people seated around a row of tables, in a room hired or provided for the occasion. If it were not for the law books, the stacked piles of lever-arch files, and the transcript writers, with their microphones and stenotype machines, it would look to an outsider as though a conference or a business meeting were in progress. It would not look very much like a legal proceeding at all.
[1.07] However, the appearance conceals the reality. It is true that the parties themselves choose to arbitrate, as an alternative to litigation or other methods of dispute resolution. It is also true that, to a large extent, arbitrators and parties may choose for themselves the procedures to be followed. If they want a ‘fast-track’ arbitration, they may have one5 (although if it is to take place, for instance, under the Swiss Rules of International Arbitration, it will be known by the more dignified title of an ‘expedited procedure’). If the parties wish to dispense with the disclosure of documents or with the evidence of witnesses, they may do so. Indeed, they may even dispense with the hearing itself if they so wish.6
[1.08] Such emphasis on the ‘autonomy of the parties’ might suggest that parties and arbitrators inhabit a private universe of their own. But this is not so. In reality, the practice of resolving disputes by the essentially private process of international arbitration works effectively only because it is supported by a complex public system of national laws and international treaties. Even a comparatively simple international arbitration may require reference to at least four different national systems of law, which in turn may be derived from an international treaty or convention—or indeed from the UNCITRAL Model Law itself.
[1.09] Amongst these different national systems or rules of law is, first, the law that governs the international recognition and enforcement of the agreement to arbitrate. There is then the law—the so-called lex arbitri—that governs the actual arbitration proceedings themselves. Next—and generally most importantly—there is the law or the set of rules that the arbitral tribunal is required to apply to the substantive matters in dispute. Finally, there is the law that governs the international recognition and enforcement of the award of the arbitral tribunal.
[1.10] These laws may well be the same. The lex arbitri, which governs the arbitral proceedings themselves and which will almost always be the national law of the place of arbitration, may also govern the substantive matters in issue. But this is not necessarily so. The law that governs the substantive matters in issue (and which goes by a variety of names, including the ‘applicable law’, the ‘governing law’, or sometimes the ‘proper law’) may be a different system of law altogether. For example, an arbitral tribunal sitting in Switzerland, governed (or regulated) by Swiss law as the law of the place of arbitration, may well be required to apply the law of New York as the applicable or substantive law of the contract.7 This ‘applicable’, or ‘substantive’, law will generally be a designated national system of law, chosen by the parties in their contract. But this is not necessarily so. The parties or, in default, the arbitral tribunal on behalf of the parties may choose other systems of law, for example a blend of national law and public international law, or a collection of rules known as ‘international trade law’, ‘transnational law’, the ‘modern law merchant’ (the so-called lex mercatoria), or by some other title.8 Indeed, if so permitted by the agreement of the parties and the lex arbitri, the arbitral tribunal may determine the dispute on the basis of what it considers to be fair and equitable.9
[1.11] Finally, because international arbitrations generally take place in a ‘neutral’ country—that is, a country that is not the country of residence or business of the parties—the system of law that governs the international recognition and enforcement of the award of the arbitral tribunal will almost always be different from that which governs the arbitral proceedings themselves.
[1.12] The dependence of the international arbitral process upon different (and occasionally conflicting) rules of national and international law is another major theme of this book.
[1.13] In its early days, arbitration would have been a simple and relatively informal process. Two merchants, in dispute over the price or quality of goods delivered, would turn to a third whom they knew and trusted, and they would agree to abide by his decision—and they would do this not because of any legal sanction, but because this was what was expected of them in the community within which they carried on their business.10
[1.14] In theory, such a localised system of ‘private justice’ might have continued without any supervision or intervention by the courts of law—in much the same way as the law does not generally concern itself with supervising the conduct of a private members’ club or intervening in its rules unless public policy requires it to do so.
[1.15] However, no modern state can afford to stand back and allow a system of private justice—depending essentially on the integrity of the arbitrators and the goodwill of the participants—to be the only method of regulating commercial activities. Arbitration may well have been ‘a system of justice, born of merchants’,11 but just as war is too important to be left to the generals,12 so is arbitration too important to be left to private provision.
[1.16] National regulation of arbitration came first13—but international arbitration does not stay within national borders; on the contrary, it crosses them again and again. A corporation based in the United States might contract with another corporation based in France, for the construction of a power plant in Indonesia, with an agreement that any disputes should be resolved by arbitration in London. Where is such an arbitration agreement to be enforced if a dispute arises and one of the parties refuses to arbitrate? Which court will have jurisdiction? And if there is an arbitration that leads to an award of damages and costs, how is that award to be enforced against the losing party if the losing party refuses to implement the award voluntarily? Again, which court has jurisdiction?
[1.17] The national law of one state alone is not adequate to deal with problems of this kind, since the jurisdiction of any given state is generally limited to its own territory. What is needed is an international treaty or convention, linking national laws together and providing (as far as possible) a system of worldwide enforcement, both of arbitration agreements and of arbitral awards. Such treaties and conventions, and other major international instruments, will be discussed in more detail towards the end of this chapter. For now, it is useful simply to list them: they are all significant ‘landmarks’ in the development of a modern law and practice of international arbitration—and they are landmarks to which, in practice, reference is continually made.
[1.18] The most important ‘landmarks’ are:
• the Geneva Protocol of 1923 (the ‘1923 Geneva Protocol’);14
• the Geneva Convention of 1927 (the ‘1927 Geneva Convention’);15
• the New York Convention of 1958 (the ‘New York Convention’);16
• the International Centre for Settlement of Investment Disputes (ICSID) Convention of 1965 (the ‘ICSID Convention’);17
• the UNCITRAL Arbitration Rules (the ‘UNCITRAL Rules’), adopted in 197618 and revised in 2010;
• the UNCITRAL Model Law (the ‘Model Law’), adopted in 1985;19 and
• revisions to the Model Law (the ‘Revised Model Law’), adopted in 2006.20
These landmarks will be considered in more detail later in this chapter.
(i) International and domestic arbitrations contrasted
[1.19] The term ‘international’ is used to mark the difference between arbitrations that are purely ‘national’ or ‘domestic’ and those that in some way transcend national boundaries, hence are ‘international’ or (in the terminology adopted by Judge Jessup) ‘transnational’.21
[1.20] It may be said that every arbitration is a ‘national’ arbitration, since it must be held at a given place and is accordingly subject to the national law of that place.22 In a narrow sense, this is correct. If an international arbitration is held in London, the place, or ‘seat’, of the arbitration will be London, the mandatory provisions of English law will apply to the proceedings and the tribunal’s award will be an ‘English’ award. However, in practice, it is usual to distinguish between arbitrations that are purely ‘national’ or ‘domestic’ and those that are ‘international’. There are sound legal and practical reasons for this.
[1.21] First, to the extent that the procedure in any arbitration is regulated by law, that law is normally the law of the place of arbitration—that is, the law of the ‘seat’ of the arbitration. In an international arbitration (unlike its ‘national’ or ‘domestic’ counterpart), the parties usually have no connection with the seat of the arbitration. Indeed, the seat will generally have been chosen by the parties, or by an arbitral institution, precisely because it is a place with which the parties have no connection. It will be a truly neutral seat.
[1.22] Secondly, the parties to an international arbitration are generally (but not always) business or financial corporations, states, or state entities, whilst the parties to a domestic arbitration will more usually be private individuals. This means that an element of consumer protection will almost certainly form part of the law governing domestic arbitrations.23
[1.23] Thirdly, the sums involved in international arbitrations are generally considerably greater than those involved in domestic arbitrations, which may (for example) concern a comparatively small dispute between a customer and an agent over a faulty motor car or a package holiday that failed (perhaps predictably) to live up to its advance publicity.
[1.24] Fourthly, many states have chosen to adopt a separate legal regime to govern international arbitrations taking place on their territory, recognising that the considerations that apply to such arbitrations are different from those that apply to purely national (or ‘domestic’ arbitrations). In recognising such differences, the states concerned—which include important centres of arbitration such as France, Switzerland, and Singapore—have adopted the same approach as that adopted by the Model Law, which is expressly stated to be a law designed for international commercial arbitrations.24
[1.25] To these four reasons might be added a fifth—namely, that, in some states, the state itself (or one of its entities) is permitted to enter into arbitration agreements only in respect of international transactions.25
[1.26] It might be thought, given its importance, that there would be general agreement on what is meant by ‘international arbitration’. But this is not so. ‘When I use a word,’ said Humpty Dumpty, ‘it means just what I choose it to mean—neither more nor less.’26 In accordance with this relaxed approach, the word ‘international’ has at least three different meanings when it comes to international arbitration: the first depends on the nature of the dispute; the second, on the nationality of the parties; and the third approach, which is that of the Model Law, depends on a blending of the first two, plus a reference to the chosen place of arbitration.
(ii) International nature of the dispute
[1.27] The ICC, as already mentioned, established its Court of Arbitration in Paris in 192327 to provide for the settlement by arbitration of what were described as ‘business disputes of an international character’.28 Thus the ICC adopted the nature of the dispute as its criterion for deciding whether or not an arbitration was an ‘international arbitration’. At first, the ICC considered business disputes to be ‘international’ only if they involved nationals of different countries, but it altered its Rules in 1927 to cover disputes that contained a ‘foreign element’, even if the parties were nationals of the same country. An explanatory booklet issued by the ICC used to state:
[T]he international nature of the arbitration does not mean that the parties must necessarily be of different nationalities. By virtue of its object, the contract can nevertheless extend beyond national borders, when for example a contract is concluded between two nationals of the same State for performance in another country, or when it is concluded between a State and a subsidiary of a foreign company doing business in that State.29
[1.28] French law, which has undoubtedly influenced the ICC Rules on this issue, considers an arbitration to be ‘international’ if the nature of the business (for instance the movement of goods or money) is itself ‘international’, even if the parties concerned are based in the same country or are of the same nationality.30
(iii) Nationality of the parties
[1.29] The second approach is to focus attention not on the nature of the dispute, but on the parties to it. This involves reviewing the nationality, place of residence, or place of business of the parties to the arbitration agreement. It is an approach that was adopted in the European Convention of 1961,31 which, although little used, contains several useful definitions, including a definition of the agreements to which it applies as ‘arbitration agreements concluded for the purpose of settling disputes arising from international trade between physical or legal persons having, when concluding the agreement, their habitual place of residence or their seat in different Contracting States …’.32
[1.30] Switzerland is one of the states in which the nationality of the parties determines whether or not an arbitration is ‘international’. In Swiss law, an arbitration is ‘international’ if, at the time when the arbitration agreement was concluded, at least one of the parties was not domiciled or habitually resident in Switzerland.33 The ‘nationality’ test is also used by the United States for the purposes of the New York Convention—but arbitration agreements between US citizens or corporations are excluded from the scope of the Convention unless their relationship ‘involves property located abroad, envisages performance or enforcement abroad or has some reasonable relation with one or more foreign states’.34
(iv) Model Law
[1.31] Problems may arise as a result of the lack of an internationally agreed definition of ‘international’. Each state has its own test for determining whether an arbitration award is ‘international’ or, in the language of the New York Convention, ‘foreign’. The Convention defines ‘foreign awards’ as awards that are made in the territory of a state other than that in which recognition and enforcement are sought—but it adds to this definition awards that are ‘not considered as domestic awards’ by the enforcement state.35 In consequence, while one state may consider an award to be ‘domestic’ (because it involves parties who are nationals of that state), the enforcement state might well consider it not to be domestic (because it involves the interests of international trade).
[1.32] The Model Law was specifically designed to apply to international commercial arbitration. Accordingly, some definition of the term ‘international’ was essential. The Model Law states, in Article 1(3):
(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;
(ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected; or
[1.33] This definition combines the two criteria mentioned earlier and, for good measure, adds another:
• the internationality of the dispute is recognised in Article 1(3)(b)(i) and (ii);
• the internationality of the parties is recognised in Article 1(3)(a); and
• Article 1(3)(c) grants the parties liberty to agree amongst themselves that the subject matter of the arbitration agreement is ‘international’.
[1.34] For the purposes of this volume, the authors adopt a wide definition. An arbitration is considered to be ‘international’ if (in the sense of the Model Law) it involves parties of different nationalities, or it takes place in a country that is ‘foreign’ to the parties, or it involves an international dispute.36 Nonetheless, a caveat must be entered to the effect that such arbitrations will not necessarily be universally regarded as international. If a question arises as to whether or not a particular arbitration is ‘international’, the answer will depend upon the provisions of the relevant national law.
[1.35] It was once customary to refer to the ‘commercial’ character of arbitrations such as those to which much of this volume is devoted. This reflects the distinction made in some countries between contracts that are ‘commercial’ and those that are not. This distinction was important at one time because there were (and still are) countries in which only disputes arising out of ‘commercial’ contracts may be submitted to arbitration37 (thus it might be permissible to hold an arbitration between two merchants over a contract made in the course of their business, but not, for example, in respect of a contract for the allocation of property on the marriage of their children).
[1.36] The first of the important modern treaties on international arbitration was the 1923 Geneva Protocol. This distinguished, in Article 1, between ‘commercial matters’ and ‘any other matters capable of settlement by arbitration’. The distinction carried with it the implication that ‘commercial matters’ would necessarily