National Constraints on International Arbitration
NATIONAL CONSTRAINTS ON INTERNATIONAL ARBITRATION*
A. Private Consent and Public Power
Arbitration arises from a contract to entrust the binding resolution of present or potential disputes to a private decision-maker rather than a court. Therefore it may seem puzzling that national procedural law should matter at all to international arbitration. After all, the purpose of an arbitration agreement, by its very nature, is to keep disputes away from judges.
Notwithstanding its consensual foundation, however, arbitration often proceeds in the shadow of state power. When one side to a dispute regrets its decision to renounce recourse to courts, the state lends its power to enforce the agreement to arbitrate. Judicial proceedings are stayed; arbitral awards are given res judicata effect; and the loser’s assets may be seized.
An inevitable tension results from this mixture of private consent and public power. Aspirations toward delocalized dispute resolution collide with the national norms that must sometimes be invoked if an arbitration agreement is to be more than a piece of paper. Ironically, the idiosyncrasies of national law enter arbitration by the International Chamber of Commerce (ICC) precisely because the business community desires binding waiver of court litigation. When an unwilling defendant or a disappointed loser resists an arbitration agreement or award, judges often defer to the bargained-for arbitrator in a manner that interjects legal peculiarities of their own forum.
For example, in the well-known Mitsubishi case the U.S. Supreme Court exacted a price for compelling arbitration between a Japanese automobile manufacturer and its Puerto Rican distributor. The manufacturer had to stipulate that antitrust counterclaims would be considered under an American statute, the Sherman Act, despite the contract’s explicit choice of Swiss governing law.1 Moreover, the Court warned that an American judge asked to enforce any award resulting from the arbitration might have a second look at the process to insure that the United States’ antitrust law had in fact been taken into account.2
Not only does national arbitration law affect ICC arbitration, but the ICC Rules in turn affect the application of national law. Many nations permit annulment or non-recognition of an award because the parties’ agreement (which includes the ICC Rules3) was not followed with respect to the arbitral procedure4 or the constitution of the arbitral tribunal.5
Sometimes the mandates of national arbitration law run parallel to the ICC Rules. For example, Article 15(2) of the Rules provides that the arbitral tribunal shall in all cases “act fairly and impartially and ensure that each party has a reasonable opportunity to present its case.” This fundamental principle of ICC arbitration echoes analogous notions of due process and equal treatment contained in national law.6
B. Matters Affected by National Arbitration Law
Familiarity with national arbitration law commends itself both before and after a dispute has arisen. At the time the arbitration clause is drafted, lawyers should try to select an arbitral venue where the judiciary monitors an arbitration’s fundamental procedural fairness, but does not review the merits of the arbitrator’s conclusions of fact or law. The venue should also be in a country that adheres to the 1958 New York Arbitration Convention, which many nations apply only on the basis of reciprocity, to awards rendered in the territory of another contracting state.
Later, after a claim has been filed, national arbitration law may become relevant if judicial proceedings are instituted to compel arbitration, to attach assets, to stay competing judicial proceedings, to remove biased arbitrators, or to obtain the production of evidence. Subsequent to the arbitration, courts may be asked to vacate, confirm or enforce an award on grounds as diverse (depending on the country) as a denial of due process, an excess of jurisdiction or even a mistake on a point of law.
The following five matters are among those aspects of national arbitration law which most frequently affect ICC arbitration:
(1) The validity of the arbitration agreement. Like the New York Arbitration Convention, the laws at most major arbitral centers require arbitration agreements to be in writing, but may differ on how prominent the “writing” must be (First page in capitals? Just above the signature?), whether it may be incorporated into a contract by reference to the rules of a trade association, or whether by its conduct a party may be deemed to have accepted a document containing an arbitration provision.
(2) Subject matter arbitrability. Some countries require that disputes relating to public law matters (competition, patents, securities, discrimination) must be submitted to courts rather than arbitrators.
(3) Preconditions to arbitration. In some jurisdictions, only courts are empowered to determine whether arbitration claims have been filed within relevant express or implied time limits.
(4) Interim measures. To support arbitration, courts sometimes compel testimony, secure the attendance of witnesses, preserve evidence, arrange for sale of perishable goods, or remove non-performing arbitrators. In addition, courts of competent jurisdiction may deal directly with urgent matters such as the enforcement of confidentiality obligations or security agreements that have been excluded from the agreement to arbitrate, or are covered by Article 23(2) of the ICC Rules.
(5) Review of awards. Courts at the arbitral seat generally may set aside an award if the proceedings are not fair or if the arbitrators exceed their mission. In some countries courts may also hear appeals on issues of law.
C. The Arbitral Situs
The “law of the arbitration”
The arbitral situs—also called the arbitral “seat” or the place of arbitration—will be designated either in the arbitration agreement or by the ICC Court. Although the arbitral seat serves as the focal point for the proceedings, it is not always identical with the location of the hearings7 or the deliberations,8 which for reasons of convenience may be fixed elsewhere than the arbitration’s juridical seat.
The role of the arbitral situs has attracted considerable scholarly attention,9 with much spirited debate devoted to how far an international arbitration must or should fall under its tutelage.10 The traditional premise that any arbitration should be subject to the law of the place of the proceedings11 has begotten both critics12 and defenders.13
Some countries have deliberately reduced the impact of local law on international arbitration. Prior to 1989, for example, international arbitrations in Switzerland were subject to the Intercantonal Arbitration Concordat, which fills procedural gaps in an arbitration by reference to Swiss federal law.14 By contrast, analogous provisions of the currently applicable statute omit such reference.15 The evolution of the ICC Rules shows a similar trend toward delocalization. While Article 16 of the Rules’ 1955 version in some circumstances imposed the procedural law of “the country in which the arbitrator holds the proceedings,” Article 15 of the current Rules establishes procedural autonomy for the parties and the arbitral tribunal.
Some scholars have suggested that mandatory norms of the arbitral situs constitute a lex arbitri,16 or curial law.17 This “law of the arbitration” is distinct from (i) the law applicable to the contract’s validity and interpretation,18 (ii) the internal procedural rules applied by the arbitrators to issues such as the admissibility of evidence, cross-examination, or discovery19 and (iii) the treaties and statutes applicable to the recognition of foreign awards. While the lex arbitri bears upon an arbitration agreement’s effectiveness, other legal systems may also affect the agreement’s validity.20 The curial law governs those aspects of the arbitration as to which the state perceives a regulatory right or duty, such as challenge of awards, consolidation of related proceedings, or the impartiality of the arbitrators.
Why the arbitral situs matters
The practical importance of the arbitral situs rests on a twofold reality: (i) most national arbitration statutes provide some grounds for setting aside awards made within their territory, and (ii) annulment at the arbitral situs gives the loser a powerful argument for resisting the award’s enforcement.21 As the place where an award is “made” for purposes of the New York Convention’s enforcement scheme,22 the arbitral situs by vacatur of an award can impair,23 though not necessarily destroy,24 the award’s international currency.
To ignore the parties’ choice of law could mean challenge of the award (for arbitrator excess of authority) at the place where it was rendered. But to apply the law might yield an unenforceable award if the party-chosen law violates the public policy of the place of performance. Moreover, in some cases multiple legal systems may vie with each other for even more direct control of an arbitration, with courts in the country of applicable law trying to enjoin arbitration conducted abroad.