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About the Author Gary B. Born
Author Gary B. Born
Gary B. Born is the world's leading authority on international commercial arbitration and international litigation. He is the author of numerous works on these subjects, including International Commercial Arbitration: Commentary and Materials (2d ed. 2001), International Civil Litigation in United States Courts (4th ed. 2006) and International Arbitration and Forum Selection Agreements: Drafting and Enforcing (2d ed. 2006). Mr. Born has practised extensively in the fields of international arbitration and litigation in Europe, the United States and elsewhere.
Source About the Author in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. vii - vii
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Acknowledgments Gary B. Born
Author Gary B. Born
I owe much greater debts than these brief acknowledgements can describe. This treatise departed from the works of other authors – Pieter Sanders, Francis Mann, Pierre Lalive, Gunnar Lagergren, Philippe Fouchard, Berthold Goldman, Emmanuel Gaillard, Michael Reisman, Jan Paulsson, Rusty Park, Laurie Craig, Albert Jan van den Berg, Alan Redfern and Martin Hunter, Stephen Schwebel, Peter Schlosser, Howard Holtzmann, and many others – which addressed the central aspects of the international arbitral process. The treatise benefited from faculty and students too numerous to list – at the Georgetown Law Center, University of Virginia School of Law, St. Gallen University, King's College and Stanford Law School – all of whom contributed in a multitude of ways to the development of my own thoughts on international arbitration. The treatise was also improved substantially by the thoughtful comments on early drafts of large numbers of colleagues and competitors around the world, again too numerous to identify individually, who gave very generously of their time and experience. My publishers at Kluwer Law International, including particularly Gwen de Vries, have also assisted throughout in bringing this treatise to print.
Source Acknowledgments in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. ix -x
More importantly, I owe much to the exceptional research assistance and thoughtful comments of my colleagues, including in particular Martin Aebi, Maria Alcalde, Kenneth Beale, Wibke Bleckmann, Michelle Bock, Caroline Couetoux Du Tertre, Kate Davies, Matthew Draper, Jason File, Mark Fleming, Christiana Fountoulakis, Harold Frey, Besma Grifat, Heidrun Halbartschlager, Rachael Kent, Mark Laichena, Therese Lee, Dirk Mahler, Julian Mortenson, Helmut Ortner, Sarah Rapawy, Alexandre Reynaud, Maxi Scherer, Franz Schwarz, Patrick Spaeth, Suzanne Spears, Duncan Speller, Simon Staehelin, Ethan Shenkman, Amélie Skierka, Shane Stansbury, Anna-Marie Tamminen, Christina von Post and Hanno Wehland. Tireless and resourceful library and research assistance was provided by Kevin Mottram and Angélica André, while excellent and page "ix" unfailingly cheerful secretarial assistance was provided by Barbara Bozward, Jennifer Hill, Sally Anniss, and Bryan Scott. Finally, and most importantly, this treatise would not have been possible without the extraordinary research and other assistance of David Neukirchner, whose careful, creative and painstaking work was invaluable, and the unstinting organizational and secretarial assistance of Elke Jenner. For their unique contributions, I am deeply grateful.
Gary B. Born London page "x"
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Overview of International Commercial Arbitration Chapter 1 Gary B. Born
Author Gary B. Born
This Chapter provides an overview of the history and contemporary legal framework for international commercial arbitration. First, the Chapter sets out a summary of the history of international arbitration. Second, the Chapter considers the key objectives of contemporary international commercial arbitration. Third, the Chapter outlines the contemporary legal framework for international commercial arbitration, including international arbitration conventions, national arbitration legislation, institutional arbitration rules, international arbitration agreements and choice-of-law rules. Fourth, the Chapter briefly summarizes leading “theories of arbitration,” developed principally in civil law jurisdictions. Finally, the Chapter reviews the main sources of information in the field of international commercial arbitration.
Source Overview of International Commercial Arbitration in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 7 -7
Overview of International Commercial Arbitration - A. History of International Arbitration Chapter 1 Gary B. Born
Author Gary B. Born
A. History of International Arbitration (1) A thorough treatment of the history of international commercial arbitration is beyond the scope of this treatise. Indeed, such a history remains to be written by legal page "7" historians, even insofar as the comparatively limited subjects of leading European or other jurisdictions are concerned. (2) Nevertheless, a brief review of the history of arbitration in international matters provides an important introduction to analysis of contemporary international commercial arbitration. In particular, this review identifies some of the principal themes and objectives of international commercial arbitration and places contemporary developments in context. An historical review also underscores the extent to which international state-to-state and commercial arbitration developed in parallel, with similar objectives, institutions and procedures.
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Source Overview of International Commercial Arbitration - A. History of International Arbitration in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 7 - 64
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1. Historical Development of International 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), (3) Athena and Poseidon over possession of Aegina (which was awarded to them in common by Zeus) (4) and Hera and Poseidon over ownership of Argolis (which was awarded entirely to Hera by Inachus, a mythical king of Argos). (5) Egyptian mythology offers similar accounts of divine arbitrations, including a dispute between Seth and Osiris, resolved by Thot (“he who decides without being partial”). (6) Apart from suggesting Poseidon's persistent problems with his peers, these myths tempt interpretation, perhaps more than they can fairly bear. Among other things, the diverse outcomes of these various “cases” at once suggest and contradict images of arbitration as pure compromise, (7) while the role of neutral humans (or page "8" giants) (8) in resolving disputes among gods hints at the arbitrator's impartial, adjudicatory function (9) and the rule of law. (10)
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.” (11) 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, (12) 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. (13) Others look to two disputes decided in the eighth century B.C. by Eriphyle, a noblewoman, over Argos's plans to wage war on Thebes, (14) a 650 B.C. dispute between Andros and Chalcis over possession of a deserted city, (15) a controversy between Athens and Megara in 600 B.C. over the island of Salamis, (16) or a 480 B.C. controversy between Corinth and Corcyra over control of Leucas. (17) Scholars are uniform in concluding that the ancient Greeks frequently resorted to international arbitration to resolve disputes between city-states. In one authority's words, “arbitration was used throughout the Hellenic world for five hundred years.” (18) page "9" 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, (19) as well as submission agreements with regard to existing “inter-state” disputes. (20) http://www.kluwerarbitration.com/CommonUI/print.aspx
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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); (21) the parties presented documentary evidence and witness testimony (or sworn witness statements); (22) oral argument was presented through counsel, with time limits being imposed on counsel's arguments; (23) and the arbitrators rendered written, signed and reasoned awards. (24) It is also clear, however, that the term “arbitration” encompassed a range of dispute resolution mechanisms, some of which appear reasonably closely-related to contemporary international arbitration, while others differed in substantial ways. 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 quasilegislative, rather than adjudicatory, function. (25) Other “arbitrations” appear to have been more in the nature of non-binding mediation, or political consultation, than true arbitration. (26) 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, (27) it was by no means abandoned. Territorial units of Rome, page "10" 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. (28) In general, however, the historical record indicates that Rome preferred political or military solutions, within the Empire, to inter-state arbitration or adjudication. (29) b. Inter-State Arbitration in the 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, (30) that “the constant disputes that arose in those warlike days were very frequently terminated by some kind of arbitration,” (31) 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.’” (32) The states of the Swiss Confederation (33) and the Hanseatic League, (34) as well as German and Italian principalities, (35) turned with particular frequency to arbitration to settle their differences, often pursuant to agreements to resolve all future disputes by arbitration. (36) 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 amiable compositeurs. (37) Indeed, one of the most famous “arbitrations” of the age – Pope http://www.kluwerarbitration.com/CommonUI/print.aspx
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page "11" 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. (38) 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). (39)
Again, 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. (40) There is even evidence that written briefs were a standard element of interstate arbitral procedures. (41) 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. (42) And, if a losing party flouted the arbitrator's decision, the arbitrator or another authority was sometimes empowered to impose sanctions to enforce compliance. (43) During the 16th, 17th and 18th centuries, the popularity of international arbitration as a means of resolving state-to-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.” (44) It was only at the end of the 18th century, with Jay's Treaty between the newly-founded United States and Great Britain page "12" (discussed below), (45) 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 1777 Articles of Confederation provided a mechanism for resolving inter-state disputes between different American states, through what can only be categorized as arbitral procedures. (46) 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.” (47) 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. (48) This was a remarkable step, between recent combatants, which ushered in what can only be regarded as 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
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appointed on each side, or by that of a friendly nation.” (49) The United States did the same in the 1871 Treaty of Washington with Great Britain, 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 page "13" arbitrator nominated by each of the United States and Great Britain, and three arbitrators nominated by neutral states. (50) 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. (51) 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, to general relations. (52) 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.” (53) 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. (54) Arbitration of such matters was not always successful, especially when the disputed territory was rich in natural resources or minerals, (55) and boundary disputes at times required additional arbitrations to interpret an initial award. (56) page "14" d. Proposals for Institutional State-to-State Arbitration 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. (57) 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. (58) These provided the foundation for more formal inter-state adjudication, in the Permanent Court of International Justice and International Court of Justice, (59) as well as the founding of the Permanent Court of Arbitration to administer state-to-state arbitrations under the Convention. (60) 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. (61) e. Arbitral Procedures http://www.kluwerarbitration.com/CommonUI/print.aspx
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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 page "15" 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. (62) 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; (63) an adjudicative procedure, with decisions being based on the evidentiary and legal submissions of the parties; (64) and continuing efforts to devise procedures that would provide a fair, efficient and expeditious arbitral process. (65) 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. (66) Arbitral procedures that evolved in state-to-state arbitrations during the 19th century bore even closer resemblances to contemporary proceedings than was historically the case, with international tribunals more systematically exercising their power to establish rules governing pleadings and proceedings. (67) 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. (68) 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. (69) 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. (70) With the increased frequency of state-to-state arbitration over the course of the 19th century, practices page "16" of civil and common law countries converged, eventually giving way to the partial codification of these procedures in international instruments. (71) Again, the procedures outlined in these 19th century instruments bear striking similarities to contemporary procedural regimes. (72) 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 were an enduring, essential feature of the international arbitral process. (73) 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 mann” (or umpire). (74) Northern Italian states and http://www.kluwerarbitration.com/CommonUI/print.aspx
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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. (75) b. In one of the earliest Medieval plans for institutional international arbitration, 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. (76) 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. (77) 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 page "17" neighboring counties a prud'homme beyond suspicion and who will meet with the arbitrators to decide the difficulty.” (78) 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. (79) f. The 1777 Articles of Confederation, of the American colonies, provided for the arbitral resolution of disputes between states, with the concerned states being involved in selection of the tribunal, either by agreement or through an innovative list system. (80) 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 partynominated 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). (81) h. The Treaty of 11 April 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. (82) 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. (83) page "18" 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. (84) 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
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nominated by neutral states. (85) 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. (86) 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. (87) l. “Mixed” claims tribunals have been repeatedly used, in a wide variety of contexts, to resolve claims arising out of war, unrest, or similar circ*mstances. 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. (88) m. The Hague Convention of 1899 on the Pacific Settlement of Disputes and the Hague Convention of 1907 on 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 page "19" an “umpire,” failing which a neutral party would be chosen to make the selection. (89) n. Both the Permanent Court of International Justice, and its eventual successor, the International Court of Justice, provided for the selection of tribunals of the Court that included judges nominated by each party. (90) Thus, one careful 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.” (91) As discussed below, this was also an enduring approach in arbitrations between private parties and states, (92) and in international commercial arbitrations between private parties. (93) Indeed, the same reasoning which has been invoked historically in state-to-state arbitrations has been adopted, in almost identical terms, in the context of contemporary international commercial arbitration, where party-nominated co-arbitrators have long been a feature of the arbitral process. (94) 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 page "20" is occasionally suggested that “as a technocratic mechanism of dispute settlement, with a http://www.kluwerarbitration.com/CommonUI/print.aspx
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particular set of rules and doctrines, international commercial arbitration is a product of this century [i.e., the 20th century].” (95) 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 as a means for resolving international business disputes. At the same time, it is again clear (as with state-to-state arbitration (96) ) that the boundaries between arbitration and other modes of dispute resolution were not always clearly drawn in earlier times. Rather, “arbitration” sometimes resembled a form of state-sponsored (or -compelled) alternative dispute resolution, which was more akin to judicial or administrative proceedings, or to non-binding conciliation, than to contemporary international commercial arbitration. (97) At the same time, ancient societies seldom possessed systems of judicial administration and civil litigation comparable to those in contemporary legal systems. (98) Nonetheless, there is substantial evidence of alternative dispute resolution mechanisms for commercial disputes, distinct and different from judicial processes, and often closely resembling contemporary arbitration, through almost all ages of recorded human history. 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 page "21" Tulpunnaya being awarded 10 silver shekels and an ox). (99) 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. (100) Arbitration was no less common in ancient Greece for the resolution of commercial and other “private” disputes than for state-to-state disputes. (101) 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. (102) The example suggests the use of arbitration to resolve disputes between private parties in Antiquity, but also confirms 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 http://www.kluwerarbitration.com/CommonUI/print.aspx
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mercenaries), to resolve pending cases. (103) 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. page "22" 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.” (104) 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. (105) 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 partynominated arbitrators choosing a presiding arbitrator (a koinos). (106) There were few restrictions on the subjects that could be arbitrated, although commercial (and family) matters were by far the most common. (107) Arbitration of commercial matters in ancient Roman times was more common than Roman state-to-state arbitrations, in part because there was no judicial system of litigation comparable to those in contemporary legal structures. (108) A leading scholar on Roman law summarizes the subject as follows: “[F]rom 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.” (109) page "23" As in Greece, awards in Roman practice were reasoned, binding and apparently subject to little subsequent 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.” (110) Parties could seek enforcement of arbitral awards in the courts (or other government forums), although the precise enforcement mechanisms that were available varied over time. (111) It appears that arbitral procedures in Roman times were not dissimilar to those in more modern eras. (112) 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.” (113) Arbitrators in the classical age reportedly remained entirely free in their decisions: “they were not bound by any rules of http://www.kluwerarbitration.com/CommonUI/print.aspx
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substantive law.” (114) Parties enjoyed substantial autonomy with regard to establishing the arbitral procedures. (115) 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 page "24" (116) obeyed.” 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. (117) Although records of ordinary commercial disputes from this era have seldom survived, historians nonetheless conclude that arbitration was widely used in ancient Rome. (118) There were few limits on the subjects of arbitration, and in practice a wide range of commercial and family matters were arbitrated. (119) Roman law also dealt with questions of the enforceability of agreements to arbitrate future commercial disputes (e.g., arising from a contract). It did so by treating arbitration clauses as separate agreements (promissum), to which the parties could attach penalty mechanisms (stipulationes poenae) to enforce compliance. (120) The parties' promises to arbitrate could apparently only be enforced through a mechanism of “double promises” (“com-promissum”), (121) in which the promise to arbitrate was coupled with the promise to pay a penalty if the arbitration agreement was breached. (122) page "25" These developments under Roman law foreshadowed challenges to the enforceability of arbitration agreements, and mechanisms for addressing these challenges, which would recur in later historical periods. (123) They also laid the foundations for the separability doctrine, which would also recur and play a leading role in the law of arbitration in later historical periods. (124) 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. (125) During this era, the enforceability of arbitration agreements was progressively recognized, even without a penalty mechanism. (126) 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. (127) 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 through the courts without judicial review. (128) Simultaneously, arbitral tribunals established within Jewish congregations were granted similar powers, enabling them to decide not only religious, but also commercial, disputes. (129) Arbitration continued to play – so far as the historical record can be http://www.kluwerarbitration.com/CommonUI/print.aspx
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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 survive involve merchants, family feuds, inheritance disputes and page "26" other private law matters being submitted to binding arbitration, with the results being enforced through penalty mechanisms (as in Roman times). (130) One apparent motivation for arbitration during this era, was avoiding the delays and expense of litigation. Thus, an 8th century Coptic record quotes an heir of one Germanos explaining the resolution of his disputes with other heirs: “We fought each other before the most famous comes, dioketes [administrative tribunals] of the castron [district] of Jeme, about the house on Kuelol Street … After much altercation before the diokete, he made a proposal with which we all agreed: we elected arbitrators from the castron and the diokete sent them into the house and they made the division.” (131) As described below, this motivation of avoiding protracted, uncertain litigation prevails today, often expressed in very similar language, as a reason for parties to agree to international commercial arbitration. (132)
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 stateto-state context, (133) 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.” (134) In Medieval England, (135) the charters of numerous guilds – such as the Company of Clothworkers or the Gild of St. John of Beverley of the Hans House (136) – 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.” (137) 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. (138) 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 decisionmakers 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 http://www.kluwerarbitration.com/CommonUI/print.aspx
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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 perhaps either of the parties.…” (139) It is unclear just how “consensual” arbitrations in the context of Medieval guilds and fairs really were, since the relevant tribunals appear to have had a degree of mandatory jurisdiction, as well as enormous commercial sway. (140) It nonetheless is page "28" clear that the guilds and fairs were central to developing their respective arbitral mechanisms, which functioned 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.…” (141) 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 (in accordance with the Roman law compromissum theory), (142) by barring litigation on claims within the scope of arbitration agreements (143) and by a robust enforcement of arbitral awards. (144) 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. (145) Although successive French Parlements apparently fought to restrict the binding character of commercial arbitration, the practice remained wellestablished until the French Revolution. (146) page "29" Commercial arbitration was also prevalent in the Swiss cantons and German principalities. (147) 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 http://www.kluwerarbitration.com/CommonUI/print.aspx
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Catholic Church offered arbitral mechanisms and practices which developed under canonical law. (148) 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. (149) 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. (150) A representative example was Bavaria, where there is substantial evidence of commercial arbitration in the 13th and 14th centuries. (151) Another anecdotal example is drawn from the archives of the principality of Fürstenberg, which contain more than 500 arbitral deeds for the period between 1275 and 1600 (compared to records for some 25 court proceedings). (152) The traditional concept of arbitration in Germany was remarkably modern in many respects. Arbitration agreements were treated as binding by state courts, and thus did not require penalty clauses for enforcement, (153) while arbitral awards were subject to immediate enforcement, with minimal judicial review. (154) At the same time, the arbitral process frequently did not require a strict application of rules of substantive law, often leaving considerable scope for decisions based on equity (and for settlements). (155) Thus, it appears that the use of arbitration “nach Guet” (or page "30" in equity), rather than “nach Recht” (or in law), was widespread, as were less formal arbitral procedures. (156) Where arbitration “nach Recht” was used, it appears that arbitrators were generally obliged to apply the law (in the same manner as a judge), although an arbitrator acting ex aequo et bono was not subject to such constraints. (157) The canonical approach to arbitration during this period was somewhat different. The absorption of canonical law (through the Church) and Roman law (imported from Italian universities (158) ) changed the nature of arbitration in German-speaking regions from an informal, consensual mechanism to a more formal, legalistic procedure, where awards could be challenged in state courts. (159) The canonical model also offered more sophisticated legal mechanisms based on written legal sources and doctrine, which limited the arbitrators' discretion. (160) Moreover, in the canonical tradition, an agreement to arbitrate still needed to be combined with penalty clauses to be effective, (161) and canonical awards were not treated as immediately enforceable, but remained subject to judicial challenge based on various grounds, including laesio enormis or manifest injustice. (162) The reasons that merchants resorted to arbitration during the Medieval era are – we will see in subsequent sections of this Chapter – almost eerily familiar to contemporary users of international commercial arbitration. Simply put, arbitration was a means of overcoming the peculiar difficulties and uncertainties of international page "31" litigation in state courts. One of Europe's leading historians of the feudal period put it as follows:
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“The most serious cases could be heard in many different courts exercising parallel jurisdiction. Undoubtedly there were certain rules which, in theory, determined the limits of competence of the various courts; but in spite of them uncertainty persisted. The feudal records that have come down to us abound in charters relating to disputes between rival jurisdictions. Despairing of knowing before which authority to bring their suits, litigants often agreed to set up arbitrators of their own or else, instead of seeking a court judgment, they preferred to come to a private agreement.… Even if one had obtained a favourable decision there was often no other way to get it executed than to come to terms with a recalcitrant opponent.” (163) More generally, in the words of another authority on the feudal period, “in order to escape the consequences, the delays, or the uncertainties of strict law, arbitration was a more attractive resort, in nine cases out of ten, than the ordinary judgment of a regular tribunal.” (164) 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 (eventually) 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. (165) 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 at English Common Law and English Legislative Reform In the common law world, Lord co*ke's 1609 decision in Vynior'sCase enjoys the greatest notoriety, if least precedential support, 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 page "32" payment to arbitration. (166) co*ke 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 countermandable, 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 http://www.kluwerarbitration.com/CommonUI/print.aspx
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forfeit his bond and in the other he shall lose nothing.” (167)
Scholarly analysis has challenged most aspects of co*ke's opinion – including its excursion into unnecessary dicta, its inapposite analogies between an arbitration agreement and a power of attorney or will and its ill-concealed distaste for the arbitral process. (168) Nonetheless, as long as penalty bonds remained enforceable, co*ke's dictum was of limited practical import: parties could, and, as the Romans had, (169) routinely did, include penalty provisions in their agreements to arbitrate. (170) 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. (171) Apparently to correct the effect of this statute on commercial arbitration, Parliament soon thereafter enacted one of the world's first extant arbitration statutes, adopting what is sometimes called the 1698 Arbitration Act. (172) Reflecting an objective of promoting commerce that would recur in later eras, the Act's objects were: page "33" “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.” (173) 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.” (174) This legislation sought to remedy, at least in part, the damage effected by the combination of co*ke'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 shewn 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.” (175) It nonetheless remained the case that, at English common law, an arbitration agreement was – on the authority of the dicta in Vynior'sCase, 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. (176) Outside the statutory “safe haven” of the 1698 Arbitration Act, common law enforcement of arbitration agreements was made even http://www.kluwerarbitration.com/CommonUI/print.aspx
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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 page "34" agreement of the parties cannot oust this court.” (177) 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. (178) 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. (179) 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.” (180) 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.” (181) 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.” (182) page "35" While Lord Campbell's derisory description of the English courts' historical attitude towards commercial arbitration appears to have been overstated, (183) the more enduring point is his own resounding endorsem*nt of the arbitral process in commercial matters – a point of view that has been formulated with increasing vigor by English courts and legislatures in succeeding decades. (184)
This was confirmed in the 1854 Common Law Procedure Act, one of http://www.kluwerarbitration.com/CommonUI/print.aspx
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the first modern efforts at a comprehensive arbitration statute. (185) 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. (186) 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. (187) At the end of the 19th century, England enacted the 1889 Arbitration Act, which was in turn widely adopted throughout the Commonwealth. (188) The Act confirmed the irrevocability of agreements to arbitrate future disputes, (189) 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). (190) 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 page (191) "36" evidence. The 1889 Act remained in force for more than (192) half a century, only eventually being replaced by England's 1950 Arbitration Act. (193) In terms of procedures, it appears that a variety of means of selecting arbitrators were used at English common law. (194) In general, however, a consistent theme in English arbitration was the use of party-nominated arbitrators, with a presiding arbitrator or umpire. (195) It is unclear how often umpires, rather than threearbitrator tribunals, were utilized, although the latter remained a frequent fixture in English arbitration until well into the 20th century. (196) What appears to have been an informal approach to rules of procedure in these early arbitrations was later abandoned, at least in part and for a time, with local judicial procedures being imposed on English arbitral tribunals (as discussed below). (197) 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. (198) 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,” (199) which was legislatively declared to be “the most reasonable means for the page "37" (200) termination of disputes arising between citizens.” In due course, arbitration was elevated to constitutional status in the Constitution of 1793 (Year I) and the Constitution of 1795 (Year III). (201)
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. (202) With this hostility in the air, the 1806 http://www.kluwerarbitration.com/CommonUI/print.aspx
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Napoleonic Code of Civil Procedure imposed numerous procedural and technical restrictions on arbitration agreements and procedures. (203) 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. (204) The Commercial Code permitted agreements to arbitrate future disputes only in limited circ*mstances, consisting of maritime insurance contracts and certain corporate and partnership contexts. (205) More generally, as one commentator observes: “[A]ll the provisions of the [Napoleonic Code] do appear to reflect, so to speak, a hatred of arbitration agreements and provide evidence of a secret desire to eliminate their existence.” (206) page "38" 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” (207) and “[a] satire of judicial administration.” (208) French courts did little during the 19th century to ameliorate this hostility. A 1843 decision of the Cour de Cassation 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. (209) The stated rationale, which would recur in other historical and geographical settings, was that the advance waiver of access to judicial protections and guarantees should not be permitted in the abstract. (210) 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 skilfulness, [and] the sensitivity of feelings necessary to render a decision.” (211) 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. (212) 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. (213)
e. Commercial Arbitration in the United States A broadly similar course was followed with regard to commercial arbitration in the United States during the 18th and 19th centuries as in England and France. Consistent with America's vital role in the development of state-to-state arbitration page "39" in the 18th (214) 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. (215) http://www.kluwerarbitration.com/CommonUI/print.aspx
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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, (216) 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. (217) 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. (218) Nonetheless, from an early date, it was also common to refer disputes in New Amsterdam to true consensual arbitration: “[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 page "40" highly important, … appeals to the court from the decision of the arbitrators were exceedingly rare.” (219) 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. (220) 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.” (221) 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. (222) A primary motive then, as now, was avoidance of the delays and costs of litigation. One letter, printed in a 1751 edition of the “New York Weekly Post-Boy,” recorded a litigant's plea to a counter-party: “[L]et me tell you that after you have expended large Sums of Money, and squander'd away a deal of Time & Attendance on your lawyers, and Preparations for Hearings one Term after another, you will probably be of another Mind, and be glad Seven Years hence to http://www.kluwerarbitration.com/CommonUI/print.aspx
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leave it to that Arbitration which you now refuse.” (223) Whatever the truth, Colonial businessmen of the day shared this view, turning with great regularity and confidence to arbitration to settle their commercial disputes. page "41" 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. (224) 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.” (225) 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.” (226) 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. (227) Research into specific jurisdictions, including New Jersey, Pennsylvania, Connecticut, Massachusetts, Delaware, Virginia and Ohio, reveals a history similar to that in New York. (228) 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.” (229) page "42" Other areas of the country had a history of arbitration independent of New York's lead. Influenced by Quaker anti-legalism, (230) William Penn's laws (1682) in Pennsylvania provided that each precinct should appoint three individuals to serve as “common peacemakers.” (231) Similarly, in Dedham, Massachusetts, disputes were mediated from 1636 onwards by “three understanding men,” or by “two judicious men,” chosen either by the parties or the community itself – whose decisions were routinely obeyed. (232) Likewise, in Kent County, Delaware, a 1680 judicial decision appointed two arbitrators to decide the case, who would in case of a “non agreement … chuse a third person as an Umpire [to] make a final End thereof.” (233) 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, (234) providing for the enforcement of agreements to arbitrate future
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disputes where they had been made a rule of court. (235) A 1793 American insurance policy contained an arbitration clause, making it clear that the legislation had a practical orientation. (236) 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. (237) 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. (238) page "43" 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 American 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. (239) Joseph Story, a pre-eminent U.S. authority in a wide range of legal fields, reflected 19th century American judicial hostility to arbitration agreements. 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.” (240) page "44" While this left open the possibility of recovering money damages for breach of an arbitration agreement, (241) this was virtually never an effective (or even very plausible) means of enforcement, since http://www.kluwerarbitration.com/CommonUI/print.aspx
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adequate proof of injury resulting from a refusal to arbitrate was virtually impossible. (242) Relying on literal interpretations of the English common law in Vynior's Case and Kill v. Hollister, (243) and evidencing a disdain for the arbitral process reminiscent of early 19th century French authors, (244) 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.” (245) Elsewhere, Story apparently went even further, seemingly declaring that agreements to arbitrate future disputes violated public policy (which would presumably result page "45" in denial of even a claim in damages for breach of an arbitration agreement). He rejected specific performance of such agreements, “deeming it against public policy to exclude from the appropriate judicial tribunals of the State any persons who, in the ordinary course of things, have a right to sue there.” (246) Although the precise basis for U.S. judicial hostility was unclear, (247) 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. (248) 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. (249) As the Second Circuit once wrote, with only a measure of exaggeration, “[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. (250) 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 page "46" this [judicial] hostility.” (251) 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. (252) Moreover, even with regard to judicial enforcement, other http://www.kluwerarbitration.com/CommonUI/print.aspx
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movements were afoot in the United States by the late 19th century. Courts in a number of American jurisdictions rejected the common law notion that arbitration agreements were either unenforceable or revocable, and instead upheld them, (253) while also enforcing arbitral awards with minimal judicial review. (254) Rejecting Story's doctrinal authority, a Virginian court declared in 1858, in terms that could have been written 150 years later, that: “The ancient principle that agreements for the final settlement of disputes by arbitration were against the policy of the law and void because tending page "47" to oust the courts of their jurisdiction, is against the spirit of modern times, and courts are now very liberally inclined toward submission of matters to arbitration, and place as liberal a construction upon the submission as the intentions of the parties justify. The intention of the parties is the guiding start in construing the submission.” (255) 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. (256) 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. (257) U.S. judicial and legislative hostility to commercial arbitration substantially eroded in the late 19th and early 20th century. American judicial opinions began increasingly to question the wisdom of Story's views, (258) while commercial pressure for legislative reform built. (259) This pressure eventually had its intended 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). (260) The New York arbitration law enacted a sea change from the American common page "48" law by instituting a default rule that contracts to arbitrate should be enforced by the courts. (261) 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 international commerce. (262) 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.…” (263) http://www.kluwerarbitration.com/CommonUI/print.aspx
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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. (264) 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 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 aequeoet 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 page "49" when the arbitrators are not bound to follow the ordinary rules of law when giving their awards.” (265) At the same time, at the end of the 19th and beginning of the 20th century, 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. (266) 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, 1030 cases were pending before such arbitral tribunals in Berlin alone. (267) Contemporaneous authors generally praised the arbitral process, highlighting its efficiency, trustworthiness and the commercial good sense of arbitrators with industry experience. (268) Like some common law courts, however, the German courts came in the next decades 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.” (269) The provisions of the German Code of Civil Procedure left considerable leeway to local courts to interfere with the arbitral process, curtailing the practical value of arbitration. (270) The mistrust for arbitration in German courts (and commentary) developed with particular vigor between the two World Wars, (271) becoming especially pronounced after the rise of the National Socialists in 1933. (272) According to the “Guidelines of the Reich Regarding Arbitral Tribunals,” published in December 1933, “from a state-political point of view a further spread of arbitration would http://www.kluwerarbitration.com/CommonUI/print.aspx
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page "50" shatter confidence in state jurisdiction and the State itself.” (273) One local adherent approved the declaration, adding “that the national-socialist state rejects – contrary to liberalists” views – arbitral tribunals” altogether. (274) Consistent with this rationale, the Nazi regime systematically curtailed the use of arbitration in all walks of German life, both domestic and international. (275) As one contemporaneous commentator explained, “[t]o the totalitarian state, with its doctrine of the all-enslaving power of the state (or more correctly, of the armed groups and their leaders) arbitration means an attempt of private individuals to free an important part of their activities from the dominating yoke of the governing group.” (276) As already described, the Napoleonic Code (and Cour de Cassation, in an 1843 decision) had adopted a similarly anti-arbitration course in France, which persisted until the 1920s. (277) Belgian courts refused, unusually, to follow the approach of the French Cour de Cassation and gave effect to agreements to arbitrate future disputes. (278) 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. (279) The Dutch and Belgian approach reflected the Low Countries” historical fondness for arbitration, (280) which can be attributed in significant part to their mercantile cultures and the influence of Roman law. (281) Swiss cantonal legislation and constitutions were also generally supportive of arbitration during this era. (282) page "51" g. Arbitration in Asia, the Middle East and Africa While there is not the same corpus of evidence of arbitration outside Europe and the Americas, it appears from available historical materials that arbitration of commercial disputes was common in many parts of the Middle East, Asia and elsewhere. (283) In Arab and Islamic areas, in particular, there was a long and very rich history of commercial arbitration. (284) The use of arbitration in the Middle East dates to pre-Islamic times when there was no centralized, established system of justice, and arbitration was used to settle disputes between both individuals and tribes. (285) Arbitration was voluntary and the arbitrator's decision was not legally binding. (286) In terms of procedures, the arbitrator was chosen by the parties and was not obliged to apply rules of law or follow judicial procedures, but, at a minimum, typically conducted a hearing attended by all parties. (287) Enforcement of awards generally depended on the moral authority of the arbitrator, although in some instances parties were required to submit a bond to guarantee enforcement of the awards (not dissimilar to Roman and English penalty mechanisms). (288) Although nations and religious groups differed widely in their practices, (289) arbitration continued to be a popular form of dispute resolution after the rise of Islam. The Prophet Muhammad served as an arbitrator, (290) appointed arbitrators to page "52" resolve his http://www.kluwerarbitration.com/CommonUI/print.aspx
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own disputes (291) and counselled tribes to use arbitrators for peaceful settlement of their differences. (292) The Koran condones arbitration with respect to family matters (293) and has been interpreted to extend this approval with reference, albeit brief, to party-nominated tribunals (294) and to arbitration in matters of politics and the state. (295) The most famous arbitration in Islamic history took place between Ali (the Fourth Caliph) and Mu'awiyyah (Governor of Syria) which arose from a written agreement including provisions for nomination of arbitrators, terms of reference, applicable law and time limit for making the award. In East and South Asia, commentators conclude that arbitration has existed since antiquity. The recorded history of arbitration in many parts of Asia largely follows developments of the colonial powers. (296) That said, fragments of history provide insights into a deeprooted reliance on arbitration in at least some areas and time periods. China has a long tradition of settling disputes through conciliation and arbitration, said to be grounded in the Confucian ideal of harmony. (297) For example, reports from the Qing dynasty describe the resolution of a property dispute by six page "53" relatives and friends who examined the dispute and crafted a compromise which was approved by the court. (298) In ancient India, local village councils (panchayats) conducted informal arbitral proceedings and their decisions were considered binding. (299) There is some evidence that early Indian practice preferred panchayat dispute settlement to litigation before judges who had been appointed by political authorities; the informal nature of the proceedings and the ability to avoid the technical requirements of India's judicial system was seen as a significant advantage. (300) Even today, many villages in Southern Asia view the courts with suspicion and prefer to settle disputes before the panchayat which varies from informal mediation by family/village elders to enforceable decisions of panchayat committees. Under British colonial administration, arbitration was accorded a limited, but gradually expanding, place in the resolution of Indian commercial disputes. (301) Africa presents a similar situation. The recorded history of arbitration is not well-elaborated until the colonial period, when Europeans imported their use of commercial arbitration into the African setting. (302) Nonetheless, local commentators report that “[a]rbitration and ADR … have always existed in Africa, harking back to ancient custom that, unlike in the northern hemisphere, is still practised widely.” (303) In traditional African communities, “when a dispute arose among individuals, even in non-commercial transactions, the complainant invariably referred the matter to a third party for redress.” (304) The most serious disputes were resolved by a council of elders that would take testimony and sometimes hear the arguments of agents advocating on behalf of the disputants. (305) There is a long history of arbitration as a means of commercial dispute resolution in Latin America. Spanish and Portuguese rule was particularly influential on this score, and colonial arbitration regulations and legislation remained in force even after http://www.kluwerarbitration.com/CommonUI/print.aspx
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independence, until the new American states developed their own civil procedure codes. (306) This readiness to accept arbitration changed somewhat with page "54" the new legislation, which did “not always provid[e] very efficient regulation for the enforcement of arbitration agreements and awards.” (307) While “Mexican legal culture has a long history of promoting conflict resolution through mediation and negotiation rather than through litigation,” Mexico's 1890 Commercial Code disfavored arbitration, instead expressing a preference for conventional litigation procedures. (308) In both Chile and Paraguay, rules on arbitration were enacted as part of domestic civil procedure codes in 1902 and 1883, respectively, and remained essentially unchanged during the next century. (309) As for independent Brazil, while it initially exhibited enthusiasm for commercial arbitration – enacting legislation in 1850 mandating arbitration for commercial cases – this was repealed only seventeen years later. (310) Thereafter, Brazil soon became known as “one of the most notorious examples of Latin American adversity against arbitration.” (311) Indeed, until recently, Brazilian courts would not enforce pre-dispute agreements to arbitrate (312) and Brazilian courts did not recognize a foreign arbitral award until 1940, citing the exclusive jurisdiction of local courts under Brazilian civil procedural rules. (313) Despite inefficient procedures – and, in the case of Brazil, official hostility to commercial arbitration – pressure from domestic commercial interests nonetheless helped foster “a surge in and growing popularity of arbitration for the resolution of commercial disputes, particularly after the end of the First World War.” (314) In 1916, the Buenos Aires Stock Exchange even entered into a bilateral agreement with the page "55" United States Chamber of Commerce to establish a system of international commercial arbitration. (315) Despite historic traditions, international commercial arbitration eventually came to be regarded with mistrust throughout much of Asia, Africa, the Middle East and Latin America during the course of the 20th century. Reflecting deep-seated political attitudes, countries in these regions frequently limited the efficacy of agreements to arbitrate future disputes and refused to recognize the finality of arbitral awards. (316) As discussed below, it was only in the 1980s and 1990s that many countries in these regions ratified the New York Convention and adopted even arguably workable international arbitration legislation. (317) h. Arbitral Procedures in Commercial Arbitration The procedures that were historically adopted for commercial arbitration bore important similarities to those in state-to-state arbitral proceedings. (318) Procedural flexibility, informality and efficiency were key attributes of the arbitral process, and central to the business community's preference for arbitration. (319) Equally, contemporary users and observers regarded commercial arbitration procedures as more likely to produce sensible results and to
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facilitate settlement than litigation. (320) Although evidence is less clear with regard to early periods, it appears that the institution of party-nominated co-arbitrators was an enduring feature of commercial arbitration (just as in inter-state arbitrations (321) ). As noted above, this procedure was prevalent in Rome, in England, Continental Europe, the United States, the Middle East and elsewhere. (322) A striking example, drawn from George Washington's last testament, records the use of partynominated arbitrators in U.S. colonial times: “My Will and direction expressly is, that all disputes (if unhappily any should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; two to be chosen by the disputants, each having the choice of one, and the third by those two. Which three men thus chosen, shall, unfettered by Law, or legal constructions, declare their Sense of the Testator[']s intention; and such decision is, to all intents and page "56" purposes, to be as binding on the Parties as if it had been given in the Supreme Court of the United States.” (323) In a very different context, an 1875 Institut de Droit International Resolution for International Arbitral Procedure provided for a default appointment mechanism whereby each party selected one arbitrator and the two co-arbitrators then selected a chairman. (324) The use of party-nominated co-arbitrators continued into the 20th century. The predominant means of selecting arbitral tribunals in 19th century New York practice appears, from standard forms used in different types of contracts, to have been three person tribunals, with each party nominating an arbitrator and the co-arbitrators jointly choosing a chairman or umpire. (325) The same procedures prevailed in other colonial settings. (326) In some instances, the two co-arbitrators were joined by an “umpire,” and in others by an arbitrator, (327) but the basic structure of two party-nominated arbitrators, with a third arbitrator presiding, was an enduring, universal feature of commercial arbitration in widely different historical settings. 3. Development of the Contemporary Legal Framework for International Arbitration During the Early 20th Century The mistrust of the arbitral process which had arisen in some jurisdictions during the 19th century (328) was eroded, and then firmly repudiated, during the 20th century. This was accomplished by means of a panoply of interrelated developments, including the adoption of international arbitration conventions, national arbitration legislation and institutional arbitration rules, and the supportive roles of national courts in many developed jurisdictions. The driving force behind these various developments was the international business community, also the principal user of page "57" the arbitral process, which found ready audiences in national legislatures and judiciaries anxious to promote international trade and investment by providing workable, effective international dispute resolution mechanisms. It was the combination and active collaboration of http://www.kluwerarbitration.com/CommonUI/print.aspx
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these two communities – public and private – that produced the contemporary legal framework for international commercial arbitration. The first international commercial arbitration treaty in the modern era was the Montevideo Convention, signed in 1889 by various Latin American states. (329) Like other early efforts in the field, the Montevideo Convention attracted few signatories and had little practical impact. Nevertheless, it initiated a tradition of multilateral conventions that progressively elaborated and improved the international legal framework for the arbitral process. Almost immediately after adoption of the Montevideo Convention, the Hague Convention of 1899 on the Pacific Settlement of Disputes and the Hague Convention of 1907 on the Pacific Settlement of International Disputes provided (largely unsuccessfully) for the settlement of inter-state disputes by arbitration. (330) It remained, however, for later developments, in the 1920's, to lay the foundations of the contemporary legal framework for international commercial arbitration. a. Geneva Protocol of 1923 During the first decades of the 20th century, businesses in developed states made increasingly urgent calls for legislation to facilitate the use of arbitration in resolving domestic and, particularly, international commercial disputes. (331) These appeals emphasized the importance of reliable, effective and fair mechanisms for resolving page "58" international disputes to the expansion of international trade and investment. (332) In the international context, the newly-founded International Chamber of Commerce (established in 1919) played a central role in efforts by the business community to strengthen the legal framework for international arbitration. (333) In 1923, initially under the auspices of the International Chamber of Commerce, major trading nations negotiated the Geneva Protocol on Arbitration Clauses in Commercial Matters. (334) The Protocol was ultimately ratified by the United Kingdom, Germany, France, Japan, India, Brazil and about two dozen other nations. (335) 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. (336) Among other things, the Protocol laid the basis for the modern international arbitral process, requiring Contracting States to recognize, if only imperfectly, the enforceability of international arbitration agreements and arbitral awards. (337) It also recognized, again imperfectly, the leading role of party autonomy in establishing the arbitral procedures. (338) page "59" Among other things, the Geneva Protocol declared that: “Each of the Contracting States recognizes the validity of an agreement whether relating to existing or future http://www.kluwerarbitration.com/CommonUI/print.aspx
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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 one of the parties is subject.” (339) This provision was complemented by a further declaration, in Article IV, that: “The tribunals of the Contracting Parties, on being seized of a dispute regarding a contract made between persons to whom Article I 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.” (340) Within the space of these two sentences, the Geneva Protocol planted the seeds for a number of principles of profound future importance to the international arbitral process – including the presumptive validity of agreements to arbitrate future (as well as existing) disputes, (341) the obligation of national courts to refer parties to arbitration, (342) the concept of arbitrating “commercial” disputes and disputes “capable of settlement by arbitration,” (343) and the obligation to recognize international arbitration agreements on an equal footing with domestic arbitration agreements. (344) As discussed elsewhere, all of these basic themes reappeared repeatedly in international conventions and national legislation over the next 80 years and remain the foundation of the contemporary legal framework for international commercial arbitration. (345) Importantly, the Protocol also established standards which made international arbitration agreements more enforceable than domestic arbitration page "60" agreements had historically been in many (346) nations, reflecting a deliberate policy of promoting the use of arbitration to resolve international commercial disputes. (347) Additionally, Article III of the Geneva Protocol attempted to provide for the recognition of international arbitral awards. It declared that: “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.” (348) 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. (349)
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b. Geneva Convention of 1927 The Geneva Protocol was augmented by the Geneva Convention for the Execution of Foreign Arbitral Awards of 1927. (350) 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. (351) Regrettably, the Convention placed the burden of proof in recognition proceedings on the award-creditor, requiring it to demonstrate both the existence of a valid arbitration agreement, (352) concerning an arbitrable subject matter, (353) and page "61" that the arbitral proceedings had been conducted in accordance with the parties' agreement. (354) The Convention also required the award-creditor to show that the arbitral award had become “final” in the place of arbitration (355) and was not contrary to the public policy of the recognizing state. (356) 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. (357) This proved a major source of uncertainty regarding the finality of international arbitral awards. (358)
Despite their 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 agreements (359) and arbitral awards, (360) and the enforceability of arbitration agreements by specific performance, (361) as well as recognition of the parties' autonomy to select the substantive law governing their relations (362) and to determine the arbitration procedures. (363) 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. As already discussed, in 1920, New York enacted arbitration legislation, largely paralleling the Protocol, to ensure the validity and enforceability of commercial arbitration agreements. (364) With an eye towards ratification of the Geneva Protocol, France adopted legislation in 1925 that made arbitration agreements valid in commercial transactions, (365) while similar legislation was enacted in England. (366) 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. (367) The centerpiece of the FAA was §2, which page "62" provided that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the http://www.kluwerarbitration.com/CommonUI/print.aspx
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revocation of any contract,” (368) while §§9 and 10 of the Act provided for the presumptive validity and enforceability of arbitral awards. (369) 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. (370) From the outset, U.S. judicial decisions embraced the Act's avowedly proarbitration objectives. (371) After a hiatus provoked by the Second World War, development of “pro-arbitration” legal regimes for international commercial arbitration continued. As discussed in greater detail below, the signing of the New York Convention (in 1958), (372) the promulgation of the UNCITRAL Arbitration Rules (in 1976), (373) the adoption of the UNCITRAL Model Law on International Commercial Arbitration (in 1985) (374) and the enactment of “modern” arbitration statutes in many developed jurisdictions (between 1980 and 2005), (375) marked decisive advances in international acceptance of the arbitral process. The international community's growing embrace of arbitration was further demonstrated by the progressive refinement of national arbitration statutes in leading jurisdictions and of institutional arbitration rules by leading arbitral institutions (376) and by the wide-spread adoption of bilateral investment treaties in all major regions of the world. (377) All of these various steps evidence an abiding commitment to international arbitration as a means of resolving transnational commercial disputes – and thereby promoting international trade – and to continually improving the arbitral process in response to changing conditions and emerging (or re-emerging) critiques.
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page "63" In sum, arbitration has been an enduring feature of dispute resolution – both state-to-state and commercial – since the beginning of recorded history. In societies of profoundly different characters, ranging from Sumerian and Egyptian, to ancient Greek and Roman, to medieval English, French, Swiss, German and Italian, to Colonial American, Asian and Latin American, to more modern common law and civil law jurisdictions, arbitration has been used equally by both states and state-like entities, and by businessmen and women, to resolve their disputes, and particularly, their international disputes. So far as can be ascertained, parties have turned to international arbitration for remarkably similar reasons, using broadly similar procedures, throughout history: they have sought to avoid the expense, delays and rigidities of litigation in national courts, as well as the peculiar uncertainties of international litigation (including jurisdictional, choice-of-law and enforcement disputes). (378) Particularly in international matters, parties have instead sought dispute resolution by expert – commercially, technically, or diplomatically – tribunals, which they have a hand in selecting, applying practical, neutral procedural rules, (379) which, again, they have a hand in fashioning. http://www.kluwerarbitration.com/CommonUI/print.aspx
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There have been periods of lesser and periods of greater judicial and legislative support for the arbitral process. Different legal systems, in different eras, have taken a variety of approaches to the extent of judicial support (or hostility). Judicial skepticism or hostility has typically been cyclical, not infrequently coinciding with outbreaks of extreme nationalism or totalitarianism, while in most instances the enduring needs of the business community, the respect of enlightened governments for the parties' freedom to order their commercial affairs and the relative advantages of the arbitral process have eventually overcome limitations or prohibitions on the arbitral process. For the most part, therefore, arbitration agreements and awards have been capable, at least in commercial matters, of effective enforcement – either by non-legal, commercial measures or by formal judicial enforcement steps. Against this historic background, the contemporary needs and objectives of commercial (and other) users of arbitration – which are the foundation and driving force for the international arbitral process – are discussed in greater detail below. (380) These objectives play a central role in explaining and evaluating specific aspects of the legal regime for international commercial arbitration, discussed in subsequent Chapters.
1 For commentary, see S. Ager, Interstate Arbitrations in the Greek
World 337-90 B.C. (1996); R. David, Arbitration in International Trade 83-130 (1985); K. Harter-Uibopuu, Das zwischenstaatliche Schiedsverfahren im achaeischen Koinon (1998); J. Ralston, International Arbitration from Athens to Locarno (1929); A. Stuyt, Survey of International Arbitrations1794-1989 (3d ed. 1990); M. Tod, International Arbitration Amongst the Greeks (1913); Cohn, Commercial Arbitration and the Rules of Law: A Comparative Study, 4 U. Toronto L. J. 1 (1941); Ellenbogen, English Arbitration Practice, 17 Law & Contemp. Probs. 656 (1952); Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179 (1925-1926); Jones, Three Centuries of Commercial Arbitration in New York: A Brief Survey, 1956 Wash. U. L.Q. 193 (1956); Jones, Historical Development of CommercialArbitration in the United States, 12 Minn. L. Rev. 240 (1927); Mustill, Arbitration: History and Background, 6(2) J. Int'l Arb. 43 (1989); J. Ralston, International Arbitration from Athens to Locarno (1929); Roebuck, A Short History of Arbitration, in N. Kaplan, J. Spruce & M. Moser, Hong Kong and China Arbitration: Cases and Materials xxxv et seq. (1994); Roebuck, L'arbitrage en droit anglais avant 1558, 2002 Rev. arb. 535; D. Roebuck, Ancient Greek Arbitration (2001); D. Roebuck & B. de Fumichon, Roman Arbitration (2004); Sayre, Development of Commercial Arbitration Law, 37 Yale L.J. 595 (1927-1928); Westermann, Interstate Arbitration in Antiquity, II The Classical J. 197 (1906-1907); Wolaver, The Historical Background of Commercial Arbitration, 83 U. Pa. L. Rev. 132 (1934-1935); K.-H. Ziegler, Das private Schiedsgericht in antikem römischen Recht (1971); R. Zimmermann, The Law of Obligations 513-26 (1996). See also Roebuck, Sources for the History of Arbitration: A Bibliographical Introduction, 14 Arb. Int'l 237 (1998) (comprehensive bibliography). 2 Mustill, Foreword: Sources for the History of Arbitration, 14 Arb. Int'l 235 (1998) (“Arbitration has a long Past, but scarcely any http://www.kluwerarbitration.com/CommonUI/print.aspx
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History. There are none of the grand perspectives in which modern arbitration could be viewed as the inheritor of a continuous process of change.”). 3 J. Ralston, International Arbitration from Athens to Locarno 153 (1929). 4 C. Phillipson, II The International Law and Custom of Ancient Greece and Rome 129 (1911). 5 J. Ralston, International Arbitration from Athens to Locarno 153 (1929). 6 Mantica, Arbitration in Ancient Egypt, 12 J. Arb. 155 (1957). 7 See infra pp. 247-252. 8 The theme of mortal arbitrator, presiding over divine (and unscrupulous) parties, is repeated in Paris' ill-fated role in deciding between the conflicting claims of Hera, Athena and Aphrodite. D. Roebuck, Ancient Greek Arbitration 67-68 (2001). 9 See infra pp. 247-252, 1461 et seq. 10 One of the enduring challenges confronting the arbitral process is foreshadowed by Poseidon's refusal to honor the award against him by Inachus and Paris' fate following his award. 11 A. Stuyt, Survey of International Arbitrations 1794-1989 vii (3d ed. 1990). See also D. Roebuck, Ancient Greek Arbitration 348-49 (2001); Lafont, L'arbitrage en Mésopotamie, 2000 Rev. arb. 557. 12 G. Wilner, Domke on Commercial Arbitration §2:01 (3d ed. & Update 2006). 13 Lafont, L'arbitrage en Mésopotamie, 2000 Rev. arb. 557, 568569; id. at 570-78 (discussing evidence of other arbitrations between principalities in ancient Mesopotamia). 14 D. Roebuck, Ancient Greek Arbitration 71 (2001). Eriphyle, the sister of the King of Argos, also appears to have been one of the first recorded instances of a corrupt arbitrator, accepting bribes of a magic necklace and a magic robe to decide, inter alia, against her husband. 15 Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179 (1925-1926) (citing Raeder, L'Arbitrage international chez les Hellènes 16-17 (1912)). 16 Smith, “Judicial Nationalism” in International Law: National Identity and Judicial Autonomy at the ICJ, 40 Tex. Int'l L.J. 197, 203 n.30 (2004-2005). 17 Plutarch, Themosticles 24 (cited in G. de Sainte Croix, 71 The Origins of the Peloponnesian War, Classical Philology 377-381 (1976)). 18 Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179, 188 (1925-1926). See also S. Ager, Interstate Arbitrations in the Greek World337-90 B.C. 3 (1996). For example, there are records of 46 state-to-state arbitrations between 300 B.C. and 100 B.C., a reasonably impressive figure of one arbitration every four years. Westermann, Interstate Arbitration in Antiquity, II The Classical J. 197, 198 (1906-1907). 19 J. Ralston, International Arbitration from Athens to Locarno 15658 (1929); M. Tod, International Arbitration Amongst the Greeks 6569 (1913); Westermann, Interstate Arbitration in Antiquity, II The Classical J. 197, 202 (1906-1907). 20 S. Ager, Interstate Arbitrations in the Greek World 337-90 B.C. 8-9 (1996); Westermann, Interstate Arbitration in Antiquity, II The Classical J. 197, 199-200 (1906-1907). 21 J. Ralston, International Arbitration from Athens to Locarno 161http://www.kluwerarbitration.com/CommonUI/print.aspx
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62 (1929); D. Roebuck, Ancient Greek Arbitration 46-47 (2001); M. Bohacek, Arbitration and State-Organized Tribunals in the Ancient Procedure of the Greeks and Romans 197-204 (1952). 22 S. Ager, Interstate Arbitrations in the Greek World 337-90 B.C. 15 (1996); J. Ralston, International Arbitration from Athens to Locarno 162–64 (1929). 23 J. Ralston, International Arbitration from Athens to Locarno 16264 (1929). 24 J. Ralston, International Arbitration from Athens to Locarno 16264 (1929). 25 J. Ralston, International Arbitration from Athens to Locarno 159 (1929). 26 E.g., S. Ager, Interstate Arbitrations in the Greek World 337-90 B.C. 281 (1996) (describing “interven[tion]” and “mediation” by Megara in a dispute between Achaia and Boeotia); id. at 264-266 (describing Rome's increasingly frequent role as “mediator and arbitrator” in disputes between Sparta and the Achaian league). 27 Fraser, A Sketch of the History of International Arbitration, 11 Cornell L. Q. 179, 190 (1925-1926) (“The republic lost what Greece had gained, and the empire lost the little the republic had won.”). 28 J. Ralston, International Arbitration from Athens to Locarno 17172 (1929). 29 Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179, 190 (1925-1926). 30 Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179, 190-91 (1925-1926). 31 Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179, 190-91 (1925-1926). 32 Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179, 190-91 (1925-1926); J. Ralston, International Arbitration from Athens to Locarno 177-78 (1929) (citing a 1235 treaty of alliance between Genoa and Venice providing for arbitration of future disputes; a 1343 “arbitral convention” between Denmark and Sweden promising to arbitrate any serious future disputes; and a 1516 treaty of “perpetual peace” between France and England). 33 J. Verzijl, Part VIII International Law in Historical Perspective 189-90 (1974) (citing historical authorities). 34 J. Ralston, International Arbitration from Athens to Locarno 17677 (1929). 35 J. Verzijl, Part VIII International Law in Historical Perspective 189-90 (1974). 36 J. Ralston, International Arbitration from Athens to Locarno 17677 (1929); Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179, 192 (1925-1926). On the other hand, there is scant evidence that these clauses were ever enforced, in the sense of requiring arbitration by a state that had changed its mind about complying with an arbitration agreement. Ibid. 37 Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179, 195 (1925-1926); J. Ralston, International Arbitration from Athens to Locarno 179 (1929) (“By a quite universal practice it would appear that before proceeding to adjudge, the arbitrator acted in the capacity of what subsequently became know as amiable compositeur – in other words he sought to find a basis for the composition of difficulties before considering them from the standpoint of law.”). http://www.kluwerarbitration.com/CommonUI/print.aspx
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For discussions of the differences between arbitration, mediation and conciliation, and of amiable composition, see infra pp. 235-255. 38 Bourne, The Demarcation Line of Pope Alexander VI, in Essays
in Historical Criticism, Chap. VII (1901). The Papacy was frequently involved in arbitrating various categories of martial, dynastic, territorial and similar disputes between feudal rules. 39 See the examples cited in J. Ralston, International Arbitration from Athens to Locarno 180 (1929). 40 J. Ralston, International Arbitration from Athens to Locarno 18586 (1929) (describing 4-member legal teams of Kings of Castile and Navarre in 1176); Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179, 196 (1925-1926) (quoting Novacovitch, Les compromis et les arbitrages internationaux du XIIe au Xve siècle 85 (1905)). 41 Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179, 197-198 (1925-1926) (case study of arbitration by Henry II of England between Castile and Navarre); Roebuck, L'arbitrage en droit anglais avant1558, 2002 Rev. arb. 535, 538. 42 J. Ralston, International Arbitration from Athens to Locarno 186 (1929) (citing 1405 treaty requiring award to be rendered within six weeks and three days). 43 J. Ralston, International Arbitration from Athens to Locarno 187188 (1929) (discussing penalty bonds, undertakings, and the possibility that violators of arbitral awards might be excommunicated by the Pope). 44 Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179, 198 (1925-1926). 45 See infra pp. 13-14, 18. 46 J. Ralston, International Arbitration from Athens to Locarno 190 (1929). The Articles of Confederation provided for States with interstate disagreements to jointly appoint five “commissioners or judges” to resolve their disputes; failing agreement, a complex list system was prescribed, in which each party was entitled to strike names of unsuitable candidates. Arts of Confederation, Art. IX (1781); infra p. 18. 47 J. Ralston, International Arbitration from Athens to Locarno 191 (1929); see also Werner, Interstate Political Arbitration: What Lies Next?, 9(1) J. Int'l Arb. 69, 70 (1992). 48 Jay's Treaty (1794), Arts. V, VI, VII, reprinted in, H. Miller, II Treaties and Other International Acts of the United States of America 1776-1863 245 (1931), available on www.heinonline.org. 49 Treaty of Guadalupe Hidalgo, 2 February 1848, Art. XXI, available at www.yale.edu/lawweb/avalon/diplomacy/mexico/guadhida.htm. The United States and Mexico entered into a number of other treaty arrangements during the 19th century, to resolve various categories of disputes. J. Ralston, International Arbitration from Athens to Locarno 203-207 (1929). A much greater number of arbitrations were conducted between the United States and other countries during the 19th and early 20th centuries. Id. at 208-226. 50 Treaty of Washington (1871), Art. I, reprinted in, C. Bevans, XII Treaties and Other International Agreements of the United States of America 1776-1949 170 (1968), available on www.heinonline.org. One product of the Treaty of Washington was the Alabama http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration. Following hearings in Geneva, the arbitral tribunal rendered the historic Alabama arbitral award, where Great Britain was ordered to pay the equivalent of $15.5 million in gold for having permitted the outfitting of a Confederate privateer that caused substantial damage to Union shipping. The Alabama arbitration was a remarkable proceeding, eventually overcoming a host of procedural eccentricities and mishaps. T. Balch, The Alabama Arbitration (1900); F. Hackett, Reminiscences of the Geneva Tribunal of Arbitration (1911); Bingham, The Alabama Claims Arbitration, 54 Int'l & Comp. L.Q. 1 (2005). 51 J. Ralston, International Arbitration from Athens to Locarno 194-
195 (1929). 52 See W. Manning, Arbitration Treaties Among the American Nations (1978). 53 Id. 1, Art. 1. 54 Woolsey, Boundary Disputes in Latin-America, 25 Am. J. Int'l L. 324, 325 nn. 1-2 (1931) (Argentine and Paraguavan territory dispute settled by 1878 arbitral award issued by U.S. President Hayes; Costa Rican and Nicaraguan territory dispute settled by 1888 arbitral award issued by U.S. President Cleveland; Argentine and Chilean territory dispute settled by 1902 arbitral award issued by King Edward VII of United Kingdom). 55 See id. at 330 (describing inconclusive nature of arbitration over Ecuador-Peru territory rich in tropical resources); Donovan, Challenges to the Territorial Integrity of Guyana: A Legal Analysis, 32 Ga. J. Int'l & Comp. L. 661, 675-678 (2004) (describing demise of arbitral ruling over Venezuela-British Guyana territory with gold deposits). 56 SeeConvention Between Coasta Rica and Panama for the Settlement of the Boundary Controversy, 6 Am. J. Int'l L. 1, 1-4 (Supp. 1912); K. Carlston, The Process of International Arbitration 66-70 (1946). 57 Institute of International Law, Projet de règlement pour la procédure arbitrale internationale (Session de La Haye 1875), available at www.idi-iil.org. 58 Convention for the Pacific Settlement of International Disputes (First Hague Conference, 1899), Arts. 15-29, available at www.pcacpa.org. See also Caron, War and International Adjudication: Reflections on the 1899 Peace Conference, 94 Am. J. Int'l L. 4 (2000); Werner, Interstate Political Arbitration: What Lies Next?, 9(1) J. Int'l Arb. 69, 71-72 (1992). Compare F. Holls, The Peace Conference at the Hague 354 (1900) (describing Convention as the “Magna Charta of International Law”) with Posner & Yoo, Judicial Independence in International Tribunals, 93 Cal. L. Rev. 1, 9-10 (2005) (describing Convention as a “tentative first step[]” that “fell into desuetude”); Slaughter & Helfer, Why States Create International Tribunals: A Response to Professor Posner and Yoo, 93 Calif. L. Rev. 899 (2005). 59 See generally S. Rosenne, I The Law and Practice of the International Court, 1920-2005 9-42, 97-116 (4th ed. 2006). 60 Caron, War and International Adjudication: Reflections on the 1899 Peace Conference, 94 Am. J. Int'l L. 4, 16-17 (2000). 61 Charney, Third Party Dispute Settlement and International Law, 36 Colum. J. Transnat'l L. 65, 68 (1997) (“While the establishment of the World Court was particularly significant, ad hoc arbitrations … continue to be important” in the twentieth century.); A. Stuyt, Survey http://www.kluwerarbitration.com/CommonUI/print.aspx
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of International Arbitrations1794-1989 (3d ed. 1990); Merrills, The Mosaic of International Dispute Settlement Procedures: Complementary or Contradictory, 54 Neth. Int'l L. Rev. 361 (2007). 62 See also infra pp. 1739 et seq. for discussions of arbitral procedures. 63 See supra pp. 10, 12. 64 See supra pp. 10, 12. 65 See supra p. 15. 66 See supra p. 15. 67 See K. Carlston, The Process of International Arbitration 3-33 (1946); Institute of International Law, Projet de règlement pour la procédure arbitrale internationale (Session de La Haye 1875), available at www.idi-iil.org; C. Bishop, International Arbitral Procedure (1930). 68 J. Ralston, International Arbitration from Athens to Locarno 7576 (1929). 69 J. Ralston, International Arbitration from Athens to Locarno 7778 (1929). See also K. Carlston, The Process of International Arbitration 7 (1946) (noting that, in 19th century arbitral practice, the opening pleading often designated the “case” and was followed by the counter-case, or answer and the reply); Institute of International Law, Projet de règlement pour la procédure arbitrale internationale (Session de La Haye 1875), available at www.idi-iil.org; infra pp. 1794 et seq. 70 J. Ralston, International Arbitration from Athens to Locarno 7980 (1929). See also Pietrowski, Evidence in International Arbitration, 22 Arb. Int'l 373, 374-375 (2006); K. Carlston, The Process of International Arbitration 26-27 (1946); infra pp. 1826-1830, 18511856. 71 See Institute of International Law, Projet de règlement pour la procédure arbitrale internationale (Session de La Haye 1875), available at www.idi-iil.org. See also K. Carlston, The Process of International Arbitration 260-64 (1946). 72 Pietrowski, Evidence in International Arbitration, 22 Arb. Int'l 373, 376-377 (2006) (noting the influence of 19th century arbitral procedure on the draft arbitral code adopted by the Institut de Droit International in 1875, the Hague Conventions of 1899 and 1907, the Rules of the Permanent Court of International Justice and the International Court of Justice, and the International Law Commission's 1958 Model Rules on Arbitral Procedure). 73 Similarly, as discussed below, regardless of the market, cultural context, or geographic location, parties opted for means of international commercial arbitration that included party nomination of co-arbitrators. See infra pp. 37, 57, 1355-1356. 74 J. Ralston, International Arbitration from Athens to Locarno 180 (1929). 75 J. Verzijl, Part VIII International Law in Historical Perspective 192-193 (1974). 76 Fraser, A Sketch of the History of International Arbitration, 11 Cornell L.Q. 179, 179 n.3 (1925-1926) (citing authorities). 77 J. Ralston, International Arbitration from Athens to Locarno 178 (1929). 78 J. Ralston, International Arbitration from Athens to Locarno 178 (1929) (quoting A. Mergnhac, Traité théorique et pratique de l'arbitrage international 40 (1895)). 79 J. Ralston, International Arbitration from Athens to Locarno 185 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(1929). 80 Articles of Confederation (1781), Art. IX (“[The two disputing States] shall then be directed to appoint by joint consent, commissioners or judges to constitute a court for hearing and determining the matter in question: but if they cannot agree, Congress shall name three persons out of each of the United States, and from the list of such persons each party shall alternately strike out one, the petitioners beginning, until the number shall be reduced to thirteen; and from that number not less than seven, nor more than nine names as Congress shall direct, shall in the presence of Congress be drawn out by lot, and the persons whose names shall be so drawn or any five of them, shall be commissioners or judges, to hear and finally determine the controversy, so always as a major part of the judges who shall hear the cause shall agree in the determination”). 81 Jay's Treaty (1794), Arts. V, VI, VII, reprinted in, H. Miller, II Treaties and Other International Acts of the United States of America 1776-1863 245 (1931), available on www.heinonline.org. 82 Convention for the Adjustment of Claims of Citizens of the United States of America upon the Government of The Mexican Republic, 11 April, 1839, Arts. I, VII, reprinted in, H. Miller, IV Treaties and Other International Acts of the United States of America 1776-1863 189 (1931), available on www.heinonline.org. 83 J. Ralston, International Arbitration from Athens to Locarno 205226 (1929) (including Mexican pecuniary and boundary disputes, Chilean, Colombian, Ecuadorean, German, Peruvian, Spanish and other pecuniary disputes, Norwegian shipping claims, and a host of other matters). 84 J. Ralston, International Arbitration from Athens to Locarno 227228 (1929). 85 Treaty of Washington (1871), Art. I, reprinted in, C. Bevans, XII Treaties and Other International Agreements of the United States of America 1776-1949 170 (1968), available on www.heinonline.org. 86 Treaty of Washington (1871), Art. XII, reprinted in, C. Bevans, XII Treaties and Other International Agreements of the United States of America 1776-1949 170 (1968), available on www.heinonline.org. Other arbitration provisions between the United States and Great Britain very frequently involved party-nomination of members of the tribunal. J. Ralston, International Arbitration from Athens to Locarno 194-196 (1929). A leading example of this involved disputes over the harvesting of fur seals on U.S. islands. Ibid. 87 J. Ralston, International Arbitration from Athens to Locarno 236 (1929). 88 J. Ralston, International Arbitration from Athens to Locarno 246249 (1929). 89 Convention for the Pacific Settlement of International Disputes (First Hague Conference, 1899), Art. 24, available at www.pcacpa.org; Convention for the Pacific Settlement of International Disputes (Second Hague Conference, 1907), Arts. 45, 54, available at www.pca-cpa.org. See R. Caldwell, A Study of the Code of Arbitral Procedure Adopted by the Hague Peace Conference of 1899 and 1907 (1921) (unpublished Carnegie thesis). 90 Statute of the PCIJ, 1920, Arts. 5-6; Statute of the International Court of Justice, Arts. 5-6. See generally S. Rosenne, III The Law and Practice of the International Court 1920-2005 1079-1089 (4th ed. 2006). See alsoinfra pp. 1501-1507. 91 J. Ralston, International Arbitration from Athens to Locarno 226 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(1929). 92 Agreement between Lena Goldfields Company and Union of Soviet Socialist Republics, in ILC, Memorandum on Arbitral Procedure, Prepared by the Secretariat, UN Doc. A/CN.4/35, ¶28, II Y.B. I.L.C. 157, 162 (1950) (tribunal composed of two partynominated co-arbitrators and “the super-arbitrator … chosen by the two parties together by mutual agreement” or an appointment mechanism). 93 See infra pp. 36-37, 56-58. 94 See infra pp. 1355-1356, 1387-1399. 95 Shalakany, Arbitration and the Third World: A Plea for Reassessing Bias under the Specter of Neoliberalism, 41 Harv. Int'l L.J. 419, 430 (2000). See also Sornarajah, The Climate of International Arbitration, 8(2) J. Int'l Arb. 47, 50-51 (1991) (“International commercial arbitration, particularly in the field of foreign investment contracts, developed principally in the latter part of the twentieth century.…”); A. van den Berg, The New York Arbitration Convention of 1958 6 (1981) (“at the beginning of this [the 20th] century, as international commercial arbitration was becoming established …”). 96 See supra pp. 11-12, 15-16. 97 D. Roebuck, Ancient Greek Arbitration 46-47 (2001); M. Bohacek, Arbitration and State-Organized Tribunals in the Ancient Procedure of the Greeks and Romans 197-204 (1952). Indeed, “litigation” in many historical settings bore little resemblance to contemporary processes, making the categorization of arbitration as “alternative” dispute resolution misleading. 98 D. Roebuck, Ancient Greek Arbitration 23-25, 36-45 (2001); Lafont, L'arbitrage en Mésopotamie, 2000 Rev. arb. 557; D. Roebuck & B. de Fumichon, Roman Arbitration 193 (2004) (“Until well into imperial times there were no professional judges in Rome. In all civil matters, the state deputed respected citizens, sometimes from a panel to act as adjudicators on its behalf”). 99 M. Burrows & E. Speiser (eds.), One Hundred New Selected Nuzi Texts, 16 The Annual of The American Schools of Oriental Research, 79, 95 (1936) (document 41) (cited in G. Wilner, Domke on Commercial Arbitration §2.01 (3d ed. & Update 2006)); Lafont, L'arbitrage en Mésopotamie, 2000 Rev. arb. 557, 579-581 (describing evidence of Assyrian merchants resolving commercial disputes through arbitration). 100 Mantica, Arbitration in Ancient Egypt, 12 J. Arb. 155, 158-60 (1957) (“Records of very advanced procedures of arbitration survive from those [Greco-Roman] periods”). 101 D. Roebuck, Ancient Greek Arbitration 45-46, 348-349, 358 (2001) (“Everywhere in the Ancient Greek world, including Ptolemaic Egypt, and at all times within our period, disputing parties considered arbitration to be a natural, perhaps the most natural, method of resolving the differences they could not settle themselves, even though they sometimes resorted to litigation (or in earlier times self-help) when they could not get their own way.”). 102 Hammond, Arbitration in Ancient Greece, 1 Arb. Int'l 188 (1985) (citing Homer, The Iliad XVIII.497-508). See also Aeschylus, Eumenides 433-753 (similar description of public arbitration before distinguished arbitrators, from 460 B.C.); Herodotus, I Histories 9698 (1858), translated by G. Rawlinson (fictionalized exploits of Deioces as professional arbitrator); D. Roebuck, Ancient Greek Arbitration 70-71 (2001) (citing description in Homer's Odyssey 11.326 of Eriphyle as arbitrator). http://www.kluwerarbitration.com/CommonUI/print.aspx
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103 D. Roebuck, Ancient Greek Arbitration 348-349 (2001)
(“Arbitration was the natural and regular process of choice for those who could not afford litigation, were afraid of its outcome, preferred privacy, or were manipulating the alternatives”); Hammond, Arbitration in Ancient Greece, 1 Arb. Int'l 188, 189 (1985); Bonner, The Institution of Athenian Arbitrators, 11 Classical Philology 191, 192 (1916). 104 Demosthenes, Against Meidias, in Demosthenes Against Meidias, Androtion, Aristocrates, Timocrates, Aristogeiton 69, 94. See also Velissaropoulos-Karakostas, L'arbitrage dans la Grèce antique – Epoques archaïque et classique, 2000 Rev. arb. 9, 18-26 (outlining arbitral procedure in Greece during the fourth and fifth centuries B.C.). 105 D. Roebuck, Ancient Greek Arbitration 347-48 (2001) (“If the parties chose to submit their disputes to private arbitration, then throughout the arbitration process they had almost unlimited freedom of choice. By their agreement they controlled the subjectmatter in dispute, the selection of arbitrators, the limits of their jurisdiction, the rules of procedure and even whether they should decide the issue according to the law or should determine according to their sense of fairness”). 106 D. Roebuck, Ancient Greek Arbitration 349 (2001) (where tribunal consisted of more than one arbitrator, “each party would then appoint one, sometimes two, who would be identified with that party's interests either as a friend or member of the family. The parties' arbitrators would then appoint a koinos, someone common to both sides, who took his place as an equal with the others”) 107 D. Roebuck, Ancient Greek Arbitration 349 (2001) (“[C]ivil litigation in Athens, probably throughout Greece, was the preserve of the rich.… The most common subjects [of arbitration were] commercial in the widest sense and about property.”). 108 See D. Roebuck & B. de Fumichon, Roman Arbitration 94 (2004) (“The Romans probably began to make use of arbitration ex compromisso, a private arbitration created and controlled by the written agreement of the parties but supported by the praetor, at some time in the second century BC, at a time of great imperial and colonial expansion”); supra pp. 10-11. 109 Stein, Arbitration under Roman Law, 41 Arb. 203, 203-204 (1974). See also D. Roebuck & B. de Fumichon, Roman Arbitration 194 (2004) (“Across a wide range of subject matter the Romans had a selection of [dispute resolution] techniques.… [A]t their heart was a simple idea which remained essentially the same. That idea was the appropriateness of private arbitration, which included a whole toolbag of imaginable techniques, from which the parties could choose whatever was appropriate for their dispute.”). 110 Digest, 4, 8, 27, 2 (Ulpian), in S. Scott (ed.), III The Civil Law (1932). The arbitrator was not bound by otherwise applicable rules of substantive law. See R. Zimmermann, The Law of Obligations 529 (1996) (“No appeal was possible against the arbiter's decision.”); Coing, Zur Entwicklung des Schiedsvertrages im Ius Commune in G. Baumgärtel, H.-J. Becker, E. Klingmüller & A. Wacke, Festschrift für Heinz Hübner 35 (1984). 111 M. Kaser & K. Hackl, Das römische Zivilprozessrecht 640 (2d ed. 1996); Matthias, Die Entwicklung des römischen Schiedsgerichts, in Festschrift zum fünfzigjährigen Doctorjubiläum von Bernhard Windscheid 102 (1888). 112 D. Roebuck & B. de Fumichon, Roman Arbitration 199 (2004) (“the Roman practice [in arbitration] was much like ours today, http://www.kluwerarbitration.com/CommonUI/print.aspx
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particularly in those jurisdictions whose arbitration law has followed the Roman law on compromissum. The documents that survive are quite familiar to the modern practitioner, the arbitrator's crisp summons to the parties in Puteoli, and the awards from Dioscorus's files, whose otiose drafting makes the purist's spirits sink.”). 113 Digest, 4, 8, 32, 15 (Paulus); S. Scott (ed.), III The Civil Law (1932); Stein, Labeo's Reasoning on Arbitration, 91 S. African L. J. 135 (1974); R. Zimmermann, The Law of Obligations 513-14 (1996) (“the arbitrator can act only on the basis of a contractual relationship (sui generis) existing between himself and the parties to the dispute”). 114 R. Zimmermann, The Law of Obligations 529 (1996). See also Coing, Zur Entwicklung des Schiedsvertrages im Ius Commune in G. Baumgärtel, H.-J. Becker, E. Klingmüller & A. Wacke, Festschrift für Heinz Hübner 35, 36 (1984). 115 D. Roebuck & B. de Fumichon, Roman Arbitration 160 (2004) (“The parties controlled the scope of the arbiter's powers to dictate the form of the proceedings”). 116 Stein, Arbitration under Roman Law, 41 Arb. 203, 205 (1974). Professor Stein describes the use of three-person tribunals, where disputes were resolved by majority vote. Ibid. See also infra pp. 1666-1667. 117 Matthias, Die Entwicklung des römischen Schiedsgerichts, in
Festschrift zum fünfzigjährigen Doctorjubiläum von Bernhard Windscheid 102 (1888); M. Kaser & K. Hackl, Das römische Zivilprozessrecht 639 (2d ed. 1996); Litewski, Schiedsgerichtsbarkeit nach den ältesten ordines iudiciarii, in N. Brieskorn, P. Mikat, D. Müller & D. Willoweit (ed.), Vom mittelalterlichen Recht zur neuzeitlichen Rechtswissenschaft 198 (1994) (Roman-canonic law of the 11th to 13th centuries). The parties, however, had no direct claim against the arbitrator to honor his undertaking. R. Zimmermann, The Law of Obligations 514 (1996); Bornhak, Schiedsvertrag und Schiedsgericht nach geschichtlicher Entwicklung und geltendem Recht, 30 Zeitschrift für deutschen Zivilprozeβ 1, 13 (1902). 118 F. Sanborn, Origins of the Early English Maritime and Commercial Law 8-9 (1930); Stein, Arbitration under Roman Law, 41 Arb. 203, 203-204 (1974); D. Roebuck & B. de Fumichon, Roman Arbitration (2004). 119 D. Roebuck & B. de Fumichon, Roman Arbitration 105 (2004) (“With these few exceptions [for inheritance and status of slaves/citizens] … arbitration ex compromisso was used comprehensively to deal with all types of disputes, relating to land and goods and slaves, and breaches of contract of all kinds”). 120 Stein, Arbitration under Roman Law, 41 Arb. 203, 203-205 (1974); R. Zimmermann, The Law of Obligations 526 (1996) (“The mere agreement to submit to arbitration was not binding under classical law.”; “the parties could make their arrangement indirectly enforceable by means of two (non-genuine) stipulationes poenae. Each of the parties had to promise a penalty; a unilateral stipulationes poenae did not give rise to a valid compromissum.”); D. Roebuck & B. de Fumichon, Roman Arbitration 98 (2004) (“A compromissum contained a number of promises: to choose and appoint an arbitrator; to commit the matter to him; to participate in the process; to perform whatever the award required; and to pay a penalty in default of performance of any of those promises.”). http://www.kluwerarbitration.com/CommonUI/print.aspx
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121 Compare D. Roebuck & B. de Fumichon, Roman Arbitration
126-27 (2004) (exclusivity of arbitration). 122 R. David, Arbitration in International Trade 84-85 (1985); D. Roebuck & B. de Fumichon, Roman Arbitration 121-24 (2004). For an example of a compromissum, see D. Roebuck & B. de Fumichon, Roman Arbitration 115 (2004) (quoting Tabulae Herculanenses 76) (“In the dispute between L Cominius Primus and L Appuleius Proculus about the boundaries of the Numidian land of L Cominius Primus and the Stlasanician land of L Appuleius Proculus, … they have by stipulation and pact agreed as follows: that Ti. Crassius Firmus should be arbiter ex compromisso between L Cominius Primus and his heir and L Appuleius Proculus and his heir and should render his award or order his award to be rendered, openly in his presence and in the presence of each other, before the first day of February next, and may postpone that day when he renders his award or orders it to be rendered or orders it to be postponed, and if anything shall be done or fail to be done, against these agreements 1,000 sesterces of good money shall be properly paid, fraud being absent from this matter and arbitration and to be so in the future”). 123 See infra pp. 32-51, 144-147. 124 See infra pp. 311 et seq. 125 K.-H. Ziegler, Das private Schiedsgericht im antiken römischen Recht 199-201 (1971). 126 K.-H. Ziegler, Das private Schiedsgericht im antiken römischen Recht 182 (1971); R. Zimmermann, The Law of Obligations 527 (1996). 127 Ziegler, Geschichtliche und dogmatische Aspekte des Schiedsvertrages, in R. Zimmermann, Rechtsgeschichte und Privatrechtsdogmatik 671 et seq. (1999). 128 M. Kaser & K. Hackl, Das römische Zivilprozessrecht 643 (2d ed. 1996). By 330 A.D., there seems to have been episcopal jurisdiction (as opposed to contract-based arbitration). By the end of the 4th century, however, Roman legislation limited episcopal jurisdiction to religious disputes, while commercial disputes could be referred to a bishop based only on the parties' agreement. B. Matthias, Die Entwicklung des römischen Schiedsgerichts in Festschrift zum fünfzigjährigen Doctorjubiläum von Bernhard Windscheid 132, 144 (1888). 129 K.-H. Ziegler, Das private Schiedsgericht im antiken römischen Recht 175 (1971). 130 Mantica, Arbitration in Ancient Egypt, 12 J. Arb. 155, 161-62 (1957); Modrzejewski, Private Arbitration in the Law of GrecoRoman Egypt, 6 J. Juristic Papyrology 239 (1952); R. Taubenschlag, The Law of Greco-Roman Egypt in the Light of Papyri 372-375, 377 (1944). 131 W. Crum & G. Steindorff, Koptische Rechtsurkunden aus Djeme 835-37 (1912) (quoted in Mantica, Arbitration in Ancient Egypt, 12 J. Arb. 155, 162 (1957)). 132 See infra pp. 71-90. 133 See supra pp. 11-13. 134 Wolaver, The Historical Background of Commercial Arbitration, 83 U. Pa. L. Rev. 132, 133 (1934-1935). page "27" Whatever the claim to historic priority, it is clear that commercial arbitration was very widespread in many European localities in the Middle Ages. R. David, Arbitration in International Trade 85-86 (1985). See also 2 William Langland, Piers Plowman C VI 382, in D. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Roebuck, A Miscellany of Disputes 99 (2000) (“There were merchants chosen to appraise these wares/So that whoever had the hood would not have the cloak/And that the matter would be better heard by arbitrators/ … But they could not come by their own insight to an agreement on the truth/Till they asked Robyn the ropemaker to stand up/And named him as umpire.”) (commercial arbitration described in 15th century poem); Henryson, The Tale of the Sheep and the Dog, reprinted in, 7 Arb. Int'l 66 (1991) (late 15th century satirical poem mocking the formality of private commercial arbitration). 135 Before the development of the common law, arbitration
appears to have been popular among the Anglo-Saxons. Murray, Arbitration in the Anglo-Saxon and Early Norman Periods, 16 Arb. J. 193 (1961); Roebuck, L'arbitrage en droit anglais avant 1558, 2002 Rev. arb. 535; Baker, From Lovedays to ADR: Arbitration and Dispute Resolution in England 1066-1800, 3(5) Transnat'l Dispute Mgt (2006). 136 J. Cohen, Commercial Arbitration and the Law 4 (1918). 137 F. Pollock & F. Maitland, The History of English Law 668 (2d ed. 1898). For a less expansive view, see A. Carter, A History of English Legal Institutions 258-259 (1902) (“Members of the same gild were bound to bring their disputes before the gilds before litigating the matter elsewhere.”). 138 Arbitration was also relied on to resolve disputes in a wide range of substantive areas outside of commerce proper, including real estate, medical negligence, employment, determinations of feudal status, and even complaints of assault or arson. See Roebuck, L'arbitrage en droit anglais avant 1558, 2002 Rev. arb. 535, 567-576. 139 III Blackstone's Commentaries on the Laws of England *33 (1768) (quoted in Wolaver, The Historical Background of Commercial Arbitration, 83 U. Pa. L. Rev. 132, 136 (1934-1935)). See also Baker, From Lovedays to ADR: Arbitration and Dispute Resolution in England 1066-1800, 3(5) Transnat'l Dispute Mgt (2006) (describing Medieval international commercial arbitrations in England involving Italian merchants). 140 Wolaver, The Historical Background of Commercial Arbitration, 83 U. Pa. L. Rev. 132, 137 (1934-1935); Baker, From Lovedays to ADR: Arbitration and Dispute Resolution in England 1066-1800, 3(5) Transnat'l Dispute Mgt (2006) (distinction between arbitration, conciliation and miscellaneous public courts was unclear in Medieval England). 141 G. Malynes, Consuetudo, vel, Lex Mercatoria, or The Ancient Law Merchant; Divided into Three Parts: According to the Essentiall Parts of Trafficke: Necessarie for All Statesmen, Judges, Magistrates, Temporal and Civil Lawyers, Mint-men, Merchants, Mariners, and all others Negotiating in all Places of the World Ch. XV (1622). Id. at Chapter XV (1685 ed.) (“[W]hen Merchants by their Letters or Commissions use these or the like words, Let All things be done as shall be thought most expedient or convenient, that the said Commissions or Directions are to be left to the interpretation of Arbitrators when any question ariseth, which is also in many more questions concerning Merchants.”). 142 Simpson, The Penal Bond with Conditional Defeasance, 82 L.Q. Rev. 392 (1966). 143 Roebuck, L'arbitrage en droit anglais avant 1558, 2002 Rev. http://www.kluwerarbitration.com/CommonUI/print.aspx
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arb. 535, 563-565 (“The judges increasingly accepted that not only an award but also an arbitration agreement or even a mere agreement that would arrange to compromise could prevent a claim in a tribunal.”). 144 Id. at 556. 145 R. David, Arbitration in International Trade 88-89 (1985). 146 D. Bell, Lawyers and Citizens: The Making of A Political Elite in Old Regime France 31 (1994); R. David, Arbitration in International Trade 88-89 (1985); Kessler, Enforcing Virtue: Social Norms and Self-Interest in An Eighteenth-Century Merchant Court, 22 Law & Hist. Rev. 71, 82-86 (2004); Castan, The Arbitration of Disputes under the ‘Ancien Regime’, in J. Bossy (ed.), Disputes and Settlements: Law and Human Relations in the West, 234-235, 253254 (1983) (arbitration of various kinds of social disputes). 147 Bader, Arbiter arbitrator seu amicabilis compositor, 77 Zeitschrift für Rechtsgeschichte Kan. Abt. 239, 240 et seq. (1960); H. Krause, Die geschichtliche Entwicklung des Schiedsgerichtswesens in Deutschland 36 et seq., 52 (1930). 148 H. Krause, Die geschichtliche Entwicklung des Schiedsgerichtswesens in Deutschland 2 et seq., 40 et seq. (1930). 149 H. Krause, Die geschichtliche Entwicklung des Schiedsgerichtswesens in Deutschland 58 et seq. (1930). 150 See Bader, Arbiter arbitrator seu amicabilis compositor, 77 Zeitschrift für Rechtsgeschichte Kan. Abt. 239, 240 et seq. (1960). 151 M. Kobler, Das Schiedsgerichtswesen nach bayerischen Quellen des Mittelalters 107-108 (1966). 152 See Bader, Arbiter arbitrator seu amicabilis compositor, 77 Zeitschrift für Rechtsgeschichte Kan. Abt. 239, 240 et seq. (1960). 153 H. Krause, Die geschichtliche Entwicklung des Schiedsgerichtswesens in Deutschland 4, 31, 35 (1930). 154 H. Krause, Die geschichtliche Entwicklung des Schiedsgerichtswesens in Deutschland 36, 52 (1930). 155 H. Krause, Die geschichtliche Entwicklung des Schiedsgerichtswesens in Deutschland 33 (1930). 156 R. Zimmermann, The Law of Obligations 528 (1996) (in the Middle Ages, “certain persons were now acceptable as arbitrators who had been disqualified under the provisions of the Corpus Juris Civilis,” including women). 157 Coing, Zur Entwicklung des Schiedsvertrages im Ius Commune 35, 36 et seq., in G. Baumgärtel, H.-J. Becker, E. Klingmüller & A. Wacke, Festschrift für Heinz Hübner (1984); R. Zimmermann, The Law of Obligations 529 (1996) (a new type of “arbiter” emerged in the Middle Ages, who was “taken to perform the function of a judge”: “He was chosen by the parties not merely in order to restore the peace between the parties or to determine, ex aequo et bono, points which the parties had left open in their agreement, but to decide a dispute.”). 158 There are records of arbitral tribunals composed of German academics trained in Italy as early as the 14th century. A. Lindheim, Das Schiedsgericht im modernen Civilprocesse 14 (1891); M. Kobler, Das Schiedsgerichtswesen nach bayerischen Quellen des Mittelalters 113-114 (1966). 159 H. Krause, Die geschichtliche Entwicklung des Schiedsgerichtswesens in Deutschland 48, 54 (1930); K. Kroeschell, Deutsche Rechtsgeschichte 2 (1250-1650) 34 (8th ed. 1992); R. Zimmermann, The Law of Obligations 529 (1996) (in Middle http://www.kluwerarbitration.com/CommonUI/print.aspx
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Ages, arbitrator responsible for deciding a dispute “was … bound to follow the rules of civil procedure (‘Nam arbiter est, quem partes eliguant ad cognoscendum de quaestione, vel lite’) and had to apply the law (‘Arbiter debet sequi iuris rigorem, et aequitatem scriptam’)”). 160 It is sometimes suggested that parties turned to canonical arbitration for sophisticated answers that traditional German law could not offer. A. Lindheim, Das Schiedsgericht im modernen Civilprocesse 14 (1891); M. Kobler, Das Schiedsgerichtswesen nach bayerischen Quellen des Mittelalters 49 (1966). 161 H. Krause, Die geschichtliche Entwicklung des Schiedsgerichtswesens in Deutschland 50 et seq. (1930). 162 H. Krause, Die geschichtliche Entwicklung des Schiedsgerichtswesens in Deutschland 48, 54 (1930). 163 M. Bloch, Feudal Society 359 (1961) (emphasis added). 164 Adams, The Anglo-Saxon Courts of Law, in H. Adams, H. Lodge, E. Young & J. Laughlin, Essays in Anglo-Saxon Law 1, 2627, 53 (1876). 165 See infra pp. 39-49; Benson, An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J. L. Econ. & Org. 479, 480 n.2, passim (1995). 166 Vynior v. Wilde (1609) 77 Eng. Rep. 595 (K.B.). Earlier English judicial decisions had commented favorably on the use of arbitration to reduce litigation and resolve disputes. Cook v. Songate (1588) 4 Leon 31 (K.B.). 167 Id. at 598-600. 168 E.g., J. Cohen, Commercial Arbitration and the Law 84 et seq. (1918); Roebuck, The Myth of Judicial Jealousy, 10 Arb. Int'l 395, 400-401 (1994); Wolaver, The Historical Background of Commercial Arbitration, 83 U. Pa. L. Rev. 132, 138-141 (1934-1935). 169 See supra pp. 25-27. 170 R. David, Arbitration in International Trade 109 (1985) (noting willingness of English courts to enforce penalty provisions); W. Holdsworth, 12 A History of English Law 519-20 (2d prtg. 1966) (discussing legal distinction between penalty clauses and liquidated damages); Roebuck, The Myth of Judicial Jealousy, 10 Arb. Int'l 395 (1994). 171 An Act for the better Preventing Frivolous and Vexatious Suits, 1697, 8 & 9 Will. III, Ch. 11. See also Mann, The Formalization of Informal Law Arbitration Before the American Revolution, 59 N.Y.U. L. Rev. 443, 459 n.66 (1984) (noting that the Act responded in part to the equity courts' increasing refusal to enforce penalty clauses beyond the amount of actual damages). 172 Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 4 (1999). 173 English Civil Procedure Act, 1698 (9 & 10 Will. III) Ch. 15 (emphasis added). 174 English Civil Procedure Act, 1698 (9 & 10 Will. III) Ch. 15. 175 III Blackstone's Commentaries on the Laws of England 16-17 (1769). It appears that use of the 1698 Arbitration Act was limited, because of reluctance to invoke the contempt authority of English courts. Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 4 (1999). As noted elsewhere, the use of commercial, professional and other forms of non-legal influence appears to have played a more significant role in enforcing arbitration agreements and awards during this era. See infra pp. 39-49; Benson, An Exploration of the http://www.kluwerarbitration.com/CommonUI/print.aspx
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Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J. L. Econ. & Org. 479 (1995); Mann, The Formalization of Informal Law Arbitration Before the American Revolution, 59 N.Y.U. L. Rev. 443, 459 n.66 (1984). 176 SeeDoleman & Sons v. Ossett Corp. [1912] 3 K.B. 257, 267-
268 (English Court of Appeal) (Fletcher Moulton, L.J.). 177 Kill v. Hollister (1799) 1 Wils. K.B. 129 (K.B.). 178 See infra pp. 44-47. 179 English Civil Procedure Act, 1833 (3 & 4 Will. IV) Ch. 42, §§3941. 180 Scott v. Avery (1856) 5 H.L. Cas. 811, 853 (House of Lords). 181 Id. at 853. 182 Russell v. Pellegrini (1856) 6 E. & B. 1020, 1025 (Q.B.). Lord Campbell also provided a famously cynical explanation for the alleged historic hostility of English common law judges to arbitration: “This doctrine had its origin in the interests of the judges. There was no disguising the fact that, as formerly, the emoluments of the Judges depended mainly, or almost entirely, on fees, and as they had no fixed salaries there was great competition to get as much as possible of litigation into Westminster Hall and there was a great scramble in Westminster Hall for the division of the spoil.… And they had great jealousy of arbitration whereby Westminster Hall was robbed of those cases.” Scott v. Avery (1856) 5 H. L. Cas. 811, 853 (House of Lords). 183 Horowitz & Oldham, John Locke, Lord Mansfield and Arbitration During the Eighteenth Century, 36 (I) The Historical Journal 137 (1993) (denying that common law hostility to arbitration was particularly marked or significant); Roebuck, The Myth of Judicial Jealousy, 10 Arb. Int'l 395, 403-404 (1994) (concluding that early English courts were not hostile to arbitration). 184 See infra pp. 36-37, 127-131. 185 English Common Law Procedure Act, 1854 (17 & 18 Vict.) Ch. 125. See Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 6 (1999). 186 English Common Law Procedure Act, 1854 (17 & 18 Vict.) Ch. 125, §17 (“Every agreement for submission to arbitration by consent, whether by deed or instrument in writing not under seal may be made a rule of any one of the superior courts of law or equity at Westminster, on the application of any party thereto, unless such agreement or submission contain words purporting that the parties intend that it should not be made a rule of court.”). 187 English Common Law Procedure Act, 1854 (17 & 18 Vict.), Ch. 125 §4. The Act also required arbitrators to issue their awards within three months of their appointment, unless the parties or a superior court judge agreed to extend the time limit. Id. at §15. 188 See Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 6 (1999) (“The 1889 Arbitration Act can be regarded as the first modern arbitration statute in the common law world.”). 189 English Arbitration Act, 1889 (52 & 53 Vict.), Ch. 49 (arbitration agreement is irrevocable, unless otherwise indicated). 190 English Arbitration Act, 1889 (52 & 53 Vict.), §4. 191 English Arbitration Act, 1889 (52 & 53 Vict.), §§5, 8, 10, 19. 192 Samuel, Arbitration Statutes in England and the USA, 8 Arb. & http://www.kluwerarbitration.com/CommonUI/print.aspx
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Disp. Res. L.J. 2 (1999). The 1889 Act was amended in 1934, in light of the Geneva Protocol and Geneva Convention (discussed infra pp. 58-64). Seeid., at 13. 193 See infra pp. 127-131. 194 Cf.Re Shaw and Sims (1851) 17 LTOS 160 (Bail Court) (arbitrators may be chosen by lot). But see Harris v. Mitchell (1704) 2 Vern. 485 (holding that selection of an umpire by lot rendered his appointment and award invalid). 195 R. Merkin, Arbitration Law ¶12.2 & n.2 (2004 & Update 2007); M. Mustill & S. Boyd, Commercial Arbitration 265 (2d ed. 1989); Baker, From Lovedays to ADR: Arbitration and Dispute Resolution in England 1066-1800, 3(5) Transnat'l Dispute Mgt (2006) (advantage of 13th century arbitration: “the parties could nominate their own arbitrators with an umpire in case of disagreement”). See also Doley v. Pitstow (1755) 96 Eng. Rep. 859 (K.B.); Elliott v. Chevall (1699) 125 Eng. Rep. 284 (Common Pleas). 196 An “umpire” typically presided over deliberations between two party-nominated arbitrators who were expected to function as quasiadvocates for their nominating parties. See infra pp. 1356-1358. 197 See infra pp. 127-131, 1304-1308. There is historical evidence suggesting that legal formalities had made occasional in-roads even in early English arbitration, provoking complaints from arbitration users. Henryson, The Tale of the Sheep and the Dog, reprinted in, 7 Arb. Int'l 66 (1991). 198 See supra pp. 29-31. 199 M. de Boisséson, Le droit français de l'arbitrage interne et international ¶8 (2d ed. 1990) (quoting Thouret, Member of Constituent Assembly). 200 Law of 16-24 August 1790, Art. 1 (“As arbitration is the most reasonable means of terminating disputes between citizens, the legislators shall not make any provision that would diminish either the favor or the efficiency of an arbitration agreement.”). 201 French Constitution of Year I, 1793, Art. 86 (“The right of the citizens to have their disputes settled by arbitrators of their choice shall not be violated in any way whatsoever.”); French Constitution of Year III, 1795, Art. 210 (“The right to chose arbitrators in any dispute shall not be violated in any way whatsoever.”). See Clère, L'arbitrage révolutionnaire: apogée et déclin d'une institution (17901806), 1981 Rev. arb. 3, 5-6; Hilaire, L'arbitrage dans la période moderne (XVIe-XVIIIe siècle), 2000 Rev. arb. 187. 202 R. David, Arbitration in International Trade 90 (1985). This perception apparently arose from the use of compulsory arbitration in a wide range of civil disputes (including domestic relations, inheritance and similar areas). Clére, L'arbitrage révolutionnaire: apogée et déclin d'une institution (1790-1806), 1981 Rev. arb. 3, 2123. 203 Article 1003 to 1028 of the 1806 Code of Civil Procedure introduced an extremely unfavorable legal regime for arbitration. See M. de Boisséson, Le droit français de l'arbitrage interne et international ¶¶8-11 (2d ed. 1990); Clére, L'arbitrage révolutionnaire: apogée et déclin d'une institution (1790-1806), 1981 Rev. arb. 3. 204 M. de Boisséson, Le droit français de l'arbitrage interne et international ¶¶8-11 (2d ed. 1990); R. David, Arbitration in International Trade 90 (1985); French Code of Civil Procedure (1806), Art. 1006. 205 French Commercial Code, 1804, Arts. 51-63, 332; M. de Boisséson, Le droit français de l'arbitrage interne et international http://www.kluwerarbitration.com/CommonUI/print.aspx
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¶10 (2d ed. 1990). 206 R. David, Arbitration in International Trade 90 (1985) (quoting Bellot). 207 M. Bourbeau, Procedure civile, Tome VI 422 (1837-1863) (quoted in Rubbelin-Devichi & Loquin, JurisClasseur Proc. civ., Fasc. 1010 ¶19). 208 Mounier, Rapport Rigaud, sur le projet de loi relative à l'arbitrage forcé, 1856 Dalloz 113. 209 Judgment of 10 July 1843, Cie L'Alliance v. Prunier, 1843 Dalloz 561 (French Cour de cassation civ.) (quoted in R. David, Arbitration in International Trade 91 (1985)) & reprinted in, 1992 Rev. arb. 399. 210 Remarks by Avocat Général Hello regarding Judgment of 10 July 1843, Cie L'Alliance v. Prunier, 1992 Rev. arb. 404 (French Cour de cassation civ.) (“The obligation to nominate arbitrators in the arbitration agreement aims at avoiding incidents and proceedings regarding the composition of an arbitral tribunal, and mainly at warning the citizens against their own silliness, which would lead them to subscribe too easily and without anticipation to future arbitrations, without being assured of having capable and trustworthy persons as voluntary judges”); J.-L. Delvolvé, J. Rouche & G. Pointon, French Arbitration Law and Practice ¶8 (2003). See also infra pp. 576-580. 211 Judgment of 10 July 1843, Cie L'Alliance v. Prunier, 1843 Dalloz 561 (French Cour de cassation civ.), reprinted in, 1992 Rev. arb. 399. 212 See infra pp. 121-125. 213 See infra pp. 121-122; French Commercial Code, 1925, Art. 631. 214 See supra pp. 12-14. 215 Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 7 (1999) (“baleful influence of the common law”). 216 See Benson, An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J. L. Econ. & Org. 479, 481-82 (1995); infra pp. 46-49. 217 See infra pp. 133-144. Even after the passage of the FAA, the American courts' historical suspicion of arbitration agreements was reflected in the Restatement (First) Contracts, published in 1932. Restatement (First) Contracts §550 (1932) (“[A] bargain to arbitrate either an existing or a possible future dispute … will not be specifically enforced, and only nominal damages are recoverable for its breach.”). While noting that Congress had passed the FAA, the Restatement observed that “such statutes have not as yet been generally enacted in the United States.” Id. 218 J. Auerbach, Justice Without Law? 32 (1983); Jones, Three Centuries of Commercial Arbitration in New York: A Brief Survey, 1956 Wash. U. L.Q. 193, 195 (1956). While the label “arbitrator” was used, the early Dutch colonial arrangements appear not to have been arbitration as generally referred to today. As in some other historical settings, arbitration was sometimes used to refer to a type of specialized court procedure with mandatory jurisdiction. 219 Jones, Three Centuries of Commercial Arbitration in New York:
A Brief Survey, 1956 Wash. U. L.Q. 193, 196 (1956)(quoting Daly, http://www.kluwerarbitration.com/CommonUI/print.aspx
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History of the Court of Common Pleas, in 1 Smith xxix (N.Y.C.P. 1855)). See Aiken, NewNetherlands Arbitration in the 17th Century, 29 Arb. J. 145 (1974); Odiorne, Arbitration under Early New Jersey Law, 8 Arb. J. 117 (1953). 220 A. Flick (ed.), 3 History of the State of New York 14-16 (1933) (noting influence of Dutch practice on colonial New York under English rule); Jones, Three Centuries of Commercial Arbitration in New York: A Brief Survey, 1956 Wash. U. L.Q. 193, 197-98 (1956). 221 Jones, Three Centuries of Commercial Arbitration in New York: A Brief Survey, 1956 Wash. U. L.Q. 193, 198 (1956). 222 Benson, An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J. L. Econ. & Org. 479, 481-82 (1995); Aiken, NewNetherlands Arbitration in the 17th Century, 29 Arb. J. 145 (1974); Odiorne, Arbitration under Early New Jersey Law, 8 Arb. J. 117 (1953). 223 Jones, Three Centuries of Commercial Arbitration in New York: A Brief Survey, 1956 Wash. U. L.Q. 193, 202 (1956) (quoting N.Y. Weekly Post-Boy, May 20, 1751). 224 Jones, Three Centuries of Commercial Arbitration in New York: A Brief Survey, 1956 Wash. U. L.Q. 193, 213-214 (1956). 225 Jones, Three Centuries of Commercial Arbitration in New York: A Brief Survey, 1956 Wash. U. L.Q. 193, 211-218 (1956). See also Benson, An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J. L. Econ. & Org. 479, 481-485 (1995) (“Arbitration actually was in widespread use in the United States almost three centuries before modern arbitration statutes were passed in the 1920s; its history traces back to the colonial period.”). 226 Benson, An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J. L. Econ. & Org. 479, 482 (1995). 227 Jones, Three Centuries of Commercial Arbitration in New York: A Brief Survey, 1956 Wash. U. L.Q. 193, 218 (1956) (“It seems justified to believe that the New York development has not been entirely peculiar to that state. It is rare for an American state to retain important legal and economic features entirely different from those of its fellows.”). 228 G. Wilner, Domke on Commercial Arbitration §2.04 (3d ed. & Update 2006); Gwynne, The Oldest American Tribunal, 1 Arb. J. 117, 120 (1937); Odiorne, Arbitration under Early New Jersey Law, 8 Arb. J. 117 (1953). 229 J. Higgins, Sampson against the Philistines, or the Reformation of Lawsuits 32-32 (2d ed. 1805). 230 M. Horwitz, The Transformation of American Law, 1780-1860 151 (1977) (noting that Quaker doctrine urged that business disputes “should be settled in a Christian manner. Therefore … no member should appeal to law; but … he should refer his difference to arbitration by persons of exemplary character in the Society”) (quoting T. Clarkson, 2 A Portraiture of Quakerism 56 (1808)). 231 L. Friedman, A History of American Law 13 (3d ed. 2005). These “arbitrations” were deemed as “valid as the judgments of the Courts of Justice.” Id. (quoting E. Bronner, William Penn's “Holy Experiment” 36 (1962)). 232 J. Auerbach, Justice Without Law? 25 (1983). 233 Groendyk v. Winsmore, reprinted in, L. deValinger (ed.), Court Records of Kent County, Delaware, 1680-1705 4-5 (1959). 234 See supra pp. 33-35. http://www.kluwerarbitration.com/CommonUI/print.aspx
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235 Laws of the State of New York, 1802, Vol. 1, 1-23 (14th Sess.,
Ch. XX). 236 “And it is agreed, that if any Dispute should arise relating to the Loss on this Policy; it shall be referred to two indifferent Persons, one to be chosen by the Assured, the other by the Assurer, who shall have full Power to adjust the same; but in case they cannot agree, then such two persons shall choose a third; and any two of them agreeing, shall be obligatory to both parties.” 1793 Insurance Company of North American Insurance Policy, quoted in Wimm & Davis, Arbitration of Reinsurance Disputes: Is There a Better Way?, Dispute Res. J. (Oct. 2004). 237 Benson, An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J. L. Econ. & Org. 479, 488 (1995) (“[A]rbitration was being developed and expanded under the auspices of trade associations, mercantile exchanges, and other commercial organizations where nonlegal sanctions apparently were relatively strong.”); J. Auerbach, Justice Without Law ? 19-46 (1983). 238 See infra pp. 45-48. 239 Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 406 (2d Cir. 1959) (discussing American courts' hostility to arbitration); J. Cohen, Commercial Arbitration and the Law 226-252 (1918); Sayre, Development of Commercial Arbitration Law, 37 Yale L. J. 595, 595-597 (1927-1928); Home Ins. Co. v. Morse, 87 U.S. 445, 451 (U.S. S.Ct. 1874). 240 Tobey v. County of Bristol, 23 F.Cas. 1313, 1321-1322 (C.C.D. Mass. 1845). See also Prince Steam-Shipping Co. v. Lehman, 39 F. 704 (S.D.N.Y. 1889)(“Such agreements have repeatedly been held to be against public policy and void.”); Meacham, v. Jamestown, Franklin and Clearfield. R.R., 211 N.Y. 346, 354 (N.Y. 1914) (Cardozo, J., concurring) (“It is true that some judges have expressed the belief that parties ought to be free to contract about such matters as they please. In this state, the law has long been settled to the contrary.… The jurisdiction of our courts is established by law, and is not to be diminished, any more than it is to be increased, by the convention of the parties.”); Wood v. Humphrey, 114 Mass. 185 (1873) (“It has been long settled that agreements to arbitrate which entirely oust the courts of jurisdiction will not be supported either at law or in equity”); Hurst v. Litchfield, 39 N.Y. 377 (1868) (“Such stipulations [for arbitration] are regarded as against the policy of the common law as having a tendency to exclude the jurisdiction of the courts.”); W. Sturges, A Treatise on Commercial Arbitrations and Awards 45 (1930) (“It is an elementary proposition of the common law cases, and is almost universally accepted by the American courts, that future disputes clauses and provisions for arbitration are revocable.”). 241 Thomas W. Finucane Co. v. Bd. of Educ. of Rochester, 82 N.E. 737 (N.Y. 1907). 242 See, e.g., Aktieselskabet Korn-Og Foderstof Kompagniet v. Rederiaktiebolaget Atlanten, 250 F. 935, 937 (2d Cir. 1918) (breach of contract yields only “nominal damages” unless arbitral expenses have actually been incurred); Munson v. Straits of Dover S.S. Co., 99 F. 787, 789 (S.D.N.Y. 1900) aff'd, 100 F. 1005 (2d Cir. 1900) (“[N]o case is to be found in which … any other than nominal damages have ever been indicated to be recoverable, because too loose, indefinite and incapable of verification.”), Sayre, Development of Commercial Arbitration Law, 37 Yale L.J. 595, 604-05 (19271928); Restatement (First) Contracts §550 (1932) (“only nominal damages are recoverable for its breach”). See also Doleman & Sons http://www.kluwerarbitration.com/CommonUI/print.aspx
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v. Ossett Corp. [1912] 3 K.B. 257, 267-268 (English Court of Appeal) (“It will be evident, however, that the remedy in damages must be an ineffective remedy in cases where the arbitration had not been actually entered into, for it would seem difficult to prove any damages other than nominal.”); Tan, Damages for Breach of Forum Selection Clauses, Principled Remedies, and Control of International Civil Litigation, 40 Tex. Int'l L.J. 623 (2004-2005) (discussing conflicting authority on availability of damages for breach of forum clause); infra pp. 1045-1046. 243 See supra pp. 32-36. 244 See supra pp. 37-39. 245 J. Story, 1 Commentaries on Equity Jurisprudence as Administered in England and America §670 (13th ed. 1886). 246 J. Story, 2 Commentaries on Equity Jurisprudence as Administered in England and America §1457 (13th ed. 1886)(citing Kill v. Hollister, and its English progeny). See alsoParsons v. Ambos, 48 S.E. 696 (Ga. 1904) (“The mere executory agreement to submit is generally revocable. Otherwise, nothing would be easier than for the more astute party to oust the courts of jurisdiction. By first making the contract and then declaring who should construe it, the strong could oppress the weak, and in effect so nullify the law as to secure the enforcement of contracts usurious, immoral or contrary to public policy.”); The Hope, 35 U.S. 138 (U.S. S.Ct. 1836) (relying on doctrine of “ousting courts of jurisdiction” to hold that agreement to arbitrate did not bar civil litigation). This broad contention that arbitration agreements were unenforceable as contrary to public policy was reflected also in contemporaneous U.S. decisions regarding forum selection agreements. See G. Born & P. Rutledge, International Civil Litigation in United States Courts 1090-1091 & n.55 (4th ed. 2007). 247 Blodgett Co. v. Bebe Co., 214 P. 38 (Calif. S.Ct. 1923) (“Judges
and commentators have ascribed the origin of the rule to the jealousy of courts in the matter of their power and jurisdiction and have been somewhat inclined to criticize it on that ground. Another and better ground assigned for it is that citizens ought not to be permitted or encouraged to deprive themselves of the protection of the courts by referring to the arbitrament of private persons or tribunals, in no way qualified by training or experience to pass upon them, questions affecting their legal rights.”); Cocalis v. Nazlides, 139 N.E. 95, 96 (Ill. 1923); infra pp. 576-580. 248 See Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978, 982-86 (2d Cir. 1942), for a detailed (and influential) historical review of the enforceability of arbitration agreements at common law. See also S. Rep. No. 536, 68th Cong., 1st Sess. 2-3 (1924) (citing “[judges'] jealousy of their rights as courts, coupled with the fear that if arbitration agreements were to prevail and be enforced, the courts would be ousted of much of their jurisdiction”); Arbitration of Interstate Commercial Disputes: J. Hearings on S. 1005 and H.R. 646 Before the Subcomms. of the Comms. on the Judiciary, 68th Cong. 21 (1924). 249 See supra pp. 35-37. 250 Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 406 (2d Cir. 1959). 251 Benson, An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J. L. Econ. & Org. 479, 483 (1995). See also W. Wooldridge, Uncle http://www.kluwerarbitration.com/CommonUI/print.aspx
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Sam: The Monopoly Man (1970); Levy, The Transformation of Arbitration Law 1835-1870: The Lessening of Judicial Hostility Towards Private Dispute Resolution (unpublished 1993). 252 Benson, An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J.L. Econ. & Org. 479, 484-485 (1995) (New York Stock Exchange; Quakers; New York Chamber of Commerce); supra p. 39. 253 Burchell v. Marsh, 58 U.S. 344, 351-52 (U.S. S.Ct. 1854); Snodgrass v. Gavit, 28 Pa. 221 (1857) (dictum); Condon v. Southside R.R. Co., 14 Gratt. 320 (Va. 1858); Doolittle v. Malcom, 8 Leigh 608 (Va. 1837). See generally Benson, An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J.L. Econ. & Org. 479, 485-487 (1995) (discussing cases). From an early date, Pennsylvania decisions held that an agreement to arbitrate future disputes before a specifically-named arbitrator was not revocable (in contrast to an agreement to arbitrate before an as-yet-unidentified arbitrator). W. Sturges, A Treatise on Commercial Arbitrations and Awards 48-49 (1930). 254 Doolittle v. Malcom, 8 Leigh 608 (Va. 1837); Ebert v. Ebert, 5
Md. 353 (Md. 1854) (“every reasonable intendment is now made in favor of [arbitral] awards … and that all matters have been decided by them, unless the contrary shall appear on the face of the award.”). See alsoPresident etc. of Delaware & H. Canal Co. v. Pennsylvania Coal Co., 50 N.Y. 250 (N.Y. 1872) (“It appears to be well settled by authority that an agreement to refer all matters of difference or dispute that may arise to arbitration, will not oust a court of law or equity of jurisdiction. The reason of the rule is by some traced to the jealousy of the courts, and a desire to repress all attempts to encroach on the exclusiveness of their jurisdiction; and by others an aversion of the courts, from reasons of public policy, to sanction contracts by which the protection which the law affords the individual citizens is renounced. An agreement of this character induced by fraud, or overreaching, or entered into unadvisedly through ignorance, folly or undue pressure, might well be refused a specific performance, or disregarded … But when the parties stand upon an equal footing, and intelligently and deliberately, in making their executory contracts, provide for an amicable adjustment of any difference that may arise, either by arbitration, or otherwise, it is not easy to assign at this day any good reason why the contract should not stand, and the parties made to abide by it, and the judgment of the tribunal of their choice.”). 255 Condon v. Southside R.R. Co., 14 Gratt. 320 (Va. 1858). One may surmise that George Washington's attitude towards arbitration, expressed in his last will and testament, favorably influenced Virginian courts. See infra pp. 56-57. 256 22 U.S.C.A. §161 (West 1927) (duty of foreign service officers to encourage use of arbitration and to facilitate arbitral processes). 257 Benson, An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J. L. Econ. & Org. 479, 488 (1995) (“Arbitration was being developed and expanded under the auspices of trade associations, mercantile exchanges, and other commercial organizations where nonlegal sanctions apparently were relatively strong”). See also Bernstein, Opting Out of the Legal System: Extra Legal Contractual Relations in the Diamond Industry, 21 J. Legal Studies 115 (1992). http://www.kluwerarbitration.com/CommonUI/print.aspx
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258 United States Asphalt Ref. Co. v. Trinidad Lake Petroleum Co.,
222 F. 1006, 1008-1009, 1010-1011 (S.D.N.Y. 1915); Hamilton v. Liverpool & London & Globe Ins. Co., 136 U.S. 242-255 (U.S. S.Ct. 1890) (recognizing arbitration award determining damages, where court decided general question of liability); supra pp. 46-47. Compare A. Corbin, 6A Corbin on Contracts §1432-44B (1962) (addressing arbitration agreements under heading of “illegal bargains”). 259 To Validate Certain Agreements for Arbitration, H.R. Rep. No. 68-96, at 1 (1924); Chamber of the State of New York, Report of the Committee on Arbitration (1917); Sayre, Development of Commercial Arbitration Law, 37 Yale L.J. 595, 595 & n.2 (19271928). 260 See infra pp. 58-61; U.S. FAA, 9 U.S.C. §§1 et seq.; N.Y. Arbitration Law, Act of Apr. 19, 1920, ch. 275, 1920 N.Y. Laws 803807; Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 7-13 (1999). 261 Stone, Rustic Justice: Community and Coercion under the Federal Arbitration Act, 77 N.C. L. Rev. 931, 982-987 (1999); Berkovitz v. Arbib & Houlberg, 130 N.E. 288, 290-292 (N.Y. 1921) (upholding New York arbitration act). 262 See supra pp. 27-32. 263 W. Haeger, Schiedsgerichte für Rechtsstreitigkeiten der Handelswelt 2 (1910) (quoted in Berger, The New German Arbitration Law in International Perspective, 26 Forum Int'l 1, 1 (2000)). 264 A. Lindheim, Das Schiedsgericht im modernen Civilprocesse 17 (1891). 265 Begründung des Entwurfs einer Zivilprozessordnung, Deutscher Reichstag, II, Legislatur-Periode, I, session 1876, ad no. 6, p. 476 (quoted in Cohn, Commercial Arbitration and the Rules of Law: A Comparative Study, 4 U. Toronto L. J. 1, 16 (1942)). 266 See infra pp. 323-326. 267 W. Haeger, Schiedsgerichte für Rechtsstreitigkeiten der Handelswelt 21 (1910). 268 See W. Haeger, Schiedsgerichte für Rechtsstreitigkeiten der Handelswelt 24 (1910). 269 Weiss, Arbitration in Germany, 43 L. Q. Rev. 205, 206 (1927); but see Kahn, Arbitration in England and Germany, 12 J. Comp. Legis. & Int'l L. 58, 76-77 (1930) (suggesting that Weiss's view of German courts is too bleak); Nussbaum, Schiedsgerichtsschriftstellerei zwecks Störung internationaler Beziehungen 384, 2 Internationales Jahrbuch für Schiedsgerichtswesen (1928) (arguing that Weiss misrepresents German law). 270 Nussbaum, Schiedsgerichtswesen, 42 Zeitschrift für Zivilprozeßrecht 254, 259-260 (1912) referring to Judgment of 28 January 1908, RGZ 69, 52, 55 (German Reichsgericht). 271 Nussbaum, Schiedsgerichte und Rechtsordnung, 1926 JW 55; Legal Opinion dated 17 October 1925, 31 DJZ 500, 501 (Chairman of Reichskartellgericht) (1926) (emphasizing the state's duty to ensure that requirements of due process and impartiality of arbitrators will be observed during the arbitral process). 272 Raeke, Dienst am Recht, 65 Juristische Wochenschrift 3 (1935); Kuntze, Schiedsgericht oder Rechtsprechung durch die Gerichte des Staates, 1934 JW 649, 651; Blomeyer, Betrachtungen über die Schiedsgerichtsbarkeit, in Festgabe zum siebzigsten http://www.kluwerarbitration.com/CommonUI/print.aspx
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Geburtstag von Leo Rosenberg 59 (1949). 273 See Richtlinien des Reiches über Schiedsgerichte, 95 Deutsche Justiz 52, 821 (1933). 274 Kuntze, Schiedsgericht oder Rechtsprechung durch die Gerichte des Staates, 63 JW 649, 651 (1934). 275 Id. at 27-28; Cohn, Foreign Awards and Exchange Restrictions under German Law, 21 J. Comp. Legis. & Int'l L. 75, 76, 81-82 (1939). 276 Cohn, Commercial Arbitration and the Rules of Law: A Comparative Study, 4 U. Toronto L. J. 1, 27 (1941). 277 See supra pp. 37-39. 278 Judgment of 17 December 1936, Pas. 1936 I 457, 458 (Belgian Cour de cassation); R. David, Arbitration in International Trade 98 (1985); Keutgen & Huys, Chronique de Jurisprudence: L'arbitrage (1950 à 1975), 1976 Journal des Tribunaux 53, 54; G. Keutgen & G. Dal, L'arbitrage en droit belge et international ¶42 (2d ed. 2006). 279 A. van den Berg, R. van Delden, & H. Snijders, Netherlands Arbitration Law §1.1 (1993); Rovine, Lillich, Marks, & Spiegel, Iran/United States Claims Tribunal, 76 Am. Soc'y Int'l L. Proc. 1, 5 (1982) (remarks by Arthur Rovine) (noting that under 1838 Act, arbitral awards were enforced “unless there [was] a gross fraud or the decision [was] without reason”); Sanders, The Netherlands, VI Y.B. Comm. Arb. 60 (1981) (describing Dutch arbitral procedure under 1838 law). 280 van Bladel, Arbitration in the Building Industry in the Netherlands, 54 Disp. Res. J. 42, 43 (1999). See also Moglen, Commercial Arbitration in the Eighteenth Century: Searching for the Transformation of American Law, 93 Yale L.J. 135, 136-137 (19831984) (noting historical “Dutch fondness for extrajudicial settlement” as reflected in American colonies). 281 Aiken, New Netherlands Arbitration in the 17th Century, 29 Arb. J. 145, 146-49 (1974) (describing influence of Roman arbitration law on Dutch legal tradition). 282 R. David, Arbitration in International Trade 101-102 (1985). 283 For various anecdotal reports, see Miller, Avoiding Legal Judgment: The Submission of Disputes to Arbitration in Medieval Iceland, 28 Am. J. Legal Hist. 95 (1984) (arbitration as alternative to judicial system); Odiorne, The Aztecs and Arbitration, 7 Arb. J. 166, 167 (1952) (discussing merchant court system); Sullivan, The Brehon – Ireland's Ancient Arbitrator, 11 Arb. J. 32 (1956) (arbitrators with informal enforcement mechanisms). 284 S. Saleh, Commercial Arbitration in the Arab Middle East 15 et seq. (2d ed. 2006); El-Kosheri, Is There A Growing International Arbitration Culture in the Arab-Islamic Juridical Culture?, in A. van den Berg, International Dispute Resolution: Towards An International Arbitration Culture 47 (1998); Majeed, Good Faith and Due Process: Lessons from the Shari'ah, 20 Arb. Int'l 97, 104 (2004) (“Disputes in pre-Islamic Arabia were resolved under a process of arbitration (of sorts).… This was voluntary arbitration, an essentially private arrangement that depended on the goodwill of the parties.”). 285 S. Saleh, Commercial Arbitration in the Arab Middle East 18 (2d ed. 2006); A. El-Ahdab, Arbitration with the Arab Countries 1112 (2d ed. 1999); S. Amin, Commercial Arbitration in Islamic Law and Iranian Law (1984). 286 Id. at 12. 287 El-Kosheri, Is There A Growing International Arbitration Culture in the Arab-Islamic Juridical Culture?, in A. van den Berg, http://www.kluwerarbitration.com/CommonUI/print.aspx
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International Dispute Resolution: Towards An International Arbitration Culture 47 (1998). 288 A. El-Ahdab, Arbitration with the Arab Countries 12 (2d ed. 1999). 289 See S. Saleh, Arbitration in the Arab Middle East 18-19 (1984); A. El-Ahdab, Arbitration with the Arab Countries (2d ed. 1999) (describing contemporary arbitration practices in countries across the Arabic Middle East). 290 For example, where the Prophet Muhammad was asked to act as an arbitrator in a dispute between the two Arab tribes of Aws and Khazraj and three Jewish clans in Medina (then Yathrib). 291 For example the arbitration with the Bani Qurayzah, a Jewish tribe, in which both parties agreed to submit their dispute to arbitration. 292 Fry, Islamic Law and the Iran-United States Claims Tribunal: The Primacy of the International Law over Municipal Law, 18 Arb. Int'l 105 (2002). 293 This view is based on Verse 35 of the Surah of the Women: “If ye fear a breach Between them twain, Appoint (two) arbiters, One from his family, And the other from hers; If they wish for peace, Allah will cause Their reconciliation: For Allah hath full knoweldge, And is acquainted With all things.” A. El-Ahdab, Arbitration with the Arab Countries 14 (2d ed. 1999). 294 Al Qurashi, Arbitration under the Islamic Sharia, 1 Oil, Gas & Energy Law Int. (2003); Fathy, Arbitration According to Islamic Law (Sharia), 1 Arab Arb. J. 31 (2000). As discussed above, the institution of party-nominated arbitrators was an enduring feature of both state-to-state and commercial arbitration in Europe from Antiquity until the present. See supra pp. 17-20, 23-24, 36-37 & infra pp. 56-57, 1355-1356, 1387-1399. 295 A. El-Ahdab, Arbitration with the Arab Countries 14-16 (2d ed. 1999). 296 See, e.g., Raghavan, New Horizons for Alternative Dispute Resolution in India – The New Arbitration Law of 1996, 13(4) J. Int'l Arb. 5, 7 (1996) (describing influence of British law); Schaefer, Leaving the Colonial Arbitration Laws Behind: Southeast Asia's Move into the International Arbitration Arena, 16 Arb. Int'l 297, 298 (2000) (describing history of arbitration in Southeast Asia); Xu & Wilson, One Country, Two International Commercial ArbitrationSystems, 17(6) J. Int'l Arb. 47 (2000) (describing British influence on arbitration in Hong Kong). 297 D. Roebuck, A Miscellany of Disputes 21-26 (2000); Wang, The Unification of the Dispute Resolution System in China: Cultural, Economic, and Legal Contributions, 13 J. Int'l Arb. 5, 7-10 (1996); Cohen, Chinese Mediation on the Eve of Modernization, in D. Buxbaum (ed.), Traditional and Modern Legal Institutions in Asia and Africa (1967); Liu & Lourie, International Commercial Arbitration in China: History, New Developments and Current Practice, 28 J. Marshall L. Rev. 539, 540 (1995). Arbitration was also reportedly preferred due to the interdependent nature of Chinese society in which families resided in the same villages for generations. It is said that villagers would not risk alienating a neighbor by bringing a lawsuit, so amicable settlement of disputes was preferred. Id. 298 Wang, The Unification of the Dispute Resolution System in China: Cultural, Economic, and Legal Contributions, 13(2) J. Int'l Arb. 5, 8-9 (1996). 299 Raghavan, New Horizons for Alternative Dispute Resolution in http://www.kluwerarbitration.com/CommonUI/print.aspx
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India – The New Arbitration Law of 1996, 13(4) J. Int'l Arb. 5, 6 (1996). 300 Id. 301 D. Rautray, Master Guide to Arbitration in India ¶¶1-010 to 1020 (2008). 302 Butler & Finsen, Southern Africa, in E. Cotran & A. Amissah (eds.), Arbitration in Africa 193-95 (1996) (discussing impact of Roman-Dutch law and English arbitration practice in Southern Africa). But see Amoussou-Guenou, Former French Territories, in E. Cotran & A. Amissah (eds.), Arbitration in Africa 270 (1996) (noting that France did not extend the arbitration provisions of the French Code to its African colonies). 303 Goodman-Everard, Book Review – Arbitration in Africa, 14 Arb. Int'l 457, 458 (1998). 304 Liundi, Introduction: Status of Tanzania and Zanzibar and Applicable Laws, in E. Cotran & A. Amissah (eds.), Arbitration in Africa 78-79 (1996). 305 Liundi, Introduction: Status of Tanzania and Zanzibar and Applicable Laws, in E. Cotran & A. Amissah (eds.), Arbitration in Africa 78-79 (1996). 306 J. Kleinheisterkamp, International Commercial Arbitration in Latin America 5 (2005); Blackaby, Lindsey & Spinillo, in N. Blackaby, D. Lindsey & A. Spinillo, International Arbitration in Latin America, Overview of Regional Developments 3-10 (2002); C. Leathley, International Dispute Resolution in Latin America: An Institutional Overview (2006). 307 J. Kleinheisterkamp, International Commercial Arbitration in Latin America 5 (2005). 308 Balli & Coale, Recent Reforms to Mexican Arbitration Law: Is Constitutionality Achievable?, 30 Tex. Int'l L.J. 535, 539-540 (1995); von Wobeser, in N. Blackaby, D. Lindsey & A. Spinillo, International Arbitration in Latin America, Mexico 155, 159, 162 (2002). 309 J. Kleinheisterkamp, International Commercial Arbitration in Latin America 9 (2005); Jorquiera & Helmlinger, in N. Blackaby, D. Lindsey & A. Spinillo, International Arbitration in Latin America, Chile 90-91 (2002). 310 Falcão, Recognition and Enforcement of Foreign Arbitral Awards: A New Chapter in Brazilian Arbitration History, 8 Am. Rev. Int'l Arb. 367, 369 (1997). 311 J. Kleinheisterkamp, International Commercial Arbitration in Latin America 8 (2005); Jorquiera & Helmlinger, in Lee, in N. Blackaby, D. Lindsey & A. Spinillo, International Arbitration in Latin America, Brazil 62-66 (2002). 312 J. Kleinheisterkamp, International Commercial Arbitration in Latin America 114-115 (2005); Lee, in N. Blackaby, D. Lindsey & A. Spinillo, International Arbitration in Latin America, Brazil 62-63, 69 (2002). 313 Falcão, Recognition and Enforcement of Foreign Arbitral Awards: A New Chapter in Brazilian Arbitration History, 8 Am. Rev. Int'l Arb. 367, 369 (1997); Volz & Haydock, Foreign Arbitral Awards: Enforcing the Award Against the Recalcitrant Loser, 21 Wm. Mitchell L. Rev. 867, 874-877 & nn.29, 47 (1996). 314 H.-W. Greminger, Die Genfer Abkommen von 1923 und 1927 über die internationale private Schiedsgerichtsbarkeit 1-3 (1957). 315 Grigera Naón, Arbitration and Latin America: Progress and Setbacks, 21 Arb. Int'l 127, 141 (2005). http://www.kluwerarbitration.com/CommonUI/print.aspx
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316 See, e.g., Lew, The Recognition and Enforcement of Arbitration
Agreements and Awards in the Middle East, 1 Arb. Int'l 161 (1985) (“the law in many Middle Eastern countries has given rise to uncertainty and insecurity with respect to the effectiveness of the arbitration agreement and award.”). 317 See infra pp. 99-100, 146-147. 318 See supra pp. 15-20. 319 See supra pp. 30, 41 & infra pp. 82-84. 320 See supra pp. 27, 41 & infra pp. 88-89. 321 See supra pp. 17-20. 322 See supra pp. 24-25, 36-37, 43-44. 323 J. Fitzpatrick (ed.), 37 The Writings of George Washington 275, 294 (1940). 324 Institute of International Law, Projet de règlement pour la procédure arbitrale internationale (Session de La Haye 1875), Art. 2, available at www.idi-iil.org. 325 Michel v. Am. Century Ins. Co., 44 N.Y.S. 832, 832-33 (N.Y. App. Div. 1897); Terry v. Moore, 22 N.Y.S. 785, 786-87 (Ct. Com. Pl. 1893). But see Smith v. Alker, 5 N.E. 791, 791-92 (N.Y. 1886) (disputes to be submitted to two arbitrators). See supra p. 43. 326 See authorities cited supra p. 43 nn. 232-233 & 236. 327 See, e.g., Union Ins. Co. of Philadelphia v. Central Trust Co. of New York, 157 N.Y. 633, 634-635 (N.Y. 1899) (arbitrator);Michel v. Am. Century Ins. Co., 44 N.Y.S. 832, 832 (N.Y. App. Div. 1897) (umpire); Day v. Hammond, 57 N.Y. 479, 484 (N.Y. 1874) (discussing distinctions between umpires and “third arbitrators,” although observing that “[t]he cases sometimes refer indiscriminately to these two classes of persons”). In some cases, the parties agreed to the appointment of a third arbitrator or umpire only where the first two arbitrators disagreed or where certain conditions were not met. But even in these cases, a rehearing with the full participation of the third arbitrator or umpire was often required. See Hammond, 57 N.Y. at 484-488 (N.Y. 1874); In re Grening, 26 N.Y.S. 117, 118 (N.Y. Gen. Term 1893). 328 See supra pp. 32-35, 44-47. 329 Treaty concerning the Union of South American States in Respect of Procedural Law, signed at Montevideo, 11 January 1889. Only six states ratified the Montevideo Convention. The subsequent Bustamante Code of 1928, approved in 1928 by the Inter-American conference, also attracted few ratifications. 330 See supra p. 15; Convention for the Pacific Settlement of International Disputes (First Hague Conference, 1899), Art. 24, available at www.pca-cpa.org; Convention for the Pacific Settlement of International Disputes (Second Hague Conference, 1907), Arts. 45, 54, available at www.pca-cpa.org. See S. Rosenne (ed.), The Hague Peace Conference of 1899 and 1907 and International Arbitration: Reports and Documents (2001). 331 I. Macneil, American Arbitration Law: Reformation, Nationalization, Internationalization 25-26 (1992); Drahozal, In Defense of Southland: Reexamining the Legislative History of the Federal Arbitration Act, 78 Notre Dame L. Rev. 101, 125-126 (2002); Stempel, A Better Approach to Arbitrability, 65 Tulane L. Rev. 1377, 1380 (1990-1991); Benson, An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J.L. Econ. & Org. 479, 491-494 (1995) (emphasizing the role of lobbying from the legal profession). See also Arbitration of http://www.kluwerarbitration.com/CommonUI/print.aspx
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Interstate Commercial Disputes: J. Hearings on S. 1005 and H.R. 646 Before the Subcomms. of the Comms. on the Judiciary, 68th Cong. 21-24 (1924) (listing 67 business organizations supporting proposed Act and letters of endorsem*nt from various groups); id. at 10 (statement of American Bar Association representative W.H.H. Piatt). 332 See authorities cited supra p. 48 n. 259. 333 Shalakany, Arbitration and the Third World: A Plea for Reassessing Bias under the Specter of Neoliberalism, 41 Harv. Int'l L.J. 419, 430 (2000). 334 H.-W. Greminger, Die Genfer Abkommen von 1923 und 1927 über die internationale private Schiedsgerichtsbarkeit 1-3 (1957); A. van den Berg, The New York Arbitration Convention of 1958 6-7, 113-118 (1981); Lorenzen, Commercial Arbitration – International and Interstate Aspects, 43 Yale L.J. 716, 750 (1933-1934); Nussbaum, Treaties on Commercial Arbitration – A Test of International Private-Law Legislation, 56 Harv. L. Rev. 219, 220-222 (1942-1943). The ICC's role in negotiating the Geneva Protocol was later taken over by the League of Nations. For a review and interpretation of the Protocol and the Conventions see Mezger, Zur Auslegung und Bewertung der Genfer Schiedsabkommen von 1923 und 1927, 24 Zeitschrift für ausländisches und internationales Privatrecht 222 (1959). 335 27 L.N.T.S. 158 (1924). The Geneva Protocol on Arbitration Clauses in Commercial Matters was signed on 24 September 1923 at a meeting of the Assembly of the League of Nations. 336 Contrary suggestions are inaccurate. E.g., H. Gharavi, The International Effectiveness of the Annulment of An Arbitral Award 46 (2002) (“The Protocol was not a major contribution to the development of the law of arbitration”). On the contrary, the Protocol's internationally-binding requirement of recognition of the validity of arbitration agreements, and the formulae used in implementing that requirement, had a profound and decisive effect on the future of international arbitration law and on the language of the New York Convention, the UNCITRAL Model Law and other leading legislation and international instruments in the field. See infra pp. 92-101, 115-121. 337 Geneva Protocol, Arts. III, IV, 27 L.N.T.S. 158 (1924). See infra pp. 58-61, 202-207, 565-574. The Protocol was limited to arbitration agreements “between parties subject respectively to the jurisdiction of different contracting states.” Id. at Art. I. See infra p. 277. 338 Geneva Protocol, Art. II; infra pp. 1749-1751. 339 Geneva Protocol, Art. I. The Convention also permitted Contracting States to limit its scope to “contracts which are considered as commercial under its national law.” Id. at Art. I. 340 Geneva Protocol, Art. IV. 341 See infra p. 303. 342 See infra pp. 1014-1020, 1025-1033. 343 See infra pp. 258-276, 766 et seq. (especially 773-774). 344 See infra pp. 94, 96, 117, 123, 135, 487. 345 See infra pp. 92-101 (New York Convention), 102-103 (European Convention) & 115-121 (UNCITRAL Model Law). 346 See supra pp. 27-57 & infra pp. 206-207. 347 See supra pp. 58-61; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶242 (1999); A. Redfern & M. Hunter (eds.), Law and Practice of http://www.kluwerarbitration.com/CommonUI/print.aspx
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International Commercial Arbitration ¶10-21 (4th ed. 2004). 348 Geneva Protocol, Art. III. See infra pp. 2711-2712. 349 See infra pp. 61-63, 2711-2712, 2717-2720. 350 Geneva Convention on the Execution of Foreign Arbitral Awards, (“Geneva Convention”), 92 L.N.T.S. 302 (1929). See H.-W. Greminger, Die Genfer Abkommen von 1923 und 1927 über die internationale private Schiedsgerichtsbarkeit 3-5 (1957); A. van den Berg, The New York Arbitration Convention of 1958 6-7, 113-118 (1981); Mezger, Zur Auslegung und Bewertung der Genfer Schiedsabkommen von 1923 und 1927, 24 Zeitschrift für ausländisches und internationales Privatrecht 222 (1959). 351 Geneva Convention, Arts. I, II, III, IV. 352 Geneva Convention, Art. I(a). 353 Geneva Convention, Art. I(b). 354 Geneva Convention, Art. I(c). 355 Geneva Convention, Art. I(d). 356 Geneva Convention, Art. I(e). 357 See infra pp. 96-97, 2428-2429, 2720, 2815-2824; A. van den Berg, The New York Arbitration Convention of 1958 7 (1981). 358 See infra pp. 1254-1258, 2815-2824. 359 See infra pp. 94-98, 202-207, 565-580. 360 See infra pp. 2711-2725. 361 See infra pp. 1014-1020, 1025-1033, 2152-2163. 362 See infra pp. 2152-2163. 363 See infra pp. 1748-1758. 364 See supra pp. 48-49; N.Y. Arbitration Law, Act of Apr. 19, 1920, ch. 275, 1920 N.Y. Laws 803-807 (providing for validity of arbitration agreements). 365 French Commercial Code, 1925, Art. 631. See also von Mehren, International Commercial Arbitration: The Contribution of the French Jurisprudence, 46 La. L. Rev. 1045, 1049-51 (19851986) (discussing impact of 1925 amendment). 366 See Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 13 (1999); supra pp. 36-37. 367 See supra pp. 48-49 & infra pp. 132-144. 368 U.S. FAA, 9 U.S.C. §2. For detailed discussion of §2, see infra pp. 206-207, 571-572. Section 2 was implemented by §§3 and 4 of the FAA, providing for the stay of litigation of matters subject to arbitration and for orders compelling arbitration. See infra pp. 10141016, 1025-1027. 369 U.S. FAA, 9 U.S.C. §§9-10. For discussion of §§9, 10, see infra pp. 2564-2565. 370 See supra pp. 48-49, 58-61 & infra pp. 134-136. 371 Marine Transit Corp. v. Dreyfus, 284 U.S. 263 (U.S. S.Ct. 1932) (upholding FAA against constitutional attack); infra pp. 138-139. 372 See infra pp. 92-101. 373 See infra pp. 151-153. 374 See infra pp. 115-121. 375 See infra pp. 109-111. 376 This includes periodic amendments of the arbitration rules of the ICC, AAA/ICDR, LCIA, ICSID and other institutions. See infra pp. 153-154. 377 See R. Dolzer & M. Stevens, Bilateral Investment Treaties 267http://www.kluwerarbitration.com/CommonUI/print.aspx
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326 (1995); C. McLachlan, L. Shore & M. Weiniger, International Investment Arbitration ¶¶1.01-1.16 (2007); UNCTAD, IIA Monitor No. 3 (2006), The Entry into Force of Bilateral Investment Treaties (UNCTAD/WEB/ITE/IIA/2006/9), available at www.unctad.org. 378 See supra pp. 21-24, 26, 28-29, 31-32 & 39-41. 379 See supra pp. 15-20, 23-25, 32, 41-43. 380 See infra pp. 64-90.
Overview of International Commercial Arbitration - B. Objectives of International Commercial Arbitration Chapter 1 Gary B. Born
Author Gary B. Born
B. Objectives of International Commercial Arbitration In contemporary legal systems, international commercial arbitration is a means by which international business disputes can be definitively resolved, pursuant to the page "64" parties' agreement, by independent, non-governmental decision-makers, selected by or for the parties, applying neutral judicial procedures that provide the parties an opportunity to be heard. (381) As discussed below, there are almost as many other definitions of international arbitration as there are commentators on the subject. (382)
Before considering these definitions in greater detail, it is useful to examine the objectives that commercial parties generally have in entering into international arbitration agreements. These objectives are essential to interpreting, and giving appropriate effect to, such agreements and the arbitral awards they produce, as well as the legislative frameworks in which international arbitrations occur.
Source Overview of International Commercial Arbitration - B. Objectives of International Commercial Arbitration in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 64 - 90
1. Contractual Forum Selection in International Transactions Preliminarily, it is important to appreciate the business and legal context in which contemporary international arbitration agreements are made. In today's global economy, business enterprises of every description can find themselves parties to contracts with foreign companies (and states) from around the world, as well as parties to litigation before courts in equally distant locales. The consequences of these proceedings – and of losing them – are often enormous. (383) A contract means no more than what it is interpreted to say, and corrupt, incompetent, or arbitrary decisions can rewrite a party's agreements or impose staggering liabilities and responsibilities. Almost every international commercial controversy poses a critical preliminary question – “Where, and by whom, will this dispute be http://www.kluwerarbitration.com/CommonUI/print.aspx
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decided?” The answer to this question often decisively affects a dispute's eventual outcome. There are many reasons why the same dispute can have materially different outcomes in different forums. Procedural, choice-of-law and substantive legal rules differ from one country to another. (384) Other considerations, such as inconvenience, local bias and language, may make a particular forum much more favorable for one party than another. (385) More pointedly, the competence and integrity of judicial page "65" officers also vary substantially among different forums; annual corruption indices and other studies leave little doubt as to the uneven levels of integrity in some national judiciaries. (386) Those indices are, regrettably, confirmed by contemporary anecdotal experience as to the corruption endemic in civil litigation in some jurisdictions. Precisely because national legal systems differ profoundly, parties inevitably seek to ensure that, if international disputes arise, those disputes are resolved in the forum that is most favorable to their interests. In turn, that can mean protracted litigation over jurisdiction, forum selection and recognition of foreign judgments. (387) These disputes can result in lengthy and complex litigation – often in parallel or multiple proceedings – which produce more in legal costs and uncertainty than anything else. (388) In this regard, contemporary international litigation bears unfortunate, but close, resemblances to the difficulties reported by Medieval commentators regarding transnational litigation in earlier eras. (389) Because of the importance of forum selection in the international context, parties to cross-border commercial transactions very often include dispute resolution provisions in their agreements, selecting a contractual forum in which to resolve their differences. (390) By selecting a forum in advance, parties are able to mitigate these costs and uncertainties of international dispute resolution, through the centralization of their disputes in a single, reliable forum. (391) page "66" As discussed below, contractual dispute resolution provisions typically take one of two basic forms: (a) forum selection clauses, or (b) arbitration agreements. (392) In some cases, other forms of dispute resolution mechanisms, such as negotiation, conciliation or mediation, are combined with a forum selection or arbitration agreement. (393) a. International Forum Selection Agreements A forum selection clause is an agreement which either permits or requires its parties to pursue their claims against one another in a designated national court. (394) Forum selection agreements can be either “exclusive” (i.e., requiring that all litigation between the parties be resolved solely in their contractual forum, and nowhere else) or “non-exclusive” (i.e., permitting litigation between the parties in their contractual forum, but not prohibiting substantive claims from being brought in other national courts which possess jurisdiction). (395) Once enforced, a forum selection clause will result in litigation in the selected national court, and will produce (unless settled) a national court judgment. http://www.kluwerarbitration.com/CommonUI/print.aspx
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b. International Arbitration Agreements An international arbitration agreement is similar in some respects to a forum selection clause, in that it provides a contractual choice of a dispute resolution page "67" forum. (396) Nonetheless, there are fundamental and vitally important differences between such provisions, in both practical and legal terms. (397) As already noted, international arbitration is a means for definitively resolving a dispute, pursuant to the parties' voluntary agreement, through the decision of a non-governmental decision-maker selected by or for the parties (an “arbitrator”), who applies neutral, adjudicative procedures. The various elements of this definition of international commercial arbitration, and its differences from a forum selection clause, are discussed in detail below. (398) Arbitration (and forum selection) agreements can be entered into either before or after a dispute arises. (399) In practice, almost all international commercial arbitrations occur pursuant to arbitration clauses contained within underlying business contracts. (400) These clauses typically provide for the arbitration of future disputes relating to the contract in accordance with a specified set of procedural rules (often promulgated by an arbitral institution). (401) 2. Increasing Use of International Commercial Arbitration Dispute resolution mechanisms must fulfill difficult, often thankless, tasks, particularly in international disputes: parties who are often bent upon (mis-)using every available procedural and other opportunity to disadvantage one another simultaneously demand rapid, expert and objective results at minimal cost. Despite these generally unrealistic expectations, arbitration has for centuries been perceived as the most effective – if by no means flawless – means for resolving international commercial disputes. (402) That perception has not diminished, but rather has been strengthened, during the past several decades. In the words of one distinguished academic: arbitration is “‘the’ ordinary and normal method of settling disputes of international trade.” (403) The enduring popularity of international arbitration as a means of dispute resolution is reflected by a number of developments. These include steadily page "68" increasing case-loads at leading arbitral institutions, with the number of reported cases increasing between three and five-fold in the past 25 years. Among other things, the International Chamber of Commerce's International Court of Arbitration received requests for 32 new arbitrations in 1956, 210 arbitrations in 1976, 337 arbitrations in 1992, 452 arbitrations in 1997, 529 arbitrations in 1999 and 599 arbitrations in 2007 – a roughly 20-fold increase over the past 50 years. (404) Similarly, in 1980, the American Arbitration Association administered approximately 100 international arbitrations; in 1993, 207 such arbitrations; in 2000, 510 international arbitrations; and in 2007, 621 international arbitrations. (405) Other institutions show similar growth in case loads, (406) as illustrated in the following statistics, which show the number of cases filed with each of the
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listed arbitral institutions between 1993-2007 (407) :
AAA BCICAC CIETAC HKIAC ICC JCAA KCAB KLRCA LCIA SIAC SCC TOTAL
1993 207 52 486 139 352 3 28 3 29 15 78 1392
1994 187 54 829 150 384 4 33 8 39 22 74 1784
1995 180 40 902 184 427 7 18 12 49 37 70 1926
1996 226 57 778 197 433 8 36 6 37 25 75 1878
1997 320 41 723 218 452 13 51 8 52 43 82 2003
1998 387 49 645 240 466 14 59 7 70 67 92 2096
1999 453 60 609 257 529 12 40 10 56 67 104 2197
2000 510 88 543 298 541 10 40 11 81 41 73 2236
2001 649 88 731 307 566 17 65 1 71 44 74 2613
2002 672 71 684 320 593 9 47 2 88 38 55 2579
2003 646 76 709 287 580 14 38 4 104 35 82 2575
2004 614 84 850 280 561 21 46 3 87 48 50 2644
2005 580 77 979 281 521 11 53 6 118 45 56 2727
2006 586 76 981 394 593 11 47 1 133 65 141 3028
2007 621 82 1118 448 599 15 59 2 137 70 84 3235 page "69"
The same increasing preference for, and use of, international commercial arbitration is reflected in surveys of users (408) and in empirical studies of the use of arbitration clauses in international commercial agreements. (409) Anecdotal observations are even more robust in their assessments of the growing popularity of international arbitration (in some cases, unrealistically enthusiastic). (410) Likewise, a sizeable, specialized international arbitration bar has developed, consisting of international practitioners in the world's leading commercial centers, whose professional activities are directed almost exclusively towards international commercial arbitration (or other forms of international arbitration, including investor-state and state-to-state arbitrations). (411) And finally, the use of arbitration as a means of resolving new (previously “unarbitrated”) categories of disputes, (412) including class actions, (413) bilateral investment treaty claims (414) and human rights claims, (415) attests to its enduring and increasing popularity. page "70" These various sources leave no doubt as to the robust growth in the use of international commercial arbitration in the past several decades. At the same time, it is an over-simplification to say that international arbitration is the “dominant” form of dispute resolution in international matters. The number of disputes that are settled by negotiation dwarfs those that are litigated or arbitrated. Moreover, litigation in national courts continues to be a plausible means of dispute resolution in many cases. Parties frequently consider the relative advantages and disadvantages of international arbitration and forum selection agreements, not infrequently opting for the latter if their negotiating power permits. (416) Arbitration enthusiasts sometimes make exaggerated claims concerning the prevalence of international arbitration clauses – suggesting that some 90% of all international commercial contracts http://www.kluwerarbitration.com/CommonUI/print.aspx
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contain such provisions. (417) This figure lacks empirical support and is almost certainly substantially inflated: in reality, significant numbers of international commercial transactions – certainly much more than 10% of all contracts – contain either forum selection clauses or no dispute resolution provision at all. It is probably true that, in negotiated commercial (not financial) transactions, where parties devote attention to the issue of dispute resolution, and where the parties possess comparable bargaining power, arbitration clauses are more likely than not to be encountered. This remains a highly impressive endorsem*nt of arbitration, and permits one to fairly say that international arbitration is the preferred means for contractual dispute resolution, but more ambitious statistical claims are unsustainable. 3. Objectives of International Arbitration Agreements There are a number of reasons why arbitration is the preferred means of resolving international commercial disputes. Put simply, and as explained in greater detail below, businesses perceive international arbitration as providing a neutral, speedy and expert dispute resolution process, largely subject to the parties' control, in a single, centralized forum, with internationally-enforceable dispute resolution agreements and decisions. While far from perfect, international arbitration is, rightly, regarded as generally suffering fewer ills than litigation of international disputes in national courts and as offering more workable opportunities for remedying or avoiding those ills which do exist. page "71" a. Neutrality of the Dispute Resolution Forum One of the central objectives of international arbitration agreements is to provide a neutral forum for dispute resolution, detached from either the parties or their respective home state governments. This objective of neutrality is cited by contemporary users of international arbitration (418) and by commentators, (419) and is reflected in the history of state-to-state, investor-state and commercial arbitration. (420)
Not surprisingly, parties often begin to negotiate dispute resolution mechanisms with the objective of ensuring that disputes are resolved in the most favorable forum – from their own individual perspective – rather than a neutral one. (421) In many cases, choosing the most favorable forum for a party means choosing the local courts in that party's principal place of business. These courts will be convenient and familiar to the home-town party, and to its regular outside counsel; they will also probably be somewhat inconvenient and unfamiliar to the counter-party. Where local courts are subject to political, media, popular, or other pressures, the attractions of a home court judicial forum may be sharpened. (422) The characteristics that make one party's local courts attractive to it will often make them unacceptable to counter-parties. (423) If nothing else, an instinctive mistrust page "72" of the potential for home-court bias usually prompts parties to refuse to agree to litigate in their counter-party's local courts. As a consequence, outside of lending and similar transactions, (424) it is very often impossible for either party to obtain agreement to dispute resolution in its local courts. http://www.kluwerarbitration.com/CommonUI/print.aspx
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In these circ*mstances, the almost universal reaction for business men and women is to seek agreement on a suitable neutral forum – a forum for dispute resolution that does not favor either party, but that will afford each the opportunity to fairly present its case to an objective tribunal. The result, in most instances, will be an agreement to arbitrate (or, less frequently, litigate) in a neutral forum, pursuant to neutral procedures. (425) That means, for example, that a French and a Mexican company will agree to arbitrate their disputes in Miami, Spain, or England, while a U.S. and a Japanese or German company will agree to dispute resolution in Switzerland, England, or Singapore. Put simply, a party typically does not agree to arbitrate because arbitration is the most favorable possible forum, but because it is the least unfavorable forum that the party can obtain in arms' length negotiations. An essential aspect of the neutrality of international arbitration is the composition of the arbitral tribunal. (426) International arbitration permits the parties to play a substantial role in selecting the members of the tribunal, including the right to choose a sole or presiding arbitrator whose nationality is almost always different from that of the parties involved (thus reducing the risks of partiality or parochial prejudice). (427) The consequence, ordinarily, is the constitution of a genuinely-international tribunal – in line with the parties' basic objectives in entering into international arbitration agreements. Another essential feature of the neutrality of international arbitration is the use of internationally-neutral procedures and rules. (428) National courts apply local page "73" procedural rules, which are often designed for particular judicial frameworks (e.g., a U.S. jury trial or a civil law system that does not provide for witness testimony, discovery, or cross-examination) and which therefore are usually unfamiliar to, and often ill-suited for, parties from different legal traditions. (429) In contrast, international arbitration seeks to avoid the application of domestic litigation rules and instead to apply internationally-neutral procedures tailored to the parties' expectations and dispute. (430) b. Centralized Dispute Resolution Forum Another one of the basic objectives, and enduring attractions, of international arbitration is its ability to avoid the endemic jurisdictional and choice-of-law difficulties attending international litigation. This has long been a perceived advantage of the arbitral process, and was identified as such even in Medieval times. (431) As already discussed above, “[t]he reason [for arbitration] 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 perhaps either of the parties.…” (432) This attraction is, if anything, even more important today. International transactions inevitably involve parties from, and conduct in, two or more states. Under contemporary jurisdictional principles, (433) this means that disputes arising page "74" from such transactions may potentially be resolved in different national courts. Inevitably, parties will seek to litigate in the forum (or forums) which each considers most favorable to its respective individual http://www.kluwerarbitration.com/CommonUI/print.aspx
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interests. In turn, that results in recurrent, protracted disputes in and between national courts over jurisdiction, forum selection, choice of law, evidence and recognition of foreign judgments. (434) One of the central objectives of international arbitration agreements is avoiding multiplicitous litigation in different national courts, as well as protracted jurisdictional disputes, inconsistent decisions and enforcement uncertainties. Instead, international arbitration offers the promise of a single, centralized dispute resolution mechanism in one contractual forum. (435) As the U.S. Supreme Court has put it: “Much uncertainty and possibly great inconvenience to both parties could arise if a suit could be maintained in any jurisdiction [where personal jurisdiction could be established]. The elimination of all such uncertainties by agreeing in advance on a forum acceptable to both parties is an indispensable element in international trade, commerce and contracting.” (436) Other authorities, (437) as well as empirical findings, (438) are to the same effect. It bears emphasis that neutral, centralized dispute resolution is not merely desirable for its own sake, but as a vital precondition to international trade and page "75" investment. That is, the uncertainties, risks and costs of resolving international commercial disputes are such that, unless they can be managed, legitimate businesses will not engage in transnational enterprises. Indeed, it was precisely to promote international commerce that developed states established and have sought to perfect today's legal regime for international commercial arbitration. (439) c. Enforceable Agreements and Awards Another vital objective, and attraction, of international arbitration is to provide relatively enforceable agreements and awards. Unless the parties' dispute resolution agreement – selecting a neutral, competent and central forum – can be enforced, it is of little value. The same is true with regard to the decisions eventually rendered in the contractual forum: unless they can be given effect, in places where the parties do business, they are of limited value. One of the most basic objectives of contemporary legal regimes for international arbitration is to provide for the enforceability of arbitration agreements and arbitral awards. (440) In particular, international arbitration aspires to produce more enforceable, final results than may be achieved by forum selection agreements. That aspiration has been largely realized. As discussed below, international arbitration agreements are more readily, more expeditiously enforced and more broadly interpreted, in most national courts, than forum selection clauses. (441) This is consistently cited by users as one of the most significant benefits of the arbitral process, (442) and is confirmed by anecdotal evidence from a wide range of sources. (443) The comparative enforceability of arbitration agreements is in large part because of the New York Convention, to which more than 135 countries are party, and because of the existence of national page "76" arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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legislation (increasingly based on the UNCITRAL Model Law), both of which facilitate the enforceability of international arbitration agreements. (444) In contrast, there are only a few regional arrangements which seek to establish effective international enforcement regimes for forum selection clauses. The most notable is Council Regulation No. 44/2001 in the European Union (“EU”), which replaced the Brussels Convention. (445) Among other things, Regulation 44/2001 provides for the enforceability of forum selection agreements designating an EU Member State's courts, subject to only limited exceptions. (446) There are also a few industry-specific arrangements providing enforcement mechanisms for international forum selection clauses (such as treaties governing carriage of goods by sea). (447) In general, however, international forum selection agreements do not benefit from anything comparable to the New York Convention. Additionally, many states impose limitations on the enforceability of forum selection clauses, such as requiring a “reasonable relationship” between the parties' contract and the forum or considering forum non conveniens objections to the parties' contractual forum. (448) Similarly, “public policy” or “mandatory law” limitations on forum selection mechanisms are usually less significant obstacles to enforcing arbitration agreements than forum selection clauses. (449) For these reasons, international arbitration agreements are often substantially more enforceable than forum selection clauses. (450) page "77" Like agreements to arbitrate, international arbitral awards enjoy the protection of the New York Convention, as well as favorable arbitration legislation in many countries. (451) As discussed below, these instruments provide a “pro-enforcement” regime, with expedited recognition procedures and only limited grounds for denying recognition to an arbitral award. (452) Particularly in developed trading states, there is substantial, successful experience with the enforcement of international arbitral awards. (453) In contrast, there are only a few regional arrangements for the enforcement of foreign judgments (in particular, Council Regulation 44/2001 in Europe (454) ), and there is no global counterpart to the New York Convention for foreign judgments. (455) Some major trading states, including the United States, are party to no bilateral or multilateral agreement on the enforceability of foreign judgments. (456) In the absence of international treaties, the recognition of foreign judgments in many nations is subject to local law, which often makes it difficult or impossible to obtain effective enforcement. As a consequence, there is generally a significantly greater likelihood that an international arbitral award will be enforced abroad, and actually put the parties' dispute to rest, than will a national court judgment. (457) Together with the comparatively greater enforceability of arbitration agreements, the more reliable enforceability of arbitral awards is another one of the basic objectives, and attractions, of international arbitration. d. Commercial Competence and Expertise of Tribunal
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Another essential objective of international arbitration is providing a maximally competent, expert dispute resolution process. (458) It is a harsh, but undeniable, fact that some national courts are distressingly inappropriate choices for resolving international commercial disputes. In some states, local courts have little experience or training in resolving international transactions or disputes and can face serious page "78" difficulties in fully apprehending the business context and terms of the parties' dispute. (459)
Even more troubling, in some states, basic standards of judicial integrity and independence are lacking. The simple reality is that corruption, nepotism and personal favoritism are rife in at least some national legal systems. (460) Particularly in cases against local litigants or state entities, the notion of a fair, objective proceeding, much less an expert proceeding, can be chimerical. The grim reality is that you get what you pay for in some national courts – which is a wholly unacceptable and untenable position for legitimate businesses. (461) Of course, some national judiciaries include very talented judges with considerable experience in resolving international disputes. The courts of New York, England, Switzerland, Japan, Singapore and a few other jurisdictions are able to resolve complex transnational disputes with a fairly high degree of reliability. Additionally, with English increasingly serving as the language of international commerce, translations may not be necessary in English, U.S., Singaporean and some other courts. Nevertheless, even in these jurisdictions, local idiosyncrasies can interfere with the objectives of competence and objectivity in resolving commercial disputes. (462) Moreover, it is fundamental in most national legal traditions that judges are selected randomly for assignment to particular cases, regardless of their experience or aptitude in the underlying matter. (463) Judges are ordinarily generalists, often page "79" without any specialization in complex commercial matters, much less a particular type of transaction (M&A, joint venture) or industry (oil and gas, insurance). These considerations inevitably affect the efficiency, and sometimes the quality, of the dispute resolution process. As discussed above, arbitration was historically favored by commercial (and other) users because it offered a more expert, experienced means of resolving commercial disputes. (464) This continues to be the case today. Both empirical studies (465) and anecdotal commentary (466) emphasize the importance of the tribunal's commercial expertise and experience in parties' decisions to make use of international arbitration. In the brutal assessment of one anonymous respondent to a survey of international arbitration users: “for a French party, the big advantage is that international commercial arbitration offers ‘de luxe justice’ … instead of having a $600 million dispute before the Commercial Court in Paris, where each party has only one hour for pleadings and where you can't present witnesses and have no discovery; for a dispute of that importance it may well be worth the costs to get a type of justice that is more international and more ‘luxurious’; what you get is page "80" http://www.kluwerarbitration.com/CommonUI/print.aspx
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more extensive and thorough examination of witness testimony – without the excesses of American court procedure.” (467) This is not only a perception of businesses, but also of some national courts. In the words of the former President of the French Cour de cassation, explaining why he regarded arbitration as desirable: “first, what you do we don't have to do; … second, in many fields you are more professional than we are.” (468) The parties' desire for commercially-experienced decision-makers is achieved in substantial part through their right to participate in the selection of the arbitral tribunal. As discussed below, this aspect of the arbitral process is intended to enable the parties – who have the most intimate knowledge of their disagreements and the greatest incentive to wisely choose a capable tribunal – to select arbitrators with the best experience, abilities and availability for their particular dispute. (469) This is confirmed by users of international arbitration who frequently cite “the possibility for the parties to select the members of the tribunal themselves,” as compared to being provided a randomly-picked judge of uncertain experience and age, as one of the process's most substantial benefits. (470) e. Finality of Decision Another salient feature of international commercial arbitration is the absence, in most cases, of extensive appellate review of arbitral awards. Judicial review of arbitral awards in most developed countries is narrowly confined to issues of procedural fairness, jurisdiction and public policy: as discussed below, any judicial scrutiny of the arbitrators' substantive decisions is ordinarily highly deferential. (471) This contrasts markedly with the availability of appellate review of first instance judgments under national court systems, which may allow either de novo relitigation or fairly searching reconsideration of both factual and legal matters. page "81" There are both advantages and disadvantages to the general lack of appellate review mechanisms for arbitral awards. (472) Dispensing with appellate review significantly reduces both litigation costs and delays (particularly when a successful appeal means that the case must be retried in the first instance court, with the possibility of yet further appeals). On the other hand, it also means that a wildly eccentric, or simply wrong, arbitral decision cannot readily (if ever) be corrected. On balance, anecdotal evidence and empirical research indicate that business users generally consider the efficiency and finality of arbitral procedures favorably, even at the expense of foregoing
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appellate rights. (473) There are also some developed legal systems in which the parties have the possibility, by contracting into or out of judicial review, to obtain a measure of appellate review of the arbitrators' substantive decisions, (474) or to select an arbitral procedure that includes arbitral appeals. (475) As discussed below, however, international businesses generally choose speed and finality over the opportunity for appellate review. f. Party Autonomy and Procedural Flexibility A further objective, and perceived advantage, of international commercial arbitration is the effort to maximize party autonomy and provide procedural flexibility. (476) As discussed below, leading international arbitration conventions and national laws accord parties broad autonomy to agree upon the substantive laws and procedures page "82" applicable to “their” arbitrations. (477) This emphasis on the importance of party autonomy parallels applications of the doctrine throughout the field of contemporary private international law, (478) and commercial law more generally, (479) but has particular significance in the field of international commercial arbitration. (480) One of the principal reasons that this procedural autonomy is granted is to enable the parties and arbitrators to dispense with the technical formalities and procedures of national court proceedings and instead fashion procedures tailored to particular disputes. (481) Thus, technically-complex disputes can include specialized procedures for testing and presenting expert evidence, (482) or “fast track” procedures can be adopted where time is of the essence, (483) or tailor-made dispute resolution mechanisms can be adopted in particular commercial markets. (484) More generally, parties are typically free to agree upon the existence and scope of discovery or disclosure, the modes for presentation of fact and expert evidence, the length of the page "83" hearing, the timetable and other (485) matters. The parties' ability to adopt (or, failing agreement, the tribunal's power to prescribe) flexible procedures is a central attraction of international arbitration – again, as evidenced by empirical research (486) and commentary. (487) An essential aspect of the international arbitral process, reflecting both commercial parties' desire for expertise and the exercise of their autonomy, involves the use of specialized arbitral rules in particular markets. Thus, specially-tailored arbitral institutions exist in the fields of maritime and salvage, (488) commodities, (489) insurance and reinsurance, (490) transportation, (491) and labor and employment (492) disputes. In each case, specialized procedural rules, required or optional lists of arbitrators and other contractual provisions structure the arbitral process in order to provide users with the maximum degree of specialized expertise and procedural predictability, efficiency and security. g. Cost and Speed It has long been said that arbitration offers a cheaper, quicker means of dispute resolution than national court proceedings. (493) http://www.kluwerarbitration.com/CommonUI/print.aspx
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More recently, however, it has become page "84" fashionable, at least in some circles, to describe arbitration as a slower, costlier option. (494) In reality, both international arbitration and international litigation can involve significant expense and delay, and it is unwise to make sweeping generalizations about which mechanism is necessarily quicker or cheaper. Although sometimes advertised on grounds of economy, even its proponents rightly acknowledge that “[i]nternational arbitration is an expensive process” (495) – or, at least, that international arbitration often can be an expensive process. This is particularly true in major international disputes, where substantial written submissions, factual and expert evidence, and lengthy hearings, are involved. Moreover, in international arbitration, the parties are required (subject to later allocation of arbitration costs by the tribunal) to pay the fees of the arbitrator(s) and, usually, an arbitral institution. The parties will also have to pay the logistical expenses of renting hearing rooms, travel to the arbitral situs, lodging and the like. (496) This entails expenses that may not exist in national court litigation. Nonetheless, the additional expenses of arbitration will often pale in comparison with the costs of legal representation if there are parallel or multiplicitous proceedings in national courts. This can be the case where the parties have, for whatever reason, not agreed upon an exclusive forum selection clause, or where page "85" such a (497) clause is held unenforceable or inapplicable. Likewise, the expenses of arbitration will typically not approach those that are incurred if there is relitigation of factual issues in national trial and appellate courts. Arbitration also usually does not have the potential for costly, scorched-earth discovery, or disputes over service, evidentiary matters, immunity and other litigation formalities, which may exist in some jurisdictions. International commercial arbitration is also not always speedy. Outside of some specialized contexts, meaningful commercial disputes often require between 18 and 36 months to reach a final award, (498) with only limited possibilities for earlier summary dispositions. Procedural mishaps, challenges to arbitrators and litigation over jurisdictional issues in national courts can delay even these fairly stately timetables, as can crowded diaries of busy arbitrators and counsel. It is possible to achieve greater expedition, through either drafting a “fast-track” arbitration clause (499) or adroit arbitrator selection and procedural planning, but there are limits to how quickly a major commercial arbitration can realistically and reliably be resolved. Nonetheless, in many jurisdictions, national court proceedings are subject to at least equally significant delays. Judicial dockets in many countries are over-burdened and obtaining a trial date and final decision may take years. Further, as already noted, arbitration typically does not involve appellate review, (500) thereby avoiding the delay inherent in appellate proceedings and reducing the risk that new trial proceedings will be required (in the event of appellate reversal of an initial trial court decision). On balance, international arbitration does not necessarily have either dramatic speed and cost advantages or disadvantages as compared to national court proceedings. Broadly speaking, the absence of appellate review means that arbitration is usually less http://www.kluwerarbitration.com/CommonUI/print.aspx
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slow than litigation, but there will be exceptions to this generalization. (501) This conclusion is supported by empirical evidence (502) and anecdotal accounts (503) of users' evaluations of the international arbitral process and its advantages. page "86" h. Confidentiality or Privacy of Dispute Resolution Process Another objective of international arbitration is to provide a confidential, or at least private, (504) dispute resolution mechanism. As discussed below, international arbitration is substantially more likely than national court litigation to produce a non-public dispute resolution process. (505) This often serves to prevent aggravation of the parties' dispute, to limit the collateral damage of a dispute and to focus the parties' energies on an amicable, business-like resolution of their disagreements. Most national court proceedings offer little by way of confidentiality to the parties. Hearings and court dockets are open to the public, competitors, press representatives and regulators in many countries (sometimes by constitutional requirement), (506) and parties are often free to disclose the contents of submissions and evidence to the public. Public disclosure can encourage efforts at “trial by press release” and may impede negotiated compromises, by hardening positions, fueling emotions, or provoking collateral disputes and damage. In contrast, international arbitration is usually substantially more private, and often confidential, than national court proceedings. Arbitral hearings are virtually always closed to the press and public, and in practice both submissions and awards often remain confidential, or at least private. (507) In a number of jurisdictions, confidentiality obligations are implied into international arbitration agreements as a matter of law, while some institutional arbitration rules impose such duties expressly. (508) Nonetheless, there is no clear duty of confidentiality in many jurisdictions (509) and, even where such obligations exist, they are subject to exceptions which have the effect that arbitral awards are sometimes made public, either in enforcement actions or otherwise. (510) page "87" Most international businesses prefer, and affirmatively seek out, the privacy and confidentiality of the arbitral process. (511) Nonetheless, parties sometimes affirmatively desire that certain disputes and their outcomes be made public. Where a company has a standard form contract, used with numerous counter-parties, it may want interpretations of the contract to become publicly-known, and binding through precedent, as widely as possible. Where that is the case, parties are of course free to agree that their arbitral proceedings (or the awards) will be public. (512) i. Facilitating Amicable Settlement Another objective and historic attraction of international arbitration is to facilitate the parties' efforts to settle their differences amicably. (513) Arbitral proceedings generally require some measure of procedural cooperation between the parties (for example, in choosing arbitrators and devising appropriate procedures). (514) http://www.kluwerarbitration.com/CommonUI/print.aspx
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Equally, the prospect of a competent, expert decision by a commercially-sensible tribunal often facilitates the settlement process. (515) In reality, it is not clear that international arbitration is systemically more likely than litigation to produce negotiated settlements. There is little empirical data on page "88" the subject, (516) and anecdotal experiences vary. Nonetheless, the arbitral process does present parties with opportunities for both procedural cooperation and more general settlement discussions. Approached constructively, these opportunities can be used to pursue a negotiated resolution, at least where parties are so inclined, and remain a material (if uncertain) objective of the international arbitral process.
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The aspirations of the arbitral process to accomplish the various objectives described above lead the more enthusiastic proponents of international arbitration to proclaim: “In th[e] realm of international commercial transactions, arbitration has become the preferred method of dispute resolution. Arbitration is preferred over judicial methods of dispute resolution because the parties have considerable freedom and flexibility with regard to choice of arbitrators, location of the arbitration, procedural rules for the arbitration, and the substantive law that will govern the relationship and rights of the parties.” (517) Equally vigorous are some critics, including those who regard arbitration as “the slower, more expensive alternative,” (518) or conclude that “arbitration sometimes involves perils that even surpass the ‘perils of the seas.’” (519) In fact, the truth about contemporary international commercial arbitration is less clear-cut, and lies somewhere between these extremes: “The more enthusiastic of [its] sponsors have thought of arbitration as a universal panacea. We doubt whether it will cure corns or bring general beatitude. Few panaceas work as well as advertised.” (520) page "89" At bottom, if generalizations must be made, international arbitration is much like democracy; it is nowhere close to ideal, and often fails fully to realize its objectives, but it is generally a good deal better than the available alternatives. To those who have experienced it, litigation of complex international disputes in national courts is often distinctly unappealing – particularly national courts that have not been selected in advance for their neutrality, integrity, competence and convenience. Indeed, the risks of corruption, incompetence, or procedural arbitrariness make litigation of complex commercial disputes in some national courts an unacceptable option. Despite http://www.kluwerarbitration.com/CommonUI/print.aspx
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daunting procedural and choice-of-law complexities and other uncertainties, international arbitration often offers the least ineffective and damaging means to finally settle the contentious disputes that arise when international transactions go awry.
381 See supra pp. 15-20, 56-57 & infra pp. 211-255. 382 See infra pp. 215-219. 383 CBS Corp. v. WAK Orient Power & Light Ltd, 168 F.Supp.2d
403 (E.D. Pa. 2001) ($1.4 billion Pakistani default judgment, plus Pakistani judicial order to provide $11.5 billion letter of credit); Shell Oil Co. v. Franco-Franco, CV 03-88446 NM (C.D. Calif. Nov. 2005) ($489.4 million Nicaraguan default judgments); United Int'l Holdings, Inc. v. The Wharf (Holdings) Ltd, 210 F.3d 1207 (10th Cir. 2000) ($153 million damages, including $58.5 million punitive damages). 384 See G. Born & P. Rutledge, International Civil Litigation in United States Courts 2-4, 437-38 (4th ed. 2007). 385 Smith Kline & French Labs. v. Block [1983] 2 All E.R. 72, 74 (English Court of Appeal) (Denning, J.) (“As a moth is drawn to the light, so is a litigant drawn to the United States. If only he can get his case into their courts, he stands to win a fortune.”). See generally M. Glendon, M. Gordon & C. Osakwe, Comparative Legal Traditions (1985); T. Weir, An Introduction to Comparative Law (3d ed. 1998). 386 See Transparency International, Global Corruption Report 2007: Corruption in Judicial Systems xxi (2007) (“Corruption is undermining justice in many parts of the world, denying victims and the accused the basic human right to a fair and impartial trial.”); see also id. at 324-330 (Corruption Perceptions Index 2006), available at www.transparency.org; infra pp. 72-74, 78-81. 387 See G. Born & P. Rutledge, International Civil Litigation in United States Courts 2-4, 345 (4th ed. 2007). 388 See infra pp. 74-76. 389 See supra pp. 28-32. 390 See infra pp. 67-68; Lalive, Transnational (or Truly International) Public Policy and International Arbitration, in P. Sanders (ed.), Comparative Arbitration Practice and Public Policy in Arbitration 257, 293 (ICCA Congress Series No. 3 1987); K.-P. Berger, International Economic Arbitration 8 & n.62 (1993); C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 59 (2005); PriceWaterhouseCoopers, International Arbitration: Corporate Attitudes and Practices 2, 5 (2006), available at www.pwc.com/arbitrationstudy (73% of corporations surveyed preferred international arbitration); D. Lipsky & R. Seeber, The Appropriate Resolution of Corporate Disputes: A Report on the Growing Use of ADR by U.S. Corporations (1998). 391 See Kerr, International Arbitration v. Litigation, 1980 J. Bus. L. 164 (“in international cases, where jurisdictional problems are bound to arise in the event of dispute, the practice of incorporating arbitration clauses into contracts is becoming almost universal”); G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 2-15 (2d ed. 2006); Park, Illusion and Reality in International Forum Selection, 30 Tex. Int'l L.J. 135 (1995). 392 See infra pp. 67-71.
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393 Either form of agreement can, and frequently is, combined with
a choice-of-law clause, selecting the substantive law applicable to the parties' contract. See infra p. 179. 394 Commentary on forum selection clauses includes, G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing (2d ed. 2006); G. Born & P. Rutledge, International Civil Litigation in United States Courts 435-519 (4th ed. 2007); P. Friedland, Arbitration Clauses for International Contracts (2d ed. 2007); J. Paulsson et al., The Freshfields Guide to Arbitration and ADR: Clauses in International Contracts (2d ed. 1999); D. Joseph, Jurisdiction and Arbitration Agreements and Their Enforcement (2005); Gilbert, Choice of Forum Clauses in International and Interstate Contracts, 65 Ky. L. J. 1 (1976); Gruson, Forum-Selection Clauses in International and Interstate Commercial Agreements, 1982 Ill. L. Rev. 133; Nadelmann, Choice-of-Court Clauses in the United States: The Road to Zapata, 21 Am. J. Comp. L. 124 (1973); Park, Bridging the Gap in Forum Selection: Harmonizing Arbitration and Court Selection, 8 Transnat'l L. & Contemp. Probs. 19 (1998); W. Park, International Forum Selection (1995); Solomine, Forum Selection Clauses and the Privatization of Procedure, 25 Cornell Int'l L. J. 51 (1992); Taylor, The Forum Selection Clause: A Tale of Two Concepts, 66 Temp. L. Rev. 785 (1993); Hague Conference on Private International Law, Choice of Court Agreements in International Litigation: Their Use and Legal Problems to Which They Give Rise in the Context of the Interim Text, Preliminary Document No. 18 (http://www.hcch.net/upload/wop/gen_pd18e.pdf). 395 See G. Born & P. Rutledge, International Civil Litigation in United States Courts 436-37 (4th ed. 2007); W. Park, International Forum Selection (1995). Forum selection agreements are also sometimes referred to as “jurisdiction clauses” or “choice of forum agreements.” 396 Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 (U.S. S.Ct. 1974) (“an agreement to arbitrate before a specialized tribunal [is], in effect, a specialized kind of forum-selection clause that posits not only the situs of suit but also the procedure to be used in resolving the dispute.”). 397 See also infra pp. 219-223. 398 See infra pp. 219-223, 252-254. 399 See infra p. 303. 400 As discussed below, the principal exception to this generalization involves investor-state arbitrations pursuant to bilateral or multilateral investment treaties. See infra pp. 107-108. 401 See infra pp. 172-184. 402 See supra pp. 20-57. 403 Lalive, Transnational (or Truly International) Public Policy and International Arbitration, in P. Sanders (ed.), Comparative Arbitration Practice and Public Policy in Arbitration 257, 293 (ICCA Congress Series No. 3 1987). 404 See infra pp. 154-158. 405 C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research Appendix 1, 341 (2005), www.hkiac.org. 406 The International Centre for the Settlement of Investment Disputes registered 22 new arbitrations in 2006. 23(1), (2) News from ICSID (2006), available at http://icsid.worldbank.org. See Aksen, International Arbitration – Its Time Has Arrived, 14 Case Western Reserve J. Int'l L. 247 (1982); Stein & Wotman, http://www.kluwerarbitration.com/CommonUI/print.aspx
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International Commercial Arbitration in the 1980s, 38 Bus. Law. 1685 (1983); C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research Appendix 1, 341 (2005). 407 C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research Appendix 1, 341 (2005); www.hkiac.org; www.siac.org.sg. See also, for ICC 1921-2003, C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 344 (2005); for AAA 19751977, J. Wetter, The International Arbitral Process: Public and Private 124 (1979); for SCC domestic and international case load 1998-2007, www.sccinstitute.com; for CIETAC and HKIAC 19852006, www.hkiac.org. 408 C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research Appendix 1, 341 (2005); Naimark & Keer, International Private Commercial Arbitration – Expectations and Perceptions of Attorneys and Business People, in Ibid at 45 (2005); PriceWaterhouseCoopers, International Arbitration: Corporate Attitudes and Practices 2, 5 (2006), available at www.pwc.com/arbitrationstudy. 409 C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 59 (2005) (88% of surveyed international joint venture agreements contain arbitration clauses); Naimark, Building A Fact-Based Global Database: The Countdown, 20 J. Int'l Arb. 105, 106 (2003); PriceWaterhouseCoopers, International Arbitration: Corporate Attitudes and Practices 2, 5 (2006), available at www.pwc.com/arbitrationstudy. For a contrary hypothesis, in domestic U.S. contracts, see Eisenberg & Miller, The Flight from Arbitration: An Empirical Study of Ex Ante Arbitration Clauses in Publicly-Held Companies Contracts, Cornell Legal Studies Research Paper Series No. 06-023 (11 October 2006). 410 See Judgment of 10 June 2004, Bargues Agro Industrie SA v. Young Pecan Cie, XXX Y.B. Comm. Arb. 499 (Paris Cour d'appel) (2005) (“Arbitration is the usual means of dispute settlement in international commerce.”); Aksen, International Arbitration – Its Time Has Arrived, 14 Case Western Reserve J. Int'l L. 247 (1982); Stein & Wotman, International Commercial Arbitration in the 1980s, 38 Bus. Law. 1685 (1983); K.-P. Berger, International Economic Arbitration 8 (1993); R. Schütze, D. Tscherning & W. Wais, Handbuch des Schiedsverfahrens ¶34 (1990); Messrs. Eckhardt & Co. v. Mohammad Hanif, PLD 1993 SC 42, 52 (Pakistan S. Ct.) (“With the development and growth of International Trade and Commerce and due to modernization of Communication/Transport systems in the world, the contracts containing such an arbitration clause are very common nowadays.”). 411 Y. Dezalay & B. Garth, Dealing in Virtue: International Commercial Arbitration and the Construction of A Transnational Legal Order (1996); Chambers Global Guide: The World's Leading Lawyers (2007). 412 See Rogers, The Arrival of the “Have-Nots” in International Arbitration, 8 U. Nev. L. J. 341 (2007). 413 See infra pp. 1226-1232. 414 See infra pp. 107-108. 415 Eliasoph, A Missing Link: International Arbitration and the Ability of Private Actors to Enforce Human Rights Norms, 10 N. E. J. Int'l & Comp. L. 83 (2004); Alford, Arbitrating Human Rights, 83 Notre Dame L. Rev. 505 (2007). http://www.kluwerarbitration.com/CommonUI/print.aspx
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416 For discussion of the circ*mstances in which parties are likely
to favor forum selection clauses, see G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 13-15 (2d ed. 2006); P. Friedland, Arbitration Clauses for International Contracts 7-36 (2d ed. 2007); Brekoulakis, The Notion of the Superiority of Arbitration Agreements over Jurisdiction Agreements: Time to Abandon It?, 24 J. Int'l Arb. 341 (2007). 417 See K.-P. Berger, International Economic Arbitration 8 & n.62 (1993) (“About ninety percent of international economic contracts contain an arbitration clause”); A. van den Berg, Arbitragerecht 134 (1988). 418 Empirical research reports that users of international arbitration identify neutrality as one of the two most important benefits of the process. Bühring-Uhle, A Survey on Arbitration and Settlement in International Business Disputes, in C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 25, 33 (2005); Mason, The Corporate Counsel's View: International Commercial Arbitration, 49 Disp. Res. J. 22 (1994). 419 See Reisman, International Arbitration and Sovereignty, 18 Arb. Int'l 231, 235 (2002); Park, Illusion and Reality in International Forum Selection, 30 Tex. Int'l L.J. 135 (1995); Rogers, Fit and Function in Legal Ethics: Developing A Code of Conduct for International Arbitration, 23 Mich. J. Int'l L. 341, 422 (2002) (“International arbitration … functions to promote the “rule of law” at an international level when national legal systems are inadequate to the task.”); Fortier, InternationalArbitration on the Eve of the New Millennium, 1997 Int'l Arb. L. Rev. 1. 420 See supra pp. 15-20, 56-57. 421 See G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 5 (2d ed. 2006). 422 There have been suggestions that, in some jurisdictions, foreign litigants may be preferred over domestic ones. Clermont & Eisenberg, Xenophilia in American Courts, 109 Harv. L. Rev. 1120 (1995). 423 Despite the foregoing advantages, a company is not always favored by litigation in its home courts. In some cases, various procedural aspects of litigation can make a counter-party's home courts a more favorable venue than its own courts. These include the availability (or unavailability) of discovery, the applicable rules of law, the rules for allocation of the parties' costs for legal representation, the length of time required for a decision, or trial by a lay jury or judge. More generally, a party that obtains a favorable judgment in its own domicile may be required to enforce the judgment in its counter-party's home forum, with the attendant uncertainties, costs and delays. There is no “universal” convention on the recognition and enforcement of foreign judgments, parallel to the New York Convention for arbitral awards. See infra pp. 23362338, 2712-2725; G. Born & P. Rutledge, International Civil Litigation in United States Courts 2-3, 1011-1018 (4th ed. 2007). 424 There is a long tradition in international financial transactions for the lender to be granted exclusive forum selection provisions choosing its own home courts (typically, New York or London). See Horn, The Development of Arbitration in International Financial Transactions, 16 Arb. Int'l 279, 280 (2000). 425 Of course, sometimes parties will simply not agree upon any dispute resolution provisions, leaving it to post-dispute litigation to determine the place (or places) where their dispute will be resolved. This happens with some frequency, but entails the costs and http://www.kluwerarbitration.com/CommonUI/print.aspx
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uncertainties of conflicting jurisdictional claims, multiplicitous legal proceedings and possibly inconsistent judgments. 426 See infra pp. 1461 et seq. 427 See infra pp. 1439-1442; Lalive, On the Neutrality of the Arbitrator and of the Place of Arbitration, in Swiss Essays on International Arbitration 23, 24-26 (1984) (presiding or sole arbitrator's neutrality includes national neutrality: “the fundamental idea of equality of the parties … appears necessarily to imply and lead to the ‘neutral nationality’ of the arbitrator”). Indeed, the presumption under virtually all leading institutional arbitration rules, and common practice in other circ*mstances, is that the sole arbitrator or presiding arbitrator may not be of the same nationality as the parties. See infra pp. 1439-1442. 428 As discussed above, this was also one of the historic attractions of international arbitration. See supra pp. 15-20, 56-57. See also D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 539 (2006) (“the explicit choice of arbitration as the mode of dispute settlement indicates that the ordinary court proceedings were thought to be against the basic interests of the parties”); G. Petrochilos, Procedural Law in International Arbitration 44 (2004) (“It is believed that [the international business] community would wish arbitration to be a truly universal practice, where the rules would not fluctuate from one state to another and where parties would not be taken by surprise by the law of the arbitration and its application by the courts.”). 429 For this reason, there have been efforts to propose uniform international rules of procedure for transnational disputes in national courts. Hazard, et al., Introduction to the Principles and Rules of Transnational Civil Procedure, 33 N.Y.U.J. Int'l L. & Pol. 769 (2001); ALI/UNIDROIT, ALI/UNIDROIT Principles of Transnational Civil Procedure (2004). These efforts have gained limited business attention or political traction, nor is there a realistic likelihood that they will do so in the foreseeable future; if nothing else, the absence of uniform procedural rules in the various Member States of the European Union and states of the United States leaves little doubt on this score. 430 See D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 26 (2006) (“In international cases there is a special need for freedom from unfamiliar local standards and requirements”); infra pp. 1741-1748. 431 See M. Bloch, Feudal Society 359 (1961); supra pp. 28-32. 432 III Blackstone's Commentaries on the Laws of England *33 (1768) (quoted in Wolaver, The Historical Background of Commercial Arbitration, 83 U. Pa. L. Rev. 132, 136 (1934-1935)). See supra p. 28. 433 G. Born & P. Rutledge, International Civil Litigation in United States Courts 1-4 (4th ed. 2007); L. Collins (ed.), Dicey, Morris & Collinson TheConflict of Laws ¶¶1-003 to 1-004, 11-002 to 11-071, 13-002 to 13-003 (14th ed. 2006); J. Pontier & E. Burg, EU Principles on Jurisdiction and Recognition and Enforcement of Judgments in Civil and Commercial Matters: According to the Case Law of the European Court of Justice 1 (2004). 434 See G. Born & P. Rutledge, International Civil Litigation in United States Courts 1-4 passim (4th ed. 2007); L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws passim (14th ed. 2006). 435 As discussed below, international arbitration agreements are typically drafted expansively and given broad effect, including to http://www.kluwerarbitration.com/CommonUI/print.aspx
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preclude the parallel litigation of the same or similar claims in national courts. See infra pp. 174-175. This facilitates the parties' objective of centralizing their disputes in a single forum for prompt, efficient resolution. The complexity of international commercial disputes provides a challenge for the arbitral process, as disputes involving multiple parties, contracts, claims and proceedings becomes more common. See Brower, Brower & Sharpe, The Coming Crisis in the Global Adjudication System, 19 Arb. Int'l 415 (2003). 436 M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 13-14 (U.S. S.Ct. 1972) (in the context of a forum selection clause). Seealso Scherk v. Alberto-Culver Co., 417 U.S. 506, 522 (U.S. S.Ct. 1974). 437 Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 923 (Swiss Federal Tribunal); Judgment of 27 February 1970, BGHZ 53, 315, 6 Arb. Int'l 79, 85 (1990) (German Bundesgerichtshof); Judgment of 8 February 1991, 1991 NJW-RR 602, 603 (Oberlandesgericht Munich); K. Lionnet & A. Lionnet, Handbuch der internationalen und nationalen Schiedsgerichtsbarkeit 1 III 2 b) (3d ed. 2005); Berger, Aufgaben und Grenzen der Parteiautonomie in der internationalen Wirtschaftsschiedsgerichtsbarkeit, 1994 RIW 12. 438 Bühring-Uhle, A Survey on Arbitration and Settlement in International Business Disputes, in C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 25, 31, 35 (2005); PriceWaterhouseCoopers, International Arbitration: Corporate Attitudes and Practices 6-7 (2006), available at www.pwc.com/arbitrationstudy. 439 Seesupra pp. 28-29, 33-34, 41-42 & infra pp. 92-93, 97, 113114. 440 See infra pp. 95-98, 115-118, 563 et seq. 441 See infra pp. 1003-1048, 1066-1083. 442 Bühring-Uhle, A Survey on Arbitration and Settlement in International Business Disputes, in C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 25, 31, 35 (2005) (one of the “two most significant advantages and presumably the two most important reasons for choosing arbitration as a means of international commercial dispute resolution [is] … the superiority of its legal framework with treaties like the New York Convention guaranteeing the international enforcement of awards”); PriceWaterhouseCoopers, International Arbitration: Corporate Attitudes and Practices 6-7 (2006), available at www.pwc.com/arbitrationstudy. 443 McLaren, Effective Use of International Commercial Arbitration: A Primer for In-house Counsel, 5 J. Int'l Arb. 475, 477-478 (2002); Empresa Constructora Contex Limitada v. Iseki, Inc., 106 F.Supp.2d 1020 (S.D. Cal. 2000) (“Arbitration agreements are intended to make arbitration decisions binding and enforceable and to limit how parties may challenge them”); Quintette Coal Ltd v. Nippon Steel Corp., XVIII Y.B. Comm. Arb. 159 (B.C. Court of Appeal 1990) (1993)(“It is meet therefore, as a matter of policy, to adopt a standard which seeks to preserve the autonomy of the forum selected by the parties and to minimize judicial intervention when reviewing international commercial arbitral awards …”). 444 See infra pp. 92-101, 115-121. 445 O.J. L 012, 16/01/2001, at 1-23; J. Pontier & E. Burg, EU Principles on Jurisdiction and Recognition and Enforcement of Judgments in Civil and Commercial Matters: According to the Case Law of the European Court of Justice 1 (2004). http://www.kluwerarbitration.com/CommonUI/print.aspx
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446 EC Regulation 44/2001, O.J. L 012, 16/01/2001, Art. 23. 447 See, e.g., Warsaw Convention for the Unification of Certain
Rules Relating to International Carriage by Air, 12 October 1929, as Amended at the Hague, 1955, and by Protocol No. 4 of Montreal, 1975, ICAO Doc. 9148. 448 G. Born & P. Rutledge, International Civil Litigation in United States Courts 442-99 (4th ed. 2007); Chang, The Superiority of the Arbitration Clause Over A Forum Selection Clause under French Law, 22 ASA Bull. 800 (2004); infra pp. 764-765. Compare Brekoulakis, The Notion of the Superiority of Arbitration Agreements over Jurisdiction Agreements: Time to Abandon It?, 24 J. Int'l Arb. 341, 346-347 (2007). 449 See infra pp. 755-764, 766 et seq. 450 The Hague Conference on Private International Law's draft Convention on Choice of Court Agreements would provide more uniform international standards governing the enforcement of forum selection agreements – if it were ratified by significant numbers of states. G. Born & P. Rutledge, International Civil Litigation in United States Courts 442, 459, 1017 (4th ed. 2007). Even if such ratifications occur, the draft Convention's limitations and exceptions would leave the enforceability of forum selection clauses subject to significant uncertainties. At least for the foreseeable future, international arbitration agreements will therefore enjoy a substantial “enforceability premium” as compared to forum selection clauses. For discussions of the draft Hague Choice of Court Agreements Convention, see G. Born & P. Rutledge, International Civil Litigation inUnited States Courts 442, 459 (4th ed. 2007); Brand, Introductory Note to the 2005 Hague Convention on Choice of Court Agreements, 44 Int'l Legal Mat. 1291 (2005); Note, Recent International Agreement, 119 Harv. L. Rev. 931 (2006); Kessedjian, La Convention de La Haye du 30 juin 2005 sur l'élection de for, 133 J.D.I. (Clunet) 813 (2006). 451 See infra pp. 91-109, 109-147. 452 See infra pp. 92-101, 2702-2710, 2712-2725. 453 See infra pp. 2327, 2726-2729. 454 See O.J. L 012, 16/01/2001, at 1-23; supra p. 77 n. 445. 455 G. Born & P. Rutledge, International Civil Litigation in United
States Courts 1011–18 (4th ed. 2007). 456 G. Born & P. Rutledge, International Civil Litigation in United States Courts 1017-18 (4th ed. 2007). 457 Of course, where a regional or other treaty for the mutual recognition of foreign court judgments is applicable, the advantages of arbitral awards may be smaller. 458 Shavell, Alternative Dispute Resolution: An Economic Analysis, 24 J. Legal Studies 1, 6 (1995); Walt, Decision by Division: The Contractarian Structure of Commercial Arbitration, 51 Rutgers L. Rev. 369, 430-31 (1999); Stipanowich, Rethinking American Arbitration, 63 Ind. L.J. 425, 427 (1987) (“The success of arbitration is a reflection of the shortcomings of the American civil justice system”). 459 See supra p. 66. Even where such experience exists, the need to translate evidentiary materials or legal authorities into the language of the forum will often create practical problems and jeopardize a tribunal's comprehension of the case. http://www.kluwerarbitration.com/CommonUI/print.aspx
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460 Oko, Seeking Justice in Transitional Societies: An Analysis of
the Problems and Failures of the Judiciary in Nigeria, 31 Brooklyn J. Int'l L. 9 (2005); Orts, The Rule of Law in China, 34 Vand. J. Transnat'l L. 43 (2001); Transparency International, Global Corruption Report 2007: Corruption in Judicial Systems (2007), available at www.transparency.org; U.S. State Department, Country Reports on Human Rights Practices. 461 In order to combat corruption internationally, including judicial corruption, the United States adopted the Foreign Corrupt Practices Act of 1977. 15 U.S.C. §§78dd-1. Subsequently, in 1997, numerous states voted to adopt a similar convention, the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 17 December 1997 (“OECD Convention”), which entered into force 15 February 1999 and is reprinted in, 37 Int'l Legal Mat. 1 (1998), available at www.oecd.org. 462 The jury trial system, along with local discovery and evidentiary rules, methods of judicial selection, the absence of fee-shifting and damages theories are often cited as shortcomings in the United States. The divided legal profession, cost and length of proceedings (particularly hearings) are often cited as shortcomings in England. 463 Ashenfelter et al., Politics and the Judiciary: The Influence of Judicial Background on Case Outcomes, 24 J. Legal Studies 257, 266-70 (1995); Stipanowich, Rethinking American Arbitration, 63 Ind. L.J. 425, 435-438 (1987) (“while the civil justice system often selects its triers of fact on the basis that they know little or nothing about the subject of the dispute, a hallmark of arbitration is the presence of one or more decisionmakers with pertinent knowledge or experience. The theory is that an individual familiar with the commercial context of the dispute, including industry customs and vocabulary, is better suited to dispense justice than laypersons who might be hampered by their relative lack of business experience and understanding of trade practices.”). 464 See supra pp. 56-57. 465 Bühring-Uhle, A Survey on Arbitration and Settlement in International Business Disputes, in C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 25, 32, 35 (2005); Naimark & Keer, International Private Commercial Arbitration – Expectations and Perceptions of Attorneys and Business People, in Ibid., at 45, 49 (expertise as one of several significant objectives); PriceWaterhouseCoopers, International Arbitration: Corporate Attitudes and Practices 6 (2006), available at www.pwc.com/arbitrationstudy (“The ability of parties to select arbitrators with the necessary skills and expertise and who are well suited to the appropriate cultural and legal context was also ranked highly”; 4th in reasons cited by corporations surveyed). 466 Attorney General of the Republic of Kenya v. Bank für Arbeit und Wirtschaft AG, XXV Y.B. Comm. Arb. 692, 694 (Cyprus S.Ct. 1999) (2000) (“familiarity of arbitrators with their subject matter”); Positive Software Solutions, Inc. v. New Century Mortgage Corp., 476 F.3d 278, 285 (5th Cir. 2007) (describing expertise as one of arbitration's “most attractive features apart from speed and finality”); Trebilock & Leng, The Role of Formal Contract Law and Enforcement in Economic Development, 92 Va. L. Rev. 1517, 1541 (2006) (“As compared to public courts, the advantages of international commercial arbitration in enforcing contracts include increased flexibility, technical expertise, privacy, and confidentiality, all of which are important in satisfying the needs of private parties for low-cost, expeditious, and effective resolution of contract disputes.”). http://www.kluwerarbitration.com/CommonUI/print.aspx
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467 Bühring-Uhle, A Survey on Arbitration and Settlement in
International Business Disputes, in C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 25, 34 & n. 28 (2005). 468 Lazareff, International Arbitration: Towards A Common Procedural Approach, in S. Frommel & B. Rider (eds.), Conflicting Legal Cultures in Commercial Arbitration: Old Issues and New Trends 31, 33 (1999). 469 See infra pp. 82-84, 1364-1367. 470 Bühring-Uhle, A Survey on Arbitration and Settlement in International Business Disputes, in C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 25, 33 (2005); Landau, Composition and Establishment of the Tribunal, 9 Am. Rev. Int'l Arb. 45 (1998); PriceWaterhouseCoopers, International Arbitration: Corporate Attitudes and Practices 6-7 (2006), available at www.pwc.com/arbitrationstudy. 471 See infra pp. 2638-2655, 2865-2870 for a discussion of the extent of judicial review in annulment and recognition actions. 472 Empirical research indicates that users are ambivalent about the absence of appellate review. E.g., PriceWaterhouseCoopers, International Arbitration: Corporate Attitudes and Practices 7 (2006), available at www.pwc.com/arbitrationstudy. 473 Bühring-Uhle, A Survey on Arbitration and Settlement in International Business Disputes, in C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 25, 32, 35 (2005); Landes & Posner, Adjudication as A Private Good, 8 J. Legal Studies 235, 238 (1979); Shavell, Alternative Dispute Resolution: An Economic Analysis, 24 J. Legal Studies 1, 6 (1995). 474 See infra pp. 2660-2670, 2734-2736. 475 See infra pp. 2548-2550; National Grain and Feed Association, NGFA Arbitration Rules §9 (appeals procedure). 476 See infra pp. 1748-1765; M. Bühler & T. Webster, Handbook of ICC Arbitration 5 (2005) (“One of the fundamental principles that forms the basis and runs through most aspects of modern international arbitration is party autonomy”); Bernardini, The Role of the International Arbitrator, 20 Arb. Int'l 113, 115 (2004); Interim Award in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312, 317 (2000) (“In general, parties to a commercial agreement are free to choose the law which is to govern their contractual relationship.… This doctrine of party autonomy makes particular sense in the context of an international commercial arbitration.”); D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 26 (2006) (“procedural flexibility … is generally regarded as one of the main advantages of arbitration”); Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 534 (2005) (“parties can experiment with dispute resolution – cutting and tailoring, shaping and adapting different processes to meet their own particular needs”); Stipanowich, Rethinking American Arbitration, 63 Ind. L.J. 425, 433-435 (1987) (advantages of arbitration including flexibility and informality). 477 See infra pp. 1748-1758, 2573-2595, 2737-2764. 478 L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Law ¶¶16-006 et seq. (14th ed. 2006); Restatement (Second) Conflict of Laws §187 (1971); Interim Award in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312, 317 (2000) (“In general, parties to a commercial http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement are free to choose the law which is to govern their contractual relationship.… This doctrine of party autonomy makes particular sense in the context of an international commercial arbitration.”); Böckstiegel, The Role of Party Autonomy in International Arbitration, 54 Disp. Res. J. 24 (1997); Berger, Party Autonomy in International Commercial Arbitration, 4 Am. Rev. Int'l Arb. 1 (1993); P. Nygh, Autonomy in International Contracts (1999); Lando, The Conflict of Laws of Contracts: General Principles, 189 Recueil des Cours 225 (1984); International Law Institute, Resolution on the Autonomy of the Parties in International Contracts between Private Persons or Entities, 64 Ann. Inst. Droit Inter. 383 (1992); Zhang, Party Autonomy and Beyond: An International Perspective of Contractual Choice of Law, 20 Emory Int'l L. Rev. 511 (2006). 479 See, e.g., Fassberg, Lex Mercatoria – Hoist with its Own Petard?, 5 Chicago J. Int'l L. 67 (2004) (“The principle of party autonomy so essential to international trade is a central principle of all aspects of private international law. It is expressed in the willingness of national law to acknowledge the autonomy of parties to resolve disputes outside the system, and to provide tools for enforcing that autonomy – enforcing agreements and awards irrespective of their content. It is expressed further in the willingness of almost all systems to allow parties to choose almost any national law to govern their relationship.”); Mills, The Private History of International Law, 55 Int'l & Comp. L.Q. 1, n.302 (2006); Graves, Party Autonomy in Choice of Commercial Law: The Failure of Revised U.C.C. §1-301 and A Proposal for Broader Reform, 36 Seton Hall L. Rev. 59 (2005); Reich, A European Contract Law: Ghost or Host for Integration, 24 Wisc. Int'l L.J. 425 (2006). 480 Where parties do not agree upon the arbitral procedures, the arbitrators are granted expansive authority to prescribe procedural rules (which may differ substantially from those used for litigation in national courts). See infra pp. 1758-1765. 481 See infra pp. 1748-1758 for a discussion of the parties' autonomy with regard to procedural matters. 482 See infra pp. 1742-1748, 1850-1851, 1860-1862. 483 See infra p. 1873. 484 See infra pp. 84, 149. 485 See infra pp. 1748-1758, 1794 et seq, 1875 et seq. 486 PriceWaterhouseCoopers, International Arbitration: Corporate Attitudes and Practices 6-7 (2006), available at www.pwc.com/arbitrationstudy (“Flexibility of procedure was the most widely recognized advantage” of international arbitration); T. Stipanowich & P. Kaskell, Commercial Arbitration At Its Best: Successful Strategies For Business Users: A Report of The CPR Commission on The Future of Arbitration xxiii (2001) (“Ultimately, control over the process – the flexibility to make arbitration what you want it to be – [is] the single most important advantage of binding arbitration”). 487 Carlston, Theory of the Arbitration Process, 17 Law & Contemp. Probs. 631, 650 (1952) (“source of strength” of commercial arbitration “lies in the fact that it is a mode of trial, to which the laws of evidence are largely inapplicable because they are a product of the problem of communicating facts to a jury … [C]ommunicating facts to an arbitrator can become enormously simplified, if he be skilled and expert in the field”); Stipanowich, Contract and Conflict Management, 2001 Wisc. L. Rev. 831. 488 F. Rose, International Commercial and Maritime Arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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(1988); C. Ambrose & K. Maxwell, London Maritime Arbitration (2d ed. 2002); London Maritime Arbitration Association Terms (2006) (maritime); German Maritime Arbitration Association Rules (2007) (maritime); Society of Maritime Arbitration Rules (2003) (maritime). 489 D. Johnson, International Commodity Arbitration (1991); National Grain and Feed Association Arbitration Rules (2008) (selected commodities disputes). See also Bernstein, Private Commercial Law in the Cotton Industry: Creating Cooperation Through Rules, Norms, and Institutions, 99 Mich. L. Rev. 1724 (2001). 490 ARIAS-UK Arbitration Rules (1997); ARIAS Procedures for the Resolution of U.S. Insurance Reinsurance Disputes (1999). 491 Rail Arbitration Rules of the National Grain and Feed Association (2005). 492 AAA Labor Arbitration Rules (2007); AAA Rules for Impartial Determination of Union Fees (1988). 493 This was historically one of the reasons cited in favor of arbitration. See supra pp. 22, 26-27, 28, 31-32, 41-42; Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration, as amended in 2006, ¶15, available at www.uncitral.org (“the parties to an arbitration agreement make a conscious decision to exclude court jurisdiction and prefer the finality and expediency of the arbitral process”); Stipanowich, Rethinking American Arbitration, 63 Ind. L.J. 425, 438440 (1987) (“speed and efficiency” of arbitral process); Revised Uniform Arbitration Act, Prefatory Note (2000) (“the underlying reason many parties choose arbitration is the relative speed, lower cost, and greater efficiency of the process.”). It is also frequently referred to in contemporary judicial authorities. See infra pp. 17451748; Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir. 1993) (“twin goals of arbitration, namely settling disputes efficiently and avoiding long and expensive litigation”); Fradella v. Petricca, 183 F.3d 17, 19 (1st Cir. 1999) (“The primary purpose served by the arbitration process is expeditious dispute resolution.”); Diapulse Corp. of Am. v. Carba, Ltd, 626 F.2d 1108, 1110 (2d Cir. 1980) (“The purpose of arbitration is to permit relatively quick and inexpensive resolution of contractual disputes by avoiding the expense and delay of extended court proceedings”). 494 Silberman, International Arbitration: Comments from A Critic, 13 Am. Rev. Int'l Arb. 9 (2002); Layton, Arbitration in International Commercial Agreements: The Noose Draws Tighter, 9 Int'l Law. 741, 745 (1975); Lyons, Arbitration: The Slower, More Expensive Alternative, The American Lawyer 107 (Jan./Feb. 1985); Blue Tee Corp. v. Koehring Co., 999 F.2d 633 (2d Cir. 1993) (“This appeal … makes one wonder about the alleged speed and economy of arbitration in resolving commercial disputes”). 495 Wetter, The Present Status of the International Court of Arbitration of the ICC: An Appraisal, 1 Am. Rev. Int'l Arb. 91, 103 (1990). See Kerr, International Arbitration v. Litigation, 1980 J. Bus. L. 164, 164-65, 175-78 (“Arbitral tribunals have to be paid, whereas court fees are often negligible. In important cases, three arbitrators, or two and an umpire, are usually preferred to a single arbitrator, and this greatly adds to the costs and complexities. If the arbitrators are busy men, as they usually are, arbitration can be much more protracted than litigation …”). 496 See infra pp. 1646-1651, 1809-1810. 497 See supra pp. 64-68. 498 See infra pp. 1813-1815. http://www.kluwerarbitration.com/CommonUI/print.aspx
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499 See infra p. 1873. 500 See supra pp. 81-82 & infra pp. 2638-2655, 2865-2870. 501 It may be possible to compare more precisely the relative
speed and cost of international arbitration and particular national courts with respect to a specific kind of contract or category of disputes. But, even here, the uncertainties of appellate review, summary dispositions, and other procedural developments will make predictions difficult. 502 Bühring-Uhle, A Survey on Arbitration and Settlement in International Business Disputes, in C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 25, 32, 35 (2005); Naimark & Keer, International Private Commercial Arbitration – Expectations and Perceptions of Attorneys and Business People, in Ibid., at 49 (cost and speed one of several significant objectives); E. Heymann & N. Horn, Handelsgesetzbuch: Kommentar 44 (1995). 503 Judicial authorities provide a measure of anecdotal confirmation. E.g., Attorney General of the Republic of Kenya v. Bank für Arbeit und Wirtschaft AG, XXV Y.B. Comm. Arb. 692, 694 (Cyprus S.Ct. 1999) (2000) (“The length of time required for an action within the state judicial system, the use of time-consuming judicial means which add to the delay, the familiarity of arbitrators with their subject matter, the rigidity of regular judicial means, are some of the reasons for which the institution of arbitration has flourished and been established for disputes of various natures.”); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (U.S. S.Ct. 1985) (a party agreeing to arbitration “trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration”); McDonald v. City of West Branch, 466 U.S. 284, 292 (U.S. S.Ct. 1984). 504 The difference between “privacy,” where third parties are customarily denied accdess to hearings, and “confidentiality,” where parties are legally prohibited from disclosing matters relating to the arbitration to third parties, are discussed below. See infra pp. 22502253, 2280-2287. 505 Nonetheless, there are often no legally-enforceable guarantees of confidentiality. See infra pp. 2262-2265. 506 See infra pp. 2250-2253; Rogers, Transparency in International Commercial Arbitration, 54 Kan. L. Rev. 1301, 1304 (2006). 507 See infra pp. 2249-2287 for a discussion of confidentiality in international arbitration. 508 See infra pp. 2265-2269. 509 See infra pp. 2262-2265. 510 See infra pp. 2256-2257, 2258-2262. It is possible to reduce these risks of disclosure by a counter-party, through appropriatelydrafted confidentiality provisions. See G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 94 (2d ed. 2006); infra pp. 2255-2258. 511 Empirical research suggests that confidentiality is a material, but not primary, motivation for international arbitration agreements. Bühring-Uhle, A Survey on Arbitration and Settlement in International Business Disputes, in C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 25, 35 (2005) (confidentiality third in list of 11 reasons for arbitration); PriceWaterhouseCoopers, International Arbitration: Corporate Attitudes and Practices 6-7 (2006), available at www.pwc.com/arbitrationstudy. http://www.kluwerarbitration.com/CommonUI/print.aspx
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512 As discussed below, this is the practice in some industry
sectors (e.g., some maritime arbitrations). See infra pp. 2268-2269. 513 Bühring-Uhle, A Survey on Arbitration and Settlement in International Business Disputes, in C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 25, 35 (2005). This perception has deep historic roots. Joint Hearings on S. 1005 and H.R. 646 Before the Subcommittee of the Committees on the Judiciary, 68th Cong., 1st Sess., at 7 (1924) (arbitration “preserves business friendships.… It raises business standards. It maintains business honor, prevents unnecessary litigation and eliminates the law's delay by relieving our courts.”); Baker, From Lovedays to ADR: Arbitration and Dispute Resolution in England 1066-1800, 3(5) Transnat'l Dispute Mgt (2006) (13th century submission agreements disposing of pending litigations by way of referral to “arbitration of friends”). 514 See infra pp. 1008-1014, 1651-1652 for a discussion of the
parties' obligations to cooperate in the arbitral process. 515 This is not always the case. Sometimes, the uncertainties of a random dispute resolution process, or the hardships of an arbitrary process, do more to encourage settlement. See Park, Arbitration's Protean Nature: The Value of Rules and the Risks of Discretion, 19 Arb. Int'l 279 (2003) (recounting proverb involving Chinese emperor who encouraged settlements by providing abusive and arbitrary judiciary). 516 Users of arbitration rank amicable dispute resolution and future relations relatively low on the important objectives of international arbitration. Bühring-Uhle, A Survey on Arbitration and Settlement in International Business Disputes, in C. Drahozal & R. Naimark, Towards A Science of International Arbitration: Collected Empirical Research 25, 35 (2005); Ibid., in Naimark & Keer, International Private Commercial Arbitration – Expectations and Perceptions of Attorneys and Business People, in Ibid., at 43, 52. 517 Buchanan, Public Policy and International Commercial Arbitration, 26 Am. Bus. L.J. 511, 512 (1988). See Aksen, The Need to Utilize International Arbitration, 17 Vand. J. Transnat'l L. 11 (1984). 518 Lyons, Arbitration: The Slower, More Expensive Alternative, The American Lawyer 107 (Jan./Feb. 1985). 519 In re Canadian Gulf Line, 98 F.2d 711, 714 (2d Cir. 1938) (Learned Hand, J.). 520 Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978, 987 n.32 (2d Cir. 1942). See also Bell Canada v. ITT Telecomm. Corp., 563 F.Supp. 636 (S.D.N.Y. 1983) (“Arbitration is not a one-way street. It has its drawbacks as well as advantages”).
Overview of International Commercial Arbitration - C. Overview of Contemporary http://www.kluwerarbitration.com/CommonUI/print.aspx
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Legal Framework for International Commercial Arbitration Chapter 1 Gary B. Born
Author Gary B. Born
C. Overview of Contemporary Legal Framework for International Commercial Arbitration International commercial arbitration is a fundamentally consensual means of dispute resolution: unless the parties have agreed to arbitrate, there can be no valid arbitral determination of their rights. (521) In turn, an agreement to arbitrate has binding effect only by virtue of a complex framework of national and international law, ultimately enforced via national courts. (522) Equally, an arbitral award has binding effect, and can be recognized and enforced, only by virtue of this same legal framework. (523) As discussed above, both national law and commercial practice have, for centuries, given legal effect to parties' agreements to arbitrate and the resulting arbitral awards. (524) There have been periods in which arbitration agreements and/or awards were afforded only limited efficacy by national laws, (525) or were given effect only pursuant to particular legal forms. (526) Nonetheless, the general treatment of arbitration agreements and awards in developed jurisdictions has usually been satisfactory. (527)
Source Overview of International Commercial Arbitration - C. Overview of Contemporary Legal Framework for International Commercial Arbitration in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 90 - 184
The current international legal regime for commercial arbitration has improved materially on historic enforcement mechanisms. As detailed below, contemporary international conventions, national arbitration legislation and institutional arbitration rules provide a specialized and highly-supportive legal regime for most contemporary page "90" international commercial arbitrations. This regime has 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: (528) “[e]nforcement of international arbitral agreements promotes the smooth flow of international transactions by removing the threats and uncertainty of timeconsuming and expensive litigation.” (529) As discussed above, the foundations for this legal regime were laid in the first decades of the 20th century, with the 1923 Geneva Protocol and 1927 Geneva Convention, with national arbitration legislation that paralleled these instruments and with effective institutional arbitration rules. (530) Building on these foundations, the current legal regime for international 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 and enacting national arbitration statutes designed specifically to facilitate the arbitral process; at the same http://www.kluwerarbitration.com/CommonUI/print.aspx
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time, national courts in most states have given effect to these legislative instruments, often extending or elaborating on their terms. Most importantly, and as discussed below, this avowedly “proarbitration” regime ensures the enforceability of both 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. (531) 1. International Arbitration Conventions Over the past century, major trading nations have entered into a number of international treaties and conventions designed to facilitate the transnational enforcement of arbitration awards and agreements and to promote the use of arbitration in international matters. (532) They have done so for the specific purpose of providing an effective mechanism for resolving international commercial disputes, page "91" and thereby promoting international trade and investment. (533) These instruments have, for the most part, contributed to a stable and effective legal framework for arbitration between international businesses. International treaties dealing with arbitration sometimes took the form of bilateral treaties. (534) More importantly, multilateral conventions sought to facilitate and promote international arbitration by encouraging the recognition of arbitration agreements and awards. These included the 1923 Geneva Protocol and the 1927 Geneva Convention. (535) As discussed above these two instruments established basic requirements that Contracting States recognize and enforce international arbitration agreements and awards (subject to a number of important limitations), marking the beginning of contemporary international efforts comprehensively to facilitate and support the international commercial arbitration process. (536) The Geneva Protocol and Convention did not merely make international arbitration agreements and awards as enforceable as their domestic counterparts. Rather, these instruments made international arbitration agreements and awards more enforceable than domestic ones, establishing pro-arbitration standards that did not then exist in many domestic legal systems, for the specific purpose of promoting international trade and investment. a. The New York Convention (537) The Geneva Protocol and the Geneva Convention were succeeded by the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. (538) 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, whose sweeping terms have enabled page "92" 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 http://www.kluwerarbitration.com/CommonUI/print.aspx
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statutes – specifically to address the needs of the international business community, (539) and in particular to improve the legal regime provided by the Geneva Protocol and Geneva Convention for the international arbitral process. (540) The first draft of what became the Convention was prepared by the International Chamber of Commerce in 1953, focused exclusively on the enforcement of international arbitral awards. (541) 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.” (542) The ICC's proposed Draft Convention would have provided for a “de-nationalized” form of international arbitration, with both the international arbitral process and arbitral awards largely detached from national laws. (543) In particular, the ICC declared that the “[Geneva] Convention's main defect” was its “enforcement of only those awards that are strictly in accordance with the rules of procedure laid down in the law of the country where the arbitration took place,” and concluded “that there could be no progress without full recognition of the conception of international awards.” (544) The ICC draft was transmitted to the United Nations' Economic and Social Council (“ECOSOC”), which established a committee to study the proposal. (545) After some delays, the ECOSOC produced a revised draft of a successor convention to the Geneva Convention, (546) which adopted a somewhat less radical approach to page "93" the recognition and enforcement of foreign arbitral awards than that proposed by the ICC. (547) After further governmental consideration, the ICC and ECOSOC drafts 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. (548) The New York Conference resulted in a compromise draft convention that reconciled the ICC and ECOSOC drafts, (549) while also introducing significant new elements not contemplated by either proposal. The resulting document – the New York Convention – was in many respects a radically innovative instrument which created for the first time a comprehensive legal regime for the international arbitral process. Both the ICC's original text and the ECOSOC's subsequent draft were focused entirely on the recognition and enforcement of arbitral awards, with no serious attention to the enforcement of international arbitration agreements. (550) This drafting approach paralleled that of the Geneva treaties (where the Geneva Protocol dealt with arbitration agreements and the Geneva Convention addressed arbitral awards). (551) 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 proposed treaty from only the recognition of arbitral awards to also include international arbitration agreements. (552) 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 http://www.kluwerarbitration.com/CommonUI/print.aspx
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Convention. (553) At the same time, the extension of the Convention to encompass both arbitration agreements and arbitral awards was a significant step beyond the Geneva treaties and made the Convention the first international instrument to comprehensively deal with the major elements of the international arbitral process. The text of the Convention was approved on 10 June 1958 by a unanimous vote of the Conference (with only the United States and three other countries page "94" abstaining). (554) The Convention is set forth in English, French, Spanish, Russian and Chinese texts, all of which are equally authentic. (555) 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.” (556) In the apt words of Judge Stephen Schwebel, formerly President of the International Court of Justice, “It works.” (557) 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.” (558) 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 do (559) ). Rather, the Convention's provisions focussed 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. (560) 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.” (561) page "95" 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. (562) 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); (563) (b) require national courts to recognize the validity of arbitration agreements, subject to specified exceptions (Article II); (564) 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)). (565) 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. (566) 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 http://www.kluwerarbitration.com/CommonUI/print.aspx
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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, (567) its recognition of substantial party autonomy with respect page "96" to choice of arbitral procedures, the procedural law governing the arbitration and law applicable to the arbitration agreement, (568) 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). (569) 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.” (570) 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. (571) 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 arbitral 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 page "97" 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.” (572) 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. (573) Taken together, the Convention's provisions regarding the recognition of arbitral awards and agreements also had the indirect 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. (574) http://www.kluwerarbitration.com/CommonUI/print.aspx
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Although states did not initially rush to ratify it, the Convention has come to enjoy exceptional success. One reason for the Convention's success was its timeliness. It became available in the 1960s and 1970s, as world trade and investment began significantly to expand (facilitated in part by the Convention). With this expansion came substantially greater numbers of international commercial disputes – and arbitrations – which gave both national courts and arbitral tribunals opportunities to interpret and apply the Convention. (575) 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 7 June 1959. (576) 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. (577) The United States did not ratify the Convention until 1970. (578) page "98" Over time, however, states from all regions of the globe reconsidered their position, (579) and today some 135 nations have ratified the Convention. (580) The Convention's parties include virtually all major trading states and many Latin American, African, Asian, Middle Eastern and former socialist states. (581) During the past decade, numerous states (including a number in the Middle East and Latin America) have departed from their former distrust of international arbitration and ratified the Convention. (582) The Convention has thus realized its drafters' original aspirations and has 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). (583) 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.” (584) Article VII has been interpreted by many national courts in a “proenforcement” 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, if more favorable than the Convention. (585) 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 page "99" interpretations given by national courts to the Convention and national implementing legislation. (586) As discussed below, the extent to which Contracting States have been faithful to the Convention and its underlying objectives varies. (587) Most states have adopted legislation (such as the UNCITRAL Model Law) that gives almost complete effect to the Convention, http://www.kluwerarbitration.com/CommonUI/print.aspx
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clarifying ambiguities or adding detail regarding the role of national courts. (588) Nonetheless, a few states have failed (sometimes for prolonged periods) to enact any implementing legislation, (589) or have promulgated national laws that do not comport with the Convention. (590) Even in developed states, legislation is occasionally enacted or judicial decisions issued that do not comport with the Convention's requirements. (591) As noted above, an important aim of the Convention's drafters was uniformity. (592) 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. (593) page "100" That process has accelerated in recent decades, as national court decisions have become increasingly available in foreign jurisdictions (594) and national courts have increasingly cited authorities from foreign and international sources in interpreting the Convention. (595) It also bears emphasis that the Convention is a “constitutional” instrument. (596) 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. Much of the discussion in the following Chapters is addressed to the manner in which national courts and arbitral tribunals have jointly given effect to the Convention's terms and developed their respective fields of competence within the Convention's framework. page "101" b. European Convention on International Commercial Arbitration The 1961 European Convention on International Commercial Arbitration (597) 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 (598) and particularly EastWest trade. (599) The drafting process was protracted (and delayed by the intervening New York Convention), but ultimately concluded with signing of the Convention in Geneva on 21 April 1961. (600) The European Convention entered into force in 1964, and 31 states http://www.kluwerarbitration.com/CommonUI/print.aspx
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are currently party to it. (601) Most European states (but not the United Kingdom, the Netherlands or Finland) are party to the Convention, while some ten non-EU states are parties, including Russia, Cuba and Burkina Faso. (602) The Convention consists of 19 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 the arbitration agreement, the Convention (impliedly) recognizes the validity of international arbitration agreements, (603) while expressly providing for a specified, limited number of bases for invalidity of such agreements in proceedings concerning recognition of awards. (604) 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. (605) 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 page "102" an award in the arbitral seat in other jurisdictions (and not with other recognition obligations). (606) 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). (607) 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”) (608) and the parties' (and arbitrators') autonomy to determine the arbitral procedures. (609) The Convention is currently somewhat dated – reflecting its origins during the Cold War – and efforts are underway to revise its provisions. (610) c. The Inter-American Convention on International Commercial Arbitration (611) After the pioneering Montevideo Convention in 1889, and the Bustamante Code in 1920, (612) 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 page "103"
(“Inter-American Convention”), also known as the “Panama Convention.” (613) The United States ratified the Convention in 1990; other parties include Mexico, Brazil, Argentina, Venezuela, Columbia, Chile, Ecuador, Peru, Costa Rica, El Salvador, Guatemala, Honduras, Panama, Paraguay and Uruguay. (614) http://www.kluwerarbitration.com/CommonUI/print.aspx
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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. (615) Among other things, the InterAmerican Convention provides for the presumptive enforceability of arbitration agreements (616) and arbitral awards, (617) subject to specified exceptions similar to those in the New York Convention. (618)
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. (619) In turn, the Commission has adopted rules that are almost identical to the UNCITRAL Arbitration Rules. (620) The Convention also introduces provisions regarding the constitution of the arbitral tribunal and the parties' freedom to appoint arbitrators of their choosing (regardless of nationality). (621) Less desirably, the InterAmerican Convention departs from the New York Convention by omitting page "104" provisions dealing expressly with judicial proceedings brought in national courts in breach of an arbitration agreement. (622) d. The ICSID Convention (623) The International Center for the Settlement of Investment Disputes (“ICSID”) is a specialized arbitration institution, established pursuant to the so-called “ICSID Convention” or “Washington Convention” of 1965. (624) ICSID was established at the initiative of the International Bank for Reconstruction and Development (“IBRD” or “World Bank”), and is based at the World Bank's Washington headquarters. The ICSID Convention is designed to facilitate the settlement of “investment disputes” (i.e., “legal dispute[s] arising directly out of … investment[s]”) that the parties have agreed to submit to ICSID. (625) Investment disputes are defined as controversies that arise out of an “investment” and are between a Contracting State or designated state entity (but not merely a private entity headquartered or based in a Contracting State) and a national of another signatory state. (626) As to such page "105" disputes, the Convention provides (627) both conciliation and arbitration procedures. ICSID arbitrations are governed by the ICSID Convention and the ICSID Arbitration Rules. (628) The ICSID Convention contains a number of comparatively unusual provisions relating to international arbitration. First, the 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 conflicts rules) “and such rules of international law as may be applicable.” (629) In contrast, neither the New York nor InterAmerican Conventions contains comparable substantive choice-oflaw provisions. Second, ICSID awards are directly enforceable in signatory states, without any method of review in national courts. (630) This is a http://www.kluwerarbitration.com/CommonUI/print.aspx
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substantial difference from the New York Convention model, where arbitral awards are subject to annulment (in the arbitral seat) and non-recognition (elsewhere). There has thus far been very little experience with judicial enforcement of ICSID awards, principally because of the extremely high rate of voluntary compliance. Third, when a party challenges an ICSID award, the Convention empowers the Chairman of the Administrative Council of ICSID to appoint an ad hoc committee to review, and possibly annul, awards; (631) if an award is annulled it may be resubmitted to a new arbitral tribunal. (632) The ICSID annulment mechanism was initially criticized, on the grounds that it permits unduly extensive appellate review, as well as possibilities for political influence; more recent commentary and experience has been generally favorable. (633) Nearly 150 countries, from all geographical regions of the world, have ratified the ICSID Convention. (634) Until recently, however, relatively few cases had been page "106" brought under the Convention. ICSID's caseload has very significantly increased in the past two decades, particularly as a consequence of arbitrations brought pursuant to bilateral investment treaties (“BITs”) or investment protection legislation. (635) ICSID currently is administering more than 100 cases, with total amounts in dispute exceeding $30 billion, and ICSID tribunals have issued more than 100 awards. (636) Major international infrastructure and natural resource projects frequently include ICSID arbitration clauses, usually as a consequence of demands from host governments. ICSID has also frequently been included as an arbitral institution to administer arbitrations pursuant to BITs, which proliferated during the 1990s. (637) As a consequence, ICSID has gained substantially greater experience in administering international arbitrations, and enhanced credibility as an arbitral institution during the past decade or so. (638) That trend has continued in recent years, as ICSID has reviewed and modernized the ICSID Rules, which led to some improvement in the institution's arbitration procedures. (639) e. Bilateral Investment Treaties or Investment Protection Agreements (640) 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. (641) 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 page "107" stages of development have entered into BITs. A recent tally indicated that more than 2500 BITs are presently operative. (642) Most BITs provide significant substantive protections for investments made by foreign investors, including guarantees against expropriation and denials of fair and equitable treatment. (643) BITs also frequently contain provisions which permit foreign investors to require international arbitration (typically referred to as “investorhttp://www.kluwerarbitration.com/CommonUI/print.aspx
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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. (644) 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. (645) In addition, many BITs contain provisions dealing with the finality and enforceability of international arbitration awards issued pursuant to the treaty. (646) There is a substantial, and growing, body of specialized commentary addressing the subjects of BITs and investor-state arbitration. (647) These topics are beyond the scope of this treatise, save where relevant as useful parallels, contrasts, or illustrations of issues arising in international commercial arbitration. f. Bilateral Friendship, Commerce and Navigation Treaties A number of nations have entered into bilateral treaties dealing principally with commercial relations and incidentally with international arbitration. These treaties generally provide for the reciprocal recognition of arbitral awards made in the territory of the Contracting States. (648) For example, the United States includes an page "108" article relating to arbitration between private parties in many of its bilateral Friendship, Commerce and Navigation treaties. (649) For the most part, these treaty provisions have been effectively superseded by the terms of the New York Convention and other multilateral treaties, which generally provide substantially more expansive protections. (650) 2. Overview of National Arbitration Legislation Many nations have enacted arbitration legislation, which provides a basic legal framework for international arbitration agreements, arbitral proceedings and arbitral awards. 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, (651) 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 over the past 50 years. (652) page "109" Over the past several decades, large numbers of developed and less-developed states have enacted, revised or improved legislation dealing with international commercial arbitration. (653) The extent of these legislative revisions is striking, both in number and diversity. Important new enactments, or thorough revisions, have occurred in Algeria (1993), Australia (1989), Austria (2005), Bangladesh (2001), Bahrain (1994), Brazil (1996), Bulgaria (1993), Cambodia (2006), China (1991 and 1994), Colombia (1991), Costa Rica (1997), Croatia (2001), Czech Republic (1994), Denmark (2005), England (1996), Egypt (1994), Finland (1992), Germany (1998), Greece (1999), Hong Kong (1997), India (1996), Indonesia (1990), Ireland (1998), Italy (1994), Mexico (1989 and 1993), Nicaragua http://www.kluwerarbitration.com/CommonUI/print.aspx
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(2005), Norway (2004), Peru (1992), Poland (2005), Russia (1993), Singapore (1994), Spain (2004), Tunisia (1993), Turkey (2001) and the United Arab Emirates (1992). Particularly in civil law jurisdictions, early arbitration legislation was often a part or chapter within the national Code of Civil Procedure. (654) This continues to be the case in a number of jurisdictions even today. (655) In common law jurisdictions, the tendency was (and remains) to enact separate legislation dealing specifically with arbitration. (656) The growing popularity of the UNCITRAL Model Law on International Commercial Arbitration (657) has made the latter approach of stand-alone arbitration legislation increasingly common. As discussed below, in many, (658) but not all, (659) 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 page "110" “pro-arbitration” rules and procedures in the international context, which may not (for historical or other reasons) be appropriate for purely domestic matters. (660) 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). (661) Some commentators have suggested that there is no reason to distinguish between international and domestic arbitrations. (662) That view may be appropriate in jurisdictions where domestic arbitration agreements and awards are accorded strong guarantees of validity and enforceability, and where the parties' autonomy with regard to arbitral procedures, arbitrator selection, choice of law and other matters are fully respected in domestic matters. In many countries, however, such guarantees do not exist, or are subject to important qualifications, in domestic contexts; moreover, there are particular issues as to which local traditions or policies may argue for greater restrictions on domestic, rather than on international arbitration. (663) In these instances, the special characteristics of international arbitration – aimed at overcoming the unique jurisdictional, choice-of-law and enforcement uncertainties which exist in international matters, and providing an internationallyneutral dispute resolution process – fully justify treating it differently from purely domestic arbitration. (664) 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. a. Supportive National Arbitration Legislation Most states in Europe, North America, and parts of Asia have adopted legislation that addresses all of the foregoing issues and provides effective and stable support page "111" for the arbitral (665) process. In many cases, developed jurisdictions have http://www.kluwerarbitration.com/CommonUI/print.aspx
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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. (666) Thus, over the past 40 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. (667) 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, (668) provide mechanisms for the enforcement of such agreements by national courts (through orders to stay litigation or to compel arbitration), (669) prescribe procedures for confirming or annulling arbitral awards (670) and require the recognition and enforcement of foreign arbitral awards. (671) 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. (672) 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. (673)
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; page "112" rules applicable to the merits of the dispute; and waiver of means of recourse against the award).” (674) 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, (675) developed and other states have sought to promote the use of arbitration expressly as a way of mitigating such risks. (676) Among other things, they have done so through enactment of 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. Additionally, one of the objectives of new arbitration legislation during the past several decades has been to attract international arbitration business. In the words of one Irish legislator: “The economies of other countries have benefited considerably from arbitration business and there is no reason why Ireland should not share in those benefits.” (677) Or, as was asserted in debates on http://www.kluwerarbitration.com/CommonUI/print.aspx
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England's arbitration legislation, a revised arbitration act would supposedly bring the country approximately $1 billion annually in lawyers' and arbitrators' fees. (678) Some have considered these motivations unseemly or illegitimate. One commentator has complained that “countries have, without shame, exhibited their page "113" desire to attract the business (679) of arbitration,” while another has observed, with a measure of reproach, that: “[t]here has been a scramble among Western European nations to accommodate their arbitration laws to what they perceive to be the consumers’ tastes, thereby attracting a greater share of the fees that go to lawyers and arbitrators at the place of the proceeding.” (680) The reality appears to be that these legislative reforms have done relatively little to attract international arbitrations to particular countries. (681) Whatever the case, there is no reason to regard contemporary arbitration legislation with cynicism or reproach because of such motivations. (682) Modern international arbitration statutes do good (in addition to hopefully doing well) by addressing the needs of international business and international trade (“the consumers' tastes”) and by further enhancing the ability of international arbitration to resolve commercial disputes efficiently and definitively, without burdening the parties, national courts, or international commerce with the peculiar uncertainties and difficulties of transnational disputes. The fact that legislatures evince a natural and commonplace interest in fostering the local economy, and that local residents and businesses in a particular jurisdiction will derive professional opportunities and financial gain from increased use of that jurisdiction as an arbitral seat, in no way alters the benefits that such legislation produces for international businesses and, more broadly, for the global economy. There are by now a large number of supportive national arbitration statutes, in both developed and less developed jurisdictions. Most, but not all, of these statutes are modern, in the sense of having been adopted during the last three decades. The following sections briefly outline the UNCITRAL Model Law and the English, French, Swiss and U.S. international arbitration frameworks, which provide a selection of differing contemporary models for supportive arbitral regimes. At the same time, there are substantial similarities, in many respects, between contemporary page "114" international arbitration statutes in most developed jurisdictions, (683) all of which represent further steps, beyond the New York Convention, in establishing today's “pro-arbitration” legal regime for international commercial arbitration. i. UNCITRAL Model Law (684) The United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on International Commercial Arbitration (“UNCITRAL Model Law”) is the single most important legislative instrument in the field of international commercial arbitration. It has been adopted in a substantial (and growing) number of jurisdictions and served as a model for legislation and judicial decisions in many http://www.kluwerarbitration.com/CommonUI/print.aspx
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others. (685) Recent revisions to the Model Law (in 2006) sought to improve its legislative framework, (686) introducing new features and providing a good representative example of ongoing legislative efforts aimed at improving the international arbitral process. The Model Law was initiated by a proposal from the Asian African Legal Consultative Committee to supplement the New York Convention with a protocol regarding party-adopted arbitration rules. (687) The origins of the UNCITRAL Model page "115" Law are detailed in a Report by the UN Secretary-General, titled “Possible Features of a Model Law of International Commercial Arbitration.” (688) Among other things, the Report declared that: “The ultimate goal of a Model Law would be to facilitate international commercial arbitration and to ensure its proper functioning and recognition.” (689) The Secretary-General's Report also identified a number of “defects” in national laws, which the New York Convention had been addressed towards remedying, but which persisted in national legal systems: “To give only a few examples, such provisions may relate to, and be deemed to unduly restrict, the freedom of parties to submit future disputes to arbitration, or the selection and appointment of arbitrators, or the competence of the arbitral tribunal to decide on its own competence or to conduct the proceedings as deemed appropriate taking into account the parties' wishes. Other such restrictions may relate to the choice of the applicable law, both the law governing the arbitral procedure and the one applicable to the substance of the dispute. Supervision and control by courts is another important feature not always welcomed by parties especially if exerted on the merits of the case.” (690) The Report was the basis for extensive consultations and debates involving states, the international business and arbitration community (e.g., International Council for Commercial Arbitration; ICC International Court of Arbitration), and regional organizations (e.g., Asian-African Legal Consultative Committee). (691) These discussions ultimately produced the current draft of the Model Law, which UNCITRAL approved in a resolution adopted in 1985. (692) The Model Law was approved by a U.N. General Assembly resolution later the same year. (693) page "116" The Model Law was designed to be implemented by national legislatures, with the objective of further harmonizing the treatment of international commercial arbitration in different countries. The Law consists of 36 articles, which deal comprehensively with the issues that arise in national courts in connection with international arbitration. Among other things, the law contains provisions concerning the enforcement of arbitration agreements (Articles 7-9), appointment of and challenges to arbitrators (Articles 10-15), jurisdiction of arbitrators (Article 16), provisional measures (Article 17), conduct of the arbitral proceedings, including language, situs, and procedures (Articles 18-26), evidence-taking and discovery (Article 27), applicable substantive law (Article 28), arbitral awards http://www.kluwerarbitration.com/CommonUI/print.aspx
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(Articles 29-33), setting aside or vacating awards (Article 34), and recognition and enforcement of foreign arbitral awards, including bases for non-recognition (Articles 35-36). Under the Model Law, written international arbitration agreements are presumptively valid and enforceable, subject to limited, specified exceptions. (694) Article 8 of the Law provides for the enforcement of valid arbitration agreements, regardless of the arbitral seat, by way of a dismissal or stay of national court litigation. (695) The Model Law also adopts the separability doctrine, (696) and expressly grants arbitrators the authority (competence-competence) to consider their own jurisdiction. (697) (As discussed below, however, it is not entirely clear what approach the Model Law takes to the subject of competence-competence, and in particular whether interlocutory judicial review of jurisdictional objections is on a prima facie or a final basis. (698) ) The Model Law expressly prescribes a principle of judicial nonintervention in the arbitral proceeding. (699) It also affirms the parties' autonomy (subject to specified due process limits) with regard to the arbitral procedures (700) and, absent agreement between the parties, the tribunal's authority to prescribe such procedures. (701) The basic approach of the UNCITRAL Model Law to the arbitral proceedings is to define a basic set of procedural rules which – subject to a very limited number of fundamental, nonderogable principles of fairness, due process page "117" and (702) equality of treatment – the parties are free to alter by (703) agreement. The Model Law also provides for judicial assistance to the arbitral process in prescribed respects, including provisional measures, constitution of a tribunal and evidence-taking. (704)
The Model Law mandates the presumptive validity of international arbitral awards, subject to a limited, exclusive list of grounds for annulment of arbitral awards; these grounds precisely parallel those available under the New York Convention for non-recognition of a foreign award (i.e., lack or excess of jurisdiction, non-compliance with arbitration agreement, due process violations, public policy, non-arbitrability). (705) The Model Law also requires the recognition and enforcement of foreign arbitral awards (made outside the recognizing state), again on terms identical to those prescribed in the New York Convention. (706) During the twenty-three years since the UNCITRAL Model Law's adoption (in 1985), significant developments have occurred in the field of international commercial arbitration. In 1999, the UNCITRAL Secretariat identified thirteen areas for study and potential modification of the Model Law. (707) This list was culled and eventually produced proposals for amendments to the Model Law concerning interim measures and the written form requirements for arbitration agreements. (708) In 2006, UNCITRAL adopted a limited number of amendments to the Model Law. (709) The principal revisions were made to Article 2 (the addition of general page "118" interpretative principles), (710) Article 7 (the definition and written form of an arbitration agreement), (711) Article 17 (the availability of and standards for provisional http://www.kluwerarbitration.com/CommonUI/print.aspx
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measures from international arbitral tribunals and national courts) (712) and Article 35 (procedures for recognition of awards). (713) The 2006 revisions of the Model Law make useful improvements (for the most part), (714) but utilizing a drafting style that sits uneasily in the original Model Law's relatively concise, elegant text. (715) Nonetheless, the more important accomplishment of the revisions is their tangible evidence of the ongoing process by which states and business representatives seek to improve the international legal regime for the arbitral process. The Model Law and its revisions represent a significant further step, beyond the New York Convention, towards the development of a predictable “pro-arbitration” legal framework for commercial arbitration. Like the New York Convention, the Model Law's efficacy is ultimately dependent upon its interpretation and application by national courts. But the Model Law goes beyond the Convention by prescribing in significantly greater detail the legal framework for international arbitration, by clarifying points of ambiguity or disagreement under the Convention, (716) and by establishing directly applicable national legislation. At least as important, the Model Law has set the agenda for reform of arbitration statutes, even in states (like England and Switzerland) where it has not been adopted. Some 50 jurisdictions have adopted legislation based on the Model Law as of mid-2008, including Australia, Bermuda, Bulgaria, Canada, Cyprus, Germany, Hong Kong, India, Mexico, New Zealand, Nigeria, Norway, the Russian Federation, Scotland, Singapore, Spain, Tunisia and various U.S. states. (717) Other nations are page "119" considering its adoption. Moreover, decisions by courts in jurisdictions that have adopted the Model Law are beginning to produce a reasonably uniform international body of precedent concerning its meaning and application. (718) The German Ministry of Justice explained some of the reasons for adopting the UNCITRAL Model Law, during Germany's enactment of legislation derived predominantly from the Model Law: “If we want to reach the goal that Germany will be selected more frequently as the seat of international arbitrations in the future, we have to provide foreign parties with a law that, by its outer appearance and by its contents, is in line with the framework of the Model Law that is so familiar all over the world. This is necessary, in particular, in view of the fact that in negotiating international contracts, usually not much time is spent on the drafting of the arbitration agreement. The purpose of the Model Law, to make a significant contribution to the unification of the law of international arbitration, can only be met if one is willing to prefer the goal of unification instead of a purely domestic approach when it comes to the question of the necessity and the scope as well as to the determination of the contents of individual rules.” (719)
These objectives – accessibility, international uniformity, and a tested structure – have been cited in other jurisdictions. (720) page "120" http://www.kluwerarbitration.com/CommonUI/print.aspx
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That said, it is noteworthy that the world's leading international arbitration centers have generally not adopted the UNCITRAL Model Law. That is true, in particular, of France, Switzerland, England, the United States, the Netherlands, Belgium and Sweden. (721) In each of these jurisdictions, legislatures (and arbitration practitioners) have extensively debated the advisability of adopting the Model Law, but decided in favor of alternative solutions. Equally, at least some distinguished practitioners consider the Model Law to be a conservative, overly-detailed basis for national arbitration legislation. (722) Nonetheless, the Model Law's contributions to the international arbitral process are enormous and it remains, appropriately, the dominant “model” for national arbitration legislation. ii. France (723) France is one of the leading centers for international commercial arbitration in Europe and, indeed, the world. More international arbitrations are reportedly seated page "121" in France than (724) any other European jurisdiction, and French arbitration legislation and judicial decisions have exceptional international importance. (725) International arbitration in France is governed by the French New Code of Civil Procedure, principally as adopted in decrees promulgated on 14 May 1980 and 12 May 1981. The two decrees added Articles 1442-1507 to the French New Code of Civil Procedure. (726) Articles 1442 to 1491 of the New Code of Civil Procedure apply to domestic arbitrations, while Articles 1492 to 1507 apply to “international” arbitrations. (727) If the parties to an international arbitration agree that the arbitration is governed by French law, the provisions on domestic arbitration apply by analogy, unless specifically provided otherwise by the parties (or by French law). (728) The provisions of the New Code of Civil Procedure have produced a strongly pro-arbitration legal framework for international commercial arbitration. (729) That regime has been materially assisted by the French judiciary and academic community (particularly Professors Berthold Goldman, Philippe Fouchard, Pierre Mayer and Emmanuel Gaillard). Both French courts and academics have interpreted French legislation, and developed non-statutory doctrine, in a manner which has been highly supportive of the international arbitral process. (730) page "122" French law emphatically recognizes the autonomy (or separability) doctrine, (731) and provides for the presumptive validity and enforceability of arbitration agreements. (732) It also expressly grants arbitrators the power (competence-competence) to decide challenges to their jurisdiction. (733) Further, if claims which are allegedly subject to an arbitration agreement are brought in French courts, prior to constitution of the arbitral tribunal, the New Code of Civil Procedure provides for dismissal of the judicial proceedings, except where the arbitration agreement is “manifestly null;” (734) if claims which are allegedly subject to arbitration are brought in French courts after the arbitral tribunal is constituted, then the court is required to dismiss them pending a jurisdictional decision by the
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arbitrators. (735) With regard to the law applicable to the arbitration agreement, French courts have developed a relatively unusual doctrine that arbitration agreements are autonomous, subject to specific principles of international law, rather than to national law. (736) The non-arbitrability doctrine has not been invoked to any significant extent page "123" by French courts, except in labor and consumer matters. (737) In contrast to a number of developed jurisdictions, French courts do not appear to have developed “proarbitration” rules of interpretation of arbitration agreements. (738) French courts generally afford the parties to an arbitration agreement substantial autonomy with respect to choice of law, procedural rules, selection of arbitrators and the like. (739) In particular, French law expressly provides that arbitrators sitting in France are generally not bound by local rules of civil procedure applicable in French courts, and have very wide discretion in adopting arbitral procedures. (740) The New Code of Civil Procedure also grants French courts the power to assist in constituting an arbitral tribunal (741) and to issue court-ordered provisional measures in aid of arbitration. (742) The efficacy of France's arbitration legislation is materially advanced through its centralization of most arbitration-related judicial proceedings in the Tribunal de Grande Instance in Paris, which has developed a very substantial expertise in the field. (743) This is a significant institutional advance, which could usefully be adopted in other jurisdictions. The 1981 Decree also reformed French law relating to recognition and enforcement of international arbitral awards. Among other things, the New Code of Civil Procedure permits actions in French courts to annul international arbitral awards made in France, on limited grounds (substantially similar to, and sometimes page "124" more liberal than, those in the New York Convention). (744) The New Code of Civil Procedure also provides for the recognition and enforcement of international arbitral awards on the same grounds. (745) iii. Switzerland (746) Like France, Switzerland is one of Europe's, and the world's, leading centers for international commercial arbitration. (747) Its arbitration legislation, and academic community, have also been at the forefront of developments in the field of international arbitration over the past century. (748) International arbitration in Switzerland is governed primarily by a chapter of the federal Swiss Law on Private International Law. These statutory provisions were significantly influenced by proposals and reviews of a committee of leading Swiss arbitration practitioners and academics, (749) and entered into effect in 1989. The Swiss Law on Private International Law replaced, insofar as international arbitration is concerned, the Swiss Inter-Cantonal Concordat. (750) The Swiss Law on Private International Law's http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration chapter is noteworthy for its brevity, comprising only 19 articles, drafted in brief, declarative terms. (751) page "125" Under the Swiss Law on Private International Law, international arbitration agreements are readily and effectively enforced. The Law expressly recognizes the separability doctrine (752) and prescribes a specialized “pro-arbitration” choice-of-law regime, pursuant to which international arbitration agreements, providing for arbitration in Switzerland, are substantively valid provided they conform to either (a) the law chosen by the parties (where the parties have made a specific choice of law for the arbitration agreement); (b) the law applicable to the dispute (in particular, that applicable to the principal contract); or (c) Swiss law. (753) The Swiss Law on Private International Law also expressly confirms the arbitrators' competence-competence, while generally permitting arbitral tribunals to resolve jurisdictional challenges in the first instance. (754) Swiss law also provides for the arbitrability of a wide range of disputes (755) and the Swiss Federal Tribunal adopted a relatively expansive “pro-arbitration” rule of interpretation of the scope of international arbitration agreements. (756) Where claims subject to an arbitration agreement are asserted in Swiss courts, the parties' arbitration agreement will be given effect by dismissing judicial proceedings. (757) Under the Swiss Law on Private International Law, the parties' freedom to agree upon the applicable procedural and substantive law is expressly recognized. (758) Judicial interference by Swiss courts in the arbitration process (other than regarding the availability of provisional measures and evidence-taking in aid of a tribunal) is narrowly limited. (759) As to arbitral awards made in Switzerland, actions to vacate or annul are limited to grounds generally paralleling those in the New York Convention. (760) Parties can agree to exclude even this review of international arbitral awards, provided that none of the parties is domiciled in Switzerland. (761) Swiss courts will recognize and enforce foreign arbitral awards without substantial judicial review, subject only to page "126" the limits of the New York (762) Convention. As in France, many judicial functions relating to international arbitration are centralized, with the Swiss Federal Tribunal generally having original jurisdiction in annulment actions. (763)
iv. England (764) England is a significant center for international commercial arbitration, whose popularity has increased over the past two decades. (765) The continuing spread of English as the language of international business, and the development of London as an international financial and business center, augur for continued growth in England's importance as an arbitral center. Both international and domestic arbitrations seated in England, Wales or Northern Ireland are governed by the English Arbitration Act, 1996, which provides a detailed (110 separate sections) statement of English arbitration law. (766) The Act is based roughly http://www.kluwerarbitration.com/CommonUI/print.aspx
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on the UNCITRAL Model Law, while introducing a number of formal and substantive innovations. (767) The Act departed from the historic common law approach towards arbitration legislation (e.g., addressing isolated issues, often page "127" in response to (768) judicial decisions ), in favor of greater codification (derived in part from the Model Law). (769) Indeed, the Act has produced the somewhat anomalous result that the cradle of common law jurisprudence now boasts a substantially longer, more detailed statutory statement of international arbitration law than any civil law jurisdiction (and, specifically, France and Switzerland, whose arbitration statutes are exceptional for their brevity (770) ). The English Arbitration Act, 1996, was preceded in the 20th century by three other major pieces of arbitration legislation, enacted in 1950, 1975 and 1979. (771) The 1950 and 1975 Acts established a highly-regulated legal regime for arbitration in England, with substantial scope for judicial involvement in the arbitral process and review of arbitral awards. (772) In particular, English legislation prior to 1979 provided for a widely-criticized “case stated” procedure, which had granted parties to arbitrations seated in England a mandatory right of access to the English courts to review de novo issues of English law that arose in the course of arbitral proceedings (without the possibility of exclusion agreements to contract out of such review). (773) The Arbitration Act, 1979, revised this historic approach and established a more acceptable, if by no means ideal, regime for international arbitrations in England. (774) Under the Arbitration Act, 1979, agreements to arbitrate were presumptively enforceable in England, including by means of a stay of national court litigation, page "128" and English courts imposed few “non-arbitrability” constraints. Moreover, although not formally accepting the “separability” doctrine, English courts did not in fact permit challenges to the parties' underlying contract to interfere unduly with the arbitral process. (775) The 1979 Act amended, but did not eliminate, the historic “case stated” procedure: the Act permitted parties to enter into exclusion agreements, which waived the right to judicial review of the merits of the arbitrators' award (save for cases involving shipping, commodities and insurance). (776) Where no such exclusion agreement existed, more demanding judicial review persisted, (777) which was the cause for continuing criticism in many quarters. (778) In response to these (and other) criticisms, the English Arbitration Act, 1996, was adopted, following an extensive consultation process with both English and foreign sources. (779) The Act was intended to – and did – significantly improve the legislative framework for international arbitration in England. The Act compiled all prior English legislative provisions relating to arbitration into a single statute, based in large part on the UNCITRAL Model Law, and introduced a modern “pro-arbitration” legislative regime for international arbitration in England. (780) The 1996 Act provides expressly for the validity of written (and some other) arbitration agreements (as to both existing and future disputes) and for the stay of English court proceedings concerning claims subject to valid arbitration agreements. (781) The Act also provides for the separability of arbitration agreements, (782) and for http://www.kluwerarbitration.com/CommonUI/print.aspx
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recognition of the arbitral tribunal's competence-competence to rule on its own jurisdiciton. (783) Recent English judicial decisions have interpreted the page "129" competence-competence doctrine broadly, and adopted a robust “pro-arbitration” approach to the interpretation of international arbitration clauses. (784) The Act does not address the subject of non-arbitrable disputes or claims, but English courts have adopted a narrow view of the doctrine. (785) The 1996 Act contains a number of provisions granting arbitrators broad freedom in conducting arbitral proceedings, with a minimum of judicial interference. (786) This freedom includes wide authorization with respect to procedural and evidentiary matters, (787) appointment of experts, (788) ordering the payment of security for the costs of the arbitration (789) and granting conservatory or provisional measures. (790) Among other things, it is now entirely clear that arbitrators conducting arbitral proceedings seated in England are not obliged to apply local rules of English civil procedure or evidence. (791) The Act also provides for English judicial assistance to arbitrations seated in England, including in taking evidence, (792) appointing or removing arbitrators (793) and granting provisional measures. (794) The changes introduced by the 1996 Act with regard to the arbitral procedures were described in Lesotho Highlands Development Authority v. Impregilo SpA, where the House of Lords quoted with approval the remarks of Lord Wilberforce during the legislative process: “I have never taken the view that arbitration is a kind of annex, appendix or poor relation to court proceedings. I have always wished to see arbitration, as far as possible, and subject to statutory guidelines no doubt, regarded as page "130" a freestanding system, free to settle its own procedure and free to develop its own substantive law – yes, its substantive law. I have always hoped to see arbitration law moving in that direction. That is not the position generally which has been taken by English law, which adopts a broadly supervisory attitude, giving substantial powers to the court of correction and otherwise.… Other countries adopt a different attitude and so does the UNCITRAL Model Law. The difference between our system and that of others has been and is, I believe, quite a substantial deterrent to people to sending arbitrations here.… How then does this Bill stand in that respect? … I find that on the whole, although not going quite as far as I should personally like, it has moved very substantially in this direction. It has given to the court only those essential powers which I believe the court should have; that is, rendering assistance when the arbitrators cannot act in the way of enforcement or procedural steps, or, alternatively, in the direction of correcting very fundamental errors.” (795) With respect to awards made in England, the Act departs entirely from the historic “case stated” procedure and provides only limited http://www.kluwerarbitration.com/CommonUI/print.aspx
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grounds for annulling international arbitral awards made in England. The Act's grounds for vacating awards are now limited to lack of substantive jurisdiction of the arbitral tribunal, limited categories of “serious irregularity” in procedural matters and limited appeals on points of law (which may only be brought with leave of the court and may be excluded by agreement between the parties). (796) The Act also provides for the recognition and enforcement of foreign arbitral awards, primarily by incorporating the provisions of the New York Convention. (797) page "131" v. United States of America (798) The United States is an important center for international arbitrations (799) and U.S. companies are even more important participants in the international arbitral process. (800) Despite general concerns about the U.S. legal system (focused on jury trials, discovery, punitive damages and delays), the United States has remained popular as an international arbitral seat over the past three decades. (801)
International arbitration in the United States is governed by an outwardly complex, but ultimately satisfactory, legal framework. Most important issues relating to international arbitration agreements and arbitral awards are governed primarily by U.S. federal (rather than state) law. In particular, the “Federal Arbitration Act” (or “FAA”) sets forth a basic statutory regime for arbitration, with separate chapters for both domestic arbitration (Chapter 1) and international arbitrations subject to the New York and Inter-American Conventions (Chapters 2 and 3). (802) The FAA has the distinction – and burden – of being the oldest arbitration statute in any major jurisdiction. (803) Additionally, although limited, the role of state law in the enforcement of international arbitration agreements is occasionally important. (804) page "132" (1). Unenforceability of Arbitration Agreements under U.S. Law in the 19th Century As discussed above, for the better part of the 19th century, U.S. courts were hostile towards agreements to arbitrate future disputes. Even more so than English courts (where legislative reforms had intervened), American judges refused to grant specific enforcement of arbitration agreements, and permitted their revocation at any time. (805) This grudging approach towards arbitration agreements reflected a variety of factors, including concern about private agreements “ousting” the courts of jurisdiction, skepticism about the adequacy and fairness of the arbitral process and suspicions that arbitration agreements were often the product of unequal bargaining power. (806) As discussed above, these attitudes began to shift during the late 19th century, particularly in some U.S. state court decisions. (807) Following sustained lobbying from the business community, New York enacted an arbitration statute in 1920 designed to reverse common law hostility to arbitration and to render arbitration agreements enforceable in New York courts. (808) The New York statute provided a model for what became federal legislation dealing http://www.kluwerarbitration.com/CommonUI/print.aspx
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with arbitration – the Federal Arbitration Act, originally titled the “United States Arbitration Act.” (809) The FAA was strongly supported by the U.S. business community, which saw litigation as increasingly expensive, slow and unreliable: (810) “The clogging of our courts is such that the delays amount to a virtual denial of justice,” (811) and the proposed FAA was intended to “enable business men to settle their disputes expeditiously and economically.” (812) With virtually no opposition or amendment, page "133" the bill that became the FAA was unanimously adopted in 1925 by both the House of Representatives and the Senate. (813) The Act's stated purpose was to reverse the hostility which U.S. courts had developed towards arbitration agreements in commercial matters, and in particular the common law rules that arbitration agreements were revocable or unenforceable as contrary to public policy. According to the FAA's legislative history: “The need for the law arises from an anachronism of our American law. Some centuries ago, because of the jealousy of the English courts for their own jurisdiction, they refused to enforce specific agreements to arbitrate upon the ground that the courts were thereby ousted from their jurisdiction. This jealousy survived for so long a period that the principle became firmly embedded in the English common law and was adopted with it by the American courts. The courts have felt that the precedent was too strongly fixed to be overturned without a legislative enactment.” (814)
This historical description was not entirely accurate, omitting to note that English law had in fact developed reasonably effective mechanisms for enforcing arbitration agreements, while American courts (and legislatures) had failed to do so. (815) Nevertheless, this explanation captured one of the key statutory objectives of the FAA: “the fundamental conception underlying the law is to make arbitration agreements valid, irrevocable, and enforceable.” (816) (2). The Federal Arbitration Act: Chapter One As noted above, the FAA currently consists of three chapters: (a) the “domestic” FAA, 9 U.S.C. §§1-16, enacted in 1925 and applicable to agreements and awards affecting either interstate or foreign commerce; (817) (b) the New York Convention's implementing legislation, 9 U.S.C. §§201-208, enacted in 1970 and applicable only to awards and agreements falling within the New York Convention; (818) and (c) the Inter-American Convention's implementing legislation, 9 U.S.C. §§301-07, enacted in 1990 and applicable only to awards and agreements falling under the Inter-American Convention. (819) The FAA is remarkably brief and, by contemporary standards, relatively skeletal; among other things, it omits provisions on numerous page "134" topics addressed in most contemporary arbitration legislation in other developed jurisdictions. (820) In true common law fashion, however, U.S. courts have developed an extensive body of judicial authority which, while not http://www.kluwerarbitration.com/CommonUI/print.aspx
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readily accessible to non-U.S. parties or practitioners, provides a workable legal regime for international arbitrations. (821) The centerpiece of the domestic FAA is §2, which provides that arbitration agreements involving interstate and foreign commerce (822) “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (823) In turn, §§3 and 4 of the Act provide the principal mechanisms for enforcing §2's general rule that arbitration agreements are presumptively valid. Section 3 requires “any court of the United States” to stay proceedings before it, if they involve issues that are “referable to arbitration,” while §4 requires “United States district court[s]” to issue orders compelling arbitration of such issues. (824) Other sections of the FAA address limited aspects of the arbitral process. Section 5 grants district courts the power to appoint arbitrators if the parties either have not done so or have agreed upon an appointment procedure which proves unworkable. (825) Section 7 of the Act authorizes the issuance of “subpoenas” (orders to provide evidence) by arbitral tribunals, and permits U.S. district courts to issue compulsory process to assist tribunals in taking evidence. (826) In turn, §§9, 10, and 11 of the FAA provide that arbitral awards may be confirmed as U.S. judgments, subject to only a limited number of enumerated exceptions. (827) These sections also set forth procedures for confirming, vacating, or correcting arbitral awards subject to the Act. (828) page "135" It is notable how many subjects are not directly addressed by the FAA. The statute does not expressly deal with such matters as the separability doctrine, the allocation of competence between U.S. courts and arbitrators to resolve disputes over arbitration agreements (competence-competence), challenging arbitrators, provisional relief, the conduct of arbitral proceedings, interlocutory judicial review, choice of law, form of the award and costs. Notable also is the relative brevity of the FAA on most of the issues which it does address, such as the grounds and procedures for challenging either arbitration agreements or arbitral awards. (829) (3). The Federal Arbitration Act: Chapters Two and Three After U.S. ratification of the New York Convention in 1970, Congress enacted amendments to the FAA, in a second chapter to the Act, implementing the Convention. (830) In ratifying the New York Convention, Congress was motivated (as with the domestic FAA in 1925) by a desire for more efficient dispute resolution: “[I]t is important to note that arbitration is generally a less costly method of resolving disputes than is fullscale litigation in the courts. To the extent that arbitration agreements avoid litigation in the courts, they produce savings not only with the parties to the agreement but also for the taxpayers – who must bear the burden for maintaining our court system.” (831) In addition, Congress sought to facilitate the development of a stable and effective system of international commercial dispute resolution, on which U.S. companies expanding into global markets could rely, http://www.kluwerarbitration.com/CommonUI/print.aspx
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in order to promote international trade and investment. (832) Like the original domestic Act, the FAA's second chapter is remarkably brief. It provides that arbitration agreements shall be enforceable, and contains provisions authorizing U.S. courts to compel arbitration pursuant to such agreements (including in foreign arbitral seats). (833) The Act's second chapter also provides for the recognition and enforcement of awards that are subject to the Convention, simply by incorporating the Convention's terms. (834) page "136" In 1990, the United States enacted implementing legislation for the Inter-American Convention, codified as a third chapter to the FAA. (835) The chapter incorporates much of the New York Convention's implementing legislation by reference, (836) adding additional provisions to deal with the Inter-American Commercial Arbitration Commission's rules (837) and the relationship between the New York and Inter-American Conventions. (838) Like the domestic FAA, at the heart of the third chapter are provisions requiring the enforcement of specified arbitration agreements and awards, together with very briefly-described procedures for doing so. (839) There is considerable “overlap” among the various sources of U.S. federal law affecting international arbitration agreements and awards. Arbitral awards and agreements falling under the New York Convention are of course governed by both the Convention and the second chapter of the FAA (which implements the Convention). In addition, however, these awards and agreements are potentially governed by the first, “domestic” chapter of the FAA, to the extent it is not “in conflict” with the Convention. (840) This potentiallyconfusing structure has the effect that domestic U.S. arbitration law (and judicial authority) serves as a “gap filler” of sorts, although the precise terms of this mechanism have not been definitively articulated by U.S. courts. Beyond its express terms, the FAA has provided the basis for a fairly expansive “federal common law” of arbitration; (841) this body of judicial authority also applies, more broadly than in domestic matters, in the context of international arbitrations subject to the New York and Inter-American Conventions. (842) That body of law is of uncertain scope, but it clearly extends to such subjects, discussed below, as the separability presumption, the competencecompetence doctrine, the interpretation and validity of international arbitration agreements, the parties' autonomy with regard to arbitral procedures, the tribunal's procedural powers and the availability of provisional relief in connection with arbitrations. (843) Importantly, as also discussed page "137" below, the FAA and the federal common law rules derived from the FAA override (or “preempt”) inconsistent state (and foreign) law rules governing the same subjects, particularly rules which seek to deny effect to agreements to arbitrate and arbitral awards. (844) Despite the relatively spartan, and archaic, drafting and ad hoc origins of the FAA's three chapters, U.S. courts have generally interpreted the Act in a fashion which is highly supportive of the international arbitral process. For the most part, U.S. courts have been even more supportive of the international arbitral process than of domestic U.S. arbitrations. (845) http://www.kluwerarbitration.com/CommonUI/print.aspx
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With respect to arbitration agreements, U.S. courts have repeatedly embraced the separability doctrine, (846) have defined in considerable and influential detail the allocation of competence between courts and arbitrators to decide disputes over the formation, validity and interpretation of arbitration agreements, (847) have strongly affirmed the presumptive validity of arbitration agreements (subject only to limited, neutral exceptions) (848) and have fashioned a decidedly “pro-arbitration” approach to the interpretation of arbitration agreements. (849) With respect to the arbitral process, U.S. courts have emphasized the parties' freedom to agree upon arbitration rules and procedures, (850) the arbitrator's discretion in presiding over the arbitral process and adopting arbitral procedures (851) and the very limited scope for interlocutory judicial review of the arbitrator's decisions. (852) U.S. judicial decisions have also provided (with some exceptions) for court-ordered provisional measures (853) and disclosure, (854) as well as judicial support for constitution of the arbitral tribunal. (855) page "138" Finally, with respect to arbitral awards, U.S. courts have permitted vacatur (annulment) of awards made in the United States on limited grounds, generally paralleling those in the New York Convention, but also permitting a limited degree of substantive judicial review of the merits of the arbitrators' award (under the so-called “manifest disregard” doctrine). (856) With regard to foreign arbitral awards, U.S. courts have held that such awards are presumptively valid and enforceable, subject only to the New York Convention's specified exceptions. (857) There have been repeated suggestions in the past decades for revision or replacement of the FAA, particularly as regards international arbitration. (858) Critics have argued that the Act fails to provide the statutory framework which exists in most developed arbitral centers, placing the United States in an unattractive position vis-à-vis such jurisdictions (859) and failing to provide (particularly foreign) parties with clear guidance regarding the content of U.S. law. (860) Others have responded that U.S. law regarding arbitration, and particularly international arbitration, is highly developed, through judicial decisions, (861) and that legislation would likely produce a worse (not better) result. (862) Business leaders in particular fear that congressional legislation on arbitration could “open a Pandora's box of special interests” and result in damage to the pro-arbitration legal framework currently existing in U.S. courts. (863) Legislation has been introduced in recent Congresses which would amend the FAA (including to render domestic consumer and employee disputes non-arbitrable). (864) Although predictions about legislative processes are notoriously risky, it appears unlikely that this legislation will be adopted, even in domestic matters. At least for the present, legislative reform affecting international commercial arbitration in the United States appears unlikely. page "139" (4). U.S. State Arbitration Laws The role of the FAA within the U.S. legal system, and in particular in http://www.kluwerarbitration.com/CommonUI/print.aspx
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relation to the laws of the 50 states, can appear complex. (865) The basic principles can nonetheless be readily summarized. In principle, a U.S. federal statute will override, or “preempt,” inconsistent U.S. state law substantive rules addressing the same subjects. (866) Accordingly, insofar as the FAA was intended to address particular substantive topics or general fields, it will preempt state law addressing those topics or fields. (867) The U.S. Supreme Court has held that the domestic FAA “contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration.” (868) At the same time, the Court has also repeatedly declared that the FAA creates a body of substantive federal rules relating to arbitration: in enacting the FAA, “Congress declared a national policy favoring arbitration and page "140" withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” (869) As a consequence, it is well-settled that U.S. state law rules which single out and purport to render interstate and international arbitration agreements invalid, illegal or revocable are preempted by the FAA. (870) As noted above, it is also settled, in both domestic and international contexts, that the FAA and federal law establish the presumptive separability of the arbitration agreement, (871) provide the exclusive standards for interpreting arbitration agreements (872) and for confirming and vacating arbitral awards. (873) Nonetheless, in a purely domestic context, issues concerning the formation of arbitration agreements, as well as at least some issues of substantive and formal validity, are governed primarily by generally-applicable state contract law. (874) In contrast, there is substantial lower court and other authority holding that federal common law, derived from the New York Convention, governs the formation and validity of international (as distinguished from domestic) arbitration agreements. (875) These issues are complex and are addressed in greater detail below. (876) Apart from these complexities, U.S. state law is applicable to arbitration agreements and awards when – but only when – the Convention and the FAA (and the federal common law derived from both sources) are inapplicable. That may be the case, for example, because the agreement or award does not affect interstate or foreign commerce (which is by definition virtually impossible in international commercial matters). State law may also be applicable to issues bearing on arbitration that federal statutory and common law do not directly or indirectly address. Although the issue is unsettled, that may include the availability of court-assisted discovery, provisional relief, or consolidation. (877) page "141" Every state of the Union has adopted legislation dealing with commercial arbitration. Many states have enacted some version of the “Uniform Arbitration Act.” First proposed in 1924 by the Conference of Commissioners on Uniform State Laws, (878) the current, revised text of the Act was adopted by the Conference in 2000, making substantial changes to earlier versions. (879) The Uniform Arbitration Act has been enacted in some 38 states and http://www.kluwerarbitration.com/CommonUI/print.aspx
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the District of Columbia, (880) and has influenced arbitration legislation in other U.S. states. (881) The original Uniform Arbitration Act was substantially similar to the FAA. Among other things, it required specific enforcement of arbitration agreements (as to both existing and future disputes) (882) and provided for the recognition and enforcement of arbitral awards with only limited judicial review. (883) The Revised Uniform Arbitration Act usefully adds a number of additional provisions, broadly paralleling the UNCITRAL Model Law, concerning the constitution of the arbitral tribunal, (884) provisional measures, (885) the arbitral procedure, (886) the form of awards (887) and immunity of arbitrators. (888) Nevertheless, a number of U.S. states have not adopted the Uniform Arbitration Act, and a few have rejected its generally “pro-arbitration” lead. Several state statutes do not permit arbitration of various categories of claims, such as tort, real page "142" property and (889) insurance claims. Other U.S. states have enacted legislation requiring that arbitration clauses be conspicuously identified (e.g., printed in capital letters, placed on the front of any contract, etc.). (890) And some state statutes do not provide for the same general rule of enforceability and limited judicial review of arbitral awards that the FAA and Uniform Arbitration Act require. (891) In addition, especially in recent years, some U.S. states have enacted legislation designed to fill perceived gaps left in the U.S. federal framework for international arbitration. (892) In particular, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Maryland, North Carolina, Ohio, Oregon and Texas have adopted statutes purporting to deal comprehensively with the subject of international arbitration. (893) The extent to which these statutes are preempted by the FAA and federal common law principles remains unclear. To date, however, both these statutes and state law more generally have played a distinctly secondary role in the international arbitral process. (894) page "143" One potential exception to this general rule was the Supreme Court's decision in Volt Information Sciences, Inc. v. Board of Trustees. (895) There, a California choice-of-law clause in the parties' purely domestic contract was interpreted, in vaguely-defined circ*mstances, to incorporate state procedural rules relating to arbitration, and the FAA was held not to preempt this result. Subsequent U.S. Supreme Court decisions, (896) and most lower court decisions, (897) have interpreted Volt narrowly, holding that general choice-of-law clauses ordinarily do not encompass state arbitration laws and that the FAA preempts state law rules that impede the enforcement of arbitration agreements. b. Less Supportive National Legislation Some nations regarded international commercial arbitration with a mixture of suspicion and hostility during much of the 20th century. (898) This hostility arose from a reluctance to compromise perceived principles of national sovereignty, a disdain for principles of party autonomy and doubts concerning the fairness, neutrality and efficacy of contemporary international commercial arbitration. (899) Although historic distrust for international arbitration has waned http://www.kluwerarbitration.com/CommonUI/print.aspx
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substantially in recent decades, it has not entirely disappeared and continues to influence legislation, judicial decisions and other actions in some countries. Developing countries in many parts of the world refused for much of the 20th century to enforce agreements to arbitrate future disputes. This was particularly true in Latin America and much of the Middle East. (900) Some developing states took page "144" the position that international arbitration agreements were an unjustifiable infringement upon national sovereignty, which was to be vigorously resisted. (901) In many cases, arbitration agreements were valid only if they concerned an existing (not a future) dispute, which was the subject of a submission agreement committing the parties to resolve the dispute by arbitration. (902) In Latin America, the Calvo doctrine (first articulated in 1896) declared among other things that foreign nationals were mandatorily subject to the jurisdiction of local courts, which could not be ousted by international arbitration agreements. (903) The doctrine was incorporated into national legislation and constitutional instruments, which not infrequently rendered international arbitration agreements invalid. (904) Political declarations from developing states also reflected the continuing hostility of many developing states towards international arbitration, even well into the 20th century. A 1971 declaration of the Andean Commission declared: “[No agreement concerning foreign investment shall] withdraw possible … controversies from the national jurisdiction of the recipient country.” (905) The same principles were later reflected in various declarations associated with the “New International Economic Order.” (906) page "145" Against this background, contemporary arbitration legislation in some developing states still does not provide effective enforcement of agreements to arbitrate future disputes; such provisions are sometimes either revocable at will or unenforceable in broad categories of disputes. (907) Similarly, in a number of states, international arbitral awards are subject to either de novo judicial review or to similarly rigorous scrutiny on other grounds. (908) Finally, some national courts have been prepared to interfere in the international arbitral process – for example, by purporting to remove arbitrators, to resolve “preliminary” issues, to bar foreign lawyers from appearing, or to enjoin arbitrations. (909) Nonetheless, during the last decade, a number of states which historically distrusted international arbitration have ratified the New York Convention and/or enacted legislation supportive of the arbitral process. (910) These include India, China, Saudi Arabia, Argentina, Algeria, Bahrain, Brazil, Tunisia, Turkey, Nigeria, Peru and (at least for a time) Russia, Ecuador and Venezuela. Although there is often little practical experience with the application of arbitration legislation in such states, these statutes have the potential for providing a more stable, predictable framework for international arbitration. Unfortunately, even where national law is superficially supportive of the international arbitral process, some national courts have displayed a readiness to hold arbitration agreements or awards http://www.kluwerarbitration.com/CommonUI/print.aspx
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invalid or to interfere with the arbitral process. That is particularly true when national courts are requested to do so by local page "146" companies, state entities, or individuals. (911) Moreover, the early years of the 21st century have witnessed a potential resurgence of historic ideological opposition to at least certain aspects of the international arbitral process, with developing states (912) and some commentators (913) condemning the legitimacy and fairness of the process. It remains to be seen how substantial and long-lived this trend is, although it has thus far attracted little interest outside a limited number of states.
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Despite resistance in a few quarters, most national arbitration statutes enacted during the past several decades have adopted proarbitration legal regimes that give effect to the terms of the New York Convention and support the international arbitral process. These legislative regimes are of essential importance to the contemporary international arbitral process, enabling parties reliably to resolve their disputes efficiently in a neutral, centralized forum. Equally, the continuing development and refinement of these legislative regimes is vital to the ongoing improvement and adaptation of the arbitral process to changing conditions. 3. Overview of Leading International Arbitration Institutions and Rules As discussed above, a central objective of contemporary international arbitration conventions and national arbitration legislation has been to give effect to commercial parties' international arbitration agreements, including agreements on arbitral procedures. (914) A vital means by which parties exercise their autonomy in this context is through the inclusion, in their commercial contracts, of arbitration agreements incorporating institutional or ad hoc arbitration rules. page "147" International arbitration can be either “institutional” or “ad hoc.” There are vitally important differences between these two alternatives. Institutional arbitrations are conducted pursuant to institutional arbitration rules, almost always overseen by an administrative authority with responsibility for various aspects relating to constituting the arbitral tribunal, fixing the arbitrators' compensation and similar matters. (915) In contrast, ad hoc arbitrations are conducted without the benefit of an appointing and administrative authority or (generally) pre-existing arbitration rules, subject only to the parties' arbitration agreement and applicable national arbitration legislation. a. Institutional Arbitration A number of organizations, located in different countries, provide institutional arbitration services, often tailored to particular commercial or other needs. As indicated above, the best-known international commercial arbitration institutions are the International Chamber of Commerce (“ICC”), the American Arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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Association (“AAA”) and its International Centre for Dispute Resolution (“ICDR”), and the London Court of International Arbitration (“LCIA”). Each of these organizations is described below. (916)
Also active in the field are the Stockholm Chamber of Commerce Arbitration Institute (“SCC”), the Singapore International Arbitration Center (“SIAC”), the Japan Commercial Arbitration Association (“JCAA”), the Hong Kong International Arbitration Centre (“HKIAC”), the World Intellectual Property Organization (“WIPO”), the Swiss Chambers of Commerce, the German Institution of Arbitration (“DIS”), the International Arbitral Centre of the Austrian Economic Chamber (“VIAC” or “Vienna International Arbitral Centre”), the Chinese International Economic and Trade Arbitral Center (“CIETAC”), the Cairo Regional Centre for International Commercial Arbitration (“CRCICA”), the Australian Centre for International Commercial Arbitration (“ACICA”), the Kuala Lumpur Regional Centre for Arbitration (“KLRCA”) and the Indian Council of Arbitration (“ICI”). There are also a number of less widely-known regional or national arbitral institutions, as well as the International Centre for the Settlement of Investment Disputes (“ICSID”), dealing with investment disputes, (917) and industry-specific institutions. (918) page "148" These (and other) arbitral institutions have promulgated sets of procedural rules that apply where parties have agreed to arbitration pursuant to such rules. (919) Among other things, institutional rules set out the basic procedural framework and timetable for the arbitral proceedings. Institutional rules also typically authorize the arbitral institution to select arbitrators in particular disputes (that is, to serve as “appointing authority”), to resolve challenges to arbitrators, to designate the place of arbitration, to fix or influence the fees payable to the arbitrators and (sometimes) to review the arbitrators' awards to reduce the risk of unenforceability on formal grounds. Each arbitral institution has a staff (with the size varying significantly from one institution to another) and a decision-making body. It is fundamental that arbitral institutions do not themselves arbitrate the merits of the parties' dispute. This is the responsibility of the particular individuals selected as arbitrators. (920) Arbitrators are virtually never employees of the arbitral institution, but instead are private persons selected by the parties. (921) If parties cannot agree upon an arbitrator, most institutional rules provide that the host institution will act as an “appointing authority,” which chooses the arbitrators in the absence of the parties' agreement. (922) b. Ad Hoc Arbitration Ad hoc arbitrations are not conducted under the auspices or supervision of an arbitral institution. Instead, parties simply agree to arbitrate, without designating any institution to administer their arbitration. Ad hoc arbitration agreements will sometimes choose an arbitrator (or arbitrators), who is (or are) to resolve the dispute without institutional supervision or assistance. (923) The parties will sometimes also select a pre-existing set of procedural rules designed to govern ad hoc arbitrations. For international commercial disputes, the United Nations Commission on page "149" International Trade Law (“UNCITRAL”) has published a commonlyhttp://www.kluwerarbitration.com/CommonUI/print.aspx
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used set of such rules, the UNCITRAL Arbitration Rules. (924) Where ad hoc arbitration is chosen, parties usually will (and certainly should) designate an appointing authority, (925) that will select the arbitrator(s) if the parties cannot agree (or if their chosen arbitrator is unable to serve) and that will consider any subsequent challenges to members of the tribunal. If the parties fail to select an appointing authority, then the national arbitration statutes of many states permit national courts to appoint arbitrators (but this is less desirable than selection of an experienced appointing authority). (926) c. Relative Advantages and Disadvantages of Institutional and Ad Hoc Arbitration Both institutional and ad hoc arbitration have strengths. Institutional arbitration is conducted according to a standing set of procedural rules and supervised, to a greater or lesser extent, by a professional staff. (927) This reduces the risks of procedural breakdowns, particularly at the beginning of the arbitral process, and of technical defects in the arbitration proceedings and arbitral award. The institution's involvement can be particularly valuable on issues relating to the appointment of arbitrators, the resolution of challenges to arbitrators, the selection of an arbitral seat and fixing the arbitrators' fees, where professional, specialized staff provide better service than ad hoc decisions by national courts with little, if any, experience or institutional resources for such matters. (928) Equally important, many institutional rules contain provisions that make the arbitral process more reliable and expeditious. This includes provisions concerning competence-competence, separability, provisional measures, disclosure, arbitrator impartiality, corrections and challenges to awards, replacement of arbitrators and truncated tribunals, costs and the like. (929) Less directly, an arbitral institution lends its standing to any award that is rendered, which may enhance the likelihood of voluntary compliance and judicial enforcement. (930) On the other hand, ad hoc arbitration is typically more flexible, less expensive (since it avoids sometimes substantial institutional fees) and arguably more confidential than institutional arbitration. Moreover, the growing size and sophistication of the international arbitration bar, and the efficacy of international page "150" legislative frameworks for commercial arbitration, have partially reduced the relative advantages of institutional arbitration. Nonetheless, most experienced international practitioners fairly decisively prefer the more structured, predictable character of institutional arbitration, and the benefits of institutional rules and appointment mechanisms, at least in the absence of unusual circ*mstances arguing for an ad hoc approach. d. UNCITRAL Arbitration Rules (931) The UNCITRAL Arbitration Rules occupy an important position, both historically and in contemporary arbitration practice. In 1973, UNCITRAL proposed the preparation of model arbitration rules. (932) The objective of the UNCITRAL Rules was to create a unified, predictable and stable procedural framework for international http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitrations without stifling the informal and flexible character of such dispute resolution mechanisms. (933) The Rules aimed to be acceptable to common law, civil law and other legal systems, as well to capital-importing and capital-exporting interests. (934) The Rules were promulgated by Resolution 31/98, adopted by the General Assembly of the United Nations on 15 December 1976. (935) page "151" The UNCITRAL Rules were designed for use in ad hoc international commercial arbitrations. When they were adopted in 1976, the Rules were the only set of rules available specifically for that purpose. Although alternatives now exist, (936) most states, which generally will have supported the Rules in the United Nations debates, and their state-owned entities, often find it difficult to object to their use in an arbitration agreement or arbitral proceeding. (937) Like most institutional arbitration rules, the UNCITRAL Rules prescribe a basic procedural framework for the arbitration. This includes provisions for initiating an arbitration, (938) selection and challenge of arbitrators, (939) conduct of the arbitral proceedings, (940) choice of applicable law, (941) awards (942) and costs of the arbitration. (943) The Rules also contain provisions confirming the presumptive separability of the arbitration clause from the underlying contract, and the tribunal's power (competence-competence) to consider jurisdictional objections. (944) Under the Rules, where the parties have not agreed on an appointing authority, (945) the Secretary General of the Permanent Court of Arbitration serves a sui generis function, of designating a suitable appointing authority. (946) The UNCITRAL Rules have contributed significantly to the harmonization of international arbitration procedures. A number of arbitral institutions have either page "152" adopted the UNCITRAL Rules entirely, or have substantially adopted those rules in fashioning institutional rules. (947) Although designed principally for international trade disputes, the Rules are not limited to commercial matters and have been used successfully in both stateto-state and investor-state arbitrations. The UNCITRAL Rules are currently under study, with possible revisions (paralleling those made to the UNCITRAL Model Law) foreseen in coming years. (948) e. Leading International Arbitral Institutions If institutional arbitration is desired, the parties must choose a particular arbitral institution and refer to it in their arbitration clause. (949) Parties ordinarily rely on one of a few established international arbitration institutions. This avoids the confusion and uncertainty that comes from inexperienced arbitrator appointments and administrative efforts. All leading international arbitration institutions are prepared to, and routinely do, administer arbitrations sited almost anywhere in the world, and not merely in the place where the institution itself is located. (950) There is therefore no need to select an arbitration institution headquartered in the parties' desired arbitral seat (e.g., the LCIA or Vienna International Arbitral Centre can readily administer an arbitration seated in Paris or New York, while the AAA http://www.kluwerarbitration.com/CommonUI/print.aspx
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can administer arbitrations seated in Vienna or London). A number of organizations provide institutional arbitration services. Some of the best known of these organizations are described briefly below. The services rendered by professional arbitration institutions come at a price, which is in addition to the fees and expenses of the arbitrators. Every arbitral institution has a fee schedule that specifies what that price is. The amounts charged by institutions for particular matters vary significantly, as does the basis for page "153" calculating such fees. For example, some institutions use hourly charges while others charge based upon a percentage of the amount in dispute. All leading arbitral institutions periodically revise their institutional arbitration rules. Like the rules themselves, these revisions are the product of extensive consultations among leading practitioners, academics, business users and arbitrators. (951) These consultative processes are aimed at refining the institutional rules for the purpose of making arbitration agreements and awards more enforceable and arbitral proceedings more efficient. As with the refinement of national arbitration legislation, (952) this is an example of the ongoing adaptation and improvement of the international arbitral process in response to criticisms, consumers' needs and changing conditions. i. International Chamber of Commerce International Court of Arbitration (953) The ICC's International Court of Arbitration was established in Paris in 1923 (in parallel with efforts by the international business community to secure adoption of the Geneva Protocol, the FAA and other legislative reforms). (954) The ICC remains the world's leading international commercial arbitration institution, and has less of a national character than any other leading arbitral institution. (955) page "154" The ICC's annual case load was well above 300 cases per year during much of the 1990s, and it now approaches 600 cases per year. (956) Most of these cases are international disputes, many involving very substantial sums. The ICC's caseload includes disputes between parties from around the world, with parties outside Western Europe being involved in more than 50% of all ICC cases in many recent years. (957) The ICC has promulgated a set of ICC Rules of Arbitration (which are periodically revised, most recently in 1998) as well as the ICC Rules of Optional Conciliation, the ICC Rules for Expertise, the ICC Dispute Board Rules and the ICC Rules for a Pre-Arbitral Referee Procedure. (958) Under the ICC Rules, the ICC (through the International Court of Arbitration (“ICC Court”)) is extensively involved in the administration of individual arbitrations. Among other things, the ICC Court and its Secretariat are responsible for service of the initial Request for Arbitration; (959) fixing and receiving payment of advances on costs of the arbitration by the parties; (960) confirming the parties' nominations of arbitrators; (961) appointing arbitrators if a party defaults or if the parties are unable to agree http://www.kluwerarbitration.com/CommonUI/print.aspx
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upon a presiding arbitrator or sole arbitrator; (962) considering challenges to the arbitrators including on the basis of lack of independence; (963) reviewing and approving so-called “Terms of Reference,” which define the issues and procedures for the arbitration; (964) reviewing a tribunal's draft award for formal and other defects; (965) and fixing the arbitrators' compensation. (966) The ICC's International Court of Arbitration is not, in fact, a “court,” and does not itself decide disputes or act as an arbitrator. Rather, the ICC Court is an administrative body that acts in a supervisory and appointing capacity under the ICC Rules. (967) It maintains a sizeable legal and administrative staff of some 35 persons, from more than a dozen nationalities, organized as a Secretariat. Specialized teams of counsel and administrative staff are assigned to cases originating from page "155" particular geographic, linguistic and/or cultural regions. As detailed above, the Secretariat is substantially involved in the day-to-day supervision of arbitrations. (968)
ICC arbitrations can be (and are) seated almost anywhere in the world. In 2004, for example, ICC arbitrations were conducted in 49 different countries. (969) By far the most common seats for ICC arbitrations are France, Switzerland, England, other Western European states and the United States, as well as Singapore and Hong Kong. (970) One of the ICC's principal functions is the appointment of arbitrators and the resolution of challenges to arbitrators. (971) As discussed below, the ICC Rules, coupled with administrative practice, prescribe procedures and substantive standards for the exercise of these responsibilities. (972) The ICC does not maintain a list of potential arbitrators and instead relies on its Secretariat and on “National Committees” to make arbitrator appointments. (973) The ICC Rules are broadly similar to the UNCITRAL Rules (974) (and many other leading institutional rules) in providing a broad procedural framework for the arbitral proceedings. This includes provisions for filing a request for arbitration and other initial written pleadings, (975) constituting an arbitral tribunal, (976) conducting the arbitration (977) and making an award. (978) As with most other institutional rules, only a skeletal procedural framework is provided, with the parties and arbitrators being accorded substantial freedom to adopt procedures tailored to particular disputes. Unusually, the ICC Rules require both a “Terms of Reference” and procedural page "156" timetable to be adopted by the Tribunal at the outset of proceedings (979) and that an award be rendered within six months (absent extensions, which are freely granted). (980) Also unusually, the ICC Rules provide for the ICC Court to review draft awards before they are finalized and executed by the arbitrators. (981)
The ICC's administrative fees are based on the amount in dispute between the parties. With respect to arbitrators' fees, the ICC Rules fix both a minimum and a maximum amount which can be charged, based on the amount in dispute. (982) With respect to administrative fees and charges, the ICC Rules provide for a sliding scale of charges that is again based upon the amount in dispute between the http://www.kluwerarbitration.com/CommonUI/print.aspx
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parties. The ICC Rules require that the parties pay an advance on the costs of the arbitration calculated by the ICC Court. (983) The advance on costs is equally divided between the claimant and the respondent, although one party may pay the full amount in order to enable the arbitration to proceed if the other party defaults. (984) The ICC's Rules have sometimes been criticized as expensive and cumbersome, (985) although the 1998 amendments reflected a concerted effort to meet this criticism. (986) Despite criticism of its costs and delays, the ICC clearly remains the institution of preference for many sophisticated commercial users. Related to the ICC Rules of Arbitration are the ICC's ADR Rules. (987) These Rules provide (where agreed by the parties) a skeletal procedure for non-binding conciliation. The ICC also operates the International Centre for Expertise (founded in 1976). (988) The Centre operates under rules last revised in 2003 (the ICC Rules for page "157" Expertise), (989) which provide for non-binding expert opinions or reports to be made, upon the request of parties (and following opportunities for submissions to the designated expert). In particular, Article 12 of the Centre's Rules for Expertise provides that, unless otherwise agreed by all parties, “the findings of the expert shall not be binding upon the parties.” (990) Parties are free to provide for greater binding effect for such recommendations, but doing so requires a specific contractual provision. (991) ii. London Court of International Arbitration Founded in 1892, the LCIA is, by many accounts, the second most popular European institution in the field of international commercial arbitration. (992) The LCIA's annual caseload, which is generally increasing, has exceeded 100 disputes in recent years. (993) The LCIA has made a determined, and somewhat successful, effort in recent years to overcome perceptions that it is a predominantly English organization. Among other things, it has appointed three successive non-English presidents, and its vice-presidents include a number of non-English practitioners. In recent years, fewer than 20% of the LCIA's cases have involved any U.K. parties. (994) The LCIA administers a set of arbitration rules, the LCIA Arbitration Rules, which were extensively revised in 1998. Although identifiably English in drafting style, and to a lesser extent in procedural approach, the LCIA Rules generally provide a sound basis for international dispute resolution, particularly for parties desiring common law procedures (e.g., disclosure, security for costs). Broadly speaking, LCIA arbitrations are administered in a less comprehensive fashion than ICC cases. Among other things, the LCIA Rules contain no Terms of Reference page "158" procedure and do not provide for institutional review of draft awards. (995) The LCIA's administrative fees are calculated based upon the time spent by LCIA personnel (currently £200/hour for the Registrar and £100/hour for the Secretariat). In contrast to most other institutional rules, the LCIA Rules set out the powers of an LCIA arbitral tribunal in some detail. (996) The http://www.kluwerarbitration.com/CommonUI/print.aspx
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powers to order discovery (997) and security for legal costs (i.e., a deposit or bank guarantee securing the estimated amounts which an unsuccessful claimant would be liable to reimburse to a successful respondent for its costs of legal representation) (998) are prominently included among the arbitrators' powers. A particular procedural advantage of the LCIA Rules is their provision for expedited formation of the arbitral tribunal. (999) Also unusually, the LCIA Rules also permit intervention of third parties in LCIA arbitrations (subject to prescribed conditions). (1000) The LCIA recently announced a decision to publish (in a redacted form) decisions of the LCIA Court on challenges to arbitrators. (1001) Like the ICC, the LCIA does not maintain a standing list or panel of arbitrators. The LCIA's appointments of arbitrators have historically been drawn predominantly from the English bar and retired judiciary, in large part because many LCIA cases have involved contracts governed by English law. In cases not involving English law, the LCIA's selections of arbitrators are more international. The LCIA fixes the arbitrators' fees according to the time expended by the arbitrators at the hourly rates published by the LCIA and fixed by agreement between the arbitrators and the LCIA. (1002) Most LCIA arbitrations are sited in London. In the absence of agreement by the parties to the contrary, London will be selected by the LCIA as the arbitral seat under Article 16(1) of the LCIA Rules. (1003) page "159" iii. American Arbitration Association and International Centre for Dispute Resolution (1004) The AAA was founded in 1926, following the merger of two New York arbitration institutions (themselves founded in the early 1920s). (1005) The AAA remains based in New York (with approximately 35 regional offices throughout the United States). (1006) The AAA is the leading U.S. arbitral institution, and reportedly handles one of the largest numbers of arbitral disputes in the world. (1007) The primary arbitration rules administered by the AAA are the AAA Commercial Arbitration Rules. (1008) These rules are used in a large majority of domestic U.S. commercial arbitrations. (1009) Numerous other sets of AAA arbitration rules also exist, in particular for specialized types of disputes, and can be selected in the parties' arbitration agreement. (1010) Non-U.S. parties have sometimes been reluctant to agree to arbitration against U.S. parties under the AAA rules, fearing parochial predisposition and unfamiliarity with international practice. In recent years, the AAA has taken a number of steps aimed at overcoming this image and enhancing its position as an international institution. In 1991, the AAA promulgated the AAA International Arbitration Rules, designed specifically for international arbitrations (which have since evolved into page "160" the current ICDR Rules). (1011) In 1996, the AAA established an “International Centre for Dispute Resolution” (“ICDR”), with exclusive responsibility for administering http://www.kluwerarbitration.com/CommonUI/print.aspx
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the AAA's international arbitrations. (1012) The ICDR has administrative facilities in both New York and Dublin, Ireland, and offers a worldwide list of more than 500 potential arbitrators and mediators. The ICDR International Dispute Resolution Procedures (“ICDR Rules”) provide the applicable set of AAA arbitration rules for use in “international” disputes (except where the parties have otherwise agreed). (1013) This alters the previous position, in which the primarily domestic AAA Commercial Arbitration Rules provided the fall-back rules when parties to international agreements had agreed to AAA arbitration without designating a particular set of rules. The AAA/ICDR's international rules are based principally on the UNCITRAL Rules, and were intended to permit a maximum of flexibility and a minimum of administrative supervision. They are periodically revised, most recently in May 2006. (1014) Under all versions of AAA rules, the AAA/ICDR administrative staff plays a less significant supervisory role than does the ICC Secretariat. Among other things, the AAA/ICDR does not receive or serve initial notices or requests for arbitration; does not require or review a Terms of Reference; and plays a less significant role in setting the arbitrators' fees. (1015) The AAA's administrative charges are based on the amount in dispute. With respect to the arbitrators' fees, arbitrators fix their own rates, which are published on their resumes for parties to consider when receiving a list of potential arbitrators. Compensation under the AAA/ICDR international rules is ultimately based on the arbitrators' “amount of service,” taking into account their stated rates and the “size and complexity of the case.” (1016) page "161" The ICDR/AAA's international rules allow the parties to agree on any procedure for appointing arbitrators. (1017) In practice, most AAA appointments are based on a list procedure, whereby names drawn from the AAA's rosters are presented to the parties for expressions of preference. (1018) Although the AAA's lists have historically been dominated by U.S. practitioners, the ICDR increasingly seeks to appoint arbitrators with international experience in appropriate international cases. (1019) Nonetheless, some users have found the AAA/ICDR appointment procedures and selections patchy, with less involvement of experienced international practitioners than other leading institutions. The AAA's case load has increased significantly over recent decades. In 1997, it reported a total case load of 11,130 cases (under its Commercial Rules), rising to 12,068 cases (under its Commercial Rules) in 2006. Similar growth is reported in international cases. Although there are questions about methodology, the AAA reports increases in its international case load from 453 cases filed in 1999 to more than 580 new international filings in 2005. (1020) On any measure, these statistics place the AAA among the world's most active international arbitration institutions. iv. Swiss Chambers of Commerce (1021) Switzerland's major cities have historically maintained local http://www.kluwerarbitration.com/CommonUI/print.aspx
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Chambers of Commerce and Industry which have administered institutional arbitrations. (1022) On 1 January 2004, these Swiss institutions merged their international arbitration systems and adopted the Swiss Rules of International Arbitration (“Swiss Rules” or “Swiss page "162" International Arbitration Rules”). (1023) Arbitrations under these Rules benefit from the pro-arbitration Swiss Law on Private International Law (1024) and from the availability of substantial numbers of practitioners and potential arbitrators with impressive arbitration experience in Switzerland. The Swiss rules are particularly detailed, containing provisions regarding competence-competence, confidentiality, arbitrator immunity and consolidation. (1025) v. Vienna International Arbitral Centre The Vienna International Arbitral Centre (“VIAC”) was established in 1975. (1026) VIAC is based in Vienna, Austria and the overwhelming majority of the arbitrations that it administers are sited in Vienna (although VIAC can also administer arbitrations sited elsewhere). (1027) VIAC conducts exclusively international arbitrations, as mandated by the VIAC Rules' requirement that at least one of the parties be of non-Austrian origin or the dispute must be of an international character. Between 2000 and 2004, VIAC administered roughly 50 arbitrations annually. VIAC arbitrations are administered in accordance with the Vienna Rules of Arbitration and Conciliation (“VIAC Rules”). The VIAC Rules were most recently revised in 2006 (1028) in the light of recent revisions to Austrian arbitration legislation. (1029) page "163" VIAC was originally conceived primarily as a venue for East/West economic disputes during the Cold War. These origins are reflected in the fact that a significant proportion of VIAC's caseload still includes parties from Central and Eastern Europe. vi. Hong Kong International Arbitration Centre The HKIAC was established in 1985 and had developed into Asia's leading international arbitration institution prior to departure of the British administration. (1030) The HKIAC's Rules are based on the UNCITRAL Arbitration Rules, although parties are free to agree upon alternative procedural regimes. The Hong Kong Arbitration Ordinance (which is based on the UNCITRAL Model Law) provides a broadly favorable arbitration regime. The HKIAC enjoys a substantial caseload (approximately 280 disputes in 2004). (1031) Potential users have sometimes voiced concerns about future stability and judicial independence in Hong Kong, and some parties remain reluctant to designate HKIAC in disputes involving Chinese parties. Nonetheless, the HKIAC receives favorable reviews from a number of informed observers, and concerns about Hong Kong's future have moderated somewhat, at least in cases not involving Chinese state-owned (or similar) entities. vii. Chinese International Economic and Trade Arbitration Center (1032)
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The China International Economic and Trade Arbitration Center (“CIETAC”) was established by the Chinese government in 1956. Also known as the Court of Arbitration of China Chamber of International Commerce, CIETAC is based in Beijing, with offices in a number of other Chinese cities. CIETAC enjoys a privileged position in Chinese arbitration and is focused overwhelmingly on Chinese-related disputes. In particular, the 1995 Chinese Arbitration Law gave page "164" CIETAC (and the China Maritime Arbitration Commission) a de facto monopoly on international arbitrations sited in China. (1033) During the 1980s, CIETAC played only a relatively minor role, even in Chinese arbitrations, handling only some 40 cases a year. (1034) During recent years, however, CIETAC's caseload has reportedly increased to between 600-800 cases per year, arguably giving it one of the largest international arbitration caseloads in the world. (1035) CIETAC has frequently revised its Arbitration Rules, most recently in 1998, 2000 and 2005. (1036) The new Rules have sought to bring CIETAC's practices in line with other international arbitration institutions, by affording greater party autonomy, transparency and efficiency. Unlike previous versions, which required the parties to appoint arbitrators from CIETAC's Panel of Arbitrators, the new Rules allow the parties, so long as they agree, to choose a nonCIETAC arbitrator. (1037) Nevertheless, CIETAC still promotes its seven Sino-centric Panels of Arbitrators, the largest of which is the Panel of Arbitrators for International (Foreign-related) Disputes. (1038)
Under the new CIETAC Rules, parties are able to choose either adversarial or inquisitorial proceedings. In those cases where CIETAC appoints a presiding or sole arbitrator, CIETAC is also now required to consider candidates nominated by the parties. (1039) The new CIETAC Rules also modify the procedure for appointing the chairman of the tribunal, in cases where there is a tribunal of three arbitrators. (1040) Moreover, a six month time limit has been set from the date of composition of the arbitral tribunal to the issuance of an award (1041) and stricter requirements have been introduced for disclosure of conflicts, as well as challenges to, and replacement of, arbitrators. (1042) Other important changes to the CIETAC Rules include the parties' ability to agree to CIETAC arbitration outside China and to modify the CIETAC Rules and/or incorporate the rules of other arbitral institutions. Arbitral tribunals have also been granted enhanced powers under the CIETAC Rules, including the power to decide page "165" on its own jurisdiction (a power previously reserved for CIETAC itself). (1043) The new Rules have retained CIETAC's supervision over cases, including the practice of reviewing draft awards. (1044) In terms of fees, both the administrative fees charged by CIETAC and the arbitrators' fees are based upon the amount in dispute between the parties. Despite recent changes, experienced foreign users remain very skeptical about CIETAC arbitration, particularly in matters involving disputes between Chinese and non-Chinese parties. Uncertainty regarding CIETAC's management and independence has, if anything, deepened in recent years. Except in the most routine http://www.kluwerarbitration.com/CommonUI/print.aspx
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types of commercial dealings, with limited amounts in dispute, foreign investors and other foreign parties doing business related to China will continue to insist for the foreseeable future on thirdcountry arbitral institutions. Chinese state entities often suggest that they are unable to accept any arbitral institution other than CIETAC, but experience indicates that this is not correct. viii. Cairo Regional Centre for International Commercial Arbitration The Cairo Regional Centre for International Commercial Arbitration (“Cairo Centre”) is a non-profit, international organization established in Egypt in 1979 under the auspices of the Egyptian Government and the Asian-African Legal Consultative Organization. Since that time, the Cairo Centre has administered both domestic and international arbitrations and, by mid-May 2005, had handled some 440 cases. (1045) The Cairo Centre directs its services primarily towards Asian-African trade and investment disputes, particularly in the Arab world. It applies a slightly modified version of the UNCITRAL Rules and reportedly maintains a list of more than 1,000 international arbitrators (drawn primarily from the Asian-African region). ix. Stockholm Chamber of Commerce Arbitration Institute Founded in Stockholm in 1917, the Stockholm Chamber of Commerce Arbitration Institute (“SCC”) developed into a substantial forum for disputes involving parties from the USSR and (subsequently) China during the 1970s and 1980s. (1046) The SCC remains a preferred foreign arbitral institution for Chinese stateowned entities, with China-related disputes comprising a sizeable portion of the SCC's current caseload. (1047) page "166" The SCC Rules were extensively revised in 2007. (1048) The SCC's Rules leave most aspects of arbitration procedure to the arbitral tribunal. (1049) The SCC typically appoints members of the Swedish bar, with international experience, or former Swedish judges, as arbitrators. SCC arbitrations are usually sited in Sweden, although other seats can be chosen. x. Singapore International Arbitration Centre The Singapore International Arbitration Centre (“SIAC”) was established in 1990, initially for disputes arising out of construction, shipping, banking and insurance. The SIAC Rules are based largely on the UNCITRAL Rules. The SIAC has made a serious effort in recent years to overcome occasional historic perceptions of an interventionist attitude by Singaporean courts in the arbitral process. (1050) There are a number of signs that this effort is bearing fruit, especially in conjunction with concerns about other regional arbitral situses. xi. World Intellectual Property Organization (1051) The Arbitral Centre of the World Intellectual Property Organization http://www.kluwerarbitration.com/CommonUI/print.aspx
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(“WIPO”) was established in Geneva, Switzerland in 1994. WIPO and its Arbitration Rules are designed particularly for intellectual property disputes, although other types of controversies are not excluded from use of the WIPO Rules and facilities. WIPO's Arbitration Rules contain detailed provisions dealing with issues that are of particular importance in intellectual property disputes. These include provisions relating to discovery, disclosure and protection of trade secrets, and confidentiality of arbitral proceedings. (1052) As of 2007, the WIPO Arbitral Centre had received some 80 requests for arbitration, covering a range of intellectual property disputes including patent and software license disputes, research and development agreement disputes. (1053) WIPO page "167" also administers a very large number of domain names disputes. The institution has not yet developed a significant track record, but initial reviews are favorable. (1054) xii. German Institution of Arbitration The German Arbitration Committee was originally founded in 1920 to offer arbitration services in Germany. (1055) In 1992, the Committee merged with the German Arbitration Institute to form the German Institution of Arbitration (“Deutsche Institution für Schiedsgerichtsbarkeit” or “DIS”) to provide uniform nationwide arbitration services in Germany for all sectors of the economy. (1056) The DIS Arbitration Rules (published in English translation as well as an authoritative German text) are intended for both national and international arbitrations. Much of the DIS's caseload consists of domestic disputes, although Germany's enactment of the UNCITRAL Model Law in 1998 (1057) may have helped somewhat to attract greater international usage. Currently, about 35%-40% of the DIS annual caseload of approximately 80 cases involves nonGerman parties. (1058) xiii. Japanese Commercial Arbitration Association The Japan Commercial Arbitration Association (“JCAA”) and the Japan Shipping Exchange (“JSE”) are Japan's only permanent arbitral institutions. (1059) The JCAA was founded by the Japan Chamber of Commerce and Industry in 1950, with a particular focus on international commercial disputes. The JCAA has adopted the JCAA Commercial Arbitration Rules, (1060) which have been used principally for Japan-related transactions. xiv. Australian Centre for International Commercial Arbitration The Australian Centre for International Commercial Arbitration (“ACICA”) was established in 1985 on the initiative of the Institute of Arbitrators in Australia. The ACICA promulgated new rules, based on the UNCITRAL Rules, in 2005 and enjoys a growing reputation, particularly in arbitrations involving parties from the Asia/Pacific region. (1061) In such arbitrations, the ACICA provides a credible page "168" alternative to either HKIAC or SIAC. The ACICA can also act as appointing authority under the UNCITRAL Rules. (1062)
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xv. Kuala Lumpur Regional Centre for Arbitration The Kuala Lumpur Regional Centre for Arbitration (“KLRCA”) was established in 1978 to promote international commercial arbitration in the Asia/Pacific region. (1063) The KLRCA administers arbitrations under its rules, which are based upon the UNCITRAL Rules with various modifications and adaptations. Although it still has a relatively limited caseload at this stage (two international arbitrations in 2006 and two as of mid-2007), KLRCA provides an alternative to HKIAC, ACICA and SIAC in commercial arbitrations involving parties from the Asia/Pacific region. xvi. Indian Council of Arbitration The Indian Council of Arbitration (“ICA”) was established in 1965 and is now regarded as India's pre-eminent arbitration institution. The ICA has recently revised its rules based on the provisions of the Indian Arbitration and Conciliation Act (1996). Many users remain cautious about seating arbitrations in India, noting interventionist attitudes of Indian courts. (1064) 4. Overview of International Guidelines and Harmonization In addition to institutional arbitration rules, there are a number of international guidelines or codes of conduct regarding the conduct of international arbitrations. (1065) These sources play an important role in providing tested procedural solutions and predictability in international arbitrations. These guidelines are buttressed by very extensive commentary by arbitrators and practitioners, addressing various procedural aspects of the international arbitral process. (1066) These materials provide important page "169" sources of guidance for both tribunals and parties, making the arbitral process more predictable and transparent, while not curtailing the parties' and arbitrators' ability to tailor the procedures in particular cases to the individual needs of those cases. a. IBA Rules on the Taking of Evidence in International Commercial Arbitration (1067) Although not a set of institutional arbitration rules, the International Bar Association's “Rules on the Taking of Evidence in International Commercial Arbitration” fulfill related functions. In 1983, the IBA adopted the “Supplementary Rules Governing the Presentation and Reception of Evidence in International Commercial Arbitration.” (1068) The Rules attempted to provide a blend of civil law and common law approaches to the subjects of discovery and evidentiary presentations in arbitration. (1069) The Rules were not independently binding, but could be either adopted by parties in their arbitration agreement (or otherwise) or relied upon by arbitral tribunals for guidance. (1070) The IBA Rules were extensively revised in 1999, and retitled the “Rules on the Taking of Evidence in International Commercial Arbitration” (“IBA Rules”). (1071) As discussed below, the IBA Rules establish a reasonably-detailed and workable set of procedures for http://www.kluwerarbitration.com/CommonUI/print.aspx
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witness evidence and disclosure requests in international arbitrations. (1072) Like their predecessors, the IBA Rules are not independently binding, but are intended for incorporation into parties' arbitration agreements or as a basis for an arbitral tribunal's procedural rulings. (1073) In practice, the IBA Rules are finding increasing favor as guidelines for arbitral procedures. (1074) page "170" b. ABA/AAA Code of Ethics, IBA Rules of Ethics and IBA Guidelines on Conflicts of Interest in International Arbitration (1075)
In a related set of developments, non-binding international guidelines have been adopted by the IBA and other bar associations with regard to the ethics of international arbitrators. In 1977, a joint committee of the American Bar Association (“ABA”) and American Arbitration Association adopted the ABA/AAA Code of Ethics. (1076) As discussed in greater detail below, the Code sought to provide ethical guidelines for arbitrators, focusing particularly on issues of bias and partiality. (1077) After lengthy debate, in 2004, the ABA/AAA Code of Ethics was amended, including to impose presumptive duties of independence and impartiality on coarbitrators. (1078) In 1987, the International Bar Association adopted “Rules of Ethics for International Arbitrators.” (1079) Derived in part from the ABA/AAA Code, the IBA effort sought to establish ethical standards for application to international arbitrators. (1080) The IBA Rules of Ethics were (and remain) influential guidelines in international arbitration practice. More recently, in 2004, the IBA published a detailed set of guidelines and accompanying commentary concerning the independence of arbitrators (the “IBA Guidelines on Conflicts of Interest in International Arbitration”). (1081) As discussed in greater detail below, (1082) the IBA Guidelines detail circ*mstances which are customarily considered to raise doubts regarding an arbitrator's independence or impartiality, and supplement the IBA Rules of Ethics in this regard; they also provide for disclosure of such circ*mstances by arbitrators and prospective arbitrators. (1083) page "171" The IBA Guidelines have been the subject of some criticism, on the grounds that they are needlessly detailed and susceptible of encouraging challenges to both arbitrators and awards. (1084) The IBA Guidelines are not automatically binding on either national courts or arbitral institutions. They nonetheless provide an influential perspective on customary attitudes towards an arbitrator's obligations of independence and impartiality. c. UNCITRAL Notes on Organizing Arbitral Proceedings In 1996, UNCITRAL published the “UNCITRAL Notes on Organizing Arbitral Proceedings.” (1085) The UNCITRAL Notes are non-binding guidelines for arbitrators and parties which are designed to identify issues that frequently arise in the course of international arbitrations. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Among other things, the UNCITRAL Notes briefly discuss procedural rules, communications, written submissions, evidence, witnesses and hearings. d. Chartered Institute of Arbitrators' “Practice Guidelines” The Chartered Institute of Arbitrators (based in London) has issued a number of “Practice Guidelines” providing recommendations regarding various practical aspects of the international arbitral process. Among other things, the Guidelines address the interviewing of arbitrators, documents-only arbitrations, costs orders, and jurisdictional challenges, in particular from the perspective of the arbitral tribunal. 5. Overview of Elements of International Arbitration Agreements As already discussed, international commercial arbitration is almost always consensual: (1086) arbitration generally occurs only pursuant to an arbitration page "172" agreement between the parties. (1087) It is, of course, possible for parties to agree to submit an existing dispute to arbitration, pursuant to a “submission agreement” or “compromise.” (1088) Typically, however, disputes are arbitrated as a consequence of pre-existing arbitration clauses in the parties' underlying commercial contract. (1089) Parties are largely free to draft their arbitration agreements in whatever terms they wish and in practice this freedom is liberally exercised. (1090) Like other contractual clauses, the terms of arbitration agreements are largely a product of the parties' interests, negotiations and drafting skills. International arbitration agreements often – and advisedly – address a number of critical issues. These are: (a) the agreement to arbitrate; (b) the scope of the disputes submitted to arbitration; (c) the use of an arbitration institution and its rules; (d) the seat of the arbitration; (e) the method of appointment, number, and qualifications of the arbitrators; (f) the language of the arbitration; and (g) a choice-of-law clause. In particular cases, other provisions may be either vital to an effective international arbitration agreement or advantageous to one or both parties. (1091) a. The Agreement to Arbitrate It is tautological – but not always the case in practice – that any arbitration clause must set forth the parties' agreement to arbitrate. (1092) As a drafting matter, this means that arbitration agreements should (and usually do) expressly refer to “arbitration” – and not to expert determination, accounting, conciliation, mediation, negotiation, page "173" settlement, “ADR,” or some other form of non-judicial resolution. (1093) As discussed in greater detail below, these other forms of alternative dispute resolution are not categorized as “arbitration” under many international treaties and national arbitration statutes, and will often not qualify for the “proenforcement” safeguards provided by these instruments. (1094) Accordingly, a fundamental element of any international arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement is the parties' undertaking that “all disputes shall be finally resolved by arbitration.…” Similarly, most international arbitration agreements provide (and should provide) that disputes should be referred to arbitration for a “binding” or “final” disposition (and not for an advisory recommendation). (1095) An arbitration clause also should not treat arbitration as a possible future option, applicable if the parties so agree after a dispute arises. (1096) Thus, arbitration clauses should (and usually do) provide that “all disputes shall be finally resolved by arbitration.…” (1097) b. Scope of Arbitration Agreement Critical to any arbitration clause is its “scope” – that is, the categories of disputes or claims that will be subject to arbitration. (1098) For example, an agreement to arbitrate may provide that all disputes between the parties, bearing any conceivable connection to their contractual relations, are subject to arbitration. Alternatively, the parties may agree that only contract claims that clearly arise under the express terms of the parties' agreement (or particular provisions of that agreement) are to be arbitrated or that particular types of claims are to be excluded from an otherwise broad arbitration agreement. (1099) There are a handful of formulae that are frequently used to define the scope of arbitration clauses. (1100) These formulae include “any” or “all” disputes: (i) “arising under this Agreement”; (ii) “arising out of this Agreement”; (iii) “in connection with this Agreement”; and (iv) “relating to this Agreement.” Alternative formulations are also used, including: (v) “all disputes relating to this Agreement, including any page "174" question regarding its existence, validity, breach or termination”; or (vi) “all disputes relating to this Agreement or the subject matter hereof.” (1101) As a general rule, parties draft international arbitration clauses broadly, to cover all disputes having any connection with the parties' dealings. (1102) Doing so avoids the expense arising from parallel proceedings (where certain contractual disputes are arbitrated and other contractual, or non-contractual, disputes are litigated). (1103) It also avoids the uncertainties resulting from potentially inconsistent judgments and jurisdictional disputes over the scope of the various proceedings. Even where the parties have agreed in principle to a broad arbitration clause, there may be claims or disputes that one party does not want submitted to arbitration. This can include matters such as intellectual property rights or payment obligations, which are sometimes excluded or carved out of the scope of the arbitration clause. (1104) Although these types of exclusions can serve legitimate objectives, most parties conclude that it is better to avoid efforts to exclude particular types of disputes from arbitration, except in unusual circ*mstances. Such exclusions often lead (undesirably) to parallel proceedings in both the arbitral forum and national courts, and to jurisdictional disputes over the application of a clause to particular claims. (1105) c. Institutional Arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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As discussed above, institutional arbitration is conducted pursuant to procedural rules promulgated by a particular arbitration institution, which generally also “administers” the arbitration. (1106) If institutional arbitration is desired, the parties' arbitration agreement must select and refer to an arbitration institution and its rules. (1107) In general, every arbitration institution provides its own model arbitration clause; parties wishing to invoke the institution's rules should ordinarily use this clause as the basis for their agreement, departing from it only with care and for considered reasons. (1108) In cases where the parties do not wish to agree to institutional arbitration, they will sometimes select a pre-existing set of procedural rules designed for ad hoc page "175" arbitrations (1109) (such as the UNCITRAL Rules). Arbitration clauses frequently accomplish this result by references such as “all disputes shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules.…” d. Specifying the Seat or Place of the Arbitration Another vital element of any international arbitration agreement is designation of the “seat” (or “place”) of the arbitration. (1110) This is the state where the arbitration has its formal legal or juridical seat, and where the arbitral award will formally be made. (1111) It is also the place where many or all of the hearings in the arbitration will be conducted, although the tribunal may generally hold hearings elsewhere for reasons of convenience. (1112) The text of contractual provisions selecting the arbitral seat is not complex, usually providing only “The seat of the arbitration shall be.…” or “The place of arbitration shall be.…” As discussed below, there are a number of legal and practical consequences that follow from selection of an arbitral seat, making this one of the most important aspects of any international arbitration agreement. (1113) These consequences include influencing the choice of law governing the arbitration agreement, the selection of the procedural law of the arbitration and the national courts responsible for applying that law, the selection of the national courts responsible for issues relating to constitution of the tribunal and assistance in other aspects of arbitral procedure, and the selection of the national courts responsible for (and arbitration law applicable to) annulment of arbitral awards. (1114) All of these issues are of substantial importance to the arbitral process (which contrasts with domestic arbitration in many countries, where the selection of an arbitral situs is much less important). e. Number, Method of Selection and Qualifications of Arbitrators It is also common for international arbitration agreements to address the number, means of appointment and qualifications of the arbitrators. (1115) As discussed below, selection of the arbitrators is one of the most critical issues in any arbitration. (1116) Addressing this issue in the arbitration agreement is a vitally-important precaution. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Arbitration clauses often specify the number of persons who will comprise an arbitral tribunal in the event of future disputes. If the parties do not agree upon the page "176" number of arbitrators, leading institutional arbitration rules generally grant the institution power to do so; (1117) otherwise, national courts will have the power to decide, pursuant to default rules in national arbitration legislation. (1118) Nonetheless, relying on a judicial or institutional decision regarding the number of arbitrators can result in delays or jurisdictional disputes. As a consequence, parties often specify the number of arbitrators in their arbitration clause. (1119) The text of provisions designating the number of arbitrators is not complex. For example, a typical clause would provide: “Any dispute shall be finally resolved under the [– Rules] by [three arbitrators] [one arbitrator] appointed in accordance with the said Rules.” An alternative provides “the number of arbitrators shall be [three] [one].” (1120)
It is also essential for an arbitration agreement to include some method for selecting the arbitrator(s). The most common approach is for the parties to attempt to reach agreement on a sole arbitrator or to each appoint one member of a three member tribunal, with the third arbitrator chosen by the two party-appointed arbitrators or selected by an appointing authority. It is also essential for the parties to include a method of appointing the tribunal in the event that they cannot, or do not, constitute the tribunal as agreed. (1121) The most common such mechanism is designation of an “appointing authority,” which will select a sole arbitrator or presiding arbitrator in the event that the parties (or party-nominated arbitrators) cannot do so, or if a party fails to select a party-nominated arbitrator. (1122) All leading institutional arbitration rules provide for such a role by the sponsoring institution when the parties agree to arbitrate under an institution's rules, (1123) and no special wording (aside from adopting the institution's rules) is necessary to select the institution as appointing authority. (1124) page "177" Finally, international arbitration agreements can either directly specify or indirectly influence the qualifications and characteristics of the arbitrators. (1125) For example, most leading institutional arbitration rules provide that a presiding or sole arbitrator shall not have the same nationality as that of any of the parties (unless otherwise agreed). (1126) An arbitration agreement can also require (or prohibit) the appointment of persons with legal qualifications, or can require particular credentials or expertise (such as accounting degrees or engineering experience). (1127) International arbitration clauses may also require particular language abilities, such as “each arbitrator shall be fluent in Spanish.” (1128) f. Language of the Arbitration Arbitration clauses in international agreements frequently specify the language (or languages) of the arbitral proceedings and award. (1129) Although sometimes overlooked, this is a point of vital importance, which can have a profound practical effect on the selection of the arbitrators (and counsel) and the character of the arbitral proceedings.
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Absent the parties' agreement, institutional rules usually expressly authorize the arbitral tribunal to select a language (or languages) of the arbitration. (1130) This will often be the language of the underlying contract or arbitration agreement. (1131) Even if institutional rules do not address the issue, national law will ordinarily give the tribunal authority to select a language for the arbitration. (1132) Nonetheless, there is seldom any reason to leave this issue to chance, particularly given the simplicity of a provision to the effect that “the language of the arbitration shall be [English].” page "178" g. Choice-of-Law Clauses Any international dispute can give rise to tortuous choice-of-law questions. (1133) As a consequence, many international commercial agreements contain a choice-of-law clause, specifying the substantive law applicable to the parties' underlying contract and related disputes. (1134) In addition to the substantive law governing the parties' underlying contract, other questions of applicable law frequently arise in connection with international arbitrations. Thus, as discussed in detail below, a different law may apply to the arbitration agreement (as distinguished from the parties' underlying contract); (1135) that is because an arbitration clause will be deemed a “separable” or “autonomous” contract in most legal systems, which may not be subject to the same substantive law as the underlying contract. (1136) It is possible, and occasionally advisable, to adopt a choiceof-law clause that specifically addresses the law applicable to the arbitration agreement, as distinct from the parties' underlying contract. It is also possible for a different law to apply to the procedural conduct of the arbitration itself, separate from that governing the arbitration agreement or underlying contract. (1137) In most cases, the procedural law of the arbitration will be that of the arbitral seat, although there are exceptions. (1138) Parties sometimes include choice-of-law provisions that designate the procedural law applicable to arbitral proceedings. Significant complexities can arise from such provisions, and great care must be taken in utilizing them. (1139)
h. Other Provisions of International Arbitration Agreements Many international arbitration agreements also contain other provisions, in addition to the elements discussed above. The existence and nature of these provisions varies from case to case, depending on the parties' negotiations, drafting and interests. The most common additional elements include: (a) costs of legal representation; (1140) (b) interest and currency of an award; (1141) (c) disclosure or discovery powers of the page "179" tribunal; (1142) (d) fast-track or other procedural rules, including so-called escalation clauses; (1143) (e) state/sovereign immunity waivers; (1144) and (f) confidentiality. (1145)
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i. Drafting Arbitration Agreements: Recommended Approach Like other contractual provisions, an international arbitration clause is ultimately the product of what the parties choose to agree upon. It is a creature of negotiations and drafting skill or fallibility. In some cases, the parties' products are sui generis; they may be inspired or, regrettably, pathologically deformed. In the overwhelming majority of cases, however, international arbitration agreements are straightforward exercises, adopting either entirely or principally the model, time-tested clauses of a leading arbitral institution. (1146) Although pedestrian, this course is almost always the wisest one. A representative example of such an arbitration agreement, which should contain each of the elements identified above, is as follows: “All disputes, claims, controversies, and disagreements relating to or arising out of this Agreement (including the formation, existence, validity, enforceability, performance, or termination of this Agreement), or the subject matter of this Agreement, shall be finally resolved by arbitration [under the – Rules] by [three arbitrators] [one arbitrator]. The seat of the arbitration shall be [Paris] [London, England] [New York/Washington]. The language of the arbitration shall be English.” (1147) Provisions of this sort are frequently supplemented by a choice-oflaw clause, selecting the law applicable to the parties' underlying contract and other disputes, as well as by one or more of the optional provisions referred to above. Where such a clause is used, rather than more complex or creative provisions, the risks of pathological defects or jurisdictional and procedural disputes are minimized. page "180" 6. Overview of Choice of Law in International Commercial Arbitration Parties frequently agree to arbitration to avoid the jurisdictional and choice-of-law uncertainties that arise when international disputes are litigated in national courts. (1148) Unfortunately, international arbitration can produce its own set of complex, often unpredictable choice-of-law issues. (1149) a. Importance of Choice-of-Law Issues in International Arbitration Choice-of-law issues play an important role in international commercial arbitration. It is necessary to distinguish between four separate choice-of-law issues that can arise in connection with an international arbitration: (a) the substantive law governing the merits of the parties' underlying contract and other claims; (b) the substantive law governing the parties' arbitration agreement; (c) the law applicable to the arbitral proceedings (also called the “procedural law of the arbitration,” the “curial law” or the “lex arbitri”); and (d) the conflict of laws rules applicable to select each of the foregoing laws. (1150) Although not common, it is possible for each http://www.kluwerarbitration.com/CommonUI/print.aspx
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of these four issues to be governed by a different national (or other) law. Each of the foregoing choice-of-law issues can have a vital influence on international arbitral proceedings. Different national laws provide different – sometimes dramatically different – rules applicable at different stages of the arbitral process. Understanding which national rules will potentially be applicable can therefore be critical. b. Law Applicable to the Substance of the Parties' Dispute The parties' underlying dispute will ordinarily be resolved under the rules of substantive law of a particular national legal system. (1151) In the first instance, it will usually be the arbitrators who determine the substantive law applicable to the parties' dispute. (1152) As discussed in detail below, international arbitral awards typically give effect to the parties' agreements concerning applicable substantive law page "181" (“choice-of-law clauses”). (1153) The principal exception is where mandatory national laws or public policies purport to override private contractual arrangements. (1154) Where the parties have not agreed upon the substantive law governing their dispute, the arbitral tribunal must select such a law. In so doing, the tribunal will sometimes (but not always) refer to some set of national or international conflict of laws rules. These varying approaches to the choice of substantive law in international arbitration are summarized here and examined in detail below. (1155)
Although the historical practice was to apply the national conflict of laws rules of the arbitral seat, more recent practice is diverse. Some tribunals and commentators adhere to the traditional approach, while others look to the conflicts rules of all states having a connection with the dispute. (1156) Additionally, some authorities adopt either international conflict of laws rules or validation principles. (1157) The development of bodies of international substantive rules dealing with commercial matters has facilitated this development. (1158) c. Law Applicable to the Arbitration Agreement As discussed elsewhere, arbitration agreements are universally regarded as presumptively “separable” from the underlying contract in which they appear. (1159) One consequence of this is that the parties' arbitration agreement may be governed by a different national law than that applicable to the underlying contract. This can occur either by the parties' express choice of law or by the application of conflict of laws rules (which may select different substantive laws for the parties' arbitration agreement and their underlying contract). As described below, four alternatives for the law governing an arbitration agreement are of particular importance: (a) the law chosen by the parties to govern the arbitration agreement itself; (b) the law of the arbitral seat; (c) the law governing the parties' underlying contract; and (d) international principles, either applied as a substantive body of contract law (as in France) or as rules of non-
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discrimination (as in most U.S. authority). (1160)
page "182"
d. Procedural Law Applicable to the Arbitration Proceedings The arbitration proceedings themselves are also subject to legal rules, governing both “internal” procedural matters and “external” relations between the arbitration and national courts. In most instances, the law governing the arbitral proceeding is the arbitration statute of the arbitral seat (i.e., the location selected by the parties as the juridical place of arbitration). (1161) Among other things, the law of the arbitral seat typically deals with such issues as the appointment and qualifications of arbitrators, the qualifications and professional responsibilities of parties' legal representatives, the extent of judicial intervention in the arbitral process, the availability of provisional relief, the procedural conduct of the arbitration, the form of any award and the standards for annulment of any award. Different national laws take significantly different approaches to these various issues. In some countries, national law imposes significant limits or requirements on the conduct of the arbitration and local courts have broad powers to supervise arbitral proceedings. (1162) Elsewhere, and in most developed jurisdictions, local law affords international arbitrators virtually unfettered freedom to conduct the arbitral process – subject only to basic requirements of procedural regularity (“due process” or “natural justice”). (1163) In some jurisdictions, parties are free to select the law governing the arbitral proceedings (variously referred to as the procedural law of the arbitration, the curial law, the lex arbitri, or the loi de l'arbitrage). (1164) This includes, in many cases, the freedom to agree to the application of a different procedural law than that of the arbitral seat. This seldom occurs in practice, and the effects of such an agreement are uncertain. (1165) e. Choice-of-Law Rules Applicable in International Arbitration Selecting each of the bodies of law identified in the foregoing three sections – the laws applicable to the merits of the underlying contract or dispute, to the arbitration agreement and to the arbitral proceedings – ordinarily requires application of conflict of laws rules. In order to select the substantive law governing the parties' dispute, page "183" for example, the arbitral tribunal must often apply a conflict of laws system. And, just as different states have different rules of substantive law, they also have different conflict of laws rules. An international arbitral tribunal must therefore decide at the outset what set of conflicts rules to apply. The actual practice of arbitral tribunals in selecting the law applicable to each of the foregoing issues varies significantly. Approaches include application of (a) the arbitral seat's conflict of laws rules; (b) “international” conflict of laws rules, either as a comprehensive choice-of-law system or as international principles of non-discrimination; (c) successive application of the conflict of laws rules of all interested states; and (d) “direct” application of substantive law (without any express conflicts analysis). (1166) The current state of conflict of laws analysis in international http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration has not kept pace with the parties' aim of avoiding the peculiar jurisdictional, choice-of-law and enforcement difficulties that attend the litigation of international disputes in national courts. There is often uncertainty, and wasted time and expense, as a consequence of contemporary conflict of laws analysis. Nonetheless, recent national court decisions and arbitral awards suggest the way towards development of international principles of validation and non-discrimination which hold promise of realizing more fully the aspirations of the international arbitral process. (1167)
521 See infra pp. 11-13, 172-179, 202-207. 522 See infra pp. 202-207, 563-574, 1003 et seq; A. Redfern & M.
Hunter (eds.), Law and Practice of International Commercial Arbitration ¶1-01 (4th ed. 2004) (“The practice of resolving disputes by international commercial arbitration only works because it is held in place by a complex system of national laws and international treaties.”). 523 See infra pp. 2327-2332, 2333-2425. 524 See supra pp. 27-57. 525 See supra pp. 37-49. 526 See supra pp. 32-37. 527 See supra p. 64. 528 Veeder, The Lawyer's Duty to Arbitrate in Good Faith, in L. Lévy & V.V. Veeder (eds.), Arbitration and Oral Evidence 115, 118 (2004) (“international arbitration is the oil which lubricates the machinery of world trade”); D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 1 (2006) (“an effective system of international dispute resolution is indispensable to the growth of more complex transnational arrangements, and – for the foreseeable future – that system of resolution is primarily international arbitration”). 529 David L. Threlkeld & Co. v. Metallgesellschaft Ltd, 923 F.2d 245, 248 (2d Cir. 1991). 530 See supra pp. 57-64. 531 See infra pp. 91-147. 532 See infra pp. 91-109. 533 See supra pp. 57-64 & infra pp. 92-101. 534 Bilateral treaties relating to international commercial arbitration continue to be significant today. Many countries have entered into a number of friendship, commerce, and navigation treaties that contain provisions relating to the mutual recognition and enforcement of arbitration agreements and awards. See infra pp. 108-109. Likewise, numerous states have entered into bilateral investment treaties, which address issues relating to international arbitration. See infra pp. 107-108. 535 See Geneva Protocol on Arbitration Clauses in Commercial Matters, 27 L.N.T.S. 158 (1924); Geneva Convention on the Execution of Foreign Arbitral Awards (“Geneva Convention”) 92 L.N.T.S. 302 (1929); supra pp. 57-64. Other early multilateral treaties included the Montevideo Convention, the Hague Conventions of 1899 and 1907 and the Bustamante Code. See supra pp. 19-20, 57-58.
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536 See supra pp. 57-64. 537 The standard reference works on the Convention are A. van
den Berg, The New York Arbitration Convention of 1958 (1981) and G. Gaja, International Commercial Arbitration: The New York Convention (1978). See also M. Blessing (ed.), The New York Convention of 1958 (ASA Special Series No. 9 1996). 538 330 U.N.T.S., No. 4739; www.uncitral.org. 539 Sanders, The History of the New York Convention, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 11 (ICCA Congress Series No. 9 1999). 540 A. van den Berg, The New York Arbitration Convention of 1958 7 (1981) (“although the Geneva Treaties were undoubtedly an improvement in comparison with the previous situation, they were still considered inadequate”). 541 ICC, Report and Preliminary Draft Convention adopted by the Committee on International Commercial Arbitration at its Meeting of 13 March 1953, reprinted in, 9(1) ICC Ct. Bull. 32 (1998); G. Gaja, International Commercial Arbitration: The New York Convention (1978). 542 ICC, Report and Preliminary Draft Convention adopted by the Committee on International Commercial Arbitration at its Meeting of 13 March 1953, reprinted in, 9(1) ICC Ct. Bull. 32 (1998). 543 A. van den Berg, The New York Arbitration Convention of 1958 6-10, 29-40 (1981). 544 ICC, Report and Preliminary Draft Convention adopted by the Committee on International Commercial Arbitration at its Meeting of 13 March 1953, reprinted in, 9(1) ICC Ct. Bull. 32 (1998). 545 Resolution 520 (XVIII) of ECOSOC Council. 546 Report of the Committee on the Enforcement of International Arbitral Awards, UN Doc. E/2704 and Corr. 1, Annex (1955), available at www.uncitral.org 547 In particular, as discussed below, the ECOSOC rejected the notion of a-national arbitral proceedings and awards, and instead insisted on rooting the arbitral process firmly in national law (particularly the law of the arbitral seat). See infra pp. 1254-1265; A. van den Berg, The New York Arbitration Convention of 1958 6-10, 29-40 (1981). 548 Sanders, The History of the New York Convention, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 11, 12 (ICCA Congress Series No. 9 1999). 549 A. van den Berg, The New York Arbitration Convention of 1958 8 (1981) (“the fundamental difference between the ICC Draft Convention of 1953 and the ESOSOC Draft Convention of 1955 was reconciled by a compromise reached at the Convention”). 550 A. van den Berg, The New York Arbitration Convention of 1958 8-10, 56 (1981) (“Originally, it was the intention to leave the provisions concerning the formal validity of the arbitration agreement and the obligatory referral to arbitration to a separate protocol. At the end of the New York Conference of 1958, it was realized that this was not desirable. Article II was drafted in a race against time, with, as a consequence, the omission of an indication as to which arbitration agreements the Convention would apply.”). 551 See supra pp. 57-64. 552 A. van den Berg, The New York Arbitration Convention of 1958 http://www.kluwerarbitration.com/CommonUI/print.aspx
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12-13 (1981). 553 See infra pp. 201 et seq. 554 For a brief summary of these negotiations, see A. van den Berg, The New York Arbitration Convention of 1958 1-10 (1981); Sanders, The History of the New York Convention, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 11 (ICCA Congress Series No. 9 1999). For a useful collection of the travaux preparatoires, see G. Gaja, The New York Convention (1978). 555 New York Convention, Art. XVI. 556 A. van den Berg, The New York Arbitration Convention of 1958 1 (1981). See also Mustill, Arbitration: History and Background, 6(2) J. Int'l Arb. 43 (1989) (“most effective instance of international legislation in the entire history of commercial law”); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶3-04 (4th ed. 2004) (“most important convention in the field of international commercial arbitration”); Wetter, The Present Status of the International Court of Arbitration of the ICC: An Appraisal, 1 Am. Rev. Int'l Arb. 91, 93 (1990) (“single most important pillar on which the edifice of international arbitration rests”); Graving, Status of the New York Arbitration Convention: Some Gaps in Coverage but New Acceptances Confirm its Vitality, 10 ICSID Rev.For. Inv. L.J. 1 (1995) (“mortar of the edifice of international commercial arbitration”). 557 Schwebel, A Celebration of the United Nations New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 12 Arb. Int'l 83, 85 (1996). 558 Kerr, Concord and Conflict in International Arbitration, 13 Arb. Int'l 121, 127 (1997). 559 See infra pp. 115-121. It is instructive to compare the broad statements of principle, succinctly set forth in the Convention, with the much more detailed provisions of the UNCITRAL Model Law. See infra pp. 116-121. 560 See A. van den Berg, The New York Arbitration Convention of 1958 6, 54-55, 168-69, 262-63, 274, 357-58 (1981). 561 Scherk v. Alberto-Culver Co., 417 U.S. 506, 502 n.15 (U.S. S.Ct. 1974) (emphasis added). See also A. van den Berg, The New York Arbitration Convention of 1958 1-3 (1981); D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 1 (2006) (“In essence, the treaty allows private parties to use the coercive power of national courts to implement private arrangements for international arbitration”); Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 96 (2d Cir. 1999) (“goal of simplifying and unifying international arbitration law”). 562 A. van den Berg, The New York Arbitration Convention of 1958 1, 6, 54-55, 168-69, 262-63, 274, 357-58 (1981) (“the significance of the New York Convention for international commercial arbitration makes it even more important that the Convention is interpreted uniformly by the courts.”); Patocchi & Jermini, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 194, ¶20 (2000); Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 65 (ICCA Congress Series No. 11 2003) (New York Convention “has given rise to a relatively harmonized and uniform regime – or at least the means to work towards relative harmonization”). 563 New York Convention, Arts. III and V. “Recognition” of an http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitral award refers to giving preclusive effect to the award, usually to bar relitigation of the claims that were arbitrated; “enforcement” refers to the invocation of coercive judicial remedies to fulfil the arbitral award. See infra pp. 2327-2332, 2334-2338. 564 New York Convention, Art. II(1). See discussion, infra pp. 203205, 567-569, 709-712. 565 New York Convention, Art. II(3). 566 New York Convention, Arts. V(1), V(2); infra pp. 2336-2338, 2404-2422, 2564-2572, 2730-2732. 567 See New York Convention, Arts. III, IV, V; supra pp. 61-63 & infra pp. 2717-2720. The shift in the burden of proof was accomplished by Articles III and V, which required the award-creditor to present only minimal evidence in support of recognition of an award (in Article III), while specifying only limited grounds, which needed affirmatively to be proven, that could result in nonrecognition (in Article V). See infra pp. 2702-2708, 2717-2720. 568 See New York Convention, Arts. V(1)(a), 1(d); supra pp. 59-61 & infra pp. 428-431, 460-466, 1254-1274, 1748-1758. 569 See supra pp. 61-62 & infra p. 2720. 570 Summary Record of the Twenty-Fifth Meeting of the United Nations Conference on International Commercial Arbitration, UN Doc. E/CONF. 26/SR.25, 2 (1958), available at www.uncitral.org. 571 Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643, 651 (Alberta Court of Appeal 1992) (1994) (“it is common ground that the evident purpose of Alberta's acceptance of the [New York] Convention is to promote international trade and commerce by the certainty that comes from a scheme of international arbitration”); Park, Neutrality, Predictability and Economic Cooperation, 12(4) J. Int'l Arb. 99 (1995); A. van den Berg, The New York Arbitration Convention of 1958 17-19 (1981). See also supra pp. 57-64, 91-92. 572 Summary Record of the Thirteenth Meeting of the United Nations Conference on International Commercial Arbitration, UN Doc. E/CONF.26/SR.13, 3 (1958), available at www.uncitral.org. 573 See infra pp. 203-205, 428-431, 504-516, 567-569, 709-712, discussing effect of the Convention on the recognition and enforcement of international arbitration agreements. 574 The effect of the Convention on the conduct of international arbitral proceedings is discussed below. See infra pp. 1254-1265. 575 It appears clear that the Convention's terms apply to agreements made prior to the Convention entering into effect. Fotochrome, Inc. v. Copal Co., 517 F.2d 512, 515 n.3 (2d Cir. 1975) (“the [New York] Convention contains no prospective language and should be applied retroactively to existing arbitration agreements and awards”); A. van den Berg, The New YorkArbitration Convention of 1958 72-80 (1981). 576 The Convention entered into force on the ninetieth day following the deposit of the third instrument of ratification or accession. New York Convention, Art. XII(1). The first states to ratify the Convention were Israel, Morocco and the United Arab Republic. 577 For example, prior to 1980, the New York Convention had not been ratified by (among others) Algeria, Argentina, Bahrain, Bangladesh, Bolivia, Burkina Faso, Cameroon, China, Costa Rica, Guatemala, Guinea, Haiti, Indonesia, Kenya, Laos, Lebanon, Malaysia, Mali, Mauritania, Mozambique, Nepal, Panama, Paraguay, Peru, Saudi Arabia, Senegal, Singapore, Turkey, Uruguay, Venezuela, Vietnam and Zimbabwe. Between 1980 and the present, all of these states acceded to the Convention. http://www.kluwerarbitration.com/CommonUI/print.aspx
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578 In the United States, historic distrust of arbitration and the
domestic debate over the appropriate scope of the federal treaty power and the authority of the several states led to an initial recommendation from the U.S. delegation against ratifying the Convention. Springer, The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 3 Int'l Law. 320 (1969); Czysak & Sullivan, American Arbitration Law and the UN Convention, 13 Arb. J. 197 (1958). 579 In 1970, the United States reconsidered its position and acceded to the Convention. See Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049 (1961); Message from the President on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, S. Exec. Doc. E, 90th Cong., 2d Sess. 18 (1968). 580 See www.uncitral.org. for a list of states that have ratified the Convention. 581 See G. Petrochilos, Procedural Law in International Arbitration 16 (2004) (“The states party to [the New York Convention] constitute a large and representative geographical, legal-cultural, and economic sample of the international community”). 582 In ratifying the Convention, many states have attached reservations that can have significant consequences in private disputes. These reservations frequently deal with reciprocity and limiting the Convention's applicability to disputes arising from “commercial” relations. See infra pp. 260-267, 303-305. 583 New York Convention, Arts. VII(1), VII(2); infra pp. 208-209, 500-501. See A. van den Berg, The New York Arbitration Convention of 1958 114 (1981) (“the Geneva Treaties do not ‘revive’ if the New York Convention cannot be applied because one of its conditions has not been met”). 584 New York Convention, Arts. VII(1), VII(2). 585 See infra pp. 2397-2403, 2722-2725. 586 See infra pp. 111-144. 587 See infra pp. 111-144, 144-147. 588 See infra pp. 111-144. 589 Nine years were required to bring implementing legislation into force in Indonesia. In Colombia, similar delays occurred, including Supreme Court litigation over the validity of the President's signature on the relevant enactment. For a good overview, see Paulsson, The New York Convention in International Practice – Problems of Assimilation, in The New York Convention of 1958 100 (ASA Special Series No. 9 1996); Hermann, Implementing Legislation: The IBA/UNCITRAL Project, in Id. at 135. 590 For example, Belize declared on independence in 1981 that it would “provisionally” apply the Convention, while Indonesia imposed requirements that made recognition of foreign awards unlikely and Vietnam imposed substantive review requirements with regard to recognition of foreign awards. Graving, Status of the New York Arbitration Convention: Some Gaps in Coverage but New Acceptances Confirm its Vitality, 10 ICSID Rev.-For. Inv. L.J. 1 (1995); Moser, The Recognition and Enforcement of Foreign Arbitral Awards: A Survey of the Asia-Pacific Region, 5(2) ICC Ct. Bull. 20 (1994); Paulsson, The New York Convention in International Practice – Problems of Assimilation, in The New York Convention of 1958 100-02 (ASA Special Series No. 9 1996). 591 For example, Singapore imposed restrictions on representation http://www.kluwerarbitration.com/CommonUI/print.aspx
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in international arbitrations by foreign attorneys (later repealed), infra pp. 2294-2296, U.S. courts have failed to give effect to the parties' selection of the arbitral seat and to enforce foreign arbitral awards (on forum non conveniens grounds), infra pp. 1705-1710, and various courts have stayed arbitral proceedings pending resolution of related litigation, see infra pp. 1031-1033. 592 See supra pp. 96-97. 593 Early experience was more mixed. Sanders, Court Decisions on the New York Convention 1958, Commentary, I Y.B. Comm. Arb. 207 (1976); Sanders, Court Decisions on the New York Convention 1958, Commentary, II Y.B. Comm. Arb. 254 (1977); Sanders Court Decisions on the New York Convention 1958, Consolidated Commentary, IV Y.B. Comm. Arb. 231 (1979); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration 21, 729 (2003); van den Berg, The New York Convention: Its Intended Effects, Its Interpretation, Salient Problem Areas, in The New York Convention of 1958 25, 26 (ASA Special Series No. 9 1996). 594 As discussed below, there are a number of sources for national court decisions and arbitral awards dealing with international arbitration. Seeinfra pp. 189-195. 595 For representative examples, seeLesotho Highlands Dev. Auth. v. Impregilo SpA [2006] A.C. 221, 236 (House of Lords) (citing U.S. authority); Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords) (citing U.S. and German authority); KarahaBodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F.3d 274 (5th Cir. 2004) (citing English, Hong Kong, Swedish, Swiss and other authorities); TMR Energy Ltd v. State Prop. Fund of Ukraine, XXIX Y.B. Comm. Arb. 607, 630 (Canadian Federal Court 2003) (2004) (citing English authority); Attorney General of the Republic of Kenya v. Bank für Arbeit und Wirtschaft AG, XXV Y.B. Comm. Arb. 692, 704 et seq. (Cyprus S.Ct. 1999) (2000); Hebei Imp. & Exp. Corp. v. Polytek Eng'g Co., XXIVa Y.B. Comm. Arb. 652, 668 (H.K. Court of Final Appeal, High Court 1999) (1999) (citing U.S. and Indian authorities); Gas Auth. of India, Ltd v. SPIE-CAPAG SA, XXIII Y.B. Comm. Arb. 688, 694 (Delhi High Court 1993) (1998) (citing U.S. authority); Brostrom Tankers AB v. Factorias Vulcano SA, XXX Y.B. Comm. Arb. 591, 596-597 (Dublin High Court 2004) (2005) (citing U.S. authority). 596 Cf. Carbonneau, The Reception of Arbitration in United States Law, 40 Me. L. Rev. 262, 272 (1988) (New York Convention is “universal charter” of international commercial arbitration); Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 64 (ICCA Congress Series No. 11 2003) (New York Convention is a “living document”). 597 European Convention on International Commercial Arbitration, 21 April 1961, 484 U.N.T.S. 349. See A. van den Berg, The New York Arbitration Convention of 1958 92-98 (1981). 598 Hascher, European Convention on International Commercial Arbitration of 1961 – Commentary, XX Y.B. Comm. Arb. 1006 (1995); Glossner, The Institutional Appointment of Arbitrators, 12 Arb. Int'l 95 (1996). 599 A. van den Berg, The New York Arbitration Convention of 1958 93 (1981) (European Convention's “main purpose is arbitration in East-West trade”). 600 European Convention on International Commercial Arbitration, http://www.kluwerarbitration.com/CommonUI/print.aspx
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21 April 1961, 484 U.N.T.S. 349. See Hascher, European Convention on International Commercial Arbitration of 1961 – Commentary, XX Y.B. Comm. Arb. 1006 (1995); K. Lionnet & A. Lionnet, Handbuch der internationalen und nationalen Schiedsgerichtsbarkeit 2 I 2 (3d ed. 2005); K.-H. Schwab & G. Walter, Schiedsgerichtsbarkeit Ch. 41, ¶4 (7th ed. 2005). 601 See http://treaties.un.org (484 U.N.T.S. 349). 602 See http://treaties.un.org (484 U.N.T.S. 349). 603 The Convention does so through provisions regarding the obligations of public entities to arbitrate and the treatment of jurisdictional objections. European Convention, Arts. II(1), IV, V. See infra pp. 631-633, 861-863. 604 European Convention, Art. V(1) (“either non-existent or null and void or had lapsed”). See infra pp. 569-570. 605 European Convention, Arts. III, IV, V, VI, VII and Annex. 606 European Convention, Art. IX. See infra pp. 2339-2340, 27252726; A. van den Berg, The New York Arbitration Convention of 1958 96 (1981) (“the European Convention cannot function without the New York Convention as the former is built upon the latter”). 607 This is confirmed by the relatively scarcity of judicial decisions (and commentary) involving the Convention. 608 European Convention, Arts. V, VI. As discussed below, Article V confirms the arbitral tribunal's competence-competence to consider challenges to its own jurisdiction, while Article VI provides in principle for national courts to permit initial resolution of jurisdictional objections by the arbitral tribunal. See infra pp. 861863. 609 European Convention, Art. IV and Annex. 610 United Nation Economic and Social Council, Economic Commission for Europe, Doc. No. trade/2000/7, ¶¶25-28 (10 April 2000). See also www.unece.org. 611 For commentary, see Bowman, The Panama Convention and its Implementation under the Federal Arbitration Act, 11 Am. Rev. Int'l Arb. 24 (2000); Garro, Enforcement of Arbitration Agreements and Jurisdiction of Arbitral Tribunals in Latin America, 1(4) J. Int'l Arb. 293 (1984); Holtzmann, The United States Becomes A Party to the Inter-American Convention on International Commercial Arbitration, XVI Y.B. Comm. Arb. 419 (1991); van den Berg, The New York Convention 1958 and Panama Convention 1975: Redundancy or Compatibility?, 5 Arb. Int'l 214 (1989). 612 See supra p. 58. 613 Inter-American Convention on International Commercial Arbitration, signed in Panama on January 30, 1975. The Convention is reprinted at III Y.B. Comm. Arb. 15 (1978) and www.sice.oas.org. 614 See www.sice.oas.org. 615 House Report No. 501, 101st Cong., 2d Sess. 4 (1990), reprinted in, 1990 U.S.C.C.A.N. 675, 678 (“The New York Convention and the Inter-American Convention are intended to achieve the same results, and their key provisions adopt the same standards, phrased in the legal style appropriate for each organization. It is the Committee's expectation, in view of that fact and the parallel legislation under the Federal Arbitration Act that would be applied to the Conventions, that courts in the United States would achieve a general uniformity of results under the two conventions.”); Productos Mercantiles e Industriales, SA v. Faberge USA, 23 F.3d 41, 45 (2d Cir. 1994) (“the legislative history of the Inter-American Convention's implementing statute … clearly http://www.kluwerarbitration.com/CommonUI/print.aspx
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demonstrates that Congress intended the Inter-American Convention to reach the same results as those reached under the New York Convention”). See also infra pp. 411, 2338-2339, 2417, 2560, 2725-2726. 616 Inter-American Convention, Art. 1. 617 Inter-American Convention, Arts. 4, 5. 618 Inter-American Convention, Art. 5. 619 Inter-American Convention, Art. 3. The Inter-American Commercial Arbitration Commission was established in 1934 by the predecessor to the Organization of American States. IACAC is composed of national sections in about a dozen nations; the AAA is the U.S. national section. IACAC's administrative headquarters is located in OAS facilities in Washington, D.C., and is overseen on a day-to-day basis by a Director General. 620 IACAC Rules, www.sice.oas.org. 621 Inter-American Convention, Art. 2. 622 Compare New York Convention, Art. II(3); infra pp. 1005-1007, 1021. See also A. van den Berg, The New York Arbitration Convention of 1958 102 (1981) (“the Panama Convention shows a certain number of lacunae and obscurities in comparison with the New York Convention”). 623 For commentary, see C. McLachlan, L. Shore & M. Weiniger, International Investment Arbitration (2007); L. Reed, J. Paulsson & N. Blackaby, Guide to ICSID Arbitration (2004); C. Schreuer, The ICSID Convention: A Commentary (2001); Broches, Settlement of Disputes Arising Out of Investment in Developing Countries, 11 Int'l Bus. Law. 206 (1983); Garcia-Bolivar, Jurisdiction, 5 J. World Inv. Trade 187 (2004); K. Nathan, ICSID Convention: The Law of the International Centre for Settlement of Investment Disputes (2000); Parra & Shihata, The Experience of the International Centre for Settlement of Investment Disputes, 14 ICSID Rev.-For. Inv. L.J. 299 (1999); Schmidt, Arbitration under the Auspices of the International Centre for Settlement of Investment Disputes, 17 Harv. Int'l L.J. 90 (1976). 624 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, produced at Washington, D.C., 18 March 1965. The Convention can be found at 575 U.N.T.S. 159 (No. 8359) (1966), at 4 Int'l Legal Mat. 532 (1965) and at www/worldbank.org/icsid/. 625 ICSID Convention, Art. 25(1). 626 See Amerasinghe, Jurisdiction Ratione Personae under the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, 47 Brit. Y. B. Int'l L. 227 (197475); Lamm, Jurisdiction of the International Centre for Settlement of Investment Disputes, 6 ICSID Rev.-For. Inv. L.J. 462 (1991); Larsen, ICSID Jurisdiction: The Relationship of Contracting States to SubStates Entities, in N. Horn & S. Kröll (eds.), Arbitrating Foreign Investment Disputes 353 (2004); Saverese, Investment Treaties and the Investor's Right to Arbitration – Between Broadening and Limiting ICSID Jurisdiction, 7 J. World Inv. & Trade 407 (2006); C. Schreuer, The ICSID Convention: A Commentary (2001); Yala, The Notion of “Investment” ICSID Case Law: A Drifting Jurisdictional Requirement?: Some “Un-Conventional” Thoughts on Salini, SGS and Mihaly, 22 J. Int'l Arb. 105 (2005). 627 ICSID Convention, Arts. 28-35. See Nurick & Schnably, The First ICSID Conciliation: Tesoro Petroleum Corporation v. Trinidad and Tobago, 1 ICSID Rev.-For. Inv. L.J. 340 (1986). http://www.kluwerarbitration.com/CommonUI/print.aspx
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628 C. Schreuer, The ICSID Convention: A Commentary Art. 44
¶¶1-4, 8-10, 30-35 (2001). The ICSID Arbitration Rules are available at www.worldbank.org/icsid. The ICSID Arbitration Rules were recently revised with the objective of streamlining the arbitral process, while also permitting greater participation by third parties. See ICSID Arbitration Rules, Rules 32, 37, 41, 48; Lotbinière, Santens & Strippl, ICSID Amends Its Arbitration Rules, 2006 Int'l Arb. L.Rev. 119; Antonietti, The 2006 Amendments of the ICSID Rules and Regulations and the Additional Facility Rules, 21 ICSID Rev.-For Inv. L.J. 427 (2006). 629 ICSID Convention, Art. 42. 630 ICSID Convention, Arts. 53-54. 631 ICSID Convention, Art. 52. See C. Schreuer, The ICSID Convention: A Commentary Art. 52, ¶¶340-349, 355-387 (2001). 632 ICSID Convention, Art. 52. See C. Schreuer, The ICSID Convention: A Commentary Art. 52, ¶489 (2001). 633 E.g., Redfern, ICSID – Losing Its Appeal?, 3 Arb. Int'l 98 (1987). 634 See http://icsid.worldbank.org. In recent years, several states have denounced (e.g., Bolivia's denunciation) or manifested their intention to denounce (e.g., Ecuador and Venezuela) their accession to the ICSID Convention. 635 See infra pp. 107-108. 636 Dañino, Making the Most of International Investment Agreements: A Common Agenda (OECD/ICSID/UNCTAD Symposium, 12 December 2005), available at http://worldbank.int/icsid. 637 See infra pp. 107-108. 638 Sedlak, ICSID's Resurgence in International Investment Arbitration: Can the Momentum Hold?, 23 Penn State Int'l L. Rev. 147 (2004). 639 Smutny & Serran, The Amended ICSID Rules – In Brief, 1(4) Global Arb. Rev. 29 (2006). 640 For commentary, see C. McLachlan, L. Shore & M. Weiniger, International Investment Arbitration (2007); R. Dolzer & M. Stevens, Bilateral Investment Treaties (1995); Unegbu, BITS and ICC Arbitration – Portent of A New Wave, 16(2) J. Int'l Arb. 93 (1999); Parra, Provisions on the Settlement of Investment Disputes in Modern Investment Laws, Bilateral Investment Treaties and Multilateral Instruments on Investment, 12 ICSID Rev.-For. Inv. L.J. 287 (1997); Paulsson, Arbitration Without Privity, 10 ICSID Rev.-For. Inv. L.J. 232 (1995); Stevens, Experience in Arbitrations under ICSID Rules Pursuant to Bilateral Investment Treaties, 29 Int'l Bus. Law. 377-380 (2001); K. Vandevelde, United States Bilateral Investment Treaties: Policy and Practice (1992); ICSID, Bilateral Investment Treaties, 1959-1996 Doc. ICSID/17 (30 May 1997). 641 There are also multilateral conventions, in addition to the ICSID Convention, in particular regions or economic sectors. These include the Energy Charter, the North American Trade Agreement and the ASEAN Investment Agreement. 642 UNCTAD, Bilateral Investment Treaties 1995-2006: Trends In Investment Rulemaking 1 (UNCTAD/ITE/IIA/2006/5), available at www.unctad.org; UNCTAD, IIA Monitor No. 3 (2006), The Entry into Force of Bilateral Investment Treaties (UNCTAD/WEB/ITE/IIA/2006/9), available at www.unctad.org. See also Parra, The Role of ICSID in the Settlement of Investment Disputes, 16(1) ICSID News (1999). http://www.kluwerarbitration.com/CommonUI/print.aspx
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643 For commentary, see C. McLachlan, L. Shore & M. Weiniger,
International Investment Arbitration ¶¶1.24-1.30, ¶2.20 (2007); J. Paulsson, Denial of Justice in International Law (2005). 644 UNCTAD, Bilateral Investment Treaties 1995-2006: Trends In Investment Rulemaking 100-114 (UNCTAD/ITE/IIA/2006/5), available at www.unctad.org. 645 See Paulsson, Arbitration Without Privity, 10 ICSID Rev.-For. Inv. L.J. 232 (1995); C. Schreuer, The ICSID Convention: A Commentary Art. 25 ¶¶243-247, 256-319 (2001). 646 UNCTAD, Bilateral Investment Treaties 1995-2006: Trends In Investment Rulemaking 116-118 (UNCTAD/ITE/IIA/2006/5), available at www.unctad.org; R. Dolzer & M. Stevens, Bilateral Investment Treaties (1995); K. Vandevelde, United States Bilateral Investment Treaties: Policy and Practice (1992); L. Reed, J. Paulsson & N. Blackaby, Guide to ICSID Arbitration (2004); D. Bishop, J. Crawford & M. Reisman, Foreign Investment Disputes: Cases, Materials and Commentary (2005); C. Dugan, et al., Investor-State Arbitration (2008); M. Kinnear, et al., Investment Disputes under NAFTA: An Annotated Guide to NAFTA Chapter 11 (2006). 647 See authorities cited supra pp. 105-107. 648 U.S. and other FCN provisions regarding arbitration are often drafted along the following lines: “Contracts entered into between nationals or companies of either party and nationals or companies of the other party that provide for settlement by arbitration of controversies shall not be deemed unenforceable within the territories of such other party merely on the grounds that the place designated for arbitration proceedings is outside such territories or that the nationality of one or more of the arbitrators is not that of such other party. Awards duly rendered pursuant to any such contracts which are final and enforceable under the laws of the place where rendered shall be deemed conclusive in enforcement proceedings brought before the courts of competent jurisdiction of either party, and shall be entitled to be declared enforceable by such courts, except where found contrary to public policy.” Treaty of Friendship, Commerce and Navigation, 29 October 1954, United States-West Germany, 7 U.S.T. 1839, 1845, T.I.A.S. No. 3593, Art. 6(2). 649 See 1 U.S.T. 785 (Ireland); 5 U.S.T. 1829 (Greece); 5 U.S.T.
550 (Israel); T.I.A.S. No. 4685 (Italy); T.I.A.S. No. 4797 (Denmark); 4 U.S.T. 2063 (Japan); 7 U.S.T. 1839 (Germany); 8 U.S.T. 899 (Iran); 9 U.S.T. 449 (Nicaragua); 8 U.S.T. 2043 (Netherlands); 8 U.S.T. 2217 (Korea); 12 U.S.T. 110 (Pakistan); 11 U.S.T. 2398 (France); 14 U.S.T. 1284 (Belgium); 4 U.S.T. 251 (Luxembourg); 18 U.S.T. 1 (Togo); 9 U.S.T. 5843 (Thailand). 650 As noted above, the New York Convention leaves such bilateral arrangements intact, applicable where the Convention either does not apply or does not provide for recognition. See supra p. 99. 651 See infra pp. 1294-1310. 652 See Ball, The Essential Judge: The Role of the Courts in A http://www.kluwerarbitration.com/CommonUI/print.aspx
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System of National and International Commercial Arbitration, 22 Arb. Int'l 74 (2006); Böckstiegel, The Relevance of National Arbitration Law for Arbitrations under the UNCITRAL Rules, 1(3) J. Int'l Arb. 223 (1984); Goode, The Adaptation of English Law to International Commercial Arbitration, 8 Arb. Int'l 1 (1992); Herrmann, Does the World Need Additional Uniform Legislation on Arbitration?, 15 Arb. Int'l 211 (1999); Kaufmann-Kohler, Globalization of Arbitral Procedure, 36 Vand. J. Transnat'l L. 1313 (2003); Mustill, Arbitration: History and Background, 6(2) J. Int'l Arb. 43 (1989); Grigera Naón, Arbitration in Latin America: Overcoming Traditional Hostility, 5 Arb. Int'l 137 (1989); Park, National Law and Commercial Justice: Safeguarding Procedural Integrity in International Arbitration, 63 Tulane L. Rev. 647 (1989); Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2 (1999); Samuel, Arbitration in Western Europe: A Generation of Reform, 7 Arb. Int'l 319 (1991); Wetter, The Proper Scope of A National Arbitration Act, 5(10) Mealey's Int'l Arb. Rep. 17 (1990). 653 See Park, National Law and Commercial Justice: Safeguarding Procedural Integrity in International Arbitration, 63 Tulane L. Rev. 647, 680 (1989). 654 M. de Boisséson, Le droit français de l'arbitrage interne et international ¶¶8-11 (2d ed. 1990); Weiss, Arbitration in Germany, 43 L. Q. Rev. 205, 206 (1927). See also supra pp. 37-39, 49-51. 655 E.g., French New Code of Civil Procedure; Netherlands Code of Civil Procedure; German Zivilprozessordnung (“ZPO”); Belgian Judicial Code. 656 E.g., Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 32 (1999); U.S. FAA, 9 U.S.C. §§1-16; English Arbitration Act, 1996; Japanese Arbitration Law; Singapore International Arbitration Act; Indian Arbitration and Conciliation Act, 1996. 657 See infra pp. 115-121. 658 For example, the UNCITRAL Model Law, the Swiss Law on Private International Law, the Singapore International Arbitration Act and the relevant part of the French New Code of Civil Procedure and U.S. Federal Arbitration Act deal only with international (and not domestic) arbitrations. See infra pp. 115-127, 134-144. 659 See infra p. 111 n. 661. 660 The reasoning for distinguishing international matters from domestic ones rests on the greater jurisdictional, choice-of-law and enforcement uncertainties in the international context and the need for predictability and certainty in international commerce. See supra pp. 65-67, 74-76. These considerations have been relied on in some national court decisions. SeeMitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (U.S. S.Ct. 1985); Scherk v. Alberto-Culver Co., 417 U.S. 506, 517 n.10 (U.S. S.Ct. 1974); Judgment of 3 June 1997, LEXISNEXIS Jurisclasseur No 95-17.603 (French Cour de cassation civ. le). 661 For example, England, Spain and Germany's enactment of the UNCITRAL Model Law deleted provisions limiting the legislation's application to “international” arbitrations, extending it to all arbitrations. German ZPO, §1025; English Arbitration Act, 1996, §2; Spanish Arbitration Act, Art. 3. 662 Mustill, Cedric Barclay Memorial Lecture, 1992 Arb. 159, 165 (“never understood why international arbitration should be different in principle from any other kind of arbitration”). 663 See infra pp. 766 et seq. for a discussion of these issues in the non-arbitrability context. http://www.kluwerarbitration.com/CommonUI/print.aspx
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664 See supra pp. 65-67, 74-76. 665 See infra pp. 111-144. 666 See infra pp. 111-131; Mustill, Arbitration: History and
Background, 6(2) J. Int'l Arb. 43, 53 (1989) (noting “efforts made by individual nations to make their arbitration laws … more attractive”); Park, National Law and Commercial Justice: Safeguarding Procedural Integrity in International Arbitration, 63 Tulane L. Rev. 647, 680 (1989). 667 This includes legislation in France, Switzerland, Germany, Italy, Spain and all other Continental European states. It also includes England, Canada (and its provinces), Australia and New Zealand, as well as India, Singapore, Malaysia and Hong Kong. The principal exception is the United States, where the FAA dates to 1925, while U.S. implementing legislation for the New York Convention dates to 1970. See infra pp. 132-139. 668 See infra pp. 116-117, 123-124, 128-129, 206-207, 566-580,
1014-1030. 669 See infra pp. 1003 et seq. 670 See infra pp. 2327-2332, 2340-2343. 671 See infra pp. 2327-2332, 2708, 2726-2729. 672 See infra pp. 1417-1428, 1922-1939. 673 See infra pp. 1748-1776. 674 Bernardini, The Role of the International Arbitrator, 20 Arb. Int'l 113, 115 (2004). 675 These include jurisdictional, choice-of-law and enforcement issues. See supra pp. 65-67, 74-76. 676 See supra pp. 90-91, 109-111; Konkan Railways Corp. v. Mehul Constr. Co., (2000) 7 SCC 201 (Indian S.Ct.) (“To attract the confidence of the international mercantile community and the growing volume of India's trade and commercial relationship with the rest of the world after the new liberalisation policy of the Government, Indian Parliament was persuaded to enact the Arbitration and Conciliation Act of 1996 in UNCITRAL Model …”); Foreign Arbitral Awards, S. Rep. No. 91-702, 91st Cong., 2d Sess. 1-2 (1970) (“In the committee's view, the provisions of S. 3274 [implementing the New York Convention] will serve the best interests of Americans doing business abroad by encouraging them to submit their commercial disputes to ompartial arbitration for awards which can be enforced in both U.S. and foreign courts.”); Murray, Domestic Court Implementation of Coordinative Treaties: Formulating Rules for Determining the Seat of Arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 41 Va. J. Int'l L. 859, 865 (2001) (“[P]olicymakers … believe that if businesses are confident that their arbitration agreements and awards will be enforced they will engage in more cross-border transactions.”). 677 Press Release, O'Donoghue Publishes Bill Designed to Attract International Inward Investment to Ireland (2 October 1997). 678 392 Parl. Deb., HL (5th series) 99 (1978). See also Craig, Some Trends and Developments in the Laws and Practice of International Commercial Arbitration, 30 Tex. Int'l L.J. 1, 58 (1995) (“if the participants in international trade become accustomed to general arbitral practices developed under the Model Law, any state which does not adapt its own procedures to offer similar advantages risks losing its place as a preferred site for arbitration”). http://www.kluwerarbitration.com/CommonUI/print.aspx
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679 T. Carbonneau, Cases and Materials on the Law and Practice
of Arbitration 1143 (2d ed. 2000). 680 Park, Judicial Controls in the Arbitral Process, 5 Arb. Int'l 230, 232-33, 256 (1989). 681 Frequently-cited examples include Belgium, which attracted little (if any) increased arbitration business by radically revising its international arbitration law (see infra pp. 2658-2660, 2660-2662), and the United States, which has enjoyed increasing numbers of international arbitrations despite an archaic legislative regime (see infra pp. 132-144). 682 Some commentators have concluded that, at least historically, “so-called modern arbitration statutes, which command courts to recognize arbitration settlements and arbitration clauses in contracts, were not the major stimulus for the growth of commercial arbitration that they are often assumed to have been.” Benson, An Exploration of the Impact of Modern Arbitration Statutes on the Development of Arbitration in the United States, 11 J. L. Econ. & Org. 479, 497 (1995). Although this view appears correct in 19th century, and earlier, settings, it is doubtful that it would apply to current international commercial dealings. 683 Kaufmann-Kohler, Globalization of Arbitral Procedure, 36 Vand. J. Transnat'l L. 1313, 1320-22 (2003) (arbitration legislation “tend to become interchangeable” because of uniformity); Craig, Some Trends and Developments in the Laws and Practice of International Commercial Arbitration, 30 Tex. Int'l L.J. 1, 57-58 (1995) (“substantial convergence in modern arbitration laws with respect to the procedures to be followed in arbitration and the standards for judicial recourse therefrom”); Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 502 (2005) (“predictable effect” of development of national arbitration statutes has been “an impact on the common law – which has evolved to draw closer to the existing statutory models, drawing applicable principles from them”); Samuel, Arbitration in Western Europe: A Generation of Reform, 7 Arb. Int'l 319 (1991). 684 For commentary, see H. Alvarez, N. Kaplan & D. Rivkin, Model Law Decisions: Cases Applying the UNCITRAL Model Law on International Commercial Arbitration (2003); P. Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions (2d ed. 2005); A. Broches, Commentary on the UNCITRAL Model Law on International Commercial Arbitration (1990); H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (1989); I. Kavass & A. Liivak, UNCITRAL Model Lawof International Commercial Arbitration: A Documentary History (1985); Broches, The 1985 UNCITRAL Model Law on International Commercial Arbitration: An Exercise in International Legislation, 18 Neth. Y.B. Int'l L. 3 (1987); Gaillard, The UNCITRAL Model Law and Recent Statutes on International Arbitration in Europe and North America, 2 ICSID Rev.-For. Inv. L.J. 424 (1987); Hermann, The UNCITRAL Model Law – Its Background, Salient Features and Purposes, 1 Arb. Int'l 6 (1985); Kerr, Arbitration and the Courts: The UNCITRAL Model Law, 34 Int'l & Comp. L.Q. 1 (1985); Sanders, Unity and Diversity in the Adoption of the Model Law, 11 Arb. Int'l 1 (1995). 685 See infra pp. 119-120. 686 See infra pp. 118-119; UNCITRAL Model Law, 2006 Revisions. 687 Note by the Secretary General, UN Doc. A/CN.9/127, VIII Y.B. UNCITRAL 233 (1977). http://www.kluwerarbitration.com/CommonUI/print.aspx
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688 Report of the Secretary-General on the Possible Features of A
Model Law of International Commercial Arbitration, UNCITRAL, UN Doc. A/CN.9/207, XII Y.B. UNCITRAL 75 (1981). 689 Report of the Secretary-General on the Possible Features of A Model Law of International Commercial Arbitration, UNCITRAL, UN Doc. A/CN.9/207, ¶¶9-11, XII Y.B. UNCITRAL 75 (1981). 690 Report of the Secretary-General on the Possible Features of A Model Law of International Commercial Arbitration, UNCITRAL, UN Doc. A/CN.9/207, ¶10, XII Y.B. UNCITRAL 75 (1981). The Report was submitted to UNCITRAL's 14th Session in June 1981. 691 H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 12-13 (1989). 692 H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 12-14 (1989). 693 UN General Assembly Resolution No. 40/72, Model Law on International Commercial Arbitration of the UNCITRAL (1985), available at www.uncitral.org. 694 UNCITRAL Model Law, Arts. 7-8; infra pp. 570-571, 601-607, 713-714. The Model Law's “writing” requirement for arbitration agreements is broadly similar to, but somewhat less demanding than, Article II of the New York Convention. See UNCITRAL Model Law, Art. 7(2). See infra pp. 601-607. 695 UNCITRAL Model Law, Art. 8(1); infra pp. 1007-1008, 1014, 1021-1024. 696 UNCITRAL Model Law, Art. 16; infra pp. 333-336. 697 UNCITRAL Model Law, Art. 16; infra pp. 864-865, 877-899. 698 See infra pp. 880-894. 699 UNCITRAL Model Law, Art. 5; infra pp. 1777-1778. 700 UNCITRAL Model Law, Art. 19(1); infra p. 1751. 701 UNCITRAL Model Law, Arts. 19(2), 24(1); infra pp. 1760-1762. 702 UNCITRAL Model Law, Arts. 18 (“The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.”), 24(2) (“The parties shall be given sufficient advance notice of any hearing and of any meeting of the arbitral tribunal for the purposes of inspection of goods, other property or documents.”); infra pp. 1770-1771. 703 This addressed concerns that national mandatory laws were unduly constraining arbitral procedures and that the definitions of mandatory and non-mandatory procedural laws were unclear. Report of the Secretary-General on the Possible Features of A Model Law of International Commercial Arbitration, UNCITRAL, UN Doc. A/CN.9/207, ¶¶12-13, XII Y.B. UNCITRAL 75 (1981). 704 UNCITRAL Model Law, Arts. 9, 11-13, 27; infra pp. 1278-1281, 1420-1421, 1923-24. 705 UNCITRAL Model Law, Art. 34; infra pp. 2561-2564. 706 UNCITRAL Model Law, Arts. 35, 36; infra pp. 2732-2734. 707 Note of the Secretariat on the Possible Future Work in the Area of International Commercial Arbitration, UN Doc. A/CN.9/460, XXX UNCITRAL Y.B. 395 (1999); Report of the Secretary-General on the Possible Uniform Rules on Certain Issues Concerning Settlement of Commercial Disputes: Conciliation, Interim Measures of Protection, Written Form for Arbitration Agreement UN Doc. A/CN.9/WG.II/WP.108 (2000), available at www.uncitral.org. http://www.kluwerarbitration.com/CommonUI/print.aspx
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708 Note by the Secretariat on the Preparation of A Model
Legislative Provision on Written Form for the Arbitration Agreement, UNCITRAL, Forty-Third Session, UN Doc. A/CN.9.WG.II/WP.136 (2005), available at www.uncitral.org; Note of the Secretariat on the Interim Measures of Protection, UNCITRAL, Forty-Third Session, UN Doc. A/CN.9/WG.II/WP.138 (2005), available at www.uncitral.org. 709 UNCITRAL Model Law, 2006 Revisions; Menon & Chao, Reforming the Model Law Provisions on Interim Measures of Protection, 2 Asian Int'l Arb. J. 1 (2006); Sorieul, UNCITRAL's Current Work in the Field of International Commercial Arbitration, 22 J. Int'l Arb. 543 (2005); Paulsson & Petrochilos, Report: Revision of the UNCITRAL Arbitration Rules (2006), available at www.uncitral.org. 710 UNCITRAL Model Law, 2006 Revisions, Art. 2A. 711 UNCITRAL Model Law, 2006 Revisions, Art. 7; infra pp. 605607. 712 UNCITRAL Model Law, 2006 Revisions, Arts. 17, 17A-J; infra pp. 1979-1980, 2042-2043. 713 UNCITRAL Model Law, 2006 Revisions, Art. 35; infra pp. 27082709. 714 As discussed below, the 2006 Revisions authorization of ex parte provisional measures is of doubtful wisdom and has attracted substantial criticism. See infra pp. 2016-2019. 715 UNCITRAL Working Group on Arbitration and Conciliation, APRAG Report on 43d and 44th Sessions, ¶5 (9 January 2006) (“the proposed additions are very extensive, particularly in comparison with the relatively short and concise drafting style of other articles in the [Model Law]”). At the same time, the 2006 Revisions failed to address a number of areas where genuine improvements would have been welcome (e.g., the choice of law governing the arbitration agreement, the competence-competence principle and the grounds for holding arbitration agreements and awards invalid). 716 In particular, the Model Law makes clear the grounds for annulling international arbitral awards, defines the (limited) scope of national court interference in the arbitral process, and prescribes the types and extent of judicial support for international arbitrations. 717 For an updated list of jurisdictions, see www.uncitral.org. At time of publication, UNCITRAL cited the following jurisdictions as having adopted legislation based on the Model Law: Armenia, Australia, Austria, Azerbaijan, Bahrain, Bangladesh, Belarus, Bermuda, Bulgaria, Cambodia, Canada, Chile, China (Hong Kong and Macau Special Administrative Regions), Croatia, Cyprus, Denmark, Egypt, Estonia, Germany, Greece, Guatemala, Hungary, India, Iran, Ireland, Japan, Jordan, Kenya, Korea, Lithuania, Madagascar, Malta, Mexico, New Zealand, Nicaragua, Nigeria, Norway, Oman, Paraguay, Peru, Philippines, Poland, Russia, Scotland, Serbia, Singapore, Slovenia, Spain, Sri Lanka, Thailand, Tunisia, Turkey, Uganda, Ukraine, Venezuela, Zambia and Zimbabwe, as well as the U.S. states of California, Connecticut, Illinois, Louisiana, Oregon, and Texas. 718 H. Alvarez, N. Kaplan & D. Rivkin, Model Law Decisions: Cases Applying the UNCITRAL Model Law on International Commercial Arbitration (2003); Case Law on UNCITRAL Texts (“CLOUT”) UNCITRAL Model Law on International Commercial Arbitration, http://www.uncitral.org/uncitral/en/case_law.html. See also Explanatory Note by the UNCITRAL Secretariat on the 1985 http://www.kluwerarbitration.com/CommonUI/print.aspx
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Model Law on International Commercial Arbitration, as amended in 2006, available at www.uncitral.org; Beraudo, Case Law on Articles 5, 8, and 16 of the UNCITRAL Model Arbitration Law, 23 J. Int'l Arb. 101 (2006); Foster & Elsberg, Two New Initiatives for Provisional Remedies in International Arbitration: Article 17 of the UNCITRAL Model Law on International Commercial Arbitration and Article 37 of the AAA/ICDR International Dispute Resolution Principles, 3(5) Transnat'l Dispute Mgt (2006); Liebscher, Interpretation of the Written Form Requirement Art. 7(2) UNCITRAL Model Law, 2005 Int'l Arb. L. Rev. 164; Sanders, UNCITRAL's Model Law on International and Commercial Arbitration: Present Situation and Future, 21 Arb. Int'l 443 (2005). 719 Bundestags-Drucksache No. 13/5274 of 12 July 1996, reprinted in, K.-P. Berger, The New German Arbitration Law 140 (1998) (quoted in K.-P. Berger, The New German Arbitration Law in International Perspective, 26 Forum Int'l 4 (2000)). 720 M. Krimpenfort, Vorläufige und Sichernde Massnahmen in Schiedsrichterlichen Verfahren 4-5 (2001). See Law Reform Commission of Hong Kong (ed.), Report on the Adoption of the UNCITRAL Model Law of Arbitration 6, 11, (1987) (“the Model Law … has the advantage of making [Hong Kong] law internationally recognizable and accessible;” “[The] primary reason for recommending the adoption of the Model Law … is the need to make knowledge of our legal rules for international commercial arbitration more accessible to the international community … We are convinced that it is much better [to avoid changes than] trying to improve what is already the result of many years work by an international group of experts”); Singapore Law Reform Committee (ed.), Report of the Sub-Committee on Review of Arbitration Laws 13 (1994) (“If Singapore aims to be an international arbitration centre it must adopt [the Model law expressing] a world view of international arbitration.”). See also Schaefer, Borrowing and CrossFertilising Arbitration Laws – A Comparative Overview of the Development of Hong Kong and Singapore Legislation for International Commercial Arbitration, 16(4) J. Int'l Arb. 41, 45-49, 5456 (1999). 721 See infra pp. 121-144. 722 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶204 (1999). 723 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration (1999); M. de Boisséson, Le droit français de l'arbitrage interne et international (2d ed. 1990); P. Fouchard, L'arbitrage commercial international (1965); P. Fouchard, E. Gaillard & B. Goldman, Traité de l'arbitrage commercial international (1996); D. Cohen, Arbitrage et société (1993); D. Réné, L'arbitrage dans le commerce international (1981); J. Béguin, L'arbitrage commercial international (1987); S. Crepin, Les sentences arbitrales devant le juge français – pratique de l'exécution et du contrôle judiciaires depuis les réformes de 1980-1981 (1995); E. Gaillard & R. von Mehren, International Commercial Arbitration – Recent Developments (1988); B. Goldman, Les conflits de lois dans l'arbitrage international de droit privé (1963); L. Gouiffès, P. Girard, P. Taivalkoski & G. Mecarelli, Recherches sur l'arbitrage en droit international et comparé (1997); A. Kassis, Réflexions sur le règlement d'arbitrage de la Chambre de commerce internationale – Les déviations de l'arbitrage institutionnel (1988); A. Kassis, Problèmes de base de l'arbitrage en droit comparé et en droit international I Arbitrage juridictionnel et arbitrage contractuel (1987); E. Loquin, L'amiable composition en droit comparé et international – http://www.kluwerarbitration.com/CommonUI/print.aspx
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Contribution à l'étude du non-droit dans l'arbitrage commercial (1980); P. Mayer, L'autonomie de l'arbitre international dans l'appréciation de sa propre compétence (1989); B. Oppetit, Théorie de l'arbitrage (1998); J. Robert, L'arbitrage, Droit interne, Droit international privé (5th ed. 1983); J. Robert & T. Carbonneau, The French Law of Arbitration (1983); J. Rubellin-Devichi, L'arbitrage: nature juridique, droit interne et droit international privé (1965). 724 France has historically been the seat for more ICC arbitrations than any other state. See infra pp. 1686-1690. France was the seat for approximately 17.2% of all the ICC arbitrations filed in 2006, 14.5% in 2000, and 15.5% in 1999. 725 The historical development of arbitration in France prior to the 20th century is discussed above. See supra pp. 37-39. 726 See VII Y.B. Comm. Arb. 271 (1982), for English translations. 727 The term is defined to include matters involving cross-border transfers of goods or services. See infra pp. 296-298. 728 French New Code of Civil Procedure, Art. 1495 (“Where the international arbitration is governed by French law, the provisions of Titles I, II, and II of the present Book shall apply only in the absence of a specific agreement, and subject to Articles 1493 and 1494.”). 729 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶136-139 (1999); Ancel, French Judicial Attitudes Toward International Arbitration, 9 Arb. Int'l 121 (1993); von Mehren, International Commercial Arbitration: The Contribution of the French Jurisprudence, 46 La. L. Rev. 1045 (1985-1986); M. de Boisséson, Le droit français de L'arbitrage interne et international ¶21 (2d ed. 1990); Béguin, Les grands traits du Décretfrançais du 12 mai 1981 sur l'arbitrage international, 5 Rev. Int'l Dr. Comp. 359 (1983); Bellet & Mezger, L'arbitrage international dans le nouveau code de procédure civile, 70 Rev. Crit. Dr. Int'l Priv. 611 (1981); Delaume, International Arbitration under French Law, 37 Arb. J. 38 (1982); Goldman, La nouvelle réglementation française de l'arbitrage international, in The Art of Arbitration – Liber Amicorum Pieter Sanders 153 (1982); Perrot, Sur la réforme de l'arbitrage international, in Travaux de de comité français de droit international privé 1981-1982 53 (1983); Robert, L'arbitrage en matière internationale, Commentaire du décret No. 81-500 du 12 mai 1981, 1981 Dalloz Chron. 209; Audit, A National Codification of International Commercial Arbitration: The French Decree of May 12, 1981, in T. Carbonneau & M. Domke, Resolving Transnational Disputes through Arbitration 117 (1984). 730 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶148-151 (1999). 731 See Judgment of 7 May 1963, Ets Raymond Gosset v. Carapelli, JCP G 1963, II, 13, ¶405 (French Cour de cassation civ. 1e) (“In international arbitration, the arbitration agreement, whether concluded separately or included in the contract to which it relates, shall, save in exceptional circ*mstances …, have full legal autonomy and shall not be affected by the fact that the aforementioned contract may be invalid”); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶391 et seq. (1999). French courts have given robust effect to the separability doctrine. See infra pp. 332-333. 732 Judgment of 17 December 1991, Gatoil v. Nat'l Iranian Oil Co.,
1993 Rev. arb. 281 (Paris Cour d'appel) (“in the field of international http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration, the principle of the autonomy of the arbitration agreement is of general application, as an international substantive rule upholding the legality of the arbitration agreement”); Judgment of 20 December 1993, Municipalité de Khoms El Mergeb v. Société Dalico, 1994 Rev. arb. 116 (French Cour de cassation civ. 1e) (“by virtue of a substantive rule of international arbitration, the arbitration agreement is legally independent of the main contract containing or referring to it, and the existence and effectiveness of the arbitration agreement are to be assessed, subject to the mandatory rules of French law and international public policy, on the basis of the parties' common intention, there being no need to refer to any national law”); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶436-437 (1999). 733 French New Code of Civil Procedure, Art. 1466; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶650-660 (1999). See also infra pp. 900904. 734 French New Code of Civil Procedure, Art. 1458(2); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶668-682 (1999); infra pp. 900-904. 735 French New Code of Civil Procedure, Art. 1458; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶668-682 (1999). 736 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶418-419 & 436-437 (1999). SeeJudgment of 4 July 1972, Hecht v. Buisman's, 99 J.D.I. (Clunet) 843 (French Cour de cassation civ. 1e) (1972) (“… having drawn attention to the international nature of the contract between the parties and to the total autonomy of arbitration agreement in the field of international arbitration, the Court of Appeals rightly held the disputed clause to be applicable in the present case.”); Judgment of 20 December 1993, Municipalité de Khoms El Mergeb v. Société Dalico, 1994 Rev. arb. 116 (French Cour de cassation civ. 1e) (“by virtue of a substantive rule of international arbitration, the arbitration agreement is legally independent of the main contract containing or referring to it, and the existence and effectiveness of the arbitration agreement are to be assessed, subject to the mandatory rules of French law and international public policy, on the basis of the parties' common intention, there being no need to refer to any national law.”). See infra pp. 504-506. 737 See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶574 (1999) (arbitrable are: antitrust, intellectual property, bankruptcy and corporate law issues). See also infra pp. 779-781. 738 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶481 (1999); infra pp. 10761078. 739 French New Code of Civil Procedure, Arts. 1443, 1460, 1494, & 1496; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶753, 1171, 1200, 1427 (1999); infra pp. 1379, 1753. 740 French New Code of Civil Procedure, Arts. 1460 & 1494; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶1200-1202 (1999); infra pp. 1760-1762, 1785-1786. 741 French New Code of Civil Procedure, Arts. 1493 & 1457. 742 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶1306-1308 (1999); infra p. http://www.kluwerarbitration.com/CommonUI/print.aspx
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2047. 743 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶1290 (1999). Among other things, the Tribunal de Grande Instance is responsible for selecting arbitrators and dealing with other problems in constituting a tribunal, in cases where the parties have not agreed upon institutional or other mechanisms. See French New Code of Civil Procedure, Arts. 1457, 1493; Judgment of 22 November 1989, Philipp Brothers v. Société Drexel Burham Lambert et al., 1990 Rev. arb. 142 (French Cour de cassation civ. 2e); infra pp. 1422-1423. 744 French New Code of Civil Procedure, Arts. 1504 & 1502; infra pp. 2566-2567. 745 French New Code of Civil Procedure, Art. 1502; infra pp. 2343, 2677-2680. 746 For commentary, see P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitrage interne et international en Suisse (1989); A. Bucher & P.-Y. Tschanz, International Arbitration in Switzerland (1988); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland (2000); S. Berti et al. (eds.), Basler Kommentar Internationales Privatrecht (2d ed. 2007); G. Kaufmann-Kohler & A. Rigozzi, Arbitrage international – Droit et pratique à la lumière de la LDIP (2007); G. Kaufmann-Kohler, International Arbitration in Switzerland: A Handbook for Practitioners (2004); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz (2006); G. Walter, W. Bosch & J. Brönnimann, Internationale Schiedsgerichtsbarkeit in der Schweiz (1991); T. Rüede & R. Hadenfeldt, Schweizerisches Schiedsgerichtsrecht (2d ed. 1993); T. Zuberbühler, C. Müller & P. Habegger (eds.), Swiss Rules of International Arbitration: Commentary (2005); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration (2d ed. 2007). 747 Switzerland was the seat for approximately 16% of all ICC arbitrations filed in 2006, 15.5% in 2000 and 15.4% in 1996 (in each case, second behind France in the number of ICC arbitrations). See infra pp. 1686-1690. 748 The historical development of arbitration in Switzerland prior to the 20th century is noted briefly above. See supra p. 51. 749 The leading members of the committee were Professors Pierre Lalive and Claude Reymond, together with Dr. Marc Blessing. See Blessing, in S. Berti et al. (eds.), International Arbitration in Switzerland Intro., ¶426 (2000). 750 See Blessing, in S. Berti et al. (eds.), International Arbitration in Switzerland Intro., ¶414 (2000). 751 Chapter 12 of the Swiss Law on Private International Law is translated in Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland (2000). The official French, German and Italian versions of Chapter 12, as well as unofficial English, Russian and Spanish translations can be found at www.swissarbitration.ch./rules.php. 752 Swiss Law on Private International Law, Art. 178(3); infra pp. 326-328. 753 Swiss Law on Private International Law, Art. 178(2); infra pp. 415-416, 501. 754 Swiss Law on Private International Law, Art. 186; infra pp. 904907. 755 Swiss Law on Private International Law, Art. 177; infra pp. 777779. http://www.kluwerarbitration.com/CommonUI/print.aspx
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756 See infra pp. 1072-1073. 757 See infra p. 1027; Judgment of 29 April 1996, Found. M v.
Banque X, 14 ASA Bull. 527 (Swiss Federal Tribunal) (1996) (Swiss Federal Tribunal) (where party challenges jurisdiction under arbitration agreement providing for seat in Switzerland, Swiss court must decline jurisdiction, unless it concludes upon a prima facie examination that the arbitration agreement is null and void, inoperative or incapable of being performed); Judgment of 16 January 1995, Compagnie de Nav. et Transports SA v. Mediterranean Shipping Co., XXI Y.B. Comm. Arb. 690 (Swiss Federal Tribunal) (1996) (where party challenges jurisdiction under arbitration agreement providing for seat abroad, Swiss court must subject the question of validity and scope of the agreement to full judicial consideration); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 186, ¶5 et seq. (2000). 758 Swiss Law on Private International Law, Arts. 182 & 187. 759 Swiss Law on Private International Law, Arts. 179(2),(3), 180(3), 183(2), 184(2), & 185. 760 Swiss Law on Private International Law, Art. 190(2). 761 Swiss Law on Private International Law, Art. 192; infra pp. 2662, 2665-2667. 762 Swiss Law on Private International Law, Art. 194. 763 Swiss Law on Private International Law, Art. 191(1). 764 There is extensive commentary on the English Arbitration Act, 1996. See, e.g., Fraser, Arbitration of International Commercial Disputes under English Law, 8 Am. Rev. Int'l Arb. 1 (1997); R. Merkin, Arbitration Law, (2004 & Update 2007); R. Merkin, Arbitration Act 1996 – An Annotated Guide (1996); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration (22d ed. 2003); M. Mustill & S. Boyd, Commercial Arbitration (2d ed. 1989 and 2001 Companion); B. Harris, R. Planterose & J. Tecks, The Arbitration Act 1996: A Commentary (4th ed. 2007); Special Section, English Arbitration Act 1996, 8 Am. Rev. Int'l Arb. 1 (1997); Special Section, The 1996 English Arbitration Act: A Ten Year Retrospective, 23 Arb. Int'l 431 (2007); Saville, The Origin of the New English Arbitration Act 1996: Reconciling Speed with Justice in the Decision-Making Process, 13 Arb. Int'l 237 (1997). 765 The United Kingdom was the seat for approximately 6.5% of all ICC arbitrations filed in 2006, 10.1% in 2000 and 6.7% in 1990. See infra pp. 1686-1690. 766 English Arbitration Act, 1996, §2(1) (“the provisions of this Part apply where the seat of the arbitration is in England and Wales or Northern Ireland”). In contrast, the previous English Arbitration Act, 1950, and the English Arbitration Act, 1979, did not define the arbitrations to which their provisions applied. The scope of application of these Acts was determined by common law principles of jurisdiction (which held that the English courts could generally only intervene in arbitrations held within the jurisdiction or subject to English law). 767 Goode, The Role of the Lex Loci Arbitri in International Commercial Arbitration, 17 Arb. Int'l 19, 19 (2001) (“the Arbitration Act 1996, unlike early versions of the draft Arbitration Bill prepared for the Departmental Advisory Committee on Arbitration, bears the strong impress of the Model Law”); Saville, The Origin of the New English Arbitration Act 1996: Reconciling Speed with Justice in the Decision-Making Process, 13 Arb. Int'l 237 (1997). The Act differs from the UNCITRAL Model Law in a number of respects. For a http://www.kluwerarbitration.com/CommonUI/print.aspx
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summary of the most important of these, see R. Merkin, Arbitration Law ¶1.22 (2004 & 2007 Update). 768 See supra pp. 32-37. 769 Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 24-32 (1999). 770 Compare the 19 (short) sections of the Swiss Law on Private International Law, the 16 (shorter) sections of the French New Code of Civil Procedure and the 31 (short) sections of the FAA (which include substantially duplicative implementing legislation for the Inter-American and New York Conventions). 771 See Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 14, 19 (1999); Hunter, Arbitration Procedure in England: Past, Present and Future, 1 Arb. Int'l 82 (1985). The historical development of commercial arbitration in England prior to the 20th century is described above. Seesupra pp. 32-37. 772 Samuel, Arbitration Statutes in England and the USA, 8 Arb. &
Disp. Res. L.J. 2, 19 (1999). 773 English Arbitration Act, 1979, §§1(3)(a) & (b), 3; Macassey, English Arbitration, XV J. Institute Arb. 63 (1947); Pioneer Shipping v. B.T.P. Tioxide (The “Nema”) [1982] A.C. 724 (House of Lords); Antaios Compania Naviera SA v. Salen Rederierna AB [1985] A.C. 191 (House of Lords). 774 For commentary on English arbitration law prior to 1996, see A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration (2d ed. 1991); R. Merkin, Arbitration Law (2004 & Update 2007); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶¶1-034 to 1-045 (22d ed. 2003); B. Harris, R. Planterose & J. Tecks, The Arbitration Act 1996: A Commentary (4th ed. 2007). For a critical overview, see Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 19 (1999) (“A great deal of ink has been spilt on this ill-conceived piece of compromise legislation.”); Samuel, The 1979 Arbitration Act – Judicial Review of Arbitral Awards on the Merits in England, 2(4) J. Int'l Arb. 53 (1985). 775 Ashville Inv. Ltd v. Elmer Contractors Ltd [1988] 3 W.L.R. 867
(English Court of Appeal); Samuel, Separability in English Law – Should An Arbitration Clause Be Regarded as An Agreement Separate and Collateral to A Contract in Which It Is Contained?, 3(3) J. Int'l Arb. 95 (1986). The separability presumption was recognized in England in Harbour Ass. Co. (UK) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1993] 3 All E.R. 897 (English Court of Appeal). See infra pp. 336-340. 776 See English Arbitration Act, 1979, §§3 & 4; R. Merkin, Arbitration Law ¶22.5 (2004 & Update 2007). 777 Ibid. 778 Marriott, The Politics of Arbitration Reform, 14 C.L.Q. 125 (1995); infra pp. 2646-2647, 2651-2655. 779 See U.K. Departmental Advisory Committee on Arbitration Law, 1996, Report on the Arbitration Bill(February 1996), reprinted in, 13 Arb. Int'l 275 (1997); Supplement to the Departmental Advisory Committee on Arbitration Law of February 1996 (January 1996), reprinted in, 13 Arb. Int'l 317 (1997). http://www.kluwerarbitration.com/CommonUI/print.aspx
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780 Chukwumerije, Reform and Consolidation of English Arbitration
Law, 8 Am. Rev. Int'l Arb. 21 (1996); Mustill, A New Arbitration Act for the United Kingdom? The Response of the Departmental Advisory Committee to the UNCITRAL Model Law, 6 Arb. Int'l 3 (1990); Saville, The Origin of the New English Arbitration Act 1996: Reconciling Speed with Justice in the Decision-Making Process, 13 Arb. Int'l 237 (1997). 781 English Arbitration Act, 1996, §§5, 6, 9; infra pp. 573, 1026. 782 English Arbitration Act, 1996, §7; infra pp. 339-340. 783 English Arbitration Act, 1996, §§30, 31, 67; Aeberli, Jurisdictional Disputes under the Arbitration Act 1996: A Procedural Route Map, 21 Arb. Int'l 253, 260-65 (2005); infra pp. 960-964. 784 See Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); Film Fin. Inc. v. Royal Bank of Scotland [2007] EWHC 195 (Comm.) (Q.B.); Vee Networks Ltd v. Econet Wireless Int'l Ltd [2005] 1 Lloyd's Rep. 192 (Q.B.); infra pp. 1073-1075. 785 See R. Merkin, Arbitration Law ¶3.17 (2004 & Update 2007); ET Plus SA v. Jean-Paul Welter [2005] EWHC 2115 (Comm.) (Q.B.); infra p. 786. 786 The Act underscores the parties' autonomy and the arbitral tribunal's discretion to conduct the arbitral proceedings. English Arbitration Act, 1996, §§33 & 34; infra pp. 1762, 1773-1774. Reflecting Article 5 of the UNCITRAL Model Law, the English Arbitration Act, 1996, provides that, in matters covered by Part I (“Arbitration Pursuant to an Arbitration Agreement”) “the court should not intervene except as provided by this part.” See English Arbitration Act, 1996, §1(c). 787 English Arbitration Act, 1996, §34(1) (“It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter”); infra pp. 1850-1852. 788 English Arbitration Act, 1996, §37; infra pp. 1860-1862. 789 English Arbitration Act, 1996, §37; infra pp. 2004-2006. 790 English Arbitration Act, 1996, §§38(4), 39; infra p. 2047. 791 See infra pp. 1281-1283, 1304-1308. This contrasts with the English Arbitration Act, 1950, which operated on the presumption that arbitrators were to act in accordance with the ordinary rules of evidence under applicable English law. See Land Sec. plc v. Westminster City Council [1992] 44 EG 153 (Q.B.). 792 English Arbitration Act, 1996, §44; infra pp. 1925-1926. 793 English Arbitration Act, 1996, §§16, 18, 19, & 24; infra pp. 1423, 1565, 1572-1574. 794 English Arbitration Act, 1996, §44. 795 [2006] 1 A.C. 221, 231 (House of Lords). 796 English Arbitration Act, 1996, §§67-69; infra pp. 2646-2647. English courts have held that appeal for error of law is impliedly excluded where the parties have chosen a substantive applicable law other than English law or where the parties have chosen a set of institutional rules, such as the ICC Rules, which excludes the right of appeal to the extent possible. Athletic Union of Constantinople v. Nat'l Basketball Assoc. [2002] 1 Lloyd's Rep. 305 (English Court of Appeal); Sanghi Polyesters (India) Ltd v. Int'l Inv. (KCFC, Kuwait) [2000] 1 Lloyd's Rep. 480 (Q.B.). 797 English Arbitration Act, 1996, §§100-104; infra p. 2727. 798 For commentary on international arbitration in the United States, see E. Brunet, R. Speidel, J. Sternlight & S. Ware, Arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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Law in America: A Critical Assessment (2006); F. Kellor, American Arbitration: Its History, Functions and Achievements (2000); I. Macneil et al., Federal Arbitration Law: Agreements, Awards and Remedies under the Federal Arbitration Act (1994); I. Macneil, American Arbitration Law: Reformation, Nationalization, Internationalization (1992); A. Lowenfeld, International Litigation and Arbitration (1992); G. Wilner, Domke on Commercial Arbitration (3d ed. & Update 2006); Drahozal, New Experiences of International Arbitration in the United States, 54 Am. J. Comp. L. 233 (2006). 799 The United States was the seat for approximately 5.6% of all ICC arbitrations filed in 2006, 7.9% in 2000 and 7.6% in 1990. 800 More U.S. companies are parties to ICC arbitrations than any other nationality. In 2006, for instance, 10.73% of the parties to ICC arbitrations were American, more than from any other nation (7.01% of parties to ICC arbitrations in 2006 were German, placing Germany in second place). 2006 Statistical Report, 18(1) ICC Ct. Bull. 5, 6 (2007). Likewise, in 2005, 12.59% of all parties to ICC arbitrations were American. 2005 Statistical Report, 17(1) ICC Bull. 5 (2006). 801 Seeinfra pp. 1686-1690. 802 U.S. FAA, 9 U.S.C. §§1-16 (domestic and non-New York or Inter-American Convention international arbitrations), 201-208 (New York Convention), 301-307 (Inter-American Convention). 803 Japan's arbitration legislation dated to 1890, but was recently replaced with a more modern statutory enactment in 2004. See Oghigan, Japan's New Arbitration Law, 2005 Asian Disp. Res. 56; Suzuki, Japan's New Arbitration Law, 2005 Asian Disp. Res. 16. 804 For a discussion of the respective roles of federal and state law in international arbitration in the United States, see infra pp. 140144, 485-497. 805 See supra pp. 44-48; Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109, 121-22 (U.S. S.Ct. 1924); Tobey v. County of Bristol, 23 F.Cas. 1313 (C.C. D. Mass. 1845). 806 See supra pp. 44-48. 807 See supra pp. 48-49. 808 N.Y. Arbitration Law, Act of Apr. 19, 1920, ch. 275, 1920 N.Y. Laws 803-808. See supra p. 48. 809 An American Bar Association committee prepared the initial draft of what was then called the “United States Arbitration Act.” That bill was first introduced in Congress in 1922. S. 4214, 67th Cong., 4th Sess., 64 Cong. Rec. 732 (1922); H.R. 13522, 67th Cong., 4th Sess., 64 Cong. Rec. 797 (1922). The Senate Judiciary Committee held hearings on the bill in 1923. See Hearings on S. 4213 and S. 4214 Before the Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess. (1923). Joint congressional hearings on the bill were held in 1924. Joint Hearings on S. 1005 and H.R. 646 Before the Subcommittee of the Committees on the Judiciary, 68th Cong., 1st Sess. (1924). 810 S. Rep. No. 536, 68th Cong., 1st Sess. 3 (1924); Committee on Commerce, Trade and Commercial Law, The United States Arbitration Act and its Application, 11 A.B.A.J. 153, 155-6 (1925). 811 Hearings on S. 4213 and S. 4214 Before the Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess., at 14 (1923) (Letter from H. Hoover, Secretary of Commerce). 812 Hearings on S. 4213 and S. 4214 Before the Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess., at 14 (1923) (ABA Report). http://www.kluwerarbitration.com/CommonUI/print.aspx
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813 Supporters of the FAA stated on numerous occasions, without
contradiction, that support for the legislation was universal. Hearings on S. 4213 and S. 4214 Before the Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess., at 3, 5, 17, 21 (1923). 814 65 Cong. Rec. 1931 (1924). 815 See supra pp. 33-37, 44-48. 816 Hearings on S. 4213 and S. 4214 Before the Subcommittee of the Senate Committee on the Judiciary, 67th Cong., 4th Sess., at 2 (1923). 817 U.S. FAA, ch. 392, §1, 62 Stat. 669 (1947) (as codified at 9 U.S.C. §§1-16). 818 U.S. FAA, 84 Stat. 692 (1970) (as codified at 9 U.S.C. §§201208). 819 U.S. FAA, Pub. L. 101-369 (1990) (as codified at 9 U.S.C. §§301-307). 820 The Act contains no or only the most rudimentary provisions regarding constitution of the arbitral tribunal, conduct of the arbitral proceedings, provisional measures, applicable law, costs and form of award. 821 Cf. Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 32 (1999) (“The [FAA] falls in the category of ‘small but perfectly formed.’ It is very resilient and loosely enough drafted in the right places to enable the court to do the right thing for the arbitral process.”). 822 The FAA applies to arbitration agreements and awards affecting either interstate or foreign commerce. U.S. FAA, 9 U.S.C. §1; infra pp. 290-291. These jurisdictional grants have been interpreted expansively. See G. Born, International Commercial Arbitration: Commentary and Materials 124-126, 388-389 (2d ed. 2001). The FAA's focus was principally domestic, although it also expressly applies to “foreign commerce.” U.S. FAA, 9 U.S.C. §1. 823 U.S. FAA, 9 U.S.C. §2. For discussion of §2 and its “savings clause,” see infra pp. 487-490. 824 U.S. FAA, 9 U.S.C. §§3-4. For a discussion of §§3 and 4, see infra pp. 1014-1017, 1025-1027, 1705-1718. 825 See U.S. FAA, 9 U.S.C. §5; infra pp. 1421-1422. 826 See U.S. FAA, 9 U.S.C. §7; infra pp. 1926-1933. 827 See U.S. FAA, 9 U.S.C. §§9-11; infra pp. 2340-2343, 25642565. 828 See U.S. FAA. 9 U.S.C. §13. 829 The domestic FAA consists of only seventeen articles, a number of which are archaic or immaterial. This contrasts with the much lengthier English Arbitration Act and UNCITRAL Model Law, supra pp. 115-121, 127-131, while roughly paralleling French and Swiss legislative style, supra pp. 121-125, 125-127. 830 U.S. FAA, 9 U.S.C. §§201–208. 831 116 Cong. Rec. 22, 732-33 (daily ed. July 24, 1970) (Hamilton Fish). See also Id., at 22, 731 (Andrew Jacobs). 832 Foreign Arbitral Awards, S. Rep. No. 91-702, 91st Cong., 2d Sess. 1-2 (1970); Aksen, American Arbitration Accession Arrives in the Age of Aquarius, 3 Sw. U. L. Rev. 1 (1971). 833 U.S. FAA, 9 U.S.C. §201; infra pp. 1014-1020, 1710-1717. In addition, the amendments expand federal subject matter jurisdiction and removal authority in cases falling under the Convention. U.S. http://www.kluwerarbitration.com/CommonUI/print.aspx
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FAA, 9 U.S.C. §§203, 205. 834 U.S. FAA, 9 U.S.C. §§206, 207; infra pp. 2727-2728. 835 U.S. FAA, 9 U.S.C. §§301-308; J. Bowman, The Panama Convention and Its Implementation under the Federal Arbitration Act (2002); supra pp. 103-105 & infra pp. 205, 569-570, 2338, 2417, 2560, 2725-2726. 836 U.S. FAA, 9 U.S.C. §302. 837 U.S. FAA, 9 U.S.C. §§303 & 306; infra pp. 1276-1277. 838 U.S. FAA, 9 U.S.C. §305. 839 U.S. FAA, 9 U.S.C. §§202, 206 & 207 and 302, 303 & 304. 840 Section 208 of the FAA provides that the domestic FAA “applies to actions and proceedings brought under this chapter to the extent that [the domestic FAA] is not in conflict with this chapter or the Convention as ratified by the United States.” 841 Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 44748 (U.S. S.Ct. 2006); Southland Corp. v. Keating, 465 U.S. 1 (U.S. S.Ct. 1984); Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (U.S. S.Ct. 1983); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. S.Ct. 1967). 842 See infra pp. 775-776, 781-785; Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 628 (U.S. S.Ct. 1985). 843 See infra pp. 328-332, 436-438, 449-451, 485-497, 571-572, 649-652, 833-835, 911-960, 1067-1073, 1752, 1780. 844 See supra pp. 48-49, 133-134 & infra pp. 140-142, 485-497, 833-834; Scherk v. Alberto-Culver Co., 417 U.S. 506, 516-17 (U.S. S.Ct. 1974). 845 See Mitsubishi Motors Corp., 473 U.S. at 628; Scherk, 417 U.S. at 516-17; infra pp. 775-776, 781-785. 846 See Buckeye Check Cashing, 546 U.S. at 445; Prima Paint Corp., 388 U.S. at 402; infra pp. 328-332, 363-380. 847 See First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. S.Ct. 1995); Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. S.Ct. 2002); Pacificare Health Sys., Inc. v. Book, 538 U.S. 401 (U.S. S.Ct. 2003); infra pp. 911-960. 848 See Buckeye Check Cashing, 546 U.S. 440; Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681 (U.S. S.Ct. 1996); Southland Corp., 465 U.S. 1; infra pp. 485-497, 571-572. 849 See First Options of Chicago, 514 U.S. 938; Mitsubishi Motors Corp., 473 U.S. at 628; infra pp. 1067-1073. 850 SeeMitsubishi Motors Corp., 473 U.S. at 628 (a party agreeing to arbitration “trades the procedures and opportunity for review of the courtroom for the simplicity, informality, and expedition of arbitration”); McDonald v. City of West Branch, 466 U.S. 284, 292 (U.S. S.Ct. 1984); infra pp. 1752, 1773-1774, 2578-2580, 25802593. 851 See infra pp. 1760-1762. 852 See infra pp. 1567-1569, 1779-1780. 853 See infra pp. 2029-2042, 2043-2048. 854 See infra pp. 1926-1933. 855 See infra pp. 1421-1422. 856 See infra pp. 2639-2650. This substantive review is referred to under the rubric of “manifest disregard of law.” See infra pp. 26392641. 857 See infra pp. 2712-2721 nn. 50, 59, 78, 85. http://www.kluwerarbitration.com/CommonUI/print.aspx
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858 E.g., Park, Amending the Federal Arbitration Act, 13 Am. Rev.
Int'l L. 75 (2002); Brunel, A Proposal to Adopt UNCITRAL's Model Law on International Arbitration as Federal Law, 25 Tex. Int'l L.J. 43 (1990); Kolkey, It's Time to Adopt the UNCITRAL Model Law on International Commercial Arbitration, 8 Trans. L. & Contemp. Probs. 3 (1998); Stipanowich, Rethinking American Arbitration, 63 Ind. L.J. 425 (1987). 859 Park, Amending the Federal Arbitration Act, 13 Am. Rev. Int'l L. 75 (2002). 860 Kaufmann-Kohler, Globalization of Arbitral Procedure, 36 Vand. J. Transnat'l L. 1313 (2003). 861 Samuel, Arbitration Statutes in England and the USA, 8 Arb. & Disp. Res. L.J. 2, 32 (1999); Rivkin & Kellner, In Support of the FAA: An Argument Against U.S. Adoption of the UNCITRAL Model Law, 10 Am. Rev. Int'l Arb. 535 (1999). 862 Hulbert, Should the FAA Be Amended?, 18(2) Mealey's Int'l Arb. Rep. 37 (2003). 863 Park, Amending the Federal Arbitration Act, 13 Am. Rev. Int'l L. 75, 135 (2002). The same author quotes the chief legal officer of a major company as saying that amendment of the FAA sent “shivers down the spine” of the business community, because of concerns about legislative interference with a system that basically functioned satisfactorily. 864 See Arbitration Fairness Act, H.R. 3010, S. 1782, 110th Cong. (2007). 865 There has been a vigorous debate on the Supreme Court concerning the preemptive effect of the FAA. CompareSouthland Corp. v. Keating, 465 U.S. 1 (U.S. S.Ct. 1984) (Burger, C.J.) withid. at 25 (O'Connor, J., dissenting); Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265 (U.S. S.Ct. 1995) (Breyer, J.) with id. at 285 (Scalia, J., dissenting). Academic debate has been just as robust. Compare Drahozal, In Defense of Southland: Reexamining the Legislative History of the Federal Arbitration Act, 78 Notre Dame L. Rev. 101 (2002) with I. Macneil, American Arbitration Law: Reformation, Nationalization, Internationalization 83-147 (1992). It is, in truth, very hard to be certain what Congress thought it was doing when it enacted the FAA in 1925. The better view, however, is that it intended that §2 of the Act state a substantive rule of federal law, governing the validity of arbitration agreements, which would preempt state law and be enforceable in state, as well as federal, courts. Drahozal, In Defense of Southland: Reexamining the Legislative History of the Federal Arbitration Act, 78 Notre Dame L. Rev. 101, 163-65 (2002). This interpretation is buttressed by the then recently-adopted 1923 Geneva Protocol, which also provided for the validity of arbitration agreements (but not for the recognition of foreign arbitral awards), in a manner structurally paralleling the FAA. See supra pp. 58-61. 866 American Ins. Ass'n v. Garamendi, 539 U.S. 396 (U.S. S.Ct.
2003); Hinesv. Davidowitz, 312 U.S. 52 (U.S. S.Ct. 1941). 867 The U.S. Supreme Court has repeatedly held that the FAA preempts particular state law rules. Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265 (U.S. S.Ct. 1995); Southland Corp. v. Keating, 465 U.S. 1 (U.S. S.Ct. 1984); Perry v. Thomas, 482 U.S. 483 (U.S. S.Ct. 1987); infra pp. 485-497, 571-572, 833-834. See also Besson, The Utility of State Laws Regulating International http://www.kluwerarbitration.com/CommonUI/print.aspx
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Commercial Arbitration and Their Compatibility with the FAA, 11 Am. Rev. Int'l Arb. 211 (2000); Drahozal, In Defense of Southland:Reexamining the Legislative History of the Federal Arbitration Act, 78 Notre Dame L. Rev. 101 (2002); Drahozal, Federal Arbitration Act Preemption, 79 Ind. L.J. 393 (2004); Hayford & Palmiter, Arbitration Federalism: A State Role in Commercial Arbitration, 54 Fla. L. Rev. 175 (2002). 868 See Volt Info. Sciences, Inc. v. Bd. of Trustees, 489 U.S. 468, 477 (U.S. S.Ct. 1989) (“The FAA contains no express pre-emptive provision, nor does it reflect a congressional intent to occupy the entire field of arbitration. But even when Congress has not completely displaced state regulation in an area, state law may nonetheless be preempted to the extent that it actually conflicts with federal law.”). 869 Southland Corp., 465 U.S. at 10. See alsoBuckeye Check Cashing, 546 U.S. at 444-48 (“Section 2 embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts.”). 870 See infra pp. 485-497, 833-835; Southland Corp., 465 U.S. at 10; Allied-Bruce Terminix Co., 513 U.S. 265; Doctor's Assoc., Inc., 517 U.S. 681. 871 See infra pp. 328-332, 363-380; Buckeye Check Cashing, Inc., 546 U.S. 440; Prima Paint Corp., 388 U.S. 395. 872 See infra pp. 1067-1072; Mitsubishi Motors Corp., 473 U.S. at 628. 873 See infra pp. 2572 et seq. 874 Perry v. Thomas, 482 U.S. 483; Allied-Bruce Terminix Co., 513 U.S. 265; First Options of Chicago, 514 U.S. 938; infra pp. 487-490. In contrast, state laws that are specifically directed towards the formation or validity of arbitration agreements (as distinguished from other types of agreements) are preempted by the FAA. SeeAlliedBruce Terminix Co., 513 U.S. 265; Southland Corp., 465 U.S. 1; infra pp. 487-490. 875 See infra pp. 491-492; Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88 (2d Cir. 1999) (“When we exercise jurisdiction under Chapter Two of the FAA, we have compelling reasons to apply federal law, which is already welldeveloped, to the question of whether an agreement to arbitrate is enforceable”); InterGen NV v. Grina, 344 F.3d 134, 143 (1st Cir. 2003). 876 See infra pp. 485-497, 833-834. 877 See infra pp. 2564-2565, 2727-2728. 878 See Lerner, The Uniform Arbitration Act: 25-Year Retrospective, N.Y. L.J. 1 (9 July 1981); Pirsig, The New Uniform Arbitration Act, 11 Bus. Law. 44 (1956); Pirsig, Some Comments on Arbitration Legislation and the Uniform Act, 10 Vand. L. Rev. 685 (1957); Report of the National Conference of Commissioners on Uniform State Laws, 50 A.B.A.J. 134, 134-62 (1925). 879 National Conference of Commissioners on Uniform State Laws, Revised Uniform Arbitration Act (2000). The drafters of the Act observe: “The Uniform Arbitration Act, promulgated in 1955, has been one of the most successful Acts of the National Conference of Commissioners on Uniform State Laws.” Revised Uniform Arbitration Act, Prefatory Note (2000). 880 The Revised Uniform Arbitration Act (2000) has been adopted by 12 states: Alaska, Colorado, Hawaii, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Oklahoma, Oregon, Utah and http://www.kluwerarbitration.com/CommonUI/print.aspx
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Washington. The 1956 Act remains in effect in 28 jurisdictions: Arizona, Arkansas, Delaware, District of Columbia, Florida, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Vermont, Virginia and Wyoming. Alaska did not repeal the 1956 Act when it adopted the 2000 Act. 881 The National Conference of Commissioners on Uniform Laws originally opposed the enforceability of arbitration agreements applicable to future disputes. Report of the National Conference of Commissioners on Uniform State Laws, 50 A.B.A.J. 134, 134-62 (1925). As initially adopted, the Uniform Act was confined to agreements covering existing disputes. Id. at 591. 882 Revised Uniform Arbitration Act, §§4, 6, 7 (2000). 883 Revised Uniform Arbitration Act, §§22-23 (2000). 884 Revised Uniform Arbitration Act, §§11-12 (2000). 885 Revised Uniform Arbitration Act, §8 (2000). 886 Revised Uniform Arbitration Act, §§9, 15-17 (2000). 887 Revised Uniform Arbitration Act, §19 (2000). 888 Revised Uniform Arbitration Act, §14 (2000). 889 E.g., Ark. Code Ann. §16-108-201 (tort claims); Ohio Rev. Code Ann. §2711.01 (real property disputes); Ky. Rev. Stat. §417.050 (insurance disputes). These state rules are preempted by the FAA in almost all circ*mstances. See infra pp. 487-491, 833834. 890 See, e.g., Cal. C.C.P. §1295(b) (requiring special notice of arbitration clauses in medical services contracts); Cal. C.C.P. §1298 (requiring special notice of arbitration clauses in real property contracts); Mo. Ann. Stat. §435.460 (requiring notice of arbitration clause to appear in ten point capital letters before signature line); S.C. Code Ann. §15-48-10 (requiring front-page notice of arbitration clause in all but employment contracts, lawyer/client and doctor/patient pre-arrangements, and personal injury claims). These state law rules are also pre-empted by the FAA in almost all cases. See Doctor's Assoc., Inc., 517 U.S. 681 (state statute requiring special notice for arbitration clauses pre-empted by the FAA); Morrison v. Colo. Permanente Medical Group, 983 F.Supp. 937 (D. Colo. 1997) (state notice requirement for medical malpractice arbitration clauses pre-empted by FAA). See infra pp. 487, 536-537, 599-600, 622-623. 891 Ga. Code Ann. §9-9-13; Pa. Cons. Stat. Ann. tit. 42, §7302(d)
(2). 892 See Besson, The Utility of State Laws Regulating International
Commercial Arbitration and Their Compatibility with the FAA, 11 Am. Rev. Int'l Arb. 211 (2000); Garvey & Heffelfinger, Towards Federalizing U.S. International Commercial Arbitration Law, 25 Int'l Law. 209 (1991); McClendon, State International Arbitration Laws: Are They Needed or Desirable, 1 Am. Rev. Int'l Arb. 245, 250 (1990). 893 Arbitration and Conciliation of International Commercial Disputes, Cal. C.C.P. §1297.11 et seq. (California); Colorado International Dispute Resolution Act, Colo. Rev. Stat. §§13-22-501 through 13-22-507; UNCITRAL Model Law on International Commercial Arbitration, Conn. Gen. Stat. §§50a-100 through 50ahttp://www.kluwerarbitration.com/CommonUI/print.aspx
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136 (Connecticut); Florida International Arbitration Act, Fla. Stat. Ann. §684.01; Georgia Arbitration Code, Ga. Code Ann. §§9-9-1, 99-30 through 9-9-43; Hawaii International Arbitration, Mediation, and Conciliation Act, Haw. Rev. Stat. §§658D-1 through 658D-9; Maryland International Commercial Arbitration Act, Md. Cts. & Jud. Proc. Code Ann. §§3-2B-01 through 3-2B-09; North Carolina International Commercial Arbitration and Conciliation Act, N.C. Gen. Stat. §§1-567.30 – 1-567.68; International Commercial Arbitration, Ohio Rev. Code Ann. §§2712.01 through 2712.91; Oregon International Commercial Arbitration and Conciliation Act, Or. Rev. Stat. §§36.450 – 36.558; Arbitration and Conciliation of International Commercial Disputes, Tex. Civ. Prac. & Rem. Ann. §172.001 et seq. (Texas). 894 As discussed elsewhere, generally applicable state law provides most basic rules of contract law governing the formation of domestic arbitration agreements; federal common law principles appear to apply to the formation and validity of international arbitration agreements subject to the New York and Inter-American Conventions. See supra pp. 140-142 & infra pp. 487-497. State law can, of course, also provide the substantive rules governing the merits of the parties' dispute. 895 489 U.S. 468 (U.S. S.Ct. 1989). 896 Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (U.S. S.Ct. 1995); Doctor's Assoc., Inc., 517 U.S. 681; infra pp. 449451. 897 See infra pp. 449-451. 898 See, e.g., Kassis, The Questionable Validity of Arbitration and Awards under the Rules of the International Chamber of Commerce, 6(2) J. Int'l Arb. 79 (1989); Shalakany, Arbitration and the Third World: A Plea for Reassessing Bias under the Specter of Neoliberalism, 41 Harv. Int'l L. J. 419 (2000); Sornarajah, The UNCITRAL Model Law: A Third World Viewpoint, 6(4) J. Int'l Arb. 7 (1989); Sornarajah, The Climate of International Arbitration, 8(2) J. Int'l Arb. 47 (1991); Nariman, East Meets West: Tradition, Globalization and the Future of Arbitration, 20 Arb. Int'l 123, 125-26 (2004); El-Kosheri, Is There A Growing International Arbitration Culture in the Arab-Islamic Juridical Culture?, in A. van den Berg, International Dispute Resolution: Towards An International Arbitration Culture 47 (1998); Donovan, International Commercial Arbitration and Public Policy, 27 N.Y.U.J. Int'l L. & Pol. 645 (1995). 899 See authorities cited supra p. 144 n. 896. 900 Grigera Naón, Arbitration in Latin America: Overcoming Traditional Hostility, 5 Int'l Arb. 137 (1989); Grigera Naón, Arbitration and Latin America: Progress and Setbacks, 21 Arb. Int'l 127, 128-40 (2005); Nattier, International Commercial Arbitration in Latin America: Enforcement of Arbitral Agreements and Awards, 21 Tex. J. Int'l L. 397 (1986); S. Saleh, Commercial Arbitration in the Arab Middle East 39-40 (2d ed. 2006); El-Ahdab, Enforcement of Arbitral Awards in the Arab Countries, 11 Arb. Int'l 169 (1995); J. Kleinheisterkamp, International Commercial Arbitration in Latin America 1, 17, 18 (2005); N. Blackaby, D. Lindsey & A. Spinillo, International Arbitration in Latin America, Overview of Regional Developments 3-10 (2002). 901 Shalakany, Arbitration and the Third World: A Plea for Reassessing Bias under the Specter of Neoliberalism, 41 Harv. Int'l L. J. 419, 427 et seq. (2000) (“national judicial sovereignty is the price of capitulation to a historically biased dispute settlement mechanism … a ‘system that is weighted in favor of the capital exporting states.'”); Sornarajah, The UNCITRAL Model Law: A Third http://www.kluwerarbitration.com/CommonUI/print.aspx
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World Viewpoint, 6(4) J. Int'l Arb. 7 (1989) (“there is a definite ambivalence in the attitudes of developing countries towards international commercial arbitration”); Afro-Asian Legal Consultative Committee, Report of the Seventeenth, Eighteenth and Nineteenth Sessions held in Kuala Lumpur (1976), Baghdad (1977) and Doha (1978), at 131 (institutional arbitration rules do “not work out particularly favourably for the developing countries in the matter of venue, choice of arbitrators, as also fees and charges leviable by the institutions concerned”). 902 Grigera Naón, Argentine Law and the ICC Rules: A Comment on the ECOFISA Case, 3 World Arb. & Med. Rep. 100 (1992); Brazilian Arbitration Law, Arts. 6-7 (arguably requiring post-dispute compromis). 903 C. Calvo, Derecho Internacional Teorico y Practico de Europa y America (1868); C. Calvo, Le droit international theorique et pratique (4th ed. 1870-72). See Grigera Naón, Arbitration and Latin America: Progress and Setbacks, 21 Arb. Int'l 127, 134-37 (2005). 904 See supra pp. 54-56; Garcia-Amador, 2 The Changing Law of International Claims 481-482 (1984); Baker & Yoder, ICSID and the Calvo Clause: Hindrance to Foreign Direct Investment in LDCs, 5 Ohio St. J. Disp. Resol. 75, 91 (1989). 905 Decision 24 of the Andean Commission Concerning Treatment of Foreign Capital, Article 51, 10 Int'l Leg. Mat. 15 (1971). 906 UN General Assembly Resolution No. 3281 (XXIX), Charter of Economic Rights and Duties of States, UN Doc. A/9631 (1974); UN General Assembly Resolution No. 3171, Permanent Sovereignty Over Natural Resources, UN Doc. A/9030 (1973), available at www.un.org/documents. 907 See supra pp. 32-57 & infra pp. 574-575; Grigera Naón, Argentine Law and the ICC Rules: A Comment on the ECOFISA Case, 3 World Arb. & Med. Rep. 100 (1992); Brazilian Arbitration Law, Arts. 6-7 (arguably requiring post-dispute compromise). 908 See infra pp. 2566-2567, 2726-2729; Judgment of 1 August 2002, Electrificadora del Atlantico SA ESP v. Termorio SA ESP, Expte. 11001-03-25-000-2001-004601 (Colombian Consejo de Estado) (“As a consequence of the evidence given, the arbitration process and the award from the 21st of December of 2001 … between the companies Electrificadora del Atlántico S.A. E.S.P and Termorio E.S.P. is annulled.”). 909 See infra pp. 1048-1057. For a detailed account of efforts made by some states to frustrate the arbitration of international disputes, see Kantor, International Project Finance and Arbitration with Public Sector Entities: When Is Arbitrability A Fiction?, 24 Fordham Int'l L.J. 1122, 1171-72 (2001) (“a substantial risk exists that courts in developing countries will intervene to halt arbitration of disputes between investors and public authorities of that country, particularly in circ*mstances of pervasive economic and political turmoil and corruption.”). 910 Alfaro & Guimarey, Who Should Determine Arbitrability? Arbitration in A Changing Economic and Political Environment, 12 Arb. Int'l 415, 424-26 (1996); A. Asouzu, International Commercial Arbitration and African States: Practice, Participation and Institutional Development (2001); Asouzu, The Adoption of the UNCITRAL Model Law in Nigeria: Implications on the Recognition and Enforcement of Arbitral Awards, 1999 J. Bus. L. 185; Grigera Naón, Arbitration in Latin America: Overcoming Traditional Hostility (An Update), 22 U. Miami Inter-Am. L. Rev. 203, 231-234 (1991); Grigera Naón, Arbitration and Latin America: Progress and http://www.kluwerarbitration.com/CommonUI/print.aspx
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Setbacks, 21 Arb. Int'l 127, 149-76 (2005). 911 Grigera Naón, Arbitration and Latin America: Progress and Setbacks, 21 Arb. Int'l 127, 150 (2005) (“despite the rosy landscape generally presented by the black letter law on arbitration in Latin America after its recent modernisation, its substance or spirit has not always been properly understood or applied. In certain cases, the Latin American courts have ignored express legal provisions aimed at facilitating arbitration or ensuring its efficacy, or advanced results notoriously incompatible with the policies favourable to arbitration underlying the new and updated legal arbitration framework”); Alfaro & Lorenti, The Growing Opposition of Argentina to ICSID Arbitral Tribunals: A Conflict Between International and Domestic Law?, 6 J. World Inv. & Trade 417 (2005). 912 See ICSID News Release, Bolivia Submits A Notice under Article 71 of the ICSID Convention (May 16, 2007) available at http//icsid.worldbank.org; Trade Benefits at Risk as Equador Scraps US Treaty, Reuters, www.reuters.com (7 May 2007) (Equador threatens termination of BIT with United States). 913 See supra pp. 144-147; Shalakany, Arbitration and the Third World: A Plea for Reassessing Bias under the Specter of Neoliberalism, 41 Harv. Int'l L.J. 419, 430 (2000); Franck, The Legitimacy Crisis in Investment Treaty Arbitration: Public International Law Through Inconsistent Decisions, 73 Ford. L. Rev. 1521 (2005). 914 See supra pp. 92-101, 111-115. 915 See infra pp. 1782-1785. 916 For brief descriptions of major international arbitration institutions, see G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 44-61 (2d ed. 2006); von Mehren, Rules of Arbitral Bodies Considered from A Practical Point of View, 9(3) J. Int'l Arb. 105 (1992); Blessing, The Major Western and Soviet Arbitration Rules, 6(3) J. Int'l Arb. 8 (1989); Tiefenbrun, A Comparison of International Arbitral Rules, 15 Boston C. Int'l & Comp. L. Rev. 25 (1992). 917 See supra pp. 105-107. 918 In a number of industries, specialized arbitral regimes provide well-established means of dispute resolution. Examples include maritime, commodities, construction, insurance and reinsurance and labor arbitration. See supra p. 84; D. Johnson, International Commodity Arbitration (1991); F. Rose, International Commercial and Maritime Arbitration (1988); C. Ambrose & K. Maxwell, London Maritime Arbitration (2d ed. 2002); AAA,www.adr.org (providing descriptions and rules for construction, textile, apparel, labor, pension, consumer and insurance arbitrations). See also Procedures for the Resolution of U.S. Insurance and Reinsurance Disputes (Reinsurance); ARIAS-UK Arbitration Rules (1997); London Maritime Arbitration Association Terms (2006) (maritime); German Maritime Arbitration Association Rules (2007) (maritime); Society of Maritime Arbitration Rules (2003) (maritime); AAA Labor Arbitration Rules (2007) (labor disputes); AAA Rules for Impartial Determination of Union Fees (1988) (organized labor fees); Rail Arbitration Rules of the National Grain and Feed Association (2005) (selected transport disputes); National Grain and Feed Association Arbitration Rules (2007) (selected commodities disputes). 919 The incorporation of institutional arbitration rules is discussed below, see infra pp. 704, 1121-1124. 920 See infra pp. 1593 et seq. 921 See infra pp. 1363-1386. http://www.kluwerarbitration.com/CommonUI/print.aspx
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922 See infra pp. 1395-1399. 923 See infra pp. 1400-1401. 924 For a discussion of the UNCITRAL Rules, see infra pp. 151-
153. 925 Most leading arbitration institutions (including the ICC, the
AAA, and the LCIA) will act as an appointing authority, for a fee, in ad hoc arbitrations. 926 See infra pp. 1417-1435. 927 See infra pp. 153-154. 928 As discussed below, national courts will generally have the power, under most developed arbitration statutes and where the parties have not otherwise agreed, to assist the arbitral process by appointing arbitrators, considering challenges to arbitrators and fixing compensation of arbitrators. See infra pp. 1417-1435, 15621580. 929 See infra pp. 346-348, 869-870, 1382-1384, 1394-1398, 14081417. 930 See infra p. 2327. 931 For commentary, see D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary (2006); I. Dore, Arbitration and Conciliation under the UNCITRAL Rules: A Textual Analysis (1986); J. van Hof, Commentary on the UNCITRAL Arbitration Rules: The Application by the Iran-U.S. Claims Tribunal (1991); Sanders, Commentary on the UNCITRAL Arbitration Rules, II Y.B. Comm. Arb. 172 (1977); S. Baker & M. Davis, The UNCITRAL Arbitration Rules in Practice: The Experience of the Iran-United States Claims Tribunal (1992); Dietz, Development of the UNCITRAL Arbitration Rules, 27 Am. J. Comp. L. 449 (1979); Sanders, Procedures and Practices under the UNCITRAL Rules, 27 Am. J. Comp. L. 453 (1979); Sanders, Has the Moment Come to Revise the Arbitration Rules of UNCITRAL?, 20 Arb. Int'l 243 (2004). See also UNCITRAL, Recommendations to Assist Arbitral Institutions and Other Interested Bodies With Regard to Arbitrations under the UNCITRAL Arbitration Rules, XIII Y.B. UNCITRAL 420 (1982). 932 Report of the UNCITRAL on the Work of its Sixth Session, UN Doc. A/9017, ¶85, IV Y.B. UNCITRAL 11 (1973). 933 Report of the Secretary-General on the Revised Draft Set of Arbitration Rules, UNCITRAL, Ninth Session, Introduction, UN Doc. A/CN.9/112, ¶17, VII Y.B. UNCITRAL 157 (1976); D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 26-32, 44-51 (2006). See also UN General Assembly Resolution No. 31/98, dated 15 December 1976, II Y.B. Comm. Arb. xi (1977) (“the establishment of rules for ad hoc arbitration that are acceptable in countries with different legal, social and economic systems would significantly contribute to the development of harmonious international economic relations”). 934 Report of the Secretary-General on the Preliminary Draft Set of Arbitration Rules for Optional Use in Ad Hoc Arbitration Relating to International Trade, UNCITRAL Eighth Session, UN Doc. A/CN.9/97, VI UNCITRAL Y.B. 163, 176 (1975); D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 44-51, 565-79 (2006). 935 Report of the UNCITRAL on the Work of its Ninth Session, UN Doc. A/31/17, VII Y.B. UNCITRAL 9, 20-27, 66-82 (1976); Rules also reprinted in, II Y.B. Com. Arb. 161 (1977). See D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 2 http://www.kluwerarbitration.com/CommonUI/print.aspx
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et seq. (2006). 936 The International Institute for Conflict Prevention and Resolution (formerly known as the CPR Institute for Dispute Resolution) has published since 1989, a set of “Rules for NonAdministered Arbitration” (formerly called “Rules and Commentary for Non-Traditional Arbitration for Business Disputes”). The Permanent Court of Arbitration has promulgated several sets of rules, based on the UNCITRAL Rules, applicable to disputes between private and public parties, including the “Permanent Court of Arbitration Optional Rules for Arbitrating Disputes Between Two Parties of Which Only One is a State” and the “Permanent Court of Arbitration Optional Rules for Arbitration Between International Organizations and Private Parties.” 937 Experience with the UNCITRAL Rules has been positive. See Permanent Court of Arbitration: Optional Rules for Arbitrating Disputes Between Two States, effective 20 October 1992, 32 Int'l Leg. Mat. 572 (1993) (“Experience since 1981 suggests that the UNCITRAL Arbitration Rules provide fair and effective procedures for peaceful resolution of disputes between States concerning the interpretation, application and performance of treaties and other agreements, although they were originally designed for commercial arbitration”); D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 7 (2006) (“UNCITRAL Rules themselves are increasingly important”). 938 UNCITRAL Rules, Arts. 3-4; infra pp. 1795-1798. 939 UNCITRAL Rules, Arts. 5-13; infra pp. 1382-1384, 1395-1398, 1411-1413, 1553-1562. 940 UNCITRAL Rules, Arts. 14, 15-25, 27-29; infra pp. 1753-1755, 1763-1765. 941 UNCITRAL Rules, Art. 33; infra pp. 2118-2119. 942 UNCITRAL Rules, Arts. 31-32, 35-37; infra pp. 2449-2450, 2568. 943 UNCITRAL Rules, Arts. 38-40; infra pp. 2496-2498. 944 UNCITRAL Rules, Art. 21; infra pp. 346-348, 869-870. 945 The parties can select an arbitral institution (like the ICC, AAA, or LCIA) as appointing authority without adopting that institution's rules. Alternatively, a designated individual or office-holder may be selected. 946 UNCITRAL Rules, Art. 7; infra pp. 1411-1413. 947 This includes IACAC, ICDR, HKIAC, Kuala Lumpur Regional Centre for Arbitration, Cairo International Commercial Arbitration Center and the Iran-U.S. Claims Tribunal. See D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 10-11 (2006); J. van Hof, Commentary on the UNCITRAL Arbitration Rules: The Application by the Iran-U.S. Claims Tribunal (1991). 948 The UNCITRAL Working Group on International Arbitration and Conciliation has been studying possible revisions to the UNCITRAL Rules since 2006. See Paulsson & Petrochilos, Report: Revision of the UNCITRAL Arbitration Rules (2006), available at www.uncitral.org; Report of the Working Group on Arbitration and Conciliation on the Work of its Forty-Seventh Session UN Doc. A/CN.9/641 (2007), available at www.uncitral.org. 949 Issues arising from arbitration agreements that incorporate institutional rules (sometimes defectively) are discussed below. See infra pp. 1121-1124. 950 See infra pp. 1696-1703. See also ICC Rules of Arbitration, Foreword (“ICC arbitrations are held in numerous countries, in most http://www.kluwerarbitration.com/CommonUI/print.aspx
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major languages, and with arbitrators from all over the world”); www.adr.org/about-icdr (noting that the AAA's cooperative agreements with 62 arbitral institutions in 43 countries worldwide “enable arbitration cases to be filed and heard virtually anywhere in the world”). 951 See, e.g., Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 3 (2d ed. 2005). 952 See supra pp. 111-115, 118-119. 953 For commentary, see Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration (2d ed. 2005); ICC, Guide to ICC Arbitration (1994); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration (3d ed. 2000); W. Craig, W. Park & J. Paulsson, Annotated Guide to the 1998 ICC Arbitration Rules (1998); M. Bühler & T. Webster, Handbook of ICC Arbitration (2005); E. Schäfer, H. Verbist & C. Imhoos, ICC Arbitration in Practice (2004); Bond, The Present Status of the International Court of Arbitration of the ICC: A Comment on An Appraisal, 1 Am. Rev. Int'l Arb. 108 (1990); Cohn, The Rules of Arbitration of the International Chamber of Commerce, 14 Int'l & Comp. L.Q. 132 (1965); Wetter, The Present Status of the International Court of Arbitration of the ICC: An Appraisal, 1 Am. Rev. Int'l Arb. 91 (1990). For collections of ICC awards and procedural decisions, see S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 19741985 (1990); S. Jarvin, Y. Derains, & J.-J. Arnaldez (eds.), Collection of ICC Arbitral Awards 1986-1990 (1994); J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1990-1995 (1997); J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 (2003); D. Hascher (ed.), Collection of Procedural Decisions in ICC Arbitration 1993-1996 (1997). The ICC International Court of Arbitration also publishes a periodical bulletin reporting on recent developments in ICC arbitration. See ICC International Court of Arbitration Bulletin. 954 See supra pp. 58-61, 133-134. 955 The ICC model arbitration clause provides: “All disputes arising
out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.” 956 2006 Statistical Report, 18(1) ICC Ct. Bull. 5 (2007); Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 3 (2d ed. 2005); supra pp. 68-70. 957 During 2004, parties to ICC arbitrations were from 116 different countries. 2004 Statistical Report, 16(1) ICC Ct. Bull. 5, 6 (2005). 958 See Philippe, NetCase: A New ICC Arbitration Facility, in ICC, Using Technology to Resolve Disputes 53 (ICC Ct. Bull. Spec. Supp. 2004). 959 ICC Rules, Arts. 4(5) & 5(4). 960 ICC Rules, Art. 30. 961 ICC Rules, Arts. 7-9. 962 ICC Rules, Art. 9. 963 ICC Rules, Art. 11. 964 ICC Rules, Art. 18. 965 ICC Rules, Art. 27. http://www.kluwerarbitration.com/CommonUI/print.aspx
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966 ICC Rules, Art. 31. 967 ICC Rules, Art. 1(2). The Court acts pursuant to internal rules
governing its conduct. See ICC, Internal Rules of the International Court of Arbitration, Appendix II; Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 1-8, 11-27 (2d ed. 2005); M. Bühler & T. Webster, Handbook of ICC Arbitration 12-16, 23-26 (2005). 968 The ICC's model arbitration clause provides: “All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators in accordance with the said Rules.” 969 2004 Statistical Report, 16(1) ICC Ct. Bull. 5, 10 (2005); 2005
Statistical Report, 17(1) ICC Ct. Bull. 5, 10 (2006); 2006 Statistical Report, 16(1) ICC Ct. Bull. 5, 12 (2007) 970 See infra pp. 1686-1690; Verbist, The Practice of the ICC International Court of Arbitration With Regard to the Fixing of the Place of Arbitration, 12 Arb. Int'l 347 (1996); Jarvin, The Place of Arbitration – A Review of the ICC Court's Guiding Principles and Practice When Fixing the Place of Arbitration, 7(2) ICC Ct. Bull. 54 (1996). 971 ICC Rules, Arts. 7, 9, 11. 972 See infra pp. 1413-1415, 1554-1557; Bond, The Experience of the ICC in the Confirmation/Appointment Stage of An Arbitration, in The Arbitral Process and the Independence of Arbitrators 9 (1991); Hascher, ICC Practice in Relation to the Appointment, Confirmation, Challenge and Replacement of Arbitrators, 6(2) ICC Ct. Bull. 4 (1995). 973 Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 4, 167-176 (2d ed. 2005); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶12.03 (3d ed. 2000). 974 See supra pp. 151-153. 975 ICC Rules, Arts. 4, 5. 976 ICC Rules, Arts. 7-12. 977 ICC Rules, Arts. 13-23. 978 ICC Rules, Arts. 24-29. 979 ICC Rules, Art. 18; Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 246-266 (2d ed. 2005). 980 ICC Rules, Art. 24(1). This time limit is routinely extended. Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 305 (2d ed. 2005). 981 ICC Rules, Art. 27; Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 312-316 (2d ed. 2005). 982 ICC Rules, Appendix III, Art. 2; Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 330 (2d ed. 2005). 983 ICC Rules, Art. 30. 984 ICC Rules, Art. 30(3). 985 See Wetter, The Present Status of the International Court of Arbitration of the ICC: An Appraisal, 1 Am. Rev. Int'l Arb. 91 (1990); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶3.05 (3d ed. 2000) (attempting to counter criticisms); Buehler, Costs in ICC Arbitration: A Practitioner's View, 3 http://www.kluwerarbitration.com/CommonUI/print.aspx
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Am. Rev. Int'l Arb. 116 (1992). 986 See Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 5 (2d ed. 2005); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶3.05 (3d ed. 2000) (attempting to counter criticisms). A recent ICC task force studied ways to reduce costs and delay in ICC arbitrations. See ICC, Techniques for Controlling Time and Costs in Arbitration (2007). 987 Figueres, Amicable Means to Resolve Disputes: How the ICC
ADR Rules Work, 21 J. Int'l Arb. 91 (2004); Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 8-9 (2d ed. 2005). The ICC's ADR Rules were adopted in 2002 and replaced earlier ICC Rules of Optional Conciliation. Ibid. 988 2007 Statistical Report, 19(1) ICC Ct. Bull. 5, 15 (2008). 989 The Centre's Rules were revised in 1993 and again in 2003. See ICC, The International Centre for Technical Expertise (1977); 4(1) ICC Ct. Bull. 57 (1993); Charrin, The ICC International Centre for Expertise – Realities and Prospects, 6(2) ICC Ct. Bull. 33 (1995). 990 ICC Rules for Expertise, Art. 12(3). 991 The Centre has received relatively limited numbers of requests annually (e.g., 17 in 2003, 8 in 2004 and 11 in 2005. Statistical Report, 15(1) ICC Ct. Bull. 16 (2004); 16(1) ICC Ct. Bull. 13 (2005); 17(1) ICC Ct. Bull. 14 (2006). 992 The LCIA model arbitration clause provides: “Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause. The number of arbitrators shall be [one/three]. The place of arbitration shall be [City and/or Country]. The language to be used in the arbitral proceedings shall be _______. The governing law of the contract shall be the substantive law of _______.” 993 The LCIA reports that in 2005, 118 cases were referred to it
and, in 2006, 133 cases were referred to it. See LCIA News, Director General's Review of 2006 (January 2007), available at www.lciaarbitration.com. 994 LCIA News, Director General's Review of 2006 (January 2007) available at www.lcia-arbitration.com (News Archive). 995 See supra pp. 158-159. 996 LCIA Rules, Arts. 14, 15, 19, 20, 21, & 22. 997 LCIA Rules, Arts. 22.1(d) & (e). 998 LCIA Rules, Art. 25(2). 999 LCIA Rules, Art. 9. 1000 LCIA Rules, Art. 22(1)(h); infra pp. 2097-2098. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1001 Nicholas & Partasides, LCIA Court Decisions on Challenges
to Arbitrators: A Proposal to Publish, 23 Arb. Int'l 1 (2007). See also News Archive on the LCIA webpage www.lcia-arbitration.com, LCIA to publish challenge decisions (June 2006); infra pp. 1559-1560. 1002 LCIA Rules, Art. 28(1). 1003 LCIA Rules, Art. 16(1). 1004 For commentary on the AAA, see R. Coulson, Business Arbitration – What You Need to Know (1992); Hoellering, How the AAA International Arbitration Program Works, inT. Carbonneau, Handbook on International Arbitration and ADR (2006). Information about the AAA and arbitration in general is available at the AAA/ICDR website, www.adr.org. 1005 I. Macneil, American Arbitration Law: Reformation, Nationalization, Internationalization 84-88 (1992). 1006 Deye & Britton, Arbitration by the American Arbitration Association, 70 N.D. L. Rev. 281, 281 n.1 (1994). 1007 The AAA reports that it has administered some 2.5 million arbitrations, since its foundation. 1008 See www.adr.org/sp.asp?id=22440. 1009 A model AAA arbitration clause, selecting the International Arbitration Rules in the ICDR International Dispute Resolution Procedures, provides: “Any controversy or claim arising out of or relating to this contract shall be determined by arbitration in accordance with the ICDR International Dispute Resolution procedures of the American Arbitration Association.” A model AAA arbitration clause, selecting the AAA's Commercial Arbitration Rules, provides: “Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, and the judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.” 1010 For example, these include specialized rules for construction,
energy, health care, insurance, securities, labor and intellectual property disputes. See www.adr.org/sp.asp?id=28780. 1011 The AAA's International Rules were preceded by a set of “Supplementary Procedures for International Commercial Arbitration,” adopted in 1982. The AAA Supplementary Procedures continue to be used in international cases in which the parties have selected rules other than the AAA International Rules. The Supplementary Procedures (as amended in 1999) provide: “Recognizing that international arbitration cases often present unique procedural problems, the AAA has created the following supplementary procedures to facilitate such cases when rules other than the International Arbitration Rules govern the proceedings. Unless the parties advise otherwise by the due date for the return of the first list, the AAA will assume that they are desired.” 1012 See Introduction, ICDR International Dispute Resolution Procedures; see also www.adr.org/about_icdr. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1013 ICDR Rules, Art. 1(1). 1014 See www.adr.org/sp.asp?id=28144. The 2006 revisions added
Article 37 to the ICDR Rules, which entitles parties to appoint an “emergency arbitrator” to hear requests for emergency relief prior to the formation of the entire arbitral tribunal. See infra pp. 1971-1972. 1015 Unusually, the AAA Rules also provide for a waiver of punitive damage claims (unless otherwise agreed). ICDR Rules, Art. 28(5). 1016 ICDR Rules, Art. 32. Article 32 provides that “[t]he administrator shall arrange an appropriate daily or hourly rate, based on such considerations, with the parties and with each of the arbitrators as soon as practicable after the commencement of the arbitration” and, “[i]f the parties fail to agree on the terms of compensation, the administrator shall establish an appropriate rate and communicate it in writing to the parties.” 1017 ICDR Rules, Art. 6(1); infra pp. 1382-1384. 1018 See ICDR Rules, Art. 6; Introduction, ICDR International Dispute Resolution Procedures (describing the options available to parties for appointment of arbitrators, including the use of an AAA/ICDR list). Seealso AAA Commercial Rules, R-11 (providing, where the AAA's Commercial Arbitration Rules apply, specific procedures for appointments from the AAA's National Roster). 1019 The ICDR maintains its own International Panel of Arbitrators. 1020 AAA 2005 Annual Report, President's Letter and Financial Statements, available at www.adr.org, at 2; AAA 2000 Annual Report, President's Letter and Financial Statements, available at www.adr.org, at 8. See also Park, A Comparative Analysis of Arbitral Institutions and Their Achievements in the United States and Korea, 15 Am. Rev. Int'l Arb. 475, 483 (2004) (tabulating international case filings in AAA). 1021 For commentary on the Swiss Rules of International Arbitration, see T. Zuberbühler, C. Müller & P. Habegger (eds.), Swiss Rules of International Arbitration: Commentary (2005); Blessing, Comparison of the Swiss Rules with the UNCITRAL Arbitration Rules and Others, in The Swiss Rules of International Arbitration: ASA Swiss Arbitration Association Conference on 23 January 2004 in Zurich, 17 (ASA Special Series No. 24 2004); Burger, The New Swiss Rules of International Arbitration: A Comparative Analysis, 19(6) Mealey's Int'l Arb. Rep. 21 (2004); Frey & Ahrens, New Arbitration Rules Reflect Modern Trends, IFLR March 2004, at 58-60. 1022 These included institutions in Basel, Bern, Geneva, Lausanne, Lugano and Zurich. See www.swissarbitration.ch/organisation.php. 1023 These Rules can be found at www.swissarbitration.ch. See also T. Zuberbühler, C. Müller & P. Habegger (eds.), Swiss Rules of International Arbitration: Commentary (2005). 1024 See supra pp. 125-127. 1025 Swiss International Arbitration Rules, Arts. 21(1) (competence-competence), 43 (confidentiality), 44 (immunity), and 4(1) (consolidation). See T. Zuberbühler, C. Müller & P. Habegger (eds.), Swiss Rules of International Arbitration: Commentary (2005). 1026 The VIAC model arbitration clause provides: “All Disputes arising out of this contract or related to its violation, termination or nullity shall be finally settled under the Rules of Arbitration and Conciliation of the International Arbitral Centre of the Austrian Federal http://www.kluwerarbitration.com/CommonUI/print.aspx
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Economic Chamber in Vienna (Vienna Rules) by one or more arbitrators in accordance with these rules.” 1027 Article 2 of the VIAC Rules provides “Unless the parties have
agreed otherwise (a) the place of arbitration shall be Vienna …” 1028 The new version of the Rules was adopted by the Extended Board of the Austrian Federal Economic Chamber on 3 May 2006, with effect from 1 July 2006. 1029 The Austrian ZPO was revised in 2006 to adopt legislative provisions based on the UNCITRAL Model Law. Austrian ZPO, §§517-618; C. Liebscher, The Austrian Arbitration Act 2006: Text and Notes (2006); G. Zeiler, Schiedsverfahren §§577-618 ZPO idF des SchiedsRÄG 2006 (2006); S. Riegler, A. Petsche, A. FremuthWolf, M. Platte & C. Liebscher (eds.), Arbitration Law of Austria: Practice and Procedure (2007); A. Reiner, Das neue österreichische Schiedsrecht – SchiedsRÄG 2006, The New Austrian Arbitration Law – Arbitration Act 2006 (2006); W. H. Rechberger (ed.), Kommentar zur ZPO §§577-618 (3d ed. 2006); J. Power, The Austrian Arbitration Act – A Practitioner's Guide to Sections 577-618 of the Austrian Code of Civil Procedure (2006); B. Kloiber, W. Rechberger, P. Oberhammer & H. Haller, Das neue Schiedsrecht – Schiedsrechts-Änderungsgesetz 2006 (2006). 1030 Kaplan & Morgan, Hong Kong 7-8, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 1999); M. Moser & T. Cheng, Arbitration in Hong Kong: A User's Guide (2004); M. Pryles, Dispute Resolution in Asia 22 (2006); Xu & Wilson, One Country, Two International Commercial ArbitrationSystems, 17(6) J. Int'l Arb. 47 (2000); Polkinghorne & Fitzgerald, Arbitration in Southeast Asia: Hong Kong, Singapore and Thailand Compared, 18 J. Int'l Arb. 101 (2001); R. Morgan, The Arbitration Ordinance of Hong Kong: A Commentary (1997); M. Pryles, Dispute Resolution in Asia (2006); N. Kaplan, Hong Kong and China Arbitration: Cases and Materials (1994). 1031 See www.hkiac.com. 1032 C. Dejun, M. Moser & W. Shengchang, International Arbitration in the People's Republic of China: Commentary, Cases and Materials (2d ed. 2000); P. Leung & S. Wang, Selected Works of China International Economic and Trade Arbitration Commission: Awards (1963-1988) (1995); Moser, CIETAC Arbitration: A Success Story, 15(1) J. Int'l Arb. 27 (1998); Moser & Yuen, The New CIETAC Arbitration Rules, 21 Arb. Int'l 391 (2005); Yang, CIETAC Arbitration Clauses Revisited, 2007 Int'l Arb. L. Rev. 117; M. Pryles, Dispute Resolution in Asia 20-21 (2006). 1033 Chinese Arbitration Law, Arts. 10-15. 1034 Moser, CIETAC Arbitration: A Success Story, 15(1) J. Int'l Arb. 27 (1998); Shields, China's Two Pronged Approach to International Arbitration, 15(2) J. Int'l Arb. 67 (1998). 1035 See www.cietac.org.cn/index_english.asp. 1036 See www.cietac.org.cn/index_english.asp; Shields, China's Two Pronged Approach to International Arbitration, 15(2) J. Int'l Arb. 67 (1998); Jones, Trying to Understand the Current Chinese Legal System, in J. Cohen, Understanding China's Legal System 18 (2003); Heye, Forum Selection for International Dispute Resolution in China – Chinese Courts vs. CIETAC, 27 Hastings Int'l & Comp. L. Rev. 535 (2004). 1037 CIETAC Rules, Art. 21(2). 1038 See www.cietac.org.cn/index_english.asp. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1039 CIETAC Rules, Art. 23. 1040 Among other things, parties are now permitted to provide a list
of candidates for the chairman position. CIETAC Rules, Art. 22(3). 1041 CIETAC Rules, Art. 42(1). 1042 CIETAC Rules, Arts. 25 & 26. 1043 CIETAC Rules, Art. 6. 1044 CIETAC Rules, Art. 45. 1045 See www.cietac.org. 1046 See Arbitration Institution of Stockholm Chamber of Commerce, About the SCC, available at www.sccinstitute.com. 1047 Stockholm Chamber of Commerce Arbitration Institute, Statistics, available at www.sccinstitute.com. 1048 Hobér & McKenzie, New Rules of the Arbitration Institute of the Stockholm Chamber of Commerce, 23 Arb. Int'l 261 (2007); Magnusson & Shaugnessy, The 2007 Rules of Stockholm Chamber of Commerce, 2006: 3 SIAR 33, 49-58. 1049 The new SCC Rules provide for drafting a provisional timetable introduced under the 2007 SCC Rules, designating the language of proceedings failing the agreement of the parties, the admissibility of evidence and default by the parties. See Magnusson & Shaugnessy, The 2007 Rules of Stockholm Chamber of Commerce, 2006: 3 SIAR 33, 49-58. 1050 See infra pp. 2294-2296. 1051 See WIPO Arbitration and Mediation Center, Guide to WIPO Arbitration (2004), available at www.wipo.int/freepublications/en/arbitration/919/wipo_pub_919pdf; World Intellectual Property Organization, WIPO Rules, available at www.wipo.int. 1052 WIPO Arbitration Rules, Arts. 48, 52. 1053 WIPO Arbitration and Mediation Center, WIPO Caseload Summary and Case Examples, available at www.wipo.int. 1054 See E. J. Min & M. Lilleengen, Collection of WIPO Domain Name Panel Decisions (2003). 1055 R. Schütze, D. Tscherning & W. Wais, Handbuch des Schiedsverfahrens ¶775 (1990). 1056 K.-P. Berger, International Economic Arbitration 58 (1993). 1057 M. Krimpenfort, Vorläufige und sichernde Massnahmen im schiedsrichterlichen Verfahren 1 (2001). 1058 Statistics, 2007 SchiedsVZ additional pages. 1059 J. Davis & Y. Takaishi, Dispute Resolution in Japan 156 et seq. (1996); Roughton, A Brief Review of the Japanese Arbitration Law, 1 Asian Int'l Arb. J. 127 (2005). 1060 See http://www.jcaa.or.jp/e/index-e.html. 1061 See KLRCA website at www.rcakl.org.my. 1062 The ACICA has a comprehensive website detailing the services it provides at www.acica.org.au. 1063 See KLRCA website at www.rcakl.org.my/. 1064 See infra pp. 1341-1343, 2408-2409, 2411-2413; Kantor, International Project Finance and Arbitration with Public Sector Entities: When Is Arbitrability A Fiction?, 24 Fordham Int'l L.J. 1122 (2001). 1065 See generally Park, The Procedural Soft Law of International Arbitration: Non-Governmental Instruments, in L. Mistelis & J. Lew http://www.kluwerarbitration.com/CommonUI/print.aspx
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(eds.), Pervasive Problems in International Arbitration 142 (2006); Paulsson, Ethics andCodes of Conduct for A Multi-Disciplinary Institute, 70 Arb. 193 (2004); C. von Kann, J. Gaitis & J. Lehrman (eds.), The College of Commercial Arbitrators Guide to Best Practices in CommercialArbitration (2005). 1066 See, e.g., infra pp. 189-194. See also Carter, The International Commercial Arbitration Explosion: More Rules, More Laws, More Books, So What ?, 15 Mich. J. Int'l L. 785 (1993-1994). 1067 For commentary, seeinfra p. 1793 n. 268. 1068 IBA Supplemental Rules Governing the Presentation and Reception of Evidence in International Commercial Arbitration; Shenton, International Bar Association Supplementary Rules Governing the Presentation and Reception of Evidence in International Commercial Arbitration, X Y.B. Comm. Arb. 145 (1985). 1069 See infra pp. 1792-1794. 1070 IBA Supplemental Rules Governing the Presentation and Reception of Evidence in International Commercial Arbitration, Art. 1. 1071 The 1999 IBA Rules are discussed in detail below. See infra pp. 1792-1794, 1897-1899. 1072 See infra pp. 1793-1794. See also Lew, Achieving the Potential of Effective Arbitration, 65(4) Arb. 283, 288 (1999); Veeder, Evidential Rules in International Commercial Arbitration: From the Tower of London to the New 1999 IBA Rules, 65 Arb. 291, 296 (1999). 1073 IBA Rules on the Taking of Evidence in International Commercial Arbitration, Preamble, ¶2; Bühler & Dorgan, Witness Testimony Pursuant to the 1999 IBA Rules of Evidence in International Commercial Arbitration – Novel or Tested Standards?, 17(1) J. Int'l Arb. 3, 5 (2000). 1074 See infra p. 1794. 1075 For commentary, see the authorities cited infra p. 1497 n. 710, & pp. 1600-1602. 1076 The original ABA/AAA Code of Ethics is excerpted in X Y.B. Comm. Arb. 131 (1985); Feerick, The 1977 Code of Ethics for Arbitrators: An Outside Perspective, 18 Ga. St. U.L. Rev. 907 (2002). 1077 Consistent with historic practice in the United States, the Code set presumptively different ethical standards for partyappointed and “neutral” arbitrators. See infra pp. 1492-1494, 15401541. 1078 AAA/ABA Code of Ethics for Arbitrators in Commercial Disputes, Note on Neutrality (effective 1 March 2004); Byrne, A New Code of Ethics for Commercial Arbitrators: The Neutrality of PartyAppointed Arbitrators on A Tripartite Panel, 30 Ford. Urb. L.J. 1815 (2003). The ABA/AAA Code of Ethics is discussed below. Seeinfra pp. 1496-1501, 1541-1542. 1079
www.ibanet.org/images/downloads/pubs/Ethics_arbitrators.pdf. 1080 Unlike the original ABA/AAA Code, the IBA Rules of Ethics applied the same standards of impartiality and independence to party-appointed and neutral arbitrators. See infra pp. 1494-1499, 1536-1537. 1081 See IBA Guidelines, General Standard 3. The Guidelines are discussed below. See infra pp. 1537-1540. 1082 See infra pp. 1537-1540. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1083 See infra pp. 1550-1551; IBA Guidelines, General Standard 3.
The Guidelines categorize such circ*mstances into those matters that give rise to justifiable doubts concerning independence (a socalled “red list”), matters that require disclosure (a so-called “orange list”) and matters that do not ordinarily give rise to doubts regarding independence and that do not require disclosure (a so-called “green list”). IBA Guidelines, General Standard 4, Part II. See also infra pp. 1537-1539. 1084 See Veeder, Is There Any Need for A Code of Ethics for International Commercial Arbitrators?, in J. Rosell (ed.), Les arbitres internationaux 187, 188 (2005). 1085 Report of the UNCITRAL on the Work of its Twenty-Ninth Session, UN Doc. A/51/17 (1996), available at http://documents.un.org; UNCITRAL Notes on Organizing Arbitral Proceedings, reprinted in, A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration App. D (4th ed. 2004). The UNCITRAL Notes are also discussed in greater detail below. See infra pp. 1810-1813. 1086 See supra pp. 12-13, 67-68, 76-78, & infra pp. 202-204, 211 et seq., United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (U.S. S.Ct. 1960) (“arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed to so submit”). 1087 There is a small, but important, category of cases in which international arbitrations may result without a consensual agreement, by virtue of provisions in international investment protection or other conventions or legislation. See supra pp. 105108. 1088 See supra pp. 12-13. 1089 See supra pp. 12-13, & infra pp. 316 et seq. 1090 There is a substantial body of commentary on drafting arbitration agreements. See P. Friedland, Arbitration Clauses for International Contracts (2d ed. 2007); J. Paulsson et al., The Freshfields Guide to Arbitration and ADR: Clauses in International Contracts (2d ed. 1999); Townsend, Drafting Arbitration Clauses, 58 Disp. Res. J. 1 (2003); Bond, How to Draft An Arbitration Clause (Revisited), 1(2) ICC Ct. Bull. 14 (1990); Bishop, A Practical Guide for Drafting International Arbitration Clauses (2004); Bernardini, The Arbitration Clause of An International Contract, 9(2) J. Int'l Arb. 45 (1992); G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing (2d ed. 2006). 1091 These include provisions regarding provisional measures, waivers of appeals, immunity issues, costs, currency and interest and fast-track or other procedures. See G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 11-94 (2d ed. 2006); P. Friedland, Arbitration Clauses for International Contracts (2d ed. 2007); J. Paulsson et al., The Freshfields Guide to Arbitration and ADR: Clauses in International Contracts (2d ed. 1999). 1092 The definition of an “arbitration” agreement is discussed below. See infra pp. 211 et. seq. 1093 See infra p. 180. Nonetheless, as discussed below, it is not essential that an “arbitration agreement” use the term “arbitration.” Although this is usually the case, and is strongly recommended, an agreement to arbitrate can be deduced from other language. See infra pp. 215-216. 1094 See infra pp. 209-211, 211 et seq. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1095 See infra pp. 238-241. 1096 See infra pp. 687-690. 1097 G. Born, International Arbitration and Forum Selection
Agreements: Drafting and Enforcing 38-39 (2d ed. 2006). 1098 The interpretation of arbitration agreements, with particular focus on their scope, is discussed below. See infra pp. 1059 et seq. 1099 See infra pp. 1125-1128. 1100 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 39-44 (2d ed. 2006). 1101 The interpretation of these formulae is discussed below. See infra pp. 1090-1099. 1102 See infra pp. 1081-1083, 1125-1127; G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 39-42 (2d ed. 2006). 1103 See supra pp. 64-68, 74-76 & infra pp. 1081-1083. 1104 For examples of exclusions for particular types of issues, see G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 42–44 (2d ed. 2006). 1105 See infra pp. 1125-1128. 1106 See supra pp. 147-151. 1107 See infra pp. 1121-1124; G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 44-61 (2d ed. 2006). 1108 These model clauses are reproduced at G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing Exhibit C (2d ed. 2006). 1109 See supra pp. 151-153; G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 58-59, 69-70 (2d ed. 2006). 1110 See infra pp. 1246-1310 for a discussion of the concept of the arbitral seat. 1111 See infra pp. 1246-1250. 1112 See infra pp. 1250, 1308-1310 for a discussion of the conduct of hearings outside the seat or place of the arbitration. 1113 See infra pp. 1287-1304, 1680-1686. 1114 See infra pp. 1287-1304, 1680-1686 for a discussion of these legal consequences. 1115 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 67-73 (2d ed. 2006). 1116 See infra pp. 1363-1367. 1117 See infra pp. 1382-1384, 1395-1398, 1408-1417. 1118 See infra pp. 1417-1431. 1119 As discussed below, the two most frequently-used numbers of arbitrators in international commercial arbitration are one and three. See infra pp. 1354-1356. There is no “perfect” number of arbitrators, although most significant disputes are better heard by three (rather than one) arbitrators. 1120 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 67-68 (2d ed. 2006). 1121 See infra pp. 1364-1367; G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 69-70 (2d ed. 2006). 1122 See infra pp. 1364-1367. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1123 Seeinfra pp. 1382-1384, 1395-1398, 1408-1417; ICC Rules,
Arts. 7-10; ICDR Rules, Art. 6; UNCITRAL Rules, Art. 6. An institution will also appoint an arbitrator on behalf of a party which fails to exercise its right under the parties' arbitration agreement to do so. ICC Rules, Arts. 8(3)-8(4); LCIA Rules, Art. 5(4); ICDR Rules, Art. 6(3). 1124 As discussed below, if the parties wish for the co-arbitrators to attempt to agree on the identity of a presiding arbitrator, it may be necessary to include provisions to that effect in the parties' arbitration if ad hoc arbitration or some institutional rules are adopted. See infra pp. 1401-1407; G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 70–72 (2d ed. 2006). 1125 See infra pp. 1453-1459. 1126 ICC Rules, Art. 9(5); LCIA Rules, Art. 6(1). Compare ICDR Rules, Art. 6(4). 1127 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 70–72 (2d ed. 2006). Such provisions are often sui generis, providing “each arbitrator shall be a Certified Public Accountant” or “the arbitrators shall be practicing lawyers.” 1128 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 70–72 (2d ed. 2006). Nonetheless, it is often difficult to determine in advance what sorts of expertise will be genuinely relevant to a future dispute. Moreover, imposing advance requirements reduces the pool of available arbitrators – sometimes unacceptably, such as a “legally-qualified national of Bermuda with a civil engineering degree and fluency in Arabic.” It can also indirectly influence the background and training of a potential chairman (and the co-arbitrators), which may have consequences for the approach to the merits of the dispute in the arbitral proceedings. See infra pp. 1453-1459. 1129 G. Born, International Arbitration and Forum Selection
Agreements: Drafting and Enforcing 73-74 (2d ed. 2006). See infra pp. 1454-1455. 1130 UNCITRAL Rules, Art. 17; ICC Rules, Art. 15(3); ICDR Rules, Art. 14. 1131 Seeinfra pp. 1807-1808. 1132 See infra pp. 1807-1808. 1133 See infra pp. 172-184, 422-424, 2105-2248. 1134 For a discussion of the drafting of such choice-of-law clauses, see G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 74–76 (2d ed. 2006). 1135 See spra pp. 181-182 & infra pp. 354-357, 413-422. 1136 See infra pp. 181-182, 354-357. 1137 See infra pp. 1310 et seq. 1138 See infra pp. 1326-1327. 1139 See infra pp. 1310 et seq.; G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 121 (2d ed. 2006). 1140 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 77-79 (2d ed. 2006). 1141 G. Born, International Arbitration and Forum Selection http://www.kluwerarbitration.com/CommonUI/print.aspx
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Agreements: Drafting and Enforcing 79-80 (2d ed. 2006). 1142 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 80-82 (2d ed. 2006); infra pp. 1875 et seq. 1143 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 82-85 (2d ed. 2006); Berger, Law and Practice of Escalation Clauses, 22 Arb. Int'l 1 (2006). 1144 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 90-91 (2d ed. 2006). 1145 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 94 (2d ed. 2006); infra pp. 2255-2258. 1146 These are catalogued at G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 57-58 (2d ed. 2006). 1147 In transactions involving particular jurisdictions (e.g., China, Brazil), more specialized text may be appropriate. 1148 See supra pp. 64-68, 74-76. 1149 See infra pp. 422-424, 1310-1347. 1150 For a more detailed discussion, see infra pp. 409-561, 13101347. Additional sub-categories arise, for example, with regard to aspects of the law governing the arbitration agreement (e.g., the law governing issues of formal validity, substantive validity, capacity, interpretation) or the arbitral proceedings (e.g., the law governing the arbitrator's contract, the availability of provisional relief, privileges). 1151 Parties sometimes agree to permit arbitrators to resolve their dispute without reference to law, that is, ex aequo et bono or as amiable compositeur, see infra pp. 246, 2238-2243, or by reference to a non-national legal system, see infra pp. 2227-2247. 1152 Seeinfra pp. 2111-2119, 2151-2152. 1153 Seeinfra pp. 2152-2163; UNCITRAL Model Law, Art. 28(1); UNCITRAL Rules, Art. 33(1). 1154 The role of national and international public policy in arbitration gives rise to particularly complex choice-of-law issues. See infra pp. 2170-2198. 1155 See infra pp. 2111-2152. 1156 See infra pp. 2120-2143. 1157 See infra pp. 2130-2132, 2157-2160, 2166-2168. There is also authority supporting an arbitral tribunal's “direct” application of substantive rules of law, purportedly without prior recourse to any set of conflict of laws rules. Seeinfra pp. 2136-2137. 1158 The U.N. Convention on the International Sales of Goods, the UNIDROIT Principles of International Commercial Contracts and the Rome Convention are leading examples of this trend. See infra pp. 432-434, 2243. 1159 See supra pp. 181-182 & infra pp. 354-357, 413-422. 1160 See infra pp. 409 et seq. for a discussion of the choice of law applicable to the arbitration agreement. 1161 See infra pp. 1326-1327. Parties sometimes agree that hearings may be conducted somewhere other than the arbitral seat, for convenience, but this in principle does not change the arbitral seat or the procedural law governing the arbitration. See infra pp. 1250-1251, 1308-1310. 1162 For example, foreign lawyers may not be permitted to appear http://www.kluwerarbitration.com/CommonUI/print.aspx
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in arbitrations conducted on national territory, arbitrators may be prohibited from ordering discovery, administering oaths, or granting provisional relief, or detailed procedural requirements or time schedules may be mandatorily applicable. See infra pp. 1287-1295. 1163 The United States, England, Switzerland, France and Singapore generally fall within this latter category. 1164 See infra pp. 1310-1347 for a discussion of the choice of law applicable to the arbitral proceedings. 1165 See infra pp. 1316-1318, 1343-1347. 1166 See infra pp. 409-561, 1310-1347. 1167 See infra pp. 497-516, 523-535.
Overview of International Commercial Arbitration - D. Theories of International Arbitration Chapter 1 Gary B. Born
Author Gary B. Born
D. Theories of International Arbitration There have been numerous theoretical efforts to categorize arbitration within domestic legal systems. (1168) Among other things, these theories have included characterizations of arbitration as “contractual,” “jurisdictional,” “hybrid” and “autonomous.” Although the practical implications of this debate are often unclear, (1169) there is little academic agreement on these various theories. page "184" 1. Leading Theories of Arbitration
Source Overview of International Commercial Arbitration - D. Theories of International Arbitration in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 184 - 189
The “contractual” school of thought regarded arbitration as a form of contractual relations. (1170) According to one early proponent of this analysis: “It is the arbitration agreement that gives [the arbitral award] its existence; it is from the arbitration agreement that it derives all its substance; it has, then, like the arbitration agreement, the character of a contract; and the precise truth is that it is only the performance of the mandate that the parties have entrusted to the arbitrators; it is even, to put it precisely, only an agreement to which the parties have bound themselves by the hands of the latter (the arbitrators).” (1171) The contractualist school emphasized that arbitrators were not judges (since they performed no “public” function and exercised no http://www.kluwerarbitration.com/CommonUI/print.aspx
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powers on behalf of the state). In general terms, the contractualist school placed primary emphasis on the role of party autonomy in the arbitral process. (1172) Other authors reject the notion that arbitration – including the arbitral proceedings and award – is predominantly contractual, and instead adopt a “jurisdictional” analysis. They reason that arbitration is essentially adjudicative, involving the exercise of independent, impartial decision-making by the arbitrators: “while an arbitration agreement has the formal aspects of a contract, by its very nature it assumes the absence of any agreement between the parties with respect to a dispute other than on the mode of settlement. Arbitration is a means, a method, a procedure, rather than an agreement.” (1173) page "185" Or, as another authority put it, “[a]n arbitrator is a private judge.” (1174) Proponents of this school emphasize the arbitrator's performance of functions that are public, or “judicial,” in character, (1175) and the role of national law in conferring such powers on the arbitrator. (1176) In general terms, the “jurisdictional” theory of arbitration gives primary importance to the role of national law, and particularly the law of the arbitral seat, in the arbitral process, while contemplating greater limits on the parties' autonomy than other authors. (1177) More recently, commentators have advanced the theory that arbitration is “hybrid” or “mixed,” involving elements of both contract and jurisdiction. (1178) “Although deriving its effectiveness from the agreement of the parties, as set out in the arbitral agreement, [arbitration] has a jurisdictional nature involving the application of the rules of procedure.” (1179) This school offered comparatively little analysis as to what characteristics arbitration “should” demonstrate, focusing instead on the parties' autonomy. (1180) page "186" More recently, some commentators urged that arbitration be treated as “autonomous,” and not as either contractual or jurisdictional (or hybrid). (1181) Even less so than other characterizations, it is unclear what doctrinal or practical consequences result from this analysis. Within each of the various foregoing categorizations of arbitration, different approaches existed. In some legal systems, arbitration was characterized as a form of procedure, with arbitration agreements being treated as procedural contracts. (1182) Other commentators and courts classified arbitration as “remedial” in nature, and applied the law of remedies to arbitration agreements. (1183) More recently, many developed national legal systems have emphasized the contractual aspects of arbitration (1184) and the parties' autonomy with regard to choice-of-law, procedural and other issues. (1185) 2. The Jurisprudential Character of International Arbitration All of these theoretical characterizations contain elements which are accurate and, in an abstract manner, useful. Arbitration manifestly exhibits attributes of contractual relations, albeit of an unusual type. http://www.kluwerarbitration.com/CommonUI/print.aspx
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The arbitration agreement is the essential and necessary foundation of the arbitral process, (1186) whose existence, validity and interpretation can only be assessed pursuant to principles of contract law. (1187) Moreover, the parties' agreement to arbitrate retains a central role throughout the subsequent arbitral proceedings (1188) and is critically important to the terms, validity and recognition of the arbitral award. (1189) In these regards, it is essential that arbitration be considered as reflecting elements of contract and the law of contracts. page "187" At the same time, arbitration also manifestly involves attributes of jurisdictional authority and adjudicative decision-making, different from other forms of contractual relations. The arbitration agreement does not produce a typical “commercial” bargain, but instead results in a particular kind of dispute resolution process, (1190) where the decision-maker must be impartial and independent and must apply adjudicatory procedures in reaching a decision. (1191) Moreover, the arbitral process is granted independence from and support by national judicial systems, (1192) while the award is granted the binding force and res judicata effect of a national court judgment. (1193) In these regards, it is necessary that arbitration be regarded as a adjudicative or jurisdictional process. More fundamentally, both the hybrid and autonomous theories capture remaining and important analytical aspects of arbitration. For the reasons already outlined, it is impossible not to consider arbitration as a hybrid, combining elements of both contractual relations and jurisdictional authority. Indeed, arbitration cannot be conceptualized without adopting this starting point: it makes no sense to seek to analyze the arbitration agreement, and its effects at every stage of the arbitral process, without reference to the law and principles of contract, just as it makes no sense to seek to analyze the arbitrator's function, the arbitral proceedings and the arbitral award without reference to the law and principles of adjudicative decision-making and res judicata. At the same time, arbitration is also sui generis and autonomous, exhibiting characteristics that are not shared by either contract or judicial decision-making. That should hardly be surprising, because arbitration has been treated for centuries as a separate field of law: as discussed elsewhere, arbitration agreements and awards have been subject to specialized legal rules since Antiquity, (1194) with this categorization becoming more explicit during the 20th century. (1195) Indeed, having regard to the specialized international legal regimes (i.e., the Geneva Protocol and Convention; New York Convention; European Convention) (1196) and national legislative regimes (i.e., the UNCITRAL Model Law; modern arbitration legislation) (1197) makes it difficult to conceive of treating arbitration as something other than an autonomous field of law. Thus, it is true that the field of international arbitration draws essential doctrine and rules from contract law and from the law of civil procedure and judgments. But in many cases, particularly in international matters, these disciplines are at most analogies, providing the starting point, not the end result, of analysis. In all cases, page "188" it remains essential to categorize and treat arbitration as a distinctive and autonomous discipline, specially designed to achieve a particular set of objectives, (1198) which other http://www.kluwerarbitration.com/CommonUI/print.aspx
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branches of private international law fail satisfactorily to resolve. (1199)
1168 For commentary, see A. Samuel, Jurisdictional Problems in
International Commercial Arbitration 32-74 (1989); Carlston, Theory of the Arbitration Process, 17 Law & Contemp. Probs. 631 (1952); C. Jarrosson, La notion d'arbitrage (1987); A. Kassis, Problèmes de base de l'arbitrage en droit comparé et en droit international – I – Arbitrage juridictionnel et arbitrage contractuel (1987); F.-E. Klein, Considérations sur l'arbitrage en droit international privé ¶113 (1955); J. Rubellin-Devichi, L'arbitrage: nature juridique, droit interne et droit international privé (1965); Sauser-Hall, L'Arbitrage de droit international privé, 44-I Ann. Inst. Dr. Int'l 469 (1952); P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶40 (1989). 1169 Cf. T. Carbonneau, Cases and Materials on the Law and Practice of Arbitration 624 (2d ed. 2000) (“tempest in a teapot”) (quoted in J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶5-5 (2003)). 1170 P. Merlin, 9 Recueil alphabétique des questions de droit 139, 143-49 (1829); J. Fœlix, Traité du droit internationalprivé 461 (2d ed. 1847); Balladore-Pallieri, L'arbitrage privé dans les rapports internationaux, 51 Recueil des Cours 287, 316 (1935). 1171 P. Merlin, 9 Recueil alphabétique des questions de droit 139, 145 (1829) (quoted in A. Samuel, Jurisdictional Problems in International Commercial Arbitration 34 (1989)). See also G. Petrochilos, Procedural Law in International Arbitration 25 (2004) (“An arbitrator is not dispensing justice by delegation of any state”; “An arbitrator carries the jurisdictional authority of no particular state.”); Judgment of 27 July 1937, 1938 Dalloz 25 (French Cour de cassation) (“arbitral awards, which have, as their basis, an arbitration agreement, form one entity with it and share its contractual character”). 1172 P. Fouchard, L'arbitrage commercial international ¶19 (1965); F.-E. Klein, Considerations sur l'arbitrage en droit international privé ¶115 (1955). 1173 Laine, De l'exécution en France des sentences arbitrales étrangères, 26 J.D.I. (Clunet) 641, 653-54 (1899). See A. Pillet, 2 Traité pratique de droit international privé 537 (1924) (“The arbitration agreement is necessary to give the arbitrators their authority, but once that authority has been conferred on them, provided they keep within the limits of the task given to them, their freedom is absolute and the arbitration agreement has no influence on their award which is based on quite different matters”); BalladorePallieri, L'arbitrage privé dans les rapports internationaux, 51 Recueil des Cours 295 (1935); J. Niboyet, VI Traité de droit international privé français - Le conflit des autorités, le conflit des jurisdictins 135 (1947) (“The arbitrator metes out justice – which is always a prerogative of the local sovereign. Each state determines pursuant to what requirements arbitral justice may be rendered in its territory and exclude the jurisdiction of its courts. Arbitrators therefore mete out justice by delegation from the sovereign of the territory”). 1174 H. Motulsky, Ecrits: Etudes et notes sur l'arbitrage 46 (1974). See also Ibid. (“Once a claim is submitted to a person invested by http://www.kluwerarbitration.com/CommonUI/print.aspx
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the law with the power to accept or reject the claim by the application of a rule of law, one is in the presence of a jurisdiction”); S. Contini, L'Arbitrage en procedure civile vaudoise 13 (1951). 1175 See authorities cited supra pp. 185-186 nn 1170-1179 & 186 nn. 1170-1179. 1176 Mann, State Contracts and International Arbitration, 42 Brit. Y.B. Int'l L. 1, 10-11 (1967). 1177 Mann, Lex Facit Arbitrum, reprinted in, 2 Arb. Int'l 241 (1986). 1178 Surville, Jurisprudence française en matière de droit international, 29 Revue critique de législation et de jurisprudence 129, 148 (1900); Sauser-Hall, L'Arbitrage de droit international privé, 44-I Ann. Inst. Dr. Int'l 469, 471 (1952); (Quoted in A.Samuel, Jurisdictional Problems in International Commercial Arbitration 60 (1989)) Carlston, Theory of the Arbitration Process, 17 Law & Contemp. Probs. 631, 635 (1952); P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶40 (1989); Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 451 (2005) (“dual nature” of arbitration: “An arbitration is from one perspective an exercise of private ordering – it is formed by private agreement, and the particular shape it takes is a result of conscious private choice. And at the same time, from another angle, it is an exercise in adjudication – resulting in an award that the force of the state makes obligatory on the litigants in much the same way as the judgment of a public tribunal.”). 1179 Sauser-Hall, L'Arbitrage de droit international privé, 44-I Ann. Inst. Dr. Int'l 469, (1952) (quoted in A. Samuel, Jurisdictional Problems in International Commercial Arbitration 60 (1989)). See also Carlston, Theory of the Arbitration Process, 17 Law & Contemp. Probs. 631, 635 (1952) (“The statement that arbitration is a creature of the parties, that its occurrence, form and scope are dependent on the will and consent of the parties, is but part of the truth”). 1180 A. Samuel, Jurisdictional Problems in International Commercial Arbitration 62-63 (1989). 1181 J. Rubellin-Devichi, L'arbitrage: nature juridique, droit interne et droit international privé 365 (1965) (“In order to allow arbitration to enjoy the expansion it deserves, while all along keeping it within its appropriate limits, one must accept, I believe, that its nature is neither contractual, nor jurisdictional, nor hybrid, but autonomous.”). 1182 See infra pp. 321-322, 326-327; Judgment of 7 October 1933, Tobler v. Justizkommission des Kantons Schwyz, DFT 59 I 177, 179 (Swiss Federal Tribunal); Judgment of 28 May 1915, Jörg v. Jörg, DFT 41 II 534 (Swiss Federal Tribunal). 1183 See infra pp. 467-468; The Eros, 241 F. 186, 191 (E.D.N.Y. 1916) (Hand, J.), aff'd, 251 F. 45 (2d Cir. 1916) (“[A] general arbitration clause … goes to the remedy, not to the rights, of the parties, and … its effect is to be determined by the law of the forum”); Meacham v. Jamestown, Franklin and Clearfield R.R., 211 N.Y. 346, 352 (N.Y. 1914) (Cardozo, J., concurring). 1184 See supra pp. 12-13, 65-68 & infra pp. 202-207, 1318-1321. 1185 See infra pp. 427-442, 565-580, 1748-1755. 1186 See supra pp. 12-13, 64-68, 172-173 & infra pp. 202-207, 563, 849. 1187 See infra pp. 640-849 (especially 640-642, 707). 1188 That includes in defining the arbitrators' powers and jurisdiction and specifying the arbitral procedures and applicable substantive law. See infra pp. 1595-1615. 1189 See infra pp. 2444-2446, 2568-2573, 2578-2580, 2595-2600, http://www.kluwerarbitration.com/CommonUI/print.aspx
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2606-2611. 1190 See infra pp. 211-254, (especially 247-252), 321-322. 1191 The “judicial” character of arbitration and the arbitrator's mandate is discussed below. See infra pp. 247-252, 1615-1629. 1192 See infra pp. 1238-1347, 1776-1782. 1193 See infra pp. 2887-2909. 1194 See supra pp. 21-57. 1195 See supra pp. 58-64, 90-147. 1196 See supra pp. 58-64, 90-105. 1197 See supra pp. 109-147. 1198 See supra pp. 64-90. 1199 See supra pp. 64, 64-68, 74-76.
Overview of International Commercial Arbitration - E. Overview of Sources of Information About International Arbitration Chapter 1 Gary B. Born
Author Gary B. Born
E. Overview of Sources of Information about International Arbitration One of the perceived benefits of international arbitration is its confidentiality or, at least, privacy. (1200) Many international arbitral awards, and the submissions, hearings and deliberations in almost all international arbitrations, remain confidential. (1201) Although it has benefits, the confidentiality or privacy of the arbitral process is at the same time an obstacle to practitioners, decision-makers and academics, all of whom frequently desire precedent, authority, or information about the arbitral process. There are a wide variety of sources of information about international commercial arbitration which are useful for both practitioners and academics. (1202) The number and detail of these sources has increased materially in recent years, and new projects are underway which would further expand the corpus of available information concerning the international arbitral process. These are welcome, important developments that contribute to the efficacy of the international arbitral process.
Source Overview of International Commercial Arbitration - E. Overview of Sources of Information About International Arbitration in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 189 - 195
1. ICCA Yearbook of Commercial Arbitration and ICC Handbooks The Yearbook of Commercial Arbitration is published annually by the International Council for Commercial Arbitration. The Yearbooks contain excerpts of arbitration awards (usually redacted to remove http://www.kluwerarbitration.com/CommonUI/print.aspx
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parties' names), national arbitration legislation, judicial decisions, and other materials relevant to international arbitration. The Yearbook is supplemented by handbooks on national arbitration legislation, containing international arbitration statutes from jurisdictions around the world. (1203) page "189" 2. Mealey's International Arbitration Report Since 1986, Mealey Publications has published a monthly summary of recent judicial decisions concerning international arbitration and arbitral awards. The International Arbitration Report is a source of timely information (with a recently-introduced email service) and provides full-text copies of significant awards and decisions. The Report's primary focus is U.S., but it increasingly includes authorities from other jurisdictions. 3. Journal du Droit International (Clunet) Published in French, the Journal du Droit International reprints excerpts and summaries of arbitral awards and French judicial decisions concerning international arbitration and other private international law subjects. The Journal is a significant source of extracts of otherwise unavailable arbitral awards, often with comments by leading French practitioners or academics. 4. Revue Arbitrage Published four times a year, in French, the Revue Arbitrage contains articles relating to international and domestic arbitration as well as commentary on French judicial decisions and arbitral awards. The Revue was founded in 1955 and was for many years directed by the late Professor Phillip Fouchard and Mr. Charles Jarrosson. 5. Arbitration International Arbitration International is a quarterly journal, published since 1985 by the LCIA. It provides commentary on international commercial arbitration, with a particular focus on Europe and England. 6. ASA Bulletin The Bulletin of the Swiss Arbitration Association (“ASA”) is published quarterly. Available from Kluwer Law International, it contains excerpts of Swiss (and other) judicial decisions dealing with international arbitration, arbitral awards and commentary on recent developments. page "190" 7. Collections of ICC Arbitral Awards Four collections of ICC arbitral awards rendered between 1974 and 2000 have recently been published. The collections cover awards made between 1974-85, 1986-90, 1991-1995 and 1996-2000. (1204) In addition, the ICC has published a collection of procedural decisions in ICC arbitrations between 1993 and 1996. (1205) Each collection includes excerpts or summaries of approximately 150 ICC http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitral awards, in both French and English. The excerpts are edited to avoid identifying the parties to the dispute. Many of the awards were previously published in the Yearbook of Commercial Arbitration or Journal du Droit International (Clunet), but the collections are a convenient reference source. The ICC promises comparable collections in the future. 8. International Legal Materials Sponsored by the American Society of International Law, the International Legal Materials are published six times each year. They contain a wide range of international legal documents, and do not focus specifically on arbitration. They are, however, a useful source of significant developments – legislative, judicial and otherwise – in the arbitration field. 9. Gaillard & Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration The leading French commentary on international commercial arbitration, published in 1999 in English, is authored by a distinguished French professor and practitioner, together with a very able colleague. (1206) In addition to providing encyclopedic discussions of French international arbitration law and practice, the work also offers insightful comment on more general developments. page "191" 10. A. Redfern & M. Hunter, Law and Practice of International Commercial Arbitration The leading English commentary on international commercial arbitration, Law and Practice of International Commercial Arbitration, is in its fourth edition. (1207) Authored by two respected English practitioners, now assisted by able co-authors, the book is required reading for any lawyer involved in international arbitration. 11. Commentary on International Chamber of Commerce Arbitration International Chamber of Commerce Arbitration is authored by three experienced practitioners and commentators. (1208) The book is a comprehensive work on ICC arbitration, which was first published in 1984, and most recently revised and updated in 2000. The work is useful to any practitioner in an ICC arbitration, and contains commentary on the ICC rules, with shrewd practical observations. More recently, Yves Derains and Eric Schwartz (both of whom held the office of Secretary General of the ICC International Court of Arbitration) published A Guide to the ICC Rules of Arbitration, now in its second edition. (1209) The work is thoroughly researched and provides valuable practical guidance. Other useful works on ICC arbitration have also recently been published. (1210) 12. Domke on Commercial Arbitration The leading U.S. work on domestic arbitration has been Domke on http://www.kluwerarbitration.com/CommonUI/print.aspx
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Commercial Arbitration. (1211) First published in 1968, with a predominantly domestic focus, the work has been updated, with efforts to look beyond U.S. shores, in recent years. For U.S. practitioners, it can be a useful initial reference source. page "192" 13. A. van den Berg, The New York Arbitration Convention of 1958 and G. Gaja, The New York Convention Albert van den Berg's The New York Arbitration Convention of 1958 is the leading work on the New York Convention. (1212) The author is a distinguished Dutch academic and practitioner, and his work assembles in a single source detailed commentary and materials relating to the New York Convention. Although the book's effort to annotate the Convention's various articles with judicial decisions is now dated, it remains required reading on the subject. Gaja's work on The New York Convention is an exhaustive compilation of the materials relevant to the negotiation and drafting of the Convention. Ideal for detailed research on particular aspects of the Convention, the book provides the successive drafts of the Convention, the comments and questions of participating states, and various interim reports. 14. H. Holtzmann & J. Neuhaus, Guide to the UNCITRAL Model Law on International Commercial Arbitration Howard Holtzmann and Joseph Neuhaus have contributed a painstaking study of the UNCITRAL Model Law and its history. (1213) Particularly as the Model Law gains in adherents, the Guide will become a standard reference source for practitioners and courts. 15. Smit's Guides to International Arbitration National arbitration statutes from around the world are collected in this multi-volume work overseen by Professor Hans Smit. (1214) page "193" 16. Awards of Iran-United States Claims Tribunal (1215) The Iran-United States Claims Tribunal is one of the most ambitious international claims commissions. (1216) The Tribunal was established pursuant to the so-called Algiers Accords, which resolved some of the legal disputes arising from the Iranian seizure of U.S. hostages during President Carter's administration. (1217) Pursuant to the Accords, litigation in national courts concerning defined claims between U.S. and Iranian entities was suspended. A nine-person tribunal was established in the Hague, with defined jurisdiction over claims arising from U.S.-Iran hostilities; three tribunal members were appointed by the United States, three by Iran, and three from other states. The Iran-U.S. Claims tribunal adopted the UNCITRAL Arbitration Rules (with some modifications). It issued a substantial number of decisions, many of which are published and which make useful http://www.kluwerarbitration.com/CommonUI/print.aspx
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contributions to the interpretation of the UNCITRAL Arbitration Rules and to a number of issues commonly arising in international commercial (and investment) arbitrations. (1218) 17. UNCITRAL Data Bases UNCITRAL maintains searchable, on-line data bases of publiclyavailable court decisions regarding the UNCITRAL Model Law. (1219)
18. Kluwer Arbitration Released by Kluwer Law International, the KluwerArbitration on-line service contains an extensive, computer-searchable library of arbitral awards, judicial decisions and commentary. page "194" 19. OGEMID and Transnational Dispute Management An Internet-based discussion forum founded and moderated by Professor Thomas Wälde, the “Oil-Gas-Energy-Mining-Infrastructure Dispute Management” is an innovative source of recent developments, with on-line comments, regarding international arbitration. (1220) Transnational Dispute Management is an on-line service providing materials and commentary concerning international commercial arbitration. 20. Proposed ALI Restatement of International Commercial Arbitration Law The American Law Institute has recently announced a decision to produce a Restatement of International Commercial Arbitration Law. The Reporter of the project is Professor George Bermann with collaboration from Professors Jack Coe, Chris Drahozal and Catherine Rogers. The Restatement can be expected to have significant impact on U.S. international arbitration law. page "195"
1200 See infra pp. 2250-2253 for a discussion of the confidentiality
or privacy of international arbitrations. 1201 See infra pp. 2286-2287. 1202 There is extensive commentary on international arbitration. For bibliographies, See, e.g., L. Brown, Selected Bibliography of International Commercial Arbitration: 1970-1978 (1978); F. Sander & F. Snyder, Alternative Methods of Dispute Settlement – A Selected Bibliography (1979 & 1982 Rev.); Hiramoto, A Path to Resources on International Commercial Arbitration 1980-1986, 4 Int'l Tax & Bus. Law. 297 (1986); V. Pechota, Commercial Arbitration: An International Bibliography (1992). 1203 J. Paulsson (ed.), I-IV International Handbook on Commercial Arbitration (Update 2008). 1204 S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 (1990); S. Jarvin, Y. Derains & J.-J Arnaldez http://www.kluwerarbitration.com/CommonUI/print.aspx
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(eds.), Collection of ICC Arbitral Awards 1986-1990 (1994); J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1990-1995 (1997); J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards1996-2000 (2003). 1205 D. Hascher (ed.), Collection of Procedural Decisions in ICC Arbitration 1993-1996 (1997). 1206 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration (1999). 1207 A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration (4th ed. 2004). 1208 W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration (3d ed. 2000). 1209 Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration (2d ed. 2005). 1210 See E. Schäfer, H. Verbist & C. Imhoos, ICC Arbitration in Practice (2004); M. Bühler & T. Webster, Handbook of ICC Arbitration (2005). 1211 M. Domke, L. Edmonson & G. Wilner (eds.), Domke on Commercial Arbitration (3d ed. 2003 West-Thomson). 1212 A. van den Berg, The New York Arbitration Convention of 1958 (1981). 1213 H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (1989). 1214 H. Smit & V. Pechota (eds.), 1 Smit's Guides to International Arbitration: National Arbitration Laws (2001). 1215 For commentary, see C. Brower & J. Brueschke, The IranUnited States Claims Tribunal (1998); R. Khan, The Iran-United States Claims Tribunal: Controversies, Cases, and Contribution (1990); R. Lillich, The Iran-United States Claims Tribunal 1981-83 (1984); J. Westberg, International Transactions and Claims Involving Government Parties: Case Law of the Iran-United States Claims Tribunal (1991). 1216 Bilateral claims commissions to resolve claims of nationals of one state against another state have frequently been established, particularly following armed conflicts, between European and American states. See supra pp. 17-20. 1217 See Algiers Accords, 1 Iran-US C.T.R. 3 et seq. (1981-1982). 1218 The decisions are important precedents on issues of both substantive international law and arbitral procedure. They are available from the Iran-United States Claims Tribunal Reports and Mealey's Iranian Assets Litigation Reporter. 1219 Case Law on UNCITRAL Texts: UNCITRAL Model Law on International Commercial Arbitration http://www.uncitral.org/uncitral/en/case_law.html. 1220 The forum can be contacted at www.dundee.ac.uk/cepmlp; alternatively CEPMLP, Carnegie Building, University of Dundee, Dundee, DD1 4HN, Scotland, Tel: +44 (0) 13 82 38 43 00.
Introduction to International Arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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Agreements Part I Gary B. Born
Author Gary B. Born
The foundation of almost every international arbitration – and of the international arbitral process itself – is an international arbitration agreement. In the words of one commentator, “[o]bviously, no arbitration is possible without its very basis, the arbitration agreement.” (1) Absent a valid agreement to arbitrate, there are no legal grounds for requiring a party to arbitrate a dispute or for enforcing an arbitral award against a party. (2) “Arbitration ‘is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed to so submit.’” (3) page "197"
Source Introduction to International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 197 - 200
International arbitration agreements can be drafted in countless different ways. Typically, an arbitration agreement is a provision in an underlying commercial contract, requiring arbitration of any future disputes relating to the contract. (4) Such a provision can be either short and standardized or longer and tailor-made for a particular transaction. As models of brevity, if not prudence, European commentators sometimes cite clauses that provided “English law – arbitration, if any, London according ICC Rules,” (5) and “Arbitration – Hamburg.” (6) A U.S. counterpart read: “Arbitration; if required in New York City.” (7) At the opposite end of the spectrum are multi-paragraph arbitration provisions, recommended by assiduous practitioners for inclusion in commercial contracts, or specially-drafted for a particular transaction. It is also possible for entire agreements to be devoted exclusively to the arbitration of disputes under a series of related contracts, typically involving multiple parties. (8) Falling between these extremes are model clauses recommended by leading international arbitral institutions, including the International Chamber of Commerce (“ICC”), London Court of International Arbitration (“LCIA”) and International Center for Dispute Resolution (“ICDR”), which provide generic, but typically concise and well-tested, formulae. (9) page "198" Whatever form they take, international arbitration agreements are vitally important to the international arbitral process. Properly drafted, they can provide the basis for a relatively smooth and efficient arbitration; less carefully drafted, they can give rise to a host of legal and practical issues; badly drafted, arbitration agreements can be pathological, (10) either incapable of enforcement or precursors to uncertain and costly litigation in national courts. The Chapters which follow in this Part explore the principal legal and practical issues arising from international arbitration agreements. Chapter 2 discusses the legal framework for international arbitration agreements. It begins by summarizing the basic rule of presumptive validity of international arbitration agreements under leading international arbitration conventions (particularly the New York Convention, the European Convention and the Inter-American http://www.kluwerarbitration.com/CommonUI/print.aspx
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Convention) and national arbitration legislation (particularly the UNCITRAL Model Law, the U.S. Federal Arbitration Act (“FAA”) and the main European arbitration regimes). The Chapter then addresses the question of what constitutes an “arbitration agreement,” which will be subject to the pro-arbitration legal regimes established by leading international arbitration conventions and legislation. Finally, the Chapter addresses a number of other jurisdictional requirements of such conventions and legislation, including requirements that the arbitration agreement concern a “commercial” relationship, an “international” matter and a “defined legal” relationship, which are also often conditions for the applicability of such conventions and national legislation. Chapter 3 discusses the nearly-universally recognized principle that international arbitration agreements are presumptively separable or autonomous from the underlying contract(s) with which they are associated. The Chapter details the historic development, contemporary acceptance and legal bases of the “separability presumption,” as well as the presumption's various consequences for the recognition and enforcement of international arbitration agreements. Chapter 4 addresses the choice of the law governing international arbitration agreements. It details the consequences of the separability presumption for choice-of-law analysis, and describes the principal conflict of laws rules applied to international arbitration agreements. The Chapter also discusses the potential applicability of uniform international substantive rules of formation and validity to such agreements, either as generally-applicable law or as international limits on national law rules. Chapter 5 discusses the substantive rules governing the formation, validity and legality of international arbitration agreements. The Chapter addresses the formal validity of international arbitration agreements, including requirements for a “writing.” The Chapter also describes the rules of substantive law applicable to issues of formation, including standards of proof and consent, and to issues of page "199" capacity and substantive validity, including fraud, unconscionability, duress, mistake, waiver, termination and illegality. The Chapter also considers the so-called “non-arbitrability” doctrine and related issues of public policy. It concludes by addressing questions of compliance with pre-arbitral procedural requirements. Chapter 6 addresses the authority of an international arbitral tribunal to consider and decide disputes over the arbitrators' own jurisdiction, including disputes over the existence, validity and interpretation of the parties' arbitration agreement. This question is the subjectmatter of the so-called “competence-competence” doctrine (also referred to as “Kompetenz-Kompetenz” or “jurisdiction to decide jurisdiction”). The Chapter examines the bases for this doctrine in leading international arbitration conventions and other sources of authority, as well as the divergent manners in which both the competence-competence doctrine and the related allocation of jurisdictional competence between arbitral tribunals and national courts is treated in different national legal systems. Chapter 7 discusses the legal effects of international arbitration agreements and the mechanisms for enforcing those agreements. It considers both the positive duties (i.e., the obligation to participate in good faith and cooperatively in arbitral proceedings) and negative duties (i.e., the obligation to refrain from litigating arbitrable disputes) http://www.kluwerarbitration.com/CommonUI/print.aspx
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imposed by arbitration agreements. The Chapter also sets out the various means by which these obligations are given effect, including stays of litigation, orders compelling arbitration, damages actions, antisuit injunctions and non-recognition of judgments procured in breach of a valid arbitration agreement. Chapter 8 addresses the interpretation of international arbitration agreements. It considers the rules applicable to interpreting the scope of arbitration agreements which have been developed in different national legal systems. It also addresses the exclusivity of international arbitration agreements, as well as issues concerning the mandatory or optional nature of arbitration agreements. Chapter 9 discusses issues relating to parties bound by international arbitration agreements. It examines the various legal theories that have been used to give binding effect to arbitration agreements visà-vis non-signatories, including agency, alter ego status, the group of companies theory, estoppel, guarantor relations, third party beneficiary rights and miscellaneous other grounds. The Chapter also examines the choice of law governing the foregoing issues and the allocation of competence to decide such disputes between national courts and arbitral tribunals. page "200"
1 A. van den Berg, The New York Arbitration Convention of 1958
144-45 (1981). See InterimAward in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312, 316 (2000) (“Arbitration is a consensual process and depends upon the existence of a valid agreement to arbitrate”); Watkins-Johnson v. Bank Saderat Iran, Award No. 429-370-1 (28 July 1989), 22 Iran-US C.T.R. 218, 296 (1989) (Noori, J., dissenting) (“There can be no doubt that arbitrations, whether international or between subjects of private law, derive their mandate and competence from the consent and agreement of the parties to the arbitral agreement; therefore, it is the parties' consent that determines the scope, limits and area of certitude of an arbitrator's authority and jurisdiction.”); Reily v. Russell, 34 Mo. 524, 528 (Mo. 1864) (arbitration rests on the “will and consent of the parties litigant”); Judgment of 3 July 1975, 1976 NJW 109, 110 (German Bundesgerichtshof) (“While the citizen is subject to the jurisdiction of the state courts by virtue of public law set by the state, the arbitral proceedings … are always the consequence of a private legal act, be it – as here – an agreement, be it a final will or the articles of an association”); Judgment of 3 October 2000, 19 ASA Bull. 796, 798 (Swiss Federal Tribunal) (2001) (“Among other prerequisites, an arbitral tribunal has jurisdiction only in case the dispute is within the scope of the arbitration agreement.”); Elektrim SA v. Vivendi Universal SA [2007] EWHC 571 (Q.B.) (“Arbitrations … are the result of agreements between … parties to resolve legal disputes through a private impartial tribunal. Such arbitrations are, by definition, consensual”). 2 See infra pp. 202-203, 211-255, 563 et seq. There are a few instances where arbitration of international disputes may be compelled even absent a traditional arbitration agreement, typically by virtue of international investor protection treaties. Even in these instances, there is an agreement to arbitrate between the parties. See C. Schreuer, The ICSID Convention: A Commentary Art. 25, ¶¶257-315 (2001).
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3 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (U.S.
S.Ct. 2002) (quoting Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (U.S. S.Ct. 1960)); EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (U.S. S.Ct. 2002) (“Arbitration under the [FAA] is a matter of consent, not coercion”). 4 It is also possible for parties to an existing dispute, not otherwise subject to arbitration, to agree to submit that dispute to arbitration. The agreement doing so is typically a stand-alone arbitration agreement, often called a “submission agreement” or “compromis.” See, for example, the model submission agreement, excerpted in G. Born, International Arbitration and Forum Selection Agreements:Drafting and Enforcing Exhibit B (2d ed. 2006); P. Friedland, Arbitration Clauses for International Contracts 112-114 (2d ed. 2007). 5 Arab African Energy Corp. Ltd v. Olieprodukten Nederland BV [1983] 2 Lloyd's Rep. 419 (Q.B.). 6 Judgment of 24 January 2003, XXX Y.B. Comm. Arb. 509 (Hanseatisches Oberlandesgericht Hamburg) (2005). 7 Oriental Commercial and Shipping Co. v. Rosseel, NV, 609 F.Supp. 75 (S.D.N.Y. 1985). See alsoBauer Int'l Corp. v. Etablissem*nts Soules & Cie., 303 N.Y.S.2d 884 (N.Y. 1969) (“Arbitration in New York”); Schulze & Burch Biscuit Co. v. Tree Top, Inc., 831 F.2d 709, 715-16 (7th Cir. 1987) (“All disputes under this transaction shall be arbitrated in the usual manner”). 8 This is most likely to occur in complex transactions (such as infrastructure projects, construction projects, or major intellectual property matters), with multiple parties and multiple agreements, where a single, unified dispute resolution scheme is desired. See infra pp. 1110-1115; ICC, Multi-Party Arbitration: Views from International Arbitration Specialists (1991); Nicklisch, Multi-Party Arbitration and Dispute Resolution in Major Industrial Projects, 11(4) J. Int'l Arb. 57 (1994); Wetter, A Multiparty Arbitration Scheme for International Joint Ventures, 3 Arb. Int'l 2 (1987). 9 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing Exhibit C (2d ed. 2006); J. Paulsson et al., The Freshfields Guide to Arbitration and ADR: Clauses in International Contracts 127-137 (2d ed. 1999); P. Friedland, Arbitration Clauses for International Contracts 1-3 (2d ed. 2007). 10 See infra pp. 675-687; Eisemann, La Clause d'arbitrage pathologique, in Commercial Arbitration: Essays in Memoriam Eugenio Minoli 129 (1974); Schmitthoff, Defective Arbitration Clauses, 1975 J. Bus. L. 9.
Legal Framework for International Arbitration Agreements Chapter 2 Gary B. Born
Author Gary B. Born
The validity, effects and interpretation of international arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreements depend in substantial part on a legal framework of international arbitration conventions and national arbitration legislation. These instruments eliminate historic obstacles to the enforceability of arbitration agreements and provide a decisively “pro-arbitration” enforcement regime for such agreements. This Chapter examines that legal framework, focusing particularly on the jurisdictional requirements which must be satisfied in order for this regime to apply. First, the Chapter introduces the presumptive validity of international commercial arbitration agreements under contemporary international arbitration conventions and national legislation. Second, the Chapter addresses the definition of an “arbitration agreement,” again under both international and national instruments. Third, the Chapter examines a series of additional jurisdictional requirements applicable to arbitration agreements under leading international arbitration conventions and national legislation, including requirements that such agreements concern a “commercial,” “international” and “defined legal” relationship, and that they apply to the resolution of “disputes.” Finally, the Chapter addresses the role of the arbitral seat's location in determining the legal framework applicable to an international arbitration agreement.
Legal Framework for International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 201 - 201
1 For commentary, seesupra p. 12 n. 1.
Legal Framework for International Arbitration Agreements - A. Introduction Chapter 2 Gary B. Born
Author Gary B. Born
A. Introduction It is sometimes said that “arbitration is a creature that owes its existence to the will of the parties alone.” (2) That is correct but only partially correct. Although the parties' consent is essential for an agreement to arbitrate, the ultimate efficacy of an international arbitration agreement depends in large part upon its validity and page "201" enforceability in national courts. (3) Only if national courts are prepared to recognize and enforce an agreement to arbitrate, under applicable national and international law, can the parties' will be effective.
Source Legal Framework for International Arbitration Agreements - A. Introduction in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 201 - 211
After a dispute arises, parties sometimes reconsider their prior commitments to a neutral, speedy and competent dispute resolution process (4) – often in favor of more parochial, less efficient, or less experienced decision-makers. That reappraisal frequently results in http://www.kluwerarbitration.com/CommonUI/print.aspx
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claims that the parties' arbitration agreement never existed, is invalid on various formal or substantive grounds, has been repudiated, waived, or otherwise terminated, or does not apply to the parties' dispute. The speedy and effective resolution of such jurisdictional objections is of fundamental importance to the international arbitral process. 1. Presumptive Validity of International Arbitration Agreements As discussed above, both developed states and the international business community have taken a series of related steps over the past century to ensure the enforceability of international arbitration agreements and the efficacy of the arbitral process. (5) In particular, they have developed increasingly “pro-arbitration” national and international legal regimes that recognize the presumptive validity and enforceability of international arbitration agreements and that provide effective enforcement mechanisms for such agreements. These legal regimes have contributed significantly over past decades to enhancing the efficacy of the international arbitral process. (6) a. Presumptive Validity of International Arbitration Agreements under International Arbitration Conventions Essential to the enforcement of international arbitration agreements are contemporary international arbitration conventions. Particularly significant in this regard are the New York Convention, the European Convention and the Inter-American Convention. page "202" i. New York Convention As discussed above, one of the basic purposes of the New York Convention, as ultimately drafted, was to make it easier to enforce international arbitration agreements. (7) This was one of the Convention's fundamental objectives – notwithstanding the fact that the Convention was originally drafted to deal only with the recognition and enforcement of foreign arbitral awards (as its title indicates). (8) In fact, as discussed elsewhere, it was only in the final phases of negotiations that the Convention was extended to provide for the recognition of arbitration agreements, as well as arbitral awards. (9) The Convention's objectives with regard to arbitration agreements are evidenced in the instrument's negotiating history. That history documents the drafters' desire to make arbitration agreements more readily enforceable, including more readily enforceable than under the 1923 Geneva Protocol. (10) This is confirmed by national court decisions addressing the Convention's objectives. (11) page "203" Consistent with these objectives, Article II(1) of the Convention establishes a basic rule of formal and substantive validity for international arbitration agreements:
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“Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.” (12) That rule is elaborated, and provided an enforcement mechanism, in Article II(3) of the Convention, which requires the courts of Contracting States to refer parties to international arbitration agreements to arbitration unless they find “that the said [arbitration] agreement is null and void inoperative or incapable of being performed.” (13) Unless one of those enumerated grounds for nonrecognition is present, Articles II(1), II(2) and II(3) mandatorily require recognition of the arbitration agreement and reference of the parties to arbitration. (14) As discussed in greater detail elsewhere, Article II's rules of formal and substantive validity and specific enforcement mechanism play a central role in the contemporary international arbitral process. (15) They establish a “pro-arbitration” page "204" legal regime which ensures the validity and enforceability of the material terms of those international arbitration agreements which are subject to the Convention – notwithstanding contemporary national arbitration legislation that sometimes perpetuates or revives intermittent historical mistrust of the arbitral process. (16) In addition, and importantly, Article VII of the Convention makes it clear that nothing in the Convention limits a party's rights to enforce an arbitration agreement under national laws, where these are more favorable than the terms of the Convention itself. (17) ii. European Convention and Inter-American Convention Other significant international arbitration conventions are similar to the New York Convention in providing substantive and formal standards affirming the presumptive validity of international arbitration agreements. The European Convention impliedly recognizes the presumptive validity of international arbitration agreements, (18) while setting forth a specified, limited number of bases for invalidity. (19) More explicitly, and paralleling Article II of the New York Convention, Article 1 of the Inter-American Convention provides that “[a]n agreement in which the parties undertake to submit to arbitral decision any differences that may arise or have arisen between them with respect to a commercial transaction is valid.” (20) Again, these provisions affirm the presumptive validity of those international arbitration agreements which are subject to the respective Conventions and override historic (and occasional contemporary) mistrust of the arbitral process. In so doing, these treaty provisions play central roles in the contemporary international arbitral process. page "205" b. National Arbitration Legislation National arbitration legislation has generally followed, and http://www.kluwerarbitration.com/CommonUI/print.aspx
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implemented, the New York Convention and other international conventions in formulating “pro-arbitration” rules of presumptive substantive and formal validity for international arbitration agreements. As discussed in greater detail below, Article 8(1) of the UNCITRAL Model Law is representative; it provides that a court, when it is seized of a matter “which is the subject of an arbitration agreement shall, if a party so requests … refer the parties to arbitration,” subject only to exceptions if the court “finds that the agreement is null and void, inoperative or incapable of being performed.” (21) As also discussed below, the Model Law's enumeration of the available bases for invalidity of arbitration agreements is based on general contract law principles and has been narrowly construed by courts in most developed jurisdictions. (22)
Legislation in other developed jurisdictions, which have not adopted the Model Law, similarly guarantees the presumptive validity of international arbitration agreements, generally subject only to a limited set of contract defenses. This is made explicit under §2 of the FAA in the United States, which provides 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.” (23) Legislation in other legal systems similarly provides for the presumptive validity of international arbitration agreements, subject only to defined exceptions. (24) Like leading international arbitration conventions, these statutory provisions generally supersede historic common law or statutory rules – or, in some cases, contemporary legal regimes applicable to domestic arbitration agreements – which treat agreements to arbitrate as revocable or contrary to public policy, or which did not (or do not) provide for the effective enforcement of such agreements. (25) Rather, leading contemporary arbitration legislation parallels and implements the New York Convention in establishing a decisively “pro-arbitration” legal framework for the recognition and enforcement of international arbitration agreements. It is sometimes said that modern arbitration legislation renders arbitration agreements as enforceable as other contracts, but not more so: “The FAA directs courts to place arbitration agreements on equal footing with other contracts,” (26) and page "206" the legislation's purpose “was to make arbitration agreements as enforceable as other contracts but not more so.” (27) Where international arbitration agreements, as distinguished from domestic agreements, are concerned, this observation is not entirely accurate. Instead, unlike most contracts, international arbitration agreements are subject to a specialized international legal regime (particularly pursuant to the New York Convention and specialized contemporary national arbitration legislation (28) ) which exceptionally guarantees the validity and enforceability of such contractual provisions. Moreover, most developed states have, again unlike their treatment of other types of contracts, adopted specialized choice-of-law rules, (29) formal requirements, (30) standards of proof, (31) interpretative principles (32) and other mechanisms (33) designed to ensure effective enforcement of international arbitration agreements. National legislatures have done so deliberately, and advisedly, because of the importance of http://www.kluwerarbitration.com/CommonUI/print.aspx
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international arbitration as a means of mitigating the peculiar jurisdictional, choice-of-law and other uncertainties of international litigation. (34) These legislative approaches are well-advised. Although there is rhetorical appeal to the notion that an arbitration agreement is no different from other contracts, this is inaccurate and misleading in the international context. As discussed above, an agreement to arbitrate is a sui generis type of contract, not involving a typical commercial bargain but instead involving a commitment by the parties to a particular procedure for resolving their future commercial disputes. (35) Moreover, again uniquely, an agreement to arbitrate binds together parties when their commercial cooperation has at least partially collapsed, requiring them to work together in an adjudicative process which (often) one will win and the other lose. (36) It is hardly surprising, and equally necessary, that this sui generis type of agreement be governed by a specialized legal regime, aimed at ensuring its validity and enforceability in ways that do not exist for other categories of contracts. page "207" 2. Jurisdictional Requirements for Contemporary International Arbitration Conventions and Legislation The applicability of the pro-arbitration regimes of leading international arbitration conventions and national arbitration legislation generally depends upon satisfying a number of “jurisdictional” requirements. (37) These requirements are virtually always relevant to the application of the New York Convention (and other international conventions), and are also often relevant to the application of national arbitration legislation, to a particular arbitration agreement. The precise jurisdictional requirements that apply under a particular convention or national arbitration statute vary, depending on the terms of the relevant instrument. In general, however, most international conventions and national arbitration statutes impose most or all of the following jurisdictional requirements: (a) the existence of an “agreement to arbitrate” or “arbitration agreement”; (b) concerning a “defined legal relationship”; (c) arising from a “commercial” relationship; (d) which is “international” or “foreign”; (e) dealing with the resolution of a “dispute” or “disputes”; (f) “whether contractual or not,” (g) “which have arisen or which may arise.” (38) At least arguably, the New York and European Conventions contain jurisdictional requirements that the arbitration agreement be “in writing” (although some authorities instead treat this as a requirement for formal validity). (39) As discussed below, each of these jurisdictional requirements arises in similar, and sometimes identical, form under leading international arbitration conventions and many national arbitration statutes. (40) Even where precise statutory formulations page "208" differ, however, the same basic themes and policy considerations apply in defining the jurisdictional scope of legislation as apply in the context of international conventions.
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Unless all of these various jurisdictional requirements are satisfied by a particular dispute resolution agreement, then the pro-arbitration protections of international conventions and/or national arbitration legislation will not apply to that agreement. In that event, the putative arbitration agreement will be subject to either other statutory regimes (i.e., domestic arbitration or conciliation legislation) or to pre-existing common law rules developed historically for arbitration (or other forms of dispute resolution). (41) Either of these alternatives will ordinarily result in the applicability of materially less favorable mechanisms for enforcing the dispute resolution agreement in national courts, (42) as well as differences with regard to the possibility of judicial interference in the dispute resolution proceedings (43) and less favorable mechanisms for enforcement of the proceedings' outcome. (44) a. Jurisdictional Requirements of New York Convention Of central importance to the arbitral process are the jurisdictional requirements of the New York Convention. Regrettably, the Convention does not comprehensively page "209" define what arbitration agreements are subject to its terms, instead leaving the subject largely to judicial and academic resolution. (45) As discussed below, the Convention's text does prescribe a number of jurisdictional requirements with regard to arbitration agreements (e.g., requiring an “agreement to arbitrate” concerning a “defined legal relationship”). (46) Nonetheless, the drafting of the Convention's provisions concerning arbitration agreements was hasty and failed to address key issues, (47) including by failing to provide any comprehensive definition of those arbitration agreements that are subject to the Convention's provisions. Instead, the Convention's text only addresses what awards are entitled to the treaty's protections. (48) Given the foregoing, the definition of those arbitration agreements governed by the New York Convention must be ascertained by implication, either by reference to the Convention's treatment of arbitral awards or otherwise. The resulting jurisdictional requirements of the Convention's provisions regarding arbitration agreements, and the differing interpretations of these requirements, are discussed below. In summary, these requirements are: (a) an “agreement to arbitrate”; (b) concerning a “defined legal relationship”; (c) arising from a “commercial” relationship; (d) which is “international” or “foreign”; (e) dealing with the resolution of a “dispute” or “disputes.” (49) Only if all of these jurisdictional requirements are satisfied, will the Convention apply to an arbitration agreement. Moreover, as already noted, some authorities also hold that the Convention's applicability depends on satisfaction of a minimum “writing” requirement. (50) page "210" b. Jurisdictional Requirements of National Arbitration Legislation The jurisdictional requirements of most national arbitration legislation are broadly similar to those of the New York Convention. http://www.kluwerarbitration.com/CommonUI/print.aspx
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In particular, although statutory requirements differ from state to state, most jurisdictions condition the applicability of local arbitration legislation on the existence of (a) an “agreement to arbitrate”; (b) arising from a “commercial” relationship; (c) which is “international,” (d) dealing with the resolution of a “dispute” or “disputes.” (51) In addition, some states also require that the agreement (e) concern a “defined legal relationship”; or (f) as to certain statutory provisions, concern an agreement to arbitrate on local territory. (52) Again, unless each of the relevant statutory requirements is satisfied, then the national arbitration legislation will not apply. Additionally, at least arguably, some national legislation contains a jurisdictional requirement that the arbitration agreement be “in writing” (although some authorities treat this as a requirement for formal validity). (53)
2 Dell Computer Corp. v. Union des consommateurs, 2007 SCC
34, at ¶51 (Canadian S.Ct.). 3 See supra pp. 90 et seq. 4 See supra pp. 64-90. 5 See supra pp. 64-90, 147-169. 6 See supra pp. 90-105, 111-115 & infra pp. 564-580, 1004 et seq.See also G. Born & P. Rutledge, International Civil Litigation in United States Courts 1087 (4th ed. 2007); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶1-4 (1999); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶¶1-134 to 1-153 (4th ed. 2004). 7 See supra pp. 92-97. 8 As noted above, the Convention's title is the “United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards,” with no reference to agreements. See supra p. 92. 9 See supra p. 94. 10 A. van den Berg, The New York Arbitration Convention of 1958 6-10, 135 (1981) (“The Geneva Protocol of 1923 merely declared as valid an arbitration agreement ‘relating to existing or future differences’ … [i]n comparison, the New York Convention provides an internationally uniform rule for the form of the arbitration agreement ….”); Summary Record of the Twenty-Third Meeting of the United Nations Conference on International Commercial Arbitration, UN Doc. E/CONF.26/SR.23 (1958), available at www.uncitral.org (discussing Article II); Consideration of the Draft Convention on the Recognition and Enforcement of Foreign Arbitral Awards, UNCITRAL, UN ESCOR, E/CONF.26/L.59, Agenda Item 4, ¶2 (1958), available at www.uncitral.org (working group draft of Article II); Sanders, A Twenty Years' Review of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 13 Int'l Law. 269, 277-279 (1979). 11 See, e.g., Scherk v. Alberto-Culver Co., 417 U.S. 506, 521 (U.S. S.Ct. 1974) (goal of the Convention is “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 countries.”); Int'l Ins. Co. v. Caja Nacional De Ahorro Y Seguro, 293 F.3d 392, 399 (7th Cir. 2002) (“The http://www.kluwerarbitration.com/CommonUI/print.aspx
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purpose of the New York Convention, and similarly the Panama Convention, is 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 countries.’”); Judgment of 20 January 1987, Société Bomar Oil NV v. Entreprise Tunisienne d'Activités Pétrolières, 1987 Rev. arb. 482, 485-486 (Paris Cour d'appel) (“Considering the silence of the [New York] Convention, its interpretation requires to determine the objective of its drafters … desiring to facilitate dispute resolution by way of international commercial arbitration”); Automatic Systems Inc. v. Bracknell Corp., 18 O.R.3d 257 (Ontario Court of Appeal 1994) (“The purpose of the United Nations conventions and the legislation adopting them is to ensure that the method of resolving disputes, in the forum and according to the rules chosen by the parties, is respected.”); Renusagar Power Co. v. Gen. Elec. Co., XX Y.B. Comm. Arb. 681, 685 (Indian S.Ct. 1993) (1995) (“The purpose of this Convention was to widen the scope of the Geneva Protocol of 1923”); Gusy, The Validity of An Arbitration Agreement under the New York Convention – Remarks on the Order of OLG SchleswigHolstein, 30 March 2000, 19 J. Int'l Arb. 363, 375 (2002); Judgment of 7 February 1984, Tradax Export SA v. Amoco Iran Oil Co., XI Y.B. Comm. Arb. 532, 535 (Swiss Federal Tribunal) (1986) (“The purpose of the Convention is to facilitate the resolution of disputes through arbitration …”). 12 New York Convention, Art. II(1). The formal requirements that the Convention imposes with regard to arbitration agreements are elaborated in Art. II(2) of the Convention. See infra pp. 580 et seq. 13 New York Convention, Art. II(3). 14 See infra pp. 567-569, 1025-1030. 15 See supra pp. 92-101 & infra pp. 567-569, 587-600, 709-712. See alsoJudgment of 15 January 1992, XVIII Y.B. Comm. Arb. 427 (Italian Corte di Cassazione) (1993) (Article II “means that arbitration prevails [over] court proceedings, so that the enforcement court, if it ascertains that there is a clause validly referring disputes to foreign arbitration, may not take into consideration court proceedings initiated before the foreign award became final. … The [enforcement court and the court seized of an action on the merits] maintain their separate competence: the latter examines the arbitration agreement or arbitral clause, in order to ascertain whether it has jurisdiction [over] the dispute; the former – the [court] seized of an enforcement action – sees the existence of a valid arbitral clause only as one of the conditions for enforcement under Article V(1)(a)”); Quigley, Accession by the United States to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 70 Yale L.J. 1049, 1062 (1961) (“Article II(1) requires each State to ‘recognize’ agreements in writing, to ‘submit to arbitration past or future differences arising between the parties in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.’ This extraordinary provision has many facets.”). 16 See supra pp. 144-147. 17 New York Convention, Art. VII(1); infra pp. 464-465. 18 It does so through provisions for the organization of the arbitral proceedings, the rights of public entities and jurisdictional objections. European Convention, Arts. II(1), IV, V. There is, however, no express provision paralleling Article II of the New York Convention. 19 European Convention, Art. V(1) (“either non-existent or null and void or had lapsed”). http://www.kluwerarbitration.com/CommonUI/print.aspx
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20 Inter-American Convention, Art. 1 (emphasis added). Unlike the
New York Convention, this provision does not expressly identify grounds for challenging the presumptive validity of arbitration agreements, although such grounds are clearly implied in the Convention. Thus, Article 5 of the Inter-American Convention specifies numerous grounds on which an arbitral award may be denied recognition. One of these grounds is “[t]hat the parties to the agreement were subject to some incapacity under the applicable law or that the agreement is not valid under the law to which the parties have submitted it, or, if such law is not specified, under the law of the state in which the decision was made.” Inter-American Convention, Art. 5(1)(a); infra pp. 2777-2797. See also Grigera Naón, Arbitration in Latin America: Overcoming Traditional Hostility, 5 Arb. Int'l 137, 145 (1989). 21 UNCITRAL Model Law, Art. 8(1); infra pp. 570-571, 880-881, 1014. 22 See infra pp. 641-642, 713. 23 U.S. FAA, 9 U.S.C. §2 (emphasis added). For discussion of §2 and the enforceability of arbitration agreements under the FAA, see supra pp. 135-136 & infra pp. 485-492, 571-572. 24 See supra pp. 111-115 & infra pp. 574-575; Swiss Law on Private International Law, Art. 178; French New Code of Civil Procedure, Art. 1458; Japanese Arbitration Law, Art. 4. 25 See supra pp. 37-49, 52-56, 144-147 & infra pp. 574-575. 26 Volt Info. Sciences, Inc. v. Bd. of Trustees, 489 U.S. 468, 478 (U.S. S.Ct. 1989). 27 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (U.S. S.Ct. 1967) (emphasis added). See also U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., 241 F.3d 135 (2d Cir. 2001) (“courts must treat agreements to arbitrate like any other contract …”) (emphasis added); Kresock v. Bankers Trust Co., 21 F.3d 176, 178 (7th Cir. 1994) (“An agreement to arbitrate is treated like any other contract”) (emphasis added). 28 See supra pp. 90-144, 202-207. 29 See supra pp. 172-184 & infra pp. 409-411, 411-562. 30 See infra pp. 580 et seq. 31 See infra pp. 644-655. 32 See infra pp. 1059 et seq. 33 See supra pp. 117, 123, 126, 129, 135 & infra pp. 311-408 for a discussion of the separability presumption. 34 See supra pp. 71, 88-90, 90-92, 109-115. 35 See supra pp. 184-187 & infra pp. 316-322, 1004-1014, 10211025. In some legal systems, arbitration agreements are categorized as “procedural contracts,” recognizing their special status. See supra pp. 185-187 & infra pp. 321-322. 36 See supra pp. 72-76, 82-84 & infra pp. 1004-1014. 37 See A. Samuel, Jurisdictional Problems in International Commercial Arbitrationpassim (1989). See alsoMangin v. Murphy Oil USA, Inc., 2005 U.S. Dist. LEXIS 8338 (E.D. La. 2005) (arbitration agreement is subject to New York Convention because “(1) there is an agreement in writing to arbitrate the dispute; (2) the agreement provides for arbitration in the territory of a Convention signatory; (3) the agreement to arbitrate arises out of a commercial legal relationship; and (4) a party to the agreement is not an American citizen”); JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676 (S.D.N.Y. 2005) (“For the New York http://www.kluwerarbitration.com/CommonUI/print.aspx
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Convention to apply to this dispute, there must be a written arbitration agreement that provides for arbitration in the territory of a signatory of the Convention, the subject matter of the relationship must be commercial and the dispute cannot be entirely domestic in scope.”); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178 (2000); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶260 et seq. (2006); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶7-57, 58-77, 78-126 (1999); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶149 et seq. (2d ed. 2007). 38 See infra pp. 209-305. In addition, as also discussed below, the applicability of national arbitration legislation also frequently depends on the location of the arbitral seat. See infra pp. 306-309. 39 See infra pp. 255, 545-547, 580 et seq. 40 In some cases, national arbitration statutes apply more broadly than international conventions (for example, applying to domestic as well as international arbitrations). See supra pp. 125-127, 129-131. In many cases, however, the same jurisdictional requirements apply under both national arbitration legislation and international treaties. 41 In many jurisdictions, modern arbitration legislation did not abrogate pre-existing statutory or common law mechanisms for enforcing arbitration agreements, which continue to apply when legislative regimes do not. See W. Sturges, A Treatise on Commercial Arbitrations and Awards 6 (1930) (“it is generally accepted that common law arbitrations in the several states are not abrogated by the arbitration statutes”); McClelland v. Hammond, 54 P. 538 (Colo. App. 1898) (“The act did not undertake, either in terms or by implication, to abolish common law arbitrations. … Arbitration is favored by the law as a convenient mode of adjusting disputes … This being true, the presumption will not be indulged that the Code abolished or made ineffective common law arbitrations simply because it provided a method for the submission and settlement of controversies which, if followed, might be more effective and furnish a more conclusive and expeditious remedy.”). 42 Thus, an agreement for something other than “arbitration” (e.g., for conciliation or expert determination) is not subject to either Article II of the New York Convention, or to national arbitration legislation (such as Articles 7 and 8 of the UNCITRAL Model Law or §3 of the FAA) providing for a stay of judicial proceedings pending “arbitration.” See infra pp. 1025-1028. 43 As discussed below, proceedings involving something other than “arbitration” are not subject to the protection of Article II of the New York Convention or Article 5 of the UNCITRAL Model Law, limiting judicial interference in the arbitral process, or Articles 9, 12, 13 and 17 of the Model Law, providing specified forms of judicial assistance to the arbitral process. See infra pp. 1245, 1287-1290 & 1776-1782. 44 As discussed below, a decision other than an arbitral award, resulting from an “agreement to arbitrate,” is not subject to Articles IV and V of the New York Convention, or to provisions of national arbitration legislation (such as Articles 34 and 36 of the UNCITRAL Model Law or §§9 and 10 of the FAA) providing for very limited judicial review of an award. See infra pp. 2351-2352. 45 See A. van den Berg, The New York Arbitration Convention of 1958 56 (1981) (“The Convention … only speaks definitively of its field of application in respect of the arbitral award, viz., a foreign award, which is an award made in another State. It does not define which arbitration agreement shall come within its provision”).
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46 See infra pp. 212-213, 255, 260-267, 277-284. 47 See supra pp. 94-98; A. van den Berg, The New York Arbitration
Convention of 1958 9 (1981) (“It was the intention to leave the provisions concerning the formal validity of the arbitration agreement and the referral by a court to arbitration to a separate Protocol. A similar division existed under the Geneva Treaties … Not until the final days of the New York Conference was it realized that … a separation [of provisions concerning arbitration agreements and arbitral awards] could seriously hamper the effectiveness of the new Convention”). 48 A. Samuel, Jurisdictional Problems in International Commercial Arbitration 91 (1989) (“The Convention itself is silent on the ambit of Article II”); A. van den Berg, The New York Arbitration Convention of 1958 56-57 (1981) (“Article II was drafted in a race against time, with, as consequence, the omission of an indication as to which arbitration agreements the Convention would apply”). See infra pp. 2346-2396 for a discussion of the awards that are subject to the Convention. 49 See infra pp. 211-305. 50 See infra pp. 580 et seq. 51 See infra pp. 211-255, 259-305. 52 See infra pp. 256-258, 306-309. 53 See infra pp. 255, 545 et seq.
Legal Framework for International Arbitration Agreements - B. Definition of “Agreement to Arbitrate” Chapter 2 Gary B. Born
Author Gary B. Born
B. Definition of “Agreement to Arbitrate” The applicability of most international arbitration conventions and national arbitration statutes raises the threshold definitional question of what constitutes an “arbitration agreement.” In general, these legal regimes will apply only if the parties have putatively made an agreement to “arbitrate” – as opposed to an agreement to do something else. For example, parties may agree to expert determination, conciliation, mediation, or other forms of alternative dispute resolution, or to a forum selection clause providing for litigation. (54) Ordinarily, none of these various forms of dispute resolution constitutes “arbitration,” within the meaning or the coverage of the New York Convention (or other leading international arbitration conventions) or national arbitration legislation.
Source Legal Framework for International Arbitration Agreements - B. Definition of “Agreement to Arbitrate” in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 211 - 255
As noted above, significant legal consequences follow under virtually all international conventions and national arbitration laws from characterization of a contractual provision as something other http://www.kluwerarbitration.com/CommonUI/print.aspx
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than an “arbitration agreement.” (55) In these instances, the “proarbitration” regimes of the New York Convention and national arbitration legislation do not necessarily apply to either the agreement (or any resulting decision). Given the importance of these consequences, there is a surprising lack of guidance under both international conventions and national legislation relevant to page "211" the question of what constitutes an “arbitration agreement.” Such guidance as does exist is discussed below. 1. Definition of “Arbitration Agreement” in International Arbitration Conventions There are a range of different definitions of the terms “arbitration agreement” or “agreement to arbitrate” in leading international arbitration conventions. Nonetheless, these various definitions are all broadly similar – both in what they say (and what they do not say) and in the extent of the guidance they do (or do not) provide. Article II(1) of the New York Convention refers to an agreement to arbitrate as including “an agreement in writing under which the partiesundertake to submit to arbitration all or any differences which have arisen or may arise between them in respect of a defined legal relationship, whether contractual or not.” (56) Similarly, the InterAmerican Convention refers to “[a]n agreement in which the parties undertake to submit to arbitral decision any differences that may arise or have arisen between them with respect to a commercial transaction.” (57) Even less helpfully, the European Convention provides that “an ‘arbitration agreement’ shall mean either an arbitral clause in a contract or an arbitration agreement.” (58) These definitions are minimally useful, in the sense that they provide some general guidance in ascertaining what arbitration is, and what it is not. In particular, they make clear that an arbitration agreement involves a contractual relationship between parties; that this agreement deals with disputes or differences, either future or existing; that these disputes will be submitted to and resolved by “arbitration”; and that the agreement may take the form of either an arbitration clause (in a broader commercial contract) or a separate contract (dealing only with arbitration). As discussed below, the confirmation of various of these points is helpful, particularly against the backdrop of historical doctrines to the contrary. (59) At the same time, the foregoing definitions provide little specific guidance in determining precisely what constitutes an “arbitration” agreement, as distinguished from an agreement concerning related forms of dispute resolution. In particular, no effort is made, or even begun, to address the fundamental definitional question of what constitutes “arbitration.” As discussed below, this has left national courts, arbitral tribunals and commentators with the principal responsibility for defining what constitutes “arbitration” and an “arbitration agreement.” (60) page "212" Despite their lack of detailed definitional language, it is relatively clear that the New York Convention (as well as the European and Inter-American Conventions) must be understood as prescribing a http://www.kluwerarbitration.com/CommonUI/print.aspx
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uniform international definition of “arbitration agreement.” (61) Contracting States are therefore not free to avoid the Convention's substantive provisions by adopting narrow or idiosyncratic definitions of “arbitration” or an “agreement to arbitrate” (for example, by providing that an “agreement to arbitrate” exists only if it is publicly registered, governed by local law, or approved in advance by local authorities). (62) The substantive content of this international definition coincides with that under leading national arbitration legislation and is discussed below. (63) Moreover, given the Convention's broad purposes, the term “arbitration agreement” should be interpreted liberally, in order to give maximum scope to Article II's pro-arbitration provisions. This means, in cases of doubt, that courts and tribunals should treat agreements for alternative dispute resolution which have the essential characteristics of a classic “agreement to arbitrate,” or which serve the same objectives as such an agreement, as “arbitration agreements” within the meaning of the Conventions. Again, this coincides with approaches under leading national arbitration statutes and is discussed below. (64) 2. Definitions of “Arbitration Agreement” in National Arbitration Legislation Most national arbitration statutes adopt definitions of the term “arbitration agreement” which are broadly similar to those in international arbitration conventions. As with such conventions, these formulae are ultimately of only marginal direct guidance. Article 7(1) of the UNCITRAL Model Law is representative, providing: “‘Arbitration agreement’ is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship whether contractual page "213" or not. An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.” (65)
In the United States, the FAA refers to “[a] written provision … to settle by arbitration a controversy thereafter arising out of [a] contract or transaction, or … an agreement to submit to arbitration an existing controversy.…” (66) Similarly, §6(1) of the English Arbitration Act, 1996, refers to “an agreement to submit to arbitration present or future disputes (whether they are contractual or not),” (67) while French law defines an arbitration clause as “the agreement under which the parties to a contract undertake to refer to arbitration the disputes which might arise from it.” (68) In contrast, other national laws do not contain express statutory definitions – even partial or incomplete ones – of the term “arbitration agreement.” That is true, for example, in Switzerland, (69) Belgium (70) and Japan. (71) In general, the statutory definitions of “arbitration agreement” in national arbitration legislation are similar in effect to those in international conventions. These definitions provide guidance on http://www.kluwerarbitration.com/CommonUI/print.aspx
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some characteristics of international arbitration agreements (e.g., that an “agreement” is involved and that “existing” or “future” disputes will be “resolved” in some manner outside national courts), without page "214" addressing the central question of what constitutes “arbitration.” The resolution of this definitional issue has therefore been left to national court decisions, arbitral awards and commentary. 3. Definitions of “Arbitration Agreement” in National Judicial Decisions and International Arbitral Awards As discussed above, most definitions of the term “arbitration agreement” in international conventions and national legislation merely incorporate the words “arbitration” or “arbitrate.” (72) Despite its foundational importance, virtually no international or national instrument attempts expressly to define these critical terms. The absence of any statutory definition of the term “arbitration” is analytically unsatisfying but causes no practical difficulty in the vast majority of cases. Almost all putative arbitration agreements expressly use the term “arbitration” (or “arbitrate”) and provide for, or permit, a process which clearly constitutes arbitration. (73) Accordingly, there are in practice relatively few occasions where it is necessary to examine precisely what these categories of “arbitrate” or “arbitration” include. Nonetheless, as discussed below, occasions requiring a definition of “arbitration” do sometimes arise – when parties agree to something more or less like arbitration, without using that term, when parties use the phrase “arbitration” to refer to some contractually-prescribed process that differs materially from normal arbitration, or when parties disagree about what it means to “arbitrate.” For these cases, as well as for analytical clarity, it is necessary to provide a definition of what constitutes “arbitration” and an “arbitration agreement.” Preliminarily, it is trite law in virtually all developed jurisdictions that the label adopted by the parties themselves for a dispute resolution mechanism is not decisive in determining the true character of that mechanism. (74) Parties are free to call a forum page "215" selection clause or an expert determination mechanism an “agreement to arbitrate,” but this (mis-) label does not alter the nature of the mechanism or turn it into an agreement to arbitrate. (75) It is still necessary to examine the substance of the dispute resolution provision in order to determine, objectively, whether it constitutes an agreement to arbitrate within the meaning of applicable international and national instruments. Nonetheless, as a practical matter, if the parties' agreement provides for something labeled “arbitration,” it is a rare case where this will be categorized as something other than an arbitration agreement. (76) page "216" a. What Is Arbitration? There is general, albeit not complete, agreement among national courts, arbitral tribunals and commentators on what the term “arbitration” means for purposes of both international arbitration conventions and national arbitration legislation. With some incidental variations, virtually all authorities would accept that arbitration is a http://www.kluwerarbitration.com/CommonUI/print.aspx
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process by which parties consensually submit a dispute to a nongovernmental decision-maker, selected by or for the parties, to render a binding decision resolving a dispute in accordance with neutral, adjudicatory procedures affording the parties an opportunity to be heard. (77) This definition draws support, if not its precise wording, from a wide range of sources. The following definitions of arbitration are representative of international commentary on the subject: “two or more parties, faced with a dispute which they cannot resolve for themselves, agreeing that some private individual will resolve it for them and if the arbitration runs its full course … it will not be settled by a compromise, but by a decision.” (78)
“a mode of resolving disputes by one or more persons who derive their power from the agreement of the parties and whose decision is binding upon them.” (79)
“a contractual method for the relatively private settlement of disputes.” (80)
“a device whereby the settlement of a question, which is of interest for two or more persons, is entrusted to one or more other persons – the arbitrator or arbitrators – who derive their powers from a private agreement, not from the authorities of a State, and who are to proceed and decide the case on the basis of such an agreement.” (81) page "217"
“voluntary submission by parties to a special kind of private litigation which is accepted, tolerated and sanctioned by public international law and the laws of most civilized jurisdictions.” (82)
“the voluntary submission by the parties of a dispute for decision by recognised and regular procedure other than litigation.” (83) National courts have generally adopted similar definitions: “an agreement to arbitrate before a specified tribunal [is], in effect, a specialized kind of forum-selection clause that posits not only the situs of suit but also the procedure to be used in resolving the dispute.” (84)
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“a contractual method of resolving disputes. By their contract the parties agree to entrust the differences between them to the decision of an arbitrator or panel of arbitrators, to the exclusion of the Courts, and they bind themselves to accept that decision, once made, whether or not they think it right.” (85)
“Consistent with the traditional notion of private arbitration, one may define [the arbitration clause] as an agreement according to which two or more specific or determinable parties agree in a binding way to submit one or several existing or future disputes to an arbitral tribunal, to the exclusion of the original competence of state courts and subject to a (directly or indirectly) determinable legal system.” (86)
“the two criteria of the arbitration [are] … the existence of a dispute and the submission of the party by agreement to an arbitrator whose powers are specified.” (87)
“[Arbitration is] a non-state jurisdiction regarding private law matters based upon the will of the parties.” (88)
page "218" Countless other definitions of “arbitration” have been advanced. (89) In many instances, individual examples of these (and other) definitions are incomplete or even partially mistaken. (90) Nonetheless, as discussed in greater detail below, these formulations cluster around, and capture, a common core definition which applies equally in the context of international arbitration conventions and developed national arbitration legislation: that is, arbitration is – and only is – a process by which parties consensually submit a dispute to a non-governmental decision-maker, chosen by or for them, to render a binding resolution of that dispute in accordance with adjudicatory procedures affording the parties an opportunity to be heard. b. What Isn't Arbitration? The nuances of the foregoing definitions of arbitration – and hence, of the term “arbitration agreement” – are best appreciated when comparing arbitration to related, but distinct, forms of dispute resolution. This includes litigation, expert determination, mediation or conciliation and other forms of alternative dispute resolution. i. Arbitration v. Litigation It is elementary that arbitration is consensual. Simply put, absent an “agreement” to arbitrate, there is, by definition, obviously no http://www.kluwerarbitration.com/CommonUI/print.aspx
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“arbitration agreement.” This is provided expressly by national arbitration legislation, (91) and has been confirmed in uniform holdings of national courts. (92) Thus, although it hardly need be said, page "219" consensual arbitration is most obviously not national court litigation pursuant to mandatory jurisdictional rules. Of course, litigation in national courts may also be conducted pursuant to consensual agreements, typically referred to as forum selection clauses (also variously termed prorogation, jurisdiction or choice-of-court agreements). (93) Forum selection agreements are occasionally confused with arbitration clauses. (94) That confusion is surprising, because it is very clear that a forum selection clause is not an arbitration agreement, and vice versa. Needless to say, this is because a forum selection clause provides for resolution of disputes by litigation in a national court, page "220" not by arbitration before a non-governmental arbitrator selected by or for the parties. (95)
For the most part, it is not difficult to differentiate forum selection clauses from arbitration clauses. The non-governmental identity of the decision-maker is a fundamental, distinguishing feature of “arbitration” agreements. If disputes are referred to “arbitrators” – persons without government office, who are selected by or for the parties, to resolve a particular dispute – then the clause may be an “arbitration agreement.” That is true even if the clause is titled “forum selection” or “choice of court” clause. The decisive factor, in this circ*mstance, is not the label, but the reality of who the decisionmaker is. (96) Conversely, even if a clause is titled “arbitration,” but refers disputes to a specified national court for resolution, then the parties have entered into a forum selection agreement, not an arbitration agreement. (97) Again, the decisive factor is the substance of what the parties have agreed to with regard to the decision-maker, not the label that they used. Of course, where the parties have not clearly identified page "221" who is responsible for dispute resolution, then the label that they have used will assume greater, and perhaps decisive, importance: if the parties agree to “arbitration” before unnamed persons in a particular place, then it would contradict their agreement to refer them to the local courts in that place. A further distinguishing characteristic of arbitration is that an arbitral tribunal is ordinarily selected, usually by the parties or their contractually-specified delegate, for a specific dispute or category of disputes. (98) In many cases, parties either will jointly agree upon a sole arbitrator, (99) will jointly select the members of a multi-person tribunal, (100) or will have previously agreed upon an appointing authority which will fulfill this function for them. (101) The arbitrator(s) thus selected will have a particular mandate, limited to the disputes referred to him or her. (102) In contrast, a forum selection or choice-of-court clause cannot (and does not) select a particular national court judge for a particular matter. Rather, the judge in any particular case is a member of a standing judiciary, available to hear all disputes brought to it, who is assigned to the parties' dispute without regard to their choice. (103) As noted above, there are significant legal consequences that result http://www.kluwerarbitration.com/CommonUI/print.aspx
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from characterizing an agreement as a forum selection clause, rather than an arbitration agreement. (104) The New York Convention (and other international arbitration conventions) and national arbitration statutes apply only to “arbitration agreements,” and in particular do not apply to forum selection clauses. (105) Conversely, international page "222" conventions and national legislation dealing with forum selection clauses do not apply to arbitration agreements. (106) That is well-illustrated by the Hague Conference on Private International Law's proposed Convention on Choice of Court Agreements, (107) which would apply to forum selection clauses, and not to arbitration agreements, and by the EU's Council Regulation 44/2001, which is the same. (108) ii. Arbitration v. Expert Determination or Valuation Just as arbitration is not litigation, so too arbitration is not expert determination or valuation. Commercial contracts not infrequently contain provisions for the resolution of certain categories of disputes by an expert, an accountant, an engineer, or other specialized nongovernmental person selected (directly or indirectly) by the parties and authorized to render a binding decision on an issue. (109) Such provisions can involve accounting (or other financial) calculations by an accountant, quality determinations by an industry representative, oil and gas reserve estimates by an expert, engineering or construction judgments by an architect or engineer, or legal page "223" assessments by a lawyer. (110) The question not infrequently arises whether such provisions establishing a non-litigation dispute resolution mechanism for particular technical issues by an expert decision-maker are “arbitration agreements” – subject to international arbitration conventions and national arbitration legislation – or something else. In many national legal systems, an important distinction is drawn between “arbitration” and binding “expert determination,” “appraisal,” or “valuation.” (111) The latter categories are variously referred to as “expertise-arbitrage” (French), (112) “Schiedsgutachten” (German) (113) and “bindend advies” (Dutch). As discussed above, the ICC and some other arbitral institutions have promulgated separate sets of rules applicable to these sorts of expert determinations. (114) page "224" The processes of expert determination or valuation are similar to arbitration in that a non-governmental decision-maker consensually selected by the parties renders a binding decision outside of the context of national court litigation. (115) Nonetheless, these processes are different from arbitration in that an expert determination ordinarily does not involve relatively open-ended decisions on disputed factual and legal issues, as is usually the case in arbitration, but rather application of specified technical, accounting or similar criteria to a relatively narrow question. Some courts and commentators have relied on this difference to distinguish arbitration from expert determination. (116) The rationale behind decisions adopting this distinction is that the appointed valuation expert “simply rendered a singular determination – a finding of fact by which the parties had agreed to be bound …. They http://www.kluwerarbitration.com/CommonUI/print.aspx
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did not exercise the discretionary judgment that is the hallmark of the page "225" arbitrator's function.” (117) Other decisions have distinguished between the determination of “facts” in an appraisal and “law” or “disputes” in an arbitration. (118) Thus, German courts have reasoned that the characteristic element of an arbitration agreement is the transfer of competence to render a final decision in a dispute, which normally belongs to national courts, to an arbitral tribunal – as opposed to an expert determination of specific factual issues. (119) Likewise, according to the Austrian Oberster Gerichtshof, “the function of the arbitrator is a judicial one, namely the decision of a legal dispute in lieu of an ordinary court,” while an expert determination “only creates the basis” for the settlement of the dispute, by determining relevant facts. (120) Other authorities rely on the fact that expert determinations do not characteristically involve the same adjudicative procedures and opportunity for the parties to be heard as exists in arbitration (e.g., expert determinations typically page "226" involve minimal written submissions, no oral hearing or witness testimony). (121) As one court reasoned, “[a]rbitration presupposes a quasi-judicial hearing with witnesses, oaths, and the taking of testimony.” (122) In contrast, “appraisal is a proceeding ‘without formal taking of evidence, without oaths, procedural safeguards, discipline or other court-like restraints’ …. [The] process does not lend itself to the formal introduction of evidence by the parties or the opportunity to submit rebuttal documents or proofs.” (123) These distinguishing features of arbitration and expert determination are to an extent (over-) generalizations. Expert determinations can, and sometimes do, involve interpretation of contractual standards in the context of relatively broad disputes, much like many arbitral awards, (124) while some arbitral awards can involve page "227" comparatively narrow technical, accounting, or other issues that are much like many expert determinations. Likewise, expert determinations can be run, as a procedural matter, much like arbitrations (with witness testimony, written and oral submissions, a reasoned decision, etc.), while some arbitrations can be conducted with little similarity to judicial proceedings (e.g., “documents only” arbitrations). For example, some commodities or maritime arbitrations can be almost identical in their procedural conduct to some expert determinations, yet are considered as an arbitration that produces an arbitral award. (125) As a consequence, many national courts have adopted relatively expansive conceptions of arbitration, increasingly extending the term to dispute resolution mechanisms that are or closely resemble classic expert determinations, valuations, or appraisals. Under the FAA, for example, U.S. courts have concluded that a wide variety of alternative dispute resolution mechanisms constitute “arbitration.” (126) A few U.S. courts have held, however, that particular forms of valuation or expert appraisals will not constitute arbitration. (127) Even in some such cases, U.S. courts have sometimes applied local arbitration legislation (apparently by analogy) to what page (128) "228" have been categorized as expert determinations. Similarly, a number of U.S. courts have held that litigation should be stayed pending an appraisal. (129)
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Likewise, if somewhat less expansively, decisions in most other developed jurisdictions have also adopted liberal approaches to the definition of arbitration agreements in the context of provisions which arguably constitute agreements for expert determination. Thus, both common law (130) and civil law (131) courts have held that a variety of alternative dispute resolution provisions not fitting comfortably into classic notions of arbitration nonetheless constitute arbitration agreements. Despite this, there are generally-applicable and important differences in the procedures used, as well as in the nature of the issues decided, in expert determinations, on the one hand, and arbitration, on the other. Of primary importance, a defining and distinguishing characteristic of arbitration is its mandatory use of adjudicatory procedures to resolve the disputes and claims presented by the parties. (132) As one U.S. court put it “a true arbitration agreement [requires]: (1) a third party decision maker; (2) mechanisms for ensuring neutrality with respect to the rendering of the page "229" decision; (3) a decision-maker who is chosen by the parties; (4) an opportunity for both parties to be heard; and (5) a binding decision.” (133) English courts have taken a similar approach, adopting relatively expansive definitions of arbitration (typically refusing to accord decisive or even material weight to the label used by the parties), while placing principal emphasis on the nature of the dispute resolution procedures contemplated by the parties' agreement. One decision, dealing with the characterization of a “Contracts Resolution Board” charged with resolving contractual disputes arising from professional automobile racing, concluded that the clause constituted an arbitration agreement principally because of the “Board's judicial responsibilities.” (134) Another English case held that a contractual clause, providing that any disputes under an insurance policy would be referred to “a Queen's Counsel of the English Bar,” was an arbitration agreement. (135) A similar approach has been adopted by New Zealand courts. In one recent case, the court held that arbitrator immunity would not apply to individuals page "230" responsible for making valuations, based upon their own expertise and investigations. (136) In a wellreasoned opinion, the court concluded that an arbitration was characterized by “judicial” procedures, which could be envisaged in a continuum: “At one end of the scale is the arbitrator who sits to hear evidence and submissions and then adjudicates in the same way as a Judge. At the other end is the arbitrator [sic] who is appointed to use his own expertise, skill and care to investigate a particular matter and come to a decision on it without evidence, submissions or any type of hearing.” (137) Canadian, Australian, Singaporean and Hong Kong courts have similarly focused in this context on the extent to which a proceeding involves an adjudicative function, of hearing the parties' submissions and evidence and rendering an impartial decision. (138)
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Decisions in civil law jurisdictions have also cited the importance of the decision-maker applying adjudicatory procedures to the definition of an arbitration agreement. In particular, the French Cour de cassation, (139) and other French courts, (140) have emphasized that the arbitrator's “judicial” responsibilities are essential to the page "231" arbitral function. Similarly, in an early decision, the German Bundesgerichtshof held that an arbitrator exercises a judicial function and must conform to a “quasi-judicial procedure” in order to “live up to [his or her] function as a court.” (141) Consistent with this, the Bundesgerichtshof recently held that the impartiality and independence of a body established by the internal rules of an association was essential for characterization as an arbitral tribunal. (142)
Swiss courts draw a similar distinction, emphasizing that, in principle, the arbitrator's task is to adjudicate a dispute, whereas an expert determination is to establish legally relevant facts. (143) The distinction is drawn taking into account the substance of the dispute resolution mechanism and the way in which the expert or arbitrator has understood and executed his mission. An informal procedure without an exchange of factual allegations and requests for relief, as well as the lack of any authority to award legal fees, point towards an expert determination. (144) Given these decisions, care should be taken in drafting clauses providing for some form of expert determination. In particular, if the parties wish international arbitration conventions and national arbitration legislation to apply to such procedures, and the resulting decisions, then they should clearly denominate the process as “arbitration” and should allow for procedures that permit adjudicative opportunities to be heard prior to a decision. (145) Failure to do so risks having a dispute resolution process characterized as “expert determination,” rather than “arbitration,” and therefore as falling outside of statutorily-mandated provisions for judicial assistance to, non-interference in, and enforcement of the arbitral process, and page "232" statutory (146) or other provisions for arbitrator immunity. (147) (Many legal systems will nonetheless give effect to agreements for expert determination, (148) but often pursuant to a less favorable, reliable legal regime.) Conversely, if the parties wish to avoid the legislative framework applicable to arbitration (for whatever reason), then they should denominate the dispute resolution process as “expert determination,” and not arbitration, and should grant the expert the power to render a decision without using quasi-judicial procedures. If parties desire an “expert determination” procedure, they should also be careful to specify clearly what the intended consequences of the expert's decision are; in page "233" particular, they should specify that the decision is (or is not) final and binding on the parties. (149)
iii. Quality Arbitration “Quality arbitrations” have historically been used in some industries (e.g., commodities) to resolve disputes concerning the quality of goods which are delivered. These disputes frequently turn entirely on technical issues, and are resolved by industry experts in a procedural manner that is highly informal and that bears little http://www.kluwerarbitration.com/CommonUI/print.aspx
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resemblance to many “normal” contemporary commercial arbitrations. (150) There are typically no written submissions, witness testimony, hearings, or argument, and often no reasoned award; in many respects, the arbitrator's decision is more in the nature of a sports referee's “call” than a judicial decision. (151) Given these procedural characteristics of quality “arbitration,” it is uncertain whether such proceedings can properly be considered “arbitration.” The apparent view of most national courts (152) and other authorities, (153) influenced in part by page "234" (154) historical practice, is that quality arbitrations are a form of “arbitration,” notwithstanding the use of procedures that are often adjudicative only in the loosest sense. This conclusion must be seen in the context of the parties' autonomy to agree upon the arbitral procedures and, to a lesser extent, the arbitrators' discretion with regard to procedural matters in the absence of such agreement. (155) One inevitable consequence of this autonomy is that the parties may agree upon highly summary procedures, waiving many aspects of “normal” judicial and arbitral processes. (156) Where the parties do so, while nonetheless retaining the basic right to present their respective cases according to neutral, albeit informal and summary, procedures to an impartial tribunal, the essence of the definition of arbitration can be considered satisfied. Where the parties reach such an agreement consistent with historic and contemporary practice in a particular commercial setting, the arguments for applying international arbitration conventions and national arbitration legislation are particularly difficult to resist. iv. Arbitration v. Mediation or Conciliation (157) Arbitration agreements differ fundamentally from agreements for “conciliation,” “mediation,” early neutral evaluation and the like. The latter procedures do not provide for a binding decision or award to be imposed on the parties; rather, they provide for a non-binding process which may (or may not) assist the parties in reaching a consensual settlement. (158) The mediator or conciliator is not empowered page "235" to decide or resolve issues, but merely to discuss and negotiate with the parties in an effort to persuade them to reach a consensual resolution of their dispute. (159) This is a fundamentally different outcome from arbitration, whose basic objective is to produce a binding award that not only decides the parties' dispute in a final manner, but that is subject to only limited grounds for challenge in national courts. (160) In some jurisdictions, separate legislation has been adopted governing mediation, conciliation and related form of alternative dispute resolution. (161) In these instances, the different legal frameworks governing mediation or conciliation and arbitration will be apparent. Even in other jurisdictions, however, mediation and conciliation will be subject to a different legal regime than arbitration. (162)
A number of leading arbitral institutions have adopted specialized conciliation/mediation procedures. One of the forerunners in this regard was ICSID, where the original ICSID Convention contained a http://www.kluwerarbitration.com/CommonUI/print.aspx
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separate chapter dealing specifically with conciliation. (163) Many leading arbitration institutions have also page "236" adopted (164) rules of conciliation. These include the ICC, (165) AAA and ICDR, (166) WIPO (167) and CPR. (168) Obviously, where parties agree to dispute resolution in accordance with these mediation or conciliation rules, they will not have entered into an arbitration agreement, but rather an agreement to mediate or conciliate. In general, few difficulties should arise in distinguishing between “arbitration” agreements, on the one hand, and “mediation” or “conciliation” agreements, on the other. Although, as discussed above, labels are not decisive, (169) reference to “arbitration” will ordinarily be sufficient to exclude the possibility that “mediation” or “conciliation” is intended, while the converse will be equally true. In rare cases, parties may refer to a procedure (e.g., “arbitration”) but then specify an inconsistent outcome, such as a non-binding decision (e.g., “the arbitrators may recommend”). (170) In these instances, although conclusions necessarily turn on particular appraisals of the parties' true intentions, the focus should be on the substantive outcome that the parties have attempted to provide for, rather than on the label that they have used. U.S. courts have generally held that when parties agree to a clause requiring only a non-binding mediation or conciliation process, there is no agreement to arbitrate. (171) The same is true where the parties agree only to the provision of a page "237" non-binding recommendation, (172) or where parties retained the right to litigate their dispute. (173) (As discussed below, courts have generally presumed, in cases of doubt, that parties intended to agree upon binding arbitration, rather than a non-binding recommendation mistakenly called arbitration, but where the parties clearly agree upon the latter dispute resolution mechanism, it will be given effect. (174) ) Despite this, some U.S. courts have suggested that the FAA will be applied (properly analyzed, by analogy) even to a non-binding mediation or conciliation agreement. These decisions have held that there is no reason in principle to treat such agreements differently from agreements to arbitrate for purposes of enforcing the dispute resolution agreement. (175) page "238" Decisions in other jurisdictions are similar in requiring that arbitration involve a process that produces a binding result. French, (176) English, (177) Hong Kong (178) and German (179) courts have held that an agreement that permits access to national courts following a non-binding decision does not constitute an arbitration agreement, but rather a conciliation or mediation clause. Thus, a French court held that, because the parties had agreed that a decision issued in administrative proceedings before the Arbitration and Mediation Center of the World Intellectual Property Organization (“WIPO”) lacked binding res judicata effect, it was not an arbitral award. (180) The court reasoned that while the administrative proceeding shared certain attributes with a classical arbitration – such as independence and impartiality of the administrative panel, equal treatment of the parties and evaluation of the evidence – the decision could not be an arbitral award because it did not bind the parties and because the http://www.kluwerarbitration.com/CommonUI/print.aspx
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parties' agreement allowed them to refer their dispute to a French court page "239" before, during, and after the proceedings. (181) Other national courts have reached similar results. (182) At the same time, applying general rules of contract law, courts have generally required compliance with mediation, conciliation or similar ADR agreements. (183) In a recent decision, the U.S. Supreme Court reasoned that “[o]f course, submitting to jurisdiction and agreeing to be bound are two different things,” proffering as an example an “agree[ment] to compulsory nonbinding arbitration.” (184) That reasoning, which was unnecessary to the Court's conclusion, on a largely page "240" unrelated topic, is difficult to square with the overwhelming weight of authority regarding the meaning of an agreement to arbitrate. Rather, the ordinary meaning of both an agreement to arbitrate and a “submi[ssion] to jurisdiction” is that the parties will be bound by the chosen tribunal's decision. Although it is possible to agree in a binding manner to submit to non-binding dispute resolution, this is not what is presumptively intended by either submission of disputes to “arbitration” or to other forms of adjudication; rather, dispute resolution agreements of this character constitute agreements to be bound, absent express language to the contrary. (185) v. Arbitration Following Other Dispute Resolution Processes Some agreements provide for arbitration only after other contractual dispute resolution mechanisms have been exhausted. These mechanisms can include “cooling-off” or “waiting” periods; negotiations between corporate representatives or officers; conciliation, mediation, or mini-trials; or referral to an expert or other third party for a non-binding opinion. (186) In some instances, parties agree to attempt first to resolve their disputes by negotiation (sometimes with elevation to more senior corporate representatives), followed by mediation or conciliation, with arbitration being permitted only after these non-binding means of dispute resolution have been attempted for prescribed periods of time. These multi-tier approaches to dispute resolution and prevention have been particularly popular in recent years. (187) page "241" Questions have arisen as to whether a multi-tiered dispute resolution agreement of this sort constitutes an “arbitration agreement” for purposes of international arbitration conventions or national legislation. In virtually all jurisdictions, even where an agreement provides for arbitration only after a lengthy process of other dispute resolution mechanisms, it still remains an arbitration agreement. Arbitration delayed is not, so to speak, not arbitration. Thus, in Channel Tunnel Group Ltd v. Balfour Beatty Construction Ltd, the House of Lords held, “without undue difficulty,” that a clause providing for referral of disputes to three independent experts, followed by an appeal to an arbitral tribunal, constituted an arbitration agreement for purposes of English law. (188) Decisions in other national courts have routinely treated clauses involving less elaborate pre-arbitration procedures as valid and enforceable “arbitration agreements.” (189)
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In a few jurisdictions, however, courts have concluded that multitiered dispute resolution agreements are not enforceable in the same fashion as “arbitration agreements” prior to the initiation of arbitration. For example, a U.S. appellate court held that until the conditions precedent prescribing mediation and subsequent notice of arbitration are fulfilled by the parties, an arbitration clause has not been triggered and litigation may proceed in the interim. (190) This result is misconceived: the parties' page "242" agreement to arbitrate should be regarded, absent express contrary agreement, as excluding national court litigation during the period when any escalation procedures or conditions precedent are being complied with. (191) Where a multi-tiered dispute resolution provision is involved, questions can arise as to a party's ability to initiate arbitration before having complied (or complied fully) with prior procedural steps (e.g., before a party has negotiated in good faith, participated in mediation). The resolution of these procedural issues in particular cases does not affect the categorization of a dispute resolution provision as a arbitration agreement, and, as discussed below, instead concerns the question whether the arbitration agreement's procedural requirements have been complied with. (192) Similarly, agreements providing for arbitration following a mediation process may result in questions about the impartiality of an unsuccessful mediator who is to serve subsequently as the arbitrator. (193) Again, this possibility does not alter the character of the dispute resolution mechanism, as an arbitration agreement, but instead concerns how the arbitration must be conducted and the identity of the arbitrator. vi. “Engineers” and “Dispute Adjudication Boards” In particular industries, specialized forms of dispute resolution agreements have been developed which involve mechanisms that resemble both arbitration and expert determination, but which are neither. In the international construction industry, contracts often provide for an “engineer” (employed by the project owner) who plays a special contractual role vis-à-vis the owner and the contractor. (194) This is particularly true under the so-called “FIDIC” civil engineering contract. (195) This has page "243" been supplemented by more recent revisions of the FIDIC contract, which provide for disputes to be resolved by a “Dispute Adjudication Board” (subject to subsequent arbitration), rather than the engineer. (196)
The roles of the engineer and the Dispute Adjudication Board do not constitute arbitration, but are instead a contractual mechanism for giving interim effect to a form of expert determination. That mechanism is plainly not “arbitration,” because it is (by its terms) non-binding, is not subject to the quasi-judicial procedural protections of the arbitral process and involves a decision-maker who is not subject to the requirements of independence and impartiality that accompany the arbitral process. (197) Agreement to resolution of disputes by one of these mechanisms cannot be regarded as an agreement to arbitrate, subject to international arbitration conventions and national arbitration legislation, but is rather a sui generis and specialized form of non-binding expert http://www.kluwerarbitration.com/CommonUI/print.aspx
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determination. vii. “Baseball” Arbitration and High/Low Arbitration There are a variety of forms of binding dispute resolution that have developed in particular settings which resemble arbitration, but which also differ in decisive ways from “normal” commercial arbitration. These procedures raise difficult, if infrequent, analytical questions as to whether such dispute resolution mechanisms constitute “arbitration” or not. For example, so-called “baseball” arbitration (which originated in the United States) involves an arbitral process where, at the conclusion of the parties' submissions, each party provides the tribunal with its “best offer” in a sealed envelope. (198) The tribunal is then charged with choosing one party's offer, or the page "244" other party's, rather than making an independent determination of the “correct” resolution under applicable law. Other forms of dispute resolution similarly limit the decision-maker's freedom to decide the parties' dispute, as in a characteristically adjudicative fashion, and instead prescribe a particular issue to be “answered” by the tribunal, as with “high/low” or “bracketed arbitration.” In high/low arbitration, for example, the parties agree on the minimum and maximum amounts that the arbitrator can award. (199) It is debatable whether these sorts of dispute resolution mechanisms constitute “arbitration” in the proper sense of the term. (200) Although these procedures involve binding dispute resolution by a private decision-maker, selected by the parties, who disposes of legal disputes, while affording substantial opportunities to be heard in an adjudicative manner, they also are characterized by significant differences from most arbitral processes (e.g., removal of tribunal's discretion to consider remedies or “resolve” the dispute). These differences are difficult to reconcile with the tribunal's adjudicatory role, which requires a material measure of quasi-judicial independence from the parties. (201) It is uncertain whether these differences remove page "245" such procedures from the ambit of arbitration but, at a minimum, they push the outer limits of the definition. (202) c. Amiable Composition or Arbitration Ex Aequo et Bono Amiable composition and arbitration ex aequo et bono are variations of commercial arbitration in which the parties expressly agree that the arbitrator is not bound by strict rules of law, but is free to give effect to general considerations of equity and fair-play. (203) The arbitrators' freedom in such proceedings to disregard the law, and make a purely “equitable” or “commercial” decision, arguably distinguish these forms of dispute resolution from “true” arbitration, and therefore take them out of the definition of arbitration. One might argue, for example, that the essence of arbitration's adjudicatory character is the application of law (204) – and that the deliberately alegal nature of amiable composition and arbitration ex aequo et bono is fundamentally irreconcilable with this character. Although there is force to this analysis, it should be rejected. Amiable composition and arbitration ex aequo et bono closely resemble other forms of arbitration in their procedural conduct, and http://www.kluwerarbitration.com/CommonUI/print.aspx
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in the tribunal's making of a final and binding award. Indeed, arbitration historically often bore closer resemblances to arbitration ex aequo et bono and amiable composition than to many “normal” contemporary international arbitrations. (205) Ultimately, it is the character of the tribunal (non-governmental persons selected for a particular dispute or category of disputes), the procedures (adjudicative) and the result (a binding award) that qualifies amiable composition and arbitration ex aequo et bono as “arbitration.” The fact that the parties have chosen to contract out of substantive national law – as and where permitted by national law (206) – does not alter the fundamental character of their agreement to arbitrate, and instead only affects the substantive standards that are applied in such an arbitration. Given this character, amiable composition and arbitration ex aequo et bono are readily characterized as “arbitration” in the sense that international arbitration conventions and national legislation use the term. page "246" d. Adjudicatory Character of Arbitration As discussed above, an essential feature of “arbitration” is its “judicial” character. (207) This is affirmed in both national court decisions (208) and commentary (209) addressing the question of what constitutes an arbitration agreement. It is also consistent with the historical development of international commercial and state-tostate arbitration. (210) Some commentators have suggested that arbitrators are not, in fact, comparable to judges, because of various differences or asserted differences between litigation and the arbitral process. These authorities argue that arbitrators are selected by the parties, are free to decline appointment, are compensated contractually by the parties, are not bound by precedent or strict rules of evidence, are not subject to the same appellate review as national courts and may (in some settings) be predisposed towards the party that nominated them. (211) In the words of one commentator, these factors make it a “gross misapproximation” to equate arbitrators with judges. (212) These observations misconceive the differences between the arbitral and litigation processes. There are, to be sure, differences between the arbitral and judicial processes and between arbitrators and judges – just as there are differences between judicial processes and judges in different national legal systems (i.e., a Japanese judge differs from a Brazilian, Saudi, Swiss, or U.S. judge). These differences do not, however, alter the reality that arbitrators perform a quintessentially adjudicative function by resolving disputes in a binding legal manner, expressed in a reasoned decision, based upon the law and record, following legal or evidentiary submissions by the parties. (213) It is the arbitrator's performance page "247" of this function – and not differences in how this function is performed – that constitutes adjudicative action. This conclusion is not contradicted by consideration of the various factors cited by some commentators to support claims that arbitrators do not perform a judicial or adjudicatory function. The fact that arbitrators do not follow strict rules of evidence (214) is of no http://www.kluwerarbitration.com/CommonUI/print.aspx
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import (because arbitrators do apply evidentiary rules and because rules of evidence differ widely around the world (215) ), as is the reduced role of precedent in some arbitral contexts (216) (because the role of precedent also differs widely in different legal systems around the world, including in international arbitration (217) ). Equally irrelevant is the fact that no transcript is kept of some arbitrations (218) (because transcripts are the exception, rather than the rule, in litigations in most legal systems and because transcripts or their equivalent are commonplace in many international arbitrations (219) ) and the fact that arbitrations are generally confidential (220) (because closed hearings, sealed records and the like are characteristics of obviously judicial proceedings around the world and because many arbitrations are not confidential (221) ). Instead, the fundamental point is that arbitrators impartially decide disputes based upon the law and the evidentiary record, page "248" as presented by the parties in the exercise of their rights to be heard, which is the essence of the adjudicative function. (222) Equally, the fact that arbitrators are compensated by the parties, while judges are (generally) compensated by the state, does not contradict the arbitrator's adjudicative role (223) : it is what an arbitrator does, not how he or she is paid, that determines the nature of his or her role. The arbitrator's functions are no different if paid by the parties, the state, or not at all, just as a lawyer's function remains that of a lawyer, whether providing paid assistance, state-funded legal aid, or pro bono representation. Nor is the arbitrator's adjudicative function contradicted by the fact that arbitrators are often selected by the parties (or a party) and are free to decline appointment. (224) These factors go to how arbitrators are chosen for particular arbitrations, not to the functions that the arbitrators perform in the arbitrations after appointment (which, as discussed above, is quintessentially adjudicative (225) ). Nor is the parties' involvement in selecting arbitrators in any way contrary to an adjudicatory role: on the contrary, as discussed above, the institution of party involvement in selecting the arbitral tribunal is designed (and was historically used) precisely to ensure that parties from differing jurisdictions and legal cultures will have a full and equal opportunity to present their case to a decision-maker or set of decision-makers who can fairly and competently evaluate their submissions. (226) The only serious issue raised concerning the international arbitrators' adjudicative function concerns non-neutral partynominated arbitrators or advocate-arbitrators which are used in some legal traditions. (227) As discussed page "249" elsewhere, some common law legal systems historically (and occasionally still) permit either arbitrator-advocates or co-arbitrators who are predisposed towards the party that nominated them; (228) these arbitrators are not only permitted, but are expected, to advocate “their” nominating party's case in the tribunal's deliberations. (229) Although increasingly rare, the predisposed coarbitrator's function in these types of arbitrations is an unusual hybrid of judicial and advocacy functions, which differs in important respects from most traditional adjudicative roles. (230) These observations regarding the role of predisposed co-arbitrators http://www.kluwerarbitration.com/CommonUI/print.aspx
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do not apply to co-arbitrators in other settings, including particularly co-arbitrators who are required to be impartial and unbiased, as is the case in most contemporary international arbitrations. (231) The fact that a party may appoint a co-arbitrator of its choice (including a co-arbitrator of its own nationality), following an interview, does not alter that co-arbitrator's obligations of impartiality and independence (232) nor convert the co-arbitrator into an advocate or party representative. (233) There are well-established and respected judicial traditions (such as the International Court of Justice) that permit party-nominated judges without this resulting in questions about the judicial role of such nominees. (234) There are of course instances in which co-arbitrators do not comply fully with their obligations of impartiality; but these actions are comparatively infrequent and almost always obvious to (and, at least in large part, compensated for by) the presiding arbitrator and other co-arbitrator. (235) The existence of departures from applicable requirements of impartiality does not alter the fundamentally adjudicative character of arbitration, or the arbitrators – just as departures from judicial ethical rules by individual judges do not alter the nature of national judicial systems. page "250" Equally, suggestions that the co-arbitrator role is necessarily partial, and therefore non-adjudicative, (236) ignore the realities of international litigation in national courts. If parties from States A and B agree to litigate their disputes in the courts of State A, before judges who are nationals of State A, no one would doubt that those judges will perform a judicial function, notwithstanding their nationalities; this conclusion is not altered if the party from State A is a major financial institution and State A is a leading international financial center, whose courts avowedly endeavor to develop legal rules that safeguard State A's status in that regard. The reality in international dispute resolution is that no judicial process will involve a tribunal that is un-predisposed in all respects. (237) Particularly in international matters, every adjudicatory procedure occurs in a particular setting, where the decision-makers will have a measure of predisposition on particular issues and involving particular parties. The use of co-arbitrators in the international arbitral process is an effort to manage and mitigate the foregoing risk in the international setting, by providing each party with equal involvement in constituting a tribunal that will be as neutral and impartial as possible. To be sure, there will be instances where the co-arbitrators may harbor either overt or subtle predispositions towards “his” or “her” party. But such a co-arbitrator is surrounded by a set of restraints, including obligations of impartiality, challenge procedures, another co-arbitrator and a presiding arbitrator selected in a neutral manner. These restraints channel the co-arbitrator's energies into a mechanism and process that is both adjudicative and that compares favorably to the resolution of international disputes by national courts in terms of neutrality – as the enduring and increasing use of international arbitration confirms. Although there have been only limited empirical studies of the arbitral process, the results of these efforts, together with anecdotal evidence, confirm the adjudicative character of that process. The http://www.kluwerarbitration.com/CommonUI/print.aspx
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evidence provided by published international arbitral awards strongly supports the view that arbitrators perform an adjudicatory function: as noted elsewhere, international arbitral awards are almost invariably written and reasoned, typically not dissimilar in terms of legal reasoning and evaluation of the evidence from national court judgments. (238) This is supported by several empirical studies which indicate that arbitrators' decision-making shows a strong resemblance to judicial decision-making, in that there is little evidence of overt “baby-splitting,” (239) page "251" which would arguably be inconsistent with an adjudicative function; rather, arbitral awards very frequently grant or reject claims in full or substantial part, with principled distinctions explaining other results. (240) In sum, as national courts and commentators have concluded in a wide variety of contexts, international arbitration is characterized by its adjudicative nature. This distinguishes arbitration from expert determination, (241) conciliation/mediation (242) and some other (less common) forms of dispute resolution. (243) At the same time, as discussed below, it also informs the procedural requirements applicable to the arbitral proceedings (244) and the impartiality and independence obligations of the arbitrators. (245) 4. Future Directions: How Should “Arbitration” Be Defined? As discussed above, there are nearly as many definitions of arbitration as there are commentators or courts addressing the subject. (246) Nonetheless, there is a common core to these definitions which is widely-accepted, even if not explicitly prescribed, in virtually all developed legal systems. This common understanding of the term applies equally to defining the term “arbitration agreement” in international arbitration conventions (including the New York Convention) and national arbitration legislation (including the UNCITRAL Model Law). The most comprehensive and precise definition of “arbitration,” which emerges from these various views, and from a review of the different forms of dispute resolution employed in contemporary commercial affairs, is that arbitration is a process by which parties consensually submit a dispute to a non-governmental decisionmaker, selected by or for the parties, who renders a binding decision resolving the dispute in accordance with neutral, adjudicative procedures affording the parties an opportunity to be heard. It is this definition – derived from a broad range of international and national authorities – that should be applied, inter alia, page "252" under Article II of the New York Convention as a uniform, internationallymandatory definition of arbitration, from which Contracting States may not properly deviate, (247) and under Article 7 of the UNCITRAL Model Law and other national arbitration legislation. (248) This definition resembles other efforts in the field, (249) but emphasizes the requirement that arbitration be conducted in a manner which affords the parties an opportunity to be heard in an adjudicatory or quasi-judicial manner. (250) This qualification is necessary in order to distinguish arbitration from other forms of alternative dispute resolution, particularly expert determinations and valuations. (251) Unless a dispute resolution process involves some material opportunity for the parties to present their legal positions http://www.kluwerarbitration.com/CommonUI/print.aspx
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and proof to the decision-maker in accordance with neutral procedures, broadly in the procedural manner of a judicial or adjudicatory proceeding, it cannot properly be considered to be arbitration. (252) The difficult issue in most cases will be what degree of adjudicative (or “judicial” or “quasi-judicial”) procedures will be necessary to qualify a dispute resolution mechanism as “arbitration.” In general, it is appropriate to err on the side of flexibility, characterizing even relatively informal or technical procedures as “arbitration.” This is consistent with the central role of party autonomy in selecting arbitral procedures (253) and the historic procedural flexibility and informality of the arbitral process. (254) Moreover, application of the statutory regimes for arbitration to such arrangements – involving considerable informality and expedition – would not appear to work unfairness, and would have the benefits of providing predictability and relative clarity to both courts and litigants. (255) Finally, the question whether a particular dispute resolution clause constitutes an “arbitration agreement” should also leave ample scope for effectuating the parties' intentions and wishes. If parties intend that the legal regime applicable to “arbitration agreements” will apply to their dispute resolution procedure, it is difficult to see why this should not ordinarily be accommodated, even if they have not, strictly page "253" speaking, agreed to “arbitrate.” This is consistent with principles of respect for party autonomy in international commercial matters, (256) while, at the same time, there would appear to be only limited public policy interests in preventing commercial parties from applying the procedural and legal protections of national arbitration legislation to such forms of dispute resolution as they wish. For example, if the parties agreed to a highly informal, technicallyoriented meeting with an expert to render a binding resolution of a technical dispute, which they have deliberately provided would be treated as an “arbitration,” subject to national arbitration legislation, then it is difficult to see why this characterization should not be accepted. (257) To be sure, statutory mechanisms for recognizing and enforcing “arbitration agreements” (and “arbitration awards” (258) ) should only be available where parties have clearly and knowingly provided for their application to a process not ordinarily regarded as arbitration. (259) But, where this occurs, it is difficult to see why the parties' agreement should not, insofar as possible, be respected. (260) 5. Arbitration Before a Natural Person Most arbitrations are conducted before an arbitrator who is a natural person, rather than a company or other legal person. This is in part reflective of arbitration's adjudicatory character, where the tradition of individual (rather than corporate) judges runs deep. It is therefore not surprising, that, in some countries, arbitrators must be natural persons, (261) nor that one virtually never encounters international page "254" arbitrations involving arbitrators that are not natural persons. (262) Nonetheless, it is possible in some legal systems for a juridical person to be an arbitrator. (263) The uncertainties that such arrangements give rise to, with regard to enforcement, counsel http://www.kluwerarbitration.com/CommonUI/print.aspx
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strongly against utilizing them in practice.
54 See supra pp. 202 & infra pp. 219-241; J. Kendall, Expert
Determination (3d ed. 2001); Connerty, The Role of ADR in the Resolution of International Disputes, 12 Arb. Int'l 47 (1996). 55 See supra pp. 202-211. 56 New York Convention, Art. II(1) (emphasis added). 57 Inter-American Convention, Art. 1 (emphasis added). 58 European Convention, Art. I(2)(a) (emphasis added). 59 See infra pp. 303-305 (“future” disputes may be subject to arbitration agreement) & pp. 317-319 (separability presumption). 60 See infra pp. 215 et seq.; A. Samuel, Jurisdictional Problems in International Commercial Arbitration 31 (1989) (“For over two hundred and fifty years, jurists in Western Europe and the United States have attempted to describe and define the concept of arbitration”). 61 See infra pp. 252-254; A. van den Berg, The New York Arbitration Convention of 1958 61-63 (1981); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶1-32 (4th ed. 2004). SeealsoProgressive Cas. Ins. v. C.A. Reasequradora Nacional de Venezuela, 802 F.Supp. 1069 (S.D.N.Y. 1992). 62 These sorts of national law rules would purport to impose rules of substantive validity in the guise of a definition of “agreements to arbitrate.” The correct analysis is that the Convention's formula – “arbitration agreement” – must be defined through interpretation of the Convention and the development of uniform, mandatory international standards. See also infra pp. 514-516. 63 See infra pp. 219, 252-254. 64 See infra pp. 219, 252-254. 65 UNCITRAL Model Law, Art. 7(1) (emphasis added). See H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 258 et seq. (1989); A. Broches, Commentary on the UNCITRAL Model Law on International Commercial Arbitration Art. 7, ¶¶1 et seq. (1990). 66 U.S. FAA, 9 U.S.C. §2 (emphasis added). Courts have recognized that this statutory definition provides limited express guidance. Schofield v. Int'l Dev. Group Co., 2006 U.S. Dist. LEXIS 8011 (W.D. Tex. 2006) (“neither Congress nor the Supreme Court has defined what constitutes arbitration under the FAA”). 67 English Arbitration Act, 1996, §6(1) (emphasis added). See R. Merkin, Arbitration Law ¶¶1.23, 3.1 to 3.7 (2004 & Update 2007). 68 French New Code of Civil Procedure, Art. 1442 (emphasis added). Separately, Article 1447 of the New French Code of Civil Procedure defines an arbitration agreement applicable to existing disputes as “[t]he agreement by means of which the parties to a dispute, which has already arisen, submit it to the decision of one or more arbitrators.” E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶6-11 (1999); C. Jarrossan, La notion d'arbitrage ¶785 (1987). 69 Swiss Law on Private International Law, Arts. 176-178 (not providing any statutory definition of arbitration). Swiss commentary http://www.kluwerarbitration.com/CommonUI/print.aspx
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defines an arbitration agreement as “an understanding between parties regarding one or more (current or future) disputes that they will have these resolved in a binding manner by judgment given by one or more individuals not acting in a state judiciary function and to the exclusion of state courts.” Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶3 (2000). 70 In Belgium, Articles 1676-1678 of the Judicial Code are limited to setting out certain requirements of a valid arbitration agreement, rather than providing a definition of “arbitration” or “arbitration agreement.” 71 Japanese Arbitration Law, Art. 1 (no definition of “arbitration”). 72 See supra pp. 202-215. 73 That is reflected, for example, in the model arbitration clauses recommended by all leading arbitral institutions. See G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing Exhibit C (2d ed. 2006); supra pp. 172-180. 74 See Fit Tech, Inc. v. Bally Total Fitness Holding Corp., 374 F.3d 1, 6 (1st Cir. 2004) (accountant's determination of corporation's earnings “is arbitration in everything but name”); Vertner v. TAC Americas, Inc., 2007 WL 2495559, at *3 n.3 (W.D. Wash. 2007) (no requirement that arbitration agreement “explicitly identify the dispute resolution procedures as arbitration”); Schofield v. Int'l Dev. Group Co., 2006 U.S. Dist. LEXIS 8011, at *2 (W.D. Tex. 2006) (“No particular words are needed to create a valid arbitration agreement, but the contract ‘must reflect the parties’ intent to submit their dispute to arbitrators and to be bound by that decision’ ”); Benson Pump Co. v. S. Cent. Pool Supply, Inc., 325 F.Supp.2d 1152, 1155 (D. Nev. 2004) (“no magic words such as ‘arbitrate’ … are required to obtain the benefits of the FAA … [I]f the parties have agreed to submit a dispute for a decision by a third party, they have agreed to arbitration”); Perceptics Corp. v. Societe Electronique et Systemes Trindel, 907 F.Supp. 1139, 1142 (E.D. Tenn. 1992) (“No particular language is required to evidence an agreement to arbitrate”); Powderly v. Metrabyte Corp., 866 F.Supp. 39, 42 (D. Mass. 1994) (citing Int'l Longshoremen's Ass'n, AFL-CIO v. Hellenic Lines, 549 F.Supp. 435, 437 (S.D.N.Y. 1982) (“[t]he use of the term ‘arbitrate’ is not a vital ingredient of an agreement to do so”)); Gale Group, Inc. v. Westinghouse Elec. Corp., 683 So.2d 661, 663 (Fla. App. 1996) (“The words ‘arbitrate’ or ‘arbitration’ are not required to be expressly written in a contract to constitute a valid arbitration agreement”); Racine Educ. Ass'n v. Racine Unified School Dist., 176 Wis.2d 273, 283 (Wis. App. 1993) (“[A]n agreement to arbitrate an issue need not be express – it may be reasonably implied from the language of the agreement in the absence of a specific provision expressly excluding it.”); Taylor v. Yielding (1912) 56 Sol Jo 253 (Ch.) (“you cannot make a valuer an arbitrator by calling him so, or vice versa”); Cott UK Ltd v. Barber [1997] 3 All E.R. 540 (Q.B.); Walkinshaw v. Diniz [2000] 2 All E.R. (Comm.) 237 (Q.B.); David Wilson Homes Ltd v. Survey Sers. Ltd [2001] B.L.R. 267 (English Court of Appeal) (absence of words “arbitrator” and “arbitration” from parties' agreement not decisive); Alb Europe AG v. QBE Int'l Ins. Ltd [2001] 2 Lloyd's Rep. 268 (Q.B.); Methanex Motunui Ltd v. Spellman, [2004] 1 NZLR 95 (Auckland High Court) (provision for appointment of expert treated as arbitration); PT Tugu Pratama Indonesia v. Magma Nusantara Ltd, [2003] 4 SLR 257 (Singapore High Court) (clause referring to “appraiser” held arbitration agreement); Judgment of 26 November 1991, DFT 117 Ia 365, 367-368 (Swiss Federal Tribunal); infra pp. 220-222, 229-231, 237.
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For an extreme example, see Woodward Pipeline Inc. v. Reliance Pipeline Co., 776 S.W.2d 241 (Tex. App. 1989) (provision for “Board of Experts,” who “shall not be deemed to be arbitrators but shall render their decision as experts and … the Law relating to arbitrators shall not apply to such experts or their determination”; court holds that agreement is subject to FAA because “the use of the word ‘shall’ … weighs greatly in favor of construing this article as requiring compulsory arbitration”). 75 See, e.g., Campeau Corp. v. May Dep't Stores Co., 723 F.Supp.
224, 227-228 (S.D.N.Y. 1989) (language in a schedule attached to an agreement for the sale of corporate assets which provided, in part, that any dispute concerning calculations made under the pricing formula would be resolved conclusively “by an independent accounting firm of nationally recognized standing” selected by the parties' auditors constituted an agreement to arbitrate); Perceptics Corp., 907 F.Supp. at 1142-43 (language requiring that agreement shall be governed “by and under the jurisdiction of the International Chamber of Commerce” constituted an agreement to arbitrate because ICC Rules provide for arbitration); High Valley Homes, Inc. v. Fudge, 2003 Tex. App. LEXIS 3273, at *4 (Tex. App. 2003) (although contract contained the term “mediation[,]” the contract read as a whole manifested an agreement to submit disputes to binding arbitration, because, in part, the term “mediation” was qualified by the terms “mandatory” and “binding.”). 76 See, e.g., Harco Nat'l Ins. Co. v. Millenium Ins. Underwriting Ltd, 2005 U.S. Dist. LEXIS 15960 (N.D. Ill. 2005) (“the phrase ‘arbitration clause’ in a contract is sufficient to establish parties' agreement to arbitrate disputes”); Allianz Life Ins. Co. v. Am. Phoenix Life and Reassur. Co., 2000 U.S. Dist. LEXIS 7216 (D. Minn. 2000); N. Carolina League of Municipalities v. Claredon Nat'l Ins. Co., 733 F.Supp. 1009, 1011 (E.D.N.C. 1990); Judgment of 8 July 2003, DFT 129 III 675 (Swiss Federal Tribunal) (holding of sole arbitrator assuming the parties' mutual intent to submit to arbitration based on the word “arbitrage” in the agreement was not contested in annulment proceedings). CompareJudgment of 7 August 2006, 2006 SchiedsVZ 286, 288 (Oberlandesgericht Munich) (a provision in the articles of association of a limited partnership providing that advisory board should act as “arbitral tribunal” in certain cases held to be a reference to expert determination). 77 See also supra pp. 172-180, 184-189. 78 A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶¶1-03 et seq. (4th ed. 2004). 79 de Vries, International Commercial Arbitration: A Contractual Substitute for National Courts, 57 Tul. L. Rev. 42, 42-43 (1982). 80 W. Reisman, L. Craig, W. Park & J. Paulsson, International Commercial Arbitration xxviii (1997). 81 R. David, Arbitration in International Trade 5 (1985). 82 Wetter, The Legal Framework of International Arbitral Tribunals – Five Tentative Markings, in International Contracts 271, 274 (1981). 83 D. Roebuck, A Short History of Arbitration, in N. Kaplan, J. Spruce & M. Moser, Hong Kong and China Arbitration – Cases and Materials xxxv (1994). 84 Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 (U.S. S.Ct. 1974). 85 Methanex Motunui Ltd v. Spellman, [2004] 1 NZLR 95 (N.Z. http://www.kluwerarbitration.com/CommonUI/print.aspx
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High Court). 86 Judgment of 21 November 2003, DFT 130 III 66, cons. 3.1 (Swiss Federal Tribunal). 87 Judgment of 3 March 1992, Société Europe immobilière v. Ofer, 1993 Rev. arb. 123 (Paris Cour d'appel). 88 Judgment of 3 July 1975, 1976 NJW 109 (German Bundesgerichtshof). 89 See, e.g., von Hoffman (Bernd) v. Finanzamt Trier, C-145/96 [1997] E.C.R. I-4857 (E.C.J.) (“the services of an arbitrator are principally and habitually those of settling a dispute between two or more parties”); People ex rel. Bliss v. Bd. of Supervisors, 15 N.Y.S. 748, 750 (N.Y. S.Ct. 1891) (arbitration is a “judicial investigation out of court”); Boyden v. Lamb, 25 N.E. 609, 610 (1890) (“a substitution by consent of the parties of another tribunal for those provided by the ordinary processes of law”); In re Curtis, 30 A. 769 (Conn. 1894) (arbitration is “an arrangement for taking and abiding by the judgment of selected persons in some disputed manner”); Carlston, Theory of the Arbitration Process, 17 Law & Contemp. Probs. 631, 632 (1952) (“arbitration is a means, a method, a procedure, rather than an agreement”). 90 Defining arbitration as a “method for the relatively private settlement of disputes” or a “procedure other than litigation” sweep too broadly (by including conciliation, mediation, expert determination and (even) some litigations). It also fails to address the adjudicative or quasi-judicial nature of arbitral proceedings and the non-governmental character of an arbitrator. Arbitration need not be private or “relatively” private, but it must involve the use of adjudicatory procedures. See infra pp. 247-252, 2249-2287. 91 See supra pp. 206-207; UNCITRAL Model Law, Art. 7(1); U.S. FAA, 9 U.S.C. §2; English Arbitration Act, 1996, §5; French New Code of Civil Procedure, Arts. 1442, 1458; German ZPO, §1031; Japanese Arbitration Law, Art. 13. 92 See, e.g., Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (U.S. S.Ct. 2002) (“arbitration is ‘a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit’”) (quoting United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (U.S. S.Ct. 1960)); AT&T Tech., Inc. v. Communications Workers of Am., 475 U.S. 643, 648 (U.S. S.Ct. 1986); World Crisa Corp. v. Armstrong, 129 F.3d 71, 74 (2d Cir. 1997) (“Arbitration is essentially contractual, however, and parties may not be forced into arbitration if that was not their true agreement”); Reily v. Russell, 34 Mo. 524, 528 (1864) (arbitration rests on the “will and consent of the parties litigant”); Baytur SA v. Finagro Holding SA [1991] 4 All E.R. 129, 134 (English Court of Appeal) (“Because of the nature of arbitration as a consensual matter of settling disputes, it may be that the consent of the arbitrator and of the other party to the arbitration is required”); Judgment of 8 July 2003, DFT 129 III 675, 679 (Swiss Federal Tribunal) (“The statute does not define the minimal content of an arbitration agreement. It results from the purpose of the arbitration agreement that the intent of the parties must be expressed to submit certain existing or future disputes to an arbitral tribunal, i.e., not a state court.”). 93 Forum selection agreements are discussed elsewhere, see supra p. 67; G. Born & P. Rutledge, International Civil Litigation in United States Courts 435-60 (4th ed. 2007); G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 2-3, 17 (2d ed. 2006); D. Joseph, Jurisdiction and Arbitration Agreements and Their Enforcement ¶¶1.01 to 1.11 (2005). http://www.kluwerarbitration.com/CommonUI/print.aspx
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94 This confusion may stem, in part, from statements like that of
the U.S. Supreme Court's comment in Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 (U.S. S.Ct. 1974), that “[a]n agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum selection clause that posits not only the situs of suit but also the procedure to be used in resolving the dispute.” This conflation of arbitration clauses on the one hand and forum selection clauses on the other has been repeated on other occasions. See, e.g., Publicis Comm. v. True North Comm., Inc., 132 F.3d 363, 366 (7th Cir. 19970 (“an arbitration clause is just a particular kind of forum selection clause … what holds for arbitration therefore must hold for other forum-selections clauses”); Nat'l Iranian Oil Co. v. Ashland Oil, Inc., 817 F.2d 326, 332-33 (5th Cir. 1987) (“[a] forum selection clause establishing the situs of arbitration must be enforced … ”); Benefit Ass'n Int'l, Inc. v. Mount Sinai Comp. Cancer Center, 816 So.2d 164, 168 (Fla. App. 2002) (court describes provision selecting arbitral seat as a “forum selection clause”). The failure to distinguish clearly between arbitration agreements and forum selection clauses is unhelpful and analytically imprecise. G. Petrochilos, Procedural Law in International Arbitration 27 (2004) (“an arbitration clause can only loosely be called a forum-selection clause”). See alsoVimar Seguros y Reaseguros, SA v. M/V Sky Reefer, 515 U.S. 528 (U.S. S.Ct. 1995); Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477, 482-83 (U.S. S.Ct. 1989). 95 For a discussion of the significant distinctions between both
types of clauses, see G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 2-3 (2d ed. 2006). Seealso Bremer Vulkan Schiffbau und Maschinenfabrik v. South India Shipping Corp. Ltd [1981] A.C. 909, 976 (House of Lords) (fact that parties agreed to arbitrate in a particular forum does not mean that they agreed to litigate there); Stipanowich, Rethinking American Arbitration, 63 Ind. L.J. 425, 429 (1987) (“Arbitration is often described as everything that civil litigation is not”); Freyer, Practical Considerations in Drafting Dispute Resolution Provisions in International Commercial Contracts: A U.S. Perspective, 15(4) J. Int'l Arb. 7, 12-24 (1998); D. Joseph, Jurisdiction and Arbitration Agreements and Their Enforcement ¶¶1.01 to 1.11 (2005). 96 See supra p. 216. Of course, an arbitrator is not a national court judge (nor is the reverse true). SeeChina North Indus. Tianjin Corp. v. Grand Field Co., Inc., 2006 U.S. App. LEXIS 19932, at *2-3 (9th Cir. 2006); AXA Re v. Ace Global Markets Ltd [2006] EWHC 216 (Q.B.) (whether clause conferred jurisdiction upon arbitrators as distinct from national court judges depended on intent of parties rather than label used); Shell Int'l Petroleum Co. v. Coral Oil Co. Ltd [1999] 1 Lloyd's Rep. 72 (Q.B.). For a comparison, see Lazareff, L'arbitre est-il un juge?, in C. Reymond, Liber Amicorum 173 (2004). 97 See Kochert v. Adagen Medical Int'l, Inc., 491 F.3d 674, 679 (7th Cir. 2007) (drawing a distinction between a contract's arbitration and forum selection clauses based on the forum selection clause's reference to a particular state court where claims between the parties should be heard); Abbott Laboratories v. Takeda Pharm. Co., 476 F.3d 421, 425 (7th Cir. 2007) (distinction between a forum selection clause and an arbitration clause is based, in part, on a forum selection clause's requirement that a claim be heard by a professional judge, whereas an arbitration clause may require claims to be heard simply by a lawyer or non-legal professional); http://www.kluwerarbitration.com/CommonUI/print.aspx
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Omni Tech Corp. v. MPC Solutions Sales, LLC, 432 F.3d 797, 799 (7th Cir. 2005) (“many contracts have venue or forum-selection clauses. These do not call for arbitration but are routinely enforced, even when they send the dispute for resolution outside the court's jurisdiction”); Sonatrach Petroleum Corp. (BVI) v. Ferrell Int'l Ltd [2002] 1 All E.R. (Comm.) 627 (Q.B.) (agreement to arbitrate can survive invalidity of choice-of-law clause but must establish the parties' objective intention to arbitrate rather than refer disputes to national courts); India Oil Corp. v. Vanoil Inc. [1991] 2 Lloyd's Rep. 634 (Q.B.) (express reference to national courts in forum selection clause prevailed over argument that arbitration clause was incorporated by reference). 98 See supra pp. 78-81 & infra pp. 1364-1367. Often, arbitrators will be selected pursuant to procedures specified in a pre-existing arbitration agreement in a contract to resolve a specific dispute after it has arisen. See infra pp. 1367-1394. In rare cases, the preexisting arbitration clause will specify the identity of the arbitrator(s) who will resolve future disputes under the contract. See infra pp. 1400-1401. 99 See infra pp. 1401-1407. 100 See infra pp. 1387-1388, 1401-1407. 101 See infra pp. 1408-1418. There are instances in which a national court will select the arbitrator(s), because the parties have failed either to do so or to provide a mechanism for an appointing authority to do so. See infra pp. 1418-1431; UNCITRAL Model Law, Arts. 11-13; U.S. FAA, 9 U.S.C. §5; Swiss Law on Private International Law, Art. 179(2); Taiwanese Arbitration Act, Art. 9; French New Code of Civil Procedure, Arts. 1444, 1454, 1493; Japanese Arbitration Law, Arts. 17, 18; Hong Kong Arbitration Ordinance, Art. 12. This default appointment mechanism is best considered as an exception, required by necessity, to preserve the parties' agreement to arbitrate, but not as altering the characteristics of arbitration. The judicial assistance of national courts in selecting arbitrators is utilized only when the arbitral process has not functioned properly, and is only exercised in order to preserve the parties' underlying agreement to arbitrate. 102 See infra pp. 1364-1367, 2513-2520. 103 See supra pp. 79-80. 104 See supra pp. 202-207. 105 See supra pp. 212-215; 429545 B.C. Ltd v. Herlihy [1998] B.C.J. No. 1801 (B.C. S.Ct.) (clause referring to “nationally or internationally recognized arbitration entity” is not arbitration agreement, subject to arbitration legislation, but defective forum selection clause); Tennessee Imp., Inc. v. Filippi, 745 F.Supp. 1314, 1325-28 (M.D. Tenn. 1990); Riley v. Kingsley Underwriting Agencies, Ltd, 969 F.2d 953, 956-58 (10th Cir. 1992) (discussing contract containing both forum selection/choice-of-law clauses and an arbitration agreement); Cohen v. Stratis Business Centers, Inc., 2005 WL 3008807, at *3 (D.N.J. 2005) (FAA irrelevant to forum selection clause); von Mehren, An International Arbitrator's Point of View, 624 PLI/Lit. 595, 607 & n.1. See also A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶143 (4th ed. 2004); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶12 (2d ed. 2007); Park, Bridging the Gap in Forum Selection: Harmonizing Arbitration and Court Selection, 8 Transnat'l L. & Contemp. Probs. 19, 25 (1998). 106 G. Born & P. Rutledge, International Civil Litigation in United States Courts 435-445, 1086-96 (4th ed. 2007); Park & Yanos, http://www.kluwerarbitration.com/CommonUI/print.aspx
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Treaty Obligations and National Law: Emerging Conflicts in International Arbitration, 58 Hastings L.J. 251, 277-78 & n.137 (2006); Judgment of 15 June 2006, Legal Dep't of the Ministry of Justice of the Republic of Iraq v. Fincantieri et al., XXXI Y.B. Comm. Arb. 635, 638 (Paris Cour d'appel) (2006) (denying application of the Brussels Convention because case concerns arbitration). 107 See Hague Convention of 30 June 2005 on Choice of Court Agreements, Art. 2(4), available at www.hcch.net (“This Convention shall not apply to arbitration and related proceedings”). See also Note, Recent International Agreement, 119 Harv. L. Rev. 931 (2006) (Hague Convention sets out uniform rules for the enforcement of choice-of-court clauses and requires that courts in member states assume jurisdiction pursuant to certain forum selection agreements); Kessedjian, La Convention de La Haye du 30 juin 2005 sur l'élection de for, 133 J.D.I. (Clunet) 813 (2006); supra p. 78. 108 EC Regulation 44/2001, Art. 1(2)(d). In jurisdictions where forum selection clauses are not subject to a separate statutory or treaty regime, specialized common law rules usually apply (which are distinct from national arbitration legislation). G. Born & P. Rutledge, International Civil Litigation in United States Courts 435-519 (4th ed. 2007); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶11-013 to 11-071 (14th ed. 2006); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶19-54 to 19-56 (2003). 109 See J. Kendall, Expert Determination ¶8.7.1 (3d ed. 2001);
ICC, Arbitration and Expertise (ICC Publication No. 480/7 1994); Pryles, Arbitrating Disputes in the Resource Industries, 21 Arb. Int'l 405, 421-24 (2004); Horn, The Development of Arbitration in International Financial Transactions, 16 Arb. Int'l 279, 280-81 (2000); Jones, Expert Determination and Arbitration, 67 Arb. 17 (2001); Stipanowich, Contract and Conflict Management, 2001 Wisc. L. Rev. 831, 845. 110 J. Kendall, Expert Determination 1-49 (3d ed. 2001); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶25-29 (1999); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶1-34 to 1-38 (2003). 111 See J. Kendall, Expert Determination 221-243 (3d ed. 2001); K.-P. Berger, International Economic Arbitration 73 (1993); ICC, Arbitration and Expertise (ICC Publication No. 480/7 1994); Schoell, Reflexions sur l'expertise-arbitrage en droit suisse, 24 ASA Bull. 621 (2006); Redfern, Experts and Arbitrators: An International Perspective, 4 2001 Int'l Arb. L. Rev. 105, 106 (“two entirely different roles of the expert and the arbitrator”); M. Blessing, Introduction to Arbitration: Swiss and International Perspectives ¶975 (1999); Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 486 (2005) (“Many legal systems draw a distinction, at least on paper, between agreements calling for ‘arbitration,’ and those calling for something else – something that may be termed ‘appraisal,’ or ‘expertise.’”); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶15 (2d ed. 2007) (distinguishing arbitration from expert determination). 112 French Civil Code, Art. 1592 (if price is not fixed by parties, it can “nevertheless be left to the determination of a third party”). See Sanders, L'Arbitrage dans les Transactions Commerciales à Long Terme, 1975 Rev. arb. 83, 85 (“can we expand the notion of http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration in such a way as to include this type of decision [under Article 1592]? It may be unfortunate, but that's really an exaggeration.”); Frydman v. Cosmair, Inc., 1995 WL 404841 (S.D.N.Y. 1995) (Article 1592 is not arbitration (“does not relate to an arbitration”) because decision under Article 1592 would “form the parties' will”); Judgment of 9 October 1984, Société SECAR v. Société Shopping Décor, 1986 Rev. arb. 263 (French Cour de cassation civ. 3e) (rental price to be adjusted in accordance with index; if index ceased to be published, an alternative could be selected by an “arbitrator”); Mayer, Note, 1986 Rev. arb. 267, 270 (parties' agreement “excludes any possibility of discovering some implicit intention in the contract … From that moment the role of the neutral is not to interpret, but to freely create, and this role cannot be taken on by a judge – nor, as a consequences, by an arbitrator”). 113 J.-P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶49 (2d ed. 2002); K. Lionnet & A. Lionnet, Handbuch der internationalen und nationalen Schiedsgerichtsbarkeit 8 II 1(c) (3d ed. 2005); K.-H. Schwab & G. Walter, Schiedsgerichtsbarkeit Ch. 2 ¶1 (7th ed. 2005); Kurth, Zur Kompetenz von Schiedsrichtern und Schiedsgutachtern 1990 NJW 2038. 114 See supra pp. 158, 160. See generally Sessler & Leimert, The Role of Expert Determination in Mergers and Acquisitions under German Law, 20 Arb. Int'l 151 (2004); Chan et al., Construction Industry Adjudication: A Comparative Study of International Practice, 22 J. Int'l Arb. 363, 363-65 (2005); Mistelis, ADR in England and Wales, 12 Am. Rev. Int'l Arb. 167 (2001). 115 See, e.g., A. van den Berg, The New York Arbitration Convention of 1958 45 (1981) (“it is characteristic of these procedures that the proceedings are not adversary and that the third person makes the decision on the basis of his expert knowledge and experience”); Heart Research Institute Ltd v. Esiron Ltd, [2002] N.S.W.S.C. 646 (N.S.W. S.Ct.) (“[I]n practice, Expert Determination is a process where an independent Expert decides an issue or issues between the parties. The disputants agree beforehand whether or not they will be bound by the decision of the Expert. Expert Determination provides an informal, speedy and effective way of resolving disputes, particularly disputes which are of a specific technical character or specialized kind.”). The role of the expert in an “expert determination” differs from the roles of experts in other contexts, such as court or tribunal experts, party-nominated experts, or experts appointed to provide a nonbinding advisory opinion. See infra pp. 1860-1862. 116 See, e.g., Portland Gen. Elec. Co. v. U.S. Bank Trust Nat'l
Ass'n, 218 F.3d 1085, 1090 (9th Cir. 2000) (appraisal provision “did not attempt to usurp the judiciary's power to resolve the case as a whole, [but are] typically limited to ministerial determinations such as the ascertainment of quality or quantity of items, the ascertainment of loss or damage to property or the ascertainment of the value of property”); Hartford Lloyd's Ins. Co. v. Teachworth, 898 F.2d 1058 (5th Cir. 1990) (appraisal is not arbitration because it focuses on valuation); Rastelli Bros. Inc. v. Netherlands Ins. Co., 68 F.Supp.2d 440 (D.N.J. 1999) (“there is generally a great distinction between arbitration and appraisal” and appraisal is not subject to FAA); Smithson v. United States Fidelity & Guaranty Co., 411 S.E.2d 850 (W.Va. 1991) (“the narrow purpose of an appraisal and the lack of an evidentiary hearing make it a much different procedure from arbitration”; rejecting possibility for claim outside appraisal process); http://www.kluwerarbitration.com/CommonUI/print.aspx
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Elberon Bathing Co. v. Ambassador Ins. Co., 389 A.2d 439, 446 (N.J. 1978) (agreement for arbitration ordinarily encompasses the disposition of the entire controversy between the parties, while appraisers act on their own skill and knowledge); Judgment of 9 November 1999, Syndicat des Coproprietaires du 35, rue Jouvent v. Halpern, 2001 Rev. arb. 159 (Paris Cour d'appel) (architect/expert's determinations were not to resolve dispute but only to “perfect” a compromise). See also Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 486 (2005) (“paradigm of the ‘appraisal’ is a provision in a casualty insurance policy by which, if ‘the insured and the Company shall fail to agree as to the actual cash value of the amount of the loss,’ then the loss shall be finally determined by ‘competent and disinterested’ decision makers.”). 117 Levine v. Wiss & Co., 478 A.2d 397, 402 (N.J. 1984). See also W. Sturges, A Treatise on Commercial Arbitrations and Awards 1823 (1930) (identifying factors for distinguishing arbitration from expert determination: (a) “an arbitration presumes a dispute or controversy”; (b) “an appraisal or valuation determines merely an incidental or subsidiary matter and does not embrace the legal responsibility or the whole controversy”; (c) “the functions of appraisers or valuers are ‘ministerial’ whereas those of arbitrators are ‘judicial’”); J. Kendall, Expert Determination 240-42 (3d ed. 2001); Park, When and Why Arbitration Matters, in G. Beresford Hartwell (ed.) The Commercial Way to Justice 73, 93 (1997) (arguing that question is whether issues “approximate a request for judicial relief”: “was the roof completed?” is for expert, while “does the customer owe $10,000 to the Contractor?” is for arbitrator). 118 See, e.g., Mott v. Gaer Bros., Inc., 174 A.2d 549 (Conn. Super. Ct. 1961); Scottish Union & Nat'l Ins. Co. v. Clancy, 8 S.W. 630 (Tex. 1888); Judgment of 21 December 2000, Mutuelle Fraternelle d'Assurances v. Chetouane, 2001 Rev. arb. 178 (Paris Cour d'appel) (no arbitration where doctor merely made factual determinations without drawing “legal conclusion”). Some authorities also hold that expert determination does not involve the resolution of “disputes.” Arenson v. Casson Beckman Rutley & Co. [1975] 3 All E.R. 901 (House of Lords) (arbitrator immunity depends on fact “that, by the time the matter is submitted to him for decision, there should be a formulated dispute between at least two parties which [the decision-maker] is required to resolve”; “The arbitrator, like the judge, has to decide a dispute that has already arisen, and he usually has rival contentions before him, while the mutual valuer is called in before a dispute has arisen, in order to avoid it”); N.E. Cooperative Soc. Ltd v. Newcastle Upon Tyne City Council [1987] E.G.L.R. 142, 146 (Ch.) (parties' inability to agree on annual rent “was not a dispute in which each had formulated a view which was then placed for decision before the independent surveyor”); Consorts Attali v. Lecourt, 2001 Rev. arb. 151 (Paris Cour d'appel) (agreement for shares to be valued by two neutrals is not agreement to arbitrate: “after entering into the agreement which actually put an end to it, no longer any dispute between the parties, but simply a disagreement or a conflict of interests with respect to the price”). 119 Judgment of 25 June 1952, 1952 NJW 1296 (German
Bundesgerichtshof); Judgment of 23 May 1960, 1960 NJW 1462, 1463 (German Bundesgerichtshof) (an arbitration clause cannot be limited to certain material aspects of a claim); Judgment of 20 http://www.kluwerarbitration.com/CommonUI/print.aspx
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January 1971, 1971 NJW 943 (Oberlandesgericht Zweibrücken). 120 Judgment of 14 December 1994, 7 Ob 604/94 (Austrian Oberster Gerichtshof). 121 See, e.g., Corey v. New York Stock Exchange, 691 F.2d 1205, 1209 (6th Cir. 1982); Portland Gen. Elec. Co. v. U.S. Bank Trust Nat'l Ass'n, 218 F.3d 1085, 1090 (9th Cir. 2000) (“arbitration agreements permit arbitrators to resolve pending disputes generally through adversary hearings at which evidence is admitted and the arbitrator plays a quasi-judicial role”); Elberon Bathing Co. v. Ambassador Ins. Co., 389 A.2d 439, 447 (N.J. 1978) (“Since arbitrators are entrusted with the broader obligation to determine liability as well as the amount of the award, it is reasonable to require broader procedural safeguards in arbitration. The subjectmatter responsibility of appraiser being less, the procedural safeguards attending an appraisal may be lower.”); Litman v. Holtzman, 149 A.2d 385 (Md. 1959) (parties did not “intend their respective accountants or the umpire to hold adversary hearings”; “Customary auditing practice does not include the ascertainment of facts or results only in the presence of those of opposing views. Auditing is essentially a unilateral investigatory process.”); City of Omaha v. Omaha Water Co., 218 U.S. 180, 193-94 (U.S. S.Ct. 1910) (appraisers “were to examine and estimate the value and acquaint themselves with the condition and extent of the property in question in their own way and not according to the procedure required in a judicial proceeding”); Jacob v. Seaboard, Inc., 610 A.2d 189, 192 (Conn. App. Ct. 1992) (arbitration involves “quasi-judicial proceeding” that is “adversarial in nature, and implies that the parties will present witnesses and evidence, if they want, after notice of a hearing date, and argue their positions to an impartial decision maker”); Pickens v. Templeton, [1994] 2 NZLR 718 (Christchurch High Court); Sport Maska Inc. v. Zittrer, [1988] 1 S.C.R. 564 (Canadian S.Ct.); Checkpoint Ltd v. Strathclyde Pension Fund [2003] EWCA Civ. 84 (English Court of Appeal) (“‘intracranial’ information is different from information gained externally because the former is already within the surveyor's experience which he may then deploy”); Sutcliffe v. Thackrah [1974] 1 All E.R. 859, 882 (House of Lords) (“Judges and arbitrators have disputes submitted to them for decision. The evidence and the contentions of the parties are put before them for their examination and consideration. … None of this is true about the valuer or the architect who were merely carrying out their ordinary business activities”); Walkinshaw v. Diniz [2000] 2 All E.R. (Comm.) 237 (Q.B.) (“It is a characteristic of arbitration that the parties should have a proper opportunity of presenting their case.”). 122 Mott v. Gaer Bros., Inc., 174 A.2d 549 (Conn. Super. Ct. 1961). 123 Ward v. Merrimack Mut. Fire Ins. Co., 753 A.2d 1214 (N.J. Super. Ct. 2000). 124 J. Kendall, Expert Determination ¶8.7.1 (3d ed. 2001) (“Clauses referring all disputes under a contract to an expert are encountered from time to time in practice. These clauses do not limit the exercise of the expert's judgment to valuation or technical questions but call on the expert to act more alike a judge or arbitrator. They have been found so far mainly in construction disputes but there is nothing to prevent their use in other contexts”). 125 See supra pp. 82-84 & infra pp. 234-235; J. Kendall, Expert Determination ¶¶17.6.5 & 17.7.5 (3d ed. 2001). 126 See, e.g., Omni Tech Corp. v. MPC Solutions Sales, LLC, 432 F.3d 797 (7th Cir. 2005) (accountant review held to be arbitration clause); Wasyl, Inc. v. First Boston Corp., 813 F.2d 1579 (9th Cir. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1987) (provision for “three independent appraisers” to establish fair market value of partnership interest is subject to FAA); Schofield v. Int'l Dev. Group Co., 2006 U.S. Dist. LEXIS 8011 (W.D. Tex. 2006) (agreement to final decision by “independent auditor” was arbitration agreement); Benson Pump Co. v. S. Cent. Pool Supply, Inc., 325 F.Supp.2d 1152, 1155 (D. Nev. 2004) (provision for “independent, nationally-recognized accounting firm” to resolve disputes over “Accounts Receivable Adjustment” held to be subject to FAA); Schaefer v. Allstate Ins. Co. 590 N.E.2d 1242 (Ohio 1992) (finding dispute resolution provision in an automobile insurance contract an agreement to arbitrate); Powderly v. Metrabyte Corp., 866 F.Supp. 39 (D. Mass. 1994) (arbitration agreement existed where the parties' contract provided for accounting firm to calculate “Net Operating Profit”); Stradinger v. Whitewater, 277 N.W.2d 827 (Wis. 1979) (upholding binding arbitration provision in construction contract); Stockwell v. Equitable Fire & Marine Ins. Co., 25 P.2d 873 (Calif. Ct. App. 1933) (provision for independent insurance appraisal was arbitration agreement); Lower Baraboo River Drainage Dist. v. Schirmer, 225 N.W. 331, 333 (Wis. 1929) (construction contract provision stating that engineer's determination of disputes as to suitability of work will be “final and conclusive” is an enforceable agreement to arbitrate). 127 See Levine v. Wiss & Co., 478 A.2d 397 (N.J. 1984) (accountants chosen by litigants and appointed by court to render a valuation of a business, which would be binding on both parties to a dispute held not to be arbitrators); Gammel v. Ernst & Ernst, 72 N.W.2d 364 (Minn. 1955) (accountants not arbitrators). 128 See, e.g., Waradzin v. Aetna Cas. & Sur. Co., 570 A.2d 649 (R.I. 1990) (confirmation proceeding under state arbitration statute permitted for appraisal); Wojdak v. Greater Philadelphia Cablevision, Inc., 707 A.2d 214 (Pa. 1998) (“a binding determination by a third party appraiser is basically the equivalent of arbitration, and judicial review thereof is governed by the Delaware Arbitration Act”); Meineke v. Twin City Fire Ins. Co., 892 P.2d 1365 (Ariz. Ct. App. 1994) (“despite some differences between arbitration and appraisal, appraisal is analogous to arbitration [and] we apply principles of arbitration law to this dispute”). 129 See, e.g., Phifer-Edwards, Inc. v. Hartford Fire Ins. Co., 1994 WL 236225 (Ohio Ct App. 1994) (“This relief is much like the statutory procedure followed under [state arbitration] statutes], but it is not the same because the authority to provide such relief stems from the common law.”); Lynch v. Am. Family Mut. Ins. Co., 473 N.W.2d 515, 518 (Wis. Ct. App. 1991) (“there is no statutory authority to stay a lawsuit commenced prior to a demand for appraisal, [but] a proper demand for an appraisal … transforms completion of the appraisal process into a condition precedent to the lawsuit”); Acme Roll Forming Co. v. The Home Ins. Co., 110 F.Supp.2d 567 (E.D. Mich. 2000) (appraisal is “similar to an arbitration clause”). 130 See, e.g., Walkinshaw v. Diniz [2000] 2 All E.R. (Comm.) 237 (Q.B.); David Wilson Homes Ltd v. Survey Sers. Ltd [2001] B.L.R. 267 (English Court of Appeal); Methanex Motunui Ltd v. Spellman, [2004] 1 NZLR 95 (Auckland High Court) (“expert” treated as arbitrator); PT Tugu Pratama Indonesia v. Magma Nusantara Ltd, [2003] 4 SLR 257 (Singapore High Court) (“appraisers” treated as arbitrators). 131 See, e.g., Judgment of 26 November 1991, DFT 117 Ia 365 (Swiss Federal Tribunal) (report of experts determining transfer price of shares characterized as arbitral award); Judgment of 23 February http://www.kluwerarbitration.com/CommonUI/print.aspx
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1999, Econerg Ltd v. Nat'l Elec. Co., XXV Y.B. Comm. Arb. 678 (Bulgarian S.Ct. of Appeal) (2000) (arbitral award defined as a “judicial procedure act”). 132 See the authorities cited infra pp. 247-252. See also the discussion of an arbitrator's judicial character, supra pp. 184-189 & infra pp. 247-252, 1616-1633. 133 Cheng-Canindin v. Renaissance Hotel Assoc., 50 Cal.App.4th 676 (Cal. Ct. App. 1996). See alsoCorey v. New York Stock Exchange, 691 F.2d 1205, 1209 (6th Cir. 1982) (“We believe that determinations made by the panel of arbitrators in the case on appeal are functionally comparable to those of a judge or an agency hearing examiner even though this was not a statutory arbitration or one where the arbitrators were court appointed”; “[a]rbitrators are judges chosen by the parties to decide matters submitted to them …”); Miller v. Miller, 691 N.W.2d 788 (Mich. Ct. App. 2004) (where “arbitrator” conducted no hearing, but met ex parte with each party, “no arbitration took place in the traditional sense of the word”); Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 495 (2005) (“It is the peculiar nature, the identifying characteristic, of the arbitration process that it proceed in an adversarial manner; there will as a consequence be a hearing, or at the very least the introduction of evidence and argument. Appraisers, by contrast, are hired not to proceed ‘judicially,’ but to arrive at a decision by deploying their professional experience and ‘the use of [their] eyes, … knowledge and … skill’ – perhaps even by making their own investigations”). 134 Walkinshaw v. Diniz [2000] 2 All E.R. (Comm.) 237 (Q.B.). That analysis included reference to (a) the wording of the clause; (b) the tribunal's obligation to apply applicable law; (c) the nature of the proceedings, including impartiality, equality of treatment, and an absence of ex parte contacts; (d) the enforceability of the putative arbitration agreement; and (e) a binding decision on a dispute that is formulated at the time the tribunal is constituted. Id. The Court relied on a discussion of the attributes of arbitration in M. Mustill & S. Boyd, Commercial Arbitration 41 (2d ed. 1989). See In re an Arbitration Between Dawdy and Hartcup [1884-85] 15 Q.B. 426, 430 (English Court of Appeal) (appraisers make “use of [their] eyes, … knowledge and … skill”). 135 David Wilson Homes Ltd v. Survey Sers. Ltd [2001] B.L.R. 267 (English Court of Appeal). In contrast, another English case involved a provision titled “Arbitration,” which provided that any dispute was to be referred to an independent consultant, who was “to act as an expert and not an arbiter and his decision shall be final and binding on the parties.” The court held that this was not an arbitration agreement, but an agreement for expert determination. Cott UK Ltd v. Barber [1997] 3 All E.R. 540 (Q.B.). As a consequence, English arbitration legislation did not apply and no immediate stay of judicial proceedings was required. 136 Pickens v. Templeton, [1994] 2 NZLR 718 (Christchurch High Court). Compare Motunui Ltd v. Methanex Spellman, [2004] 1 NZLR 95 (Auckland High Court). 137 Pickens v. Templeton, [1994] 2 NZLR 718, 728 (Christchurch High Court). 138 Sport Maska Inc. v. Zittrer, [1988] 1 S.C.R. 564 (Canadian S.Ct.) (inquiring inter alia whether “parties have the right to be heard, to argue, to present testimonial or documentary evidence, that lawyers are present at the hearing and that the third party delivers an arbitral award with reasons”); Mayers v. Dlugash, [1994] HKLR 442, 443-44 (H.K. High Court, S.Ct.); Thomas Cooke v. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Banking Corp., [1986] 4 BPR 9185 (N.S.W. S. Ct.) (most important factor in whether arbitrator immunity applies is whether the individual performed a judicial function and is engaged in an exercise with a significant judicial element); PT Tugu Pratama Indonesia v. Magma Nusantara Ltd, [2003] 4 SLR 257 (Singapore High Court). 139 See, e.g., Judgment of 20 February 2001, Société Cubic Défense Systems Inc. v. Chambre de Commerce Internationale, 2001 Bull. civ. I, No. 39, at 24 (French Cour de cassation civ. 1e) (“judicial functions entrusted to the arbitrators”) (affirming Judgment of 15 September 1998, 1999 Rev. arb. 103, 107 (Paris Cour d'appel)); Judgment of 16 December 1997, Van Luijk v.Société commerciale Raoul Duval, 1999 Rev. arb. 253 (French Cour de cassation civ. 1e) (“The Court of Appeals correctly held that the arbitrator exercises a judicial function.”). 140 See, e.g., Judgment of 28 October 1999, SA Fretal v. SA ITM Enterprises, 2000 Rev. arb. 299 (Paris Cour d'appel) (“The independence and impartiality of the arbitrator are the essence of his judicial role”); Judgment of 2 June 1989, Société Gemanco v. Société Arabe des engrais phosphates et azotes, 1991 Rev. arb. 87 (Paris Cour d'appel) (“The independence of the arbitrator is the essence of his judicial function.”); Judgment of 9 May 2001, Société Soufflet Négoce v. Société Tradco Interoceanic Commodities, 2004 Rev. arb. 113 (Paris Tribunal de Grande Instance) (“judicial function of the arbitrator”). See also Leboulanger, Note on Judgment of 9 May 2001 (Paris Tribunal de grande instance), 2004 Rev. arb. 118, 119 (“an arbitral tribunal fulfills a judicial mission”). 141 Judgment of 25 June 1952, 1952 NJW 1296 (German Bundesgerichtshof). See also J.-P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶52 (2d ed. 2002) (distinction between expert determination and arbitration is essential because of procedural differences: only in arbitration must “procedural principles securing a judicial procedure according to the rule of law,” like the right to be heard, be applied). 142 Judgment of 27 May 2004, 2004 NJW 2226, 2227 (German Bundesgerichtshof) (arbitration is adjudication of disputes in the broader sense and therefore implies a decision by a neutral third party). 143 Judgment of 26 November 1991, DFT 117 Ia 365, 367-368 (Swiss Federal Tribunal) (characterizing as an arbitral award the report of experts determining the transfer price of shares); C. Müller, International Arbitration – A Guide to the Complete Swiss Case Law 7 (2004). 144 Ibid. 145 For commentary on drafting arbitration and expert determination clauses, see G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 37-95 (2d ed. 2006); J. Kendall, Expert Determination ¶¶17.3, 17.10 (3d ed. 2001); Freyer, Practical Considerations in Drafting Dispute Resolution Provisions in International Commercial Contracts: A U.S. Perspective, 15(4) J. Int'l Arb. 7, 7-12 (1998). 146 Schoell, Reflexions sur l'expertise-arbitrage en droit suisse, 24 ASA Bull. 621 (2006) (describing Judgment of 5 July 2004 (Geneva Court of First Instance), refusing judicial assistance to appoint expert determiner); Cott UK Ltd v. Barber [1997] 3 All E.R. 540 (Q.B.) (refusing statutory stay of litigation because no arbitration, but rather an expert determination, was pending). 147 See Thomas Cooke v. Banking Corp., [1986] 4 BPR 9185 (N.S.W. S.Ct.); Pickens v. Templeton, [1994] 2 NZLR 718, 728 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(Christchurch High Court). 148 See, e.g., Aiton Australia Pty Ltd v. Transfield Pty Ltd, [1999] 153 FLR 236 (N.S.W. S.Ct.) (“It is trite to observe that parties ought to be bound by their freely negotiated contracts.”); Omni Tech Corp. v. MPC Solutions Sales, LLC, 432 F.3d 797, 799 (7th Cir. 2005) (“The statement that PricewaterhouseCoopers will act as an expert and not as an arbitrator means that it will resolve the dispute as accountants do – by examining the corporate books and applying normal accounting principles plus any special definitions the parties have adopted – rather than by entertaining arguments from lawyers and listening to testimony. It does not imply that the whole section of the contract committing resolution to an independent private party is hortatory. Thus the provision for the ‘final, conclusive and binding’ resolution of this dispute by someone other than a federal judge must be honored; the judge is no more entitled to ignore it than he could ignore the contract's detailed definition of ‘net working capital.’”); Palumbo v. Select Mgt Holdings, Inc., 2003 WL 22674397 (Ohio App. 2003) (agreement for resolution of disputes by national accounting firm is “final and binding dispute resolution”: “even if the procedure prescribed in the contract here was not arbitration … the court's general jurisdiction would give the court power to compel specific performance of a contractual agreement to participate in another form of ADR”; leaving open question whether “the result may … be subject to court enforcement”); State v. Martin Bros., 160 S.W.2d 58, 61 (Tex. 1942) (in contract that provided for dispute resolution through expert determination by highway engineer, court observed: “The contract also provides that the decision of the Highway Engineer shall be final and conclusive. The Highway Engineer denied the claim of the plaintiffs. They cannot escape the binding effect of the decision of the Highway Engineer, without alleging and proving that his decision in this case was based upon partiality, fraud, misconduct, or gross error. No such attack was made upon the decision, either by pleadings or by proof, and, therefore, under the decisions of this Court plaintiffs are not entitled to recover herein.”). Cf.Grenier v. Compratt Constr. Co., 454 A.2d 1289, 1292 (Conn. 1983) (“Frequently, building contracts provide that a third party, an architect or an engineer, acting in good faith and in the exercise of his best judgment, shall decide when one of the contracting parties has fulfilled the requirements of the contract. In such circ*mstances, if the architect or engineer withholds certification, and his decision is not arbitrary or made in bad faith, a court is not authorized to substitute its judgment for that of the designated expert.”). See also supra pp. 228-230. 149 Different jurisdictions apply different legal standards to the consequences of an expert determination and there is no international convention or similar instrument that requires either uniform or minimum recognition and enforcement of such determinations. In general, most developed jurisdictions will treat expert determinations as binding, subject to showings of clear error or fraud, but there is much less uniformity in such standards than is the case with arbitral awards. See A. Samuel, Jurisdictional Problems in International Commercial Arbitration 47 (1989) (“In some cases, it would be wrong to apply arbitration legislation to a valuation, for instance as regards provisions for judicial review on the merits.”). 150 See, e.g., Award in Hamburg Friendly Arbitration of 27 May 2002, XXX Y.B. Comm. Arb. 17-21 (2005) (parties engaged in two separate arbitrations of their dispute, one regarding the issue of payment and one regarding the quality of goods delivered); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on http://www.kluwerarbitration.com/CommonUI/print.aspx
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International Commercial Arbitration ¶27 (1999). 151 There is little question that the definition of arbitration does not include sports referees. Locklear, Arbitration in Olympic Disputes: Should Arbitrators Review the Field of Play Decisions of Officials, 4 Tex. Rev. Ent. & Sports L. 199 (2003). 152 See, e.g., Quasem Group, Ltd v. W.D. Mask Cotton Co., 967 F.Supp. 288 (W.D. Tenn. 1997); London Exp. Corp. Ltd v. Jubilee Coffee Roasting Co. Ltd [1958] 1 All E.R. 494, 501 (Q.B.) (“one of the commonest types of arbitration contemplated by the arbitration agreement is a quality arbitration”); Judgment of 30 January 1992, Société Sifca v. Société Continaf BV, 1993 Rev. arb. 123 (Paris Cour d'appel); R. Merkin, Arbitration Law ¶3.5 (2004 & Update 2007); J. Kendall, Expert Determination ¶17.6.5 (3d ed. 2001); Netherlands Code of Civil Procedure, Art. 1020(4) (arbitration defined to include “the determination only of the quality or condition of goods”). Compare Melis, Austria 2, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 1984), Austrian law distinguishes valuation from arbitration, and quality arbitration is a form of valuation). 153 Under Dutch Law, arbitration is statutorily defined to include “the determination only of the quality or condition of goods.” Netherlands Code of Civil Procedure, Art. 1020(4). 154 Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 492 (2005) (“it is a proposition of some antiquity that arbitration has had its greatest value in providing expert determinations with respect to ‘the ordinary disputes between merchants as to questions of fact – quantity, quality, time of delivery … and the like’”) (quoting Cohen & Dayton, The New Federal Arbitration Law, 12 Va. L. Rev. 265, 281 (1926)); Lionnet, Arbitration and Mediation — Alternatives or Opposites, 4(1) J. Int'l Arb. 69, 74 n.3 (1987). 155 See supra pp. 82-84 & infra pp. 1742-1748, 1748-1758, 17581765, 2573-2595. 156 See infra pp. 576-580. 157 For commentary, see H. Brown & A. Marriott, ADR Principles and Practice (2d ed. 1999); K. Mackie, D. Miles & W. Marsh, The ADR Practice Guide: Commercial Dispute Resolution (2d ed. 2000); M. Freeman, Alternative Dispute Resolution (1995); K. Kovach, Mediation: Principles and Practice (3d ed. 2004); J.-C. Goldsmith, A. Ingen-Housz & G. Pointen, ADR in Business: Practice and Issues Across Countries and Cultures (2006); N. Alexander, Global Trends in Mediation (2d ed. 2006); K.-P. Berger, Private Dispute Resolution in International Business: Negotiation, Mediation, Arbitration (2006); P. Sanders, The Work of UNCITRAL on Arbitration and Conciliation (2d ed. 2004); de Boisséson, Thoughts on the Future of ADR in Europe: A Critical Approach, 15 Arb. Int'l 349 (1999); Coulson, MEDALOA: A Practical Technique for Resolving International Business Disputes, 11 J. Int'l L. 111 (1994); Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449 (2005). 158 P. Sanders, Quo Vadis Arbitration? 358-372 (1999). See also O. Malhotra, The Law and Practice of Arbitration and Conciliation 1005 et seq. (2002); Reif, Conciliation as A Mechanism for the Resolution of International Economic and Business Disputes, 14 Ford. Int'l L. J. 578 (1990/1991); Swacker et al., The World Trade Organization and Dispute Resolution, 55 Disp. Res. J. 35 (2000); D. Campbell, Dispute Resolution Methods (1995); Freyer, Practical Considerations in Drafting Dispute Resolution Provisions in International Commercial Contracts: A U.S. Perspective, 15(4) J. Int'l http://www.kluwerarbitration.com/CommonUI/print.aspx
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Arb. 7, 9 (1998). 159 Barker, International Mediation — A Better Alternative for the Resolution of Commercial Disputes, 19 Loy. L.A. Int'l & Comp. L. Rev. 1, 8-15 (1996). See also Report of the Secretary-General, Possible Uniform Rules on Certain Issues Concerning Settlement of Commercial Disputes: Conciliation, Interim Measures of Protection, Written Form for Arbitration Agreement, UN Doc. A/CN.9/WG.II/WP.108, ¶11 (2000), available at www.uncitral.org; J. Moore, VII Digest of International Law 25 (1906) (“Mediation is an advisory, arbitration a judicial, function. Mediation recommends, arbitration decides.”). 160 See supra pp. 76-78, 81-82 & infra pp. 2638-2655, 2865-2870. 161 See, e.g., UN General Assembly, Resolution adopted by the 750 Meeting on the UNCITRAL Adoption of the Model Law on International Commercial Conciliation, UN Doc. A/57/17, Annex 1, available at www.uncitral.org. Legislation based on the UNCITRAL Model Law on International Commercial Conciliation has been enacted in Canada (2005), Croatia (2003), Hungary (2002) and Nicaragua (2005). See also Cal. C.C.P. §§1297.11-432. 162 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶16 (1999); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶1-45, 1-46 (2003); R. Merkin, Arbitration Law ¶¶3.5, 6.6 (2004 & Update 2007). 163 ICSID Convention, Chapter III, Arts. 28-35 (“Any Contracting State or any national of a Contracting State wishing to institute conciliation proceedings shall address a request to that effect in writing to the Secretary-General”). Chapter III was implemented in ICSID's Rules of Procedure for Conciliation Proceedings (first promulgated in 1966 and subsequently revised in 1984 and 2006). ICSID Conciliation Rules, XXVIII Y.B. Comm. Arb. 366 (2003). See also International Centre for Settlement of Investment Disputes, ICSID Convention, Regulations and Rules, April 2006, available at www.worldbank.org/icsid; Parra, The Development of the Regulations and Rules of the International Centre for Settlement of Investment Disputes, 41 Int'l Law. 47 (2007). 164 China Council for the Promotion of International Trade/China
Chamber of Commerce (CCPIT/CCOIC) Mediation Rules (2005); German Institution of Arbitration, DIS Mediation/Conciliation Rules (2002), available at www.dis-arb.de. 165 The ICC first adopted conciliation rules in 1922, immediately preceding the establishment of the ICC Court. The Rules were revised extensively in 1988 and replaced in 2001 by the ICC ADR Rules. See ICC Rules of Conciliation and Arbitration 8 (ICC Publication No. 447 1987); ICC Rules of Arbitration 46 (ICC Publication No. 581 1997). See Schwartz, International Conciliation and the ICC, 5(2) ICC Ct. Bull. 5 (1994). 166 AAA Commercial Arbitration Rules, January 1, 1992 and Mediation Procedures, amended and effective 15 February 2005, Art. M1-M17; AAA International Mediation Rules, amended and effective 1 May 2006, Art. M1-M18, available at www.adr.org. See AAA, Mediation Procedures Summary of Changes, available at www.adr.org/sp.asp?id=32895. 167 WIPO adopted Mediation Rules in 1994. See XX Y.B. Comm. Arb. 331 (1995). http://www.kluwerarbitration.com/CommonUI/print.aspx
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168 CPR Mediation Procedure (Revised and Effective April 1,
1998), available at http://www.cpradr.org/ClausesRules/MediationProcedure/tabid/90/Default.aspx. 169 See supra pp. 215-216; High Valley Homes, Inc. v. Fudge, 2003 Tex. App. LEXIS 3273 (Tex. App. 2003) (despite use of word “mediation” to describe dispute resolution, parties evidenced intention to be finally bound by decision; agreement was for arbitration); Champagne v. Victory Homes, Inc., 897 A.2d 803, 805 (Maine 2006) (court's order that matter proceed to non-binding arbitration rendered arbitration the equivalent of mediation); AIGEurope SA v. QBE Int'l Ins. Ltd [2001] 2 Lloyd's Rep. 268 (Q.B.) (clause titled “Arbitral Procedure,” and referring to “arbitrator” held to constitute conciliation agreement). 170 See Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 467-469 (2005) (non-binding arbitration: “the parties may think that a ‘trial run’ of the case, ending in a prediction by a neutral expert, may cause the more recalcitrant among them to reassess their own partisan estimates of the likely outcome of adjudication”). 171 See Salt Lake Tribune Publishing Co., LLC v. Mgt Planning, Inc., 390 F.3d 684, 689 (10th Cir. 2004) (“[O]ne feature that must necessarily appertain to a process to render it an arbitration is that the third party's decision will settle the dispute”); Dluhos v. Strasberg, 321 F.3d 365, 371 (3d Cir. 2003) (dispute resolution provision was not “arbitration” agreement because dispute would not necessarily be resolved by arbitration); Mirra Co., Inc. v. Sch. Admin. Dist. No. 35, 251 F.3d 301, 304 (1st Cir. 2001) (no agreement to arbitrate when clause requires non-binding mediation); Lander Co., Inc. v. MMP Inv., Inc., 107 F.3d 476, 480 (7th Cir. 1997) (“To agree to binding arbitration is to agree that if your opponent wins the arbitration he can obtain judicial relief if you refuse to comply with the arbitrator's award”); PVI, Inc. v. Ratiopharm GmbH, 135 F.3d 1252, 1253 (8th Cir. 1998) (FAA requires that a party to an arbitration may apply to the court for confirmation of an arbitration award only “[i]f the parties in their agreement have agreed that a judgment of the court shall be entered upon the award made pursuant to the arbitration”); Harrison v. Nissan Motor Corp., 111 F.3d 343 (3d Cir. 1997) (informal dispute resolution procedure is not “arbitration” under FAA); Advanced Bodycare Solutions LLC v. Thione Int'l., Inc., 2007 WL 1246024, at *6 (S.D. Fla. 2007) (parties' contract does not manifest an intent that arbitration be the exclusive means for addressing a dispute … [r]ather, by creating an option [for] … either non-binding arbitration or mediation, the parties have made resort to arbitration the prerogative – not the obligation – of the aggrieved party”). See also Stipanowich, Contract and Conflict Management, 2001 Wisc. L. Rev. 831, 840 (“binding arbitration involves (a) an agreement; (b) to settle controversies; (c) through an adjudicative process; (d) before a private third party or parties; (e) who render a legally binding award”). 172 See, e.g., Schaefer v. Allstate Ins. Co., 590 N.E.2d 1242 (Ohio 1992); Brennan v. King, 139 F.3d 258, 265-66 (1st Cir. 1998) (presumption of arbitrability was overcome because panel could only recommend a non-binding outcome regarding to president of university); Godfrey v. Hartford Cas. Ins. Co., 142 Wash.2d 885, 897 (Wash. 2001) (parties may not submit a dispute to arbitration only to see if it goes well for their position before invoking the courts' jurisdiction). 173 Dluhos v. Strasberg, 321 F.3d 365 (3d Cir. 2003) (Uniform Domain Name Resolution Policy dispute resolution proceeding is not http://www.kluwerarbitration.com/CommonUI/print.aspx
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subject to the FAA because “no provision … prevents a party from filing suit before, after or during the administrative proceedings”). 174 See infra pp. 683-690. 175 See United States v. Bankers Ins. Co., 245 F.3d 315, 322 (4th Cir. 2001); Wolsey, Ltd v. Foodmaker, Inc., 144 F.3d 1205 (9th Cir. 1998) (“non-binding arbitration” under AAA Rules held subject to FAA); Newby v. Enron Corp., 391 F.Supp.2d 541 (S.D. Tex. 2005) (“question whether the FAA applies to non-binding arbitration agreements with dispute resolution alternatives is unsettled”); Mortimer v. First Mount Vernon Indus. Loan Ass'n, 2003 U.S. Dist. LEXIS 24698 (D. Md. 2003) (Uniform Arbitration Act applicable to “binding obligation first to mediate his claim”); Fisher v. GE Med. Systems, 276 F.Supp.2d 891 (M.D. Tenn. 2003) (multi-tier mediation process, as condition for litigation, held subject to FAA: “Federal policy favors arbitration in a broad sense, and mediation surely falls under the preference for non-judicial resolution”); CB Richard Ellis, Inc. v. Am. Environ. Waste Mgt, 1998 U.S. Dist. LEXIS 20064 (E.D.N.Y. 1998) (agreement to mediate subject to FAA: mediation agreement “manifests the parties' intent to provide an alternative method to ‘settle’ controversies [and therefore] fits within the [FAA's] definition of arbitration”); Cecala v. Moore, 982 F.Supp. 609 (N.D. Ill. 1997) (same); AMF, Inc. v. Brunswick Corp., 621 F.Supp. 456 (S.D.N.Y. 1985) (agreement to seek “rendition of an advisory opinion” held enforceable “under the [FAA] and pursuant to this court's equity jurisdiction”; “whether or not the agreement be deemed one to arbitrate” there is no reason not to enforce “a confidential advisory process in a matter of serious concern to the parties”); Coburn v. Grabowski, 1997 WL 309572 (Conn. Super. 1997) (“Although the mediation process differs from the arbitration process, they are both accepted methods utilized for dispute resolution, and therefore this court finds it appropriate to analyze and apply the relevant arbitration case law”; stay granted because of “clear intention of the parties that mediation should be a condition precedent to bringing a court action”). See also Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 468 (2005) (“agreements for non-binding arbitration are regularly held to be within the FAA for the purposes of stays or orders to compel”). Compare Stipanowich, Contract and Conflict Management, 2001 Wisc. L. Rev. 831, 863 (“the statute-based law of arbitration is a wholly inappropriate ground for enforcement of mediation agreements”). 176 See, e.g., Judgment of 17 June 2004, Le Parmentier v. La Société Miss France, XXX Y.B. Comm. Arb. 119, 123-124 (Paris Cour d'appel) (2005) (Uniform Domain Name Resolution Policy dispute resolution proceeding “allows for a recourse to state courts to have the dispute re-adjudged, both before the administrative proceeding is commenced and after it is concluded and, … during the proceeding”); Judgment of 23 March 1989, Société Clause France v. Coopérative agricole de l'Aunis, 1992 Rev. arb. 713 (Paris Cour d'appel). 177 See, e.g., Walkinshaw v. Diniz [2000] 2 All E.R. (Comm.) 237 (Q.B.) (agreement “must contemplate that the tribunal which carries on the process will make a decision which is binding on the parties”); Flight Training Int'l v. Int'l Fore Training Equip. [2004] EWHC 721 (Comm.) (Q.B.) (reference to “mediation” is not arbitration agreement). 178 Kenon Eng'g Ltd v. Nippon Kokan Koji Kabushiki Kaisha, [2003] 754 HKCUI (H.K. Court of First Instance, High Court), aff'd, [2004] HKCUI 512 (H.K. Court of Appeal, High Court) (reference to http://www.kluwerarbitration.com/CommonUI/print.aspx
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“mediation” could not have been intended to be arbitration). 179 Judgment of 20 May 2005, 2006 SchiedsVZ 103 (Oberlandesgericht Naumburg). 180 See Judgment of 17 June 2004, Le Parmentier v. La Société Miss France, XXX Y.B. Comm. Arb. 119 (Paris Cour d'appel) (2005). 181 See Judgment of 17 June 2004, Le Parmentier v. La Société Miss France, XXX Y.B. Comm. Arb. 119 (Paris Cour d'appel) (2005); Judgment of 29 April 2003, Nationale des Pétroles du Congo et République du Congo v. Société Total Fina Elf E & P Congo, 21 ASA Bull. 662, 665 (Paris Cour d'appel) (2003) (challenge to decision of ICC pre-arbitral referee not admitted since the decision is not binding and has not the quality of an award); Judgment of 12 December 1985, Langlais v. Bruneau, 1986 Rev. arb. 255, 257 (Nancy Cour d'appel). 182 See Judgment of 8 February 1995, 14 ASA Bull. 659 (Cantonal Tribunal of Valais) (1996) (“The fundamental criterion for the distinction between the two institutions is that the award of an arbitrator, contrary to the one of an arbitral expert, is an act creating legal obligations”); Judgment of 20 May 2005, 2006 SchiedsVZ 103, 105 (Oberlandesgericht Naumburg) (no arbitral award where main agreement provided that disputes should “at first” be decided by conciliation and that for that purpose an “arbitration agreement” was to be concluded, the latter providing that all disputes arising out of the contract were to be settled by an arbitral tribunal without recourse to the ordinary courts, but the main agreement stating that where a dispute could not be resolved in the manner provided for in the arbitration agreement, it was to be referred to a local court); David Wilson Homes Ltd v. Survey Sers. Ltd [2001] B.L.R. 267 (English Court of Appeal) (“In the present case, the parties cannot, with respect to the judge, have intended a reference to a Queen's Counsel as an expert or for a non-binding opinion, because in that way no finality could be achieved. They must in my judgment have wanted a binding result, and the clause thus constitutes an arbitration agreement.”); O'Callaghan v. Coral Racing Ltd [1998] All E.R. (D) 607 (English Court of Appeal); Judgment of 4 July 1977, 1977 DB 1786 (German Bundesgerichtshof). 183 E.g., Aiton Australia Pty Ltd v. Transfield Pty Ltd, [1999] 153 FLR 236 (N.S.W. S.Ct.); Gaston v. Gaston, 954 P.2d 572, 575 (Ala. 1998) (granting order requiring parties to mediate); White v. Kampner, 641 A.2d 1381, 1382 (Conn. 1994) (enforcing “mandatory negotiation” clause that stated “[t]he parties shall negotiate in good faith at not less than two negotiation sessions prior to seeking any resolution of any dispute” under the contract's arbitration provision); United States v. BankersIns. Co., 245 F.3d 315, 323 (4th Cir. 2001) (enforcing “non-binding arbitration clause”); Willis Corroon Corp. v. United Capitol Ins. Co., 1998 WL 30069 (N.D. Cal. 1998) (dismissing suit based on “non-binding mediation” agreement that was condition precedent to litigation); Laeyt v. Laeyt, 702 N.Y.S.2d 207 (N.Y. App. Div. 2000) (dismissing suit because of failure to comply with mediation obligation). But see Cumberland and York Distrib. v. Coors Brewing Co., 2002 WL 193323, at *4 (D. Me. 2002) (declining to enforce mediation provision that had “no time limit for completion of such mediation”). See also infra pp. 241-243, 841-847 (discussing decisions holding that arbitration was premature because of failure to comply with initial mediation/conciliation obligation); File, United States: Multi-Step Dispute Resolution Clauses, IBA Mediation Committee Newsletter 33, 34-35 (July 2007). 184 Medellin v. Texas, 128 S.Ct. 1346, 1358 (U.S. S.Ct. 2008). 185 Further, where an agreement to participate in a process http://www.kluwerarbitration.com/CommonUI/print.aspx
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producing a non-binding decision is made, it does not constitute an agreement to arbitrate, but rather an agreement to conciliate or to mediate. See supra pp. 235-241. 186 See G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 83-85 (2d ed. 2006); PricewaterhouseCoopers, International Arbitration: Corporate Attitudes and Practices, at 11 (2006), available at www.pwc.com/ arbitrationstudy. These clauses are also referred to as “escalation clauses,” “multitier” clauses, or multi-step alternative dispute resolution clauses. Debattista, Drafting Enforceable Arbitration Clauses, 21 Arb. Int'l 233 (2005). Requiring mediation and other forms of conciliation prior to commencing arbitration is also often termed “med-arb.” See Bartel, Med-Arb as a Distinct Method of Dispute Resolution: History, Analysis, and Potential, 27 Willamette L. Rev. 661, 663 (1991); Berger, Law and Practice of Escalation Clauses, 22 Arb. Int'l 1 (2006); Blankenship, Developing Your ADR Attitude, 42 Tenn. B. J. 28 (2006); Jolles, Consequences of Multi-Tier Arbitration Clauses: Issues of Enforcement, 72 Arb. 329 (2006); Onyema, The Use of Med-Arb in International Commercial Dispute Resolution, 12 Am. Rev. Int'l Arb. 411 (2001). 187 See Brewer & Mills, Combining Mediation and Arbitration, 54
Disp. Res. J. 32, 33-34 (1999); Hill, MED-ARB: New co*ke or Swatch, 13 Arb. Int'l 105 (1997); Coulson, MEDALOA: A Practical Technique for Resolving International Business Disputes, 11 J. Int'l L. 111 (1994); Jolles, Consequences of Multi-Tier Arbitration Clauses: Issues of Enforcement, 72 Arb. 329 (2006); Pryles, MultiTiered Dispute Resolution Clauses, 18 J. Int'l Arb. 159, 159 (2001) (“It is now common to find multi-tiered dispute resolution clauses particularly in complex construction contracts.”); Stipanowich, Contract and Conflict Management, 2001 Wisc. L. Rev. 831, 853855 (multi-tier dispute resolution). 188 [1993] A.C. 334, 358 (House of Lords). This result has been statutorily confirmed in England. English Arbitration Act, 1996, §9(2) (stay of litigation available “notwithstanding that the matter is to be referred to arbitration only after the exhaustion of other dispute resolution procedures”); Melnyk, The Enforceability of Multi-Tiered Dispute Resolution Clauses: The English Law Position, 2002 Int'l Arb. L. Rev. 113; Cable & Wireless plc v. IBM United Kingdom Ltd [2002] 2 All E.R. (Comm.) 1041 (Q.B.). 189 See, e.g., Westo Airconditioning Ltd v. Sui Chong Constr. & Eng'g Co., [1998] 1 HKC 254 (H.K. Court of First Instance, High Court) (“An agreement that requires that the parties submit their disputes ultimately to arbitration, although it may also require the parties in the first instance to follow a procedure – such as, attempting an amicable settlement – is, to my eyes, an arbitration agreement. … It matters not, it seems to me, that the parties must, firstly, take some other step before [referring disputes to arbitration].”); Guangdong Agri. Co. v. Conagra Int'l (Far East) Ltd [1993] Arb. & Disp. Res. L.J. 100 (H.K. High Court, S.Ct. 1992) (arbitration agreement exists and is valid notwithstanding provision that parties first seek settlement); Dave Greytak Enters., Inc. v. Mazda Motors of Am., Inc., 622 A.2d 14, 23-4 (Del. Ch. 1992) (“The highly detailed non-judicial dispute resolution procedures [begin] with management review, [progress] to a stipulation as to the facts and issues in dispute, [move] to third-party resolution, and, finally, to binding arbitration.”); Welborn Clinic v. Medquist, Inc., 301 F.3d 634 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(7th Cir. 2002); Fluor Enters., Inc. v. Solutia Inc., 147 F.Supp.2d 648 (S.D. Tex. 2001); Gary Excavating, Inc. v. Town of New Haven, 318 A.2d 84, 85 (Conn. 1972) (disputes under a contract were to be presented to the defendants for decision, and if plaintiff disagreed with defendants' decision, he could demand arbitration; finding that validity of pre-arbitration procedures is a proper subject for arbitration). 190 Kemiron Atlantic, Inc. v. Aguakem Int'l, Inc., 290 F.3d 1287, 1291 (11th Cir. 2002) (“the parties agreed to conditions precedent and, by placing those conditions in the contract, the parties clearly intended to make arbitration a dispute resolution mechanism of last resort … [therefore,] [b]ecause neither party requested mediation, the arbitration provision has not been activated and the FAA does not apply”). 191 It makes little sense to permit litigation during an interim period, which could only undermine or preempt the agreed arbitral process. The agreement to arbitrate should include any associated steps necessary to trigger an arbitration. 192 The consequences of non-compliance with procedural requirements are discussed below. See infra pp. 841-847. 193 Acorn Farms Ltd v. Schnuriger, [2003] 3 NZLR 121 (Hamilton High Court); Glencot Dev. and Design Co. v. Ben Barrett & Son (Contractors) Ltd [2001] B.L.R. 207 (Q.B.). See also infra pp. 15181520. 194 See Chan et al., Construction Industry Adjudication:A Comparative Study of International Practice, 22 J. Int'l Arb. 363 (2005); Genton & Schwab, The Role of the Engineer in Disputes Related More Specifically to Industrial Projects, 17(4) J. Int'l Arb. 1 (2000); Molineaux, Settlements in International Construction, 50 Disp. Res. J. 80 (1995). 195 The Federation Internationale des Ingenieurs-Conseils (“FIDIC”) published the so-called Red Book (Conditions of Contract for Works of Civil Engineering) in 1987. The FIDIC contract traditionally provided for the “engineer” to render preliminary decisions with which the parties were contractually obliged to comply, subject to further dispute resolution by arbitration. FIDIC, Conditions of Contract for Electrical and Mechanical Works (3d ed. 1987); Graham, The F.I.D.I.C.Conditions of Contract for Electrical and Mechanical Works(Including Erection on Site), 4 Int'l Constr. L. Rev. 283 (1987); Seppälä, International Construction Contract Disputes: Commentary on ICC Awards Dealing with the FIDIC International Conditions of Contract, 9(2) ICC Ct. Bull. 32 (1998). 196 FIDIC Conditions of Contract for Construction 1999 (1st ed. 1999); FIDIC, Conditions of Contract for EPC/Turnkey Projects 1999 (1st ed. 1999); Chatterjee, Settlement of Disputes Procedure and Arbitration under FIDIC, 17(3) J. Int'l Arb. 103 (2000). 197 Nicklisch, The Role of the Engineer as Contract Administrator and Quasi-Arbitrator in International Construction and Civil Engineering Projects, 7 Int'l Constr. L. Rev. 322 (1990); Chatterjee, Settlement of Disputes Procedure and Arbitration under FIDIC, 17(3) J. Int'l Arb. 103, 108, 112 (2000) (unless the parties reach an amicable settlement, if the Dispute Adjudication Board's decision is not accepted by the parties, the matter must be settled by arbitration). See also supra pp. 217-219 & infra pp. 247-252; Chan et al., Construction Industry Adjudication: A Comparative Study of International Practice, 22 J. Int'l Arb. 363, 368-371 (2005); Bühler, Technical Expertise: An Additional Means for Preventing or Settling Commercial Disputes, 6(1) J. Int'l Arb. 135, 141-47 (1989).
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198 The name is derived from a form of dispute resolution used in
fixing the salaries of professional athletes in the United States. See Borris, Final Offer Arbitration From A Civil Law Perspective, 24 J. Int'l Arb. 307 (2007); Gordon, Final Offer Arbitration in the New Era of Major League Baseball, 6 J. Am. Arb. 153 (2007); Meth, Final Offer Arbitration: A Model for Dispute Resolution in Domestic and International Disputes, 10 Am. Rev. Int'l Arb. 383 (1999); Walz, Final-Offer-Arbitration – Oder: Drittentscheidung anhand verbindlicher Angebote, 2003 SchiedsVZ 119; Mistelis, ADR in England and Wales, 12 Am. Rev. Int'l Arb. 167, 203 (1997) (baseball arbitration is a form of alternate dispute resolution rather than arbitration, because a third party assists the parties in reaching agreement but does not make its own decisions); Mitrovic, L'arbitrage baseball: arbitrage ou mode alternatif de reglement, 2003 Rev. arb. 1167. 199 See Blackmand & McNeill, Alternative Dispute Resolution in Commercial Intellectual Property Disputes, 47 Am. U.L. Rev. 1709, 1713 (1998); Morrison, Consider Binding Arbitration to Resolve Your Next Dispute, 40-May RESG 18, 22-23 (May 1997). Another variation (again, originating in the United States) is referred to as “rent-a-judge,” and involves hiring a retired judge to conduct what is essentially a civil trial, under private auspices. The parties agree to be bound by the result, sometimes subject to the same possibilities for appeal that exist in a “normal” civil litigation. In principle, this dispute resolution mechanism is fairly characterized as arbitration. Another form of alternative dispute resolution is so-called “interest arbitration.” See Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 473 (2005) (“the ‘interest’ arbitrator is expected to go still further [beyond deciding the parties' existing rights] – and to devise the actual contract provisions that will bind the parties during a future term”). This raises issues similar to questions whether proceedings for the adaptation of contracts may constitute arbitration. See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶33-73 (1999). The better view is that, if the other definitional requirements of arbitration are satisfied, a tribunal may exercise the substantive power under applicable law to adapt a contract without converting the process into something other than arbitration. 200 Some European commentators conclude that, properly drafted,
baseball or final offer “arbitration” is properly categorized as arbitration. Borris, Final Offer Arbitration From A Civil Law Perspective, 24 J. Int'l Arb. 307, 312-4 (2007); Walz, Final-OfferArbitration – Oder: Drittentscheidung anhand verbindlicher Angebote, 2003 SchiedsVZ 119. 201 See supra pp. 184-189, 217-219 & infra pp. 247-252; Mayer, Note on Judgment of 9 October 1984 (French Cour de cassation civ. 3e), 1986 Rev. arb. 267, 269-70 (the neutral's decision “is not confined to alternatives, laid out by the conflicting claims of the parties”); George Watts & Son, Inc. v. Tiffany & Co., 248 F.3d 577, 580-81 (7th Cir. 2001) (an arbitrator cannot be deprived authority to “reach compromise outcomes that legal norms leave within the discretion of the parties to the arbitration agreement”: is the award “a kind of settlement businesses reach all the time, each receiving part of what it wanted?”). 202 Baseball arbitrations also raise questions with regard to the http://www.kluwerarbitration.com/CommonUI/print.aspx
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requirement, applicable under many national arbitration statutes, for a reasoned award. See infra pp. 2450-2459, Where this requirement is not waivable, baseball arbitration gives rise to significant enforceability issues. 203 See infra pp. 2238-2243. 204 See supra pp. 184-189 & infra pp. 247-252, 1625-1627. 205 As discussed above, arbitration was distinguished from strictly “legal” decision-making in some historical periods and geographic settings. See supra pp. 20-51. In Medieval Germany, parties could choose to participate in a court proceeding (nach Recht) or a proceeding in equity (nach Guet), i.e., arbitration. Seesupra pp. 3031. The same process apparently served as the primary dispute resolution mechanism for medieval merchants in France, Italy and England. See supra pp. 27-29. 206 See infra pp. 2238-2243. 207 See supra pp. 84-189, 217-219. 208 See supra pp. 218-219. 209 See supra pp. 217-218. A leading common law definition of the judicial function (or, more specifically, the adjudicative process) is a “process of decision that grants the affected party a form of participation that consists of the opportunity to present proofs and reasoned arguments.” Fuller, The Forms and Limits of Adjudication, 92 Harv. L. Rev. 353, 369 (1978). See also Molot, An Old Judicial Role for A New Litigation Era, 113 Yale L.J. 27 (2003); Rogers, Regulating International Arbitrators: A Functional Approach to Developing Standards of Conduct, 41 Stan. J. Int'l L. 53, 67-71, 8490 (2005). The arbitral process not only satisfies this definition, but also bears other characteristics of adjudication, in which the arbitrators serve a judicial function; these additional characteristics include the provision of a reasoned, written decision, the legallybinding character of the decision, and the application of procedural safeguards of the parties' rights. See supra pp. 217-219, infra pp. 1254-1274, 1765-1776, 2450-2459, 2887-2909. 210 See supra pp. 1-57. 211 For discussions of these issues, see Rutledge, Toward A Contractual Approach for Arbitral Immunity, 39 Ga. L. Rev. 151, 167168 (2004); Franck, The Liability of International Arbitrators: A Comparative Analysis and Proposal for Qualified Immunity, 20 N.Y.L. S. J. Int'l & Comp. L. 1, 23-24 (2000). 212 Baker, Bill Analysis of A.B. 3030, California State Legislature (26 August 2002). 213 See supra pp. 56-57, 217-219. 214 Franck, The Liability of International Arbitrators: A Comparative Analysis and Proposal for Qualified Immunity, 20 N.Y.L. S. J. Int'l & Comp. L. 1, 24 (2000). 215 See supra pp. 223-233 & infra pp. 1786-1789. 216 Rutledge, Toward A Contractual Approach for Arbitral Immunity, 39 Ga. L. Rev. 151, 167 (2004). For the same reasons, arbitrators are not only free to decline appointments for which they are not well-qualified, but are required to do so. This in no way contradicts a judicial function, but instead advances the objectives of the arbitral process, being to assure a tribunal that is best-suited to resolve the parties' dispute competently and expeditiously. Indeed, a serious argument could be made that the judicial function is in fact not properly fulfilled by legal systems which fail to provide mechanisms that enable parties and/or judges to avoid the risk of arbitrary decisions resulting from judges deciding cases for which http://www.kluwerarbitration.com/CommonUI/print.aspx
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they are inexperienced or ill-suited. Likewise, it is in no way contrary to the judicial function for arbitral awards to be subject to only limited appellate review. It is the process by which an award is made, not the process by which it might be reviewed, that determines whether the arbitrator has fulfilled a judicial role. Moreover, it is precisely because arbitrators fulfill a judicial function that arbitral awards are accorded binding and final legal effects by both international conventions and national law, with exceptions to this status being recognized only in cases of gross departures from judicial (not non-judicial) norms. See infra pp. 2553-2567, 2711-2729, 2887-2909, discussing denials of opportunities to be heard, improper selection of arbitral tribunal, violations of public policy and disregard of law. 217 See infra pp. 2951-2959, 2959-2962, 2965-2970. 218 Rutledge, Toward A Contractual Approach for Arbitral
Immunity, 39 Ga. L. Rev. 151, 167 (2004). 219 See infra pp. 1849-1850. 220 Franck, The Liability of International Arbitrators: A Comparative Analysis and Proposal for Qualified Immunity, 20 N.Y.L. S. J. Int'l & Comp. L. 1, 24 (2000). 221 See infra pp. 2249-2287 (especially 2262-2265). 222 See supra pp. 184-189, 217-219 & infra pp. 1765-1776, 25732593, 2736-2764. Nor is there force to the suggestion that arbitrators, unlike judges, are not “essential to the preservation of democracy.” Baar v. Tigerman, 189 Cal.Rptr. 834, 838 (Cal. App. 1983). Most obviously, courts and other tribunals perform judicial functions in monarchies, aristocracies, religious or totalitarian states and other political systems. Equally, the role of commercial litigation in preserving democracy is perhaps discernible, but hardly lies at the center of democratic values and institutions: the political and civil rights values safeguarded by the judiciary are fulfilled in contexts other than commercial litigation between businesses. 223 Franck, The Liability of International Arbitrators: A Comparative Analysis and Proposal for Qualified Immunity, 20 N.Y.L. S. J. Int'l & Comp. L. 1, 23 (2000). 224 Rutledge, Toward A Contractual Approach for Arbitral Immunity, 39 Ga. L. Rev. 151, 168 (2004). The fact that parties agree to arbitrate is also no basis for questioning the arbitrator's judicial role – just as there would be no basis for suggesting that the parties' agreement to a forum selection clause makes a national court a non-judicial body. See supra pp. 64-68. 225 See supra pp. 184-189, 217-219 & infra pp. 1615-1631. Equally, it would be very odd to conclude that arbitrations with sole arbitrators, or multi-member tribunals appointed by appointing authorities or national courts, are arbitrations, but arbitrations with party-nominated arbitrators are not. 226 See supra pp. 15-20, 56-57, 72-74, 78-81 & infra pp. 252-254, 1364-1367, 1492-1507. 227 There are also instances where persons denominated as “arbitrators” perform functions that in fact do not constitute “arbitration” and that do not involve (or involve only incidentally) a judicial function. As discussed above, that is the case with certain types of valuations or expert determinations, which do not involve hearing the parties or making a decision based upon an evidentiary record and legal (or other) submissions. See supra pp. 223-234. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Needless to say, persons entrusted with such tasks will not qualify as arbitrators (even if that is what they are called) and will not enjoy arbitrator immunity. Of course, they may enjoy other protections or immunities, depending on applicable law. 228 See infra pp. 1492-1501. 229 See infra pp. 1492-1501. 230 See infra pp. 1501-1507, 1618-1621. As discussed below, these differences are rightly relevant to the existence and scope of arbitral immunities that are accorded to individuals fulfilling such roles. 231 See infra pp. 1652-1662. 232 See infra pp. 1492-1507 (especially 1501-1507). 233 Compare Rogers, Regulating International Arbitrators: A Functional Approach to Developing Standards of Conduct, 41 Stan. J. Int'l L. 53, 113-117 (2005). 234 See supra pp. 18-20. & infra pp. 1501-1507. 235 See infra pp. 1504-1507. Experienced practitioners are almost unanimous in confirming that a co-arbitrator's departure from principles of impartiality during the arbitral process is seldom of benefit to “his” party. See, e.g., Schwebel, Reflections on International Adjudication, 2001-2002 Proceedings of the American Branch of the I.L.A., 2(5) Transnat'l Dispute Mgt at 7 (2005) (“the partisan party-appointed arbitrator usually loses influence in proportion to his partisanship”); Lowenfeld, The Party-Appointed Arbitrator in International Controversies: Some Reflections, 30 Tex. Int'l L.J. 59, 60-61 (1995) (recounting instances where over zealous co-arbitrator “lost credibility with the chairman”). 236 See, e.g., Carbonneau, The Exercise of Contract Freedom in the Making of Arbitration Agreements, 36 Vand. J. Transnat'l L. 1189, 1211-12 (2003). 237 Experienced practitioners will also confirm that the selection of individual judges to hear a particular case will influence the outcome enormously (depending on that judge's background, judicial philosophy and other facts). The parties' efforts to overcome the random and arbitrary character of national court litigation does not suggest that the resulting process is less judicial; rather, it reflects an effort to obtain a better and fairer adjudicative process than provided by national courts. 238 See infra pp. 1871-1872, 2450-2456. 239 In any event, it is unclear whether evidence of “baby-splitting” would be inconsistent with a judicial function. Solomon was presumably acting in a judicial capacity when rendering his historic judgment. The Bible, 1 Kings 3:25. 240 Mentschikoff, Commercial Arbitration, 61 Colum. L. Rev. 846 (1961) (50% of U.S. domestic commercial arbitral awards studied granted all or nothing; “many of the partial awards are arrived at in a judicial manner since they result from the striking of particular items of damages that the arbitrators believe are not justified under the facts or law of the particular case”); Keer & Naimark, Arbitrators Do Not ‘Split the Baby’ – Empirical Evidence From International Business Arbitration, 18 J. Int'l Arb. 573 (2001) (in study of international arbitral awards, 31% of claimants received nothing, 35% received 100% claimed, and remaining 34% received widely varying percentages of amounts claimed; “the results from this study show emphatically that arbitrators do not engage in the practice of ‘splitting the baby’ ”). 241 See supra pp. 223-234. http://www.kluwerarbitration.com/CommonUI/print.aspx
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242 See supra pp. 235-241. 243 See supra pp. 244-246 (baseball “arbitration”). 244 See infra pp. 1765-1776, 2573-2595, 2737-2764. 245 See infra pp. 1461-1552. 246 See supra pp. 217-219. 247 See supra pp. 212-213. 248 See supra pp. 213-215. 249 See supra pp. 217-219. 250 See supra pp. 247-252. 251 See supra pp. 223-234. 252 See supra pp. 247-252. Seealso A. Samuel, Jurisdictional
Problems in International Commercial Arbitration 45 (1989) (“The duty of the arbitrator to evaluate the arguments put forward by the parties and make a binding decision on the merits of the dispute is … fundamental to the nature of arbitration”); Laine, De l'exécution en France des sentences arbitrales étrangères, 26 J.D.I. (Clunet) 641, 653-54 (1899) (“What is the task given to the arbitrators? It is to appraise the merits of the respective claims of the parties … and that done, to make a decision …, that is to say … judge.”); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶12-13 (1999). 253 See supra pp. 82-84 & infra pp. 1254-1274, 1742-1748, 17481758. 254 See supra pp. 56-57, 82-84 & infra pp. 1742-1748, 1758-1765. 255 Compare the approach of some U.S. courts in this regard, effectively applying the FAA by analogy to various forms of dispute resolution agreements. See supra pp. 228-230, 238. 256 See supra pp. 82-84 & infra pp. 1254-1274, 1742-1748, 17481758, 2157-2163. 257 As noted previously, some U.S. judicial decisions have either expressly or impliedly adopted this position. See supra pp. 228-230. 258 See infra pp. 2327-2332, 2333-2425. 259 There is greater scope for application of principles of unconscionability or mistake where unsophisticated parties are alleged to have agreed to a dispute resolution process not affording judicial or quasi-judicial procedural protections. See infra pp. 721723, 724-732. 260 If this analysis were accepted, it could amount in some contexts to a “contracting into” arbitration legislation, even where no “agreement to arbitrate” existed. Naturally, if specific public policy concerns were raised in particular cases, such an agreement could not be given effect. See Stipanowich, Contract and Conflict Management, 2001 Wisc. L. Rev. 831, 862 (“using laws governing binding arbitration to enforce other kinds of dispute resolution agreements is not wholly unsupportable. Modern arbitration statutes are founded on the proposition that private arrangement for final and binding resolution of disputes are a good thing, not only because they relieve courts of commensurate burden, but because they afford parties considerable latitude in structuring mechanisms for resolving conflict in their own way, according to their own timetable and their own particular needs. These broad principles are applicable not only to binding arbitration, but also to mediation and other ADR processes that hold the promise of an out-of-court resolution in a setting defined by private agreement”). 261 See French New Code of Civil Procedure, Art. 1451 (“The http://www.kluwerarbitration.com/CommonUI/print.aspx
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mission of arbitrator may only be entrusted to a natural person”); Lalonde, Canada 15, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 2004); Sport Maska Inc. v. Zittrer, [1988] 1 S.C.R. 564 (Canada S.Ct.); Netherlands Code of Civil Procedure, Art. 1023 (“Any natural person of legal capacity may be appointed as arbitrator”); Spanish Arbitration Act, Art. 12 (“Any natural person in full enjoyment of his legal rights may serve as an arbitrator as of the time he accepts the appointment”). See also infra p. 1448. 262 A review of publicly-available international arbitral awards reveals virtually no instances where legal persons served as arbitrator(s). 263 See infra pp. 1448-1449; Greek Code of Civil Procedure, Book VII, Art. 871 (as amended by Law 2331/1995) (“One or several persons as well as a court in its entirety may be appointed as arbitrators”).
Legal Framework for International Arbitration Agreements - C. Other Jurisdictional Requirements Affecting the Legal Regime Applicable to International Arbitration Agreements Chapter 2 Gary B. Born
Author Gary B. Born
C. Other Jurisdictional Requirements Affecting the Legal Regime Applicable to International Arbitration Agreements As noted above, international arbitration conventions and national legislation contain a number of jurisdictional requirements that must be satisfied before these instruments will apply to an arbitration agreement. (264) Some such requirements restrict the types of arbitration agreements to which these instruments apply – for example, imposing requirements that the arbitration agreement arise in respect of a “defined legal relationship,” in a “commercial” relationship and in an “international” context. Other “requirements” are more in the nature of confirmations that particular matters may validly be the subject of an arbitration agreement – for example, providing that an arbitration agreement may deal with “noncontractual” (as well as contractual) matters and “future” (as well as existing) disputes.
Source Legal Framework for International Arbitration Agreements - C. Other Jurisdictional Requirements Affecting the Legal Regime Applicable to International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 255 - 305
Finally, both international arbitration conventions and national arbitration legislation also contain a written form requirement, that serves as a jurisdictional pre-requisite for application of the legal regimes established by such instruments. (265) These written form http://www.kluwerarbitration.com/CommonUI/print.aspx
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requirements must often be satisfied to establish the validity of arbitration agreements (266) (and in this regard also raise choice-oflaw issues (267) ). Nonetheless, as discussed below, these written form requirements also serve as a condition for application of the pro-arbitration regimes of leading international conventions (including the New York Convention) and some national legislation. (268)
page "255" 1. “Defined Legal Relationship” Some legislative frameworks for arbitration agreements are limited to agreements “in respect of a defined legal relationship.” That is true of the New York Convention, the UNCITRAL Model Law and other developed national arbitration legislation. (269) The effect of such limitations is generally to place agreements to arbitrate which are not “in respect of a defined legal relationship” outside of the “proarbitration” frameworks of international and national arbitration instruments. Under some legal systems, the “defined legal relationship” requirement is also a rule of substantive validity (and not just a jurisdictional requirement for national arbitration legislation). In these legal systems, parties cannot validly agree to arbitrate “any disputes which may arise between us in the future,” but must instead specify with greater precision what categories of disputes they intend to arbitrate. (270) That is illustrated well by Article 4 of the former Swiss Concordat on Arbitration, which provided: “Arbitration clauses may refer only to future disputes arising out of a particular specific legal relationship.” (271) In practice, the “defined legal relationship” requirement has seldom been tested and has very limited practical importance. Extremely broad arbitration clauses, (272) as well as arbitration clauses with no express limits, (273) have frequently been enforced. Conversely, there are virtually no reported cases in which an arbitration agreement page "256" has been held invalid on the grounds that it does not deal with a “defined legal relationship.” (274) One arguable exception arose in a New Zealand decision, where the arbitration clause provided: “any dispute which may arise between the parties to this agreement shall be settled by arbitration.…” The New Zealand court held that the clause was not “in terms, confined to disputes which arise out of the particular business arrangement,” and “ex facie it would cover any dispute whatever its character.” (275) To this possibility, the court remarked “obviously some limitation has to be placed on it,” though not explaining why this “had” to be done, and therefore interpreted the clause as extending only to disputes related to “the commercial transaction covered by the contract.” (276) In principle, and despite some views to the contrary, (277) there is little, if any, reason that even the most broadly drafted international arbitration agreements should not be given effect. Provided that applicable standards of unconscionability are satisfied (278) and that the disputes are arbitrable, (279) agreements to arbitrate openhttp://www.kluwerarbitration.com/CommonUI/print.aspx
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ended categories of future disputes compromise no public values and offer significant efficiencies. For example, if two sophisticated multinationals agreed to arbitrate any future dispute arising between them in a particular forum, there is scant reason to refuse to give effect to this bargain. It would avoid future forum shopping, jurisdictional uncertainty and similar costs, while doing nothing to prejudice public values or order. (280) More controversial (but much less likely in practice) would be agreements among a large number of commercial entities (e.g., half of all Fortune 250 companies), in which all disputes among any two or more of these companies were submitted to arbitration. This would be distantly related to the (non-binding) CPR pledges that a number of major multinational corporations have made to resolve disputes among themselves by alternative dispute resolution mechanisms. (281) page "257" If a comparable selection of major multinationals were to agree that any international disputes among their number would be resolved by international arbitration, in a particular situs and under particular rules, concerns might be raised regarding the impact of such arrangements on local judicial, legislative and governmental competences. It would likely be said that this sort of agreement involved an unacceptable engagement by private parties in the collective legislative ordering of dispute resolution mechanisms and decision-making. On the other hand, as long as the non-arbitrability and public policy doctrines were available to protect particular public values (if necessary), (282) it is not clear why such arrangements should not be enforced (as a means of relieving courts and governmental budgets of the burden of commercial disputes). (283) A debate over the foregoing considerations would be engaging, but is unlikely to come to pass, outside academic discourse, because of the reluctance of private parties to commit themselves to openended arrangements of this sort. However, the types of concerns that this debate would involve illustrate the absence of any serious objection to the validity of expansive arbitration agreements involving only limited numbers of parties. (284) 2. “Commercial” Relationships Some international and national arbitration instruments are expressly or impliedly limited in scope to arbitration agreements arising from “commercial” relationships. (285) This has the effect of excluding “non-commercial” matters from the scope of the proarbitration regimes of such instruments. In turn, this exclusion can lead to definitional questions and create opportunities for parochial resistance to contemporary pro-arbitration enforcement regimes. page "258" At the same time, as also discussed below, use of the term “commercial” has frequently played a positive role in the international arbitral process. It is increasingly widely accepted that the term “commercial” extends to the entire gamut of disputes arising from international trade, financial, investment and related economic transactions, without excluding particular matters, such as http://www.kluwerarbitration.com/CommonUI/print.aspx
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technology, intellectual property, employment, or other intensivelyregulated fields. In these circ*mstances, the contemporary “requirement” of a commercial relationship in fact typically operates as a positive confirmation of the permissible – and expansive – breadth of international arbitration agreements, rather than a meaningful negative limitation. (286) a. Geneva Protocol Historically, the “commercial” scope of modern international arbitration has its roots in Article 1 of the Geneva Protocol. (287) Article 1 required that Contracting States recognize arbitration agreements “relating to commercial matters or to any other matter capable of settlement by arbitration.” It went on to provide that: “[e]ach Contracting State reserves the right to limit the obligation mentioned above to contracts which are considered as commercial under its national law. Any Contracting State which avails itself of this right will notify the Secretary-General of the League of Nations, in order that the other Contracting States may be so informed.” (288) As the text of Article I of the Geneva Protocol suggests, the “commercial” requirement appears to have been related to notions of non-arbitrability – reflected in linkage of the requirement to “other matter[s] capable of settlement by arbitration” and the apparently decisive role of individual state's national laws in defining what was “commercial.” (289) In turn, early national arbitration statutes in many jurisdictions were limited to “commercial” relationships. (290) This reflected the historic focus of page "259" arbitration as a means (291) for resolving business disputes, as well as traditional restrictions under some national legal systems regarding the scope of arbitrable disputes. (292) b. New York Convention The New York Convention maintained a limited form of “commercial” requirement (modeled on that of the Geneva Protocol). Article 1(3) of the Convention provides that Contracting States may declare that the Convention applies only to “relationships … which are considered as commercial under the national law of the State making [the] declaration.” (293) The “commercial” exception in Article I(3) was adopted because some civil law nations took the position during negotiations of the Convention that their domestic arbitration statutes applied only to commercial (and not non-commercial) matters, and that they could ratify the Convention only as to the former. (294) page "260" A substantial number of nations have made declarations under Article 1(3). (295) For example, the U.S. reservation provides that the Convention will be applied “only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the United States.” (296) In practice, these reservations and the Convention's “commercial” http://www.kluwerarbitration.com/CommonUI/print.aspx
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requirement have given rise to few difficulties. i. Meaning of “Commercial” under New York Convention Even in Contracting States that have adopted a commercial reservation, national courts have generally not construed the “commercial” relationship requirement to limit the scope of the Convention. That is particularly true in the United States, where courts have repeatedly rejected arguments that particular disputes are not “commercial” within the meaning of the Convention. (297) page "261" U.S. courts have, unsurprisingly, held that a “classic” example of a commercial relationship is one “involving the purchase and sale of goods by two corporations.” (298) Additionally, it is clear in the United States that the term “commercial relationship” includes employee-employer relations, (299) consumer transactions, (300) shareholder disputes, (301) contracts where a foreign state constructs buildings for (and leases them to) a foreign investor, (302) relationships giving rise to antitrust and other public law disputes, (303) cases involving claims by foreign regulatory authorities, (304) insurance and reinsurance contracts (305) and maritime agreements. (306) U.S. courts have also concluded that neither the U.S. “commercial” reservation to the Convention nor the Convention and its U.S. implementing legislation, limit the scope of the Convention in U.S. courts to those relationships which are subject to the domestic FAA. (307) Thus, U.S. courts have held that arbitration agreements in page "262" seamens' employment contracts, which are specifically excluded from the scope of the domestic FAA, (308) are nonetheless subject to the New York Convention and the FAA's second chapter. (309) As one court reasoned: “the language of the Convention, the ratifying language, and the [FAA's second chapter] implementing the Convention do not recognize an exception for seamen employment contracts. On the contrary, they recognize that the only limitation on the type of legal relationship falling under the Convention is that it must be considered ‘commercial’ and we conclude that an employment contract is commercial.” (310)
The court also concluded that, even if there were questions as to the correctness of this conclusion, “doubts as to whether a contract falls under the [Convention and its implementing legislation] should be resolved in favor of arbitration.” (311) Courts from other developed jurisdictions have also generally interpreted the “commercial” relationship requirement broadly. (312) Indeed, most reported cases have raised no serious questions as to the scope of the requirement. (313) In Carters (Merchants) Ltd v. Ferraro, for example, an Italian court held that the arbitration clauses contained in the parties' contract fell within the New York Convention. page "263" The court noted that the clauses http://www.kluwerarbitration.com/CommonUI/print.aspx
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referred exclusively to a contractual relationship involving a sale, which was plainly “commercial” under Italian law. (314) Nevertheless, there is still scope for differences over the Convention's “commercial” requirement. In other contexts, such as under the foreign sovereign immunity and act of state doctrines, national courts have struggled with “commercial” exceptions. (315) Disputes can therefore be anticipated over the application of the Convention in the context of “public law” statutory rights, such as the antitrust laws, (316) and concession agreements or other contracts involving elements of national sovereignty. (317) Alternatively, suggestions have been made that consumer transactions (318) and employment relations (319) should be treated as non-commercial. Motivated by such concerns, a few national court decisions have adopted what appear to be narrow definitions of “commercial relationship” under the Convention. (320) For example, in one early decision, an Indian court held that agreements concerning the transfer of technology were not “commercial” under Indian law or the Convention. (321) Likewise, the Tunisian Cour de Cassation held page "264" that a contract for the architectural design in a townplanning program was not commercial. (322) These decisions are retrograde and fail to give effect to either the Convention's objectives or to contemporary conceptions of “commercial.” They typically reflect parochial efforts to safeguard local interests, without due regard for the Convention's objectives of ensuring a neutral, efficient means of resolving international disputes. As discussed below, they also adopt artificial and implausible conceptions of what constitutes “commercial,” which do not accord with either parties' expectations or the needs of international commerce. ii. International Limits on Definition of “Commercial” under New York Convention Read literally, Article I(3) of the New York Convention arguably leaves it to individual Contracting States to define “commercial” under national law, without imposing any international limits on national definitions. (323) This interpretation of Article I(3) would result in the provision largely duplicating the non-arbitrability doctrine, (324) by permitting Contracting States to rely on local law to avoid application of the Convention's pro-arbitration regime. It would also permit dilution or circumvention of the Convention's objectives through adoption of artificially narrow definitions of the term “commercial.” Despite this possibility, the Convention's “commercial” requirement has in practice produced few such difficulties in most national courts, and the clear trend has been towards a liberal and expansive definition of the term. (325) Notwithstanding the literal language of Article I(3) of the Convention, a substantial case can be made that Contracting States are not free to adopt whatever definition they choose of the term “commercial.” Permitting this type of unilateral action without any sort of international limit would effectively allow states to empty the Convention of most or all meaningful obligations, (326) which cannot have been the drafters' intentions. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Rather, the better view is that the Convention leaves Contracting States free, within the scope of an international-defined conception of “commercial,” to adopt particular reservations based on specific national law definitions. That is, a page "265" Contracting State is free under Article I(3) to make a reservation declaring that it does not accept the Convention's obligations as to particular noncommercial matters (e.g., domestic relations), but a state is not free to categorize what are properly regarded, from an international perspective, as “commercial” matters (e.g., contract claims arising from a joint venture agreement) as “non-commercial,” and thereby to evade the Convention's obligations with regard to such matters. (327)
Under this analysis, if a Contracting State wished to do so, it would remain free to invoke non-arbitrability and public policy exceptions to the recognition of arbitral awards (Article V(2)) (328) and arbitration agreements (Article II(1)). (329) Again, however, a Contracting State could not define commercial matters to be non-commercial. In addition to limiting the possibilities that the Convention's objectives would be frustrated or circumvented, this analysis would also reduce duplication between the Convention's commercial relationship requirement and non-arbitrability exception. It would do so by leaving Contracting States free to exclude genuinely noncommercial disputes from the Convention, while also adopting more carefully-tailored non-arbitrability restrictions as to particular commercial disputes under Articles V(2)(a) and II(1). In terms of the content of the term under the Convention, a “commercial” relationship should have its ordinary meaning, being a relationship involving an economic exchange where one (or both) parties contemplate realizing a profit or other economic benefit. This definition is consistent with the weight of lower court authority under the Convention (330) and the definition of the term in other contexts. (331) It is a liberal, expansive definition that includes all manner of business, financial, consulting, investment, technical and other enterprise. Among other things, the foregoing definition of “commercial” includes consumer transactions and (less clearly) employment contracts, thereby bringing agreements to arbitrate disputes arising from such matters within the Convention. This leaves Contracting States free, within the Convention's other limits, to adopt rules of substantive validity or non-arbitrability tailored to employment or consumer relations – which is preferable to a categorical exclusion of the Convention's protections in such cases: Contracting States may then permit the arbitrability of certain kinds of employment or consumer disputes, in which case the Convention would apply, but not others, in which case the dispute will be non-arbitrable. (332) page "266" Indeed, as discussed in greater detail below, this would facilitate the use of international arbitration to resolve at least some types of cross-border consumer or international employment disputes in ways that can be fairer and more effective than traditional domestic litigation. (333) Finally, there are also good grounds for reconsidering the Convention's “commercial” reservation as a matter of policy, in order to prevent the definitional disputes and parochial responses discussed above. The better approach to Article I(3) was adopted by France in 1989, which withdrew the commercial reservation that it
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made when originally ratifying the New York Convention. (334) That removes the need for definitional debates about what relationships, and arbitration agreements, are “commercial.” It does not appear that other countries have yet followed France's example, although its logic has much to recommend it. At the same time, as discussed above, most Contracting States' reservations for “non-commercial” matters have been invoked relatively infrequently, making the need for such withdrawals less pressing. c. European Convention Other international arbitration conventions have partially or entirely avoided the difficulties arising from the New York Convention's approach to the “commercial” relationship requirement. The 1961 European Convention is titled the European Convention on International Commercial Arbitration and applies to arbitration agreements “concluded for the purpose of settling disputes arising from international trade between physical or legal persons.” (335) In contrast to the literal terms of the New York Convention, this definition expressly adopts a uniform, international standard for “international trade,” from which individual Contracting States are not free unilaterally to depart. (336) Although this does not necessarily prevent Contracting State courts from adopting idiosyncratic interpretations of the Convention, it materially limits the scope for doing so, by explicitly adopting an international (rather than domestic) standard. (337) page "267" Less helpful is the European Convention's reference to “international trade,” rather than “commercial” relations. This change in terminology might be misused to imply a narrow definition of “commercial” in other instruments (including the New York Convention and the UNCITRAL Model Law) or, conversely, act as an exclusion of financial, investment and other matters arguably not concerning “trade.” In fact, the European Convention's drafters were seeking to make clear that the Convention applied broadly to all agreements arising out of international trade, finance, and investment, without regard to historic or parochial distinctions between “commercial” and “noncommercial” matters. (338) That objective could better have been accomplished by making clear the contemporary, expansive international understanding of “commercial.” Nonetheless, it is confirmed by the reference in the Convention's title to “International Commercial Arbitration,” leaving little room for suggestions that the term “commercial” has a different meaning than “trade.” d. Inter-American Convention The Inter-American Convention applies to any agreement “in which the parties undertake to submit to arbitral decision any differences that may arise or have arisen between them with respect to a commercial transaction.” (339) Again, this improves on the New York Convention, by removing any reference to national law definitions of “commercial,” and instead expressly adopting a uniform international definition of the term. (340) Nonetheless, the Inter-American Convention may be criticized for referring to a “commercial http://www.kluwerarbitration.com/CommonUI/print.aspx
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transaction”: that definition arguably excludes non-transactional commercial conduct or disputes arising outside the context of a specific transaction, and thereby creates scope for unnecessary jurisdictional disputes. (341) page "268" e. Future Directions: The “Commercial” Requirement in International Arbitration Conventions The clear trend of international instruments and state conduct during the past eight decades has been away from parochial definitions of “commercial,” and towards an expansive, international understanding of the term, extending to all manifestations of international trade, finance, investment, consulting, technical and similar activity characteristic of earning a profit or economic return. That is reflected in the express adoption of uniform international standards in the European and Inter-American Conventions, as well as by the liberal interpretation of the term “commercial” under the New York Convention by virtually all authorities in virtually all leading jurisdictions. As discussed below, this trend is also consistent with contemporary developments in the treatment of “commercial” requirements under national arbitration legislation. (342) The New York Convention's “commercial” relationship requirement should be interpreted consistently with these developments. As discussed above, it should be interpreted as contemplating international limits on what a state may characterize as noncommercial under local law. (343) This is consistent with the ordinary meaning of the term “commercial,” while leaving Contracting States able to adopt more nuanced and tailored rules of non-arbitrability with regard to particular types of commercial disputes that implicate local public policies. f. National Arbitration Legislation and Judicial Decisions Like leading international conventions in the field, national arbitration statutes are frequently limited to “commercial” matters. These limitations have, however, been interpreted in the most liberal fashion and serve again more to emphasize the breadth of the international arbitral process than to limit it. i. UNCITRAL Model Law Article 1(1) of the UNCITRAL Model Law limits the Law's application to “international commercial arbitration.” (344) Article 1(1) does not define the term page "269" “commercial,” but the Law's drafters included a footnote to the text of the legislation which provides important guidance. It reads: “The term ‘commercial’ should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; http://www.kluwerarbitration.com/CommonUI/print.aspx
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factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.” (345) This explanation was not included formally as part of the Model Law itself, but nonetheless represents authoritative guidance as to the intended scope of the term “commercial,” as used in the Model Law. (346)
The footnote's interpretation contains obvious and irritating tautologies (e.g., “commercial” means “all relationships of a commercial nature”). Nonetheless, the explanation confirms that the term “commercial” has an extremely broad scope, extending to all forms of trade, investment, financial and services. Among other things, the term applies without regard to the nature or form of the parties' claims and looks only to the character of their underlying transaction or conduct. (347) Some states that have implemented the Model Law have adopted the drafters' explanatory footnote as statutory language. (348) Other states have either omitted any definition of “commercial” in their enactment of the Model Law (349) or have referred to “international trade” in defining the scope of national legislation. (350) Regardless page "270" of the statutory language adopted in particular jurisdictions, national courts have interpreted the Model Law's definition of “commercial” broadly. (351) Despite its breadth, the Model Law's footnote omits express reference to certain types of transactions, including specifically consumer contracts and employment contracts. (352) Equally, the Model Law's definition refers, albeit unclearly, to “trade” transactions, arguably connoting involvement by traders or merchants, as distinguished from consumers or employees. (353) Nonetheless, the Model Law's list of examples of commercial relations is non-exclusive (“include, but are not limited to”), making it difficult to draw conclusions from the exclusion of particular types of transaction from the Law's footnote. (354) It is also noteworthy, however, that the Model Law's footnote extends expressly to “carriage of … passengers” and “consulting,” which very arguably include at least certain consumer or employment relations – raising the question why other types of consumer and employment relations are any less “commercial” or more appropriately excluded entirely from the Model Law's coverage. (355) The better view, therefore, is that the Model Law includes within its coverage both consumer and employment matters, subject to any specific non-arbitrability rules adopted in particular states pursuant to Article 1(5) of the Law. (356) page "271" ii. U.S. Federal Arbitration Act In jurisdictions that have not adopted the Model Law, national arbitration legislation and judicial decisions confirm the trend towards expansive definitions of “commercial” relationships. In the http://www.kluwerarbitration.com/CommonUI/print.aspx
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United States, §2 of the FAA is limited to arbitration agreements in “transaction[s] involving commerce.” (357) U.S. courts have repeatedly interpreted this language broadly, extending the domestic FAA to a wide range of matters. (358) Among other things, U.S. judicial decisions have held that both employment (359) and consumer (360) contracts constitute “commerce” within the meaning of the FAA. As discussed elsewhere, the FAA contains exceptions for certain categories of interstate transportation workers (seamen, rail workers). (361) These page "272" exceptions have been narrowly interpreted in both domestic (362) and international (363) cases. The very existence of these exceptions confirms, however, that the FAA is in principle applicable to employment relations. The FAA's second chapter, which applies to arbitration agreements subject to the New York Convention, does not contain a separate definition of (or requirement to satisfy) the term “commercial.” (364) U.S. courts have held that the FAA's second chapter instead simply incorporates the Convention's definition of “commercial,” which, as discussed above, has been interpreted broadly. (365) iii. National Arbitration Legislation Omitting Any Commercial Relationship Requirement In some European states, an even more expansive approach is taken to the “commercial” relationship requirement than in the United States. French judicial decisions have repeatedly held that domestic distinctions between “commercial” and “non-commercial” matters are inapplicable in international arbitration and that there is no “commercial” requirement or limitation in the international context. (366) French courts have also made clear that international arbitration agreements will be subject to France's international arbitration legislation (and presumptively valid) when used in at least some categories of contracts not involving merchants. (367) A number of other developed states omit a “commercial” relationship requirement, instead adopting less demanding limitations. The English Arbitration Act, 1996, omits any jurisdictional requirement based on the existence of a “commercial” relationship and applies to all arbitration agreements. (368) Germany also omitted the Model Law's “commercial” relationship requirement, adopting page "273" only a general non-arbitrability exception, requiring that arbitration agreements concern “claims involving an economic interest.” (369) Similarly, the new Italian arbitration legislation does not make any reference to “commercial” disputes, and instead allows parties to submit any disputes to arbitration “provided the subject matter does not concern rights which may not be disposed of, except in case of express prohibition by law.” (370) In the same fashion, and for similar purposes, the Japanese Arbitration Law also omits any “commercial” requirement, although it does limit the Law's application to “civil disputes.” (371) The basic purpose of these various statutory regimes is to limit objections to the enforceability of arbitration agreements to generally-applicable rules of substantive validity (372) or the nonarbitrability doctrine, (373) rather than adopting a “commercial” relationship requirement or permitting it to be used for such http://www.kluwerarbitration.com/CommonUI/print.aspx
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purposes. As discussed above, this reflects sound policy and is also the better interpretation of the New York Convention. (374) iv. National Arbitration Legislation Imposing Strict “Commercial” Relationship Requirements There are exceptions to these expansive definitions of “commercial” (or the abandonments of any commercial relationship requirement). In 1987, the Chinese Supreme People's Court produced a circular setting forth an interpretation of “commercial” arbitrations, which excluded “arbitration between a foreign investor and the host country.” (375) Likewise, as noted above, an Indian court held that agreements concerning the transfer of technology were not “commercial” under Indian law, (376) while a Tunisian court held that a contract for the architectural design page "274" in a town(377) planning program was not “commercial”. One Canadian court has also held that at least certain employment relations are not “commercial.” (378) As also discussed above, these decisions are retrograde and fail to give effect to contemporary conceptions of “commercial” or, properly understood, Contracting States' obligations under the New York Convention. They typically reflect parochial efforts to benefit local business or other interests, and ignore the true intent of national arbitration legislation and international arbitration conventions. Insofar as states wish to further specific local public policies with regard to particular matters, the appropriate course is through a more nuanced, tailored use of the non-arbitrability doctrine, rather than a blanket categorization of particular matters as “noncommercial.” v. Future Directions: The “Commercial” Requirement in National Arbitration Legislation Despite isolated decisions adopting narrow definitions of what constitutes “commercial,” the clear trend of national arbitration legislation and judicial decisions is towards either an expansive definition of the term “commercial” or the omission of any “commercial” relationship requirement. All forms of trade, investment, financing, provision of services or goods, joint cooperation, insurance, research, exploration or development, and similar economic, industrial, or other commercial enterprise are covered by the term “commercial.” Historic distinctions, reflecting local statutory rules concerning commercial courts or codes, have been abandoned, in favor of more liberal, realistic definitions of the term “commercial.” These expansive definitions properly serve to effectuate the pro-arbitration objectives of both international arbitration conventions and national legislation, extending their enforcement regimes and procedural protections to virtually all consensual arbitration agreements involving business or economic interests or activities. (379) It is relevant, but not decisive, in defining the term “commercial” in national arbitration legislation to consider the definition of “commercial” in other international contexts. One arguable analogy involves foreign state (or sovereign) immunity. (380) Under most international instruments and national state immunity page "275" legislation, foreign states are denied immunity in certain http://www.kluwerarbitration.com/CommonUI/print.aspx
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“commercial” activities. (381) These definitions of “commercial” vary, but generally include any form of profit-making or contractual activity. (382)
Importantly, however, the definitions that are appropriate for ascertaining the scope of state or sovereign jurisdictional immunity in national courts should not be decisive for interpreting the scope of parties' autonomy under the New York Convention, the UNCITRAL Model Law, or other arbitration legislation. The proper application of the Convention and the Model Law involves different considerations and policies than do questions of state jurisdictional immunity. While definitions of “commercial” from the state immunity context provide a reference point, more expansive policies (of facilitating a consensual dispute resolution process) and fewer concerns (regarding state sovereignty from non-consensual national court proceedings) are at work in the arbitration context. 3. “International” or “Foreign” Arbitration Agreements As noted above, most international arbitration conventions apply only to arbitration agreements that have some sort of “foreign” or “international” connection, and not to purely domestic agreements. (383) The same is true under many national legal regimes, where “international” or “foreign” arbitration agreements are often subject to distinct legislative and/or judicial rules (distinguishable from those applicable to domestic arbitration agreements). (384) This is consistent with the purpose of both types of instruments, which is to facilitate the international arbitral process, without necessarily disturbing local regulation of domestic arbitration matters. page "276" a. New York Convention The Geneva Protocol was expressly limited to agreements to arbitrate between parties that were nationals of different Contracting States. (385) This was the sole criterion for “internationality”: other agreements to arbitrate, even if they involved classic cross-border international trade or investment, were not subject to the Protocol. In contrast, as noted above, the text of Article II of the New York Convention does not expressly address the categories of arbitration agreements which are subject to the Convention. Instead, the Convention's text only addresses what awards are entitled to the treaty's protections. (386) As a consequence, the definition of those arbitration agreements governed by the New York Convention must be ascertained by implication, either by reference to the Convention's treatment of arbitral awards or otherwise. In these circ*mstances, there are unfortunately several possible interpretations that may be adopted. The analysis of these permutations can be frustratingly complex, but, properly understood, ultimately produces a simple, sensible result. i. “International” Arbitration Agreements under the New York Convention As discussed below, by virtue of Article I(1), the New York http://www.kluwerarbitration.com/CommonUI/print.aspx
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Convention is applicable to specified categories of “foreign” or “nondomestic” arbitral awards. (387) Arguably, the Convention is more broadly applicable to a wider range of arbitration agreements, and is not limited by the Convention's application to a specified category of “foreign” or “non-domestic” arbitral awards. (388) Under this view, the Convention page "277" would apply either to all arbitration agreements, or, more satisfactorily, all “international” arbitration agreements. There is no text in the Convention that would specifically mandate such a definition. Nonetheless, a compelling argument can be made that the Convention by its nature deals with “international” arbitration agreements – these, rather than domestic arbitration agreements, being the obvious focus of the Convention's drafters. Equally, as discussed below, it would be wrong to transpose the Convention's provisions regarding “foreign” and “non-domestic” awards to arbitration agreements. (389) Under this view, national courts would be charged with formulating an appropriate uniform definition of such “international” arbitration agreements based on the Convention's structure and objectives. As discussed below, this analysis would result in a straightforward, liberal definition of “international” arbitration agreements to which the Convention applies – presumptively including all agreements involving multinational parties, transnational trade, investment, or other activities, and/or foreign arbitral seats. (390) Before considering this result in greater detail, it is useful to outline other possible interpretations of the Convention. ii. “Foreign” and “Non-Domestic” Arbitration Agreements under the New York Convention More consistent with the literal text of the Convention is a conclusion that the Convention's “foreign” or “non-domestic” award requirement (391) applies, albeit by analogy, to arbitration agreements. Under this interpretation, the New York Convention applies to those arbitration agreements that will be capable of producing a “foreign” or “nondomestic” award within the meaning of Article I(1) of the New York Convention, but not to other arbitration agreements. (392) (1). “Foreign” or “Non-Domestic” Awards As discussed below, the Convention does not apply generally to “international” arbitral awards. Instead, Article I provides that the Convention is applicable only to arbitral awards that are either: (i) “made” in a state other than the Contracting State where recognition or enforcement is sought, or (ii) “not considered as domestic page "278" awards” under the law of the Contracting State where enforcement is sought. (393) These two criteria provide separate and independent bases for concluding that an arbitral award is subject to the Convention's pro-arbitration enforcement regime. (2). “Foreign” Arbitration Awards and Agreements The first of these two criteria is relatively mechanical and, as discussed below, can be readily applied in the case of awards (e.g., http://www.kluwerarbitration.com/CommonUI/print.aspx
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is an award made in the state where litigation to recognize or enforce the award is pending?). (394) This criterion would also be applied, a good deal less easily, in the context of arbitration agreements (e.g., does the arbitration agreement provide for arbitration in a state other than the state in which litigation has arisen?). (395) Despite this apparent simplicity, a recurrent question applying this standard is whether the New York Convention applies whenever a court in one Contracting State considers an arbitration agreement specifying an arbitral seat in another Contracting State, including particularly where the parties to the agreement are both nationals of the first Contracting State (e.g., parties from State A agree to arbitrate in State B). Some national courts have apparently held that this question is simple: if an arbitration agreement provides for arbitration in another Contracting State, then it contemplates a “foreign” award and is subject to the Convention, regardless of the nationality of the parties or the nature of the dispute. (396) Thus, even if purely page "279" domestic parties agree to arbitrate a purely domestic dispute in a foreign country, the arbitration agreement is subject to the New York Convention. This approach would leave determination of an agreement's “international” character substantially to the parties' choice, through their selection of the arbitral seat. As discussed below, however, other national courts (particularly in the United States) have been reluctant to apply the Convention to arbitration agreements between two nationals of the same state concerning matters purely domestic to that state (i.e., parties from State A agree to arbitrate a domestic dispute involving actions occurring only in State A, under State A's law, in State B). (397) These courts have reasoned that the Convention was not intended to apply to purely domestic matters, involving only local parties. (398) Conversely, this first criterion does not provide any basis for concluding that the Convention applies, in the national courts of a Contracting State, to an arbitration agreement providing for arbitration within that same state (e.g., if parties from States A and B engaged in a cross-border sale transaction agree to arbitrate in State C, their agreement to arbitrate would be “foreign” in States A and B, but would not page "280" be “foreign” in State C). Regardless of the “international” character of the parties or the underlying contract or transaction, the relevant point under this criterion is that the arbitration will not, in the courts of the Contracting State where the arbitral seat is located, produce a “foreign award”; (399) by analogy, the arbitration agreement that produces such an award would therefore not be subject to the Convention under this criterion. (400) (3). “Non-Domestic” Awards and Arbitration Agreements The second criterion for determining the applicability of the Convention is more (and frustratingly) complex, even in the context of arbitral awards. This part of Article I(1) refers to arbitral awards that are considered “non-domestic” under national laws in the Contracting State where enforcement in sought. (401) This formula raises significant interpretative issues (although, in practice, it is seldom applicable (402) ). http://www.kluwerarbitration.com/CommonUI/print.aspx
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As discussed below, the better view of the Convention's treatment of awards is that Article I(1)'s reference to “arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought” requires consideration of national law. (403) That is required by the reference to awards that are not “considered as” domestic awards in the enforcing state, which almost inevitably mandates an inquiry into the law of that state. (404) Accordingly, as discussed in greater detail below, the category of what awards are subject to the Convention page "281" according to Article I(1)'s “non-domestic” criteria will vary depending on definitions under national law in particular Contracting States. (405)
The same analysis would apply to arbitration agreements, where the scope of the Convention would depend on individual Contracting States' definitions of “non-domestic” arbitral awards, because it would be the arbitration agreements that produce those “nondomestic” awards which are subject to the Convention. (406) The definitions of “non-domestic” arbitral awards under national law – and hence, the derivative scope of Article I(1)'s application to arbitration agreements, if this analysis were adopted – are discussed below. (407) iii. Future Directions: “International” Arbitration Agreements under the New York Convention The better view of the foregoing issues is that the New York Convention's provisions regarding arbitration agreements are not limited to those agreements that produce “foreign” and “nondomestic” awards, but instead extend to all “international” arbitration agreements. (408) The omission of any linkage between arbitral awards and arbitration agreements from the text of the Convention is significant in this regard: although Article I(1) of the Convention defines those arbitral awards to which the Convention applies, this definition does not expressly extend to arbitration agreements, nor is there any indication that Article I(1)'s definition is incorporated into the definition of arbitration agreements, either expressly or impliedly. (409) Imposing such a restriction on the Convention's scope requires implying a material limitation into the Convention's text – which could readily have been accomplished as a drafting matter, but was not. Rather, the Convention adopts a page "282" “sweeping approach” towards arbitration agreements, placing no literal limitation on those agreements that are subject to its pro-arbitration regime. (410) More important, implying such restriction would not advance, and would instead materially contradict, the Convention's purposes, by excluding from its pro-arbitration regime a very significant category of matters (e.g., litigations concerning an international arbitration agreement in the courts of the arbitral seat). This would have the potential to frustrate the Convention's fundamental objectives of facilitating the use and recognition of arbitration agreements in international commercial matters. (411) Implying a restriction of this nature on the Convention's scope, which contradicts the Convention's purposes, as well as its language, is unjustified. This interpretation is also consistent with the treatment of arbitration agreements under the Geneva Protocol, from which the New York http://www.kluwerarbitration.com/CommonUI/print.aspx
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Convention's provisions regarding arbitration agreements were directly derived. (412) The Protocol provided for the validity of arbitration agreements between nationals of different Contracting States, essentially adopting a nationality-based definition of “international” arbitration agreements. (413) Limiting the New York Convention to arbitration agreements that would produce “foreign” or “non-domestic” awards would be a retrograde step, that would materially reduce the protections for international arbitration agreements under the Convention from that under the Protocol. It is very difficult to conceive that this is what the Convention's drafters intended. (414) The better view is that Article II's application to arbitration agreements should be defined by reference to the Convention's purposes. That is, Article II(1) and II(3) should not be interpreted to apply to purely domestic arbitration agreements, and should instead apply to “international” arbitration agreements. (415) The precise characteristics of an “international” arbitration agreement include reference to the parties' nationalities and domiciles (i.e., all arbitration agreements between parties page "283" of different nationalities or domiciles are “international”) and the location(s) of their contemplated business activities (i.e., all agreements involving transborder or foreign activities are “international”). (416) This is consistent with the Convention's purposes of encouraging the use of arbitration in international trade and investment, while not intruding upon purely domestic matters. (417) As discussed below, most national arbitration regimes properly adopt a similarly liberal definition of “international” arbitration agreements in these circ*mstances. (418) b. European Convention Unlike the New York Convention, the European Convention attempts to provide a definition of “international” arbitration agreements, to which the Convention applies. Article I(1)(a) of the Convention provides: “This Convention shall apply: (a) to arbitration agreements concluded for the purpose of settling disputes arising from international trade between physical and legal persons having, when concluding the agreement, their habitual place of residence or their seat in different Contracting States ….” (419) This definition improves on the New York Convention's silence on this subject, but it was not well-considered. The definition combines two requirements – that is, that an agreement be “for the purpose of settling disputes arising from international trade,” and that the agreement be made between persons with their seats “in different Contracting States.” Requiring that both of these criteria be satisfied in all cases imposes unnecessary limitations on the scope of the Convention. For example, where two companies with their seats in State A (but with extensive international operations) enter into a cross-border sales transaction or a joint venture in a foreign state, it is very difficult to conceive why the Convention should not apply, to their arbitration agreement. Nonetheless, that is the effect of literal application of Article I(1)(a)'s criteria. (420)
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page "284" c. Inter-American Convention The Inter-American Convention is applicable (according to its title and preamble) to “international commercial arbitration.” (421) The Convention thus establishes a uniform concept of “international,” but does not further define this phrase. That leaves national courts and arbitral tribunals the responsibility to define “international,” based upon the Convention's purposes. The appropriate definition of the term should parallel that under the New York Convention. (422) d. National Arbitration Legislation and Judicial Decisions For the most part, national legislatures and judicial decisions have reached more satisfying definitions of “international” than those which would be prescribed by a literal reading of the New York and European Conventions. These definitions are by no means uniform, but they reflect an expansive conception of “international” arbitration agreements that generally ensures the application of pro-arbitration enforcement regimes to any arbitration agreements involving either cross-border trade and finance or transactions between parties of different nationalities or domiciles. These definitions also inform the interpretation of the New York Convention and its applicability to “international” arbitration agreements. (423) i. UNCITRAL Model Law The UNCITRAL Model Law contains a detailed definition of “international” arbitration, which is indirectly applicable to arbitration agreements. Article 1(3) of the Model Law provides: “An arbitration is international if (a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different States; or (b) one of the following places is situated outside the State in which the parties have their places of business: (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 (c) the parties have expressly page "285" agreed that the subject matter of the arbitration agreement relates to more than one country.” (424) Under Article 1(2) of the Model Law, (425) an international arbitration agreement is subject to the most fundamental aspect of the Law's “pro-arbitration” enforcement regime – Article 8's rule of presumptive validity and specific enforceability of arbitration agreements – regardless whether the arbitral seat is located within the judicial enforcement forum or abroad. Notably, this is a departure from the general structure of the Model Law, most of whose provisions apply only to arbitrations seated on national territory. (426) Exceptionally, Article 1(2) makes the Model Law's basic provision for enforcement of arbitration agreements applicable to agreements providing for a http://www.kluwerarbitration.com/CommonUI/print.aspx
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foreign arbitral seat. (427) The UNCITRAL Secretariat's Explanatory Note on the Model Law emphasized the importance of this rule, noting that Article 8(1) “is not restricted to agreements providing for arbitration in that State and, thus, helps to give universal recognition and effect to international commercial arbitration agreements.” (428) Most states that have adopted the Model Law have incorporated the definition contained in Article 1(3), although a few statutes have modified the language (without apparent substantive effect). (429) A few other states have limited the scope of “international” arbitration as compared to the Model Law, (430) while others have eliminated the requirement altogether (making the local enactment of the Model Law applicable to all arbitrations seated on national territory, without regard to “international” or “domestic” character). For example, Spain and Germany's page "286" enactment of the UNCITRAL Model Law (as well as the English Arbitration Act, 1996) deleted provisions limiting the legislation's application to “international” arbitrations, extending it to all arbitrations. (431) Article 1(3) of the Model Law provides an extremely broad definition of “international,” which has been criticized as overly-expansive. (432) Under its terms, an arbitration agreement will be “international” if: (a) it is between parties from different states, (433) or (b) it provides for arbitration outside the state where the parties have their places of business, (434) or (c) the parties' underlying commercial relationship provides for (substantial) performance outside the state where the parties have their places of business. (435) Moreover, Article 1(3) also separately permits parties to, in effect, contract into the Model Law by express agreement. (436) Under the Model Law, an arbitration agreement between nationals of State A, concerning a local transaction in State A, providing for arbitration in State A, will not be subject to the Law (absent agreement by the parties under Article 1(3)). (437) Purely domestic arbitrations of this sort are not international in any respect and are excluded from the coverage of the Model Law. Thus, some decisions in Model Law jurisdictions have considered arguments that the Law's provisions do not apply to arbitration agreements purely local to a foreign jurisdiction. In one Australian court's words: page "287" “At the heart of the application of the Act is the arbitration agreement. But the Act will not apply to any and every arbitration agreement in the world: an arbitration agreement between two Ruritanian subjects, made in Ruritania concerning a Ruritanian dispute and with the conduct of the arbitration in Ruritania, could hardly be subjected to its provisions.” (438)
Other than this, however, the scope of the Model Law is extremely broad: the definition of “international” in Article 1(3) is expansive (indeed, arguably too expansive). The Model Law provides in Article 1(3)(a) that an arbitration agreement will be international if concluded between nationals of different states. This is sensible. If parties to an arbitration agreement are from different states, many of the basic purposes of http://www.kluwerarbitration.com/CommonUI/print.aspx
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international arbitration (i.e., providing a neutral dispute resolution mechanism that overcomes the jurisdictional complexities and risks of local bias of international litigations (439) ) are implicated and it makes perfect sense to apply the Model Law's pro-enforcement provisions. (440) Likewise, the Model Law's statement (under Article 1(3)(b)(ii)) that an arbitration agreement will be international if the parties' contract concerns performance outside of the state where both parties are located is sensible for the same reasons. More controversial is Article 1(3)(b)(i)'s provision that an arbitration agreement will be international if it provides for an arbitral seat in a state other than that where the parties are located. (441) Paralleling similar concerns that arise under the New York Convention, (442) some commentators have questioned whether “a choice made exclusively by the parties,” concerning the arbitral situs, should suffice to make the Model Law's pro-enforcement regime applicable. (443) This criticism is understandable, but overbroad. page "288" There may be cases where two domestic parties agree to arbitrate disputes concerning a purely domestic transaction abroad, for the purpose of evading local regulatory requirements; in these instances, Article 1(3)(b)(i) can readily be interpreted as not permitting such circumvention. (444) In other cases, however, there is no reason not to apply Article 1(3)(b)(i) as drafted. For example, it is difficult to see why the Model Law should not apply where participants in a particular industry agree to arbitrate in a foreign arbitral situs with recognized expertise, experience and neutrality in their market, (445) or where companies with foreign roots or affiliations (cultural, linguistic, or historical) agree to arbitrate in a foreign arbitral situs with comparable cultural and linguistic affinities. (446) Although it is appropriate to be mindful of the possibility that selection of a foreign arbitral seat may be a sham, to evade local mandatory law or public policy, there are many instances where this is not the case and it is inappropriate to discard legitimate private choices along with illegitimate ones. Article 1(3)(c) has also been criticized on similar grounds, as permitting parties to “opt-in” to the Model Law's internationality definition. (447) Some states that have adopted the Model Law have therefore omitted Article 1(3)(c) from their definition of international arbitration. (448) This criticism is well-grounded. It would be an appropriate policy choice for a national legislature to permit parties to any arbitration agreement – international or domestic – to avail themselves of the legal regime set forth in the Model Law. Indeed, as discussed above, some states have adopted identical legal regimes for both domestic and international arbitration agreements and arbitrations. (449) Nonetheless, it makes little sense to permit parties to do this by way of labeling domestic arbitrations/arbitration agreements as “international.” This produces a lack of transparency and clarity which ill-serves the long-term interests of either international or domestic arbitration. page "289" ii. U.S. Federal Arbitration Act http://www.kluwerarbitration.com/CommonUI/print.aspx
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In the United States, the definition of “international” arbitration agreements for purposes of domestic arbitration legislation (the FAA) is bound up with the specific text of the FAA and the New York Convention. The U.S. approach nonetheless bears important parallels to developments under the UNCITRAL Model Law. As discussed below, U.S. courts have held that any arbitration agreement with a “reasonable relation” to one or more foreign states will be governed by the New York Convention and its U.S. implementing legislation (Chapter 2 of the FAA), (450) while indicating reluctance to apply the Convention to agreements exclusively between U.S. nationals, concerning purely domestic U.S. transactions, to arbitrate in a foreign arbitral seat. (451) As discussed elsewhere, U.S. federal legislation provides two basic legal regimes for arbitration: (a) the domestic FAA (Chapter 1), applicable to domestic arbitration agreements and (residually) to international arbitration agreements not covered by the New York or Inter-American Conventions; (452) and (b) the “non-domestic” FAA (Chapters 2 and 3), applicable to international arbitration agreements covered by the New York Convention (Chapter 2) or Inter-American Convention (Chapter 3). (453) This legislation provides only partial answers to the question of what statutory provisions apply to particular arbitration agreements, although the statutory framework is capable of being interpreted to provide a sensible result. Section 202 of the FAA addresses the categories of arbitration agreements that are governed by the statute's second, nondomestic chapter. Section 202 provides: “An arbitration agreement or arbitral award arising out of a legal relationship, whether contractual or not, which is considered as commercial, including a transaction, contract, or agreement described in §2 of this title, falls under the Convention. An agreement or award arising out of such a relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.” (454) page "290" Section 202 is not by its literal wording an affirmative statement of the Convention's scope in U.S. courts; rather, §202 is, by its terms, only a negative statement as to when the Convention will be deemed inapplicable in U.S. courts. Nonetheless, lower U.S. courts have applied §202's “reasonable relationship” requirement as an (impliedly) affirmative definition of when the Convention will apply to arbitration agreements and awards; in so doing, they have assumed that, if an agreement or award has a “reasonable relation” to one or more foreign states, then it will be subject to the Convention (regardless where the arbitration is seated). (455) In effect, §202 constitutes the U.S. definition of the “internationality” of an arbitration agreement, which in turn defines when the Convention and its U.S. implementing legislation will apply to an arbitration agreement in http://www.kluwerarbitration.com/CommonUI/print.aspx
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U.S. courts. (1). Agreements to Arbitrate in the United States Section 202 is potentially applicable to agreements to arbitrate in the United States, including agreements made solely between either U.S. nationals or foreign nationals, provided only that the parties' agreement has a “reasonable relationship” to a foreign state. Applying §202, U.S. courts have held that the New York Convention may apply to international arbitrations seated in the United States, including arbitrations solely between U.S. nationals, as well as arbitrations between parties of other nationalities – in all cases provided that the arbitration agreement has a “reasonable relation” to one or more foreign States. Applying this analysis, in Lander Co., Inc. v. MMP Investments, Inc., (456) the Court of Appeals held that the Convention applied to an arbitral award where the dispute was between two U.S. parties and where the arbitration took place in the United States. The Seventh Circuit found that the parties' contract to distribute products in Poland fell “squarely within the inclusion [sic] and outside the exclusion” of §202. The Court explored the language of §202, explaining that “Congress may have believed that confining enforcement under the Convention to awards rendered abroad would drive away international arbitration business from New York. Or it may have been seeking to secure the Convention's benefits, on the basis of reciprocity, to American businesses seeking judicial enforcement of foreign arbitration awards in the countries in which the award was made. Or it may simply have wanted to simplify the procedures governing the foreign activities of American firms, since American firms doing business abroad are bound to have contracts with page "291" foreign firms as well as other American firms. Whatever Congress's precise thinking on the matter, it spoke clearly.” (457) Similarly, another U.S. appellate court categorized an arbitral award made in the United States as “non-domestic,” and subject to the Convention under §202 of the FAA, because one of the parties was German. The court reasoned “that arbitration agreements and awards ‘not considered as domestic’ in the United States are those agreements and awards which are subject to the Convention not because they were made abroad, but because they were made within the legal framework of another country.…” (458) The court went on to note its preference for “this broad construction because it is more in line with the intended purpose of the [New York Convention], which was entered into to encourage the recognition and enforcement of international arbitration awards.” (459) Finally, in Bergesen v. Joseph Muller Corp., (460) the Second Circuit held that the New York Convention was applicable to an arbitral award rendered in New York arising from an arbitration of a dispute between two foreign parties: “We adopt the view that awards ‘not considered as http://www.kluwerarbitration.com/CommonUI/print.aspx
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domestic’ denotes awards which are subject to the Convention not because made abroad, but because made within the legal framework of another country, e.g., pronounced in accordance with foreign law or involving parties domiciled or having their principal place of business outside the enforcing jurisdiction …. We prefer this broader construction because it is more in line with the intended purpose of the [New York Convention], which was entered into to encourage the recognition and enforcement of international arbitration awards …. Applying that purpose to this case involving two foreign entities leads to the conclusion that this award is not domestic.” (461) Other U.S. decisions adopt similar analyses of §202's “reasonable relationship” standard and the Convention. (462) These holdings are fully applicable to agreements to arbitrate in the United States between U.S. nationals, as well as to arbitral awards. page "292" (2). Agreements to Arbitrate Outside the United States Conversely, §202 is also applicable to agreements to arbitrate outside the United States, including agreements solely between either U.S. or foreign nationals, again provided only that the parties' agreement has a “reasonable relationship” to a foreign state. In this regard, it is clear that §202 encompasses virtually all agreements to arbitrate (in a non-U.S. seat or a U.S. seat) between non-U.S. nationals or between U.S. and non-U.S. nationals. (463) Agreements between U.S. nationals (and not involving any non-U.S. nationals) to arbitrate abroad are potentially more complex under the FAA. Section 202 elaborates on the “reasonable relationship” requirement by specifying that contracts involving property or performance abroad have a reasonable relationship with a foreign state, but does not limit the definition of agreements subject to the FAA's second chapter to such contracts. Rather, as a matter of statutory interpretation, a “reasonable relationship” to a foreign state must necessarily include things other than merely the existence of property or performance abroad (which are separately mentioned in §202). It would therefore appear that this “reasonable relationship” standard would in principle be satisfied by U.S. nationals agreeing to arbitrate a domestic dispute (not concerning property or performance overseas) abroad, at least where this was not an effort to circumvent local regulatory protections. For example, if a foreign arbitral seat is selected because of historical, industry, or legal reasons (e.g., London, Singapore or Hamburg for insurance or maritime matters), (464) this should be sufficient to satisfy §202's reasonable relationship requirement. This is confirmed by the fact that §202's “reasonable relationship” requirement is derived from §1-105 of the UCC. (465) As discussed elsewhere, §1-105 generally permits parties to a transaction to select a neutral foreign law which has no connection to the parties' transaction. (466) Section 202 should similarly be interpreted as extending the FAA's second chapter to cases where domestic U.S. parties have page "293" selected a neutral arbitral seat (especially where the seat has particular expertise or historical http://www.kluwerarbitration.com/CommonUI/print.aspx
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experience). (467) U.S. judicial decisions are generally consistent with this. (468) Section 202 nonetheless excludes some arbitrations that are seated outside the United States, at least arbitrations involving only U.S. parties. The legislative history of §202 explains: “The second sentence of §202 is intended to make it clear that an agreement or award arising out of a legal relationship exclusively between citizens of the United States is not enforceable under the Convention in U.S. Courts unless it has a reasonable relation with a foreign state.” (469) The stated legislative purpose of §202's exclusion was therefore very clearly to avoid the possible application in U.S. courts of the FAA's second chapter (and the New York Convention) to arbitration agreements and awards concerning at least some purely local disputes between U.S. nationals. (470) This legislative purpose and statutory limitation are consistent with the criticism, discussed above, of Article 1(3)(b)(i) of the Model Law for its extension of the Law to agreements by two locals to arbitrate a purely local dispute abroad. (471) Consistent with the text and legislative history of §202, U.S. courts have been reluctant to apply the New York Convention and its implementing legislation to agreements to arbitrate purely domestic disputes between U.S. nationals. Thus, one U.S. lower court held that the Convention was not applicable to an agreement to page "294" arbitrate in Switzerland between a U.S. company and its U.S. employee, where the parties' underlying contract was to be entirely performed in the United States. (472) Several other lower U.S. courts have reached similar conclusions about agreements between U.S. citizens to arbitrate purely local disputes outside the United States. (473) In contrast, as discussed above, where U.S. parties agree to arbitrate a foreign or international transaction abroad (or at home), §202 clearly makes the Convention applicable; (474) only agreements to arbitrate purely domestic U.S. disputes will be denied protection under §202 and the Convention. (3). Consistency of §202 with New York Convention The rationale of the U.S. decisions discussed above, and the text of §202, would not readily be squared with a literal (and, properly analyzed, incorrect) reading of the Convention as applying to arbitration agreements that produce “foreign” arbitral awards. (475) page "295" Under this reading, the Convention would not make any exception for foreign arbitral awards which are rendered in disputes between local residents or for “foreign” awards lacking a “reasonable relationship” to foreign matters; all such awards fall within the literal terms of the Convention's definition of foreign awards and appear to be subject to its coverage. (476) Thus, if the Convention were (wrongly) interpreted as applying to arbitration agreements that produce “foreign” awards, (477) then the foregoing U.S. decisions would be very difficult to defend: they exclude from the Convention's coverage a category of arbitration agreements that would be subject to its express coverage, by virtue of producing foreign arbitral awards. http://www.kluwerarbitration.com/CommonUI/print.aspx
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On the other hand, if the Convention were interpreted as applying to “international” arbitration agreements, as proposed above, (478) then these U.S. decisions could be defended. Although such a result is not compelled, the definition of an “international” arbitration agreement could be applied to exclude agreements between local nationals or residents to arbitrate purely domestic disputes even if the arbitrations are conducted abroad. (479) Finally, even if the New York Convention, and the second chapter of the FAA, do not apply to an agreement between U.S. parties specifying a foreign arbitral seat, it is important to note that §§3 and 4 of the FAA still apply. (480) In principle, these provisions would also provide for the recognition and enforcement of most arbitration agreements under a relatively pro-arbitration legislation regime. (481) That regime is somewhat less favorable than the FAA's second chapter and the New York Convention, but it would nonetheless generally provide an adequate basis for enforcing an agreement to arbitrate. iii. France French law has a distinctive approach to the definition of “international” arbitration, which has been influential in other francophone states. (482) Article 1492 of the French New Code of Civil Procedure provides that: “an arbitration is international when it involves the interests of international trade.” (483) Applying this statutory definition, French courts have focused exclusively on the “objective” elements of a transaction or relationship, inquiring whether these elements implicate “international trade.” (484) page "296" Examples of agreements satisfying Article 1492's definition classically include cross-border sale of goods, freight deliveries, or lending arrangements. (485) In the words of one leading French judicial decision: “the international nature of an arbitration must be determined according to the economic reality of the process during which it arises. In this respect, all that is required is that the economic transaction should entail a transfer of goods, services or funds across national boundaries, while the nationality of the parties, the law applicable to the contract or the arbitration, and the place of arbitration are irrelevant.” (486)
This declaration has the advantage of clarity, but the disadvantage of being misconceived. (487) Ignoring the nationality of the parties, and insisting on some element of crossing national borders, only imperfectly serves the purposes of the international arbitral process or the legislation regulating that process. For example, if two French parties (or a French and a foreign party) agree to participate in a joint venture in Egypt, or to construct a plant in China, or to develop real estate in Florida, their undertaking must surely be considered international – even where the goods, materials, capital and knowhow for the project are sourced entirely abroad. Equally, the basic http://www.kluwerarbitration.com/CommonUI/print.aspx
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purposes of international arbitration (i.e., providing an efficient, neutral decision-maker (488) ) are fully applicable in each instance. Yet, under the “objective” approach to Article 1492 favored by French courts, it is exceedingly difficult to reach this interpretative result, because in none of the cases is there any meaningful transfer across national boundaries. More fundamentally, the French approach ignores the fact that the nationality of the parties is a consideration that is highly relevant to the basic purpose of the international arbitral process. It is precisely because parties do not have confidence in, and familiarity with, the courts of the home jurisdiction of their counterparty page "297" that they enter into international arbitration agreements. (489) The French approach of ignoring the parties' nationalities is therefore not only contrary to the approach taken in the UNCITRAL Model Law (490) and FAA, (491) as well as the European Convention (492) and Geneva Protocol, (493) but inconsistent with one of the basic purposes of the international arbitral process. iv. English Arbitration Act The English Arbitration Act, 1996, provides one of the least complex approaches to the legal regime governing international arbitration agreements. The Act does so by treating both domestic and international arbitration agreements the same; both categories of arbitration agreement are subject to the Act. (494) In so doing, the Act deliberately departed from the UNCITRAL Model Law, which was limited to “international” arbitration agreements. The English Arbitration Act does, however, adopt different approaches to arbitrations seated in England and those seated abroad. (495) In particular, like the Model Law, most of the Act's provisions apply only to arbitration agreements providing for arbitrations seated in England (and not arbitrations seated abroad). (496) At the same time, basic provisions regarding the presumptive validity of arbitration agreements and the specific enforceability of such agreements (by means of a stay of litigation) (497) are applicable to arbitration agreements regardless of the arbitral seat. (498) Like the Model Law, this approach makes the fundamental requirement that arbitration agreements be recognized and specifically enforced applicable regardless of the arbitral seat, while limiting other provisions (regarding competence–competence and separability) to agreements to arbitrate in England. v. Swiss Law on Private International Law Article 176 of the Swiss Law on Private International Law provides that the Act's provisions are limited to cases where “at least one of the parties was neither domiciled nor resident in Switzerland at the time of the conclusion of the arbitration page "298" agreement.” (499) The nationality of the parties is irrelevant for the purposes of this provision, which considers only issues of domicile and residence. (500) Additionally, and importantly, the arbitration provisions of the Swiss Law on Private International Law apply only to arbitration agreements where the arbitral seat is in Switzerland. (501) Where the arbitral seat is abroad, the New York Convention is http://www.kluwerarbitration.com/CommonUI/print.aspx
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applicable to arbitration agreements in Swiss courts (but not otherwise). (502) vi. Other National Arbitration Legislation Other nations adopt a variety of different approaches to the definition of “international” arbitration agreements. (503) Many, but not all, of these approaches involve some consideration of the parties' nationalities. Italy's former arbitration statute provided that an arbitration agreement is international if “at least one of the parties is resident or has its de facto headquarters abroad, or where a substantial part of the relationship from which the dispute has arisen must be performed abroad.” (504) To the same effect, Romania has adopted page "299" legislation providing that “an arbitration taking place in Romania shall be considered international if it has arisen out of a private law relation having a foreign element.” (505) Other legislation adopts a cumulative requirement, along the lines of the European Convention. Thus, Algeria's arbitration legislation provides that “an arbitration is international if it relates to a dispute involving the interests of international trade, in which at least one of the parties has its headquarters or domicile abroad.” (506) e. Future Directions: “International” Arbitration Agreements under National Arbitration Legislation The better approach, to be adopted when statutory text will permit, is to define “international” arbitration agreements as extending to any agreement between nationals or residents of different states, or to any agreement involving a transaction that has a reasonable relationship to a foreign state. (507) That latter category includes the shipment of goods, or the provision of intellectual property, technology, services, or finance, to or from a foreign state. At the same time, this definition generally excludes agreements to arbitrate between nationals and domiciliaries of a single state, involving a purely domestic transaction, typically including when they agree to arbitrate abroad. (508) This approach is consistent with the betterconceived national legislative approaches (including the UNCITRAL Model Law, the FAA and the Swiss Law on Private International Law), as well as with the objectives of the international arbitral process. In principle, as discussed below, it is also better to extend national arbitration legislation's provisions regarding the validity and specific enforceability of arbitration agreements to all international arbitration agreements regardless of the arbitral seat. (509) That is consistent with the approach of the Model Law, FAA, English Arbitration Act and other leading national arbitration legislation. (510) As discussed below, provisions of national law regarding other aspects of the arbitration agreement, including particularly rules regarding choice of law and competence-competence, should also apply to arbitration agreements regardless of the arbitral seat, although this is not the majority approach of national legislation. (511) page "300" http://www.kluwerarbitration.com/CommonUI/print.aspx
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4. “Disputes” or “Differences” International arbitration conventions and national legislation are generally limited to agreements to arbitrate “disputes,” or “differences.” Article II(1) of the New York Convention applies to an agreement to arbitrate “differences,” (512) while Article I(1)(a) of the European Convention applies to agreements to arbitrate “disputes.” (513) Similarly, Article 7(1) of the UNCITRAL Model Law and most other national arbitration legislation applies to agreements to arbitrate “disputes” or “controversies.” (514) A few national courts have held, in particular cases, that national arbitration legislation was inapplicable because there was no real “dispute” between the parties, after concluding that one party's position was either concededly or undeniably unsustainable. (515) These conclusions are misconceived. A decision on the merits of the parties' dispute is one for the arbitrators to make, and national courts are not at liberty to circumvent the agreement to arbitrate by inquiring whether one party's position is or is not tenable. That is true even if requiring arbitration will impose undue costs or delays: it was the parties' decision to conclude an agreement to arbitrate and that agreement must be enforced. Recognizing precisely this point, the drafters of the English Arbitration Act, 1996, (516) and subsequent English judicial decisions, (517) have provided that a “dispute” exists so long as there is a claim by one party against another. (518) page "301" 5. Disputes “Whether Contractual or Not” International and national arbitration instruments also contain language that extends the definition of “arbitration agreement” to agreements to resolve disputes “whether contractual or not.” (519) These provisions have the effect of ensuring the presumptive validity of arbitration agreements concerning non-contractual disputes, such as disputes involving claims of tort (delict) or breach of statutory protections (antitrust/competition, securities laws). (520) As discussed elsewhere, these are categories of disputes where arbitration agreements historically have been particularly likely to encounter enforcement difficulties, (521) and the express confirmation that agreements concerning such claims are arbitrable assists in overcoming these obstacles. Consistent with this analysis, a Canadian court held: “The mere fact that a claim sounds in tort does not exclude arbitration …. The [New York] Convention and [the International Commercial Arbitration] Act … cover both contractual and non-contractual commercial relationships. They thus extend their scope to liability in tort so long as the relationship that creates liability is one that can fairly be described as ‘commercial’ … a claim that a corporation conspired with its subsidiaries to cause harm to a person with whom it has a commercial relationship raises a dispute ‘arising out of http://www.kluwerarbitration.com/CommonUI/print.aspx
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a commercial legal relationship, whether contractual or not.’” (522) As discussed in greater detail below, arbitral tribunals and national courts have routinely upheld the arbitrability of tort and other noncontractual claims. (523) There can be no serious doubt but that agreements to arbitrate tort claims are subject to the New York Convention and all developed national arbitration statutes. (524) The page "302" same is in principle true of statutory claims, subject to national non-arbitrability rules. (525) 6. Disputes “Which Have Arisen or Which May Arise” International and national arbitration instruments also contain provisions that extend the definition of “arbitration agreement” to disputes “which have arisen or which may arise.” (526) This language makes clear that an arbitration agreement may apply to future, as well as existing, disputes. This expressly rejects an historic view (still followed until recently in some jurisdictions) that an arbitration agreement would only be valid if it applied to existing, and not future, disputes. (527) The Convention's treatment of future and existing disputes, on equal terms, has been characterized as a uniform international standard arising under the Convention. (528) 7. Reciprocity Requirement The New York Convention permits Contracting States to make reciprocity reservations. (529) Article I(3) of the Convention provides that Contracting States may declare that they “will apply the Convention, on the basis of reciprocity, to the recognition and enforcement of only those awards made in the territory of another Contracting State.” (530) Roughly two-thirds of the Convention's Contracting States page "303" have made reciprocity (531) reservations. In addition, Article XIV of the Convention contains a separate, more general reciprocity provision, limiting a Contracting State's rights under the Convention to those which it “is itself bound to apply.” (532) In contrast, other international instruments do not ordinarily include a reciprocity limitation. That is true with respect to both the European Convention and the Inter-American Convention. (533) Similarly, developed national arbitration statutes do not ordinarily contain any express reciprocity requirements applicable to the enforcement of arbitration agreements (or arbitral awards). Thus, no reciprocity requirement is contained in the UNCITRAL Model Law, the FAA, the French New Code of Civil Procedure, the Swiss Law on Private International Law, or the Japanese Arbitration Act. The applicability of the New York Convention's reciprocity requirement to arbitration agreements – as distinguished from arbitral awards (534) – is not clear. The reciprocity limitations in Article I(3), and in most states' reciprocity reservations, refer, by their literal terms, only to arbitral awards, not arbitration agreements. At least arguably, therefore, Article II's requirements for the recognition and enforcement of arbitration agreements apply without regard to reciprocity, including, for example, to agreements to arbitrate in nonhttp://www.kluwerarbitration.com/CommonUI/print.aspx
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Contracting States or with nationals of non-Contracting States. Notwithstanding this, several national courts have limited the reach of Article II of the Convention to only those arbitration agreements that specify an arbitral seat in another Contracting State – that is, these courts have refused to “refer” a party to arbitration in a seat within a country that is not a Contracting State under the Convention, reasoning among other things that there is an implied exception to Article II for agreements that would produce unenforceable awards because of the reciprocity reservation. (535) Similarly, Article XIV of the Convention refers more broadly to reciprocity, without limiting the principle to awards; at least arguably, the purposes of the reciprocity reservation would appear applicable to arbitration agreements as well as arbitral awards. Other national courts, both in the United States and elsewhere, have rejected this view. They have reasoned, for example, that Article I(3)'s reciprocity “limitation page "304" clearly applies only to the recognition and enforcement of arbitral awards; it has no relevance to the problem pending before this court – whether to order arbitration under the terms of the Convention.” (536) Even if it applies to arbitration agreements, a reciprocity limitation does not necessarily relieve nationals of Contracting States of obligations to arbitrate against nationals of non-Contracting States. Some U.S. courts have held that U.S. parties (and other parties from Contracting States) are required by the Convention to arbitrate against parties from non-Contracting States, provided that the arbitration agreement specifies an arbitral seat in a Contracting State. (537) This reasoning fails to address the more general terms of Article XIV, or the basic purposes of the Convention's reciprocity exception. As discussed in greater detail below, these purposes would permit a Contracting State to deny the Convention's protections to parties from non-Contracting States, who sought to invoke the Convention against a party from a Contracting State. (538)
8. “Writing” and Other Form Requirements A final arguable jurisdictional condition involves written (and related) form requirements. As discussed below, Article II of the New York Convention applies only to “agreements in writing” to arbitrate, which are defined by Article II(2) of the Convention to include “an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.” (539) Similarly, the UNCITRAL Model Law and other leading national arbitration legislation impose a variety of different “writing” and similar form requirements. (540) As discussed below, some of these instruments’ form requirements are matters of the validity of arbitration agreements; if these requirements are not satisfied, then the agreement is not valid. (541) As also discussed below, other form requirements are instead jurisdictional conditions for the applicability of the relevant convention or legislation. (542) The subject of written (and other) form requirements is discussed in detail below. (543) page "305" http://www.kluwerarbitration.com/CommonUI/print.aspx
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264 See supra pp. 208-211. 265 See infra pp. 580 et seq.; A. Samuel, Jurisdictional Problems in
International Commercial Arbitration 75-96 (1989). 266 See infra pp. 580-582. 267 See infra pp. 535-552. 268 See infra pp. 580-582, 587 et seq. 269 New York Convention, Art. II(1); Swiss Cantonal Concordat, Art. 4; UNCITRAL Model Law, Art. 7(1); French New Code of Civil Procedure, Arts. 1442, 1447; Italian Code of Civil Procedure, Arts. 807-808. 270 French New Code of Civil Procedure, Art. 1442 (“the agreement under which the parties to a contract undertake to refer to arbitration the disputes which might arise from it”); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶32 (2000) (“global reference to ‘all legal disputes which might arise from the current or future business relationship between the parties’ without any further particulars is not sufficient.”); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶6.02 (3d ed. 2000) (“Parties cannot enter into an unlimited agreement that any controversy that should ever arise between them is subject to arbitration. There must be some degree of specificity in defining the kind of controversy one undertakes to submit to arbitration.”); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶3-02 n.5 (4th ed. 2004). See also ICSID Convention, Art. 25(1) (requiring the dispute to arise “directly out of an investment” between the two parties). 271 Swiss Cantonal Concordat, Art. 4 (emphasis added). See also Geneva Protocol, Art. I (“An agreement whether relating to existing or future differences between parties … by which the parties to a contract agree to submit to arbitration all or any differences that may arise in connection with such contract”) (emphasis added). 272 See infra pp. 660-661, 1098-1099. 273 PaineWebber, Inc. v. Bybyk, 81 F.3d 1193, 1200 (2d Cir. 1996) (“broad” arbitration clause upheld); Louis Dreyfus Negoce SA v. Blystad Shipping & Trading Inc., 252 F.3d 218, 225-27 (2d Cir. 2001) (enforcing broad arbitration clause); Industrial Risk Ins. v. Hartford Steam Boiler Inspection & Ins. Co., 273 Conn. 86 (Conn. 2005) (“unrestricted” scope of arbitration clause is perfectly reasonable”). 274 Compare A. Samuel, Jurisdictional Problems in International Commercial Arbitration 151-52 (1989) (“presumably means that an agreement to submit to arbitration any dispute arising between the parties in the future which does not contain any link between the issues that might be arbitrated under it and any alleged contract or other legal relationship between the parties formed in the past, present and probably the immediate future, would be unenforceable”); R. David, Arbitration in International Trade 184 (1985). 275 Roose Industries Ltd v. Ready Mixed Concrete Ltd, [1974] 2 NZLR 246, 247 (Wellington Court of Appeal). 276 Ibid. at 248-49. The Court also observed that it “should restrict the operation of such a wide clause no further than necessary.” The Court's analysis arguably rested on issues of interpretation, rather than validity, with the Court possibly reasoning that the parties could http://www.kluwerarbitration.com/CommonUI/print.aspx
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not have intended to agree to an arbitration clause with unlimited scope. 277 See supra pp. 256-257 nn. 274 & 275. 278 See infra pp. 724-732. 279 See infra pp. 766 et seq. 280 Of course, generally-applicable non-arbitrability exceptions would apply to particular disputes or claims. See infra pp. 766 et seq. 281 The text of the pledge, or the Corporate Policy Statement on Alternatives to Litigation, is as follows: “In the event of a business dispute between our company and another company which has made or will then make a similar statement, we are prepared to explore with that other party resolution of the dispute through negotiation or ADR techniques before pursuing full-scale litigation. If either party believes that the dispute is not suitable for ADR techniques, or if such techniques do not produce results satisfactory to the disputants, either party may proceed with litigation.” See International Institute for Conflict Prevention & Resolution, The Pledge, www.cpradr.org. 282 See infra pp. 766 et seq. 283 Historically, guild and other trade association rules often had arbitration provisions comparable to the example outlined in text. See supra pp. 27-32, 42-43. 284 As discussed below, it may be appropriate to imply limits on arbitration clauses that are, by their terms, unrestricted. See supra p. 256 & infra pp. 660-661, 1099-1104. Parties should generally be free to agree to unrestricted arbitration agreements, but it is ordinarily unlikely that they would do so. The more likely intention, absent contrary indication, is that parties intend to arbitrate all disputes relating directly or indirectly to their transaction, but not wholly unrelated disputes. See also infra pp. 1099-1104. 285 New York Convention, Art. I(3); European Convention, Art. I(a); Inter-American Convention, Art. 1; UNCITRAL Model Law, Art. 1(1); U.S. FAA, 9 U.S.C. §1; Swiss Law on Private International Law, Art. 177; Japanese Arbitration Law, Arts. 1-2. 286 It is comparatively unusual to encounter international arbitration agreements dealing with non-commercial matters (save for the sui generis subject of state-to-state disputes). Areas where it is conceivable that the “commercial” requirement would arguably not be satisfied include domestic relations, criminal law, some administrative law issues and some inheritance issues. Most such issues have historically been dealt with through non-arbitrability exceptions. See infra pp. 766 et seq. 287 Geneva Protocol, Art. I (emphasis added). See supra pp. 5861. The Geneva Convention incorporated this limitation. Geneva Convention, Art. I; supra pp. 61-64. 288 This language paralleled that later adopted in Article I(3) of the New York Convention. See infra pp. 260-261; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶243, 262 (1999) (“The same reservation, adopted under the 1923 Geneva Protocol, likewise raised no major difficulties in practice.”). 289 See infra pp. 772-773, 773-775, 775-788 for a discussion of the non-arbitrability doctrine, including limitations of arbitrable matters in some states to commercial matters. 290 U.S. FAA, 9 U.S.C. §2 (“any maritime transaction or a contract evidencing a transaction involving commerce”); E. Gaillard & J. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶64-65 (1999) (“Historically, French domestic law was noted for its hostility towards the arbitration of non-commercial disputes. The hostility resulted, in particular, in a prohibition on arbitration clauses for disputes other than those within the jurisdiction of the commercial courts. The courts generally held void an arbitration clause which failed to comply with this prohibition.”); Jarrosson, La clause compromissoire(art. 2061 C. civ.), 1992 Rev. arb. 259. In England, non-arbitrability issues appear to have been historically unimportant (with church, family and criminal matters being arbitrated). Roebuck, Sources for the History of Arbitration: A Bibliographical Introduction 14 Arb. Int'l 237, 257265 (1998). 291 See supra pp. 20-51. It also reflected the general limitation of private international law conventions to “civil” and “commercial” matters. G. Born & P. Rutledge, International Civil Litigation in United States Courts 1083 et seq. (4th ed. 2007). 292 See supra pp. 115-116, 134-136 & infra pp. 269-275. 293 New York Convention, Art. 1(3) (“When signing, ratifying or acceding to this Convention, or notifying extension under article X hereof, any State may … declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration.”) (emphasis added). See A. van den Berg, The New York Arbitration Convention of 1958 51-54 (1981). 294 See A. van den Berg, The New York Arbitration Convention of 1958 51 (1981); Summary Record of the Twenty-Third Meeting of theUnited Nations Conference on International Commercial Arbitration, UN Doc. E/CONF.26/SR.23 (1958), available at www.uncitral.org; Message from the President on the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, S. Exec. Doc. E, 90th Cong., 2d Sess. 18 (1968) (“commercial matters reservation was included to remove a barrier to accession by nations having separate civil and commercial codes which allow arbitration only of matters falling within the latter.”). The “commercial” relationships requirement continued to bear close parallels to the non-arbitrability doctrine, reflected in Articles II(1) and V(2)(a) of the Convention, apparently permitting individual Contracting States to define particular categories of disputes as falling outside the scope of such states' commitments under the Convention. See infra pp. 517-520, 773-775, 834-835. See alsoIsland Territory of Curacao v. Solitron Devices, Inc., 356 F.Supp. 1, 13 (S.D.N.Y. 1973), aff'd, 489 F.2d 1313 (2d Cir. 1973) (there is “nothing to show what the purpose of the ‘commercial’ limitation was,” and that “[w]e may logically speculate that it was to exclude matrimonial and other domestic relations awards, political awards, and the like.”). 295 Approximately one-third of the states ratifying the Convention
have deposited a commercial reservation (including among others, the United States, Greece, Philippines, Canada, Argentina, Venezuela, Barbados, and Ecuador). See www.uncitral.org/ uncitral/en/uncitral_texts/arbitration/NYConvention_status.html. 296 See U.S. FAA, 9 U.S.C. §201. This is codified in §202 of the FAA, which provides, among other things, that “[a]n arbitration agreement … arising out of a legal relationship, whether contractual http://www.kluwerarbitration.com/CommonUI/print.aspx
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or not, which is consideredas commercial … falls under the Convention.” U.S. FAA, 9 U.S.C. §202 (emphasis added). Section 202 also specifically provides that “commercial” relations include those which fall within the very expansive definition contained in §2 of the domestic FAA of arbitration agreements affecting interstate and foreign commerce. See infra pp. 262-263, 272-273. The purpose of this provision was to make clear that the Convention was applicable to agreements even if they were also subject to the first chapter of the FAA. As discussed below, however, §202 excludes agreements and awards between U.S. nationals having no reasonable relationship to the United States. See infra pp. 290-296. 297 SeeBautista v. Star Cruises, 396 F.3d 1289, 1300 (11th Cir. 2005) (arbitration clause contained in cruise line crewmembers' employment contracts are enforceable because contracts constitute commercial legal relationships within the meaning of Convention and FAA); Francisco v. Stolt Achievement MT, 293 F.3d 270 (5th Cir. 2002) (domestic FAA explicitly excludes seamen employment contracts, but such contracts fall within the scope of the U.S. legislation implementing the New York Convention: “an employment contract is commercial”); Société Générale de Surveillance v. Raytheon European European Mgt & Sys. Co., 643 F.2d 863 (1st Cir. 1981). Several lower U.S. courts have indicated that the definition of “commercial” under the Convention is broader than that of “commerce” under the domestic FAA. Bautista v. Star Cruises, 396 F.3d 1289, 1300 (11th Cir. 2005); Francisco v. Stolt Achievement MT, 293 F.3d 270 (5th Cir. 2002) (“doubts as to whether a contract falls under the Convention Act should be resolved in favor of arbitration”); Sumitomo Corp. v. Parakopi Compania Maritima, 477 F.Supp. 737, 740 (S.D.N.Y. 1979), aff'd, 620 F.2d 286 (2d Cir. 1980). 298 Siderius, Inc. v. Compania de Acero del Pacifico, SA, 453 F.
Supp. 22, 24 (S.D.N.Y. 1978). 299 Bautista v. Star Cruises, 396 F.3d 1289 (11th Cir. 2005); Francisco v. Stolt Achievement MT, 293 F.3d 270 (5th Cir. 2002) (rejecting argument that a seaman's contract is not commercial within the meaning of the Convention); Prograph Int'l Inc. v. Barhydt, 928 F.Supp. 983 (N.D. Calif. 1996) (employment dispute is “commercial” within meaning of Convention); Sumitomo Corp. v. Parakopi Compania Maritime, 477 F.Supp. 737 (S.D.N.Y. 1979), aff'd, 620 F.2d 286 (2d Cir. 1980); Siderius, Inc. v. Compania de Acero del Pacifico, SA, 453 F.Supp. 22 (S.D.N.Y. 1978); Star-Kist Foods, Inc. v. Diakan Hope, SA, 423 F.Supp. 1220 (C.D. Cal. 1976); Antco Shipping Co. v. Sidermar SpA, 417 F.Supp. 207 (S.D.N.Y. 1976); Weight Watchers of Quebec v. Weight Watchers Int'l, 398 F.Supp. 1057 (E.D.N.Y. 1975); Faberge Int'l Inc. v. Di Pino, 491 N.Y.S.2d 345 (N.Y. App. Div. 1985) (“The fact that the employeremployee relationship may include a degree of fiduciary obligation does not deprive it of its commercial character.”). 300 Cf. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. S.Ct. 2006) (consumer transaction subject to domestic FAA); Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265 (U.S. S.Ct. 1995); infra pp. 330-332. 301 Henry v. Murphy, 2002 WL 24307, at *4 (S.D.N.Y. 2002) (rejecting argument that conflict between corporate shareholders was not commercial); Maletis v. Perkins & Co., PC, 2005 WL 3021254, at *4 (D.Or. 2005) (relationship between a customer and a bank accepted as commercial within meaning of New York http://www.kluwerarbitration.com/CommonUI/print.aspx
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Convention); Galtney v. KPMG LLP, 2005 WL 1214613, at *3 (S.D. Tex. 2005) (same). 302 E.g., Island Territory of Curacao v. Solitron Devices, Inc., 356 F.Supp. 1 (S.D.N.Y.), aff'd, 489 F.2d 1313 (2d Cir. 1973). 303 E.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (U.S. S.Ct. 1985) (antitrust laws); Scherk v. AlbertoCulver Co., 417 U.S. 506 (U.S. S.Ct. 1974) (securities laws). See infra pp. 781-785. 304 E.g., Corcoran v. Ardra Ins. Co., 566 N.Y.S.2d 575 (N.Y. 1990). 305 E.g., Indus. Risk Insurers v. MAN Gutehoffnungshütte GmbH, 141 F.3d 1434 (11th Cir. 1998); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co., 767 F.2d 1140, 1145 (5th Cir. 1985); Murphy Oil USA, Inc. v. SR Int'l Bus. Ins. Co., 2007 WL 2752366 (W.D. Ark. 2007) (“insurance policies arose out of and involve a commercial relationship”); Meadows Indem. Co. v. Baccala & Shoop Ins. Sers., Inc., 760 F.Supp. 1036 (E.D.N.Y. 1991). 306 E.g., Antco Shipping Co. v. Sidermar SpA, 417 F.Supp. 207 (S.D.N.Y. 1976) (maritime contract of affreightment). 307 See supra p. 262 n. 299. 308 U.S. FAA, 9 U.S.C. §1 (“nothing herein contained shall apply to contracts of employment of seamen, railway employees or any other class of workers engaged in foreign or interstate commerce”). 309 Bautista v. Star Cruises, 396 F.3d 1289 (11th Cir. 2005); Francisco v. Stolt Achievement MT, 293 F.3d 270 (5th Cir. 2002). 310 Francisco v. Stolt Achievement MT, 293 F.3d 270, 274 (5th Cir. 2002) 311 Id. at 274-75 (citing Scherk v. Alberto-Culver Co., 417 U.S. 506 (U.S. S.Ct. 1974); Mitsubishi Motors Corp. v. Soler ChryslerPlymouth, Inc., 473 U.S. 614 (U.S. S.Ct. 1985). This parallels the analysis of the non-arbitrability doctrine in international cases by U.S. courts. See infra pp. 775-776, 792-793, 800-801. 312 Many jurisdictions would nonetheless consider categories of contracts such as employment and consumer agreements as involving non-arbitrable matters. See infra pp. 817-829. This is typically not achieved through means of the “commercial” exception, but rather through validity or non-arbitrability rules. Compare Matthews & Stewart, Online Arbitration of Cross-Border, Business to Consumer Disputes, 56 U. Miami L. Rev. 1111, 1136 (2002). 313 SeeCanada Packers Inc. v. Terra Nova Tankers Inc., XXII Y.B. Comm. Arb. 669 (Ontario Court of Justice 1992) (1997) (tort claims encompassed by Article I(3)'s “commercial”); Judgment of 20 February 1975, Carters (Merchants) Ltd v. Ferraro, IV Y.B. Comm. Arb. 275 (Naples Corte di Appello) (1979) (sale contract is commercial); Euro'n Grain & Shipping Ltd v. Bombay Extractions Ltd, VIII Y.B. Comm. Arb. 371 (Bombay High Court 1981) (1983) (“We have no doubt that the contract in the instant case, which was for the sale and purchase of a commodity, was clearly a contract which brought about a legal relationship which was commercial in nature under Indian law.”); Judgment of 2 November 1983, XIV Y.B. Comm. Arb. 629 (Oberlandesgericht Hamm) (1989); RM Inv. & Trading Co. Pvt Ltd (India) v. Boeing Co., XXII Y.B. Comm. Arb. 710 (Indian S.Ct. 1994) (1997) (consultancy contract is “commercial”). 314 Judgment of 20 February 1975, Carters (Merchants) Ltd v. Ferraro, IV Y.B. Comm. Arb. 275 (Naples Corte di Appello) (1979). 315 See G. Born & P. Rutledge, International Civil Litigation in United States Courts 259-72, 795-800 (4th ed. 2007). 316 For example, disputes over the terms “civil or commercial” http://www.kluwerarbitration.com/CommonUI/print.aspx
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have arisen under the Hague Service Convention and the Hague Evidence Convention. See G. Born & P. Rutledge, International Civil Litigation in United States Courts 859-60, 964-65 (4th ed. 2007). 317 Many international “concession agreements” between developing states and multinational companies contain arbitration clauses. These concession agreements typically involve the development of the developing nation's natural resources, a subject over which some national courts have been reluctant to exercise jurisdiction, invoking the foreign sovereign immunity, act of state and related doctrines. See G. Born & P. Rutledge, International Civil Litigation in United States Courts 245, 737 (4th ed. 2007). Nonetheless, the drafters of arbitral clauses in typical concession agreements clearly intend that these clauses, and any subsequent arbitral awards, would fall within the Convention's “commercial” scope. The effective enforcement of such provisions, in order to provide a neutral, expert dispute resolution mechanism, falls squarely within the fundamental objectives of leading international arbitration conventions and national arbitration legislation. See supra pp. 71-90. 318 E.g., Matthews & Stewart, Online Arbitration of Cross-Border Business to Consumer Disputes, 56 U. Miami L. Rev. 1111, 1136 (2002) (“commercial reservation represents the general international antipathy towards consumer arbitration”). See also infra pp. 820829. 319 E.g., Borowski v. Heinrich Fiedler Perforiertechnik GmbH, [1994] W.W.R. 623 (Alberta Q.B.); Rogers, The Arrival of the “HaveNots” in International Arbitration, 8 Nev. L.J. 341 (2007). See also infra pp. 817-820. 320 For an unusual example, BV Bureau Wijsmuller v. United States of America, 1976 A.M.C. 2514 (S.D.N.Y. 1976) (claims for salvage of U.S. military vessel not commercial). The decision also relied on U.S. statutory restrictions on the capacity of the U.S. Government to enter into arbitration agreements. 321 See, e.g., RM Inv. & Trading Co. Pvt Ltd (India) v. Boeing Co., XXII Y.B. Comm. Arb. 710 (Indian S.Ct. 1994) (1997); India Organic Chemicals, Ltd v. Chemtex Fibres Inc., (1978) All India Rep. 106 (Bombay High Court). These decisions should not survive India's adoption of UNCITRAL Model Law. See supra p. 119. 322 Judgment of 10 November 1993, Taieb Haddad and Hans Barett v. Societe d'Investissem*nt Kal, XXIII Y.B. Comm. Arb. 770 (Tunisian Cour de cassation) (1998). 323 See New York Convention, Art. I(3) (“considered as commercial under the national law of the State making [the] declaration”); supra pp. 260-261. 324 See infra pp. 517-520, 766 et seq. 325 See supra pp. 261-265. 326 This interpretation would in theory permit a Contracting State to define all but particular types of contractual relationships (e.g., sale of goods between merchants) as non-commercial. The consequence would be to exclude other types of agreements (e.g., joint ventures, lending services, distribution) from the Convention. 327 This is consistent with the existence of international limits on Contracting State's applications of Article II's non-arbitrability and “null and void” exceptions to the presumptive validity of international arbitration agreements. See infra pp. 504-514, 514-516, 520. 328 See New York Convention, Arts. V(2)(a), (b); infra pp. 28272863, 2863-2864. http://www.kluwerarbitration.com/CommonUI/print.aspx
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329 See New York Convention, Art. II(1); infra pp. 766 et seq. 330 See supra pp. 261-265. & infra pp. 269-276. 331 G. Born & P. Rutledge, International Civil Litigation in United
States Courts 259-72 (4th ed. 2007). 332 It is also awkward to treat consumer transactions, which are usually defined with reference to a specific financial amount, see infra pp. 820-829, as “non-commercial” when slightly larger transactions would be categorized as “non-commercial.” The sounder analysis is to treat consumer transactions as non-arbitrable because of policy concerns about the use of the arbitral process. See infra pp. 826-829. 333 See infra pp. 826-829, 837-841. 334 French Decree No. 90-170 of 16 February 1990, Official Journal of 23 February 1990; Derains & Goodman-Everard, France 9, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 1998). 335 European Convention, Art. I(a) (emphasis added). 336 That is clear from the Convention's text. It has also been affirmed by arbitral authority. Interim Ad Hoc Award of 18 November 1983, X Y.B. Comm. Arb. 37 (1985). 337 The same approach is adopted in the 1987 Amman Arab Convention on Commercial Arbitration. Article 2 of that instrument provides that the Convention applies to “commercial disputes between natural or legal persons of any nationality, linked by commercial transactions with one of the Contracting States …” Again, the Amman Convention expressly adopts a uniform, international standard for “commercial”, rather than suggesting any possibility for individual national “opt-outs.” 1987 Amman Arab Convention on Commercial Arbitration, Art. 2. See Jalili, Amman Arab Convention on International Commercial Arbitration, 7(1) J. Int'l Arb. 139 (1990). 338 Robert, La convention européenne sur l'arbitrage commercial international signée à Genève le 21 avril 1961, 1961 Dalloz Chron. 173. 339 Inter-American Convention, Art. 1 (emphasis added). 340 A. van den Berg, The New York Convention 1958 and Panama Convention 1975: Redundancy or Compatibility?, 5 Arb. Int'l 214, 218 (1989) (“Unlike the New York Convention, which specifies that the word ‘commercial’ is to be determined under the national laws of the State making the reservation, the Panama Convention is silent on the applicable law. Presumably, the same rule as in the New York Convention applies in case of the Panama Convention.”). 341 For interpretations of “commercial” under the Inter-American Convention, compare J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶4-25 to 4-26 (2003) (“When the ambit of a ‘commercial transaction’ is to be ascertained, regard should be given to the international character of a convention and the need to promote uniformity. Accordingly, only an autonomous and comparative interpretation and characterization is appropriate”) with van den Berg, The New York Convention 1958 and Panama Convention 1975: Redundancy or Compatibility? 5 Arb. Int'l 214, 220 (1989) (“Unlike the New York Convention, which specifies that the word ‘commercial’ is to be determined under the national laws of the State making the reservation, the Panama Convention is silent on the applicable law. Presumably, the same law as in the New York Convention applies in case of the Panama Convention.”). This latter observation misses the mark: the essential point is that the Interhttp://www.kluwerarbitration.com/CommonUI/print.aspx
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American Convention provides for a uniform international standard of “commercial,” not requiring (or permitting) reference to national laws. 342 See infra pp. 269-276. 343 See supra pp. 265-276. 344 UNCITRAL Model Law, Art. 1(1) (emphasis added). See H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 32-35 (1989). The Model Law's title similarly refers to “International Commercial Arbitration.” 345 UNCITRAL Model Law, Art. 1(1) note**. 346 Report of the Secretary-General on theAnalytical Commentary on Draft Text of A Model Law on International Commercial Arbitration, UN Doc. A/CN.9/264, Art. 1, ¶¶16 et seq., XVI Y.B. UNCITRAL 104 (1985). See generally A. Broches, Commentary on the UNCITRAL Model Law on International Commercial Arbitration Art. 1, ¶¶1 et seq. (1990); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶61-63 (1999). 347 G. Petrochilos, Procedural Law in International Arbitration 5 (2004) (“the legal foundation of a claim, that is, whether it be framed in the language of contract, tort or restitution, is irrelevant” to the question whether an arbitration is “commercial”). 348 British Columbia International Commercial Arbitration Act, Art. 1(6); Cyprus International Commercial Arbitration Law, §§2(4), 2 and (5); Egyptian Arbitration Law, Art. 2; Nigerian Arbitration and Conciliation Decree, 1988, §57(1); Scottish Arbitration Act, §66, Schedule 7. 349 Peru Arbitration Act, Art. 88; Quebec Civil Code, Arts. 26382643, and Quebec Code of Civil Procedure, Arts. 382, 940-951(2). 350 Tunisian Arbitration Code, Art. 48(1)(d); Malouche, Tunisia 1, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 1996); Malouche, Recent Developments in Arbitration Law in Tunisia, 8(2) J. Int'l Arb. 23, 28 et seq. (1991). 351 E.g., United Mexican States v. Metalclad Corp., 89 B.C.L.R.3d 359 (B.C. S.Ct. 2001) (“The international CAA is based on a Model Law for international commercial arbitrations … In the UNCITRAL report, the term ‘commercial’ is explained by the following footnote: ‘The term ‘commercial’ should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature …’ This footnote was discussed in the commentary as follows: ‘The content of the footnote reflects the legislative intent to construe the term ‘commercial’ in a wide manner. This call for a wide interpretation is supported by an illustrative list of commercial relationships. Although the examples listed include almost all types of contexts known to have given rise to disputes dealt with in international commercial arbitrations, the list is expressly not exhaustive.’ (p.106, Supplement Canada Gazette, Part I (1986))”); Carter v. McLaughlin, 27 O.R.3d 792 (Ontario Court of Justice 1996) (sale of personal residence is “commercial”; no requirement that parties be merchants). CompareBorowski v. Heinrich Fiedler Perforiertechnik GmbH, [1994] W.W.R. 623 (Alberta Q.B.) (employment relations not commercial). 352 A negative inference is arguably applicable to the definition's omission of particular types of contracts or relations. As discussed below, consumer and employment contracts are frequently the subject of either non-arbitrability or invalidity rules of national law. See infra pp. 817-829. See alsoBorowski v. Heinrich Fiedler http://www.kluwerarbitration.com/CommonUI/print.aspx
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Perforiertechnik GmbH, [1994] W.W.R. 623 (Alberta Q.B.) (employment relations not commercial). 353 UNCITRAL Model Law, Art. 1(1) note **. 354 UNCITRAL Model Law, Art. 1(1) note **. See Report of the Secretary-General on theAnalytical Commentary on Draft Text of A Model Law on International Commercial Arbitration, UN Doc. A/CN.9/264, Art. 1, ¶¶18 et seq., XVI Y.B. UNCITRAL 104 (1985). 355 Alternative approaches, discussed below, are to apply more specifically-tailored rules of validity or non-arbitrability to particular types of transactions on claims. See UNCITRAL Model Law, Art. 1(5); infra pp. 776-777, 777 et seq. 356 UNCITRAL Model Law, Art. 1(5); infra pp. 776-777. 357 U.S. FAA, 9 U.S.C. §2. 358 See, e.g., Allied-Bruce Terminix Co., v. Dobson, 513 U.S. 265, 272-74 (U.S. S.Ct. 1995) (broadly interpreting “involving commerce” language); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 401-02 n.7 (U.S. S.Ct. 1967) (favoring broad interpretation of “involving commerce” to include contracts facilitating interstate commerce); Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir. 1959); Fairchild & Co. v. Richmond, Fredericksburg & Potomac RR Co., 516 F.Supp. 1305, 1310 (D.D.C. 1981) (“involving commerce” is not to be narrowly construed and “reaches not only the actual physical interstate shipment of goods, but also contracts relating to interstate commerce”) (quoting H.R.Rep. No. 96, 68th Cong., 1st Sess. 1 (1924)). 359 See, e.g., Bautista v. Star Cruises, 396 F.3d 1289 (11th Cir. 2005); Francisco v. Stolt Achievement, Inc., 2001 U.S. Dist. LEXIS 3902 (E.D. La. 2001) (“An employment contract is a commercial legal relationship”), aff'd, 293 F.3d 270 (5th Cir. 2002) (“an employment contract is commercial”); Cullen v. Paine, Webber, Jackson & Curtis, Inc., 587 F.Supp. 1520, 1522 (D.C. Ga. 1984); Legg, Mason & Co. v. Mackall & Coe, Inc., 351 F.Supp. 1367, 1371 (D.D.C. 1972); Physiotherapy Assoc. v. Schexneider, 1998 WL 34076415 (W.D. Ky. 1998) (FAA clearly covers employment agreements); Crawford v. West Jersey Health Sys., 847 F.Supp. 1232, 1240 (D.N.J. 1994) (employment agreement among national health care providers is transaction involving commerce and subject to the FAA). As discussed below, the FAA contains an exception to its scope (9 U.S.C. §1) which excludes certain types of employment relations from the Act's coverage. See infra pp. 818-820. 360 See, e.g., Jenkins v. First Am. Cash Advance of Ga., LLC, 400
F.3d 868, 874-75 (11th Cir. 2005) (consumer lending transaction satisfies commerce requirement); Richardson v. Palm Harbor Homes, Inc., 254 F.3d 1321, 1324 (11th Cir. 2001) (consumer contract for purchase of mobile home is a “transaction involving commerce” under the FAA); Zink v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 13 F.3d 330, 333 (10th Cir. 1993) (agreement between parties providing for trade in securities involved commerce); Adkins v. Palm Harbor Homes, Inc., 157 F.Supp.2d 1256, 1257-58 (M.D. Ala. 2001) (parties did not dispute that sale of a mobile home constituted “interstate commerce”); Crawford v. Great Am. Cash Advance, Inc., 644 S.E.2d 522, 695 (Ga. App. 2007) (the proposition that payday loans constitute commerce was not disputed by party contesting arbitration provision); Palozie v. State Farm Mut. Automobile Ins. Co., 1996 WL 814533 (D. Ariz. 1996) (consumer http://www.kluwerarbitration.com/CommonUI/print.aspx
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insurance policies involve interstate commerce and are subject to the FAA). 361 See supra pp. 262-263 & infra pp. 818-820; U.S. FAA, 9 U.S.C. §1. 362 Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 120 (U.S. S.Ct. 2001). See Ware, Employment Arbitration and Voluntary Consent, 25 Hofstra L. Rev. 83, 128-38 (1996). 363 See supra pp. 262-263. 364 U.S. FAA, 9 U.S.C. §201. SeeBautista v. Star Cruises, 396 F.3d 1289 (11th Cir. 2005). 365 See authorities cited supra pp. 261-262 nn. 297-299; Bautista v. Star Cruises, 396 F.3d 1289 (11th Cir. 2005); Francisco v. Stolt Achievement, Inc., 2001 U.S. Dist. LEXIS 3902 (E.D. La. 2001) (“An employment contract is a commercial legal relationship”), aff'd, 293 F.3d 270 (5th Cir. 2002) (“an employment contract is commercial”). 366 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶64 (1999); Judgment of 4 July 1972, Hecht v. Buisman's, 99 J.D.I. (Clunet) 843 (French Cour de cassation civ. 1e) (1972); Judgment of 5 January 1999, Zanzi v. de Coninck, 1999 Rev. arb. 260 (French Cour de cassation civ. 1e) (“principle of validity of the international arbitration agreement without any condition of commerciality”). Nonetheless, as discussed below, Article 1492 of the French New Code of Civil Procedure, and French judicial authority, require that arbitration agreements involve “international trade,” as a jurisdictional requirement for France's international arbitration legislation, which appears to import a comparable requirement. See infra pp. 296-298. 367 Judgment of 7 December 1994, V 2000 (formerly Jaguar France) v. Project XJ 220 ITD, 1996 Rev. arb. 245 (Paris Cour d'appel) (consumer's purchase of automobile). 368 English Arbitration Act, 1996, §1, 6; R. Merkin, Arbitration Law ¶1.22(a) (2004 & Update 2007). 369 German ZPO, §1025. Section 1030 of the German ZPO provides “Any claim involving an economic interest (vermögensrechtlicher Anspruch) can be the subject of an arbitration agreement. An arbitration agreement concerning claims not involving an economic interest shall have legal effect to the extent that the parties are entitled to conclude a settlement on the issue in dispute.” See also J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶4-10 to 11 (2003). 370 Italian Code of Civil Procedure, Art. 806. 371 Japanese Arbitration Law, Art. 2. 372 See infra pp. 507-516, 640-642, 707. 373 See infra pp. 766 et seq. 374 See supra pp. 265-267. 375 Notice of the Supreme People's Court on the Implementation of China's Accession to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (10 April 1987), in C. Dejun, M. Moser & W. Shengchang, International Arbitration in the People's Republic of China: Commentary, Cases and Materials 754-57 (1995). 376 RM Inv. & Trading Co. Pvt Ltd (India) v. Boeing Co., XXII Y.B. Comm. Arb. 710 (Indian S.Ct. 1994) (1997); India Organic Chemicals, Ltd v. Chemtex Fibres Inc., (1978) All India Rep. 106 (Bombay High Court). 377 Judgment of 10 November 1993, Taieb Haddad and Hans http://www.kluwerarbitration.com/CommonUI/print.aspx
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Barett v. Societe d'Investissem*nt Kal, XXIII Y.B. Comm. Arb. 770 (Tunisian Cour de cassation) (1998). 378 Borowski v. Heinrich Fiedler Perforiertechnik GmbH, [1994] W.W.R. 623 (Alberta Q.B.). The more desirable course would have been to treat such matters as non-arbitrable. See infra pp. 766 et seq. 379 Of course, as discussed below, both the “non-arbitrability” exception under such instruments and substantive contract law defenses (such as unconscionability) remain applicable, even where a dispute concerns a commercial relationship. See infra pp. 563 et seq. 380 See G. Born & P. Rutledge, International Civil Litigation in United States Courts 219-344 (4th ed. 2007). 381 U.N. Convention on Jurisdictional Immunities of States and Their Property, Arts. 2(1), 2(2), 10, 44 Int'l Leg. Mats. 801 (2005); U.S. Foreign Sovereign Immunities Act, 28 U.S.C. §1603(d), §1605(a)(2) (“commercial activity”); European Convention on State Immunity, Arts. 4-8, 12 (“industrial, commercial or financial activity”); U.K. State Immunity Act, §§3, 4, 7-11. 382 E.g., Republic of Argentina v. Weltover, 504 U.S. 607 (U.S. S.Ct. 1992); Butcher v. St. Lucia, 21 C.P.C.4th 236 (Ontario Court of Justice 1998). 383 See supra pp. 92-105, 111-115, 202-207. As discussed elsewhere, this is the case under the New York Convention, the Inter-American Convention, the European Convention and other international instruments. Seesupra pp. 92-105 & infra pp. 277-285. 384 As noted above, this is the case in the United States, France, Australia, Canada and many UNCITRAL Model Law jurisdictions. See supra pp. 109-111. As also discussed above, other states have enacted a single arbitration statute, applicable to both domestic and international arbitrations; this is the case in England, Germany and Spain. See supra pp. 109-111. 385 Geneva Protocol, Art. I (“Each of the Contracting States recognizes the validity of an agreement whether relating to existing or future differences between the parties subject respectively to the jurisdiction of different Contracting States by which the parties to a contract agree to submit to arbitration …”). 386 See supra pp. 95, 203-205, 212-213. 387 See New York Convention, Art. I(1) (“This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of a State other than the State where the recognition and enforcement of such awards are sought … It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.”); infra pp. 277278, 2364-2388. 388 See, e.g., A. van den Berg, The New York Arbitration Convention of 1958 8 (1981) (“The field of application of the New York Convention is broader than that of the Geneva Treaties. The New York Convention applies to an award made in any other State; it no longer requires that the parties be subject to the jurisdiction of different Contracting States.”); van den Berg, When Is An Arbitral Award Non-Domestic under the New York Convention of 1958?, 6 Pace L. Rev. 25, 51-54 (1985); Ebb, Developing Views on What Constitutes A Foreign Arbitration Agreement and A “Foreign Award” under the New York Convention, 1 Am. Rev. Int'l Arb. 364 (1990); Smith/Enron Cogeneration Ltd P'ship Inc. v. Smith Cogeneration Int'l, Inc., 198 F.3d 88 (2d Cir. 1999) (noting “the Convention's sweeping approach towards arbitral agreements in Article II”). http://www.kluwerarbitration.com/CommonUI/print.aspx
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389 See infra pp. 282-284. 390 See infra pp. 282-284. 391 See infra pp. 290-296, 2364-2388. 392 A. van den Berg, The New York Arbitration Convention of 1958
57 (1981) (“As the [New York] Convention applies to the enforcement of an award made in another State, it could apply to the enforcement of an agreement providing for arbitration in another State”). This conclusion is supported by a measure of national judicial authority considering the application of the Convention to arbitration agreements. See infra pp. 278-282. 393 See New York Convention, Art. I(1); infra pp. 278-282. As discussed below, Article I(1) defines the awards that are subject to the Convention as follows: “This Convention shall apply to the recognition and enforcement of arbitral awards made in the territory of the State other than the State where the recognition and enforcement of such awards are sought, and arising out of differences between persons, whether physical or legal. It shall also apply to arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.” 394 See infra pp. 2367-2377. 395 van den Berg, The New York Convention: Its Intended Effects, Its Interpretation, Salient Problem Areas, in The New York Convention of 1958 25, 34 (ASA Special Series No. 9 1996); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶26-41 to 49 (2003). Contra A. Samuel, Jurisdictional Problems in International Commercial Arbitration 91 (1989) (“Article I, which is intended to define the scope of the Convention, cannot be applied by analogy, because it only sets limits on the enforcement of awards”). Complexities arise when the parties' arbitration agreement does not specify the arbitral seat (and this selection is left to an arbitral institution or the arbitral tribunal). See infra pp. 1696-1703, 17031738. In this event, it is not possible to determine in advance where the arbitral seat is located; equally, the parties may agree to change the arbitral seat during the course of the arbitration. Both possibilities, which are not uncommon, underscore the textual and conceptual difficulties with transposing the treatment of “foreign” awards to the context of agreements to arbitrate. See also infra pp. 465-466. 396 See infra pp. 289, 298-299; Judgment of 8 January 1990, XVII
Y.B. Comm. Arb. 539 (Milan Court of First Instance) (1992) (Convention applicable to agreement between two Italian parties to arbitrate abroad); Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88 (2d Cir. 1999) (“Under Article II of the Convention, the citizenship of the parties to the agreement and the location of the disputed subject matter are not controlling.”). 397 See infra pp. 293-295; Jones v. Sea Tow Servs. Freeport NY, Inc., 30 F.3d 360 (2d Cir. 1994); Best Concrete Mix Corp. v. Lloyd's of London Underwriters, 413 F.Supp.2d 182, 188 (E.D.N.Y. 2006) (citing Jones, 30 F.3d at 365) (“Only where an agreement satisfies both conditions will it be deemed ‘entirely domestic’ and, therefore, outside the scope of the Convention”); Ensco Offshore Co. v. Titan Marine LLC, 370 F.Supp.2d 594, 597-601 (S.D. Tex. 2005); Reinholtz v. Retriever Marine Towing & Salvage, 1993 WL 414719 (S.D. Fla. 1993), aff'd, 46 F.3d 71 (11th Cir. 1995); Brier v. Northstar Marine, Inc., 1992 WL 350292 (D.N.J. 1992); Wilson v. Lignotock http://www.kluwerarbitration.com/CommonUI/print.aspx
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U.S.A., Inc., 709 F.Supp. 797 (E.D. Mich. 1989); Coastal States Trading, Inc. v. Zenith Nav., SA, 446 F.Supp. 330, 341 (S.D.N.Y. 1977). 398 This interpretation is derived from U.S. legislation implementing the Convention. U.S. FAA, 9 U.S.C. §202 (“An arbitration agreement or arbitral award arising out of [a legal, commercial] relationship which is entirely between citizens of the United States shall be deemed not to fall under the Convention unless that relationship involves property located abroad, envisages performance or enforcement abroad, or has some other reasonable relation with one or more foreign states.”). See also infra pp. 290-295. Relying on §202, U.S. courts have not been willing to apply the Convention absent a reasonable relation between the parties' agreement and one or more foreign states. See, e.g., Jones v. Sea Tow Servs. Freeport NY, Inc., 30 F.3d 360, 366 (2d Cir. 1994) (“as between the parties … a United States forum is required for the enforcement of any arbitral award and even to compel arbitration. The district court's observation that the Committee of Lloyd's has a long history of experience in the arbitration of salvage disputes lends no support to the conclusion that the parties envisioned performance in England. There is no indication that competent salvage arbitrators are unavailable in the United States or that the necessary expertise is lacking here”); Republic of Ecuador v. ChevronTexaco Corp., 376 F.Supp.2d 334 (S.D.N.Y. 2005); Coastal States Trading, Inc. v. Zenith Nav. SA, 446 F.Supp. 330, 341 (S.D.N.Y. 1977); Fuller Co. v. Compagnie des Bauxites de Guinee, 421 F.Supp. 938, 941 (W.D. Pa. 1976); Sumitomo Corp. v. Parakopi Compania Maritima, 477 F.Supp. 737, 741 (S.D.N.Y. 1979) (“In delineating the coverage of the Convention, Congress explicitly excluded purely domestic transactions.”). 399 See also infra pp. 2367-2370. In Switzerland, Germany and
England, for example, an arbitral award is considered to be a “foreign” award for the purposes of the New York Convention only where it has been made in an arbitration seated outside the state where recognition is sought See Patocchi & Jermini, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 194, ¶12 (2000); Geimer, in R. Zöller (ed.), Zivilprozessordnung §1061, ¶3 (26th ed. 2007); English Arbitration Act, 1996, §100(1); R. Merkin, Arbitration Law ¶19-1 (2004 & Update 2007). 400 As discussed below, however, the agreement might be subject to the Convention by virtue of the second criterion applicable to agreements that produce “non-domestic” awards. See infra pp. 281282. 401 See infra pp. 281-282, 291-295, 2377-2381; Bergesen v. Joseph Muller Corp., 710 F.2d 928 (2d Cir. 1983); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶¶121 et seq. (2d ed. 2007); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶257 (1999) (“the Convention also governs awards which are not considered as domestic awards in the country where their recognition and enforcement are sought”). 402 A. van den Berg, The New York Arbitration Convention of 1958 22 (1981) (“The second criterion – an award not considered as domestic – has remained a dead letter … ”). 403 See infra pp. 2377-2381. 404 Nothing in the structure or purposes of the Convention argues http://www.kluwerarbitration.com/CommonUI/print.aspx
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for a different result, because the provision in question is merely a mechanism by which Contracting States are free to unilaterally extend the scope of the Convention. See infra pp. 2380-2381. 405 See infra pp. 2380-2381. This contradicts the Convention's basic purpose of achieving uniformity, but is an almost inevitable consequence of Article I's provision that the Convention applies to “arbitral awards not considered as domestic awards in the State where their recognition and enforcement are sought.” New York Convention, Art. I(2). One might attempt to develop an argument that Contracting States must treat certain awards (and agreements) as non-domestic, but this is very difficult to reconcile with the Convention's text and purposes. See infra pp. 2377-2381. 406 Of course, this category of awards could include awards that are not “foreign.” See infra pp. 2377-2379. 407 See infra pp. 2377-2381. 408 In practice, the most significant additional category of arbitration agreements that would be encompassed by a definition of “international arbitration agreements,” but not by arbitration agreements that produced “foreign” or “non-domestic” awards, would be international agreements providing for arbitration in the state where recognition and enforcement of the arbitration agreement is sought (e.g., parties from States A and B agree to arbitrate in State C, with litigation concerning the arbitration agreement being commenced in State C). 409 See supra pp. 277-282. 410 Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88 (2d Cir. 1999); A. Samuel, Jurisdictional Problems in International Commercial Arbitration 91 (1989). 411 See supra pp. 92-101, 203-205. See also A. van den Berg, The New York Arbitration Convention of 1958 61 (1981) (‘the primary goal of the Convention is to facilitate the enforcement of agreements and awards […]. Accordingly, the main purpose of the Convention's provisions concerning the arbitration agreement is to give uniform rules for the form of the arbitration agreement (‘in writing’), and to assure that the international commercial arbitration will not be frustrated by court litigation on the same merits as covered by the arbitration agreement. It is obvious that the purposes of uniformity can be fulfilled only if the arbitration agreement is enforceable under Article II(3) in all Contracting States, including the State where the arbitration is to take place’). 412 Geneva Protocol, Art. I; supra pp. 58-61, 277. 413 Geneva Protocol, Arts. I, IV; supra pp. 58-61. 414 On the contrary, they intended the opposite – that is, to expand and improve the Protocol's provisions regarding arbitration agreements. See supra pp. 92-101. 415 See also A. van den Berg, The New York Arbitration Convention of 1958 63 (1981) (Convention applies to “only those [arbitration agreements] which have an international element”). 416 This definition is elaborated below. See infra pp. 300-301. 417 See supra pp. 92-101, 203-205. & infra pp. 2364-2384. 418 See infra pp. 285-300; Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88 (2d Cir. 1999); Bergesen v. Joseph Muller Corp., 710 F.2d 928, 932 (2d Cir. 1983). See also Romanian Code of Civil Procedure, Art. 369 (“an arbitration taking place in Romania shall be considered international if it has arisen out of a private law relation having a foreign element.”). 419 European Convention, Art. I(1)(a) (emphasis added). See http://www.kluwerarbitration.com/CommonUI/print.aspx
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Judgment of 13 October 2000, XXVI Y.B. Comm. Arb. 1141 (Italian Corte di Cassazione) (2001) (“With the aim of promoting international trade, the European Convention binds its Member States to recognize international commercial arbitrations concerning the import and export of goods, where part of the contractual obligations is performed in different countries”). 420 It might be suggested that similar conclusions have been reached by U.S. courts in interpreting the New York Convention. See supra pp. 279-281 & infra pp. 290-296, 2388. In fact, U.S. decisions interpreting the New York Convention rarely have involved local parties and purely local transactions. 421 See supra pp. 103-105. 422 See supra pp. 282-284. 423 See supra pp. 282-284. 424 UNCITRAL Model Law, Art. 1(3). See H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 28-35 & 41-43 (1989). 425 UNCITRAL Model Law, Art. 1(2) (“The provisions of this Law, except Articles 8 [and] 9 … apply only if the place of arbitration is in the territory of this State”) & Art. 8 (mandatory stay of litigation). See infra pp. 307-309, 1025-1028. 426 See UNCITRAL Model Law, Art. 1(2); infra pp. 307-309, 12781281. 427 Noteworthy is that the Model Law's provisions regarding competence-competence and separability do not expressly apply to arbitration agreements providing for a foreign arbitral seat. See infra pp. 307-309, 986-988, 1278; UNCITRAL Model Law, Art. 16. 428 Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration, ¶21, available at www.uncitral.org. 429 Russian Federation Law on International Commercial Arbitration, Arts. 1(2)-(3); Ukraine Law on International Commercial Arbitration, Arts. 1(2) & 1(3); Nigerian Arbitration and Conciliation Decree, 1988, §57. 430 See, e.g., Bulgarian Law on International Commercial Arbitration, Art. 1 (“The international commercial arbitration resolves civil property disputes arising from foreign trade relations as well as disputes about filling gaps in a contract or its adaptation to newly arisen circ*mstances if the domicile or the seat of at least one of the parties is not in the Republic of Bulgaria.”). Tunisia appears to have adopted both the UNCITRAL Model Law's definition of international and the approach of the French New Code of Civil Procedure (discussed below). Tunisian Arbitration Code, Art. 48. It is not clear how these provisions are to be interpreted. 431 German ZPO, §1025; English Arbitration Act, 1996, §2;
Spanish Arbitration Act, Art. 3. See supra pp. 110-111, 129-130. 432 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶103 (1999) (“some of which are probably too broad”). 433 UNCITRAL Model Law, Art. 1(3)(a). 434 UNCITRAL Model Law, Art. 1(3)(b)(i); H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 30 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(1989) (“It must be recalled … that the Model Law applies when the place of arbitration is in the enacting State. As long as two parties from one State may validly select a foreign place of arbitration – and it is a basic policy of the Model Law to provide parties with such freedom – it is essential that the resulting arbitration be considered international arbitration of the chosen foreign State. That result – submitting an arbitration between two parties from a foreign state to the domestic law of arbitration – would be anomalous.”). See alsoReport of the UNCITRAL on the Work of its Eighteenth Session, UN Doc. A/40/17, ¶¶28-29, XVI Y.B. UNICTRAL 3 (1985). 435 UNCITRAL Model Law, Art. 1(3)(b)(ii). SeeAnanda NonFerrous Metals Ltd v. China Resources Metal and Minerals Co., [1993] 2 HKLR 348 (H.K. High Court, S.Ct.) (arbitration is international if a substantial part of obligations are to be performed outside of Hong Kong); Katran Shipping Co. Ltd v. Kenven Transp. Ltd, XVIII Y.B. Comm. Arb. 175 (H.K. High Court, S.Ct. 1992) (1993); Vanol Far East Mktg Pte Ltd v. Hin Leong Trading Pte Ltd, [1997] 3 SLR 484 (Singapore High Court) (arbitration may be international even if both parties are from same state and agreement is governed by local law of that state). 436 UNCITRAL Model Law, Art. 1(3) (“the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country”). 437 van den Berg, The New York Convention: Its Intended Effects, Its Interpretation, Salient Problem Areas, in The New York Convention of 1958 25, 35 (ASA Special Series No. 9 1996) (“Article II(2) does not apply to purely domestic arbitration agreement[s]”). 438 Am. Diagnostica Inc. v. Gradipore Ltd, XXIVa Y.B. Comm. Arb. 574 (N.S.W. S. Ct. 1998) (1999). Compare supra pp. 279-280. & infra pp. 293-295. discussing U.S. decisions holding that the Convention and its implementing legislation would not apply to a purely domestic agreement between two domestic U.S. parties. 439 See also supra pp. 72-76. 440 This parallels the terms of the Geneva Protocol. See supra pp. 58-61, 276-277, 282-283. 441 In enacting the Model Law, Germany changed the language of Article 1(3) (see §1025), and its statute does not contain a provision similar to Article 1(3)(b)(i). Like Germany, Japan changed the language of Article 1(3) and its statute does not contain a provision similar to Article 1(3)(b)(i). Japanese Arbitration Law, Art. 3. Australia, by contrast, adopted the Model Law without change. Australian International Arbitration Act, §16. Hong Kong adopted the Model Law, but made the following reservation in Article 34(c)(3): “Art. 1(1) of the UNCITRAL Model Law shall not have the effect of limiting the application of the UNCITRAL Model Law to international commercial arbitrations.” 442 See supra pp. 278-281. 443 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on
International Commercial Arbitration ¶103 (1999) (such agreements may constitute “fraud against the law”). This criticism parallels some U.S. judicial authority, refusing to apply the New York Convention to agreements to arbitrate a purely domestic dispute between two U.S. parties outside the arbitral seat. See supra pp. 279-280 & infra pp. 293-295. 444 See supra pp. 279-280 & infra pp. 293-295. http://www.kluwerarbitration.com/CommonUI/print.aspx
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445 For example, if insurance companies agree to arbitrate in
London, Bermuda or New York, or maritime companies in London, New York, Singapore, or Hamburg. 446 For example, if companies with Latin American origins, ownership connections, or operations agree to arbitrate in Madrid, Miami, or Mexico. 447 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶103 (1999). A number of states have omitted Article 1(3), permitting parties to contract into the Model Law. Ontario International Commercial Arbitration Act, §2(3); Hungarian Arbitration Act, §47; Senegalese Code of Civil Procedure, Arts. 819-27; German ZPO, §1025. Spain changed the text of Article 1(3), but adopted a similar provision in Article 3(1)(b). 448 See supra p. 286 n. 430. 449 See supra pp. 109-111. Likewise, some U.S. judicial decisions
come close to permitting parties to “contract into” the U.S. FAA, by applying the Act by analogy to mediation, conciliation and expert determination agreements. See supra pp. 229-230, 238. 450 See infra pp. 291-295. 451 See infra pp. 293-295. 452 See supra pp. 134-136; U.S. FAA, 9 U.S.C. §§1-16. 453 See supra pp. 136-139; U.S. FAA, 9 U.S.C. §§201-208 (implementing New York Convention); §§301-306 (implementing Inter-American Convention). 454 U.S. FAA, 9 U.S.C. §202 (emphasis added). See also supra pp. 136-139, 279-281. Section 202's “reasonable relationship” standard was – for better or worse – based on §1-105 of the Uniform Commercial Code, dealing with choice-of-law clauses. See infra pp. 293-295. Section 1-105 was recently amended, to relax its “reasonable relationship” requirement, subsequent to enactment of §202. See infra pp. 2199-2200. 455 Coastal States Trading, Inc. v. Zenith Nav. SA, 446 F.Supp. 330, 341 (S.D.N.Y. 1977) (applying §202, incorrectly, to hold that arbitration agreement between U.S. and Panamanian company for shipment of oil from England to United States was not nondomestic); Fuller Co. v. Compagnie des Bauxites de Guinee, 421 F.Supp. 938, 941 (W.D. Pa. 1976). 456 107 F.3d 476 (7th Cir. 1997). 457 Lander Co., Inc. v. MMP Inv., Inc., 107 F.3d 476, 482 (7th Cir. 1997). 458 Indus. Risk Insurers v. MAN Gutehoffnungshütte GmbH, 141 F.3d 1434, 1441 (11th Cir. 1998) 459 Indus. Risk Insurers v. MAN Gutehoffnungshütte GmbH, 141 F.3d 1434, 1441 (11th Cir. 1998) (quoting Bergesen v. Joseph Muller Corp., 710 F.2d 928 (2d Cir. 1983). 460 710 F.2d 928 (2d Cir. 1983). 461 Bergesen v. Joseph Muller Corp., 710 F.2d 928, 932 (2d Cir. 1983). See also infra p. 2381. 462 Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88 (2d Cir. 1999); Jacada (Europe), Ltd v. Int'l Mktg. Strategies, Inc., 255 F.Supp.2d 744 (W.D. Mich. 2003) (applying FAA and Convention to arbitral award where performance http://www.kluwerarbitration.com/CommonUI/print.aspx
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of contract was intended to occur abroad and one of the parties was a non-U.S. citizen); Ledee v. Ceramiche Ragno, 684 F.2d 184, 18687 (1st Cir. 1982) (Chapter 2 of FAA requires enforcement of an arbitration agreement when one of the parties to the agreement is not a U.S. citizen); Corcoran v. AIG Multi-Line Syndicate, Inc., XV Y.B. Comm. Arb. 586 (N.Y. S.Ct. 1989) (1990), rev'd, 562 N.Y.S.2d 933 (N.Y. App. Div. 1990). 463 See, e.g., Certain Underwriters at Lloyd's London v. Argonaut Ins. Co., 500 F.3d 571 (7th Cir. 2007); Jacada (Europe), Ltd v. Int'l Marketing Strategies, Inc., 401 F.3d 701, 707-709 (6th Cir. 2005); Ledee v. Ceramiche Ragno, 684 F.2d 184, 187 (1st Cir. 1982); DaPuzzo v. Globalvest Mgt Co., LP, 263 F.Supp.2d 714, 724 (S.D.N.Y. 2003). There could conceivably be cases where U.S. and non-U.S. nationals, or only non-U.S. nationals, agreed to arbitrate a purely domestic U.S. transaction abroad. If so, the analysis discussed below regarding arbitrations between U.S. nationals would apply. See infra pp. 293-295, 295-296. 464 See supra pp. 82-84. 465 See supra p. 290 n. 454. 466 See infra pp. 2199-2200. 467 Despite this, as discussed below, a number of U.S. courts have concluded that the Convention does not require giving effect to arbitration agreements, specifying a foreign arbitral seat, involving consumers or workers. See supra pp. 279-281, 293-295 & infra p. 295 nn. 472-473. 468 See, e.g., Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88 (2d Cir. 1999) (in considering application of New York Convention to arbitration agreement, the fact that a party was a citizen of a non-Contracting State and that the dispute's subject matter was located in a non-Contracting State was not controlling when seat of arbitration was the United States: “The focus of … the Convention is not on the nationality of the party seeking to enforce an award but on the situs of the arbitration. Indeed, arbitration awards rendered by panels sitting in contracting countries have been confirmed consistently when the plaintiff is a national of a country which has not acceded to the Convention”); Fuller Co. v. Compagnie des Bauxites de Guinee, 421 F.Supp. 938, 942-43 (W.D. Pa. 1976) (agreement between U.S. parties to arbitrate a dispute bearing connection to Guinea where the arbitration was originally sited in Switzerland but parties later agreed to move the arbitration to Pittsburgh, Pennsylvania within ambit of the Convention). 469 H.R. Rep. No. 91-1181, 91st Cong., 2d Sess. 2, reprinted in, 1970 U.S. Code Cong. & Ad. News 3601, 3602 (emphasis added). 470 Foreign Arbitral Awards, S. Rep. No. 91-702, 91st Cong., 2d Sess. 6 (1970) (Appendix; Statement of Richard D. Kearney) (“it was necessary to modify the definition of commerce to make it quite clear that arbitration arising out of relationships in interstate commerce remains under the original Arbitration Act and is excluded from the operation of the proposed Chapter 2”). 471 See supra pp. 287-289. 472 Wilson v. Lignotock U.S.A. Inc., 709 F.Supp. 797 (E.D. Mich. 1989). 473 See, e.g., Jones v. Sea Tow Servs. Freeport NY, Inc., 30 F.3d 360 (2d Cir. 1994); Ensco Offshore Co. v. Titan Marine LLC, 370 F.Supp.2d 594, 601 (S.D. Tex. 2005) (refusing to apply Convention to arbitration agreement between two US parties providing for arbitration in London under Lloyd's Salvage Arbitrators form); http://www.kluwerarbitration.com/CommonUI/print.aspx
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Reinholtz v. Retriever Marine Towing & Salvage, 1993 WL 414719 (S.D. Fla. 1993), aff'd, 46 F.3d 71 (11th Cir. 1995); Brier v. Northstar Marine, Inc., 1992 WL 350292 (D.N.J. 1992); Coastal States Trading, Inc. v. Zenith Nav., SA, 446 F.Supp. 330, 341 (S.D.N.Y. 1977). See also Bethlehem Steel Corp. v. Songer Corp., 1992 WL 110735 (S.D.N.Y. 1992) (“the Convention … was not intended to confer jurisdiction on the federal courts over disputes between United States citizens solely because that dispute may have some relation to a contract one of the parties has with a foreign corporation”). 474 See U.S. FAA, 9 U.S.C. §202; Bergesen v. Joseph Muller Corp., 710 F.2d 928, 933 (2d Cir. 1983) (noting the ‘reasonable relationship’ to enforce an agreement or award between two U.S. parties); Beiser v. Weyler, 284 F.3d 665 n.2 (5th Cir. 2002); supra pp. 293-295. 475 See supra pp. 279-280. 476 It is understandable that there are national legislative concerns about circumvention of domestic regulations, by means of agreements to arbitrate purely domestic disputes abroad (as under the Model Law). Nonetheless, the Convention's treatment of foreign awards does not permit simply exempting all such awards from the scope of the Convention; rather, as discussed below, some more nuanced and precise analysis into the circumvention of local public policies would be required. That approach could refuse to give effect to arbitration awards and (less clearly) agreements between local residents aimed at circumventing national public policies or mandatory laws, but would not simply exclude all foreign awards between local residents from the Convention's scope. See infra pp. 755-766, 2826-2863. 477 See supra pp. 279-280. 478 See supra pp. 277-278, 282-284. 479 On the other hand, an “international” arbitration agreement could also include all agreements to arbitrate outside the judicial enforcement forum, even if involving only a domestic dispute between local nationals. This would leave the judicial enforcement forum free to apply non-arbitrability or public policy exceptions to the arbitration agreement, but not exclude the agreement altogether from the scope of the Convention. See also supra pp. 277-278, 282284. A more nuanced view would include agreements to arbitrate domestic disputes, between local nationals, abroad where there was a legitimate basis for doing so (e.g., a market practice or cultural affinity). 480 See supra pp. 109-111. 481 See G. Wilner, Domke on Commercial Arbitration, §7 (3d ed. & Update 2006). 482 The French “objective” approach to the question of internationality has been adopted by Lebanon and the Ivory Coast, as well as Portugal. E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶107126 (1999). See alsoDell Computer Corp. v. Union des consommateurs, 2007 SCC 34, at ¶49 (Canadian S.Ct.). 483 French New Code of Civil Procedure, Art. 1492. 484 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶107-126 (1999); Delaume, What Is An International Contract? An American and A Gallic Dilemma, 28 Int'l & Comp. L.Q. 258 (1979). 485 Judgment of 21 May 1997, Renault v. V 2000 (formerly Jaguar http://www.kluwerarbitration.com/CommonUI/print.aspx
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France), 1997 Rev. arb. 537 (French Cour de cassation civ. 1e) (sale of automobile). See Judgment of 17 May 1927, Pélissier du Besset v. The Algiers Land and Warehouse Co., 1927 Bull. civ. No. 77, at 163 (French Cour de cassation civ. 1e) (holding that a transaction will be international if it produces a movement across borders with reciprocal consequences in more than one country). 486 Judgment of14 March 1989, 1991 Rev. arb. 355 (Paris Cour d'appel). See also Judgment of 21 May 1997, Renault v. V 2000 (formerly Jaguar France), 1997 Rev. arb. 537 (French Cour de cassation civ. 1e); Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, at ¶49 (Canadian S.Ct.) (“The matter of international trade test is different from connecting factors such as the parties' place of residence or the place where the obligations are performed. Thus, a contractual legal situation may have foreign elements without involving any matters of extraprovincial or international trade; in such a case … the resulting arbitration will not be considered an international arbitration”). 487 See also E. Gaillard & J. Savage (eds.), FouchardGaillard Goldman on International Commercial Arbitration ¶116-118 (1999) (definition criticized for being too general and likely to cause uncertainty.). 488 See supra pp. 71-84. 489 See supra pp. 72-74. 490 See supra pp. 285-289; UNCITRAL Model Law, Art. 1(3). 491 See supra pp. 290-295; U.S. FAA, 9 U.S.C. §202. 492 See supra pp. 284-285; European Convention, Art. I(1)(a). 493 See supra pp. 58-61, 276-277; Geneva Protocol, Art. I. 494 English Arbitration Act, 1996, §§1, 6; R. Merkin, Arbitration Law ¶1.22(a) (2004 & Update 2007). 495 In this respect, the Act parallels the Model Law (and particularly Articles 1(2) and 8). See supra pp. 285-289. 496 English Arbitration Act, 1996, §§2(1), (3). 497 English Arbitration Act, 1996, §§9-11. 498 English Arbitration Act, 1996, §2(a). 499 Swiss Law on Private International Law, Art. 176(1). See Judgment of 24 June 2002, 21 ASA Bull. 131 (Swiss Federal Tribunal) (2003). 500 B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶102 (2006); P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitage interne et international en Suisse, Art. 176, ¶3 (1989). 501 See Swiss Law on Private International Law, Art. 176(1); Patocchi & Jermini, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 194, ¶12 (2000); Ehrat, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 176, ¶16 (2000). 502 Ibid. 503 For a decision addressing the time for determining the international character of an arbitration agreement, see Judgment of 13 October 2000, XXVI Y.B. Comm. Arb. 1141 (Italian Corte di Cassazione) (2001) (“The ‘international’ nature of a possible future arbitration must be ascertained at the time of the conclusion of the contract …”). 504 Italian Code of Civil Procedure, Art. 832 (“If on the date of signing the arbitration clause or submission to arbitration at least one of the parties has its domicile or actual place of business abroad, or if a substantial part of the obligations arising out of the http://www.kluwerarbitration.com/CommonUI/print.aspx
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relationship to which the dispute refers must be performed abroad, the provisions of Chapter I to V of this Title shall apply to arbitration in so far as they are not derogated from by this Chapter.”); Tampieri, International Arbitration and Impartiality of Arbitrators – The Italian Perspective, 18 J. Int'l Arb. 549 (2001). See also Belgian Judicial Code, Art. 1717(4) (“The parties may, by an express statement in the arbitration agreement or by a subsequent agreement, exclude any application for the set aside the arbitral award, where none of the parties is either an individual of Belgian nationality or an individual residing in Belgium, or a legal person having its head office or a branch office in Belgium.”). For the new Italian legislation see Cutolo & Esposito, The Reform of the Italian Arbitration Law, 24 J. Int'l Arb. 49, 51 (2007) (new statute abrogates the specific provisions concerning international arbitration and extends the regulations for domestic arbitrations to international arbitrations). See alsoJudgment of 13 October 2000, XXVI Y.B. Comm. Arb. 1141 (Italian Corte di Cassazione) (2001) (holding that an arbitration would be “international” if a “substantial” (but not necessarily “predominant”) part of the obligations are performed abroad) and if parties of different residences were involved; “the foreign habitual place of residence or the foreign seat of the parties to the contract, at the time of concluding the contract or the arbitral clause, is the first criterion for ascertaining the ‘international’ nature of the arbitration”). 505 Romanian Code of Civil Procedure, Art. 369. 506 Algerian Code of Civil Procedure, Art. 458. 507 See also supra pp. 282-284, 295-296. 508 Where domestic parties agree to arbitrate a domestic dispute
abroad for reasons of expertise, culture, language or the like, their agreements should also generally be considered “international” and subject to international arbitration legislation. See supra 293-295. 509 See infra pp. 306-309. 510 See infra pp. 307-309. It is inconsistent with the approach in Switzerland. See supra pp. 298-299. 511 See infra pp. 307-309. 512 New York Convention, Art. II(1). The Geneva Protocol applied to “differences between parties.” Geneva Protocol, Art. I. See also A. van den Berg, The New York Arbitration Convention of 1958 168 (1981) (“there [must] be a dispute”). 513 European Convention, Art. I(1)(a). 514 UNCITRAL Model Law, Art. 7(1). See also U.S. FAA, 9 U.S.C. §1 (“controversies”); Swiss Law on Private International Law, Art. 177(1) (“dispute”); New Zealand Arbitration Act, First Schedule, Art. 8(1) (court not required to refer parties to arbitration is “there is not in fact any dispute between the parties with regard to the matters agreed to be referred”). See also A. Samuel, Jurisdictional Problems in International Commercial Arbitration 148 (1989); R. Merkin, Arbitration Law ¶¶8.35 to 8.37 (2004 & Update 2007). 515 See Fletcher Constr. NZ & South Pacific Ltd v. Kiwi Cooperative Dairies Ltd, CP 7/98 (N.Z. High Court 27 May 1998) (if no good faith defense, then parties not referred to arbitration); Joong and Shipping Co. v. Choi Chong-sick, XX Y.B. Comm. Arb. 284 (H.K. High Court, St.Ct. 1994) (1995); Methanex New Zealand Ltd v. Fontaine Nav. SA, [1998] 2 F.C. 583 (Fed. Ct. of Canada); Tai Hing Cotton Mill Ltd v. Glencore Gain Rotterdam BV, [1996] 1 HKC 363 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(H.K. Court of Appeal, S.Ct.); BankAmerica Trust and Banking Corp. v. Trans-World Telecom Holdings Ltd, XXV Y.B. Comm. Arb. 683 (Cayman Islands Grand Court 1999) (2000) (stay of litigation is only required if there is a “real and genuine dispute” to be referred to arbitration). 516 English Arbitration Act, 1996, §9(4); R. Merkin, Arbitration Law ¶¶8.38 to 8.42 (2004 & Update 2007). 517 Halki Shipping Corp. v. Sopex Oils Ltd [1998] 1 Lloyd's Rep. 49 (Q.B.). 518 Hayterv. Nelson Home Ins. Co. [1990] 2 Lloyd's Rep. 265 (Q.B.) (rejecting suggestion that “if courts are to decide whether or not a claim is disputable, they are doing precisely what the parties have agreed should be done by the private tribunal. An arbitrator's very function is to decide whether or not there is a good defence to the claimant's claims.”); Mayer Newman v. Al Ferro Commodities Corp. [1990] 2 Lloyd's Rep. 290 (English Court of Appeal). 519 New York Convention, Art. II(1); Inter-American Convention, Art. 1 (“any differences that may arise or have arisen between them with respect to a commercial transaction”); European Convention, Art. I(1)(a) (“arbitration agreements concluded for the purpose of settling disputes arising from international trade”); UNCITRAL Model Law, Art. 7(1) (“whether contractual or not”). See also Larsen v. The Hawaiian Kingdom (Award of 5 February 2001), 119 I.L.R. 566, 585586 (2001) (“there appears no reason why the UNCITRAL Rules cannot be adapted to apply to a non-contractual dispute”). 520 A. Samuel, Jurisdictional Problems in International Commercial Arbitration 151 (1989) (“It is apparent from [Article II(1)] that tort or other types of civil law claims fall within the ambit of the Convention”); Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994). 521 See supra pp. 144-147 & infra pp. 766. et. seq. 522 Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994). 523 See infra pp. 766 et seq., 1099-1107. 524 Further, as discussed below, there is a substantial argument that a Contracting State could not, consistent with the New York Convention, declare all agreements to arbitrate tort claims invalid or declare all tort claims non-arbitrable. Such actions would violate prohibitions, derived from Article II and the Convention's structure (see infra pp. 530-535), as well as the objectives of Article II(1)'s express reference to non-contractual disputes. 525 See infra pp. 766 et seq. 526 New York Convention, Art. II(1) (“differences which have arisen or which may arise”); Inter-American Convention, Art. 1 (“any differences that may arise of have arisen between them”); European Convention, Art. I(2)(a) (by implication); UNCITRAL Model Law, Art. 7(1) (“which have arisen or which may arise”). 527 See supra pp. 37-39, 44-46, 144-147. 528 A. van den Berg, The New York Arbitration Convention of 1958 134 (1981) (“the Convention treats both types of agreements [i.e., agreements to arbitrate existing and future disputes] alike … This can be considered a provisional uniform law which supersedes municipal law for those agreements failing under the Convention”). As discussed below, there is a substantial argument that a Contracting State could not, consistent with the Convention, declare all agreements to arbitrate future disputes invalid or declare future disputes non-arbitrable. See infra pp. 507-516. http://www.kluwerarbitration.com/CommonUI/print.aspx
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529 Similarly, the Geneva Protocol was applicable only to
agreements between nationals of Contracting States while the Geneva Convention was applicable only to awards made in other Contracting States, thereby imposing a reciprocity requirement of sorts. See supra pp. 58-61, 61-63. 530 New York Convention, Art. I(3). 531 A list of the Convention's parties and their reservations, is at www.uncitral. org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html. Countries with reciprocity reservations include Argentina, Belgium, China, Denmark, France, India, Japan, Netherlands, New Zealand, United Kingdom and United States. The increasingly universal character of the New York Convention reduces the practical importance of reciprocity reservations. 532 New York Convention, Art. XIV. 533 See supra pp. 102-103 & infra p. 2396. 534 The application of the reciprocity requirement to arbitral awards is discussed in detail below. See infra pp. 2389-2396. 535 See, e.g., Nat'l Iranian Oil Co. v. Ashland Oil, Inc., 817 F.2d 326, 331 (5th Cir. 1987); Ledee v. Ceramiche Ragno, 684 F.2d 184, 185-86 (1st Cir. 1982); Tolaram Fibers, Inc. v. Deutsche Eng'g Der Voest Alpine Industrieanlagenbau GmbH, 1991 U.S. Dist. LEXIS 3565 (M.D.N.C. 1991). See also infra pp. 1710-1712. 536 Fuller Co. v. Compagnie des Bauxites de Guinee, 421 F.Supp. 938, 941 n.3 (W.D. Pa. 1976); Gatoil Int'l Inc. v. Nat'l Iranian Oil Co. XVII Y.B. Comm. Arb. 587 (Q.B.) (1992). 537 E.A.S.T. Inc. of Stamford, Conn. v. M/V Alaia, 876 F.2d 1168 (5th Cir. 1989). 538 See infra pp. 1710-1712, 2388-2396. 539 New York Convention, Arts. II(1), II(2); infra pp. 580 et seq. 540 UNCITRAL Model Law, Art. 7(1); UNCITRAL Model Law, 2006 Revisions, Arts. 7(2), 7(3); U.S. FAA, 9 U.S.C. §2; English Arbitration Act, 1996, §5; Swiss Law on private International Law, Art. 178(1); infra pp. 601-614. 541 See infra pp. 581, 582 et seq. 542 See infra pp. 541-545, 581-582. 543 See infra pp. 580. et seq.
Legal Framework for International Arbitration Agreements - D. The Relevance of the Arbitral Seat to the Legal Framework Governing International Arbitration Agreements Chapter 2 Gary B. Born
Author Gary B. Born
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Source D. The Relevance of the Arbitral Seat to the Legal Framework Governing International Arbitration Agreements As discussed elsewhere, the location of the arbitral seat plays an essential role in determining the legal framework for international arbitral proceedings (544) and international arbitral awards. (545) In general, the law of the arbitral seat provides a mandatory legal framework applicable to the conduct of the arbitral proceedings, (546) and to the form, notification, correction and annulment of an arbitral award. (547) As noted above, the location of the arbitral seat ordinarily has less importance in determining the legal framework for international arbitration agreements than for arbitral proceedings or awards. (548) Rather, the rules of presumptive validity of arbitration agreements, and related enforcement mechanisms, that exist under leading proarbitration regimes generally apply to international arbitration agreements providing either for arbitrations seated locally or for arbitrations seated abroad. Nonetheless, as also noted above, there are important instances where different statutory provisions of national arbitration legislation apply depending on the location of the arbitral seat.
Legal Framework for International Arbitration Agreements - D. The Relevance of the Arbitral Seat to the Legal Framework Governing International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 306 - 309
1. International Arbitration Conventions As discussed above, the pro-arbitration regimes of most international arbitration conventions do not depend on the location of the arbitral seat insofar as provisions regarding arbitration agreements are concerned. Rather, under the Geneva Protocol, (549) the European Convention (550) and the Inter-American Convention, (551) international arbitration agreements are subject to the conventions' respective pro-arbitration provisions regardless of the location of the arbitral seat. The only arguable exception to this approach is the New York Convention, where, as discussed above, application of Article II of the Convention arguably depends on whether an arbitration agreement will result in a foreign arbitral award. (552) The better view, however, is that the Convention applies to all international arbitration agreements, regardless whether the arbitral seat is abroad or not. (553) This is consistent with the approach of other leading international arbitration conventions page "306" and with the weight of national court authority under the Convention, which applies Article II to all international arbitration agreements, whether providing for foreign arbitral seats or otherwise. (554) 2. National Arbitration Legislation National arbitration legislation takes a somewhat different approach to the importance of the location of the arbitral seat in determining the legal framework applicable to international arbitration agreements. Under leading national arbitration legislation, the basic rule of presumptive validity of international arbitration agreements, and the mechanisms for enforcing such agreements apply equally to http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration agreements providing for foreign arbitral seats and for domestic arbitral seats. That is the case, for example, with Article 8 of the UNCITRAL Model Law. (555) In contrast, national laws differ in their treatment of the applicability of other statutory provisions relevant to international arbitration agreements (e.g., rules concerning competence-competence, choice of law). In some cases, statutory provisions of this nature apply only to agreements to arbitrate within local territory, (556) while other legal regimes apply the same rules to all arbitration agreements, regardless of the location of the arbitral seat. (557) As discussed elsewhere, the UNCITRAL Model Law is, generally applicable only to arbitrations seated within national territory. (558) One important exception to this territorial limitation is Article 8 – setting forth the basic rule of presumptive enforceability of arbitration agreements and the obligation of specific enforceability (559) – which applies to international arbitration agreements without regard to the location of the arbitral seat. (560) Consistent with this, judicial decisions in Model Law jurisdictions have almost uniformly applied Article 8 without regard to the location of the arbitral seat. (561) Nonetheless, other significant aspects of the Model Law's legal regime for international arbitration agreements apply, by their terms, only to agreements providing for arbitration within national territory. In particular, as noted above, the Model Law's provisions regarding written form, competence-competence and the tribunal's power to order provisional measures are not directly applicable to page (562) "307" agreements to arbitrate abroad. These provisions may (563) be applicable by analogy, but are excluded from direct application by Article 1(2) of the Model Law. The Swiss Law on Private International Law also distinguishes between agreements to arbitrate abroad and agreements to arbitrate in Switzerland. As discussed above, Article 176 of the Swiss Law on Private International Law limits the legislation's scope to “any arbitration if the seat of the arbitral tribunal is in Switzerland.” (564) This limitation has been held applicable to the Article 178's provisions regarding the formal and substantive validity of arbitration agreements. (565) Under Swiss law, arbitration agreements providing for arbitration abroad are governed by Article II of the New York Convention (not Article 178). (566) In contrast, some national arbitration legislation applies equally to agreements to arbitrate domestically and abroad. In the United States, the FAA's provisions regarding the presumptive validity of arbitration agreements apply without regard to the arbitral seat. (567) The same applies to U.S. rules regarding competence-competence, (568) interpretation, (569) legal effects, (570) and the choice of law governing arbitration agreements. (571) French law adopts an approach comparable to that in the United States. The international provisions of the French New Code of Civil Procedure (Articles 1492 to 1507) apply to all international arbitration agreements, (572) regardless of the location of the arbitral seat. This approach extends to French choice-of-law and competence-competence rules. (573) http://www.kluwerarbitration.com/CommonUI/print.aspx
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page "308" The better approach is that taken by U.S. and French law, which is generally to apply the same legal framework to all international arbitration agreements, regardless of the location of the arbitral seat. Provided that an international arbitration agreement is involved, there is no reason to discriminate against (or in favor of) agreements to arbitrate abroad. The same validity (substantive and formal), choice-of-law, competence-competence, enforceability and interpretation rules should be applied by a national court to all international arbitration agreements, regardless of the arbitral seat. As discussed in subsequent Chapters, this is also the approach generally taken, either directly or by analogy (or otherwise), in most developed jurisdictions. page "309"
544 See infra pp. 1240-1243, 1246-1294. 545 See infra pp. 1287-1289, 1337-1341, 2403-2425. 546 See infra pp. 1240-1243, 1277-1294, 1294-1304. 547 See infra pp. 1287-1289, 1293, 2340-2343. 548 See supra p. 211. 549 Geneva Protocol, Art. I; supra pp. 58-61. 550 European Convention, Art. I(1)(a); supra p. 284. 551 Inter-American Convention, Art. 1; supra p. 285. 552 See supra pp. 276-282. 553 See supra pp. 282-284. 554 See supra pp. 282-284, 300. 555 See supra pp. 285-286 & infra pp. 1016, 1022-1024;
UNCITRAL Model Law, Arts. 1(2), 8; English Arbitration Act, 1996, §§2(1), 2(2), 9-11; Swiss Law on Private International Law, Art. 176(1). 556 See authorities cited supra p. 307 n. 555. 557 U.S. FAA, 9 U.S.C. §§1, 202; French New Code of Civil Procedure, Art. 1492. 558 See supra pp. 285-286 & infra pp. 1278-1281; UNCITRAL Model Law, Art. 1(3). 559 UNCITRAL Model Law, Art. 8(1); supra p. 206 & infra pp. 569571, 880-881, 1014. 560 UNCITRAL Model Law, Art. 1(3); supra pp. 285-286 & infra pp. 1016, 1024. 561 See infra pp. 1022-1024. 562 See UNCITRAL Model Law, Arts. 1(2), 7, 16, 17. 563 The fact that the Model Law's written form, competencecompetence or other provisions do not apply directly does not prevent national courts from applying or looking to these rules by analogy. 564 Swiss Law on Private International Law, Art. 176(1); supra pp. 298-299. 565 Swiss Law on Private International Law, Arts. 178(1), (2); Ehrat, in S. Berti et al. (eds.), International Arbitration in Switzerland http://www.kluwerarbitration.com/CommonUI/print.aspx
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Art. 176, ¶16 (2000). 566 Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶5 (2000); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶307 (2006); P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitage interne et international en Suisse Art. 7, ¶3 (1989); G. Walter, W. Bosch & J. Brönnimann, Internationale Schiedsgerichtsbarkeit in der Schweiz 77 (1991). 567 See supra pp. 290-295 & infra pp. 571-572, 1014-1016. 568 See infra pp. 865-866. 569 See infra p. 1070. 570 See infra pp. 1014-1017. 571 See infra pp. 489-490, 491-492, 495-497. 572 French New Code of Civil Procedure, Art. 1492; supra pp. 439441, 504-506, 900-902. The domestic provisions of the French New Code of Civil Procedure apply only to domestic arbitrations and, in a subsidiary, non-mandatory fashion, to international arbitrations seated in France. E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶139 (1999). 573 See infra pp. 504-506, 900-902. See also E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶140 (1999) (“The substantive rules [of Title V of the French New Code of Civil Procedure] apply, as far as the French legal order is concerned, to all international arbitration without requiring a particular connection between the arbitration and France.”).
International Arbitration Agreements and the Separability Presumption Chapter 3 Gary B. Born
Author Gary B. Born
International Arbitration Agreements and the Separability Presumption (1) An international arbitration agreement is almost invariably treated as presumptively “separable” or “autonomous” from the underlying contract within which it is found. page "311" This result is generally referred to as an application of the “separability doctrine,” or, more accurately, the “separability presumption.” This Chapter discusses the development, current status, analytical bases and applications of the separability presumption.
Source International Arbitration Agreements and the Separability Presumption in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 311 - 312
1 For commentary, see Aeberli, Jurisdictional Disputes under the
Arbitration Act 1996: A Procedural Route Map, 21 Arb. Int'l 253 (2005); Davis, A Model for Arbitration Law: Autonomy, Cooperation http://www.kluwerarbitration.com/CommonUI/print.aspx
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and Curtailment of State Power, 26 Ford. Urb. L.J. 167 (1999); Dimolitsa, Separability and Kompetenz-Kompetenz, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 217 (ICCA Congress Series No. 9 1999); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶388-451 (1999); Gee, The Autonomy of Arbitrators and Fraud Unravels All, 22 Arb. Int'l 337 (2006); Herrera Petrus, Spanish Perspectives on the Doctrine of Kompetenz-Kompetenz and Separability: A Comparative Analysis of Spain's 1988 Arbitration Act, 11 Am. Rev. Int'l Arb. 397 (2000); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration 101-08 (2003); Mayer, The Limits of Severability of the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 261 (ICCA Congress Series No. 9 1999); Mayer, L'autonomie de l'arbitre internationale dans l'appréciation de sa propre compétence, 217 Recueil des Cours 319 (1989); Monestier, “Nothing Comes of Nothing” … Or Does It? A Critical Re-Examination of the Doctrine of Separability in American Arbitration, 12 Am. Rev. Int'l Arb. 223 (2001); Nussbaum, The “Separability Doctrine” in American and Foreign Arbitration, 17 N.Y.U.L.Q.Rev. 609 (1940); Park, Determining Arbitral Jurisdiction: Allocation of Tasks between Courts and Arbitrators, 9 Arb. & Disp. Res. L.J. 19 (2000); Rau, Everything You Really Need to Know About “Separability” in Seventeen Simple Propositions, 14 Am. Rev. Int'l Arb. 1 (2003); Rau, “The Arbitrability Question Itself,” 10 Am. Rev. Int'l Arb. 287 (1999); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶¶3-60 to 3-64 (4th ed. 2004); Rogers & Launders, Separability – The Indestructible Arbitration Clause, 10 Arb. Int'l 77 (1994); Rosen, Arbitration under Private International Law: The Doctrines of Separability and Competence de la Competence, 17 Ford. Int'l L.J. 599 (1993-1994); Samuel, Separability in English Law – Should An Arbitration Clause Be Regarded as An Agreement Separate and Collateral to A Contract in Which It Is Contained?, 3(3) J. Int'l Arb. 95 (1986); Samuel, Separability and the U.S. Supreme Court Decision in Buckeye v. Cardegna, 22 Arb. Int'l 477 (2006); Sanders, L'autonomie de la clause compromissoire, in Hommage à Frédéric Eisemann 31 (1978); Schlosser, The Competence of Arbitrators and of Courts, 8 Arb. Int'l 189 (1992); S. Schwebel, International Arbitration: Three Salient Problems (1987); Sheppard, The Moth, the Light and the United States' Severability Doctrine, 23 J. Int'l Arb. 479 (2006); Svernlov & Carroll, What Isn't, Ain't: The Current Status of the Doctrine of Separability, 8(4) J. Int'l Arb. 37 (1991); Svernlov, The Evolution of the Doctrine of Separability in England: Now Virtually Complete?, 9(3) J. Int'l Arb. 115 (1992); G. Wilner, Domke on Commercial Arbitration §11 (3d ed. & Update 2006); Note, Federal Arbitration Act and Application of the “Separability Doctrine” in Federal Courts, 1968 Duke L.J. 588 (1968); Note, The Doctrine of Separability in Soviet Arbitration Law: An Analysis of Sojuzneftexport v. JOC Oil Co., 28 Colum. J. Transnat'l L. 301 (1990).
International Arbitration Agreements and the Separability Presumption - A. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Introduction Chapter 3 Gary B. Born
Author Gary B. Born
A. Introduction The separability presumption is one of the conceptual and practical cornerstones of international arbitration. The presumption is variously articulated. In the words of one leading common law authority: “The[] characteristics of an arbitration agreement … are in one sense independent of the underlying or substantive contract [and] have often led to the characterization of an arbitration agreement as a ‘separate contract.’ [An arbitration agreement] is ancillary to the underlying contract for its only function is to provide machinery to resolve disputes as to the primary and secondary obligations arising under that contract.” (2)
Source International Arbitration Agreements and the Separability Presumption - A. Introduction in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 312 - 316
In the same vein, a frequently-cited international arbitral award states the presumption as follows: “the arbitral clause is autonomous and juridically independent from the main contract in which it is contained ….” (3) From the civil law perspective, a classic French judicial authority summarizes the separability (or autonomy) doctrine as follows: “In matters of international arbitration, the arbitration agreement, concluded separately or included in the legal act to which it is related, always has, page "312" except in exceptional circ*mstances, a complete juridical autonomy excluding it from being affected by an eventual invalidity of that act.” (4) Whatever its precise formulation, the separability presumption is of central significance in international commercial arbitration. Indeed, as discussed below, the presumption is one of the foundations of the contemporary legal regime applicable to international arbitration agreements. The separability presumption has substantial practical, as well as analytical, importance, and has a number of closely-related consequences relating to issues of choice of law, contractual validity and competence-competence. Specifically the consequences include: (a) the possible application of a different national law, or different substantive legal rules, to the arbitration agreement than to the underlying contract; (5) (b) the possible validity of an arbitration agreement, notwithstanding the non-existence, invalidity, or illegality of the parties' underlying contract; (6) (c) the possible validity of the underlying contract, notwithstanding the invalidity, illegality, or termination of an associated arbitration clause; (7) and (d) in the (mistaken) view of some authorities, the analytical foundation for the “competence-competence” doctrine, whereby the jurisdiction of the http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitral tribunal to decide on its own jurisdiction is recognized. (8) The first two of the effects of the separability doctrine – the possible applicability of different legal rules and the possible validity of the arbitration agreement, notwithstanding defects in the underlying contract – play vital roles in ensuring the efficacy of the international arbitral process. (9) Despite the practical and analytical importance of the separability presumption, there are significant uncertainties as to its basis, content and effects. There are even uncertainties concerning the appropriate name of the “separability doctrine.” Common law jurisdictions have historically referred to the “separability” or “severability” doctrine, reflecting a focus on the contractual origins of the doctrine and the view that an arbitration clause is an agreement that is “severable” from the parties' related contract. (10) In contrast, civil law jurisdictions have more often referred page "313" to the “autonomy” or “independence” of the arbitration clause, arguably reflecting a greater focus on the external legal regime applicable to international arbitration agreements and arguably implying a greater degree of separation or legal distance between an arbitration agreement and the parties' underlying contract, than the “separability doctrine” connotes. (11) The complexities surrounding the separability presumption in civil law jurisdictions are exacerbated by occasional references to the “autonomy” of international arbitration agreements from national legal systems (as well as from the parties' underlying contract). (12) In particular, as discussed below, a number of leading French judicial authorities refer to the “autonomy” or “independence” of an international arbitration clause from any national law, holding that “the arbitration agreement has a validity and effectiveness of its own” (13) and emphasizing the “total autonomy of arbitration agreements in the field of international arbitration.” (14) There is little to be gained from debates over the appropriate label – “autonomy” or “separability” – to be used in discussing international arbitration agreements. page "314"
That is particularly true because both sets of labels can create misimpressions and suffer from imprecisions. Nonetheless, the more accurate nomenclature is “separability,” rather than “autonomy” or “independence.” That is because, as discussed in greater detail below, it is inaccurate to describe the arbitration clause as either wholly or necessarily “autonomous” or “independent” from the parties' underlying contract. In reality, the arbitration clause remains closely connected to the parties' main contract and has an interrelated, supportive function. While the arbitration agreement should generally be “separated” from the underlying contract for various purposes, it is never entirely or necessarily “autonomous” or “independent” from the underlying agreement. (15) Moreover, the term “separability” more accurately directs attention to the central role of the parties' intentions, as a contractual matter, in forming a “separate” arbitration agreement, rather than to external legal rules imposing a particular conception of an “autonomous” http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration agreement upon the parties. That is, it is the parties' intentions (either expressly stated or implied) that provide the foundation for the separability of their arbitration agreement: indeed, as discussed elsewhere, the separability doctrine is more accurately termed the “separability presumption,” reflecting the parties' ability to negate or alter the separable status of their arbitration clause by agreement. (16) Labels which suggest that parties cannot agree upon an alternative type of arbitration agreement (e.g., an arbitration agreement that is not separate from their underlying contract) or upon particular consequences of the separability doctrine (e.g., that the same law governs the arbitration agreement as the underlying contract) are inaccurate. Finally, it is also helpful to avoid references to the “autonomy” of the arbitration agreement given the usage of that phrase in some legal systems to denote the independence of the arbitration clause from any national law. (17) The separability doctrine refers solely to the separability of the arbitration agreement from the parties' underlying contract, and does not connote any autonomy on the part of the arbitration clause from national legal systems. Accordingly, the following discussion will refer to the “separability” presumption, in preference to the “autonomy” or “independence” of the arbitration clause. Although the latter phrases are not wrong, and are frequently encountered in practice, they are more likely to give rise to inaccurate connotations which page "315" oversimplify the relationship between the parties' arbitration clause and their underlying contract.
2 Westacre Inv. Inc. v. Jugoimport-SDPR Holdings Co. Ltd [1998] 4
All E.R. 570 (Q.B.). See also Bremer Vulkan Schiffbau und Maschinenfabrik v. South India Shipping Corp. Ltd [1981] A.C. 909, 980 (House of Lords) (“The arbitration clause constitutes a selfcontained contract collateral or ancillary to the [underlying contract].”); Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 411 (2d Cir. 1959) (“the mutual promises to arbitrate [generally] form the quid pro quo of one another and constitute a separable and enforceable part of the agreement.”). 3 Final Award in ICC Case No. 8938, XXIVa Y.B. Comm. Arb. 174, 176 (1999). 4 Judgmentof 7 May 1963, Ets Raymond Gosset v. Carapelli, JCP G 1963, II, 13, ¶405 (French Cour de cassation civ. 1e). See alsoJudgment of 2 September 1993, Nat'l Power Corp. v. Westinghouse, DFT 119 II 380, 384 (Swiss Federal Tribunal) (“Furthermore the arbitration agreement cannot be challenged because the main contract is not valid (Art. 178(3) SLPIL). Therefore Swiss law recognizes the principle of autonomy of the arbitration agreement, a principle adopted in case law for decades (DFT 59 I 177) and universally accepted in Western Europe and in the United States under the concepts of ‘severability’ or ‘separability’.”). 5 See infra pp. 354-357, 411-425. 6 See infra pp. 357-402. 7 See infra pp. 404-407. 8 See infra pp. 402-404.
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9 See infra pp. 348-353, 357-359, 376-380, 396-402. 10 See, e.g., Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388
U.S. 395, 402 (U.S. S.Ct. 1967) (“except where the parties otherwise intend … arbitration clauses are ‘separable’ from the contracts in which they are embedded.”); Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 411 (2d Cir. 1959); SauerGetriebe KG v. White Hydraulics, Inc., 715 F.2d 348 (7th Cir. 1983) (“The agreement to arbitrate and the agreement to buy and sell motors are separate. Sauer's promise to arbitrate was given in exchange for White's promise to arbitrate and each promise was sufficient consideration for the other.”); Deutsche Schachtbau- und Tiefbohrgesellschaft mbH v. Ras Al Khaimah Nat'l Oil Co. [1987] 2 Lloyd's Rep. 246, 250 (English Court of Appeal), rev'd on other grounds, [1988] 2 Lloyd's Rep. 293 (House of Lords). Compare English Arbitration Act, 1996, §7 (“distinct agreement”). 11 See, e.g., Judgment of 7 May 1963, Ets Raymond Gosset v. Carapelli, JCP G 1963, II, 13, ¶405 (French Cour de cassation civ. 1e); Judgment of 2 September 1993, Nat'l Power Corp. v. Westinghouse, DFT 119 II 380, 384 (Swiss Federal Tribunal) (describing the principle of “autonomy” as the counterpart of the principle known as “separability” or “severability” principle in other jurisdictions). See W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.04 n.11 (3d ed. 2000) (“It may be argued that the word ‘severability’ reflects a more modest vision than ‘autonomy,’ in that it denotes merely potential or occasional as opposed to invariable distinctness.”). In German, the concept is generally referred to as the “Selbstständigkeit” of the arbitration agreement, equating most readily to “independence.” See Judgment of 11 January 1912, 13 Sächsisches Archiv 148, 149 (1912) (Oberlandesgericht Dresden); Judgment of 12 December 1918, 1919 Leipziger Zeitschrift für Deutsches Recht 501 (Oberlandesgericht Marienwerder); Judgment of 17 January 1891, RGZ 27, 378, 379 (German Reichsgericht). 12 These observations typically are made with regard to the choice
of the substantive law applicable to the arbitration agreement and issues of substantive validity of the arbitration agreement. See infra pp. 354-357, 357-402; Award in ICC Case No. 8398, XXIV Y.B. Comm. Arb. 174 (1999) (“The arbitral clause is doubly autonomous: in relation to the arbitral agreement and in relation to the law of the contract.”); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶47-52, 389-419, 420-451 (1999). 13 Judgment of 20 April 1988, Société Clark Int'l Finance v. Société Sud Matériel Service, 1988 Rev. arb. 570 (Paris Cour d'appel). 14 Judgment of 4 July 1972, Hecht v. Buisman's, 99 J.D.I. (Clunet) 843 (French Cour de cassation civ. 1e) (1972). 15 At the same time, the term “separability” can also imply a lack of relation or connection between the arbitration clause and underlying contract, much like that conveyed by the terms “autonomy” and “independence.” The difference is one of degree, rather than nature, and the important point is to focus on the substance conveyed by whatever label is employed. See also Mayer, Les limites de la séparabilité de la clause compromissoire, 1998 Rev. arb. 359-368 (“Preferable to the term ‘autonomy,’ that of ‘severability’ suggests that if the fate of the arbitration clause can be dissociated from the fate of the rest of the contract when there may be good reasons for http://www.kluwerarbitration.com/CommonUI/print.aspx
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this, this is not always the case.”). 16 See infra pp. 348-353. 17 See supra pp. 314-315 & infra pp. 416, 504-506.
International Arbitration Agreements and the Separability Presumption - B. Development of the Separability Presumption Chapter 3 Gary B. Born
Author Gary B. Born
B. Development of the Separability Presumption The origins of the separability doctrine have not been systematically explored. In some legal systems, arbitration agreements were historically referred to as merely a part of the underlying contract in which they were included. (18) In the words of one early U.S. court, “the arbitration clause here is an integral part of the charter party.” (19)
This view was not consistent with other historical views and has long since and almost universally been abandoned: arbitration clauses are now uniformly regarded in all developed jurisdictions as presumptively separate from – and not “an integral part” of – the parties' underlying contract. The historical development of this separability presumption in international arbitration conventions, national arbitration regimes and other sources is discussed below. (20) The application and legal consequences of the separability presumption, in various contexts, is discussed in subsequent sections of this Chapter. (21)
Source International Arbitration Agreements and the Separability Presumption - B. Development of the Separability Presumption in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 316 - 353
1. International Arbitration Conventions The first modern international arbitration conventions impliedly treated arbitration agreements as distinct, at least in some respects, from the parties' underlying substantive contract. While not expressly providing for separability, these provisions rested upon, and helped confirm, the notion that arbitration agreements were presumptively separable from the underlying contract. page "316" a. Geneva Protocol and Geneva Convention The first modern international arbitration convention, the Geneva Protocol, provided in Article IV(1) that the courts of Contracting States, “on being seized of a dispute regarding a contract … http://www.kluwerarbitration.com/CommonUI/print.aspx
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including an arbitration agreement … which is valid … and capable of being carried into effect,” shall refer the parties to arbitration. (22) Article IV(1) drew both a textual and a substantive distinction between “arbitration agreement[s]” and underlying “contract[s]”: specifically, Article IV(1) referred separately to a “contract” and an “arbitration agreement,” and established substantive rules with regard to the latter, but not the former. The Geneva Convention was similar, providing in Article I(a) for recognition of foreign awards “made in pursuance of a submission to arbitration which is valid under the law applicable thereto.” (23) These provisions were entirely consistent with the historic treatment of arbitration agreements under many national laws – which, as discussed above, treated arbitration agreements differently (and sometimes less favorably) as compared to other contracts (24) – requiring instruments such as the Geneva Protocol and Geneva Convention to specifically address and provide for the validity of such (arbitration) agreements. (25) b. New York Convention In similar fashion, the New York Convention does not independently impose or require application of a separability (or autonomy) doctrine. Like the Geneva Protocol, however, the Convention does assume that international arbitration agreements are separable from the parties' underlying contract, impliedly treats them as such and sets forth substantive rules applicable only to such agreements. In so doing, the Convention reflects the general understanding and expectations of parties to international arbitration agreements that such agreements are separable, but does not mandate such an understanding. Both Article II and Article V(1)(a) of the New York Convention impliedly treat arbitration agreements as separable from underlying contracts. Article II(1) refers to an arbitration agreement as “an agreement in writing under which the parties undertake to submit to arbitration all or any differences” (26) arising between the parties. More clearly, Article II(2) defines a written agreement to arbitrate as including “an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.” (27) page "317" Both Article II(1) and II(2) rest on the assumption that an “arbitral clause in a contract” is itself an “agreement,” dealing with the subject of arbitration. (28) Neither provision requires that such agreements always be treated as “separable,” or even assumes that this will necessarily be the case. On the other hand, both provisions are most naturally understood as assuming that arbitration clauses will presumptively be separate agreements, capable of being treated as such, notwithstanding their relation to another contract between the parties. More importantly, these agreements also attract specific legal rules (e.g., Article II(1)'s “writing” requirement (29) and Article II's presumption of substantive validity) (30) that do not apply to the parties' underlying contract. Similarly, Article V(1)(a) of the New York Convention presumes the http://www.kluwerarbitration.com/CommonUI/print.aspx
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separability of arbitration agreements. Among other things, it provides for an exception to the enforceability of arbitral awards where “the said [arbitration] agreement is not 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.” (31) This provision clearly contemplates the application of a specific national law to the arbitration agreement itself (as distinct from the underlying contract). (32) Even more clearly than Article II, Article V(1)(a) rests on the premise that international arbitration agreements are presumptively separate from the parties' underlying contract, and thereby susceptible of being subject to different national laws and legal rules than the underlying contract. Commentators have reached divergent conclusions regarding the question whether these provisions of the New York Convention compel recognition of the separability doctrine. Some authors take the view that the Convention is “indifferent” page "318" to the (33) existence of the separability doctrine. Others conclude that the Convention adopts or requires application of the separability doctrine “by implication.” (34) Both of these positions are mistaken. In reality, the New York Convention neither “adopts” nor is “indifferent to” the separability doctrine. Rather, Articles II and V(1)(a) of the Convention rest on the premise that arbitration agreements can, and will ordinarily, be separate agreements and that these agreements therefore will often be treated differently from, and subject to different rules of validity and different choice-of-law rules than, the parties' underlying contracts. (35) This presumption of separability is not dictated or required by the Convention, but was instead accepted by the Convention's drafters based upon their understanding of commercial parties' intentions and expectations, developed and interpreted in light of the needs and objectives of the international arbitral process. The Convention then takes these ordinary intentions and expectations of separability into account in the rules it articulates with regard to arbitration agreements. Simply put, the Convention rests on the premise that parties may, and ordinarily do, intend their arbitration agreements to be separable, and it therefore sets forth specialized legal rules (of substantive and formal validity, and governing choice-of-law issues) that operate on the basis of this premise and that apply specifically (and only) to arbitration agreements. Finally, as discussed below, the New York Convention also gives effect, and requires national courts to give effect, to the parties' agreement to treat their arbitration clause as separable. (36) This obligation arises from Article II(1)'s basic requirement that arbitration agreements – including constituent elements of such agreements, such as their separable character – be recognized. (37) In this manner, Article II does not mandate separability, but it does mandate recognition of agreements to treat arbitration clauses as separable. page "319" c. European Convention The European Convention rests even more explicitly than the New http://www.kluwerarbitration.com/CommonUI/print.aspx
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York Convention on the premise that arbitration agreements are presumptively separable. Like Article II of the New York Convention, Article I(2)(a) of the European Convention presumes that arbitration agreements are separate from the parties' underlying contract. (38) Even more explicitly, Article V of the European Convention acknowledges the separability of the arbitration agreement, by authorizing arbitral tribunals to consider challenges to the “existence or the validity of the arbitration agreementor of the contract of which the agreement forms part.” (39) Likewise, Article VI of the Convention provides a specialized set of choice-of-law rules applicable only to arbitration agreements (comparable to those in Article V(1)(a) of the New York Convention). (40) Again like the New York Convention, the European Convention does not require the separability doctrine, but instead both permits one and presumes that this will be what the parties intended. d. ICSID Convention The ICSID Convention does not expressly refer to the separability doctrine. Nonetheless, several ICSID tribunals have given effect to the separability doctrine in the context of an ICSID arbitration. (41) Similarly, like many other institutional arbitration rules, (42) the ICSID Additional Facility Rules provide that “an agreement providing for arbitration under the Additional Facility shall be separable from the other terms of the contract in which it may have been included.” (43) page "320" 2. National Arbitration Legislation The origins of the separability presumption pre-date contemporary international arbitration conventions. As discussed below, and for better or for worse, national legal systems have long treated arbitration agreements as separate and distinct from other contractual obligations. (44) a. Historic Origins As discussed above, some jurisdictions historically refused to give full effect to agreements to arbitrate future disputes. This treatment can be traced to very early times, including under Roman law, and continued intermittently until the early 20th century (particularly in England, France and the United States). (45) Indeed, as also discussed above, Roman law provided that the arbitration clause was a separate contract (“promisum”), which could only be made enforceable by combining it with another contract, being a penalty mechanism (to produce a “com-promisum”). (46) This historic ambivalence towards arbitration clauses involved categorizing these provisions differently from other contracts and providing that arbitration agreements were, in contrast to other categories of contracts, either not valid or not specifically enforceable. Ironically, given the contemporary “pro-arbitration” function of the separability presumption, this historic hostility towards arbitration agreements helped lay the foundations for the future separability of such agreements – since it was the separate, http://www.kluwerarbitration.com/CommonUI/print.aspx
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distinctive character of such agreements on which restrictions on their enforceability and validity were grounded. b. “Procedural” Character of Arbitration Agreement At least a part of the impetus, and theoretical foundation, for the separability doctrine can also be traced to the 19th century notion that the arbitration agreement was properly characterized as a “procedural contract,” (47) rather than a substantive one. page "321" Although sometimes misleading, (48) this characterization captured the underlying nature of the arbitration agreement, which is that of an ancillary agreement that provides a specific dispute resolution mechanism which is related to, but distinct from, the parties' substantive commercial contract(s). (49) One consequence of this analysis was (and is) to detach the “procedural” arbitration agreement from the “substantive” main contract: the differing natures and characterizations of the two agreements made it easy, indeed almost inevitable, that they generally be regarded as “separable.” c. Contemporary National Arbitration Legislation and Judicial Decisions As discussed below, the separability presumption was articulated in its modern form in 19th and early 20th century German and Swiss judicial decisions. (50) These decisions held in a variety of contexts that particular arbitration clauses were not affected by legal defects in the parties' underlying contract (such as fraud, mistake or termination). Using language remarkably similar to contemporary judicial analyses, these decisions relied on concepts comparable to the separability presumption to hold that arbitrators were authorized to decide disputes regarding the validity and legality of the parties' underlying contract. (51) Today, the separability presumption is widely established in the arbitration statutes of all developed jurisdictions. (52) Under this legislation, and accompanying judicial decisions, international arbitration agreements are presumptively separable from the parties' underlying contract. The separability presumption is also wellestablished in judicial decisions and commentary in jurisdictions, both common law and civil law, where national arbitration legislation provides no express basis for the doctrine. (53) page "322" National legislatures and courts have recognized the separability presumption for a variety of reasons, and in order to produce a number of distinct consequences, which are discussed in greater detail below. (54) The basic justification, which recurs in diverse contexts, has been the importance of the presumption to upholding the validity of international arbitration agreements, in order to efficiently resolve international disputes, (55) and, thereby, to “facilitate international trade.” (56) As discussed below, the separability presumption accomplishes these purposes by limiting the categories of claims which are capable of impeaching the existence, validity, or legality of the arbitration agreements, to claims directed at the arbitration agreement itself, (57) while also providing http://www.kluwerarbitration.com/CommonUI/print.aspx
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the foundation for “pro-arbitration” choice-of-law rules that inhibit the use of idiosyncratic or discriminatory national laws to invalidate agreements to arbitrate. (58) i. Germany German law has long embraced the separability presumption (both well prior to and after Germany's adoption of the UNCITRAL Model Law in 1998). (59) Indeed, as early as the 1890's, German courts articulated and applied what amounted to a separability presumption. (60) As one early decision held, “[t]he [arbitral] clause can page "323" also have an independent existence [so] that it shall also apply to decisions whether or not the main contract is invalid.” (61) The separability doctrine was first accepted by German courts at the beginning of the 20th century, albeit subject to important qualifications. As a general rule, the Reichsgericht treated the arbitration clause as dependent on, and sharing the legal fate of, the underlying contract. (62) Nonetheless, the Reichsgericht (and some German lower courts) also held that the arbitration agreement could be separable, in some cases, provided that this was what the parties intended; in these cases, German courts held that an arbitral tribunal would be competent to decide whether or not the underlying contract was valid. (63) This general approach was apparently not applicable in cases involving claims of illegality, with German courts consistently holding that arbitration agreements in gambling contracts (which were contrary to public policy and unenforceable) suffered the same legal fate as the underlying contract. (64) More recently, German courts reversed their historic presumption that arbitration clauses were not separable, instead holding that such agreements are presumptively separable, but again subject to contrary agreement by the parties. With occasional exceptions, this analysis was followed throughout the 20th century. Thus, in 1970, the German Bundesgerichtshof held that the invalidity of a commercial contract (because of the absence of a required governmental approval) did not necessarily page "324" entail the invalidity of the arbitration clause contained therein, which instead could remain effective for purposes of resolving disputes concerning the underlying contract's validity. (65) Consistent with German courts' historic focus on the parties' intentions, the Bundesgerichtshof held that the question whether or not the arbitration clause was separable depended on what “the parties agreed.” (66) It rejected a presumption (preferred by the lower court) that arbitration agreements were “dependent” on the contract in which they were contained, instead reasoning that businessmen would generally intend their arbitration clauses to be separable: “There is every reason to presume that reasonable parties will wish to have the relationships created by their contract and the claims arising therefrom, irrespective of whether their contract is effective or not, decided by the same tribunal and not by two different tribunals …. The fact that the assessment of [the invalidity of an agreement and claims under a valid http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement would have] to be entrusted to different tribunals according to one's approach will scarcely occur to the contracting parties. Above all, however, the parties to an arbitration agreement will as a rule wish to avoid the unpleasant consequences of separate jurisdiction.” (67) Accordingly, the Bundesgerichtshof concluded that arbitration clauses generally are intended by their parties to mean “in cases of doubt that the arbitration tribunal shall also decide on the question of the validity of the contract and on the claims page "325" arising (68) in the event of nullity.” The Court's decision was a classic and careful articulation of the separability presumption, with particular attention to the parties' objective expectations. This view was (and is) shared by virtually all contemporary German commentators. (69) Germany's enactment of the UNCITRAL Model Law in 1998 adopted the Model Law's formulation of the separability presumption. (70) There is no indication in that legislation, or subsequent commentary and judicial decisions that the legislation was intended to alter historic German judicial analysis. (71) ii. Switzerland Another one of the first modern jurisdictions to expressly recognize the separability presumption in contemporary jurisprudence was Switzerland. As early as the turn of the 20th century, Swiss courts held that the invalidity of the underlying contract did not affect the arbitration agreement. (72) Thereafter, a 1933 decision of the Swiss Federal Tribunal held that: page "326" “the invalidity of the main contract does not render immediately the arbitration clause contained therein invalid; the clause according to which disputes arising under the main contract shall be submitted to arbitration encompasses, in cases of doubt, also disputes relating to the validity and the objection of simulation.” (73) In its reasoning, the Federal Tribunal relied on the “procedural” nature of the agreement to arbitrate, explaining: “According to settled case law of the Swiss Federal Tribunal the arbitration clause is not an agreement of substantive law but of procedural nature. Even where the arbitration clause is contained in the same document as the substantive law contract to which it relates and therefore from the outside appears as a part of the main agreement, it still does not simply constitute a single provision of the main agreement but an independent agreement of a special nature. Accordingly, the invalidity of the main contract cannot without further ado cause the invalidity of the arbitration agreement. This would only be the case if the grounds for invalidity at the same time affect the main contract and the arbitration agreement (e.g., where the party which signed the contract document http://www.kluwerarbitration.com/CommonUI/print.aspx
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was incapable or unlawfully forced to do so).” (74) This rationale was in part a reflection of the historic categorization of arbitration agreements as “procedural,” rather than “substantive.” (75) At the same time, the Federal Tribunal's analysis went further, treating the arbitration clause as “an independent agreement of a special nature” (which need not inevitably follow from characterizing the clause as “procedural”). Equally important, the Tribunal also concluded that invalidity of the underlying contract did not inevitably result in the invalidity of the arbitration clause. More recent Swiss authority is to the same effect. The Geneva Court of Appeal has reasoned broadly that “[t]he principle of autonomy of the arbitration clause in relation to its validity is generally accepted in international arbitration. In fact, such a clause can validly be concluded, while the contract in which it is inserted lacks validity or the reverse.” (76) This analysis is now codified in Article 178 of the Swiss page "327" Law on Private International Law, (77) and universally accepted in Swiss commentary. (78) As with earlier Swiss judicial decisions, Article 178 states a rule of substantive validity of the arbitration agreement, applicable in both national courts and arbitral tribunals. iii. U.S. Federal Arbitration Act U.S. arbitration legislation provided early, relatively express recognition of the separability doctrine. Section 2 of the FAA, enacted in 1925, refers to “a written provision in … a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract.” (79) Sections 3 and 4 of the FAA then provide for the enforcement of “an agreement in writing for such arbitration” (80) and a “written agreement for arbitration.” (81) Like the Geneva Protocol and the New York Convention, (82) these provisions fairly clearly presuppose that the arbitration agreement can be a separate and distinct agreement from the parties' underlying contract or transaction. (83) page "328" As discussed below, U.S. courts have consistently embraced the separability doctrine in both international and domestic cases. (84) An early judicial recognition of the separability doctrine was a landmark Second Circuit decision in Robert Lawrence Co. v. Devonshire Fabrics, Inc., where the court held that “the mutual promises to arbitrate [generally] form the quid pro quo of one another and constitute a separable and enforceable part of the agreement.” (85) The Court of Appeals went on, in a closely-reasoned opinion, to hold that an arbitral tribunal (rather than a national court) therefore presumptively had jurisdiction to decide claims that a contract (rather than an arbitration clause itself) had been fraudulently induced. (86) In so doing, the Court expressly invoked the presumption that an arbitration clause is separable from the parties' underlying agreement. (87) The conclusion in Robert Lawrence Co. was followed in subsequent U.S. authorities, including the U.S. Supreme Court's 1967 holding in Prima Paint Corp. v. Conklin Mfg Co. (88) There, the Court declared http://www.kluwerarbitration.com/CommonUI/print.aspx
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that, “except where the parties otherwise intend … arbitration clauses are ‘separable’ from the contracts in which they are embedded.” (89) Although the Court left open the possibility that the parties might otherwise agree, (90) it concluded that an arbitration agreement was presumptively separable from the parties' underlying contract. In reaching this conclusion, the Court adopted reasoning later used by the German Bundesgerichtshof, recognizing the parties' presumptive desire to insulate their arbitration agreement from challenges directed at their underlying contract, and emphasized the FAA's legislative purpose that “the arbitration procedure, when page "329" selected by the parties to a contract, be speedy and not subject to delay and obstruction in the courts.” (91) Relying on the presumptive separability of the arbitration clause, the Prima Paint Court also held that “if the claim is fraud in the inducement of the arbitration clause itself – an issue which goes to the ‘making’ of the agreement to arbitrate – the federal court may proceed to adjudicate it.” (92) As in Robert Lawrence Co., the Supreme Court concluded that a challenge to the parties' underlying contract (again, based on fraudulent inducement) could not ordinarily be considered by a court prior to referring the issue to arbitration. (93) Rather, the Court said that the FAA does not “permit the federal court to consider claims of fraud in the inducement of the contract generally,” and that the court could “consider only issues relating to the making and performance of the agreement to arbitrate.” (94) And, where a dispute involved a challenge generally to both the underlying contract and the arbitration clause, the Court held that referring these issues to arbitration was required by the “plain meaning of the statute” and the parties' presumed intention that their agreed dispute resolution mechanism not be “subject to delay and obstruction in the courts.” (95) More recently, the U.S. Supreme Court reaffirmed the separability presumption, and its implications for the allocation of jurisdictional competence between courts and arbitral tribunals, in Buckeye Check Cashing Inc. v. Cardegna. (96) There, the Court reversed a Florida state court decision, which had refused to enforce an arbitration clause in a loan agreement on the grounds that the loan violated Florida's usury laws and was therefore void – with this invalidity supposedly extending to the arbitration clause contained within the loan agreement. (97) Relying on Prima Paint, (98) the U.S. Supreme Court reversed, holding that the separability presumption applied fully where the parties' underlying contract was allegedly void (as well as while it was voidable). (99) A large body of similar lower U.S court decisions hold page "330" that arbitration clauses are presumptively separable from the underlying contract permitting, among other things, the parties' arbitration agreement to be valid even where the underlying contract is not, (100) and allowing claims challenging only the validity or legality of the parties' underlying contract to be referred to arbitration. (101) These and other U.S. decisions make clear that there is only a presumption of separability, which may be reversed by agreement. This analysis recognizes that parties would be free to agree that their arbitration agreement was not separable from their underlying contract (e.g., by being governed by the same substantive law or by being valid only insofar as the underlying agreement was valid). http://www.kluwerarbitration.com/CommonUI/print.aspx
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(102)
page "331" Similarly, the analysis in Buckeye Check Cashing and other U.S. decisions recognizes that arbitration agreements are not entirely independent from the parties' underlying contract in all circ*mstances. (103) Rather, the particular facts and circ*mstances that render the underlying contract non-existent or invalid may also – in particular cases – independently impeach the separable arbitration agreement. Examples of this can include cases where a party denies ever having agreed to anything (for example, because its signature was forged) or denies the capacity of its representative to have concluded any agreement on its behalf. These circ*mstances, where a challenge involving the underlying contract also impeaches the separable arbitration clause, are discussed in detail below. (104) iv. France French courts have also repeatedly relied upon the separability presumption in recent decades in considering the choice of law governing arbitration agreements and the substantive validity of such agreements. (105) In 1963, the French Cour de cassation expressly adopted the separability doctrine in Gosset v. Carapelli. (106) In that case, Carapelli sought to enforce an Italian arbitral award made pursuant to an arbitration clause found in a sales contract. Gossett argued that the arbitral award should not be enforced because the underlying sales contract was null and void as a result of violations of French import regulations, which in turn supposedly rendered the arbitration clause contained within the sales contract invalid. The Cour de cassation rejected Gossett's argument, reasoning: “In matters of international arbitration, the arbitration agreement, concluded separately or included in the legal act to which it is related, always has, except in exceptional circ*mstances, a complete juridical autonomy excluding it page "332" from being affected by an eventual invalidity of that act.” (107) The Court's formulation of the separability doctrine was stated in what might be mistaken for absolute terms (e.g., “a complete juridical autonomy excluding it from being affected …”). In fact, however, the Cour de cassation recognized that the separability presumption would not invariably apply; it acknowledged that there would be “exceptional circ*mstances” where a different result would be appropriate. Although the Court did not explain this, it no doubt recognized that, in the event that parties so intended, an arbitration agreement would be “inseparable” from, or otherwise limited to, the underlying contract and its legal categorization. Subsequent French judicial decisions have uniformly reaffirmed the formulation of the separability presumption set forth in Gossett. (108) More recently, in 1980, the French New Code of Civil Procedure at least impliedly codified the judicially-developed separability presumption, providing in Article 1442 that “[a]n arbitration clause is an agreement by which the parties to a contract undertake to submit to arbitration the disputes which may arise in relation to that http://www.kluwerarbitration.com/CommonUI/print.aspx
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contract.” (109) Subsequent French judicial decisions and commentary have repeatedly reaffirmed the separability doctrine under French law. (110) v. UNCITRAL Model Law The UNCITRAL Model Law recognizes, at least for some purposes, the presumptive separability of the parties' arbitration agreement. Article 7(1) of the Model Law drew on the UNCITRAL Arbitration Rules and earlier national law authorities, and defined an arbitration agreement as: “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined page "333" legal relationship, whether contractual or not. An arbitration agreement may be in the form of an arbitration clause or in the form of a separate agreement.” (111) As with Article II of the New York Convention, (112) this provision acknowledges that “arbitration agreement[s]” will often take the form of a clause in an underlying contract, which implies and presupposes the existence of a separate agreement dealing with the subject of arbitration. In turn, the Model Law prescribes specialized rules of formal validity, (113) substantive validity (114) and competence-competence (115) for such arbitration agreements. (116) In addition, Article 16 of the Model Law extends beyond the New York Convention, in limited respects, in giving effect to the separability presumption. Derived from Article 21(2) of the UNCITRAL Rules, Article 16(1) of the Model Law provides: “The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.” (117) This provision recognizes the separability presumption even more explicitly than the New York Convention or the European Convention. It does so by stating that “an arbitration clause … shall be treated asan agreement independent of the other terms of the contract,” at least for purposes of an arbitral tribunal's jurisdiction page "334" to consider challenges to its own jurisdiction (or competence-competence). (118) This provision goes beyond the New York Convention and the European Convention by declaring an affirmative legal rule requiring that arbitration agreements be treated as separable from the parties' underlying contract for certain competence-competence purposes, (119) rather than merely assuming that the parties have intended such a result. It is unclear whether the Model Law treats the separability presumption as a general rule of substantive validity of the http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration agreement or only an allocation of competencecompetence for particular purposes. Article 16(1)'s second sentence emphasizes that an arbitration clause shall be treated as “independent,” but only “for th[e] purpose” of the tribunal's competence-competence. (120) At the same time, the final sentence of Article 16(1) arguably states a general principle of contractual “[]validity of the arbitration clause.” (121) The effect (and intent) of these provisions is unclear. Given their location in the Model Law's treatment of the arbitrators' competence-competence, however, there would be a serious argument that they concern only this subject. (122) Article 16(1) reflects the essential nature of the separability doctrine as a presumption regarding the parties' intentions and a principle whose application is dependent on the circ*mstances of particular cases. Hence, the final sentence of Article 16(1) provides that the nullity of an underlying contract “shall not entail ipso jure the invalidity of the arbitration clause.” (123) Under this rule, the invalidity of the parties' underlying contract does not necessarily or inevitably invalidate the parties' arbitration clause; instead, Article 16(1) provides that the parties' arbitration clause may be valid, notwithstanding the invalidity of the arbitration agreement, while leaving open the possibility that, in some circ*mstances, the invalidity of the parties' underlying contract will be accompanied by the invalidity of their arbitration agreement. (124) Put differently, although the invalidity of the underlying contract does not necessarily or automatically invalidate the associated arbitration clause, there may be circ*mstances in which this result does occur, by virtue of either the parties' intentions or the nature of the reasons for the invalidity of the underlying contract. Judicial decisions in Model Law jurisdictions have been consistent with this analysis, page "335" generally holding arbitration agreements separable and frequently (but not always) giving them effect notwithstanding the invalidity or non-existence of the underlying contract. (125) vi. England English courts have also acknowledged the separability of the arbitration agreement, while historically demonstrating particular reluctance to embrace sweeping formulations of any general principle of “autonomy” or “independence.” That reluctance has been largely abandoned, in recent legislative reform and judicial decisions, which adopt an expansive view of the separability presumption. (126) Throughout the early and mid-twentieth century, English courts recognized that international arbitration agreements could survive the termination of the underlying contract with which they were associated, (127) while expressing doubts as to the treatment of arbitration clauses contained within illegal (128) and void or page "336" voidable (129) contracts. During the same period, English courts held that “an arbitration agreement constitutes a selfcontained contract collateral or ancillary to the substantive agreement.” (130) In the words of a leading decision: “These characteristics of an arbitration agreement which are in one sense independent of the underlying http://www.kluwerarbitration.com/CommonUI/print.aspx
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or substantive contract have often led to the characterization of an arbitration agreement as a ‘separate contract.’ For an agreement to arbitrate within an underlying contract is in origin and function parasitic. It is ancillary to the underlying contract for its only function is to provide machinery to resolve disputes as to the primary and secondary obligations arising under that contract. The primary obligations under the agreement to arbitrate exist only for the purpose of informing the parties by means of an award what are their rights and obligations under the underlying contract.” (131) Nonetheless, to a greater extent than many other national courts, English judicial decisions historically expressed caution regarding the “independence” of an arbitration clause from the parties' underlying contract. In particular, English judicial decisions repeatedly emphasized that separability is the product of contractual interpretation, based on the parties' intentions, (132) and that there are instances in page "337" which an arbitration clause will not survive the non-existence, illegality, or invalidity of the parties' underlying agreement. (133) In a land-mark 1993 case, in Harbour Assurance Co. v. Kansa General International Insurance Co., the English Court of Appeal held that the illegality of a reinsurance contract did not necessarily affect the legality or validity of an arbitration clause contained in that contract. (134) In reaching this conclusion, the court adopted reasoning strikingly similar to that of the U.S. Supreme Court in Prima Paint and the German Bundesgerichtshof in its classic 1970 decision on the separability of arbitration agreements: “First, there is the imperative of giving effect to the wishes of the parties unless there are compelling reasons of principle why it is not possible to do so …. Secondly, if the arbitration clause is not held to survive the invalidity of the contract, a party is afforded the opportunity to evade his obligation to arbitrate by the simple expedient of alleging that the contract is void. In such cases courts of law then inevitably become involved in deciding the substance of a dispute. Moreover, in international transactions where the neutrality of the arbitral process is highly prized, the collapse of this consensual method of dispute resolution compels a party to resort to national courts where in the real world the badge of neutrality is sometimes perceived to be absent. For parties the perceived effectiveness of the neutral arbitral process is often a vital condition in the process of negotiation of the contract. If that perception is absent, it will often present a formidable hurdle to the conclusion of the transaction. A full recognition of the separability principle tends to facilitate international trade.” (135) The English Arbitration Act, 1996, left this well-considered analysis intact, while also providing a statutory resolution of sorts to the historic debate in England concerning the scope of the separability doctrine. The Act provides in §7: “Unless otherwise agreed by the parties, an arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement which forms or was intended to form part of another agreement (whether or not in writing) shall not be regarded as invalid, non-existent or ineffective because page "338" that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement.” (136) Like the UNCITRAL Model Law, (137) §7 of the Arbitration Act, 1996, expressly adopts the presumption that an arbitration clause is separable, at least for some purposes, from the parties' underlying contract. (138) Even more explicitly than the Model Law, §7 makes clear that the parties presumptively intend their arbitration agreement to be separable from their underlying contract (by stating that the presumption applies “unless otherwise agreed by the parties”). (139) Unlike the UNCITRAL Model Law, however, the English Arbitration Act treats the arbitration agreement as separable for purposes of the substantive validity of that agreement, (140) while the Model Law (in Article 16(1)) does so for purposes of competence-competence. (141) As discussed below, the English legislative approach is the better-reasoned one, because the separability presumption is properly understood as a matter relating to validity and not (generally) competence-competence. page "339" In 2007, the English Court of Appeal and House of Lords embraced the most expansive view of the separability doctrine thus far taken under English law. (142) As discussed in greater detail below, the English courts held in Fiona Trust & Holding Corp. v. Privalov that claims of fraudulent inducement (bribery) of the underlying contract did not impeach the arbitration clause contained within that contract. (143) Among other things, relying on comparable U.S. judicial authority, the Court of Appeal declared: “It is not enough to say that the bribery impeaches the whole contract unless there is some special reason for saying that the bribery impeaches the arbitration clause in particular.” (144) The holding and rationale in Fiona Trust, upheld on appeal to the House of Lords, (145) appear to have marked the conclusion of a lengthy evolution, with the English courts now accepting a very expansive conception of the separability presumption. (146) At the same time, as also discussed below, the decisions in Fiona Trust recognized that there will be cases in which circ*mstances giving rise to defects in the underlying contract (i.e., capacity or formation defects) may also impeach the associated arbitration agreement. (147) vii. Japan Japanese lower courts have long accepted the separability doctrine. (148) In 1975, the Japanese Supreme Court embraced the doctrine, dismissing an action brought for a declaration that a distribution agreement was not validly concluded and that the arbitration agreement it contained was therefore invalid. (149) Basing its decision on the separability of the arbitration clause, the Court reasoned: http://www.kluwerarbitration.com/CommonUI/print.aspx
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page "340" “An arbitration agreement was concluded in conjunction with the principal contract, but its effect must be separated from the principal contract and judged independently. And, unless there is a special agreement between the parties, a defect in the formation of the principal contract does not affect the validity of the arbitration agreement.” (150) The Japanese Supreme Court's opinion affirmed that commercial parties presumptively intend their arbitration agreement to be separable from their underlying contract (and, thus, not necessarily affected by defects in the latter); although this presumption can be reversed, by “a special agreement between the parties,” the Court held that it is the ordinary expectation of commercial parties. (151) The revised Japanese Arbitration Law, which went into effect in 2004, statutorily adopted the doctrine of separability. (152) As with other developed legal systems, the Japanese formulation of the separability presumption is that the invalidity of the underlying contract does not “necessarily” affect the validity of the arbitration agreement – leaving open the possibility that in particular transactions an arbitration clause will not be separable, or that particular defects affecting the formation or validity of the underlying contract will also affect the arbitration agreement. viii. Other Jurisdictions A number of other leading jurisdictions have recognized some version of the separability presumption in legislation applicable to international arbitration page "341"
agreements. That includes jurisdictions such as Belgium, (153) the Netherlands, (154) Sweden, (155) Spain, (156) Italy, (157) Singapore, (158) Hong Kong, (159) China, (160) New Zealand (161) page "342"
and Algeria. (162) Further, a number of Latin American states that traditionally rejected the validity of agreements to arbitrate future disputes have recently embraced the separability presumption in modern “pro-arbitration” legislation, including Bolivia, Brazil, Chile, Ecuador, El Salvador, Mexico, Paraguay, Peru and Venezuela. (163) National courts, in Europe and elsewhere, have also adopted the separability presumption. In 1980, an Italian appellate court declared that “the arbitral clause is an autonomous legal contract with respect to the contract in which it is included,” holding that an arbitration agreement could be governed by a different substantive law than the underlying contract. (164) Other Italian decisions rely on the same presumption, also holding that the invalidity or nullity of the underlying contract does not affect the associated arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement. (165) Judicial authorities in India, (166) Canada, (167) Australia (168) and Argentina (169) have also recognized the presumptive separability of international arbitration agreements. page "343" An Indian court recently articulated the presumption in very clear terms: “even assuming for the sake of arguments that the agreement dated 20 May 1994 between the parties was illegal and non-est, the same shall not on its own render the arbitration clause invalid and it is still within the competence of the arbitrator to decide the validity of the same.” (170) Indeed, it is virtually impossible to identify reported national court decisions rendered in the past several decades which reject the separability presumption. 3. International Arbitral Awards Like national judicial decisions, international arbitral awards made by a wide variety of tribunals have consistently recognized and relied on the separability presumption. At least as explicitly as national judicial decisions, these awards have cited the parties' express and implied intentions in concluding that international arbitration agreements are presumptively separable from the parties' underlying contract. Like national judicial decisions, (171) these awards have invoked the separability presumption as a means of insulating the arbitration agreement from attacks on the underlying contract, thereby giving maximum effect to the international arbitral process. During the 1970s, successive arbitral awards in three Libyan nationalization cases affirmed the separability of the parties' arbitration agreements from their underlying contracts. In 1973, the arbitral tribunal in BP Exploration Co. v. Libya held that the termination of the underlying oil concession agreement did not affect the existence or validity of the arbitration clause contained with that contract. (172) In 1975, the tribunal in Texaco v. Libya recognized “[t]he principle … of the autonomy or the independence of the arbitration clause” (173) in rejecting an argument that the alleged voidness of the parties' underlying contract affected the associated arbitration clause. Similarly, in 1977, the tribunal in LIAMCO v. Libya, held that it “is widely accepted in international law and practice that an arbitration clause survives the unilateral termination by the State of the contract in which it is inserted and continues in force even after that termination.” (174) page "344" Subsequent international arbitral awards have consistently recognized the principle of separability in even more explicit terms. In Elf Aquitaine v. National Iranian Oil Company, the arbitral tribunal reasoned that: “The autonomy of an arbitration clause is a principle of international law that has been consistently applied in decisions rendered in international arbitrations, in the writings of the most qualified publicists on international arbitration, in arbitration regulations adopted by international organizations and in treaties. Also, in many countries, the principle forms part of national http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration law.” (175) Relying on the separability doctrine, the tribunal concluded that the parties' arbitration clause was “unimpaired” by claims that the parties' underlying contract was null and void ab initio. (176) Numerous other arbitral awards have also adopted the separability doctrine in a wide variety of contexts and under a wide variety of applicable laws. (177) page "345" At the same time, leading awards have almost uniformly recognized that the separability of the arbitration agreement is not absolute and that there are instances in which the non-existence or invalidity of the parties' underlying contract will affect the associated arbitration clause. In the words of one award: “There may be instances where a defect going to the root of an agreement between the parties affects both the main contract and the arbitration clause.” (178) Other well-considered awards, from a wide variety of provenances, are to the same effect. (179) Importantly, like comparable national court decisions, these awards do not question or contradict the separability presumption, but instead define its scope and limits: although an arbitration agreement is presumptively separable from the underlying contract, there will be circ*mstances in which defects affecting the existence or validity of the underlying contract also affect the arbitration agreement. (180) 4. Institutional Arbitration Rules Over the past several decades, the rules developed by leading arbitral institutions have propounded the separability doctrine with increasing detail. This has been true of arbitral institutions from most geographical regions of the world, again reflecting the consistency with which the separability doctrine is acknowledged in contemporary international business and legal communities. One of the first international arbitral institutions to recognize the separability of the arbitration agreement was the ICC in the 1955 version of the ICC Arbitration Rules. Article 13(4) of the 1955 ICC Rules gave effect to the separability doctrine, providing that the nullity or non-existence of the underlying contract does not affect page "346" the arbitrator's jurisdiction. (181) The 1988 ICC Rules retained and expanded this recognition of the separability doctrine, (182) as does Article 6(4) of the current 1998 ICC Rules. (183)
As with most national arbitration statutes and decisions, Article 6(4) recognizes the status of the separability doctrine as a statement of the parties' intent (which is made explicit in the case of parties who adopt the ICC Rules), that can be reversed by agreement (hence, Article 6(4)'s introductory phrase “[u]nless otherwise agreed”). Likewise, Article 6(4) recognizes that an arbitration agreement may (but does not necessarily) continue to exist notwithstanding the nonexistence or nullity of the parties' underlying contract. (184) The UNCITRAL Rules also expressly acknowledged the separability http://www.kluwerarbitration.com/CommonUI/print.aspx
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of the arbitration agreement (in terms now paralleled by Article 16 of the UNCITRAL Model Law). (185) Other leading institutional arbitration rules have embraced the separability doctrine, albeit with varying degrees of specificity. (186) In almost all instances, provisions adopting the separability presumption link it, with slightly differing formulae, to the arbitrators' competence-competence. (187) The fact that international arbitration institutions from around the world consistently provide for the presumptive separability of the arbitration clause from page "347" the parties' underlying contract is further evidence of the expectations which businesses attach to an international arbitration agreement and of the importance of the separability presumption in accomplishing those objectives. These rules reflect both past experience and future expectations, which are incorporated by institutions in their efforts to draft rules that address the needs of commercial parties; (188) such rules also continue, even more specifically, to reflect expectations of commercial parties after they have been promulgated, when parties adopt them in their contracts. 5. Future Directions: The Separability Presumption and Its Basis As detailed above, a recurrent and virtually universal theme in national arbitration legislation, judicial decisions and arbitral awards, across common law, civil law and other legal systems, has been that arbitration agreements may be – and presumptively are intended by their parties to be – separable from the underlying contracts with which they are associated. This conclusion has been reached in multiple contexts, including with regard to formal validity, (189) substantive validity, (190) choice of law (191) and allocations of jurisdictional competence. (192) The breadth and consistency of the acknowledgements of the separability presumption demonstrate the presumption's universal and enduring character. In contrast, it is very difficult to identify national court decisions, national legislation, or arbitral awards that reject the separability presumption. There are virtually no instances of national court decisions or arbitral awards simply rejecting the proposition that an arbitration agreement may, as a matter of principle, be separable. (193) Equally, although the separability presumption may be reversed by agreement, there are virtually no decisions holding that this was intended and that a particular arbitration clause was not separable. (194) page "348" At the same time, these sources do not, as is sometimes suggested, give rise to “one of the true transnational rules of international commercial arbitration.” (195) Rather, these sources instead reflect and confirm the intention of parties to international arbitration agreements that such agreements be separable from their underlying contracts. This is not a “rule” or “principle” that is dictated by external legal sources and that parties are obliged to follow: parties are free to agree that their arbitration clause is not separable from their underlying contract, for either some or all purposes. (196) Nor is this a “rule” that necessarily derives its existence or terms http://www.kluwerarbitration.com/CommonUI/print.aspx
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from legislative or other legal sources external to the parties' intentions: the separability presumption is instead derived from and defined by the expectations of reasonable commercial parties to international business transactions. These intentions are often implied, but as the consistent approach across virtually all jurisdictions confirms, (197) these intentions are unmistakable. page "349" As discussed above, the separability doctrine rests partly on the fact that the exchange of promises to resolve disputes by international arbitration (instead of some other means) is different in nature from other exchanges of commercial promises in the parties' underlying contract. (198) The arbitration agreement has a peculiar, specialized function – sometimes referred to as “procedural” (199) or “ancillary” (200) – as contrasted to the parties' underlying “substantive” or “main” contract. Thus, the arbitration clause is concerned with the “separate” function of resolving disputes about the parties' commercial relations, rather than contractually regulating the substantive terms of the parties' commercial bargain. (201) This distinct character is reflected in the very term “arbitration agreement,” connoting a separate, independent agreement of a particular kind, as well as in the substance of that agreement and in the historically separate and distinct legal regimes applicable to arbitration agreements. (202) These related factors provide a starting point for concluding that parties will expect and intend that their arbitration clause be treated as separable from their underlying contract. page "350" More importantly, as also discussed above, commercial parties very often expect and intend – and certainly should be presumed, as objectively rational parties, to intend – that an arbitration agreement will ordinarily remain valid and binding, notwithstanding either claims or determinations regarding the non-existence, invalidity, illegality, or termination of their underlying contract. That is because parties will ordinarily and reasonably expect their arbitration clause to remain effective and encompass disputes about the existence, validity, legality and continuing effectiveness of their underlying contract. (203) As we have seen, parties do so in order to maximize the validity and enforceability of their arbitration agreements and in order that disputes over the validity and legality of their underlying contract – which frequently arise in international matters – can be resolved in a binding manner in the same forum and proceedings as other contractual disputes. (204) page "351" As discussed in greater detail above, any other result would be an invitation to costly and multiplicitous proceedings in different forums. (205) This would be particularly pernicious in the international context, where it would lead to parallel proceedings in different national courts, with the attendant risks of inconsistent or partisan outcomes; of course, it is precisely to avoid such multiplicitous proceeding that parties agree to international arbitration. (206) Moreover, permitting such proceedings in national courts would also often result in lengthy delays and uncertainties in the arbitral process, which again contradicts the basic objectives of that http://www.kluwerarbitration.com/CommonUI/print.aspx
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process. (207) Absent exceptional circ*mstances, no reasonable commercial parties would intend or desire the results that would follow from denying the separability of the arbitration clause. Accordingly, it is not surprising that there has been such a consistent and uniform approach, across very diverse legal systems, towards the separability of international arbitration agreements. Simply put, this approach relies upon and confirms the expectations and intentions of commercial parties with respect to their international arbitration agreements. And, for the same reasons, by helping to address the needs of international businesses and to provide a mechanism for resolving international disputes efficiently, “[a] full recognition of the separability principle tends to facilitate international trade.” (208) The foregoing understanding of the basis for the separability presumption ensures that the presumption is truly international, applicable to all international arbitration agreements, regardless of national legal systems and regardless of the seat of the arbitration. That is because the separability of the arbitration clause is not derived from or dictated by national law, but is instead derived from the intentions of rational commercial parties seeking good faith resolution of possible future international disputes. (209) These intentions are directed by the needs and objectives of the international commercial arbitration process, rather than by the provisions of particular national legal systems. And, as discussed below, the parties' agreement with regard to the separability of their arbitration agreement is recognized and given mandatory international effect by Article II of the New York Convention. (210) Finally, it is critical to appreciate that the separability presumption concerns the existence and substantive validity of the agreement to arbitrate, and only indirectly concerns issues of competencecompetence or the allocation of page "352" jurisdictional competence between courts and arbitral tribunals. As discussed above, some national arbitration legislation and institutional arbitration rules refer to the separability presumption only in the context of recognizing an arbitral tribunal's competencecompetence, and particularly the arbitrator's jurisdiction to consider challenges to the existence or validity of the underlying contract. (211) More recent and well-considered national arbitration legislation adopts a different approach, expressly treating the separability presumption as a rule concerning the substantive validity of the arbitration agreement. (212) The latter legislative approach is better-considered and analyticallycoherent. As discussed below, the separability presumption concerns the contractual formation and validity of the arbitration agreement: (213) it concerns the parties' intentions regarding their agreement to arbitrate and not the legislative framework for a tribunal's exercise of competence-competence. There will, of course, be circ*mstances in which the separability doctrine has consequences for an arbitral tribunal's competence, because a defect only in the underlying contract will necessarily not affect the arbitration agreement and the tribunal's jurisdiction. (214) That is a consequence, however, of the substantive status and validity of the arbitration agreement – which is the fundamental nature of the separability presumption – and not a separate rule of competencecompetence. http://www.kluwerarbitration.com/CommonUI/print.aspx
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18 See, e.g., Judgment of 17 January 1891, RGZ 27, 378, 379
(German Reichsgericht); Judgment of 18 May 1904, RGZ 58, 152, 155 (German Reichsgericht); Powell, The Independent Validity of Arbitration Clauses, 7 C.L.P. 75 (1954). Compare Samuel, Separability in English Law – Should An Arbitration Clause Be Regarded as An Agreement Separate and Collateral to A Contract in Which It Is Contained?, 3(3) J. Int'l Arb. 95 (1986) (suggesting treatment of arbitration clause as “secondary” obligation comprised within main contract, akin to liquidated damages, liability limitation, and similar provisions). See also infra pp. 321-322. 19 Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978 (2d Cir. 1942). See alsoBrown v. Gilligan, Will & Co., 287 F.Supp. 766, 769 (S.D.N.Y. 1968) (“since [the] arbitration provision is an integral part of the alleged contract, the issue as to whether the parties agreed to that provision requires [the court] to first determine if a contract exists.”). 20 See infra pp. 316-348. 21 See infra pp. 354-357 (choice of law), 357-402 (substantive validity) & 402-404 (competence-competence). 22 Geneva Protocol, Arts. III, IV (emphasis added). See supra pp. 58-61. 23 Geneva Convention, Art. I(a) (emphasis added). See supra pp. 61-64. 24 See supra pp. 27-32, 37-39, 39-49. 25 See supra pp. 57-64. As discussed elsewhere, the same treatment of arbitration agreements also required national legislation to overcome their revocability, unenforceability and invalidity. See supra pp. 27-32, 37-39, 39-49 & infra pp. 565 et seq. 26 New York Convention, Art. II(1) (emphasis added). 27 New York Convention, Art. II(2) (emphasis added). 28 As one authority puts it, “the very concept and phrase ‘arbitration agreement’ itself imports the existence of a separate or at any rate separable agreement, which is or can be divorced from the body of the principal agreement if needs be.” S. Schwebel, International Arbitration: Three Salient Problems 3-6 (1987). Compare A. van den Berg, The New York Arbitration Convention 146 (1981) (“The New York Convention does not contain express provisions concerning the separability of the arbitral clause. It is suggested that the Convention would imply the separability of the arbitral clause because Article V(1)(a) provides for conflicts rules for determining the law applicable to the arbitration agreement”; “it must be presumed that the Convention is indifferent as to the separability of the arbitral clause … [and] it reverts to municipal law whether the clause is to be treated independently”). 29 See infra pp. 580 et seq. 30 See supra pp. 203-205 & infra pp. 567-569. 31 New York Convention, Art. V(1)(a) (emphasis added). 32 It does so either by operation of a specific choice of the parties or by application of a default choice-of-law rule. See infra pp. 413414, 426-459, 459-516. 33 A. van den Berg, The New York Arbitration Convention of 1958 145-46 (1981). See also E. Gaillard & J. Savage (eds.), Fouchard http://www.kluwerarbitration.com/CommonUI/print.aspx
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Gaillard Goldman on International Commercial Arbitration ¶299 (1999); Lessing, Sauer-Getriebe K.G. v. White Hydraulics, Inc.: Applicability of the Federal Arbitration Act to International Commercial Arbitration, 2 Int'l Tax & Bus. Law. 331, 338 (1984); Samuel, Book Review – S. Schwebel, International Arbitration: Three Salient Problems, 5(1) J. Int'l Arb. 119, 123 (1988); Svernlov & Carroll, What Isn't, Ain't: The Current Status of the Doctrine of Separability, 8(4) J. Int'l Arb. 37, 42 (1991). 34 S. Schwebel, International Arbitration: Three Salient Problems 22 (1987). See also P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶316 (1975). 35 See also infra pp. 353 et seq. 36 See infra pp. 352, 359. 37 New York Convention, Art. II(1) (“Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or may arise between them.…”). As discussed below, Article II(1) requires Contracting States to give effect to all material terms of international arbitration agreements – including regarding the seat of arbitration, number and means of selection of arbitrators, procedural rules and (of relevance here) separability. See infra p. 567. 38 European Convention, Art. I(2)(a) (“The term: ‘arbitration agreement’ shall mean either an arbitral clause in a contract or an arbitration agreement, the contract or arbitration agreement being signed by the parties, or contained in an exchange of letters, telegrams, or in a communication by teleprinter and, in relations between States whose laws do not require that an arbitration agreement be made in writing, any arbitration agreement concluded in the form authorized by these laws”). 39 European Convention, Art. V(3) (emphasis added). 40 European Convention, Art. VI(2). 41 Plama Consortium Ltd v. Republic of Bulgaria, Decision on Jurisdiction. ICSID Case No. ARB/03/24 (8 February 2005), 20 ICSID Rev.-For. Inv. L.J. 262, ¶212 (2005) (“This matter can also be viewed as forming part of the nowadays generally accepted principle of the separability (autonomy) of the arbitration clause.”); Inceysa Vallisoletana SL v. Republic of El Salvador, ICSID Award No. ARB/03/26 (2 August 2006), 2006 WL 4491473, ¶164; So. Pacific Prop. Ltd v. Arab Republic of Egypt, Decision on Jurisdiction, ICSID Case No. ARB/84/3 (27 November 1985), 3 ICSID Rep. 112, 129 (1995). 42 See infra pp. 346-348. 43 ICSID Additional Facility Rules, Rule 45(1). 44 See infra p. 321. 45 See supra pp. 27-32, 37-39, 39-49. 46 See supra pp. 27-32. 47 SeeAward in Polish Foreign Trade Chamber of Commerce of 7 May 1963, 97 J.D.I. (Clunet) 405 (1970) (“[T]he arbitration agreement … is a judicial contract and, therefore, has a special autonomous character different from the other clauses of the contract concerning a transaction of material law.”); All-Union Foreign Trade Assoc. Sojuznefteexport v. JOC OilLtd, Award in USSR Chamber of Commerce and Industry (9 July 1984), XVIII Y.B. Comm. Arb. 92, 97 (1993) (“the arbitration agreement is treated as a procedural contract and not as an element (condition) of a materiallegal contract”); Interim Award in ICC Case No. 4504, 113 J.D.I. (Clunet) 1118, 1119 (1986) (“[arbitration agreements] are not mere http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreements between individuals, but procedural agreements which are subject to public law.”); Judgment of 28 May 1915, Jörg v. Jörg, DFT 41 II 534, 538 (Swiss Federal Tribunal) (procedural contract); Judgment of 7 October 1933, Tobler v. Justizkommission des Kantons Schwyz, DFT 59 I 177 (Swiss Federal Tribunal) (“According to settled case law of the Swiss Federal Tribunal the arbitration clause is not an agreement of substantive law but of procedural nature”). See also supra pp. 187-189. 48 See supra pp. 187-189. 49 See supra pp. 184-189. See alsoWestacre Inv. Inc. v. Jugoimport-SPDR Holding Co. Ltd [1998] 4 All E.R. 570, 582 (Q.B.) (“[A]n agreement to arbitrate … is ancillary to the underlying contract for its only function is to provide machinery to resolve disputes as to the primary and secondary obligations arising under that contract. The primary obligations under the agreement to arbitrate exist only for the purpose of informing the parties by means of an award what are their rights and obligations under the underlying contract.”); OK Petroleum AB v. Vitol Energy SA [1995] C.L.C. 850, 857 (Q.B.) (describing the “ancillary and therefore separable nature of an arbitration clause”). 50 See infra pp. 323-328. 51 See infra pp. 324, 326-328; Judgment of 24 May 1909, 1910 Zeitschrift für Rechtspflege in Bayern 43 (Oberlandesgericht Nürnberg); Judgment of 11 January 1912, 13 Sächsisches Archiv 148, 149 (1912) (Oberlandesgericht Dresden). 52 See infra pp. 323-344. 53 See infra pp. 324, 326-328, 328-332, 332-333, 341-344. 54 See infra pp. 353 et seq. 55 See, e.g., Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (U.S. S.Ct. 1967) (separability presumption adopted in order that “the arbitration procedure, when selected by the parties to a contract, be speedy and not subject to delay and obstruction in the courts”); Judgment of 27 February 1970, 6 Arb. Int'l 79, 82 (1990) (German Bundesgerichtshof) (“Above all, however, the parties to an arbitration agreement will as a rule wish to avoid the unpleasant consequences of separate jurisdiction.”); Harbour Ass. Co. (UK) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1993] 3 All E.R. 897 (English Court of Appeal) (“there is the imperative of giving effect to the wishes of the parties unless there are compelling reasons of principle why it is not possible to do so”); U.K. Department of Trade and Industry Consultation Document on Proposed Clauses and Schedules for an Arbitration Bill, reprinted in, 10 Arb. Int'l 189, 227 (1994) (“Whatever degree of legal fiction underlying the doctrine, it is not generally considered possible for international arbitration to operate effectively in jurisdictions where the doctrine is precluded … [I]nternational consensus on autonomy has now grown very broad.”). Compare Ware, Arbitration Law's Separability Doctrine after Buckeye Check Cashing Inc. v. Cardegna, 8 Nev L.J. 107, 134 (2007) (“the separability doctrine – unlike nearly all the rest of arbitration law – is incompatible with, and thus cannot be justified as an application of, contract law.”). 56 Harbour Assur. Co. (U.K.) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1992] 1 Lloyd's Rep. 81, 93 (Q.B.). See also infra pp. 352-353. 57 See infra pp. 357-402. 58 See infra pp. 354-357, 411-425, 425 et seq. 59 Nussbaum, The “Separability Doctrine” in American and Foreign Arbitration, 17 N.Y.U. L.Q.Rev. 609, 610-11 (1940) (separability http://www.kluwerarbitration.com/CommonUI/print.aspx
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doctrine can be found in German caselaw as early as 1890). 60 See, e.g., Judgment of 30 April 1890, 1890 JW 202, 203 (German Reichsgericht) (“[the arbitration clause] is not invalid because the main contract somehow appears to be invalid. The arbitral tribunal is therefore competent to decide on the validity of the main contract.”); Judgment of 17 April 1914, 1914 JW 772, 773 (German Reichsgericht) (same); Judgment of 12 December 1918, 1919 Leipziger Zeitschrift für Deutsches Recht 501 (Oberlandesgericht Marienwerder) (invalidity of underlying contract by reason of fraud does not invalidate separable arbitration clause); Judgment of 6 February 1924, 1924 JW 1182, 1183 (Berlin Appellate Court) (non-existence of underlying contract held not to affect separable arbitration clause); Judgment of 26 March 1926, 1926 Leipziger Zeitschrift für Deutsches Recht 543 (German Reichsgericht) (non-existence of underlying contract does not necessarily result in non-existence of arbitration clause); Judgment of 28 February 1929, 1929 JW 2617 (Kammergericht Berlin) (same); Judgment of 12 January 1934, 1934 Hanseatische Rechts-und Gerichtszeitschrift 113 (German Reichsgericht) (invalidity of underlying contract by reason of mistake does not invalidate separable arbitration clause). See also Hamburger, KompetenzKompetenz der Schiedsgerichte, 3 Internationales Jahrbuch für Schiedsgerichtswesen 152 (1931) (arbitration clauses may “have an independent existence”). 61 Judgment of 12 December 1918, 1919 Leipziger Zeitschrift für Deutsches Recht 501 (Oberlandesgericht Marienwerder). 62 See, e.g., Judgment of 17 January 1891, RGZ 27, 378, 379 (German Reichsgericht); Judgment of 18 May 1904, RGZ 58, 152, 155 (German Reichsgericht); Nussbaum, Schiedsgerichte und Rechtsordnung, 1926 JW 55. 63 See, e.g., Judgment of 24 May 1909, 1910 Zeitschrift für Rechtspflege in Bayern 43 (Oberlandesgericht Nürnberg); Judgment of 11 January 1912, 13 Sächsisches Archiv 148, 149 (1912) (Oberlandesgericht Dresden); Judgment of 21 June 1921, 1921 Hanseatische Gerichtszeitung 191 (Hanseatisches Oberlandesgericht Hamburg); Judgment of 6 February 1924, 1924 JW 1182, 1183 (German Reichsgericht). 64 See, e.g., Judgment of 17 January 1891, RGZ 27, 378, 379 (German Reichsgericht); Judgment of 18 May 1904, RGZ 58, 152, 155 (German Reichsgericht); Nussbaum, Schiedsgerichte und Rechtsordnung, 1926 JW 55. 65 Judgment of 27 February 1970, 6 Arb. Int'l 79 (1990) (German Bundesgerichtshof). See also Judgment of 28 May 1979, 1979 NJW 2567, 2568 (German Bundesgerichtshof); Judgment of 6 June 1991, 1991 NJW 2215, 2216 (German Bundesgerichtshof). 66 Judgment of 27 February 1970, 6 Arb. Int'l 79, 82 (1990) (German Bundesgerichtshof) (“It is rather a question of whether the parties agreed that the arbitration tribunal should decide not only on claims arising from the valid main contract, but also on the validity of the main contract … if the parties have also referred to the arbitration tribunal the decision on the effectiveness of the main contract, the ineffectiveness of the main contract of course cannot affect the existence of the arbitration agreement”). 67 Judgment of 27 February 1970, 6 Arb. Int'l 79, 85 (1990) (German Bundesgerichtshof). The Court described these consequences as follows: “For if the arbitration tribunal is not allowed to decide also on the effectiveness of the main contract, the situation is as follows: either it must, as soon as this point is disputed in the arbitration procedure, refrain from further activity and http://www.kluwerarbitration.com/CommonUI/print.aspx
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refer the parties for clarification of this dispute to the ordinary court: if the latter confirms the effectiveness of the main contract, the parties will have to return to the arbitration tribunal and continue the dispute there. Or the arbitration tribunal can, if it finds the main contract to be effective continue its proceedings (§1037 ZPO); there is then the danger, however, that the state tribunal will find differently on the effectiveness of the main contract than the arbitration tribunal and the arbitration award will therefore be reversed (§1041 I and II ZPO). Both outcomes cannot be desirable to reasonable parties whose purpose in concluding an arbitration agreement is usually to accelerate a decision.”). See also Boyd, Arbitration under A Stillborn Contract – The BGH Decision of 27 February 1970, 6 Arb. Int'l 75 (1990). 68 Judgment of 27 February 1970, 6 Arb. Int'l 79, 86 (1990) (German Bundesgerichtshof). 69 Professor Schlosser authored a well-reasoned comment on the Court's decision which began “A truly excellent judgment!” See 6 Arb. Int'l 86 (1990). See also R. Schütze, D. Tscherning & W. Wais, Handbuch des Schiedsverfahrens ¶142 (2d ed. 1990); Schlosser, in F. Stein & M. Jonas (eds.), Kommentar zur Zivilprozessordnung §1029, ¶40 (22d ed. 2002); Geimer, in R. Zöller, (ed.), Zivilprozessordnung §1029, ¶126 (26d ed. 2007); J.-P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶¶662-672 (3d ed. 2008); K.-H. Schwab & G. Walter, Schiedsgerichtsbarkeit Ch. 41, ¶¶16-17 (7th ed. 2005); Münch, in G. Lüke & P. Wax (eds.), Münchener Kommentar zur Zivilprozessordnung §1040, ¶5 (2d ed. 2001). 70 German ZPO, §1040(1) (“The arbitral tribunal may rule on its own jurisdiction and in this connection on the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.”). 71 See, e.g., Judgment of 28 July 2005, XXXI Y.B. Comm. Arb. 673 (Oberlandesgericht Koblenz) (2006); Judgment of 12 March 1998, XXIX Y.B. Comm. Arb. 663 (Hanseatisches Oberlandesgericht Hamburg) (2004) (“the nullity of the main contract, if there is such, does not affect the arbitration clause”); Geimer, in R. Zöller (ed.), Zivilprozessordnung§1040, ¶3 (26th ed. 2007); Kröll, Schiedsrechtliche Rechtsprechung 2006, 2007 SchiedsVZ 145, 147; J.-P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶385 (2d ed. 2002); Voit, in H.-J. Musielak (ed.), Kommentar zur Zivilprozessordnung §1040, ¶4 (5th ed. 2007); F.-B. Weigand (ed.), Practitioner's Handbook on International Arbitration 703 (2002). 72 See, e.g., Judgment of 3 October 1913, (1915) Blätter für Zürcherische Rechtsprechung 21 (Court of Appeal of the Canton of Zurich) (invalidity of underlying contract does not invalidate arbitration clause); Judgment of 27 April 1931, (1931) Entscheidungen des Appellationsgerichts des Kantons Basel-Stadt 13 (Court of Appeal of the Canton of Basel-City) (invalidity of underlying contract by reason of mistake or fraud does not invalidate separable arbitration clause). But see Judgment of 22 October 1881, DFT 7 I 705 (Swiss Federal Tribunal) (invalidity of underlying contract results in invalidity of associated arbitration clause); Judgment of 5 March 1915, DFT 41 II 310 (Swiss Federal Tribunal) (same). 73 Judgment of 7 October 1933, Tobler v. Justizkommission des Kantons Schwyz, DFT 59 I 177 (Swiss Federal Tribunal). 74 Judgment of 7 October 1933, Tobler v. Justizkommission des Kantons Schwyz, DFT 59 I 177 (Swiss Federal Tribunal) (emphasis added). See alsoJudgment of 6 November 1936, DFT 62 I 230, 233 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(Swiss Federal Tribunal); Judgment of 28 January 1938, DFT 64 I 39, 44 (Swiss Federal Tribunal). 75 See authorities cited supra pp. 321-322. 76 Judgment of 14 April 1983, Carbomin SA v. Ekton Corp., XII Y.B. Comm. Arb. 502 (Court of Appeal of the Canton of Geneva) (1987). 77 Swiss Law on Private International Law, Arts. 178(2) & (3) (“As regards its substance, an arbitration agreement shall be valid if it conforms either to the law chosen by the parties, or to the law governing the subject-matter of the dispute, in particular the law governing the main contract, or if it conforms to Swiss law. The validity of an arbitration agreement cannot be contested on the ground that the main contract may not be valid or that the arbitration agreement concerns disputes which have not yet arisen.”). 78 Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶76 (2000); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶603 (2006); P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitrage interne et international en Suisse Art. 178, ¶4 (1989). 79 U.S. FAA, 9 U.S.C. §2 (“A written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”). Similarly, the Revised Uniform Arbitration Act states that “[a]n agreement contained in a record to submit to arbitration any existing or subsequent controversy arising between the parties to the agreement is valid, enforceable, and irrevocable except upon a ground that exists at law or in equity for the revocation of contract.” Revised Uniform Arbitration Act, §6(a) (2000). 80 U.S. FAA, 9 U.S.C. §3. 81 U.S. FAA, 9 U.S.C. §4. The U.S. Supreme Court has also
recently held that §2 of the FAA (applicable in state as well as federal courts) gives effect to the separability presumption. Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 449 (U.S. S.Ct. 2006). 82 See supra pp. 316-319. 83 See Park, Determining Arbitral Jurisdiction: Allocation of Tasks between Courts and Arbitrators, 9 Arb. & Disp. Res. L.J. 19, 27 (2000); Rau, “The Arbitrability Question Itself,” 10 Am. Rev. Int'l Arb. 287 (1999); Rosen, Arbitration under Private International Law: The Doctrines of Separability and Competence de la Competence, 17 Ford. Int'l L.J. 599 (1993-1994). 84 See infra pp. 328-332, 363-380; Rau, Everything You Really Need to Know About ‘Separability’ in Seventeen Simple Propositions, 14 Am. Rev. Int'l Arb. 1 passim (2003). 85 Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 411 (2d Cir. 1959). See alsoIn re Kinosh*ta & Co., 287 F.2d 951, 952-53 (2d Cir. 1961); Watkins v. Hudson Coal Co., 151 F.2d 311, 320 (3d Cir. 1945); Gatliff Coal Co. v. Cox, 142 F.2d 876, 880-81 (6th Cir. 1944); In re Albert, N.Y.L.J., 12 March 1936 (N.Y. S.Ct. 1936), at 1176 (recognizing separability of arbitration clause); http://www.kluwerarbitration.com/CommonUI/print.aspx
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Paramount Famous Lasky Corp. v. Nat'l Theatre Corp., 49 F.2d 64, 66 (4th Cir. 1931). 86 Robert Lawrence Co., 271 F.2d at 412. The Court also relied on §2 of the FAA, and in particular its references to the arbitration agreement as a separable provision of the underlying contract. Id. at 410-11. 87 Robert Lawrence Co., 271 F.2d at 409-10 (“That the [FAA] envisages a distinction between the entire contract between the parties on the one hand and the arbitration clause of the contract on the other is plain on the fact of the statute. Section 2 [of the FAA], which concerns the validity, irrevocability and enforceability of arbitration clauses] does not purport to affect the contract as a whole.”). 88 Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. S.Ct. 1967). The Court in Prima Paint appeared to distance itself somewhat from the rationale in Robert Lawrence Co. (“We agree, albeit for somewhat different reasons.” 388 U.S. at 400), but without clearly identifying the differences in its analysis. 89 388 U.S. at 402. 90 388 U.S. at 402. 91 388 U.S. at 404. 92 388 U.S. at 403-404. 93 388 U.S. at 404. 94 388 U.S. at 404 (emphasis added). 95 388 U.S. at 404. Subsequent U.S. lower court decisions almost uniformly adopted the separability presumption. See authorities cited infra pp. 328-332, 363-380. 96 Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. S.Ct. 2006). 97 Cardegna v. Buckeye Check Cashing, Inc., 894 So.2d 860, 86465 (Fla. Sup. Ct. 2005) (“We hold that an arbitration provision contained in a contract which is void under Florida law cannot be separately enforced while there is a claim pending in a Florida trial court that the contract containing the arbitration provision is itself illegal and void ab initio.”). 98 388 U.S. at 425. 99 546 U.S. at 448. The Buckeye Check Cashing Court also reiterated, and made even more explicit, its holding in Prima Paint that only a challenge “specifically” directed at the arbitration agreement itself would be subject to judicial resolution. The Court declared that “challenges to the validity of arbitration agreements” can be divided into two categories: (a) “challenges specifically to the validity of the agreement to arbitrate,” and (b) “challenges [to] the validity of the contract as a whole, either on the ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract's provisions renders the whole contract invalid.” 546 U.S. at 444. It went on to hold that, “because respondents challenge the Agreement, but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract,” and “should therefore be considered by an arbitrator, not a court.” 546 U.S. at 446. See also infra pp. 363-365. 100 See, e.g., Ferro Corp. v. Garrison Indus., Inc., 142 F.3d 926 (6th Cir. 1998) (“[T]he arbitration agreement is effectively considered as a separate agreement which can be valid despite being contained in a fraudulently induced contract.”); Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 868-69 (7th Cir. 1985) (“An arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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clause will often be ‘severable’ from the contract in which it is embedded, in the sense that it may be valid even if the rest of the contract is invalid.”); Torrance v. Aames Funding Corp., 242 F.Supp.2d 862, 868-69 (D. Ore. 2002) (“an arbitration clause may be enforced even though the rest of the contract is later held invalid by the arbitrator”); Solar Planet Profit Corp. v. Hymer, 2002 WL 31399601, at *2 (N.D. Cal. 2002) (“an arbitration clause in a voidable contract remains valid”); Cline v. H.E. Butt Grocery Co., 79 F.Supp.2d 730, 732 (S.D. Tex. 1999) (“Questions related to the enforcement of a contract as a whole are properly referable to an arbitrator; it is only when an attack is made on the arbitration clause itself that a court, rather than an arbitrator, should decide questions of validity. The arbitration clause itself is supported by valid consideration: each party promised to relinquish their legal right to have a judicial forum adjudicate their disputes.”); Hodge Bros., Inc. v. DeLong Co., 942 F.Supp. 412, 417 (W.D. Wisc. 1996); Hydrick v. Mgt Recruiters Int'l, Inc., 738 F.Supp. 1434 (N.D. Ga. 1990) (“[I]f the arbitration clause is valid, the Court must enforce it, even if the underlying contract might be declared invalid.”). 101 See infra pp. 363-380. 102 Prima Paint Corp., 388 U.S. at 402 (“The view of the Court of Appeals for the Second Circuit, as expressed in this case and in others, is that – except where the parties otherwise intend – arbitration clauses as a matter of federal law are ‘separable’ from the contracts in which they are embedded.”) (citing Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir. 1959) and In re Kinosh*ta & Co., 287 F.2d 951 (2d Cir. 1961); Moseley v. Electronic & Missile Facilities, Inc., 374 U.S. 167, 171 (U.S. S.Ct. 1963); Spahr v. Secco, 330 F.3d 1266, 1271 (10th Cir. 2003); Graham Oil Co. v. ARCO Products Co., 43 F.3d 1244, 1248-49 (9th Cir. 1994), as amended (9th Cir. 1995); Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 477 (9th Cir. 1991) (“Thus, in the absence of any evidence that [the arbitration agreement] was intended as non-severable, we must strictly enforce [it, even if the rest of the contract is later held to be invalid].”); De Jesus-Santos v. Morgan Stanley Dean Witter, Inc., 2006 U.S. Dist. LEXIS 24327, at *23-24 (D.P.R. 2006); Intercall Telecomms, Inc. v. Instant Impact, Inc., 376 F.Supp.2d 155, 159 (D.P.R. 2005); Boston Telecomm. Group, Inc. v. Deloitte Touche Tohmatsu, 278 F.Supp.2d 1041, 1049 (N.D. Cal. 2003) (“[A]rbitration clauses must be treated as severable from the documents in which they appear unless there is clear intent to the contrary.”); Sigety v. Axelrod, 535 F.Supp. 1169, 1172 (S.D.N.Y. 1982) (“Unless the parties intend otherwise arbitration clauses are separable from the contracts in which they are imbedded”). 103 See infra pp. 363-380. 104 See infra pp. 370-376; Buckeye Check Cashing, 546 U.S. at 444 n.l. 105 French decisions have not relied on the separability presumption in considering issues of competence-competence. That is because of the broad French approach to a tribunal's competence and the limited interlocutory role of French courts in considering challenges to the existence, validity, or scope of international arbitration agreements. See infra pp. 888-892. 106 Judgment of 7 May 1963, Ets Raymond Gosset v. Carapelli, JCP G 1963, II, 13, ¶405 (French Cour de cassation civ. 1e). 107 Judgment of 7 May 1963, Ets Raymond Gosset v. Carapelli, JCP G 1963, II, 13, ¶405 (French Cour de cassation civ. 1e). 108 See, e.g., Judgment of 24 February 1994, Ministry of Public http://www.kluwerarbitration.com/CommonUI/print.aspx
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Works v. Société Bec Frères, XXII Y.B. Comm. Arb. 682 (Paris Cour d' appel) (1997) (“In international commercial arbitration, the principle of the autonomy of the arbitration agreement is a principle of general application, being an international substantive rule consecrating the legality of the arbitration agreement, beyond all reference to a system of conflict of laws.”); Judgment of 4 April 2002, 2003 Rev. arb. 104 (French Cour de cassation civ. 2e); Judgment of 20 December 1993, 1994 Rev. arb. 116 (French Cour de cassation civ. 1e); Judgment of 26 March 1991, Comité populaire de la Municipalité d'El Mergeb v. Société Dalico contractors, 1991 Rev. arb. 456 (French Cour de cassation civ. 1e). 109 French New Code of Civil Procedure, Art. 1442. 110 See, e.g., Judgment of 20 December 1993, 1994 Rev. arb. 116 (French Cour de cassation civ. 1e); Judgment of 26 March 1991, Comité populaire de la Municipalité d'El Mergeb v. Société Dalico contractors, 1991 Rev. arb. 456 (Paris Cour d'appel); Judgment of 24 February 1994, Ministry of Public Works v. Société Bec Frères, XXII Y.B. Comm. Arb. 682 (Paris Cour d' appel) (1997) (“In international commercial arbitration, the principle of the autonomy of the arbitration agreement is a principle of general application, being an international substantive rule consecrating the legality of the arbitration agreement, beyond all reference to a system of conflict of laws.”); Judgment of 4 April 2002, Société Bardot v. Société Bouygues Bâtiment, 2003 Rev. arb. 104 (French Cour de cassation civ. 2e); Judgment of 9 April 2002, 2003 Rev. arb. 104 (French Cour de Cassation com.) (affirming that in domestic arbitration, the arbitration agreement is separate from the subsequent contract). 111 UNCITRAL Model Law, Art. 7(1) (emphasis added). See H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 258 (1989). 112 See supra pp. 317-319. 113 UNCITRAL Model Law, Art. 7(2); supra pp. 115-121 & infra pp. 601-605. 114 UNCITRAL Model Law, Art. 8(1); supra p. 713. 115 UNCITRAL Model Law, Arts. 8(1), 16; supra pp. 864-865, 877899. 116 Article 34(2)(a)(1) and Article 36(1)(a)(1) of the Model Law permit annulment and non-recognition of an arbitral award if “a party to the arbitration agreement referred to in Article 7 was under some incapacity, or the said agreement is not 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.” UNCITRAL Model Law, Arts. 34(2)(a)(1), 36(1)(a)(1) (emphasis added); infra pp. 2568-2573, 2777-2797. As with Article V(1)(a) of the New York Convention, this provision acknowledges the presumptive separability of international arbitration agreements, for choice-of-law purposes, and adopts a particular choice-of-law rule applicable to such agreements. See supra pp. 317-319 & infra pp. 414-415. 117 UNCITRAL Model Law, Art. 16(1) (emphasis added). See H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 478-481 (1989). 118 UNCITRAL Model Law, Art. 16(1) (emphasis added). Article 16(1) was deliberately drafted in limited terms, with the separability presumption applying only for the “purpose” of the tribunal's jurisdiction to decide upon its own jurisdiction. That formulation does not extend the separability doctrine to other matters, such as http://www.kluwerarbitration.com/CommonUI/print.aspx
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questions of substantive validity and the law applicable to the arbitration agreement. 119 The application of Article 16 is discussed below. See infra pp. 864-877. 120 UNCITRAL Model Law, Art. 16(1). 121 UNCITRAL Model Law, Art. 16(1). 122 See also infra pp. 402-404, 872-876, 877-899. 123 UNCITRAL Model Law, Art. 16(1) (emphasis added). 124 The circ*mstances in which the non-existence, invalidity, or illegality of the parties' underlying contract can affect their arbitration agreement are discussed in greater detail below. See infra pp. 357402. See also Sanders, L'autonomie de la clause compromissoire, in Hommage à Frédéric Eisemann 31 (1978). 125 See, e.g., Brawn Laboratories Ltd v. Fittydent Int'l GmbH, XXVI Y.B. Comm. Arb. 783 (Delhi High Court 1999) (2001) (“even assuming for the sake of arguments that the agreement dated 20 May 1994 between the parties was illegal and non-est, the same shall not on its own render the arbitration clause invalid and it is still within the competence of the arbitrator to decide the validity of the same.”) (emphasis added); Brian Harper v. Kvaerner Fjellstrand Shipping AS, XVIII Y.B. Comm. Arb. 358, 359-60 (B.C. S.Ct. 1991) (1993) (confirming that “the British Columbia Legislature accepts the doctrine of separability”); Cecrop Co. v. Kinetic Sciences Inc., 16 B.L.R.3d 15 (B.C. S.Ct. 2001) (ineffectiveness of underlying contract, because effective date had not occurred, did not render arbitration agreement ineffective); World LLC v. Parenteau & Parenteau Int'l Inc., [1998] A.Q. No. 736 (Quebec S.Ct.) (recognizing separability presumption); Ferris v. Plaister, 34 N.S.W.L.R. 474 (N.S.W. Court of Appeal 1994) (claim that underlying contract is fraudulently induced does not impeach arbitration clause and is for arbitrator); NetSys Tech. Group AB v. Open Text Corp., 1 B.L.R.3d 307 (Ontario S.Ct. 1999) (claim that underlying contract was null and void did not impeach arbitration clause and was therefore for arbitrators to decide); Campbell v. Murphy, 15 O.R.3d 444 (Ontario Court of Justice 1993) (repudiation of underlying contract did not affect arbitration clause). 126 L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶¶16-008 to 16-022 (14th ed. 2006); R. Merkin, Arbitration Law ¶¶5.40 to 5.43 (2004 & Update 2007); Samuel, Separability in English Law – Should An Arbitration Clause Be Regarded as An Agreement Separate and Collateral to A Contract in Which It Is Contained?, 3(3) J. Int'l Arb. 95 (1986); Svernlov, The Evolution of the Doctrine of Separability in England: Now Virtually Complete?, 9(3) J. Int'l Arb. 115 (1992); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶¶2-011 to 2-012 (22d ed. 2003). 127 See, e.g., Heyman v. Darwins Ltd [1942] A.C. 356, 366 (House of Lords); Mackender v. Feldia AG [1967] 2 Q.B. 590 (English Court of Appeal); Bremer Vulkan Schiffbau und Maschinenfabrik v. South India Shipping Corp. Ltd [1981] A.C. 909 (House of Lords); Paul Smith Ltd v. H & S Int'l Holdings Inc. [1991] 2 Lloyd's Rep. 127 (Q.B.). 128 See, e.g., Joe Lee Ltd v. Lord Dalmeny [1927] 1 Ch. Div. 300 (Ch.) (illegality/invalidity of underlying gambling contract invalidates associated arbitration clause); Ateus v. Lashley 101 Eng. Rep. 435 (1794) (K.B.) (annulling award on grounds that underlying contract was illegal “stock-jobbing” agreement). 129 Heyman v. Darwins Ltd (1942) A.C. 356, 366 (House of Lords) (Viscount Simon, L.C.) (“If the dispute is whether the contract which http://www.kluwerarbitration.com/CommonUI/print.aspx
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contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission. Similarly, if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), the arbitration clause cannot operate, for on this view the clause itself also is void.”). In early precedents of this sort, English courts generally spoke of the arbitration clause as simply another term of the parties' underlying contract, albeit one which warranted special treatment. Dalmia Dairy Indus. Ltd v. Nat'l Bank of Pakistan [1978] 2 Lloyd's Rep. 223 (English Court of Appeal); Ashville Inv. Ltd v. Elmer Contractors Ltd [1988] 3 W.L.R. 867 (English Court of Appeal). 130 Deutsche Schachtbau- und Tiefbohrgesellschaft mbH v. Ras Al
Khaimah Nat'l Oil Co. [1987] 2 Lloyd's Rep. 246, 250 (English Court of Appeal), rev'd on other grounds, [1988] 2 Lloyd's Rep. 293 (House of Lords). See also Bremer Vulkan Schiffbau und Maschinenfabrik v. South India Shipping Corp. Ltd [1981] A.C. 909 (House of Lords); Paul Smith Ltd v. H & S Int'l Holding Inc. [1991] 2 Lloyd's Rep. 127 (Q.B.). 131 Westacre Inv. Inc. v. Jugoimport-SDPR Holdings Co.Ltd [1998] 4 All E.R. 570 (Q.B.). 132 See, e.g., Peterson Farms Inc. v. C&M Farming Ltd [2004] 1 Lloyd's Rep. 603, 609 (Q.B.) (“Under the doctrine of separability, an arbitration agreement is separable and autonomous from the underlying contract in which it appears. The autonomy of arbitration agreements has become a universal principle in the realm of international commercial arbitration. A corollary to the separability doctrine is that the law applicable to the arbitration agreement may differ from the law applicable both to the substance of the contract underlying the dispute and to the arbitral proceedings themselves. The right of C&M to make claims for the C&M Group is a question of interpretation of the arbitration agreement contained in the Agreement, including the intention of the parties.”); Harbour Assur. Co. (U.K.) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1992] 1 Lloyd's Rep. 81, 92-93 (Q.B.). 133 See infra pp. 336-340, 380-384; Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). 134 Harbour Ass. Co. (UK) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1993] 3 All E.R. 897 (English Court of Appeal); Gross, Separability Comes of Age in England: Harbour v. Kansa and Clause 3 of The Bill, 11 Arb. Int'l 85 (1995); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶¶2-012 to 2-013, 2-051 to 2-052 (22d ed. 2003). 135 Harbour Assur. Co. (U.K.) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1992] 1 Lloyd's Rep. 81, 92-93 (Q.B.). 136 English Arbitration Act, 1996, §7 (emphasis added). Section 7 used the term “distinct,” rather than “separable” or “autonomous.” There does not appear to have been any change in substantive meaning attributed to the new terminology. 137 See supra pp. 333-336. 138 R. Merkin, Arbitration Law ¶5.40 (2004 & Update 2007) (“There are two intertwining principles recognized at common law, and codified by the Arbitration Act 1996 … The first principle is that of separability … now set out in §7 of the Arbitration Act 1996.”); http://www.kluwerarbitration.com/CommonUI/print.aspx
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Aeberli, Jurisdictional Disputes under the Arbitration Act 1996: A Procedural Route Map, 21 Arb. Int'l 253, 253 n.3 (2005) (“note also §7 (giving effect to the doctrine of separability)”); Samuel, Separability and the U.S. Supreme Court Decision in Buckeye v. Cardegna, 22 Arb. Int'l 477, 491 (2006) (“This led to the assumption that a future House of Lords would introduce mainstream separability if it ever dealt with a case involving a main contract that was illegal. In 1992, the Court of Appeal in Harbour, however, ‘jumped the gun’ and ruled that the alleged illegality of an insurance contract did not deprive the arbitrator of jurisdiction. Unsurprisingly, the views expressed there were reproduced in section 7 of the Arbitration Act 1996.”). 139 English Arbitration Act, 1996, §7; R. Merkin, Arbitration Law ¶5.43 (2004 & Update 2007). 140 Compare English Arbitration Act, 1996, §7, with UNCITRAL Model Law, Art. 16(1). See supra pp. 333-336 & infra pp. 864, 877899. The English choice was a deliberate one. UK Departmental Advisory Committee on Arbitration Law, 1996, Report on the Arbitration Bill (February 1996), reprinted in, 13 Arb. Int'l 275, ¶43 (1997) (“This clause [§7] sets out the principle of separability which is already part of English law, [citing Harbour Assur. v. Kansa [1993] WB 701] which is also to be found in Article 16(1) of the Model Law, and which is regarded internationally as highly desirable. However, it seems to us that the doctrine of separability is quite distinct from the question of the degree to which the tribunal is entitled to rule on its own jurisdiction, so that, unlike the Model Law, we have dealt with the latter elsewhere in the Bill (Clause 30).”). 141 See supra pp. 334-336 & infra pp. 864, 877-878. 142 See also Lesotho Highlands Dev. Auth. v. Impregilo SpA [2006] 1 A.C. 221, 232 (House of Lords) (separability presumption is “part of the very alphabet of arbitration law”). 143 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). 144 Id., at ¶29 (emphasis added). The Court of Appeal relied in particular on L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶12-099 (14th ed. 2006), which approved the analysis in Prima Paint and subsequent U.S. decisions. 145 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). 146 See Vee Networks Ltd v. Econet Wireless Int'l Ltd [2005] 1 Lloyd's Rep. 192 (Q.B.); Svenska Petroleum Exploration AB v. Lithuania [2005] EWHC (Comm.) 2437 (Q.B.). 147 See infra pp. 382-384. 148 Lower court decisions holding that termination of an underlying agreement does not terminate an arbitration clause include Judgment of 5 August 1936, In Continental Ins. Co. v. Fuji Shõkai (Tokyo Court of Appeals) (agency agreement); Judgment of 10 April 1953, In Compañia de Transportes del Mar SA v. Mataichi K.K. (Tokyo District Court) (charter party agreement); Judgment of 17 October 1973, In Kõji Satõ v. Ikeuchi Kenchiku Seisaku K.K. (Tokyo Dist. Ct.) (construction contract); Judgment of 3 May 1980, Kabushiki Kaisha Ameroido Nihon v. Drew Chemical Corp., VIII Y.B. Comm. Arb. 394 (Yokohama District Court)(1983). 149 Judgment of 15 July 1975, Kokusan Kinzoku Kogyo K.K. v. Guard-Life Corp., IV Y.B. Comm. Arb. 122 (Japanese S.Ct.) (1979).
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150 Judgment of 15 July 1975, Kokusan Kinzoku Kogyo K.K. v.
Guard-Life Corp., IV Y.B. Comm. Arb. 122 (Japanese S.Ct.) (1979). 151 Judgment of 15 July 1975, Kokusan Kinzoku Kogyo K.K. v. Guard-Life Corp., IV Y.B. Comm. Arb. 122 (Japanese S.Ct.) (1979). See also Judgment of 30 May 1994, XX Y.B. Comm. Arb. 745, 748 (Tokyo High Court) (1995) (fraud in connection with underlying contract does not taint arbitration clause). 152 Japanese Arbitration Law, Art. 13(6) (“Even if in a particular contract containing an arbitration agreement, any or all of the contractual provisions, excluding the arbitration agreement, are found to be null and void, cancelled or for other reasons invalid, the validity of the arbitration agreement shall not necessarily be affected.”). Like the English Arbitration Act, 1996, and unlike the UNCITRAL Model Law, the Japanese Law addressed the separability presumption in the context of the substantive validity of the arbitration agreement, and not competence-competence. See also supra pp. 333-336, 340 & infra pp. 864, 877-899. 153 Belgian Judicial Code, Arts. 1697(1)-(2) (“1. The arbitral
tribunal may decide on its own jurisdiction and for this purpose, may examine the validity of the arbitration agreement. 2. A finding that the contract is invalid shall not entail ipso jure nullity of the arbitration agreement contained in it.”). 154 Netherlands Code of Civil Procedure, Art. 1053 (“An arbitration agreement shall be considered and decided upon as a separate agreement”; “The arbitral tribunal shall have the power to decide on the validity of the contract of which the arbitration agreement forms part or to which the arbitration agreement is related.”). 155 Swedish Arbitration Act, §3 (“Where the validity of an arbitration agreement which constitutes part of another agreement must be determined in conjunction with a determination of the jurisdiction of the arbitrators, the arbitration agreement shall be deemed to constitute a separate agreement.”); Judgment of 3 October 1936, AB Norrköpings Trikafabrik v. AB Per Persson, 1936 NJA 521 (Swedish S.Ct.) (“There is no evidence of circ*mstances that would not make the arbitration clause in the agreement between the parties – regardless of whether this would otherwise be considered valid or not – binding for [the claimant]. Therefore, and as the arbitration agreement must be considered to include also a dispute … about [whether the arbitration agreement is valid despite invalidity of main agreement], the [Swedish Supreme Court] confirms the verdict of the [lower court]”). 156 Spanish Arbitration Act, Art. 22(1) (“The arbitrators may rule on their own jurisdiction, including any objections with respect to the existence and validity of the arbitration agreement or any other objection the acceptance of which would prevent the arbitrators from entering into the merits of the dispute. For this purpose, an arbitration agreement which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitrators that the contract is null and void shall not entail by itself the invalidity of the arbitration agreement.”). 157 Italian Code of Civil Procedure, Art. 808(3) (“The validity of the arbitration clause shall be evaluated independently from the underlying contract; nevertheless, the capacity to enter into the contract includes the capacity to agree to the arbitration clause.”). 158 Singapore International Arbitration Act, §7(1). http://www.kluwerarbitration.com/CommonUI/print.aspx
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159 Hong Kong Arbitration Ordinance, Art. 34 (C) (adopting the
UNCITRAL Model Law); Fung Sang Trading Ltd v. Kai Sun Sea Products & Food Co. Ltd, XVII Y.B. Comm. Arb. 289, 297 (H.K. High Court, S.Ct. 1991) (1992) (“Article 16(1) enshrines the doctrine of separability …”). 160 Chinese Arbitration Law, Art. 19 (“An arbitration agreement shall exist independently. The amendment, rescission, termination or invalidity of a contract shall not affect the validity of the arbitration agreement. The arbitration tribunal has the right to affirm the validity of a contract.”). 161 New Zealand Arbitration Act, First Schedule, Art. 16(1) (“The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure (necessarily) the invalidity of the arbitration clause.”). 162 Algerian Code of Civil Procedure, Art. 458 bis 1, ¶3 (“The validity of an arbitration agreement cannot be challenged on the sole ground that the underlying contract would be null and void.”). 163 Grigera Naón, Arbitration and Latin America: Progress and Setbacks, 21 Arb. Int'l 127, 149 (2005) (citing Bolivian Law on Arbitration and Mediation, Art. 32; Brazilian Arbitration Statute, Art. 8; Chilean Law on International Commercial Arbitration, Art. 16(1); Ecuadorian Law on Arbitration and Mediation, Art. 5; El Salvadoran Law on Mediation, Conciliation and Arbitration, Art. 30; Mexican Commercial Code, Art. 1432; Paraguay Law on Arbitration and Mediation, Art. 19; Peruvian Arbitration Law, Art. 106; Venezuelan Commercial Arbitration Act, Arts. 7, 25. 164 Judgment of 26 April 1980, VII Y.B. Comm. Arb. 340 (Venice Corte di Appello) (1982). 165 Judgment of 21 December 1991, SpA Coveme v. Compagnie Française des Isolants, XVIII Y.B. Comm. Arb. 422, 425 (Bologna Corte di Appello) (1993) (“the arbitral clause is autonomous with respect to the contract – so that the nullity of the latter does not automatically affect the former”); Judgment of 2 July 1981, 1981 Foro it., Rep., voce Arbitrato no. 61 (Italian Corte di Cassazione) (tribunal held that an irrituale arbitration clause was not separable from the main contract, distinguishing it from a rituale clause: “In fact, contrary to a rituale arbitration clause, the above arbitration clause, which is a secondary agreement whose basis and purpose are linked to the main agreement in which it is included, cannot continue to exist if the above mentioned invalidity causes exist, since those invalidity causes imply that the source of the arbitrators' power would indeed cease to exist.”). 166 Brawn Laboratories Ltd v. Fittydent Int'l GmbH, XXVI Y.B. Comm. Arb. 783 (Delhi High Court 1999) (2001). 167 Brian Harper v. Kvaerner Fjellstrand Shipping AS, XVIII Y.B. Comm. Arb. 358, 359-60 (B.C. S.Ct. 1991) (1993) (confirming that “the British Columbia Legislature accepts the doctrine of separability”); Cecrop Co. v. Kinetic Sciences Inc., 16 B.L.R.3d 15 (B.C. S.Ct. 2001). 168 Resort Condominiums Int'l Inc. v. Bolwell, XX Y.B. Comm. Arb. 628, 632 (Queensland S.Ct. 1993) (1995) (even though the underlying contract had been terminated, the arbitration clause was separable from the underlying contract and remained enforceable after termination); Ferris v. Plaister, 34 N.S.W.L.R. 474 (N.S.W. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Court of Appeal 1994). 169 Judgment of 26 September 1988, Enrique C. Wellbers S.A.I.C. AG v. Extraktionstechnik Gesellschaft für Anlagenbau, La Ley 1989E-302 (Buenos Aires Commercial) (Court of Appeal) (recognizing the separability of international arbitration clauses under Argentine law in general and of a clause incorporated in an international sales agreement for delivery of goods to Germany in particular). 170 Brawn Laboratories Ltd v. Fittydent Int'l GmbH, XXVI Y.B. Comm. Arb. 783, 786 (Delhi High Court 1999) (2001). 171 See supra pp. 322-344 & infra pp. 357-402. 172 BP Exploration Co. Ltd v. Gov't of the Libyan Arab Republic, Award on Merits (10 October 1973), V Y.B. Comm. Arb. 143 (1980) (Libyan legislation “was effective to terminate the BP concession, except in the sense that the BP concession forms the basis of the jurisdiction of the Tribunal and of the rights of the Claimant to claim damages from the Respondent before the Tribunal”). 173 Texaco Overseas Petroleum Co. v. Libyan Arab Republic, Preliminary Award (27 November 1975), IV Y.B. Comm. Arb. 177 (1979). 174 Libyan Am. Oil Co. v. Gov't of the Libyan Arab Republic (LIAMCO), Ad Hoc Award (12 April 1977), VI Y.B. Comm. Arb. 89, 96 (1981). 175 Elf Aquitaine Iran v. Nat'l Iranian Oil Co., Preliminary Ad Hoc Award (14 January 1982), XI Y.B. Comm. Arb. 97, 102 (1986). See Ibid. (“It is a generally recognized principle of the law of international arbitration that arbitration clauses continue to be operative, even though an objection is raised by one of the parties that the contract containing the arbitration clause is null and void”). 176 Elf Aquitaine Iran, XI Y.B. Comm. Arb. at 103. 177 See, e.g., Preliminary Awards inICC Case No. 1512, in S. Jarvin & Y. Derains (eds.), Collection of ICC Awards 1974-1985 33, 36 (1990); Award in ICC Case No. 1526, 101 J.D.I. (Clunet) 915 (1974) (“It is also a rule, now generally admitted in international arbitration matters, or in the process of being so admitted, that … the arbitration agreement, whether it be entered into specially or included in the legal contract to which it applies, apart from exceptional circ*mstances, has a complete juridical independence, excluding the possibility that it may be affected by the possible invalidity of the contract.”); Final Award in ICC Case No. 6268, in J.J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Awards 1991-1995 68, 71 (1997); Award in ICC Case No. 6367, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 54 (2001) (separability of arbitration agreement is “internationally recognized”); Final Award in ICC Case No. 7626, XXII Y.B.Comm. Arb. 132, 137 (1997); Interim Award in ICC Case No. 7263, XXII Y.B. Comm. Arb. 92, 100 (1997) (recognizing “the principle of severability of the arbitral clause from the contract as a whole,” based on the Swiss Law on Private International Law and ICC Rules); Final Award in ICC Case No. 8938, XXIVa Y.B. Comm. Arb. 174 (1999) (“the arbitral clause is autonomous and juridically independent from the main contract in which it is contained … and its existence and validity are to be ascertained, taking into account the mandatory rules of national law and international public policy, in the light of the common intention of the public policy, in the light of the common intention of the parties, without necessarily referring to a state law.”); Award in Bulgarian Chamber of Commerce and Industry, Case No. 88/1972 (23 June 1973), IV Y.B. Comm. Arb. 189 (1979); Award in http://www.kluwerarbitration.com/CommonUI/print.aspx
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ICC Case No. 9480, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 55 (2001) (“it is now generally accepted, in the law and practice of international commercial arbitration, that an arbitration clause in a contract constitutes a separate and autonomous agreement between the parties, which is distinct from their substantive agreement”); Award in Arbitral Tribunal of the Netherlands Oils, Fats and Oilseeds Trade Association of 10 September 1975, II Y.B. Comm. Arb. 156 (1977); All-Union Foreign Trade Assoc. Sojuznefteexport v. JOC Oil Ltd, Award in USSR Chamber of Commerce and Industry (9 July 1984), XVIII Y.B. Comm. Arb. 92 (1993). 178 Preliminary Award in ICC Case No. 6401, 7(1) Mealey's Int'l Arb. Rep. B-1, B-14 (1992). 179 See, e.g., Final Award in ICC Case No. 7626, XXII Y.B. Comm. Arb. 132, 138-139 (1997) (“The issue before us, then, resolves into one of deciding whether or not the parties agreed to this arbitration clause. This issue can only be resolved in the context of our more general consideration as to whether one or both of the Agreements are binding on P and A, the parties to this arbitration.”); Elf Aquitaine Iran v. Nat'l Iranian Oil Co., Preliminary Ad Hoc Award (14 January 1982), XI Y.B. Comm. Arb. 97, 103-104 (1986) (“An arbitration clause may not always be operative in cases where it is clearly indicated by facts and circ*mstances that there never existed a valid contract between the parties.”). 180 These circ*mstances are discussed in greater detail below. See infra pp. 357-407 (especially 396-402). 181 ICC Rules (1955 Version), Art. 13(4) (“Unless otherwise stipulated, the arbitrator shall not cease to have jurisdiction by reason of an allegation that the contract is null and void or nonexistent. If he upholds the validity of the arbitration clause, he shall continue to have jurisdiction to determine the respective rights of the parties and to make declarations relative to their claims and pleas even though the contract should be null and void or non-existent.”). 182 ICC Rules (1988 Version), Art. 6(4). 183 Article 6(4) of the current (1998) ICC Rules provides: “Unless otherwise agreed, the Arbitral Tribunal shall not cease to have jurisdiction by reason of any claim that the contract is null and void or allegation that it is non-existent, provided that the Arbitral Tribunal upholds the validity of the arbitration agreement. The Arbitral Tribunal shall continue to have jurisdiction to determine the respective rights of the parties and to adjudicate their claims and pleas even though the contract itself may be non-existent or null and void.” ICC Rules, Art. 6(4). See Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 111-113 (2d ed. 2005). 184 Hence, the provision requiring that the arbitral tribunal upholds the validity of the arbitration agreement. See Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 113 (2d ed. 2005). 185 See supra pp. 333-336. Article 21(2) of the UNCITRAL Rules provides: “For the purposes of article 21 [dealing with the arbitral tribunal's competence-competence], an arbitration clause which forms part of a contract and which provides for arbitration under these Rules shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.” UNCITRAL Rules, Art. 21(2). 186 LCIA Rules, Art. 23(1); CEPANI Rules, Art. 19(4); ICDR Rules, Art. 15(2); NAI Rules, Art. 9(5); Swiss International Arbitration Rules, http://www.kluwerarbitration.com/CommonUI/print.aspx
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Art. 21.(2); HKIAC Domestic Rules, Art. 11.1(h); CIETAC Rules, Art. 5(4); SIAC Rules, Art. 26(1). These provisions are set forth infra pp. 391-393. 187 See infra pp. 402-405, 872-873. 188 See supra pp. 148-151, 154. 189 Seeinfra pp. 580 et seq.; New York Convention, Art. II(2); UNCITRAL Model Law, Art. 7(2); U.S. FAA, 9 U.S.C. §2. 190 Seeinfra pp. 357-402, 640 et seq.; New York Convention, Art. II(1), (2); UNCITRAL Model Law, Art. 8(1); U.S. FAA, 9 U.S.C. §§34. 191 Seeinfra pp. 353-357, 413-425; UNCITRAL Model Law, Art. 34(2)(a)(i). 192 Seeinfra pp. 402-405, 872-876; UNCITRAL Model Law, Art. 16. 193 It is difficult to find commentators who dispute the existence and desirability of the separability doctrine, even in domestic settings. For one exception, see Ware, Arbitration Law's Separability Doctrine After Buckeye Check Cashing Inc. v. Cardegna, 8 Nev. L.J. 107, 119 (2007) (“the separability doctrine should be repealed because I believe that no dispute should be sent to arbitration unless the parties have formed an enforceable contract requiring arbitration of that dispute”). 194 Parties might choose to agree to arbitration only if their underlying contract and commercial dealings were validly concluded and successfully underway, reserving disputes about contract formation, validity and termination for litigation. This is very unlikely, as a commercial matter, but possible. See Moseley v. Electronic & Missile Facilities, Inc., 374 U.S. 167, 171 (U.S. S.Ct. 1963). 195 J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration 106 (2003). See also K.-P. Berger, International Economic Arbitration 121 (1993); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶16-011 (14th ed. 2006) (“general principle of international commercial arbitration”). 196 See English Arbitration Act, 1996, §7; Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 402 (U.S. S.Ct. 1967) (“except where the parties otherwise intend … arbitration clauses are ‘separable’ from the contracts in which they are embedded”) (emphasis added); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. S.Ct. 2006); Judgment of 27 February 1970, 6 Arb. Int'l 79, 82 (1990) (German Bundesgerichtshof) (“every reason to presume that reasonable parties will wish”); Harbour Assur. Co. (U.K.) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1992] 1 Lloyd's Rep. 81, 92-93 (Q.B.) (“First, there is the imperative of giving effect to the wishes of the parties … [I]t must be presumed that the parties intended to refer all the disputes arising out of the particular transaction to arbitration. Party autonomy therefore militates in favor of the full recognition of the separability principle.”) (emphasis added); Judgment of15 July 1975, Kokusan Kinzoku Kogyo K.K. v. Guard-Life Corp., IV Y.B. Comm. Arb. 122 (Japanese S.Ct.) (1979) (“unless there is a special agreement between the parties”). See also R. David, Arbitration in International Trade 192 (1985) (recognizing contractual foundations of separability presumption); Samuel, Separability and the U.S. Supreme Court Decision in Buckeye v. Cardegna, 22 Arb. Int'l 477, 485-486 (2006). 197 See authorities cited supra pp. 323-326, 326-328, 328-332, 337-340, 340 & infra p. 351 nn. 203, 204. See alsoReport of the Secretary-General on the Preliminary Draft Set of Arbitration Rules for Optional Use in Ad Hoc Arbitration Relating to International Trade, UNCITRAL, Eighth Session, UN Doc. A/CN.9/97, VI http://www.kluwerarbitration.com/CommonUI/print.aspx
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UNCITRAL Y.B. 163, 175 (1975) (separability doctrine can be “considered to conform with the underlying intentions of the parties”); Sanders, L'autonomie de la clause compromissoire, in Hommage à Frédéric Eisemann 31, 33-35 (1978) (separability presumption reflects parties' intentions); A. Samuel, Jurisdictional Problems in International Commercial Arbitration 157-58 (1989) (“the most that can usually be said is that the parties do not actively intend the fate of the main contract to determine automatically that of the arbitral clause”); Klein, Du caractère autonome de la clause compromissoire, notamment en matiere d'arbitrage international, 50 Rev. Crit. 499, 507 (1961). 198 See supra pp. 184-189, 321-322. 199 See supra pp. 321-322; Judgment of 7 October 1933, Tobler v. Justizkommission des Kantons Schwyz, DFT 59 I 177 (Swiss Federal Tribunal) (“According to settled case law of the Swiss Federal Tribunal the arbitration clause is not an agreement of substantive law but of procedural nature”); All-Union Foreign Trade Assoc. Sojuznefteexport v. JOC Oil Ltd, Award in USSR Chamber of Commerce and Industry(9 July 1984), XVIII Y.B. Comm. Arb. 92, 97 (1993) (“the arbitration agreement is treated as a procedural contract and not as an element (condition) of a material-legal contract”); Judgment of 3 December 1986, 1987 NJW 651, 652 (German Bundesgerichtshof) (“The arbitration agreement is a subcategory of the procedural contract.”). 200 See supra pp. 336-337 ; Westacre Inv. Inc. v. JugoimportSPDR Holding Co. Ltd [1998] 4 All E.R. 570, 582 (“[A]n agreement to arbitrate within an underlying contract is in origin and function parasitic. It is ancillary to the underlying contract for its only function is to provide machinery to resolve disputes as to the primary and secondary obligations arising under that contract.”); OK Petroleum AB v. Vitol Energy SA [1995] C.L.C. 850, 857 (Q.B.) (“ancillary and therefore separable nature of an arbitration clause”). Compare A. Samuel, Jurisdictional Problems in International Commercial Arbitration 161 (1989) (“one can think of other contract terms, such as liquidated damages provisions, which, like the arbitral clause, perform the task of putting into effect the principal terms of the contract, but of which one would not say that they constituted agreements separate from that in which they appear”). 201 See supra pp. 64-68, 184-189, 321-322, 336-337; Westacre Inv. Inc. v. Jugoimport-SDPR Holdings Co.Ltd [1998] 4 All E.R. 570 (Q.B.); Report of the Secretary-General on the Revised Draft Set of Arbitration Rules, UNCITRAL, Ninth Session, UN Doc. A/CN.9/112/Add.1, VII Y.B. UNCITRAL 166, 174 (1976) (separability doctrine “reflects the view that the arbitration clause, although contained in, and forming part of, the contract, is in reality an agreement distinct from the contract itself, having as its object the submission to arbitration of disputes arising from or relating to the contractual relationship”). 202 See supra pp. 20-57, 90-147. As discussed above, these distinct legal regimes range from specialized rules of Roman law, to early English arbitration legislation (in 1698, 1833, 1854, 1889), to the Geneva Protocol, and today to the UNCITRAL Model Law and New York Convention. 203 See supra pp. 348-353 & infra pp. 357-402 (especially 396402); Mayer, Les limites de la séparabilité de la clause compromissoire, 1998 Rev. arb. 359, 361 (“[T]he choice-of-law clause escapes the nullity of the contract because it is its very purpose to specify the applicable law according to which the judge or arbitrator will decide whether the contract is void. And for the http://www.kluwerarbitration.com/CommonUI/print.aspx
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same reason, the arbitration clause must be respected if it implies the parties' will to confide the question of whether the contract is valid or void to an arbitrator.”); U.K. Department of Trade and Industry Consultation Document on Proposed Clauses and Schedules for an Arbitration Bill, reprinted in, 10 Arb. Int'l 189, 227 (1994) (“Whatever degree of legal fiction underlying the doctrine, it is not generally considered possible for international arbitration to operate effectively in jurisdictions where the doctrine is precluded … [I]nternational consensus on autonomy has now grown very broad.”). 204 See supra pp. 348-353 & infra pp. 396-402; Judgment of 27 February 1970, 6 Arb. Int'l 79, 82 (1990) (“Above all, however, the parties to an arbitration agreement will as a rule wish to avoid the unpleasant consequences of separate jurisdiction.”) (German Bundesgerichtshof); Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (U.S. S.Ct. 1967) (separability presumption adopted in order that “the arbitration procedure, when selected by the parties to a contract, be speedy and not subject to delay and obstruction in the courts”); Fiona Trust & Holding Corp. v. Privalov [2007] UKHL 40, at ¶26 (House of Lords) (“golden rule that if the parties wish to have issues as to the validity of their contract decided by one tribunal and issues as to its meaning or performance decided by another, they must say so expressly”); Harbour Assur. Co. (U.K.) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1992] 1 Lloyd's Rep. 81, 93 (Q.B.). Thus, it is argued that: (a) parties to arbitration agreements generally “intend to require arbitration of any dispute not otherwise settled, including disputes over the validity of the contract or treaty”; (b) without the separability doctrine, “it would always be open to a party to an agreement containing an arbitration clause to vitiate its arbitration obligation by the simple expedient of declaring the agreement void”; and (c) “the very concept and phrase ‘arbitration agreement’ itself imports the existence of a separate or at any rate separable agreement, which is or can be divorced from the body of the principal agreement if needs be.” S. Schwebel, International Arbitration: Three Salient Problems 3-6 (1987). Compare Samuel, Separability and the U.S. Supreme Court Decision in Buckeye v. Cardegna, 22 Arb. Int'l 477, 486 (2006) (suggesting that parties do not in fact contemplate invalidity of main contract, but affirming a “presumption or implied term imposed by law that the arbitration clause will survive the invalidity of the main contract and vice versa. The idea is to produce a sensible result whenever the parties have not considered the point. It is virtually impossible to identify a reason not to have this presumption which the parties can always exclude by agreement”). This analysis has force, but focuses unduly on parties' subjective, rather than objectively reasonable, expectations and intentions (which lead, in any event, to the same result). 205 See supra pp. 348-353. 206 See supra pp. 72-78. 207 See supra pp. 81-82, 84-86. 208 Harbour Assur. Co. (U.K.) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd
[1992] 1 Lloyd's Rep. 81, 93 (Q.B.). 209 See supra pp. 348-353 & infra pp. 396-402. 210 See supra pp. 317-319 & infra pp. 567-569. 211 See UNCITRAL Model Law, Art. 16(1); German ZPO, §1040(1); ICC Rules, Art. 6(4); Prima Paint Corp. v. Flood & Conklin Mfg. Co., http://www.kluwerarbitration.com/CommonUI/print.aspx
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388 U.S. 395 (U.S. S.Ct. 1967). 212 See supra pp. 327-328, 338-340, 340-341; Swiss Law on Private International Law, Arts. 178(2), (3); English Arbitration Act, §7; Japanese Arbitration Law, Art. 13(6). 213 See infra pp. 396-402, 402-404, 873-877. 214 See infra pp. 402-404, 873, 940-941.
International Arbitration Agreements and the Separability Presumption - C. Applications of the Separability Presumption Chapter 3 Gary B. Born
Author Gary B. Born
C. Applications of the Separability Presumption The separability presumption has a number of applications with highly important consequences for the international arbitral process. These consequences play a vital role in ensuring the efficacy and efficiency of the arbitral process. Indeed, it has been said that “[a]cceptance of [the] autonomy of the international arbitration clause is a conceptual cornerstone of international arbitration.” (215) As detailed below, the consequences of the separability presumption include: (a) the possible application of a different national law to the arbitration agreement than to the underlying contract; (216) (b) the possible application of different legal rules within the same legal system to the arbitration agreement than to the underlying contract; (217) (c) the possible validity of an arbitration agreement, notwithstanding the non-existence, invalidity, or illegality of the parties' underlying contract; (218) page "353" (d) the possible validity of the underlying contract, notwithstanding the invalidity, illegality, or termination of an associated arbitration clause; (219) and (e) in the (mistaken) view of some authorities, the analytical foundation for the “competence-competence” doctrine, whereby the jurisdiction of the arbitral tribunal to decide on its own jurisdiction is recognized. (220) These various applications and consequences of the separability presumption are outlined below, and then returned to in subsequent Chapters in this Part.
Source International Arbitration Agreements and the Separability Presumption - C. Applications of the Separability Presumption in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 353 - 407
1. Consequences of the Separability Presumption: Potential Applicability of Different National Laws to the Arbitration Agreement and the Underlying Contract First, as discussed in detail below, (221) the separability presumption http://www.kluwerarbitration.com/CommonUI/print.aspx
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means that an arbitration agreement can be governed by a different national law from that (or those) applicable to the parties' underlying contract. The leading explanation for this result is the separability presumption, which postulates two separable agreements of differing characters, (222) which can readily be governed by two different national (or other) legal regimes. As with its other applications, the separability presumption does not generally mean that the law applicable to the arbitration clause is necessarily different from that applicable to the underlying contract. (223) Indeed, in many cases, the same law governs both the arbitration agreement and the underlying contract. (224) The separability presumption instead means that differing national laws may apply to the main contract and the arbitration agreement. The essential point, however, is that, where the arbitration clause is a separate agreement, a separate conflict of laws analysis must be performed with regard to that agreement. (225) Moreover, as discussed in greater detail below, (226) the result in many cases where the law applied to the arbitration clause differs from that applicable to the underlying contract has been that the arbitration clause was upheld against challenges to its validity. That is, by applying a law different from that governing the parties' underlying contract, national courts and arbitral tribunals have insulated international page "354" arbitration agreements against challenges to their validity and legality based on (often idiosyncratic or discriminatory) local law. (227) By providing the foundation for this result, the separability presumption has contributed significantly to the efficacy of international arbitration agreements and the arbitral process. (228) 2. Consequences of the Separability Presumption: Potential Applicability of Different Legal Rules Within the Same Legal System to the Arbitration Agreement and the Underlying Contract Second, even if only one national (or other) legal system applies to both an underlying contract and its associated arbitration clause, another consequence of the separability presumption is that different substantive legal and/or choice-of-law rules within the same legal system may apply to the two agreements. It follows from the separability presumption that an arbitration agreement is categorized as a different type of agreement than is the underlying contract, (229) and that this agreement can be subject to a different set of legal rules than the underlying contract. Thus, different rules governing formation, formal validity and substantive validity may potentially apply to the parties' arbitration agreement and to their underlying contract. (230) This has been true historically, (231) and is the direct result of both international arbitration conventions and, in a number of jurisdictions, national arbitration legislation. (232) This possibility has received less attention than the potential applicability of different national legal systems to the arbitration agreement and underlying contract, but is of almost equal significance. Most importantly, the New York Convention and the European Convention prescribe rules with regard to the form of arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreements, which are specifically applicable to international arbitration agreements, and not to other types of agreements. (233) Both treaties also contain basic “pro-arbitration” principles with regard to the presumptive substantive validity of international arbitration agreements, page "355" which are not applicable to (234) other types of agreements. Of critical importance, the rules applicable to international arbitration agreements under both treaties are international rules – in contrast to the rules applicable to most other types of contracts – which individual states are obliged to respect. Equally, many developed jurisdictions have adopted national arbitration statutes that prescribe specific rules with regard to the form and validity of international arbitration agreements which are not applicable generally to other types of contracts. (235) This analysis is well-illustrated by the award in Sojuznefteexport v. JOC Oil, a classic arbitral decision. (236) There, the tribunal held that Russian law applied to both the parties' underlying contract and their arbitration agreement, but that the underlying contract had not been validly concluded, under the Russian law applicable to the contract formation of such agreements, while the associated arbitration agreement had been validly concluded, under the less-demanding rules of Russian law applicable to the formation of arbitration agreements: “An arbitration clause, included in a contract, means that there are regulated in it relationships different in legal nature, and that therefore the effect of the arbitration clause is separate from the effect of the remaining provisions of the foreign trade contract. The requirements, laid down for the recognition of the validity of the two contracts, which differ in this legal nature, need not coincide.” (237) As discussed in greater detail below, a number of national court decisions and arbitral awards have reached similar results, applying differing legal sets of rules to uphold the existence of a valid arbitration agreement notwithstanding the absence of a valid underlying contract. (238) These results are applications of the presumption that international arbitration agreements are separate from the underlying contract with which they are associated and, in many cases, are subject to a separate, specialized set of legal rules. (At the same time, as also discussed below, the page "356" New York Convention is best understood as imposing international limits on Contracting States' discrimination against international arbitration agreements, which prevent the application of specialized rules of contract law to deny effect to such agreements. (239) ) 3. Consequences of the Separability Presumption: NonExistence, Invalidity, Illegality, or Termination of Underlying Contract Does Not Necessarily Affect Arbitration Agreement The third essential consequence of the separability presumption is closely related to, and partially derivative of, its previous two applications. The separability presumption has the effect that the actual non-existence, invalidity, illegality, or termination of the parties' underlying contract does not necessarily impeach the parties' “separable” arbitration agreement. This in turn has two related, but distinct, applications: (a) the non-existence, invalidity, or http://www.kluwerarbitration.com/CommonUI/print.aspx
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illegality of the underlying contract does not necessarily mean that the associated arbitration clause is also non-existent or invalid; (240) and (b) a challenge to the existence, validity, legality, or continued effectiveness of the parties' underlying contract may (and sometimes must) be referred to arbitration because it does not necessarily affect the existence or validity of the associated, but separable, arbitration agreement. (241) Analytically, it is important to distinguish very clearly between these two consequences of the separability presumption: although related, the question whether a valid arbitration clause exists is separate from the issue of who has page "357" competence-competence to decide these questions of validity. (242) As discussed below, neither national court decisions nor commentary has always recognized this distinction, instead often conflating issues of separability and competence-competence. (243) As with other aspects of the separability doctrine, the principle that an arbitration agreement is not necessarily affected by the invalidity of an associated contract is recognized in a wide variety of international authority. International arbitration conventions, national legislation and judicial decisions, and international arbitral awards consistently confirm that the validity of an international arbitration agreement is not necessarily affected by the invalidity of the underlying contract. (244) As noted above, and discussed in detail below, an arbitration clause may very readily be valid, notwithstanding the non-existence, invalidity, illegality, or termination of the parties' underlying contract. (245) At the same time, as also discussed below, these authorities also all recognize that an arbitration agreement is not wholly independent or separate from the associated underlying contract and that there are circ*mstances in which the status of the latter will affect the former. (246) In particular, in cases where the underlying contract was never concluded (or formed), or where that contract never included a particular party, there will be serious questions whether the associated arbitration agreement was ever formed. (247) Likewise, there will be circ*mstances where the invalidity, illegality, or termination of the parties' underlying contract may affect the validity or effectiveness of the arbitration clause. (248) The interrelation between the parties' arbitration agreement and their underlying contract is not surprising. Parties do not typically agree to arbitration in the abstract, but instead do so in connection with a particular contract, transaction, or project. (249) That is because of the essential character of an agreement to arbitrate – as an “ancillary” or “procedural” contract – being to provide a dispute resolution mechanism for a particular category of commercial (and other) disputes. (250) If the page "358" underlying contract giving rise to such disputes never comes into existence, it is natural that the associated arbitration agreement might be affected. The relationship between the arbitration agreement and the underlying contract raises some of the most difficult analytical issues in international arbitration. As discussed below, these issues include matters of choice of law, (251) competence-competence and the allocation of jurisdictional competence, (252) and substantive validity, (253) each of which is also addressed elsewhere. In particular, http://www.kluwerarbitration.com/CommonUI/print.aspx
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issues involving the arbitrators' competence-competence are often raised in conjunction with application of the separability presumption and are also addressed in Chapter 6 below. (254) a. International Conventions As discussed above, provisions of the New York Convention rest on the premise that arbitration clauses are presumptively separable from the parties' underlying contract. (255) Nonetheless, the Convention does not expressly provide that, as a consequence, an arbitration clause may exist or continue to exist notwithstanding the non-existence, invalidity, illegality, or termination of the parties' underlying contract. (256) Instead, the Convention permits, but does not require, parties to agree to separable arbitration agreements, (257) and, where they do so agree, requires that their agreement to the separability of the arbitration clause be given effect. (258) It is only in this latter regard – requiring Contracting States to recognize agreements regarding the separability of the arbitration clause – that the Convention can properly be said to mandate the separability presumption. In contrast, as also discussed above, Article V of the European Convention recognizes the separability presumption and also explicitly provides that arbitral tribunals may consider challenges to the “existence or the validity of the arbitration agreement or of the contract of which the agreement forms part.” (259) In so doing, the European Convention clearly recognizes that the validity of an arbitration agreement is a distinct issue, distinguishable from that of the validity of the underlying contract. (260) (At the same time, as discussed below, the Convention also gives effect to the competence-competence doctrine, affirming the arbitrators' page "359" authority to consider and decide on challenges to both the parties' underlying contract and their arbitration agreement. (261) ) b. National Arbitration Legislation National arbitration legislation and judicial decisions from a wide variety of jurisdictions have repeatedly recognized that one consequence of the separability presumption is that the nonexistence or invalidity of the parties' underlying contract does not necessarily result in either the invalidity of the associated arbitration clause or a loss of the tribunal's jurisdiction. These statutory provisions and decisions have applied the separability presumption in the context of a number of different types of challenges to the existence, validity, or legality of the parties' agreements, in a wide range of different factual settings, producing a complex, sometimes confusing body of authority. In addressing questions of separability in this context, it is important to distinguish between two issues, already outlined above: (a) whether a court (as distinguished from an arbitral tribunal) will consider on an interlocutory basis whether there is a valid arbitration agreement; (262) and (b) regardless who considers the issue, whether as a substantive matter the underlying contract is nonexistent or invalid and whether this results in the non-existence or invalidity of the arbitration agreement. As noted above, these are two analytically distinct issues: the former is an issue of http://www.kluwerarbitration.com/CommonUI/print.aspx
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competence-competence and the allocation of jurisdictional competence, relevant to determining who decides disputes regarding the validity of an arbitration agreement, while the latter is a substantive question, relevant to determining whether or not a valid arbitration agreement exists. Despite this distinction, both issues are often addressed in the same authorities (both U.S. (263) and nonU.S. (264) ), often without clearly distinguishing the two lines of analysis. i. UNCITRAL Model Law Article 16 of the Model Law goes beyond the European Convention, in limited respects, in recognizing the consequences of the separability doctrine for international arbitration agreements in cases where the validity of the underlying page "360" contract is challenged. Article 16(1) declares that, for the purpose of an arbitral tribunal's jurisdiction (or competence-competence), an arbitration clause shall be treated as “independent” from the underlying contract within which it is contained. (265) Article 16(1) then provides that a decision by an arbitral tribunal that an underlying contract is invalid “shall not entail ipso jure the invalidity of the arbitration clause.” These provisions of Article 16 prevent a “Catch 22” situation, where a tribunal could arguably not declare a contract invalid without simultaneously rendering the arbitration agreement (and, arguably, its own award) invalid. (266) (Equally, like the European Convention, the Model Law approach expressly removes any question as to the tribunal's presumptive competence to rule on challenges to the validity of the underlying contract. (267) ) Notably, Article 16 refers to the separability presumption only in the context of the artibral tribunal's competence-competence (“[f]or that purpose”) and not in the context of the substantive validity of the arbitration agreement. (268)
There are a growing number of judicial decisions from Model Law jurisdictions considering whether the non-existence, invalidity, illegality, or ineffectiveness of the parties' underlying contract affects an arbitration clause associated with the contract. These decisions have repeatedly held, on particular facts, that the non-existence or invalidity of various underlying contracts does not entail the nonexistence or invalidity of the arbitration agreement associated with those contracts. (269) Other decisions have held, again on particular facts, that the illegality page "361" of the underlying contract did not affect the arbitration clause, (270) and that termination of the main contract did not have the effect of terminating the arbitration agreement. (271) At the same time, the UNCITRAL Model Law does not provide that the non-existence, invalidity, illegality, or termination of the parties' underlying contract never affects the associated arbitration clause. On the contrary, as already discussed, the Model Law merely provides that the invalidity of the underlying contract does not “entail ipso jure” the invalidity of the parties' arbitration clause – recognizing that there may be circ*mstances where such a result may nonetheless follow, even if not “ipso jure.” (272) Nonetheless, there are extremely few reported decisions in Model Law jurisdictions where defects in the underlying contract have invalidated the http://www.kluwerarbitration.com/CommonUI/print.aspx
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associated arbitration agreement. (273) page "362" ii. U.S. Federal Arbitration Act As discussed above, the FAA impliedly recognizes the separability presumption (in §§2, 3 and 4). (274) Under the FAA, U.S. courts have applied the separability presumption in a wide range of circ*mstances, generating a remarkably large body of precedent. (275) In considering U.S. authority under the FAA, it is important to distinguish between issues of the substantive validity of the arbitration agreement, on the one hand, and issues of competencecompetence and the allocation of jurisdictional authority between arbitrators and U.S. courts, on the other. This is because, under U.S. law, these issues are related, with the allocation of jurisdictional competence often depending, at least in part, on whether the substantive validity of the agreement to arbitrate is challenged. (1). Prima Paint and Buckeye Check Cashing The most frequently-cited U.S. decisions on the separability presumption are Prima Paint Corp. v. Flood & Conklin Mfg Co. (276) and Buckeye Check CashingInc. v. Cardegna. (277) This is ironic, and sometimes confusing, because both decisions also involve issues of competence-competence and the allocation of competence to address jurisdictional objections. As discussed above, the Supreme Court held in Prima Paint that claims of fraudulent inducement, directed at the underlying contract and capable of rendering it voidable, did not impeach the arbitration clause contained in that contract; as a consequence, challenges to the validity of the parties' underlying contract were required to be arbitrated and not litigated. (278) This reasoning was reaffirmed by the Supreme Court, and extended expressly to cases involving claims that the underlying contract was void or illegal, in Buckeye Check Cashing. (279) As discussed above, in Buckeye Check Cashing, the U.S. Supreme Court reversed a Florida decision holding that the illegality of a usurious loan agreement rendered both that agreement and its arbitration clause void ab initio. (280) The Court confirmed Prima Paint's holding that the separability presumption was a product page "363" of federal law, arising under the FAA, which applied regardless of state (or foreign) law characterizations of particular contracts as invalid, void, voidable, illegal, or void ab initio. (281) The Court then went on to hold that the FAA would permit a U.S. court to consider claims of contractual non-existence, invalidity, or illegality on an interlocutory basis only if they “specifically” challenged the existence or validity of the arbitration clause itself, and required that other claims, concerning the underlying contract “as a whole,” be referred to arbitration: “It is true, as respondents assert, that the Prima Paint rule permits a court to enforce an arbitration agreement in a contract that the arbitrator later finds to be void. But it is equally true that respondents' http://www.kluwerarbitration.com/CommonUI/print.aspx
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approach permits a court to deny effect to an arbitration provision in a contract that the court later finds to be perfectly enforceable. Prima Paint resolved this conundrum – and resolved it in favor of the separate enforceability of arbitration provisions. We reaffirm today that, regardless of whether the challenge is brought in federal or state court, a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.” (282) page "364" As discussed below, this latter holding was an allocation of jurisdictional competence, not a decision regarding the substantive validity of the arbitration agreement. (283) The analysis in Prima Paint and Buckeye Check Cashing has been applied differently by U.S. courts depending on the nature of the challenge to the underlying contract. In particular, U.S. courts have adopted different approaches to the effects of the separability presumption depending on whether (a) the validity, legality, or continued effectiveness of the underlying contract is challenged; or (b) the existence of the underlying contract is challenged. (2). Treatment of Claims Challenging Validity, Legality, or Continued Effectiveness of Underlying Contract under Federal Arbitration Act There is a substantial body of U.S. judicial authority addressing the consequences of challenges to the validity, legality, and continued effectiveness of the parties' underlying contract. As in other contexts, it is important in considering this authority to distinguish between the allocation of jurisdictional competence and questions of substantive validity. With regard to the allocation of jurisdictional competence, U.S. courts have considered interlocutory objections based on allegations of invalidity, illegality, or termination of the parties' agreements only when they are directed “specifically” at the arbitration agreement itself, (284) and not when they are directed only at the underlying contract or when they are directed generally at both the underlying contract and the arbitration clause. U.S. lower courts have repeatedly held that general claims that the underlying contract, or both the contract and the associated arbitration clause, are invalid or illegal must be referred to arbitration (subject to subsequent judicial review in a vacatur action). (285) Despite some fairly harsh domestic page "365" criticism, (286) this is emphatically the Supreme Court's interpretation of the FAA, now repeated in multiple decisions. (287) It is not entirely clear when a challenge will be considered directed “specifically” at the parties' arbitration agreement under the Buckeye Check Cashing analysis. Lower U.S. federal and state courts have generally required the allegation of separate factual grounds, relevant solely to the validity of the arbitration agreement, before concluding that the challenge is subject to interlocutory judicial resolution. (288) In particular, U.S. courts have held that grounds for invalidity that apply to both the underlying contract and arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement must be referred to arbitration. (289) page "366" In a large body of decisions, U.S. courts have applied this principle to require arbitration of jurisdictional objections resting on a wide variety of grounds, including claims of fraudulent inducement, (290) fraud, (291) lack of consideration, (292) page "367" (293) (294) illegality, adhesion or unconscionability, the failure of a (295) condition precedent, page "368" mistake (296) and expiration or termination. (297) It is important to note that these various U.S. authorities involve decisions regarding the allocation of jurisdictional competence, and not decisions as to the substantive validity of the arbitration agreement. The Buckeye Check Cashing Court held that “a challenge to the validity of the contract as a whole and not specifically to the arbitration clause must go to the arbitrator.” (298) This holding should not be understood as concluding that these sorts of challenges (to the validity or legality of the underlying contract) could not impeach the substantive validity of the arbitration clause: rather, it held that these sorts of challenges are to be decided initially by the arbitrators, who might determine in some circ*mstances that defects in the underlying contract also affect the arbitration clause. (299) page "369" On the other hand, a different result applies under the FAA where only the validity of the underlying contract, and not the associated arbitration clause is concerned. In these instances, the separability presumption, as developed in Prima Paint and Buckeye Check Cashing, also affects the substantive validity of the agreement to arbitrate. In particular, where there is no challenge to the arbitration agreement, either “specifically” or “generally,” then there can be no doubt as to its substantive validity. In the words of one U.S. court, “a party may not invalidate an arbitration clause by attacking the legality of the underlying contract containing that clause.” (300) Consistent with this, U.S. courts have affirmed the substantive validity of arbitration agreements where only challenges to the separable, underlying contract have been made. (301) (3). Treatment of Claims Challenging Existence of Underlying Contract under Federal Arbitration Act A more difficult category of cases, which U.S. courts have not definitively resolved, involves the effect of challenges to the existence or formation of the underlying contract on the parties' arbitration clause. (302) The Supreme Court noted this issue page "370" in Buckeye Check Cashing, expressly holding that the issue of contract formation is for these purposes “different from” that of contractual validity, but reserving judgment on it: “The issue of the contract's validity is different from the issue of whether any agreement between the alleged obligor and obligee was ever concluded. Our opinion today addresses only the former, and does not speak to the issue decided in [cases] … which hold that it is http://www.kluwerarbitration.com/CommonUI/print.aspx
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for courts to decide whether the alleged obligor ever signed the contract, whether the signed lacked authority to commit the alleged principal and whether the signor lacked the mental capacity to assent.” (303) In particular, the Court identified cases involving disputes over consent (e.g., “whether the alleged obligor ever signed the contract”) and capacity or authority (e.g., “lacked authority”) as potentially requiring judicial resolution. (304) As already discussed, it is important to distinguish between issues of competence-competence and substantive validity in considering U.S. authority under the FAA. (305) With regard to the first issue, concerning the allocation of jurisdictional competence, lower U.S. courts have thus far generally entertained interlocutory claims that no underlying contract was ever formed (rather than referring them to arbitration). (306) The weight of U.S. authority holds that challenges to the formation of the underlying contract are for interlocutory judicial resolution, even though challenges to the underlying contract's validity or legality are ordinarily for arbitral resolution: page "371" “the Prima Paint doctrine has been extended to require arbitration panels to decide many issues regarding the validity of a contract containing arbitration language – including allegations that such contracts are voidable because they involved duress, undue coercion, confusion, mutual mistake, or unconscionability. However, Prima Paint has never been extended to require arbitrators to adjudicate a party's contention, supported by substantial evidence, that a contract never existed at all.” (307) This distinction has been applied with considerable diversity of results, to various types of challenges to the existence of the underlying contract. Thus, some courts have held that claims of lack of capacity or authority, directed at the underlying contract, also necessarily impeach the associated agreement to arbitrate, and may be the subject of interlocutory judicial determination, (308) while other courts have held that such claims are for initial arbitral determination. (309) The same diversity page "372"
in U.S. lower court authority regarding allocations of jurisdictional competence exists with regard to claims of a lack of consent (including duress) (310) and forgery. (311) page "373" Thus, one appellate court reasoned, in the context of claims that a putative party's signature on the contract was forged, and that no agreement at all had ever been formed, that:
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“Because the legal status of the arbitration clause is unresolved, Advent's desire to arbitrate, separate from the contract, appears as a desire, floating in the legal ether, untethered by either reciprocal promises or other sufficient consideration. Only a [judicial] ruling on the effect of Huep's signature can ground Advent's wishes in the firmament.” (312) In contrast, other U.S. lower courts have reached the opposite conclusion, on very similar facts, holding that “challenges claiming that – as a whole – a contract is illegal, is void as a matter of law, contains forged signatures, or was induced by fraud will generally not serve to defeat an arbitration clause.” (313) These authorities, and the treatment of the allocation of jurisdictional competence over challenges to the existence of the underlying contract, are discussed in greater detail below. (314) Distinct from the allocation of jurisdictional competence, U.S. courts have reached divergent conclusions on the substantive question of whether the non-existence of an underlying contract means that there is no arbitration agreement (depending on the facts and applicable substantive legal rules). (315) In Republic of Nicaragua v. Standard Fruit Co., (316) the Court considered whether an arbitration clause contained in an unsigned, unfinalized set of agreements was binding, notwithstanding the fact that the underlying contracts had admittedly never been finalized. The Court upheld the existence of an agreement to arbitrate and ordered the parties to arbitrate their substantive disputes, rejecting the argument that the non-existence of the underlying contracts resulted in the non-existence or invalidity of the arbitration clause. Quoting earlier U.S. authority, the Court reasoned: “[The defendant] argues that if there is no contract to buy and sell motors there is no agreement to arbitrate. The conclusion does not follow its premise. The agreement to arbitrate and the agreement to buy and sell motors are page "374" separate. [The plaintiff's] promise to arbitrate was given in exchange for [the defendant's] promise to arbitrate and each promise was sufficient consideration for the other.” (317)
Relying on this rationale, the Standard Fruit Court held that the parties had agreed to arbitrate their disputes, notwithstanding the non-existence of their underlying contracts, and ordered them to do so. This holding rested on the conclusion that an arbitration agreement may be – and on the facts of the case was – validly formed even in circ*mstances in which the underlying contract was either not formed or not validly formed. (318) Other U.S. lower courts have reached similar decisions, holding on particular facts that the parties agreed to arbitrate, even if no underlying commercial contract was concluded. (319) This result may follow from either the application of a different national law to the arbitration agreement than to the underlying contract, (320) or from factual evidence indicating that the parties had concluded their arbitration agreement, even if they had not yet entered into the underlying contract. (321)
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Nonetheless, while acknowledging the possibility that an arbitration agreement may validly be formed even if no underlying contract was formed, U.S. courts are page "375" frequently not persuaded that this has occurred as a factual matter. (322) In this regard, some U.S. courts have been skeptical concerning the possibility that an arbitration agreement may have been validly formed, even though the underlying contract was not. One U.S. court refused to enforce an arbitration agreement contained within a contract that it held had never been concluded, reasoning that “something can be severed only from something else that exists. How can the Court ‘sever’ an arbitration clause from a non-existent charter party?” (323) Again, the treatment of issues concerning the substantive validity of agreements to arbitrate, when the existence of the parties' underlying contract is challenged, is discussed in greater detail below. (324) (4). Future Directions: Separability under the U.S. Federal Arbitration Act The proper approach to the foregoing issues, applying the analysis in Buckeye Check Cashing, is to carefully distinguish between issues of competence-competence and issues of the substantive validity of the arbitration clause. Although these matters are related, different analyses and, potentially, different conclusions are applicable to each. (325) With regard to issues of the substantive validity of the arbitration agreement, it is now well-settled that the agreement to arbitrate is presumptively separable page "376" under the FAA. (326) A challenge to the existence, validity, or legality underlying contract will therefore not necessarily nor ordinarily impeach the arbitration agreement or its validity. (327) Nonetheless, given the relationship between the underlying contract and the arbitration agreement, there will be cases where defects in one affect the other. It is therefore necessary under the FAA to address the specific factual allegations that are presented, and the legal rules that are at issue, in particular challenges to the existence, validity, or legality of the parties' underlying contract and/or arbitration agreement. Thus, a court should consider whether there are factual allegations that the parties did not validly consent specifically to the arbitration clause – as distinct from the underlying contract – and whether there are alleged legal defects specifically affecting the arbitration clause. Only if there are claims that would impeach the arbitration agreement itself (e.g., the arbitral mechanism is unconscionable, uncertain or terminated; no arbitration agreement was ever formed) can there be a challenge to the validity of that agreement. Consistent with U.S. lower court decisions, this analysis will generally result in upholding the parties' separable agreement to arbitrate, notwithstanding the invalidity or illegality of the underlying contract. (328) That is, the unconscionability, indefiniteness, illegality, or fraudulent inducement of the underlying contract will very seldom impeach the arbitration agreement: the terms, negotiations and fairness of the underlying contract will simply not be relevant to, or bear upon, the separable agreement to arbitrate. In contrast, again consistent with U.S. lower court authority, the non-existence of the underlying contract will be substantially more likely to impeach the http://www.kluwerarbitration.com/CommonUI/print.aspx
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associated agreement to arbitrate. (329) That is, the absence of consent, capacity, or authority in relation to the underlying contract will often also simultaneously involve defects in formation of the agreement to arbitrate. Nonetheless, in assessing the substantive validity of an arbitration agreement, decisive emphasis should not be placed on whether a party “also” claims that no underlying contract exists, as well as that no arbitration clause exists. As already noted, there will be instances where a challenge to the underlying contract also impeaches the associated arbitration clause (e.g., the underlying contract is forged, an agent lacked any authority or a party lacked mental capacity). The proper inquiry in these cases is to consider whether the alleged defects in the particular case separately impeach the arbitration clause – which they may (or may not) do regardless whether they also affect the underlying contract. (330) The decisive question page "377" in such cases is whether the asserted facts give rise to the non-existence or invalidity of the agreement to arbitrate, whether or not the underlying contract is also impeached. A different analysis applies with regard to issues of competencecompetence. Here, it is ill-conceived to rest analysis or conclusions on sharp distinctions between different categories of contract law defenses (e.g., “validity,” “formation”) holding that forgery or duress claims are for judicial determination, but illegality or unconscionability claims are for arbitral determination. Doing so is artificial, (331) just as the Supreme Court rightly held that distinctions between “void” and “voidable” contracts were artificial. (332) This is illustrated graphically by the numerous irreconcilable U.S. lower court decisions, detailed above, adopting contrary conclusions regarding disputes over the allocation of jurisdictional competence in disputes concerning capacity, duress, forgery and the like. (333) Equally, such a distinction would ignore important considerations of judicial efficiency, fairness and the parties' likely intentions. (334) Rather, a court should refer challenges to the parties' contract and/or arbitration agreement to arbitration depending principally on considerations of efficiency and fairness. That approach would produce the following general guidelines. First, where there is no challenge of any sort to the existence of the arbitration clause, then the parties' substantive dispute regarding the underlying contract must be referred to arbitration. That is, if the court determines that a party has simply not challenged the existence or validity of the arbitration agreement, but only the underlying contract, then the challenge not only should, but must, be arbitrated (as page "378" in Prima Paint). (335) As discussed in detail below, where there is no challenge to the arbitration clause, then the New York Convention and most developed national arbitration legislation (including the FAA) require referring the parties to arbitration. (336) Second, if the arbitration agreement itself is specifically challenged, then courts should presumptively decide the challenge on an interlocutory basis under the FAA. If, however, the challenge is conclusory, unsubstantiated, or belated, and the arbitral tribunal is better-suited to consider the challenge efficiently, then it should be referred to arbitration. (337)
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Third, if both the underlying contract and the arbitration agreement are challenged (as in Buckeye Check Cashing), then courts should consider the extent to which the challenge to the arbitration clause is specifically articulated and substantiated, as well as its plausibility and the most efficient forum for resolving it. (338) Such challenges should presumptively be for arbitral resolution, save where the challenge concerns the existence of the underlying contract. Where the existence of the underlying contract is challenged, then courts should presumptively decide the challenge. Nevertheless, if there are particular reasons of efficiency to prefer arbitration (i.e., the arbitration is well-advanced when litigation is commenced or the challenge to the agreement is unsubstantiated), or to prefer litigation (i.e., the arbitral tribunal has not been constituted and the challenge to the agreement is well-substantiated), then these presumptions may be rebutted. (339) Of course, even if the arbitration clause itself is subject to interlocutory judicial challenge, the facts (and law) may well establish that the clause was validly formed even though the underlying contract was not. (340) This result is a consequence of the page "379" separable status of the arbitration agreement as a matter of substantive contract validity. iii. England English courts have repeatedly held that the invalidity of the parties' underlying contract does not necessarily result in the invalidity of an associated arbitration clause. This was reflected first in common law decisions and then, more recently, in the English Arbitration Act, 1996, and judicial interpretations of the Act. (341) Early English decisions recognized a separability presumption, but did not apply it broadly, instead generally holding that claims of initial invalidity, voidness, or illegality of the underlying contract necessarily infected the arbitration clause. (342) Over time, however, the English courts more whole-heartedly embraced the separability doctrine, culminating in the Court of Appeal's ruling in Harbour Assurance Co. (UK) Ltd v. Kansa General International Insurance Co. Ltd (referred to above (343) ). There, the Court squarely held that the parties' arbitration clause was separate from the underlying insurance contract and that, as a consequence, the initial illegality of the underlying insurance contract did not necessarily affect the page (344) "380" arbitration clause. At the same time, paralleling developments in the United States, the Court emphasized that there would be instances in which the invalidity that affected the underlying contract also affected the arbitration clause (e.g., claims of forgery of the underlying contract or denial of the existence of any underlying contract). (345) This approach to the separability presumption was embraced, and expanded, in §7 of the Arbitration Act, 1996. Section 7 provides that, unless otherwise agreed, “an arbitration agreement which forms … part of another agreement … shall not be regarded as invalid, nonexistent, or ineffective because that other agreement is invalid, or did not come into existence or has become ineffective, and it shall for that purpose be treated as a distinct agreement.” (346) This provision confirms earlier English authority holding that an arbitration agreement is not necessarily invalid, non-existent, or ineffective http://www.kluwerarbitration.com/CommonUI/print.aspx
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because of the invalidity of the parties' underlying contract. (347) Section 7 does so with specific reference to the substantive validity of the arbitration agreement (providing that the arbitration clause “shall for that purpose be treated as a distinct agreement”). (348) This contrasts with Article 16 of the Model Law, which deals with separability only in the context of competence-competence (“The arbitral tribunal may rule on its own jurisdiction … For that purpose …”). (349) At the same time, in this respect like the Model Law, (350) §7 of the Act provides only that an arbitration clause is not invalid simply “because” of the invalidity of the underlying contract. In so doing, §7 recognizes that the circ*mstances which give rise to the nonexistence, invalidity, or ineffectiveness of the underlying contract may also, in particular cases, result in the same status for the associated arbitration clause. (351) page "381" English courts have given expansive effect to §7's statement of the separability presumption. (352) Most recently, applying §7 in Fiona Trust & Holding Corp. v. Privalov, the English Court of Appeal and the House of Lords extended the historic scope of the separability presumption. The House of Lords held that a claim that the parties' underlying contract was procured by fraud (specifically, bribery of one party's employee) does not affect the alleged contract's putative arbitration clause, unless the fraud was directly specifically towards the arbitration agreement. The English courts reasoned that claims not directed specifically at the arbitration agreement are for arbitral determination, (353) subject to subsequent judicial review of the award. (354) In particular, citing to Prima Paint and subsequent authority, (355) the Court of Appeal declared that “If arbitrators can decide whether a contract is void for initial illegality, there is no reason why they should not decide whether a contract has been page "382" procured by bribery, just as much as they can decide whether a contract has been procured by misrepresentation or non-disclosure. Illegality is a stronger case than bribery which is not the same as non est factum or the sort of mistake which goes to the question whether there was any agreement ever reached. It is not enough to say that the bribery impeaches the whole contract unless there is some special reason for saying that the bribery impeaches the arbitration clause in particular. There is no such reason here.” (356) The Court went on to hold “that it is not enough to say that the contract as a whole is impeachable” and that “there must be something more than that to impeach the arbitration clause”; the Court reasoned that “[i]t is only if the arbitration agreement is itself directly impeached for some specific reason that the tribunal will be prevented from deciding the disputes that relate to the main contract.” (357) According to the Court, only where a challenge is directed “specifically” at the arbitration clause, and not generally at the contract, will the arbitration clause be impeached under the http://www.kluwerarbitration.com/CommonUI/print.aspx
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English Arbitration Act. The Court cited, as examples of circ*mstances where the arbitration agreement would be “directly impeached,” cases involving forgery of a signature or fundamental mistake. (358) On appeal, the House of Lords affirmed the Court of Appeal's decision, adopting essentially the same rationale. The House of Lords held that an arbitration agreement could be challenged only on “grounds which relate directly to the arbitration agreement.” (359) It also reasoned that “there may be cases in which the ground upon which the main agreement is identical with the ground upon which the arbitration agreement is invalid. For example, if the main agreement and the arbitration agreement are contained in the same document and one of the parties claims that he never agreed to anything in the document and that his signature was forged, that will be an attack on the validity of the arbitration agreement.” (360) The English courts have emphasized that, while it does not necessarily do so in all circ*mstances, the non-existence, initial invalidity, or illegality of the underlying contract may in some cases also orsimultaneously affect the associated page "383" (361) arbitration clause. As in the United States, these questions are particularly acute in cases where a party denies that it ever entered into any agreement at all with its putative counter-party or where it claims that the underlying agreement was tainted by forgery or lack of capacity. Thus, the Fiona Trust Court referred in particular to cases involving “non est factum or the sort of mistake which goes to the question whether there was any agreement ever reached,” (362) and to claims that a “signature was forged.” (363) In light of these comments, and although much of the court's analysis in Heyman v. Darwins Ltd has since been discredited, English courts could be expected to continue to look in this context to Viscount Simon's declaration that: “If the dispute is whether the contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission [to arbitration].” (364) Again as in the United States, however, it is fundamental that, even if an arbitration clause is specifically challenged, resulting in interlocutory judicial consideration of an issue, this does not mean that the non-existence or invalidity of the underlying contract mandates the non-existence or invalidity of the arbitration agreement: on the contrary, as already discussed, either different legal rules or different factual circ*mstances may well result in a valid arbitration clause, notwithstanding an invalid underlying contract. (365) page "384" iv. France
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French courts have long held that, as a consequence of the separability presumption, various defects in the parties' underlying contract will not affect the associated arbitration clause. Among other things, French courts have upheld the validity of international arbitration agreements notwithstanding claims that the underlying contract was repudiated, discharged, illegal, or voided. (366) As in other jurisdictions, however, there are limits to the separability presumption in French law. Paralleling U.S. and English approaches, in cases involving allegations that no underlying contract was ever formed, French courts have generally held that these claims are also likely to impeach the existence of the arbitration agreement. (367) As one leading French commentator reasons: “[t]he scenario in which an arbitration clause most clearly would not be severed, and hence would be invalid, is where the assent of one of the parties is lacking. If the person to whom the offer is made does not accept it, then no contract has been formed, and the arbitration clause contained in the offer has not been agreed to any more than any of the other clauses, for there was no specific mutual agreement with respect to that clause.” (368) On the other hand, again paralleling U.S. and English authority, French commentary concludes that challenges to the validity or legality of the underlying page "385" contract, as distinguished from challenges to the existence of the underlying contract, do not generally affect the associated arbitration clause. (369) The foregoing conclusions are directed, under French law, towards the substantive validity of the arbitration agreement (rather than questions of competence-competence). As discussed in detail below, French courts have adopted a specialized competencecompetence regime, which permits arbitral consideration of (and generally precludes interlocutory judicial consideration of) all jurisdictional challenges. (370) v. Switzerland As discussed above, Swiss courts were among the earliest proponents of the separability doctrine in contemporary times, with the Swiss Law on Private International Law now statutorily confirming the principle. (371) In a number of different contexts, Swiss courts have held that claims that the underlying contract was voidable, void, illegal, or terminated do not automatically impeach the arbitration agreement and are for resolution by the arbitrators. (372) Nevertheless, the Swiss Federal Tribunal has repeatedly held that the separability doctrine is not applicable in cases where the grounds for the invalidity of the underlying contract likewise affect the arbitration clause. According to these decisions, this is particularly page "386" true for deficiencies in assent, such as duress or lack of capacity. (373) Swiss commentary is to the same effect. (374) vi. Germany
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As discussed above, German courts have for nearly a century held that the invalidity of an underlying contract (for example, because a mandatory governmental approval for the contract had not been granted) does not necessarily entail the invalidity of an arbitration clause contained therein, which instead may remain effective for purposes of resolving disputes between the parties connected to the underlying page "387" contract. (375) Other German authorities have reached similar results, (376) generally holding that a challenge must be directed towards the separable arbitration agreement itself (rather than the underlying contract) in order to impeach the validity of that agreement. (377) This result was confirmed by the German enactment of the UNCITRAL Model Law (378) and by German commentary on the Model Law. (379) At the same time, German authority also holds that defects in consent to the underlying contract also affect the associated arbitration clause. (380) German commentators reason that the separability doctrine does not protect the arbitration clause if a challenge brought against the underlying contract is identical to the grounds for challenge of the validity of the arbitration clause page "388" (“Fehleridentität”). For example, an agent who is statutorily precluded from concluding real estate agreements may not validly bind his principal to an arbitration clause when he purports to enter into a real estate transaction (providing for arbitration) on his behalf. (381) The same applies if one party has been deceived about the true identity of its counter-party – under German law principles of party autonomy mandate that the deceived party must not be bound by the underlying contract to a party it did not know, nor that it must litigate before an arbitral tribunal against such a (hitherto unknown) party. (382) vii. Other Jurisdictions Courts in other jurisdictions around the world have also affirmed that the separability presumption permits an arbitration clause to survive the invalidity, illegality or termination of the underlying agreement. The Italian Supreme Court held in 1981 that an arbitration clause is “not affected by any nullity” of the underlying contract and that this “bar[s] the admissibility before the court, of an action aimed at having a contract declared null and void because its subject matter is unlawful.” (383) Another Italian decision declared: “the arbitral clause is autonomous with respect to the contract – so that the nullity of the latter does not automatically affect the former.” (384) Similarly, as early as 1936, the Swedish Supreme Court held that claims of fraud and unconscionability of the underlying contract did not effect the existence or applicability of that contract's arbitration clause. (385) The same Court reiterated this conclusion in 1976, relying on the separability doctrine to hold that alleged failures to reach agreement regarding the terms of the main contract were irrelevant to the existence and validity of the arbitration clause contained in that contract. (386) These results have been codified in the current Swedish international arbitration statute. (387) page "389" As also discussed above, the Japanese Supreme Court held in 1975 http://www.kluwerarbitration.com/CommonUI/print.aspx
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that the invalidity of the parties' underlying contract did not affect the validity of an arbitration clause contained within the contract. (388) The Court reasoned broadly that the arbitration clause “must be separated from the principal contract and judged independently” and that, “unless there is a special agreement between the parties, a defect in the formation of the principal contract does not affect the validity of the arbitration agreement.” (389) The Japan Arbitration Law, which was modeled on the UNCITRAL Model Law, confirmed this approach and expressly provides for the separability of arbitration agreements. (390) Similar conclusions have been reached in numerous jurisdictions including India, (391) Pakistan, (392) Australia, (393) Canada, (394) New Zealand, (395) Netherlands, (396) page "390" (397) (398) Bermuda and Hong Kong. In the words of the Pakistani Supreme Court, “[u]nder English and Pakistan laws, Arbitration Clauses contained in contracts are treated as separate and self-contained contracts in that if it were not so, arbitration clauses would not at all survive an attack on the main contract which is known as the doctrine of ‘separability’ … [A]llegations of invalidity even serious allegations of its being ab initio void are perfectly capable of being referred to arbitration.” (399) At the same time, national courts have also recognized the limits of the separability presumption, holding that at least some defects affecting the underlying contract also impeach the associated arbitration clause. In one recent case, for example, a party had used a cut-and-paste fraud to forge the signature of an unsuspecting counter-party on a putative contract. Rejecting reliance on the separability doctrine, a Chinese court held that the fraud vitiated both the underlying contract and the arbitration clause. (400) c. Institutional Arbitration Rules Leading institutional arbitration rules provide that a consequence of the separability presumption is that the validity of the arbitration clause is not necessarily affected by the invalidity of the page "391" underlying contract. The UNCITRAL Rules are representative, providing in Article 21(2) that “[a] decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.” (401) The current ICC, (402) ICDR (403) and LCIA Rules (404) are all similar, as are other leading institutional rules. (405) All of these rules contain provisions which expressly recognize that an arbitration agreement may (but does not necessarily) continue to exist notwithstanding the non-existence or nullity of the parties' underlying contract. None of these institutional rules provide further guidance as to the circ*mstances in which the underlying contract's invalidity will affect the associated arbitration clause and when it will not. Making this determination is the responsibility of the arbitral tribunal, subject to any relevant national court review. (406) Leading institutional rules also expressly or impliedly provide for the http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitral tribunal's competence-competence to consider whether the arbitration agreement itself (as distinguished from the underlying contract) is non-existent, invalid, or illegal. (407) The resolution of this issue – determining the existence of a valid page "392" arbitration agreement – raises issues of competence-competence, which are discussed in detail below. (408) d. International Arbitral Awards Like judicial decisions in developed jurisdictions, international arbitral awards consistently recognize that a principal consequence of the separability presumption is that the invalidity of the underlying contract does not necessarily affect the substantive validity of the associated arbitration clause. A classic application of the separability doctrine was by the tribunal in Sojuznefteexport v. JOC Oil Ltd. There, an arbitral tribunal appointed by the Soviet Foreign Trade Arbitration Commission (“FTAC”) considered, inter alia, whether or not the parties' arbitration clause was valid, notwithstanding the invalidity of the parties' underlying contract (for failure to comply with a requirement under Soviet law for two signatures). (409) In a classic exercise of competence-competence, (410) the tribunal upheld the validity of the arbitration clause, concluding that “by virtue of its procedural content and independently of the form of its conclusion, [the arbitration clause] is autonomous in relation to the material-legal contract. An arbitration clause, included in a contract, means that there are regulated in it relationships different in legal nature, and that therefore the effect of the arbitration clause is separate from the effect of the remaining provisions of the foreign trade contract.” (411)
The JOC Oil tribunal reasoned that the arbitration clause “is autonomous in relation to the [underlying] material-legal contract,” and, therefore, that “the effect of the arbitration clause is separate from the effect of the remaining provisions of the foreign trade contract.” (412) The tribunal also reasoned that page "393" “[t]he requirements, laid down for the recognition of the validity of the two contracts, which differ in their legal nature, need not coincide. … [The] question as to the validity or invalidity of this contract does not affect the agreement of the parties about the submission of the existing dispute to the jurisdiction of the FTAC.” As to the parties' underlying contract, the tribunal applied “Soviet civil law,” which imposed a two-signature requirement for such agreements, and held that this requirement had not been satisfied. In contrast, as to the arbitration clause, the tribunal applied the FTAC Rules and the New York Convention, which did not impose the same requirements as Soviet civil law. (413) Accordingly, although the tribunal concluded that the parties' underlying contract was invalid, it also held that “the arbitration clause contained in the contract is valid.” (414)
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Other arbitral awards have reached similar results. (415) In Interim Award in ICC Case No. 4145, the tribunal held that “the question of validity or nullity of the main contract, for reasons of public policy, illegality or otherwise, is one of merits and not of jurisdiction, [with the result of] the validity of the arbitration clause having to be considered separately from the validity of the main contract.” (416) Similarly, in the Final Award in ICC Case No. 10,329, the arbitrator reasoned that “should the arbitrator declare, on the merits, that there is no contract binding on the parties this would not necessarily cause the invalidity of the arbitration agreement by virtue of Art. 178(3) of the [Swiss Private International Law Act] which affirms the well internationally established principle of ‘severability’ or ‘separability’ of the arbitration agreement.” (417) page "394" At the same time, most international arbitral awards have also held that there are cases in which the non-existence or invalidity of the parties' underlying contract will affect the associated arbitration clause. In the words of one award: “An arbitration clause may not always be operative in cases where it is clearly indicated by facts and circ*mstances that there never existed a valid contract between the parties.” (418) While there are other awards to the same effect, few arbitral tribunals have considered claims that there never was a contract between the parties. (419) In the majority of cases (particularly those involving issues of validity or legality, rather than formation), arbitral tribunals have rejected arguments that alleged defects in the underlying contract also impeached the associated arbitration agreement. (420) page "395" e. Future Directions: The Separability Presumption and the Validity of the Arbitration Agreement In sum, national arbitration statutes, international arbitral awards and other authorities uniformly hold that the non-existence, invalidity, illegality, or termination of the parties' underlying contract does not necessarily impeach or affect the associated arbitration agreement. This is, in many respects, the most elementary, significant consequence of the separability presumption. In turn, this has two related applications: (a) the arbitration agreement may exist and be substantively valid, notwithstanding the non-existence, invalidity, or illegality of the underlying contract; and (b) the arbitral tribunal may (and in some cases must) consider challenges to the existence, validity or legality of the underlying contract, because such challenges do not necessarily impeach the arbitration agreement. These two consequences of the separability presumption must be distinguished from the competence-competence doctrine, discussed in detail below, which permits an arbitral tribunal to consider challenges to the existence of the arbitration agreement itself. (421) First, relying on the separability principle, national and international authorities have almost uniformly held that the non-existence, invalidity, or illegality of the underlying contract does not necessarily http://www.kluwerarbitration.com/CommonUI/print.aspx
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result, as a substantive matter, in the invalidity of the arbitration agreement. (422) Further, national courts and arbitral tribunals have held, in the circ*mstances of a large number of particular cases, that the invalidity or illegality of the parties' underlying contract did not in fact affect or invalidate the associated arbitration agreement. (423) Only in relatively rare cases, typically arising in connection with a lack of consent to the underlying contract, incapacity, forgery, or similar misconduct, have courts or tribunals held that facts invalidating the underlying contract also actually invalidated the parties' arbitration agreement. (424) For example, a party may deny that it ever executed or in any way assented to the underlying contract, or even conducted negotiations with its putative counterparty (as well as that the asserted underlying contract is a sham or a forgery). Critics of the separability presumption argue that this example demonstrates the presumption's inadequacy, because it makes no sense to posit the existence of an arbitration agreement where no underlying contract was conceivably entered into: page "396" “carried to its extreme, … the separability doctrine … could give rise to a valid arbitral award even if two parties had never met, so long as one person alleged there was a contract between the containing an arbitration clause.” (425) Other commentators broaden their criticism of the separability presumption, reasoning that: “[I]f an agreement contains an obligation to arbitrate disputes arising under it, but the agreement is invalid or no longer in force, the obligation to arbitrate disappears with the agreement of which it is a part. If the agreement was never entered into at all, its arbitration clause never came into force. If the agreement was not validly entered into, then, prima facie, it is invalid as a whole, as must be all of its parts, including its arbitration clause.” (426) These comments do not ultimately provide grounds for rejecting the separability presumption and the possible validity of the arbitration agreement, notwithstanding the non-existence or invalidity of the underlying contract. It is true that the non-existence of an underlying contract may be accompanied by the non-existence of the arbitration agreement. Thus, where two parties never met or negotiated in any way, there will be no arbitration agreement and no underlying contract. This is not, however, in any way inconsistent with the separability presumption. As discussed above, the separability presumption does not provide that, where the underlying contract is non-existent or invalid, the arbitration agreement is nonetheless necessarily existent and valid. (427) Rather, it merely provides that the arbitration agreement may be existent and valid even if the underlying contract is not. The relevant question, therefore, is whether the parties did or did not negotiate page "397" and conclude a valid agreement to http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitrate their disputes even if they did not also conclude the underlying contract. (428) In general, given the close relationship between the underlying contract and the arbitration agreement, defects in the formation of the former are likely to affect the latter: parties do not ordinarily agree to arbitration provisions in the abstract (“floating in the legal ether” (429) ), without an underlying contract. Nevertheless, there will be instances where the parties are held to have concluded their negotiations, and reached a valid binding agreement, on an arbitration clause, but not on the underlying contract. (430) Under this analysis, the underlying factual allegations for each particular defect must be considered separately, from both factual and legal perspectives, to determine whether that defect impeaches the arbitration clause. Contrary to the analysis in decisions like Buckeye Check Cashing and Fiona Trust, (431) the decisive issue – for purposes of deciding the substantive validity of the arbitration agreement – should not be whether a defect also affects the underlying contract. That is because, in particular cases, defects involving matters such as duress, forgery and incapacity may apply equally to both the underlying contract and the arbitration agreement. (432) The fact that a defect affects the underlying contract should not preclude it from also or simultaneously affecting the arbitration clause. For example, there will be instances where a party lacked any mental capacity to agree to anything, (433) where a party's signature was forged without it ever having even contemplated contracting with its putative counterparty, (434) or where wholly page "398" (435) unlawful duress occurred. In cases involving these types of facts, the substantive validity of the arbitration clause itself will almost always be impeached, as well as the underlying contract. On the other hand, many claims that affect the underlying contract will not also affect the substantive validity of the associated arbitration clause. That would be true of some forgery or duress claims (e.g., the parties agree upon the arbitration clause, and initial it, but do not voluntarily agree upon the underlying contract, which is then “procured” by forgery or duress), as well as most fraudulent inducement, illegality, mistake, unconscionability and termination claims (e.g., the underlying contract is terminated, without any intention of terminating the arbitration agreement, or the underlying contract is usurious or lacks governmental approval). (436) In these cases, there is a defect affecting the underlying commercial contract, but there is nothing in the particular nature or circ*mstances of that defect that also affects the associated arbitration clause. The decisive issues in each case should be what the particular factual allegations of a defect are and what the asserted legal consequences of those allegations are. Most categories of defects can in principle be directed specifically at the arbitration agreement (e.g., the arbitration agreement's terms are unconscionable, were procured by duress or by fraud, were illegal, or were indefinite), involving matters that do not concern the underlying contract. Equally, and again in principle, these categories of defects can also be directed specifically and only at the underlying contract. With regard to issues of substantive validity, the decisive question in each http://www.kluwerarbitration.com/CommonUI/print.aspx
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case is whether the specific factual allegations and legal claims of the parties do or do not impeach the arbitration agreement. The most difficult issues arise when a particular alleged defect in formation affects both the arbitration clause and the underlying contract (e.g., the contract, including the arbitration clause, was never executed, or the contract was affected by forgery, or a party lacked mental capacity). In these cases, absent special or additional circ*mstances, the defect in the underlying contract almost always affects the substantive validity of the arbitration agreement. There is seldom a credible basis for arguing that forgery of a signature on a contract, affecting the underlying contract, does not also impeach the arbitration clause: unless the arbitration clause was separately signed, or agreed in some other manner, then a forged signature on the underlying contract evidences the absence of agreement on anything in that document. (437) Similarly, the failure to execute the underlying contract will generally evidence a failure to agree upon the associated arbitration clause; there may be cases where separate expressions of assent exist with regard to the arbitration page "399" agreement, but these circ*mstances will be unusual, (438) and must be established through allegations directed specifically at the existence of an arbitration agreement. In light of this, and returning to the commentary cited above, it is not correct to state that, “[where] the [underlying commercial] agreement is invalid or no longer in force, the obligation to arbitrate disappears with the agreement of which it is a part.” (439) There may be cases where this result is true, but that depends on a separate analysis of the invalidity or ineffectiveness of the arbitration agreement itself, not an automatic conclusion that the arbitration clause “disappears with the agreement of which it is a part”; on the contrary, in some circ*mstances the legal or factual reasons for the underlying contract's invalidity will simply not also apply to the separable arbitration agreement. Likewise, it is also not correct to say that, “[i]f the agreement was never entered into at all, its arbitration clause never came into force.” (440) Again, this may sometimes (or even often) be true, but there will also be cases where an arbitration agreement is formed prior to the parties' underlying contract being consummated, just as there are cases where termination of the underlying contract does not result in termination of the associated arbitration clause. (441) Turning to the extreme example of an arbitration agreement between two parties who have never dealt with one another, the short answer is that no arbitration agreement would exist in such circ*mstances. That would be true under the separability presumption, just as under an analysis where there was no such presumption: there would simply be no consent to any agreement to arbitrate anything, whether separable or not. (442) The hypothetical therefore does not, on a correct analysis, provide grounds for questioning the separability presumption: it merely underscores the fact that even a separable arbitration agreement may suffer from its own separate flaws of formation, invalidity, or legality. (443) The essential point of the separability presumption, however, is that it is the legal rules and facts relating to the existence and validity of the separable arbitration agreement, not only to the underlying contract, that must be considered in particular cases. Second, many decisions involving the separability presumption arise http://www.kluwerarbitration.com/CommonUI/print.aspx
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in the context of national court proceedings considering questions of competence-competence, and particularly whether a claim of contractual page "400" non-existence, invalidity, or illegality should be referred to arbitration or judicially resolved. As discussed above, it is important to distinguish between decisions, and analysis, based on allocations of competence-competence and those based only on the substantive validity of the arbitration agreement. (444) Where a party challenges only the underlying contract, that claim must be referred to arbitration. That is because, as a consequence of the separability presumption, a challenge directed only to the underlying contract simply does not impeach the arbitration clause and there is no basis for denying that the parties' dispute must be referred to arbitration. (445) In contrast, where a party specifically challenges the separable arbitration agreement, and not the underlying contract, that claim raises “pure” questions of competence-competence, discussed in greater detail below, (446) and may be considered by either a national court or arbitral tribunal (depending on applicable law). Where a party challenges both the underlying contract and the arbitration agreement, this also potentially raises questions of competence-competence, and may be considered by either a national court or arbitral tribunal. Different national court decisions have articulated different standards for the circ*mstances in which a challenge to the parties' underlying contract will impeach the associated arbitration clause and may therefore require judicial resolution under national law. (447) U.S. and English courts have generally held that, before judicial resolution of a claim of contractual non-existence or invalidity is required, claims of invalidity, illegality, or termination must be directed “specifically” or “in particular” at the arbitration clause, and not “generally” at both the underlying contract and the arbitration clause. (448) They have also indicated that, where the existence of any underlying contract is challenged (e.g., forgery and lack of mental capacity), this may well require interlocutory judicial resolution. (449) Taking a slightly different approach, German courts have held that defects in the underlying contract will impeach the arbitration agreement and require judicial consideration if they “directly affect” the arbitration clause. (450) page "401" The better view is that challenges nominally directed to both the parties' underlying contract and the associated arbitration agreement should be carefully examined to determine whether they actually impeach the arbitration clause. In many cases of alleged invalidity or illegality – including claims of fraudulent inducement, unconscionability, duress, mistake, frustration and illegality (451) – a challenge to the underlying contract will (as noted above) simply not impeach the separable arbitration clause. In these instances, such claims must be referred to arbitration, even if they purport to impeach the arbitration clause, because they in actuality only concern the parties' underlying dispute. In other cases of alleged non-existence or invalidity – including claims of lack of consent (forgery, duress), lack of authority, or incapacity – a challenge to the underlying contract may also impeach the arbitration agreement. If a claim does impeach the arbitration agreement, then generally-applicable rules of http://www.kluwerarbitration.com/CommonUI/print.aspx
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competence-competence apply. As discussed below, in these cases, procedural considerations of efficiency, fairness and the apparent credibility of the parties' claims should inform the decision whether to refer a jurisdictional dispute to arbitration or retain it for interlocutory judicial consideration. (452) Finally, it is important in assessing national court decisions on this subject to take into account their precise procedural posture and holding. As discussed below, national courts frequently rely on the separability presumption to “reject” jurisdictional challenges and to require the parties to arbitrate; one important example of such instances is where U.S. and English courts require arbitration of challenges to the validity (and sometimes existence) of both the underlying contract and the arbitration agreement. Importantly, these decisions cannot properly be considered final, substantive applications of the separability presumption. Rather, these decisions reflect principles of competence-competence and a procedural allocation of competence to render an initial decision on the jurisdictional dispute. (453) f. The Separability Presumption Does Not Provide A Basis for the Competence-Competence Doctrine It is sometimes asserted or assumed that the separability presumption requires or implies the existence of the competencecompetence doctrine. Thus, it is often suggested, the separability of the arbitration clause enables an arbitral tribunal to consider the existence and scope of its own jurisdiction. (454) As discussed page "402" below, however, the separability presumption does not in fact explain the competence-competence doctrine. (455) Although the competence-competence doctrine arises from the same basic objectives as the separability presumption (e.g., enhancing the efficacy of international arbitration as a means of dispute resolution), (456) it is not logically dependent upon, nor explicable by reference to, the separability presumption. (457) Rather, the competence-competence doctrine permits an arbitral tribunal to consider and decide upon its own jurisdiction even where the existence or validity of an arbitration agreement (as distinguished from the underlying contract) is disputed. (458) That is made explicit, for example, in Articles V(3) and VI(3) of the European Convention, (459) Article 16(1) of the UNCITRAL Model Law (460) and judicial authority in all developed jurisdictions. (461) Accordingly, an arbitral tribunal's jurisdiction to consider its own jurisdiction cannot depend on the separability of the arbitration clause from the underlying contract, but must instead rest on other considerations. (462) Put simply, the competence-competence doctrine could very readily exist without a separability presumption and, conversely, the separability presumption could be accepted without also adopting a rule of competence-competence. Thus, national law can (and, in some jurisdictions (such as France and India), (463) does) grant arbitral tribunals competence-competence to consider and decide all jurisdictional objections, whether directed to the underlying contract or the arbitration agreement. Conversely, national law could recognize the separability presumption, and thereby provide that http://www.kluwerarbitration.com/CommonUI/print.aspx
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challenges only to the underlying contract are not jurisdictional challenges to the arbitrators' power, but that, where true jurisdictional page "403" objections to the validity or existence of the arbitration agreement are made, there is no rule of competence-competence and the objections must be resolved by national courts. (464) Nonetheless, there are material relationships between the separability presumption and the competence-competence doctrine. One consequence of the separability doctrine is that many allegations that would otherwise potentially impeach the validity of the arbitration agreement do not do so and therefore must be submitted to the arbitral tribunal for resolution. That is, because of the separability doctrine, certain claims regarding the underlying contract simply do not impeach or question the validity of the arbitration agreement, and therefore must be resolved by the arbitrators. (465) Despite these complexities, the separability presumption serves a very significant function in the international arbitral process. It permits analysis of jurisdictional objections to be focused specifically – and properly – on the arbitration agreement itself, rather than the underlying contract. Even if the parties' underlying contract is invalid or non-existent, this will often not affect the associated arbitration agreement, which will remain fully effective as a means to resolve the parties' disputes. The separability presumption also enables the arbitrators to consider and resolve disputes about the existence, validity, legality and termination of the underlying contract, regardless whether the competence-competence doctrine is accepted, while requiring arbitration of disputes that concern only the existence, validity, or legality of the underlying contract (and not the arbitration agreement). In all these respects, the separability presumption is essential to preventing delays and disruptions in the international arbitral process arising from litigation in national courts. 4. Consequences of the Separability Presumption: Existence, Validity and Legality of the Underlying Contract Does Not Necessarily Affect the Arbitration Agreement Just as the non-existence or invalidity of the underlying contract does not necessarily result in the non-existence or invalidity of the arbitration clause, the converse is page "404" true: the existence and validity of the underlying contract does not necessarily result in the same status for the arbitration agreement. Rather, the separability of the arbitration clause, and the existence of specialized legal rules applicable to the arbitration clause, (466) creates circ*mstances in which the arbitration agreement may be invalid, notwithstanding the undisputed existence and validity of the underlying contract. For example, as discussed in greater detail below, the New York Convention, UNCITRAL Model Law and other international arbitration instruments impose particular form requirements on international arbitration agreements (e.g., requirements of a “writing”). (467) The fact that an underlying contract satisfies the form requirements applicable to it (e.g., a valid oral contract) does not necessarily mean that the associated arbitration agreement satisfies these specialized form requirements. (468)
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Alternatively, while the underlying contract is indisputably valid, there may be substantive defects in the associated arbitration clause (e.g., contradictory terms, (469) lack of specificity, (470) unacceptably onesided terms, (471) etc.) which can nonetheless render it invalid. Or, while the parties may clearly have expressed their assent to the terms of the underlying commercial contract, they may not have agreed upon dispute resolution provisions. (472) Likewise, the parties may have agreed to terminate, (473) or waived, (474) the arbitration agreement, while not disturbing their underlying commercial contract. All of these cases are consequences of the separable character of the arbitration agreement. 5. Consequences of the Separability Presumption: Invalidity, Illegality, or Repudiation of Arbitration Agreement Does Not Necessarily Affect Underlying Contract There is another related application of the separability presumption, which receives little attention, but which has some practical importance: the separability presumption means that the invalidity, illegality, or repudiation of the arbitration clause does not necessarily entail the invalidity of the underlying contract. Despite deep-seated international and national commitments to the enforceability of international arbitration agreements, there are instances in which page "405" such agreements are invalid or illegal under applicable law. (475) Similarly, there are cases in which one party repudiates its commitment to arbitrate, typically by commencing litigation in national courts notwithstanding the parties' arbitration agreement, (476) or in which circ*mstances render an arbitration clause dysfunctional and unenforceable. (477) Where the parties' agreement to arbitrate is invalid or repudiated, there is at least a theoretical possibility that the parties' underlying contract is thereby also invalidated. If the arbitration clause were considered to be an integral part of the parties' overall agreement, then the invalidity of the arbitration clause would arguably require invalidating the underlying contract as well. (478) In practice, however, there are relatively few circ*mstances in which the invalidity or repudiation of the parties' arbitration agreement results in the invalidity of their underlying contract. Indeed, national courts are virtually never presented with this argument. That is, in large part, a result of the separability presumption: under the presumption, defects in the parties' arbitration agreement will presumptively not taint the parties' underlying contract. More specifically, the separability presumption recognizes that the purpose of an international arbitration agreement is to resolve disputes relating to the underlying contract in the fairest, most efficient manner possible and that, where the arbitration agreement is invalidated for unexpected reasons (and cannot be replaced by alternative terms), this will ordinarily not provide a basis for concluding that the parties' underlying commercial transaction would not have been entered into. Rather, it will require dealing with the resulting contractual gap in an internationally-neutral page "406" manner. Only if this cannot be done will the invalidity of the arbitration clause potentially impeach the underlying contract.
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This analysis is different from cases involving competing proposals between the parties as to whether or not arbitration should be used as a dispute resolution mechanism or as to what arbitral mechanism should be used. (479) In these cases, where there has never been a meeting of the minds on any arbitration clause, the validity of any underlying contract may be affected by the non-existence of any agreement on arbitration or other dispute resolution mechanisms. In particular, in transactions involving foreign states or foreign state entities, where a private party seeks to internationalize the dispute resolution mechanism, non-existence or invalidation of the arbitration agreement may very well impeach the entire contractual relationship. page "407"
page "408"
215 See W. Craig, W. Park & J. Paulsson, International Chamber of
Commerce Arbitration ¶5.04 (3d ed. 2000). See also supra pp. 311313. 216 See infra pp. 354-355, 413-422. 217 See infra pp. 355-357. 218 See infra pp. 357-402. 219 See infra pp. 404-407. 220 See infra pp. 402-404. 221 See infra pp. 413-422, 422 et seq. 222 See supra pp. 348-353 & infra pp. 396-402. 223 There are limited instances in which the arbitration agreement is necessarily subject to a different law than the underlying commercial contract. These involve the application of the substantive legal rules of the New York Convention (or other international arbitration conventions) to arbitration agreements. See supra pp. 203-205 & infra p. 567. The terms of these instruments are applicable only to agreements to arbitrate, and not to other types of agreements. 224 See infra pp. 445-447, 475-477. 225 See infra pp. 412-424, 427. 226 See infra pp. 426-427, 454-459, 459, 514-517. 227 The choice-of-law issues that arise from international arbitration agreements are discussed in detail below. See infra pp. 409 et seq. They are discussed separately in connection with various substantive issues relating to international arbitration agreements (e.g., capacity, formation, validity). See infra pp. 425516, 516-535, 535-552, 552-561. 228 See supra pp. 312-316 & infra pp. 411-424. 229 See supra pp. 65-68, 184-189, 321-322, 336-337. 230 See infra pp. 563 et seq. As discussed above, one premise of historic rules denying effect to arbitration agreements was the notion that such agreements were of a different nature from, and subject to different legal rules than, other types of contracts. See supra pp. 15, 37-39, 44-47, 144-147. 231 See supra pp. 15 (Roman law), 44-47 (19th century U.S. law) & 37-39 (19th century French law). 232 See supra pp. 202-207 & infra pp. 565-574. http://www.kluwerarbitration.com/CommonUI/print.aspx
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233 See infra pp. 587, 599-600 et seq.; New York Convention, Arts.
II(1), II(2); European Convention, Art. I(2)(a). 234 See supra pp. 202-207 & infra pp. 567-570. New York Convention, Arts. II(1), II(3); European Convention, Arts. V(1), VI(2). 235 That is true, for example, under the UNCITRAL Model Law, see infra pp. 570-571, 601-605; in the United States (where the FAA prescribes special rules with regard to the validity of arbitration agreements), see infra pp. 571-572, 607-609; in Switzerland (where the Swiss Law on Private International Law prescribes special rules regarding the form and validity of international arbitration agreements), see infra pp. 572, 609-611; in England, see infra pp. 573, 611-612; and in France, see infra pp. 572-614. 236 All-Union Exp.-Import Assoc. Sojuznefteexport v. JOC Oil Ltd, Award in USSR Chamber of Commerce and Industry (9 July 1984), XVIII Y.B. Comm. Arb. 92, 97-98 (1993); infra pp. 393-394. 237 Sojuznefteexport, XVIII Y.B. Comm. Arb. at 97. 238 See infra pp. 393-394; Harbour Assur. Co. (U.K.) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1992] 1 Lloyd's Rep. 81 (Q.B.); Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 477 (9th Cir. 1991); Sphere Drake Ins. Ltd v. All Am. Ins. Co., 256 F.3d 587, 591-92 (7th Cir. 2001); Judgment of 24 March 1976, Hermansson v. AB Asfalbelaeggnigar, 1976 NJA 125 (Swedish S.Ct.). 239 See infra pp. 507-516. 240 See infra pp. 357-402. 241 See infra pp. 404-407. Where challenges to and defects in the underlying contract do not affect the validity of the separable arbitration agreement, an arbitral tribunal can consider such challenges without controversy about its own jurisdiction and can render a binding award declaring the underlying contract invalid without necessarily impugning the status of an associated arbitration clause. Thus, the separability presumption provides one way for an arbitral tribunal to avoid the Catch-22 situation where a defect in the parties' underlying contract would impeach the arbitration agreement, preventing the arbitrators from either considering claims, or rendering an award declaring, that such a defect existed. Nussbaum, The “Separability Doctrine” in American and Foreign Arbitration, 17 N.Y.U.L.Q.Rev. 609, 609-10 (1940) (“In case the destruction of [the underlying contract] carries over to the arbitration agreement, the arbitrators are deprived of their jurisdiction, and an award already rendered would lose all legal effect. The arbitration clause, designed to facilitate settlement of controversies might lead in such cases to duplication of proceedings inasmuch as arbitration may be followed by a regular suit in the ordinary law courts …. Still worse, the mere fact that a defense, though unfounded, is raised, injects a disturbing uncertainty into the proceedings itself; it may delay and even paralyze action especially where legislative regulation is technically poor, or as it sometimes happens in the international field, is difficult to ascertain”). 242 See also supra p. 353 & infra pp. 402-404. discussing the differences between the treatment of the separability presumption under the English Arbitration Act, 1996, §7 and the Japanese Arbitration Law, on the one hand, and the UNCITRAL Model Law, on the other hand. 243 See infra pp. 402-404, 872-876. 244 See supra pp. 316-348 & infra pp. 359 et seq.; W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.04 (3d ed. 2000) (“The motivating force behind the establishment http://www.kluwerarbitration.com/CommonUI/print.aspx
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of the autonomy of the arbitration clause in international contracts is the plain desire to uphold the validity of the agreement to arbitrate.”). 245 See supra pp. 312-313, 338-340, 340-341 & infra pp. 359 et seq. 246 See infra pp. 363-364, 365-376, 383-384, 386, 396, 402. 247 See infra pp. 370-376, 376-377, 383-384. 248 See infra pp. 365-370. 249 Leading international arbitration conventions confirm this. Geneva Protocol, Art. IV(1) (“dispute regarding a contract … including an arbitration agreement”); New York Convention, Art. II(2) (“arbitral clause in a contract”). 250 See supra pp. 184-189, 321-322. 251 See infra pp. 443-451. 252 See infra pp. 924-954, 971-981. 253 See infra pp. 705-766. 254 See infra pp. 851 et seq. 255 See supra pp. 317-319. 256 See supra pp. 317-319, 348-353. 257 See supra pp. 317-319. 258 See supra pp. 320, 353. 259 European Convention, Art. V(3); supra p. 320. 260 See supra p. 320; J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶170 (2d ed. 2007). 261 See infra pp. 861-863. As discussed below, properly analyzed, the competence-competence doctrine does not depend on, or arise from, the separability presumption. See infra pp. 872-876. Article V of the European Convention illustrates this by affirming the arbitrators' authority to consider challenges to both the underlying contract and the arbitration agreement. 262 This issue is addressed in detail below in the context of the competence-competence doctrine. See infra pp. 877-986. 263 See Prima Paint Corp., 388 U.S. 395; Buckeye Check Cashing, Inc., 546 U.S. 440; infra pp. 363-365, 941-948. 264 SeeFiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); UNCITRAL Model Law, Art. 16(1); ICC Rules, Art. 6(4); supra pp. 333-336 & infra pp. 360-362, 402-404, 872-876. 265 UNCITRAL Model Law, Art. 16(1) (“The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.”). See infra pp. 877-899. 266 See supra p. 357 n. 241. 267 H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 480 (1989); supra pp. 338-340 & infra pp. 864-865, 877 et seq. 268 Issues of the substantive validity of the arbitration agreement are addressed by the Model Law only in Article 8 (not Article 16). See supra pp. 206-207 & infra pp. 570-571. 269 See, e.g., Cecrop Co. v. Kinetic Sciences Inc., 16 B.L.R.3d 15 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(B.C. S.Ct. 2001) (ineffectiveness of underlying contract, because effective date had not occurred, did not render arbitration agreement ineffective); Ferris v. Plaister, 34 N.S.W.L.R. 474 (N.S.W. Court of Appeal 1994) (claim that underlying contract is fraudulently induced does not impeach arbitration clause and is for arbitrator); NetSys Tech. Group AB v. Open Text Corp., 1 B.L.R.3d 307 (Ontario S.Ct. 1999) (claim that underlying contract was null and void did not impeach arbitration clause and was therefore for arbitrators to decide); Campbell v. Murphy, 15 O.R.3d 444 (Ontario Court of Justice 1993) (repudiation of underlying contract did not affect arbitration clause); Sonatrach Petroleum Corp (BVI) v. Ferrell Int'l Ltd [2002] 1 All E.R. (Comm.) 627 (Q.B.) (fact that some provisions of contract were void for uncertainty did not affect the validity of the arbitration agreement); Capital Trust Inv. Ltd v. Radio DesignAB [2002] 1 All E.R. (Comm.) 514 (Q.B.) (claim that the underlying contract was voidable for misrepresentation did not affect the validity of the arbitration clause); Vee Networks Ltd v. Econet Wireless Int'l Ltd [2005] 1 Lloyd's Rep. 192 (Q.B.) (claim that the underlying contract was ultra vires and void did not affect validity of the arbitration clause). See also infra pp. 877-899. 270 See, e.g., Fiona Trust & Holding Corp v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords) (allegation that underlying contract was void for illegality did not affect validity of arbitration agreement); Brawn Laboratories Ltd v. Fittydent Int'l GmbH, XXVI Y.B. Comm. Arb. 783 (Delhi High Court 1999) (2001) (rejecting claim that nullity of underlying contract, because of lack of required regulatory approval, rendered arbitration clause void: “[E]ven assuming for the sake of arguments that the agreement dated 20 May 1994 between the parties was illegal and non-est, the same shall not own its own render the arbitration clause invalid and it is still within the competence of the arbitrator to decide the validity of the same.”). 271 See, e.g., Crestar Ltd v. Carr [1987] 2 FTLR 135 (English Court of Appeal) (claim that underlying contract had been terminated did not affect validity of arbitration agreement); Paul Smith Ltd v. H & S Int'l Holdings Inc. [1991] 2 Lloyd's Rep. 127 (Q.B.) (arbitration clause applies to post-termination disputes); OEMSDF Inc. v. Europe Israel Ltd, [1999] O.J. No. 3594 (Ontario S.Ct.); World LLC v. Parenteau & Parenteau Int'l Inc., [1998] A.Q. No. 736 (Quebec S.Ct.); Roy v. Boyce, 57 B.C.L.R.2d 187 (B.C. S.Ct. 1991); Boart Sweden AB v. Nya Stromnes AB, 41 B.L.R. 295 (Ontario S.Ct. 1988). 272 See supra pp. 358-359. See alsoWestacre Inv. Inc. v. Jugoimport-SPDR Holding Co. Ltd [1998] 4 All E.R. 570, 593 (Q.B.) (“There is no general rule that, where an underlying contract is illegal at common law or by reason of an English statute, an arbitration agreement, which is ancillary to that contract is incapable of conferring jurisdiction on arbitrators to determine disputes arising within the scope of the agreement including disputes as to whether illegality renders the contract unenforceable …. Whether such an agreement to arbitrate is capable of conferring such jurisdiction depends upon whether the nature of the illegality is such that, in the case of statutory illegality the statute has the effect of impeaching that agreement as well as the underlying contract and, in the case of illegality at common law, public policy requires that disputes about the underlying contract should not be referred to arbitration.”). 273 See, e.g., O.D.C. Exhibit Sys. Ltd v. Lee, 41 B.L.R. 286 (B.C. S.Ct. 1988) (original contract held terminated and subsequent contract contained no arbitration clause; stay of litigation denied). 274 See U.S. FAA, 9 U.S.C. §§2, 3, 4; supra pp. 328-332. http://www.kluwerarbitration.com/CommonUI/print.aspx
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275 See, e.g., 108 A.L.R. Fed. 179, §§13(a)-(b), 29(c); infra pp.
363-380. 276 388 U.S. 395 (U.S. S.Ct. 1967); supra pp. 329-331. 277 Buckeye Check Cashing, 546 U.S. 440; supra pp. 330-332. 278 388 U.S. at 403-404 (“if the claim is fraud in the inducement of the arbitration clause itself – an issue which goes to the ‘making’ of the agreement to arbitrate – the federal court may proceed to adjudicate it. But the statutory language does not permit the federal court to consider claims of fraud in the inducement of the contract generally.”) (emphasis added). See supra pp. 329-331 & infra pp. 714-721. 279 546 U.S. 440. 280 894 So.2d 860 (Fla. 2005) (“an arbitration provision contained in a contract which is void under Florida law cannot be separately enforced while there is a claim pending in a Florida trial court that the contract containing the arbitration provision is itself illegal and void ab initio.”). 281 Buckeye Check Cashing, 546 U.S. at 447. The Buckeye Check Cashing decision overturned a substantial line of authority holding that the separability presumption did not apply where the underlying contract was said to be “void” (as opposed to “voidable”). See Adams v. Suozzi, 433 F.3d 220, 227 (2d Cir. 2005) (“[A contract is] ‘void’ when, for example, there was no meeting of the minds about essential terms or where there was fraud in the factum. ‘voidable’ contracts are subject to rescission, but otherwise create legal obligations. An agreement entered into through fraud in the inducement is an example of a ‘voidable’ contract. Only if a contract is ‘void’, and not ‘voidable,’ can a party challenge the enforceability of an arbitration clause without alleging a particular defect with that clause. If a contract is ‘void’, a party wishing to avoid arbitration dies not have to challenge the arbitration clause specifically; if a contract is ‘voidable,’ the party must show that the arbitration clause itself is unenforceable.”); Denney v. BDO Seidman LLP, 412 F.3d 58 (2d Cir. 2005); Will-Drill Resources, Inc. v, Samson Resources Co., 352 F.3d 211, 216-17 (5th Cir. 2003); Highlands Wellmont Health Network, Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 575 (6th Cir. 2003); Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 107 (3d Cir. 2000); Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., Inc., 925 F.2d 1136, 1140 (9th Cir. 1991); Anderson v. Delta Funding Corp., 316 F.Supp.2d 554, 561 (N.D. Ohio 2004) (“A contract deemed void ab initio threatens the existence of all provisions of a contract, including embedded arbitration clauses, because a void contract lacks legal stamina from its inception.”). See Rau, Everything You Really Need to Know About ‘Separability’ in Seventeen Simple Propositions, 14 Am. Rev. Int'l Arb. 1, 38 (2004) (“I do like using the phrase “void ab initio.” I like the gravitas that it imparts into an argument, and I like the way it makes me feel – like a substantial person, a keeper of the sacred mysteries, a lineal descendant of co*ke and Blackstone. I only wish I could do so with a straight face. I only wish it had some relevance to this (or indeed any) problem. But alas it doesn't.”). 282 Buckeye Check Cashing, 546 U.S. at 449 (emphasis added). The Court noted that its earlier decisions had given effect to the separability presumption regardless whether a challenge alleged that the underlying contract was void or voidable – including in cases such as Southland Corp. v. Keating, 465 U.S. 1 (U.S. S.Ct. 1984), alleging “fraud, misrepresentation, breach of contract, breach of fiduciary duty and violation of the California Franchise Investment Law.” Buckeye Check Cashing, 546 U.S. at 446. http://www.kluwerarbitration.com/CommonUI/print.aspx
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283 See infra pp. 402-404, 940-943, 944-948. 284 Buckeye Check Cashing, 546 U.S. at 447. See infra pp. 938-
943. 285 See, e.g., Brown v. Pacific Life Ins. Co., 462 F.3d 384, 396-97
(5th Cir. 2006) (“Where claims of error, fraud, or unconscionability do not specifically address the arbitration agreement itself, they are properly addressed by the arbitrator, not a federal court.”); Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1263-64 (9th Cir. 2006) (en banc) (“[w]here claims of error, fraud or unconscionability do not specifically address the arbitration agreement containing the arbitration provisions, then the question of whether the agreement, as a whole, is unconscionable must be referred to the arbitration … if, after examining the crux of the complaint, the district court concludes that the challenge is not to the arbitration provision itself but, rather, to the validity of the entire contract, then the issue of the contract's validity should be considered by an arbitrator in the first instance”); Jeske v. Brooks, 875 F.2d 71, 75 (4th Cir. 1989) (“We also reject [appellant's] arguments that the arbitration clause must be declared invalid on grounds that the customer's agreement as a whole is void due to ‘overreaching, unconscionability and fraud,’ as well as lack of consideration. Because the alleged defects pertain to the entire contract, rather than specifically to the arbitration clause, they are properly left to the arbitrator for resolution.”); Rubin v. Sona Int'l Corp., 457 F.Supp.2d 191, 193 (S.D.N.Y. 2006) (“Buckeye Check Cashing makes clear that whether [a party] argues that the agreement is void or voidable, [it] may only avoid arbitration if it can successfully challenge the validity of the arbitration clause itself.”). 286 See, e.g., Ware, Arbitration Law's Separability Doctrine after Buckeye Check Cashing Inc. v. Cardegna, 8 Nev L.J. 107 (2007). See also Barnes, Buckeye, Bull's-Eye or Moving Target: The FAA, Compulsory Arbitration, and Common Law Contract, 31 Vt. L. Rev. 141 (2006-2007); Rau, Everything You Really Need to Know About “Separability” in Seventeen Simple Propositions, 14 Am. Rev. Int'l Arb. 1, 17-18 (2004). 287 Prima Paint Corp., 388 U.S. 395; Southland Corp., 465 U.S. 1; Buckeye Check Cashing, 546 U.S. 440. See infra pp. 938-943. 288 See, e.g., Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir. 2006); Banc One Acceptance Corp. v. Hill, 367 F.3d 426, 430-31 (5th Cir. 2004) (“the general assertions” that a party “did not read or understand the contractual documents” or that the other party “did not explain the documents do not suffice to allege fraud in the making of the arbitration clause, but rather address the formation of the entire contract”); Griffen v. Alpha Phi Alpha, Inc., 2007 WL 707364, at *4 (E.D. Pa. 2007) (because plaintiff “challenges the substantive unconscionability of the arbitration clause itself, the Court is permitted to decide [the] validity of the clause”); In re Frascella Enter., Inc., 349 B.R. 421, 428 (E.D. Pa. 2006); Alexander v. U.S. Credit Mgt., 384 F.Supp.2d 1003, 1008 (N.D. Tex. 2005); Salley v. Option One Mortg. Corp., 925 A.2d 115, 120 (Pa. 2007) (“a challenge to the validity of a contract as a whole, and not specifically to an arbitration clause, must be presented to the arbitrator and not the courts”; “[t]he courts may consider, in the first instance, only those challenges that are directed solely to the arbitration component itself”); Lexington Mktg Group, Inc. v. Goldbelt Eagle, LLC, 157 P.3d 470, 475 (Al. 2007); Kirby v. Grand Crowne Travel Network, LLC, 2007 WL 1732761, at *1 (Mo. Ct. App. 2007); Alterra Healthcare Corp. v. Estate of Linton ex rel. Graham, 953 So.2d 574, 577 (Fla. Ct. App. 2007) (“Unconscionability is clearly at issue in the present case and the provision limiting liability, being part of the http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration provision, pertains to the arbitration provision itself. Therefore, the trial court had authority to determine the enforceability of the remedial limitations.”); Bess v. DirecTV, Inc., 2007 WL 2013613, at *7 (Ill. Ct. App. 2007) (“Given all the circ*mstances in the present case, we conclude that the arbitration provisions is procedurally unconscionable and that the procedural unconscionability is sufficient to invalidate the arbitration provision.”). 289 See authorities cited supra p. 365 n. 285, & infra pp. 938-943. 290 See infra p. 941; Highlands Wellmont Health Network, Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 575 (6th Cir. 2003); ACE Capital Re Overseas, Ltd v. Cent. United Life Ins. Co., 307 F.3d 24, 29-30 (2d Cir. 2002); Sleeper Farms v. Agway, Inc., 211 F.Supp.2d 197, 203 (D. Me. 2002); Coddington Enters, Inc. v. Werries, 54 F.Supp.2d 935, 942 (W.D. Mo. 1999), rev'd on other grounds, 253 F.3d 1083 (8th Cir. 2001) (claims of fraudulent inducement “cannot fairly be limited to the making of the arbitration clause” and are therefore for arbitral, not judicial, determination); Acquaire v. Canada Dry Bottling, 906 F.Supp. 819, 825 (E.D.N.Y. 1995) (“In order to avoid arbitration … [plaintiffs] must allege fraud in the inducement not of the contract generally but of the arbitration clause itself”); Vella v. Atl. Int'l Fin., Inc., 890 F.Supp. 321, 322 (S.D.N.Y. 1995) (compelling arbitration when “there [was] no colorable claim of fraud in the inducement of the arbitration clause itself, as distinct from the contract generally”). 291 See infra p. 939; R.M. Perez & Assoc., Inc. v. Welch, 960 F.2d 534, 538 (5th Cir. 1992) (“Under Prima Paint … and its progeny, the central issue in a case like this is whether the plaintiffs' claim of fraud relates to the making of the arbitration agreement itself or to the contract as a whole. If the fraud relates to the arbitration clause itself, the court should adjudicate the fraud claim. If it relates to the entire agreement, then the [FAA] requires that the fraud claim be decided by an arbitrator.”); Jeske v. Brooks, 875 F.2d 71, 75 (4th Cir. 1989) (“We also reject [appellant's] arguments that the arbitration clause must be declared invalid on grounds that the customer's agreement as a whole is void due to ‘overreaching, unconscionability and fraud,’.… Because the alleged defects pertain to the entire contract, rather than specifically to the arbitration clause, they are properly left to the arbitrator for resolution.”); Fox Int'l Relations v. Fiserv Sec., Inc., 418 F.Supp.2d 718, 724 (E.D. Pa. 2006); Bank One, NA v. Coates, 125 F.Supp.2d 819, 829-30 (S.D. Miss. 2001). 292 See infra p. 941; Hawkins v. Aid Ass'n for Lutherans, 338 F.3d 801, 808 (7th Cir. 2003) (“the addition of the arbitration provision was not an independent contract requiring mutual assent or consideration”); Hellenic Lines, Ltd v. Louis Dreyfus Corp., 372 F.2d 753 (2d Cir. 1967); Cook v. River Oaks Hyundai, Inc., 2006 U.S. Dist. LEXIS 21646, at *2 (N.D. Ill. 2006); Cline v. H.E. Butt Grocery Co., 79 F.Supp.2d 730, 732 (S.D. Tex. 1999) (“[Plaintiff's] claim that [defendant's] promise was illusory is an attack on the [contract] as a whole, and not the arbitration provision itself. Questions related to the enforcement of a contract as a whole are properly referable to an arbitrator; it is only when an attack is made on the arbitration clause itself that a court, rather than an arbitrator, should decide questions of validity.”); Axtell v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 744 F.Supp. 194, 196 (E.D. Ark. 1990) (“plaintiffs' allegations of failure of consideration and overreaching go to the making of the contract generally, and therefore are to be considered by the arbitrator.”); In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006); Exercycle Corp. v. Maratta, 214 N.Y.S.2d 353 (N.Y. 1961). http://www.kluwerarbitration.com/CommonUI/print.aspx
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There are contrary decisions, since overruled by Buckeye Check Cashing. SeeGibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1130 (7th Cir. 1997). 293 See infra pp. 941-943; Buckeye Check Cashing, 546 U.S. at
447; Snowden v. Checkpoint Check Cashing, 290 F.3d 631 (4th Cir. 2002) (claims that loan agreement was usurious “do not relate specifically to the Arbitration Agreement” and are therefore for arbitral determination); Bess v. Check Express, 294 F.3d 1298 (11th Cir. 2002) (claims that usurious and unlicensed loans were illegal did not concern “the arbitration agreement specifically” and “an arbitrator should decide those questions”); Lawrence v. Comprehensive Business Serv. Co., 833 F.2d 1159, 1162 (5th Cir. 1987) (“[Defendants] do not challenge the legality of the arbitration provision itself, but the legality of the entire contract. This court has applied Prima Paint to hold an arbitration clause enforceable in spite of a claim that the gas sales contract containing it was void from its inception because of the parties' failure to comply with a state statute regulating the sale of the state's gas. We regard this case as indistinguishable.”); Mesa Operating Ltd P'ship v. La. Intrastate Gas Corp., 797 F.2d 238, 244 (5th Cir. 1986) (enforcing arbitration clause, even when main contract may be void ab initio); Slatnick v. Deutsche Bank AG, 2006 U.S. Dist. LEXIS 94836, at *21-23 (S.D. Cal. 2006); Pinpoint Enters. v. Barnett Fin. Servs., Inc., 2004 U.S. Dist. LEXIS 6630, at *9-10 (E.D. La. 2004) (“The Plaintiffs do not contest the formation of an agreement to arbitrate. Rather, they challenge the validity of the contract and assert that any agreement to arbitrate was rendered invalid ab initio by Louisiana's real estate license laws. … The matter should be referred to the arbitrator for a resolution of this dispute, including consideration of the Plaintiffs' defense of illegality.”); Nuclear Elec. Ins. Ltd v. Central Power & Light Co., 926 F.Supp. 428 (S.D.N.Y. 1996) (claim that violations of Texas Insurance Code rendered insurance policies illegal related to “the entire policy” and were for arbitral, not judicial, determination); Belship Nav. Inc. v. Sealift, Inc., 1995 WL 447656 (S.D.N.Y. 1995) (claim that contract violated Cuban trade controls concerned entire agreement and is for arbitrators); Dewey v. Wegner, 138 S.W.3d 591, 601-02 (Tex. Ct. App. 2004); Moncharsh v. Heily & Blasé, 3 Cal.4th 1, 29-30 (Cal. 1992). 294 Seeinfra p. 942; Jenkins v. First Am. Cash Advance of Ga., LLC, 400 F.3d 868, 877 (11th Cir. 2005) (“These claims do not relate to the Arbitration Agreements themselves; rather, they allege the … Agreements, in general, were adhesive … the FAA does not permit a federal court to consider claims alleging the contract as a whole was adhesive.”); Madol v. Dan Nelson Auto. Group, 372 F.3d 997, 1000 (8th Cir. 2004) (“the plaintiffs' arguments that their … transactions were generally unconscionable were subject to resolution by an arbitrator, absent a showing by the plaintiffs that the DRA [dispute resolution agreement], standing alone, was invalid”); JLM Indus. v. Stolt-Nielsen SA, 387 F.3d 163, 170 (2d Cir. 2004); Sydnor v. Conseco Fin. Serv. Corp., 252 F.3d 302, 305 (4th Cir. 2001) (“[W]hen claims allege unconscionability of the contract generally, these issues are determined by an arbitrator because the dispute pertains to the formation of the entire contract, rather than the arbitration agreement”); CSA-Credit Solutions of Am., Inc. v. Schafer, 408 F.Supp.2d 503, 509 (W.D. Mich. 2006) (allegations constituted “challenges to the overall validity of the agreement for services rather than challenges to the arbitration provision itself. … [A] party may not avoid arbitration by attacking the overall contract http://www.kluwerarbitration.com/CommonUI/print.aspx
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between the parties.”); Flannery v. Tri-State Div., 402 F.Supp.2d 819, 825 (E.D. Mich. 2005) (“The unconscionability claim alone would be decided by an arbitrator under the prevailing authority because it goes to the substance of the agreement”); Gutierrez v. Academy Corp., 967 F.Supp. 945 (S.D. Tex. 1997); Brener v. Becker Paribas, Inc., 628 F.Supp. 442, 446 (S.D.N.Y. 1985). 295 See p. 942; Schacht v. Beacon Ins. Co., 742 F.2d 386 (7th Cir. 1984) (question whether condition precedent to underlying contract is fulfilled is for arbitrators); McIntyre v. Household Bank, 2004 WL 1088228, at *1 (N.D. Ill. 2007) (“it is the arbitrator's role to consider any arguments about the validity or enforceability of the entire contract, including the failure of a condition precedent.”); Capitol Vial, Inc. v. Weber Scientific, 966 F.Supp. 1108, 1111 (M.D. Ala. 1997) (“[T]here is no stated condition precedent, in the contract, to the operation of the arbitration clause itself. Prima Paint clearly governs here”). There are a few contrary results, particularly in older decisions, now overruled by Buckeye Check Cashing. See Adams v. Suozzi, 433 F.3d 220, 227-28 (2d Cir. 2005) (“[W]e see no reason why a contract that does not exist due to failure of a condition precedent to formation is any less ‘void’ than any other contract that never comes into existence. [I]f the … condition imposed by the [agreement] was not met, both the contract and any arbitration agreements therein would never have existed.”). 296 See infra pp. 941-943; Masco Corp. v. Zurich Am. Ins. Co., 382
F.3d 624, 629 (6th Cir. 2004) (arbitration clause remains valid despite claim of mutual mistake with regard to the main contract); Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 868-69 (7th Cir. 1985) (“objections to other parts of the contract, based on … mistake or whatever, need not spill over to the arbitration clause”); Bratt Enter., Inc. v. Noble Int'l Ltd, 99 F.Supp.2d 874 (S.D. Ohio 2000) (party claimed mutual mistake as to terms of underlying contract, but there was no claim “that there was any ‘mutual mistake’ in the negotiation of the arbitration clause itself”). 297 See infra p. 942; ACE Capital Re Overseas, Ltd v. Cent. United Life Ins. Co., 307 F.3d 24 (2d Cir. 2002) (arbitral determination required of claims that underlying contract was not properly terminated in accordance with its terms); Large v. Conseco Fin. Servicing Corp., 292 F.3d 49, 56 (1st Cir. 2002) (enforcing an arbitration clause when main contract had been automatically rescinded); Ambulance Billing Sys., Inc. v. Gemini Ambulance Serv., Inc., 103 S.W.3d 507 (Tex. App. 2003) (“dispute regarding whether a settlement agreement was reached replacing or cancelling” original agreement for arbitrator's determination); Clifton D. Mayhew, Inc. v. Mabro Constr. Inc., 383 F.Supp. 192 (D.D.C. 1974); Elgin Silk Co. v. Bayers, N.Y.L.J., 14 June 1927, at 1278 (N.Y.S. Ct. 1927) (cancellation of underlying contract does not affect arbitration clause). 298 546 U.S. at 449 (emphasis added). 299 See infra pp. 938-943. As discussed below, there will be relatively few cases where challenges to the validity or legality (as opposed to existence) of the underlying contract will affect the validity or legality of the associated arbitration agreement. See infra pp. 714-718, 721-723, 723-724, 724-725, 756-759, 942-943. Thus, a claim that the underlying contract is unconscionable, or tainted by fraud or mistake, will very seldom also impeach the validity of the associated agreement to arbitrate. Nonetheless, there may be http://www.kluwerarbitration.com/CommonUI/print.aspx
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circ*mstances where the circ*mstances constituting fraud, mistake or unconscionability with regard to the underlying contract also provide grounds for invalidating the associated arbitration agreement. See infra pp. 714-718, 721-722, 723-724, 724-726, 756759. 300 Hodge Bros., Inc. v. DeLong Co., 942 F.Supp. 412, 417 (W.D. Wisc. 1996). 301 See, e.g., Ferro Corp. v. Garrison Indus., Inc., 142 F.3d 926 (6th Cir. 1998) (“[T]he arbitration agreement is effectively considered as a separate agreement which can be valid despite being contained in a fraudulently induced contract.”); Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 868-69 (7th Cir. 1985) (“objections to other parts of the contract, based on fraud or unconscionability or mistake or whatever, need not spill over to the arbitration clause”); Hodge Bros., Inc. v. DeLong Co., 942 F.Supp. 412, 416-17 (W.D. Wis. 1996) (“A party may not invalidate an arbitration clause by attacking the legality of the underlying contract containing that clause.”); Unionmutual Stock Life Ins. Co. of Am. v. Beneficial Life Ins. Co., 774 F.2d 524, 528-29 (1st Cir. 1985) (“In this case, the arbitration clause is separable from the contract and is not rescinded by [a party's] attempt to rescind the entire contract based on mutual mistake and frustration of purpose.”); Torrance v. Admes Funding Corp., 242 F.Supp.2d 862, 868-69 (D. Ore. 2002) (“an arbitration clause may be enforced even though the rest of the contract is later held invalid by the arbitrator”); Cline v. H.E. Butt Grocery Co., 79 F.Supp.2d 730, 732 (S.D. Tex. 1999) (“The arbitration clause itself is supported by valid consideration: each party promised to relinquish their legal right to have a judicial forum adjudicate their disputes.”); Hydrick v. Mgt Recruiters Int'l, Inc., 738 F.Supp. 1434 (N.D. Ga. 1990) (“[I]f the arbitration clause is valid, the Court must enforce it, even if the underlying contract might be declared invalid.”). There are contrary results in early decisions, since overruled by Buckeye Check Cashing. Compare Metro Plan Inc. v. Miscione, 15 N.Y.S.2d 35 (N.Y. App. Div. 1939) (illegality/invalidity of underlying mortgage instrument by reason of usury invalidates associated arbitration clause); In re Cheney Bros., 219 N.Y.S. 96 (N.Y. App. Div. 1926) (“If the contract was voided by fraud, the arbitration provision therein falls”). 302 See, e.g., Sanford v. Member Works, Inc., 483 F.3d 956, 962
(9th Cir. 2007) (“Issues regarding the validity or enforcement of a putative contract mandating arbitration should be referred to an arbitrator, but challenges to the existence of a contract as a whole must be determined by the court prior to ordering arbitration.”); WillDrill Resources Inv. v. Samson Resources Co., 352 F.3d 211, 219 (5th Cir. 2003) (“Where a party attacks the very existence of an agreement, as opposed to its continued validity or enforcement, the courts must first resolve that dispute”); Burden v. Check Into Cash of Ky., LLC, 267 F.3d 483, 488 (6th Cir. 2001); Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (3d Cir. 2000) (“we conclude that the doctrine of severability presumes an underlying existent agreement”); Three Valleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136, 1140 (9th Cir. 1991) (reading Prima Paint as “limited to challenges seeking to avoid or rescind a contract – not to challenges going to the very existence of a contract that a party claims never to have agreed to”); Down To Earth Landscaping v. N.J. Bldg, at Laborers Dist. Council Local 595, 2006 U.S. Dist. LEXIS 30113, at *9 (D.N.J. 2006). See infra pp. 944-948. http://www.kluwerarbitration.com/CommonUI/print.aspx
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303 Buckeye Check Cashing, 546 U.S. at 444, n.1 (emphasis
added). See infra pp. 944-948. 304 The Court cited Chastain v. Robinson-Humphrey Co., 957 F.2d 851 (11th Cir. 1992) (dispute as to whether contract was signed), Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (3d Cir. 2000), Sphere Drake Ins. Ltd v. All Am. Ins. Co., 256 F.3d 587 (7th Cir. 2001) (dispute as to authority of agent), and Spahr v. Secco, 330 F.3d 1266 (10th Cir. 2003) (dispute as to mental capacity). 305 See supra p. 363 & infra pp. 376-380, 402-404, 872-876. 306 See infra pp. 944-948. 307 Chastain v. Robinson-Humphrey Co., 957 F.2d 851, 855 (11th Cir. 1992). 308 A number of decisions have required judicial determination of incapacity claims. See infra pp. 945-948; Spahr v. Secco, 330 F.3d 1266, 1273 (10th Cir. 2003) (“Unlike a claim of fraud in the inducement, which can be directed at individual provisions in a contract, a mental capacity challenge can logically be directed only at the entire contract”); Sphere Drake Ins. Ltd v. All Am. Ins. Co., 256 F.3d 587, 590-92 (7th Cir. 2001); Mariner Health Care, Inc. v. Ferguson, 2006 WL 1851250, at *7 (N.D. Miss. 2006) (purported agent “had neither actual, apparent, or statutory authority to bind [defendant] and her beneficiaries to the arbitration agreement” and retaining case for judicial determination); Guang Dong Light Headgear Factory Co. v. ACI Int'l, Inc., 2005 U.S. Dist. LEXIS 8810 (D. Kan. 2005) (with regard to mental incapacity defense, “[b]ecause the defense went to both the enforceability of the entire contract and the specific arbitration provision, it placed the ‘making’ of the agreement to arbitrate in question”); CitiFinancial, Inc. v. Brown, 2001 WL 1530352, at *5 (N.D. Miss. 2001) (“the issue of John Brown's mental incompetence goes directly to the making of the arbitration agreement. If he could not read or understand the arbitration agreement, he certainly could not consent to it.”); Am. Med. Techs., Inc. v. Miller, 149 S.W.3d 265, 270-71 (Tex. Ct. App. 2004); Rhymer v. 21st Mortg. Corp., 2006 Tenn. App. LEXIS 800, at *3-4 (Tenn. Ct. App. 2006). 309 These decisions adopt the theory that they impeach the whole contract generally, not the arbitration clause “specifically.” See infra pp. 945-948; Primerica Life Ins. Co. v. Brown, 304 F.3d 469 (5th Cir. 2002) (claim of mental incapacity is “not a specific challenge to the arbitration clause”); Shegog v. Union Planters Bank, NA, 332 F.Supp.2d 945, 948 n.4 (S.D. Miss. 2004); In re Steger Energy Corp., 2002 WL 663645 (Tex. App. 2002) (one party claimed that he was “incompetent at the time he signed the contracts – in the early stages of Alzheimer's,” but court required arbitration of this claim on grounds that “the defense asserted relates to the contract as a whole” and does not “specifically relate to the arbitration agreement itself”). 310 See infra pp. 945-947. A number of decisions have required judicial determination of duress and lack of consent claims. See infra pp. 946-948; Specht v. Netscape Comm. Corp., 306 F.3d 17, 32, 35 (2d Cir. 2002) (“plaintiffs may not be compelled to arbitrate their claims” because, among other things, the license agreement was a contract “to which plaintiffs never assented”); ThreeValleys Mun. Water Dist. v. E.F. Hutton & Co., 925 F.2d 1136 (9th Cir. 1991) (“By contending that they never entered into such contracts, plaintiffs also necessarily contest any agreements to arbitrate within the contracts”); Flannery v. Tri-State Div., 402 F.Supp.2d 819, 825 (E.D. Mich. 2005) (“The plaintiff here contends that no contract was ever formed because the plaintiff was under duress and did not http://www.kluwerarbitration.com/CommonUI/print.aspx
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freely assent to enter into the separation agreement or any of its provisions. … Th[is] claim of duress challenges the existence of the contract itself, and therefore relates to all the clauses and provisions in it, including the arbitration clause. The argument that the arbitration clause is invalid and unenforceable, therefore, is not barred by the rule in Prima Paint.”). Other decisions have required arbitration of claims of duress or lack of consent. See infra pp. 946-948; Villa Garcia v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 833 F.2d 545 (5th Cir. 1987) (alleged illiteracy goes to “formation of the entire contract” and is therefore for arbitral, not judicial, determination); Service Corp. Int'l v. Lopez, 162 S.W.3d 801 (Tex. App. 2005) (“duress … issue relates to the contract as a whole and not solely the arbitration provision. It is therefore an issue to be decided in arbitration”); Johnnie's Homes, Inc. v. Holt, 790 So.2d 956 (Ala. 2001) (since claim of illiteracy “bears upon [party's] comprehension of the entire contract, not just the arbitration agreement” it is for arbitral, not judicial, resolution). 311 A number of decisions have required judicial determination of
forgery and related claims. See infra pp. 945-947; Hetchkop v. Woodlawn at Grassmere, Inc., 116 F.3d 28 (2d Cir. 1997) (alleged “surreptitious substitution” of pages in contract: no assent if “the party did not know and had no reasonable opportunity to know that a page with materially changed terms had been substituted”); Gregory v. Interstate/Johnson Lane Corp., 188 F.3d 501 (4th Cir. 1999) (forgery claims affect arbitration clause and entire agreement; such claims are for judicial resolution); Chastain v. Robinson-Humphrey Co., 957 F.2d 851, 853 (11th Cir. 1992) (forgery claims for judicial resolution); Jolley v. Welch, 904 F.2d 988 (5th Cir. 1990) (forgery claims for judicial resolution); Opals on Ice Lingerie v. Bodylines, Inc., 2002 WL 718850, at *3 (E.D.N.Y. 2002) (“if a party's signature were forged on a contract, it would be absurd to require arbitration if the party attacking the contract as void failed to allege that the arbitration clause itself was fraudulently obtained”); Dougherty v. Mieczkowski, 661 F.Supp. 267 (D. Del. 1987) (“defendants cannot rely on a contract which plaintiffs never signed and, on the record, never saw, to establish the existence of an agreement to arbitrate”). Other decisions have required arbitration of claims that a signature on the underlying contract was forged. See infra pp. 946-948; Alexander v. U.S. Credit Mgt., 384 F.Supp.2d 1003, 1007 (N.D. Tex. 2005); AmSouth Bank v. Bowens, 351 F.Supp.2d 571, 575 (S.D. Miss. 2005) (“In the case at bar, the Bowenses do not deny that they have a contractual relationship of some sort with AmSouth by virtue of having deposited funds with AmSouth. However, the Bowenses take the position that they are not bound by any of the provisions of the customer agreement, including the arbitration provision, inasmuch as they never signed the agreement … since the Bowenses' forgery allegation regards the customer agreement as a whole and not just the arbitration clause of the customer agreement, it is an issue that must be submitted to the arbitrator as part of the underlying dispute.”). 312 Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (3d Cir. 2000). 313 Alexander v. U.S. Credit Mgt., 384 F.Supp.2d 1003, 1007 (N.D.
Tex. 2005). 314 See infra pp. 946-947. http://www.kluwerarbitration.com/CommonUI/print.aspx
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315 See infra pp. 661 et seq. Compare Opals on Ice Lingerie v.
Bodylines, Inc., 2002 WL 718850, at *3 (E.D.N.Y. 2002) (“if a party's signature were forged on a contract, it would be absurd to require arbitration if the party attacking the contract as void failed to allege that the arbitration clause itself was fraudulently obtained”) withColfax Envelope Corp. v. Local No. 458-3M, Chicago Graphic Comm. Int'l Union, 20 F.3d 750, 754-55 (7th Cir. 1994) (despite apparent lack of meeting of minds on underlying contract “there was a meeting of the minds on the mode of arbitrating disputes between the parties” and “the parties had agreed to arbitrate their claims”) and Teledyne, Inc. v. Kone Corp., 892 F.2d 1404 (9th Cir. 1990) (parties signed draft agreement, including arbitration clause, which was to be finalized; judicial challenge to arbitration clause rejected). 316 937 F.2d 469 (9th Cir. 1991). 317 Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 477 (9th Cir. 1991) (quoting Sauer-Getriebe KG v. White Hydraulics, Inc., 715 F.2d 348, 350 (7th Cir. 1983)). 318 See supra pp. 355-357 (discussing Sojuznefteexport v. JOC Oil Ltd). See also infra pp. 393-394; A. Samuel, Jurisdictional Problems in International Commercial Arbitration 174 (1989) (“it can happen that, during contractual negotiations, the arbitral clause is unequivocally accepted by both parties and then a dispute arises as to whether agreement was ever reached over the substantive contract. In such a situation, it is submitted that the dispute concerned should be referred to arbitration for both theoretical and practical reasons.”). 319 SeeSphere Drake Ins. Ltd v. All Am. Ins. Co., 256 F.3d 587, 591-92 (7th Cir. 2001) (“if they have agreed on nothing else, they have agreed to arbitrate”); Colfax Envelope Corp. v. Local No. 4583M, Chicago Graphic Comm. Int'l Union, 20 F.3d 750, 754-55 (7th Cir. 1994) (despite apparent lack of meeting of minds on underlying contract “there was a meeting of the minds on the mode of arbitrating disputes between the parties” and “the parties had agreed to arbitrate their claims”); Teledyne, Inc. v. Kone Corp., 892 F.2d 1404 (9th Cir. 1990) (parties signed draft agreement, including arbitration clause, which was to be finalized; court considered challenge to arbitration clause and rejected it); Johnston v. Beazer Homes Tex., LP, 2007 U.S. Dist. LEXIS 20519, at *8-10 (N.D. Cal. 2007); Alexander v. U.S. Credit Mgt., 384 F.Supp.2d 1003, 1007 (N.D. Tex. 2005); Sadler v. William Chevrolet/Geo, Inc., 306 F.Supp.2d 788, 789-90 (N.D. Ill. 2004); Toray Indus. Inc. v. Aquafil SpA, 17(10) Mealey's Int'l Arb. Rep. D-1 (2002) (N.Y. S.Ct. 2002) (despite one party's claim that there was only an agreement to agree, and no binding contract, court holds that “the parties have agreed to arbitrate” relying on fact that they “actively negotiated the choice-of-law and arbitration clause”). 320 See supra pp. 354-357 & infra pp. 413-422. 321 This appears to have been at least a part of the rationale in Standard Fruit. 937 F.2d at 477. See also authorities cited infra pp. 398-402. 322 Seeinfra pp. 398-402; Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 108 (3d Cir. 2000) (“The validity of the arbitration clause as a contract, which the District Court must determine prior to ordering arbitration, derives from [the agent's] authority to bind Advent. Therefore, there does not appear to be any independent source of the validity of the arbitration clause once the underlying contract is taken off the table. If the [agent's] signature is not binding, there is no arbitration clause.”); Cancanon v. Smith Barney, Harris, Upham & Co., 805 F.2d 998, 1000, 1001 (11th Cir. 1986) (“[w]here http://www.kluwerarbitration.com/CommonUI/print.aspx
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misrepresentation of the character or essential terms of a proposed contract occurs, assent to the contract is impossible. In such a case there is no contract at all”); Opals on Ice Lingerie v. Bodylines, Inc., 2002 WL 718850, at *3 (E.D.N.Y. 2002); Bahuriak v. Bill Kay Chrysler Plymouth, Inc., 2003 WL 105310 (Ill. App. 2003) (judicial determination of claim that underlying contract, and “therefore” arbitration clause, was never formed); City of Wamego v. L.R. Foy Constr. Co., 675 P.2d 912, 916 (Kan. App. 1984) (repudiation of contract included repudiation of the arbitration clause within the contract; “unless there is evidence of an independent meeting of the minds on the issue of arbitration alone, the arbitration agreement cannot stand as a separate contract”). Seealso Nussbaum, The “Separability Doctrine” in American and Foreign Arbitration, 17 N.Y.U.L.Q.Rev. 609, 610 (1940) (“It is universally [sic] recognised that on principle, invalidity of the main contract entails invalidity of the arbitration agreement.”); Svernlov & Carroll, What Isn't, Ain't: The Current Status of the Doctrine of Separability, 8(4) J. Int'l Arb. 37 (1991) (“Where it is alleged that no agreement has been entered into, the application of the separability doctrine is more doubtful. If the principal agreement was never entered into, the arbitration agreement contained therein must be affected by the invalidity as well.”). 323 Pollux Marine Agencies v. Louis Dreyfus Corp., 455 F.Supp. 211, 219 (S.D.N.Y. 1978). 324 See infra pp. 376-380, 398-402. 325 See supra pp. 363-365, 661 et seq. & infra pp. 402-404, 872877, 938-948, 955-958. 326 For a case where the parties did not intend their arbitration agreement to be separable, see Moseley v. Electronic & Missile Facilities, Inc., 374 U.S. 167, 171 (U.S. S.Ct. 1963). 327 See Prima Paint Corp., 388 U.S. 395; Buckeye Check Cashing, 546 U.S. 440; supra pp. 363-365. 328 See supra pp. 365-370. 329 See supra pp. 370-376. 330 This analysis is not inconsistent with Buckeye Check Cashing Inc., notwithstanding the Supreme Court's emphasis on the need for a challenge directed “specifically” at the arbitration agreement. 546 U.S. at 447; supra pp. 363-365 & infra pp. 941-943. The Court's analysis on this issue was directed at the issue of competencecompetence, not contractual validity. See supra pp. 363-365 & infra pp. 938-948. 331 In this regard, it is artificial to reason that an arbitration clause in a void contract necessarily exists (or, at least, exists sufficiently to require arbitration) but an arbitration clause in a contract tainted by duress or lack of capacity necessarily does not exist. Analytically, it is difficult in most cases to explain why particular categories of contract law defects in the underlying contract necessarily affect or do not affect an associated arbitration clause. See Ware, Arbitration Law's Separability Doctrine After Buckeye Check Cashing Inc. v. Cardegna, 8 Nev L.J. 107, 125 (2007) (“the separability doctrine cannot accommodate a principled distinction between the gun-point example and a misrepresentation case like Prima Paint”). As discussed above, it is possible to conclude, after an examination of the specific factual allegations and asserted legal objections, that the separable arbitration agreement is (or is not) valid. See supra pp. 376-378. It is not possible, however, to do so in the abstract, based on generalizations about “formation” or “validity” objections. 332 Buckeye Check Cashing, 546 U.S. at 444-47. See supra pp. http://www.kluwerarbitration.com/CommonUI/print.aspx
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363-365. 333 See supra pp. 363-376 & infra pp. 938-948. 334 As discussed below, decisions concerning the allocation of competence to consider challenges to an arbitration agreement should turn on issues of efficiency (e.g., are arbitral or judicial proceedings addressing a jurisdictional issue underway and advanced?), fairness and likely party intent (e.g., does it appear that the objections to the arbitration agreement are credibly founded). See infra pp. 971-981. These issues are not dependent on particular categories of contract law defenses. See infra pp. 979-981. 335 That is likely to be the case, for example, where only a claim of illegality, frustration, unconscionability, or repudiation of the underlying contract is involved. These claims do not, as a matter of law, ordinarily involve the arbitration clause. See supra pp. 353, 363365 & infra pp. 874, 940-942. 336 See infra pp. 874, 940-942. 337 See infra pp. 951-954, 971-979. 338 For example, if no arbitration has been commenced or arbitral tribunal constituted, then judicial resolution may be most efficient. That is because constituting a tribunal will require time (often months), as well as money. Conversely, if the arbitral tribunal has already been constituted and is already considering the jurisdictional challenge, then the reverse is likely true. 339 As discussed below, this approach is consistent with the European Convention and well-considered national court authority. See infra pp. 861-863, 951-954, 963-964. 340 See supra pp. 374-376. As discussed in greater detail below, there is uncertainty under the FAA concerning the consequences of an arbitral award resolving a party's challenge to the contract “generally,” and not the arbitration clause “specifically.” See infra pp. 938-948. The better, and more principled, view is that such awards are subject to judicial review with regard to the jurisdictional aspects of the tribunal's decision. See infra pp. 955-958. That is, while the parties are required under the FAA to arbitrate jurisdictional objections based upon the invalidity of the arbitration agreement when those objections “also” relate to the validity of the contract generally, parties retain the right to obtain ultimate judicial review of the arbitrators' resolution of the jurisdictional issue. Thus, if an arbitral award holds that the parties' underlying contract was validly formed, and “therefore” that the associated arbitration clause is valid, the jurisdictional aspect of this award is subject to de novo judicial review – even if it involves factual questions regarding the formation of the underlying contract. See infra pp. 955-958. 341 See Gross, Separability Comes of Age in England: Harbour v. Kansa and Clause 3 of The Bill, 11 Arb. Int'l 85, 88-91 (1995); Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶¶2-012 to 2013, 2-051 to 2-052 (22d ed. 2003). 342 See Ashville Inv. Ltd v. Elmer Contractors Ltd [1988] 3 W.L.R. 867, 873 (English Court of Appeal) (“it … is a principle of law that an arbitrator does not have jurisdiction to rule upon the initial existence of the contract”); Dalmia Dairy Indus. Ltd v. Nat'l Bank of Pakistan [1978] 2 Lloyd's Rep. 223, 292 (English Court of Appeal) (“we can find nothing … to justify departure from the logical conclusion that there is no difference in principle between a contract containing an arbitration clause admittedly concluded but void for initial illegality and a contract containing such a clause admittedly concluded but http://www.kluwerarbitration.com/CommonUI/print.aspx
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where it is alleged that either the contract or the arbitration clause or both have become void because of subsequent illegality.”); Heyman v. Darwins Ltd (1942) A.C. 356, 366 et seq. (House of Lords) (Viscount Simon, L.C.) (“If the dispute is whether the contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission.”); Smith, Coney & Barrett v. Becker, Gray & Co. [1916] 2 Ch 86 (English Court of Appeal) (“The plaintiffs in this action sought a declaration that the contract which I have just read was illegal by reason of the war. Of course, if it was illegal, then any question of arbitration under the contract would fall with it.”); supra pp. 336-340. See also Gross, Separability Comes of Age in England: Harbour v. Kansa and Clause 3 of The Bill, 11 Arb. Int'l 85, 88-91 (1995); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶2-013 (22d ed. 2003). 343 See supra pp. 338-339. 344 Harbour Assur. Co. (U.K.) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1992] 1 Lloyd's Rep. 81, 92-93 (Q.B.) (Steyn, J.), aff'd, [1993] Q.B. 701. 345 See Harbour Ass. Co. (UK) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1993] 3 All E.R. 897 (English Court of Appeal) (“There will obviously be cases in which a claim that no contract came into existence necessarily entails a denial that there was any agreement to arbitrate. Cases of non est factum or denial that there was a concluded agreement, or mistake as to the identity of the other contracting party suggest themselves as examples. But there is no reason why every case of initial invalidity should have this consequence.”). 346 English Arbitration Act, 1996, §7. See U.K. Departmental Advisory Committee on Arbitration Law, 1996, Report on the Arbitration Bill (February 1996), reprintedin, 13 Arb. Int'l 275, ¶43 (1997); supra pp. 336-340. 347 R. Merkin, Arbitration Law ¶5.43 (2004 & Update 2007); Westacre Inv. Inc. v. Jugoimport-SDPR Holdings Co. Ltd [1998] 4 All E.R. 570 (Q.B.); Harbour Ass. Co. (UK) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1993] 3 All E.R. 897 (English Court of Appeal). 348 English Arbitration Act, 1996, §7 (emphasis added). The application of §7 by the English courts is discussed below. See infra pp. 382-384. 349 See UNCITRAL Model Law, Art. 16(1); supra pp. 333-336 & infra pp. 864-865, 877-894. 350 See supra pp. 333-336. 351 See infra pp. 382-384; R. Merkin, Arbitration Law ¶5.45 (2004 & Update 2007); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶¶2-012, 2-012 to 2-053 (22d ed. 2003). 352 See, e.g., Credit Suisse First Boston (Europe) Ltd v. Seagate Trading Co. Ltd [1999] 1 Lloyd's Rep. 784, 796-98 (Q.B.) (recognizing the separability doctrine but holding that fraud in the formation of the underlying contract can indicate that the arbitration clause also was induced by fraud); Westacre Inv. Inc. v. JugoimportSPDR Holding Co., Ltd [1998] 4 All E.R. 570, 583 et seq. (Q.B.); Soleimany v. Soleimany [1999] Q.B. 785, 979 (English Court of Appeal); Lesotho Highlands Dev. Auth. v. Impregilo SpA [2006] 1 A.C. 221 (House of Lords). 353 The Court of Appeal relied upon the separability presumption to reach a conclusion regarding competence-competence. According to the Court, §7 of the Act “codifies the principle that an allegation of http://www.kluwerarbitration.com/CommonUI/print.aspx
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invalidity of a contract does not prevent the invalidity question being determined by an arbitration tribunal pursuant to the (separate) arbitration agreement.” [2007] 1 All E.R. (Comm.) 891, at ¶23. The Court adopted this approach notwithstanding the Act's deliberate refusal to link these issues. See English Arbitration Act, 1996, §7; supra pp. 338-340, 381. It appears that the Court's holding, like U.S. decisions in the field, rests on an allocation of competence to consider jurisdictional issues based in part on considerations of efficiency, rather than only the presumption of separability. Compare supra pp. 363-365, 367-380. 354 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); Pengellery, Separability Revisited: Arbitration Clauses and Bribery – Fiona Trust & Holding Corp v. Privalov, 24 J. Int'l Arb. 5 (2007); Paulsson, Arbitration Friendliness: Promises of Principle and Realities of Practice, 23 Arb. Int'l 477 (2007). 355 Id. at ¶27 (“The Supreme Court of the United States has also held that a challenge to the existence of the jurisdiction agreement based on fraud or duress must be based on facts specific to the clause and cannot be sustained on the basis of a challenge on like grounds to the validity of the contract containing it”) (quoting L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶12-099 (14th ed. 2006)). The English Court of Appeal also relied on Australian and Canadian authority. SeeFAI Gen. Ins. Co. v. Ocean Marine Mut. Prot. and Indem. Ass'n [1998] Lloyd's Rep. I.R. 24 (N.S.W. Comm. Ct.); Ash v. Corp. of Lloyd's, 87 D.L.R.4th 65 (Ontario Court of Justice 1991), rev'd on other grounds, 94 D.L.R.4th 378 (Ontario Court of Appeals 1992). In turn, the House of Lords cited German, U.S. and other authority. [2007] UKHL 40, at ¶¶14, 30, 31, 32 (House of Lords). 356 Id., at 29. 357 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords) (emphasis added). Commentary relied upon by the English Court of Appeal (but not quoted) goes on to say: “The consequence of these arguments is to limit the extent to which a jurisdiction agreement [or arbitration agreement] needs to satisfy the provisions of a particular law in order to establish its prima facie validity.” L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶12-099 (14th ed. 2006). 358 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). 359 Fiona Trust & Holding Corp. v. Privalov [2007] UKHL 40, at ¶17 (House of Lords). 360 Fiona Trust & Holding Corp. v. Privalov [2007] UKHL 40, at ¶17 (House of Lords). 361 See, e.g., Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); Credit Suisse First Boston (Europe) Ltd v. Seagate Trading Co. Ltd [1999] 1 Lloyd's Rep. 784, 796-98 (Q.B.) (recognizing the separability doctrine and holding that fraud in the formation of the underlying contract can indicate that the arbitration clause also was induced by fraud); Westacre Inv. Inc. v. JugoimportSPDR Holding Co. Ltd [1998] 4 All E.R. 570 (Q.B.); Soleimany v. Soleimany [1999] Q.B. 785, 797 (English Court of Appeal) (“[T]he fact that in a contract alleged to be illegal the arbitration clause may not itself be infected by the illegality does not mean that it is always so, and does not mean that an arbitration agreement that is http://www.kluwerarbitration.com/CommonUI/print.aspx
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separate may not be void for illegality. There may be illegal or immoral dealings which are, from an English law perspective, incapable of being arbitrated because an agreement to arbitrate them would itself be illegal or contrary to public policy under English law. The English court would not recognize an agreement between the highwaymen to arbitrate their differences any more than it would recognize the original agreement to split the proceeds.”). 362 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891, at ¶29 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). 363 [2007] UKHL 40, at ¶17. 364 Heyman v. Darwins Ltd [1942] A.C. 356, 366 (House of Lords). 365 See supra pp. 378-380. 366 See, e.g., Judgment of 7 May 1963, Ets Raymond Gosset v. Carapelli, JCP G 1963, II, 13, ¶405 (French Cour de cassation civ. 1e) (underlying agreement allegedly illegal for lack of governmental approval); Judgment of 21 February 1964, Meulemans, et Cie v. Robert, 92 J.D.I. (Clunet) 113 (Paris Cour d'appel) (1965); Judgment of 25 November 1966, Société des mines d'Orbagnoux v. Fly Tox, 1967 Dalloz 359 (French Cour de cassation civ. 2e) (repudiation). See also Mayer, Les limites de la séparabilité de la clause compromissoire, 1998 Rev. arb. 359, 362 (“[T]he choice-of-law clause escapes the nullity of the contract because it is its very purpose to specify the applicable law according to which the judge or arbitrator will decide whether the contract is void. And for the same reason, the arbitration clause must be respected if it implies the parties' will to confide the question of whether the contract is valid or void to an arbitrator.”). 367 Compare Judgment of 10 July 1990, L et B Cassia Associes v. Pia Inv. Ltd, 1990 Rev. arb. 857 (French Cour de cassation civ. 1e) (“in international arbitration, the independent existence of the arbitration clause finds a limitation in the non-existence of the underlying contract”) with Judgment of 6 December 1988, Navimpex Centrala Navala v. Wiking Trader Shiffahrtsgesellschaft MbH, 1989 Rev. arb. 641 (French Cour de cassation civ. 1e) (“According to the principle of the autonomy of the arbitration clause, it is permitted to rely on such clause even though the [underlying] contract, signed by the parties, has never come into force, if the dispute concerns the conclusion of such contract.”). 368 Mayer, The Limits of Severability of the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 261, 264 (ICCA Congress Series No. 9 1999). 369 See Sanders, L'autonomie de la clause compromissoire, in Hommage à Frédéric Eisemann 31, 34 et seq. (1978) (“it is thus necessary to carefully distinguish between the voidness of the contract (with the arbitration clause) and the total lack (inexistence) of such a contract (with the arbitration clause). In such a case, the existence of the arbitration agreement (of the clause inserted into the contract) is at stake and the concept of the autonomy is no longer sufficient.”). Compare E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶410, 411 (1999). 370 See infra pp. 900-904. 371 Swiss Law on Private International Law, Art. 178(3). See supra pp. 326-328. 372 See, e.g., Judgment of 9 June 1998, C. Srl v. L.S. SA, 16 ASA Bull. 653, 657 (Swiss Federal Tribunal) (1998); Judgment of 7 http://www.kluwerarbitration.com/CommonUI/print.aspx
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October 1993, DFT 59 I 177 (Swiss Federal Tribunal); Judgment of 6 November 1936, DFT 62 I 230, 233 (Swiss Federal Tribunal); Judgment of 28 January 1938, DFT 64 I 39, 44 (Swiss Federal Tribunal); Judgment of 14 April 1983, Carbomin SA v. Ekton Corp., XII Y.B. Comm. Arb. 502 (Court of Appeal of the Canton of Geneva) (1987); Judgment of 2 January 1984, K. KG v. M. SA and M.G., 3 ASA Bull. 19 (Court of Appeal of the Canton of Basel-City) (1985) (rejecting challenge to arbitration clause based upon mistake as to underlying contract). 373 See, e.g., Judgment of 20 December 1995, DFT 121 III 495, 500 (Swiss Federal Tribunal); Judgment of 2 September 1993, Nat'l Power Corp. v. Westinghouse, DFT 119 II 380, 384 (Swiss Federal Tribunal); Judgment of 7 July 1962, DFT 88 I 100, 105 (Swiss Federal Tribunal); Judgment of 17 March 1939, DFT 65 I 19, 22 (Swiss Federal Tribunal) (“Without any doubt, the invalidity of a contract does not always render the arbitration clause invalid: the clause inserted in a contract that was contested on grounds of fraudulent misrepresentation [dol] would still apply to the proceedings seeking invalidation since as an independent procedural agreement it would remain effective even where one of the parties were not bound by the contract. However, it is required that the clause was agreed to by someone who was capable of signing the contract which contains the clause.”). 374 See, e.g., B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶622 (2006) (“As an exception, it occurs that the invalidity of the main contract, contrary to the rule provided by Art. 178(3) SLPIL, nevertheless leads to invalidity of the arbitration agreement, particularly in case the main contract and the arbitration clause contained in it suffer from the same material defect. Among those defects are namely incapacity or material deficiencies of intent such as dissent or duress.”); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶77 (2000) (“This does not of course preclude that identical reasons might exist which impair the validity both of the main contract and also of the arbitration agreement – for instance capacity, deficiencies of intent, lack of authority.”); P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitrage interne et international en Suisse Art. 178, ¶22 (1989) (“there are cases when such invalidity [of the underlying contract] may directly affect the validity of the arbitration clause, e.g., defects of consent or the absence of authority of the signatories. The … effect of the invalidity of the main contract must be examined separately when the arbitration clause comes under examination.”); P. Jolidon, Commentaire au Concordat Suisse sur l'arbitrage 139 (1984) (“If it is the existence (and not only the validity) of a contract with its arbitration clause which is at issue, the problem is more delicate. If there is no contract at all, the judicial basis for the arbitrator's power lacks as well. The competence of the arbitral tribunal to decide on the existence of the contract, of which one could deduce its appointment, is to be denied in principle, unless very special circ*mstances show that the parties intended that even this question be submitted to arbitration or there is at least an appearance of a valid arbitration agreement.”). 375 See supra pp. 323-326; Judgment of 27 February 1970, 6 Arb. Int'l 79 (1990) (German Bundesgerichtshof); Judgment of 30 April 1890, 1890 JW 202, 203 (German Reichsgericht) (“the arbitration clause is not invalid because the main contract somehow appears to be invalid. The arbitral tribunal is therefore competent to decide on validity of the main contract.”). 376 See, e.g., Judgment of 16 March 1977, III Y.B. Comm. Arb. 274 (Landgericht Hamburg) (1978); Judgment of 12 March 1998, XXIX http://www.kluwerarbitration.com/CommonUI/print.aspx
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Y.B. Comm. Arb. 663, 666 (Hanseatisches Oberlandesgericht Hamburg) (2004) (“We reject the defendant's argument that there is a ground for refusal of recognition and enforcement … because the alleged nullity of the agreement of 29 October 1992 means that also the arbitral clause contained therein is invalid, and therefore the arbitration was not based on a valid arbitration clause. The arbitral tribunal … and the court of first instance correctly noted that the nullity of the main contract, if there is such nullity, does not affect the arbitration clause. This reasoning agrees with the widespread opinion also adopted in German legal circles as to the relation of arbitration agreement and main contract.”). 377 See, e.g., Judgment of 23 May 1991, III ZR 144/90, BGHR ZPO §1025 Wirksamkeit 1 (German Bundesgerichtshof) (threats or deceit affecting underlying contract must have direct effect on arbitration clause); Judgment of 12 March 1998, XXIX Y.B. Comm. Arb. 663 (Hanseatisches Oberlandesgericht Hamburg) (2004) (“the nullity of the main contract, if there is such, does not affect the arbitration clause”); Judgment of 28 July 2005, XXXI Y.B. Comm. Arb. 673 (Oberlandesgericht Koblenz) (2006). 378 See German ZPO, §1040(1) (“The arbitral tribunal may rule on its own jurisdiction and in this connection on the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.”). 379 Berger, Germany Adopts the UNCITRAL Model Law, 1998 Int'l Arb. L. Rev. 121; Böckstiegel, An Introduction to the New German Arbitration Act Based on the UNCITRAL Model Law, 14 Arb. Int'l 19 (1998); Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55 (2004); Schlosser, Arbitral Tribunals or State Courts: Who Must Defer to Whom?, in Arbitral Tribunals or State Courts: Who Must Defer to Whom? 15, 27 (ASA Special Series No. 15 2001). 380 P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶393 (2d ed. 1989) (“In case the defect put forward with regard to the main contract also affects the arbitration agreement itself …, sure enough the arbitration agreement cannot be upheld in isolation. If the issue is, whether the parties have already finally agreed on the conclusion of an agreement, an arbitral tribunal cannot bindingly decide this issue.”); Schlosser, Der Grad der Unabhängigkeit einer Schiedsvereinbarung vom Hauptvertrag, in Law of International Business and Dispute Settlement in the 21st Century, Liber Amicorum Karl-Heinz Böckstiegel 697, 704, 706 (2001). 381 Schlosser, Der Grad der Unabhängigkeit einer Schiedsvereinbarung vom Hauptvertrag, in Law of International Business and Dispute Settlement in the 21st Century, Liber Amicorum Karl-Heinz Böckstiegel 697, 711 (2001). 382 J.-P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶542 (3d ed. 2008). 383 Judgment of 2 July 1981, 1981 Foro it., Rep. voce Arbitrato no. 61 (Italian Corte di Cassazione). 384 Judgment of 21 December 1991, SpA Coveme v. Compagnie Française des Isolants, XVIII Y.B. Comm. Arb. 422, 425 (Bologna Corte di Appello) (1993). 385 Judgment of 3 October 1936, AB Norrköpings Trikåfabrik v. AB Per Persson, 1936 NJA 521 (Swedish S.Ct.). See Hobér, The Doctrine of Separability under Swedish Arbitration Law, Including Comments on the Position of American and Soviet Law, 68 SvJT http://www.kluwerarbitration.com/CommonUI/print.aspx
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257 (1983). 386 Judgment of 24 March1976, Hermansson v. AB Asfalbelaeggnigar, 1976 NJA 125 (Swedish S.Ct.). 387 Swedish Arbitration Act, §3 (“When ruling on the validity of an arbitration agreement which forms part of another agreement, for the purpose of determining the jurisdiction of the arbitrators, the arbitration agreement shall constitute a separate agreement.”); supra pp. 341-344 & infra pp. 965-966. 388 See supra pp. 340-341; Judgment of 15 July 1975, Kokusan Kinzoku Kogyo K.K. v. Guard-Life Corp., IV Y.B. Comm. Arb. 122 (Japanese S.Ct.) (1979). 389 Judgment of 15 July 1975, Kokusan Kinzoku Kogyo K.K. v. Guard-Life Corp., IV Y.B. Comm. Arb. 122 (Japanese S.Ct.) (1979); Judgment of 3 May 1980, Kabushiki Kaisha Ameroido Nihon v. Drew Chemical Corp., VIII Y.B. Comm. Arb. 394 (Yokohama District Court) (1983) (“where the arbitration clause stipulates that “all disputes … which may arise … out of or in relation to or in connection with this Agreement” shall be submitted to arbitration the arbitration clause retains its validity even after the termination of the principal contract”). 390 Japanese Arbitration Law, Art. 13(6). 391 See, e.g., Brawn Laboratories Ltd v. Fittydent Int'l GmbH, XXVI Y.B. Comm. Arb. 783 (Delhi High Court 1999) (2001); DHV BV v. Tahal Consulting Engineers Ltd, [2007] INSC 913 (Indian S.Ct.) (upholding arbitration agreement notwithstanding termination of underlying contract). 392 See, e.g., The Hub Power Co. v. Pakistan WAPDA, 16 Arb. Int'l 439, 450-451 (Pakistan S.Ct. 2000) (2000). 393 See, e.g., Resort Condominiums Int'l Inc. v. Bolwell, XX Y.B. Comm. Arb. 628, 632 (Queensland S.Ct. 1993) (1995) (although underlying contract had been terminated, arbitration clause was separable and remained enforceable after termination); Walter Rau Neusser Oel und Fett AG v. Cross Pac. Trading Ltd, XXXI Y.B. Comm. Arb. 559, 578 (Australian Fed. Ct. 2005) (2006) (“The arbitration clause is seen as constituting a severable and separate agreement between the parties”; claim that underlying contract was fraudulently induced does not impeach arbitration clause). 394 Seee.g., Brian Harper v. Kvaerner Fjellstrand Shipping AS, XVIII Y.B. Comm. Arb. 358 (B.C. S.Ct. 1991) (1993); Cecrop Co. v. Kinetic Sciences Inc., 16 B.L.R. 3d 15 (B.C. S.Ct. 2001). 395 See, e.g., Clarence Holdings Ltd v. Prendos Ltd, [2000] D.C.R. 404 (Auckland District Court) (termination of underlying contract did not affect arbitration clause: “it must follow that a purported repudiation of the contract by one party, even if later found to be legally valid, cannot bring down with it an arbitration clause in that agreement”). 396 See, e.g., Judgment of 18 January 1967, 1967 Neder. Juris., No. 90 (Arnhem Gerechtshof); Judgment of 5 November 1952, 1953 Neder. Juris. No. 327 (Amsterdam Arrondissem*ntsrechtbank) (alleged fraud which resulted in voidness of underlying contract did not impeach arbitration clause); Judgment of 19 December 1952, 1953 Neder. Juris. No. 328 (Amsterdam Arrondissem*ntsrechtbank) (invalidity of underlying contract on grounds that condition precedent was not satisfied did not impeach arbitration clause); Judgment of 6 December 1963, 1964 Neder. Juris. No. 43 (Netherlands Hoge Raad). 397 See, e.g., Sojuznefteexport v. JOC Oil Ltd, XV Y.B. Comm. Arb. http://www.kluwerarbitration.com/CommonUI/print.aspx
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384, 407 (Bermuda Court of Appeal 1989) (1990). 398 See, e.g., Fung Sang Trading Ltd v. Kai Sun Sea Products & Food Co. Ltd, XVII Y.B. Comm. Arb. 289 (H.K. High Court, S.Ct. 1991) (1992) (“the arbitration clauses is separable from the contract containing it so that if the contract is repudiated and the repudiation is accepted the arbitration clause survives the repudiation thus enabling the arbitrator to render an award on the claim resulting from the alleged repudiation.”). 399 The Hub Power Co. v. Pakistan WAPDA, 16 Arb. Int'l 439, 45051 (Pakistan S.Ct. 2000) (2000). 400 Judgment of 12 November 2003, XXXI Y.B. Comm. Arb. 620 (Chinese Supreme People's Court) (2006) (in case where signature on underlying contract was forged (through “cut-and-paste” with Xeroxes) arbitration agreement was held by Chinese courts to be void: “the arbitration agreement was entered into as a result of fraud … [and was] invalid under the applicable law of the place of arbitration”). 401 UNCITRAL Rules, Art. 21(2). 402 ICC Rules, Art. 6(4) (“Unless otherwise agreed, the Arbitral Tribunal shall not cease to have jurisdiction by reason of any claim that the contract is null and void or allegation that it is non-existent, provided that the Arbitral Tribunal upholds the validity of the arbitration agreement. The Arbitral Tribunal shall continue to have jurisdiction to determine the respective rights of the parties and to adjudicate their claims and pleas even though the contract itself may be non-existent or null and void.”). 403 ICDR Rules, Art. 15(2) (“The Tribunal shall have the power to determine the existence or validity of a contract of which an arbitration clause forms a part. Such an arbitration clause shall be treated as an agreement independent of the other terms of the contract. A decision by the tribunal that the contract is null and void shall not for that reason alone render invalid the arbitration clause.”). 404 LCIA Rules, Art. 23(1) (“The Arbitral Tribunal shall have the power to rule on its own jurisdiction, including any obligation to the initial or continuing existence, validity of effectiveness of the Arbitration Agreement. For that purpose, an arbitration clause which forms or was intended to form part of another agreement shall be treated as an arbitration agreement independent of that other agreement. A decision by the Arbitral Tribunal that such other agreement is non-existent, invalid or ineffective shall not entail ipso jure the non-existence, invalidity or ineffectiveness of the arbitration clause.”). 405 CEPANI Rules, Art. 19(4) (“Unless otherwise agreed, the Arbitral Tribunal shall not cease to have jurisdiction by reason of the nullity or non-existence of the contract, provided that the Arbitral Tribunal upholds the validity of the arbitration agreement.”); NAI Rules, Art. 9(5) (“An arbitration agreement shall be considered and decided upon as a separate agreement. The arbitral tribunal shall have the power to decide on the validity of the contract of which the arbitration agreement forms part or to which the arbitration agreement is related.”); Swiss International Arbitration Rules, Art. 21.(2) (tracking UNCITRAL Rules); HKIAC Domestic Rules, Art. 11.3; HKIAC International Rules, Art. 2, UNCITRAL Rules, Art. 21(2); CIETAC Rules, Art. 5(4) (“An arbitration clause contained in a contract shall be treated as independent and separate from all other clauses in the contract. The validity of an arbitration clause or an arbitration agreement shall not be affected by any modification, rescission, termination, transfer, expiry, invalidity, ineffectiveness, revocation or non-existence of the contract.”); SIAC Rules, Art. 26(1) http://www.kluwerarbitration.com/CommonUI/print.aspx
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(tracking UNCITRAL Rules); WIPO Arbitration Rules, Art. 36(a). 406 This is examined in greater detail below. See infra pp. 563 et seq. 407 ICC Rules, Art. 6(4); LCIA Rules, Art. 23(1). See Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 111-114 (2d ed. 2005). 408 See infra pp. 869-870, 931-934, 974-975. 409 All-Union Foreign Trade Assoc. Sojuznefteexport v. JOC Oil Ltd, Award in USSR Chamber of Commerce and Industry (9 July 1984), XVIII Y.B. Comm. Arb. 92 (1993). The tribunal reasoned: “the arbitration agreement is treated as a procedural contract and not as an element (condition) of a material-legal contract. The subject of an arbitration agreement (clause) is distinguished from the subject of a material-legal contract …. The subject of the agreement is the obligation of the parties to submit the examination of a dispute between a plaintiff and defendant to arbitration …. Predominant in the literature is the recognition of the autonomy of an arbitration agreement, its independence in relation to the contract. Such is the point of view of the overwhelming majority of Soviet authors who have expressed themselves on this subject.” Id. at 97. The Soviet arbitral tribunal's decision was upheld by the Bermuda Court of Appeal, in a lengthy opinion that squarely affirmed the presumption that arbitration clauses are separable from the underlying contracts with which they are associated. Sojuznefteexport v. JOC Oil Ltd, XV Y.B. Comm. Arb. 384, 407 (Bermuda Court of Appeal 1989) (1990). See supra pp. 344-346. 410 See infra pp. 851 et seq., 870 et seq. (especially 870-872). 411 Sojuznefteexport, XVIII Y.B. Comm. Arb. at 98. 412 Sojuznefteexport, XVIII Y.B. Comm. Arb. at 97. 413 Sojuznefteexport, XVIII Y.B. Comm. Arb. at 94-95. 414 Sojuznefteexport, XVIII Y.B. Comm. Arb. at 94-95. 415 See, e.g., Interim Award in ICC Case No. 4145, XII Y.B. Comm. Arb. 97, 100 (1987); Award in ICC Case No. 5943, 123 J.D.I. (Clunet) 1014 (1996); Award in ICC Case No. 6503, 122 J.D.I. (Clunet) 1022 (1995); Interim Award in ICC Case No. 7263, XXII Y.B. Comm. Arb. 92, 100 (1997); Libyan Am. Oil Co. v. Gov't of the Libyan Arab Republic (LIAMCO), Ad Hoc Award (12 April 1977), VI Y.B. Comm. Arb. 89, 96 (1981) (“widely accepted in international law and practice that an arbitration clause survives the unilateral termination by the State of the contract in which it is inserted and continues in force even after that termination.”); BP Exploration Co. Ltd v. Gov't of the Libyan Arab Republic, Award on Merits (10 October 1973), V Y.B. Comm. Arb. 143 (1980); Texaco Overseas Petroleum Co. v. Libyan Arab Republic, Preliminary Ad Hoc Award on Jurisdiction (27 November 1975), IV Y.B. Comm. Arb. 177 (1979); Award in Arbitral Tribunal of the Netherlands Oils, Fats and Oilseeds Trade Association of 10 September 1975, II Y.B. Comm. Arb. 156 (1977); Award in Bulgarian Chamber of Commerce and Industry, Case No. 88/1972 (23 June 1973), IV Y.B. Comm. Arb. 189 (1979). 416 Interim Award in ICC Case No. 4145, XII Y.B. Comm. Arb. 97, 100 (1987). 417 Final Award in ICC Case. No. 10329, XXIX Y.B. Comm. Arb. 108, 115 (2004). See also Interim Award in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312, 316 (2000) (“An arbitration clause constitutes a separate and autonomous agreement between the parties, which survives any termination of the main agreement in http://www.kluwerarbitration.com/CommonUI/print.aspx
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which it is contained, unless the arbitration agreement as such is expressly terminated.”); Interim Award in ICC Case No. 9517, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 54 (2001) (termination of underlying contract did not terminate arbitration clause: “to return a negative answer would lead to the absurd result that the most serious disputes arising “in connection with” the substantive contract could not be dealt with by the chosen method of dispute resolution”); Award in ICC Case No. 11761, quoted in M. Buehler & T. Webster, Handbook of ICC Arbitration 101 (2005) (rejecting argument that termination of underlying contract terminated arbitration clause: “it contradicts the well-established doctrine of separability”). 418 Elf Aquitaine Iran v. Nat'l Iranian Oil Co., Preliminary Ad Hoc Award (14 January 1982), XI Y.B. Comm. Arb. 97, 103-104 (1986). 419 See, e.g., Preliminary Award in ICC Case No. 6401, 7(1) Mealey's Int'l Arb. Rep. B-1, B-13 to B-14 (1992) (“There may be instances where a defect going to the root of an agreement between the parties affects both the main contract and the arbitration clause.”); Final Award in ICC Case No. 7626, XXII Y.B. Comm. Arb. 131, 138-139 (1997) (“The issue before us, then, resolves into one of deciding whether or not the parties agreed to this arbitration clause. This issue can only be resolved in the context of our more general consideration as to whether one or both of the Agreements are binding on P and A, the parties to this arbitration.”); Svernlov & Carroll, What Isn't, Ain't: The Current Status of the Doctrine of Separability, 8(4) J. Int'l Arb. 37, 42 (1991) (“The doctrine of separability as to voidable agreements therefore seems well settled in international commercial arbitration practice. Few cases have, however, considered the separability of an arbitration agreement in a void contract. Comments by the sole arbitrator in Elf Aquitaine indicate that separability would not be recognized in such a case. The number of cases discussing initial invalidity is, however, clearly insufficient to make any generalizations, leading to the conclusion that the question of the separability of arbitration clauses in agreements alleged never to have been entered into is presently unresolved in international commercial arbitration practice.”); Shackleton, Arbitration Without A Contract, 17(9) Mealey's Int'l Arb. Rep. 25 (2002). 420 See, e.g., Interim Award in ICC Case No. 4145, XII Y.B. Comm. Arb. 97, 100 (1987); Award in ICC Case No. 6367, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 54 (2001) (arbitration agreement exists and is valid even if underlying contract did not come into effect under law applicable to it); Elf Aquitaine Iran v. Nat'l Iranian Oil Co., Preliminary Ad Hoc Award (14 January 1982), XI Y.B. Comm. Arb. 97, 102 (1986) (“the autonomy of an arbitration clause is a principle of international law that has been consistently applied in decisions rendered in international arbitrations”); Texaco Overseas Petroleum Co. v. Libyan Arab Republic, Preliminary Ad Hoc Award on Jurisdiction (27 November 1975), IV Y.B. Comm. Arb. 177, 179 (1979) (tribunal rejected argument by Libyan government that nationalization had rendered concession agreements void and therefore the arbitration clauses within those concession agreements were also necessarily invalid); Award in ICC Case No. 5943, 123 J.D.I. (Clunet) 1014 (1996); Final Award in ICC Case No. 10329, XXIX Y.B. Comm. Arb. 108, 115 (2004); Sojuznefteexport v. JOC Oil Ltd, XVIII Y.B. Comm. Arb. at 94-95. 421 The topic of competence-competence is discussed below. See infra pp. 851 et seq. http://www.kluwerarbitration.com/CommonUI/print.aspx
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422 See supra pp. 354-395. 423 See supra pp. 361-362, 365-370, 370-376, 380-384, 385, 386,
387-388, 393-395. 424 See supra pp. 362-363, 374-376, 383-384, 384-386, 386-388, 389-395. 425 Svernlov, What Isn't, Ain't, 25 J. World Trade 37, 49 (1991). See alsosupra p. 348; Davis, A Model for Arbitration Law: Autonomy, Cooperation and Curtailment of State Power, 26 Ford. Urb. L.J. 167, 195-96 (1999) (“donning their magician's robes, a majority of Justices [in Prima Paint] pretended that the fraud arguably invalidating a contract has no effect on the validity of an arbitration clause within the contract”); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶4-43 (4th ed. 2004) (“If a contract has ceased to exist by the time of the arbitration, an arbitral tribunal still has the platform on which it may stand. If the contract never existed at all, then there was never an agreement. So the arbitral tribunal can have no valid existence, authority or jurisdiction.”); Ware, Employment Arbitration and Voluntary Consent, 25 Hofstra L. Rev. 83, 131 (1996) (“separability doctrine is legal fiction” that deprives arbitration of its consensual basis); Mayer, The Limits of Severability of the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 261 (ICCA Congress Series No. 9 1999). 426 S. Schwebel, International Arbitration: Three Salient Problems 1 (1987) (describing critics). 427 See supra pp. 357-359, 396 et seq. 428 See also supra pp. 376-380. 429 Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (3d Cir. 2000). 430 Examples where this has occurred are not uncommon and are discussed above. See infra pp. 361, 374-376, 389; Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 477 (9th Cir. 1991); Sphere Drake Ins. Ltd v. All Am. Ins. Co., 256 F.3d 587, 591-92 (7th Cir. 2001); Colfax Envelope Corp. v. Local No. 458-3M, Chicago Graphic Comm. Int'l Union, 20 F.3d 750, 754-55 (7th Cir. 1994); Teledyne, Inc. v. Kone Corp., 892 F.2d 1404 (9th Cir. 1990). Equally, there will be many instances where the parties did not conclude an arbitration agreement, separately and without regard to the underlying contract. See supra pp. 374-376, 383-384, 386-387, 389, 391; B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶622 (2006) (“As an exception, it occurs that the invalidity of the main contract, contrary to the rule provided by Art. 178(3) SLPIL, nevertheless leads to invalidity of the arbitration agreement, particularly in case the main contract and the arbitration clause contained in it suffer from the same material defect. Among those defects are namely incapacity or material deficiencies of intent such as dissent or duress.”). 431 See supra pp. 363-365, 382-384. 432 See supra pp. 358, 366-370, 376-378, 383-384. There are
certain defenses that cannot readily be formulated, based upon the same facts, for both the underlying contract and the arbitration agreement. These include unconscionability and indefiniteness, where by definition different contractual provisions are at issue in challenges to the underlying contract and arbitration agreement. 433 See supra pp. 370-376, 387 & infra pp. 947-948. http://www.kluwerarbitration.com/CommonUI/print.aspx
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434 See supra pp. 370-376, 384, 391 & infra pp. 947-948. 435 See supra pp. 370-376, 387 & infra pp. 947-948. 436 See supra pp. 361, 374-376, 382-384, 389. 437 See also supra pp. 370-376, 384, 391. 438 In principle, it is difficult to see why parties would choose to
conclude an arbitration agreement without, or in advance of, concluding an associated commercial contract. See supra pp. 374376. 439 See supra p. 397; S. Schwebel, International Arbitration: Three Salient Problems 1 (1987). 440 See supra p. 397; S. Schwebel, International Arbitration: Three Salient Problems 1 (1987) (describing critics). 441 See supra pp. 361, 374-376, 389, 399 & infra pp. 404-405, 640-644, 661-665, 747-751. 442 Fiona Trust & Holding Corp. v. Privalov, [2007] UKHL 40, at ¶17 (House of Lords) (where party claims forgery “the ground of attack is not that the main agreement was invalid. It is that the signature of the arbitration agreement, as a ‘distinct agreement [§7],’ was forged”). 443 These various flaws are discussed in detail below. See infra pp. 563 et seq. 444 See supra pp. 313, 354, 360-361, 363 & infra pp. 402-404. Issues of competence-competence are discussed in greater detail below. See infra pp. 851 et seq. 445 That is mandatorily required by Article II of the New York Convention and by Article 8 of the UNCITRAL Model Law (and equivalent provisions of other national arbitration statutes). See supra pp. 369-370, 378 & infra pp. 873, 940-942. 446 See infra pp. 851 et seq. 447 See infra pp. 877-986. In states that do not provide for interlocutory judicial consideration of jurisdictional objections (such as France) there is little need to consider the separability doctrine in this context. See infra pp. 900-904. 448 See infra pp. 911-960 (United States), 960-964 (England); Buckeye Check Cashing Inc. v. Cardegna, 546 U.S. 440 (U.S. S.Ct. 2006); Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). 449 See supra pp. 370-376, 382-384 & infra pp. 944-948, 961. 450 See supra pp. 387-389; Judgment of 23 May 1991, III ZR 144/90, BGHR ZPO §1025 Wirksamkeit 1 (German Bundesgerichtshof) (threats or deceit affecting underlying contract must have direct effect on arbitration clause). 451 See supra pp. 361, 374-376, 382-384, 389. 452 See infra pp. 971-981. 453 See infra pp. 402-404, 872-876. This has consequences, most importantly, for the possibility of judicial review of the arbitral award on questions regarding the validity or existence of the underlying contract or arbitration agreement. See infra pp. 955-958, 985. 454 See infra pp. 872-876; D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 446 (2006) (“The doctrine of separability resolves the conundrum of how a tribunal possesses jurisdiction when the clause that allegedly confers jurisdiction is part of a contract that is allegedly null and void”). 455 See infra pp. 872-876. http://www.kluwerarbitration.com/CommonUI/print.aspx
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456 See supra pp. 348-353. 457 See infra pp. 874-876. 458 See infra pp. 851 et seq. 459 European Convention, Arts. V(3), VI(3) (national courts
ordinarily “shall stay their ruling on the arbitrator's jurisdiction until the arbitral award is made”); infra pp. 861-863. 460 UNCITRAL Model Law, Art. 16(1) (“The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement”); supra pp. 333-336 & infra pp. 864-865, 877-894. 461 See supra pp. 333-336 & infra pp. 981 et seq. discussing power of arbitral tribunals to consider jurisdictional challenges to the existence and validity of the arbitration agreement itself. 462 As discussed below, these considerations include the view adopted in most developed legal systems, that it is procedurally efficient to permit at least some challenges to arbitral jurisdiction to be considered and decided initially by the arbitrators. These considerations also include the general international acceptance by national legislatures and courts, as well as business enterprises, of the principle that an arbitral tribunal possesses a separate category of jurisdiction to consider and decide issues concerning its own jurisdiction, separable from its jurisdiction to resolve substantive disputes. This conception of the “separability” of a tribunal's jurisdiction is conceptually-related to the separability doctrine, but involves additional and distinct considerations. See infra pp. 855869, 872-876. 463 See infra pp. 881-891, 900-904. 464 See infra pp. 965-966. 465 Further, there will also be cases where the separability presumption and competence-competence principle intersect: in particular, an arbitral tribunal may be competent to initially consider allegations that impeach both the underlying contract and the arbitration agreement. See supra pp. 365-376, 382-384, 399. In these cases, significant issues are raised regarding the preclusive effects of its award on these matters. See infra pp. 955-958, 981985. That is, if a tribunal considers a claim that no underlying contract or arbitration agreement was ever formed, issues as to the res judicata effect of the negative jurisdictional award will arise. In principle, the tribunal's negative jurisdictional award should be binding and preclusive on all the parties. 466 See supra pp. 354-357. 467 See infra pp. 580 et seq. 468 See infra pp. 580 et seq. 469 See infra pp. 679-687. 470 See infra pp. 655-661, 675-679. 471 See infra pp. 724-732. 472 See infra pp. 661-662. 473 See infra pp. 747-751. 474 See infra pp. 736-747. 475 The circ*mstances giving rise to such invalidity are discussed in detail below. See infra pp. 705-766. 476 There is substantial authority, under various national laws, that a party's repudiation of its arbitration agreement brings that agreement to an end (at least if the counter-party accepts the repudiation). See infra pp. 747-751. http://www.kluwerarbitration.com/CommonUI/print.aspx
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477 There are limited circ*mstances in which the specific terms of
the parties' agreement to arbitrate can become obsolete or impossible to perform. See infra pp. 751-753. In many cases, this will not result in the invalidity of the parties' basic agreement to arbitrate, which can be given effect through alternative terms. Nonetheless, there are circ*mstances in which the parties' basic agreement to arbitrate will become ineffective or incapable of being performed. See infra pp. 751-753. 478 Schwebel, Anti-Suit Injunctions in International Arbitration: An Overview, in E. Gaillard (ed.), Anti-Suit Injunctions in International Arbitration 13 (2005) (“The contractual right of an alien to arbitration of disputes arising under a contract to which it is party is a valuable right, which often is of importance to the very conclusion of the contract.”). Under many national laws, the invalidity or illegality of a fundamental term of an agreement can result in the invalidity of the overall agreement. SeeRestatement (Second) Contracts §184(1) (1981) (“If less than all of an agreement is unenforceable under the rule stated in §178, a court may nevertheless enforce the rest of the agreement in favor of a party who did not engage in serious misconduct if the performance as to which the agreement is unenforceable is not an essential part of the agreed exchange.”); German BGB, §139 (“If a part of an agreement is invalid, then the overall agreement is invalid, if it cannot be assumed that it would have been concluded without the invalid part.”). 479 See infra pp. 667-671.
Choice of Law Governing International Arbitration Agreements Chapter 4 Gary B. Born
Author Gary B. Born
A recurrent issue in the arbitral process is the choice of the law governing an international arbitration agreement. This subject arises in most disputes over the existence, validity and interpretation of arbitration agreements, and continues to give rise to unfortunate uncertainty. This Chapter first discusses the historic treatment of these choice-of-law issues, and then addresses contemporary approaches and prospects for further development. It separately addresses choice-of-law issues arising in connection with issues of substantive validity, non-arbitrability, formal validity, capacity and authority. (1) page "409"
Source Choice of Law Governing International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 409 - 409
1 For commentary, see Bernardini, Arbitration Clauses: Achieving
Effectiveness in the Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 197 (ICCA Congress Series No. 9 1999); Blessing, The http://www.kluwerarbitration.com/CommonUI/print.aspx
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Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 168 (ICCA Congress Series No. 9 1999); O. Chukwumerije, Choice-of-Law in International Commercial Arbitration (1994); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶¶16-001, 16-008, 16-010 to 16-028 (14th ed. 2006); Dimolitsa, Issues Concerning the Existence, Validity and Effectiveness of the Arbitration Agreement, 7(2) ICC Ct. Bull. 14 (1996); Friedland & Hornick, The Relevance of International Standards in the Enforcement of Arbitration Agreements under the New York Convention, 6 Am. Rev. Int'l Arb. 149 (1995); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶385-741 (1999); Gertz, The Selection of Choice of Law Provisions in International Commercial Arbitration: A Case for Contractual Dépeçage, 12 Nw. J. Int'l L. Bus. 163 (1991); Hanotiau, What Law Governs the Issue of Arbitrability?, 12 Arb. Int'l 391 (1996); Lew, The Law Applicable to the Form and Substance of the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 114 (ICCA Congress Series No. 9 1999); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶6-1 to 6-74 (2003); G. Moss, International Commercial Arbitration 279-99 (1999); Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9 (2001); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶¶2-85 to 2-94 (4th ed. 2004).
Choice of Law Governing International Arbitration Agreements - A. Introduction Chapter 4 Gary B. Born
Author Gary B. Born
A. Introduction The choice of the law applicable to an international arbitration agreement is a complex subject. The topic has given rise to extensive commentary, and almost equally extensive confusion. This confusion does not comport with the ideals of international commercial arbitration, which seeks to simplify, expedite and rationalize transnational dispute resolution. (2) There have been developments over the past decade in a number of quarters suggesting solutions to these uncertainties, but no generallyaccepted resolution has yet been reached.
Source Choice of Law Governing International Arbitration Agreements - A. Introduction in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 410 - 411
Analysis of the choice of the law governing an international arbitration agreement begins with the separability presumption. As discussed above, an international arbitration agreement is presumptively separable from the underlying contract with which it is associated. (3) As a consequence, it is theoretically possible (and common in practice) for the parties' arbitration agreement to be http://www.kluwerarbitration.com/CommonUI/print.aspx
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governed by a different law than the one governing their underlying contract. (4) Identifying the law that governs a separable international arbitration agreement – if it is not necessarily the law governing the parties' underlying contract – has often proved to be a complex and confusing process. This confusion can be exacerbated by the possibility that different issues relating to international arbitration agreements may be governed by different applicable laws (e.g., different laws may apply to issues of formal validity, capacity, substantive validity, assignment and waiver). (5) In an effort to reduce these complexities, and the uncertainties that they produce, some authorities and national courts hold that international arbitration agreements are, in certain respects, governed by uniform principles of international law, rather than by national law, or by specialized validation principles. In particular, French judicial decisions and commentary have held that international arbitration agreements are directly governed by proarbitration principles of international law (together, page "410" apparently, with French international public policy principles). (6) U.S. courts have taken a similar, but less radical, approach, applying international minimum standards to the substantive validity of arbitration agreements governed by the New York Convention. (7) In a conceptually-related approach, Swiss law has adopted a specialized validation principle that gives effect to agreements to arbitrate in Switzerland if they satisfy any one of a number of potentially-applicable national laws. (8) These various developments have not yet been universally accepted, but provide promising avenues for reducing the confusion and uncertainty surrounding the choice of law applicable to international arbitration agreements. In particular, they offer avenues for achieving the New York Convention's “pro-arbitration” goals, as well as the objective intentions of parties to most international commercial arbitration agreements.
2 See supra pp. 64-90. 3 See supra pp. 311 et seq. 4 See infra pp. 413-421. This may result from either an express or
implied choice of law by the parties, where they intend different laws to govern their underlying contract and their arbitration agreement, or from the application of conflict of laws rules, which results in the application of different laws to the parties' two agreements. See infra pp. 426-516. 5 See infra pp. 424-425. This is no different from choice-of-law analysis in other contexts, where different laws may apply to different issues arising from a contractual relationship. See, e.g., Rome Convention, Art. 3(1) (“By their choice the parties can select the law applicable to the whole or a part only of the contract.”); Restatement (Second) Conflict of Laws §188 (1971) (“The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties.…”); Gertz, The Selection of Choice of Law Provisions in http://www.kluwerarbitration.com/CommonUI/print.aspx
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International Commercial Arbitration: A Case for Contractual Dépeçage, 12 Nw. J. Int'l L. Bus. 163 (1991); Jayme, Betrachtungen zur “dépeçage” im internationalen Privatrecht, in Festschrift für Gerhard Kegel zum 75 Geburtstag 253 (1987); Reese, Dépeçage: A Common Phenomenon in Choice of Law, 73 Colum. L. Rev. 58 (1973). 6 See infra pp. 416, 504-506; Judgment of 21 May 1997, Renault v. V 2000 (formerly Jaguar France), 1997 Rev. arb. 537 (French Cour de cassation civ. 1e); Judgment of 20 December 1993, Municipalité de Khoms El Mergeb v. Société Dalico, 1994 Rev. arb. 116 (French Cour de cassation civ. 1e); Judgment of 25 November 1999, SA Burkinabe des ciments et matériaux v. Société des ciments d'Abidjan, 2001 Rev. arb. 165 (Paris Cour d'appel); Judgment of 17 December 1991, Gatoil v. Nat'l Iranian Oil Co., 1993 Rev. arb. 281 (Paris Cour d'appel). 7 See infra pp. 436-438, 485-497, 506-507; Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50, 53-54 (3d Cir. 1983); Ledee v. Ceramiche Ragno, 684 F.2d 184, 187 (1st Cir. 1982). The same standards apply under the Inter-American Convention. See supra pp. 103-105 & infra pp. 2338-2339, 2417, 2560, 2725. 8 See infra pp. 415-416, 497-504; Swiss Law on Private International Law, Art. 178(2).
Choice of Law Governing International Arbitration Agreements - B. Consequences of Separability Presumption for Choice of Law Applicable to International Arbitration Agreements Chapter 4 Gary B. Born
Author Gary B. Born
B. Consequences of Separability Presumption for Choice of Law Applicable to International Arbitration Agreements The starting point for analysis of the choice of the law governing international arbitration agreements is the separability presumption. As discussed above, this presumption provides that an international arbitration agreement is presumptively separable from the underlying contract with which it is associated. (9) One of the most direct consequences of the separability presumption is the possibility that the parties' arbitration agreement may be governed by a different law than the one governing their underlying contract. (10) That is, although the parties' underlying contract may be governed expressly, or impliedly, by the laws of http://www.kluwerarbitration.com/CommonUI/print.aspx
Source Choice of Law Governing International Arbitration Agreements - B. Consequences of Separability Presumption for Choice of Law Applicable to International Arbitration Agreements in Gary B. Born ,
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State A, the associated arbitration clause is not necessarily governed by State A's laws, and may instead be governed by the laws of State B or by principles of international law. This result follows, almost inevitably, from the separability presumption, which page "411" postulates two separable agreements, which can in principle be governed by two different legal regimes. (11)
International Commercial Arbitration, (Kluwer Law International 2009) pp. 411 - 425
The separability doctrine does not mean that the law applicable to the arbitration clause is necessarily different from that applicable to the underlying contract. (12) It instead means that differing laws may apply to the main contract and the arbitration agreement. Despite this possibility, in many cases, the same law governs both the arbitration agreement and the underlying contract. (13) The possibility that a different substantive law will apply to the parties' arbitration agreement than to their underlying contract is not merely of academic interest. Rather, as discussed below, the result in a large proportion of the cases where the law applied to the parties' arbitration clause was different from the law applicable to the underlying contract has been that the arbitration clause was more readily upheld against challenges to its validity. (14) That is, by applying a law other than that governing the parties' underlying contract, national and international tribunals have sought to safeguard international arbitration agreements against challenges to their validity based on local (often idiosyncratic or discriminatory) law. (15) Like the separability presumption itself, (16) this has contributed significantly to the enforceability of international arbitration agreements and the efficacy of the arbitral process. page "412" 1. Applicability of Different Laws to International Arbitration Agreement and Underlying Contract The effects of the separability presumption on the law applicable to international arbitration agreements have been acknowledged in diverse sources. These sources provide that, where the arbitration agreement is separable from the underlying contract, it may be governed by a different law from the underlying contract. a. International Arbitration Conventions Early international arbitration conventions did not address the question of what law governed the arbitration agreement in any detail. The Geneva Protocol provided only that the courts of a Contracting State should recognize valid arbitration agreements, but did not refer to the possibility of choosing the law governing such agreements, or provide that such law might differ from the one governing the underlying contract; (17) much less did the Protocol prescribe a rule for such a choice-of-law analysis. The Geneva Convention went somewhat further. It indirectly addressed the law governing the arbitration agreement, providing that one condition for recognition of an arbitral award was that “the award has been made in pursuance of a submission to arbitration which is valid under the law applicable thereto.” (18) This provision rested on the premise that an international arbitration agreement would be governed by an applicable national law, which would prima facie be selected by means of a choice-of-law analysis (“the law http://www.kluwerarbitration.com/CommonUI/print.aspx
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applicable thereto”). (19) The Convention did not, however, prescribe what this choice-of-law-analysis was. The New York Convention took further steps with regard to the choice of the law governing an international arbitration agreement. (20) As discussed above, the Convention provides that the selection of law applicable to the substantive validity of an arbitration agreement is subject to particular choice-of-law rules, and that the arbitration agreement may therefore potentially be subject to a different substantive legal regime, from the parties' underlying contract. (21) In particular, Article V(1)(a) of the Convention provides that an arbitral award may be refused recognition where “the said [arbitration] agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country page "413" where the award was made.” (22) As discussed elsewhere, this provision assumes that the parties may select a particular law to govern only their arbitration agreement (“the law to which the parties have subjected it”) and expressly establishes a specialized choice-of-law rule providing that, where the parties have not selected a law to govern their arbitration clause, that provision will be governed by “the law of the country where the award was made.” (23) The European Convention is even more explicit in its treatment of the law applicable to the arbitration agreement. Article VI(2) of the Convention provides a specialized set of choice-of-law rules, applicable only to the “validity of an arbitration agreement.” (24) At the same time, Article VII of the European Convention provides a separate regime for determination of the law governing the “substance of the dispute” between the parties, including particularly the law applicable to the parties' underlying contract. (25) The explicit contemplation of these provisions is that the parties' arbitration clause is to be treated as a separable agreement, which is subject to different conflict of laws rules, and therefore potentially a different substantive legal regime, than the parties' underlying contract. (26) b. National Arbitration Legislation National arbitration legislation and judicial decisions in a number of leading jurisdictions recognize, either expressly or impliedly, that the parties' arbitration agreement is subject to different choice-of-law rules, and may therefore be subject to different substantive laws, than their underlying contract. A principal objective of applying different substantive laws to the parties' arbitration agreement, than to their underlying contract, has been to enhance the enforceability of the former. i. UNCITRAL Model Law As noted above, Articles 34(2)(a)(i) and 36(1)(a) of the UNCITRAL Model Law permit annulment or non-recognition of an arbitral award if “a party to the arbitration agreement … was under some incapacity; or the said agreement is not 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. (27) As with Article V(1)(a) page "414" of the New York Convention, this http://www.kluwerarbitration.com/CommonUI/print.aspx
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acknowledges the presumptive separability of international arbitration agreements for choice-of-law purposes, and adopts a particular choice-of-law rule applicable to such agreements. (28) ii. Swiss Law on Private International Law The same basic approach is also followed in jurisdictions where there are separate statutory choice-of-law rules that are applicable specifically and only to international arbitration agreements, irrespective of the law governing the underlying contract. For example, Article 178(2) of the Swiss Law on Private International Law provides separate choice of law and substantive rules applicable to international arbitration agreements providing for arbitration in Switzerland. (29) Most fundamentally, Article 178(2) prescribes a specialized choiceof-law regime applicable to international arbitration agreements (but not to other types of agreements). Under Article 178(2), it is clear that the parties may select a law to govern their arbitration agreement which differs from that applicable to their underlying contract, or that applicable choice-of-law rules may result in the application of a different law to the arbitration agreement than to the underlying contract. (30) As explained by the Swiss Federal Tribunal, “[t]he principle of the autonomy of the arbitral clause … means, inter alia, that, in international commerce, the arbitration agreement and the main contract can be subject to different laws.” (31) In addition, it is also clear that under Article 178(2), different substantive legal rules will apply to the arbitration clause than to the underlying contract. In particular, as discussed in greater detail below, Article 178 applies an in favorem validitatis rule that an arbitration agreement providing for arbitration in Switzerland will be valid if it satisfies any of three possibly applicable laws (that chosen by the parties, that applicable to the underlying contract and Swiss law). (32) This approach rests page "415" upon the presumptive separability of the arbitration clause, which provides the premise for the application of specially-selected choice of law and substantive laws for the purpose of ensuring the more effective enforceability of international arbitration agreements. iii. French New Code of Civil Procedure French law also emphatically recognizes that a separable international arbitration agreement can be – and indeed must be – governed by a different law from that governing the underlying contract, and prescribes a specialized choice-of-law rule with regard to such agreements. As discussed elsewhere, French courts hold that international arbitration agreements are “autonomous” from any national legal system, and are instead directly subject to general principles of international law; this approach is avowedly “proarbitration,” designed to give maximum legal effect to consensual agreements to arbitrate. (33) Thus, the Cour de cassation's Dalico decision held that: “according to a substantive rule of international arbitration law, the arbitration clause is legally independent from the main contract in which it is included or which refers to it and, provided that no http://www.kluwerarbitration.com/CommonUI/print.aspx
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mandatory provision of French law or international public policy (ordre public) is affected, that its existence and its validity depends only on the common intention of the parties, without it being necessary to make reference to a national law.” (34) Other French authorities are to the same effect in affirming the existence of a specialized conflict of laws and substantive legal regime applicable to international arbitration agreements. (35) page "416" iv. U.S. Federal Arbitration Act The U.S. Federal Arbitration Act does not expressly address the question of the law applicable to international arbitration agreements. Nonetheless, as discussed elsewhere, §2 of the domestic FAA prescribes a substantive rule of presumptive validity for arbitration agreements, (36) which U.S. courts have interpreted as pre-empting a wide range of U.S. state law restrictions on the parties' autonomy to enter into valid agreements to arbitrate. (37) Section 2, and the federal common law rules based upon it, are best seen as a kind of specialized choice of law and substantive legal regime, broadly comparable to that of the French New Code of Civil Procedure and Swiss Law on Private International Law, applicable to arbitration agreements. The same analysis applies to §206 and §303 of the FAA, which implement the New York and Inter-American Conventions. (38) Consistent with this reasoning, U.S. courts have routinely held that international arbitration clauses are governed by a different law than the underlying contract, typically applying either U.S. federal common law rules derived from the New York Convention and the FAA (39) or the law of the arbitral seat. (40) In particular, as discussed below, most U.S. courts have adopted an analysis of the New York Convention which subjects international arbitration agreements to a different set of substantive legal rules than other contractual provisions. (41) As with Swiss and French law, the avowed and predominant purpose of these rules has been to enhance the enforceability of international arbitration agreements. page "417" Other U.S. authorities have also expressly acknowledged the possibility that a different law may apply to an arbitration agreement than to the underlying contract. The American Law Institute's Restatement (Second) Conflict of Laws explains: “the state whose local law governs the arbitration agreement will usually be the same as the state whose local law would be applied to determine other issues relating to the [underlying] contract. This will not, however, always be so. … Situations will arise where the state of most significant relationship with respect to the issue of arbitration is not the same as the state of most significant relationship with respect to other issues relating to the [underlying] contract.” (42)
As contemplated by §218, U.S. lower courts have frequently held that different state law rules may apply to the parties' arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement than to their underlying agreement. (43) v. Other Common Law Jurisdictions Other common law precedent is to the same effect as U.S. authority in holding that the arbitration agreement may be governed by a different law than the underlying contract. A leading English decision explains this principle as follows: “it is by now firmly established that more than one national system of law may bear upon an international arbitration. … [T]here is the proper law which regulates the substantive rights and duties of the parties. … Exceptionally, this may differ from the national law governing the interpretation of the agreement to submit the dispute to arbitration.” (44) page "418" Decisions from other common law jurisdictions reach the same conclusions. (45) vi. Other Civil Law Jurisdictions Judicial decisions from civil law jurisdictions also recognize that an arbitration clause may be governed by a different substantive law than the underlying contract. A few national arbitration statutes (including in Spain, Sweden and Algeria) adopt approaches to selecting the law applicable to the arbitration agreement that are broadly similar to the specialized choice-of-law regime applicable in Switzerland. (46) The common theme of these approaches is that the substantive law governing the arbitration agreement is prescribed by specialized choice-of-law rules, and that the substantive law applicable to the arbitration agreement may well be different from that governing the parties' underlying contract, including by virtue of the parties' choice. (47) In a representative decision, the Supreme Court of Sweden held that an arbitration clause, providing for arbitration in Stockholm, was subject to Swedish law with respect to issues of validity, notwithstanding the parties' express choice of Austrian law to govern their underlying contract. (48) In so doing, the court avoided page "419" the application of principles of Austrian law which would have invalidated the arbitration clause. The Court reasoned: “no particular provision concerning the applicable law for the arbitration agreement itself was indicated. In such circ*mstances, the issue of the validity of the arbitration clause should be determined in accordance with the law of the state in which the arbitration proceedings have taken place, that is to say, Swedish law.” (49) To similar effect, the Venice Court of Appeals held that “the arbitral clause is an autonomous legal contract with respect to the contract in which it is included,” which could be governed by a different substantive law than the underlying contract. (50) Courts from other civil law jurisdictions have reached similar conclusions. (51) http://www.kluwerarbitration.com/CommonUI/print.aspx
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c. International Arbitral Awards International arbitral tribunals have also consistently recognized that an arbitration clause may be governed by a different substantive law than the parties' underlying contract, again typically doing so to avoid invalidation of an agreement to arbitrate through application of local (and idiosyncratic) rules of law. Numerous examples confirm this observation. In the Final Award in ICC Case No. 6162, the tribunal applied Swiss law, as the law of the arbitral seat, to the parties' arbitration agreement, refusing to apply the substantive law selected by the parties' choice-of-law clause to govern their underlying contract (which would have invalidated the arbitration clause). (52) The tribunal in the Final Award in ICC Case No. 1507, reached a similar conclusion, stating that “an arbitration clause in an international contract may perfectly well be governed by a law different from that applicable to the underlying contract.” (53) Another ICC tribunal likewise observed that “the sources of law applicable to determine the scope and the effects of an arbitration clause providing for page "420" international arbitration do not necessarily coincide with the law applicable to the merits of a dispute submitted to such arbitration.” (54) Similarly, the tribunal in the Final Award in ICC Case No. 4381 examined the validity of the arbitration agreement by reference to the shared intentions of the parties and international commercial custom, without considering the law applicable to the underlying contract. (55) This prompted one commentator to opine that a “rule of arbitral jurisprudence” was becoming established – namely that, “the validity and scope of an arbitration agreement [are to be assessed] independently of the law governing the contract and without reference to any national law.” (56) As with national courts' decisions, the explicit purpose of the choice-of-law analysis has been to minimize the effect of national laws that restrict the parties' autonomy to enter into international arbitration agreements and to facilitate the enforceability of such agreements. 2. Application of Choice-of-Law Principles to Validate International Arbitration Agreements The potential applicability of different laws to the arbitration agreement and the underlying contract does not have merely theoretical importance. Rather, there will be many cases where the existence or validity of international arbitration agreements will be upheld notwithstanding challenges to those agreements based on the law governing the parties' underlying contract. (57) In particular, as discussed below, and page "421" as confirmed by a substantial body of authority, there are frequently cases where the law governing the parties' underlying contract will invalidate (or not recognize the existence of) the associated agreement to arbitrate. (58) Application of that law, in the absence of the separability presumption and a separate choice-of-law analysis for the arbitration agreement itself, would have the very real practical consequence of denying effect to the arbitration agreement. 3. Multiplicity of Choice-of-Law Rules for Law Governing International Arbitration Agreements http://www.kluwerarbitration.com/CommonUI/print.aspx
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A further, less salutary, consequence of the separability presumption in the choice-of-law context has been the development of a multiplicity of different approaches to choosing the law governing the formation, validity and termination of international arbitration agreements. (59) National courts, arbitral tribunals and commentators have adopted a wide variety of choice-of-law approaches, ranging from application of the law of the judicial enforcement forum, (60) to application of the law of the arbitral seat, (61) to application of the law governing the underlying contract, (62) to application of a “closest connection” or “most significant relation” standard, (63) to a “cumulative” approach looking to the law of all possibly-relevant states. (64) Other authorities have suggested even more esoteric choice-of-law rules, including the law of the arbitrator's residence or lex mercatoria. Commentators page "422" have variously identified three, four, or as many as nine approaches to the choice of law governing international arbitration agreements. (65) This multiplicity of choice-of-law rules potentially applicable to the arbitration agreement does not advance the purposes of the international arbitral process. (66) The existence of multiple choiceof-law rules has the potential to create unfortunate uncertainties about the substantive law applicable to arbitration agreements, and particularly the risk of inconsistent results in different forums. In turn, this leads to uncertainty about the extent to which international arbitration agreements can actually be relied upon to provide an effective means of resolving international disputes. The multiplicity of choice-of-law rules also leads to delays and expense, resulting from the need to engage in choice-of-law debates, before both arbitral tribunals and national courts, when disputes arise concerning the formation or validity of arbitration agreements. This is inconsistent with parties' expectations of an efficient, centralized dispute resolution mechanism in entering into international arbitration agreements. (67) Notwithstanding the uncertain state of their choice-of-law analyses, most national courts and international arbitral tribunals have arrived at sensible results in resolving disputes over the existence and validity of international arbitration agreements. In particular, as discussed below, most national courts and arbitral tribunals have found ways to utilize existing choice-of-law doctrines so as to avoid the application of discriminatory, idiosyncratic, or domesticallyfocused national laws, which might otherwise invalidate or impede the enforcement of international arbitration agreements. (68) Nonetheless, the analytical confusion about choice-of-law page "423" questions regarding the arbitration agreement creates uncertainty, delay and the risk of inappropriate and unjust results, and should be clarified. 4. Issues Governed By Law Applicable to International Arbitration Agreements A threshold inquiry in choice-of-law analysis is determining what issues are governed by the law (or laws) applicable to an international arbitration agreement. These issues potentially include: (a) form of arbitration agreement; (b) capacity of parties to conclude arbitration agreement; (c) authority of parties' representatives to http://www.kluwerarbitration.com/CommonUI/print.aspx
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conclude arbitration agreement; (d) formation and existence of arbitration agreement; (e) substantive validity and legality of arbitration agreement; (f) “non-arbitrability” or “objective arbitrability”; (g) effects of arbitration agreement; (h) means of enforcement of arbitration agreement; (i) interpretation of arbitration agreement; (j) termination and expiration of arbitration agreement; (k) assignment of arbitration agreement; and (l) waiver of right to arbitrate. (69) This Chapter addresses the choice-of-law treatment of a number of these issues. It focuses in particular on questions of formation, substantive validity and legality, form, termination, capacity and authority. Choice of law with regard to questions page "424" of the effects and enforcement of an arbitration agreement, (70) assignment, (71) effects, (72) interpretation (73) and waiver (74) raise specific issues, which are addressed separately in subsequent Chapters dealing with each of these topics. National courts or arbitral tribunals will not necessarily apply the same law to all of the foregoing issues, even when they arise in relation to the same arbitration agreement. For example, one national law may apply to questions of capacity (e.g., the law of a party's domicile), (75) while a different law applies to questions of form (e.g., the New York Convention) (76) and of substantive validity (e.g., the law selected by the parties or the law of the arbitral seat). (77) Likewise, a different national law may apply to questions of waiver (e.g., the law of the place where a party commences judicial proceedings, in violation of an arbitration agreement) (78) and to questions of non-arbitrability (e.g., the law purporting to establish objective non-arbitrability). (79) It is also occasionally suggested that additional issues, beyond those identified above, are governed by the law applicable to the parties' arbitration agreement, including the procedural law governing the arbitral proceedings (lex arbitri) or the law governing the arbitral award (including form and publication). (80) In general, these suggestions fail to distinguish between the various aspects of the international arbitral process. (81) Rather, as discussed below, it is relatively non-controversial that different choice-of-law analyses, and potentially substantive laws, may apply to these issues than to the arbitration agreement. (82)
9 See supra pp. 311 et seq. 10 See supra pp. 322-357. 11 See supra pp. 353-357. 12 E.g., Final Award in ICC Case No. 1507, in S. Jarvin & Y.
Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 215, 216 (1990) (“an arbitration clause in an international contract may perfectly well be governed by a law different from that applicable to the underlying contract”) (emphasis added); Interim Award in ICC Case No. 4131, IX Y.B. Comm. Arb. 131 (1984) (“the sources of applicable law for determining the scope and the effects of an arbitration clause, which is the basis of an international arbitration, are not necessarily the same as the law applicable to the merits of http://www.kluwerarbitration.com/CommonUI/print.aspx
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the dispute referred to this arbitration”) (emphasis added); Judgment of 21 March 1995, XXII Y.B. Comm. Arb. 800, 803 (Swiss Federal Tribunal) (1997) (“the arbitration agreement and the main contract can be subject to different laws.”) (emphasis added). 13 See infra pp. 445-447, 475-477; Final Award in ICC Case No. 3572, XIV Y.B. Comm. Arb. 111 (1989) (applying law chosen by parties to govern underlying contract to arbitration agreement); Final Award in ICC Case No. 5294, XIV Y.B. Comm. Arb. 137, 140-41 (1989) (applying Swiss law to both the arbitration agreement and underlying contract); Final Award in ICC Case No. 6379, XVII Y.B. Comm. Arb. 212, 215 (1992) (applying law governing underlying contract to arbitration agreement); Final Award in ICC Case No. 6752, XVIII Y.B. Comm. Arb. 54, 55-56 (1993) (applying general choice-of-law clause to arbitration clause); Final Award in ICC Case No. 6850, XXIII Y.B. Comm. Arb. 37 (1998) (applying choice-of-law clause in underlying contract to arbitration agreement). Under some national laws, notably French law, a different result applies. As discussed below, French law subjects international arbitration agreements to international law (and not any national legal system), thereby requiring that such agreements be governed by a different legal system from the parties' underlying contract. See infra pp. 416, 439-441, 504-506. A comparable approach is adopted by some U.S. courts. See infra pp. 506-507. 14 See infra pp. 507-516. 15 See infra pp. 447-451, 514-516. 16 See supra pp. 312-316, 348-353, 396-404. 17 Geneva Protocol, Art. I; supra pp. 58-61, 316-317. 18 Geneva Convention, Art. I(a) (emphasis added); supra pp. 61-
64, 316-317. 19 It also implied that the law governing the arbitration agreement could differ from that governing other aspects of the parties' relations. 20 As noted above, some commentators have termed the Convention's choice-of-law provisions its “essential achievement” (“la grande conquete”). Bredin, La Convention de New York du 10 juin 1958 pour la reconnaissance et l'exécution des sentences arbitrales étrangères, 87 J.D.I. (Clunet) 1003, 1020, 1029 (1960). 21 See supra pp. 317-319, 354-357. 22 New York Convention, Art. V(1)(a). See also supra pp. 317-319 & infra pp. 428-431. 23 See infra pp. 428-431, 460-466. See also A. van den Berg, The New York Arbitration Convention of 1958 126-128, 291-296 (1981). 24 European Convention, Art. VI(2). As discussed below, these rules provide for application of the law chosen by the parties, failing which, the law of the arbitral seat. See infra pp. 431-432; Hascher, European Convention on International Commercial Arbitration of 1961 – Commentary, XX Y.B. Comm. Arb. 1006 (1995). 25 European Convention, Art. VII. These rules are discussed below. See infra pp. 431-432, 460. 26 See also supra pp. 354-357. 27 UNCITRAL Model Law, Arts. 34(2)(a)(i) & 36(1)(a)(i); supra pp. 333-336 & infra pp. 2568-2573, 2777-2797. See P. Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions ¶¶7-018 & 8-023 (2d ed. 2005); H. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 915-16 & 1058-59 (1989). 28 See supra pp. 414-415. That rule gives effect to the parties' choice-of-law and, absent such a choice, the law of the arbitral seat. 29 Swiss Law on Private International Law, Art. 178(2). 30 See B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶374 (2006); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶22 (2000); P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitrage interne et international en Suisse Art. 178, ¶15 (1989). 31 Judgment of 21 March 1995, XXII Y.B. Comm. Arb. 800, 803 (Swiss Federal Tribunal) (1997). 32 See infra pp. 415-416, 501; J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶300 (2d ed. 2007) (“In Switzerland, PILS, Art. 178(2) establishes a conflict of law rule in favorem validitatis which provides that the arbitration agreement is materially valid providing it ‘fulfils the requirements either of the law chosen by the parties, of the law governing the merits of the dispute and notably the law applicable to the main agreement, or finally those of Swiss law.’ Therefore, the arbitrator will have jurisdiction providing the arbitration agreement is valid according to one of these three laws.”); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶22 (2000) (“[Swiss law] widens the spectrum of laws to be taken into account from the point of view of favor validitatis”); Lalive, The New Swiss Law on International Arbitration, 4 Arb. Int'l 2, 10 (1988) (“With regard to ‘material validity’ … Art. 178, ¶2 contains a ‘conflict rule’, of an alternative character, which indicates the policy of favor validitatis pursued by the Statute: the arbitration convention is valid whenever it complies with the conditions laid down either by the law chosen by the parties, or by the law governing the substance of the dispute (e.g., the main contract) or by Swiss law.”); Judgment of 16 October 2003, 22 ASA Bull. 364, 387 (Swiss Federal Tribunal) (2004). 33 See supra pp. 332-333 & infra pp. 439-441, 504-506; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶436 (1999). 34 Judgment of 20 December 1993, Municipalité de Khoms El Mergeb v. Société Dalico, 1994 Rev. arb. 116, 117 (French Cour de cassation civ. 1e) (emphasis added). 35 See infra pp. 439-441, 504-506; Judgment of 21 May 1997, Renault v. V 2000 (formerly Jaguar France), 1997 Rev. arb. 537 (French Cour de cassation civ. 1e); Judgment of 25 November 1999, SA Burkinabe des ciments et matériaux v. Société des ciments d'Abidjan, 2001 Rev. arb. 165 (Paris Cour d'appel). See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶436 (1999). 36 U.S. FAA, 9 U.S.C. §2; supra pp. 132-144, 206-207 & infra pp. 571-572. 37 See supra pp. 137-139 & infra pp. 449-451, 485-487; Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 444-48 (U.S. S.Ct. 2006); Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265 (U.S. S.Ct. 1995); Southland Corp. v. Keating, 465 U.S. 1 (U.S. S.Ct. 1984). 38 See supra pp. 136-138 & infra pp. 485-497. 39 See infra pp. 436-438, 485-497, 506-507; Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (U.S. S.Ct. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1985); Bridas SAPIC v. Gov't of Turkmenistan, 447 F.3d 411 (5th Cir. 2006); Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GmbH, 206 F.3d 411 (4th Cir. 2000) (FAA and New York Convention “create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.…”); Campaniello Imp. Ltd v. Saporiti Italia SpA, 117 F.3d 655 (2d Cir. 1997); Thomson-CSF v. Am. Arbitration Ass'n, 64 F.3d 773 (2d Cir. 1995); Masefield AG v. Colonial Oil Indus., Inc., 2005 WL 911770 (S.D.N.Y. 2005). See also Republic of Ecuador v. Chevron Texaco, 376 F.Supp.2d 334 (S.D.N.Y. 2005). 40 See infra pp. 493-494; Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F.3d 274, 292 n.43 (5th Cir. 2004); Nissho Iwai Corp. v. M/V JOY SEA, 2002 A.M.C. 1305 (E.D. La. 2002) (applying English law where “the parties did select an English forum, which is at least some evidence that English law was meant to govern”); Bergesen v. Lindholm, 760 F.Supp. 976, 981 n.9 (D. Conn. 1991). 41 See infra pp. 436-438, 506-507. Among other things, the weight of U.S. judicial authority has held that international arbitration agreements (which are subject to the New York Convention) are governed by substantive provisions of the Convention which limit or restrict the effects of national law on the validity of such agreements. See infra pp. 506-507. 42 Restatement (Second) Conflict of Laws §218 comment b (1971) (emphasis added). 43 See Joseph L. Wilmotte & Co. v. Rosenman Bros., 258 N.W.2d 317, 326 (Iowa 1977) (finding that “New York can be seen as having the most significant relationship to the issue of the validity and effect of the arbitration provisions of the contract,” though Iowa was the state of most significant relationship with respect to the underlying contract as a whole); Marchant v. Mead-Morrison, 169 N.E. 386 (N.Y. 1929) (arbitration clause subject to different law than underlying contract). 44 XL Ins. Ltd v. Owens Corning [2000] 2 Lloyd's Rep. 500, 507 (Q.B.) (quoting Channel Tunnel Group Ltd v. Balfour Beatty Constr. Ltd [1993] A.C. 334, 357-358 (House of Lords)). See also Naviera Amazonica Peruana SA v. Compania Internacional de Seguros del Peru [1988] 1 Lloyd's Rep. 116, 119 (English Court of Appeal) (“All contracts which provide for arbitration and contain a foreign element may involve three potentially relevant systems of law. (1) The law governing the substantive contract. (2) The law governing the agreement to arbitrate and the performance of that agreement. (3) The law governing the conduct of the arbitration. In the majority of cases all three will be the same. But (1) will often be different from (2) and (3), and occasionally, but rarely, (2) may also differ from (3).”); Deutsche Schachtbau- und Tiefbohrgesellschaft mbH v. Ras Al Khaimah Nat'l Oil Co. [1987] 2 Lloyd's Rep. 246, 250 (English Court of Appeal), rev'd on other grounds, [1988] 2 Lloyd's Rep. 293 (House of Lords) (arbitration clause “need not be governed by the same law” as the underlying contract); Black Clawson Int'l Ltd v. Papierwerke Waldhof Aschaffenburg AG [1981] 2 Lloyd's Rep. 446 (Q.B.); Hamlyn & Co. v. Talisker Distillery [1894] A.C. 202, 210 (House of Lords) (“[I]t is argued that an agreement to refer disputes to arbitration deals with the remedy and not with the rights of the parties, and that consequently the forum being Scotch the parties cannot by reason of the agreement into which they have entered interfere with the ordinary course of proceedings in the Courts of Scotland.”); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶16-012 (14th ed. 2006) (“Although, in many cases, the law http://www.kluwerarbitration.com/CommonUI/print.aspx
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applicable to the main contract will have a strong influence on the law applicable to the arbitration agreement, this will not be so in every case.”). 45 See, e.g., Nat'l Thermal Power Corp. v. The Singer Co., XVIII Y.B. Comm. Arb. 403, 405 (Indian S.Ct. 1992) (1993) (“The proper law of the arbitration agreement is normally the same as the proper law of the contract. It is only in exceptional cases that it is not so even where the proper law of the contract is expressly chosen by the parties. Where, however, there is no express choice of the law governing the contract as a whole, or the arbitration agreement as such, a presumption may arise that the law of the country where the arbitration is agreed to be held is the proper law of the arbitration agreement. But that is only a rebuttable presumption.”). 46 See supra pp. 415-416. 47 See Algerian Code of Civil Procedure, Art. 458 bis 1, ¶3 (adopting verbatim the language of Article 178(2) of Swiss Law on Private International Law); Spanish Arbitration Act, Art. 9(6) (same). See also Swedish Arbitration Act, §48 (“Where an arbitration agreement has an international connection, the agreement shall be governed by the law agreed upon by the parties. Where the parties have not reached such an agreement, the arbitration agreement shall be governed by the law of the country in which, by virtue of the agreement, the proceedings have taken place or shall take place. The first paragraph shall not apply to the issue of whether a party was authorized to enter into an arbitration agreement or was duly represented.”). 48 Judgment of 27 October 2000, Bulgarian Foreign Trade Bank, Ltd v. A.I. Trade Fin., Inc., XXVI Y.B. Comm. Arb. 291, 293 (Swedish S.Ct.) (2001). 49 Judgment of 27 October 2000, Bulgarian Foreign Trade Bank, Ltd v. A.I. Trade Fin., Inc., XXVI Y.B. Comm. Arb. 291, 293 (Swedish S.Ct.) (2001) (emphasis added). 50 Judgment of 26 April 1980, VII Y.B. Comm. Arb. 340, 341 (Venice Corte di Appello) (1982) (recognizing award rendered in arbitration in London). 51 Judgment of 4 August 1993, Owerri Commercial Inc. v. Dielle Srl, XIX Y.B. Comm. Arb. 703 (Hague Gerechtshof) (1994); Judgment of 3 March 1992, 1993 Rev. arb. 273 (French Cour de cassation civ. 1e); Judgment of 19 February 2004, 6 Ob 151/03, 2005 SchiedsVZ 54 (Austrian Oberster Gerichtshof); Judgment of 22 September 1994, 2 Ob 566/94, 1995 RdW 18 (Austrian Oberster Gerichtshof). See also J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶179 (2d ed. 2007). 52 Final Award in ICC Case No. 6162, XVII Y.B. Comm. Arb. 153, 160-62 (1992). 53 Final Award in ICC Case No. 1507, in S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 215, 216 (1990). 54 Interim Award in ICC Case No. 4131, IX Y.B. Comm. Arb. 131, 133 (1984). See also Interim Award in ICC Case No. 4504, 113 J.D.I. (Clunet) 1118 (1986); Preliminary Award in ICC Case No. 5505, XIII Y.B. Comm. Arb. 110, 116-117 (1988) (“Parties may submit an arbitration agreement to a law which is not the substantive law of the main contract.”); Award in ICC Case No. 5730, 117 J.D.I. (Clunet) 1029, 1032 (1990); Final Award in ICC Case No. 7453, XXII Y.B. Comm. Arb. 107 (1997) (Michigan choice-of-law clause in underlying contract not applicable to arbitration clause; instead, FAA applies). 55 Award in ICC Case No. 4381, 113 J.D.I. (Clunet) 1102, 1104 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(1986). 56 Derains, Observation on Final Award in ICC Case No. 4381, in S. Jarvin, Y. Derains & J.-J. Arnaldez (eds.), Collection of ICC Arbitral Awards 1986-1990 268 (1994). 57 See authorities cited supra pp. 415-416, 416, 419, 420-421; Final Award in ICC Case No. 6162, XVII Y.B. Comm. Arb. 153, 16062 (1992) (applying Swiss law to reject challenge to arbitration clause based on Egyptian law, which was the law applicable to the merits); Final Award in ICC Case No. 1507, in S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 215, 216 (1990) (applying the law of the arbitral seat to reject a challenge based on German law, which had been determined by the parties to be applicable to the underlying contract); Westbrook Int'l LLC v. Westbrook Tech., Inc., 17 F.Supp.2d 681, 682-83, 685 (E.D. Mich. 1998); Antco Shipping Co. v. Sidermar SpA, 417 F.Supp. 207, 214215 (S.D.N.Y. 1976); Kamaya Co. v. Am. Prop. Consultants, Ltd, 959 P.2d 1140, 1143-44, 1147 (Wash. App. Ct. 1998); XL Ins. Ltd v. Owens Corning [2000] 2 Lloyd's Rep. 500 (Q.B.) (applying law of arbitral seat, rather than underlying contract (which invalidated agreement), to uphold arbitration agreement); Deutsche Schachtbau- und Tiefbohrgesellschaft mbH v. Ras Al Khaimah Nat'l Oil Co. [1990] 1 A.C. 295 (House of Lords) (applying law of arbitral seat, rather than underlying contract, to uphold arbitration agreement); Rich (Marc) & Co. AG v. Società Italiana Impianta PA, The Atlantic Emperor [1989] 1 Lloyd's Rep. 548 (English Court of Appeal) (validity of arbitration clause determined applying English law as law of seat and putative proper law of arbitration agreement); Partenreederei M/S Heidberg v. Grosvenor Grain and Feed Co. Ltd, The Heidberg [1994] 2 Lloyd's Rep. 287 (Q.B.) (English law as law of seat applied to determine whether an arbitration clause has been validly incorporated); Judgment of 2 September 1993, Nat'l Power Corp. v. Westinghouse, DFT 119 II 380, 384 (Swiss Federal Tribunal) (explaining that the conflict rule in favorem validitatis of Article 178(2) of Swiss Law on Private International Law (three alternative connecting factors) incorporates the separability doctrine and is designed to prevent disputes with regard to the validity of the arbitration agreement). 58 See supra pp. 415-421 & infra 447-449, 454-459, 497-504, 504507. 59 The remaining sections of this Chapter focus first on the law applicable to the formation, validity and termination of international arbitration agreements. Additional or separate choice-of-law issues are raised with regard to form, capacity, authority and termination of international arbitration agreements, which are discussed in greater detail below. See infra pp. 516 et seq. 60 See infra pp. 467-469. 61 See infra pp. 470-475, 484-485. 62 See infra pp. 475-477. 63 See infra pp. 477-481. 64 See infra pp. 483-484. 65 Blessing, The Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 168, 171 (ICCA Congress Series No. 9 1999); Bernardini, Arbitration Clauses: Achieving Effectiveness in the Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 197, 200-02 (ICCA Congress Series No. 9 http://www.kluwerarbitration.com/CommonUI/print.aspx
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1999) (“[T]he international arbitrator may take at least three different approaches in order to determine the substantive law of the arbitration clause.”); Lew, The Law Applicable to the Form and Substance of the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 114, 141-44 (ICCA Congress Series No. 9 1999) (“There are four main conflict rules for determining the applicable law to govern the arbitration agreement.”). See also infra pp. 483-484. 66 See Judgment of 21 March 1995, XXII Y.B. Comm. Arb. 800, 804 (Swiss Federal Tribunal) (1997) (warning of danger that, due to application of different choice-of-law rules, “an arbitration agreement may, when relied upon [in a request for referral], cause under certain circ*mstances the lack of jurisdiction of the courts according to the lex fori, whereas the arbitral award based on that arbitration agreement may be denied recognition because the agreement is invalid according to a foreign law.”). See also M. Bühler & T. Webster, Handbook of ICC Arbitration 81 (2005) (“domestic litigators may find it surprising that there is no clear answer to this question” of what law governs the arbitration agreement in the absence of a choice-of-law by the parties). 67 See supra pp. 71-90. 68 See infra pp. 454-459, 514-516. 69 Different authorities identify different categories of issues that are potentially subject to the law governing an international arbitration agreement. See O. Chukwumerije, Choice-of-Law in International Commercial Arbitration 34 (1994) (“The law governing the arbitration agreement applies to limited issues of consent (such as whether or not the agreement was induced by fraud, misrepresentation, or undue influence), and the interpretation, effect, and scope of an arbitration agreement.”); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶16-001 (14th ed. 2006) (“The material validity, scope and interpretation of an arbitration agreement are governed by its applicable law.”); Bernardini, Arbitration Clauses: Achieving Effectiveness in the Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 197, 198 (ICCA Congress Series No. 9 1999) (the law governing the arbitration agreement governs “(i) the validity of the clause, including the arbitrability of future disputes; and (ii) its scope of application, from both a subjective and an objective viewpoint”); Judgment of 23 July 2001, XXXI Y.B. Comm. Arb. 825 (Spanish Tribunal Supremo) (2006) (determining the law applicable to the arbitration agreement “is somewhat complex because the applicable law splits into specific applicable laws for specific aspects: capacity, effects, etc.”); Nat'l Thermal Power Corp. v. The Singer Co., XVIII Y.B. Comm. Arb. 403, 406 (Indian S.Ct. 1992) (1993) (“The validity, effect, and interpretation of the arbitration agreement are governed by its proper law. Such law will decide whether the arbitration clause is wide enough to cover the dispute between the parties. Such law will also ordinarily decide whether the arbitration clause binds the parties even when one of them alleges that the contract is void, or voidable or illegal or that such contract has been discharged by breach or frustration. The proper law of arbitration will also decide whether the arbitration clause would equally apply to a different contract between the same parties or between one of those parties and a third party.”). 70 See infra pp. 1008, 1024. 71 See infra pp. 561, 1192. http://www.kluwerarbitration.com/CommonUI/print.aspx
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72 See infra pp. 1008, 1024. 73 See infra pp. 1084-1087. 74 See infra pp. 745-747. 75 See infra pp. 552-559. 76 See infra pp. 535-552. 77 See infra pp. 425-516. 78 See infra pp. 745-746. 79 See infra pp. 516-535. Matters can be even more complex in
U.S. courts, where U.S. federal law governs the validity and interpretation of domestic arbitration agreements, while issues of formation may be governed by U.S. state law. See infra pp. 485-497. 80 See supra pp. 181-184 for a general overview of choice-of-law issues in international arbitration. 81 See supra pp. 181-184. & infra pp. 1312-1314, 2109-2110. 82 See infra pp. 1312-1314 & 2109-2110.
Choice of Law Governing International Arbitration Agreements - C. Choice-OfLaw Rules Applicable to Formation and Substantive Validity of International Arbitration Agreements Chapter 4 Gary B. Born
Author Gary B. Born
C. Choice-of-Law Rules Applicable to Formation and Substantive Validity of International Arbitration Agreements One of the most important issues affected by choice-of-law analysis in the context of international arbitration agreements is the law applicable to the formation and substantive validity of such agreements. As a practical matter, this issue arises in page "425" the majority of judicial decisions and arbitral awards involving choice-of-law questions in relation to international arbitration agreements, and has obviously important consequences for the efficacy of any arbitration agreement. The following discussion considers (a) the choice of law applicable to questions of formation and substantive validity in the context of a choice-of-law agreement between the parties; and (b) the choice of law applicable to those issues where no choice-of-law agreement has been made. 1. Choice-of-Law Agreements Governing Formation and Substantive Validity of International Arbitration Agreements
Source Choice of Law Governing International Arbitration Agreements - C. Choice-Of-Law Rules Applicable to Formation and Substantive Validity of International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 425 - 516
Almost all contemporary authorities recognize the autonomy of http://www.kluwerarbitration.com/CommonUI/print.aspx
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parties to select the law applicable to the formation and substantive validity of their international arbitration agreement. This is a specific application of the more general autonomy of parties under most contemporary legal regimes to agree upon the substantive law applicable to their relations. (83) This general principle applies with particular force to international arbitration agreements, where party autonomy enjoys special status, (84) and is confirmed by both international treaties and national arbitration legislation. (85) (At the same time, parties seldom exercise this autonomy to specifically designate the law applicable to their arbitration agreement; (86) rather, as discussed below, most such choices of law are implied, either from a choice-of-law clause in the parties' underlying contract (87) or from the selection of arbitral seat. (88) ) Under most national legal systems, there are limits to the parties' autonomy to select the law applicable to their legal relations. (89) These types of restrictions also exist with regard to agreements selecting the law applicable to international arbitration clauses. In general, the limits on the parties' autonomy to choose the law applicable to their international arbitration agreement are expressed as “non-arbitrability” rules or as mandatory requirements directed specifically at the validity of agreements to arbitrate. Both of these subjects are addressed in greater detail in Chapter 5 below. (90) Despite general acceptance of principles of party autonomy, a number of developed legal systems accord only qualified effect to choice-of-law clauses in selecting the law applicable to international arbitration agreements. In particular, some legal systems apply either a validation principle (e.g., Switzerland) or page "426" international principles (e.g., France, United States) in order to give effect to agreements to arbitrate that the parties' choice-of-law clause (typically in their underlying contract) would invalidate. As discussed below, this analysis is best explained as an effort to give effect to the parties' true and authentic intentions regarding their agreement to arbitrate, which are typically not expressed in a general choice-of-law clause that invalidates their agreement to arbitrate. (91) a. Need for Conflict of Laws Analysis in Cases Involving Choice-of-Law Agreement Preliminarily, the existence of a choice-of-law agreement by the parties selecting the law applicable to an international arbitration agreement does not obviate the need for a conflict of laws analysis. Rather, as in other contexts, (92) conflict of laws rules must be applied to give effect to (or invalidate) and to interpret a putative choice-of-law agreement. (93) In turn, the need to apply some set of conflict of laws rules to choiceof-law agreements inevitably requires selecting the appropriate conflicts rules. (The same issue, of “choice of choice-of-law rules,” arises in the context of the arbitral tribunal's selection of the substantive law governing the parties' underlying dispute. (94) ) As discussed below, a number of arbitral tribunals have held or assumed that the conflict of laws rules of the arbitral seat will apply to select the substantive law applicable to an international arbitration agreement; nonetheless, there is little uniformity on this issue, and http://www.kluwerarbitration.com/CommonUI/print.aspx
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other arbitral tribunals apply different choice-of-law rules. (95) In contrast, as in other contexts, national courts have generally applied their own choice-of-law rules. (96) b. International Arbitration Conventions The autonomy of parties to select the law governing their international arbitration agreement is expressly recognized in leading arbitration conventions. (97) Indeed, page "427" these instruments confirm the parties' freedom to choose the law governing their arbitration agreements without express qualifications for mandatory law limitations (although such limitations may fairly be inferred). i. New York Convention As noted above, neither the Geneva Protocol nor the Geneva Convention addressed the question of the law applicable to the parties' arbitration agreement. (98) Notwithstanding its focus on international arbitration agreements, the Geneva Protocol was almost entirely silent on the question of applicable law, including with regard to issues of party autonomy. (99) Likewise, while acknowledging that the arbitration agreement might be subject to a separate national law, (100) the Geneva Convention did not address the question whether parties could select the law applicable to their international arbitration agreement. (1). Recognition of Party Autonomy in Article V(1)(a) of New York Convention As discussed above, the New York Convention went further than the Geneva Protocol and Geneva Convention in addressing the parties' autonomy to select the law applicable to an international arbitration agreement, albeit without dispositively resolving the matter. (101) Article V(1)(a) of the Convention provides that an award need not be recognized if the arbitration agreement was “not 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.” (102) The clear import of Article V(1)(a) is that the validity of an international arbitration agreement is governed, at page "428" least at the stage of recognizing an award, by the law (if any) selected by the parties. (103) (2). Recognition of Party Autonomy in Article II(1) The same choice-of-law rule is contained, albeit indirectly, in Article II of the Convention. Article II(1) requires Contracting States to recognize international arbitration agreements. (104) As discussed below, that obligation extends to the essential elements of the parties' agreement to arbitrate, (105) including their agreement on the law governing that agreement to arbitrate. Thus, although not frequently discussed, Article II(1)'s effect is, even more directly than Article V(1)(a), to require Contracting States to recognize and give effect to the parties' agreement on the law governing their arbitration agreement. (106) http://www.kluwerarbitration.com/CommonUI/print.aspx
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(3). Applicability of Article V(1)(a)'s Recognition of Party Autonomy at Stage of Recognition of Arbitration Agreement As discussed in greater detail below, some authorities have suggested that Article V(1)(a) of the Convention applies only at the stage of recognition of an award, and not at earlier stages (including decisions by a national court whether or not a litigation should be stayed because of the parties' arbitration agreement). (107) Under these analyses, Article V(1)(a) is, by its terms, only applicable in defining the circ*mstances when an award may be denied enforcement, and not when an arbitration agreement is valid. According to this interpretation of the Convention, the questions whether an arbitration agreement is valid and whether a national court litigation should be stayed in favor of arbitration, pursuant to Article II of the Convention, require reference to choice-of-law rules other than those in Article page "429" V(1)(a) (for example, the choice-of-law rules of the judicial enforcement forum or the substantive rules of validity of the enforcement forum). (108) Nonetheless, the weight of authority is to the contrary. It instead correctly holds that the choice-of-law standard set forth in Article V(1)(a) is applicable outside the specific context of recognition of an award, including when national courts are required to consider whether to refer claims to arbitration under an arbitration agreement pursuant to Article II of the Convention. (109) Indeed, Article V(1) (a)'s establishment of a uniform, minimum choice-of-law regime for the law governing an international arbitration agreement is one of the most significant achievements of the New York Convention, which it is essential to apply universally, and not just at the awardenforcement stage. (4). Non-Arbitrability and Mandatory Law Limitations on Party Autonomy under New York Convention One notable absence from Article V(1)(a) is any reference to possible limitations on the parties' choice of law governing their arbitration agreement. (110) The absence of any such reference does not imply that the Convention excludes, or forbids application of, limits on the parties' autonomy. Rather, these constraints are acknowledged elsewhere in the Convention, as exceptional escape devices from the uniform choice-of-law regime established by Article V(1)(a). As discussed in greater detail below, Article V(2)(a) exceptionally allows non-recognition of an award in an individual Contracting State where, under the laws of the judicial recognition forum, parties may not validly agree to arbitrate a particular matter. (111) To the same effect is Article II(1) of the Convention, providing exceptionally for non-recognition of arbitration agreements in a particular page "430" Contracting State as to matters defined as non-arbitrable under local mandatory law. (112) The effect of Articles V(2)(a) and II(1) is to permit individual Contracting States to impose limits on the enforceability in local courts of the parties' agreements on the law governing their arbitration agreement. By virtue of Article V(2)(a), and the parallel terms of Article II(1), the Convention not only does not exclude, but http://www.kluwerarbitration.com/CommonUI/print.aspx
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affirmatively gives effect in exceptional circ*mstances to, the general concept of such constraints on party autonomy. (113) As discussed below, such constraints are extremely narrow, and subject to international limitations, but, in principle, they are acknowledged by the Convention as possible escape devices from the general choiceof-law regime established by Article V(1)(a). (114) The Convention does not appear to contain, or permit, other sorts of constraints that exist in some contexts on the parties' autonomy to select the law applicable to their legal relations. In particular, the Convention does not contain, or permit, constraints based on the lack of any connection or reasonable relation between the parties' transaction and the law they select to govern their arbitration agreement. (115) The Convention would also appear to exclude other types of constraints, including prohibitions against implied choices of law (116) or special form requirements. (117) ii. European Convention The European Convention is even more explicit in its recognition of the parties' autonomy to select the law governing their international arbitration agreement. Article VI(2) of the Convention provides that, when required to rule on the existence or validity of an arbitration agreement, the courts of a Contracting State shall do so “(a) under the law to which the parties have subjected their arbitration agreement; (b) failing any indication thereon, under the law of the country in which the award is to be made; (c) failing any indication as to the law to page "431" which the parties have subjected the agreement, and where at the time when the question is raised in court the country in which the award is to be made cannot be determined, under the competent law by virtue of the rules of conflict of the court seized of the dispute.” (118) The Convention goes on to provide that “[t]he courts may also refuse recognition of the arbitration agreement if under the law of their country the dispute is not capable of settlement by arbitration.” (119)
In substance, the European Convention provides a similar choice-oflaw approach to that of the New York Convention, giving primary effect to the parties' choice-of-law agreement, while secondarily looking to the law of the arbitral seat (if the parties have not selected any law governing their arbitration agreement). (120) Again like the New York Convention, the European Convention makes provision for denying recognition to agreements on non-arbitrability grounds, (121) thereby giving direct recognition to limits on the parties' autonomy to choose the law governing their arbitration agreement. In addition, the European Convention specifies a further, default choice-of-law rule. (122) This rule is applicable in circ*mstances where it is impossible to determine the arbitral seat in advance (but provides nothing beyond the statement that a court may apply its generally-applicable choice-of-law principles). iii. Rome Convention
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Finally, the 1980 Rome Convention also has potential application to some arbitration agreements. The Convention is not of direct relevance to choosing the law applicable to arbitration agreements because it expressly excludes such agreements from its scope. (123) It has been suggested that this exclusion “helped to marginalize the page "432" choice-of-law” approach to international arbitration agreements (in favor of direct application of “international” standards, as applied by French courts). (124) That is misconceived. The Rome Convention excluded arbitration agreements from its scope because of the special issues that they raised and the particular treatment that they required, insofar as the choice of applicable national law was concerned. (125) The decision not to address specialized questions of this nature, in a treaty of general application, in no way implies approval or disapproval of any particular approach to selecting the law applicable to international arbitration agreements. Rather, it merely reflects the special character of arbitration agreements (thereby further confirming one of the rationales of the separability presumption and its consequences for choice-of-law analysis). (126) Nor has there been any indication, since the Rome Convention was adopted in 1980, that choice-of-law issues have become less important with regard to arbitration agreements. On the contrary, both national courts and international arbitral tribunals continue routinely to grapple with questions of what law applies to international arbitration agreements. (127) In this regard, the basic choice-of-law principles motivating the provisions adopted in the Rome Convention (i.e., party page "433" autonomy and a “closest connection”) have been applied by both national courts and arbitral tribunals to the choice of the law governing arbitration agreements. (128) c. National Arbitration Legislation Leading national arbitration legislation also generally confirms the freedom of contracting parties to select the law governing their international arbitration agreements. As with international conventions, this autonomy is subject to limitations based on mandatory national laws and public policies, although these limitations are exceptional and very narrow. In addition, some leading national arbitration regimes give only qualified recognition to choice-of-law clauses in commercial contracts. As detailed below, some national courts apply either international principles (U.S., French) or a validation principle (Swiss) to give effect to international arbitration agreements even where the parties have chosen a national law (typically also applicable to their underlying contract) that may not do so. (129) This analysis rests on the conclusion that when parties' choice-of-law clauses select a law that invalidates their arbitration agreement, those clauses generally do not reflect genuine or considered selections of the law to govern their arbitration agreement. i. UNCITRAL Model Law The UNCITRAL Model Law parallels the New York Convention in its http://www.kluwerarbitration.com/CommonUI/print.aspx
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treatment of the parties' autonomy to choose the law governing their arbitration agreement. The Model Law provides, in Articles 34(2)(a) (i) and 36(1)(a)(i), that an arbitral award may be annulled or denied recognition, if the parties' arbitration agreement page "434" “is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of [the state where the award was made].” (130) Like the New York Convention, (131) these provisions indirectly give effect to the parties' choice of law governing their arbitration agreement. Also paralleling the New York Convention, this recognition of party autonomy is subject to exceptional public policy and non-arbitrability escape devices (set forth in Article 34(2)(b) and Article 36(1)(b)). (132) Although there is limited precedent, national courts applying the Model Law have recognized the parties' autonomy to choose the law governing their international arbitration agreement. (133) As the English High Court has explained, in a decision under England's variation of the Model Law, “[i]t is a general principle of English private international law that it is for the parties to choose the law which is to govern their agreement to arbitrate and the arbitration proceedings, and that English law will respect their choice. … Parties' freedom of choice includes freedom to choose different systems of law to govern different aspects of their relationship.” (134) Indeed, in virtually no reported cases decided under the Model Law have mandatory law restrictions on this autonomy been invoked. ii. English Arbitration Act, 1996 English law has long unequivocally affirmed the parties' autonomy to select the law governing the arbitration agreement. (135) One leading English decision explained, in holding that the parties may select the law governing their arbitration agreement: page "435" “The parties may make an express choice of the law to govern their commercial bargain and that choice may also be made of the law to govern their agreement to arbitrate. In the present case it is my view that … the parties have chosen the law of India not only to govern the rights and obligations arising out of their commercial bargain but also the rights and obligations arising out of their agreement to arbitrate.” (136)
As noted above, the same result clearly continues to apply under the English Arbitration Act, 1996. (137) iii. U.S. Federal Arbitration Act In the United States, it is well-settled in case law under the FAA (138) that parties are free to agree upon the law governing their arbitration agreement. For example, in Volt Information Sciences, Inc. v. Stanford University, the U.S. Supreme Court held that, because “[a]rbitration under the [Federal Arbitration] Act is a matter of consent, not coercion, and parties are generally free to structure their arbitration agreements as they see fit,” the parties were free to “agree[] that their arbitration agreement will be governed by the law of California,” rather than by federal (or other) law. (139) page http://www.kluwerarbitration.com/CommonUI/print.aspx
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"436"
The Restatement (Second) Conflict of Laws similarly affirms the parties' autonomy in this respect, providing that the law applicable to the arbitration agreement will be that of “the state chosen by the parties, if they have made such a choice under the circ*mstances stated in §187.” (140) U.S. courts have also emphasized that the parties' contractual autonomy is subject to application of (limited) exceptions for non-arbitrability and public policy. (141) Despite this, the treatment of party autonomy in international arbitration agreements subject to the second chapter of the FAA is more complex. While recognizing the parties' autonomy to select the applicable law, U.S. courts have also applied international validation or non-discrimination principles that give effect to international arbitration agreements even when the substantive law apparently chosen by the parties would produce a different result. A number of lower U.S. courts have confirmed the parties' freedom under the New York Convention and FAA to select the law governing their international arbitration agreement. (142) At the same time, however, U.S. courts have been very reluctant to conclude that the parties have in fact agreed upon the application of a foreign law that denies effect to their arbitration agreement. (143) page "437" Indeed, as discussed below, a number of U.S. lower courts have refused to give effect to choice-of-law clauses (albeit clauses contained in the parties' underlying contract, rather than in the arbitration agreement itself (144) ), instead applying federal common law standards to the formation and substantive validity of international arbitration agreements. (145) As discussed below, the ultimate effect of these decisions is to give maximum effect to the parties' agreement to arbitrate, (146) but there is tension between their rationale and principles of party autonomy. The apparent rationale of these U.S. decisions is that the parties' putative choice of a law that would invalidate their agreement to arbitrate – particularly when made in their underlying contract – does not constitute a genuine indication of the parties' intentions. iv. Swiss Law on Private International Law Swiss law also confirms the parties' autonomy to select the law governing their international arbitration agreement, albeit with an important qualification. That qualification is comparable to choice-oflaw approaches in U.S. courts in international cases under the second chapter of the FAA. page "438" Article 178(2) of the Swiss Law on Private International Law provides that “[a]s regards its substance, an arbitration agreement shall be valid if it conforms either to the law chosen by the parties or to the law governing the subject matter of the dispute, in particular the law governing the main contract, or if it conforms to Swiss law.” (147) That is, Swiss law will give effect to the parties' choice-of-law http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement, in the first instance, in order to uphold their arbitration clause. (148) In addition, however, where the parties' chosen law invalidates their agreement to arbitrate in Switzerland, Swiss law will not give exclusive application to that choice and will instead go on to look to either the law applicable to the substance of the parties' dispute or to Swiss law in order to uphold the arbitration clause. This approach, discussed further below, could be characterized as effectively constraining the parties' autonomy to choose the law governing their arbitration agreement, by effectively overriding a choice-of-law agreement that has the consequence of invalidating the parties' agreement to arbitrate. (149) On a more fundamental level, however, Article 178(2) reflects the Swiss legislature's (correct) judgment that a putative choice-of-law agreement selecting a law that invalidates the parties' arbitration agreement is ordinarily not an authentic choice, but rather a mistake, that ought not be given effect in enforcing the parties' true agreement (which was to arbitrate). (150) v. French New Code of Civil Procedure The approach taken by other civil law jurisdictions was also taken by French courts until the early 1990s. (151) More recently, however, French courts have adopted an page "439" approach effectively holding that an international arbitration agreement, unusually, must be governed by a substantive law different from that applicable to the parties' underlying agreement. In particular, French courts have held that international arbitration agreements are “autonomous” from any national legal system, and subject only to “mandatory rules of French law and of international public policy.” (152) As one decision explained, “[b]ecause of the autonomy of international arbitration clauses, the scope and effects of an arbitration clause are determined according to the common intention of the parties; it is unnecessary to refer to the law of a State.” (153) This approach, also called the “substantive rules method,” (154) is avowedly “proarbitration,” designed to give maximum legal effect to consensual agreements to arbitrate. (155) Under the analysis of French courts, an international arbitration agreement is not merely potentially subject to a different substantive legal regime than the parties' underlying agreement (e.g., to a different national law). Rather, it appears that the arbitration clause is necessarily subject to a different substantive legal regime than the underlying contract. Specifically, while the parties' underlying contract is subject (like all normal contractual relations) to national substantive legal regimes, the parties' arbitration agreement is subject to a sui generis legal regime apparently derived from principles of international law as understood by French courts. (156) page "440" In so doing, French law aims to give maximum effect to the parties' agreement to arbitrate, without regard to the idiosyncrasies of national law. (157) In many respects, the French approach is comparable to that in both Switzerland and the United States – where specialized, pro-arbitration choice of law and substantive law govern the validity of international arbitration agreements. (158) In each of these jurisdictions, a choice-of-law agreement (particularly in http://www.kluwerarbitration.com/CommonUI/print.aspx
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the underlying contract) that invalidates the agreement to arbitrate will not necessarily be given effect if the law of another jurisdiction connected to the agreement would validate it. (159) vi. Other Jurisdictions Giving Effect to Parties' Choice-of-Law Agreements Other leading jurisdictions also give effect to parties' agreements on the law governing their international arbitration agreement. For example, the Canadian, German, Hong Kong, Japanese and Indian arbitration statutes all contain language mirroring the Model Law's provision that an arbitration award may be set aside if the arbitration agreement was “not valid under the law to which the parties have subjected it,” thereby implicitly recognizing the parties' power to choose the law applicable to their arbitration agreement. (160) Judicial decisions in these jurisdictions similarly give effect to the parties' autonomy in this regard. (161) The 1999 Swedish Arbitration Act provides that the validity of an arbitration agreement is governed by the law selected by the parties or, failing any choice, the law of the arbitral seat: “Where an arbitration agreement has an international connection, the agreement shall be governed by the law agreed upon by the parties.” (162) This provision directly addresses the question of the law applicable to page "441" an international arbitration agreement. Although the statute prescribes the same basic substantive rule as that reflected in the UNCITRAL Model Law (and the New York Convention), it does so directly, in a preferable manner that parallels the European Convention; (163) this avoids confusion, including the risk that courts may apply different standards at the stage of enforcing arbitration agreements and arbitral awards. vii. Jurisdictions Requiring Law Selected by Parties to Govern Arbitration Agreement to Have Connection With Underlying Contract Some jurisdictions have placed other types of limitations on the parties' freedom to select the law governing their arbitration agreement. For example, Article 61 of the (former) 1988 Spanish Arbitration Act provided that an international arbitration agreement would be governed by the legal system chosen by the parties, provided that this law had “some connection with the main legal transaction or with the dispute.” (164) Article 9(6) of the 2003 Spanish Arbitration Act recently abandoned this approach and instead adopted a validation principle identical to that contained in Article 178 of the Swiss Law on Private International Law. (165) d. Institutional Arbitration Rules Most leading institutional arbitration rules do not specifically address the question of the law applicable to the parties' arbitration agreement. (166) One exception is found page "442" in the WIPO Arbitration Rules, Article 59(c) of which provides that an arbitration agreement shall be “regarded as effective” if it complies with the requirements of the law chosen by the parties or the law of http://www.kluwerarbitration.com/CommonUI/print.aspx
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the arbitral seat. (167) In contrast, some national trade associations arguably adopt different approaches to this, promulgating standard form contracts and arbitration rules that implicitly adopt a specified national law applicable to both the parties' underlying contract and arbitration agreement. (168) e. International Arbitral Awards International arbitral awards generally give effect to parties' choiceof-law agreements selecting the law applicable to their arbitration clause. (169) There are virtually no reported instances of arbitral awards refusing to give effect to agreements selecting the law governing the arbitration agreement. f. Interpretation of Choice-of-Law Clause in Underlying Contract Determining when parties have exercised their autonomy to choose the law governing their arbitration agreement is often not straightforward, in part because page "443" of the separability principle. In practice, parties very seldom include a choice-of-law provision in their arbitration agreement itself or otherwise specifically designate the law applicable to their arbitration agreement. (170) It is ordinarily only in the general choice-of-law clause in the parties' underlying contract that there will arguably be a choice of the law applicable to the associated arbitration agreement. (171) Determining whether such choice-of-law provisions actually apply to the separable arbitration agreement is not straightforward and has given rise to substantial uncertainty and controversy. In some instances, parties will include specific provisions in their arbitration agreement that expressly select the law applicable to that agreement (as distinct from the parties' underlying contract). Particularly in larger, more complex transactions, parties occasionally execute separate “arbitration agreements,” as freestanding contracts that provide for the arbitration of disputes relating to other contracts or to an overall project. (172) This sort of arbitration agreement will often have its own choice-of-law clause, specifically selecting the law applicable to the arbitration agreement itself. (173) Similarly, more detailed arbitration provisions sometimes include choice-of-law clauses that are drafted to apply specifically to the arbitration agreement itself. For example, such provisions may provide: “This Article X shall be interpreted under and governed by the laws of [Y].” (174) For the most part, however, it is unusual for parties to agree to choice-of-law clauses that expressly apply to their arbitration agreement. Instead, international commercial contracts frequently contain choice-of-law clauses which apply to the underlying contract generally, without specific reference to the arbitration clause associated with that contract. (175) It is, of course, possible for these choice-of-law clauses to be drafted so as to more-or-less literally encompass the arbitration clause contained in the parties' contract, even though that clause is “separable.” For example, parties can agree that: “All of the http://www.kluwerarbitration.com/CommonUI/print.aspx
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provisions of this Contract (Articles 1-21) shall be governed by the law of State X” or “All of the provisions of this Contract including for the page "444" avoidance of doubt Article 10 (‘Arbitration’) shall be governed as the law of State A.” In such cases, there would be relatively little doubt that the parties' choice-of-law agreement specifically applied to the arbitration clause, as well as to the underlying contract. Typically, however, choice-of-law clauses are drafted less specifically. A common approach is: “This agreement shall be governed by the law of State X.” (176) There has been substantial controversy about the applicability of this sort of a general choice-oflaw clause in an underlying contract to the associated arbitration agreement. i. Authorities Applying Law Selected in Choice-of-Law Provision in Underlying Contract to Arbitration Clause Some authorities have interpreted general choice-of-law clauses as extending to “separable” arbitration provisions contained within an underlying contract. (177) In the words of one award: “[I]t is reasonable and natural … to submit the arbitration clause to the same law as the underlying contract.” (178) A number of judicial authorities from civil law jurisdictions reach similar conclusions. For example, according to one Dutch judicial decision, “parties, in general, would prefer – excluding special circ*mstances which do not arise in this case – to submit the validity of the arbitration clause to page "445" the same law to which they submitted the main agreement of which the arbitration clause forms a part.” (179) Other civil law authorities are to the same effect. (180) Likewise, a number of common law authorities have also concluded that a general choice-of-law clause presumptively applies to the parties' arbitration agreement. (181) In the words of a leading English commentary: “If there is an express choice-of-law to govern the contract as a whole, the arbitration agreement will also normally be governed by that law; this is so whether or not the seat of arbitration is stipulated, and irrespective of the place of the seat.” (182) page "446" An Indian Supreme Court decision adopted a similar analysis: “where the proper law of the contract is expressly chosen by the parties, as in the present case, such law must, in the absence of an unmistakable intention to the contrary, govern the arbitration agreement which, though collateral or ancillary to the main contract, is nevertheless a part of such contract.” (183) Substantial commentary from both common law and civil law http://www.kluwerarbitration.com/CommonUI/print.aspx
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authorities supports this conclusion. (184) ii. Authorities Refusing to Apply Law Selected in Choice-of-Law Provision in Underlying Contract to Arbitration Clause On the other hand, other authorities hold that a general choice-oflaw clause does not encompass an arbitration clause contained within the underlying contract. Rather, these authorities conclude that a general choice-of-law clause applies only to the parties' underlying contract, and not to the “separable” arbitration agreement. That is a consequence of the separability presumption, as well as the particular characteristics of the arbitration agreement (e.g., ancillary agreement, distinct “procedural” dispute resolution obligations, separate focus for performance (i.e., arbitral seat)). (185) These factors argue that a “general” choice-of-law clause in an underlying contract is ordinarily no more applicable to the associated arbitration agreement than are the legal principles governing the underlying contract (e.g., validity or existence). page "447" Consistent with this, a substantial number of authorities from both civil (186) and common law (187) sources have refused to apply a general choice-of-law clause in the parties' underlying contract to the arbitration agreement, particularly where the parties' chosen law would invalidate the arbitration clause. As one award reasoned: “Consent here falls to be tested by the law governing the agreement to arbitrate which, I hold, is the Federal Arbitration Act, 9 U.S.C. 1 et seq. The contract between claimant and first defendant was a ‘contract evidencing a transaction involving commerce’ (9 U.S.C. 2) and ‘commerce’ includes interstate and foreign commerce. I also hold that Federal Law governs the arbitration even though the contract contains a State choice of law provision. State law governs the substantive law of the contract but the arbitration clause is autonomous.” (188) Similarly, a leading French commentary reasons that, because the parties may not have given separate thought to the law applicable to an arbitration clause, “it would therefore be going too far to interpret such [general choice-of-law] clauses as page "448" containing an express choice as to the law governing the arbitration agreement.” (189) Another author concludes that the autonomy of the arbitration agreement means that “[e]ven where the parties have chosen the law governing their contract it does not necessarily follow that this law applies to the arbitration clause.” (190) Other authorities, while recognizing the possibility that a general choice-of-law clause may not apply to an arbitration clause, have concluded that this is unusual. For instance, one commentator reasons that “[i]n exceptional cases, the parties' express choice of a governing law for the main contract may be held not to apply to the arbitration agreement, where there are, as a matter of construction, contrary indications.” (191) iii. Approach of U.S. Courts to Choice-of-Law Provisions in Underlying Contract
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As discussed above, most U.S. courts have given effect to choiceof-law clauses, subject to qualifications, insofar as the law governing the formation and validity of international arbitration agreements is concerned. (192) Some U.S. courts give effect to choice-of-law clauses (also concluding, usually without analysis, that a choice-oflaw clause in the underlying contract applies to the associated arbitration agreement). (193) Other U.S. courts have not applied choice-of-law provisions in underlying contracts to the associated arbitration agreement, instead applying federal common law. (194) page "449" Consistent with this latter approach, some U.S. courts have held that they will apply the law chosen in a choice-of-law provision in the underlying contract to the validity of the arbitration agreement only where the clause expressly provides for this result. (195) These courts have held that a general choice-of-law clause in a contract will not generally be interpreted as incorporating state (or foreign) arbitration legislation, (196) nor as selecting the law governing the arbitration agreement (particularly where that law denies effect to the parties' arbitration agreement). (197) In a related context, the U.S. Supreme Court explained this approach to interpreting a choice-of-law clause as follows: “the best way to harmonize the choice-of-law provision with the [contracts] arbitration provision is to read ‘the laws of the State of New York’ [in the page "450" choice-of-law clause] to encompass substantive principles that New York courts would apply, but not to include special rules limiting the authority of arbitrators. Thus, the choice-of-law provision covers the rights and duties of the parties, while the arbitration clause covers arbitration.” (198) This rationale (particularly the final sentence thereof) presumptively excludes the parties' arbitration clause from the scope of their choice-of-law clause, at least where the chosen law invalidates or restricts the effect of the agreement to arbitrate. (199) g. Application of Choice-of-Law Clause to Disputes Over Existence and Validity of Arbitration Agreement Where one party denies that any arbitration agreement was ever validly formed, there is arguably no basis for applying the law that the parties allegedly “agreed” upon to govern their “contract.” (200) On the other hand, authority in more general choice-of-law contexts rejects this view, holding that the formation of an agreement is governed by the law that would apply if the agreement had existed. That is true under the Rome Convention, (201) as well as other authorities. (202) Where it is undisputed page "451" that the parties have executed or otherwise assented to a particular document, and the issue concerns only the legal consequences of their actions, then the arguments for applying the parties' putatively chosen law to resolve this issue are particularly strong. More specifically, Article V(1)(a) of the New York Convention permits non-recognition of an arbitral award if the arbitration “agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the http://www.kluwerarbitration.com/CommonUI/print.aspx
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award was made.” (203) This choice-of-law rule is drafted to require application of the parties' putatively chosen law specifically where the validity of their arbitration (and choice-of-law) agreement is challenged. This rule specifically applies by its terms, and its rationale, where one party denies that its actions gave rise to any arbitration agreement at all. (204) Similar considerations apply to claims of illegality. In principle, claims of illegality are subject to the law governing the arbitration agreement (selected in the manner discussed elsewhere). (205) Indeed, that is the result specifically required by the choice-of-law rule contained in Article V(1)(a), providing for application of the law chosen by the parties to govern their arbitration agreement. (206) Nonetheless, choosing the law applicable to claims that an arbitration clause is invalid on grounds of illegality also raises special issues. There is a plausible argument that parties' private choices of law should not be given effect to circumvent otherwise applicable national (or international) law page "452" which would render (207) an arbitration agreement invalid. For example, where mandatory trade sanctions or embargoes render agreements to arbitrate illegal, (208) that result should arguably not be altered if the parties agree to the application of a foreign state's laws to govern their arbitration agreement. (Of course, this result would apply only where the relevant national legislation renders the agreement to arbitrate illegal (as distinguished from the underlying contract. (209) )) Nonetheless, under Article V(1)(a), where parties have agreed to arbitrate under a specified law which does not render their arbitration agreement invalid, but the mandatory law of another state provides that the arbitration agreement is illegal, then the parties' chosen law ought to be applied: that is what the Convention mandates. Only in limited cases, where the parties' chosen law would give effect to foreign mandatory law, and the New York Convention would permit this, (210) would the parties' chosen law not be given effect. (211) If the parties have not agreed on an applicable law, then, as discussed below, Article V(1)(a)'s default choice-of-law rule provides for the application of the law of the arbitral seat. (212) Again, there may be instances where the law of the arbitral seat would give effect to otherwise applicable mandatory laws of a different state insofar as the parties' arbitration agreement is concerned, (213) but this will be rare. page "453" In principle, the law of the arbitral seat should be applied – either under the validation principle (214) or otherwise – to give effect to the arbitration agreement. (215) h. Future Directions: Interpretation and Recognition of Parties' Choice of the Law Governing the Arbitration Agreement The interpretation and recognition of the parties' choice of the law governing their international arbitration agreement raises surprisingly complex issues. As discussed above, international arbitration conventions and national arbitration legislation generally give effect to principles of party autonomy. (216) This recognition is http://www.kluwerarbitration.com/CommonUI/print.aspx
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required by the New York and European Conventions (217) and is generally affirmed in all developed national legal systems. (218) In particular, the parties' autonomy to select the law governing their arbitration agreements is not subject to any “reasonable relationship” requirement of the kind found in some national legal systems. (219) Nonetheless, this recognition can be difficult to apply in practice and is subject to qualifications. As a practical matter, the overwhelming majority of cases do not involve choice-of-law clauses specifically selecting the law applicable to the arbitration agreement and instead involve general choice-of-law clauses applicable to the parties' underlying contract. At present, as the foregoing discussion indicates, there is little uniformity in the interpretation or recognition of general choice-oflaw clauses in the parties' underlying contract, particularly as regards the application of such clauses to the associated arbitration agreement. Authorities vary from generally interpreting such provisions to encompass the arbitration agreement, to excluding the arbitration agreement from the scope of general choice-of-law clauses, to presumptively including or excluding the arbitration agreement from the scope of a general choice-of-law clause. Authorities also vary from giving full effect to general choice-of-law clauses, when interpreted to encompass the arbitration clause, to adopting various sorts of validation or other principles that give only qualified effect to such agreements. (220) The emerging trend is towards the application of a validation principle, as reflected in U.S., French and Swiss authorities, although this is by no means unanimous. The better approach to the interpretation of general choice-of-law clauses, as applied to arbitration agreements, is both more complex and more simple than most national court authority and commentary acknowledge. As discussed below, the better interpretation of general choice-of-law clauses is that they extend to the page "454" parties' separable arbitration agreement when they would give effect to that agreement, but not otherwise. It is correct, as some commentators have observed, that in agreeing to a general choice-of-law clause, “the parties will of course only very rarely have given thought to the law applicable to the arbitration agreement.” (221) Most parties (including parties represented by corporate counsel) will not consciously consider matters such as the separability of the arbitration clause, much less the possible application of different laws to the underlying contract and the arbitration clause, when drafting their agreements. Similarly, the connecting factors relevant to a commercial contract frequently provide little decisive guidance in selecting the law applicable to the associated arbitration agreement. In many cases, the connecting factors relevant to the arbitration agreement are materially different from those for the underlying contract. The arbitration agreement involves the parties' obligations to resolve their disputes according to particular procedures, in a particular place, according to a legal regime heavily influenced by the arbitral seat. (222) In contrast, the underlying contract involves the parties' obligations to do particular acts (e.g., deliver goods, provide services, lend money) in a particular place. In most instances, there is no connection, and certainly no necessary connection, between the places of performance of the underlying contract and the http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration agreement. (223) Where such a disconnection exists, it argues against interpreting a choice-of-law clause in the underlying contract as being intended to apply to the associated arbitration agreement. The reasons that led the parties to select a particular legal system for their underlying contract have little or no application to their arbitration agreement. On the other hand, there is a plausible simplicity to the notion that an arbitration clause is “part” of the parties' contract and, when they agree to the law governing that contract, their agreement necessarily includes the arbitration clause. Equally, applying the same law to the parties' arbitration agreement as to their underlying contract will generally avoid complexities and uncertainties that may result from a contrary approach (which will require characterizing different issues and demarcating the “border” between them). (224) Given these conflicting considerations concerning what legal system the parties might have “intended” to select to govern their arbitration agreement, it is essential in interpreting the scope of a choice-of-law clause to have regard to the fundamental page "455" objectives of the arbitral process and the parties' agreement to utilize that process. (225) It advances analysis little, if at all, to discuss whether an arbitration clause is “part” of the parties' contract or not: these characterizations express conclusions, not reasoned justifications for interpreting the parties' agreement one way or another. Instead, in the absence of reliable evidence of other specific intentions, it is the objectives of the arbitral process which should guide any interpretation of the parties' arbitration agreement and their choice of a law applicable to that agreement. In turn, these objectives call for application of a validation principle, such as that adopted in Swiss (and other) arbitration legislation and by U.S. (and other) courts. As discussed above, parties agree to arbitrate in large part in order to obtain an efficient, predictable and neutral means of resolving their disputes, which overcomes the peculiar jurisdictional and choice-of-law complexities that otherwise affect international transactions. (226) Given these objectives, the parties' choice-of-law clause governing their underlying contract should be applied to the parties' arbitration agreement where it would give effect to that agreement. Parties can reasonably be presumed both to have intended that effect be given to their international arbitration agreement and not to have considered the finer details of the separability presumption when drafting their choice-of-law clause. Accordingly, where the law chosen to govern the underlying contract will give effect to the parties' arbitration agreement, there is every reason to apply that law to the arbitration clause. Put differently, the possibility that the parties intended a different law to apply to their presumptively separable arbitration agreement than to their underlying contract would be negated in such circ*mstances by the facial breadth of the choice-of-law clause, by the reduction of potential complexities resulting from such an interpretation and by the likely absence of specific intentions to the contrary in the parties' minds. Where, however, the law selected to govern the underlying contract would invalidate the parties' international arbitration agreement, a different conclusion follows. As noted above, parties cannot reasonably be assumed to intentionally select or to desire a law http://www.kluwerarbitration.com/CommonUI/print.aspx
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governing their arbitration agreement that would have the effect of invalidating or rendering ineffective that agreement's terms. (227) Rather, in these circ*mstances, the separability presumption should be given effect and should prevent the parties' choice-of-law clause from being extended to the arbitration clause, thereby invalidating it. This result accords priority to the parties' agreement to arbitrate, giving it effect in preference to extending the scope of a choice-oflaw clause (with the consequence of denying the arbitration agreement's validity). (228) This result also seeks to effectuate the parties' genuine intentions and objectives, giving effect to their chosen international dispute resolution mechanism, rather than page "456" interpreting their choice-of-law agreement to invalidate that dispute resolution agreement. This analysis conforms to the more developed national arbitration legislation that has specifically addressed the question, including the Swiss Law on Private International Law and the 2003 Spanish arbitration statute. As discussed above, in both cases, developed national legislatures have adopted a form of the validation principle, which looks to sources other than the parties' putative choice-of-law clause to give effect to the parties' arbitration agreement. (229) This conclusion is also consistent with a close analysis of the results of most judicial and arbitral authority on the question in developed jurisdictions. In virtually all cases, national courts and tribunals have interpreted choice-of-law clauses so as to give effect to the parties' arbitration agreement. That means, in cases where the parties' general choice-of-law clause validated the arbitration clause, it was applied to the arbitration agreement; (230) in contrast, where the underlying choice-of-law clause would invalidate the arbitration agreement, it has not been applied to the arbitration agreement. (231) This result is entirely appropriate. Precisely parallel to the logic of the Swiss and Spanish legislatures, it reflects an objective interpretation of what commercially reasonable parties, acting in good faith, intend to accomplish in entering into international arbitration agreements. Moreover, the foregoing analysis is also reflected in the rationales of at least some national courts. In particular, as discussed above, U.S. courts have interpreted general choice-of-law clauses narrowly (232) or have refused to give effect to choice-of-law clauses selecting foreign law that will invalidate the parties' page "457" (233) agreement. French courts have achieved similar results through the application of “autonomous” international principles. (234)
The foregoing distinctions and results are not always appreciated by commentators. As noted above, different authorities comment variously either that “[i]n our opinion, it would therefore be going too far to interpret such [choice-of-law clauses in an underlying contract] as containing an express choice as to the law governing the arbitration agreement,” (235) or that “frequently a choice made in relation to the law governing the merits can be interpreted to apply also to the arbitration agreement.” (236) In fact, both approaches sweep too broadly and abstractly, without proper regard to the authentic intentions of the parties and purposes of the international arbitral process. Taking these considerations into account requires a more nuanced analysis, that gives effect to the http://www.kluwerarbitration.com/CommonUI/print.aspx
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parties' objectives in agreeing to arbitrate and better advances the international arbitral process. Like leading national arbitration statutes (Swiss, Spanish) and national judicial decisions (U.S., French), this approach applies a general choice-of-law provision in the underlying contract to the arbitration clause if it will give effect to that clause, but not otherwise; where a general choice-of-law clause would invalidate the agreement to arbitrate, then it will not be extended and the applicable law will instead be selected otherwise (pursuant to the choice-of-law rules discussed below). Finally, in rare cases, parties agree to a choice-of-law clause specifically and explicitly selecting the law applicable to their arbitration agreement. As also discussed above, some states have adopted choice-of-law rules that give only qualified effect to choiceof-law clauses which apply specifically to the arbitration agreement. Courts in Switzerland and France, and to a lesser extent the United States, have applied either a validation principle (237) or principles of international law (238) to give effect to international arbitration agreements even when the parties' chosen law would invalidate that agreement. Where the parties have made a choice-of-law agreement specifically applicable to the agreement to arbitrate, this analysis is difficult to square with traditional principles of party autonomy. Nonetheless, this result is (again) well-justified on the grounds that the parties' page "458" selection of a law that invalidated their arbitration agreement cannot readily be regarded as an intentional or genuine choice. (239) 2. Choice of Law Applicable to Formation and Substantive Validity of International Arbitration Agreements in Absence of Parties' Agreement As discussed above, parties generally do not expressly specify the law applicable to their arbitration agreement. Instead, arbitration agreements will ordinarily have either no choice-of-law clause at all or the underlying contract will include a general choice-of-law clause that is (for whatever reason) not interpreted as applying to the parties' arbitration agreement. (240) In both cases, courts and arbitral tribunals will need to apply conflict of laws principles to select the law applicable to the substantive validity of the parties' arbitration agreement. There is an unfortunate multiplicity of competing approaches to the choice of the law governing international arbitration agreements in the absence of a choice-of-law agreement by the parties on this issue. (241) As noted above, this multiplicity of conflict of laws approaches produces uncertainty, expense and confusion, which contrast markedly with the objectives of international arbitration, that aim at providing an efficient, predictable mechanism for resolving international disputes, notwithstanding the complexities of jurisdictional and choice-of-law issues which exist in the international context. (242) This confusion is not merely unfortunate, but also unnecessary. When the leading sources of authority in the field are considered – international arbitration conventions, national legislation and arbitral awards – the confusion that sometimes accompanies choice-of-law questions can be seen to be largely unnecessary. These authorities point the way towards a reasonably straightforward approach to choice-of-law issues, well-grounded in applicable international http://www.kluwerarbitration.com/CommonUI/print.aspx
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instruments and well-suited to provide for the effective enforcement of international arbitration agreements. page "459" a. International Arbitration Conventions Both the European Convention and the New York Convention contemplate, in the absence of an agreement by the parties as to the law governing their arbitration clause, application of the substantive law of the place where the award will be made (i.e., the seat or place of arbitration). (243) This choice of applicable law, which is binding on courts in Contracting States, is sensible and reflects the parties' likely intentions in most cases. At the same time, this rule is not a complete answer to choice-of-law questions arising from international arbitration agreements and must be supplemented by additional principles (including validation and international nondiscrimination principles, discussed below). (244) i. European Convention Where the parties have not agreed on the law governing their arbitration agreement, Article VI(2) of the European Convention provides for the substantive validity of the agreement to be resolved “under the law of the country in which the award is to be made,” and, where the arbitral seat cannot be determined, “under the competent law by virtue of the rules of conflict of the court seized of the dispute.” (245) These provisions apply directly in litigation involving claims that an arbitration agreement is invalid or non-existent, mandatorily prescribing the law applicable for the determination of such disputes. (246) ii. New York Convention: Applicability of Article V(1)(a)'s Choice-of-Law Rules The New York Convention adopts a similar, but less desirable, approach. As discussed above, Article II(1) of the Convention, which deals with the recognition of arbitration agreements, does not address the question of the applicable law (other than to require giving effect to any choice-of-law agreement by the parties). (247) The only reference in the Convention to the law governing international arbitration agreements in the absence of a choice-oflaw agreement is in Article V(1)(a), dealing with the recognition of arbitral awards. (248) As already noted, Article V(1)(a) provides that recognition may be denied to an award if the arbitration agreement was “not page "460" 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.” (249) That is, absent different agreement by the parties, an arbitration agreement is governed, in the context of enforcement of an award, by the law of the arbitral seat. (250) This rule parallels the substance of that set forth in Article VI(2) of the European Convention. (251) Unfortunately, there has been considerable debate and uncertainty as to whether Article V(1)(a)'s choice-of-law rule applies at the stage of recognition of an arbitration agreement (under Article II(1)), as well as at the stage of recognition of an arbitral award (under Article V). Some authorities have held that the absence of any such choicehttp://www.kluwerarbitration.com/CommonUI/print.aspx
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of-law rule in Article II(1) leaves courts and arbitral tribunals free to ignore Article V(1)(a), and to apply different standards when deciding whether to enforce an arbitration award. (252) In particular, these authorities have generally concluded that, at the stage of deciding whether to recognize an arbitration agreement, national courts should apply their own substantive law (typically on the grounds that the issue is whether their own jurisdiction was excluded). (253) In contrast, page "461" at the stage of deciding whether to recognize an award, these authorities would acknowledge the application of Article V(1)(a) and its choice-of-law rules. (254) This analysis is largely unsatisfactory. It is, of course, true that Article II(1) of the New York Convention does not expressly set forth the choice-of-law criteria contained in Article V(1)(a). That in no way suggests, however, that Article V(1)(a)'s choice-of-law standards were considered to be inapplicable at the stage of deciding whether to recognize an arbitration agreement. Rather, as discussed above, Article II's terms reflect the fact that the New York Convention was, until late in its drafting process, directed solely at the recognition of arbitral awards, and not arbitration agreements. (255) When Article II of the Convention was expanded, to require recognition of arbitration agreements, relatively little thought was directed towards choice-of-law or other issues relating to the new provisions. Among other things, the Convention included no provisions defining what international arbitration agreements were subject to its terms (in contrast to the definitions applicable to arbitral awards), (256) no detailed grounds for denying recognition to arbitration agreements (in contrast to Article V's provisions regarding non-recognition of awards) (257) and no provisions concerning the law applicable to arbitration agreements at the stage of their enforcement (in contrast to Article V(1)(a)). Given this, Articles V(1) (a) and II should be interpreted and given effect in a manner that conforms to the Convention's structure and facilitates the Convention's purposes. There is obviously little, if anything, to recommend applying two different substantive laws of contractual validity to the same arbitration agreement, with the result varying depending on the point in time at which the issue is considered. That plainly makes little sense, as a matter of logic, and squarely contradicts the objective of predictability that underlies private international law analysis generally, (258) the page "462" international arbitration regime (259) in particular and the New York Convention specifically. (260) Further, it produces the highly undesirable result that an arbitration agreement may be found valid (or invalid) at one stage, and then treated in the opposite manner at a later stage; that will inevitably result in delays and wasted expense, and may produce inconsistent results. Nor does it make sense to suggest that different national courts should be encouraged to apply their own local law to the question whether an arbitration agreement is valid when presented with the question whether to stay a parallel litigation. (261) In fact, the opposite is true, particularly in interpreting an international instrument designed to produce uniform results in different national courts. (262) The international arbitral process should generally aspire towards a maximally uniform approach by national courts http://www.kluwerarbitration.com/CommonUI/print.aspx
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presented with disputes about the substantive validity of a particular international arbitration agreement. A lack of uniformity on this issue would result in some courts referring parties to arbitration, and others refusing to do so, under the same agreement; that makes no sense and results in unnecessary litigation, forum shopping and uncertainty. Rather, insofar as possible, it is much more desirable for all national courts to reach the same conclusion as to the validity (or invalidity) of an arbitration agreement. page "463" Consistent with this analysis, the better-reasoned national court decisions (263) and commentary (264) have concluded that the same choice-of-law principles should apply under the New York Convention to selecting the law of substantive validity at both the stage of enforcing an arbitration agreement and the stage of enforcing an arbitral award. Specifically, these authorities have concluded that the choice-of-law rules contained in Article V(1)(a) of the New York Convention are equally applicable under Article II(1) of the Convention. (265) This also comports with the more recent and considered approach taken under Articles VI(2) and IX of the European Convention, which were drafted to apply the same choiceof-law rules to arbitration agreements at all stages at which they are considered. (266) Finally, one further point regarding the application of Article V(1)(a)'s choice-of-law rules in litigation over the validity of the arbitration agreement is important. As discussed below, Article V(1) sets out permissive grounds on which page "464" Contracting States may deny recognition of arbitral awards; Article V does not, however, require non-recognition of an award, including when one of Article V(1)'s exceptions applies. (267) As a consequence, nothing in Article V(1)(a) would prevent a Contracting State from applying a validation principle (or other conflicts rule) to grant broader recognition to an arbitral award than that resulting under the choice-of-law rule contained in Article V(1) (a). The same analysis applies when Article V(1)(a)'s choice-of-law principles are applied in the context of litigation over the validity of an arbitration agreement: Contracting States may not deny recognition of an agreement that would be valid under Article V(1) (a)'s choice-of-law rule, but are free to recognize the validity of arbitration agreements through application of another law (whether applied by reason of a validation principle or otherwise), even when Article V(1)(a)'s choice-of-law rule would not provide for this result. iii. New York Convention: Content of Article V's Choice-of-Law Rules Turning to the content of the New York Convention's choice-of-law rules, Article V(1)(a) provides that, where the parties have not selected the law governing their arbitration agreement, the agreement's substantive validity is subject to “the law of the country where the award was made.” (268) This formulation gives rise to several potential difficulties in the context of enforcement of an arbitration agreement. First, and most obviously, it is not self-evident how to apply the law of the place the award “was” made in an action to enforce an arbitration agreement, which occurs well before any award is rendered. Of course, one could try to predict where a future award http://www.kluwerarbitration.com/CommonUI/print.aspx
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“will” be made, which will ordinarily be the parties' chosen arbitral seat. (269) But, in some cases, the parties' arbitration agreement specifies no arbitral seat, making it difficult even to speculate about the place where an award might be made. (270) In practice, parties often either select the seat of the arbitration in their arbitration agreement (271) or agree to institutional rules providing a mechanism for selecting the arbitral seat early in the arbitral process. (272) Accordingly, there are relatively few instances in which it will in fact be difficult to identify the place where the arbitral award will be made. (273) The proper approach under Article V(1)(a) page "465" in these circ*mstances (and absent a contrary choice of law by parties), is to apply the substantive law of the arbitral seat to the formation and substantive validity of the arbitration agreement. Second, if it is genuinely unclear where an arbitral award will be made, a workable solution is to uphold, at least provisionally, the validity of the arbitration agreement if there is a credible possibility that the agreement would be upheld under the laws of any one of the likely arbitral seats. (274) There is no reason not to permit an arbitration to proceed if there appear to be reasonable prospects that it will do so in a place where the resulting applicable law would uphold the agreement's validity. That gives effect to the parties' agreement to arbitrate and avoids assuming that the parties and arbitral tribunal will be unable to proceed in a manner that ensures the validity of the arbitration agreement. (275) b. National Arbitration Legislation Notwithstanding Article V(1)(a) of the New York Convention, different national legal systems have taken, and continue to take, a wide variety of approaches to the choice of the law governing an international arbitration agreement. These approaches have evolved significantly in the course of the past century and continue to differ among countries. The same multiplicity of choice-of-law approaches is reflected in international arbitral awards rendered during the same period. As discussed below, a number of developed jurisdictions now apply some variation of a “most significant relation” or “closest connection” standard in selecting the law governing an international arbitration agreement. Under these standards, courts and arbitral tribunals generally look alternatively to either the arbitral seat or the law chosen to govern the parties' underlying contract as the most decisive connecting factors. In addition, as also discussed below, a number of leading legal systems – including France, Switzerland and many U.S. courts – also look to the New York Convention, to general principles of international law, or to national law to supplement this choice-of-law analysis. In so doing, courts in these jurisdictions typically either apply a validation principle or rely on principles of international page "466" law to decline to apply discriminatory or idiosyncratic rules of substantive national law. The same approaches are reflected in international arbitral awards. i. Historic Application of Law of Judicial Enforcement Forum to Arbitration Agreement http://www.kluwerarbitration.com/CommonUI/print.aspx
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The historic position in many jurisdictions was that the arbitration clause was governed by the law of the judicial enforcement forum. This choice-of-law approach often rested on the (historic) characterization of the arbitration clause in some jurisdictions as a matter of “remedies.” (276) As one U.S. court put it, in applying the law of the judicial enforcement forum, “[a]rbitration agreements relate to the law of remedies, and their enforcement, whether at common law or under the broader provisions of the arbitration acts, is a question of remedy to be determined by the law of the forum, as opposed to that of the place where the contract was made or is to be performed.” (277) Application of the judicial enforcement forum's standards for interpretation and enforcement of the arbitration agreement was particularly well-established in common law jurisdictions. In the United States, courts routinely declared that the law of the judicial enforcement forum governed the validity of the arbitration agreement. (278) In the words of one court: page "467" “New York for conflicts purposes treats issues concerning arbitrability as part of its ‘law of remedies,’ so that New York local law would apply in the case at bar, rather than the law of England or France which have greater contacts with the transactions involved here.” (279) The same approach was taken in early decisions in English and other common law jurisdictions. (280) ii. Criticism of Application of Law of Judicial Enforcement Forum to Arbitration Agreement The application of the law of the judicial enforcement forum to an arbitration agreement suffers from obvious deficiencies. As critics pointed out, this approach meant that different laws would apply to the arbitration agreement in different national courts, producing a lack of uniformity and predictability. (281) It also rested on an artificial characterization of the validity of an arbitration agreement as a purely “remedial” matter, which does little to address the substance of the relevant choice-of-law issues and interests. (282) Even as a matter of abstract categorization, it is awkward at best to characterize the validity of an arbitration agreement as simply a matter of remedies in the enforcement forum (or, more accurately, forums). Rather, this question concerns issues of substantive contract law (e.g., consent, consideration, certainty, mistake, fraud, duress, illegality) relevant to the formation and existence of the arbitration agreement, which cannot properly or usefully be considered merely “remedial” in nature. (283) page "468" An early (1931) Swiss Federal Tribunal decision adopted this analysis, rejecting the automatic applicability of the judicial enforcement forum's law in terms that could still readily be relied on today: “It is true that the opinion [that] the validity of an arbitration clause must be appreciated pursuant to the http://www.kluwerarbitration.com/CommonUI/print.aspx
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law of the state whose jurisdiction is excluded by that clause, has been expressed several times in the German doctrine … [Some] authors consider … that the validity of the arbitration agreement must generally be judged pursuant to the law of the place where the contract is to deploy its effects. Now, the principal effect of an arbitration agreement is not to exclude the jurisdiction of the state courts, but to transfer the right of decision to an arbitral tribunal: this positive effect of the contract is legally realized in the state where the seat of the arbitral tribunal is located pursuant to the contract. The negative effect, that is the exclusion of the state courts' jurisdiction, only constitutes a consequence of the positive effect.… It shall be added that, in international relations, an arbitration agreement normally excludes the jurisdiction of the courts of several states, so that such a contract should fulfill the requirements of the respective legislation of all these states, if the question of its validity, examined as a result of a request for enforcement of the arbitral award, was to be decided pursuant to the law of the state or states whose jurisdiction is excluded by that of the arbitral tribunal. This would constitute an unsatisfactory legal situation.” (284) Other early civil law decisions were similar. (285) Accordingly, the traditional application of the enforcement forum's substantive law to arbitration agreements was in due course abandoned, in favor of more nuanced, realistic choice-of-law analyses. In particular, as detailed below, a number of authorities adopted choice-of-law rules requiring application of either the substantive law of the arbitral seat (286) or the substantive law chosen by the parties to govern their underlying contract (287) to govern an international arbitration agreement. Few other serious alternatives to these two options were developed. page "469" iii. Choice-of-Law Rules Providing for Application of Substantive Law of Arbitral Seat to Arbitration Agreement Particularly in more recent decades, a number of jurisdictions, both common and civil law, have applied the substantive law of the arbitral seat to the validity of international arbitration agreements (again, absent agreement by the parties on the law applicable to the arbitration agreement). This result conformed with the rule adopted by the New York Convention (288) but was also arrived at by independent choice-of-law analysis in national courts. In the words of one Swiss court, “in the absence of a choice-of-law provision, the validity of the arbitral clause must be decided according to the law of the seat of the arbitral tribunal.” (289) This approach was also reflected in a 1994 decision of the Tokyo High Court, relying on the “procedural” character of the arbitration agreement, which reasoned: “If the parties' will is unclear we must presume, as it is the nature of arbitration agreements to provide for given procedures in a given place, that the parties intend that the law of the place where the arbitration proceedings are held will apply.” (290) http://www.kluwerarbitration.com/CommonUI/print.aspx
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Some countries adopted the same approach by legislative enactment. Article 48 of the Swedish Act provides: “Where the parties have not reached [a choice-of-law] agreement, the arbitration agreement shall be governed by the law of the country in which, by virtue of the agreement, the proceedings have taken place or shall take place.” (291) page "470" As with national arbitration legislation and court judgments, a number of arbitral awards applied either the substantive law (292) or the choice-of-law rules (293) of the arbitral seat. A leading example of an award applying the substantive law of the arbitral seat to the arbitration agreement was the Interim Award in ICC Case No. 6149, where the tribunal reasoned: “If … the proper law of the three arbitration agreements could not necessarily be derived from the proper law of the three sales contracts themselves, the only other rule of conflicts of laws whose application would seem appropriate … would be the application of the law where the arbitration takes place and where the award is rendered. This conclusion would be supported also by Art. V(1)(a) of the [New York Convention].” (294) Other awards were to the same effect, applying the substantive law of the arbitral seat (absent a contrary choice by the parties). (295) The rationale for applying the substantive law of the arbitral seat to the arbitration agreement is frequently not well-articulated. Some national court decisions and arbitral awards reason that, by seating the arbitration in a particular state, the parties impliedly agreed that the arbitration clause should be governed by the law of the arbitral seat. (296) On the other hand, other authorities, as well as the page "471" New York Convention and European Convention, (297) do not appear to rely on the parties' intent in providing for the application of the law of the arbitral seat, and instead reflect at least in part the view that arbitration agreements are “procedural,” and therefore almost inevitably subject to the law of the arbitral seat. (298) Similarly, a limited number of contemporary arbitral awards apparently conclude that an page "472" arbitral tribunal is obliged to apply the law of the arbitral seat, citing the “procedural” character of the arbitration agreement. (299) A high point of the “procedural” approach to the law governing arbitration agreements was reflected in resolutions adopted by the Institute of International Law (Institut de Droit International) in 1957 and 1959. These resolutions were adopted on the basis that “it appears to be of the greatest utility that the conflict of laws to which private arbitration gives rise should be submitted to a single system of private international law.” (300) Among other things, the resolution (first adopted in 1957, and subsequently reaffirmed in 1959) provided: “Parties shall be free in the arbitral agreement (submission or arbitral clause) to exercise their free choice and to indicate the place where the arbitral tribunal must sit; this choice shall imply that they http://www.kluwerarbitration.com/CommonUI/print.aspx
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intend to submit the private arbitration to the law of the seat of the country [of] arbitration, to the extent indicated by the following provisions. If the parties have expressly chosen the law applicable to the arbitral agreement, without settling the seat of the arbitral tribunal, they shall be deemed tacitly to have agreed that the tribunal shall sit in the territory of the country the law of which has been chosen by them.” (301)
Despite its apparent affirmation of party autonomy, the International Law Institute resolution arguably provided that, where the parties sited the arbitration in one country, but agreed that the law of another country should govern their arbitration agreement, the parties' selection of the arbitral seat should be overridden (in at least page "473" some circ*mstances). (302) In effect, the resolution appeared to proceed from the assumption that the law of the arbitral seat was required, as a matter of mandatory law, to govern the arbitration agreement. (303) Over time, the approach apparently taken in the International Law Institute's resolution lost favor. Requiring that the law of the arbitral seat govern the arbitration agreement, regardless of the parties' intentions, runs squarely counter to principles of party autonomy – which affirm the parties' freedom to select both the arbitral seat, the arbitral procedure and the law governing their arbitration agreement. (304) The rigidity, and the basic internal incoherence, of such a mandatory rule was also apparent from the 1957 International Law Institute's resolution, which at once purported to affirm the parties' autonomy to select the arbitral seat and applicable law, but then apparently required disregarding the parties' selection of the arbitral seat if it did not conform to their choice of law. As a consequence, national court decisions, arbitral awards and commentary increasingly relied upon the theory that the parties impliedly intended that the law of the arbitral seat govern their arbitration agreement. (305) This approach frequently resulted in the application of the law of the arbitral seat, but also permitted application of other laws in particular circ*mstances. For example, the Swedish Supreme Court held that where “no particular provision concerning the applicable law for the arbitration agreement itself was indicated,” in the underlying contract, “the validity of the arbitration clause should be determined in accordance with the page "474" law of the state in which the arbitration proceedings have taken place.” (306) Likewise, German courts applied the substantive law of the arbitral seat to the arbitration agreement unless the parties had chosen another governing law. (307) The implied choice-of-law theory was analytically preferable to the “procedural” approach, and more in keeping with the principles of party autonomy on which the international arbitral process is founded. (308) At the same time, as discussed below, this analysis introduced heightened complexity and uncertainty into the choice-oflaw process, by requiring greater case-by-case consideration of the parties' implied intentions. iv. Choice-of-Law Rules Providing for Application of Substantive Law Governing Underlying Contract to Arbitration Agreement http://www.kluwerarbitration.com/CommonUI/print.aspx
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In parallel to decisions applying the substantive law of the arbitral seat to the validity of the arbitration agreement, other authorities adopted a different approach, applying the law governing the parties' underlying contract to this issue. As discussed above, this approach was particularly influential in cases where the parties included a choice-of-law clause in their underlying contract, selecting the law governing that contract: in these instances, a number of authorities held that the parties' choice-of-law clause extended – either expressly or impliedly – to the separable arbitration agreement. (309) This analysis was adopted with particular clarity in English judicial decisions, which repeatedly held that the law selected by the parties to govern their underlying contract was also ordinarily applicable to the associated arbitration agreement. (310) In the words of one leading English decision: “Where the substantive contract contains an express choice-of-law, but the agreement to arbitrate contains no separate express choice-of-law, the latter agreement will normally be governed by the body of law expressly chosen to govern the substantive contract.” (311) Nonetheless, the page "475" same basic analysis – applying the substantive law governing the underlying contract to the arbitration agreement – was used even in the absence of a choice-of-law clause in underlying contract. (312) As also discussed above, other national courts in both civil and common law jurisdictions reached similar conclusions, (313) as did a substantial number of influential commentators. (314) For example, Professor Goldman concluded that, although the page "476" arbitration agreement could be governed by a different law than the underlying contract, “practically speaking, in most cases they are both governed by the same law, not because of their interdependence – which is denied – but because their juridical ‘location’ is, in fact, most often the same.” (315) At the same time, a number of arbitral awards also looked to the substantive law governing the parties' underlying contract to provide the law applicable to the associated arbitration agreement, particularly where the underlying contract contained an express choice-of-law clause. (316) For example, the tribunal in the Final Award in ICC Case No. 6752 held that, where the contract provided that “in respect to what has not been expressly provided herein, reference is to be made to … Italian law,” such a provision “necessarily applies to the arbitration agreement contained in the same article.” (317) As with national court decisions, these decisions typically rest on interpretations of the parties' choice-of-law clauses. v. Choice-of-Law Rules Providing for Application of Substantive Law of State with Closest Connection or Most Significant Relationship to Arbitration Agreement Over time, as with earlier approaches, shortcomings were identified in both of the traditional choice-of-law analyses described above – that is, application of the law of the arbitral seat or of the law of the underlying contract to the arbitration agreement. Each of these analytical approaches suffered from different, but grave, defects. On the one hand, application of the law of the arbitral seat, based http://www.kluwerarbitration.com/CommonUI/print.aspx
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upon an exclusive focus on the procedural aspects of the arbitration agreement, was analytically unsatisfactory. Most fundamentally, this approach ignored the contractual character of arbitration agreements (which might, but need not page "477" necessarily, have their most significant connection to the arbitral seat). (318) Automatic application of the law of the arbitral seat also mistakenly conflated the law governing the arbitration agreement with the law governing the arbitral proceedings: critics correctly observed that the law governing the arbitral proceedings would not necessarily be the law of the arbitral seat, and that in these circ*mstances it was at best anomalous to apply the law of the arbitral seat to the arbitration agreement. (319) Equally, there are instances where the arbitration agreement is integrally related to the parties' underlying contract – as in the case of a corporate charter or real estate transaction – and application of the law governing that type of contract to the arbitration clause is especially difficult to resist. On the other hand, an exclusive focus on the law governing the underlying contract, as applying to the arbitration agreement, was also unsatisfactory. This analysis was in significant tension with the basic premises of the separability presumption, which treated the parties' underlying contract as distinct from the arbitration agreement. (320) As a consequence, although a choice-of-law clause governing the underlying contract might extend to the associated arbitration agreement, this was not an inevitable consequence of such a clause: just as the invalidity or termination of the parties' underlying contract might not affect the associated arbitration agreement, (321) so a choice of the law applicable to the underlying contract (by agreement or otherwise) might not apply to the arbitration clause. (322) An exclusive focus on the law governing the underlying contract was also difficult to square with the fact that the parties' chosen arbitral seat was often more closely connected to their arbitration agreement than was the law they chose to govern their underlying contract. (323) This was particularly true in cases where the local law of one of the parties' home states governed a contractual relationship, but page "478" the arbitration agreement provided for arbitration in a neutral forum. (324) For example, the parties' underlying contract might be expressly subject to the national law of the place of performance (e.g., in a sales agreement), while the arbitral seat might be located elsewhere, precisely to disassociate the arbitration agreement from the host state. Finally, an exclusive focus on the law governing the underlying contract was also very difficult to square with the New York and European Conventions. As discussed above, both instruments expressly provided for application of the law of the arbitral seat to the arbitration agreement, in the absence of contrary agreement. (325)
Accordingly, over the past several decades, authorities in a number of leading jurisdictions increasingly rejected either an exclusive focus on the law of the arbitral seat or the law of the underlying contract. Instead, these authorities turned to generally-applicable contemporary choice-of-law criteria, (326) and particularly the “most significant relationship” and “closest connection” standards. (327) The influential Restatement (Second) Conflict of Laws, adopted in http://www.kluwerarbitration.com/CommonUI/print.aspx
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1971 in the United States, is representative. Section 218 of the Restatement (Second) impliedly rejects characterization of the arbitration agreement as “procedural,” instead applying generallyapplicable conflicts rules for contracts to the formation and validity of arbitration agreements. (328) Thus, §218 provides that the “validity of an arbitration page "479" agreement, and the rights created thereby,” are to be determined by applying the generally-applicable conflicts rules of §187 and §188. (329) In turn, §§187 and 188 gave effect to the parties' contractual choice-of-law agreement or, failing such agreement, provided for application of the law of the state with the “most significant relationship” to the parties' contract. (330) The comments to §218 of the Restatement (Second) implied, but did not require, that the state that will often have the most significant relationship to an agreement to arbitrate is that where the arbitral seat is located. (331) Similarly, as discussed in greater detail below, U.S. courts applying the Restatement (Second) frequently, but not always, concluded that the law with the most significant relation to the arbitration agreement was the law of the arbitral seat (absent contrary choice by the parties). (332) Other national courts took similar approaches. As noted above, under English conflict of laws rules, the law governing the arbitration agreement was historically presumed to be the law governing the parties' underlying contract. (333) More recently, however, English courts departed from this exclusive focus and began to place greater weight on the parties' selection of a particular arbitral seat, regarding this as an implied choice of law governing their arbitration agreement. For instance, in a 2000 decision in XL Insurance Ltd v. Owens Corning Corp., the court held that a clause providing for arbitration in London under the provisions of the English Arbitration Act, 1996, constituted an implied choice of English law to govern the validity of the arbitration agreement (despite a general choice-of-law clause in the page "480" underlying contract selecting New York law). (334) In effect, while conducting analysis in terms of an inquiry into the parties' implied intent, English courts have begun to consider factors essentially identical to those relevant to a “most significant relationship” or “closest connection” tests. (335) Similar approaches to that adopted in England have been followed in other jurisdictions. In the Netherlands, for example, a court held that a choice of New York as the place of arbitration “implies the choice for the law of New York as the law applicable to the arbitration, including the question whether a valid arbitration agreement has been concluded.” (336) Again paralleling developments in national courts, a number of recent arbitral awards also attempted to apply either a “closest connection” or “most significant relationship” standard in determining the validity of the arbitration agreement. (337) vi. Criticism of Choice-of-Law Rules Selecting Substantive Law of State with Closest Connection or Most Significant Relationship to Arbitration Agreement Despite their adoption in leading jurisdictions, and some arbitral awards, the closest connection/most significant relationship tests have proved unsatisfying. Most authorities have encountered substantial difficulties determining what connecting factors are http://www.kluwerarbitration.com/CommonUI/print.aspx
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decisive in selecting the law governing an arbitration agreement. In particular, it has proven difficult to choose in a principled manner between the law page "481" of the arbitral seat and the law selected by the parties to govern the underlying contract when these point in different directions. This is well-illustrated by a decision of the Hague Gerechtshof, which held that an arbitration agreement was governed by the law with the “closest connection” to that agreement. (338) The Court then proceeded to consider, variously, the law of the arbitral seat, the procedural law governing the arbitral proceedings and the law that the parties had selected to govern their underlying contract. Because all of these connecting factors pointed to the same applicable law, the Court had little difficulty in applying that law to the arbitration agreement. (339) Despite this, the Court's inability to prioritize these various connecting factors made clear how the “closest connection” standard provides little decisive guidance in selecting the law governing an arbitration agreement in anything but the most straightforward case. In particular, it provides no real means of determining whether the law governing the underlying contract or the law of the arbitral seat has the “closer connection” to the parties' arbitration agreement. (340) The same shortcomings are apparent in analyses from other jurisdictions. Thus, one commentator observed, application of the substantive law of the arbitral seat to the arbitration agreement “finds … support in the consideration that, inasmuch as it may be said that the place of performance of the arbitration agreement is at the seat of the arbitration, the law of the seat is the one having the closest connection with such an agreement (according to a rule of conflict which has gained wide acceptance).” (341) The author made no effort, however, to explain why the law of the page "482" arbitral seat necessarily had a closer connection to the arbitration agreement than the law governing the parties' underlying contract. vii. “Cumulative” Choice-of-Law Analysis and Miscellaneous Other Choice-of-Law Rules In part because of these difficulties, some arbitral tribunals have applied a so-called “sequential” or “cumulative” choice-of-law analysis, which looks to the rules under every potentially applicable law. (342) The cumulative approach may be comforting when all possible alternatives yield the same result, but it again provides no guidance when a “true conflict” exists. If the potentially-applicable substantive laws yield differing results, then the cumulative approach does not assist in deciding which of the potentiallyapplicable legal system's results should be preferred. (343) Other arbitral awards have either applied or considered other choice-of-law standards, (344) including selecting the law of the place where the arbitration agreement page "483" was (345) concluded, the seat of a domestic trade organization which has published a standard form contract/arbitration agreement, (346) or the law of the place where the arbitral award would likely require recognition and enforcement. (347) In general, each of these various rules attracted little attention or support, and suffered serious shortcomings which explained this.
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viii. Mandatory Application of Choice-of-Law Rules of Arbitral Seat Despite the foregoing diversity of choice-of-law rules, premised on the arbitrators' freedom to select a suitable choice-of-law rule, a substantial body of contemporary arbitral awards holds (or continues to hold) that arbitrators are mandatorily required to apply the conflicts rules of the arbitral seat to choose the substantive law governing the arbitration agreement. (348) In the words of one arbitral award: “This is an arbitration having its seat in London, England. Accordingly, the Arbitral Tribunal must apply English Arbitration Law – the English Arbitration Act, 1996 – to the question whether it has jurisdiction.” (349)
This conclusion has been particularly likely where the arbitral tribunal was seated in a jurisdiction, like Switzerland, where the national arbitration statute prescribed page "484" a specialized choice-of-law rule with regard to international arbitration agreements (like Article 178 of the Swiss Law on Private International Law). (350) This mandatory application of the choice-of-law rules of the arbitral seat to the arbitration agreement contrasts with developments with regard to the substantive law governing the merits of the parties' dispute. (351) There, as discussed below, the trend in recent years has been away from mandatory application of the choice-of-law rules of the arbitral seat. (352) The primary explanation for this difference has been the development of specialized choice of law and substantive rules applicable to international arbitration agreements – such as under Swiss, (353) French (354) and U.S. (355) law. In most jurisdictions, no similar rules apply with regard to choice-of-law questions affecting the substantive law governing the underlying contract, permitting other choice-of-law rules to evolve in that area. (356) In contrast, the specialized choice-of-law rules applicable to international arbitration agreements have provided obvious candidates for mandatory application by arbitral tribunals – particularly in jurisdictions, like Switzerland, where they are contained within a mandatorilyapplicable national arbitration statute. c. Choice of Law Applicable to Formation and Substantive Validity of International Arbitration Agreements in United States Courts Selecting the law applicable to an international arbitration agreement raises particular complexities under U.S. law, which require separate discussion. As discussed below, nothing in the text of the FAA's first or second chapters addresses directly the question of what law is applicable to the formation or substantive validity of an international arbitration agreement. (357) In part because of this absence of legislative guidance, the relationship between U.S. federal law (derived from the FAA and New York Convention) and U.S. state law (derived from state contract law principles) gives rise to special difficulties.
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Particularly to some foreign observers, (358) U.S. approaches to the choice of law applicable to international arbitration agreements are sometimes opaque. In recent page "485" years, however, increased judicial and academic attention has been devoted in the United States to choice-of-law questions under the FAA in the international arbitration context. (359) Moreover, as discussed below, U.S. choice-of-law analysis with regard to international arbitration agreements generally produces sensible results, using methods that are broadly similar to those in other developed jurisdictions. As a starting point, most contracts in the United States are governed by the laws of the several States (rather than federal law). (360) There is no general federal legislation, and no federal common law, dealing comprehensively with commercial contracts or issues of contract law generally. (361) That is generally as true in the case page "486" of international business transactions as it is in interstate and local transactions. (362) Arbitration agreements are a significant exception to this general rule that state law governs the interpretation, validity and enforcement of commercial contracts in the United States. As discussed above, at the heart of the FAA is §2's provision that a written arbitration provision in a contract involving interstate or foreign commerce shall be “valid, irrevocable and enforceable,” subject only to a savings clause permitting non-enforcement on “such grounds as exist at law or in equity for the revocation of any contract.” (363) The section's stated purpose was to “‘revers[e] centuries of judicial hostility to arbitration agreements … by plac[ing] arbitration agreements ‘upon the same footing as other contracts.’” (364)
As discussed below, §2 has been applied by U.S. courts in a substantial body of cases, including particularly to issues concerning: (a) substantive validity, (b) formation, (c) formal validity, and (d) interpretation of arbitration agreements. (365) Different rules have been developed with regard to each of these various issues, with different approaches also being taken by U.S. courts in domestic and international cases. i. Law Governing Substantive Validity of Arbitration Agreements under FAA With regard to the substantive validity of arbitration agreements, the U.S. Supreme Court has repeatedly held that §2 of the domestic FAA creates a sui generis body of substantive federal contract law, applicable to interstate and international arbitration agreements: “Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” (366) As a consequence, it is well-settled that U.S. state law rules which single out and purport page "487" to render arbitration agreements invalid, illegal, or revocable are preempted by the FAA. (367) As the Supreme Court has repeatedly held: “Section 2 [of the FAA] is a congressional declaration of a liberal federal policy favoring arbitration agreements, notwithstanding any state substantive or http://www.kluwerarbitration.com/CommonUI/print.aspx
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procedural policies to the contrary. The effect of the section is to create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.” (368) Section 2 requires, as a matter of substantive federal law, “courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms.” (369) That federal law is binding in both federal and state courts, (370) and it preempts (or supersedes) inconsistent state law. (371) Applying this federal substantive law, U.S. courts have repeatedly refused to apply (and instead held preempted) a wide variety of state law provisions which were aimed at rendering arbitration clauses invalid. For example, U.S. courts have held that domestic state laws forbidding the arbitration of particular categories of disputes (e.g., state securities law or tort claims) (372) or requiring particular formal requirements (e.g., notice of arbitration clause typed in underlined capital letters on the first page of the contract) (373) are preempted by the FAA. The overall consequence of §2, and its interpretation by U.S. courts, has been to establish a general rule of substantive federal common law that arbitration agreements are valid and enforceable in accordance with their terms, irrespective of state (or foreign) legislation or legal rules that purport to render such agreements invalid or unenforceable. Rather, the validity or enforceability of arbitration agreements can only be challenged under neutral, generally-applicable contract law page "488" defenses (such as fraud, mistake, duress, or vagueness). (374) In the U.S. domestic context, these generally-applicable contract law rules are ordinarily provided by U.S. state law, subject to the FAA's prohibition against state law rules that single out or discriminate against arbitration agreements. (375) A similar approach applies to most international arbitration agreements in U.S. courts. Given the universal character of the New York Convention, most international arbitration agreements are governed in U.S. courts by §203 of the FAA. (376) U.S. courts have repeatedly held that federal common law, derived from §§2 and 203 of the FAA, pre-empts state law rules governing the validity of international arbitration agreements (as is the case with domestic agreements). (377) Moreover, as discussed below, many U.S. courts have gone further with regard to international arbitration agreements (as distinguished from domestic arbitration agreements), page "489" holding that federal common law principles apply also to questions of contract formation (rather than generally-applicable state law contract rules). (378) The result of the foregoing developments has been that the formation and substantive validity of international arbitration agreements can ordinarily be challenged in U.S. courts only on the basis of generally-applicable contract law defenses (such as fraud, mistake, duress, and the like), ordinarily prescribed by federal common law rules. As discussed elsewhere, this is generally true even where the parties have included a choice-of-law clause in their underlying contract, with most U.S. courts interpreting such provisions as inapplicable to the arbitration agreement (379) or refusing to apply the law chosen by the parties' agreement if it imposes discriminatory or idiosyncratic prohibitions against http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration agreements. (380) ii. Law Governing Formation of Domestic Arbitration Agreements under FAA Until fairly recently, many U.S. courts generally applied substantive federal common law rules derived from §2 of the domestic FAA to the formation of domestic arbitration agreements without engaging in any meaningful choice-of-law analysis. (381) This conclusion historically resulted from the view that Congress intended the FAA to preempt state (and foreign) law in U.S. courts, which directly mandated substantive rules and obviated the need for choice-of-law analysis. (382) As a consequence, federal courts applied judiciallyfashioned federal common law rules of contract formation, which provided a pro-enforcement legal regime for domestic arbitration agreements. (383) More recently, however, the U.S. Supreme Court apparently reasoned that, in the domestic context, U.S. state law applied to questions concerning the formation (as distinguished from the validity) of arbitration agreements. In particular, the Supreme Court held in First Options of Chicago, Inc. v. Kaplan, that federal, as page "490" well as state, courts “should apply ordinary statelaw principles that govern the formation of contracts” in determining the existence of an agreement to arbitrate. (384) Other recent U.S. domestic authorities under the FAA are to the same effect. (385) Although it is beyond the scope of this discussion, one may question whether this analysis is well-considered as a matter of domestic U.S. law. A more coherent analysis, in better keeping with the FAA's objectives, would be to characterize the question whether an “arbitration agreement” exists, for purposes of the FAA, as a matter of federal law. This would further the FAA's objectives of facilitating the arbitral process and ensuring that state (or foreign) law does not obstruct the enforcement of arbitration agreements. More fundamentally, it is difficult to understand how the FAA could effectively regulate the validity of arbitration agreements without also regulating both what those agreements are (386) and how they are formed. For the present, however, this appears to be a path not yet taken in the domestic context. It remains to be seen whether the application of state law principles of contract formation will impede the enforceability of domestic arbitration agreements in the United States. iii. Law Governing Formation of International Arbitration Agreements under FAA Despite the foregoing developments with regard to domestic U.S. arbitration agreements, many U.S. lower courts have continued to apply substantive rules of federal common law to the formation of international arbitration agreements that are subject to the New York Convention (387) (as distinguished from domestic page "491" arbitration agreements). For example, in Marchetto v. DeKalb Genetics Corp., (388) the Court cited §203 of the FAA in concluding that “the validity of an arbitration agreement is determined by reference to the [FAA] and the federal substantive law of arbitrability.” (389) Likewise, in Smith/Enron Cogeneration Ltd http://www.kluwerarbitration.com/CommonUI/print.aspx
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Partnership v. Smith Cogeneration Int'l, Inc., the court declared that, “the determination whether there is an agreement to arbitrate depends on federal, not state, law.” (390) Not all U.S. courts adopt the approach of applying federal common law rules of contract formation to international arbitration agreements. Extending the analysis set out in First Options, (391) some U.S. lower courts have applied the same choice-of-law approach to international arbitration agreements subject to the New York Convention as to domestic arbitration agreements. These decisions have generally applied U.S. state law (or foreign law) rules of contract formation to international arbitration agreements, typically after applying either the parties' chosen law or a most significant relationship test or another traditional choice-of-law analysis. (392) page "492" iv. Reluctance of U.S. Courts to Apply Foreign Law to Substantive Validity of International Arbitration Agreement Given the conclusion by many U.S. courts that §2 and §203 of the FAA establish a body of substantive federal common law, applicable to the formation and validity of international arbitration agreements, there have been few instances where the application of foreign law to international arbitration agreements has been considered in U.S. litigation. Rather, in many cases, U.S. courts have simply applied U.S. substantive federal common law contract principles to determine the existence and validity of international arbitration agreements, without considering or applying foreign law. (393) Nonetheless, a few U.S. courts have applied traditional choice-oflaw rules to select the law applicable to international arbitration agreements; in doing so, these courts have encountered the same difficulties that most other national courts have. Some U.S. courts have applied the law of the arbitral seat, (394) while others have applied the law governing the underlying contract (particularly where that contract page "493" contains a choice-of-law clause). (395) Although both approaches have generally been superseded by the “most significant relationship” standard of the Restatement (Second) Conflict of Laws, U.S. lower courts have had little more success in applying this analysis than courts in other jurisdictions have had with the “closest connection” formula. (396) The application of a “most significant relationship” standard in international cases remains a minority position in the United States. The better-reasoned decisions of U.S. courts instead apply a judicially-fashioned body of federal common law to questions of formation, as well as validity, of international arbitration agreements, rather than looking to foreign law. This analysis bears important parallels to French law, where courts apply international law principles, and to Swiss law, where courts apply specialized choice of law and substantive rules, in each case rather than a particular national law selected through a traditional choice-of-law analysis. (397) page "494" v. Application of International Law Principles to Formation and Substantive Validity of International Arbitration Agreement under FAA
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The traditional choice-of-law analyses described above have not been adopted by the weight of U.S. federal court authority in cases involving the existence or validity of international arbitration agreements. Instead, a number of U.S. judicial decisions have applied principles of international law, derived from Article II(3) of the New York Convention, to the formation and validity of international arbitration agreements. These decisions have held that Article II(3) supersedes discriminatory or idiosyncratic provisions of foreign (or state) law applicable to international arbitration agreements. For example, in Ledee v. Ceramiche Ragno, the U.S. Court of Appeals rejected a challenge to an international arbitration agreement based upon a Puerto Rican law invalidating arbitration agreements in automobile dealer contracts. (398) Relying on Article II(3) of the New York Convention, and chapter 2 of the FAA (implementing the Convention), the Court held that the “null and void” formula under Article II(3) “must be interpreted to encompass only those situations – such as fraud, mistake, duress, and waiver – that can be applied neutrally on an international scale.” (399) Similarly, in Rhone Mediterranee Compagnia Franchese di Assicurazioni e Riassicurazoni v. Achille Lauro, the U.S. Court of Appeals rejected a challenge to an international arbitration agreement based on its alleged invalidity under Italian law (the law of the arbitral seat). (400) The relevant Italian legislation denied effect to arbitration agreements providing for an even number of arbitrators, which the parties' agreement arguably contemplated. Relying on Article II(3) of the Convention, the Court held: “an agreement to arbitrate is ‘null and void’ only (1) when it is subject to an internationally recognized defense such as duress, mistake, fraud or waiver, or (2) when it contravenes fundamental policies of the forum state.” (401) Likewise, another lower court refused to give effect to “purported Italian law rule [that] appears to be a special requirement governing agreements to arbitrate, but inapplicable to other contractual terms and conditions.” (402) A number of other U.S. courts have adopted the same approach, looking to internationally-applicable principles of neutrality and nondiscrimination derived from Article II(3). These decisions have relied on such principles to give effect to international arbitration agreements, notwithstanding national law provisions that either singled-out such agreements for particular rules of invalidity or that imposed page "495" idiosyncratic limitations on the validity of such agreements. (403) Yet another U.S. decision declared that: “it is well-established that it is not state law, but internationally-recognized defenses to contract formation or public policy concerns of the forum nation, which make a valid agreement to arbitrate the subject of the dispute unenforceable.” (404) Applying this analysis, the course of U.S. judicial decisions during the past four decades has been extremely favorable for the enforcement of international arbitration agreements. U.S. courts have repeatedly upheld the existence and validity of international arbitration agreements, affording litigants a relatively high degree of ultimate certainty that their arbitration agreements will be enforced in accordance with their terms in U.S. litigation. Indeed, one lower U.S. court recently remarked that it was aware of http://www.kluwerarbitration.com/CommonUI/print.aspx
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“no United States federal cases where a court has applied the law of the foreign country and declared that an arbitration clause would be invalid under that country's law.” (405) page "496" There are occasional exceptions to this approach, but they are isolated and contrary to the decided weight of U.S. authority. One example is the Court of Appeals' decision in Sarhank Group v. Oracle Corp., which refused to recognize an arbitral award made in Egypt. (406) There, the Court rejected the tribunal's decision, pursuant to a choice-of-law clause in the parties' underlying contract that the non-signatory U.S. parent of the respondent in the arbitration had assented to the contract. Applying federal common law standards, the Court held that American law controlled questions regarding formation of an agreement to arbitrate by a U.S. company. (407) This decision reflects a parochial insistence on applying local U.S. law, notwithstanding both a choice-of-law clause selecting foreign law (408) and the absence of any connection of the relevant contract to the United States. (409) Moreover, and very unusually, the U.S. court did not ignore the law that would have been selected by the parties' choice-of-law clause or by a traditional choice-of-law analysis in order to give effect to the agreement to arbitrate (as is the case under Swiss, French and most U.S. decisions); (410) rather, the court disregarded the law that would have been selected by normal choice-of-law principles to invalidate an arbitration agreement. That is a serious departure from the obligations imposed by the New York Convention (Articles V(1)(a) and II(3)), (411) as well as the overwhelming weight of judicial authority in developed jurisdictions around the world. (412) d. Application of Validation Principle to Formation and Substantive Validity of International Arbitration Agreement In part because of dissatisfaction with both historic choice-of-law standards and contemporary “closest connection/most significant relation” or “cumulative” tests, (413) both national legislatures and courts, as well as arbitral tribunals, have increasingly embraced a “validation principle.” Rather than applying abstract connecting factors to select the law governing an international arbitration agreement, this principle looks expressly to the purposes of such agreements and the international arbitral page "497" process and provides for application of the law of the jurisdiction that will give effect to the parties' arbitration agreement. The avowed purpose of this legislation is to establish a pro-arbitration enforcement regime, consistent with the objectives of the New York Convention and other contemporary international arbitration conventions, that overcomes the complexities and uncertainties of traditional choice-of-law analysis. As discussed below, this principle is not only consistent with developments in national courts and arbitral tribunals, (414) but is also consistent with a sound choice-of-law analysis and the terms of Article V(1)(a)'s choice-of-law rules. (415) As discussed above, there are fundamental deficiencies in both a general choice-of-law rule selecting the law of either the arbitral seat or the underlying contract and a general choice-of-law rule selecting http://www.kluwerarbitration.com/CommonUI/print.aspx
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the law with the “closest” or “most significant” connection to a particular agreement. (416) On the one hand, the fundamental defect in a general choice-of-law rule (of the sort suggested by Article V(1) (a)'s choice of the law of the arbitral seat) is that it mechanically selects the law of a single jurisdiction, based on a particular criteria, with little regard for the objectives or commercial expectations of the parties and the interests of the relevant states. (417) On the other hand, the fundamental difficulty with the closest connection/most significant relationship standards is their failure to provide effective guidance in determining what factors qualify as “closest” or “most significant” in particular cases. Again, that is because these standards look to relatively mechanical and fortuitous connecting factors and ignore the parties' objectives and commercial page "498" expectations, in entering into international arbitration agreements, and the interests of relevant legal systems. (418) An early example of a more considered analysis giving effect to the validation principle arose in a 19th century House of Lords decision, in Hamlyn & Co. v. Talisker Distillery. (419) There, the parties agreed to a contract for the purchase of grain, to be performed entirely in Scotland, with an arbitration clause providing for “arbitration by two members of the London Corn Exchange, or their umpire, in the usual way.” (420) When disputes arose under the grain purchase agreement, Scottish courts refused to dismiss a litigation, relying on provisions of Scots law that invalidated any arbitration agreement that did not name the arbitrators. On appeal, the House of Lords' reversed, holding that the arbitration clause was subject to English, not Scots, law, and that the agreement to arbitrate was valid under English law. (421) Among other things, the House of Lords reasoned that the arbitration clause was governed by English law (because of the parties' reference to arbitrators sitting in England and drawn from “a commercial body in London of a conventional tribunal which is to act ‘in the usual way,’ or, in other words, in the manner which is customary in London” (422) ). These connecting factors were held to supersede the underlying contract's exclusive connection to Scotland. Equally important, and of more enduring guidance, Lord Ashbourne reasoned that, “the arbitration clause becomes mere waste paper if it is held that the parties were contracting on the basis of the application of the law of Scotland,” and that “[i]t is more reasonable to hold that the parties contracted with the common intention of giving entire effect to every clause, rather than of mutilating or destroying one of the most important provisions.” (423) The House of Lords' analysis, although dated, is well-reasoned. Properly conceived, the choice of law governing an international arbitration agreement must be drawn, not from generally-applicable choice-of-law rules or abstract connecting factors, but from the commercial purposes of parties to international arbitration agreements and from the underlying objectives of the international arbitral process. (424) page "499" As discussed above, the parties' purposes and commercial expectations in concluding an international arbitration agreement are not connected abstractly to one particular national jurisdiction. (425) That would be generally contrary to the essential nature and purpose of an international arbitration agreement, which is inherently international in character, and to the basic conception of http://www.kluwerarbitration.com/CommonUI/print.aspx
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contemporary international arbitration, which is also fundamentally international in character. Instead, ascertaining the parties' purposes and expectations in entering into an international arbitration agreement requires reference to the parties' underlying objective of obtaining efficient resolution of international disputes, and, in particular, of overcoming the peculiar jurisdictional and choice-of-law uncertainties that ordinarily accompany transnational transactions. (426) These objectives are not served, and are in fact frustrated, by formulaic application of either the law of the arbitral seat or the underlying contract. Rather, the law which rational commercial parties expect an international arbitration agreement to be governed by (absent contrary indication), and which most closely mirrors and best accomplishes the objectives of such an agreement, is the law of the jurisdiction which gives effect to the parties' objectives in entering into that agreement. Absent contrary indication, the parties' overriding objective in entering into an international arbitration agreement is to make an agreement that is valid and enforceable (rather than “mere waste paper” (427) ), and that provides an effective means of neutrally resolving international disputes, without regard to differing choice of law and substantive law rules. (428) Where the parties have subjected their underlying contract to a law that would invalidate their arbitration agreement, the separability presumption provides sound analytical reasons not to apply that law to the parties' arbitration clause. As discussed above, it scarcely makes sense to assume that the parties intended that the law governing their underlying contract would also be extended to the presumptively separate arbitration agreement, if the consequence thereof was to invalidate that agreement. (429) Rather, in that case, the law of the arbitral seat would presumptively apply to the parties' agreement to arbitrate. page "500" Conversely, where the parties' arbitration agreement would be invalid under the law of the arbitral seat, there is every reason to apply the law governing the parties' underlying contract to give effect to the arbitration clause. Again, if parties select a law governing their underlying contract which would give effect to their arbitration agreement, they cannot reasonably be assumed to have intended that law not to extend to their arbitration agreement where such a limitation would result in application of a law (that of the arbitral seat) which would invalidate their agreement, and leave them facing all the uncertainties, expenses and other problems of international litigation that the arbitration agreement was meant to avoid. (430) For the same reasons, Article V(1)(a) of the New York Convention is not inconsistent with application of the validation principle. When Article V(1)(a) provides for application of the “law to which the parties have subjected” their arbitration agreement, (431) it permits an implied choice of law. In particular, it recognizes that parties ordinarily intend that the law governing their international arbitration agreement is the law that makes that agreement work and that will enforce it effectively. Moreover, as noted above, Article V(1)(a) is permissive, allowing states to deny recognition to awards, but not requiring them to do so; (432) nothing in Article V(1)(a) precludes national courts from recognizing arbitral awards (or arbitration agreements) following application of the validation principle.
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Consistent with this analysis, numerous authorities have adopted the validation principle in the context of international arbitration agreements, either expressly or in practice. As discussed above, Article 178 of the Swiss Law on Private International Law expressly adopts the validation principle, providing that an agreement to arbitrate in Switzerland is valid if it satisfies either the law chosen by the parties to govern the arbitration agreement, Swiss law or the law applicable to the underlying dispute. (433) Similar legislation has recently been enacted in Spain and Algeria. (434) Likewise, a number of arbitral awards have applied some version of the validation principle. Under this approach, where different potentially-applicable national laws have produced different results with regard to the existence or validity page "501" of an arbitration agreement, arbitral tribunals have applied that national law which will uphold the agreement. (435) This analysis has been justified on the grounds that: “[A]n arbitral clause has a closer relationship to the law that upholds its existence than to the law that denies it.” (436) Although not generally so characterized, judicial decisions in a number of other developed jurisdictions are also properly understood as applying an unstated validation principle. (437) As discussed above, national courts have consistently engaged in choice-of-law analyses that select the law that gives effect to international arbitration agreements. (438) When that is the law of the arbitral seat, the arbitral seat's law is applied, and when it is the law of the underlying contract, that law is applied. In contrast, in very few cases does a developed court's choice-of-law analysis lead to application of a law that invalidates the agreement to arbitrate when another potentially-applicable law would validate the agreement. Moreover, in some jurisdictions, such as the United States and France, the application of either international or federal common law principles – notwithstanding otherwise page "502" applicable national laws that would invalidate or restrict the parties' arbitration agreement – can be seen as a variation of the validation principle. (439)
Other authorities are to the same effect in approving a validation principle. A 1989 Resolution of the International Law Institute declared: “Where the validity of the agreement to arbitrate is challenged, the tribunal shall resolve the issue by applying one or more of the following: the law chosen by the parties, the law indicated by the system of private international law stipulated by the parties, general principles of public or private international law, general principles of international arbitration, or the law that would be applied by the courts of the territory in which the tribunal has its seat. In making this selection, the tribunal shall be guided by the principle in favorem validitatis.” (440) Commentary which considers the issue, while limited in volume, also approves of the validation principle. (441)
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These authorities provide practical confirmation, from a wide range of differing perspectives, of the analytical foundations of the validation principle. Long page "503" recognized in other contexts, (442) the validation principle is peculiarly applicable in the context of international arbitration agreements, which are entered into precisely to avoid the uncertainties and choice-of-law complexities that otherwise attend transnational transactions. (443) e. Direct Application of International Law to the Formation and Substantive Validity of International Arbitration Agreement Another reaction to deficiencies in traditional choice-of-law analysis has involved the direct application of international law to international arbitration agreements. Different national courts, arbitral awards and commentators have taken slightly different routes to applying international law to international arbitration agreements, but the end result has been largely similar. i. Direct Application of International Law to Arbitration Agreement Under French Law As discussed elsewhere, contemporary French judicial decisions have generally eschewed traditional choice-of-law analyses and have instead applied principles of international law to the formation and validity of international arbitration agreements. (444) French courts have for nearly two decades held that international arbitration agreements are “autonomous” from any national legal system, and are instead directly subject to general principles of international law. As discussed elsewhere, the Cour de cassation's Dalico decision held that “according to a substantive rule of international arbitration law,” the existence and validity of an international arbitration agreement “depends only on the common intention of the parties, without it being necessary to make reference to a national law.” (445) Other page "504" French authorities are to the same effect, (446) as are decisions in a few other jurisdictions. (447) A substantial line of arbitral authority (particularly common in international arbitrations seated in France) has similarly directly applied international law principles to the formation and validity of international arbitration agreements. (448) page "505" In the words of one leading award, the arbitration agreement's “existence and validity are to be ascertained, taking into account the mandatory rules of national law and international public policy, in the light of the common intention of the parties, without necessarily referring to a state law.” (449) This line of analysis parallels that adopted by French courts. (450) ii. Application of International Minimum Standards under U.S. Law From a common law perspective, which nonetheless adopts an analysis comparable to that in France, U.S. courts have held that the New York Convention gives rise to international principles of nondiscrimination, which preclude the application of national law rules that discriminate against international arbitration agreements (or arbitration agreements generally) or that adopt idiosyncratic rules of http://www.kluwerarbitration.com/CommonUI/print.aspx
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invalidity. (451) Thus, as discussed above, a U.S. appellate court rejected a challenge in Ledee v. Ceramiche Ragno to an arbitration agreement based upon a Puerto Rican law invalidating arbitration clauses in automobile dealer contracts. (452) Relying on Article II(3) of the New York Convention, the Court refused to apply the Puerto Rican law, reasoning: “by acceding to and implementing the [New York Convention], the federal government has insisted that not even the parochial interests of the nation may be the measure of interpretation. Rather, the clause [Article II(3)] must be interpreted to encompass only those situations – such as fraud, mistake, duress, and waiver – that can be applied neutrally on an international scale.” (453) Similarly, in Rhone Mediterranee, another U.S. appellate court rejected a challenge to an arbitration agreement based on its alleged invalidity under Italian law (the law of the arbitral seat). (454) Again relying on Article II(3) of the Convention, the Court held that: “an agreement to arbitrate is ‘null and void’ only (1) when it is subject to an internationally recognized defense such as duress, mistake, fraud or waiver … or (2) when it contravenes fundamental policies of the forum state. The ‘null and void’ language [in Article II(3) of the Convention] must be read narrowly, for the signatory nations have jointly declared a general policy of enforceability of agreements to arbitrate.…” (455) page "506" The Court continued: “Signatory nations have effectively declared a joint policy that presumes the enforceability of agreements to arbitrate. Neither the parochial interests of the forum state, nor those of states having more significant relationships with the dispute, should be permitted to supersede that presumption. The policy of the Convention is best served by an approach which leads to upholding agreements to arbitrate. The rule of one state as to the required number of arbitrators does not implicate the fundamental concerns of either the international system or [judicial enforcement] forum, and hence the agreement is not void.” (456) A number of other U.S. lower courts have adopted the same approach, with the progeny of Rhone Mediterranee and Ledee looking to internationally-applicable principles, derived from Article II(3) of the Convention, to give effect to international arbitration agreements, notwithstanding national law provisions that either singled-out such agreements for the imposition of rules of invalidity or that imposed idiosyncratic limitations on the validity of such agreements. (457) iii. Direct Application of International Law versus International Minimum Standards There are two principal interpretations of these U.S. decisions http://www.kluwerarbitration.com/CommonUI/print.aspx
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relying on Article II(3) of the Convention. First, Article II(3) may incorporate a comprehensive body of substantive international law. This would parallel the analysis of French courts, looking directly to international law for substantive contract law standards, governing all aspects of the formation and validity of international arbitration agreements (subject to a “public policy” exception). (458) It would also roughly parallel U.S. judicial decisions adopting federal common law rules of contract formation and validity for application to international arbitration agreements. (459) Second, an alternative interpretation of Article II(3) would conclude that generally-applicable contract law defenses (under applicable national law) would determine whether an arbitration agreement existed and whether such an agreement was “null and void,” but that Article II would override national law defenses which are not based on generally-applicable, internationally-accepted contract law rules or which discriminated against international arbitration agreements. This approach would parallel the application of the domestic FAA in U.S. courts, and its preemptive page "507" effect on (460) discriminatory state laws. It would retain an important role for choice-of-law analysis, and the application of national law, but would subject national law to reasonably demanding international limitations, designed to ensure that idiosyncratic or discriminatory national laws do not obstruct the formation and enforcement of international arbitration agreements. Each of the foregoing approaches has significant merits and represents a significant advance in international arbitration law. Each of these approaches takes an important and indispensable step in preventing parochial national legislation from frustrating both the intentions of parties agreeing to international arbitration agreements and the intentions of Contracting States that have ratified the New York Convention. The most firmly-grounded of these two analyses interprets Article II(3) of the New York Convention as imposing international limitations on national law rules governing the formation and substantive validity of international arbitration agreements, as in Ledee, Rhone Mediterranee and their progeny. At least at present, (461) this is more readily sustained than an approach – based on either customary international law or Article II(3) – that seeks to rely on the existence of a comprehensive, stand-alone body of international substantive contract law principles governing international arbitration agreements. This conclusion is supported by several related arguments. First, the Ledee/Rhone Mediterranee analysis rests on the internationally-recognized terms of the New York Convention, providing a firm textual basis for applying international law principles in national courts. In the absence of an international treaty obligation, it is at best controversial to claim the existence of independent principles of customary international law governing the substantive validity and formation of arbitration agreements (462) or to rely on such principles to override national law rules applicable to arbitration agreements generally. (463) Relying on Article II(3) of the Convention offers a more cogent and defensible foundation for the application of international law principles than either customary international law or general conceptions of international public policy. page "508"
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As discussed above, international arbitration agreements have long and almost uniformly been regarded as being governed by national law principles, selected through traditional choice-of-law principles. (464) Historically, such agreements were variously considered to be subject to the national law of the judicial enforcement forum, the national law of the arbitral seat, the national law governing the underlying contract, or the national law with the closest connection to the arbitration clause: (465) the one uniform theme throughout this history, including throughout virtually the entire 20th century, has been that it was always national law – not international law – that was considered applicable to international arbitration agreements. Indeed, as discussed above, both the New York and European Conventions expressly provide for the application of national law – not international law – to determine the existence and substantive validity of international arbitration agreements. (466) That history makes it very difficult to accept, at present, the direct application of international law to the validity of arbitration agreements. Likewise, it is difficult to conclude that international law currently provides a recognized body of substantive contract law principles capable of affording commercial parties the certainty and predictability that they require. (467) Particularly page "509" in areas such as capacity, authority and corporate powers, but also more broadly, it is very difficult to postulate the current existence of a free-standing body of substantive international commercial law sufficient to provide a reliable framework governing the formation and validity of international agreements. (468) Second, it is entirely justifiable – and necessary – to interpret Article II(3) of the New York Convention as imposing international limitations on national law rules regarding the formation and validity of arbitration agreements. As explained in decisions such as Ledee and Rhone Mediterranee, Article II(3) requires that international arbitration agreements be enforced, except where they are “null and void, inoperative or incapable of being performed.” This basic commitment to an international standard requiring the recognition and enforcement of international arbitration agreements would make little sense, and would have little practical value, if Contracting States were free to adopt discriminatory or idiosyncratic national law rules that made it impossible or difficult validly to form such agreements in the first place. Equally, such rules of national law would contradict the fundamental objectives of the Convention – being to promote the use and enforceability of international arbitration agreements. (469) Given the Convention's purposes, Article II(3)'s exception, permitting non-recognition of an arbitration agreement that is “null and void, inoperative or incapable of being performed,” can only sensibly be interpreted as prescribing at least a partial body of international standards for the validity of international arbitration agreements. Under these standards, Article II(3)'s requirement that Contracting States recognize and enforce international arbitration agreements would not permit a state to adopt legislation rendering all arbitration agreements, or all international arbitration agreements, “null and void” or invalid. Nor would Article II(3) permit a Contracting State to require local regulatory approval of all international arbitration agreements as a condition of their validity. In each case, such legislation would render Article II(3)'s requirement that international arbitration agreements be recognized meaningless. This contradicts http://www.kluwerarbitration.com/CommonUI/print.aspx
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the Convention's basic purposes and cannot have be contemplated by its drafters (who instead permitted page "510" nonrecognition of arbitration agreements only in specified circ*mstances, (470) pursuant to a uniform international choice-oflaw regime (471) ). This conclusion draws support from the text, structure and purposes of the Convention. Textually, Article II(3) requires Contracting States to recognize arbitration agreements, and refer the parties to arbitration, save where “the said agreement is null and void, inoperative or incapable of being performed.” (472) It makes no sense – from a drafting or structural perspective – to mandatorily require Contracting States to recognize arbitration agreements, save in specifically identified cases, if those cases are left whollyundefined and subject to the discretion of Contracting States. Article II(3) does not require Contracting States to recognize arbitration agreements unless “they deem it unadvisable to do so,” or unless “national law precludes recognition,” but rather when those agreements are “null and void, inoperable or incapable of being performed.” The specification of particular exceptions to an arbitration agreement's validity in Article II(3)'s textual formula contemplates and demands substantive content – and, particularly, internationally-binding content (473) – to give meaning to Article II(3)'s text. (474) The Convention's basic structure and purposes require the same result. The basic objective of prescribing uniform international rules, to make international arbitration agreements more readily enforceable, (475) demands that the circ*mstances in which such agreements will be recognized be the subject of international standards. Leaving issues of substantive validity entirely to national law would produce neither uniformity nor a reliable “proenforcement” approach to arbitration agreements. Equally, it would be anomalous for the Convention to prescribe a uniform international standard for the formal validity of arbitration agreements, (476) page "511" and then leave issues of substantive validity wholly unaddressed by international standards. The proper content of Article II(3)'s international standards is suggested by the analysis in Rhone, Ledee and their progeny, which require recognition of the validity of international arbitration agreements except where such agreements are invalid under generally-applicable, internationally-neutral contract law defenses. Under this standard, a Contracting State may not circumvent or avoid its obligations to recognize and enforce international arbitration agreements under Article II(3) by adopting special rules of national law that make such agreements invalid (or “null and void, inoperative or incapable of being performed”). (477) For example, national legislation that imposed unusual notice requirements (e.g., particular font or capitalization), consent requirements (e.g., requirements that arbitration agreements be specifically discussed and approved or established by heightened proof requirements), regulatory approval requirements (e.g., executive or legislative approval), procedural requirements (e.g., only institutional arbitration agreements are permitted), or invalidity rules (e.g., arbitration agreements applicable to future disputes, fraud claims or tort claims are invalid) would all be impermissible and ineffective under this interpretation of Article II(3).
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Much the same analysis would apply if a Contracting State applied idiosyncratic national law requirements, applicable to domestic arbitration agreements, but out-of-step with essentially universal approaches of the world's developed legal systems, to international arbitration agreements. For example, this would preclude legislative requirements for particular arbitrator appointment mechanisms (e.g., requirements for naming the arbitrator in the arbitration agreement), qualifications of arbitrators (e.g., local nationality, religion), institutional arbitration requirements (e.g., forbidding ad hoc arbitration agreements), or language requirements (e.g., requiring use of a specified language). These local requirements would not qualify as internationally-neutral contact law defenses, but would instead constitute idiosyncratic local rules. As the courts in Ledee and Rhone Mediterranee explained, these sorts of defenses contradict the purposes of the New York Convention and should not be given effect in the context of international arbitration agreements. (478)
These requirements of international neutrality and non-idiosyncrasy are derived from the Convention's purposes of promoting uniform treatment of international arbitration agreements and facilitating their enforcement. (479) Both purposes are frustrated by discriminatory or idiosyncratic local laws which purport to invalidate agreements to arbitrate. Equally, the obligation of Contracting States to perform their treaty obligations in good faith (pursuant to the principle of pacta sunt page "512" servanda) (480) precludes states from maintaining discriminatory rules of contractual invalidity that render arbitration agreements invalid, even when they satisfy all of the requirements for substantive validity applicable to other types of contracts. These obligations are particularly appropriate given the “constitutional” character of the Convention, providing an international legal regime within which the efficacy of the international arbitral process is encouraged and progressively extended. (481) The Ledee/Rhone Mediterranee analysis gives appropriate meaning to Article II(3), by relying on it to hold Contracting States to their treaty commitments and to supersede national law rules discriminating against, or imposing idiosyncratic burdens on, international arbitration agreements. At the same time, this analysis does not attribute a broader meaning to Article II(3), by attempting to interpret the provision as establishing a complete body of substantive contract law, governing all issues of capacity, authority, formation, consent, certainty, mutuality, validity, illegality and termination of international arbitration agreements. At least for the present, it is difficult to sustain such an interpretation of Article II(3), which contains only a half-sentence requirement that arbitration clauses be enforced, save where they are “null and void, inoperable or incapable of being performed,” without offering any real textual basis for an extensive set of contract law principles. (482) It is also necessary to consider the effect of the “non-arbitrability” doctrine, recognized in Articles V(2)(a) and II(1) of the New York Convention. (483) As discussed below, the non-arbitrability doctrine permits the application of a judicial enforcement forum's mandatory prohibitions against the arbitration of particular kinds of disputes (e.g., criminal, domestic relations). (484) Although the nonarbitrability doctrine is an exceptional escape device, it is also best understood as subject to international limitations derived from the http://www.kluwerarbitration.com/CommonUI/print.aspx
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New York Convention (requiring that local public policies be specifically-articulated and that non-arbitrability exceptions be narrowly-tailored to achieve these policies). (485) Third, reliance upon Article II(3) fosters international uniformity and maximum enforceability of international arbitration agreements, by imposing a treaty obligation on all Contracting States to apply internationally-neutral, non-discriminatory contract law principles to such agreements. This also means that not only leading arbitral centers, such as Switzerland, England, France, the United States and Singapore, page "513" but all Contracting States of the New York Convention, are required to apply only internationallyneutral defenses – thereby fostering a uniform international approach to the enforcement of arbitration agreements which can be developed over time through the evolution of textually-grounded customary international law norms. This is more sensible than individual nations adopting individual views of international (or national) law, based upon local legislation or policy, which would be the result of an analysis not relying on the development of uniform international rules under the Convention. 3. Future Directions: Choice of Law Applicable to Formation and Substantive Validity of International Arbitration Agreement The foregoing discussion provides the basis for summarizing the current state of the law with regard to the choice of law applicable to the formation and substantive validity of international arbitration agreements. It also provides the basis for addressing future directions in the field. First, current law in developed jurisdictions emphatically recognizes and gives effect to the parties' autonomy to select the law applicable to their international arbitration agreements. (486) The parties' autonomy is subject to only limited exceptions, applicable in cases of certain mandatory national laws and public policies providing for the non-arbitrability of particular matters, (487) and where either a “validation” principle or international law rules are applied. (488) The application of both international law rules and validation principles arguably qualify the parties' autonomy, by giving effect to their agreement to arbitrate even when it would be ineffective under their chosen law: this result is nonetheless justified on the grounds that it reflects the parties' genuine intentions and objectives in entering into an international arbitration agreement. (489) Second, where parties have not expressly selected the law applicable to their international arbitration agreement (as is usually the case (490) ), the applicable choice-of-law rules are provided in most cases by Articles V(1)(a) and II(3) of the New York Convention. Under Article V(1)(a), the arbitration agreement is governed by the law of the arbitral seat (absent a contrary choice-of-law agreement). (491) The essential difficulty, in most cases, is in determining whether the parties' express or implied choice of law governing their underlying contract applies to their arbitration agreement. (492) If so, then Article V(1)(a)'s generally-applicable default rule, selecting page "514" the law of the arbitral seat, is not triggered; if the parties have not selected the applicable law, however, then Article V(1)(a)'s default choice-of-law rule applies. In virtually no cases is some law other than that of the arbitral seat, or that chosen by the http://www.kluwerarbitration.com/CommonUI/print.aspx
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parties, applicable to an international arbitration agreement. As discussed above, the proper approach to the choice of the law governing an international arbitration agreement, in the absence of the parties' agreement on applicable law, is by application of the validation principle. (493) Under this principle, the parties are recognized as having intended the application of that law which will give effect to their agreement to arbitrate and which will safeguard the parties against the peculiar jurisdictional and choice-of-law uncertainties of transnational litigation. (494) Notably, and unlike some national law systems, (495) this validation principle applies to all international arbitration agreements, regardless whether the arbitral seat is in the same state as the court where the existence or validity of the arbitration agreement is at issue. Under the validation principle, it is either the law of the arbitral seat or the parties' chosen law that will govern the arbitration agreement, depending on which law gives effect to that agreement. Third, where the New York Convention applies, the application of national law to the formation and validity of international arbitration agreements is subject to international limits. (496) Some authorities have treated these international limits effectively as general admonitions of restraint: “having regard to the ‘pro-enforcement bias’ of the Convention, the words [“null and void, inoperative or incapable of being performed”] should be construed narrowly, and the invalidity of the arbitration agreement should be accepted in manifest cases only.” (497) The better view, however, is that the Convention gives rise to more specific, principled and predictable international legal standards, consistent with its function as a constitutional regime for the international arbitral process. In particular, the Convention's structure and purposes, as well as better-reasoned authority, require treating Article II(3) of the Convention as precluding Contracting States from applying national laws that discriminate against either arbitration agreements or international arbitration agreements, as compared to other categories of contracts. (498) Among other things, this principle of non-discrimination precludes national laws from singling out arbitration agreements for idiosyncratic or discriminatory requirements or burdens (including with regard to formation, unconscionability, mistake, duress and other aspects of validity). (499) Alternatively, and more controversially, Article II(3) can be interpreted as requiring the page "515" development and application of uniform international rules of contract formation and validity. (500) Over time, this alternative approach may become more sustainable, with the development of international principles of substantive contract law, based on the New York Convention's “constitutional” status. (501) For the present, however, this result is difficult to sustain as an existing rule of international law.
83 See infra pp. 2153-2163. 84 See supra pp. 82-84. 85 See infra pp. 427-442. 86 See infra pp. 443-445. http://www.kluwerarbitration.com/CommonUI/print.aspx
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87 See infra pp. 445-447. 88 See infra pp. 470-475. 89 See infra pp. 2170-2198. 90 See infra pp. 766 et seq. 91 See infra pp. 447-451, 449-451, 454-459. 92 It is well-established in more general private international law
contexts that a choice-of-law agreement gives rise to conflict of laws issues and requires a particular type of choice-of-law analysis. E.g., Rome Convention, Art. 3(1); Restatement (Second) Conflict of Laws §§187-188 (1971); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶¶32-172, 32-173, 32-132 (14th ed. 2006). 93 See authorities cited infra pp. 434-442. 94 See infra pp. 2111-2119, 2153-2170. 95 See infra p. 443. Some decisions have applied cumulative choice-of-law analyses, which consider the substantive laws selected by all potentially-applicable conflicts rules. Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9 passim (2001). 96 See infra pp. 434-442. 97 See New York Convention, Art. V(1)(a); European Convention, Art. VI(2); ICSID Convention, Art. 42(1). 98 See supra pp. 58-64, 413. 99 See supra pp. 58-61. Article II of the Geneva Protocol provides that “[t]he arbitral procedure, including the constitution of the tribunal, shall be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place.” Geneva Protocol, Art. II. As discussed below, this provision deals with the procedural law of the arbitration, not the law governing the arbitration agreement. See infra pp. 1253-1254. 100 See supra pp. 61-64, 413; Geneva Convention, Art. I(a). 101 As discussed below, the uniform international standards contained in Article II of the Convention regarding the formal validity of the arbitration agreement are not applicable to the substantive validity of the agreement. See infra pp. 535-547; A. van den Berg, The New York Arbitration Convention of 1958 177 (1981) (“the uniform rule character of Article II(2) concerns only the form of the arbitration agreement. It does not concern other aspects of the validity of the arbitration agreement – also called the substantial validity – which aspects have, in principle to be judged under the applicable law”). 102 New York Convention, Art. V(1)(a) (emphasis added). See A. van den Berg, The New York Arbitration Convention of 1958 282-83 (1981) (describing drafting history of choice-of-law rule in Article V(1)(a)). 103 A. van den Berg, The New York Arbitration Convention of 1958 267 (1981); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶296 (2d ed. 2007); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶¶285 to 2-94 (4th ed. 2004) (“under the New York Convention, an arbitration agreement is valid if it is judged to be so either by the law chosen by the parties to govern that agreement or, failing any such choice, by the law of the place of the arbitration”); Patocchi & Jermini, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 194, ¶¶68 (2000); Four Seasons Hotels and Resorts, BV v. Consorcio Barr SA, 377 F.3d 1164, 1171 (11th Cir. 2004); Encyclopaedia Universalis, SA v. Encyclopaedia Britannica, http://www.kluwerarbitration.com/CommonUI/print.aspx
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Inc., 2003 WL 22881820, at *6 (S.D.N.Y. 2003), aff'd, in relevant part, 403 F.3d 85 (2d Cir. 2005); Henry v. Murphy, 2002 WL 24307, at *3 (S.D.N.Y. 2002); Overseas Cosmos, Inc. v. NR Vessel Corp., 1997 U.S. Dist. LEXIS 19390, at *7 (S.D.N.Y. 1997). See also infra pp. 434-443, 2782-2785. 104 New York Convention, Art. II(1); supra pp. 317-319, 413-414 & infra pp. 504-516, 559, 561, 1264-1270, 1368-1376, 1444-1446, 1749-1751, 1765-1770. 105 See infra pp. 567-568. 106 This obligation is subject to limited exceptions discussed below, for certain public policies. See supra pp. 203-205 & infra pp. 429431, 451-454. 107 See infra pp. 460-462. 108 See infra pp. 460-462 and authorities cited infra p. 461 n. 252. 109 See infra pp. 461-465. In any event, this issue should be of limited importance where parties have made a choice of law governing their arbitration agreement because Article V(1)(a) parallels the similar recognition of the parties' autonomy in Article II(1). See supra pp. 429-430. Different considerations apply where the parties have made no choice-of-law agreement. See infra pp. 459 et seq. 110 In virtually all private international law contexts, including in the selection of the substantive law applicable to an underlying contract and the procedural law of the arbitration, the parties' autonomy is subject to constraints. See infra pp. 1264-1274, 1321-1326, 21702198; G. Born & P. Rutledge, International Civil Litigation in United States Courts 718-20 (4th ed. 2007); Restatement (Second) Conflict of Laws §187(2) (1971); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶16-018 (14th ed. 2006); Rome Convention, Arts. 3(3), 5(2), 6(1), 7. In particular, as discussed below, parties' choice-of-law agreements are generally subject to constraints imposed by public policy and mandatory laws. See infra pp. 21702198. These same types of constraints are, in principle, equally applicable to the parties' autonomy to select the law governing their international arbitration agreements. 111 See infra pp. 766 et seq. Specifically, Article V(2)(a) provides that an award need not be recognized if “[t]he subject matter of the difference is not capable of settlement by arbitration under the law of that country.” New York Convention, Art. V(2)(a). 112 New York Convention, Art. II(1). See infra pp. 772-773. 113 Article V(2)(a) does so by allowing Contracting States to refuse recognition of awards concerning certain “non-arbitrable” subjects, notwithstanding the fact that the parties' agreement to arbitrate such matters would be valid under the law which they selected to govern their agreement. This is true at least at the stage of recognizing and enforcing an award. As discussed in greater detail below, there is uncertainty concerning the question whether Article V's provisions concerning arbitration agreements, which are specifically applicable at the stage of recognizing and enforcing an arbitral award, are also applicable at the stage of recognizing and enforcing an arbitration agreement. See infra pp. 517-520. 114 See infra pp. 517-520, 766-775, 837-841. 115 See infra p. 442. Constraints of this nature do, however, exist in other choice-of-law contexts, and may be applicable under national law (if the Convention is inapplicable). G. Born & P. Rutledge, International Civil Litigation in United States Courts 719-20 (4th ed. 2007); infra pp. 2199-2203. http://www.kluwerarbitration.com/CommonUI/print.aspx
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116 See infra pp. 2207-2210. 117 See infra p. 2210. 118 European Convention, Art. VI(2). For commentary, see
Hascher, European Convention on International Commercial Arbitration 1961 – Commentary, XX Y.B. Comm. Arb. 1006, 1027-28 (1995); supra pp. 102-103, 414. 119 European Convention, Art. VI(2). 120 Unlike the New York Convention, the European Convention directly addresses the question of the law applicable to the arbitration agreement, rather than doing so indirectly, through provisions regarding recognition of arbitral awards or enforcement of agreements to arbitrate. This is preferable to the New York Convention's indirect approach, because, among other things, it avoids doubts as to whether the same law is applicable to an arbitration agreement at the stage when it is recognized and at the stage when an award is recognized. See supra pp. 429-430 & infra pp. 460-466. 121 European Convention, Art. VI(2)(c), last sentence. As with the New York Convention, other grounds for denying effect to choice-oflaw agreements are excluded. See supra p. 431. 122 European Convention, Art. VI(2)(c). 123 Rome Convention, Art. 1(2)(d). See also M. Giuliano & P. Lagarde, Report on the Convention on the Law Applicable to Contractual Obligations, O.J. C 282 31/10/1980, Art. 1, ¶5; R. Plender & M. Wilderspin, The European Contracts Convention: The Rome Convention of the Choice of Law for Contracts ¶4-19 (2d ed. 2001); H. Gaudemet-Tallon, JurisClasseur Europe Traité, Fasc. 3200, ¶62 (1996); McGuiness, The Rome Convention: The Contracting Parties' Choice, 1 San Diego Int'l L.J. 127, 139 (2000); Le Vay Lawrence & Shakinovsky, Selecting A Forum and System of Law in International Transactions – A UK Perspective on the Rome and Brussels Conventions, 2(6) I.C.C.L.R. 189, 192 (1991). 124 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶422 (1999). 125 R. Plender & M. Wilderspin, The European Contracts Convention: The Rome Convention of the Choice of Law for Contracts ¶4-20 (2d ed. 2001); M. Giuliano & P. Lagarde, Report on the Convention on the Law Applicable to Contractual Obligations, O.J. C 282 31/10/1980, Art. 1, ¶5. 126 See supra pp. 184-189, 321-322. The Rome Convention's drafting history is also instructive. See M. Giuliano & P. Lagarde, Report on the Convention on the Law Applicable to Contractual Obligations, O.J. C 282, 31/10/1980, ¶5 (the UK delegate “emphasized that an arbitration agreement does not differ from other agreements as regards the contractual aspects and that certain international Conventions do not regulate the law applicable to arbitration agreements, while others are inadequate in this respect. … Other delegations … opposed the United Kingdom proposal, emphasizing particularly that any increase in the number of conventions in this area should be avoided, that severability is accepted in principle in the draft and the arbitration clause is independent, that the concept of ‘closest ties’ is difficult to apply to arbitration agreements, that procedural and contractual aspects are difficult to separate, that the matter is complex and the experts' proposal show great divergences; that since procedural matters and those relating to the question whether a dispute was arbitrable would in any case be excluded, the only matter to be regulated would be consent; that the [ICC] – which, as everyone knows, has http://www.kluwerarbitration.com/CommonUI/print.aspx
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great experience in this matter – has not felt the need for further regulation … The Group … excluded arbitration agreements from the scope of the uniform rules …”). 127 See supra pp. 422-424 & infra pp. 434-454, 466-497. 128 See Sonatrach Petroleum Corp. (BVI) v. Ferrell Int'l Ltd [2002] 1 All E.R. (Comm.) 627, ¶32 (Q.B.) (“the proper law of the arbitration agreement is to be determined according to the general principles for ascertaining the proper law of a contract: there can be an express choice of law or the choice can be implied by reference to that body of law with which the arbitration agreement has its closest and most real connection”). See also A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶¶2-34 to 2-39 (4th ed. 2004); L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶16R-001 (14th ed. 2006) (“The material validity, scope and interpretation of an arbitration agreement are governed by its applicable law, namely: (a) the law expressly or impliedly chosen by the parties; or (b) in the absence of such choice, the law which is most closely connected with the arbitration agreement …”); Judgment of 4 August 1993, Owerri Commercial Inc. v. Dielle Srl, XIX Y.B. Comm. Arb. 703 (Hague Gerechtshof) (1994) (in relation to the law applicable to the arbitration agreement in the absence of an express choice, it was held: “The court is of the opinion, as opposed to Dielle, that the closest connection is with English law.”); Judgment of 21 September 2005, XXXI Y.B. Comm. Arb. 679, 683 (German Bundesgerichtshof) (2006) (closest relationship); Judgment of 2 April 1992, 1992 NJW 3107 (Landgericht Kassel) (party autonomy); Judgment of 28 November 1963, 1964 NJW 591, 592 (German Bundesgerichtshof) (party autonomy); infra pp. 477-481. 129 See infra pp. 436-442, 454-459 . 130 UNCITRAL Model Law, Arts. 34(2)(a)(i), 36(1)(a)(i). See P. Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions ¶¶7-004 & 8-021 (2d ed. 2005); H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 915-16 & 1058-59 (1989). 131 See supra pp. 428-431. 132 See supra pp. 430-431 & infra pp. 521-523, 1264-1274, 13681376, 1444-1446, 1749-1751, 1765-1770, 2554-2560, 2831-2840. 133 XL Ins. Ltd v. Owens Corning [2000] 2 Lloyd's Rep. 500, 506 (Q.B.); Peterson Farms Inc. v. C&M Farming Ltd [2004] 1 Lloyd's Rep. 603 (Q.B.); Recyclers of Australia Pty Ltd v. Hettinga Equip. Inc., (2000) 175 A.L.R. 725 (Australian Fed. Ct.) (applying Iowa law, selected by choice-of-law clause in underlying contract, to validity of arbitration clause); Nirma Ltd v. Lurgi Energie und Entsorgung GmbH, XXVIII Y.B. Comm. Arb. 790, 803 (Gujarat High Court 2002) (2003). See also Voit, in H.-J. Musielak (ed.), Kommentar zur Zivilprozessordnung §1029, ¶28 (5th ed. 2007) (German ZPO, §1059(2)(1)(a)). 134 XL Ins. Ltd v. Owens Corning [2000] 2 Lloyd's Rep. 500, 506 (Q.B.). See also Naviera Amazonica Peruana SA v. Compania Internacional de Seguros del Peru [1988] 1 Lloyd's Rep. 116 (English Court of Appeal). 135 R. Merkin, Arbitration Law ¶7.8 (2004 & Update 2007) (“an express term … will be regarded as conclusive even if the nominated law has no connection with the underlying contract to which it relates, given the divisibility of the arbitration agreement and the underlying contract”); XL Ins. Ltd v. Owens Corning [2000] 2 Lloyd's Rep. 500, 506 (Q.B.); D. Sutton, J. Gill & M. Gearing, Russell http://www.kluwerarbitration.com/CommonUI/print.aspx
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on Arbitration ¶2-094 (22d ed. 2003). 136 Union of India v. McDonnell Douglas Corp. [1993] 2 Lloyd's Rep. 48, 50 (Q.B.) (emphasis added). Cf. Channel Tunnel Group Ltd v. Balfour Beatty Constr. Ltd [1992] 2 Lloyd's Rep. 7, 15 (English Court of Appeal) (§5(2) of the English Arbitration Act, 1975, “suggests … that the validity of an arbitration agreement is governed by the law which the parties have chosen”). 137 Peterson Farms Inc. v. C&M Farming Ltd [2004] 1 Lloyd's Rep. 603 (Q.B.) (parties agreed to Arkansas law to govern their contract, and arbitration agreement; the tribunal was bound to apply that law); XL Ins. Ltd v. Owens Corning [2000] 2 Lloyd's Rep. 500, 506 (Q.B.) (“It is a general principle of English private international law that it is for the parties to choose the law which is to govern their agreement to arbitrate and the arbitration proceedings, and that English law will respect their choice.”); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶16-017 (14th ed. 2006); R. Merkin, Arbitration Law ¶¶7.8 to 7.12 (2004 & Update 2007). See also English Arbitration Act, 1996, §103(2) (“Recognition or enforcement of the award may be refused if the person against whom it is invoked proves … that the arbitration agreement was not valid under the law to which the parties subjected it.”) (emphasis added); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶2-094 (22d ed. 2003). 138 The text of the FAA does not itself address the question of the law governing an arbitration agreement. 139 489 U.S. 468, 470, 479 (U.S. S.Ct. 1989). The Volt decision was a domestic case which involved the question whether the parties' choice-of-law clause, selecting California law, applied to issues relating to enforcement of the parties' arbitration agreement (specifically, the applicability of a California state law provision permitting the stay of arbitral proceedings). 489 U.S. at 470-73. Nonetheless, the Court's opinion more broadly addressed in dicta the autonomy of the parties to select the law governing an arbitration agreement. 140 Restatement (Second) Conflict of Laws §218, comment b (1971). As discussed below, §187 imposes limited public policy contraints on choice-of-law agreements. See infra pp. 479-480. 141 See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (U.S. S.Ct. 1991); Mitsubishi Motors Corp. v. Soler ChryslerPlymouth, Inc., 473 U.S. 614 (U.S. S.Ct. 1985); Wells v. Mobile County Bd. of Realtors, Inc., 387 So.2d 140 (Ala. 1980). See infra pp. 781-785. 142 See, e.g., Motorola Credit Corp. v. Uzan, 388 F.3d 39, 51 (2d Cir. 2004) (with respect to interpretation of arbitration agreement, “respecting the parties' choice-of-law is fully consistent with the purposes of the FAA”); Sphere Drake Ins. Ltd v. Clarendon Nat'l Ins. Co., 263 F.3d 26, 32 n.3 (2d Cir. 2001); Int'l Minerals & Res., SA v. Pappas, 96 F.3d 586, 592 (2d Cir. 1996); Coastal Caisson Corp. v. E.E. Cruz/NAB/Frontier-Kemper, 2007 WL 2285936, at *4 (S.D.N.Y. 2007) (“the Agreement contains a choice of law provision stating that New York law shall apply. The parties' choice of New York law will be honored”); Batson Yarn and Fabrics Mach. Group, Inc. v. Saurer-Allma GmbH-Allgauer Maschinenbau, 311 F.Supp. 68, 77 (D.S.C. 1970) (“There can be no dispute that parties are free to select the applicable law governing rights created by an arbitration agreement and the Court will give effect to such selection”); Necchi Sewing Machine Sales Corp. v. Carl, 260 F.Supp. 665, 667 (S.D.N.Y. 1966); (“[A]s a general proposition parties are free to select the applicable law governing rights created by an arbitration agreement.”); Kamaya Co. v. Am. Prop. Consultants, Ltd, 959 P.2d http://www.kluwerarbitration.com/CommonUI/print.aspx
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1140 (Wash. App. Ct. 1998) (“Although the FAA governs whether the parties agreed to arbitrate a particular contractual dispute, the contract's choice-of-law provision is a pertinent factor that courts must consider in applying the FAA”). 143 See infra pp. 493-494; Doe v. Royal Caribbean Cruises, Ltd, 180 Fed.Appx. 893, 894 (11th Cir. 2006) (giving effect to arbitration agreement despite the possibility that it would not be valid in the Philippines, the arbitral seat); Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50, 52-54 (3d Cir. 1983) (Italian law, applicable to underlying contract, not applied to invalidate arbitration agreement); Ledee v. Ceramiche Ragno, 684 F.2d 184, 186-187 (1st Cir. 1982) (Puerto Rico law, applicable to contract, not applied to invalidate arbitration agreement); Apple & Eve, LLC v. Yantai N. Andre Juice Co., 499 F.Supp.2d 245, 251 (E.D.N.Y. 2007) (court ordered arbitration in China despite its inability to determine whether Chinese courts would enforce the arbitration agreement, noting that the court could identify “no United States federal cases where a court has applied the laws of a foreign country and declared that an arbitration clause would be invalid under that country's law”); Acosta v. Norwegian Cruise Line, Ltd, 303 F.Supp.2d 1327 (S.D. Fla. 2003); Marchetto v. DeKalb Genetics Corp., 711 F.Supp. 936 (N.D. Ill. 1989) (refusing to deny effect to arbitration clause allegedly invalid under law of foreign arbitral seat: “underlying the Supreme Court's willingness to enforce arbitration agreements is the assumption that signatory nations to the Convention will honor arbitration agreements and reject challenges to arbitration based on legal principles unique to the signatory nation.”). 144 The interpretation of choice-of-law clauses, including a choiceof-law clause in the parties' underlying contract that applies to the arbitration agreement, is discussed below. See infra pp. 443-451. 145 See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (U.S. S.Ct. 1985); Bridas SAPIC v. Gov't of Turkmenistan, 447 F.3d 411 (5th Cir. 2006); Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GmbH, 206 F.3d 411 (4th Cir. 2000) (FAA and New York Convention “create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.… Because the determination of whether … a non-signatory is bound by the [contract] presents no state law question of contract formation or to resolve this question.”); Campaniello Imp. Ltd v. Saporiti Italia SpA, 117 F.3d 655 (2d Cir. 1997); Thomson-CSF v. Am. Arbitration Ass'n, 64 F.3d 773 (2d Cir. 1995); Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l Inc., 198 F.3d 88 (2d Cir. 1999); Masefield AG v. Colonial Oil Indus., Inc., 2005 WL 911770 (S.D.N.Y. 2005). See also Republic of Ecuador v. Chevron Texaco, 376 F.Supp.2d 334 (S.D.N.Y. 2005). A number of decisions arise in non-signatory contexts, involving issues of alter ego status, estoppel, agency and the like. See infra pp. 1137-1205, 1211-1220. Other U.S. lower court decisions apply federal common law rules to the validity of international arbitration agreements. See infra pp. 449-451, 485-497, 506-514. 146 See infra pp. 491-497. 147 Swiss Law on Private International Law, Art. 178(2) (emphasis
added). Swiss courts have given effect to the general affirmation of the parties' autonomy in Article 178(2). See, e.g., Judgment of 16 October 2003, 22 ASA Bull. 364, 387 (Swiss Federal Tribunal) http://www.kluwerarbitration.com/CommonUI/print.aspx
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(2004). 148 J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶300 (2d ed. 2007); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶¶374-377 (2006); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶¶22 & 25 (2000) (“The PILS emphasizes the importance of party autonomy by naming first the law chosen by the parties.”); P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitrage interne et international en Suisse Art. 178, ¶15 (1989). 149 See infra pp. 497-504. 150 B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶369 (2006); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶¶25-27 (2000) (“If the agreement to arbitrate is valid under Swiss law, it can therefore still be upheld even if it were invalid under the law explicitly chosen by the parties.…”); P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitrage interne et international en Suisse Art. 178, ¶15 (1989). 151 See, e.g., Judgment of 21 October 1983, Isover-Saint-Gobain v. Dow Chem. France, 1984 Rev. arb. 98, 100 (Paris Cour d'appel) (“[T]he law applicable to the determination of the scope and the effects of the arbitration clause … does not necessarily coincide with the law applicable to the substance of the dispute.”); Judgment of 25 January 1972, Quijano Aguero v. Marcel Laporte, 1973 Rev. arb. 158 (Paris Cour d'appel) (“performance [of the arbitration agreement] is not necessarily governed by the law governing [the underlying contract]”); Judgment of 7 May 1963, Ets Raymond Gosset v. Carapelli, JCP G 1963, II, 13, ¶405 (French Cour de cassation civ. 1e) (upholding the autonomy of the arbitration clause and the separability doctrine). 152 See infra pp. 504-506, 900-904; Judgment of 20 December 1993, Municipalité de Khoms El Mergeb v. Société Dalico, 1994 Rev. arb. 116, 117 (French Cour de cassation civ. 1e) (“[A]ccording to a substantive rule of international arbitration law, the arbitration clause is legally independent from the main contract in which it is included or which refers to it and, provided that no mandatory provision of French law or international public policy (ordre public) is affected, that its existence and its validity depends only on the common intention of the parties, without it being necessary to make reference to a national law.”); Judgment of 30 March 2004, 2005 Rev. arb. 959 (French Cour de cassation civ. 1e); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶436 (1999); J.-L. Delvolvé, J. Rouche & G. Pointon French Arbitration Law and Practice ¶91 (2003); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶180 (2d ed. 2007). 153 Judgment of 31 May 2001, UNI-KOD sarl v. Ouralkali, XXVI Y.B. Comm. Arb. 1136 (Paris Cour d'appel) (2001). 154 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶435 et seq. (1999). 155 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶436 (1999); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶180 (2d ed. 2007). 156 See infra pp. 504-506; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶442 (1999); J.-L. Delvolvé, J. Rouche & G. Pointon, French Arbitration Law and Practice ¶290 (2003). http://www.kluwerarbitration.com/CommonUI/print.aspx
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157 See supra pp. 121-125, 332-333 & infra pp. 504-506, 900-904;
E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶436-442 (1999). 158 See supra pp. 436-438, 438-439 & infra pp. 491-497, 497-504. 159 See infra pp. 447-451, 454-459. 160 See, e.g., Canadian Commercial Arbitration Act, Art. 34(2)(a) (i); German ZPO, §1059(2)(1)(a); Hong Kong Arbitration Ordinance, Art. 44(2)(b); Japanese Arbitration Law, Art. 44(1); Indian Arbitration and Conciliation Act, Art. 34(2)(a)(i). 161 See, e.g., Nat'l Thermal Power Corp. v. The Singer Co., XVIII Y.B. Comm. Arb. 403, 406 (Indian S.Ct. 1992) (1993) (“The parties have the freedom to choose the law governing an international commercial arbitration agreement … as well as the procedural law governing the conduct of the arbitration.”); Judgment of 17 September 1998, XXIVa Y.B. Comm. Arb. 645, 646 (Bavarian Oberstes Landesgericht) (1999) (“[T]he arbitration agreement is not invalid according to English law, on which the parties agreed.”); Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (Canadian S.Ct.) (“The parties to an arbitration agreement are free, subject to any mandatory provisions by which they are bound, to choose any place, form and procedures they consider appropriate.”); Western Grain Cleaning and Processing v. Lashburn AG Ventures Ltd, (2003) SKCA 060 (Sask. Court of Appeal) (“In this jurisdiction the first step … is to ascertain if there has been a choice of law by the parties, is respected by the Court.”). 162 Swedish Arbitration Act, §48. 163 See supra pp. 431-432. 164 Spanish Arbitration Act, 1988, Art. 61. Cf. Donovan, International Commercial Arbitration and Public Policy, 27 N.Y.U.J. Int'l L. & Pol. 645, 651 (1995) (“At least where the law chosen has some connection to the dispute and does not yield a result that violates the fundamental public policy of the forum, courts will generally apply the parties' chosen law even though the forum would otherwise have jurisdiction to prescribe rules governing the commercial relationships at issue.”). 165 Spanish Arbitration Act, Art. 9(6). See Judgment of 23 July 2001, XXXI Y.B. Comm. Arb. 825 (Spanish Tribunal Supremo) (2006) (“there is here a clear submission to the substantive law of the specific AAA Rules and the laws of the State of New York”); Spanish Arbitration Act, Art. 9(6); Official Commentary to Spanish Arbitration Act, 2003, in Boletín Oficial del Estado núm. 309, 46097 (2003) (under the Act, “the arbitration agreement will be valid if it is governed by any of the three legal regimes indicated in Article 9(6): the law chosen by the parties, the law applicable to the substance of the dispute or Spanish law”); Mantilla-Serrano, The New Spanish Arbitration Act, 21 J. Int'l Arb. 367, 371 (2004) (“In international arbitration, the principle in favorem validitatis finds its fullest expression in Article 9.6, which turns to the most favorable choice of law for establishing validity of the arbitration agreement and arbitrability of the dispute.”). 166 That is true of the ICC, ICDR, SIAC, HKIAC and JCAA Rules. It is possible to interpret the provisions of leading institutional rules, governing the choice-of-law applicable to the substance of the parties' dispute, as extending to the law governing an arbitration agreement. E.g., ICC Rules, Art. 17; ICDR Rules, Art. 28; VIAC Rules, Art. 24; SCC Rules, Art. 24; Swiss International Arbitration Rules, Art. 33; PCA Rules, Art. 33. Nonetheless, this is not the most straightforward reading of such provisions and has not attracted http://www.kluwerarbitration.com/CommonUI/print.aspx
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substantial attention in practice. 167 WIPO Arbitration Rules, Art. 59(c). 168 LMAA Terms, Art. 6(a), (b) (in the absence of agreement to the contrary, London is the seat of the arbitration and English law is applicable to the agreement to arbitrate); GAFTA Arbitration Rules, Art. 1.2 (“the juridical seat of the arbitration shall be, as is hereby designated pursuant to §4 of the English Arbitration Act 1996, as England.”). See Indocomex Fibres Pte, Ltd v. Cotton Co. Int'l, Inc., 916 F.Supp. 721, 723-24 (W.D. Tenn. 1996) (standard trade association contract imposed mandatory arbitration under bylaws and rules of Liverpool Cotton Association; those bylaws and rules stated, in turn, that any such contract shall be construed in its entirety as a contract made in England, in accordance with English law, and under the jurisdiction of the High Court); Award in Amsterdam Grain Trade Association Case of 11 January 1982, VIII Y.B. Comm. Arb. 158, 160 (1983) (Article 16 of the VERNOF conditions stipulated that Dutch law applied to all sales contracts on the VERNOF standard terms); Wortmann, Choice of Law by Arbitrators: The Applicable Conflict of Laws System, 14 Arb. Int'l 97 (1998). Compare LCIA Rules, Art. 16(1), (3) (London is presumptive arbitral seat in absence of choice; arbitral seat's law is “law applicable to the arbitration”). 169 See, e.g., Final Award in ICC Case No. 3572, XIV Y.B. Comm. Arb. 111, 115 (1989); Interim Award in ICC Case No. 4131, IX Y.B. Comm. Arb. 131, 133 et seq. (1984); Award in ICC Case No. 4381, 113 J.D.I. (Clunet) 1102, 1103 (1986); Interim Award in ICC Case No. 4504, 113 J.D.I. (Clunet) 1118 (1986) (arbitration agreement was, as a result of parties' choice of law, subject to a law different to that of the underlying contract); Interim Award in ICC Case No. 4695, XI Y.B. Comm. Arb. 149 (1986); Final Award in ICC Case No. 6363, XVII Y.B. Comm. Arb. 186 (1992); Final Award in ICC Case No. 6379, XVII Y.B. Comm. Arb. 212, 215 (1992); Final Award in ICC Case No. 6850, XXIII Y.B. Comm. Arb. 37, 38 (1998) (applying choice-of-law clause in underlying contract to arbitration agreement); Award in ICC Case No. 10579, discussed in Grigera Naón, Choiceof-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 45-46 (2001). 170 E.g., Bond, How to Draft An Arbitration Clause (Revisited), 1(2) ICC Ct. Bull. 14 (1990). 171 An implied choice-of-law agreement, as to the law governing the arbitration agreement, may also be derived from the parties' selection of the arbitral seat. See infra pp. 470-475, 477-481. See also infra pp. 2208-2210 (choice of arbitral seat treated as implied choice of substantive law governing parties' underlying dispute). 172 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 37 (2d ed. 2006). See also supra pp. 12-13. 173 The same is true with regard to submission agreements, covering an existing dispute. G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing Exhibit B (2d ed. 2006). 174 See G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 74-75 (2d ed. 2006); Judgment of 14 September 2000, XXVII Y.B. Comm. Arb. 265, 265 (German Bundesgerichtshof) (2002). 175 See, e.g., G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 120 (2d ed. 2006) (providing typical choice-of-law clause). http://www.kluwerarbitration.com/CommonUI/print.aspx
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176 G. Born, International Arbitration and Forum Selection
Agreements: Drafting and Enforcing 120 (2d ed. 2006). See also Brown, Choice of Law Provisions in Concession and Related Contracts, 39 M.L.R. 625, 638 (1976); Jaffey, Limitations in Choice of Law Provisions – A Comment, 40 M.L.R. 440 (1977); J. Paulsson et al., The Freshfields Guide to Arbitration and ADR: Clauses in International Contracts 11-12 (2d ed. 1999); P. Friedland, Arbitration Clauses for International Contracts 183-184 (2d ed. 2007). 177 See, e.g., Final Award in ICC Case No. 3572, XIV Y.B. Comm. Arb. 111, 115 (1989) (concluding that law applicable to underlying contract also governed arbitration clause); Final Award in ICC Case No. 6379, XVII Y.B. Comm. Arb. 212, 215 (1992) (applying law governing underlying contract, not law of arbitral seat); Final Award in ICC Case No. 6850, XXIII Y.B. Comm. Arb. 37, 38 (1998) (applying choice-of-law clause in underlying contract to arbitration agreement); Award in ICC Case No. 10579, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 45-46 (2001) (alternative holding that choice-of-law clause in underlying contract applies to arbitration agreement). See also R. Merkin, Arbitration Law ¶7.12 (2004 & Update 2007) (“[A] choice-of-law clause for the entire agreement [i.e., including the underlying contract] is likely to be construed as equally applicable to the arbitration clause unless there is a strong contrary indication in the arbitration clause itself.”). 178 Final Award in ICC Case No. 6840, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1991-1995 467, 469 (1997). 179 Judgment of 4 August 1993, Owerri Commercial Inc. v. Dielle Srl, XIX Y.B. Comm. Arb. 703, 706 (Hague Gerechtshof) (1994) (emphasis added). 180 See, e.g., Judgment of 8 July 2003, DFT 129 III 675, 679 (Swiss Federal Tribunal) (“according to Article 178(2) [of Swiss Law on Private International Law], the arbitration agreement is valid provided it conforms to the law chosen by the parties, to the law applicable to the dispute, in particular, that applicable to the principal contract, or to Swiss law. The first alternative comes into play only if the parties have chosen a law for their arbitration agreement deviating from the law applicable to the principal contract. Since this is not true in the present case and the principal contract – according to the choice of law by the parties – is subject to Swiss law, the latter applies with regard to the validity of the arbitration agreement.”); Judgment of 12 February 1976, II Y.B. Comm. Arb. 242 (German Bundesgerichtshof) (1977) (assuming without analysis that law of underlying contract governed arbitration clause); Judgment of 7 April 1989, 1990 RIW 585, 586 (Oberlandesgericht Munich) (same). 181 See, e.g., Recyclers of Australia Pty Ltd v. Hettinga Equip. Inc., (2000) 175 A.L.R. 725 (Australian Fed. Ct.) (applying Iowa law, selected by choice-of-law clause in underlying contract, to validity of arbitration clause); Nirma Ltd v. Lurgi Energie und Entsorgung GmbH, XXVIII Y.B. Comm. Arb. 790, 803 (Gujarat High Court 2002) (2003) (“[I]f the parties had agreed that the proper law of the contract should be the law in force in India, but had also provided for arbitration in a foreign country, the laws of India would undoubtedly govern the validity, interpretation and effect of all clauses, including the arbitration clause in the contract as well as the scope of the arbitrators' jurisdiction.”); Svenska Petroleum Exploration AB v. Lithuania [2005] EWHC (Comm.) 2437, ¶¶76-77 (Q.B.) (“In the absence of exceptional circ*mstances, the applicable law of an arbitration agreement is the same as the law governing the contract http://www.kluwerarbitration.com/CommonUI/print.aspx
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of which it forms a part.”); Union of India v. McDonnell Douglas Corp. [1993] 2 Lloyd's Rep. 48, 50 (Q.B.) (“[I]t is my view that by art. 11 the chosen parties have chosen the law of India not only to govern the rights and obligations arising out of their commercial bargain but also the rights and obligations arising out of their agreement to arbitrate.”); Bangladesh Chemical Indus. Corp. v. Henry Stephens Shipping Co. [1981] 2 Lloyd's Rep. 389 (English Court of Appeal). 182 L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶16-017 (14th ed. 2006). See also A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶2-86 (4th ed. 2004) (“Since the arbitration clause is only one of many clauses in a contract, it would seem reasonable to assume that the law chosen by the parties to govern the contract will also govern the arbitration clause. If the parties expressly choose a particular law to govern their agreement, why should some other law – which the parties have not chosen – be applied to one of the clauses in the agreement, simply because it happens to be the arbitration clause?”). 183 Nat'l Thermal Power Corp. v. The Singer Co., XVIII Y.B. Comm. Arb. 403, 406-407 (Indian S.Ct. 1992) (1993). 184 See, e.g., J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶178 (2d ed. 2007) (“While the parties may certainly submit both the contract and the arbitration agreement to the same law, they usually only determine the law applicable to the former. In this case, several authors and courts presume that the parties also intended to submit the arbitration agreement to the law chosen for the contract.”); M. Bühler & T. Webster, Handbook of ICC Arbitration 80-81 (2005) (“strong tendency to assume that the choice-of-law made by the parties [for the underlying contract] is equally applicable to the arbitration agreement”); L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶16-17 (14th ed. 2006). 185 See supra pp. 184-189, 311 et seq. (especially pp. 321-322). 186 See, e.g., Final Award in ICC Case No. 1507, in S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 215, 216 (1990) (applying the law of the arbitral seat rather than law selected by choice-of-law clause in underlying contract); Final Award in ICC Case No. 6162, XVII Y.B. Comm. Arb. 153, 160-62 (1992) (applying Swiss law, as law of arbitral seat, to arbitration agreement; refusing to apply substantive law governing underlying agreement); Judgment of 27 October 2000, Bulgarian Foreign Trade Bank, Ltd v. A.I. Trade Fin., Inc., XXVI Y.B. Comm. Arb. 291 (Swedish S.Ct.) (2001). 187 See, e.g., Final Award in ICC Case No. 7453, XXII Y.B. Comm. Arb. 107 (1997) (Michigan choice-of-law clause in underlying contract not applicable to arbitration clause; instead, FAA applies); Westbrook Int'l LLC v. Westbrook Tech., Inc., 17 F.Supp.2d 681, 684 (E.D. Mich. 1998) (refusing to apply general choice-of-law clause to validity of arbitration agreement, as applied to tort claims, absent clear statement that this was intended; application of chosen law would have invalidated arbitration clause as applied to the dispute in question); XL Ins. Ltd v. Owens Corning [2000] 2 Lloyd's Rep. 500, 508 (Q.B.) (holding that arbitration clause providing for arbitration in London under the provisions of the English Arbitration Act meant that English law governed validity of arbitration agreement, despite general choice-of-law clause selecting New York law); Rhone Mediterranee Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazioni v. Achille Lauro, 712 F.2d 50, 52-54 (3d Cir. 1983) (Italian law, applicable to underlying contract, not applied to http://www.kluwerarbitration.com/CommonUI/print.aspx
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invalidate arbitration agreement); Ledee v. Ceramiche Ragno, 684 F.2d 184, 186-187 (1st Cir. 1982) (Puerto Rico law, applicable to contract, not applied to invalidate arbitration agreement); I.T.A.D. Assoc., Inc. v. Podar Bros., 636 F.2d 75, 77 (4th Cir. 1981); Prograph Int'l Inc. v. Barhydt, 928 F.Supp. 983 (N.D. Cal. 1996); Technetronics, Inc. v. Leybold-Geaeus GmbH, 1993 U.S. Dist. LEXIS 7683, at *7-9 (E.D. Pa. 1993); In the Matter of An Arbitration Between the West of England Ship Owners Mut. Ins. Ass'n etc., 1992 WL 37700, at *4 (E.D. La. 1992); Int'l Tank & Pipe SAK v. Kuwait, Aviation Fueling Co. KSC [1975] Lloyd's Rep. 8 (English Court of Appeal); Paul Smith Ltd v. H & S Int'l Holding, Inc. [1991] 2 Lloyd's Rep. 127 (Q.B.). 188 Final Award in ICC Case No. 7453, XXII Y.B. Comm. Arb. 107 (1997). 189 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶425 (1999). 190 Bernardini, Arbitration Clauses: Achieving Effectiveness in the Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 197, 201 (ICCA Congress Series No. 9 1999). See also R. Merkin, Arbitration Law ¶7.9 (2004 & Update 2007) (“The obvious conclusion from the separability principle is that an express choice-of-law applicable to a substantive agreement which contains an arbitration clause does not necessarily extend to the arbitration clause itself.”). 191 L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶16-018 (14th ed. 2006). 192 See supra pp. 436-438. 193 See supra pp. 436-438; Motorola Credit Corp. v. Uzan, 388 F.3d 39, 50 (2d Cir. 2004) (“a choice-of-law clause in a contract will apply to disputes about the existence or validity of that contract”); Sphere Drake Ltd v. Clarendon Nat'l Ins. Co., 263 F.3d 26, 32, n.3 (2d Cir. 2001); Harvey v. Joyce, 199 F.3d 790 (5th Cir. 2000) (applying New York law to arbitration agreement, pursuant to choice of law clause); Int'l Minerals & Res., SA v. Pappas, 96 F.3d 586, 592 (2d Cir. 1996). 194 See supra pp. 437-438; InterGen NV v. Grina, 344 F.3d 134 (1st Cir. 2003); Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GmbH, 206 F.3d 411 (4th Cir. 2000) (FAA and New York Convention “create a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act … Because the determination of whether … a signatory is bound by the [contract] presents no state law question of contract formation or validity we look to the ‘federal substantive law of arbitrability’ to resolve this question.”). 195 Westbrook Int'l, LLC v. Westbrook Tech., Inc., 17 F.Supp.2d 681, 684 (E.D. Mich. 1998). See Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 59-63 (U.S. S.Ct. 1995). 196 See, e.g., Mastrobuono, 514 U.S. at 64 (choice of law clause “encompass[es] substantive principle that New York courts would apply, but [does not] include special rules limiting the authority of arbitrators”); Sea Bowld Marine Group, LDC v. Oceanfast Pty, Ltd, 432 F.Supp.2d 1305, 1312 (S.D. Fla. 2006) (“[T]he Agreement here contained choice-of-law and arbitration provisions that both reference foreign law. While these designations are relevant to the substantive law to be used, and the location of arbitration, they say nothing, and mean nothing, as to the threshold issue of arbitrability. Federal law controls my interpretation of whether the Arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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Clause covers the dispute in this case.”); Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 555 F.Supp. 481, 484 (D. V.I. 1982) (“Neither the law of a foreign country, or the law of a particular state (or territory) can ever be chosen – only federal law is controlling”), aff'd, 712 F.2d 50 (3d Cir. 1983). 197 See, e.g., Gen. Elec. Co. v. Deutz, 270 F.3d 144, 154 (3d Cir 2001) (“[f]ederal law applied to the interpretation of arbitration agreements”); Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287, 296 (3d Cir. 2001) (“a generic choice-of-law clause, standing alone is insufficient to support a finding that contracting parties intend to opt out of the FAA's default standards”); Campaniello Imp. Ltd, 117 F.3d at 668-69 (applying federal law to an arbitration clause in a contract containing an Italian choice-of-law clause); Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l Inc., 198 F.3d. 88, 96 (2d Cir. 1999) (applying federal law to an arbitration clause in a contract containing a Texas choice-of-law clause); Wolsey, Ltd v. Foodmaker, Inc., 144 F.3d 1205 (9th Cir. 1998); Morewitz v. West of England Ship Owners Mut. Prot. & Indem. Ass'n, 62 F.3d 1356, 1364 (11th Cir. 1995); Ledee v. Ceramiche Ragno, 684 F.2d 184, 186-187 (1st Cir. 1982); Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43 (3d Cir. 1978); Mechanical Power Conversion, LLC v. Cobasys, LLC, 500 F.Supp.2d 716 (E.D. Mich. 2007) (applying federal common law to determine validity of arbitration agreement despite underlying contract's choice of Michigan law); Innovative Eng'g Solutions, Inc. v. Misonix, Inc., 458 F.Supp.2d 1190 (D. Ore. 2006) (although parties' agreement provided that state law govern its construction, federal law determined the scope of the agreement's arbitration clause); Sea Bowld Marine Group, LDC v. Oceanfast Pty, Ltd, 432 F.Supp.2d 1305, 1313, 19 (S.D. Fla. 2006) (applying federal common law to arbitration agreement despite underlying agreement's governing law stipulating Australian law: “the mere presence of a generic choice of law provision does not, by itself, evidence an intent by the parties to incorporate into the Operating Agreement New York rules of arbitration”); Chloe Z Fishing Co. v. Odyssey Re (London) Ltd, 109 F.Supp.2d 1236, 1252 (S.D. Cal. 2000). 198 Mastrobuono, 514 U.S. at 63-64. 199 Although Mastrobuono was a state law case, the same analysis applies, and similar results have been reached by lower courts, in international cases. See Campaniello Imp., Ltd v. Saporiti Italia SpA, 117 F.3d 655, 668-669 (2d Cir. 1997) (applying federal law to an arbitration clause in a contract containing an Italian choiceof-law clause); Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50, 52-54 (3d Cir. 1983) (Italian law, applicable to underlying contract, not applied to invalidate arbitration agreement); Ledee v. Ceramiche Ragno, 684 F.2d 184, 186-187 (1st Cir. 1982) (Puerto Rico law, applicable to contract, not applied to invalidate arbitration agreement). Compare Balar Equip. Corp. v. VT Leeboy, Inc., 2007 WL 2461847 (D. Ariz. 2007) (choice-of-law clause that provided that it “amended” parties' agreement arguably incorporates state law non-arbitrability rule). 200 See, e.g., Republic of Ecuador v. Chevron Texaco Corp., 376 F.Supp.2d 334 (S.D.N.Y. 2005); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.07 (3d ed. 2000) (“That the parties may themselves determine what law applies to the question of the validity of their agreement to arbitration may appear somewhat like Baron von Munchhausen lifting himself out of a bog by his own pigtail”). http://www.kluwerarbitration.com/CommonUI/print.aspx
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201 Rome Convention, Art. 8; M. Giuliano & P. Lagarde, Report on
the Convention on the Law Applicable to Contractual Obligations, O.J. C 282 31/10/1980, Art. 8 (“this provision is also applicable with regard to the existence and validity of the parties' consent as to the law applicable”); L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶32R-154, ¶32-156 (14th ed. 2006) (“The effect of the [Rome] Convention is to refer questions relating to the existence of a contract to the putative governing law”). 202 See, e.g., Restatement (Second) Conflict of Laws §218, comment a (1971) (“[a]rbitration agreements are one kind of contract. The choice of law rules applicable to contracts in general should also be applicable to them. So much has never been doubted with respect to issues relating to their validity …”); R. Merkin, Arbitration Law ¶7.7 (2004 & Update 2007) (“The validity of an agreement to arbitrate must, under English conflict of laws rules, be tested by reference to the law which – assuming the validity of the clause – would have applied to it.”); L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶32R-154, ¶32-158 (14th ed. 2006) (“There are three English decisions which have touched on the question of the governing law in the case of problems of formation, and all three were, to varying degrees, authority for the view that the question whether a concluded contract came into existence depended on the putative governing law”); Compania Naviera Micro SA v. Shipley Int'l Inc., The Parouth [1982] 2 Lloyd's Rep. 351 (English Court of Appeal); Rich (Marc) & Co. AG v. Società Italiana Impianta PA, The Atlantic Emperor [1989] 1 Lloyd's Rep. 548, 554 (English Court of Appeal) (“the question being whether there was a binding contract between the parties … The Court held that question would be decided by an English Court in accordance with putative proper law which, since there was an English arbitration clause, would in all probability be held to be English law.”); Matter of I.S Joseph Co. (Toufic Aris & Fils), 388 N.Y.S.2d 1 (N.Y. App. Div. 1976); In re Electronic & Missile Facilities, Inc., 236 N.Y.S.2d 594 (N.Y. S.Ct. 1962). 203 See supra pp. 428-430. 204 As noted above, this is consistent with the approach under other choice-of-law systems. See supra pp. 451-452. 205 See supra pp. 434-451 & infra pp. 459-516; Restatement (Second) Conflict of Laws §202 (1971) (“(1) The effect of illegality upon a contract is determined by the law selected by application of the rules of §§187-188. (2) When performance is illegal in the place of performance, the contract will usually be denied enforcement.”); L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶¶32-238 to 32-241 (14th ed. 2006); Ralli Bros v. Compañia Naviera Sota y Aznar [1920] 2 K.B. 287 (English Court of Appeal). 206 See supra pp. 413-414. 207 See infra pp. 2170-2198; Kreindler, Aspects of Illegality in the Formation and Performance of Contracts, in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 209 (ICCA Congress Series No. 11 2003). See also Kosheri & Leboulanger, L'arbitrage face à la corruption et aux trafics d'influence, 1984 Rev. arb. 3; Lalive, Ordre public transnational (ou éellement international) et arbitrage international, 1986 Rev. arb. 329; Y. Derains, Les commissions illicites 65-68 (ICC Publication No. 480/2 1992). 208 Judgment of 7 May 1994, Fincantieri-Cantieri Navali Italiani SpA v. Ministry of Defence, Armament and Supply Directorate of Iraq, XXI Y.B. Comm. Arb. 594 (Genoa Corte di Appello) (1996). In Fincantieri-Cantieri, an Italian court held that an arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement between an Italian seller and an Iraqui buyer violated EU trade sanctions against Iraq, and was therefore unenforceable. 209 See supra pp. 311 et seq. & infra pp. 756-761. 210 The application of any foreign mandatory law would be subject to the Convention's non-discrimination requirements. See infra pp. 507-516. 211 See infra pp. 523-528; Rome Convention, Arts. 3(3), 7(1); Restatement (Second) Conflict of Laws §187(2) (1971). As discussed below, most developed conflict of laws rules provide for the application of foreign mandatory laws and public policies in limited instances where the concerned foreign state has a very substantial relationship to the relevant conduct or transaction. See infra pp. 2175-2177, 2190-2193. See also Grigera Naón, Choice-ofLaw Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 85 (2001) (“one wonders if in particular – most likely exceptional – circ*mstances, international Arbitral Tribunals should not take into account and possibly apply lois de police, not belonging to the laws or rules of law normally governing the arbitration clause, when judging on its jurisdiction (most likely in connection with arbitrability issues)”). 212 See supra pp. 465-466. 213 Rome Convention, Arts. 3(3), 7(1); Restatement (Second) Conflict of Laws §187(2) (1971). 214 See infra pp. 495-497, 497-504. 215 Of course, the state whose laws purport to render the arbitration agreement invalid may deny recognition of the arbitral award. See infra pp. 514-516, 523-535. 216 See supra pp. 427-434, 434-442. 217 See supra pp. 427-432. 218 See supra pp. 434-442. 219 See infra pp. 2199-2203. 220 See supra pp. 436-438, 449-451 (U.S.), 438-439 (Swiss) & 439-441 (French). 221 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶425 (1999). See also Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 59-63 (U.S. S.Ct. 1995). 222 See supra pp. 184-189, 321-322 & infra pp. 470-475, 484-485, 1240-1243, 1246-1294, 1294-1304. 223 See infra pp. 481-483. 224 There may also be cases where the reasons for choosing the law governing the underlying contract will also apply with regard to the law governing the arbitration agreement (e.g., a neutral, developed legal system). See infra pp. 475-477, 477-481. 225 These objectives are detailed above. See supra pp. 71-90. 226 See supra pp. 71-78. 227 See supra pp. 438-439. 228 See also Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 64 (U.S. S.Ct. 1995) (choice of law clause “encompass[es] substantive principle that New York courts would apply, but [does not] include special rules limiting the authority of arbitrators”). 229 See supra pp. 438-439 & infra pp. 497-504; Swiss Law on Private International Law, Art. 178(2); Spanish Arbitration Act, Art. 9(2). 230 See, e.g., Final Award in ICC Case No. 3572, XIV Y.B. Comm. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Arb. 111, 115 (1989); Final Award in ICC Case No. 6379, XVII Y.B. Comm. Arb. 212, 215 (1992); Final Award in ICC Case No. 6850, XXIII Y.B. Comm. Arb. 37, 38 (1998). 231 See authorities cited supra pp. 437 n. 143, 448 nn. 186-187; Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 59-63 (U.S. S.Ct. 1995); Final Award in ICC Case No. 1507, in S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 215 (1990); Final Award in ICC Case No. 6162, XVII Y.B. Comm. Arb. 153 (1992); Final Award in ICC Case No. 7453, XXII Y.B. Comm. Arb. 107 (1997); Westbrook Int'l LLC v. Westbrook Tech., Inc., 17 F.Supp.2d 681 (E.D. Mich. 1998); XL Ins. Ltd v. Owens Corning [2000] 2 Lloyd's Rep. 500 (Q.B.); Judgment of 27 October 2000, Bulgarian Foreign Trade Bank, Ltd v. A.I. Trade Fin., Inc., XXVI Y.B. Comm. Arb. 291 (Swedish S.Ct.) (2001); Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50 (3d Cir. 1983); Ledee v. Ceramiche Ragno, 684 F.2d 184 (1st Cir. 1982); I.T.A.D. Assoc., Inc. v. Podar Bros., 636 F.2d 75 (4th Cir. 1981); Prograph Int'l Inc. v. Barhydt, 928 F.Supp. 983 (N.D. Cal. 1996); Technetronics, Inc. v. Leybold-Geaeus GmbH, 1993 U.S. Dist. LEXIS 7683 (E.D. Pa. 1993); In the Matter of An Arbitration Between the West of England Ship Owners Mut. Ins. Ass'n etc., 1992 WL 37700 (E.D. La. 1992). 232 See supra pp. 449-451; Mastrobuono, 514 U.S. at 59-63; Roadway Package Sys., 257 F.3d at 296; Sea Bowld Marine Group, 432 F.Supp. 2d at 1311-1313. 233 See supra pp. 437-438, 447-449; Gen. Elec. Co., 270 F.3d at 154; Rhone, 712 F.2d at 52-54; Ledee, 684 F.2d at 186-87. 234 See supra pp. 439-441; Judgment of 20 December 1993, Municipalité de Khoms El Mergeb v. Société Dalico, 1994 Rev. arb. 116, 117 (French Cour de cassation civ. 1e). 235 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶425 (1999). 236 J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶6-59 (2003). See also Hanotiau, What Law Governs the Issue of Arbitrability?, 12 Arb. Int'l 391, 394 (1996) (“It is therefore generally considered that the parties have submitted their arbitration agreement to the same domestic law as the main agreement.”). 237 See supra pp. 436-438, 438-439 & infra pp. 491-497; Swiss Law on Private International Law, Art. 178(2). 238 See supra pp. 439-441 & infra pp. 504-514, 530-535, 559, 561; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶446 (1999). 239 This approach is not inconsistent with the New York Convention's choice-of-law standards (in Article V(1)(a)). See supra pp. 428-430 & infra pp. 460-466. That is both because it gives effect to the parties' authentic intentions and because nothing in the Convention precludes a Contracting State from giving effect to agreements to arbitrate even when not required to do so by the Convention. See supra pp. 99-100, 203-205 & infra pp. 501-502, 599-600. That is confirmed by Article VII of the Convention, which makes clear that the Conversion does not preclude parties from relying on more favorable provisions of national law with regard to recognition of arbitral awards and, by analogy, arbitration agreements. See infra pp. 2722-2725. 240 See supra pp. 443-445. 241 See supra pp. 422-424.
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242 See supra pp. 71-78. 243 European Convention, Art. VI(2); New York Convention, Art.
V(1)(a); infra pp. 460-466. 244 See infra pp. 495-497, 497-504, 504-516, 530-535, 558-559, 561, 2119-2128. 245 European Convention, Art. VI(2). As noted above, Article VI(2) also provides that “[t]he courts may also refuse recognition of the arbitration agreement if under the law of their country the dispute is not capable of settlement by arbitration.” See infra pp. 773. 246 See, e.g., Judgment of 15 October 1992, BV Haegens Bouw v. NV Theuma Deurenindustrie, XVIII Y.B. Comm. Arb. 612, 614-15 (Brussels Cour d'appel) (1993) (applying the choice-of-law rule of Article VI of the European Convention to arbitration clause). 247 See supra pp. 413-414. 248 See infra pp. 460-467. 249 New York Convention, Art. V(1)(a) (emphasis added). See supra pp. 413-414. 250 A. van den Berg, The New York Arbitration Convention of 1958 294-95 (1981). 251 See supra p. 460. 252 See, e.g., Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50, 53 (3d Cir. 1983) (Article V's choice-of-law rule is not incorporated into Article II(1) because Article II(3)'s ambiguity was “deliberate”); Ferrara SpA v. United Grain Growers Ltd, 441 F.Supp. 778, 780-81 n.2 (S.D.N.Y. 1977), aff'd mem., 580 F.2d 1044 (2d Cir. 1978) (dicta that forum's laws should apply, on grounds that New York Convention's legislative history contemplates this and that it “is consistent … with the view that enforceability of an agreement to arbitrate relates to the law of remedies and is therefore governed by the law of the forum.”); Meadows Indem. Co. v. Baccala & Shoop Ins. Sers., Inc., 760 F.Supp. 1036, 1042 (E.D.N.Y. 1991) (Article II(3) does not incorporate Article V's choice-of-law rule). See also Bernardini, Arbitration Clauses: Achieving Effectiveness in the Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 197, 200 (ICCA Congress Series No. 9 1999) (“the law to be applied by a court … as contemplated by Art. II(3) of the New York Convention, has nothing to do with the law to be applied by a court, in case of a request for enforcement, under Art. V(1)(a) of the Convention”); Friedland & Hornick, The Relevance of International Standards in the Enforcement of Arbitration Agreements under the New York Convention, 6 Am. Rev. Int'l Arb. 149, 154 (1995) (“Both the text of the Convention and the travaux suggest strongly that Article V's choice-of-law rules should not be read into Article II, and that disputes under Article II should be resolved based on a potentially different, international standard.”). 253 See Bautista v. Star Cruises, 396 F.3d 1289, 1302 (11th Cir. 2005); DiMercurio v. Sphere Drake Ins. plc, 202 F.3d 71, 80 (1st Cir. 2000); Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50, 53 (3d Cir. 1983) (applying federal common law rules and international principles derived from New York Convention); Apple & Eve, LLC v. Yantai N. Andre Juice Co., 499 F.Supp.2d 245, 248 (E.D.N.Y. 2007) (“The limited scope of the Convention's null and void clause must be interpreted to encompass only those situations – such as fraud, http://www.kluwerarbitration.com/CommonUI/print.aspx
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mistake, duress, and waiver – that can be applied neutrally on an international scale.”); Swiss Law on Private International Law, Art. 178(2). 254 Bernardini, Arbitration Clauses: Achieving Effectiveness in the Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 197, 200 (ICCA Congress Series No. 9 1999). 255 See supra pp. 94-95, 203; A. van den Berg, The New York Arbitration Convention of 1958 127 (1981) (“The silence of the Convention on this point [i.e., in Article II(3)] … is due to the last minute insertion of the provisions relating to the arbitration agreement in the Convention.”). 256 See supra pp. 209-211; Report of the Secretary-General on Study on the Application and Interpretation of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, UN Doc. A/CN.9/168, ¶¶16-18, X Y.B. UNCITRAL 100 (1979). 257 See infra pp. 563 et seq. 258 Restatement (Second) Conflict of Laws §§1, 6(2) (1971); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶4-030 (14th ed. 2006); S. Symeonides, Private International Law and the End of the 20th Century: Progress or Regress? 43-45 (2000); M. Reimann, Conflict of Laws in Western Europe – A Guide through the Jungle 109-112 (1995); M. Giuliano & P. Lagarde, Report on the Convention on the Law Applicable to Contractual Obligations O.J. C 282 31/10/1980, ¶1 (“The object [of the Convention] was to eliminate the inconveniences arising from the diversity of the rules of conflict, notably in the field of contract law.”); B. Audit, Droit international privé ¶¶91 et seq. (4th ed. 2006); E. Scoles, P. Hay, P. Borchers & S. Symeonides, Conflict of Laws ¶3.57 (4th ed. 2004). 259 See supra pp. 76-82. 260 See supra pp. 92-101; A. van den Berg, The New York Arbitration Convention of 1958 286 (1981) (“the Convention's provisions must be deemed to be interrelated as the underlying purpose is to attain as much uniformity as possible in the legal regime governing international commercial arbitration; in principle, the Convention's text must be considered to constitute a whole”). 261 See, e.g., Contini, International Commercial Arbitration: The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 8 Am. J. Comp. L. 283, 296 (1959) (courts will apply own law including the applicable conflict rules); Pisar, The United Nations Convention on Foreign Arbitral Awards, 33 S. Cal. L. Rev. 14, 16 (1959) (Article II(3) refers to national conflict of law rules only as last resort); T. Rüede & R. Hadenfeldt, Schweizerisches Schiedsgerichtsrecht 231 (2d ed. 1993); Büllow, Das UNÜbereinkommen über die Annerkennung und Vollstreckung ausländischer Schiedssprüche, Zeitschrift für Konkurs-, Treuhandund Schiedsgerichtswesen 1, 3-4 (1959). 262 See supra pp. 92-101. 263 See, e.g., Judgment of 21 March 1995, XXII Y.B. Comm. Arb. 800, 804-05 (Swiss Federal Tribunal) (1997) (“[P]reliminary issues concerning the validity of an arbitration agreement may not be decided according to the lex fori. Hence, where the New York Convention applies, reference should be made, for all issues which concern the validity of an arbitration agreement and are not regulated by the Convention itself, to the law to be determined according to Art. V(1)(a) of the New York Convention.”); Judgment of 3 February 1990, Della Sanara Kustvaart – Bevrachting & http://www.kluwerarbitration.com/CommonUI/print.aspx
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Overslagbedrijf BV v. Fallimento Cap. Giovanni Coppola Srl, XVII Y.B. Comm. Arb. 542, 543 (Genoa Corte di Appello) (1992) (“Considering the eadem ratio and the close connection between [Articles II(3) and V], the criteria for the evaluation of the arbitration clause which are to be applied in enforcement proceedings must also be applied when the clause is invoked in order to derogate from the jurisdiction of the national courts.”). 264 See, e.g., J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶6-32, 6-55 (2003) (“Though these provisions [i.e., New York Convention, Art. (V)(1) and UNCITRAL Model Law, Art. 36(1)(a)(i)] address the issue only from the perspective of the annulment or enforcement judge, there is a strong argument in favor of applying the same criteria at the preaward stage.”); A. van den Berg, The New York Arbitration Convention of 1958 126-28, 291-95 (1981) (Article II(3) should be read to incorporate Article V(1)(a)'s choice-of-law rule; “A systematic interpretation of the Convention, in principle, permits the application by analogy of the conflicts rules of Article V(1)(a) to the enforcement of the agreement”); McMahon, Implementation of the United Nations Convention on Foreign Arbitral Awards in the United States, 2 J. Mar. L. & Comm. 735, 757 (1971) (same); Martiny, in K. Rebmann, F. Säcker & R. Rixecker (eds.), Münchener Kommentar zum Bürgerlichen Gesetzbuch Vorbem. Art. 27, ¶11 (4th ed. 2006); J. Robert, L'arbitrage, Droit interne, Droit international privé ¶280 (5th ed. 1983); Haas, in F.-B. Weigand (ed.), Practitioner's Handbook on International Arbitration 451 (2002); van Houtte, Parallel Proceedings Before State Courts and Arbitral Tribunals, in Arbitral Tribunals or State Courts: Who Must Defer to Whom? 35 (ASA Bull. No. 15 Special Supp. 2001). 265 That conclusion is supported by the reference to Article II in Article V(1)(a)'s recognition provisions, reflecting the interrelation between the provisions. A. van den Berg, The New York Arbitration Convention of 1958 127 (1981) (“As Article V(1)(a) incorporates Article II – “… the agreement referred to in Article II …” – Article II can be deemed to incorporate Article V(1)(a)”). 266 See supra pp. 412, 460. 267 See infra pp. 2691-2694, 2722-2725. 268 New York Convention, Art. V(1)(a) (emphasis added). 269 See, e.g., Meadows Indem. Co. v. Baccala & Shoop Ins. Sers., Inc., 760 F.Supp. 1036, 1041 (E.D.N.Y. 1991) (discussing possible enforcement fora). 270 See supra pp. 279-281. 271 This is recommended in all leading institutional arbitration clauses and is common in practice. See supra pp. 176 & infra pp. 1679-1696. 272 The selection of an arbitral seat is provided for under all leading institutional rules. See infra pp. 1696-1703. See also infra pp. 1703-1738. 273 If necessary (and putting aside questions of competencecompetence), a national court can stay any determination of the law governing an arbitration agreement until after the arbitral seat has been identified. 274 Once an arbitral seat is selected, the provisional determination can be reviewed and either confirmed or altered. 275 As discussed below, the application of the law of the arbitral seat under Article V(1)(a) is subject to applicable national validation principles (see infra pp. 497-504) and to general principles of nonhttp://www.kluwerarbitration.com/CommonUI/print.aspx
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discrimination applicable under the New York Convention (see infra pp. 506-516). The Convention is properly understood as precluding Contracting States from applying national laws that single out international arbitration agreements and subject them to burdens or constraints that do not apply equally to domestic arbitration agreements and other contractual arrangements. See infra pp. 510514. This principle of non-discrimination operates to preclude the application, under Article V(1)(a), of national laws (including that of the arbitral seat) that single out international arbitration agreements for special disfavor. See infra pp. 510-514. 276 See To Validate Certain Agreements for Arbitration, H.R. Rep. No. 68-96, at 1 (1924) (“Whether an agreement for arbitration shall be enforced or not is a question of procedure to be determined by the law court in which the proceeding is brought and not one of substantive law to be determined by the law of the forum in which the contract is made”). See also supra pp. 186-187, 321-322. 277 Theofano Maritime Co. v. 9,551.19 Long Tons of Chrome Ore, 122 F.Supp. 853, 858 (D. Md. 1954). 278 For U.S. authorities adopting the historic common law choiceof-law approach to arbitration agreements, see Restatement (Second) Conflict of Laws §218, Reporters' Note (1971) (citing cases); To Validate Certain Agreements for Arbitration, H.R. Rep. No. 68-96, at 1 (1924); Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402, 405 n.3 (2d Cir. 1959) (“For choice-of-law purposes it has been generally held that the forum is free to apply its own ‘remedy’ and is not compelled to enforce an arbitration agreement by applying the law of the State with the controlling contracts.”); Sinva, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 253 F.Supp. 359, 364 (S.D.N.Y. 1966); Theofano Maritime Co. v. 9,551.19 Long Tons of Chrome Ore, 122 F.Supp. 853, 858 (D. Md. 1954); The Eros, 241 F. 186, 191 (E.D.N.Y. 1916), aff'd, 251 F. 45 (2d Cir. 1916) (“[A] general arbitration clause … goes to the remedy, not to the rights, of the parties, and … its effect is to be determined by the law of the forum.”); Aktieselskabet Korn-Og Foderstof Kompangniet v. Rederiaktiebolaget Atlanten, 232 F. 403, 405 (S.D.N.Y. 1916) (Hand, J.), aff'd, 252 U.S. 313 (U.S. S.Ct. 1920) (“[arbitration clauses] do not affect to touch the obligations of the parties, as surely they do not; they prescribe how the parties must proceed to obtain any redress for their wrongs, which covers only remedies.”); Meacham v. Jamestown, Franklin and Clearfield R.R., 211 N.Y. 346, 352 (N.Y. 1914) (Cardozo, J., concurring) (“An agreement that … differences arising under a contract shall be submitted to arbitration relates to the law of remedies, and the law that governs remedies is the law of the forum.”); Matter of Gantt, 297 N.Y. 433, 438-39 (N.Y. 1948) (following Meacham); Electrical Research Prods. Inc. v. Vitaphone Corp., 171 A. 738, 747-48 (Del. Ch. 1934) (following Meacham). 279 Sinva, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 253 F.Supp. 359, 364 (S.D.N.Y. 1966)(emphasis added). 280 Cf. Hamlyn & Co. v. Talisker Distillery [1894] A.C. 202, 210 (House of Lords) (“[I]t is argued that an agreement to refer disputes to arbitration deals with the remedy and not with the rights of the parties, and that consequently the forum being Scotch the parties cannot by reason of the agreement into which they have entered interfere with the ordinary course of proceedings in the Courts of Scotland.”). 281 For criticism of the traditional view, see Foerster, Arbitration Agreements and the Conflict of Laws: A Problem of Enforceability, 21 Arb. J. 129, 132 (1966); Lorenzen, Commercial Arbitration – http://www.kluwerarbitration.com/CommonUI/print.aspx
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International and Interstate Aspects, 43 Yale L.J. 716, 751-57 (19331934). Cf. Restatement (Second) Conflict of Laws §218 (1971). 282 An enforcement forum might well have significant interests and policies which would be implicated by enforcement or nonenforcement of an arbitration clause. However, these interests could be taken into account by way of public policy and non-arbitrability principles, without requiring wholesale application of the enforcement forum's substantive law to an agreement with no connection to that forum and as to which other forums had substantially closer connections and interests in enforcement. 283 See infra pp. 563 et seq. 284 Judgment of 2 October 1931, DFT 57 I 295, 304 et seq. (Swiss Federal Tribunal). 285 See, e.g., Judgment of 15 April 1970 et seq. 1971 NJW 323 (German Bundesgerichtshof) (“The rules of German private international law apply; the law governing the conclusion of an [arbitration] agreement is therefore not always the lex fori.”); Judgment of 17 November 1971, 8 Ob 233/71, I Y.B. Comm. Arb. 183 (Austrian Oberster Gerichtshof) (1976) (“the validity of the arbitration agreement must be decided, failing a choice of law by the parties, under the law of the country where the award was made …”); Judgment of 27 March 1954, 45 Rev. crit. Dr. int'l priv. 511 (Italian Corte di Cassazione) (1956); P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶¶249 et seq. (2d ed. 1989). 286 See infra pp. 470-475. 287 See infra pp. 475-477. See also supra pp. 443-451. 288 See supra pp. 465-466; New York Convention, Art. V(1)(a). 289 Judgment of 26 May 1994, XXIII Y.B. Comm. Arb. 754, 757 (Bezirksgericht Affoltern am Albis 1994) (1998) (emphasis added). See also Judgment of 24 November 1994, XXI Y.B. Comm. Arb. 635, 638 (Rotterdam Rechtbank) (1996) (“the law applicable to the arbitration agreement is the law of the place of arbitration”); Judgment of 2 October 1931, DFT 57 I 295 (Swiss Federal Tribunal); C v. D [2007] EWCA Civ. 1282 (English Court of Appeal) (arbitration agreement “is more likely” to be governed by “the law of the seat of arbitration than the law of the underlying contract”); W. Craig, W. Park, & J. Paulsson, International Chamber of Commerce Arbitration ¶5.05 (3d ed. 2000) (“most national court decisions under the New York Convention have applied the law of the country where the award was rendered” to the arbitration agreement); A. van den Berg, The New York Arbitration Convention of 1958 124 (1981) (“the law governing the arbitration agreement is in practice almost always the same law as the law governing the arbitral procedure”). 290 Judgment of 30 May 1994, XX Y.B. Comm. Arb. 745, 747 (Tokyo High Court) (1995) (emphasis added). 291 Swedish Arbitration Act, §48 (emphasis added). The provision also contains a proviso, making clear that this choice-of-law rule does not apply to the questions of authorization or representation. See infra pp. 559-561. 292 See, e.g., Final Award in ICC Case No. 1507, in S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 215, 216 (1990) (“As a matter of principle, because of its autonomous character the validity of the arbitration clause is governed by the law in force in the country of the arbitral seat.”); Interim Award in ICC Case No. 4504, 113 J.D.I. (Clunet) 1118 (1986); Final Award in ICC Case No. 5294, XIV Y.B. Comm. Arb. 137, 140 (1989) (the arbitration clause is “governed by … the lex fori of the arbitrator”); http://www.kluwerarbitration.com/CommonUI/print.aspx
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Interim Award in ICC Case No. 6149, XX Y.B. Comm. Arb. 41, 44-45 (1995). See also infra p. 471 n. 295. 293 Award in ICC Case No. 5832, 115 J.D.I. (Clunet) 1198, 1198-99 (1988) (“According to unanimous Swiss doctrine, the validity of an arbitration agreement must be determined in virtue of the law of the forum, which is the law of the Canton of Zurich as the law of the seat of the arbitral tribunal.”). See also infra pp. 484-485. 294 Interim Award in ICC Case No. 6149, XX Y.B. Comm. Arb. 41, 44-45 (1995). 295 See, e.g., Interim Award in ICC Case No. 4472, 111 J.D.I. (Clunet) 946, 947 (1984) (same); Final Award in ICC Case No. 5294, XIV Y.B. Comm. Arb. 137, 140-41 (1989) (applying law of arbitral seat, not law governing underlying contract, to determine whether “the agreement to arbitrate is binding”); Preliminary Award in ICC Case No. 5505, XIII Y.B. Comm. Arb. 110, 117 (1988) (“[T]he law governing the arbitration clause itself … is mostly thought to be governed either by the selected law or by the ‘lex fori’ (the law of the place of arbitration).”); Award in ICC Case No. 5730, 117 J.D.I. (Clunet) 1029, 1034 (1990) (French law applies to the arbitration agreement “first of all, because it is the law of the place of arbitration”); Final Award in ICC Case No. 6162, XVII Y.B. Comm. Arb. 153 (1992) (applying Swiss law, as law of arbitral seat, to arbitration agreement; refusing to apply substantive law governing underlying agreement). 296 See, e.g., Hamlyn & Co. v. Talisker Distillery [1894] A.C. 202, 208 (House of Lords) (“Where … the parties agree that any dispute arising out of their contract shall be ‘settled by arbitration by two members of the London Corn Exchange, or their umpire, in the usual way,’ it seems to me that they have indicated as clearly as it is possible their intention that the particular stipulation, which is a part of the contract between them, shall be interpreted according to and governed by the law, not of Scotland, but of England.”); Bangladesh Chemical Indus. Corp. v. Henry Stephens Shipping Co. [1981] 2 Lloyd's Rep. 389 (English Court of Appeal) (Lord Denning) (“It seems to me as plain as can be that under the typed clause the arbitration was to be in London: and arbitration is to be in accordance with the Arbitration Act, 1950: together with the usual consequence that it is to be governed by English law.”); Egon Oldendorff v. Liberia Corp. [1995] 2 Lloyd's Rep. 64 (Q.B.) (holding both arbitration clause and underlying contract were governed by English law, where arbitration clause provided: “Any dispute arising under the Charter to be referred to arbitration in London.”); Halpern v. Halpern, XXXI Y.B. Comm. Arb. 964, 972 (Q.B. 2006) (2006) (“the seat of the arbitration is a pointer to the law of the arbitration agreement”); Judgment of 28 September 1995, XXII Y.B. Comm. Arb. 762, 765 (Rotterdam Arrondissem*ntsrechtbank) (1997) (“In the arbitral clause, New York is chosen as the place of arbitration, which implies the choice for the law of New York as the law applicable to the arbitration, including the question whether a valid arbitration agreement has been concluded.”); Award in ICC Case No. 7373, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 71 (2001) (“Except in cases where the parties make an express choice concerning the law governing the arbitration agreement, the choice of the place of arbitration generally implies a choice of the application of the arbitration law of that place”). 297 This rule gained substantial support from the New York Convention and the European Convention. As discussed in detail above, both conventions adopted default rules providing for the http://www.kluwerarbitration.com/CommonUI/print.aspx
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application of the substantive law of the arbitral seat to the substantive validity and enforceability of an international arbitration agreement (where the parties had not selected the law governing their arbitration agreement). See supra pp. 460, 465-466; New York Convention, Art. V(1)(a); European Convention, Art. VI(2). 298 Some courts appear to adopt this rationale. See, e.g., Judgment of 10 April 1990, XVII Y.B. Comm. Arb. 568, 570 (Korean S.Ct.) (1992) (“In the Court's judgment, because the arbitration clause provided for arbitration in accordance with the Arbitration Rules of the London Court of Arbitration, the afore-mentioned agreement in writing did not need to be so specific as to stipulate expressly the institution and the place of arbitration, as well as the proper law.”); Judgment of 30 May 1994, XX Y.B. Comm. Arb. 745, 747 (Tokyo High Court) (1995) (“it is the nature of arbitration agreements to provide for given procedures in a given place, that the parties intend that the law of the place where the arbitration proceedings are held will apply”); Judgment of 7 October 1933, Tobler v. Justizkommission des Kantons Schwyz, DFT 59 I 177 (Swiss Federal Tribunal) (“According to settled case law of the Swiss Federal Tribunal the arbitration clause is not an agreement of substantive law but of procedural nature”); Judgment of 28 May 1915, Jörg v. Jörg, DFT 41 II 534 (Swiss Federal Tribunal) (arbitration clause is procedural contract). Cf. Judgment of 4 August 1993, Owerri Commercial Inc. v. Dielle Srl, XIX Y.B. Comm. Arb. 703, 706 (Hague Gerechtshof) (1994) (“[I]t is usual to make a connection with the so-called lex fori of the arbitrators.”). 299 See, e.g., Final Award in ICC Case No. 1507, in S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 215, 216 (1990) (“As a matter of principle, because of its autonomous character the validity of the arbitration clause is governed by the law in force in the country of the arbitral seat.”); Interim Award in ICC Case No. 4504, 113 J.D.I. (Clunet) 1118 (1986); Final Award in ICC Case No. 5294, XIV Y.B. Comm. Arb. 137, 140 (1989) (the arbitration clause is “governed by … the lex fori of the arbitrator”); Award in ICC Case No. 5832, 115 J.D.I. (Clunet) 1198, 1198-99 (1988) (“According to Swiss doctrine and jurisprudence, an arbitration agreement is a contract relevant not to the substance but to the law governing the procedure. … [T]he validity of an arbitration agreement must be determined in virtue of the law of the forum.”); Partial Award in Hamburg Chamber of Commerce of 21 March 1996, XXII Y.B. Comm. Arb. 35, 36 (1997) (“A choice of German law can be inferred, according to Art. 27 of the Introductory Law to the Civil Code (EG BGB), from the agreement to refer disputes to a German arbitral tribunal.”). 300 Institute of International Law, Resolutions on Arbitration in Private International Law 1957 (Amsterdam), Annuaire de L'Institut de Droit International, Vol. II, at 491 (1957) (emphasis added). See also J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶6-72 (2003). 301 Institute of International Law, Resolutions on Arbitration in Private International Law 1959 (Neuchâtel), Annuaire de L'Institut de Droit International, Vol. II, at 394 (1959). 302 This follows from the provisions that selection of the arbitral seat “shall imply” selection of the law governing the arbitration agreement and that the parties “shall be deemed” to have agreed that the arbitration shall be seated in the state whose law they have selected to govern the arbitration agreement. 303 See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶424 (1999) (“The Institute http://www.kluwerarbitration.com/CommonUI/print.aspx
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thus implicitly characterized the arbitration agreement as procedural and applied a supposed principle that the arbitral procedure was necessarily governed by the law of the country where the arbitration was held.”). 304 See supra pp. 82-84, 427-443. This approach is equally inconsistent with the validation principle (discussed below). See infra pp. 497-504. 305 See supra pp. 470-473; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶430 (1999) (“In earlier decisions, some courts considered that where the parties had chosen the seat of the arbitration, it could be inferred that they intended to subject the arbitration agreement to the law of that place.”); Blessing, The Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention at 168 (ICCA Congress Series No. 9 1999) (“There is a strong tendency (also strengthened by the New York Convention) that the substantive validity of the arbitration clause should be governed by the law of the place of arbitration”). Cf. L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶16-019 (14th ed. 2006) (“If there is no express choice of the law to govern either the contract as a whole or the arbitration agreement, but the parties have chosen the seat of arbitration, the contract will frequently (but not necessarily) be governed by the law of that country on the basis that the choice of the seat is to be regarded as an implied choice of the law governing the contract.”). 306 Judgment of 27 October 2000, Bulgarian Foreign Trade Bank, Ltd v. A.I. Trade Fin., Inc., XXVI Y.B. Comm. Arb. 291, 293 (Swedish S.Ct.) (2001). 307 See, e.g., Judgment of 10 May 1984, 1984 NJW 2763, 2764 (German Bundesgerichtshof); Judgment of 7 January 1971, 1971 NJW 986 (German Bundesgerichtshof); Judgment of 20 March 1980, 1980 NJW 2022, 2024 (German Bundesgerichtshof); J.-P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶¶196 et seq. (2d ed. 2002); Geimer, in R. Zöller (ed.), Zivilprozessordnung §1029, ¶¶17a et seq. (26th ed. 2007); Münch, in G. Lüke & P. Wax (eds.), Münchener Kommentar zur Zivilprozessordnung §1029, ¶14 (2d ed. 2001). But see Judgment of 28 November 1963, 1964 NJW 591-592 (German Bundesgerichtshof) (parties typically intend to subject the arbitration clause to the same law as the main contract). 308 See supra pp. 82-84, 427-443. 309 This is discussed in detail above, see supra pp. 443-447. 310 See supra pp. 444-447. 311 Sonatrach Petroleum Corp. (BVI) v. Ferrell Int'l Ltd [2002] 1 All E.R. (Comm.) 627, ¶32 (Q.B.). See Peterson Farms Inc. v. C&M Farming Ltd [2004] 1 Lloyd's Rep. 603 (Q.B.) (an arbitration clause requiring arbitration to be held in the United Kingdom under ICC Rules, and contained in a contract governed by Arkansas law was itself governed by Arkansas law, notwithstanding the express recognition of the separability of the arbitration agreement); Svenska Petroleum Exploration AB v. Lithuania [2005] EWHC (Comm.) 2437, ¶¶76-77 (Q.B.) (“In the absence of exceptional circ*mstances, the applicable law of an arbitration agreement is the same as the law governing the contract of which it forms a part.”); Tonicstar Ltd v. Am. Home Assur. Co. [2004] EWHC 1234 (Q.B.) (arbitration clause in a reinsurance contract governed by English law was itself governed by English law despite its severability). 312 Halpern v. Halpern, XXXI Y.B. Comm. Arb. 964 (Q.B. 2006) http://www.kluwerarbitration.com/CommonUI/print.aspx
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(2006) (English law applied to both the underlying contract and the agreement to arbitrate despite absence of express choice of law clause). 313 See supra pp. 443-447; Judgment of 24 January 2003, XXX Y.B. Comm. Arb. 509 (Hanseatisches Oberlandesgericht Hamburg) (2005) (“the law applicable to the disputed legal relationship [is] applied to the arbitration agreement where no choice of law had been made specifically for the arbitration agreement”); Judgment of 10 March 2000, Krauss Maffei Verfahrenstechnik GmbH v. Bristol Myers Squibb, XXVI Y.B. Comm. Arb. 816 (Italian Corte di Cassazione) (2001) (applying Italian law, governing underlying contract through Rome Convention choice-of-law rules, rather than law of foreign arbitral seat). Compare Nat'l Thermal Power Corp. v. The Singer Co., XVIII Y.B. Comm. Arb. 403, 406-407 (Indian S.Ct. 1992) (“The proper law of the arbitration agreement is normally the same as the proper law of the contract. It is only in exceptional cases that it is not so even where the proper law of the contract is expressly chosen by the parties. Where, however, there is no express choice of the law governing the contract as a whole, or the arbitration agreement as such, a presumption may arise that the law of the country where the arbitration is agreed to be held is the proper law of the arbitration agreement. But that is only a rebuttable presumption.”). 314 See, e.g., B. Goldman, Arbitrage (droit international privé), in P. Francescakis, Encyclopédie Dalloz – Droit International ¶59 (1968) (“in the absence of particular circ*mstances, the safest and most often used, even if only implicitly,” approach is application of the law chosen to apply to the underlying contract to the arbitration agreement); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶¶2-85 to 2-87 (4th ed. 2004) (“Since the arbitration clause is only one of many clauses in a contract, it would seem reasonable to assume that the law chosen by the parties to govern the contract will also govern the arbitration clause.”); M. Mustill & S. Boyd, Commercial Arbitration 63 (2d ed. 1989) (“The starting point is to determine the proper law of the contract in which the arbitration is embodied. As a general rule the arbitration agreement will be governed by the same law, since it is part of the substance of the underlying contract.”); Collins, The Law Governing the Agreement and Procedure in International Arbitration in England, in J. Lew (ed.), Contemporary Problems in International Arbitration 127 (1987) (“The proper law of the arbitration agreement is normally the same as the proper law of the contract of which it forms a part.…”); Jarvin, The Sources and Limits of the Arbitrator's Powers, in Lew (eds.), Contemporary Problems in International Arbitration 52 (1986) (law selected by the parties to govern underlying contract applies to arbitration agreement, including interpretation); G. Petrochilos, Procedural Law in International Arbitration 33 (2004) (“The proper law of the agreement to arbitrate will, absent countervailing circ*mstances, follow the proper law of the (main) contract”). 315 B. Goldman, Arbitrage (droit international privé), in P. Francescakis, Encyclopédie Dalloz – Droit International ¶59 (1968). 316 See, e.g., Final Award in ICC Case No. 3572, XIV Y.B. Comm. Arb. 111 (1989) (applying law chosen by parties to govern underlying contract); Final Award in ICC Case No. 6379, XVII Y.B. Comm. Arb. 212, 215 (1992) (applying law governing underlying contract, not law of arbitral seat); Final Award in ICC Case No. 6752, XVIII Y.B. Comm. Arb. 54, 55-56 (1993) (applying general choice-of-law clause to arbitration clause); Award in ICC Case No. 9480, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial http://www.kluwerarbitration.com/CommonUI/print.aspx
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Arbitration, 289 Recueil des Cours 9, 55-56 (2001) (parties' arbitration clause is presumptively governed by law governing underlying contract); Award in ICC Case No. 10044, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 93-94 (2001) (applying choiceof-law rules of the arbitral seat, England, to select law governing substantive validity of arbitration agreement; holding that law selected by the parties to apply to underlying contract also presumptively applies to arbitration clause). 317 XVIII Y.B. Comm. Arb. 54, 56 (1993). 318 See supra pp. 184-189 & infra pp. 563 et seq. 319 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶424 (1999). For further discussion of the law applicable to the arbitral proceedings, see infra pp. 1240-1243, 1246-1304, 1310-1347. 320 See supra pp. 348-353. See also A. van den Berg, The New York Arbitration Convention of 1958 145-46 (1981). 321 See supra pp. 357 et seq. 322 Again, this is discussed above, see supra pp. 413-421. See also G. Born, International Commercial Arbitration in the United States 214-15 (1994); Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (U.S. S.Ct. 1995) (choice of law clause “encompass[es] substantive principle that New York courts would apply, but [does not] include arbitration law”); Sea Bowld Marine Group, LDC v. Oceanfast Pty, Ltd, 432 F.Supp.2d 1305, 1312 (S.D. Fla. 2006) (“[T]he Agreement here contains choice-of-law and arbitration provisions that both reference foreign law. While these designations are relevant to the substantive law to be used, and the location of arbitration, they said nothing, and mean nothing, as to the threshold issue of arbitrability. Federal law controls my interpretation of whether the Arbitration Clause covers the dispute in this case.”). 323 Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 111-14 (2d ed. 2005); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶6-23 (2003). 324 See supra pp. 72-74. 325 See supra pp. 460, 465-466. 326 See, e.g., Restatement (Second) Conflict of Laws §§187-88, 218, comment a (1971); Judgment of 4 August 1993, Owerri Commercial Inc. v. Dielle Srl, XIX Y.B. Comm. Arb. 703, 706 (Hague Gerechtshof) (1994); Bernardini, Arbitration Clauses: Achieving Effectiveness in the Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 197 (ICCA Congress Series No. 9 1999); Blessing, The Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 168 (ICCA Congress Series No. 9 1999); Lew, The Law Applicable to the Form and Substance of the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 114 (ICCA Congress Series No. 9 1999). 327 See Rome Convention, Art. 4; L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶16-019 (14th ed. 2006); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶425 et seq. (1999); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶6-60 (2003); Interim Award in ICC Case No. 4367, XI Y.B. Comm. Arb. http://www.kluwerarbitration.com/CommonUI/print.aspx
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134 (1986) (citing closest relationship standard, although contract contained choice of law clause); Judgment of 4 August 1993, Owerri Commercial Inc. v. Dielle Srl, XIX Y.B. Comm. Arb. 703 (Hague Gerechtshof) (1994) (“The court is of the opinion … that the closest connection is with English law.”). 328 Restatement (Second) Conflict of Laws §218, comment a (1971) (“Whether a judicial action may be maintained in violation of the provisions of an arbitration agreement should be determined not by the local law of the forum but rather by the law selected by application of [the generally-applicable choice-of-law principles in §§187 & 188].”) (emphasis added). 329 Restatement (Second) Conflict of Laws §218 (1971). The Restatement (Second) made it clear that the relevant agreement on which this inquiry focused was the parties' arbitration agreement (as distinguished from their underlying contract). Ibid. at comment b. 330 Restatement (Second) Conflict of Laws §188 (1971). Notwithstanding the general rule of §218, §219 of the Restatement (Second) provides that the “method” of enforcing an arbitration agreement is determined by the law of the enforcement forum (notwithstanding the applicability of §218's rules to the agreement's validity). Thus, under §219, the availability in a national court of an order compelling arbitration, a stay of litigation, and/or damages for breach of an arbitration agreement would be controlled by the forum's law. 331 Restatement (Second) Conflict of Laws §218, comment b
(1971) (“Situations will arise where the state of most significant relationship with respect to the issue of arbitration is not the same as the state of most significant relationship with respect to other issues relating to the contract. A possible example is where a contract whose principal elements are located in state X provides for arbitration in state Y. Here it may be that, although X is the state of most significant relationship with respect to most of the issues relating to the contract Y is the state of most significant relationship with respect to the issue of arbitration.”). Cf. Joseph L. Wilmotte & Co. v. Rosenman Bros., 258 N.W.2d 317, 326 (Iowa 1977) (finding that “New York can be seen as having the most significant relationship to the issue of the validity and effect of the arbitration provisions of the contract,” though Iowa was the state of most significant relationship with respect to the underlying contract as a whole). 332 See authorities cited infra pp. 493 n. 394. Compare authorities cited infra pp. 494 n. 395. 333 See supra pp. 444-447, 475. 334 [2000] 2 Lloyd's Rep. 500, 508 (Q.B.). See also Bangladesh Chemical Indus. Corp. v. Henry Stephens Shipping Co. [1981] 2 Lloyd's Rep. 389 (English Court of Appeal); Egon Oldendorff v. Liberia Corp. [1995] 2 Lloyd's Rep. 64 (Q.B.) (holding both arbitration clause and underlying contract were governed by English law, where arbitration clause provided: “Any dispute arising under the Charter to be referred to arbitration in London.”). Cf. L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶16-017 (14th ed. 2006). 335 Sonatrach Petroleum Corp. (BVI) v. Ferrell Int'l Ltd [2002] 1 All E.R. (Comm.) 627, ¶32 (Q.B.) (“the proper law of the arbitration agreement is to be determined according to the general principles for ascertaining the proper law of a contract: there can be an http://www.kluwerarbitration.com/CommonUI/print.aspx
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express choice of law or the choice can be implied by reference to that body of law with which the arbitration agreement has its closest and most real connection”). 336 Judgment of 28 September 1995, XXII Y.B. Comm. Arb. 762, 765 (Rotterdam Arrondissem*ntsrechtbank) (1997). 337 See, e.g., Interim Award in ICC Case No. 4367, XI Y.B. Comm. Arb. 134 (1986) (considering argument for closest relationship standard, although contract contained express choice of law clause); Partial Award in ICC Case No. 6719, 121 J.D.I. (Clunet) 1071 (1994) (“The court is of the opinion that the national law which has the closest link with the question of arbitrability [is] the law of the seat of the arbitration especially if the seat has been mutually agreed on by the parties.”); Award in ICC Case No. 5730, 117 J.D.I. (Clunet) 1029, 1033-1034 (1990); Lew, The Law Applicable to the Form and Substance of the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 114, 142 (ICCA Congress Series No. 9 1999). 338 Judgment of 4 August 1993, Owerri Commercial Inc. v. Dielle Srl, XIX Y.B. Comm. Arb. 703, 706 (Hague Gerechtshof) (1994). 339 Id. 340 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶426, 434 (1999) (closest connection test gives rise to “great uncertainty” because of difficulty in giving weight to various connecting factors). See also R. David, Arbitration in International Trade 219-220 (1985) (“The occasional pronouncements of the courts [in respect of the law applicable to the arbitration agreement] cannot be interpreted as an adhesion to a given doctrine and are only meant in general to explain in a convenient manner how the court has arrived at a solution in the particular case.”). 341 Bernardini, Arbitration Clauses: Achieving Effectiveness in the Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 197, 201 (ICCA Congress Series No. 9 1999). See also Interim Award in ICC Case No. 4145, XII Y.B. Comm. Arb. 97, 99 (1987) (“Should … the arbitral tribunal be of the opinion that there is no precise applicable law clause in the Agreement, then Austrian Law would have to be advanced as the law of the seat of arbitration.”); Award in ICC Case No. 4392, 110 J.D.I. (Clunet) 907 (1983) (“[T]he arbitrator must verify the validity of the arbitration agreement according to the law in force at the seat of the arbitral tribunal.”); Final Award in ICC Case No. 5485, XIV Y.B. Comm. Arb. 156 (1989) (“Whereas Art. 26 [now Article 35] of the ICC Rules of Arbitration establishes that the arbitrators shall make every effort to make sure that the award is enforceable at law. As the place of this arbitration is Paris (France), the Tribunal has examined French law (Nouveau Code de Procédure Civile Arts. 1492 to 1497) and have concluded that said law contains nothing which is in conflict with the full validity and effectiveness of the arbitration clause in dispute.”); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶6-69 to 6-71 (2003). 342 See, e.g., Award in ICC Case No. 953, III Y.B. Comm. Arb. 214 (1978), discussed in J. Lew, The Choice of the Applicable Law in International Commercial Arbitration: A Study in Decided Arbitration Awards ¶289 (1977); Interim Award in ICC Case No. 4695, XI Y.B. Comm. Arb. 149 (1986) (cumulative application of possibly connected laws to uphold validity of arbitration agreement); Final http://www.kluwerarbitration.com/CommonUI/print.aspx
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Award in ICC Case No. 5485, XIV Y.B. Comm. Arb. 156, 160-62 (1989) (applying, cumulatively, ICC Rules, arbitral seat's law, law governing underlying contract, and trade usages); Interim Award in ICC Case No. 6149, XX Y.B. Comm. Arb. 41, 44-45 (1995); Final Award in ICC Case No. 6850, XXIII Y.B. Comm. Arb. 37, 38-40 (1998) (cumulatively applying both German and French law to validity of arbitration clause and issues of capacity); Award in ICC Case No. 8385, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 474 (2003) (“all three systems [international, New York and Belgian] recognize that, at least in some instances, the corporate veil may be pierced”). See also H.-V. von Huelsen, Die Gültigkeit von internationalen Schiedsvereinbarungen 135 (1973); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.07 (3d ed. 2000). The same approach is also sometimes taken to the substantive law applicable to the merits of the parties' dispute. See infra pp. 21282130. 343 The cumulative approach differs analytically from the validation
principle (adopted under the Swiss Law on Private International Law). The cumulative analysis does not validate the arbitration agreement based upon its validity under a single national law, as with the validation principle. See infra pp. 497-504; Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶24 (2000). Instead, the cumulative analysis looked to all potentiallyapplicable national laws, without providing guidance in the case of conflicts. 344 See, e.g., Award in ICC Case No. 4381, 113 J.D.I. (Clunet) 1102, 1104 (1986) (arbitration clause is not subject to law governing underlying contract; validity of arbitration clause can be determined without reference to any national law); Interim Award in ICC Case No. 4695, XI Y.B. Comm. Arb. 149 (1986) (arbitration clause is not subject to law governing underlying contract). 345 Award in ICC Case No. 5730, 117 J.D.I. (Clunet) 1029, 1033 (1990). 346 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶428 (1999); Judgment of 9 December 1955, Goldschmidt v. Viz et Zoon, 1956 Dalloz 217 (Paris Cour d'appel); Judgment of 10 April 1957, Myrtoon Steam Ship v. Agent Judiciaire du Tresor, JCP G 1957, II, 10078 (Paris Cour d'appel). 347 See Final Award in ICC Case No. 5485, XIV Y.B. Comm. Arb. 156, 162 (1989) (treating the ICC Rules as the applicable law, but interpreting the ICC Rules as requiring the tribunal to “make every effort to ensure that the award is enforceable at law,” and therefore referring also to French law as the law of the place of arbitration). 348 See, e.g., Award in ICC Case No. 6476, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 76 (2001) (applying Article 178(3) of Swiss Law on Private International Law on grounds that it is mandatorily applicable in arbitration seated in Switzerland); Award in ICC Case No. 7373, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 71 (2001) (applying law of arbitral seat to validity of arbitration agreement; tribunal reasons that this is mandatory in arbitration seated in the Netherlands); Award in ICC Case No. 9548, http://www.kluwerarbitration.com/CommonUI/print.aspx
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discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 41-42 (2001) (Article 178(2) of Swiss Law on Private International Law is mandatory choice-of-law rule in arbitration seated in Switzerland); Award in ICC Case No. 10044, discussed in Grigera Naón, Choiceof-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 69 (2001) (applying law of arbitral seat to validity of arbitration agreement; tribunal reasons that this is mandatory in arbitration seated in England). 349 Award in ICC Case No. 10760, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 44 (2001). 350 See authorities cited supra pp. 438, 442. 351 See infra pp. 2123-2128. 352 See infra pp. 2123-2128. 353 See supra pp. 415-416. 354 See supra p. 416 & infra pp. 504-506. 355 See supra pp. 436-438, 449-451 & infra pp. 495-497, 506-507. 356 See infra pp. 2111-2210. 357 See infra pp. 487-492. The separate choice-of-law analyses applicable to the formal validity and interpretation of international arbitration agreements in U.S. courts are discussed elsewhere. See infra pp. 535-552, 561. 358 A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶¶2-90 to 2-91 (4th ed. 2004); XL Ins. Ltd v. Owens Corning [2000] 2 Lloyd's Rep. 500, 507 (Q.B.). 359 For U.S. decisions discussing the choice-of-law issues raised by international arbitration agreements, see, e.g., Certain Underwriters at Lloyd's London v. Argonaut Ins. Co., 500 F.3d 571 (7th Cir. 2007); Bridas SAPIC v. Gov't of Turkmenistan, 447 F.3d 411 (5th Cir. 2006); Bridas SAPIC v. Gov't of Turkmenistan, 345 F.3d 347 (5th Cir. 2003); Motorola Credit Corp. v. Uzan, 388 F.3d 39 (2d Cir. 2004); Trippe Mfg Co. v. Niles Audio Corp., 401 F.3d 529 (3d Cir. 2005); InterGen NV v. Grina, 344 F.3d 134 (1st Cir. 2003); Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GmbH, 206 F.3d 411 (4th Cir. 2000); Gen. Elec. Co. v. Deutz AG, 270 F.3d 144, 154-55 (3d Cir. 2001); U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., 241 F.3d 135, 146 (2d Cir. 2001); Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88 (2d Cir. 1999); Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43 & nn. 8 & 9 (3d Cir. 1978); Coimex Trading (Suisse) SA v. Cargill Int'l SA, 2005 U.S. Dist. LEXIS 6589 (S.D.N.Y. 2005); A.T. Cross Co. v. Royal Selangor(s) PTE, Ltd, 217 F.Supp.2d 229, 234-35 (D.R.I. 2002); In the Matter of An Arbitration Between the West of England Ship Owners Mut. Ins. Ass'n etc., 1992 WL 37700, at *4 (E.D. La. 1992); Meadows Indem. Co. v. Baccala & Shoop Ins. Sers., Inc., 760 F.Supp. 1036 (E.D.N.Y. 1991); Marchetto v. DeKalb Genetics Corp., 711 F.Supp. 936, 939-40 (N.D. Ill. 1989); Ferrara SpA v. United Grain Growers, Ltd, 441 F.Supp. 778, 781 (S.D.N.Y. 1977), aff'd mem., 580 F.2d 1044 (2d Cir. 1978). For commentary, see Friedland & Hornick, The Relevance of International Standards in the Enforcement of Arbitration Agreements under the New York Convention, 6 Am. Rev. Int'l Arb. 149 (1995); Malloy, Current Issues in International Arbitration, 15 Transnat'l Law 43, 48-52 (2002); Thrope, A Question of Intent: Choice of Law and the International Arbitration Agreement, 54 Disp. Resol. J. 16 (1999); Diamond, Choice of Law Clauses and Their http://www.kluwerarbitration.com/CommonUI/print.aspx
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Preemptive Effect Upon the Federal Arbitration Act: Reconciling the Supreme Court With Itself, 39 Ariz. L. Rev. 35 (1997). 360 United States v. Little Lake Misere Land Co., 412 U.S. 580
(U.S. S.Ct. 1973); Clearfield Trust Co. v. United States, 318 U.S. 363 (U.S. S.Ct. 1943). See also supra pp. 132-144. 361 For commentary, see Aksen, Prima Paint v. Flood & Conklin – What Does It Mean?, 43 St. John's L. Rev. 1, 22-23 (1968); Atwood, Issues in Federal-State Relations under the Federal Arbitration Act, 37 Fla. L. Rev. 61 (1985); Drahozal, In Defence of Southland: Reexamining the Legislative History of the Federal Arbitration Act, 78 Notre Dame L. Rev. 101 (2002); Furnish, Commercial Arbitration Agreements and the Uniform Commercial Code, 67 Cal. L. Rev. 317 (1979); Hirshman, The Second Arbitration Trilogy: The Federalization of Arbitration Law, 71 Va. L. Rev. 1305 (1985); Sturges & Murphy, Some Confusing Matters Relating to Arbitration under the United States Arbitration Act, 17 L. & Cont. Probs. 580 (1952); Comment, Federal Arbitration Act and Application of the “Separability Doctrine” in Federal Courts, 1968 Duke L.J. 588; Note, Scope of Federalism, 58 Nw. U.L. Rev. 468 (1963); Ludington, Conflict of Laws as to Validity and Effect of Arbitration Provision in Contract for Purchase or Sale of Goods. Products or Services, 95 A.L.R.3d 1145. 362 Garvey & Heffelfinger, Towards Federalizing U.S International Commercial Arbitration Law, 25 Int'l Law. 209 (1991). 363 U.S. FAA, 9 U.S.C. §2; supra pp. 135-136, 206-207. The savings clause preserves otherwise applicable state contract law dealing with issues of formation and validity of domestic arbitration agreements, subject however to federal preemption of state laws that single out domestic arbitration agreements for special disfavor. Perry v. Thomas, 482 U.S. 483 (U.S. S.Ct. 1987); Haskins v. Prudential Ins. Co., 230 F.3d 231, 239 (6th Cir. 2000); Progressive Cas. Ins. Co. v. CA Reaseguradora Nacional de Venezuela, 991 F.2d 42 (2d Cir. 1993). 364 Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 226 (U.S. S.Ct. 1987) (quoting Scherk v. Alberto-Culver Co., 417 U.S. 506, 510-11 (U.S. S.Ct. 1974)). 365 See also infra pp. 563 et seq. & pp. 1059 et seq. 366 Southland Corp. v. Keating, 465 U.S. 1, 10 (U.S. S.Ct. 1984). See also Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (U.S. S.Ct. 2006) (“Section 2 embodies the national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts.”). 367 Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681, 686-87 (U.S. S.Ct. 1996); Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265, 272-73 (U.S. S.Ct. 1995); Southland Corp., 465 U.S. at 10. See also Buckeye Check Cashing, 546 U.S. at 445. 368 Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (U.S. S.Ct. 1983) (emphasis added). 369 Volt Info. Sciences, Inc. v. Bd. of Trustees, 489 U.S. 468, 478 (U.S. S.Ct. 1989). See also Buckeye Check Cashing, 546 U.S. at 443; Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (U.S. S.Ct. 1967) (Congress intended to “make arbitration agreements as enforceable as other contracts, but not more so.”). 370 See Buckeye Check Cashing, 546 U.S. at 447-449; Volt Info. Sciences, 489 U.S. at 477 n.6; Southland Corp., 465 U.S. at 12. 371 See Buckeye Check Cashing, 546 U.S. at 447-449; Volt Info. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Sciences, 489 U.S. at 477 (“The FAA contains no express preemption provision, nor does it reflect a congressional intent to occupy the entire field of arbitration. But even where Congress has not completely displaced state regulation in an area, state law may nonetheless be preempted to the extent that it actually conflicts with federal law.”); Perry v. Thomas, 482 U.S. 483 (U.S. S.Ct. 1987). 372 Allied-Bruce Terminix Co., 513 U.S. at 272-73; Southland Corp., 465 U.S. at 10. 373 Doctor's Assoc., Inc., 517 U.S. at 683, 688. 374 Doctor's Assoc., Inc., 517 U.S. at 686-687; Perry v. Thomas, 482 U.S. at 485; Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1268 (9th Cir. 2006); Haskins v. Prudential Ins. Co., 230 F.3d 231, 239 (6th Cir. 2000); Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50, 53-54 (3d Cir. 1983); Ledee v. Ceramiche Ragno, 684 F.2d 184, 187 (1st Cir. 1982). 375 See supra pp. 135-143; First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. S.Ct. 1995). 376 See supra pp. 136-138 & infra pp. 490-491; U.S. FAA, 9 U.S.C. §203 (“An action or proceeding falling under the Convention shall be deemed to arise under the laws and treaties of the United States. The district courts of the United States … shall have original jurisdiction over such an action or proceeding, regardless of the amount in controversy.”). Where the Inter-American Convention applies, §302 of the FAA provides the governing sections. U.S. FAA, 9 U.S.C. §302 (“Sections 202, 203, 204, 205, and 207 of this title shall apply to this chapter as if specifically set forth herein, except that for the purposes of this chapter “the Convention” shall mean the Inter-American Convention”). Sections 203 and 302 implement the New York and Inter-American Conventions. See supra pp. 136-138. 377 See, e.g., InterGen NV v. Grina, 344 F.3d 134, 143 (1st Cir.
2003); U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., 241 F.3d. 135, 146 (2d Cir. 2001); Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GmbH, 206 F.3d 411 (4th Cir. 2000); Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 96 (2d Cir. 1999) (“When we exercise jurisdiction under Chapter Two of the FAA, we have compelling reasons to apply federal law, which is already well-developed, to the question of whether an agreement to arbitrate is enforceable”); David L. Threlkeld & Co. v. Metallgesellschaft Ltd, 923 F.2d 245, 249-50 (2d Cir. 1991); JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676, at *3 (S.D.N.Y. 2005); Coimex Trading (Suisse) SA v. Cargill Int'l SA, 2005 U.S. Dist. LEXIS 6589 (S.D.N.Y. 2005); Peter J. DaPuzzo v. Globalvest Mgt Co., 263 F.Supp.2d 714, 718-20 (S.D.N.Y. 2003); Kahn Lucas Lancaster, Inc. v. Lark Int'l Ltd, 956 F.Supp. 1131 (S.D.N.Y. 1997), rev'd, 186 F.3d 210 (2d Cir. 1999); Filanto SpA v. Chilewich Int'l Corp., 789 F.Supp. 1229, 123436 (S.D.N.Y. 1992), appeal dismissed, 984 F.2d 38 (2d Cir. 1993); In the Matter of An Arbitration Between the West of England Ship Owners Mut. Ins. Ass'n etc., 1992 WL 37700, at *2 (E.D. La. 1992); McDonnell Douglas Corp. v. Kingdom of Denmark, 607 F.Supp. 1016, 1020 (E.D. Mo. 1985); Antco Shipping Co. v. Sidermar SpA, 417 F.Supp. 207, 241-16 (S.D.N.Y. 1976). 378 See infra pp. 491-492. 379 See supra pp. 449-451; Mastrobuono v. Shearson Lehman http://www.kluwerarbitration.com/CommonUI/print.aspx
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Hutton, Inc., 514 U.S. 52 (U.S. S.Ct. 1995). 380 See infra pp. 495-497, 506-507. 381 See, e.g., PaineWebber Inc. v. Elahi, 87 F.3d 589, 593 (1st Cir. 1996); Gutfreund v. Weiner, 68 F.3d 554, 559 (2d Cir. 1995) (quoting Coenen v. R.W. Pressprich & Co., 453 F.2d 1209, 1211 (2d Cir. 1972)) (“once a dispute is covered by the [FAA], federal law applies to all questions of interpretation, construction, validity, revocability, and enforceability”); Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282, 285 (9th Cir. 1988); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 845 (2d Cir. 1987); Johnson Controls, Inc. v. City of Cedar Rapids, 713 F.2d 370, 375 (8th Cir. 1983); Church v. Gruntal & Co., 698 F.Supp. 465, 467 (S.D.N.Y. 1988); Hall v. PrudentialBache Sec., Inc., 662 F.Supp. 468 (C.D. Cal. 1987); Lippus v. Dahlgren Mfg. Co., 644 F.Supp. 1473, 1482 (E.D.N.Y. 1986) (“Under the [FAA], federal law applies to all questions of validity, revocability, and enforceability”). 382 See supra pp. 132-144, 486-487. 383 See authorities cited supra p. 490 n. 381. 384 514 U.S. 938, 944 (U.S. S.Ct. 1995). 385 See, e.g., Will-Drill Resources, Inc. v. Samson Resources Co., 352 F.3d 211, 216 (5th Cir. 2003); Bell v. Cendant Corp., 293 F.3d 563, 566 (2d Cir. 2002) (“Because an agreement to arbitrate is a question of contract … the ultimate question of whether the parties agreed to arbitration is determined by state law”); Hojnowski v. Vans Skate Park, 901 A.2d 381, 392 (N.J. 2006); Taylor v. Butler, 142 S.W.3d 277, 284 (Tenn. 2004); Fox v. Tanner, 101 P.3d 939, 943 (Wyo. 2004); Fehribach v. Ernst and Young, LLP, 2003 U.S. Dist. LEXIS, 6462, at *8 et seq. (S.D. Ind. 2003); Anderson v. Ashby, 873 So.2d 168, 192 (Ala. 2003). 386 As discussed above, it is settled that U.S. federal law defines what constitutes an “arbitration” agreement (as distinguished from a mediation or other ADR agreement) under the FAA. See supra pp. 215 et seq. 387 See, e.g., InterGen NV v. Grina, 344 F.3d 134 (1st Cir. 2003); Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GmbH, 206 F.3d 411 (4th Cir. 2000) (FAA and New York Convention “create a body of federal substantive law or arbitrability, applicable to any arbitration agreement within the coverage of the Act … Because the determination of whether … a signatory is bound by the [contract] presents no state law question of contract formation or validity, we look to the ‘federal substantive law of arbitrability’ to resolve this question.”); David L. Threlkeld & Co. v. Metallgesellschaft Ltd, 923 F.2d 245, 249-50 (2d Cir. 1991); Khan v. Parsons Global Sers. Ltd, 480 F.Supp.2d 327 (D.D.C. 2007); JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676, at *3 (S.D.N.Y. 2005); Coimex Trading (Suisse) SA v. Cargill Int'l SA, 2005 U.S. Dist. LEXIS 6589 (S.D.N.Y. 2005); Peter J. DaPuzzo v. Globalvest Mgt Co., 263 F.Supp.2d 714, 718-20 (S.D.N.Y. 2003); Borsack v. Chalk & Vermilion Fine Arts, Ltd, 974 F.Supp. 293 (S.D.N.Y. 1997); Kahn Lucas Lancaster, Inc. v. Lark Int'l Ltd, 956 F.Supp. 1131 (S.D.N.Y. 1997), rev'd, 186 F.3d 210 (2d Cir. 1999); Filanto SpA v. Chilewich Int'l Corp., 789 F.Supp. 1229, 1234-36 (S.D.N.Y. 1992), appeal dismissed, 984 F.2d 38 (2d Cir. 1993); In the Matter of An Arbitration Between the West of England Ship Owners Mut. Ins. Ass'n etc., 1992 WL 37700, at *4 (E.D. La. 1992) (applying federal law, not Louisiana or English law, to decide whether arbitration agreement is “null and void”); McDonnell Douglas Corp. v. Kingdom of Denmark, 607 F.Supp. 1016, 1020 (E.D. Mo. 1985); Antco Shipping Co. v. Sidermar SpA, 417 F.Supp. 207, 215 (S.D.N.Y. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1976). Cf. 21 Williston on Contracts §57:56 (4th ed. 1990) (the New York Convention and the FAA “create a body of federal substantive law of arbitrability, applicable to any arbitration agreement. Generally federal law, rather than the state of the forum and its conflict of laws rules, governs the question whether an agreement to arbitrate was made.”). 388 711 F.Supp. 936, 939 (N.D. Ill. 1989). 389 711 F.Supp. at 939. 390 See also Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 96 (2d Cir. 1999) (“[w]hen we exercise jurisdiction under Chapter Two of the FAA, we have compelling reasons to apply federal law, which is already welldeveloped, to the question of whether an agreement to arbitrate is enforceable.”). 391 See supra pp. 490-491. 392 See, e.g., Gen. Elec. Co. v. Deutz AG, 270 F.3d 144, 154-55 (3d Cir. 2001) (“We recognize that First Options is a domestic arbitration case, but the international nature of the present litigation does not affect the application of First Options' principles.”); Motorola Credit Corp. v. Uzan, 388 F.3d 39, 51 (2d Cir. 2004) (“[I]f defendants wish to invoke the arbitration clauses in the agreements at issue, they must also accept the Swiss choice-of-law clauses that govern those agreements.”); Trippe Mfg Co. v. Niles Audio Corp., 401 F.3d 529 (3d Cir. 2005) (applying the law of the contract's choice of law provision to determine arbitrability): “because we are concerned with the duties assumed by Trippe under the [contract], the choice of law provision of that agreement, calling for the application of New York law, applies.”); Sphere Drake Ltd v. Clarendon Nat'l Ins. Co., 263 F.3d 26, 32 n.3 (2d Cir. 2001); Harvey v. Joyce, 199 F.3d 790 (5th Cir. 2000) (applying New York law to arbitration agreement, pursuant to choice-of-law clause); Chelsea Square Textiles, Inc. v. Bombay Dyeing and Mfg. Co., 189 F.3d 289 (2d Cir. 1999) (applying general state contract law principles); Progressive Cas. Ins. Co. v. CA Reaseguradora Nacional de Venezuela, 991 F.2d 42, 45-46 (2d Cir. 1993) (applying state law to formation of international arbitration agreement); A.T. Cross Co. v. Royal Selangor(s) PTE, Ltd, 217 F.Supp.2d 229, 234-35 (D.R.I. 2002) (applying Rhode Island law); Frydman v. Cosmair, Inc., 1995 WL 404841, at *4 (S.D.N.Y. 1995) (“the court must look to the state law which governed the contract formation.… Since the contract in dispute here was formed in France between French citizens, French law applies in the determination of whether it constitutes an agreement to arbitrate.”). 393 See, e.g., Bridas SAPIC v. Gov't of Turkmenistan, 447 F.3d 411 (5th Cir. 2006); Sarhank Group v. Oracle Corp., 404 F.3d 657, 662 (2d Cir. 2005) (rejecting argument that arbitration agreement was binding under Egyptian law because “[i]t is American federal arbitration law that controls”); Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88 (2d Cir. 1999); McDermott Int'l, Inc. v. Lloyds Underwriters of London, 944 F.2d 1199 (5th Cir. 1991); Riley v. Kingsley Underwriting Agencies, Ltd, 969 F.2d 953, 960 (10th Cir. 1992); David L. Threlkeld & Co. v. Metallgesellschaft Ltd, 923 F.2d 245, 249-50 (2d Cir. 1991); Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50 (3d Cir. 1983); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 845 (2d Cir. 1987) (validity of arbitration agreement “is determined under federal law, which comprises generally accepted principles of contract law”); Apple & Eve, LLC v. Yantai N. Andre Juice Co., 499 F.Supp.2d 245, http://www.kluwerarbitration.com/CommonUI/print.aspx
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251 (E.D.N.Y. 2007) (“no United States federal cases where a court has applied the law of the foreign country and declared that an arbitration clause would be invalid under that country's law.”); Khan v. Parsons Global Sers. Ltd, 480 F.Supp.2d 327 (D.D.C. 2007) (following Ledee); Filanto SpA v. Chilewich Int'l Corp., 789 F.Supp. 1229, 1236 (S.D.N.Y. 1992); Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazioni v. Achille Lauro, 555 F.Supp. 481, 484 (D. V.I. 1982) (“normal conflict of laws rules should not be used to determine which law should govern the validity of an arbitration clause when the parties are subject to the dictates of the Convention”). 394 See, e.g., Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 364 F.3d 274, 292 n.43 (5th Cir. 2004) (“Certain sections and comments of the Restatement … support a determination that Swiss law applied to the arbitration agreement.”); Nissho Iwai Corp. v. M/V JOY SEA, 2002 A.M.C. 1305 (E.D. La. 2002); Bergesen v. Lindholm, 760 F.Supp. 976, 981 n.9 (D. Conn. 1991). 395 See, e.g., Motorola Credit Corp. v. Uzan, 388 F.3d 39, 50-51 (2d Cir. 2004) (applying Swiss law based on general choice-of-law clause in underlying contract); Trippe Mfg Co. v. Niles Audio Corp., 401 F.3d 529 (3d Cir. 2005); Frydman v. Cosmair, Inc., 1995 WL 404841 (S.D.N.Y. 1995) (“Since the contract in dispute here was formed in France between French citizens, French law applies in the determination of whether it constitutes an agreement to arbitrate”); Sphere Drake Ltd v. Clarendon Nat'l Ins. Co, 263 F.3d 26, 32, n.3 (2d Cir. 2001) (FAA “does not preempt choice-of-law clause”). 396 See, e.g., Harrington v. Atlantic Sounding Co., Inc., 2007 WL 2693529, at *3 (E.D.N.Y. 2007) (“The court will apply New Jersey law, since … that state has the most significant relationship to the arbitration agreements and the employment relationship between the parties.”); Jureczki v. Banc One Texas, 252 F.Supp.2d 368, 371 (S.D. Tex. 2003) (applying Texas law because “[i]n this case the state with the most significant relationship to the arbitration clause is Texas[,]” since the “[p]laintiffs are Texas residents, plaintiffs' deposit account was opened and maintained in Texas, and the arbitration clause at issue provides that ‘the federal judicial district that includes [plaintiffs’] mailing address at the time the Claim is filed' is the forum for arbitration”); Owen v. MBPXL Corp., 173 F.Supp.2d 905, 912-13 (N.D. Iowa 2001) (Iowa law had most significant relationship to arbitration agreement because, among other reasons, agreement was formed while employee was employed in Iowa); Specht v. Netscape, 150 F.Supp.2d 585 (S.D.N.Y. 2001) (California had most significant relationship to litigation and hence an interest in the enforceability of an arbitration clause where product was designed and created by corporation with principal place of business in California and distributed from website maintained by employees in corporation's California offices); Ferrara SpA v. United Grain Growers, Ltd, 441 F.Supp. 778, 781 (S.D.N.Y. 1977), aff'd mem., 580 F.2d 1044 (2d Cir. 1978) (raising, but not deciding, possible applicability of (a) federal standards of enforceability under chapter one of FAA, (b) “a uniform body of international law embodied in the Convention,” or (c) New York law; suggesting that FAA standards would apply); I.S. Joseph Com., Inc. v. Toufic Aris & Fils, 54 A.D.2d 665, 666 (N.Y. App. Div. 1976) (holding that as to the arbitration agreement, New York law has the “most significant” contacts). See supra pp. 481-483. 397 See supra pp. 438-439, 439-441 & infra pp. 497-504-506. 398 684 F.2d 184 (1st Cir. 1982). http://www.kluwerarbitration.com/CommonUI/print.aspx
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399 684 F.2d at 187. 400 712 F.2d 50 (3d Cir. 1983). 401 712 F.2d at 53 (emphasis added). 402 Ferrara SpA v. United Grain Growers, Ltd, 441 F.Supp. 778,
781 (S.D.N.Y. 1977), aff'd mem., 580 F.2d 1044 (2d Cir. 1978). 403 See, e.g., Bautista v. Star Cruises, 396 F.3d 1289, 1302 (11th Cir. 2005); I.T.A.D. Assoc., Inc. v. Podar Bros., 636 F.2d 75, 77 (4th Cir. 1981); Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43 n.8 (3d Cir. 1978) (U.S. court would not apply “the law of state X [that] will not enforce, or gives very limited effect to arbitration clauses”); Apple & Eve, LLC v. Yantai N. Andre Juice Co., 499 F.Supp.2d 245 (E.D.N.Y. 2007); Khan v. Parsons Global Sers., Ltd, 480 F.Supp.2d 327 (D.D.C. 2007) (rejecting unconscionability as defense to enforceability of arbitration agreement by adopting, as in Rhone, narrow construction of the “null and void” language of Article II(3); “[b]y its very nature, the defense of unconscionability seeks to promote those very tenets that are contrary to a finding of certainty, namely: policy, fairness, and appeals to a court's discretion outside of the letter of the law”); Prograph v. Barhydt, 928 F.Supp. 983 (N.D. Cal. 1996) (1998); Technetronics, Inc. v. Leybold-Geaeus GmbH, 1993 U.S. Dist. LEXIS 7683, at *8 (E.D. Pa. 1993); In the Matter of An Arbitration Between the West of England Ship Owners Mut. Ins. Ass'n etc., 1992 WL 37700, at *4-5 (E.D. La. 1992); Meadows Indem. Co. v. Baccala & Shoop Ins. Sers., Inc., 760 F.Supp. 1036, 1043 (E.D.N.Y. 1991) (rejecting defense to action to compel arbitration where defendant argued that arbitration agreement was not enforceable in arbitral seat because claims were non-arbitrable; applying “emphatic federal policy” favoring arbitration); Marchetto v. DeKalb Genetics Corp., 711 F.Supp. 936, 939 (N.D. Ill. 1989) (rejecting claim that arbitration agreement was void under Italian law because it applied to tort claims and because non-parties were sued: “the possibility that Italian law might divest a panel of Italian arbitrators is not determinative”); Dev. Bank of Philippines v. Chemtex Fibers Inc., 617 F.Supp. 55, 57 (S.D.N.Y. 1985) (“it is clear that the Convention does not contemplate the expression of local public policy as a barrier to the arbitrability of claims”); Antco Shipping Co. v. Sidermar SpA, 417 F.Supp. 207, 215 (S.D.N.Y. 1976). 404 Chloe Z Fishing Co. v. Odyssey Re (London) Ltd, 109 F.Supp.2d 1236 (S.D. Cal. 2000). 405 Apple & Eve, LLC v. Yantai N. Andre Juice Co., 499 F.Supp.2d 245 (E.D.N.Y. 2007). 406 404 F.3d 657 (2d Cir. 2005). 407 404 F.3d at 662. 408 404 F.3d at 658. The choice-of-law clause in the underlying clause provided for the application of Egyptian law (which was the law applied by the arbitral tribunal). 409 404 F.3d at 658. The dispute arose out of an agreement between two Egyptian companies (one being a subsidiary of a U.S. company) concerning matters in Egypt. 410 See supra pp. 438-439, 439-441, 495-496 & infra pp. 497-504, 504-506, 514-516. 411 As discussed elsewhere, Article V(1)(a) requires giving effect to the parties' choice of law governing the arbitration agreement or, absent any agreement, the law of the arbitral seat. See supra pp. 428-431 & infra pp. 514-515, 2782-2785. The Sarhank court's decision violated Article V(1)(a) by refusing to apply either of these http://www.kluwerarbitration.com/CommonUI/print.aspx
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choices. It is conceivable that the court's decision might be defended on the grounds of public policy under Article V(2) of the Convention, although the court did not invoke public policy in its opinion. It is difficult, however, to see how the misinterpretation (such as it was) of contract law principles amounts to a violation of public policy. 412 See supra pp. 434-443 & infra pp. 497-516. 413 See supra pp. 466-485 & infra pp. 514-516. 414 See infra pp. 498-504. See also E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶603 (1999); Blessing, The Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 168, 174 et seq. (ICCA Congress Series No. 9 1999); Paulsson, Arbitrability, Still Through A Glass Darkly, in ICC, Arbitration in the Next Decade 95, 102-04 (ICC Ct. Bull. Spec. Supp. 1999). 415 For commentary on the validation principle in other choice-oflaw contexts, see R. Weintraub, Commentary on the Conflict of Laws 371 (3d ed. 1986) (parties should be protected from unwise or uniformed choices when the chosen law would invalidate their bargain and objectively applicable law would sustain it); P. Nygh, Autonomy in International Contracts 119 (1999); M. Giuliano & P. Lagarde, Report on the Convention on the Law Applicable to Contractual Obligations, O.J. C 282 31/10/1980, Art. 9; R. Plender & M. Wilderspin, The European Contracts Convention: The Rome Convention of the Choice of Law for Contracts ¶10-09 et seq. (2d ed. 2001); H. Gaudemet-Tallon, JurisClasseur Europe Traité, Fasc. 3201, ¶¶102-104 (1996); Richman & Riley, The First Restatement of Conflict of Laws on the Twenty-Fifth Anniversary of Its Successor: Contemporary Practice in Traditional Courts, 56 Md. L. Rev. 1196, 1215-1216 (1996) (discussing validation principle in U.S. states' usury laws). 416 See supra pp. 470-477, 477-484. Other choice-of-law methods that have enjoyed historical favor – including the cumulative approach, the remedial principle and the law of the arbitral seat or underlying contract – also suffer from grave shortcomings. See supra pp. 467-469, 484-485. 417 See supra pp. 481-483. 418 See supra pp. 71-90, 90-105, 111-144. 419 [1894] A.C. 202 (House of Lords). 420 [1894] A.C. at 203. 421 [1894] A.C. at 210, 214-15, 215 & 216. 422 [1894] A.C. at 213 (emphasis added). The House of Lords left open the possibility that Scots courts could have refused to enforce an arbitration clause that was “tainted with immorality” or in “conflict with deeply-rooted and important considerations of local policy.” 423 [1894] A.C. at 215 (emphasis added). 424 See supra pp. 71-90, 90-105, 111-144, 455-458. In a related context, the U.S. Supreme Court adopted a similar approach to the validity of an arbitration agreement (in a domestic context). The Court rejected a claim that the parties' chosen law contained a provision forbidding the arbitration of particular claims (for punitive damages), which was made applicable to the parties' arbitration agreement by reason of their choice-of-law agreement. Instead, relying on the parties' presumptive intention to arbitrate their disputes, the Court held that that parties' choice-of-law clause “encompass[ed] substantive principles that New York courts would http://www.kluwerarbitration.com/CommonUI/print.aspx
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apply, but not … special rules limiting the authority of arbitrators.” Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 63-64 (U.S. S.Ct. 1995). Although not described as application of a validation principle, the Court's approach to interpretation of the parties' choice-of-law clause rested on the same policies. 425 See supra pp. 473-474, 477-478, 497. 426 See supra pp. 72-78, 455-458. 427 Hamlyn & Co. v. Talisker Distillery [1894] A.C. 202, 215 (House of Lords). 428 See supra pp. 72-78, 455-458. For applications of the validation principle, see infra p. 502 n. 435; Partial Award in ICC Case No. 7920, XXIII Y.B. Comm. Arb. 80 (1998) (applying validation principle to uphold validity of ambiguous arbitration clause); Partial Award on Jurisdiction and Admissibility in ICC Case No. 6474, XXV Y.B. Comm. Arb. 279 (2000); Final Award in ICC Case No. 5485, XIV Y.B. Comm. Arb. 156 (1989); Preliminary Award in Zurich Chamber of Commerce of 25 November 1994, XXII Y.B. Comm. Arb. 211 (1997). 429 See supra pp. 454-459. 430 See supra pp. 455-458. 431 See supra pp. 428-430. 432 See supra pp. 99-100, 205-206, 459. 433 Swiss Law on Private International Law, Art. 178. See supra pp. 415-416 for further discussion and commentary. See also Lalive, The New Swiss Law on International Arbitration, 4 Arb. Int'l 2, 10 (1988) (“With regard to ‘material validity’ … Art. 178 para. 2 contains a ‘conflict rule’, of an alternative character, which indicates the policy of favor validitatis pursued by the Statute: the arbitration convention is valid whenever it complies with the conditions laid down either by the law chosen by the parties, or by the law governing the substance of the dispute (e.g., the main contract) or by Swiss law.”); Judgment of 16 October 2003, 22 ASA Bull. 364, 387 (Swiss Federal Tribunal) (2004). 434 Algerian Code of Civil Procedure, Art. 458 bis 1, ¶3 (adopting verbatim the language of Article 178(2)); Spanish Arbitration Act, Art. 9(6) (same). See Mantilla-Serrano, The New Spanish Arbitration Act, 21 J. Int'l Arb. 367 (2004). 435 See, e.g., Final Award in ICC Case No. 5485, XIV Y.B. Comm. Arb. 156 (1989); Final Award in ICC Case No. 6162, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1991-1995 75, 84 (1997) (impliedly considering that Egyptian law governing the substantive dispute would have invalidated the arbitration agreement); Partial Award on Jurisdiction and Admissibility in ICC Case No. 6474, XXV Y.B. Comm. Arb. 279 (2000); Partial Award in ICC Case No. 7920, XXIII Y.B. Comm. Arb. 80 (1998) (applying validation principle to uphold validity of ambiguous arbitration clause); Preliminary Award in Zurich Chamber of Commerce of 25 November 1994, XXII Y.B. Comm. Arb. 211 (1997). See also Lew, The Law Applicable to the Form and Substance of the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 114, 139-140 (ICCA Congress Series No. 9 1999). Not all such awards rely expressly on the validation principle. For example, the Award in ICC Case No. 5485 upheld the validity of an arbitration clause by looking to the ICC Rules of Arbitration as the “source of law governing the arbitration agreement.” Final Award in http://www.kluwerarbitration.com/CommonUI/print.aspx
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ICC Case No. 5485, XIV Y.B. Comm. Arb. 156, 161 (1989). 436 Award in ICC Case No. 7154, 121 J.D.I. (Clunet) 1059, 1061
(1994). 437 See, e.g., supra pp. 447-451, 454-459, 493-494; Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50 (3d Cir. 1983) (“Neither the parochial interests of the forum state, nor those of states having more significant relationships with the dispute, should be permitted to supersede that presumption. The policy of the Convention is best served by an approach which leads to upholding agreements to arbitrate.”); Remy Amérique, Inc. v. Touzet Distrib., SARL, 816 F.Supp. 213, 216 (S.D.N.Y. 1993); Judgment of 16 October 2003, 22 ASA Bull. 364 (Swiss Federal Tribunal) (2004); Judgment of 24 February 1994, Ministry of Public Works v. Société Bec Frères, XXII Y.B. Comm. Arb. 682 (Paris Cour d'appel) (1997) (refusing to apply Tunisian law, under which the arbitration agreement would be void, in order to give effect to the parties' agreement); XL Ins. Ltd v. Owens Corning [2000] 2 Lloyd's Rep. 500, 506-508 (Q.B.) (giving effect to English law, as law of arbitral seat, which validated contract, rather than New York law, which appeared to invalidate it). 438 See supra pp. 447-451, 454-459, 493-494. 439 See supra pp. 439-441, 495-497 & infra pp. 504-514. See also Weissfisch v. Weissfisch [2006] EWCA Civ. 218 (English Court of Appeal) (English court gives effect to arbitration agreement notwithstanding claim that agreement is invalid under law of foreign arbitral seat; court leaves resolution of issue for foreign courts or arbitral tribunal). 440 Institute of International Law, Santiago de Compostela, Resolution on Arbitration Between States, State Enterprises or State Entities and Foreign Entities, 12 September 1989, Art. 4, XVI Y.B. Comm. Arb. 236, 238 (1991) (emphasis added), in Maniruzzaman, Choice-of-Law in International Contracts: Some Fundamental Conflicts of Laws Issues, 16(4) J. Int'l Arb. 141, 155, n.94 (1999). 441 See W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.07 (3d ed. 2000); Paulsson, Arbitrability, Still Through A Glass Darkly, in ICC, Arbitration in the Next Decade 95, 102-04 (ICC Ct. Bull. Spec. Supp. 1999) (proposing codification of validation principle in New York Convention); Derains, Determination de la lex contractus, in L'apport de la jurisprudence arbitrale 28 (1986) (law should presume that parties “did not want to locate their contractual relationship in a legal system which is not ready to welcome it as it was originally conceived.”); Fouchard, Suggestions to Improve the International Efficacy of Arbitral Awards, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 601, 604-605 (ICCA Congress Series No. 9 1999); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶446 et seq. (1999); Hanotiau, The Law Applicable to Arbitrability, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 146, 156-157 (ICCA Congress Series No. 9 1999); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶6-63, 6-64 (2003); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶22 (2000) (“Swiss law is more arbitrationfriendly than the New York Convention: it widens the spectrum of laws to be taken into account from the point of view of favor http://www.kluwerarbitration.com/CommonUI/print.aspx
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validitatis from two to three legal systems, adding to the list the law applicable to the dispute.”). 442 See supra p. 498 n. 415. 443 See supra pp. 72-78, 455-458. The validation principle is related to, and serves to complement, the growing body of authority adopting international law rules of non-discrimination against arbitration agreements. See supra pp. 439-441, 495-497 & infra pp. 504-514. As discussed below, these rules (like the validation principle) often accept that arbitration agreements are governed in principle by national law, but (in a manner broadly comparable to the validation principle) subject the application of national law to international limits. See infra pp. 506-514. Alternatively, as under French law, international law is applied directly. See supra pp. 439441 & infra pp. 504-506. In both instances, the choice among national laws is made by way of principles that take into account the particular characteristics and objectives of international arbitration agreements. 444 See supra pp. 439-441 & infra pp. 900-904. 445 Judgment of 20 December 1993, Municipalité de Khoms El Mergeb v. Société Dalico, 1994 Rev. arb. 116, 117 (French Cour de cassation civ. 1e) (emphasis added). See supra pp. 439-441. 446 See, e.g., Judgment of 10 June 2004, Bargues Agro Industrie SA v. Young Pecan Cie, XXX Y.B. Comm. Arb. 499 (Paris Cour d'appel) (2005) (“According to a substantive provision of French international arbitration law, the parties' intention suffices to validate an arbitration agreement. Hence, that agreement does not fall under a national law because it is fully autonomous, also with regard to form”); Judgment of 21 May 1997, Renault v. V 2000 (formerly Jaguar France), 1997 Rev. arb. 537 (French Cour de cassation civ. 1e); Judgment of 25 November 1999, SA Burkinabe des ciments et matériaux v. Société des ciments d'Abidjan, 2001 Rev. arb. 165 (Paris Cour d'appel); Judgment of 24 February 1994, Ministry of Public Works v. Société Bec Frères, XXII Y.B. Comm. Arb. 682 (Paris Cour d'appel) (1997) (“In international commercial arbitration, the principle of the autonomy of the arbitration agreement is a principle of general application, being an international substantive rule consecrating the legality of the arbitration agreement beyond all reference to a system of conflict of laws. The validity of the agreement is only subject to the requirements of international public policy”). See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶436 (1999); J.-L. Delvolvé, J. Rouche & G. Pointon, French Arbitration Law and Practice ¶91 (2003); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶180 (2d ed. 2007). 447 See, e.g., Judgment of 22 March 1976, III Y.B. Comm. Arb. 283 (Tunis Court of First Instance) (1978) (“it is generally accepted that international commercial relations are subject to their own customs. It follows from there that the present question does no longer depend on the personal law of the parties, but rather on the subject matter of the contract. The latter is the result from the parties' will, and constitutes their own law since the contract is an international contract concluded in order to correspond to the needs of the parties on the one hand and to international commercial customs on the other.”). 448 See, e.g., Award in ICC Case No. 2375, 103 J.D.I. (Clunet) 973 (1976); Interim Award in ICC Case No. 4131, IX Y.B. Comm. Arb. 131, 134 (1984) (applying “in particular, French case law” and adopting a result “compatible with international public policy, particularly in France”); Award in ICC Case No. 5721, 117 J.D.I. http://www.kluwerarbitration.com/CommonUI/print.aspx
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(Clunet) 1019, 1023 (1990); Partial Award in ICC Case No. 7920, XXIII Y.B. Comm. Arb. 80 (1998) (arbitral tribunal entitled to depart from national law, and to apply general principles of law, in determining validity of arbitration agreement); Final Award in ICC Case No. 8938, XXIVa Y.B. Comm. Arb. 174, 176 (1999); Final Award in ICC Case No. 9302, XXVIII Y.B. Comm. Arb. 54 (2003) (arbitral tribunal seated in France does not apply national law to substantive validity of arbitration clause, instead applying international principles). See also Blessing, The Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 168 (ICCA Congress Series No. 9 1999) (“Instead of battling over the primacy of one particular national law, a tendency is noticeable to apply de-nationalized approaches.”); Judgment of 9 May 1996, Société Arabe des Engrais Phosphates et Azotes & Société Industrielle d'Acide Phosphorique et d'Engrais v. Gemanco srl, XXII Y.B. Comm. Arb. 737 (Italian Corte di Cassazione) (1997) (“The law governing the arbitration clause – that is, the law governing the arbitration agreement either by agreement of the parties or as lex fori – is not Tunisian law directly but, according to the arbitral award, lex mercatoria, a body of ‘rules of law’ based on the usages of international commerce.”). 449 Final Award in ICC Case No. 8938, XXIVa Y.B. Comm. Arb. 174, 176 (1999). 450 See supra pp. 439-441, 504. 451 See supra pp. 495-497. 452 684 F.2d 184 (1st Cir. 1982). See supra p. 495. 453 684 F.2d at 187 (emphasis added). 454 712 F.2d 50 (3d Cir. 1983). 455 712 F.2d at 53 (emphasis added). 456 712 F.2d at 54 (emphasis added). 457 See authorities cited supra p. 496 n. 403. The content of these international prohibitions against discriminatory or idiosyncratic national laws is discussed below. See infra pp. 510-514, 514-516. 458 See supra pp. 439-441, 504-506. 459 See supra pp. 491-494. 460 See supra pp. 487-490. 461 There is much to recommend the notion that customary international law principles could develop over time, to provide an internationally-recognized body of contract law principles applicable to international arbitration agreements. Alternatively, the “constitutional” status of the New York Convention (see supra pp. 97-101) would permit the development of a comprehensive body of contract law applicable to international arbitration agreements. At present, however, both of these results are premature. 462 The basis for the principles of “international law” or “international arbitration law” cited in French decisions, see supra pp. 439-441, is unclear, as is the legal nature and character of these principles. It is doubtful that they can be justified as principles of customary international law, but this appears to have been the contemplation of the French courts. 463 That is, absent some firm basis in international law for rules governing the formation and validity of arbitration agreements, and some firm basis warranting the application of such rules in preference to national law, it is difficult to justify overriding national law on the basis of such principles.
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464 See supra pp. 425 et seq. 465 See supra pp. 459-494. For a variety of reasons, most
authorities have concluded that Article II requires application of some national law to decide whether an arbitration agreement is “null and void” under the New York Convention. Award in ICC Case No. 5730, 117 J.D.I. (Clunet) 1029, 1032-1033 (1990) (“[F]aithful to the traditional concept of even international arbitration, this tribunal considers that to be effective, the arbitration agreement must draw its force from an attachment to a legal order, even though the parties would be free to choose the latter.”); Contini, International Commercial Arbitration: The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 8 Am. J. Comp. L. 283, 296 (1959) (since Article II(3) is silent, courts may make determination on basis of forum law, including forum choiceof-law rules); Graffi, Securing Harmonized Effects of Arbitration Agreements under the New York Convention, 28 Hous. J. Int'l L. 663, 694-97 (2006); Pisar, The United Nations Convention on Foreign Arbitral Awards, 33 S. Cal. L. Rev. 14, 16 (1959) (Article II(3) refers to national conflict of law rules); T. Rüede & R. Hadenfeldt, Schweizerisches Schiedsgerichtsrecht 231 (2d ed. 1993); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶311 (2006); J.-L. Delvolvé, J. Rouche & G. Pointon, French Arbitration Law and Practice ¶91 (2003); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶180 (2d ed. 2007). 466 See supra pp. 427-432, 460-466. In particular, Article V(1)(a) of the New York Convention expressly contemplates that international arbitration agreements will be governed by either the national law chosen by the parties or the national law of the arbitral seat (in the absence of a contrary choice by the parties). See supra pp. 427431, 460-466. Likewise, Article VI(2) of the European Convention provides that a court determining the existence or validity of an arbitration agreement looks to the national law chosen by the parties, the national law of the arbitral seat, or (where neither of the preceding can be determined) the national law applicable under the court's own choice-of-law rules. See supra pp. 431-432, 460. 467 The continuing development of international commercial codes such as the UNIDROIT Principles of International Contracts suggests that, in time, a satisfactory international legal regime for arbitration agreements may evolve. At present, however, it is very difficult to conclude that such an internationally-acceptable regime exists. 468 Some authorities reason that arbitration agreements are subject “only to the common intention of the parties, without it being necessary to make reference to a national law.” Judgment of 20 December 1993, Municipalité de Khoms El Mergeb v. Société Dalico, 1994 Rev. arb. 116, 117 (French Cour de cassation civ. le). That argument falls of its own weight. It makes no sense to speak of contracts governed “only [by] the common intention of the parties,” without any “reference to a national law.” Parties' intentions assume legally-binding form (i.e., become valid contracts) only by virtue of external legal regimes, as well as through application of complex legal doctrines (concerning issues of consent, duress, unconscionability, certainty and definiteness, frustration, impossibility, repudiation, waiver and the like), which have been developed over centuries. Dismissing such doctrines is both unwise (because it discards accumulated learning and useful guidance) and disingenuous (because the same issues addressed by these doctrines will in any event continue to arise and require analysis). http://www.kluwerarbitration.com/CommonUI/print.aspx
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469 See supra pp. 92-101, 202-205, 495-497, 506-507 & infra pp.
567-569, 1005-1007, 1021. 470 See supra pp. 92-101, 203-205, 428-430 & infra pp. 567-791, 709-712; New York Convention, Art. II(3) (“null and void, inoperative or incapable of being performed”). 471 See supra pp. 413, 460-466 & infra pp. 510-516,; New York Convention, Art. V(1)(a). 472 New York Convention, Art. II(3); supra pp. 96-97, 203-205. 473 Similar conclusions have been reached in well-reasoned authority under the European Convention. See Benteler v. State of Belgium, Ad Hoc Award (18 November 1983), 1989 Rev. arb. 339 (“the legal concepts and terms used in the Convention in general have the same meaning as they have in international commercial relations. It would in fact be contrary to the very aims of the Convention to accept that its terms must be interpreted according to concepts of domestic law, because such an interpretation would lead to the very sort of difficulties which the authors of the Convention intended to avoid.”). 474 Some commentators have relied on the absence of detailed specification of international standards in Article II(3). A. van den Berg, The New York Arbitration Convention of 1958 123 (1981) (“the question when an agreement is to be considered null and void etc. may again depend on some municipal law because the Convention does not give much guidance as to what should be understood by these words”). This absence of detailed specification is characteristic of the Convention's generally “constitutional” drafting style, and is relevant to the nature of the international standards prescribed by the Convention, and not whether or not such standards exist. 475 See supra pp. 92-101, 428-430. 476 The existence of this standard, which is discussed below, is undisputed. See infra pp. 580 et seq. 477 This analysis parallels that under the domestic FAA in the United States: “[An arbitration agreement] shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” U.S. FAA, 9 U.S.C. §2; Perry v. Thomas, 482 U.S. 483, 490 (U.S. S.Ct. 1987); supra pp. 487-490. 478 See supra pp. 495-497, 506-507. 479 See supra pp. 92-101, 428-430. 480 Vienna Convention on the Law of Treaties, 23 May 1969, Arts. 26, 31(3); A. McNair, The Law of Treaties 493 (1961). 481 See supra pp. 100-101. 482 That said, both French courts (applying international law) and U.S. courts (applying federal common law) appear to have had significant success in developing common law contract rules for international arbitration agreements. See supra pp. 439-441, 495497, 506-507. It may well be possible to develop legitimate principles of international common law through further judicial (and arbitral) decisions, particularly in light of the Convention's “constitutional” status. See supra pp. 100-101. Still, the application of such principles to subjects such as capacity, authority and illegality poses serious challenges. 483 New York Convention, Arts. II(1), V(2)(a); infra pp. 516-535, 766-841. 484 See infra pp. 517-520, 767-772. 485 See infra pp. 520, 530-535, 837-841. http://www.kluwerarbitration.com/CommonUI/print.aspx
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486 See supra pp. 427-434, 434-443, 454-459. 487 These non-arbitrability exceptions are discussed below. See
infra pp. 516-535, 766-841. 488 See supra pp. 497-504. 489 See supra pp. 499-501, 504, 506-507. 490 See supra pp. 443-445, 459. 491 See supra pp. 460-466. 492 See supra pp. 443-451, 475-477. 493 See supra pp. 447-451, 454-459, 497-504. 494 See supra pp. 454-459. 495 The validation principle in Article 178 of the Swiss Law on Private International Law applies only where the arbitral seat is in Switzerland. Swiss Law on Private International Law, Art. 178; supra pp. 438-439. 496 See supra pp. 504-514. 497 A. van den Berg, The New York Arbitration Convention of 1958 155 (1981). 498 See supra pp. 454-459, 507-515 & infra pp. 515-516. 499 These international standards are discussed above. See supra pp. 507-514. 500 See supra pp. 504-506. 501 See supra pp. 100-101, 509-510, 514.
Choice of Law Governing International Arbitration Agreements - D. Choice of Law Governing Non-Arbitrability Chapter 4 Gary B. Born
Author Gary B. Born
D. Choice of Law Governing Non-Arbitrability (502) The non-arbitrability doctrine raises potentially complex choice-oflaw questions in determining what law(s) apply to determine whether a claim or dispute is non-arbitrable. There is little agreement among national courts and commentators on the resolution of this issue. Indeed, as one despairing commentator remarked, “[a]greement on the conclusion that there is disagreement seems to be the only common denominator that one can find between arbitrators, courts, and publicists regarding the question which is the applicable law on arbitrability.” (503) Part of the difficulty in determining the choice of law applicable to questions of non-arbitrability results from the fact that these questions can arise at different stages in the arbitral process and in different forums: at least in principle, different choice-of-law http://www.kluwerarbitration.com/CommonUI/print.aspx
Source Choice of Law Governing International Arbitration Agreements - D. Choice of Law Governing NonArbitrability in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 516 - 535
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considerations may exist depending upon the procedural posture and forum of a dispute. For example, in a judicial proceeding to enforce an arbitration agreement, the national court might look either to its own law, the law of the arbitral seat, or the law governing the arbitration agreement – without considering the law in the place where any subsequent award might be enforced. Conversely, a decision to enforce an arbitral award might look only to the law of the judicial enforcement forum – without considering whether the arbitration involved claims that were not arbitrable under the law governing the arbitration agreement (or any other law). page "516" In principle, several choices of law to govern non-arbitrability issues are possible: (a) the law of the nation in which enforcement of an award is being or will eventually be sought; (b) the law governing the parties' arbitration agreement; (c) the law of the seat of the arbitration; (d) the law of the judicial forum where an arbitration agreement is sought to be enforced; (e) the law that provides the basis for the relevant substantive claim that is said to be nonarbitrable; or (f) a uniform international definition of non-arbitrability derived from the New York Convention (or other relevant conventions). (504) As discussed below, selecting from among these various options is not straightforward and there is, as yet, little uniformity among national courts and other authorities in making this choice. 1. Choice of Law Governing Non-Arbitrability under New York Convention As discussed above, Article II of the Convention does not expressly address choice-of-law questions regarding non-arbitrability. (505) Similarly, Article V(1)(a)'s choice-of-law rule offers no assistance as to the issue of non-arbitrability. (506) a. Article V(2)(a)'s Exception for Local Non-Arbitrability Rules The subject of non-arbitrability is instead addressed specifically in Article V(2)(a), which provides that an award need not be recognized in a particular Contracting State if “the subject matter of the dispute is not capable of settlement by arbitration under the law of that country.” (507) Article V(2)(a) plainly contemplates that, at the time of enforcement of an award, a state may exceptionally apply its own law to refuse enforcement of an otherwise valid and binding award on non-arbitrability grounds; as noted elsewhere, that is a form of “escape mechanism” which is available without regard to the otherwise applicable choice-of-law rule set forth in page "517" (508) Article V(1)(a). Thus, if parties from States A and B agree to arbitrate in State C (with the parties' arbitration agreement being governed by the law of State C) and an award is made in State C, which is then sought to be enforced in State D, State D may apply its non-arbitrability standards to deny recognition to the award. (509) Article V(2)(a)'s formula cannot be directly transposed to the stage of enforcing arbitration agreements, as distinguished from arbitral awards. In particular, the fact that a state might rely on its local public policies/non-arbitrability rules under Article V(2)'s exception at the award enforcement stage in no way suggests that other states should – or may – rely on those same rules to decline to enforce an http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration agreement that is otherwise valid. That is, if parties from States A and B agree to arbitrate in State C, over a dispute arising in States A and B, then the fact that State D might regard the dispute as non-arbitrable in recognition proceedings (under Article V(2)(a)) should have no bearing at all on how States A, B and C regard the issue. Most national courts that have considered this possibility have specifically rejected it. (510) Some commentators have suggested that Article V(2)(a) can be applied “by analogy” at the stage of enforcing an arbitration agreement, resulting in application of the national law of the court where enforcement of the arbitration agreement is sought. (511) The reasoning is that, since the Convention permits an exceptional reliance page "518" on national non-arbitrability rules of the judicial enforcement forum at the award-enforcement stage, it should be interpreted to permit the same reliance on local nonarbitrability rules at the agreement-enforcement stage. To the same effect, Article VI(2) of the European Convention provides that national courts “may also refuse recognition of the arbitration agreement if under the law of their country the dispute is not capable of settlement by arbitration.” (512) This solution contemplates that the national law of the judicial enforcement forum, at the stage of attempting to enforce an arbitration agreement, will apply to questions of non-arbitrability. Properly understood, this solution has considerable appeal: most importantly, it is consistent with the exceptional character of non-arbitrability as a local “escape valve” under Article V(2) of the New York Convention and under more general private international law notions of public policy exceptions. (513) This approach does not mean that the particular substantive nonarbitrability rules of the judicial enforcement forum should be applied mechanically to issues of non-arbitrability. For example, if parties from States A and B agree to arbitrate a dispute involving conduct in States A and B in an arbitration seated in State C, then there is ordinarily no reason that the courts of State C should apply the nonarbitrability rules applicable under the law of State C to the parties' dispute. If the parties' legal claims arise under the laws of either State A or B and concern activities in those states, then it makes no sense for State C's laws to be applied to render the parties' dispute non-arbitrable. That is particularly true if the laws of States A and B would permit arbitration of the dispute (so that every state with a material connection to the underlying dispute would not only permit, but would require, that the dispute be arbitrated). Indeed, if the non-arbitrability rules of the judicial enforcement forum (here, State C) are examined carefully it is unlikely that they would, by their own terms, apply to the conduct at issue in this example. There is ordinarily no reason that State C would have an interest in rendering non-arbitrable matters that were arbitrable under the laws of states whose substantive legislation and public policies were at issue. Nor, if State C's laws purported to render the dispute nonarbitrable, page "519" would there be any reason that other states should recognize or give effect to such a choice (which would involve an exorbitant jurisdictional claim). The more difficult cases concern whether the judicial enforcement forum (State C) should give effect to the non-arbitrability rules of states whose legislation is at issue in a particular dispute (States A http://www.kluwerarbitration.com/CommonUI/print.aspx
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or B). In such cases, the better course is for the judicial enforcement forum not to give effect to foreign non-arbitrability rules, but instead to recognize the otherwise valid agreement to arbitrate. (514) This permits the state whose non-arbitrability rules are at issue to allow litigation to proceed in local courts (subject to the Convention's limitations), with other states being free to determine whether to give effect to either the resulting judgments or an arbitral award. This is consistent with the character of the non-arbitrability doctrine as an exceptional escape valve, which Contracting States may invoke locally, but which does not bind other states. b. International Limits on Local Non-Arbitrability Rules Although non-arbitrability rules are defined in principle by national law, the New York Convention is best interpreted as subjecting application of the non-arbitrability doctrine by Contracting States to international limitations. These limits would leave considerable scope for Contracting States to give effect to local legislative policies, but would require that this be done in a manner that is consistent with the basic structure and premises of the Convention. In particular, for the reasons discussed below, Contracting States must treat the non-arbitrability doctrine as an exceptional dispensation from the Convention's basic structure, choice-of-law regime and purposes. (515) In turn, that would impose the obligation on Contracting States to adopt non-arbitrability exceptions only when tailored to achieving specifically-defined, articulated public policies and only by means that are non-discriminatory and not inconsistent with the practices of other Contracting States. (516) 2. Choice of Law Governing Non-Arbitrability under National Arbitration Statutes As noted above, there are a variety of possible choice-of-law approaches that might be used to determine the law governing issues of non-arbitrability. Different states have adopted different approaches to this issue. page "520" One approach would be to apply the non-arbitrability rules of the arbitral seat. The theory would be that, since the arbitration is to proceed in the arbitral seat, the law of that jurisdiction should determine the threshold question whether the dispute is subject to arbitration. (517) In fact, however, most courts have refused to apply the law of a foreign arbitral seat to hold disputes non-arbitrable, typically rejecting this standard as anachronistic and concluding that the arbitral seat does not necessarily have any connection to the parties' underlying dispute or claims. (518) Another possible approach would be to apply the non-arbitrability rules of the judicial enforcement forum where litigation over the arbitration agreement is pending (as discussed above (519) ). In practice, most national courts have taken this approach, applying their own law to the issue of non-arbitrability, without considering the possible impact of foreign law. That is true, of U.S., (520) French, (521) Swiss, (522) page "521" Netherlands, (523) Belgian, (524) Italian (525) and other courts, and appears to be contemplated by the UNCITRAL Model Law. (526) As http://www.kluwerarbitration.com/CommonUI/print.aspx
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one Italian decision reasoned: “when an objection for foreign arbitration is raised in [Italian] court proceedings concerning a contractual dispute, the arbitrability of the dispute must be ascertained according to Italian law as this question directly affects jurisdiction, and the court seized of the action can only deny jurisdiction on the basis of its own legal system. This also corresponds to the principles expressed in Arts. II and V of the [New York Convention].” (527) page "522"
The same approach (applying the law of the judicial enforcement forum) is also adopted by the weight of academic commentary. (528) As already discussed, this is consistent with Article V(2)(a) of the New York Convention. (529) Another possible option is to apply the law governing the arbitration agreement to issues of non-arbitrability. This has been urged by some commentators: “The answer is that the Arbitral Tribunal will decide the issue [of non-arbitrability] by application of the law which governs the arbitration agreement.” (530) This result has been (wrongly) attributed to the principles adopted in Article VI(2) of the European Convention and to the notion that parties' choice of applicable law should be given effect. (531) Other authorities also apply the law of the arbitral seat. (532) 3. Future Directions: Choosing the Law Governing NonArbitrability None of the foregoing choice-of-law analyses is capable of producing coherent or satisfactory results. Applying the substantive non-arbitrability rules of the arbitral seat, the judicial enforcement forum, or the state whose law governs the arbitration agreement produces mechanical results that do not achieve any useful legislative purpose and that frustrate the parties' objectives in agreeing to arbitrate. page "523" a. Deficiencies in Current Choice-of-Law Analyses The foregoing criticism is illustrated by the example (noted above) of parties from States A and B agreeing to arbitrate a dispute concerning conduct in States A and B, giving rise to both contractual and statutory claims under the law of State B, before an arbitral tribunal seated in State C. (533) Suppose that proceedings to enforce the arbitration agreement with regard to the statutory claims then arise in both States C and D, with the possibility of enforcement of any award in State E being specifically identified. In these circ*mstances, it is very difficult to see why: (a) the substantive nonarbitrability rules of States C or D, as the judicial enforcement forums, should apply to claims arising under the law of State B, to claims concerning transactions in States A and B, or to an arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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seated in State C; or (b) why the substantive non-arbitrability rules of State C, as the arbitral seat, should apply to claims arising under the laws of State A and transactions concerning States A and B; or (c) why the substantive non-arbitrability rules of State C, whose laws might putatively govern the arbitration agreement, should apply; or (d) why the substantive non-arbitrability rules of State E, where the award might be enforced, should apply at the stage of enforcing the arbitration agreement. In each one of the foregoing cases, the laws of forums other than State B – under whose laws the relevant substantive claims were being asserted – would be relied upon under conventional choice-oflaw rules to determine non-arbitrability. In many cases, this makes no sense or, at best, is a partial answer. Specifically, if the laws of State B permitted arbitration of the claims in question (under State B's laws) it is almost impossible to see why this should not be permitted in other states. Certainly, the fact that the substantive nonarbitrability rules of States A, C, D and E would not permit such claims to be arbitrated, if they were asserted under these states' respective national laws, should be irrelevant to how statutory claims under State B's laws should be treated: if State B permits (and perhaps even encourages or requires) such statutory claims to be arbitrated, then it is almost inconceivable that another approach should be taken, based on the laws of States A, C, D, or E. (534) On the other hand, if the laws of State B hold that the relevant statutory claims (under the laws of State B) are non-arbitrable, then analysis becomes more difficult (and interesting). Although there might be good reasons not ultimately to apply State B's nonarbitrability rules in this example, they certainly should be considered – a result not provided for under the traditional conflicts rules applying the law of the arbitral seat or arbitration agreement. The reason that State B's laws should be applied in these cases is that they purport directly to address the relevant issues, for reasons of obvious importance to State B. page "524" b. Possible Applicability of Foreign Non-Arbitrability Rules A better approach to the foregoing choice-of-law issues involves taking into account the fact that the non-arbitrability doctrine is in the nature of an exceptional escape device, closely akin to a local public policy exception. (535) It is therefore useful to consider the choice-oflaw analysis that governs issues of non-arbitrability from the perspective of traditional conflict of laws rules governing questions of public policy. These principles provide that a state will apply either its own public policy or the public policy of another state with materially closer connections to the issue at hand. (536) Applying this analysis to the foregoing hypothetical, it would permit a State B court to apply State B's non-arbitrability standards to determine the arbitrability of State B statutory law claims in an arbitration seated in State C; it would not require, but instead permit, application by State B's courts of State C's non-arbitrability standards. At the same time, traditional conflicts rules would provide for courts in States A, C, D and E to consider State B's nonarbitrability standards, depending upon the connection between the dispute and State B, rather than their own non-arbitrability standards (which, as noted above, it makes no sense to apply). The foregoing approach has the important benefit that it does not http://www.kluwerarbitration.com/CommonUI/print.aspx
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require the non-arbitrability of claims based upon a legal system that did not (and could not) have any reason for producing such a result. That is, in the above example, State C's legal system and nonarbitrability standards have virtually no interest in rendering State B's statutory claims non-arbitrable when State B would itself permit these claims to be arbitrated. Conversely, if State B's laws provide that certain claims only be litigated, and not arbitrated, then the attempted arbitration of those issues in other jurisdictions should require at least some reference to State B's laws, and not exclusive reliance on the laws of States A, C, D, or E. Applying traditional choice-of-law analyses, the courts of States A, C, D and/or E should at least consider the public policies and mandatory laws of State B in determining that statutory claims under State B's laws are arbitrable. This would correspond to Article 7(1) of the New York Convention and to similar provisions of §187 of the Restatement (Second) Conflict of Laws, where a court may take into account the public policies and mandatory laws of other jurisdictions. (537) (Of course, State's B's laws would only even page "525" potentially be given effect (subject to other limitations) where they purported by their own terms to apply. (538) ) c. Limitations on Application of Foreign Non-Arbitrability Rules The possibility that a foreign non-arbitrability rule might be applied in another state (or an arbitration) does not mean that it necessarily will, or should, be applied. Importantly, a court (or tribunal) should only take into account the non-arbitrability rules of a foreign jurisdiction (as with foreign public policies and mandatory laws) in very limited instances. Only where the foreign jurisdiction has a materially closer connection to the issues in question than other jurisdictions and where the application of that jurisdiction's laws would not be exorbitant would it be legitimate even to consider applying its non-arbitrability rules. (539) Moreover, the fact that a foreign public policy is potentially applicable does not mean that this public policy must be applied, particularly in the context of non-arbitrability exceptions under the New York Convention. The forum court in a Contracting State has no obligation to give effect to a foreign non-arbitrability rule and is only permitted to do so under Article V(2)(a) when the foreign nonarbitrability rule gives rise to a violation of the non-arbitrability rules of the judicial enforcement forum. The forum court is fully entitled to deny effect to a foreign non-arbitrability rule if it conflicts with a mandatory law or public policy of the forum itself – and specifically with public policies of the forum that favor page "526" international arbitration. Thus, even if the laws of State B provide that particular statutory claims under State B's laws may not be resolved by arbitration, State C courts may properly decide that State C's public policy is to give broad effect to international arbitration agreements, including with regard to particular categories of disputes, and that State B's non-arbitrability rules will therefore not be applied in State C. (540) Application of the forum state's pro-arbitration policy makes particular sense, given the exceptional character of Article V(2)(a)'s non-arbitrability provision, as an escape device from the generallyapplicable choice-of-law regime of Article V(1)(a). (541) Under Article II(1), Contracting States are permitted to rely on their own nonhttp://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitrability standards to deny effect to an arbitration agreement, in the same fashion that a Contracting State may rely on its own nonarbitrability standards to deny recognition to an arbitral award under Article V(2)(a). (542) Importantly, however, this is a local decision that should not affect mandatory recognition of the arbitration agreement in other Contracting States, just as a decision denying recognition to an award on non-arbitrability grounds under Article V(2)(a) does not affect recognition of the award in other Contracting States. (543) In both instances, a state is permitted to avail itself (within the non-discrimination limits noted above) of a local public policy rule, but this will not ordinarily alter the effects of either the agreement or the award in other states. (544) page "527" Although not ordinarily articulated in the foregoing terms, this analysis is consistent with national court authority. As discussed above, national courts and arbitral tribunals have generally refused to give effect to foreign non-arbitrability rules (e.g., Belgium's prohibition against arbitration of distribution agreement terminations; Russia's alleged prohibition against corporate law disputes; Italy's alleged prohibition against arbitration of tort or labor disputes). (545) In many cases, these decisions have cited the pro-arbitration policies of the judicial enforcement (or arbitral) forum in denying effect to foreign non-arbitrability rules. At the same time, examples of cases where it could be appropriate for a court to give effect to a foreign non-arbitrability rule could be hypothesized. For example, if an arbitral tribunal seated in State A were requested to approve a merger of two State B companies under State B's law, or to issue a patent under State B's law, there would be substantial grounds for such claims to be denied as nonarbitrable by the arbitral tribunal or for the courts of State A to annul a resulting award (or deny judicial assistance to the arbitral process). The involvement of State A, even in the attenuated capacity of the arbitral seat, in an arbitral tribunal's purported issuance of administrative decisions affecting the rights of third parties under a foreign law would provide sufficient grounds in State A's public policy to refuse to permit claims for the requested relief to proceed. d. Limitations on Interlocutory Decisions Regarding NonArbitrability Claims Beyond the foregoing, there is a substantial argument that courts should in almost all cases simply enforce international arbitration agreements, regardless whether foreign non-arbitrability standards might suggest otherwise. For example, in the foregoing hypotheticals, there is a powerful argument that State C or D courts should not give effect to State B's non-arbitrability standards in deciding whether to recognize an arbitration agreement providing for arbitration of State B's statutory claims in State C. The better course would be for State C and D courts to give effect to the arbitration agreement (dismissing or staying any litigation subject to the agreement), and leave determinations about State B's nonarbitrability rules for the page "528" arbitral tribunal and State's B courts, to be followed by the award enforcement stage. This approach would avoid the delays, expenses and uncertainties that would inevitably result from national courts attempting to evaluate foreign non-arbitrability standards. This makes particular http://www.kluwerarbitration.com/CommonUI/print.aspx
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sense, given the extent to which non-arbitrability standards tend to be poorly defined in national legislation (often being left to delicate judicial development) (546) and bound up with local public policies (which may be difficult for foreign courts properly to interpret or apply). (547) This approach would also give maximal effect to the objectives of the Convention – to render international arbitration agreements and awards readily and uniformly enforceable (548) – by limiting the effect of national legislation that is inconsistent with these objectives save where specifically authorized by Article V(2) (a), being at the award enforcement stage in the judicial enforcement forum. As discussed below, this latter approach is that which has been taken by a number of U.S. courts, in both domestic and international cases. (549) A leading U.S. Supreme Court decision, Pacificare Health Systems v. Book, held that questions of the non-arbitrability of certain RICO claims in a domestic case should be considered in the first instance by the arbitral tribunal. (550) The Court reasoned that “since we do not know how the arbitrator will construe the remedial limitations, the question [ ] whether they render the parties' agreements unenforceable,” is better left for initial arbitral consideration. (551) The Supreme Court adopted the same analysis in Vimar Seguros v. M/V Sky Reefer, (552) where it held that COGSA claims were arbitrable, notwithstanding evidence that the arbitral tribunal (sitting in Japan) might not apply U.S. statutory COGSA protections. The Vimar Court held that “mere speculation that the foreign arbitrators might apply Japanese law which, depending on the proper construction of COGSA, might reduce respondents' legal obligations, does not in and of itself” render the claim non-arbitrable. The Court therefore compelled arbitration, reserving for the stage of award enforcement questions regarding non-arbitrability. The same approach has been taken by U.S. lower courts in international cases, where they have held that issues of U.S. statutory law and arbitrability should be submitted first to arbitration, with the possibility of subsequent judicial review in recognition and enforcement proceedings. (553) It has also been taken, in similar page "529" circ*mstances, by courts in other jurisdictions. (554) This approach is even more sensible where a national court is presented with claims that a dispute is non-arbitrable under foreign law (rather than the national court's own law). e. International Limits on Non-Arbitrability Doctrines Finally, as noted briefly above, there will be instances in which international principles, derived from the New York Convention, limit the application of national law standards that purport to render particular disputes non-arbitrable. These limits have not as yet been consistently formulated in national judicial decisions or commentary, which have struggled with choice-of-law issues in this context. One possible analysis would be that Article II of the Convention should be interpreted, consistent with the Convention's objectives of uniformity and “constitutional” character, (555) as prescribing international standards of non-arbitrability. (556) That is, Article II(1) should be construed as establishing a uniform international definition http://www.kluwerarbitration.com/CommonUI/print.aspx
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of those disputes whose subject matter is “capable of settlement by arbitration.” Under this view, Contracting States would be obliged to enforce arbitration agreements except where they concerned a subject matter falling within Article II(1)'s international definition of non-arbitrability. Even if national law provided that a dispute was non-arbitrable, the arbitration agreement page "530" would be enforceable with regard to that dispute if Article II(1)'s international definition of non-arbitrability was not satisfied. Although this approach has serious policy justifications, there is little direct textual basis for interpreting Article II as establishing a uniform international standard of non-arbitrability. In particular, Article II(1) provides nothing beyond the brief phrase “not capable of settlement by arbitration.” It is difficult to derive any specific international nonarbitrability rules (e.g., regarding particular subjects such as consumer or competition disputes) from this abbreviated reference, which leaves little doubt but that national law must play a leading role in application of the non-arbitrability doctrine. More important, it is very difficult to reconcile the view that Article II prescribes a uniform international standard with Article V(2)(a)'s clear textual prescription that national law, and specifically “the law of that country” (i.e., the recognition forum), will apply to questions of non-arbitrability at the award enforcement stage. (557) That interpretation also makes structural sense, because the relatively clear intention of the Convention's drafters was to treat the nonarbitrability doctrine as an exceptional escape device for local public policies, not as a uniform international rule. (558) Likewise, the Convention's drafting history also provides little direct support for a uniform international standard of non-arbitrability. As a representative example, the Presidential statement accompanying the U.S. ratification of the New York Convention made clear that national law definitions of non-arbitrability were contemplated, observing that “the requirement that the agreement apply to a matter capable of settlement by arbitration is necessary in order to take proper account of laws in force in many countries which prohibit submission of certain questions to arbitration. In some of the United States, for example, disputes affecting the title to real property are not arbitrable.” (559) The more persuasive interpretation of Article II(1) is that it exceptionally permits Contracting States to single out particular subjects as non-arbitrable, as defined by local law, but requires that this be done in a manner that does not conflict with the Convention's basic structure and objectives. (560) The Convention contains an escape page "531" valve for local public policies, but it must be seen as a regulated, not wholly discretionary, escape device. The foregoing results would effectuate the basic objectives of the Convention, while acknowledging the exceptional right of individual Contracting States to declare particular categories of disputes (e.g., bankruptcy, consumer, employment) non-arbitrable pursuant to Article V(2)(a), (561) even where the parties' arbitration agreement is otherwise valid under the choice-of-law rules of Article V(1)(a). Importantly, unlike the generally-applicable choice-of-law and contractual validity rules under Article V(1)(a), Article V(2)(a)'s nonhttp://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitrability provision is an exception, applicable only in the judicial enforcement forum, without broader effect on courts in other Contracting States – which remain bound by Article V(1)(a)'s choiceof-law regime. Under this approach, several limitations would apply to a Contracting State's application of non-arbitrability exceptions. These exceptions are based on the Convention's basic structure and are designed to ensure that the non-arbitrability exception does not frustrate the objectives and premises of the Convention. First, a Contracting State may only treat specific subjects as nonarbitrable on an exceptional basis, in order to further discrete, articulated public policies. (562) A state therefore cannot, consistently with the Convention, declare all disputes – or some broad category or categories of issues (563) – non-arbitrable. Similarly, the Convention would not permit a Contracting State to declare, as an Australian administrative agency has done, that disputes over the alleged “unfairness” of a contract were nonarbitrable, (564) or, as a Pakistani court has held, that all fraud claims are non-arbitrable, (565) or, as an Indonesian court has held, that claims for termination page "532" of a contract are non(566) arbitrable. These non-arbitrability rules would contradict the basic conception and nature of the non-arbitrability exception: they are not exceptions, tailored to safeguard specific local public policies, but are instead general rejections of the basic structure, purposes and commitments of the Convention to ensure the enforceability of international arbitration agreements. Rather, the Convention should be interpreted to permit a Contracting State to treat only a specific category of disputes, where arbitration is incapable of safeguarding relevant legislative objectives, as nonarbitrable. (567) In effect, the Convention would require that nonarbitrability exceptions be narrowly-tailored to accomplish articulated objectives and that they interfere with the enforcement of arbitration agreements only insofar as necessary. (568) It would also require Contracting States to apply non-arbitrability rules with restraint and as an exceptional escape device, in order to avoid unnecessary conflict with the objectives of the Convention and the basic commitment of all Contracting States to recognize and enforce international arbitration agreements. Second, Contracting States would be precluded from adopting nonarbitrability rules that discriminate against international arbitration agreements as compared to domestic arbitration agreements. If a dispute is non-arbitrable under domestic law, it could also be treated as non-arbitrable under the Convention, but discriminatory rules of non-arbitrability could not be applied to international arbitration agreements. Adopting such discrimination is contrary to the basic objectives and structural premises of the Convention, which are to treat international arbitration agreements (and awards) at least as favorably as domestic ones. (569) page "533" Thus, national law provisions providing that no subjects could be arbitrated in a foreign arbitral seat, under foreign law or before foreign arbitrators would be overridden by the Convention; equally, a provision that certain disputes (e.g., consumer disputes or claims against a bankrupt company) were not arbitrable abroad, although arbitrable domestically, would be contrary to the Convention. Neither http://www.kluwerarbitration.com/CommonUI/print.aspx
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of these types of non-arbitrability rules would be consistent with the Convention's basic premise that international arbitration agreements will be treated no less favorably than domestic agreements. Finally, the better view of the Convention is that a Contracting State's application of non-arbitrability exceptions must be consistent with the evolving practice of other states. This was the underlying premise of the U.S. Supreme Court in Mitsubishi Motors, when it declared that “it will be necessary for national courts to subordinate domestic actions of arbitrability to the international policy favoring commercial arbitration.” (570) Other authorities are to the same effect, in emphasizing the necessity for deference to the Convention's policies in application of non-arbitrability rules. (571) Under this analysis, Contracting States would be required to exercise restraint in applying non-arbitrability exceptions, doing so only when necessary to effectuate vital local public policies and only consistently with the approaches of other states to particular subjects. Thus, Contracting States would not be permitted to adopt idiosyncratic non-arbitrability rules, out of step with those in other jurisdictions. This limitation would serve to ensure that Contracting States did not undercut their basic commitment to enforce international arbitration agreements by adopting unusual or idiosyncratic non-arbitrability rules, and instead that the Convention's constitutional status would be progressively enhanced over time as national courts took steps to effectuate its policies. On the other hand, as discussed above, the non-arbitrability exception is by its nature an exception that permits individual states to give effect to local policies. There is therefore room for credible doubts as to whether a prohibition against “idiosyncratic” national laws is consistent with the structure of the non-arbitrability doctrine as an escape device (under Article II(1)). Nonetheless, the better view is that the Convention imposes structural limitations on the extent to which individual Contracting States may exercise this exceptional right, in contradiction to Article II's basic commitments, in an idiosyncratic manner. Even so, any limitation on use of the non-arbitrability doctrine ought to be applied only in instances of a well-established consensus, shared by the substantial majority of Contracting States, regarding the arbitrability of particular subjects page "534" (e.g., rules holding tort and fraud claims arbitrable). (572) Where such a consensus exists, however, the Convention should be interpreted as precluding individual Contracting States from escaping Article II's basic obligation to recognize and enforce international arbitration agreements.
502 For commentary, see Arfazadeh, Arbitrability under the New
York Convention: The Lex Fori Revisited, 17 Arb. Int'l 73 (2001); Hanotiau, L'arbitrabilité, 296 Recueil des Cours 29 (2002); Hanotiau, The Law Applicable to Arbitrability, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 146 (ICCA Congress Series No. 9 1999); Hanotiau, What Law Governs the Issue of Arbitrability?, 12 Arb. Int'l 391 (1996); Paulsson, Arbitrability, http://www.kluwerarbitration.com/CommonUI/print.aspx
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Still Through A Glass Darkly, in ICC, Arbitration in the Next Decade 95 (ICC Ct. Bull. Spec. Supp. 1999); Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9 (2001); A. van den Berg, The New York Arbitration Convention of 1958 152 (1981). 503 Böckstiegel, Public Policy and Arbitrability, in P. Sanders (ed.), Comparative Arbitration Practice and Public Policy in Arbitration 177, 184 (ICC Congress Series No. 3 1987). See also JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676 (S.D.N.Y. 2005) (“It is not clear under Article II whether the enforcing jurisdiction's law applies to question of enforceability or whether some other law controls such as the law of the place of arbitration, the substantive law to be applied to the dispute or general principles of law”). 504 See generally Arfazadeh, Arbitrability under the New York Convention: The Lex Fori Revisited, 17 Arb. Int'l 73-84 (2001); Blessing, The Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 168-169 (ICCA Congress Series No. 9 1999). 505 See supra pp. 413-414, 460-462. In particular, Article II(1) provides that arbitration agreements need only be recognized as applied to matters that are “capable of settlement by arbitration,” without indicating what law governs this issue. 506 See supra pp. 430-431, 460-466. The applicability of the choice-of-law provisions in Articles V(1)(a) and V(2)(a) at the stage of enforcing an arbitration agreement (as distinguished from an arbitral award) is disputed. As discussed above, the correct view is that Article V's choice-of-law provisions apply in determining the validity of an arbitration agreement. See supra pp. 460-466. 507 New York Convention, Art. V(2)(a) (emphasis added); A. van den Berg, The New York Arbitration Convention of 1958 368-75 (1981). 508 See supra pp. 430-431 & infra pp. 767-772, 837-841. As discussed above, Article V(1)(a)'s choice-of-law rules are generallyapplicable rules of contractual validity, which are designed to have universal application. See supra pp. 413-414, 460-466. 509 As discussed below, denying recognition to an award where a dispute is categorized as non-arbitrable under local law would not always (or even often) be appropriate. See infra pp. 518-519, 526528. For example, if, under the laws of Russia, employment disputes are non-arbitrable, and Russian courts are requested to enforce a French award, granting relief under U.S. employment laws (which are arbitrable under both French and U.S. law), in a dispute having no connection to Russia, it is difficult to conceive why Russian courts ought not to enforce the award in these circ*mstances, irrespective of Russian non-arbitrability standards. Of course, different considerations would apply if the French award had involved the application of Russian employment laws, which Russian law treated as non-arbitrable; there, Article V(2)(a) would sensibly permit Russian courts to deny enforcement of the award (while leaving others states free to recognize it). The appropriate course, therefore, is that a state would apply its non-arbitrability standards insofar as claims arising under its own laws are concerned, but would not attempt to apply or transpose those standards to claims based on other nations' laws. See infra pp. 526528. 510 See, e.g., Scherk v. Alberto-Culver Co., 417 U.S. 506, 519 n.14 (U.S. S.Ct. 1974); Meadows Indem. Co. v. Baccala & Shoop Ins. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Sers., Inc., 760 F.Supp. 1036, 1042 (E.D.N.Y. 1991) (rejecting argument that, under Article V(2), law of state where enforcement of award will be sought governs non-arbitrability); Judgment of 4 October 1985, Company M. v. M.S.A., XIV Y.B. Comm. Arb. 618 (Brussels Cour d'appel) (1989); Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazioni v. Achille Lauro, 555 F.Supp. 481, 485 (D.V.I. 1982); Hanotiau, What Law Governs the Issue of Arbitrability?, 12 Arb. Int'l 391, 399-401 (1996); G. Haight, Convention on the Recognition and Enforcement of Foreign Arbitral Awards: Summary Analysis of Record of United Nations Conference 27-28 (1958). 511 See J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶9-13, 9-18 (2003); Arfazadeh, Arbitrability under the New York Convention: The Lex Fori Revisited, 17 Arb. Int'l 73, 76 (2001); C. Reithmann & D. Martiny, Internationales Vertragsrecht ¶2380 (5th ed. 1996); A. van den Berg, The New York Arbitration Convention of 1958 152 (1981) (“it must be presumed that for the enforcement of the arbitration agreement also the lex fori governs the question of arbitrability”); Judgment of 20 September 1999, Matermaco SA v. PPM Cranes, Inc., XXV Y.B. Comm. Arb. 673 (Brussels Tribunal de Commerce) (2000) (“The similarity between Article II(1) and Article V(2)(a) and a consistent interpretation of the Convention require that the arbitrable nature of a dispute be determined … under the same law, that is, the lex fori.”); Judgment of 15 October 2004, XXXI Y.B. Comm. Arb. 587 (Belgian Cour de cassation) (2006) (“The lex fori that is applied when assessing arbitrability at the stage of recognition and enforcement also determines whether a dispute is arbitrable in the context of an objection of lack of jurisdiction”). 512 European Convention, Art. VI(2). 513 See supra pp. 430-431, 517. & infra pp. 767-772, 837-841. 514 This is also the course that many national courts have taken. See supra p. 518 n. 510 & infra pp. 521 nn. 520-522 & 522 nn. 523526. 515 See infra pp. 526-528, 530-535. This was well-recognized in the Scherk and Mitsubishi Motors decisions by the U.S. Supreme Court. See infra pp. 781-785; Scherk, 417 U.S. 506; Mitsubishi Motors Corp., 473 U.S. 614. 516 See infra pp. 530-535. 517 See Kaufmann-Kohler & Lévy, Insolvency and International Arbitration, in H. Peter, N. Jeandin & J. Kilborn (eds.), The Challenges of Insolvency Law Reform in the 21st Century 257, 260 (2006) (“In principle, an arbitrator sitting in an international arbitration in Switzerland will not apply any prohibition or restriction of arbitrability existing under a different legal system.”); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶655 (1999). 518 See, e.g., JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676 (S.D.N.Y. 2005); Meadows Indem. Co. v. Baccala & Shoop Ins. Sers., Inc., 760 F.Supp. 1036 (E.D.N.Y. 1991); Marchetto v. DeKalb Genetics Corp., 711 F.Supp. 936 (N.D. Ill. 1989). See also Hanotiau, What Law Governs the Issue of Arbitrability?, 12 Arb. Int'l 391, 395 (1996) (“As a matter of principle, the arbitrability of a dispute should not be decided by application of the law of the seat of the arbitration”). 519 See supra pp. 517-520. 520 See, e.g., Westbrook Int'l LLC v. Westbrook Tech., Inc., 17 F.Supp.2d 681 (E.D. Mich. 1998) (“the law of the forum court should http://www.kluwerarbitration.com/CommonUI/print.aspx
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apply to determine arbitrability”); Meadows Indem. Co. v. Baccala & Shoop Ins. Sers., Inc., 760 F.Supp. 1036 (E.D.N.Y. 1991); Marchetto v. DeKalb Genetics Corp., 711 F.Supp. 936, 939 (N.D. Ill. 1989) (refusing to consider claim that Italian fraud claims were nonarbitrable under Italian law). Similarly, in Mitsubishi and Scherk, the U.S. Supreme Court looked exclusively to U.S. law to determine whether antitrust and securities claims were capable of settlement by arbitration in international disputes – albeit while attaching considerable importance to the New York Convention and international character of the parties' transactions. Scherk, 417 U.S. 506; Mitsubishi Motors Corp., 473 U.S. 614. Notably, however, both Scherk and Mitsubishi involved the arbitrability of U.S. statutory claims. It is not clear from the Court's opinions (which did not address choice-of-law issues), what nation's law the Mitsubishi and Scherk courts would have looked to if foreign statutory claims were at issue. The likely result is that nonarbitrability arguments based on foreign law would be rejected by U.S. courts and left for foreign courts to apply. 521 See, e.g., Judgment of 12 February 1985, 1986 Rev. arb. 47
(French Cour de cassation soc.); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶560-569 (1999). 522 See, e.g., Swiss Law on Private International Law, Art. 177(1); Judgment of 16 October 2003, 22 ASA Bull. 364 (Swiss Federal Tribunal) (2004); Judgment of 8 July 2003, DFT 129 III 675 (Swiss Federal Tribunal); Judgment of 16 May 1995, 14 ASA Bull. 667 (Swiss Federal Tribunal) (1996); Judgment of 2 September 1993, Nat'l Power Corp. v. Westinghouse, DFT 119 II 380 (Swiss Federal Tribunal); Abdulla, in G. Kaufmann-Kohler & B. Stucki (eds.), International Arbitration in Switzerland:A Handbook for Practitioners 15, 18-24 (2004); F. Knoepfler & P. Schweizer, Arbitrage international 265 (2003). 523 See, e.g., Judgment of 24 November 1994, XXI Y.B. Comm. Arb. 635 (Rotterdam Rechtsbank) (1996) (refusing to consider possible non-arbitrability of dispute under law of third state (other than arbitral situs or enforcement forum), when that law was not relied on in arbitral proceedings). 524 See, e.g., Judgment of 20 September 1999, Matermaco SA v. PPM Cranes, Inc., XXV Y.B. Comm. Arb. 673 (Brussels Tribunal de Commerce) (2000) (refusing to stay litigation, based on agreement to arbitrate in Belgium, because Belgian law provided for nonarbitrability of dispute). Compare Judgment of 5 October 1994, Société Van Hopplynus v. Société Coherent Inc., XXII Y.B. Comm. Arb. 637 (Brussels Tribunal de Commerce) (1997) (rejecting argument that “Article V(2)(a) of the New York Convention expressly refers to the lex fori for the evaluation of the dispute in the phase of the recognition of the award and considers, in the name of a consistent interpretation of the Convention, that the arbitrability of the dispute must be evaluated under the same law when an objection to jurisdiction is raised before a court”; holding that nonarbitrability is governed by law governing arbitration agreement, and specifically law selected by parties). 525 See, e.g., Judgment of 7 May 1994, Fincantieri-Cantieri Navali Italiani SpA v. Ministry of Defence, Armament and Supply Directorate of Iraq, XXI Y.B. Comm. Arb. 594 (Genoa Corte di Appello) (1996). See also Judgment of 18 July 1987, XVII Y.B. Comm. Arb. 534 (Bologna Tribunale) (1992) (“Italian law applies to http://www.kluwerarbitration.com/CommonUI/print.aspx
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review arbitrability”); Judgment of 27 April 1979, VI Y.B. Comm. Arb. 229 (Italian Corte di Cassazione) (1981) (disputes between Italian company and Italian employee, employed in Saudi Arabia, not subject to arbitration in Saudi Arabia, because employment dispute is non-arbitrable under Italian law). 526 UNCITRAL Model Law, Arts. 1(5), 34(2)(b)(i). See also Swiss Law on Private International Law, Art. 177; German ZPO, §1030. 527 Judgment of 7 May 1994, Fincantieri-Cantieri Navali Italiani SpA v. Ministry of Defence, Armament and Supply Directorate of Iraq, XXI Y.B. Comm. Arb. 594 (Genoa Corte di Appello) (1996). 528 See A. van den Berg, The New York Arbitration Convention of 1958 153 (1981) (“all courts [have] decided the question of arbitrability exclusively under their own law and [have] not take[n] account of the law of the country where the arbitration was to take place or was taking place”); G. Haight, Convention on the Recognition and Enforcement of Foreign Arbitral Awards: Summary Analysis of Record of United Nations Conference 28 (1958). 529 See supra pp. 517-520. 530 Hanotiau, What Law Governs the Issue of Arbitrability?, 12 Arb. Int'l 391, 393-94 (1996). 531 Hanotiau, What Law Governs the Issue of Arbitrability?, 12 Arb. Int'l 391, 393-94 (1996). 532 See, e.g., Award in ICC Case No. 4604, 112 J.D.I. (Clunet) 973 (1985) (arbitration clause and issue of non-arbitrability are governed by law of arbitral seat (Switzerland), not law governing underlying contract); Partial Award in ICC Case No. 8420, XXV Y.B. Comm. Arb. 328 (2000) (“the arbitrability of this litigation is governed by the lex arbitri”); Award in ICC Case No. 8594, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 80 (2001) (applying law of Swiss arbitral seat to arbitrability of claims); Partial Award in ICC Case No. 8910, 127 J.D.I. (Clunet) 1085 (2000) (applying law of French arbitral seat to arbitrability of claims and rejecting nonarbitrability claim based upon foreign law, where no showing had been made that French international public policy contained similar rule). See also Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 81 n.63 (2001) (“It is according to the lex arbitri that the arbitrability of a claim is more currently decided upon.”). 533 See supra pp. 517-519. 534 For example, in a securities dispute involving statutory protections under the laws of State B, which State B affirmatively channels into arbitration, it is very difficult to see why State B's policies should be denied effect in an arbitration seated in another State. 535 See supra pp. 430-431, 517 & infra pp. 767-772, 837-841. 536 See supra pp. 452-554 & infra pp. 2172-2173, 2175-2177; Rome Convention, Arts. 3(3), 7(1); Restatement (Second) Conflict of Laws §187(2)(b) (1971). 537 Rome Convention, Art. 7(1) (“When applying under this Convention the law of a country, effect may be given to the mandatory rules of the law of another country with which the situation has a close connection, if and in so far as, under the law of the latter country, those rules must be applied whatever the law applicable to the contract. In considering whether to give effect to these mandatory rules, regard shall be had to their nature and purpose and to the consequences of their application or nonhttp://www.kluwerarbitration.com/CommonUI/print.aspx
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application.”). See also M. Giuliano & P. Lagarde, Report on the Convention on the Law Applicable to Contractual Obligations, O.J. C 282 31/10/1980, Art. 7, ¶3 (“the judge must be given a power of discretion, in particular in the case where contradictory mandatory rules of two different countries both purport simultaneously to be applicable to one and the same situation, and where a choice must necessarily be made between them”); Restatement (Second) Conflict of Laws §187(2) (1971); infra pp. 2172-2173, 2175-2177, 2184-2193. 538 See Final Award in ICC Case No. 6379, XVII Y.B. Comm. Arb. 212 (1992) (when deciding on the nullity of an arbitration clause a judge of a third country, as much as an arbitrator sitting in a third country, is not to consider, as a principle of international public policy, that Belgian law should apply beyond what is required by its explicit purposes, when such law might eventually conflict with another law claiming application). 539 See infra pp. 2190-2193, 2621-2623, 2861-2862; F. Vischer, IPRG Kommentar 1505-06 (1993) (in determining arbitrability in Swiss-seated arbitration, it is appropriate to look to foreign mandatory law if a “party's interests which are, according to Swiss views, legitimate and clearly overriding, so require and the case is closely connected to that law”); A. Bucher & P.-Y. Tschanz, International Arbitration in Switzerland ¶79 (1988) (same). Contra P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitrage interne et international en Suisse Art. 177, ¶¶3-5 (1989); Judgment of 23 June 1992, Fincantieri-Cantieri Navali Italiani SpA v. M and Arbitration Tribunal, XX Y.B. Comm. Arb. 766, 768 (Swiss Federal Tribunal) (1995) (“[T]he legislator has chosen an arbitrability criterion depending on the nature of the clause and not on the law applicable to it, there is in principle no necessity to take into consideration foreign law restrictions and prohibitions concerning the arbitrability of the dispute.”). For example, in the example outlined above, if State B's statutory laws were purportedly applicable to conduct occurring entirely in State A, with no material effects in State B, then there would be no justification for applying State B's non-arbitrability rules. 540 For examples of decisions adopting this approach, see Ledee
v. Ceramiche Ragno, 684 F.2d 184 (1st Cir. 1982); Marchetto v. DeKalb Genetics Corp., 711 F.Supp. 936, 939 (N.D. Ill. 1989) (refusing to consider claim that Italian fraud claims were nonarbitrable under Italian law); JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676 (S.D.N.Y. 2005) (refusing to consider claims that issues of Russian internal corporate governance were non-arbitrable under Russian law). See also Partial Award in ICC Case No. 8420, XXV Y.B. Comm. Arb. 328 (2000) (tribunal sitting in Switzerland refuses to apply Italian nonarbitrability rules regarding labor disputes). 541 See supra pp. 430-431, 517, 525 & infra pp. 767-772, 837-841. This analysis also ensures that idiosyncratic non-arbitrability rules with regard to particular issues, or sweeping non-arbitrability rules, do not frustrate the Convention and its objectives. 542 See infra pp. 2863-2864. 543 See infra pp. 2693-2696. 544 See Quintette Coal Ltd v. Nippon Steel Corp., 50 B.C.L.R. 2d 207, at ¶27 (B.C. Court of Appeal 1990) (“it will be necessary for national courts to subordinate domestic notions of arbitrability to the http://www.kluwerarbitration.com/CommonUI/print.aspx
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international policy favoring commercial arbitration”); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.07 (3d ed. 2000) (“such an objection is particularly difficult to accept when the rule of non-arbitrability is allegedly derived from a national law other than the one stipulated as applicable to the substance of the dispute – but even when it is the same law it is doubtful that a rule of non-arbitrability, even if it can be shown that it would be applied by national courts with respect to internal transactions, should be effective in an international context. … Another way of putting it is that the effect of domestic legislation should be attenuated – if not neutralized – with respect to international transactions to which they were not intended to apply (or in the context of which the domestic legislation may violate international law, which is preeminent even within the national sphere), while the security of contractual stipulations requires an especially high degree of recognition, free of national protectionism, in an international context.”); Scherk v. Alberto-Culver Co., 417 U.S. 506, 515-516 (U.S. S.Ct. 1974). 545 See, e.g., Final Award in ICC Case No. 6379, XVII Y.B. Comm. Arb. 212 (1992) (refusing to give effect to Belgian non-arbitrability rule because parties had chosen Italian law to govern their disputes, and their arbitration agreement, and that, under Italian law, the arbitration clause was valid); JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676 (S.D.N.Y. 2005) (refusing to consider claims that issues of Russian internal corporate governance were non-arbitrable under Russian law); Partial Award in ICC Case No. 8420, XXV Y.B. Comm. Arb. 328 (2000) (tribunal sitting in Switzerland refuses to apply Italian non-arbitrability rules regarding labor disputes); Marchetto v. DeKalb Genetics Corp., 711 F.Supp. 936, 939 (N.D. Ill. 1989) (refusing to consider claim that Italian fraud claims were non-arbitrable under Italian law). 546 See infra pp. 775-788. 547 See infra pp. 766-772.; A. van den Berg, The New York Arbitration Convention of 1958 153 (1981) (“A court is less suited … for deciding on the arbitrability under the law of another country”). 548 See supra pp. 92-101, 428-430. 549 Seeinfra pp. 797-798, 922-923. 550 538 U.S. 401 (U.S. S.Ct. 2003). 551 538 U.S. at 407. 552 Vimar Seguros y Reaseguros, SA v. M/V Sky Reefer, 515 U.S. 528 (U.S. S.Ct. 1995). 553 SeeLim v. Offshore Specialty Fabricators, Inc., 404 F.3d 898, 907-908 (5th Cir. 2005) (rejecting plaintiffs' argument that Fair Labor Standards Act claims were “rooted in United States law” and were “incapable of resolution by foreign arbitration,” noting that the Filipino arbitral institution could resolve such claims, should they be at issue); Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 723 n.4 (9th Cir. 1999) (“it is possible that the Swiss Tribunal might apply U.S. antitrust law to the dispute. … Moreover, even if Swiss law is applied to the dispute, there has been no showing that it will not provide Simula with sufficient protection”); Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50 (3d Cir. 1983); George Fischer Foundry Sys., Inc. v. Adolph H. Hottinger Maschinenbau GmbH, 55 F.3d 1206, 1210 (6th Cir. 1995) (“Mitsubishi stands for the proposition that arbitration should go forward even if there is a chance that United States antitrust statutory rights will not be fully recognized … because the Zurich [arbitral] tribunal has yet to decide what law it will apply, this case is http://www.kluwerarbitration.com/CommonUI/print.aspx
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not ripe for review.”); JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676 (S.D.N.Y. 2005) (arbitral tribunal to consider arguments regarding public policy and internal corporate governance); In re Hops Antitrust Litig., 655 F.Supp. 169 (E.D. Mo. 1987). 554 Thyssen Canada Ltd v. Mariana Maritima SA, [2000] 3 F.C. 398 (Canada Fed. Ct. App.) (Canadian court refuses to consider issues of Romanian law, allegedly requiring non-arbitrability of dispute subject to arbitration in London: “It is not the role of this Court in proceedings initiated under the federal Commercial Arbitration Act to make determinations as to the proper law of a particular contract … it is for the arbitration panel in London to determine the proper law of the contract(s).”). 555 See supra pp. 100-101, 509-510, 514. 556 Consistent with this, some commentators have asserted that “when examining the objective arbitrability of an international dispute, a court must apply its conception of international public policy.” E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶559 (1999). Although leaving scope to national courts, the foundation of this analysis is a conception of an “international public policy” which would be binding on individual Contracting States. 557 See supra pp. 430-431 & infra pp. 772-775. 558 See supra pp. 430-431, 517, 525 & infra pp. 767-772, 837-841. 559 Senate Executive Document E, 90th Cong., 2d Sess. 19 (1968). This statement is nonetheless confused, among other things because U.S. state law restrictions on arbitrability are preempted by the FAA. See supra pp. 487-490. 560 As discussed elsewhere, there are instances in which international law principles derived from the Convention limit the application of national law standards that purport to invalidate international arbitration agreements. See supra pp. 504-506 & infra pp. 568-569. Specifically, Article II(3) of the Convention is best interpreted as giving rise to prohibitions against discriminatory and idiosyncratic national laws with regard to the substantive validity of international arbitration agreements: this rule precludes Contracting States from applying rules of substantive validity that discriminate against either arbitration agreements generally or international arbitration agreements (as compared to domestic arbitration agreements), or from applying idiosyncratic rules of domestic law to international arbitration agreements. See supra pp. 511-512. According to this analysis, the same rules of formation, mistake, illegality, fraud, unconscionability, impossibility and the like must be applied to arbitration agreements as to other contracts, and states cannot disfavor international arbitration agreements as compared with domestic ones. 561 See infra pp. 788 et seq. 562 This is compelled by Article II(1)'s treatment of non-arbitrability as an exception to the general rule of presumptive validity of international arbitration agreements and its objective of enhancing the enforceability of international arbitration agreements. See supra pp. 94-98. Article II(1)'s non-arbitrability provision is an exceptional deviation from the international rule of presumptive validity of arbitration agreements, and must therefore be applied consistently with its basic character. 563 For example, a Contracting State should not be permitted to treat all contract disputes or tort claims as non-arbitrable. Equally, a Contracting State should not be permitted to treat all future disputes http://www.kluwerarbitration.com/CommonUI/print.aspx
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as non-arbitrable. See supra pp. 302-303. 564 Metrocall Inc. v. Electronic Tracking Sys. Pty Ltd, [2000] NSWIRComm 136 (N.S.W. Indus. Relations Comm'n). See infra pp. 787-788. That is true even where statutory protections restricted the right of parties to conclude “unfair contracts” in particular industrial sectors. 565 The Hub Power Co. v. Pakistan WAPDA, 16 Arb. Int'l 439 (Pakistan S.Ct. 2000) (2000). See infra pp. 787-788. 566 Hinpurna Calif. Energy Ltd v. PT (Persero) Perusahaan Listruik Negara, Final Ad Hoc Award (4 May 1999), XXV Y.B. Comm. Arb. 13, 30-31 (2000); infra p. 787. 567 Examples of such disputes would include granting or revocation of intellectual property rights or declaration of bankruptcy. See infra pp. 788 et seq. 568 Questions would arise as to how carefully-tailored or specifically-articulated a particular non-arbitrability rule was required to be under the Convention. Given the Convention's constitutional terms, the resolution of such questions would be a developing process, as Contracting States continue to gain confidence in the arbitral process and jointly demand more specifically-articulated justification for non-arbitrability rules. 569 See supra pp. 92-101. See also Judgment of 5 October 1994, Société Van Hopplynus v. Société Coherent Inc., XXII Y.B. Comm. Arb. 637 (Brussels Tribunal de Commerce) (1997) (in refusing to apply non-arbitrability rule of local (Belgian) law, citing fact that Belgian courts would permit choice-of-forum clause selecting foreign courts involving same claims); van Houtte, L'arbitrabilité de la résiliation des concessions de vente exclusive, in Mélanges offerts à Raymond Vander Elst 821 (1986) (rejecting approach whereby “the Belgian court accepts … that its foreign colleagues ignore the Law of 1961 [regarding non-arbitrability of certain distribution terminations] but does not tolerate that foreign arbitrators do the same”). For the same reasons, a Contracting State could not adopt nonarbitrability rules that conflict with the basic premises of the Convention. For example, a state could not treat all future disputes or all non-contractual disputes as non-arbitrable. In each case, it is a basic premise of the Convention, reflected in the Convention's text, that such disputes are subject to arbitration. See supra pp. 301-302 & 303. 570 Mitsubishi Motors Corp., 473 U.S. at 639. See infra pp. 783-
785, 792-793. 571 See, e.g., JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676 (S.D.N.Y. 2005); Marchetto v. DeKalb Genetics Corp., 711 F. Supp. 936, 939 (N.D. Ill. 1989); Quintette Coal Ltd v. Nippon Steel Corp., 50 B.C.L.R. 2d 207 (B.C. Court of Appeal 1990). 572 It is less clear whether the arbitrability of competition or antitrust claims would constitute such a consensus, forbidding a Contracting State from treating antitrust or competition claims as non-arbitrable. See infra pp. 791-800. The possibility of the development of further international constraints derived from the constitutional character of the Convention's language, structure and objectives is discussed below. See infra pp. 837-841, 1272-1274.
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Choice of Law Governing International Arbitration Agreements - E. Choice-OfLaw Rules Applicable to Formal Validity Of International Arbitration Agreements Chapter 4 Gary B. Born
Author Gary B. Born
E. Choice-of-Law Rules Applicable to Formal Validity of International Arbitration Agreements The choice of law governing the form of international arbitration agreements has frequently given rise to disputes. As discussed in greater detail below, the formal validity of international arbitration agreements is governed in substantial part by international conventions (particularly the New York Convention). (573) The principal choice-of-law issues arising in connection with the form of international arbitration agreements concern the relation between these conventions and national laws, with secondary questions arising in connection with the application of national law when the conventions' standards are not applicable. 1. Choice of Law Governing Formal Validity of International Arbitration Agreements under International Conventions
Source Choice of Law Governing International Arbitration Agreements - E. Choice-Of-Law Rules Applicable to Formal Validity Of International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 535 - 552
As discussed in detail below, Article II of the New York Convention establishes a uniform substantive rule governing the formal validity of international arbitration agreements subject to the Convention. (574) In particular, Articles II(1) and II(2) impose a “writing” requirement which demands that international arbitration agreements be in writing and be “signed by the parties or contained in an exchange of letters or telegrams.” (575) Article 1 of the InterAmerican Convention is similar, (576) as is Article I(2) of the European Convention. (577) These requirements reflect a type of choice-of-law rule, with the provisions of the conventions superseding otherwise applicable national law. page "535" a. New York Convention's “Maximum” Form Requirement It is almost universally accepted that the New York Convention's writing requirement establishes a substantive requirement for formal validity of arbitration agreements which Contracting States cannot replace or supplement with more demanding or stringent national law rules of formal validity. (578) Put differently, Article II(2) adopts a “maximum” standard for formal validity that precludes Contracting States from requiring additional or more demanding formal requirements under national law. This standard is properly regarded http://www.kluwerarbitration.com/CommonUI/print.aspx
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as a hybrid choice of law and substantive rule of law, applicable only to the form of international arbitration agreements. National court decisions from numerous jurisdictions have held that Article II(2) establishes a “maximum” requirement for formal validity. (579) In a representative decision, the Supreme Court of Greece held that Article II(2) “introduced a directly applicable substantive rule, which binds the State-Parties and does not allow the court, in the field of application of the Convention, the possibility to resort to another rule of substantive or private law in order to confirm the validity of the form of the conclusion of the agreement to arbitrate.” (580) Or, according to a Swiss decision applying Article II, “[o]bviously, a Contracting State may not set stricter requirements as to form.” (581) U.S. courts have generally concluded that Article II(2) imposes a more demanding written form requirement than the domestic FAA, and that this requirement must be satisfied in order for the Convention to apply. (582) U.S. courts would also very likely conclude that arbitration agreements which do satisfy Article II(2)'s “writing” requirement will fall within the Convention (and be subject to the Convention's rules of presumptive validity (583) ) and that, in these cases, other, more demanding formal requirements of national law will not affect the validity of page "536" the arbitration (584) agreement. (In practice, this latter category of cases has seldom arisen in U.S. courts, because the domestic FAA's “writing” requirement is less rigorous than that of Article II of the Convention. (585) ) The foregoing results are adopted by well-reasoned commentary. (586) They are also supported by the obvious purposes of the Convention's drafters in adopting a formal definition of an “agreement in writing” to arbitrate to which the Convention's substantive provisions would apply: permitting Contracting States to impose stricter or more demanding formal requirements would effectively undo the Convention's definition, while simultaneously frustrating the Convention's objective of enhancing the enforceability of agreements to arbitrate. Accordingly, in cases where the Convention is otherwise applicable to an agreement to arbitrate, it is clear that Article II(2)'s formal requirements must apply, superseding more demanding national form requirements. (587) Specifically, Article II(2)'s maximum form requirement supersedes national law rules of Contracting States requiring that international arbitration agreements satisfy particular form requirements. Examples of such form requirements are Germany's requirement that arbitration agreements in consumer transactions be in a separate, signed instrument, (588) some U.S. states' requirements that arbitration agreements be in large typeface or capital letters, (589) Greece's arguable requirement that arbitration agreements be separately approved by corporate boards, (590) or some countries' requirements that particular agreements be hand-written, notarized, or page "537" signed by two corporate officers. (591) In each of these instances, Article II(2)'s “maximum” form requirements supersede stricter national form requirements, forbidding application of such requirements and mandating the formal validity of particular arbitration agreements.
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It is, reasonably clear that Article II(2)'s maximum form requirement should apply in preference to all national form requirements, including those of any national law selected by the parties to govern their arbitration agreement. (592) The fact that the parties have agreed to a particular national law (particularly in a general choiceof-law clause in their underlying contract) does not contract out of the protections of the New York Convention: any national law chosen by the parties is the specified national law (of a Contracting State) together with the Convention, including Article II thereof. b. “Minimum” Form Requirement under New York Convention A more difficult choice-of-law question is presented by national arbitration legislation that imposes less demanding form requirements on international arbitration agreements than those under Article II. As discussed below, this is the case with most developed arbitration legislation, which often permits either oral or tacit arbitration agreements, or imposes less stringent writing requirements than under Article II(2). (593) In these cases, there is substantial judicial authority in both page "538" civil law (594) and common law (595) jurisdictions to the effect that Article II(2) establishes a “minimum,” as well as a maximum, form requirement and that this requirement supersedes national laws purporting to give effect to international arbitration agreements based on lesser form requirements. In one court's words: “By requiring the written form, Article II of the New York Convention means to exclude arbitration agreements concluded orally or tacitly. This provision of the Convention is actually strict in comparison with several foreign legal systems. Article II sets not only a maximum but also a minimum requirement. Obviously, a Contracting State may not set stricter requirements as to form, nor can it accept less far-reaching formal requirements. … That provision does not allow for acceptance of the validity of an arbitration clause which does not meet the said requirements.” (596) This position has also been adopted in respected commentary. (597) page "539" These authorities typically rely on the French (and Spanish) texts of the Convention. The French text of Article II(2) of the Convention is arguably more clearly exclusive than the English text. (598) It provides: “[o]n entend par ‘convention écrite’ …,” most nearly translating into “[t]he term ‘agreement in writing’ means …”; the Spanish is to the same effect (“La expresión ‘acuerdo por escrito’ denotará …”). (599) In contrast, the English text of Article II(2) provides that “[t]he term ‘agreement in writing’ shall include …,” (600) which connotes a less-exclusive definition that would admit of supplementation (e.g., it does not say “shall only include” or “shall be limited to”). (601) page "540" c. No “Minimum” Form Requirement under New York Convention: Article VII(1) Preserves Less Demanding Form Requirements
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Despite the support it has attracted, an interpretation of Article II(2) as imposing a minimum form requirement is impossible to reconcile with either the text of Article VII(1) of the Convention or the basic purposes of the Convention. Article VII(1) 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 the treaties of the country where such an award is sought to be relied upon.” (602) This provision ensures that the Convention does not, through the establishment of one set of guarantees as to the enforceability of arbitration awards (and, by analogy, agreements (603) ), override or undermine other protections granted by national law. This is precisely in keeping with the basic purposes of the Convention, which are to maximize the international enforceability of a particular category of awards and agreements (e.g., those satisfying the Convention's jurisdictional requirements), but not to prevent the enforcement, in accordance with national law, of other arbitral awards or arbitration agreements. (604)
Accordingly, the better view is that the Convention does not establish a minimum form requirement, from which Contracting States may not derogate by adopting more lenient form requirements. Rather, if a state chooses to enforce, for example, oral arbitration agreements or unsigned arbitration agreements, it is free to do so – in such cases, however, the Convention will simply not apply and the validity of the arbitration agreement (and any award) will be governed solely by national law. Under this interpretation, Article II(1)'s form requirement is principally page "541" a jurisdictional requirement (which must be fulfilled in order for the Convention to apply), and not a rule of contractual validity. (605)
UNCITRAL recently adopted a recommendation that adopted this interpretation of Article VII(1) of the Convention in connection with its 2006 Revisions of the UNCITRAL Model Law. The UNCITRAL Recommendation urges Contracting States to apply Article VII(1) of the Convention to allow “any interested party to avail itself of rights it may have, under the law or treaties of the country where an arbitration agreement is sought to be relied upon, to seek recognition of the validity of such an arbitration agreement.” (606) d. No “Minimum” Form Requirement under New York Convention: Article II(2) Is Non-Exclusive A few authorities have concluded that Article II(2) lists some examples of the types of arbitration agreements that would satisfy Article II(1)'s “agreement in writing” requirement, but does not exclude other types of agreements from also satisfying that requirement. Under this analysis, Article II(2) contains a nonexclusive or illustrative list of arbitration agreements which clearly satisfy the Convention's “writing” requirement, without prejudice to the conclusion in particular cases that other types of agreements also constitute “agreements in writing” which are subject to the Convention. If one concludes that Article II(2)'s definition of an “agreement in writing” is illustrative, and not exclusive, that raises the question of what Article II means, and, in particular, what other types of arbitration agreements Article II(1) applies to. Two principal http://www.kluwerarbitration.com/CommonUI/print.aspx
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possibilities exist. First, Article II(1)'s initial reference to an “agreement in writing” might establish a uniform, international standard for written arbitration agreements. (607) page "542" This category would include – but not be limited to – the categories of agreements subsequently listed in Article II(2). In one commentator's words: “While agreements of the type mentioned in Article II(2) are definitely within the ambit of the Convention, its application is not limited to such agreements. Others which constitute valid agreements in writing under the private international law of the forum are equally included.” (608) National courts would be required, over time, to formulate what additional types of agreements, beyond those specifically identified in Article II(2), fell within Article II(1)'s category of “agreement[s] in writing.” Agreements that satisfied Article II(1)'s standard (either by inclusion on Article II(2)'s list or otherwise) would be subject to Article II's basic rule of enforceability; other agreements that did not fall within Article II(1)'s definition of an “agreement in writing” would not be enforceable by reason of Article II (although they might nonetheless be enforceable under national law by virtue of Article VII(1) (609) ). Second, Article II(1)'s reference to an “agreement in writing” might be interpreted to be defined exclusively by Article II(2). Unless an arbitration agreement fell within the exclusive catalogue in Article II(2), it would not be subject to either Article II(1) or other provisions of the Convention. This interpretation would retain the potential (looking to Article VII of the Convention) to permit national courts to extend the Convention's coverage under local law, for local purposes, to agreements not listed in Article II(2). (610) It would not, however, impose a uniform international requirement on Contracting States to do so. Consistent with this latter alternative, a number of authorities have concluded that Article II(2)'s definition of what constitutes an “agreement in writing” is exclusive and that Article II(1) therefore cannot be expanded. (611) These authorities page "543" typically rely on the French (and Spanish) texts of the Convention (as discussed above). (612) The better view is that Article II should be read as non-exclusive, permitting national courts to add additional types or categories of “agreements in writing” to the international catalogue of those listed in Article II(2). This is more consistent with the conception of the Convention as a constitutional instrument, meant to evolve and develop over time, (613) and with the Convention's pro-arbitration objectives. (614) This is also the result reached in better-reasoned commentary and national court decisions, (615) and was recently approved in a Recommendation adopted by UNCITRAL. (616) It is important to note that this interpretation rests on the premise that Article II(1) sets forth an international definition of “agreement in writing” that must be elaborated by national courts and other authorities, but that, as it is elaborated, is binding on all Contracting States. At the same time, as discussed below, Article VII of the http://www.kluwerarbitration.com/CommonUI/print.aspx
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Convention leaves national courts free to give effect to arbitration page "544" agreements that do not satisfy Articles II(1) or II(2), including by adopting less demanding national law standards of “written” arbitration agreements. (617) e. Applicability of Article II(2) in Actions for Recognition or Enforcement of Arbitral Awards It has been suggested that Article II(2) applies only at the stage of considering the validity of an arbitration agreement, and not at the stage of recognizing or enforcing an arbitral award. (618) This conclusion would supposedly be derived from the existence of differing formal requirements in Articles IV(1)(6) and V(1)(a) of the New York Convention. (619) It makes little sense to impose different requirements for formal validity of the arbitration agreement at the stage of challenging a putative arbitration agreement and the stage of challenging an arbitral award. The same standard for the formal validity of the arbitration agreement should apply at both stages of analysis (as do the standards for substantive validity (620) ). There is nothing in the text of the Convention that requires any different result. Article IV(1)(b) merely concerns the requirements of proof of an award, not formal validity of an agreement, while Article V(1)(a) expressly refers back to Article II and thereby incorporates its form requirements. Virtually all national courts that have considered this issue have therefore either held or assumed that Article II's page "545" form requirement applies to arbitration agreements at the stage of recognition of an arbitral award. (621) f. Applicability of New York Convention's Form Requirement in Arbitral Proceedings Some authorities have suggested or held that the New York Convention's requirements for formal validity are only applicable in the courts of Contracting States, and not in arbitral proceedings. (622) The asserted rationale for this view is that “the provisions of the New York Convention … are only directly binding on the courts in the [Contracting] States and not on the arbitration tribunal.” (623) This conclusion is misconceived. The Convention's basic substantive and choice-of-law rules concerning the validity of international arbitration agreements are clearly applicable in arbitral proceedings, (624) and it would make no sense to treat issues of formal validity differently. Further, it would make no sense at all for one legal regime to apply to the validity of arbitration agreements in national court proceedings and a different legal regime to apply to the same agreements in arbitral proceedings. This would create very real risks of inconsistent results, which directly contradict one of the basic purposes of the Convention (being to produce or foster uniform results). (625) The Convention is obviously worded in terms of directions to “Contracting States.” (626) That merely reflects the fact that it is a multilateral convention, among “States,” and in no way purports to mean that only national courts are affected by its substantive rules. http://www.kluwerarbitration.com/CommonUI/print.aspx
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The Convention clearly sets forth substantive rules of law governing the validity of arbitration agreements and arbitral tribunals are bound to give effect to these rules, just as they are bound to give effect to other forms of national and international law. (627) page "546" g. European Convention's “Minimum” Form Requirement Article I(2) of the European Convention appears also to impose a minimum requirement of written form, while permitting Contracting States in certain cases to apply less demanding requirements. (628) Although Article 1(2) gives rise to interpretative issues, (629) it recognizes the possibility of enforcement of arbitration agreements even when the formalities it requires are not satisfied. That is, the Convention assumes a minimum form requirement, but effectively permits Contracting States to contract out of that requirement by way of national laws imposing less demanding form requirements. 2. Choice of Law Governing Formal Validity under National Arbitration Legislation A remaining question concerns what choice-of-law rules apply to determine the law governing the formal validity of an arbitration agreement when the directly-applicable substantive and choice-oflaw rules of the New York Convention (or another international convention) are inapplicable. This possibility can arise when either non-Convention agreements (630) are involved or when the Convention's formal requirements are not satisfied, but a court or tribunal concludes that those requirements do not establish minimum standards. (631) In these cases, different choice-of-law approaches have been taken to the question of formal validity. page "547" There are a variety of potentially-applicable sources for the rules governing the formal validity of arbitration agreements. First, questions of formal validity might be governed by the laws of the judicial enforcement forum where litigation concerning the putative arbitration agreement is pending. Many contemporary arbitration statutes contain definitions of a “written” arbitration agreement, which are by their terms applicable to arbitration agreements providing for arbitration in national territory. Thus, as discussed in greater detail below, Article 7(2) of the UNCITRAL Model Law sets forth a definition of a written arbitration agreement (amended in the 2006 revisions to the Model Law). (632) Article 1(2) of the Model Law provides that this definition is applicable to any agreement providing for arbitration within national territory, and that this definition is applicable only to such agreements. (633) Similarly, English, Swiss, U.S., Japanese and other leading national arbitration statutes contain requirements for formal validity that appear applicable to any litigation involving a putative agreement to arbitrate within national territory, without the necessity for further choice-of-law analysis. (634) The same approach is taken in France, where French conceptions of international law, generally-applicable to international arbitration agreements, apply to the formal validity of such agreements. (635) page "548"
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These provisions resolve the question of what form requirements apply – at least in the first instance (636) – to arbitration agreements providing for arbitration within national territory; they provide that the form requirements of the local arbitration legislation apply to such agreements. Like many other national arbitration statutes, (637) however, the Model Law does not address the question of what form requirements apply if the arbitral seat is located outside the territory of the national court. In these circ*mstances, recourse to generallyapplicable choice-of-law principles (including particularly those discussed below) is necessary. Second, in these circ*mstances (where the arbitral seat is abroad), questions of formal validity might be governed by the law applicable to the substantive validity and formation of the arbitration agreement itself. (638) This has the benefits of simplicity and consistency, which are of substantial importance given the other uncertainties and complexities in choice-of-law analysis affecting international arbitration agreements. (639) Further, in cases where the parties have selected the law governing their arbitration agreement, application of this law to issues of form accords with principles of party autonomy. (640) Alternatively, issues of form might be subject to specialized choiceof-law rules. If the parties have not selected any governing law, question of form might be governed by the law of the place where the arbitration agreement was executed. (641) page "549" This accords with historic approaches to the choice of law applicable to the formal validity of ordinary contracts in many jurisdictions. (642) Alternatively, questions of form might be governed by the law of the arbitral seat. This approach was adopted in some early arbitral awards, (643) but has been rejected by more recent, well-reasoned national court decisions. (644) As already discussed, national arbitration legislation does not provide material guidance in selecting among the foregoing choiceof-law rules. (645) Absent legislative direction, the proper choice-oflaw analysis to questions of formal validity draws its substance from the approaches which are taken to questions of the substantive validity and formation of arbitration agreements. (646) The same considerations and objectives are equally applicable in both contexts, as well as the desirability of uniformity and simplicity. Accordingly, as discussed in greater detail below, when not governed by the New York Convention (or a similar international convention), questions of formal validity should be subject to a validation principle, which upholds the validity of an international arbitration agreement if it satisfies either the laws of the judicial enforcement forum, the laws governing the substantive validity of the parties' arbitration agreement, or the laws of the place where the arbitration agreement was executed. 3. Formal Validity and the Validation Principle As discussed above, the validation principle accords with the underlying objectives of the international arbitration process, which is to provide simple, readily-enforceable dispute resolution mechanisms notwithstanding the choice-of-law and jurisdictional complexities inherent in transnational transactions. (647) It also http://www.kluwerarbitration.com/CommonUI/print.aspx
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accords with contemporary developments in choice-of-law analysis applicable to form requirements in other contexts. Thus, while inapplicable to arbitration agreements, Article 9 of the Rome Convention adopts a validation principle with regard to matters of form, upholding the formal validity of contracts that satisfy page "550" either the requirements of the law governing the substantive validity of the contract or the law of the place the contract was executed. (648) Similarly, authorities from other leading jurisdictions have adopted the validation principle in relation to issues of formal validity concerning contracts generally. (649) The validation principle is particularly well-suited for application to questions of the form of international arbitration agreements. As already discussed above, the purpose of such agreements is to provide an effective, enforceable mechanism for resolving transnational commercial disputes, notwithstanding the complexities arising from differences among national legal systems. (650) Applying national form requirements to invalidate an agreement in these circ*mstances makes particularly little sense. This is the result reached by the (relatively few) national court decisions that have considered issues of formal validity which have not been resolved solely by reference to the New York Convention. (651) It is also the result that is reached by those arbitral awards which have considered the question. (652) Well-reasoned commentary is to the same effect. (653) The application of the foregoing choice-of-law principles to issues of formal validity can be briefly summarized (again, assuming the inapplicability of the New York Convention). If an arbitration agreement provides for arbitration in a page "551" jurisdiction that has adopted the UNCITRAL Model Law (or legislation with similar territorial limits), then the question in the first instance is whether the agreement satisfies the form requirements of Article 7 of the Model Law (or analogous provisions). In this case, Article 1(2) of the Model Law clearly provides for the recognition of the arbitration agreement if Article 7's requirements are satisfied. (654) Even if an arbitration agreement does not satisfy the form requirements of Article 7, it may nonetheless fulfill the form requirements of the law which the parties have agreed will govern that agreement or the law of the place where the agreement was made. In these circ*mstances, then the validation principle should permit the agreement to be upheld. (655) This accords with the treatment of issues of formation and substantive validity, as well as with the objectives of the international arbitral process. (656) In cases where an arbitration agreement provides for arbitration in a place outside of national territory, then the foregoing choice-of-law analysis remains applicable. That is, if the agreement satisfies the formal requirements of either the legal regime selected by the parties to govern their agreement, the place where the seat of the arbitration is located or the judicial enforcement forum, then its validity should be upheld. In practical application, the foregoing analysis provides a resolution to issues of formal validity if parties from States A and B agree to arbitrate in State C, while also agreeing that their agreement to arbitrate is subject to the laws of State D. In this case, if the parties' http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration agreement satisfies the form requirements of State C's arbitration law, then it is formally valid (regardless what State D's law provides). If, however, the formal requirements of State C's law are not satisfied, then the agreement should nonetheless be formally valid if it satisfies State D's requirements of formal validity.
573 See infra pp. 536-546, 587-600. 574 See infra pp. 536-540. 575 New York Convention, Art. II(2). The contents of this uniform
substantive rule are discussed below. See infra pp. 587-600. 576 Inter-American Convention, Art. 1; infra p. 601. 577 European Convention, Art. I(2); infra p. 547. 578 See infra pp. 536-538, 599-600. 579 See, e.g., Judgment of 5 July 1994, DIETF Ltd v. RF AG, XXI Y.B. Comm. Arb. 685 (Basel Court of Appeal) (1996); Judgment of 21 June 1983, Office National du Thé et du Sucre v. Philippines Sugar Co. Ltd, XXI Y.B. Comm. Arb. 627 (Casablanca Court of Appeal) (1996) (Article II(2) definition of “agreement in writing” prevails over inconsistent Moroccan legislation requiring “handwritten” arbitration agreement); Judgment of 21 December 1990, NV Carbomet v. Gans Transport BV, XXI Y.B. Comm. Arb. 632 (Rotterdam Rechtsbank) (1990). 580 Judgment of 20 March 1997, ANC Maritime Co. v. The West of England Shipowners Mut. Prot. and Indem. Ass'n Ltd, XXIII Y.B. Comm. Arb. 654 (Greek S.Ct.) (1998). 581 Judgment of 5 July 1994, XXI Y.B. Comm. Arb. 685 (Basel Court of Appeal) (1996); 582 See, e.g., Kahn Lucas Lancaster, Inc. v. Lark Int'l Ltd, 186 F.3d 210 (2d Cir. 1999); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co., 767 F.2d 1140 (5th Cir. 1985); Sen Mar, Inc. v. Tiger Petroleum Corp. NV, 774 F.Supp. 879 (S.D.N.Y. 1991); Al-Salamah Arabian Agencies Co. v. Reece, 673 F.Supp. 748 (M.D.N.C. 1987). Compare Beromun AG v. Societa Industriale Agricola “Tresse,” 471 F.Supp. 1163 (S.D.N.Y. 1979). See also infra pp. 607-609. 583 See supra pp. 203-205 & infra pp. 567-569. 584 Cf. Doctor's Assoc., Inc. v. Cassarotto, 517 U.S. 681 (U.S. S.Ct. 1996) (state “conspicuous notice” requirement preempted by §2 of domestic FAA). 585 See infra pp. 607-608. 586 D. Di Pietro & M. Platte, Enforcement of International Arbitration Awards: The New York Convention of 1958 81 n.37 (2001) (“The New York Convention certainly supercedes those requirements of municipal law which are more stringent than Article II”); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶614 (1999); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶6-39 (2003); Friedland, U.S. Courts' Misapplication of the “Agreement in Writing” Requirement for Enforcement of An Arbitration Agreement under the New York Convention, 15(5) Mealey's Int'l Arb. Rep. 21, 25 (1998); A. Samuel, Jurisdictional Problems in International Commercial Arbitration 82 (1989); A. van den Berg, The New York Arbitration Convention of 1958 287 (1981). 587 See also infra pp. 599-600. http://www.kluwerarbitration.com/CommonUI/print.aspx
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588 German ZPO, §1031(5). 589 E.g., Mo. Ann. Stat. §435.460 (“ten point capital letters”
adjacent to signature line); Mont. Code Ann. §27-5 114(4) (“typed in underlined capital letter on the first page of the contract”); S.C. Code Ann. §15-48 10(a) (“underlined capital letters” on “first page of the contract”); Tex. Rev. Civ. Stat. 224-1 (“underlined capital letters” or “rubber-stamped prominently” on first page), repealed, Tex. Civ. Prac. & Rem. Ann. § 172.001; Cal. C.C.P. §1298(a) (“set out in at least 8-point bold type or in a contrasting red in at least 8-point-type …”). See also Brazilian Arbitration Law, Art. 4(2) (“In adhesion contracts, the arbitration clause will only be valid if the adhering party initiates arbitral proceedings or if it expressly agrees to arbitration by means of an attached written document, or if it signs or initials the corresponding contractual clause, inserted in boldface type”). See infra pp. 622-623. 590 Greek Code of Civil Procedure, Art. 217. 591 Judgment of 21 June 1983, Office National du Thé et du Sucre v. Philippines Sugar Co. Ltd, XXI Y.B. Comm. Arb. 627 (Casablanca Court of Appeal) (1996) (Article II(2) definition of “agreement in writing” prevails over inconsistent Moroccan legislation requiring “hand-written” arbitration agreement); Judgment of 21 December 1990, NV Carbomet v. Gans Transport BV, XXI Y.B. Comm. Arb. 632 (Rotterdam Rechtsbank) (1990); Grigera Naón, Argentina 7, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 1985) (Convention prevails over Argentinean National Code of Civil and Commercial Procedure, Art 739: “The terms of reference shall be made in the form of a public deed or private instrument or through a deed executed before the already acting judge or before the judge who would have had jurisdiction if no arbitration has been agreed upon.”). 592 A. van den Berg, The New York Arbitration Convention of 1958 287 (1981). Compare A. Samuel, Jurisdictional Problems in International Commercial Arbitration 82-84 (1989); Patocchi & Jermini, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 194, ¶¶67 (2000). See also Judgment of 7 February 1984, Tradax Export SA v. Amoco Iran Oil Co., XI Y.B. Comm. Arb. 532, 533-534 (Swiss Federal Tribunal) (1986) (“It results from the text of the Convention itself … that Art. II contains rules of uniform applicability which, in cases where the Convention is applicable, replace national law. It is therefore exclusively in the light of these treaty provisions that the question of the validity of the arbitration clause in question must be resolved.”). 593 This includes, for example, the UNCITRAL Model Law, the U.S. FAA, Swiss Law on Private International Law, English Arbitration Act, 1996 and French New Code of Civil Procedure. See infra pp. 600-617. 594 See, e.g., Judgment of 30 March 2000, XXXI Y.B. Comm. Arb. 652 (Oberlandesgericht Schleswig) (2006) (“no reliance can be placed on national law, be it more or less strict as to formal requirements”); Judgment of 5 July 1994, XXI Y.B. Comm. Arb. 685 (Basel Court of Appeal) (1996); Judgment of 16 August 1999, XXVII Y.B. Comm. Arb. 519, 522 (Hålogaland Court of Appeal) (2002) (“The requirements in Art. IV(b) in conjunction with Art. II … relating to the form of the arbitral agreement, are justified by basic considerations for legal protection. It should not be sufficient for enforcement that the arbitral award is valid according to the law of the country in question. Also the requirements of the Convention should be assessed to ensure they have been complied with.”); Judgment of 21 March 1995, XXII Y.B. Comm. Arb. 800 (Swiss http://www.kluwerarbitration.com/CommonUI/print.aspx
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Federal Tribunal) (1997) (“the issue of [formal] validity is determined solely according to the Convention; the requirement of the written form according to Article II of the New York Convention is to be interpreted independently, without the assistance of a national law”); Judgment of 20 January 1987, Société Bomar Oil NV v. Entreprise Tunisienne d'Activités Pétrolières, 1987 Rev. arb. 482, 485 (Paris Cour d'appel) (“by reason of the general nature of the wording … of Art. II of the New York Arbitration Convention, it must be admitted that this text expresses a substantive rule which must be applied in all cases.”), reversed on other grounds, Judgment of 11 October 1989, 1990 Rev. arb. 134 (French Cour de cassation civ. 1e); Judgment of 20 March 1997, ANC Maritime Co. v. The West of England Shipowners Mut. Prot. and Indem. Ass'n Ltd, XXIII Y.B. Comm. Arb. 654 (Greek S.Ct.) (1998) (Article II(2) “introduced a directly applicable substantive rule, which binds the States-Parties and does not allow the court, in the field of application of the Convention, the possibility to resort to another rule of substantive or private law in order to confirm the validity of the form of the conclusion of the agreement to arbitrate”). 595 See, e.g., Kahn Lucas Lancaster, Inc. v. Lark Int'l Ltd, 186 F.3d 210 (2d Cir. 1999); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co., 767 F.2d 1140 (5th Cir. 1985); Sen Mar, Inc. v. Tiger Petroleum Corp. NV, 774 F.Supp. 879 (S.D.N.Y. 1991); Al-Salamah Arabian Agencies Co. v. Reece, 673 F.Supp. 748 (M.D.N.C. 1987). Compare Beromun AG v. Societa Industriale Agricola “Tresse,” 471 F.Supp. 1163 (S.D.N.Y. 1979). See also infra pp. 607-609. 596 Judgment of 5 July 1994, XXI Y.B. Comm. Arb. 685 (Basel Court of Appeal) (1996); 597 van den Berg, The New York Convention: Its Intended Effects, Its Interpretation, Salient Problem Areas, in The New York Convention of 1958 44 (ASA Special Series No. 9 1996) (“The uniform rule has as consequence that Article II(2) is a maximum and a minimum rule. A court may not impose more stringent requirements on the form of the arbitration agreement. Neither may a court go below the minimum”); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶6-39 (2003) (“It is now generally accepted that the New York Convention sets a maximum standard: arbitration clauses cannot be submitted to stricter requirements under national law”); A. van den Berg, The New York Arbitration Convention of 1958 178 (1981) (“Article II(2) must in principle be deemed to be both a maximum and a minimum requirement: a court may not require more, but may also not accept less than is provided by Article II(2) for the form of the arbitration agreement.”); van Houtte, Consent to Arbitration through Agreement to Printed Contracts: The Continental Experience, 16(1) Arb. Int'l 1, 5 (2000). 598 A. Samuel, Jurisdictional Problems in International Commercial Arbitration 82 (1989) (“the English and French versions of the paragraph mean quite different things. It is therefore impossible to say categorically what the provision actually means.”). 599 The Chinese text (“wei”) apparently parallels the French and Spanish. 600 The Russian text (“… vklyuchaet …”) apparently parallels the English. See also U.K. Departmental Advisory Committee on Arbitration Law, 1996, Report on the Arbitration Bill (February 1996), reprinted in, 13 Arb. Int'l 275, ¶34 (1997) (“The non-exhaustive definition in the English text (‘shall include’) may differ in this respect from the French and Spanish texts, but the English text is equally authentic under Article XVI of the New York Convention itself, and http://www.kluwerarbitration.com/CommonUI/print.aspx
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also accords with the Russian authentic text.”). 601 A. Samuel, Jurisdictional Problems in International Commercial Arbitration 85 (1989) (“those countries which have adopted English style versions of the text will apply an inclusionary construction to Article II, while those which have enacted the French or Spanish text are likely to adopt a restrictive interpretation of the article”); Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 68 (ICCA Congress Series No. 11 2003) (“As a matter of English language, the word ‘include’ in most of its modern usage, has a nonexhaustive quality”). Compare A. van den Berg, The New York Arbitration Convention of 1958 179 (1981) (arguing that “includes” in English text means “means”); Lelutiu, Managing Requests for Enforcement of Vacated Awards under the New York Convention, 14 Am. Rev. Int'l Arb. 345, 346 (2003); Contini, International Commercial Arbitration: The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 8 Am. J. Comp. L. 283, 286 (1959) (Article II(2) in English has “an inclusive character”). 602 New York Convention, Art. VII(1); supra pp. 99-100, 203-205, 460-464, 501-502 & infra pp. 599-600, 2691-2694, 2722-2726. 603 Compare Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 74 (ICCA Congress Series No. 11 2003) (“there is a strong argument that Article VII can only refer to arbitral awards, not arbitration agreements, since otherwise Article II(2) could well be redundant”). 604 See supra pp. 99-100, 203-205 Judgment of 21 September 2005, XXXI Y.B. Comm. Arb. 679 (German Bundesgerichtshof) (2006) (“If, in accordance with the private international law of the enforcement state – which law is determined by applying the lex fori principle – a national law applies to the arbitration agreement that has more liberal formal requirements than those in Article II(1) and II(2) [of the New York Convention], then this recognition-friendlier national law applies pursuant to Article VII(1) of the Convention.”); Judgment of 25 May 1970, XI Y.B. Comm. Arb. 237 (German Bundesgerichtshof) (1977) (unwritten arbitration agreement, not meeting Article II(2)'s form requirement, upheld under more liberal German law). For similar commentary, see E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶614 (1999); D. Di Pietro & M. Platte, Enforcement of International Arbitration Awards: The New York Convention of 1958 81 n.37 (2001) (“It is settled now that Article II is not a minimum requirement.”). See also Judgment of 16 December 1992, XXI Y.B. Comm. Arb. 535 (Oberlandesgericht Cologne) (1996). 605 See supra pp. 211, 255-256 & infra pp. 599-600. This interpretation is arguably difficult to reconcile with the status of Article II(1) as a maximum form requirement. See supra pp. 536538. Article VII(1)'s “savings” clause resolves any arguable inconsistency, by providing for the potential validity of agreements not satisfying Article II(1), but outside the Convention regime. 606 Report of the UNCITRAL on the Work of its Thirty-Ninth Session, Recommendation Regarding the Interpretation of Article II, Paragraph 2, and Article VII, Paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, UN Doc. A/61/17, Annex 2 (2006), available at www.uncitral.org; UN General Assembly Resolution No. 61/33, Annex II, Revised Articles of the http://www.kluwerarbitration.com/CommonUI/print.aspx
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Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law and the Recommendation regarding the Interpretation of Article II, paragraph 2, and Article VII, paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (2006), available at www.uncitral.org. 607 Article II(1) would be interpreted, under this assumption, as establishing a uniform standard for “agreements in writing,” that all Contracting States to the Convention would be required to adhere to. This standard would need to be worked out, progressively, by national court decisions, but the resulting international standard would be binding on Contracting States. 608 A. Samuel, Jurisdictional Problems in International Commercial Arbitration 83 (1989). See also Judgment of 16 December 1992, XXI Y.B. Comm. Arb. 535 (Oberlandesgericht Cologne) (1996) (Article II(2) “does not provide for a uniform rule,” because Article VII permits reliance on more lenient national law standards); Coutinho Caro & Co. v. Marcus Trading, Inc., 2000 U.S. Dist. LEXIS 8498 (D. Conn. 2000) (rejecting defense to recognition of foreign arbitral award, based on Article II(2) “writing” requirement, because both parties signed a written agreement: “even assuming arguendo that the document at issue here is not a ‘contract’ under Article II(2), the language of Article II is nonetheless sufficiently broad to include it … An agreement in writing ‘shall include’ and thus is not limited to an arbitral clause in a contract …”). 609 See supra pp. 99-100, 203-205, 460-464 & infra pp. 599-600, 2691-2694, 2722-2726 for a discussion of Article VII of the Convention. 610 See supra pp. 541-542. 611 See, e.g., Judgment of 21 March 1995, XXII Y.B. Comm. Arb. 800 (Swiss Federal Tribunal) (1997) (“the issue of (formal) validity is determined solely according to the Convention; the requirement of the written form according to Article II of the New York Convention is to be interpreted independently, without the assistance of a national law”); Chloe Z Fishing Co. v. Odyssey Re (London) Ltd, 109 F.Supp.2d 1236 (S.D. Cal. 2000) (Article II(2) is exclusive catalogue: “it is equally plausible that the word ‘shall’ leaves courts with little discretion in defining an ‘agreement in writing’ and directs that each ‘agreement in writing’ must include the elements that follow … Article II(2) does not outline the minimum but the mandatory requirement of what constitutes an ‘agreement in writing’ under the Convention”); A. van den Berg, The New York Arbitration Convention of 1958 179 (1981). 612 See supra p. 540. 613 See supra pp. 101-102. 614 See supra pp. 92-101, 203-205. 615 van den Berg, The 1958 New York Arbitration Convention Revisited, in Arbitral Tribunals or State Courts: Who Must Defer to Whom? 125, 137-38 (ASA Bull. No. 15 Special Supp. 2001); Sen Mar, Inc. v. Tiger Petroleum Corp. NV, 774 F.Supp. 879, 882 (S.D.N.Y. 1991); Judgment of 27 Feburary 1989, XVII Y.B. Comm. Arb. 581, 582 (Court of Appeal Basel) (1992); Judgment of 15 November 1994, XXII Y.B. Comm. Arb. 707 (Oberlandesgericht Hamm) (1997); Judgment of 21 June 1983, Office National du Thé et du Sucre v. Philippines Sugar Co. Ltd, XXI Y.B. Comm. Arb. 627, 630 (Casablanca Court of Appeal) (1996); Alvarez, Article II(2) of the New York Convention and the Courts, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 http://www.kluwerarbitration.com/CommonUI/print.aspx
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Years of Application of the New York Convention 67, 69 (ICCA Congress Series No. 9 1999); Di Pietro, Incorporation of Arbitration Clauses by Reference, 21 J. Int'l Arb. 439 (2004); Gusy, The Validity of An Arbitration Agreement under the New York Convention – Remarks on the Order of OLG Schleswig-Holstein, 30 March 2000, 19 J. Int'l Arb. 363, 368 (2002). 616 Report of the UNCITRAL on the Work of its Thirty-Ninth Session, Recommendation Regarding the Interpretation of Article II, Paragraph 2, and Article VII, Paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, UN Doc. A/61/17, Annex 2 (2006), available at www.uncitral.org; UN General Assembly Resolution No. 61/33, Revised Articles of the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law and the Recommendation regarding the Interpretation of Article II, paragraph 2, and Article VII, paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (2006), available at www.uncitral.org (Article II(2) should be applied “recognizing that the circ*mstances described therein are not exhaustive”). 617 See supra pp. 99-100, 203-205, 460-464 & infra pp. 599-600, 2691-2694, 2722-2726. Article VII is also applicable if Article II(2)'s list is interpreted as exclusive. See Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 73 (ICCA Congress Series No. 11 2003) (“If the word ‘include’ in Article II(2) indicates an exhaustive criteria, the question arises as to whether national courts may apply their own more liberal laws (where these exist) under Article VII(1) of the Convention, rather than the stricter requirements of the Convention.”). 618 See, e.g., Judgment of 15 April 1980, Lanificio Walter Banci SaS v. Bobbie Brooks Inc., VI Y.B. Comm. Arb. 233 (Italian Corte di Cassazione) (1981) (whereas Article II requires the existence of a written agreement, “Article V … operates on a completely different level,” and in a case regarding “the enforcement in Italy of an award rendered in the United States inter partes.… Art. V – and not Art. II – of the Convention must be applied.…”); D. Di Pietro & M. Platte, Enforcement of International Arbitration Awards: The New York Convention of 1958 §2.1.2.3 et seq. (2001) (“at least open to doubt” whether Article II applies at the enforcement stage); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶6-42 (2003). See also supra pp. 428-431 & infra pp. 2705-2707, 2786-2789. 619 Article IV(1)(6) provides that “[t]o obtain the recognition and enforcement mentioned in the preceding article, the party applying for recognition and enforcement shall, at the time of the application, supply: … [t]he original agreement referred to in Article II or a duly certified copy thereof.” 620 See supra pp. 428-431. 621 See infra pp. 2705-2707, 2717-2720, 2786-2789, 2789-2790; Judgment of 14 January 1977, Agrimpex SA v. J. F. Braun & Sons, Inc., IV Y.B. Comm. Arb. 269 (Greek S.Ct.) (1979); Judgment of 17 November 1971, 8 Ob 233/71, I Y.B. Comm. Arb. 183 (Austrian Oberster Gerichtshof) (1976). 622 See, e.g., Award in ICC Case No. 5730, 117 J.D.I. (Clunet) 1029 (1990); Award in Arbitral Tribunal of the Netherlands Oils, Fats, and Oilseeds Trade Association of 20 March 1977, III Y.B. Comm. Arb. 225 (1978); Award in Hamburg Friendly Arbitration of 15 January 1976, III Y.B. Comm. Arb. 212 (1978); A. van den Berg, The http://www.kluwerarbitration.com/CommonUI/print.aspx
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New York Arbitration Convention of 1958 188 (1981). 623 J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶6-48 (2003) (citing Award in ICC Case No. 5730, 117 J.D.I. (Clunet) 1029, 1033 (1990)). 624 See supra pp. 425-459, 459-516 & infra pp. 565-575, 704-766. See also A. van den Berg, The New York Arbitration Convention of 1958 189 (1981) (“As arbitrators have the duty to examine whether they have been regularly vested with competence vis-à-vis the courts, they must also take into account the formal validity of the arbitration agreement under Article II(2)”). 625 See supra pp. 95-97, 100-101. 626 New York Convention, Arts. II, III, and VII. 627 See infra pp. 1625-1627, 2177-2184, 2238-2243. 628 European Convention, Art. I(2). The Convention defines an arbitration agreement to include: “either an arbitral clause in a contract or an arbitration agreement, the contract or arbitration agreement being signed by the parties or contained in an exchange of letters, telegrams, or in a communication by teleprinter and, in relations between States whose laws do not require that an arbitration agreement be made in writing, any arbitration agreement concluded in the form authorized by these laws.” This provision is discussed in greater detail below. See infra p. 600. 629 It is unclear what States are referred to in the phrase “relations between States whose laws do not require that an arbitration agreement be made in writing.” The phrase may refer either to the states in which private parties are nationals or residents or to the states where an arbitration agreement or award might be enforced. The Convention's drafting history arguably supports the former. Hascher, European Convention on International Commercial Arbitration of 1961 – Commentary, XX Y.B. Comm. Arb. 1006, 1015 (1995). The better view must refer to the parties' residence/corporate seat, given the reference to this connecting factor in Article I(1)(a) of the Convention. It is also unclear to what extent the laws of such States must be identical, as opposed to merely similar or capable of producing the same results. The latter, more liberal, view is the better one. It also appears that, by virtue of Article X(7) of the European Convention, the New York Convention's preservation of more liberal national arbitration regimes is not disturbed. 630 See supra pp. 208-211, 211 et seq., 255 et seq. for a
discussion of the Convention's jurisdictional requirements. 631 See supra pp. 541-542. Of course, even if national law (as distinguished from the Convention) upholds the formal validity of an arbitration agreement by applying less stringent requirements than Article II of the Convention, the Convention and its obligations concerning recognition and enforcement of awards will remain inapplicable. See supra pp. 209-211. 632 UNCITRAL Model Law, Art. 7(2) (“an agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement, or in an exchange of statements of claim and defense in which the existence of an agreement is alleged by one party and not denied by another”); UNCITRAL Model Law, 2006 Revisions, Arts. 7 (Option I) & 7 (Option II); H. Holtzmann & J. Neuhaus, A Guide to the http://www.kluwerarbitration.com/CommonUI/print.aspx
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UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 260-64 (1989); infra pp. 601607. 633 UNCITRAL Model Law, Art. 1(2) (“the provisions of this law … apply only if the place of arbitration is in the territory of this State”). As discussed elsewhere, Article 1(2) generally provides that most provisions of the Model Law apply only to agreements to arbitrate within the territory of the national jurisdiction. See supra pp. 285286, 307 & infra pp. 1278-1281, 1297-1298. 634 English Arbitration Act, 1996, §5(3); Swiss Law on Private International Law, Arts. 176(1) & 178(1); Netherlands Code of Civil Procedure, Art. 1021; U.S. FAA, 9 U.S.C. §1; Japanese Arbitration Law, Art. 13. As noted above, these national law provisions tend to be more liberal than the form requirements in Article II(2) of the New York Convention. See supra pp. 600-616. 635 See, e.g., Judgment of 10 June 2004, Bargues Agro Industrie SA v. Young Pecan Cie, XXX Y.B. Comm. Arb. 499 (Paris Cour d'appel) (2005) (“According to a substantive provision of French international arbitration law, the parties' intention suffices to validate an arbitration agreement. Hence, that agreement does not fall under a national law because it is fully autonomous, also with regard to form”). 636 Even if an arbitration agreement providing for arbitration within national territory does not satisfy applicable form requirements of local legislation (e.g., Article 7(2) of the UNCITRAL Model Law), there remains the question whether the agreement should be deemed valid if it satisfies the form requirements of other jurisdictions (e.g., the law selected by the parties to govern their arbitration agreement). As discussed below, under the validation principle, the answer to this question should be in the affirmative. See infra pp. 550-552. 637 English Arbitration Act, 1996, §5; Swiss Law on Private International Law, Arts. 176(1) & 178(1); U.S. FAA, 9 U.S.C. §1; Belgian Judicial Code, Art. 1677. See P. Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions ¶2-003 (2d ed. 2005); H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 258 (1989). 638 See, e.g., Economy Forms Corp. v. Islamic Republic of Iran, Award No. 55-165-1 (14 June 1983), 3 Iran-US C.T.R. 42, 47-48 (1983) (“It is a generally accepted principle of private international law that the formation of and the requirements as to the form of a contract are governed by that law which would be the proper law of the contract, if the contract was validly concluded.”); Judgment of 20 January 1987, Société Bomar Oil NV v. Entreprise Tunisienne d'Activités Pétrolières, 1987 Rev. arb. 482 (Paris Cour d'appel); Judgment of 29 September 1959, Goldschmidt v. Cottaropoulos, 88 J.D.I. (Clunet) 168 (Aix-en-Provence Cour d'appel) (1961); Judgment of 27 March 1962, Compagnie Marchande de Tunisie v. Costa de Marfil, JPC G 1963, II, 13036 (Paris Cour d'appel); O. Lando, Contracts, III International Encyclopedia of Comparative Law 102 (1977). 639 See supra pp. 422-424; Judgment of 21 September 2005, XXXI Y.B. Comm. Arb. 679 (German Bundesgerichtshof) (2006) (suggesting that formal requirements applicable to arbitration agreement were governed by law selected by parties' choice-of-law agreement). 640 See supra pp. 428-430, 431-432, 434 et seq.
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641 Award in ICC Case No. 5832, 115 J.D.I. (Clunet) 1198 (1988). 642 Restatement (Second) Conflict of Laws §199(2) (1971)
(“Formalities which meet the requirements of the place where the parties execute the contract will usually be acceptable.”); Rome Convention, Art. 9(4) (specifying, as alternative grounds, “the law of the country where the act was done”); Judgment of 18 April 1865, D.P., I, ¶342 (1865) (French Cour de cassation req.). 643 Award in ICC Case No. 4392, 110 J.D.I. (Clunet) 907 (1983). 644 Judgment of 20 January 1987, Société Bomar Oil NV v. Entreprise Tunisienne d'Activités Pétrolières, 1987 Rev. arb. 482 (Paris Cour d'appel), reversed on other grounds, Judgment of 11 October 1989, 1990 Rev. arb. 134 (French Cour de cassation civ. 1e). Compare Lew, The Law Applicable to the Form and Substance of the Arbitration Clause in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 141-42 (ICCA Congress Series No. 9 1999). 645 See supra pp. 548-550. 646 See supra pp. 514-516. 647 See supra pp. 497-504, 514-516. 648 Rome Convention, Art. 9(4); M. Giuliano & P. Lagarde, Report on the Convention on the Law Applicable to Contractual Obligations, O.J. C 282 31/10/1980, Art. 9. See also E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶603 (1999) (discussing Rome Convention). 649 L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶¶16-023 to 16-026 (14th ed. 2006); Swiss Law on Private International Law, Art. 124 (“A contract is formally valid if it conforms either to the law applicable to the contract or to the law of the place the contract was executed.”); Judgment of 28 May 1963, JCP 1964, II, 13347 (French Cour de cassation civ. 1e) (“The ‘locus regit actum’ rule does not prevent international contracts to be passed in France in a form determined by the foreign law governing their substance. …”). See also Restatement (Second) Conflict of Laws §188, comment b (1971). 650 See supra pp. 72-78. 651 Judgment of 26 March 1991, Comité populaire de la Municipalité d'El Mergeb v. Société Dalico Contractors, 1991 Rev. arb. 456 (Paris Cour d'appel). 652 See, e.g., Award in ICC Case No. 5832, 115 J.D.I. (Clunet) 1198 (1988); Final Award in ICC Case No. 6162, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1991-1995 75, 83-84 (1997) (while lack of writing might render the arbitration agreement void under law governing the substantive validity of the arbitration agreement, arbitrators upheld the arbitration agreement because it was valid under law of the seat of the arbitration). 653 See, e.g., Mayer, L'autonomie de l'arbitre international dans l'appréciation de sa propre compétence, 217 Recueil des Cours 319, 435, ¶¶114 et seq. (1989); Lew, The Law Applicable to the Form and Substance of the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 139 (ICCA Congress Series No. 9 1999) (concluding that, in practice, when faced with a choice-of-law situation, arbitrators have chosen to assess the formal validity of the arbitration clause under whichever law, when applied, would result in the validity of the arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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clause). 654 See supra pp. 548-550. 655 See supra pp. 549-550. Compare Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 67 (ICCA Congress Series No. 11 2003) (“if an arbitration agreement is valid under its own applicable law in respect of form, it is unlikely to be defeated by Article II(2),” but “national courts do not always take this approach”). 656 See supra pp. 497-504, 514-516.
Choice of Law Governing International Arbitration Agreements - F. Choice-OfLaw Rules Applicable to Capacity to Conclude International Arbitration Agreements Chapter 4 Gary B. Born
Author Gary B. Born
F. Choice-of-Law Rules Applicable to Capacity to Conclude International Arbitration Agreements The choice-of-law rules applicable to the capacity to conclude international arbitration agreements raise special issues. As discussed below, the New York Convention and other international arbitration conventions refer to the need to apply choice-of-law rules applicable to questions of capacity, but do not provide either page "552" such choice-of-law rules or substantive rules governing the subject (in contrast to the approach to questions of formal validity). (657) As a consequence, it is left almost entirely to national law to provide the choice-of-law rules that apply to the capacity to conclude arbitration agreements, subject to the nondiscrimination provisions of the New York Convention. 1. Choice-of-Law Rules Governing Capacity under International Arbitration Conventions
Source Choice of Law Governing International Arbitration Agreements - F. Choice-Of-Law Rules Applicable to Capacity to Conclude International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 552 - 559
Article V(1)(a) of the New York Convention indirectly addresses the question of the law applicable to capacity to conclude an international arbitration agreement. It provides that an arbitral award may be denied recognition if “the parties to the [arbitration agreement] were, under the law applicable to them, under some incapacity.” (658) The clear import of this provision is that national law applies to determine questions of capacity, at least in the first http://www.kluwerarbitration.com/CommonUI/print.aspx
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instance. (659) Relying on Article V(1)(a)'s statement that capacity is determined “under the law applicable to” the party, some commentators have suggested that the Convention contains a choice-of-law rule selecting the law of the party's domicile or place of organization. (660) Other commentators have concluded that Article V(1)(a) does not address the question of applicable law, leaving it to national courts to apply their own conflict of laws rules in order to resolve this issue. (661) The better view is that Article V(1)(a) contemplates a different choice-of-law analysis for issues of capacity than for those of substantive validity (by reason of Article V(1)(a)'s references to two separate choice-of-law rules for issues of capacity and issues of substantive validity). It is difficult to see why the Convention's drafters would have prescribed a choice-of-law rule for issues of substantive validity (which they did), (662) but not issues of capacity. Equally, Article V(1)(a)'s reference to “the page "553" law applicable to them” fairly clearly implies a reference to the personal law of a party – being either the law of a company's place of organization or the law of the domicile (or state of nationality) of a natural person. (663) 2. Choice-of-Law Rules Governing Capacity under European Convention Like other arbitration conventions, Article VI of the European Convention provides that Contracting States' courts shall “examine the validity of [an arbitration] agreement with reference to the capacity of the parties, under the law applicable to them.” (664) Again, that implies that, at least in the first instance, national law applies to determine the parties' capacity, selected pursuant to a choice-of-law rule referring to the parties' personal law. (665) 3. Choice of Law Governing Capacity under National Arbitration Legislation Like leading arbitration conventions, most national arbitration statutes do not address the question of what law applies to questions of capacity to conclude international arbitration agreements. Article 34(2)(a)(i) of the UNCITRAL Model Law provides for the annulment of arbitral awards if “a party to the arbitration agreement … was under some incapacity,” but without indicating what law applies to determine question of capacity. (666) Other national arbitration statutes are similar, in failing to provide either choice-of-law rules applicable to capacity or substantive rules of capacity. (667) page "554" a. Application of Law of Party's Domicile, Seat or Place of Incorporation to Issues of Capacity Most national courts and arbitral tribunals have looked to generallyapplicable national choice-of-law rules in dealing with questions of capacity. This has produced diverse results, although most authorities have applied the personal law of the party to issues of http://www.kluwerarbitration.com/CommonUI/print.aspx
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capacity. A few decisions have looked to the law governing the arbitration agreement or to international principles. (668) In many cases, however, courts and tribunals have applied the law of the domicile or principal place of business of the party in question. (669) For example, in one early arbitral award, the tribunal applied French law to determine the powers of the officers of a French company, apparently on the (unarticulated) basis that the powers of corporate entities are governed by their page "555" national law of (670) incorporation. Similarly, an arbitral tribunal seated in Switzerland recognized that according to “wide-spread practice,” the law of a party's own territory will determine questions of that party's capacity. (671) To the same effect, in an enforcement action, Germany's Bundesgerichtshof applied German choice-of-law principles and concluded that the legal capacity of a seller was to be ascertained according to its personal law. (672) Commentary is almost unanimous in adopting the personal law of the party with regard to issues of capacity. (673) Although there is general agreement on application of a party's personal law to issues of capacity, there is disagreement about what constitutes a party's personal law. It is often observed that national choice-of-law rules dealing with capacity differ from jurisdiction to jurisdiction. In civil law jurisdictions, the capacity of natural persons is generally governed by the law of their nationality, while in common law jurisdictions, capacity of natural persons is governed by the law of their domicile. (674) Similarly, the capacity of juridical persons in civil law jurisdictions page "556" is generally governed by the law of the seat of the entity, while in common law jurisdictions the law of the place of incorporation is ordinarily applicable. (675) This diversity of choice-of-law rules presents obvious problems for international arbitral tribunals, because different national choice-oflaw rules will provide for differing applicable laws of capacity in many cases. Some authorities have suggested that the choice-of-law rules of the arbitral seat should be applied to determine capacity to conclude an arbitration agreement. (676) For example, the Institute of International Law's 1957 resolutions dealing with arbitration declared that “capacity to submit to arbitration shall be regulated by the law indicated according to the rules of choice-of-law in force at the seat of the arbitral tribunal.” (677) On the other hand, the arbitral seat may well be selected for reasons such neutrality and the lack of connection to the transaction. (678) These reasons would make it anomalous to apply the arbitral seat's choice-of-law rules to select a national law that would render one (or both) parties incompetent to conclude an arbitration agreement. That would be particularly true where the choice-of-law rules of the arbitral seat would select a law that incapacitated a party, when the law of both parties' home jurisdictions did not. b. Application of Validation Principle to Issues of Capacity The better approach, again, is to apply a validation principle, discussed above, to questions of capacity (as well as to issues of substantive and formal validity (679) ). Where parties enter into http://www.kluwerarbitration.com/CommonUI/print.aspx
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international transactions, calling by definition for activities affecting multiple states, their contractual agreements should be given maximum effect, notwithstanding local law provisions that would impede the enforceability of contractual arrangements in a domestic setting. As one arbitral tribunal held: “if a person has capacity either by the proper law of the contract or by the law of his domicile and residence then the contract is valid, so far as capacity is concerned.” (680) page "557" That is, in a transaction affecting States A and B, with an arbitral seat in State C, the parties' capacity to enter into an arbitration agreement should be upheld where any of the laws of States A, B, or C would reach this result. Taking a concrete (albeit unlikely) example, if an 18 year old from State A entered into an international arbitration agreement, when the age of majority in State A was 21, the arbitration agreement should be given effect so long as either State B or State C adopted an age of majority of 18 or younger. This approach is broadly similar to that under French law where, consistent with general choice-of-law analysis, French courts apply international law directly to the questions of authority and capacity. (681)
c. Application of International Non-Discrimination and Neutrality Principles to Issues of Capacity Additionally, where national legislatures have adopted restrictions on the capacity of parties to conclude arbitration agreements, these limitations should be subject to the international neutrality and nondiscrimination requirements of the New York Convention (discussed above, in the context of substantive validity of arbitration agreements). (682) For example, where a state adopts restrictions on the capacity of local companies to enter into arbitration agreements (e.g., limits on state entities' capacity to conclude international arbitration agreements), these restrictions should not be given effect as to agreements within the ambit of the New York Convention. (683) Doing so would be inconsistent with the basic commitment of Contracting States to the Convention to recognize and enforce international arbitration agreements, page "558" save where they are null and void; as discussed above, this commitment overrides national law rules that single arbitration agreements or international arbitration agreements out for special burdens or limitations or that impose idiosyncratic domestic restrictions on such agreements. (684) This rule is reflected, albeit in a specific application, in the Swiss Law on Private International Law, followed by comparable judicial authority in other jurisdictions. As discussed below, Article 177(2) provides that “if a party to the arbitration is a state or an enterprise or organization controlled by it, it cannot rely on its own law in order to contest its capacity to be a party to an arbitration …” (685) Article 177(2) reflects an approach whereby states may not invoke their own legislation to escape their otherwise-valid agreements to arbitrate. (686) The same neutrality rationale applies more generally to all questions of capacity. For example, if a Contracting State to the New York Convention enacted legislation providing that no local corporation http://www.kluwerarbitration.com/CommonUI/print.aspx
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would have the capacity to enter into an international arbitration agreement unless unanimously approved at a shareholders meeting or validated by a local regulatory official, that legislation should not be given effect.
657 See infra pp. 625-629. 658 New York Convention, Art. V(1)(a) (emphasis added). 659 That is what most commentary concludes. See, e.g., J. Lew, L.
Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶6-51 (2003); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶454 (1999); A. van den Berg, The New York Arbitration Convention of 1958 276-77 (1981) (“The drafters of the Convention left open the question how the law applicable to a party – also referred to as the ‘personal law’ – is to be determined. The question must therefore be resolved by means of the conflict of laws rules of the law of the court before which the enforcement of the arbitral awards is sought. … The phrase in Article V(1)(a) gives a half-way conflict rule since what is to be considered as the personal law is still to be determined by the conflict rules of the forum.”). 660 W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.02, n.3 (3d ed. 2000). 661 A. van den Berg, The New York Arbitration Convention of 1958 276 (1981); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶3-25 (4th ed. 2004). 662 See supra pp. 413-414, 427-431, 460-466. 663 See infra pp. 554-558. 664 European Convention, Art. VI. 665 Compare Inter-American Convention, Art. 5(1)(a) (recognition may be refused if it is proved “[t]hat the parties to the agreement were subject to some incapacity under the applicable law”). 666 Article 34(2)(a)(i) omits reference to the New York Convention's phrase “the law applicable to them.” UNCITRAL Model Law, Art. 34(2)(a)(i). See also UNCITRAL Model Law, Art. 36(1)(a); H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 915-16 (1989). Section 1059(2)(1)(a) of the UNCITRAL-based German ZPO refers to the “law applicable to the parties,” but without specifying how that law is to be selected. 667 English Arbitration Act, 1996 passim; French New Code of Civil Procedure Code, passim. Similarly, the U.S. FAA does not contain provisions dealing expressly with questions of capacity. See U.S. FAA, passim. 668 See, e.g., Award in ICC Case No. 10663, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 98-99 (2001) (declining to apply national law to issues of capacity; holding that international principles insulate arbitration agreement from national laws “directly or indirectly restricting access to international arbitration”). See also Judgment of 10 April 1990, XVII Y.B. Comm. Arb. 568 (Korean S.Ct.) (1992) (applying English law, as law of arbitral seat and law governing underlying contract, to question of agent's capacity); L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶16-27 (14th ed. 2006) (“The point has not arisen in England. The answer http://www.kluwerarbitration.com/CommonUI/print.aspx
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should depend on the law governing the arbitration agreement.”); Italian Code of Civil Procedure, Art. 808 (“The validity of the arbitration clause shall be evaluated independently from the underlying contract; nevertheless, the capacity to enter into the contract includes the capacity to agree to the arbitration clause.”). 669 See, e.g., Award in ICC Case No. 4381, 113 J.D.I. (Clunet) 1102, 1106 (1986) (“each party's capacity to agree to arbitration is governed by that party's personal law”); Award in ICC Case No. 5803, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 105 n.94 (2001) (“capacity matters are, in general, governed by local law (lex domicilii)”); Award in ICC Case No. 6476, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 100-101 (2001) (“wide-spread practice … regards questions of capacity as relating to status and the personal law”); Interim Award in ICC Case No. 7337, XXIVa Y.B. Comm. Arb. 149 (1999) (“the legal capacity of a party is determined according to the law at its place of domicile”); Award in ICC Case No. 7373, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 9899 (2001) (“The question of capacity and power of authority to sign a contract is generally governed by the law of the domicile or the national law of the concerned person. This solution is followed in nearly all countries of both the Civil and the Common Law systems.”); Award in ICC Case No. 9899, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 99-100 (2001) (applying law of corporate seat to issues of corporate capacity to commence arbitration); Judgment of 23 April 1997, Dalmine SpA v. M & M Sheet Metal Forming Machinery AG, XXIVa Y.B. Comm. Arb. 709 (Italian Corte di Cassazione) (1999) (applying Italian law to issue of capacity of General Manager to conclude arbitration agreement for Italian company); Judgment of 5 May 1976, V Y.B. Comm. Arb. 217 (Swiss Federal Tribunal) (1980) (“All problems concerning the legal status of a legal entity are governed by the law of the State in which it has its seat and from which it derives its legal capacity”). 670 Award in ICC Case No. 2694, 105 J.D.I. (Clunet) 985, 986 (1978). 671 Partial Award on Jurisdiction and Admissibility in ICC Case No. 6474, XXV Y.B. Comm. Arb. 279 (2000). 672 Judgment of 23 April 1998, XXIVa Y.B. Comm. Arb. 928, 930 (German Bundesgerichtshof) (1999). 673 See, e.g., E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶461 (1999) (discussing French Civil Code, Art. 1837); Mantilla-Serrano, International Arbitration and Insolvency Proceedings 11 Arb. Int'l 51, 64 (1995) (“Regarding matters concerning the capacity of the insolvent party (or its representatives) to pursue the arbitration, the arbitrators consistently refer such issues to the personal law of the party, which for corporation is generally the law of the place of its corporation.”); Blessing, Drafting An Arbitration Clause, in The Arbitration Agreement – Its Multifold Critical Aspects 44 (ASA Special Series No. 8 1994) (“Capacity matters are normally governed by the lex incorporationis, i.e., the domestic law of each party.”); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶328 (2006) (“Based on the closest connection-test, the legal capacity of legal entities and corporations will as a rule be determined according to the law of incorporation.”); Abdulla, in G. Kaufmann-Kohler & B. Stucki (eds.), http://www.kluwerarbitration.com/CommonUI/print.aspx
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International Arbitration in Switzerland: A Handbook for Practitioners (2004) (“According to the Swiss Federal Tribunal, the issue of capacity is to be determined under the law applicable by operation of the general conflict of law rules governing the capacity of persons and entities (Articles 35-36 and 154-155 of the PILA) …, as opposed to the special conflict of law rule of Article 178(2) of the PILA.”); P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitrage interne et international en Suisse Art. 178, ¶19 (1989) (“For arbitrations taking place in Switzerland one might be tempted to apply the alternative connecting factor of Art. 178(2) of PILS favoring the material validity of the arbitration agreement. The majority of authors rightly reject this solution and submit that capacity is governed by the personal law.”); A. Bucher & P.-Y. Tschanz, International Arbitration in Switzerland ¶86 (1988) (“Article 178(2) does not deal with the capacity of the parties to enter into an agreement to arbitrate.”). 674 See, e.g., A. van den Berg, The New York Arbitration Convention of 1958 276-77 (1981); Foustoucos, Conditions Required for the Validity of An Arbitration Agreement, 5(4) J. Int'l Arb. 113, 117 (1988); Restatement (Second) Conflict of Laws §198(b) (1971). Compare L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶32R-216 (14th ed. 2006) (“The capacity of an individual to enter into a contract is governed by the law of the country with which the contract is most closely connected or by the law of his domicile and residence”). 675 See, e.g., Foustoucos, Conditions Required for the Validity of An Arbitration Agreement, 5(4) J. Int'l Arb. 113, 117 (1988); Restatement (Second) Conflict of Laws §302(b) (1971); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶459 (1999). 676 See also the discussion above of arbitral awards holding that the conflicts rules of the arbitral seat are mandatorily applicable in arbitral proceedings. See supra pp. 484-485. 677 Institute of International Law, Resolutions on Arbitration in Private International Law 1959 (Neuchâtel), Annuaire de L'Institut de Droit International, Vol. II, Art. 4 at 396 (1959). See supra pp. 473474. 678 See supra pp. 497-504 & infra pp. 514-519, 550-552. 679 See supra pp. 497-504, 550-552. 680 Award in ICC Case No. 7373, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 98-99 (2001). See also L. Collins (ed.), Dicey Morris and Collins on The Conflict of Laws ¶30R-020 (14th ed. 2006) (“(1) The capacity of a corporation to enter into any legal transaction is governed both by the constitution of the corporation and by the law of the country which governs the transaction in question. (2) All matters concerning the constitution of a corporation are governed by the law of the place of incorporation.”); Restatement (Second) Conflict of Laws §198 (1971) (“(1) The capacity of the parties to contract is determined by the law selected by application of the rules of §§187-188. (2) The capacity of a party to contract will usually be upheld if he has such capacity under the local law of the state of his domicil”). 681 See Judgment of 10 June 2004, Bargues Agro Industrie SA v. Young Pecan Cie, XXX Y.B. Comm. Arb. 499 (Paris Cour d'appel) (2005) (“Since arbitration clauses are thus independent of national provisions, the lack of capacity of the representative of one of the parties to conclude an arbitration agreement is not evaluated pursuant to a national law, but rather directly by the court when examining the facts of the case, [to determine] whether the other http://www.kluwerarbitration.com/CommonUI/print.aspx
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party could legitimately and in good faith believe that this power was not lacking.”). See alsoJudgment of 22 March 1976, III Y.B. Comm. Arb. 283 (Tunis Court of First Instance) (1978) (“it is generally accepted that international commercial relations are subject to their own customs. … [The] present question does no longer depend on the personal law of the parties, but rather on the subject matter of the contract. The latter is the result from the parties' will, and constitutes their own law since the contract is an international contract concluded in order to correspond to the needs of the parties on the one hand and to international commercial customs on the other.”). 682 See supra pp. 506-514, 514-516 & infra pp. 561, 1264-1270, 1368-1376, 1444-1446, 1449-1450, 1513, 1690-1691, 1749-1751, 1765-1770. 683 See infra pp. 630-635. 684 See supra pp. 510-514. 685 Swiss Law on Private International Law, Art. 177(2). See also infra p. 632. 686 Judgment of 13 October 1992, 11 ASA Bull. 74 (Swiss Federal Tribunal) (1993) (“[Article 177(2)] follows from the principle of good faith which applies just as much to a state participating in international economic transactions as it does to private persons. The intent of this provision is to avoid that the state uses its legislative power to its advantage in its agreements with private persons and thereby frustrates the arbitral proceedings.”).
Choice of Law Governing International Arbitration Agreements - G. Choice-OfLaw Rules Applicable to Authority To Conclude International Arbitration Agreements Chapter 4 Gary B. Born
Author Gary B. Born
G. Choice-of-Law Rules Applicable to Authority to Conclude International Arbitration Agreements The same principles that apply to issues of capacity are also applicable to related issues of agency and authority, where the question is whether a representative of a putative party (e.g., an agent or officer of a company) had the authority to bind that party (e.g., a principal or corporation) to an international arbitration agreement. (687) Although there are important distinctions between issues of authority and issues of capacity, there are sound reasons to read Article V(1)(a)'s treatment of capacity as extending to questions of agency and authority, not merely to capacity in the http://www.kluwerarbitration.com/CommonUI/print.aspx
Source Choice of Law Governing International Arbitration Agreements - G. Choice-Of-Law Rules Applicable to Authority To Conclude International Arbitration Agreements in Gary B. Born ,
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narrow sense. These reasons include the Convention's drafting style (being broadly-worded and “constitutional,” rather than narrowly or technically expressed) (688) and its need to deal with a host of differing legal systems. Article V(1)(a)'s general approach page "559" to questions of capacity – referring to the law applicable to the parties on such issues – also applies with equal logic to issues of agency and authority.
International Commercial Arbitration, (Kluwer Law International 2009) pp. 559 - 561
The most significant point, in each case, is that the Convention contemplates the application of national laws to govern issues of agency and authority, as selected by applicable choice-of-law rules (and as limited by the Convention's neutrality and non-discrimination requirements (689) ). Some commentators have suggested that issues of authority should be directly governed by international principles, without reference to national law rules. (690) As with questions regarding the substantive validity of the arbitration agreement, (691) however, this analysis ignores the historic role of national law in international arbitration and the terms of the New York Convention (and other relevant international arbitration conventions). Rather, the appropriate analysis is the selection of applicable national law, in accordance with choice-of-law rules contemplated or provided by the New York Convention, but subjected to the international non-discrimination protections of the Convention. Consistent with the foregoing analysis, national courts and arbitral tribunals have almost invariably applied national law to issues of representative power. In some instances, the law governing the agency agreement has been held applicable to govern the agent's authority to conclude an agreement to arbitrate; more often, the law of the place where the agent acted is applied. (692) Other authorities have simply applied the law governing the substantive validity of the arbitration agreement. (693) page "560" Particularly where a party has no necessary knowledge of the terms of the agency agreement entered into by its counter-party, it is difficult to accept that the party should be disadvantaged by the law governing the agency agreement. In these circ*mstances, application of a validation principle, permitting reliance on either the law governing the arbitration agreement or the place where the agent acted, would be appropriate. As discussed below, some domestic laws (i.e., France, (694) Austria, (695) Greece (696) ) limit the powers of agents to enter into domestic arbitration agreements on behalf of their principals. Even where selected by applicable choice-of-law rules, these limitations on agency and authority should not be given effect in the context of international arbitration agreements. They are inconsistent with the general requirement, imposed by Articles II(1) and II(3) of the New York Convention, that national law not single out arbitration agreements for special burdens.
687 These subjects are sometimes confused with matters of
capacity, but are more correctly considered as issues of authority or corporate power. See infra pp. 635-640; Restatement (Second) http://www.kluwerarbitration.com/CommonUI/print.aspx
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Conflict of Laws §292 (1971); Devaud, La Convention d'arbitrage signée par un représentant sans pouvoirs, 23 ASA Bull. 2, 3-5 (2005). 688 See supra pp. 100-101. 689 See supra pp. 506-514, 514-516. See also A. van den Berg, The New York Arbitration Convention of 1958 226 (1981) (“the New York Convention does not provide a solution for the question under which law the form of the authorization to conclude an arbitration agreement is to be judged”). 690 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶468-70 (1999). 691 See supra pp. 507-514. 692 See Judgment of 4 September 2003, XXX Y.B. Comm. Arb. 528(Oberlandesgericht Celle) (2005); Restatement (Second) Conflict of Laws §292(2) (1971); Rees & Flesch, Agency and Vicarious Liability in Conflict of Laws, 60 Colum. L. Rev. 764, 767-68 (1960). See also Judgment of 23 April 1997, XXIVa Y.B. Comm. Arb. 709 (Italian Corte di Cassazione) (1999) (law applicable to determine authority of representatives who executed agreement was issue of capacity, governed by law of party's domicile, not law of arbitration agreement: “In the New York Convention provision at issue [Article V(1)(a)], capacity means not only the capacity of a physical person to perform an act, but any capacity, both a legal capacity to perform an act – with an eye towards so-called special legal incapacities – and the capacity of physical and legal persons.”); Razumov, The Law Governing the Capacity to Arbitrate, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 260 (ICCA Congress Series No. 7 1996). 693 Award in German Maritime Arbitration Association of 8 November 2005, XXXI Y.B. Comm. Arb. 66 (2006) (holding that authority of party's representative to enter into arbitration agreement was governed by law governing arbitration agreement, not law of party's or representative's domicile), Derains, Observation on Final Award in ICC Case No. 4381, in S. Jarvin, Y. Derains & J.-J. Arnaldez (eds.), Collection of ICC Arbitral Awards 1986-1990 268, 271 (1994). 694 See infra p. 638; French Civil Code, Art. 1989 (“an agent may act only within the scope of its mandate and the power to settle disputes does not confer a power to enter into arbitration agreements”). 695 See infra pp. 620-621, 638; Austrian Civil Code, §1008 (agents exercising contractual authority require special power of attorney to conclude arbitration agreement, except in cases involving specified commercial contexts); G. Zeiler, Schiedsverfahren §§577-618 ZPO idF des SchiedsRÄG 2006 §584, ¶¶28 et seq (2006) (the agent's power to enter into an arbitration agreement on behalf of a principal must be in writing). See also A. Reiner, The New Austrian Arbitration Law – Arbitration Act 2006 73 et seq. (2006); J. Power, The Austrian Arbitration Act – A Practitioner's Guide to Sections 577-618 of the Austrian Code of Civil Procedure, §584 at ¶11 (2006); Oberhammer, Rechtspolitische Schwerpunkte der Schiedsrechtsreform, in B. Kloiber, W. Rechberger, P. Oberhammer & H. Haller, Das neue Schiedsrecht – Schiedsrechts-Änderungsgesetz 2006 93, 106 et seq. (2006). 696 See infra pp. 620-621, 638; Greek Code of Civil Procedure, Art. 217(2).
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Choice of Law Governing International Arbitration Agreements - H. Choice-OfLaw Rules Applicable to Interpretation Of International Arbitration Agreements Chapter 4 Gary B. Born
Author Gary B. Born
H. Choice-of-Law Rules Applicable to Interpretation of International Arbitration Agreement Choice-of-law analysis is also necessary to select the law applicable to interpretation of an international arbitration agreement. Many (but not all) jurisdictions apply the same law to the interpretation of an arbitration agreement as to its formation and substantive validity. (697) One of the few arguable exceptions to this rule is the United States, where some U.S. courts have held that federal common law rules apply to issues of interpretation, but not necessarily questions of formation and validity. (698) These issues are considered in detail below. (699) page "561"
Source Choice of Law Governing International Arbitration Agreements - H. Choice-Of-Law Rules Applicable to Interpretation Of International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 561 - 561
697 See infra pp. 1086-1087. 698 See infra pp. 1084-1087 699 Seeinfra pp. 1084-1087.
Formation, Validity and Legality of International Arbitration Agreements Chapter 5 Gary B. Born
Author Gary B. Born
The resolution of disputes over the enforceability of arbitration agreements is a subject of great practical importance for the international arbitral process, as well page "563" as an enduring academic challenge. This Chapter discusses the substantive legal issues arising in connection with the formation, validity and legality
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of international arbitration agreements (1) . Issues relating to the presumptive separability of international arbitration agreements, to the choice of the law applicable to international arbitration agreements, to the competence-competence doctrine and to the effects and means of enforcement of such agreements are discussed elsewhere. (2)
in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 563 - 564
First, this Chapter introduces the historical development of legal standards governing the formal and substantive validity of international arbitration agreements. Second, the Chapter discusses issues concerning the formal validity of international arbitration agreements, including the “writing” requirement. Third, the Chapter addresses the capacity of parties to enter into arbitration agreements. Fourth, the Chapter discusses the formation of arbitration agreements, including standards of proof, consent and defects in consent. Fifth, the Chapter discusses the substantive validity of international arbitration agreements, including issues of fraud, mistake, illegality, unconscionability, waiver and the like. Sixth, the Chapter addresses the non-arbitrability doctrine. Finally, the Chapter discusses procedural requirements imposed by arbitration agreements and the effects of non-compliance with these requirements. page "564"
1 For commentary, seeThe Arbitration Agreement – Its Multifold
Critical Aspects (ASA Special Series No. 8 1994); Abdulla, The Arbitration Agreement, in G. Kaufmann-Kohler & B. Stucki (eds.), International Arbitration in Switzerland: A Handbook for Practitioners 15 (2004); Branson, The Enforcement of International Commercial Arbitration Agreements in Canada, 16 Arb. Int'l 19 (2000); Debattista, Drafting Enforceable Arbitration Clauses, 21 Arb. Int'l 233 (2005); Dimolitsa, Issues Concerning the Existence, Validity and Effectiveness of the Arbitration Agreement, 7(2) ICC Ct. Bull. 14 (1996); Eisemann, La Clause d'arbitrage pathologique, in Commercial Arbitration: Essays in Memoriam Eugenio Minoli 129 (1974); Foustoucos, Conditions Required for the Validity of An Arbitration Agreement, 5(4) J. Int'l Arb. 113 (1988); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶389-623 (1999); Gee, The Autonomy of Arbitrators, and Fraud Unravels All, 22 Arb. Int'l 337 (2006); Gelinas, Arbitration Clauses: Achieving Effectiveness, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 47 (ICCA Congress Series No. 9 1999); Herrmann, The Arbitration Agreement as the Foundation of Arbitration and its Recognition by the Courts, in A. van den Berg (ed.), International Arbitration in A Changing World 41 (ICCA Congress Series No. 6 1993); Horn, The Arbitration Agreement in Light of Case Law of the UNCITRAL Model Law (Arts. 7 and 8), 2005 Int'l Arb. L. Rev. 142; Kaplan, Is the Need for Writing as Expressed in the New York Convention and the Model Law Out of Step with Commercial Practice?, 12 Arb. Int'l 27 (1996); Karrer, Pathological Arbitration Clauses, Malpractice, Diagnosis and Theories, in The International Practice of Law, Liber Amicorum for Thomas Baer and Robert Karrer 109 (1998); Landau, The Requirement of A Written Form for An Arbitration Agreement: When http://www.kluwerarbitration.com/CommonUI/print.aspx
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“Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19 (ICCA Congress Series No. 11 2003); Lew, The Law Applicable to the Form and Substance of the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 114 (ICCA Congress Series No. 9 1999); Mayer, Les limites de la séparabilité de la clause compromissoire, 1998 Rev. arb. 359; McConnaughay, The Risks and Virtues of Lawlessness: A“Second Look” at International Commercial Arbitration, 93 N.W. U. L. Rev. 453 (1999); A. Samuel, Jurisdictional Problems in International Commercial Arbitration (1989); Schmitthoff, Defective Arbitration Clauses, 1975 J. Bus. L. 9; van Houtte, Consent to Arbitration Through Agreement to Printed Contracts: The Continental Experience, 16 Arb. Int'l 1 (2000); Ware, Arbitration Clauses, JuryWaiver Clauses and Other Contractual Waivers of Constitutional Rights, 67 Law & Contemp. Probs. 167 (2004); Ware, Default Rules from Mandatory Rules: Privatizing Law through Arbitration, 83 Minn. L. Rev. 703 (1999). 2 See Chapters 3, 4, 6 and 7.
Formation, Validity and Legality of International Arbitration Agreements - A. Introduction Chapter 5 Gary B. Born
Author Gary B. Born
A. Introduction Although parties very frequently agree to arbitrate, they also not infrequently reconsider that commitment when disputes arise, and instead seek to litigate their claims (or defenses) in more familiar local courts. Ultimately, the efficacy of any international arbitration agreement will depend on the parties' ability to enforce that agreement. As discussed in detail above, the enforceability of international arbitration agreements under national and international law has undergone important changes over the past century, evolving from a position of relative disfavor in some leading jurisdictions to one of essentially universal favor and affirmative encouragement. (3) This pro-arbitration enforcement regime for international arbitration agreements is of fundamental importance to the efficacy of the arbitral process, by ensuring that agreements to arbitrate can be enforced predictably and expeditiously in forums around the world. page "564"
Source Formation, Validity and Legality of International Arbitration Agreements - A. Introduction in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 564 - 580
1. Invalidity or Unenforceability of International Arbitration Agreements Prior to the 20th Century During the 19th and early 20th centuries, legislatures and courts in http://www.kluwerarbitration.com/CommonUI/print.aspx
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some countries either treated agreements to arbitrate future disputes as unenforceable or subjected their enforceability to significant limitations. (4) In particular, U.S., French and (to a lesser extent) English courts provided either no or only imperfect mechanisms for the enforcement of arbitration agreements. (5) Some courts held that agreements to arbitrate future disputes were unenforceable because they supposedly “ousted” courts of jurisdiction contrary to public policy, (6) while other courts held that such agreements could be revoked at any time prior to an award. (7) Although other significant trading nations rejected these views, (8) their existence in a number of leading jurisdictions impaired the efficacy of arbitration as a means of resolving commercial disputes, both international and otherwise. 2. Contemporary International Conventions and National Legislation Prescribing Presumptive Validity and Enforceability of International Arbitration Agreements As noted above, historic mistrust of the arbitral process gradually eroded in the United States, France and other democracies over the course of the 20th century. (9) During the 1920s, the signing of the Geneva Protocol and Geneva Convention, and the enactment of modern arbitration legislation in the United States and elsewhere, reflected fundamental changes in attitudes towards arbitration in developed states. (10) Subsequently, the adoption of the New York and European Conventions, as well as the UNCITRAL Model Law, confirmed a contemporary legal regime – both page "565" international and national – that was avowedly “pro-arbitration” in character and effect. (11) As discussed below, one of the principal means of achieving this was by recognizing the presumptive validity of international arbitration agreements (12) and by providing effective enforcement mechanisms for such agreements. (13) a. Geneva Protocol As discussed above, the Geneva Protocol played a decisive role in the development of the contemporary legal framework for international commercial arbitration. (14) Among other things, in an effort to supersede contrary provisions of national law in some leading jurisdictions, the Protocol declared that international arbitration agreements were presumptively valid and enforceable. Article I of the Protocol provided: “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 one of the parties is subject.” (15) The Protocol also provided for the specific performance of http://www.kluwerarbitration.com/CommonUI/print.aspx
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international arbitration agreements, requiring in Article IV that, where an agreement subject to Article I existed, the courts of Contracting States “shall refer the parties on the application of either of them to the decision of the arbitrators.” (16) Taken together, these provisions required Contracting States to recognize the presumptive validity of agreements to arbitrate future disputes, in commercial (and potentially other) matters, and to enforce such agreements by referring the parties to arbitration. (17) In so doing, the Geneva Protocol and the subsequent Geneva Convention (18) provided a model for an effective legal regime for enforcing international arbitration agreements. page "566" Nonetheless, many major trading states declined to ratify the Protocol, which materially limited its efficacy and practical importance. (19) At the same time, the economic and political uncertainties of the following decades inhibited the application of the Protocol's legal regime, as well as the use of international arbitration as a means of dispute resolution. (20) After a hiatus of some 30 years, development of an effective international legal framework for recognizing and enforcing international arbitration agreements continued in the second half of the 20th century. The drafting of the New York Convention (in 1958) and the adoption of the UNCITRAL Arbitration Rules and Model Law (in 1976 and 1985) marked vitally important advances in this process. (21) As discussed below, one of the essential pillars of these instruments was a series of provisions mandating the presumptive validity and enforceability of international arbitration agreements. b. New York Convention As discussed in greater detail elsewhere, (22) the New York Convention reiterated the basic provisions of the Geneva Protocol with regard to the presumptive validity and enforceability of agreements to arbitrate. Article II(1) of the Convention set forth a mandatory obligation that Contracting States “shall recognize” agreements in writing under which the parties undertake “to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.” (23) Again paralleling the Geneva Protocol, the Convention went on to provide an enforcement mechanism for agreements to arbitrate in Article II(3), requiring specific performance of such agreements, subject only to a limited set of enumerated exceptions based on generally-applicable contract law principles. In so doing, the Convention did not permit national courts (or arbitral tribunals) to invent or add additional bases for holding an international arbitration agreement invalid. That is evident from the language of Article II(3) of the Convention, which mandatorily required: “The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of page "567" this article, shall … refer the parties to http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” (24) A primary objective of the Convention, as it was finally drafted, (25) was to ensure the repudiation of 19th century legislative and judicial rules that singled arbitration agreements out for disfavor and instead to guarantee that international arbitration agreements would be enforceable in national courts. (26) Central to the Convention's role in facilitating the international arbitral process are the provisions of Article II regarding the presumptive validity and enforceability of international arbitration agreements. (27) As discussed below, these provisions apply equally to, and require recognition of, all material aspects of an agreement to arbitrate, including provisions specifying the scope of the disputes subject to arbitration, (28) the arbitral seat, (29) the constitution of the arbitral tribunal (30) and the arbitral procedures. (31) Consistent with the objectives of the Convention's drafters, most national courts have emphasized the Convention's “pro-arbitration” treatment of agreements to arbitrate and have narrowly interpreted the Convention's enumerated exceptions to the enforceability of arbitration agreements. (32) These exceptions are nonetheless of critical importance, and are discussed in detail in this Chapter. page "568" Like the recognition of arbitral awards, (33) the grounds permitted under the Convention for denying the validity of an international arbitration agreement should be understood as being subject to international limits. While Article II(3) is drafted to permit assertion of contract law defenses to the validity of arbitration agreements, it is best interpreted as authorizing only the application of generallyapplicable contract law defenses, and not the application of discriminatory national law rules of contract validity. In particular, as discussed above, this principle of non-discrimination precludes national laws from singling out arbitration agreements for idiosyncratic or discriminatory rules of validity or formation as compared to other categories of contracts (including with regard to formation, unconscionability, mistake, duress and other aspects of validity). (34) Finally, as also discussed above, an analogous analysis applies to the “non-arbitrability” exception under Article II(1) of the Convention. Although the non-arbitrability exception permits individual Contracting States to rely on local law to deny enforcement of otherwise valid arbitration agreements, (35) Article II(1) should be interpreted as imposing international limits on applications of the non-arbitrability doctrine. Properly understood, these limits require that national non-arbitrability rules be narrowly-tailored exceptions that advance specific, articulated national policies which are consistent with the Convention's objectives and the practice of other Contracting States. (36) For the reasons detailed elsewhere, any other interpretation would ignore the Convention's text and contradict its central objective of prescribing uniform international rules that facilitate the enforcement of international arbitration agreements. (37) c. European Convention and Inter-American Convention http://www.kluwerarbitration.com/CommonUI/print.aspx
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Other significant international conventions were adopted in the years following 1958, all broadly similar to the New York Convention in their recognition of the presumptive validity of international arbitration agreements. Adopted shortly after the New York Convention, the 1961 European Convention impliedly recognizes the presumptive validity of arbitration agreements, (38) while expressly providing a page "569" limited number of specific (39) bases for invalidity. To the same effect, Article 1 of the InterAmerican Convention provides that “[a]n agreement in which the parties undertake to submit to arbitral decision any differences that may arise or have arisen between them with respect to a commercial transaction is valid.” (40) d. UNCITRAL Model Law Paralleling and implementing the New York Convention, the UNCITRAL Model Law also adopted a rule of presumptive validity for international arbitration agreements, subject only to enumerated exceptions, and required that such agreements be specifically enforced by referring the parties to arbitration. (41) In particular, Article 8(1) of the Model Law provides: “A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests … refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.” (42) The Model Law's drafting history emphasizes the presumptive validity and enforceability of all international arbitration agreements (regardless whether the agreement provides for a foreign or a local arbitral seat), subject only to generally-applicable contract law defenses. (43) Although the body of reported precedent is as yet comparatively small, judicial decisions applying the UNCITRAL Model Law have adopted an avowedly pro-arbitration stance. Most Model Law courts have emphasized the importance of giving effect to international arbitration agreements, applying generally-applicable page (44) "570" rules of contract law, while refusing to apply, or narrowly construing, provisions of national law aimed at invalidating such agreements. (45) Courts in Model Law jurisdictions have concluded that international arbitration agreements must be upheld even in circ*mstances where a comparable domestic arbitration clause would not be. (46) e. Other National Arbitration Legislation Legislation in developed jurisdictions that have not adopted the Model Law similarly guarantees the presumptive validity of international arbitration agreements, typically subject only to generally-applicable contract defenses. (47) National court decisions are to the same effect, again emphasizing the pro-arbitration policies of contemporary arbitration regimes. (48)
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In the United States, the FAA 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.” (49) Applying the second chapter of the FAA, which implements Articles II(1) and II(3) of the New York Convention, (50) U.S. courts have underscored the narrow grounds that are available for challenging the validity or enforceability of international arbitration agreements. (51) page "571" As one U.S. decision declared, in refusing to give effect to a foreign law that would have invalidated an international arbitration agreement, the Contracting States to the New York Convention “have effectively declared a joint policy that presumes the enforceability of agreements to arbitrate” and “[t]he policy of the Convention is best served by an approach which leads to upholding agreements to arbitrate.” (52) Most lower U.S. courts have also said that the Convention prescribes weightier pro-enforcement policies than the domestic FAA. According to one court, “the liberal federal arbitration policy ‘applies with special force in the field of international commerce.’” (53) Relying on avowedly pro-arbitration national legislation, Swiss courts have adopted a broadly similar approach. As discussed above, Article 178(2) of the Swiss Law on Private International Law adopts a “validation” principle, providing for the substantive validity of international arbitration agreements specifying arbitration in Switzerland if either the law chosen by the parties, the law applicable to the underlying dispute, or Swiss law produces this result. (54) Applying generally-applicable principles of contract formation and validity, (55) Swiss judicial decisions have generally construed exceptions to the presumptive validity of international arbitration agreements narrowly. (56) In France, the Cour de cassation and other French courts have emphatically upheld the presumptive validity of international arbitration agreements. They have done so by applying a specialized set of substantive legal rules, independently of any national law, based solely on the parties' common intentions: “according to a substantive rule of international arbitration law the arbitration clause is legally independent from the main contract in which it is included or which refers to it and, provided that no mandatory provision of French law or international public policy (ordre public) is affected, that its existence page "572" and its validity depends only on the common intention of the parties, without it being necessary to make reference to a national law.” (57)
French courts have frequently upheld international arbitration agreements even in circ*mstances where a domestic arbitration agreement would be invalid. (58) Modern arbitration legislation in other jurisdictions, often enacted to reform historic statutory regimes or to implement accession to the New York Convention, adopts similar pro-arbitration approaches. Thus, arbitration statutes in England, (59) Japan, (60) Hong Kong
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(61) and other developed jurisdictions (62) provide for the
presumptive validity of international arbitration agreements. As a consequence of the foregoing developments, international arbitration agreements are no longer “against public policy,” “revocable” or “unenforceable,” but instead are presumptively valid and enforceable, subject only to enumerated exceptions which are more narrowly-construed than in domestic settings. Indeed, agreements to arbitrate international disputes are now affirmatively encouraged in most developed states, often by avowedly proarbitration enforcement regimes, with the objective of providing an effective dispute resolution mechanism which page "573" will in turn facilitate international trade and investment and ensure the parties' contractual autonomy. (63) f. Continued Invalidity or Unenforceability of International Arbitration Agreements in Some States Despite the foregoing developments, many developing countries refused for much of the 20th century to enforce agreements to arbitrate future disputes. Particularly in the Middle East, Latin America and Africa, developing states took the position that international arbitration agreements were an illegitimate infringement on their national sovereignty. (64) Arbitration agreements were often valid only if they concerned an existing dispute, which could be the subject of a submission agreement committing the parties to resolve the dispute by arbitration; agreements to arbitrate future disputes were, in contrast, invalid. (65) Even this reluctance was eventually overcome. As described above, the sweeping liberalizations of many national economies during the 1980s and 1990s were almost invariably accompanied by acceptance of international arbitration. (66) That was true even in developing nations which had historically been among the greatest skeptics of the international arbitration process. Numerous states with emerging economies ratified the New York Convention (67) and ICSID Convention, (68) while also adopting legislation providing for the enforceability of international arbitration agreements. (69) Despite the increasingly wide-spread acceptance of arbitration as a means of resolving international commercial disputes, legislation in some jurisdictions continues to disfavor international arbitration. (70) This is particularly true in developing states, but is also occasionally encountered in some developed states. National legislation disfavoring international arbitration agreements takes a variety of forms. These include: (a) form requirements (requiring, for example, that page "574" arbitration clauses be in capital letters or otherwise prominently displayed); (71) (b) limitations on the enforceability of arbitration agreements as applied to particular categories of disputes (so-called “non-arbitrability” rules); (72) (c) requirements for governmental approval of particular categories of arbitration agreements; (73) (d) requirements for particular types of corporate approval of arbitration agreements; (74) (e) limitations on arbitration in a foreign situs, (75) and (f) requirements for heightened evidence of the parties' intentions to
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form an agreement. (76) Nonetheless, as discussed below, the clear and decisive trend over the past several decades has been away from these sorts of exceptions and towards the effective, efficient enforcement of international arbitration agreements. page "575" 3. Constitutional and Legislative Guarantees of Access to Public Judicial Forums and Remedies A central rationale of many early authorities denying effect to arbitration agreements was the notion that they waived the parties' access to public courts and judicial remedies, and that such waivers should not be permitted or enforced. This rationale was often framed in terms of constitutional or civil rights, particularly in cases involving individuals. In the words of one early U.S. Supreme Court decision: “Every citizen is entitled to resort to all the courts of the country and to invoke the protection which all the laws or all those courts may afford him. A man may not barter away his life or his freedom, or his substantial rights.” (77) These guarantees were often directed at safeguarding citizens from governmental oppression, but also extended to ensuring that the state provided effective and neutral tribunals for the resolution of private disputes. The consequence of these rationales was often rules invalidating or denying effective enforcement mechanisms to pre-dispute agreements to arbitrate. (78) Contemporary authorities provide even more developed guarantees of access to public courts (such as Article 6 of the European Convention for the Protection of Human Rights and the U.S. due process clause). (79) At least arguably, these guarantees are in tension with the basic principle of arbitration, including international arbitration, on the grounds that it entails parties' “waiver” of their rights to a judicial forum: in the words of one U.S. authority, “[a] man may not barter away his life or his freedom, or his substantial rights.” (80)
A few contemporary authorities have relied upon the significance of rights to judicial access in considering remedies relating to the existence and validity of page "576" arbitration agreements. As a recent Swiss decision reasoned, in cautioning about the consequences of too readily holding that parties had agreed to arbitrate: “Constitutional law (in Switzerland, Article 30(1) of the Federal Constitution applies) as well as treaty law (see Article 6(1) of the European Convention on Human Rights) afford each natural person and legal entity the right to be heard before a court established on the basis of statutory law. By submitting to arbitration a party waives such right …. Since this constitutes a deviation of a constitutional right one must not conclude readily that the parties concluded an arbitration agreement if that issue is disputed. Rather, one has to make sure whether an arbitration agreement exists that binds the parties. Only where these prerequisites are satisfied, the parties can be required to bear the consequences of their choice (in http://www.kluwerarbitration.com/CommonUI/print.aspx
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particular the constraints on their rights to appeal).” (81)
A few other authorities are to the same effect, (82) typically relying on guarantees of judicial access to justify either formal requirements (83) or standards of proof (84) for arbitration agreements. As discussed below, these various conclusions are typically flawed, at least in the international context, resting on incomplete or erroneous appreciation of the arbitral process. (85) In some cases, contemporary authorities resurrect the sorts of arguments sometimes relied upon historically to invalid arbitration agreements. A recent example involves a Montana Supreme Court decision, which relied on the Montana state constitution to invalidate a domestic arbitration agreement. Among other things, the Montana Court declared that arbitration “is at one and the same time an ‘open attack’ on the right of jury trial and a ‘secret machination’ causing forfeiture” of “sacred” and “inviolable” rights to judicial access protected by page "577" Montana Constitution. (86) These types of decisions are anomalies, even in domestic settings, and are almost certainly preempted by the U.S. FAA and the New York Convention. (87) They nonetheless illustrate the recurrent allure of anti-arbitration prohibitions to local interests and some regulatory authorities. (88) Despite these occasional decisions, contemporary authority decisively and correctly rejects the notion that guarantees of access to public courts are contradicted by agreements to arbitrate, particularly in international settings. In particular, it is well-settled that an otherwise valid arbitration agreement may waive a party's rights under such guarantees of judicial access. As one recent English decision held, with regard to Article 6 of the European Human Rights Convention, which guarantees “a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law”: “the European Convention was not intended to destroy arbitration. Arbitration is based upon agreement and the parties can by agreement waive the right to a court.” (89) Other authorities under both the European Convention and comparable instruments in other states are to the same effect. (90) page "578" These decisions correctly hold that agreements to arbitrate do not contradict constitutional and other guarantees of access to judicial relief. On the contrary, agreements to arbitrate are an exercise of individual autonomy and choice, by which citizens give effect to their civil liberties in order to structure their affairs in the way which they consider most desirable and efficient. More specifically, arbitration is selected by parties, particularly in commercial matters, in order to achieve more fully and securely precisely the benefits of prompt, neutral and effective dispute resolution that constitutional guarantees of judicial access aim to protect. (91) These considerations are particularly powerful in international settings. There, domestic notions of guarantees of access to judicial relief must be seen in the context of competing jurisdictional claims http://www.kluwerarbitration.com/CommonUI/print.aspx
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by different national courts, as well as the peculiar jurisdictional, choice-of-law and enforcement difficulties that arise in transnational disputes. (92) As discussed above, it is precisely to avoid the risks of parochial, non-neutral judicial decisions by national courts, lengthy delays, arbitrary results flowing from lack of commercial or international expertise, and ineffective judicial remedies resulting from jurisdictional and enforcement difficulties that parties agree to arbitrate their international disputes. (93) The existence of these considerations, not present in domestic settings, provides a particularly compelling basis for contemporary pro-enforcement policies towards international arbitration agreements notwithstanding guarantees of access to public, judicial remedies. Indeed, international arbitration provides greater, not lesser, security for the fundamental civil rights of parties engaged in international commercial transactions, including most specifically rights of autonomy, rights to a neutral, impartial tribunal and rights to an informed, expert decision-maker.
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It is critical to appreciate that recognition of the parties' agreement to arbitrate their disputes effectuates fundamental civil rights. The voluntary choice, by free men and women, to resolve their disputes between themselves, in a manner which they structure, is the exercise of basic rights of liberty, association and property. As much as the right to speak, to associate, to hold property, or to contract, the right to arbitrate gives expression to vital political and civil rights. As discussed above, it is for that reason that the right to arbitrate has been given effect for more than 2000 years, and has encountered hostility almost invariably from totalitarian and oppressive regimes, while flourishing under free, democratic political systems. (94) The principle that international arbitration agreements are presumptively valid, subject only to enumerated and narrowlyconstrued exceptions, based on generally-applicable rules of contract law, is fundamental to the international arbitral page "579" process. It embodies a deliberate policy choice to undo, and keep undone, the 19th and early 20th century episodes of hostility to arbitration agreements. This pro-arbitration enforcement regime ensures that agreements to arbitrate – often subject to post hoc reconsideration when disputes arise – are predictably and expeditiously enforced around the world. Despite the presumptive validity of international arbitration agreements, this presumption is subject to a number of important conditions and exceptions under both international arbitration conventions and national arbitration regimes. The scope of these conditions and exceptions, and the constraints that international law imposes on these exceptions, are detailed in the remaining sections of this Chapter. page "580"
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3 See supra pp. 7-64, 90-147 & infra pp. 565-575. 4 See supra pp. 32-49. Historically, pre- and post-dispute
arbitration agreements were often effectively enforced through a combination of commercial and legal mechanisms, even in jurisdictions where their validity in ordinary national courts was limited. See supra pp. 33-34, 39, 43, 46-47. 5 See supra pp. 32-49. 6 See supra pp. 34-35, 44-47; Vynior v. Wilde (1609) 77 Eng. Rep. 595 (K.B.); Home Ins. Co. v. Morse, 87 U.S. 445, 457-58 (U.S. S.Ct. 1874) (agreement to arbitrate future disputes illegal and void); Judgment of 10 July 1843, Cie L'Alliance v. Prunier, 1843 Dalloz 561 (French Cour de cassation civ.), reprinted in, 1992 Rev. arb. 399 (agreement to arbitrate future disputes unenforceable). 7 See supra pp. 34-35, 43-45; W. Sturges, A Treatise on Commercial Arbitrations and Awards 45 (1930). 8 As discussed above, pre-dispute commercial arbitration agreements were generally enforceable in Switzerland, Germany, Belgium and a number of other leading trading states during the 19th century. See supra pp. 49-51. 9 See supra pp. 57-64. As also discussed above, arbitration was received less well by repressive or nationalistic regimes, including in Germany during the 1930s (supra pp. 50-51) and in many Communist states (supra pp. 145-147). 10 See supra pp. 57-64 & infra pp. 566-567. 11 See supra pp. 6-63, 91-109, 109-144. 12 See infra pp. 566-574. 13 See infra pp. 566-574, 1003-1057. 14 See supra pp. 58-61, 203. 15 Geneva Protocol on Arbitration Clauses in Commercial Matters (“Geneva Protocol”), Art. I, 27 L.N.T.S. 158 (1924) (emphasis added). 16 Geneva Protocol, Art. IV (emphasis added). 17 See supra pp. 59-61. 18 Geneva Convention on the Execution of Foreign Arbitral Awards (“Geneva Convention”), 92 L.N.T.S. 302 (1929). See supra pp. 6164. 19 See supra pp. 58-61. 20 This is reflected in part by the comparative dearth in reported national court decisions during the 1930s, 1940s and 1950s concerning international arbitration. 21 See supra pp. 62-64, 91-109, 109-144, 202-207 & infra pp. 567574. 22 See supra pp. 92-101, 203-205 & infra pp. 567-569. 23 New York Convention, Art. II(1). Art. II(1) paralleled Art. I of the Geneva Protocol in text and substance. See supra pp. 58-61, 96-98. See also A. van den Berg, The New York Arbitration Convention of 1958 121 (1981); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶¶1-144 to 1-148 (4th ed. 2004). 24 New York Convention, Art. II(3) (emphasis added). Article II(3) paralleled Article IV of the Geneva Protocol. See supra pp. 58-61, 96-98 & infra pp. 1005-1007. 25 As discussed above, initial drafts of the Convention dealt only with arbitral awards and did not address arbitration agreements; text http://www.kluwerarbitration.com/CommonUI/print.aspx
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providing for the presumptive validity and enforceability of arbitration agreements was introduced only at a late stage of the negotiations. See supra pp. 94-95, 202-205. 26 See supra pp. 95-101 & infra pp. 568-569, 578-580; Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.15 (U.S. S.Ct. 1974) (“[The Convention's purpose is] 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 … in the signatory nations”); URS Corp. v. Lebanese Co. for the Dev. and Reconstr. of Beirut Central District SAL, 512 F.Supp.2d 199, 210 (D. Del. 2007) (“primary purpose of the New York Convention, enforced through the FAA, is to efficiently recognize and enforce commercial arbitration agreements in international contracts, while unifying the standards by which these agreements are observed”). 27 See supra pp. 94-97, 202-205 & infra pp. 568-569, 1005-1007, 1021. 28 See infra pp. 1061, 1081-1083. 29 See infra pp. 1690-1691. 30 See infra pp. 1364-1367. 31 See infra pp. 1749-1751. 32 See, e.g., Riley v. Kingsley Underwriting Agencies, Ltd, 969 F.2d 953, 960 (10th Cir. 1992) (“‘null and void’ exception … is to be narrowly construed”); Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50, 53-54 (3d Cir. 1983); Ledee v. Cermiche Ragno, 684 F.2d 184 (1st Cir. 1982); Khan v. Parsons Global Sers. Ltd, 480 F.Supp.2d 327, 339 (D.D.C. 2007) (“federal courts have consistently found that the ‘null and void’ language in Article II(3) is to be narrowly construed”); Northwestern Airlines, Inc.v. R&S Co. SA, 176 F.Supp.2d 935, 938 (D. Minn. 2001); J.R. Normand Inc. v. GreCon Dimter Inc., [2005] S.C.R. 46 (Canada S.Ct.); Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994); Renusagar Power Co. v. Gen. Elec. Co., XX Y.B. Comm. Arb. 681 (Indian S.Ct. 1993) (1995); Judgment of 20 January 1987, Société Bomar Oil NV v. Entreprise Tunisienne d'Activités Pétrolières, 1987 Rev. arb. 482 (Paris Cour d'appel). 33 These limits are discussed above. See infra pp. 2701-2878. 34 These international standards are discussed above. See supra pp. 504-514, 536-538, 552-554 & infra pp. 609-610, 632-633. 35 New York Convention, Art. II(1) (“subject matter capable of settlement by arbitration”); supra pp. 523-526 & infra pp. 766 et seq. 36 See supra pp. 530-535. 37 See supra pp. 530-535 & infra 709-712. 38 It does so through provisions for the organization of the arbitral proceedings, the treatment of public entities and jurisdictional objections. European Convention, Arts. II(1), IV, V. See supra pp. 102-103, 205. 39 European Convention, Art. V(1) (“either non-existent or null and void or had lapsed”). 40 Inter-American Convention, Art. 1. Unlike the New York Convention, this provision does not expressly identify grounds for challenging the presumptive validity of arbitration agreements, although such grounds are clearly implied. See Lowry, The United States Joins the Inter-American Arbitration Convention, 7(3) J. Int'l Arb. 83, 87 (1990); van den Berg, The New York Convention 1958 and Panama Convention 1975: Redundancy or Compatibility?, 5 http://www.kluwerarbitration.com/CommonUI/print.aspx
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Arb. Int'l 214, 217 (1989). 41 See supra pp. 206-207, 295-296 & infra pp. 1021-1024. 42 UNCITRAL Model Law, Art. 8(1) (emphasis added). The UNCITRAL Rules also contain provisions regarding the presumptive validity of international arbitration agreements. UNCITRAL Rules, Arts. 1(1) & 21(1). 43 See supra pp. 285-286, 307-308 & infra pp. 880-881, 1014; H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 258-301 (1989); Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration, as amended in 2006, ¶21, available at www.uncitral.org; P. Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions ¶2-079 (2d ed. 2005). As discussed below, Article 1(5) of the Model Law also permits application of local non-arbitrability rules. See supra pp. 521-522 & infra pp. 776-777. 44 See, e.g., Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B.
Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994); Boart Sweden AB v. Nya Stromnes AB, 41 B.L.R. 295, ¶4 (Ontario S.Ct. 1988). 45 See, e.g., Quintette Coal Ltd v. Nippon Steel Corp., [1991] W.W.R. 219 (B.C. Court of Appeal); Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeals). See infra pp. 717-719, 730-732, 736, 747. 46 See, e.g., Quintette Coal Ltd v. Nippon Steel Corp., [1991] W.W.R. 219, 227-28 (B.C. Court of Appeal). 47 U.S. FAA, 9 U.S.C. §§2, 202; English Arbitration Act, 1996, §5; Belgian Judicial Code, Art. 1679(1); Japanese Arbitration Law, Arts. 14(1)(i), (ii); Chinese Arbitration Law, Art. 17 (“An arbitration agreement shall be void if one of the following facts exists: (1) The agreed matters for arbitration exceed the scope of arbitrable matters as specified by law; (2) one party that concluded the arbitration agreement has no capacity for civil acts or has limited capacity for civil acts; or (3) one party coerced the other party into concluding the arbitration agreement.”). 48 See infra pp. 571-574, 713 et seq. 49 U.S. FAA, 9 U.S.C. §2 (emphasis added); supra pp. 136-138, 206-207, 485-492. 50 See supra pp. 136-138. 51 See, e.g., Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (3d Cir. 2000) (“The FAA establishes a strong federal policy in favor of compelling arbitration over litigation [which] carries ‘special force’ when international commerce is involved”); Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1063 (2d Cir. 1993) (policy in favor of arbitration “is even stronger in the context of international transactions”); Pepsico Inc. v. Oficina Central de Asesoria y Ayuda Tecmica, CA, 945 F.Supp. 69 (S.D.N.Y. 1996) (“strong policy favoring prompt arbitration expressed in the U.N. Convention”); Samson Resources Co. v. Int'l Business Partners, Inc., 906 F.Supp. 624 (N.D. Okla. 1995) (“the policy favoring arbitration is ‘even stronger in the context of international business transactions’”); Filanto SpA v. Chilewich Int'l Corp., 789 F.Supp. 1229 (S.D.N.Y. 1992). 52 Rhone Mediterranee Compagnia Francese Di Assicurazioni E http://www.kluwerarbitration.com/CommonUI/print.aspx
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Riassicurazoni v. Achille Lauro, 712 F.2d 50, 53-54 (3d Cir. 1983) (emphasis added). 53 David L. Threlkeld & Co. v. Metallgesellschaft Ltd, 923 F.2d 245, 248 (2d Cir. 1991) (quoting Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 631 (U.S. S.Ct. 1985)). 54 See supra pp. 415-416, 501-504. 55 See, e.g., Judgment of 8 July 2003, DFT 129 III 675 (Swiss Federal Tribunal); Judgment of 21 November 2003, DFT 130 III 66, cons. 3 (Swiss Federal Tribunal); Judgment of 24 March 2000, 21 ASA Bull. 781, 790-795 (Swiss Federal Tribunal) (2003); Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 922 (Swiss Federal Tribunal); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶¶28, 49 (2000); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶383 (2006). 56 See, e.g., Judgment of 16 October 2003, 22 ASA Bull. 364 (Swiss Federal Tribunal) (2004); Judgment of 16 October 2001, 2002 Rev. arb. 753 (Swiss Federal Tribunal); Judgment of 9 April 1991, DFT 117 II 94 (Swiss Federal Tribunal); Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921 (Swiss Federal Tribunal). 57 Judgment of 20 December 1993, Municipalité de Khoms El Mergeb v. Societé Dalico, 1994 Rev. arb. 116 (French Cour de cassation civ. 1e) (1994) (emphasis added). See also Judgment of 7 June 2006, 133 J.D.I (Clunet) 1384 (French Cour de cassation civ. 1e) (2006) (arbitration agreement is valid unless it violates rules of international public policy). See supra pp. 332-333, 439-441, 504506. 58 SeeJudgment of 10 April 1990, Euro'n Country Hotel Ltd v. Consorts Legrand, 1994 Rev. arb. 544 (Paris Tribunal de grande instance) & Judgment of 14 November 1991, Consorts Legrand v. Euro'n Country Hotel Ltd, 1994 Rev. arb. 544 (Paris Cour d'appel); Judgment of 7 December 1994, V 2000 (formerly Jaguar France) v. Project XJ 220 ITD, 1996 Rev. arb. 245 (Paris Cour d'appel) & Judgment of 21 May 1997, Renault v. V 2000 (formerly Jaguar France), 1997 Rev. arb. 537 (French Cour de cassation civ. 1e). 59 English Arbitration Act, 1996, §9(4) (“[T]he court shall grant a stay, unless it is satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.”). 60 Japanese Arbitration Law, Arts. 14(1)(i), (ii) (“A court before which an action is brought in respect of a civil dispute which is the subject of an arbitration agreement shall, if the defendant so requests, dismiss the action. Provided, this shall not apply in the following instances: (i) when the arbitration agreement is null and void, cancelled, or for other reasons invalid; (ii) when arbitration proceedings are inoperative or incapable of being performed based on the arbitration agreement.”). 61 Hong Kong Arbitration Ordinance, Art. 6 (1997). 62 See, e.g., Belgian Judicial Code, Art. 1679(1) (“The judge seized of a dispute which is the subject of an arbitration agreement shall, at the request of either party, declare that he has no jurisdiction, unless, insofar as concerns the dispute, the agreement is not valid or has terminated …”); Spanish Arbitration Act, Art. 9(6) (“In respect of international arbitration, the arbitration agreement shall be valid and the dispute shall be capable of arbitration if it complies with the requirements established by the juridical rules chosen by the parties to govern the arbitration agreement, or the juridical rules applicable to the merits of the dispute, or Spanish law”). See supra pp. 111http://www.kluwerarbitration.com/CommonUI/print.aspx
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144, 206-207. 63 See supra pp. 111-144, 206-207, 411-422. 64 See supra pp. 144-147. 65 See supra pp. 45-46, 144-147; Burghetto, Current Status of Arbitration Legislation in Argentina, 21 J. Int'l Arb. 479 (2004); Grigera Naón, Arbitrationin Latin America: Overcoming Traditional Hostility, 5 Arb. Int'l 137, 141-143 (1989); Netto, Brazil 35, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 2002). 66 See supra pp. 109-115, 117-121, 144-147; Grigera-Naón, Arbitration in Latin America: Overcoming Traditional Hostility (An Update), 22 U. Miami Inter-Am. L. Rev. 203 (1991); Grigera-Naón, Arbitration and Latin America: Progress and Setbacks, 21 Arb. Int'l 127 (2005); Schaefer, Leaving the Colonial Arbitration Laws Behind: Southeast Asia's Move into the International Arbitration Arena, 16 Arb. Int'l 297, 310–318 (2000). 67 See supra pp. 99-100. 68 See supra pp. 105-107. 69 See supra pp. 117-121, 144-147. Among others, Bangladesh, Brazil, China, Egypt, India, Lebanon, Malta, Malaysia, Mexico, Nigeria, Russia and Thailand enacted modern arbitration statutes which provided for the presumptive validity of international arbitration agreements. 70 See supra pp. 144-147. 71 See, e.g., Mo. Ann. Stat. §435.460 (“ten point capital letters” adjacent to signature line), preempted by Johnson v. Long John Silver's Restaurants, Inc., 320 F.Supp.2d 656, 664 (M.D. Tenn. 2004); Mont. Code Ann. §27-5 114(4) (“typed in underlined capital letter on the first page of the contract”), preempted by Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 688 (U.S. S.Ct. 1996); S.C. Code Ann. §15-48-10a (“underlined capital letters” on “first page of the contract”), preempted by Munoz v. Green Tree Fin. Corp., 542 S.E.2d 360, 363 (S.C. 2001); Tex. Rev. Civ. Stat., Art. 224-1 (“underlined capital letters” or “rubber-stamped prominently” on first page), repealed, Tex. Civ. Prac & Rem. Ann. §172.001; Cal. C.C.P. §1298(a) (“set out in at least 8-point bold type or in a contrasting red in at least 8-point-type …”), preempted by Westra v. Marcus & Millichap Real Estate Inv. Brokerage Co., Inc., 129 Cal. App. 4th 759, 764 (Cal. App. 1 Dist. 2005); M.S.A. §27A.5044(4) of the Malpractice Arbitration Act (“The agreement shall contain the following provision in 12-point boldface type …”), repealed, P.A. 1993, No. 78, §2. As noted, and as discussed elsewhere, these state law rules are generally preempted by the FAA. See infra pp. 622-625. 72 See, e.g., Jordanian Law No. 35 of 1983 (disputes regarding maritime issues); Italian Code of Civil Procedure, Art. 806 (nonarbitrability of certain labor disputes); Belgian Judicial Code, Art. 1678(2) (non-arbitrability of certain distribution agreements); German ZPO, §1025 (non-arbitrability of consumer disputes); Motor Vehicle Contract Arbitration Fairness Act, 15 U.S.C. §1226(a)(2) (non-arbitrability of certain motor vehicle franchise disputes). See infra pp. 788 et seq. 73 See, e.g., Arbitration Regulation of Saudi Arabia, 1983, Art. 3 (“Government Agencies are not allowed to resort to arbitration for settlement of their disputes with third parties except after having obtained the consent of the President of the Council of Ministers. This provision may however be amended by resolution of the Council of Ministers.”); Constitution of Islamic Republic of Iran, Art. http://www.kluwerarbitration.com/CommonUI/print.aspx
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139; Gharavi, The 1997 Iranian International Commercial Arbitration Law: The UNCITRAL Model Law à l'Iranienne, 15 Arb. Int'l 85 (1999). See infra pp. 630-635. 74 See, e.g., Austrian Civil Code, §1008; Greek Code of Civil Procedure, Art. 217. See infra pp. 619, 620-622. 75 See, e.g., Michigan Franchise Investment Law, Mich. Comp. Laws Ann. §445.1527(f) (“Each of the following provisions is void and unenforceable if contained in any documents relating to a franchise: … A provision requiring that arbitration or litigation be conducted outside this state. This shall not preclude the franchise from entering into an agreement, at the time of arbitration, to conduct arbitration at a location outside this state.”). See infra pp. 1725-1727, 1726 & n. 242. 76 See infra pp. 645-647. 77 Home Ins. Co. v. Morse, 87 U.S. 445, 451 (U.S. S.Ct. 1874). 78 See Nute v. Hamilton Ins. Co., 6 Gray 174 (Mass. 1856); Blodgett Co. v. Bebe Co., 214 P. 38 (Cal. S.Ct. 1923) (“citizens ought not to be permitted or encouraged to deprive themselves of the protection of the courts by referring to the arbitrament of private persons”); supra pp. 38-39, 43-47. 79 See, e.g., European Convention on Human Rights, Art. 6 (“In the determination of his civil rights and obligations … everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law”), http://conventions.coe.int; U.S. Constitution, Amendments V (“No person shall … be deprived of life, liberty, or property, without due process of law.…”), VII (“In Suits at common law, … the right of trial by jury shall be preserved.…”), XIV (due process); Venezuelan Law on Private International Law, Art. 47 (“Jurisdiction corresponding to Venezuelan Courts, under the former provisions may not be waived conventionally in favor of foreign Courts or of arbitrators deciding abroad, in cases where the issue should refer to disputes related to rights in rem on real property situated in the territory of the Republic, or when dealing with issues not admitting settlement or affecting essential principles of Venezuelan public policy.”). 80 Home Ins. Co. v. Morse, 87 U.S. 445, 451 (U.S. S.Ct. 1874). See supra pp. 44-47. 81 Judgment of 16 October 2001, 2002 Rev. arb. 753 (Swiss Federal Tribunal). 82 See, e.g., Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 923 et seq. (Swiss Federal Tribunal) (“By submitting to arbitration the Parties waive their right to have state courts decide over their potential disputes. Given the constraints on available remedies [Einschränkung der Rechtsmittelwege] and considering that the costs relating to arbitration proceedings are, as a rule, considerably higher, such waiver is of great importance; therefore one must not readily assume that an arbitration agreement has been concluded where its existence is disputed.”); Judgment of 20 January 2006, C04/174HR (Netherlands Hoge Raad) (relying on Article 6 of European Convention of Human Rights to conclude that an arbitration agreement must be clear and unequivocal); Judgment of 8 July 2003, DFT 129 III 675, 680 et seq. (Swiss Federal Tribunal); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶1191 (2006). 83 See infra pp. 583-587. 84 See infra pp. 645-647.
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85 See infra pp. 653-655. 86 Kloss v. Jones, 54 P.3d 1 (Mont. 2002), rehearing, 57 P.3d 41
(Mont. 2002). See Neesemann, Montana Court Continues Its Hostility to Mandatory Arbitration, 58 Dispute Res. J. 22 (2003). 87 See supra pp. 134-139, 485-497 & infra pp. 1014-1018, 17261727. 88 See supra pp. 144-147. 89 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal). 90 See, e.g., Deweer v. Belgium, (1980) 2 EHRR 439 (ECHR); Sumukan Ltd v. Commonwealth Secretariat [2007] EWCA Civ. 1148 (English Court of Appeal) (valid arbitration agreement does not offend Article 6 of European Human Rights Convention); Stretford v. Football Ass'n Ltd [2007] 2 All E.R. (Comm.) 1 (English Court of Appeal) (same, including where arbitration clause was condition of membership in sporting association); Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 923 et seq. (Swiss Federal Tribunal) (“By submitting to arbitration the Parties waive their right to have state courts decide over their potential disputes.”); Judgment of 20 January 2006, C04/174HR (Netherlands Hoge Raad); Dillard v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., 961 F.2d 1148, 1155 n.12 (5th Cir. 1992) (arbitration agreement is valid waiver of Seventh Amendment right to jury trial). See also Briner & von Schlabrendorff, Article 6 of the European Convention on Human Rights and Its Bearing upon International Arbitration, in Law of International Business and Dispute Settlement in the 21st Century: Liber Amicorum Böckstiegel 89 (2001); Brunet, Arbitration and Constitutional Rights, 71 N.C. L. Rev. 81 (1992); Sternlight, Rethinking the Constitutionality of the Supreme Court's Preference for Binding Arbitration: A Fresh Assessment of Jury Trial, Separation of Powers and Due Process Concerns, 72 Tulane L. Rev. 1 (1997); Jarrossan, L'arbitrage et la CEDH, 1989 Rev. arb. 578; Fawcett, The Impact of Article 6(1) of the ECHR on Private International Law, 56 Int'l & Comp. L.Q. 1 (2007). 91 See supra pp. 71-90. 92 See supra pp. 28-32, 71, 74-76, 88-90. 93 See supra pp. 71-90. 94 See supra pp. 7-57, 57-64.
Formation, Validity and Legality of International Arbitration Agreements - B. Formal Validity of International Arbitration Agreements Chapter 5 Gary B. Born
Author Gary B. Born
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B. Formal Validity of International Arbitration Agreements (95) Like other types of contracts, international arbitration agreements are subject to form requirements. The most significant and universally-accepted of these is the “writing” or “written form” requirement, together with related requirements for a page "580" “signature” and/or an “exchange” of written communications. In addition, some national laws purport to impose a variety of other form requirements, including requirements concerning the size and location of type in which the arbitration clause is printed, the need for separate execution of arbitration agreements, the need for a selection of arbitrators and the like. (96) As discussed below, the wisdom of many of these form requirements is disputed, and the decisive trend in recent decades has been away from special or heightened form requirements for international commercial arbitration agreements. (97)
Formation, Validity and Legality of International Arbitration Agreements - B. Formal Validity of International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 580 - 625
Preliminarily, it is important to distinguish between two different categories of “form requirement.” (98) First, some form requirements are relevant to the validity of an arbitration agreement: if these requirements are not satisfied, then the agreement to arbitrate is invalid. (99) Second, other “form requirements” are in reality jurisdictional conditions which must be satisfied in order for a particular legislative instrument (e.g., an international arbitration convention or national arbitration statute) to apply: as discussed below, if these “form requirements” are not satisfied, then the relevant convention or legislation does not apply, (100) but the arbitration agreement may nonetheless be valid under either other statutory or common law principles. (101) It is essential to distinguish clearly between these different possible page "581" legal consequences in discussing what are typically referred to as “form requirements.” Also preliminarily, it is important to note that the conclusion that a putative international arbitration agreement satisfies applicable form requirements does not necessarily mean that this agreement constitutes a validly-formed and enforceable arbitration agreement. Thus, the New York Convention, UNCITRAL Model Law and other comparable arbitration instruments impose formal requirements demanding a satisfactory “writing.” (102) Failure to satisfy these requirements can render a putative agreement invalid or can exclude otherwise validly-formed arbitration clauses from otherwise applicable pro-arbitration regimes. Nonetheless, even if an arbitration agreement satisfies this writing requirement (and other applicable formal requirements), it may not satisfy applicable substantive law governing contract formation or validity (e.g., lack of consent, mistake, illegality). (103) Put differently, satisfaction of form requirements is a necessary, but not sufficient, condition for contractual validity. 1. Written Form Requirements The pro-arbitration legislative regimes of all leading international arbitration conventions (including the New York, European and InterAmerican Conventions) are limited to “written” agreements to arbitrate. (104) Although there are exceptions, the same is true of
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many arbitration statutes (including the UNCITRAL Law). (105) These “writing” requirements have deep historical roots in most legal systems, (106) page "582" as well as in many international instruments (107) (although there are exceptions (108) ). Written form requirements also exist in the context of forum selection clauses. (109) As discussed below, there are various definitions of what constitutes a sufficient “writing” for purposes of contemporary arbitration regimes. (110) Many of these statutory definitions are unnecessarily narrow or archaic, and most national courts and arbitral tribunals have struggled to reach commercially-sensible results in the absence of adequate legislative reforms. (111) a. Rationale for Written Form Requirement A preliminary question is why a written form requirement should be adopted for international arbitration agreements. If A and B agree orally (or by a formally page "583" inadequate writing) to arbitrate an existing dispute between them before C, as arbitrator, there are legitimate reasons for enforcing that agreement – just as other oral agreements are often enforced. Likewise, if an oral sale and purchase agreement, or other commercial transaction, is enforceable, there are strong reasons that an ancillary oral agreement (or formally deficient written agreement) to arbitrate disputes relating to that contract should be enforced. Among other things, the pro-arbitration policies of the New York Convention and national arbitration statutes (112) would appear to be served no less by enforcing oral promises to arbitrate (or formally defective written promises to arbitrate) than written agreements to arbitrate. Despite this, written form requirements have long been applied to agreements to arbitrate. One explanation for the writing requirement is ensuring that parties are adequately aware of their waiver of otherwise-available access to national courts and judicial remedies when agreeing to arbitrate and of the gravity of their commitment to arbitrate. (113) In this respect, the “writing” requirement for arbitration agreements is similar in its rationale to form requirements under various national laws for matters such as real property transactions or testaments, where special form requirements apply. (114) This rationale is sometimes supported by arguments that waiver of access to judicial remedies should require special formalities to ensure due notice and reflection: the “protect[ion] of the parties concerned from entering page "584" into ill-thought-out commitments involving the renunciation of the right of access to normal courts and judges.” (115)
On the other hand, most developed legal systems have abandoned the notion that an agreement to arbitrate an international dispute is an exceptional waiver of judicial remedies. Instead, in contemporary international commerce, arbitration is now the natural mode of dispute resolution, while resort to national courts is freighted with serious jurisdictional uncertainties, as well as concerns regarding neutrality and experience. (116) Equally, contemporary arbitration legislation in developed jurisdictions makes arbitration agreements at least as enforceable as, and sometimes more enforceable than,
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other contracts. (117) In these circ*mstances, there are good reasons not to impose a special requirement for a written form, which is inapplicable to other sorts of international contracts, to arbitration agreements. The written form requirement is also sought to be explained on the grounds that it provides a readily-verifiable record of the parties' agreement to arbitrate. (118) That is, of course, true, but it is at best a weak justification, while also justifying only very limited types of form requirements. The existence of a written record of any agreement – whether an arbitration agreement or otherwise – is obviously useful and important. Nonetheless, most legal systems will generally give effect to agreements without such written records, even while recognizing the uncertainties and difficulties of proof and credibility that accompany oral agreements. (119) Again, it is difficult to see why agreements to arbitrate should be treated differently. It might be possible to justify the writing requirement on the related grounds that it gives impetus to the parties' consideration of, and genuine agreement on, critical issues such as arbitral seat, institutional rules, language, number of arbitrators page "585" and the like. The risk that parties – particularly lay parties (120) – will fail adequately to consider purely oral references to such matters, and the fact that such consideration should be encouraged, could go at least part of the way towards justifying the requirement for a “writing.” (121) Despite this, it is difficult to avoid the conclusion that historic written form requirements (and related “signature” and “exchange” requirements) are ill-suited to, and unnecessary in, contemporary international business transactions between commercial parties. It is true that a written arbitration agreement, made after the parties have considered what arbitral mechanism best suits their purposes, is to be preferred over an agreement made orally and without reflection. That does not mean, however, that an oral or defectively-written international arbitration agreement should not be valid: rather, imposing such a rule makes the best an enemy of the good. Oral international commercial arbitration agreements should, as a matter of principle, be valid in the same way that most other oral international commercial contracts may be valid. (122) Despite this, there currently still remains a requirement in many legal systems that international arbitration agreements be in “writing” (or satisfy “signature” and “exchange” requirements) in order to fall within contemporary “pro-arbitration” enforcement regimes (123) and, in some legal systems, to be valid. (124) Although page "586" legislative consideration has not infrequently been given to eliminating the “writing” requirement entirely, (125) comparatively few developed jurisdictions have thus far done so. (126) Nonetheless, as discussed below, the 2006 revisions to the UNCITRAL Model Law adopted materially less restrictive formal writing requirements than those prevailing in most jurisdictions (including an option that would dispense entirely with such requirement). (127) A few other recent national arbitration statutes have taken similar steps to either eliminate or virtually eliminate any written form requirement. (128) These enactments likely presage future developments in other jurisdictions.
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b. New York Convention's Written Form Requirement The most universal written form requirement for international arbitration agreements is imposed by the New York Convention. As provided in Article II(1), the Convention applies only to “agreements in writing,” which are then defined by Article II(2) to include “an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.” (129) The Convention's written form requirement was adopted specifically in order to provide page "587" a uniform international standard, which was considered necessary given divergent national approaches to the topic. (130) At least read literally, Article II(2)'s “writing” requirement is comparatively (and unnecessarily) stringent and a misnomer. (131) Article II(2) does not merely require that arbitration agreements be in “written” form, but also that such agreements be either “signed by the parties” or contained in an “exchange of letters or telegrams.” (132) These requirements for a “signature” and/or an “exchange” exclude not just oral arbitration agreements, but also arbitration agreements involving tacit or oral acceptances of written instruments and unsigned written contracts. (133) Under the language of Article II(2), not merely a written record of the parties' agreement, but also a contract that is signed or contained in an exchange of communications is required. National courts have generally sought to interpret Article II(2) liberally, insofar as the Convention's text will allow, but have typically failed to do so in a uniform page "588" manner. (134) Nonetheless, as discussed below, a number of commonly-accepted principles concerning the Convention's “writing” requirement can be identified. i. Arbitration Clause in A Signed Contract It is clear that Article II(2) of the Convention is satisfied by a written contract, which both parties sign, that contains as one of its terms a written arbitration clause encompassing future disputes. (135) One early Italian decision suggested that Article II required that the arbitration clause itself (as distinct from the contract itself) be signed, but then rightly rejected the suggestion. (136) It is also clear that a submission agreement (by which the parties agree to refer an existing dispute to arbitration) which is signed by both parties, satisfies Article II(2)'s requirement for a signed writing. (137) ii. Arbitration Clause in Contract Not Signed by All Parties It is much less clear whether an arbitration clause contained in an unsigned, but nonetheless agreed, written contract satisfies Article II(2)'s form requirement. The literal text of Article II(2) arguably requires that both a written contract containing an arbitration clause and a separate arbitration agreement be signed, with the result that an unsigned (but agreed) written contract or arbitration agreement is not subject to the Convention. Despite this, some authorities have reached different results, http://www.kluwerarbitration.com/CommonUI/print.aspx
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interpreting Article II(2) as not requiring that a contract containing an arbitration clause be signed (in contrast to a separate arbitration agreement, where a signature would be required). For example, a U.S. appellate court held in Sphere Drake Insurance plc v. Marine page "589" Towing, Inc. that in the case of an “arbitral clause in a contract, the qualifications applicable to arbitration agreements do not apply. A signature is therefore not required.” (138) This construction of Article II(2) makes much commercial sense, and has been adopted by other lower courts, (139) but it is not the most natural interpretation of the language of the Convention: Article II(2)'s signature and exchange requirements are most naturally read as applying to both a separate arbitration agreement and to a contract containing an arbitration clause. (140) In contrast, another U.S. appellate court has held that a contract containing an arbitration clause must be signed under Article II(2), reasoning that: “Article II, section 2 … defines the term ‘agreement in writing’ to include ‘an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.’ … [T]he district court held, that ‘signed by the parties’ modifies only the clause immediately preceding it, ‘an arbitration agreement,’ and not the previous clause [‘an arbitral clause in a contract.’] … We disagree. Section 2 takes the structure ‘A or B, with C.’ … Grammatically, the comma immediately following ‘an arbitration agreement’ serves to separate the series (‘an arbitral clause in a contract or an arbitration agreement’) from the modifying phrase (‘signed by the parties or contained in an exchange of letters or telegrams’), and suggests that the modifying phrase is meant to apply to both elements in the series. Indeed, this comma can serve no other grammatical purpose.” (141)
Although it produces results that are out-of-step with contemporary commercial practice and expectations, there is considerable force to this grammatical page "590" interpretation of the Convention – requiring that both “contracts” and “arbitration agreements” be signed. (142) It is clear that Article II(2) requires that both (or all relevant) parties sign the underlying contract or arbitration agreement. The Convention requires an agreement “signed by the parties,” not by “a party.” (At the same time, as discussed below, Article II does not prevent application of principles of veil piercing, agency, or similar doctrines to conclude that one party's signature and consent to an arbitration agreement legally bind another party. (143) ) iii. Arbitration Agreement in An Exchange of Letters An arbitration agreement contained in an exchange of letters or telegrams may also satisfy Article II(2). (144) Although different textual readings are possible, Article II(2) should not be interpreted to require that letters or telegrams (as distinguished from “contracts”) be “signed.” Consistent with this, a substantial body of http://www.kluwerarbitration.com/CommonUI/print.aspx
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authority, including most commentators, (145) as well as most national court decisions (146) page "591" and arbitral awards (147) have concluded that letters, telegrams and similar communications need not be manually signed in order to satisfy Article II(2). Moreover, unlike many written contracts, telegrams and other communications cannot, or cannot readily, be signed; equally letters and telegrams are in practice often not formally “signed,” and, in the electronic era, the trend away from manual signatures is accelerating. (148) Reading Article II(2) to require letters to be signed therefore elevates grammatical form over commercial substance, with the potential to cause both artificial and unjust results. The better interpretation of Article II(2) is that an arbitration clause in a contract or an arbitration agreement is formally valid if either (a) signed, or (b) accepted in an “exchange” of letters or similar written communications (which themselves may or may not be signed). A related issue is whether Article II(2) applies if parties assent in an exchange of letters to an unsigned contract containing an arbitration clause. Article II(2) should clearly cover an unsigned written arbitration agreement, accepted in written correspondence, if the relevant letters are signed. It also follows from the foregoing discussion that Article II(2) should apply even if the relevant letters (or other communications) accepting an unsigned contract are themselves unsigned, provided that the letters or other correspondence are in writing and are exchanged. (149) On the other hand, it has been said that a written acceptance of an oral offer to arbitrate will not satisfy the terms of Article II. (150) page "592" iv. Oral or Tacit Acceptances of Arbitration Agreements The most significant area of disagreement over Article II(2) concerns its application to oral or tacit acceptances of a written offer which contains within it a written arbitration clause. National courts and commentators are divided in their analysis of this issue. The subject is made more difficult by the drafting history of Article II(2), indicating that the requirement for an “exchange” of letters or telegrams was intended to exclude tacit acceptances. (151) Consistent with this, many courts from a wide variety of jurisdictions have held the New York Convention inapplicable where an arbitration provision in one party's communication (typically an order form, an invoice, or some other standard form) has not been affirmatively accepted in writing by the other party. (152) page "593" A considerable body of commentary adopts the same view, in both civil law (153) and common law (154) states. For example, the French Cour de cassation has held that Article II(2) is not satisfied by a tacit acceptance of a letter referring to standard conditions, which incorporated an arbitration provision. (155) Likewise, Italian courts have repeatedly held that one party's acceptance of another party's contractual terms (set forth in purchase order confirmations or similar documents) by way of conduct does not satisfy Article II(2). (156) Swiss courts have adopted the same approach to Article II, requiring an exchange of http://www.kluwerarbitration.com/CommonUI/print.aspx
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writings containing an affirmative acceptance, not tacit consent or acquiescence. (157) On the other hand, a few national courts have held that the Convention is satisfied by tacit acceptance of a quotation containing an arbitration provision, particularly where the acceptance involves receiving the performance of contractual obligations. (158) For example, a Dutch appellate court held that Article II(2) is satisfied page "594" where the seller sends the buyer a written sales contract containing an arbitration clause, and the buyer does not object until months after taking delivery of goods. (159) A number of U.S. courts have also taken a fairly expansive view of Article II(1)'s “writing” requirement in this context. Some courts have found the Convention's “writing” requirement satisfied by exchanges of telexes, some of which contained arbitration clauses, to which the receiving party did not object. (160) Other U.S. courts have upheld arbitration clauses contained in written offers pursuant to which the offeror commenced performance that the offeree accepted. (161) The apparent rationale for these decisions is that the Convention's “writing requirement” is satisfied where there is an exchange of writings between the parties, even if there is no express written acceptance of the arbitration clause in those writings. v. Express versus Implied Arbitration Agreements As discussed above, many authorities have concluded that the text of Article II(2), and the provision's drafting history, (162) exclude tacit arbitration agreements resulting from a party's acquiescence. On the other hand, it is difficult to avoid the conclusion that this interpretation ignores the well-settled and sensible role of implied consent under national substantive laws, (163) and contemporary commercial practice, (164) as well as the principle of good faith in contract performance. (165) The most satisfactory resolution, in these circ*mstances, is to interpret the requirement for an “exchange” page "595" of written communications liberally, to include any documentary or electronic communication evidencing assent to an arbitration agreement, whether such assent is express or implied. (166) This approach does no violence to the text of Article II(2), while arriving at a result at least partially consistent with national substantive contract law and commercial practice. There is no requirement under the New York Convention that the assent to a written (but unsigned) contract, arbitration agreement, letter, or other communication containing an arbitration clause must be express. Article II(2) requires an agreement in “writing” – not an “express” written agreement. It would be wrong to extend the formal requirements of the Convention to require “express” written assent; (167) this would introduce a potentially significant new requirement into the Convention, which is contrary to its pro-arbitration objectives, as well as unsupported by its text. This conclusion is buttressed by the fact that implied consent is permitted as a substantive matter under many national legal systems. (168) It would be odd for Article II(2)'s form requirement to be interpreted to reduce the scope of these rules, even where an exchange of written, or even signed, communications existed; this http://www.kluwerarbitration.com/CommonUI/print.aspx
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result would extend the Convention's formal requirement into the realm of substantive contractual validity. That is particularly true given that one of the New York Convention's purposes was to enhance the enforceability of arbitration agreements, including beyond that provided by the Geneva Protocol; (169) requiring express written agreements would not only fail to accomplish, but would affirmatively contradict, this objective. vi. Estoppel under Article II's Form Requirements There are circ*mstances in which a party has accepted performance under a contract, or taken similar actions, and subsequently asserted objections to the formal validity of an arbitration agreement. Such objections are fundamentally unattractive, and most authorities have sought grounds to deny them. In particular, some authorities have concluded that the Convention incorporates principles of good faith and estoppel, which preclude parties from relying on Article II's form requirements in some circ*mstances. (170) In one experienced judge's words, a party's “obvious policy page "596" of keeping this point up its sleeve to be pulled out only if the arbitration was lost, is not one that I find consistent with the obligation of good faith nor with any notions of justice and fair play” under the Convention. (171)
The foregoing conclusion is difficult to resist. Principles of good faith and estoppel (or its equivalent) have universal application and it is impossible to conclude that the Convention's drafters would not have intended such standards to apply – with uniform international effect – in international commercial contexts. Thus, Contracting States are not only free to conclude that Article II's form requirements are inapplicable, by virtue of a party's lack of good faith, but are obligated to give effect to principles of good faith and estoppel in considering formal objections to an agreement to arbitrate. vii. “Letters,” “Telegrams” and Electronic Communications Another set of interpretative issues arises from Article II(2)'s references to an exchange of “letters or telegrams.” Many contemporary readers may never have seen a “telegram,” while new forms of electronic communication such as facsimile transmissions, e-mails, SMSs, instant messaging and the like are now routine occurrences in international business. The Convention's reference to “telegrams,” and not to contemporary types of communications, creates the possibility for unnecessarily narrow interpretations of Article II(2). For example, there are ill-considered national court decisions that conclude that arbitration clauses contained in e-mails are formally invalid. (172) Nonetheless, the overwhelming weight of authority extends the Convention's (and other instruments) definition of an exchange of “letters” to any exchange of communications which leaves a record, including faxes and e-mails. (173) This page "597" approach is sensible: as discussed above, the Convention was drafted, and functions, as a constitutional charter. (174) It therefore makes little sense to read the Convention's reference to “letters or telegrams” as excluding modern means of communications which are no less reliable or customary in commercial practice, and leave no less of a http://www.kluwerarbitration.com/CommonUI/print.aspx
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record, than a telegram. As discussed below, the 2006 Revisions of the UNCITRAL Model Law provided a technologically-updated definition of the Law's “writing” requirement. (175) Some recent national arbitration legislation adopts a similar approach. (176) It is appropriate, and indeed necessary, for the Convention's definition of written communications to take these legislative (and technological) advances into account. This was confirmed by a 2006 recommendation of UNCITRAL urging Contracting States to the Convention to take into account the widening use of modern communications. (177) page "598" viii. Post-Dispute Conduct and Communications Even if no written (or no valid written) arbitration agreement exists, the parties' post-dispute conduct can constitute a written agreement to arbitrate that satisfies Article II(2). As discussed below, this can occur through the medium of correspondence prior to or during the arbitral proceedings, where one party asserts a right to arbitrate and the other party either expressly or impliedly accepts that claim. (178) c. Article II: Maximum, But Not Minimum, Form Requirement As discussed above, Article II(1)'s definition imposes a “maximum” form requirement (forbidding Contracting States from imposing stricter writing requirements than those under the Convention). (179) Other formal requirements for international arbitration agreements – such as requirements for separate documents, notarized instruments, or particular type face or font – are excluded by the Convention's exclusive written form requirements. (180) Although the written form requirement in the Convention is archaic, its exclusion of other, sometimes more-archaic, “anti-arbitration” form requirements, has played an important role in ensuring the validity of international arbitration agreements and facilitating the arbitral process. As also discussed above, the better view is that Article II's form requirement leaves Contracting States free from any “minimum” form requirement, thereby allowing states to adopt national arbitration legislation recognizing international arbitration agreements based on less demanding written form requirements than those under the Convention (or no form requirements at all). (181) In this respect, and as discussed above, Article II's “minimum” written form requirement is in reality page "599" in the nature of a jurisdictional condition for application of the Convention, rather than a requirement for the formal validity of an arbitration agreement. (182) d. Non-Exclusivity of Article II(2)'s List of “Written” Arbitration Agreements A critical question is whether the catalogue of written arbitration agreements in Article II(2) of the Convention is exclusive or nonexclusive. That is, does Article II(2) either: (a) require arbitration agreements to satisfy the definition of an “agreement in writing” set out therein in order to benefit from the Convention's protections, or http://www.kluwerarbitration.com/CommonUI/print.aspx
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alternatively, (b) merely provide a non-exclusive list of some of the types of “agreements in writing” which satisfy Article II(1), without purporting to exclude other types of agreements from the “agreement in writing” definition? As discussed above, authorities addressing this issue are divided, but the better view is that Article II(2) is non-exclusive, and that other types of “written” agreements may satisfy Article II(1) and thus fall within the Convention's protections. (183) e. “Writing” Requirement under the European Convention As noted above, the European Convention also contains a written form requirement. Article I(2) provides that the Convention applies to: “either an arbitral clause in a contract or an arbitration agreement, the contract or arbitration agreement being signed by the parties or contained in an exchange of letters, telegrams, or in a communication by teleprinter.” (184) This provision improves modestly on Article II(2) of the New York Convention. It makes clear that parties' “letters,” “telegrams” and similar communications need not be signed, while expanding (slightly) the category of “telegrams” to include “communication by teleprinter.” (185) On the other hand, the European Convention's more precise drafting makes it very difficult to avoid the conclusion that a contract (186) must be signed (while letters, telexes, or similar communications need not be). This continues the New York Convention's undesirable application of relatively archaic form requirements to international commercial arbitration agreements. (187) page "600" f. “Writing” Requirement under the Inter-American Convention Like the New York and European Conventions, the Inter-American Convention also contains a written form requirement. (188) This provision parallels the language of the European Convention, again improving modestly on the archaic formulation of the New York Convention. At the same time, it appears to require that a contract be “signed,” in contrast to at least some authority under the New York Convention avoiding the imposition of this requirement. (189) g. Written Form Requirements under National Arbitration Legislation Virtually all national arbitration legislation also imposes some sort of written form requirement on international arbitration agreements. There is, however, substantial diversity in written form requirements for international arbitration agreements in different legal systems. (190)
Many modern arbitration statutes broadly parallel Article II(2) of the New York Convention, although often simultaneously modernizing and liberalizing the Convention's approach; other jurisdictions have taken increasingly expansive steps to minimize the role of formal requirements, in some cases eliminating (e.g., France, Sweden) or http://www.kluwerarbitration.com/CommonUI/print.aspx
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virtually eliminating (e.g., the 2006 Revisions to the Model Law, England) any such requirement. In at least some states (e.g., under the 1985 version of the UNCITRAL Model Law and Swiss Law on Private International Law), written form requirements are a condition or requirement for contractual validity, (191) while in other jurisdictions, arbitration agreements may be valid under general contract law principles even if the formal requirements of national arbitration legislation are not satisfied. (192) i. “Writing” Requirement under UNCITRAL Model Law The 1985 version of the UNCITRAL Model Law adopted a definition of written arbitration agreements that was based on, but intended to be more expansive than, page "601" that in Article II(2) of the (193) New York Convention. Nonetheless, the original Model Law achieved only a modest improvement on the Convention, particularly when compared with the more expansive approaches of other national arbitration statutes. (194) Commentators have generally been critical of the Model Law's original approach to the writing requirement, (195) which was one of the few aspects of the Model Law which was altered in the 2006 Revisions to the Law. (196) Article 7(2) of the 1985 version of the Model Law provides: “The arbitration agreement shall be in writing. An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telexes, telegrams or other means of telecommunications which provide a record of the agreement, or in an exchange of statements of claim and defense in which the existence of an agreement is alleged by one party and not denied by another. The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing and the reference is such as to make that clause part of the contract.” (197) page "602" Article 7(2) has a number of aspects that warrant commentary. First, Article 7(2) continues to adopt the basic approach of the New York Convention to the formal requirement of a writing (defined by reference to a signed agreement or an exchange of letters). Specifically, Article 7(2) requires either a signed written contract or an exchange of letters or similar written communications that record the arbitration agreement. This continues generally to exclude oral agreements and purely tacit or silent acquiescence to one party's proposal of an arbitration agreement. (198) On the other hand, Article 7(2) does not require that an arbitration agreement be expressly set forth in writing or recorded. (199) It would therefore appear that implied acceptance of arbitration agreements is recognized (as should be the case under the New York Convention (200) ), provided that the acceptance satisfies the “writing” and “exchange” requirements. For example, if one party proposes an arbitration agreement in writing, and the other party responds in writing to that proposal, even without commenting upon the proposed arbitration clause, then an “exchange” of http://www.kluwerarbitration.com/CommonUI/print.aspx
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communications providing a written record should in principle exist to satisfy Article 7(2)'s form requirement. (201) (Of course, analysis is still required to determine whether silence regarding the arbitration clause, or proposal of differing terms on other points, constitutes binding consent as a matter of substantive validity, (202) but the Model Law's formal requirement of a writing would be satisfied.) Second, Article 7(2) takes steps to “modernize” the New York Convention's definition of a “written” arbitration agreement. It does so by referring more broadly to “other means of telecommunications which provide a record of the agreement.” (203) page "603" This definition should extend readily to faxes, emails and similar sorts of communications, (204) and eliminates at least potential uncertainty caused by the reference to “letters or telegrams” in Article II(2) of the Convention. (205) Some states have adopted further modernizing provisions to this text. (206) Third, Article 7(2) of the 1985 Model Law clarifies the uncertainties that exist under Article II(2) of the Convention regarding whether or not an “exchange of letters” or similar communications must be “signed.” (207) Like the European and Inter-American Conventions, (208) Article 7(2) provides that, while a “contract” or similar instrument must be signed by the parties, no signature requirement applies to letters, telegrams, emails and the like. (209) The same principle applies to arbitration agreements contained in the articles of association of a company or similar instruments. (210) Nonetheless, as to contracts containing an arbitration clause, or separate arbitration agreements, Article 7(2) retains a signature requirement (as well as a “writing” requirement). (211) Fourth, Article 7(2) makes it clear that international arbitration agreements will be formally valid where they result from, or are evidenced by, the parties' exchange of written submissions in an arbitration. Indeed, Article 7(2) permits agreements in such circ*mstances based upon tacit or implied consent (where one party alleges or assumes, and the other does not deny, the existence of a valid arbitration agreement). (212) page "604" Fifth, the final sentence of Article 7(2) is intended to confirm the formal validity of arbitration clauses which are incorporated by reference. (213) Examples of such provisions are where general terms and conditions of sale incorporate trade association or similar rules, which in turn contain an arbitration clause, or where one agreement incorporates another, which contains an arbitration clause. Although Article 7(2) confirms the basic principle that an arbitration clause can be incorporated by reference (by a written contract), it does not provide any guidance as to the degree of clarity required to accomplish an effective incorporation as a substantive matter of consent. (214) ii. 2006 Revisions to UNCITRAL Model Law In 2006, UNCITRAL adopted proposed revisions to the Model Law. (215) One of the principal changes was to Article 7's writing requirement, which was substantially liberalized and modernized.
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In a departure from past drafting style, (216) the 2006 Revisions adopt two “Options” for a revised Article 7 and writing requirement. Option II is simple and concise, providing only that an “arbitration agreement” is “an agreement to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.” (217) The page "605" effect of Option II is to dispense with any written form requirement at all, leaving only substantive issues of consent. (218) Option I for revised Article 7 is less sweeping in substance than Option II. It retains the requirement that “[a]n arbitration agreement shall be in writing,” (219) and then provides a substantially liberalized definition of a writing: “an arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.” (220) Modeled roughly (if somewhat ironically) on the English Arbitration Act, 1996, (221) this provision nominally preserves a writing requirement, but essentially by redefining written to mean oral (or silence). (222) It does so by eliminating any requirements for an “exchange” of writings or for signatures, and merely requiring that there be a written record of the agreement to arbitrate (however concluded). (223) As approved by UNCITRAL, both Option I and Option II confirm that the New York Convention's current “writing” requirement (224) is illsuited for contemporary commercial transactions. Both options permit oral and tacit agreements to arbitrate, and dispense with the Convention's “exchange” and “signature” requirements. In practice, the effect of the two proposals is likely to be very similar (because Option I's formal “writing” requirement is likely to be co-extensive in most cases with the evidentiary requirements under Option II). In either case, page "606" however, the revised text improves materially on Article 7 of the 1985 Model Law and Article II of the New York Convention. (225) iii. U.S. Federal Arbitration Act Like most other national arbitration legislation, §2 of the domestic FAA in the United States contains a “writing” requirement. Section 2 should be applicable to international arbitration agreements, either via the “residual” savings clauses of the second and third chapters, (226) or in the event that the arbitration agreement must be enforced directly under the first chapter of the FAA. (227) Section 2 provides that the FAA applies to any “written provision in any maritime transaction or a contract evidencing a transaction involving commerce” or any “agreement in writing to submit to arbitration an existing controversy.” (228) This writing requirement, which was enacted as part of the original FAA in 1925, has the dubious distinction of being the only still extant legislative provision in a major trading state that is older than the New York Convention's writing requirement. (229) Nonetheless, U.S. courts have interpreted http://www.kluwerarbitration.com/CommonUI/print.aspx
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§2 liberally – indeed, more liberally than Article II(2) of the New York Convention or Article 7(2) of the 1985 UNCITRAL Model Law – and encountered few difficulties adapting its language in the context of modern communications technologies. Lower U.S. courts have repeatedly held that the FAA's written form requirements are less demanding than those of the New York Convention. (230) This is confirmed by the language of §2, as compared to that of Article II(2) of the Convention: the former requires only a “written” agreement, and makes no reference to a “signed” document or to an “exchange of letters.” (231) In this respect, the FAA page "607" is also materially more liberal than Article 7(2) of the 1985 UNCITRAL Model Law (which also requires a “signed” document or “exchange” of writings (232) ). Consistent with this language, U.S. courts have held that a party's tacit acceptance – either orally or by conduct – of an unsigned, written contract containing an arbitration clause satisfies the “writing” requirement of §2 of the FAA. (233) The same rationale applies to a party's oral or tacit acceptance of a letter, invoice, confirmation, or other writing containing an arbitration provision. (234) This permits precisely the sort of tacit and/or oral acceptances that the New York Convention and (less clearly) Model Law are not infrequently interpreted to preclude. (235) U.S. courts have also encountered little difficulty in extending the FAA to facsimiles, telexes, e-mails and similar forms of modern telecommunications. (236) For example, in Orbis, Inc. v. Objectwin Technology, a U.S. court, applying the FAA, held that “there is a valid written agreement to arbitrate in this case as evidenced by the emails and faxes exchanged between the parties.” (237) page "608"
Although the FAA's written form requirements are less demanding than those of the New York Convention, U.S. courts have generally held that the Convention's more stringent writing and signature/exchange requirements must be met as a condition of validity by arbitration agreements that are subject to the Convention. (238) Thus, in Sen-Mar v. Tiger Petroleum, the court held that an arbitration clause contained in a telex sent by one party only was not valid because it was “not found in a signed writing, nor is it found in an exchange of letters,” as required by the New York Convention. (239) The court concluded that the Convention's requirements were controlling, holding that “[b]ecause the Convention controls in case of any conflict between the Convention and the [FAA], this Court will enforce the arbitration clause only if it satisfies the Convention's more stringent requirements.” (240) As discussed in greater detail above, this reasoning is contrary to Articles II(2) and VII(1) of the Convention, (241) which permit reliance on more liberal national form requirements, but nonetheless remains the apparent conclusion of at least a few U.S. lower courts. iv. Swiss Law on Private International Law The Swiss Law on Private International Law adopts an expansive http://www.kluwerarbitration.com/CommonUI/print.aspx
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approach to the formal validity of international arbitration agreements, which is similar in substance to that of the FAA. With regard to agreements to arbitrate in Switzerland, Article 178(1) of the Swiss Law on Private International Law provides: “As regards its form, an arbitration agreement shall be valid if made in writing, or by telegram, telex, telecopier or any other means of communication which permits it to be evidenced by a text.” (242) page "609" This provision is less demanding than that under the New York Convention, and merely requires that the arbitration agreement be capable of being ascertained from a “writing,” while making it clear that this requirement can be satisfied by modern forms of communications. (243) Like the U.S. FAA, (244) this definition contains no requirements for either a “signed” document (or other specific form of writing) nor an “exchange” of letters or other communications. (245) Again, this reflects the realities and practicalities of modern international commerce more sensibly than Article II(2) of the New York Convention or Article 7(2) of the Model Law. (246) Despite the liberal approach of the Swiss Law on Private International Law, in cases subject to the New York Convention, Swiss courts apply the more demanding standards of Article II. (247) This has the consequence, given the structure of the Swiss Law on Private International Law, (248) of making liberal Swiss form requirements apply with regard to agreements to arbitrate in Switzerland, with Article II's more demanding requirements applying to agreements to arbitrate page "610" abroad. (249) Again, it is doubtful that this approach is required under the Convention, which leaves Contracting States free to rely on more liberal national form requirements. (250) v. English Arbitration Act The English Arbitration Act, 1996, is a leading example of modern legislation that has largely dispensed with almost all written form requirements. The Act's provisions were adopted after extensive consideration as to the wisdom of retaining any writing requirement at all. (251) Proposals to abolish any written form requirement were eventually dropped, in favor of a substantially liberalized definition of “writing.” Thus, §5(2) of the Act provides: “There is an agreement in writing: (a) if the agreement is made in writing (whether or not it is signed by the parties); (b) if the agreement is made by exchange of communications in writing; or (c) if the agreement is evidenced in writing.” (252) Section 5(3) goes on to provide: “Where parties agree otherwise than in writing by reference to terms which are in writing, they make an agreement in writing,” (253) while §5(4) allows for an agreement to arbitrate to be evidenced in writing, including by recording by a third party. (254) page "611" These provisions adopt a very expansive view of written form http://www.kluwerarbitration.com/CommonUI/print.aspx
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requirements, (255) dispensing with any “signature” or “exchange” requirements and permitting a writing as “evidence” of an agreement. (256) According to one commentator, §5 of the Act has the effect that “writing has now been defined as oral.” (257) Indeed, it is clear that the Act extends to oral agreements to incorporate a written form of arbitration agreement (258) and to oral agreements that are evidenced by a writing. (259) At the same time, the Act confirms that the written form requirement applies to all aspects of the agreement to arbitrate, including issues such as seat, institutional rules, arbitrators and the like. (260) As under previous English legislation, purely oral agreements to arbitrate remain enforceable under common law principles, outside the ambit of the Arbitration Act. (261) vi. Other Contemporary National Arbitration Legislation Other contemporary national arbitration statutes also contain less demanding written form requirements than the New York Convention or 1985 UNCITRAL Model Law. The German adaptation of the Model Law modified Article 7(2), to liberalize its written form requirement, providing in §1031(2) of the German ZPO: “The form requirement of subsection 1 shall be deemed to have been complied with if the arbitration agreement is contained in a document transmitted from one party to the other party or by a third party to both parties and – if no objection raised in good time – the contents of such page "612" documents are considered to be part of the contract in accordance with common usage.” (262) This provision permits the tacit acceptance of written proposal (where “no objection [is] raised in good time”), relaxing one of the basic formal requirements under Article II(2) of the New York Convention. vii. National Arbitration Legislation Abolishing Written Form Requirement Arbitration statutes in other developed jurisdictions also typically require a “written” arbitration agreement in less demanding terms than the New York Convention. (263) Indeed, under the 2006 revisions to the UNCITRAL Model Law and a small but increasing number of developed national laws, the decisive issue is simply whether the parties agreed to arbitrate – whether orally or in writing, and whether expressly or impliedly – with the writing requirement being reformulated as an evidentiary principle, rather than a rule of formal validity. page "613" Thus, a few national arbitration regimes have abandoned any written form requirement. In France, the 1981 Decree abolished all form requirements for international arbitration agreements. In contrast to the requirement for a written arbitration agreement under domestic French arbitration legislation, (264) France's international arbitration legislation makes no references to any requirement for formal validity. (265) As noted above, however, the Paris Cour d'appel appears to have taken the view that the New York Convention http://www.kluwerarbitration.com/CommonUI/print.aspx
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imposes a “minimum” form requirement, which national law may not supplement or expand. (266) Although this view is rightly critized by French commentators, (267) it reduces the practical importance of the very liberal French approach to formal requirements in international cases. Sweden and New Zealand have adopted even more explicit legislative abolitions of written form requirements. Thus, the New Zealand Arbitration Act provides expressly that “an arbitration agreement may be made orally or in writing,” (268) while the Swedish Arbitration Act simply omits any formal requirements for arbitration agreements. (269) h. Waiver as A Basis for Satisfying Form Requirements Many national arbitration regimes provide that a party loses its right to object to an arbitral tribunal's jurisdiction if it fails to raise this objection in a timely fashion. For example, as discussed below, Article 16(2) of the UNCITRAL Model Law requires that any objection to an arbitral tribunal's jurisdiction be raised no later than the statement of defense. (270) Other national arbitration statutes and/or judicial page "614" decisions are similar. (271) Under these authorities, a party's tacit acceptance of its counterparty's initiation of arbitration can provide the basis for a valid arbitration agreement. Although few cases expressly discuss the point, such “tacit” arbitration “agreements” are generally regarded as formally, as well as substantively, valid. (272) This result raises further questions regarding the viability of interpretations of Article II of the New York Convention insisting upon a signed writing or an exchange of writings, to the exclusion of implied or tacit agreements. (273) If principles of waiver can overcome formal defects in an arbitration agreement after a dispute arises, it is difficult to see why they cannot do so beforehand. i. Violation of Obligation of Good Faith as Basis for Satisfying Form Requirements There has also been little attention to the effect of principles of good faith on a party's right to challenge the formal validity of an arbitration agreement under national law. (274) One of the few courts that has addressed the issue is the Swiss Federal Tribunal, which held that “in particular situations, a certain behavior can replace compliance with a formal requirement according to the rules of good faith.” (275) The Federal Tribunal went on to reject a challenge to an arbitration clause's formal validity where the parties had a longstanding business relationship, where they had participated in preparing the agreement containing the arbitration clause and believed it to be in force, and where there was no objection to the agreement or the clause for several years. There are other national court decisions to the same effect, (276) page "615" as well as (277) soundly-reasoned commentary. This reliance on principles of good faith or estoppel is appropriate. As with rules of substantive validity, there is no reason that a party's http://www.kluwerarbitration.com/CommonUI/print.aspx
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conduct cannot disable it from relying on formal requirements or provide a basis for deeming such requirements satisfied in appropriate cases. j. Oral Arbitration Agreements As noted above, oral agreements to arbitrate are at least hypothetically valid and enforceable under some national legal systems. (278) Of course, oral arbitration agreements are excluded from the coverage of the New York Convention by Article II(2)'s “writing” requirement, (279) and from the scope of many contemporary national arbitration statutes by analogous provisions. (280) Nonetheless, even in these circ*mstances, non-statutory or general legal principles may give effect to oral arbitration agreements. For example, §81(1) of the English Arbitration Act, 1996, expressly preserves the effectiveness of oral arbitration agreements at common law (even where such agreements do not meet the “in writing” requirement of §5(1) of the Act and do not therefore fall within the scope of Part I of the Act). (281) Similarly, in Julie Jenkins v. Percival, a U.S. state court held that to “refuse to enforce an oral agreement to arbitrate, when evidenced by the parties' substantial acts in reliance on and in furtherance of an executory agreement, would contravene Utah's stated policy to page "616" ‘encourag[e] extrajudicial resolution of disputes [once] the parties have agreed not to litigate.’” (282) k. Future Directions: Is the “Writing” Requirement Desirable? As a consequence of the lack of uniformity among national court decisions, and the widespread perception that stringent writing and signature requirements do not serve the Convention's purposes, there have been a number of proposals for legislative reform of that requirement. For example, the Swiss Federal Tribunal urged some years ago that it might be advisable to modify Article II(2)'s signature requirement: “with the development of modern means of communication, unsigned written documents have an increasing importance and diffusion, [with the result] that the need for a signature inevitably diminishes, especially in international commerce, and that the different treatment reserved to signed and unsigned documents is under discussion.” (283) Commentators have reached similar, or more far-reaching, conclusions. (284) A few jurisdictions have statutorily abrogated any written form requirement in international settings (France, Sweden, New Zealand), (285) while others have adopted only very liberal form requirements (United States, England). (286) Likewise, after lengthy page "617" study, (287) the new text of Article 7 of the UNCITRAL Model Law was revised to either dispense or all but dispense with a “writing” requirement. (288) At the same time, again after lengthy study, UNCITRAL also recommended that the New York Convention's writing requirement http://www.kluwerarbitration.com/CommonUI/print.aspx
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be interpreted in a significantly less restrictive fashion than some national courts have done. (289) In particular, UNCITRAL recommended that Article II(2) be interpreted in a non-exhaustive manner, (290) and that Article VII(1) be interpreted to permit application of more liberal national form requirements than those under Article II of the Convention. (291) These various criticisms of “writing” and “signature” requirements are appropriate. The provisions of the New York Convention and the 1985 version of the Model Law are obviously archaic (with their references to “telegrams” and “letters” (292) ) and ill-drafted (with their uncertain references to “contracts,” “exchanges of letters” and “signature” requirements (293) ). Even apart from these issues, however, there are the more fundamental questions: (a) why tacit or oral acceptance of a written proposal for an arbitration agreement is not sufficient; and (b) why purely oral arbitration agreements are not valid, at least when referring to or evidenced by a writing. Consistent with the approach under more progressive national legislation, (294) and the more fundamental 2006 Revisions to the Model Law, (295) there would appear little reason not to dispense with all formal requirements for international arbitration agreements and instead consider solely the question whether or not a party had in fact consented to an arbitration agreement. (296) Alternatively, a variation of the U.S., Swiss or English “writing” requirements – where “written” does not mean either an “exchange” of writings or “signed” writings, (297) but merely requires some written evidence of an agreement to arbitrate – would be a positive step. In either case, page "618" existing form requirements in the New York Convention and the 1985 UNCITRAL Model Law are unnecessary and instead serve to frustrate commercial parties' legitimate expectations and rights. 2. Scope of Form Requirements Relatively little attention has been devoted to identifying those aspects of an agreement to arbitrate which are subject to written form requirements. Most international arbitration conventions and national arbitration legislation provide only that the “agreement to arbitrate” or “arbitration agreement” must satisfy specified formal requirements, (298) without further elaborating on what aspects of the arbitration agreement are encompassed by this requirement. In particular, must merely the agreement to arbitrate itself satisfy the form requirement, or must all the material terms of that agreement (number of, identity of and means of selecting arbitrators, arbitral seat, scope of agreement, institutional rules, choice of law) also do so? The better view is that, if a writing requirement exists, it should apply to all the material terms of the arbitration agreement. The rationale is that, if an agreement to arbitrate is deemed to require a formal requirement, then it is artificial to treat the material elements of that agreement any differently. This is the approach taken by the English Arbitration Act, 1996, (299) and other well-considered authorities. (300) Under this view, oral agreements on the arbitral seat, institutional rules, identities of arbitrators and similar matters would not satisfy written form requirements and be either invalid or outside http://www.kluwerarbitration.com/CommonUI/print.aspx
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otherwise applicable arbitration legislation. Other authorities are to the contrary, holding that form requirements apply only to the essential terms of the arbitration agreement (as discussed below). (301) page "619" 3. Form Requirements for Authorizations to Enter into Arbitration Agreements Questions of formal validity can also arise in matters closely related, but not identical, to the validity of the arbitration agreement itself. Among other things, questions can arise as to the form of the authorization to an agent to enter into an arbitration agreement (e.g., the form of powers of attorney or corporate resolutions). Many states impose requirements with regard to the form of powers of attorney or corporate authorizations. (302) In particular, most national legal systems impose generally-applicable formal requirements on powers of attorney and corporate resolutions. In addition, statutes in some jurisdictions, including in Austria, (303) page "620"
Switzerland (304) and Greece, (305) require special forms of power of attorney or other authorization with regard to agreements to arbitrate (at least in domestic matters). (306) Other jurisdictions require that an agent's authorization be in the same form as that of the contract into which the agent enters on behalf of the principal (307) or that an agent's authorization to enter into an arbitration agreement be in writing. (308) There is a substantial argument that Article II(2) of the New York Convention should be interpreted as extending not merely to the arbitration agreement itself but also to related instruments concerning the formation of the arbitration agreement. (309) The consequence of this interpretation would be that the Convention's form requirement would supersede national law form requirements regarding authorizations to conclude arbitration agreements: under this interpretation, the only formal requirement applicable to international arbitration agreements governed by the Convention, including related authorizations, would be that contained in Article II(2), which imposes form requirements only on the arbitration agreement itself. (310) The consequence of this interpretation would be that formal defects in page "621" related authorizations (e.g., powers of attorney or agency instructions or agreements) would not be permitted by the Convention to provide grounds for challenging the validity of the arbitration agreement, which could only be impugned by challenges to the existence of genuine consent or authorization. This argument has substantial force, although it requires interpreting Article II(2) as both applying to, but not prescribing rules for, powers of attorney or authorizations to conclude international arbitration agreements. Even if this view of Article II(2) were not adopted, and Contracting States were permitted to impose form requirements on authorizations, the Convention should be regarded as requiring that these requirements be nondiscriminatory and not idiosyncratic. (311) That is, a state could not impose special, onerous requirements for http://www.kluwerarbitration.com/CommonUI/print.aspx
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authorizations to conclude agreements to arbitrate, as compared to other categories of contracts. In any event, the better view would also be to apply a validation principle, whereby an international arbitration agreement would be formally valid if the underlying authorization satisfied either the law otherwise applicable to that authorization (e.g., the law selected in a power of attorney or the law under which a corporation was organized) or the law governing the arbitration agreement. (312) 4. Other Form Requirements for International Arbitration Agreements A number of national legal systems have adopted a variety of other form requirements for arbitration agreements. These requirements vary substantially between jurisdictions and are generally ill-suited for application to international arbitration agreements. a. Formal Requirements for Large Type or Capital Letters A few jurisdictions have imposed requirements that arbitration agreements, or some categories of arbitration agreements, be printed in particular size type-face or in all capital letters and located in particularly prominent places in the parties' contract. For example, in the United States, South Carolina legislation requires that an arbitration agreement be printed in “underlined capital letters” on the “first page page "622" of the contract.” (313) Legislation in a few other U.S. states is (or was) similar. (314) As discussed above, these various form requirements are superseded by the New York Convention's uniform requirements regarding written form. (315) b. Formal Requirements for Separate Agreement Some national arbitration legislation requires that agreements to arbitrate be set forth in a separate instrument that contains no other terms. Thus, §1031(5) of the German ZPO provides that arbitration clauses in consumer contracts must be contained in a separate document, signed by the consumer; (316) Brazilian arbitration legislation adopts a similar rule for adhesion contracts. (317) Again, the consistency of these form requirements with the New York Convention is doubtful. c. Formal Requirements for Signature of Attorney In some U.S. states, state law requires (or required) that certain arbitration agreements, such as those pertaining to medical care, be signed by a party's attorney, as well as the party. (318) Such state law requirements are generally preempted by the FAA, and do not ordinarily affect international arbitration agreements. (319) They page "623" would also be contrary to, and superseded by, the New York Convention's maximum form requirement. (320) d. Formal Requirements for Selection or Number of Arbitrators in Arbitration Agreement A few national arbitration regimes have required that arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreements include the identities of the arbitrators (or, alternatively, a mechanism for selecting the arbitrators). For example, Article 809 of the Italian Code of Civil Procedure provides: “The submission or arbitration clause must appoint the arbitrators or at least state their number and the method of their appointment.” (321) Other national arbitration legislation has required that arbitration agreements state the names of the arbitrators (and, in some cases, their addresses) in order to be valid. (322) These types of provisions are best regarded as formal requirements, which may not properly be applied to international arbitration agreements that are subject to the New York Convention (or other international arbitration instruments). (323) Requirements of this nature have consistently been rejected in arbitral awards and other authority. (324) e. Formal Requirements for Institutional Arbitration Chinese arbitration legislation apparently requires that international arbitration agreements provide for arbitration under the auspices of an arbitral institution (and not merely ad hoc arbitration). (325) This arguably constitutes a form requirement and, page "624" if so, would also be superseded by the Convention's maximum form requirement. (326) The Supreme People's Court has recently declared that this form requirement applies only to arbitrations seated in China (327) (but, even as so limited, the requirement likely violates the Convention when applied to international arbitration agreements). page "625"
95 For commentary, see Alvarez, Article II(2) of the New York
Convention and the Courts, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 67 (ICCA Congress Series No. 9 1999); Baron & Lingier, A Second Look at Arbitrability – Approaches to Arbitration in the United States, Switzerland and Germany, 19 Arb. Int'l 27 (2002); Di Pietro, Incorporation of Arbitration Clauses by Reference, 21 J. Int'l Arb. 439 (2004); Habegger, Extension of Arbitration Agreements to Non-Signatories and Requirements of Form, 22 ASA Bull. 398 (2004); Herrmann, Does the World Need Additional Uniform Legislation on Arbitration?, 15 Arb. Int'l 211 (1999); Herrmann, The Arbitration Agreement as the Foundation of Arbitration and its Recognition by the Courts, in A. van den Berg (ed.), International Arbitration in A Changing World 41 (ICCA Congress Series No. 6 1993); Kaplan, Is the Need for Writing as Expressed in the New York Convention and the Model Law Out of Step with Commercial Practice?, 12 Arb. Int'l 27 (1996); Kaplan, New Developments on Written Form, in Enforcing Arbitration Awards under the New York Convention: Experience and Prospects 15 (1998); Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important http://www.kluwerarbitration.com/CommonUI/print.aspx
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Contemporary Questions 19 (ICCA Congress Series No. 11 2003); Mann, An “Agreement in Writing” to Arbitrate, 3 Arb. Int'l 171 (1987); McCormack, Recent U.S. Decisions on Arbitration Law, 11 J. Int'l Arb. 73 (2004); Reiner, The Form of the Agent's Power to Sign An Arbitration Agreement and Article II(2) of the New York Convention in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 82 (ICCA Congress Series No. 9 1999); A. Samuel, Jurisdictional Problems in International Commercial Arbitration 7595 (1989); Sorieul, UNCITRAL's Current Work in the Field of International Commercial Arbitration, 22 J. Int'l Arb. 543 (2005); A. van den Berg, The New York Arbitration Convention of 1958 170232 (1981); van Houtte, Consent to Arbitration Through Agreement to Printed Contracts: The Continental Experience, 16 Arb. Int'l 1 (2000); Wang, International Judicial Practice and the Written Form Requirement for International Arbitration Agreements, 10 Pac. Rim L. & Pol'y J. 375 (2001). 96 See infra pp. 620-625; A. Samuel, Jurisdictional Problems in International Commercial Arbitration 79 (1989) (“most legal systems require arbitral agreements to be in writing, [but] they do not always define precisely what is meant by this expression”). 97 See infra pp. 617-619. 98 A. Samuel, Jurisdictional Problems in International Commercial Arbitration 75 (1989) (“There are essentially two types of laws concerning the formal validity of arbitral agreements. Failure to comply with rules of the first type result in the nullity of the agreement, while non-compliance with the second merely precludes the application of legislation designed to assist arbitration”); A. van den Berg, The New York Arbitration Convention of 1958 179-80 (1981) (non-compliance with Article II(2)'s form requirement only renders Convention inapplicable and does not invalidate arbitration agreement). 99 In Switzerland, France and Germany, as well as under the UNCITRAL Model Law, failure to comply with written form requirements renders the arbitration agreement invalid. E.g., UNCITRAL Model Law, Art. 7(1); Swiss Law on Private International Law, Art. 178(1); French New Code of Civil Procedure, Art. 1443 (domestic arbitration, but not international arbitration); German ZPO, §1031(1); Wenger, in S. Berti et al. (eds), International Arbitration in Switzerland Art. 178, ¶7 (2000). Seealso Austrian ZPO, §577(3); Italian Code of Civil Procedure, Art. 807 (“The submission to arbitration shall, on pain of nullity, be made in writing …”); Algerian Code of Civil Procedure, Art. 458 bis 1, ¶2; Peruvian Arbitration Law, Art. 5(1); Egyptian Arbitration Law, Art. 12(1) (“The arbitration agreement must be in writing, on penalty of nullity.”). See also A. Samuel, Jurisdictional Problems in International Commercial Arbitration 76 (1989). 100 See supra pp. 208-211, 305; New York Convention, Art. II(2); U.S. FAA, 9 U.S.C. §2; English Arbitration Act, 1996, §5; Zambia Steel & Building Supplies Ltd v. James Clark & Eaton Ltd [1986] 2 Lloyd's Rep. 225, 234 (English Court of Appeal). 101 See supra pp. 541-546 & infra pp. 599-600, 611-612; R. Merkin, Arbitration Law ¶3.8 (2004 & Update 2007); G. Wilner, Domke on Commercial Arbitration §9.1 (3d ed. & Update 2006). Alternatively, some arbitration statutes appear to treat the existence of a written agreement as an evidentiary matter, not a matter of validity. See, e.g., Belgian Judicial Code, Art. 1677 (“An arbitration agreement shall be constituted by an instrument in writing signed by http://www.kluwerarbitration.com/CommonUI/print.aspx
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the parties or by other documents binding on the parties and showing their intention to have recourse to arbitration.”); Netherlands Code of Civil Procedure, Art. 1021 (“The arbitration agreement must be proven by an instrument in writing.”). 102 See infra pp. 582-625. 103 See infra pp. 625-639 (capacity), 640-704 (consent and
formation), 705-766 (substantive validity). 104 See New York Convention, Art. II(1); Inter-American Convention, Art. 1; European Convention, Art. I(2)(a). 105 See, e.g., UNCITRAL Model Law, Art. 7; U.S. FAA, 9 U.S.C. §2; German ZPO, §1031; English Arbitration Act, 1996, §5; Japanese Arbitration Law, Arts. 13(2)-(4); Singapore Arbitration Act, §4(3). Compare UNCITRAL Model Law, 2006 Revisions, Art. 7 (Option II); Swedish Arbitration Act, §1; New Zealand Arbitration Act, First Schedule, Art. 7(1); infra pp. 605-607, 613-614. 106 Early arbitration legislation in many jurisdictions imposed written form requirements on arbitration agreements. See An Act for determining Differences by Arbitration, William III, 1697-8, Ch.15 (“it shall and may be lawful for all Merchants and Traders, … by Arbitration, to agree that their Submission of their Suit to the Award or Umpirage of any Person or Persons should be made a Rule of any of his Majesty's Courts of Record, which the Parties shall choose, and to insert such their Agreement in their Submission, or the Condition of the Bond or Promise. …”); Walters v. Morgan (1792) 2 Cox Eq. 369 (The Lord Chancellor); Ansell v. Evans (1796) 7 TR 1 (K.B.) Swiss Cantonal Concordat, Art. 6(1) (“The arbitral agreement is made in the written form”); French Code of Civil Procedure (1806), Art. 1005 (arbitration agreement shall be recorded in writing); U.S. FAA, 9 U.S.C. §2. See also Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 20 (ICCA Congress Series No. 11 2003) (“national laws and international conventions have long imposed a written form requirement for arbitration agreements”). 107 Writing requirements also existed in the state-to-state context. See ILC, Draft on Arbitral Procedure Prepared by the International Law Commission at its Fourth Session, 1952, UN Doc. A/CN.4/59, II Y.B. I.L.C. 60, Art. 1(2) (1952) (“The undertaking [to arbitrate] shall result from a written instrument.”). 108 The Geneva Protocol and Geneva Convention did not contain any written form requirement. See Foustoucos, Conditions Required for the Validity of An Arbitration Agreement, 5(4) J. Int'l Arb. 113 (1988); A. van den Berg, The New York Arbitration Convention of 1958 172 (1981) (“Neither the Geneva Protocol of 1923 nor the Geneva Convention of 1927 required any specific form for the arbitration agreement”). 109 EC Regulation 44/2001, Arts. 7, 23(2) (“an agreement conferring jurisdiction shall be either: (a) in writing or evidenced in writing; or (b) in a form which accords with the practices which the parties have established between themselves; or (c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contract of the type involved in the particular trade or commerce concerned”); Hague Convention of 30 June 2005 on Choice of Court Agreements, Art. 3(c), available at www.hcch.net; A. Briggs & P. Rees, Civil Jurisdiction and Judgments §§2.85 to 2.89 (3d ed. 2002); http://www.kluwerarbitration.com/CommonUI/print.aspx
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P. Schlosser, Report on the Association of the Kingdom of Denmark, Ireland and the United Kingdom of Great Britain and Northern Ireland to the Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters and to the Protocol on its Interpretation by the Court of Justice, OJ C59/71, ¶179 (5 March 1979). The general trend in Europe has been away from strict form requirements for forum selection provisions. Some institutional arbitration rules also contain written form requirements. See, e.g., UNCITRAL Rules, Art. 1(1) (“where the parties to a contract have agreed in writing …”); ICDR Rules, Art. 1(1) (“where the parties have agreed in writing”). 110 See infra pp. 587-617. 111 Kaplan, Is the Need for Writing as Expressed in the New York
Convention and the Model Law Out of Step with Commercial Practice?, 12 Arb. Int'l 27, 28 (1996). 112 See supra pp. 61-63, 91-109, 109-144. 113 See, e.g., Judgment of 7 February 1984, Tradax Export SA v. Amoco Iran Oil Co., XI Y.B. Comm. Arb. 532, 535 (Swiss Federal Tribunal) (1986); Judgment of 20 January 1987, Société Bomar Oil NV v. Entreprise Tunisienne d'Activités Pétrolières, 1987 Rev. arb. 482, 485 (Paris Cour d'appel); ILC, Draft on Arbitral Procedure Prepared by the International Law Commission at its Fourth Session, 1952, UN Doc. A/CN.4/59, II Y.B. I.L.C. 60, Art. 1, comment 2 (1952) (“In view of the fundamental importance of the undertaking to arbitrate, paragraph 2 of this article implies that the undertaking may not be based on a mere verbal agreement.”); A. van den Berg, The New York Arbitration Convention of 1958 171 (1981) (“The purpose of this [written form requirement] is to ensure that a party is aware that he is agreeing to arbitration”). As discussed above, this judicial access is of fundamental, often constitutional, status in many legal systems. See supra pp. 576-580. 114 See, e.g., U.S. Uniform Commercial Code, §2-201(1) (“A contract for the sale of goods for the price of $5,000 or more is not enforceable … unless there is some record sufficient to indicate that a contract for sale has been made between the parties and signed by the party against which enforcement is sought or by the party's authorized agent or broker.”); Law of Property (Miscellaneous Provisions) Act, 1989, §2 (“contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each”); French Civil Code, Arts. 970, 1589(2) (written form of testament; written form of sales contracts relating to an immovable, business assets); Swiss Code of Obligations, Arts. 216, 243 (written form of sales contracts concerning real estate; written form of contracts of donation); German BGB, §§766, 2247 (written form of bond; written form of testament). 115 Judgment of 7 February 1984, Tradax Export SA v. Amoco Iran Oil Co., XI Y.B. Comm. Arb. 532, 535 (Swiss Federal Tribunal) (1986). 116 See supra pp. 68-71; Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 47 (ICCA Congress Series No. 11 2003) (“in truth, the [principal justifications for the writing requirement] all betray an outdated conception of arbitration, in http://www.kluwerarbitration.com/CommonUI/print.aspx
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which the process was seen as an inferior alternative to national courts, to be treated with caution, and closely policed.”). 117 See supra pp. 206-207, 565-574 & infra pp. 653-655, 10041031. 118 Report of the Secretary-General on the Revised Draft Set of Arbitration Rules, UNCITRAL, Ninth Session, UN Doc. A/CN.9/112/Add. 1, VII UNCITRAL Y.B. 166, 167 (1976) (“Writing is required in order to avoid uncertainty as to whether the Rules have been made applicable”). 119 E.g., French Civil Code, Art. 1108 (four essential prerequisites for a contract with no written form requirement); Swiss Code of Obligations, Art. 1 (requirement of a mutual agreement only for the conclusion of a contract); Restatement (Second) Contracts §17 (1981) (“the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and a consideration”). See Kaplan, Is the Need for Writing as Expressed in the New York Convention and the Model Law Out of Step with Commercial Practice?, 12 Arb. Int'l 27 (1996). 120 One might argue that the details of arbitration agreements involve issues that are relatively unfamiliar to lay business persons (e.g., language of arbitration, number of arbitrators, choice-of-law), see supra pp. 172-180, and that oral agreements cannot reliably record such matters. Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 23-24 (ICCA Congress Series No. 11 2003) (“there is a premium in having a clear and certain arbitration agreement, in order to avoid breakdowns in the arbitral process itself.”). This ignores the fact that arbitration agreements need not (and often do not) include such details. Nothing more than an agreement to arbitrate disputes, in a particular place or under particular rules, is required: an oral agreement can readily make such provision. See infra pp. 655-659. Indeed, the better view is that not even agreement on the arbitral seat or institutional rules is required to produce a valid arbitration agreement. See infra pp. 659-660. 121 In this regard, an international arbitration agreement is
arguably more difficult to supplement through applicable legal default rules than many other types of agreement. For example, although applicable law can supply a “reasonable” delivery term, a price, or other commercial terms, it is difficult for applicable law to select an arbitral seat, an arbitral institution and similar matters (although national courts are capable of making a relatively neutral selection to give effect to the parties' agreement). Equally, if the parties do not in fact address these issues, the benefits of an international arbitration agreement become less pronounced – in turn, arguably making it less compelling to require enforcement of such an agreement (or, at least, in doing so under contemporary pro-arbitration legal regimes). 122 As discussed below, this was (almost) the conclusion arrived at in the 2006 revisions to the UNCITRAL Model Law. See infra pp. 605-607. 123 See supra pp. 208-211, 305, 541-545 & infra p. 600. 124 See supra p. 305 & infra pp. 601-607, 609-611. 125 The Departmental Advisory Committee in England gave consideration to the advisability of eliminating the written form http://www.kluwerarbitration.com/CommonUI/print.aspx
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requirement in the Arbitration Act, 1996. U.K. Departmental Advisory Committee on Arbitration Law, 1996, Report on the Arbitration Bill (February 1996), reprinted in, 13 Arb. Int'l 275 (1997). The Committee ultimately rejected this proposal, reasoning: “An arbitration agreement has the important effect of contracting out of the right to go to the court i.e., it deprives the parties of that basic right. To our minds an agreement of such importance should be in some written form.” Id. at ¶33. See alsoId. at ¶¶33-4 (“We remain of the view expressed in the Consultive Paper issued with the draft Clauses published in July 1995, that there should be a requirement for writing. … We have, however, provided a very wide meaning to the words “in writing”…. In view of the rapidly changing evolving methods of recording we have made clear that “writing” includes recording by any means.”) (1997). See also Discussion Paper 69, A Draft International Arbitration Act for South Africa 25 (1997) (concluding that the Model Law's writing requirement is unduly rigorous, but retaining it without change in interests of uniformity). 126 A few states have abolished “written” form requirements. See infra pp. 613-614. 127 UNCITRAL Model Law, 2006 Revisions, Art. 7 (Options I and II); infra pp. 605-607. 128 See infra pp. 613-614 (France, Sweden, the Netherlands, Hong Kong). One of the first states to dispense with written form requirements in international settings was France, where Title V of Book IV of the French New Code of Civil Procedure, on international arbitration contains no provision regarding the form of arbitration agreements. Compare French New Code of Civil Procedure, Art. 1443 (requiring domestic arbitration agreement to be in writing). See also English Arbitration Act, 1996, §5 (defining “written” to effectively mean “oral”). 129 New York Convention, Art. II(2). See A. van den Berg, The New York Arbitration Convention of 1958 170 et seq. (1981). 130 A. van den Berg, The New York Arbitration Convention of 1958 173 (1981) (“object of defining what constitutes an arbitration agreement in writing in the Convention was to remedy the divergence of the national laws regarding the form of the arbitration agreement”). See also supra pp. 100-101. 131 For criticism of Article II(2)'s drafting, see A. Samuel, Jurisdictional Problems in International Commercial Arbitration 8182 (1989) (“Article II(2) is perhaps the most poorly drafted provision of the entire Convention”); A. van den Berg, The New York Arbitration Convention of 1958 393 (1981). There is relatively little discussion of Article II(2) in the Convention's negotiating history. A. van den Berg, The New York Arbitration Convention of 1958 173 (1981) (“The Summary Records of the New York Conference do not reveal much discussion about what finally became Article II(2)”). 132 New York Convention, Art. II(2) (emphasis added). See Kaplan, New Developments on Written Form, in Enforcing Arbitration Awards under the New York Convention: Experience and Prospects 15 (1998) (“The concept adopted 40 years ago is thus one of signature or exchange”); Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 26 (ICCA Congress Series No. 11 2003) (“an arbitration agreement must either be: (1) signed by both parties, or (2) contained in an exchange of documents”). There is no requirement in Article II(2) that the arbitration provision be contained in a single document. As a consequence, the New http://www.kluwerarbitration.com/CommonUI/print.aspx
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York Convention clearly can apply to arbitration agreements incorporated by reference from other documents. See infra pp. 695696. 133 Although it is generally uninformative, the drafting history of the
New York Convention suggests generally that Article II(2)'s writing requirement was intended to exclude oral agreements to arbitrate and the acceptance of a written offer to arbitrate through conduct or oral statements. A. van den Berg, The New York Arbitration Convention of 1958 196 (1981) (“The history of Article II(2) confirms that the drafters of the Convention wished to exclude the oral or tacit acceptance of a written proposal to arbitrate.”); van den Berg, The New York Convention: Its Intended Effects, Its Interpretation, Salient Problem Areas, in The New York Convention of 1958 25, 39 (ASA Special Series No. 9 1996) (“A tacit acceptance is in principle not sufficient”). 134 See infra pp. 589-599. The Swiss Federal Tribunal has held that Article II(2) should be interpreted in light of the UNCITRAL Model Law. Judgment of 5 November 1985, Tracomin SA v. Sudan Oil Seeds Co., XII Y.B. Comm. Arb. 511 (Swiss Federal Tribunal) (1987). 135 See, e.g., Judgment of 30 March 2000, XXXI Y.B. Comm. Arb. 652, 656 (Oberlandesgericht Schleswig) (2006) (signed contract with arbitration clause in general terms and conditions (on reverse of contract) satisfied Article II(2)); A. van den Berg, The New York Arbitration Convention of 1958 192 (1981); van den Berg, The New York Convention: Its Intended Effects, Its Interpretation, Salient Problem Areas, in The New York Convention of 1958 25, 37 (ASA Special Series No. 9 1996); A. Samuel, Jurisdictional Problems in International Commercial Arbitration 82 (1989) (“If an arbitral clause appears in a contract which has been signed by the parties, or an arbitration agreement has been signed by them, the definition of an ‘agreement in writing’ in the New York Convention is fulfilled.”); P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶373 (2d ed. 1989). 136 Judgment of 18 May 1978, Societa Atlas General Timbers SpA v. Agenzia Concordia Line SpA, V Y.B. Comm. Arb. 267 (Italian Corte di Cassazione) (1980). 137 A. van den Berg, The New York Arbitration Convention of 1958 192 (1981); van den Berg, The New York Convention: Its Intended Effects, Its Interpretation, Salient Problem Areas, in The New York Convention of 1958 25 (ASA Special Series No. 9 1996). 138 Sphere Drake Ins. plc v. Marine Towing, Inc., 16 F.3d 666 (5th Cir. 1994). 139 See, e.g., Dahiya v. Talmidge, Int'l Ltd, 371 F.3d 207, 223 (5th Cir. 2004); Chloe Z Fishing Co. v. Odyssey Re (London) Ltd, 109 F.Supp.2d 1236, 1247 (S.D. Cal. 2000) (“both an arbitral clause and an agreement in writing must be found either in a signed writing or an exchange of letters under the Convention”); In re Herlofson Mgt A/S and Ministry of Supply, Kingdom of Jordan, 765 F.Supp. 78, 85 (S.D.N.Y. 1991) (“Drafts of a contract, reflecting an agreement to arbitrate, can provide the requisite writing”); Astor Chocolate Corp. v. Mikroverk, Ltd, 704 F.Supp. 30 (E.D.N.Y. 1989) (no signature required on contract, where related correspondence evidenced consent); Marion Coal Co. v. Marc Rich & Co., 539 F.Supp. 903, 907 (S.D.N.Y. 1982) (drafts of agreement containing arbitration clause can provide requisite writing).
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The U.S. trial court in Kahn Lucas Lancaster, Inc. v. Lark Int'l read Article II(2) as requiring either (i) an arbitral clause contained in a contract, or (ii) an arbitration agreement that is (A) signed by the parties, or (B) contained in an exchange of letters or telegrams. According to the court: “If there is an arbitral clause in a contract … then the Convention applies….” 1997 WL 458785 at *4 (S.D.N.Y. 1997), rev'd, 186 F.3d 210 (2d Cir. 1999). 140 New York Convention, Art. II(2) (“arbitral clause in a contract or
an arbitration agreement, signed by the parties”). 141 Kahn Lucas Lancaster, Inc. v.Lark Int'l Ltd, 186 F.3d 210 (2d Cir. 1999). 142 For authority adopting this view, see Judgment of 8 April 1999, Ozsoy Tarim Sanayi Ve Ticaret Ltd v. All Foods SA, 2001 Int'l Arb. L. Rev. N-33 (Turkish S.Ct.) (contract containing arbitration clause, signed only by sellers, did not satisfy Article II(2)). See also Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 70 (ICCA Congress Series No. 11 2003) (Sphere Drake analysis “thoroughly deconstructed” in Kahn Lucas). 143 See infra pp. 1131 et seq.; 1210-1211. 144 As noted above, Article II(2) refers to “an exchange of letters or telegrams.” New York Convention, Art. II(2). This phrase has correctly been interpreted as extending to forms of communication other than “letters” and “telegrams.” See Award in Int'l Court of Arbitration for Marine and Inland Navigation at Gdynia of 15 December 1978, X Y.B. Comm. Arb. 89 (1985); infra pp. 597-599. 145 See A. van den Berg, The New York Arbitration Convention of 1958 191-194 (1981) (“Article II(2) may be divided into two alternatives for an arbitration agreement in writing: [1] an arbitral clause in a contract or a submission agreement, the contract or agreement being signed by the parties; … [2] an arbitral clause in a contract or a submission agreement, contained in an exchange of letters or telegrams.”); A. Samuel, Jurisdictional Problems in International Commercial Arbitration 82 (1989) (“Where the arbitral clause or agreement is contained in an exchange of letters or telegrams, no signature is required for the conditions contained in Article II(2) to be satisfied.”). 146 See, e.g., Overseas Cosmos, Inc. v. NR Vessel Corp., 1997 U.S. Dist. LEXIS 19390 (S.D.N.Y. 1997), appeal dismissed, 148 F.3d 51 (1998); Earthtrade, Inc. v. Gen. Brands Int'l Corp., 1996 U.S. Dist. LEXIS 1520 (S.D.N.Y. 1996); Dixie Aluminum Prod. Co. v. Mitsubishi Int'l Corp., 785 F.Supp. 157 (N.D. Ga. 1992) (arbitration clause in buyer's sales confirmation was binding on seller, even though not signed); Astor Chocolate Corp. v. Mikroverk, Ltd, 704 F.Supp. 30 (E.D.N.Y. 1989); Marion Coal Co. v. Marc Rich & Co., 539 F.Supp. 903 (S.D.N.Y. 1982) (same); Beromun AG v. Societa Industriale Agricola “Tresse,” 471 F.Supp. 1163 (S.D.N.Y. 1979). See alsoVerolme Botlek BV v. Lee C. Moore Corp., XXI Y.B. Comm. Arb. 824 (N.D. Okla. 1995) (1996) (Article II satisfied where quotation, incorporating General Terms and Conditions that included arbitration provision, were sent and accepted in writing); Jiangxi Provincial Metal and Minerals Imp. and Exp. Corp v. Salanses Co. Ltd, [1995] 2 HKC 373 (H.K. High Court, S.Ct.); Judgment of 8 June 1967, II Y.B. Comm. Arb. 234 (Landgericht Bremen) (1977) (written proposal, affirmatively responded to in writing, satisfies Article II(2)); Judgment of 19 December 1967, II Y.B. Comm. Arb. 235 (Landgericht http://www.kluwerarbitration.com/CommonUI/print.aspx
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Hamburg) (1977) (written provision, prepared by broker and signed by both parties and returned to each by broker (but not directly exchanged between parties), satisfied Article II(2)). 147 Award in Netherlands Hide and Leather Exchange of 30 October 1980, VII Y.B. Comm. Arb. 137 (1982). 148 Possible Future Work in the Area of International Commercial Arbitration, Note of the Secretariat on the Possible Future Work in the Area of International Commercial Arbitration, UN Doc. A/CN.9/460, ¶¶20-31, XXX UNCITRAL Y.B. 395, 398-399 (1999). 149 There is authority supporting this conclusion. See, e.g., Borsack v. Chalk & Vermilion Fine Arts, Ltd, 974 F.Supp. 293 (S.D.N.Y. 1997); Polytek Eng'g Co., Ltd v. Jacobson Co., 1997 WL 769389 (D. Minn. 1997); Judgment of 5 November 1985, Tracomin SA v. Sudan Oil Seeds Co., XII Y.B. Comm. Arb. 511 (Swiss Federal Tribunal) (1987); Judgment of 6 June 1967, I Y.B. Comm. Arb. 199 (Tribunal du Canton Geneve) (1976); Judgment of 3 June 1971, IV Y.B. Comm. Arb. 309 (Basel Court of Appeal) (1979); Judgment of 13 December 1971, I Y.B. Comm. Arb. 190 (Italian Corte di Cassazione) (1976); Judgment of 11 January 1978, IV Y.B. Comm. Arb. 262 (Landgericht Zweibrücken) (1979). 150 See, e.g., Moscow Dynamo v. Ovechkin, 2006 U.S. Dist. LEXIS 1320 (D.D.C. 2006) (Article II not satisfied, because no “exchange” of writings); Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 29 (ICCA Congress Series No. 11 2003) (“If … a seller makes an oral offer to a buyer, including provision for arbitration, and if the buyer accepts the offer in a letter, this will not satisfy the requirements of ‘signature’ or ‘exchange.’”). 151 SeeReport of the Committee on the Enforcement of International Arbitral Awards, UN Doc. E/2704, ¶30, Art. III(a) (1955), available at www.uncitral.org (“The provision that the parties must have “agreed in writing either by a special agreement or by an arbitral clause in a contract” was intended to cover all the possible ways in which the parties may enter into a written agreement to arbitrate their differences. The Committee was aware that in the practice of international trade an agreement to arbitrate may be made by the exchange of letters or telegrams. So long as the agreement … has been reduced to written form the Commission thought it should be considered valid …”), UN DOC E/2704 at ¶30; H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 262 (1989). This drafting history is consistent with the language of Article II(2), which requires an “exchange of letters or telegrams,” which appears to exclude an unanswered communication. 152 See, e.g., Judgment of 25 February 1986, Confex v. Ets Dahan, XII Y.B. Comm. Arb. 484 (French Cour de cassation com.) (1987); Judgment of 21 September 2005, XXXI Y.B. Comm. Arb. 679 (German Bundesgerichtshof) (2006) (“Article II(1) of the New York Convention provides for an agreement in writing: … that can either be an arbitration clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams. … The reference to the arbitration clause in the standard conditions of contract was only contained in the invoices that the claimant sent to the defendant, not in an exchange of letters”); Judgment of 18 September 2003, XXX Y.B. Comm. Arb. 536, 538 (Oberlandesgericht Celle) (2005) (“The oral or tacit agreement on the application of these general conditions of contract http://www.kluwerarbitration.com/CommonUI/print.aspx
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[containing an arbitration clause], does not satisfy the requirements as to form of Article II(2)”); Judgment of 16 December 1992, XXI Y.B. Comm. Arb. 535 (Oberlandesgericht Cologne) (1996) (Article II(2)'s writing requirement not satisfied by tacit acceptance of general terms and conditions, which contained arbitration clause); Judgment of 8 November 1971, II Y.B. Comm. Arb. 238 (Oberlandesgericht Düsseldorf) (1977) (same); Judgment of 25 May 1970, II Y.B. Comm. Arb. 237 (German Bundesgerichtshof) (1977) (written proposal, containing arbitration clause, not objected to by recipient, but not affirmatively accepted, does not satisfy Article II(2)); Judgment of 20 June 1978, V Y.B. Comm. Arb. 260 (Landgericht Munich) (1980); Judgment of 28 October 1993, XX Y.B. Comm. Arb. 739 (Italian Corte di Cassazione) (1993); Judgment of 28 March 1991, XVII Y.B. Comm. Arb. 562 (Italian Corte di Cassazione) (1992) (Article II(2) not satisfied where written arbitration clause was not accepted in writing); Judgment of 18 September 1978, IV Y.B. Comm. Arb. 296 (Italian Corte di Cassazione) (1979); Judgment of 13 December 1974, I Y.B. Comm. Arb. 193 (Naples Corte d' Appello) (1976); Judgment of 15 July 1987, 1990 Rev. arb. 627 (French Cour de cassation com.) (oral arbitration agreement, confirmed by one party's letter, not formally valid absent written acceptance of other party); Judgment of 5 July 1994, XXI Y.B. Comm. Arb. 685 (Basel Court of Appeal) (1996); Judgment of 6 June 1967, I Y.B. Comm. Arb. 199 (Tribunal du Canton Geneve) (1976) (Article II(2) not satisfied by tacit acceptance of sales confirmation, which contained an arbitration clause); Award in NAI Case of 15 September 1977, VI Y.B. Comm. Arb. 142 (1981). 153 See, e.g., P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶381 (2d ed. 1989); A. van den Berg, The New York Arbitration Convention of 1958 196-98 (1981); K.-P. Berger, International Economic Arbitration 142-46 (1993); van den Berg, The New York Convention: Its Intended Effects, Its Interpretation, Salient Problem Areas, in The New York Convention of 1958 25, 41 (ASA Special Series No. 9 1996) (“a tacit acceptance of the confirmation is not sufficient for the purposes of Article II(3)”); Sanders, Court Decisions on the New York Convention 1958, Commentary, I Y.B. Comm. Arb. 207, 211 (1976); Mann, An ‘Agreement in Writing’ to Arbitrate, 3 Arb. Int'l 171, 172 (1987) (“If the arbitration agreement is signed by only one party and if the other is alleged to have tacitly assented to it great difficulties are likely to arise … An English party who has not signed anything would be exposed to foreign arbitration proceedings and to the enforcement here of a foreign award. This is a major legislative decision which the New York Convention did not require and which is open to much abuse.”). 154 See, e.g., Moscow Dynamo v. Ovechkin, 2006 U.S. Dist. LEXIS 1320 (D.D.C. 2006) (Article II(2)'s writing requirement not satisfied: “no … written exchange of correspondence exists”); H. Small Ltd v. Goldroyce Garment Ltd, [1994] 2 HKC 526 (H.K. High Court, S.Ct.). 155 Judgment of 25 February 1986, Confex v. Ets Dahan, XII Y.B. Comm. Arb. 484 (French Cour de cassation com.) (1987). 156 See, e.g., Judgment of 28 October 1993, XX Y.B. Comm. Arb. 739 (Italian Corte di Cassazione) (1993); Judgment of 18 September 1978, IV Y.B. Comm. Arb. 296 (Italian Corte di Cassazione) (1979); Judgment of 25 January 1991, XVII Y.B. Comm. Arb. 554, 556 (Italian Corte di Cassazione) (1992). 157 See, e.g., Judgment of 5 November 1985, Tracomin SA v. Sudan Oil Seeds Co., XII Y.B. Comm. Arb. 511, 512 (Swiss Federal Tribunal) (1987); Judgment of 6 June 1967, I Y.B. Comm. Arb. 199 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(Tribunal du Canton Geneva) (1976). 158 See, e.g., Zambia Steel & Building Supplies Ltd v. James Clark & Eaton Ltd [1986] 2 Lloyd's Rep. 225 (English Court of Appeal) (Article II(2) satisfied by tacit acceptance of written quotation, containing an arbitration clause); Judgment of 3 May 1980, Kabushiki Kaisha Ameroido Nihon v. Drew Chemical Corp., VIII Y.B. Comm. Arb. 394, 397 (Yokohama District Court) (1983) (court “recognizes that an arbitration agreement in writing, and renewed without writing, could meet the requirement of the New York Convention”). 159 Judgment of 26 June 1970, Israel Chem. & Phosphates Ltd v. NV Algemene Oliehandel, I Y.B. Comm. Arb. 194 (Rotterdam Rechtsbank) (1976). 160 Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d Cir. 1987). See alsoOriental Comm. and Shipping Co. (U.K.) Ltd v. Rosseel, NV, 609 F.Supp. 75 (S.D.N.Y. 1985). 161 Filanto SpA v. Chilewich Int'l Corp., 789 F.Supp. 1229 (S.D.N.Y. 1992); Overseas Cosmos, Inc. v. NR Vessel Corp., 1997 U.S. Dist. LEXIS 19390, at *10 (S.D.N.Y. 1997) (“While Article II of the Convention indeed requires that an agreement to arbitrate be in writing to be enforceable, ‘it does not require that the writing be signed by the parties,’ and ‘ordinary contract principles dictate when the parties are bound by a written arbitration provision absent their signatures.’”). In contrast, a writing was found lacking where there was a written document which the parties orally accepted but did not sign. Sen Mar, Inc. v. Tiger Petroleum Corp. NV, 774 F.Supp. 879 (S.D.N.Y. 1991). 162 See supra pp. 593-595. 163 See infra pp. 661-667, 671-673. 164 van den Berg, The New York Convention: Its Intended Effects,
Its Interpretation, Salient Problem Areas, in The New York Convention of 1958 25, 41 (ASA Special Series No. 9 1996) (prohibition against tacit acceptance “is no longer in accord with international trades practices”); Kaplan, Is the Need for Writing as Expressed in the New York Convention and the Model Law Out of Step with Commercial Practice?, 12 Arb. Int'l 27 (1996). 165 See infra pp. 614-616. 166 The subject of implied assent as a basis for the formation of an arbitration agreement is discussed below. See infra pp. 661-667. 167 Compare Award in NAI Case of 15 September 1977, VI Y.B. Comm. Arb. 142 (1981) (“It may be true that Article II does not require the existence of a written document specifically spelling out the full text of the arbitration agreement. The document must, however, be such as to lend itself to a construction so as to prove the intention of both parties to be bound by an arbitration agreement.”). 168 See infra pp. 661-667. 169 See supra pp. 92-101. 170 See, e.g., China Nanhai Oil Joint Serv. Corp. Shenzhen Branch v. Gee Tai Holdings Co., XX Y.B. Comm. Arb. 671 (H.K. High Court, S.Ct. 1994) (1995) (doctrine of good faith and estoppel apply as international principles under Articles II(2) and V(1) of Convention: “on a true construction of the Convention there is indeed a duty of http://www.kluwerarbitration.com/CommonUI/print.aspx
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good faith” requiring award debtor to raise jurisdictional objection); A. van den Berg, The New York Arbitration Convention of 1958 185 (1981) (“the principle of good faith may be deemed enshrined in the Convention's provisions”). See also infra pp. 614-616. 171 China Nanhai Oil Joint Serv. Corp. Shenzhen Branch v. Gee Tai Holdings Co., XX Y.B. Comm. Arb. 671 (H.K. High Court, S.Ct. 1994) (1995). 172 Judgment of 16 August 1999, XXVII Y.B. Comm. Arb. 519, 521 (Hålogaland Court of Appeal) (2002). 173 See, e.g., Judgment of 4 September 2003, XXX Y.B. Comm. Arb. 528 (Oberlandesgericht Celle) (2005) (interpreting Article II(1), “[m]odern forms of communication, such as the telefax, may be deemed to fall within the scope of this provision”); Judgment of 12 December 2002, XXIX Y.B. Comm. Arb. 761 (Bavarian Oberstes Landesgericht) (2004) (“Telexes and faxes equal telegrams”); Judgment of 30 July 1998, XXV Y.B. Comm. Arb. 714 (Hanseatisches Oberlandesgericht Hamburg) (2000) (“it is generally recognized that telexes and telefaxes just like telegrams, are the same as letters”); Judgment of 20 January 1987, Société Bomar Oil NV v. Entreprise Tunisienne d'Activités Pétrolières, 1987 Rev. arb. 482 (Paris Cour d'appel); Judgment of 16 January 1995, Compagnie de Nav. et Transports SA v. Mediterranean Shipping Co., XXI Y.B. Comm. Arb. 690, 695 (Swiss Federal Tribunal) (1996) (back of a bill of lading); Judgment of 12 January 1989, XV Y.B. Comm. Arb. 509 (Swiss Federal Tribunal) (1990); Judgment of 5 November 1985, Tracomin SA v. Sudan Oil Seeds Co., XII Y.B. Comm. Arb. 511 (Swiss Federal Tribunal) (1987); Judgment of 14 April 1983, Carbomin SA v. Ekton Corp., XII Y.B. Comm. Arb. 502 (Court of Appeal of the Canton of Geneva) (1987) (telegram “contemplates in a general way the transmission by telecommunication of messages which are reproduced in a lasting format”); Lieschke v. RealNetworks, Inc., XXV Y.B. Comm. Arb. 530 (N.D. Ill. 2000) (2000); Judgmentof 17 November 1971, 8 Ob 233/71, I Y.B. Comm. Arb. 183 (Austrian Oberster Gerichtshof) (1976) (telex); Judgment of 26 March 1981, X Y.B. Comm. Arb. 455, 456 (Savona Court of First Instance) (1985) (telex); Gabriel Capital, LP v. CAIB Investmentbank AG, 2006 N.Y. App. Div. LEXIS 4717 (N.Y. App. Div. 2006) (“‘exchange of letters or telegrams’ should be interpreted to include faxes”); Chloe Z Fishing Co. v. Odyssey Re (London) Ltd, 109 F.Supp.2d 1236 (S.D. Cal. 2000) (“Article II(2) … could not have intended to exclude all other forms of written communications regularly utilized to conduct commerce”); Proctor v. Schellenberg, XXVIII Y.B. Comm. Arb. 745, 751 (Manitoba Court of Appeal 2002) (2003) (“communication by facsimile falls within the definition”). See also Horning, Has HAL Signed A Contract?, 12 Santa Clara Comp. & High Tech. L.J. 290 (1996). 174 See supra p. 101. 175 See infra pp. 605-607; UNCITRAL Model Law, 2006 Revisions, Art. 7(4) (Option I). The drafters of the revisions also expressed the hope that they would influence the interpretation of the New York Convention's “writing” requirement. 176 See Bangladeshi Arbitration Act, Art. 9(2)(b) (adopting the “writing approach” of the UNCITRAL Model Law and the New York Convention, respectively, and including “fax” and “e-mail” as modes of writing); Turkish International Arbitration Law, Art. 4(2) (“An agreement is in writing if it is contained in a document signed by the parties or in an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement”). 177 Report of the UNCITRAL on the Work of its Thirty-Ninth http://www.kluwerarbitration.com/CommonUI/print.aspx
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Session, Recommendation Regarding the Interpretation of Article II, Paragraph 2, and Article VII, Paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, UN Doc. A/61/17, Annex 2 (2006), available at www.uncitral.org; UN General Assembly Resolution No. 61/33, Revised Articles of the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law, and the Recommendation regarding the Interpretation of Article II, paragraph 2, and Article VII, paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (2006), available at www.uncitral.org. As discussed above, the Recommendation also encourages Contracting States to interpret Article II(2) as non-exhaustive. See supra pp. 542-545. 178 See infra pp. 614-616; UNCITRAL Model Law, Art. 7(2); English Arbitration Act, 1996, §5(5). See alsoSlaney v. Int'l Amateur Athletic Fed., 244 F.3d 580, 591 (7th Cir. 2001) (“Slaney was a participant in the arbitration. During the arbitration, Slaney's counsel appeared before and presented arguments to the Tribunal. Her counsel called an expert witness to testify on Slaney's behalf, filed a motion to dismiss, and a motion for summary judgment. … Thus, the fact that Slaney suggests that there is no written agreement to arbitrate, as mandated by Article II of the New York Convention, is irrelevant.”); CBS Corp. v. WAK Orient Power & Light Ltd, 168 F.Supp.2d 403 (E.D. Pa. 2001) (by signing Terms of Reference, defining arbitral tribunal's jurisdiction to include determining identity of parties to arbitration, respondent agreed to submission of this issue to arbitration; rejecting defense to recognition under Article V(1)(c)); Judgment of 30 July 1998, XXV Y.B. Comm. Arb. 714 (Hanseatisches Oberlandesgericht Hamburg) (2000) (exchange of correspondence constituting arbitral tribunal satisfies Article II(2)'s requirement for an exchange of letters). But seeJudgment of 16 December 1992, XXI Y.B. Comm. Arb. 535 (Oberlandesgericht Cologne) (1996) (ICC Terms of Reference held not to satisfy Article II(2)'s “writing” requirement). 179 See supra pp. 536-538. 180 See infra pp. 621-625. 181 See infra pp. 538-545. 182 See supra pp. 305, 581-582. 183 See supra pp. 542-545. 184 European Convention, Art. I(2). See supra p. 547. 185 SeeJudgment of 15 October 1992, Agrò di Reolfi Piera & C snc v. Ro Koproduct oour Produktiva, XX Y.B. Comm. Arb. 1061 (Italian Corte di Cassazione) (1995) (upholding agreement concluded by telex). 186 Compare the generally more liberal judicial decisions under the New York Convention. See supra pp. 589-591. 187 As discussed above, Article I(2) of the European Convention also explicitly preserves more liberal form requirements under national law. See supra p. 547. 188 Inter-American Convention, Art. 1. 189 See supra pp. 589-591. 190 Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 20 (ICCA Congress Series No. 11 2003) (“there is an increasing disparity among different systems as to how ‘writing’ should be defined, and an increasing dislocation between legislative http://www.kluwerarbitration.com/CommonUI/print.aspx
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requirements and actual business practices”); infra pp. 601 et seq. 191 See UNCITRAL Model Law, Art. 7(1); Swiss Law on Private International Law, Art. 178(1); supra pp. 581-582. 192 See U.S. FAA, 9 U.S.C. §1; English Arbitration Act, §§5, 81(1) (b); supra pp. 581-582. 193 Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration, ¶19, XIX Y.B. UNCITRAL 117, 119 (1988) (“Article 7(2) follows the 1958 New York Convention in requiring written form[, but] widens and clarifies the definition of written form”); Report of the UNCITRAL on the Work of Its Eighteenth Session, UN Doc. A/40/17, ¶¶82-88, ¶87 and Annex I, XVI Y.B. UNCITRAL 3, 14, 393 (1985) (“[one] suggestion was to include those cases [in Article 7(2) Model Law] where parties who had not concluded an arbitration agreement in the form required under paragraph (2) nonetheless participated in arbitral proceedings and where that fact, whether viewed as a submission or as the conclusion of an oral agreement, was recorded in the minutes of the arbitral tribunal, even though the signatures of the parties might be lacking. It was pointed out in support of the suggested extension that, although awards made pursuant to arbitration agreements evidenced in that manner would possibly be denied enforcement under the 1958 New York Convention, adoption of that extension in the Model Law might eventually lead to an interpretation of Article II(2) of that Convention whereby arbitration agreements evidenced in the minutes of arbitral tribunals would be acceptable. … The Commission, after deliberation, decided to extend the scope of paragraph (2) along the lines of the suggestion.”); H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 260264 (1989); P. Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions ¶¶2-015 to 2036a (2d ed. 2005). 194 For example, the United States, Switzerland, England, Germany, the Netherlands, Sweden and France. See infra pp. 607614. 195 Kaplan, Is the Need for Writing as Expressed in the New York Convention and the Model Law Out of Step with Commercial Practice?, 12 Arb. Int'l 27, 28 (1996) (“after nearly five years of applying the Model Law in Hong Kong in my former judicial capacity, I found that the problems arising from the application of Article 7(2) were the most difficult and frustrating which came before me.”). 196 See infra pp. 605-607; UNCITRAL Model Law, 2006 Revisions, Art. 7 (Options I and II). 197 UNCITRAL Model Law, Art. 7(2). Departing from the Model Law's general emphasis on uniformity, a footnote to Article 7's writing requirement provides that it would not be “contrary to the harmonization to be achieved by the Model Law if a State retained even less onerous conditions.” 198 See authorities cited supra pp. 593-595; H. Small Ltd v. Goldroyce Garment Ltd, [1994] 2 HKC 526 (H.K. High Court, S.Ct.). The drafters of the Model Law rejected a proposal that would have amended Article 7(2) to provide: “If a bill of lading or another document, signed by only one of the parties, gives sufficient evidence of a contract, an arbitration clause in the document, or a reference in the document to another document containing an arbitration clause, shall be considered to be an agreement in writing.” Report of the UNCITRAL on the Work of its Eighteenth Session, UN Doc. A/40/17, ¶86, XVI Y.B. UNCITRAL 3 (1985). http://www.kluwerarbitration.com/CommonUI/print.aspx
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199 See the more clearly worded provision in the Netherlands Code
of Civil Procedure: “The arbitration agreement shall be proven by an instrument in writing. For this purpose an instrument in writing which provides for arbitration or which refers to standard conditions providing for arbitration is sufficient, provided that this instrument is expressly or impliedly accepted by or on behalf of the other party.” Netherlands Code of Civil Procedure, Art. 1021 (emphasis added). 200 See supra pp. 593-595. 201 Schiff Food Prods Inc. v. Naber Seed & Grain Co., 28 B.L.R.2d 221 (Sask. Q.B. 1996) (Article 7's writing requirement satisfied by written offer, containing arbitration clause, that was accepted by sending sample and promising delivery; conduct also constituted consent). 202 See infra pp. 666-673. 203 UNCITRAL Model Law, Art. 7(2). 204 Schiff Food Prods Inc. v. Naber Seed & Grain Co., [1997] W.W.R. 124 (Sask. Q.B.). See also H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 262-263 (1989) (“The intention of the Model Law is to cover modern and future means of communications. It is submitted that a written record is provided even if no paper copy was produced; data appearing on a computer screen, or in its memory disks should be sufficient.”). 205 That uncertainty is detailed above. See supra pp. 597-600. 206 See supra pp. 599-600; Japanese Arbitration Law, Art. 13(4) (written form requirement extended to any method that “provide[s] the recipient with a written record of the content so transmitted” including methods “incapable of recognition by human perception and used for data processing by a computer”); Bangladeshi Arbitration Act, Art. 9(2)(b) (referring to “fax” and “e-mail”). 207 See supra pp. 591-592. 208 See supra p. 601. 209 For decisions adopting this view, see Schiff Food Prods Inc. v. Naber Seed & Grain Co., [1997] W.W.R. 124 (Sask. Q.B.) (“Art. 7(2) does not expressly require a signature”); Jiangxi Provincial Metal and Mineral Imp. and Exp. Corp. v. Sulanser Co., [1995] 2 HKC 373 (H.K. High Court, S.Ct.); Oonc Line Ltd v. Sino-Am. Trade Advancement Co., [1994] HKCU 35 (H.K. High Court, S.Ct.); William Co. v. Chu Kong Agency Co. Ltd, XIX Y.B. Comm. Arb. 274 (H.K. High Court, S.Ct. 1993) (1994). 210 See Ng Kin Kenneth v. HK Football Assoc. Ltd, [1994] 1 HKC 734 (H.K. High Court, S.Ct.). 211 It is clear that the signature may be that of an agent. “Triple V” Inc. v. Star (Universal) Co., [1995] 3 HKC 129 (H.K. High Court, S.Ct.). 212 UNCITRAL Model Law, Art. 7(2) (“exchange of statements of claims and defense in which the existence of an agreement [to arbitrate] is alleged by one party and not denied by another”). See William Co. v. Chu Kong Agency Co. Ltd, XIX Y.B. Comm. Arb. 274 (H.K. High Court, S.Ct. 1993) (1994). 213 UNCITRAL Model Law, Art. 7(2). See also infra pp. 695-704. The UNCITRAL Secretariat's Explanatory Memorandum referred to “general conditions” as one source from which an arbitration clause could be incorporated. Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration, as amended in 2006, ¶19, available on www.uncitral.org. http://www.kluwerarbitration.com/CommonUI/print.aspx
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The same result was set forth expressly in the first draft of the Model Law (in what was then Article 3). Note of the Secretariat on Draft Article 1 to 24 on Scope of Application, Arbitration Agreement, Arbitrators, and Arbitral Procedure, UNCITRAL, UN Doc. A/CN.9/WG.II/WP.37, XIV Y.B. UNCITRAL 51, 52 (1983) (“The reference in a contract to general conditions containing an arbitration clause constitutes an arbitration agreement provided that the contract is in writing. [However, an arbitration agreement also exists where one party to a contract refers in its written offer, counter-offer or contract confirmation to general conditions].”). 214 The subject of consent is discussed below. See infra pp. 695-
704. For judicial decisions, seeAstel-Peininger Joint Venture v. Argos Eng'g & Heavy Indus. Co., XX Y.B. Comm. Arb. 288 (H.K. High Court, S.Ct. 1994) (1995); Gay Constr. Pty v. Caledonian Techmore (Buildings) Ltd, [1994] 2 HKC 562 (H.K. High Court, S.Ct.). 215 UNCITRAL Model Law, 2006 Revisions, UN Doc. A/CN.9/592 – Report of Working Group II (Arbitration and Conciliation) on the work of its forty-fourth session (44th session, 23-27 January 2006, New York); Menon & Chao, Reforming the Model Law Provisions on Interim Measures of Protection, 2 Asian Int'l Arb. J. 1 (2006). See supra pp. 118-120. 216 The establishment of two optional approaches in the Model Law is arguably ill-advised. The fundamental concept of a “Model” Law is eroded by the failure to provide a uniform text, and the adoption of alternatives which, no matter how well-crafted, contradict the policies of uniformity and universality. 217 UNCITRAL Model Law, 2006 Revisions, Art. 7 (Option II). 218 See infra pp. 655-694. 219 UNCITRAL Model Law, 2006 Revisions, Art. 7(2) (Option I). 220 UNCITRAL Model Law, 2006 Revisions, Art. 7(3) (Option I). See also Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration, as amended in 2006, ¶19, at www.uncitral.org (“The second approach defines the arbitration agreement in a manner that omits any form requirement.”). 221 See English Arbitration Act, 1996, §§5(3), 5(4); infra pp. 611612. 222 Article 7(4) of Option I also provides that “writing[s] include “electronic communication[s],” which are in turn broadly defined. UNCITRAL Model Law, 2006 Revisions, Art. 7(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.”). 223 UNCITRAL Model Law, 2006 Revisions, Art. 7(3) (“An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.”); Explanatory Note by the UNCITRAL Secretariat on the Model Law on International Commercial Arbitration, as amended in 2006, ¶19, available at www.uncitral.org. http://www.kluwerarbitration.com/CommonUI/print.aspx
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224 See supra pp. 587-600. 225 Insofar as written form requirements are used as protective
devices for consumers, employees, or similarly-situated parties, these purposes are better achieved through rules of validity (including consent and unconscionability) or non-arbitrability. See infra pp. 690-694, 724-732, 817-820, 820-829. 226 U.S. FAA, 9 U.S.C. §§208, 307. Neither the second chapter of the FAA (implementing the New York Convention) nor the FAA's third chapter (implementing the Panama Convention) contains separate or additional writing requirements. The Revised Uniform Arbitration Act contains an abbreviated “writing” requirement, providing only that there must be a “record” of an arbitration agreement. Revised Uniform Arbitration Act, §6(a) (2000) (“An agreement contained in a record to submit to arbitration …”). 227 See supra pp. 134-136. 228 U.S. FAA, 9 U.S.C. §2. 229 See supra pp. 132, 134-136. 230 See, e.g., Progressive Cas. Ins. Co. v. CA Reaseguradora
Nacional de Venezuela, 991 F.2d 42 (2d Cir. 1993); Sen Mar, Inc. v. Tiger Petroleum Corp. NV, 774 F.Supp. 879 (S.D.N.Y. 1991); Overseas Cosmos, Inc. v. NR Vessel Corp., 1997 U.S. Dist. LEXIS 19390, at *10 (S.D.N.Y. 1997); Technetronics, Inc. v. LeyboldGeaeus GmbH, 1993 U.S. Dist. LEXIS 7683 (E.D. Pa. 1993). 231 Compare supra pp. 587 et seq.See Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1368-69 (11th Cir. 2005) (written arbitration agreement met the FAA's writing requirement even though it was not signed by the parties); Great Circle Lines, Ltd v. Matheson & Co., Ltd, 681 F.2d 121, 126 (2d Cir. 1982) (even in absence of a final written contract, arbitration clause in standard form contract satisfied writing requirement of FAA); Medical Dev. Corp. v. Indus. Molding Corp., 479 F.2d 345, 349 (10th Cir. 1973); Athon v. Direct Merchs. Bank, 2007 U.S. Dist. LEXIS 26841 (M.D. Ga. 2007) (“[I]t is well-established that a written agreement to arbitrate need not be signed by the parties as a prerequisite to the enforcement of the agreement”); Middlebrooks v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 1989 WL 80446, (N.D. Ala. 1989); Fox v. Merrill Lynch & Co., 453 F.Supp. 561, 564 (S.D.N.Y. 1978) (“A valid arbitration provision must be in writing, but a party may be bound by that provision without having signed an exemplar”); Crawford v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 319 N.E.2d 408, 412-413 (N.Y. 1974); infra p. 608. 232 Compare UNCITRAL Model Law, Art. 7(2); supra pp. 601-605. 233 See, e.g., Chelsea Square Textiles, Inc. v. Bombay Dyeing and Mfg Co., 189 F.3d 289, 297 (2d Cir. 1999); Valero Refining, Inc. v. M/T Lauberhorn, 813 F.2d 60 (5th Cir. 1987); McAllister Bros., Inc. v. A & S Transp. Co., 621 F.2d 519, 524 (2d Cir. 1980); Merrison Textile Co., Inc. v. Marion Fabrics, Inc., 1995 WL 244374 (S.D.N.Y. 1995); Delaware Indus., Inc. v. Avondale Mills, Inc., 1993 WL 361624 (S.D.N.Y. 1993); Graniteville Co. v. Star Knits of Calif., 680 F.Supp. 587, 589 (S.D.N.Y. 1988); Blatt v. Shearson/Am. Express, 1986 WL 12721 (S.D.N.Y. 1986); Imptex Int'l Corp. v. Lorprint Inc., 625 F.Supp. 1572 (S.D.N.Y. 1986) (enforcing arbitration clause contained in written contract that was not signed). 234 Fortune, Alsweet & Eldridge, Inc. v. Daniel, 724 F.2d 1355, http://www.kluwerarbitration.com/CommonUI/print.aspx
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1356 (9th Cir. 1983) (sending a letter to the tribunal through a representative, in response to notice of an arbitration hearing); Joan N. Venuto v. Ins. Co. of N. Am., 1998 WL 414723, at *5 (E.D. Pa. 1998) (“an employee's decision to continue working with an employer for a substantial period of time after the imposition of new policy [containing an arbitration agreement], demonstrates acceptance of its terms.”). 235 See supra pp. 593-595, 603. 236 See, e.g., Orbis, Inc. v. Objectwin Tech., Inc., 2007 WL 2746958, at *1, *6 (W.D. Va. 2007) (exchange of emails and faxes); Ibeto Petrochem. Indus., Ltd v. M/T Beffen, 412 F.Supp.2d 285, 291 (S.D.N.Y. 2005) (exchange of emails); M. Lischke, R. Jackson, T. Simon v. RealNetworks, Inc., XXV Y.B. Comm. Arb. 532 (N.D. Ill. 2000) (2000). 237 Orbis, Inc. v. Objectwin Tech., Inc., 2007 WL 2746958, at *1, *6 (W.D. Va. 2007). 238 See, e.g., Moscow Dynamo v. Ovechkin, 2006 U.S. Dist. LEXIS 1320 (D.D.C. 2006) (requiring that Article II's writing requirement be satisfied, in order to recognize foreign award, and concluding that there was no “exchange” of writings); Chloe Z Fishing Co. v. Odyssey Re (London) Ltd, 109 F.Supp.2d 1236, 1243-1246 (S.D. Cal. 2000) (court must apply New York Convention's more stringent written form requirements, not FAA's less stringent requirements); Lo v. Aetna Int'l, Inc., 2000 U.S. Dist. LEXIS 22531 (D. Conn. 2000); Sen Mar, Inc. v. Tiger Petroleum Corp. NV, 774 F.Supp. 879, 882883 (S.D.N.Y. 1991) (applying New York Convention's more stringent form requirements, rather than FAA's less demanding requirements). See also supra pp. 538-540. 239 Sen Mar, 774 F.Supp. at 882-883. 240 Sen Mar, 774 F.Supp. at 882. 241 See supra pp. 538-545, 599-600. 242 Swiss Law on Private International Law, Art. 178(1). Article 178(1) replaced former Article 6 of the Swiss Cantonal Concordat, which imposed a signature requirement, in international matters. Swiss Cantonal Concordat, Art. 6. See Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶10 (2000); Lalive, The New Swiss Law on International Arbitration, 4 Arb. Int'l 2, 9 (1988). 243 See, e.g., Judgment of 16 January 1995, Compagnie de Nav. et Transports SA v. Mediterranean Shipping Co., XXI Y.B. Comm. Arb. 690, 695-696 (Swiss Federal Tribunal) (1996) (“The arbitration agreement [providing for arbitration outside Switzerland] … is valid only if it meets the requirement of the written form of Art. II(2) of the New York Convention. On this subject we must observe that the requirement in the [Convention] is … stricter than Art. 178 PILA, which merely requires a means of communication allowing for a written proof of the arbitration agreement”); Judgment of 7 February 2001, 19 ASA Bull. 523 (Swiss Federal Tribunal) (2001); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶395 (2006); G. Walter, W. Bosch & J. Brönnimann, Internationale Schiedsgerichtsbarkeit in der Schweiz 78 (1991). 244 See supra pp. 607-609. 245 Swiss law continues, however, to require a written record evidencing the parties' agreement. J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶193 (2d ed. 2007) (“[i]t is indeed the mutual will of all parties that has to be established by a text … [T]he requirement of the written form extends to the will of both parties and that consequently neither a unilateral declaration by http://www.kluwerarbitration.com/CommonUI/print.aspx
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one of them nor tacit acceptance by the other is sufficient”). 246 With regard to the New York Convention, Swiss courts interpret Article II(2) as requiring an exchange of writings (but as not requiring signatures on such writings). Judgment of 5 November 1985, Tracomin SA v. Sudan Oil Seeds Co., XII Y.B. Comm. Arb. 511, 512 (Swiss Federal Tribunal) (1987) (written form requirement of Article II(2) satisfied where one party offers arbitration in writing and other party responds with telex referring to offer and appointment of arbitrator: “Not only must there be a written proposal to arbitrate but also a written acceptance from the other party, which acceptance must be communicated to the party who made the proposal to arbitrate.”); Judgment of 16 January 1995, Compagnie de Nav. et Transports SA v. Mediterranean Shipping Co., XXI Y.B. Comm. Arb. 690, 698 (Swiss Federal Tribunal) (1996). See supra pp. 591-592. 247 See, e.g., Judgment of 16 January 1995, Compagnie de Nav. et Transports SA v. Mediterranean Shipping Co., XXI Y.B. Comm. Arb. 690, 695 (Swiss Federal Tribunal) (1996); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶310 (2006); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶193 (2d ed. 2007). 248 See supra pp. 307-308. 249 See, e.g., J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶193 (2d ed. 2007); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶¶401 et seq. (2006). This approach is criticized above. See supra pp. 307-309. 250 See supra pp. 538-545, 599-600. 251 See R. Merkin, Arbitration Law ¶¶3.8 to 3.14 (2004 & Update 2007); U.K. Departmental Advisory Committee on Arbitration Law, 1996, Report on the Arbitration Bill(February 1996), reprinted in, 13 Arb. Int'l 275, ¶¶33-34 (1997); supra p. 601. 252 English Arbitration Act, 1996, §5(2). 253 Id. at §5(3). Section 5(3) “is designed to cover, amongst other things, extremely common situations such as salvage operations, where parties make an oral agreement which incorporates by reference the terms of a written form of agreement (e.g., Lloyd's Open Form), which contains an arbitration clause.” U.K. Departmental Advisory Committee on Arbitration Law, 1996, Report on the Arbitration Bill(February 1996), reprinted in, 13 Arb. Int'l 275, ¶36 (1997). 254 English Arbitration Act, 1996, §5(4). See R. Merkin, Arbitration Law ¶3.13 (2004 & Update 2007); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶¶2-041 (22d ed. 2003); U.K. Departmental Advisory Committee on Arbitration Law, Report on the Arbitration Bill(February 1996), reprinted in, 13 Arb. Int'l 275, ¶36 (1997) (“this third party could of course be the tribunal [and] the parties are free during a hearing to make whatever arrangements or changes to the agreed procedure they wish, as long as these are recorded by the tribunal”). 255 Section 5(6) of the Act also defines “writing” to mean “recorded by any means” which includes paper, electronic media and other forms of record-keeping. SeeBermuth Lines Ltd v. High Seas Shipping Ltd [2006] 1 Lloyd's Rep. 537 (Q.B.) (the writing requirement of §5(1) of the English Arbitration Act, 1996, can be satisfied by magnetic and electronic recording, such as tape or email and other forms of computerized records). 256 English common law historically did not adopt a signature requirement, instead permitting other evidence that parties intended http://www.kluwerarbitration.com/CommonUI/print.aspx
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to be bound by an unsigned document (and also permitting oral agreements to arbitrate). See infra pp. 616-617; AngloNewfoundland and Dev. Corp. v. R [1920] 2 K.B. 214; Caerlon Timplate Co. v. Hughes (1891) 60 LJQB 640; R. Merkin, Arbitration Law ¶¶3.8 to 3.10 (2004 & Update 2007); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶¶2-040 et seq. (22d ed. 2003). 257 Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19 (ICCA Congress Series No. 11 2003). See also Landau, The Effect of the New Arbitration Act on Institutional Arbitration, 13(4) J. Int'l Arb. 113, 122 (1996). 258 English Arbitration Act, 1996, §5(3); R. Merkin, Arbitration Law ¶3.11 (2004 & Update 2007); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶2-045 (22d ed. 2003). 259 English Arbitration Act, 1996, §5(2)(c); R. Merkin, Arbitration Law ¶3.13 (2004 & Update 2007). This could include notes of a conversation or meeting. Ibid. 260 English Arbitration Act, 1996, §5(1); R. Merkin, Arbitration Law ¶3.9 (2004 & Update 2007). 261 English Arbitration Act, 1996, §81(1)(b) (Act does not alter common law regarding “the effect of an oral arbitration agreement”). 262 German ZPO, §1031(3). The same provision contains subsections dealing specifically with arbitration agreements incorporated by reference and with bills of lading. Section 1031(3) provides: “The reference in a contract complying with the form requirements of subsection 1 or 2 to a document containing an arbitration clause constitutes an arbitration agreement provided that the reference is such as to make that clause part of the contract.” See Geimer, in R. Zöller (ed.), Zivilprozessordnung §1031, ¶9 (26th ed. 2007). 263 Netherlands Code of Civil Procedure, Art. 1021 (requiring writing, but providing that “For this purpose an instrument in writing which provides for arbitration or which refers to standard conditions providing for arbitration is sufficient provided that this instrument is expressly or impliedly accepted by or on behalf of the other party”); Algerian Code of Civil Procedure, Art. 458 bis 1, ¶2; Egyptian Arbitration Law, Art. 12; Japanese Arbitration Law, Art. 13(2) (“The arbitration agreement shall be in the form of a document signed by all the parties, letters or telegrams exchanged between the parties (including those sent by facsimile device or other communication device for parties at a distance which provides the recipient with a written record of the transmitted content), or other written instrument.”); Hong Kong Arbitration Ordinance, Art. 2AC(2) (“An agreement is not an arbitration agreement for the purposes of this Ordinance unless it is in writing. (2) An agreement is in writing for the purposes of subsection (1) if (a) the agreement is in a document, whether signed by the parties or not; or (b) the agreement is made by an exchange of written communications; or (c) although the agreement is not itself in writing, there is evidence in writing of the agreement; or (d) the parties to the agreement agree otherwise than in writing by referring to terms that are in writing; or (e) the agreement, although made otherwise than in writing, is recorded by one of the parties to the agreement, or by a third party, with the authority of each of the parties to the agreement; or (f) there is an exchange of written submissions in arbitral or legal proceedings in which the existence of an agreement otherwise than in writing is alleged by one party against another party and is not denied by the other party in response to the allegation. (3) A reference in an http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement (a) to a written form of arbitration clause; or (b) to a document containing an arbitration clause, constitutes an arbitration agreement if the reference is such as to make that clause part of the agreement.”). 264 French New Code of Civil Procedure, Art. 1443 (“an arbitration clause [in a domestic context] is void unless it is set forth in writing in the main agreement or in a document to which that agreement refers”) & Art. 1449 (“a submission agreement shall be evidenced in writing”). 265 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶608-09 (1999); Goldman, La nouvelle réglementation française de l'arbitrage international, in The Art of Arbitration – Liber Amicorum Pieter Sanders 153, 161 (1982). 266 See supra pp. 538-540. 267 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶614 (1999) (“in the Bomar Oil case, the New York Convention could have been excluded once it had been shown that French law offered the parties more freedom”). 268 New Zealand Arbitration Act, First Schedule, Art. 7(1). See T. Kennedy-Grant, New Zealand 6, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 1998). 269 Swedish Arbitration Act, §1. See Sekolec & Eliasson, The UNCITRAL Model Law on Arbitration and the Swedish Arbitration Act: A Comparison, 10, reprinted in, L. Heumann & S. Jarvin (eds.), The Swedish Arbitration Act of 1999 Five Years On: A Critical Review of Strengths and Weaknesses (2006); Hober & Stempel, in F.-B. Weigand (ed.), Practitioner's Handbook on International Arbitration 1003 (2002). 270 UNCITRAL Model Law, Art. 16(2); infra pp. 671-673. As noted above, Article 7(2) also provides for fulfillment of written form requirements through the medium of submissions in an arbitral proceeding. UNCITRAL Model Law, Art. 7(2); UNCITRAL Model Law, 2006 Revisions, Art. 7(5) (Option I); supra p. 604. 271 See infra pp. 671-673. 272 See, e.g., Fortune, Alsweet & Eldridge, Inc. v. Daniel, 724 F.2d 1355, 1356 (9th Cir. 1983); Teamsters Local Union v. J.H. Merrit and Co., 770 F.2d 40, 42-43 (3d Cir. 1985); Oakwood Mobile Homes v. Stevens, 204 F.Supp.2d 947, 952 (S.D. W. Va. 2002); Judgment of 30 July 1998, XXV Y.B. Comm. Arb. 714 (Hanseatisches Oberlandesgericht Hamburg) (2000) (exchange of correspondence constituting arbitral tribunal satisfies Article II(2)'s requirement for an exchange of letters). 273 See supra pp. 595-597. 274 As discussed above, there is authority for the proposition that the New York Convention incorporates principles of estoppel, applicable in particular to Article II's form requirements. See supra pp. 596-597. 275 Judgment of 16 January 1995, Compagnie de Nav. et Transports SA v. Mediterranean Shipping Co., XXI Y.B. Comm. Arb. 690, 698 (Swiss Federal Tribunal) (1996). 276 See, e.g., Verolme Botlek BV v. Lee C. Moore Corp., XXI Y.B. Comm. Arb. 824, 827 (N.D. Okla. 1995) (1996); In re Transrol Nevegacao SA, 782 F.Supp. 848, 851 (S.D.N.Y. 1992); China Nanhai Oil Joint Serv. Corp. Shenzhen Branch v. Gee Tai Holdings Co., XX Y.B. Comm. Arb. 671 (H.K. High Court, S.Ct. 1994) (1995) (doctrines of good faith and estoppel apply as international principles under Articles II(2) and V(1) of Convention: “on a true http://www.kluwerarbitration.com/CommonUI/print.aspx
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construction of the Convention there is indeed a duty of good faith” requiring award debtor to raise jurisdictional objection); Judgment of 23 September 2004, XXX Y.B. Comm. Arb. 568, 572 (Bavarian Oberstes Landesgericht) (2005) (“It appears from the interpretation of Article II [of the] Convention that the prohibition of contradictory behavior is a legal principle implied in the Convention”); Judgment of 30 March 2000, XXXI Y.B. Comm. Arb. 652, 653 (Oberlandesgericht Schleswig) (2006) (“the prohibition on contradictory behavior is a legal principle included in the Convention that must be taken into account in the context of Article II”); Judgment of 27 July 1978, IV Y.B. Comm. Arb. 266 (Hanseatisches Oberlandesgericht Hamburg) (1979); Judgment of 26 April 1973, IV Y.B. Comm. Arb. 305, 306 (Hague Rechtsbank) (1979). 277 See, e.g., Kaplan, Is the Need for Writing as Expressed in the New York Convention and the Model Law Out of Step with Commercial Practice?, 12 Arb. Int'l 27 (1996). Compare Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 51 (ICCA Congress Series No. 11 2003) (“There are several prevailing theories of equitable estoppel in relation to arbitration agreements, all of which appear to have developed without regard to the written form requirement.”). 278 See supra pp. 583-585. 279 See supra pp. 587-589, 593-595. 280 See supra pp. 601-605, 607-609, 609-611. 281 English Arbitration Act, 1996, §81(1)(b) (“Nothing in this Part shall be construed as excluding the operation of any rule of law consistent with the provisions of this Part, in particular, any rule of law as to … (b) the effect of an oral arbitration agreement”). See Jarvis Sons & plc v. Gaillard Homes Ltd [2000] B.L.R. 33 (Q.B.) (oral arbitration agreements can, in principle, be given effect at common law). 282 Julie Jenkins v. Gerald C. Percival and USF & G Ins. Co., 962 P.2d 796 (Utah 1998). See also A. Samuel, Jurisdictional Problems in International Commercial Arbitration 76-77 (1989) (noncompliance with form requirements do not render agreement invalid; oral arbitration agreements permitted in England and Sweden). 283 Judgment of 16 January 1995, Compagnie de Nav. et Transports SA v. Mediterranean Shipping Co., XXI Y.B. Comm. Arb. 690, 697 (Swiss Federal Tribunal) (1996). 284 See, e.g., Blessing, The Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 168, 172 (ICCA Congress Series No. 9 1999); Kaplan, Is the Need for Writing as Expressed in the New York Convention and the Model Law Out of Step with Commercial Practice?, 12 Arb. Int'l 27, 30 (1996); Kaplan, New Developments on Written Form, in Enforcing Arbitration Awards under the New York Convention: Experience and Prospects 15 (1998) (“It appears to be common ground that the definition of writing contained in article II(2) does not conform with international trade practices”); Herrmann, The Arbitration Agreement as the Foundation of Arbitration and its Recognition by the Courts, in A. van den Berg (ed.), International Arbitration in A Changing World 41, 46 (ICCA Congress Series No. 6 1993); Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 52 (ICCA Congress Series No. 11 http://www.kluwerarbitration.com/CommonUI/print.aspx
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2003) (“the requirements in Article II(2) and Article 7(2) are now out of step with the positions taken by many national legislatures, many of which allow purely oral arbitration agreements. In fact … Article II(2) and Article 7(2) … are now anachronistic”). 285 See supra pp. 612-614. 286 See supra pp. 607-609, 611-612, 612-613. 287 Note by the Secretariat on the Preparation of Uniform Provision on Written Form for Arbitration Agreements, UNCITRAL, Thirty-Sixth Session, UN Doc. A/CN.9/WG.II/WP118 (2002), available at www.uncitral.org. See supra pp. 605-607. 288 UNCITRAL Model Law, 2006 Revisions, Art. 7 (Options I & II). See supra pp. 605-607. 289 See supra pp. 542-545, 599-600; Report of the UNCITRAL on the Work of its Thirty-Ninth Session, Recommendation Regarding the Interpretation of Article II, Paragraph 2, and Article VII, Paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, UN Doc. A/61/17, Annex 2 (2006), available at www.uncitral.org; UN General Assembly Resolution No. 61/33, Revised Articles of the Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law, and the Recommendation regarding the Interpretation of Article II, paragraph 2, and Article VII, paragraph 1, of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (2006), available at www.uncitral.org. 290 Ibid.; supra pp. 542-545. 291 Ibid.; supra pp. 544-545. 292 See supra pp. 597-599, 601-605. 293 See supra pp. 589-592, 601-605. 294 See supra pp. 612-614. 295 See supra pp. 605-607; UNCITRAL Model Law, 2006 Revisions, Art. 7 (Option I). 296 This issue is discussed below. See infra pp. 640 et seq. 297 See supra pp. 607-609, 609-611, 611-612. 298 See New York Convention, Art. II(2); UNCITRAL Model Law, Art. 7; U.S. FAA, 9 U.S.C. §2. 299 English Arbitration Act, 1996, §5(1) (“The provisions of this part apply only where the arbitration agreement is in writing and any other agreement between the parties as to any matter is effective for the purposes of this Part only if in writing.”). 300 See, e.g., B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶406 (2006) (form requirement under Art. 178(1) of the Swiss Law on Private International Law extends to terms such as seat of arbitration, number of arbitrators, appointment procedure, and determination of arbitral institution); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶9 (2000) (“the formal prerequisites must be complied with for all understandings within the ‘cadre naturel’ of an agreement to arbitrate as opposed to minor points which are of a merely supplementary nature either as a matter of objective interpretation or in the subjective assessment by the parties”). 301 See, e.g., Münch, in G. Lüke & P. Wax (eds.), Münchener Kommentar zur Zivilprozessordnung §1031, ¶5 (2d ed. 2001); Schlosser, in F. Stein & M. Jonas (eds.), Kommentar zur Zivilprozessordnung §1031, ¶1, §1029, ¶6 (22d ed. 2002) (writing requirement of German ZPO, §1031 applies only to the mandatory http://www.kluwerarbitration.com/CommonUI/print.aspx
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minimum content of the arbitration agreement and additional provisions regarding the arbitral proceedings including the arbitral seat and language are not encompassed). See also Revised Uniform Arbitration Act, §6, comment 1 (2000) (“a subsequent, oral agreement about terms of an arbitration contract is valid. This position is in accord with the unanimous holding of courts that a written contract can be modified by a subsequent oral arrangement provided that the latter is supported by valid consideration.”). See infra pp. 655-659, 2087. Before the 2006 reform of Austrian law, the Oberster Gerichtshof held that the entire arbitration agreement would be invalid if (even ancillary) provisions did not meet the formal requirements. Judgment of 31 August 1984, 1 Ob 20/84, SZ 57/135 (Austrian Oberster Gerichtshof). In a more recent decision, the Oberster Gerichtshof held, however, that the formal invalidity of ancillary provisions (e.g., if they do not fulfill the writing requirement) does not affect the validity of the arbitration agreement. Judgment of 3 April 2001, 4 Ob 37/01x, 2001 ecolex 350 (Austrian Oberster Gerichtshof). It has been questioned whether this decision survives the new Austrian arbitration law. Fremuth-Wolf, in S. Riegler et al. (eds.), Arbitration Law of Austria: Practice and Procedure §583, ¶44 et seq. (2007). 302 See supra pp. 559-561 & infra pp. 635-639; Reiner, The Form
of the Agent's Power to Sign An Arbitration Agreement and Article II(2) of the New York Convention, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 82 (ICCA Congress Series No. 9 1999). 303 See Austrian Civil Code, §1008 (agents exercising contractual authority require special power of attorney to conclude arbitration agreement, except in cases involving specified commercial contexts); G. Zeiler, Schiedsverfahren-§§577-618 ZPO idF des SchiedsRÄG 2006 §584, ¶¶28 et seq. (2006) (the agent's power to enter into an arbitration agreement on behalf of a principal must be in writing). The new Austrian Commercial Code (which entered into force in 2007) provides two exceptions to this requirement: (a) a power of procuration, i.e., a power of attorney granted to a “Prokurist” under the Commercial Code, and (ii) a special power of attorney under §1008 of the Austrian Civil Code. See A. Reiner, The New Austrian Arbitration Law–Arbitration Act 2006 73 et seq. (2006); J. Power, The Austrian Arbitration Act–A Practitioner's Guide to Sections 577– 618 of the Austrian Code of Civil Procedure §584, §11 (2006); Oberhammer, Rechtspolitische Schwerpunkte der Schiedsrechtsreform, in B. Kloiber, W. Rechberger, P. Oberhammer & H. Haller, Das neue Schiedsrecht – SchiedsrechtsÄnderungsgesetz 2006 93, 106 (2006). See also supra p. 561. 304 See Swiss Code of Obligations, Art. 396(3) (requiring “specific
authority” and, impliedly, written form); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶23 (2000). 305 See infra p. 561; Greek Code of Civil Procedure, Art. 217(2). 306 These requirements have sometimes been applied in international settings. See Award in ICC Case No. 5832, 115 J.D.I. (Clunet) 1198 (1988) (holding arbitration agreement invalid on grounds that agent's authorization to enter into arbitration agreement http://www.kluwerarbitration.com/CommonUI/print.aspx
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had not been given in writing, as required by Austrian law). 307 Article 217(2) of the Greek Code of Civil Procedure requires that a power of attorney must be in the same form as the contract for which it is intended. See Foustoucos, Conditions Required for the Validity of An Arbitration Agreement, 5(4) J. Int'l Arb. 113, 127 (1988). Accordingly, as a general rule, an agent can conclude an arbitration agreement for a principal only if he has received a written power from the latter, specifically providing that the agent is authorized to conclude arbitration agreements for the principal. See Foustoucos, Greece 4, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 1985). 308 See, e.g., Award in ICC Case No. 5832, 115 J.D.I. (Clunet) 1198 (1988); Judgment of 14 January 1977, Agrimpex SA v. J. F. Braun & Sons, Inc., IV Y.B. Comm. Arb. 269 (Greek S.Ct.) (1979); Judgment of 16 March 1977, III Y.B. Comm. Arb. 274 (Landgericht Hamburg) (1978). Italian law was similar until its reform in 1994. Article 1392 of the Italian Code of Civil Procedure, as it provided before the amendment introduced by the Law of 5 January 1994, No. 25, required written authorizations for agents to conclude arbitration agreements. 309 Compare A. van den Berg, The New York Arbitration
Convention of 1958 224 (1981) (“One wonders to what interest of the parties it may be that the written form requirement of Article II(2) of the Convention be extended to the authorization. Few laws require that the authorization take the same form as the act for which it is intended; most laws do not pose this requirement”). 310 This argument is developed in Reiner, The Form of the Agent's Power to Sign An Arbitration Agreement and Article II(2) of the New York Convention, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 82 (ICCA Congress Series No. 9 1999). Under this argument, Article II(2)'s “signature” and “exchange” requirements apply to the arbitration agreement itself and are difficult to transpose to related instruments such as powers of attorneys. Contra Judgment of 16 March 1977, III Y.B. Comm. Arb. 274 (Landgericht Hamburg) (1978) (Article II(2)'s form requirements must be satisfied by authorization to enter into arbitration agreement). 311 See supra pp. 504-514, 558-559, 561, 568-569 & infra pp.
1264-1270, 1368-1376, 1508-1513, 1576-1582, 1765-1770, 25562560. 312 See supra pp. 550-552. 313 S.C. Code Ann. §15-48-10a (“A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. Notice that a contract is subject to arbitration pursuant to this chapter shall be typed in underlined capital letters, or rubberstamped prominently, on the first page of the contract and unless such notice is displayed thereon the contract shall not be subject to arbitration.”). 314 See supra p. 537 n. 589. In the United States, these http://www.kluwerarbitration.com/CommonUI/print.aspx
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requirements are superseded by the U.S. FAA. See supra p. 487; Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681 (U.S. S.Ct. 1996) (FAA preempted Montana statute which conditioned validity of arbitration agreement on compliance with requirement that clause be printed on first page in underlined capital letters); Woermann Constr. Co. v. Southwestern Bell Tel.Co., 846 S.W.2d 790, 793 (Mo. App. 1993) (“Because the contract is governed by the [FAA], it was improper to require the ten point arbitration notice required by the Missouri Arbitration Act”). 315 See supra pp. 536-538, 599-600. 316 German ZPO, §1031(5). 317 Brazilian Arbitration Law, Art. 4(2) (“In adhesion contracts, the arbitration clause will only be valid if the adhering party initiates arbitral proceedings or if it expressly agrees to arbitration by means of an attached written document, or if it signs or initials the corresponding contractual clause, inserted in boldface type”). 318 See Tex. Civ. Prac. & Rem. Code Ann. §171.002(b)(2). 319 See supra pp. 536-537 & infra pp. 1014-1018, 1025-1028; Collins Radio Co. v. Ex-Cell-O Corp., 467 F.2d 995, 998 (8th Cir. 1972) (Texas statute requiring signature of counsel on arbitration agreement is preempted); Bunge Corp. v. Perryville Feed & Produce Inc., 685 S.W.2d 837 (Mo. 1985). 320 See supra pp. 536-538, 599-600. 321 Italian Code of Civil Procedure, Art. 809. 322 See, e.g., Argentinean National Code of Civil and Commercial Procedure, Art. 740(2) (arbitration agreement must name arbitrators); Indonesian Law No. 30 of 1999 Concerning Arbitration and Alternative Dispute Resolution, Art. 9(3) (agreement to arbitrate concluded after dispute has arisen must contain full names and addresses of arbitrator(s)). Similarly, former Article 502(3) of the Egyptian Code of Civil and Commercial Procedure provided “the arbitrators must be appointed by name in the agreement …” 323 See supra pp. 536-538. Even if these provisions were not regarded as formal requirements, but rules of substantive validity, they should be regarded as contrary to the international prohibition against idiosyncratic national laws under the New York Convention. See supra pp. 504-514, 558-559, 561, 568-569 & infra pp. 632-633, 1264-1270, 1368-1376, 1508-1513, 1576-1582, 1765-1770, 25562560. 324 Award in ICC Case No. 4406, 1986 Rev. arb. 469 (arbitral tribunal seated in Egypt refuses to apply Egyptian requirement that arbitrators be named in arbitration agreement); Judgment of 11 July 1992, XXII Y.B. Comm. Arb. 715 (Italian Corte di Cassazione) (1997) (“a foreign arbitration clause does not need to be worded formally or according to a formula and only needs to be in writing”). See also infra pp. 1371-1372, 1400. 325 See Judgment of September 2004, Case No. 2004 XMECZ 154 (Wuxi Chinese People's Court) (annulling award on grounds that arbitration agreement was invalid for failure to specify an arbitral institution); Supreme People's Court Reply on the Validity of An Arbitration Clause with Selected Arbitration Institution, Fa Han [1997] No. 36, issued on 19 March 1997 (Chinese Supreme People's Court); Supreme People's Court Reply Regarding Several Issues Relating to the Validity of An Arbitration Agreement, Fashi [1998] No. 27 issued on 26 October 1998 (Chinese Supreme People's Court), approved at the 1,029th meeting of the Adjudication Committee of the Supreme People's Court on 21 October 1998, and effective from 5 November 1998. See also J. Tao, Arbitration Law http://www.kluwerarbitration.com/CommonUI/print.aspx
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and Practice in China 170 (2004); C. Dejun, M. Moser & W. Shengchang, International Arbitration in the People's Republic of China 63 n.20 (2d ed. 2000) (Chinese decisions holding that failure to refer specifically to ICC as “arbitration body” invalidates arbitration clause under Article 16 of China's 1994 Arbitration Law). 326 See supra pp. 536-538. Even if the requirement for institutional arbitration were not characterized as a matter of formal validity, it would be contrary to, and superseded by, the New York Convention. As discussed below, Article II of the Convention forbids Contracting States from adopting national law provisions that discriminate against international arbitration agreements or arbitration agreements. See supra pp. 504-514. Moreover, a blanket prohibition against any form of ad hoc arbitration would independently violate a Contracting State's commitment under Article II to recognize agreements to arbitrate; it would be contrary to this undertaking to treat all ad hoc arbitrations, irrespective of the subject matter, as null and void. See supra pp. 203-205, 510-512. 327 Letter of 25 October 2007, Chinese People's Supreme Court.
Formation, Validity and Legality of International Arbitration Agreements - C. Capacity to Conclude International Arbitration Agreement Chapter 5 Gary B. Born
Author Gary B. Born
C. Capacity to Conclude International Arbitration Agreement The existence of capacity to conclude an arbitration agreement is a requirement under all international arbitration conventions and national arbitration statutes for the validity of the resulting agreement. In most commercial settings, however, issues of capacity have limited practical significance. As discussed below, that is in large part because of the “pro-arbitration” provisions of leading conventions and legislation on the subject, and because of the practical approach that most national courts and arbitral tribunals have taken to the topic. 1. Choice-of-Law Applicable to Capacity
Source Formation, Validity and Legality of International Arbitration Agreements - C. Capacity to Conclude International Arbitration Agreement in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 625 - 639
Neither the New York Convention, the European Convention nor most national arbitration statutes prescribe detailed choice-of-law rules governing the capacity of parties to conclude arbitration agreements. (328) In the absence of legislative page "625" guidance, national court decisions and commentary have adopted different approaches to the issue. (329)
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A number of authorities have applied either the law of the state where a party is organized or domiciled, (330) or the law governing the arbitration agreement, (331) to issues of capacity. As discussed above, however, the approach which is most consistent with the New York and European Conventions, and the objectives of most national arbitration legislation, is a validation principle, providing for application of that law, with a connection to the issues in question, which gives effect to the parties' arbitration agreement. (332) In practice, this is generally the standard that has been adopted in better-reasoned national court decisions and arbitral awards. (333) 2. International Arbitration Conventions Article II of the New York Convention does not make express reference to the lack of capacity as a ground for challenging an agreement to arbitrate. Instead, as discussed elsewhere, Article II provides for the non-recognition of arbitration agreements only if they are “null and void, inoperative or incapable of being performed.” (334)
Nonetheless, it is clear that the contracting parties' capacity is a requirement for a valid international arbitration agreement. Thus, Article V(1)(a) of the Convention permits a national court to deny recognition to an award if the parties to the arbitration agreement “were, under the law applicable to them, under some incapacity.” (335) It is widely accepted that Article II must be read to incorporate page "626" “incapacity” in its reference to arbitration “agreements,” or alternatively to agreements that are “null and void,” and therefore not to require giving effect to an arbitration agreement where one of the parties lacked legal capacity. (336) Beyond Article V(1)(a)'s passing reference to a choice-of law rule, (337) however, neither Article II nor Article V(1)(a) prescribe further (substantive or choice-of-law) rules with regard to matters of capacity, leaving those issues to national law. The European Convention more directly addresses the question of capacity, providing in Article VI(2) that, “in taking its decision concerning … the validity of an arbitration agreement, courts of the Contracting States shall examine the validity of such agreement with reference to the capacity of the parties, under the law applicable to them.” (338) As with the New York Convention, this language makes it clear that an arbitration agreement need only be given effect where the parties possessed legal capacity. (339) Like the New York Convention, however, the European Convention provides no further guidance as to the substantive or choice-of-law standards governing issues of capacity. (340) 3. National Arbitration Legislation Most developed national arbitration legislation contains no provisions dealing with the requirement of capacity. Paralleling the New York Convention, the UNCITRAL Model Law does not address the issue of capacity in the context of arbitration page "627" agreements, but permits non-recognition (or annulment) of an arbitral award if the award resulted from an arbitration agreement made by a party that was “under some incapacity.” (341) Like the http://www.kluwerarbitration.com/CommonUI/print.aspx
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New York Convention, the Model Law does not further elaborate on the question of what constitutes legal capacity to enter into an arbitration agreement, or on the choice-of-law rules applicable to this issue, leaving these matters to judicial development. In contrast to the New York Convention, the Model Law does not make any reference at all to the choice of applicable law governing issues of capacity. (342) Similarly, most other national arbitration statutes provide or assume that a lack of capacity is grounds for denying recognition of an arbitration agreement, without prescribing substantive provisions addressing what constitutes a lack of capacity. (343) On the other hand, a few statutes provide general definitions of capacity, along the lines of that in France, declaring that “all persons may submit to arbitration those rights which they are free to dispose of,” (344) or Belgium, requiring the capacity necessary to settle a legal claim. (345) Similarly, the Italian Code of Civil Procedure provides that “the capacity to enter into the contract includes the capacity to agree to the arbitration clause.” (346) It is clear, even in the absence of specific statutory direction, that the parties' capacity is essential to the existence of a valid international arbitration agreement. As the Swiss Federal Tribunal has explained: “The question of jurisdiction of the arbitral tribunal also comprises the question of the subjective scope of the arbitration agreement. Whether all parties to the proceedings are bound to it, is a question of their capacity to be a party to the arbitration proceedings and, thus, a prerequisite for a decision on the merits or the admissibility [of the claims].” (347) page "628" Other authorities are to the same effect. (348) In the absence of specific statutory guidance, the requirement that a party must have the requisite capacity to enter into a binding arbitration agreement is often identical to the role of capacity in other areas of generally-applicable contract law. In particular, generallyapplicable contract defenses going to capacity – such as incompetence and/or mental incapacity, minority, limitations in constitutive corporate documents and the like – will apply in the context of arbitration agreements, just as they do elsewhere. (349) In general, the New York Convention's international limits on national law rules of substantive validity (350) apply fully in the context of capacity. The effect of these principles is to supersede national law rules that would impose discriminatory or idiosyncratic capacity requirements in the context of international arbitration agreements. For example, a Contracting State could not properly require that a local company have the capacity to conclude an international arbitration agreement only if it publicly registered such agreements, only if it approved such agreements by shareholders' resolution, only if the arbitral seat was on local territory, or only if it received government approval for the agreement. These sorts of restrictions would discriminate against international arbitration agreements in violation of Article II of the New York Convention. (351) page "629" 4. State's Capacity to Enter into Arbitration Agreements (352) http://www.kluwerarbitration.com/CommonUI/print.aspx
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A recurrent issue relating to capacity arises from arbitration agreements entered into by sovereign states. It not infrequently occurs that states attempt to disavow their international arbitration agreements, citing national constitutional or legislative provisions restricting the power of government entities to conclude binding arbitration agreements. As discussed below, international conventions, national arbitration legislation and international arbitral awards all disfavor such efforts, generally holding that a state may not invoke its own law to deny its capacity to have made an agreement to arbitrate. (353) Some nations have constitutional or legislative restrictions on the ability of state entities to enter into arbitration agreements. For example, U.S. courts have held that the United States generally cannot enter into enforceable arbitration agreements with private parties. (354) Similarly, if a little ironically, Article 139 of the Constitution of the Islamic Republic of Iran provides that: “the resolution of disputes concerning state property, or the submission of such disputes to arbitration, shall in each case be subject to approval by the Council of Ministers and must be notified to Parliament. Cases in which one party to the dispute is foreign, as well as important domestic disputes, must also be approved by Parliament.” (355) Various other national legal regimes also place restrictions on the capacity of states, or state-related entities, to agree to international arbitration. (356) page "630" In contrast, a number of developed legal systems have abolished limitations on the capacity of the state and state-related entities to agree to arbitration. That is the case, for example, in England (357) and Greece. (358) As discussed elsewhere, the European Convention adopts the same position. (359) It is sometimes contended that prohibitions against state entities concluding arbitration agreements do not raise issues of capacity, but instead involve issues of “arbitrability” (particularly, subjective arbitrability). (360) It is difficult to accept this suggestion without qualification, given that the relevant legislative prohibitions all purportedly concern the power or right of particular types of entities (e.g., states and state entities) to conclude binding contracts; this sort of rule falls fairly clearly within classic definitions of legal capacity. (361) The European Convention provides expressly that state entities have the capacity to enter into international arbitration agreements. (362) Article II(1) of the Convention provides: page "631" “legal persons considered by the law which is applicable to them as ‘legal persons of public law’ have the right to conclude valid arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreements.” (363) Contracting States are permitted to make reservations from this provision, but only Belgium has done so (based upon provisions of Belgian law purporting to limit the ability of the Belgian state to agree to arbitrate). (364) The effect of Article II was considered in a landmark arbitral award, titled Benteler v. State of Belgium, which held that Article II(1) confirmed generally-applicable principles of international law and that Belgium was not entitled to rely on its domestic legislation to invalidate its own agreement to arbitrate. (365)
Most developed national arbitration statutes are similar to Article II(1) of the European Convention, rejecting the right of foreign states to rely on their own legislation to deny the capacity to conclude binding arbitration agreements. (366) Thus, Article 177(2) of the Swiss Law on Private International Law provides that “if a party to the arbitration is a state or an enterprise or organization controlled by it, it cannot rely on its own law in order to contest its capacity to be a party to an arbitration …” (367) Similarly, a wide range of authorities, including U.S., (368) English, (369) French, (370) page "632" Italian, (371) Greek, (372) Egyptian, (373) Moroccan (374) and Tunisian (375) courts have refused to permit foreign states and staterelated entities to rely on their own legislation to contest their capacity to enter into valid arbitration agreements. Moreover, these sorts of national law restrictions singling out arbitration agreements for specific legislative disfavor are a text-book illustration of the type of discriminatory (and, now, idiosyncratic) national law that is prohibited by Article II(3) of the New York Convention. (376) One of the few exceptions to this line of authority is a U.S. trial court decision, holding that an international arbitration agreement could not be enforced against the United States. (377) Relying on U.S. legislative restrictions, (378) the United States trial court held that an agreement, containing an arbitration clause, entered into by the commander of a naval vessel with a foreign marine salvage firm, was “null and void” under Article II(3) of the New York Convention. Although perhaps partially explained by the fact that the dispute involved a military vessel, the reasoning of this decision was an unfortunate exception to the general principle, accepted by virtually all developed legal regimes, that a state may not invoke its own legislation to challenge its capacity to conclude an arbitration agreement. Indeed, there are page "633"
other, well-reasoned U.S. decisions rejecting the right of foreign states and state entities to rely on their own law to challenge their arbitration agreements. (379) In general, international arbitral tribunals have reached similar results. In particular, tribunals have virtually never allowed sovereign http://www.kluwerarbitration.com/CommonUI/print.aspx
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states to rely on their own laws to disown their international arbitration agreements. One representative example was an arbitral award during the 1980's which rejected an effort by an Iranian state entity to invalidate its agreement to arbitrate on the grounds that the agreement had not received governmental approvals required by Article 139 of the Iranian Constitution. (380) The tribunal reasoned: “Whereas it results from the documents produced in these proceedings that the defendant in its capacity as a state company under Art. 139 of the Constitution of the Islamic Republic of Iran, could not enter into an arbitration agreement without being authorized by the competent authority; nevertheless, one must take into account the fact that the defect which affected the arbitration agreement had not been brought to the knowledge of the claimant at the time the agreement was entered into. Whereas it has been recognized by arbitral precedents that international public policy would strongly oppose the fact that a government entity, while dealing with a party not belonging to its country, might knowingly and willingly enter into an arbitration agreement which creates confidence in the other contracting party and that later, once the arbitration proceedings or the enforcement proceedings are in process, it might avail itself of the nullity of its own commitment and that the defendant, in its capacity as State company, has manifestly failed in its duty to mention the requirements of the Iranian law concerning the conclusion of contracts by public entities.” (381) A wide variety of other international arbitral awards are to the same effect, (382) page "634" as is international commentary. (383) Likewise, a 1989 resolution of the Institute of International Law summarized the law as follows: “a State, a state enterprise or a state entity cannot invoke incapacity to arbitrate in order to resist arbitration to which it has agreed.” (384) These various authorities are well-considered. It is fundamentally contrary to a state's commitment to arbitrate for the state subsequently to invoke its own legislative, constitutional, or administrative acts as qualifications to or limitations on its international arbitration agreement. Such efforts are irreconcilable with the state's obligations of good faith and principles of estoppel, and should have no effect on the validity of the state's agreement to arbitrate. 5. Authority of Parties' Representatives or Agents to Enter into Arbitration Agreement A related issue is the authority or power of the individual (or, sometimes, entity) that executes an international arbitration agreement to bind the entity that is identified as a party to the agreement. The most routine example involves the power of a corporate officer or director to execute an agreement on behalf of the company he or she manages. Other common examples include the power of an agent to execute an agreement on behalf of its principal, or one company to make an agreement on behalf of an affiliate. The issues arising from such examples are closely-related http://www.kluwerarbitration.com/CommonUI/print.aspx
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to questions of capacity, although they are more properly categorized as matters of agency or corporate authority. (385) page "635" a. Corporate Officers and Employees As discussed above, (386) questions concerning the power of a corporate officer, director, or employee typically require reference, at least in the first instance, to the law under which the company is organized (387) (or, in some instances, of the state where it has its headquarters (388) or where the agent acted (389) ). Accordingly, the powers of a corporate officer of a Delaware or a Syrian company will generally be governed, respectively, by Delaware or Syrian law. Nonetheless, there will be circ*mstances in which the analysis does not stop with consideration of the law under which a corporation was organized. Although there are exceptions, (390) national courts and arbitral tribunals are ordinarily very reluctant to permit companies to deny the authority of their officers, directors, or employees to conclude binding arbitration agreements. (391) Through the application of principles of estoppel, ratification and good faith, or the validation principle, courts and tribunals typically find grounds to uphold the validity of international arbitration agreements, even where the putative signatory apparently lacked the power to commit a corporate party according to the law under which the company was organized. (392) page "636" b. Powers of Attorney Another instance where questions of power or authority arise is when an attorney or other representative executes an arbitration agreement pursuant to a power of attorney. In such cases, disputes can arise concerning the validity and scope of the power of attorney. (393) Again, principles of estoppel, ratification and good faith play an important role in such disputes. (394) c. Agency Finally, it is common in many commercial settings for one party (an agent) to enter into agreements on behalf of another party (the principal). (395) As in other contractual contexts, disputes can arise over the authority of the agent which executed or otherwise agreed to an arbitration agreement. A few legal systems contain archaic limitations on the authority of agents to enter into international arbitration agreements. (396) For example, under Greek, (397) page "637" Austrian (398) and Swiss (399) law, specific corporate authorizations of various types are required for a valid arbitration agreement, at least in domestic matters. Under French law, an authorization to an agent to settle disputes does not include the power to enter into an arbitration agreement. (400) http://www.kluwerarbitration.com/CommonUI/print.aspx
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As discussed above, the appropriate choice-of-law approach to issues of an agent's authority is application of a validation principle. (401) In any event, national law limitations on an agent's authority should also be subject to the same principles of validity applicable to international arbitration agreements under the New York Convention and otherwise. In particular, for the reasons discussed above, provisions of national law that subject international arbitration agreements to requirements not applicable to other contracts or to domestic arbitration agreements, or that are idiosyncratic when contrasted with widely-held international practice, should be regarded as superseded by Article II(3) of the Convention. (402) d. Separability and Competence-Competence Issues Arising From Disputes Over An Agent's Authority Challenges to the authority of an officer, agent, or other signatory to enter into an agreement to arbitrate on behalf of another party have raised both separability and competence-competence issues. (403) In particular, when the authority of a party's representative to enter into the underlying contract is disputed, it is often difficult to see how this does not implicate the formation of the arbitration clause (as distinguished from the underlying contract). Despite its adoption of the separability presumption, the U.S. Supreme Court identified this possibility in Buckeye Check Cashing v. Cardegna. (404) While reaffirming the separability presumption, the Court noted that “[o]ur opinion today … does not [consider arguments that] it is for courts page "638" to decide … whether the signer lacked authority to commit the alleged principal …” (405) Consistent with the implication of the Court's observation, U.S. lower courts have generally held that a defect in the agent's authority to enter into the underlying contract also impeaches the associated arbitration clause and, under U.S. competence-competence principles, permits interlocutory judicial consideration. (406) Similarly, a number of European authorities hold that “[w]hen the person who signed the agreement lacked authority to enter into agreements in another person's name … the entire agreement would also be null and void,” and the “lack of authority also extends to the arbitration clause.” (407) On the other hand, it is essential to recall that issues of capacity can impeach an agreement to arbitrate only if they involve the capacity to conclude the separable arbitration agreement (not just the underlying contract). (408) If an agent's authority is defective for reasons that relate only to the underlying contract, then the arbitration clause should not be impeached. (409) As a consequence, restrictions on the capacity of a company to conclude certain types of contracts (e.g., over a certain monetary value or of a specified nature), contained in a company's constitutive documents, may not apply to the arbitration agreement itself. Rather, such restrictions generally leave the separate agreement to arbitrate unaffected and allow the arbitrators to consider the effect of such limitations as a substantive matter concerning only the underlying contract. (410) page "639"
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328 This is discussed above, see supra pp. 552-559. The furthest
that these instruments go is to provide that the capacity of the parties shall be determined under “the law applicable to them.” See New York Convention, Art. V(1)(a); UNCITRAL Model Law, Arts. 34(2)(1)(a) & 36(1)(a)(i); supra pp. 552-554, 554-558. 329 See supra pp. 554-558. 330 See supra pp. 554-558. 331 See supra p. 554. 332 See supra pp. 557-558. 333 See supra pp. 557-558. This approach is not always followed. In one case, the German Bundesgerichtshof held that an arbitration agreement (providing for arbitration in Bremen, Germany) concluded between a German and a Croatian company was invalid, on the grounds that the Croatian company, under Yugoslav law, did not have the capacity to act in the area of external trade. Judgment of 23 April 1998, XXIVa Y.B. Comm. Arb. 928 (German Bundesgerichtshof) (1999). The decision was apparently based on the assumption that the arbitration agreement itself involved external trade (and would therefore not seem to ignore either the separability doctrine or rules of non-discrimination). 334 New York Convention, Art. II(3); supra pp. 203-205, 567-569 & infra pp. 709-713. 335 New York Convention, Art. V(1)(a). SeeJudgment of 23 April 1997, Dalmine SpA v. M & M Sheet Metal Forming Machinery AG, XXIVa Y.B. Comm. Arb. 709 (Italian Corte di Cassazione) (1999) (capacity for the purposes of Article V(1)(a) “means not only the capacity of a physical person to perform an act, but any capacity, both a legal capacity to perform an act – with an eye to the so-called special legal incapacities – and the capacity of physical and legal persons; in the latter case, special attention is given to representation by organs [of an entity] and their representation powers.”). Article V(1)(a)'s “lack of capacity” exception was modeled on Article II(1)(b) of the Geneva Convention. That provision permitted nonenforcement of an arbitral award if the unsuccessful party could demonstrate “that, being under a legal incapacity, he was not properly represented.” Geneva Convention, Art. II(1)(b); supra pp. 61-64. This exception, which was limited to inadequate representation in the arbitral proceedings, was included in nearly identical terms in early drafts of the New York Convention. Summary Record of the Seventeenth Meeting of the United Nations Conference on International Commercial Arbitration, UN Doc. E/CONF.26/SR.17 (1958), at 9, available at www.uncitral.org. It was, however, omitted from later drafts, on the grounds that it would seldom apply. Id. At the final negotiation session of the Convention, however, the Dutch delegate moved to amend Article V(1)(a) to include a broader exception along the lines presently contained in that subparagraph. Summary Record of the Twenty-Fourth Meeting of the United Nations Conference on International Commercial Arbitration, UN Doc. E/CONF.26/SR.24 (1958), available at www.uncitral.org. See A. van den Berg, The New York Arbitration Convention of 1958 275-76 (1981). 336 BV Bureau Wijsmuller v. United States of America, 1976 http://www.kluwerarbitration.com/CommonUI/print.aspx
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A.M.C. 2514 (S.D.N.Y. 1976); Aksen, Application of the New York Convention by United States Courts, IV Y.B. Comm. Arb. 341 (1979); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶1708 (1999). 337 As discussed above, it should also follow that the choice-of-law principle set forth in Article V(1)(a) (“under the law applicable to them”) applies by analogy under Article II. See supra pp. 460-465, 553-554. 338 European Convention, Art. VI(2). See supra p. 554. 339 At the same time, Article VI(2) prescribes the same choice-oflaw principle (“under the law applicable to them”), and adopts the same validation principle, as Article V(1)(a) of the New York Convention. See supra p. 554. 340 The only exception to this concerns state-related entities. See infra pp. 630-635. 341 UNCITRAL Model Law, Art. 34(2)(i). See also UNCITRAL Model Law, Art. 36(1)(a)(i). The 2006 Revisions to the Model Law are similarly silent as to issues of capacity. 342 H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 915-916 (1989). 343 Many leading national arbitration statutes, including the U.S. FAA, English Arbitration Act, 1996, German ZPO, Swedish Arbitration Act, Japanese Arbitration Law, Singapore Arbitration Act and Chinese Arbitration Act, contain no provisions expressly addressing issues of capacity. 344 French Civil Code, Art. 2059. 345 Belgian Judicial Code, Art. 1676(2). 346 Italian Code of Civil Procedure, Art. 808(3). See also Egyptian Arbitration Law, Art. 11 (requiring capacity to dispose of their rights). 347 Judgment of 4 July 2003, DFT 4P.137/2002, cons. 3.2 (Swiss Federal Tribunal) (emphasis added). See alsoJudgment of 16 October 2001, 2002 Rev. arb. 753, 756 (Swiss Federal Tribunal) (“As a matter of principle, one has to make a clear distinction between the notion of standing to sue or be sued (also called qualité pour agir ou pour défendre; Aktiv-/Passivlegitimation) on the one hand, and the capacity to be a party (Parteifähigkeit) on the other hand. Standing to sue or be sued in civil proceedings relates to the substantive basis of the claim; it pertains to the subject (active or passive) of the asserted right and its absence does not lead to the inadmissibility of the claim, but to its denial. Conversely, capacity to be a party, understood here in its broadest sense, consists of the ability to participate in proceedings as a party; it constitutes a prerequisite for the admissibility of the claim and its absence equals a finding of inadmissibility. The question whether the claimant or the respondent is a party to the arbitration agreement, in other words whether he has capacity to be a party, is thus a question of admissibility which determines the competence of the arbitral tribunal….”). 348 See, e.g., E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶453-454 (1999); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶271 (2d ed. 2007); P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitrage interne et international en Suisse Art. 178, ¶19 (1989); Briner, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 177, ¶25 (2000) (“The capacity to be a party … includes the right to be involved as a party to arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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proceedings.”); Abdulla, in G. Kaufmann-Kohler & B. Stucki (eds.), International Arbitration in Switzerland: A Handbook for Practitioners 24 (2004) (“The concept of capacity … relates to the capacity of a person or entity to enter into an arbitration agreement on its own behalf and act as a party to arbitral proceedings.”); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶331 (2006) (“The capacity to appear as a party before a contractually agreed arbitral tribunal (capacity to be a party) avails to persons only which validly became a party to the arbitration agreement. In turn, the jurisdiction of the arbitral tribunal depends on the parties being bound by the arbitration agreement.”). 349 Seegenerally Restatement (Second) Contracts §§12-16 (1981); R. Merkin, Arbitration Law ¶¶3.18 to 3.19 (2004 & Update 2007); G. Walter, W. Bosch & J. Brönnimann, Internationale Schiedsgerichtsbarkeit in der Schweiz 62 (1991). See also Svenska Petroleum Exploration AB v. Lithuania [2006] EWCA Civ. 1529 (English Court of Appeal); Maclaine Watson & Co. v. Int'l Tin Council [1987] 1 W.L.R. 1711, 1713 (Q.B.). 350 For a discussion of these principles, see supra pp. 504-514, 558-559, 561, 568-569 & infra pp. 1264-1270, 1368-1376, 15081513, 1576-1582, 1765-1770, 2556-2560. 351 The grounds for this conclusion are elaborated above. See supra pp. 510-514. 352 For commentary, see Paulsson, May A State Invoke Its Internal Law to Repudiate Consent to International Commercial Arbitration? Reflections on the Benteler v. Belgium Preliminary Award, 2 Arb. Int'l 90 (1986); Note, Authority of Government Corporations to Submit Disputes to Arbitration, 49 Colum. L. Rev. 97 (1949); States in the International Arbitral Process, 2 Arb. Int'l 22 (1986); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶¶229-332 (2d ed. 2007); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶544-46 (1999); M. Mustill & S. Boyd, Commercial Arbitration 151 (2d ed. 1989). 353 See infra pp. 630-633. See also supra pp. 558-559. 354 E.g., BV Bureau Wijsmuller v. United States of America, 1976 A.M.C. 2514 (S.D.N.Y. 1976). 355 Constitution of Islamic Republic of Iran, Art. 139; Gharavi, The 1997 Iranian International Commercial Arbitration Law: The UNCITRAL Model Law à l'Iranienne, 15 Arb. Int'l 85 (1999). 356 See Belgian Judicial Code, Art. 1676(2) (public entities may enter into arbitration agreements “only where the purpose of that agreement is to settle disputes arising out of the preparation or performance of a contract”; amending earlier provision providing that “anyone, except public law entities, with the power to enter into a settlement, may enter into an arbitration agreement”); Hanotiau & Block, The Law of 19 May 1998 Amending Belgian Arbitration Legislation, 15 Arb. Int'l 97 (1999); G. Keutgen & G. Dal, L'arbitrage en droit belge et international ¶¶80 et seq. (2d ed. 2006); Saudi Arabian Council of Minister's Decision No. 58 of 25 June 1963. It is unclear whether France, or French state-owned entities, have the capacity to agree to international arbitration. A 1986 decision of the Conseil d'Etat apparently held that the Republic of France (and two local authorities) could not enter into an arbitration agreement with Walt Disney Productions without special legislative authorization (which was subsequently granted in only very restrictive terms). Law No. 86-972 of 19 August 1986, Official Journal of 22 August 1986, at 10190. Other French authority appears to be to the contrary. SeeJudgment of 2 May 1966, Trésor http://www.kluwerarbitration.com/CommonUI/print.aspx
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Public v. Galakis, JCP G 1966, II, 14, ¶798 (French Cour de cassation 1e civ.); Judgment of 17 December 1991, Gatoil v. Nat'l Iranian Oil Co., 1993 Rev. arb. 281 (Paris Cour d'appel) (“international public policy” prevented foreign state entity from relying on domestic law to invalidate its agreement to arbitrate). France's subsequent withdrawal of its “commercial” reservation to the New York Convention confirms the latter view. E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶544-46 (1999). 357 See, e.g., English Arbitration Act, 1996, §106; R. Merkin,
Arbitration Law ¶1.41 (2004 & Update 2007). 358 See, e.g., Judgment No. 3894of 1976, XIV Y.B. Comm. Arb. 634 (Athens Court of Appeal) (1989) (Greek Ministry of Trade bound by international arbitration agreement, notwithstanding domestic law imposing conditions on arbitration by government entities). See also Colombian Law 80 of 1993, Arts. 13, 70 (published in Diario Oficial No. 41.094) (government may enter into arbitration agreements, but arbitrators cannot decide ex aequo et bono and contract must be governed by Colombian domestic legislation if it is to be performed in Colombia). 359 See European Convention, Art. II(1); infra pp. 631-632. 360 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶533-34 (1999). 361 See supra pp. 627-629; Restatement (Second) Contracts §12 (1981) (“No one can be bound by contract who does not have legal capacity to incur at least voidable contractual duties, and the capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circ*mstances.”); Treitel, The Law of Contract 567 (12th ed. 2007). Article II(1) of the European Convention also clearly characterizes the ability of a state to conclude a valid arbitration agreement as one of capacity. See infra pp. 631-632. 362 The New York Convention does not expressly address the
capacity of state entities to conclude arbitration agreements. The Convention's drafting history makes clear, however, that arbitration agreements and awards involving state entities are subject to the Convention in the same fashion as agreements or awards involving other parties. Report of the Committee on the Enforcement of International Arbitral Awards, UN Doc. E/2704 and Corr. 1, ¶24 (1955), available at www.uncitral.org. 363 European Convention, Art. II(1). There is no counterpart to Article II(1) in the New York Convention or Inter-American Convention. 364 See European Convention, Art. II(2); Belgian Judicial Code, Art. 1676(2) (revised in 1998). Belgian legislation has long limited the capacity of the state and state entities to enter into international arbitration agreements. See supra pp. 630-631. 365 Benteler v. State of Belgium, Ad Hoc Award (18 November 1983), 1989 Rev. arb. 339. See Paulsson, May A State Invoke Its Internal Law to Repudiate Consent to International Commercial Arbitration? Reflections on the Benteler v. Belgium Preliminary Award, 2 Arb. Int'l 90 (1986).
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366 W. Craig, W. Park & J. Paulsson, International Chamber of
Commerce Arbitration ¶5.07 (3d ed. 2000) (“it is doubtful that such legislation as Article 139 of the Constitutional Law of the Islamic Republic of Iran (forbidding State entities to agree to arbitration with foreign parties in ‘significant’ cases without the approval of the Majlis (Parliament)) or the Saudi Arabian Council of Minister's Decision No. 58 of 25 June 1963 (forbidding State entities to accept international arbitration) would be taken into account by international arbitrators”). 367 Swiss Law on Private International Law, Art. 177(2). 368 Buques Centroamericanos, SA v. Refinadora Costarricense de Petroleos, SA, 1989 U.S. Dist. LEXIS 5429 (S.D.N.Y. 1989). 369 Gatoil Int'l Inc. v. Nat'l Iranian Oil Co., XVII Y.B. Comm. Arb. 587 (Q.B. 1988) (1992) (rejecting reliance on Article 139 of Iranian Constitution). 370 Judgment of 2 May 1966, Trésor Public v. Galakis, JCP G 1966, II, 14, ¶798 (French Cour de cassation 1e civ.); Judgment of 17 December 1991, Gatoil v. Nat'l Iranian Oil Co., 1993 Rev. arb. 281 (Paris Cour d'appel) (“international public policy” prevented state entity from relying on domestic law to invalidate its agreement to arbitrate); Judgment of 24 February 1994, Ministry of Public Works v. Société Bec Frères, XXII Y.B. Comm. Arb. 682 (Paris Cour d'appel) (1997) (rejecting foreign state entity's claim that it was not bound by arbitration agreement). 371 Judgment of 9 May 1996, Société Arabe des Engrais Phosphates et Azotes & Société Industrielle d'Acide Phosphorique et d'Engrais v. Gemanco srl, XXII Y.B. Comm. Arb. 737 (Italian Corte di Cassazione) (1997). 372 Judgment No. 3894of 1976, XIV Y.B. Comm. Arb. 634 (Athens Court of Appeal) (1989). 373 Judgment of 19 March 1997, Organisme des Antiquités v. G. Silver Night Co., 1997 Rev. arb. 283 (Cairo Court of Appeal) (“the legislature has authorized the parties to refer disputes to arbitration even where one such party is a public law entity and, irrespective of the nature of the legal relationship with which the arbitration is concerned”). 374 Judgment of 21 June 1983, Office National du Thé et du Sucre v. Philippines Sugar Co. Ltd, XXI Y.B. Comm. Arb. 627 (Casablanca Court of Appeal) (1996) (“Doctrine and jurisprudence constantly recognize the validity of an arbitration agreement concluded by a State or State agency where the contract for which the arbitration agreement is concluded is an international contract and is governed by private law”). 375 Judgment of 17 October 1987, BEC-GTAF v. Etat Tunisien, 1988 Rev. arb. 732 (Tunis Tribunal of First Instance). This result was subsequently codified. Tunisian Code on Arbitration, Art. 7 (while disputes “concerning the State, State administrative agencies and local communities” are non-arbitrable, this does not apply to “disputes arising in international relations of an economic, commercial or financial nature”). 376 See supra pp. 504-514, 558-559, 561, 568569 & infra pp. 1264-1270, 1368-1376, 1508-1513, 1576-1582, 1765-1770, 2556-2560. 377 BV Bureau Wijsmuller v. United States of America, 1976 A.M.C. 2514 (S.D.N.Y. 1976). 378 46a U.S.C. §786. 379 Buques Centroamericanos, SA v. Refinadora Costarricense de Petroleos, SA, 1989 U.S. Dist. LEXIS 5429 (S.D.N.Y. 1989). http://www.kluwerarbitration.com/CommonUI/print.aspx
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380 See Constitution of Islamic Republic of Iran, Art. 139; supra pp.
630-631. 381 Award in ICC Case No. 4381, 113 J.D.I. (Clunet) 1102, 1106 (1986). 382 See, e.g., Revere Copper and Brass v. Overseas Private Inv. Corp., AAA Case No. 16 10 0137 76, 17 Int'l Legal Mat. 1321 (1978); Award in ICC Case No. 1526, 101 J.D.I. (Clunet) 915 (1974); Award in ICC Case No. 1939, 1973 Rev. arb. 122, 145; Interim Award in ICC Case No. 2521, 103 J.D.I. (Clunet) 997 (1976); Partial Award in ICC Case No. 3896, 110 J.D.I. (Clunet) 914 (1983); Award in ICC Case No. 5103, 115 J.D.I. (Clunet) 1206 (1988); Interim Award in ICC Case No. 7263, XXII Y.B. Comm. Arb. 92, 100 (1997) (states and public bodies “cannot avail themselves of the incapacity and lack of authorization deriving from their national laws”); Award in ICC Case No. 7373, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 78-79 (2001) (“it is now well-established that the rule expressed in several judicial and arbitral decisions is the expression of an international principle by virtue of which prohibitions or restrictions envisaged by internal legislation cannot be an obstacle to the validity of arbitral agreements concluded by States or their substitutes or State-owned companies concerning their participation in arbitral proceedings”); Award in ICC Case No. 7375, 11(12) Mealey's Int'l Arb. Rep. A-1 (1996); Elf Aquitaine Iran v. Nat'l Iranian Oil Co., Preliminary Ad Hoc Award (14 January 1982), XI Y.B. Comm. Arb. 97, 103-104 (1986) (“It is a recognized principle of international law that a State is bound by an arbitration clause contained in an agreement entered into by the State itself or by a company owned by the State”). 383 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶558 (1999); Battifol, Arbitration Clauses Concluded Between French Government-Owned Enterprises and Foreign Private Parties, 7 Colum. J. Transnat'l L. 32 (1968); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.02 (3d ed. 2000); Böckstiegel, States in the International Arbitral Process, 2 Arb. Int'l 22 (1986). 384 Resolution on Arbitration Between States, State Enterprises or State Entities and Foreign Enterprises, Institute of International Law, 12 September 1989, Art. 5, XVI Y.B. Comm. Arb. 233, 238 (1991). 385 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶453 (1999). 386 See supra pp. 552-559, 559-561. 387 See supra p. 554; Preliminary Ad Hoc Award in Case No. 27, 12 ASA Bull. 481, 487 (1994); Restatement (Second) Conflict of Laws §§301-302 (1971); L. Collins (ed.), Dicey, Morris & Collinson The Conflict of Laws ¶33-432 (14th ed. 2006). 388 See supra p. 554. 389 See supra p. 554; Rees & Flesch, Agency and Vicarious Liability in Conflict of Laws, 60 Colum. L. Rev. 764, 767-68 (1960) (law of place where agent acted defines agent's authority); Restatement (Second) Conflict of Laws §292 (1971). 390 See, e.g., Judgment of 4 September 2003, XXX Y.B. Comm. Arb. 528 (Oberlandesgericht Celle) (2005); In re Herlofson Mgt A/S and Ministry of Supply, Kingdom of Jordan, 765 F.Supp. 78 (S.D.N.Y. 1991) (no arbitration agreement because signatory lacked actual or apparent authority to bind principal); Triton Container Int'l Ltd v. M/S Itapage, 774 F.Supp. 1349 (M.D. Fla. 1990); Maritime Ventures Int'l Inc. v. Caribbean Trading & Fidelity, Ltd, 689 F.Supp. 1340 (S.D.N.Y. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1988); LG Caltex Gas Co. v. China Nat'l Petroleum Corp. [2001] 1 W.L.R. 1892 (Q.B.); Award in German Maritime Arbitration Association of 8 November 2005, XXXI Y.B. Comm. Arb. 66 (2006) (no valid arbitration agreement, because representative lacked authority to bind party). 391 Siderurgica del Orinoco (Sidor), CA v. Linea Naviera de Cabotage, CA, 1999 WL 632870 (S.D.N.Y. 1999) (rejecting argument that officer who signed contract containing arbitration clause acted without authority). 392 See, e.g., Award in ICC Case No. 4667, in S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 1986-90 297, 338 (1994); Interim Award in ICC Case No. 5065, 114 J.D.I. (Clunet) 1039 (1987); Final Award in ICC Case No. 7047, 13 ASA Bull. 301, 319 (1995); Award in Paris Chamber of Arbitration of 8 March 1996, XXII Y.B. Comm. Arb. 28, 29-30 (1997) (Egyptian company bound by arbitration agreement signed by its Chairman: under “principle of presumptive mandate,” arbitrators conclude that “the claimant concluded a contract in good faith with the official representative of the defendant and the latter let it be understood that its Chairman may enter into an arbitration agreement”). Contra Award in ICC Case No. 5832, 115 J.D.I. (Clunet) 1198 (1988) (Austrian company not bound by arbitration agreement in contract signed by employees lacking formal written power of representation required by Austrian law). See also supra pp. 557-558 & infra pp. 1148-1150 (apparent authority). 393 See, e.g., Judgment of 22 September 1978, V Y.B. Comm. Arb. 262 (Hanseatisches Oberlandesgericht Hamburg) (1980) (rejecting contention that party had not given power of attorney to broker); Final Award in ICC Case No. 6850, XXIII Y.B. Comm. Arb. 37 (1998). For a discussion of the issues arising under Austrian law, which imposes particular limits in this regard, see infra p. 638. As discussed above, issues of formal validity can also arise concerning such matters. See supra pp. 620-621; Reiner, The Form of the Agent's Power to Sign An Arbitration Agreement and Article II(2) of the New York Convention, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 82 (ICCA Congress Series No. 9 1999) (arguing that no form requirements should apply to agents' authorization). 394 See, e.g., Gov't of Virgin Islands v. 0.459 Acres of Land, 286
F.Supp.2d 501, 505-507 (D. Virgin Islands 2003) (arbitration agreement “by an attorney may be validated by the principal's later ratification, through its conduct, silence, acquiescence, or failure to seasonably repudiate the agreement”); Judgment of 22 September 1978, V Y.B. Comm. Arb. 262, 264 (Hanseatisches Oberlandesgericht Hamburg) (1980) (rejecting contention that party had not given power of attorney to broker firm); Interim Award in ICC Case No. 5065, 114 J.D.I. (Clunet) 1039, 1043 (1987) (“in accordance with general principles of international commercial law, usages and … good faith, … the existing entity is personally bound.”). 395 Agency issues are discussed in greater detail below. See infra pp. 1142-1148. 396 See supra pp. 620-621 for a discussion of form requirements applicable to authorizations to conclude arbitration agreements. 397 Greek Code of Civil Procedure, Art. 217 (“A power of attorney http://www.kluwerarbitration.com/CommonUI/print.aspx
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may be given by means of a declaration addressed to the attorney or to the third party with whom the transaction is being concluded. Unless a contrary deduction can be made the declaration is subject to the form required for the completion of the transaction to which the power of attorney refers.”). 398 Austrian Civil Code, §1008. Under Austrian law, the agent's power to enter into an arbitration agreement on behalf of a principal must be in writing, and agents acting on the basis of a contractual power of attorney generally require a specific power of attorney. G. Zeiler, Schiedsverfahren -§§577–618 ZPO idF des SchiedsRÄG 2006 §584, ¶¶28 et seq (2006). 399 Swiss Code of Obligations, Art. 396(3) (requiring “specific authority” and, impliedly, written form); Wenger, in S. Berti etal. (eds.), International Arbitration in Switzerland Art. 178, ¶23 (2000). 400 French Civil Code, Art. 1989 (“an agent may act only within the scope of its mandate and the power to settle disputes does not confer a power to enter into arbitration agreements”). This provision is not well-suited for application to international matters, see E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶468 (1999). It has also been held inapplicable as to choice-of-court clauses. Judgment of 22 March 2000, 2000 RJDA 685 (Paris Cour d'appel). The same reasoning should apply to international arbitration agreements. 401 See supra pp. 557-558. 402 See supra pp. 504-514, 558-559, 561, 568569 & infra pp. 1264-1270, 1368-1376, 1508-1513, 1513, 15761582, 1765-1770, 2556-2560. 403 See supra pp. 332 et seq. & infra pp. 851 et seq. 404 Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. S.Ct. 2006). 405 Buckeye Check Cashing, 546 U.S. at 444 n.1. 406 See Sphere Drake Ins. Ltd v. All Am. Ins. Co., 256 F.3d 587 (7th Cir. 2001) (“An agent's lack of authority is a ground that prevents the enforcement ‘of any contract’; does it not follow that judges must determine whether the agent had authority?”); Sphere Drake Ins. Ltd v. Clarendon Nat'l Ins. Co., 263 F.3d 26 (2d Cir. 2001) (same); Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (3d Cir. 2000) (“the validity of the arbitration clause as a contract … derives from [the putative agent's] authority to bind Advent” and “there does not appear to be any independent source of the validity of the arbitration clause once the underlying contract is taken off the table. If [the putative agent's] signature is not binding, there is no arbitration clause.”). 407 Mayer, The Limits of Severability of the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 261, 265 (ICCA Congress Series No. 9 1999). See alsoFiona Trust & Holding Corp. v. Privalov, [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal) (“the question whether there was any agreement ever reached”), aff'd, [2007] UKHL 40 (House of Lords). Contra Smit, Separability and Competence-Competence in International Arbitration: Ex Nihilo Nihil Fit? Or Can Something Indeed Come From Nothing?, 13 Am. Rev. Int'l Arb. 19, 36 (2002). 408 See supra pp. 357-402 (especially 396-402). 409 This is the case, for example, if an agent is not granted authority to enter into contracts over a certain monetary value or concerning particular subject matters; such limitations should not http://www.kluwerarbitration.com/CommonUI/print.aspx
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affect the separable arbitration agreement. 410 See supra pp. 370-373 & infra pp. 945-948.
Formation, Validity and Legality of International Arbitration Agreements - D. Formation of International Arbitration Agreements Chapter 5 Gary B. Born
Author Gary B. Born
D. Formation of International Arbitration Agreements International arbitration agreements, like other categories of contracts, give rise to questions of contract formation (particularly issues of consent). In turn, questions of contract formation require consideration of rules of substantive contractual validity, as well as choice-of-law, separability and competence-competence principles. 1. Introduction It is elementary that an international arbitration agreement cannot be recognized or enforced unless it has been validly formed. Thus, Article II of the New York Convention applies only to an “agreement … under which the parties undertake to submit to arbitration,” (411) while Article 8 of the UNCITRAL Model Law applies only where there is an “arbitration agreement,” defined as requiring “an agreement by the parties to submit to arbitration all or certain disputes.” (412) Likewise, Article V(1) of the European Convention permits recognition of an arbitration agreement to be resisted on the ground that it is “non-existent.” (413) These provisions all require the existence of a validly-formed agreement to arbitrate, failing which there will be nothing for either national courts or arbitral tribunals to recognize or enforce.
Source Formation, Validity and Legality of International Arbitration Agreements - D. Formation of International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 640 - 704
a. Application of Generally-Applicable Rules of Contract Formation The central issues arising with regard to the formation of international arbitration agreements concern the consent of the parties. Consent in international commercial transactions is usually evidenced by written instruments, typically with the execution of a formal contract by a corporate officer's signature. (414) Nonetheless, a wide range of other modes of establishing consent exist, including by less formal writings, exchanges of writings (including exchanges of electronic or other communications), oral communications and
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conduct or acquiescence. (415) In part as a consequence, page "640" disputes arise with surprising frequency as to whether or not a party, via one of these various means, consented to an international arbitration agreement. (416) In particular, these issues concern whether the parties have in fact manifested their common intention to be bound by the arbitration agreement and whether their manifestations of consent to a particular provision (or set of provisions) are legally binding. As discussed below, recurrent issues relating to the parties' consent include the factual proof of consent, issues of implied or tacit consent, the treatment of competing forms or proposals exchanged by the parties, the consequences of poorly-drafted arbitration provisions (such as internally-inconsistent, indefinite or vague arbitration clauses, “optional” arbitration clauses, clauses with incorrect designations of arbitral institutions or rules), duress and the effects of lack of notice. The question whether parties have validly consented to an international arbitration agreement is governed under most developed legal systems by generally-applicable principles of contract law, and specifically, contract formation. (417) As one U.S. court remarked, summarizing the approach under the U.S. FAA, “ordinary contract principles determine who is bound by such written provisions.” (418) page "641" Other national courts take similar approaches, applying general contract law rules in determining whether a party has assented to an arbitration agreement, including in Switzerland, (419) England, (420) Germany, (421) France (422) and elswhere (including in Model Law jurisdictions). (423) By applying generally-applicable contract law principles, these national law decisions give effect to the international requirement of non-discrimination imposed on Contracting States by the New York Convention. (424) b. Application of Choice-of-Law Rules to Formation of Arbitration Agreement A significant preliminary issue in both theory and practice is the choice of the substantive law which applies to the formation of a separable international arbitration agreement. This issue is discussed in detail above. (425) As described above, the choice-oflaw principles which are generally applicable to the substantive validity of international arbitration agreements apply, for the most part, to the formation of such agreements. (426) These principles look to the law selected by the parties to govern their putative arbitration agreement, failing which the law of the putative arbitral seat or underlying contract is applied, typically together with a validation principle. (427) page "642" c. Application of Separability Presumption to Issues of Formation of Arbitration Agreement
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It is essential, in considering the existence of consent to an arbitration agreement, to give effect to the separability presumption. Particular complexities exist in applying the separability principle in circ*mstances where a party denies that any agreement – whether the underlying contract or the arbitration agreement – was ever formed. These issues are addressed elsewhere. (428) d. Application of Competence-Competence Doctrine to Issues of Formation of Arbitration Agreement It is equally important, in addressing the existence of consent to an arbitration agreement, to consider the effect of the competencecompetence doctrine and the allocation of competence to consider and decide jurisdictional disputes between arbitral tribunals and national courts. (429) As discussed below, particular complexities arise under some legal systems in applying the competencecompetence doctrine to claims that no arbitration agreement was ever formed. Importantly, many national and court decisions involving (or potentially involving) substantive contract law issues of consent or formation of arbitration agreements also (or instead) turn on competence-competence considerations under particular national legal regimes. (430) Although the concepts are sometimes closely related, it is important to keep issues of competence-competence analytically distinct from issues of substantive validity. This Chapter focuses principally on substantive issues of consent and contract formation with regard to the arbitration agreement, while issues of competence-competence are addressed in greater detail in Chapter 6 below. e. Distinction Between “Written” Form Requirement and Consent It is also important to distinguish between the “written” form requirements applicable to arbitration agreements under many international conventions and national arbitration statutes, (431) and the question whether a party has consented to an arbitration agreement. As discussed above, it is possible for applicable “written” form requirements to be satisfied (e.g., there is an exchange of letters or telegrams, signed page "643" by the parties), (432) but for the extant documents to fail substantively to establish the existence of an arbitration agreement as a substantive matter (e.g., there is no arbitration clause contained in the writing(s), the putative arbitration clause is defective, or the parties have not in fact consented to the proposed clause). (433) Conversely, it is also entirely possible for parties to have undeniably consented to arbitration (e.g., as evidenced by an unequivocal, undisputed oral agreement), but for their agreement to fail to satisfy applicable form requirements. (434) In order to establish a valid arbitration agreement, both applicable form requirements and substantive consent requirements must be satisfied. 2. Standards of Proof for Establishing the Existence of Arbitration Agreement Another preliminary, but recurrent, issue is what standard of proof http://www.kluwerarbitration.com/CommonUI/print.aspx
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should apply to the existence or formation of an international arbitration agreement. Preliminarily, it is clear that the party seeking to establish the existence of an arbitration agreement as a bar to litigation of a dispute generally bears the burden of proof. (435) Regardless of the particular standard of proof that is applicable, this allocation of the burden of proof follows from the fact that the party relying on an arbitration agreement must affirmatively demonstrate the existence of a valid agreement, sufficient to obligate the parties to arbitrate, rather than to litigate in national court. In many cases, one party will adduce some evidence and argument that an arbitration agreement was formed, which its putative counter-party will partially or wholly rebut; alternatively, one party will contend that the terms of a putative agreement to arbitrate are unenforceably vague or contradictory, or that the agreement was procured by duress. Each of these cases implicates the standard of proof required from the party relying on the putative arbitration agreement to establish the formation of an agreement to arbitrate. Among other things, this gives rise to the further question whether the same degree of clarity and certainty is required to demonstrate that an arbitration agreement has been formed as is required for the formation of substantive commercial contracts. As discussed below, some authorities have adopted what can be termed an “anti-arbitration” standard of proof, requiring a higher degree of clarity or certainty page "644" to establish the existence of an arbitration agreement than to establish the existence of other types of agreements. (436) At the same time, other authorities adopt a “pro-arbitration” standard of proof, which effectively requires a lower degree of certainty or clarity than necessary for other types of agreements. (437) And, there is also authority adopting no special rule at all in determining whether a valid arbitration agreement has been formed, treating the formation of arbitration agreements no differently from the formation of other types of contracts. (438) A further question is whether the same standard of proof applies to demonstrating the existence of an arbitration agreement as to determining whether the scope of an existent arbitration agreement extends to a particular dispute. (439) As discussed below, most courts have applied different analyses to each of these two questions, typically applying “pro-arbitration” rules of interpretation to existent arbitration agreements, (440) regardless of their approach to the question whether an arbitration agreement has been formed at all. a. Heightened Standard of Proof for Establishing the Existence of Arbitration Agreement It is sometimes held that especially clear evidence should be required to demonstrate that an international arbitration agreement has been validly formed. A few arbitral tribunals appear to have adopted such a requirement of heightened proof of the existence of an agreement to arbitrate. (441) In the words of one award, “the consent of each party must be unambiguously demonstrable.” (442) A few national court decisions also appear to demand especially clear evidence that an arbitration agreement was validly formed, http://www.kluwerarbitration.com/CommonUI/print.aspx
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typically relying on archaic anti-arbitration notions. (443) In the words of one Swiss court: “Considering the page "645" important consequences of an arbitration agreement, the court shall beware of finding too easily that such an agreement has been concluded.” (444) Other courts have held that it should not be “too easy” to establish the existence of an arbitration agreement (but that, where such an agreement exists, it should be interpreted expansively). (445)
The rationale for decisions imposing heightened proof requirements appears to be that parties should be considered to have given up important fundamental rights of access to judicial protection (446) when they agree to arbitrate, and that this should be required only where they have clearly agreed to do so. This rationale is related to the “writing” requirement imposed under most international and national arbitration instruments, demanding particular clarity and certainty where arbitration agreements are concerned. (447) As discussed above, this rationale has been largely discredited, at least in the context of international (as distinguished from domestic) arbitration. (448) Arbitration is the natural and preferred means for resolving international business disputes. (449) Moreover, the rights of access to judicial protection must be considered from a different perspective in international matters than in domestic matters: in page "646" international matters, both parties inevitably claim access to different national courts as the putative “natural” forum, and international arbitration is adopted in large part to avoid the resulting jurisdictional disputes and confusion, which frequently deprive one or both parties of effective access to a judicial forum or legal remedy. (450) Accordingly, whatever the rule in domestic cases, there is no satisfactory basis for imposing any heightened proof requirement for establishing the existence of international arbitration agreements. b. Reduced Standard of Proof for Establishing the Existence of Arbitration Agreement On the other hand, some authorities reason that a comparatively low standard of clarity or certainty should apply to determine whether an international arbitration agreement has been validly formed. A few international arbitral awards (451) and national court decisions (452) adopt such an approach. In one U.S. court's words, “because of the presumption of arbitrability,” and the “emphatic federal policy in favor of arbitral dispute resolution,” the “most minimal indication of the parties' intent to arbitrate must be given full effect, especially in international disputes.” (453) Another mode of analysis, related to a reduced standard of proof of the existence of an arbitration agreement, is adopted by commentators in some developed jurisdictions. (454) According to these authorities, there is a presumption in favor of giving effect to the parties' agreement, particularly where one interpretation of a page "647" clause would validate it, while another would not: “The principle of favor validitatis also applies when interpreting arbitration agreements which are incomplete, deficient or contradictory …” (455)
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This presumption is supported in part by the “pro-arbitration” policies referred to above, (456) but also by the general notion that parties' agreements should be interpreted to give effect to them where fairly possible. (457) In some instances, however, this validation principle goes beyond a rule of construction or interpretation, and amounts to a more controversial presumption that doubts about the validity of a putative arbitration agreement should be resolved in favor of validity. (458)
c. Neutral Standard of Proof for Establishing Existence of Arbitration Agreement A third approach is to reject either an “anti-arbitration” or a “proarbitration” standard of proof for establishing the existence of an international arbitration agreement. Many authorities effectively adopt this approach, by not considering issues concerning the standard of proof or by simply applying generally-applicable rules regarding contract formation. As one U.S. court declared: “[T]he purpose of the FAA was to make arbitration agreements as enforceable as other contracts, not more so.” (459) Some commentators page "648" have endorsed this approach, reasoning that it is “inappropriate to resort to a general principle of interpretation in favorem validitatis or in favorem jurisdictionis,” because “there is no place here for the logic of principle and exception” and “it remains perfectly legitimate to choose to have one's international disputes settled by the courts.” (460)
d. Standards of Proof for Establishing Existence of Arbitration Agreement under FAA There is a considerable body of U.S. authority concerning the standards of proof for establishing the existence of an arbitration agreement under the FAA. Although this authority is divergent, it nonetheless provides instructive contrasts with other legal regimes. Preliminarily, it is important under the FAA to distinguish between the standards of proof applicable to the existence of an agreement to arbitrate and those applicable to the question whether a particular dispute falls within the scope of an existing arbitration agreement. As discussed below, U.S. courts have held that the FAA imposes a strongly “pro-arbitration” approach to interpreting the scope of arbitration clauses: under this approach, doubts about the scope of a clause (e.g., whether it encompasses a particular dispute) will be resolved in favor of coverage. (461) Importantly, these decisions concerning interpretation of the scope of arbitration agreements do not, by their terms, apply to questions concerning the existence or formation of an arbitration agreement. A number of U.S. lower courts have made exactly this point, in refusing to apply presumptions regarding the interpretation of arbitration agreements to issues of formation or existence. (462) page "649" Relatively few U.S. courts have analyzed the question of what standards of proof should apply under the FAA to establishing the existence of an agreement to arbitrate. Some U.S. lower courts have http://www.kluwerarbitration.com/CommonUI/print.aspx
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adopted the view that arbitration agreements must be established by clear evidence. (463) Other U.S. lower courts have held that doubts will be resolved in favor of the existence of an international arbitration agreement. (464) Finally, some courts have concluded that the same degree of clarity and certainty apply to establishing the formation of arbitration agreements as to other contracts. (465) In a few U.S. states, local law purportedly imposes unusually rigorous standards of proof with respect to domestic arbitration agreements. That is, no agreement to arbitrate will be found in the absence of clear and compelling evidence that such an agreement has validly been formed: “the threshold for clarity of agreement to arbitrate is greater than with respect to other contractual terms.” (466) In the words of one court: “No party is under a duty to arbitrate unless by clear language he has previously agreed to do so; and it must clearly appear that the intention of the parties was to submit their dispute to an arbitration panel and to be bound by the panel's decision.” (467) Despite occasional language to this effect, most lower U.S. courts have (correctly) held that the domestic FAA preempts state law rules that discriminate against arbitration agreements by requiring greater evidence of an agreement to arbitrate page "650" than of other (468) types of contracts. The same result applies even more clearly in the case of international arbitration agreements. (469) The U.S. Supreme Court's opinion in First Options of Chicago v. Kaplan might be interpreted as imposing a requirement that the existence of domestic arbitration agreements be established through “clear and unmistakable” evidence. (470) As discussed below, First Options required “clear and unmistakable” evidence of an agreement to arbitrate what the Court called “questions of arbitrability.” (471) This standard arguably applies to the existence of any arbitration agreement (including agreements to arbitrate substantive issues). (472) First Options should not be interpreted in this fashion, even in the domestic U.S. context. Doing so would impose unusual obstacles to the formation of domestic arbitration agreements, which are inconsistent with the basic pro-arbitration policies and premises of the FAA, (473) as well as the FAA's prohibition against rules that single out arbitration agreements for unfavorable discriminatory treatment. (474) page "651" The correct reading of First Options in domestic cases is that: (a) the existence of any domestic arbitration agreement is to be determined without resort to any presumptions, simply applying state-law (or otherwise applicable) contract formation rules; (475) (b) the existence of an agreement to arbitrate disputes about the formation or validity of domestic arbitration agreements (“arbitrability questions”) is determined in light of a requirement for “clear and unmistakable” evidence of such an agreement; (476) and (c) the scope of an existent arbitration agreement, as applied to substantive disputes, is determined in light of a “pro-arbitration” interpretative http://www.kluwerarbitration.com/CommonUI/print.aspx
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presumption. (477) With regard to international arbitration agreements, it is even clearer that First Options should not be interpreted to require “clear and unmistakable” evidence of an agreement to arbitrate. (478) Again, this would contradict the pro-arbitration policies of the New York Convention, (479) as well as the rules of non-discrimination required by the Convention, (480) by imposing more demanding requirements on arbitration agreements than apply to other contractual undertakings. There is nothing to recommend, or justify, such a result and no reported contemporary U.S. judicial decisions adopt it. (481)
page "652" e. Future Directions: Standard of Proof for Establishing Existence of International Arbitration Agreement The better approach to the formation of international arbitration agreements in commercial settings is to apply a reduced standard of proof to issues of consent. This approach is reflected expressly in a few national court decisions addressing the appropriate standard of proof of formation of an international arbitration agreement, (482) and more extensively in decisions correcting or ignoring ambiguities, (483) inconsistencies (484) and other defects (485) in arbitration agreements. (486) The rationale for this analysis is the pro-arbitration policy of contemporary international and national arbitration instruments. (487) That is, because international arbitration is the natural and preferred means of resolving international business disputes, and because arbitration typically produces efficient, expert resolution of international commercial disputes, (488) challenges to the existence of an arbitration agreement should be supported by clear evidence. Put differently, there is no reason to assume generally that parties would be inclined to enter into particular sales or other contracts. In contrast, there are very serious reasons to presume, as a general matter and absent contrary indications, that commercial parties are predisposed to enter into international arbitration agreements, in order to obtain the benefits that such agreements provide. Equally, the “pro-arbitration” objectives of leading international conventions and national legislation reflect significant public policies, in avoiding costly, unproductive jurisdictional and enforcement litigation, and relieving national courts of unnecessary burdens. (489) The existence of this preference for international arbitration in turn page "653" argues for a reduced standard of proof that parties have agreed to international arbitration. As noted above, some authorities have urged adoption of a “neutral” standard of proof of the existence of international arbitration agreements, on the grounds that it is “perfectly legitimate” to prefer litigation in national courts to international arbitration. (490) There is considerable force to this analysis, but it is overstated. Although it clearly remains legitimate and understandable for parties to choose dispute resolution by national courts, the real issues are whether this is what international businesses ordinarily prefer in http://www.kluwerarbitration.com/CommonUI/print.aspx
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commercial transactions and whether national court litigation is the more efficient, sensible means of resolving international business disputes. For the reasons discussed above, the answers to these questions are generally in the negative, (491) which would argue for a presumption in favor of the existence of international arbitration agreements, at least in transnational commercial dealings between sophisticated international businesses. Indeed, as discussed below, this approach has been adopted in practice by national courts in various contexts (including the treatment of indefinite, internallycontradictory and “optional” arbitration clauses (492) ). This presumption would not necessarily apply to domestic arbitration agreements and would instead be justified by the peculiar jurisdictional, choice-of-law and enforcement difficulties arising from the litigation of international disputes. (493) At the same time, it is also settled that “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit,” (494) and that pro-arbitration policies cannot substitute for the parties' consent. No presumption (whether “pro-arbitration” or “anti-arbitration”) should distract attention from the circ*mstances of particular parties and their language and dealings. It is these concrete and specific facts on which analysis should focus in particular cases. Even if a presumption for (or against) international arbitration agreements were recognized, it would be only in borderline cases that this presumption would come page "654" into play. In the majority of cases, the existence of an arbitration agreement would be decided exclusively by consideration of what particular parties said to each other and did with each other in a specific setting, rather than on general presumptions. 3. Grounds for Lack of Consent to International Arbitration Agreements The substantive grounds for challenging consent to, or the existence of, an international arbitration agreement fall into familiar categories of contract law. These grounds include: (a) lack of agreement on essential terms; (b) lack of assent; (c) indefinite arbitration agreements; (d) arbitration agreements referring to non-existent arbitral institutions or rules; (e) internally contradictory arbitration agreements; (f) ”optional” arbitration agreements; (g) duress; and (h) lack of notice. a. Lack of Agreement on Essential Terms It is, of course, fundamental that a party's consent to an arbitration agreement is required for that agreement's existence. (495) That raises the question of what constitutes the essential or necessary terms of an agreement to arbitrate, to which the parties' consent must be established. i. Essential Requirements for Agreement to Arbitrate In order for an international arbitration agreement to be formed, agreement must be reached on a core of essential rights and obligations. These rights and obligations are reflected in the definitions of “agreements to arbitrate” under international arbitration conventions (496) and national arbitration legislation, (497) and are http://www.kluwerarbitration.com/CommonUI/print.aspx
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elaborated upon by national courts and other authorities. (498) As discussed above, virtually all authorities accept that arbitration is a process by which parties consensually submit a dispute or disputes to a non-governmental decision-maker, selected by or for the parties, to render a binding decision resolving a dispute in accordance with neutral, judicial procedures affording the parties an opportunity to be heard. (499) The essential core of an arbitration agreement, pursuant to this definition, is relatively simple: it consists of nothing more than an obligation to resolve certain disputes with another party by “arbitration” and the right to demand that such disputes be resolved in this fashion. These rights and duties can be contained in nothing more than the word “arbitration,” included in a contract, letter, or fax, by page "655" which the parties commit to resolve disputes relating to their transaction by arbitration. (500) Moreover, as discussed above, even if the word “arbitration” is not used, an arbitration agreement can be concluded by agreement to a dispute resolution mechanism with the characteristics of arbitration. (501) As discussed above, an international arbitration agreement will also ordinarily address a number of important issues, including (a) the seat of the arbitration; (b) the institutional or other rules applicable to the arbitration; (c) the number and method of appointment of the arbitrators; (d) the scope of the arbitration clause; and (e) the language of the arbitration. (502) These provisions are material terms of an arbitration agreement, but, as discussed below, the absence or ambiguity of such terms does not ordinarily prevent the formation of a valid arbitration agreement under either national law or the New York Convention (or other similar international conventions); a valid agreement to arbitrate exists even in the absence of provisions regarding the arbitral seat, the arbitral procedure, the constitution of the arbitral tribunal or other similar matters. (503) page "656" Nonetheless, where the parties' agreement contains these terms, they will benefit from the recognition requirements of the Convention and developed national arbitration legislation. (504) Although these terms are not essential to the formation of a valid arbitration agreement, they are material aspects of the agreement to arbitrate, and their enforcement is guaranteed by Article II of the New York Convention and equivalent provisions of national law. (505) Both courts and arbitral tribunals have usually rejected claims that an arbitration agreement is invalid because it fails sufficiently to specify terms such as scope, seat, or number of arbitrators. (506) For example, the Italian Corte di Cassazione upheld a clause providing only “Dispute Arbitration in Bern.” (507) Likewise, an English decision upheld a provision saying only “suitable arbitration clause,” (508) reasoning that the court could determine what was “suitable” by reference to objective criteria. As discussed above, numerous other courts, from a wide range of civil law (509) and page "657" common law (510) jurisdictions, have reached similar results.
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Some national arbitration legislation or judicial decisions render arbitration clauses invalid, at least in the domestic context, when they lack sufficient detail concerning the dispute resolution process. Under French domestic arbitration law, for example, an arbitration clause is invalid if it does not “either appoint the arbitrator or arbitrators or provide for a mechanism for their appointment.” (511) Nonetheless, French courts have held that this provision does not apply in the international context and have instead upheld international arbitration clauses failing to address the number or means of appointment of the arbitrators. (512) This parallels proenforcement decisions in most other developed jurisdictions. (513) Nonetheless, as discussed above, there remain anomalous approaches in a few developing jurisdictions. (514) page "658"
The general tendency of courts to uphold putative arbitration agreements is supported by the terms of many national arbitration statutes that contain default provisions, which address material aspects of the arbitration agreement if the parties have not themselves done so. For example, national law frequently contains default provisions concerning (a) the number of arbitrators; (b) the appointment and challenge of arbitrators; (c) the arbitrators' powers; (d) the arbitral seat; and (e) the time limits within which the arbitration must be conducted. (515) These provisions mitigate the adverse consequences that might otherwise flow from vague or unelaborated arbitration clauses, thereby facilitating the enforcement of such agreements. ii. “Blank Clauses” Some authorities have suggested that a clause simply providing for arbitration, without specifying the arbitral seat or means for selecting the seat or arbitral tribunal (a so-called “blank” clause), is invalid. (516) The defect in such clauses is that they leave unclear what national courts, if any, could appoint the arbitral tribunal or (less likely) address other critical matters. (517) This concern appears misconceived: the possibility of jurisdictional disputes or parallel proceedings concerning appointment of an arbitral tribunal is serious (and an excellent reason for parties not to draft such “blank” clauses). It should not, however, ultimately raise decisive doubts about the parties' common intention to arbitrate. An appropriate, and sensible, resolution is for national courts with jurisdiction over the parties to require arbitration in a neutral arbitral seat (or, less satisfactorily, in one party's domicile). (518) Consistent with this analysis, most authorities uphold arbitration clauses that fail to specify (or that specify ambiguously) the seat of arbitration and means of selecting the arbitrations. Thus, the Hong Kong Supreme Court upheld a clause page "659" providing for arbitration in a “third country,” (519) reasoning that the reference to a http://www.kluwerarbitration.com/CommonUI/print.aspx
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“third country” was a reference to any country other than one where a party was a national. Judicial decisions (520) and commentary (521) in other developed jurisdictions generally reach similar results. iii. Clauses With Undefined Scope It is sometimes suggested that a definition of the scope of the arbitration clause (e.g., the categories of disputes submitted to arbitration) is essential to a valid arbitration agreement. (522) As discussed elsewhere, it is doubtful that an express definition of the scope of an arbitration agreement is either necessary for the validity of an agreement to arbitrate or imposed as a jurisdictional requirement for international arbitration conventions or national arbitration legislation. (523) In any event, the scope of an arbitration agreement is virtually always readily implied from the parties' contractual or other relations. (524) Thus, a number of national courts and arbitral tribunals have upheld arbitration clauses that contain no express reference to the scope of arbitrable disputes. (525) For example, an English court rejected the argument that a charter party clause providing “arbitration to be settled in London” was invalid because it did not specify the scope of arbitrable disputes. The Court reasoned that the provision meant “any dispute page "660" under this charter party to be settled in (526) London.” Another English court reached the same conclusion with respect to a clause providing “arbitration in London – English law to apply.” (527) Swiss, German and New Zealand authorities adopt the same sensible presumption that an arbitration clause in, or attached to, a contract governs disputes that arise in connection with that agreement. (528) b. Assent, Implied Assent and Lack of Assent Apart from the issue of what terms are essential to an agreement to arbitrate, the question of consent to an arbitration agreement does not generally involve complicated legal issues. Instead, it principally concerns questions of fact: was an agreement executed or not, by whom was the agreement signed, was a letter sent and received or not? i. Consent to Underlying Contract Typically Constitutes Consent to Arbitration Agreement As discussed above, the essential issue in determining the existence of an arbitration agreement is whether the parties have consented to that agreement (to arbitrate), as distinguished from having consented to the underlying contract. (529) At least in principle, and also often in practice, it is entirely possible for a party to have consented to one of these agreements, but not the other. (530) There are numerous instances where this conclusion has been reached. (531) Nonetheless, in many cases, the only evidence of consent to an arbitration agreement will be a party's consent to the underlying contract, with no separate indications of consent to the arbitration clause specifically. In these cases, there will ordinarily be no reason http://www.kluwerarbitration.com/CommonUI/print.aspx
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to distinguish between a party's consent to the underlying contract and the arbitration clause. page "661" Despite the separability presumption, it is elementary that a party's signature on the contract constitutes consent to the arbitration clause contained within that contract. This conclusion is so noncontroversial that it is virtually never disputed. It is in any event compelled by logic (a party's assent to an instrument presumptively includes assent to all the instrument's terms) and confirmed by the definition of “arbitration agreement” contained in leading international conventions (“an arbitral clause in a contract” (532) ). Consequently, absent specific contrary evidence, (533) a party's signature of or other consent to an underlying contract virtually always constitutes assent to the arbitration clause contained in that contract. Nonetheless, there are important exceptions to these generalizations. As discussed elsewhere, one of these exceptions arises in the context of exchanges of correspondence or offers/acceptances, which demonstrate the existence of an underlying contract, but contain specific objections directed towards arbitration provisions. (534) Alternatively, there may be ambiguities, irreconcilable contradictions, or other defects in the arbitration clause, which affect its status alone, without directly impacting the underlying contract. (535) ii. Consent to Underlying Contract Not Required for Consent to Arbitration Agreement Notwithstanding the foregoing, consent to the parties' underlying contract is not necessarily required to establish consent to the associated agreement to arbitrate. Although rare in practice, the separability presumption permits consent to and formation of the agreement to arbitrate even without consent to or formation of the underlying contract. (536) It is of course true that parties do not ordinarily intend to agree only to an arbitration clause in the abstract, but to reject or not conclude the underlying contract. (537) Rather, as noted above, the arbitration clause has an ancillary or page "662" “parasitic” function, which is closely related to the underlying commercial contract. (538) That argues, in general, against suggestions that parties concluded a separate arbitration agreement, while not entering into an associated commercial contract. Nonetheless, there will be instances in which the parties negotiate and agree upon the terms of the arbitration clause, even though they do not agree upon the terms of the underlying contract. (539) There are also good reasons to conclude that, in international commercial contexts, parties will wish their arbitration agreement to exist even without formation or validity of the underlying contract – precisely to ensure a neutral, expert procedure (540) for resolving disputes about the formation of that contract. Analytically, it is therefore essential to distinguish between the formation of the underlying contract (and defects in that formation process) and page "663" the formation of the separable arbitration agreement, and to carefully consider the evidence and parties' likely intentions with regard to each agreement. http://www.kluwerarbitration.com/CommonUI/print.aspx
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iii. Consent Does Not Require Signature Disputes frequently arise as to whether one or both parties have in fact consented to a putative arbitration agreement. The most common means of indicating assent to contractual terms is by formally “signing” a written instrument. The absence of a signature is often relied on as proof that the parties did not form any binding contract, including any arbitration agreement. (541) Nonetheless, and putting aside form requirements, it is settled that a party's consent to an arbitration agreement or a written instrument containing an arbitration clause can be expressed as a substantive matter by means other than a signature. Numerous arbitral awards and national court decisions have expressly declared this. (542) As discussed below, and again putting aside form requirements, consent can also be established through oral acceptance or agreement, (543) through (signed or unsigned) letters or other communications, (544) through conduct (such as shipping or page "664" accepting goods) (545) and through acquiescence (such as failing to object to statements or actions by other parties). (546)
iv. A Signature May Not Necessarily Establish Consent: Forgery and Fraud Conversely, the mere fact that a document is signed does not necessarily establish valid consent by the putative signatory. Most obviously, a forged signature does not bind the party whose name is written on the contract: “A person whose signature was forged has never agreed to anything.” (547) Equally, if one party intentionally deceives the other regarding the nature of what he or she is signing, there is generally no assent by the latter. (548) The same objection arises in cases of mistake as to the page "665" nature of a document. (549) As discussed elsewhere, claims of forgery and equivalent types of fraud or mistake as to the nature of the underlying contract have frequently been held to impeach the arbitration clause, notwithstanding the separability doctrine. (550) Similarly, these types of claims have also been held to permit interlocutory judicial resolution under some states' versions of the competencecompetence doctrine. (551) v. Consent by Conduct and Implied Consent Most legal systems recognize that a party's assent to contractual terms may be established by conduct. (552) For example, a party's performance of its putative contractual obligations or acceptance of its counter-party's performance is often regarded as a basis for finding assent to a contract, (553) or assumption of an existing page "666" contract. (554) Courts have relied on industry practice and past dealings between the parties to imply the existence of arbitration agreements even in the absence of express written undertakings. (555) Indeed, one U.S. court has gone further http://www.kluwerarbitration.com/CommonUI/print.aspx
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and, in a well-reasoned, if expansive, decision, held that an oral contract could include an implied arbitration agreement, by reason of trade custom, even without oral reference to such an agreement: “because … arbitration is a usage of trade [in the U.S. yarn industry], the oral contracts included an agreement to arbitrate notwithstanding the fact that arbitration was not mentioned in the telephone conversation.” (556) There can be instances where a party's conduct will not comply with the written form requirements that apply to arbitration agreements under most international and national authorities. (557) Even then, principles of estoppel and/or good faith may preclude reliance on formal requirements. (558) Nonetheless, in a few jurisdictions, there is authority that substantive consent to an arbitration agreement may not ordinarily be based upon acquiescence. (559) vi. Consent Based on Exchanges of Contractual Documentation An arbitration agreement need not be contained in a single contract or document. Consent to an arbitration agreement can instead be based upon one party's proposal, in one communication, and the other party's acceptance, in another communication. This is both unremarkable and envisaged by the New York Convention and UNCITRAL Model Law, which refer expressly to the “exchange” of communications. (560) The conclusion of contracts in this manner frequently occurs page "667" in practice, particularly for more routinized transactions and in many maritime, insurance and financial settings. At the same time, disputes can readily arise when the parties' exchange of correspondence or forms contains differing provisions regarding arbitration. Such difficulties are most common when merchants have exchanged differing sales and purchase forms, leading to what is sometimes referred to as the “battle of the forms.” (561) For example, one party's purchase order may provide for international arbitration in a specified forum, while the other party's invoice may provide for litigation in a national court (or a different form of arbitration) or may say nothing about dispute resolution. If the parties are otherwise in agreement about the commercial terms of their transaction, national (or other) law must be applied to determine the legal effect of these divergent communications regarding the mode of dispute resolution. Disputes arising from exchanges of correspondence are ordinarily governed by general contract law principles, as with other disputes about formation. (562) Different legal systems adopt different approaches to “battle of forms” issues. In the United States, courts usually apply the Uniform Commercial Code (which applies generally to sales and related transactions) in “battle of the forms” cases, (563) or comparable authorities based on the Restatement (Second) Contracts. (564) Under §207(1) of the Uniform Commercial Code (“UCC”), lower U.S. courts have held that the presence of an arbitration clause in one of the party's communications, but not the other party's communication, does not necessarily prevent formation of a contract. (565) If a contract is formed by the exchange of correspondence, §2-207 of page "668" the UCC deals with additional terms contained in one party's http://www.kluwerarbitration.com/CommonUI/print.aspx
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form (but not the other party's form), providing generally that additional terms included in an expression of acceptance become part of the contract unless they either “materially alter” the offer or are objected to. (566) Sections 2-207(2) and (3) also provide that where the parties' conduct recognizes the existence of a contract, but their writings differ over material terms, the contract is limited to the provisions common to both writings. (567) In cases involving one communication that provides for arbitration, and another communication that does not, lower U.S. courts have sometimes relied on §2-207 to deny arbitration. They have done so on the theory that the arbitration clause was a material term that, under UCC §2-207(2), is not included in the parties' contract absent mutual acceptance. (568) Some U.S. lower courts have apparently taken a per se approach, reasoning that inclusion of an arbitration clause is always material, and that an arbitration clause is therefore never properly includible in the parties' contract under §2-207(2), at least absent mutual acceptance. (569) Other lower courts have taken a case-by-case approach. (570) page "669" It is not clear whether the proposal of an arbitration clause should be regarded, either per se or presumptively, as a material alteration to a proposed main agreement. The answer is likely to depend in part on (a) the terms of the arbitration clause that is proposed (i.e., a “neutral” clause is different from one that favors the proposing party); and (b) what is standard or expected in the commercial trade or market at issue. (571) More recently, some U.S. courts have emphasized that arbitration is a preferred means of dispute resolution in commercial transactions between business entities. Relying on this premise, these courts have concluded that arbitration clauses are included in the parties' contract even if a party's response to a proposed arbitration provision does not accept it. (572) Given the prevalence of arbitration, at least in international transactions, (573) there is substantial force to arguments that a proposal for arbitration in a neutral or customary seat, or pursuant to customary or commonlyused institutional rules, which is not expressly rejected (or countered with a different dispute resolution provision (574) ), forms part of the parties' agreement even absent express acceptance. Other national legal systems take different approaches to the “battle of the forms.” (575) Section 1031(2) of the German ZPO provides that an agreement in writing page "670" exists “if the arbitration agreement is contained in a document transmitted from one party to the other party … and – if no objection was raised in good time – the contents of such document are considered to be part of the contract in accordance with common usage.” (576) While also reflecting general principles of German contract law, this approach is consistent with the status of arbitration as a normal or preferred mode of international dispute resolution, which justifies presuming assent to an arbitration clause in the absence of contrary indication. (577)
In contrast, in Switzerland, merely accepting delivery, without http://www.kluwerarbitration.com/CommonUI/print.aspx
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objection, of a text proposed by one party in the required form, i.e., mere tacit acceptance, is not sufficient for the formation of a valid arbitration agreement. (578) A similar approach is adopted under the U.N. Convention on Contracts for the International Sale of Goods, which provides that arbitration clauses are material terms of a contract, whose proposal constitutes a rejection of an offer with differing terms. (579) vii. Consent by Steps in Arbitral Proceedings As noted above, a party's commencement of arbitral proceedings, or its participation without protest in such proceedings, can be the basis for a valid arbitration agreement. (580) For example, Article 16(2) of the UNCITRAL Model Law requires that any objection to an arbitral tribunal's jurisdiction be raised no later than the statement of defense, failing which the jurisdictional objection is waived. (581) Other page "671" arbitration legislation is similar, (582) as are national court decisions (583) and most institutional arbitration rules. (584) Under these authorities, a party's tacit acceptance of its counterparty's initiation of arbitration, through participation in the arbitral proceedings without raising a jurisdictional objection, can provide the basis for a valid agreement to arbitrate. A contrary approach was suggested by an English court, which required inquiry into “mistake” as to a party's obligation to arbitrate: “What the parties were both doing was conducting themselves on the basis of a mutual mistake that there had already been an [arbitration] agreement. Neither party was making an agreement. If I am wrong about that, I think that the pre-existing agreement was so fundamental to their action that if anything they did subsequently can be construed as making another agreement it is vitiated by the fundamental mutual mistake.” (585) This analysis is contrary to that reflected in the UNCITRAL Model Law (586) (and most other national legal systems). It has also been emphatically rejected by subsequent, well-reasoned English authority: “There are enough hazards in the process of obtaining and enforcing an arbitral award without the additional prospect that the respondent, having taken part all along, without a murmur of protest, may at the end argue that there never was an arbitration agreement in the first place. Nor would I wish him to be allowed to do so half way through when time has elapsed and money has been spent on pleadings, discovery and such like. The rule ought to be that if a person wishes to preserve his rights by taking part in an arbitration under protest, he must make his objection clear at the start – or page "672" at least at a very early stage. Otherwise, he ought to be bound. Practitioners have acted on that view of the law for many years.” (587)
This analysis is consistent with approaches in other jurisdictions. It http://www.kluwerarbitration.com/CommonUI/print.aspx
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also reflects notions of estoppel, as distinguished from pure contract analysis, which subject a party to an agreement to arbitrate, regardless of its subjective intentions, based on its objective conduct. (588) The least controversial example of acceptance of an arbitration agreement during the arbitral proceedings should be a party's signature on the Terms of Reference under the ICC Rules (or in similar circ*mstances). (589) Other examples also frequently occur, typically involving correspondence preceding or during an arbitration (i.e., participation in selection of arbitral tribunal, as Article 16(2) of the Model Law contemplates) (590) or failure to raise a jurisdictional objection in a timely fashion. (591) viii. Consent to Adhesion Contracts A recurrent issue in both international and domestic contexts is the validity of arbitration clauses contained in adhesion contracts, such software licenses, employee handbooks and similar contractual documentation. In practice, this documentation is frequently contained in standard terms and conditions, sometimes provided to page "673" the purchaser along with the product (so-called shrink-wrap licenses or internet downloads) or to an employee during the course of his or her employment. Disputes over the existence of an arbitration agreement in these instances often raise issues of consent, as well as questions regarding the arbitrability of claims by consumers or employees, (592) the applicability of principles of unconscionability or duress (593) and form requirements. (594) National courts are divided over the existence of valid consent in these contexts, where there is typically no signature (or comparable indication of assent) and some dispute regarding the extent of actual notice and assent by the purchaser/employee. Some courts have denied effect to arbitration provisions (typically in cases involving consumers or employees), (595) while others have reached the opposite conclusion. (596) Where consumers used products for substantial periods of time after delivery, U.S. courts have generally rejected claims that they were unaware of contractual arbitration provisions. (597) page "674" c. Indefinite Arbitration Agreements A recurrent basis for challenging the existence of an arbitration agreement is that the terms of the putative agreement are insufficiently definite. This analysis parallels the requirement applicable under many national contract law regimes that the terms of an agreement be sufficiently specific to constitute a binding obligation. (598) i. General Principles As discussed above, an international arbitration agreement will ordinarily address a number of important issues, including: (a) the seat of the arbitration; (b) the institutional or other rules applicable to http://www.kluwerarbitration.com/CommonUI/print.aspx
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the arbitration; (c) number and method of appointment of the arbitrators; (d) the language of the arbitration; and (e) the law applicable to the merits of the parties' dispute. (599) This is generally true of model arbitration clauses recommended by most arbitral institutions (600) and of clauses prepared by sophisticated companies or legal advisers. (601) Nonetheless, parties frequently agree to less detailed – and sometimes much more confused – arbitration clauses. Indeed, it is surprising how frequently parties attempt to enter into gravely defective or “pathological” arbitration agreements. (602) In a study of 237 cases submitted to the ICC in 1987, for example, only 1 clause identically followed the ICC model clause, while at least 16 clauses contained very serious defects. (603) Parties may produce such pathological results out of haste, lack of attention, inability to reach agreement on anything else, or simple ignorance. Drafting errors in the specification of the arbitral seat, institutional rules, means of selection of arbitrators and other aspects of the agreement to arbitrate often give rise to claims that particular international arbitration clauses are unenforceably page "675" (604) indefinite. Thus, it is sometimes said that, in drafting arbitration agreements, “[e]quivocation [is] the cardinal sin.” (605) That is true, and such drafting mistakes are to be avoided; nonetheless, it is also true that these errors are very often sins that are forgiven. As discussed below, most national court decisions and arbitral awards have rejected claims that international arbitration agreements are unenforceably vague or indefinite, endeavoring to give effect to any reasonable manifestation of an intention to arbitrate. This approach can be seen as a leading example of a reduced standard of proof applicable to the formation of international arbitration agreements (discussed above). (606) Most decisions have first inquired whether the parties wished to resolve their disputes by arbitration, as opposed to other means. This is consistent with the definition of an agreement to arbitrate, and the essential terms of such an agreement, as discussed above. (607) If the answer to this question is affirmative, then courts (608) page "676" and tribunals (609) generally have displayed a pronounced willingness to disregard or minimize imperfections in the parties' arbitration agreement, to imply missing terms and/or to adopt liberal interpretations in order to supply missing terms or to reconcile apparently inconsistent terms. A New Zealand decision recently expressed this general approach in cogent terms, invoking the “general principle that Courts should uphold arbitration, by striving to give effect to the intention of parties to submit disputes to arbitration, and not allow any inconsistencies or uncertainties in the wording or operation of the arbitration clause to thwart that intention.” (610) National courts in some developing countries have taken a different approach, apparently holding that any ambiguity in the arbitration agreement invalidates the clause, (611) but this attitude is unusual and in contradiction to the New York Convention's pro-arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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terms and policies. (612) Nonetheless, some clauses are so confused and defective that they cannot be read, even with an avowed goal of page "677" giving meaning to the parties' language, to manifest any mutual intention to arbitrate. (613) Consistent with general international trends, most lower U.S. court decisions have upheld indefinite or ambiguous arbitration agreements. In general, even disagreement about highly important issues, such as scope, seat and any arbitral rules or institution, have not been sufficient to render an arbitration agreement invalid in U.S. courts. (614) Despite this, a few lower U.S. court decisions have held that a particular attempted arbitration agreement was too indefinite, confused, or contradictory to be enforceable. (615) page "678" ii. Competence-Competence to Decide Indefiniteness Issues Challenges to arbitration agreements based upon their alleged indefiniteness, ambiguity, or internal inconsistency do not ordinarily implicate the separability doctrine; rather they are directed specifically at the agreement to arbitrate itself. In jurisdictions such as France and India, where jurisdictional objections are generally for initial decision by the arbitrators, these types of issues are not the subject of interlocutory judicial resolution. (616) Historically, most U.S. courts rejected arguments that challenges to the validity of arbitration agreements, based upon ambiguity or inconsistency, should be resolved by the arbitrators in the first instance, reasoning that these objections went to the existence of any valid arbitration agreement at all. (617) More recent U.S. authorities appear to treat such issues as equivalent to questions of arbitral procedure, to be determined by the arbitrators. (618) This conclusion appears correct, particularly given the limited character of the essential elements of an agreement to arbitrate, (619) leaving it appropriate for the arbitrators to resolve disputes regarding other terms of the arbitration agreement. d. Arbitration Agreements Referring to Non-Existent Arbitral Institutions, Arbitration Rules, or Arbitrators National courts and arbitral tribunals have also generally upheld the valid formation of arbitration clauses which erroneously refer to nonexistent arbitral institutions page "679" or appointing authorities. (620) As discussed below, some courts have deleted references to non-existent entities as meaningless surplusage, while others have sought to correct or supplement inaccurate references. This is another example of the pro-arbitration approach of national courts in most developed jurisdictions. (621) In one leading authority, the Hong Kong Supreme Court deleted a reference to the non-existent “rules of procedure of the International Commercial Arbitration Association” as meaningless surplusage, and enforced the remainder of the provision. (622) U.S. courts have adopted the same approach, reasoning, for example, that “an agreement on a non-existent arbitration forum is the equivalent of an agreement to arbitrate which does not specify a forum; since the http://www.kluwerarbitration.com/CommonUI/print.aspx
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parties had the intent to arbitrate even in the absence of a properly designated forum.” (623) French, (624) Swiss (625) and German (626) courts have reached similar conclusions in commercial page "680" contexts. Nonetheless, a few national court decisions have invalidated clauses based upon references to non-existent institutions, typically reasoning (unsatisfactorily) that the parties' agreement could not be fulfilled as drafted and that the court would not rewrite their contract. (627) Other courts and tribunals have construed references to nonexistent entities generously, finding ways to equate them to institutions which do exist. For example, a Swiss award construed a reference to the “international trade association organization in Zurich” (there is none) to mean arbitration under the Zurich Chamber of Commerce International Arbitration Rules. (628) A number of awards interpret references to the non-existent “Paris Chamber of Commerce” as references to the ICC in Paris, (629) and interpret references to the ICC “in” some city other than Paris as references to ICC arbitration seated in the designated city. (630) Likewise, awards page "681" under the auspices of various other arbitral institutions have also upheld inaccurate references by giving them a common-sense meaning aimed at preserving the parties' basic intention to arbitrate in a neutral, efficient manner. (631)
Finally, a related set of problems concerns arbitration clauses that select arbitral institutions that once existed, but have ceased operations; (632) that select arbitrators who once were competent, but have since become incapacitated or passed away; (633) page "682" or that select appointing authorities which refuse to fulfill the contemplated functions. (634) Again, most national courts endeavor to preserve the parties' basic agreement to arbitrate, even if the particular mechanics that they have chosen to implement this agreement cannot function or cannot function as intended. e. Internally Contradictory Arbitration Agreements A closely-related set of issues arises from internally contradictory or inconsistent arbitration provisions. These can involve clauses that select two different arbitral seats, or two different institutions or different mechanisms for selecting arbitrators, or agreements that appear to provide for both arbitration and litigation of dispute. As with vague or ambiguous clauses, (635) arbitral tribunals and national courts have generally found ways to enforce these provisions in commercial settings, either by deleting language as unnecessary or reconciling apparently inconsistent terms through liberal (and sometimes creative) interpretation. In the words of one award, “when inserting an arbitration clause in their contract the intention of the parties must be presumed to have been willing to establish an effective machinery for the settlement of disputes covered by the arbitration clause.” (636) The most frequently-encountered example of this problem is a reference to two (or more) different arbitration rules, arbitral seats or arbitral institutions. As with other categories of defective arbitration clauses, arbitral tribunals (637) page "683" and http://www.kluwerarbitration.com/CommonUI/print.aspx
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national courts (638) have sought to preserve the parties' agreement to arbitrate, either by discarding “surplusage” or permitting parties to proceed in either of two forums at their option. There are occasional decisions to the contrary, but these are typically poorly-reasoned and represent exceptions to the weight of authority. (639) A related problem arises from ill-drafted provisions that provide both an arbitration mechanism and a choice-of-court clause. (640) In this connection, U.S. courts have repeatedly held that a “New York Suable Clause” or “service of suit clause,” in each case providing a form of forum selection clause, does not conflict with or override an arbitration agreement. (641) In a recent English case, Paul Smith Ltd v. H & S Int'l Holding Inc., (642) one clause of a contract provided that any disputes “shall be adjudicated upon” under the ICC Rules of Arbitration, while another clause provided that the “Courts of page "684" England shall have exclusive jurisdiction.” The court reached the sensible, if somewhat forced, conclusion that the reference to English courts was only a designation of the courts with supervisory jurisdiction (to appoint and remove arbitrators and entertain actions to set aside awards), thereby giving full effect to the unhappily-worded arbitration clause. (643) A similar result was reached in another decision where a contract contained both an exclusive forum selection clause specifying English courts and an arbitration clause; the court interpreted the choice of forum clause as nothing more than an agreement that disputes as to the applicable law would be resolved by English courts and any other dispute was to be resolved by arbitration. (644) A French decision reached similar results in interpreting the following provision: “Jurisdiction. In case of disputes, the parties undertake to submit them to arbitration as provided for by the Fédération Française de la Publicité. In case of disputes, the Tribunal de la Seine would have exclusive jurisdiction.” (645) The court concluded that the parties had entered into a valid arbitration agreement and that the reference to a particular French court (the Tribunal de la Seine) applied only in the event that a matter was referred to judicial resolution. (646) Other national court decisions (647) and arbitral awards (648) have generally sought to give effect to page "685" clauses that refer to both arbitration and national court proceedings, typically by interpreting the reference to national court proceedings narrowly to include only review of the arbitral award or some other type of judicial assistance for the arbitral process. (649) As the foregoing examples suggest, national courts and arbitral tribunals have also generally rejected challenges to arbitration agreements in commercial contexts based on other alleged inconsistencies or contradictions. There have been a few decisions to the contrary, but they are exceptions to a generally pro-arbitration approach by national courts. (650) Instead, national courts have usually inquired whether the parties' agreement to arbitrate was their basic commitment, such that defects in a particular additional term – http://www.kluwerarbitration.com/CommonUI/print.aspx
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regarding, for example, selection of the arbitrators or specification of the arbitral seat – would not invalidate the fundamental agreement to arbitrate. (651) And, consistent with most views of the essential terms of an arbitration page "686" agreement, (652) courts and tribunals have held that the parties' agreement to arbitrate was their underlying commitment and objective, with defects in the particular modalities of this agreement not vitiating it or rendering it invalid. (653)
f. “Optional” Arbitration Agreements Parties sometimes agree to provisions that appear only to consider arbitration as an alternative or optional means of dispute resolution if future disputes arise, but not to require mandatory submission of future disputes to arbitration. Such agreements would almost always be ill-advised, because they serve virtually no meaningful purpose and often give rise to procedural confusion. A number of national courts and arbitral tribunals have considered whether arbitration can be compelled under apparently “optional” provisions of this sort. The pronounced tendency of these authorities is to treat even ambiguously-drafted provisions as “mandatory” in commercial settings, thereby either obliging parties to submit their disputes to arbitration (and to refrain from litigation of arbitrable disputes) or granting either party the option to initiate arbitration. (654) In many instances, courts reason that the arbitration clause creates an option, permitting (but not requiring) either party to initiate arbitration, and that, if the option is exercised by either party, both parties are then bound to arbitrate. (655) The basis for this conclusion is that it would make little or no commercial sense for parties to agree to optional arbitration in an entirely non-mandatory sense, leaving both parties free to decide when disputes arise whether or not they wish to arbitrate. Under the U.S. FAA, U.S. courts have generally concluded that provisions drafted in what appear to be “optional” terms constitute compulsory arbitration agreements, which permit either party to commence arbitration, which is then page "687" mandatory for (656) both parties. Nonetheless, if the language of an arbitration clause is clearly optional, some U.S. courts will conclude that the clause is not mandatory, (657) although it may even then be subject to the FAA. (658) page "688" Other international authorities are also generally reluctant to conclude that an agreement to arbitrate is only “optional.” An English court held that a clause providing “arbitration, if any, by ICC rules in London” was a mandatory arbitration agreement because the words “if any” were either surplusage or an abbreviated reference to “if any dispute arises.” (659) In another case, the statement that disputes “should be arbitrated” was sufficient to create a binding, mandatory arbitration agreement. (660) The Court reasoned that once a party exercised an option to commence arbitration (“disputes may be dealt with”), then the other party was bound by the arbitration agreement. Another English decision held that a clause providing that “disputes may be dealt with” by arbitration was a form of mandatory arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement. (661) The Court again reasoned that once a party exercised an option to commence arbitration (“disputes may be dealt with”), then the other party was bound by the arbitration agreement. Other international authorities are also generally reluctant to conclude that an agreement to arbitrate is only “optional.” (662) Japanese courts have reached this conclusion, notwithstanding the existence of ambiguous language. (663) A Canadian court similarly held that a clause providing that “the parties may refer any dispute under this agreement to arbitration” was a mandatory arbitration agreement because a binding arbitration agreement would arise whenever one party exercised its option page "689" to invoke arbitration. (664) Hong Kong courts have reached similar conclusions, requiring express language to find a non-mandatory arbitration agreement. (665) In some contexts, the option provided by an arbitration agreement is asymmetrical and one party (but not the other) is permitted to initiate arbitration. As discussed below, asymmetrical arrangements of this sort have generally been held to constitute valid arbitration agreements under national law, notwithstanding challenges to their validity based on lack of mutuality or unconscionability. (666) g. Duress Contract law in all developed jurisdictions provides that duress (or wrongful threat) vitiates a party's consent to a contract. (667) These principles apply to agreements to arbitrate, as well as other types of contracts. Establishing duress has been held in common law jurisdictions to require a showing of a wrongful act or threat compelling involuntary submission. (668) Similarly, under many civil law systems, duress requires the unlawful threat of some form of wrongful act that has a compelling effect on the threatened person. (669) In practice, page "690" most efforts to meet this standard with regard to international arbitration agreements in commercial settings have failed, (670) although there are exceptions (particularly in cases involving individuals). (671) Claims of duress have been particularly likely to fail in cases involving international arbitration agreements under the New York Convention. (672) page "691" Arbitral tribunals have also been unsympathetic to claims of duress. In one of the few awards to consider such claims, the tribunal rejected an argument that an agreement had been procured by duress, holding that the allegations “had not been proved and, in any case, would not have sufficed to deprive the said letter of its contractual value.” (673) In order to impeach the existence of an arbitration agreement, a number of authorities have held that duress must be directed specifically at the agreement to arbitrate, rather than the underlying contract. Thus, many courts have held that the wrongful procurement of the underlying contract, through duress, does not impeach a separable arbitration clause, and that claims of such http://www.kluwerarbitration.com/CommonUI/print.aspx
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duress are instead for the arbitrators to consider as an element of the merits of the dispute. (674) Nonetheless, typically citing extreme cases of hypothetical duress (i.e., contracts signed at gunpoint), some authorities conclude that claims of duress necessarily affect the existence of valid consent to the arbitration agreement itself. (675)
The foregoing decisions arise principally in cases involving the allocation of competence to decide jurisdictional objections. Nonetheless, a requirement that claims of duress specifically concern the agreement to arbitrate, as distinguished from the underlying contract, also makes sense in the context of the substantive validity of the arbitration agreement: in order to provide grounds for rejecting the existence of an arbitration agreement, duress must affect that agreement, and not merely the terms of the underlying contract. This does not contradict, but rather confirms, the proper view of the separability presumption, (676) requiring caseby-case determination whether particular instances of duress impeach the separable page "692" agreement to arbitrate (as they sometimes do, as in the gunpoint hypothetical, but usually do not, as in cases involving abuses of commercial or legal leverage). (677)
Claims that an agreement to arbitrate was not validly formed, by reason of duress, are generally governed by the law applicable to the putative arbitration agreement. (678) This will typically be the law of either the arbitral seat or the underlying contract, (679) subject to any applicable validation principle and the provisions of the New York Convention. (680) h. Lack of Notice Most legal systems require that the parties had satisfactory notice regarding the terms of their contract. Where a party can demonstrate that it was unaware of, and had no reasonable possibility to learn of, the terms of the parties' putative agreement, it can deny that there was assent to those terms. (681) Such claims can involve allegations that the contract was written in a foreign language, that the arbitration clause could not reasonably be discovered (e.g., in an annex or incorporated document), or that a party was misled about a contract's contents. (682) page "693" For the most part, both civil law (683) and common law (684) courts have been reluctant to accept claims of lack of notice in the commercial context. As one court put it, in rejecting a claim of inadequate notice: “When a competent adult, having the ability to read and understand an instrument, signs a contract, he will be held to be on notice of all the provisions contained in that contract, including an arbitration provision, and will be bound thereby.” (685) In jurisdictions where consumer arbitration agreements are enforceable (such as the United States), such claims have greater plausibility. Where claims of lack of notice concern comprehension of the terms of the contract generally, they typically do not affect the validity of the arbitration agreement (or the tribunal's competence). (686)
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page "694" 4. Incorporation of Arbitration Agreements by Reference to Other Instruments (687) International contracts frequently seek to incorporate arbitration agreements or rules from other instruments. In some cases, an agreement will incorporate an arbitration clause from another contract. In other cases, an arbitration agreement may be incorporated from trade association rules, general terms and conditions, or other non-contractual sources. Provisions incorporating arbitration clauses from other instruments give rise to issues of both formal and substantive validity. (688) For the most part, the incorporation of an arbitration agreement should present few difficulties with regard to formal validity, (689) and the real issues will concern consent and substantive validity. a. New York Convention Neither the New York Convention nor other arbitration conventions deal expressly with the subject of incorporation of arbitration clauses by reference. (690) Nonetheless, some commentators have suggested that the Convention requires a specific reference to the putative arbitration agreement (rather than an incorporation by a general reference). (691) That analysis was arguably adopted in an idiosyncratic decision of the French Cour de cassation, which held that Article II of the Convention required that: page "695" “the existence of the [arbitration] clause be mentioned in the main contract, unless there exists between the parties a longstanding business relationship which insures that they are properly aware of the written conditions normally governing their commercial relationships.” (692) This view of the Convention is misconceived (and was arguably abandoned in subsequent proceedings in the French courts (693) ): there is nothing in the text or legislative history of the Convention that would suggest an effort to prescribe the terms on which arbitration agreements could be incorporated. Rather, the matter was left to generally-applicable national law, subject to the Convention's general requirement of non-discrimination against international arbitration clauses. (694) b. National Arbitration Legislation Under most developed national arbitration regimes, including the UNCITRAL Model Law, the U.S. FAA and most European and other legislation, arbitration clauses may in principle validly be incorporated into a contract by reference from other agreements or sources. (695) The circ*mstances in which an arbitration agreement may validly be incorporated by reference are, however, subject to varying conditions, which differ depending on applicable national law. page "696" http://www.kluwerarbitration.com/CommonUI/print.aspx
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i. UNCITRAL Model Law Article 7(2) of the UNCITRAL Model Law provides that an arbitration agreement is formed through incorporation by reference where “the reference is such as to make that clause part of the contract.” (696) This provision recognizes the possibility that an arbitration agreement may be incorporated by reference, but it does not make any effort to address the question of what conditions must be satisfied to “make [the arbitration] clause part of the contract.” (697) Applying Article 7(2), most national courts have sought, in commercial settings, to give effect to both specific and general references to arbitration provisions, or contracts containing arbitration clauses, including where the language of the parties' agreement requires some “manipulation” to achieve a practical result. (698) ii. Federal Arbitration Act In the United States, it is well-settled under the FAA that an agreement may validly incorporate an arbitration clause from another document. This most frequently occurs with incorporation from a related contract (e.g., an underlying insurance policy or a charter party) (699) or a set of trade association or employment rules or page "697" general terms and conditions. (700) The text of the FAA does not expressly impose any particular conditions which must be satisfied in order to incorporate an arbitration agreement by reference. In general, although authority is divided, U.S. courts usually require less demanding evidence of the parties' intentions to incorporate an arbitration clause than many other jurisdictions. (701) Lower U.S. courts have taken divergent approaches to the subject of incorporation (paralleling the diversity of approaches in other jurisdictions (702) ). Some lower U.S. courts have held that an arbitration clause must be “clearly identified” in the parties' contractual documentation in order to be validly incorporated. (703) page "698" Other U.S. courts have given effect to incorporated arbitration provisions based only on general references to a more extensive document or agreement (which themselves contain within them an arbitration provision). (704) Some U.S. courts have also given close attention to the text of the arbitration clause that is to be incorporated, as well as the alleged agreement incorporating that clause, in an effort to ascertain whether the parties intended such an incorporation. (705) U.S. courts have also permitted “prospective” incorporation of procedures which did not exist at the time that the incorporating language was drafted, (706) and page "699" extension of an incorporated arbitration clause to non-signatory third parties. (707) Similarly, U.S. courts have given effect to arbitration clauses incorporated from institutional rules and by-laws. (708) U.S. courts have generally rejected arguments that an incorporated arbitration agreement does not satisfy formal “written” form requirements. (709) iii. Other National Arbitration Regimes
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In most other developed jurisdictions, an express and specific reference to an arbitration clause in another instrument will operate to incorporate that provision and give rise to a valid arbitration agreement. (710) The more difficult questions arise, however, when the parties do not use an express, specific reference and instead merely incorporate another document or agreement generally, without referring specifically to an arbitration provision contained within that instrument. In these circ*mstances, the question is whether the parties intended to incorporate the arbitration clause contained in one instrument into another agreement. In addressing this issue, there is little apparent uniformity among different national legal regimes. Some authorities reject arguments that specific reference to an arbitration provision is necessary to incorporate it, instead finding a valid arbitration agreement page "700" based only on a general reference to another document containing an arbitration clause. (711) In contrast, a few national court decisions have refused to give effect to a purportedly incorporated arbitration clause, where it is based only on a general reference to another document containing an arbitration provision, without specific reference to or mention of the arbitration provision itself. (712) These decisions often rest on the arguments that an arbitration clause is a separable agreement (and therefore not necessarily encompassed by a general reference to the underlying contract) and that clear evidence of an intention to relinquish access to judicial remedies should be required. (713) These rationales are largely mistaken. As discussed above, the status of international arbitration as a neutral, efficient and expert means of international dispute resolution precludes arguments that special clarity should be required in an arbitration agreement. (714) Nor does the separability presumption, which serves very different functions, (715) provide a sound basis for resisting incorporation by means of a general reference: rather, the parties' reference to an instrument that contains an arbitration clause should be interpreted to include that provision, just as it includes choice-of-law and similar provisions that have been developed to support the underlying commercial provisions in question. page "701" Other national courts are more willing to interpret a general reference to another contract or instrument (without specifically referring to any arbitration provision) as incorporating an arbitration clause contained in the latter instrument. (716) Nonetheless, it remains necessary to consider general references to other documents carefully, in order to ascertain the parties' intentions with regard to the incorporation of an arbitration clause. In particular, given the specific functions and purposes of arbitration clauses in different contractual and commercial settings, it may in some cases not make commercial sense to incorporate an arbitration agreement from one instrument into another. (717) In cases involving a general reference to another instrument, one of whose provisions is an arbitration clause, national courts will typically examine the nature of the two contracts, the extent to which both parties were or should have been aware of the arbitration clause, the sophistication of both parties, custom and trade usage, the clarity of the reference and the extent to which incorporation of the arbitration clause would produce a workable dispute resolution mechanism. For example, some courts have denied effect to http://www.kluwerarbitration.com/CommonUI/print.aspx
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“unusual provisions” which a party page "702" would not reasonably anticipated, (718) while giving effect to arbitration provisions contained in standard terms in transactions between businessmen (719) and to provisions where parties had dealt frequently with one another in the past. (720) Other national courts have held that, if a party was concerned about the contents of an instrument whose terms it agreed generally to incorporate, then it was free to investigate and raise objections. (721) It is possible under some national laws to incorporate arbitration agreements from one party's general conditions of sale or business. Most jurisdictions impose safeguards in these circ*mstances, requiring that the general conditions be in a language understood by the recipient (722) and that the reference to the agreement to arbitrate be sufficiently clear. (723) It is clear, in any event, that there is no requirement that a party be a signatory or party to the agreement or instrument from which the relevant arbitration clause is incorporated. (724) It is also possible to incorporate an page "703" arbitration clause in a multi-step process. (725) 5. Incorporation of Institutional Arbitration Rules It is, of course, settled law that an arbitration agreement may validly incorporate institutional arbitration rules. (726) Indeed, that is what institutional rules are intended for, and a substantial proportion of all international arbitrations are conducted pursuant to institutional rules that are incorporated by reference. Issues relating to the interpretation of clauses incorporating institutional rules are discussed below. (727) It is also settled that an agreement on institutional arbitration, pursuant to specified institutional rules, is a material term of the parties' agreement to arbitrate, whose validity is guaranteed by Article II of the New York Convention. (728) A few idiosyncratic national court decisions have refused to give effect to institutional arbitration agreements, holding that such agreements invalidly exclude local procedural rules. (729) These decisions are not only out-of-step with the overwhelming weight of contemporary authority, but also constitute violations of Contracting States' obligations under the New York Convention to give effect to all material terms of international arbitration agreements. page "704"
411 New York Convention, Arts. II(1), II(3) (emphasis added). 412 UNCITRAL Model Law, Arts. 8(1) & 7(1) (emphasis added). 413 European Convention, Art. V(1). 414 See infra pp. 661-662; Republic of Ecuador v. ChevronTexaco
Corp., 376 F.Supp.2d 334 (S.D.N.Y. 2005) (signature of arbitration agreement is “customary implementation of an agreement to arbitrate”). 415 See, e.g., Restatement (Second) Contracts §18-19 (1981) http://www.kluwerarbitration.com/CommonUI/print.aspx
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(“The manifestation of assent may be made wholly or partly by written or spoken words or by other acts or by failure to act.”); Ibeto Petrochem. Indus., Ltd v. M/T Beffen, 412 F.Supp.2d 285, 291 (S.D.N.Y. 2005) (exchange of emails sufficient to establish valid arbitration agreement); Orbis, Inc. v. Objectwin Tech., Inc., 2007 WL 2746958, at *1, *6 (W.D. Va. 2007) (exchange of emails and faxes sufficient to establish a valid arbitration agreement); Bermuth Lines Ltd v. High Seas Shipping Ltd [2006] 1 Lloyd's Rep. 537 (Q.B.) (arbitration agreement may be established by magnetic and electronic recording, such as tape or email and other forms of computerized records); see supra pp. 587 et seq. 416 Some commentators have suggested that disputes over the formation of arbitration agreements are rare. A. van den Berg, The New York Arbitration Convention of 1958 156 (1981) (“these matter [i.e., disputes over formation] will rarely occur in practice”). In fact, formation disputes are common in practical experience (as well as important analytically). 417 This principle is made explicit in the U.S. FAA, which provides 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.” U.S. FAA, 9 U.S.C. §2 (emphasis added); supra pp. 213-215, 485-491. 418 Fisser v. Int'l Bank, 282 F.2d 231, 233 (2d Cir. 1960). See also E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, 269 F.3d 187 (3d Cir. 2001); Thomson-CSF, SA v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995); McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir. 1994) (federal common law rules for formation of arbitration agreements “dovetail[] precisely with general principles of contract law” and “the judicial task in construing a contract is to give effect to the mutual intentions of the parties”); Kresock v. Bankers Trust Co., 21 F.3d 176, 178 (7th Cir. 1994) (“An agreement to arbitrate is treated like any other contract”); Invista N. Am., Sarl v. Rhodia Polyamide Intermediates SAS, 503 F.Supp.2d 195, 201 (D.D.C. 2007) (“Courts have recognized that a nonsignatory to an arbitration agreement may be bound to that agreement under common law principles of contract and agency law.”); Republic of Ecuador v. ChevronTexaco Corp., 376 F.Supp.2d 334, 353 (S.D.N.Y. 2005) (“parties to an arbitration agreement are ‘determined under federal law, which comprises generally accepted principles of contract law’”); Heller v. Deutsche Bank AG, 2005 WL 665052, at *4 (E.D.Pa. 2005); Oriental Comm. and Shipping Co. (U.K.) Ltd v. Rosseel, NV, 609 F.Supp. 75 (S.D.N.Y. 1985) (“Ordinary contract and agency principles determine which parties are bound by an arbitration agreement, and parties can become contractually bound absent their signatures.”); supra pp. 488-490. 419 See, e.g., Judgment of 8 July 2003, DFT 129 III 675 (Swiss Federal Tribunal); Judgment of 21 November 2003, DFT 130 III 66 (Swiss Federal Tribunal); Judgment of 24 March 2000, 21 ASA Bull. 781, 790-795 (Swiss Federal Tribunal) (2003); Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 922 (Swiss Federal Tribunal), Note, Tschanz, at 926; Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶¶28, 49 (2000); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶383 (2006). 420 See, e.g., R. Merkin, Arbitration Law ¶5.10 (2004 & Update 2007); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶2-096 (22d ed. 2003); A. Tweeddale & K. Tweeddale, Arbitration of Commercial Disputes – International and English Law and Practice ¶5.66 (2005) (“An arbitration agreement must be proved in the same http://www.kluwerarbitration.com/CommonUI/print.aspx
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way as any other contract.”). 421 See, e.g., Geimer, in R. Zöller (ed.), Zivilprozessordnung §1029, ¶18 (26th ed. 2007); Judgment of 15 May 2006, 2006 NJOZ 2836, 2838 (Oberlandesgericht Stuttgart); Judgment of 19 July 2004, 2004 SchiedsVZ 259, 260 (German Bundesgerichtshof); Judgment of 12 January 2006, 2006 SchiedsVZ 101 (German Bundesgerichtshof); Partial Award in DIS Case 438/04 (25 January 2005), 2005 SchiedsVZ 166, 167. 422 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶476 (1999) (“The principles of interpretation applied to arbitration agreements are the same as the general principle frequently adopted with respect to all contracts.”). 423 See, e.g., Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994); Boart Sweden AB v. Nya Stromnes AB, 41 B.L.R. 295, ¶4 (Ontario S.Ct. 1988). 424 See supra pp. 504-514, 558-559, 561, 568-569 & infra pp. 1264-1270, 1368-1376, 1508-1513, 1576-1582, 1765-1770, 25562560. Similar approaches are taken with regard to issues of substantive validity and interpretation. See infra pp. 707, 1063-1066. 425 See supra pp. 426 et seq. 426 See supra pp. 451-454. 427 See supra pp. 425-516 (especially 514-516). 428 See supra pp. 370-376, 383-384, 385-386, 386-387, 387-389, 395, 396-402, and infra pp. 661, 944-948. 429 See infra pp. 851 et seq. 430 See infra pp. 877 et seq. (especially 930-948, 960-963). That is particularly true in the United States. See Ware, Arbitration Law's Separability Doctrine After Buckeye Check Cashing Inc. v. Cardegna, 8 U. Nev. L.J. 107, 114 (“First Options should be read as holding that courts, not arbitrators, rule on assent and agency arguments [and] that the separability doctrine does not apply to contract-formation arguments”). 431 These form requirements are discussed above. See supra pp. 580 et seq. 432 See supra pp. 589-600. 433 See infra pp. 655-694; Bothell v. Hitachi Zosen Corp., 97 F.Supp.2d 1048, 1051-53 (W.D. Wash. 2000) (“in a series of documents, where the words used to refer to a proposed arbitration agreement are so vague as to be meaningless and no further explanation is provided, either by attachment, discussion, or otherwise, the totality of the documents exchanged between the parties does not constitute a valid ‘arbitration agreement.’#”). See also A. van den Berg, The New York Arbitration Convention of 1958 177 (1981) (“the form of the arbitration agreement does not concern questions concerning its formation”). 434 See supra p. 582. 435 See authorities cited infra pp. 645-655. 436 See infra pp. 645-647. 437 See infra pp. 647-648. 438 See infra pp. 648-649. 439 See infra pp. 1066-1079. 440 See infra pp. 1066-1078. 441 See, e.g., Final Award in ICC Case No. 7453, XXII Y.B. Comm. Arb. 107 (1997); Award in ICC Case No. 4392, 110 J.D.I. (Clunet) http://www.kluwerarbitration.com/CommonUI/print.aspx
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907 (1983). 442 Award in Final ICC Case No. 7453, XXII Y.B. Comm. Arb. 107 (1997) (emphasis added). 443 See, e.g., Judgment of 30 March 1993, Nokia Maillefer SA v. Mazzer, XXI Y.B. Comm. Arb. 681 (Vaud Cantonal Court of Appeals) (1993); Lepera v. ITT Corp., 1997 WL 535165 (E.D. Pa. 1997) (requiring, based on obvious misreading of First Options, “clear and unmistakable evidence of agreement to arbitrate” and declaring that “the threshold for clarity of agreement to arbitrate is greater than with respect to other contractual terms”; these comments are plainly wrong under the U.S. FAA); Ins. Co. of N. Am. v. ABB Power Generation, Inc., 925 F.Supp. 1053 (S.D.N.Y. 1996) (“courts resolve ambiguities against finding the existence of an agreement to arbitrate”); Judgment of 6 October 1998, Delta Cereales España SL v. Barredo Hermanos SA, XXVI Y.B. Comm. Arb. 854 (Spanish Tribunal Supremo) (2001) (“we certainly cannot deem beyond any doubt that the parties had the clear and unambiguous intention to include in their contract the arbitral clause”) (emphasis added); Judgment of 20 January 2006, C04/174HR (Netherlands Hoge Raad) (requiring that agreement to arbitrate be clear and unequivocal and affirming annulment of arbitral award binding nonsignatory affiliates); Judgment of 10 March 2000, Krauss Maffei Verfahrenstechnik GmbH v. Bristol Myers Squibb, XXVI Y.B. Comm. Arb. 816 (Italian Corte di Cassazione) (2001) (requiring “the unambiguous intention of both parties to refer disputes … to foreign arbitrators” and “the parties must sign the arbitral clause and … their unequivocal intention to refer the dispute to arbitrators must appear unambiguously”; holding that no valid arbitration agreement was formed because the buyer accepted the seller's written terms without specific reference to the arbitration clause) (emphasis added). As discussed below, a few U.S. states apply heightened requirements of proof to the formation of arbitration agreements. See infra p. 650. These requirements are generally preempted by the FAA. 444 Judgment of 30 March 1993, Nokia Maillefer SA v. Mazzer, XXI
Y.B. Comm. Arb. 681, 682 (Vaud Cantonal Court of Appeals 1993) (1996) (“the common intent of the parties to refer their dispute to arbitration was not evinced by their exchange of ambiguous indications as to the settlement of disputes”). See also E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶591 (1999) (“This is the debate between consensualism and formalism”). 445 Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 923 (Swiss Federal Tribunal) (“The judge would not find it too easy to decide that an arbitration agreement has been agreed, if this were in dispute. However, if it is established that an arbitration agreement exists, there is no reason to interpret that clause restrictively. The judge follows the principle that in deciding to submit their disputes to arbitration, the parties intended to give the arbitral tribunal a wide jurisdiction.”). As noted below, a few authorities have (wrongly) adopted the opposite view, holding that a presumption favoring the existence of an arbitration agreement should initially be applied, but that the agreement should be interpreted narrowly. See infra p. 1079 n. 86.
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446 As discussed above, rights of judicial access are deemed
fundamental in most legal systems. See supra pp. 576-580. 447 See supra pp. 583-587. 448 See supra pp. 577-580, 617-619. 449 See supra pp. 65-71. 450 See supra pp. 71-81. 451 See, e.g., All-Union Foreign Trade Assoc. Sojuznefteexport v. JOC Oil, Ltd, Award in USSR Chamber of Commerce and Industry(9 July 1984), XVIII Y.B. Comm. Arb. 92, 97-98 (1993); Award in ICC Case No. 4381, 113 J.D.I. (Clunet) 1102, 1104 (1986). 452 See, e.g., Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 722 (9th Cir. 1999) (“The clear weight of authority holds that the most minimal indication of the parties' intent to arbitrate must be given full effect, especially in international disputes.”); Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469 (9th Cir. 1991) (“the most minimal indication of the parties' intent to arbitrate must be given full effect”); Boston Telecomm. Group, Inc. v. Deloitte Touche Tohmatsu, 278 F.Supp.2d 1041, 1046 (N.D. Cal. 2003) (“Especially in the case of international arbitration, courts are to give full effect to the most minimal indication of the parties' intent to arbitrate.”); PPG Indus., Inc. v. Pilkington plc, 825 F.Supp. 1465, 1478 (D. Ariz. 1993) (same); Filanto SpA v. Chilewich Int'l Corp., 789 F.Supp. 1229 (S.D.N.Y. 1992). 453 Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 478 (9th Cir. 1991) (emphasis added). 454 One commentator suggests that an arbitration agreement which satisfies the New York Convention's written form requirement should be regarded as presumptively reflecting a meeting of the parties' minds. A. van den Berg, The New York Arbitration Convention of 1958 177 (1981) (“if an arbitration agreement conforms to the requirements of Article II(2), there exists a strong presumption that there is a ‘meeting of the minds’ between the parties … if Article II(2) of the Convention is complied with, the parties can be deemed to have consented to arbitration, except where lack of consent can be proven.”). It is difficult, however, to see how the form of a disputed agreement bears on the parties' intentions to be bound by that form. 455 Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶50 (2000). See also Karrer & Kaelin-Nauer, Is There A Favor Iurisdictionis Arbitri? – Standards of Review of Arbitral Jurisdiction Decisions in Switzerland, 13(3) J. Int'l Arb. 31 (1996). 456 See supra pp. 92-101, 428-430. 457 See supra pp. 497-504, 550-552, 557-558; Restatement (Second) Contracts §203 (1981) (“In the interpretation of a promise or agreement … an interpretation which gives a reasonable, lawful, and effective meaning to all the terms is preferred to an interpretation which leaves a part unreasonable, unlawful, or of no effect”); United States v. P & D Coal Mining Co., 358 F.2d 619 (6th Cir. 1966) (“Where the language contained in an agreement is contradictory, obscure, or ambiguous, or where the meaning of an agreement is doubtful, so that the contract is fairly susceptible of two constructions, one of which makes it fair, customary, and such as prudent men would naturally enter into … [that] interpretation must be preferred”); French Civil Code, Art. 1157 (“Where a clause admits two meanings, one shall rather understand it in the one with which it http://www.kluwerarbitration.com/CommonUI/print.aspx
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may have some effect, than in the meaning with which it could not produce any.”); Heinrichs, in O. Palandt, Bürgerliches Gesetzbuch §140, ¶1 (66th ed. 2007). 458 See, e.g., Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469 (9th Cir. 1991). 459 In re Kellogg Brown & Root Inc., 166 S.W.3d 732 (Tex. 2005) (quoting Bridas SAPIC v. Gov't of Turkmenistan, 345 F.3d 347, 354 n.4 (5th Cir. 2003)) (emphasis added). See also supra pp. 206-207, 490-494, 571-572; EEOC v. Waffle House, Inc., 534 U.S. 279, 293 (U.S. S.Ct. 2002) (“The FAA directs courts to place arbitration agreements on equal footing with contracts …”); U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., 241 F.3d 135 (2d Cir. 2001) (“courts must treat agreements to arbitrate like any other contract … A contract is formed when there is a meeting of the minds of the parties on the essential terms of an agreement.”); Kresock v. Bankers Trust Co., 21 F.3d 176, 178 (7th Cir. 1994) (“An agreement to arbitrate is treated like any other contract”); Singer v. Smith Barney Shearson, 926 F.Supp. 183, 187 (S.D. Fla. 1996) (“arbitration agreements are no more than contracts to which the usual rules of contract interpretation apply”); Judgment of 14 October 2003, XXX Y.B. Comm. Arb. 627 (Spanish Tribunal Supremo) (2005) (no “express and conclusive waiver” of access to Spanish courts required for validity of arbitration agreement). 460 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶481 (1999). At least as so phrased, this analysis appears to conflate questions of interpreting the scope of any arbitration clause and questions of the existence/validity of an arbitration agreement. 461 See infra pp. 1067-1072; Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (U.S. S.Ct. 1985) (“any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration”). 462 See, e.g., Chevron U.S.A., Inc. v. Consolidated Edison Co., 872 F.2d 534, 537 (2d Cir. 1989); Heinhuis v. Venture Assoc. Inc., 1991 U.S. Dist. LEXIS 8190 (E.D. La. 1991) (refusing to apply presumption of arbitrability to question “whether the arbitration clause is part of the parties' contractual agreement at all”); DeMarco Cal. Fabrics, Inc. v. Nygard Int'l, Ltd, 1990 U.S. Dist. LEXIS 3842 (S.D.N.Y. 1990) (“the federal policy favoring arbitration is most applicable in determining the scope of arbitration agreements, rather than whether an arbitration agreement actually exists”); Astor Chocolate Corp. v. Mikroverk, Ltd, 704 F.Supp. 30, 33 n.4 (E.D.N.Y. 1989) (pro-arbitration “policy argument would seem inapplicable” to dispute concerning “existence of the arbitration clause”). 463 See authorities cited infra p. 650 n. 466. 464 See authorities cited supra p. 647 n. 452. 465 See authorities cited supra p. 648 n. 459. 466 Matter of Doughboy Indus., 233 N.Y.S.2d 488 (N.Y. App. Div. 1962). See also Schubtex, Inc. v. Allen Snyder, Inc., 424 N.Y.S.2d 133 (N.Y. 1979) (“a litigant ought not to be forced into arbitration and, thus, denied the procedural and substantive rights otherwise available in a judicial forum, absent evidence of an express intention to be so bound”); Computer Assoc. Int'l Inc. v. Com-Tech Assoc., 658 N.Y.S.2d 322 (N.Y. App. Div. 1997) (a party who agrees to arbitration “waives in large part many of his normal rights under the procedural and substantive law of the State, and it would be unfair to infer such a significant waiver on the basis of anything less than a clear indication of intent”); Manes v. Dallas Baptist College, 638 http://www.kluwerarbitration.com/CommonUI/print.aspx
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S.W.2d 143, 145 (Ct. App. Dallas 1982) (“The arbitration agreement need not be in any particular form, but no party is under any duty to arbitrate unless by clear language he has so agreed, and it must clearly appear that the intention of the parties was to submit their dispute to the arbitrators and to be bound by that decision.”); Marlene Indus. Corp. v. Carnac Textiles, Inc., 408 N.Y.S.2d 410, 413 (N.Y. 1978) (no arbitration “in the absence of an express unequivocal agreement to that effect”); Riverdale Fabrics Corp. v. Tillinghast-Stiles Co., 306 N.Y. 288 (N.Y. 1954) (“The intent must be clear to render arbitration the exclusive remedy”). See also Lepera v. ITT Corp., 1997 WL 535165 (E.D. Pa. 1997); Ins. Co. of N. Am. v. ABB Power Generation, Inc., 925 F.Supp. 1053 (S.D.N.Y. 1996) (“courts resolve ambiguities against finding the existence of an agreement to arbitrate”). 467 Massey v. Galvan, 822 S.W.2d 309, 316 (Tex. App. 1992) (emphasis added). 468 See, e.g., Nat'l Union Fire Ins. Co. of Pittsburgh v. Belco Petroleum Corp., 88 F.3d 129 (2d Cir. 1996); Progressive Cas. Ins. Co. v. CA Reaseguradora Nacional de Venezuela, 991 F.2d 42, 46, 48 (2d Cir. 1993) (“the rule set forth in Marlene Industries is preempted”); Erickson v. Aetna Health Plans of Cal., 84 Cal.Rptr.2d 76 (Cal.App. 1999) (“a court cannot apply a state law requirement that an arbitration clause be ‘express’ or ‘unequivocal’ if state law requires that non-arbitration agreements be proven only by a mere preponderance of the evidence.”); Singer v. Jefferies & Co., 571 N.Y.S.2d 680, 683 (N.Y. 1991); A/S J. Ludwig Mowinckels Rederi v. Dow Chem. Co., 255 N.E. 774, 776 (N.Y. 1970). This is consistent with the Supreme Court's requirement that state law impose only generally-applicable, non-discriminatory requirements on arbitration agreements. See Perry v. Thomas, 482 U.S. 483 (U.S. S.Ct. 1987); supra pp. 136-139, 487. 469 See supra pp. 491-497, 571. 470 514 U.S. 938 (U.S. S.Ct. 1995). 471 See infra pp. 913-916; 514 U.S. at 942-43. See alsoGreen Tree
Fin. Corp. v. Bazzle, 539 U.S. 444 (U.S. S.Ct. 2003). As discussed below, the Supreme Court's formulation refers to the U.S. terms for an arbitral tribunal's competence-competence to finally decide jurisdictional objections. See infra pp. 913 et seq. 472 539 U.S. at 452-53 (concurring). See, e.g., Lepera v. ITT Corp., 1997 WL 535165 (E.D. Pa. 1997) (requiring, based on obvious misreading of First Options, “clear and unmistakable evidence of agreement to arbitrate” and declaring that “the threshold for clarity of agreement to arbitrate is greater than with respect to other contractual terms”). 473 See supra pp. 133-139, 206-207, 485-487. 474 U.S. FAA, 9 U.S.C. §2 (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”) (emphasis added); Perry v. Thomas, 482 U.S. 483, 492 n.9 (U.S. S.Ct. 1987) (“[S]tate law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally. A state-law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with this requirement of [9 U.S.C.] §2.… A court may not, then, in assessing the rights of litigants to enforce an arbitration agreement, construe that agreement in a manner http://www.kluwerarbitration.com/CommonUI/print.aspx
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different from that in which it otherwise construes nonarbitration agreements under state law. Nor may a court rely on the uniqueness of an agreement to arbitrate as a basis for a state-law holding that enforcement would be unconscionable, for this would enable the court to effect what we hold today the state legislature cannot”); Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265 (U.S. S.Ct. 1995) (“States may regulate contracts, including arbitration clauses, under general contract law principles and they may invalidate an arbitration clause ‘upon such grounds as exist at law or in equity for the revocation of any contract.’”); supra pp. 136-139, 487. 475 See supra pp. 490-491. 476 See 514 U.S. at 942-43; infra pp. 914-916. 477 See supra pp. 649-650 & infra pp. 1067-1072. 478 See supra pp. 493-497. U.S. lower court authority is to the same effect. See, e.g., U.S.Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., 241 F.3d 135 (2d Cir. 2001) (“Unlike First Options, the instant case required the district court to determine whether the parties formed an ‘ad hoc’ agreement to arbitrate whether they had formed a charter party,” rather than an agreement to arbitrate jurisdictional disputes); Abram Landau Real Estate v. Bevona, 123 F.3d 69, 74 (2d Cir. 1997) (“We read First Options as a clarification of the type of evidence needed to submit to arbitration a dispute regarding whether parties ever entered into a valid arbitration agreement at all,” not as a requirement applicable to all questions regarding arbitrability, such as whether the arbitration agreement has been terminated or has expired); Rocket Jewelry Box, Inc. v. Quality Int'l Packaging, Ltd, 2002 WL 987280, at *4 (S.D.N.Y. 2002) (refusing to extend First Options' “clear and unmistakable evidence” test to all questions of arbitrability, and instead holding that this test is limited to the question whether the parties intended to arbitrate jurisdictional issues); Consol. Rail Corp. v. Metro. Transp. Auth., 1996 WL 137587, at *5-8 (S.D.N.Y. 1994) (First Options' “clear and unmistakable” evidence test only pertains to evidence of an agreement to arbitrate jurisdictional issues). 479 See supra pp. 92-101, 428-430. 480 See supra pp. 504-514, 530-535, 558-559, 561, 568-569, 621622 & infra pp. 1264-1270, 1368-1376, 1508-1513, 1576-1582, 1765-1770, 2556-2560. 481 In fact, a stronger argument for reduced standards of proof can be made with regard to international arbitration agreements under the U.S. FAA. As discussed elsewhere, the weight of authority correctly holds that the formation of international arbitration agreements under the New York Convention and the second chapter of the FAA is governed by federal common law rules, formulated specifically for arbitration agreements. See supra pp. 493-497. These federal common law rules should arguably impose a lower standard of proof for establishing the existence of international arbitration agreements than for other contracts. For the reasons outlined elsewhere, the heightened “pro-arbitration” policies applicable under the New York Convention would support this sort of federal common law rule of contract formation, facilitating the entry into international arbitration agreements. See infra pp. 653-655. 482 See supra pp. 647-648. 483 See infra pp. 675-679. 484 See infra pp. 683-687. 485 See infra pp. 679-683. 486 A substantial argument can be made that application of a http://www.kluwerarbitration.com/CommonUI/print.aspx
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heightened standard of proof for the formation of international arbitration agreements is contrary to the New York Convention's (and UNCITRAL Model Law's) requirements that Contracting States not subject international arbitration agreements to national contract law rules that single such agreements out for unfavorable or idiosyncratic treatment. See supra pp. 504-516, 530-535, 558-559, 621-622. Doing so would be contrary to the basic objectives of the Convention and to the premise, in Article II(3) and Article V(1)(a), that generally-applicable contract rules would be applied to international arbitration agreements. As discussed above, similar analysis is also adopted in the domestic context under the U.S. FAA. See supra pp. 487-491. 487 See supra pp. 90-109, 109-144, 202-207, 564-574. 488 See supra pp. 64-90. 489 See supra pp. 72-90. 490 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶481 (1999). See supra pp. 648-649. 491 See supra pp. 72-90. Attention should also focus on the particular trade or market in which the parties operate. In particular industries, arbitration is very clearly the customary means of resolving commercial disputes between sophisticated businesses, and the arguments in favor of a pro-arbitration presumption are accordingly more compelling. See, e.g., In re Cotton Yarn Antitrust Litigation, 2007 WL 2965586 (4th Cir. 2007) (citing fact that arbitration was “usage of trade” in textile industry); Std. Bent Glass Corp. v. Glassrobots Oy, 333 F.3d 440, 448 (3d Cir. 2003) (“arbitration provision accords with [glass] industry norms”); Aceros Prefabricados, SA v. TradeArbed, Inc., 282 F.3d 92 (2d Cir. 2002) (“arbitration is standard practice within the steel industry”); Judgment of 18 March 1983, Société Quémener et Fils v. Société Van Dijk France, 1983 Rev. arb. 491 (Paris Cour d'appel) (citing fact that parties routinely included arbitration clauses in repeated transactions). 492 See infra pp. 655-687. 493 See supra pp. 28-32, 71-74, 88-90. 494 United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (U.S. S.Ct. 1960). See also supra pp. 12-13, 643-644 & infra pp. 911-914, 1014-1018, 1020-1031. 495 See supra pp. 12-13, 64-68, 643-644. 496 These are discussed above. See supra pp. 211-213. 497 These are also discussed above. See supra pp. 213-215. 498 See supra pp. 215-254. 499 See also supra pp. 217, 252-254. 500 See, e.g., CNA Reins. Co., Ltd v. Trustmark Ins. Co., 2001 WL 648948, at *6 (N.D. Ill. 2001) (phrase “arbitration clause” in a contract is sufficient to establish the parties' agreement to arbitrate); Oriental Commercial and Shipping Co. (U.K.) Ltd v. Rosseel, NV, 609 F.Supp. 75 (S.D.N.Y. 1985) (upholding clause providing: “Arbitration; if required in New York City.”); Bauer Int'l Corp. v. Etablissem*nts Soules & Cie., 303 N.Y.S.2d 884 (N.Y. 1969) (upholding clause providing: “Arbitration in New York”); Schulze & Burch Biscuit Co. v. Tree Top, Inc., 831 F.2d 709, 715-16 (7th Cir. 1987) (upholding clause providing: “All disputes under this transaction shall be arbitrated in the usual manner”); Judgment of 21 November 1983, X Y.B. Comm. Arb. 478 (Italian Corte di Cassazione) (1985) (upholding clause providing: “Arbitration. In http://www.kluwerarbitration.com/CommonUI/print.aspx
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London if necessary”); Judgment of 3 February 1990, Della Sanara Kustvaart-Bevrachting & Overslagbedrijf BV v. Fallimento Cap. Giovanni Coppola Srl, XVII Y.B. Comm. Arb. 542 (Genoa Corte di Appello) (1992) (upholding clause providing: “General average/arbitration, if any, in London in the usual manner); Judgment of 24 January 2003, XXX Y.B. Comm. Arb. 509 (Hanseatisches Oberlandesgericht Hamburg) (2005) (upholding arbitration clause providing “Arbitration: Hamburg”; relying on trade usages to uphold award by Deutsche Kaffee Verband (coffee trade association)); SwissBank Corp. v. Novorossiysk Shipping [1995] 1 Lloyd's Rep. 202 (Q.B.) (upholding clause providing: “arbitration in London – English law to apply”); Hobbs, Padgett & Co. (Reins.) Ltd v. J.C. Kirkland Ltd [1969] 2 Lloyd's Rep. 547 (English Court of Appeal) (upholding clause providing: “Suitable arbitration clause”). See also Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶¶28 et seq. (2000). 501 See supra pp. 215-216, 217 et seq. 502 See supra pp. 172-180. 503 See infra pp. 659-661, 675-687. See alsoBallas v. Mann, 82 N.Y.S.2d 426, 446 (N.Y. S.Ct. 1948) (“a proper construction of the contract is that the intention to arbitrate is the dominant intention, the personality of the arbitrator being an auxiliary incident rather than the essence, and that frustration of that dominant intention is not to be permitted merely because the precise method of accomplishing that intent has become impossible”); H. Fasching, Lehrbuch des österreichischen Zivilprozeβrechts ¶2180 (1990); J.-P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶¶280-281 (2d ed. 2002) (arbitration agreement to specify the legal relationship from which a dispute may arise and the submission of the dispute to an arbitral tribunal). 504 See supra pp. 95-97, 202-205, 567-569 & infra pp. 1265-1267, 1749-1751. 505 See supra pp. 202-205, 567-568, 655-657 & infra pp. 12641270, 1351, 1368-1376, 1690-1691, 1749-1751, 1765-1770, 18791880, 1946-1949, 2073-2076, 2403-2417, 2514, 2556-2560. For example, the provisions of an agreement to arbitrate regarding the arbitral seat, the number or identities of the arbitrators, the scope of the arbitration obligation and the arbitral procedures are all critical aspects of the agreement. It would make no sense to suggest that the arbitration agreement may be recognized, but that these various elements be partially or entirely ignored. Although parties need not agree on such elements in order to form a valid agreement to arbitrate, where they do so, their agreement as to each of these matters must be recognized and given effect in accordance with the Convention. 506 See authorities cited supra p. 656 n. 500 & infra pp. 659-661. 507 Judgment of 21 November 1983, X Y.B. Comm. Arb. 478 (Italian Corte di Cassazione) (1985). See also Judgment of 16 November 2000, Conceria Madera srl v. Fortstar Leather Ltd, XXVII Y.B. Comm. Arb. 504 (Italian Corte di Cassazione) (2002) (“In the present system, the failure to indicate the seat of the arbitration is not a ground for the invalidity or inoperativity of a domestic arbitration clause. The seat can be indicated later by the arbitrators …”). 508 Hobbs, Padgett & Co. (Reins.) Ltd v. J.C. Kirkland Ltd [1969] 2 Lloyd's Rep. 547 (English Court of Appeal). 509 See, e.g., Judgment of 8 July 2003, DFT 129 III 675, 681 (Swiss Federal Tribunal) (“An imprecise or inaccurate designation of http://www.kluwerarbitration.com/CommonUI/print.aspx
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the arbitral tribunal does not result in the invalidity of the arbitration clause, as long as it is possible to establish by way of interpretation, which arbitral tribunal the parties intended to designate. For instance, it was assumed that the parties intended the clauses ‘Swiss Arbitration Court, Zurich’, ‘International Trade Arbitration Organization in Zurich’ or ‘International Trade arbitration in Zurich’ to designate an arbitral tribunal of the Zurich Chamber of Commerce.”); Judgment of 21 November 2003, DFT 130 III 66 (Swiss Federal Tribunal) (“Clauses in arbitration agreements which are incomplete, unclear or contradictory are deemed pathological. As long as they do not relate to mandatory elements of the arbitration agreement, namely the binding submission to a private arbitral tribunal, they do not per se lead to its invalidity. Rather, one has to try and find a solution by way of interpretation and even supplementation of the agreement … which respects the general intention of the parties to submit to arbitration.”); Judgment of 20 June 2005, 2006 SchiedsVZ 223 (Oberlandesgericht Oldenburg) (reference of disputes to the “International Court of Arbitration in Austria” sufficiently clear to be valid arbitration agreement); supra p. 656 n. 500 & infra pp. 659661, 675-687. 510 See, e.g., CNA Reins. Co., Ltd v. Trustmark Ins. Co., 2001 WL 648948, at *6 (N.D. Ill. 2001); Allianz Life Ins. Co. v. Am. Phoenix Life and Reassur. Co., 2000 U.S. Dist. LEXIS 7216 (D. Minn. 2000) (“the reinsurance industry appears to be a world unto itself,” and in the long-standing custom of this strange world the skeletal phrase “arbitration clause” creates a binding agreement to arbitrate); N. Carolina League of Municipalities v. Claredon Nat'l Ins. Co., 733 F.Supp. 1009, 1011 (E.D.N.C. 1990) (same); Schulze & Burch Biscuit Co. v. Tree Top, Inc., 642 F.Supp. 1155, 1156-57 (N.D. Ill. 1986), aff'd, 831 F.2d 709 (7th Cir. 1987) (enforcing agreement that provided only “All disputes under this transaction should be arbitrated in the usual manner”; noting that FAA provides means to select situs and arbitrators and that parties' conduct indicated that AAA rules would apply); supra p. 656 n. 500. 511 French New Code of Civil Procedure, Art. 1443(2). See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶241 (1999). Italian law is similar. Italian Code of Civil Procedure, Art. 809(2) (“The submission to arbitration or the arbitration clause shall contain the appointment of the arbitrators or establish their number and the manner in which they are to be appointed.”). 512 See, e.g., Judgment of 14 November 1991, Consorts Legrand v. Euro'n Country Hotel Ltd, 1994 Rev. arb. 544, 545 (Paris Cour d'appel); Judgment of 7 December 1994, V 2000 (formerly Jaguar France) v. Project XJ 220 ITD, 1996 Rev. arb. 245 (Paris Cour d'appel). French authority nonetheless appears to hold that so-called “blank” arbitration clauses, not specifying an arbitral seat or means of selecting an arbitral tribunal, are invalid. See infra pp. 659-660. 513 See, e.g., Jain v. de Mere, 51 F.3d 686 (7th Cir. 1995); Schulze
& Burch Biscuit Co. v. Tree Top, Inc., 831 F.2d 709, 716 (7th Cir. 1987) (arbitration clause, which did not specify the arbitrators, where the arbitration would take place, or the applicable arbitration rules, was “not too vague to be enforced”); Judgment of 3 February 1990, Della Sanara Kustvaart-Bevrachting & Overslagbedrijf BV v. Fallimento Cap. Giovanni Coppola Srl, XVII Y.B. Comm. Arb. 542 (Genoa Corte di Appello) (1992); Judgment of 16 September 1998, http://www.kluwerarbitration.com/CommonUI/print.aspx
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1999 NJW-RR 1085 (Bavarian Oberstes Landesgericht). See alsoHarco Nat'l Ins. Co. v. Millenium Ins. Underwriting Ltd, 2005 U.S. Dist. LEXIS 15960 (N.D. Ill. 2005) (phrase “arbitration clause” “provides no guidance as to the details of the arbitration, i.e., its location and the selection of arbitrators” and would “require a hearing in order to resolve”: “We encourage the parties to try to negotiate those details”). 514 See supra p. 624. 515 See infra pp. 1813, 2471-2473, 2602-2603; UNCITRAL Model Law, Arts. 10-17; Swiss Law on Private International Law, Arts. 179186; U.S. FAA, 9 U.S.C. §§5, 7; English Arbitration Act, 1996, §§1524, 33-39; Japanese Arbitration Law, Arts. 16-22. 516 See, e.g., E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶486 (1999); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶3-69 (4th ed. 2004). See also Judgment of 17 April 1978, IV Y.B. Comm. Arb. 282 (Italian Corte di Cassazione) (1979) (“an arbitral clause is invalid if it indicates the number of arbitrators only, without mentioning the method of their appointment”); Judgment of September 2004, Case No. 2004 XMECZ 154 (Wuxi Chinese People's Court) (annulling award on grounds that arbitration agreement was invalid for failure to specify an arbitral institution). See also infra pp. 1400, 1723-1735. 517 Of course, many institutional arbitration rules provide mechanisms for the selection of the arbitral seat (by the arbitral institution or the arbitral tribunal) if the parties have not done so themselves. Seeinfra pp. 1696-1703; UNCITRAL Rules, Art. 16(2); ICC Rules, Art. 14(1); LCIA Rules, Art. 16(1); ICDR Rules, Art. 13(1). Where such rules are incorporated, the clause is not “blank” and there can be no suggestion of indefiniteness. 518 The role of national courts in selecting the arbitral seat is discussed below. See infra pp. 1703-1738. 519 Lucky-Goldstar Int'l (HK) Ltd v. Ng Moo Kee Eng'g Ltd, [1994] Arb. & Disp. Res. L.J. 49 (H.K. High Court, S.Ct.). 520 See, e.g., Jain v. de Mere, 51 F.3d 686 (7th Cir. 1995); Star Shipping AS v. China Nat'l Foreign Trade Trans. Corp. [1993] 2 Lloyd's Rep. 445 (English Court of Appeal) (upholding agreement to arbitrate in whichever of two situses the respondent selected; rejecting a claim that the clause was void for uncertainty); Schulze & Burch Biscuit Co. v. Tree Top, Inc., 642 F.Supp. 1155, 1156-57 (N.D. Ill. 1986), aff'd, 831 F.2d 709 (7th Cir. 1987) (enforcing agreement that provided “All disputes under this transaction should be arbitrated in the usual manner”); Judgment of 23 March 2000, XXVI Y.B. Comm. Arb. 329 (Oberlandesgericht Düsseldorf) (2001). 521 Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶34 (2000) (“the seat of the arbitral tribunal is not one of the essentialia negotii which has to be covered by the parties' consent”); M. Mustill & S. Boyd, Commercial Arbitration 107 (2d ed. 1989). 522 See supra pp. 256-258 & infra pp. 1098-1099; Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶28 (2000); Judgment of 7 April 1933, 1934 GH 12 (Austrian Oberster Gerichtshof) (“An arbitral tribunal can only decide disputes arising from defined legal relationships and not from undefined legal relationships”); H. Fasching, Lehrbuch des österreichischen Zivilprozeβrechts ¶2180 (1990) (mandatory minimum content of a valid arbitration agreement encompasses (i) determination of the parties, (ii) the final submission to arbitration; and (iii) the subject http://www.kluwerarbitration.com/CommonUI/print.aspx
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matter of the dispute). 523 See supra pp. 256-258 & 258 n. 284. 524 The implied scope of an agreement to arbitrate that does not address the issue is discussed elsewhere. See supra pp. 256-258 & 258 n. 660-661 & infra pp. 1099-1104. 525 There is some contrary authority, but this is archaic. Judgment of 7 April 1933, 1934 GH 12 (Austrian Oberster Gerichtshof). 526 Tritonia Shipping Inc. v. South Nelson Forest Products Corp. [1966] 1 Lloyd's Rep. 114 (English Court of Appeal). 527 Swiss Bank Corp. v. Novorossiysk Shipping [1995] 1 Lloyd's Rep. 202 (Q.B.). 528 See, e.g., Judgment of 24 January 2003, XXX Y.B. Comm. Arb. 509 (Hanseatisches Oberlandesgericht Hamburg) (2005) (upholding arbitration clause providing “Arbitration: Hamburg“); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶33 (2000); K.-P. Berger, International Economic Arbitration 122 (1993); Roose Indus. Ltd v. Ready Mixed Concrete Ltd, [1974] 2 NZLR 246, 247 (N.Z. Court of Appeal). See also supra pp. 256-258. 529 See supra pp. 357-402, 640-644. 530 See supra pp. 357-402, 404-405, 405-407, 640-644; A. Samuel, Jurisdictional Problems in International Commercial Arbitration 174 (1989) (“it can happen that, during contractual negotiations, the arbitral clause is unequivocally accepted by both parties and then a dispute arises as to whether agreement was ever reached over the substantive contract. In such a situation, it is submitted that the dispute concerned should be referred to arbitration for both theoretical and practical reasons.”). 531 See supra pp. 362, 370-376, 383-384, 393-396 & infra pp. 662665. 532 New York Convention, Art. II(2); supra pp. 212-213, 317-319. 533 Cases occasionally arise where a party crosses out or otherwise indicates refusal to accept an arbitration clause in a contract that it signs or otherwise assents to. This raises issues, discussed below, regarding formation of any contract at all. See supra pp. 405-407. 534 See supra pp. 591-593 & infra pp. 667-671; Southeastern Enameling Corp. v. Gen. Bronze Corp., 434 F.2d 330 (5th Cir. 1970); Fairfield-Noble Corp. v. Pressman-Gutman Co., 475 F.Supp. 899 (S.D.N.Y. 1979); Judgment of 30 March 1993, Nokia Maillefer SA v. Mazzer, XXI Y.B. Comm. Arb. 681 (Court of Appeal of the Canton of Vaud) (1996). 535 See infra pp. 675-695. Notwithstanding the separability presumption, the invalidity of an arbitration clause may, in some cases, also indirectly affect the validity of the underlying contract. See supra pp. 357-391 & infra pp. 714-732, 747-754, 755-764. 536 See supra pp. 362, 370-376, 383-384, 393-396, 640-644 & infra pp. 662-665. 537 See supra pp. 370-376, 394-395, 396-402; von Segesser, Arbitrating Pre-Closing Disputes in Merger and Acquisition Transactions, in Arbitration of Merger and Acquisition Disputes 35 et seq. (ASA Special Series No. 24 2005) (“The issue of the validity of an arbitration clause in a M&A agreement may arise if a dispute starts before the agreement is signed. If a party in bad faith aborts the transaction and refuses to sign, can the other party rely on the arbitration clause which, in the opinion of both parties, had been conclusively negotiated? Insofar as it is possible to prove that the parties intended to be bound by the concluded negotiations on the http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration clause, even if a subsequent signing of the agreement did not occur, there might be a case, depending on the substantive law applicable to the share purchase agreement, to assume a valid arbitration agreement. In most cases, however, it might not be easy to prove such an intent by the parties, and any lack of consent with regard to the main agreement usually leads to the arbitration clause also being invalidated.”); Schlosser, Der Grad der Unabhängigkeit einer Schiedsvereinbarung vom Hauptvertrag, in Law of International Business and Dispute Settlement in the 21st Century, Liber Amicorum Karl-Heinz Böckstiegel 697, 704 et seq. (2001); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶471 (2006) (“In case a violation of a duty occurs in a pre-contractual phase (culpa in contrahendo), one needs to note that an arbitral tribunal, of course, can only assess such a claim, in case an arbitration agreement existed in this phase already or if such an agreement was concluded later on. Therefore, possible claims based on culpa in contrahendo can oftentimes only be raised in state courts.”). 538 See supra pp. 211-219, 321-322 & infra pp. 1004-1014. 539 See supra pp. 362, 370-376, 383-384, 393-396, 640-644 & infra pp. 663-665; Sphere Drake Ins. Ltd v. All Am. Ins. Co., 256 F.3d 587, 591-92 (7th Cir. 2001) (“if they have agreed on nothing else, they have agreed to arbitrate”); Harter v. Iowa Grain Co., 220 F.3d 544, 550 (7th Cir. 2000) (“Courts will not allow a party to unravel a contractual arbitration clause by arguing that the clause was part of a contract that is voidable. The party must show that the arbitration clause itself, which is to say the parties' agreement to arbitrate any disputes over the contract that might arise, is vitiated by fraud, or lack of consideration or assent.”); Colfax Envelope Corp. v. Local No. 458-3M, Chicago Graphic Comm. Int'l Union, 20 F.3d 750, 754-55 (7th Cir. 1994) (despite apparent lack of meeting of minds on underlying contract “there was a meeting of the minds on the mode of arbitrating disputes between the parties” and “the parties had agreed to arbitrate their claims”); Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469 (9th Cir. 1991); Judgmentof 27 September 1985, O.P.A.T.I. v. Larsen, Inc., No. L 8169, unpublished, (Paris Cour d'appel) described in M. de Boisséson, Le droit francais de l'arbitrage interne et internationale 825 (2d ed. 1990) (finding arbitration agreement where various provisions were noted as “draft,” but not arbitration provision); All-Union Foreign Trade Assoc. Sojuznefteexport v. JOC Oil Ltd, Award in USSR Chamber of Commerce and Industry(9 July 1984), XVIII Y.B. Comm. Arb. 92, 9798 (1993). 540 See supra pp. 71-87. 541 See, e.g., Judgment of 26 February 1988, Pia Inv. Ltd v. Cassia, 1990 Rev. arb. 851 (Paris Cour d'appel); Interim Award in ICC Case No. 4504, 113 J.D.I. (Clunet) 1118, 1120 (1986). 542 SeeFisser v. Int'l Bank, 282 F.2d 231, 233 (2d Cir. 1960); Interocean Shipping Co. v. Nat'l Shipping and Trading Corp., 523 F.2d 527, 539 (2d Cir. 1975) (“[T]he mere fact that a party did not sign an arbitration agreement does not mean that it cannot be held bound by it. Ordinary contract principles determine who is bound.”); In re Dillard Dep't Stores, Inc., 186 S.W.3d 514, 515 (Tex. 2006); Walkinshaw v. Diniz [2000] 2 All E.R. (Comm.) 237 (Q.B.) (arbitration clause for Contracts Resolution Board established by Formula One Racing was binding even though not signed by all members); Jayaar Impex Ltd v. Toaken Group Ltd [1996] 2 Lloyd's Rep. 437 (Q.B.). See alsoBaker v. Yorkshire Ins. Co. [1892] 1 Q.B. 144 (Divisional Court) (citing principle that an agreement in writing is http://www.kluwerarbitration.com/CommonUI/print.aspx
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binding whether or not the parties have signed it, so long as an “intention to be bound” can be established from the surrounding circ*mstances); Judgment of 29 September 2000, 2001 Zeitschrift für Sport und Recht 247 (Hanseatisches Oberlandesgericht Hamburg) (arbitration clause contained in the charter of an association need not to be signed by members). See also infra pp. 1136-1137, 1137-1142. 543 See, e.g., Judgment of 20 June 1962, 1962 NJW 1908 (German Bundesgerichtshof) (amendments to lease contract made through oral agreement valid even where contract stated that written form was necessary); Marino v. Dillard's Inc., 413 F.3d 530 (5th Cir. 2005). 544 See, e.g., Tinder v. Pinkerton Security, 305 F.3d 728 (7th Cir. 2002) (employer's mandatory arbitration agreement, which had been presented in writing to employee, was valid although unsigned); Schultz v. AT&T Wireless Sers., Inc., 376 F.Supp.2d 685 (N.D. W.Va. 2005) (customer accepted terms and conditions in contract notwithstanding failure to sign contract); Judgment of 14 July 1998, Thyssen Haniel Logistic Int'l GmbH v. Barna Consignataria SL, XXVI Y.B. Comm. Arb. 851 (Spanish Tribunal Supremo) (2001) (parties' exchange of faxes shows that they “had a common intention to refer disputes concerning their agreement to arbitration”). 545 See infra pp. 666-667; Judgment of 8 June 1995, 1997 Rev. arb. 89 (Paris Cour d'appel) (unsigned agreement containing arbitration clause binds parties where they have assented to its terms). 546 See infra pp. 667-674. 547 Sphere Drake Ins. Ltd v. All Am. Ins. Co., 256 F.3d 587, 590 (7th Cir. 2001) (Easterbrook, J.). See, e.g., Hetchkop v. Woodlawn at Grassmere, Inc., 116 F.3d 28 (2d Cir. 1997) (alleged “surreptitious substitution” of pages in contract: no assent if “the party did not know and had no reasonable opportunity to know that a page with materially changed terms had been substituted”); Gregory v. Interstate/Johnson Lane Corp., 188 F.3d 501 (4th Cir. 1999) (forgery claims affect arbitration clause and entire agreement); Jolley v. Welch, 904 F.2d 988 (5th Cir. 1990) (forgery claims); Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal) (“bribery … is not the same as non est factum or the sort of mistake which goes to the question whether there was any agreement ever reached.”), aff'd, [2007] UKHL 40 (House of Lords); Crescent Oil and Shipping Serv. Ltd v. Importang U.E.E. [1999] All E.R. (D) 1134 (Q.B.); Judgment of 23 February 1967, 1967 NJW 1039 (German Bundesgerichtshof) (forged signature does not lead to agreement even where the apparent signatory remains silent upon being informed of the signature). 548 See, e.g., Cancanon v. Smith Barney, Harris, Upham & Co., 805 F.2d 998 (11th Cir. 1986) (“where misrepresentation of the character or essential terms of a proposed contract occurs, assent to the contract is impossible. In such a case there is no contract at all”); N & D Fashions, Inc. v. DHJ Indus., Inc., 548 F.2d 722 (8th Cir. 1976) (buyer bound by arbitration clause absent fraud, misrepresentation, or deceit in execution of acknowledgement); Lynn v. Gen. Elec. Co., 407 F.Supp.2d 1257 (D. Kan. 2006); Dougherty v. Mieczkowski, 661 F.Supp. 267 (D. Del. 1987) (“defendants cannot rely on a contract which plaintiffs never signed and, on the record, never saw, to establish the existence of an agreement to arbitrate”); Strotz v. Dean Witter Reynolds, Inc., 272 Cal.Rptr. 680 (Cal. App. 1990) (“if a party is unaware that he is signing any contract, obviously he also is unaware he is agreeing to http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration”); Lynch v. Cruttenden & Co., 22 Cal.Rptr.2d 636 (Cal. App. 1993); Monro v. Bognor Urban District Council [1915] 3 K.B. 167 (English Court of Appeal) (claim that signature on contract induced by fraud affected the validity of the entire contract including the agreement to arbitrate); Credit Suisse First Boston (Europe) Ltd v. Seagate Trading Co. Ltd [1999] 1 Lloyd's Rep. 784 (Q.B.) (claim that the whole contract was induced by fraud would, in principle, prevent party from relying upon jurisdiction clause within the contract). 549 See, e.g., Etablissem*nts Georges et Paul Levy v. Adderley Nav. Co. Panama, SA [1980] 2 Lloyd's Rep. 67 (Q.B.) (“the … broker had mistakenly prepared the charter for signature in ignorance of it”); Fiona Trust and Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal) (“mistake which goes to the question whether there was any agreement ever reached”), aff'd, [2007] UKHL 40 (House of Lords). 550 See supra pp. 370-376, 383-384, 391 & infra p. 945. 551 See infra pp. 945-948, 960-962. 552 See, e.g., UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Art. 2.1.1 (2004) (“A contract may be concluded either by the acceptance of an offer or by conduct of the parties that is sufficient to show agreement”); U.N. Convention on Contracts for the International Sale of Goods, Art. 18(1); Restatement (Second) Contracts §§32, 45 (1981); Heinrichs, in O. Palandt, Bürgerliches Gesetzbuch, Introduction before §116, ¶6 (66th ed. 2007) (actions implying consent can lead to formation of a contract); A. Samuel, Jurisdictional Problems in International Commercial Arbitration 97 (1989) (tacit acceptance is sufficient for formation of ordinary contract in many jurisdictions). 553 See, e.g., DIC of Delaware, Inc. v. Tehran Redev. Corp., Award No. 176-255-3 (26 April 1985), 8 Iran-US C.T.R. 144, 160-162 (1985) (“it is widely accepted by municipal systems of law that one can prove the existence of an enforceable oral contract through evidence demonstrating part performance … Such a principle must be taken to constitute a general principle of law”); Judgment of 2 December 1982, 1983 NJW 1267, 1268 (German Bundesgerichtshof) (contract affirmed through acceptance of other party's performance); Judgment of 20 February 2001, Consmaremma – Consorzio tra produttori agricola v. Hermanos Escot Madrid SA, XXVI Y.B. Comm. Arb. 858 (Spanish Tribunal Supremo) (2001) (“the silence or inactivity of a party with respect to an offer which directly or indirectly contains an arbitral clause has no effect, the Court's interpretation aims at ascertaining, from the communications and acts of the parties, whether they wished to include the arbitral clause in their contract …”); Athon v. Direct Merchs. Bank, 2007 U.S. Dist. LEXIS 26841 (M.D. Ga. 2007) (agreement to arbitrate ratified by customer's use of credit card and continued payments over three years after the addition of the arbitration clause); Irving R. Boody & Co. v. Win Holdings Int'l Inc., 213 F.Supp.2d 378 (S.D.N.Y. 2002) (“ratification by failure to object … serves as the equivalent of prior authorization”); First Citizens Mun. Corp. v. Pershing Div. of Donaldson, Lufkin & Jenrette Sec. Corp., 546 F.Supp. 884, 887 (N.D. Ga. 1982) (“Like any other contract, a contract containing an arbitration provision may be binding on the parties based upon their course of conduct.”). 554 See, e.g., Thomson-CSF, SA v. Am. Arbitration Ass'n, 64 F.3d 773 (2d Cir. 1995) (“party may be bound by an arbitration clause if its subsequent conduct indicates that it is assuming the obligation to arbitrate”). http://www.kluwerarbitration.com/CommonUI/print.aspx
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555 See, e.g., In re Cotton Yarn Antitrust Litigation, 2007 WL
2965586 (4th Cir. 2007) (ordering arbitration on basis of oral sales contract, on grounds that arbitration was “usage of trade” in relevant industry); Judgment of 18 March 1983, Société Quémener et Fils v. Société Van Dijk France, 1983 Rev. arb. 491 (Paris Cour d'appel) (where parties routinely included arbitration clauses in repeated transactions, court held they impliedly included the same clause in a transaction concluded by an exchange of telexes, without documentation including such a clause). 556 In re Cotton Yarn Antitrust Litigation, 2007 WL 2965586 (4th Cir. 2007). 557 See supra pp. 580 et seq. (especially 593-596). 558 The possibility of applying estoppel or waiver in the context of formal requirements is discussed above. See supra pp. 596, 614616. 559 See, e.g., Judgment of 13 November 2001, Centrotex SA v. Agencia Gestora de Negocios SA, XXXI Y.B. Comm. Arb. 834 (Spanish Tribunal Supremo) (2006) (“[The parties'] common intention [to arbitrate] must ensue from the parties' communications and activities as a whole, always necessarily bearing in mind that the silence or inactivity of the party to which an offer directly or indirectly containing an arbitration clause is addressed may not be deemed to have any effect to this aim”). 560 New York Convention, Art. II(2) (“exchange of letters or telegrams”); UNCITRAL Model Law, Art. 7(2); supra pp. 591-592, 603-604. As discussed above, such exchanges must satisfy applicable form requirements, in addition to constituting valid consent. See Ibid. 561 See J. Herbots (ed.), International Encyclopedia of Laws, Contract, United Nations Convention for the International Sale of Goods (CISG), Article 19, ¶122 (Update January 2007); Restatement (Second) Contracts §§3-4, 58-61 (1981); Filanto, SpA v. Chilewich Int'l Corp., 789 F.Supp. 1229, 1237-41 (S.D.N.Y. 1992) (applying Article 19 of the Convention on the International Sale of Goods). Disputes concerning the battle of the forms also involve issues of formal validity. See, e.g., Kahn Lucas Lancaster, Inc. v. Lark Int'l, Ltd, 186 F.3d 210 (2d Cir. 1999) (“an arbitral clause in a contract” and “an arbitration agreement” must be “signed by the parties or contained in an exchange of letters or telegrams”); AGP Indus. SA v. JPS Elastromerics Corp., 2007 WL 2737043, at *1 (D. Mass. 2007) (same). See supra pp. 591-592. 562 See supra pp. 213-214, 485-491, 640-642. 563 See cases cited infra pp. 667-669. Some lower U.S. courts
have concluded that UCC §2-207 states a rule of federal common law applicable to actions falling under the New York Convention and the FAA's second chapter. See, e.g., Beromun AG v. Societa Industriale Agricola “Tresse,” 471 F.Supp. 1163, 1169-70 (S.D.N.Y. 1979) (applying §2-207 as rule of federal common law); Ferrara SpA v. United Grain Growers, Ltd, 441 F.Supp. 778, 780 n.2 (S.D.N.Y. 1977), aff'd mem., 580 F.2d 1044 (2d Cir. 1978). 564 Restatement (Second) Contracts §§58-61 (1981); A. Corbin, 1 Corbin, Contracts §§86, 87 (1963). 565 See, e.g., C. Itoh & Co. v. Jordan Int'l Co., 552 F.2d 1228, 1235 (7th Cir. 1977); Dorton v. Collins & Aikman Corp., 453 F.2d 1161 (6th http://www.kluwerarbitration.com/CommonUI/print.aspx
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Cir. 1972); Valmont Indus., Inc. v. Mitsui & Co., 419 F.Supp. 1238 (D. Neb. 1976); Air Products & Chem., Inc. v. Fairbanks Morse, Inc., 206 N.W.2d 414 (Wisc. 1973). 566 U.S. UCC §2-207. See alsoGenesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 845 (2d Cir. 1987) (applying UCC §2-207); C. Itoh & Co. v. Jordan Int'l Co., 552 F.2d 1228, 1233 (7th Cir. 1977) (applying UCC §2-207). 567 U.S. UCC §2-207(2), (3). 568 See, e.g., PCS Nitrogen Fertilizer, LP v. The Christy Refractories, LLC, 225 F.3d 974, 981 (8th Cir. 2000); Southeastern Enameling Corp. v. Gen. Bronze Corp., 434 F.2d 330 (5th Cir. 1970); Schulze & Burch Biscuit Co. v. Tree Top, Inc., 1985 WL 2995, at *1, *3 (N.D. Ill. 1985); Fairfield-Noble Corp. v. Pressman-Gutman Co., 475 F.Supp. 899 (S.D.N.Y. 1979); Duplan Corp. v. W.B. Davis Hosiery Mills, 442 F.Supp. 86 (S.D.N.Y. 1977). See alsoManhattan Constr. Co. v. Rotek, Inc., 905 F.Supp. 971 (N.D. Okla. 1995) (reviewing parties' offers and acceptances and concluding that contract did not include arbitration clause). 569 See Marlene Indus. Corp. v. Carnac Textiles, Inc., 408 N.Y.S.2d 410 (N.Y. 1978) (arbitration clause is always a material alteration; “unequivocal agreement” required before arbitration will be ordered). More recent authorities hold that Marlene is preempted by the FAA. See, e.g., Aceros Prefabricados, SA v. TradeArbed, Inc., 282 F.3d 92 (2d Cir. 2002); Supak & Sons Mfg Co. v. Pervel Indus., Inc., 593 F.2d 135, 136-37 (4th Cir. 1979); Avedon Eng'g, Inc. v. Seatex, 112 F.Supp.2d 1090 (D. Colo. 2000); De Marco Calif. Fabrics, Inc. v. Nygard Int'l, Ltd, 1990 WL 48073 (S.D.N.Y. 1990). The argument for preemption is that singling arbitration clauses out for per se treatment as a material term denies them equal treatment, as required under §2's savings clause, with “any contract.” Hirshman, The Second Arbitration Trilogy: The Federalization of Arbitration Law, 71 Va. L. Rev. 1305, 1357-60 (1985); Medical Dev. Corp. v. Indus. Molding Corp., 479 F.2d 345, 348 (10th Cir. 1973); Dorton v. Collins & Aikman Corp., 453 F.2d 1161 (6th Cir. 1972). 570 See, e.g., N & D Fashions, Inc. v. DHJ Indus., Inc., 548 F.2d
722, 766 (8th Cir. 1977) (whether addition of arbitration clause is a material alteration is “question of fact to be resolved by the circ*mstances of each particular case”); Dorton v. Collins & Aikman Corp., 453 F.2d 1161, 1169 & n.8 (6th Cir. 1972) (same); Schulze & Burch Biscuit Co. v. Tree Top, Inc., 831 F.2d 709 (7th Cir. 1987) (same); Bergquist Co. v. Sunroc Corp., 777 F.Supp. 1236, 1244 (E.D. Pa. 1991) (“Because the modern [case-by-case] approach is more in tune with the UCC and with relevant Third Circuit precedent … I will adopt it over the New York approach [in Supak].”). 571 See C. Itoh & Co. v. Jordan Int'l Co., 552 F.2d 1228 (7th Cir. 1977); Collins, Arbitration and the Uniform Commercial Code, 41 N.Y.U. L. Rev. 736 (1966). 572 See, e.g., In re Cotton Yarn Antitrust Litigation, 2007 WL 2965586 (4th Cir. 2007); Std. Bent Glass Corp. v. Glassrobots Oy, 333 F.3d 440, 448 (3d Cir. 2003) (arbitration agreement upheld on the basis of evidence that the “arbitration provision accords with [glass] industry norms. The [contractual] general conditions are frequently used in international trade and the submission of disputes to arbitration is common industry practice.”); Aceros Prefabricados, SA v. TradeArbed, Inc., 282 F.3d 92 (2d Cir. 2002) (“unrebutted evidence that arbitration is standard practice within the steel http://www.kluwerarbitration.com/CommonUI/print.aspx
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industry”; “the arbitration provisions proposed in [the defendant's] confirmation orders became part of the contract”); Ronan Assocs. v. Local94-94A-94B, Int'l Union of Operating Eng'rs, 24 F.3d 447, 449 (2d Cir. 1994) (finding employment contract incorporated union collective bargaining agreement including right to compel arbitration of questions of discharge). In some cases, both parties' communications have included arbitration clauses – but different ones – raising questions as to whether either governs and, if not, whether any arbitration is appropriate. See, e.g., Lea Tai Textile Co. v. Manning Fabrics, Inc., 411 F.Supp. 1404 (S.D.N.Y. 1975). See also U.S. UCC §§1-201(42), 2-207(1), (2), (2)(c). The treatment of contradictory terms is discussed below. See infra pp. 683-687. 573 See supra pp. 64-71. 574 If a party proposes a forum selection clause, this constitutes a
rejection of the arbitration clause. Mere silence should be different. 575 Compare UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Art. 2.1.22 (2004) (“Where both parties use standard terms and reach agreement except on those terms, a contract is concluded on the basis of the agreed terms and of any standard terms which are common in substance unless one party clearly indicates in advance, or later and without undue delay informs the other party, that it does not intend to be bound by such a contract.”). 576 German ZPO, §1031(2). See Geimer, in R. Zöller (ed.), Zivilprozessordnung §1031, ¶8 (26th ed. 2007). See also supra pp. 612-613. 577 See supra pp. 64-71, 647-648, 653-655. An important qualification would arise in cases of arbitration clauses that systemically favor one party (e.g., trade association arbitrations visà-vis a non-member or arbitration in a state entity's home jurisdiction). It is doubtful that silence in response to such proposals should ordinarily be treated as assent. 578 Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶15 (2000); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶193 (2d ed. 2007); Judgment of 9 September 1993, DFT 199 II 391 (Swiss Federal Tribunal) (in context of forum selection agreement pursuant to Article 5 of the Swiss Law on Private International Law, whose text is identical to Article 178). 579 U. N. Convention on Contracts for the International Sale of Goods, Art. 19 (“(1) A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. (2) However, a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constitutes an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance. (3) Additional or different terms relating, among other things, to … the settlement of disputes are considered to alter the terms of the offer materially.”). 580 See supra pp. 599-600, 614-615. 581 UNCITRAL Model Law, Art. 16(2). See also UNCITRAL Model Law, Art. 7(2); supra pp. 614-615. http://www.kluwerarbitration.com/CommonUI/print.aspx
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582 See, e.g., English Arbitration Act, 1996, §31(1); Netherlands
Code of Civil Procedure, Art. 1052(2); German ZPO, §1040(2); Japanese Arbitration Law, Arts. 13(5), 23(2). 583 See, e.g., AGCO Corp. v. Anglin, 216 F.3d 589, 593 (7th Cir. 2000) (party cannot “await the outcome and then later argue that the arbitrator lacked authority to decide the matter”); Nghiem v. NEC Elecs., Inc., 25 F.3d 1437 (9th Cir. 1994) (party's letter commencing arbitration constituted writing confirming arbitration agreement in unsigned employee handbook); Liberty Mut. Ins. Co. v. Lodha, 500 N.Y.S.2d 989, 990 (N.Y. S.Ct. 1986) (where party voluntarily participated in AAA arbitration, it waived any rights to dispute the interpretation of the agreement); Judgment of 22 May 1967, BGHZ 48, 35, 45 (German Bundesgerichtshof); Judgment of 27 September 2005, 24 ASA Bull. 153, 158-159 (Oberlandesgericht Hamm) (2006); Judgment of 16 July 2002, 2003 SchiedsVZ 84, 86 (Oberlandesgericht Stuttgart). See also infra pp. 1193-1198 discussing the application of principles of estoppel in the context of agreements to arbitrate and infra pp. 2573, 2795-2797 discussing the waiver of jurisdictional objections to recognition of arbitral awards. 584 See infra pp. 743-744, 989-991. 585 Altco, Ltd v. Sutherland [1971] 2 Lloyd's Rep. 515, 519 (Q.B.). 586 See supra pp. 614-615, 671-673. 587 Furness Withy Pty Ltd v. Metal Distrib. Ltd, The Amazonia [1990] 1 Lloyd's Rep. 236, 243 (English Court of Appeal). See also Westminster Chem. and Produce Ltd v. Eichholz & Loeser [1954] 1 Lloyd's Rep. 99, 105 (Q.B.). 588 See also infra pp. 1193-1198 (estoppel and waiver as to nonsignatories). 589 See supra pp. 614-615; W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶15.05 (3d ed. 2000) (“in an exceptional case Terms of Reference signed by both parties, without reservation of objection to jurisdiction, may constitute an agreement to arbitrate, or compromis, entered into after a dispute has arisen.”); Judgment of 19 March 1987, Société Kis France v. Société ABS & R. Mawad, 1987 Rev. arb. 498 (Paris Cour d'appel) (“The terms of reference established by the arbitrators in accordance with Article 13 of the ICC Rules of Arbitration, … and which have been signed by the parties without any objections or reservations as to the jurisdiction of the arbitral tribunal, may be deemed as equivalent to an arbitration agreement.”); CBS Corp. v. WAK Orient Power & Light Ltd, 168 F.Supp.2d 403 (E.D. Pa. 2001); Am. Constr. Mach. & Equip. Corp. v. Mechanised Constr. of Pakistan, Ltd, 659 F.Supp. 426, 429 (S.D.N.Y. 1987), aff'd, 828 F.2d 117 (2d Cir. 1987) (“there is no doubt that MCP consented to arbitration of the matters ultimately decided by the Arbitrator [as] MCP signed the Terms of Reference which set forth the issues to be arbitrated.”); Judgment of 19 March 1987, Société Kis France v. Société ABS & R. Mawad, 1987 Rev. arb. 498 (Paris Cour d'appel). But seeJudgment of 16 December 1992, XXI Y.B. Comm. Arb. 535 (Oberlandesgericht Cologne) (1996) (ICC Terms of Reference held incorrectly not to satisfy Article II(2)'s “writing” requirement where each party had signed a different copy of the Terms and these copies had not been exchanged between the parties). See also infra pp. 989-991 (requirement that jurisdictional objections be raised at outset of arbitration). 590 See infra p. 1394. 591 See cases cited supra p. 672 n. 583. http://www.kluwerarbitration.com/CommonUI/print.aspx
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592 See infra pp. 817-829 for a discussion of the arbitrability of
consumer and employment-related claims. 593 See infra pp. 690-694, 724-732 for a discussion of unconscionability and related issues. 594 See infra pp. 820-829 for a discussion of form requirements in consumer transactions. 595 See, e.g., Specht v. Netscape Comm. Corp., 306 F.3d 17, 40 (2d Cir. 2002) (indicating no consent where clause was at bottom of scroll-down screen); Klocek v. Gateway 2000, Inc., 104 F.Supp.2d 1332, 1341 (D. Kan. 2000) (“the mere fact that Gateway shipped the goods with the terms attached did not communicate to plaintiff any unwillingness to proceed without plaintiff's agreement to the [licence terms]”; court held that the plaintiff did not consent to arbitrate); Heurtebise v. Reliable Business Computers, Inc., 550 N.W.2d 243 (Mich. 1996) (arbitration clause in employee handbook not binding on employee where employer reserved right to unilaterally modify it); Plebani v. Bucks County Rescue Emergency Medical Services, 2007 WL 4224365 (E.D. Pa. 2007) (arbitration provision in unsigned employee handbook not binding on employee). 596 See, e.g., Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997) (arbitration agreement validly consented to when included in computer purchase contract sent by mail, where computer was not returned and no objection was made to contract; “[B]y keeping the computer beyond 30 days, the [plaintiffs] accepted Gateway's offer, including the arbitration clause.”); Patterson v. Tenet Healthcare Inc., 113 F.3d 832, 834-35 (8th Cir. 1997) (arbitration clause on page 31 of lengthy employee handbook, labelled as “not intended to constitute a legal contract,” held binding on employee); ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1452 (7th Cir. 1996) (upholding clause in shrink-wrap software license); Forrest v. Verizon Comm., Inc., 805 A.2d 1007, 1010-11 (D.C. Cir. 2002) (consent given where customer clicked “accept” in online clickwrap agreement and admonition was given at the top of the agreement to read the terms carefully); Bischoff v. DirecTV, Inc., 180 F.Supp.2d 1097 (C.D. Cal. 2002) (“Customer Agreement” mailed after service commenced, containing arbitration clause, upheld); Feldman v. Google, Inc., 2007 WL 966011 (E.D. Pa. 2007); Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (Canadian S.Ct.) (valid consent by consumer to on-line arbitration clause). 597 See, e.g., Hill v. Gateway 2000, Inc., 105 F.3d 1147 (7th Cir. 1997); Westendorf v. Gateway 2000, Inc., 2000 Del. Ch. LEXIS 54 (Del. Ch. 2000), aff'd, 763 A.2d 92 (Del. 2000); Levy v. Gateway 2000, Inc., 1997 WL 823611 (N.Y. Sup. Ct. 1997); Klocek v. Gateway 2000, Inc., 104 F.Supp.2d 1332 (D. Kan. 2000) (questioning conscionability of ICC arbitration clause in consumer dispute). 598 See UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Art. 2.1.2 (2004); K. Zweigert & H. Kötz, An Introduction to Comparative Law 388-399 (3d ed. 1998); Restatement (Second) Contracts §33 (1981). 599 See supra pp. 172-180, 656. 600 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing Exhibit C (2d ed. 2006). 601 J. Paulsson et al., The Freshfields Guide to Arbitration and ADR: Clause in International Contracts (2d ed. 1999); P. Friedland, Arbitration Clauses for International Contracts 64-70, 183-187 (2d ed. 2007); G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 56-60 (2d ed. 2006). 602 The appellation “pathological” was apparently first coined by an http://www.kluwerarbitration.com/CommonUI/print.aspx
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early proponent of international arbitration. Eisemann, La Clause d'arbitrage pathologique, in Commercial Arbitration: Essays in Memoriam Eugenio Minoli 129 (1974). See also Davis, Pathological Clauses: Frederic Eisemann's Still Vital Criteria, 7 Arb. Int'l 365 (1991); Schmitthoff, Defective Arbitration Clauses, 1975 J. Bus. L. 9; Karrer, Pathological Arbitration Clauses, Malpractice, Diagnosis and Theories, in The International Practice of Law, Liber Amicorum for Thomas Baer and Robert Karrer 109 (1998). 603 Bond, How to Draft An Arbitration Clause, 6(2) J. Int'l Arb. 65 (1989). 604 They also give rise to related claims that arbitration clauses are internally-contradictory, a subject which is discussed below. See infra pp. 683-687. 605 W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶9.02 (3d ed. 2000). 606 See supra pp. 647-648, 653-655. 607 See supra pp. 212-254, 655-659. 608 See, e.g., Tritonia Shipping Inc. v. South Nelson Forest Products Corp. [1966] 1 Lloyd's Rep. 114 (English Court of Appeal) (court rejects challenge to clause providing “Arbitration to be settled in London,” reasoning that it meant “any dispute under this charter party to be settled by arbitration in London”); Mangistaumunaigaz Oil Prod. Ass'n v. United World Trade Inc. [1995] 1 Lloyd's Rep. 617 (Q.B.) (word “if any” disregarded as surplusage in clause providing “arbitration, if any, by ICC Rules in London”); SwissBank Corp. v. Novorossiysk Shipping [1995] 1 Lloyd's Rep. 202 (Q.B.) (upholding clause providing “arbitration in London - English law to apply”); Hobbs, Padgett & Co (Reins.) Ltd v. J.C. Kirkland Ltd [1969] 2 Lloyd's Rep. 547 (English Court of Appeal) (court rejects challenge to clause providing “Suitable arbitration clause”); Transam. Ocean Contracts Inc. v. Transchem. Rotterdam BV [1978] 1 Lloyd's Rep. 238 (English Court of Appeal); Judgment of 21 November 1983, X Y.B. Comm. Arb. 478 (Italian Corte di Cassazione) (1985) (upholding clause providing “Arbitration. In London if necessary”); Judgment of 3 February 1990, Della Sanara Kustvaart-Bevrachting & Overslagbedrijf BV v. Fallimento Cap. Giovanni Coppola Srl, XVII Y.B. Comm. Arb. 542 (Genoa Corte di Appello) (1992) (upholding clause providing “General average/arbitration, if any, in London in the usual manner); Jain v. de Mere, 51 F.3d 686 (7th Cir. 1995) (upholding clause providing for arbitration by “arbitral committee” without mentioning rules, seat or other matters); Vegter v. Forecast Fin. Corp., 2007 WL 4178947 (W.D. Mich. 2007) (rejecting argument that failure to specify institutional rules or means for selecting arbitrators rendered arbitration clause invalid on indefiniteness grounds); Judgment of 20 February 2001, 11 SchH 02/00, reported at www.dis-arb.de (Oberlandesgericht Dresden); Judgment of 24 October 2006, 2007 SchiedsVZ 217 (Oberlandesgericht Frankfurt) (upholding clause providing for arbitration according to the rules of “ICC Brussels”); Judgment of 7 February 2002, SA Alfac v. Société Irmac Importacão, comércia e industria LTDa, 2002 Rev. arb. 413 (Paris Cour d'appel) (upholding award rendered under the ICC Rules based on a clause referring the parties to “arbitration in Paris in accordance with the rules of the international association”). 609 See, e.g., Preliminary Award in ICC Case No. 2321, I Y.B. Comm. Arb. 133 (1976) (“when inserting an arbitration clause in their contract, the intention of the parties must be presumed to have been willing to establish an effective machinery for the settlement of disputes covered by the arbitration clause”); Interim Award in ICC Case No. 4145, XII Y.B. Comm. Arb. 97 (1987) (upholding validity of http://www.kluwerarbitration.com/CommonUI/print.aspx
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allegedly ambiguous arbitration clause); Interim Award in ICC Case No. 5029, XII Y.B. Comm. Arb. 113 (1987) (rejecting claim that arbitration clause was defective because it did not specify ICC in Paris; tribunal did not have “slightest doubt” that ICC was meant); Award in ICC Case No. 5103, 115 J.D.I. (Clunet) 1206 (1988) (rejecting argument that clause referring to “International Section of the Chamber of Commerce of Paris” was ambiguous); Partial Award in ICC Case No. 7920, XXIII Y.B. Comm. Arb. 80 (1998) (upholding ambiguous clause). See also Benglia, Inaccurate Reference to the ICC, 7(2) ICC Ct. Bull. 11 (1996); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶9.03 (3d ed. 2000) (concluding, with excessive understatement, that “a slight lack of precision may not be fatal to an arbitration clause, as long as the intent to submit to arbitration is unmistakable”). 610 Marnell Corrao Assoc. Inc. v. Sensation Yachts Ltd, (2000) 15 PRNZ 608 (Auckland High Court). 611 See, e.g., Judgment of 20 June 2001, Hoteles Doral CA v. Corporacion L'Hoteles CA, Expte. 0775 (Venezuela S.Ct. of Justice); Weininger & Lindsey, in N. Blackaby, D. Lindsey & A. Spinillo, International Arbitration in Latin America, Venezuela 231-32 (2002). See also Judgment of 2 December 1982, 1983 NJW 1267 (German Bundesgerichtshof) (arbitration clause referring to two different arbitral institutions invalid); Judgment of 15 November 1994, XXII Y.B. Comm. Arb. 707 (Oberlandesgericht Hamm) (1997) (incorrectly denying enforcement of award on grounds that arbitration clause was invalid because it failed to specify arbitral tribunal; clause provided for arbitration by “the arbitral tribunal of the International Chamber of Commerce in Paris, seat in Zurich”); Judgment of 30 March 1993, XXI Y.B. Comm. Arb. 681 (Vaud Court of Appeal) (1996) (no arbitration agreement concluded). 612 See supra pp. 95-97, 202-207, 567-569. 613 See, e.g., Judgment of 24 January 1996, Harper Robinson v. Société Internationale de Maintenance et de Réalisation, 1997 Rev. arb. 83, 87 (Grenoble Cour d'appel) (holding invalid clause providing for arbitration with non-existent appointing authority); Lovelock Ltd v. Exportles [1968] 1 Lloyd's Rep. 163 (English Court of Appeal) (holding invalid internally contradictory clause); Marks 3 Zet-Ernst Marks v. Presstek, Inc., 455 F.3d 7 (1st Cir. 2006) (clause providing that disputes shall be “determined by arbitration in the Hague under the International Arbitration Rules” not valid). 614 See, e.g., Bauhinia Corp. v. China Nat'l Mach. & Equip. Imp. & Exp. Corp., 819 F.2d 247 (9th Cir. 1987); Pacific Reins. Mgt Corp. v. Ohio Reins. Corp., 814 F.2d 1324 (9th Cir. 1987); Compania Espanola de Petroleos, SA v. Nereus Shipping SA, 527 F.2d 966 (2d Cir. 1975); Lapine Tech. Corp. v. Kyocera Corp., 909 F.Supp. 697 (N.D. Cal. 1995) (arbitration agreement not rendered unenforceable because it included invalid provision), rev'd on other grounds, 130 F.3d 884 (9th Cir. 1997); Euro-Mec Imp., Inc. v. Pantrem & C., SpA, 1992 WL 350211 (E.D. Pa. 1992) (“ambiguity regarding key aspects of the arbitration proceedings … does not necessarily render an arbitration clause unenforceable”); CAE Indus. Ltd v. Aerospace Holdings Co., 741 F.Supp. 388 (S.D.N.Y. 1989); Great N. Nekoosa Corp. v. ASEA, AB, 657 F.Supp. 1253 (W.D. Ark. 1987); Dan River, Inc. v. Cal-Togs, Inc., 451 F.Supp. 497 (S.D.N.Y. 1978); Lory Fabrics, Inc. v. Dress Rehearsal Inc., 434 N.Y.S.2d 359 (N.Y. App. Div. 1980) (differing clauses in form contracts). 615 See, e.g., Bothell v. Hitachi Zosen Corp., 97 F.Supp.2d 1048, 1051-53 (W.D. Wash. 2000) (“in a series of documents, where the words used to refer to a proposed arbitration agreement are so http://www.kluwerarbitration.com/CommonUI/print.aspx
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vague as to be meaningless and no further explanation is provided, either by attachment, discussion, or otherwise, the totality of the documents exchanged between the parties does not constitute a valid ‘arbitration agreement.’”); Hoogovens Ijmuiden Verkoopkantoor BV v. MV “Sea Cattleya,” 852 F.Supp. 6 (S.D.N.Y. 1994) (refusing to enforce clause providing for “General Average and arbitration to be settled in the Netherlands”); Samsun Corp. v. Khozestan Machine Kar Co., 926 F.Supp. 436, 440-42 (S.D.N.Y. 1996) (rejecting argument that agreement “otherwise as per owners' charter party” (which is customary language in the ship chartering industry) incorporated whatever arbitration clause was included in final charter party); Oilex AG v. Mitsui & Co. (U.S.A.), Inc., 669 F.Supp. 85 (S.D.N.Y. 1987); Branham v. CIGNA Healthcare of Ohio, 692 N.E.2d 137, 139-40 (Ohio 1998) (arbitration agreement invalid where it provided that “any controversy between GROUP, a Subscriber or Dependent (whether a minor or adult) or the heirs-atlaw or personal representatives (including any of their agents, employees, or providers), arising out of or in connection with this Agreement shall, upon written notice by one party to another, be submitted to arbitration” because it was unclear which disputes were covered); Lovisa Constr. Co. v. County of Suffolk, 485 N.Y.S.2d 309, 310 (N.Y. S.Ct. 1985) (although parties agreed to submit disputes to an engineer for binding resolution, scope of issues to be submitted was ambiguous and rendered agreement to arbitrate invalid). 616 See infra pp. 889-891, 900-904. 617 See Bear Stearns & Co. v. N.H. Karol & Assoc., Ltd, 728 F.Supp. 499, 501 (N.D. Ill. 1989) (“The issues of whether a grievance is before a proper arbitration forum is appropriate for judicial resolution.”). See alsoOEMSDF Inc. v. Europe Israel Ltd, [1999] O.J. No. 3594 (Ontario S.Ct.) (court considers and decides question whether arbitration agreement provides for LCIA or ICC arbitration). Under First Options of Chicago v. Kaplan, there would appear to be no reason that parties could not, through acceptance of institutional arbitration rules or otherwise, agree to arbitral resolution of such issues, but there is little recent authority on the issue. See infra pp. 914-919. 618 See, e.g., Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79,
84 (U.S. S.Ct. 2002) (“‘‘procedural’ questions which grow out of the dispute and bear on its final disposition’ are presumptively not for the judge, but for an arbitrator, to decide” as an issue concerning the merits of the parties' dispute); Certain Underwriters at Lloyd's London v. Westchester Fire Ins. Co., 489 F.3d 580 (3d Cir. 2007) (question whether parties agreed to individualized or consolidated arbitral proceedings was procedural issue for arbitrators); DeanWitter Reynolds, Inc. v. Howsam, 261 F.3d 956 (10th Cir. 2001); Bauhinia Corp. v. China Nat'l Mach. & Equip. Exp. & Imp., Corp., 819 F.2d 247 (9th Cir. 1987); Gone to the Beach LLC v. Choicepoint Services, Inc., 2007 WL 2768256 (W.D. Tenn. 2007) (“the parties agree that the only issue for the court to resolve is not whether arbitration is appropriate, but what kind of arbitration is required under the contract. This issue of contract interpretation is not properly before the court” but is instead for the arbitrators to decide). 619 See supra pp. 655-659. 620 Award in ICC Case No. 5983, 11 ASA Bull. 507, 510-511 (1993); B. Hanotiau, Complex Arbitrations 29 (2005); J. Lew, L. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶7-78 (2003) (even when references to institutions are incorrect, courts and tribunals are reluctant to declare clauses void for uncertainty). 621 See supra pp. 647-648, 653-655, 675-678. 622 Lucky-Goldstar Int'l (HK) Ltd v. Ng Moo Kee Eng'g Ltd, [1994] Arb. & Disp. Res. L.J. 49 (H.K. High Court, S.Ct.). 623 See, e.g., Warnes SA v. Harvic Int'l Ltd, 1993 WL 228028 (S.D.N.Y. 1993). See alsoTennessee Imp., Inc. v. Filippi, 745 F.Supp. 1314 (M.D. Tenn. 1990) (“Arbitration Court of Chamber of Commerce in Venice (Italy)” interpreted to mean ICC with arbitral seat in Venice); In re HZI Research Center v. Sun Instrument Japan, (1995) WL 562181 (S.D.N.Y. 1995) (upholding clause referring to non-existent institution); Rosgoscirc v. Circus Show Corp., 1993 U.S. Dist. LEXIS 9797 (S.D.N.Y. 1993) (finding valid arbitration agreement where clause referred to nonexistent institution); Astra Footwear Indus. v. Harwyn Int'l, Inc., 442 F.Supp. 907 (S.D.N.Y. 1978) (agreement to arbitrate before non-existent “Chamber of Commerce in New York” is not ICC arbitration clause, but parties meant to arbitrate, and arbitrator appointed under FAA §5). 624 See, e.g., Judgment of 14 February 1985, Tovomon v. Amatex, 1987 Rev. arb. 325 (Paris Cour d'appel) (reference to “Tribunal of the Paris Chamber of Commerce” interpreted as reference to “Arbitration Chamber of Paris”); Judgment of 14 December 1983, Epoux Convert v. Droga, 1984 Rev. arb. 483 (French Cour de cassation civ. 1e) (“Yugoslavian Chamber of Commerce in Belgrade” interpreted as reference to “Foreign Trade Arbitration Court at the Economic Chamber of Yugoslavia”); Judgment of 24 March 1994, Deko v. Dingler, 1994 Rev. arb. 515 (Paris Cour d'appel) (reference to “Paris Chamber of Commerce” interpreted as reference to ICC); Judgment of 7 February 2002, SA Alfac v. Société Irmac Importacão, comércia e industria LTDa, 2002 Rev. arb. 413 (Paris Cour d'appel) (arbitration clause should be interpreted in accordance with validation principle, as well as principles of good faith and contra preferentem rule). See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶1239-1240 (1999). 625 See, e.g., Judgment of 21 November 2003, DFT 130 III 66 (Swiss Federal Tribunal); Judgment of 8 July 2003, DFT 129 III 675 (Swiss Federal Tribunal); Judgment of 5 December 1994, 13 ASA Bull. 247 (Oberlandesgericht Dresden) (1995); Judgment of 7 February 1991, 9 ASA Bull. 269 (Swiss Federal Tribunal) (1991). 626 See, e.g., Judgment of 27 September 2005, XXXI Y.B. Comm. Arb. 685, 693 (Oberlandesgericht Hamm) (2006) (“The incorrect indication of the name of the arbitral institution … does not affect [the validity of the arbitration clause], because in 1985, at the time of conclusion of the contract, there was no other institution than the Geneva Chamber of Commerce and Industry”); Judgment of 15 October 1999, XXVI Y.B. Comm. Arb. 328 (Kammergericht Berlin) (2001) (arbitration clause held valid, notwithstanding reference to non-existent “German Central Chamber of Commerce,” because parties' broad intention was to arbitrate under German law in Germany under auspices of German institution); Judgment of 5 December 1994, XXII Y.B. Comm. Arb. 266 (Oberlandesgericht Dresden) (1997) (reference to “International Chamber of Commerce in Vienna” upheld as reference to ICC arbitration seated in Vienna: “there is no indication that the parties intended to give the arbitral clause a meaning other than the meaning usual in transnational commerce”). http://www.kluwerarbitration.com/CommonUI/print.aspx
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627 See, e.g., Nat'l Material Trading v. Tang Indus., Inc., 1997 WL
915000 (D.S.C. 1997) (agreement to arbitrate was invalid when it provided that “[a]ny disputes or differences that may arise out of or in connection with this contract shall be referred to the Court of Arbitration at the Chamber of Commerce and Industry of Switzerland and settled in conformity with the rules and procedures of said Commission” because there is no such institution). See also Judgment of 20 January 1994, BGHZ 125, 7, 11 (German Bundesgerichtshof); Judgment of 15 November 1994, XXII Y.B. Comm. Arb. 707, 708-709 (Oberlandesgericht Hamm) (1997); Judgment of 24 January 1996, Harper Robinson v. Société Internationale de Maintenance et de Réalisation, 1997 Rev. arb. 83 (Grenoble Cour d'appel) (arbitration agreement to arbitrate referring to the “International Arbitration Court of the Hague” held invalid). 628 Preliminary Award in Zurich Chamber of Commerce of 25 November 1994, XXII Y.B. Comm. Arb. 211 (1997). 629 See, e.g., Award in ICC Case No. 5103, 115 J.D.I. (Clunet) 1206 (1988) (reference to Paris Chamber of Commerce interpreted as reference to ICC); Partial Award in ICC Case No. 6709, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1991-1995 435 (1997) (same). In contrast, one French judicial decision held wrongly that a reference to “ICC of Paris” is not sufficient to designate Paris as the arbitral seat. Judgment of 10 January 1996, Nat'l Iranian Oil Cie (NIOC) v. Etat d'Israël, 2002 Rev. arb. 427 (Paris Tribunal de grande instance). 630 See, e.g., Award in ICC Case No. 2626, 105 J.D.I. (Clunet) 980
(1978); Award in ICC Case No. 3460, 108 J.D.I. (Clunet) 939 (1981) (“International Chamber of Commerce in Geneva”); Interim Award in ICC Case No. 4472, 111 J.D.I. (Clunet) 946 (1984) (“the International Chamber of Commerce in Zurich”); Final Award in ICC Case No. 5294, XIV Y.B. Comm. Arb. 137 (“rules of conciliation and arbitration of the International Chamber of Commerce, Zurich, Switzerland” held to mean ICC arbitration sited in Zurich) (1989); Partial Award in ICC Case No. 7920, XXIII Y.B. Comm. Arb. 80 (“the International Chamber of Commerce of Geneva”) (1998); Award in ICC Case No. 10097, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 88 (2001) (reference to non-existent institution for appointment of tribunal was not sufficient to invalidate arbitration clause since there was no doubt that arbitration should be conducted under the ICC Rules). 631 See, e.g., Final Award in German Coffee Association of 28 September 1992, XIX Y.B. Comm. Arb. 48 (1994) (upholding clause providing “arbitration: Hamburg, West Germany” in coffee quality dispute); Award in Bulgarian Chamber of Commerce and Industry, Case No. 151 (3 December 1984), XV Y.B. Comm. Arb. 63 (1990); Preliminary Award in Zurich Chamber of Commerce of 25 November 1994, XXII Y.B. Comm. Arb. 211, 216 (1997) (“International Trade Arbitration Organization in Zurich” interpreted as referring to Zurich Chamber of Commerce); Interlocutory Award on Jurisdiction in Geneva Chamber of Commerce, Matter No. 117, 15 ASA Bull. 534 (1997). But seeAward in Zurich Chamber of Commerce Case No. 287/95 (25 March 1996), 14 ASA Bull. 290 (1996) (refusing to proceed under clause referring to “Arbitration Commission in Switzerland”).
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632 For example, following German reunification, the former
Arbitration Court attached to the Chamber of Foreign Trade of the DDR was dissolved and its functions assumed by the German Arbitration Institution (Deutsche Institution füer Schiedsgerichtsbarkeit). The German Supreme Court held that clauses selecting the DDR's Arbitration Court could not be interpreted as agreement to the “private” German Arbitration Institution. Judgment of 20 January 1994, BGHZ 125, 7, 11 (German Bundesgerichtshof). In contrast, the Court of Arbitration at the Chamber of Commerce and Industry of the Russian Federation was held to be a successor to the former Court of Arbitration of the USSR Chamber of Commerce and Industry. Judgment of 30 November 1994, XXII Y.B. Comm. Arb. 628 (Austrian Oberster Gerichtshof) (1997). See also Dalimpex Ltd v. Janicki, [2003] Ont. Rep. LEXIS 132 (Ontario Court of Appeal) (Polish National Chamber of Commerce Court of Arbitration is successor to Polish College of Arbitrators); Shenzhen Nan Da Indus. Trade United Co. v. FM Int'l Ltd, XVIII Y.B. Comm. Arb. 377, 382 (H.K. High Court, S.Ct. 1991) (1993) (“the fact that the arbitral institution chosen by the parties has improved its rules between contract and arbitration is not sufficient to justify refusing enforcement”); Judgment of 11 November 1998, XXIVa Y.B. Comm. Arb. 724 (Zutphen Arrondissem*ntsrechtbank) (1999) (refusing to deny recognition to award made pursuant to CIETAC Rules, where arbitration agreement provided for arbitration pursuant to FETAC Rules and where FETAC was succeeded by CIETAC); China Agribusiness Dev. Corp. v. Balli Trading [1998] 2 Lloyd's Rep. 76 (Q.B.) (same). 633 See, e.g., Stinson v. America's Home Place, Inc., 108
F.Supp.2d 1278, 1285 (M.D. Ala. 2000) (“Although the arbitrator specified in [the contract] is not now available to resolve their dispute, there is no indication that the choice of that particular arbitrator was central to the arbitration clause. In such cases §5 dictates that the court choose another arbitrator and enforce the arbitration clause.”); Ex parte Warren, 718 So.2d 45 (Ala. 1998) (arbitration clause enforceable even though specific arbitrator no longer in existence as no evidence that choice of arbitrator was an essential term); Zechman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 742 F.Supp. 1359 (N.D. Ill. 1990) (where a term of an arbitration agreement fails, decision whether to substitute new term for failed term or to refuse to enforce agreement altogether turns on intent of the parties at the time the agreement was executed); Astra Footwear Indus. v. Harwyn Int'l Inc., 442 F.Supp. 907 (S.D.N.Y. 1978) (§5 of FAA provides a solution “when the arbitrator selected by the parties cannot or will not perform”); Geimer, in R. Zöller (ed.), Zivilprozessordnung §1039, ¶1 (26th ed. 2007); J.-P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶642 (2d ed. 2002); Voit, in H.-J. Musielak (ed.), Kommentar zur Zivilprozessordnung §1039, ¶1 (5th ed. 2007). 634 See, e.g., Judgment of 16 April 1984, 1986 Rev. arb. 596 (Swiss Federal Tribunal) (Swiss courts uphold ICC's appointment of arbitrator after Director General of World Health refuses to accept parties' designation). 635 See supra pp. 675-679. 636 Award in ICC Case No. 2321, I Y.B. Comm. Arb. 133 (1976). 637 See, e.g., Interlocutory Award in Japan Shipping Exchange http://www.kluwerarbitration.com/CommonUI/print.aspx
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Arbitration Court of 1 September 1981, XI Y.B. Comm. Arb. 193 (1986) (clause providing for arbitration under rules of “Korean Commercial Arbitration Association” and “Japan Shipping Exchange” held to give claimant choice of forums); Final Award in Arbitration Chamber of Paris, Case No. 9473 (2 January 1999), XXVI Y.B. Comm. Arb. 18 (seller's express and tacit acceptances of two order confirmations by buyer, containing arbitration clauses, gave rise to valid arbitration agreements, notwithstanding forum selection clauses in seller's confirmations) (2001); Partial Award in ICC Case No. 6000, in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 88 (2001) (interpreting arguably contradictory dispute resolution clauses in related contracts “in a manner which allows to keep, for each of them, its own domain of application”). 638 See, e.g., Linea Naviera de Cabotaje, CA v. Mar Caribe de Navegacion, CA, 169 F.Supp.2d 1341 (M.D. Fla. 2001) (“variance between the two arbitration provisions is an ancillary logistical concern which is not integral to the underlying agreement and does not preclude arbitration”); Peters Fabrics, Inc. v. Jantzen, Inc., 582 F.Supp. 1287, 1291 (S.D.N.Y. 1984) (competing forms providing for AAA and GAC arbitrations, held to constitute agreement to arbitrate); Star Shipping AS v. China Nat'l Foreign Trade Trans. Corp. [1993] 2 Lloyd's Rep. 445 (English Court of Appeal) (upholding clause providing “any dispute arising under the charter is to be referred to arbitration in Beijing or London in the defendant's option”); Marnell Corrao Assoc. Inc. v. Sensation Yachts Ltd, (2000) 15 PRNZ 608 (Auckland High Court) (“general principle that Courts should uphold arbitration, by striving to give effect to the intention of parties to submit disputes to arbitration, and not allow any inconsistencies or uncertainties in the wording or operation of the arbitration clause to thwart that intention”); William Co. v. Chu Kong Agency Co. Ltd, XIX Y.B. Comm. Arb. 274 (H.K. High Court, S.Ct. 1993) (1994) (clause contained both choice-of-court and arbitration provisions; held that clause granted claimant option of what procedure to use); Judgment of 30 January 2003, XXXII Y.B. Comm. Arb. 303, 308 (Oberlandesgericht Düsseldorf) (2007) (“an arbitration agreement may provide for two arbitral tribunals. This means as a rule that the claimant in the arbitration has a choice”). 639 Lea Tai Textile Co. v. Manning Fabrics, Inc., 411 F.Supp. 1404 (S.D.N.Y. 1975) (refusing to enforce arbitration agreement where there was “hopeless conflict” between competing forms). 640 See supra pp. 65-68. 641 See, e.g., Montauk Oil Transp. Corp. v. Steamship Mut. Underwriting Ass'n (Bermuda) Ltd, 79 F.3d 295 (2d Cir. 1996); Hart v. Orion Ins. Co., 453 F.2d 1358, 1361 (10th Cir. 1971); West Shore Pipe Line Co. v. Assoc. Elec. & Gas Ins. Servs. Ltd, 791 F.Supp. 200, 204 (N.D. Ill. 1992) (“The … service of suit clause can therefore reasonably be interpreted to facilitate litigation following arbitration, concerning the validity of enforcement of any arbitration ruling, without curtailing the mandatory arbitration provision.”); China Union Lines Ltd v. Am. Marine Underwriters, Inc., 458 F.Supp. 132, 134 n.5 & 136 n.13 (S.D.N.Y. 1978); Internet East, Inc. v. Duro Comm., Inc., 553 S.E.2d 84, 87-88 (N.C. App. 2001) (forum selection clause and arbitration clause contained in same contract are not inherently inconsistent with one another; forum selection clause will be triggered “only when a court is needed to intervene for those judicial matters that arise from arbitration and when the parties have agreed to take a particular dispute to court instead of resolving it by arbitration.”).
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642 Paul Smith Ltd v. H & S Int'l Holding Inc. [1991] 2 Lloyd's Rep.
127 (Q.B.). 643 [1991] 2 Lloyd's Rep. 127 (Q.B.). 644 Shell Int'l Petroleum Co v. Coral Oil Co. Ltd [1999] 1 Lloyd's Rep. 72 (Q.B.). 645 Judgment of 1 February 1979, Techniques de l'Ingénieur v. Sofel, 1980 Rev. arb. 97 (Paris Tribunal de grande instance). 646 Judgment of 1 February 1979, Techniques de l'Ingénieur v. Sofel, 1980 Rev. arb. 97 (Paris Tribunal de grande instance). 647 See, e.g., Judgment of 1 December 1995, Ministère de l'Agriculture d'Irak v. Hochtief, 1996 Rev. arb. 456 (Paris Cour d'appel); Judgment of 29 November 1991, Dist. Chardonnet v. Fiat Auto France, 1993 Rev. arb. 617 (Paris Cour d'appel); Temiskaming Hosp. v. Integrated Medi. Networks, Inc., 46 B.L.R.2d 101 (Ontario Court of Justice 1998) (dispute resolution provisions set forth forum selection clause for specified defaults and arbitration clause for other matters; litigation concerned specified defaults and not other matters); In re Montauk Oil Transp. Corp. v. Steamship Mut. Underwriting Ass'n, 1991 U.S. Dist. LEXIS 1364 (S.D.N.Y. 1991); Ryobi N. Am., Inc. v. Singer Co., 11(9) Mealey's Int'l Arb. Rep. B1 (D.S.C. 1996) (1996). 648 See, e.g., Award in ICC Case No. 5488, discussed in E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶490 (1999) (“The parties had referred in two articles of a construction contract, to the jurisdiction of the ICC and to that of the courts of the country party to the dispute. The arbitral tribunal had relied on the principle of effective interpretation and ruled that the parties had intended to confer general jurisdiction on the arbitral tribunal to hear actions which might arise once the works have been completed, and specific jurisdiction on the courts over issues to be decided during the performance of the works.”); Partial Award in ICC Case No. 6866, 8(2) ICC Ct. Bull. 73 (1997) (clause providing for ICC arbitration “in first and last instance” and for Algerian court jurisdiction “in last instance only,” interpreted as referring only to Algerian court review of arbitral award); Award in ICC Case No. 8179, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 95 (2001) (upholding agreement to arbitrate, notwithstanding arguably conflicting choiceof-court clause; reasoning that selection of national court applies to request for judicial assistance in aid of arbitration). 649 Such provisions should not generally be interpreted as granting parties an option to either arbitrate or litigate: this would deprive the arbitration agreement of much of its value (e.g., certainty, neutrality, centralization of dispute resolution) and would be an unusual contractual choice, that ought not to be found absent explicit language requiring this result. 650 See, e.g., Opals on Ice Lingerie, Designs by Bernadette, Inc. v. Bodylines, Inc., 320 F.3d 362, 372 (2d Cir. 2003) (documents contained contradictory references to arbitration in New York and in California: “this difference is significant and indicates that there was no meeting of the minds as to an agreement to arbitrate”); Jiampietro v. Utica Alloys, Inc., 576 N.Y.S.2d 733, 733 (N.Y. App. Div. 1991) (“The agreement to arbitrate is ambiguous and unenforceable because the ‘schedule’ containing the list of sanctions available upon a breach of the underlying agreement is inconsistent with an agreement to arbitrate.”); Judgment of 2 December 1982, 1983 NJW 1267 (German Bundesgerichtshof) (arbitration clause http://www.kluwerarbitration.com/CommonUI/print.aspx
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referring to two different arbitral institutions at the same time invalid); Judgment of 13 March 1973, II Y.B. Comm. Arb. 239 (Karlsruhe Oberlandesgericht) (1977) (holding invalid arbitration clause providing: “All disputes arising out of this contract will, if no friendly settlement can be reached between [the parties], be submitted in first instance to an arbitral tribunal of the German-Dutch Chamber of Commerce. If the decision is not acceptable to either party, an ordinary court of law, to be designated by the claimant, will be competent": since the clause in dispute made it possible to commence a court action if the decision was not acceptable to either party, there was no valid arbitration agreement, but rather an agreement on an attempt for conciliation (Sühneinstanz) preceding a court action.”). 651 See, e.g., Judgment of 20 February 2001, 11 SchH 02/00, reported at www.dis-arb.de (Oberlandesgericht Dresden); Zechman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 742 F.Supp. 1359 (N.D. Ill. 1990) (“Where one term of an arbitration agreement has failed, the decision between substituting a new term for the failed provision and refusing to enforce the agreement altogether turns on the intent of the parties at the time the agreement was executed, as determined from the language of the contract and the surrounding circ*mstances. … To the extent the court can infer that the essential term of the provision is the agreement to arbitrate, that agreement will be enforced despite the failure of one of the terms of the bargain. If, on the other hand, it is clear that the failed term is not an ancillary logistical concern but rather is as important a consideration as the agreement to arbitrate itself, a court will not sever the failed term from the rest of the agreement and the entire arbitration provision will fail.”); Astra Footwear Indus. v. Harwyn Int'l, Inc., 442 F.Supp. 907, 910 (S.D.N.Y. 1978). 652 See supra pp. 655-659. 653 In the Andersen Consulting case the parties had executed various different forms of an arbitration agreement, which the arbitral tribunal held nonetheless constituted a single, multiparty agreement to arbitrate. Final Award in ICC Case No. 9797, Andersen Consulting Business Unit Member Firms v. Andersen Worldwide Société Cooperative, 18 ASA Bull. 514, 516 (2000). In upholding the award, the Swiss Federal Tribunal reasoned that the parties must have intended to be bound by a single, uniform arbitration clause. Judgment of 8 December 1999, 18 ASA Bull. 546, 552 et seq. (Swiss Federal Tribunal) (2000). See alsoAndersen Consulting Business Unit Member Firms v. Andersen Worldwide Societe Coop., 1998 U.S. Dist. LEXIS 3252 (S.D.N.Y. 1998). 654 See cases cited infra pp. 687-690. 655 See infra pp. 689-690; Three Shipping Ltd v. Harebell Shipping Ltd [2004] All E.R. (D) 152 (Q.B.) (stay of judicial proceedings granted on the basis of clause providing ship owners with the option to commence arbitration); Thorn Security (Jong Kong Ltd) v. Cheung Fee Fung Cheung Constr. Co., [2005] 1 HKC 252 (H.K. Court of Appeal, High Court); Westfal-Larsen Co. AS v. Ikerigi Compania Naviera SA [1983] 1 All E.R. 382 (Q.B.). 656 See, e.g., Austin v. Owens-Brockway Glass Container Inc., 78 F.3d 875, 880 (4th Cir. 1996) (agreement that “all disputes … may be referred to arbitration” triggers mandatory arbitration); McKee v. Home Buyers Warranty Corp. II, 45 F.3d 981, 983 (5th Cir. 1995) (arbitration clause incorporating AAA Rules is presumptively mandatory arbitration agreement, although parties may “expressly agree otherwise”); Rainwater v. Nat'l Home Ins. Co., 944 F.2d 190 (4th Cir. 1991) (interpreting provision as mandatory, rather than http://www.kluwerarbitration.com/CommonUI/print.aspx
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optional, arbitration clause; relying on incorporation of AAA Rules); Am. Italian Pasta Co. v. Austin Co., 914 F.2d 1103 (8th Cir. 1990); Bonnot v. Congress of Independent Unions Local #14, 331 F.2d 355 (8th Cir. 1964) (“may” gives either party the option of requiring arbitration); Deaton Truck Line, Inc. v. Local Union 612, Affiliated With the Int'l Brotherhood Of Teamsters, Chauffeurs, Warehousem*n And Helpers of Am., 314 F.2d 418, 421 (5th Cir. 1962) (same); Wash. Mut. Bank v. Crest Mortg. Co., 418 F.Supp.2d 860, 862 (N.D. Tex. 2006) (“[B]y incorporating AAA's Rules into their arbitration agreement, the parties have implicitly consented to an entry of judgment by an appropriate court.”); Bryson v. Gere, 268 F.Supp.2d 46, 51 (D.D.C. 2003) (holding that the clause “shall precede” does not overcome the policy favoring arbitration); Hostmark Inv. Ltd v. Geac Enter. Solutions, Inc., 2002 WL 1732360, at *3 (N.D. Ill. 2002) (use of “may” rather than “shall” in an arbitration clause, stating that “all claims, disputes, controversies or other matters arising out of or relating to the Agreement, or breach thereof, may be submitted to and settled by a panel of three arbitrators” did not imply that the parties had the option of invoking some remedy other than arbitration); Floorcoverings Int'l, Ltd v. Swan, 2000 U.S. Dist. LEXIS 5855, at * 10 (N.D. Ill. 2000) (such an arbitration clause is unambiguous and provides party with choice “to elect or not elect” arbitration); St. Lawrence Explosives Corp. v. Worthy Bros. Pipeline Corp., 916 F.Supp. 187 (N.D.N.Y. 1996) (arbitration clause incorporating AAA Rules is presumptively “mandatory”); McCrea v. Copeland, Hyman & Shackman, PA, 945 F.Supp. 879, 881-82 (D. Md. 1996) (agreement that “either party may petition the appropriate court … for an order compelling submission … to arbitration” triggers mandatory arbitration); Chiarella v. Vetta Sports, Inc., 1994 WL 557114, at *3 (S.D.N.Y. 1994) (agreement that “either party may submit the dispute to arbitration” triggers mandatory arbitration); Mignocchi v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 707 F.Supp. 140 (S.D.N.Y. 1989); Eastern Europe, Inc. v. Transportmaschinen, Exp.-Imp., Inc., 658 F.Supp. 612, 614 (S.D.N.Y. 1987); Rogers, Burgun, Shahine & Deschler, Inc. v. Dongsan Constr. Co., 598 F.Supp. 754 (S.D.N.Y. 1984); Credit Alliance Corp. v. Crook, 567 F.Supp. 1462 (S.D.N.Y. 1983); Doleac v. Real Estate Professionals, LLC, 911 So.2d 496 (Miss. 2005) (arbitration agreement incorporating AAA Rules and making arbitration a condition precedent to judicial action is presumptively “mandatory”). 657 See, e.g., Eurosteel Corp. v. M/V Millenium Falcon, 2002 U.S. Dist. LEXIS 15905 (N.D. Ill. 2002) (clause providing that “arbitration, if any” will take place in Paris is not mandatory); Hoogovens Ijmuiden Verkoopkantoor BV v. MV “Sea Cattleya,” 852 F.Supp. 6, 78 (S.D.N.Y. 1994) (clause providing “arbitration to be settled in the Netherlands” not mandatory: “no more than an agreement that, if arbitration were to be conducted whether voluntarily agreed upon or required by some other contractual clause, it would proceed in the Netherlands”); Beckham v. William Bayley Co., 655 F.Supp. 288, 291 (N.D. Tex. 1987) (no mandatory arbitration agreement). 658 See, e.g., Kelley v. Benchmark Homes, Inc., 550 N.W.2d 640 (Neb. 1996) (agreement for arbitration that “shall not be legally binding” subject to FAA); United States v. Bankers Ins. Co., 245 F.3d 315, 318 (4th Cir. 2001) (agreement for arbitration that was only binding if one party accepted award subject to FAA); Howard Fields & Assoc. v. Grand Wailea Co., 848 F.Supp. 890, 896 (D. Haw. 1993) (interpreting arbitration clause as non-exclusive, but then staying litigation because of FAA's pro-arbitration policies). 659 Mangistaumunaigaz Oil Prod. Ass'n v. United World Trade Inc. http://www.kluwerarbitration.com/CommonUI/print.aspx
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[1995] 1 Lloyd's Rep. 617 (Q.B.). 660 Tokumaru Kaiun Co. Ltd v. Petredec Ltd [1995] unreported (Q.B.). 661 Lobb P'ship Ltd v. Aintree Racecourse Co., Ltd [2000] B.L.R. 65 (Q.B.). 662 See, e.g., Judgment of 14 February 2003, Poiré v. Tripier, 19 Arb. Int'l 368 (French Cour de cassation) (2003), Note, Jarrosson, at 363; Judgment of 3 May 1980, Kabushiki Kaisha Ameroido Nihon v. Drew Chemical Corp., VIII Y.B. Comm. Arb. 394 (Yokohama District Court) (1983) (rejecting claim that arbitration clause was not mandatory); Judgment of 30 May 1994, XX Y.B. Comm. Arb. 745 (Tokyo High Court) (1995) (“the extent to which an arbitration agreement bars litigation shall be determined in principle by the law governing the arbitration agreement”; holding arbitration agreement mandatory and exclusive); Judgment of 8 April 2004, XXXI Y.B. Comm. Arb. 802 (Italian Corte di Cassazione) (2006) (rejecting argument that arbitration clause was invalid, as merely optional, because it provided that parties “may” commence arbitration: “otherwise, the clause would be meaningless as a dispute settlement instrument as it would merely envisage the generic option to refer the dispute to arbitration, an option that the parties would have had also if there had been no clause …”). 663 Judgment of 3 May 1980, Kabushiki Kaisha Ameroido Nihon v. Drew Chemical Corp., VIII Y.B. Comm. Arb. 394 (Yokohama District Court) (1983) (rejecting claim that arbitration clause was not mandatory); Judgment of 30 May 1994, XX Y.B. Comm. Arb. 745 (Tokyo High Court) (1995) (“the extent to which an arbitration agreement bars litigation shall be determined in principle by the law governing the arbitration agreement”; holding arbitration agreement mandatory and exclusive). 664 See, e.g., Canadian Nat'l Railway Co. v. Lovat Tunnel Equip. Inc., 174 D.L.R.4th 385 (Ontario Court of Appeal 1999). Compare Re McNamara Constr. of Ontario Ltd and Brock Univ., 11 D.L.R.3d 513 (Ontario Court of Appeal 1970) (clause's language required conclusion that it was optional); Campbell v. Murphy, 15 O.R.3d 444 (Ontario Court of Justice 1993) (clause providing that disputes “shall … be referred to arbitration” is mandatory, not optional). 665 See Guangdong Agri. Co. v. Conagra Int'l (Far East) Ltd [1993] Arb. & Disp. Res. L.J. 100 (H.K. High Court, S.Ct. 1992) (“the case under dispute can then be submitted to arbitration” is binding arbitration agreement); Tommy C.P. Sze & Co. v. Li & Fung (Trading) Ltd, 2002 HKCU LEXIS 1634 (H.K. Court of First Instance, High Court) (“the clause in question must be specific and clear to this effect”). 666 See infra pp. 732-736; Nesbitt & Quinlan, The Status and Operation of Unilateral or Optional Arbitration Clauses, 22 Arb. Int'l 133 (2006). 667 UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Arts. 3, 9 (2004); Dawson, Economic Duress: An Essay in Perspective, 45 Mich. L. Rev. 253 (1947); Restatement (Second) Contracts §175 (1981). SeealsoStretford v. Football Ass'n Ltd [2007] 2 All E.R. (Comm.) 1 (English Court of Appeal) (“constraint” under Article 6 of ECHR: “if there is duress or undue influence or mistake which invalidates the arbitration agreement there will be no waiver of relevant rights under art. 6”). 668 In most U.S. jurisdictions, courts have looked to both “substantive” elements of an agreement, and “procedural” elements of its formation, in order to determine whether it was so one-sided http://www.kluwerarbitration.com/CommonUI/print.aspx
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and oppressive as to be unenforceable. See Restatement (Second) Contracts §208 (1981); J. Calamari & J. Perillo, The Law of Contracts §§9-37 to 9-40 (5th ed. 2003). Compare Unfair Terms in Contracts Regulations, Reg. 5, SI 1999 No. 2083. 669 See Heinrichs, in O. Palandt, Bürgerliches Gesetzbuch §123, ¶15-21 (66th ed. 2007); P. Gauch, W. Schluep & J. Schmid, Schweizerisches Obligationenrecht Allgemeiner Teil Vol. 1, ¶875 (8th ed. 2003); X v. Federal Republic of Germany, Application 1197/61, (1962) 5 Y.B. Eur. Conv. H.R. 88, 96 (Eur. Comm. H.R.) (arbitration agreement invalid under European Human Rights Convention if result of “constraint”); Lundgren v. Sweden, Application 22506/93, available at www.echr.coe.int (ECHR 1995) (arbitration agreement invalid under European Human Rights Convention if result of “improper means”). See also UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Art. 3.9 (2004); French Civil Code, Art. 1112 (“There is duress where it is of a nature to make an impression upon a reasonable person and where it can inspire him with a fear of exposing his person or his wealth to considerable and present harm. Regard shall be paid, on this question, to the age, the sex and the condition of the persons.”). 670 See supra pp. 372-373, 386-387 & infra pp. 945-948; Adams v. Merrill Lynch Pierce Fenner & Smith, Inc., 888 F.2d 696 (10th Cir. 1989) (on the merits rejected a claim that arbitration agreement was contained in contract of adhesion); Verolme Botlek BV v. Lee C. Moore Corp., XXI Y.B. Comm. Arb. 824 (N.D. Okla. 1995) (1996) (rejecting claim of duress on grounds that strike threats were not improper); Acquaire v. Canada Dry Bottling, 906 F.Supp. 819, 826 (E.D.N.Y. 1995) (rejecting claim that arbitration clause was product of duress); McCain Foods Ltd v. Puerto Rico Supplies, Inc., 766 F.Supp. 58 (D.P.R. 1991) (considering on merits and rejecting unsupported and conclusory claims of duress); Miller and Co. v. China Nat'l Minerals Imp. & Exp. Corp., 1991 WL 171268 (N.D. Ill. 1991) (same); Ferrara, SpA v. United Grain Growers, Ltd, 441 F.Supp. 778, 781 (S.D.N.Y. 1977), aff'd mem., 580 F.2d 1044 (2d Cir. 1978) (same where there was no “allegation of fraud or duress in the signing or inducement of the contracts, and the cases do not involve parties of substantially unequal bargaining power or sophistication”); Rust v. Drexel Firestone, Inc., 352 F.Supp. 715 (S.D.N.Y. 1972); Judgment of 31 May 2005, XXXII Y.B. Comm. Arb. 608, 614 (Spanish Tribunal Supremo) (2007) (rejecting argument that arbitration agreement was invalid adhesion contract: “the use of general conditions, which facilitates negotiations and reflect the habitual usages and practices of a trade, is a commonly accepted practice in international trade”). Compare Transmarine Seaways Corp. of Monrovia v. Marc Rich & Co. AG, 480 F.Supp. 352 (S.D.N.Y. 1979) (“the law requires an exacting standard of proof from a party claiming duress, because public policy favors the enforceability of agreements ostensibly entered into by the parties willing to be bound”). 671 See, e.g., ITT Comm. Fin. Corp. v. Tyler, 1994 WL 879 497 (Mass. Super. 1994) (arbitration clause in loan agreement signed under duress); Int'l Underwater Contractors, Inc. v. New England Tel. and Tele. Co., Mass.App.Ct. 340, 342 (Mass. Ct. App. 1979) (“A document signed under economic duress is not binding”); Wheeler v. St. Joseph Hosp., 133 Cal.Rptr. 775 (Cal. App. 1976) (arbitration clause in hospital admission contract held unconscionable); Aamco Transmissions Inc. v. Kunz, (1991) 97 Sask. R. 5 (Sask. Court of Appeal) (refusing to recognize award made in United States on grounds that adhesion contract signed by unsophisticated party was not binding). http://www.kluwerarbitration.com/CommonUI/print.aspx
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672 See, e.g., S+L+H SpA v. Miller-St. Nazianz, Inc., 988 F.2d 1518
(7th Cir. 1993) (rejecting claim that arbitration clause was procured by economic duress); Riley v. Kingsley Underwriting Agencies, Ltd, 969 F.2d 953 (10th Cir. 1992); Hellenic Lines, Ltd v. Louis Dreyfus Corp., 372 F.2d 753, 758 (2d Cir. 1967); Meadows Indem. Co. v. Baccala & Shoop Ins. Sers., Inc., 760 F.Supp. 1036 (E.D.N.Y. 1991); Transmarine Seaways Corp. of Monrovia v. Marc Rich & Co. AG, 480 F.Supp. 352, 358 (S.D.N.Y. 1979). See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶525 (1999) (“it is uncommon for a party to seek to have an arbitration agreement declared ineffective on the basis of a defect (such as duress, misrepresentation or mistake)”). 673 Award in ICC Case No. 4381, 113 J.D.I. (Clunet) 1102 (1986). See also Award in ICC Case No. 3327, 109 J.D.I. (Clunet) 971 (1982) (defenses of misrepresentation and duress rejected by arbitral tribunal). 674 See supra pp. 372-373, 386-387 & infra pp. 945-948; Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 637 F.2d 391 (5th Cir. 1981) (defendant's “claims regarding duress and unconscionability are ones that, in the event of arbitration, would be decided by an arbitrator, not the district court, since they go to the formation of the entire contract rather than to the issue of misrepresentation in the signing of the arbitration agreement”); Service Corp. Int'l v. Lopez, 162 S.W.3d 801 (Tex. App. 2005) (“duress … issue relates to the contract as a whole and not solely the arbitration provision. It is therefore an issue to be decided in arbitration”); Southside Internists Group PC Money Purchase Pension Plan v. Janus Capital Corp., 741 F.Supp. 1536, 1541-42 (N.D. Ala. 1990) (“When considering whether the arbitration clause in question is valid, the court may inquire only into those issues relating to the making and performance of the clause, and not to claims regarding the enforceability of the contract in general.”); Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). 675 Ware, Arbitration Law's Separability Doctrine After Buckeye Check Cashing Inc. v. Cardegna, 8 U. Nev. L.J. 107 (2007). See alsoFlannery v. Tri-State Div., 402 F.Supp.2d 819, 825 (E.D. Mich. 2005) (“duress argument, however, is different in character because it questions whether the arbitrator could derive power from the clause contained in it”). 676 See supra pp. 396-402. 677 A party compelled to sign an agreement by gunpoint will not have intended to agree to anything with the assailant; a party forced by commercial or other pressure to accept unfavorable contractual terms may well desire a neutral, expert and binding dispute resolution process and should be required to disprove this presumption. 678 See supra pp. 425 et seq. 679 See supra pp. 470-481. 680 See supra pp. 497-504, 504-516, 558-559, 561-569, & infra pp. 1264-1270, 1368-1376, 1508-1513, 1576-1582, 1765-1770, 2556-2560. 681 See, e.g., UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Art. 2.1.20 (2004) (“surprising terms”); J. Herbots (ed.), International Encyclopedia of Laws, Australia ¶39, Hellas ¶66, India ¶¶99, 102 (Update January 2007); Douglas v. U.S. Dist. Court for Cent. Dist. of Calif., 495 F.3d 1062 (9th Cir. 2007); Trimble v. N.Y. Life Ins. Co., 255 N.Y.S. 292, 297 (N.Y. App. Div. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1932). Note that the treatment of incorporated arbitration clauses is one specific application of this doctrine. See infra pp. 695 et seq. 682 See, e.g., Judgment of 25 October 1962, 1963 NJW 203, 205
(German Bundesgerichtshof) (“The parties shall not only be aware of the conclusion of an arbitration agreement … but also of its consequences.”); Judgment of 27 April 1995, 1996 NJW-RR 970 (Oberlandesgericht Koblenz); Douglas v. U.S. Dist. Court for Cent. Dist. of Calif., 495 F.3d 1062 (9th Cir. 2007) (invalidating for lack of notice arbitration agreement posted on website after parties had entered into agreement); Myers v. Terminix, 697 N.E. 2d 277 (Ohio Ct. of Comm. Pleas 1998) (arbitration agreement revocable where consumer was unaware of an undisclosed arbitration requirements and faced $2000 in filing fees). 683 See, e.g., Judgment of 30 March 2000, XXXI Y.B. Comm. Arb. 652 (Oberlandesgericht Schleswig) (2006) (rejecting claim that party was unaware of, and did not consent to, arbitration clause on reverse of contract); Judgment of 22 September 1978, V Y.B. Comm. Arb. 262 (Hanseatisches Oberlandesgericht Hamburg) (1980) (rejecting contention that party had not given power of attorney to broker firm); Judgment of 27 February 1989, XVII Y.B. Comm. Arb. 581 (Appellationsgericht Basel) (1992) (“the appellant has signed a standard contract in English containing an unequivocal arbitral clause. This arbitral clause is valid even though the appellant allegedly did not read it”). 684 See, e.g., Chelsea Square Textiles, Inc. v. Bombay Dyeing and Mfg Co., 189 F.3d 289 (2d Cir. 1999) (rejecting argument that arbitration agreement was not formed because clause was illegible); Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282 (9th Cir. 1988) (“We see no unfairness in expecting parties to read contracts before they sign them. … We are unable to understand how any person possessing a basic education and fluent in the English language could fail to grasp the meaning of that provision.”); Adams v. Merrill Lynch Pierce Fenner & Smith, Inc., 888 F.2d 696, 701 (10th Cir. 1989) (“law presumes that one has read what he has signed”); N & D Fashions, Inc. v. DHJ Indus., Inc., 548 F.2d 722 (8th Cir. 1976); Snap-On Tools Corp. v. Vetter, 1993 U.S. Dist. LEXIS 16707 (D. Montana 1993); Ferrara SpA v. United Grain Growers, Ltd, 441 F.Supp. 778 (S.D.N.Y. 1977), aff'd mem., 580 F.2d 1044 (2d Cir. 1978); Level Exp. Corp. v. Wolz, Aiken & Co., 305 N.Y. 82, 87 (N.Y. 1953) (buyer could not avoid arbitration by claiming he was unaware of and never read arbitration provision incorporated in contract); Pimpinello v. Swift & Co., 253 N.Y. 159, 162-163 (N.Y. 1930) (“Ordinarily, signer of instrument expressive of jural act is conclusively bound thereby”); Sea Trade Maritime v. Hellenic Mut. War Risks Ass'n (Bermuda) Ltd, The Athena [2007] 1 Lloyd's Rep. 280 (Q.B.) (rejecting claim that arbitration agreement in a contract was invalid because it was onerous and not specifically drawn to the attention of counter-party); Judgment of 11 July 1992, XXII Y.B. Comm. Arb. 715 (Italian Corte di Cassazione) (1997). 685 First Family Fin. Sers., Inc. v. Rogers, 736 So.2d 553 (Ala. 1999). 686 See, e.g., Johnnie's Homes, Inc. v. Holt, 790 So.2d 956 (Ala. 2001) (since claim of illiteracy “bears upon [party's] comprehension of the entire contract, not just the arbitration agreement” it is for arbitral, not judicial, resolution); Villa Garcia v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 833 F.2d 545 (5th Cir. 1987) (alleged illiteracy http://www.kluwerarbitration.com/CommonUI/print.aspx
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goes to “formation of the entire contract” and is therefore for arbitral, not judicial, determination); Am. Heritage Life Ins. Co. v. Lang, 321 F.3d 533 (5th Cir. 2003) (fraud in inducing an illiterate party to enter into an arbitration agreement specifically, rather than the contract generally, is issue for courts); supra pp. 372-374 & infra pp. 940943. Where claims concern lack of notice of the arbitration agreement itself, some jurisdictions will require interlocutory judicial consideration. See infra p. 939; Specht v. Netscape Comm. Corp., 306 F.3d 17, 32, 35 (2d Cir. 2002); Judgment of 13 January 2005, 2005 NJW 1125, 1126 (German Bundesgerichtshof) (special form requirement for consumer arbitration agreement generally provides for sufficient protection of consumer; matter for court to determine). 687 See B. Hanotiau, Complex Arbitrations 29 (2005); van Houtte,
Consent to Arbitration Through Agreement to Printed Contracts: The Continental Experience, 16 Arb. Int'l 1, 14 (2000); de Boisséson & Clay, Recent Developments in Arbitration in Civil Law Countries, 1988 Int'l Arb. L. Rev. 150; Voit, in H.-J. Musielak (ed.), Kommentar zur Zivilprozessordnung §1031, ¶6 (5th ed. 2007); Hanefeld & Wittinghofer, Schiedsklauseln in Allgemeinen Geschäftsbedingungen, 2005 SchiedsVZ 217, 218-221. 688 A. Samuel, Jurisdictional Problems in International Commercial Arbitration 87 (1989) (incorporation raises issues of both form and consent). 689 See supra pp. 582 et seq. UNCITRAL Model Law, Art. 7(2); A. Samuel, Jurisdictional Problems in International Commercial Arbitration 88 (1989) (“if, as a matter of the applicable law, the arbitral clause is deemed to be included in the contract, then it is ‘juridically’ if not ‘physically’ ‘in the contract’ and that is sufficient” to satisfy Article II(2)); Tuca v. Ocean Freighters, Ltd, 2006 U.S. Dist. LEXIS 16174 (E.D. La. 2006) (“agreements that incorporate agreements with arbitration clauses can satisfy the agreement in writing requirement”); Stony Brook Marine Transp. Corp. v. Wilton, 1996 WL 913180 (E.D.N.Y. 1996). 690 Landau, The Requirement of A Written Form for An Arbitration Agreement: When “Written” Means “Oral,” in A. van den Berg (ed.), International Commercial Arbitration: Important Contemporary Questions 19, 30 (ICCA Congress Series No. 11 2003) (“Unlike the Model Law, the New York Convention contains no provision dealing specifically with arbitration clauses incorporated by reference.”). 691 A. van den Berg, The New York Arbitration Convention of 1958 217-18 (1981). 692 Judgment of 11 October 1989, Bomar Oil NV v. Enterprise Tunisienne d' Activites Petrolieres, XV Y.B. Comm. Arb. 447 (French Cour de cassation) (1990). This is not to say that the standard adopted by the Cour de Cassation is misconceived as a matter of national legislative policy. Applying national law, a number of courts have come to similar conclusions. See infra pp. 696-704. The Cour de cassation's decision is instead subject to criticism for perceiving such a standard in the New York Convention (and also, separately, for ignoring the fact that French law could prescribe a more lenient standard under Article VII of the Convention). 693 Judgment of 9 November 1993, Bomar Oil NV v. Enterprise Tunisienne d'Activités Petroliéres, XX Y.B. Comm. Arb. 660 (French Cour de cassation) (1995) (“in international arbitration, the arbitral clause contained in general conditions to which the exchange of http://www.kluwerarbitration.com/CommonUI/print.aspx
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correspondence refers, is valid even if there is no reference to it in the main contract, provided the other party against whom the clause is invoked, had knowledge of the document at the time the contract was concluded and has accepted – even silently – its incorporation into the contract.”); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶695 (1999). 694 See supra pp. 504-516, 558-559, 561, 568-569, 632633 & infra pp. 1264-1270, 1368-1376, 1508-1513, 1576-1582, 1765-1770. 695 See infra pp. 697-699 nn. 696-704. See also R. Merkin, Arbitration Law ¶¶5.19 to 5.38 (2004 & Update 2007); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶493 to 495-1 (1999); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶¶52 et seq. (2000); Geimer, in R. Zöller (ed.), Zivilprozessordnung §1031, ¶10 (26th ed. 2007). 696 UNCITRAL Model Law, Art. 7(2). Other national arbitration legislation is similar. English Arbitration Act, 1996, §6; Netherlands Code of Civil Procedure, Art. 1021; Italian Code of Civil Procedure, Art. 833(2); Egyptian Arbitration Law, Art. 10(3). 697 Some commentators have suggested that Article 7(2) rejects the notion that a specific reference to the arbitration clause is required to incorporate it. E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶495-1 (1999). That is difficult to accept. Article 7(2) merely permits incorporation by reference, while leaving open what degree of clarity or precision is required to make the arbitration provisions “part of the contract.” H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 264 (1989) (“the meaning of the requirement that ‘the reference [be] such as to make [the arbitration] clause a part of the contract’ may raise questions”). The better view is that a specific reference to an arbitration clause is usually not required for incorporation, but this is not mandated by Article 7(2) itself and instead arises from an interpretation of the parties' intentions. 698 See, e.g., Nanisivik Mines Ltd v. F.C.R.S. Shipping Ltd, [1994] 2 F.C. 662, 667-68 (Ottawa Court of Appeal) (arbitration clause in charter party incorporated into bill of lading); Thyssen Canada Ltd v. Mariana Maritima SA, [2000] 3 F.C. 398 (Canada Fed. Ct. App.); Guangdong New Tech. Import & Exp. Corp. v. Chiu Shing t/a B.C. Pty& Trading Co., XVIII Y.B. Comm. Arb. 385 (H.K. High Court, S.Ct. 1991) (1993) (upholding arbitration agreement where “there was a reference in a written contract to a document containing an arbitration clause,” in compliance with Article 7(2) of Model Law); Owners of the Annefield v. Owners of Cargo Lately Laden on Board the Annefield, The Annefield [1971] 1 All E.R. 394, 406 (English Court of Appeal) (where specific reference to arbitration clause exists, court will engage in “manipulation” of language to accommodate it to parties' transaction). 699 See, e.g., Aceros Prefabricados, SA v. TradeArbed, Inc., 282 F.3d 92, 97-98 (2d Cir. 2002); R.J. O'Brien & Assoc. v. Pipkin, 64 F.3d 257, 260 (7th Cir. 1995) (“A contract … need not contain an explicit arbitration clause if it validly incorporates by reference an arbitration clause in another document.”); Gingiss Int'l, Inc. v. Bormet, 58 F.3d 328 (7th Cir. 1995) (“a sub-contract with a guarantor or surety may incorporate a duty to arbitrate by reference to an arbitration clause in a general contract”); Progressive Cas. Ins. Co. v. CA Reaseguradora Nacional de Venezuela, 991 F.2d 42 (2d Cir. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1993) (parties agreed to arbitrate by incorporating reinsurance agreement into policy); Heinhuis v. Venture Assoc., Inc., 959 F.2d 551, 553-54 (5th Cir. 1992) (excess insurance policy incorporated arbitration clause from underlying insurance policy); Maxum Foundation, Inc. v. Salus Corp., 779 F.2d 974, 978 (4th Cir. 1985); Exchange Mut. Ins. Co. v. The Haskell Co., 742 F.2d 274, 275-76 (6th Cir. 1984) (arbitration clause from prime contract incorporated into performance bond); Cecil's, Inc. v. Morris Mech. Enters., Inc., 735 F.2d 437, 439-40 (11th Cir. 1984) (subcontract incorporated arbitration clause from main contract); Imp. Exp. Steel Corp. v. Mississippi Valley Barge Line Co., 351 F.2d 503, 505-06 (2d. Cir. 1965); Energy Transp., Ltd v. MV San Sebastian, 348 F.Supp.2d 186 (S.D.N.Y. 2004) (charter party (including arbitration clause) incorporated by bill of lading); State Trading Corp. of India v. Grunstad Shipping Corp., 582 F.Supp. 1523 (S.D.N.Y. 1984), aff'd, 751 F.2d 371 (2d Cir. 1984) (arbitration clause in charter party was incorporated with sufficient specificity into bill of lading); Banque de Paris et des Pays-Bas v. Amoco Oil Co., 573 F.Supp. 1464 (S.D.N.Y. 1983); Bunge Corp. v. M/T Stolt Hippo, 1980 A.M.C. 2611 (S.D.N.Y. 1979); Coastal States Trading, Inc. v. Zenith Nav. SA, 446 F.Supp. 330 (S.D.N.Y. 1977); G.B. Michael v. SS Thanasis, 311 F.Supp. 170 (N.D. Cal. 1970). 700 See, e.g., Hensel v. Cargill, Inc., 1999 WL 993775, at *3-*4 (6th Cir. 1999) (arbitration clause incorporated from trade association rules); R.J. O'Brien & Assoc. v. Pipkin, 64 F.3d 257 (7th Cir. 1995) (holding appellee agreed to be bound by arbitration rules of National Futures Association (NFA) when he registered as an Associate in the NFA); Hodge Bros., Inc. v. DeLong Co., 942 F.Supp. 412 (W.D. Wis. 1996) (rejecting argument that agreement incorporating National Grain and Feed Association Rules did not incorporate arbitration provisions of rules); Verolme Botlek BV v. Lee C. Moore Corp., XXI Y.B. Comm. Arb. 824 (N.D. Okla. 1995) (1996) (arbitration clause validly incorporated from General Terms and Conditions). 701 Hosking, Non-Signatories and International Arbitration in the United States: The Quest for Consent, 20 Arb. Int'l 289, 291-92 (2004). 702 See infra pp. 700-704. 703 See, e.g., PaineWebber, Inc. v. Bybyk, 81 F.3d 1193 (2d Cir. 1996) (no incorporation of arbitration provision “unless it is clearly identified in the [principal] agreement”); Ryan, Beck & Co., LLC v. Fakih, 268 F.Supp.2d 210 (E.D.N.Y. 2003) (“[T]he agreement must specifically reference and sufficiently describe the document to be incorporated, such that the latter may be identified beyond all reasonable doubt.”); Bothell v. Hitachi Zosen Corp., 97 F.Supp.2d 1048 (W.D. Wash. 2000) (holding that a general reference to ‘General Terms and Conditions for Purchasing,’ which apparently were never provided, is insufficient to incorporate arbitration clause in those terms and conditions); Joo Seng Hong Kong Co. v. SS Unibulkfir, 493 F.Supp. 35, 40 (S.D.N.Y. 1980) (“holder of a bill of lading which specifically refers to a charter party and in which unmistakable language incorporates the charter party's arbitration section can compel a party to the charter party to arbitrate”); Chiacchia v. Nat'l Westminister Bank USA, 507 N.Y.S.2d 888, 890 (N.Y. App. Div. 1986); Massaro Elec. Co. v. CMG-Constr. Mgt Group, 689 N.Y.S.2d 361, 362 (N.Y. Dist. Ct. 1999) (no valid agreement to arbitrate where there was no signed agreement and the parties relied on “vague references contained in the small print and incorporated by reference to an unsigned master agreement”); Traynham v. Yeargin Enter., Inc., 403 S.E.2d 329, 330 (S.C. Ct. App. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1991) (refusing to uphold incorporation of arbitration clause on basis of reference to “the 1976 edition of A.I.A. document A201” which contained an arbitration clause); Weiner v. Mercury Artists Corp., 130 N.Y.S.2d 570, 571 (App. Div. 1954) (one-page contract did not validly incorporate arbitration provision in 200-page pamphlet). 704 See, e.g., Std. Bent Glass Corp. v. Glassrobots Oy, 333 F.3d 440 (3d Cir. 2003) (agreement to arbitrate validly incorporated from previous document exchanged between parties); R.J. O'Brien & Assoc. v. Pipkin, 64 F.3d 257, 260 (7th Cir. 1995) (“A contract … need not contain an explicit arbitration clause if it validly incorporates by reference an arbitration clause in another document”); Compania Espanola de Petroleos SA v. Nereus Shipping SA, 527 F.2d 966 (2d Cir. 1975); Verolme Botlek BV v. Lee C. Moore Corp., XXI Y.B. Comm. Arb. 824 (N.D. Okla. 1995) (1996) (Article II satisfied where quotation, incorporating General Terms and Conditions that included arbitration provision, were sent and accepted in writing); Hodge Bros., Inc. v. DeLong Co., 942 F.Supp. 412 (W.D. Wis. 1996). 705 See, e.g., Progressive Cas. Ins. Co. v. CA Reaseguradora Nacional de Venezuela, 991 F.2d 42 (2d Cir. 1993) (“[A] broadlyworded arbitration clause which is not restricted to the immediate parties may be effectively incorporated by reference into another agreement.”); Compania Espanola de Petroleos SA v. Nereus Shipping, SA, 527 F.2d 966, 973 (2d Cir. 1975) (broadly-drafted guarantee incorporates arbitration clause in guaranteed agreement); Imp. Exp. Steel Corp. v. Mississippi Valley Barge Line Co., 351 F.2d 503 (2d Cir. 1965) (arbitration clause referring to disputes between “Disponent Owners or Charters” not incorporated into agreement with other parties); Energy Transp., Ltd v. MV San Sebastian, 348 F.Supp.2d 186 (S.D.N.Y. 2004) (charter party (including arbitration clause) incorporated by bill of lading, because of specific reference); Continental Ins. Co. v. M/V ‘Nikos N,’ 2002 WL 530987, at *5 (S.D.N.Y. 2002) (bill of lading expressly incorporated arbitration clause from contract of carriage); Salim Oleochem., Inc. v. M/V Shropshire, 169 F.Supp.2d 194, 198 (S.D.N.Y. 2001) (same); Intertec Contracting A/S v. Turner Steiner Int'l SA, 2000 WL 709004, at *9 (S.D.N.Y. 2000) (“rational reading of the General Contract demonstrates that the arbitration agreement contained therein is restricted to immediate parties to the Contract”); Lafarge Corp. v. M/V Macedonia Hellas, 2000 WL 687708, at *5 (E.D. La. 2000) (no incorporation). 706 See, e.g., R.J. O'Brien & Assoc. v. Pipkin, 64 F.3d 257 (7th Cir. 1995) (incorporation of arbitration clause allowed because the phrase “all requirements” was sufficiently comprehensive to put defendant on notice as to which rules applied to him); Geldermann, Inc. v. CFTC, 836 F.2d 310, 318 (7th Cir. 1987) (incorporation into earlier agreement of arbitration procedures which were adopted at later date). 707 See, e.g., Limonium Maritime, SA v. Mizushima Marinera, SA, 1999 U.S. Dist. LEXIS 20010, at *15 (S.D.N.Y. 1999) (“Notwithstanding the existence of a separate contract between the signatory and the nonsignatory incorporating the arbitration agreement by reference, the nonsignatory still cannot be compelled to arbitrate unless the arbitration clause itself contains language broad enough to allow nonsignatories' disputes to be brought within its terms.”); Salim Oleochem., Inc. v. M/V Shropshire, 169 F.Supp.2d 194 (S.D.N.Y. 2001); Continental U.K. Ltd v. Anagel Confidence Compania Naviera, SA, 658 F.Supp. 809, 813 (S.D.N.Y. 1987) (if “party's arbitration clause is expressly incorporated into a bill of lading, non-signatories … who are linked to that bill through general http://www.kluwerarbitration.com/CommonUI/print.aspx
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principles of contract law or agency law may be bound”). 708 See, e.g., Hodge Bros., Inc. v. DeLong Co., 942 F.Supp. 412 (W.D. Wis. 1996) (rejecting argument that agreement incorporating National Grain and Feed Association Rules did not incorporate arbitration provisions of rules). 709 See, e.g., Tuca v. Ocean Freighters, Ltd, 2006 U.S. Dist. LEXIS 16174 (E.D. La. 2006) (“agreements that incorporate agreements with arbitration clauses can satisfy the agreement in writing requirement”); Stony Brook Marine Transp. Corp. v. Wilton, 1996 WL 913180 (E.D.N.Y. 1996). 710 See infra p. 701 nn. 711-713 & pp. 702-703 nn. 716-724; Concordia Agritrading Pte Ltd v. Cornelder Hoogewerff Pte Ltd, 2000 Int'l Arb. L. Rev. N-42 (Singapore High Court 1999) (2000) (requiring specific reference). Germany's version of the UNCITRAL Model Law added a provision dealing with incorporation of arbitration clauses in a bill of lading. Section 1031(4) provides: “An arbitration agreement is also concluded by the issuance of a bill of lading, if the latter contains an express reference to an arbitration clause in a charter party.” German ZPO §1031(4). 711 See, e.g., Sea Trade Maritime v. Hellenic Mut. War Risks Ass'n
(Bermuda) Ltd [2007] 1 Lloyd's Rep. 280 (Q.B.) (“English law accepts incorporation of standard terms by the use of general words …, particularly so when the terms are readily available and the question arises in the context of established dealers in a well-known market”); Judgment of 4 May 2000, XXVI Y.B. Comm. Arb. 277 (Italian Corte di Cassazione) (2001) (acceptance of arbitration clause, contained in annex referred to in main contract, was valid; no need for “specific approval” of clause); Judgment of 30 March 2000, XXXI Y.B. Comm. Arb. 652 (Oberlandesgericht Schleswig) (2006) (upholding validity of arbitration agreement incorporated from general conditions of sale); Judgment of 13 January 1999, XXIX Y.B. Comm. Arb. 679 (Oberlandesgericht Dresden) (2004) (upholding incorporation of arbitration clause from general terms and conditions of one party); Partial Award in DIS Case 438/04 (25 January 2005), 2005 SchiedsVZ 166 (no specific reference to arbitration clause contained in framework agreement necessary). 712 See, e.g., Fed. Bulk Carriers Inc. v. C. Itoh & Co. [1989] 1 Lloyd's Rep. 103, 108 (English Court of Appeal) (“it is clear that an arbitration clause is not directly germane to the shipment carriage and delivery of goods … It is, therefore, not incorporated by general words in the bill of lading. If it is incorporated, it must either be by express words in the bill of lading itself … or by express words in the charterparty itself … If it is desired to bring in an arbitration clause, it must be done explicitly in one document or the other”); The “Delos” [2001] 1 Lloyd's Rep. 703 (Q.B.); Judgment of 22 December 2000, Granitalia v. Agenzia Maritima Sorrentina, XXVII Y.B. Comm. Arb. 506 (Italian Corte di Cassazione) (2000). 713 See, e.g., Aughton Ltd v. MF Kent Serv. Ltd [1992] Arb. & Disp. Res. L.J. 83 (English Court of Appeal); Goodwins Jardine & Co. v. Brand & Son, (1905) F 995 (Scottish Court of Session); Fed. Bulk Carriers Inc. v. C. Itoh & Co. [1989] 1 Lloyd's Rep. 103, 108 (English Court of Appeal). See also supra pp. 645-647 discussing authorities adopting heightened standard of proof for arbitration agreements. 714 See supra pp. 644-655. 715 See supra pp. 348-353, 353 et seq. http://www.kluwerarbitration.com/CommonUI/print.aspx
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716 See, e.g., Judgment of 26 April 1990, Nat'l Union Fire Ins. Co.
v. Stolt-Nielson Philippines, Inc., XXVII Y.B. Comm. Arb. 524 (Philippines S.Ct.) (2002); Judgment of 26 June 1970, Israel Chem. & Phosphates Ltd v. NV Algemene Oliehandel, I Y.B. Comm. Arb. 194 (Rotterdam Rechtbank) (1976); Guangdong New Tech. Import & Export Corp v. Chiu Shing t/a B.C. Pty & Trading Co., XVIII Y.B. Comm. Arb. 385 (H.K. High Court, S.Ct. 1991) (1993); Tsang Yak Ching t/a Tsang Cling Kee Eng. Co. v. Fu Shing Rush Door Joint Venture Co., [2003] HKCU 1072 (H.K. Court of First Instance, High Court); Gay Constr. Pty v. Caledonian Techmore (Buildings) Ltd, [1994] 2 HKC 562 (H.K. High Court, S.Ct.); Judgment of 31 May 2001, UNI-KOD sarl v. Ouralkali, XXVI Y.B. Comm. Arb. 1136 (Paris Cour d'appel) (2001) (“We must therefore deem that the parties considered the arbitration clause in the contract of 17 October 1990 as tacitly but necessarily included in [another, related] contract”); Progressive Cas. Ins. Co. v. CA Reaseguradora Nacional de Venezuela, 991 F.2d 42 (2d Cir. 1993) (reinsurer bound by arbitration clause in underlying insurance policy to which reinsurance policy was “subject”); Skandia Int'l Ins. Co. v. Al Amana Ins. & Reins. Co., XXIV Y.B. Comm. Arb. 615 (Bermuda S.Ct. 1994) (1999). See also Netherlands Code of Civil Procedure, Art. 1021 (“The arbitration agreement shall be proven by an instrument in writing. For this purpose an instrument in writing which provides for arbitration or which refers to standard conditions providing for arbitration is sufficient, provided that this instrument is expressly or impliedly accepted by or on behalf of the other party”). 717 English courts have generally looked carefully to the surrounding context before interpreting a general reference to a contract as incorporating that contract's arbitration clause. See, e.g., Sea Trade Maritime v. Hellenic Mut. War Risks Ass'n (Bermuda) Ltd [2007] 1 Lloyd's Rep. 280 (Q.B.) (“English law accepts incorporation of standard terms by the use of general words …, particularly so when the terms are readily available and the question arises in the context of established dealers in a well-known market”); Am. Int'l Speciality Lines Ins. Co. v. Abbott Laboratories [2002] EWHC 2714 (Q.B.) (arbitration clause in one insurance policy not incorporated into another policy); AIG Group (UK) Ltd v. The Ethniki [2000] Lloyd's Rep. IR 343 (English Court of Appeal); Trygg Hansa Ins. Co. Ltd v. Equitas [1998] 2 Lloyd's Rep. 439 (Q.B.). See English Arbitration Act, 1996, §6(2); R. Merkin, Arbitration Law ¶¶5.19 to 5.29 (2004 & Update 2007); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶2-056 (22d ed. 2003). 718 See, e.g., Judgment of 30 August 1993, 11 ASA Bull. 531 (Zurich Commercial Court) (1993); Judgment of 25 August 1992, ZR 91/92 No. 23, 72, 80 (Zurich Commercial Court). 719 See, e.g., Judgment of 30 August 1993, 11 ASA Bull. 531, 535 (Zurich Commercial Court) (1993); Judgment of 22 November 1950, DFT 76 I 338, 350 (Swiss Federal Tribunal); Judgment of 24 January 2003, XXX Y.B. Comm. Arb. 509 (Hanseatisches Oberlandesgericht Hamburg) (2005) (relying on fact that arbitration clause was not “unusual or surprising”). 720 Judgment of 30 March 2000, XXXI Y.B. Comm. Arb. 652, 656 (Oberlandesgericht Schleswig) (2006) (noting parties' long-standing business relation); Judgment of 30 March 2000, XXXI Y.B. Comm. Arb. 652 (Oberlandesgericht Schleswig) (2006) (noting that parties had used general conditions containing arbitration clause for some time). 721 Thyssen Canada Ltd v. Mariana Maritima SA, [2000] 3 F.C. 398, 411-12 (Canada Fed. Ct. App.). http://www.kluwerarbitration.com/CommonUI/print.aspx
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722 Judgment of 26 June 1986, BGHR AGBG §24,
Verhandlungssprache (German Bundesgerichtshof). 723 See, e.g., Judgment of 12 February 1976, II Y.B. Comm. Arb. 242, 243 (German Bundesgerichtshof) (1977); Judgment of 8 March 1995, 1996 NJW-RR 1532 (Oberlandesgericht Munich); Haas, in F.B. Weigand (ed.), Practitioner's Handbook on International Arbitration 445 (2002); Hanefeld & Wittinghofer, Schiedsklauseln in Allgemeinen Geschäftsbedingungen, 2005 SchiedsVZ 217, 219221; Judgment of 9 November 1993, Bomar Oil NV v. Enterprise Tunisienne d' Activités Petroliéres, XX Y.B. Comm. Arb. 660 (French Cour de cassation) (1995) (“in international arbitration, the arbitral clause contained in general conditions to which the exchange of correspondence refers, is valid even if there is no reference to it in the main contract, provided the other party against whom the clause is invoked, had knowledge of the document at the time the contract was concluded and has accepted – even silently – its incorporation into the contract.”). 724 See, e.g., Thyssen Canada Ltd v. Mariana Maritima SA, [2000] 3 F.C. 398, 409 (Canada Fed. Ct. App.) (“No authority was cited to this Court to support the proposition that a party cannot rely on a contractual provision, which has been incorporated by reference, unless that party is also a party to the contract which is being referenced. In my opinion, the argument is misconceived.”); AstelPeininger Joint Venture v. Argos Eng'g & Heavy Indus. Co., XX Y.B. Comm. Arb. 288 (H.K. High Court, S.Ct. 1994) (1995). 725 Judgment of 11 July 1992, XXII Y.B. Comm. Arb. 715 (Italian Corte di Cassazione) (1997) (arbitration clause validly incorporated by “multi-step” process through several separate contracts). 726 See, e.g., P & P Indus., Inc. v. Sutter Corp., 179 F.3d 861, 867 (10th Cir. 1999); St. Lawrence Explosives Corp. v. Worthy Bros. Pipeline Corp., 1997 WL 187332, at *1 (2d Cir. 1997) (“It is well settled that ‘a clause [in an arbitration agreement] providing for the settlement of controversies by arbitration pursuant to the rules of the American Arbitration Association’ … is ‘sufficient to incorporate th[ose] rules into the agreement.’”); Paley Assocs., Inc. v. Universal Woolens, Inc., 446 F.Supp. 212, 214 (S.D.N.Y. 1978) (“#‘[I]t is settled doctrine that a reference in a contract to another writing, sufficiently described, incorporates that writing.’ This doctrine is applied generally to AAA rules incorporated by reference….”); Compagnie des Bauxites de Guinee v. Hammermills, Inc., 1992 WL 122712, at **1-6 (D.D.C. 1992) (ICC Rules incorporated into arbitration agreement); Mulcahy v. Whitehill, 48 F.Supp. 917, 919 (D. Mass. 1943). See also Geimer, in R. Zöller (ed.), Zivilprozessordnung §1042, ¶¶23-25 (26th ed. 2007). This is provided by statutory provision in some jurisdictions. French New Code of Civil Procedure, Art. 1494 (“The arbitration agreement may, directly or by way of reference to arbitration rules, set forth the procedure to be followed in the arbitration.”). 727 See infra pp. 1121-1124. 728 See supra pp. 567-569, 655-658, & infra pp. 1264-1270, 1368-
1370, 1690-1691. 729 See infra p. 2657; Judgment of 10 March 1976, 46 Arb. 241 (Turkish S.Ct.) (1980) (denying recognition of Swiss arbitral award on grounds that ICC arbitral award is not an arbitral award); Termorio SA v. Electranta SP, 487 F.3d 928 (D.C. Cir. 2007) (describing Colombian judicial decisions vacating arbitral award on http://www.kluwerarbitration.com/CommonUI/print.aspx
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grounds that agreeing to arbitration under ICC Rules violated local public policy).
Formation, Validity and Legality of International Arbitration Agreements - E. Substantive Validity of International Arbitration Agreements Chapter 5 Gary B. Born
Author Gary B. Born
E. Substantive Validity of International Arbitration Agreements Assuming that the parties have satisfactorily manifested their consent to a formally valid international arbitration agreement, there may nonetheless be challenges to the substantive validity or enforceability of that agreement. After disputes arise, parties not infrequently reconsider their commitment to a neutral, expert forum and seek to obstruct the contractually-agreed dispute resolution mechanism. The satisfactory and expeditious resolution of such challenges is essential to the international arbitral process. 1. Introduction
Source Formation, Validity and Legality of International Arbitration Agreements - E. Substantive Validity of International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 705 - 766
It is elementary that an international arbitration agreement, like other contracts, gives rise to issues of substantive validity. (730) In the vocabulary of the New York Convention and the UNCITRAL Model Law, the arbitration agreement may be “null and void,” “inoperative,” or “incapable of being performed.” (731) Early commentators remarked that “[t]he invalidity of the arbitration agreement under the law applicable to it pursuant to Article V(1)(a) has scarcely ever been invoked, and never successfully.” (732) This observation is no longer correct: there is instead now a very substantial body of authority involving challenges to the substantive validity of international arbitration agreements, with a non-trivial number of decisions upholding such challenges. The categories of substantive invalidity of international arbitration agreements contained in the Convention and most developed national arbitration legislation are limited to cases where such agreements are invalid on generally-applicable contract law grounds (e.g., mistake, fraud, unconscionability, impossibility, waiver). (733) Importantly, these lists of grounds for challenging the substantive validity of international arbitration agreements are exclusive: they provide exceptions to the presumptive validity of agreements to arbitrate and are not to be supplemented or expansively interpreted. (734) (Issues of substantive invalidity are related to, but distinguishable from, cases where arbitration agreements are http://www.kluwerarbitration.com/CommonUI/print.aspx
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unenforceable in particular courts as applied to a narrow range of “non-arbitrable” subjects (e.g., page "705" criminal matters). (735) ) As discussed below, each of these categories of grounds for the substantive invalidity of an arbitration agreement has produced a very substantial body of judicial and other authority. a. Application of Separability Presumption to Issues of Substantive Validity of Arbitration Agreement An essential preliminary issue to any consideration of the substantive validity of an international arbitration agreement is the effect of the presumptive separability of an arbitration agreement on issues of substantive validity. This topic is discussed in detail above. (736)
As described in Chapter 3 above, it is entirely possible for defects to exist in the underlying contract, but not in the arbitration agreement, which render that contract, but not the arbitration agreement, invalid or illegal. (737) The converse is equally true, where there will be circ*mstances affecting the validity or legality of the arbitration agreement, but not the underlying contract. (738) Analytically, it is therefore critical to distinguish between the validity or legality of the arbitration agreement itself, and the validity or legality of the underlying contract. The discussion below focuses on the substantive validity of the international arbitration agreement itself. b. Application of Choice-of-Law Rules to Validity of Arbitration Agreement An equally important preliminary issue is the choice of the law that applies to the substantive validity of the arbitration agreement. This issue is discussed in detail in Chapter 4 above. (739) As discussed above, the arbitration agreement is typically governed by either the law of the arbitral seat or the underlying contract, with many legal systems also applying a validation principle and/or international principles of varying characters to issues of substantive validity. (740)
c. Application of Competence-Competence Doctrine to Issues of Validity of Arbitration Agreement Another vital preliminary issue is the effect of the competencecompetence doctrine on consideration of the validity or legality of the arbitration agreement. This issue page "706" is discussed in detail in Chapter 6 below. (741) Importantly, in some legal regimes, (742) many judicial decisions and arbitral awards addressing issues of the validity or legality of an arbitration agreement also consider questions of competence-competence. It is essential in analyzing these decisions to distinguish clearly between the two sets of issues. The discussion in the remainder of this Chapter focuses on issues of substantive validity, considering issues of competence-competence where necessary to explain existing authorities. d. Application of Substantive Rules of Contract Validity The rules of substantive validity applicable to international arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreements are ordinarily no different from the rules of substantive validity generally applicable to other types of contracts. As with issues of contract formation, (743) national courts typically apply generally-applicable rules of fraud, mistake, duress, lack of consideration, unconscionability, impossibility and frustration to the substantive validity of international arbitration agreements. (744) By applying generally-applicable contract rules of substantive validity, these national court authorities give effect to the international requirement of non-discrimination imposed on Contracting States by the New York Convention. (745) e. Distinction Between Invalidity of Arbitration Agreement and Non-Arbitrability of Dispute Although not always done, it is important to distinguish between the invalidity of an arbitration agreement (for example, because of formation defects or grounds for invalidity, such as unconscionability or impossibility) and the non-arbitrability of particular categories of disputes under an otherwise valid arbitration agreement. As discussed in greater detail below, Article V(2)(a) of the New York Convention (and parallel provisions of national arbitration legislation (746) ) exceptionally allow non-recognition of an arbitral award in an individual Contracting State where, under the laws of the judicial recognition forum, an otherwise valid arbitration agreement is unenforceable as applied to particular matters. (747) To the same effect are Article II(3) of the Convention and parallel provisions of national arbitration legislation, (748) providing exceptionally for nonrecognition of otherwise valid arbitration agreements page "707" in a particular Contracting State as to matters defined as nonarbitrable under local mandatory law. (749) The non-arbitrability doctrine differs in significant ways from the validity of the arbitration agreement. As discussed below, the nonarbitrability doctrine only concerns particular categories of disputes, not the general validity or enforceability of the agreement to arbitrate as applied to other categories of disputes. (750) In contrast, the validity of the arbitration agreement concerns its validity in general and as a matter of principle – regardless the categories of disputes that are in question. That is, an unconscionable, fraudulent, nonexistent, or frustrated arbitration agreement is simply invalid, always or virtually always regardless of the type of claim at issue. In contrast, the non-arbitrability of a particular type of claim (e.g., certain consumer, competition or intellectual property claims) does not affect the validity of the arbitration agreement as to other types of claims. (751) There are also critical differences with regard to the legal consequences of, and applicable law for, questions of nonarbitrability and substantive validity. As discussed above, issues of substantive validity are governed by the uniform choice-of-law rules of Article V(1)(a) of the New York Convention, which are in principle universally-applicable. (752) In contrast, the effect of the nonarbitrability provisions of Articles V(2)(a) and II(3) of the Convention is to provide an escape device from Article V(1)(a)'s general choiceof-law regime that permits individual Contracting States to impose limits on the enforceability in local courts of the parties' agreements on the law governing their arbitration agreement. (753) By virtue of http://www.kluwerarbitration.com/CommonUI/print.aspx
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Article V(2)(a), and the parallel terms of Article II(3), the Convention not only does not exclude, but affirmatively gives effect in exceptional circ*mstances to, such national law rules. (754) As also discussed below, a Contracting State's application of the nonarbitrability doctrine does not purport to (and may not be) binding on other states, as is the case with rules of substantive validity under Article V(1)(a). (755) page "708" 2. Substantive Validity of International Arbitration Agreements under International Arbitration Conventions As discussed above, one of the primary objectives of the New York, Inter-American and European Conventions was to overturn historic mistrust of the arbitral process in some jurisdictions and to render international arbitration agreements more readily enforceable. (756) In furtherance of these objectives, Article II of the New York Convention, (757) Article 1 of the Inter-American Convention (758) and (less clearly) Articles II(1), IV and V of the European Convention (759) all provide that international arbitration agreements are presumptively valid and enforceable. As discussed below, this basic rule is subject to an exclusive and limited number of bases for invalidity, where agreements are “null and void,” “inoperative,” or “incapable of being performed.” a. New York Convention Article II(3) of the New York Convention contemplates nonenforcement of an arbitration agreement if the agreement is “null and void, inoperative or incapable of being performed.” (760) The Convention's text provides limited guidance as to the meaning and content of these exceptions to the presumptive validity of international arbitration agreements, referring to these exceptions only in the broadest of terms and offering no definition or elaboration; that approach contrasts to the more detailed grounds for denying recognition to an award in Article V of the Convention. (761) Similarly, the drafting history of the Convention provides little guidance: page "709" as discussed elsewhere, Article II was added to the Convention in the closing days of negotiations. (762) Little drafting attention was given to the Article or its provisions concerning the validity of arbitration agreements. Despite this lack of guidance, several aspects of Article II are clear. Most importantly, as discussed above, arbitration agreements are, like arbitral awards, presumptively valid and enforceable, subject only to defined exceptions (referred to by reference to generallyapplicable rules of contract validity in Article II(3)). (763) Contracting States are not free to fashion additional or different grounds for denying recognition of agreements to arbitrate, and are instead subject to the mandatory provisions of Articles II(1) and II(3). (764) As one U.S. court put it, “[d]omestic defenses to arbitration are transferable to a [case under the New York Convention] only if they fit within the limited scope of defenses” permitted under the Convention. (765) At the same time, Article II(3)'s exceptions to the presumptive http://www.kluwerarbitration.com/CommonUI/print.aspx
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validity of international arbitration agreements are broadly drafted, and capable of encompassing a substantial range of contractual defenses. (766) Nonetheless, the Convention is best interpreted as imposing implied limits on the grounds of substantive invalidity that can be asserted against international arbitration agreements. (767) In particular, only generally-applicable rules of contract law, and not rules which single arbitration agreements out for special or idiosyncratic burdens, may be invoked to challenge the validity of an international agreement subject to the Convention. These limits are justified by Article II's reference to ordinary principles of contract law (“null and void, inoperative or incapable of being performed”), and by the Convention's objective of ensuring that Contracting States recognize the validity of international arbitration agreements in accordance with uniform international standards. (768) The Convention's limits on the application of page "710" rules of contractual invalidity under Article II are discussed in greater detail above. (769) In summary, Article II(3) requires – as a uniform international rule – the recognition of the validity of international arbitration agreements except where such agreements are invalid under generallyapplicable, internationally-neutral contract law defenses that do not impose special burdens or requirements on the formation or validity of agreements to arbitrate. (770) Under this standard, a Contracting State may not avoid its obligations to recognize international arbitration agreements by adopting special rules of national law that make such agreements invalid (or “null and void, inoperative or incapable of being performed”). Thus, national law provisions that impose unusual notice requirements (e.g., particular font), consent requirements (e.g., that arbitration agreements be specifically approved or established by heightened proof requirements), procedural requirements (e.g., only institutional arbitration agreements are permitted), or invalidity rules (e.g., arbitration agreements applicable to future disputes, fraud claims, or tort claims are invalid) are all impermissible under Article II(3). It appears reasonably clear that Article II(3)'s “null and void” exception refers to cases in which an arbitration agreement was defective or invalid from the outset. (771) Typical examples of defenses falling within the category include fraud or fraudulent inducement, unconscionability, illegality and mistake. (772) Strictly speaking, although the point has very limited practical impact, it is arguable that defects in formation or consent, lack of capacity, or formal invalidity are not included in the “null and void” category, because they relate to the prior question whether there is any “agreement” to arbitrate subject to the Convention (rather than whether such an agreement is “null and void”). It also appears reasonably clear that Article II(3), which permits nonenforcement of “inoperative” agreements, refers to agreements that were at one time valid, but which thereafter ceased to have effect (or to be “operative”). (773) That would include cases of waiver, revocation, repudiation, or termination of the page "711" arbitration agreement, or failure to comply with jurisdictional time limits prescribed by the arbitration agreement. (774) It is also relatively clear that Article II(3)'s reference to arbitration agreements that are “incapable of being performed” includes cases http://www.kluwerarbitration.com/CommonUI/print.aspx
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where the parties have agreed upon a procedure that is physically or legally impossible to follow (for example, because a named arbitrator has died, and it is clear that no replacement was permitted by the parties). (775) It also arguably includes cases of arbitration provisions that are unenforceable because they are vague, indefinite, or internally contradictory (although, strictly speaking, these cases are better regarded as instances where no agreement exists or an agreement is “null and void”). (776) Finally, it is also clear that Articles II and V of the Convention must be interpreted together, as parts of a single, integrated legal regime. (777) One of the fundamental cornerstones of the Convention was its combination of provisions regarding international arbitration agreements and international arbitral awards into a single instrument; given that, it is essential that those provisions operate consistently, in order to produce uniform results. (778) That commonsense objective is confirmed by the multiple interrelationships between the provisions of Articles II, IV and V (e.g., Article IV(1)(b), Article IV(2), Article V(1)(a), Article V(1)(c), Article V(1)(d), Article V(2)(a)); indeed, it is scarcely possible to give effect to most of Article V(1)'s provisions regarding recognition of arbitral awards without also giving effect to Article II's provisions regarding arbitration agreements. (779) b. European and Inter-American Conventions The same basic exceptions to the validity of international arbitration agreements exist under the European and the Inter-American Conventions as under the New York Convention. Article V(1) of the European Convention permits non-recognition of an arbitration agreement that was “either non-existent or null and void or had lapsed.” (780) The term “non-existent” refers to cases where there has page "712" been no consent to an agreement (781) or where a third party is purported to be subjected to an agreement among other parties to which it never assented. (782) The terms “null and void” and “lapsed” parallel and have the same meaning as Article II(3) of the New York Convention. (783) 3. Grounds for Invalidity of International Arbitration Agreements under National Arbitration Legislation The grounds for challenging the validity of arbitration agreements under most developed national legal systems fall within the bases set forth in the New York Convention and other arbitration conventions. (784) In most systems, these grounds for invalidity are derived or incorporated from generally-applicable contract law, without any separate or additional statutory enumeration of grounds of invalidity. For example, the UNCITRAL Model Law contains provisions on the formal validity, separability and waiver of international arbitration agreements, (785) but does not contain any enumeration of the bases for challenging the substantive validity of such an agreement. The only reference to such exceptions is contained in Article 8(2) of the Model Law, which precisely tracks Article II(3) of the New York Convention:
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“A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests … refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.” (786) Other national arbitration legislation is similar. For example, in the United States, the FAA provides only that a written arbitration agreement “shall be valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (787) The Swiss Law on Private International Law does not even identify possible grounds of invalidity, instead setting forth only provisions regarding choice-of-law, separability and arbitrability. (788) To the same effect is legislation in England, the Netherlands, Belgium, Japan, Hong Kong and page "713" Singapore, all of which assume that the substantive validity of arbitration agreements may be challenged, but do not expressly so provide, much less specify the bases for doing so. (789) Accordingly, virtually all authority addressing the circ*mstances in which international arbitration agreements will be substantively invalid has been developed by national courts, arbitral tribunals, or commentators in the absence of detailed statutory guidance. As detailed below, these various sources of authority have relied upon general contract law principles in addressing the validity of international arbitration agreements. (790) The most frequently-encountered objections to the substantive validity of international arbitration agreements are: (a) fraud and fraudulent inducement; (b) mistake; (c) lack of consideration; (d) unconscionability; (e) asymmetrical arbitration agreements; (f) inconvenient arbitral situs; (g) waiver of arbitration agreement; (h) statutes of limitations; (i) termination of arbitration agreement; (j) insolvency; (k) impossibility and frustration; (l) defenses to standard form contracts; and (m) illegality. a. Fraudulent Inducement or Fraud Contracts tainted by fraud or fraudulent inducement are invalid or null in virtually all legal systems. (791) Fraudulent inducement and fraud are not specifically mentioned as grounds for non-enforcement of an arbitration agreement in the New York Convention, other international arbitration conventions, or most national arbitration statutes. Nonetheless, national courts and arbitral tribunals have had no difficulty in concluding that fraud and fraudulent inducement are bases for denying enforcement of international arbitration agreements: an arbitration clause that has page "714" been fraudulently induced, or that is procured by fraud, is undoubtedly invalid or null and void. (792) Despite this, claims that an arbitration agreement is invalid by reason of fraud or fraudulent inducement are seldom successfully asserted. That is in part because the separability presumption has a significant effect on the substance of such claims. As discussed above, under most developed national arbitration regimes, claims that the parties' underlying contract (as distinguished from the parties' arbitration clause) was fraudulently induced have generally been held not to compromise the http://www.kluwerarbitration.com/CommonUI/print.aspx
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substantive validity of an arbitration clause included in the contract. (793) The fact that one party may have fraudulently misrepresented the quality of its goods, services, or balance sheet generally does nothing to impeach the parties' agreed dispute resolution mechanism. As a consequence, only fraud or fraudulent inducement directed at the agreement to arbitrate will, as a substantive matter, impeach that agreement. These circ*mstances seldom arise: as a practical matter, it is relatively unusual that a party will seek to procure an agreement to arbitrate by fraud (even in those cases where it may have committed fraud in connection with the underlying commercial contract). A leading modern application of the separability doctrine to a claim of fraudulent inducement was the U.S. Supreme Court's decision in Prima Paint Corp. v. Flood & Conklin Manufacturing Co. (794) There, the Court held that the respondent's claim that the parties' underlying contract (containing an arbitration clause) had been fraudulently induced did not involve a challenge to the arbitration clause itself; as a consequence, the arbitral tribunal, rather than a U.S. court, was competent under the U.S. FAA to consider and rule upon the fraudulent inducement claim. (795) Properly interpreted, the Court's decision regarding the appropriate forum for resolving the plaintiff's fraudulent inducement claim rested upon a prior substantive determination, that the fraudulent inducement claim did not impeach or affect the arbitration clause, and was instead directed only at the underlying contract. (796) As discussed above, this application of the separability presumption has been followed in other developed jurisdictions. (797) Although the contemporary importance page "715" of the separability presumption for the allocation of jurisdictional competence has been eroded in some legal systems by developments regarding the competence-competence principle, (798) the acceptance of this analysis was a key step in the evolution of that doctrine. The Prima Paint decision also remains of contemporary importance with respect to fraud and fraudulent inducement claims, by confirming the separability and substantive validity of the arbitration clause in most cases involving claims of fraud concerning the parties' underlying contract. Most U.S. courts have applied Prima Paint to hold that claims that particular commercial contracts were fraudulently induced do not implicate the validity of the associated arbitration clause (and therefore are only for the arbitral tribunal (not the court) to resolve). (799) In these cases, where the alleged fraud only concerns the parties' underlying commercial relationship, the separability presumption provides that there simply is no challenge to the validity of the arbitration agreement. Some litigants in U.S. courts have sought to circumvent Prima Paint, by arguing in particular cases that the fraud which was allegedly committed in connection with the parties' underlying contract also necessarily or specifically affected an arbitration clause contained in that contract. In a few instances, this tactic has been successful, with courts holding that a party's fraud claim involved alleged conduct that could have tainted the arbitration clause, as part of a general fraudulent scheme, and required judicial resolution of the claim under the FAA. (800) Even where this page "716" conclusion is reached, a court must then conclude that the alleged http://www.kluwerarbitration.com/CommonUI/print.aspx
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fraud in fact existed and affected the agreement to arbitrate (as distinguished from the underlying contract). In most instances, U.S. courts have held that, in order to permit interlocutory judicial consideration of a claim of fraud, the claim must be directed specifically and exclusively at the arbitration clause (circ*mstances which virtually never occur as a practical matter). (801) As discussed elsewhere, the U.S. Supreme Court's decision in Buckeye Check Cashing, Inc. v. Cardegna, (802) confirmed that challenges directed at the underlying contract (including based on fraudulent inducement) do not ordinarily impeach the associated arbitration clause, (803) while also holding that U.S. courts should allow arbitrators to initially decide challenges generally directed at the validity or existence of both the underlying contract and arbitration clause. (804) In these circ*mstances, the arbitrators are then required to consider whether, as a matter of the substantive validity of the arbitration agreement, fraud that affected both the underlying contract and the agreement to arbitrate had the effect of vitiating page "717" the validity of the latter; the fact that jurisdictional competence to decide such claims was allocated under the FAA to the arbitrators does not mean that the arbitration agreement cannot be vitiated by fraud affecting the underlying contract, but only that such issues are to be resolved in the first instance by the arbitral tribunal. (805) Decisions from a number of other jurisdictions reach broadly similar results, holding that claims that the underlying contract was fraudulently induced do not ordinarily impeach the validity of the separable arbitration agreement. A leading English decision, discussed above, held that: “An allegation of invalidity of a contract did not prevent the invalidity question being determined by an arbitration tribunal pursuant to the arbitration agreement. It was only if the arbitration agreement was itself directly impeached for some specific reason that the tribunal would be prevented from deciding the disputes that related to the main contract. The question was whether the assertion of invalidity went to the validity of the arbitration clause as opposed to the validity of the charterparties as a whole of which the arbitration agreements were a part. It was not enough to say that the contract as a whole was impeachable. There had to be something more than that to impeach the arbitration clause.” (806) Decisions in other developed jurisdictions are similar. (807) Some U.S. courts have distinguished between fraudulent inducement and “fraud in the factum,” with this latter category of fraud comprising outright forgery (e.g., page "718" of one party's signature) of the underlying contract. (808) A few U.S. courts have held that fraud in the factum claims fall outside the separability presumption, because they vitiate a party's consent to anything at all concerning a transaction, and are in principle subject to judicial resolution. (809) Insofar as they address the issue, decisions from other jurisdictions generally reach the same conclusion. (810) In contrast, a few U.S. courts have concluded that “fraud in the factum” claims do not affect the arbitration clause and therefore are to be http://www.kluwerarbitration.com/CommonUI/print.aspx
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determined by an arbitral tribunal in the first instance (subject to subsequent judicial review under the FAA). (811) page "719" There is relatively little authority from arbitral tribunals concerning claims of fraud or fraudulent inducement of arbitration agreements. The few awards that address the issue have tended to find inadequate evidence to support a fraud claim. (812) This parallels national court decisions, where the overwhelming majority of cases that address the merits of such claims conclude that there was not sufficient proof of fraud or fraudulent inducement in connection with the arbitration agreement. (813) This confirms the observation that it will be a very unusual case where a party uses fraud in order to obtain an agreement to arbitrate. (814) (Also relevant to this issue are the generally heightened standards of evidentiary proof that are required in many legal systems to establish fraud. (815) ) A recurrent issue is what law governs claims of fraud and fraudulent inducement of an international arbitration agreement. This issue should, in principle, be subject to the same law as that governing the substantive validity of the parties' arbitration agreement. (816) Claims of fraud should also be subject to the validation principle and page "720" to principles of neutrality and non-discrimination, applicable under Article II of the New York Convention (as with other choice-of-law questions concerning the arbitration agreement). (817) b. Mistake Most developed legal regimes provide that one or both parties' mistake may, in certain circ*mstances, invalidate consent to an otherwise valid contract. (818) As with fraud, claims of mistake can in principle result in the invalidity of an arbitration agreement. At the same time, substantiating such claims, particularly with regard to an agreement to arbitrate in a commercial setting, is very difficult and most courts and arbitral tribunals have rejected jurisdictional defenses based on mistake. Claims of mistake usually implicate the separability presumption. Parties seldom even claim (much less show) that they were mistaken about their agreement to arbitrate, as distinguished from their underlying commercial contract, and, in virtually all cases, a mistake concerning the underlying contract will not implicate the parties' associated arbitration clause: the fact that a party was fundamentally mistaken as to the nature of the goods it purchased, or the joint venture it entered into, should do nothing to vitiate its independent agreement to arbitrate disputes concerning the underlying sales or joint venture contract. As a consequence, even in jurisdictions (such as the United States) where the allocation of competence over jurisdictional objections is linked to the existence of a challenge to the arbitration agreement, claims of mistake as to the underlying contract are ordinarily required to be submitted to arbitration. (819) page "721" Nonetheless, there may be instances in which a mistake concerning the underlying contract also affects the associated arbitration clause. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Thus, an English appellate court has suggested the possibility that “mistake as to the identity of the other contracting party” may provide grounds for challenging the arbitration clause specifically. (820) Even here, however, it is unclear why a mistake of this character should, as a substantive matter, invalidate the arbitration agreement. (821) Parties also occasionally raise mistake claims directed specifically towards their arbitration agreement – typically claiming that they were unaware of aspects of the arbitral procedure that they agreed to (such as links between its counter-party and the arbitral institution or arbitrators). Some national courts have considered the merits of such claims (because they impeach the arbitration agreement itself), but rejected them on the facts. (822) Nonetheless, courts have also recognized that in appropriate cases a showing of excusable mistake as to a fundamental aspect of the arbitral procedures could invalidate an arbitration agreement. (823) Claims of mistake are, as discussed above, typically subject to the law governing the substantive validity of the arbitration agreement. (824) This will ordinarily be either the law of the arbitral seat or the law governing the underlying contract, subject to page "722" (825) any applicable validation principle and to international principles of non-discrimination under the New York Convention. c. Lack of Consideration Courts in common law jurisdictions have considered claims that arbitration clauses are unenforceable because the underlying contracts (or the arbitration agreements themselves) lacked consideration. Consideration is typically a requirement for valid contracts in common law jurisdictions, although generally not required in civil law legal systems. (826) Arguments that an arbitration clause is invalid based on an alleged lack of consideration have almost always been rejected. (827) Indeed, it is extremely difficult to see how a consideration claim can ever properly be directed towards a separable arbitration agreement, because the parties' exchange of commitments to arbitrate with one another, and not to litigate against each other, will constitute consideration supporting the arbitration clause under any reasonable interpretation of the doctrine. (828) As discussed in greater detail below, even where an arbitration agreement is asymmetrical or non-mutual, and only one party is initially obligated to arbitrate, there is nonetheless an exchange of promises about the arbitral process that would satisfy traditional consideration requirements (subject to claims of unconscionability). (829) Most decisions on this subject are by U.S. courts, which have typically held that the claim of inadequate consideration is directed at the underlying contract, not the arbitration agreement, and referred such claims to arbitration. (830) The law page "723" applicable to claims based on lack of consideration will be that governing the arbitration agreement, subject to any applicable validation or international non-discrimination principle. (831) d. Unconscionability http://www.kluwerarbitration.com/CommonUI/print.aspx
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Basic principles of contract law in most jurisdictions provide that unconscionable agreements are unenforceable. (832) Parties sometimes argue either that contracts containing arbitration provisions, or arbitration agreements themselves, are unconscionable and that this precludes enforcement of the arbitration clause. Although such arguments are very difficult to substantiate, at least in international commercial transactions, the legal bases for such an argument under most national laws are clearly-established and uncontroversial. The separability presumption is frequently applied to claims that an arbitration agreement is invalid because the parties' underlying contract is unconscionable. Under that presumption, national courts have almost always held that claims that the parties' underlying contract is unconscionable do not implicate the validity of the associated arbitration agreement (and courts have therefore typically referred such unconscionability claims to arbitration). (833) page "724" On the other hand, parties sometimes claim that the arbitration agreement itself is unconscionable, focusing on either specific aspects of its terms (e.g., seat, means of selecting tribunal, arbitral procedures, associated substantive provisions such as liability limitations) and/or the manner in which the agreement was negotiated. (834) Where a party specifically challenges the terms and validity of the arbitration agreement itself, the separability doctrine is not relevant. Even in such cases, however, some courts have referred unconscionability challenges to arbitration (relying on the approach to competence-competence in the relevant jurisdiction). (835) page "725" More frequently, however, such challenges have been considered by national courts themselves. (836)
Some authorities have suggested that the New York Convention does not admit of unconscionability as grounds for the invalidity of an international arbitration agreement. In the words of one U.S. court, “unconscionability is not – and indeed cannot be – a recognized defense to the enforceability of arbitration agreements falling under the [New York] Convention.” (837) It is difficult to accept this conclusion, which ignores the fact that unconscionability is a well-settled ground for contractual invalidity in virtually all jurisdictions, applied equally to both commercial contracts and arbitration agreements. The better view is that unconscionability is one of the available – indeed one of the classic – grounds for holding an arbitration agreement “null and void” under the Convention. Nonetheless, even where courts address the substance of unconscionability claims directed specifically at the arbitration agreement, judicial decisions are generally reluctant to invalidate the parties' arbitration agreement in commercial settings. (838) For example, the fact that an arbitration clause was included in a form page "726" contract clearly does not render the clause per se unconscionable. (839) Nor does the fact that there was a material disparity in the parties' bargaining power, (840) nor that a party was not informed of the presence of an arbitration clause in a written http://www.kluwerarbitration.com/CommonUI/print.aspx
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contract it signed, (841) render an agreement to arbitrate unconscionable. Similarly, as an Italian decision held, “it is the party signing a contract in a foreign language who has the burden to ascertain the meaning of the clauses prepared by the other party.” (842)
As noted above, some unconscionability challenges focus on the terms of an arbitration agreement, arguing that they unacceptably favor one party (for example, page "727" with respect to selection of the seat, fees, or arbitral procedures). Most national courts have rejected such claims, in both common law (843) and civil law jurisdictions. (844) Nonetheless, there are decisions which have held particular arbitration agreements invalid on unconscionability grounds where they contain provisions which limit the weaker party's access to legal representation; (845) impose financial burdens that a party with limited means cannot sustain; (846) deny a party access to class action remedies; (847) or grant the stronger party undue procedural advantages, (848) page "728" disproportionate rights in selecting the members of the arbitral tribunal, (849) or grossly unfair substantive rights or remedies. (850) Likewise, some courts have cited page "729" one-sided financial aspects of arbitral procedures, (851) or a party's inability to pay the arbitral costs, (852) in holding arbitration agreements wholly or partially unenforceable. Some recent U.S. decisions have also held that arbitration agreements providing for the waiver of rights to pursue class action claims are unconscionable. (853) Nonetheless, most national courts remain highly unsympathetic to claims that business enterprises have been subjected to unconscionable treatment in agreeing to an international arbitration clause. For example, in one decision, a claim of unconscionability was rejected where a small U.S. company was directed to arbitrate before a Chinese state-related arbitral institution against a Chinese state-owned entity. (854) Similarly, Canadian courts have refused to accept arguments that an arbitration clause in a consumer contract is unconscionable because of the inequality page "730" of bargaining power between the consumer and the seller. (855) It is also of some importance that a substantial number of the relatively few decisions that do uphold unconscionability claims have involved consumer or employment disputes, (856) a category of disputes that are non-arbitrable in a number of jurisdictions. (857) Like other challenges to the validity of international arbitration agreements, claims of unconscionability present choice-of-law issues. In principle, the law generally applicable to the substantive validity of the parties' arbitration agreement should govern claims of unconscionability, (858) subject to any applicable validation and international non-discrimination principle. (859) Nonetheless, some national courts have suggested that issues of unconscionability, at least as directed to the parties' arbitration agreement, implicate national public policies which mandatorily apply to protect local nationals. (860) A decision holding one or more aspects of an arbitration agreement http://www.kluwerarbitration.com/CommonUI/print.aspx
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unconscionable does not necessarily entail invalidation of the entire agreement. Courts will frequently sever the unconscionable provision (e.g., with regard to payment of fees or selection of arbitrators), while giving effect to the underlying agreement to arbitrate. (861) On the other hand, where unconscionable portions of the page "731" clause cannot be disentangled from the remainder of the agreement to arbitrate, then the entire arbitration clause will be invalidated. (862) A variation to the approach of holding an arbitration clause invalid on the grounds that it contains unconscionable provisions is to provide for judicial correction of such provisions. The German version of the UNCITRAL Model Law takes this approach, at least in a limited respect, by providing that a party may apply for judicial appointment of the arbitrators if the parties' arbitration agreement grants one party unacceptably “preponderant” rights in selecting the tribunal. (863)
e. Asymmetrical or Non-Mutual Arbitration Agreements (864) A recurrent argument which is related to the unconscionability doctrine involves so-called “asymmetrical” or “non-mutual” arbitration agreements. These clauses permit one party to commence either arbitration or litigation, at its option, but do not allow the other party to do so; they are most frequently used in lending or similar transactions, where the lender seeks to maximize its options to recover unpaid sums from a defaulting borrower. (865) Challenges to the validity of such “non-mutual” arbitration provisions are directed specifically at the arbitration agreement and do not therefore ordinarily implicate the separability doctrine. (866) In most cases, national court decisions have considered the merits of such claims, rather than referring them to arbitration, but a decisive majority of recent decisions have rejected these arguments, upholding the substantive validity of asymmetrical or non-mutual arbitration agreements. Some early national court decisions concluded that an arbitration agreement would only be valid if both parties were granted mutual rights to refer disputes to arbitration. Confronted with a clause granting one party (but not the other) a unilateral right to commence arbitration, an English court reasoned in the 1960s that: “It seems to me that this is about as unlike an arbitration clause as anything that one could imagine. It is necessary in an arbitration clause that either page "732" party shall agree to refer disputes to arbitration, and it is an essential ingredient in that either party may in the event of a dispute arising refer it in the provided manner to arbitration. In other words, the clause must give bilateral rights of reference.” (867)
In contrast, more recent English decisions expressly overruled that approach and refused to require that arbitration agreements be mutual or symmetrical, holding: “Looking at the matter apart from authority, I can see no reason why, if an agreement between two persons http://www.kluwerarbitration.com/CommonUI/print.aspx
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confers on one of them alone the right to refer the matter to arbitration, the reference should not constitute an arbitration. There is a fully bilateral agreement which constitutes a contract to refer. The fact that the option is exercisable by only one of the parties seems to me to be irrelevant. The arrangement suits both parties.” (868) Precisely the same evolution has occurred in the United States. (869) A few early U.S. decisions relied on the “mutuality doctrine” in refusing to enforce an arbitration clause giving one party, but not the other, the right to demand arbitration. (870) That analysis was flawed: the doctrine of mutuality has long been discredited in U.S. page "733" contract law doctrine generally (871) and, in any event, was not properly or sensibly applied to require that the terms of contractual dispute resolution provisions grant precisely identical rights and remedies to all parties. More fundamentally, an asymmetrical arbitration clause is ordinarily best considered an appropriate exercise of the parties' autonomy with regard to the mode of resolving their disputes, which is entitled to full effect, save where unconscionable under applicable law. (872) More recently, U.S. courts have rejected application of the mutuality doctrine in the context of asymmetric arbitration agreements, (873) generally upholding arrangements permitting one (but not the other) party to commence arbitration. (874) page "734" Nevertheless, some recent lower U.S. courts have relied on theories of unconscionability in holding asymmetrical arbitration agreements invalid, particularly in domestic matters involving consumers or employees. (875) (As discussed elsewhere, some jurisdictions hold arbitration clauses in the context of consumer or employment disputes per se unenforceable. (876) ) A few U.S. state court decisions also appear to continue to apply mutuality requirements to invalidate asymmetrical arbitration clauses. (877) Other national courts have also consistently upheld the validity of asymmetrical arbitration agreements. The Australian High Court has reasoned, for example, that the definition of an arbitration agreement is: page "735" “quite wide enough to encompass agreements by which the parties are bound to have their disputes arbitrated if an election is made or some event occurs or some conditions satisfied, even if only one party has the right to elect or is in a position to control the event or satisfy the conditions.” (878) In France, a clause providing one party with the option between litigation and arbitration, and the other party with only the right to arbitrate, has been upheld in a commercial setting. (879) Italian (880) and German (881) courts have reached the same results. In contrast, German courts have held that non-mutual arbitration clauses in the particular context of standard form contracts are invalid, apparently on grounds of unconscionability. (882) f. Waiver of Right to Arbitrate
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Like other contractual rights, the right to arbitrate is capable of waiver. (883) National courts and arbitral tribunals have frequently considered claims that an arbitration agreement has been waived, generally rendering decisions that are dependent on specific facts, while ordinarily demanding a reasonably clear demonstration of waiver before upholding the defense. In general, claims of waiver are for initial determination by the arbitrators, rather than by national courts. page "736" i. International Arbitration Conventions Waiver is not specifically identified in most international arbitration instruments (including the New York and Inter-American Conventions) as a basis for denying effect to an otherwise valid arbitration agreement. In contrast, Article VI(1) of the European Convention provides that “under penalty of estoppel,” a party must raise the arbitration agreement “before or at the same time as the presentation of his substantial defense.” (884) This formulation sets forth both a standard for waiver (i.e., the time by which an arbitration agreement must be invoked) and the consequences of concluding that this standard applies (i.e., “estoppel”). Even with arbitration conventions that do not refer directly to the concept of waiver, this defense is implied, because a national court's obligation to refer the parties to arbitration is conditioned upon the request of one of the parties. (885) The corollary, developed principally by national courts, is that parties may waive their rights to arbitrate, either expressly or impliedly, by failing to request that those rights be given effect. Accordingly, national courts from all developed jurisdictions have held that the New York Convention affords the possibility of invoking waiver as a defense to enforcement of an international arbitration agreement. (886) Nevertheless, unlike the European Convention, the New York Convention provides no meaningful guidance as to either the standard for establishing waiver or the consequences of doing so. (887)
page "737" ii. UNCITRAL Model Law National arbitration legislation treats the subject of waiver in differing ways. Article 8(1) of the UNCITRAL Model Law provides for the enforcement of arbitration agreements by national courts (through a stay of litigation), subject to the requirement that the party invoking the agreement has requested its enforcement “not later than when submitting his first statement on the substance of the dispute” in the national court proceedings. (888) This provision establishes a reasonably definite and automatic definition of waiver, that apparently applies regardless of the intentions or motives of the “waiving” party or the extent of any prejudice suffered by the “nonwaiving” party. Failure to comply with Article 8(1)'s (fairly) specific requirement may result in the loss of a party's right subsequently to invoke the arbitration agreement. (889) Nevertheless, this sanction is not set forth explicitly in Article 8 and there are decisions that are best interpreted as refusing to hold that filing a substantive statement of http://www.kluwerarbitration.com/CommonUI/print.aspx
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defense (without invoking arbitration rights) necessarily constitutes an irrevocable waiver of those rights. (890) Despite the tenor of Article 8, a few Model page "738" Law decisions have held that waivers are to be narrowly construed and must be clear and unambiguous. (891) There has been controversy over what constitutes the submission of a “statement on the substance of the dispute” under the Model Law. (892) English courts have held that such a statement must be one that “impliedly affirms the correctness of the proceedings and the willingness of the [party] to go along with a determination by the courts of law instead of arbitration.” (893) It would appear that, under this standard, challenges to the court's jurisdiction or the procedural conduct of the claim would not provide a basis for finding a waiver. (894) On the other hand, affirmatively commencing litigation (or asserting counterclaims), as well as failing to raise the page "739" arbitration agreement as a substantive defense, very likely exposes a party to claims of waiver. (895) iii. U.S. Federal Arbitration Act In contrast to the UNCITRAL Model Law, the FAA contains no express regulation of the subject of waiver, leaving the issue for judicial development in the United States. In general, U.S. courts have been more reluctant to find a waiver of an arbitration agreement than would be the case under the Model Law. Instead, the FAA and the pro-arbitration policies underlying the Act (896) have been interpreted by U.S. courts as establishing a federal common law rule that strongly disfavors finding a waiver of a party's right to arbitrate. Under this approach, doubt as to the existence of a waiver is resolved against finding a waiver, and the party seeking to establish waiver bears a heavy burden, (897) particularly in cases under the New York Convention. (898) Moreover, a finding of waiver under the FAA typically requires knowledge of a right to arbitrate, actions inconsistent with that right (usually involving commencement of litigation or protracted delay) and (less clearly) prejudice to the adverse party. (899) Delay in commencing arbitration is virtually always said not to page (900) "740" constitute a waiver, nor in most cases is the mere commencement of judicial proceedings on the merits of the dispute (provided that no benefits are derived from those proceedings). (901) On the other hand, a party's commencement of judicial proceedings and subsequent participation in substantial discovery in those proceedings will often constitute a waiver of their rights to arbitration. (902) That can page "741" be true even if litigation is pursued with regard to only a part of an arbitrable dispute. (903) In general, it is unlikely that the failure to raise the existence of an arbitration agreement in a party's first pleading in a U.S. court would constitute a waiver (as would generally be the case under the Model Law). (904) Rather, U.S. courts would look more specifically to the party's reasons for failing to invoke the arbitration clause, the extent of any delays/litigation and the existence of prejudice to the counterparty.
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iv. Other National Legal Regimes In contrast to the restrictive U.S. approach, other national arbitration regimes are similar to the Model Law and more readily conclude that rights to arbitrate have been waived by a failure to assert those rights at an early stage. French courts have held that a party's commencement of judicial proceedings precludes it from relying on an arbitration clause as a defense to counterclaims (905) and that the commencement of judicial proceedings under one contract waives rights to commence arbitration under a related contract. (906) Likewise, German, (907) Dutch, (908) Italian (909) and Belgian (910) courts have adopted similar approaches to the subject of waiver. page "742" Although there is limited authority arbitral tribunals have generally been reluctant to uphold claims that rights to arbitrate have been waived. (911) There are exceptions, (912) but these are unusual. It is difficult to identify any uniform approach to substantive (or choice-oflaw) issues in arbitral awards addressing questions of waiver, although the law governing the arbitration agreement would appear to be the appropriate choice (as discussed below). (913) v. Waiver Provisions in Institutional Arbitration Rules Most institutional arbitration rules provide that objections to the existence or validity of an arbitration agreement may be waived, (914) but do not address the (reverse) possibility that the right to arbitrate may be waived. On the contrary, a few sets of institutional arbitration rules either expressly or impliedly provide that the right to arbitrate may not be waived. For example, Rule 48(a) of the AAA Commercial Rules provides: “No judicial proceedings by a party relating to the subject matter of the arbitration shall be deemed a waiver of the party's right to arbitrate.” (915) National courts have generally refused to apply these provisions to override generallyapplicable waiver principles. (916) On the other hand, a few lower courts page "743" have given at least some weight to “no waiver” clauses contained in arbitration agreements. (917) vi. Requests for Provisional Measures In most instances, national courts have held that a party's initiation of judicial action seeking provisional measures in aid of arbitration, which cannot practicably be secured in a timely fashion through arbitral proceedings under the parties' arbitration agreement, does not waive rights under the agreement to arbitrate. (918) That is mandated by Article 9 of the UNCITRAL Model Law, which provides: “It is not incompatible with an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure.” (919) Many institutional rules include comparable provisions. (920) At least in most circ*mstances, courts (921) and arbitral tribunals (922) have held that seeking provisional measures from a national court does not constitute a waiver. (923) page "744" http://www.kluwerarbitration.com/CommonUI/print.aspx
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vii. Choice-of-Law Governing Waiver There is comparatively little international authority considering the choice-of-law rules applicable to waiver claims. In principle, the law applicable to the substantive validity of the arbitration agreement would appear to govern issues relating to the waiver of rights under that agreement. (924) In practice, however, the law of the judicial forum where litigation arises (allegedly in breach of the arbitration agreement) is frequently applied. That is true under the FAA in the United States, (925) as well as under English law. (926) Similarly, Article 8(1) of the UNCITRAL Model Law is most readily interpreted as assuming that the law of the judicial forum where litigation is brought will apply to questions of waiver. (927) viii. Allocation of Competence to Decide Waiver Claims Like other defenses to the enforcement of arbitration agreements, waiver raises questions of the respective roles of courts and arbitral tribunals (e.g., does a court or arbitral tribunal decide issues of waiver of the arbitration agreement?). Different national courts have adopted different approaches to this issue of competencecompetence. Some U.S. courts initially held that claims that a party has waived its right to arbitrate were for judicial resolution. (928) Nonetheless, the U.S. Supreme Court more recently made clear that the proper analysis under the FAA is that claims of waiver are presumptively for arbitral decision: “the presumption is that the arbitrator should page "745" decide ‘allegation[s] of waiver, delay, or a like defense to arbitrability.’” (929) Other national courts have generally held that claims of waiver are for initial arbitral determination. (930) ix. Failure to Perform Arbitration Agreement or to Cooperate in Arbitral Process as Waiver of Right to Arbitrate Arguments are sometimes advanced that a party's actions (or inactions) during the arbitral process constitute a waiver of its rights to arbitrate or a repudiation of the arbitration agreement. These arguments are generally rejected. Alleged non-compliance with an arbitration agreement has (usually unsuccessfully) been characterized as a waiver or a repudiation of the arbitration agreement in a variety of circ*mstances. For example, one party's demand that a different arbitrator be appointed has been unsuccessfully argued to constitute an offer to terminate the parties' arbitration agreement. (931) Similarly, a party's delay in pursuing an arbitration has been argued (also unsuccessfully) to constitute an offer to terminate the arbitration agreement. (932) Likewise, the parties' agreement, while an arbitration was pending, jointly to obtain an advisory opinion on their dispute, was held not to constitute an agreement to terminate the arbitration agreement. (933) Similar arguments have been made or can be anticipated concerning failures to nominate an arbitrator, pay an advance on costs, comply with arbitrator's discovery orders, or make timely submissions in the arbitral proceedings. (934)
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page "746" In general, any such procedural steps (or missteps) should be deemed waivers or repudiations of the parties' agreement in only exceptional circ*mstances. A party's failure to comply with procedural obligations during an arbitration is appropriately sanctioned by the tribunal, as a violation of a party's obligations to participate in the arbitral proceedings in good faith, (935) in the exercise of its procedural authority, but should virtually never be held to amount to a waiver of the underlying agreement to arbitrate. (936) An English court found even this demanding standard satisfied when a party had consistently denied the existence of any contractual relations whatsoever, during pre-litigation correspondence, but then attempted to invoke an arbitration clause contained in documents that the parties had exchanged; the court held that any arbitration agreement had been repudiated, by “plainly evincing an intention not to be bound by the agreement to arbitrate.” (937) In contrast, another English court held that even a deliberate failure to comply with a tribunal's discovery orders, by improperly withholding material documents, did not amount to a repudiation of the arbitration agreement. (938) g. Termination or Repudiation of Arbitration Agreement Disputes sometimes arise relating to the alleged termination or repudiation of international arbitration agreements and related contracts. These disputes generally involve issues of interpretation of the parties' agreement. Like other issues of validity, questions of termination and repudiation of the arbitration agreement must be considered in the context of the separability presumption. In most states, national courts have held that the termination, expiration, rescission, or repudiation of the parties' underlying contract does not affect the parties' arbitration agreement. That is true in both common law (939) and page "747" civil law jurisdictions. (940) As a German appellate decision explained: “termination of the agency contract does not mean that the arbitration clause therein also became null and void at the same time. The main contract and arbitration clause are strictly separable. The main contract is a substantive law agreement, whereas the arbitration clause is a procedural agreement.” (941) Or, in the somewhat impatient assessment of one U.S. court: “It is hard to see how a reasonably careful lawyer could miss the difference between repudiating the agreement to arbitrate (which excuses a demand for arbitration) and disagreeing about the continued effect of some substantive provision of the contract (which does not).” (942) Arbitral tribunals have generally reached similar results, holding that termination or repudiation of the underlying contract does not affect http://www.kluwerarbitration.com/CommonUI/print.aspx
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the continued existence of the associated arbitration agreement. (943)
page "748" The separability presumption is a cogent explanation for an arbitration clause's survival, as a substantive matter, after termination of the underlying agreement. As the Swiss Federal Tribunal has reasoned: “the arbitration agreement does not necessarily share … the outcome of the main contract.… [T]his also applies where the parties terminate the principal contract by mutual agreement, but in that case, as a general rule, one should accept that insofar as the parties have not expressly provided otherwise, they also intend to retain their arbitration agreement for disputes concerning the consequences of the termination of the contract.” (944) That is, as a substantive matter, the arbitration agreement not only might not, but virtually always will not, terminate with the termination of the underlying contract. (945) Rather, the parties' intention will presumptively be that they do not intend to terminate their arbitration agreement, or to permit unilateral termination of that agreement, but rather to leave the arbitration agreement in place to resolve whatever disputes may subsequently come to light concerning the past performance of their contract or the termination of that contract. (946)
Although termination of the underlying contract does not terminate the separable arbitration clause, it is possible for the parties to separately terminate the arbitration agreement. There are a variety of ways that termination of the arbitration agreement might occur. page "749" In many legal systems, an arbitration agreement may be terminated by mutual consent (just as other contracts may be consensually terminated). (947) As a practical matter, parties seldom either agree specifically to terminate their arbitration agreement or intend to terminate their arbitration agreement; they instead terminate their underlying contract while leaving their agreed dispute resolution mechanism in place for any disputes that may in the future emerge from their contract while it was in effect. By virtue of the separability presumption, and these considerations, a generalized termination of the parties' underlying contract will not ordinarily be interpreted as termination of the separate arbitration agreement. (948) An arbitration agreement can also be terminated by a repudiation, or repudiatory breach, which is accepted. Consistent with generallyapplicable principles of contract law, (949) this will usually result in termination of the agreement to arbitrate. In general, as discussed above, only the commencement of litigation in deliberate breach of an agreement to arbitrate will constitute a repudiatory breach. (950) Unless otherwise agreed, arbitration agreements are not ordinarily capable of unilateral termination by one party. Rather, the agreement to arbitrate is presumptively intended to remain in force either indefinitely or until terminated mutually or by a repudiation http://www.kluwerarbitration.com/CommonUI/print.aspx
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which is accepted. Any other result would allow parties unilaterally to abrogate their mutually-agreed dispute resolution mechanism when disputes arose, which makes no commercial sense. A recurrent question is that of the allocation of competence to decide claims that an arbitration agreement has been terminated between the arbitral tribunal and national courts. Even in states where the allocation of competence to consider jurisdictional objections is linked to the existence of a specific challenge to the page "750" arbitration agreement, it should be clear that claims that the underlying contract has been terminated do not ordinarily impeach the separable arbitration agreement and are therefore matters for the arbitrators' substantive determination. National courts in both common law (951) and civil law (952) jurisdictions have almost unanimously reached this result. Some courts have held that claims of termination, when directed specifically at the arbitration agreement, are for judicial resolution. (953) It is doubtful whether this conclusion is correct, even in jurisdictions where competence-competence is linked to the nature of the jurisdictional challenge: in general, the question whether an admittedly (once) existent arbitration agreement has been terminated is essentially a matter of interpretation of that agreement, which is properly for the arbitral tribunal (at least in the first instance) in most developed jurisdictions. (954) h. Impossibility and Frustration All legal systems recognize impossibility or frustration as an excuse for non-performance of a contractual obligation. (955) The impossibility doctrine is in principle applicable to international arbitration agreements, although in practice it is rarely invoked or applied. As with other generally-applicable contract law defenses, the relevant issue is whether the separable agreement to arbitrate has been frustrated, not whether the underlying contract has become impossible to perform. page "751" There are express references to the impossibility doctrine in both international and national arbitration instruments. Article II(3) of the New York Convention contemplates the non-recognition of arbitration agreements which are “incapable of being performed.” (956) Article 8(1) of the UNCITRAL Model Law contains the same formulation. (957) Nonetheless, there is only limited authority applying these provisions. In one English decision, the parties' arbitration agreement provided for arbitration by two arbitrators and an umpire, under the ICC Rules of Arbitration. (958) After one party insisted on appointment of an “umpire” to chair the tribunal, the ICC declined to continue to administer the arbitration (on the grounds that the ICC Rules did not permit use of an umpire). In response to a claim that the ICC's withdrawal frustrated the entire arbitration agreement, an English court held that the agreement remained in effect – with a tribunal of two arbitrators and an umpire applying the ICC Rules, either with or without the ICC's participation as administering authority. (959) Similar arguments arise when the parties' arbitration agreement selects a named individual as arbitrator (or appointing authority), but http://www.kluwerarbitration.com/CommonUI/print.aspx
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that individual declines or is unable to fulfill this function. In these circ*mstances, the parties' original agreement is arguably frustrated or impossible to perform. Nonetheless, most national courts and other authorities have found the parties' arbitration agreement still capable of performance, typically by selecting a similar individual to fill the gap that had arisen in the parties' agreement. (960) There is also little authority on whether questions of impossibility and frustration should be resolved by national courts or arbitral tribunals. National courts page "752" have generally held that claims of frustration of the underlying contract are to be submitted to arbitration. (961) There is greater uncertainty insofar as claims that the arbitration agreement itself has been frustrated. In general, however, this issue involves assessment of the procedural steps in the arbitration and should be subject to initial resolution by the arbitral tribunal (962) (provided that the parties' agreement does not specify otherwise). i. Standard Form Contracts Arbitration clauses contained in standard form contracts may raise special issues of validity, depending on the applicable national law. In the United States, courts have recently been relatively sympathetic towards the use of arbitration clauses in standard form contracts: “Ours is not a bazaar economy, in which the terms of every transaction, or even of most transactions are individually dickered; … [F]orm contracts enable enormous savings in transaction costs, and the abuses to which they occasionally give rise can be controlled without altering traditional doctrines, provided those doctrines are interpreted flexibly, realistically.” (963) Other U.S. authorities, particularly in the academy, have urged substantially heightened requirements of notice and procedural safeguards with regard to arbitration agreements in standard form contracts, at least where consumers and employees are concerned. (964)
page "753" Outside the United States, some jurisdictions apply heightened requirements of notice and substantive fairness to standard form contracts. (965) In these jurisdictions, arbitration clauses included in standard form contracts are often subject to special rules of validity (typically prescribed by legislation dealing generally with standard form agreements). (966) j. Consumer and Employment Contracts Agreements to arbitrate between consumers with businesses and employers with employees raise special issues under many national laws. These issues are addressed below, in the context of the nonarbitrability doctrine. (967) k. Insolvency or Bankruptcy http://www.kluwerarbitration.com/CommonUI/print.aspx
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Parties to arbitration agreements sometimes enter bankruptcy, insolvency, liquidation, or similar proceedings. National law sometimes addresses the consequences of such events on the enforceability of arbitration clauses to which a bankrupt entity is party or on the procedural conduct of such arbitrations. These provisions of national law are often considered under the rubric of non-arbitrability (e.g., when they concern matters such as declarations of insolvency or rescheduling of liabilities), which is discussed below. (968) Provisions of some national bankruptcy legislation purport to invalidate the arbitration agreements of bankrupt companies. (969) Properly analyzed, this type of legislation involves the capacity of the (insolvent) party, with local legislation withdrawing from that party a legal capacity which previously existed. (970) As page "754" discussed above, matters of capacity are in principle governed by the personal law of the party in question, (971) generally making application of the rules of capacity of the company's place of organization or corporate seat appropriate. Nonetheless, there is a substantial argument that insolvency legislation singling out arbitration agreements for special legal disfavor, not applicable to other types of contracts, should not generally have effects on the validity of international arbitration agreements (although such legislation arguably may be invoked within the jurisdictions adopting such provisions as a non-arbitrability or public policy exception (972) ). l. Illegality It is hornbook law in all developed jurisdictions that an illegal agreement is ordinarily not enforceable. (973) International transactions, touching the laws of two or more nations, provide fertile grounds for claims of illegality. Both national courts and arbitral tribunals have considered disputes involving challenges to the legality of the parties' underlying contract and/or the associated arbitration clause. Although not referred to explicitly in the New York Convention, claims of illegality fall within Article V(2)(b)'s provision for non-recognition of arbitral awards on public policy grounds, arguably applicable to agreements by analogy under Article II. (974) Claims of illegality can arise in a number of different ways, which often produce difficult issues relating to the separability presumption, the competence-competence doctrine, choice-of-law analysis and the non-arbitrability doctrine. Thus, illegality claims can be directed either at the parties' arbitration clause itself or at their underlying contract; in both cases, choice-of-law questions arise as to the law governing the illegality claim. In turn, claims that the parties' arbitration agreement is illegal can be considered in two different ways: (a) as claims that the arbitration clause is invalid, and therefore not binding on the parties; and (b) as claims that, regardless of the validity of the arbitration clause as a general matter, the clause is page "755" not enforceable as applied to a particular dispute. The latter mode of analysis typically involves the non-arbitrability doctrine, discussed in greater detail below. (975) i. Application of Separability Presumption to Claims of Illegality http://www.kluwerarbitration.com/CommonUI/print.aspx
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In principle, the separability presumption applies to claims of illegality in much the same way that it applies to other challenges to the validity of international arbitration agreements. (976) Thus, decisions by U.S., (977) English (978) and other (979) national courts have frequently held that a claim that the parties' underlying contract is illegal does not necessarily or ordinarily affect the validity of an arbitration clause associated with that contract. (980) Arbitral tribunals have generally reached similar page "756" conclusions. (981) As in other contexts, the rationale in these decisions is that the arbitration agreement is independent from the underlying contract and that the illegality of the underlying contract does not necessarily entail the invalidity of the separate arbitration clause. (982) For example, in Buckeye Check Cashing, Inc. v. Cardegna, (983) the U.S. Supreme Court reversed a Florida decision holding that the illegality of a usurious loan agreement rendered both that contract and its arbitration clause void ab initio. (984) The Supreme Court held that: “Prima Paint and Southland answer the question presented here by establishing three propositions. First, as a matter of substantive federal arbitration law, an arbitration provision is severable from the remainder of the contract. Second, unless the challenge is to the arbitration clause itself, the issue of the contract's validity is considered by the arbitrator in the first instance.… The parties have not requested, and we do not undertake, reconsideration of those holdings. Applying them to this case, we conclude that because respondents challenge the Agreement, but not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract.” (985) Similarly, an ICC arbitral award relied on the separability presumption to uphold an arbitration agreement against illegality claims, concluding that: page "757" “the question of validity or nullity of the main contract, for reasons of public policy, illegality or otherwise, is one of the merits and not of jurisdiction, the validity of the arbitration clause having to be considered separately from the validity of the main contract.” (986) While recognizing the general applicability of the separability presumption, a number of authorities have also held that the illegality of an underlying contract can, in certain circ*mstances, also vitiate an arbitration clause contained within that contract. (987) This was put in graphic terms by the English Court of Appeal, discussing the legality of a hypothetical arbitration clause in an agreement to share criminal proceeds: “The English court would not recognise an agreement between … highwaymen to arbitrate their differences http://www.kluwerarbitration.com/CommonUI/print.aspx
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any more than it would recognise the original agreement to split the proceeds.” (988) That is, certain agreements between “highwaymen” (e.g., to split criminal proceeds or to execute a crime) are illegal and unenforceable. The relevant question, then, is whether an agreement to arbitrate such is an invalid contract. The relevant answer should generally be in the negative: an arbitration agreement, like a lease agreement, between ‘highwaymen’ should in principle be valid and enforceable notwithstanding the fact that one or both parties are criminals. (989) There will, however, be instances in which an arbitration agreement would be sought to be used in furtherance of criminal schemes and would therefore be invalid as applied to particular matters. For example, it would ordinarily be unlawful for a highwayman to seek to shield criminal proceeds from his victims, his creditors, or the state through the vehicle of an arbitration; equally, an agreement to arbitrate the division of criminal proceeds would be illegal in most jurisdictions. page "758" These conclusions require, however, a specific focus on the arbitration agreement itself, not merely on the underlying contract. It is not that criminals may not arbitrate, or that an arbitration agreement in an illegal contract may not be valid, but that the use of arbitration agreements to resolve certain disputes may unlawfully further criminal schemes or otherwise violate public policy. In practice, such cases are exceedingly rare, but when they arise, the arbitration agreement will be unenforceable. Some national court decisions have held that agreements to arbitrate certain types of disputes, involving claims of illegality directed at the underlying contract, are invalid and will not be enforced. (990) At least in international contexts, these decisions are mistaken, and fail to give proper effect to the separability presumption. (991) As discussed above, the fact that the parties' underlying agreement is illegal does not ordinarily vitiate a separate agreement to arbitrate, but instead submits claims of illegality to arbitration. ii. Claims of Illegality of Arbitration Agreement Itself In a limited number of cases, national law may be specifically directed towards invalidating particular types of arbitration agreements, rather than underlying contracts. That is, national law will permit parties to enter into underlying contracts dealing with particular subjects, but will not give effect to agreements to arbitrate those subjects (i.e., will treat such agreements as illegal or invalid). page "759" For example, national law may classify as illegal or invalid agreements to arbitrate certain types of employment disputes, consumer disputes, family law matters, franchise or distributorship claims, contracts with bankrupt parties and the like, while obviously giving effect to employment and consumer contracts, pre-nuptial agreements, franchise or distribution arrangements and other commercial contracts. (992) This category of legislative prohibition contrasts with cases, discussed above, involving claims that the underlying contract is illegal (e.g., for violating trade sanctions, http://www.kluwerarbitration.com/CommonUI/print.aspx
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prohibitions against usury or gaming), where the associated arbitration clause is “therefore” said to be invalid. Rather, this category of prohibition involves legal rules directed specifically (and often only) at the arbitration agreement. In the United States, for example, some state laws (993) purport to invalidate agreements to arbitrate in distributorship agreements, (994) franchise agreements (995) and employer-employee relations, (996) while U.S. federal law renders certain disputes involving motor vehicle franchises (997) and patent validity (998) non-arbitrable. In Europe, similar restrictions on the validity of arbitration agreements apply to certain page "760" consumer contracts (999) and distribution agreements. (1000) There are also instances of international sanctions or trade embargoes (discussed below (1001) ) which specifically forbid agreements to arbitrate with entities in specified states. (1002) In these circ*mstances, where the legality or validity of the arbitration clause itself is specifically impeached, (1003) the separability doctrine does not come into play. This sort of legislation instead raises questions only of the validity or legality of the arbitration agreement or of non-arbitrability. iii. Illegality and Non-Arbitrability In most cases, national laws that are directed to the legality of the arbitration agreement itself should be considered as applications of the New York Convention's non-arbitrability exception to the obligation to enforce arbitration agreements (discussed below (1004) ), rather than as rules of contractual invalidity. That is because such legislative provisions generally have the effect of singling out and forbidding arbitration of specified categories of disputes regardless of the terms of the parties' arbitration agreement (i.e., rendering those categories of disputes “not capable of settlement by arbitration”), rather than invalidating particular agreements to arbitrate pursuant to generally-applicable rules of contract law. (1005)
The distinction between invalid agreements and non-arbitrable subjects has important consequences in that a rule of contractual invalidity is potentially page "761" applicable (under Articles V(1)(a) and II(3) of the Convention), in all Contracting States, whereas a rule of non-arbitrable disputes is in principle applicable only in the Contracting State whose law is at issue (under Article V(2)(a) of the Convention). (1006) It is essential, in this regard, also to consider the impact of the New York Convention (and other international conventions) on national legislation purporting to forbid arbitration of specified categories of disputes. As discussed elsewhere, the Convention should be interpreted to generally preclude reliance on national legislation which subjects international arbitration agreements to more demanding standards of validity than other contracts or to idiosyncratic rules. (1007) An example of national legislation purportedly invalidating international arbitration agreements is Belgium's law requiring that any disputes concerning sales distribution agreements be resolved solely in Belgian courts and exclusively under Belgian law. (1008) http://www.kluwerarbitration.com/CommonUI/print.aspx
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One arbitral tribunal that considered the effect of this legislation held that it was ineffective to invalidate an arbitration agreement in a sales distribution agreement (covering Belgium, Luxembourg and Zaire), where the place of arbitration was Germany. (1009) The tribunal reasoned that the parties had chosen Italian law to govern their disputes, and their arbitration agreement, and that, under Italian law, the arbitration clause was valid. (1010) The tribunal could have reached the same result by holding that the Convention imposed prohibitions against discriminatory or idiosyncratic national laws, which would have precluded reliance outside of Belgium on Belgium's legislative prohibition against agreements to arbitrate distributorship disputes. (1011) Comparable examples would be national laws forbidding arbitration of consumer, franchise, or employment disputes, (1012) or invalidating all arbitration agreements of bankrupt companies. (1013) In each case, the relevant national legislation singles out arbitration agreements for special burdens, which the Convention should not permit to serve generally as grounds for the invalidation of such agreements. Rather, the Convention contemplates that such legislative prohibitions be treated as non-arbitrability exceptions, which Contracting States may invoke in local courts, but which ordinarily have no effect outside such states. (1014) A more difficult case was considered by an Italian court in Fincantieri-Cantieri Navali Italiani SpA v. Ministry of Defence, Armament and Supply Directorate of Iraq, where the court held that an arbitration clause contained in a contract that allegedly violated EU trade embargoes against Iraq was invalid. In particular, the court reasoned that the applicable EC regulations specifically forbid agreements to arbitrate with Iraqi entities: “Article 21 of [EC Regulation 3541/1992] forbids [enterprises] to meet or take any measure to meet Iraqi requests to perform in any way under contracts or transactions failing under Resolution No. 686/1990. … Article 1.2 explains that ‘request’ means a request made in or out of court, before or after the date of entry into force of the Regulation; that ‘transaction’ … generically means negotiation, and that this provision, in the light of its ratio, must be interpreted in the sense that it forbids not only meeting a request but also any (voluntary) act aimed at meeting it. This jus superveniens is worth mentioning … [the EC Regulation] would make the arbitral clause null and void and grant the Italian courts jurisdiction to hear the case.” (1015) The Italian court's interpretation of the relevant EU trade embargo, as being directed towards arbitration agreements, is difficult to follow, and was (properly) rejected in a related Swiss judicial action. (1016) Assuming, however, that the EC regulation page "763" applied generally to invalidate all contracts with Iraq (including, specifically, arbitration agreements), then this rule would be a classic example of the illegality of an arbitration agreement. Enjoying broad international approval, and being directed towards all contracts, the EC regulation also would not appear to run afoul the New York Convention's prohibitions against idiosyncratic or discriminatory national laws, and would therefore not be inconsistent with the http://www.kluwerarbitration.com/CommonUI/print.aspx
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Convention. (1017) Contracting States would thus be free to give effect to such a prohibition (including pursuant to Article V(1)(a)), although they would not be required to do so (pursuant to Article VII(1)). (1018) iv. Appropriate Time for Consideration of Illegality Claims There is little justification in many cases for denying enforcement to an allegedly illegal arbitration agreement at the outset of a dispute. The better course is to permit arbitration, subject to judicial review of the resulting award. This rationale appears to have been adopted by one English court: “There is no general rule that, where an underlying contract is illegal at common law or by reason of an English statute, an arbitration agreement, which is ancillary to that contract, is incapable of conferring jurisdiction on arbitrators to determine disputes arising within the scope of the agreement including disputes as to whether illegality renders the contract unenforceable.” (1019) At least some U.S. decisions have reached similar conclusions, holding that the alleged illegality or unenforceability of either an underlying contract or arbitration agreement should generally not preclude referring the parties to arbitration, with questions of illegality to be considered by the arbitrators and in any awardenforcement proceeding. (1020) m. Inconvenient Arbitral Situs An international arbitration agreement will sometimes select an arbitral seat that is (or becomes) highly inconvenient to one party. It is occasionally suggested that this page "764" inconvenience provides sufficient grounds for challenging the validity of the arbitration agreement, including on the basis of unconscionability or mistake. As discussed in detail elsewhere, national courts have virtually always rejected such claims (at least outside the consumer context), frequently questioning whether applicable international or national instruments even recognize such a basis for challenging the validity of an arbitration agreement. (1021) n. Statute of Limitations as Jurisdictional Objection It has occasionally been suggested that the existence of a statute of limitations or similar time bar defense to the underlying claim, as to which the arbitration agreement is invoked, terminates the arbitration agreement or renders it “incapable of being performed” (within the meaning of Article II of the New York Convention, the Model Law and/or comparable legislation). (1022) In most cases, these arguments have rightly been rejected on the grounds that they are non-jurisdictional, and instead go to the substance of the dispute before the arbitrators. (1023) It is equally clear that statute of limitations defenses, including when couched in jurisdictional terms, are presumptively for the arbitrators to decide, and not for interlocutory judicial decision. In the words of http://www.kluwerarbitration.com/CommonUI/print.aspx
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the U.S. Supreme Court, “the presumption is that the arbitrator should decide ‘allegation[s] of … delay, or a like defense to arbitrability.’” (1024) A few courts have concluded (wrongly) that statute of page "765" limitations and laches issues are for courts to decide, (1025) but these decisions are aberrations. There are exceptions to this general rule. In one Swiss decision, the parties' arbitration clause required claims to be asserted 30 days from the failure of negotiations. (1026) The claimant commenced an arbitration in May, and the arbitral tribunal held that this was within the contractual time limitation, on the grounds that negotiations had only been exhausted in April. Subsequently, however, the Swiss Federal Tribunal set the award aside, on the grounds that the negotiations had in fact broken down in January, and that the arbitration agreement had therefore expired in February, before the arbitration was commenced. (1027) The decision attracted substantial unfavorable commentary, focusing on the court's revision of the tribunal's legal and factual findings. (1028) page "766"
730 The formal validity of arbitration agreements is discussed
above. See supra pp. 580 et seq. 731 See New York Convention, Arts. II(1), II(3); UNCITRAL Model Law, Arts. 7, 8(1); supra pp. 202-207 & infra pp. 709-714. 732 A. van den Berg, The New York Arbitration Convention of 1958 282 (1981). See also Id. at 291 (“the invalidity of the arbitration agreement under the applicable law as ground for refusal of the award as provided in Article V(1)(a) has lost a great deal of its practical significance”). 733 See supra pp. 202-205, 567-569 & infra 714 et seq. 734 See supra pp. 202-207, 565-574. 735 See infra pp. 766 et seq. 736 See supra pp. 311 et seq. 737 See supra pp. 357-404, 404-405. 738 See supra pp. 405-407. 739 See supra pp. 409 et seq. 740 See supra pp. 425-561 (especially pp. 514-516). 741 See infra pp. 851 et seq. 742 As discussed above, this is particularly true in the United States and England. See infra pp. 911-960, 960-964. 743 See supra pp. 640-642. 744 See infra pp. 719-721, 721-723, 724-732, 751-753 (all citing authorities). 745 See supra pp. 514-516. 746 See, e.g., UNCITRAL Model Law, Art. 36(1)(b)(i); infra pp. 775788. 747 See infra pp. 772-775. Specifically, Article V(2)(a) provides that an award need not be recognized if “[t]he subject matter of the difference is not capable of settlement by arbitration under the law of that country.” New York Convention, Art. V(2)(a). http://www.kluwerarbitration.com/CommonUI/print.aspx
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748 See, e.g., UNCITRAL Model Law, Art. 8; infra pp. 772-773, 776
et seq. 749 New York Convention, Art. II(3). See infra pp. 767-775. 750 See infra pp. 769-770. 751 See infra pp. 768-770. 752 See supra pp. 427-431, 460-466. 753 See supra pp. 430-431, 517-520 & infra pp. 768-772, 837-841. 754 Article V(2)(a) does so by allowing Contracting States to refuse recognition of awards concerning certain “non-arbitrable” subjects, notwithstanding the fact that the parties' agreement to arbitrate such matters would be valid under the law which they selected to govern their agreement. This is true at least at the stage of recognizing and enforcing an award. As discussed in greater detail above, there is uncertainty concerning the question whether Article V's provisions concerning arbitration agreements, which are specifically applicable at the stage of recognizing and enforcing an arbitral award, are also applicable at the stage of recognizing and enforcing an arbitration agreement. See supra pp. 517-520 & infra pp. 773-775. 755 See infra pp. 769-770. 756 See supra pp. 91-105, 202-205, 565-571. 757 See New York Convention, Arts. II(1) (“Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration”), II(3); supra pp. 203205, 567-569. 758 Inter-American Convention, Art. 1 (“An agreement in which the parties undertake to submit to arbitral decision any differences that may arise or have arisen between them with respect to a commercial transaction is valid.”); supra pp. 205, 569-570. 759 Unlike the New York and Inter-American Conventions, these provisions of the European Convention do not expressly identify grounds for challenging the presumptive validity of arbitration agreements, although such grounds are implied. Article II(1) of the European Convention provides that “legal persons considered by the law which is applicable to them as ‘legal persons of public law’ have the right to conclude valid arbitration agreements.” However, there is no express definition of what constitutes a “valid arbitration agreement” nor the grounds on which presumptive validity of an arbitration agreement can be challenged. 760 New York Convention, Art. II(3). See A. van den Berg, The New York Arbitration Convention of 1958 154-161 (1981). In addition, as discussed below, Article II(I) of the Convention permits non-recognition of arbitration agreements as applied to “nonarbitrable” matters or disputes. See infra pp. 766 et seq. 761 See New York Convention, Art. V; infra pp. 2730-2732. 762 See supra pp. 94-96, 202-205, 568. See also A. van den Berg, The New York Arbitration Convention of 1958 154 (1981) (“The [Convention's drafting history] do[es] not reveal any discussion regarding these words [‘null and void’]”). 763 See supra pp. 203-205, 567-569. 764 See supra pp. 567-569 & infra pp. 1005-1007, 1025-1030. 765 Bautista v. Star Cruises, 396 F.3d 1289, 1302 (11th Cir. 2005). 766 For example, as discussed below, defenses based upon fraud, mistake, duress, unconscionability, illegality, waiver and termination http://www.kluwerarbitration.com/CommonUI/print.aspx
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are all permitted by the New York (and other) Convention(s). See infra pp. 711-712, 713 et seq. See also A. van den Berg, The New York Arbitration Convention of 1958 155 (1981) (“the words ‘null and void, inoperative or incapable of being performed’ would appear to encompass a broad range of reasons for which an arbitration agreement can be invalid”). 767 See supra pp. 504-516, 558-559, 568-569, 673. Article II(1) also provides that an arbitration agreement need not be recognized if it “concern[s] a subject matter not capable of settlement by arbitration.” New York Convention, Art. II(1). This exception deals with the “non-arbitrability” or “objective arbitrability” doctrine and is discussed in detail below. See infra pp. 766 et seq. 768 See supra pp. 94-96, 202-205. 769 See supra pp. 506-516. Thus, Contracting States have typically applied generally-applicable contract law rules to determine the validity of international arbitration agreements in both their international arbitration legislation and judicial decisions. See infra pp. 713 et seq. 770 See supra pp. 507-514. 771 A. van den Berg, The New York Arbitration Convention of 1958 123-28, 177 (1981). 772 See, e.g., West Tankers Inc. v. Ras Riunione Adriatica di Sicurta et al., The Front Comor [2005] 2 Lloyd's Rep. 257 (Q.B.); Sun Life Assur. Co. of Canada v. CX Reins. Co. Ltd [2004] Lloyd's Rep. IR 86 (Q.B.). See also Westacre Inv. v. Jugoimport-SDPR Holding Co. Ltd [1998] 4 All E.R. 570, 584-585 (Q.B.) (identifying examples where an arbitration agreement might be invalid, “such as fraud inducing the making of both the underlying contract and the agreement to arbitrate, the effect of the statute rendering the underlying contract illegal, the absence of consensus ad idem, non est factum, mistake as to the person making the contract, and contracts of adhesion in which the arbitrator is in practice, the choice of the dominant party.”) (emphasis added); infra pp. 714-737. 773 A. van den Berg, The New York Arbitration Convention of 1958 158 (1981) (“the word ‘inoperative’ refers to an arbitration agreement which has ceased to have effect”). See also Geneva Protocol, Art. IV. 774 See Shanghai Foreign Trade Corp. v. Sigma Metallurgical Co., XXII Y.B. Comm. Arb. 609, 614 (N.S.W. S.Ct. 1996) (1997) (settlement agreement without arbitration clause rendered arbitration clause in earlier agreement “inoperative”). See also infra pp. 736753. 775 A. van den Berg, The New York Arbitration Convention of 1958 159 (1981) (“incapable of being performed” applies “where the arbitration cannot be set in motion”). 776 See supra pp. 675 et seq. 777 See supra pp. 92-101, 428-431, 460-466 & infra pp. 12541264, 1368-1376, 1444-1446, 1450, 1513, 1690-1691, 1749-1751, 1765-1770, 2556-2560. 778 See supra pp. 97-98, 100-101, 429-430 & infra pp. 1254-1258, 1263-1264. 779 See infra pp. 2765-2769 (agreement on arbitral procedures), 2777-2797 (validity of agreement to arbitrate), 2780-2781, 27982803 (scope of agreement to arbitrate), 2863-2865 (non arbitrability). Compare infra pp. 2863-2864. 780 European Convention, Art. V(1). Likewise, Article VI(2) of the European Convention permits non-recognition of an agreement “if http://www.kluwerarbitration.com/CommonUI/print.aspx
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under the law of their country the dispute is not capable of settlement by arbitration.” European Convention, Art. VI(2); infra p. 773. 781 See supra pp. 640 et seq. 782 See infra pp. 1131 et seq. 783 Although the Inter-American Convention is less explicit, it contemplates the same general grounds for non-recognition. 784 Grounds of invalidity that fall outside Article II of the New York Convention are superseded by, and contrary to, the Convention. See supra pp. 203-205, 567-569. 785 UNCITRAL Model Law, Arts. 7, 9, 16(2). 786 UNCITRAL Model Law, Art. 8(1). See H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 302306 (1989). 787 U.S. FAA, 9 U.S.C. §2 (emphasis added). 788 Swiss Law on Private International Law, Arts. 177(1), 178. 789 English Arbitration Act, 1996, §7; Netherlands Code of Civil Procedure, Arts. 1022, 1053; Belgian Judicial Code, Art. 1697; Japanese Arbitration Law, Art. 13(6); Singapore International Arbitration Act, §§3(1), 31(2)(b); UNCITRAL Model Law, Arts. 8(1), 34(2)(a)(i); Hong Kong Arbitration Ordinance, Art. 34C(1), UNCITRAL Model Law, Arts. 8(1), 34(2)(a)(i). Compare Chinese Arbitration Law, Art. 17 (identifying grounds of substantive invalidity). 790 See infra pp. 714-766; R. Merkin, Arbitration Law ¶¶8.33 to 8.34 (2004 & Update 2007); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶416, 435-450 (1999); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶¶543-549 (2006) (“Possible reasons for a defective arbitration clause are lacking capacity, lacking authorization and lacking consent between the parties, be it that, based on the general rules on formation and interpretation of contracts, a mutual consent is missing, be it that a party can successfully rely on vitiated consent (mistake, fraud, duress etc.).”). 791 See, e.g., UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Art. 3.8 (2004); Restatement (Second) Contracts §164 (1981); J. Herbots (ed.), International Encyclopedia of Laws, Contract, Argentina ¶¶136, 139, Australia ¶77, Bulgaria ¶88, France ¶90, Hong Kong ¶84 (Update January 2007). See Gee, The Autonomy of Arbitrators and Fraud Unravels All, 22 Arb. Int'l 337 (2006). 792 For New York Convention cases dealing with claims of fraud, see Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir. 2006); Riley v. Kingsley Underwriting Agencies, Ltd, 969 F.2d 953, 960 (10th Cir. 1992); Technetronics, Inc. v. Leybold-Geaeus GmbH, 1993 U.S. Dist. LEXIS 7683 (E.D. Pa. 1993); Walter Rau Neusser Oel und Fett AG v. Cross Pac. Trading Ltd, XXXI Y.B. Comm. Arb. 559 (Australian Fed. Ct. 2005) (2006); Judgment of 25 January 1995, 3 Ob 453/94 (Austrian Oberster Gerichtshof). 793 See supra pp. 366-370. See also infra pp. 940-942 (competence-competence). 794 388 U.S. 395 (U.S. S.Ct. 1967). The alleged fraudulent misrepresentations concerned only the parties' underlying commercial transaction and not the agreement to arbitrate. 388 U.S. at 403-404. 795 388 U.S. at 403-404. http://www.kluwerarbitration.com/CommonUI/print.aspx
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796 388 U.S. at 403-404; supra pp. 363-365, 367-370 & infra pp.
940-942. 797 See, e.g., Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 819 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); Judgment of 30 May 1994, XX Y.B. Comm. Arb. 745 (Tokyo High Court) (1995) (fraud in connection with underlying contract does not taint arbitration clause); Judgment of 13 February 1978, VI Y.B. Comm. Arb. 228 (Naples Corte di Appello) (1981); Ferris v. Plaister, 34 N.S.W.L.R. 474 (N.S.W. Court of Appeal 1994) (claim that underlying contract was fraudulently induced does not impeach arbitration clause and is for arbitrators). Earlier decisions applying the separability presumption in the context of claims of fraudulent inducement and fraud were rendered in Switzerland and Germany. See supra pp. 323-328. 798 See supra pp. 402-404, 872-876. 799 See, e.g., Garten v. Kurth, 265 F.3d 136 (2d Cir. 2000); Ferro Corp. v. Garrison Indus., Inc., 142 F.3d 926 (6th Cir. 1998) (claim that underlying agreement was fraudulently induced is arbitrable); Campaniello Imp. Ltd v. Saporiti Italia SpA, 117 F.3d 655 (2d Cir. 1997) (there must be some substantial relationship between the alleged fraud and the agreement to arbitrate); In re Oil Spill by Amoco Cadiz et al., 659 F.2d 789 (7th Cir. 1981); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 637 F.2d 391, 398 (5th Cir. 1981); Erving v. Virginia Squires Basketball Club, 468 F.2d 1064 (2d Cir. 1972); Allied Sanitation, Inc. v. Waste Mgt Holdings, Inc., 97 F.Supp.2d 320 (E.D.N.Y. 2000) (fraudulent inducement claim was directed at underlying contract, notwithstanding statements during negotiations regarding arbitration clause that were allegedly fraudulent: alleged fraudulent statements “relate to the contract in general” and were “based upon the same alleged misrepresentations which underlie the [plaintiffs'] general attack on the contract”); Acquaire v. Canada Dry Bottling, 906 F.Supp. 819, 825 (E.D.N.Y. 1995) (claim of fraudulent inducement of underlying contract does not affect arbitration clause and must be submitted to arbitration); Al-Salamah Arabian Agencies Co. v. Reece, 673 F.Supp. 748 (M.D.N.C. 1987); Joseph Muller Corp. v. Commonwealth Petrochem., Inc., 334 F.Supp. 1013 (S.D.N.Y. 1971); Cooper v. Computer Credit Sys., Inc., 336 N.Y.S.2d 380 (N.Y. App. Div. 1972); Pinkis v. Network Cinema Corp., 512 P.2d 751 (Wash. Ct. App. 1973). See also supra pp. 363-365, 365-370 & infra pp. 940-942. 800 See, e.g., Chastain v. Robinson-Humphrey Co., 957 F.2d 851 (11th Cir. 1992) (if a party challenges “the very existence of any agreement, including the existence of an agreement to arbitrate … there is no presumptively valid general contract which would trigger the district court's duty to compel arbitration … before sending any such grievances to arbitration, the district court itself must first decide whether or not” an agreement exists); C.B.S. Employees Fed. Credit Union v. Donaldson, Lufkin & Jenrette Sec. Corp., 912 F.2d 1563 (6th Cir. 1990); Comprehensive Merchandising Catalogs, Inc. v. Madison Sales Corp., 521 F.2d 1210, 1213 (7th Cir. 1975); Rush v. Oppenheimer & Co., 681 F.Supp. 1045, 1053 (S.D.N.Y. 1988) (court must resolve claims of fraud “that pertain to both the principal agreement as a whole and the arbitration agreement in particular”); Housekeeper v. Lourie, 333 N.Y.S.2d 932 (N.Y. App. Div. 1972); Main v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 136 Cal.Rptr. 378 (Cal. Ct. App. 1977). See also supra pp. 365-370, 376380 & infra pp. 938-943. 801 See, e.g., Campaniello Imp. Ltd v. Saporiti Italia SpA, 117 F.3d http://www.kluwerarbitration.com/CommonUI/print.aspx
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655 (2d Cir. 1997) (generalized claim of fraudulent inducement of underlying contract, lacking “some substantial relationship between the fraud or misrepresentation and the arbitration clause,” does not satisfy Prima Paint); Riley v. Kingsley Underwriting Agencies, Ltd, 969 F.2d 953, 960 (10th Cir. 1992) (must “show that the arbitration provision … was a product of fraud”); Teledyne, Inc. v. Kone Corp., 892 F.2d 1404, 1410 (9th Cir. 1989) (case must “be submitted to arbitration unless there is a challenge to the arbitration provision which is separate and distinct from any challenge to the underlying contract”); Unionmutual Stock Life Ins. Co. of Am. v. Beneficial Life Ins. Co., 774 F.2d 524, 529 (1st Cir. 1985) (“independent challenge to the making of the arbitration clause itself”); In re Oil Spill by Amoco Cadiz et al., 659 F.2d 789, 794-95 (7th Cir. 1981); Brener v. Becker Paribas, Inc., 628 F.Supp. 442, 446 (S.D.N.Y. 1985) (“The court will become involved only if there is a specific allegation [directed towards] the arbitration clause itself, standing apart from the overall agreement”); Coleman v. Nat'l Movie-Dine, Inc., 449 F.Supp. 945 (E.D. Pa. 1978) (“must be addressed to the arbitration clause per se”); Rowland v. PaineWebber, Inc., 6 Cal.Rptr.2d 20 (Cal. Ct. App. 1992) (fraud claim must be directed specifically to arbitration clause to warrant judicial resolution); Shearson Lehman Bros., Inc. v. Kilgore, 871 S.W.2d 925 (Tex. Ct. App. 1994) (“in order to avoid arbitration, the claim of fraudulent inducement must focus specifically on the negotiation and acceptance of the arbitration provision”). See also supra pp. 369-370 & infra pp. 942-943. 802 546 U.S. 440 (U.S. S.Ct. 2006). 803 See supra pp. 363-365 & infra pp. 942-943. 804 546 U.S. at 444; infra pp. 942-943. 805 See also supra pp. 365-370 & infra pp. 942-943. 806 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal) (emphasis added), aff'd, [2007] UKHL 40 (House of Lords) (“the doctrine of separability requires direct impeachment of the arbitration agreement before it can be set aside. This is an exacting test.”). 807 See, e.g., Ferris v. Plaister, 34 N.S.W.L.R. 474 (N.S.W. Court of Appeal 1994); Judgment of 3 October 1936, AB Norrköpings Trikåfabrik v. AB Per Persson, 1936 NJA 521 (Swedish S.Ct.) (fraud and unconscionability in the making of the main contract has no effect upon the validity of the arbitration clause); Halki Shipping Corp. v. Sopex Oils Ltd [1998] 1 Lloyd's Rep. 49 (Q.B.) (allegations of fraud in relation to the underlying contract do not necessarily impugn the validity of the arbitration agreement); Kalmneft v. Glencore Int'l AG [2002] 1 Lloyd's Rep. 128 (Q.B.); Harbour Ass. Co. (UK) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1993] 3 All E.R. 897, 898 (English Court of Appeal) (“In English law the principle of separability of an arbitration clause contained in a written contract could give jurisdiction to an arbitrator under that clause to determine a dispute over the initial validity or invalidity of the written contract provided that the arbitration clause itself was not directly impeached. Furthermore, an issue as to the initial illegality of the contract was also capable of being referred to arbitration, provided that any initial illegality did not directly impeach the arbitration clause. In every case the logical question was not whether the issue of illegality went to the validity of the contract but whether it went to the validity of the arbitration clause”); Judgment of 4 April 2002, Société Barbot v. Société Bouygues Bâtiment, 2003 Rev. arb. 104 (French Cour de cassation civ. 2e) (nullity of the underlying contract does not affect the validity of the arbitration agreement). 808 The effects of forgery on formation and consent are discussed http://www.kluwerarbitration.com/CommonUI/print.aspx
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above. See supra pp. 370-374. 809 As one U.S. Court of Appeals put it: “where the allegation is one of fraud in the factum, i.e., ineffective assent to the contract, the issue is not subject to resolution pursuant to an arbitration clause contained in the contract documents”; the court described fraud in the factum as “misrepresentation of the character or essential terms of a proposed contract [in such a fashion that] assent to the contract is impossible [and] there is no contract at all.” Cancanon v. Smith Barney, Harris, Upham & Co., 805 F.2d 998 (11th Cir. 1986). A number of other U.S. lower courts have also adopted the view that well-pleaded claims of forgery or similar “fraud in the factum,” affecting both the underlying contract and the arbitration clause, are for interlocutory judicial resolution. See supra pp. 370-374 & infra pp. 944-948; Sphere Drake Ins. Ltd v. All Am. Ins. Co., 256 F.3d 587, 590 (7th Cir. 2001) (Easterbrook, J.); Gregory v. Interstate/Johnson Lane Corp., 188 F.3d 501 (4th Cir. 1999); Chastain v. Robinson-Humphrey Co., 957 F.2d 851, 855 (11th Cir. 1992) (following Cancanon); T & R Enter., Inc. v. Continental Grain Co., 613 F.2d 1272, 1278 (5th Cir. 1980); Acquaire v. Canada Dry Bottling, 906 F.Supp. 819 (E.D.N.Y. 1995); Jones v. Sea Tow Services Freeport New York, Inc., 828 F.Supp. 1002 (E.D.N.Y. 1993), rev'd on other grounds, 30 F.3d 360 (2d Cir. 1994) (following Cancanon); Kyung In Lee v. Pac. Bullion (New York) Inc., 788 F.Supp. 155 (E.D.N.Y. 1992) (“if a party's signature were forged on a contract, it would be absurd to require arbitration”); Republic of the Philippines v. Westinghouse Elec. Corp., 714 F.Supp. 1362, 1368-69 (D.N.J. 1989); New England Mackintosh Co. v. Carleton Woolen Mills, Inc., 1988 U.S. Dist. LEXIS 14179 (D. Mass. 1988); Dougherty v. Mieczkowski, 661 F.Supp. 267 (D. Del. 1987). 810 See, e.g., Fiona Trust & Holding Corp. v. Privalov [2007] 1 All
E.R. (Comm.) 891 (English Court of Appeal) (“Provided that the arbitration clause is not itself directly impeached (e.g., by a non est factum plea), the arbitration agreement is as a matter of principled legal theory capable of surviving the invalidity of the contract.”), aff'd, [2007] UKHL 40, at *8 (“Issues as to whether the entire agreement was procured by impersonation or by forgery … are unlikely to be severable from the arbitration clause”); Harbour Ass. Co. (UK) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1993] 3 All E.R. 897 (English Court of Appeal); Walter Rau Neusser Oel und Fett AG v. Cross Pacific Trading Ltd, XXXI Y.B. Comm. Arb. 559 (Australian Fed. Ct. 2005) (2006) (“what is required for section 7(5) to be engaged and to justify the matter of avoidance for fraud or otherwise not being referred to the arbitrator for decision, is that the fraud or vitiating conduct be directed to the arbitration clause itself,” citing Prima Paint); Judgment of 3 October 1936, AB Norrköpings Trikåfabrik v. AB Per Persson, 1936 NJA 521 (Swedish S.Ct.) (fraud and unconscionability in the making of main contract has no effect on validity of arbitration clause); Judgment of 23 February 1967, 1967 NJW 1039 (German Bundesgerichtshof) (forged signature does not lead to agreement even where the apparent signatory remains silent upon being informed of the signature). 811 See R.M. Perez & Assoc., Inc. v. Welch, 960 F.2d 534 (5th Cir. 1992); Villa Garcia v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 833 F.2d 545 (5th Cir. 1987); Hall v. Shearson Lehman Hutton, Inc., 708 F.Supp. 711 (D. Md. 1989) (arbitrator to resolve whether one party forged other party's signature on agreement containing arbitration clause); Ketchum v. Bloodstock, 685 F.Supp. 786, 788-89 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(D. Kan. 1988). 812 See, e.g., Award in ICC Case No. 3327, 109 J.D.I. (Clunet) 971 (1982); Award in ICC Case No. 4381, 113 J.D.I. (Clunet) 1102, 1105 (1986); Ad Hoc Award of April 1982, VIII Y.B. Comm. Arb. 94, 105 (1983). 813 See, e.g., Toledano v. O'Connor, 501 F. Supp. 2d 127, 144-145 (D.D.C. 2007) (considering and rejecting claim that arbitration clause was fraudulently induced by failure to disclose true costs of arbitration); Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282 (9th Cir. 1988) (court to resolve claim that broker failed to “inform [customer] of the meaning and effect of the arbitration clause”; rejecting fraud claim based on non-disclosure of meaning and effect of arbitration clause); Gouger v. Bear, Stearns & Co., 823 F.Supp. 282 (E.D. Pa. 1993) (“a party may avoid enforcement of an arbitration clause if it can be shown that the agreement to arbitrate was procured by fraud in the inducement,” but rejecting argument that arbitration clause was void because fiduciary failed to explain legal effects of clause to counterparty); Axtell v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 744 F.Supp. 194 (E.D. Ark. 1990) (rejecting claim that arbitration agreement was not disclosed); Masthead Mac Drilling Corp. v. Fleck, 549 F.Supp. 854 (S.D.N.Y. 1982) (rejecting fraudulent inducement claim premised on nondisclosure of one party's close relations with individual named in arbitration clause as arbitrator). 814 One of the very few decisions finding fraud in the inducement of an arbitration agreement was Michele Amoruso e Figli v. Fisheries Dev. Corp., 499 F.Supp. 1074 (S.D.N.Y. 1980). Another arguable exception was Republic of the Philippines v. Westinghouse Elec. Corp., 714 F.Supp. 1362 (D.N.J. 1989). There, the court considered claims that Westinghouse used bribery for the purpose of resolving a deadlock in negotiations, including specifically a deadlock concerning an international arbitration agreement in a major infrastructure project. The court rejected the claims, but one could at least imagine circ*mstances in which such claims are facially plausible; in most other circ*mstances, the notion that a party would use fraud to obtain an arbitration agreement are implausible in the extreme. See also Engalla v. Permanente Med. Group, 938 P.2d 903 (Cal. 1997) (arbitration clause invalid because of fraudulent misrepresentation of speed and nature of arbitral process). 815 See infra pp. 1855-1856. 816 See supra pp. 425 et seq.; Restatement (Second) Conflict of Laws §201 (1971) (“The effect of misrepresentation, duress, undue influence and mistake upon a contract is determined by the law selected by application of the [generally-applicable conflicts] rules of §§187-88”) & §201 comment (“The fact that a contract was entered into by reason of misrepresentation … does not necessarily mean[ ] that a choice-of-law provision contained therein will be denied effect. This will only be done if the misrepresentation … was responsible for the complainant's adherence to the provision.”); L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶32–166 (14th ed. 2006); Rome Convention, Art. 8 (all aspects of the “existence and validity” of a contract are governed by the putative proper law of the contract). 817 See supra pp. 497-504, 504-516, 558-559, 569, 673 & infra pp. 1264-1270, 1368-1376, 1444-1446, 1450, 1513, 1690-1691, 17491751, 1765-1770, 2530-2560. 818 See UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Arts. 3.4, 3.5 (2004); J. Herbots (ed.), International Encyclopedia of Laws, Contract, Argentina ¶137-138, http://www.kluwerarbitration.com/CommonUI/print.aspx
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Australia ¶¶71-76, France ¶¶81-89, Hungary ¶53, India ¶¶237-239 (Update January 2007). 819 See supra pp. 369-370 & infra pp 940-943; Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 629 (6th Cir. 2004) (arbitration clause remains valid despite claim of mistake with regard to underlying contract); Unionmutual Stock Life Ins. Co. of Am. v. Beneficial Life Ins. Co., 774 F.2d 524 (1st Cir. 1985); Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 868-69 (7th Cir. 1985) (“objections to other parts of the contract, based on … mistake or whatever, need not spill over to the arbitration clause”); Bratt Enter., Inc. v. Noble Int'l Ltd, 99 F.Supp.2d 874 (S.D. Ohio 2000) (party claimed mutual mistake as to terms of underlying contract, but there was no claim “that there was any ‘mutual mistake’ in the negotiation of the arbitration clause itself”); Ashville Inv. Ltd v. Elmer Contractors Ltd [1988] 3 W.L.R. 867 (English Court of Appeal) (claim that the underlying contract was voidable for mutual mistake fell within arbitration clause and was subject to arbitration); Geimer, in R. Zöller (ed.), Zivilprozessordnung §1029, ¶1 (26th ed. 2007). 820 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords) (quoting Harbour Assur. Co. (UK) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1993] 3 All E.R. 897, 914, 915 (English Court of Appeal) (Hoffman, L.J.). 821 That is, although mistake as to the identity of a contractual counterparty might be theoretical grounds for invalidating an arbitration agreement, and grounds for permitting interlocutory judicial consideration, it is unclear why that mistake should in fact produce the substantive result of invalidating the agreement to arbitrate. In principle, a more efficient, neutral and binding dispute resolution process should be favored regardless of the identity of the counterparty. There might be cases where there were particular reasons not to arbitrate, or accept a specific arbitration clause, because of the true counterparty's identity, but these would be exceptional. 822 See, e.g., Judgment of 31 March 1978, 1979 Rev. arb. 457 (French Cour de cassation civ. 2e) (fact that one party's lawyer was Vice-President of ICC Court did not invalidate ICC arbitration clause); Judgment of 9 April 1992, Société Annahold BV & D. Frydman v. Société l'Oréal, 1996 Rev. arb. 483 (Paris Cour d'appel); China Resource Prod. (U.S.A.) Ltd v. Fayda Int'l, Inc., 747 F.Supp. 1101 (D. Del. 1990) (fact that Chinese arbitral institution was staterelated did not invalidate arbitration agreement with Chinese state entity). 823 See, e.g., Judgment of 13 April 1972, Ury v. Galeries Lafayette, 1975 Rev. arb. 235 (French Cour de cassation civ. 2e) (“Where one of the parties is unaware of a fact which possibly affects [the] independence [of the arbitrator], that party's consent to the arbitration agreement will be invalid, and the arbitration agreement will be void under Article 1110 of the [French] Civil Code [i.e., provision dealing with mistake].”); Judgment of 19 December 1968, BGHZ 51, 255, 262 (German Bundesgerichtshof) (fact that the arbitral tribunal was composed of members of an association only the claimant was a member of invalidated arbitration agreement). 824 See supra pp. 425 et seq. 825 See supra pp. 497-504, 504-516, 569, 673. 826 See UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Art. 3.2 (2004); K. Zweigert & H. Kötz, An Introduction to Comparative Law 390 (3d ed. 1998); J. Herbots (ed.), International Encyclopedia of Laws, Contract, Austria ¶123, Belgium http://www.kluwerarbitration.com/CommonUI/print.aspx
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¶¶221-222, India ¶¶127-137, Netherlands ¶47, Singapore ¶¶84-119 (Update January 2007); Treitel, The Law of Contract Chapter 3 (12th ed. 2007). 827 See infra pp. 723-724 nn. 828-830, 732-736. 828 See, e.g., Restatement (Second) Contracts §71 (1981); Johnson v. Circuit City Stores, Inc., 148 F.3d 373, 378 (4th Cir. 1998) (“both parties in this case agreed to be bound by the arbitration process.… Therefore, we hold that the Dispute Resolution Agreement was supported by adequate consideration”); Bishop v. We Care Hair Dev. Corp., 738 N.E.2d 610, 623 (Ill. Ct. App. 2000) (“a mutual promise to arbitrate is sufficient consideration to support an agreement to arbitrate”); In re Alamo Lumber Co., 23 S.W.3d 577, 579 (Tex. Ct. App. 2000) (“Since the parties surrendered their rights to trial by jury, these mutual promises supply valid consideration”). Compare Bd. of Ed. of Berkeley County v. W. Harley Miller, Inc., 236 S.E.2d 439, 447 (W. Va. 1977) (“there is a strong presumption that an arbitration provision is part of the bargain”). 829 See infra pp. 732-736; Lawrence v. Comprehensive Business Sers. Co., 833 F.2d 1159 (5th Cir. 1987) (considering and rejecting claim of lack of mutuality); Erving v. Virginia Squires Basketball Club, 468 F.2d 1064 (2d Cir. 1972); Seymour v. Gloria Jean's Coffee Bean Franchising Corp., 732 F.Supp. 988, 995-6 (D. Minn. 1990). 830 See supra p. 369 & infra pp. 732-736, 942; Cline v. H.E. Butt Grocery Co., 79 F.Supp.2d 730 (S.D. Tex. 1999) (lack of consideration claim was “attack on the [contractual scheme] as a whole” and “properly referable to an arbitrator”); Axtell v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 744 F.Supp. 194 (E.D. Ark. 1990) (claims that underlying contract lacked consideration are for arbitrators); Roberts v. Bank of Am. NT & SA, 668 N.E.2d 942 (Ohio App. 1995) (“the decisive factor is not whether the asserted contractual defense prevents formation of a legally binding agreement or renders the principal contract void ab initio … but whether the defense attacks the effectiveness of the assent”); Exercycle Corp. v. Maratta, 214 N.Y.S.2d. 353 (N.Y. 1961) (“whether the contract lacked mutuality of obligations … is to be determined by the arbitrators, not the court”). See also El Nasharty v. J. Sainsbury plc [2003] EWHC 2195 (Comm.) (Q.B.) (dispute as to whether there was consideration for variation in share sale agreement to be resolved by arbitrators). 831 See supra pp. 497-504, 504-516, 558-559, 569, 673. 832 See UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Art. 3.10 (2004) (“gross disparity”); K. Zweigert & H. Kötz, An Introduction to Comparative Law 343 (3d ed. 1998); Cellini & Wertz, Unconscionable Contract Provisions: A History of Unenforceability from Roman Law to the UCC, 42 Tul. L. Rev. 193 (1967); Restatement (Second) Contracts §208 (1981); Ware, Arbitration and Unconscionability after Doctor's Associates, Inc. v. Casarotto, 31 Wake Forest L. Rev. 1001 (1996). 833 See supra pp. 369-370 & infra pp. 940-942; Judgment of 3 October 1936, AB Norrköpings Trikåfabrik v. AB Per Persson, 1936 NJA 521 (Swedish S.Ct.) (unconscionability in the making of the main contract has no effect upon the validity of the arbitration clause); Jenkins v. First Am. Cash Advance of Ga., LLC, 400 F.3d 868, 877 (11th Cir. 2005) (“the FAA does not permit a federal court to consider claims alleging the contract as a whole was adhesive”); Madol v. Dan Nelson Auto. Group, 372 F.3d 997, 1000 (8th Cir. 2004); Sydnor v. Conseco Fin. Serv. Corp., 252 F.3d 302, 305 (4th Cir. 2001) (“When claims allege unconscionability of the contract http://www.kluwerarbitration.com/CommonUI/print.aspx
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generally, these issues are determined by an arbitrator because the dispute pertains to the formation of the entire contract, rather than the arbitration agreement”); Baldeo v. Darden Restaurants, Inc., 2005 U.S. Dist. LEXIS 289 (E.D.N.Y. 2005); Wright v. SFX Enter. Inc., 2001 U.S. Dist. LEXIS 1000 (S.D.N.Y. 2001) (“claims of unconscionability and adhesion contracts are similarly included within the Prima Paint rule”). See also Belgian Judicial Code, Art. 1697(2). A few courts have considered unconscionability challenges directed at the underlying contract, apparently on the grounds that defects in the underlying contract infected the associated arbitration agreement. Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1264 (9th Cir. 2006) (en banc) (court, rather than arbitrator, addresses procedural unconscionability of underlying contract because California law “requires the court to consider, in the course of analyzing the validity of the arbitration provision, the circ*mstances surrounding the making of the entire agreement”); Murphy v. Check “N Go of Cal., Inc., 2007 WL 3016414 (Cal. App. 2007) (refusing to require arbitration of claim that arbitration agreement was unconscionable, notwithstanding provision in agreement providing for arbitration of “‘any assertion by you or us that this Agreement is substantively or procedurally unconscionable’”: “in this contract of adhesion, the provision for arbitrator determinations of unconscionability is unenforceable”). 834 In some jurisdictions, establishing unconscionability requires
showing both that any contract negotiations were procedurally defective and that the substantive terms of the parties' bargain are unacceptable. See Shroyer v. New Cingular Wireless Sers., Inc., 498 F.3d 976, 981-982 (9th Cir. 2007) (“the [unconscionability] doctrine has both a procedural and a substantive element, the former focusing on oppression or surprise due to unequal bargaining power, the latter on overly harsh or one-sided results”); Baldeo v. Darden Restaurants, Inc., 2005 U.S. Dist. LEXIS 289 (E.D.N.Y. 2005); Ciago v. Ameriquest Mortgage Co., 295 F.Supp.2d 324, 328 (S.D.N.Y. 2003) (“[a] determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made”). Compare UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Art. 3.10 (2004) (“gross disparity”). See also Revised Uniform Arbitration Act, §6, comment 7 (2000) (“To determine whether to void a contract on [unconscionability], courts examine a number of factors. The factors include: unequal bargaining power, whether the weaker party may opt out of arbitration, the clarity and conspicuousness of the arbitration clause, whether an unfair advantage is obtained, whether the arbitration clause is negotiable, whether the arbitration provision is boilerplate, whether the aggrieved party had a meaningful choice or was compelled to accept arbitration, whether the arbitration agreement is within the reasonable expectations of the weaker party, and whether the stronger party used deceptive tactics.”). 835 See infra pp. 938-940; WMX Tech., Inc. v. Jackson, 932 F.Supp. 1372 (M.D. Ala. 1996) (alleged lack of mutuality claim could, as a matter of law, apply only to entire contract, and was therefore for decision by arbitration); Harvey v. Joyce, 199 F.3d 790 (5th Cir. 2000) (rejecting claim that arbitration agreement is unconscionable); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 33 (U.S. S.Ct. 1991). 836 See, e.g., Batory v. Sears, Roebuck & Co., 124 Fed.Appx. 530 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(9th Cir. 2005); Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (9th Cir. 2002); Ticknor v. Choice Hotels Int'l Inc., 265 F.3d 931 (9th Cir. 2001); Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938-39 (4th Cir. 1999); Doctor's Assoc., Inc. v. Distajo, 107 F.3d 126 (2d Cir. 1997) (rejecting claims that arbitration clause was unconscionable); Doctor's Assoc., Inc. v. Stuart, 85 F.3d 975 (2d Cir. 1996) (rejecting claim that arbitration clause was unconscionable because of AAA's filing fees, cost of traveling to arbitral situs, cost of arbitrator's fees and alleged bias of AAA); Hellenic Lines, Ltd v. Louis Dreyfus Corp., 372 F.2d 753 (2d Cir. 1967); Vegter v. Forecast Fin. Corp., 2007 WL 4178947 (W.D. Mich. 2007) (upholding unconscionability challenge to selection of arbitral situs); TWI Lite Int'l, Inc. v. Anam Pac. Corp., 1996 WL 637843 (N.D. Cal. 1996) (considering and rejecting claim that arbitration agreement was unconscionable); Sharp Elec. Corp. v. Branded Prod., Inc., 604 F.Supp. 239 (S.D.N.Y. 1984); E.F. Hutton & Co. v. Schank, 456 F.Supp. 507 (D. Utah 1976); Murphy v. Check 'N Go of Cal., Inc., 2007 WL 3016414 (Cal. Ct. App. 2007) (decision whether arbitration agreement was unconscionable are for judicial, not arbitral, determination); Brower v. Gateway 2000, Inc., 246 A.D.2d 246 (N.Y. App. Div. 1998) (claims that agreement to arbitrate itself was unconscionable held to be subject of judicial resolution); 24 Hour Fitness, Inc. v. Superior Court, 66 Cal.App.4th 1199 (Cal. Ct. App. 1998); Stirlen v. Supercuts, Inc., 60 Cal.Rptr.2d 138 (Cal. Ct. App. 1997). See also Elisa Maria Mostaza Claro v. Centro Movil Milenium SL, C-168/05 [2006] E.C.R. I-10421 (E.C.J.) (national court must determine whether arbitration agreement is void on grounds of unfairness (even though consumer has not pleaded that invalidity during the arbitral proceeding), in determining whether to enforce award). Compare Ware, Arbitration and Unconscionability after Doctor's Associates, Inc. v. Casarotto, 31 Wake Forest L. Rev. 1001 (1996). 837 Khan v. Parsons Global Sers. Ltd, 480 F.Supp.2d 327, 340 (D.D.C. 2007). The court reasoned that, “by its very nature, the defense of unconscionability seeks to promote those very tenets that are contrary to a finding of certainty, namely: policy, fairness, and appeals to a court's discretion outside of the letter of the law.” 838 See, e.g., Judgment of 14 July 1995, XXI Y.B. Comm. Arb. 643 (Hertogenbosch Gerechtshof) (1996) (rejecting claim that enforcement of arbitration clause would be “unjustly onerous”: “an arbitration such as this is certainly not unusual and is frequently chosen for efficiency's sake”); Judgment of 11 July 1992, XXII Y.B. Comm. Arb. 715 (Italian Corte di Cassazione) (1997); Judgment of 17 February 1989, XV Y.B. Comm. Arb. 455 (Hanseatisches Oberlandesgericht Hamburg) (1990); In re Cotton Yarn Antitrust Litigation, 2007 WL 2965586, at *4 (4th Cir. 2007) (“the plaintiffs' arguments about the discovery limitations fall well short of satisfying their burden” to demonstrate unconscionability); Toledano v. O'Connor, 501 F. Supp. 2d 127, 145-146 (D.D.C. 2007) (rejecting claim that arbitration agreement was unconscionable; noting that unconscionability argument required “quick peek at the merits” of argument that underlying contract was unconscionable, which is not permitted under Buckeye Check Cashing); Revised Uniform Arbitration Act, §6, comment 7 (2000) (“courts do not often find contracts unenforceable for unconscionability”). See also authorities cited infra pp. 727 nn. 839-842, 938-940. 839 See, e.g., Coleman v. Prudential-Bache Sec., Inc., 802 F.2d 1350 (11th Cir. 1986); Webb v. R. Rowland & Co., 800 F.2d 803 (8th Cir. 1986); Surman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 733 F.2d 59 (8th Cir. 1984); Judgment of 30 July 1998, XXV Y.B. Comm. Arb. 714 (Hanseatisches Oberlandesgericht Hamburg) http://www.kluwerarbitration.com/CommonUI/print.aspx
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(2000); Judgment of 20 May 1999, Aiglon Dublin Ltd v. Teka Tecelagem Kuenrich SA, 2000 Revista de Direito Bancário, do Mercado de Capitais e da Arbitragem 354 (Brazilian Federal S.Ct.); Judgment of 13 November 2001, Centrotex SA v. Agencia Gestora de Negocios SA, XXXI Y.B. Comm. Arb. 834, 840 (Spanish Tribunal Supremo) (2006). See also Judgment of 30 July 1984, Coltellerie Italiane Zoppis v. Arthur Salm Inc., XI Y.B. Comm. Arb. 519 (Italian Corte di Cassazione) (1986). 840 See, e.g., Great Western Mortg. Corp. v. Peaco*ck, 110 F.3d 222 (3d Cir. 1997) (rejecting challenge to arbitration agreement on grounds of disparity in parties' bargaining power); Webb v. Investacorp., Inc., 89 F.3d 252 (5th Cir. 1996) (arbitration clause not unconscionable); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1118 (3d Cir. 1993) (same); Judgment of 18 November 1948, 1949 NJW 511, 513 (Oberlandesgericht Frankfurt); Kanitz v. Rogers Cable Inc., [2002] O.J. No. 665 (Ontario S.Ct. of Justice); Grow Biz Int'l Inc. v. D.L.T. Holdings, Inc., XXX Y.B. Comm. Arb. 450 (Prince Edward Island S.Ct. 2001) (2005) (rejecting claim that party was “weaker party” and lacked mental capacity: “There is clear evidence that Tanton had legal advice, or had the opportunity to receiver legal advice, when she signed the franchise agreement”). See also Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 33 (U.S. S.Ct. 1991) (“mere inequality in bargaining power” is not basis to hold arbitration agreements invalid in employment disputes). 841 See, e.g., N & D Fashions, Inc. v. DHJ Indus., Inc., 548 F.2d 722 (8th Cir. 1976); Southeastern Enameling Corp. v. Gen. Bronze Corp., 434 F.2d 330 (5th Cir. 1970); Ferrara SpA v. United Grain Growers, Ltd, 441 F.Supp. 778 (S.D.N.Y. 1977), aff'd mem., 580 F.2d 1044 (2d Cir. 1978); Avila Group, Inc. v. Norma J. of Cal., 426 F.Supp. 537 (S.D.N.Y. 1977). 842 Judgment of 11 July 1992, XXII Y.B. Comm. Arb. 715 (Italian Corte di Cassazione) (1997). See also supra pp. 693-694. 843 See, e.g., Bradford v. Rockwell Semiconductor Sys., 238 F.3d 549 (4th Cir. 2001); Williams v. Cigna Fin. Advisors, Inc., 197 F.3d 752 (5th Cir. 1999); J.B. Harris Inc. v. Razei Bar Indus. Ltd, 181 F.3d 82 (2d Cir. 1999) (rejecting argument that arbitration in Israel would be prohibitively expensive); Doctor's Assoc., Inc. v. Stuart, 85 F.3d 975 (2d Cir. 1996) (rejecting claim that arbitration clause was unconscionable because of AAA's filing fees, cost of traveling to arbitral seat, cost of arbitrator's fees and alleged bias of AAA); Woods v. Saturn Dist. Corp., 78 F.3d 424 (9th Cir. 1996) (rejecting claim that arbitral procedures unduly favored employer where tribunal consisted of employer's employees and dealers); Grow Biz Int'l Inc. v. D.L.T. Holdings, Inc., XXX Y.B. Comm. Arb. 450 (Prince Edwards Island S.Ct. 2001) (2005) (rejecting claim that party “was unable to attend the arbitration hearing because she could not afford to go,” on grounds that no evidence to support this claim was produced). See also infra pp. 1450-1453. 844 See, e.g., Judgment of 10 October 1991, XIX Y.B. Comm. Arb. 200, 202-203 (German Bundesgerichtshof) (1994) (arbitration clause contained in general terms and conditions granting only one party the choice to opt for either national court or arbitral tribunal invalid; court, however, made clear that, as a general rule, such clauses will be valid); Judgment of 20 June 1991, III ZR 172/90, BGHR ZPO §1025 Auslegung 2 (German Bundesgerichtshof); Judgment of 18 December 1975, 1976 NJW 852, 853 (German Bundesgerichtshof); Judgment of 22 May 2006, 10 Ob 3/06y (Austrian Oberster Gerichtshof); Judgment of 31 January 2002, II Gaz. Pal., Cahiers de l'arbitrage 303 (French Cour de cassation) http://www.kluwerarbitration.com/CommonUI/print.aspx
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(requirement that one party may select arbitrator, from a pre-agreed list, not unconscionable). See also infra pp. 1450-1453. 845 See, e.g., Graham Oil Co. v. ARCO Products Co., 43 F.3d 1244 (9th Cir. 1994) (arbitration clause invalid because it required waiver of right to statutory attorney's fees). See also Aamco Transmissions Inc. v. Kunz, (1991) 97 Sask. R. 5 (Sask. Court of Appeal) (refusing to recognize award made in United States on grounds that adhesion contract signed by unsophisticated party was not binding). 846 See, e.g., Patterson v. ITT Consumer Fin. Corp., 18 Cal.Rptr.2d 563 (Cal. Ct. App. 1993) (arbitration agreement unconscionable because of inconvenient arbitral situs and high filing fees); Vegter v. Forecast Fin. Corp., 2007 WL 4178947 (W.D. Mich. 2007) (clause providing for distant, inconvenient arbitral situs in domestic consumer case involving party without financial resources held invalid on unconscionability grounds). 847 See, e.g., Ramirez v. Circuit City Stores, Inc., 90 Cal.Rptr.2d 916 (Cal. Ct. App. 1999) (arbitration agreement unconscionable because it waived class action rights); Lozada v. Dale Baker Oldsmobile, Inc., 91 F.Supp.2d 1087 (W.D. Mich. 2000) (same). 848 See, e.g., Murray v. United Food & Comm. Workers Int'l Union, 289 F.3d 297 (4th Cir. 2002); Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 891 (9th Cir. 2002) (asymmetric arbitration agreement unconscionable); Luna v. Household Fin. Corp., III, 236 F.Supp.2d 1166, 1180 (W.D. Wash. 2002) (facially neutral confidentiality provision held unconscionable because it benefited “repeat players”); Iwen v. U.S. West Direct, 977 P.2d 989 (Mont. 1999) (arbitration clause in standard form contract of telephone company, with consumer, held “completely one-sided” and unconscionable); Gonzalez v. Hughes Aircraft Employees Fed. Credit Union, 82 Cal.Rptr.2d 526 (Cal. Ct. App. 1999) (arbitration agreement unconscionable because of unfair time limits for filing claims, limits on discovery and asymmetrical right to arbitrate); Stirlen v. Supercuts, Inc., 60 Cal.Rptr.2d 138 (Cal. Ct. App. 1997) (“provisions of arbitration agreements unduly advantageous to one party at the expense of the other will not be judicially enforced”); Judgment of 22 March 2007, DFT 4P.172/2006 (Swiss Federal Tribunal) (invalidating clause in arbitration agreement in professional athletic association's rules providing for waiver of right to seek annulment of arbitral award); Judgment of 24 September 1998, 1999 NJW 282 (German Bundesgerichtshof) (undue procedural advantage where party was given right to choose between litigation in national court and arbitration); Judgment of 10 October 1991, XIX Y.B. Comm. Arb. 200 (German Bundesgerichtshof) (1994) (invalidating arbitration clause providing only three days to notify seller of defects and requiring non-legally qualified arbitrators); Judgment of 7 January 1992, Sociétés BKMI et Siemens v. Société Dutco, 119 J.D.I. (Clunet) 707 (French Cour de cassation civ. 1e). 849 A number of arbitration statutes include specific provisions regarding the invalidity of such provisions. See, e.g., European Convention Providing a Uniform Law on Arbitration, 1966, Art. 3 (“An arbitration agreement shall not be valid if it gives one of the parties thereto a privileged position with regard to the appointment of the arbitrator or arbitrators”); Belgian Judicial Code, Art. 1678(1) (“An arbitration agreement shall not be valid if it gives one of the parties thereto a privileged position with regard to the appointment of the arbitrator or arbitrators.”); Netherlands Code of Civil Procedure, Art. 1028 (“If the arbitration agreement gives one of the parties a privileged position with regard to the appointment of the arbitrator or arbitrators, the other party may, despite the method of appointment http://www.kluwerarbitration.com/CommonUI/print.aspx
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laid down in that agreement, request the President of the District Court within one month after the commencement of the arbitration to appoint the arbitrator or arbitrators.”); German ZPO, §1034(2). National court decisions are similar. See, e.g., McMullen v. Meijer, Inc., 355 F.3d 485, 490 (6th Cir. 2004) (procedure allowing employer exclusive control over the pool of potential arbitrators makes arbitral process fundamentally unfair); Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938-39 (4th Cir. 1999) (arbitration agreement unconscionable because procedures for selecting arbitrators were biased); Broemmer v. Abortion Serv. of Phoenix, Ltd, 840 P.2d 1013 (Ariz. 1992) (requirement that arbitrator be licensed medical doctor, in medical malpractice dispute, unconscionable); Judgment of 26 January 1989, 1989 NJW 1477 (German Bundesgerichtshof) (invalidating clause that provided for one party to select arbitrator and requiring that only one arbitration be pending at any one time). See also infra pp. 1450-1453. 850 See, e.g., Paladino v. Avnet Computer Tech., Inc., 134 F.3d
1054 (11th Cir. 1998) (contractual liability limits render arbitration clause unconscionable); Graham Oil Co. v. ARCO Products Co., 43 F.3d 1244, 1247-48 (9th Cir. 1994) (liability limits and time limitation invalid); DeGaetano v. Smith Barney, Inc., 983 F.Supp. 459 (S.D.N.Y. 1997); Johnson v. Hubbard Broadcasting, Inc., 940 F.Supp. 1447 (D. Minn. 1996); Armendariz v. Found. Health PsychCare Serv., Inc., 80 Cal.Rptr.2d 255 (Cal. Ct. App. 1998) (limitation of remedies in adhesion arbitration agreement unenforceable); Stirlen v. Supercuts, Inc., 60 Cal.Rptr.2d 138, 15051 (Cal. Ct. App. 1997) (restrictions on remedies and punitive damages unconscionable). It is doubtful that provisions affecting the parties' substantive rights and legal remedies should be considered relevant to the validity of the agreement to arbitrate. Rather, these should be treated as issues of substantive law, including mandatory law and public policy, and submitted to the arbitrators, subject to subsequent review. See infra pp. 2105 et seq. 851 See, e.g., Perez v. Globe Airport Security Sers., Inc., 253 F.3d
1280 (11th Cir. 2001) (cost and fee-sharing provisions violate Title VII and render arbitration agreement unenforceable); Cole v. Burns Int'l Security Services, 105 F.3d 1465 (D.C. Cir. 1997) (arbitration agreement, required as a condition of employment, cannot validly require former employee to pay any portion of arbitrators' fees); Shankle v. B-G Maint. Mgt of Colo., Inc., 163 F.3d 1230, 1234-35 (10th Cir. 1999) (arbitration fees excessively high for individual litigant); Matter of Teleserve Sys., 659 N.Y.S.2d 659 (N.Y. App. Div. 1997); Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 252-53 (N.Y. App. Div. 1998) (arbitration fee excessively high for individuals). For odd decisions, see Ingle v. Circuit City Stores, Inc., 328 F.3d 1165, 1177 (9th Cir. 2003) (filing fee of $75 held “substantively unconscionable” because it was paid to adverse party, not arbitral institution); Phillips v. Assoc. Home Equity Services, Inc., 179 F.Supp.2d 840 (N.D. Ill. 2001) (cost of arbitration is supposedly “at least twelve times” what it would cost in federal court and therefore arbitration agreement is unconscionable); Little v. Auto Stiegler, Inc., 2003 WL 548926 (Cal. 2003) (internal institutional appeal procedure is “unconscionably one-sided” because it would supposedly benefit http://www.kluwerarbitration.com/CommonUI/print.aspx
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defendants). 852 See, e.g., Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 90
(U.S. S.Ct. 2000) (“the existence of large arbitration costs could preclude a litigant … from effectively vindicating her federal statutory rights in the arbitral forum”); Toledano v. O'Connor, 501 F. Supp. 2d 127, 149 (D.D.C. 2007) (“a case-specific analysis of a plaintiff's ability to pay arbitration costs and a comparison between the costs of litigating versus arbitrating the plaintiff's claims is necessary in order to determine whether the cost of arbitration will effectively preclude the plaintiff from vindicating his or her federal statutory rights”). 853 See infra pp. 1229-1232. Compare Murphy v. Check 'N Go of Cal., Inc., 2007 WL 3016414 (Cal. Ct. App. 2007) (waiver of class action arbitration is unconscionable) with Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (Canadian S.Ct.) (consumers' inability to pursue class action does not render arbitration agreement unconscionable). 854 See, e.g., China Resource Prod. (U.S.A.) Ltd v. Fayda Int'l, Inc., 747 F.Supp. 1101 (D. Del. 1990). The court emphasized, however, that the party challenging the arbitration agreement had been aware of the connections between the proposed arbitral institution and its counter-party at the time it entered into the transaction – implying a different result had there been ignorance of such matters. See also Green Tree Fin. Corp. v. Randolph, 531 U.S. 79 (U.S. S.Ct. 2000) (claim that arbitration clause between consumer and finance company was unconscionable because it failed to mention arbitration costs and expenses rejected). 855 Kanitz v. Rogers Cable Inc., [2002] O.J. No. 665 (Ontario S.Ct. of Justice); Grow Biz Int'l Inc. v. D.L.T. Holdings, Inc., XXX Y.B. Comm. Arb. 450 (Prince Edward Island S.Ct. 2001) (2005). 856 See authorities cited supra pp. 726-730. 857 The non-arbitrability of consumer disputes in some jurisdictions is discussed below. See infra pp. 820 et seq. 858 See supra pp. 425 et seq.; Restatement (Second) Conflict of Laws §201 (1971); Rome Convention, Arts. 10(1), 10(1)(d). 859 See supra pp. 497-504, 504-516, 558-559, 568-569, 673. 860 Judgment of 17 February 1989, XV Y.B. Comm. Arb. 455 (Hanseatisches Oberlandesgericht Hamburg) (1990). Most lower U.S. courts appear to apply federal common law to issues of unconscionability (even in domestic cases). See, e.g., Cohen v. Wedbush, Noble, Cooke, Inc., 841 F.2d 282 (9th Cir. 1988); Bayma v. Smith Barney, Harris Upham & Co., 784 F.2d 1023, 1024 (9th Cir. 1986); Hall v. Prudential-Bache Sec., Inc., 662 F.Supp. 468, 471 (C.D. Cal. 1987); E.F. Hutton & Co. v. Schank, 456 F.Supp. 507, 510 (D. Utah 1976). Compare Webb v. Investacorp, Inc., 89 F.3d 252 (5th Cir. 1996) (unconscionability governed by state law); S+L+H SpA v. Miller-St. Nazianz, Inc., 988 F.2d 1518 (7th Cir. 1993) (duress governed by state law); 24 Hour Fitness, Inc. v. Superior Court, 66 Cal.App.4th 1199 (Cal. Ct. App. 1998). Following First Options, it appears likely that generally-applicable state law unconscionability rules will apply to unconscionability challenges under the domestic FAA. Federal common law standards likely govern international arbitration agreements subject to the New York Convention. See supra pp. 485-497.
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861 See, e.g., Judgment of 22 March 2007, DFT 4P.172/2006
(Swiss Federal Tribunal) (invalidating clause providing for waiver of right to seek annulment of arbitral award, but leaving remainder of arbitration agreement in effect); Judgment of 3 April 2001, 4 Ob 37/01x, 2001 ecolex 350 (Austrian Oberster Gerichtshof) (“Even if the cost provisions of an arbitration clause are contra bonos mores …, the arbitration clause itself is not invalid”); Vegter v. Forecast Fin. Corp., 2007 WL 4178947 (W.D. Mich. 2007) (severing unconscionable provision designating arbitral situs and enforcing remainder of arbitration agreement). See infra pp. 1451-1453. 862 See, e.g., Murphy v. Check 'N Go of Cal., Inc., 2007 WL 3016414 (Cal. Ct. App. 2007) (unconscionable waiver of class action rights rendered entire agreement to arbitrate invalid). 863 German ZPO, §1034(2). See Geimer, in R. Zöller (ed.), Zivilprozessordnung §1034, ¶¶9-10 (26th ed. 2007); Voit, in H.-J. Musielak (ed.), Kommentar zur Zivilprozessordnung §1034, ¶8 (5th ed. 2007). The Netherlands Code of Civil Procedure is similar. Netherlands Code of Civil Procedure, Art. 1028. See also infra p. 1453. 864 For commentary, see Drahozal, Nonmutual Agreements to Arbitrate, 27 J. Corp. L. 537 (2002); Nesbitt & Quinlan, The Status and Operation of Unilateral or Optional Arbitration Clauses, 22 Arb. Int'l 133 (2006); Nidam, Unilateral Arbitration Clauses in Commercial Arbitration, 1996 Arb. & Disp. Res. L.J. 147. 865 Nesbitt & Quinlan, The Status and Operation of Unilateral or Optional Arbitration Clauses, 22 Arb. Int'l 133, 134-35 (2006). 866 See supra pp. 357 et seq. 867 Baron v. Sunderland Corp. [1966] 1 All E.R. 349 (English Court of Appeal). See also Tote Bookmakers Ltd v. Dev. and Prop. Holding Co. [1985] 2 All E.R. 555 (Ch.). 868 Pittalis v. Sherefettin [1986] 2 All E.R. 227, 231 (English Court of Appeal). See also NB Three Shipping Ltd v. Harebell Shipping Ltd [2004] All E.R. (D) 152 (Q.B.) (“The arbitration [clause] satisfies the requirements of an arbitration agreement since a one sided choice of arbitration is sufficient”); Law Debenture Trust Corp. plc v. Elektrim Finance BV [2005] EWHC 1412 (Ch.) (upholding clause permitting one party to litigate or arbitrate, while requiring other party to arbitrate); RGE (Group Serv.) Ltd v. Cleveland Offshore Ltd [1986] Con LR 78 (Q.B.). 869 For a very good analysis of U.S. domestic law, see Drahozal, Nonmutual Agreements to Arbitrate, 27 J. Corp. L. 537 (2002). 870 Hull v. Norcom, Inc., 750 F.2d 1547 (11th Cir. 1985) (refusing to require arbitration where only one party to employment contract (i.e., the employee) was bound to arbitrate). State courts were particularly skeptical of asymmetrical arbitration agreements, most often applying the rule in cases involving employees or consumers. See, e.g., Stevens/Leinweber/Sullens v. Holm Dev. & Mgt, Inc., 795 P.2d 1308 (Ariz. Ct. App. 1990) (“the arbitration provision, which clearly lacks mutuality, is void for lack of consideration”); Cored Panels, Inc. v. Meinhard Comm. Corp., 420 N.Y.S.2d 731 (N.Y. App. Div. 1979) (“void for lack of mutuality”); Arcata Graphics Corp. v. Silin, 399 N.Y.S.2d 738 (N.Y. App. Div. 1977) (refusing to enforce arbitration clause which one party, but not the other, could invoke); Kaye Knitting Mills v. Prime Yarn Co., 326 N.Y.S.2d 361 (N.Y. App. Div. 1971) (“It should be clearly manifest that the parties adopt arbitration as their exclusive remedy before http://www.kluwerarbitration.com/CommonUI/print.aspx
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any party should be forced into arbitration”); Hull Dye & Print Works, Inc. v. Riegel Textile Corp., 325 N.Y.S.2d 782 (N.Y. App. Div. 1971); R.W. Roberts Constr. Co. v. St. John's River, 423 So.2d 630 (Fla. Ct. App. 1982) (“mutuality of obligation is a requirement”). 871 J. Calamari & J. Perillo, The Law of Contracts §4.12 (5th ed.
2003); Restatement (Second) Contracts §79(c) (1981). 872 In general, there will be little basis for concluding that asymmetric arbitration agreements are unconscionable. The right of a party unilaterally to select either arbitration or a domestic court is an important procedural benefit. Nonetheless, where the party's choice is between two neutral forums, it cannot be regarded as fundamentally unfair or so one-sided as to create unconscionable disadvantages for the counter-party. 873 This included New York courts, formerly at the forefront of requiring mutuality, which later rejected the doctrine's application to arbitration clauses. Sablosky v. Edward S. Gordon Co., 535 N.E.2d 643 (N.Y. 1989) (“Mutuality of remedy is not required in arbitration contracts. If there is consideration for the entire agreement that is sufficient; the consideration supports the arbitration option, as it does every other obligation in the agreement. Since … the validity of an arbitration agreement is to be determined by the law applicable to contracts generally, there is no reason for a different mutuality rule in arbitration cases.”). It is unsatisfactory to rely on the exchange of consideration contained in the underlying contract to support the separable arbitration agreement (as in the Sablosky case). If one accepts application of the mutuality doctrine at all, then the focus should be on the exchange of consideration in the arbitration agreement. In fact, however, the mutuality doctrine has been discredited (see supra p. 734 n. 871) and the exchange of promises contained in an asymmetrical arbitration agreement would satisfy requirements of mutuality (because there is no requirement that precisely the same or mirror-image rights be exchanged). 874 See, e.g., DiMercurio v. Sphere Drake Ins. plc, 202 F.3d 71 (1st
Cir. 2000) (“one-sided agreements to arbitrate are not favored” and where the relevant category of disputes was subject to reciprocal agreements to arbitrate, even though other categories were not, no unconscionability); Barker v. Golf U.S.A., 154 F.3d 788 (8th Cir. 1998) (“Under Oklahoma law, mutuality of obligation is not required for arbitration clauses so long as the contract as a whole is supported by consideration”); Doctor's Assoc., Inc. v. Distajo, 66 F.3d 438 (2d Cir. 1995) (“where the agreement to arbitrate is integrated into a larger unitary contract, the consideration for the contract as a whole covers the arbitration clause as well”); Wilson Elec. Contractors, Inc. v. Minnotte Contracting Corp., 878 F.2d 167 (6th Cir. 1989) (“Because the contract as a whole did not lack consideration, we see no grounds justifying the district court's decision, which appears to be pervaded by ‘the old judicial hostility to arbitration.’”); Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 47 n.15 (3d Cir. 1978) (“there is no such doctrine of complete mutuality as a matter of federal law;” upholding a clause that permitted one party to litigate or arbitrate, while requiring the other party to arbitrate); Pridgen v. Green Tree Fin. Serv. Corp., 88 F.Supp.2d 655 (S.D. Miss. 2000) (“Mutuality of obligation is not required for a contract to be enforceable.”); Verolme http://www.kluwerarbitration.com/CommonUI/print.aspx
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Botlek BV v. Lee C. Moore Corp., XXI Y.B. Comm. Arb. 824 (N.D. Okla. 1995) (1996); W.L. Jorden & Co. v. Blythe Indus., Inc., 702 F.Supp. 282, 284 (N.D. Ga. 1988); Willis Flooring, Inc. v. Howard S. Lease Constr. Co., 656 P.2d 1184 (Alas. 1983) (“As one clause is a larger contract, the [asymmetrical arbitration] clause is binding to the same extent that the contract as a whole is binding.… We see no unfairness, nor any coercion, inherent in this resolution of the case. … Arbitration is not so clearly more or less fair than litigation that it is unconscionable to give one party the right of forum selection.”); Kalman Floor Co. v. Jos. L. Muscarelle, 481 A.2d 553 (N.J. Super. 1984) (“We see no reason why justice should require perfect symmetry of remedy”). 875 Again, such decisions are most likely in state courts, often with histories of hostility to arbitration agreements generally, in cases involving domestic arbitration agreements. See, e.g., Ticknor v. Choice Hotels Int'l Inc., 265 F.3d 931 (9th Cir. 2001) (applying Montana law to hold asymmetrical arbitration clause in franchise agreement unconscionable); Armendariz v. Found. Health PsychCare Sers., Inc., 6 P.3d 669 (Cal. 2000) (“it is unfairly onesided for an employer with superior bargaining power to impose arbitration on the employee as plaintiff but not to accept such limitations when it seeks to prosecute a claim against the employee, without at least some reasonable justification … based on ‘business realities’”); Iwen v. U.S. West Direct, 977 P.2d 989 (Mont. 1999) (arbitration clause in standard form contract of telephone company with consumer held “completely one-sided” and unconscionable); Arnold v. United Companies Lending Corp., 511 S.E.2d 854 (W. Va. 1998) (in “contract between rabbits and foxes,” an asymmetrical arbitration clause was “unreasonably favorable” to corporate lender against unsophisticated consumer); Stirlen v. Supercuts, Inc., 60 Cal.Rptr.2d 138 (Cal. Ct. App. 1997); Firedoor Corp. of Am. v. R.K. & A. Jones, 366 N.Y.S.2d 443 (N.Y. App. Div. 1975) (“manifestly unfair to allow the seller to elect between arbitration and court action and to deny the buyer the same right”). See also Showmethemoney Check Cashers, Inc. v. Williams, 27 S.W.3d 361 (Ark. 2000) (“Given the lack of mutuality to support the arbitration agreement, we hold the arbitration clause contained in the ‘Check Cashing Agreement’ does not constitute a valid enforceable agreement to arbitrate.”). There is a significant likelihood that most or all of these decisions are not consistent with the domestic FAA. See supra pp. 487-490. 876 See infra pp. 820 et seq. 877 See, e.g., Gonzalez v. West Suburban Imp., Inc., 411
F.Supp.2d 970 (N.D. Ill. 2006) (lack of mutuality in separable arbitration agreement rendered that agreement invalid); Richard Harp Homes, Inc. v. Van Wyck, 2007 WL 2660213 (Ark. App. 2007) (“an arbitration agreement lack[s] the necessary mutuality of obligation where [one party was] limited to pursuing any grievance in an arbitration forum while the [other party] retained the sole legal right to pursue legal or equitable remedies”); Wisconsin Auto Title Loans, Inc. v. Jones, 714 N.W.2d 155 (Wisc. 2006); Tyson Foods, Inc. v. Archer, 147 S.W.3d 681 (Ark. 2004) (same). 878 PMT Partners Pty Ltd v. Australian Nat'l Parks & Wildlife Serv., (1995) 184 CLR 302 (Australian High Court). See also Mulgrave Central Mill Co. v. Hagglunds Drives P/L, [2001] QSC 040 (Queensland S.Ct.). 879 Judgment of 25 September 1972, 1973 Rev. arb. 164 (Angers Cour d'appel) (asymmetrical arbitration clause not contrary to public http://www.kluwerarbitration.com/CommonUI/print.aspx
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policy). 880 Judgment of 22 October 1970, 1970 Giustizia Civile Mass., 1103 (Italian Corte di Cassazione); Rubino-Sammartano, Arbitrato unilateralmente facoltativo, in Il diretto dell'arbitrato 17-18 (2000) (concluding that asymmetrical arbitration clauses are permitted under Italian law). 881 Judgment of 10 October 1991, XIX Y.B. Comm. Arb. 200, 202203 (German Bundesgerichtshof) (1994). Commentators have concluded that, in principle, there is nothing in German law that prohibits asymmetrical clauses in a negotiated context. See Geimer, in R. Zöller (ed.), Zivilprozessordnung §1029, ¶35 (26th ed. 2007); Nesbitt & Quinlan, The Status and Operation of Unilateral or Optional Arbitration Clauses, 22 Arb. Int'l 133, 134-35 (2006). 882 See, e.g., Judgment of 26 January 1989, 1989 NJW 1477, 1477 (German Bundesgerichtshof); Judgment of 10 October 1991, XIX Y.B. Comm. Arb. 200, 202-203 (German Bundesgerichtshof) (1994); Judgment of 4 November 1992, VIII ZR 235/91, BGHZ 120, 108, 122 (German Bundesgerichtshof); Judgment of 24 September 1998, 1999 NJW 282, 283 (German Bundesgerichtshof). 883 See Rau, The UNCITRAL Model Law in State and Federal Courts: The Case of “Waiver”, 6 Am. Rev. Int'l Arb. 223 (1995); R. Merkin, Arbitration Law ¶8.27 (2004 & Update 2007). Conversely, parties can “waive” their objections to the existence and validity of an agreement to arbitrate. See supra pp. 599-600, 604, 614-615, 671-673. 884 European Convention, Art. VI(1). 885 See New York Convention, Art. II(3) (“the request of one of the parties”); European Convention, Art. VI(1) (same); Geneva Protocol, Art. IV (same). Waiver is also presumably encompassed within the New York Convention's reference to arbitration agreements that are “inoperable.” New York Convention, Art. II(3). See A. van den Berg, The New York Arbitration Convention of 1958 137-139 (1981) (“[Article II(3) implies that the non-invocation by a party of the arbitration agreement must be considered as a waiver of the right to go to arbitration”; “If a court is faced with a contract containing an arbitral clause falling under the New York Convention, but none of the parties objects to the competence of the court on the basis of that clause, the court may not refer the parties to arbitration on its own motion”). 886 See McDermott Int'l, Inc. v. Lloyds Underwriters of London, 944
F.2d 1199 (5th Cir. 1991); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co., 767 F.2d 1140, 1150 (5th Cir. 1985); In re Application of ABN Int'l Capital Markets Corp., 812 F.Supp. 418 (S.D.N.Y. 1993), order aff'd, 996 F.2d 1478 (2d Cir. 1993); Rich (Marc) & Co. AG v. Societa Italiana Impianti SpA (The Atlantic Emperor) [1989] 1 Lloyd's Rep. 548 (English Court of Appeal). See also A. van den Berg, The New York Arbitration Convention of 1958 138 (1981) (“This is the other side of the coin; having the freedom to agree to arbitration, the parties must also have the freedom to renounce, explicitly or tacitly, the agreement to arbitrate”). 887 A. van den Berg, The New York Arbitration Convention of 1958 138 (1981) (“The Convention does not state what is the latest moment at which a party may invoke the arbitration agreement”). The pro-arbitration policies of the Convention would, however, http://www.kluwerarbitration.com/CommonUI/print.aspx
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preclude Contracting States from finding waiver based upon discriminatory or idiosyncratic national law rules. See supra pp. 504516, 558-559. For example, Spanish civil procedure rules requiring an arbitration agreement to be invoked within ten days of the filing of a suit on the merits, on pain of waiver, is idiosyncratic and contrary to the Convention. See infra pp. 2708-2710. 888 UNCITRAL Model Law, Art. 8(1). 889 A number of authorities appear to have held that waiver
necessarily entails a loss of the right to arbitrate under Article 8(1). See, e.g., Ruhrkohle Handel Inter GmbH v. The Federal Calumet, [1992] 3 F.C. 98, 105 (Canadian Federal Court of Appeal) (“very objective standard that must be met”); Stancroft Trust Ltd v. CanAsia Capital Co. Ltd, [1990] 3 W.W.R. 665, 671 (B.C. Court of Appeal); Nutrasweet Kelco Co. v. Royal-Sweet Int'l Technologies Ltd, 49 B.C.L.R.3d 115 (B.C. S.Ct. 1998); Restore Int'l Corp. v. K.I.P. Kuester Int'l Products Corp., [1999] B.C.J. 257 (B.C. S.Ct.); Judgment of 10 February 1995, CLOUT Case No. 148, reported at www.uncitral.org/clout (Moscow City Court). See also Rau, The UNCITRAL Model Law in State and Federal Courts: The Case of “Waiver”, 6 Am. Rev. Int'l Arb. 223, 232-233 (1995); H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 319 (1989). 890 Notably, Article 8(1) does not provide expressly for the consequences of failing to invoke an arbitration agreement prior to the “first statement on the substance of the dispute.” Although a binding waiver of the right to arbitrate is obviously one possibility, it is not clear that this should be the automatic result (e.g., in cases of excusable ignorance of the right to arbitrate, lack of prejudice). See, e.g., Navionics Inc. v. Flota Maritima Mexicana SA, 26 F.T.R. 148 (Fed. Ct. of Canada 1989) (filing statement of defense, that does not refer to arbitration, in order to avoid default judgment held not to constitute waiver); Bab Sys., Inc. v. McLurg, [1995] O.J. No. 1344 (Ontario Court of Justice) (party that commenced litigation, but promptly invoked arbitration agreement, held not to have waived right to arbitrate); Louis Dreyfus Trading Ltd v. Bonarich Int'l (Group) Ltd, [1997] 3 HKC 597 (H.K. High Court, S.Ct.) (“it is not the intention of the Model Law to take away the strong new right of mandatory stay easily by any casual act of the defendant,” but instead the Model Law requires “some formal act of consequence on the part of defendant in the court action”). 891 See, e.g., Bab Sys., Inc. v. McLurg, [1994] O.J. No. 3029 (Ontario Court of Justice), aff'd, [1995] O.J. No. 1344 (Ontario Court of Justice); Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985) (“Waiver of right to compel arbitration due to participation in litigation may be found only when prejudice to other party is demonstrated.”); Ruhrkohle Handel Inter GmbH v. Fednav Ltd, 36 C.P.R.3d 521 (T.D. 1991), aff'd, 42 C.P.R. 3d 414 (Federal Court of Canada, Court of Appeal 1992) (“The plaintiffs have waived their right to proceed to arbitration because there was no mention of arbitration in the statement of claim or at any time prior to the issuance of the statement of claim.”); Louis Dreyfus Trading Ltd v. Bonarich Int'l (Group) Ltd, [1997] 3 HKC 597 (H.K. High Court, S.Ct.); ABC Co. v. Owners of the Ship or Vessel Q, Decision of SAR Tan in Admiralty In Rem No. 251 of 1995, dated 9 May 1996, Singapore Arbitrator (1997). See also Judgment of 2 March 1978, 1978 NJW 1585, 1586 (German Bundesgerichtshof).
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892 See, e.g., Ruhrkohle Handel Inter GmbH v. The Federal
Calumet, [1992] 3 F.C. 98, 105 (Canadian Court of Appeal) (application of Article 8(1) “may vary from one jurisdiction to another”); Rau, The UNCITRAL Model Law in State and Federal Courts: The Case of “Waiver”, 6 Am. Rev. Int'l Arb. 223, 235 (1995). Compare Seine River Resources Inc. v. Pensa Inc., [1999] B.C.J. No. 1425 (B.C. S.Ct.) (raising arbitration agreement in litigation, prior to filing defense (without referring to provision), sufficient to avoid waiver) with Restore Int'l Corp. v. K.I.P. Kuester Int'l Products Corp., [1999] B.C.J. 257 (B.C. S.Ct.) (filing defense to counterclaim waives right to arbitration) and 429545 B.C. Ltd v. Herlihy, [1998] B.C.J. No. 1801 (B.C. S.Ct.) (filing defense without reference to arbitration clause constitutes waiver) and Globe Union Indus. Corp. v. G.A.P. Mktg Corp., [1995] 2 W.W.R. 696 (B.C. S.Ct.) (contesting application for interim relief in court does not constitute waiver) and No. 363 Dynamic Endeavours Inc. v. 34718 B.C. Ltd, 81 B.C.L.R. 359 (B.C. Court of Appeal 1993) (seeking discovery on merits in litigation is not waiver) and Navionics Inc. v. Flota Maritima Mexicana SA, 26 F.T.R. 148 (Fed. Ct. of Canada 1989) (filing statement of defense that does not refer to arbitration, in order to avoid default judgment, held not to constitute waiver). 893 Eagle Star Ins. Co. Ltd v. Yuval Ins. Co. Ltd [1978] 1 Lloyd's Rep. 357, 361 (English Court of Appeal) (application to dismiss a claim because it was so defective that it could not be answered held not to waive rights under arbitration agreement). See also Capital Trust Inv. Ltd v. Radio Design TJ AB [2002] EWCA Civ. 135 (English Court of Appeal). 894 Globe Union Indus. Corp. v. G.A.P. Mktg Corp., [1995] 2 W.W.R. 696 (B.C. S.Ct.) (entering appearance not waiver); Dynamic Endeavours Inc. v. 34718 B.C. Ltd, 81 B.C.L.R.2d 359 (B.C. Court of Appeal 1993) (discovery request not waiver); Rachappa Guruadappa Bijapur v. Gurusiddappa Nuraniappa, (1989) 3 SCC 245 (Indian S.Ct.) (“step” in litigation must “manifestly display an unequivocal intention to proceed with the suit and to give up the right to have the matter disposed of by arbitration”). 895 See, e.g., Granville Shipping Co. v. Pegasus Lines Ltd, [1996] 2 F.C.R. 853 (Fed. Ct. of Canada) (commencing litigation on merits constitutes waiver). 896 Section 3 of the FAA requires the trial court to grant a stay of claims subject to an arbitration agreement unless “the applicant for the stay is not in default in proceeding with such arbitration.” 9 U.S.C. §3. 897 See, e.g., Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (U.S. S.Ct. 1983) (“[a]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability”); Stone v. E.F. Hutton & Co., 898 F.2d 1542, 1543 (11th Cir. 1990); Peterson v. Shearson/Am. Express, Inc., 849 F.2d 464, 466 (10th Cir. 1988); Miller Brewing Co. v. Fort Worth Dist. Co., 781 F.2d 494, 497 (5th Cir. 1986) (“waiver of arbitration is not a favored finding, and there is a presumption against it”); Rush v. Oppenheimer & Co., 779 F.2d 885, 887 (2d Cir. 1985) (“Given this dominant federal policy favoring arbitration, waiver of the right to compel arbitration due to participation in litigation may be found only when prejudice to the other party is demonstrated.”); Gavlik Constr. Co. v. H.F. Campbell Co., 526 F.2d 777, 783 (3d Cir. 1975); Republic of Ecuador v. ChevronTexaco Corp., 376 F.Supp.2d 334, 363 (S.D.N.Y. 2005). http://www.kluwerarbitration.com/CommonUI/print.aspx
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898 See cases cited supra p. 737 n. 886; McDermott Int'l, Inc. v.
Lloyds Underwriters of London, 944 F.2d 1199 (5th Cir. 1991) (requiring “explicit waiver of Convention rights” under federal common law); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co., 767 F.2d 1140, 1150 (5th Cir. 1985) (applying FAA standards of waiver under Convention); Nicor Int'l Corp. v. El Paso Corp., 292 F.Supp.2d 1357, 1370 (S.D. Fla. 2003) (same); Oriental Comm. and Shipping Co. (U.K.) Ltd v. Rosseel, NV, 609 F.Supp. 75 (S.D.N.Y. 1985) (same). 899 See, e.g., Republic Ins. Co. v. PAICO Receivables, LLC, 383 F.3d 341, 343-345 (5th Cir. 2004) (“Waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party. There is a strong presumption against finding a waiver of arbitration, and the party claiming that the right to arbitrate has been waived bears a heavy burden.”); Great Western Mortg. Corp. v. Peaco*ck, 110 F.3d 222, 233 (3d Cir. 1997) (“a party waives the right to compel arbitration only in the following circ*mstances: when the parties have engaged in a lengthy course of litigation, when extensive discovery has occurred, and when prejudice to the party resisting arbitration can be shown”); Britton v. Co-op Banking Group, 916 F.2d 1405, 1412 (9th Cir. 1990); Miller Brewing Co. v. Fort Worth Dist. Co., 781 F.2d 494, 497 (5th Cir. 1986) (“waiver will be found when the party seeking arbitration substantially invokes the judicial process to the detriment or prejudice of the other party”); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lecopulos, 553 F.2d 842 (2d Cir. 1977) (“a waiver of arbitration under federal arbitration law cannot be found without a showing of substantial prejudice to the party asserting” waiver); Hilti, Inc. v. Oldach, 392 F.2d 368, 372 (1st Cir. 1968). See generally Annotation, Waiver of Arbitration Provision in Contract, 117 A.L.R. 301 & 161 A.L.R. 1426. 900 See, e.g., Gulf Guar. Life Ins. Co. v. Connecticut Gen. Life Ins. Co., 304 F.3d 476, 483 (5th Cir. 2002); Creative Solutions Group, Inc. v. Pentzer Corp., 252 F.3d 28, 32 (1st Cir. 2001) (“Waiver is not to be lightly inferred, and mere delay in seeking arbitration without some resultant prejudice to a party cannot carry the day”); ComTech Assoc. v. Computer Assoc. Int'l, Inc., 938 F.2d 1574 (2d Cir. 1991); I.T.A.D. Assoc., Inc. v. Podar Bros., 636 F.2d 75 (4th Cir. 1981) (no waiver based “only [on] a passage of time between the institution of the action and [the] motion to compel with no prejudice” to other party); Touton, SA v. MV Rizcun Trader, 3 F.Supp.2d 612 (E.D. Pa. 1998) (“delay alone is insufficient to constitute waiver”). 901 See, e.g., Tristar Fin. Ins. Agency, Inc. v. Equicredit Corp. of Am., 97 Fed.Appx. 462 (5th Cir. 2004) (“the invocation of the judicial process that effects a waiver requires the waiving party to demonstrate a desire to resolve the arbitrable dispute through litigation rather than arbitration”); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Lecopulos, 553 F.2d 842, 845 (2d Cir. 1977); Lauricia v. MicroStrategy, Inc., 114 F.Supp.2d 489, 492 (E.D. Va. 2000) (“Merely initiating litigation, without more, does not effect a waiver”); Acquaire v. Canada Dry Bottling, 906 F.Supp. 819, 830 (E.D.N.Y. 1995) (defendants' three year delay, following commencement of litigation, in seeking to compel arbitration held not a waiver; court cites lack of any answer or discovery); Masthead Mac Drilling Corp. v. Fleck, 549 F.Supp. 854 (S.D.N.Y. 1982) (no waiver where party filed state court action, but obtained repeated extensions of service). Some U.S. decisions are to the contrary. Cabinetree of Wisconsin v. Kraftmaid Cabinetry, 50 F.3d 388, 390 (7th Cir. 1995) (proceeding before a nonarbitral tribunal for resolution of contractual dispute http://www.kluwerarbitration.com/CommonUI/print.aspx
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constituted presumptive waiver of right to arbitrate); Hammes v. AAMCO Transmissions, Inc., 33 F.3d 774, 783 (7th Cir. 1994) (commencing litigation constituted waiver of arbitration); In re Application of ABN Int'l Capital Markets Corp., 812 F.Supp. 418, 419 (S.D.N.Y. 1993), order aff'd, 996 F.2d 1478 (2d Cir. 1993) (same). 902 See, e.g., Doctor's Assoc., Inc. v. Distajo, 66 F.3d 438 (2d Cir.
1995) (participation in substantial discovery, for 15 month period, waived arbitration rights); Com-tech Assoc. v. Computer Assoc. Int'l, Inc., 938 F.2d 1574 (2d Cir. 1991) (waiver where party requesting arbitration waited 18 months from filing of federal court complaint by adverse party, asserted six defenses to complaint (but did not raise arbitration agreement), participated in discovery and first sought arbitration four months before trial); Sweater Bee by Banff, Ltd v. Manhattan Indus. Inc., 754 F.2d 457, 461 (2d Cir. 1985) (“litigation of substantial issues going to the merits may constitute a waiver of arbitration”); Sulphur Exp. Corp. v. Caribbean Clipper Lines, Inc., 277 F.Supp. 632, 634 (E.D. La. 1968) (participation in litigation for 5 years is waiver); United Nations Children's Fund v. S/S Norstern, 251 F.Supp. 833, 840 (S.D.N.Y. 1965) (defendant's failure to raise arbitration agreement prior to summary judgment motion held waiver); Faberge Int'l Inc. v. Di Pino, 491 N.Y.S.2d 345 (N.Y. App. Div. 1985) (“Waiver requires an active participation in litigation or other conduct inconsistent with an intent to reserve any issues for arbitration.”). 903 See, e.g., Hoffman Constr. Co. v. Active Erectors and Installers, Inc., 969 F.2d 796 (9th Cir. 1992) (litigation to judgment of claim constitutes waiver of right to arbitrate closely-related RICO claim); Gutor Int'l AG v. Raymond Packer Co., 493 F.2d 938 (1st Cir. 1974) (“Submission of part of an arbitrable matter to a court waives the submittor's right to insist upon arbitration of the remainder”). 904 See supra pp. 738-740. 905 See, e.g., Judgment of 6 June 1978, British Leyland v. Richard, 1979 Rev. arb. 230 (French Cour de cassation civ. 1e); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶736 (1999). 906 See, e.g., Judgment of 9 December 1987, G.I.E. Acadi v. Thomson-Answare, 1988 Rev. arb. 573 (Paris Cour d'appel). 907 German courts have also held that a party that denies the existence of an arbitration agreement in correspondence, prompting its counter-party to sue in national court, cannot subsequently invoke the arbitration clause. Judgment of 2 April 1987, III ZR 76/86, 1987 WM 1084 (German Bundesgerichtshof). 908 A. van den Berg et al., Netherlands Arbitration Law 41 (1993) (“must be raised as a formal exception before submitting any other defence, i.e., prior to or in the statement of defence before any other defence”). 909 Etablissem*nts Röhr SA v. Dina Ossberger, C-27/81 [1981] E.C.R. 2431, 2435 (E.C.J.). 910 M. Storme & B. Demeulenaere, International Commercial Arbitration in Belgium 52 (1989) (arbitration clause “must be raised in limine litis, i.e., in the defendant's first pleadings, before the defense on the merits of the case”). 911 See, e.g., Award in ICC Case No. 6840, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1991-1995 467, 470 (1997); Partial Award in ICC Case No. 8910, 127 J.D.I. (Clunet) 1085, 1087-1089 (2000) (no waiver by http://www.kluwerarbitration.com/CommonUI/print.aspx
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participating in national court proceedings on related issues); Partial Award in ICC Case No. 9787, XXVII Y.B. Comm. Arb. 181, 187-188 (2002); AWG Group Ltd v. Argentine Republic, Decision on Jurisdiction, ICSID Case No. ARB/03/19 (3 August 2006), ¶¶41-45, available at www.worldbank.org/icsid. 912 Final Award in ICC Case No. 10904, XXXI Y.B. Comm. Arb. 95 (2006) (party waived arbitration agreement by litigating merits of dispute in Jordanian courts). 913 See infra p. 745. 914 See supra pp. 671-673 & infra pp. 989-990; UNCITRAL Rules, Art. 21(3); LCIA Rules, Art. 23(2). 915 AAA Commercial Rules, Rule 48(a). See also D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 449 (2006) (“it is equally clear that the drafters [of the UNCITRAL Rules] intended that only limited circ*mstances would justify a delay in raising the objection” of no jurisdiction). 916 See, e.g., Doctor's Assoc., Inc. v. Distajo, 66 F.3d 438 (2d Cir. 1995) (AAA's “no waiver” clause does not affect waiver analysis); In re S&R Co. of Kingston Co. v. Latona Trucking, Inc., 159 F.3d 80, 85 (2d Cir. 1998) (“the fact that an arbitration agreement incorporates such a [no-waiver] clause would not prevent a court from finding that a party has waived arbitration by actively participating in protracted litigation of an arbitrate dispute”); Home Gas Corp. v. Walter's of Hadley, Inc., 532 N.E.2d 681, 685 (Mass. 1989) (“no waiver” clause in arbitration agreement does not prevent finding of waiver of right to arbitrate); United Nuclear Corp. v. Gen. Atomic Corp., 597 P.2d 290, 306-7 (N.M. 1979) (“The parties are precluded from contracting to exclude the court from jurisdiction” over the question whether the right to arbitrate has been waived); Seidman & Seidman v. Wolfson, 50 Cal.App.3d 826 (Ct. App. 1975); Am. Sugar Refining Co. v. The Anaconda, 138 F.2d 765 (5th Cir. 1943), aff'd, 322 U.S. 42 (U.S. S.Ct. 1944); Ocean Science & Eng., Inc. v. Int'l Geomarine Corp., 312 F.Supp. 825 (D. Del. 1970). See also Shay v. 746 Broadway Corp., 409 N.Y.S.2d 69, 71 (N.Y. S.Ct. 1978) (AAA's “no waiver” clause permits parties to seek provisional measures in aid of arbitration, but does not extend to litigation on merits). 917 See, e.g., Jackson Trak Group, Inc. v. Mid States Port Authority, 751 P.2d 122, 129-30 (Kan. 1988); Kostakos v. KSN Joint Venture No. 1, 491 N.E.2d 1322, 1326 (Ill. App. Ct. 1986) (“inclusion of [‘no waiver’ clause] indicate[d] the parties' intention to favor arbitration and we will not lightly waive this right”); Atlas v. 7101 P'ship, 440 N.E.2d 381, 383 (Ill. App. 1982); Eisenwerk Hensel Bayreuth Dipl.-Ing. Burkhardt GmbH v. Australian Granites Ltd, XXV Y.B. Comm. Arb. 663 (Queensland Court of Appeal 1999) (2000) (agreement to arbitrate under ICC Rules superseded waiver standard in Article 8 of Model Law). 918 This subject is addressed in detail below. See infra pp. 19721973, 2049-2051, 2053-2055. 919 UNCITRAL Model Law, Art. 9. Other national arbitration legislation is similar. See Netherlands Code of Civil Procedure, Art. 1022(2); German ZPO, §1033; Japanese Arbitration Law, Art. 15; European Convention, Art. VI(4). 920 See infra pp. 2064-2065. 921 See, e.g., Sauer-Getriebe KG v. White Hydraulics, Inc., 715 F.2d 348, 350-51 (7th Cir. 1983); Judgment of 7 June 2001, SA Hellafranca v. SA Natalys, 2001 Rev. arb. 605, 616 (Paris Cour d'appel); Bhatia Int'l v. Bulk Trading SA, XXVII Y.B. Comm. Arb. 234 (Indian S.Ct. 2002) (2002) (giving effect to ICC Rules, Art. 23); infra http://www.kluwerarbitration.com/CommonUI/print.aspx
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p. 2054 n. 530. See also Van Uden Maritime BV v. Kommanditgesellschaft in Firma Deco-Line, C-391/95 [1998] E.C.R. I-7091, 7133 (E.C.J.) (“An arbitration agreement shall not preclude a party from applying to the ordinary courts for a protective measure or from making an application to the President of the court for interim relief pursuant to Article 289”). 922 Award in ICC Case No. 6223, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 48-49 (2001) (no waiver of arbitration agreement by virtue of requests to Jordanian courts for assistance in taking evidence). 923 As discussed below, there may be circ*mstances in which a party's efforts to circumvent an arbitration agreement, through the initiation of requests for court-ordered provisional measures, may be contrary to, and constitute a waiver of, an arbitration agreement. See infra pp. 2031-2042, 2053-2055. 924 Compare Award in ICC Case No. 2730, 111 J.D.I. (Clunet) 914 (1984) (applying procedural law of arbitral seat to determine whether arbitration had lapsed because of delay in prosecution). 925 In the United States, it appears settled in both domestic and international matters that waiver is defined by federal common law, as distinguished from both U.S. state law or foreign law which otherwise governs the arbitration agreement. The U.S. Supreme Court has held that: “[as] a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.” Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (U.S. S.Ct. 1983). See also Doctor's Assoc., Inc. v. Distajo, 107 F.3d 126 (2d Cir. 1997) (waiver of right to arbitrate subject to federal common law); Bridas Sociedad Anonima Petrolera Indus. y Comm. v. Int'l Standard Elec. Corp., 490 N.Y.S.2d 711 (N.Y. Sup. Ct. 1985). 926 Halki Shipping Corp. v. Sopex Oils Ltd [1998] 1 Lloyd's Rep. 49 (Q.B.) (court applied English law, as law of the lex fori, to determine that English proceedings should be stayed because of the parties' agreement to arbitrate). 927 See Cobb, Domestic Courts' Obligation to Refer Parties to Arbitration, 17 Arb. Int'l 313 (2001). 928 See, e.g., Doctor's Assoc., Inc. v. Distajo, 66 F.3d 438 (2d Cir. 1995) (claim of waiver of right to arbitrate is for court, not arbitrator); County of Durham v. Richards & Assoc., 742 F.2d 811, 815 (4th Cir. 1984); Commerce Park at DFW Freeport v. Mardian Constr. Co., 729 F.2d 334, 339 n.5 (5th Cir. 1984). 929 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (U.S. S.Ct. 2002) (citing Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (U.S. S.Ct. 1983)); Nat'l Am. Ins. Co. v. Transamerica Occidental Life Ins. Co., 328 F.3d 462, 466 (8th Cir. 2003); Bellevue Drug Co. v. Advance PCS, 333 F.Supp.2d 318, 324 (E.D. Pa. 2004). Compare Ehleiter v. Grapetree Shores, Inc., 482 F.3d 207 (3d Cir. 2007) (question whether arbitration agreement was waived is for court, not arbitrator, under FAA). 930 See, e.g., Tommy C.P. Sze & Co. v. Li & Fung (Trading) Ltd, 2002 HKCU LEXIS 1634 (H.K. High Court); Münch, in G. Lüke & P. Wax (eds.), Münchener Kommentar zur Zivilprozessordnung §1040, ¶23 (2d ed. 2001); Voit, in H.-J. Musielak (ed.), Kommentar zur Zivilprozessordnung §1040, ¶13 (5th ed. 2007). 931 Villa Denizcilik Sanayi ve Ticaret AS v. Longen SA [1998] 1 http://www.kluwerarbitration.com/CommonUI/print.aspx
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Lloyd's Rep. 195 (Q.B.). 932 See, e.g., Thai-Europe Tapioca Serv. Ltd v. Seine Nav. Co. [1989] 2 Lloyd's Rep. 506 (Q.B.). See also Fustar Chem. Ltd v. Sinochem Liaoning Hong Kong Ltd, [1996] 2 HKC 407 (H.K. High Court, S.Ct.) (failure to respond to letter claiming that contract was repudiated and announcing intention to litigate held not to constitute repudiation of arbitration agreement). 933 See, e.g., Frota Oceanica Brasileira SA v. Steamship Mut. Underwriting Ass'n (Bermuda) Ltd [1995] 2 Lloyd's Rep. 254 (Q.B.), aff'd, [1996] 2 Lloyd's Rep. 461 (English Court of Appeal). 934 See, e.g., Judgment of 12 March 2003, DFT 4P.2/2003 (Swiss Federal Tribunal) (“If one of the parties fails to make the advance on costs incumbent upon it, the other party may elect either to pay the entire sum of the advance or to waive its right to [have recourse to] arbitration. In the last case, the parties are no longer bound by the arbitration agreement in respect of the dispute in question”); Judgment of 19 November 1991, 1992 Rev. arb. 462 (French Cour de cassation civ. 1e) (failure to pay share of advance on costs constitutes a repudiation of arbitration agreement, entitling counterparty to bring suit in national courts). 935 See infra pp. 1005-1014. 936 See infra p. 747 nn. 937-938, for authorities concluding that various procedural steps (or missteps) in arbitration do not constitute either a waiver of the arbitration agreement or an agreement to terminate arbitration agreement. But see Swedish Arbitration Act, §5 (“A party shall forfeit his right to invoke the arbitration agreement as a bar to court proceedings where the party: (1) has opposed a request for arbitration; (2) failed to appoint an arbitrator in due time; or (3) fails, within due time, to provide his share of the requested security for compensation to the arbitrators.”). 937 Downing v. Al Tameer Est. [2002] 2 All E.R. (Comm.) 545 (English Court of Appeal). 938 Elektrim SA v. Vivendi Universal SA [2007] EWHC 11 (Comm.) (Q.B.). 939 See, e.g., Brian Harper v. Kvaerner Fjellstrand Shipping AS, XVIII Y.B. Comm. Arb. 358 (B.C. S.Ct. 1991) (1993) (adopting “principle of separability” and rejecting claim that termination of underlying contract rendered arbitration clause null and void); Resort Condominiums Int'l Inc. v. Bolwell, XX Y.B. Comm. Arb. 628, 633 (Queensland S.Ct. 1993) (1995) (arbitration clause “is generally intended by the parties to be enforceable notwithstanding termination of the agreement”); Kvaerner Enviropower, Inc. v. Tanar Indus., Ltd, [1996] A.J. No. 805 (Alberta Q.B.); Crestar Ltd v. Carr [1987] 2 FTLR 135 (English Court of Appeal); Paul Smith Ltd v. H & S Int'l Holding Inc. [1991] 2 Lloyd's Rep. 127 (Q.B.); ACE Capital Re Overseas, Ltd v. Cent. United Life Ins. Co., 307 F.3d 24 (2d Cir. 2002) (arbitration agreement survives, and arbitral determination is required of claims that agreement was not properly terminated in accordance with its terms); Unionmutual Stock Life Ins. Co. of Am. v. Beneficial Life Ins. Co., 774 F.2d 524, 528-29 (1st Cir. 1985); Banque de Paris et des Pays-Bas v. Amoco Oil Co., 573 F.Supp. 1464 (S.D.N.Y. 1983); Annotation, Violation or Repudiation of Contract as Affecting Right to Enforce Arbitration Clause Therein, 3 A.L.R.2d 378. Compare Virginia Carolina Tools, Inc. v. Int'l Tool Supply, Inc., 793 F.Supp. 664 (W.D.N.C. 1992), aff'd, 984 F.2d 113 (4th Cir. 1993) (court holds that arbitration clause was no longer effective because underlying option contract had expired); supra pp. 369-370 & infra pp. 940, 942.
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940 See, e.g., Judgment of 15 March 1990, Sonatrach v. K.C.A.
Drilling Ltd, 1990 Rev. arb. 921 (Swiss Federal Tribunal); Judgment of 28 October 1993, XX Y.B. Comm. Arb. 739 (Italian Corte di Cassazione) (1995) (“the agreement to arbitrate contained in an arbitral clause in a contract is an independent agreement; its validity and efficacy must be ascertained independently of the validity and efficacy of the contract”); Judgment of 25 November 1966, Société des mines d'Orbagnoux v. Fly Tox, 1967 Dalloz 359 (French Cour de cassation civ. 2e). 941 Judgment of 28 July 2005, XXXI Y.B. Comm. Arb. 673 (Oberlandesgericht Koblenz) (2006). The court went on to conclude that there was no evidence that “the parties intended to terminate the arbitration clause together with the agency contract.” 942 Bailey v. Bicknell Minerals, Inc., 819 F.2d 690 (7th Cir. 1987). 943 See, e.g., Award in Bulgarian Chamber of Commerce and Industry, Case No. 88/1972 (23 June 1973), IV Y.B. Comm. Arb. 189 (1979) (“The fact that the contract was terminated cannot render inoperative the arbitration agreement concluded between the parties for the resolution of disputes arising out of this contract”); Award in ICC Case No. 2438, 103 J.D.I. (Clunet) 969 (1976); Final Award in ICC Case No. 7626, XXII Y.B. Comm. Arb. 132, 137 (1997) (“under Indian law – as under most systems of law – an arbitration clause constitutes a separate and autonomous agreement between the parties, which survives any termination of the main agreement in which it is contained, unless the arbitration agreement itself is expressly terminated”). 944 Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921 (Swiss Federal Tribunal). See also Unionmutual Stock Life Ins. Co. of Am. v. Beneficial Life Ins. Co., 774 F.2d 524, 528-29 (1st Cir. 1985) (“[t]he arbitration clause is separable from the contract and is not rescinded by … [defendant]'s attempt to rescind the entire contract based on … frustration of purpose.”); Commonwealth Edison Co. v. Gulf Oil Corp., 541 F.2d 1263, 1271 (7th Cir. 1976). 945 This may be contrasted with defects in the formation of the underlying contract, which will be more likely to affect the formation of the associated arbitration agreement. See supra pp. 370-376, 396-402, 643. 946 Judgment of 6 December 2001, XXIX Y.B. Comm. Arb. 742 (Oberlandesgericht Stuttgart) (2004) (“The termination of the sales contract does not affect the validity of the arbitration agreement for claims that had already arisen”); Nolde Bros. v. Bakery & Confectionery Workers Union, 430 U.S. 243, 249-255 (U.S. S.Ct. 1977) (“It could not seriously be contended … that the expiration of the contract could terminate the parties' contractual obligation to resolve such a dispute in an arbitral rather than a judicial forum”); Consorcio Rive v. Briggs of Cancun, Inc., 82 Fed.Appx. 359 (5th Cir. 2003) (“an arbitration agreement contained in a contract does not terminate merely because the contract has terminated”). Although termination of the underlying contract does not ordinarily result in termination of the arbitration clause, it does affect the disputes which are available to be covered by the arbitration agreement. Termination of the underlying contract abrogates or changes some (and often all) substantive contractual obligations between the parties. As a consequence, the practical applications of the arbitration clause will be (significantly) reduced after termination of the parties' contract.
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947 See, e.g., R. Merkin, Arbitration Law ¶¶3.20 to 3.21 (2004 &
Update 2007); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶2-117 (22d ed. 2003); J.-P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶415 (2d ed. 2002); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶72 (2000); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶556 (2006). 948 See, e.g., Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921 (Swiss Federal Tribunal); Judgment of 28 July 2005, XXXI Y.B. Comm. Arb. 673 (Oberlandesgericht Koblenz) (2006) (rejecting argument that parties intended, on terminating underlying contract, to terminate arbitration clause); Judgment of 25 November 1966, Société des mines d'Orbagnoux v. Fly Tox, 1967 Dalloz 359 (French Cour de cassation civ. 2e) (“The effect of a termination is not to put an end to the parties' obligation only for the future. Parties who do not waive their rights under the arbitration agreement, have the right to see their disputes resulting from the [terminated] contract resolved by arbitration.”). 949 See, e.g., UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Art. 7.3.1 (2004); J. Herbots (ed.), International Encyclopedia of Laws, Contract, Australia ¶275, Hong Kong ¶170, Nigeria ¶¶306-311 (Update January 2007); Restatement (Second) Contracts §253 (1981). 950 It is sometimes argued that steps taken in breach of, or inconsistently with, an arbitration agreement constitute an offer to terminate (or acceptance of an offer to terminate) that agreement. As discussed above, such claims have generally been characterized as waiver arguments, and rejected. See supra pp. 746-747. 951 See, e.g., Crestar Ltd v. Carr [1987] 2 FTLR 135 (English Court of Appeal) (agreement to arbitrate is independent of underlying contract and so consensual termination of latter will not terminate former); ACE Capital Re Overseas, Ltd v. Cent. United Life Ins. Co., 307 F.3d 24 (2d Cir. 2002) (arbitral determination required of claims that agreement was not properly terminated in accordance with its terms); Ambulance Billing Sys., Inc. v. Gemini Ambulance Serv., Inc., 103 S.W.3d 507 (Tex. App. 2003) (“dispute regarding whether a settlement agreement was reached replacing or cancelling” original agreement for arbitral determination); Clifton D. Mayhew, Inc. v. Mabro Constr. Inc., 383 F.Supp. 192 (D.D.C. 1974); Elgin Silk Co. v. Bayers, N.Y.L.J., 14 June 1927, at 1278 (cancellation of underlying contract does not affect arbitration clause). 952 See, e.g., Judgment of 25 November 1966, Société des mines d'Orbagnoux v. Fly Tox, 1967 Dalloz 359 (French Cour de cassation civ. 2e); Judgment of 28 July 2005, XXXI Y.B. Comm. Arb. 673, 675 (Oberlandesgericht Koblenz) (2006); Judgment of 23 May 1991, III ZR 144/90, BGHR ZPO §1025, Wirksamkeit 1 (German Bundesgerichtshof); Judgment of 27 February 1970, 6 Arb. Int'l 79 (1990) (German Bundesgerichtshof). 953 See, e.g., Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 869 (7th Cir. 1985); Great Am. Trading Corp. v. I.C.P. Cocoa, Inc., 629 F.2d 1282, 1284-85 (7th Cir. 1980). Compare China Resource Prod. (U.S.A.) Ltd v. Fayda Int'l, Inc., 747 F.Supp. 1101 (D. Del. 1990) (rejecting novation claim). 954 See infra pp. 931-937, 962-964. 955 UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Art. 7.2.2 (2004); J. Herbots (ed.), International Encyclopedia of Laws, Contract, Argentina ¶312, Australia ¶¶172http://www.kluwerarbitration.com/CommonUI/print.aspx
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179, China ¶161, France ¶336, Ireland ¶¶211-213, Turkey ¶¶300304 (Update January 2007); Restatement (Second) Contracts §266 (1981); German BGB, §275; French Civil Code, Art. 1148. 956 New York Convention, Art. II(3). Neither the Inter-American Convention nor the European Convention contain comparable provisions or other express references to the doctrine of impossibility. 957 UNCITRAL Model Law, Art. 8(1). The FAA, Swiss Law on Private International Law, English Arbitration Act, 1996, Japanese Arbitration Law and other national arbitration statutes contain no express references to impossibility or frustration. 958 Sumitomo Heavy Indus. Ltd v. Oil and Natural Gas Comm'n [1994] 1 Lloyd's Rep. 45 (Q.B.). 959 Ibid. 960 See, e.g., Judgment of 16 April 1984, 1986 Rev. arb. 596 (Swiss Federal Tribunal) (Swiss courts uphold ICC's nomination of arbitrator after Director General of World Health Organization declined to act as appointing authority); Voit, in H.-J. Musielak (ed.), Kommentar zur Zivilprozessordnung §1039, ¶1 (5th ed. 2007); Geimer, in R. Zöller (ed.), Zivilprozessordnung §1039, ¶1 (26th ed. 2007); Ballas v. Mann, 82 N.Y.S.2d 426, 446 (N.Y. S.St. 1948) (“a proper construction of the contract is that the intention to arbitrate is the dominant intention, the personality of the arbitrator being an auxiliary incident rather than the essence, and that frustration of that dominant intention is not to be permitted merely because the precise method of accomplishing that intent has become impossible; and under those circ*mstances the court may give effect to the dominant intention through the agency of an arbitrator chosen by itself”). Similar issues arise where the parties' arbitration agreement selects a non-existent or now-defunct arbitral institution. See also supra pp. 679-683. 961 See, e.g., Heyman v. Darwins Ltd [1942] A.C. 356 (House of Lords); Kruse v. Questier & Co. [1953] 1 Q.B. 669 (Q.B.); Gov't of Gibraltar v. Kenney and Another [1956] 3 All E.R. 22 (Q.B.); Judgment of 22 September 1977, BGHZ 69, 260, 263-264 (German Bundesgerichtshof); Judgment of 27 February 1970, 6 Arb. Int'l 79 (1990) (German Bundesgerichtshof); Unionmutual Stock Life Ins. Co. of Am. v. Beneficial Life Ins. Co., 774 F.2d 524, 529 (1st Cir. 1985) (the fact that a party's “attempt to rescind the entire agreement is based on the grounds of frustration of purpose rather than on fraud in the inducement does not change applicability of the severability doctrine”); Island Territory of Curacao v. Solitron Devices, Inc., 356 F.Supp. 1, 11 (S.D.N.Y. 1973), aff'd, 489 F.2d 1313 (2d Cir. 1973) (claim of frustration of underlying contract does not impeach arbitration clause); Goldhill Trading & Shipping Co. SA v. Caribbean Shipping Co., 56 F.Supp. 31 (S.D.N.Y. 1944); Kuwait Supply Co. v. Oyster Marine Mgt Inc. [1994] 1 Lloyd's Rep. 637 (Q.B.). See also supra pp. 369-370 & infra pp. 940-942. 962 See Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (U.S. S.Ct. 2003); Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (U.S. S.Ct. 2002) (“‘procedural’ questions which grow out of the dispute and bear on its disposition are presumptively not for the judge, but for an arbitrator, to decide”). 963 Northwestern Nat'l Ins. Co. v. Donovan, 916 F.2d 372, 377 (7th Cir. 1990) (Posner, J.). 964 See, e.g., Stempel, A Better Approach to Arbitrability, 65 Tul. L. Rev. 1377, 1426 (1991); Budnitz, Arbitration of Disputes Between Consumers and Financial Institutions: A Serious Threat to http://www.kluwerarbitration.com/CommonUI/print.aspx
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Consumer Protection, 10 Ohio St. J. Disp. Res. 267, 334 (1995); Rogers, The Arrival of the “Have-Nots” in International Arbitration, 8 Nev. L.J. 341 (2007). 965 See, e.g., Spanish Arbitration Act, Art. 9(2); Brazilian Arbitration Law, Art. 4(2) (“In adhesion contracts, the arbitration clause will only be valid if the adhering party initiates arbitral proceedings or if it expressly agrees to arbitration by means of an attached written document, or if it signs or initials the corresponding contractual clause, inserted in boldface type”). See also the discussion regarding consumer contracts, infra pp. 820-829. 966 Compare Judgment of 24 September 1998, 1999 NJW 282, 283 (German Bundesgerichtshof); Judgment of 4 November 1992, VIII ZR 235/91, BGHZ 120, 108, 122 (German Bundesgerichtshof). 967 See infra pp. 817-820, 820-829. 968 See infra pp. 809-817. 969 E.g., Netherlands Bankruptcy Act, Art. 122(1) (“If a claim is disputed and the rechter-commissaris is unable to reconcile the parties and the dispute is not already the subject of proceedings, the rechter-commissaris shall refer the matter to a session of the court determined by him and no writ of summons is required to be served.”); Latvian Civil Procedure Law, Art. 478(8) (disputes “regarding the rights and obligations of persons that have been declared insolvent before the making of the award by the arbitral tribunal” are not arbitrable). 970 Preliminary Award in ICC Case No. 11028, 25 ASA Bull. 36, 45 n.54 (2007) (the respondent's “continued capacity to be a party in [the] arbitration in spite of the debt restructuring proceedings pending”); Mantilla-Serrano, International Arbitration and Insolvency Proceedings, 11 Arb. Int'l 51, 64 (1995) (“Regarding matters concerning the capacity of the insolvent party (or its representatives) to pursue the arbitration, the arbitrators consistently refer such issues to the personal law of the party, which for corporations is generally the law of the place of its corporation.”); Brown-Berset & Lévy, Faillite et Arbitrage, 16 ASA Bull. 664, 667 (1998) (“the capacity of the bankrupt is … a special incapacity resulting from bankruptcy [and] the provisions of the law governing the latter apply”). 971 See supra pp. 552-559. 972 See supra pp. 504-516, 558-559, 569, 673 & infra pp. 12641270, 1368-1376, 1444-1446, 1450, 1513, 1690-1691, 1749-1751, 1765-1770, 2556-2560, 2838-2840. 973 See UNIDROIT, UNIDROIT Principles of International Commercial Contracts, Art. 3.1 (2004); K. Zweigert & H. Kötz, II, An Introduction to Comparative Law 61-70 (2d ed. 1987); Skladits, Illegality of Prohibited Contracts, Comparative Aspects, in Twentieth Century Comparative and Conflicts Law – Legal Essays in Honor of Hessel E. Yntema 221 (1961); Dwyer, Immoral Contracts, 93 Law Q. Rev. 384 (1977); Restatement (Second) Contracts §§178-79, 192 (1981); L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶¶32-238 to 32-241 (14th ed. 2006). 974 See infra pp. 2827-2863 (especially 2848-2851). 975 See infra pp. 766 et seq. 976 See supra pp. 357 et seq. 977 See, e.g., Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. S.Ct. 2006) (claim that underlying contract was void for illegality did not impeach arbitration clause); Southland Corp. v. Keating, 465 U.S. 1 (U.S. S.Ct. 1984); Bess v. Check Express, 294 http://www.kluwerarbitration.com/CommonUI/print.aspx
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F.3d 1298 (11th Cir. 2002) (claims that usurious and unlicensed loans were illegal did not concern “the arbitration agreement specifically” and “an arbitrator should decide those questions”); Snowden v. CheckPoint Check Cashing, 290 F.3d 631 (4th Cir. 2002) (claims that loan agreement was usurious “do not relate specifically to the Arbitration Agreement” and are therefore for arbitral, not judicial, determination); Lawrence v. Comprehensive Business Sers. Co., 833 F.2d 1159 (5th Cir. 1987) (claim that contract is “illegal” is for arbitrators); Mesa Operating Ltd P'ship v. La. Intrastate Gas Corp., 797 F.2d 238 (5th Cir. 1986); Siderurgica del Orinoco (Sidor), CA v. Linea Naviera de Cabotage, CA, 1999 WL 632870 (S.D.N.Y. 1999); Nuclear Elec. Ins. Ltd v. Central Power & Light Co., 926 F.Supp. 428 (S.D.N.Y. 1996) (claim that violations of Texas Insurance Code rendered insurance policies illegal and unenforceable related to “the entire policy” and were for arbitral, not judicial, determination); Belship Nav. Inc. v. Sealift, Inc., 1995 WL 447656 (S.D.N.Y. 1995) (claim that contract violated Cuban trade controls concerned entire agreement and is for arbitrators); Wolitarsky v. Blue Cross of Calif., 61 Cal.Rptr.2d 629, 631 (Cal. App. 1997) (claim of illegality went to substantive provisions of underlying contract and not arbitration clause); supra pp. 365-370 & infra pp. 938-943. 978 See, e.g., Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); Harbour Assur. Co. (UK) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1993] 3 All E.R. 897, 898 (English Court of Appeal); Westacre Inv. v. Jugoimport-SDPR Holding Co. Ltd [1998] 4 All E.R. 570 (Q.B.); supra pp. 381-383 & infra pp. 960-963. 979 See, e.g., Judgment of 23 June 1992, Fincantieri-Cantieri Navali Italiani SpA v. M and Arbitration Tribunal, XX Y.B. Comm. Arb. 766 (Swiss Federal Tribunal) (1995); Judgment of 7 May 1963, Ets Raymond Gosset v. Carapelli, JC G 1963, II, 13, ¶405 (French Cour de cassation civ. 1e) (in international cases the invalidity of the main contract for public policy reasons has no effect on the enforceability of the arbitration clause); Judgment of 6 December 1963, 1964 Neder. Juris. No. 43 (Netherlands Hoge Raad) (illegality of the main contract does not entail the nullity of the arbitral clause). See also Mayer, Le contrat illicite, 1984 Rev. arb. 213. 980 Mayer, The Limits of Severability of the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 261, 265 (ICCA Congress Series No. 9 1999) (“The most telling examples of severability are encountered in illegal contracts. The fact that the subject matter of the contract is illegal – for example, dividing up markets in violation of competition law, or the commission of corrupt acts – does not undermine the validity of the arbitration clause.”). 981 See, e.g., supra pp. 393-395; Interim Award in ICC Case No. 4145, XII Y.B. Comm. Arb. 97, 100 (1987); Award in ICC Case No. 5943, 123 J.D.I. (Clunet) 1014 (1996) (illegality of the contract does not affect the validity of the arbitration agreement). 982 See, e.g., Judgment of 23 June 1992, Fincantieri-Cantieri Navali Italiani SpA v. M and Arbitration Tribunal, XX Y.B. Comm. Arb. 766 (Swiss Federal Tribunal) (1995); Elf Aquitaine Iran v. Nat'l Iranian Oil Co., Preliminary Ad Hoc Award (14 January 1982), XI Y.B. Comm. Arb. 97, 103 (1986) (“the arbitration clause binds the parties and is operative unimpaired by the allegation by NIOC that the Agreement, as a whole, is null and void ab initio.”). 983 Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. http://www.kluwerarbitration.com/CommonUI/print.aspx
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S.Ct. 2006). 984 Cardegna v. Buckeye Check Cashing, Inc., 894 So.2d 860 (Fla. S.Ct. 2005) (“an arbitration provision contained in a contract which is void under Florida law cannot be separately enforced while there is a claim pending in a Florida trial court that the contract containing the arbitration provision is itself illegal and void ab initio.”). 985 Buckeye Check Cashing, 546 U.S. at 449. The Court noted that its earlier decisions had given effect to the separability presumption regardless whether a challenge alleged that the underlying contract was void or voidable – including in cases such as Southland Corp. v. Keating, 465 U.S. 1 (U.S. S.Ct. 1984), alleging “fraud, misrepresentation, breach of contract, breach of fiduciary duty and violation of the California Franchise Investment Law.” 546 U.S. at 446. 986 Interim Award in ICC Case No. 4145, XII Y.B. Comm. Arb. 97, 100 (1987). 987 This accords with similar analyses under other grounds for the substantive invalidity of arbitration agreements, such as fraud, mistake and termination, where defects in the underlying contract generally do not, but in unusual cases may, impeach the validity of the associated arbitration agreement. See supra pp. 396-402. 988 Soleimany v. Soleimany [1999] Q.B. 785, 797 (English Court of Appeal). It is inaccurate to suggest that a national court would not recognize an agreement to arbitrate because it was between “highwaymen”: the fact that one or both parties have, either on occasion or persistently, engaged in criminal acts (e.g., become “highwaymen”) does not preclude them from entering into valid contracts, including agreements to arbitrate, between themselves or with others. 989 See also Rau, Everything You Really Need to Know About ‘Separability’ in Seventeen Simple Propositions, 14 Am. Rev. Int'l Arb. 1, 53 n.127 (2004); Nat'l R.R. Passenger Corp. v. Conrail, 892 F.2d 1066, 1071 (D.C. Cir. 1990); M. Bühler & T. Webster, Handbook of ICC Arbitration 113 (2005) (“An arbitration agreement relating to what is fundamentally a prohibited activity will generally not be enforceable”). 990 See, e.g., Judgment of 15 June 1987, 1987 NJW 3193 (German Bundesgerichtshof) (arbitration clause invalid because underlying contract violated German Stock Exchange Law); Nature's 10 Jewelers v. Gunderson, 648 N.W.2d 804 (S.D. 2002) (franchise agreement was void, because not registered with state regulatory authority and franchisor cannot invoke “benefit from the arbitration clause in the illegal contract”); Alabama Catalog Sales v. Harris, 794 So.2d 312 (Ala. 2000) (because claim of illegal “pay-day loans” challenges “the very existence of the contracts,” illegality claim impeaches arbitration clause and is for courts); Micronair, Inc. v. City of Winter Haven, 800 So.2d 622 (Fla. App. 2001) (claim that contract was contrary to public policy, and therefore void, for failure to satisfy regulatory requirement, is for judicial determination); Party Yards, Inc. v. Templeton, 751 So.2d 121 (Fla. App. 2000) (claim that loan agreement, containing arbitration clause, was illegal under usury laws implicates arbitration clause and is for judicial determination); R.P.T. of Aspen, Inc. v. Innovative Comm., Inc., 917 P.2d 340 (Colo. App. 1996) (“while antitrust laws may, in appropriate cases, be determined by an arbitrator, when the legality of a contract is under scrutiny, that issue must be decided by the court”); Green v. Mt. Diablo Hosp. Dist., 254 Cal.Rptr. 689 (Cal. App. 1989) (if underlying claims of illegality are upheld they would “render the entire contract void,” including arbitration clause); Durst v. Abrash, http://www.kluwerarbitration.com/CommonUI/print.aspx
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253 N.Y.S.2d 351 (N.Y. App. Div. 1964), aff'd, 266 N.Y.S.2d 806 (N.Y. 1966); Kramer & Uchitelle, Inc. v. Eddington Fabrics Corp., 43 N.E.2d 493 (N.Y. 1942); Micronair, Inc. v. City of Winter Haven, 800 So.2d 622 (Fla. App. 2001) (claim that contract was contrary to public policy, and therefore void, for failure to satisfy regulatory requirement, is for judical determination). 991 The U.S. decisions cited in supra p. 759 n. 990 do not appear to survive Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. S.Ct. 2006). See infra pp. 938-943. 992 See supra pp. 707-708 & infra pp. 769-770. 993 As discussed above, the U.S. Supreme Court has made it clear that the domestic FAA supersedes most such state laws. These decisions hold that the FAA preempts almost all state laws that render agreements to arbitrate particular categories of claims unenforceable or illegal. See Southland Corp. v. Keating, 465 U.S. 1 (U.S. S.Ct. 1984) (preempting California statute invalidating agreements to arbitrate certain franchise claims); Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265 (U.S. S.Ct. 1995) (preempting Alabama statute invalidating pre-dispute arbitration agreements); Perry v. Thomas, 482 U.S. 483 (U.S. S.Ct. 1987); supra pp. 136138, 485-490. These decisions hold that state law or public policy will not provide a basis for invalidating an arbitration agreement, unless the law or public policy is generally applicable to all contracts, rather than specifically targeted at agreements to arbitrate. See Ibid. Note the combined effect of the FAA's preemption of state prohibitions directed specifically against arbitration agreements and the general requirement (flowing from the separability doctrine) that arbitrators resolve claims that the parties' underlying contract is unlawful under U.S. state law: virtually all bases for judicial challenges based on illegality under state law or state public policy are foreclosed (except in judicial review of arbitral awards). That is, the FAA substantively preempts most state law rules directed towards the legality of arbitration agreements, while it presumptively requires that arbitrators resolve most challenges to the legality of the underlying contract. 994 See infra pp. 833-834; Puerto Rico Dealers Act, 10 L.P.R.A.
§278; Ark. Code Ann. §16-108-201. 995 See infra pp. 833-834; Cal. Corp. Code §31512 (rendering void any provision which purported to bind a franchisee to waive compliance with any provision of Californian franchise law). The U.S. Supreme Court has held that this provision directly conflicts with §2 of the FAA and hence violates the Supremacy Clause. See Southland Corp. v. Keating, 465 U.S. 1 (U.S. S.Ct. 1984). 996 See infra pp. 833-834; Iowa Code Ann. §679A.1 (recognized as preempted by Faber v. Menard, Inc., 267 F.Supp.2d 961, 964 (N.D. Iowa 2003)). 997 See infra pp. 831-833; Motor Vehicle Contract Arbitration Fairness Act, 15 U.S.C. §11028(a)(2). 998 See infra pp. 805-808; 35 U.S.C. §§135(d), 294. 999 See infra pp. 820-829; EU Council Directive 93/13/EEC, O.J. L 095, 21/04/1993, at 29, Annex 1(q); N. Lockett & M. Egan, Unfair Terms in Consumer Agreements: The New Rules Explained 49 (1995); Drahozal & Friel, Consumer Arbitration in the European Union and the United States, 28 N.C. J. Int'l L. & Comm. Reg. 357 (2002).
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1000 See Belgian Law of 27 July 1961, as amended by Belgian
Law of 13 April 1971, Art. 4 (“The aggrieved grantee, at the time of the termination of a concession of sale taking effect in whole or in part in the Belgian territory, can in any case bring an action against the grantor in Belgium, either before the judge of his own domicile, or before the judge of the domicile or the seat of the grantor. If the case is brought before a Belgian court, it will exclusively apply Belgian law.”); G. Keutgen & G. Dal, L'arbitrage en droit belge et international ¶¶126-128 (2d ed. 2006). 1001 See infra pp. 808-809. 1002 UN Security Council Resolution No. 661, The Situation between Iraq-Kuwait, (1990), Art. 3, available at www.un.org; EC Regulation 2340/1990, Arts. 1-3; EC Regulation 3541/1992, Art. 21; EC Regulation 2340/1990, Arts. 1-3; EC Regulation 3541/1992, Art. 21. 1003 See, e.g., Motor Vehicle Contract Arbitration Fairness Act, 15 U.S.C. §11028(a)(2) (prohibiting the arbitration of certain disputes involving motor vehicle franchises); 35 U.S.C. §§294, 135(d) (prohibiting the arbitration of certain patent validity disputes); Judgment of 7 May 1994, Fincantieri-Cantieri Navali Italiani SpA v. Ministry of Defence, Armament and Supply Directorate of Iraq, XXI Y.B. Comm. Arb. 594 (Genoa Corte di Appello) (1996). 1004 See infra pp. 766 et seq. (especially infra pp. 769-770). 1005 As discussed below, it is the nature of the dispute, not the terms of the arbitration agreement, that result in unenforceability under the non-arbitrability doctrine. See infra pp.768-772. 1006 See supra pp. 413-414, 428-431, 460-466 & infra pp. 769770. 1007 See supra pp. 504-516, 558-559, 569. This principle denies effect to legislation that purportedly invalidates international arbitration agreements on grounds not applicable to other types of contracts. See Ibid. 1008 Belgian Law of 27 July 1961, as amended by Belgian Law of 13 April 1971, Art. 4. 1009 Final Award in ICC Case No. 6379, XVII Y.B. Comm. Arb. 212 (1992). 1010 XVII Y.B. Comm. Arb. at 215-216. 1011 See supra pp. 504-514. The argument would be that a protection for distributors is an idiosyncratic rule of national law, out of step with the practice of most states, that also discriminates against arbitration agreements and in favor of Belgian courts. 1012 See infra pp. 817-820, 820-829. 1013 Netherlands Bankruptcy Act, Art. 122(1) (“If a claim is disputed and the rechter-commissaris is unable to reconcile the parties and the dispute is not already the subject of proceedings, the rechter-commissaris shall refer the matter to a session of the court determined by him and no writ of summons is required to be served.”); Latvian Civil Procedure Law, Art. 478(8); supra pp. 809817. 1014 See infra pp. 768-770. 1015 Judgment of 7 May 1994, Fincantieri-Cantieri Navali Italiani SpA v. Ministry of Defence, Armament and Supply Directorate of Iraq, XXI Y.B. Comm. Arb. 594 (Genoa Corte di Appello) (1996) (emphasis added). Notwithstanding the Italian court's decision, the award was enforced in France, see Judgment of 15 June 2006, Legal Dep't of the http://www.kluwerarbitration.com/CommonUI/print.aspx
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Ministry of Justice of the Republic of Iraq v. Fincantieri et al., XXXI Y.B. Comm. Arb. 635 (Paris Cour d'appel) (2006), and Switzerland, Judgment of 23 June 1992, Fincantieri-Cantieri Navali Italiani SpA v. M and Arbitration Tribunal, XX Y.B. Comm. Arb. 766 (Swiss Federal Tribunal) (1995). See Sacerdoti, Embargo irakeno, effetti sui contatti in corso ed efficacia delle clausole per arbitrato irternazionale, 3 Rivista dell'Arbitrato 361 (1993) (effect of Iraq sanctions is subject to arbitration). 1016 The Swiss court held that the EC regulation was only directed
at the underlying commercial transaction, and was not directed at the arbitration agreement and did not purport to create a rule of nonarbitrability. Judgment of 23 June 1992, Fincantieri-Cantieri Navali Italiani SpA v. M and Arbitration Tribunal, XX Y.B. Comm. Arb. 766 (Swiss Federal Tribunal) (1995) (“the arbitrability of the dispute does not depend on the material existence of the claim. Thus, it cannot be denied for the only reason that mandatory provision of law or a given material public policy make the claim null and void or its execution impossible; it could be denied only as far as the claims are concerned which should have been heard exclusively by a State court, according to provisions of law which were to be taken into consideration for reasons of public policy. This is not at all the case here. The commercial measures taken against the Republic of Iraq raise indeed the issue of the validity of the contracts concluded before these measures were taken, or the issue of the subsequent impossibility to perform under said contracts. It does not seem, however, … that all this must lead us to find that the claims arising out of these contracts are not arbitrable, and even more that the claims arising out of related contracts, like the agency contract on which M. bases his claims, are not arbitrable.”) (emphasis added). 1017 The regulation would also not be capable of characterization as idiosyncratic, given the broad international consensus at the time supporting such sanctions with regard to Iraq. 1018 See supra pp. 460-466, 500-501. 1019 Westacre Inv. v. Jugoimport-SDPR Holding Co. Ltd [1998] 4 All E.R. 570, 593 (Q.B.). 1020 Pacificare Health Sys., Inc. v. Book, 538 U.S. 401 (U.S. S.Ct. 2003); Vimar Seguros y Reaseguros, SA v. M/V Sky Reefer, 515 U.S. 528 (U.S. S.Ct. 1995); infra pp. 922-923, 951-954. 1021 See infra pp. 1723-1728. See also supra pp. 724-732 (unconscionability). 1022 New York Convention, Art. II(3); UNCITRAL Model Law, Art. 36. See Schwenzer & Manner, ‘The Claim is Time-Barred’: The Proper Limitation Regime for International Sales Contracts in International Commercial Arbitration, 23 Arb. Int'l 293 (2007). 1023 See, e.g., Tommy C.P. Sze & Co. v. Li & Fung (Trading) Ltd, 2002 HKCU LEXIS 1634 (H.K. High Court); Glass v. Kidder Peabody & Co., 114 F.3d 446 (4th Cir. 1997) (“questions of mere delay, laches, statute of limitations, and untimeliness raised to defeat the compelled arbitration are issues of procedural arbitrability exclusively reserved for resolution by the arbitrator”); Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 121 (2d Cir. 1991) (“any limitations defense … whether stemming from the arbitration agreement, arbitration association rule, or state statute … is an issue to be addressed by the arbitrators”); Trafalgar Shipping Co. v. Int'l Milling Co., 401 F.2d 568 (2d Cir. 1968); Louis Dreyfus Corp. v. Cook Indus., Inc., 505 F.Supp. 4 (S.D.N.Y. 1980); Award in ICC Case No. 4491, 112 J.D.I. (Clunet) 966 (1985); Schwenzer & http://www.kluwerarbitration.com/CommonUI/print.aspx
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Manner, “The Claim is Time-Barred”: The Proper Limitation Regime for International Sales Contracts in International Commercial Arbitration, 23 Arb. Int'l 293 (2007). 1024 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (U.S. S.Ct. 2002); Wagner Constr. Co. v. Pacific Mech. Corp., 58 Cal.Rptr.3d 434 (Cal. 2007) (statute of limitations defense is for arbitrators to decide); O'Keefe Architects, Inc. v. CED Constr. Partners, Ltd, 2006 WL 2971783 (Fla. 2006); Ace USA v. Travelers Indem. Co., 2004 Conn. Super. LEXIS 3085 (Conn. Super. Ct.) (applicability of statute of limitations is presumptively for arbitral tribunal, unless court can say with “positive assurance” that parties agreed to judicial resolution). 1025 See Smith Barney v. Luckie, 85 N.Y.2d 193 (N.Y. 1995). See also N.Y. C.P.L.R. §§7502(b) & 7503. 1026 Judgment of 17 August 1995, 14 ASA Bull. 673 (Swiss Federal Tribunal) (1996). 1027 Ibid. 1028 Friedland, Swiss Supreme Court Sets Aside An ICC Award, 13(1) J. Int'l Arb. 111 (1996); Karrer & Kaelin-Nauer, Is There a Favor Iurisdictionis Arbitri? – Standards of Review of Arbitral Jurisdiction Decisions in Switzerland, 13(3) J. Int'l Arb. 31 (1996); Knoepfler & Schweizer, Jurisprudence suisse en matière d'arbitrage international, 1996 Rev. Suisse Droit Int'l & Droit Euro. 573. The Swiss Federal Tribunal's decision treated the parties' agreement as imposing a specified period during which arbitral proceedings had to be commenced, rather than deadlines before which claims must be asserted. Although the issue is a matter of contract, the better interpretation of such provisions is ordinarily as imposing “cooling off” or negotiating periods during which arbitral proceedings should not be commenced. See infra pp. 841-846 for a discussion of such “cooling off” provisions.
Formation, Validity and Legality of International Arbitration Agreements - F. The Non-Arbitrability Doctrine Chapter 5 Gary B. Born
Author Gary B. Born
F. The Non-Arbitrability Doctrine (1029) Another basis for challenging the enforceability of an international arbitration agreement is that the agreement is sought to be applied to matters which are not page "766" “arbitrable.” In some jurisdictions, this defense is referred to as “objective arbitrability,” (1030) while, in other jurisdictions, it is termed the “non-arbitrability” http://www.kluwerarbitration.com/CommonUI/print.aspx
Source Formation, Validity and Legality of International Arbitration Agreements - F. The NonArbitrability Doctrine in Gary B. Born , Page 792 of 3'270
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doctrine. (1031) Each of these terms refers to subjects or disputes which are deemed by a particular national law to be incapable of resolution by arbitration, even if the parties have otherwise validly agreed to arbitrate such matters. Both international arbitration conventions and national law provide that agreements to arbitrate such “non-arbitrable” matters need not necessarily be given effect (1032) and that arbitral awards concerning such matters need not necessarily be recognized. (1033)
International Commercial Arbitration, (Kluwer Law International 2009) pp. 766 - 841
1. Introduction Arbitration legislation or judicial decisions in many states provide that particular categories of disputes are not capable of settlement by arbitration. These disputes are treated as non-arbitrable or not objectively arbitrable, relieving states from otherwise applicable obligations to recognize and enforce agreements to arbitrate such disputes. page "767" a. Nature of Non-Arbitrability Doctrine The non-arbitrability doctrine has deep roots and a reasonably welldefined character, both historically and in different contemporary national legal systems. In one commentator's words: “All jurisdictions put limits on what can be submitted to arbitration. Customary law in Homeric Greece as in modern Papua Guinea would allow a dispute arising from a killing to be settled by arbitration; but … not sacrilege in Greece, nor adultery in parts of Papua New Guinea … or in Rome.” (1034) The New York Convention and other international arbitration conventions recognize, and permit Contracting States to apply, nonarbitrability exceptions of this nature. Although the better view is that the Convention imposes limits on Contracting States' applications of the non-arbitrability doctrine, (1035) the types of claims that are nonarbitrable differ from nation to nation. Among other things, classic examples of non-arbitrable subjects include certain disputes concerning consumer claims; criminal offenses; labor or employment grievances; intellectual property; and domestic relations. (1036) The types of disputes which are non-arbitrable nonetheless almost always arise from a common set of considerations. The nonarbitrability doctrine rests on the notion that some matters so pervasively involve public rights, or interests of third parties, which are the subjects of uniquely governmental authority, that agreements to resolve such disputes by “private” arbitration should not be given effect. This rationale was summarized, in evocative terms, by one U.S. appellate court: “A claim under the antitrust laws is not merely a private matter … Anti-trust violations can affect hundreds of thousands – perhaps millions – of people and inflict staggering economic damage … We do not believe Congress intended such claims to be resolved elsewhere than in the courts.” (1037) http://www.kluwerarbitration.com/CommonUI/print.aspx
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The court explained that the relevant statute, the Sherman Act, “is designed to promote the national interest in a competitive economy” and equated a private litigant asserting antitrust claims under the provisions of the Act with an agent of the government, reasoning “thus, the plaintiff asserting his rights under the Act has been likened to a private attorney-general who protects the public's interest.” (1038) page "768" Other explanations of the rationale for the doctrine are similar. (1039) The non-arbitrability doctrine contemplates a peculiar, and limited, type of unenforceability of valid arbitration agreements. When an arbitration agreement is invalid for lack of consent, non-compliance with form requirements, duress, or mistake, then the agreement is invalid: the agreement is not binding or enforceable upon the parties in any circ*mstances. In contrast, as discussed in greater detail below, the non-arbitrability doctrine provides that an otherwise valid arbitration agreement may not be given effect as applied to a particular “dispute” or “subject matter.” (1040) The focus of analysis is on the particular dispute or claim, not on the terms of the parties' arbitration agreement. b. Distinction Between Non-Arbitrability and Substantive Validity or Illegality A rule of non-arbitrability is distinguishable in important ways from a rule of substantive validity of an arbitration agreement. (1041) There are a number of key differences between the two rules. First, the two types of rules arise from different types of legal sources. Issues of substantive validity are defined by generallyapplicable contract law principles (i.e., unconscionability, frustration, mistake), while issues of non-arbitrability are defined by legislation directed specifically at application of the arbitration agreement to particular types of disputes (i.e., certain categories of consumer, bankruptcy, or criminal legislation) without regard to the terms of the parties' agreement. Rules of substantive validity are derived (and, under the Convention, must be derived (1042) ) from generallyapplicable principles of contract formation and validity, while rules of non-arbitrability are based on specific statutory enactments directed at agreements to arbitrate. Second, a decision that a particular dispute is non-arbitrable is fundamentally different in character from a decision that an agreement to arbitrate is invalid. Application of a rule of contractual invalidity generally results in the arbitration agreement being held invalid, including as applied to all categories of disputes: an page "769" unconscionable or forged arbitration agreement is invalid no matter what issues a party seeks to arbitrate. In contrast, a rule of non-arbitrability generally results in a valid agreement to arbitrate being unenforceable as to a particular dispute or category of disputes: an agreement to arbitrate franchise disputes can be valid, but claims for termination of the franchise contract falling within that arbitration agreement can nonetheless be non-arbitrable. (1043)
Finally, as also discussed above, the non-arbitrability doctrine involves a fundamentally different choice-of-law analysis than issues of substantive contractual validity. (1044) Specifically, Article V(1)(a) http://www.kluwerarbitration.com/CommonUI/print.aspx
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provides a uniform choice-of-law rule for issues of substantive validity, while Article V(2)(a) establishes an exceptional escape mechanism which allows individual states to give effect to local public policy. (1045) As a consequence, the effects of a nonarbitrability decision are considerably more limited than a decision of substantive invalidity. The non-arbitrability doctrine is closely related to the illegality of the arbitration agreement. As discussed above, there are limited circ*mstances in which an agreement to arbitrate will be illegal and unenforceable. (1046) In many instances, legislation forbidding the enforcement of arbitration agreements will properly be categorized as an application of the non-arbitrability principle: the legislation will forbid arbitration of a particular category of disputes (i.e., franchise, patent, or distribution disputes). (1047) True cases of illegal arbitration agreements will involve cases where the parties seek to use arbitration as a means to accomplish an illegal purpose (i.e., money laundering), where generally-applicable legal prohibitions under national criminal legislation are applied specifically to a particular arbitration agreement. c. Distinction Between Non-Arbitrability and Mandatory Law or Public Policy The non-arbitrability doctrine is also closely related to – but distinguishable from – principles of mandatory law and public policy. (1048) As discussed elsewhere, most page "770" developed legal systems treat a limited set of legal rules, based on fundamental public policies, as mandatory: despite general acceptance of party autonomy, parties are ordinarily not permitted to derogate by agreement from the content of these rules, or their underlying public policies, whether with regard to their choice of substantive law, (1049) their choice of the procedural law of the arbitration, (1050) their choice of arbitral procedures, (1051) or their basic agreement to arbitrate. (1052) The mandatory law principle parallels the non-arbitrability doctrine: despite the parties' general autonomy to agree to arbitrate their disputes, their agreements to arbitrate may be unenforceable as applied to certain, limited categories of issues in some jurisdictions. Thus, the non-arbitrability doctrine rests on legal rules that, much like the mandatory law doctrine's invalidation of private agreements, preclude recognition of an arbitration agreement or award, notwithstanding an otherwise valid agreement and arbitral proceeding. In both instances, the rationale rests on the premise that there are unacceptable conflicts between the arbitral award or arbitration agreement and basic legal norms and public policies of a particular state, which that state is permitted, exceptionally, to invoke to justify non-recognition of an otherwise valid award or agreement. As noted elsewhere, classic examples include certain issues arising in criminal, domestic relations, bankruptcy, real property and governmental sanctions matters. (1053) Nonetheless, the concepts of non-arbitrability and mandatory law are distinguishable. In particular, although mandatory law requires that particular substantive rules be applied, it does not necessarily preclude the arbitrability of those mandatory law claims. As discussed below, this is a question of legislative intent (and conflict http://www.kluwerarbitration.com/CommonUI/print.aspx
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of laws). (1054) If a legislature does not preclude arbitration of a mandatory law provision, then agreements to arbitrate such matters will be valid and enforceable. That is, merely because a dispute involves matters of mandatory law or public policy does not necessarily mean that the dispute is non-arbitrable – and in practice mandatory law claims are frequently arbitrated. (1055) page "771" The foregoing observations are reflected in the provisions of Article V of the New York Convention. Apart from other grounds for nonrecognition of arbitral awards, Article V(2) of the Convention sets forth two exceptional bases for non-recognition – the public policy of the enforcement forum (in Article V(2)(b)) and the non-arbitrability rules of the enforcement forum (in Article V(2)(a)). (1056) Thus, Article V(2)(a) of the New York Convention provides for the nonrecognition of awards dealing with non-arbitrable matters (i.e., matters “not capable of settlement by arbitration”), (1057) while Article V(2)(b) provides that awards need not be recognized if doing so “would be contrary to the public policy” of the state where recognition is sought. (1058) The separate treatment of issues of public policy and non-arbitrability within Article V(2)'s “escape” provisions, rather than under the general provisions of Article V(1), both reflects and confirms their common, and exceptional, character. At the same time, Article V(2) treats public policy and nonarbitrability in separate sub-sections. This reflects the fact that public policy objections to an award are also distinct from the nonarbitrability doctrine. That is consistent with applications of the two principles: the public policy doctrine provides that certain results reached by arbitral awards contradict public policy and cannot be recognized, while the non-arbitrability doctrine provides that the arbitral process itself cannot be used to produce a binding decision in particular cases (regardless what its results are). (1059) 2. Non-Arbitrability in International Conventions The non-arbitrability doctrine has long been acknowledged in international arbitration conventions. Article 1 of the Geneva Protocol provided for the recognition of international arbitration agreements concerning “commercial matters or … any other matter capable of settlement by arbitration.” (1060) This formulation served as a model for subsequent international arbitration treaties. (1061) a. New York Convention Drawing on the Geneva Protocol, Article II(1) of the New York Convention provides that an international arbitration agreement shall be recognized if it “concern[s] a page "772" subject matter capable of settlement by arbitration.” (1062) Similarly, Article V(2)(a) of the Convention provides that an arbitral award need not be recognized or enforced if “[t]he subject matter of the difference is not capable of settlement by arbitration under the law” of the country where recognition is sought. (1063) Together, these provisions permit the assertion of “non-arbitrability” defenses to the recognition and enforcement of otherwise valid and binding international arbitration agreements and awards under the Convention. http://www.kluwerarbitration.com/CommonUI/print.aspx
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b. European and Inter-American Conventions Other international arbitration conventions contain non-arbitrability provisions that are almost identical to those in the New York Convention. Article VI(2) of the European Convention provides: “The courts may also refuse recognition of the arbitration agreement if under the law of their country the dispute is not capable of settlement by arbitration.” (1064) Consistent with the exceptional character of the non-arbitrability doctrine, Article VI(2) provides only a limited recognition of the doctrine, in those courts where “under the law of their country,” the dispute is non-arbitrable. In contrast, Article 5(2)(a) of the Inter-American Convention does not refer to non-arbitrability in the context of arbitration agreements and provides only for the non-recognition of arbitral awards where “the subject of the dispute cannot be settled by arbitration under the law of that State.” (1065) The Convention does not expressly provide for the non-recognition of arbitration agreements in such circ*mstances; on the contrary, Article 1 provides broadly that “an agreement in which the parties undertake to submit to arbitral decision any differences that may arise or have arisen between them with respect to a commercial transaction is valid,” (1066) without express reference to any “non-arbitrability” exception. (1067) c. “Subject Matter Is Not Capable of Settlement by Arbitration” It is not entirely clear what the Geneva Protocol, New York Convention and European Conventions mean when they refer to a subject matter or dispute “not page "773" capable of settlement by arbitration.” As a factual and logistical matter, it would be possible to settle almost any dispute by arbitration: different cultures have arbitrated all manner of disputes, including criminal, family, inheritance, intellectual property and other matters. (1068) There might be situations where indispensable evidence was physically unavailable, preventing any meaningful decision, or where none of the parties could participate in arbitral proceedings. Even these (very) unusual circ*mstances would not, however, fall comfortably within the exception in Article V(2)(a) of the New York Convention for issues “not capable of settlement by arbitration” and would instead more readily be covered by Article II(3)'s exception for arbitration agreements that are “incapable of being performed.” (1069) Instead, Article V(2)(a)'s exception for issues that are “not capable of settlement by arbitration” has almost uniformly been applied where there is a legal (as distinguished from a factual or practical) impediment to arbitration. That is, most authorities hold that a matter is “not capable of settlement by arbitration” where national law forbids or restricts the arbitrability of particular claims or disputes. (1070) This is also consistent with the Geneva Protocol, which provided for the recognition of arbitration agreements concerning “commercial matters or … any other matter capable of settlement by arbitration” (1071) – a formula fairly clearly directed at legal “incapability,” particularly given historic national law rules regarding the arbitrability of commercial and non-commercial matters. (1072) d. International Limits on Non-Arbitrability Doctrine
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As discussed above, Articles II(1) and V(2)(a) of the New York Convention contemplate that Contracting States may exceptionally apply their own law to refuse enforcement of an otherwise valid and binding arbitration agreement or award on non-arbitrability grounds. That is a form of “escape valve” which is available without regard to the otherwise applicable choice-of-law rule set forth in Article V(1)(a) of the Convention with regard to arbitration agreements. (1073) Importantly, as also discussed elsewhere, the Convention should also be interpreted to subject application of the non-arbitrability doctrine by Contracting States to international limitations. page "774" In particular, consistent with the non-arbitrability doctrine's status as an exceptional dispensation from the Convention's basic structure, choice-of-law regime and purposes, Contracting States should be permitted to adopt non-arbitrability exceptions only when narrowly-tailored to achieve specifically-defined, articulated public policies which are not inconsistent with state practice under the Convention. (1074) 3. Non-Arbitrability in National Arbitration Legislation National arbitration legislation and judicial decisions have long provided that there are limits, albeit very narrow ones, on the subject matters and disputes that may be subject to an enforceable agreement to arbitrate. As discussed below, these limits differ from state to state, although they all arise from a common set of concerns regarding the use of arbitration to resolve “public” disputes entailing the exercise of uniquely governmental authority. The non-arbitrability limits that exist under national law have evolved materially over time, with historic skepticism about the arbitral process's ability to resolve particular categories of disputes eroding substantially in recent decades. This erosion has progressed to the point that most developed jurisdictions now impose only narrow limits on the subjects that may be arbitrated. a. Non-Arbitrability: International v. Domestic Preliminarily, it is essential in considering non-arbitrability issues to distinguish between matters which are non-arbitrable in a domestic context and those which are non-arbitrable in an international context. In many jurisdictions, non-arbitrability rules are broader in domestic than in international matters. (1075) As the U.S. Supreme Court reasoned, in one early decision adopting a narrow view of non-arbitrability under the New York Convention, it is “necessary for national courts to subordinate domestic notions of arbitrability to the international policy favoring commercial arbitration.” (1076) Under this analysis, the fact that a particular matter is non-arbitrable in a domestic setting under a particular national law does not necessarily mean that it will be non-arbitrable in an international setting: rather, local non-arbitrability rules are often interpreted as applicable only in domestic matters. The rationale for this conclusion has been that, in international cases, national conceptions of public policy and mandatory law should be moderated, in light of the existence of competing public policies of other states and the shared international policy of encouraging the resolution of international commercial disputes through arbitration. page "775" Consistent (1077) with this, and as discussed below, U.S., French (1078) and other national courts, (1079) as well as a substantial body of http://www.kluwerarbitration.com/CommonUI/print.aspx
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commentary, (1080) have distinguished between non-arbitrability in international and domestic contexts. In general, the question whether a particular international dispute is or is not arbitrable will be a question of national law, with the international character of the dispute affecting the interpretation and application of local law. (1081) In addition, as also discussed below, there are instances in which the New York Convention limits the extent to which Contracting States may treat particular subjects as non-arbitrable. (1082) b. UNCITRAL Model Law: No Definition of Arbitrability The UNCITRAL Model Law does not contain any provision prescribing any particular category of disputes to be non-arbitrable. (1083) That reflects in part the recognition that, as a matter of principle, almost any dispute is capable of resolution by arbitration, (1084) and in part, the recognition that there is not yet any uniform or model international principle that would clearly designate particular disputes as non-arbitrable. (1085) Instead, paralleling Article V(2) of the New York Convention, the Model Law exceptionally leaves to individual legislatures and judiciaries in particular jurisdictions the articulation of non-arbitrability provisions (subject to international limits imposed by the New York Convention). (1086) Thus, Article 1(5) of the Model Law provides that “this Law shall not affect any other law of this State by virtue of which certain disputes may not be submitted page "776" to arbitration …” (1087) In effect, the Model Law recognizes the possibility for states to characterize, as a matter of national law, specified categories of “disputes” as non-arbitrable outside the four corners of their international arbitration statute. As discussed below, this is the approach that a number of states adopt, imposing public policy exclusions from the general scope of their arbitration legislation either on the basis of other statutes or judicial decisions interpreting such statutes. (1088) c. Swiss and German Arbitration Legislation: Broad Definition of Arbitrability Many civil law systems impose some sort of statutory restrictions on the subject-matter of valid international arbitration agreements. As discussed below, recent legislation tends to define arbitrable subjects very broadly, while earlier statutory limitations tend to be somewhat more restrictive in their definitions of arbitrable matters. (1089) In both instances, however, most provisions are drafted in broad terms, that leave much to case-by-case judicial interpretation. Thus, Article 177(1) of the Swiss Law on Private International Law provides that “any dispute involving an economic interest can be the subject-matter of an arbitration.” (1090) The term used in Article 177(1) – “property” or “economic interest” (“vermögensrechtlicher Anspruch”) – is not given a statutory definition, but was intended to be interpreted liberally. (1091) As intended, Swiss courts have interpreted page "777" Article 177(1) broadly, to permit arbitration of “any claims that have pecuniary value for the parties.” http://www.kluwerarbitration.com/CommonUI/print.aspx
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(1092)
Similarly, the 1998 German version of the UNCITRAL Model Law adopts the Swiss approach and provides that any claim for an economic interest (“vermögensrechtlicher Anspruch”) is arbitrable in arbitrations seated in Germany (absent contrary statutory provisions). (1093) A variation of this approach is to provide for the arbitrability of any matter subject to the parties' “free disposition.” (1094)
It is difficult to see how these provisions do not, at least read literally, and not qualified by other legislation, effectively render virtually all non-criminal disputes arbitrable: even issues such as divorce and marital status or the grant of intellectual property rights involve pecuniary value. Nevertheless, it is very unlikely that disputes regarding marital status or issuance of a patent would be deemed arbitrable under existing law, (1095) even in international matters. (1096) Equally, as discussed below, civil page "778" law jurisdictions retain non-arbitrability rules in specific contexts involving consumers, employees, securities purchasers, or distributors (often in response to local political considerations) which clearly involve pecuniary value. (1097) d. France: Evolution of Non-Arbitrability Doctrine In France, existing statutory restrictions on the arbitrability of disputes date to the 19th century and, read literally, would impose significant limitations on the arbitrability of disputes concerning public policy matters. With regard to domestic arbitration, Article 2059 of the French Civil Code provides that “all persons may submit to arbitration those rights which they are free to dispose of,” while Article 2060(1) provides that “[o]ne may not enter into arbitration agreements in matters of status and capacity of the persons, in those relating to divorce and judicial separation or to disputes concerning public bodies and institutions and more generally in all matters in which public policy is concerned.” (1098) Read literally, this language is problematic, most obviously because “all areas which concern public policy” is an undefined, potentially expansive field, while the mere fact that an issue “concerns” public policy (however defined) extends this category even more widely (and unpredictably). (1099) Competition, antitrust, securities law and intellectual property, as well as disputes involving state entities and regulated industries, all “concern” public policy in various ways – as do most claims in tort/delict. Nonetheless, the suggestion that all such matters are non-arbitrable does not accord with either the New York Convention or French decisions over the past several decades. (1100)
Consistent with this, French judicial decisions have progressively dispensed with the non-arbitrability provisions of Articles 2059 and 2060 in international matters. In 1961, the Orleans Cour d'appel held a claim for breach of contract non-arbitrable, where the defense relied on a legislative trade embargo, because “this dispute concerns public policy, and the arbitration agreement is void [sic] whenever the resolution of the arbitration entails interpreting and applying a rule of public policy.” (1101) This approach adopted a broad view of the non-arbitrability page "779" doctrine, http://www.kluwerarbitration.com/CommonUI/print.aspx
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apparently treating any dispute requiring interpretation and application of “public policy” standards as non-arbitrable – which could readily include most or all antitrust, securities law, trade controls, intellectual property and similar matters. Over time, French courts rejected the foregoing view. (1102) The Paris Cour d'appel held, only a few years later, that: “although it is forbidden to enter into arbitration agreements concerning disputes implicating public policy, that rule does not mean that every case which in some respect depends on regulations based on public policy will be held non-arbitrable on those grounds.” (1103) Subsequently, French courts concluded that Articles 2059 and 2060 of the Civil Code do not apply to international arbitration agreements. (1104) Thereafter, in 1991, the Paris Cour d'appel held that, in the international context, claims of illegality and violations of public policy could be arbitrated, including where they involved the validity of the parties' contract. The Court reasoned: “in international arbitration, an arbitrator … is entitled to apply the principles and rules of public policy and to grant redress in the event that those principles and rules have been disregarded … [A]s a result, except in cases where the non-arbitrability is a consequence of the subject-matter – in that it implicates international public policy and absolutely excludes the jurisdiction of the arbitrators because the arbitration agreement is void – an international arbitrator, whose functions include ensuring that international public policy is complied with, is entitled to sanction conduct which is contrary to the good faith required in relations between partners in international trade.” (1105) page "780" The same analysis was applied by the Paris Cour d'appel in 1993, which upheld the validity of an international arbitration agreement as applied to civil claims arising under EU competition law: “if the character of the economic policy of Community competition law rules prohibits arbitrators from granting injunctions or levying fines, they may nonetheless assess the civil consequences of conduct held to be illegal with respect to public order rules that can be directly applied to the parties' relations.…” (1106)
More recently, French courts have upheld the arbitrability of competition law (and other public law) claims in emphatic terms. (1107)
The result of the past four decades' judicial developments in France has been a substantial retrenchment of non-arbitrability limits in the international context. (1108) Notwithstanding potentially expansive (and archaic) non-arbitrability provisions of the Civil Code, and almost equally expansive historic judicial interpretations of those provisions, French courts have progressively narrowed the scope of http://www.kluwerarbitration.com/CommonUI/print.aspx
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non-arbitrable matters. The end result is that they have apparently categorized matters as non-arbitrable only where mandatory statutory text expressly requires this result. e. U.S. Federal Arbitration Act: Evolution of Non-Arbitrability Doctrine Developments in the United States over the past several decades have been very similar to those in France, albeit with their own accent. The text of the FAA does not address the subject of arbitrability, either directly or by implication. (1109) Both historically and today, questions whether or not a particular dispute is arbitrable under U.S. law turn almost entirely on judicial interpretation of other statutes (e.g., antitrust or securities legislation), most of which do not expressly address issues of arbitrability. Until the 1980s, federal law in the United States treated a substantial number of claims as non-arbitrable. The U.S. Supreme Court's first modern treatment of page "781" the non-arbitrability doctrine (1110) was Wilko v. Swan. There, an investor brought a damages action in federal district court against his brokers for alleged misrepresentations under the federal securities laws (which were designed to protect investors). The Supreme Court rejected the defendants' application to stay the action, based upon an arbitration clause, reasoning that Congress “has enacted the Securities Act to protect the rights of investors and has forbidden a waiver of any of those rights, by means of a specific statutory anti-waiver provision.” (1111) The Court concluded that: “[r]ecognizing the advantages that prior agreements for arbitration may provide for the solution of commercial controversies, we decide that the intention of Congress concerning the sale of securities is better carried out by holding invalid such an agreement for arbitration of issues arising under the Act.” (1112) Relying on Wilko, U.S. lower courts fashioned a variety of applications of the non-arbitrability doctrine during the 1960s and 1970s, predominantly in domestic cases, designed to protect perceived U.S. public values or legislative objectives. Claims touching on patent rights were deemed to involve the public interest, and thus to be inappropriate for arbitration. (1113) Likewise, courts concluded that a wide variety of other federal statutory claims, including federal antitrust, (1114) Racketeer-Influenced Corrupt Organizations Act (“RICO”), (1115) bankruptcy, (1116) page (1117) "782" Carriage of Goods by Sea Act (“COGSA”) and race (1118) discrimination claims, were “too important” to be left to “private” arbitration. In many of these cases, the U.S. courts emphasized the “public” rights at issue and the perceived inability of the arbitral process satisfactorily to resolve disputes concerning such rights. (1119) Although many of these decisions occurred in the domestic context, U.S. courts generally applied the same nonarbitrability principles to international arbitration agreements. (1120) During the 1970s and 1980s, however, U.S. courts moved decisively to limit the non-arbitrability doctrine in a wide range of areas, beginning with international arbitration agreements, but subsequently extending to the domestic context (as also occurred at http://www.kluwerarbitration.com/CommonUI/print.aspx
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the same time in France (1121) ). In Scherk v. Alberto-Culver Co., decided in 1974, the U.S. Supreme Court distinguished Wilko and held that claims under the federal securities laws were arbitrable, provided they arose from an “international” transaction. (1122) Thereafter, in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., the Court held that federal antitrust claims were also arbitrable, again provided that they arose from an “international” transaction. (1123)
page "783" In both cases, the Court stressed the importance of the United States' (and other Contracting States') commitment to the New York Convention: “A parochial refusal by the courts of one country to enforce an international arbitration agreement would not only frustrate [the Convention's] purposes, but would invite unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages.” (1124) Likewise, the Court in Mitsubishi Motors emphasized “the utility of forum selection [sic] clauses in international transactions.” (1125) It also stressed that “adaptability and access to expertise are hallmarks of arbitration,” (1126) and that “there is no reason to assume at the outset of the dispute that international arbitration will not provide an adequate mechanism” (1127) to enforce the U.S. antitrust laws. Using language that has subsequently been repeatedly cited by proponents of international arbitration, the Court reasoned: “The utility of the [New York] Convention in promoting the process of international commercial arbitration depends upon the willingness of national courts to let go of matters they normally would think of as their own.” (1128) As a consequence, the Court declared that “it will be necessary for national courts to subordinate domestic notions of arbitrability to the international policy favoring commercial arbitration.” (1129) Given these considerations, the U.S. Supreme Court's Mitsubishi Motors opinion formulated a demanding standard for holding a statutory claim non-arbitrable: “We must assume that if Congress intended the substantive protection afforded by a given statute to include protection against waiver of the right to a page "784" judicial forum, that intention will be deducible from text or legislative history.” (1130) The Court also said that claims will be deemed arbitrable unless Congress “expressly directed” a contrary result. (1131) (This general approach of restraint and confidence in the international arbitral process has also found favor outside the United States, (1132) as well as in better-reasoned academic commentary. (1133) ) More recently, the U.S. Supreme Court expressly overruled Wilko v. Swan, holding that claims – either domestic or international – under both RICO legislation and the Securities Exchange Act are http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitrable. (1134) In another decision, after remarking that “[i]t is by now clear that statutory claims may be the subject of an arbitration agreement,” (1135) the Court held that claims under the Age Discrimination in Employment Act are arbitrable. (1136) Similarly, with little debate, lower U.S. courts have extended Mitsubishi beyond international matters and permitted the arbitration of antitrust claims in purely domestic matters. (1137) In sum, as in France, the past four decades have witnessed a substantial evolution of the non-arbitrability doctrine in the United States. In contrast to a relatively expansive, judicially-created nonarbitrability doctrine in the early 1970s, most categories of statutory (and other) claims are now treated as arbitrable, and a claim will only be deemed non-arbitrable under the FAA's statutory regime where federal legislation expressly requires this result. (1138) This is particularly true in international contexts, but also increasingly applicable in domestic settings. page "785" f. Other Jurisdictions Legislation in other developed jurisdictions adopts broadly comparable approaches to the topic of non-arbitrability, with only a few exceptions. The English Arbitration Act, 1996, is entirely silent concerning the subject of non-arbitrability. Although few reported cases have addressed the issue, English courts have had little sympathy for attempted non-arbitrability arguments: in one recent decision, the court affirmed the arbitrability of competition law claims in unhesitating, almost dismissive, terms. (1139) The English High Court has also rejected arguments that minority shareholder claims under the Companies Act are non-arbitrable. (1140) Decisions in other developed jurisdictions are broadly comparable in their treatment of non-arbitrability issues. (1141) In New Zealand's enactment of the Model Law, non-arbitrability is statutorily-framed in very limited terms: “Any dispute which the parties have agreed to submit to arbitration under an arbitration agreement may be determined by arbitration unless the arbitration agreement is contrary to public policy or, under any other law, such a dispute is not capable of determination by arbitration.” (1142) Likewise, Article 806 of the Italian Code of Civil Procedure provides that: “The parties may have disputes which have arisen between them decided by arbitrators provided the subject matter does not concern rights which may not be disposed of, except in case of express prohibition by law. Disputes provided for in Article 409 [certain labor disputes] may be decided by arbitrators only if so provided by law or by collective labor contracts or agreements.” (1143) Again, this is a narrow definition of the non-arbitrability doctrine, reflecting contemporary confidence in the arbitral process. Other national arbitration legislation in developed jurisdictions is similar to these statutory approaches. (1144) page "786" Arbitral tribunals have reached similar conclusions. In one wellhttp://www.kluwerarbitration.com/CommonUI/print.aspx
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publicized arbitration, an Indonesian party argued that Indonesian law provided for the non-arbitrability of claims of termination of a contract, absent an express and specific waiver of recourse to national courts. (1145) Not surprisingly, the argument was rejected out of hand by the arbitral tribunal as “extraordinarily perverse.” (1146)
Despite the overwhelming weight of authority, particularly in recent years, there are occasional decisions holding particular matters nonarbitrable. A recent Australian decision held a claim that contractual licensing arrangements between two parties were “unfair,” in breach of §106 of the Australian Trade Practices Act, 1986, was not capable of settlement by arbitration. (1147) The Australian decision (by an administrative appellate tribunal) reasoned that: “the subject matter of the proceedings under [the Industrial Relations Act] concerns the fairness of the licensing agreement having regard to its alleged representations and the provisions dealing with the termination of the agreement. We are satisfied that this is not a matter ‘that is … capable of settlement by arbitration’ … An ‘unfair contract’ is defined firstly as a contract which is ‘unfair, harsh or unconscionable,’ but also includes page "787" contracts which are ‘against the public interest’ or which provides remuneration less than that available to an employee or which are designed to avoid an industrial instrument[, which are not capable of application by arbitral tribunals].” (1148) This reasoning is an anomaly, reminiscent of 19th century decisions, denying the parties' autonomy to resolve their disputes by arbitration, and contrary to both modern conceptions of arbitrability and the obligations imposed by Article II of the New York Convention. (1149) A similarly misconceived conclusion was reached by a Pakistani decision, holding that claims of fraud are nonarbitrable. (1150) 4. Applications of the Non-Arbitrability Doctrine There is a substantial body of national case law and international arbitral authority addressing claims of non-arbitrability in different contexts. As already outlined, judicial and legislative decisions over the past several decades have progressively narrowed the scope of the non-arbitrability doctrine and the subjects which are considered to be non-arbitrable. (1151) This reflects growing experience of national courts with, and confidence in, the international arbitral process, which is increasingly regarded as capable of settling virtually every type of transnational civil dispute. As discussed above, in many cases, national legislation does not expressly address the subject of non-arbitrability – particularly in international matters. (1152) U.S. and EU antitrust/competition laws are leading examples, where neither statutory instrument makes any reference to arbitration. (1153) In these circ*mstances, national courts must resolve issues of non-arbitrability by reference to implied legislative intent and the competing policies of the New York Convention (and national arbitration legislation) and a particular http://www.kluwerarbitration.com/CommonUI/print.aspx
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regulatory regime.
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In doing so, courts in different jurisdictions have typically considered a common core of recurrent factors. These include the “public values” or “public interests” at issue, (1154) the extent to which arbitral procedures (as distinguished from judicial or administrative procedures) are suited to resolution of the dispute, (1155) whether such disputes involve unacceptable, systemic disparities of bargaining power between the parties, (1156) the effect of a decision on third party rights, (1157) the ability of an page "789" arbitral (1158) tribunal to grant legislatively-mandated relief and (most (1159) generally) legislative intent. The premise of contemporary non-arbitrability analysis, however, is that arbitral tribunals have the competence to consider and satisfactorily decide disputes involving “public law” claims reflecting important national and international public policies. (1160) Moreover, national courts have held with increasing clarity and conviction that “non-arbitrability” is an exception to Article II of the New York Convention, which should be interpreted very narrowly – with particular care being taken to prevent local parochialism from undermining the Convention's purposes. Again, the U.S. Supreme Court captured these perspectives well when it reasoned in Mitsubishi: “There is no reason to assume at the outset of the dispute that international arbitration will not provide an adequate mechanism.… The utility of the Convention in promoting the process of international commercial arbitration depends upon the willingness of national courts to let go of matters they normally would think of as their own … [W]e decline to subvert the spirit of the United States' accession to the Convention by recognizing subject matter exceptions where Congress has not expressly directed the courts to do so.” (1161) This analysis is best considered as reflecting a mandatory obligation, arising from the structure and purposes of the Convention (i.e., “utility of the Convention” and page "790" “spirit of the United States' accession”), rather than a purely voluntary decision. (1162) Consistent with this view, most recent national judicial decisions have been unwilling to hold matters non-arbitrable in international cases absent clear legislative direction. As detailed below, this legislative direction is not present in the vast majority of settings. a. Antitrust and Competition Claims The development of the non-arbitrability doctrine in the context of competition law claims is a paradigm for the doctrine's broader application. During the early decades after such legislation was enacted, U.S. (1163) and European (1164) courts consistently held that antitrust claims were non-arbitrable, as did (less clearly) arbitral tribunals. (1165) One U.S. court explained the non-arbitrability of antitrust claims as follows: “The reasoning is fourfold: (1) governance of the realm http://www.kluwerarbitration.com/CommonUI/print.aspx
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of antitrust law, so vital to the successful functioning of a free economy, is delegated by statute to both government and private parties, the latter being given special incentive to supplement efforts of the former, the work of both being equally the grist of judicial decisions, (2) the strong possibility that contracts which generate antitrust disputes may be contracts of adhesion militates against automatic forum determination by contract; (3) antitrust issues are – an understatement – ‘prone to be complicated, and the evidence extensive and diverse,’ and, page "791" we may add, the economic data subject to rigorous analysis dictated by a growing and increasingly sophisticated jurisprudence, with the subject correspondingly ill-adapted to strengths of the arbitral process, i.e., expedition, minimal requirements of written rationale, simplicity, resort to basic concepts of common sense and simple equity; and (4) the notion, suggestive of the proposition that issues of war and peace are too important to be vested in the generals, that decisions as to antitrust regulation of business are too important to be lodged in arbitrators chosen from the business community – particularly those from a foreign community that has had no experience with or exposure to our law and values.” (1166) This general approach prevailed for nearly half a century, following the enactment of the FAA, in the United States, and for several decades following the enactment of modern competition laws in Europe. In the mid-1980s, however, judicial and legislative attitudes began to shift. This occurred in parallel in a number of developed jurisdictions, including the United States, the European Union, France and elsewhere. i. U.S. Antitrust Laws As discussed above, in Mitsubishi Motors, the U.S. Supreme Court held that, in international matters, federal antitrust claims could be validly subjected to an arbitration agreement. (1167) Refusing to follow a uniform body of lower court authority holding antitrust claims non-arbitrable in the domestic context, (1168) the Supreme Court held that, absent clear legislative direction, it would not conclude that statutory antitrust claims were non-arbitrable in the international context. (1169) In the wake of page "792" Mitsubishi, U.S. courts repeatedly held antitrust claims arbitrable in both international and domestic cases. (1170) The Mitsubishi Court nonetheless acknowledged the public importance of antitrust claims. It made clear that U.S. courts would take a “second look” at an arbitral tribunal's decision applying the antitrust laws at the stage of award enforcement: “Having permitted the arbitration to go forward, the national courts of the United States will have the opportunity at the award enforcement stage to ensure that the legitimate interest in the enforcement of the antitrust laws has been addressed.” (1171) The content of this “second look” doctrine is discussed below. (1172) Of course, arbitrators may not exercise uniquely governmental or http://www.kluwerarbitration.com/CommonUI/print.aspx
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administrative functions. An arbitral tribunal may not purport to approve (or disapprove) a merger, grant antitrust immunity, or conduct a criminal investigation. These are matters reserved to governmental regulatory authorities (e.g., the U.S. Department of Justice's Antitrust Division), and cannot be the subject of arbitral authority. page "793" ii. EU Competition Laws In parallel with developments in the United States, a series of judicial decisions in Europe during the past three decades held that EU competition claims are arbitrable (subject to subsequent judicial review). Early judicial decisions and arbitral awards raised questions regarding the arbitrability of EU competition claims. (1173) As in the United States, however, attitudes shifted substantially in the late 20th century. In Eco Swiss China Time Ltd v. Benetton Int'l NV, (1174) the European Court of Justice (“ECJ”) made clear in dicta that an arbitration agreement could validly be given effect with respect to EU competition claims (subject to judicial review of any resulting award). (1175) More explicitly, national court decisions in France, Switzerland, Germany, Italy, Sweden and England have held that EU and Member State competition law claims may validly be the subject of an international arbitration agreement. (1176) At the same time, both the ECJ and Member States' courts have page "794" emphasized that arbitral awards deciding EU competition law claims will be subject to subsequent judicial review, (1177) broadly analogous to that under Mitsubishi's “second look” doctrine in the United States. (1178) iii. Other National Competition Laws Likewise, decisions outside the United States and the EU have rejected arguments that particular competition law claims are nonarbitrable, including in Australia, New Zealand and Canada. (1179) As one court reasoned with respect to Australia's competition law, “there is no reason in principle why the parties to a commercial contract cannot agree to submit to arbitration disputes which have arisen between them in relation to their rights and obligations under the Trade Practices Act. Indeed, it is consistent with the modern policy of encouragement of various forms of alternative dispute resolution, including arbitration, mediation and conciliation, that courts should facilitate, rather than impede, agreements for the private resolution of all forms of dispute, including disputes involving claims under statutes such as the Trade Practices Act.” (1180) page "795" In contrast, there are virtually no reported contemporary decisions holding competition claims non-arbitrable. iv. Arbitral Awards
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Consistent with developments in national courts, arbitral tribunals have uniformly affirmed their power to entertain and decide competition law disputes. (1181) Indeed, there appears to be no reported instance in the past three decades where an arbitral tribunal has held that an antitrust or competition law claim is nonarbitrable. v. “Second Look” Doctrine and Judicial Review of Arbitral Awards At the same time they have recognized the arbitrability of antitrust/competition law claims, national courts have emphasized that arbitral awards dealing with competition law issues will be subject to subsequent judicial review. As noted above, in Mitsubishi Motors, the U.S. Supreme Court adopted a so-called “second look” doctrine, reasoning that “[h]aving permitted the arbitration to go forward, the national courts of the United States will have the opportunity at the award enforcement stage to ensure that the legitimate interest in the enforcement of the antitrust laws has been addressed.” (1182) Likewise, in Eco Swiss, the ECJ made clear that Article 81 of the EU Treaty is a matter of public policy and that: “a national court to which application is made for annulment of an arbitration award must grant that application if it considers that the award in question is in fact contrary to Article 81 EC (ex. Art 85) where its domestic rules of procedure require it to grant an application for annulment founded on failure to observe national rules of public policy.” (1183) page "796" In this context, the ECJ held that “the ordinary courts may have to examine those questions [of Community law], in particular during review of the arbitration award, which may be more or less extensive depending on the circ*mstances.” (1184) In both the United States and EU, national courts thus retain the opportunity to take a so-called “second look” at the application of the competition laws by the arbitrators. (1185) The nature and extent of this subsequent judicial review is unsettled: in particular, it is unclear to what extent national courts can (or must) reexamine the substantive merits of the arbitrator's decisions on competition law matters. This issue is discussed below. (1186) vi. Advance Waivers of Antitrust and/or Competition Law Claims Some national courts have also indicated that they may not give effect to dispute resolution arrangements that produce advance waivers of statutory antitrust and competition law protections. In Mitsubishi Motors, the U.S. Supreme Court reasoned in a footnote that “in the event the choice-of-forum and choice-of-law clauses operated in tandem as a prospective waiver of a party's right to pursue statutory page "797" remedies for antitrust violations, we would have little hesitation in condemning the agreement as against public policy.” (1187) The Court's rationale was that parties could validly agree to submit their antitrust claims to international http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration, but not to entirely waive those claims in advance. As discussed below, subsequent U.S. decisions have concluded that this qualification concerning advance waivers of statutory rights is relatively narrow and does not sanction expansive application of notions of non-arbitrability or public policy. (1188) (1). No Interlocutory Judicial Decision on Non-Arbitability First, some U.S. courts have held that, if it is unclear whether the arbitral tribunal will actually apply U.S. antitrust laws, then the appropriate course is to stay U.S. litigation and allow the arbitration to proceed, rather than assuming that the arbitrators will not consider antitrust claims. (1189) The U.S. Supreme Court recently adopted a similar view, in a related context, requiring arbitration of a domestic RICO claim: “since we do not know how the arbitrator will construe the remedial limitations, the questions whether they render the parties' agreements unenforceable and whether it is for courts or arbitrators to decide enforceability in the first instance are unusually abstract [, requiring submission of the matter to arbitration].” (1190) Thus, the role of U.S. courts is not to attempt to predict what the arbitral tribunal will or will not do with regard to antitrust (or other mandatory law) claims, but instead to permit the arbitration to proceed and then consider a resulting award in recognition or annulment proceedings. page "798" (2). Effect of Waiver of U.S. Statutory Rights Second, despite language in Mitsubishi condemning advance waivers, U.S. courts have also generally permitted some measure of contractual agreement between the parties regarding the law applicable to antitrust (and other statutory) claims. This is best illustrated by a series of lower court decisions upholding arbitration and choice-of-law agreements specifying English law to govern U.S. plaintiffs' claims (instead of more favorable U.S. federal securities laws, which would otherwise have applied). As discussed below, these decisions have enforced contractual dispute resolution provisions that had the effect of excluding otherwise applicable U.S. federal securities law, provided that the selected foreign law provided comparable substantive protections. (1191) The same analysis should apply to U.S. federal antitrust claims. (3). Effect of Waiver or Loss of Statutory Damage Claims Third, it is unclear how U.S. courts will treat arbitration agreements or awards involving claims for statutory damages in excess of compensatory damages (i.e., treble damages under the U.S. antitrust or RICO legislation). In Shearson/American Express Inc. v. McMahon, (1192) the U.S. Supreme Court rejected the argument that RICO claims were non-arbitrable because of the availability of treble damages in a civil RICO action. It was not clear, however, whether the Court concluded that treble damage claims could be pursued in arbitration or that they could not; the Court held only that http://www.kluwerarbitration.com/CommonUI/print.aspx
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the availability of compensatory damages in arbitration sufficed to permit enforcement of the arbitration agreement. In subsequent decisions, the Supreme Court has made clear, however, that the decision whether or not to award treble damages (or similar sorts of relief) is in the first instance for the arbitrators, subject to later judicial review in an annulment or recognition action. (1193) As noted above, under this analysis, U.S. courts are not to deny effect to arbitration agreements based upon the possibility that arbitrators may not apply mandatory U.S. statutory protections or award treble (or other) damages required by mandatory U.S. law. (1194) Moreover, lower U.S. courts have suggested page "799" that the unavailability of the same remedies in arbitral proceedings as may be available in U.S. litigation, does not prevent recognition of an award. (1195) ***** The result of the foregoing developments in most developed jurisdictions has generally been to confine the non-arbitrability doctrine, in the context of antitrust or competition law claims, to those matters as to which regulatory bodies are plainly assigned exclusive jurisdiction (e.g., granting exemptions from antitrust laws, approving mergers or other transactions). As to the civil law consequences of competition law violations between individual parties, it is now almost universally recognized in developed jurisdictions that such matters may validly be submitted to international arbitration. National courts also generally hold that subsequent judicial review of arbitral awards dealing with public policy and mandatory law claims is necessary, but the extent and nature of this review remains unsettled. (1196) b. Securities Claims Securities issuances and transactions are highly-regulated in most developed jurisdictions and frequently include provisions forbidding or limiting waivers of applicable judicial or administrative remedies. (1197) As a consequence, disputes involving securities laws and regulations not infrequently raise non-arbitrability issues. i. U.S. Securities Law The most extensive decisions concerning the arbitrability of securities law claims are in the United States, where the case law mirrors developments in the antitrust/competition field. As discussed above, the U.S. Supreme Court's 1953 decision in Wilko v. Swan held that statutory claims for securities law violations were nonarbitrable: “When the security buyer, prior to any violation of the Securities Act, waives his right to sue in court, he gives up more than would a participant in other page "800" business transactions. The security buyer has a wider choice of courts and venue. He thus surrenders one of the advantages the Act gives him …” (1198) The Wilko Court also criticized the procedures available in an http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration of securities law claims, declaring, in terms reminiscent of language used by 19th century judicial critics of arbitration, (1199) that the arbitral tribunal would receive no “judicial instructions on the law,” that their “award may be made without explanation of their reasons and without a complete record of their proceedings,” and that judicial “power to vacate an award is limited.” (1200) Despite this, only two decades later, the U.S. Supreme Court held in Scherk v. Alberto-Culver Co. that a statutory federal securities law claim was arbitrable, at least in an international arbitration subject to the New York Convention. The Court reasoned that, while a domestic securities buyer might be waiving advantages in agreeing to arbitrate, “in the context of an international contract, … these advantages become chimerical since … an opposing party may by speedy resort to a foreign court block or hinder access to the American court of the purchaser's choice.” (1201) As discussed above, the Court also stressed the significance of the New York Convention and the damage that expansive applications of the nonarbitrability doctrine by national courts would cause to the Convention's objectives. (1202) Paralleling developments in the competition law field, (1203) Scherk was followed by subsequent U.S. Supreme Court decisions overruling Wilko v. Swan, even in the purely domestic context. Thus, the Court declared in Rodriquez de Quijas v. Shearson/American Express Inc. that Wilko had reflected “the old judicial hostility to arbitration” which could no longer be accepted. (1204) ii. Advance Waivers of U.S. Securities Claims As noted above, U.S. courts have held in many contexts that the determination whether or not an arbitration agreement and choiceof-law provision operate to violate U.S. public policy is to be made after an arbitral award is rendered. (1205) U.S. courts decline to hold particular claims or disputes non-arbitrable based upon the possibility that the arbitrators will not apply U.S. statutory protections, or will not apply adequate foreign protections. Rather, they generally hold that the arbitration should proceed and that a decision regarding possible violations of U.S. public page "801" policy or mandatory law protections be made subsequently in an enforcement or annulment proceeding. (1206) Despite this general approach, U.S. courts have considered a series of cases in which U.S. securities purchasers agreed to arbitration seated in England, subject exclusively to English law (which was interpreted to exclude statutory U.S. securities law protections). The result of these choice-of-law provisions was to substitute less expansive English common law fraud principles for more expansive statutory U.S. protections. U.S. decisions considering these arrangements almost unanimously concluded that the combination of arbitration/choice-of-law provisions did not render the dispute non-arbitrable or otherwise violate U.S. public policy. (1207) Central to most of these courts' analyses, however, was a conclusion that the foreign law selected by the parties to govern their dispute would provide “available remedies and potential damages recoveries [sufficient] to deter deception of American investors.” (1208) Where foreign law fails to provide such remedies http://www.kluwerarbitration.com/CommonUI/print.aspx
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(with respect to transactions otherwise subject to the U.S. federal securities laws), (1209) U.S. courts can generally be expected to decline to give effect to an arbitration/choice-of-law clause which excludes U.S. statutory provisions. (1210) iii. Other Jurisdictions Under German law, arbitration agreements in securities transactions involving merchants, including securities professionals and state entities are valid and the underlying securities law claims are arbitrable. (1211) Historically, a series of German page "802" judicial decisions held that securities disputes involving nonmerchants were arbitrable provided that the arbitral seat was in Germany and that German law was applicable; in contrast, agreements to arbitrate under foreign law in a foreign arbitral seat were apparently unenforceable on the grounds that mandatory German securities laws could be disregarded without German judicial review. (1212) In 2002, German securities legislation was amended to provide that arbitration agreements involving consumers are valid only if concluded after the dispute has arisen. (1213) The new German legislation was designed to end discrimination against foreign tribunals. It has, however, been criticized on the grounds that the different treatment of existing and future disputes is incompatible with Article II(1) of the New York Convention. (1214) c. Corruption and Bribery (1215) Disputes involving claims of corruption, bribery, or similar illegality have long raised issues of arbitrability. In the same fashion as antitrust and securities claims, however, the scope of the nonarbitrability doctrine as applied to corruption claims has progressively narrowed in the past several decades. Apart from the adjudication of criminal and administrative liability, and the imposition of associated sanctions, civil claims of corruption, bribery and related wrongdoing are now capable of settlement by arbitration under virtually all developed legal systems. As discussed above, early judicial decisions frequently concluded that challenges to the legality of the parties' underlying contract also implicated the page "803" associated arbitration clause, requiring judicial resolution of the dispute. (1216) Similarly, arbitral tribunals historically evidenced considerable reluctance to resolve matters involving claims of corruption or bribery. An early arbitral award by a well-known Swedish arbitrator (Gunnar Lagergren) apparently declined jurisdiction over a claim for commissions owed to an agent who had been retained to bribe Latin American government officials. Lagergren relied on “general principles denying arbitrators the power to entertain disputes of this nature,” rather than a specific national law, reasoning: “It cannot be contested that there exists a general principle of law recognized by civilized nations that contracts which seriously violate bonos mores or international public policy are invalid or at least unenforceable and that they cannot be sanctioned by http://www.kluwerarbitration.com/CommonUI/print.aspx
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courts or arbitrators.” (1217) Accordingly, Lagergren held that “parties who ally themselves in an enterprise of the present nature must realize that they have forfeited any right to ask for assistance of the machinery of justice (national courts or arbitral tribunals) in settling their disputes,” (1218) and concluded “jurisdiction must be declined in this case.” (1219) More recent arbitral awards and national court decisions have correctly rejected Lagergren's analysis and acknowledged the competence of arbitrators to resolve claims of illegality, including bribery and corruption. Accordingly, arbitral tribunals have frequently considered disputes where one party claims that the parties' underlying contract was tainted by, or invalid because of illegality, or that it is not obligated to perform an illegal contract. (1220) Rather than dismissing such disputes page "804" on jurisdictional or non-arbitrability grounds, tribunals have ordinarily entertained illegality/corruption claims and made awards on the merits, either upholding those claims or rejecting them. (1221) National courts have also generally made clear that arbitral tribunals may consider and resolve claims of corruption, bribery and related illegality. (1222) A recent decision of the English Court of Appeal held that this was a logical corollary of the separability presumption. The Court reasoned that “if arbitrators can decide that a contract is void for initial illegality, there is no reason why they should not decide whether a contract has been procured by bribery.” (1223) One exception to this approach is a recent Pakistani Supreme Court judgment, which apparently concluded that claims of fraud could not be arbitrated. (1224) That decision will hopefully not survive Pakistan's ratification of the New York Convention, and clearly contradicts the Convention's requirements that applications of the non-arbitrability doctrine be narrowly-tailored to achieve specific and non-idiosyncratic local public policies. (1225) d. Intellectual Property Claims (1226) Patent, copyright and trademark claims have also raised questions of non-arbitrability, because of the state's substantial involvement in granting and page "805" regulating such intellectual property rights. As with competition, securities and corruption claims, (1227) the past several decades have witnessed a gradual retrenchment of historic non-arbitrability principles in the intellectual property field. This is graphically illustrated by the establishment of the institutional arbitration mechanism of the World Intellectual Property Organization (“WIPO”), specifically for the arbitration of intellectual property claims. (1228) The most delicate arbitrability issues in this context arise with claims concerning the validity of patents, copyrights, or trademarks, aspects of which are deemed non-arbitrable in many jurisdictions. In Europe, EU law provides that disputes directly concerning the validity or existence of registered intellectual property rights are nonarbitrable, instead being subject to the exclusive jurisdiction of specified national courts. (1229) Aside from this core area of nonarbitrability, disputes involving patent and other intellectual property http://www.kluwerarbitration.com/CommonUI/print.aspx
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claims are generally arbitrable in the EU. (1230) Swiss law is similar in permitting a broad range of intellectual property claims to be arbitrated. (1231) In the United States, the historic position was that patent disputes were non-arbitrable. (1232) In 1983, however, federal legislation was enacted which reversed this position and provided that patent disputes (including issues of validity, page "806" infringement and ownership) are arbitrable. (1233) Outside the patent context, U.S. lower courts have also held that copyright disputes (including issues of validity, infringement and ownership) (1234) and trademark issues (1235) are arbitrable. Similarly, in a landmark 2003 ruling, the Supreme Court of Canada overturned a Quebec Court of Appeal decision and held that intellectual property matters, including particularly copyright issues, are arbitrable. (1236) The Court correctly held that the lower court's ruling was “inconsistent with the trend in case law and legislation, which has been, for several decades, to accept and even encourage the use of civil and commercial arbitration, particularly in modern western legal systems, both common law and civil law.” (1237) Arbitral tribunals have reached similar results in deciding the scope of the non-arbitrability doctrine as applied to intellectual property disputes. Most tribunals have had little difficulty concluding that they have the competence to resolve disputes about the performance of contracts concerning intellectual property rights (e.g., patent, copyright and trademark licenses). (1238) On the other hand, arbitrators page "807" have shown marked reluctance to resolve disputes involving the validity or existence of intellectual property rights. (1239) In principle, there is no reason that issues of patent, copyright and trademark validity cannot be resolved by arbitration – but only insofar as the parties to the arbitration are concerned. An arbitral tribunal obviously cannot effect registrations of intellectual property rights or invalidate a patent generally, thereby affecting the rights of the public or third parties. There is no reason, however, that an arbitral tribunal cannot apply rules of intellectual property law in other contexts to decide claims between the contracting parties that a particular intellectual property right is invalid or does not exist. e. Trade Sanctions, Embargoes and Controls It is also sometimes argued that disputes implicating national or international trade sanctions, embargoes, or export controls are nonarbitrable. Some early national court decisions contained broad language suggesting that any dispute requiring consideration of trade regulations was non-arbitrable. (1240) As in other fields, however, most contemporary national courts and arbitral tribunals have rejected this view and concluded that arbitrators may consider the consequences of trade regulations and embargoes for the parties' contracts. (1241) Of course, even under this view, arbitral tribunals may not purport to impose administrative or criminal sanctions associated with trade embargoes or regulations. A striking example of the decline of the non-arbitrability doctrine in http://www.kluwerarbitration.com/CommonUI/print.aspx
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this field involves claims under U.S. law requesting U.S. governmental regulatory page "808" investigation of allegedly unfair trade practices. (1242) Although the investigation is conducted by an administrative agency (rather than a private party), with the power to impose administrative sanctions, U.S. courts have held that an international arbitration agreement renders a request for an investigation arbitrable. (1243) f. Bankruptcy/Insolvency (1244) Parties to international arbitration agreements sometimes end up in some form of bankruptcy or insolvency, either in their home jurisdiction or elsewhere. (1245) In most jurisdictions, only national courts (often specialized courts) have the authority to commence, administer and wind-up bankruptcy proceedings, including proceedings that liquidate a bankrupt company, reschedule its liabilities, operate it under some form of receivership or administration, or distribute pro rata payments to designated creditors. Disputes concerning these “core” bankruptcy functions are almost universally considered non-arbitrable, whether in domestic or international arbitrations, under the laws of developed jurisdictions. (1246)
It is much more controversial, however, whether and when disputes merely involving a bankrupt entity as a party, or raising questions of bankruptcy law (e.g., the continued effect of a contract), may be resolved in arbitration. Different national legislative regimes and judicial decisions have reached different conclusions about these types of disputes. In many such cases, the desirability of a centralized, usually page "809" “pro-debtor,” forum for resolving all disputes involving the bankrupt entity is weighed against that entity's pre-existing commitment to resolve disputes by international arbitration, with different legal systems adopting different resolutions of these competing interests. Again, however the weight of authority supports narrow non-arbitrability rules in this context. In some jurisdictions, the bankruptcy of a party is treated as an issue of the continued validity and efficacy of the bankrupt entity's arbitration agreement, while in other jurisdictions it is treated as a matter of non-arbitrability. As noted above, in a few states (e.g., Latvia), local law purportedly invalidates all arbitration agreements to which a bankrupt is party. (1247) Similarly, under Dutch law, any monetary claim against the bankrupt must be resolved in special bankruptcy proceedings, rather than arbitration, effectively invalidating the arbitration agreement. (1248) These national law rules are essentially rules of contractual validity, having the effect of invalidating a previously-valid arbitration agreement, either through withdrawing the insolvent entity's capacity or otherwise. (1249) Other national bankruptcy legislation adopts a different approach. Under Spanish insolvency legislation, arbitration agreements are suspended during the pendency of the insolvency and the trustee is permitted to set aside “arbitral agreements and proceedings” which involve fraud on creditors. (1250) Similarly, in England, the trustee for the bankrupt entity's affairs is granted the power to disclaim the bankrupt's contracts; alternatively, a bankruptcy tribunal is granted discretion to require that otherwise arbitrable disputes be decided in judicial proceedings in the context of bankruptcy proceedings. (1251) http://www.kluwerarbitration.com/CommonUI/print.aspx
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In other jurisdictions, the bankruptcy or insolvency of a party does not affect its obligations under pre-existing arbitration agreements, which remain binding on the company and any bankruptcy trustee or administrator. That is the case in page "810" Switzerland, at least with regard to international arbitration agreements. (1252) Likewise, aside from “core” bankruptcy issues, contractual disputes involving a bankrupt company remain subject to arbitration, pursuant to the bankrupt's pre-existing arbitration agreements, in France, (1253) Italy (1254) and Germany. (1255) In the United States, companies seeking bankruptcy protection generally remain bound by their pre-existing international arbitration agreements. In general, the “automatic stay” provision of U.S. federal bankruptcy law suspends all legal proceedings against the putatively bankrupt company, subject to court approval to page (1256) "811" permit particular proceedings to continue. In deciding whether to permit particular proceedings to go forward, U.S. courts generally require debtors to perform their arbitration agreements, (1257) particularly as to claims that do not involve “core” bankruptcy jurisdiction. (1258) Nevertheless, there are exceptions, where arbitration page "812" proceedings would conflict with the purposes of the Bankruptcy Code. (1259) In an influential decision, the Second Circuit attempted to prescribe generally-applicable rules for the treatment of arbitration agreements involving an insolvent company. In so doing, the Court articulated a pro-arbitration standard in determining whether the automatic stay should be lifted in order to allow an arbitration involving the debtor to proceed. Among other things, the Court held that “the [FAA] as interpreted by the Supreme Court dictates that an arbitration clause should be enforced unless doing so would seriously jeopardize the objectives of the [Bankruptcy] Code.” (1260) Under U.S. bankruptcy law, the bankruptcy trustee or debtor in possession may assume or reject any executory contracts – that is, contracts with substantial obligations remaining unperformed on both sides – that it has with creditors. (1261) There is scant authority as to whether a debtor or trustee remains bound by an arbitration agreement when the trustee rejects the executory contract containing page "813" that arbitration agreement. Some lower courts have held that the arbitration agreement survives the rejection of the contract, (1262) basing their decision on longstanding principles that rejection of an executory contract “does not alter the substantive rights of the parties.” (1263) With respect to a non-executory contract, meaning one that is fully performed at least on one side, the trustee does not have a choice to reject the contract and remains bound to the debtor's pre-petition obligations, including any arbitration agreement contained within the non-executory contract. (1264) It is also sometimes argued that, even if an arbitration agreement survives the bankruptcy of one of its parties, and even if the parties' disputes are arbitrable, any arbitral proceedings should be stayed as a discretionary matter. (1265) In some jurisdictions, public policy is relied upon as a basis for requiring a mandatory stay of arbitration against the insolvent/bankrupt party. (1266) Other jurisdictions leave decisions whether to stay arbitral proceedings to the arbitral
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tribunal's discretion. (1267) This latter view is more consistent with the terms of both the New York Convention and EU Insolvency Regulation (which provides that the effects of bankruptcy of a page "814" party upon a pending legal action are governed by the “law of the Member State in which that lawsuit is pending” (1268) ). In practice, most international arbitral tribunals have proceeded with arbitrations notwithstanding the pendency of bankruptcy proceedings involving one of the parties. (1269) Tribunals have usually rejected arguments, based on national insolvency law, that the arbitration agreement became invalid or that the arbitration could not proceed, (1270) often requiring at a minimum clear and convincing evidence that a foreign law applicable to a party prohibits its continuing participation in bankruptcy proceedings and that this law should be recognized. (1271) page "815" Tribunals have also generally been reluctant to stay arbitral proceedings based on a pending insolvency involving one of the parties: “Even in circ*mstances in which the suspension seems mandatory, if the other party – with full awareness of the relevant particulars – requests to proceed with the arbitration, the arbitrator should refuse to suspend the proceedings, for no one knows best what suits the party's interests than the party itself.” (1272) Arbitral awards are almost uniformly consistent with this view. (1273) The correct analysis of the effects of the bankruptcy of a party on an international arbitration clause is complex. Where the law governing the bankruptcy provides for the invalidity of the bankrupt's arbitration agreements, a choice-of-law analysis is necessary. In general, only where the law governing the bankruptcy also governs the arbitration agreement, and provides for its invalidity, or the incapacity of the bankrupt party, will the agreement potentially be invalid. Even in these circ*mstances, the better view is that the national bankruptcy law must be consistent with the New York Convention's prohibitions against discriminatory legislation in order to be applicable under the Convention. (1274) Exceptionally, a state might, consistent with the non-arbitrability exception in Articles II(1) and V(2)(a) of the Convention, treat some or all of the disputes involving the bankrupt party as non-arbitrable and deny effect to the arbitration agreement or arbitral award in its own courts. This would not, however, require other states to give effect to such results, although they may exceptionally do so for reasons of their own public policy. (1275) This result is consistent with the approach of most arbitral tribunals, which continue arbitral proceedings, notwithstanding foreign bankruptcy laws, leaving open the possibility of non-recognition of the page "816" arbitral award in the state whose bankruptcy legislation and proceedings are at issue. (1276) g. Employment Disputes (1277) There is substantial diversity among states in their treatment of agreements to arbitrate employment disputes. Historically, many national legal systems treated various sorts of employment-related http://www.kluwerarbitration.com/CommonUI/print.aspx
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claims as non-arbitrable. Despite the evolution of the nonarbitrability doctrine in other contexts, that remains the case in some European jurisdictions, including Belgium, (1278) Italy (1279) and, until recently, France. (1280) page "817" Similar legislation (1281) exists in other jurisdictions. In contrast, a very different approach is taken in the United States. (1282) In general, U.S. federal law and policy has long affirmatively encouraged arbitration of many labor disputes, (1283) as a specialized mode of dispute resolution regarded by both U.S. legislative and judicial authorities as superior in many respects to that of litigation, while imposing only narrow non-arbitrability limits on some forms of employer-employee disputes. Thus, §1 of the U.S. FAA excludes from the Act's coverage agreements arising from a limited range of employment relations – involving “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” (1284) Consistent with its text, this exclusion has been held to apply only to employees engaged in transportation industries. (1285) Thus, the U.S. Supreme Court has repeatedly upheld the validity and enforceability of arbitration agreements in the domestic employment context, declaring that “mere inequality in bargaining power … is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context.” (1286) Consistent with this, U.S. courts have also routinely held that a wide variety of domestic employment-related claims are arbitrable, including claims under the Employee Retirement Income Security Act, (1287) the Age Discrimination page "818" in Employment (1288) Act, employment discrimination claims under Title VII (1289) and employment discrimination or wage claims under state law. (1290)
As discussed above, several U.S. lower courts have held that §1's exclusion for transportation workers applies only to domestic U.S. workers and not to international employment relations. (1291) Relying on the analysis of the New York Convention in Mitsubishi Motors and Scherk, these decisions have held that the U.S. ratification of the Convention contemplated abandoning domestic rules of non-arbitrability in the international context. (1292) Thus, holding that an arbitration agreement in a foreign seaman's contract was enforceable under the New York Convention, a U.S. appellate court declared: “the language of the Convention, the ratifying language, and the [provisions of the FAA] implementing the Convention do not recognize an exception for seamen employment contracts. On the contrary, they recognize that the only limitation on the type of legal relationship falling under the Convention is that it must be considered ‘commercial,’ and we conclude that an employment contract is ‘commercial.’” (1293) page "819" Some U.S. lower courts have imposed procedural limits on domestic arbitration agreements that employees are required to accept as http://www.kluwerarbitration.com/CommonUI/print.aspx
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part of an employment relationship. (1294) Even under this approach, where employment contracts are negotiated, procedural matters are generally left to the parties' agreement (subject to general unconscionability and procedural regularity safeguards). (1295)
h. Consumer Claims (1296) As with employment disputes, different national legal systems take significantly different approaches towards the arbitration of “consumer” disputes. (“Consumer” disputes are defined generally as disputes between a consumer (or a non-merchant) and a merchant or commercial party, sometimes with a limited amount in page "820" controversy. (1297) ) In broad outline, U.S. law currently recognizes the validity of agreements to arbitrate between consumers and businesses and permits the arbitration of both existing and future consumer disputes, subject to fairly limited restrictions based on principles of unconscionability and due notice, while many other jurisdictions forbid or regulate (through statutory provisions) agreements to arbitrate future consumer disputes. Even in jurisdictions that do not give general effect to consumer arbitration agreements, there is a considerable diversity in the treatment of such provisions. i. U.S. Federal Arbitration Act In the United States, the FAA has been interpreted as extending to agreements between consumers and merchants, with the U.S. Supreme Court repeatedly upholding both the validity of such agreements and the arbitrability of consumer claims. (1298) Despite this, some U.S. lower courts have criticized, and sought to limit, the arbitrability of consumer disputes. According to one especially sweeping critique: “The reality that the average consumer frequently loses his/her constitutional rights and rights of access to the court when he/she buys a car, household appliance, insurance policy, receives medical attention or gets a job rises as a putrid odor which is overwhelming to the body politic.” (1299) page "821" Academic commentary is also frequently critical of rules giving effect to pre-dispute arbitration agreements in the context of consumer and employee claims. (1300) Consistent with this position, a number of U.S. lower courts have invoked the unconscionability doctrine or related principles to impose heightened standards of notice (1301) or procedural fairness (1302) on the terms of arbitration agreements in consumer contracts, seeking to protect presumptively less sophisticated parties page "822" against perceived overreaching or systemic bias. (1303) This has been particularly true in disputes involving federal statutory claims. (1304) On the other hand, some commentators have observed that even the most conspicuous forms of arbitration clause will seldom actually be considered, much less understood and negotiated, by http://www.kluwerarbitration.com/CommonUI/print.aspx
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consumers: “To the extent that one does not understand the terms of the agreement, requiring the same to be printed in bold letters is like yelling at a deaf man.” (1305) In part because of concerns about the fairness of consumer arbitration, legislative proposals have been made in the United States to render consumer (and employment) disputes generally non-arbitrable. The most recent of these proposals is titled the socalled “Arbitration Fairness Act of 2007.” (1306) Among other things, these legislative proposals would provide that “no predispute arbitration agreement” shall be “valid or enforceable” if it required arbitration of “employment, consumer or franchise dispute[s].” (1307) Although it is uncertain whether such proposals will be adopted, even in the purely domestic context, they reflect controversy regarding page "823" the arbitration of consumer and employment disputes. They have also prompted leading arbitral institutions to review their institutional rules and policies with the aim of ensuring fair procedures in consumer (and employment) disputes. ii. EU Consumer Regulations In Europe, statutory protections either forbid or regulate the use of arbitration clauses covering future disputes in consumer contracts. (1308) Under the EU's Unfair Terms in Consumer Contracts Directive, the provisions of standard form consumer contracts are subject to statutory fairness requirements. (1309) Among other things, the Directive provides that a provision is prima facie unfair, and therefore invalid, if it “requir[es] the consumer to take disputes exclusively to arbitration not covered by legal provision.” (1310) Although the critical phrase, “by legal provision,” is not defined, various EU Member States have implemented this provision by adopting legislation that deems arbitration clauses in standard form contracts unfair (and therefore invalid) if they require binding arbitration of future disputes involving claims for less than specified sums (e.g., approximately $10,000). (1311) The European Court of Justice has apparently held that the implementation of the Directive's restrictions on arbitration agreements, in actions challenging an arbitral tribunal's jurisdiction, is within the competence of Member States. (1312) At the same time, the ECJ has held that an arbitral award must be annulled on the grounds of a violation of the Directive regardless whether or not a consumer raised the unfairness of the arbitration clause during the arbitral proceedings. (1313) page "824" On a Member State level, different jurisdictions have adopted a variety of different approaches towards consumer arbitration agreements. French law historically imposed relatively strict statutory prohibitions on domestic arbitration clauses between persons involved in commercial activities (commerçants) and individuals who are not involved in these activities. In at least one decision, however, the Paris Cour d'appel has held that these domestic prohibitions on arbitration do not apply in the context of international (as distinguished from domestic) consumer contracts. http://www.kluwerarbitration.com/CommonUI/print.aspx
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(1314) In a comparable approach, Swedish legislation provides for
the nonarbitrability of consumer arbitration agreements as to defined categories of future disputes, together with an express proviso that the exception is inapplicable where contrary to Sweden's international obligations (in particular, the New York Convention). (1315)
German and Austrian law contain specialized rules regarding the arbitration of future consumer disputes, recognizing the validity of such provisions apparently as to both future and existing disputes only if they are recorded in a separate arbitration agreement signed by the consumer (1316) (as is the case in some U.S. state legislation (1317) ). Other European jurisdictions have similar types of statutory provisions. (1318) page "825" A different approach is adopted under English law, where consumer arbitration agreements (whether they relate to present or future disputes) are invalid if they are either below a specified monetary sum (roughly $10,000) or if they are “unfair.” (1319) This unfairness standard in turn requires inquiry into the substantive fairness of a provision's terms and the drafting history of the provisions. (1320) iii. Other Jurisdictions Other jurisdictions also adopt a variety of different approaches to the arbitration of consumer claims. In New Zealand, an arbitration agreement will be enforceable against a consumer only if “the consumer, by separate written agreement, certifies that, having read and understood the arbitration agreement, the consumer agrees to be bound by it” and the arbitration agreement discloses that he or she is waiving various protections. (1321) As with German and Austrian law, this approach parallels that of various U.S. states (likely pre-empted by the FAA (1322) ), which require specific evidence of informed consent to arbitration provisions on the part of consumers. (1323) In contrast, Quebec recently adopted amendments to its Consumer Protection Act, providing flatly that “[a]ny stipulation that obliges the consumer to refer a dispute to arbitration … is prohibited.” (1324) In yet another variation, Japan's Arbitration Law provides that consumer arbitration agreements are valid, but that, “for the time being,” consumers may cancel their agreements to arbitrate future disputes with businesses prior to the first page "826" oral hearing of the arbitral tribunal (or if the consumer is the claimant). (1325) Alberta has taken this suggestion a step further, recognizing the validity of pre-dispute consumer arbitration agreements which have been approved in advance by consumer protection regulatory authorities. (1326) iv. Future Directions: Arbitrability of Consumer Disputes The arbitration of consumer disputes raises special concerns, both because of the presumptively gross disparity of sophistication and bargaining power of the parties during contract formation and the http://www.kluwerarbitration.com/CommonUI/print.aspx
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procedural challenges of implementing the cost-effective resolution of disputes involving modest financial stakes. These concerns are partially reflected in the various invalidity and non-arbitrability rules in Europe, and elsewhere, as well as in legislative proposals in the United States. (1327) The differing natures of these concerns are not, however, always clearly addressed or implemented in legislative and judicial responses. There are reasons to doubt the wisdom of some national rules of contractual invalidity, as well as their compatibility with Article II of the New York Convention. In particular, there is a compelling argument that the invalidation of all pre-dispute consumer arbitration agreements (as in Quebec) is contrary to Article II's requirements of neutrality for rules of contractual validity. (1328) This sort of invalidity rule applies regardless of the terms of a consumer arbitration agreement (including where it is entirely evenhanded or even proconsumer) and the extent of negotiation or inequality of bargaining power (including where an arbitration agreement is specifically negotiated or where a consumer in fact has equal or greater bargaining power than a merchant). (1329) It is doubtful that a blanket rule of invalidity of agreements to arbitrate of this sort comports with the Convention's requirement that agreements to arbitrate be subject to the same rules of validity as other categories of contracts: it is obvious that consumers are, as a general matter, able to conclude binding sale and purchase, financial and other contracts and it is difficult to see why, subject to unconscionability defenses, consumers ought not also be able to conclude valid arbitration agreements. There are less blunt, more nuanced means of addressing concerns about unequal bargaining power or sophistication than blanket invalidity rules. For example, page "827" English legislation (adopting a case-by-case inquiry into the fairness of particular agreements over a specified monetary value), German and Austrian legislation (permitting consumer arbitration agreements in separate instruments) and Alberta legislation (permitting regulatorily-approved consumer arbitration agreements), adopt approaches to contractual invalidity which are less susceptible to challenge under the New York Convention. These legislative solutions are by no means perfect, but provide more constructive and nuanced mechanisms for addressing concerns about consumer protection and unequal bargaining power than blanket prohibitions on consumer arbitration agreements. A separate, but related, set of concerns about consumer arbitration agreements involves the process by which consumer disputes are arbitrated. In particular, restrictions on the arbitrability of consumer disputes often arise from concerns that such disputes cannot, as a financial matter, realistically be arbitrated effectively or fairly by consumers (owing to costs of filing fees, location of the arbitral seat, etc.) or that businesses will enjoy systemic advantages over consumers (e.g., because they are repeat players). These are legitimate concerns and can provide valid grounds for either nonarbitrability rules or public policy requirements for fair arbitral procedures. Such non-arbitrability and public policy rules would need to be tailored towards the objective of safeguarding the ability of consumers to pursue their claims in an effective and affordable manner, but in principle would be permitted by the Convention. (1330)
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It is important to note that litigation of consumer disputes in national courts raises serious procedural challenges, particularly in international transactions (where issues of jurisdiction, language and enforcement may make small claims uneconomic to pursue). (1331) In many instances, “preserving” recourse to national courts may therefore offer little of real benefit to consumers, while inhibiting the development of mechanisms that would provide better alternatives. Of course, it makes little sense to forbid parties from agreeing to arbitrate if the alternatives which they are required to pursue suffer from the same (or worse) defects. A more constructive approach would be to develop neutral, efficient arbitral procedures capable of resolving consumer and similar disputes in a fairer, more page "828" cost-effective manner than currently available in national courts. (1332) Indeed, some skeptics of the arbitral process as applied to consumers have recognized this possibility. (1333) A goal of developing means of arbitration for consumer disputes, which address concerns about the fairness of the arbitral process, is suggested by Alberta's consumer protection legislation, which permits regulatorily-approved consumer arbitration agreements, and by Japan's arbitration legislation, which does not invalidate consumer arbitration agreements outright, but rather permits, “for the time being,” consumers to cancel consumer arbitration agreements. (1334) Consistent with this, some arbitral institutions have adopted specialized rules tailored to encourage cost-effective resolution of smaller disputes, which are well-suited for consumer and employment disputes. (1335) This includes rules regarding class action arbitrations, which offer possible avenues for relief which may be unavailable to consumers under many national legal systems. (1336) It also includes protocols for handling consumer and employment claims in a fair manner. (1337) These sorts of neutral procedural regimes, and accompanying protections, are a critical step towards overcoming mistrust of the arbitral process in this context. (1338) page "829" i. Natural Resources and Concession Agreements Many developing nations historically viewed international arbitration with considerable reserve and occasional hostility. (1339) Among other things, international arbitration was seen as dominated by Western interests and arbitrators, inadequately-sensitive to the policies and needs of developing countries, and unacceptably expensive for non-Western entities. (1340) In particular, these voices have urged that disputes involving significant sovereign interests (like natural resource development projects) be deemed nonarbitrable. (1341) Courts and legislatures in most developed countries have consistently rejected claims that disputes involving issues of sovereignty or natural resources are inherently non-arbitrable. (1342) In the United States, the Foreign Sovereign Immunities Act contains detailed provisions concerning the enforcement of arbitration agreements and awards against foreign states, including in matters http://www.kluwerarbitration.com/CommonUI/print.aspx
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involving natural resources. (1343) Further, federal legislation was enacted in 1988 (1344) to ensure that the page "830" act of state doctrine was not applied to prevent enforcement of arbitral awards against foreign states in U.S. courts. (1345) Legislation and judicial decisions in other developed jurisdictions are similar. For example, the European State Immunity Convention (1346) and national legislation in most European jurisdictions, (1347) provides for the recognition and enforcement of international arbitration agreements and arbitral awards against foreign states, again in matters involving natural resources. Similar legislation has been enacted in other developed states. (1348) In recent years, some developing states have also rejected historic notions of nonarbitrability in the context of concession agreements and natural resources projects, both through widespread acceptance of bilateral and multilateral investment treaties (1349) and enactment of national legislation. (1350) j. Miscellaneous Other Claims National courts and arbitral tribunals have also considered the arbitrability of a wide range of other claims, that can only be briefly catalogued. Courts and arbitral tribunals have generally upheld the arbitrability, in principle, of product liability, (1351) page "831" (1352) carriage of goods by sea, insurance regulatory, (1353) (1354) construction liens, import regulations, (1355) internal corporate governance, (1356) whistleblower (1357) and miscellaneous other claims. (1358) On the other hand, as noted above, a few categories of claims have page "832" been held non-arbitrable, including certain franchise disputes (1359) and health care disputes. (1360) k. State Law Claims in the United States Many of the U.S. Supreme Court's non-arbitrability decisions, including those in Scherk, Mitsubishi, Vimar and Pacificare, concerned arguments that claims under particular U.S. federal statutes were non-arbitrable. (1361) U.S. state statutes and judicial decisions also sometimes purport to render certain types of claims non-arbitrable. That is true, for example, under various U.S. state laws with respect to tort claims, (1362) real estate claims, (1363) insurance claims, (1364) labor disputes (1365) and consumer claims. (1366)
The U.S. Supreme Court has summarily rejected arguments under both the domestic FAA and the New York Convention that state law can preclude arbitration of particular categories of claims. In a 1984 decision, Southland Corp. v. Keating, (1367) the Court considered a California state statute that invalidated certain arbitration agreements relating to franchise investments. The California Supreme Court had held that, notwithstanding the parties' agreement to arbitrate, the state statute rendered the agreement unenforceable. (1368) The U.S. Supreme Court rejected that view, holding that “Congress intended to foreclose state legislative attempts to undercut the enforceability of arbitration agreements.”
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(1369) The Court left open the possibility of asserting “general
contract defenses such as fraud to avoid enforcement of an arbitration agreement.” (1370) page "833" Not long thereafter, in Perry v. Thomas, (1371) the Supreme Court again rejected a claim that state employment law rendered a claim non-arbitrable. The Court held that the FAA preempted a California statute requiring judicial resolution of claims for “wages.” Emphasizing the “unmistakable conflict” between the two legislative regimes, the Court concluded that “under the Supremacy Clause, the state statute must give way.” (1372) More recently, in Allied-Bruce Terminix Co. v. Dobson, the Supreme Court again held that the FAA preempts state laws purporting to render particular claims or disputes non-arbitrable (in this case, all agreements to arbitrate future disputes). (1373) That conclusion has been repeatedly cited in subsequent Supreme Court decisions, which emphatically affirmed that the FAA preempted state law nonarbitrability rules. (1374) Similarly, lower U.S. court decisions have held that a wide range of other state legislative efforts to foreclose or limit arbitration of particular categories of claims are preempted by the FAA. (1375) 5. Choice-of-Law Governing Non-Arbitrability The non-arbitrability doctrine raises potentially complex choice-oflaw questions in determining what law(s) apply to determine whether a claim or dispute is non-arbitrable. These issues arise under both the New York Convention (in particular, Article V(2)(a)) and national arbitration legislation. Related to these choice-of-law issues is the question whether the New York Convention places international limits on the ability of Contracting States to apply non-arbitrability page "834" exceptions to disputes under international arbitration agreements. The choice-of-law issues under the nonarbitrability doctrine and related questions of the Convention's international limits are discussed in detail above. (1376) 6. Sua Sponte Consideration of Non-Arbitrability Issues by Arbitral Tribunal A few authorities have raised the question whether arbitral tribunals may (or must) independently raise issues of non-arbitrability and public policy, even if the parties have not done so. For example, as discussed above, Judge Lagergren sua sponte raised the question of corruption, which had not been identified or relied upon by the parties, reasoning: “both parties affirmed the binding effect of their contractual undertakings and my competence to consider and decide their case in accordance with the terms of reference. However, in the presence of a contract in dispute of the nature set out hereafter, condemned by public policy, decency and morality, I cannot in the interest of the administration of justice avoid examining the question of jurisdiction on my own
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motion.” (1377) A few other awards are to the same effect, affirming the arbitral tribunal's right (and responsibility) to raise issues of non-arbitrability or illegality ex officio. (1378) Notwithstanding the importance of party autonomy in international arbitration, and the tribunal's mandate to resolve those disputes which are submitted to it (but not others), (1379) these decisions are correct. The arbitral tribunal's judicial mandate is to resolve the disputes that are submitted to it in accordance with applicable law – including applicable mandatory law (1380) – and to render an award on such matters that is binding and enforceable. Where the parties' contract raises issues of illegality, violations of public policy or mandatory law, or performance of administrative functions, then the tribunal's mandate must necessarily include consideration of those issues insofar as they would affect its decision or the enforceability of its award. For an obvious example, page "835" the parties' request that the tribunal decide whether to grant a patent or declare a party bankrupt should not prevent the tribunal from considering sua sponte whether or not such claims are arbitrable. (1381) Of course, as discussed elsewhere, it is an essential element of the arbitrators' mandate and the parties' procedural rights that any sua sponte consideration of nonarbitrability or similar issues by a tribunal be accompanied by notice to the parties and an opportunity to be heard on the issue. (1382) 7. Judicial “Supervision” of Arbitral Consideration of Public Law Claims Application of the non-arbitrability doctrine can give rise to procedural issues concerning the relation between arbitral proceedings and national court litigation. Under most leading arbitration statutes, national courts are generally forbidden from intervening in or considering interlocutory challenges to ongoing arbitrations, save in the most exceptional circ*mstances. (1383) Nevertheless, some lower U.S. courts have ordered the parties to submit U.S. statutory claims to arbitration and to furnish periodic reports on the progress of the arbitration. (1384) Such “judicial supervision” has occurred even with respect to arbitrations seated outside the United States. (1385) This sort of judicial supervision of an ongoing arbitration is generally contrary to Article II of the Convention. As discussed below, Article II(3) requires Contracting States to “refer the parties to arbitration,” and does not admit of ongoing judicial supervision of the arbitral proceedings. (1386) The same rule of judicial non-interference is set forth in the UNCITRAL Model Law (1387) and other national laws. (1388) Where a claim is capable of settlement by arbitration, the proper role of national courts is to refer the parties to arbitration; if the arbitrators misconduct themselves, or render an award that violates the concerned state's public policy, page "836" Article V permits it to deny recognition (or to annul an award made locally) – but the Convention does not allow for judicial supervision of ongoing arbitral proceedings.
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Consistent with this analysis, U.S. courts have more recently rejected requests that they decline to order or delay ordering arbitration until it is clear that the arbitral tribunal will hear claims that are allegedly non-arbitrable under the law of the arbitral seat. As discussed above, they have instead held that doubts about the arbitral process should be resolved in favor of arbitration, with any objections being reserved for consideration in challenges to the tribunal's award. (1389) The same rationale precludes judicial supervision of the consideration of public law claims in the arbitral proceedings. 8. Future Directions: The Non-Arbitrability Doctrine The past three decades have witnessed a substantial evolution and maturation of the non-arbitrability doctrine. During the 1950s and 1960s, judicial decisions in a number of states adopted expansive interpretations of national regulatory regimes that rendered important categories of commercial disputes entirely or partially nonarbitrable. (1390) This departed from the historic autonomy of commercial enterprises to resolve their business disputes through the arbitral process, (1391) and contradicted the objectives of the New York Convention and most national arbitration legislation. (1392)
More recently, national courts in most jurisdictions have adopted more restrained views of the non-arbitrability doctrine, abandoning mistrust of the arbitral process and reaffirming the vital role of party autonomy, particularly in international commercial matters. (1393) This evolution has been reflected in U.S., European, Asian and other national court decisions (1394) and in legislative enactments (1395) from all parts of the world. Some commentators have criticized the evolution, and substantial diminution, of the non-arbitrability doctrine over the past three decades. They have urged that “‘a-legality’ informs the arbitral decisional law of the United States Supreme Court and the French courts alike,” and warned that “[l]aw will be generated within the page "837" confines of a fully privatized system that is unaccountable to any public organization or process.” (1396) That criticism is misconceived, on multiple grounds, in the international context. It ignores the fact that the demise of the nonarbitrability doctrine has occurred exclusively in the field of private rights of action, almost always in disputes between commercial parties (1397) : it is hardly surprising, nor proper ground for objection, that national courts and legislatures have been prepared to give effect to agreements between commercial parties for the resolution of disputes regarding these types of rights by arbitration. On the contrary, this is precisely consistent with historic respect, and contemporary need, for party autonomy in commercial matters. (1398)
The foregoing criticism also rests fundamentally on the (incorrect) perception that international arbitral procedures are suspect or defective means to resolve public law claims. (1399) This premise is not sustainable, and contradicts the policies underlying both the New York Convention and modern arbitration legislation and judicial decisions in almost all developed jurisdictions. (1400) http://www.kluwerarbitration.com/CommonUI/print.aspx
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Rather, as compared with national courts as forums for international litigation, international arbitration offers significant benefits for private parties (including page "838" efficiency, neutrality and the enhanced enforceability of any final decision). (1401) There is no legitimate reason to distrust the arbitral process in cases involving commercial parties, and on the contrary, substantial reason to facilitate and give effect to arbitration as a dispute resolution mechanism. Even outside the context of commercial parties (e.g., with consumers and employees), international arbitration has the potential to provide benefits of cost, speed and enforceability that are not readily replicated in national courts. The foregoing criticism also omits consideration of the continuing role of national courts in reviewing arbitral awards (including the “second look” doctrine adopted in both U.S. and EU decisions (1402) ), which provides a material restraint on arbitral decision-making. At the same time, these critiques neglect the broad (and expanding) role of regulatory enforcement authorities and regulatory standards in contemporary international commercial affairs, which provide appropriate mechanisms for safeguarding public interests. (1403) Developments over the past decade also raise fundamental questions about the proper scope of the non-arbitrability doctrine, as distinguished from the public policy doctrine. As discussed elsewhere, there are now more than 2,000 bilateral and multilateral investment treaties in force, pursuant to which most states have undertaken to arbitrate a vast range of disputes with foreign investors, often affecting public interests and third party rights in profound ways. (1404) At the same time, national laws and institutional arbitration rules have provided for the arbitration of class action claims, (1405) small claims by consumers and employees, (1406) human rights claims (1407) and other “new” categories of disputes. (1408) page "839" The question raised by the extension of arbitration to investor-state, class action and similar disputes is what the continuing role of the non-arbitrability doctrine should be. In principle, the notion that a dispute is not “capable of settlement by arbitration” should be applied with great restraint and as a last resort: (1409) as the use of the arbitral process in diverse fields demonstrates, the arbitral process is entirely “capable” of resolving a wide range of international disputes. Indeed, the flexibility of the arbitral process can often make it more capable than many national litigation regimes for resolving particular categories of international disputes. There are important categories of cases in which the non-arbitrability doctrine is appropriate. These include, for example, requests that an arbitral tribunal declare a company bankrupt, impose a criminal sentence, approve a merger, or issue similar administrative acts. These decisions necessarily dictate the rights and obligations of third parties and involve the exercise of prosecutorial or administrative discretion which must reside in democraticallyaccountable decision-makers. Matters of this nature are not ordinarily capable of settlement by arbitration, which is a consensual process between specified parties. Beyond such matters, however, the non-arbitrability doctrine should http://www.kluwerarbitration.com/CommonUI/print.aspx
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only rarely be applied in international matters. The experience of the past decades, in multiple contexts and jurisdictions, is that arbitration provides a neutral, workable and fair dispute resolution mechanism for almost all types of disputes. Inadequacies in the arbitral process can, in most instances, be addressed through the application of traditional contract law principles (e.g., unconscionability, duress) or through well-tailored legislative or regulatory efforts aimed at improving the arbitral process (as with Alberta's legislation for regulatory approval of pre-dispute consumer arbitration agreements (1410) ). What neither the New York Convention nor the objectives of contemporary national arbitration legislation contemplate is the wholesale non-arbitrability of important categories of international disputes or the application of idiosyncratic rules designed to favor local parties at the expense of foreign entities. When the non-arbitrability doctrine is applied, it must be within the limits imposed by Article II(3) and Article V(2)(a) of the New York Convention. The non-arbitrability doctrine is an exception, contrary to the uniform choice-of-law regime established by Article V(1)(a) and contrary to the Convention's objectives, which should be applied with restraint, in a narrowly-tailored and non-idiosyncratic fashion, (1411) and generally not on an interlocutory basis (e.g., prior to a final arbitral award). (1412) Moreover, consistent with an appropriate choice-of-law analysis, national courts should not apply foreign nonarbitrability rules (save in unusual cases), and should instead give effect to Article V(1)(a)'s choice-of-law regime. (1413) Even if a page "840" state is permitted to adopt local non-arbitrability rules as an escape device, other Contracting States generally should not give such rules effect. (1414) page "841"
1029 For commentary, see H. Arfazadeh, Ordre public et arbitrage
international à l'épreuve de la mondialisation 79-109 (2005); Arfazadeh, Arbitrability under the New York Convention: The Lex Fori Revisited, 17 Arb. Int'l 73 (2001); Baker & Stabile, Arbitration of Antitrust Claims: Opportunities and Hazards for Corporate Counsel, 48 Bus. Law. 395 (1993); Bedell, Harrison & Grant, Arbitrability: Current Developments in the Interpretation and Enforceability of Arbitration Agreements, 13 J. Cont. Law 1 (1987); Beechey, Arbitrability of Antitrust/Competition Law Issues – Common Law, 12 Arb. Int'l 179 (1996); Blessing, Arbitrability of Intellectual Property Disputes, 12 Arb. Int'l 191 (1996); Böckstiegel, Public Policy and Arbitrability, in P. Sanders (ed.), Comparative Arbitration Practice and Public Policy in Arbitration 177 (ICCA Congress Series No. 3 1987); Buzbee, When Arbitrable Claims Are Mixed with Nonarbitrable Ones: What's A Court to Do?, 39 S. Tex. L. Rev. 663 (1998); Carbonneau, The Exuberant Pathway to Quixotic Internationalism: Assessing the Folly of Mitsubishi, 19 Vand. J. Transnat'l L. 265 (1986); Carbonneau & Janson, Cartesian Logic and Frontier Politics: French and American Concepts of Arbitrability, 2 Tul. J. Int'l & Comp. L. 193 (1994); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶532-33, 559-589 (1999); Gruner, Accounting for the Public Interest in International Arbitration: The Need for Procedural and http://www.kluwerarbitration.com/CommonUI/print.aspx
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Structural Reform, 41 Colum. J. Transnat'l L. 923 (2003); Hanotiau, L'arbitrabilité, 296 Recueil des Cours 29 (2002); Hanotiau, The Law Applicable to Arbitrability, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 146 (ICCA Congress Series No. 9 1999); Hanotiau, What Law Governs the Issue of Arbitrability?, 12 Arb. Int'l 391 (1996); Kerr, Arbitrability of Securities Claims in Common Law Nations, 12 Arb. Int'l 171 (1996); Kirry, Arbitrability: Current Trends in Europe, 12 Arb. Int'l 373 (1996); Klein, Arbitrability of Company Law Disputes, 2007 Y.B. Austrian Arb. 29; Landi & Rogers, Arbitration of Antitrust Claims in the United States and Europe, 13-14 Concorrenza e Mercato 455 (2005-2006); Lowenfeld, The Mitsubishi Case: Another View, 2 Arb. Int'l 178 (1986); McLaughlin, Arbitrability: Current Trends in the United States, 12 Arb. Int'l 113 (1996); Mourre, Arbitration and Criminal Law: Reflections on the Duties of the Arbitrator, 22 Arb. Int'l 95 (2006); Park, Private Adjudicators and the Public Interest: The Expanding Scope of International Arbitration, 12 Brooklyn J. Int'l L. 629 (1986); Smit, Mitsubishi: It is Not What It Seems to Be, 4(3) J. Int'l Arb. 7 (1987); Sterk, Enforceability of Agreements to Arbitrate: An Examination of the Public Policy Defense, 2 Cardozo L. Rev. 481 (1981); Wai, Transnat'l Private Law and Private Ordering in A Contested Global Society, 46 Harv. Int'l L.J. 471 (2005). 1030 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶5-59 et seq. (1999); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶9-35 et seq. (2003). 1031 U.S. courts have also occasionally used the term “arbitrable” more broadly to include any question whether or not a particular dispute should be arbitrated. For example, some U.S. courts have treated questions about the scope of the arbitration clause or compliance with pre-dispute conditions to commencing arbitration as issues of “arbitrability.” First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (U.S. S.Ct. 1995); infra pp. 915-916 n. 331. This terminology is imprecise, even in the U.S. context, and should be avoided. 1032 See infra pp. 772-788. 1033 See infra pp. 2863-2864. 1034 D. Roebuck & B. de Fumichon, Roman Arbitration 104-05 (2004). 1035 See supra pp. 530-535 & infra pp. 837-841. 1036 See supra pp. 761-764 & infra pp. 766 et seq. 1037 Am. Safety Equip. Corp. v. J.P. Maguire & Co., 391 F.2d 821, 826-827 (2d Cir. 1968). 1038 Am. Safety, 391 F.2d at 826. 1039 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 640 (U.S. S.Ct. 1985) (Stevens, J., dissenting); Alexander v. Gardner-Denver Co., 415 U.S. 36, 58 (U.S. S.Ct. 1974); infra pp. 781-784, 792-793. 1040 New York Convention, Arts. II(1) & V(2)(a) (“subject matter of the difference is not capable of settlement by arbitration”) (emphasis added); European Convention, Art. VI(2) (“dispute is not capable of settlement by arbitration”) (emphasis added); UNCITRAL Model Law, Art. 1(5) (“certain disputes may not be submitted to arbitration”) (emphasis added). 1041 See supra pp. 707-708, 761-764, 768-769; Arfazadeh, Arbitrability under the New York Convention: The Lex Fori Revisited, http://www.kluwerarbitration.com/CommonUI/print.aspx
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17 Arb. Int'l 73, 79-80 (2001) (“clear distinction that arbitration laws draw between arbitrability, on the one hand, and the validity of the arbitration clause, on the other hand.”). 1042 See supra pp. 504-516, 558-559, 707 & infra pp. 1264-1270, 1351, 1368-1376, 1508-1513, 1576-1582. 1043 Similarly, an arbitration agreement in a joint venture agreement may generally be valid, including as applied to contract, tort and some competition claims, but may be unenforceable as applied to certain non-arbitrable disputes under competition or intellectual property legislation (e.g., where regulatory actions are required). See infra pp. 791-800, 805-808. 1044 See supra pp. 516-535. 1045 See supra pp. 517-520 & infra p. 775. 1046 See supra pp. 755-765 (especially supra pp. 761-764). 1047 See supra pp. 766 et seq. (especially 768-770). 1048 As discussed below, there is a close relationship between principles of mandatory law and public policy. See infra pp. 21722175. A mandatory law is typically a statutory (or constitutional) directive, reflecting fundamental public policies, that dictates particular rules and results, regardless of the parties' agreement. See infra pp. 2173-2175. A public policy is the legislative or other policy that underlies such mandatory laws, or that finds independent recognition in judicial decisions (particularly in common law systems). See infra pp. 2173-2175. 1049 See infra pp. 2170-2198. 1050 See infra pp. 1322-1324. 1051 See infra pp. 1765-1776. 1052 See supra pp. 766-770, infra pp. 788 et seq. It is sometimes said that “contractual freedom and … mandatory national laws are different sides of the same coin; one begins where the other ends.” Cremades & Plehn, The New Lex Mercatoria and the Harmonization of the Laws of International Commercial Transactions, 2 B.U. Int'l L. J. 317, 325 n.37 (1984). 1053 See supra pp. 766-770 & infra pp. 788 et seq. 1054 See infra pp. 775-788, 837-841. In practice, legislatures not infrequently couple rules of mandatory law with non-arbitrability rules, typically in an effort to ensure the enforcement of such rules. See infra pp. 791-800, 800-834. 1055 For example, competition or securities law claims involve matters of public policy and/or mandatory law, but will generally be arbitrable. See infra pp. 791-808; Mitsubishi Motors Corp., 473 U.S. 614, 626-27 (U.S. S.Ct. 1985); Final Award in Chamber of National and International Arbitration of Milan of 23 September 1997, XXIII Y.B. Comm. Arb. 93 (1998); Judgment of 23 June 1992, FincantieriCantieri Navali Italiani SpA v. M and Arbitration Tribunal, XX Y.B. Comm. Arb. 766 (Swiss Federal Tribunal) (1995) (Iraq sanctions were mandatory laws but for arbitrators to apply). 1056 New York Convention, Art. V(2); infra pp. 2730-2732. 1057 New York Convention, Art. V(2)(a); infra pp. 2863-2864. 1058 New York Convention, Art. V(2)(b); infra pp. 2827-2863. 1059 See infra pp. 2618-2620, 2620-2655. 1060 Geneva Protocol, Art. I (emphasis added). 1061 A. van den Berg, The New York Arbitration Convention of 1958 368 (1981); supra pp. 60-61, 203-205, 566-569. 1062 New York Convention, Art. II(1) (emphasis added). http://www.kluwerarbitration.com/CommonUI/print.aspx
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1063 New York Convention, Art. V(2)(a) (emphasis added); infra pp.
2863-2864. 1064 European Convention, Art. VI(2) (emphasis added). 1065 Inter-American Convention, Art. 5(2) (emphasis added). 1066 Inter-American Convention, Art. 1. 1067 The Inter-American Convention has not yet been frequently applied, but the effect of its text is to require recognition of arbitration agreements even if they may concern matters that cannot be resolved by arbitration, while permitting states subsequently to refuse recognition of resulting awards on this ground. This is a sensible result, consistent with the approach taken by courts in developed nations towards many other issues relating to the validity of arbitration agreements. See supra pp. 528-530 & infra p. 841. On the other hand, there is at least a credible argument that a nonarbitrability exception could be implied into Article 1. 1068 See supra pp. 768-769. 1069 See supra pp. 710-712. 1070 See Arfazadeh, Arbitrability under the New York Convention: The Lex Fori Revisited, 17 Arb. Int'l 73 (2001); A. van den Berg, The New York Arbitration Convention of 1958 152-154, 368-375 (1981); Böckstiegel, Public Policy and Arbitrability, in P. Sanders (ed.), Comparative Arbitration Practice and Public Policy in Arbitration 177 (ICCA Congress Series No. 3 1987); Hanotiau, L'arbitrabilité, 296 Recueil des Cours 29 (2002); Mourre, Arbitration and Criminal Law: Reflections on the Duties of the Arbitrator, 22 Arb. Int'l 95 (2006); Pierce, Down the Rabbit Hole: Who Decides What's Arbitrable?, 21 J. Int'l Arb. 289 (2004). 1071 Geneva Protocol, Art. I. 1072 See supra pp. 37-39, 57-61. 1073 See supra pp. 517-520, 769-770. As discussed above, Article V(1)(a)'s conflicts rules are generally-applicable rules with universal application. See supra pp. 413-414, 460-466. 1074 See supra pp. 520-523, 530-535. 1075 See infra pp. 779-781 (France) & 792-793, 800-801 (United States). 1076 Mitsubishi Motors, 473 U.S. at 639. 1077 See infra pp. 782-785, 792-793, 800-801; Mitsubishi Motors Corp., 473 U.S. 614; Scherk v. Alberto-Culver Co., 417 U.S. 506, 515-516 (U.S. S.Ct. 1974). 1078 See infra pp. 779-781; Judgment of 29 March 1991, Ganz v. Société Nationale des Chemins de Fers Tunisiens, 1991 Rev. arb. 478 (Paris Cour d'appel); Judgment of 20 June 1969, Impex v. Malteria Adriatica, 1969 Rev. arb. 95 (Paris Cour d'appel). 1079 See infra pp. 786-788. 1080 See Mourre & Radicate di Brozolo, Towards Finality of Arbitral Awards: Two Steps Forward and One Step Back, 23 J. Int'l Arb. 171 (2006); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶575 (1999); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶¶326, 342, 348 (2d ed. 2007); A. van den Berg, The New York Arbitration Convention of 1958 153 (1981) (“the field of non-arbitrable matters in international cases may … be smaller than that in domestic ones”). 1081 See supra pp. 516 et seq. 1082 See supra pp. 520, 530-535. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1083 See UNCITRAL Model Law, Art. 1(5). See also K.-P. Berger,
The New German Arbitration Law in International Perspective, 7 (2000); Sanders, UNCITRAL's Model Law on International Commercial Conciliation, 23 Arb. Int'l 105 (2007). 1084 See supra p. 773. 1085 See supra pp. 530-532. 1086 See supra pp. 520, 530-535. 1087 UNCITRAL Model Law, Art. 1(5). See H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 26 (1989). 1088 See infra pp. 776-779, 788 et seq. 1089 See infra pp. 776-788. 1090 Swiss Law on Private International Law, Art. 177(1). Article 177(1) includes all rights having a pecuniary value and being generally transferable or hereditary, as well as rights without proper pecuniary value and that are not transferable, but which are connected with a legal position that has a pecuniary aspect (such as the right of a shareholder to contest a decision of the general assembly or sanctions of a sport association). See, e.g., Judgment of 15 March 1993, DFT 119 II 271, 275 (Swiss Federal Tribunal); Vischer, in D. Girsberger et al. (eds.), Zürcher Kommentar zum IPRG, Art. 177, ¶9 (2d ed. 2004); Judgment of 23 June 1992, Fincantieri-Cantieri Navali Italiani SpA v. M and Arbitration Tribunal, XX Y.B. Comm. Arb. 766, 767 (Swiss Federal Tribunal) (1995)(“The solution adopted [in Art. 177(1) of the Swiss Law on Private International Law] actually expresses the federal legislator's intention to make access to international arbitration easier.”); Kaufmann-Kohler & Lévy, Insolvency and International Arbitration, in H. Peter, N. Jeandin & J. Kilborn (eds.), The Challenges of Insolvency Law Reform in the 21st Century 257 (2006). 1091 Report of the Swiss Federal Council (Bundesrat) of 10 November 1982 Regarding the Private International Law Act, (1983) Bundesblatt, 301; Final Report of the Expert Committee on the Draft Bill for the Private International Law Act, SSIR 13, 46-47 Zurich (1979). Article 177(1) applies generally, as a matter of Swiss law, to any international arbitration seated in Switzerland. Briner, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 177, ¶11 (2000) (“Arbitrability is therefore governed by the lex arbitri without any consideration for the possibly stricter rules of the lex causae or of the national law of the parties.”); Judgment of 23 June 1992, Fincantieri-Cantieri Navali Italiani SpA v. M and Arbitration Tribunal, XX Y.B. Comm. Arb. 766, 769 (Swiss Federal Tribunal) (1995). 1092 Judgment of 23 June 1992, Fincantieri-Cantieri Navali Italiani SpA v. M and Arbitration Tribunal, XX Y.B. Comm. Arb. 766 (Swiss Federal Tribunal) (1995). See Baron & Liniger, A Second Look at Arbitrability: Approaches to Arbitration in the United States, Switzerland and Germany, 19 Arb. Int'l 27 (2003). 1093 German ZPO, §1030 I(1) (“Any claim involving an economic interest (vermögensrechtlicher Anspruch) can be the subject of an arbitration agreement. An arbitration agreement not involving an economic interest shall have legal effect to the extent that the parties are entitled to include a settlement on the issue”); K.-P. Berger, The New German Arbitration Law in International Perspective, 7 (2000) (“notion of arbitrability implemented in both acts is extremely liberal”); Bundestags-Drucksache No. 13/5274 of 12 July 1996, reprinted in, K.-P. Berger, The New German Arbitration Law 140, 179 (1998). http://www.kluwerarbitration.com/CommonUI/print.aspx
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A number of German statutory provisions that previously excluded certain categories of dispute from arbitration have been expressly repealed. Article 91 of the Act Against Restraints on Competition was repealed with the result that all anti-trust claims are now arbitrable. 1094 Spanish Arbitration Act, Art. 1(5); French Civil Code, Art.
2059. That leaves for judicial resolution the question of what parties are free to “dispose” of. See also Austrian ZPO, §582 (“any claim involving an economic interest that lies within the jurisdiction of the courts of law can be the subject of an arbitration agreement. An arbitration agreement on claims which do not involve an economic interest shall be legally effective insofar as the parties are capable of concluding a settlement on the issue in dispute.”). 1095 For case law involving arbitration of divorce matters, see, e.g., Judgment of 3 December 1986, 1987 NJW 651 (German Bundesgerichtshof); Judgment of 8 February 1995, 1996 NJW-RR 500 (Landgericht Giessen); Cohoon v. Cohoon, 770 N.E.2d 885 (Ind. Ct. App. 2002); Kelm v. Kelm, 749 N.E.2d 299 (Ohio 2001); Kirshenbaum v. Kirshenbaum, 929 P.2d 1204 (Wash. Ct. App. 1997); Faherty v. Faherty, 477 A.2d 1257 (N.J. 1984). 1096 Huber, Schiedsvereinbarungen im Scheidungsrecht, 2004 SchiedsVZ 280, 281. The concept of allowing disputes in connection with divorce to be settled by arbitration has thoughtful proponents in a number of jurisdictions. See, e.g., Wagner, Schiedsgerichtsbarkeit in Scheidungssachen, in Festschrift Schlosser 1025, 1035-1048 (2005); Vischer, in D. Girsberger et al. (eds.), Zürcher Kommentar zum IPRG, Art. 177, ¶11 (2d ed. 2004); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶207 (2006); McGuane, Model Marital Arbitration Act: A Proposal, 14 J. Am. Acad. Matrimonial Law 393, 396 (1997); Schlissel, A Proposal for Final and Binding Arbitration of Initial Custody Determinations, 26 Fam. L.Q. 71, 73, 76-79 (1992). 1097 See infra pp. 824-826 (consumer disputes under EU law) & 802-803 (securities disputes under German law). Non-arbitrability rules concerning franchise and distribution disputes are prime examples. 1098 French Civil Code, Arts. 2059, 2060(1). These provisions essentially preserved from the 1806 Code of Civil Procedure. E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶560 (1999). 1099 Level, L'arbitrabilité, 1992 Rev. arb. 213, 219; J.-P. Gridel, Notions Fondamentales de Droit et Droit Français, Introduction, Méthodologie, Synthèses 7-8 (1992). 1100 See supra pp. 520, 530-535 & infra pp. 779-781. 1101 Judgment of 15 May 1961, Jean Tardits et Cie v. Jydsk Andels Foderstof Forretning, 89 J.D.I. (Clunet) 140 (Orleans Cour d'appel) (1962). The Court held that claims for breach of contract raised issues “that could only be resolved by interpreting and applying rules of French economic public policy, which governed the performance of the contract,” which were non-arbitrable. 1102 For a disapproving U.S. account of the erosion of the French non-arbitrability doctrine, see Carbonneau & Janson, Cartesian Logic and Frontier Politics: French and American Concepts of Arbitrability, 2 Tul. J. Int'l & Comp. L. 193, 194 (1994). 1103 Judgment of 21 February 1964, Meulemans et Cie v. Robert, 92 J.D.I. (Clunet) 113 (Paris Cour d'appel) (1965). The Court held http://www.kluwerarbitration.com/CommonUI/print.aspx
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that a claim for damages, where an export license had not been obtained, was arbitrable, provided that it did not concern the legality of the underlying transaction. See also Judgment of 11 December 1981, Bureau de recherches géologiques et minières v. Société Patina Int'l NV, 1982 Rev. arb. 311 (Paris Cour d'appel) (tort claims arbitrable); Judgment of 11 October 1954, 1982 Dalloz 388 (French Cour de cassation) (tort claims may be arbitrable); Judgment of 28 November 1950, Tissot v. Neff, 1950 Bull. Civ. No. 316, at 154 (French Cour de cassation). 1104 Judgment of 20 June 1969, Impex v. Malteria Adriatica, 1969 Rev. arb. 95 (Paris Cour d'appel). 1105 Judgment of 29 March 1991, Ganz v. Société Nationale des Chemins de Fers Tunisiens, 1991 Rev. arb. 478 (Paris Cour d'appel). Applying this analysis, the Court concluded that “the allegation of fraud or spoliation [was] not in itself such as to exclude the jurisdiction of the arbitral tribunal.” Id. at 480. 1106 Judgment of 19 May 1993, Société Labinal v. Sociétés Mors et Westland Aerospace, 1993 Rev. arb. 645, 650 (Paris Cour d'appel); Judgment of 14 October 1993, Société Aplix v. Société Velcro, 1994 Rev. arb. 164 (Paris Cour d'appel) (arbitrators may apply EC competition law provisions and, where appropriate, draw the consequences of wrongful conduct). 1107 Judgment of 18 November 2004, SA Thalès Air Défense v. GIE Euromissile, 132 J.D.I. (Clunet) 357 (Paris Cour d'appel) (2005). 1108 For a good discussion, see E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶560, 567 (1999). 1109 The only exception to this is 9 U.S.C. §15, which provides that the U.S. Act of State doctrine does not permit non-enforcement of arbitration agreements or awards. U.S. FAA, 9 U.S.C. §15; infra pp. 830-831. 1110 346 U.S. 427 (U.S. S.Ct. 1953). 1111 The Court relied principally on §14 of the U.S. federal Securities Act, which provides: “Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this subchapter or of the rules and regulations of the Commission shall be void.” 16 U.S.C. §77n. 1112 346 U.S. at 438. 1113 See, e.g., Hanes Corp. v. Millard, 531 F.2d 585 (D.C. Cir. 1976); Tire & Rubber Co. v. Jefferson Chem. Co., 182 U.S.P.Q. 70 (2d Cir. 1974); Zip Mfg Co. v. Pep Mfg Co., 44 F.2d 184, 186 (D. Del. 1930); Diematic Mfg Corp. v. Packaging Indus. Inc., 381 F.Supp. 1057 (S.D.N.Y. 1974). In 1982 and 1984, U.S. legislation rendering most categories of patent disputes arbitrable was enacted. 35 U.S.C. §§294, 135 (d). See infra pp. 805-808. 1114 See, e.g., Lake Comm., Inc. v. ICC Corp., 738 F.2d 1473 (9th
Cir. 1984); Univ. Life Ins. Co. v. Unimarc Ltd, 699 F.2d 846 (7th Cir. 1983); Cobb v. Lewis, 488 F.2d 41 (5th Cir. 1974); Helfenbein v. Int'l Indus., Inc., 438 F.2d 1068 (8th Cir. 1971); Am. Safety Equip. v. J.P. Maguire, 391 F.2d 821 (2d Cir. 1968). Compare infra pp. 782-785, 792-793. 1115 SA Mineracao da Trindade-Samitri (Brazil) v. Utah Int'l Inc. 576 F.Supp. 566 (S.D.N.Y. 1984). Compare infra pp. 786-788.
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1116 See, e.g., Crawford v. Halsey, 124 U.S. 648, 643 (U.S. S.Ct.
1888); Zimmerman v. Continental Airlines, Inc., 712 F.2d 55, 59-60 (3d Cir. 1983) (“because of the importance of bankruptcy proceedings in general, and the need for the expeditious resolution of bankruptcy matters in particular, we hold that the intentions of Congress will be better realized if the Bankruptcy Reform Act is read to impliedly modify the Arbitration Act. Thus, while a bankruptcy court would have the power to stay proceedings pending arbitration, the use of this power is left to the sound discretion of the bankruptcy court.”); Allegaert v. Perot, 548 F.2d 432 (2d Cir. 1977) (bankruptcy claims not arbitrable where trustee asserts claims for the benefit of the estate's creditors, who would not be bound by arbitration agreement, rather than on behalf of the bankrupt); Fallick v. Kehr, 369 F.2d 899, 904-906 (2d Cir. 1966). Compare infra pp. 809-817. 1117 See, e.g., State Est. for Agri. Product Trading v. M/V Wesermunde, 838 F.2d 1576 (11th Cir. 1988) (declining to enforce foreign arbitration clause, reasoning that such enforcement would violate COGSA). See infra pp. 831-832. 1118 Alexander v. Gardner-Denver Co., 415 U.S. 36 (U.S. S.Ct. 1974). 1119 See infra pp. 791-792; Alexander, 415 U.S. at 57 (“other facts may still render arbitral processes comparatively inferior to judicial processes in the protection of Title VII rights. Among these is the fact that the specialized competence of arbitrators pertains primarily to the law of the shop, not the law of the land.”); McDonald v. City of West Branch, 466 U.S. 284, 290 (U.S. S.Ct. 1984) (“although arbitration is well suited to resolving contractual disputes … it cannot provide an adequate substitute for a judicial proceeding in protecting the federal statutory and constitutional rights”). Compare infra pp. 782-785, 792-793. 1120 E.g., State Est. for Agri. Product Trading v. M/V Wesermunde, 838 F.2d 1576 (11th Cir. 1988) (declining to enforce international arbitration agreement as to COGSA claims); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 723 F.2d 155 (1st Cir. 1983); N.V. Maatschappij Voor Industriele Waarden v. A. O. Smith Corp., 532 F.2d 874 (2d Cir. 1976); Societe Nationale Pour La Recherche etc. v. Gen. Tire & Rubber Co., 430 F.Supp. 1332, 1332 (S.D.N.Y. 1977) (“[T]o permit arbitration by an international tribunal of a Sherman Act claim would be particularly inappropriate considering the public interest in private enforcement of the antitrust laws. These factors, uncertainty as to the scope of the arbitration clause and utilization of a foreign tribunal, were not present in [other case law].”). 1121 See supra pp. 779-781. 1122 Scherk, 417 U.S. at 515-516. 1123 Mitsubishi Motors Corp., 473 U.S. 614. For some of the considerable commentary on Mitsubishi, see Allison, Arbitration of Private Antitrust Claims in International Trade: A Study in the Subordination of National Interests to the Demands of A World Market, 18 N.Y.U. Int'l L. & Pol. 361 (1986); Carbonneau, The Exuberant Pathway to Quixotic Internationalism: Assessing the Folly of Mitsubishi, 19 Vand. J. Transnat'l L. 265 (1986); Cloud, Mitsubishi and the Arbitrability of Antitrust Claims: Did the Supreme Court Throw the Baby Out With the Bathwater?, 18 L. & Pol'y Int'l Bus. 341 (1986); Radicati di Brozolo, Antitrust: A Paradigm of the Relations Between Arbitration and Mandatory Rules: A Fresh Look at the “Second Look,” 2004 Int'l Arb L.Rev. 23; Fox, Mitsubishi v. Soler and its Impact on International Commercial Arbitration, 19 J. World Trade L. 579 (1985); Lipner, International Antitrust Laws: To Arbitrate or Not to Arbitrate, 19 Geo. Wash. J. Int'l L. & Econ. 395 (1985); http://www.kluwerarbitration.com/CommonUI/print.aspx
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McLendon, Subject-Matter Arbitrability in International Cases: Mitsubishi Motors Closes the Circle, 11 N.C.J. Int'l L. & Com. Reg. 81 (1986); Posner, Arbitration and the Harmonization of International Commercial Law: A Defense of Mitsubishi, 39 Va. J. Int'l L. 647 (1999); Smit, Mitsubishi: It is Not What It Seems to Be, 4(3) J. Int'l Arb. 7 (1987). 1124 Scherk, 417 U.S. at 517-518. 1125 Mitsubishi Motors, 473 U.S. at 629. 1126 Mitsubishi Motors, 473 U.S. at 633. 1127 Mitsubishi Motors, 473 U.S. at 636. The Court reasoned that “the tribunal … should be bound to decide [the parties'] dispute in accord with the national law giving rise to the claim.” 473 U.S. at 636-637. 1128 Mitsubishi Motors, 473 U.S. at 639 n.21. 1129 Mitsubishi Motors, 473 U.S. at 639. 1130 Mitsubishi Motors, 473 U.S. at 628. 1131 Mitsubishi Motors, 473 U.S. at 639-40 n.21. See also Shearson/Am. Express Inc. v. McMahon, 482 U.S. 220, 226-27 (U.S. S.Ct. 1987). 1132 See authorities cited supra pp. 779-781 & infra pp. 786-788; Carbonneau & Janson, Cartesian Logic and Frontier Politics: French and American Concepts of Arbitrability, 2 Tul. J. Int'l & Comp. L. 193, 194 (1994) (“study of United States, French and other European court opinions … clearly demonstrates that the dilution of arbitrability in United States law is also occurring in France and other European civil law jurisdictions”); Radicati di Brozolo, Antitrust: A Paradigm of the Relations Between Arbitration and Mandatory Rules: A Fresh Look at the “Second Look,” 2004 Int'l Arb. L. Rev. 23. 1133 See Mourre & Radicati di Brozolo, Towards Finality of Arbitral Awards: Two Steps Forward and One Step Back, 23 J. Int'l Arb. 171 (2006); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶575 (1999); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶¶326, 342, 348 (2d ed. 2007). 1134 See, e.g., Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220 (U.S. S.Ct. 1987); Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (U.S. S.Ct. 1989) (overruling Wilko v. Swan, 346 U.S. 427 (U.S. S.Ct. 1953)). 1135 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (U.S. S.Ct. 1991). 1136 500 U.S. at 27, 35. 1137 See infra pp. 792-793; Kowalski v. Chicago Tribune Co., 854 F.2d 168 (7th Cir. 1988) (antitrust claim arbitrable in domestic context). 1138 For a somewhat exaggerated assessment, see Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 452 (2005) (“I think … the category of ‘inarbitrable’ disputes is now a null set”). 1139 See ET Plus SA v. Jean-Paul Welter [2005] EWHC 2115 (Comm.) (Q.B.) (“there is no realistic doubt that such competition or antitrust claims are arbitrable”). 1140 In Re Vocam Europe Ltd [1998] B.C.C. 396 (Ch.), the English court summarily rejected arguments that disputes concerning minority shareholder rights under §459 of the English Companies Act, 1985, were non-arbitrable. 1141 Judgment of 22 October 1976, SA Tradax Export v. Spa http://www.kluwerarbitration.com/CommonUI/print.aspx
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Carapelli, III Y.B. Comm. Arb. 279 (Florence Corte di Appello) (1978) (tort claims may be arbitrable, even if facts could also provide grounds for criminal liability) (1978). 1142 New Zealand Arbitration Act, Art. 10(1). 1143 Italian Code of Civil Procedure, Art. 806. Italian courts have interpreted the exceptions in Article 806 of the Italian Code of Civil Procedure narrowly. See M. Rubino-Sammartano, International Arbitration Law 104 (1990). See also Final Award in Chamber of National and International Arbitration of Milan of 23 September 1997, XXIII Y.B. Comm. Arb. 93 (1998) (issues involving mandatory provisions of Italian law are arbitrable). 1144 See, e.g., Latvian Civil Procedure Law, Art. 478(1) (“a dispute, the adjudication of which may infringe the legal rights or interests of a person that is not a party to the arbitration agreement” is not arbitrable); Japanese Arbitration Law, Art. 13(1) (arbitration agreement valid “when its subject matter is a civil dispute that is capable of being settled by the parties”); Norwegian Arbitration Act, §9 (“Disputes concerning legal relations in respect of which the parties have an unrestricted right of disposition may be determined by arbitration.”); Argentinean National Code of Civil and Commercial Procedure, Art. 736 (“Any issues but for those mentioned in Article 737 [i.e., issues ‘excluded by law from compromise and settlement’] can be submitted to the decision of arbitrators.…”); Malaysian Arbitration Act, §4 (“Any dispute which the parties have agreed to submit to arbitration under an arbitration agreement may be determined by arbitration unless the arbitration agreement is contrary to public policy.… The fact that any written law confers jurisdiction in respect of any matter on any court of law but does not refer to the determination of that matter by arbitration shall not, by itself, indicate that a dispute about that matter is not capable of determination by arbitration.”); South African Arbitration Act, §2 (making exception only for “(a) any matrimonial cause or any matter incidental to any such cause; or (b) any matter relating to status”); Chinese Arbitration Law, Art. 3 (permitting arbitration of “[c]ontractual disputes and other disputes over rights and interests in property” and making exception only for “(1) marital, adoption, guardianship, support and succession disputes; (2) administrative disputes that laws require to be handled by administrative authorities.”); S. Wang, Resolving Disputes in the PRC 78 (1996) (“Except for the disputes specified by Article 3 of the Arbitration Law, it is established that any types of commercial disputes, including trademark disputes, patent disputes, competition disputes, and security disputes, which were previously considered to be sensitive, are now arbitrable under the Arbitration Law”). 1145 Himpurna Calif. Energy Ltd v. PT (Persero) Perusahaan Listruik Negara, Final Ad Hoc Award (4 May 1999), XXV Y.B. Comm. Arb. 13, 30-31 (2000). 1146 Ibid. See also Final Award in Chamber of National and International Arbitration of Milan of 18 March 1999, XXV Y.B. Comm. Arb. 382 (2000) (upholding arbitrability of extra contractual claims). 1147 Metrocall Inc. v. Electronic Tracking Sys. Pty Ltd, [2000] NSW IR Comm. 136 (N.S.W. Indus. Relations Comm'n). 1148 Metrocall Inc. v. Electronic Tracking Sys. Pty Ltd, [2000] NSW IR Comm. 136 (N.S.W. Indus. Relations Comm'n). 1149 As discussed below, the New York Convention is best understood as imposing limits on a Contracting State's ability to declare subjects non-arbitrable. Seesupra pp. 530-535 & infra pp. 1264-1270, 2556-2560, 2838-2840. A decision reserving to national courts or administrative agencies determinations whether a http://www.kluwerarbitration.com/CommonUI/print.aspx
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particular contract was “unfair” contradict these limitations, by establishing an overbroad rule of non-arbitrability, rather than an exception grounded in specific and articulated local public policies. That result is particularly true given the long-standing and unquestioned competence of arbitral tribunals to apply doctrines such as unconscionability or changed circ*mstances in contractual settings. 1150 The Hub Power Co. v. Pakistan WAPDA, 16 Arb. Int'l 439 (Pakistan S.Ct. 2000) (2000); supra pp. 532-533. 1151 See supra pp. 775-788. 1152 See supra pp. 775-776. 1153 See infra pp. 791-796. 1154 See, e.g., Wilko v. Swan, 346 U.S. 427, 435, n.18 (U.S. S.Ct. 1953) (“We … proceed to the question decided below, namely, whether the 1933 Act evidences a public policy which forbids referring the controversy to arbitration.”); Judgment of 18 July 1987, XVII Y.B. Comm. Arb. 534 (Bologna Tribunale) (1992). 1155 See, e.g., Wilko, 346 U.S. at 438 (“Congress has afforded participants in transactions subject to its legislative power an opportunity generally to secure prompt, economical and adequate solution of controversies through arbitration if the parties are willing to accept less certainty of legally correct adjustment … Recognizing the advantages that prior agreements for arbitration may provide for the solution of commercial controversies, we decide that the intention of Congress concerning the sale of securities is better carried out by holding invalid such an agreement for arbitration of issues arising under the Act.”) (emphasis added); Mitsubishi Motors, 473 U.S. at 640 (Stevens, J., dissenting); Alexander, 415 U.S. at 58 (“Arbitral procedures, while well suited to the resolution of contractual disputes, make arbitration a comparatively inappropriate forum for the final resolution of rights created by Title VII. This conclusion rests first on the special role of the arbitrator, whose task is to effectuate the intent of the parties rather than the requirements of enacted legislation.… Other facts may [also] render arbitral processes comparatively inferior to judicial processes in the protection of Title VII rights. Among these is the fact that the specialized competence of arbitrators pertains primarily to the law of the shop, not the law of the land.… Moreover, the factfinding process in arbitration usually is not equivalent to judicial factfinding. The record of the arbitration proceedings is not as complete; the usual rules of evidence do not apply; and rights and procedures common to civil trials, such as discovery, compulsory process, cross-examination, and testimony under oath, are often severely limited or unavailable.… Indeed, it is the informality of arbitral procedure that enables it to function as an efficient, inexpensive, and expeditious means for dispute resolution. This same characteristic, however, makes arbitration a less appropriate forum for final resolution of Title VII issues than the federal courts.”). But see Shearson/Am. Express, Inc. v. McMahon, 482 U.S. 220, 233 (U.S. S.Ct. 1987) (“the mistrust of arbitration that formed the basis for the Wilko opinion in 1953 is difficult to square with the assessment of arbitration that has prevailed since that time”). 1156 See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 723 F.2d 155, 162 (1st Cir. 1983) (“strong possibility that contracts which generate antitrust disputes may be contracts of adhesion”); Doctor's Assoc., Inc. v. Casarotto, 517 U.S. 681 (U.S. S.Ct. 1996) (“generally applicable contract defenses, such as fraud, duress or unconscionability, may be applied to invalidate arbitration agreements”); Nagrampa v. MailCoups, Inc., 469 F.3d 1257 (9th Cir. http://www.kluwerarbitration.com/CommonUI/print.aspx
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2006) (“Procedural unconscionability analysis focuses on ‘oppression’ or ‘surprise.’#”; “Oppression arises from an inequality of bargaining power that results in no real negotiation and an absence of meaningful choice”). 1157 See, e.g., Saturday Evening Post Co. v. Rumbleseat Press, Inc., 816 F.2d 1191, 1198 (7th Cir. 1987) (“It is true that a copyright is a form of monopoly, so that a decision erroneously upholding the validity of a copyright might have the effect of continuing an unlawful monopoly in force. But there is no reason to think that arbitrators are more likely to err in copyright cases than state or federal judges are”); Benton v. Singleton, 40 S.E. 811 (Ga. 1902) (“While the law favors the submission to arbitration of disputes arising between individuals over private matters as to which they alone are concerned, the submission to arbitrators of questions in which the public at large is interested, is not only discountenanced but positively forbidden”). 1158 See, e.g., Alexander, 415 U.S. at 53, 94 (“The arbitrator, however, has no general authority to invoke public laws that conflict with the bargain between the parties.”); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 32-35, (U.S. S.Ct. 1991) (arbitration of registered securities representative's age discrimination claim was not held to be inadequate as arbitrators had power to fashion equitable relief, applicable rules provided for collective proceedings and did not restrict types of relief arbitrator could award); Wyatt v. Benson, 23 Barb. 327 (N.Y. Sup. 1857) (“A religious corporation, not having the power to sell its real estate without the consent of the supreme court, cannot submit the question of sale to any other tribunal”); Harrington v. Brown, 1865 WL 4687, at *1 (Mass. 1865) (“arbitrators to whom a matter in dispute and also all accounts outstanding between parties have been submitted have no authority to award concerning the costs of a criminal prosecution instituted by one of the parties against the other, and growing out of the matter in dispute”; since this was a matter in which the Commonwealth was concerned, “it would be against public policy to permit these parties to settle the question of liability as a private question between them.”). 1159 Mitsubishi Motors, 473 U.S. at 627. 1160 See infra pp. 2177-2184 for a discussion of arbitrators' power to consider and decide claims based on mandatory laws and public policy. See also supra pp. 770-772. 1161 Mitsubishi Motors, 473 U.S. at 636, 639 n.21. 1162 The grounds for these international obligations are discussed above. See supra pp. 520, 530-535, 769-770. 1163 See, e.g., Lake Comm., Inc. v. ICC Corp., 738 F.2d 1473 (9th Cir. 1984); Univ. Life Ins. Co. v. Unimarc Ltd, 699 F.2d 846 (7th Cir. 1983); Cobb v. Lewis, 488 F.2d 41 (5th Cir. 1974); Helfenbein v. Int'l Indus., Inc., 438 F.2d 1068 (8th Cir. 1971); Am. Safety Equip. Corp. v. J.P. Maguire & Co., 391 F.2d 821 (2d Cir. 1968). See also Baxter Int'l, Inc. v. Abbott Laboratories, 315 F.3d 829 (7th Cir. 2003) (Cudahy, J., dissenting) (“For some considerable time not long in the past, … antitrust disputes were not arbitrable”). 1164 See, e.g., Judgment of 18 July 1987, XVII Y.B. Comm. Arb. 534 (Bologna Tribunale) (1992) (“the nullity of the [arbitration] clause concerns the clause's conflict with imperative provisions [of EC competition law] and cannot, therefore … be capable of settlement by arbitration”); Judgment of 28 April 1992, XVIII Y.B. Comm. Arb. 143, 146 et seq. (Swiss Federal Tribunal) (1993); Judgment of 13 November 1998, XXV Y.B. Comm. Arb. 511 (Swiss Federal Tribunal) (2000). http://www.kluwerarbitration.com/CommonUI/print.aspx
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1165 See, e.g., Award in ICC Case No. 1397, 101 J.D.I. (Clunet)
878 (1974) (although considering EU competition law claims to evaluate challenge to validity of contract, tribunal reasoned: “a dispute relating essentially to the validity or nullity of a contract under Article 85 of the Treaty of Rome would be beyond the jurisdiction of an arbitrator and no arbitration agreement could substitute a private judge for a public judge to resolve a dispute concerning public policy in se and per se”). Compare Award in ICC Case No. 2811, 106 J.D.I. (Clunet) 984 (1979); Award in ICC Case No. 4604, 112 J.D.I. (Clunet) 973 (1985); Final Award in ICC Case No. 7097, International Commercial Arbitration in Europe 38 (ICC Ct. Bull. Spec. Supp. 1993); Final Award in ICC Case No. 7673, International Commercial Arbitration in Europe 35 (ICC Ct. Bull. Spec. Supp. 1993). 1166 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 723 F.2d 155, 162 (1st Cir. 1983). 1167 Mitsubishi Motors, 473 U.S. at 626-27. The Court explained that “concerns of international comity, respect for the capacities of foreign and international tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties' agreement, even assuming that a contrary result would be forthcoming in a domestic context.” 473 U.S. at 629. See supra pp. 782-785. 1168 See 473 U.S. at 628-629; Id. at 655-656 (Stevens, J., dissenting) (citing lower court decisions); supra pp. 782-785. 1169 Mitsubishi Motors, 473 U.S. at 627-628. The Court's decision provoked a vigorous dissent by Justice Stevens. Among other things, Justice Stevens reasoned: “The Court's repeated incantation of the high ideals of ‘international arbitration’ creates the impression that this case involves the fate of an institution designed to implement a formula for world peace. But just as it is improper to subordinate the public interest in enforcement of antitrust policy to the private interest in resolving commercial disputes, so is it equally unwise to allow a vision of world unity to distort the importance of the selection of the proper forum for resolving this dispute.… In my opinion, the elected representatives of the American people would not have us dispatch an American citizen to a foreign land in search of an uncertain remedy for the violation of a public right that is protected by the Sherman Act. This is especially so when there has been no genuine bargaining over the terms of the submission, and the arbitration remedy provided has not even the most elementary guarantees of fair process. Consideration of a fully developed record by a jury, instructed in the law by a federal judge, and subject to appellate review, is a surer guide to the competitive character of a commercial practice than the practically unreviewable judgment of a private arbitrator.” 473 U.S. at 665-666 (Stevens, J., dissenting). 1170 See, e.g., JLM Indus. v. Stolt-Nielsen SA, 387 F.3d 163, 181
(2d Cir. 2004) (international antitrust claim arbitrable notwithstanding its asserted complexity); Seacoast Motors of Salisbury, Inc. v. http://www.kluwerarbitration.com/CommonUI/print.aspx
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DaimlerChrysler Motors Corp., 271 F.3d 6, 11 (1st Cir. 2001) (domestic antitrust claims arbitrable); Kotam Electronics, Inc. v. JBL Consumer Products, Inc., 93 F.3d 724, 728 (11th Cir. 1996); George Fischer Foundry Sys., Inc. v. Adolph H. Hottinger Maschinenbau GmbH, 55 F.3d 1206, 1210 (6th Cir. 1995) (international antitrust claim arbitrable “even if there is a chance that United States antitrust statutory rights will not be fully recognized”); Sanjuan v. Am. Bd of Psychiatry & Neurology, 40 F.3d 247, 250 (7th Cir. 1994) (“Producers may agree to arbitrate their antitrust disputes – certainly so for international transactions … and likely so for domestic transactions”); Nghiem v. NEC Elecs., Inc., 25 F.3d 1437, 1441-1442 (9th Cir. 1994) (domestic antitrust claims arbitrable); Swensen's Ice Cream Co. v. Corsair Corp., 942 F.2d 1307, 1310 (8th Cir. 1991) (suggesting, without deciding, that domestic as well as international antitrust claims are arbitrable); HCI Techs., Inc. v. Avaya, Inc., 446 F.Supp.2d 518, 525 (D. Va. 2006) (same); In re Currency Conversion Fee Antitrust Litig., 265 F.Supp.2d 385, 410 (S.D.N.Y. 2003); Automated Tech. Machs., Inc. v. Diebold, 2002 U.S. Dist. LEXIS 9146 (D. La. 2002); New York Cross Harbor R.R. Terminal Corp. v. CONRAIL, 72 F.Supp.2d 70, 80 (E.D.N.Y. 1998); Acquaire v. Canada Dry Bottling, 906 F.Supp. 819, 837 (E.D.N.Y. 1995); Hough v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 757 F.Supp. 283, 286 (S.D.N.Y. 1991), aff'd, 946 F.2d 883 (2d Cir. 1991); Cindy's Candle Co. v. WNS Inc., 714 F.Supp. 973 (N.D. Ill. 1989); In re Hops Antitrust Litig., 655 F.Supp. 169 (E.D. Mo. 1987) (requiring arbitration of antitrust claims against foreign defendants); Genna v. Lady Foot Int'l Inc., 1986 WL 1236 (E.D. Pa. 1986) (domestic antitrust claim arbitrable). 1171 Mitsubishi Motors, 473 U.S. at 638. 1172 See infra pp. 796-798. 1173 See, e.g., Judgment of 18 July 1987, XVII Y.B. Comm. Arb. 534 (Bologna Tribunale) (1992); Judgment of 28 April 1992, XVIII Y.B. Comm. Arb. 143, 144 (Swiss Federal Tribunal) (1993); Judgment of 13 November 1998, XXV Y.B. Comm. Arb. 511 (Swiss Federal Tribunal) (2000). See also Bensaude, Defining the Limits of Scrutiny of Awards Based on Alleged Violations of European Competition Law, 22 J. Int'l Arb. 239 (2005); de Groot, The Impact of the Benetton Decision on International Commercial Arbitration, 20 J. Int'l Arb. 365 (2003); Dhunèr, EC Competition Law and National Arbitration Procedure, 2000:1 Stock. Arb. Rev. 24; Landi & Rogers, Arbitration of Antitrust Claims in the United States and Europe, 1314 Concorrenza e Mercato 455 (2005-2006); Liebscher, Arbitration and EC Competition Law – The New Competition Regulation: Back to Square One?, 2003 Int'l Arb. L. Rev. 84; Liebscher, European Public Policy After Eco Swiss, 10 Am. Rev. Int'l Arb. 81 (1999). 1174 Eco Swiss China Time Ltd v. Benetton Int'l NV, C-126/97 [1999] E.C.R. I-3055 (E.C.J.). 1175 One commentator has concluded that “Eco Swiss extends Mitsubishi, which held that claims arising out of competition laws may be arbitrated, by holding that they must be arbitrated and if they are not, any award is subject to challenge, presumably not only in an action to annul under domestic law but also in an action under the New York Convention.” See von Mehren, The Eco-Swiss Case and International Arbitration, 19 Arb. Int'l 465 (2003). See also Zekos, Eco Swiss China Time Ltd v. Benetton International NV – Courts' Involvement in Arbitration, 17(2) J. Int'l Arb. 91 (2000); Blanke, Defining the Limits of Scrutiny of Awards Based on Alleged Violations of European Competition Law, 23 J. Int'l Arb. 249 (2006). 1176 See, e.g., Judgment of 19 May 1993, Société Labinal v. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Société Mors et Westland Aerospace, 1993 Rev. arb. 645, 650 (Paris Cour d'appel) (competition disputes arbitrable in international matters); Judgment of 14 October 1993, Société Aplix v. Société Velcro, 1994 Rev. arb. 164 (Paris Cour d'appel); Judgment of 28 April 1992, XVIII Y.B. Comm. Arb. 143 (Swiss Federal Tribunal) (1993) (EU competition law claim arbitrable); Judgment of 21 December 1991, SpA Coveme v. Compagnie Française des Isolants, XVIII Y.B. Comm. Arb. 422 (Bologna Corte di Appello) (1993) (EU competition claims arbitrable); ET Plus SA v. Jean-Paul Welter [2005] EWHC 2115 (Comm.) (Q.B.) (“there is no realistic doubt that such competition or antitrust claims are arbitrable”); Swedish Arbitration Act, §1(3) (“arbitrators may rule on the civil law effects of competition law as between the parties”). See also Blanke, Comment on Dirland Telecom, [2005] E.C.L.R. 434; P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶318 (2d ed. 1989); Landi & Rogers, Arbitration of Antitrust Claims in the United States and Europe, 13-14 Concorrenza e Mercato 455 (2005-2006); Dalhuisen, The Arbitrability of Competition Issues, 11 Arb. Int'l 151 (1995); Kühn, Arbitrability of Anti-Trust Disputes in the Federal Republic of Germany, 3 Arb. Int'l 230 (1987); Schnyder, Die Bedeutung des EG-Kartellrechts für Schweizer Schiedsgerichte Beiheft 20 zur ZSR (1996). 1177 See infra pp. 796-798; Eco Swiss China Time Ltd v. Benetton Int'l NV, C-126/97 [1999] E.C.R. I-3055 (E.C.J.); Landi & Rogers, Arbitration of Antitrust Claims in the United States and Europe, 1314 Concorrenza e Mercato 455 (2005-2006). 1178 See supra pp. 792-793 & infra pp. 796-798. 1179 See, e.g., New Zealand v. Mobil Oil New Zealand Ltd, XIII Y.B. Comm. Arb. 638, 651-654 (Wellington High Court 1987) (1988) (New Zealand competition law claims held arbitrable); Stericorp. Ltd v. Stericycle Inc., XXXI Y.B. Comm. Arb. 549, 556 (Victoria S.Ct. 2005) (2006) (disputes under Australian Trade Practices Act are arbitrable); Hi-Fert Pty Ltd v. Kiukiang Maritime Carriers Inc., 12(7) Mealey's Int'l Arb. Rep. C-1 (Australian Fed. Ct. 1997) (1997) (rejecting argument that claims under Australian Trade Practices Act are non-arbitrable); Recyclers of Australia Pty Ltd v. Hettinga Equip. Inc., (2000) 175 A.L.R. 725 (Australian Fed. Ct.); IBM Australia Ltd v. Nat'l Dist. Serv. Ltd, (1991) 22 NSWLR 466 (N.S.W. S.Ct.) (Australian antitrust claim arbitrable); Beechey, Arbitrability of Antitrust/Competition Law Issues – Common Law, 12 Arb. Int'l 179 (1996). 1180 Francis Travel Mkt'g Pty Ltd v. Virgin Atlantic Airways Ltd, [1996] 131 FLR 422, 428 (N.S.W. Court of Appeal). See also Comandate Marine Corp v. Pan Australia Shipping Pty Ltd, [2006] FCAFC 192 (Australian Fed. Ct.) (“There is nothing inimical to Australian public policy or to the terms of the Trade Practices Act in commercial parties agreeing to commercial arbitration … There is no relevant Australian statutory provision … that might affect its operation … The Trade Practices Act is not being undermined; rather, another law of the Parliament [i.e., Australia's International Arbitration Act] is in operation.”). 1181 See, e.g., Award in ICC Case No. 4604, 112 J.D.I. (Clunet) 973 (1985); Final Award in ICC Case No. 7097, International Commercial Arbitration in Europe 38 (ICC Ct. Bull. Spec. Supp. 1993); Final Award in ICC Case No. 7673, International Commercial Arbitration in Europe 35 (ICC Ct. Bull. Spec. Supp. 1993); Award in Court of Arbitration for Sport, Switzerland, in Case No. 98/200 (20 August 1999), XXV Y.B. Comm. Arb. 393 (2000) (considering and partially granting claims based on EU competition laws); Judgment http://www.kluwerarbitration.com/CommonUI/print.aspx
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of 13 November 1998, XXV Y.B. Comm. Arb. 511, 513 (Swiss Federal Tribunal) (2000) (“It is generally recognized that Swiss civil courts or arbitrators, when deciding the validity of a contractual agreement affecting the EU market, shall examine this issue in the light of [EU competition law]. They shall do so even if the parties have contractually agreed to apply Swiss law to their contractual relationship.”); Partial Award in ICC Case No. 7146, XXVI Y.B. Comm. Arb. 119 (2001) (rejecting claims that agreements violated EC competition law); Final Award in ICC Case No. 8423, XXVI Y.B. Comm. Arb. 153 (2001) (rejecting argument that non-competition clause violated EC competition law); Final Award in Chamber of National and International Arbitration of Milan of 23 September 1997, XXIII Y.B. Comm. Arb. 93 (1998) (issues involving mandatory provisions of Italian law are arbitrable). 1182 Mitsubishi Motors, 473 U.S. at 638. 1183 Eco Swiss China Time Ltd v. Benetton Int'l NV, C-126/97 [1999] E.C.R. I-3055 (E.C.J.). 1184 Eco Swiss China Time Ltd v. Benetton Int'l NV, C-126/97 [1999] E.C.R. I-3055, ¶32 (E.C.J.). See also Judgment of 18 November 2004, SA Thalès Air Défense v. GIE Euromissile, 132 J.D.I. (Clunet) 357 (Paris Cour d'appel) (2005) (issues of EC competition law are arbitrable but subject to review by national courts applying national and EU law); Judgment of 24 March 2005, Mktg Displays Int'l v. VR Van Raalte Reclame BV, XXXI Y.B. Comm. Arb. 808, 820 (Hague Gerechtshof) (2004) (refusing to recognize arbitral award made in United States, under Michigan law, because it violated EU competition laws). See Bensaude, Defining the Limits of Scrutiny of Awards Based on Alleged Violations of European Competition Law, 22 J. Int'l Arb. 239 (2005). A contrary view has been adopted by the Swiss Federal Tribunal. See Judgment of 8 March 2006, DFT 132 III 389, 397 (Swiss Federal Tribunal); Judgment of 1 February 2002, 20 ASA Bull. 337, 348 (Swiss Federal Tribunal) (2002), confirming ICC Award of 15 July 2001; Judgment of 13 November 1998, XXV Y.B. Comm. Arb. 511, 513 (Swiss Federal Tribunal) (2000); N. Shelkoplyas, The Application of EC Law in Arbitration Proceedings 313-315 (2003) (“It is submitted that non-application or incorrect application of EC competition law cannot by itself be contrary to public policy because, if it were, there should be a corresponding positive obligation on arbitrators to enforce certain laws, which there is not.”). 1185 This is discussed in detail below. See infra pp. 2628-2631,
2857-2859; Radicati di Brozolo, Antitrust: A Paradigm of the Relations Between Arbitration and Mandatory Rules: A Fresh Look at the “Second Look,” 2004 Int'l Arb. L. Rev. 23. From a procedural perspective, it is not clear that particular courts will in fact have an opportunity to take a “second look” at an arbitrator's antitrust decision. For example, awards made outside the United States, but dealing with the U.S. antitrust laws, ordinarily will be subject to review in an annulment action only where they were made, and not in United States courts. See infra pp. 2403-2425. The prevailing party may seek enforcement of the award outside the United States, and not in U.S. courts. Ultimately, the sole opportunity for a second look might be in a renewed antitrust action in U.S. courts, where the prevailing party in the arbitration would be obliged to raise the arbitral award as preclusive.
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1186 See infra pp. 2628-2631, 2857-2859. 1187 Mitsubishi Motors, 473 U.S. at 637 n.19. 1188 See infra pp. 801-802. 1189 See, e.g., Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 723 n.4
(9th Cir. 1999) (“[I]t is possible that the Swiss Tribunal might apply U.S. antitrust law to the dispute.… Moreover, even if Swiss law is applied to the dispute, there has been no showing that it will not provide Simula with sufficient protection”); George Fischer Foundry Sys., Inc. v. Adolph H. Hottinger Maschinenbau GmbH, 55 F.3d 1206, 1210 (6th Cir. 1995) (rejecting (on ripeness grounds) argument that rules governing Zurich arbitration proceeding would serve as a prospective waiver of statutory rights to treble damages “because it is not clear what law the Zurich tribunal will apply”). See also Life of Am. Ins. Co. v. Aetna Life Ins. Co., 744 F.2d 409 (5th Cir. 1984). 1190 Pacificare Health Sys., Inc. v. Book, 538 U.S. 401 (U.S. S.Ct. 2003). See also Vimar Seguros y Reaseguros, SA v. M/V Sky Reefer, 515 U.S. 528 (U.S. S.Ct. 1995) (“mere speculation that the foreign arbitrators might apply Japanese law which, depending on the proper construction of COGSA, might reduce respondents' legal obligations, does not in and of itself” render a COGSA claim nonarbitrable); supra pp. 528-530. 1191 See infra pp. 801-802. 1192 482 U.S. 220, 240-41 (U.S. S.Ct. 1987). 1193 See, e.g., Pacificare Health Sys., Inc., 538 U.S. 401; Vimar Seguros, 515 U.S. 528; Larry's United Super, Inc. v. Werries, 253 F.3d 1083 (8th Cir. 2001) (whether waiver of punitive damages “violates the public policy underlying RICO's treble damages provision is a matter for the arbitrators in the first instance”); supra pp. 528-530. 1194 See, e.g., Life of Am. Ins. Co. v. Aetna Life Ins. Co., 744 F.2d 409 (5th Cir. 1984) (declining to decide in §4 proceeding whether treble damages were awardable under state law: “Until arbitration establishes that Life of America is entitled to damages but must be denied treble damages, its asserted rights under Texas law have not been impaired”). Compare PPG Indus., Inc. v. Pilkington plc, 825 F.Supp. 1465 (D. Ariz. 1993) (“the Court directs that any damages determination, or arbitral award, made by the arbitrators shall be determined according to U.S. antitrust law irrespective of any conflict that may exist between those laws and the laws of England.”). 1195 See infra pp. 801-802; Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 723 (9th Cir. 1999) (“remedies in a foreign forum need not be identical”). 1196 See also infra pp. 2628-2631, 2857-2859. 1197 U.S. Securities Act of 1933, §14, 15 U.S.C. §77n; German Securities Exchange Act, §28, replaced by Securities Trading Act, §37h; German Securities Exchange Act, §§53, 61. See Kerr, Arbitrability of Securities Claims in Common Law Nations, 12 Arb. Int'l 171 (1996); van Houtte, Arbitration Involving Securities Transactions, 12 Arb. Int'l 405 (1996). 1198 Wilko v. Swan, 346 U.S. 427, 435 (U.S. S.Ct. 1953). See supra pp. 781-783. 1199 See supra pp. 44-48, 565. 1200 Wilko, 346 U.S. at 436. 1201 Scherk, 417 U.S. at 518. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1202 Scherk, 417 U.S. at 516-517. Supra pp. 782-785. 1203 See supra pp. 792-793; Scherk, 417 U.S. 506. 1204 490 U.S. 477, 484 (U.S. S.Ct. 1989). 1205 See supra pp. 528-530, 797-798; Pacificare Health Sys., Inc.,
538 U.S. 401. 1206 Pacificare Health Sys., Inc., 538 U.S. 401; Vimar Seguros y Reaseguros, 515 U.S. at 541 (“mere speculation that the foreign arbitrators might apply Japanese law which, depending on the proper construction of COGSA, might reduce respondents' legal obligations, does not in and of itself” render a COGSA claim nonarbitrable) (emphasis added). 1207 See, e.g., Roby v. Corp. of Lloyd's, 996 F.2d 1353 (2d Cir. 1993); Richards v. Lloyd's of London, 135 F.3d 1289, 1295 (9th Cir. 1998) (en banc); Haynsworth v. The Corp., 121 F.3d 956, 969 (5th Cir. 1997); Allen v. Lloyd's of London, 94 F.3d 923, 929 (4th Cir. 1996); Bonny v. Society of Lloyd's, 3 F.3d 156, 162 (7th Cir. 1993). 1208 Roby v. Corp. of Lloyd's, 996 F.2d 1353, 1365 (2d Cir. 1993). See also Allen v. Lloyd's of London, 94 F.3d 923, 929 (4th Cir. 1996); Bonny v. Society of Lloyd's, 3 F.3d 156, 162 (7th Cir. 1993). 1209 Like most other mandatory national laws, the U.S. federal securities laws apply only to conduct falling within their jurisdictional scope (i.e., having sufficient connections to the United States). G. Born & P. Rutledge, International Civil Litigation in United States Courts 675-83 (4th ed. 2007). 1210 Some U.S. domestic commentary has been critical of the Lloyd's decisions, arguing that they undermine the protections of the U.S. securities laws and ignore the “anti-waiver” provisions of those laws. McConnaughay, The Risks and Virtues of Lawlessness: A “Second Look” at International Commercial Arbitration, 93 N.W. U. L. Rev. 453 (1999); Eck, Turning Back the Clock: A Judicial Return to Caveat Emptor for U.S. Investors in Foreign Markets, 19 N.C. J. Int'l & Com. Reg. 313 (1994). 1211 Zimmer, in E. Schwark (ed.), Kapitalmarktrechtskommentar §37h WpHG notes 1 et seq. (3d ed. 2004); Judgment of 26 February 1991, XI ZR 349/89, 1991 WM 576 (German Bundesgerichtshof) (recognizing Dutch award against German company on liability under futures contract). 1212 Judgment of 6 June 1991, 1991 NJW 2215 (German Bundesgerichtshof). This is only true to the extent that German securities law applies to protect the consumer in question. See, e.g., Judgment of 21 September 1993, 1993 NJW-RR 1519 (German Bundesgerichtshof) (German national residing in Italy not protected by German securities law and therefore arbitration agreement providing for arbitration in New York under New York law valid). 1213 See German Wertpapierhandelsgesetz (Securities Trading
Act), §37h. 1214 Lehmann, Wertpapierhandel als schiedsfreie Zone? – Zur Wirksamkeit von Schiedsvereinbarungen nach §37h WpHG, 2003 SchiedsVZ 219. 1215 For commentary, see Kosheri & Leboulanger, L'arbitrage face à la corruption et aux trafics d'influence, 1984 Rev. arb. 3; Kreindler, Aspects of Illegality in the Formation and Performance of Contracts, in A. van den Berg (ed.), International Commercial Arbitration: http://www.kluwerarbitration.com/CommonUI/print.aspx
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Important Contemporary Questions 209 (ICCA Congress Series No. 11 2003); Lalive, Ordre public transnational (ou réellement international) et arbitrage international, 1986 Rev. arb. 329, 336-341; Mourre, Arbitration and Criminal Law: Reflections on the Duties of the Arbitrator, 22 Arb. Int'l 95, 98 (2006); Rosell & Prager, Illicit Commissions and International Arbitration: The Question of Proof, 15 Arb. Int'l 329 (1999); Wetter, Issues of Corruption before International Arbitral Tribunals: The Authentic Text and True Meaning of Judge Gunnar Lagergren's 1963 Award in ICC Case No. 1110, 10 Arb. Int'l 277 (1994). 1216 See supra pp. 323-326, 380; Heyman v. Darwins Ltd [1942] A.C. 356 (House of Lords). As also discussed above, these decisions have been overtaken by the separability doctrine. See supra pp. 336-340, 380-384. 1217 Award in ICC Case No. 1110, 10 Arb. Int'l 282, 293 (1994). 1218 Award in ICC Case No. 1110, 10 Arb. Int'l 282 (1994). See also Wetter, Issues of Corruption before International Arbitral Tribunals: The Authentic Text and True Meaning of Judge Gunnar Lagergren's 1963 Award in ICC Case No. 1110, 10 Arb. Int'l 277 (1994). 1219 Award in ICC Case No. 1110, 10 Arb. Int'l 282 (1994). To avoid any misunderstanding, the arbitrator also declared “[i]n concluding that I have no jurisdiction, guidance has been sought from general principles denying arbitrators jurisdiction to entertain disputes of this nature rather than from any national rules on arbitrability.” Ibid. Some commentators have suggested that Lagergren might have rejected the claimant's request for relief on substantive, rather than jurisdictional, grounds (noting Lagergren's references that the claims were non-justiciable). Mourre, Arbitration and Criminal Law: Reflections on the Duties of the Arbitrator, 22 Arb. Int'l 95, 98 (2006). This would have been the more appropriate result, but is very difficult to reconcile with much of the language of the award. 1220 See, e.g., Interim Award in ICC Case No. 4145, XII Y.B.
Comm. Arb. 97 (1987) (rejecting claim of illegality as unsubstantiated); Partial Award in ICC Case No. 6286, XIX Y.B. Comm. Arb. 141 (1994); Partial Award on Jurisdiction and Admissibility in ICC Case No. 6474, XXV Y.B. Comm. Arb. 279 (2000) (dispute involving claims of corruption and illegality is arbitrable (applying Swiss law)). 1221 See generally Schwartz, The Domain of Arbitration and Issues of Arbitrability: The View from the ICC, in Tenth Joint ICC/AAA/ICSID Colloquium on InternationalArbitration 4 n.6 (1998). 1222 See, e.g., Judgment of 2 September 1993, Nat'l Power Corp. v. Westinghouse, DFT 119 II 380, 384 (Swiss Federal Tribunal); Westacre Inv. v. Jugoimport-SPDR Holding Co. Ltd, [1992] 2 Lloyd's Rep. 65 (1999) (English Court of Appeal); JLM Indus. v. StoltNeilsen SA, 387 F.3d 163, 175 (2d Cir. 2004); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 854 (2d Cir. 1987); Altshul Stern & Co. v. Mitsui Bussan Kaisha, 385 F.2d 158, 159 (2d Cir. 1967); Republic of the Philippines v. Westinghouse Elec. Corp., 821 F.Supp. 292, 298 (D.N.J. 1993); Sarawak Shell v. PPES Oil and Gas, (1998) Arb. & Disp. Res. L.J. 356 (Kuala Lumpur Court of Appeal). See alsoinfra pp. 1105-1107, 1108-1009. U.S. courts have consistently held that private damages claims http://www.kluwerarbitration.com/CommonUI/print.aspx
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under the so-called Racketeer Influenced and Corrupt Organizations Act (RICO) are arbitrable. Kerr-McGee Refining Corp. v. M/T Triumph, 924 F.2d 467 (2d Cir. 1991); Kühn, RICO Claims in International Arbitration and their Recognition in Germany, 11(2) J. Int'l Arb. 37 (1994). 1223 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R.
(Comm.) 891, 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). 1224 The Hub Power Co. v. Pakistan WAPDA, 16 Arb. Int'l 439 (Pakistan S.Ct. 2000) (2000). 1225 See supra pp. 520, 530-535, 774. On any view, a prohibition against the arbitrability of fraud or tort claims must be considered inconsistent with state practice under the Convention (where virtually all Contracting States permit arbitration of such claims) and with the Convention's structural requirements that the nonarbitrability doctrine be applied with restraint, as an exception to the Convention's policies. 1226 For commentary, see Blessing, Arbitrability of Intellectual Property Disputes, 12 Arb. Int'l 191 (1996); Caron, The World of Intellectual Property and the Decision to Arbitrate, 19 Arb. Int'l 441 (2003); Derains, L'expérience de la Cour d'arbitrage de la Chambre de Commerce Internationale en matière de propriété industrielle, 1977 Rev. arb. 40; Lew, Intellectual Property Disputes and Arbitration, Final Report of the Commission on International Arbitration, 9(1) ICC Ct. Bull. 37 (1998); Plant, Binding Arbitration of U.S. Patents, 10(3) J. Int'l Arb. 79 (1993); Simms, Arbitrability of Intellectual Property Disputes in Germany, 15 Arb. Int'l 193 (1999); Extracts from ICC Awards on Intellectual Property Rights – Part I, 4(2) ICC Ct. Bull. 70 (1993). 1227 See supra pp. 791-805. 1228 See supra pp. 167-168. 1229 See EC Regulation 44/2001, Art. 22(4). See also Simms, Arbitrability of Intellectual Property Disputes in Germany, 15 Arb. Int'l 193 (1999); Voit, in H.-J. Musielak (ed.), Kommentar zur Zivilprozessordnung §1030, ¶3 (5th ed. 2007); Derains, L'expérience de la Cour d'arbitrage de la Chambre de Commerce Internationale en matière de propriété industrielle, 1977 Rev. arb. 40, 45. 1230 See Judgment of 24 March 1994, Deko v. Dingler, 1994 Rev. arb. 515 (Paris Cour d'appel) (upholding arbitral award concerning patent and license rights); Bundestags-Drucksache No. 13/5274 of 12 July 1996, reprinted in, K.-P. Berger, The New German Arbitration Law 140 (1998); Papenberg, The Arbitrability of Intellectual Property Disputes in Germany, in Worldwide Forum on the Arbitration of Intellectual Property Disputes 81 (1994); Interim Award in ICC Case No. 6097, 4(2) ICC Ct. Bull. 76 (1993) (tribunal seated in Geneva declares German patent null and void, but emphasizes that the award was only binding upon the parties and could not serve as the basis for the revocation of the patent because the award had no erga omnes effect). 1231 See Blessing, Arbitrability of Intellectual Property Disputes, 12 Arb. Int'l 191 (1996) (patent and trademark validity issues arbitrable under Swiss law); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶210 (2006). 1232 See Lear, Inc. v. Adkins, 395 U.S. 653, 677 (U.S. S.Ct. 1969) (“The national policy expressed in the patent laws, favoring free competition and narrowly limiting monopoly, cannot be frustrated by http://www.kluwerarbitration.com/CommonUI/print.aspx
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private agreements among individuals, with or without the approval of the state.”). 1233 35 U.S.C. §294 authorizes arbitration of disputes as to validity and infringement of a U.S. patent pursuant to a written agreement between the parties. In addition, 35 U.S.C. §135(d) provides statutory authorization for arbitration of “any aspect” of a U.S. patent interference contest. For U.S. decisions, see In re Medical Eng'g Corp., 1992 WL 217763 (Fed. Cir. 1992) (patent infringement dispute arbitrable); Rhone-Poulenc Specialities Chiniques v. SCM Corp., 769 F.2d 1569 (Fed. Cir. 1985) (patent infringement claim arbitrable). See also Plant, Binding Arbitration of U.S. Patents, 10(3) J. Int'l Arb. 79 (1993). 1234 See, e.g., Danisco A/S v. Novo Nordisk A/S, 2003 U.S. Dist. LEXIS 1842 (S.D.N.Y. 2003) (court stayed action for patent infringement on the basis of valid agreement to arbitrate); McMahan Sec. Co. v. Forum Capital Markets, 35 F.3d 82 (2d Cir. 1994) (complex copyright issues arbitrable); Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108 (2d Cir. 1993) (copyright ownership arbitrable); Saturday Evening Post Co. v. Rumbleseat Press, Inc., 816 F.2d 1191 (7th Cir. 1987) (copyright validity arbitrable); Kamakazi Music Corp. v. Robbins Music Corp., 684 F.2d 228 (2d Cir. 1982); LDS Inc. v. Metro Canada Logistics, 28 F.Supp.2d 1297 (D. Kan. 1998) (copyright infringement claims arbitrable). 1235 See, e.g., Cara's Notions, Inc. v. Hallmark Cards, Inc., 140 F.3d 566, 571-572 (4th Cir. 1998); Necchi Sewing Machine Sales Corp. v. Necchi SpA, 369 F.2d 579 (2d Cir. 1966) (trademark dispute arbitrable); Alexander Binzel Corp. v. Nu-Tecsys Corp., 1992 WL 26932 (N.D. I11. 1992) (same); Givenchy SA v. William Stuart Indus. (Far East) Ltd, 1986 WL 3358 (S.D.N.Y. 1986); Saucy Susan Prod., Inc. v. Allied Old English, 200 F.Supp. 724 (S.D.N.Y. 1961). See also Aerojet-Gen. Corp. v. Machine Tool Works, Oerlikon-Buehrle, Ltd, 895 F.2d 736 (Fed. Cir. 1990) (trade secrets dispute arbitrable). 1236 Editions Chouette Inc. v. Desputeaux, 2003 SCC 17 (Canadian S.Ct.). See also Boivin & Mariani, Highest Court Rules in Favour of Broad Interpretation of Arbitrability, 20 J. Int'l Arb. 507 (2003). 1237 Editions Chouette Inc. v. Desputeaux, 2003 SCC 17, ¶38 (Canadian S.Ct.). 1238 See, e.g., Partial Award in ICC Case No. 6709, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1991-1995 435, 437 (1997) (“[French law] gives the national courts exclusive jurisdiction over disputes involving public policy, i.e., the issuance, cancellation or validity of patents …; yet it is nevertheless clear that disputes relating to the exploitation of a patent remain beyond doubt arbitrable”); Award in ICC Case No. 2048, in Derains, L'expérience de la Cour d'arbitrage de la Chambre de Commerce Internationale en matière de propriété industrielle, 1977 Rev. arb. 40, 45; Award in ICC Case No. 4491, 112 J.D.I. (Clunet) 966 (1985); IBM Corp. v. Fujitsu Ltd, AAA Award of 15 September 1987, 4(4) J. Int'l Arb. 153 (1987). 1239 See, e.g., Award in ICC Case No. 1912, in Derains, L'expérience de la Cour d'arbitrage de la Chambre de Commerce Internationale en matière de propriété industrielle, 1977 Rev. arb. 40, 46; Interim Award in ICC Case No. 6097, 4(2) ICC Ct. Bull. 76 (1993) (award regarding patent invalidity described by arbitral tribunal as having no erga omnes effects). 1240 Judgment of 15 May 1961, Jean Tardits et Cie v. Jydsk Andels Foderstof Forretning, 89 J.D.I. (Clunet) 140 (Orléans Cour d'appel) (1962). As discussed above, the Court held that claims for http://www.kluwerarbitration.com/CommonUI/print.aspx
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breach of contract raised issues “that could only be resolved by interpreting and applying rules of French economic public policy, which governed the performance of the contract,” which were nonarbitrable. See supra pp. 779-780. 1241 See supra p. 780; Judgment of 21 February 1964, Meulemans et Cie v. Robert, 92 J.D.I. (Clunet) 113 (Paris Cour d'appel) (1965); Judgment of 23 June 1992, Fincantieri-Cantieri Navali Italiani SpA v. M and Arbitration Tribunal, XX Y.B. Comm. Arb. 766 (Swiss Federal Tribunal) (1995); Belship Nav. Inc. v. Sealift, Inc., 1995 WL 447656 (S.D.N.Y. 1995); Partial Award in ICC Case No. 6719, 121 J.D.I. (Clunet) 1071 (1994) (“The mere fact that the nature of the dispute may lead the arbitrator to apply various rules of law implicating public policy does not mean that the dispute becomes non-arbitrable as a result. The arbitrator must comply with the rules of international public policy, but he need not decline jurisdiction”). See also Moitry, L'arbitre international et l'obligation de boycottage imposée par un Etat, 118 J.D.I. (Clunet) 349 (1991). 1242 19 U.S.C. §1337. Section 1337 authorizes the International Trade Commission to conduct an administrative investigation into alleged unfair trade practices and impose regulatory sanctions. 1243 Farrel Corp. v. United States Int'l Trade Comm'n, 949 F.2d 1147 (Fed. Cir. 1991). See Brand, International Trade Law and the Arbitration of Administrative Law Matters: Farrel Corp. v. US International Trade Commission, 31 Colum. J. Trans. L. 181 (1993). 1244 For commentary, see Kaufmann-Kohler & Lévy, Insolvency and International Arbitration, in H. Peter, N. Jeandin & J. Kilborn (eds.), The Challenges of Insolvency Law Reform in the 21st Century 257 (2006); Kurt, Comment: An Unstoppable Mandate and An Immovable Policy: The Arbitration Act and the Bankruptcy Code Collide, 43 UCLA L. Rev. 999 (1996); V. Lazic, Insolvency Proceedings and Commercial Arbitration (1998); Mantilla-Serrano, International Arbitration and Insolvency Proceedings, 11 Arb. Int'l 51 (1995); Rosell & Prager, International Arbitration and Bankruptcy: United States, France and the ICC, 18 J. Int'l Arb. 417 (2001); Westbrook, The Coming Encounter: International Arbitration and Bankruptcy, 67 Minn. L. Rev. 595 (1983). 1245 See Mantilla-Serrano, International Arbitration and Insolvency Proceedings, 11 Arb. Int'l 51 (1995) (roughly 5% of awards and proceedings studied at ICC during selected periods involved issues relating to some form of insolvency). 1246 Kaufmann-Kohler & Lévy, Insolvency and International Arbitration, in H. Peter, N. Jeandin & J. Kilborn (eds.), The Challenges of Insolvency Law Reform in the 21st Century 257, 26263 (2006); Mantilla-Serrano, International Arbitration and Insolvency Proceedings, 11 Arb. Int'l 51, 65 (1995) (quoting from unpublished award: “only those issues that have a direct connection with the insolvency proceedings, that is the issues that arise out of the application of rules particular to those proceedings” are nonarbitrable); A. Samuel, Jurisdictional Problems in International Commercial Arbitration 143 (1989) (“an arbitrator cannot officially declare someone bankrupt”). 1247 Latvian Civil Procedure Law, Art. 478(8) (disputes “regarding the rights and obligations of persons that have been declared insolvent before the making of the award by the arbitral tribunal” are not arbitrable). Compare Polish Bankruptcy Law, Arts. 142, 147 (“An arbitration agreement concluded by the bankrupt shall lose its force from the date of the declaration of bankruptcy and pending proceedings shall be subject to discontinuance.”). 1248 Netherlands Bankruptcy Act, Art. 122; Lazic, Arbitration and http://www.kluwerarbitration.com/CommonUI/print.aspx
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Insolvency Proceedings: Claims of Ordinary Bankruptcy Creditors, 3.3 E.J.C.L., at 4.3.2.2.1 (1999), available at www.ejcl.org (“[T]he wording of Art. 122 [of the Netherlands Bankruptcy Act] seems to imply that an arbitration agreement concluded prior to the bankruptcy may not be successfully invoked by or against the trustee (or another party contesting the claim).”). 1249 See supra pp. 754-755. 1250 Spanish Insolvency Act, Art. 52(1) (arbitration agreement invalid during pendency of bankruptcy proceedings); Lopez Ortiz, The New Spanish Insolvency Act and Arbitration, 2005 Int'l Arb. L. Rev. 22. 1251 English Insolvency Act, 1986, §349A(3) (trustee may affirm arbitration agreement; failing affirmance, bankruptcy court has discretion to decide whether to refer matter to arbitration under agreement); Burn & Grubb, Insolvency and Arbitration in English Law, 2005 Int'l Arb. L. Rev. 124, 126-127 (discussing the procedure). 1252 See, e.g., Judgment of 9 April 1991, DFT 117 II 94 (Swiss Federal Tribunal); Judgment of 8 October 1981, 1 ASA Bull. 27 (Court of Canton of Jura) (1983); Judgment of 9 July 1986, 5 ASA Bull. 203 (Valais Court of Appeal) (1987). Contra Judgment of 26 October 1907, DFT 33 II 648, 653 et seq. (Swiss Federal Tribunal) (arbitration clause nullified by declaration of bankruptcy). 1253 See, e.g., Judgment of 8 March 1988, Société Thinet v. Labrely, 1989 Rev. arb. 473 (French Cour de cassation civ. 1e); Judgment of 5 February 1991, Société Almira Films v. Pierrel, 1991 Rev. arb. 625 (French Cour de cassation civ. 1e) and Idot, Note, (“The principles of the halting of individual claims by creditors, of the exclusion of the debtor and of the interpretation of actions in the case of bankruptcy are a matter of both internal and international public policy.”); Judgment of 12 January 1993, République de Côte d'Ivorie v. Norbert Beyrard, 1994 Rev. arb. 685 (Paris Cour d'appel) (ICC arbitral tribunal seated in Paris may proceed with arbitration notwithstanding bankruptcy of party in home jurisdiction). See also E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶577 (1999). 1254 See, e.g., Judgment of 13 February 1991, Adda Officine Elettromeccaniche e Meccaniche v. Alstom Atlantique SA, XXI Y.B. Comm. Arb. 580, ¶6 (Lodi Tribunale) (1996). 1255 See, e.g., Judgment of 9 July 1932, RGZ 137, 109, 111 (German Reichsgericht) (“The legal validity [of an arbitration agreement] is not destroyed by the commencement of insolvency proceedings, it rather is extended to the trustee in bankruptcy. The Insolvency Act assumes that the trustee in bankruptcy is generally bound by the legal situation as it exists when the [insolvency] proceedings are commenced.”); Judgment of 28 February 1957, BGHZ 24, 15, 18, (German Bundesgerichtshof) (“The trustee in bankruptcy is bound … by an arbitration agreement concluded by the common debtor.”); Judgment of 20 November 2003, 2004 ZInsO 88 (German Bundesgerichtshof) (“It is generally accepted that the insolvency trustee is bound by an arbitration agreement concluded by the debtor [prior to the commencement of insolvency proceedings].”); Judgment of 25 September 1998, 11 Sch 01/98, reported at www.dis-arb.de (Oberlandesgericht Dresden). See also R. A. Schütze, D. Tscherning & W. Wais, Handbuch des Schiedsverfahrens 34, ¶64 (2d ed. 1990); K.-H. Schwab & G. Walter, Schiedsgerichtsbarkeit Ch. 16, ¶49 (7th ed. 2005) (“[The arbitration proceedings] are not affected by insolvency.”); Wagner, in F.-B. Weigand (ed.), Practitioner's Handbook on International http://www.kluwerarbitration.com/CommonUI/print.aspx
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Arbitration 746 (2002) (“The German courts have always affirmed the binding effect [of an arbitration agreement upon the trustee in bankruptcy]. The trustee in bankruptcy is regarded in analogy to a successor of the debtor. It is well-established that the successor is bound by arbitration agreements which his predecessor concluded. As a result, the insolvency of a party leaves the arbitration agreement intact.”). Under German law, if a party becomes unable to fund its share of the arbitration, it is entitled to terminate the arbitration agreement; however, its counterparty has the right (but not the duty), before termination may be effected, to pay all the costs of the arbitration. Judgment of 12 November 1987, 1988 NJW 1215 (German Bundesgerichtshof). 1256 11 U.S.C. §362(a). 1257 See, e.g., Whiting-Turner Contracting Co. v. Elec. Mach.
Enters., Inc. (In re Elec. Mach. Enters. Inc.), 479 F.3d 791, 796 (11th Cir. 2007) (“In general, bankruptcy courts do not have the discretion to decline to enforce an arbitration agreement relating to a non-core proceeding.… However, even if a proceeding is determined to be a core proceeding, the bankruptcy court must still analyze whether enforcing a valid arbitration agreement would inherently conflict with the underlying purposes of the bankruptcy code.”); MBNA Am. Bank, NA v. Hill, 436 F.3d 104 (2d Cir. 2006) (reversing bankruptcy court and remanding with directions to stay proceedings in favor of arbitration of core claim); In re Morgan, 28 B.R. 3 (9th Cir. 1983); Hart Ski Mfg. Co. v. Maschinenfabrik Hennecke, 711 F.2d 845 (8th Cir. 1983); Fotochrome, Inc. v. Copal Co., 517 F.2d 512 (2d Cir. 1975); Cibro Petroleum Prods., Inc. v. City of Albany (In re Winimo Realty Corp), 270 B.R. 108, 126 (S.D.N.Y. 2001) (reversing bankruptcy court's denial of motion to compel arbitration of core matter because arbitration of dispute “would not jeopardize an underlying purpose of the Bankruptcy Code”); Bigelow v. Green Tree Fin. Servicing Corp., 2000 WL 33596476 (E.D. Cal. 2000) (compelling arbitration as court perceived no adverse effects on purposes of the Bankruptcy Code from compelling arbitration); In re Beckemeyer, 206 B.R. 466 (Bankr. W.D. Tenn. 1997) (staying adversary proceeding before Bankruptcy Court, based on parties' arbitration agreement, after concluding that debtor would suffer little prejudice from being required to participate); Societe Nationale Algerienne Pour La Recherche v. Distrigas Corp., 80 B.R. 606 (D. Mass. 1987) (ordering international arbitration: “In weighing the strong public policy favoring international arbitration with any countervailing potential harm to bankruptcy policy upon the present facts, the Court finds the scales weighed in favor of arbitration.… no major bankruptcy issues will be implicated in valuing contract damages and the international arbitration panel requires no special expertise to accomplish their task. While international arbitration will require a temporary and limited incursion into the Bankruptcy Court's exclusive jurisdictional bailiwick, no bankruptcy policies will suffer adverse impact. Conversely, the very image of the United States in the international business community stands to be tarnished. It is important and necessary for the United States to hold its domiciliaries to their bargains and not allow them to escape their commercial obligations by ducking into statutory safe harbors.”); In re R.M. Cordova Int'l, Inc., 77 B.R. 441 (Bankr. D.N.J. 1987) (same); In re Mor-Ben Ins. Markets Corp., 73 B.R. 644 (9th Cir. B.A.P. 1987). Contra Vesta Fire Ins. Corp. v. New Cap Reins. Corp., 2000 U.S. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Dist. LEXIS 1257 (S.D.N.Y. 2000) (staying arbitration of claims against bankrupt). 1258 See, e.g., MBNA Am. Bank, NA v. Hill, 436 F.3d 104, 108 (2d Cir. 2006) (in resolving conflicts between Bankruptcy Code and FAA, “courts distinguish between claims over which bankruptcy judges have discretion to refuse arbitration and those that they must send directly to arbitration. Bankruptcy courts generally do not have discretion to refuse to compel arbitration of ‘non-core’ bankruptcy matters, or matters that are simply ‘related to’ bankruptcy cases”); Crysen/Montenay Energy Co. v. Shell Oil Co., 226 F.3d 160, 166 (2d Cir. 2000) (“The unmistakable implication is that bankruptcy courts generally do not have discretion to decline to stay non-core proceedings in favor of arbitration, and they certainly have authority to grant such a stay”) (emphasis in original); Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149 (3d Cir. 1989); In re Barney's Inc., 206 B.R. 336 (S.D.N.Y. 1997); In re United States Lines, Inc., 199 B.R. 465 (S.D.N.Y. 1996); In re Spectrum Info. Tech., Inc., 183 B.R. 360 (Bankr. E.D.N.Y. 1995); In re Hupp Indus., Inc., 157 B.R. 360 (N.D. Ohio 1993) (“submission of … noncore matters to arbitration presents no conflict with the Bankruptcy Code”). 1259 See, e.g., In re Gandy, 299 F.3d 489, 498-499 (5th Cir. 2002) (where dispute “intimately implicates a central purpose of the Bankruptcy Code” and claims “appear to represent very nearly the entirety of Debtor's bankruptcy estate,” dividing case such that some claims be sent to arbitration “would be of disservice to the parties and defeat the purposes of the Bankruptcy Code.”); Ins. Co. of North Am. v. NGC Settlement Trust & Asbestos Claims Mgt Corp., 118 F.3d 1056, 1069 (5th Cir. 1997) (“where the cause of action at issue is not derivative of the pre-petition legal or equitable rights possessed by the debtor but rather is derived entirely from the federal rights conferred by the Bankruptcy Code, a bankruptcy court retains significant discretion to assess whether arbitration would be consistent with the purpose of the Code, including the goal of centralized resolution of purely bankruptcy issues, the need to protect creditors and reorganizing debtors from piecemeal litigation, and the undisputed power of a bankruptcy court to enforce its own orders.”); Braniff Airways, Inc. v. United Air Lines, Inc., 33 B.R. 33 (Bankr. N.D. Tex. 1983); Coar v. Brown, 29 B.R. 806 (Bankr. N.D. Ill. 1983). 1260 In re United States Lines, Inc., 197 F.3d 631, 640 (2d Cir. 1999). The U.S. Lines court held that “even a determination that a proceeding is core will not automatically give the bankruptcy court discretion to stay arbitration … not all core bankruptcy proceedings are premised on provisions to the Code that ‘inherently conflict’ with the Federal Arbitration Act; nor would arbitration of such proceedings necessarily jeopardize the objectives of the Bankruptcy Code.” See Ibid., 197 F.3d at 640 (quoting In re National Gypsum Co., 118 F.3d 1056, 1067 (5th Cir. 1997)). See also Rosell & Prager, International Arbitration and Bankruptcy: United States, France and the ICC, 18 J. Int'l Arb. 417 (2001); Kurt, Comment: An Unstoppable Mandate and An Immovable Policy: The Arbitration Act and the Bankruptcy Code Collide, 43 UCLA L. Rev. 999 (1996); Harwood, Bankruptcy Arbitration and the Unwilling Debtor, 48 Disp. Res. J. 28 (1993). 1261 See 11 U.S.C. §365(a). Rejection of an executory contract gives rise to potential breach of contract claims. See Stewart Foods, Inc. v. Broecker (In re Stewarts Foods, Inc.), 64 F.3d 141, 144 (4th Cir. 1995) (“The rejection of an executory contract constitutes a breach of the contract, and a party's damages resulting from that http://www.kluwerarbitration.com/CommonUI/print.aspx
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rejection are treated as a pre-petition claim and receive the priority provided to general unsecured creditors.”). See also 11 U.S.C. §365(g)(1). 1262 See, e.g., In re Fleming Companies, 2007 WL 788921, at *3 (D. Del. 2007) (holding that an arbitration clause in a rejected contract survives the rejection); Societe Nationale Algerienne Pour La Recherche v. Distrigas Corp., 80 B.R. 606, 609 (D. Mass. 1987) (where rejection of executory contract is itself a breach of that contract, arbitration clause may be considered “separable” and survives the rejection of the contract in which it is embodied). 1263 Megafoods Stores, Inc. v. Flagstaff Realty Assocs., 60 F.3d 1031, 1034 (3d Cir. 1995). Accord Cinicola v. Scharffenberger, 248 F.3d 110, 119 n.8 (3d Cir. 2001). 1264 See Hays & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 885 F.2d 1149, 1153-55 (3d Cir. 1989) (trustee is bound by arbitration clause contained in non-executory contract when standing in the shoes of the debtor; claims which derive not from any claims the debtor would have had but rather from powers established by the Bankruptcy Code are not subject to arbitration); Cohen v. Ernst & Young LLP (In re Friedman's, Inc.), 372 B.R. 530, 540 (Bankr. S.D. Ga. 2007) (“as the party asserting these causes of action derived from the Debtors, the Trustee stands in the shoes of the Debtors and is subject to the same defenses that could have been asserted against the Debtors had they brought the causes of action, including exposure to the arbitration clauses”). 1265 Mantilla-Serrano, International Arbitration and Insolvency Proceedings, 11 Arb. Int'l 51, 56-58 (1995) (describing various cases of mutually-agreed consent to stay arbitration pending insolvency proceedings). 1266 This appears to be the case in France. See Judgment of 5 February 1991, Société Almira Films v. Pierrel, 1991 Rev. arb. 625 (French Cour de cassation civ. 1e) (“the principles of stay of individual proceedings by creditors, of dispossession of the debtor, and of interruption of the case in the event of bankruptcy are matters of both domestic and international public policy: they apply even where the arbitration, while being held in France, is not subject to French law”); Judgment of 4 February 1992, 1992 Rev. arb. 663 (Paris Cour d'appel). 1267 Judgment of 29 December 1967, DFT 93 III 84, 89 (Swiss Federal Tribunal), discussed in Kaufmann-Kohler & Lévy, Insolvency and International Arbitration, in H. Peter, N. Jeandin & J. Kilborn (eds.), The Challenges of Insolvency Law Reform in the 21st Century 257, 270 (2006). 1268 EC Regulation 1346/2000 of 29 May 2000 on Insolvency Proceedings, O.J. L 160, 30/06/2000, at 1-18, Art. 15. The Regulation's applicability to arbitration agreements is unsettled, but subject to doubts (given the exclusion of such agreements from Regulation 44/2001 and the Rome Convention). 1269 The ICC (and most other arbitral institutions) will continue to administer arbitrations that are conducted against allegedly insolvent parties, notwithstanding arguments that insolvency terminates or discharges the arbitration agreement. Mantilla-Serrano, International Arbitration and Insolvency Proceedings, 11 Arb. Int'l 51, 53-54 (1995). 1270 See, e.g., Award in ICC Case No. 2139, 102 J.D.I. (Clunet) 929 (1975) (tribunal proceeds with arbitration notwithstanding respondent being declared bankrupt and stricken from company register in home jurisdiction); Award in ICC Case No. 4415, 111 http://www.kluwerarbitration.com/CommonUI/print.aspx
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J.D.I. (Clunet) 952 (1984) (same); Award in ICC Case No. 5877, excerpted in Mantilla-Serrano, International Arbitration and Insolvency Proceedings, 11 Arb. Int'l 51, 67 (1995) (rejecting argument that claimant could not pursue arbitration against insolvent company, and could instead proceed only against its insolvency trustees); Award in ICC Case No. 6192, excerpted in MantillaSerrano, International Arbitration and Insolvency Proceedings, 11 Arb. Int'l 51, 65 (1995) (rejecting argument that trustee for bankrupt company could not assert claim in arbitration); Interim Award in ICC Case No. 7337, XXIVa Y.B. Comm. Arb. 149, 154 (1999) (“the bankruptcy estate is bound by the agreement to arbitrate in the exclusive distributorship contract.… Consequently, he has jurisdiction to try claimant's claims against [the bankruptcy estate], although any award on the merits in favour of claimant would be binding on the bankruptcy estate only as the basis for claimant's dividend as a creditor in the bankruptcy.”). See also W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.07 (3d ed. 2000) (“it is not certain that an international arbitrator would be bound by domestic laws or decisions” requiring the discontinuation of arbitral proceedings involving a bankrupt company). 1271 See, e.g., Award in ICC Case No. 6057, 120 J.D.I. (Clunet) 1016 (1993) (bankruptcy proceedings in France do not affect the pending arbitral proceedings in Syria; the tribunal relied on Syrian law, as the applicable law, which does not recognize French bankruptcy proceedings); Partial Award in ICC Case No. 6697, 1992 Rev. arb. 135 (“the fact that one of the parties is subject to bankruptcy proceedings is not in itself sufficient to render a dispute non-arbitrable per se.… The only disputes which are excluded are those which have a direct link with the bankruptcy proceedings, namely those disputes arising from the application of rules specific to those proceedings.”); Award in ICC Case No. 7205, 122 J.D.I. (Clunet) 1031 (1995); Award in ICC Case No. 7563, 121 J.D.I. (Clunet) 1054 (1994) (according to a principle of international public policy, an award cannot be enforced against an insolvent party for the duration of the bankruptcy proceedings). Contra Award in ICC Case No. 9163, 2003 Rev. arb. 227, 230 (“the insolvency law of the country where the insolvency proceedings take place has all the characteristics of a mandatory rule of law to which the arbitral tribunal must have regard, by reason of this law's ‘close links’ with the dispute and the ‘legitimate interests’ that it purports to safeguard. The place of the arbitration and the laws applicable to the merit or the arbitral procedure matter little …”). 1272 Mantilla-Serrano, International Arbitration and Insolvency Proceedings, 11 Arb. Int'l 51, 57 (1995). The same author rejects the applicability of lis pendens principle in arbitral proceedings. Id. at 61. See also infra pp. 2933-2936. 1273 See, e.g., Award in ICC Case No. 1350, 102 J.D.I. (Clunet) 931 (1975); Award in ICC Case No. 2139, 102 J.D.I. (Clunet) 929 (1975); Award in ICC Case No. 4415, 111 J.D.I. (Clunet) 952 (1984); Award in ICC Case No. 6057, 120 J.D.I. (Clunet) 1016 (1993) (regardless of French law, the arbitral tribunal, sitting in Damascus and applying Syrian law, “considers that its mission … is not to be affected by a Court's decision rendered subsequently in France which, without more, is not intended to produce effects” outside France) (quoted in Mantilla-Serrano, International Arbitration and Insolvency Proceedings, 11 Arb. Int'l 51, 58 (1995)); Interim Award in ICC Case No. 7337, XXIVa Y.B. Comm. Arb. 149, 153 (1999) (with regard to bankrupt Swedish company: “Although an arbitration may be pursued against the debtor, the bankruptcy estate is the http://www.kluwerarbitration.com/CommonUI/print.aspx
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proper law to all post-bankruptcy legal proceedings as it has assumed, by universal succession, all rights and obligations of the debtor.”). 1274 See supra pp. 504-516, 520, 530-535 & infra pp. 1264-1274, 1368-1376, 1444-1446, 1450, 1513, 1690-1691, 1749-1751, 17651770, 2556-2560, 2838-2840. A law singling out only arbitration agreements, but not other contracts, for invalidity or similar consequences in bankruptcy would contradict these prohibitions. 1275 For a more detailed discussion of this choice-of-law analysis, see Ibid. 1276 See supra pp. 815-817. 1277 For commentary, see Aubert, L'arbitrage en droit du travail, 18 ASA Bull. 2 (2000); Bingham, Employment Arbitration: The Repeat Player Effect, 1 Empl. Rts. & Employ. Pol'y J. 189 (1997); Bingham, Emerging Due Process Concerns in Employment Arbitration: A Look at Actual Cases, 47 Lab. L.J. 113 (1996); Cole, Incentives and Arbitration: The Case Against Enforcement of Executory Arbitration Agreements Between Employers and Employees, 64 U.M.K.C.L. Rev. 449 (1996); Courtois-Champenois, L'Arbitrage des litiges en droit du travail: à la redécouverte d'une institution française en disgrâce, 2003 Rev. arb. 349; Craver, The Use of Non-Judicial Procedures to Resolve Employment Discrimination Claims, 11 Kan. J.L. & Pub. Pol'y 141 (2001); Estreicher, Predispute Agreements to Arbitrate Statutory Employment Claims, 72 N.Y.U. L. Rev. 1352 (1997); Kirry, Arbitrability: Current Trends in Europe, 12 Arb. Int'l 373 (1996); Nickson, Closing U.S. Court to Foreign Seamen: The Judicial Excision of the FAA Seamen's Arbitration Exemption From The New York Convention Act, 41 Tex. Int'l L.J. 103 (2006); Rogers, The Arrival of the “Have-Nots” in International Arbitration, 8 Nev. L.J. 341 (2007); Sternlight, Is the U.S. Out on A Limb? Comparing the U.S. Approach to Mandatory Consumer and Employment Arbitration to that of the Rest of the World, 56 U. Miami L. Rev. 831 (2002); St. Antoine, Mandatory Arbitration of Employee Discrimination Claims: Unmitigated Evil or Blessing in Disguise?, 15 T.M. Cooley L. Rev. 1 (1998). 1278 Belgian Judicial Code, Art. 1678(2). 1279 Italian Code of Civil Procedure, Art. 806; Judgment of 30 April 1980, V Y.B. Comm. Arb. 342 (Pretore of Genova) (1980). 1280 In the past, French courts held that employment disputes were not capable of being referred to arbitration. See Judgment of 12 February 1985, 1986 Rev. arb. 47 (French Cour de cassation soc.). More recently, however, French courts have held that an arbitration agreement in an individual employment agreement is valid. See Judgment of 13 September 1993, 1994 Rev. arb. 337 (Grenoble Cour d'appel), Note, Moreau, XX Y.B. Comm. Arb. 656 (1995) (“arbitration agreement included in an international individual employment agreement is valid”). One writer comments that “in light of the relative scarcity of case law in this area, it may be premature to conclude that the holding of the Court of Appeal of Grenoble is now the prevailing view among French courts.” Nevertheless, “this decision may constitute the starting point of a new trend in favour of arbitration in the area of international employment disputes.” See Kirry, Arbitrability: Current Trends in Europe, 12 Arb. Int'l 373 (1996). Compare Judgments of 16 February 1999 and 4 May 1999, 1999 Rev. arb. 290 (French cour de cassation soc.) (dispute involving international employment agreement was not arbitrable; arbitration agreement was not null and void, but rather inopposable to the employee). http://www.kluwerarbitration.com/CommonUI/print.aspx
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1281 Japanese Arbitration Law, Supplementary Provisions, Art. 4
(“for the time being,” agreements to arbitrate certain “individual labor-related disputes” shall be “null and void”). 1282 See generally T. Bornstein, A. Gosline & M. Greenbaum, Labor and Employment Arbitration §§1.01, 45.01 (2007); Corrada, The Arbitral Imperative in Labor and Employment Law, 47 Cath. U. L. Rev. 919 (1998); Malin & Ladenson, Privatizing Justice: A Jurisprudential Perspective on Labor and Employment Arbitration from the Steelworkers Trilogy to Gilmer, 44 Hastings L.J. 1187 (1993). 1283 See T. Bornstein, A. Gosline & M. Greenbaum, Labor and Employment Arbitration §1.04 (2007); Nolan & Abrams, American Labor Arbitration: The Early Years, 35 Fla. L. Rev. 373 (1983); 47 Cath. U.L. Rev. 919; Nolan & Abrams, American Labor Arbitration: The Maturing Years, 35 Fla. L. Rev. 557 (1983); United Steelworkers of Am. v. Enter. Wheel & Car Corp., 363 U.S. 593 (U.S. S.Ct. 1960); infra pp. 818-819 nn. 1287-1290. 1284 U.S. FAA, 9 U.S.C. §1. 1285 Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 107 (U.S. S.Ct. 2001) (“As for the residual exclusion of ‘any other class of workers engaged in foreign or interstate commerce,’ it would be rational for Congress to ensure that workers in general would be covered by the FAA, while reserving for itself more specific legislation for transportation workers”). It is unclear what scope of commerce Congress envisaged in 1925, and in particular whether §1 excluded only a limited class of specialized transportation workers or, instead, most employees engaged in what was considered at the time to be the full reach of interstate commerce (e.g., transportation). 1286 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 33 (U.S. S.Ct. 1991). 1287 See, e.g., Woods v. Texas Aggregates, LLC, 459 F.3d 600, 603-604 (5th Cir. 2006) (ERISA claims arbitrable); Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1364 (11th Cir. 2005) (same); Chappel v. Laboratory Corp. of Am., 232 F.3d 719, 726 (9th Cir. 2000) (same); Kramer v. Smith Barney, 80 F.3d 1080 (5th Cir. 1996) (same); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1119 (3d Cir. 1993); Bird v. Shearson Lehman/Am. Express, Inc., 926 F.2d 116 (2d Cir. 1991); The Peruvian Connection, Ltd v. Christian, 977 F.Supp. 1107, 1113-1114 (D. Kan. 1997) (“Having conceded that an arbitrator is competent to decide sophisticated breach of fiduciary duty claims under ERISA, [defendant] cannot be heard to assert this case is somehow beyond the competence of an arbitrator”); Bevere v. Oppenheimer & Co., 862 F.Supp. 1243 (D.N.J. 1994); Fox v. Merrill Lynch & Co., 453 F.Supp. 561 (S.D.N.Y. 1978). 1288 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (U.S. S.Ct. 1991). 1289 See, e.g., Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1364 (11th Cir. 2005) (Title VII claims arbitrable); EEOC v. Luce, Forward, Hamilton & Scripps, 345 F.3d 742, 744 (9th Cir. 2003) (en banc) (Title VII claims arbitrable); DeGroff v. Mascotech Forming Techs. – Fort Waynes, Inc., 179 F.Supp.2d 896, 907 (N.D. Ind. 2001) (“Agreements that require arbitration of statutory claims, including discrimination and retaliation claims under Title VII, are generally enforceable under the FAA”); Willis v. Dean Witter Reynolds, Inc., 948 F.2d 305 (6th Cir. 1991) (Title VII claims http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitrable); Alford v. Dean Witter Reynolds, Inc., 939 F.2d 229 (5th Cir. 1991) (same); Johnson v. Hubbard Broadcasting, Inc., 940 F.Supp. 1447 (D. Minn. 1996) (same); Cherry v. Wertheim Schroder and Co., 868 F.Supp. 830 (D.S.C. 1994) (same). 1290 See, e.g., Perry v. Thomas, 482 U.S. 483 (U.S. S.Ct. 1987) (claim for wages under state law, forbidding arbitration of such claims, arbitrable under FAA); Patterson v. Tenet Healthcare, Inc., 1996 WL 33674550 (W.D. Mo. 1996) (employee's claims under Title VII and Missouri Human Rights Act subject to arbitration); Rembert v. Ryan's Family Steak Houses, Inc., 596 N.W.2d 208, 230 (Mich. App. 1999) (state statutory employment discrimination claims held arbitrable so long as arbitral process is fair and employee waives no substantive statutory rights or remedies); Fletcher v. Kidder, Peabody & Co., 601 N.Y.S.2d 686 (N.Y. 1993) (state employment discrimination claims held arbitrable). 1291 See supra pp. 272-273; Bautista v. Star Cruises, 396 F.3d 1289, 1300 (11th Cir. 2005); Francisco v. Stolt Achievement MT, 293 F.3d 270, 274-275 (5th Cir. 2002). 1292 Francisco, 293 F.3d at 274-275; Bautista, 396 F.3d at 1300. 1293 Francisco, 293 F.3d at 274. See also Lobo v. Celebrity Cruises, Inc., 488 F.3d 891, 894 (11th Cir. 2007) (dismissing claim brought under the Seamen's Wage Act and enforcing an arbitration agreement contained in an employment agreement because Congress's intent when implementing the New York Convention was to promote the “uniform enforcement of arbitration agreements, despite the potential presence of parochial policies present in other parts of the U.S. Code”; the court noted, “to nullify the arbitration provision here would hinder the purpose of the Convention and subvert congressional intent”). The “commercial” requirement under the Convention is discussed above. See supra pp. 259 et seq. (especially 272-273). 1294 See, e.g., Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 170 F.3d 1 (1st Cir. 1999) (employer did not provide employee with the rules explaining which cases were subject to arbitration); Cole v. Burns Int'l Security Services, 105 F.3d 1465 (D.C. Cir. 1997) (arbitration agreement, required as a condition of employment, cannot validly require former employee to pay any portion of arbitrators' fees); Prudential v. Lai, 42 F.3d 1299 (9th Cir. 1994) (in deciding whether arbitration clause waived claims for civil action over sexual harassment and discrimination, notice required of waiver); Geiger v. Ryan's Family Steak Houses, Inc., 134 F.Supp.2d 985, 998 (S.D. Ind. 2001) (employment-arbitration agreement consisting of three separate documents, one of which was not given to the employee, not sufficient to apprise employee of rights and obligations); Prevot v. Phillips Petroleum Co., 133 F.Supp.2d 937, 940-941 (S.D. Tex. 2001) (English-language arbitration agreements unconscionable where they were not translated for non-Englishspeaking employees and employees were pressured into signing them); Hoffman v. Aaron Kamhi, Inc., 927 F.Supp. 640 (S.D.N.Y. 1996) (in deciding whether arbitration clause encompassed employee's statutory claims, court required that clause put employee on notice of waiver of such claims). 1295 See, e.g., Semcken v. Genesis Med. Interventional, Inc., 2004 WL 2203561 (N.D. Cal. 2004) (arbitration clause contained in negotiated, executed employment agreement fully enforceable); infra pp. 1748-1758, 1765-1775. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1296 For commentary, see Alderman, Consumer Arbitration: The
Destruction of the Common Law, 2 J. Am. Arb. 1 (2003); Bates, A Consumer's Dream or Pandora's Box: Is Arbitration A Viable Option for Cross-Border Consumer Disputes?, 27 Ford. Int'l L.J. 823 (2004); Drahozal & Friel, Consumer Arbitration in the European Union and the United States, 28 N.C. J. Int'l L. & Comm. Reg. 357 (2002); Rogers, The Arrival of the “Have-Nots” in International Arbitration, 8 Nev. L.J. 341 (2007); Ware, Arbitration and Unconscionability after Doctor's Associates, Inc. v. Casarotto, 31 Wake Forest L. Rev. 1001 (1996); Schwartz, Enforcing Small Print to Protect Big Business: Employee and Consumer Rights Claims in An Age of Compelled Arbitration, 1997 Wisc. L. Rev. 33; Sternlight, Panacea or Corporate Tool?: Debunking the Supreme Court's Preference for Binding Arbitration, 74 Wash. U. L.Q. 637 (1996). 1297 See, e.g., Drahozal & Friel, Consumer Arbitration in the European Union and the United States, 28 N.C. J. Int'l L. & Comm. Reg. 357 (2002); Bates, A Consumer's Dream or Pandora's Box: Is Arbitration A Viable Option for Cross-Border Consumer Disputes?, 27 Ford. Int'l L.J. 823 (2004); Rogers, The Arrival of the “Have-Nots” in International Arbitration, 8 Nev. L.J. 341 (2007); Ware, Arbitration and Unconscionability after Doctor's Associates, Inc. v. Casarotto, 31 Wake Forest L. Rev. 1001 (1996). 1298 See Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (U.S. S.Ct. 1989) (brokerage agreement); Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265 (U.S. S.Ct. 1995) (consumer contract for pest control); Green Tree Fin. Corp. v. Randolph, 531 U.S. 79 (U.S. S.Ct. 2000) (mobile home financing agreement); Walton v. Rose Mobile Homes, LLC, 298 F.3d 470 (5th Cir. 2002) (Magnuson-Moss Warranty Act claims arbitrable: “consumers can still vindicate their rights under warranties in an arbitral forum”); In re Marcia L. Pate, 198 B.R. 841 (Bankr. S.D. Ga. 1996) (FAA preempts Georgia state statutory bar against arbitration clauses in consumer transactions); Borowiec v. Gateway 2000, Inc., 808 N.E.2d 957 (Ill. 2004) (Magnuson-Moss Warranty Act does not indicate “congressional intent to bar arbitration of written warranty claims”); In re Am. Homestar of Lancaster, Inc., 50 S.W.3d 480 (Tex. 2001) (same). Most U.S. state laws also give effect to arbitration clauses in consumer contracts. Cole, Uniform Arbitration: “One Size Fits All” Does Not Fit, 16 Ohio St. J. Disp. Res. 759, 787 (2001). 1299 In re Knepp, 229 B.R. 821, 827 (N.D. Ala. 1999). The same
court sua sponte raised the validity of the arbitration clause in question and held it unconscionable. Ibid. 1300 See Carrington & Haagen, Contract and Jurisdiction, 1996 Sup. Ct. Rev. 331; Carrington, Regulating Dispute Resolution Provisions in Adhesion Contracts, 35 Harv. J. Legis. 225 (1998); Schwartz, Enforcing Small Print to Protect Big Business: Employee and Consumer Rights Claims in An Age of Compelled Arbitration, 1997 Wisc. L. Rev. 33; Sternlight, Panacea or Corporate Tool?: Debunking the Supreme Court's Preference for Binding Arbitration, 74 Wash. U. L.Q. 637 (1996). 1301 See supra pp. 693-694; Campbell v. Gen. Dynamics Gov't Sys. Corp., 407 F.3d 546, 558-559 (1st Cir. 2005) (email notification of new arbitration requirement failed to put employee on inquiry notice that there was a new, unilateral contract which required arbitration of disputes where no reply to the email was required and http://www.kluwerarbitration.com/CommonUI/print.aspx
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typical personnel decisions were communicated in paper); Specht v. Netscape Comm. Corp., 306 F.3d 17 (2d Cir. 2002) (where reasonable person would not have had notice of the existence of license terms containing arbitration clause because terms were not immediately visible upon acceptance of offer, arbitration clause not part of contract); Hudyka v. Sunoco, Inc., 474 F.Supp.2d 712, 717719 (E.D. Pa. 2007) (email notification to employee of new arbitration requirement gave insufficient notice where terms of arbitration agreement were not clearly set forth in email, employer could not prove that employee received email notification, and employee did not receive arbitration program booklet containing definite terms); Klocek v. Gateway 2000, Inc., 104 F.Supp.2d 1332 (D. Kan. 2000); Brower v. Gateway 2000, Inc., 246 A.D.2d 246, 254 (N.Y. App. Div. 1998) (ICC clause in domestic U.S. contract unconscionable); Reedy v. Cincinnati Bengals, Inc., 758 N.E.2d 678 (Ohio Ct. App. 2001) (subsequent document containing arbitration agreement did not constitute part of contract between parties and dispute was therefore not arbitrable). 1302 See supra pp. 724-732. Many U.S. courts require an arbitration agreement to be both substantively and procedurally unconscionable in order to find them void, but employ a “sliding scale” approach such that “the more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.” Shroyer v. New Cingular Wireless Sers., Inc., 498 F.3d 976, 981-82 (9th Cir. 2007). See also supra pp. 724, 726-736. A contract may be procedurally unconscionable if it is a standard form contract whose terms the consumer has no opportunity to negotiate. See Circuit City Stores, Inc. v. Adams, 279 F.3d 889, 893 (9th Cir. 2002) (“The [arbitration agreement] is procedurally unconscionable because it is a contract of adhesion: a standardform contract, drafted by the party with superior bargaining power, which relegates to the other party the option of either adhering to its terms without modification or rejecting the contract entirely.”); Armendariz v. Found. Health Psychcare Sers., Inc., 6 P.3d 669 (Cal. 2000) (arbitration agreement was a contract of adhesion because “[i]t was imposed on employees as a condition of employment and there was no opportunity to negotiate”); Harold Allen's Mobile Home Factory Outlet, Inc. v. Butler, 825 So.2d 779 (Ala. 2002); Ware, Arbitration and Unconscionability after Doctor's Associates, Inc. v. Casarotto, 31 Wake Forest L. Rev. 1001 (1996). 1303 Some U.S. states have also sought to exclude certain types of
consumer contracts from state laws that otherwise favor arbitration. For example, Texas, Montana and Georgia prohibit arbitration for consumer contracts which involve consideration less than a certain dollar amount. Tex. Civ. Prac. & Rem. §171.002(a)(2) ($50,000); Mont. Code Ann., §27-5-114 ($5,000); Ga. Code. Ann. §9-9-2(c)(5) ($25,000). In Texas, for a consumer contract over $50,000, an arbitration clause will only be enforced if signed by each party to the contract and signed by each party's attorney. Tex. Civ. Prac. & Rem. §171.002(b)(2). Such state law provisions are very likely preempted by the FAA. See infra pp. 833-834; Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265 (U.S. S.Ct. 1995); Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (U.S. S.Ct. 1989) (brokerage agreement).
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1304 Green Tree Fin. Corp. v. Randolph, 531 U.S. 79, 90 (U.S.
S.Ct. 2000) (arbitration agreement may be invalid if it “preclude[s] litigant … from effectively vindicating her statutory rights in the arbitral forum,” for example because of costs or waiver of nonwaivable remedies); Dale v. Comcast Corp., 498 F.3d 1216, 1223 (11th Cir. 2007) (class action waiver in arbitration agreement held unconscionable as it precluded state claims based on a federal statute); Kristian v. Comcast Corp., 446 F.3d 25 (1st Cir. 2006) (denial of class action arbitration of antitrust claims prevented plaintiffs from vindicating statutory rights, and provision was held invalid and severed); Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 21 (1st Cir. 1999) (“Our conclusion that a union waiver of employee rights to a federal judicial forum for employment discrimination claims must be clear and unmistakable means that, absent a clear waiver, it is not ‘appropriate’ … to find an agreement to arbitrate.”). 1305 Baum, Medical Malpractice Arbitration: A Patient's Perspective, 61 Wash. U.L.Q. 123, 148 n.198 (1983). 1306 Arbitration Fairness Act, H.R. 3010, S. 1782, 110th Cong. (2007). Among other things, these legislative proposals would provide that “no predispute arbitration agreement” shall be “valid or enforceable” if it required arbitration of “employment, consumer or franchise dispute[s].” S. 1782, §4. 1307 Arbitration Fairness Act, H.R. 3010, S. 1782, 110th Cong. §4 (2007). 1308 Commission Recommendation on the Principles Applicable to the Bodies Responsible for Out-of-Court Settlement of Consumer Disputes (98/257/CE), 1998 O.J. (L 115) 31 (“access to courts is a fundamental right that knows no exceptions … whereas out of court procedures cannot be designed to replace court procedures; whereas therefore, use of the out of court alternative may not deprive consumers of their right to bring the matter before the courts unless they expressly agree to do so, in full awareness of the facts and only after the dispute has materialized”). 1309 EU Council Directive 93/13/EEC (“EU Directive on Unfair Terms in Consumer Contracts”), O.J. L 095, 21/04/1993, at 29. 1310 EU Council Directive 93/13/EEC, O.J. L 095, 23/04/1993, at 29, Annex 1(q) (“Requiring the consumer to take disputes exclusively to arbitration not covered by legal provision.”). 1311 Office of Fair Trading, Unfair Contract Terms Guidance, ¶¶17.2-3 (Feb. 2001) (United Kingdom). 1312 Elisa María Mostaza Claro v. Centro Móvil Milenium SL, C168/05 [2006] E.C.R. I-10421 (E.C.J.). This would apparently permit challenges to the validity or enforceability of arbitration agreements to be submitted to the arbitrators in the first instance. 1313 Elisa María Mostaza Claro v. Centro Móvil Milenium SL, C168/05 [2006] E.C.R. I-10421 (E.C.J.) (“the result sought by Article 6 of the Directive which … requires the Member States to ensure that consumers are not bound by unfair terms, could not be achieved if the court seized of an action for annulment of an arbitration award was unable to determine whether that award was void solely because the consumer did not plead the invalidity of the arbitration agreement in the course of the arbitration proceedings.… the Directive must be interpreted as meaning that a national court seized of an action for annulment of an arbitration award must determine whether the arbitration agreement is void and annul that award where that agreement contains an unfair term, even though http://www.kluwerarbitration.com/CommonUI/print.aspx
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the consumer has not pleaded that invalidity in the course of the arbitration proceedings, but only in that of the action for annulment.”). 1314 Judgment of 7 December 1994, V 2000 (formerly Jaguar France) v. Project XJ 220 ITD, 1996 Rev. arb. 245 (Paris Cour d'appel). 1315 Swedish Arbitration Act, §6 (“Where a dispute between a business enterprise and a consumer concerns goods, services, or any other products supplied principally for private use, an arbitration agreement may not be invoked where such was entered into prior to the dispute.… The first paragraph shall not apply where the dispute concerns an agreement between an insurer and a policy-holder concerning insurance based on a collective agreement or group agreement and handled by representatives of the group. Nor shall the first paragraph apply where Sweden's international obligations provide to the contrary.”). 1316 See German ZPO, §1031(5) (“Arbitration agreements to which a consumer is a party must be contained in a document which has been personally signed by the parties. No agreements other than those referring to the arbitral proceedings may be contained in such a document; this shall not apply in the case of a notarial certification.”); Mäsch, Schiedsvereinbarungen mit Verbrauchern, in B. Bachmann et al. (eds.), Grenzüberschreitungen: Beiträge zum Internationalen Verfahrensrecht und zur Schiedsgerichtsbarkeit; Festschrift für Peter Schlosser zum 70. Geburtstag 529, 534-535, 539 (2005). See also Austrian ZPO, §617 (“(2) Arbitration agreements to which a consumer is a party must be contained in a document signed personally by him. This document must not contain any agreements other than those relating to the arbitral proceedings. (3) In arbitration agreements between an entrepreneur and a consumer, the consumer shall, prior to concluding the arbitration agreement receive written legal advice on the relevant differences between arbitral and court proceedings.”); Riegler, in S. Riegler et al. (eds.), Arbitration Law of Austria: Practice and Procedure §617, ¶¶8-15, 23 (2007). 1317 See supra p. 823 n. 1303. 1318 See, e.g., Italian Civil Code, Arts. 1341 & 1342 (requiring separate signature on arbitration agreement). 1319 English Arbitration Act, 1996, §§89-91; Unfair Terms in Contracts Regulations, Reg. 5, SI 1999 No. 2083. Under the English Arbitration Act, 1996, §89(2), for the purpose of these sections, “arbitration agreement means an agreement to submit to arbitration present or future disputes or differences (whether or not contractual).” These sections are mandatory rules that apply “whatever the law applicable to the arbitration agreement.” English Arbitration Act, 1996, §89(3). 1320 See, e.g., Heifer Int'l Inc. v. Christiansen [2007] EWHC 3015 (Q.B.); Bryen & Langley Ltd v. Boston [2005] EWCA Civ. 973 (English Court of Appeal) (determining whether a consumer arbitration agreement is substantively unfair involves consideration of both the fairness of the arbitration provision itself and whether the term was imposed upon the consumer); Director Gen. of Fair Trading v. First Comm. Bank plc [2002] 1 A.C. 401 (House of Lords) (unfairness resulting from a lack of good faith in relation to a predispute consumer arbitration clause can be either substantive or procedural). 1321 New Zealand Arbitration Act, Art. 11. Brazilian legislation is broadly similar. See Brazilian Arbitration Law, Art. 4(2) (“In adhesion contracts, the arbitration clause will only be valid if the adhering http://www.kluwerarbitration.com/CommonUI/print.aspx
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party initiates arbitral proceedings or if it expressly agrees to arbitration by means of an attached written document, or if it signs or initials the corresponding contractual clause, inserted in boldface type”). 1322 See supra pp. 822-823. 1323 See supra pp. 825-826. 1324 Quebec Consumer Protection Act, §11. The Act permits postdispute agreements to arbitrate consumer claims. Ibid. See also Ontario Consumer Protection Act, S.O. 2002, c. 30, §§7, 8; Swiss Law on Private International Law, Art. 114(2) (“A consumer may not waive in advance the forum of his domicile or habitual place of residence.”). 1325 Japanese Arbitration Law, Supplementary Provisions, Art. 3. As discussed above, Japanese legislation adopts a similar approach to employee-employer arbitration agreements. See supra pp. 817818. 1326 Alberta Fair Trading Act, §16. 1327 See supra pp. 821-826. 1328 See supra pp. 504-516; Swedish Arbitration Act, §6 (“Nor shall the first paragraph apply where Sweden's international obligations provide to the contrary.”). 1329 It is clear that most national law rules providing for the invalidity of consumer arbitration agreements are addressed towards concerns about unequal bargaining power and sophistication of the parties during the contract formation process. That is the reason that these invalidity rules apply generally to predispute agreements to arbitrate, and not to post-dispute arbitration agreements. 1330 See supra pp. 520, 530-535. A rule providing for the nonarbitrability of claims beneath a specified monetary threshold (as in the EU) is arguably a reasonably well-tailored mechanism for denying effect to arbitration agreements that would make it uneconomical for consumers to pursue their claims. As discussed below, however, a preferable approach would be to develop arbitral mechanisms that provide more efficient and effective ways of resolving consumer claims than national courts. Given the widespread existence of non-arbitrability rules in the context of consumer disputes, it is difficult to characterize such rules as idiosyncratic. See supra pp. 820-827. 1331 See Matthews & Stewart, Online Arbitration of Cross-Border: Business to Consumer Disputes, 56 U. Miami L. Rev. 1111 (2002); Dam, Class Actions: Efficiency, Compensation, Deterrence and Conflict of Interests, 4 J. Legal Studies 47 (1975). 1332 Rogers, The Arrival of the “Have-Nots” in International Arbitration, 8 Nev. L.J. 341 (2007); Ware, Arbitration and Unconscionability after Doctor's Associates, Inc. v. Casarotto, 31 Wake Forest L. Rev. 1001 (1996). In Spain, since 1993, consumers have been able to submit disputes at no cost to the Juntas Arbitrales de Consumo, a domestic arbitration body whose role is to supervise consumer arbitrations. See Kirry, Arbitrability: Current Trends in Europe, 12 Arb. Int'l 373 (1996). 1333 Matthews & Stewart, Online Arbitration of Cross-Border,
Business to Consumer Disputes, 56 U. Miami L. Rev. 1111, 1136 (2002) (“As the difficulty inherent in applying domestic laws to electronic commerce has become more apparent, many consumer http://www.kluwerarbitration.com/CommonUI/print.aspx
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groups have changed sides on the issue and are now in favor of establishing fair procedural standards for international arbitration.”) (citing Bureau of Consumer Protection, Federal Trade Commission, Consumer Protection in the Global Electronic Marketplace: Looking Ahead (Sept. 2000), available at www.ftc.gov/bcp/icpw/lookingahead/global.htm). 1334 See supra pp. 826-827; Japanese Arbitration Law, Supplementary Provisions, Art. 3. 1335 For example, the AAA has enacted a separate set of procedures for consumer-related disputes between “individual consumers and businesses where the business has a standardized, systematic application of arbitration clauses with customers” and the product is for personal use. See AAA Supplementary Procedures for Consumer-Related Disputes. Judicial Mediation & Arbitration Services (“JAMS”) has adopted a set of “Streamlined Arbitration Rules and Procedures,” which apply upon agreement of the parties or if the claim is worth less than $250,000.00. See JAMS, JAMS Streamlined Arbitration Rules and Procedures, Rule 1(a), (b), available at www.jamsadr.com/rules/streamlined.asp. 1336 See infra pp. 1231-1232. 1337 See, e.g., Due Process Protocol for Mediation and Arbitration of Statutory Disputes Arising out of the Employment Relationship; Due Process Protocol for Mediation and Arbitration of Consumer Disputes; National Academy of Arbitrators, Guidelines on Arbitration of Statutory Claims under Employer-Promulgated Systems (21 May 1997). 1338 ICC, Guidelines for Arbitrating Small Claims under the ICC Rules of Arbitration, 14(1) ICC Ct. Bull. 29 (2003); AAA Supplementary Procedures for Consumer-Related Disputes (2005). 1339 See supra pp. 144-147, 574-575. This hostility was particularly pronounced in many communist and other totalitarian states. See, e.g., Osakwe, A Soviet Perspective on Foreign Sovereign Immunity: Law and Practice, 23 Va. J. Int'l L. 13 (1982); People's Republic of China: Aide Mémoire of the Ministry of Foreign Affairs, (2 February 1983), 22 Int'l Legal Mat. 81 (1983). 1340 See supra pp. 144-147; Sornarajah, The UNCITRAL Model Law: A Third World Viewpoint, 6(4) J. Int'l Arb. 7 (1989); Kassis, The Questionable Validity of Arbitration and Awards under the Rules of the International Chamber of Commerce, 6(2) J. Int'l Arb. 79 (1989). 1341 Sornarajah, The UNCITRAL Model Law: A Third World Viewpoint, 6(4) J. Int'l Arb. 7, 16 (1989). 1342 J. Dellapenna, Suing Foreign States and Their Corporations 241-43, 460-63 (2d ed. 2003); Fox, States and the Undertaking to Arbitrate, 37 Int'l & Comp. L.Q. 1, 4 (1988); Kessedjian, Court Decisions on Enforcement of Arbitration Agreements and Awards, 18 J. Int'l Arb. 1 (2001); Meyer-Fabre, Enforcement of Arbitral Awards Against Sovereign States, A New Milestone: Signing ICC Arbitration Clause Entails Waiver of Immunity from Execution held French Court of Cassation in Creighton v. Qatar, 15(9) Mealey's Int'l Arb. Rep. 48 (2000); Moury, L'incidence de la stipulation d'une clause compromissoire sur l'immunité d'exécution de l'Etat étranger, 2001 Dalloz 2140. 1343 28 U.S.C. §§1605(a)(1), 1605(a)(6), 1610(c), (d); J. Dellapenna, Suing Foreign States and Their Corporations 241-43, 460-63 (2d ed. 2003); Turck, French and US Courts Define Limits of Sovereign Immunity in Execution and Enforcement of Arbitral Awards, 17 Arb. Int'l 327 (2001). 1344 In the early 1980s, one lower U.S. court held that, even where http://www.kluwerarbitration.com/CommonUI/print.aspx
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the Foreign Sovereign Immunities Act permits enforcement, the act of state doctrine does not allow the enforcement of an arbitral award concerning claims of expropriation. In Libyan Am. Oil Co. (LIAMCO) v. Socialist People's Libyan Arab Jamahirya, 482 F.Supp. 1176 (D.D.C. 1980), vacated mem., 684 F.2d 1032 (D.C. Cir. 1981), the district court denied enforcement of an arbitration award after concluding that the expropriation dispute between the parties underlying the award was within the scope of the act of state doctrine. The lower court decision in LIAMCO was plainly wrong. Following submissions from the U.S. Government, the opinion was vacated. 684 F.2d 1032 (D.C. Cir. 1981). The FAA was nonetheless amended to ensure that the error was not repeated. U.S. FAA, 9 U.S.C. §15. See infra p. 831 n. 1345. 1345 See U.S. FAA, 9 U.S.C. §15 (“Enforcement of arbitral agreements, confirmation of arbitral awards, and execution upon judgments based on orders confirming such awards shall not be refused on the basis of the Act of State Doctrine.”). 1346 European Convention on State Immunity, Arts. 12(1), 17(1); Blessing, Sovereign Immunity and Transnational Arbitration, 3 Arb. Int'l 28 (1987). 1347 See, e.g., U.K. State Immunity Act, §9(1); Bowett, The State Immunity Act 1978, 1978 Cambridge L.J. 37; Mann, The State Immunity Act 1978, 50 Brit. Y.B. Int'l L. 43 (1979); French New Code of Civil Procedure, Art. 1502; Judgment of 6 June 2000, Creighton Ltd v. Gouvernement de l'Etat du Qatar, 2001 Rev. arb. 114 (French Cour de cassation civ. 1e). 1348 See e.g., Australian Foreign State Immunities Act, Art. 17; Singapore State Immunity Act, Art. 11; South African Foreign States Immunity Act, §10. 1349 See supra pp. 107-108; C. Schreuer, The ICSID Convention: A Commentary Art. 25, ¶286 (2001). 1350 See Kroeger, Kautz & Acikel, Turkey Revisited: Developments in Energy Project Arbitration in the Context of Bilateral Investment Treaties and ICSID, 14(9) Mealey's Int'l Arb. Rep. 32 (1999); K.-H. Böckstiegel, Acts of State and Arbitration (1997); Reddy & Nagaraj, Arbitrability: The Indian Perspective, 19 J. Int'l Arb. 117 (2002); Idornigie, The Principle of Arbitrability in Nigeria Revisited, 21 J. Int'l Arb. 279 (2004). But see Judgment of 17 July 2001, Etat Libanais v. Société FTML, 2001 Rev. arb. 855 (Libyan Conseil d'état) (arbitration clause in administrative contract held invalid). 1351 See, e.g., Kreindler, The Arbitration Clause: The Validity of An Arbitration Clause in Matters of Product Liability, in The Arbitration Agreement: Its Multifold Critical Aspects 123 (ASA Special Series No. 8 1994); Thornburg, Contracting With Tortfeasors: Mandatory Arbitration Clauses and Personal Injury Claims, 67 Law & Contemp. Prob. 253, 256-260 (2004) (discussing cases). See also Ling Wo Leong v. Kaiser Found. Hosp., 788 P.2d 164, 169 (Haw. 1990) (enforcing clause in health care plan calling for binding arbitration of “[a]ny claims for damages for personal injury … arising out of the rendition of or failure to render services under this contract”); Doyle v. Giuliucci, 401 P.2d 1, 3 (Cal. 1965) (“The arbitration provision in such contracts [for medical care] is a reasonable restriction, for it does no more than specify a forum for the settlement of disputes.”). 1352 In Vimar Seguros y Reaseguros, SA v. M/V Sky Reefer, 515 U.S. 528 (U.S. S.Ct. 1995), the U.S. Supreme Court rejected lower court authority holding that claims under the Carriage of Goods by Sea Act were non-arbitrable. The Supreme Court held that “COGSA does not forbid selection of [a] foreign [arbitral] forum.” It reasoned, much like the Mitsubishi Court (supra pp. 792-793, 797-798), that http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration is merely a procedural mechanism which does not compromise COGSA's substantive statutory protections. See also Mitsui & Co. v. Mira M/V, 111 F.3d 33, 36 (5th Cir. 1997) (extending Sky Reefer to forum selection clauses); Am. Home Assur. Co. v. M/V Hanjin Marseilles, 2004 U.S. Dist. LEXIS 9705, at *8-*9 (S.D.N.Y. 2004) (collecting U.S. cases showing that “[s]ince Sky Reefer, courts have consistently held that forum selection clauses (including foreign arbitration clauses) in bills of lading are valid under COGSA”). 1353 Compare Bennett v. Liberty Nat'l Fire Ins. Co., 968 F.2d 969 (9th Cir. 1992); Life of Am. Ins. Co. v. Aetna Life Ins. Co., 744 F.2d 409 (5th Cir. 1984); Philipps v. Lincoln Nat'l Health & Cas. Ins. Co., 774 F.Supp. 1297 (D. Colo. 1991); Triton Lines, Inc. v. Steamship Mut. Underwriting Ass'n, 707 F.Supp. 277 (S.D. Tex. 1989) (McCarran-Ferguson Act does not create exception to FAA permitting state non-arbitrability statute to render agreement to arbitrate unenforceable) with Washburn v. Corcoran, 643 F.Supp. 554 (S.D.N.Y. 1986) (relying on McCarran-Ferguson Act and New York statute to hold claims by state insurance liquidators nonarbitrable) and Corcoran v. Ardra Ins. Co., 566 N.Y.S.2d 575 (N.Y. 1990) (New York Convention and FAA do not require arbitration of claims by state insurance liquidator). 1354 See, e.g., Ontario Construction Lien Act, Rule 62; Automatic Sys. Inc. v. Bracknell Corp., 12 B.L.R.2d 132 (Ontario Court of Justice 1993). 1355 Paramedics Electromedicina Comercial, Ltda v. GE Med. Sys. Info. Tech., Inc., 369 F.3d 645 (2d Cir. 2004) (compelling arbitration of claims for moral damages under Brazilian import/export regulations). 1356 See, e.g., Re Vocam Europe Ltd [1998] B.C.C. 396 (Ch.); JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676 (S.D.N.Y. 2005) (“The FAA does not carve out disputes relating to the internal affairs of corporations as an exception to the general enforceability of arbitration agreements.”); M. Bühler & T. Webster, Handbook of ICC Arbitration 109 (2005) (shareholders disputes arbitrable). 1357 See, e.g., Orcutt v. Kettering Radiologists, Inc., 199 F.Supp.2d 746 (S.D. Ohio 2002) (False Claims Act whistle-blower claims arbitrable). Contra Nguyen v. City of Cleveland, 121 F.Supp.2d 643 (N.D. Ohio 2000) (False Claims Act claims non-arbitrable); Garrett v. Circuit City Stores, Inc., 338 F.Supp.2d 717 (N.D. Tex. 2004) (statutory protections for military employees non-arbitrable). 1358 See, e.g., Final Awards in ICC Case Nos. 6515 and 6516, XXIVa Y.B. Comm. Arb. 80, 84 (1999) (dispute over contractual allocation of Greek taxes did not implicate Greek sovereignty and was arbitrable); Saari v. Smith Barney, Harris Upham & Co., 968 F.2d 877 (9th Cir. 1992) (Employee Polygraph Protection Act claim is arbitrable); Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 723-724 (9th Cir. 1999) (Lanham Act); Doctor's Assoc., Inc. v. Distajo, 107 F.3d 126, 133 (2d Cir. 1997) (Lanham Act). 1359 15 U.S.C. §1226(a)(2) (“motor vehicle franchise contract” disputes non-arbitrable except where post-dispute agreement to arbitrate exists). 1360 Broughton v. Cigna Healthplans of Calif., 988 P.2d 67 (Cal. 1999) (claim for injunctive relief against alleged deceptive practices of health provider non-arbitrable). 1361 See supra pp. 781-785. 1362 See Ark. Code Ann. §16-108-201(b)(2); Iowa Code Ann. http://www.kluwerarbitration.com/CommonUI/print.aspx
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§679A.1(2)(c); Kan. Stat. Ann. §5-401(c) (recognized as preempted by the FAA in Skewes v. Shearson Lehman Bros., 829 P.2d 874, 874 (Kan. 1992)); S.C. Code Ann. §15-48-10(b)(4); Tex. Civ. Prac. & Rem. Code Ann. §171.002(a)(3)(c) (recognized as preempted by the FAA in In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex. 2005)). 1363 See Michigan Franchise Investment Law, Mich. Comp. Laws Ann. §600.5005; Mont. Code Ann. §27-5-114(2)(b) (when consideration for real estate is less than $5000); Ohio Rev. Code Ann. §2711.01(B)(1). 1364 Kan. Stat. Ann. §5-401(c)(3); Ark. Code Ann. §16-108-201(b) (2) (recognized as preempted by the Federal Crop Insurance Act in IGF Ins. Co. v. Hat Creek P'ship, 76 S.W.3d 859, 866 (Ark. 2002)). 1365 Perry v. Thomas, 482 U.S. 483 (U.S. S.Ct. 1987); Kan. Stat. Ann. §5-401(c)(2) (recognized as preempted by the FAA in Lewis v. Circuit City Stores, Inc., 500 F.3d 1140, 1151-52 (10th Cir. 2007)); Iowa Code Ann. §679A.1(2)(b). 1366 See supra pp. 821-824; Cole, Uniform Arbitration: “One Size Fits All” Does Not Fit, 16 Ohio St. J. Disp. Res. 759, 787 (2001). 1367 Southland Corp. v. Keating, 465 U.S. 1 (U.S. S.Ct. 1984). 1368 Keating v. Superior Court of Alameda County, 645 P.2d 1192, 1203-1204 (Cal. 1982). 1369 Southland Corp., 465 U.S. at 16. 1370 Southland Corp., 465 U.S. at 16 n.ll. 1371 482 U.S. 483 (U.S. S.Ct. 1987). 1372 482 U.S. at 488. 1373 Allied-Bruce Terminix Co. v. Dobson, 513 U.S. 265, 269-271 (U.S. S.Ct. 1995) (preempting Alabama statute invalidating agreements to arbitrate future disputes). The state statute, Ala. Code §8-1-41(3), provided: “The following obligations cannot be specifically enforced: … (3) An agreement to submit a controversy to arbitration.” 1374 Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (U.S. S.Ct. 1995); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. S.Ct. 2006). 1375 See supra pp. 485-492; Lewis v. Circuit City Stores, Inc., 500 F.3d 1140, 1151-52 (10th Cir. 2007) (FAA “preempts Kansas's statute rendering disputes between an employer and employee nonarbitrable”); S+L+H SpA v. Miller-St. Nazianz, Inc., 988 F.2d 1518 (7th Cir. 1993) (Wisconsin Fair Dealership Law's prohibition on arbitration of certain disputes preempted); Saturn Distribution Corp. v. Williams, 905 F.2d 719 (4th Cir. 1989); Securities Indus. Ass'n v. Connolly, 883 F.2d 1114 (1st Cir. 1989); JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676 (S.D.N.Y. 2005) (“it must be public policy as a matter of federal, not state, law”); In re Marcia L. Pate, 198 B.R. 841 (Bankr. S.D. Ga. 1996) (FAA preempts Georgia state statutory bar against arbitration clauses in consumer transactions); Skewes v. Shearson Lehman Bros., 829 P.2d 874, 874 (Kan. 1992) (FAA preempts Kansas's statute rendering tort claims non-arbitrable); In re Nexion Health at Humble, Inc., 173 S.W.3d 67, 69 (Tex. 2005) (FAA preempts provision of Texas statute rendering tort claims non-arbitrable if arbitration agreement not signed by counsel). 1376 See supra pp. 520, 530-535. 1377 Award in ICC Case No. 1110, 10 Arb. Int'l 282, 291 (1994). See also supra pp. 803-805.
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1378 See, e.g., Award in ICC Case No. 7539, 123 J.D.I. (Clunet)
1030 (1996); Final Award in ICC Case No. 8423, XXVI Y.B. Comm. Arb. 153, 154 (2001) (“The first issue for the Arbitral Tribunal is whether disputes concerning the application of community competition law are arbitrable. As community law pertains to international public policy, the Arbitral Tribunal must examine this issue ex officio, even if the parties do not raise an objection.”). See also Mourre, Arbitration and Criminal Law: Reflections on the Duties of the Arbitrator, 22 Arb. Int'l 95 (2006). 1379 See infra pp. 2606-2610, 2610-2611, 2798-2803. 1380 See infra pp. 2177-2184, 2628-2633. 1381 National law in some jurisdictions may require an arbitrator to do more than raise non-arbitrability issues sua sponte. Ottolenghi, Israel 5, in J. Paulsson (ed.), Int'l Handbook of Comm. Arb. (Update 1984) (arbitrator required to report suspected criminal activity to Attorney General). See infra pp. 1625-1627. 1382 See infra pp. 1765-1775, 2589-2590, 2746-2748. 1383 The principle of judicial non-interference in arbitral proceedings is discussed below. See infra pp. 1776-1782. 1384 Cole v. Burns Int'l Security Services, 105 F.3d 1465 (D.C. Cir. 1997) (conditioning arbitrability of Title VII dispute on various “procedural safeguards” in arbitration proceedings, including “more than minimal discovery,” punitive damages, and employee's exemption from paying arbitrators' fees). 1385 See PPG Indus., Inc. v. Pilkington plc, 825 F.Supp. 1465 (D. Ariz. 1993); MEL v. Gotaas-Larsen Shipping Corp., No. 89-0602-CIV (S.D. Fla. July 17, 1990) (requiring reports every three months on progress of arbitration of federal securities law claims in London). 1386 See infra pp. 1005-1007, 1014-1015, 1025-1027, 1776-1782, 2923-2929. 1387 See infra pp. 1007-1008, 1014-1015; UNCITRAL Model Law, Art. 5. 1388 See infra pp. 1007-1008, 1014-1015. 1389 See supra pp. 528-530; Howard v. Anderson, 36 F.Supp.2d 183, 187 (S.D.N.Y. 1999) (“[G]iven defendants' desire to arbitrate this case and reach a resolution that will be enforced by the Court.… However, if Howard is unable to vindicate her rights in the arbitral forum, she will have recourse to the Court.”). 1390 See supra pp. 768-770, 779-781, 771-785. 1391 See supra pp. 565-575. 1392 See supra pp. 58-63, 92-103, 203-205. 1393 See supra pp. 775-788 (especially 775-776). 1394 See supra pp. 776-779, 786-788. 1395 See supra pp. 779-785. 1396 Carbonneau & Janson, Cartesian Logic and Frontier Politics: French and American Concepts of Arbitrability, 2 Tul. J. Int'l & Comp. L. 193, 222 (1994). See also McConnaughay, The Risks and Virtues of Lawlessness: A “Second Look” at International Commercial Arbitration, 93 N.W. U. L.Rev. 453 (1999); Abraham & Montgomery, The Lawlessness of Arbitration, 9 Conn. Ins. L.J. 355 (2003); Park, Private Adjudicators and the Public Interest: The Expanding Scope of International Arbitration, 12 Brooklyn J. Int'l L. 629 (1986); Silberman, International Arbitration: Comments from A Critic, 13 Am. Rev. Int'l Arb. 9, 12, 18 (2002) (“Broader protection for mandatory laws in the context of international arbitration could give greater integrity in the process”; “Important legal issues – whether http://www.kluwerarbitration.com/CommonUI/print.aspx
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they fall within the public or private sphere – deserve public attention and debate. Arbitration of certain private disputes may be appropriate, but particular issues in the private sector have public resonance and should be left to the formal adjudication processes of courts that are entrusted with those responsibilities and accountability.”). 1397 As discussed above (and in greater detail below), U.S., EU and other non-arbitrability decisions have all concerned private rights to enforce, inter alia, competition, securities, trade and other statutory rights, without affecting the power of regulatory agencies to enforce the same statutory provisions. 1398 Considered from an historical perspective, many of the statutory rights which are involved in disputes over non-arbitrability arise from modern legislation, such as competition, securities, intellectual property, consumer, civil rights, employment and similar statutory regimes. Suggestions that such rights were historically non-arbitrable, and have recently become arbitrable, are therefore confused. E.g., Baxter Int'l, Inc. v. Abbott Laboratories, 315 F.3d 829 (7th Cir. 2003) (Cudahy, J., dissenting) (“For some considerable time not long in the past, the law of the land was that antitrust disputes were not arbitrable”). In fact, such rights were historically nonexistent and only recently became either litigable or arbitrable. 1399 See supra pp. 781-783, 791-792. 1400 See supra pp. 783-785, 800-801. 1401 See supra pp. 71-90; Scherk, 417 U.S. at 518 (“in the context of an international contract, … these advantages become chimerical since … an opposing party may by speedy resort to a foreign court block or hinder access to the American court of the purchaser's choice.”). 1402 See infra pp. 796-798. 1403 See Fox, Antitrust and Regulatory Federalism: Races Up, Down, and Sideways, 75 N.Y.U. L. Rev. 1781 (2000) (discussing increasing antitrust regulation globally); Waller, Prosecution by Regulation: The Changing Nature of Antitrust Enforcement, 77 Ore. L. Rev. 1383 (1998) (explaining increasingly regulatory nature of U.S. antitrust enforcement efforts); Prentice, The Inevitability of A Strong SEC, 91 Cornell L. Rev. 775, 778 (2006) (“It was reasonably clear before the Enron scandal, and is even clearer now, that substantial federal government regulation of securities transactions in the United States will continue.”). See also Baxter Int'l, Inc. v. Abbott Laboratories, 315 F.3d 829 (7th Cir. 2003) (“treating Baxter as bound (vis-à-vis Abbott) by the tribunal's conclusion that the license (as construed to provide strong exclusivity) is lawful does not condemn the public to tolerate a monopoly. If the three-corner arrangement between Baxter, Maruishi and Abbott really does offend the Sherman Act, the United States, the FTC or any purchaser of sevolufrane is free to sue and obtain relief”). 1404 Seesupra pp. 107-108. 1405 See infra pp. 1227-1231. 1406 See supra pp. 817-829. 1407 See supra pp. 818-819. 1408 See supra p. 779 for discussion of the arbitrability of domestic relations disputes. 1409 As discussed above, such restraint is required by the New York Convention. See supra pp. 520, 530-535, 773-774. 1410 See supra pp. 826-827. 1411 See supra pp. 520, 530-535, 773-774. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1412 See supra pp. 528-530. 1413 See supra pp. 525-528. 1414 Equally, it is critical, in assessing asserted applications of the
non-arbitrability doctrine, to ascertain clearly whether or not they are intended to apply in international, as distinguished from domestic, matters. As discussed above, a recurring feature of decisions over the past several decades has been recognition that domestic nonarbitrability rules often do not apply to international disputes. See supra pp. 775-776.
Formation, Validity and Legality of International Arbitration Agreements - G. Failure to Comply With Pre-Arbitration Procedures Chapter 5 Gary B. Born
Author Gary B. Born
G. Failure to Comply with Pre-Arbitration Procedures As discussed elsewhere, arbitration clauses sometimes establish procedural requirements that apply prior to commencement of the arbitral process. (1415) For example, parties may be required to negotiate in order to resolve their differences, (1416) or to submit their disputes to mediators, management representatives, engineers, architects, or similar persons for attempted resolution. (1417) Other arbitration agreements may impose contractual time limits on the commencement of arbitral proceedings (e.g., arbitration must be commenced either within or not before three or six months of a dispute arising). (1418)
Source Formation, Validity and Legality of International Arbitration Agreements - G. Failure to Comply With Pre-Arbitration Procedures in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 841 - 849
page "841" 1. Effect of Non-Compliance with Procedural Requirements in Arbitration Agreement It is sometimes argued that the claimant's failure to comply with the procedural requirements of the arbitration agreement constitutes a jurisdictional defect affecting the arbitral proceedings or the arbitration agreement. (1419) That is particularly true where the provision in question is drafted in a mandatory fashion (“the parties shall meet and negotiate”) and the right to arbitrate is arguably conditioned on compliance with this requirement (“only if the parties are unable to resolve their dispute through good faith negotiations after 30 days, then either party may refer the dispute to arbitration …”).
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In general, national courts and arbitral tribunals have been reluctant to conclude that compliance with contractual procedural requirements is a jurisdictional condition for commencing an arbitration. A substantial body of arbitral authority from investor-state disputes concludes that compliance with procedural mechanisms in an arbitration agreement (or bilateral investment treaty) is not ordinarily a jurisdictional prerequisite. (1420) Similar arbitral authority exists in other contexts. (1421) National courts have also been reluctant to reach such conclusions, especially where the party resisting jurisdiction was partially or entirely responsible for the failure or non-exhaustion of a negotiating process. (1422) Where dispute resolution provisions do not state that negotiation or mediation is a condition precedent to arbitration, courts are particularly likely to refuse to strictly enforce notice requirements. page "842" On the other hand, if dispute resolution clauses expressly provide that negotiations or other procedural steps are a condition precedent to arbitration, courts sometimes require compliance with those provisions. (1423) There is arbitral authority to the same effect. (1424) Thus, where a contract contained a “mandatory negotiation” clause (1425) and the plaintiff commenced an arbitration before any negotiations could take place, the court annulled the subsequent award on the grounds that “the parties were required to participate in the mandatory negotiation sessions prior to arbitration.” (1426) In another case, the court held that “the mediation clause here states that it is a condition precedent to any litigation … and the mediation clause demands strict compliance with its requirement[s].” (1427) page "843" Courts and arbitral tribunals have not always given jurisdictional effect to negotiation or mediation clauses even where negotiation or mediation was characterized as a condition precedent to arbitration. (1428) Where a party attempts to delay arbitration by insisting on enforcement of a negotiation requirement, courts may decline to assist that party in its delay efforts. Thus, even where the contract at issue included “a term requiring mediation … as a condition precedent to arbitration,” a court held that “surely a party may not be allowed to prolong resolution of a dispute by insisting on a term of the agreement that, reasonably construed, can only lead to further delay.” (1429) An alternative approach, suggested by thoughtful commentary, is for an arbitral tribunal to direct the parties to participate in pre-arbitration mediation and/or other contractual dispute resolution steps, either prior to or in parallel to proceeding with the arbitration. (1430) 2. Competence to Decide Objections Based on Non-Compliance with Procedural Requirements of Arbitration Agreement A recurrent question is whether decisions about compliance with an arbitration agreement's procedural requirements are for a national court, or an arbitral tribunal, to resolve. (1431) U.S. courts have generally refused to consider claims whether procedural requirements imposed by an arbitration clause were satisfied, reasoning that this issue is for the arbitrators to decide. (1432) As the U.S. Supreme Court page "844" confirmed in a recent decision, http://www.kluwerarbitration.com/CommonUI/print.aspx
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““procedural’ questions which grow out of the dispute and bear on its final disposition’ are presumptively not for the judge, but for an arbitrator, to decide.” (1433) (A few U.S. decisions are to the contrary, (1434) but page "845" they are ill-considered and do not represent the correct position under U.S. law.) The same result should apply in other jurisdictions. (1435) In dealing with a related subject, a number of U.S. and other courts have held also that statute of limitations, laches and similar defenses are presumptively for resolution by the arbitrators, not the courts. (1436) The U.S. Supreme Court has recently confirmed this conclusion. (1437) Canadian courts have taken the same approach. (1438) On the other hand, courts have reached divergent results concerning the allocation of competence to decide disputes over basic aspects of the arbitral procedure (i.e., Is institutional or ad hoc arbitration required? Is one form of institutional arbitration, or another, required?). (1439) page "846" 3. Effect of Non-Compliance with Procedural Requirements on Validity of Arbitration Agreement Finally, in virtually all cases, procedural missteps in commencing or conducting an arbitration will not affect the validity of the parties' arbitration agreement, but instead only the ability of the claimant to pursue a particular submission or reference to arbitration. In general, nothing prevents the claimant who has failed to comply with procedural requirements of an arbitration agreement in one instance from subsequently complying with the applicable procedural requirements and then properly commencing a new or different arbitration. (1440) 4. Enforceability of Agreements to Negotiate Resolution of Disputes Questions also arise as to the enforceability of agreements to negotiate resolution of disputes when used in conjunction with arbitration agreements. Many courts have held that particular agreements to negotiate (or to negotiate in good faith) the resolution of specified disputes are unenforceably vague and indefinite. (1441) Courts have generally upheld agreements to negotiate only where there is a reasonably clear set of substantive and procedural guidelines against which a party's negotiating efforts can be meaningfully measured. (1442) As one U.S. court observed, “even when called upon to construe a clause in a contract expressly providing that a party is to page "847" apply his best efforts, a clear set of guidelines against which to measure a party's best efforts is essential to the enforcement of such a clause.” (1443) In this context, courts usually emphasize the definiteness of the negotiation (or mediation) procedures set forth by the contract. Where clauses contain provisions such as a limited duration of negotiation or mediation, (1444) a specified number of negotiation sessions, (1445) specified negotiation participants, (1446) or mediation pursuant to specified rules or under the auspices of a http://www.kluwerarbitration.com/CommonUI/print.aspx
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particular dispute resolution institution, (1447) courts are more likely to enforce them than in the case of open-ended or unstructured obligations to negotiate. 5. Existence of A “Dispute” Within the Meaning of the Dispute Resolution Agreement A related issue, arising under some national arbitration laws and institutional rules, is whether there is a “dispute” between the parties that can provide the basis for an arbitration. As discussed elsewhere, a number of authorities have held that particular arbitration clauses apply only in the case of a “dispute,” and that no arbitration is possible unless this requirement is satisfied. (1448) Moreover, as discussed above, courts (or statutory provisions) in some jurisdictions provide that, if there is no genuine dispute, then there is no basis for commencing an arbitration and/or that national arbitration legislation is inapplicable. (1449) In neither case, however, does the issue page "848" ordinarily concern the validity of the parties' agreement to arbitrate, but rather its scope or application in particular circ*mstances. page "849"
1415 See supra pp. 179-180, 241-243; Berger, Law and Practice of
Escalation Clauses, 22 Arb. Int'l 1 (2006); Figuera, Multi-Tiered Dispute Resolution Clauses in ICC Arbitration, 14(1) ICC Ct. Bull. 82 (2003); Jacobs, Should Mediation Trigger Arbitration in A Multi-Step Alternative Dispute Resolution Clause?, 15 Am. Rev. Int'l Arb. 161, 179 n.77 (2004) (use of multi-step dispute resolution provisions has “expanded exponentially” citing domestic U.S. authority). 1416 See supra pp. 241-243; G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 82-84 (2d ed. 2006); Figueres, Multi-Tiered Dispute Resolution Clauses in ICC Arbitration, 14(1) ICC Ct. Bull. 71 (2003); Award in ICC Case No. 9977, 14(1) ICC Ct. Bull. 84 (2003). 1417 See Award in ICC Case No. 6535, in Seppälä, International Construction Disputes: Commentary on ICC Awards Dealing with the FIDIC International Conditions of Contract, [1999] ICLR 343 (discussing case where the parties could not contractually commence arbitration until having requested and obtained a decision from an engineer); American Institute of Architects, General Conditions of the Contract for Construction (AIA A-2-1, 1997) §4.4.1 (“The [American Institute of Architects'] General Conditions A-201 states that the owner and contractor will initially refer all claims to the architect for decision ‘as a condition precedent to mediation, arbitration or litigation.’”); Jolles, Consequences of Multi-Tier Arbitration Clauses: Issues of Enforcement, 72 Arb. 4 (2006). 1418 The following are illustrative examples: “The Parties agree to make all reasonable efforts to settle any dispute arising out of or relating to this Agreement by referring such dispute to their respective senior managers for a period of not less than 30 days following receipt of written notice describing such dispute from any other Party. In the event that the dispute is not resolved during such 30 day period, the Parties agree to submit such dispute to arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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under [the ICC Rules]” or “All disputes arising out of or relating to this Agreement may be submitted to arbitration under [the ICC Rules] within 12 months of the date on which such dispute arises.” 1419 Varady, The Courtesy Trap Arbitration “If No Amicable Settlement Can Be Reached” 14(4) J. Int'l Arb. 5 (1997). 1420 See Am. Mfg. & Trading v. Republic of Zaire, ICSID Award No. ARB/93/1 (21 February 1997), 36 Int'l Legal Mat. 1531, 1545 (1997); Salini Costruttori v. Morocco, Decision on Jurisdiction, ICSID Case No. ARB/00/4 (23 July 2001), 42 Int'l Legal Mat. 609, 612 (2003); Ethyl Corp. v. Gov't of Canada, in NAFTA Award on Jurisdiction (24 June 1998), 38 Int'l Legal Mat. 708, ¶¶74-88 (1999); Schreuer, Travelling the BIT Route, of Waiting Periods, Umbrella Clauses and Forks in the Road, 5 J. World Inv. & Trade 231, 235 (2004). 1421 See, e.g., Interim Award in ICC Case No. 10256, in Figuera, Multi-Tiered Dispute Resolution Clauses in ICC Arbitration, 14(1) ICC Ct. Bull. 82, 87 (2003); Final Award in ICC Case No. 8445, XXVI Y.B. Comm. Arb. 167 (2001) (clause requiring efforts to reach amicable settlement, before commencing arbitration, “are primarily expression of intention” and “should not be applied to oblige the parties to engage in fruitless negotiations or to delay an orderly resolution of the dispute”). 1422 See, e.g., Judgment of 15 March 1999, 20 ASA Bull. 373, 374 (Kassationsgericht Zurich) (2002) (obligation to mediate was substantive obligation, but did not prevent procedural commencement of arbitration); Hooper Bailie Assoc. Ltd v. Natcon Group Pty Ltd, [1992] 28 NSWLR 194, 211 (N.S.W. S.Ct.); Aiton Australia Pty Ltd v. Transfield Pty Ltd, [1999] 153 FLR 236, 250 (N.S.W. S.Ct.); Euro Petroleum Trading Ltd v. Transpetroleum Int'l Ltd, 2002 Int'l Arb. L. Rev. N-1 (Irish High Court); Int'l Ass'n of Bridge, Structural etc. v. EFCO Corp. and Constr. Products, Inc., 359 F.3d 954, 956-957 (8th Cir. 2004) (compliance with the procedural prerequisites in an arbitration agreement is not a bar to the commencement of arbitration, but instead is a substantive issue for the arbitrators to examine). 1423 See, e.g., Cable & Wireless plc v. IBM United Kingdom Ltd [2002] 2 All E.R. (Comm.) 1041, 1054 (Q.B.); Judgment of 6 July 2000, Société Polyclinique des Fleurs v. Peyrin, 2001 Rev. arb. 749 (French Cour de cassation civ. 2e) (claim inadmissible because contractual conciliation procedure was not pursued); Hooper Bailie Assoc. Ltd v. Natcon Group Pty Ltd, [1992] 28 NSWLR 194, 211 (N.S.W. S.Ct.); HIM Portland, LLC v. DeVito Builders, Inc., 317 F.3d 41 (1st Cir. 2003) (“Because the parties intentionally conditioned arbitration upon either party's request for mediation, we conclude that [claimant's] failure to request mediation precludes it from compelling arbitration under the FAA.”); Kemiron Atlantic, Inc. v. Aguakem Int'l, Inc., 290 F.3d 1287 (11th Cir. 2002) (“in order for there to be a duty to arbitrate, the parties must first mediate their dispute [and] since neither party gave notice to mediate or arbitrate … the duty to arbitrate was not triggered”); Bill Call Ford, Inc. v. Ford Motor Co., 830 F.Supp. 1045, 1048, 1053 (N.D. Ohio 1993) (finding for defendant where plaintiffs filed suit against defendant without having first sought to mediate the dispute pursuant to the condition precedent to litigation in the parties' contract); Weekley Homes, Inc. v. Jennings, 936 S.W.2d 16, 19 (Tex. App. 1996); Belmont Constr., Inc. v. Lyondell Petrochem. Co., 896 S.W.2d 352 (Tex. App. 1995) (parties' inability to complete mediation held to bar commencement of arbitration in multi-tier dispute resolution clause); Freis v. Canales, 877 S.W.2d 283 (Tex. 1994) (because party selected conciliation, in http://www.kluwerarbitration.com/CommonUI/print.aspx
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clause allowing parties to “call for conciliation … or an arbitration,” opposing party was held to have no right to arbitrate); White v. Kampner, 641 A.2d 1381, 1385 (Conn. 1994) (“The trial court correctly interpreted the contractual language to require satisfaction of the provisions of the mandatory negotiation clause as a condition precedent to arbitration, and correctly determined that this arbitrability issue was one for the courts to determine, not the arbitrator.… The arbitration provision that makes arbitrable ‘any dispute or question arising under the provisions of this agreement’ is qualified by the clause ‘which has not been resolved under’ the mandatory negotiation provision.”). 1424 Award in ICC Case No. 12739, cited in M. Bühler & T. Webster, Handbook of ICC Arbitration 71 (2005) (Request for Arbitration was premature, and arbitration was dismissed (rather than being stayed), because of failure to complete pre-arbitral dispute resolution steps). 1425 Fluor Enters. Inc. v. Solutia Inc., 147 F.Supp.2d 648, 653 (S.D. Tex. 2001). 1426 White v. Kampner, 641 A.2d 1381, 1387 (Conn. 1994). 1427 De Valk Lincoln Mercury, Inc. v. Ford Motor Co., 811 F.2d 326, 336 (7th Cir. 1987). In another case, the court considered a contract with a multi-step dispute resolution clause which provided, among other things, that disputes “shall … be subject to mediation as a condition precedent to arbitration.” HIM Portland, LLC v. DeVito Builders, Inc., 317 F.3d 41, 42 (1st Cir. 2003). After disputes arose, which neither party sought to mediate, one party attempted to commence arbitration. When the defendant objected, the court held that “[u]nder the plain language of the contract, the arbitration provision is not triggered until one of the parties requests mediation.” Id. at 44. Consequently, because neither party “ever attempted to mediate this dispute, neither party can be compelled to submit to arbitration.” 1428 See, e.g., Interim Award in SCC of 17 July 1992, XXII Y.B. Comm. Arb. 197 (1997) (language of consultation clause is optional in nature); Final Award in ICC Case No. 8445, XXVI Y.B. Comm. Arb. 167, 168 (2001) (“As a preliminary matter, the arbitrators must address the contention made by defendant that claimant has not made any effort to settle the dispute amicably, as called for in … the Agreement, and that this arbitration has therefore been brought prematurely.… The arbitrators are of the opinion that a clause calling for attempts to settle a dispute amicably … should not be applied to oblige the parties to engage in fruitless negotiations or to delay an orderly resolution of the dispute.”). 1429 Cumberland and York Distrib. v. Coors Brewing Co., 2002 WL 193323, at *4 (D. Me. 2002) (citing Southland Corp. v. Keating, 465 U.S. 1 (U.S. S.Ct. 1984)). Courts seek to ensure that contractual dispute resolution mechanisms are not abused or used for improper purposes. See, e.g., Cosmotek Mumessillik ve Ticaret Ltd Sirkketi v. Cosmotek USA, Inc., 942 F.Supp. 757, 761 (D. Conn. 1996); Abex Inc. v. Koll Real Estate Group, Inc., 1994 WL 728827, at *19 (Del. Ch. 1994). 1430 Jacobs, Should Mediation Trigger Arbitration in A Multi-Step
Alternative Dispute Resolution Clause?, 15 Am. Rev. Int'l Arb. 161 (2004). 1431 See infra pp. 851 et seq. for discussion of competencecompetence issues generally. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1432 See John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543 (U.S.
S.Ct. 1964); Marie v. Allied Home Mortgage Corp., 402 F.3d 1, 9-11 (1st Cir. 2005) (contractual time limit contained in arbitration clause is issue for the arbitrator); PaineWebber, Inc. v. Elahi, 87 F.3d 589 (1st Cir. 1996) (timeliness of arbitration under institutional rules is issue for arbitral tribunal); PaineWebber, Inc. v. Bybyk, 81 F.3d 1193, 1196 (2d Cir. 1996) (same); Int'l Ass'n of Machinists et al. v. Gen. Elec. Co., 865 F.2d 902, 904 (7th Cir. 1989) (“The arbitrator is not the judge of his own authority – though … there is an exception: the arbitrator, like any other adjudicator, is empowered to decide whether the parties have taken whatever procedural steps are required to preserve their right to arbitrate a particular dispute”); Del E. Webb Constr. v. Richardson Hosp. Auth., 823 F.2d 145, 149 (5th Cir. 1987) (“question of compliance with procedural prerequisites to arbitration under a bargaining agreement is for the arbitrator”); Belke v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 693 F.2d 1023, 102728 (11th Cir. 1982); Vertner v. TAC Americas, Inc., 2007 WL 2495559, at *3 n.3 (W.D. Wash. 2007) (issues of “procedural arbitrability,” such as compliance with pre-arbitration procedures, are for arbitrators); HD Brous & Co., Inc. v. Mrzyglocki, 2004 WL 376555 (S.D.N.Y. 2004) (“[s]ince Petitioner is bound by the Agreement, it is bound to arbitrate ‘all past, present, or future controversies’ between itself and Respondent, including its proposed statute of limitations defenses”); Ballard v. Illinois Central RR Co., 338 F.Supp.2d 712 (S.D. Miss. 2004) (refusing to consider whether condition precedent to arbitration was satisfied: “Threshold issues of procedural arbitrability are subject to arbitration”); New Avex, Inc. v. Socata Aircraft, Inc., 2002 WL 1998193, at *5 (S.D.N.Y. 2002); Unis Group, Inc. v. Compagnie Fin. de CIC et de L'Union Europeene, 2001 WL 487427, at *2 (S.D.N.Y. 2001) (“the parties' dispute relating to the satisfaction of a condition precedent is within the scope of the Clause and that the arbitrators should determine whether [the defendant] satisfied such a condition”); U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., Ltd, 182 F.R.D. 97, 102 (S.D.N.Y. 1998) (“it has been repeatedly held that even a dispute regarding the satisfaction of a condition precedent to a contract will be referred to arbitration if it may reasonably be said to come within the scope of an arbitration clause”); Town Cove Jersey City Urban Renewal, Inc. v. Procida Constr. Corp., 1996 WL 337293, at *2 (S.D.N.Y. 1996) (“Whether or not a condition precedent to arbitration has been satisfied is a procedural matter for the arbitrator to decide.”); Miller and Co. v. China Nat'l Minerals Imp. & Exp. Corp., 1991 WL 171268 (N.D. Ill. 1991) (determination whether prearbitration conciliation steps were complied with is issue for arbitrators). See Jacobs, Should Mediation Trigger Arbitration in A Multi-Step Alternative Dispute Resolution Clause?, 15 Am. Rev. Int'l Arb. 161 (2004). 1433 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (U.S. S.Ct. 2002). The Court quoted with approval the comments to the Revised Uniform Arbitration Act, that “in the absence of an agreement to the contrary … issues of procedural arbitrability, i.e., whether prerequisites such as … conditions precedent to an obligation to arbitrate have been met, are for the arbitrators to decide.” Id. at 85 (quoting RUAA §6, comment 2). See also United Steelworkers of Am., AFL-CIO-CLC v. Saint Gobain Ceramics & Plastics, Inc., 2007 WL 2827583, at *1 (6th Cir. 2007) (“Whether the parties have complied with the procedural requirements for arbitrating the case, by contrast, is generally a question for the arbitrator to decide.”). 1434 See, e.g., HIM Portland, LLC v. DeVito Builders, Inc., 317 F.3d http://www.kluwerarbitration.com/CommonUI/print.aspx
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41 (1st Cir. 2003) (holding that, because parties failed to participate in pre-arbitration mediation process, no arbitration agreement was ever triggered and that this was therefore a jurisdictional issue for the court); Kemiron Atlantic, Inc. v. Aguakem Int'l, Inc., 290 F.3d 1287 (11th Cir. 2002) (same). 1435 See, e.g., Burlington N. RR Co. v. Canadian Nat'l Railway, [1997] 1 S.C.R. 5 (B.C. S.Ct.); Krutov v. Vancouver Hockey Club Ltd, [1991] B.C.J. No. 2654 (B.C. S.Ct.) (procedural objections to commencement of arbitration are for arbitrator). See also Award in Hamburg Chamber of Commerce of 14 July 2006, 2007 SchiedsVZ 55 (tribunal determines whether pre-arbitration conciliation steps had been complied with under FIDIC contract); Judgment of 14 February 2003, Poiré v. Tripier, 19 Arb. Int'l 368 (French Cour de cassation) (2003) (a preliminary conciliation clause constitutes a plea of non-admissibility which the judge is obliged to accept if the parties claim it); Judgment of 4 March 2004, Nihon Plast v. TakataPetri, 1/2 Gaz. Pal., Cahiers de l'Arbitrage 24 (2004) (Paris Cour d'appel) (objection based on preliminary conciliation clause is not a challenge to the arbitral tribunal's jurisdiction but an issue relating to admissibility of the claim which cannot be reviewed by Cour d'appel). 1436 See, e.g., Glass v. Kidder Peabody & Co., 114 F.3d 446 (4th Cir. 1997) (“questions of mere delay, laches, statute of limitations, and untimeliness raised to defeat the compelled arbitration are issues of procedural arbitrability exclusively reserved for resolution by the arbitrator”); Trafalgar Shipping Co. v. Int'l Milling Co., 401 F.2d 568 (2d Cir. 1968); Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 121 (2d Cir. 1991) (“any limitations defense … whether stemming from the arbitration agreement, arbitration association rule, or state statute … is an issue to be addressed by the arbitrators”); Louis Dreyfus Corp. v. Cook Indus., Inc., 505 F.Supp. 4 (S.D.N.Y. 1980). 1437 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. S.Ct. 2002); supra pp. 764-766. See also Revised Uniform Arbitration Act, §6(c) (2000) (“An arbitrator shall decide whether a condition precedent to arbitrability has been fulfilled and whether a contract containing a valid agreement to arbitrate is enforceable.”). Some early U.S. decisions, often relying on state law (e.g., New York), concluded that statute of limitations and laches issues were for courts to decide. See N.Y. C.P.L.R. §§7502(b) & 7503; Smith Barney v. Luckie, 85 N.Y.2d 193 (N.Y. 1995); supra pp. 765-766. These decisions are no longer good law in the United States. 1438 BC Nav. SA v. Canpotex Shipping Serv. Ltd, 16 F.T.R. 79
(Fed. Ct. of Canada 1987). 1439 Compare OEMSDF Inc. v. Europe Israel Ltd, [1999] O.J. No. 3594 (Ontario S.Ct.) (court considers and decides question whether arbitration agreement provides for LCIA or ICC arbitration) with Gone to the Beach LLC v. Choicepoint Services, Inc., 2007 WL 2768256 (W.D. Tenn. 2007) (“the parties agree that the only issue for the court to resolve is not whether arbitration is appropriate, but what kind of arbitration is required under the contract. This issue of contract interpretation is not properly before the court” but is instead for the arbitrators to decide). 1440 See, e.g., Waste Mgt, Inc. v. Mexico, ICSID Award No. ARB(AF)/00/3 (NAFTA) (30 April 2004), 43 Int'l Legal Mat. 967, ¶¶70 et seq. & 118 et seq. (2004). http://www.kluwerarbitration.com/CommonUI/print.aspx
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1441 See, e.g., Judgment of 15 January 1992, 1992 Rev. arb. 646
(French Cour de cassation civ. 2e) (requirement to “ask the other party” whether the dispute should be submitted to arbitration is unenforceable); Schoffman v. Cent. States Diversified, Inc., 69 F.3d 215, 221 (8th Cir. 1995) (letter expressing an agreement to negotiate and a willingness to enter into an agreement in the future was too vague to be enforceable); Consol. Grain and Barge Co. v. Madgett, 928 F.2d 816, 817-818 (8th Cir. 1991) (agreement to negotiate in good faith was unenforceable as a contract); Richie Co., LLP v. Lyndon Ins. Group, Inc., 2001 WL 1640039, at *1, *3 (D. Minn. 2001) (agreement to negotiate in good faith is unenforceable); Candid Prod., Inc. v. Int'l Skating Union, 530 F.Supp. 1330, 1337 (S.D.N.Y. 1982) (“[A]n agreement to negotiate in good faith” is unenforceable because it is “even more vague than an agreement to agree;” “an agreement to negotiate in good faith is amorphous and nebulous, since it implicates so many factors that are themselves indefinite and uncertain that the intent of the parties can only be fathomed by conjecture and surmise.”); Copeland v. Baskin Robbins U.S.A., 96 Cal.App.4th 1251, 1257 (Cal. Ct. 2002). 1442 See, e.g., Fluor Enters., Inc. v. Solutia Inc., 147 F.Supp.2d 648, 651 (S.D. Tex. 2001) (observing that the mediation provision met the test “[u]nder both Missouri and Texas law” that the contract be “so worded that it can be given certain or definite legal meaning”); Jillcy Film Enters. v. Home Box Office, Inc., 593 F.Supp. 515, 520-21 (S.D.N.Y. 1984). 1443 Mocca Lounge, Inc. v. Misak, 94 A.D.2d 761, 763 (N.Y. App. Div. 1983). 1444 See Fluor Enters. Inc. v. Solutia Inc., 147 F.Supp.2d 648, 649 & n.1 (S.D. Tex. 2001) (enforcing contractual negotiation and mediation procedure requiring “that ‘if a controversy or claim should arise,’ the project manager for each party would ‘meet at least once.’ Either party's project manager could request that this meeting take place within fourteen (14) days. If a problem could not be resolved at the project manager level ‘within twenty (20) days of [the project managers’] first meeting … the project managers shall refer the matter to senior executives.” The executives must then meet within fourteen (14) days of the referral to attempt to settle the dispute. The executives thereafter have thirty (30) days to resolve the dispute before the next resolution effort may begin.”). 1445 See White v. Kampner, 641 A.2d 1381, 1382 (Conn. 1994) (enforcing “mandatory negotiation” clause that stated “[t]he parties shall negotiate in good faith at not less than two negotiation sessions prior to seeking any resolution of any dispute” under the contract's arbitration clause). 1446 See Fluor Enters. Inc. v. Solutia Inc., 147 F.Supp.2d 648, 649 n.1 (S.D. Tex. 2001). 1447 See HIM Portland, LLC v. DeVito Builders, Inc., 317 F.3d 41, 42 (1st Cir. 2003) (enforcing clause providing for mediation in accordance with AAA Construction Industry Mediation Rules). See also AMF, Inc. v. Brunswick Corp., 621 F.Supp. 456 (S.D.N.Y. 1985) (enforcing non-binding arbitration clause because, among other things, it was under auspices of the National Advertising Division of the Council of Better Business Bureaus, which “has developed its own process of reviewing complaints of deceptiveness”). 1448 See supra p. 301 & infra pp. 1092-1093. 1449 See supra p. 301.
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International Arbitration Agreements and Competence-Competence Chapter 6 Gary B. Born
Author Gary B. Born
International Arbitration Agreements and Competence-Competence (1)
An issue of central importance to the international arbitral process is the authority of an arbitrator to consider and decide disputes over the arbitrator's own jurisdiction, page "851" including disputes over the existence, validity, legality and scope of the parties' arbitration agreement. This question is the subject-matter of the socalled “competence-competence” doctrine (also referred to as “Kompetenz-Kompetenz” or “jurisdiction to decide jurisdiction”). (2) The competence-competence doctrine is closely related to rules regarding the allocation of jurisdictional competence between arbitral tribunals and national courts and to rules concerning the nature and timing of judicial consideration of challenges to an arbitral tribunal's jurisdiction.
Source International Arbitration Agreements and CompetenceCompetence in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 851 - 852
This Chapter first discusses the historical development and current status of the competence-competence doctrine. Second, the Chapter explores the allocation of jurisdictional competence between arbitrators and national courts under leading national arbitration legislation. Finally, this Chapter addresses the procedural issues arising within the arbitral process itself from arbitrators' exercise of their competence-competence. page "852"
1 For commentary, see Aeberli, Jurisdictional Disputes under the
Arbitration Act 1996: A Procedural Route Map, 21 Arb. Int'l 253 (2005); Alfaro & Guimarey, Who Should Determine Arbitrability?, Arbitration in A Changing Economic and Political Environment, 12 Arb. Int'l 415 (1996); Bachand, Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463 (2006); Barceló, Who Decides the Arbitrators' Jurisdiction? Separability and Competence-Competence in Transnational Perspective, 36 Vand. J. Transnat'l L. 1115 (2003); Branson, The Enforcement of International Commercial Arbitration Agreements in Canada, 16 Arb. Int'l 19 (2000); Dassule, Le contrôle de la compétence arbitrale par le juge anglais avant la sentence, 2003 Rev. arb. 65; de Cossío, The Compétence-Compétence Principle, Revisited, 24 J. Int'l Arb. 231 (2007); Dimolitsa, Separability and Kompetenz-Kompetenz, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 217 (ICCA Congress Series No. 9 1999); Fortier, Delimiting the Spheres of Judicial and Arbitral Power: “Beware, My Lord, of Jealousy,” 80 Can. Bar Rev. 143 (2001); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶647http://www.kluwerarbitration.com/CommonUI/print.aspx
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660 (1999); Gaillard, L'effet négatif de la compétence-compétence, in Etudes de procédure et d'arbitrage en l'honneur de Jean-François Poudret 387 (1999); Gaillard, Les manoeuvres dilatoires des parties et des arbitres dans l'arbitrage commercial international, 1990 Rev. arb. 759; Gee, The Autonomy of Arbitrators and Fraud Unravels All, 22 Arb. Int'l 337 (2006); Goldman, The Complementary Roles of Judges and Arbitrators in Ensuring that International Commercial Arbitration Is Effective, in International Arbitration: 60 Years of ICC Arbitration – A Look at the Future 255 (1984); Gotanda, An Efficient Method for Determining Jurisdiction in International Arbitrations, 40 Colum. J. Transnat'l L. 11 (2001); Graffi, Securing Harmonized Effects of Arbitration Agreements under the New York Convention, 28 Hous. J. Int'l L. 663 (2006); Herrera Petrus, Spanish Perspectives on the Doctrine of Kompetenz-Kompetenz and Separability: A Comparative Analysis of Spain's 1988 Arbitration Act, 11 Am. Rev. Int'l Arb. 397 (2000); Kierstead, Reference to Arbitration under Article 8 of the UNCITRAL Model Law: The Canadian Approach, 31 Can. Bus. L.J. 98 (1999); Mayer, L'autonomie de l'arbitre international dans l'appreciation de sa propre compétence, 217 Recueil des Cours 319 (1989); Park, Determining Arbitral Jurisdiction: Allocation of Tasks between Courts and Arbitrators, 9 Arb. & Disp. Res. L.J. 19 (2000); Park, The Arbitrability Dicta in First Options v. Kaplan: What Sort of Kompetenz-Kompetenz Has Crossed the Atlantic?, 12 Arb. Int'l 137 (1996); Park, The Arbitrator's Jurisdiction to Determine Jurisdiction, in A. van den Berg (ed.), International Arbitration 2006: Back to Basics? 55 (ICCA Congress Series No. 13 2007); Pierce, Down the Rabbit Hole: Who Decides What's Arbitrable?, 21 J. Int'l Arb. 289 (2004); Rau, The Arbitrability Question Itself, 10 Am. Rev. Int'l Arb. 287 (1999); Rau, Everything You Really Need to Know About “Separability” in Seventeen Simple Propositions, 14 Am. Rev. Int'l Arb. 1 (2004); Reuben, First Options, Consent to Arbitration and the Demise of Separability: Restoring Access to Justice for Contracts with Arbitration Provisions, 56 S.M.U.L. Rev. 819 (2003); Rosen, Arbitration under Private International Law: The Doctrines of Separability and Competence de la Competence, 17 Ford. Int'l L.J. 599 (1993-1994); A. Samuel, JurisdictionalProblems in International Commercial Arbitration (1989); Schlosser, Arbitral Tribunals or State Courts: Who Must Defer to Whom?, in Arbitral Tribunals or State Courts: Who Must Defer to Whom? 15 (ASA Special Series No. 15 2001); Schlosser, The Competence of Arbitrators and of Courts, 8 Arb. Int'l 189 (1992); P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶¶553-558 (1989); S. Schwebel, International Arbitration: Three Salient Problems (1987); Sheppard, The Moth, the Light and the United States'Severability Doctrine, 23 J. Int'l Arb. 479 (2006); I. Shihata, The Power of the International Court to Determine Its Own Jurisdiction (1965); Smit, Separability and Competence-Competence in International Arbitration: Ex Nihilo Nihil Fit? Or Can Something Indeed Come From Nothing?, 13 Am. Rev. Int'l Arb. 19 (2002); Smit, The Arbitration Clause: Who Determines Its Validity and Its Personal and Subject Matter Reach?, 6 Am. Rev. Int'l Arb. 395 (1995); Svernlov & Carroll, What Isn't, Ain't: The Current Status of the Doctrine of Separability, 8(4) J. Int'l Arb. 37 (1991); Ware, Arbitration Law's Separability Doctrine After Buckeye Check Cashing Inc. v. Cardegna, 8 Nev L.J. 107 (2007); Welser, Pitfalls of Competence, in C. Klausegger et al. (eds.), Austrian Arbitration Yearbook 3 (2007); Wyss, First Options of Chicago, Inc. v. Kaplan: A Perilous Approach to KompetenzKompetenz, 72 Tulane L. Rev. 351 (1997). 2 The different terminology that is used to describe an arbitral http://www.kluwerarbitration.com/CommonUI/print.aspx
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tribunal's jurisdiction (or competence) to decide on its own jurisdiction (or competence) is discussed below. Seeinfra pp. 853855.
International Arbitration Agreements and Competence-Competence - A. Introduction Chapter 6 Gary B. Born
Author Gary B. Born
A. Introduction The competence-competence doctrine provides, in general terms, that international arbitral tribunals have the power to consider and to decide disputes concerning their own jurisdiction. The doctrine is closely related to the allocation of competence to consider and decide jurisdictional disputes between arbitral tribunals and national courts. As discussed below, all developed national legal systems recognize the competence-competence principle. (3) Despite this broad international acceptance of the competence-competence doctrine, there is almost equally broad disagreement and uncertainty concerning the doctrine's precise scope and consequences. With remarkable and unusual diversity, leading legal systems take substantially differing approaches to the arbitral tribunal's competence-competence and to the related allocation of jurisdictional competence between arbitrators and national courts.
Source International Arbitration Agreements and CompetenceCompetence - A. Introduction in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 853 - 855
(4)
Preliminarily, before examining these various approaches, there is the issue of terminology. The principle that arbitrators have jurisdiction to consider and decide the existence and extent of their own jurisdiction is variously referred to as the “competencecompetence” doctrine, the “Kompetenz-Kompetenz” doctrine, or the “who decides” question. (5) It is critical to appreciate that these various formulae can have very different, and sometimes contradictory, applications, depending on the national legal system and other circ*mstances in which they are used. Most importantly, as discussed below, different jurisdictions (and authors) attach different degrees of both priority and finality to an arbitral tribunal's exercise page "853" of its competencecompetence. In particular, some national legal systems provide for the arbitrators to initially decide jurisdictional issues (subject to subsequent judicial review) while other legal systems permit initial judicial decisions on jurisdictional objections; (6) similarly, some legal regimes accord a tribunal's decision on its own jurisdiction no or virtually no deference, while other systems accord such decisions http://www.kluwerarbitration.com/CommonUI/print.aspx
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extremely broad deference and binding effect. (7) Thus, as discussed below, some jurisdictions (e.g., France) provide that an arbitral tribunal generally has competence-competence to initially decide virtually all jurisdictional disputes, subject to eventual judicial review; national courts in these jurisdictions are generally not permitted to consider jurisdictional objections on an interlocutory basis, but must await the arbitrator's initial jurisdictional decisions. (8) Other jurisdictions (e.g., Sweden, China) provide that an arbitral tribunal has competence-competence to consider jurisdictional challenges, but that interlocutory judicial consideration of the same challenges are permitted at any time, including prior to an arbitral tribunal's jurisdictional decision. (9) Yet other legal systems adopt various middle grounds (e.g., UNCITRAL Model Law, United States, England), recognizing the arbitrator's competence-competence, but permitting interlocutory judicial consideration of jurisdictional issues in limited circ*mstances; as detailed below, these legal systems adopt different treatments of jurisdictional objections depending on the nature of the parties' arbitration agreement, the nature of the jurisdictional objection to that agreement and the efficiencies and equities of particular cases. (10) These variations are often reflected in the different formulae used to describe an arbitral tribunal's jurisdiction to decide its own jurisdiction. In Germany, where the formula originated, (11) the “Kompetenz-Kompetenz” doctrine was historically understood as recognizing an arbitral tribunal's jurisdiction to finally decide questions regarding its own jurisdiction, without the possibility of subsequent judicial review. (12) In contrast, the “competencecompetence” formula was understood page "854" in France (and elsewhere) as referring to a tribunal's power preliminarily to render a decision on its jurisdiction, subject always to subsequent judicial review. (13) U.S. and English authorities adopt a middle ground, affording different measures of judicial deference to arbitrators' determinations, depending on the parties' agreement and other circ*mstances. (14) Given these divergent understandings of various formulae associated with a tribunal's power to decide on its own jurisdiction, it is important to use such phrases with care. It would likely be best, in these circ*mstances, not to use historic formulae, such as Kompetenz-Kompetenz or competence-competence, which may inevitably create confusion. A neutral and more international term, such as “jurisdictional competence,” would likely be more transparent and less likely to cause confusion. Nonetheless, for the time being, the terms are so deeply-engrained in the language and literature of international arbitration that it is difficult to abandon them and adopt yet another label. Given this, existing formulae (such as Kompetenz-Kompetenz or competencecompetence) can continue to be used, but this should be done without assumptions about the precise timing, scope and consequences of a tribunal's jurisdiction to consider its own jurisdiction, which are defined in different ways in different legal systems. In the following discussion, the term “competencecompetence” is used to describe an international arbitral tribunal's power to consider and decide disputes regarding its own jurisdiction, principally because this is the most likely phrase to avoid implications that an arbitral award concerning jurisdictional matters http://www.kluwerarbitration.com/CommonUI/print.aspx
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is insulated from any subsequent judicial review (as with the Kompetenz-Kompetenz doctrine and the “who decides” formulation). page "855"
3 See infra pp. 855-869; Final Award in ICC Case Nos. 6515 and
6516, XXIVa Y.B. Comm. Arb. 80 (1999) (“One thing nevertheless remains clear, … which is that the “Kompetenz-Kompetenz” belongs to the arbitral tribunal. This is one of the most basic principles in international commercial arbitration.…”); Schlosser, Arbitral Tribunals or State Courts: Who Must Defer to Whom?, in Arbitral Tribunals or State Courts: Who Must Defer to Whom? 15, 27 (ASA Special Series No. 15 2001); P. Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions ¶4-006 (2d ed. 2005) (“Modern international commercial arbitration without this principle is unthinkable”); A. Samuel, Jurisdictional Problems in International Commercial Arbitration 178 (1989) (“if there is one thing over which modern writers on arbitration seem to agree, it is that arbitrators must be allowed to rule on their own jurisdiction”); S. Schwebel, International Arbitration: Three Salient Problems 1-60 passim (1987); Gotanda, An Efficient Method for Determining Jurisdiction in International Arbitrations, 40 Colum. J. Transnat'l L. 11 (2001); Park, Determining Arbitral Jurisdiction: Allocation of Tasks between Courts and Arbitrators, 9 Arb. Disp. Res. L.J. 19 (2000). 4 See infra pp. 877-966 (detailing differing jurisdictional allocations under UNCITRAL Model Law, U.S., German, French, Swiss, Swedish and other legislative regimes). 5 See, e.g., Wetter, The Importance of Having A Connection, 3 Arb. Int'l 329 (1987); Goldman, The Complementary Roles of Judges and Arbitrators in Ensuring that International Commercial Arbitration Is Effective, in International Arbitration: 60 Years of ICC Arbitration – A Look at the Future 255, 263 (1984); Park, The Arbitrator's Jurisdiction to Determine Jurisdiction, in A. van den Berg (ed.), International Arbitration 2006: Back to Basics? 55 (ICCA Congress Series No. 13 2007); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (U.S. S.Ct. 1995) (“who decides”). 6 See infra pp. 877-894 (Model Law), 900-904 (France), 924-954 (United States), 965-966 (Sweden, China). 7 See infra pp. 894-899 (Model Law), 902-904 (France), 954-958 (United States). 8 See infra pp. 900-904. 9 See infra pp. 965-966. 10 See infra pp. 877-894 (Model Law), 924-954 (United States), 960-964 (England). 11 See supra pp. 323-326; Judgment of 26 May 1988, 1988 NJWRR 1526, 1527 (German Bundesgerichtshof); Judgment of 5 May 1977, 1977 NJW 1397, 1400 (German Bundesgerichtshof); Judgment of 3 March 1955, 1955 BB 552, 552 (German Bundesgerichtshof); K. Lionnet & A. Lionnet, Handbuch der internationalen und nationalen Schiedsgerichtsbarkeit 3 III 5 a) (3d ed. 2005); Nussbaum, The “Separability Doctrine” in American and Foreign Arbitration, 17 N.Y.U.L.Q.Rev. 609, 610-11 (1940); P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶546 (2d ed. 1989). http://www.kluwerarbitration.com/CommonUI/print.aspx
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12 See infra pp. 907-910; Berger, Germany Adopts the UNCITRAL
Model Law, 1 Int'l Arb. Rev. 121, 122 (1998); P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶¶553-554 (2d ed. 1989) (“The situation where an arbitral award is no longer revisable by state courts, not even with regard as to whether the arbitral tribunal rightfully accepted its jurisdiction, can be referred to as definite Kompetenz-Kompetenz.”). As discussed below, Germany appears to have abandoned this approach to competencecompetence in conjunction with adopting the UNCITRAL Model Law. See infra pp. 907-908. 13 See infra pp. 900-904; M. de Boisséson, Le droit français de l'arbitrage interne et international ¶¶79, 248-253 (2d ed. 1990); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶671-672 (1999). 14 See infra pp. 954-958 (United States), 960-964 (England); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (U.S. S.Ct. 1995).
International Arbitration Agreements and Competence-Competence - B. The Power of International Arbitral Tribunals to Consider and Decide Disputes Concerning Their Jurisdiction Chapter 6 Gary B. Born
Author Gary B. Born
B. The Power of International Arbitral Tribunals to Consider and Decide Disputes Concerning Their Jurisdiction The competence-competence doctrine is almost universally accepted in international arbitration conventions, national legislation, judicial decisions, institutional rules and international arbitral awards. Authority in each of these sources recognizes with relative unanimity some version of a competence-competence doctrine. As a page "855" consequence, the basic proposition that an international arbitral tribunal presumptively possesses jurisdiction to consider and decide on its own jurisdiction can be considered a universallyrecognized principle of international arbitration law. (15) That is confirmed by the almost complete absence of any authority denying the competence-competence of arbitral tribunals to consider and decide jurisdictional challenges, subject to subsequent judicial review. (16)
Source International Arbitration Agreements and CompetenceCompetence - B. The Power of International Arbitral Tribunals to Consider and Decide Disputes Concerning Their Jurisdiction in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 855 - 876
As also discussed below, however, there is little international consensus on the proper timing of arbitral and judicial decisions on jurisdiction or the consequences of permitting an arbitral tribunal to http://www.kluwerarbitration.com/CommonUI/print.aspx
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decide initially on its own jurisdiction. Different national legal systems accord significantly different approaches to these (and other) jurisdictional matters. 1. International Arbitration Conventions Leading international arbitration conventions either implicitly or explicitly recognize and give effect to the competence-competence doctrine. That is most obviously true with regard to the European and ICSID Conventions, but also applies to the New York and InterAmerican Conventions. page "856" a. New York Convention It is frequently said that the New York Convention does not deal with the subject of competence-competence. (17) It is correct that nothing in the text of the Convention expressly requires (or forbids) application of the competence-competence doctrine or addresses the scope of an arbitral tribunal's competence-competence. Nonetheless, it does not follow that the Convention is irrelevant to issues of competence-competence. Despite the absence of express language on the topic in the New York Convention, it is clear that Articles II(3) and V(1) of the Convention recognize that both arbitral tribunals and courts may consider and decide disputes about the arbitrators' jurisdiction. Articles V(1)(a) and V(1)(c) of the Convention contemplate that an arbitral tribunal may have made an award notwithstanding jurisdictional objections and will have addressed – explicitly or implicitly – issues of the validity of the arbitration agreement (Article V(1)(a)) (18) and the scope of the arbitration agreement (Article V(1) (c)), (19) with the arbitrators' award(s) on these issues being subject to subsequent judicial review in a recognition action. The premise for such judicial review is the possibility that the arbitrators will have themselves considered, ordinarily without prior judicial determination, jurisdictional disputes. Indeed, while the issue is largely academic, the Convention should be interpreted as requiring Contracting States to permit (absent contrary agreement by the parties) arbitral tribunals to consider and make non-binding decisions regarding their own jurisdiction. If a Contracting State were to forbid arbitral tribunals from even considering their own jurisdiction (which virtually no state appears to have page "857" done (20) ), this would seriously impede the arbitral process (21) and would contradict the Convention's premise that arbitrators will – explicitly or implicitly – decide jurisdictional disputes. In this sense, the Convention prescribes recognition of the competence-competence of arbitrators in international arbitral proceedings. (22) At the same time, Articles II(3) and V(1) also expressly permit judicial consideration and resolution of jurisdictional disputes, with Article II(3) appearing to contemplate an interlocutory judicial determination of such matters prior to any arbitral award. Article II(3) does so by providing that a court shall refer parties to an arbitration agreement to arbitration “unless itfinds that the said agreement is null and void, inoperative or incapable of being performed.” (23) A court cannot make such a finding unless the court (“it”) considers http://www.kluwerarbitration.com/CommonUI/print.aspx
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and decides (“finds”) the relevant jurisdictional issues. Taken together, these provisions of the Convention make it reasonably clear that both arbitral tribunals and national courts may consider and decide jurisdictional disputes, but do not provide further guidance as to the allocation of tribunals' and courts' powers to address these issues. (24) The language of Article II(3) (25) has apparently led Swiss courts to conclude that the Convention requires, at least where the arbitral seat is abroad, that national courts make an immediate, final determination of jurisdictional objections that are presented to them. (26) This analysis would not be persuasive. page "858" The Convention does not require that a court decide finally at any particular time whether or not there is a valid arbitration agreement: instead, the Convention merely requires (in Article II(3)) that a national court refer the parties to arbitration, subject to an exception for cases where the court finds that there is no valid arbitration agreement. (27) If a court chooses to refer parties to arbitration without first deciding (in either a binding or preliminary manner) whether or not the arbitration agreement is invalid, that in no way violates the Convention. Indeed, the Swiss courts' interpretation of the Convention would result in the arbitration legislation and judicial practice in France, Germany, England, the United States and other countries – which do not require a final interlocutory judicial decision on jurisdiction in all cases (28) – being in violation of the Convention. That is not a plausible result. In the precise reverse of the Swiss approach, a few commentators have suggested that the Convention permits only prima facie interlocutory judicial review. (29) This is also wrong. The Convention does not contain or suggest either a prima facie or a full review standard. As discussed below, interpreting the Convention as requiring prima facie review would be contrary to the general approach to competence-competence in the majority of jurisdictions (including many Model Law states, the United States, England and Switzerland). (30) Nonetheless, the Convention does bear on the allocation of jurisdictional competence between courts and arbitrators in some cases. As discussed below, there are circ*mstances in which arbitration agreements clearly provide an arbitral tribunal with jurisdiction to consider and finally decide questions regarding their own jurisdiction. (31) The most common example is where a concededly valid arbitration clause incorporates institutional arbitration rules which provide that the page "859" arbitral tribunal may resolve disputes concerning the scope of the arbitration agreement; (32) in these instances, the parties clearly and noncontroversially have made an arbitration agreement granting an arbitral tribunal jurisdiction to consider and decide disputes concerning the scope of its own jurisdiction. Similarly, the parties to an arbitral proceeding may choose to submit existing challenges to the existence, validity, or legality of an arbitration agreement to the arbitral tribunal, either by way of an express submission agreement or otherwise (by waiver or implied agreement); (33) again, in these instances, there is a clear and non-controversial agreement providing the arbitral tribunal with jurisdiction to consider and decide disputes about the existence and scope of its jurisdiction.
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In cases involving these sorts of agreements to arbitrate particular jurisdictional issues, Article II(1) and II(3) of the New York Convention require Contracting States to “recognize” such agreements (like other agreements to arbitrate) and to “refer” the parties to such agreements to arbitration. (34) In so doing, the Convention imposes an obligation to enforce agreements submitting jurisdictional disputes to arbitration and thereby gives both explicit effect to, and provides implicit acknowledgement of, one application of the competence-competence doctrine. (35) There is one other aspect of Article II(3) of the Convention that arguably could bear on the treatment of competence-competence. As noted above, Article II(3) provides that a national court, which is “seized of an action in a matter in respect of which the parties have made” an arbitration agreement, shall “refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative page "860" or incapable of being performed.” (36) This language is most naturally read as establishing an exception to the general obligation to refer parties to arbitration only in cases where the parties' arbitration agreement is null and void, inoperative, or incapable of being performed – and not in cases where the scope of the arbitration agreement allegedly does not encompass the parties' dispute. (37) This interpretation is supported by the text of Article V(1)(c), which, in contrast to Article II, uses language directed to the scope of the arbitration agreement. (38) If this interpretation of Article II(3) were accepted, it would mean that national courts faced with jurisdictional objections based solely on the scope of an admittedly existent and valid arbitration agreement would be required to refer the parties to arbitration for initial determination of the scope of the arbitration clause. (39) As discussed in detail below, although there is as yet little authority addressing this argument, sound policy reasons support the result suggested above. (40) b. European Convention Unlike the New York Convention, the European Convention expressly addresses the competence-competence doctrine and the allocation of jurisdictional competence between courts and arbitrators. Article V(3) of the European Convention provides: “Subject to any subsequent judicial control provided for under the lex fori, the arbitrator whose jurisdiction is called in question shall be entitled to proceed with the arbitration, to rule on his own jurisdiction and to decide page "861" upon the existence or the validity of the arbitration agreement or of the contract of which the agreement forms part.” (41) Article V(3) recognizes the competence-competence doctrine in several respects. It does so by providing that the arbitral tribunal “shall be entitled” to “proceed with the arbitration,” to “rule on [its] own jurisdiction,” and to “decide upon the existence or the validity of the arbitration agreement,” when the tribunal's jurisdiction is challenged. This affirmative authority to consider and resolve disputes concerning the tribunal's own jurisdiction is the essence of the competence-competence doctrine. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Article V(3) goes on to establish a general presumption of priority regarding the timing of decisions concerning an arbitral tribunal's jurisdiction. It does so by providing that judicial decisions concerning the tribunal's jurisdiction will generally only occur after the arbitrators first consider the issue (by providing that a tribunal's jurisdictional award will be “subject to any subsequent judicial control”). This is confirmed by Article V(2) of the European Convention, which provides that challenges to an arbitrator's jurisdiction “shall” be raised “during the arbitration proceedings,” and by Article V(2), which then refers to “subsequent court proceedings.” (42) This general presumption is made most explicit by Article VI(3), which provides that national courts shall not resolve the question whether an arbitration agreement is “non-existent or null and void or had lapsed,” prior to a jurisdictional award, unless there are “good and substantial reasons to the contrary.” (43) The final phrase of Article VI(3) allows national courts, where particular reasons of efficiency or fairness demand, to consider jurisdictional objections on an interlocutory basis, prior to any arbitral determination, but the presumptive rule is to the contrary. Article V(3) of the European Convention therefore goes substantially beyond the New York Convention, by establishing a general rule of law which expressly grants international arbitral tribunals jurisdiction to consider challenges to their own jurisdiction, and which also provides that disputes concerning a tribunal's jurisdiction will presumptively be decided first by the tribunal, in an exercise of its competence-competence, and only exceptionally by national courts in an interlocutory judicial proceeding. These rules apply, at least in principle, to all arbitration agreements governed by the European Convention and to all types of jurisdictional challenges to the arbitrators' jurisdiction (e.g., validity, legality and existence of the arbitration agreement). It is nowhere stated expressly, but nonetheless appears clear, that the competence-competence doctrine recognized in Article V(3) of the European Convention is subject to contrary agreement by the parties. If parties were to agree page "862" (in contrast to the provisions of most institutional arbitration rules) that the arbitrators would not have competence-competence, or that immediate interlocutory judicial consideration of jurisdictional objections was required, then Article V(3) would not require a contrary result. As discussed in detail elsewhere, arbitration is fundamentally a creature of contract and the powers of an arbitral tribunal are subject to the parties' disposition; (44) where the parties exclude competencecompetence from the tribunal's jurisdiction, Article V(3) would not override their agreement. (45) c. Other International Arbitration Conventions The ICSID Convention also recognizes the competencecompetence doctrine. Article 41(1) of the Convention provides that “[t]he Tribunal shall be the judge of his own competence.” (46) As noted above, this follows general principles of international law in both commercial and state-to-state arbitration. (47) (At the same, time, the ICSID Secretariat performs an unusually extensive review of Requests for Arbitration aimed at confirming the existence of a prima facie jurisdictional base before an arbitration may proceed under the ICSID Rules. (48) ) http://www.kluwerarbitration.com/CommonUI/print.aspx
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2. National Arbitration Legislation Arbitration legislation in virtually all jurisdictions, from every part of the world, gives effect to some version of the competencecompetence doctrine. When the Model Law was adopted in 1985, the UNCITRAL Secretariat reported that the principle of competence-competence was “somewhat controversial.” (49) It is very page "863" doubtful that this statement was accurate when (50) made, and it certainly cannot be accepted today. As detailed below, with only limited exceptions, largely criticized, all major and most other jurisdictions accept some version of the competence-competence doctrine. (51) It therefore can no longer be said that the principle that an arbitrator can consider and decide his or her own jurisdiction is “controversial.” Rather, the competencecompetence doctrine is almost universally accepted and what remains the subject of (mostly constructive) debate is the allocation of jurisdictional competence between courts and arbitral tribunals, including particularly the timing and character of judicial consideration of jurisdictional issues and the deference to be accorded by national courts to any decision on jurisdiction by the arbitrators. (52) Under most developed national arbitration regimes, the arbitral tribunal's competence-competence to consider jurisdictional objections, subject to subsequent judicial review, is presumed: (53) absent contrary agreement, the arbitrators are held to have the authority to consider and preliminarily decide, subject to subsequent judicial review, disputes regarding their own jurisdiction. (54) This presumption is derived from the basic objectives of the arbitral process and the inherent powers and mandate of an adjudicatory tribunal. (55) The presumption may be altered by the parties, to either deny the arbitrators' competence-competence or to permit the arbitrators finally to resolve jurisdictional disputes (without judicial review), but doing so requires an affirmative agreement. a. UNCITRAL Model Law As discussed below, the UNCITRAL Model Law expressly authorizes arbitrators to consider and make awards regarding their own jurisdiction. (56) Article 16 of the Model Law is entitled “Competence of arbitral tribunal to rule on its jurisdiction,” is contained in Chapter IV of the Model Law, which is entitled “Jurisdiction of page "864" Arbitral Tribunal,” (57) and expressly grants arbitrators competence-competence to consider challenges to their own jurisdiction, including challenges to the arbitration agreement. (58) Article 16 thereby explicitly recognizes the arbitrators' authority to consider and decide disputes concerning their own jurisdiction. At the same time, Articles 8, 34 and 36 of the Model Law also grant national courts the power to consider jurisdictional issues, including on an interlocutory basis. (59) The interaction of the provisions is complex, and is discussed in detail below, but it specifically affirms the arbitrators' competencecompetence. (60) b. Federal Arbitration Act http://www.kluwerarbitration.com/CommonUI/print.aspx
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In the United States, the text of the FAA does not expressly address the subject of competence-competence. (61) Nonetheless, as discussed in greater detail below, U.S. courts have repeatedly held that arbitral tribunals have the inherent power to consider their own jurisdiction, subject to later judicial review, (62) and may also be granted the competence to make binding awards concerning their own jurisdiction. (63) The leading authority is First Options of Chicago, Inc. v. Kaplan, where the U.S. Supreme Court considered the question of “who – court or arbitrator – has the primary authority to decide whether a party has agreed to arbitrate.” (64) In answering that question, the Court declared: page "865" “the question “who has the primary power to decide arbitrability” turns upon what the parties agreed about that matter. Did the parties agree to submit the arbitrability question itself to arbitration?” (65) The Court's analysis states a general principle applicable in both domestic and international cases in U.S. courts (and which, as discussed below, is also adopted in a number of other jurisdictions). (66) Specifically, the First Options Court's analysis provides that the nature and scope of the arbitral tribunal's competence-competence is, in significant part, dependent on the terms of the parties' arbitration agreement. That is, as with Article II of the New York Convention and Article V(3) of the European Convention, (67) parties may either grant the arbitrators competence-competence (as well as different types of competence-competence) or reserve jurisdictional decisions solely to national courts. As also discussed below, even absent express agreement, U.S. courts have held that arbitrators presumptively have the jurisdiction to consider and decide, subject to subsequent judicial review, questions concerning their own jurisdiction. (68) c. Other Jurisdictions Arbitration statutes in developed jurisdictions that have not adopted the Model Law also expressly recognize versions of the competence-competence doctrine. The Swiss Law on Private International Law provides, in Article 186(1), that “[t]he arbitral tribunal shall decide on its own jurisdiction.” (69) English, (70) Belgian, (71) French, (72) Dutch, (73) Italian, (74) Swedish, (75) German (76) and Spanish (77) arbitration regimes are similar. page "866" Other developed jurisdictions take the same approach. Arbitration legislation and judicial decisions in Japan, (78) Korea, (79) Hong Kong, (80) India, (81) Singapore, (82) Australia (83) and New Zealand (84) uniformly affirm the principle of competence-competence. Similarly, a number of African jurisdictions appear to have adopted the competence-competence doctrine. (85) Even today, authorities from a few countries are circ*mspect, or even hostile, towards the doctrine of competence-competence. (86) For example, Indonesia's arbitration legislation does not recognize http://www.kluwerarbitration.com/CommonUI/print.aspx
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the doctrine of competence-competence and there is Indonesian judicial authority suggesting that jurisdictional objections must be resolved by national courts. (87) Similarly, in Israel and South Africa, arbitral tribunals apparently have the power to consider and decide jurisdictional issues only if the parties to the arbitration expressly empower them to do so. (88) The page "867" treatment of competence-competence in China is unclear, but at best appears to be very limited at present. (89) In Latin America, the position with regard to competencecompetence remains unsettled. (90) Particularly in recent years, many Latin American countries have adopted legislation codifying the principle of competence-competence. (91) Nonetheless, Venezuelan courts have imposed significant limits on arbitrators' competence-competence, (92) with the effect that they “deny or at least weaken the page "868" authority of arbitrators to decide on their own jurisdiction.” (93) It is difficult to assess the extent to which these decisions are aberrational or more permanent indications that other Latin American courts will also, in the words of one commentator, “let Mr. Calvo in through the back door.” (94) 3. Institutional Arbitration Rules Like contemporary national legislation, leading institutional rules also almost uniformly recognize the competence-competence of arbitral tribunals. The UNCITRAL Rules are representative, providing in Article 21(1) that: “The arbitral tribunal shall have the power to rule on objections that it has no jurisdiction, including any objections with respect to the existence or validity of the arbitration clause or of the separate arbitration agreement.” (95) Other institutional rules incorporate similar principles of competencecompetence. (96) One of the few exceptions to this approach are the CIETAC Rules, which provide page "869" for institutional consideration of jurisdictional disputes. (97) There is, of course, almost inescapable circularity to provisions of institutional rules that purport to grant arbitrators power to consider and decide disputes concerning the existence or validity of an arbitration agreement. If the parties have not validly agreed to any arbitration agreement at all, then they also have necessarily not agreed to institutional arbitration rules incorporating the competence-competence doctrine. (98) In these circ*mstances, provisions in institutional rules cannot confer any authority upon an arbitral tribunal to exercise competence-competence. Rather, a tribunal's competence-competence can only be derived from national or international law (such as the express provisions of Article V(3) of the European Convention or Article 16(1) of the UNCITRAL Model Law and the implied terms of Articles II and V of the New York Convention). 4. International Arbitral Awards International arbitral tribunals almost uniformly embrace the http://www.kluwerarbitration.com/CommonUI/print.aspx
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competence-competence doctrine, both as a matter of national law and a general principle of international law. Absent clear agreement to the contrary, arbitral tribunals virtually always conclude that they have the power to consider and decide the extent of their own jurisdiction. (99) (Of course, that does not mean that arbitral tribunals necessarily will exercise this authority to uphold their own jurisdiction – merely that tribunals affirm their power to consider such issues.) Thus, in TOPCO v. Libya, the tribunal declared that: “he did have … competence [to rule on its own jurisdiction] by virtue of a traditional rule followed by international case law and unanimously recognized by the writing of legal scholars.” (100) In representative ICC awards, tribunals have explained that “[t]he principle of “competencecompetence” is widely recognized by doctrine and jurisprudence,” (101) and that, “[i]n accord with the familiar principle of KompetenzKompetenz, Art. 8(3) of the ICC Rules gives this tribunal authority to determine its own jurisdiction.” (102) A very substantial body of other published awards page "870" uniformly reach the same conclusions, particularly where the parties' arbitration agreement expressly confers competence-competence on the arbitrators. (103) The competence-competence doctrine has been affirmed by international tribunals regardless of the applicable law of the arbitral seat (or otherwise). The universality of tribunals' conclusions regarding competence-competence lends support to the doctrine's status as a general principle of international law and an inherent power (absent contrary agreement) of an arbitral tribunal. (104) That is confirmed by the virtually complete absence of any contemporary arbitral award, under any legal system, denying the existence of an international arbitral tribunal's competence-competence. (105) This principle has particular importance in the page "871" international context, where the presumptive expectation and desire of commercial parties is to avoid litigation in one another's home courts, and instead to have their disputes – including their jurisdictional disputes – resolved in a neutral forum. (106) 5. Relation Between Competence-Competence Doctrine and Separability Presumption As discussed above, it is often said that the competencecompetence principle is derived from, or dependent on, the separability presumption. (107) In particular, many national arbitration statutes and institutional rules contain provisions whose text links the separability presumption with the competencecompetence of arbitral tribunals, (108) while commentators sometimes make the same connection. (109) Thus, as noted above, Article 16(1) of the UNCITRAL Model Law provides “[t]he arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement”; Article 16(1) then immediately goes on to provide that “[f]or that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract.” (110) The suggestion, at least implicitly, is that it is the page "872" separability of the arbitration clause which explains the tribunal's power to rule on its own jurisdiction. (111) http://www.kluwerarbitration.com/CommonUI/print.aspx
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Similarly, leading institutional rules link the separability doctrine with the principle that the arbitrator has jurisdiction to decide his own jurisdiction. Article 21 of the UNCITRAL Rules provides that “[f]or the purposes of Article 21 [dealing with the arbitral tribunal's competence to consider its own jurisdiction], an arbitration clause which forms part of a contract and which provides for arbitration under these Rules shall be treated as an agreement independent of the other terms of the contract.” (112) As with the Model Law, the clear implication is that the separability of the arbitration clause is the basis for the tribunal's competence-competence. Despite these authorities, and as discussed above, it is conceptually wrong to explain the competence-competence doctrine by reference to the separability presumption. The separability presumption concerns the substantive validity of the arbitration agreement, while the competence-competence doctrine concerns a tribunal's power to consider and decide jurisdictional issues when the arbitration agreement is challenged. (113) There are circ*mstances (discussed below) where the two principles intersect, (114) but they are analytically distinct concepts. The competence-competence doctrine provides that an arbitral tribunal may consider and decide (at least provisionally, and subject to some level of judicial review) challenges to its own jurisdiction. (115) As discussed below, under the competence-competence principle, a tribunal may have competence-competence regardless whether the arbitration agreement is separable from the underlying contract and regardless whether the arbitration agreement itself (or merely the underlying contract) is challenged. (116) There are instances in which the separability presumption has consequences for the arbitrators' competence-competence doctrine. In many cases, challenges to the arbitrators' jurisdiction will purportedly arise from challenges to the existence, validity, or legality of the parties' underlying contract. (117) In these circ*mstances, the separability presumption provides at least a partial explanation for the page "873" competence-competence doctrine, and the conclusion that the arbitral tribunal may consider and decide such challenges to the parties' underlying contract. Specifically, because a separable arbitration clause does not suffer from defects relating only to the underlying contract, an arbitral tribunal possesses jurisdiction to consider and decide the existence of such defects. (118) In these instances, however, the arbitrators are not exercising competence to decide challenges to their own competence; rather, because of the separability doctrine, there is simply no challenge to the arbitration agreement or the arbitrators' competence to be considered. Because the arbitration agreement is not impeached in these circ*mstances, and because the arbitrators are only considering the merits of the parties' underlying contract, no issues of jurisdiction or competence-competence arise. (119) Rather, there is simply an unchallenged agreement to arbitrate a dispute about the underlying contract, which must unquestionably be arbitrated. (120) Importantly, however, the competence-competence doctrine also (or, more accurately, instead) applies in cases where the existence, validity, legality, or effectiveness of the arbitration agreement itself (not the underlying contract) is challenged. (121) In these cases, the http://www.kluwerarbitration.com/CommonUI/print.aspx
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separability of the arbitration clause does nothing at all to explain the arbitral tribunal's power to consider challenges to its own jurisdiction: even though the arbitration clause is separable from the underlying contract, that clause itself is subject to challenge and therefore cannot be a basis for the tribunal's power to decide its own jurisdiction. Accordingly, the jurisdiction of an international arbitral tribunal to consider and resolve issues concerning its own jurisdiction must in these cases be derived from other sources than the presumption that the arbitration clause is separable from the underlying contract. That is, an arbitral tribunal's competence-competence to consider challenges to the existence or validity of any arbitration agreement is derived from the applicable arbitration law governing the arbitration agreement, rather than merely the separability doctrine. Although not frequently addressed in detail, this conclusion is supported by well-reasoned commentary, (122) as well as page "874" at least (123) some national court authority. Simply put, the competence-competence doctrine is dependent in many cases (i.e., involving challenges to the validity or existence of the agreement to arbitrate) on the positive force of national and international (124) law, which provide that international arbitral tribunals have the authority to consider and to decide (provisionally, subject to varying measures of judicial review) disputes regarding their own jurisdiction. Under most national legal systems, this authority exists even when the existence or validity of the parties' arbitration agreement itself is page "875" challenged, (125) rather than merely the parties' underlying contract, and the results of the exercise of this authority generally subsist even after an arbitral tribunal concludes that no valid arbitration agreement exists between the parties. (126) The reason that contemporary international arbitration conventions and national arbitration statutes generally grant arbitral tribunals this sort of competence-competence is because of the needs of the arbitral process and the basic conception of the arbitral process that all developed legal systems share. (127) Specifically, the courts and legislatures of developed states have concluded, almost uniformly, that (a) parties' agreements to arbitrate disputes about arbitral jurisdiction should be recognized, like other agreements to arbitrate; (128) and (b) in the absence of a concededly valid agreement to arbitrate jurisdictional disputes, the arbitral process is facilitated, greater efficiencies are realized and justice is better served if an arbitral tribunal is permitted to consider and decide jurisdictional objections, even in a non-binding fashion. (129) The first of these two principles is simply an application of the general rule, under all international arbitration conventions and national arbitration statutes, that arbitration agreements must be recognized and enforced. (130) Indeed, as discussed elsewhere, this conclusion is mandated by the New York Convention, which requires giving effect to agreements to arbitrate, including agreements to arbitrate jurisdictional challenges. (131) The second of the foregoing two principles is a specialized rule, established by positive national or international law, even in the absence of a concededly valid arbitration agreement. This rule of law is based on the premise that time and money are saved, and http://www.kluwerarbitration.com/CommonUI/print.aspx
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fairer results achieved, if arbitrators are able to consider and decide (if only provisionally) on challenges to their own jurisdiction. (132) This rule of law applies – to permit arbitrators to consider and (provisionally) decide jurisdictional disputes – regardless whether or not the parties have entered into a valid arbitration agreement. The rule exists not by virtue of an arbitration agreement (whose existence is challenged by most jurisdictional objections), but by virtue of positive statutory or other national and international law that confers certain powers on a putatively-competent arbitral tribunal. This rule of competence-competence is a fundamental aspect of the international legal regime for international commercial arbitration and plays a highly important role in the arbitral process. page "876"
15 See, e.g., Award in ICC Case No. 1526, 101 J.D.I. (Clunet) 915
(1974) (“It is a rule admitted in international arbitration matters that in the absence of a contrary decision of State procedural law, the arbitrator is judge of his own jurisdiction.”); InterimAward in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312 (2000) (“The principle of competence/competence is an accepted legal principle.” This is one of the most basic principles in international commercial arbitration, not to say international arbitration”). See also infra pp. 859-861, 863, 863-865, 870-872. 16 The competence-competence doctrine is also recognized in the context of state-to-state arbitrations. See ILC, Model Rules on Arbitral Procedure With A General Commentary, Arts. 1(3), 9, II Y.B. I.L.C. 83 (1958) (Art. 1(3): “If the arbitral tribunal has already been constituted, any dispute concerning arbitrability shall be referred to it.”; Art. 9: “The arbitral tribunal, which is the judge of its own competence, has the power to interpret the compromis and the other instruments on which that competence is based.”); ILC, Memorandum on Arbitral Procedure, Prepared by the Secretariat, UN Doc. A/CN.4/35, II Y.B. I.L.C. 157, 165 (1950) (“it seems well established that the tribunal has the right to judge as to its own powers (competence de la competence)”); Award in Case of the Betsey (Lord Chancellor Loughborough, 13 April 1797), in J. Moore, History and Digest of the International Arbitrations to Which the United States Has Been A Party 327 (1898) (“the doubt respecting the authority of the commissioners to settle their own jurisdiction was absurd; and that they must necessarily decide upon cases being within or without, their competency”); Convention for the Pacific Settlement of International Disputes, (Second Hague Conference, 1907), Art. 73, available at www.pca-cpa.org (“The Tribunal is authorized to declare its competence in interpreting the “Compromis”, as well as the other Treaties which may be invoked, and in applying the principles of law.”); C. Schreuer, The ICSID Convention: A Commentary Art. 41, ¶1 (2001). 17 See A. van den Berg, The New York Arbitration Convention of 1958 131, 145-46 (1981); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶654 (1999); Bachand, Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463, 470-71 (2006); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶491 (2d ed. 2002). 18 See infra pp. 2777-2797; New York Convention, Art. V(1)(a) (“Recognition and enforcement of the award may be refused [if] (a) http://www.kluwerarbitration.com/CommonUI/print.aspx
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The parties to the agreement referred to in Article II were, under the law applicable to them, under some incapacity, or the said agreement is not 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.”). 19 See infra pp. 2798-2803; New York Convention, Art. V(1)(c) (“Recognition and enforcement of the award may be refused, [if] … (c) The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration …”). Article V(1)(c) refers to the “submission to arbitration,” rather than to the “arbitration agreement.” The reference is most specifically directed towards the claims submitted by the parties to the arbitral tribunal, but also extends to the scope of the underlying agreement to arbitrate. See infra pp. 860-861. This is consistent with the use of the term in the Geneva Convention. See Geneva Convention, Art. I(a); supra p. 317. 20 Two possible exceptions are Indonesia and Venezuela. See
infra pp. 867-869. 21 Under such a rule, parties could often effectively nullify agreements to arbitrate and arbitral proceedings, simply by raising a jurisdictional objection. Arbitral tribunals might nonetheless continue with the arbitration, but in practice many arbitral proceedings would be suspended until a (judicial) jurisdictional determination was made, in order to avoid the wasted monetary and other costs of arbitral proceedings. 22 The same conclusion applies under the substantially identical Inter-American Convention. 23 New York Convention, Art. II(3) (emphasis added). 24 Some authorities have concluded that Article II(3) of the New York Convention requires national courts generally to allow arbitral tribunals to make initial jurisdictional determinations. See, e.g., E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶662, 677 (1999); F. Bachand, L'intervention du juge Canadien avant et durant un arbitrage commercial international 178-79, 183 (2005). This view is difficult to accept. The Convention only impliedly recognizes the arbitrators' competence-competence, see supra pp. 857-858, and certainly does not prescribe an independent, general rule requiring national courts to permit the initial exercise of such power by arbitral tribunals. On the contrary, as discussed below, Articles II(1) and II(3) are more readily interpreted as contemplating (but not requiring) interlocutory judicial determination of jurisdictional objections. See infra pp. 859-861. See also Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, at ¶¶71-73 (Canadian S.Ct.). 25 As discussed in greater detail below, Article II(3) is drafted in mandatory terms, requiring that national courts refer parties to arbitration. See infra pp. 1014, 1021, 1025-1026. 26 Judgment of 16 January 1994, 13 ASA Bull. 503, 507 (Swiss Federal Tribunal) (1995) (“[I]f the arbitral tribunal has its seat abroad, the Swiss state court judge before who the existence of an arbitration clause is claimed must rule on this defense with full judicial consideration, and [he must do so] in particular with regard to the defense deduced from Art. II(3) of the New York Convention, without being entitled to restrict himself to a prima facie examination http://www.kluwerarbitration.com/CommonUI/print.aspx
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…”); Judgment of 29 April 1996, Found. M v. Banque X, 14 ASA Bull. 527, 530-531 (Swiss Federal Tribunal) (1996). In contrast, as discussed below, where the arbitration agreement provides for a tribunal having its seat in Switzerland, the national court's decision on the tribunal's jurisdiction is not necessarily final: the national court may either confine itself to a summary examination of the arbitration agreement, or it may stay the national court proceedings until the arbitral tribunal has rendered its decision on its jurisdiction. See Judgment of 16 January 1994, 13 ASA Bull. 503, 507 (Swiss Federal Tribunal) (1995); Judgment of 29 April 1996, Found. M v. Banque X, 14 ASA Bull. 527, 530-531 (Swiss Federal Tribunal) (1996); Judgment of 2 May 2005, 23 ASA Bull. 739 (Geneva Court of First Instance) (2005); infra pp. 904-907. 27 New York Convention, Art. II(3). See supra pp. 203-205, 567-
569 & infra pp. 1014, 1021, 1025-1026. See also Dell Computer Corp v. Union des consommateurs, 2007 SCC 34, at ¶73 (Canadian S.Ct.). 28 As discussed below, French, German, English and U.S. arbitration laws provide for either initial prima facie judicial review, or similar approaches, in either all or a considerable range of cases. See infra pp. 881-894 (Model Law), 900-904 (France), 924-954 (United States), 960-964 (England). If the Swiss interpretation of Article II(3) were accepted, all of these approaches would be in violation of the Convention. 29 A. van den Berg, The New York Arbitration Convention of 1958 155, 169 (1981); Barceló, Who Decides the Arbitrators' Jurisdiction? Separability and Competence-Competence in Transnational Perspective, 36 Vand. J. Transnat'l L. 1115, 1135 (2003). 30 See infra pp. 881-894, 904-907, 924-954, 960-964. 31 See infra pp. 899, 904, 907, 908-909, 913-916, 951. 32 The arbitral tribunal's jurisdiction to consider and decide such disputes is discussed below. See infra pp. 891-894, 931-937, 971981; ICC Rules, Art. 6(2); UNCITRAL Rules, Art. 21(1). 33 The arbitral tribunal's jurisdiction in those instances is discussed below. See infra pp. 891-894, 931-937, 971-981. 34 See infra pp. 969-971, 1014, 1021, 1025-1026. Commentary frequently overlooks this aspect of the New York Convention. See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶654 (1999) (“As the 1958 New York Convention only deals with the conditions for recognition and enforcement of awards, it does not cover the competencecompetence principle.”); A. van den Berg, The New York Arbitration Convention of 1958 131 (1981) (“the Convention does not regulate the concurrence of the arbitrator's view on his competence to decide on the merits of the dispute with that of the court”). The examples cited in text do not involve challenges to the existence of the arbitration agreement itself (as in cases where the existence, validity, or legality of the arbitration clause is challenged). Rather, they concern a concededly existent, valid agreement to arbitrate. See infra pp. 969-971. Cases involving challenges to the existence, validity, or legality of an arbitration agreement concern more complex and controversial issues. See infra pp. 971-981. 35 In the absence of an agreement to arbitrate jurisdictional http://www.kluwerarbitration.com/CommonUI/print.aspx
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disputes, it is correct that the Convention does not address the allocation and exercise of competence to decide disputes regarding the existence, validity, or legality of arbitration agreements. See also supra pp. 857-858 & infra pp. 971-981; Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, at ¶¶71-73 (Canadian S.Ct.) (“The New York Convention does not expressly require the adoption of either of these schools of thought”). 36 New York Convention, Art. II(3). 37 This interpretation is discussed in greater detail below, in the context of the UNCITRAL Model Law, which uses language paralleling that of Article II(3). See infra pp. 881-894, 899. 38 New York Convention, Art. V(1)(c) (“The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration”). See alsoReport of the Committee on the Enforcement of International Arbitral Awards, UN Doc. E/2704, at 10 (1955), available at www.uncitral.org (“the expression “submission to arbitration” was used in a broad sense, and was intended to include not only an arbitration clause in a contract, but also a specific “compromis”#”); supra p. 857 & infra pp. 2798-2803. 39 This interpretation of Article II(3) would leave national courts free, under Article V(1)(c), to deny recognition of an award that exceeded the scope of the arbitration agreement. See New York Convention, Art. V(1)(c); infra pp. 2798-2803. See also infra pp. 2610-2611. In this regard, it is noteworthy that Article V(1) deals separately with non-recognition based upon the absence of a valid arbitration agreement (Article V(1)(a)) and upon exceeding the scope of the arbitration agreement (Article V(1)(c)). See infra pp. 2777-2797, 2798-2803. 40 See infra pp. 891-894, 931-937, 960-964. At the same time, most national courts have routinely considered disputes concerning the scope of the arbitration agreement in interlocutory judicial proceedings, which is inconsistent with the foregoing interpretation. The practice of national courts with regard to disputes concerning the scope of the arbitration agreement is discussed below. See infra pp. 891-894, 931-937. 41 European Convention, Art. V(3). See Hascher, European Convention on International Commercial Arbitration of 1961 – Commentary, XX Y.B. Comm. Arb. 1006, 1024 (1995); supra pp. 102-103. 42 European Convention, Art. V(2) (emphasis added). 43 European Convention, Art. VI(3) (emphasis added). 44 See supra pp. 11-14, 65-68. 45 See also infra pp. 969-971. 46 ICSID Convention, Art. 41(1). See L. Reed, J. Paulsson & N. Blackaby, Guide to ICSID Arbitration 85 (2004); C. Schreuer, The ICSID Convention: A Commentary Art. 41, ¶1 (2001). See also ICSID Additional Facility Rules, Rule 45(1) (“The Tribunal shall have the power to rule on its competence.”); Inceysa VallisoletanaSL v. Republic of El Salvador, ICSID Award No. ARB/03/26 (2 August 2006), 2006 WL 4491473 ¶165; Pan American Energy LLC and BP Argentina Exploration Co. v. Argentine Republic, Decision on Preliminary Objections, ICSID Case No. ARB/03/13 (27 July 2006), 2006 WL 2479770. 47 See supra pp. 855-863. 48 C. Schreuer, The ICSID Convention: A Commentary Art. 41, ¶1 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(2001). 49 See Report of the Secretary-General on theAnalytical Commentary on Draft Text of A Model Law on International Commercial Arbitration, UN Doc. A/CN.9/264, Art. 16, ¶1, XVI Y.B. UNCITRAL 104, 121 (1985) (“‘Kompetenz-Kompetenz’ … is an essential and widely accepted feature of modern international arbitration but, at present, is not yet recognized in all national laws.”); H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 479 (1989). 50 The competence-competence principle has deep historical roots. An early opinion on the subject of competence-competence, rendered by Lord Chancellor Loughborough in relation to disputes under Jay's Treaty of 1794, reasoned: “the doubt respecting the authority of the commissioners to settle their own jurisdiction was absurd, and that they must necessarily decide upon cases being within, or without their competency.” Moore, History and Digest of the International Arbitrations to Which the United States Has Been A Party 327 (1898); ILC, Memorandum on Arbitral Procedure, Prepared by the Secretariat, UN Doc. A/CN.4/35, II Y.B. I.L.C. 157, 165 (1950) (“it seems well-established that the tribunal has the right to judge as to its own powers (competence de la competence)”); supra pp. 853-856 & infra pp. 870-872, 900-904, 911-914. 51 See infra pp. 864-872, 877-964. 52 See infra pp. 864-866, 928-930, 966-969. 53 This is similar in concept to the presumptive separability of the arbitration agreement. Seesupra pp. 348-353. 54 See infra pp. 864-866, 928-930, 966-969. 55 See infra pp. 928-930, 966-969. 56 See infra pp. 877-878. 57 See Bachand, Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463 (2006). 58 See infra p. 879. See also Report of the Secretary-General on the Analytical Commentary on Draft Text of A Model Law on International Commercial Arbitration, UN Doc. A/CN.9/264, Art. 16, ¶1, XVI Y.B. UNCITRAL 104 (1985) (“Article 16 adopts the important principle that it is initially and primarily for the arbitral tribunal itself to determine whether it has jurisdiction, subject to ultimate court control.… ”); H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 478, 479 (1989). 59 UNCITRAL Model Law, Arts. 8(1), 34(2)(a)(i) & (iii), 36(1)(a)(i) & (iii); infra pp. 880-894. 60 See infra pp. 877-894. 61 Section 4 of the FAA arguably deals with the arbitral tribunal's competence-competence, and it expressly deals with the power of a U.S. court to hear jurisdictional disputes in domestic cases, when providing “[t]he court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement … If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.” U.S. FAA, 9 U.S.C. §4; G. Wilner, Domke on Commercial Arbitration §15.02 (3d ed. & Update 2006); Park, The Specificity of International Arbitration: The http://www.kluwerarbitration.com/CommonUI/print.aspx
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Case for FAA Reform, 36 Vand. J. Transnat'l L. 1241, 1277 (2003). 62 See infra pp. 911-960. 63 See infra pp. 914-919, 924-928, 930-948, 951, 954-958. 64 First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 942 (U.S. S.Ct. 1995). 65 514 U.S. at 943. 66 See infra pp. 969-971. 67 See supra pp. 857-863. 68 See infra pp. 924-930. 69 Swiss Law on Private International Law, Art. 186(1). See Heini, in D. Girsberger et al. (eds.), Zürcher Kommentar zum IPRG, Art. 186, ¶4 (2004); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 186, ¶2 (2000). See also Swiss Cantonal Concordat, Art. 8(1) (“If the validity of the arbitration agreement or its content or scope are disputed before the arbitral tribunal, that tribunal shall in an interlocutory order or final award determine its own jurisdiction.”). 70 English Arbitration Act, 1996, §30; R. Merkin, Arbitration Law ¶¶9.4 to 9.20 (2004 & Update 2007). 71 Belgian Judicial Code, Art. 1697(1). 72 French New Code of Civil Procedure, Art. 1466; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶647-660 (1999). 73 Netherlands Code of Civil Procedure, Art. 1052(1). 74 Italian Code of Civil Procedure, Art. 817(1). 75 Swedish Arbitration Act, §2; infra pp. 965-966. 76 German ZPO, §1040. 77 Spanish Arbitration Act, Art. 22(1). 78 Japanese Arbitration Law, Art. 23. 79 Korean Arbitration Act, Art. 10; Lee, Korea 16-17, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 1996). 80 Hong Kong Arbitration Ordinance, Art. 13B; Kenon Eng'g Ltd v. Nippon Kokan Koji Kabushiki Kaisha, [2004] HKCUI 512 (H.K. Court of Appeal, High Court); Fung Sang Trading Ltd v. Kai Sun Sea Products & Food Co. Ltd, XVII Y.B. Comm. Arb. 289, 292 (H.K. High Court, S.Ct. 1991) (1992); Kaplan & Morgan, Hong Kong 68-70, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 1999). 81 Indian Arbitration and Conciliation Act, Art. 16(1). 82 Singapore International Arbitration Act, §§3(1), UNCITRAL Model Law, Art. 16(1); Hwang, Boo & Lai, Singapore 39-40, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 2004). 83 Australian International Arbitration Act, §16; Pryles, Australia 2223 in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 2004). 84 New Zealand Arbitration Act, First Schedule, Art. 16(1). 85 See, e.g., Algerian Code of Civil Procedure, Art. 458 bis 7; Chilean International Commercial Arbitration Law, Art. 16(1); Egyptian Arbitration Law, Art. 22; Nigerian Arbitration and Conciliation Decree, §22; A. Falach, The International Comparative Legal Guide to International Arbitration 2007 479 (Algeria), 487 (Egypt), 504 (Nigeria) (2007). http://www.kluwerarbitration.com/CommonUI/print.aspx
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86 See Shalakany, Arbitration and the Third World: A Plea for
Reassessing Bias under the Specter of Neoliberalism, 41 Harv. Int'l L.J. 419, 430, 440 (2000) (“Kompetenz-Kompetenz and separability cannot be satisfactorily rationalized under the strict technical arguments of the leading treatises. Their role can be better appreciated in political terms as indispensable in empowering arbitration with the capacity to function effectively as a medium disempowering national laws to be displaced by alternative legal regimes.”). 87 See Gautama, Indonesia, 26, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 1998). See also Mills, Indonesia, 27, in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 2006) (“The principle of competence-competence … is not specifically covered in the Arbitration Law” and lower courts reportedly disregard arbitration agreements in practice.). 88 See H. Smit & V. Pechota (eds.), 2 Smit's Guides to International Arbitration: National Arbitration Laws ISR-C4 (2001); Lane, South Africa, 14 in J. Paulsson (ed.), International Handbook on Commercial Arbitration (Update 1995). See also Gotanda, An Efficient Method for Determining Jurisdiction in International Arbitrations, 40 Colum. J. Transnat'l L. 11, 22 (2001). 89 Chinese Arbitration Law, Art. 20. See infra p. 966. 90 On the previous lack of acceptance of the competencecompetence principle in Latin American legislation, see Grigera Naón, Arbitration in Latin America: Overcoming Traditional Hostility, 5 Arb. Int'l 137, 150-151 (1989); Garro, Enforcement of Arbitration Agreements and Jurisdiction of Arbitral Tribunals in Latin America, 1(4) J. Int'l Arb. 293, 303-309 (1984); Layton, Changing Attitudes Toward Dispute Resolution in Latin America, 10(2) J. Int'l Arb. 123, 130 (1993). 91 Grigera Naón, Arbitration and Latin America: Progress and Setbacks, 21 Arb. Int'l 127, 149 (2005) (citing Bolivian Law on Arbitration and Mediation, Art. 32; Chilean Law on International Commercial Arbitration, Art. 16(1); Ecuadorian Law on Arbitration and Mediation, Art. 5; El Salvador Law on Mediation, Conciliation and Arbitration, Art. 51; Mexican Commercial Code, Art. 1432; Paraguay Law on Arbitration and Mediation, Art. 19; Peruvian Law on Arbitration, Art. 106; Venezuelan Commercial Arbitration Act, Arts. 7, 25); Spinillo, Vogelius, Lee & von Wobeser, in N. Blackaby, D. Lindsey & A. Spinillo, International Arbitration in Latin America Argentina 41-42, Brazil 70, Mexico 169 (2002); J. Kleinheisterkamp, International Commercial Arbitration in Latin America 230-232 (2005); Wald, L'évolution de l'arbitrage au Brésil, in Global Reflections on International Law, Commerce and Dispute Resolution, Liber Amicorumin Honour of Robert Briner 903, 908 (2005) (“Subject to some rare exceptions – certain being justified – [Brazilian] case law has acknowledged that the arbitrator has the power to rule on his own competence.”). See also Judgment of 26 September 1988, Enrique C. Wellbers S.A.I.C. AG v. Extraktionstechnik Gesellschaft für Anlagenbau, La Ley 1989-E-302 (Buenos Aires Commercial Court of Appeal) (“all questions between the parties, including that of whether or not the main contract was overtaken by a supervening nullity, were within the scope of the broad and all-encompassing wording of the arbitration clause and therefore to be determined by the arbitrators themselves.”). 92 See Grigera Naón, Competing Orders Between Courts of Law and Arbitral Tribunals: Latin American Experiences, in Global Reflections on International Law, Commerce and Dispute http://www.kluwerarbitration.com/CommonUI/print.aspx
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Resolution, Liber Amicorum in Honour of Robert Briner 335, 337 (2005) (“despite the letter of the recent Venezuelan Arbitration Act (Article 25), clearly adopting the Kompetenz-Kompetenz principle, the right of the arbitral tribunal to decide on its own jurisdiction is trumped by the self-assumed powers of the Venezuelan judiciary to decide first on the validity, meaning, scope and effects of the arbitration agreement.”); Nidera Argentina SA v. Alvarez de Canale, Elena G. La Ley, No. 24, advance sheet of 2 February 1990 (Argentine S.Ct.), cited in Grigera Naón, Competing Orders Between Courts of Law and Arbitral Tribunals: Latin American Experiences, in Global Reflections on International Law, Commerce and Dispute Resolution, Liber Amicorum in Honour of Robert Briner 335, 341 (2005) (“the Kompetenz-Kompetenz principle is effectively neutralized, since arbitrators have to wait for the so called jurisdictional conflict to be finally determined by a court of law before they can proceed.”). 93 Grigera Naón, Competing Orders Between Courts of Law and Arbitral Tribunals: Latin American Experiences, in Global Reflections on International Law, Commerce and Dispute Resolution, Liber Amicorum in Honour of Robert Briner 335(2005). 94 See Blackaby & Noury, International Arbitration in Latin America, Latin Law. Rev., December 2005, at 5. 95 UNCITRAL Rules, Art. 21(1). See D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 445 (2006); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶653, 656 (1999). 96 See, e.g., ICC Rules, Art. 6(2) (“[A]ny decision as to the jurisdiction of the Arbitral Tribunal shall be taken by the Arbitral Tribunal itself”); LCIA Rules, Art. 23(1) (“The Arbitral Tribunal shall have the power to rule on its own jurisdiction, including any objection to the initial or continuing existence, validity or effectiveness of the Arbitration Agreement.”); ICDR Rules, Art. 15(1) (“The tribunal shall have the power to rule on its own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.”); Cairo Rules, Art. 21(1) (“The arbitral tribunal shall have the power to rule on objections that it has no jurisdiction, including any objections with respect to the existence or the validity of the arbitration clause or of the separate arbitration agreement.”); ICAC Rules, Art. 5(1) (“The question of the ICAC jurisdiction in a given case shall be decided by the arbitral tribunal considering the case.”); NAI Rules, Art. 9(4) (“A plea that the arbitral tribunal lacks jurisdiction shall be decided by the arbitral tribunal”); VIAC Rules, Art. 19(2) (“The sole arbitrator (arbitral tribunal) shall rule on its own jurisdiction.”); AAA Commercial Rules, 7(a) (“The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.”); ICSID Convention, Art. 41(2); CEPANI Rules, Art. 19(3); HKIAC Domestic Rules, Art. 11(h); SIAC Rules, Art. 26(1); WIPO Arbitration Rules, Art. 36(a), (b); Swiss International Arbitration Rules, Art. 21(1). 97 CIETAC Rules, Art. 6(1) (“The CIETAC shall have the power to determine the existence and validity of an arbitration agreement and its jurisdiction over an arbitration case. The CIETAC may, if necessary, delegate such power to arbitral tribunal.”). 98 See infra pp. 872-876, 938-948, 969-971. The analysis is different with regard to questions regarding the scope of an admittedly valid arbitration agreement. See infra pp. 931-937, 969981. 99 See infra p. 996 n. 726 for cases where arbitral tribunals have http://www.kluwerarbitration.com/CommonUI/print.aspx
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made negative jurisdictional decisions. 100 Texaco Overseas Petroleum Co. v. Libyan Arab Republic, Preliminary Ad Hoc Award on Jurisdiction (27 November 1975), IV Y.B. Comm. Arb. 177, 179 (1979). This generalization is somewhat overbroad, in that it presumes that the parties' arbitration agreement does not withhold competence-competence from the arbitral tribunal. 101 Final Award in ICC Case No. 8938, XXIVa Y.B. Comm. Arb. 174, 176 (1999). 102 Final Award in ICC Case No. 6268, XVI Y.B. Comm. Arb. 119, 122 (1991). 103 See, e.g., Award in ICC Case No. 1526, 101 J.D.I. (Clunet) 915 (1974) (“It is a rule admitted in international arbitration matters that in the absence of a contrary decision of State procedural law, the arbitrator is judge of his own jurisdiction.”); Award in ICC Case No. 2476, 104 J.D.I. (Clunet) 936 (1977); Award in ICC Case No. 2558, 104 J.D.I. (Clunet) 951 (1977); Partial Award in ICC Case No. 3896, 110 J.D.I. (Clunet) 914 (1983); Award in ICC Case No. 3987, 111 J.D.I. (Clunet) 943 (1984); Award in ICC Case No. 4381, 113 J.D.I. (Clunet) 1102, 1103 (1986); Interim Award in ICC Case No. 4695, XI Y.B. Comm. Arb. 149 (1986); PartialAward in ICC Case No. 4862, in S. Jarvin, Y. Derains & J.-J. Arnaldez (eds.), Collection of ICC Arbitral Awards1986-1990 508-509 (1994) (arbitral tribunal has competence under ICC Rules to consider own jurisdiction); Final Award in ICC Case No. 5294, XIV Y.B. Comm. Arb. 137 (1990); Final Award in ICC Case No. 5460, XIII Y. B. Comm. Arb. 104 (1988) (arbitral tribunal has competence under ICC Rules to consider own jurisdiction); Final Award in ICC Case No. 5485, XIV Y.B. Comm. Arb. 156, 159 (1989) (“in international commercial arbitration the arbitrators have the authority to determine their own jurisdiction”); Final Award in ICC Case No. 6162, XVII Y.B. Comm. Arb. 153 (1990); Final Award in ICC Case No. 6437, 8(1) ICC Ct. Bull. 63 (1997); PartialAward on Jurisdiction and Admissibility in ICC Case No. 6474, XXV Y.B. Comm. Arb. 279 (2000) (“It is therefore not disputed, nor can it be disputed, that the Arbitral Tribunal has jurisdiction over its own jurisdiction (under the so-called principle of ‘Kompetenz-Kompetenz,’ recognized by Swiss law), and that it is called upon to decide on the various objections raised by the defendant as to jurisdiction and admissibility”); Final Award in ICC Case Nos. 6515 and 6516, XXIVa Y.B. Comm. Arb. 80, 84 (1999) (“the “kompetenz-kompetenz” belongs to the arbitral tribunal”); Award in ICC Case No. 7878, discussed in Grigera Naón, Choice-ofLaw Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 53 (2001) (competence-competence is “general rule of the law of international arbitration”); Interim Award in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312 (2000) (“The principle of competence/competence is an accepted legal principle”; “This is one of the most basic principles in international commercial arbitration, not to say international arbitration”); Award in ICC Case No. 10274, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 44 (2001) (“There is substantial agreement that in international commercial arbitration the arbitrator should, in ordinary circ*mstances, have the power to determine his or her jurisdiction without prior recourse to the courts.”); Econet Wireless Ltd v. First Bank of Nigeria, Ad Hoc Award (2 June 2005), XXXI Y.B. Comm. Arb. 49, 52 (2006) (“the primary responsibility to determine the extent of the Tribunal's jurisdiction lies with the Tribunal itself”). 104 See supra pp. 853-863. http://www.kluwerarbitration.com/CommonUI/print.aspx
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105 National court decisions are similarly uniform. See supra pp.
863-869. For one exception, see Judgment of 11 January 2006, Contradiction 51/2005, S.C.J.N. (Mexican S.Ct.) (“Jurisdiction to take cognizance of the nullity suit of an arbitration agreement covered by the first paragraph of Article 1424 of the Commerce Code is within the jurisdiction of the court and not the arbitration tribunal.”), discussed in de Cossío, The Compétence-Compétence Principle, Revisited, 24 J. Int'l Arb. 231 (2007). 106 See supra pp. 71-76. 107 See supra pp. 402-404. 108 UNCITRAL Model Law, Art. 16(1); German ZPO, §1040; UNCITRAL Rules, Art. 21; ICC Rules, Art. 6; LCIA Rules, Art. 23; Cairo Rules, Art. 21(1). See supra pp. 346-348. 109 Seesupra pp. 402-404; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶416 (1999) (“That principle is often presented as the corollary of the principle of the autonomy of the arbitration agreement … while the two principles are closely linked and have a similar objective, they only partially overlap.”); Mayer, L'autonomie de l'arbitre international dans l'appréciation de sa propre compétence, 217 Recueil des Cours 319, 430 (1989); Graffi, Securing Harmonized Effects of Arbitration Agreements under the New York Convention, 28 Hous. J. Int'l L. 663, 700 (2006); Goldman, The Complementary Roles of Judges and Arbitrators in Ensuring that International Commercial Arbitration Is Effective, in International Arbitration: 60 Years of ICC Arbitration, A Look at the Future 255, 263 (1984) (“[I]t is still the case that the “Kompetenz-Kompetenz” can appear as a second consequence of the autonomy of the arbitration agreement. In addition, it confers on the arbitrator the power to define the objective and the limits of his jurisdiction in the situation where these matters are the subject of a controversy between the parties, the validity of the main contract, or that of the arbitration agreement, not being challenged.”); G. Wilner, Domke onCommercial Arbitration §11.03 (3d ed. & Update 2006). 110 UNCITRAL Model Law, Art. 16(1); supra pp. 864-865 & infra pp. 877-878. 111 See H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 480 (1989); supra pp. 333-336. 112 UNCITRAL Rules, Art. 21. See D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 445448 (2006). In contrast, Article 6 of the ICC Rules provides more circ*mspectly that “[u]nless otherwise agreed, the Arbitral Tribunal shall not cease to have jurisdiction by reason of any claim that the contract is null and void or allegation that it is non-existent, provided that the Arbitral Tribunal upholds the validity of the arbitration agreement.” ICC Rules, Art. 6(4). 113 See supra pp. 348-353, 357-404. 114 See infra pp. 872-876. 115 See supra pp. 853-869 & infra pp. 877, 966-969. 116 See infra pp. 877, 891-894, 900-907, 924-928. 117 See supra pp. 563-564, 704 et seq. 118 Even in such cases, however, the separability presumption only http://www.kluwerarbitration.com/CommonUI/print.aspx
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provides that defects in the underlying contract do not necessarily affect the related arbitration agreement. Seesupra pp. 357-404. In those instances where a defect in the underlying contract does affect the arbitration clause's validity or existence, the separability doctrine does nothing to explain the tribunal's jurisdiction to consider and resolve disputes concerning such defects. 119 Alternatively, if one reasons that a challenge to the underlying contract “may” impeach the arbitration clause (depending on further analysis), then the doctrine does little or nothing to explain the tribunal's competence, which must instead be explained by reference to the competence-competence doctrine. See supra pp. 402-404. 120 See supra pp. 402-404. That is a straightforward application of Article II(3) of the New York Convention, Article 8 of the UNCITRAL Model Law and comparable legislation in other jurisdictions. 121 See infra pp. 880-894, 930-948, 971-981. 122 See, e.g., Park, Determining Arbitral Jurisdiction: Allocation of Tasks between Courts and Arbitrators, 9 Arb. Disp. Res. L.J. 19, 2728 (2000) (“Compétence-compétence analysis should not be confused with the principle of “separability' …, by which the validity of an arbitration clause is determined independently of the validity of the basic commercial contract in which it is encapsulated.… Separability and compétence-compétence intersect only in the sense that arbitrators who rule on their own jurisdiction (like courts deciding whether to allow an arbitration to go forward) will look to the arbitration clause alone, not to the entirety of the contract.”); Svernlov & Carroll, What Isn't, Ain't: The Current Status of the Doctrine of Separability, 8(4) J. Int'l Arb. 37 (1991) (“The competence-competence problem is distinct from the issue of separability”); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶416-417, ¶658 (1999) (“the basis for the competence–competence principle lies not in the arbitration agreement, but in the arbitration laws of the country where the arbitration is held, and more generally, in the laws of all countries liable to recognize an award made by arbitrators concerning their own jurisdiction.”); R. David, Arbitration in International Trade ¶192 (1985); U.K. Departmental Advisory Committee on Arbitration Law, (1996), Report on the Arbitration Bill (February 1996), reprinted in, 13 Arb. Int'l 275, ¶43 (1997) (“it seems to us that the doctrine of separability is quite distinct from the question of the degree to which the tribunal is entitled to rule on its jurisdiction, so that, unlike the Model Law, we have dealt with the latter elsewhere in the Bill”); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration 48-49 (3d ed. 2000) (“unlike competence-competence, which in most situations is a matter of procedure, the autonomy of the arbitration clause is a substantive principle. Thus, in a legal system which did not accept competence-competence but upheld the autonomy principle, a contention that a contractual claim could not be heard in arbitration because the entire contract was void would have to be decided by a judge, but the latter would then send the matter to arbitration if it appeared that the autonomous arbitration clause itself was not necessarily affected by the invalidity of the contract”); Gross, Competence of Competence: An English View, 8 Arb. Int'l 205 (1992). 123 See, e.g., China Minmetals Materials Imp. & Exp. Co. v. Chi Mei Corp., 334 F.3d 274, 287-88 (3d Cir. 2003) (describing competence-competence doctrine as derived from parties' contract); Vee Networks Ltd v. Econet Wireless Int'l Ltd [2005] 1 Lloyd's Rep. http://www.kluwerarbitration.com/CommonUI/print.aspx
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192 (Q.B.) (competence-competence has a different statutory basis from severability presumption under the English Arbitration Act, 1996); Fung Sang Trading Ltd v. Kai Sun Sea Products & Food Co. Ltd, XVII Y.B. Comm. Arb. 289, 299 (H.K. High Court, S. Ct. 1991) (1992). 124 As discussed above, recognition of the arbitrators' competence-competence is required by leading international arbitration conventions, most explicitly the European Convention. See European Convention, Art. V(3); supra pp. 861-863. Additionally, as discussed above, insofar as the parties have entered into a valid arbitration agreement submitting particular jurisdictional issues to arbitration, then Article II of the New York Convention also bears on issues of competence-competence, by requiring recognition of the parties' agreement to arbitrate such issues. See supra pp. 856-863. 125 See infra pp. 877-878, 891-894, 900-907, 924-928. 126 See infra pp. 895-899, 904, 954-958, 985-986. 127 See infra pp. 969-971. 128 See infra pp. 969-971. 129 See infra pp. 966-969. 130 See supra pp. 202-205, 566-569, 857-863. & infra pp. 969-971, 1021-1028. 131 See supra pp. 202-205, 566-569, 857-861. & infra pp. 969-971, 1020-1024. 132 See infra pp. 966-969.
International Arbitration Agreements and Competence-Competence - C. Variations of Competence-Competence Doctrine in Different National Legal Regimes Chapter 6 Gary B. Born
Author Gary B. Born
C. Variations of Competence-Competence Doctrine in Different National Legal Regimes As discussed above, there is a broad international consensus that international arbitral tribunals have the competence, or jurisdiction, to consider disputes concerning their own competence, and to exercise such competence-competence to make awards deciding such disputes. (133) As a practical matter, international tribunals routinely entertain and make decisions concerning jurisdictional issues; this includes challenges to both the existence, validity, or effectiveness of the parties' underlying contract and to the existence, validity, effectiveness, or scope of their arbitration agreement itself. (134) http://www.kluwerarbitration.com/CommonUI/print.aspx
Source International Arbitration Agreements and CompetenceCompetence - C. Variations of CompetenceCompetence Doctrine in Different National Legal Regimes in Gary B. Born , International Commercial Arbitration,
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Despite this general consensus about the basic principle of competence-competence, there are a wide variety of different approaches under different legal systems to the implementation of this principle. In particular, national legal systems differ substantially in their treatment of the allocation of competence to consider jurisdictional challenges between national courts and arbitral tribunals and of the appropriate role of national courts in considering such jurisdictional challenges. The principal approaches to the subjects of competence-competence and the allocation of jurisdictional competence under leading national legal regimes – including the UNCITRAL Model Law, the FAA, the French New Code of Civil Procedure, the Swiss Law on Private International Law, the English Arbitration Act and the Swedish Arbitration Act – are outlined below.
(Kluwer Law International 2009) pp. 877 - 986
1. Competence-Competence under the UNCITRAL Model Law As detailed below, the UNCITRAL Model Law provides expressly for the competence-competence of international arbitral tribunals, (135) and for an allocation page "877" of jurisdictional competence between arbitral tribunals and national courts. (136) The Model Law's provisions on jurisdictional competence have been described as both “an innovative and sensible compromise,” (137) and “the worst of all worlds and likely to deter anyone from submitting a dispute to arbitration under the Model Law.” (138) At the same time, the text of the Model Law appears not to conclusively resolve many of the most significant issues that arise in connection with the allocation of jurisdictional competence between arbitral tribunals and national courts. (139) In particular, there is uncertainty regarding a number of aspects of the Model Law's basic structure for jurisdictional challenges. This uncertainty includes: (a) the standard of proof or persuasion that a court should employ in considering an interlocutory jurisdictional objection under Article 16 (prior to the making of any jurisdictional award by the tribunal), and particularly whether the court should perform (i) a “prima facie review,” or (ii) a full review, of the jurisdictional objection; (b) the standard of judicial review that a court should employ in reviewing a jurisdictional award under Article 34; (c) whether different treatments of competence-competence and/or different standards of judicial review are appropriate in (i) cases involving challenges to the existence, validity, or legality of an arbitration agreement, and, alternatively, (ii) cases involving disputes about the scope of an arbitration agreement; (d) whether parties may agree to final arbitral determination of issues of jurisdiction which would otherwise be subject to judicial determination; and (e) the availability of judicial review for negative jurisdictional decisions, in which an arbitral tribunal denies its own competence to decide the parties' substantive claims. As discussed below, neither the text nor legislative history of the Model Law, nor judicial authority applying the Model Law, provide clear answers to most of these questions. (140) page "878" a. Arbitrator's Competence-Competence under the UNCITRAL Model Law The Model Law provides express recognition of the arbitrator's competence-competence, together with a procedural framework (of http://www.kluwerarbitration.com/CommonUI/print.aspx
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sorts) for exercising this authority. Article 16(1) of the Model Law does so explicitly, providing: “The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement.” (141) Article 16(3) goes on to provide that the arbitral tribunal may rule on an objection that it lacks jurisdiction either “as a preliminary question or in an award on the merits”; the choice between these two alternatives is left to the tribunal's discretion. (142) If the tribunal rules affirmatively on the jurisdictional issue as a preliminary matter, Article 16(3) provides that “any party may request, within thirty days after having received notice of that ruling,” a judicial decision on the subject. (143) Article 16(3) then provides that, “while such a request [for judicial review] is pending, the arbitral tribunal may continue the arbitral proceedings and make an award.” (144) Taken together, and consistent with the New York Convention, (145) these provisions contemplate that arbitrators may consider jurisdictional disputes and make a decision regarding such disputes, subject to immediate judicial review of the jurisdictional award – a process aimed at allowing speedy and relatively decisive resolution of jurisdictional disputes. (146) page "879" b. Judicial Consideration of Objections to Arbitrators' Jurisdiction under Model Law Operating in parallel to Article 16's recognition of the arbitrators' competence-competence, Article 8(1) of the Model Law provides that a national court, which is presented with a claim that is allegedly subject to arbitration, shall refer the parties to arbitration “unless it finds that the agreement is null and void, inoperative or incapable of being performed.” (147) Article 8(2) goes on to provide that, where judicial proceedings pursuant to Article 8(1) are commenced, “arbitral proceedings may nevertheless be commenced or continued, and an award made, while the issue is pending before the court.” (148) In turn, Article 34(2)(a)(i) and (iii) provide for annulment of awards in which an arbitral tribunal is considered to have incorrectly asserted jurisdiction. (149) The text of Article 8 makes it reasonably clear that an interlocutory judicial decision on jurisdictional issues is available under the Model Law prior to any decision by an arbitral tribunal on such issues. As noted above, that is evident from Article 8(1), which provides that a court shall refer the parties to arbitration, “unless itfinds that the agreement is null and void, inoperative or incapable of being performed” – a formulation that necessarily requires a judicial application of these standards. (150) The possibility of interlocutory judicial consideration of jurisdictional issues is also evident from Article 8(2)'s proviso that arbitral proceedings may continue even after an action in national court has been brought under Article 8(1) to resolve jurisdictional disputes. (151) Thus, the basic structure of the Model Law is: (a) to permit arbitral tribunals to consider and decide jurisdictional issues in an award (under Article 16), which are (b) subject to very prompt subsequent judicial review (under Article 34), but also (c) to permit interlocutory http://www.kluwerarbitration.com/CommonUI/print.aspx
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judicial consideration of jurisdictional issues to occur prior to, or in parallel with, any arbitral decision (under Article 8(1)), while (d) the arbitral proceedings continue notwithstanding the jurisdictional challenge (under Article 8(2)). This approach makes it entirely possible that a national court may decide jurisdictional issues before the arbitral tribunal itself does so, and that such judicial decisions may pre-empt the tribunal's jurisdictional decision. (152) page "880" The Model Law apparently adopts the foregoing approach for all jurisdictional issues concerning the existence, validity, or legality of the arbitration agreement. That is, an arbitral tribunal possesses competence-competence irrespective of the nature of the jurisdictional challenge to the arbitration agreement. (153) For example, an arbitral tribunal possesses jurisdiction to consider its own jurisdiction even where a party denies ever having signed any contract with its counterparty (and either thereby or separately denies ever having been party to any arbitration agreement at all). (154)
c. Prima Facie versus Full Judicial Consideration of Interlocutory Jurisdictional Challenges under the Model Law When a party seeks an interlocutory judicial determination of jurisdictional objections, prior to any arbitral award on the subject, there is uncertainty regarding the standard of judicial review that should be applied by a court under the Model Law. As discussed below, the text of the Model Law, and many judicial authorities, strongly suggest that full judicial review of the jurisdictional objection is appropriate, at least in some circ*mstances. In contrast, as also discussed below, some judicial authority, and some aspects of the Model Law's drafting history, suggest that only prima facie interlocutory judicial consideration is ever appropriate. (155) The text of Article 8(1) fairly clearly suggests that, at least in some circ*mstances, full judicial consideration of most jurisdictional issues is appropriate – and arguably required – in interlocutory judicial challenges to a tribunal's jurisdiction. Article 8(1) provides that, where a suit is brought “in a matter which is the subject of an arbitration agreement,” the national court “shall … refer the parties to arbitration,” unless “it finds that the agreement is null and void, inoperative, or incapable of being performed.” (156) This requires that claims be referred to arbitration unless the court “finds” that the relevant arbitration agreement is null and void, inoperative or incapable of being performed. Although it is possible to interpret the term “finds that the agreement is null” to mean “finds on a prima facie basis that the agreement may not be null” or “finds that the agreement is arguably not null,” this is not a natural reading; the ordinary meaning of the language used page "881" strongly implies that the court's mission under Article 8(1) includes making a determination (“find[ing]”) whether or not the agreement is valid. (157)
At the same time, Article 8(2) recognizes the difficulty of prescribing precise, generally-applicable formulae for the procedural conduct of parallel judicial and arbitral proceedings regarding jurisdiction. It does so by granting the arbitral tribunal discretion (the tribunal “may” continue the arbitration) to proceed with arbitral proceedings pending a judicial challenge to jurisdiction. (158) As discussed below, http://www.kluwerarbitration.com/CommonUI/print.aspx
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similar considerations apply, in the converse situation, to a national court's decision whether and how to consider an interlocutory jurisdictional challenge. (159) The legislative history of the Model Law also points in the direction of permitting full interlocutory judicial consideration of at least some jurisdictional objections. The most direct evidence is the fact that the Law's drafters rejected a proposal that would have expressly provided, in what is now Article 8(1), for national courts to refer claims to arbitration, save where a court “finds that the agreement is manifestly null and void.” (160) The rejection of this language was particularly significant given that it was precisely parallel to that in the (then) recently-adopted 1980 French New Code of Civil Procedure, which provided for only prima facie judicial review. (161) Rejection of a proposal that would have replicated this approach confirms the natural meaning of the language of Article 8(1) as permitting full, not prima facie,judicial review. (162) page "882" Nonetheless, some commentators have argued that the Model Law's legislative history is either inconclusive or supportive of a mandatory prima facie judicial review standard in all cases. This interpretation rests on the existence, in early drafts of the Model Law (including at the time the prima facie review standard was rejected), of a provision in what was then Article 17 of the Model Law, permitting a party resisting arbitration to apply for a judicial declaration that no valid arbitration agreement existed. (163) In particular, this analysis rests on the subsequent deletion of these provisions of Article 17 and the explanation that “the prevailing view was in favor of deleting article 17 since it might have adverse effects throughout the arbitral proceedings by opening the door to delaying tactics and obstruction and because it was not in harmony with the principle underlying article 16 that it was initially and primarily for the arbitral tribunal to decide on its competence, subject to ultimate court control.” (164) Contrary to some suggestions, (165) this language is at best inconclusive, and more likely irrelevant, in making a choice between full versus prima facie judicial page "883" consideration. The essential point is that the rejection of Article 17's provision allowing respondents to seek judicial declarations regarding arbitral jurisdiction did not have any effect on (current) Article 8(1)'s terms or, equally important and more obviously, on the civil litigation systems of states that adopt the Model Law: a respondent who wishes to commence litigation, exercising its general right of access to the courts, is free to do so and it is Article 8(1) that defines the judicial mandate in those circ*mstances (and not the former Article 17 or current Article 16). As already discussed, Article 8(1) does not require prima facie judicial consideration in such actions – an approach which, as noted above, was expressly considered and rejected (166) – but instead permits full judicial consideration. (167) Equally critically, the deletion of former Article 17 and the accompanying drafting explanation – quoted above (168) – are in no way decisive as to the meaning of Article 8(1). On the contrary, the text quoted above is specifically directed to “the principle underlying article 16 that it was initially and http://www.kluwerarbitration.com/CommonUI/print.aspx
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primarily for the arbitral tribunal to decide on its competence, subject to ultimate court control.” (169) The essential point here is that the Model Law – like most arbitration legislation (170) – sought in the combined provisions of Articles 8 and 16 to balance the competing alternatives of initial judicial and arbitral determination of jurisdiction, and ignoring the text of Article 8, based upon the purpose of only Article 16, is to assume one's own conclusion. (171) The most direct evidence in the drafting history, page "884" therefore, remains the rejection of the proposal to amend Article 8(1) to require prima facie, rather than full, interlocutory judicial consideration. At the same time, and equally important, neither Article 8(1) nor any other provision of the Model Law requires full interlocutory judicial review to be exercised in every case. Nothing in Article 8(1) would prevent a court, if it concluded that a respondent was engaging in dilatory tactics or that it would be efficient or just to permit an initial jurisdictional award by the arbitrators, from conducting only a prima facie interlocutory judicial review. Indeed, the procedural discretion afforded to the arbitrators with regard to jurisdictional matters under Article 8(2) should logically apply with equal force in national court proceedings. (172) Consistent with this, and as discussed in greater detail below, judicial authority in Model Law jurisdictions recognizes the power of national courts to stay litigation of jurisdictional issues pending arbitral consideration. (173) Not surprisingly, given the statutory text and drafting history, the weight of better-reasoned national court authority in UNCITRAL Model Law jurisdictions has interpreted Article 8(1) as permitting full judicial consideration (rather than only prima facie review) in either all or some cases involving interlocutory challenges to the existence, validity, or legality of the arbitration agreement (but page "885" not as to the scope of that agreement, which is treated differently (174) ). That is the case with judicial decisions in Germany, (175) Canada, (176) New Zealand, (177) Hong Kong (178) and Australia. (179)
Despite these decisions, a number of other courts in Model Law states have reached the opposite result, particularly in cases involving disputes over the scope of the arbitration agreement, holding that only prima facie interlocutory judicial review is appropriate in determining whether to refer a matter to arbitration. (180) This page "886" includes decisions in India, (181) Canada, (182) Bermuda (183) and Hong Kong. (184) Thus, a prima facie approach was adopted as to issues of scope and the identities of the parties to the arbitration agreement in Gulf Canada Resources Ltd v. Arochem Int'l Ltd, where the British Columbia Court of Appeal held that “it is not for the court on an application for a stay of proceedings to reach any final determination as to the scope of the arbitration agreement or whether a particular party to the legal proceedings is a party to the arbitration agreement, because those are matters within the jurisdiction of the arbitral tribunal. Only http://www.kluwerarbitration.com/CommonUI/print.aspx
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where it is clear that the dispute is outside the terms of the arbitration agreement, or that a party is not a party to the arbitration agreement … should the court reach any final determination … Where it is arguable that the dispute falls within the terms of the arbitration agreement page "887" or where it is arguable that a party to the legal proceedings is a party to the arbitration agreement then, in my view, the stay should be granted and those matters left to be determined by the arbitral tribunal.” (185) The court's holding was limited to questions of the scope of an arbitration clause and the identity of the parties and, by its terms, did not extend to questions of the existence or validity of any arbitration agreement at all. In subsequent decisions, Canadian courts have also generally applied a prima facie approach in interlocutory disputes over the scope of the arbitration agreement, while often applying a full judicial review standard to interlocutory disputes over the existence of a valid arbitration agreement. (186) A few Canadian decisions seem to take into account the apparent strength of a jurisdictional objection, only finally resolving jurisdictional objections which are clear-cut, while referring other issues to arbitration. (187) On a close analysis, the general (albeit by no means unanimous) approach of Canadian courts to Article 8 appears to have been that a court has discretion to determine whether it is wiser to apply a prima facie or a full judicial review, depending upon the issues involved (e.g., validity/existence versus scope) and the strength of the arguments for and against the existence and applicability of an page "888" arbitration agreement. (188) Canadian courts have also held, in some cases, that parallel judicial and arbitral proceedings on jurisdictional issues are permissible. (189) At the same time, other approaches have also been adopted by Canadian courts. For example, in Dell Computer Corp. v. Union des Consommateurs, the Canadian Supreme Court considered whether, under Quebec's version of the Model Law, a challenge to the validity and legality of an arbitration clause (in a consumer contract) should be resolved in the first instance by Canadian courts or by the arbitral tribunal. (190) The Court held that, where only issues of law were involved, full interlocutory judicial review is required, but that where issues of fact or issues of mixed law and fact are concerned, prima facie judicial review is appropriate. (191) Thus, the Court in Dell Computer adopted “a general rule that in any case involving an arbitration clause, a challenge to the arbitrator's jurisdiction must be resolved first by the arbitrator,” and that a court “should depart from the rule of systematic referral to arbitration only if the challenge to the arbitrator's jurisdiction is based solely on a question of law.” (192) The Court justified this approach on the grounds of “the courts' expertise in resolving such questions [of law], … the fact that the court is the forum to which the parties apply just when requesting referral and, … the rule that an arbitrator's decision regarding his or her jurisdiction can be reviewed by a court.” (193) Hong Kong courts have adopted a prima facie judicial review http://www.kluwerarbitration.com/CommonUI/print.aspx
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standard more generally, including in cases involving disputes over the existence and validity of the arbitration agreement. In Pacific Int'l Lines (Pte) Ltd v. Tsinlien Metals and Minerals Co., (194) for example, the claimant initiated arbitration pursuant to an arbitration agreement contained in a charter party. The defendant refused to participate in the arbitral proceedings, and the claimant applied to the Hong Kong High Court for appointment of an arbitrator. Rejecting the argument that there was no valid arbitration agreement, the Court ordered the defendant to appoint an arbitrator, because it was page "889" “satisfied that there is a plainly arguable case to support the proposition that there was an arbitration agreement which complies with Art. 7 of the Model Law, [and therefore] should proceed to appoint the arbitrator in the full knowledge that the defendants will not be precluded from raising the point before the arbitrator and having the matter reconsidered by the court consequent upon that preliminary ruling.” (195) Other Hong Kong courts have even more explicitly adopted the prima facie standard of interlocutory judicial review under Article 8(1), including in cases involving disputes over the existence and validity of the arbitration agreement. (196) They have reasoned that “[i]f the judgment were to go into the matter more deeply, [the court] would in effect be usurping the function of the arbitrator.” (197) Finally, a recent decision of the Indian Supreme Court apparently also adopts a prima facie standard for all jurisdictional objections, including formation, validity and scope. In Shin-Etsu Chemical Co. v. Aksh Optifibre Ltd, the Court held: “Undoubtedly, an international commercial arbitration involves huge expenses, particularly where the parties have subjected the contract to a foreign law. But, that cannot be a deterrent to this Court from pronouncing on the correct approach to be adopted under Sect. 45 of the Act [equivalent to Article 8 of the Model Law]. In fact, … adopting a final and determinative approach under Sect. 45 may not only prolong proceedings at the initial stage but also correspondingly increase costs and uncertainty for all the parties concerned. Finally, having regard to the structure of the Act, consequences arising from particular interpretations, judgments in other jurisdictions, as well as the opinion of learned authors on the subject, I am of the view that, the correct approach to be adopted under Sect. 45 at the pre-reference stage, is one of a prima facie finding by the trial court as to the validity or otherwise of the arbitration agreement.” (198) page "890" Among other things, the Court relied on decisions in Canada and Hong Kong adopting an interlocutory primafacie analysis. (199) Nonetheless, where Indian courts are requested to appoint an arbitrator, it appears that they will conduct full interlocutory judicial consideration as to whether there is a valid agreement to arbitrate. (200)
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d. Potentially Different Treatment of Challenges to Existence, Validity, or Legality of Arbitration Agreement and to Scope of Arbitration Agreement under the Model Law Another area of uncertainty under the Model Law is whether the same treatment should be accorded by arbitral tribunals and national courts to all jurisdictional objections, regardless whether they are directed towards (a) the existence, validity, or legality of an arbitration agreement, or (b) the scope of an arbitration agreement. This is an issue that has received limited attention, but that has important practical and analytical consequences. A convincing argument can be made, based on the text of the Model Law, that an interlocutory judicial decision on jurisdictional issues under Article 8(1) is contemplated only in circ*mstances where the existence or validity of the arbitration agreement is challenged, as distinguished from a jurisdictional challenge concerning the scope of an admittedly valid agreement. That is indicated (but not conclusively) by Article 8(1)'s requirement that a court refer the parties to an action to arbitration “unless it finds that the agreement is null and void, inoperative or incapable of being performed”; (201) in contrast, Article 8(1) does not appear to permit a court to retain jurisdiction over a dispute because it concludes that a claim falls outside the page "891" scope of the arbitration agreement. (202) According to this interpretation, in cases where only a dispute about the scope of a valid, operative arbitration agreement is concerned, then Article 8(1) requires that the court refer the parties to arbitration without resolving that type of jurisdictional objection (save, arguably, where it is manifest that no possible interpretation of the arbitration clause would encompass the claims). (203) This textual distinction finds some support in the language of Articles 34 and 36 of the Model Law, both of which make express reference to arbitral awards which “deal[] with a dispute not contemplated by or not falling within the terms of the submission to arbitration.” (204) Comparable text is conspicuously missing from Article 8 of the Model Law, lending force to an interpretation that would leave disputes over scope to the arbitral tribunal, subject only to subsequent judicial review under Articles 34 or 36. The foregoing interpretation of Article 8(1) rests on the distinction between a jurisdictional challenge that denies the existence or validity of any arbitration agreement at all, and one that accepts the existence of a valid arbitration agreement, but disputes its scope. Under this interpretation, the former category of jurisdictional objections would be for full interlocutory judicial consideration, while the latter would be for initial determination by the arbitrators (or, arguably, only prima facie interlocutory judicial review). Also arguing for this interpretation is the fact that the latter category of jurisdictional objection is far more limited in nature and in consequences than the former, and proceeds from a fundamentally different starting point regarding the page "892" parties' relations. The latter category of jurisdictional objection starts from an accepted premise that the parties made a commitment to arbitrate with one another, before a tribunal in an agreed manner, about at least some category of disputes, but that they now disagree regarding the precise scope of their tribunal's jurisdiction. This differs fundamentally from a dispute as to whether the parties ever made http://www.kluwerarbitration.com/CommonUI/print.aspx
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any agreement with one another or whether an arbitral tribunal can validly do anything at all. Deciding jurisdictional objections about the scope of the arbitration agreement is also inextricably intertwined with the tribunal's conceded mandate of interpreting and applying the parties' underlying contract and the provisions of applicable law. (205) Given these characteristics of jurisdictional objections based upon the scope of the arbitration clause, it makes eminent sense that the Model Law would not provide for interlocutory judicial consideration of such issues, but would instead provide for the arbitral tribunal first to issue a jurisdictional award. This interpretation of the Model Law has been adopted in at least some national court decisions. In Rio Algom Ltd v. Sammi Steel Co. Ltd, (206) the purchaser referred a post-acquisition dispute to arbitration under a share purchase agreement. The seller refused to participate in the arbitration and commenced an action before the Ontario courts challenging the jurisdiction of the arbitral tribunal. The Ontario appellate court ordered the parties to arbitrate, reasoning that: “jurisdiction and scope of authority are for the arbitrator to determine in the first instance, subject to later recourse to set aside the ruling or award. The role of the court before arbitration appears to be confined to determining whether the arbitration clause is null and void, inoperative or incapable of being performed (Art. 8) – if not, it is mandatory to send the parties to arbitration.” (207) Other Canadian decisions adopt similar analyses, holding that it is generally for the arbitral tribunal to determine the scope of the arbitration agreement (save where it is clear that a dispute falls outside that agreement), while it is for the courts to determine the existence and validity of the arbitration agreement. (208) A few page "893" Canadian decisions have reached contrary conclusions, but they are less convincingly reasoned. (209) In sum, the language and the purposes of the Model Law support a distinction between jurisdictional objections based on the alleged non-existence, invalidity, or illegality of the arbitration agreement (where immediate judicial determination on the merits is permitted) and jurisdictional objections based upon the scope of a concededly valid arbitration agreement (where interlocutory judicial determination is not permitted, save in instances where it is manifest that the arbitration clause does not encompass the matter in question). That distinction also finds support in the weight of betterreasoned national court authority in Model Law jurisdictions, albeit not uniformly applied or clearly articulated. e. Judicial Review of Positive Jurisdictional Awards under the Model Law The Model Law also does not expressly address the standard of judicial review that will apply to positive jurisdictional awards. The text of Article 16(3) arguably implies de novo judicial review (by providing that the dissatisfied party may request “the court specified in Article 6 to decide the matter”). (210) Equally, the language of Articles 34(2)(a)(i) and (iii), which permit the annulment of awards on jurisdictional grounds, arguably implies de novo judicial review (by http://www.kluwerarbitration.com/CommonUI/print.aspx
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simply stating the grounds on which an award may be set aside, without any reference to deference to arbitral determinations). (211) On the other hand, nothing in the Model Law expressly resolves this issue or prescribes the standard of judicial review of jurisdictional awards. As an eminent commentator on the Model Law explained regarding the drafting process, “it proved difficult … to reach agreement on the … scope of court review.” (212) Similarly, the Model Law does not address the question whether different standards of judicial review apply to awards depending on the jurisdictional issues addressed in those awards. In particular, suppose that the parties are agreed that they have entered into a valid arbitration agreement and that the arbitral tribunal page "894" has competence-competence to determine the scope of that arbitration agreement; query what standard of judicial review should apply to a subsequent positive jurisdictional award by the arbitrators in these circ*mstances. In contrast, suppose that one party denies that it ever entered into any contract (either underlying contract or arbitration agreement) with its alleged counter-party and that the purported arbitral tribunal has any jurisdiction whatsoever over it; again, query what standard of judicial review should apply to this determination. The text of the Model Law provides no express guidance in dealing with the foregoing issues. It is noteworthy, however, that Article 34 of the Model Law contains two separate provisions dealing separately with annulment based upon the lack of a valid arbitration agreement (Article 34(2)(a)(i)) and based upon an award that exceeds the scope of the arbitration agreement (Article 34(2)(a)(iii)). (213) That structure at least impliedly suggests that the two categories of jurisdictional awards may be treated differently. (214) Finally, as discussed below, it is clear that the burden of proof under Articles 34(2)(a)(i) and (iii) is on the award-debtor to demonstrate that an arbitral tribunal lacked jurisdiction. (215) This allocation of the burden of proof differs, at least in states where courts consider jurisdictional objections on the merits, from the treatment of challenges to the existence or validity of an arbitration prior to the making of any jurisdictional award. (216) This shifting of the burden of proof can have important consequences, both as a formal and a practical matter. f. Judicial Review of Negative Jurisdictional Determinations by Arbitral Tribunal under the Model Law The Model Law also does not expressly address the availability of judicial review of an arbitral tribunal's negative jurisdictional determination (i.e., awards holding that there is no valid arbitration agreement or that the parties' dispute falls outside the scope of such an agreement). As noted above, Article 34(2)(a) contains provisions (sub-paragraphs (i) and (iii)) that obviously apply to positive jurisdictional determinations, (217) but these provisions do not by their terms apply to negative jurisdictional determinations. The drafting history of the Model Law is also page "895" inconclusive regarding the availability (and scope) of judicial review of negative jurisdictional decisions. (218) There is little national court authority in Model Law states regarding http://www.kluwerarbitration.com/CommonUI/print.aspx
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the availability or scope of judicial review of negative jurisdictional determinations by arbitral tribunals. One problematic exception is a 2002 decision of the German Bundesgerichtshof, also discussed below, holding that there is no possibility of judicial review of a negative jurisdictional award. (219) That decision is supported as a textual matter by the absence of express language in the Model Law that would provide a basis, or mechanism, for annulling a negative jurisdictional determination. (220) It is contradicted, however, by the grave unfairness and inefficiency that would attend such a result (also discussed below). (221) It is also contradicted by decisions providing for judicial review of negative jurisdictional awards in other jurisdictions that are based on the UNCITRAL Model Law, (222) as well as judicial decisions and national arbitration legislation in nonModel Law jurisdictions (including Switzerland, (223) Belgium, (224) Sweden, (225) France, (226) England, (227) page "896" the (228) (229) United States and Italy ). The Bundesgerichtshof's decision considered an arbitral tribunal's decision, in an instrument titled “preliminary procedural ruling – interim decision,” (230) where the tribunal held that it lacked jurisdiction. The Bundesgerichtshof first held that the tribunal's “decision” was in fact an award, however it might have been titled by the arbitrators, because it was an exercise of the tribunal's competence-competence to determine its own jurisdiction. (231) In reaching the foregoing conclusion, the German court correctly rejected the views of Professor Sanders that “arbitrators issuing a negative ruling declare that they are not in a position to render an award.” (232) This view misconceives the nature of the competencecompetence doctrine, which provides that arbitrators do have the power to consider and decide jurisdictional objections (233) – and thus, that they are “in a position to render an award” on such objections, whether positively or negatively. In particular, Professor Sanders' view ignores the fact that national (and international) legal regimes grant an arbitral tribunal the power to consider and decide jurisdictional issues, specifically, in Article 8 of the Model Law and its counterpart in §1040(1) of the German ZPO. The fact that the exercise of this power results in a determination of no jurisdiction in no way contradicts or undermines the existence of this power, but is rather an inevitable consequence of it. (234) Despite the foregoing, the Bundesgerichtshof's 2002 decision then went on to hold that there was no basis under German law to annul a negative jurisdictional award. The court held that, in principle, a negative jurisdictional award could be annulled under §1059 of the ZPO (the equivalent to Article 34 of the Model Law). (235) page "897" But the court then concluded that there were no grounds under §1059(2) (and, by analogy, Article 34(2) of the Model Law) for annulling an award because it reached an incorrect negative jurisdictional determination. (236) The court acknowledged, of course, that an award that contained a separate defect under §1059(2) (or Article 34(2)) could be annulled on those grounds (e.g., a defect in arbitral procedures or constitution of the tribunal). But the Bundesgerichtshof reasoned that there was no basis for either de novo or any other substantive review of an arbitral tribunal's determination that it lacked jurisdiction. (237)
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In support of this decision, which is subject to serious criticisms, the Bundesgerichtshof adopted an archaic rationale that is badly out of step with both Germany's adoption of the Model Law and international developments over the past several decades. Specifically, the Bundesgerichtshof reasoned that there was no real need for judicial review of a negative jurisdictional determination, because such a decision merely returned the parties to their “lawful judge,” being national courts. (238) This is a profoundly unsatisfactory conception of international arbitration. It is contradicted by the frequency with which commercial parties choose arbitration to resolve their international business disputes, (239) by the powerful “pro-arbitration” policies underlying the New York Convention and the Model Law (240) and by the incongruities of referring to a “lawful judge” in international disputes (where there are inevitably multiple potentially “lawful judges,” which is precisely one of the reasons that parties agree to arbitrate such disputes). (241) Although the text of the Model Law (and particularly Article 34(2)) does not provide expressly for judicial review of negative jurisdictional determinations, such review can readily be accommodated by the Law. (242) In particular, Article 34(2)(a)(iv) provides for annulment of awards where “the arbitral procedure was not in accordance with the agreement of the parties.” (243) Although directed towards circ*mstances where a tribunal fails to follow specified procedures, set forth in the parties' arbitration agreement, (244) there is no reason that this text does not also apply to cases where a tribunal fails entirely to give effect to the agreed dispute resolution procedure of arbitration by wrongfully declining jurisdiction. It would be ironic, and contrary to the purposes of the Model Law and the interests of justice, to provide page "898" less judicial review for a wrongful refusal to give any effect to the arbitration agreement, than for a refusal to apply a particular procedural aspect of that agreement. g. Agreements to Arbitrate Jurisdictional Objections under the Model Law A final area of uncertainty under the Model Law is the effect, if any, of agreements to arbitrate jurisdictional objections. Suppose, for example, that parties expressly agree in a valid arbitration agreement that they will submit any disputes about the scope of their arbitration agreement to the arbitral tribunal. Such an agreement gives rise to questions as to (a) the parties' right to seek interlocutory judicial determination of jurisdictional objections under Article 8(1), and (b) the standard of subsequent judicial review of a jurisdictional award. There is little precedent on these subjects under the Model Law and what authority exists is divided. As discussed below, German authorities reason (wrongly) that, under Germany's enactment of the Model Law, the traditional German conception of KompetenzKompetenz has been abrogated and cannot be adopted even by express agreements granting arbitrators the power to make final determinations of their own jurisdiction. (245) In contrast, English courts have interpreted England's variation of the Model Law as permitting agreements that grant arbitral tribunals the power to make final jurisdictional decisions. (246) The latter view is clearly preferable, for reasons elaborated below. (247) page "899" http://www.kluwerarbitration.com/CommonUI/print.aspx
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2. Competence-Competence under French Law French law has adopted an influential approach towards competence-competence issues, which has been followed (in some respects), in Switzerland, India, Hong Kong, Canada and elsewhere. (248) Under this approach, arbitral tribunals seated in France may consider jurisdictional objections and, conversely, national courts generally may not do so prior to a jurisdictional award by the tribunal. (249) This rule is subject to two principal exceptions: (a) a court will consider whether there is prima facie evidence of an arbitration agreement if the arbitral process has not yet been commenced; and (b) a court will consider whether or not the arbitration agreement is “patently void” if it is requested to provide assistance to the arbitral process (e.g., to appoint an arbitrator). Once the arbitral process commences, however, a French court will refer the parties to a dispute to arbitration, without conducting any inquiry at all into the existence or validity of an arbitration agreement. (250) Article 1466 of the French New Code of Civil Procedure expressly authorizes a domestic French arbitral tribunal to rule on its own jurisdiction. (251) The same principle applies to international arbitrations seated in France or subject to French law. (252) This provision grants arbitral tribunals competence to consider and decide page "900" disputes over their own competence (the socalled positive aspect of competence-competence). This power is affirmatively granted by French statute to all arbitral tribunals seated in France, without requiring that the parties' agreement independently confer such authority. (253) Additionally, Article 1458(2) of the New Code of Civil Procedure provides that French courts must decline jurisdiction over disputes that have already been submitted to arbitration. (254) This principle, which reflects the negative effect of an arbitration agreement, has also been held applicable in international arbitrations. (255) Accordingly, once an arbitration has been commenced, a court must refer disputes putatively covered by the arbitration agreement to arbitration, without conducting any inquiry into either the merits of such disputes or the existence, validity, legality, or scope of the arbitration agreement. (256) In a series of decisions rendered during the 1990s, French courts extended the negative effects of a putative arbitration agreement beyond those prescribed by Article 1458. These decisions held that, even if a dispute has not yet been submitted to arbitration, French courts must decline jurisdiction if the dispute is subject to an page "901" arbitration agreement that is not “manifestly null.” (257) Indeed, French courts have gone further and held that, even when called upon to provide judicial assistance in aid of the arbitral process (for example, by appointing an arbitrator), they will only make a prima facie inquiry whether there is a valid arbitration agreement. (258) Accordingly, the general rule in France is that parties may not obtain judicial resolution of jurisdictional disputes until after an arbitral tribunal has ruled on the issue. This rule apparently applies to all categories of jurisdictional objections – including challenges to the http://www.kluwerarbitration.com/CommonUI/print.aspx
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existence and validity of an arbitration agreement, as well as to the scope of an admittedly valid clause, and challenges raising purely legal (rather than factual) issues. (259) This rule is expressly motivated by concerns about delaying tactics, which are often at issue where a respondent in potential or actual arbitral proceedings institutes a judicial challenge to the tribunal's jurisdiction. (260) Following a tribunal's jurisdictional award, the parties to an arbitration seated in France are able to obtain judicial review of the tribunal's determination in a French court under Article 1502 of the New Code of Civil Procedure. The review of a jurisdictional award by French courts is de novo. (261) As the Cour de cassation page "902" has declared: “it is for the court to construe the contract in order to determine itself whether the arbitrator ruled in the absence of an arbitration clause, (262) and there is no “limitation to the capacity of its [i.e., Paris Cour d'appel] jurisdiction to seek in right and facts all the elements concerning the defects in question; that in particular, it is within its powers to interpret the contract in order to determine itself if the arbitrator ruled without arbitration agreements.” (263) It appears to be settled that French courts have the same power to review negative jurisdictional determinations by an arbitral tribunal as applies to positive determinations. (264) Finally, it is unclear what the effect under French law is of an arbitration agreement that confers on the arbitral tribunal the power finally to decide jurisdictional disputes. In principle, for the reasons discussed elsewhere, such an agreement should be treated like other arbitration agreements – that is, given effect to preclude judicial consideration of the jurisdictional issues to which it applies and to preclude any subsequent judicial review of the merits of the jurisdictional issues decided by the arbitral tribunal. (265) The general emphasis on party autonomy under French arbitration law (266) argues strongly for the conclusion. Nonetheless, French page "903" courts have not yet clearly addressed the issue and it is uncertain whether they would adopt this view. 3. Competence-Competence under Swiss Law Swiss authorities have recognized some version of the competencecompetence doctrine for more than a century. The doctrine was applied by courts in Switzerland prior to the adoption of the Swiss Law on Private International Law, under both the 1969 Cantonal Concordat (267) and much earlier. (268) The Swiss Law on Private International Law expressly provides for the competence-competence of international arbitral tribunals seated in Switzerland in Article 186(1): “[t]he arbitral tribunal shall decide on its own jurisdiction.” (269) Article 186(3) also requires that “[a]s a rule the arbitral tribunal decides on its jurisdiction by interim award.” (270) These provisions make it clear that arbitrators may consider and decide upon their own jurisdiction and leave little doubt that arbitral proceedings on the merits of the parties' dispute may continue notwithstanding a party's jurisdictional objections. (271) Recent amendments to the Swiss Law on Private International Law also confirmed the authority of arbitral tribunals to continue with page "904" the arbitral proceedings, including consideration of jurisdictional issues, notwithstanding pending proceedings on the http://www.kluwerarbitration.com/CommonUI/print.aspx
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same jurisdictional matters in a national court. (272) At the same time, Article 7 of the Swiss Law on Private International Law provides that “[i]f the parties have concluded an arbitration agreement covering an arbitrable dispute, a Swiss court seized of it shall decline jurisdiction unless … (b) the court finds that the arbitral agreement is null and void, inoperative or incapable of being performed.” (273) Read literally, this language would appear to grant parties access to interlocutory judicial determinations of jurisdictional objections (i.e., “the court finds that the arbitral agreement is null and void” etc.), and not require them to proceed with jurisdictional objections before the arbitral tribunal prior to the outcome of a challenge to the arbitrator's jurisdiction in a Swiss court. (274) Nonetheless, a series of decisions by the Swiss Federal Tribunal during the mid-1990s interpreted Articles 7 and 186 of the Swiss Law on Private International Law as limiting the judicial role, prior to the arbitrator's jurisdictional award, to ascertaining the prima facie existence and validity of an agreement to arbitrate where the arbitral seat was in Switzerland (but not where the arbitral seat was abroad). (275) This approach partially parallels that of the French courts (as described page "905" above). (276) Under this analysis, Swiss courts have engaged in interlocutory judicial determinations of jurisdictional issues only on a prima facie basis, in relation to all categories of jurisdictional objections, provided that the putative arbitral seat would be in Switzerland. (277) Where the putative arbitral seat would be outside of Switzerland, however, Swiss courts have not applied a prima facie standard, and have instead conducted a de novo inquiry into the merits of jurisdictional objections. (278) The reason for distinguishing between arbitrations seated in Switzerland and those abroad lies in the ability of Swiss courts to review any ultimate jurisdictional determination. (279) Swiss courts reason that, where an arbitration is conducted abroad, staying interlocutory Swiss judicial review of jurisdictional objections may mean that no such review by a Swiss court will ever occur: specifically, the arbitral award will be subject to annulment only in foreign courts (in the foreign arbitral seat) (280) and may then be recognized and enforced in that or another foreign court, (281) with Swiss courts never being provided an opportunity to review the tribunal's jurisdictional determination. (282) In these circ*mstances, the Swiss courts would have denied a party access to (Swiss) justice, based solely on a prima facie review of the arbitration agreement, without ever confirming that such an agreement actually existed; this is seen as unwise and contrary to Swiss principles of access to justice. (283) page "906" As under Article 16(3) of the UNCITRAL Model Law, an arbitral award on jurisdiction is immediately appealable to the Swiss Federal Tribunal under Article 190 of the Swiss Law on Private International Law. (284) Under Swiss law, judicial review of an arbitral award on jurisdictional issues is generally limited to matters of law (and not factual findings by the arbitrators). (285) As to legal matters, the Swiss Federal Tribunal “is free to examine certain preliminary issues of substantive law, but only insofar as they need to be resolved in order to rule on the jurisdiction or lack of jurisdiction of the arbitral http://www.kluwerarbitration.com/CommonUI/print.aspx
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tribunal.” (286) As the text of Article 190(2)(b) makes clear, judicial review is available for negative, as well as positive, jurisdictional awards. (287) It is unclear how Swiss courts would treat an agreement to arbitrate jurisdictional disputes. In principle, the allocations of competencecompetence in Articles 186 and 190(2) of the Swiss Law on Private International Law are mandatory and cannot be varied by agreement. (288) As discussed below, however, Article 192 provides that non-Swiss parties may waive the right to seek annulment of an award, or to exclude some of the generally-applicable grounds for annulment. The effect of this provision would appear to be to allow the arbitral tribunal to make a final decision on its own jurisdiction in at least some cases. (289) 4. Competence-Competence under German Law As noted above, Germany was the original source of the “Kompetenz-Kompetenz” doctrine, which was understood as authorizing the parties to grant arbitrators the page "907" ultimate power to determine their own jurisdiction. (290) Historically, German courts held that “parties to an arbitration agreement are free to stipulate that it should be for the arbitrators to make a binding decision on the existence, the validity and scope of an arbitration agreement.” (291) In adopting the UNCITRAL Model Law (in 1998), however, Germany apparently abandoned its historical approach, while also altering the Model Law's general treatment of the competence-competence doctrine to adopt a sui generis jurisdictional regime. (292) First, with regard to parties' agreements to submit jurisdictional disputes to arbitration, it is said that the new German legislation has the effect that “the parties will no longer be authorized to exclude the competence of the German courts” and “the arbitrator's decision on his competence is always provisional.” (293) Ironically, barely two years after the U.S. Supreme Court adopted at least this aspect of the German Kompetenz-Kompetenz doctrine (in the First Options decision discussed below (294) ), German law was apparently trading places and abandoned this approach. More generally, the 1998 German legislation adopted Article 16 of the UNCITRAL Model Law, which grants arbitrators the power to decide on their own jurisdiction, but also introduced additional provisions addressing the question of when parties may obtain judicial consideration of jurisdictional disputes. Under the German legislative approach, the level of interlocutory judicial review of page "908" jurisdictional objections depends upon the time at which an application for judicial intervention is sought, but in general permits interlocutory judicial consideration of jurisdictional objections. (295) Specifically, §1032(2) of the German ZPO provides that “[p]rior to the constitution of the arbitral tribunal, an application may be made to the court to determine whether or not arbitration is admissible.” (296) The court's assessment of the jurisdictional challenge at this stage is on the merits of the jurisdictional question, rather than a mere inquiry into whether there is a prima facie basis for jurisdiction.
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(297) This contrasts with the approach under the French New Code
of Civil Procedure, where Article 1458 permits only prima facie review prior to commencement of the arbitration. (298) After an arbitral tribunal has been constituted, the parties' rights under German law with regard to jurisdictional challenges are altered: once the tribunal is constituted, §1032(2) ceases to apply and a party can obtain an interlocutory judicial determination of a jurisdictional objection only by commencing an action on the merits, i.e., by initiating court proceedings relating to the same subject matter that is before the tribunal. If the other party then objects to the jurisdiction of the court by invoking the arbitration agreement in the court proceedings (§1032(1)), the court must decide on the question whether there is a valid arbitration agreement. Again, the court's decision will not be of a prima facie character, but will be binding both on the parties and on the arbitral tribunal. (299) Again, this contrasts with the French page "909" approach, where no judicial consideration of jurisdictional challenges is permitted after an arbitration is commenced, (300) and the Hong Kong and Indian approaches, where only primafacie interlocutory judicial consideration is available. (301) Additionally, §1040(3) of the German ZPO provides that, following a preliminary affirmative jurisdictional award by the tribunal, immediate and expedited judicial review may be sought and obtained from an appellate court (§1062(1)). As with the Model Law, the object of this provision is to obtain prompt judicial resolution of any jurisdictional disputes. (302) It seems clear that the standard of judicial review of a positive jurisdictional award, upholding the tribunal's competence, is de novo. (303) While one of the above actions is pending before a German court the arbitral tribunal may continue proceedings and decide on questions of its jurisdiction. Once a positive jurisdictional award, or a final award, has been issued, its annulment can be sought in a German court on the basis that the tribunal lacked jurisdiction. (304) Finally, as discussed above, German courts have held that there is no possibility for any judicial review of negative jurisdictional determinations by an arbitral tribunal. In particular, a 2002 decision of the German Bundesgerichtshof held that the lower courts had properly rejected an application to annul an arbitral tribunal's decision that there was no valid arbitration agreement. (305) In denying any grounds for judicial review of a negative jurisdictional award, the Bundesgerichtshof unwisely departed from approaches in most other developed jurisdictions and the pro-arbitration objectives of the New York Convention and Model Law. (306) In contrast to the German approach, most other legal regimes provide for the same degree of judicial review of all jurisdictional determinations by arbitral tribunals, whether positive or negative. (307) That accords with principles of equal treatment of the parties, as well as with the position of arbitration as a preferred or at least co-equal means of international dispute resolution. page "910" 5. Competence-Competence under U.S. Law Unlike the UNCITRAL Model Law, and the French, German and http://www.kluwerarbitration.com/CommonUI/print.aspx
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Swiss arbitration legislation, the text of the FAA in the United States provides only limited guidance concerning the competencecompetence doctrine. In the absence of statutory guidance, U.S. courts have developed a substantial body of case law that addresses various aspects of the competence-competence doctrine. (308) This case law provided the basis for the U.S. Supreme Court's 1995 decision in First Options of Chicago, Inc. v. Kaplan, (309) and a series of subsequent Supreme Court decisions, which collectively state the current U.S. approach to the competence-competence doctrine, applicable in both domestic and international cases. The approach to competence-competence adopted in First Options and other U.S. decisions is complicated and has provoked a substantial degree of commentary, more often critical than positive. (310) It is true that there are areas where the First Options analysis could be materially improved. On careful consideration, however, the First Options approach bears important resemblances to those in other jurisdictions. Overall, the approach has much to recommend it as a starting point for dealing with competence-competence issues. a. Pre-First Options Authority in the United States Initially, unlike the UNCITRAL Model Law, and most other developed arbitration statutes, nothing in the FAA affirmatively grants an arbitral tribunal competence-competence. Conversely, nothing in the text of the FAA purports affirmatively to prevent an arbitral tribunal from preliminarily considering whether an arbitration agreement is valid or applicable to the parties' dispute, provided that page "911" such jurisdictional issues fall within the scope of the arbitration agreement or are submitted by the parties to the tribunal. (311) At the same time, as discussed elsewhere, the FAA's text does expressly address the competence of U.S. courts to consider objections to an arbitrator's jurisdiction. Thus, §3 and §4 of the FAA provide that a litigation in U.S. courts must be stayed, and the parties referred to arbitration, (312) only “upon [the court] being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an [arbitration] agreement” (313) and “upon [the court] being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue.” (314) This statutory language has the effect, even more explicitly than that of Article 8 of the UNCITRAL Model Law, (315) of granting U.S. courts competence over jurisdictional disputes regarding the existence and validity of the putative agreement to arbitrate. In the absence of legislative guidance with regard to the arbitrator's jurisdictional competence, U.S. courts have consistently acknowledged the power of arbitral tribunals to consider their own jurisdiction. (316) On the other hand, relying on §§3 and 4 of the FAA, U.S. courts have also frequently held that interlocutory judicial consideration of jurisdictional issues could proceed prior to a jurisdictional award by the arbitral tribunal (317) and that jurisdictional disputes were ultimately issues for judicial (not arbitral) resolution. (318) In one court's words, U.S. law generally page "912" “allows an objecting party to seek judicial determination of the scope of consent either before, during or after an arbitration.” (319) http://www.kluwerarbitration.com/CommonUI/print.aspx
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Thus, interpreting specialized domestic legislation similar to the FAA, the Supreme Court held in AT&T Technologies, Inc. v. Communications Workers of America, that “the question of arbitrability – whether [an] agreement creates a duty for the parties to arbitrate a particular grievance – is undeniably an issue for judicial determination.” (320) Explaining one of its earlier decisions, (321) the Court reasoned in AT&T Technologies that: “The “threshold question” there was whether the court or an arbitrator should decide if arbitration provisions in a … contract survived a corporate merger so as to bind the surviving corporation. The Court [in John Wiley ] answered that there was “no doubt” that this question was for the courts. “Under our decisions, whether or not the company was bound to arbitrate, as well as what issues it must arbitrate, is a matter to be determined by the Court on the basis of the contract entered into by the parties.” … The duty to arbitrate being of contractual origin, a compulsory submission to arbitration cannot precede judicial determination that the collective bargaining agreement does in fact create such a duty.” (322) Historically, most lower court decisions under the FAA expressly or impliedly reached the same conclusion as AT&T Technologies, affording the parties the right to judicial resolution of claims that an arbitration agreement was non-existent, invalid, or inapplicable and permitting such judicial resolution to occur prior to any arbitral determination of the issue. (323) This was a relatively conservative view of page "913" arbitral authority, which provided for full interlocutory judicial consideration and disposition of many jurisdictional disputes. AT&T Technologies was not the only approach taken by U.S. courts to the subject of competence-competence. Historically, a number of U.S. courts held that disputes about the scope of an arbitration agreement that concededly existed and was valid were for resolution by the arbitrators, provided only that such jurisdictional disputes fell within the scope of the parties' arbitration agreement. (324) Additionally, as discussed above, applying the separability presumption, (325) many U.S. courts also held that disputes about the existence or validity of the parties' underlying contract were for resolution by the arbitrators (again, provided that such issues fell within the parties' arbitration agreement). (326) b. First Options: Agreements to Arbitrate Jurisdictional Objections These historic authorities were overtaken by the U.S. Supreme Court's 1995 decision in First Options, which is the basis for the current position under the FAA with regard to the allocation of competence between arbitrators and courts to resolve jurisdictional disputes. (327) The Court's opinion in First Options places substantial page "914" emphasis on the terms of the parties' arbitration agreement, both express and implied. Ironically, and although not acknowledged by the U.S. Supreme Court, its analysis in First Options closely tracked the historic approach of German courts to the question of competence-competence; (328) perhaps http://www.kluwerarbitration.com/CommonUI/print.aspx
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more ironically, as noted above, the German legislature was in the process, at the moment First Options was decided, of abandoning its historic Kompetenz-Kompetenz approach (permitting binding agreements to arbitrate jurisdictional objections) in favor of a modified version of the UNCITRAL Model Law, which prescribed in mandatory terms the allocation of jurisdictional competence between arbitral tribunals and national courts. (329) The First Options decision adopted or confirmed a number of important propositions relating to the U.S. view of competencecompetence. The most important of these are summarized below. First, the Court's opinion in First Options made it clear that the FAA permits an arbitral tribunal to consider and decide, potentially finally, on its own jurisdiction. In particular, the Court held that an arbitral tribunal's authority finally to decide its own jurisdiction under the FAA is principally a question of ascertaining what the parties' arbitration agreement provides. According to the First Options Court: “Just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute, … so the question who has the primary power to decide arbitrability turns upon what the parties agreed about that matter. Did the parties agree to submit the arbitrability question itself to arbitration?” (330)
Related to this holding, the First Options Court also set forth two presumptions for determining whether an agreement to arbitrate jurisdictional disputes – which the Court unhappily termed “arbitrability questions” (331) – exists: (a) proving the existence page "915" of an agreement to arbitrate disputes about an arbitral tribunal's jurisdiction requires “clear and unmistakable” evidence; and (b) the scope of an existent arbitration agreement should be interpreted broadly, in favor of “arbitrability.” (332) In the Court's words: “Courts should not assume that the parties agreed to arbitrate arbitrability unless there is “clea[r] and unmistakabl[e]” evidence that they did so. In this manner the law treats silence or ambiguity about the question “who (primarily) should decide arbitrability” differently from the way it treats silence or ambiguity about the question “whether a particular merits-related dispute is arbitrable because it is within the scope of a valid arbitration agreement” – for in respect to this latter question the law reverses the presumption.” (333)
Put differently, the First Options Court held that parties would be presumed not to have agreed to arbitrate jurisdictional disputes, and that clear evidence would be required to overcome this presumption. The First Options Court contrasted its approach to determining the existence of an agreement to arbitrate so-called “arbitrability” questions – which required clear evidence demonstrating such an agreement to arbitrate (334) – with its approach to determining the substantive scope of a concededly existent arbitration clause – which will be interpreted in favor of arbitration and require clear evidence that the parties did not intend to arbitrate. (335) The foregoing conclusions were the centerpiece of the First Options http://www.kluwerarbitration.com/CommonUI/print.aspx
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analysis, and form the basis for both the remainder of its opinion and for current U.S. treatment of competence-competence issues. page "916" c. First Options: Judicial Review of Jurisdictional Award Following from these conclusions, First Options also held that, if an arbitration agreement granted arbitrators the power to consider and decide their own jurisdiction, then their resulting jurisdictional award would be subject to the same highly deferential standard of judicial review applicable under the FAA to the merits of other arbitral awards. In the Court's words: “Did the parties agree to submit the arbitrability question itself to arbitration? If so, then the court's standard in reviewing the arbitrator's decision about that matter should not differ from the standard courts apply when they review any other matter that parties have agreed to arbitrate.” (336) The First Options Court went on to explain, “[i]f, on the other hand, the parties did not agree to submit the arbitrability question itself to arbitration, then the court should decide that question just as it would decide any other question that the parties did not submit to arbitration, namely independently.” (337) The Court concluded that “[t]hese two answers flow inexorably from the fact that arbitration is simply a matter of contract between the parties; it is a way to resolve those disputes – but only those disputes – that the parties have agreed to submit to arbitration.” (338) The First Options Court did not distinguish between – and its analysis would not admit of a distinction between – arbitral awards upholding and arbitral awards declining the arbitrators' jurisdiction. Where the parties have agreed to arbitrate jurisdictional issues, then there will be no scope for judicial review of either positive or negative jurisdictional determinations, save under the general “manifest disregard” standard historically applied in vacatur (annulment) actions by U.S. courts. (339) Conversely, where no such agreement exists, then the tribunal's award will be subject to vacatur under §10 of the FAA, including for either “excess of authority” or an “imperfect” execution of the tribunal's authority, resulting in the absence of a final and definite award. (340) page "917" Applying the foregoing analysis, the Court concluded in First Options that there was insufficient evidence that the respondents had agreed to arbitrate their objections to the tribunal's jurisdiction. The case involved a concededly existent and valid arbitration agreement between parties A and B, with A also asserting claims in the arbitration against the respondents, who were individual shareholders and officers in party B. The individual respondents appeared before the tribunal and argued that they were not bound by the arbitration agreement between parties A and B, and the tribunal rejected their objections. (341) In subsequent litigation by the individual respondents to vacate the award against them, it was argued that, by appearing in the arbitration to contest jurisdiction, the individual respondents had accepted the arbitrators' jurisdiction to determine their own jurisdiction. (342) The Supreme Court rejected the conclusion of the http://www.kluwerarbitration.com/CommonUI/print.aspx
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lower court, which had accepted this argument and which had therefore held that the respondents were bound by the tribunal's jurisdictional determination. The Court concluded that there was no evidence showing that the respondents “clearly agreed to have the arbitrators decide (i.e., to arbitrate) the question of arbitrability.” (343) In particular, “merely arguing the arbitrability issue to an arbitrator does not indicate a clear willingness to arbitrate that issue, i.e., a willingness to be effectively bound by the arbitrator's decision on the point,” but such action on the contrary indicated that the respondents “did not want the arbitrators to have binding authority over them.” (344) Following First Options, the Court's analysis has been repeatedly relied on, despite its arguable status as dicta, by U.S. courts under the FAA to determine when an arbitral tribunal is authorized finally to decide jurisdictional issues. (345) The page "918" Supreme Court's analysis has also been relied on to determine the level of judicial review applicable to particular awards. (346) d. First Options' Progeny: Howsam, Pacificare and Green Tree The Supreme Court has sought to explicate First Options' dicta in several recent cases, presenting a series of related questions involving the competence-competence doctrine under the FAA. These decisions are essential to understanding and applying the First Options analysis. Taken together, they make clear that the showing required to establish an agreement to arbitrate jurisdictional objections is materially less formidable than might initially be suggested by First Options' requirement of “clear and unmistakable” evidence, and can instead often be satisfied by less direct proof; that is particularly true where there is no dispute as to the existence of an arbitration agreement and one party challenges some aspect of the arbitral procedure or tribunal's powers. These decisions also identify several specific categories of jurisdictional objections which, contrary to the broad language of First Options, are presumptively for the arbitral tribunal to decide. page "919" i. Howsam v. Dean Witter Reynolds In Howsam v. Dean Witter Reynolds, (347) the Supreme Court considered whether the interpretation and application of contractual time limits for asserting claims, contained in institutional arbitration rules (348) were matters for resolution by the arbitrators or by national courts. A lower court had concluded that the application of contractual time limits “presented a question of the underlying dispute's “arbitrability” [and that, under FirstOptions, ] the presumption is that a court, not an arbitrator, will ordinarily decide an “arbitrability” question.” (349) The Supreme Court reversed, holding that the question of contractual time limits was presumptively an issue for the arbitrators, not for a national court, to decide. The Court's reasoning in Howsam sought to explain, more generally, its analysis of competence-competence in First Options. The Court began by restating First Options' premises: “The question whether the parties have submitted a particular dispute to arbitration, i.e., the ‘question of arbitrability,’ is “an issue for judicial determination http://www.kluwerarbitration.com/CommonUI/print.aspx
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[u]nless the parties clearly and unmistakably provide otherwise.” [First Options, supra ]. We must decide here whether application of the [contractual] time limit provision falls into the scope of this last-mentioned interpretive rule.” (350) The Howsam Court then addressed how the First Options' analysis should be applied, and specifically whether or not the presumption of judicial (not arbitral) competence should be applied to contractual time limits for asserting a claim. The Court explained, as a matter of principle, that: “Linguistically speaking, one might call any potentially dispositive gateway question a “question of arbitrability,” for its answer will determine whether the underlying controversy will proceed to arbitration on the merits. The Court's case law, however, makes clear that, for purposes of applying the interpretive rule, the phrase “question of arbitrability” has a far more limited scope. The Court has found the phrase applicable in the kind of narrow page "920" circ*mstance where contracting parties would likely have expected a court to have decided the gateway matter, where they are not likely to have thought that they had agreed that an arbitrator would do so, and, consequently, where reference of the gateway dispute to the court avoids the risk of forcing parties to arbitrate a matter that they may well not have agreed to arbitrate.” (351) Following from this focus on the parties' likely expectations, the Court developed more specific applications of these observations: “a gateway dispute about whether the parties are bound by a given arbitration clause raises a ‘question of arbitrability’ for a court to decide. Similarly, a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy is for the court. See, e.g., [AT&T Techologies, supra] (holding that a court should decide whether a labor-management layoff controversy falls within the arbitration clause of a collective-bargaining agreement).… At the same time the Court has found the phrase ‘question of arbitrability’ not applicable in other kinds of general circ*mstance where parties would likely expect that an arbitrator would decide the gateway matter. Thus ““procedural’ questions which grow out of the dispute and bear on its final disposition’ are presumptively not for the judge, but for an arbitrator, to decide. [John Wiley, supra ] (holding that an arbitrator should decide whether the first two steps of a grievance procedure were completed, where these steps are prerequisites to arbitration). So, too, the presumption is that the arbitrator should decide ‘allegation[s] of waiver, delay, or a like defense to arbitrability.’” (352) With these statements of principle, the Howsam Court then held that issues of contractual time limitations for asserting claims in arbitration were properly categorized – like procedural requirements
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and waiver (353) – as matters presumptively for arbitral determination. Among other things, the Supreme Court reasoned that arbitral tribunals would have greater comparative expertise than courts in applying contractual terms, such as time limitations (particularly where these were incorporated from institutional arbitration rules). (354) The Court also referred to the provisions of the relevant NASD arbitration rules, which granted the arbitral tribunal jurisdiction to “interpret and determine the applicability of all provisions under” those rules. (355) Accordingly, the Court held that, “[i]n the absence of any statement page "921" to the contrary in the arbitration agreement, it is reasonable to infer that the parties intended the agreement to reflect that understanding.” (356) Thus, although arguably “jurisdictional” issues were involved, (357) the Howsam Court held that contractual time bars were presumptively for initial arbitral, rather than judicial, determination. ii. Pacificare Health Systems v. Book The Supreme Court next considered questions of competencecompetence in Pacificare Health Systems v. Book, holding unanimously that questions of the non-arbitrability of certain Racketeer Influenced and Corrupt Organizations Act (“RICO”) claims should be considered in the first instance by the arbitral tribunal. (358) The case arose when the defendants in a RICO action in the U.S. federal court sought to compel arbitration of the RICO claims against them; the plaintiffs responded by arguing that their RICO claims were non-arbitrable, allegedly because the parties' contracts contained prohibitions against punitive damages, which the arbitrators would purportedly enforce, thereby supposedly rendering the RICO claims non-arbitrable. (359) The Pacificare Court held that it was premature for a court to consider issues of non-arbitrability, and ordered that arbitration be compelled. It reasoned that, “since we do not know how the arbitrator will construe the remedial limitations [in the contract], the questions whether they render the parties' agreements unenforceable and whether it is for courts or arbitrators to decide enforceability in the first instance are unusually abstract.” (360) The Court acknowledged that the page "922" question of nonarbitrability could be considered an issue of jurisdiction, presumptively subject to judicial (rather than arbitral) determination, but rejected this: “Given our presumption in favor of arbitration, we think the preliminary question whether the remedial limitations [contained in the parties' contract] at issue here prohibit an award of RICO treble damages is not a question of arbitrability.” (361) The Court thus concluded that particular types of issues were presumptively for initial arbitral determination, notwithstanding the fact that they went to the enforceability of the arbitration agreement, on the grounds that the arbitrators were better situated to render a preliminary decision. iii. Green Tree Financial Corp v. Bazzle Finally, in Green Tree Financial Corp. v. Bazzle, (362) the Supreme Court considered whether a court, or the arbitrators, should decide whether an arbitration agreement permitted class arbitrations. (363) http://www.kluwerarbitration.com/CommonUI/print.aspx
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The case produced a badly-splintered series of opinions (4-1-3-1), with no single Justice commanding a majority of the Court. Four Justices held that it was for the arbitral tribunal to decide whether the parties' arbitration agreement provided for class arbitration. (364) Citing the respective competencies of courts and arbitral tribunals, they reasoned: “The question here – whether the contracts forbid class arbitration – does not fall into [the] narrow exception [identified in First Options for presumptive judicial determination]. It concerns neither the validity of the arbitration clause nor its applicability to the underlying dispute between the parties. Unlike First Options, the question is not whether the parties wanted a judge or an arbitrator to decide whether they agreed to arbitrate a matter. Rather the relevant question here is what kind of arbitration proceeding the parties agreed to. That question does not concern a state statute or judicial procedures. It concerns contract interpretation and arbitration procedures. Arbitrators are well situated to answer that question.” (365)
The plurality opinion also noted that the parties' arbitration agreement broadly submitted all disputes relating to the contract to arbitration, apparently concluding that this would have constituted an agreement to arbitrate questions concerning page "923" class arbitration regardless of the First Options presumption: “Given these considerations, along with the arbitration contracts' sweeping language concerning the scope of the questions committed to arbitration, this matter of contract interpretation should be for the arbitrator, not the courts, to decide.” (366) Justice Stevens concurred in the plurality's conclusion, thereby producing a majority result. Justice Stevens' concurring opinion indicated that the plurality's rationale was “arguably” correct, but rested his analysis on U.S. state law principles. (367) On this basis, a majority of the Court directed that the dispute concerning class arbitration be submitted to arbitration “so that the arbitrator may decide the question of contract interpretation – thereby enforcing the parties' arbitration agreements according to their terms.” (368) In contrast, three other Justices held that the question whether the parties' arbitration agreement permitted class arbitration was presumptively for interlocutory judicial determination. They reasoned that “the parties' agreement as to how the arbitrator should be selected is much more akin to the agreement as to what shall be arbitrated, a question for the courts under First Options, than it is to “allegations of waiver, delay, or like defenses to arbitrability,” which are questions for the arbitrator under Howsam.” (369) These Justices then (judicially) interpreted the parties’ arbitration agreement as forbidding class arbitration. (370) Despite this dissent, as with Howsam and Pacificare, the result and rationale in Green Tree were decidedly in the direction of presumptively limited interlocutory judicial determination of jurisdictional issues, as well as broad arbitral authority to finally decide such issues. (371) As in Howsam and Pacificare, however, Green Tree was again a case where there was no dispute as to the http://www.kluwerarbitration.com/CommonUI/print.aspx
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existence of an agreement to arbitrate, and the “jurisdictional” objection instead related to the nature of the arbitrators' powers and the arbitral process. e. Overview of Contemporary U.S. Approach to CompetenceCompetence and Allocation of Jurisdictional Competence As with the treatment of competence-competence in other jurisdictions, the U.S. Supreme Court's decisions in First Options and its progeny produce a complex page "924" legal regime for the allocation of jurisdictional competence. As noted above, that framework has been the subject of criticism, both in the United States and elsewhere. (372) In evaluating that criticism, and the Supreme Court's approach to competence-competence, it is important to understand and evaluate clearly the Court's analysis. The foundation of the U.S. approach to competence-competence is the unexceptional, and largely unassailable, proposition that arbitration is a matter of contract. (373) Starting from this premise, the U.S. Supreme Court has reasoned that parties may agree to arbitrate questions of jurisdiction – what the Court terms “questions of arbitrability.” (374) Where parties agree to arbitrate a jurisdictional issue, then that issue is for arbitral determination, with either positive or negative jurisdictional awards being subject to minimal subsequent judicial review in an action to vacate under §10 of the FAA; (375) where the parties have not agreed to arbitrate a jurisdictional issue, then that issue is for either interlocutory or ultimate judicial determination, in each case on a de novo basis. (376)
Applying this general approach, the Court has formulated the following presumptions (among others) regarding the allocation of judicial and arbitral jurisdiction: (a) arbitrators presumptively have the competence-competence to consider and make decisions regarding their own jurisdiction, with the effects of such decisions and the availability of interlocutory judicial consideration of jurisdictional issues depending on the circ*mstances (detailed below); (377) (b) “the question whether the parties have submitted a particular dispute to arbitration, i.e., the “question of arbitrability,” is “an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise”; (378) page "925" (c) a “question of arbitrability” exists only in “narrow circ*mstances” where parties would “likely have expected a court to have decided the gateway matter, where they are not likely to have thought that they had agreed that an arbitrator would do so, and, consequently, where reference of the gateway dispute to the court avoids the risk of forcing parties to arbitrate a matter that they may well not have agreed to arbitrate”; (379) (d) “a gateway dispute about whether the parties are bound by a given arbitration clause raises a ‘question of arbitrability,’” which is presumptively for judicial determination; (380) (e) “a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy” is presumptively for judicial determination, (381) although the Court's rationale in both Pacificare and Green Tree http://www.kluwerarbitration.com/CommonUI/print.aspx
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suggests that this presumption may be abandoned or limited in future cases; (382) page "926" (f) “‘‘procedural’ questions which grow out of the dispute and bear on its final disposition’ are presumptively not for the judge, but for an arbitrator, to decide as an issue concerning the merits of the parties' dispute”; (383) and (g) “the presumption is that the arbitrator should decide ‘allegation[s] of waiver, delay, or a like defense to arbitrability.’” (384)
More generally, the Supreme Court also appears to have considered it relevant, in individual cases, that the parties' agreement evidenced an intention to arbitrate various jurisdictional issues (385) and that a particular issue would be within the arbitrators' “comparative expertise, for example, because it concerned contractual interpretation or factual issues.” (386) Importantly, all of the foregoing points are only presumptions, not absolute rules. That is, if the parties expressly agree to arbitrate disputes concerning the scope of an arbitration clause, or to allow judicial determination of issues of waiver or contractual time limits, they are free to do so. The Court requires that parties “clearly and unmistakably” agree to such an allocation of competence, (387) but where parties have so agreed, then that agreement is entitled to full effect under the FAA. (388) The application of the foregoing competence-competence principles under the FAA can be complex. The Supreme Court's various holdings, and lower court page "927" decisions applying them in recurrent commercial contexts, are discussed in greater detail in the following sections. f. First Options and its Progeny: Arbitrator's CompetenceCompetence to Consider Jurisdictional Objections Under the analysis of First Options and its progeny, an arbitral tribunal is fully able to consider the existence and scope of its own jurisdiction regardless whether the parties have agreed to arbitrate such issues. Nothing in the First Options opinion holds that an arbitral tribunal is disabled from considering questions of its own jurisdiction if there is no agreement between the parties to arbitrate jurisdictional disputes. Although the First Options opinion did not expressly reject such an interpretation, adopting it would seriously impede the arbitral process, in ways contrary to long-standing practice and authority in the United States and elsewhere; there is no suggestion that the Court contemplated any such result in First Options. Arbitral tribunals routinely consider and (provisionally) decide jurisdictional objections for the purpose of enabling the arbitrators to determine whether or not it makes sense to continue with the merits of the arbitration, even when there is no agreement to arbitrate jurisdictional disputes. (389) Tribunals do so as a necessary aspect of fulfilling their responsibility to conduct the arbitral proceedings in the most efficient, cost-effective and fair manner that is possible, including in how they handle jurisdictional objections. (390) It is also essential to a tribunal's fulfillment of its mandate – which is to
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resolve the parties' dispute in accordance with applicable law (391) – for the arbitrators to resolve any jurisdictional challenges that are raised in the arbitral proceedings. If an arbitral tribunal concludes that there is no merit to asserted jurisdictional objections, it will ordinarily continue to consider and decide the merits of the parties' dispute. Tribunals do so because they conclude that it is fairer and more efficient, in light of their estimation of the likely outcome of any judicial consideration of jurisdictional matters, either in an award annulment or recognition proceeding or otherwise, to continue with the arbitration instead of postponing an award until a judicial decision, and because their own assessment of jurisdictional objections is that they have a mandate and obligation (392) to proceed with resolution of the parties' dispute. (393) Conversely, when a tribunal concludes that the jurisdictional objections are well-founded, it may dismiss the arbitration or suspend further proceedings, pending judicial resolution of jurisdictional issues. Again, this action is based on a page "928" tribunal's assessment of the most efficient manner of proceeding in the circ*mstances of what it considers to be a well-founded jurisdictional objection. (394) In each case, the arbitral tribunal considers jurisdictional matters as part of its overall mandate of conducting the arbitral proceedings in the most efficient and fair manner available. As courts in other jurisdictions have concluded: “It is not the law that arbitrators, if their jurisdiction is challenged or questioned, are bound immediately to refuse to act until their jurisdiction has been determined by some court which has the power to determine it finally.” (395) First Options and its progeny do nothing whatsoever to alter this approach, whereby arbitrators may consider objections to their jurisdiction even if the parties have not agreed to have jurisdictional disputes finally decided by the arbitrators. Thus, First Options framed the issue of competence-competence before it as “who has the primary power to decide arbitrability, …” (396) not “who has the primary power to consider arbitrability.” Moreover, although the arbitral tribunal in First Options had proceeded to consider the parties' jurisdictional dispute, the Supreme Court did not suggest that the tribunal had in any way acted improperly or beyond its authority when it considered those jurisdictional objections; the Court did so notwithstanding its conclusion that there was no agreement by the parties in First Options to arbitrate jurisdictional disputes and notwithstanding the fact that the tribunal's jurisdictional decision was therefore entitled to no judicial deference in a vacatur action under §10 of the FAA. Despite this, the tribunal's consideration of jurisdictional objections was not in any way inappropriate: the tribunal's action was a sensible and necessary aspect of its decision whether to proceed with the merits of the arbitration. This conclusion also follows from the Supreme Court's decision in Pacificare, holding that it was for the arbitral tribunal to decide the “preliminary question” whether liability limitations prohibit an award of RICO treble damages. (397) The page "929" rationale for the Court's decision was that, in instances of uncertainty regarding the arbitrators' competence to decide a particular issue, arbitral consideration and provisional determination of the issue is not only http://www.kluwerarbitration.com/CommonUI/print.aspx
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appropriate but required. (398) Consistent with this, U.S. decisions applying First Options and its progeny have in numerous cases affirmed the authority of arbitrators to consider the question of their own jurisdiction even in the absence of an agreement to arbitrate jurisdictional objections. (399) Accordingly, an arbitral tribunal has competence-competence under the FAA to consider issues concerning its jurisdiction and to make a decision on such issues (subject to subsequent judicial review). That is true regardless whether the parties have granted the arbitrators the power finally to decide such questions with binding effect, which, as discussed below, is a separate issue. (400) g. First Options, Prima Paint and Their Progeny: Allocation of Jurisdictional Competence Between Arbitral Tribunals and Courts Although U.S. law recognizes the competence-competence of the arbitrators to consider jurisdictional issues, it also recognizes the parties' right to seek interlocutory judicial review of at least certain categories of jurisdictional disputes. (401) In so doing, page "930" U.S. courts have distinguished between different types of jurisdictional disputes, and particularly between matters concerning the scope of the arbitration agreement or the arbitral procedures, on the one hand, and matters concerning the existence or validity of the arbitration agreement, on the other hand. To a greater extent than legal regimes in France, India and Hong Kong, U.S. courts have allocated competence to resolve jurisdictional objections depending on whether the existence or validity of an agreement to arbitrate is challenged (where interlocutory judicial consideration is often permitted) or whether the scope of the arbitration agreement is challenged (where interlocutory judicial consideration is often not permitted). i. First Options and Its Progeny: Allocation of Jurisdictional Competence to Determine Disputes Concerning Scope of Arbitration Agreement In practice, the most frequent basis for jurisdictional objections is the argument that particular disputes fall outside the scope of the parties' arbitration agreement. (402) Dicta in the Court's decision in Howsam treats objections based on the scope of an arbitration clause as jurisdictional issues which are presumptively subject to judicial determination: “a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy” is presumptively for judicial determination. (403) One may question both what this dicta means and whether it is either well-reasoned or consistent with the Supreme Court's other decisions in the field. Interpretation of the scope of an arbitration clause is often intimately-intertwined with substantive interpretation of the parties' underlying contract – a matter concerning the merits of the parties' dispute which is unmistakably committed to the arbitrator's decision under the FAA (and other national arbitration legislation), which argues strongly for reserving any judicial decision until the arbitrators have had the opportunity to interpret the underlying contract. (404)
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The Supreme Court's own analysis in Howsam and related decisions also argues for referring the interpretation of the scope of the arbitration clause to the arbitrators. The Court placed emphasis on the parties' likely expectations (particularly in Howsam ): a “question of arbitrability” exists only in “narrow circ*mstances” where page "931" parties would “likely have expected a court to have decided the gateway matter, where they are not likely to have thought that they had agreed that an arbitrator would do so.” (405) This argues strongly for referring disputes over the scope of an admittedly valid arbitration clause to arbitration: parties who have agreed to resolve their disputes by the neutral mechanism of international arbitration would expect to have an arbitral tribunal decide upon the precise reach of that arbitration agreement. (406) In this regard, a plurality of the Court in Green Tree correctly observed that issues of “contract interpretation and arbitration procedure” were ordinarily for arbitral determination; (407) that reasoning applies with at least equal force to issues concerning the scope of the arbitration clause. Nonetheless, the dicta cited above in Howsam indicates that disputes over the scope of the arbitration agreement are presumptively one of those “narrow circ*mstances” that are for judicial, not arbitral, determination under the FAA. (408) On the other hand, that dicta also certainly envisages that the presumption of judicial determination can be comparatively easily overcome (as occurred in Howsam and Pacificare), notwithstanding First Options' “clear and unmistakable” evidence standard. (409) As discussed below, there are a variety of ways in which this may occur under the First Options analysis. (1). Allocation of Jurisdictional Competence to Determine Disputes Concerning Scope of Arbitration Agreement: Institutional Rules and Scope of Arbitration Agreement As a practical matter, parties in many international commercial arbitrations will be found to have submitted disputes over the scope of their arbitration clause to the arbitrators for resolution. That is in large part because the terms of most institutional arbitration rules expressly provide that jurisdictional questions are for arbitral resolution – constituting the “clear and unmistakable” agreement on arbitral jurisdiction contemplated by First Options dicta. (410) Thus, Article 6(2) of the ICC Rules provides that “any decision as to the jurisdiction of the Arbitral Tribunal shall be taken by the Arbitral Tribunal itself,” (411) while making clear that the jurisdictional issues identified for arbitral decision include “pleas concerning the … scope of the page "932" arbitration agreement.” (412) Virtually all other leading institutional arbitration rules are to the same effect. (413) Consistent with this, U.S. courts have relied upon the language of institutional arbitration rules in permitting arbitral tribunals to resolve disputes over the scope of a concededly existent and valid arbitration clause, both before (414) and since (415) page "933" First Options. According to one court, when “parties explicitly incorporate rules [in an arbitration clause] that empower an arbitrator to decide issues of arbitrability, the incorporation serves as clear and unmistakable evidence of the parties' intent to delegate such issues to an arbitrator.” (416) Or, as another decision concluded: “[t]he http://www.kluwerarbitration.com/CommonUI/print.aspx
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Court is persuaded that the prevailing rule across jurisdictions is that incorporation by reference of rules granting the arbitrator the authority to decide questions of arbitrability – especially the AAA rules – is clear and unmistakable evidence that the parties agreed to submit arbitrability questions to the arbitrators.” (417) Some commentary has questioned these results, on the grounds that institutional rules do not expressly provide that the arbitrators may resolve issues of interpretation finally, without possibility of judicial review. (418) This misconceives what is required under First Options, which is evidence of an agreement to arbitrate jurisdictional issues, (419) not a waiver of judicial review of arbitral decisions. (420) Once such an agreement to arbitrate particular jurisdictional disputes exists, then the arbitrators' awards on the substantive merits of those jurisdictional disputes are subject to only the de minimis judicial review (under the FAA's manifest disregard standard) in the same way that awards on the merits of other arbitrable disputes are reviewed. (421) Critics of this conclusion might also cite the FAA's statutory provisions for judicial review of jurisdictional determinations, arguing that they mandatorily apply. (422) That confuses analysis. When parties agree for the arbitrators to decide a jurisdictional issue, then an award on the merits of that jurisdictional issue is, for purposes of judicial review, a substantive determination, subject to the same type of judicial review as other substantive issues that are submitted to the arbitrators. In these instances, the relevant “jurisdictional” issues would relate only to the scope of the jurisdictional authority granted to the arbitrators in the parties' agreement to arbitrate jurisdictional issues, and not to the substance of the arbitrators' jurisdictional determinations. page "934" (2). Allocation of Jurisdictional Competence to Determine Disputes Concerning Scope of Arbitration Agreement: “Broad” and “Narrow” Arbitration Clauses Historically, a number of U.S. judicial decisions distinguished between “broad” and “narrow” arbitration clauses. (423) These courts have held that, under a “broad” clause, the arbitrator is granted jurisdiction to decide the scope of the parties' arbitration agreement, while a “narrow” clause reserves such power to the courts. (424) As described by one U.S. court: “a court should compel arbitration, and permit the arbitrator to decide whether the disputes falls within the clause, if the clause is ‘broad.’ In contrast, if the clause is ‘narrow,’ arbitration should not be compelled unless the court page "935" determines that the dispute falls within the clause. Specific words and phrases alone may not be determinative although words of limitation would indicate a narrower clause. The tone of the clause as a whole must be considered.” (425) Although it is not yet entirely clear, it appears that this rule has survived, and likely been confirmed by, First Options and its progeny. In particular, Howsam relied on the existence of a broad arbitration clause in concluding that the parties had agreed to http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitrate jurisdictional issues. (426) Lower courts appear to adopt this conclusion, (427) page "936" as do some commentators. (428) In one court's words, “[t]his clause is as broad an arbitration provision as one can imagine” and “clearly and unmistakably evidences the parties' intention to have the arbitrator determine its scope.” (429) The distinction between broad and narrow arbitration clauses is similar to the distinction which is arguably drawn in Article 8(1) of the UNCITRAL Model Law between challenges to the existence of any arbitration agreement and jurisdictional objections based on the scope of the arbitration clause. (430) Under the “broad/narrow” distinction, a U.S. court will ordinarily refer jurisdictional disputes concerning the scope of the arbitration clause to arbitration – just as Article 8(1) ordinarily provides for arbitral consideration of jurisdictional challenges based on the scope of the arbitration clause. (431) In both cases, this result would be based upon the considerations discussed above: where commercial parties have admittedly entered into a valid, broadly-drafted arbitration agreement, whose continued validity is not disputed, then it is most consistent with their expectations, and with an efficient arbitral process, for the arbitral tribunal to resolve disputes about the scope of its jurisdiction. (432) Only where an arbitration agreement is narrowly-drafted, to encompass only a specific dispute or limited category of disputes, would judicial resolution of scope disputes arguably be contemplated. Finally, referring disputes over the scope of an arbitration agreement to the arbitrators makes particular sense. That is because these disputes are (unlike most other jurisdictional issues) inescapably intertwined with the substantive interpretation of the underlying contract and the parties' rights thereunder – matters which are plainly for the arbitral tribunal to resolve under the parties' arbitration agreement. (433) page "937" ii. Allocation of Jurisdictional Competence to Determine Disputes Concerning Validity or Legality of Arbitration Agreement and Underlying Contract: Prima Paint and Buckeye Check Cashing The effect of First Options and its progeny on disputes over the validity or legality of an arbitration agreement (as distinguished from its formation or existence) must be considered separately. As to this issue, the U.S. Supreme Court has indicated – albeit in dicta – that such disputes are presumptively for judicial (not arbitral) determination. (434) Although not expressly addressed, the Court's treatment of the subject leaves little question as to this result. As noted above, the Court declared in both First Options and Howsam that disputes over what parties are bound by the arbitration agreement are presumptively for judicial determination. (435) It is impossible to see why the Court would have meant to treat disputes over the validity and legality of the arbitration agreement differently. This result is consistent with the approach taken by Article 8(1) of the UNCITRAL Model Law. As discussed above, the Model Law provides for arbitral determination of claims that an arbitration agreement is “null and void, inoperative or incapable of being performed.” (436) This parallels the approach that would generally http://www.kluwerarbitration.com/CommonUI/print.aspx
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obtain under the First Options analysis, requiring judicial determination of claims that an arbitration agreement is invalid or illegal. Most U.S. lower courts have adopted this analysis, holding that claims that an arbitration agreement (as distinguished from the underlying contract (437) ) is illegal (438) page "938" or invalid (439) are for judicial determination. This includes claims of fraud, (440) duress, (441) unconscionability, (442) lack of mutuality, (443) and that the agreement has terminated or expired, (444) in each case where the claim is directed specifically at the arbitration agreement itself. It also includes claims that the existence of the arbitration clause was concealed or misrepresented. (445) page "939" Indeed, if there is a challenge specifically directed to the validity of the arbitration clause itself, then First Options will virtually always provide for judicial determination as to whether or not any valid arbitration agreement exists, as a necessary issue preliminary to deciding whether an agreement to arbitrate jurisdictional issues exists. Obviously, absent any valid agreement to arbitrate at all, there can be no agreement to arbitrate jurisdictional issues: “After all, a contract cannot give an arbitral body any power, much less the power to determine its own jurisdiction, if the parties never entered into it.” (446) This includes cases where the alleged agreement to arbitrate incorporates institutional rules granting the arbitrators authority to decide jurisdictional challenges; (447) these provisions are generally held insufficient to confer authority on the arbitrators finally to decide claims that the arbitration agreement is invalid or illegal. (448) Lower courts in the United States have almost uniformly reached conclusions consistent with this analysis. (449) On the other hand, as required by the separability presumption, where there is only a challenge to the validity or legality of the underlying contract (and no challenge to the existence or validity of the associated arbitration clause), U.S. page "940" courts have required arbitration of that claim. (450) This has been repeatedly affirmed by the U.S. Supreme Court – first in Prima Paint Corp. v. Flood & Conklin Mfg Co. (451) and most recently by the Court in Buckeye Check Cashing, Inc. v. Cardegna. (452) That approach has been adopted, for example, in cases involving claims that the underlying contract had been fraudulently induced, (453) was invalid by reason of unilateral or mutual mistake, (454) was invalid for lack of consideration, (455) was page "941" unconscionable, (456) (457) was terminated or rescinded, was invalid for failure of a (458) condition precedent, or was illegal. (459) Finally, the most complex issues of competence-competence under the FAA in this regard involve claims of invalidity or illegality that are either directed towards, or that necessarily affect, both the underlying contract and the arbitration agreement. As discussed above, the U.S. Supreme Court held in Buckeye Check Cashing, Inc. v. Cardegna (460) that such claims were for initial resolution by the arbitrators: “because respondents challenge the [underlying] Agreement, and not specifically its arbitration provisions, those provisions are enforceable apart from the remainder of the contract,” http://www.kluwerarbitration.com/CommonUI/print.aspx
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and “should therefore be considered by an arbitrator, not a court.” (461) The Court also held that “a challenge to the validity of the contract as a whole and not specifically to the arbitration clause, must go to the arbitrator.” (462) Consistent with this analysis, U.S. courts have generally held that claims of invalidity, illegality, page "942" or termination will be for judicial determination only when they are “specifically” directed at the arbitration agreement itself, and not when they are directed generally at both the underlying contract and the arbitration agreement. (463) Notably, although not so described by the Supreme Court, this holding should not be understood as involving a determination of the substantive validity of the agreement to arbitrate (i.e., that the arbitration agreement is valid). Rather, it must be understood as a determination of competence-competence (i.e., that the arbitrators should preliminarily resolve issues of substantive validity of the arbitration clause). That is, in holding that challenges which impeach both the underlying contract and the arbitration clause should be arbitrated, the Supreme Court should not be understood as concluding that these challenges did not or could not impeach the arbitration clause: such challenges obviously might in fact impeach the arbitration clause (an issue which should be resolved by the arbitrators and then judicially in a subsequent vacatur proceedings). (464) Rather, the Court was holding that it was more efficient and fairer for such challenges to be resolved in the first instance by the arbitrators, subject to subsequent judicial review. (465) page "943" iii. Allocation of Jurisdictional Competence to Determine Disputes Concerning Formation of Underlying Contract and Arbitration Agreement: Buckeye Check Cashing and Its Progeny The effect of First Options and its progeny on disputes over the formation and existence (as distinguished from the validity or legality) of the underlying contract and arbitration agreement must also be considered separately. First Options itself dealt with the scenario where a party denies that it ever executed or otherwise formed an arbitration agreement. (466) In these circ*mstances, most authorities have concluded that it is virtually impossible to conceive how that party could be said (without some other evidence of assent) to have submitted the question of the arbitrator's jurisdiction to the arbitrator. The simple fact is that the party denies that it ever formed any arbitration agreement, to arbitrate anything at all, whether jurisdictional or otherwise. A challenge to the existence or formation of any arbitration agreement presents a Baron Munchhausen scenario of sorts. If a party denies that it ever executed or assented to any arbitration agreement, then it is very difficult to see how there could then be an agreement to arbitrate this very issue which would be sufficiently clear to satisfy First Options' analysis – which required a “clear and unmistakable” agreement by the parties to submit such disputes to arbitration (467) – or even the less demanding formulations in Howsam and Pacificare. (468) Even the existence of language in institutional rules, (469) or a putative arbitration clause providing explicitly that “all disputes http://www.kluwerarbitration.com/CommonUI/print.aspx
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concerning the existence of this arbitration agreement shall be finally decided by the arbitral tribunal,” would not provide clear (or even solid) evidence of an agreement to arbitrate such issues: those words have no more significance to the party that denies the existence of the arbitration agreement than graffiti on someone else's alley wall. The existence of a purported agreement containing such language would be challenged, and, absent “clear and unmistakable” evidence of a valid agreement under the FirstOptions analysis, would be subject to judicial determination. This is what lower U.S. courts have almost uniformly acknowledged. (470) In one court's words: page "944" “if the dispute is over the very existence of the agreement to arbitrate, a district court, and not the arbitrator must decide if the arbitration clause, indeed, the entire agreement is enforceable against the parties.” (471) In practice, lower U.S. courts have encountered difficulty in applying the First Options analysis in cases involving disputes over the existence of any arbitration agreement, which often also requires application of the separability presumption. (472) As discussed above, (473) the U.S. Supreme Court reserved decision in Buckeye Check Cashing on the applicability of the separability presumption in cases where the presumption is “whether any agreement between the alleged obligor and oblige was ever concluded.” (474) The Court also went out of its way to note that its decision did not address the correctness of cases “which hold that it is for courts to decide whether the alleged obligor ever signed the contract, whether the signor lacked authority to commit the alleged principal and whether the signor lacked the mental capacity to assent.” (475) Consistent with the Court's apparent reservations, lower U.S. courts have generally required judicial determination of claims that the underlying contract (or a signature on it) was forged, (476) that the underlying contract (including the agreement page "945" to (477) arbitrate) was never formed, that the underlying contract was (478) the result of duress, that a party lacked capacity to conclude a contract, (479) or that an agent who page "946" executed the (480) underlying contract lacked authority. At the same time, however, other U.S. lower courts have reached almost entirely opposite conclusions, requiring arbitration of claims that a party to a contract containing an arbitration agreement lacked capacity, (481) that a condition precedent to the effectiveness of the underlying contract was not fulfilled, (482) that the underlying contract was procured by duress (483) and that there was a forgery of documents or page "947" signatures. (484) As discussed above, reconciling these various U.S competence-competence decisions is difficult and, in some instances, impossible. (485) In turn, that confusion raises serious questions as to the usefulness of the U.S. approach of linking questions of competence-competence tightly to the categorization of jurisdictional challenges (as directed “specifically” or “only” at the agreement to arbitrate). h. Discretionary Stay of Litigation Concerning Jurisdictional Challenges by U.S. Courts http://www.kluwerarbitration.com/CommonUI/print.aspx
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It is also important to note an element of the treatment of competence-competence under the FAA which is often neglected. That element involves a United States court's discretionary power to stay judicial proceedings, pending arbitration, where there is no valid arbitration agreement binding (all of) the parties to the litigation, (486) where all of the claims in a litigation are not subject to arbitration, (487) or page "948" where the court has not yet determined whether a valid arbitration agreement exists. (488) The exercise of this discretionary authority by U.S. courts is dependent on a range of factors, including the respective efficiencies of proceeding with the arbitration and litigation, the prejudice to the parties of either course, the timing and credibility of the jurisdictional challenge, the applicable law and nature of the dispute (e.g., factual or legal) and other matters. (489) One U.S. court described the decision whether to grant a discretionary stay as follows: “The power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with the economy of time and effort for itself, for counsel and for litigants. How this can best be done calls for the exercise of judgment, which must weigh competing interests and maintain an even balance.” (490) As discussed above, this is the approach that the Supreme Court took in Pacificare, where it held that the arbitral tribunal should be permitted to decide the “preliminary question” whether contractual liability limitations validly prohibited an award of RICO treble damages, which would arguably have rendered the arbitration agreement invalid. (491) This decision rested on the premise that it was not only appropriate, but required, for a court to allow an arbitral tribunal to make an initial determination page "949" of an issue of legality or validity of the arbitration agreement that would ultimately be for judicial determination under the First Options analysis. (492) Some U.S. courts have held that it is particularly appropriate to stay interlocutory U.S. judicial consideration of jurisdictional objections where an international arbitration subject to the New York Convention is concerned. (493) According to one lower court, “it is apparent that making a judicial determination on arbitrability, prior to an action seeking recognition or enforcement of an award … is inconsistent with the purposes of the FAA and the New York Convention.” (494)
This approach rests on notions of comity and efficiency, akin to those arising in the lis pendens context. i. Timing and Character of Judicial Decisions on Jurisdiction in U.S. Courts After First Options: Initial Judicial or Initial Arbitral Determination of Jurisdiction One must also consider when, under the analysis in First Options http://www.kluwerarbitration.com/CommonUI/print.aspx
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and its progeny, U.S. courts will make those jurisdictional determinations with which they are charged (e.g., on an interlocutory basis or only following a jurisdictional award) and what the character of these judicial determinations of jurisdiction will be (e.g., prima facie or full review). These issues have been outlined above, and are only summarized here. (495) In general, as discussed above, U.S. courts have the power to consider jurisdictional issues on an interlocutory basis, prior to any arbitral award deciding such matters, save where the parties have clearly agreed, within the First Options' analysis, to arbitrate jurisdictional objections. (496) Where no such agreement exists, U.S. courts may decide the jurisdictional objection on an interlocutory basis, although they also have an important discretionary power to refer the matter to arbitration in the interests of efficiency and justice. (497) As detailed above, there is a page "950" substantial body of U.S. authority considering such jurisdictional issues, and defining the categories of cases where interlocutory judicial decisions are appropriate (typically, where the validity, legality, or existence of the underlying contract is challenged). Where U.S. courts consider jurisdictional objections on an interlocutory basis, they generally do so on the basis of full judicial review of the jurisdictional question (and not primafacie judicial review). (498) i. No Interlocutory Judicial Consideration of Jurisdictional Challenges by U.S. Courts Where Parties Have Agreed to Arbitrate Arbitral Jurisdiction There is an important qualification to the foregoing general allocation of jurisdictional competence. As discussed above, the foregoing principles do not apply where the parties have agreed to arbitrate jurisdictional disputes about the validity, legality, or scope of their arbitration clause. (499) In these circ*mstances, First Options requires that U.S. courts refer the jurisdictional objection to the arbitrators, allowing it to be heard in the first instance by the arbitral tribunal. (500) As a practical matter, many jurisdictional disputes concerning the scope of the arbitration agreement are for arbitral resolution under this analysis, (501) while relatively few disputes regarding the existence or validity of the arbitration agreement are for the arbitrators to decide pursuant to a pre-existing agreement to arbitrate jurisdictional disputes. (502) These results accord roughly with those under Article 8(1) of the UNCITRAL Model Law, where disputes over the scope of the arbitration agreement should be for initial arbitral, not judicial, determination. (503) ii. Interlocutory Judicial Consideration of Jurisdictional Challenges by U.S. Courts As discussed above, in the absence of any agreement in the First Options sense of conferring power on the arbitrators to finally decide jurisdictional issues, the timing of U.S. judicial consideration of challenges to an arbitral tribunal's jurisdiction depends on both the nature of the jurisdictional objection and the efficiencies and equities in particular cases; in particular, U.S. courts have frequently permitted interlocutory judicial consideration of jurisdictional http://www.kluwerarbitration.com/CommonUI/print.aspx
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challenges directed either page "951" specifically or necessarily at the agreement to arbitrate, but not challenges directed generally or only at the underlying contract. (504) There is substantial U.S. judicial authority on these issues, which is not always entirely reconcilable or clearly expressed. Nonetheless, as also discussed above, a number of basic principles can be distilled from these authorities. (505) First, where only the validity or legality of the underlying contract (and not the arbitration agreement) is challenged, then no interlocutory judicial review is available or permissible under the FAA. Such cases involve no jurisdictional challenge to the arbitration agreement and therefore no issue of competence-competence. They are simply instances where the New York Convention and FAA require arbitration of the parties' disputes as to the underlying contract. (506) Second, where the existence, validity, or legality of the arbitration agreement itself is specifically challenged, then interlocutory judicial consideration is generally permitted under the FAA. (507) In these cases, First Options and its progeny in principle permit immediate access to a judicial determination of the existence, validity, or legality of an arbitration agreement. At the same time, U.S. courts have the discretionary power, which is not infrequently exercised, to stay U.S. litigation pending either jurisdictional or substantive determinations by the arbitrators in the interests of efficiency and justice. (508) Finally, where the existence or validity of both the underlying contract and the arbitration agreement are simultaneously challenged, then interlocutory judicial consideration of issues of formation, validity and legality depend on both the nature of the jurisdictional challenge and on considerations of efficiency and fairness. (509) Typically, challenges to the existence of the parties' underlying contract and arbitration agreement will presumptively be for judicial resolution, while challenges to the underlying contract's validity or legality will be for initial arbitral consideration (as required by Buckeye Check Cashing). (510) Nonetheless, as discussed above, there will be circ*mstances where considerations of efficiency or equity call for a different allocation of jurisdictional competence. (511) page "952" Importantly, a U.S. court's determination that the arbitrators should first consider challenges to both the validity or legality of the underlying contract and the agreement to arbitrate should be considered a decision regarding competence-competence, rather than the validity of the arbitration agreement. Accordingly, an arbitral award subsequently determining that the underlying contract and arbitration agreement were (or were not) valid, should be subject to judicial review as a jurisdictional determination. (512) The foregoing analysis permits U.S. courts, in deciding whether or not to consider jurisdictional disputes on an interlocutory basis, to take into account considerations of efficiency and hardship to the parties, a preliminary assessment of the strength and complexity of jurisdictional objections, the time at which such objections have been raised and the relative competencies of courts and arbitral tribunals. That is particularly true when the possibility of discretionary stays of litigation by U.S. courts is considered. (513) In http://www.kluwerarbitration.com/CommonUI/print.aspx
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important respects, the approach of U.S. courts to the decision whether to resolve a jurisdictional objection on an interlocutory basis is often akin to a lis pendens analysis: the decision often rests on a pragmatic assessment of efficiencies and equities in particular cases, rather than on absolute rules for the allocation of jurisdictional competence. Thus, a U.S. court can take into account timing considerations: if no arbitral tribunal has been constituted, and doing so would take substantial time and money, then the court can consider a jurisdictional challenge on an interlocutory basis, while, if the tribunal is constituted and considering the jurisdictional issues when litigation is commenced, then the court can defer to the arbitrators. A court can also consider the apparent seriousness of jurisdictional challenges: if a challenge is pretextual, or obviously lacking in merit, a U.S. court can finally reject it (regardless when filed), while, conversely, the court can permit arbitral consideration of a serious, well-grounded jurisdictional objection (again, regardless when it is raised). Similarly, a U.S. court can consider whether a jurisdictional challenge involves purely legal issues (particularly under U.S. law), where an interlocutory U.S. judicial decision may be appropriate, or instead involves factual or contractual issues (particularly specialized questions of industry custom or the like), or questions of foreign law, where an arbitral tribunal may have specific legal, linguistic, commercial or other expertise. A similarly flexible approach to that under U.S. law is available under Article VI(3) of the European Convention. This permits courts in principle to stay judicial consideration of jurisdictional disputes, and to allow arbitral tribunals to resolve such disputes in the first instance, subject to an exception for cases where there are “good and substantial reasons to the contrary.” (514) As with the U.S. approach, this allows courts to make case-by-case determinations, taking into account issues of page "953" efficiency, credibility and the like, rather than applying a single mechanical formula in all circ*mstances. j. Judicial Review of Negative and Positive Jurisdictional Determinations by Arbitral Tribunal A critical issue under First Options and its progeny concerns the preclusive effects of jurisdictional awards under the FAA. As noted above, First Options held that, if an arbitration agreement granted arbitrators the power to consider and decide disputes regarding their own jurisdiction, then the tribunal's resulting award would be subject to the same highly-deferential standards of judicial review as apply to other arbitral awards under the FAA. (515) On the other hand, the Court also held that, if “the parties did not agree to submit the arbitrability question itself to arbitration, then the court should decide that question just as it would decide any other question that the parties did not submit to arbitration, namely independently.” (516) i. Judicial Review of Positive and Negative Jurisdictional Awards under the FAA Judicial review in accordance with the standards set forth in First Options is available equally under the FAA for both negative and positive jurisdictional awards. That is, if the arbitrators have been granted the power to finally decide jurisdictional objections under the http://www.kluwerarbitration.com/CommonUI/print.aspx
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First Options analysis, then any jurisdictional determination (positive or negative) will be subject solely to a “manifest disregard” review. (517) Conversely, if the arbitrators have not been granted this power, then their award will be subject to an action to vacate under §10(a) (4) of the FAA. (518) Under that page "954" provision, either a negative or positive jurisdictional award can be vacated on the grounds that the tribunal either “exceeded its powers” or “imperfectly executed” its powers by failing to produce a final and definite award. Although not addressed in First Options or its progeny, lower U.S. courts have been reluctant to review interim jurisdictional awards (when they are positive). (519) This differs from the approach under the UNCITRAL Model Law, (520) where immediate judicial review is required, by denying the parties a prompt judicial determination of jurisdictional issues. This reluctance of U.S. courts to provide greater jurisdictional certainty for the parties is unfortunate and should be corrected. (521) ii. Preclusive Effect under the FAA of Arbitral Awards Deciding Challenges to Existence or Validity of Underlying Contract A significant uncertainty exists regarding the application of First Options and its progeny at the intersection of the competencecompetence doctrine and separability presumption (as formulated in Buckeye Check Cashing). As discussed above, under the U.S. version of the separability presumption, almost all challenges to the validity, page "955" legality and continued effect of the underlying contract, and many challenges to the formation and existence of that contract, will be for initial arbitral determination. (522) As the U.S. Supreme Court recently reaffirmed in Buckeye Check Cashing, only where a jurisdictional objection is directed “specifically” at the arbitration agreement itself, and not also “generally” at the underlying contract, does the U.S. separability presumption permit initial judicial review of the objection. (523) As a practical matter, some putative challenges to arbitration agreements are in fact challenges “also” to the underlying contract and, under the FAA, are therefore generally submitted for initial decision by the arbitrators. (524) The foregoing analysis has important implications. As discussed above, it means that a U.S. court would ordinarily refuse to consider claims that the underlying contract and associated arbitration clause were both invalid, void, voidable for page "956" fraud, illegal, terminated and the like. Instead, such claims would be referred to arbitration under the U.S. version of the separability doctrine. (525) A critical question arising in these circ*mstances is what effect a subsequent award, rejecting a challenge to both the underlying contract and the arbitration agreement, would have. In particular, if an arbitral tribunal determines that the underlying contract was not void, or illegal, and that the arbitration clause is “therefore” valid and enforceable, may a party obtain de novo judicial review of that jurisdictional determination in an action to vacate the award under the FAA? Although the U.S. Supreme Court has not addressed it, the answer to this question must be in the affirmative. It cannot be that a party is prevented from initially obtaining judicial review of a jurisdictional http://www.kluwerarbitration.com/CommonUI/print.aspx
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objection because that objection “also” relates to the underlying contract, and then is subsequently unable to obtain judicial review of the “arbitrator's” determination that a valid contract and arbitration agreement existed. (526) This would result in no court ever being able to consider the jurisdictional objection, which contradicts the FAA (527) and basic notions of access to judicial review. (528) Accordingly, when a party presents jurisdictional objections to an arbitrator which “also” implicate the underlying contract, and an award is made which rejects both arguments, the tribunal's jurisdictional determination must be subject to de novo judicial review in an application to vacate. (529) On the other hand, in these circ*mstances, award-creditors can be expected to argue that the parties agreed that all jurisdictional objections were to be submitted to arbitration. That is the implication of at least some commentary (directed principally at criticism of First Options). (530) There is thus far little judicial authority on this issue. (531) Contrary to these critiques, however, it should be clear that the page "957" separability presumption does not require, or permit, such a circumvention of ultimate judicial power to review determinations regarding the existence, validity and legality of arbitration agreements under the FAA. Specifically, as discussed above, the separability presumption provides (and only provides) that an arbitration agreement is presumptively separable from the underlying contract and therefore that defects affecting the underlying contract do not necessarily also affect the arbitration clause. (532) This does not mean that defects in the underlying contract either cannot or do not actually affect the associated arbitration clause, but only that they may not do so in particular circ*mstances; as discussed above, there will be instances when this “may not” turns into “does” and the nonexistence, invalidity, illegality, or termination of the underlying contract results in a parallel fate for the arbitration clause. (533) Critically, when a U.S. court refers parties to arbitrate a jurisdictional dispute that “generally” affects both the underlying contract and arbitration clause, and not the arbitration agreement “specifically,” this should not be regarded as an application of the separability presumption: it is not a decision that holds, “since the objection is to the underlying contract, it is therefore not an objection to the arbitration agreement.” (534) That would be nonsense. Rather, properly understood, this is a procedural decision, concerning the interim allocation of competence to consider the jurisdictional issues. In particular, this is a decision that it makes more sense for a dispute that implicates both the underlying contract and the arbitration agreement to be resolved in the first instance by the arbitrators, subject to ultimate judicial review. (535) In effect, in cases involving challenges that implicate both the underlying contract and the arbitration agreement, this is an analysis and a result that are very similar in many cases to the prima facie standard applied in France and elsewhere. (536) It is ironic, but perhaps comforting, that the U.S. approach uses entirely different vocabulary, but arrives at a similar place to that of the prima facie review standard used in some civil law jurisdictions. k. Applicability of First Options and Its Progeny to International Arbitration Agreements http://www.kluwerarbitration.com/CommonUI/print.aspx
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First Options and its progeny all involved domestic arbitration agreements, and did not concern the New York or Inter-American Conventions. Some authorities have suggested that First Options' analysis does not apply when U.S. courts consider page "958" (537) international arbitration agreements. Under this reasoning, commentators have suggested that the Convention requires a prima facie review standard (which would be incorporated as a matter of U.S. law by §202 of the FAA). (538) This approach appears unlikely to be accepted by U.S. courts, which have thus far applied at least the basic principles of the First Options competence-competence analysis to international arbitration agreements. (539) Further, this suggested approach would be ill-advised. It would generally require U.S. courts to apply primafacie judicial review to jurisdictional challenges to arbitration agreements providing for foreign arbitral seats, (540) while generally allowing full judicial review of U.S.-seated arbitrations. Ironically, this result would be almost exactly backwards from that adopted in Switzerland, requiring U.S. judges to deny parties access to U.S. courts, based on a prima facie jurisdictional review, in circ*mstances where it was very possible that no subsequent U.S. judicial review of the arbitrators' jurisdictional award would occur. As noted above, it is precisely to avoid this result that Swiss courts require full judicial review with regard to arbitration agreements providing for foreign arbitral seats, while affording only page "959" primafacie judicial review with regard to arbitrations seated in Switzerland. (541) It would be ill-advised for U.S. courts to reverse this approach. 6. Competence-Competence under English Arbitration Act As with Germany, English law has modified the UNCITRAL Model Law to adopt a sui generis approach towards competencecompetence issues. (542) Prior to the English Arbitration Act, 1996, arbitral tribunals were free under English law to consider jurisdictional objections, (543) but an English court would also consider and resolve interlocutory challenges to an arbitrator's jurisdiction that were presented to it (including where one party sought to litigate the underlying suit or to obtain an anti-arbitration injunction). (544) The English Arbitration Act, 1996, adopted an approach to competence-competence issues that was significantly different from historic practice. The new Act departed from the common law approach by distinguishing the principles of competencecompetence and severability and expressly addressing each of the two principles (under §30 and §7 of the Act respectively). (545) page "960" Under the new Act: (a) unless otherwise agreed, an arbitral tribunal may consider and make a decision on its own jurisdiction, (546) subject to subsequent judicial review; (547) (b) a party who participates in arbitral proceedings (under protest) may seek interlocutory judicial determination of a jurisdictional objection, provided however that the parties to the arbitration agree or the arbitral tribunal permits and the court approves; (548) (c) a party who http://www.kluwerarbitration.com/CommonUI/print.aspx
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participates in arbitral proceedings (under protest) may challenge any resulting award on jurisdictional grounds with de novo judicial review; (549) and (d) a party who refuses to participate in the arbitration may either (i) seek immediate judicial determination of its jurisdictional objections, (550) or (ii) challenge any resulting award with de novo review by the English courts of issues of substantive jurisdiction. (551) Although the issue has been infrequently presented, it also appears that parties are permitted under English law to agree to alternative resolution of jurisdictional objections, including that the arbitral tribunal should have competencecompetence to make a binding determination of jurisdiction (in the First Options sense), subject to limited or no judicial review. (552) page "961" Where a party challenges only the existence, validity, or legality of the underlying contract, and not the arbitration clause specifically, any jurisdictional objection must ordinarily be submitted to arbitration. (553) As the House of Lords and English Court of Appeal recently held, “the arbitration clause, being a severable agreement, is not directly impeached by whatever ground is used to attack the invalidity of the contract in which the arbitration clause is contained.” (554) Rather, as discussed above, a party must advance a “special reason” that impeaches the arbitration clause in particular.” (555) In this regard, the House of Lords has emphasized the “doctrine of separability requires direct impeachment of the arbitration agreement before it can be set aside,” and that this “is an exacting test.” (556) According to the Law Lords, the jurisdictional challenge “must be based on facts which are specific to the arbitration agreement,” and that “[a]llegations that are parasitical to a challenge to the validity to the main agreement will not do.” (557) As a practical matter, the English Arbitration Act has the effect that jurisdictional decisions will generally be made, in the first instance, by an arbitral tribunal, (558) subject to subsequent judicial review – but not where a party refuses to page "962" participate in the (559) arbitration. This gives a party the right (absent contrary agreement) to obtain immediate judicial resolution of jurisdictional objections, albeit at the cost of not participating in the arbitration or, alternatively, affirmatively commencing litigation before the arbitration is initiated. (560) Even where a party commences litigation before an arbitration is initiated, however, English courts will not necessarily decide jurisdictional objections (and may instead decide as a matter of discretion to refer them to arbitration). (561) Where a party challenges only the scope of an admittedly valid arbitration agreement, or where the validity of the arbitration agreement is bound up with issues relating to the merits of the parties' dispute, English courts may refer these issues to arbitration in the first instance. (562) As one court explained: “The Arbitration Act does not require a party who maintains that there is no arbitration agreement to have that question decided by an arbitral tribunal.… [N]ormally a court would first have to be satisfied that there is an arbitration agreement before [granting a stay of litigation].… There will however be cases http://www.kluwerarbitration.com/CommonUI/print.aspx
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where it would be right to defer the decision, particularly, for example, if the determination of whether or not a contract was made also embraces the determination of the scope of the contract and its ingredients … [I]n [certain] cases it may be appropriate to leave the matter to be decided by an arbitrator. [Such a course] is likely to be adopted only where the court considers that it is virtually certain that there is an arbitration agreement or if there is only a dispute about the ambit or scope of the arbitration agreement.” (563) page "963" This approach parallels that adopted by the better-reasoned authority under the FAA and First Options analysis, regarding disputes about the scope of the arbitration clause, (564) as well as under the UNCITRAL Model Law, distinguishing between issues of scope and validity, on the one hand, and between challenges to the arbitration agreement specifically and the underlying contract, on the other. (565) As with U.S. authority, the English approach also introduces a discretionary element into the treatment of jurisdictional objections – depending, for example, on the court's initial appraisal of the strength of the jurisdictional objection. (566) If a party participates in arbitral proceedings, and challenges the tribunal's jurisdiction, it must do so in a timely fashion (as prescribed in the Arbitration Act); failure to do so will result in waiver of the objection. (567) If an arbitral tribunal decides upon its own jurisdiction, then its award will be subject to review under §67 of the English Arbitration Act, 1996, provided the matter has been raised before the arbitrators during the proceedings. (568) Except where the parties have agreed otherwise, that judicial review will be de novo, (569) it is reasonably clear from the text of the Act that both positive and negative jurisdictional awards are subject to judicial review under §67. (570) page "964" 7. Competence-Competence under Other National Arbitration Legislation Other developed national legal systems adopt different approaches to the subject of competence-competence. Under the Swedish Arbitration Act, the arbitrators' competence-competence to consider jurisdictional challenges is expressly recognized, but parties are granted the right to seek full interlocutory judicial consideration of all jurisdictional objections at any time. (571) That is made explicit by §2 of the Swedish Act, which provides: “The arbitrators may rule on their own jurisdiction to decide the dispute. The aforesaid shall not prevent a court from determining such a question at the request of a party.” (572) The Swedish judicial review is de novo, not primafacie. (573) It is unclear whether Swedish courts would give effect to a First Optionstype agreement to resolve jurisdictional disputes by arbitration, although the legislative text provides a clear basis for doing so. (574) The Swedish Arbitration Act provides expressly that an arbitral tribunal's positive jurisdictional rulings are only provisional, and http://www.kluwerarbitration.com/CommonUI/print.aspx
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subject to subsequent judicial review. (575) Other national legislation is similar to the Swedish model in mandatorily providing for full interlocutory judicial review of all jurisdictional objections at any time. That is the case in China, (576) where Article 20 of the Chinese Arbitration Law provides: “If a party challenges the validity of the arbitration agreement, he may request the arbitration commission to make a decision or apply to the People's Court for a ruling. If one party requests the arbitration commission to make a page "965" decision and the other party applies to the People's Court for a ruling, the People's Court shall give a ruling.” The same approach is apparently adopted in Japan, (577) Israel (578) and South Africa. (579) In each of these jurisdictions, parties apparently have an essentially absolute right to an interlocutory judicial determination of jurisdictional objections, rather than being required to await or seek an initial arbitral decision. 8. Future Directions: The Competence-Competence Doctrine The wide diversity of legislative and judicial approaches to the competence-competence doctrine in developed legal systems is relatively unusual in the field of international commercial arbitration. This diversity contrasts with the approach to many other basic aspects of the legal regime for international arbitration, where there is broad consensus among developed (and many other) states. Given this diversity, it is appropriate to consider in some detail the advantages and disadvantages of the different national law approaches to the main features of competence-competence doctrine. This is of relevance for both legislative reform purposes and, where statutory text will permit, judicial interpretation of existing legislative provisions. (580) a. Circ*mstances in Which Competence-Competence Exists: The Arbitrators' Presumptive Competence-Competence The differences between most national laws in their treatment of the question whether arbitral tribunals will possess competencecompetence, defined broadly and in its positive sense, are relatively modest. Every developed national legal regime recognizes the principle that arbitral tribunals have the power to consider and decide jurisdictional disputes and that this power exists irrespective of any agreement expressly conferring it on the arbitrators. (581) Put differently, there need not be any arbitration agreement expressly granting competence-competence in page "966" order for such power to exist by virtue of the parties' implied intentions and the force of applicable national law. Virtually no authorities support the notion that, when presented with a challenge to its jurisdiction, an arbitral tribunal must cease work and await judicial resolution of the jurisdictional challenge. (582) Indeed, this would be contrary to the arbitrators' mandate promptly to resolve the parties' dispute. (583) The absurdity of such a result was forcefully stated by an early English judicial decision (which, otherwise, took a relatively restricted view of an arbitral tribunal's http://www.kluwerarbitration.com/CommonUI/print.aspx
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competence-competence): “It is not the law that arbitrators, if their jurisdiction is challenged or questioned, are bound immediately to refuse to act until their jurisdiction has been determined by some court which has the power to determine it finally. Nor is it the law that they are bound to go on without investigating the merits of the challenge and to determine the matter in dispute, leaving the question of their jurisdiction to be held over until it is determined by some Court which had power to determine it. They might then be merely wasting their time and everybody else's. They are not obliged to take either of those courses.” (584) Consistent with this, international authority overwhelmingly provides that the arbitral tribunal presumptively may consider and at least provisionally decide disputes concerning the tribunal's jurisdiction. (585) This is true regardless whether or not the parties' arbitration agreement expressly provides such authority, because the power to consider jurisdictional issues is presumptively an inherent power of the arbitral tribunal (unless the parties have agreed to the contrary). (586)
As also discussed above, the competence-competence of international arbitral tribunals is expressly mandated in the European Convention (587) and implicitly required by the New York (and Inter-American) Convention. (588) This virtually uniform acceptance of the jurisdictional competence of international arbitrators page "967" gives the competence-competence doctrine the status of a rule of international law, binding on national courts and arbitral tribunals (absent contrary agreement). (589) This principle does not address the allocation of jurisdictional competence between national courts and arbitral tribunals, but instead merely confirms the arbitrators' authority to consider and render decisions on challenges to their own jurisdiction. It appears very likely that most developed legal systems would also provide that, if the parties agreed that an arbitral tribunal would not have competence-competence even to consider jurisdictional objections, then that agreement would be given effect. (590) Such an agreement would be very unusual (and ill-advised), but arbitration is fundamentally a creature of contract, and the parties' agreement that particular categories of disputes be excluded from arbitral consideration is ordinarily respected without question. (591) There is no reason to think that jurisdictional issues would be treated any differently. On the contrary, it would be particularly appropriate for disputes about the arbitrators' jurisdiction to be resolved judicially if that is what the parties have agreed. (592) The source of the competence-competence doctrine is national and international law, (593) and not (generally) a consequence of the parties' arbitration agreement. (594) As discussed above, competence-competence issues involve challenges to, and determinations regarding, the existence, validity and legality of arbitration agreements. It is almost universally accepted that the putative agreement to arbitrate cannot itself be the source of rules regarding competence to resolve disputes regarding the existence,
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validity, or legality of that same agreement. (595) Rather, it is national (and international) law that provide the source for the competence-competence doctrine in these cases. Some critics have questioned the wisdom of the competencecompetence doctrine. According to one writer: page "968" “Kompetenz-Kompetenz and separability cannot be satisfactorily rationalized under the strict technical arguments of the leading treatises. Their role can be better appreciated in political terms as indispensable in empowering arbitration with the capacity to function effectively as a medium disempowering national laws to be displaced by alternative legal regimes.” (596) This criticism is misconceived. The competence-competence doctrine is not the product of technical arguments, nor a medium for disempowering national laws. On the contrary, the competencecompetence doctrine is a product of the parties' presumptive intentions, as well as an almost universally-adopted legislative decision, affirmed in both international instruments (the European and New York Conventions) and national legislation (the UNCITRAL Model Law and most other national arbitration statutes). The doctrine therefore does not disempower national laws, but on the contrary is the result of applying the express terms of those laws, which affirm the doctrine. Equally, no arbitral award or jurisdictional determination is effective unless and until recognized by a national court, again, applying national law. As discussed above, the reason that international arbitration conventions and national arbitration statutes grant arbitral tribunals competence-competence is because the parties' intentions so require (where they have made an agreement), because the arbitral process is facilitated and greater efficiencies are realized and because justice is better served if an arbitral tribunal is permitted to consider and decide jurisdictional objections. (597) More fundamentally, international arbitration conventions and national legislation have adopted these rules of competence-competence in order to facilitate the arbitral process, in turn as a central means of encouraging international commerce (598) and guaranteeing the liberty of private parties to order their commercial affairs. (599) In so doing, national legislatures have hardly acted to disempower national law, but rather to encourage and protect the individual freedom upon which developed national legal systems rest. b. Agreements to Finally Resolve Jurisdictional Issues by Arbitration National approaches differ in their treatment of the parties' autonomy to grant an arbitral tribunal the power finally to resolve jurisdictional disputes. Under the First Options analysis in the United States, parties may agree to arbitrate jurisdictional disputes, which creates a form of enhanced competence-competence. (600) The same page "969" result applies under English law. (601) This is not, however, a unanimous view: the German legislature apparently abolished Germany's historic approach to the “KompetenzKompetenz” doctrine in 1998, instead providing that parties were mandatorily prohibited from agreeing to arbitrate jurisdictional
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disputes in a binding manner. (602) Particularly given the fundamentally consensual character of international arbitration, there is no reason that parties' agreements to arbitrate jurisdictional disputes should not be given the same effect as agreements to arbitrate other types of issues. Indeed, such arbitration agreements are subject to mandatory recognition and enforcement under the New York Convention, no differently from other arbitration agreements. (603) In the most simple illustration, if parties to a pending arbitration expressly agree that the arbitral tribunal resolve an existing dispute about the scope (or validity) of their arbitration agreement, rather than having this dispute litigated in one or more national courts, then there is no reason that this agreement to arbitrate should not be honored. It is motivated by precisely the same considerations as other agreements to arbitrate (i.e., a desire for efficient neutral, expert and centralized proceedings) (604) and it serves both public and private interests to give effect to this agreement in the same manner as these interests are served by the enforcement of other arbitration agreements. Indeed, as discussed above, the parties' agreement is entitled to recognition under Article II of the New York Convention (and analogous provisions of national law), again, in the same manner as any other agreement to arbitrate. (605) From this conclusion, it is only a small, and irresistible, step to the conclusion that an agreement to submit future jurisdictional disputes to arbitration is valid. Where, for example, parties agree that the arbitrators shall resolve finally “any disputes relating to the agreement, including any disputes concerning the scope of this arbitration agreement,” there is no reason to deny effect to the parties' agreement. Again, such an agreement is inspired by the same objectives, and protected by the same legal regimes, as other arbitration agreements. (606) page "970" One may fairly debate when parties should be held to have in fact concluded an agreement to arbitrate jurisdictional disputes. Equally, one may fairly conclude that courts should impose some requirement for a clear statement of the intention to arbitrate jurisdictional disputes. That is the rationale of the U.S. Supreme Court in First Options, which required “clear and unmistakable” evidence of an agreement to arbitrate jurisdictional issues, (607) on the grounds that parties may not expect to arbitrate jurisdictional issues. (608) That conclusion does not, however, contradict the parties' autonomy to agree to arbitrate jurisdictional disputes, but instead rests on recognition of such autonomy and prescribes an interpretative rule to ascertain how that autonomy has been exercised. (609) c. Interlocutory Judicial Consideration of Jurisdictional Issues: Timing and Judicial Review Virtually all developed legal systems agree that judicial (as distinct from arbitral) resolution of jurisdictional disputes must ultimately be available (absent contrary agreement). Nonetheless, there are significant differences in the allocation of jurisdictional competence between national courts and arbitral tribunals, and in particular in the time at which, and the way in which, judicial consideration of http://www.kluwerarbitration.com/CommonUI/print.aspx
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jurisdictional disputes should occur. There are also significant differences in how different legal regimes treat disputes concerning theexistence, validity, or legality of an arbitration agreement, on the one hand, and disputes concerning the scope of an arbitration agreement, on the other hand. As discussed above, national approaches range across a spectrum, with French, Hong Kong and Indian courts permitting very limited interlocutory judicial consideration of any jurisdictional objections (typically on a prima facie basis); U.S., English, and Canadian courts, as well as the UNCITRAL Model Law, permitting full interlocutory judicial consideration in some, but not all, cases, depending upon the nature of the jurisdictional objection and considerations of efficiency and fairness; and Swedish and Chinese courts permitting full interlocutory judicial consideration of jurisdictional issues in almost all circ*mstances. There are serious reasons arguing in favor of each of the various national approaches which have been adopted to the allocation of jurisdictional competence page "971" between national courts and arbitral tribunals. There is also no perfect approach to the subject. Nonetheless, for the reasons detailed below, the better approach would be to consider the allocation of competence over jurisdictional objections as an issue of efficiency, fairness and institutional competence – in a manner akin to the use of the lis pendens doctrine in common law jurisdictions. (610) That is, in deciding whether or not full interlocutory judicial consideration of jurisdictional issues should be available, decisive weight should be accorded to a case-by-case assessment of questions of efficiency, fairness and institutional competence, rather than to efforts to adopt clear-cut legal categories for allocating judicial and arbitral competence: the question should be, in each case, which forum – judicial or arbitral – can most efficiently, competently and fairly make the initial jurisdictional determination? It is ultimately unsatisfactory to define the nature and timing of interlocutory judicial review of jurisdictional issues solely through absolute rules or abstract categorizations of different types of jurisdictional objections to the existence, validity, or legality of arbitration agreements. (611) This conclusion is suggested by the unusual level of disagreement among leading states on this subject, with numerous national legal systems adopting just such absolute categorizations and rules for the allocation of jurisdictional competence – all of which differ significantly from one another. Thus, some states provide that full judicial consideration is always available (Sweden/China) and others provide that it is never available (France/India), while yet other states conclude that all disputes concerning “solely legal” issues (Canada), or that all challenges directed “specifically” at the arbitration agreement or at the formation of the underlying contract (United States/England) (612) are for full interlocutory judicial consideration. None of these categorizations is ultimately a satisfactory way of achieving the objectives of rules allocating competence over jurisdictional objections. As noted above, these objectives are (a) ensuring that interlocutory judicial consideration of jurisdictional challenges does not produce unnecessary delays in the arbitral process; (613) (b) avoiding unnecessary waste and the cost of arbitral proceedings when page "972" no jurisdiction exists; http://www.kluwerarbitration.com/CommonUI/print.aspx
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(614) (c) obtaining the benefits of an initial decision by the decisionmaker with the greatest institutional competence; (615) and (d) not
obligating parties who never agreed to arbitrate to participate in arbitral proceedings and not obligating parties who agreed to arbitrate to participate in judicial proceedings. (616) This final factor has particular force in international matters, where the parties' presumptive desire to avoid litigation in one another's home courts underscores the importance of giving effect to valid arbitration agreements. (617) None of the various allocations of jurisdictional competence adopted by different national legal regimes provide satisfactory means of achieving the foregoing objectives. In particular, it is arbitrary and often wasteful and/or unfair to require full interlocutory judicial consideration of all jurisdictional objections (Sweden/China), which can result in delays to the arbitral process and preempt an initial decision by the more competent decision-maker. Equally serious difficulties exist when full interlocutory judicial consideration is never permitted for any jurisdictional objection (France/India), which can result in the unnecessary costs and delays of a lengthy arbitral proceeding (particularly where jurisdictional issues are not resolved until a final award on the merits). The same conclusion applies to rules providing for interlocutory judicial consideration of jurisdictional objections raising purely “legal” issues (Canada) or jurisdictional objections directed “specifically” at the arbitration clause or at the existence of the underlying contract (England/United States): neither of these rules produces results that are tailored towards avoiding unnecessary costs and delays or towards protecting parties from being required to participate in arbitral proceedings that they never consented to or judicial proceedings that they contracted out of. Equally, each of these standards is difficult and unsatisfying to apply in practice, as illustrated by the substantial number of irreconcilable U.S. judicial decisions on the subject. (618) The better approach to the allocation of jurisdictional competence is instead to accord decisive weight to the relevant efficiencies and equities in a case-by-case assessment of individual cases, guided by a limited number of general presumptions. These presumptions would provide guidance for decision-making, but could be rebutted in particular cases. page "973" First, jurisdictional challenges based on the scope of the arbitration clause should presumptively be for the arbitrator, (619) with either no or only prima facie interlocutory judicial review. This approach would parallel that under the UNCITRAL Model Law and in better-reasoned U.S. and English decisions. (620) As discussed above, under these regimes, objections based on the scope of the arbitration clause are generally referred to arbitration or subjected to a form of judicial primafacie review (provided that there is not also a challenge to the validity of the arbitration agreement). (621) As already detailed, this approach rests on the theory that resolution of questions of scope are often inextricably linked to the substance of the parties' underlying contract and legal obligations, (622) and are therefore appropriate for arbitral resolution. (623) It also rests on the notion that a party who has indisputably agreed to arbitrate certain matters has both less basis for complaining about being denied access to national courts and greater expectations that disputes about the scope of its arbitration agreements will be subject http://www.kluwerarbitration.com/CommonUI/print.aspx
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to arbitral resolution. (624) In these particular circ*mstances, the policy rationales underlying the prima facie approach to judicial consideration in France, Switzerland and India, (625) may appropriately be given effect. In particular, the desirability of effectuating the parties' expectations as to the dispute resolution forum (pursuant to a concededly valid arbitration agreement) and of centralizing dispute resolution in a single neutral forum are all advanced by this approach. In general, the better course would be to provide for no interlocutory judicial review of jurisdictional objections based upon the scope of the arbitration agreement. This avoids judicial interpretations of the parties' underlying contract (which, while essential to most scope disputes, is undeniably the arbitrators' function). It also avoids the risk, in international cases, of unnecessary involvement by the parties' page "974" respective home courts in resolving disputes where the parties have concededly agreed to arbitration. Nonetheless, if cabined, prima facie judicial review of jurisdictional objections, particularly where this was shown to produce efficiencies, would also have advantages (of avoiding the costs of arbitrating disputes that are manifestly outside the scope of the arbitrators' jurisdiction). (626) Second, if the validity or legality of only the parties' underlying contract, and not their separable arbitration agreement, is challenged, then there will be no jurisdictional objection and no issue of competence-competence will arise. (627) In these cases, there is no question but that the arbitral tribunal has the competence finally to decide the status of the underlying contract, without thereby raising any jurisdictional issues. Third, the better view is that interlocutory judicial decisions on nonfrivolous jurisdictional challenges directed specifically at the existence, validity, or legality of the arbitration agreement should presumptively be available to parties that desire and promptly seek such decisions. It is important that parties be denied access to national courts, and instead required to arbitrate, if – and only if – they have agreed to such a result. (628) Where there is a credible dispute regarding the existence, validity, or legality of any arbitration agreement, access to judicial resolution of the issue should in principle be available before a party must incur the burdens, expenses and risks of arbitration of the merits of a dispute. Thus, save where a court considers that there is no credible basis for a jurisdictional objection concerning the existence, validity, or legality of the arbitration agreement, the court should presumptively decide that objection following full (not prima facie) consideration of the issue. This is in part a question of efficiency. As one English court correctly explained, interlocutory judicial consideration of a jurisdictional objections is ordinarily the “cost-effective thing to do,” because: “to send the matter off to the arbitrators now would require the extra cost of the constitution of the arbitral body (three arbitrators), a mechanism for the determination of the points by them (whether by oral hearing or not) and a possible appeal back to this court at the end. That hardly seems sensible.” (629) Other courts, as well as soundly-reasoned commentary, have made http://www.kluwerarbitration.com/CommonUI/print.aspx
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similar observations about the efficiencies of early judicial jurisdictional determinations. (630) page "975" Arbitral proceedings can take months to constitute a tribunal, can last several years before a final award and can cost very substantial amounts of money and other resources. (631) If arbitral proceedings have not (or only recently) been commenced, and judicial determination of the existence of an arbitration agreement is postponed until after an arbitral award is rendered, the substantial costs of the arbitration may be wasted and substantial time will have been unnecessarily expended. (632) More importantly, where a party challenges the existence or validity of any agreement to arbitrate, denial of judicial access and participation in an arbitral proceeding is not merely a question of expense. It also entails the involvement of the party (and/or its officers and employees) in the arbitration, which subjects it (and them) to significant obligations and risks. (633) To effectively force a party to arbitrate the merits of a dispute, without being able to seek judicial review, in circ*mstances where it challenges the existence of any agreement to do so, is to page "976" deny it a fundamental right of access to the courts, recognized in all developed states, (634) and potentially to expose it unnecessarily to significant legal and other risks, which should be justifiable only when justified by extenuating circ*mstances. The foregoing conclusion is consistent with the weight of international authority. The New York Convention provides that (absent contrary agreement) a court is obliged to refer parties to arbitration “unless it finds that the said agreement is null and void, inoperative or incapable of being performed.” (635) This language and the Convention's drafting history envisage that courts will consider and finally decide the merits of jurisdictional objections relating to the existence and validity of the arbitration agreement prior to referring parties to arbitration. (636) The text and the drafting history of Article 8 of the UNCITRAL Model Law are to the same effect. (637) Not surprisingly, it was the overwhelming practice, until French judicial decisions first rendered during the 1990s, for courts to determine jurisdictional objections on the merits when they were presented by the parties. (638) It has been suggested that the “negative effect of the competencecompetence principle” is that national courts may not, or should not, consider jurisdictional issues until after an arbitral award. (639) This suggestion confuses the negative effect of a valid agreement to arbitrate with the purported negative effect of a disputed agreement to arbitrate. Where there is an undisputed agreement to arbitrate, or where a court finds that there is such an agreement, then the negative effect of that agreement is to require courts to refer the matter to arbitration. (640) However, where one party denies the existence of a valid agreement to arbitrate, then it is inaccurate to speak of the “negative effect” of any such agreement; at most, one can speak of the “disputed negative effects” of a disputed arbitration agreement. These purported effects are not sufficient to provide a legally-binding bar against interlocutory judicial determination of a party's jurisdictional objections; at most, these purported effects can be relevant to the http://www.kluwerarbitration.com/CommonUI/print.aspx
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procedural question of how arbitral and judicial consideration of jurisdictional objections should most sensibly be structured. page "977" It is also sometimes suggested that postponing judicial consideration of jurisdictional issues until after a jurisdictional award assists in “centralizing” judicial determination of jurisdictional issues in the courts of the arbitral situs. (641) This is again mistaken in the context of challenges to the existence, validity, or legality of the arbitration agreement. (642) As discussed above, the better-reasoned approach under U.S., English and UNCITRAL regimes presumptively provides for interlocutory judicial determination of jurisdictional issues only in situations where a party denies that there is any valid arbitration agreement. (643) In these circ*mstances, the objective of “centralizing” judicial consideration in the putative arbitral seat rests on what is at best an illusory foundation: if there is no arbitration agreement, then there is also no arbitral seat in which disputes should be “centralized.” Rather, the putative arbitral seat is merely the place that one party claims (over the other party's objections) that disputes should be resolved. (644) That putative place has no necessarily legitimate centralizing function. The parties' ability to obtain interlocutory judicial resolution of a jurisdictional objection based on the existence, validity, or scope of the arbitration agreement need not materially obstruct the arbitral process. The availability of interlocutory judicial consideration is a presumption and, where a party seeks such consideration page "978" belatedly or in a manner calculated to obstruct the arbitral process, it may and should be denied. The approach adopted under UNCITRAL, U.S. and English legislation (as well as the Swedish approach) also does not require that the arbitrators suspend the arbitral proceedings (either on jurisdiction or the merits) merely because judicial consideration of jurisdictional objections is pending. (645) An arbitral tribunal would have the discretion to suspend its proceedings, if it concluded that this was fair and cost-effective, but it would not be required to do so. Thus, a request for an interlocutory judicial determination of jurisdiction should not ordinarily delay the arbitration, save where the arbitral tribunal itself concluded that this was the efficient approach to take. (646) Fourth, the general availability of full interlocutory judicial consideration of jurisdictional objections directed at the existence, validity, or legality of the arbitration clause itself is only presumptive. As discussed above, it is critical that the UNCITRAL, U.S. and English approaches to competence-competence permit a national court to stay interlocutory judicial determination of a jurisdictional issue, pending the arbitrators' award on the matter, as a discretionary matter, depending on considerations of efficiency and equity in particular cases. (647) This aspect of the U.S., English and UNCITRAL approaches is not only sensible, but should be treated as one of the guiding principles for allocating jurisdictional competence between courts and arbitrators. Under this approach, the decision whether to grant a stay of judicial consideration of jurisdictional objections will depend on a pragmatic assessment of factors such as any prejudice to the parties from http://www.kluwerarbitration.com/CommonUI/print.aspx
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either granting or not granting a stay, the relative efficiencies of judicial and arbitral decisions (e.g., How advanced is the arbitration? the litigation?), the timing of a jurisdictional challenge and the likelihood that it is a delaying tactic (e.g., Was the jurisdictional challenge made before or after the arbitration is filed? Was the jurisdictional challenge filed at the 11th hour?), the apparent strength and level of substantiation of the jurisdictional challenge (e.g., Is the jurisdictional argument vague and unsubstantiated? specific and supported by evidence?), the existence of related claims in the arbitral or judicial proceedings and the relative competencies of the courts and arbitrators (e.g., Are only factual or contractual issues relevant? Are “foreign” legal issues, as to which the arbitral tribunal has greater expertise, involved?). This approach permits a more sensitive and cost-effective approach to the allocation of jurisdictional competence than that adopted by the French, Canadian and Swedish/Chinese models, as well as that of a number of U.S. judicial decisions, page "979" which generally impose solutions based on comparatively abstract categorizations. Notably, much the same approach is adopted under the European Convention, which adopts a rebuttable presumption for initial arbitral consideration of jurisdictional objections, with the possibility of interlocutory judicial consideration in exceptional cases. (648)
Thus, where a jurisdictional objection that appears weak is raised in court at a late stage (e.g., after the tribunal is constituted and the parties have begun to address the jurisdictional objections in the arbitral proceedings), and would cause substantial inconvenience to one party, the presumption in favor of full interlocutory judicial consideration would generally be overcome. That would be particularly true where the existence or validity of the arbitration agreement was governed by foreign law (i.e., foreign to the relevant judicial forum), as to which the arbitral tribunal had expertise. Where only some of these factors were involved, then courts would have discretion to determine whether or not to engage in full judicial consideration of the jurisdictional objection, based on their assessment of the equities and efficiencies of the case. Conversely, where a well-articulated and substantiated jurisdictional objection to the existence or validity of the putative arbitration agreement is raised in litigation, prior to constitution of an arbitral tribunal, then it would often be sensible for the court to resolve the objection on the merits. Where no arbitral tribunal has been constituted, presumptively permitting full interlocutory judicial consideration often avoids the wasted costs and risks of arbitral proceedings, which may lack any jurisdictional basis, while affording parties access to judicial remedies – which ought not be denied save where it has been judicially determined that a valid arbitration agreement exists. That would be particularly true where no or few factual disputes were present and where the relevant legal issues were governed by the law of the relevant judicial forum. Fifth, interlocutory judicial review should presumptively not be available where a jurisdictional challenge is directed at the validity or legality of both the arbitration agreement and underlying contract, while this presumption should be reversed where the existence of the underlying contract is challenged. Although generalizations are difficult, challenges to the validity or legality of the underlying contract typically involve factual or contractual issues that are wellsuited for initial arbitral determination and that often do not impeach http://www.kluwerarbitration.com/CommonUI/print.aspx
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the validity or legality of the arbitration clause itself. (649) On the other hand, challenges to the existence of the underlying contract often also impeach the separate arbitration agreement, thereby warranting a presumption of interlocutory judicial access. (650) With regard to both these categories of challenges to the underlying contract, the presumptive allocation of jurisdictional competence should be tentative and page "980" readily subject to rebuttal. As discussed above, it is difficult to draw clear or principled distinctions between challenges directed “specifically” to the arbitration agreement and challenges directed “generally” at the underlying contract. (651) In these circ*mstances, the better course is to focus instead on the apparent substantive strength of the jurisdictional objection, the likely costs and delays of interlocutory judicial consideration (and of no interlocutory judicial consideration) and similar factors. At bottom, the allocation of jurisdictional competence between national courts and arbitral tribunals should be treated as a matter akin to issues of lis pendens. Both arbitral tribunals and national courts have the competence to consider jurisdictional objections and the timing and nature of their respective decision-making processes and decisions should rest on considerations of efficiency, fairness and competence, rather than being defined by absolute categorizations. This approach better achieves the goals of the arbitral process, and the objectives of commercial parties, than other allocations of jurisdictional competence. d. Judicial Review of Positive Jurisdictional Awards There are also differences among national legal regimes in the level of judicial review of arbitral awards upholding the tribunal's jurisdiction. In some countries, including France, Switzerland and Germany, de novo judicial review is conducted on all factual and legal issues involved in a jurisdictional award. (652) In other legal systems, including particularly the United States and England, different levels of judicial review will apply to jurisdictional awards depending upon the terms of the parties' arbitration agreement: in some cases, the same minimal judicial review will apply as in the case of arbitral awards on the merits of the parties' dispute, and in other cases, de novo judicial review will apply. (653) Thus, as discussed above, First Options holds that a tribunal's positive jurisdictional award will be subject to minimal judicial review under the FAA if the parties have agreed to arbitrate jurisdictional disputes. This approach is often said to be different from the more demanding scrutiny applicable under most national legal regimes, (654) and has frequently been criticized on the grounds that it grants page "981" arbitrators unduly wide authority to determine their own jurisdiction. (655) This criticism is misplaced and, upon analysis, the differences between First Options and other approaches to judicial review of jurisdictional awards are less significant than often asserted. The essential holding of First Options is that a tribunal's jurisdictional award will be subject to minimal judicial review where (but only where) the parties have agreed to arbitrate jurisdictional issues. Where such an agreement exists, it is not merely appropriate, but required by the New York Convention and the basic principles of http://www.kluwerarbitration.com/CommonUI/print.aspx
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most national arbitration legislation, that jurisdictional awards be subject to the same de minimis judicial review as other arbitral awards in recognition proceedings. (656) Where parties have agreed to arbitrate jurisdictional issues, the arbitral tribunal's award on such issues is indistinguishable from, and entitled to the same presumptive validity and judicial deference as, a determination on the merits. An agreement to arbitrate jurisdictional issues, and a resulting award, is no different, as to issues of validity and enforceability, than an agreement to arbitrate non-jurisdictional issues, and a resulting award. (657) Thus, if parties entered into a separate post-dispute submission agreement, in which they agreed for the arbitral tribunal to decide a jurisdictional issue of capacity or duress, there is no reason to doubt that this particular arbitration agreement would be valid and enforceable and that the merits of the resulting award (on issues of capacity or duress) would be subject to minimal judicial review. (658) The same conclusion applies with equal force to a predispute contractual arbitration agreement. (659) Again, this is a simple application of the New York Convention and provisions of national law regarding annulment and recognition of arbitral awards. (660)
It is sometimes argued that arbitrators' determinations of their own jurisdiction are suspect, because arbitrators are usually private practitioners, of some sort, engaged in the business of providing legal services for a fee. Some authorities page "982" suggest that the prospect of earning fees from an arbitration will influence arbitrators to uphold, rather than reject, their own jurisdiction. (661) This analysis also notes that, in many nations, judges and other governmental authorities are forbidden from having a personal financial interest in the outcome of their decisions, (662) a prohibition which is supposedly contradicted by the arbitrator's competencecompetence. As one national court judge put it: “Our deference to arbitrators has gone beyond the bounds of common sense. I cannot understand the process of reasoning by which any court can leave to the unfettered discretion of an arbitrator the determination of whether there is any duty to arbitrate. I am even more mystified that a court could permit such unrestrained power to be exercised by the very person who will profit by deciding that an obligation to arbitrate survives, thus ensuring his own business. It is too much to expect even the most fair-minded arbitrator to be impartial when it comes to determining the extent of his own profit. We do not let judges make decisions which fix the extent of their fees, see Tumey v. Ohio, 273 U.S. 510 (1927). How, then, can we shut our eyes to the obvious self-interest of an arbitrator?” (663)
This analysis rests on faulty premises, and therefore reaches a mistaken conclusion. It is of course true that arbitrators are often professionals who earn money from the arbitrations they conduct, and that they very often desire and affirmatively welcome “business,” in the form of arbitral appointments. It is not true, however, that an arbitrator's financial incentives are aligned with upholding his or her own jurisdiction and http://www.kluwerarbitration.com/CommonUI/print.aspx
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it is particularly not true that the arbitrator's incentives are to ignore the law or facts in order to retain jurisdiction (wrongly). Under many institutional arbitration rules, and sometimes in ad hoc international cases, an arbitrator will be compensated based in significant part on the amount in dispute. (664) As a consequence, there will very frequently be instances in which an arbitrator can in fact maximize his or her short-term income by denying jurisdiction, following an evidentiary hearing, rather than by upholding jurisdiction. Among other things, proceeding to the merits of a complex technical dispute may very well page "983" be timeconsuming and relatively un-rewarding as compared to other matters, while the economic return from an early jurisdictional dismissal may produce materially higher hourly returns on the case in question. More fundamentally, an arbitrator's medium and longer-term incentives are to render objective and “correct” decisions, which win the respect of the parties, their counsel, the arbitral institution and others. An arbitrator's reputation, with both parties and appointing authorities, is gravely damaged by overreaching on jurisdictional issues, particularly if this results in an award being vacated in public proceedings. (665) Even putting aside arbitrators' professional obligations, purely monetary considerations argue strongly against skewing jurisdictional determinations one way or the other. Most fundamentally, any assessment of international arbitrators' incentives cannot be conducted in a vacuum, but must be compared to those affecting national court judges. In this regard, it bears repetition that it is precisely because of the parties' mistrust of the potential incentives and potential biases of national court judges that they agree to international arbitration in the first place. (666) The possible incentive of national courts to favor local businesses, employers, or state entities is a more serious systemic concern, by orders of magnitude, than possible (improper) financial calculations of an arbitrator. (667) As a consequence, there is no reason to skew analysis of competence-competence questions in the context of international arbitrations by reference to the arbitrators' supposed financial incentives. Those incentives seldom point significantly in one direction in the short-term, and instead ordinarily point decidedly in the direction of relative objectivity, particularly as compared to the alternatives, in the longer-term. It remains essential, however, that there be appropriate judicial review of arbitral determinations of their own jurisdiction in all cases save those where the parties have submitted such issues to the tribunal for final resolution. Where a tribunal makes a decision concerning the scope of an admittedly existent and valid arbitration agreement, no judicial review (save that applicable in the arbitral seat to all substantive decisions of the tribunal) is necessary or appropriate. Where a tribunal page "984" makes a decision regarding the validity or existence of the arbitration agreement, however, that determination must virtually (668) always be subject to de novo judicial review. (669) Equally, where a tribunal makes a decision concerning the validity or existence of the underlying contract, which at the same time addresses and resolves a jurisdictional objection, it is essential that http://www.kluwerarbitration.com/CommonUI/print.aspx
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this determination ultimately be subject to judicial review. The presumptive separability of the arbitration agreement is not grounds for dispensing with all judicial review of a jurisdictional award, including review of the application of that presumption in the particular case. Rather, it is essential that there be judicial review of arbitral decisions regarding the alleged non-existence, invalidity, or illegality of arbitration agreements – regardless whether those challenges are directed “specifically” at the agreement to arbitrate or “generally” at both the underlying contract and associated arbitration clause. (670) e. Judicial Review of Negative Jurisdictional Awards Finally, as discussed above, there are differences in some legal systems in the availability of judicial review of arbitral awards denying the existence, validity or applicability of an arbitration agreement, and awards upholding the arbitrators' jurisdiction. Under German (671) and Dutch (672) law, and arguably under the Model Law, (673) a negative jurisdictional award is not subject to judicial review (save on procedural and other generally-applicable grounds). In contrast, under French, English, Swiss, U.S. and most other developed legal systems, a negative jurisdictional award is subject to the same degree of judicial review as a positive jurisdictional determination. (674) page "985" For the reasons discussed above, the majority approach to negative jurisdictional decisions by arbitral tribunals is clearly superior. There is no reason to think that negative jurisdictional decisions merely return the parties to their “lawful” or “natural” judges. (675) On the contrary, in international disputes, negative jurisdictional decisions mean that the parties are denied a neutral, efficient and presumptively commercially-expert forum, which both commercial practice (676) and national arbitration legislation (677) favors as a means of international dispute resolution. A negative jurisdictional decision forces parties to litigate in non-neutral national courts, often in parallel or multiplicitous proceedings. Accordingly, there is no less reason to afford more limited judicial review of such decisions than of positive jurisdictional determinations. That approach is readily accomplished under most national arbitration statutes, (678) and can in particular be accommodated by Article 34(2)(a)(iv), on the rationale discussed above. (679) It is much preferable to the German and Dutch models, which should be rejected. (680) (As discussed below, an arbitral tribunal should also be held to have the power to award costs in the context of a negative jurisdictional award, as a consequence of its competence-competence and of the implied submission of the party (unsuccessfully) invoking the arbitral tribunal's authority. (681) ) page "986"
133 See supra pp. 855-876. 134 See, e.g., Award in ICC Case No. 3987, 111 J.D.I. (Clunet) 943 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(1984) (scope of arbitration agreement); Interim Award in ICC Case No. 4367, XI Y.B. Comm. Arb. 134 (1986) (scope of agreement); InterimAward in ICC Case No. 4472, 111 J.D.I. (Clunet) 946 (1984) (existence or validity of the arbitration agreement); Final Award in ICC Case No. 6437, 8(1) ICC Ct. Bull. 63 (1997); Interim Award in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312 (2000) (existence and scope of the arbitration agreement); PartialAward in ICC Case No. 10623, 21 ASA Bull. 59, 82 (2003) (effectiveness and scope of two potentially conflicting arbitration agreements); Elf Aquitaine Iran v. Nat'l Iranian Oil Co., Preliminary Ad Hoc Award (14 January 1982), XI Y.B. Comm. Arb. 97, 104 (1986) (validity of the arbitration agreement); Victor Pey Casado y Fundación Presidente Allende v. República de Chile, ICSID Award No. ARB/98/2 (8 May 2002), 2002 WL 32828407. 135 UNCITRAL Model Law, Art. 16(1); supra pp. 864-865. The Model Law also adopts the separability presumption in the same provision of Article 16. UNCITRAL Model Law, Art. 16(1); supra pp. 333-336. Accordingly, where a claim is made that the underlying contract was invalid or illegal, this does not necessarily implicate the arbitration agreement and in these instances may be for the arbitral tribunal (not a national court) to decide. See supra pp. 360-362. 136 UNCITRAL Model Law, Arts. 8, 16. 137 H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 303 n. 5, 486-487 (1989). See also I. Dore, The UNCITRAL Framework for Arbitration in Contemporary Perspective 128 et seq. (1993). 138 A. Samuel, Jurisdictional Problems in International Commercial Arbitration 26 (1989). 139 For an indication of the uncertainties surrounding the Model Law in this regard, see Bachand, Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463, 463-465 (2006) (summarizing divergent national court decisions and commentary); Kierstead, Reference to Arbitration under Article 8 of the UNCITRAL Model Law: The Canadian Approach, 31 Can. Bus. L.J. 98 (1999); Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55 (2004). 140 See infra pp. 879-899; H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 303 n.5, 486-487 (1989); Bachand, Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463 (2006). 141 UNCITRAL Model Law, Art. 16(1). 142 H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 486 (1989); P. Sanders, The Work of UNCITRAL on Arbitration and Conciliation 97 (2d ed. 2004). See also infra pp. 990997. 143 UNCITRAL Model Law, Art. 16(3). 144 UNCITRAL Model Law, Art. 16(3). 145 See supra pp. 856-861. 146 The Model Law's provisions are intended to prevent applications for interlocutory judicial review from delaying the arbitral process. H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative http://www.kluwerarbitration.com/CommonUI/print.aspx
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History and Commentary 484-486 (1989); Explanatory Note by the UNCITRAL Secretariat on the 1985 Model Law on International Commercial Arbitration as amended in 2006, ¶26 available at www.uncitral.org (“[A]rticle 16(3) allows for immediate court control in order to avoid waste of money and time. However, three procedural safeguards are added to reduce the risk and effect of dilatory tactics: short time-period for resort to court (30 days), court decision not appealable, and discretion of the arbitral tribunal to continue the proceedings and make an award while the matter is pending before the court.”). 147 UNCITRAL Model Law, Art. 8(1). 148 UNCITRAL Model Law, Art. 8(2). 149 UNCITRAL Model Law, Arts. 34(2)(a)(i), (iii). 150 UNCITRAL Model Law, Art. 8(1) (emphasis added). See A. Broches, Commentary on the UNCITRAL Model Law on International Commercial Arbitration, Art. 16, ¶¶13-18 (1990); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶14-40 to 14-48 (2003). See also infra pp. 891-892. 151 H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 306 (1989); P. Sanders, The Work of UNCITRAL on Arbitration and Conciliation 74 (2d ed. 2004). 152 As discussed below, there may be more instances in which an arbitral tribunal does not accept the jurisdictional determination of a court in the arbitral seat, either terminating or continuing arbitral proceedings despite a contrary judicial ruling. See infra pp. 10491057, 2937-2947. 153 The treatment of jurisdictional objections based on the scope of the arbitration agreement under the Model Law is discussed below. See infra pp. 891-894. 154 See infra pp. 881-894; Judgment of 13 December 1994, CLOUT Case 147, reported at www.uncitral.org/clout (Moscow City Court). 155 See infra pp. 881-891. 156 UNCITRAL Model Law, Art. 8(1). The text of Article 8(2), providing that a tribunal may continue the arbitration while judicial proceedings under Article 8(1) are pending, less clearly suggests an expectation that these judicial proceedings would be on the merits – thereby requiring a specific authorization for arbitral proceedings to continue – rather than merely prima facie. 157 Commentary suggesting that “the text of Article 8(1) provides no clear answer” to the standard of interlocutory judicial consideration of jurisdictional issues is inconsistent with the fairly decisive text of the provision. Bachand, Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463, 463 (2006). 158 The exercise of this discretion by arbitral tribunals is discussed below. See infra pp. 988-997. 159 See infra pp. 883-891, 971-981. 160 Report of the Working Group on International Contract Practices on the Work of its Fifth Session, UN Doc. A/CN.9/233, XIV UNCITRAL Y.B. 60, 67 (1983) (emphasis added); H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International CommercialArbitration: Legislative History and Commentary 303 (1989). 161 French New Code of Civil Procedure, Art. 1458. See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on http://www.kluwerarbitration.com/CommonUI/print.aspx
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International Commercial Arbitration ¶672 (1999); infra pp. 900-904. The Model Law's drafting history recorded the intended objective of the (rejected) proposal: “In support of that idea it was pointed out that it would correspond with the principle to let the arbitral tribunal make the first ruling on its competence, subject to later control by a court.” Report of the Working Group on International Contract Practices on the Work of its Fifth Session, UN Doc. A/CN.9/233, XIV UNCITRAL Y.B. 60, 67 (1983). 162 See Report of the UNCITRAL on the Work of its Eighteenth Session, UN Doc. A/40/17, XVI Y.B. UNCITRAL 3, 14-15 (1985) (Article 8: Arbitration agreement and substantive claim before court “It was suggested that paragraph (2) could be read to apply only if the arbitral proceedings had commenced prior to the commencement of the judicial proceedings. The Commission agreed that the text of paragraph (2) should be amended so as to make clear that a party was not precluded from initiating arbitral proceedings by the fact that the matter had been brought before a court. There was a divergence of opinion in the Commission as to whether the text should be amended so as to preclude the possibility that proceedings might go forward concurrently in both the arbitral tribunal and the court. Under one view, if the arbitral proceedings had already commenced, the court should normally postpone its ruling on the arbitral tribunal's jurisdiction until the award was made. That would prevent the protraction of arbitral proceedings and would be in line with article VI(3) of the European Convention. Under another view, once the issue as to whether the arbitration agreement was null and void was raised before the court, priority should be accorded to the court proceedings by recognizing a power in the courts to stay the arbitral proceedings or, at least, by precluding the arbitral tribunal from rendering an award. The prevailing view was to leave the current text of paragraph (2) unchanged on that point. Permitting the arbitral tribunal to continue the proceedings, including the making of an award, while the issue of its jurisdiction was before the court contributed to a prompt resolution of the arbitration. It was pointed out that expenses would be saved by awaiting the decision of the court in those cases where the court later ruled against the jurisdiction of the arbitral tribunal. However, it was for that reason not recommendable to provide for a postponement of the court's ruling on the jurisdiction of the arbitral tribunal. Furthermore, where the arbitral tribunal had serious doubts as to its jurisdiction, it would probably either proceed to a final determination of that issue in a ruling on a plea referred to in article 16(2) or, in exercising the discretion accorded to it by article 8(2), await the decision of the court before proceeding with the arbitration.”). 163 Bachand, Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463, 472-73 (2006) (citing Article 17 of then-prevailing draft and H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International CommercialArbitration: Legislative History and Commentary 485 (1989)). 164 Report of the Working Group on International Contract Practices on the Work of its Seventh Session, UN Doc. A/CN.9/246, XV UNCITRAL Y.B. 189, 195 (1984). 165 See, e.g., Rio Algom Ltd v. Sammi Steel Co. Ltd, XVIII Y.B. Comm. Arb. 166 (Ontario Court of Justice 1991) (1993); Bachand, Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463, 473 (2006) (“there seems to be no way around the conclusion that Article 8(1) must be interpreted as calling – at least as a general rule – for prima facie review of arbitral jurisdiction”); E. Gaillard & J. Savage (eds.), http://www.kluwerarbitration.com/CommonUI/print.aspx
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Fouchard Gaillard Goldman on International Commercial Arbitration ¶674 (1999). 166 See supra pp. 881-882. 167 See supra pp. 881-883. 168 See supra pp. 881-882. 169 Report of the Working Group on International Contract Practices on the Work of its Seventh Session, UN Doc. A/CN.9/246, XV UNCITRAL Y.B. 189, 195 (1984) (emphasis added). It is also noteworthy that the quoted explanation refers to the principle that arbitrators “initially and primarily” will decide jurisdictional objections; even putting aside the limitation to Article 16, the reference to “primarily” would appear to contemplate exceptions – which readily (and principally) refers to situations where Article 8(1) is involved. 170 See the efforts in the English Arbitration Act, 1996, and the German ZPO, to balance and reconcile parallel tracks for seeking determination of jurisdictional objections. See infra pp. 907-910 (Germany), 960-964 (England). See also infra pp. 910-964 (similar efforts of U.S. courts). 171 It has been suggested that reading Article 8(1) to permit full judicial review would “seriously imperil” the “internal coherence” of the Model Law. Bachand, Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463, 473 (2006). That argument again assumes its own conclusion: the Model Law's internal coherence depends on what standard of review Article 8(1) provides for. A foundation of the Model Law was the awareness that parties would bring litigation in national courts, which would require judicial determination of some sort of jurisdictional objections. That is the whole point of Article 8(1) (like Article II of the New York Convention). See supra pp. 881-883. It is the inevitable existence of such proceedings, which also produce judicial determinations of jurisdictional objections under Article 8(1), that results in any “internal incoherence.” 172 This approach also conforms to the Model Law's drafting history, where there was a clear recognition of the risks of delaying tactics, which could justify the prima facie judicial review approach in such circ*mstances. Report of the UNCITRAL on the Work of its Eighteenth Session, UN Doc. A/40/17, XVI Y.B. UNCITRAL 3, 15 (1985). 173 See, e.g., CTA Int'l Pty Ltd v. Sichuan Changhong Elec. Co. Ltd, BC 2002 05183 (Victoria S.Ct. 2002) (staying litigation because “it seems to me very likely that as a matter of construction” all disputes between parties are within scope of arbitration clause); Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643, 651 (Alberta Court of Appeal 1992) (1994) (in case involving claims subject to arbitration and claims (and parties) not subject to arbitration agreement, court stays all proceedings pending arbitration: “In modern commercial disputes, it is almost inevitable that many parties will be involved and very unlikely that all parties will have an identical submission.… The Convention cannot reasonably be taken as having abandoned any attempt at arbitration when this problem arises.”); Dalimpex Ltd v. Janicki, [2003] Ont. Rep. LEXIS 132 (Ontario Court of Appeal) (staying litigation against non-parties to arbitration agreement on discretionary grounds because outcome would be affected by arbitral award in dispute between parties to arbitration agreement); Paladin Agric. Ltd v. Excelsior Hotel (Hong Kong) Ltd, [2001] 2 HKC 215 (H.K. Court of First Instance, High Court) (staying litigation involving non-party pending arbitration of related disputes); Fibreco Pulp Inc. v. Star Shipping A/S, [2000] 257 N.R. 291 (Canada Fed. Ct. App.) (staying http://www.kluwerarbitration.com/CommonUI/print.aspx
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litigation pending arbitration of dispute among some, but not all, litigants). See also M. Bühler & T. Webster, Handbook of ICC Arbitration 103 (2005) (“The relevant circ*mstances [to determining whether to consider an interlocutory jurisdictional challenge] would include the relative strength or weakness of the arbitration agreement and the attack on it; the importance of a rapid decision for one or both the parties and the court which has been seized of the jurisdictional issue and the timing of the court proceedings.”); Dell Computer Corp v. Union des consommateurs, 2007 SCC 34 (Canadian S.Ct.). 174 See infra pp. 891-894; Canadian Nat'l Railway Co. v. Lovat Tunnel Equip. Inc., 174 D.L.R.4th 385 (Ontario Court of Appeal 1999) (correct interpretation of the arbitration clause required a referral to arbitration and stay of the proceedings). 175 See, e.g., Judgment of 7 October 2002, 2003 NJW-RR 354 (Bavarian Oberstes Landesgericht). 176 See, e.g., Nanisivik Mines Ltd & Zinc Corp. of Am. v. Canarctic Shipping Ltd, [1994] 2 F.C. 662 (Canada Fed. Ct. App.) (arbitration clause in a charter party does not bind parties to an associated bill of lading; therefore lower court erred in referring this claim to arbitration); Thyssen Canada Ltd v. Mariana Maritime SA, [2000] 3 F.C. 398 (Canada Fed. Ct. App.) (court required to consider if arbitration clause had been incorporated into contract); Stella-Jones Inc. v. Hawknet Ltd, [2002] F.C.J. (Quicklaw) No. 777 (Canada Fed. Ct. App.) (no arbitration agreement). 177 Yawata Ltd v. Powell, [2000] D.C.R. 334 (Wellington Dist. Ct.). 178 See, e.g., Fustar Chem. Ltd v. Sinochem Liaoning Hong Kong Ltd, [1996] 2 HKC 407 (H.K. High Court, S.Ct.) (court considered and rejected requirement that the arbitration agreement had been repudiated and therefore granted a stay of the proceedings); Westo Airconditioning Ltd v. Sui Chong Constr. & Eng'g Co., [1998] 1 HKC 254 (H.K. Court of First Instance, High Court) (court finds valid arbitration agreement between the parties); Tommy C.P. Sze & Co. v. Li & Fung (Trading) Ltd, 2002 HKCU LEXIS 1634 (H.K. Court of First Instance, High Court); Thorn Security (Jong Kong Ltd) v. Cheung Fee Fung Cheung Constr. Co., [2005] 1 HKC 252 (H.K. Court of Appeal, High Court) (court holds no arbitration agreement exists). 179 See, e.g., Walter Rau Neusser Oel und Fett AG v. Cross Pac. Trading Ltd, XXXI Y.B. Comm. Arb. 559 (Australian Fed. Ct. 2005) (2006) (court rejected argument that arbitration agreement was void because one party had been struck off the relevant companies register and then been re-instated, stay granted in part); Recyclers of Australia Pty Ltd v. Hettinga Equip. Inc., (2000) 175 A.L.R. 725 (Australian Fed. Ct.) (court required to consider Iowa law in deciding whether pre-contractual representations were subject to arbitration). 180 Some commentators conclude that the Model Law provides for only prima facie judicial review. See, e.g., Bachand, Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463, 473 (2006); Branson, The Enforcement of International Commercial Arbitration Agreements in Canada, 16 Arb. Int'l 19 (2000); Fortier, Delimiting the Spheres of Judicial and Arbitral Power: “Beware, My Lord, of Jealousy,” 80 Can. Bar Rev. 143 (2001); Marquis, La compétence arbitrale: une place au soleil ou à l'ombre du pouvoir judiciaire, 21 RDUS 303 (1990). 181 Shin-Etsu Chem. Co. Ltd v. Aksh Optifibre Ltd, XXXI Y.B. Comm. Arb. 747, 784 (Indian S.Ct. 2005) (2006) (Srikrishna, J.) (judicial consideration of validity of arbitration agreement “would have to be determined by the trial court after arriving at the prima http://www.kluwerarbitration.com/CommonUI/print.aspx
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facie satisfaction that there exists an arbitration agreement, which is not “null and valid, inoperative or incapable of being performed'”). See infra pp. 890-891. 182 See, e.g., Gulf Canada Resources Ltd v. Arochem Int'l Ltd, 66 BCLR2d 113 & 114 (B.C. Court of Appeal 1992); Kingsway Fin. Servs. Inc. v. 118997 Canada Inc., REJB 1999-15989 (Quebec Court of Appeal); Dalimpex Ltd v. Janicki, [2003] Ont. Rep. LEXIS 132 (Ontario Court of Appeal). Some commentators have suggested that other Canadian decisions adopt a prima facie standard, citing Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994); Kvaerner Enviropower Inc. v. Tanar Indus. Ltd, 24 Alta.L.R.3d 365 (Alberta Court of Appeal 1994). This analysis appears flawed: these decisions instead generally apply a standard of full judicial review, while being prepared to grant discretionary review of disputes or claims even if they are not subject to arbitration, but relate to arbitrable disputes. Both cases accept that in some circ*mstances, it may be appropriate to say court proceedings regarding related, but non-arbitrable, disputes. Ibid. As discussed below, the Canadian Supreme Court recently adopted a different approach in Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (Canadian S.Ct.), holding that certain jurisdictional disputes (involving only legal issues) required full judicial review and that other jurisdictional disputes (involving factual or mixed legal and factual issues) required only prima facie review. See infra pp. 888-889. 183 Skandia Int'l Ins. Co. v. Al Amana Ins. & Reins. Co., XXIV Y.B.
Comm. Arb. 615 (Bermuda S.Ct. 1994) (1999) (“I think that from a prima facie assessment of the evidence it can be inferred that there exists arbitration agreements.”). 184 See, e.g., Nanhai West Shipping Co. v. Hong Kong United Dockyards Ltd, [1996] 2 HKC 639 (H.K. High Court, S.Ct); Paladin Agric. Ltd v. Excelsior Hotel (Hong Kong) Ltd, [2001] 2 HKC 215 (H.K. Court of First Instance, High Court) (applying prima facie standard to claim that arbitration agreement was rescinded); Pac. Crown Eng'g Ltd v. Hyundai Eng'g & Constr. Co., [2003] 3 HKC 659 (H.K. Court of First Instance, High Court); New Sound Indus. Ltd v. Meliga (HK) Ltd, [2005] HKCU 66 (H.K. Court of Appeal, High Court) (staying litigation after stating prima facie standard but apparently applying full judicial review as to scope of arbitration agreement); Pac. Int'l Lines (Pte) Ltd v. Tsinlien Metals and Minerals Co., XVIII Y.B. Comm. Arb. 180, 185 (H.K. High Court, S.Ct.1992) (1993). 185 Gulf Canada Resources Ltd v. Arochem Int'l Ltd, 66 B.C.L.R.2d 113 (B.C. Court of Appeal 1992). 186 See authorities cited supra p. 857 n. 182; Dalimpex Ltd v. Janicki, [2003] Ont. Rep. LEXIS 132 (Ontario Court of Appeal) (referring disputes over scope of arbitration clause to arbitration under prima facie analysis; “definitively” deciding that a valid arbitration agreement continued to exist, while acknowledging that, in some circ*mstances, this could also be subject to prima facie review); NetSys Tech. Group AB v. Open Text Corp., 1 B.L.R.3d 307 (Ontario S.Ct. 1999) (issue of scope of arbitration agreement is for arbitrators to resolve in light of pro-arbitration policies of Model Law); Cie Nat'l Air France v. Libyan Arab Airlines (15 February 2000), [2000] R.J.Q. 717 (Q.B. S.Ct.) (decision as to scope of arbitration agreement for arbitrators, with judicial review in action to recognize http://www.kluwerarbitration.com/CommonUI/print.aspx
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award). 187 See, e.g., Dalimpex Ltd v. Janicki, [2003] Ont. Rep. LEXIS 132, at *24-25 (Ontario Court of Appeal) (questions of scope and identity of parties should ordinarily be subject to prima facie review and also reasoning “it may be preferable to leave any issue related to the ‘existence or validity of the arbitration agreement’ for the arbitral tribunal to determine in the first instance under Article 16”); ABN Amro Bank Canada v. Krupp MaK Maschinenbau GmbH, 135 D.L.R.4th 130 (Ontario Court of Justice 1994) (where jurisdictional objection involved merits of dispute, court referred matter to arbitration); Continental Comm. Sys. Corp. v. Davies Telecheck Int'l, Inc., [1995] B.C.J. No. 2440 (B.C. S.Ct.) (disputes over scope of arbitration agreement referred to arbitration except where it is clear clause does not apply); City of Prince George v. A.L. Sims & Sons Ltd, 9 B.C.L.R.3d 368 (B.C. Court of Appeal 1995); Miramichi Pulp & Paper Inc. v. Canadian Pac. Bulk Ship Sers. Ltd, 58 F.T.R. 81 (Fed. Ct. of Canada 1992). CompareTraff v. Evancic, 15 B.C.L.R.3d 85 (B.C. S.Ct. 1997). 188 See supra pp. 887-889. 189 T1T2 Ltd P'ship v. Canada, 23 O.R.3d 67 (Ontario Court of Justice 1994); ABN Amro Bank Canada v. Krupp MaK Maschinenbau GmbH, 135 D.L.R.4th 130 (Ontario Court of Justice 1994). 190 2007 SCC 34 (Canadian S.Ct.). 191 2007 SCC 34, at ¶¶68-89. 192 2007 SCC 34, at ¶84. On the other hand, “[i]f the challenge requires the production and review of factual evidence, the court should normally refer the case to arbitration,” because, according to the Court, “arbitrators have, for this purpose, the same resources and expertise as courts.” Ibid. at ¶85. 193 2007 SCC 34, at ¶84. 194 Pacific Int'l Lines (Pte) Ltd v. Tsinlien Metals and Minerals Co., XVIII Y.B. Comm. Arb. 180 (H.K. S.Ct. 1992) (1993). 195 Pacific Int'l Lines, XVIII Y.B. Comm. Arb. at 185. 196 Nanhai West Shipping Co. v. Hong Kong United Dockyards Ltd, [1996] 2 HKC 639 (H.K. High Court, S.Ct.); Paladin Agric. Ltd v. Excelsior Hotel (Hong Kong) Ltd, [2001] 2 HKC 215 (H.K. Court of First Instance, High Court); Pac. Crown Eng'g Ltd v. Hyundai Eng'g & Constr. Co., [2003] 3 HKC 659 (H.K. Court of First Instance, High Court); New Sound Indus. Ltd v. Meliga (HK) Ltd, [2005] HKCU 66 (H.K. Court of Appeal, High Court); ICC Chem. v. Zhuhai Minerals, [1996] 2 HKC 64, 66 (H.K. High Court, S.Ct.). 197 Private Co. “Triple V” Inc. v. Start (Universal) Co. Ltd, [1995] 3 HKC 129, 132 (H.K. Court of Appeal, S.Ct.) (“Whilst, clearly, the judge had to make a judgment as to whether there existed an underlying agreement to arbitrate, he could do no more than to form a prima facie review.”). 198 Shin-Etsu Chem. Co. Ltd v. Aksh Optifibre Ltd, XXXI Y.B. Comm. Arb. 747, 783-784 (Indian S.Ct. 2005) (2006). In a dissenting opinion Judge Sabharwal reasoned: “It may be noted that both approaches [i.e., prima facia and full] have their own advantage and disadvantage. The approach whereby the court finally decides on merits on the issue of existence and validity of the arbitration agreement results in a certain degree of time and cost avoidance. It may prevent parties to wait for several months or in some cases years before knowing the final outcome of the dispute regarding jurisdiction. It will often take that long for the arbitrators http://www.kluwerarbitration.com/CommonUI/print.aspx
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and then the courts to reach their decisions. The same considerations of cost and time explain the position taken in English Law which under §32(2) of the 1996 English Arbitration Act provides that the parties may agree (or, if the parties fail to agree, the arbitral tribunal may agree) that it would be more efficient to have the question resolved immediately by the courts.” The dissent also referred to Swiss and French arbitration statutes and judicial decisions in Ontario and Hong Kong providing for a limited prima facie review. Nevertheless, the dissent distinguished these decisions and statutes from the circ*mstances in India. 199 Shin-Etsu Chem. Co. Ltd v. Aksh Optifibre Ltd, XXXI Y.B.
Comm. Arb. 747, 778-782 (Indian S.Ct. 2005) (2006), citing Rio Algom Ltd v. Sammi Steel Co. Ltd, XVIII Y.B. Comm. Arb. 166 (Ontario Court of Justice 1991) (1993); Pacific Int'l Lines (Pte.) Ltd v. Tsinlien Metals and Minerals Co. Ltd, XVIII Y.B. Comm. Arb. 180 (H.K. S.Ct. 1992) (1993). 200 SBP v. Patel Eng'g Ltd, (2005) 8 SCC 618 (Indian S.Ct.) (where Indian court appoints arbitrator, it will determine whether valid arbitration agreement exists on the merits and its determination is binding on arbitrators). 201 UNCITRAL Model Law, Art. 8(1). See supra pp. 880-881. 202 On the contrary, Article 8(1) refers to “[a] court before which an action is brought in a matter which is the subject of an arbitration agreement.” This language appears to require only that the matters at issue in the judicial action also be “the subject” of an arbitration agreement. This standard can be interpreted in various ways, but appears less demanding than, for example, a formulation that would have required “a court before which a claim is brought which is subject to arbitration under an arbitration agreement.” UNCITRAL Model Law, Art. 8(1). This language permits a court to decline to refer matters to arbitration if they have nothing at all to do with issues within the scope of the arbitration clause; other matters, which arguably come within the scope of the arbitration clause (e.g., they concern “a matter which is the subject” of an arbitration agreement), would be referred to the arbitrators for interpretation of the arbitration clause. 203 As noted above, the court would arguably have the power to decline to refer disputes that unambiguously fell outside the arbitral agreement to arbitration. See supra p. 892 n. 202. 204 UNCITRAL Model Law, Arts. 34(2)(a)(iii), 36(1)(a)(iii). As noted above in the context of the New York Convention, the term “submission to arbitration” is most specifically directed towards the claims that the parties have submitted to the arbitral tribunal in a particular arbitration. The term also extends, both literally and logically, to the parties' underlying agreement to arbitrate, pursuant to which they first submit disputes to arbitration. See supra pp. 857858 & infra pp. 2611, 2798-2803; Report of the Committee on the Enforcement of International Arbitral Awards, UN Doc. E/2704, at 10 (1955), available at www.uncitral.org (in context of New York Convention, “the expression ‘submission to arbitration’ was used in a broad sense, and was intended to include not only an arbitration clause in a contract, but also a specific ‘compromis’”). 205 This is because the scope of the arbitration clause (which typically applies to disputes “arising out of or relating to” the parties' underlying “agreement,” see infra pp. 1090-1099), is ordinarily defined by and dependent upon the substantive meaning of, and rights and obligations under, the parties' commercial agreement. http://www.kluwerarbitration.com/CommonUI/print.aspx
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See infra pp. 931-937, 974-975. 206 Rio Algom Ltd v. Sammi Steel Co.Ltd, XVIII Y.B. Comm. Arb. 166 (Ontario Court of Justice 1991) (1993). 207 Rio Algom Ltd, XVIII Y.B. Comm. Arb. at 171. 208 See, e.g., Gulf Canada Resources Ltd v. Arochem Int'l Ltd, 66 B.C.L.R.2d 113 (B.C. Court of Appeal 1992); Cecrop Co. v. Kinetic Sciences Inc., 16 B.L.R.3d 15 (B.C. S.Ct. 2001); OEMSDF Inc. v. Europe Israel Ltd, [1999] O.J. No. 3594 (Ontario S.Ct.); Raydon Underwriting Mgt Co. v. North Am. Fidelity & Guarantee Ltd, 1994 No. 108 (Bermuda S.Ct.) (court refers parties to arbitration where jurisdictional dispute turned on interpretation of underlying contract); NetSys Tech. Group AB v. Open Text Corp., 1 B.L.R.3d 307 (Ontario S.Ct. 1999). 209 See, e.g., Ocean Fisheries Ltd v. Pac. Coast Fishermen's Mut. Marine Ins. Co., 125 F.T.R. 20 (Fed. Ct. of Canada 1997); Methanex New Zealand Ltd v. Fontaine Nav. SA, 2 F.C. 583 (Fed. Ct. of Canada 1998). Compare Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34 (Canadian S.Ct.). 210 UNCITRAL Model Law, Art. 16(3) (emphasis added). Several states that have adopted the Model Law have omitted Article 16(3), providing for immediate interlocutory judicial review of jurisdictional awards. See, e.g., Bulgarian Law on International Commercial Arbitration, Arts. 20, 47; Tunisian Arbitration Code, Art. 61(3). 211 UNCITRAL Model Law, Art. 34(2)(a)(i) & (iii). 212 See A. Broches, Commentary on the UNCITRAL Model Lawon International Commercial Arbitration Art. 16, ¶31 (1990). See also H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 524 (1989) (in the travaux préparatoires of Article 16(3), the French rapporteur indicated that the “recourse should be as limited as possible”); infra pp. 981-986. 213 UNCITRAL Model Law, Art. 34(2)(a)(i) & (iii). 214 That structure also conforms to the analysis, outlined above and elaborated below, that a tribunal's competence-competence with regard to the scope of an admittedly valid arbitration agreement should be treated differently from its competence-competence with regard to the existence, validity, or legality of any arbitration agreement. See supra pp. 891-894 & infra pp. 974-975. 215 UNCITRAL Model Law, Art. 34(2)(a)(i) & (iii); infra pp. 2573, 2738-2739, 2764, 2789-2790. 216 See supra pp. 644-655. 217 Article 34(2)(a)(i) applies in cases where a party to the arbitration agreement lacked capacity or where the arbitration agreement was not valid. Article 34(2)(a)(iii) applies in cases where a tribunal exercised jurisdiction exceeding the terms of the arbitration agreement and the parties' claims in the arbitration. See infra pp. 2568-2573, 2606-2611. 218 Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55, 60-61 (2004) (“In light of the drafting history, it is not completely clear what type of court review was intended by the majority [of the delegations involved in drafting the Model Law].”). 219 Judgment of 6 June 2002, 2003 SchiedsVZ 39 (German Bundesgerichtshof); infra pp. 910, 985-986. See also Judgment of 30 August 2002, Case 11 Sch 02/00 (Hanseatisches Oberlandesgericht Hamburg); Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55 (2004). 220 See also A. Samuel, Jurisdictional Problems in International http://www.kluwerarbitration.com/CommonUI/print.aspx
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Commercial Arbitration 218 (1989); Dimolitsa, Separability and Kompetenz-Kompetenz, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 217, 232 (ICCA Congress Series No. 9 1999). 221 See infra pp. 895-899, 985-986. 222 Judgment of 13 December 1994, CLOUT Case 147, reported at www.uncitral.org/clout (Moscow City Court). 223 Swiss Law on Private International Law, Art. 190(2)(b) (“Action for setting aside the award may only be initiated … (b) where the arbitral tribunal has wrongly declared itself to have or not to have jurisdiction”); M. Müller, Die Zuständigkeit des Schiedsgerichts 141 (1997); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶674 (2006); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 186, ¶50 (2000). 224 Belgian Judicial Code, Art. 1697(3) (“The arbitral tribunal's ruling that it has jurisdiction may not be contested before the judicial authority except at the same time as the award on the main issue and by the same procedure. The judicial authority may at the request of one of the parties decide whether a ruling that the arbitral tribunal has no jurisdiction is well founded.”). 225 Swedish Arbitration Act, §27; Hobér, Arbitration Reform in Sweden, 17 Arb. Int'l 351, 358 (2001). 226 Judgment of 26 October 1995, Société Nationale des Chemins de Fer Tunisiens v. J.M. Voith, AG, 1997 Rev. arb. 553 (Paris Cour d'appel); infra pp. 900-904. 227 English Arbitration Act, 1996, §67(1)(a) (judicial power to set aside “any award of the arbitral tribunal as to its substantive jurisdiction”); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶¶5-078, 8-031 (22d ed. 2003); infra pp. 963-964. 228 See Barceló, Who Decides the Arbitrators' Jurisdiction? Separability and Competence-Competence in Transnational Perspective, 36 Vand. J. Transnat'l L. 1115 (2003); infra pp. 954958. 229 Rubino-Sammartano, in F.-B. Weigand (ed.), Practitioner's Handbook on International Arbitration 839 (2002). 230 The tribunal's negative jurisdictional determination was unhappily denominated “Teil-Prozess-Schiedsspruch – Zwischenentscheid” (“Partial Procedural Arbitral Ruling Interim Decision”), which is as difficult to understand in German as in English. See Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55, 62-63 (2004). 231 Ibid.See Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55, 63-64 (2004). 232 P. Sanders, Quo Vadis Arbitration? 185 (1999). 233 See supra pp. 855-869. 234 This is confirmed in Germany by the legislative history of the German ZPO. See Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55, 64 & n.34 (2004). Moreover, it makes little sense for an arbitral tribunal's negative jurisdictional determination, ending the arbitral proceeding, to be rendered in a different form, thereby creating the possibility of different possibilities of preclusive effects and judicial review, than other forms of arbitral decisions terminating the arbitration. See Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55, 64-65 (2004) (noting possibility that negative jurisdictional ruling might not have http://www.kluwerarbitration.com/CommonUI/print.aspx
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preclusive effect if not constituted as an award). 235 Judgment of 6 June 2002, 2003 SchiedsVZ 39 (German Bundesgerichtshof). 236 Judgment of 6 June 2002, 2003 SchiedsVZ 39 (German Bundesgerichtshof). 237 Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55, 65-67 (2004). 238 Judgment of 6 June 2002, 2003 SchiedsVZ 39 (German Bundesgerichtshof). 239 See supra pp. 68-71. 240 See supra pp. 92-101, 115-127. 241 See supra pp. 74-76. See also Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55, 66-67 (2004); Judgment of 6 June 2002, 2003 SchiedsVZ 39, 42 (German Bundesgerichtshof); K. Lionnet & A. Lionnet, Handbuch der internationalen und nationalen Schiedsgerichtsbarkeit 3 III 5 c) (2) (3d ed. 2005). 242 Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55, 60-61 (2004). 243 UNCITRAL Model Law, Art. 34(2)(a)(iv). 244 See infra pp. 2595-2600. 245 See infra pp. 907-910. 246 See infra pp. 960-962. 247 See infra pp. 969-971. It might be argued that Articles 8 and 16 of the Model Law do not expressly provide for the possibility of contrary agreements by the parties, in contrast to many other provisions of the Model Law, which expressly confer power on the parties to reach agreement on a particular matter or are qualified by the proviso “unless otherwise agreed by the parties.” E.g., UNCITRAL Model Law, Arts. 10, 11(2), 13(1), 17, 19, 20(1). The absence of express confirmation of the parties' autonomy in Articles 8 and 16 is not decisive. It is beyond dispute that parties could deny an arbitral tribunal competence-competence under Article 16(1), could regulate the timing and procedures of a tribunal's consideration and disposition of jurisdictional issues under Article 16(3), or could alter the remedies available for breach of an agreement to arbitrate under Articles 8(1) and 8(2). More fundamentally, there is no adequate justification for denying the parties' autonomy with regard to fundamental aspects of the arbitral process (i.e., disposition of jurisdictional disputes) absent clear statutory language. The silence of Articles 8 and 16 provide no such language. Finally, an agreement to arbitrate jurisdictional disputes does not divest courts of all authority under Article 8, but instead merely affects the nature of the issues presented for judicial review. Specifically, the reviewing court would be charged with considering whether there was an agreement to arbitrate jurisdictional disputes, rather than those jurisdictional disputes themselves. 248 See infra pp. 904-907 (Switzerland), 907-910 (Germany), &
supra pp. 890 (India), 889-890 (Hong Kong). 249 As noted above, French courts have applied the separability doctrine since at least 1963. See supra pp. 332-333. As a consequence, most challenges to the parties' underlying contract, including challenges based upon illegality, fraud and initial invalidity, http://www.kluwerarbitration.com/CommonUI/print.aspx
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do not impeach the arbitration agreement and are therefore for the arbitral tribunal (not a French court) to resolve, subject to eventual judicial review of the award. See supra pp. 385-386. 250 See generally E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶668-688 (1999). 251 French New Code of Civil Procedure, Art. 1466 (“If, before the arbitrator, one of the parties challenges the principle or scope of the arbitrator's jurisdiction, the arbitrator shall rule on the validity or scope of his or her jurisdiction.”). See J.-L. Délvolvé, J. Rouche & G. Pointon, French Arbitration Law and Practice ¶¶170, 171 (2003); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶647-660 (1999); M. de Boisséson, Le droit français de l'arbitrageinterne et international ¶250 (2d ed. 1990). 252 French New Code of Civil Procedure, Art. 1495. Even before the 1981 Decree, reforming French arbitration law, French courts had recognized the principle of competence-competence in broad terms in international arbitrations. See Judgment of 22 February 1949, Caulliez-Tibergien v. Caulliez-Hannart, JCP G. 1949 II, 4899 (French Cour de cassation com.); Judgment of 29 November 1968, Impex v. P.A.Z., 1968 Rev. arb. 149 (Colmar Cour d'appel) (“The principle is that the judge hearing a dispute has jurisdiction to determine his own jurisdiction. This necessarily implies that when that judge is an arbitrator, whose powers derive from the agreement of the parties, he has jurisdiction to examine the existence and validity of such agreement.”); Judgment of 17 October 1956, Kohorn v. Dimitrov, JCP G 1956 II, 9647 (Tribunal civil de la Seine) (“Since the arbitrators must verify first whether the arbitral agreement gives them jurisdiction on the case brought before them, they have to assure themselves of the existence of the agreement, its validity and its scope”). See also J.-L. Délvolvé, J. Rouche & G. Pointon, French Arbitration Law and Practice ¶172 (2003); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶655 (1999). 253 Although not expressly addressed, parties would presumably be free to exclude from the tribunal's mandate the power to consider and resolve jurisdictional disputes. This would be unlikely, but not inconceivable, in practice. Cf. Judgment of 5 January 1999, Zanzi v. de Coninck, 1999 Rev. arb. 260 (French Cour de cassation civ. 1e); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶658 (1999). 254 French New Code of Civil Procedure, Art. 1458(1) (“Where a dispute submitted to an arbitral tribunal by virtue of an arbitration agreement is brought before a national court, such court shall decline jurisdiction”). 255 Judgment of 28 June 1989, Eurodif v. Islamic Republic of Iran, 1989 Rev. arb. 653 (French Cour de cassation civ. 1e). See M. de Boisséson, Le droit français de l'arbitrage interne et international ¶597 (2d ed. 1990); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶666, 672, 683-84 (1999); Gaillard, L'effet négatif de la compétencecompétence, in Etudes de procédure et d'arbitrage en l'honneur de Jean-François Poudret 387 (1999). 256 See, e.g., Judgment of 6 July 1995,Société Recape v. Société CSF, 2005 Rev. arb. 801 (French Cour de cassation civ. 1e); Judgment of 26 June 2001, Société Am. Bureau of Shipping v. Copropriété Maritime Jules Verne, 2001 Rev. arb. 529 (French Cour de cassation civ. 1e) (“The Court of Appeal erred in law [by retaining its own jurisdiction] without verifying that the arbitration agreement is http://www.kluwerarbitration.com/CommonUI/print.aspx
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manifestly null and void, as this is the only obstacle to the application of the principle, which gives arbitrators priority in deciding on the existence, validity and scope of the arbitration agreement”); Judgment of 5 January 1999, Zanzi v. de Coninck, 1999 Rev. arb. 260, 261 (French Cour de cassation civ. 1e); Judgment of 21 May 1997, Renault v. V 2000 (formerly Jaguar France ), 1997 Rev. arb. 537 (French Cour de cassation civ. 1e); Judgment of 10 May 1995, Coprodag v. Dame Bohin, 1995 Rev. arb. 617 (French Cour de cassation civ. 2e) (“the arbitral tribunal alone has jurisdiction to rule on the validity or limits of its appointment, provided that question has been brought before it”), Note, Gaillard 1995 Rev. arb. 618-621. 257 See, e.g., Judgment of 11 July 2006, Société PT Andhika Lines v. Société AXA, JCP G 2006, IV, 2778 (French Cour de cassation civ. 1e); Judgment of 11 July 2006, Société Nat'l Broadcasting Co. v. Bernadaux, JCP G 2006, II, 10182 (French Cour de cassation civ. 1e); Judgment of 7 December 1994, V 2000(formerly Jaguar France) v. Project XJ 220 ITD, 1996 Rev. arb. 245 (Paris Cour d'appel), aff'd, Judgment of 21 May 1997, 1997 Rev. arb. 537 (French Cour de cassation civ. 1e); Judgment of 5 January 1999, Zanzi v. de Coninck, 1999 Rev. arb. 260 (French Cour de cassation civ. 1e); Judgment of 3 October 1996, Logic Groupe Concept v. Logi Concept, 1997 Rev. arb. 433 (Grenoble Cour d'appel); Judgment of 15 June 2006, Legal Dep't of the Ministry of Justice of the Republic of Iraq v. Fincantieri et al., XXXI Y.B. Comm. Arb. 635 (Paris Cour d'appel) (2006) (“When there is an arbitration agreement, even when the arbitral tribunal has not been seized, the state court must find that it lacks jurisdiction unless a summary examination allows it to hold that the clause is null and void or manifestly inapplicable. The arbitrator has priority and may decide on his own competence to decide on the validity and efficacy of the arbitration clause.”). For criticism of this approach, see A. Samuel, Jurisdictional Problems in International Commercial Arbitration 191 (1989) (“It is difficult to know how void an arbitral clause must be to be ‘manifestement nulle’#”; “There is … no reason why a court, which has to deal with the case anyway, cannot resolve there and then any outstanding disputes about the validity or applicability of the arbitral clause”). 258 See authorities cited supra pp. 901-902 nn. 256-257. 259 See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman
on International Commercial Arbitration ¶672 (1999); J.-L. Délvolvé, J. Rouche & G. Pointon, French Arbitration Law and Practice ¶¶137, 172 (2003). 260 See, e.g., Callé, Application par la Cour des principes de validité de la clause compromissoire et de compétence-compétence, JCP G 2006, II, 10182; Gaillard, L'effet négatif de la compétencecompétence, in Etudes de procedure et d'arbitrage en l'honneur de Jean-François Poudret 387, 399 (1999); Gaillard, Les manoeuvres dilatoires des parties et des arbitres dans l'arbitrage commercial international, 1990 Rev. arb. 759. 261 See Judgment of 6 January 1987, So. Pac. Properties Ltd v. République Arabe d'Egypte, 26 Int'l Legal Mat. 1004, 1006 (1987) (French Cour de cassation civ. 1e) (“there is no restriction upon the power of the court to examine as a matter of law and in consideration of the circ*mstances of the case, elements pertinent to the grounds in question” including jurisdictional objections); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on http://www.kluwerarbitration.com/CommonUI/print.aspx
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International Commercial Arbitration ¶1605 (1999). 262 Judgment of 6 January 1987, So. Pac. Properties Ltd v. République Arabe d'Egypte, 26 Int'l Legal Mat. 1004, 1006 (1987) (French Cour de cassation civ. 1e). See also Judgment of 16 June 1988, Société Swiss Oil Corp. v. Société Petrogab & République du Gabon, 1989 Rev. arb. 309 (Paris Cour d'appel). 263 Judgment of 6 January 1987, So. Pac. Properties Ltd v. République arabe d'Egypte, 26 Int'l Legal Mat. 1004, 1006 (1987) (French Cour de cassation civ. 1e). See also J.-L. Délvolvé, J. Rouche & G. Pointon, French Arbitration Law and Practice ¶172 (2003); Mayer, L'autonomie de l'arbitre international dans l'appréciation de sa propre compétence, 217 Recueil des Cours 319, 339-342 (1989). 264 See, e.g., Judgment of 26 October 1995, Société Nationale des Chemins de Fer Tunisiens v. J.M. Voith AG, 1997 Rev. arb. 553 (Paris Cour d'appel); Judgment of 16 June 1988, Société Swiss Oil Corp. v. Société Petrogab & République du Gabon, 1989 Rev. arb. 309, 313 (Paris Cour d'appel) (“this power of review, which is given to the court under Article 1502(1) [of the French New Code of Civil Procedure] in the case where the arbitrators hold that they have jurisdiction over the case, cannot be denied to the court in a case … where the arbitrators have denied jurisdiction. To hold the contrary would mean granting different guarantees to the parties”); Callé, Application par la Cour des principes de validité de la clause compromissoire et de compétence-compétence, JCP G 2006, II, 10182. 265 See supra p. 899 & infra pp. 969-971; Mayer, L'autonomie de l'arbitre international dans l'appréciation de sa propre compétence, 217 Recueil des Cours 319, 340 (1989) (“We must make a distinction between, on the one hand, an agreement – quite commonplace today – by which an arbitrator may rule on his jurisdiction [referring to the ICC Rules], and on the other hand, an agreement by which the arbitator's decision on this issue is shielded from any judicial control. The latter type of agreement must be explicit and we practically never come across it.”). 266 Seesupra pp. 121-125; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶672 (1999); J.-L. Délvolvé, J. Rouche & G. Pointon, French Arbitration Law and Practice ¶¶137, 172 (2003). 267 Swiss Cantonal Concordat, Art. 8(1). See W. Habscheid, Das Problem der Kompetenz-Kompetenz des Schiedsgerichts, 78 Schweiz. Juristenzeitung 321, 327 (1982) (explaining rationale for Swiss rule permitting interlocutory judicial decisions on validity of arbitration clause); P. Jolidon, Commentaire du Concordat Suisse sur l'arbitrage 185 (1984); P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitrage interne et international en Suisse Art. 186, ¶¶1 etseq. (1989). Compare A. Bucher & P.-Y. Tschanz, International Arbitration in Switzerland ¶¶139 et seq. (1988). 268 As noted above, Swiss courts have applied a separability presumption since at least the late 19th century. See supra pp. 326328. This presumption has been statutorily confirmed in Article 178(3) of the Swiss Law on Private International Law. See supra pp. 327-328. As a consequence, most challenges to the validity or legality of the parties' underlying contract, including challenges based upon fraud, illegality and initial invalidity, do not impeach the arbitration agreement and are therefore for the arbitral tribunal (not a Swiss court) to resolve, subject to eventual judicial review of the award. See supra pp. 386-387. 269 Swiss Law on Private International Law, Art. 186(1). http://www.kluwerarbitration.com/CommonUI/print.aspx
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270 Swiss Law on Private International Law, Art. 186(3). 271 Article 186(3) admits of the possibility, if only exceptionally, that
a decision as to jurisdiction will not be taken as a preliminary decision, but will instead be reserved until a decision on the merits. See Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 186, ¶46 (2000) (“[the arbitral tribunal] can deal with the jurisdiction issue at a later stage in the proceedings – either in an interim decision, which might also deal with other questions of a procedural or substantive nature – or after dealing with the whole dispute in the final award. The statute leaves it to the discretion of the arbitral tribunal to choose the best time.… ”); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶650 (2006); G. Kaufmann-Kohler & B. Stucki, International Arbitration in Switzerland: A Handbook for Practitioners 29 (2004); Karrer & Straub, in F.-B. Weigand (ed.), Practitioner's Handbook on International Arbitration 1052 (2002). 272 Swiss Law on Private International Law, Art. 186, 1 bis (“It [the arbitral tribunal] shall decide on its jurisdiction notwithstanding an action on the same matter between the same parties already pending before a State court or another arbitral tribunal, unless serious reasons require a stay of the proceedings.”). For comments on the new provision, see Müller, Neues aus der schweizerischen Gesetzgebung zur internationalen und nationalen Schiedsgerichtsbarkeit, 24 ASA Bull. 647 (2006); Besson, Le recours contre la sentence arbitrale internationale selon la nouvelle LTF (aspects procéduraux), 25 ASA Bull. 2 (2007). See also infra pp. 2937-2947 for a discussion of lis pendens issues in the jurisdictional context. 273 Swiss Law on Private International Law, Art. 7. The text of Article 7 parallels that of Article 8 of the UNCITRAL Model Law and Article II of the New York Convention. See supra pp. 857-861, 877881. 274 This was also the predominant view of Swiss commentary. Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 186, ¶9 (2000) (“If the state court was seized first, the arbitral tribunal shall stay its proceedings until there is a binding decision on the plea of arbitration”); P. Lalive, J.-F. Poudret & C. Reymond, Le droit de l'arbitrage interneet international en Suisse Art. 186, ¶16 (1989); P. Volken, in Zürcher Kommentar zum IPRG Art. 7 SPILS ¶26 (2004); F. Vischer, L. Huber & C. Oser, Internationales Vertragsrecht ¶1461 (2000). 275 See, e.g., Judgment of 16 January 1995, Compagnie de Nav. et Transports SA v. Mediterranean Shipping Co., XXI Y.B. Comm. Arb. 690, 696 (Swiss Federal Tribunal) (1996); Judgment of 29 April 1996, Found. M v. Banque X, 14 ASA Bull. 527 (Swiss Federal Tribunal) (1996). See also Perret, Parallel Actions Pending Before An Arbitral Tribunal and A State Court: The Solution under Swiss Law in Arbitral Tribunals or State Courts: Who Must Defer to Whom? 65, 66 (ASA Special Series No. 15 2001). 276 See supra pp. 900-904. In contrast to the Swiss approach, French courts appear to adopt a prima facie jurisdictional review regardless whether the arbitral seat is within France or abroad. See supra p. 900. 277 See, e.g., Judgment of 19 November 2004, 23 ASA Bull. 540, 541 (Court of Appeal of the Canton of Zurich) (2005); Judgment of 13 September 2004, 23 ASA Bull. 145, 150 (Swiss Federal Tribunal) (2005); Judgment of 19 April 1994, United Arab Emirates v. Westland Helicopters Ltd, DFT 120 II 155 (Swiss Federal Tribunal); Judgment of 29 April 1996, Found. M v. Banque X, 14 ASA Bull. 527 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(Swiss Federal Tribunal) (1996); Poudret & Cottier, Remarques sur l'application de l'article de la Convention de New York (ATF du 16 janvier 1995), 13 ASA Bull. 383 (1995); Mayer, Die Überprüfung internationaler Schiedsvereinbarungen durch staatliche Gerichte – Überlegungen zu BGE 121 III 38 und BGE 122 III 139, 13 ASA Bull. 361, 365-379 (1995). See also Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 186, ¶6 (2000); Poudret, Le pouvoir d'examen du juge suisse saisi d'une exception d'arbitrage, 23 ASA Bull. 401, 403 (2005); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶502 (2d ed. 2007). 278 See, e.g., Judgment of 16 January 1995, Compagnie de Nav. et Transports SA v. Mediterranean Shipping Co., XXI Y.B. Comm. Arb. 690, 696 (Swiss Federal Tribunal) (1996); Judgment of 13 May 2005, République et Canton de Genève, 24 ASA Bull. 128, 131 (Geneva Cour d'appel) (2006). 279 As discussed above, the arbitration provisions of the Swiss Law on Private International Law apply only to arbitration agreements providing for arbitration in Switzerland. See supra pp. 308, 904-905. 280 See infra pp. 1287-1289, 1338-1341, 2403-2425. 281 See infra pp. 2327-2332, 2334-2336, 2397-2403. 282 Judgment of 16 January 1995, Compagnie de Nav. et Transports SA v. Mediterranean Shipping Co., XXI Y.B. Comm. Arb. 690, 696 (Swiss Federal Tribunal) (1996). 283 Judgment of 16 January 1995, Compagnie de Nav. et Transports SA v. Mediterranean Shipping Co., XXI Y.B. Comm. Arb. 690 (Swiss Federal Tribunal) (1996). Compare Mayer, Die Überprüfung internationaler Schiedsvereinbarungen durch staatliche Gerichte – Überlegungen zu BGE 121 III 38 und BGE 122 III 139, 13 ASA Bull. 361, 374 (1995) (prima facie review proposed where seat is abroad). 284 See Swiss Law on Private International Law, Art. 190(2)(b). 285 Judgment of 2 September 1993, Nat'l Power Corp. v. Westinghouse, DFT 119 II 380, 383 (Swiss Federal Tribunal) (Swiss arbitration regime would be seriously compromised if judicial review enabled Swiss Federal Tribunal “freely to review the findings of fact made by the arbitral tribunal in the same way as an appeal court”). 286 Judgment of 2 September 1993, Nat'l Power Corp. v. Westinghouse, DFT 119 II 380, 384 (Swiss Federal Tribunal). See also Judgment of 17 August 1995, 14 ASA Bull. 673 (Swiss Federal Tribunal) (1996) (de novo review of arbitrator's jurisdictional findings). 287 Swiss Law on Private International Law, Art. 190(2)(b) (“Action for setting aside the award may only be initiated … (b) where the arbitral tribunal has wrongly declared itself to have or not to have jurisdiction”). 288 B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶609 (2006); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 186, ¶¶3 et seq. (2000). 289 Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 186, ¶3 & Art. 192, ¶25 (2000). 290 See supra pp. 323-326; P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶556 (2d ed. 1989); K.-P. Berger, Germany Adopts the UNCITRAL Model Law, 1 Int'l Arb. L. Rev. 121, 122 (1998). http://www.kluwerarbitration.com/CommonUI/print.aspx
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291 Judgment of 26 May 1988, 1988 NJW-RR 1526, 1527 (German
Bundesgerichtshof). See also Judgment of 5 May 1977, 1977 NJW 1397, 1400 (German Bundesgerichtshof); Judgment of 3 March 1955, 1955 BB 552 (German Bundesgerichtshof); P. Schlosser, Arbitral Tribunals or State Courts: Who Must Defer to Whom?, in Arbitral Tribunals or State Courts: Who Must Defer to Whom? 27 (ASA Special Series No. 15 2001); K. Lionnet & A. Lionnet, Handbuch der internationalen und nationalen Schiedsgerichtsbarkeit 3 III 5 a) (3d ed. 2005); P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶556 (2d ed. 1989). 292 German judicial authority thus far appears to confirm this view. Judgment of 13 January 2005, 2005 NJW 1125 (German Bundesgerichtshof). Cf.Judgment of 23 February 2006, 2006 Schieds VZ 161, 164 (German Bundesgerichtshof). 293 K.-P. Berger, The New German Arbitration Law in International Perspective, 26 Forum Int'l 9 (2000). See also Böckstiegel, An Introduction to the New German Arbitration Act Based on the UNCITRAL Model Law, 14 Arb. Int'l 19, 25 (1998); Habscheid, Zur Kompetenz-Kompetenz nach dem neuen Schiedsrecht, in Festschrift Peter Schlosser 247 (2005); Münch, in G. Lüke & P. Wax (eds.), Münchener Kommentar zur Zivilprozessordnung §1040, ¶¶1, 3 (2d ed. 2001) (arbitration agreement providing for KompetenzKompetenz “ineffective because it violates mandatory law”); Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55 (2004); J.-P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶¶467 et seq. (2d ed. 2002). Contra Rau, The Arbitrability Question Itself, 10 Am. Rev. Int'l Arb. 287, 349 (1999) (“I confess I am hard put to understand why the Model Law should be thought to have any bearing whatever on this question”); Geimer, in R. Zöller (ed.), Zivilprozessordnung §1059, ¶2 (26th ed. 2007) (parties are able to waive judicial review of issues affecting private interests). 294 See infra pp. 914-919. 295 See Schlosser, in F. Stein & M. Jonas (eds.), Kommentar zur Zivilprozessordnung §1040, ¶2 (22d ed. 2002) (arbitrators do not necessarily have the “first word” on jurisdictional issues under new German legislation). 296 German ZPO, §1032(2); Judgment of 13 January 2005, 2005 NJW 1125 (German Bundesgerichtshof) (where party challenges validity of arbitration agreement, German courts may consider challenge on interlocutory basis); J.-P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶¶453 et seq. (2d ed. 2002); K. Lionnet & A. Lionnet, Handbuch der internationalen und nationalen Schiedsgerichtsbarkeit 3 III 4 (3d ed. 2005); Wagner, in F.-B. Weigand (ed.), Practitioner's Handbook on International Arbitration 710 (2002); Geimer, in R. Zöller (ed.), Zivilprozessordnung §1032, ¶23 (26th ed. 2007). 297 Berger, Germany Adopts the UNCITRAL Model Law, 1 Int'l Arb. L. Rev. 121, 122 (1998); Wagner, in F.-B. Weigand (ed.), Practitioner's Handbook on International Arbitration 705 (2002); Schlosser, La nouvelle legislation allemande sur l'arbitrage, 1998 Rev. arb. 291, 298; Voit, in H.-J. Musielak (ed.), Kommentar zur Zivilprozessordnung §1032, ¶14 (5th ed. 2007). It appears that this provision may be invoked to prevent an adverse party from starting, or proceeding with, constitution of the arbitral tribunal. Judgment of 10 February 1999, RPS 2/1999, Supp. 11 Betriebsberater 38/1999 (Oberlandesgericht Hamm). Nonetheless, §1032(3) permits an arbitral tribunal to be constituted and an arbitration to proceed notwithstanding the pendency of an action http://www.kluwerarbitration.com/CommonUI/print.aspx
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challenging the existence, validity, legality, or scope of the arbitration agreement in a German court. 298 See infra pp. 900-904. 299 See, e.g., K. Lionnet & A. Lionnet, Handbuch der
internationalen und nationalen Schiedsgerichtsbarkeit 3 III 3 b) (3d ed. 2005); Wagner, in F.-B. Weigand (ed.), Practitioner's Handbook on International Arbitration 708 (2002); Geimer, in R. Zöller (ed.), Zivilprozessordnung §1032, ¶14 (26th ed. 2007). 300 See supra pp. 900-904. 301 See supra pp. 889-891. 302 Geimer, in R. Zöller (ed.), Zivilprozessordnung §1040, ¶8 (26th ed. 2007). It is doubtful whether this provision, whatever its practical merits, is consistent with Article VI(3) of the European Convention, requiring presumptive suspension of judicial proceedings on jurisdictional issues if arbitral proceedings are underway. See supra pp. 861-863. 303 Wagner, in F.-B. Weigand (ed.), Practitioner's Handbook on International Arbitration 705 (2002); Geimer, in R. Zöller (ed.), Zivilprozessordnung §1040, ¶1 (26th ed. 2007). 304 German ZPO, §1059(2). 305 Judgment of 6 June 2002, 2003 SchiedsVZ 39 (German Bundesgerichtshof). See supra pp. 895-899. 306 See supra pp. 895-899 & infra pp. 985-986. 307 See supra pp. 895-896 (citing cases). 308 As noted above, U.S. courts have long applied the separability presumption, which has statutory roots in the FAA. See supra pp. 328-332. As a consequence, most challenges to the parties' underlying contract, including challenges based upon illegality, fraud and initial invalidity, do not impeach the arbitration agreement under the FAA and are therefore for the arbitral tribunal (not a U.S. court) to resolve, subject to eventual judicial review of the award. See supra pp. 363-365; Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. S.Ct. 2006). 309 514 U.S. 938 (U.S. S.Ct. 1995). 310 See, e.g., Park, Determining Arbitral Jurisdiction: Allocation of Tasks between Courts and Arbitrators, 9 Arb. & Disp. Res. L.J. 19 (2000); Park, The Arbitrability Dicta in First Options v. Kaplan: What Sort of Kompetenz-Kompetenz Has Crossed the Atlantic?, 12 Arb. Int'l 137 (1996); Phillipp, Is the Supreme Court Bucking the Trend? First Options v. Kaplan in Light of European Reform Initiatives in Arbitration Law, 14 B.U. Int'l L.J. 119 (1996); Reuben, First Options, Consent to Arbitration and the Demise of Separability: Restoring Access to Justice for Contracts with Arbitration Provisions, 56 S.M.U.L. Rev. 819 (2003); Ware, Arbitration Law's Separability Doctrine After Buckeye Check Cashing Inc. v. Cardegna, 8 Nev L.J. 107 (2007); Wyss, First Options of Chicago, Inc. v. Kaplan: A Perilous Approach to Kompetenz-Kompetenz, 72 Tulane L. Rev. 351 (1997). Other commentators are less critical. Rau, Everything You Really Need to Know About “Separability” in Seventeen Simple Propositions, 14 Am. Rev. Int'l Arb. 1 (2004). 311 Issues of interpretation of the scope of the arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement are discussed below, see infra pp. 1059-1130. 312 See supra pp. 328-332, 363-380 & infra pp. 1014-1020, 10261027; 9 U.S.C. §§3, 4, 206. 313 9 U.S.C. §3. 314 9 U.S.C. §4. 315 See supra pp. 880-881. 316 See, e.g., Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. S.Ct. 2002); Pacificare Health Sys., Inc. v. Book, 538 U.S. 401, 407 (U.S. S.Ct. 2003); Oil, Chem. & Atomic Workers v. Am. Petrofina Co., 759 F.2d 512, 515 (5th Cir. 1988); Butler Products Co. v. Unistrut Corp., 367 F.2d 733 (7th Cir. 1966). See also infra pp. 928-930. 317 See, e.g., China Minmetals Materials Imp. & Exp. Co. v. Chi Mei Corp., 334 F.3d 274, 288 (3d Cir. 2003) (“the arbitrators’ jurisdictional decision is subject to judicial review at any time before, after, or during arbitration proceedings”); Houlihan v. Offerman & Co., Inc., 31 F.3d 692, 694-95 (8th Cir. 1994) (“Before a party may be compelled to arbitrate under the [FAA], the district court must engage in a limited inquiry to determine whether a valid agreement to arbitrate exists between the parties and whether the specific dispute falls within the scope of that agreement.”); Daisy Mfg. Co., Inc. v. NCR Corp., 29 F.3d 389, 392 (8th Cir. 1994) (“Before a party may be compelled to arbitrate under the [FAA], the court must engage in a limited review to ensure that the dispute ‘is arbitrable – i.e., that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the substantive scope of that agreement’”). 318 See, e.g., John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 547 (U.S. S.Ct. 1964); Drake Bakeries, Inc. v. Local 50, Am. Bakery & Confectionery Workers Int'l, 370 U.S. 254, 256 (U.S. S.Ct. 1962) (“the issue of arbitrability is a question for the courts and is to be determined by the contract entered into by the parties.”); Dean Witter Reynolds, Inc. v. McCoy, 995 F.2d 649, 650 (6th Cir. 1993) (“questions of whether certain parties are contractually bound to arbitrate and what issues may be arbitrated are for the courts to decide; ‘a party cannot be forced to ‘arbitrate the arbitrability issue.’’”); Int'l Ass'n of Machinists et al. v. Gen. Elec. Co., 865 F.2d 902, 904 (7th Cir. 1989) (“the arbitrator is not the judge of his own authority”); Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk Gmbh, 585 F.2d 39, 44, n.10 (3d Cir. 1978) (“The question of the arbitrability of a dispute is, of course, a question for the court to decide.”). 319 Grad v. Wetherholt Galleries, 660 A.2d 903, 908 (D.C. 1995). 320 475 U.S. 643, 649 (U.S. S.Ct. 1986) (emphasis added). The Court's decision involved §301(a) of the domestic Labor Management Relations Act. 321 John Wiley & Sons, 376 U.S. at 547. 322 475 U.S. at 649 (emphasis added). 323 See, e.g., Moseley v. Electronic & Missile Facilities, Inc., 374 U.S. 167 (U.S. S.Ct. 1963); Atkinson v. Sinclair Refining Co., 370 U.S. 238, 241 (U.S. S.Ct. 1962) (“whether or not the company was bound to arbitrate, as well as what issues it must arbitrate, is a matter to be determined by the Court on the basis of the contract entered into by the parties”); David L. Threlkeld & Co. v. Metallgesellschaft Ltd, 923 F.2d 245 (2d Cir. 1991); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, SA, 863 F.2d 315, 319 (4th Cir. 1988); Valero Refining, Inc. v. M/T Lauberhorn, 813 F.2d 60 (5th Cir. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1987); I.S. Joseph Co. v. Michigan Sugar Co., 803 F.2d 396, 399400 & n.2 (8th Cir. 1986); Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 44 & n.10 (3d Cir. 1978); Interocean Shipping Co. v. Nat'l Shipping & Trading Corp., 462 F.2d 673, 676 (2d Cir. 1972) (“There can be no doubt that the question of the very existence of the charter party which embodies the arbitration agreement requires judicial resolution under §4”); In re Kinosh*ta & Co., 287 F.2d 951, 953 (2d Cir. 1961) (“if it was claimed that … there had at no time existed as between the parties any contractual relation whatever, … a trial of this issue would be required”). 324 See, e.g., Apollo Computer v. Berg, 886 F.2d 469 (1st Cir. 1989); Matter of Arbitration No. AAA13-161-0511-85, 867 F.2d 130, 133 (2d Cir. 1989); Société Générale de Surveillance v. Raytheon European Mgt & Sys. Co., 643 F.2d 863, 869 (1st Cir. 1981); Oil, Chem. & Atomic Workers Int'l Union Local No. 4-23v. Am. Petrofina Co., 759 F.2d 512, 515 (5th Cir. 1985). 325 See supra pp. 363-380. 326 See, e.g., Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. S.Ct. 1967); Mesa Operating Ltd P'ship v. La. Intrastate Gas Corp., 797 F.2d 238 (5th Cir. 1986); Unionmutual Stock Life Ins. Co. of Am. v. Beneficial Life Ins. Co., 774 F.2d 524 (1st Cir. 1985); In re Oil Spill by Amoco Cadiz, et al., 659 F.2d 789 (7th Cir. 1981); Island Territory of Curacao v. Solitron Devices, Inc., 489 F.2d 1313 (2d Cir. 1973). See also supra pp. 363-380. 327 The First Options decision has been the subject of extensive commentary. See Barnes, Buckeye, Bull's-Eye or Moving Target: The FAA, Compulsory Arbitration, and Common Law Contract, 31 Vt. L. Rev. 141 (2006-2007); Dulic, First Options of Chicago, Inc. v. Kaplan and the Kompetenz-Kompetenz Principle, 2 Pepp. Disp. Resol. L.J. 77 (2002); Gotanda, An Efficient Method for Determining Jurisdiction in International Arbitrations, 40 Colum. J. Transnat'l L. 11 (2001); Harper, The Options in First Options: International Arbitration and Arbitral Competence, 771 PLI/Comm. 127 (1998); Park, Determining Arbitral Jurisdiction: Allocation of Tasks between Courts and Arbitrators, 9 Arb. & Disp. Res. L.J. 19 (2000); Park, The Arbitrability Dicta in First Options v. Kaplan: What Sort of Kompetenz-Kompetenz Has Crossed the Atlantic?, 12 Arb. Int'l 137 (1996); Park, The Specificity of International Arbitration: The Case for FAA Reform, 36 Vand. J. Transnat'l L. 1241, 1276-80 (2003); Park, The Arbitrator's Jurisdiction to Determine Jurisdiction, in A. van den Berg (ed.), International Arbitration 2006: Back to Basics? 55 (ICCA Congress Series No. 13 2007); Rau, “Separability” in the United States Supreme Court, 2006 Stock. Int'l Arb. Rev. 1; Reuben, First Options, Consent to Arbitration and the Demise of Separability: Restoring Access to Justice for Contracts with Arbitration Provisions, 56 S.M.U.L. Rev. 819 (2003); Smit, The Arbitration Clause: Who Determines Its Validity and Its Personal and Subject Matter Reach?, 6 Am. Rev. Int'l Arb. 395 (1995); Wyss, First Options of Chicago, Inc. v. Kaplan: A Perilous Approach to Kompetenz-Kompetenz, 72 Tulane L. Rev. 351 (1997). 328 See supra pp. 323-326, 907-909. 329 See supra pp. 907-910. 330 First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (U.S. S.Ct. 1995). For criticism of this premise, see Smit, The Arbitration Clause: Who Determines Its Validity and Its Personal and Subject Matter Reach?, 6 Am. Rev. Int'l Arb. 395, 396 (1995) (“It is quite well possible for the law to provide that, arbitration being favored as it is, when there is an arbitration agreement and the http://www.kluwerarbitration.com/CommonUI/print.aspx
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question is who is bound by it, the arbitrators named pursuant to the arbitration agreement will have the authority to decide that question without being second guessed by the courts.”). 331 From an international perspective, the U.S. Supreme Court's use of the phrase “arbitrability” in this context is unfortunate: in most jurisdictions, the term “arbitrability” refers to the opposite of “nonarbitrability” – that is, the existence of legislative prohibitions against arbitrating particular categories of disputes. See supra pp. 766 et seq. In contrast, in First Options and other decisions, the U.S. Supreme Court has used the term to refer to the question whether or not a particular dispute was subject to a valid arbitration agreement – including the existence, validity, continued force and scope of such an agreement – and not specifically to the absence of legislative prohibitions against arbitrating particular claims. The potential for confusion, at least in an international context, is unfortunate, but need not interfere with the substance of analysis. 332 First Options, 514 U.S. at 944-45. 333 First Options, 514 U.S. at 945 (emphasis in original). The Court reasoned that “the latter question arises when the parties have a contract that provides for arbitration of some issues. And, given the law's permissive policies in respect to arbitration, one can understand why the law would insist upon clarity before concluding that the parties did not want to arbitrate a related matter.” 514 U.S. at 944-45. The Court continued: “On the other hand, the former question – the “who (primarily) should decide arbitrability question” – is rather arcane. A party often might not focus upon that question or upon the significance of having arbitrators decide that scope of their own powers. And, given the principle that a party can be forced to arbitrate only those issues it specifically has agreed to submit to arbitration, one can understand why courts might hesitate to interpret silence or ambiguity on the “who should decide arbitrability” point as giving the arbitrators that power, for doing so might too often force unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide.” 514 U.S. at 944-45. 334 First Options, 514 U.S. at 944. 335 First Options, 514 U.S. at 945. According to the Court, the “law … insist[s] upon clarity before concluding that the parties did not want to arbitrate a related matter.” 336 First Options, 514 U.S. at 943 (emphasis in original). The Court cited AT&T Technologies and Warrior & Gulf Newspapers for the proposition that “parties may agree to arbitrate arbitrability.” The Court went on to reason that, where this occurred, “the court should give considerable leeway to the arbitrator, setting aside his or her decision only in certain narrow circ*mstances. See, e.g., U.S. FAA, 9 U.S.C. §10.” For a discussion of the scope of judicial review of jurisdictional awards under the FAA, see infra pp. 954-958. 337 First Options, 514 U.S. at 943. 338 First Options, 514 U.S. at 943. 339 See supra p. 139 & infra pp. 2639-2646. 340 U.S. FAA, 9 U.S.C. §10(a)(4). See infra pp. 2606-2611; Patten v. Signator Ins. Agency, Inc., 441 F.3d 230, 234 (4th Cir. 2006) (“The permissible common law grounds for vacating such an award, which constitute the essential premises of this appeal, include those circ*mstances where an award fails to draw its essence from the contract, or the award evidences a manifest disregard of the law.”); Sarhank Group v. Oracle Corp., 404 F.3d 657, 661 (2d Cir. 2005); Local Union No. 898 v. XL Elec., Inc., 380 F.3d 868, 870 (5th Cir. http://www.kluwerarbitration.com/CommonUI/print.aspx
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2004); Hasbro, Inc. v. Catalyst USA, Inc., 367 F.3d 689, 692 (7th Cir. 2004) (“with few exceptions, as long as the arbitrator does not exceed [her] delegated authority, her award will be enforced.”); Bridas SAPIC v. Gov't of Turkmenistan, 345 F.3d 347, 354 n.4 (5th Cir. 2003). 341 First Options, 514 U.S. at 941. 342 First Options, 514 U.S. at 946. 343 First Options, 514 U.S. at 946. 344 First Options, 514 U.S. at 946. 345 See, e.g., Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444, 456 (U.S. S.Ct. 2003) (“[T]he decision of what to submit to the arbitrator is a matter of contractual agreement by the parties, and the interpretation of that contract is for the court, not for the arbitrator.”); Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. S.Ct. 2002); Pacificare Health Sys., Inc. v. Book, 538 U.S. 401, 407 (U.S. S.Ct. 2003); Alliance Bernstein Inv. Research and Mgt, Inc. v. Schaffran, 445 F.3d 121, 125 (2d Cir. 2006) (“‘arbitration is simply a matter of contract between the parties; it is a way to resolve those disputes – but only those disputes – that the parties have agreed to submit to arbitration.’… This concept applies to the issue of arbitrability as well, and thus the inquiry is whether the parties agreed to submit the question of arbitrability itself to arbitration.”); Nat'l Cas. Co. v. First State Ins. Group, 430 F.3d 492, 499-500 (1st Cir. 2005) (“The default rule, in the absence of express contractual terms to the contrary, is that it is for the court to decide the validity and scope of an arbitration clause, and for the arbitrator to decide all matters within the scope of a valid clause … When a substantive question falls within the scope of an arbitration clause, procedural questions ancillary to the substantive one are by default for the arbitrator to decide”); Contec Corp. v. Remote Solution Co., 398 F.3d 205, 208 (2d Cir. 2005); DeFazio v. Expetec Corp., 2006 U.S. Dist. LEXIS 5032, at *4-5 (D. R.I. 2006) (“Since there is no evidence that the parties agreed “to submit the arbitrability question itself to arbitration,” the arbitrability question is one for this Court.”); Oriental Republic of Uruguay v. Chem. Overseas Holdings, Inc., 2006 U.S. Dist. LEXIS 2261 (S.D.N.Y. 2006) (“As long as the Court is satisfied that the parties agreed to arbitrate a particular dispute – including a question of arbitrability, it must enforce the parties’ agreement and submit the matter to arbitration.”); Anderson v. Pitney Bowes, Inc., 2005 WL 1048700, at *2 (N.D. Cal. 2005) (“if the contract is silent or ambiguous, the Court decides arbitrability”) (citing First Options ); JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676 (S.D.N.Y. 2005); Am. Graphics Inst., Inc. v. Darling, 2003 U.S. Dist. LEXIS 9790, at **15-16 (E.D. Pa. 2003) (“The determination of whether the parties agreed to arbitrate a particular dispute is one that is made by the court (unless the parties agreed to submit the arbitrability question itself to arbitration).… ”). 346 See, e.g., Solvay Pharms., Inc. v. Duramed Pharms., Inc., 442 F.3d 471, 477 (6th Cir. 2006) (“absent ‘clear and unmistakable’ evidence that contracting parties intended an arbitrator (rather than a court) to resolve questions of arbitrability, courts ‘should independently decide whether an arbitration panel has jurisdiction over the merits of any particular dispute.’ ”); Sarhank Group v. Oracle Corp., 404 F.3d 657, 661 (2d Cir. 2005) (“Under American law, whether a party has consented to arbitrate is an issue to be decided by the Court in which enforcement of an award is sought. An agreement to arbitrate must be voluntarily made, and the Court decides, based on general principles of domestic contract law, whether the parties agreed to submit the issue of arbitrability to the http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitrators.”); Local Union No. 898 v. XL Elec., Inc., 380 F.3d 868, 870 (5th Cir. 2004); Bridas SAPIC v. Gov't of Turkmenistan, 345 F.3d 347, 354 n.4 (5th Cir. 2003) (“independent review of whether the arbitration panel had jurisdiction … represents a departure from the typically deferential review afforded arbitral decisions pursuant to the federal policy favoring arbitration”). 347 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. S.Ct. 2002). Prior to Howsam, U.S. lower courts had reached divergent results with respect to the arbitrability of disputes over contractual time limits. CompareDean Witter Reynolds, Inc. v. Howsam, 261 F.3d 956 (10th Cir. 2001) (for the court); J.E. Liss & Co. v. Levin, 201 F.3d 848 (7th Cir. 2000) (same) with PaineWebber, Inc. v. Elahi, 87 F.3d 589 (1st Cir. 1996) (for the arbitrator); Smith Barney Shearson, Inc. v. Boone, 47 F.3d 750 (5th Cir. 1995) (same). 348 Section 10304 of the applicable National Association of Securities Dealers (“NASD”) Code of Arbitration Procedure provided that no dispute “shall be eligible for submission … where six (6) years have elapsed from the occurrence or event giving rise to the dispute.” 349 Howsam, 537 U.S. at 82. 350 Howsam, 537 U.S. at 82. 351 Howsam, 537 U.S. at 83-84 (emphasis added). 352 Howsam, 537 U.S. at 84 (citing Moses H. Cone Mem. Hosp.). 353 See supra pp. 745-746, 844-846 & infra pp. 925-927. 354 Howsam, 537 U.S. at 85 (arbitrators, who are “comparatively more expert about the meaning of their own rule, are comparatively better able to interpret and to apply it”). 355 Howsam, 537 U.S. at 83-84 (emphasis added). It is unclear why the terms of the parties' arbitration agreement should apply to the initial question of what interpretative presumption should apply to that agreement (e.g., the presumptions of judicial or of arbitral jurisdiction, identified in First Options). The Court apparently considered the terms of the parties' arbitration agreement relevant to the more general question of the parties' expectations about whether particular questions would be for judicial or arbitral review. 537 U.S. at 85. 356 Howsam, 537 U.S. at 85. 357 In many legal systems, time bars would not generally be considered “jurisdictional,” but rather an element of the substance of the dispute. See supra pp. 765-766. Howsam involved contractual time bars, which were at least arguably jurisdictional, but which nonetheless did not implicate the existence of an agreement to arbitrate. 358 Pacificare Health Sys., Inc. v. Book, 538 U.S. 401, 407 (U.S. S.Ct. 2003). 359 The non-arbitrability doctrine is discussed in detail above. See supra pp. 766 et seq. It is unclear whether or not the plaintiffs' RICO claims in Pacificare would have been non-arbitrable even if one assumed that the arbitral tribunal would not, and a U.S. court would, award statutory treble damages, notwithstanding contractual waivers of such damages. See infra pp. 797-800, 801-802. See also Larry's United Super, Inc. v. Werries, 253 F.3d 1083 (8th Cir. 2001) (whether waiver of punitive damages “violates the public policy underlying RICO's treble damages provision is a matter for the arbitrators in the first instance”); Thompson v. Irwin Home Equity Corp., 300 F.3d 88 (1st Cir. 2002) (claim that waiver of attorneys' fees was unenforceable is for arbitrators in first instance). http://www.kluwerarbitration.com/CommonUI/print.aspx
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360 Pacificare Health Sys., Inc., 538 U.S. at 407. The Supreme
Court relied on its decision in Vimar Seguros y Reaseguros, SA v. M/V Sky Reefer, 515 U.S. 528 (U.S. S.Ct. 1995), where it had held that COGSA claims were arbitrable, at least preliminarily, notwithstanding evidence that the arbitral tribunal (sitting in Japan) might not apply U.S. statutory COGSA protections. As discussed below, the Vimar Court held that “mere speculation that the foreign arbitrators might apply Japanese law which, depending on the proper construction of COGSA, might reduce respondents’ legal obligations, does not in and of itself” render the claim non-arbitrable. See supra pp. 528-530, 797-798. The Court therefore compelled arbitration, reserving for the stage of award enforcement questions regarding non-arbitrability. 361 Pacificare Health Sys., Inc., 538 U.S. at 407. 362 Green Tree Fin. Corp. v. Bazzle, 539 U.S. 444 (U.S. S.Ct. 2003). 363 Class arbitrations are thus far a largely domestic U.S. phenomenon, which are discussed below. See infra pp. 1226-1232. 364 Green Tree Fin. Corp., 539 U.S. at 444. 365 Green Tree Fin. Corp., 539 U.S. at 452-53 (emphasis in original). 366 Green Tree Fin. Corp., 539 U.S. at 453. 367 Green Tree Fin. Corp., 539 U.S. at 454. 368 Green Tree Fin. Corp., 539 U.S. at 453. 369 Green Tree Fin. Corp., 539 U.S. at 547 (Rehnquist, C.J., dissenting). 370 Ibid. Justice Thomas reached the same conclusion, relying on his long-standing view that the FAA did not preempt state law (and therefore deferring to a state court judgment in the case). Ibid. 371 Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 465 (2005) (“In the United States, the grant to arbitrators of this final authority over “jurisdictional' matters has become so common, and is perceived so benignly, that cases are increasingly confirming this authority with only the most perfunctory examination.”). 372 See supra p. 911 n. 310. 373 First Options, 514 U.S. at 943; Howsam, 537 U.S. at 82. 374 First Options, 514 U.S. at 943 (“Just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute, … so the question who has the primary power to decide arbitrability turns upon what the parties agreed about that matter. Did the parties agree to submit the arbitrability question itself to arbitration?”); Howsam, 537 U.S. at 83. 375 First Options, 514 U.S. at 943. 376 First Options, 514 U.S. at 943. 377 See infra pp. 928-930. 378 Howsam, 537 U.S. at 83 (quoting First Options, 514 U.S. at 944). The Court has emphasized that this is the reverse presumption from that applying to the question whether the scope of a concededly valid arbitration agreement extends to a particular dispute. As discussed above, in this case, there is a presumption that parties intended the arbitration clause to apply to disputes, unless they indicated otherwise. See supra pp. 914-916; First Options, 514 U.S. at 944-945 (“In this manner the law treats silence or ambiguity about the question ‘who [primarily] should decide arbitrability’ differently from the way it treats silence or ambiguity http://www.kluwerarbitration.com/CommonUI/print.aspx
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about the question ‘whether a particular merits-related dispute is arbitrable’ because it is within the scope of a valid arbitration agreement – for in respect to this latter question the law reverses the presumption.”). See also infra pp. 1067-1072. 379 Howsam, 537 U.S. at 83-84. SeeEhleiter v. Grapetree Shores, Inc., 482 F.3d 207, 216 (3d Cir. 2007); Kristian v. Comcast Corp., 446 F.3d 25, 38 (1st Cir. 2006); Employers Ins. Co. v. Century Indem. Co., 443 F.3d 573, 576 (7th Cir. 2006); Dockser v. Schwartzberg, 433 F.3d 421 (4th Cir. 2006) (question whether parties' dispute should be heard by one or three arbitrators was not a question of arbitrability but a procedural question for arbitrators; parties would not have expected judicial determination because rules which parties had agreed to employ established procedures for resolution of issue); Windward Agency, Inc. v. Cologne Life Reins. Co., 123 Fed.App'x. 481, 483 (3d Cir. 2005). 380 Howsam, 537 U.S. at 84. See Dockser, 433 F.3d at 426 (a question of arbitrability is raised for judicial determination “only when there is a question regarding whether parties should be arbitrating at all”); Kristian, 446 F.3d at 37-39; ING Fin. Partners v. Johansen, 446 F.3d 777, 778 (8th Cir. 2006); JLM Indus. v. Stolt-Nielsen SA, 387 F.3d 163, 171 (2d Cir. 2004); Mulvaney Mechanical, Inc. v. Sheet Metal Workers Int'l Ass'n, Local 38, 351 F.3d 43, 44 (2d Cir. 2003) (question whether actions of striking union repudiated a collective bargaining agreement in violation of an agreement's no-strike clause was equivalent to the question of whether a binding agreement to arbitrate existed, and was thus a question of arbitrability presumptively reserved for the courts); Foss v. Circuit City Stores, Inc., 477 F.Supp.2d 230, 233-34 (D. Maine 2007). 381 Howsam, 537 U.S. at 84; Ehleiter, 482 F.3d at 216; Employers Ins., 443 F.3d at 577; Marie v. Allied Home Mortgage Corp., 402 F.3d 1, 10 (1st Cir. 2005); JLM Indus., 387 F.3d at 171. 382 Howsam, 539 U.S. at 84. In particular, the Green Tree plurality reasoned that matters of “contract interpretation and arbitration procedures,” are presumptively for arbitral determination, which would apply to questions of the scope of the arbitration clause and the existence of an agreement to class arbitration. Green Tree Fin. Corp., 539 U.S. at 453. 383 Howsam, 537 U.S. at 84. See Certain Underwriters at Lloyd's London v. Westchester Fire Ins. Co., 489 F.3d 580 (3d Cir. 2007) (question whether parties agreed to individualized or consolidated arbitral proceedings was procedural issue for arbitrators); DeanWitter Reynolds, Inc. v. Howsam, 261 F.3d 956 (10th Cir. 2001); Ehleiter, 482 F.3d at 216; Zurich Am. Ins. Co. v. Watts Indus., Inc., 466 F.3d 577, 581 (7th Cir. 2006); Nagrampa v. MailCoups, Inc., 469 F.3d 1257, 1268 (9th Cir. 2006); Employers Ins. Co. of Wausau v. Century Indem. Co., 443 F.3d 573 (7th Cir. 2006) (question whether arbitration agreement forbade consolidated arbitration was procedural question for arbitrators to resolve); Int'l Bhd of Elec. Workers, Local Union No. 545 v. Hope Elec. Corp., 380 F.3d 1084, 1099 (8th Cir. 2004); Int'l Ass'n of Bridge v. EFCO Corp., 359 F.3d 954, 956 (8th Cir. 2004); Klay v. United Healthgroup, Inc., 376 F.3d 1092, 1107 (11th Cir. 2004); Boateng v. Gen. Dynamics Corp., 473 F.Supp.2d 241, 250 (D. Mass. 2007). 384 Howsam, 537 U.S. at 84. See Kristian, 446 F.3d at 39; Zurich Am. Ins. Co., 466 F.3d at 581; Int'l Ass'n of Bridge v. EFCO Corp., 359 F.3d 954, 957 (8th Cir. 2004); Klay v. United Healthgroup, Inc., 376 F.3d 1092, 1108 (11th Cir. 2004); TMR Energy Ltd v. State Prop. Fund of Ukraine, 366 U.S. App. D.C. 320, 305 (D.D.C. 2005). 385 Howsam, 537 U.S. at 83-84; Pacificare Health Sys., Inc., 538 http://www.kluwerarbitration.com/CommonUI/print.aspx
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U.S. at 407 n.2. 386 Howsam, 537 U.S. at 80-85. 387 First Options, 514 U.S. at 944. SeeEhleiter, 482 F.3d at 221; Solvay Pharms., Inc. v. Duramed Pharms., Inc., 442 F.3d 471, 477 (6th Cir. 2006); Sadler v. Green Tree Servicing, LLC, 466 F.3d 623, 625 (8th Cir. 2006); Marie, 402 F.3d at 9; Contec Corp., 398 F.3d at 208. 388 First Options, 514 U.S. at 944-946. SeeEhleiter, 482 F.3d at 221-22; Bell v. Cendant Corp., 293 F.3d 563, 566 (2d Cir. 2002); Ass'n of Flight Attendants-CWA v. Am. Eagle Airlines, Inc., 2005 U.S. Dist. LEXIS 20939, at *8-10 (N.D. Ill. 2005); Robert Half Int'l, Inc. v. Thompson, 1999 U.S. Dist. LEXIS 2719, at *7-8 (N.D. Ill. 1999); PaineWebber, Inc. v. Johnson, 888 F.Supp. 46, 49 (E.D. Penn. 1995). 389 See infra pp. 966-969. 390 See infra pp. 990-997, 1758-1765. 391 See supra pp. 184-189, 247-252 & infra pp. 1625-1627, 21772184. 392 See infra pp. 1049-1057, 2920-2929, 2937-2947. 393 This is the presumption under the UNCITRAL Model Law, which permits arbitrators to continue with the arbitral proceedings, notwithstanding a jurisdictional challenge. See UNCITRAL Model Law, Art. 16(3); supra p. 879 & infra pp. 993-997. 394 See infra pp. 993-997. 395 Christopher Brown Ltd v. Genossenschaft Österreichischer Waldbesitzer Holzwirtschaftsbetriebe [1954] 1 Q.B. 8, 12-13 (Q.B.). See alsoInt'l Medical Group, Inc. v. Am. Arbitration Ass'n, 149 F.Supp.2d 615, 632 (S.D. Ind. 2001) (“The AAA's order to proceed with the arbitration is no different than that emanating from a court after a lawsuit has been filed – the case would proceed until a judicial determination was made, either sua sponte or in response to a motion, that the cause failed for lack of jurisdiction or on the merits of the claim.”); Van Waters & Rogers Inc. v. Int'l Brotherhood of Teamsters, Chauffeurs, Warehousem*n & Helpers of Am., Local Union 70, 913 F.2d 736, 740-41 (9th Cir. 1990) (parties can preserve jurisdictional objections during arbitration for subsequent judicial review). 396 First Options, 514 U.S. at 942 (emphasis added). 397 Pacificare Health Sys., Inc., 538 U.S. at 407 n.2. See alsoCertain Underwriters at Lloyd's London v. Westchester Fire Ins. Co., 489 F.3d 580, 586 (3d Cir. 2007) (observing that Pacificare “reject[ed] argument that preliminary question of whether the contractual remedial limitations at issue here prohibit an award of RICO treble damages raised question of arbitrability for court to resolve, and conclude[d] it presented question of contract interpretation to be resolved in arbitration,” and deciding that “[i]t is therefore not only legally proper, but eminently sensible, that the dispute here is presumptively one for the arbitral forum to resolve”) (emphasis added); Discount Trophy & Co. v. Plastic Dress-Up Co., 2004 WL 350477, at *6 n.9 (D. Conn. 2004) (“Pacificare also explained that ‘the preliminary question whether the remedial limitations at issue here prohibit an award of RICO treble damages is not a question of arbitrability,’ as the Court has used that phrase and therefore it is not an appropriate issue for a court in the first instance.”) (emphasis added). 398 The same result was reached by the Court in Vimar Seguros y Reaseguros, SA v. M/V Sky Reefer, 515 U.S. 528 (U.S. S.Ct. 1995). http://www.kluwerarbitration.com/CommonUI/print.aspx
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399 See URS Corp. v. Lebanese Co. for the Dev. and Reconstr. of
Beirut Central District SAL, 512 F.Supp.2d 199, 208 (D. Del. 2007); Avue Techs. Corp. v. DCI Group, LLC, 2006 U.S. Dist. LEXIS 24513, at *16-19 (D.D.C. 2006) (applying First Options, holding that incorporation of AAA rules permitted arbitrator to make initial determination of own jurisdiction despite no express contractual language); Lucile Packard Children's Hosp. v. U.S. Nursing Corp., 2002 WL 1162390, at *3-4 (N.D. Cal. 2002) (same); Conrail Corp. v. Metro. Transp. Auth., 1996 WL 137587, at *8 (S.D.N.Y. 1994) (First Options requires clear and unmistakable evidence of an intent to arbitrate arbitrability only where allegations involve formation or existence of arbitration agreement; for other jurisdictional issues including scope and duration, the arbitrator should decide even without express agreement to arbitrate jurisdictional objections). 400 See infra pp. 930-948, 954-958. 401 On the state law level, the Revised Uniform Arbitration Act provides for interlocutory judicial determination of jurisdictional disputes, generally in broader terms than that available under the FAA. See Revised Uniform Arbitration Act, §6(b) (2000) (“The court shall decide whether an agreement to arbitrate exists or a controversy is subject to an agreement to arbitrate.”), §6(d) (“If a party to a judicial proceeding challenges the existence of, or claims that a controversy is not subject to, an agreement to arbitrate, the arbitration proceeding may continue pending final resolution of the issue by the court, unless the court otherwise orders.”). 402 The interpretation of international arbitration agreements is discussed below. See infra pp. 1059-1130. 403 Howsam, 537 U.S. at 84. See alsoEhleiter, 482 F.3d at 216; Dockser, 433 F.3d at 426; Employers Ins., 443 F.3d at 577; Marie, 402 F.3d at 10; JLM Indus., 387 F.3d at 171. 404 See supra pp. 891-894 & infra pp. 974-975. See also Nat'l R.R. Passenger Corp. v. Conrail, 892 F.2d 1066, 1071 (D.C. Cir. 1990) (“It is precisely so that an arbitrator may interpret and apply those terms that the parties agreed to arbitration”; the court should not “intervene before the arbitrator has determined what the contract means”); Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street, 673 P.2d 251 (Cal. 1983). See also Smit, The Arbitration Clause: Who Determines Its Validity and Its Personal and Subject Matter Reach?, 6 Am. Rev. Int'l Arb. 395, 397 (1995). CompareAT&T Tech., Inc. v. Comm. Workers of Am., 475 U.S. 643, 650 (U.S. S.Ct. 1986). 405 Howsam, 537 U.S. at 84. 406 This is consistent with practice in state-to-state arbitrations. See supra p. 856 n. 16. 407 Green Tree Fin. Corp., 539 U.S. at 452. 408 See supra pp. 919-922, 925-927; Howsam, 537 U.S. 79. 409 See also Rau, Everything You Really Need to Know About ‘Separability’ in Seventeen Simple Propositions, 14 Am. Rev. Int'l Arb. 1, 105-107 (2004). 410 As discussed above, there is a substantial argument that the First Options dicta concerning scope disputes was ill-considered. See supra pp. 931-932. Even if that dicta is given effect, however, First Options' presumption in favor of judicial authority should be readily overcome in many cases involving disputes over the scope of arbitration clauses. 411 ICC Rules, Art. 6(2). 412 ICC Rules, Art. 6(2). http://www.kluwerarbitration.com/CommonUI/print.aspx
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413 See institutional rules cited and quoted supra pp. 869-870. 414 See, e.g., Apollo Computer v. Berg, 886 F.2d 469 (1st Cir.
1989); Société Générale de Surveillance, 643 F.2d 863; Butler Products Co. v. Unistrut Corp., 367 F.2d 733 (7th Cir. 1966); Seaboard Coast Line R. Co. v. Nat'l Rail Passenger Corp., 554 F.2d 657 (5th Cir. 1977); Daiei Inc. v. United States Shoe Corp., 755 F.Supp. 299, 303 (D. Haw. 1991) (“where the parties have specifically contracted to submit issues of arbitrability to the arbitrator,” this agreement will be enforced); Andrew Martin Marine Corp. v. Stork-Werkspoor Diesel BV, 480 F.Supp. 1270 (E.D. La. 1979) (interpreting ICC clause broadly). 415 See Qualcomm, Inc. v. Nokia Corp., 466 F.3d 1366, 1374 (Fed. Cir. 2006) (“the parties clearly and unmistakably intended to delegate arbitrability questions to an arbitrator as evidenced by their incorporation of the AAA Rules”); Contec Corp., 398 F.3d at 208; Shaw Group Inc. v. Triplefine Int'l Corp., 322 F.3d 115, 118 & 125 (2d Cir. 2003) (ICC arbitration clause “clearly and unmistakably evidences the parties' intent to arbitrate questions of arbitrability”); John Hanco*ck Life Ins. Co. v. Wilson, 254 F.3d 48, 55 (2d Cir. 2001) (“parties may overcome the First Options presumption by entering into a separate agreement that (1) employs the “any and all' language … or (2) expressly incorporates the provisions of an [arbitration institution] that requires questions of arbitrability to be decided in arbitration”); Wal-Mart Stores, Inc. v. PT Multipolar Corp., 1999 U.S. App. LEXIS 31578 (9th Cir. 1999) (“Article 21(2) of [the] UNCITRAL [Rules] gives the arbitral tribunal the power to determine whether it has jurisdiction over a dispute and the power “to rule on objections that it has no jurisdiction, including any objections with respect to the existence or validity of the arbitration clause or separate arbitration agreement.' … [T]he parties agreed to abide by a system in which the tribunal rules on objections to its jurisdiction and the arbitrator, rather than the district court, should decide whether the parties' disputes are arbitrable.”); Nazar v. Wolpoff & Abramson, LLP, 2007 U.S. Dist. LEXIS 11027, at *12-13 (D. Kan. 2007) (“Because the credit agreements at issue in this case explicitly incorporate procedural rules [from the National Arbitration Forum] that empower the arbitrator to decide the threshold issue of arbitrability, the court views this as yet additional clear and unmistakable evidence that the parties intended to delegate to the arbitrator the issue of whether defendant Wolpoff & Abramson falls within the scope of the arbitration provision.”); Avue Techs. Corp. v. DCI Group, LLC, 2006 U.S. Dist. LEXIS 24513, at *13-18 (D.D.C. 2006) (“even under the ‘clear and unmistakable evidence' standard, the arbitration agreement need not ‘specifically state that the arbitrator has the primary authority to decide the arbitrability of the issues' if the AAA rules as a whole are incorporated by reference … ”); JSC Surgutneftegaz v. President and Fellows of Harvard College, 2005 WL 1863676, at *6 (“incorporation of the AAA Rules serves as clear and unmistakable evidence of the parties' submission of arbitrability to the arbitrator”); Sleeper Farms v. Agway, Inc., 211 F.Supp.2d 197, 200 (D. Me. 2002) (AAA Rules are “clear and unmistakable delegation of scope-determining authority to an arbitrator”); Brandon, Jones, Sandall, Zeide, Kohn, Chalal & Musso, PA v. MedPartners, Inc., 203 F.R.D. 677 (S.D. Fla. 2001) (AAA Rules grant arbitrators power to decide “regarding the arbitrability of a matter”); Andersen Consulting Business Unit Member Firms v. Andersen Worldwide Societe Coop., 1998 U.S. Dist. LEXIS 3252 (S.D.N.Y. 1998) (“the jurisdictional issue of whether the ICC arbitration is the proper forum is itself subject to resolution before the ICC. The ICC should decide whether these issues are properly http://www.kluwerarbitration.com/CommonUI/print.aspx
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litigated in the pending ICC arbitration, in another ICC arbitration, or in another forum under the Swiss Intercantonal Convention”). 416 Contec Corp., 398 F.3d at 208. 417 Way Servs., Inc. v. Adecco N. Am., LLC, 2007 U.S. Dist. LEXIS 44206, at *9-17 (E.D. Pa. 2007). 418 Rau, Everything You Really Need to Know About “Separability' in Seventeen Simple Propositions, 14 Am. Rev. Int'l Arb. 1, 107-109 (2004). 419 First Options, 514 U.S. at 944-945; Howsam, 537 U.S. at 83. 420 Such waivers have sometimes been held unenforceable under the FAA. See infra pp. 2660-2667. 421 See infra pp. 2639-2646. 422 U.S. FAA, 9 U.S.C. §10(a)(4); New York Convention, Arts. V(1) (a), (c). Similar arguments are made under the UNCITRAL Model Law. See supra pp. 913-916 & infra pp. 969-971. 423 This distinction is derived from a reference to “broad” arbitration clauses in the U.S. Supreme Court's decision in Prima PaintCorp., 388 U.S. at 402. 424 See, e.g., John Hanco*ck Life Ins. Co. v. Wilson, 254 F.3d 48, 55 (2d Cir. 2001) (“parties may overcome the First Options presumption by entering into a separate agreement that (1) employs the “any and all' language …”); Lebanon Chem. Corp. v. United Farmers Plant Food, Inc., 179 F.3d 1095 (8th Cir. 1999) (“A court deciding arbitrability under a broad agreement [to arbitrate] leaves for the arbitrator the issue of whether the controversy in question relates to the agreement containing the arbitration clause, i.e., the scope of the clause.”); PaineWebber, Inc. v. Bybyk, 81 F.3d 1193 (2d Cir. 1996) (“broad” arbitration clause encompassing “any and all controversies” indicates that “parties intended to arbitrate issues of arbitrability”); Hornbeck Offshore (1984) Corp. v. Coastal Carriers Corp., 981 F.2d 752 (5th Cir. 1993) (“if the clause is broad, the action [in state court] should be stayed and the arbitrators permitted to decide whether the dispute falls within the clause”); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co., 767 F.2d 1140, 1145 (5th Cir. 1985); McAllister Bros., Inc. v. A & S Transp. Co., 621 F.2d 519, 522 (2d Cir. 1980); Acevedo Maldonado v. PPG Indus., Inc., 514 F.2d 614, 616-17 (1st Cir. 1975) (under broad clause, “arbitrator must ultimately pass on the outer boundaries of what is arbitrable”); Duane Street Assoc. v. Local 32B-32J, 2000 WL 802889, at *1 (S.D.N.Y. 2000) (“broad arbitration clause” requires that arbitrators decide disputes over scope of clause); Toledo Tech., Inc. v. INA Walzlager Schaeffer KG, 1999 WL 681557 (N.D. Ohio 1999) (scope of broad arbitration clause subject to arbitration under First Options); Gestetner Holdings, plc v. Nashua Corp., 784 F.Supp. 78 (S.D.N.Y. 1992); CAE Indus. Ltd v. Aerospace Holdings Co., 741 F.Supp. 388, 392 (S.D.N.Y. 1989); Port Auth. of New York and New Jersey v. Office of the Contract Arbitrator, 660 N.Y.S.2d 408 (N.Y. App. Div. 1997) (scope of arbitration clause subject to arbitration under First Options); In re RAS Sec. Corp., 674 N.Y.S.2d 303 (App. Div. 1998) (scope of arbitration clause subject to arbitration); Matter of Arbitration between Jefferson-Lewis-Hamilton-Herkimer-Oneida Boces, 668 N.Y.S.2d 834 (N.Y. App. Div. 1998) (“broad arbitration clause” requires that “issues concerning the scope of the agreement … are matters for the arbitrator to decide”); Bd. of Ed. of Plainedge v. Plainedge Fed. of Teachers, 645 N.Y.S.2d 489, 490 (N.Y. App. Div. 1990) (scope of broad arbitration clause “is an issue to be resolved by arbitration and not by courts”); Pepsi-Cola Metro. Bottling Co. v. Columbia-Oxford Beverages, Inc., 474 N.Y.S.2d 127 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(N.Y. App. Div. 1984), aff'd, 389 N.Y.S.2d 315 (1976); Nationwide Gen. Ins. Co. v. Inv. Ins. Co., 371 N.Y.S.2d 463, 467 (N.Y. 1975) (“[p]enetrating definitive analysis of the scope of the agreement must be left to the arbitrators”). 425 Prudential Lines, Inc. v. Exxon Corp., 704 F.2d 59, 64 (2d Cir. 1983). 426 Howsam, 537 U.S. at 83. 427 See, e.g., JSC Surgutneftegaz, 2006 U.S. App. LEXIS 3846, at *3-4 (2d Cir. 2006) (“the extremely broad terms of the Deposit Agreement's arbitration clause plainly evince an intent to have the question of arbitrability decided by an arbitrator”; conclusion “is further demonstrated by the incorporation of the rules of the [AAA]”); Pedcor Mgt Co. Welfare Benefit Plan v. Nations Pers. of Texas, Inc., 343 F.3d 355, 359 (5th Cir. 2003) (because “the scope of the arbitration agreement itself was broad, and the issue there concerned only the kind of arbitration proceeding,” “this matter of contract interpretation should be for the arbitrator, not the courts, to decide”); Bell v. Cendant Corp., 293 F.3d 563, 565 (2d Cir. 2002); Shaw Group Inc.,322 F.3d at 124-25 (“[B]ecause the parties' arbitration agreement is broadly worded to require the submission of ‘all disputes’ concerning the Representation Agreement to arbitration, and because it provides for arbitration to be conducted under the rules of the ICC, which assign the arbitrator initial responsibility to determine issues of arbitrability, we conclude that the agreement clearly and unmistakably evidences the parties' intent to arbitrate questions of arbitrability.”); Ferro Corp. v. Garrison Indus., Inc., 142 F.3d 926, 937 (6th Cir. 1998) (“the arbitration clause is conspicuously broad, as it applies to “all controversies and claims arising out of or relating to this Agreement … ' Given this broad language, the Court does not believe that the parties intended to incorporate Ohio law, or invoke the power of courts, to determine the scope of the arbitration agreement.”); Scan-Optics, LLC v. Mavel, 2006 U.S. Dist. LEXIS 79552, at *7 (D. Conn. 2006) (“A broad arbitration clause is sufficient to require arbitration for questions of arbitrability”); Oriental Republic of Uruguay v. Chem. Overseas Holdings, Inc., 2006 U.S. Dist. LEXIS 2261 (S.D.N.Y. 2006) (“a broadly drafted arbitration clause may evidence the parties' intention to arbitrate the issue of arbitrability”); Fraternity Fund Ltd v. Beacon Hill Asset Mgt LLC, 371 F.Supp.2d 571 (S.D.N.Y. 2005) (“An arbitration clause … does not need to be unlimited in order sufficiently to evidence the parties' intent to arbitrate questions of arbitrability”); Bridgewater Assoc., Inc. v. Oberoi, 2005 U.S. Dist. LEXIS 25324, at *14 (S.D.N.Y. 2005) (“under Connecticut law, “super broad' language in an arbitration clause is sufficient to demonstrate that the parties intended the question of arbitrability to be determined by the arbitrator.”); Century Indem. Co. v. Viacom, Inc., 2003 WL 402792 (S.D.N.Y. 2003) (“Whether the Agreement – which refers to a single policy number – covers only one policy numbered CIZ 42 61 97, or its identically numbered renewal, is a dispute squarely within that clause's broad scope, and thus a matter that the parties have agreed to settle by arbitration.”). But see Carson v. GiantFood, Inc., 175 F.3d 325, 330 (4th Cir. 1999) (“broad arbitration clauses that generally commit all interpretive disputes “relating to' or “arising out of' the agreement do not satisfy the clear and unmistakable test”). 428 Barceló, Who Decides the Arbitrators' Jurisdiction? Separability and Competence-Competence in Transnational Perspective, 36 Vand. J. Transnat'l L. 1115, 1121-22 (2003); Rau, Everything You Really Need to Know About “Separability' in Seventeen Simple Propositions, 14 Am. Rev. Int'l Arb. 1, 118 (2004). http://www.kluwerarbitration.com/CommonUI/print.aspx
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429 Bell v. Cendant Corp., 293 F.3d 563, 565 (2d Cir. 2002). 430 See supra pp. 891-894. 431 See supra pp. 891-894. 432 See supra pp. 931-932. An important difference, however, is
that, under the Model Law, the arbitrators' determination of scope disputes would arguably be subject to de novo judicial review, see UNCITRAL Model Law, Art. 34(2)(a)(iii); infra pp. 974-975, 981-986, while the arbitrators' award with regard to scope issues under the FAA would be subject only to manifest disregard review, see supra pp. 914-919, 924-927 & infra pp. 954-960. This difference is material, but should not be overstated in the particular context of scope disputes, because judicial review under Article 34(2)(iii) should also treat the arbitrators' interpretation of the underlying contract as final, thereby constraining significantly any judicial review of a scope decision. See infra pp. 2610-2611. 433 See supra pp. 931-932. 434 First Options of Chicago, 514 U.S. 938; Howsam, 537 U.S. at 82; supra pp. 914-916, 920-922. 435 Seesupra pp. 914-916, 920-922; Howsam, 537 U.S. 79 (interpreting First Options as holding “that a court should decide whether the arbitration contract bound parties who did not sign the agreement”). 436 UNCITRAL Model Law, Art. 8(1); supra pp. 891-894. 437 Claims of illegality and invalidity of the underlying contract are subject to the separability presumption, and generally for the arbitrators to decide. See supra pp. 357-402. 438 See supra pp. 759-761; Nagrampa, 469 F.3d at 1271-75 (collecting cases); John B. Goodman Ltd P'ship v. THF Constr., Inc., 321 F.3d 1094 (11th Cir. 2003); Snowden v. CheckPoint Check Cashing, 290 F.3d 631 (4th Cir. 2002); Bess v. Check Express, 294 F.3d 1298 (11th Cir. 2002); Lawrence v. Comprehensive Business Serv. Co., 833 F.2d 1159 (5th Cir. 1987); Mesa Operating Ltd P'ship v. La. Intrastate Gas Corp., 797 F.2d 238 (5th Cir. 1986); Siderurgica del Orinoco (Sidor), CA v. Linea Naviera de Cabotage, CA, 1999 WL 632870 (S.D.N.Y. 1999); Herwig v. Hahnaman-Albrecht, Inc., 1997 WL 72079, at *3 (N.D. Ill. 1997) (“a court deciding a motion to arbitrate under the FAA is limited to deciding only whether the arbitration agreement itself is invalid, illegal or unenforceable and is not free to evaluate the overall contract”); Nuclear Elec. Ins. Ltd v. Central Power & Light Co., 926 F.Supp. 428 (S.D.N.Y. 1996); Belship Nav. Inc. v. Sealift, Inc., 1995 WL 447656 (S.D.N.Y. 1995). 439 See supra pp. 365-370, 714-721, 724-726, 733-735; Nagrampa, 469 F.3d 1257; Anders v. Hometown Mortg. Sers., Inc., 346 F.3d 1024 (11th Cir. 2003); Griffen v. Alpha Phi Alpha, Inc., 2007 WL 707364, at *4 (E.D. Pa. 2007) (because the plaintiff “challenges the substantive unconscionability of the arbitration clause itself, the Court is permitted to decide [the] validity of the clause”); Cline v. H.E. Butt Grocery Co., 79 F.Supp.2d 730, 732 (S.D. Tex. 1999) (“it is only when an attack is made on the arbitration clause itself that a court, rather than an arbitrator, should decide questions of validity.”); Salley v. Option One Mortg. Corp., 925 A.2d 115, 120 (Pa. 2007) (“[t]he courts may consider, in the first instance, only those challenges that are directed solely to the arbitration component itself”). 440 See supra pp. 714-721; R.M. Perez & Assoc., Inc. v. Welch, 960 F.2d 534, 538 (5th Cir. 1992) (“If the fraud relates to the arbitration clause itself, the court should adjudicate the fraud claim. http://www.kluwerarbitration.com/CommonUI/print.aspx
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If it relates to the entire agreement, then the [FAA] requires that the fraud claim be decided by an arbitrator.”); Cline, 79 F.Supp.2d at 732. 441 See supra pp. 690-693; Acquaire v. Canada Dry Bottling, 906 F.Supp. 819, 826 (E.D.N.Y. 1995) (court considers claim that arbitration clause was product of duress); Rust v. Drexel Firestone, Inc., 352 F.Supp. 715 (S.D.N.Y. 1972) (same); ITT Comm. Fin. Corp. v. Tyler, 1994 WL 879497 (Mass. Super. 1994) (same); Wheeler v. St. Joseph Hosp., 63 Cal.App.3d 345, 775 (1976) (same). 442 See supra pp. 724-726; Nagrampa, 469 F.3d at 1264 (addressing unconscionability of arbitration agreement); Doctor's Assoc., Inc. v. Distajo, 107 F.3d 126 (2d Cir. 1997) (same); Doctor's Assoc., Inc. v. Stuart, 85 F.3d 975 (2d Cir. 1996) (same); Hellenic Lines, Ltd v. Louis Dreyfus Corp., 372 F.2d 753 (2d Cir. 1967) (same); Brower v. Gateway 2000, Inc., 246 A.D.2d 246 (N.Y. App. Div. 1998) (same). 443 See supra pp. 733-736; Richard Harp Homes, Inc. v. Van Wyck, 2007 WL 2660213 (Ark. App. 2007) (addressing claim that arbitration agreement is void for lack of mutuality); Tyson Foods, Inc. v. Archer, 147 S.W.3d 681 (Ark. 2004) (same); Stevens/Leinweber/Sullens v. Holm. Dev. & Mgt, Inc., 795 P.2d 1308 (Ariz. Ct. App. 1990) (same); Cored Panels, Inc. v. Meinhard Comm. Corp., 420 N.Y.S.2d 731 (N.Y. App. Div. 1979) (same). 444 See supra pp. 747-749; Microchip Tech. Inc. v. U.S. Philips Corp., 367 F.3d 1350 (Fed. Cir. 2004) (“the question of whether an arbitration agreement has expired is for the court to decide, even if this requires interpretation of the language of the agreement”); ACE Capital Re Overseas, Ltd v. Cent. United Life Ins. Co., 307 F.3d 24 (2d Cir. 2002); Unionmutual Stock Life Ins. Co. of Am., 774 F.2d at 528-29; Clifton D. Mayhew, Inc. v. Mabro Constr. Inc., 383 F.Supp. 192 (D.D.C. 1974); Banque de Paris et des Pays-Bas v. Amoco Oil Co., 573 F.Supp. 1464 (S.D.N.Y. 1983); In re Neutral Posture, Inc., 135 S.W.3d 725 (Tex. App. 2003) (whether parties' agreement to arbitrate expired by its terms concerns existence of agreement to arbitrate and, thus, an issue of substantive arbitrability reserved for judicial determination, rather than a question to be determined by an arbitrator); Ambulance Billing Sys., Inc. v. Gemini Ambulance Serv., Inc., 103 S.W.3d 507 (Tex. App. 2003); Annotation, Violation or Repudiation of Contract as Affecting Right to Enforce Arbitration Clause Therein, 3 A.L.R.2d 378. 445 See supra pp. 693-694, 718-721; Campaniello Imp. Ltd v. Saporiti Italia SpA, 117 F.3d 655 (2d Cir. 1997) (claim that arbitration clause was fraudulently procured for judicial determination);Cancanon v. Smith Barney, Harris, Upham & Co., 805 F.2d 998 (11th Cir. 1986) (“where misrepresentation of the character or essential terms of a proposed contract occurs, assent to the contract is impossible. In such a case there is no contract at all”); Strotz v. Dean Witter Reynolds, Inc., 272 Cal.Rptr. 680 (Cal. App. 1990) (defendant claimed that broker falsely said that brokerage agreement was not a contract: “if a party is unaware that he is signing any contract, obviously he also is unaware he is agreeing to arbitration”); Lynch v. Cruttenden & Co., 22 Cal.Rptr.2d 636 (Cal. App. 1993) (“the representation that the documents did not affect the Lynches' rights is equivalent to a representation that the documents are not contracts, a deception as to the nature and effect of the documents”). 446 China Minmetals Materials Imp. & Exp. Co. v. Chi Mei Corp., 334 F.3d 274, 285-289 (3d Cir. 2003). 447 See supra pp. 932-934. http://www.kluwerarbitration.com/CommonUI/print.aspx
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448 China Minmetals Materials Imp. & Exp. Co. v. Chi Mei Corp.,
334 F.3d 274, 285-289 (3d Cir. 2003) (applying First Options and holding that even though the arbitration agreement incorporated CIETAC rules, which empower arbitrators to determine validity of arbitration agreement, the court, rather than the arbitrators, should decide any challenges to arbitration agreement's existence); Telenor Mobile Comm. AS v. Storm, 524 F. Supp.2d 332, 351 (S.D.N.Y. 2007) (citing First Options and holding that because the validity of the arbitration agreement is at issue, the court, rather than the arbitrators, should decide the issue, even though the arbitration agreement incorporated the UNCITRAL rules); Guang Dong Light Headgear Factory Co. v. ACI Int'l, Inc., 2005 WL 1118130, at *1, *7-8 (D. Kan. 2005) (where arbitration agreement's validity was at issue, arbitrators were not competent to determine validity of agreement, notwithstanding incorporation of institutional rules into agreement). 449 See, e.g., China Minmetals Materials Imp. & Exp. Co. v. Chi Mei Corp., 334 F.3d 274 (3d Cir. 2003); Mirra Co., Inc. v. Sch. Admin. Dist. No. 35, 251 F.3d 301, 304 (1st Cir. 2001); George v. Lebeau, 455 F.3d 92, 93-94 (2d Cir. 2006); Wash. Mut. Fin. Group, LLC v. Bailey, 364 F.3d 260, 264 (5th Cir. 2004); MI Installers & Furniture Serv. v. N.Y. City Dist. Council of Carpenters Pension Fund, 476 F.Supp.2d 387, 390 (S.D.N.Y. 2007); Celanese Corp. v. BOC Group plc, 2006 U.S. Dist. LEXIS 88191, at *6-7 (N.D. Tex. 2006). See authorities cited supra pp. 932-934 & infra pp. 944-948. 450 See supra pp. 363-380. 451 388 U.S. 395 (U.S. S.Ct. 1967); supra pp. 363-365. 452 546 U.S. 440 (U.S. S.Ct. 2006); supra pp. 363-365, 756-761. 453 See supra pp. 369, 714-721; Masco Corp. v. Zurich Am. Ins. Co., 382 F.3d 624, 629-30 (6th Cir. 2004) (arbitrators to resolve question of fraudulent inducement of underlying contract); Highlands Wellmont Health Network Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 575 (6th Cir. 2003) (same); Ace Capital Re Overseas, Ltd v. Cent. United Life Ins. Co., 307 F.3d 24, 29-30 (2d Cir. 2002) (same); Ferro Corp. v. Garrison Indus., Inc., 142 F.3d 926 (6th Cir. 1998) (“[T]he arbitration agreement is effectively considered as a separate agreement which can be valid despite being contained in a fraudulently induced contract.”); In re Oil Spill by Amoco Cadiz, et al., 659 F.2d 789 (7th Cir. 1981) (“a claim of fraud in the inducement of a contract is a matter for arbitration”); Acquaire v. Canada Dry Bottling, 906 F.Supp. 819, 825 (E.D.N.Y. 1995). 454 See supra pp. 370, 721-723; Unionmutual Stock Life Ins. Co. of Am., 774 F.2d at 528-29 (“In this case, the arbitration clause is separable from the contract and is not rescinded by [a party's] attempt to rescind the entire contract based on mutual mistake and frustration of purpose.”); Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 868-69 (7th Cir. 1985) (“objections to other parts of the contract, based on … mistake or whatever, need not spill over to the arbitration clause”); Bratt Enter., Inc. v. Noble Int'l Ltd, 99 F.Supp.2d 874 (S.D. Ohio 2000) (arbitrators to consider claim of mutual mistake as to terms of underlying contract, where there was no claim “that there was any ‘mutual mistake’ in the negotiation of the arbitration clause itself”). 455 See supra pp. 367, 723-724; Hawkins v. Aid Ass'n for Lutherans, 338 F.3d 801, 808 (7th Cir. 2003) (“the addition of the arbitration provision was not an independent contract requiring mutual assent or consideration”); Lawrence v. Comprehensive Business Serv. Co., 833 F.2d 1159 (5th Cir. 1987); Erving v. Virginia Squires Basketball Club, 468 F.2d 1064 (2d Cir. 1972); Hellenic Lines, Ltd v. Louis Dreyfus Corp., 372 F.2d 753 (2d Cir. 1967); Cook http://www.kluwerarbitration.com/CommonUI/print.aspx
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v. River Oaks Hyundai, Inc., 2006 U.S. Dist. LEXIS 21646, at *2 (N.D. Ill. 2006); Campbell v. Sterling Jewelers, Inc., 2005 WL 991771, at *2 (N.D. Ill. 2005); Cline v. H.E. Butt Grocery Co., 79 F.Supp.2d 730, 732 (S.D. Tex. 1999) (“Questions related to the enforcement of a contract as a whole are properly referable to an arbitrator; it is only when an attack is made on the arbitration clause itself that a court, rather than an arbitrator, should decide questions of validity. The arbitration clause itself is supported by valid consideration: each party promised to relinquish their legal right to have a judicial forum adjudicate their disputes.”); Axtell v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 744 F.Supp. 194, 196 (E.D. Ark. 1990) (“plaintiffs' allegations of failure of consideration and overreaching go to the making of the contract generally, and therefore are to be considered by the arbitrator.”); Seymour v. Gloria Jean's Coffee Bean Franchising Corp., 732 F.Supp. 988, 995-6 (D. Minn. 1990); Miller v. Cotter, 448 Mass. 671, 684 n.16 (2007); In re Palm Harbor Homes, Inc., 195 S.W.3d 672, 676 (Tex. 2006). ButseeGibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1130 (7th Cir. 1997). 456 See supra pp. 368, 724-726; Bob Schultz Motors, Inc. v. Kawasaki Motors Corp., U.S.A., 334 F.3d 721 (8th Cir. 2003); Jenkins v. First Am. Cash Advance of Georgia, LLC, 400 F.3d 868, 877 (11th Cir. 2005) (“the FAA does not permit a federal court to consider claims alleging the contract as a whole was adhesive”); Madol v. Dan Nelson Auto. Group, 372 F.3d 997, 1000 (8th Cir. 2004) (“the plaintiffs' arguments that their … transactions were generally unconscionable were subject to resolution by an arbitrator, absent a showing by the plaintiffs that the DRA [dispute resolution agreement], standing alone, was invalid”); Gutierrez v. Academy Corp., 967 F.Supp. 945 (S.D. Tex. 1997) (unconscionability challenge directed at “entire agreement” and therefore for arbitral, not judicial, determination). 457 See supra pp. 369, 747-755; ACE Capital Re Overseas, Ltd v. Cent. United Life Ins. Co., 307 F.3d 24 (2d Cir. 2002); Ambulance Billing Sys., Inc. v. Gemini Ambulance Serv., Inc., 103 S.W.3d 507 (Tex. App. 2003) (arbitrators to decide “dispute regarding whether a settlement agreement was reached replacing or cancelling” original agreement); Clifton D. Mayhew, Inc. v. Mabro Constr. Inc., 383 F.Supp. 192 (D.D.C. 1974). 458 See supra pp. 368-369. 459 See supra pp. 368, 759-761; Buckeye Check Cashing, 546 U.S. 440 (claim that underlying contract was void for illegality did not impeach arbitration clause); Southland Corp. v. Keating, 465 U.S. 1 (U.S. S.Ct. 1984); Snowden, 290 F.3d 631 (claims that loan agreement was usurious “do not relate specifically to the Arbitration Agreement” and are therefore for arbitral, not judicial, determination); Bess, 294 F.3d 1298 (claims that usurious and unlicensed loans were illegal did not concern “the arbitration agreement specifically” and “an arbitrator should decide those questions”); Lawrence, 833 F.2d 1159 (claim that contract is “illegal” is for arbitrators); Mesa Operating Ltd P'ship v. La. Intrastate Gas Corp., 797 F.2d 238 (5th Cir. 1986); Siderurgica del Orinoco (Sidor), CA v. Linea Naviera de Cabotage, CA, 1999 WL 632870 (S.D.N.Y. 1999); Nuclear Elec. Ins. Ltd v. Central Power & Light Co., 926 F.Supp. 428 (S.D.N.Y. 1996) (claim that violations of Texas Insurance Code rendered insurance policies illegal and unenforceable related to “the entire policy” and were for arbitral, not judicial, determination); Belship Nav. Inc. v. Sealift, Inc., 1995 WL 447656 (S.D.N.Y. 1995) (claim that contract violated Cuban trade controls concerned entire agreement and is for arbitrators); http://www.kluwerarbitration.com/CommonUI/print.aspx
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Wolitarsky v. Blue Cross of Calif., 61 Cal.Rptr.2d 629, 631 (Cal. App. 1997) (claim of illegality went to substantive provisions of agreement and not arbitration clause). 460 546 U.S. 440 (U.S. S.Ct. 2006); supra pp. 365-370, 376-380. 461 546 U.S. at 446; supra pp. 363-365. 462 546 U.S. at 449. 463 See supra pp. 365-370. See, e.g., Brown v. Pacific Life Ins. Co., 462 F.3d 384, 396-97 (5th Cir. 2006); Nagrampa, 469 F.3d at 1263-64; Mesa Operating LP, 797 F.2d 238 (alleged illegality of underlying contract for failure to obtain state regulatory approval); Island Territory of Curacao, 489 F.2d 1313; Rubin v. Sona Int'l Corp., 457 F.Supp.2d 191, 193 (S.D.N.Y. 2006); Torrance v. Aames Funding Corp., 242 F.Supp.2d 862, 868-69 (D. Ore. 2002) (holding that “an arbitration clause may be enforced even though the rest of the contract is later held invalid by the arbitrator”); Solar Planet Profit Corp. v. Hymer, 2002 WL 31399601, at *2 (N.D. Cal. 2002) (“an arbitration clause in a voidable contract remains valid; only if the contract never existed or if there is some defect in the formation of the arbitration clause itself will that clause be invalid.”); Hodge Bros., Inc. v. DeLong Co., 942 F.Supp. 412, 417 (W.D. Wisc. 1996); Hydrick v. Mgt Recruiters Int'l, Inc., 738 F.Supp. 1434 (N.D. Ga. 1990) (“[I]f the arbitration clause is valid, the Court must enforce it, even if the underlying contract might be declared invalid.”). 464 See supra pp. 376-380 & infra pp. 966-981; Rau, Everything You Really Need to Know About “Separability” in Seventeen Simple Propositions, 14 Am. Rev. Int'l Arb. 1, 17-18 (2004) (“To send a dispute to arbitration where “not only” the arbitration clause itself, but “also,” in addition, the “entire” agreement is subject to challenge, is to lose sight of the only important question – which is the existence of a legally enforceable assent to submit to arbitration. Someone lacking the requisite mental capacity to contract cannot, I dare say, assent to arbitrate anything at all. And isn't there something terminally silly about an analysis which permits arbitration just because the respondent has taken the pains to cover with his hand – not merely the arbitration clause – but all the other provisions in the contract as well?”); Ware, Arbitration Law's Separability Doctrine After Buckeye Check Cashing Inc. v. Cardegna, 8 Nev. L.J. 107 (2007). 465 Importantly, as discussed below, this characterization of the Court's holding in Buckeye Check Cashing means that the arbitral award on questions of the validity of the underlying contract would be subject to subsequent judicial review on, inter alia, jurisdictional grounds. See infra pp. 951-954, 955-958. 466 First Options, 514 U.S. at 940-41. 467 See supra pp. 914-919; First Options, 514 U.S. at 939. 468 See supra pp. 919-928; Howsam, 537 U.S. at 83; Pacificare Health Sys., Inc., 538 U.S. at 407 n.2. 469 See supra pp. 932-934. 470 See supra pp. 938-944; Sanford v. MemberWorks, Inc., 483 F.3d 956 (9th Cir. 2007) (question of “existence” of arbitration agreement, as distinguished from “validity,” is for court, rather than arbitrator); Will-Drill Resources, Inc. v. Samson Resources Co., 352 F.3d 211, 215 (5th Cir. 2003) (court to resolve question whether parties assented to contract); Bank of Am., NA v. Diamond State Ins. Co., 38 Fed.Appx. 687, 689 (2d Cir. 2002) (“While the arbitration provisions state that issues concerning the ‘formation and validity’ of the contracts ‘shall be submitted to arbitration,’ it is not clear that this includes the question of the very existence of the contract”); Sleeper http://www.kluwerarbitration.com/CommonUI/print.aspx
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Farms v. Agway, Inc., 211 F.Supp.2d 197 (D. Me. 2002) (scope of arbitrability is an issue for arbitrators, but question whether parties entered into agreement to arbitrate at all was for judicial determination); A.T. Cross Co. v. Royal Selangor(s) PTE, Ltd, 217 F.Supp.2d 229, 234 (D.R.I. 2002) (“when plaintiff contends that no arbitration agreement was reached, the court, not an arbitrator, must determine the validity of the arbitration agreement”). See also Ware, Arbitration Law's Separability Doctrine After Buckeye Check Cashing Inc. v. Cardegna, 8 Nev. L.J. 107, 114 (2007) (“First Options should be read as holding that courts, not arbitrators, rule on assent and agency arguments [and] that the separability doctrine does not apply to contract-formation arguments”). 471 Gregory v. Interstate/Johnson Lane Corp., 188 F.3d 501 (4th Cir. 1999). 472 See supra pp. 370-376. 473 See supra pp. 370-372. 474 Buckeye Check Cashing, 546 U.S. at 444 n.l; supra pp. 370372. 475 Buckeye Check Cashing, 546 U.S. at 444 n.l. 476 See supra pp. 373-374; Opals on Ice Lingerie, Designs by Bernadette, Inc. v. Bodylines, Inc., 320 F.3d 362 (2d Cir. 2003) (“if a party's signature were forged on a contract, it would be absurd to require arbitration if the party attacking the contract as void failed to allege that the arbitration clause itself was fraudulently obtained”); Sphere Drake Ins. Ltd v. All Am. Ins.Co., 256 F.3d 587, 590-591 (7th Cir. 2001) (“a person whose signature was forged has never agreed to anything.”); Gregory v. Interstate/Johnson Lane Corp., 188 F.3d 501 (4th Cir. 1999); Jolley v. Welch, 904 F.2d 988 (5th Cir. 1990) (forgery claims for judicial resolution); Dassero v. Edwards, 190 F.Supp.2d 544, 557 (W.D.N.Y. 2002) (same); Kyung In Lee v. Pac. Bullion (New York), Inc., 788 F.Supp. 155 (E.D.N.Y. 1992) (“if a party's signature were forged on a contract, it would be absurd to require arbitration”); Dougherty v. Mieczkowski, 661 F.Supp. 267 (D. Del. 1987) (“defendants cannot rely on a contract which plaintiffs never signed and, on the record, never saw, to establish the existence of an agreement to arbitrate”). 477 See supra p. 371; Will-Drill Resources, Inc. v. Samson Resources Co., 352 F.3d 211, 215 (5th Cir. 2003) (court to resolve question whether parties assented to contract); Sandvik AB v. Advent Int'l Corp., 220 F.3d 99 (3d Cir. 2000) (“Because under both the New York Convention and the FAA a court must decide whether an agreement to arbitrate exists before it may order arbitration, the District Court was correct in determining that it must decide whether Huep's signature bound Advent before it could order arbitration”); Chastain v. Robinson-Humphrey Co., 957 F.2d 851, 855, 856 (11th Cir. 1992) (“Prima Paint has never been extended to require arbitrators to adjudicate a party's contention, supported by substantial evidence, that a contract never existed at all,”; “the district court should proceed immediately to a trial on the issue of whether or not [the plaintiff] is bound by the arbitration language in the customer agreements”); ThreeValleys Mun. Water Dist. v. E.F. Hutton & Co., Inc., 925 F.2d 1136 (9th Cir. 1991) (“[B]ecause an “arbitrator's jurisdiction is rooted in the agreement of the parties,' a party who contests the making of a contract containing an arbitration provision cannot be compelled to arbitrate the threshold issue of the existence of an agreement to arbitrate. Only a court can make that decision.”); Toledano v. O'Connor, 501 F.Supp.2d 127, 140 (D.D.C. 2007) (“This circuit has … long treated ‘disputes over the formation of an agreement to arbitrate – i.e., whether the parties ever agreed http://www.kluwerarbitration.com/CommonUI/print.aspx
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to submit anything to arbitration in the first place’ – as properly before the district court”); PMC, Inc. v. Atomergic Chemetals Corp., 844 F.Supp. 177, 181 (S.D.N.Y. 1994) (“before a party can be required to submit to arbitration, it is entitled to a judicial determination of the threshold question of whether it ever entered into an agreement which obliges it to consent to arbitration”; ordering trial on the question of whether a purchase order constituted a binding contract obligating the plaintiff to submit to arbitration). 478 See supra pp. 690-693; ThreeValleys Mun. Water Dist., 925 F.2d at 1142 (“By contending that they never entered into such contracts, plaintiffs also necessarily contest any agreements to arbitrate within the contracts”); Flannery v. Tri-State Div., 402 F.Supp.2d 819, 825 (E.D. Mich. 2005) (denying defendant's motion to compel arbitration: “The question whether certain provisions can be severed and saved is not presented because the challenge must be resolved irrespective of the terms of the agreement. The plaintiff here contends that no contract was ever formed because the plaintiff was under duress and did not freely assent to enter into the separation agreement or any of its provisions.… The Court finds that the plaintiff's claim of duress challenges the existence of the contract itself, and therefore relates to all the clauses and provisions in it, including the arbitration clause. The argument that the arbitration clause is invalid and unenforceable, therefore, is not barred by the rule in Prima Paint.”). 479 See supra pp. 638-639; Spahr v. Secco, 330 F.3d 1266, 1273 (10th Cir. 2003) (court decides defense of mental incapacity); Guang Dong Light Headgear Factory Co. v. ACI Int'l, Inc., 2005 U.S. Dist. LEXIS 8810 (D. Kan. 2005) (with regard to mental incapacity defense, “[b]ecause the defense went to both the enforceability of the entire contract and the specific arbitration provision, it placed the ‘making’ of the agreement to arbitrate in question.”); CitiFinancial, Inc. v. Brown, 2001 WL 1530352, at *5 (N.D. Miss. 2001) (“the issue of John Brown's mental incompetence goes directly to the making of the arbitration agreement. If he could not read or understand the arbitration agreement, he certainly could not consent to it. Under Prima Paint, if an issue ‘goes to the ‘making’ of the agreement to arbitrate the federal court may proceed to adjudicate it.’”); Am. Med. Tech., Inc. v. Miller, 149 S.W.3d 265, 270-71 (Tex. Ct. App. 2004); Rhymer v. 21st Mortg. Corp., 2006 Tenn. App. LEXIS 800, at *3-4 (Tenn. Ct. App. 2006); H&S Homes, LLC. v. McDonald, 823 So.2d 627 (Ala. 2001) (minor allegedly lacked capacity). 480 See supra pp. 638-639; Sphere Drake Ins. Ltd, 256 F.3d 585 (court to resolve claims that “person whose name was written on a contract [was written] by a faithless agent who lacked authority to make that commitment”; “An agent's lack of authority is a ground that prevents the enforcement ‘of any contract’; does it not follow that judges must determine whether the agent had authority?”); Sphere Drake Ins. Ltd, 263 F.3d 26 (same); Sandvik AB, 220 F.3d 99 (“the validity of the arbitration clause as a contract … derives from [the putative agent's] authority to bind Advent” and “there does not appear to be any independent source of the validity of the arbitration clause once the underlying contract is taken off the table. If [the putative agent's] signature is not binding, there is no arbitration clause.”); Mariner Health Care, Inc. v. Ferguson, 2006 WL 1851250, at *7 (N.D. Miss. 2006) (purported agent “had neither actual, apparent, or statutory authority to bind [defendant] and her beneficiaries to the arbitration agreement” and retaining case for judicial determination); Global Travel Mktg, Inc. v. Shea, 908 So.2d 392 (Fla. 2005) (parent had authority to bind minor to arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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clause); Hojnowski v. Vans Skate Park, 901 A.2d 381 (N.J. 2006) (same). 481 See supra pp. 638-639; Spahr, 330 F.3d at 1273 (“Unlike a claim of fraud in the inducement, which can be directed at individual provisions in a contract, a mental capacity challenge can logically be directed only at the entire contract”); Primerica Life Ins. Co. v. Brown, 304 F.3d 469 (5th Cir. 2002) (claim of mental incapacity is “not a specific challenge to the arbitration clause”); Shegog v. Union Planters Bank, NA, 332 F.Supp.2d 945, 948 n.4 (S.D. Miss. 2004); In re Steger Energy Corp., 2002 WL 663645 (Tex. App. 2002) (one party claimed that he was “incompetent at the time he signed the contracts – in the early stages of Alzheimer's,” but court required arbitration of this claim on grounds that “the defense asserted relates to the contract as a whole” and does not “specifically relate to the arbitration agreement itself”). 482 See supra pp. 368-369; Schacht v. Beacon Ins. Co., 742 F.2d 386 (7th Cir. 1984) (question whether condition precedent to underlying contract is fulfilled is for arbitrators); McIntyre v. Household Bank, 2004 WL 1088228, at *1 (N.D. Ill. 2007) (“it is the arbitrator's role to consider any arguments about the validity or enforceability of the entire contract, including the failure of a condition precedent.”); Rainbow Inv., Inc. v. Super 8 Motels, Inc., 973 F.Supp. 1387 (M.D. Ala. 1997) (claim that “agreement never went into effect due to failure of a condition precedent” did not contradict existence of arbitration agreement). 483 See supra pp. 690-693; Villa Garcia v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 833 F.2d 545 (5th Cir. 1987) (alleged illiteracy goes to “formation of the entire contract” and is therefore for arbitral, not judicial, determination); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Haydu, 637 F.2d 391 (5th Cir. 1981) (duress and undue influence); Service Corp. Int'l v. Lopez, 162 S.W.3d 801 (Tex. App. 2005) (“duress … issue relates to the contract as a whole and not solely the arbitration provision. It is therefore an issue to be decided in arbitration”); Johnnie's Homes, Inc. v. Holt, 790 So.2d 956 (Ala. 2001) (since claim of illiteracy “bears upon [party's] comprehension of the entire contract, not just the arbitration agreement” it is for arbitral, not judicial, resolution). 484 See supra pp. 374-376; Alexander v. U.S. Credit Mgt., Inc., 384 F.Supp.2d 1003, 1007 (N.D. Tex. 2005) (“challenges claiming that – as a whole – a contract is illegal, is void as a matter of law, contains forged signatures, or was induced by fraud will generally not serve to defeat an arbitration clause”); AmSouth Bank v. Bowens, 351 F.Supp.2d 571, 575 (S.D. Miss. 2005) (“since the Bowenses' forgery allegation regards the customer agreement as a whole and not just the arbitration clause of the customer agreement, it is an issue that must be submitted to the arbitrator as part of the underlying dispute”); Hall v. Shearson Lehman Hutton, Inc., 708 F.Supp. 711 (D. Md. 1989) (arbitrator to resolve whether one party forged other party's signature on agreement containing arbitration clause). 485 See supra pp. 370-376, 718-719. 486 See infra pp. 1033-1035; Hughes, Hooker & Co. v. Am. Steamship Owners Mut. Prot. & Indem. Assoc., Inc., 2005 WL 1384055 (S.D.N.Y. 2005) (“A stay of proceedings as to one defendant pending arbitration between that defendant and the plaintiffs may be extended to the remaining defendants pursuant to a district court's inherent power to control its docket.”). 487 SeeVolkswagen of Am., Inc. v. Sud's of Peoria, Inc., 474 F.3d 966, 971-72 (7th Cir. 2007); Klay v. Pacificare Health Sys., Inc., 389 F.3d 1191, 1204 (11th Cir. 2004); Am. Recovery Corp. v. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Computerized Thermal Imaging, 96 F.3d 88, 97 (4th Cir. 1996) (citing Moses H. Cone Mem. Hosp., 460 U.S. at 20 n.23); Toledano, 501 F.Supp.2d at 154 (claims against a non-arbitrating party “qualify for a discretionary stay” pending arbitration because they “are premised on identical facts and legal theories as the [] claims against the” arbitrating parties); Elli v. Genmab, Inc., 2006 WL 2927622, at *8 (D.N.J. 2006); The Original Calzone Co. v. Offidani, 223 F.Supp.2d 353 (D. Mass. 2002) (staying litigation on claims not subject to arbitration pending arbitration of claims that were subject to arbitration); In re First Alliance Mtg., Co., 280 B.R. 240, 244 (C.D. Cal. 2002) (“When a case includes both arbitrable and nonarbitrable claims, the district court has discretion either to stay all the claims or to stay only the arbitrable claims and proceed with the non-arbitrable claims”); Central Jersey Freightliner, Inc. v. Freightliner Corp., 987 F.Supp. 289, 300-01 (D.N.J. 1997) (“Given the factual intertwining of plaintiff's arbitrable and non-arbitrable claims, the Court, in its discretion, will stay litigation of the nonarbitrable claims pending arbitration”); Allied Fire & Safety Equip. Co. v. Dick Enters., 886 F.Supp. 491, 498 (E.D. Pa. 1995) (court has the discretion to stay proceedings pending arbitration where arbitrable claims predominate or where arbitrable claims will have some effect on non-arbitrable claims); Mut. Benefit Life Ins. Co. v. Zimmerman, 783 F.Supp. 853, 876 (D.N.J. 1992) (“decision to stay litigation of non-arbitrable claims pending the outcome of arbitration is one left to the district court … as a matter of its discretion to control its docket”), aff'd, 970 F.2d 899 (3d Cir. 1992). 488 See, e.g., Qualcomm, Inc., 466 F.3d at 1371, 1374 (“If the court finds that the assertion of arbitrability is not ‘wholly groundless,’ then it should stay the trial of the action pending a ruling on arbitrability by an arbitrator. If the district court finds that the assertion of arbitrability is ‘wholly groundless,’ then it may conclude that it is not ‘satisfied’ ‘under §3, and deny the moving party's request for a stay.’”); Bensadoun v. Jobe-Riat, 316 F.3d 171 (2d Cir. 2003); Mahnke v. Executive Tans, 2007 WL 2340056, at *4 (D. Minn. 2007); Oltchim, SA v. Velco Chem., Inc., 348 F.Supp.2d 97 (S.D.N.Y. 2004) (staying U.S. judicial proceedings, concerning validity of arbitration agreement, pending outcome of arbitration: “Whether ultimately [the arbitration] resolves every aspect of the dispute between the parties is something that remains to be seen … but … some significant portion of the dispute between the parties, if not all disputes, is likely to be resolved by the Romanian arbitration”). 489 See, e.g., Volkswagen of Am., Inc. v. Sud's of Peoria, Inc., 474 F.3d 966, 972 (7th Cir. 2007); AgGrow Oils, LLC v. Nat'l Union Fire Ins. Co., 242 F.3d 777 (8th Cir. 2001); Morrie Mages & Shirlee Mages Found. v. Thrifty Corp., 916 F.2d 402 (7th Cir. 1990), abrogated on other grounds, 103 F.3d 524, 530 (7th Cir. 1996); United States v. Bencor-Petrifond, 2007 U.S. Dist. LEXIS 42900, at *6-7 (D. Ind. 2007); Hikers Indus. v. William Stuart Indus., 640 F.Supp. 175, 178 (S.D.N.Y. 1986); Janmort Leasing, Inc. v. EconoCar Int'l, Inc., 475 F.Supp. 1282, 1293 (E.D.N.Y. 1979). 490 Nederlandse Erts-Tankersmaatschappij, NV v. Isbrandtsen Co., 339 F.2d 440, 441-42 (2d Cir. 1964). 491 Pacificare Health Sys., Inc., 538 U.S. at 407. See supra pp. 922-923. 492 Pacificare Health Sys., Inc., 538 U.S. at 407. 493 See infra pp. 1050-1051. 494 URS Corp. v. Lebanese Co. for the Dev. and Reconstr. of Beirut Central District SAL, 512 F.Supp.2d 199, 208 (D. Del. 2007). 495 See supra pp. 911-950. http://www.kluwerarbitration.com/CommonUI/print.aspx
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496 Where such an agreement exists, U.S. courts may not decide
the jurisdictional issue, and must instead refer it to arbitration. See supra pp. 914-916, 931-937. 497 See supra pp. 948-950. As discussed elsewhere, U.S. courts have the procedural possibilities of considering jurisdictional issues in the context of (a) an application for injunctive relief against arbitral proceedings which are not based upon a valid, existing arbitration agreement; or (b) an application to stay a parallel litigation, commenced by a party resisting arbitration, or to compel arbitration. The Supreme Court identified both possibilities for obtaining a judicial determination of jurisdictional issues in FirstOptions, 514 U.S. at 946 (“the Kaplans had other ways to get independent court decision on the question of arbitrability without arguing the issue to the arbitrators (e.g., by trying to enjoin the arbitration or by refusing to participate in the arbitration and then defending against a court petition First Options would have brought to compel arbitration”). 498 See supra pp. 938-940 nn. 438-449, 944-945 n. 470, 945-947 nn. 476-480. 499 See supra pp. 914-916, 924-928, 931-937. It also applies where the parties enter into a post-dispute agreement to arbitrate disputes over the existence or validity of an arbitration agreement. 500 First Options, 514 U.S. at 942-943; Howsam, 537 U.S. at 8283. 501 See supra pp. 931-937. 502 See supra pp. 938-948. 503 See supra pp. 881-894. 504 See supra pp. 938-948. 505 See supra pp. 924-928. 506 See supra pp. 363-380, 940-942. 507 See supra pp. 363-380, 938-948. 508 As discussed above, if the arbitral tribunal has been constituted and the arbitral process is well under way, while litigation has only recently been commenced, there may be strong reasons of efficiency to permit the arbitrators to make an initial determination of jurisdictional challenges, even where directed specifically at the agreement to arbitrate. See supra pp. 948-950. The same rationale applies if the arbitrators have particular expertise in the law governing the arbitration agreement, as compared with the relevant national courts (e.g., three French-qualified arbitrators, where the arbitration agreement is governed by French law, with litigation pending in a non-French court). 509 See supra pp. 942-943, 944-948. 510 Seesupra pp. 370-376, 944-946. 511 See supra pp. 948-950. 512 See supra pp. 365-370, 942-943 & infra pp. 980-981. 513 See supra pp. 948-950. As discussed below, courts in a number of other jurisdictions permit discretionary stays of litigation, even where it is not clear that there is an arbitration agreement. See infra pp. 971-981. 514 European Convention, Art. VI(3). See supra pp. 861-863. 515 See supra pp. 916-919. According to the First Options Court, if the parties agreed to arbitrate jurisdictional issues, “then the court's standard in reviewing the arbitrator's decision about that matter should not differ from the standard courts apply when they review any other matter that parties have agreed to arbitrate.” First Options http://www.kluwerarbitration.com/CommonUI/print.aspx
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of Chicago, 514 U.S. at 943. The Court cited AT&T Technologies and Warrior & Gulf Newspapers for the proposition that “parties may agree to arbitrate arbitrability.” The Court went on to reason “that is to say, the court should give considerable leeway to the arbitrator, setting aside his or her decision only in certain narrow circ*mstances. See, e.g., U.S. FAA, 9 U.S.C. §10.” 516 See supra pp. 916-919. First Options of Chicago, 514 U.S. at 943. 517 See supra pp. 916-919 & infra pp. 2639-2646; U.S. FAA, 9 U.S.C. §10(a)(4). 518 U.S. FAA, 9 U.S.C. §10(a)(4); Porzig v. Dresdner, Kleinwort, Benson, N. Am. LLC, 497 F.3d 133, 140 (2d Cir. 2007) (“The authority of the arbitral panel is established only through the contract between the parties who have subjected themselves to arbitration, and a panel may not exceed the power granted to it by the parties in the contract.… Where the arbitrator goes beyond that self-limiting agreement between consenting parties, it acts inherently without power, and an award ordered under such circ*mstances must be vacated.”) (citing, inter alia, U.S. FAA, 9 U.S.C. §10(a)(4)); Alliance Bernstein Inv. v. Schaffran, 445 F.3d 121 (2d Cir. 2006) (jurisdictional dispute for arbitral tribunal to resolve); Sarhank Group v. Oracle Corp., 404 F.3d 657 (2d Cir. 2005) (de novo judicial review of arbitral award's jurisdictional decision); Czarina ex rel Halvanon Ins. v. W.F. Poe Syndicate, 358 F.3d 1286 (11th Cir. 2004) (“under United States and international law, a court asked to confirm an award should review an arbitration panel's conclusion that the parties agreed to arbitrate, unless the parties have agreed to submit this question to the arbitration panel”); China Minmetals Materials Imp. & Exp. Co. v. Chi Mei Corp., 334 F.3d 274 (3d Cir. 2003) (“Under the rule of First Options, a party that opposes enforcement of a foreign arbitration award under the Convention on the grounds that the alleged agreement containing the arbitration clause on which the arbitral panel rested its jurisdiction was void ab initio is entitled to present evidence of such invalidity to the district court, which must make an independent determination of the agreement's validity and therefore the arbitrability of the dispute”); Int'l Bhd of Teamsters etc. v. Motor Freight Exp., Inc., 356 F.Supp. 724, 725-726 (W.D. Pa. 1973) (“the law recognizes that an arbitrator's award may be vacated when there is a defect in the proceeding which goes to the jurisdiction of the arbitrator, and the circ*mstances under which an arbitrator's award may be set aside are set forth in the federal arbitration statute and many state arbitration statutes”). 519 See, e.g., Transportacion Maritima Mexicana, SA v. Companhia de Navegacao Lloyd Brasileiro, 636 F.Supp. 474 (S.D.N.Y. 1983). 520 See supra p. 879. 521 Some other national laws do not permit interlocutory judicial review of a positive jurisdictional award (postponing this until a final award). Netherlands Code of Civil Procedure, Art. 1052. This rule is ill-considered. See also Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 463 (2005) (‘a preliminary arbitral award on jurisdictional matters alone may expedite matters by making the question ripe for immediate review’); Summary Record of the Eighth Meeting of the Committee of the Whole (II), UNCITRAL, Ninth Session, UN Doc. A/CN.9/9/C.2/SR.8, at 5, ¶32 (1976), available at www.uncitral.org (‘pleas as to the arbitrator's jurisdiction should be decided as a preliminary question, not during the final award; if the arbitrators ultimately decided that they did not have jurisdiction, unnecessary http://www.kluwerarbitration.com/CommonUI/print.aspx
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expenses would have been incurred’). 522 See supra pp. 363-380, 940-942, 951-954; Buckeye Check
Cashing, 546 U.S. 440. 523 See supra pp. 363-380, 938-948, 951-954. 524 See authorities cited supra pp. 363-380, 938-948. See alsoJenkins v. First Am. Cash Advance of Ga., LLC, 400 F.3d 868, 877 (11th Cir. 2005) (“These claims do not relate to the Arbitration Agreements themselves; rather, they allege the … Agreements, in general, were adhesive. Under the Supreme Court's decision in Prima Paint …, the FAA does not permit a federal court to consider claims alleging the contract as a whole was adhesive.”); Madol v. Dan Nelson Auto. Group, 372 F.3d 997, 1000 (8th Cir. 2004) (“the plaintiffs' arguments that their … transactions were generally unconscionable were subject to resolution by an arbitrator, absent a showing by the plaintiffs that the DRA [dispute resolution agreement], standing alone, was invalid”); Jeske v. Brooks, 875 F.2d 71, 75 (4th Cir. 1989) (“We also reject [appellant's] arguments that the arbitration clause must be declared invalid on grounds that the customer's agreement as a whole is void due to “overreaching, unconscionability and fraud,' as well as lack of consideration. Because the alleged defects pertain to the entire contract, rather than specifically to the arbitration clause, they are properly left to the arbitrator for resolution.”); Lawrence v. Comprehensive Bus. Serv. Co., 833 F.2d 1159, 1162 (5th Cir. 1987) (“[Defendants] do not challenge the legality of the arbitration provision itself, but the legality of the entire contract. This court has applied Prima Paint to hold an arbitration clause enforceable in spite of a claim that the gas sales contract containing it was void from its inception because of the parties' failure to comply with a state statute regulating the sale of the state's gas. We regard this case as indistinguishable.”); Cline v. H.E. Butt Grocery Co., 79 F.Supp.2d 730, 732 (S.D. Tex. 1999) (“[Plaintiff's] claim that [defendant's] promise was illusory is an attack on the [contract] as a whole, and not the arbitration provision itself. Questions related to the enforcement of a contract as a whole are properly referable to an arbitrator; it is only when an attack is made on the arbitration clause itself that a court, rather than an arbitrator, should decide questions of validity. The arbitration clause itself is supported by valid consideration: each party promised to relinquish their legal right to have a judicial forum adjudicate their disputes.”); Vella v. Atl. Int'l Fin., Inc., 890 F.Supp. 321, 322 (S.D.N.Y. 1995) (requiring arbitration when “there [was] no colorable claim of fraud in the inducement of the arbitration clause itself, as distinct from the contract generally”); Axtell v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 744 F.Supp. 194, 196 (E.D. Ark. 1990) (“The Court notes that plaintiffs' allegations of failure of consideration and overreaching go to the making of the contract generally, and therefore are to be considered by the arbitrator.”). 525 See supra pp. 363-380, 938-948, 951-954. 526 The situation is different, of course, if the evidence shows that the parties have entered an agreement to arbitrate jurisdictional objections which satisfies First Options' requirement for “clear and unmistakable” evidence. See supra pp. 914-916, 931-937. 527 U.S. FAA, 9 U.S.C. §§3, 4, 10(a)(4). 528 See infra pp. 971-981. A different situation would be presented if the jurisdictional challenge to the underlying contract did not in fact impeach the arbitration clause at all. See supra pp. 363-380, 940942. http://www.kluwerarbitration.com/CommonUI/print.aspx
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529 Again, this assumes that there is no agreement in the First
Options sense to arbitrate jurisdictional objections. See supra pp. 914-916, 931-937. 530 van Wezel Stone, Rustic Justice: Community and Coercion under the Federal Arbitration Act, 77 N.C. L. Rev. 831, 965 (1999); Mayer & Seitz, Recognizing and Understanding Consent Issues in Arbitration, 79 Mich. B.J. 504 (2000); Ware, Arbitration Law's Separability Doctrine After Buckeye Check Cashing Inc. v. Cardegna, 8 Nev L.J. 107 (2007). 531 See, e.g., China Minmetals Materials Imp. & Exp. Co., v. Chi Mei Corp., 334 F.3d 274, 289 (3d Cir. 2003) (surveying U.S. and English law and French and German notions of competencecompetence, and concluding: “It therefore seems clear that international law overwhelmingly favors some form of judicial review of an arbitral tribunal's decision that it has jurisdiction over a dispute, at least where the challenging party claims that the contract on which the tribunal rested its jurisdiction was invalid. International norms of competence-competence are therefore not inconsistent with the Supreme Court's holding in First Options, at least insofar as the holding is applied in a case where, as here, the party resisting enforcement alleges that the contract on which arbitral jurisdiction was founded is and always has been void.”). 532 See supra pp. 348-353, 376-380, 396-402. 533 See supra pp. 378-380. 534 See supra pp. 378-380, 401-402. 535 See supra pp. 376-380, 401-402. The reasons for this allocation include the probability that a challenge will in fact only impeach the underlying contract, and not the arbitration clause, and the arbitrators' competence in resolving contractual issues. 536 See supra pp. 881-894, 900-904. 537 Barceló, Who Decides the Arbitrators' Competence and Jurisdiction? Separability and Competence-Competence in Transnational Perspective, 36 Vand. J. Transnat'l L. 1115, 1134-35 (2003). 538 Id. at 1135. 539 China Minmetals Materials, 334 F.3d at 289 (“First Options holds that a court asked to enforce an arbitration award, at the request of a party opposing enforcement, may determine independently the arbitrability of the dispute. Although First Options arose under the FAA, the Court's reasoning in the case is based on the principle that “arbitration is simply a matter of contract between the parties; it is a way to resolve those disputes – but only those disputes – that the parties have agreed to submit to arbitration.' … This rationale is not specific to the FAA. It is a crucial principle of arbitration generally, including in the international context. Indeed, even international laws and rules of arbitration that traditionally grant arbitrators more leeway to decide their own jurisdiction have allowed a party objecting to the validity of the agreement to arbitrate to seek judicial review of an arbitral panel's decision that it has jurisdiction under the alleged agreement. For these reasons, we hold that, under the rule of First Options, a party that opposes enforcement of a foreign arbitration award under the Convention on the grounds that the alleged agreement containing the arbitration clause on which the arbitral panel rested its jurisdiction was void ab initio is entitled to present evidence of such invalidity to the district court, which must make an independent determination of the agreement's validity and therefore of the arbitrability of the dispute, at least in the absence of a waiver precluding the defense.”); Gen. Elec. Co. v. Deutz AG, 270 http://www.kluwerarbitration.com/CommonUI/print.aspx
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F.3d 144, 155 (3d Cir. 2001) (“We recognize that First Options is a domestic arbitration case, but the international nature of the present litigation does not affect the application of First Options' principles.”); Am. Life Ins. Co. v. Parra, 25 F.Supp.2d 467, 474, 476 (D. Del. 1998). Different considerations apply to First Options' choice-of-law analysis, which is properly regarded as limited to domestic matters. See supra pp. 490-492. 540 As discussed above, many arbitration agreements subject to
the New York Convention in U.S. courts will be agreements providing for foreign arbitrations. See supra pp. 276-280. In addition, the Convention will also apply to “non-domestic” arbitrations, which are sited in the United States, see supra pp. 281-282, but a substantial proportion of the agreements subject to the Convention will be those with foreign seats. 541 See supra pp. 904-907. 542 As noted above, English courts historically applied various versions of the separability presumption, which has been statutorily confirmed in §7 of the English Arbitration Act, 1996. See supra pp. 380-384. As a consequence, most challenges to the parties' underlying contract, including challenges based on illegality and initial invalidity, do not impeach the arbitration agreement and are therefore for the arbitral tribunal (not an English court) to resolve, subject to eventual judicial review of the award. See supra pp. 383384; Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords) (“If arbitrators can decide whether a contract is void for initial illegality, there is no reason why they should not decide whether a contract has been procured by bribery, just as much as they can decide whether a contract has been procured by misrepresentation or non-disclosure.”), aff'd, [2007] UKHL 40 (House of Lords). 543 Christopher Brown Ltd v. Genossenschaft Österreichischer Waldbesitzer Holzwirtschaftsbetriebe [1954] 1 Q.B. 8, 12-13 (Q.B.); Willco*ck v. Pickfords [1979] 1 Lloyd's Rep. 244 (English Court of Appeal). At common law, English courts did not distinguish clearly between the principle of competence-competence and separability and often regarded the two principles as closely intertwined. See Jureidini v. Nat'l British and Irish Millers Ins. Co. Ltd [1915] A.C. 499 (House of Lords). 544 See R. Merkin, Arbitration Law ¶¶9.1 to 9.49 (2004 & Update 2007); Gross, Competence of Competence: An English View, 8 Arb. Int'l 205 (1992); Harris, Report on the Arbitration Act 1996, 23 Arb. Int'l 437 (2007); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶¶5-078, 8-031 (22d ed. 2003). 545 These provisions are derived from Article 16(1) of the Model Law, which conflates the competence-competence and severability principles. See supra pp. 333-336, 872-873. As discussed above, the English Arbitration Act, 1996, deliberately uncoupled the two issues, instead treating separability as an issue of the substantive validity of the arbitration agreement. See supra pp. 381-383. 546 English Arbitration Act, 1996, §§30, 31. The scope of the tribunal's power to decide upon its own jurisdiction under §30(1) includes: (a) whether there is a valid arbitration agreement; (b) whether the tribunal is properly constituted; and (c) what matters have been submitted to arbitration in accordance with the arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement. SeeAlbon v. Naza Motor Trading Sdn Bhd [2007] EWHC 1879 (Ch); Aeberli, Jurisdictional Disputes under the Arbitration Act 1996: A Procedural Route Map, 21 Arb. Int'l 253, 260-65 (2005); R. Merkin, Arbitration Law ¶¶9.6 to 9.7 (2004 & Update 2007). 547 English Arbitration Act, 1996, §§30(2), 67. The parties may also waive their jurisdictional objections, including by participating in the arbitration without protest or by raising their jurisdictional objection late. English Arbitration Act, 1996, §§31(2), 73(1)(a); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶5-085 (22d ed. 2003). 548 English Arbitration Act, 1996, §32. Section 32(2)(b) prescribes preconditions that must be satisfied before court approval is granted. Permission will only be granted where: (a) the determination of the question by the court is likely to produce a substantial saving in costs; (b) the application has been made without delay; (c) there is a good reason why the matter should be decided by the court. See R. Merkin, Arbitration Law ¶¶9.26 to 9.27 (2004 & Update 2007); Aeberli, Jurisdictional Disputes under the Arbitration Act 1996: A Procedural Route Map, 21 Arb. Int'l 253, 273-76 (2005). It is unclear whether a judicial determination under §32 has preclusive effect. Id. at 275; J.T.Mackley & Co. Ltd v. Gosport Marina Ltd [2002] EWHC 1315 (TCC). 549 English Arbitration Act, 1996, §§31, 66(3), 67. It is clear that this applies to jurisdictional objections to the validity of the arbitration agreement. English Arbitration Act, 1996, §30(1)(a). It is not clear how objections relating to the scope of the arbitration agreement are dealt with. 550 English Arbitration Act, 1996, §72 (immediate judicial determination). See R. Merkin, Arbitration Law ¶¶9.10 to 9.31 (2004 & Update 2007); Aeberli, Jurisdictional Disputes under the Arbitration Act 1996: A Procedural Route Map, 21 Arb. Int'l 253, 25456 (2005); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶5083 (22d ed. 2003). 551 English Arbitration Act, 1996, §§66(3), 67 (challenge to award); Aeberli, Jurisdictional Disputes under the Arbitration Act 1996: A Procedural Route Map, 21 Arb. Int'l 253, 256 (2005). 552 See, e.g., LG Caltex Gas Co. v. China Nat'l Petroleum Co. [2001] EWCA Civ. 788 (English Court of Appeal) (requiring express agreement to grant tribunal power to decide own jurisdiction finally);Vee Networks Ltd v. Econet Wireless Int'l Ltd [2005] 1 Lloyd's Rep. 192, 198 (Q.B.) (“it is of course always open to the parties in effect to contract out of this regime by means of an ad hoc reference to the tribunal of the issue whether it had substantive jurisdiction. That involves conduct amounting to an agreement that the tribunal should be given not merely the competence identified in section 30(1) but jurisdiction conclusively to determine the issue of substantive jurisdiction”); Dalmia Dairy Indus. Ltd v. Nat'l Bank of Pakistan [1978] 2 Lloyd's Rep. 223, 284 (English Court of Appeal) (“ICC Rules provide for arbitrators to decide jurisdictional issues “so as to bind the parties – insofar as any decision of the arbitrator can bind the parties”). 553 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). 554 Fiona Trust & Holding Corp.v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). See also supra pp. 380-384; Vee Networks Ltd v. Econet Wireless Int'l Ltd [2005] 1 Lloyd's Rep. 192, 197 (Q.B.) (“if the matrix contract were illegal and void, that matter of illegality http://www.kluwerarbitration.com/CommonUI/print.aspx
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could be conclusively determined by the arbitrator unless the agreement to arbitrate was also independently rendered illegal and void by the legislation in question”). 555 Fiona Trust & Holding Corp. v.Privalov [2007] UKHL 40, at ¶35 (House of Lords). 556 Fiona Trust & Holding Corp.v. Privalov [2007] UKHL 40, at ¶35 (House of Lords). 557 Fiona Trust & Holding Corp.v. Privalov [2007] UKHL 40, at ¶35 (House of Lords). 558 Albon v. Naza Motor Trading Sdn Bhd [2007] EWHC 1879 (Ch); Fiona Trust & Holding Corp.v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal) (“it will, in general, be right for the arbitrators to be the first tribunal to consider whether they have jurisdiction to determine the dispute”), aff'd, [2007] UKHL 40 (House of Lords); Vale do Rio Doce Navigacos SA v. Shanghai Bao Steel Ocean Shipping Co. (t/a Bao Steel Ocean Shipping Co.) [2000] 2 All E.R. (Comm.) 70 (Q.B.); People's Ins. Co. of China, Hebei Branch v. Vysanthi Shipping Co. [2003] 2 Lloyd's Rep. 617, 622 (Q.B.) (“It is self-evident … that an arbitral tribunal cannot be the final arbitrator of the question of jurisdiction; … this would provide a classic case of ‘pulling oneself up by one's own boot straps.’ However, giving a tribunal power to rule on its own jurisdiction means that the parties cannot delay valid arbitration proceedings indefinitely by making spurious challenges to the jurisdiction of the arbitral tribunal”). 559 English Arbitration Act, 1996, §§72, 66(3), 67. 560 Aeberli, Jurisdictional Disputes under the Arbitration Act 1996: A Procedural Route Map, 21 Arb. Int'l 253, 254-56 (2005); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶¶5-080, 5-083 (22d ed. 2003). This requires the party that wishes to obtain immediate judicial determination under §72 not to take any step at all in the arbitral proceedings (even under protest and even including such matters as nomination of an arbitrator); Caparo Group Ltd v. fa*gor Arrasate Sociedad Coop. [2000] Arb. & Disp. Res. L.J. 254 (Q.B.) (letter to ICC Secretariat disputing jurisdiction constitutes step in arbitration precluding reliance on §72). 561 R. Merkin, Arbitration Act 1996 43, 190 (3d ed. 2005). 562 SeeEnglish Civil Procedure Rules 1998, R62.8(3) (“Where a
question arises as to whether (a) an arbitration agreement has been concluded; or (b) the dispute which is the subject-matter of the proceedings falls within the terms of such an agreement, the court may decide that question or give directions to enable it to be decided and may order the proceedings to be stayed pending its decision.”); R. Merkin, Arbitration Act 1996 43 (3d ed. 2005). 563 Birse Constr. Ltd v. St. David Ltd [1999] B.L.R. 194, 196-97 (Q.B.). See Al-Naimi v. Islamic Press Agency Inc. [2000] 1 Lloyd's Rep. 522 (English Court of Appeal); Nissan (UK) Ltd v. Nissan Motor Co. Ltd unreported (31 July 1991) (English Court of Appeal) (granting discretionary stay of litigation involving non-parties to arbitration where arbitration would resolve many significant issues in litigation). 564 See supra pp. 931-937. 565 See supra pp. 891-894. 566 See supra pp. 948-950. http://www.kluwerarbitration.com/CommonUI/print.aspx
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567 English Arbitration Act, 1996, §§31(2), 31(3), 73(1)(a). See
alsoinfra p. 2573. 568 English Arbitration Act, 1996, §§67, 73(1); Aeberli, Jurisdictional Disputes under the Arbitration Act 1996: A Procedural Route Map, 21 Arb. Int'l 253, 254-56 (2005); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶¶8-029 to 8-032 (22d ed. 2003). Under §73(1) of the Act, a party may lose its right to raise jurisdictional objections “before the tribunal or the court” where it participates or continues to participate in the arbitration without raising such objections in a timely fashion. 569 R. Merkin, Arbitration Law ¶9.18 (2004 & Update 2007); Metal
Distrib. (UK) Ltd v. ZCMM Inv. Holdings plc [2005] EWHC 156 (Comm.) (Q.B.); Amec Civil Eng'g Ltd v. Secretary of State for Transp. [2004] EWHC 2339 (TCC) Peterson Farms Inc. v. C&M Farming Ltd [2004] 1 Lloyd's Rep. 603 (Q.B.); People's Ins. Co. of China, Hebei Branch v. Vysanthi Shipping Co. [2003] 2 Lloyd's Rep. 617 (Q.B.) (in action to review jurisdictional award, “the court is not in any way bound or limited to the findings made in the award or to the evidence adduced before the arbitrator; it does not review the decision of the arbitrator but makes its own decision on the evidence before it”); Electrosteel Castings Ltd v. Scan-Trans Shipping & Chartering Sdn Bhd [2002] EWHC 1993 (Comm.) (Q.B.); Zaporozhye Prod. Aluminium Plan Open S'holders Society v. Ashly Ltd, unreported. 570 English Arbitration Act, 1996, §67(1)(a) (judicial power to set aside “any award of the arbitral tribunal as to its substantive jurisdiction”); D. Sutton, J. Gill & M. Gearing, Russell on Arbitration ¶¶5-078, 8-031 (22d ed. 2003). 571 Swedish Arbitration Act, §2; Chinese Arbitration Law, Art. 20. See Seppälä, Comment on Section 2 of the Swedish Arbitration Act of 1999 Dealing With the Right of Arbitrators to Rule on Their Own Jurisdiction, in L. Heuman & S. Jarvin (eds.), The Swedish Arbitration Act of 1999 Five Years On: A Critical Review of Strengths and Weaknesses 45 (2006); Hobér, Arbitration Reform in Sweden, 17 Arb. Int'l 351, 357-58 (2001). 572 Swedish Arbitration Act, §2. 573 Sekolec & Eliasson, The UNCITRAL Model Law on Arbitration and the Swedish Arbitration Act: A Comparison, at 14, reprinted in, L. Heuman & S. Jarvin (eds.), The Swedish Arbitration Act of 1999 Five Years On: A Review of Strengths and Weaknesses (2006) (“court may and should already at this stage engage in a full consideration of the validity and scope of the arbitration agreement, irrespective of whether the arbitral tribunal has had any opportunity to determine the question or not.”). 574 Swedish Arbitration Act, §4 (“A court may not, over an objection of a party, rule on an issue, which, pursuant to an arbitration agreement, shall be decided by arbitrators.”). 575 Swedish Arbitration Act, §2. The Act appears to contemplate judicial review for both negative and positive jurisdictional rulings. Hobér, Arbitration Reform in Sweden, 17 Arb. Int'l 351, 357-58 (2001). 576 Chinese Arbitration Law, Art. 20 (emphasis added). 577 Japanese Arbitration Law, Arts. 14, 23. 578 H. Smit & V. Pechota (eds.), 2 Smit's Guides to International Arbitration: National Arbitration Laws ISR-C4 (2001). http://www.kluwerarbitration.com/CommonUI/print.aspx
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579 Lane, South Africa 14, in J. Paulsson (ed.), International
Handbook on Commercial Arbitration (Update 1995). 580 For example, Article 8 of the UNCITRAL Model Law. See supra pp. 877-899. 581 See supra pp. 864-865, 879, (UNCITRAL Model Law), 865866, 928-930 (United States), 900-904 (France), 904-907 (Switzerland), 908-910 (Germany), 960-962 (England), 965-966 (other); A. Samuel, Jurisdictional Problems in International Commercial Arbitration 178 (1989) (“if there is one thing over which modern writers on arbitration seem to agree, it is that arbitrators must be allowed to rule on their own jurisdiction”). 582 As noted above, the arbitrators' authority to consider challenges to their own jurisdiction was recognized in early state practice. See supra p. 856 n. 16. 583 See infra pp. 1623-1625. 584 Christopher Brown Ltd v. Genossenschaft Österreichischer Waldbesitzer Holzwirtschaftsbetriebe [1954] 1 Q.B. 8, 12-13 (English Court of Appeal). 585 See supra pp. 855-966. See also European Convention, Arts. V(2), V(3); UNCITRAL Model Law, Art. 16(1); Swiss Law on Private International Law, Art. 186(3); Swedish Arbitration Act, §2; Chinese Arbitration Law, Art. 20. 586 See supra pp. 856-866, 879, 900-905, 908-910, 928-930, 960962, 965-966; A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶5-38 (4th ed. 2004); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶14-13 to 14-18 (2003). As also discussed above, there are virtually no jurisdictions that do not recognize an arbitral tribunal's authority to consider jurisdictional challenges. See supra p. 856. 587 See European Convention, Art. VI(3); supra pp. 861-863. 588 See New York Convention, Arts. II(1), II(3), V(1)(A); supra pp. 856-861. 589 See supra pp. 853-856, 863-865, 875-877. This result is most clear where there is a concededly valid arbitration agreement and disputes concern scope. It nonetheless extends, under the New York (and Inter-American) Convention, to cases where a party challenges the existence or validity of any agreement to arbitrate. Even in these cases, and absent contrary agreement, the Convention would not permit a Contracting State to forbid arbitrators from even considering challenges to their jurisdiction: as discussed above, the structure of the Convention and terms of Article V(1)(a) presuppose the existence of competence-competence on the part of arbitral tribunal to consider jurisdictional challenges. 590 See supra pp. 863-864, 872-876. 591 See supra pp. 12-13 & infra pp. 1059 et seq. 592 As discussed below, there is anecdotal evidence that arbitrators may take more expansive views of their own jurisdiction than national courts would. See infra pp. 981-985. 593 See supra pp. 855-872, 872-876. 594 See supra pp. 872-876. 595 This is not true, however, where a concededly valid postdispute or other agreement to arbitrate jurisdictional disputes exists or where disputes regarding the scope of a concededly existent and valid agreement to arbitrate are concerned. See supra pp. 891-894, 931-937, 960-964. 596 Shalakany, Arbitration and the Third World: A Plea for http://www.kluwerarbitration.com/CommonUI/print.aspx
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Reassessing Bias under the Specter of Neoliberalism, 41 Harv. Int'l L.J. 419, 430, 440 (2000). 597 See supra pp. 872-876. 598 See supra pp. 64-67, 91-92, 109-115. 599 See supra pp. 82-84 & infra pp. 1742-1758. 600 See supra pp. 913-919, 930-937, 954-958. 601 See supra pp. 960-962. It appears that Swiss and French courts would reach similar results to those in the United States and England on this issue. See supra pp. 904-907; A. Samuel, Jurisdictional Problems in International Commercial Arbitration 180 (1989) (parties may confer competence-competence “on the arbitrator by making a separate agreement from that on which has authority, to decide the case on the merits, was alleged to depend. In this way, the validity of the first agreement could be put beyond challenge in the courts save as concerns questions of public policy, but the second agreement would be open to attack in the same way as any other arbitral agreement. This is accepted as the position in most developed legal regimes”). 602 See supra pp. 907-910. 603 See supra pp. 859-861 & infra pp. 1020-1024. 604 See supra pp. 71-90. 605 See supra pp. 859-861, 891-892, 904, 907, 914-919, 954-958, 960-962. 606 Nor would it be plausible to suggest that agreements to arbitrate “future” jurisdictional disputes are invalid. A distinction between existing and future disputes contradicts the basic terms of all modern arbitration conventions and legislation, see supra pp. 303, 565-574, and is wholly unnecessary as a means of ensuring adequate consent to an agreement to arbitrate. 607 See First Options, 514 U.S. at 943-44; supra pp. 914-919, 930948. See also Mayer, L'autonomie de l'arbitre international dans l'appréciation de sa propre compétence, 217 Recueil des Cours 319, 340 (1989). 608 Howsam, 537 U.S. at 83-84; supra pp. 919-922. English courts adopt a very similar requirement. LG Caltex Gas Co. v. China Nat'l Petroleum Co. [2001] EWCA Civ. 788 (English Court of Appeal); supra pp. 960-972. 609 The precise degree of clarity that should be required of an agreement to arbitrate jurisdictional disputes is complex. It is discussed above in the context of the U.S. FAA. See supra pp. 930948. 610 See infra pp. 2933-2950 for a discussion of the lis pendens doctrine in international arbitration. See also G. Born & P. Rutledge, International Civil Litigation in United StatesCourts 522-540 (4th ed. 2007). 611 Jurisdictional challenges based upon the scope of the arbitration agreement raise separate issues, which are discussed below. See infra pp. 974-975. 612 The difficulties with the U.S. (and English) approach are also well-illustrated by the great number of irreconcilable lower court decisions dealing with issues of competence-competence in U.S. courts. See supra pp. 930-948 (U.S.), 961-964 (English). 613 See Gaillard, Les manoeuvres dilatoires des parties et des arbitres dans l'arbitrage commercial international, 1990 Rev. arb. 759; Dell Computer Corp. v. Union des consommateurs, 2007 SCC 34, at ¶70 (Canadian S.Ct.) (“preventing delaying tactics”); Prima http://www.kluwerarbitration.com/CommonUI/print.aspx
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Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. S.Ct. 1967); People's Ins. Co. of China, Hebei Branch v. Vysanthi Shipping Co. [2003] 2 Lloyd's Rep. 617, 622 (Q.B.) (“giving a tribunal power to rule on its own jurisdiction means that the parties cannot delay valid arbitration proceedings indefinitely by making spurious challenges to the jurisdiction of the arbitral tribunal”). 614 SeeDell Computer Corp., 2007 SCC 34, at ¶69 (“concern to avoid a duplication of proceedings”); Shin-Etsu Chem. Co. Ltd v. Aksh Optifibre Ltd, XXXI Y.B. Comm. Arb. 747, 783-784 (Indian S.Ct. 2005) (2006) (“degree of time and cost avoidance”). 615 SeeDell Computer Corp., 2007 SCC 34, at ¶84 (“court's expertise in resolving such [purely legal] questions”); Howsam, 537 U.S. 79, 85 (U.S. S.Ct. 2002) (arbitrators, who are “comparatively more expert about the meaning of their own rule, are comparatively better able to interpret and to apply it”). 616 See First Options, 514 U.S. at 944-45 (emphasizing need to avoid forcing “unwilling parties to arbitrate a matter they reasonably would have thought a judge, not an arbitrator, would decide”). 617 See supra pp. 72-74. 618 See supra pp. 930-948. 619 As discussed above, where the parties have agreed to arbitrate disputes over the scope of their arbitration clause, any interlocutory judicial review would be inappropriate and the arbitral tribunal would have the power to finally decide such disputes. See supra pp. 939971. 620 See supra pp. 891-894, 931-937, 960-964. This approach contrasts significantly with the treatment in these legal regimes of claims of non-existence or invalidity of the arbitration agreement. See supra pp. 891-894, 938-948, 961-962 & infra pp. 975-981. 621 See supra pp. 891-894, 931-937, 962-964. 622 See infra pp. 1090-1098. Virtually all arbitration agreements are formulated to cover disputes or claims “connected to,” “relating to,” or “arising from” the parties' contract. In order to determine the scope of the arbitration clause, it is frequently necessary to determine the substantive meaning and extent of the parties' contractual (and, sometimes, extra-contractual) rights. 623 Green Tree Fin. Corp., 539 U.S. at 452-53 (“That question does not concern a state statute or judicial procedures. It concerns contract interpretation and arbitration procedures. Arbitrators are well situated to answer that question.”); Howsam, 537 U.S. at 85 (arbitrators, who are “comparatively more expert about the meaning of their own rule, are comparatively better able to interpret and to apply it”). 624 See supra pp. 891-894. 625 See supra pp. 887-888, 900-904. 626 For example, if no arbitral tribunal had been constituted and there were reasons for expedition (e.g., a rapid decision of the parties' dispute was necessary to avoid economic damage to one or both parties), then interlocutory judicial review would often be sensible. 627 See supra pp. 353, 363-365, 402-404, 873-874, 940-942. 628 See supra pp. 576-580, 971-973. 629 LawDebenture Trust Corp. plc v. Elektrim Finance BV [2005] EWHC 1412 (Ch). 630 Shin-Etsu Chem. Co. Ltd v. Aksh Optifibre Ltd, XXXI Y.B. Comm. Arb. 747, 760 (Indian S.Ct. 2005) (2006) (Sabharwal, J., http://www.kluwerarbitration.com/CommonUI/print.aspx
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dissenting) (“The traditional approach has been to allow a court, where a dispute has been brought despite an arbitration agreement, to fully rule on the existence and validity of the arbitration agreement. This approach would ensure that the parties are not proceeding on an invalid arbitration agreement as this would be a fruitless exercise involving much time and expenditure.”). See also Bachand, Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463, 464 et seq. (2006); Mayer, L'autonomie de l'arbitre international dans l'appréciation de sa propre compétence, 217 Recueil des Cours 319, 346 (1989); Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 462 (2005) (“the choice between these polar mechanisms is at bottom a matter of cost/benefit analysis: Is it best, as we have tended to assume, that the question of ‘arbitrability’ be resolved with finality as soon as possible – thereby obviating an extended procedure that might turn out in the end to have been pointless? Or is it best, instead, to allow the arbitration to proceed – preventing delay and obstructive tactics by recalcitrant persons? …”); A. Samuel, Jurisdictional Problems in International Commercial Arbitration 190 (1989) (“pre-arbitration applications to court to resolve jurisdictional questions … do have a great deal of merit. They enable jurisdictional problems to be resolved in one hearing rather than two.… It is true that such applications delay the making of the final award, but the time lost at the start of the arbitration is made up for by the fact that the court's ruling will usually prevent the jurisdictional question being raised during the arbitration and any subsequent setting-aside proceedings”). 631 See supra pp. 84-86 & infra pp. 2489-2502. 632 It is of course possible for an arbitral tribunal to render a preliminary decision on jurisdiction, which may reduce significantly wasted costs and uncertainties. See supra pp. 877-878 & infra pp. 990-997. However, tribunals are not infrequently reluctant to adopt this approach, because it can entail its own delays in the arbitral process and because it may be unclear whether jurisdictional issues can be resolved neatly as a preliminary issue. And, in any event, if a tribunal is prepared to render a preliminary decision on jurisdiction it is entirely able to do so under the UNCITRAL/U.S. approach, with the resulting award then being available to the national court where judicial consideration of jurisdiction issues is being pursued. 633 The testimony given and submissions made in arbitral proceedings can potentially be used in other forums (subject to confidentiality claims, seeinfra pp. 2249-2287), and can have significant impacts on the parties' rights. The parties' representatives and witnesses will also ordinarily be subject to significant duties in the arbitral proceedings (e.g., in relation to giving witness evidence, to doing so fully and honestly, etc.). These obligations and risks are significant and should not ordinarily be imposed absent a determination that a party has agreed to them. 634 See supra pp. 576-580. 635 New York Convention, Art. II(1) (emphasis added); supra pp. 857-861. 636 See supra p. 856. 637 See supra pp. 880-881. 638 See the French and Swiss authorities cited supra pp. 900-907. See alsoJudgment of 10 March 2000, Krauss Maffei Verfahrenstechnik GmbH v. Bristol Myers Squibb, XXVI Y.B. Comm. Arb. 816 (Italian Corte di Cassazione) (2001) (“An agreement for foreign arbitration, which may remove a dispute from the Italian http://www.kluwerarbitration.com/CommonUI/print.aspx
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courts, undoubtedly allows for a preliminary decision on jurisdiction where the Italian court is seized with a dispute concerning a relationship for which the parties concluded an international arbitration agreement”). 639 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶672(1999). See also Bachand, Does Article 8 of the Model Law Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463 (2006). 640 As discussed below, this is the effect of Article II of the New York Convention and of most national arbitration legislation. See infra pp. 1020-1024. 641 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶681(1999). 642 As discussed below, the fact that the court at the seat of an arbitration can review a jurisdictional award in an action to annul the award does not mean that other courts will be disabled from engaging in such review, in actions to enforce the award. See infra pp. 2777-2803. Parties frequently raise jurisdictional defenses under the Convention when enforcement actions are brought against them outside the arbitral seat. See Ibid. Delaying the time of judicial consideration therefore does little, even theoretically, to centralize judicial consideration of jurisdictional issues. 643 See supra pp. 891-894, 930-948. As discussed above, in cases involving jurisdictional objections based upon the scope of the arbitration clause, most institutional rules and agreements will provide for arbitral determination of the issue. See supra pp. 931937, 969-971, 974-975. With regard to issues of procedural requirements, waiver, laches and similar issues, the parties should be presumed to have intended arbitral determination. See supra pp. 745-746, 844-847, 919-922. 644 Even legal regimes which seek to postpone judicial consideration of jurisdictional issues until after any arbitral award permit applications to national courts to determine whether there is “prima facie” evidence of an arbitration agreement. See supra pp. 900-904, 904-907; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶672 (1999). This recognizes that it would be unacceptable to adopt an approach requiring a party to arbitrate jurisdictional objections where it is obvious that no arbitration agreement exists. Nonetheless, an approach permitting judicial review of prima facie evidence of an arbitration agreement is also difficult to accept, both in principle and in practice: judicial resolution of even the limited question of prima facie evidence will often require significant effort and potential delay, yet produce a decision providing only modest guidance, while doing little to prevent wasted effort in arbitral proceedings. 645 See supra pp. 879-881, 928-930, 965-966. 646 National court proceedings may impose costs on the parties, but these are not a decisive consideration and can in principle be recovered under cost-recovery provisions in the relevant courts (or, less frequently, related arbitral proceedings). See infra pp. 24882502. 647 See supra pp. 881-882, 948-950, 961-964. See alsoJudgment of 8 July 1996, 18 ASA Bull. 384 (Italian Corte di Cassazione) (2000) (Italian courts must stay proceedings regarding arbitrator's jurisdiction in deference to arbitration). 648 European Convention, Art. VI(3); supra pp. 861-863. A roughly analogous approach is adopted by recent amendments to the Swiss Law on Private International Law with regard to the application of lis http://www.kluwerarbitration.com/CommonUI/print.aspx
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pendens in arbitral proceedings. See infra pp. 2940-2942. 649 See supra pp. 365-370, 396-402, 938-943. 650 See supra pp. 370-376, 944-948. 651 See supra pp. 376-380, 396-402, 941-943. 652 That is the case under French and German law. See supra pp. 902-904, 909-910. In Switzerland, the arbitrators' legal conclusions and rationales are subject to de novo judicial review. See supra pp. 906-907. 653 That is the case under U.S. and English law. See infra pp. 954958, 962-964. For an anomalous decision suggesting that a positive jurisdictional award was not an “award,” see Judgments of 26 January 1999 and 1 March 1999, XXVI Y.B. Comm. Arb. 755 (Colombian S.Ct.) (2001) (award determining that arbitration agreement is valid is not subject to recognition because it is not an “award,” since it supposedly does not dispose of the parties' dispute). 654 See, e.g., Park, The Arbitrability Dicta in First Options v. Kaplan: What Sort of Kompetenz-Kompetenz Has Crossed the Atlantic?, 12 Arb. Int'l 137 (1996); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶787 (1999). 655 See, e.g., Park, The Arbitrability Dicta in First Options v. Kaplan: What Sort of Kompetenz-Kompetenz Has Crossed the Atlantic?, 12 Arb. Int'l 137 (1996); Ware, Arbitration Law's Separability Doctrine After Buckeye Check Cashing Inc. v. Cardegna, 8 U. Nev. L.J. 107 (2007). 656 See supra pp. 859-861, 969-971 & infra pp. 1020-1024. 657 A. Samuel, Jurisdictional Problems in International Commercial Arbitration 180 (1989) (parties may confer competence-competence “on the arbitrator by making a separate agreement from that on which has authority, to decide the case on the merits, was alleged to depend. In this way, the validity of the first agreement could be put beyond challenge in the courts save as concerns questions of public policy, but the second agreement would be open to attack in the same way as any other arbitral agreement. This is accepted as the position in most developed legal regimes”). 658 Of course, there could in principle be second-level jurisdictional issues, as to whether or not the tribunal's jurisdictional award was itself within the scope of the parties' submission agreement or whether the submission agreement was valid. The resolution of these issues would be subject to de novo judicial review. 659 See supra pp. 899, 931-937, 969-971. 660 See infra pp. 1020-1024; UNCITRAL Model Law, Arts. 34, 36. 661 See, e.g., Park, Bridging the Gap in Forum Selection: Harmonizing Arbitration and Court Selection, 8 Transnat'l L. & Contemp. Probs. 19, 50 (1998) (“Presumably arbitrators will be more likely than courts to find jurisdiction, since arbitrators get paid if they hear a dispute”); Trafalgar Shipping Co. v. Int'l Milling Co., 401 F.2d 568, 573 (2d Cir. 1968) (“Moreover, it is not likely that arbitrators can be altogether objective in deciding whether or not they ought to hear the merits. Once they have bitten into the enticing fruit of controversy, they are not apt to stay the satisfying of their appetite after one bite”). 662 Cf.Tumey v. Ohio, 273 U.S. 510 (U.S. S.Ct. 1927) (due process clause requires vacating conviction where judge's income was affected by outcome of case). 663 Ottley v. Sheepshead Nursing Home, 688 F.2d 883, 898 (2d http://www.kluwerarbitration.com/CommonUI/print.aspx
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Cir. 1982) (Newman, J., dissenting). 664 See infra pp. 1646-1651; Gotanda, Setting Arbitrators' Fees – An International Survey, 33 Vand. J. Transnat'l L. 779 (2000). 665 G. Petrochilos, Procedural Law in International Arbitration 135 (2004) (“an arbitrator is the first person to have an interest in preserving his professional reputation by acting impartially. Otherwise, the market will, in due course, starve him of arbitral appointments”). 666 See supra pp. 72-76. 667 Even apart from this, many national court judges operate within a framework of incentives relating to docket control and case disposition which also affect their decisions on matters of arbitral jurisdiction. See, e.g., McArthur, The Strange Case of American Civil Procedure and the Missing Uniform Discovery Time Limits, 24 Hofstra L. Rev. 865, 976 n.318 (1996) (“Judges' interests diverge in many ways from the practicing bar's. Unlike their peers in private practice, judges do not earn more money for enduring a larger docket. Their incentive is to worry about caseloads: most judges have access to data that rank them and their fellow judges by case disposition. The stress of judging surely mounts as the backlog of undisposed cases grows.”). 668 The exception is where the parties (unusually, when there is a challenge to the existence or validity of the arbitration agreement) submit to the tribunal's jurisdiction to decide its own jurisdiction. See supra pp. 859-861, 969-971, 982-983. 669 A. Samuel, Jurisdictional Problems in International Commercial Arbitration 182 (1989) (“it is clear that an arbitrator never has the right to decide definitively on his own jurisdiction”) See also infra pp. 2792-2794. 670 See supra pp. 955-958, 980-981. Where only the underlying contract, and not the arbitration agreement, is challenged, then no jurisdictional issue for judicial review is raised. See supra pp. 363376, 377-379, 940-942, 956-957. 671 See supra pp. 895-897, 910; Judgment of 6 June 2002, 2003 SchiedsVZ 39 (German Bundesgerichtshof); Judgment of 30 August 2002, Case 11 Sch 02/00 (Hanseatisches Oberlandesgericht Hamburg); Kröll, Recourse Against Negative Decisions on Jurisdiction, 20 Arb. Int'l 55 (2004). 672 Netherlands Code of Civil Procedure, Art. 1052(5) (“Unless the parties have agreed otherwise, the court shall have jurisdiction to try the case if the arbitral tribunal declares that it lacks jurisdiction”); A. van den Berg etal., Netherlands Arbitration Law 83 (1993). 673 See supra pp. 895-897. See also S. Koussoulis, Jurisdictional Problems in International Arbitration 59-62 (2000) (distinction between positive and negative jurisdictional awards in Greek law). 674 See supra pp. 900-904, 907, 954-955, 963-964. 675 As German courts have (mistakenly) reasoned. See supra pp. 895-897, 910. 676 See supra pp. 71-90. 677 See supra pp. 109 et seq. 678 See supra pp. 895-897, 900-904, 906-907, 954-955. 679 See supra pp. 895-897. 680 In practice, there are few national court decisions annulling negative jurisdictional awards. Mayer, L'autonomie de l'arbitre international dans l'appréciation de sa propre compétence, 217 Recueil des Cours 319, 320 (1989) (judicial decisions vacating http://www.kluwerarbitration.com/CommonUI/print.aspx
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negative jurisdictional awards rare). 681 See infra pp. 2501-2502.
International Arbitration Agreements and Competence-Competence - D. Choice of Law Governing CompetenceCompetence Issues Chapter 6 Gary B. Born
Author Gary B. Born
D. Choice of Law Governing Competence-Competence Issues Issues of competence-competence and the allocation of jurisdictional competence between arbitrators and national courts give rise to choice-of-law questions. In particular, questions arise as to whether the tribunal's competence-competence and the allocation of jurisdictional competence between arbitrators and national courts are governed by the law of the judicial forum where the relevant court sits, by the substantive law governing the arbitration agreement or by some other law. Virtually all national courts have assumed, without detailed analysis, that questions of an arbitral tribunal's competence-competence are governed by the law of the judicial enforcement forum. As discussed above, Article 8 of the UNCITRAL Model Law provides for the presumptive substantive validity of international arbitration agreements, and the specific enforceability of such agreements, save page "986" where a national court determines that the agreement is null and void, regardless where the arbitral seat is located. (682) At the same time, the Model Law's competencecompetence provision (in Article 16) is applicable only to arbitration agreements providing for a local arbitral seat. (683) Despite this, courts in Model Law states apply Article 16's regime to issues of competence-competence without serious consideration of other possibilities, both where the arbitration is seated locally and otherwise. (684)
Source International Arbitration Agreements and CompetenceCompetence - D. Choice of Law Governing CompetenceCompetence Issues in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 986 - 988
Similarly, U.S. courts appear to have consistently applied the FAA in determining the respective roles of courts and arbitrators, albeit without analysis. (685) Arbitral awards are to the same effect (applying the competence-competence regime of the arbitral seat). (686) page "987" In principle, this is generally the correct choice-of-law approach to issues of competence-competence. Where there is no applicable agreement to arbitrate jurisdictional issues, then issues of competence-competence appear properly to be subject to the law of http://www.kluwerarbitration.com/CommonUI/print.aspx
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the judicial enforcement forum: as discussed above, the competence-competence principle and the allocation of jurisdictional competence between arbitrators and courts are matters of applicable national and international arbitration legislation, and not generally the parties' arbitration agreement. (687) This allocation of competence is properly considered as akin to principles of lis pendens and is ordinarily governed by the law of each judicial enforcement forum. On the other hand, if the parties have agreed to arbitrate a jurisdictional issue (typically, an issue of scope), then that agreement will ordinarily be subject to the law governing the arbitration agreement and the New York Convention. (688) In that case, as noted above, the issue of competence-competence is not solely a matter of national law, but is instead subject to the protections of Article II(1) and II(3) of the Convention. (689) That is, Article II of the Convention then prescribes a rule affecting the question of competence-competence that would supersede contrary national law. (690) page "988"
682 UNCITRAL Model Law, Arts. 1(3), 8; supra pp. 205-207, 569-
571. 683 UNCITRAL Model Law, Arts. 1(3), 16; supra pp. 864-865, 877-
899. 684 See supra pp. 881-895; United Laboratories, Inc. v. Abraham,
XXX Y.B. Comm. Arb. 154 (Ontario S.Ct. 2002) (2005); China Merchants Heavy Indus. Co. Ltd v. JGC Corp., [2001] 3HKC 580 (H.K. Court of Appeal, High Court 2001) (2003); Judgment of 10 May 2001, XXVIII Y.B. Comm. Arb. 247 (German Bundesgerichtshof) (2003); Globe Union Indus. Corp. v. G.A.P. Mktg Corp., [1995] 2 W.W.R. 696 (B.C. S.Ct.); Judgment of 13 December 1994, CLOUT Case 147, reported at www.uncitral.org/clout (Moscow City Court). 685 See Sea Bowld Marine Group, LDC v. Oceanfast Pty, Ltd, 432 F.Supp.2d 1305, 1309 (S.D. Fla. 2006) (applying FAA's proarbitration policy to compel arbitration in Western Australia); Best Concrete Mix Corp. v. Lloyd's of London Underwriters, 413 F.Supp.2d 182 (E.D.N.Y. 2006) (applying FAA and compelling arbitration in London); Nakamura Trading Co. v. Sankyo Corp., 2006 WL 1049608, at *1 (N.D. Ill. 2006) (citing FAA's pro-arbitration policy to compel arbitration in Hyogo Prefecture, Japan); Boston Telecomm. Group, Inc. v. Deloitte Touche Tohmatsu, 278 F.Supp.2d 1041, 1043 (N.D. Cal. 2003) (“The federal substantive law of arbitrability establishes a clear federal policy favoring arbitration”; dismissing suit in favor of arbitration in Canada); Ibeto Petrochem. Indus., Ltd v. M/T Beffen, 412 F.Supp.2d 285, 291, 293 (S.D.N.Y. 2005) (citing FAA's pro-arbitration policy to compel arbitration in London while enjoining a concurrent lawsuit in Nigeria). English courts have taken the same approach with regard to the English Arbitration Act, 1996. See Vee Networks Ltd v. Econet Wireless Int'l Ltd [2005] 1 Lloyd's Rep. 192 (Q.B.) (tribunal's competence-competence to determine own jurisdiction considered http://www.kluwerarbitration.com/CommonUI/print.aspx
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on the basis of English law as law of the seat); ABB Lummus Global Ltd v. Keppel Fels Ltd [1999] 2 Lloyd's Rep. 24 (Q.B.) (§32 of the English Arbitration Act, 1996, applies to all arbitrations seated in England even where the parties have chosen another law as the curial law of the arbitration). 686 See, e.g., Econet Wireless Ltd v. First Bank of Nigeria, Ad Hoc
Award (2 June 2005), XXXI Y.B. Comm. Arb. 49, 52 (2006) (“the jurisdictional debate is to be resolved under the lex arbitri”); Award in ICC Case No. 9548, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 41-42 (2001) (tribunal seated in Switzerland determines that it has competence-competence under Swiss law); Award in ICC Case No. 9184, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 42 (2001) (Swiss-seated arbitral tribunal reasons “the applicable arbitration law in the present matter is – as a mandatory rule – the Swiss Private International Law Statute” and therefore tribunal has competence-competence under Article 186). 687 See supra pp. 872-876, 966-981. 688 See supra pp. 969-971. 689 See supra pp. 859-861 & infra pp. 1020-1024. 690 Further, insofar as determining the validity of an agreement to arbitrate jurisdictional issues is concerned, the applicable national law would appear to be that governing the arbitration agreement, not the law of the judicial forum. See supra pp. 514-516.
International Arbitration Agreements and Competence-Competence - E. Timing and Procedural Disposition of Jurisdictional Disputes by Arbitral Tribunal Chapter 6 Gary B. Born
Author Gary B. Born
E. Timing and Procedural Disposition of Jurisdictional Disputes by Arbitral Tribunal Where parties assert jurisdictional challenges before the arbitral tribunal, some mechanism for presenting and resolving the issue within the arbitral proceedings themselves must be adopted. The procedural disposition and timing for resolving jurisdictional objections is generally a matter within the tribunal's procedural judgment (subject to the parties' agreement and any applicable institutional rules or national law). (691) There are no uniform international rules governing how arbitral tribunals handle the procedural aspects of jurisdictional objections, (692) and the diversity http://www.kluwerarbitration.com/CommonUI/print.aspx
Source International Arbitration Agreements and CompetenceCompetence - E. Timing and Procedural Disposition of Jurisdictional Disputes by Arbitral Tribunal in Gary B. Born , International Commercial Arbitration, (Kluwer Law Page 1'022 of 3'270
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of the contexts in which such issues arise may make any such general rules less desirable than case-by-case decisions. page "988"
International 2009) pp. 988 - 1001
1. Requirements to Raise Jurisdictional Objection at Outset of Arbitration and Waiver of Jurisdictional Objections Most national laws and institutional arbitration rules require that challenges to the arbitrators' jurisdiction be raised early in the arbitral proceedings, failing which they will be deemed waived. (693) Under the UNCITRAL Model Law, a jurisdictional challenge must be asserted by a party “not later than when submitting his first statement on the substance of the dispute.” (694) Other national arbitration statutes are generally similar, (695) as is U.S. judicial authority under the FAA. (696) There are national page "989" laws that take different approaches, apparently permitting jurisdictional objections to be raised at any point in the arbitral proceedings, but these are exceptional. (697) Institutional arbitration rules also provide that parties must raise their jurisdictional objections early in the arbitral proceeding. The UNCITRAL Rules are representative, requiring that a jurisdictional objection “shall be raised not later than in the statement of defense or, with respect to a counterclaim, in the reply to the counter-claim.” (698) Other institutional rules are similar. (699) An arbitral tribunal has the authority, however, to accept a belated jurisdictional objection in appropriate circ*mstances (although failing to timely raise such objections will affect their credibility and may lead to estoppel issues). (700) Arbitral tribunals have not infrequently held that failure to comply with these various provisions results in waiver of the jurisdictional objection. (701) Similarly, as discussed below, national courts have consistently been prepared to reject jurisdictional defenses to the recognition or confirmation of an award on grounds of waiver. (702) 2. Provisions of National Law Regarding Procedural Disposition of Jurisdictional Objections As discussed above, national law in the arbitral seat may affect a tribunal's procedural disposition of a jurisdictional dispute. (703) Under most arbitration legislation (and institutional rules) an arbitral tribunal is generally free to either: (a) decide the page "990" issue of jurisdiction as a preliminary issue, and issue an interim award confined to jurisdiction, or (b) consider the question of jurisdiction together with the merits. For example, the UNCITRAL Model Law provides that a tribunal may decide jurisdictional issues “either as a preliminary question or in an award on the merits.” (704) In other legal systems, national law may require or prefer early decision of jurisdictional issues (as in Switzerland). (705) In any case, under all developed legal systems, the parties are in principle free to agree upon the timing of a jurisdictional award. (706) 3. Provisions of Institutional Rules Regarding Procedural http://www.kluwerarbitration.com/CommonUI/print.aspx
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Disposition of Jurisdictional Objections Despite the possibility to do so, the parties' arbitration agreement will not ordinarily address questions regarding the timing or procedural disposition of decisions on jurisdictional objections (which will hardly have been considered by the parties in making their agreement). On the other hand, institutional rules sometimes do prescribe procedures for dealing with jurisdictional objections after they have been made. The ICC Rules provide (relatively unusually (707) ) for a preliminary institutional challenge which can be made to the arbitral tribunal's jurisdiction. (708) Under Article 6(2) of the ICC Rules, a party may challenge the “prima facie” jurisdiction of an ICC arbitral tribunal before the ICC. Such challenges are sustained only where page "991" there is no prima facie evidence of an agreement to arbitrate, which could reasonably be made out before an arbitral tribunal. In other words, the Court need only conclude that an arbitration agreement “may [arguably] exist.” (709) The purpose of Article 6(2) is to weed out wholly spurious requests for arbitration, without requiring the considerable expense and effort that is entailed in appointing a tribunal and preparing replies or counterclaims. (710) Even if the ICC International Court of Arbitration rejects a challenge to prima facie jurisdiction, that ruling has no effect on the right of a party to renew its challenge before the arbitral tribunal or elsewhere. (711)
The ICSID Rules also provide a roughly-comparable mechanism for an initial, quasi-administrative assessment of jurisdiction. Rule 46 of the ICSID Rules provides “[t]he Secretary-General shall register the request unless he finds, on the basis of the information contained in the request, that the dispute is manifestly outside the jurisdiction of the Centre. He shall forthwith notify the parties of registration or refusal to register.” The ICSID Secretariat's review is ex parte, conducted before the Request for Arbitration is served on the respondent. Nevertheless, the Secretariat's review is very thorough (and at least as time-consuming); it typically page "992" will involve several exchanges of correspondence, as well as oral consultations, between the ICSID Secretariat and counsel for the claimant. (712) As with the ICC, the arbitral tribunal retains full authority to find jurisdiction absent, even if a request has been registered. (713) In contrast to the ICC and ICSID Rules, most institutional rules provide for challenges to arbitral jurisdiction to be resolved in the first instance by the arbitrators themselves, rather than by an arbitral institution. (714) The same is true of ad hoc arbitration rules (such as the UNCITRAL Rules). (715) 4. Arbitral Tribunal's Procedural Disposition of Jurisdictional Objections As a consequence of the competence-competence doctrine, the most common forum for jurisdictional challenges is in proceedings before the arbitral tribunal. Whatever the nature of the jurisdictional challenge, proceedings before the tribunal have certain common features. http://www.kluwerarbitration.com/CommonUI/print.aspx
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In some cases, jurisdictional issues will not be particularly factintensive. They will involve the application of disputed legal issues to agreed facts. In those cases, jurisdictional determinations can be made principally through written submissions, with a hearing for oral argument on legal issues if the parties desire. In other cases, there will be significant factual disputes – for example, when there is dispute as to whether or not the parties agreed orally to an unexecuted written instrument, whether one entity is the alter ego of another, or whether there was duress, mistake, or fraud. (716) Here, evidentiary submissions and hearings may well be required. (717) Assuming that applicable law (or the parties' agreement) does not require a different result, the approach that the tribunal takes to the timing of jurisdictional submissions and decisions will often be a matter of judgment that frequently depends on the desire(s) of the parties, the complexity of the case, the need for prompt resolution and the extent to which jurisdictional issues are intertwined with the merits of the parties' dispute. (718) (As discussed above, in some states, the applicable page "993" national arbitration law may require or prefer early decision on jurisdictional issues. (719) ) Although no absolute rules can be prescribed, the more appropriate course for the arbitral tribunal is generally to conduct a preliminary proceeding on credible good faith jurisdictional challenges. (720) That permits the parties to fully address the issue and, if jurisdiction is lacking, avoids the expense of presenting the case on the merits. (721) It also avoids forcing a party, who may not be subject to a tribunal's page "994" jurisdiction, to litigate the merits of its claims in what may be an illegitimate forum. If, after a preliminary proceeding, it becomes clear that the issues are inextricably interconnected with the merits, a ruling on jurisdiction can be reserved. (722) On the other hand, there may be instances in which it is clear from the outset that jurisdictional issues cannot readily be separated from the merits, and where efficiency argues strongly for presenting jurisdictional and merits issues simultaneously. In these cases, arbitral tribunals can (and usually do) combine jurisdictional issues with merits issues, and reserve decision on such issues for a final award. (723) Some commentators have attempted to formulate a general costbenefit calculation for determining when to address jurisdictional objections as a preliminary matter. (724) These efforts are helpful in structuring analysis, but it is important also to give effect to the less quantifiable, but real, “costs” of requiring a party who disputes the tribunal's jurisdiction to litigate a case on the merits before having its jurisdictional objections resolved by any decision-maker. page "995" If the arbitrators do conduct preliminary jurisdictional proceedings, they will thereafter usually issue an interim award upholding their jurisdiction, (725) or a final award declining jurisdiction. (726) The award will then generally be subject to an action page "996" to annul, under applicable national law in the country where the award was made. (727) In addition, a party may resist enforcement of the award in the national courts where the prevailing party seeks to enforce it. (728) In principle, an arbitral tribunal is free to continue the http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitral proceedings on the merits of the parties' dispute following a positive jurisdictional award, notwithstanding a pending action to annul the jurisdictional award. (729) Likewise, as discussed in detail below, an arbitral tribunal is generally not required to stay or suspend its consideration of jurisdictional objections, on either lis pendens or other grounds, based on the pendency of proceedings on the same jurisdictional issues in national courts. (730) Equally, although rarely occurring, an international arbitral tribunal is in principle free to continue to consider jurisdictional issues, notwithstanding the decision of a national court (including in the arbitral seat) holding that no valid agreement to arbitrate exists under the New York Convention. (731) 5. No Ex Officio Jurisdictional Determinations by Arbitral Tribunal It is a common feature of almost all national arbitration regimes that objections to the existence, validity, or scope of an arbitration agreement must be affirmatively raised by a party that wishes to challenge the arbitrators' jurisdiction. There is no basis (save for very rare exceptions (732) ) for an arbitral tribunal to sua sponte declare that it lacks jurisdiction or that the parties' arbitration agreement is invalid. Just as parties may waive an arbitration agreement, by proceeding with a dispute in national courts, (733) so they may also waive defects in an arbitration agreement, by proceeding with a dispute in arbitration. (734) It is not the arbitrator's role or mandate to prevent such waivers from occurring. This principle is set forth in Article 16(1) of the UNCITRAL Model Law, which requires that “a plea that the arbitral tribunal does not have jurisdiction shall page "997" be raised not later than the submission of the statement of defense.” (735) Other national arbitration legislation or judicial authority is similar. (736) Where a party fails to comply with this requirement, it will generally be held to have waived its jurisdictional objections and submitted to the arbitral tribunal's jurisdiction, either impliedly or expressly. (737) That is particularly true where a party takes part in formal steps in the arbitral procedure (other than selecting an arbitrator), such as executing terms of reference or agreeing to procedural timetables, without registering its jurisdictional objections. (738) It is generally not the responsibility of the arbitral tribunal independently to identify or raise possible jurisdictional defects in the arbitration agreement. If the parties consider it in their interests to raise jurisdictional objections, they are free to do so. On the other hand, the parties are also free to agree, subsequent to the dispute having arisen, to resolve their dispute through arbitration (even if they had not previously agreed to do so). Only where the arbitration agreement might conflict with mandatory national law (739) or in a default proceeding (740) does the arbitral tribunal have any obligation to raise possible jurisdictional defects ex officio. Nonetheless, it is ordinarily not a breach of an arbitrator's obligations to ex officio raise the possible existence of a jurisdictional defect, provided that he or she is acting in an independent and impartial manner. (741) It would, however, be a breach of an arbitrator's mandate to make an ex officio jurisdictional determination without http://www.kluwerarbitration.com/CommonUI/print.aspx
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notice to the parties: instead, the parties must be given an opportunity to decide whether or not they wish to proceed with a jurisdictional objection and, if so, to be heard on the matter. It would be a serious violation of the parties' procedural rights for a tribunal to make a purely sua sponte jurisdictional decision regarding the existence, validity, or scope of the arbitration agreement. (742) 6. Jurisdictional Consequences of Contesting Arbitrators' Jurisdiction in the Arbitral Proceedings An important practical issue concerns the jurisdictional consequences (if any) of contesting the arbitrators' jurisdiction in the arbitral proceedings. In what page "998" circ*mstances (again, if any) does such conduct amount to an acceptance of the tribunal's competence-competence and a waiver of any right to challenge a resulting jurisdictional award? The issue is most pointed in the United States and England, where the FAA and English Arbitration Act, 1996, have been held to give effect to agreements to arbitrate jurisdictional objections. (743) The leading U.S. authority is First Options, discussed above. (744) There,the Kaplans made written submissions to the arbitrator asserting that they were not bound by the arbitration agreement in question. (745) Moreover, the Kaplans' submissions did not specifically challenge the arbitrator's power to decide the question whether they were bound by the disputed arbitration clause. These actions raised the question whether the Kaplans' conduct amounted to acceptance of the arbitrators' jurisdiction finally to determine their own jurisdiction. The U.S. Supreme Court held in First Options that the Kaplans' conduct did not clearly evidence that they had agreed to arbitrate, with final effect, the question whether they were bound by the arbitration clause. (746) Other U.S. courts generally also hold that parties who raise jurisdictional objections in arbitral proceedings do not thereby submit themselves to the tribunal's competencecompetence by pursuing those objections before the tribunal. (747) As a practical matter, it is not prudent for a party to appear before a U.S. (or other) arbitral tribunal without expressly reserving its objections to the arbitrators' competence-competence. Within the United States, First Options may not extend far beyond its facts, (748) and a party's jurisdictional submissions to a tribunal could page "999" well constitute evidence of an agreement to arbitrate jurisdictional issues. (749) Outside the United States, national law may regard the submission of jurisdictional arguments to an arbitral tribunal, without a reservation of rights, as a submission to the tribunal's ruling. (750) A party's signature of ICC Terms of Reference, which identify a jurisdictional objection, has been held not to constitute acceptance of the arbitrator's competence-competence to finally determine jurisdictional objections, without possibility of subsequent judicial review. (751) Again, however, particular care should be taken to avoid inadvertent submissions to a tribunal's competencecompetence. page "1000" 7. Effect of National Court Litigation on Arbitral Proceedings: http://www.kluwerarbitration.com/CommonUI/print.aspx
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Lis Pendens, Preclusion and Related Issues If it is accepted that an arbitral tribunal has competence-competence to consider and decide (at least preliminarily) jurisdictional disputes, questions arise as to the effect of parallel judicial proceedings and decisions on the tribunal's proceedings and award. In particular, two related issues arise: (a) should an arbitral tribunal stay or suspend the arbitration pending a parallel litigation in national courts between the same parties addressing the same issues of jurisdiction; and (b) is an arbitral tribunal bound, in deciding issues of jurisdiction, by national court decisions purportedly deciding the same issues of jurisdiction? In both instances, the issues arise with regard to both courts in the arbitral seat and foreign courts, outside the arbitral seat. These issues are discussed in detail below. (752) page "1001"
691 See generally infra pp. 1739 et seq. for a discussion of arbitral
procedures. 692 Gotanda, An Efficient Method for Determining Jurisdiction in International Arbitrations, 40 Colum. J. Transnat'l L. 11, 13-14 (2001) (citing differing approaches). 693 See supra pp. 599-600, 604-605, 614-615, 671-673. See also infra pp. 2795-2797. 694 UNCITRAL Model Law, Art. 8(1). 695 See, e.g., Swiss Law on Private International Law, Art. 186(2) (“Any objection to its [the arbitral tribunal's] jurisdiction must be raised prior to any defense on the merits.”); German ZPO, §1040(2) (“A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defense. A party is not precluded from raising such a plea by the fact that he has appointed, or participated in the appointment of, an arbitrator. A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers that the party has justified the delay.”); English Arbitration Act, 1996, §§31(2) (“Any objection during the course of the arbitral proceedings that the arbitral tribunal is exceeding its substantive jurisdiction must be made as soon as possible after the matter alleged to be beyond its jurisdiction is raised.”), 31(3) (“The arbitral tribunal may admit an objection later than the time specified in subsection (1) or (2) if it considers the delay justified.”); Egyptian Arbitration Law, Art. 22(2); Russian Federation Law on International Commercial Arbitration, Art. 16(2); Brazilian Arbitration Law, Art. 20(Caput); Japanese Arbitration Law, Art. 23(2). 696 As First Options, 514 U.S. 938, suggests, a party can waive its right to challenge an arbitrator's jurisdiction, either by agreement or by implication. In First Option, the Kaplans were argued to have made such a waiver by contesting the arbitrator's jurisdiction over them, without separately denying his power to render a jurisdictional award. Although that claim was rejected, other conduct may constitute a waiver of jurisdictional objections. For lower U.S. court decisions considering claims that jurisdictional http://www.kluwerarbitration.com/CommonUI/print.aspx
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objections were waived, see Jones Dairy Farm v. Local No. 8-1236, United Food and Commercial Workers Int'l, AFL-CIO, 760 F.2d 173 (7th Cir. 1985); Fortune, Alsweet and Eldridge, Inc. v. Daniel, 724 F.2d 1355 (9th Cir. 1983) (“a party may not submit a claim to arbitration and then challenge the authority of the arbitrator to act after receiving an unfavorable result“); Exportkhelb v. Maistros Corp., 790 F.Supp. 70 (S.D.N.Y. 1992) (party's failure to argue in arbitration that counterclaim was not arbitrable because of prior judicial order waives its jurisdictional objection); Am. Constr. Mach. & Equip. Corp. v. Mechanised Constr. of Pakistan, Ltd, 659 F.Supp. 426 (S.D.N.Y. 1987) (signing terms of reference in ICC arbitration is waiver); Cobec Brazilian Trading etc. v. Isbrandtsen, 524 F.Supp. 7, 9 (S.D.N.Y. 1980) (challenge “should have been raised … when [adverse party] moved to compel arbitration”); Jarrell v. Wilson Warehouse Co., 490 F.Supp. 412 (M.D. La. 1980) (party's arbitration of dispute, without objecting to tribunal's jurisdiction, is waiver of jurisdictional objections). 697 See, e.g., Möller, Finland 17-18, in J. Paulsson (ed.),
International Handbook on Commercial Arbitration (Update 2008). 698 UNCITRAL Rules, Art. 21(3). 699 LCIA Rules, Art. 23(2); ICDR Rules, Art. 15(3); ICSID Arbitration Rules, Rule 27 (“Waiver. A party which knows or should have known that a provision of the Administrative and Financial Regulations, of these Rules, of any other rules or agreement applicable to the proceeding, or of an order of the Tribunal has not been complied with and which fails to state promptly its objections thereto, shall be deemed – subject to Article 45 of the Convention – to have waived its right to object.”). The ICC Rules are silent on this issue. 700 SeeSummary Record of the Eighth Meeting of the Committee of the Whole (II), UNCITRAL, Ninth Session, UN Doc. A/CN.9/9/C.2/SR.8, at 4-5, ¶¶27-30 (1976), available at www.uncitral.org (deleting sentence in former Article 21(3) providing that “Where delay in raising a pleas of incompetence is justified under the circ*mstances, the arbitrators may declare the plea admissible” as unnecessary, given the tribunal's general discretion). 701 SeeACD Tridon Inc. v. Tridon Australia Pty Ltd, XXIX Y.B. Comm. Arb. 533, 542-543 (N.S.W. S.Ct. 2002) (2004); Judgment of 15 May 2003, Czech Republic v. CME Czech Republic BV, Case No. T 8735-01 (Svea Court of Appeal), reprinted and discussed in, S. Jarvin & A. Magnusson (eds.), International Arbitration Court Decisions 663, 678-679 (2006). 702 See infra pp. 2573-2575, 2606-2611, 2795-2797. 703 See supra pp. 988-990. 704 UNCITRAL Model Law, Art. 16(3). See also Aeberli, Jurisdictional Disputes under the Arbitration Act 1996: A Procedural Route Map, 21 Arb. Int'l 253, 265 (2005). 705 Swiss Law on Private International Law, Art. 186(3) (“The arbitral tribunal shall, in general, decide on its own jurisdiction by a preliminary decision”); German ZPO, §1040(3) (“If the arbitral tribunal considers that it has jurisdiction, it rules on a plea referred to in subsection 2 of this section [plea to jurisdiction] generally by means of a preliminary ruling.”); Geimer, in R. Zöller (ed.), Zivilprozessordnung §1040, ¶8 (26th ed. 2007). 706 See English Arbitration Act, 1996, §31(4); R. Merkin, Arbitration Law ¶9.25 (2004 & Update 2007); Werner, in S. Berti et al. (eds.), http://www.kluwerarbitration.com/CommonUI/print.aspx
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International Arbitration in Switzerland Art. 186, ¶¶48 et seq. (2000); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶674 (2006); A. Bucher & P.Y. Tschanz, International Arbitration in Switzerland ¶148 (1988); Judgment of 8 March 1988, Sociétés Sofidif v. OIAETI, 1989 Rev. arb. 481 (French Cour de cassation civ. 1e); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶1252 (1999); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶14-23 (2003). 707 The UNCITRAL, ICDR and LCIA Rules do not have any counterpart to this procedure. Rather, jurisdictional challenges are left for resolution by the arbitral tribunal itself. Of course, as discussed in detail below, it is not uncommon for one party to the arbitration agreement to commence litigation in a national court in derogation of the agreement. See infra pp. 1003 et seq. 708 The Stockholm Chamber of Commerce Rules adopt a similar provision. See SCC Rules, Art. 10. 709 ICC Rules, Art. 6(2). A challenge to the ICC's prima facie jurisdiction is generally made in correspondence to the ICC Secretariat (addressed to the ICC Counsel assigned to the case), with copies to opposing counsel. Oral argument is not permitted. W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration §11.01 (3d ed. 2000); Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 79-80, 83-103 (2d ed. 2005). With the revision of the ICC Rules in 1998 the control of the Court was extended from the “existence or validity” to “the existence, validity or scope” of the arbitration agreement. On the other hand the prima facie test is less strict then before. The old version provided that the court needed to “be satisfied of the prima facie existence of such an agreement” whereas in the recent version it is sufficient that the court is “prima facie satisfied that an arbitration agreement under the Rules may exist.” (emphasis added). For examples of cases where Requests for Arbitration were rejected on prima facie jurisdictional grounds, see Dimolitsa, Issues Concerning the Existence, Validity and Effectiveness of the Arbitration Agreement, 7(2) ICC Ct. Bull. 14, 15-16 (1996). 710 W. Craig, W. Park & J. Paulsson, International Chamber of
Commerce Arbitration ¶¶11.01-11.02 (3d ed. 2000); Rau, The Culture of American Arbitration and the Lessons of ADR, 40 Tex. Int'l L.J. 449, 466 (2005) (Article 6 of ICC Rules “is deeply rooted in the premises and presuppositions of French procedural law – that it, it is apparently not intended in any way to amount to a final allocation of decision-making authority.”). 711 Article 6(2) of the ICC Rules provides: “If the Respondent does not file an Answer, as provided by Article 5, or if any party raises one or more pleas concerning the existence, validity or scope of the arbitration agreement, the Court may decide, without prejudice to the admissibility or merits of the plea or pleas, that the arbitration shall proceed if it is prima facie satisfied that an arbitration agreement under the Rules may exist. In such a case, any decision as to the jurisdiction of the Arbitral Tribunal shall be taken by the Arbitral Tribunal itself. If the Court is not so satisfied, the parties shall be notified that the arbitration cannot proceed.” In such a case, any party retains the right seek judicial review of the question whether there is a binding arbitration agreement. W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration §11.03 (3d ed. 2000); Y. Derains & E. Schwartz, A Guide to the ICC Rules http://www.kluwerarbitration.com/CommonUI/print.aspx
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of Arbitration 103 n.145 (2d ed. 2005). 712 C. Schreuer, The ICSID Convention: A Commentary Art. 36, ¶¶40-43 & 50, Art. 36, ¶¶15, 16 & 22-36 (2001). 713 C. Schreuer, The ICSID Convention: A Commentary Art. 41, ¶1-7 (2001) 714 See AAA Commercial Rules, Rule R-7; ICDR Rules, Art. 15(1); LCIA Rules, Art. 23(1); Swiss International Arbitration Rules, Art. 21(1). 715 UNCITRAL Rules, Art. 21(4). 716 These grounds for challenging the existence, validity, or legality of an arbitration agreement are discussed above. See supra pp. 640 et seq. 717 See, e.g., Partial Award in ICC Case No. 4402, IX Y.B. Comm. Arb. 138 (1984). 718 See D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 450 (2006) (Article 21(4) places decision when to rule on jurisdiction “clearly within tribunal's discretion”; “Any decision [on when to decide jurisdictional objections] must consider the substantiality of the objection, the cost in time and money to the parties of such a preliminary ruling (e.g., whether such a ruling would entail written filings or an oral hearing), and the practicality of bifurcating the proceedings to address jurisdiction preliminarily, especially where jurisdictional issues are intertwined with the merits”); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration 523 (3d ed. 2000) (“Article 16 gives the arbitral tribunal considerable authority and responsibility to determine whether the objection justifies an interruption of the arbitral proceedings on the merits. It is a cornerstone of the Model Law.”); Glamis Gold, Ltd v. United States of America, in NAFTAProcedural Order No. 2 (31 May 2005), reprinted in, D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 457-459 (2006) (identifying factors relevant to determining whether to hear jurisdiction as preliminary issue); Methanex Corp. v. United States of America, in NAFTAPartial Award on Jurisdiction (7 August 2002), 14(6) WTAM 109, 146, ¶37 (2002) (“The discretion whether to choose the general or the exceptional procedure lies with the arbitration tribunal; and the exercise of that discretion is not confined to economic factors: e.g., where jurisdictional issues are intertwined with the merits, it may be impossible or impractical to decide the former without also hearing argument and evidence on the latter.”). 719 See supra pp. 988-990; Swiss Law on Private International Law, Art. 186(3). 720 For a reasoned consideration of the relative benefits and costs of different procedural dispositions of jurisdictional objections, see Aoot Kalmneft v. Glencore Int'l AG [2001] 1 Lloyd's Rep. 128 (Q.B.). See also Gotanda, An Efficient Method for Determining Jurisdiction in International Arbitrations, 40 Colum. J. Transnat'l L. 11 (2001); Blessing, The ICC Arbitral Process, Part III: The Procedure Before the Arbitral Tribunal, 3(2) ICC Ct. Bull. 18, 27 (1992) (where jurisdictional issues can be “sufficiently isolated” and are not “dilatory” preliminary decision on jurisdiction is preferred); Glamis Gold, Ltd v. United States of America, in NAFTA Procedural Order No. 2 (31 May 2005), reprintedin, D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 457459 (2006) (“the primary motive for the creation of a presumption in favor of the preliminary consideration of a jurisdictional objection was to ensure efficiency in the proceedings”). http://www.kluwerarbitration.com/CommonUI/print.aspx
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For arbitral awards considering whether or not to bifurcate proceedings or provide for partial awards, see Partial Award in ICC Case No. 3790, XI Y.B. Comm. Arb. 119 (1986); Partial Award in ICC Case No. 5073, XIII Y.B. Comm. Arb. 53 (1988); Wintershall AG v. Gov't of Qatar, Partial Ad Hoc Award (5 February 1988), XV Y.B. Comm. Arb. 30 (1990). 721 See, e.g., Interim Award in ICC Case No. 7929, XXV Y.B.
Comm. Arb. 312, 314 (2000) (“[I]n general, the arbitral tribunal should decide on its jurisdiction by means of a ‘preliminary decision.’ We have considered very carefully whether or not we should give such a preliminary decision in this case. It would certainly accord with the wishes of the defendant that we should do so. It might also be helpful to the parties in deciding whether or not to continue with proceedings before two different tribunals, which are concerned with the same business relationship and which presumably must traverse much of the same ground.”); Partial Award in ICC Case No. 4402, IX Y.B. Comm. Arb. 138 (1984); D. Bishop, J. Crawford & W. Reisman, Foreign Investment Disputes: Cases, Materials and Commentary 1407 (2005) (“While it is often appropriate to deal with all the points at issue collectively, the arbitral tribunal might decide to take them up in a particular order. The order may be due to a point being preliminary relative to another (e.g., a decision on the jurisdiction of the arbitral tribunal is preliminary to consideration of substantive issues).”); Schneider, Lean Arbitration: Cost Control and Efficiency Through Progressive Identification of Issues and Separate Pricing of Arbitration Services, 10 Arb. Int'l 119, 131-132 (1994) (regarding preliminary but determinative issues such as jurisdiction, “there are considerable disadvantages in waiting with the identification of decisive preliminary issues until the end of the proceedings. Not knowing which of the possibly relevant issues will be found decisive, the parties must argue and produce their evidence for all of them. In some cases, this can lead to massive waste of time and efforts. It is submitted that a major, if not the principal, source of wastage and dissatisfaction with many international commercial arbitrations lies in an inadequate focusing on the issues which finally are found to be decisive. It is in this area that probably the largest potential for improving cost control and efficiency can be found.”). 722 See, e.g., Final Award in Chamber of National and International Arbitration of Milan of 18 March 1999, XXV Y.B. Comm. Arb. 382 (2000); Impregilo SpA v. Islamic Republic of Pakistan, Decision on Jurisdiction, ICSID Case No. ARB/03/3 (22 April 2005), 12 ICSID Rep. 242 (2007); Catherine Etezadi v. Islamic Republic of Iran, Award No. 554-319-1 (23 March 1994), 30 Iran-US C.T.R. 22 (1994); Tradex Hellas SA v. Albania, ICSID Case No. ARB/94/2 Award (29 April 1999) and Decision on Jurisdiction (4 December 1996), XXV Y.B. Comm. Arb. 221 (2000). 723 W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration 364 (3d ed. 2000); Société Ouest Africaine des Bétons Industriels v. Republic of Senegal, Decision on Jurisdiction, ICSID Case No. ARB/82/1 (1 August 1984), 2 ICSID Rep. 175 (1994) (deciding one jurisdictional issue and reserving another for merits phase); Tradex Hellas SA v. Albania, ICSID Case No. ARB/94/2, Award (29 April 1999) and Decision on Jurisdiction (24 December 1996), XXV Y.B. Comm. Arb. 221 (2000) (deciding several jurisdictional issues and reserving remainder for merits). 724 Gotanda, An Efficient Method for Determining Jurisdiction in International Arbitrations, 40 Colum. J. Transnat'l L. 11, 34-42 (2001). http://www.kluwerarbitration.com/CommonUI/print.aspx
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725 Impregilo SpA v. Islamic Republic of Pakistan, Decision on
Jurisdiction, ICSID Case No. ARB/03/3 (22 April 2005),12 ICSID Rep. 242 (2007) (upholding jurisdiction on one claim); First Interim Award in NAI of 6 April 2000 XXIX Y.B. Comm. Arb. 133 (2004) (rejecting jurisdictional objections); Second Interim Award in NAI Case of 23 July 2001 XXIX Y.B. Comm. Arb. 133 (2004) (rejecting further jurisdictional objections); Partial Award in ICC Case No. 9787, XXVII Y.B. Comm. Arb. 181 (2002) (upholding jurisdiction). There are numerous instances of such interim awards rejecting jurisdictional objections. SeeSaipem SpA v. The People's Republic of Bangladesh, Decision on Jurisdiction and Recommendation on Provisional Measures, ICSID Case No. ARB/05/07 (21 March 2007), available at www.worldbank.org/icsid (upholding jurisdiction); Bayindir Insaat Turizm Ticaret Ve Sanayi AS v. Islamic Republic of Pakistan, Decision on Jurisdiction, ICSID Case No. ARB/03/29 (14 November 2005), 2005 WL 3598900 (upholding jurisdiction); Plama Consortium Ltd v. Republic of Bulgaria, Decision on Jurisdiction, ICSID Case No. ARB/03/24 (8 February 2005), 20 ICSID Rev-For. Inv. L.J. 262 (2005) (upholding jurisdiction); El Paso Energy Int'l Company v. Argentine Republic, Decision on Jurisdiction, ICSID Case No.ARB/03/15 (27 April 2006), available at http://icsid.worldbank.org (upholding jurisdiction); Interim Award in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312 (2000) (upholding arbitration agreement); Partial Award in ICC Case No. 7319, XXIVa Y.B. Comm. Arb. 141 (1999) (same); Interim Award in ICC Case No. 7337, XXIVa Y.B. Comm. Arb. 149 (1999) (same); FEDAX NV v. Republic of Venezuela, Decision on Jurisdiction, ICSID Case No. ARB/96/3 (11 July 1997), 37 Int'l Legal Mat. 1378, 1381-1387 (1998); So. Pacific Prop. Ltd v. Arab Republic of Egypt, Decision on Jurisdiction, ICSID Case No. ARB/84/3 (27 November 1985 and 14 April 1988), XVI Y.B. Comm. Arb. 16, 19–39 (1991); Amco Asia Corp. v. Republic of Indonesia, Award on Jurisdiction, ICSID Case No. ARB/81/1 (25 September 1983), 23 Int'l Legal Mat. 351, 353 (1984) (“‘legal objections to jurisdiction’ raised by Respondent were to be dealt with as a preliminary matter”); Partial Award in ICC Case No. 12363, 24 ASA Bull. 462, 470 (2006); Interim Award on Jurisdiction, ICC Case of 31 July 2000, 19 ASA Bull. 276, 284 (2001). 726 There are also numerous instances of final awards upholding
jurisdictional objections. Impregilo SpA v. Islamic Republic of Pakistan, Decision on Jurisdiction, ICSID Case No. ARB/03/3 (22 April 2005),12 ICSID Rep. 242 (2007) (upholding jurisdiction objections in some points of the merits); Final Award in ICC Case No. 9762, XXIX Y.B. Comm. Arb. 26, 38 (2004); SGS Société Gén. de Surveillance SA v. Islamic Republic of Pakistan, Decision on Objections to Jurisdiction, ICSID Case No. ARB/01/13 (6 August 2003),18 ICSID Rev.-For. Inv. L.J. 301 (2003) (upholding some, but not all, of respondent's jurisdictional objections); Tradex Hellas SA v. Albania, ICSID Case No. ARB/94/2, Award (29 April 1999) and Decision on Jurisdiction (24 December 1996), XXV Y.B. Comm. Arb. 221 (2000) (tribunal rejected most of the objections to its jurisdiction and joined a last one (expropriation) to the merits; held in final award that the claimant could not prove expropriation and therefore declined jurisdiction); Interim Award in ICC Case No. 6648, XXIII Y.B. Comm. Arb. 30 (1998) (although titled an “Interim Award,” tribunal held that it did not have jurisdiction to resolve dispute because the contractual authority to arbitrate stemmed from a http://www.kluwerarbitration.com/CommonUI/print.aspx
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contract to which one entity in the dispute was not a party); Final Award in ICC Case No. 6829, XIX Y.B. Comm. Arb. 167 (1994) (rejecting jurisdiction relating to all but one contract in dispute). 727 See infra pp. 2568-2573, 2595-2600, 2606-2611. 728 See infra pp. 2777-2797, 2798-2803. In some cases, as in Switzerland and under the UNCITRAL Model Law, interlocutory judicial review of an interim award on jurisdiction is possible. See supra pp. 879, 904-907. 729 See supra pp. 877-881, 910; UNCITRAL Model Law, Art. 16(3); German ZPO, §1040. See also infra pp. 2937-2947. 730 See infra pp. 2937-2947. See also infra pp. 1048-1057. 731 See infra pp. 2923-2929. 732 As discussed elsewhere, these exceptions arise exclusively from public policy or mandatory national law requirements. See supra pp. 797-800, 801-803 infra pp. 2620-2633, 2827-2863, 28632864. 733 See supra pp. 736-747. 734 See supra pp. 615-616, 671-673, 988-991 & infra pp. 2573, 2795-2796; A. Samuel, Jurisdictional Problems in International Commercial Arbitration 197 (1989) (“the court is only required to decline jurisdiction, on the grounds that a valid and applicable arbitral agreement exists, if one of the parties asks it to do so”). 735 UNCITRAL Model Law, Art. 16(1). See supra pp. 988-991 & infra pp. 2573, 2795-2797. 736 English Arbitration Act, 1996, §30(1). See also supra pp. 960962. 737 See supra pp. 988-991 & infra pp. 2795-2796. 738 See supra pp. 988-991 & infra pp. 2795-2797. 739 See supra pp. 764, 879, 906 & infra pp. 2197-2198. 740 See infra pp. 1865-1868, 2439-2440, 2592-2593, 2753. 741 See infra pp. 1461-1552; Larsen v. The Hawaiian Kingdom (5 February 2001), 119 I.L.R. 566, 579-580 (2001) (arbitral tribunal sua sponte raises jurisdictional issue). 742 See infra pp. 2581-2583, 2589, 2746-2749; Judgment of 4 July 1996, III ZR 14/95, 1996 NJW-RR 1150 (German Bundesgerichtshof); K. Lionnet & A. Lionnet, Handbuch der internationalen und nationalen Schiedsgerichtsbarkeit 3 III 5 b) (2) (3d ed. 2005); H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International CommercialArbitration: Legislative History and Commentary 479 (1989). 743 See supra pp. 913-919, 931-948, 960-962. 744 See supra pp. 913-919. 745 First Options, 514 U.S. at 941. 746 In First Options, the Kaplans were the owners and managers of the company that was party to the arbitration, and therefore understandably present, at least as shareholders, at the arbitral proceedings. The case might be different where third parties, with no comparable involvement, made submissions to a tribunal. 747 See, e.g., Sarhank Group v. Oracle Corp., 404 F.3d 657, 66162 (2d Cir. 2005) (“Merely by arguing non-arbitrability to the arbitrators and then to the Egyptian courts does not amount to consent by Oracle to having the arbitrators decide the issue”); Four Seasons Hotels and Resorts, BV v. Consorcio Barr SA, 377 F.3d 1164, 1171 (11th Cir. 2004) (party who participated in arbitration while objecting to arbitrator's jurisdiction did not waive ability to http://www.kluwerarbitration.com/CommonUI/print.aspx
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contest arbitrator's jurisdiction in annulment action); Bridas SAPIC v. Gov't of Turkmenistan, 345 F.3d 347, 355 (5th Cir. 2003) (participation in arbitration under protest did not waive objections to jurisdiction); Opals on Ice Lingerie, Designs by Bernadette, Inc. v. Bodylines, Inc., 320 F.3d 362, 368 (2d Cir. 2003); China Minmetals Materials Export & Import Co. v. Chi Mei Corp., 334 F.3d 274 (3d Cir. 2003); Davis v. Chevy Chase Fin. Ltd, 667 F.2d 160, 167 (D.C. Cir. 1981). See also infra pp. 2796-2797. 748 See, e.g., Hart Enters. Int'l, Inc. v. Anhui Provincial Imp. & Exp. Corp., 888 F.Supp. 587, 589 (S.D.N.Y. 1995) (“In First Options … the disputes concerned an agreement that was embodied in four separate but related documents. Only one of the four documents contained an arbitration clause.”); Council of Smaller Enters. v. Gates, McDonald & Co., 687 N.E.2d 1352, 1356 (Ohio 1998) (“The key factor in First Options that distinguishes it from this case is that in First Options, the parties resisting arbitration had not personally signed the document containing the arbitration clause.”); Inv. Mgt & Research, Inc. v. Hamilton, 727 So.2d 71, 77 (Ala. 1999) (same). 749 See, e.g., Cleveland Elec. Illuminating Co. v. Utility Workers Union, Local 270, 440 F.3d 809, 813-14 (6th Cir. 2006) (“Cleveland Electric submitted the question of arbitrability to the arbitrator for his determination, and we can find nothing in the record to indicate that Cleveland Electric wanted to reserve the question of arbitrability for the court. The district court found, and this court agrees, that Cleveland Electric waived the issue of who had the power to decide the arbitrability of the retirees' grievance by submitting the matter to arbitration “without reservation.”); Halcot Nav. Ltd v. Stolt-Nielsen Transp. Group, 491 F.Supp.2d 413, 418-19 (S.D.N.Y. 2007) (holding that party's argument of jurisdictional objections to arbitral tribunal constituted clear and unmistakable agreement to arbitrate these objections, absent express reservation of objections to tribunal's jurisdiction to decide jurisdiction: “What Halcot's position essentially amounts to is enabling it to create a win-win outcome for itself, as a means of having it both ways, allowing the arbitrability issue to proceed to the arbitrators and accepting the result if favorable to Halcot or rejecting it if unfavorable and litigating the matter in court.”); Halley Optical Corp. v. Jagar Int'l Mktg Corp., 752 F.Supp. 638 (S.D.N.Y. 1990) (party bound by arbitrators' jurisdictional determination after having resisted jurisdiction before arbitral tribunal: “to find otherwise would allow a party to participate in the arbitration with the assurance that if it loses it may later challenge whether it had ever agreed to arbitrate”). See also infra pp. 27962797. 750 See, e.g., Sim Swee Joo Shipping Sdn Bhd v Shirlstar Container Transp. Ltd [1994] C.L.C. 188, 191 (Q.B.) (observing that the plaintiff “took part in the arbitration proceedings over a long period, and argued before [the arbitrator] the very points on which they now seek to rely in order to deny [the arbitrator's] jurisdiction, without protesting, or making any reservation in respect of, [the arbitrator's] jurisdiction to decide such points,” and noting that “[t]here is in such circ*mstances a clear inference of an ad hoc submission or of a waiver of any objection to the scope of any jurisdiction which the arbitrator otherwise had”). CompareCaparo Group Ltd v. fa*gor Arrasate Sociedad Coop. [2000] Arb. & Disp. Res. L.J. 254 (Q.B.) (letter to ICC Secretariat disputing jurisdiction constitutes step in arbitration precluding reliance on §72). 751 See, e.g., Judgment of 12 July 1984, X Y.B. Comm. Arb. 113 (Paris Cour d'appel) (1985) (Terms of Reference do not constitute a new submission agreement); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration 290-91 (3d ed. http://www.kluwerarbitration.com/CommonUI/print.aspx
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2000). CompareCBS Corp. v. WAK Orient Power & Light Ltd, 168 F.Supp.2d 403 (E.D. Pa. 2001) (by signing Terms of Reference, defining arbitral tribunal's jurisdiction to include identity of parties to arbitration, respondent agreed to submission of this issue to arbitration; rejecting defense to recognition under Article V(1)(c)). 752 See infra pp. 2919-2929, 2937-2947.
Effects and Enforcement of International Arbitration Agreements Chapter 7 Gary B. Born
Author Gary B. Born
Effects and Enforcement of International Arbitration Agreements (1) International arbitration agreements have potentially significant consequences for the parties' legal rights. This Chapter examines these legal effects, including both the negative effect of denying parties the right to pursue litigation in national courts and the positive effect of obligating them to arbitrate their disputes in good faith. The Chapter also discusses the different mechanisms for enforcing these obligations under leading legal systems. Finally, the Chapter addresses the related subjects of antisuit and antiarbitration injunctions.
Source Effects and Enforcement of International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 1003 - 1003
page "1003"
1 For commentary, see Bachand, Does Article 8 of the Model Law
Call for Full or Prima Facie Review of the Arbitral Tribunal's Jurisdiction?, 22 Arb. Int'l 463 (2006); Ball, The Essential Judge: The Role of the Courts in A System of National and International Commercial Arbitration, 22 Arb. Int'l 74 (2006); Bedard & Mascarenhas, Comverse, Inc.: Methodological Issues in Anti-Suit Injunctions, 22(2) Mealey's Int'l Arb. Rep. 1 (2007); Beraudo, Case Law on Articles 5, 8, and 16 of the UNCITRAL Model Arbitration Law, 23 J. Int'l Arb. 101 (2006); Cobb, Domestic Courts' Obligation to Refer Parties to Arbitration, 17 Arb. Int'l 313 (2001); Collins, AntiSuit Injunctions and the Arbitration Process, in Arbitral Tribunals or State Courts: Who Must Defer to Whom? 85 (ASA Special Series No. 15 2001); Dutson, Breach of An Arbitration or Exclusive Jurisdiction Clause: The Legal Remedies If It Continues, 16 Arb. Int'l 89 (2000); Gaillard, Il est interdit d'interdire: refléxions sur l'utilisation des anti-suit injunctions dans l'arbitrage commercial international, 2004 Rev. arb. 47; Geisinger & Lévy, Lis Alibi Pendens in International Commercial Arbitration, in ICC, Complex Arbitrations 53 (ICC Ct. Bull. Supp. 2003); Paulsson, The New York Convention in International Practice – Problems of Assimilation, in The New York Convention of 1958 100 (ASA Special Series No. 9 1996); Perret, Parallel Actions Pending Before An Arbitral Tribunal and A http://www.kluwerarbitration.com/CommonUI/print.aspx
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State Court: The Solution under Swiss Law, in Arbitral Tribunals or State Courts: Who Must Defer to Whom?, in Arbitral Tribunals on State Courts: Who Must Defer to Whom? 65 (ASA Special Series No. 15 2001); Sanders, UNCITRAL's Model Law on International and Commercial Arbitration; Present Situation and Future, 21 Arb. Int'l 443 (2005); Smith & Freeman, Anti-Suit Injunctions in Europe: Another Advantage of Arbitration, 20(3) Mealey's Int'l Arb. Rep. 45 (2005); Stacher, You Don't Want to Go There – Antisuit Injunctions in International Commercial Arbitration, 23 ASA Bull. 640 (2005).
Effects and Enforcement of International Arbitration Agreements - A. Introduction Chapter 7 Gary B. Born
Author Gary B. Born
International arbitration agreements have potentially significant consequences for the parties' legal rights. This Chapter examines these legal effects, including both the negative effect of denying parties the right to pursue litigation in national courts and the positive effect of obligating them to arbitrate their disputes in good faith. The Chapter also discusses the different mechanisms for enforcing these obligations under leading legal systems. Finally, the Chapter addresses the related subjects of antisuit and antiarbitration injunctions. A. Introduction
Source Effects and Enforcement of International Arbitration Agreements - A. Introduction in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 1004 - 1004
A valid international arbitration agreement produces important legal effects for its parties, as well as for national courts and arbitrators. (2) These effects of arbitration agreements are both positive and negative: the positive effects include the obligation to participate and cooperate in good faith in the arbitration of disputes pursuant to the parties' arbitration agreement, while the negative effects include the obligation not to pursue dispute resolution in national courts or similar legal forums. (3) These effects are the consequence of the parties' agreements, as enforced by both international conventions and national arbitration legislation, which uniformly provide for such consequences. An important aspect of these legal effects concerns the mechanisms that are employed to enforce them. As discussed above, during some historical periods, arbitration agreements were rendered ineffective because they were not susceptible of enforcement through orders for specific performance and because monetary damages were difficult to quantify and provided inadequate disincentives for breaches. (4) Contemporary arbitration regimes have fundamentally altered this, making it possible, in varying degrees, to obtain orders of specific performance from national courts of both the negative and positive
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obligations imposed by arbitration agreements. (5) These remedies vary among national legal systems, but, in developed jurisdictions, provide effective means of enforcing international arbitration agreements. Those means of enforcement include stays of litigation, orders to compel arbitration, antisuit injunctions, actions for monetary damages and non-recognition of judgments obtained in breach of a valid arbitration agreement. page "1004"
2 The effects of arbitration agreements on the rights and duties of
international arbitrators are discussed below. See infra pp. 16051609 & 1629-1631. 3 The negative effects of an arbitration agreement include the waiver of rights of access to public courts. As discussed above, these rights are accorded constitutional or statutory protections in many jurisdictions. See supra pp. 576-580. 4 See supra pp. 34-37, 39-49, 565 & infra pp. 1045-1046; Schiffahrtsgesellschaft Detlev von Appen GmbH v. Voest Alpine Intertrading GmbH [1997] 2 Lloyd's Rep. 279 (English Court of Appeal); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶631 (1999). 5 See supra pp. 57-64, 202-207 & infra pp. 1014-1020, 1025-1033.
Effects and Enforcement of International Arbitration Agreements - B. Positive Legal Effects of International Arbitration Agreements: Obligation to Participate in Arbitration in Good Faith Chapter 7 Gary B. Born
Author Gary B. Born
B. Positive Legal Effects of International Arbitration Agreements: Obligation to Participate in Arbitration in Good Faith The most fundamental objective and effect of an international arbitration agreement is to obligate the parties to participate in good faith and cooperatively in the page "1004" arbitration of their disputes pursuant to that agreement. (6) As discussed above, this obligation is a sui generis one – requiring parties whose underlying commercial or other relations have deteriorated to the point of http://www.kluwerarbitration.com/CommonUI/print.aspx
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litigation to cooperate together, in good faith, in an adjudicatory procedure that will finally resolve their disputes, either for or against one of the parties. (7) The basis and content of this positive obligation, which is in many respects a unique and striking one, are detailed below. Ironically, this positive obligation to arbitrate in good faith is seldom expressly stated in either international conventions or national legislation, which instead focus on either the negative effects of the arbitration agreement (forbidding litigation of arbitrable disputes in national courts) or on the remedies for breaches of arbitration agreements (referring the parties to arbitration). (8) Nonetheless, this positive obligation is a fundamental aspect of agreements to arbitrate, and a necessary implication from the language of the relevant conventions and legislation, which forms one of the foundations of the international arbitral process.
Participate in Arbitration in Good Faith in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 1004 - 1020
1. Positive Obligation to Participate in Arbitration under International Arbitration Conventions The positive obligations imposed by an arbitration agreement are only implicitly recognized in leading international conventions. Both Article 1 of the Geneva Protocol and Article II(1) of the New York Convention require Contracting States to “recognize” written agreements by which parties undertake “to submit to arbitration” specified disputes. (9) In the words of Article II(1) of the Convention, Contracting States “shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences.…” (10) page "1005" The premise of Article I of the Geneva Protocol and Article II(1) of the New York Convention is that the parties' obligation to arbitrate includes, most importantly, the affirmative duty to accept the submission of their disputes to arbitration (“undertake to submit”) and to participate cooperatively in arbitral proceedings to resolve such disputes. In agreeing to arbitrate, the parties do not merely negatively waive their legal rights or access to judicial remedies, (11) but instead affirmatively agree to participate in the resolution of their disputes through the arbitral process, which has sui generis characteristics. (12) This positive obligation to participate in a mutually-established, adjudicative dispute resolution process is at the foundation of the arbitration agreement. The positive obligation to arbitrate is dealt with under the Geneva Protocol, New York Convention and other international arbitration conventions by giving effect to the parties' agreement – that is, by requiring “recognition” of that agreement – rather than by stating a generally-applicable and abstract “obligation to arbitrate.” This approach to the positive duty to arbitrate is consistent with the basic consensual and contractual character of the international arbitral process. (13) This approach is confirmed by Article IV(1) of the Geneva Protocol and Article II(3) of the New York Convention. The former provides that, where a valid arbitration agreement exists, the courts of Contracting States shall “refer the parties on the application of either
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of them to the decision of the arbitrators.” (14) Similarly, Article II(3) of the New York Convention provides: “The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall … refer the parties to arbitration.” (15) Again, Article IV(1) and Article II(3) provide mechanisms for giving effect to the undertakings contained in arbitration agreements, rather than imposing any free-standing or independent obligation to arbitrate. In so doing, these provisions implement both the positive effects (i.e., the parties shall be directed to proceed page "1006" with (“referred to”) arbitration), as well as the negative effects (i.e., the parties shall not be permitted to proceed with litigation in national courts), of the arbitration agreement. Other leading international arbitration conventions are to the same effect as the New York Convention. Article 1 of the Inter-American Convention provides that an agreement by parties to “submit to arbitral decision” their differences shall be treated as “valid.” (16) That language rests on the premise that the parties' arbitration agreement includes a positive obligation to “submit” their disputes to arbitration (instead of pursuing other means of dispute resolution), and not merely a negative waiver or relinquishment of access to judicial remedies. The European Convention also impliedly recognizes the positive obligation to participate in arbitral proceedings, setting forth reasonably detailed provisions regarding the constitution of tribunals and consideration of jurisdictional objections. (17) Of course, an arbitration agreement does not require an aggrieved party to commence an arbitration or to assert claims in arbitration, nor forbid a party from seeking or accepting negotiated solutions to a dispute. Rather, an arbitration agreement requires a party, if arbitration is initiated, to participate in the arbitral process cooperatively and in good faith (i.e., the positive effects of arbitration agreements), (18) and to forego litigating such disputes (i.e., the negative effects of arbitration agreements). 2. Positive Obligation to Participate in Arbitration under National Arbitration Statutes The parties' positive obligation to participate in arbitrating their differences is also impliedly recognized in national legal systems, which generally parallel and implement the approaches taken to this issue by the New York Convention and Geneva Protocol. Thus, as detailed above, Article 7(1) of the UNCITRAL Model Law defines an arbitration agreement as “an agreement by the parties to submit to arbitration all or certain disputes …” (19) Similarly, Article 8(1) of the Model Law provides that: “A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests … refer the parties to arbitration.” (20) page "1007"
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As with the New York Convention, these provisions do not create free-standing duties to arbitrate, but instead give effect to the parties' contractual obligations to submit to the resolution of their disputes by arbitration (rather than national court litigation) and to participate affirmatively in the arbitration to which the parties are referred. Other national arbitration legislation similarly deals with the positive obligation to arbitrate. (21) 3. Choice of Law Governing Positive Obligation to Arbitrate There is little authority on the law applicable to the parties' positive obligation to arbitrate pursuant to their arbitration agreement. In principle, the existence and scope of such obligation would be governed by the law applicable to the substantive validity of the agreement to arbitrate. (22) As discussed below, however, the remedies available judicially to enforce such positive obligation to arbitrate will be governed by the law of the judicial enforcement forum. (23) 4. Content of Positive Obligation to Arbitrate As discussed elsewhere, the contents of an agreement to arbitrate are almost entirely matters of the parties' choice. (24) Party autonomy is one of the essential characteristics and enduring attractions of international arbitration. This autonomy, and hence the contents of the positive obligation to arbitrate, extend to the disputes to be arbitrated, (25) the parties to the arbitration, (26) the constitution of the arbitral tribunal, (27) the selection of the arbitral seat, (28) the arbitral procedures (29) and the choice of the applicable law(s). (30) Importantly, the positive obligation to participate in the resolution of disputes by arbitration also necessarily includes more general duties to participate in good page "1008" faith and cooperatively in the arbitral process. This follows both from the nature of the arbitral process and from the general rule of pacta sunt servanda. As noted above, an arbitration agreement is not merely a negative undertaking not to litigate, but a positive obligation to take part in a sui generis process which requires a substantial degree of cooperation (e.g., in constituting a tribunal, paying the arbitrators, agreeing upon an arbitral procedure, obeying the arbitral procedure (notwithstanding the absence of direct coercive powers of the arbitral tribunal) and complying with the award). (31) When a party agrees to arbitrate, it impliedly, but necessarily, agrees to participate cooperatively in all of these aspects of the arbitral process. As already noted, one of the fundamental characteristics and attractions of arbitration is precisely the parties' ability to design cooperatively the arbitral process and procedure. (32) That freedom is mirrored by the implied contractual responsibility of the parties to take part in this and other aspects of the arbitral process. (In a few jurisdictions, these obligations are contained in national arbitration legislation, although, as already noted, they also arise from the parties' agreement to arbitrate. (33) ) These positive obligations are buttressed by the obligation to http://www.kluwerarbitration.com/CommonUI/print.aspx
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perform contractual obligations in good faith – crystallized in the pacta sunt servanda doctrine – which is recognized both internationally and in all developed national legal systems. (34) At the same time, as discussed elsewhere, the New York Convention itself imposes duties of good faith on the parties in connection with agreements to arbitrate. (35) page "1009" Consistent with the pacta sunt servanda principle, and the basic character of an agreement to arbitrate, (36) national courts have repeatedly emphasized that an arbitration agreement imposes obligations to make use of, and participate cooperatively in, the contractual arbitral process. For example, it is well settled under English law that there is an implied term in an agreement to arbitrate that the parties must cooperate in accordance with the applicable arbitral rules in the conduct of the arbitration. In a leading decision, the House of Lords reasoned as follows: “[T]he obligation is, in my view, mutual: it obliges each party to cooperate with the other in taking appropriate steps to keep the procedure in the arbitration moving, whether he happens to be the claimant or the respondent in the particular dispute … [I]t is in my view a necessary implication from their having agreed that the arbitrator shall resolve their dispute that both parties, respondent as well as claimant, are under a mutual obligation to one another to join in applying to the arbitrator for appropriate directions to put an end to the delay.” (37) A Swiss Federal Tribunal decision adopted similar conclusions, emphasizing the parties' obligations of good faith: “One of the aims of arbitration is to come to a fast resolution of the disputes submitted to it. The parties who agree to arbitration are bound by the rules of good faith to avoid any conduct which might delay without absolute necessity the normal conduct of the arbitral proceedings.” (38) Other national courts have formulated this duty of good faith cooperation in similar terms, (39) as has the weight of commentary. (40) For example, a U.S. court held that page "1010" “[petitioner's] failure or refusal to make a timely forum selection, followed by its capricious insistence upon a perverse choice of forum, is conspicuously meant to delay the arbitration procedures interminably and, in effect, to deny arbitration where it was agreed upon, in violation of its obligation of good faith and fair dealing.” (41) Another U.S. court reasoned more generally that “[p]arties to an arbitration agreement are under a duty to act in good faith – each owes to the other the obligation to make a fair effort to carry out the provisions of the arbitration agreement and to accomplish the real object of the contract.” (42) Arbitral tribunals have adopted similar conclusions regarding the parties' obligation to arbitrate in good faith. (43) In the words of one arbitral tribunal, “[a]ccording to good faith, the parties to an international arbitration must in particular facilitate the proceedings http://www.kluwerarbitration.com/CommonUI/print.aspx
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and abstain from all delaying tactics.” (44) Similarly, several ICC awards have held that there is a contractual obligation between the parties to pay the advance on costs for the arbitrators' fees and expenses. (45) page "1011" The parties' obligations to arbitrate in good faith are of particular importance because of the special nature of an agreement to arbitrate: it is a sui generis contractual provision designed to operate only when contracting parties have fallen into disputes and then to regulate and require consensual resolution of those disputes in a binding manner. (46) The precise contours of the obligation to participate cooperatively and in good faith in the arbitral process are unsettled. It has been held to include participating in the constitution of the arbitral tribunal, (47) paying the arbitrators' fees and any required advances, (48) cooperating with the arbitrators in page (49) "1012" relation to procedural matters, not obstructing or delaying the arbitral process, (50) obeying confidentiality obligations relating to the arbitration (51) and complying with disclosure requests, orders and awards. (52) They may well also include complying page "1013" (and causing a party's counsel to comply) with applicable ethical obligations. (53) As with most other aspects of the arbitral process, these obligations to participate in the arbitral process are the subject of party autonomy, and can be altered or elaborated by contract. 5. Remedies for Breach of Positive Obligation to Arbitrate The remedies available for breach of the positive obligations of an international arbitration agreement are complicated. As discussed below, the New York Convention (and other authorities) make it clear that the negative effects of an arbitration agreement are capable of being enforced, and shall principally be given effect, through orders directing specific performance. That is, a national court will give effect to the parties' commitment not to litigate their disputes by dismissing or staying actions purporting to pursue such litigation (54) or by antisuit injunctions. (55) On the other hand, the remedies to enforce the positive effects of arbitration agreements (e.g., the obligations to participate cooperatively and in good faith in the arbitration) are less clear. As noted above, Article II(3) of the New York Convention and Article 8(1) of the UNCITRAL Model Law provide that, if a valid arbitration agreement exists, Contracting States shall “refer the parties to arbitration.” (56) The wording of that phrase fairly strongly suggests an obligation on national courts affirmatively to order or direct the parties to proceed with the arbitration of their dispute (rather than merely an obligation, like that arguably provided in Article II(1), (57) not to permit litigation to proceed). Despite that, virtually none of the Convention's Contracting States or Model Law's adherents enforce arbitration agreements by way of orders directing a party specifically to perform the positive aspects of such agreements. (58) Rather, the consistent approach is only to dismiss or stay litigation brought in breach of an agreement to arbitrate, and not to affirmatively order or compel participation in arbitral proceedings. http://www.kluwerarbitration.com/CommonUI/print.aspx
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The only major exception to this approach is the United States, where the FAA provides for the issuance of orders compelling arbitration (under §4, §206 and §303 page "1014" of the FAA). (59) These provisions empower a U.S. court to grant what amounts to an injunction requiring a party to arbitrate pursuant to its arbitration agreement. In the words of one U.S. lower court, a request for affirmative relief under §4 (or §206 and §303) “is simply a request for an order compelling specific performance of part of a contract.” (60) U.S. courts have explained (rightly) that there are important differences between a stay of litigation and an order affirmatively compelling arbitration: “The first merely arrests further action by the court itself in the suit until something outside the suit has occurred; but the court does not order that it shall be done. The second … affirmatively orders that someone do (or refrain from doing) some act outside the suit.” (61) Pursuant to §§4, 206 and 303 of the FAA, U.S. courts have frequently ordered recalcitrant parties to international arbitration agreements to comply with their positive arbitration obligations. (62) In so doing, they have emphasized that the issuance page "1015" of such an order is not a matter of discretion, but a mandatory legal right (guaranteed by the FAA) on the part of the party invoking the arbitration clause: “So long as the parties are bound to arbitrate and the district court has personal jurisdiction over them, the court is under an unflagging, nondiscretionary duty to grant a timely motion to compel arbitration and thereby enforce the New York Convention as provided in chapter 2 of the FAA, even though the agreement in question requires arbitration in a distant forum.” (63) As discussed above, (64) the FAA applies equally in this regard to agreements to arbitrate in the United States and agreements to arbitrate abroad. Thus, U.S. courts have issued orders compelling arbitration in both arbitrations seated in the United States and in other states. (65) page "1016" The grant of an affirmative order compelling arbitration is (again, correctly) characterized by U.S. courts as a matter of specific performance of the parties' agreement to arbitrate. (66) Some commentators have remarked that “specific performance is … not an appropriate remedy” for breach of an arbitration agreement and that “it is not practical to force a party to take part in arbitration proceedings.” (67) That is not correct. It is, in fact, eminently practical in many cases to direct parties to take part in arbitration proceedings: that is the most important point of arbitration agreements, and orders to compel a party to arbitrate merely crystallize such agreements and enhance their enforcement mechanisms, as with orders requiring specific performance of other contractual obligations. Moreover, the experience with orders to http://www.kluwerarbitration.com/CommonUI/print.aspx
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compel arbitration in the United States is that they are, in practice, of real efficacy in ensuring compliance with arbitration agreements. This results from the existence of contempt of court sanctions for failure to comply with such orders. (68) The page "1017" availability of such enforcement mechanisms can be especially important in the international context, where courts in some countries may not reliably give effect to the negative effects of arbitration agreements, thus making orders enforcing the positive obligation of an arbitration agreement significantly more important than in purely domestic contexts. (69) Nonetheless, ordering arbitration in a foreign arbitral seat arguably creates the risk of judicial intrusion in the arbitral process or of conflicts between the court's order and the laws of the arbitral seat. For example, arbitration might be compelled in a foreign arbitral seat pursuant to an agreement specifying procedures that violate the arbitral seat's law. (70) Moreover, in most international arbitrations, orders compelling arbitration could potentially be issued by the courts of several nations, creating the risk of conflicting or inconsistent orders. Inconsistent obligations would be an even greater risk if national courts purported in such orders to select an arbitral seat, (71) to appoint or remove of arbitrators in a foreign arbitration, (72) or to specify the arbitral rules. (73) These possibilities would also conflict with one of the principal objectives of international arbitration, being to minimize the role of national courts in dispute resolution (particularly the role of national courts outside the arbitral seat). (74) Given these potential conflicts, it would arguably be preferable for national courts outside the arbitral seat simply to stay litigation on the merits of an arbitrable dispute and let arbitration take its course (whether in contested proceedings or in a default scenario), rather than to affirmatively compel arbitration. Although there is force to this observation, it ultimately misses the essential point. The point is that an order compelling arbitration need not – and, in virtually all cases, should not – specify the applicable rules or other procedural aspects of a foreign arbitration. (75) In most instances, it violates the competence-competence doctrine, (76) prohibitions against judicial interference in the arbitral process (77) and the primary supervisory competence of the courts of the arbitral seat, (78) for foreign page "1018" courts to address such procedural issues. As discussed elsewhere, there is virtually never any justification for making such orders. (79) Similarly, as discussed below, the scope of a party's positive obligation to submit disputes to arbitration is defined by the scope of its arbitration agreement. (80) A party is obligated to arbitrate only those disputes which it has agreed to arbitrate, not others; conversely, an arbitral tribunal only has jurisdiction over those disputes which the parties have submitted to it, not others. (81) As discussed above, however, under most national laws, an arbitral tribunal's jurisdiction presumptively includes competencecompetence to decide disputes regarding the tribunal's own jurisdiction, particularly where interpretation of the scope of the arbitration clause is concerned (subject to subsequent judicial
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review). (82) Accordingly, where an order compelling arbitration is issued, it ordinarily should not address the scope of the arbitration agreement, nor issues of non-arbitrability, because doing so would intrude on the arbitral tribunal's competence. (83) Rather, a court should merely compel arbitration in accordance with the parties' arbitration agreement without defining the scope or procedural terms of that agreement (which are for arbitral determination in the first instance). Given these qualifications, the real issue is whether or not a national court order simply directing a party to arbitrate in accordance with its arbitration agreement, as interpreted and applied by the arbitral tribunal, is desirable and appropriate – which it usually is, particularly where a local arbitral seat is involved. That is for the simple reason that such an order enhances compliance with agreements to arbitrate and gives better effect to the parties' positive obligations under such agreements. (84) And, where the judicial order does no more than require arbitration in accordance with an arbitration agreement, without purporting to intrude into the arbitral process, it causes little or no harm, particularly where a local arbitral seat is involved. Nonetheless, as already noted, most states do not presently provide for specific performance of the positive obligations of arbitration agreements. Instead, the only real mechanism for enforcing such obligations is effectively through authorizing a kind of self-help, whereby a party may unilaterally commence and proceed with the arbitration without its counter-party's participation. page "1019" Under most national laws (and institutional rules), a party is permitted to proceed with an arbitration, even if its counter-party defaults by failing to appoint an arbitrator and otherwise refusing to participate. (85) In these circ*mstances, as discussed below, some national laws either permit the non-defaulting party to nominate the defaulting party's co-arbitrator, (86) to designate the non-defaulting party's co-arbitrator to serve as sole arbitrator, (87) or to apply to national courts for judicial appointment of an arbitrator, (88) as well as unilaterally, to pay the arbitrators' fees. (89) Accordingly, when a party fails to participate in an arbitration, its counter-party is generally able to proceed unilaterally to constitute a tribunal and obtain a default award – which in turn provides a substantial incentive for the counter-party's participation in the arbitration. (90) Nonetheless, affirmative compliance with agreements to arbitrate is much preferable to a default proceeding. Even if tolerated, default proceedings lack the benefits of the adversary process and are distinctly unsatisfactory procedures. Much preferable is actual compliance with the arbitration agreement, which is made more likely by the availability of judicial orders compelling arbitration in accordance with the parties' agreement. page "1020"
6 For an early judicial decision underscoring the significance of the
positive effects of arbitration agreements, see Judgment of 2 http://www.kluwerarbitration.com/CommonUI/print.aspx
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October 1931, DFT 57 I 295 (Swiss Federal Tribunal), quoted in van Houtte, Parallel Proceedings before State Courts and Arbitration Tribunals, in Arbitral Tribunals or State Courts: Who Must Defer to Whom? 35, 42 (ASA Special Supp. No. 15 2001) (“However, the principal effect of an arbitration clause is not the exclusion of jurisdiction of state courts, but the transfer of the right of adjudication to an arbitral tribunal: This positive effect legally arises in the state where the arbitral tribunal is sitting according to the agreement. The negative effect, i.e., the exclusion of jurisdiction of state courts is nothing but a consequence of the positive effect.”). See also Judgment of 8 August 1990, XVII Y.B. Comm. Arb. 545 (Italian Corte di Cassazione) (1992) (referring to effects of arbitration agreement: “its positive effects, i.e., referral of the dispute to arbitrators, and its negative effects, i.e., exclusion of court jurisdiction in the Contracting States”). 7 See supra pp. 11-14, 64-68 & 211-255. 8 See supra pp. 91-109, 109-144, 202-207, 565-574 & infra pp. 1020-1024. 9 Geneva Protocol, Art. I; New York Convention, Art. II(1). Article 1 of the Geneva Protocol required Contracting States to recognize: “the validity of an agreement … by which the parties to a contract agree to submit to arbitration all or any differences that may arise in connection with such contract.…” Geneva Protocol, Art. I (emphasis added). 10 New York Convention, Art. II(1) (emphasis added). 11 As discussed above, an agreement to arbitrate does entail the relinquishment of access to otherwise available judicial forums. See supra pp. 576-580 & infra pp. 1020 et seq. At the same time, unlike a release of claims or a waiver of (for example) jury trial rights, an agreement to arbitrate also entails an affirmative obligation to proceed with dispute resolution in a different, defined manner. See infra pp. 1004 et seq. 12 See supra pp. 184-189, 211 et seq. for a discussion of a definition of “arbitration” and infra pp. 1742-1748 & 1782-1792 for a description of the arbitral process. 13 See supra pp. 64-68, 76-78, 172-180, & 211-254. 14 Geneva Protocol, Art. IV(1) (emphasis added); supra pp. 58-61 & 566-567. 15 New York Convention, Art. II(3) (emphasis added). Article II(3)'s phrase “refer the parties to arbitration” was based on the language of Article IV(1) of the Geneva Protocol, and was included in the New York Convention without detailed discussion. See A. van den Berg, The New York Arbitration Convention of 1958 129 (1981) (use of phrase “refer the parties to arbitration” was “continued in the New York Convention without any discussion”); supra pp. 59-61, 202-205 & 567-569. 16 Inter-American Convention, Art. 1. 17 European Convention, Arts. IV & V. See supra pp. 102-103, 205, 569-570. 18 The positive obligations of an arbitration agreement, including to participate cooperatively and in good faith in the arbitral process, are discussed below. See infra pp. 1008-1014. 19 UNCITRAL Model Law, Art. 7(1) (emphasis added). See supra pp. 213-215. 20 UNCITRAL Model Law, Art. 8(1) (emphasis added). See P. Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions ¶¶2-078 to 2-093 (2d ed. 2005); http://www.kluwerarbitration.com/CommonUI/print.aspx
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I. Dore, The UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 302 (1989); Beraudo, Case Law on Articles 5, 8, and 16 of the UNCITRAL Model Arbitration Law, 23 J. Int'l Arb. 101 (2006); Cobb, Domestic Courts' Obligation to Refer Parties to Arbitration, 17 Arb. Int'l 313 (2001); Sanders, UNCITRAL's Model Law on International and Commercial Arbitration; Present Situation and Future, 21 Arb. Int'l 443, 446 (2005). See supra pp. 206-207 & 570-571. 21 U.S. FAA, 9 U.S.C. §4; English Arbitration Act, 1996, §9; Swiss Law on Private International Law, Art. 7; Singapore International Arbitration Act, §7. 22 See supra pp. 425 et seq. 23 See infra pp. 1014-1020. See also infra pp. 1021-1022 & 10251030 (negative obligations). 24 See supra pp. 12-13, 64-68, 76-78, 172-181 & 211-254. 25 See infra pp. 1059-1062 & 1125-1128. 26 See infra pp. 1133-1137. 27 See infra pp. 1364-1367. 28 See infra pp. 1678-1679, 1690 et seq. 29 See infra pp. 1748 et seq. 30 See supra pp. 426 et seq. & infra pp. 2153-2163. 31 See infra pp. 1739 et seq. 32 See supra pp. 82-84 & infra pp. 1748-1755. 33 See, e.g., English Arbitration Act, 1996, §40 (“(1) The parties shall do all things necessary for the proper and expeditious conduct of the arbitral proceedings. (2) This includes (a) complying without delay with any determination of the tribunal as to procedural or evidential matters, or with any order or directions of the tribunal, and (b) where appropriate, taking without delay any necessary steps to obtain a decision of the court on a preliminary question of jurisdiction or law (see sections 32 and 45).”); Victorian Commercial Arbitration Act, §37 (“Duties of parties. The parties to an arbitration agreement shall at all times do all things which the arbitrator or umpire requires to enable a just award to be made and no party shall willfully do or cause to be done any act to delay or prevent an award being made.”). 34 See Himpurna Calif. Energy Ltd v. PT (Persero) Perusahaan Listruik Negara, Final Ad Hoc Award (4 May 1999), XXV Y.B. Comm. Arb. 13, 58-59 (2000) (“The fundamental principle of pacta sunt servanda forms the bedrock of the civil law of obligations everywhere.”); Final Award in ICC Case No. 5485, XIV Y.B. Comm. Arb. 156, 167 (1989); Judgment of 8 March 2006, DFT 132 III 389, 392 (Swiss Federal Tribunal); China Nanhai Oil Joint Serv. Corp. Shenzhen Branch v. Gee Tai Holdings Co., XX Y.B. Comm. Arb. 671 (H.K. High Court, S.Ct. 1994) (1995) (party's obligation to arbitrate in good faith); Dimolitsa, Giving Evidence, in L. Lévy & V.V. Veeder (eds.), Arbitration and Oral Evidence 11, 16 (2004) (“the parties' obligation to act fairly in the contractual relationship is extended into the dispute.”). 35 See supra pp. 597, 614-616; China Nanhai Oil Joint Serv. Corp. Shenzhen Branch v. Gee Tai Holdings Co., XX Y.B. Comm. Arb. 671 (H.K. High Court, S.Ct. 1994) (1995) (“on a true construction of the Convention there is indeed a duty of good faith” imposed by its terms); A. van den Berg, The New York Arbitration Convention of 1958 185 (1981) (“the principle of good faith may be deemed enshrined in the Convention's provisions”).
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36 ILC, Draft on Arbitral Procedure Prepared by the International
Law Commission at its Fourth Session, 1952, UN DOC. A/CN.4/59, II Y.B. I.L.C. 60, Art. 1(3) (1952) (“The undertaking [to arbitrate] constitutes a legal obligation which must be carried out in good faith, whatever the nature of the agreement from which results”). See also Ibid. at Art. 15(2) (“The parties shall cooperate with one another and with the tribunal in the production of evidence and comply with the measures ordered by the tribunal for this purpose.”). 37 Bremer Vulkan Schiffbau und Maschinenfabrik v. South India Shipping Corp. [1981] A.C. 909, 983 & 986 (House of Lords) (emphasis added). 38 Judgment of 10 May 1982, DFT 108 Ia 197, 201 (Swiss Federal Tribunal). 39 See supra p. 1009 n. 34 & infra pp. 1010-1014. 40 See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶627-634 (1999); R. Merkin, Arbitration Law ¶¶16.1, 16.8 et seq. (2004 & Update 2007); Reymond, Note sur l'avance des frais de l'arbitrage et sa répartition, in J. Haldy, J.-M. Rapp & P. Ferrari (eds.), Etudes de procedure et d'arbitrage en l'honneur de Jean-Francois Poudret 498 (1999) (“the parties' obligation to act in good faith to contribute to the organization and furtherance of the arbitration results from [the arbitration agreement]. This means that the arbitration agreement, in addition to the principal obligation to arbitrate the dispute, gives rise to implicit rights and obligations to an extent necessary to perform the agreement.”); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶¶1044 et seq. (2006). 41 Instinet Corp. v. Archipelago Sec., LLC, 2003 WL 22721404, at *8 (N.Y. S.Ct. 2003). U.S. courts have found breaches of arbitration agreements where one party is responsible for developing rules of arbitration, and it develops biased or unfair rules. See, e.g., Hooters of Am., Inc. v. Phillips, 173 F.3d 933, 938-39 (4th Cir. 1999) (holding that an employer materially breached an arbitration agreement “by promulgating rules so egregiously unfair as to constitute a complete default of its contractual obligation to draft arbitration rules and to do so in good faith”); Penn v. Ryan's Family Steakhouses, Inc., 95 F.Supp.2d 940, 948 (N.D. Ind. 2000) (same). 42 Niazi v. St. Paul Mercury Ins. Co., 121 N.W.2d 349 (Minn. 1963).
CompareCommunity Partners Designs, Inc. v. City of Lonsdale, 697 N.W.2d 629, 635 n.4 (Minn. Ct. App. 2005); R.M. Bennett Heirs v. Ontario Iron Co., 426 N.W.2d 921, 924 (Minn. Ct. App. 1988); Duerlein v. N.J. Auto. Full Ins. Underwriting Assoc., 619 A.2d 664, 667 (N.J. Sup. Ct. App. Div. 1993). 43 See, e.g., Award in ICC Case No. 1434, 103 J.D.I. (Clunet) 978 (1976) (parties have obligation to cooperate in evidence-taking by tribunal); Partial Award in ICC Case No. 3896, 110 J.D.I. (Clunet) 914 (1983) (parties have obligation of good faith not to unduly delay arbitral proceedings); Unpublished Award, excerpted in Habegger, Document Production: An Overview of Swiss Court and Arbitration Practice, in ICC, Document Production in International Arbitration 21, 28-29 (2006) (parties' disclosure obligations “correspond[] to a generally acknowledged procedural rule in international arbitration deriving from the obligation of the parties to cooperate in good faith in the proceedings.”). http://www.kluwerarbitration.com/CommonUI/print.aspx
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44 Award in ICC Case No. 8486, XXIVa Y.B. Comm. Arb. 162, 172
(1999). 45 See, e.g., Interim Award in ICC Case dated26 March 2002, 21 ASA Bull. 802 (2003); Award in ICC Case No. 10526, 126 J.D.I. (Clunet) 1179 (2001); Partial Award inICC Case No. 10671, 19 ASA Bull. 285 (2001); Unpublished Partial Award in ICC Case No. 11330, cited in Secomb, Awards and Orders Dealing with the Advance on Costs in ICC Arbitration: Theoretical Questions and Practical Problems, 14(1) ICC Ct. Bull. 59, 63 (2003) (“the Arbitral Tribunal concludes that the parties in arbitrations conducted under the ICC Rules have a mutually binding obligation to pay the advance on costs as determined by the ICC Court, based on Art. 30-3 ICC Rules which – by reference – forms part of the parties' agreement to arbitrate under such Rules.”). Seegenerally Secomb, Awards and Orders Dealing with the Advance on Costs in ICC Arbitration: Theoretical Questions and Practical Problems, 14(1) ICC Ct. Bull. 59 (2003); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶14.02 et seq. (3d ed. 2000) (“By agreeing to ICC arbitration the parties have bound themselves to abide by the Rules. This clearly includes the payment of advances on costs, which is the obligation of both parties”); Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 343 (2d ed. 2005) (“[t]he parties are nevertheless generally considered, under Article 30(3), to have an obligation, during the course of the arbitration, to share equally in the payment of the advance fixed by the Court.…”); Fadlallah, Payment of the Advance to Cover Costs in ICC Arbitration: The Parties' Reciprocal Obligations, 14(1) ICC Ct. Bull. 56, ¶7 (2003) (“The parties cannot agree to refer their dispute to arbitration and at the same time retain the freedom not to do whatever needs to be done to make arbitration possible, as they would then be in breach of their obligation to act in good faith. In fact, although this obligation is specifically laid down in Article 30(3) of the ICC Rules, it is inherent in any arbitration agreement.”). 46 See supra pp. 71-90, 184-189, 211 et seq. 47 See, e.g., Safond Shipping Sdn Bhd v. East Asia Sawmill Corp., [1994] Arb. & Disp. Res. L.J. 295 (H.K. High Court, S.Ct. 1993) (“All the delays and costs occasioned by the plaintiff were caused by the defendant's flagrant breach of its contractual obligations to arbitrate and appoint an arbitrator and its complete defiance of these proceedings, which were brought simply to give effect to the agreed dispute resolution mechanism.”); China Ocean Shipping Co. v. Mitrans Maritime Panama SA, XX Y.B. Comm. Arb. 282 (H.K. Court of Appeal, S.Ct. 1993) (1995); infra pp. 1364-1384 & 1384-1386. 48 See, e.g., Judgment of 19 December 1996, Société Qualiconsult v. Groupe Lincoln, 1998 Rev. arb. 121 (Paris Cour d'appel). See also Wenger in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶71 (2000) (“An arbitration agreement contains the implicit obligation that each party make an advance payment towards the prospective costs of the arbitral proceedings in the amount ordered by the arbitral tribunal …”); A. Reiner, Das neue österreichische Schiedsrecht – SchiedsRÄG 2006 §593, ¶101 (2006) (“the arbitration agreement and the parties' duties of cooperation and advancing the proceedings … mean that the parties have a substantive legal obligation to pay their share of the prepayment on costs, in the absence of an agreement to the contrary”) Gaillard, Refusal by A Party (a) to Make Advance Deposits for the Costs of the Arbitration, and (b) to Submit A Statement of Defence, in A. van den Berg (ed.), Preventing Delay and Disruption of Arbitration 104 (ICCA Congress Series No. 5 http://www.kluwerarbitration.com/CommonUI/print.aspx
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1990); Reymond, Note sur l'avance des frais de l'arbitrage et sa répartition, in J. Haldy, J.-M. Rapp & P. Ferrari (eds.), Etudes de procedure et d'arbitrage en l'honneur de Jean-Francois Poudret 498 (1999) (“the general obligation to further the advancement of the arbitration results in the parties' reciprocal duty to cover the fees of the arbitration, not only when the final award is executed, which is self-evident, but already by abiding to the arbitrator's demand [to make such payment] as the proceedings progress and as determined by the arbitrator himself.”). Compare J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶443 (2d ed. 2007) (concluding, with doubtful correctness, that “[t]he parties' obligation to remunerate the arbitrators results from the contract with the arbitrators and is not part of the main dispute submitted to arbitration.”); infra pp. 1646-1651. 49 See, e.g., G. Petrochilos, Procedural Law in International Arbitration 216 (2004) (“the parties are under a duty to cooperate in good faith with each other and the tribunal in order to formulate precise rules of conduct”); Judgment of 21 November 2003, DFT 130 III 66, 72 (Swiss Federal Tribunal) (“the parties are required – pursuant to the obligation to act in good faith and the prohibition of abuse of rights, which is also valid in procedural law – to raise any objection they have with respect to the jurisdiction or the composition of the arbitral tribunal at the earliest possible stage.”); Gaillard, Unjustified Failure of A Party to Comply with Directions of the Tribunal Relating to Timely Written Submissions and Presentation of Evidence – Law and Court Decisions in Civil Law Countries, in A. van den Berg (ed.), Preventing Delay and Disruption of Arbitration 203 (ICCA Congress Series No. 5 1990) (“By entering into an arbitration agreement, both parties have agreed to cooperate in the arbitration procedure …”); D. Caron, L. Caplan & M. Pellonpää, The UNCITRAL Arbitration Rules: A Commentary 713 (2006) (“There are few more disruptive forces in arbitration than a party's unwillingness to engage in the proceedings”); English Arbitration Act, 1996, §40 (“(1) The parties shall do all things necessary for the proper and expeditious conduct of the arbitral proceedings. (2) This includes -(a) complying without delay with any determination of the tribunal as to procedural or evidential matters …”); infra pp. 1651-1652. 50 See, e.g., Paul Wilson & Co. A/S v. Partenreederei Hannah Blumenthal [1983] 1 A.C. 854, 887 (House of Lords) (“[a] mutual obligation of co-operation between both parties” to an arbitration agreement); Bremer Vulkan Schiffbau und Maschinenfabrik v. South India Shipping Corp. [1981] A.C. 909, 983 et seq. (House of Lords); Niazi v. St. Paul Mercury Ins. Co., 121 N.W.2d 349, 356 (Minn. 1963); Judgment of 18 February 1983, DFT 109 Ia 81 (Swiss Federal Tribunal) (“one of the purposes of arbitration is to enable the rapid settlement of disputes, so that the parties are bound pursuant to the rules of good faith to avoid anything which could delay without absolute necessity the normal course of the arbitration procedure”); Judgment of 10 May 1982, DFT 108 Ia 197, 201 (Swiss Federal Tribunal). See also Hanotiau, Complex Multicontract-Multiparty Arbitration, 14 Arb. Int'l 369, 374 (1998) (“basic principle of international commercial arbitration that the parties have the duty to cooperate in good faith in the performance of their agreement as well as in the arbitral proceedings”); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶1165 (1999); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶7-81 (2003); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶375 (2d ed. 2007). http://www.kluwerarbitration.com/CommonUI/print.aspx
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51 See infra pp. 2249-2287. 52 See ILC, Draft on Arbitral Procedures Prepared by the
International Law Commission at its Fourth Session, 1952, UN DOC. A/CN.4/59, II Y.B. I.L.C. 60, 64, Arts. 1(3), 15(2), (1952); Award in ICC Case No. 1434, 103 J.D.I. (Clunet) 978 (1976) (parties have obligation to cooperate in evidence-taking by tribunal); Unpublished Award, excerpted in Habegger, Document Production: An Overview of Swiss Court and Arbitration Practice, in ICC, Document Production in International Arbitration 21, 28-29 (2006) (parties' disclosure obligations “correspond[] to a generally acknowledged procedural rule in international arbitration deriving from the obligation of the parties to cooperate in good faith in the proceedings”); infra pp. 1875 et seq. 53 See infra p. 2323 n. 152 (party sanctioned for misconduct of counsel in arbitration). 54 See infra pp. 1025-1030. 55 See infra pp. 1036-1045. 56 See supra pp. 1005-1007. 57 Article II(1) of the Convention requires only that courts of Contracting States “recognize” agreements to arbitrate. New York Convention, Art. II(1); supra pp. 203-205 & 567-569. 58 E.g., A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶1-12 (4th ed. 2004); A. van den Berg, The New York Arbitration Convention of 1958 129-39 (1981) (“the meaning of the expression in its technical procedural sense must be deemed to be the court directive staying the court proceedings on the merits”; “Such a court directive is unknown in the majority of countries”); Samuels, Arbitration Statutes in England and the US, 8 Arb. & Disp. Res. L.J. 2 (1999). 59 U.S. FAA, 9 U.S.C. §4, §206 & §303 (“A court having jurisdiction under this chapter may direct that arbitration be held in accordance with the agreement at any place therein provided for, whether that place is within or without the United States. Such court may also appoint arbitrators in accordance with the provisions of the agreement.”). See G. Born, International Commercial Arbitration 380 (2d ed. 2001). Some commentators have apparently suggested that §206 does not contemplate orders compelling arbitration. A. van den Berg, The New York Arbitration Convention of 1958 130 (1981) (“the thrust of Section 206 is not the compulsion to arbitrate but rather the possibility for a United States court to direct that arbitration can be held in another country”). This is not consistent with either the statutory language or U.S. historical practice, or with U.S. judicial applications of the provision. See infra pp. 1015-1018. 60 Joseph Muller Corp. v. Commonwealth Petrochem., Inc., 334
F.Supp. 1013 (S.D.N.Y. 1971). See alsoSlatnick v. Deutsche Bank AG, 2006 U.S. Dist. LEXIS 94836, at *15 (S.D. Cal. 2006) (“A motion to compel arbitration ‘is simply a suit in equity seeking specific performance of that contract.’”); Fujian Pac. Elec. Co. v. Bechtel Power Corp., 2004 U.S. Dist. LEXIS 23472, at *12-13 (N.D. Cal. 2004) (“a petition to compel arbitration is simply a suit in equity seeking specific performance of that contract”). 61 Kulukundis Shipping Co. S/A v. Amtorg Trading Corp., 126 F.2d 978, 987 (2d Cir. 1942). 62 See, e.g., Bautista v. Star Cruises, 396 F.3d 1289 (11th Cir. http://www.kluwerarbitration.com/CommonUI/print.aspx
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2005); Paramedics Electromedicina Comerical, Ltda v. GE Med. Sys. Info. Tech. Inc., 369 F.3d 645 (2d Cir. 2004); Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 99 (2d Cir. 1999); Riley v. Kingsley Underwriting Agencies, Ltd, 969 F.2d 953 (10th Cir. 1992); David L. Threlkeld & Co. v. Metallgesellschaft Ltd, 923 F.2d 245 (2d Cir. 1991); Borden, Inc. v. Meiji Milk Prods. Co., 919 F.2d 822 (2d Cir. 1990); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, SA, 863 F.2d 315 (4th Cir. 1988); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co., 767 F.2d 1140 (5th Cir. 1985); Sauer-Getriebe KG v. White Hydraulics, Inc., 715 F.2d 348 (7th Cir. 1983); Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50 (3d Cir. 1983); Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39 (3d Cir. 1978); Hughes, Hooker & Co. v. Am. Steamship Owners Mut. Prot. & Indem. Assoc., Inc., 2005 WL 1384055 (S.D.N.Y. 2005); Magsino v. Spiaggia Maritime, Ltd, 2004 WL 2578922 (E.D. La. 2004); Boston Telecomm. Group, Inc. v. Deloitte Touche Tohmatsu, 278 F.Supp.2d 1041 (N.D. Cal. 2003); Marubeni Corp. v. Mobile Bay Wood Chip Ctr., 2003 WL 22466215 (S.D. Ala. 2003); Antillean Marine Shipping Corp. v. Through Transp. Mut. Ins., Ltd, 2002 WL 32075793 (S.D. Fla. 2002); Federico v. Charterers Mut. Assur. Ass'n Ltd, 158 F.Supp.2d 565 (E.D. Pa. 2001); Chloe Z Fishing Co.v. Odyssey Re (London) Ltd, 109 F.Supp.2d 1236 (S.D. Cal. 2000); Siderius, Inc. v. Compania de Acero del Pacifico, SA, 453 F.Supp. 22 (S.D.N.Y. 1978); Ferrara SpA v. United Grain Growers Ltd, 441 F.Supp. 778 (S.D.N.Y. 1977), aff'd mem., 580 F.2d 1044 (2d Cir. 1978); Star-Kist Foods, Inc. v. Diakan Hope, SA, 423 F.Supp. 1220 (C.D. Cal. 1976); Antco Shipping Co. v. Sidermar SpA, 417 F.Supp. 207 (S.D.N.Y. 1976); State v. Philip Morris USA, Inc., 2006 WL 3490937 (N.C. Super. 2006). 63 InterGen NV v. Grina, 344 F.3d 134, 142 (1st Cir. 2003). See alsoIbid. at 141 (“[I]t clearly appears that enforcing arbitration clauses under the New York Convention is an obligation, not a matter committed to district court discretion.”). 64 See supra p. 308. 65 See infra pp. 1710-1715; Invista N. Am. SARL v. Rhodia Polyamide Intermediates SAS, 503 F.Supp.2d 195, 207 (D.D.C. 2007) (ordering parties to arbitrate in Switzerland); Sea Bowld Marine Group, LDC v. Oceanfast Pty, Ltd, 432 F.Supp.2d 1305, 1319 (S.D. Fla. 2006) (ordering parties to arbitrate in Australia); Ibeto Petrochem. Indus., Ltd v. M/T Beffen, 412 F.Supp.2d 285, 293 (S.D.N.Y. 2005) (ordering parties to arbitrate in England); Acosta v. Norwegian Cruise Line, Ltd, 303 F.Supp.2d 1327, 1332 (S.D. Fla. 2003) (ordering parties to arbitrate in the Philippines); Marubeni Corp. v. Mobile Bay Wood Chip Ctr., 2003 WL 22466215, at *19 (S.D. Ala. 2003) (ordering parties to arbitrate in Alabama); Boston Telecomm. Group, Inc. v. Deloitte Touche Tohmatsu, 278 F.Supp.2d 1041, 1049 (N.D. Cal. 2003) (ordering parties to arbitrate in Canada); Clarendon Nat'l Ins. Co. v. Lan, 152 F.Supp.2d 506, 524 (S.D.N.Y. 2001) (ordering parties to arbitrate in New York); Hart Enter. Int'l, Inc. v. Anhui Provincial Imp. & Exp. Corp., 888 F.Supp. 587, 591 (S.D.N.Y. 1995) (ordering parties to arbitrate in China); Filanto SpA v. Chilewich Int'l Corp., 789 F.Supp. 1229, 1241 (S.D.N.Y. 1992) (ordering parties to arbitrate in Russia); Evans & Sutherland Computer Corp. v. Thomson Training & Simulation, 1994 U.S. Dist. LEXIS 15496, at *19 (S.D.N.Y. 1994) (ordering parties to arbitrate in New York); Star-Kist Foods, Inc. v. Diakan Hope, SA, 423 F.Supp. 1220, 1223 (C.D. Cal. 1976) (ordering parties to arbitrate in England).
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As discussed below, the power of U.S. courts to order a party to arbitrate outside the United States depends on whether the New York (or Inter-American) Convention applies. If not, then a number of U.S. courts have held that the domestic FAA does not permit a U.S. district court to compel arbitration outside its district (and, therefore, outside the United States). U.S. FAA, 9 U.S.C. §4; infra pp. 17051718. See also Jain v. de Mere, 51 F.3d 686, 690 (7th Cir. 1995); Bauhinia Corp. v. China Nat'l Mach. & Equip. Imp. & Exp. Corp., 819 F.2d 247, 250 (9th Cir. 1987); Energy Transp. Ltd v. MV San Sebastian, 348 F.Supp.2d 186, 200 (S.D.N.Y. 2004); Tolaram Fibers, Inc. v. Deutsche Eng'g Der Voest-Alpine Industrieanlagenbau GmbH, 1991 U.S. Dist. LEXIS 3565, at *4 (M.D.N.C. 1991); Capitol Converting Co. v. Curioni, 1989 WL 152832 (N.D. Ill. 1989); Oil Basins, Ltd v. Broken Hill Proprietary Co., 613 F.Supp. 483, 488 (S.D.N.Y. 1985). 66 See, e.g., Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388
U.S. 395 (U.S. S.Ct. 1967); Comm. Metals Co. v. Balfour, Guthrie & Co., 577 F.2d. 264 (5th Cir. 1978); Nat'l Railroad Passenger Corp. v. Missouri R.R. Co., 501 F.2d 423, 425-26 (8th Cir. 1974) (“Congress provided in 9 U.S.C. §4 an abbreviated procedure for obtaining specific enforcement of arbitration agreements”); Spear v. Calif. State Auto Ass'n, 831 P.2d 821 (Calif. 1992) (an application to compel arbitration “is in essence a suit in equity to compel specific performance of a contract”); Crawford v. Feldman, 604 N.Y.S.2d 585 (N.Y. App. Div. 1993); State of West Virginia ex rel. Ranger Fuel Corp. v. Lilly, 267 S.E.2d 435 (W. Va. 1980). 67 J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶7-84 (2003). The absence of judicial authority, in many jurisdictions, to order a party to perform its positive obligation to arbitrate can be traced to historic English common law hostility to arbitration agreements, and in particular to the rule that arbitration agreements were not specifically enforceable. Pena Copper Mines Ltd v. Rio Tinto Co. Ltd [1911-13] All E.R. Rep. 209, 214 (English Court of Appeal) (“The parties could not be compelled to go to arbitration. They cannot now; but an appeal to the courts can be stopped and that indirectly enforces the arbitration clause. Therefore the status of an arbitration clause in England is that it will not be specifically enforced, but by proper proceedings you can prevent the other party from appealing to the English courts in respect of any matter which by contract ought to be decided by arbitration.”). 68 See, e.g., InterGen NV v. Grina, 344 F.3d 134, 142 (1st Cir.
2003) (a court may enforce an order compelling arbitration by adjudging a recalcitrant party in contempt); U.S. Titan, Inc. v. Guangzhou Zhen Hua Shipping Co., 2003 U.S. Dist. LEXIS 25536 (S.D.N.Y. 2003); Lifescan, Inc. v. Premier Diabetic Serv., 2001 U.S. Dist. LEXIS 7117 (N.D. Cal. 2001); Sternlight, Forum Shopping for Arbitration Decisions: Federal Courts' Use of Antisuit Injunctions Against State Courts, 147 U. Pa. L. Rev. 91, 177 (1998) (“Once the federal court has issued an order compelling arbitration, parties would risk sanctions such as contempt of court by refusing to follow the order.”). 69 This is consistent with early English common law authority, from whence the general prohibition against injunctions ordering a party to arbitrate originated. See supra p. 1017 n. 67; Pena Copper Mines http://www.kluwerarbitration.com/CommonUI/print.aspx
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Ltd v. Rio Tinto Co. Ltd [1911-13] All E.R. Rep. 209, 214 (English Court of Appeal). 70 E.g., Rhone Mediterranee Compagnia Francese Di Assicurazioni E Riassicurazoni v. Achille Lauro, 712 F.2d 50 (3d Cir. 1983) (arbitration before two arbitrators alleged to violate Italian law). 71 As discussed below, this is not a merely hypothetical risk. See infra pp. 1705-1718. 72 This is also not a hypothetical possibility. See infra pp. 15751576. 73 See infra pp. 1776-1782. 74 See supra pp. 72-76, 82-84 & infra pp. 1748-1776, 1776-1782. 75 The nature of these limitations on national court authority are discussed in detail below. See infra pp. 1776-1782. 76 See supra pp. 855-876. 77 See infra pp. 1776-1782. 78 See infra pp. 1250-1287 & 1287-1294. 79 See infra pp. 1776-1782. 80 See infra pp. 1059 et seq. 81 See infra pp. 1059-1062. 82 See supra pp. 891-894, 931-937 & 974-975. 83 See supra pp. 974-975 & infra pp. 1080-1081, 1087-1089. As discussed above, even if the parties' arbitration agreement does not grant the arbitrators authority to definitively decide disputes regarding the scope of the arbitration clause, this issue is intertwined with interpretation of the underlying contract (see infra pp. 10871089 &1090-1096) and should therefore generally be left for initial decision by the arbitral tribunal. 84 See supra pp. 1017-1019. 85 See infra pp. 1865-1868. 86 See infra pp. 1395-1397. 87 See infra pp. 1398-1399; English Arbitration Act, 1996, §17. See also Veeder, Laws and Court Decisions in Common Law Countries and the UNCITRAL Model Law, in A. van den Berg (ed.), Preventing Delay and Disruption of Arbitration 169, 170-171 (ICCA Congress Series No. 5 1991). 88 See infra p. 1399; French New Code of Civil Procedure, Art. 1493. 89 See infra pp. 1809-1810, 1865-1867. 90 As discussed below, default awards are in principle enforceable under most international and national arbitration regimes. See infra pp. 1865-1868, 2439-2440 & 2753-2754.
Effects and Enforcement of International Arbitration Agreements - C. Negative Legal Effects of International Arbitration Agreements: Obligation Not to Litigate http://www.kluwerarbitration.com/CommonUI/print.aspx
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Disputes Chapter 7 Gary B. Born
Author Gary B. Born
C. Negative Legal Effects of International Arbitration Agreements: Obligation Not to Litigate Disputes An international arbitration agreement also has negative effects, which are almost precisely the mirror-image of its positive effects. That is, with regard to virtually all of the disputes that a party is obligated positively to resolve by arbitration, a comparable negative obligation exists forbidding litigation of such matters. (91) As discussed below, this obligation is set forth in and enforced by international arbitration conventions and national legislation. (92) page "1020" 1. Negative Obligation Not to Litigate Arbitrable Disputes under International Arbitration Conventions
Source Effects and Enforcement of International Arbitration Agreements - C. Negative Legal Effects of International Arbitration Agreements: Obligation Not to Litigate Disputes in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 1020 - 1048
As discussed above, Articles II(1) and II(3) of the New York Convention provide for Contracting States to “recognize” agreements to arbitrate and to “refer the parties to arbitration.” (93) These provisions enforce the negative effects of an arbitration agreement, by requiring either the stay (i.e., suspension) of national court litigation or the dismissal of such litigation. (94) Any other action by a national court, dealing with the substance of any arbitrable dispute, is contrary to the obligation to “refer the parties to arbitration.” (95) Where the New York Convention applies, authorities in many Contracting States hold that the provisions of Article II(1) and II(3) require giving effect to international arbitration agreements. (96)
2. Negative Obligation Not to Litigate Arbitrable Disputes under National Arbitration Legislation Most developed national arbitration legislation gives effect to the negative obligations imposed by arbitration agreements in ways paralleling those under page "1021" international arbitration conventions. In contrast, most authoritics treat the remedies available judicially to enforce the negative effects of an arbitration clause as an issue governed by the law of the place where the clause is invoked as a bar to litigation. (97) As already discussed, however, one of the central features of the New York Convention is to require Contracting States to give effect to agreements to arbitrate by dismissing or staying litigation, (98) thereby limiting the proper role of national law in this regard. a. Obligation Not to Litigate Disputes Subject to Arbitration Article 8(1) of the UNCITRAL Model Law is representative of http://www.kluwerarbitration.com/CommonUI/print.aspx
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national arbitration legislation's treatment of the negative effects of an arbitration agreement. As discussed above, Article 8(1) imposes an obligation identical to that in Article II of the New York Convention, requiring that courts “refer the parties to arbitration.” (99) This provision impliedly precludes a national court from entertaining a dispute on the merits, if the parties have agreed to arbitrate it, and instead requires that the parties be referred to arbitration. National courts have consistently held that the obligation imposed by Article 8(1) is mandatory, and not a matter of discretion. (100) Commentary is to the same page "1022" effect. (101) As with Article II(3) of the New York Convention, Article 8 applies to international arbitration agreements providing for arbitration seated abroad, (102) as well as locally. (103) Other leading national arbitration regimes are similar. As one court reasoned, under the domestic FAA in the United States: “Contracts to arbitrate are not to be avoided by allowing one party to ignore the contract and resort to the courts. Such a course could lead to prolonged page "1023" litigation, one of the very risks the parties, by contracting for arbitration, sought to eliminate.” (104) Courts in other jurisdictions have adopted the same rationale. (105) b. Exclusivity of Arbitration Although arbitration clauses typically do not provide expressly that “all disputes shall be resolved by arbitration, to the exclusion of national courts,” this negative obligation is the undisputed meaning of virtually all arbitration agreements. (106) One of the fundamental purposes of international arbitration agreements is to centralize the parties' disputes in a single forum for final resolution (107) – an objective that would be entirely frustrated if parallel national court proceedings were permitted. Indeed, as discussed below, it is virtually never even argued that an arbitration agreement is “nonexclusive,” permitting national court litigation to proceed in parallel to the arbitration. (108) A party's commencement of litigation on claims, subject to an arbitration agreement, is therefore a breach of that agreement and, in particular, its negative obligations. That breach, like other violations of contractual obligations, entitles the non-breaching party to relief, which under contemporary international arbitration conventions and national legislation includes specific enforcement through a stay or dismissal of the litigation, and exposes the breaching party to contractual liability. (109) page "1024" 3. Choice of Law Governing Negative Obligation Not to Litigate Arbitrable Disputes Although there is little authority on the issue, the existence and http://www.kluwerarbitration.com/CommonUI/print.aspx
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scope of the parties' negative obligations under an international arbitration agreement should be subject to the law applicable to the substantive validity of that agreement. (110) 4. Remedies for Breach of Negative Obligation Not to Litigate Arbitrable Disputes: Mandatory Stay or Dismissal of Litigation As discussed above, some national courts historically refused to stay litigation of arbitrable disputes, either holding that arbitration agreements were revocable or not subject to specific performance. (111) In contrast, under virtually all contemporary national legal systems, the principal remedies for breach of an international arbitration agreement's negative obligation not to litigate arbitrable disputes are either dismissal of the improperly-commenced litigation or a mandatory stay (i.e., suspension) of that litigation. a. Mandatory Stay of Litigation As discussed above, Article II(3) of the New York Convention provides for the dismissal or stay of proceedings in national courts brought in breach of an agreement to arbitrate. (112) Article II(3) does not leave national courts with any discretion to deny a dismissal or stay of local judicial proceedings where an arbitration agreement is enforceable under the Convention. Rather, it mandatorily requires that national courts “shall” refer parties to arbitration. (113) As discussed above, this obligation page "1025" applies equally to arbitration agreements providing for an arbitral seat in the state where litigation is (wrongfully) initiated and for an arbitral seat located abroad. (114) Some national legislation expressly provides for a stay of litigation brought in violation of a valid arbitration agreement. That is the case in all leading common law systems including the United States, (115) England, (116) Canada (117) and Singapore. (118) page "1026" In all of these jurisdictions, the obligation to stay litigation is mandatory, not discretionary. (119) As discussed above, some national courts also exercise a discretionary power to stay litigation pending arbitral proceedings even when not mandatorily required (for example, because a dispute involves non-parties to an arbitration agreement or disputes not within the arbitration agreement). (120) In other countries (principally civil law jurisdictions, including France, (121) Switzerland, (122) Germany, (123) the Netherlands (124) and Belgium (125) ), legislation requires courts to decline jurisdiction over arbitrable disputes. In these states, courts do not merely stay pending litigations, but dismiss them entirely. Whether through a stay or a dismissal of litigation, it is the mandatory obligation and uniform practice of national courts in developed jurisdictions to refuse to hear the merits of claims, initiated in litigation, which are properly subject to arbitration. As one national court put it: page "1027" “[a] district court must stay proceedings if it is demonstrated that the parties have agreed in writing to arbitrate the issues underlying the district court http://www.kluwerarbitration.com/CommonUI/print.aspx
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proceeding. … The Act ‘leaves no room for the exercise of discretion by a district court, but instead mandates that district courts shall direct the parties to proceed to an arbitration on issues as to which an arbitration agreement has been signed.’” (126) A stay or dismissal of litigation is akin to an order of injunctive relief granting specific performance of the obligations imposed by arbitration agreements, and particularly the negative obligation not to pursue litigation in national courts. Indeed, the introduction of this obligation on national courts to order specific performance of the negative duties imposed by international arbitration agreements, which were historically often not enforceable in this manner, (127) was one of the central achievements of the Geneva Protocol, the New York Convention and modern arbitration statutes. (128) Obtaining a dismissal or stay of litigation is often sufficient to give effect to the parties' arbitration agreement, because it effectively forces a claimant into the arbitral process. As one court has remarked, “[t]he concept [of statutory provisions providing for a stay or suspension of litigation] seems to be that a power to grant a stay is enough without the power to order that the arbitration proceed, for, if a stay can be granted the plaintiff can never get relief [on his claims] unless he proceeds to arbitration.” (129) page "1028" b. Dismissal of Litigation It is sometimes suggested that common law and civil law jurisdictions take different approaches to the question whether a national court is divested of jurisdiction by an arbitration agreement, with civil law regimes answering affirmatively and common law systems permitting dual arbitral and judicial jurisdiction. (130) This analysis rests on the observation that civil law courts typically “dismiss” a litigation for lack of jurisdiction when presented with a valid arbitration agreement, (131) while common law courts typically “stay” the litigation while retaining “jurisdiction” (132) (although even common law courts sometimes dismiss proceedings). (133) From an international perspective, this is largely a question of semantics, rather than substance. In both civil and common law jurisdictions, the substantive effect of the court's action is to forbid the plaintiff from proceeding on the merits of its claims in national courts, whose role is then limited to reviewing a subsequent award (or, in rare instances, providing ancillary judicial assistance in aid of the page "1029" arbitral process). (134) From this perspective, and for the most part, there is no real difference between the civil law dismissal and the common law stay. Nonetheless, there may be circ*mstances in which national law will accord different legal consequences to a stay, as contrasted to a dismissal. For example, issues concerning rights of appeal from the first instance court's decision, the effect of the litigation on statutes of limitations, liability for legal costs and similar issues may be treated differently under local law depending on whether a litigation is stayed or dismissed. These are matters of local procedural law, not regulated by the New York Convention (or other international http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration conventions), which differ among jurisdictions. Nonetheless, they obviously may have important practical consequences in particular cases. c. Scope of Negative Obligations under Arbitration Agreement As already discussed, the negative effects of an arbitration agreement are almost precisely the mirror-image of the positive effects. (135) Accordingly, insofar as an arbitral tribunal is vested with jurisdiction to hear particular substantive disputes, then national courts must cease to exercise parallel jurisdiction to decide such disputes (save for their defined roles in supporting the arbitral process or either reviewing an award in an action to annul or to recognize it (136) ). Where one jurisdictional ambit stops (e.g., the national court's) then the other (e.g., the arbitral tribunal's) begins. (137)
Nonetheless, there are circ*mstances – concerning jurisdictional issues – where national law extends the negative obligations of the arbitration agreement beyond this ambit. In principle, insofar as a tribunal possesses jurisdiction to decide disputes regarding its own jurisdiction (competence-competence), then national courts may be divested of power to decide such disputes (save for their defined roles in reviewing the eventual arbitral award). (138) Beyond this, however, many legal systems page "1030" recognize even broader competence on the part of arbitral tribunals in jurisdictional matters. As discussed in detail above, national legal systems differ in their approaches to competence-competence. (139) In some systems (e.g., France, India, Hong Kong), courts will defer any decision on a tribunal's competence to resolve jurisdictional issues until an award has been issued on the issue, and then decide the issue de novo. (140) In other systems (e.g., United States, England), courts will defer to a tribunal's jurisdictional competence if the parties have agreed to arbitrate jurisdictional issues (and then will not review the arbitrators' jurisdictional decision), and will defer to a tribunal's competence-competence in other circ*mstances depending on the nature of the jurisdictional objection and considerations of efficiency and equity. (141) Although these various treatments of competence-competence differ, many of them share the characteristic of giving effect in some circ*mstances to the negative obligations of a putative agreement to arbitrate even where that agreement's existence or validity is disputed. (142) As discussed above, this cannot properly be regarded as enforcement of one of the negative obligations imposed by an arbitration agreement, but is instead the result of external, statutorily-established allocations of jurisdictional competence. (143) d. Arguable Exceptions to Mandatory Stays of National Court Litigation A number of national court decisions have considered arguments that litigation proceedings should not be stayed, despite the existence of a valid arbitration agreement. These arguments have relied on a variety of domestic grounds, often focused on principles http://www.kluwerarbitration.com/CommonUI/print.aspx
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of judicial economy or case management.
page "1031"
In the United States, courts have considered arguments that, when a dispute involves both arbitrable claims and claims that are not subject to arbitration, then the litigation should proceed under an “intertwining” doctrine. The theory provides that it is more efficient to hear all claims in a single proceeding and, since the entire dispute cannot be arbitrated, a litigation involving all claims should be permitted to proceed. (144) U.S. courts have correctly held that this doctrine is inapplicable under the New York Convention, which mandatorily requires national courts to refer arbitrable claims to arbitration. (145) More recently, lower courts have also declined to apply the doctrine under the domestic FAA. (146) U.S. courts have also considered, and consistently rejected, arguments that litigation involving arbitrable disputes should be permitted to proceed because it includes non-parties to the arbitration agreement. (147) (Indeed, as discussed below, U.S. courts have taken the opposite approach, frequently issuing discretionary stays of litigation involving non-parties to an arbitration, pending the outcome of related arbitrations. (148) ) Similarly, Australian, Israeli and other courts have considered arguments that, where a dispute involves parties that have agreed to arbitrate their claims, as well as additional parties that have not done so, the entire dispute should be litigated. (149) page "1032" As with U.S. authority, this position has been rejected in international matters, on the grounds that the New York Convention applies regardless of arguments of convenience or judicial economy. (150) Canadian courts have adopted the same approach, (151) albeit after some false steps. (152) A few national courts have shown reluctance to give effect to arbitration agreements where litigation involves nonparties as well as parties, but these decisions are ill-considered and in the minority. (153) In some jurisdictions, local law places material obstacles in the path of obtaining a stay or dismissal of litigation based on the parties' agreement to arbitrate. For example, Spanish legislation provides that a stay of litigation must be requested through the general provisions of the Spanish Civil Procedure Act. This requires that any jurisdictional objection be made within 10 days – a potentially impossible, and certainly very impractical – time deadline in international matters. (154) This approach vitiates the effect of Article II(3) of the New York Convention and would contradict its meaning in circ*mstances where a party's ability to invoke its arbitration rights was materially compromised. 5. Remedies for Breach of Negative Obligation Not to Litigate Disputes: Discretionary Stays of Related Litigation In some legal systems, national courts will stay litigation of issues or disputes that are merely related to matters which are properly being arbitrated, even if the litigation is not encompassed (or necessarily encompassed) by the arbitration agreement. Discretionary stays can be available in these legal systems in a number of different circ*mstances. page "1033" http://www.kluwerarbitration.com/CommonUI/print.aspx
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First, as discussed above, a discretionary stay may be available in the case of jurisdictional disputes, where some national courts (e.g., United States and England) will stay judicial consideration of such issues for reasons of efficiency even where the parties have not agreed to arbitrate matters of jurisdiction. (155) As also noted above, a roughly comparable approach is taken under the European Convention, where courts are required in principle to permit initial arbitral consideration of jurisdictional issues, subject to a discretionary possibility of judicial resolution of such matters in exceptional circ*mstances. (156) Second, a discretionary stay may be available where the parties to the litigation are not all parties to the arbitration agreement, but are nonetheless affiliated or contractually connected with parties to the arbitration agreement. (157) As noted above, U.S. courts in particular have frequently issued such discretionary stays. (158) Courts in other jurisdictions have taken similar approaches, (159) albeit less frequently. Third, there may be disputes between parties to an arbitration which are not encompassed by, but are related to, a dispute that is subject to the arbitration page "1034" agreement. Again, U.S. courts have frequently issued discretionary stays of national court litigation of such disputes, pending arbitral resolution of the related dispute. (160) Courts in other jurisdiction have also taken this approach. (161) In each of these categories of cases, national courts have stayed litigation of disputes that are not (or are arguably not) subject to arbitration on the grounds that it would be more efficient, fairer and supportive of the arbitral process to do so. These courts have not held that a stay of litigation is mandatory, but rather that granting a stay makes practical sense as a matter of discretion and judicial economy. In so doing, these courts have generally relied upon an inherent judicial power, not granted or required by the New York Convention or by national legislation that implements the Convention. (162) Consistent with this, U.S. and other courts have frequently exercised inherent judicial power to stay actions brought by persons not party to an arbitration agreement, actions involving non-arbitrable claims and actions involving disputes over the existence or validity of any arbitration agreement. (163) This is not, strictly speaking, a direct result of the negative effects of an arbitration agreement, but can be regarded as an indirect or ancillary result of the arbitration agreement's negative obligations, where national courts voluntarily take steps to rationalize their dockets in light of the existence of other dispute resolution mechanisms. page "1035" 6. Remedies for Breach of Negative Obligation Not to Litigate Disputes: Antisuit Injunctions (164) As noted above, a party's ability to obtain a stay of litigation is not always sufficient to effectively enforce an arbitration agreement in the international context. (165) That is because a party may be able to pursue litigation of the underlying dispute in a national court which does not honor, or fully honor, its undertakings in pursuant to the New York Convention. (166) In that event, a stay of the underlying litigation in one (or several) national courts, which do honor the http://www.kluwerarbitration.com/CommonUI/print.aspx
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Convention, may be only a partial, and ultimately ineffective, remedy for enforcing the international arbitration agreement. Accordingly, some states permit additional means of enforcement of the negative obligation to refrain from litigating disputes that are subject to arbitration. These remedies are uniquely available in common law jurisdictions, where national courts may be prepared to issue “antisuit injunctions” to prohibit the filing or prosecution of litigation in a foreign forum. (167) Antisuit orders are directed against the parties to a foreign litigation (and not the foreign court itself), but are intended to have the effect of precluding the litigation from proceeding in the foreign court. (168) a. Antisuit Injunctions under English Law English courts have long exercised the power to enjoin foreign litigations which are brought in violation of an arbitration agreement. (169) Under English law, an antisuit page "1036" injunction may ordinarily be granted against the prosecution of a foreign litigation if it is established that (a) the English forum has a sufficient interest in, or connection with, the matter in question, (b) the foreign proceeding causes sufficient prejudice to the applicant, and (c) the antisuit injunction would not unjustly deprive the claimant in the foreign court of a legitimate advantage. (170) One English court decision affirmed the existence of this power in emphatic terms, in the context of a foreign litigation brought in breach of an arbitration agreement, reasoning: “in my judgment there is no good reason for diffidence in granting an injunction to restrain foreign proceedings [brought in violation of an arbitration agreement] on the clear and simple ground that the defendant has promised not to bring them. … I cannot accept the proposition that any Court would be offended by the grant of an injunction to restrain a party from invoking a jurisdiction which he had promised not to invoke and which it was its own duty to decline.” (171) English courts have also given consideration to notions of comity, as justifying the withholding of an antisuit injunction against parties to a foreign litigation. (172) page "1037" Nonetheless, as a matter of principle, proceedings resulting from a party's unexcused breach of its negative obligation not to litigate a dispute that is encompassed by a valid arbitration agreement are subject, under English law, to an antisuit injunction. (173) (As discussed below, however, within the European Union, where Regulation 44/2001 applies, there is a substantial question whether the English courts' historic antisuit authority may still be exercised as to proceedings in other Member State courts. (174) ) In England, most antisuit injunctions have been issued to prevent the litigation of claims that are properly subject to arbitration. Nonetheless, an English court recently issued an injunction against an award-debtor's pursuit of foreign litigation aimed at challenging an English arbitral award. (175) b. Antisuit Injunctions in Other Common Law Jurisdictions http://www.kluwerarbitration.com/CommonUI/print.aspx
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Other common law jurisdictions, including Singapore, Canada, Bermuda and Australia, have also used antisuit injunctions to enforce the negative obligations of an arbitration agreement. (176) The Singapore High Court explained the rationale for antisuit orders as follows: “[An antisuit injunction] is entirely consistent with the principle that parties be made to abide by their agreement to arbitrate. Furthermore, the New York Arbitration Convention obliges state parties to uphold arbitration agreements and awards. Such an agreement is often contravened by a party commencing an action in its home courts. Once this Court is satisfied that there is an arbitration agreement, it has a duty to uphold that agreement and prevent any breach of it.” (177) As in England, this analysis is likely to result in the issuance of an antisuit injunction restraining pursuit of foreign litigation simply upon the showing that a party has commenced litigation in breach of a valid, applicable arbitration agreement. The Singaporean approach forthrightly holds parties to their commitments to arbitrate, page "1038" and rests on the obligation, under the New York Convention, of Contracting States to enforce arbitration agreements. (178) Parenthetically, the willingness of many common law jurisdictions to issue antisuit injunctions to enforce the negative obligations of an arbitration agreement stands in at least some tension with the refusal of these jurisdictions to issue orders compelling arbitration. (179) A substantial argument can be made that antisuit injunctions, which interfere more directly with foreign courts' jurisdiction, should be more (not less) difficult to obtain than orders compelling arbitration – yet the former are more readily available than the latter in many jurisdictions. c. Antisuit Injunctions under U.S. Law U.S. courts have also been prepared to grant antisuit injunctions prohibiting parties from proceeding with foreign litigation in violation of a valid arbitration agreement, (180) but subject to significantly greater conditions and restrictions than in England, Singapore and most other common law jurisdictions. In general, U.S. courts have been reluctant to grant antisuit injunctions, even where parties have commenced foreign litigation in violation of their agreement to arbitrate, except in compelling cases where there is a special need for such relief. The preliminary requirements that must be satisfied in order to obtain an antisuit injunction from a U.S. court are demonstrating that: (a) the parties to the foreign litigation are the same as those bound by the arbitration agreement, and (b) the disputes at issue in the foreign litigation would be resolved by the arbitration. (181) In addition, consistent with general U.S. law on equitable relief, U.S. courts have also page "1039" required additional showings of (c) irreparable injury or grave hardship to the party seeking relief, (182) and (d) evidence that the (U.S.) forum's public policy warrants
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a grant of injunctive relief. (183) Applying these general principles, U.S. lower courts have formulated a variety of different standards for when an antisuit injunction may be granted to restrain foreign litigation. Some U.S. courts grant such relief based merely upon a showing of serious inconvenience or risk of inconsistent judgments, (184) while others are more demanding and require a clear showing that the foreign litigation would threaten the jurisdiction or public policies of the U.S. forum. (185) Courts applying the latter standard tend to regard wasted costs and efforts, arising from a parallel litigation brought in violation of an arbitration agreement, as insufficient grounds for issuing antisuit relief. In contrast, courts applying the former standard are more likely to issue antisuit injunctions based on the wasted time and expense, and procedural unfairness, caused by litigation in breach of an arbitration agreement. Even U.S. courts that are ordinarily reluctant to issue antisuit injunctions will sometimes do so where foreign litigation is brought in violation of the parties' agreement to arbitrate, based on U.S. policies favoring international arbitration: “The enjoining forum's strong public policy in favor of arbitration, particularly in international disputes, would be threatened if [the respondent] were permitted to continue to pursue the [action in its home courts], particularly in light of the court's decision herein granting [the plaintiff's] motion to compel arbitration.” (186)
page "1040" In approaching the question of antisuit injunctions, U.S. courts afford significant weight to a party's participation in the arbitral process and the results of that process. Where parties refuse to participate in, and instead seek to frustrate, the arbitral proceedings (i.e., by seeking anti-arbitration injunctions), U.S. courts are much more likely to issue antisuit injunctions against the litigation. (187) Where parties participate in the arbitral process, while also commencing litigation in foreign courts challenging the arbitration agreement, U.S. courts are less likely to enjoin the foreign proceeding, at least until the arbitral tribunal makes an award. (188) Some U.S. courts have also granted antisuit injunctions to prevent litigation from undermining the relief granted by an arbitral award which it had already confirmed. (189) Other U.S. courts have refused to enjoin foreign proceedings aimed at frustrating enforcement of an arbitral award, even where such proceedings were commenced outside the arbitral seat and in clear violation of the New York Convention. (190) d. Antisuit Injunctions in Civil Law Jurisdictions In contrast to the common law approach, civil law courts have generally refused to grant antisuit orders, including to enforce arbitration agreements. (191) In most page "1041" instances, civil law courts are not even requested to order antisuit injunctive relief, because it is clear that no such remedy is available.
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There are grave reservations about antisuit injunctions in many civil law systems. In one action, a German court declared that an English antisuit injunction, aimed at restraining proceedings brought in Germany in violation of an arbitration clause, was a violation of German public policy: “such injunctions constitute an infringement of the jurisdiction of Germany because the German courts alone decide, in accordance with the procedural laws governing them and in accordance with existing international agreements, whether they are competent to adjudicate on a matter or whether they must respect the jurisdiction of another domestic or a foreign court (including arbitration courts). … These rights are safeguarded by the Germany procedural codes and, in many respects, by the [German Constitution]. The courts must give effect to these rights. Instructions from foreign courts to the parties concerning the manner in which the proceedings are to be conducted and their subject-matter are likely to impede the German courts in fulfilling this task.” (192) The Court upheld the refusal of the relevant German authorities to effect service of English process on the respondent in Germany (as had been requested under the Hague Service Convention). (193) More recently, in a case referred by the House of Lords to the European Court of Justice, the ECJ largely upheld the view of most civil law courts with respect to the general impermissibility of antisuit injunctions, at least when issued within the context of the EU (albeit not in relation to arbitration). (194) According to the court: page "1042" “Any injunction prohibiting a claimant from bringing such an action must be seen as constituting interference with the jurisdiction of the foreign court which, as such, is incompatible with the system of the [Brussels] Convention.” (195) Despite their historic reservations, some civil law jurisdictions have in recent years issued anti-arbitration orders (albeit, as discussed below, improperly). (196) Given this, it is possible that the same rationale would support an antisuit order, even in civil law jurisdictions that have historically rejected this form of relief. e. Antisuit Injunctions and Council Regulation (EC) 44/2001 There is a substantial question whether EU law, and particularly Regulation 44/2001, would prevent Member State courts from granting antisuit injunctions against proceedings brought, in violation of a valid arbitration clause, in another EU Member State. This question has been the subject of a number of decisions by the English courts, but thus far remains unresolved by the European Court of Justice. (197) The starting point for considering the availability of antisuit injunctions in the EU has been the rule established by the European Court of Justice, applying Regulation 44/2001 (and, previously, the Brussels Convention), that a Member State court may not enjoin a http://www.kluwerarbitration.com/CommonUI/print.aspx
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party from pursuing litigation in another Member State's courts, even when this litigation is in breach of an exclusive forum selection clause. (198) This rule requires consideration whether the same prohibition against antisuit injunctions applies within the EU to orders enjoining litigation in violation of arbitration (as distinguished from forum selection) agreements. Although there are obvious parallels between the two scenarios, Regulation 44/2001 contains an “arbitration” exception, (199) which arguably excludes measures taken to enforce arbitration agreements from the effects of the Regulation. (200) In one recent case, an page "1043" English court relied on this exclusion to hold that no prohibition against antisuit injunctions in aid of arbitration exists under Regulation 44/2001: “At least as regards those anti-suit injunctions granted in respect of breach of jurisdiction clauses, and therefore within the ambit of Regulation 44/2001, this approach is no longer permissible following the decision in Turner v. Grovit.… However, the reasoning in that decision is inapplicable to anti-suit injunctions in respect of cases involving breach of arbitration agreements which fall outside the scope of that Regulation.… … Accordingly, it is to be concluded from the authorities binding on this court, that whatever terminology is adopted – ‘offended’, ‘affronted’ or ‘contrary to comity’ – evidence that the foreign court would treat the order as an impermissible exercise of jurisdiction by the English courts is, as a matter of English conflicts rules, not in itself any reason to withhold such an order to procure compliance with an agreement to arbitrate.” (201) More recently, the question whether it is consistent with Regulation 44/2001 for a court of a Member State to enjoin proceedings in another Member State, on the basis of an arbitration agreement, was referred to the ECJ for a preliminary ruling. (202) It remains to be seen whether the Court will follow the English approach to antisuit injunctions in support of arbitration. Failure to do so, although likely, would remove a potentially valuable mechanism for enforcing international arbitration agreements from the disposal of European (particularly English) courts. (203) f. Future Directions: Antisuit Injunctions in International Arbitration Despite the controversy that the subject has caused, antisuit injunctions are, in appropriate circ*mstances, an effective means of enforcing the negative obligations imposed by international arbitration agreements. They are not inconsistent with the New York Convention (because they enforce, rather than breach, international arbitration agreements) and, used appropriately, offer important benefits. page "1044" Where a party brings suit in a national court, in clear breach of the negative obligations of an international arbitration agreement, and other mechanisms for enforcing the parties' agreement and the obligations of the New York Convention are not adequate, an antisuit injunction should presumptively be available. (204) In general, http://www.kluwerarbitration.com/CommonUI/print.aspx
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consistent with the reasoning of Singaporean courts, (205) the uncured breach of the agreement to arbitrate through the commencement of litigation should, without more, be sufficient to justify an antisuit injunction. In principle, the foreign forum where litigation in violation of the Convention is pending should be given an opportunity to dismiss wrongfully commenced litigation, and refer the parties to arbitration. Nonetheless, where this does not occur, courts in other Contracting States may and often should enforce agreements to arbitrate and the Convention through the use of antisuit injunctions. 7. Remedies for Breach of Negative Obligation Not to Litigate Disputes: Damages for Breach of Obligation Not to Litigate Another means of enforcing the negative effects of an arbitration agreement is to award damages for breaches of the parties' undertaking in their agreement not to litigate disputes that have been submitted to arbitration. Indeed, in historical contexts when arbitration agreements were not capable of specific performance, damages were the only remedy that parties could obtain for their breach. (206) It was frequently (and correctly) remarked, however, that damages for breach of an arbitration agreement are an uncertain and inadequate means of enforcement. (207) page "1045" That is in large part because calculating the quantum of damages is difficult and speculative. (208) Nevertheless, while inadequate when considered alone, damages for breach of an arbitration agreement can be an appropriate supplementary means of enforcing arbitration agreements, by increasing the disincentives for such conduct. A few contemporary judicial decisions in both the United States (209) and England (210) have either awarded damages for the breach of an arbitration agreement or indicated that the possibility for doing so existed. Nonetheless, some contemporary judicial decisions deny the existence of a right to damages for breaches of arbitration agreements (ironically, effectively resurrecting the historic hostility to arbitration agreement, but in reverse form). (211) 8. Remedies for Breach of Negative Obligation Not to Litigate Disputes: Non-Recognition of Judgments If a party pursues litigation in breach of a valid arbitration agreement (and if there is no waiver of the right to arbitrate by its counter-party), then the resulting judgment should not be entitled to recognition. (212) Indeed, it would violate the New York Convention for a Contracting State to recognize and enforce a judgment obtained in breach of a valid agreement to arbitrate, that has not been waived, which is subject to the Convention. Contracting States are committed under Articles II(1) and II(3) of the Convention to recognizing valid arbitration agreements and to referring page (213) "1046" parties to such agreements to arbitration. Where a national court judgment is obtained in breach of an agreement protected by the Convention, a Contracting State would violate these commitments by giving effect to that judgment, rather than ordering the parties to arbitrate their disputes, as they promised to do and as Article II requires.
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The Singapore High Court expressed the foregoing rationale very directly, albeit in a case involving breach of an antisuit injunction enforcing an arbitration agreement: “By virtue of [the parties' agreement, the respondent] had agreed to submit disputes to arbitration in Singapore upon election by any party and the Plaintiffs have so elected. In the circ*mstances it would be manifestly against public policy to give recognition to the foreign judgment at the behest of the Defendants who have procured it in breach of an order emanating from this Court.” (214) Similarly, Swiss courts have held that they will not recognize foreign judgments that are obtained in an action that breached Article II of the Convention. In one decision, the Swiss Federal Tribunal refused to vacate an arbitral award on the grounds that it conflicted with a foreign judgment, reasoning among other things that the foreign judgment had been issued on the basis of proceedings conducted in breach of a valid arbitration agreement. (215) The Court explained: “A foreign state court which, notwithstanding the presence of the conditions of Art. II of the [New York] Convention, does not refer the parties to arbitration but takes the dispute into its own hands lacks thus indirect jurisdiction [necessary for recognition of a foreign judgment] and its decision cannot be recognized in Switzerland, unless the lack of jurisdiction of the arbitral tribunal is determined by the tribunal itself or in the context of a review by a state court.” (216) page "1047" The decision (and related decisions by the Swiss Federal Tribunal) are discussed in greater detail below. (217) Other national courts have also made it clear that they will not recognize and enforce foreign judgments rendered in breach of a valid international arbitration agreement. In particular, both U.S. (218) and English (219) courts have refused to recognize foreign judgments made in violation of a valid arbitration agreement. It has been argued that EC Regulation 44/2001 does not permit Member States to deny recognition to other Member State judgments, even when obtained in breach of a valid arbitration agreement protected by the New York Convention (and/or the European Convention). (220) If this argument were accepted, it would constitute a grave impediment to the international arbitral process and a clear violation of Contracting States' obligations under Article II of the New York Convention. page "1048"
91 There are very limited exceptions to this principle, involving
provisional measures and jurisdictional issues, where the possibility http://www.kluwerarbitration.com/CommonUI/print.aspx
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of concurrent jurisdiction or proceedings exists. See supra pp. 971981 & infra pp. 1972-1973, 2050-2051, 2937-2949. 92 See also G. Petrochilos, Procedural Law in International Arbitration 27 (2004) (“in truth, an arbitration agreement is principally a derogation clause (excluding the jurisdiction of all courts in the world), whereas a forum-selection clause is primarily a prorogation clause (enlarging the jurisdiction of the designated court)”). 93 See supra pp. 202-205, 1005-1007; New York Convention, Arts. II(1) & II(3). 94 See infra pp. 1025-1030. 95 See infra pp. 1030-1031 & 1776-1782; Judgment of 7 September 2005, XXXI Y.B. Comm. Arb. 791, 794-95 (Israeli S.Ct.) (2006) (“Article II(3) of the Convention states in mandatory language that the court ‘shall … refer’ the parties to arbitration, unless one of the exceptions listed in the section is present. It appears that the manner in which both provisions were drafted leads to a single conclusion: that if one of the three exceptions mentioned in Article II(3) does not appear, the court is as a rule required to order a stay of the proceedings …”); West Tankers Inc. v. Ras Riunione Adriatica di Sicurta et al., “The Front Comor” [2005] 2 Lloyd's Rep. 257 (Q.B.) (court's “duty” under Article II(3) “to stay … proceedings and to refer the parties to arbitration”); Lonhro Ltd v. Shell Petroleum Co. Ltd, IV Y.B. Comm. Arb. 320 (Ch. 1978) (1979) (“the effect of Section I [of the English Arbitration Act, 1975, implementing Article II(3)] is to deprive the court of any discretion whether a claim within a nondomestic arbitration agreement should be arbitrated or litigated … The Section is mandatory”); InterGen NV v. Grina, 344 F.3d 134, 141 (1st Cir. 2003); I.T.A.D. Assoc., Inc. v. Podar Bros., 636 F.2d 75, 77 (4th Cir. 1981) (Article II(3) “clearly mandates the referral of the … dispute to arbitration unless one of the enumerated exceptions is applicable”); McCreary Tire & Rubber Co. v. CEAT SpA, 501 F.2d 1032, 1037 (3d Cir. 1974) (“There is nothing discretionary about Article II(3) of the Convention.”); Arabian Homes for Foreign Trade v. Lyric Shipping Ltd, XXII Y.B. Comm. Arb. 942 (E.D. La. 1997) (1997) (court must grant stay where New York Convention applied); A. Samuels, Jurisdictional Problems in International Commercial Arbitration 195 (1989) (“Where the New York Convention applies, it is clear that the court has no discretion as to whether to stay proceedings brought in breach of a valid arbitral agreement”). 96 See, e.g., authorities cited supra pp. 202-205, 567-569, 1021 n. 95. 97 See, e.g., Judgment of 1 October 1998, XXV Y.B. Comm. Arb. 461 (Oberlandesgericht Frankfurt) (2000) (“The effects of an arbitration clause on the legal protection offered by State courts in Germany are regulated exclusively … by German law”); Restatement (Second) Conflict of Laws §219 (1971); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶¶16-088 to 091 (14th ed. 2006). This is consistent with the legal framework established by Article 8 of the UNCITRAL Model Law, as well as with the legal framework of most other national arbitration statutes. UNCITRAL Model Law, Art. 8; supra pp. 203-205, 567-569, 10211022. 98 See supra p. 1021. 99 See supra pp. 1006-1008. 100 See, e.g., PetroKazakhstan Inc. v. Lukoil Overseas Kumkol BV, 2005 ABQB 789 (Alberta Q.B.) (“Courts in this jurisdiction are required not to intervene in matters governed by arbitration: UNCITRAL Model Law on International Commercial Arbitration, http://www.kluwerarbitration.com/CommonUI/print.aspx
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Article 8(1).… Accordingly, it would be inappropriate for this Court to make any determination of Lukoil's claims of breach of contract.”); Dalimpex Ltd v. Janicki, [2003] Ont. Rep. LEXIS 132 (Ontario Court of Appeal) (“The wording of article 8 is mandatory”); Nanisivik Mines Ltd v. F.C.R.S. Shipping Ltd, 113 D.L.R.4th 536 (Canada Fed. Ct. App. 1994) (“In both its ordinary meaning and in light of the object and purpose of the Act, ‘shall’ clearly means ‘must’ not ‘may.’”); Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994) (“I am of the view that the statute commands that what may go to arbitration shall go. No convenience test limits references”); Cangene Corp. v. Octapharma AG, [2000] W.W.R. 606 (Manitoba Q.B.); City of Prince George v. A.L. Sims & Sons Ltd, 9 B.C.L.R.3d 368 (B.C. Court of Appeal 1995); Miramichi Pulp & Paper Inc. v. Canadian Pac. Bulk Ship Sers. Ltd, 58 F.T.R. 81 (Fed. Ct. of Canada 1992); Daily Win Eng'g Ltd v. The Incorporated Owners of Greenwood Terrace, XXX Y.B. Comm. Arb. 168 (H.K. Court of First Instance, High Court 2001) (2005); F & D Building Serv. Eng'g Co. Ltd v. Chevalier (E & M Contracting) Ltd, XXX Y.B. Comm. Arb. 164 (H.K. Court of First Instance, High Court 2001) (2005); BC Nav. SA v. Canpotex Shipping Serv. Ltd, 16 F.T.R. 79 (Fed. Ct. of Canada 1987) (“Where a valid arbitration agreement exists and a party requests a transfer of the dispute to the arbitration tribunal at the first opportunity, Art. 8 MAL obliges the court to refer the matter to arbitration.”); Coop Int'l Pte Ltd v. Ebel SA, XXVI Y.B. Comm. Arb. 839 (Singapore High Court 1998) (2001) (“Art. 8 of the Model Law requires a mandatory stay of proceedings unless the court is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed. I think this position is correct.”). 101 See A. Broches, Commentary on the UNCITRAL Model Law on International Commercial Arbitration Art. 8, ¶3 (1990) (“Art. 8(1) is a mandatory provision: when the conditions for its application are fulfilled the court has no discretion, but must refer the parties to arbitration.”); P. Sanders, The Work of UNCITRAL on Arbitration and Conciliation 73 (2d ed. 2004) (“In the case the validity [of the arbitration agreement] is not contested, the court will refer the parties to arbitration.); P. Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions ¶2-078 (2d ed. 2005); I. Dore, The UNCITRAL Framework for Arbitration in Contemporary Perspective 106 (1993); H. Holtzmann & J. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary 302 (1989); Beraudo, Case Law on Articles 5, 8, and 16 of the UNCITRAL Model Arbitration Law, 23 J. Int'l Arb. 101 (2006). 102 See supra pp. 285-286, 307; UNCITRAL Model Law, Art. 1(2); Coop Int'l Pte Ltd v. Ebel SA, XXVI Y.B. Comm. Arb. 832, 847 (Singapore High Court 1998) (2001) (Article 8 “is not restricted to agreements providing for arbitration in that State and, thus, helps to give universal recognition and effect to the commercial arbitration agreements.”). See also Comandate Marine Corp. v. Pan Australia Shipping Pty Ltd [2006] FCAFC 192 (Australian Fed. Ct.) (court below was required to refer parties to arbitration in London where Article 8 applied); DalimpexLtdv. Janicki, [2003] Ont. Rep. LEXIS 132, at *20-21 (Ontario Court of Appeal) (Article 8's requirements “mandatory” where arbitration was to be held in Poland); China Merchants Heavy Indus. Co. Ltd v. JGC Corp., [2001] 3 HKC 580, 585 (H.K. Court of Appeal, High Court) (affirming decision to stay proceedings pursuant to Hong Kong version of Article 8 and refer dispute to arbitration in Japan); Nanisivik Mines Ltd v. Canarctic http://www.kluwerarbitration.com/CommonUI/print.aspx
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Shipping Co. Ltd, (1994) 113 D.L.R.4th 536 (Canada Federal Ct. App.) (court had “no discretion in the circ*mstances but to refer the claim” to arbitration in London); D.G. Jewelry Inc. v. Cyberdiam Canada Ltd, 2002 A.C.W.S.J. LEXIS 2405, at *18 (Ontario S.Ct. 2002) (staying claims so that parties could arbitrate in, among other places, Toronto). 103 See supra pp. 285-286, 307; Getwick Eng'rs Ltd v. Pilecon Eng'g Ltd, [2002] 10-20 HKCU 1 (H.K. Court of First Instance, High Court); Leviathan Shipping Co. Ltd v. Sky Sailing Overseas Co. Ltd [1998] 4 HKC 347, 354 (H.K. Court of First Instance, High Court) (referring parties to arbitration in Hong Kong). 104 Southland Corp. v. Keating, 465 U.S. 1, 7 (U.S. S.Ct. 1984). See alsoDean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (U.S. S.Ct. 1985) (terms of §3 “leave no place for the exercise of discretion by a district court, but instead … mandate that district courts shall direct the parties to proceed to arbitration on issues as to which an arbitration agreement has been signed”). 105 See, e.g., Judgment of 2 October 1931, DFT 57 I 295 (Swiss Federal Tribunal), quoted in van Houtte, Parallel Proceedings before State Courts and Arbitration Tribunals, quoted in, Arbitral Tribunals or State Courts: Who Must Defer to Whom? 42 (ASA Special Supp. No. 15 2001) (“negative effect” of arbitration “is the exclusion of the State courts' jurisdiction”); Asghar v. Legal Serv. Comm'n [2004] EWHC 1803 (Ch) (Official Investigation by the Legal Services Commission stayed in respect of all matters which under contract should be referred to arbitration). See A. van den Berg, The New York Arbitration Convention of 1958 152 (1981) (“the main [sic] effect of an arbitration agreement is the exclusion of the competence of the courts in favour of arbitration”); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman onInternational Commercial Arbitration ¶661 (1999) (“negative effect” is that “the courts are prohibited from hearing such disputes”). 106 Some institutional arbitration rules contain provisions implying the exclusivity of the arbitral process. See, e.g., ICC Rules, Art. 28(6); LCIA Rules, Art. 23(4). 107 See supra pp. 74-76. 108 See infra pp. 1128-1130. 109 See infra pp. 1025-1030. 110 See supra pp. 425 et seq. This parallels the treatment of positive obligations under an agreement to arbitrate. See supra pp. 1008-1010. 111 See supra pp. 31-39, 39-49 & 574-575. In other jurisdictions, only a discretionary stay of litigation was historically available for arbitration agreements providing for a foreign arbitral seat. See R. Merkin, Arbitration Law ¶¶8.43 to 8.68 (2004 & Update 2007). 112 See supra pp. 202-205, 1006-1021. 113 See supra pp. 203-205, 567-569, 1021; InterGen NV v. Grina, 344 F.3d 134, 141 (1st Cir. 2003) (“Given this regime, it clearly appears that enforcing arbitration clauses under the New York Convention is an obligation, not a matter committed to district court discretion.”); Smith/Enron Cogeneration Ltd, P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 93 (2d Cir. 1999) (“The purpose behind this drafting choice is clear: the courts of a signatory to the Convention should abide by its goal of enforcing international agreements to arbitrate disputes.”); Phoenix Bulk Carriers Ltd v. Oldendorff Carriers GmbH & Co., 2002 WL 31478198, at *2 (S.D.N.Y. 2002) (“this court must compel arbitration unless the ‘making’ of the arbitration agreement is in question”); CanWest http://www.kluwerarbitration.com/CommonUI/print.aspx
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Global Comm. Corp. v. Mirkaei Tikshoret Ltd, 804 N.Y.S.2d 549, 562-63 (N.Y. S.Ct. 2005); Hi-Fert Pty Ltd v. Kiukiang Maritime Carriers Inc., 86 FCR 374, 393 (Australian Fed. Ct. 1998) (“the Court must stay the proceedings and refer the parties to arbitration”); The Rena K [1979] Q.B. 377, 392-93 (Q.B.). See A. van den Berg, The New York Arbitration Convention of 1958 135 (1981) (“The mandatory character of the referral by a court to arbitration pursuant to Article II(3) is an internationally uniform rule”). 114 See supra pp. 277-284; McMahon, Implementation of the United Nations Convention on Foreign Arbitral Awards in the United States, 2 J. Mar. L. & Comm. 735, 748-49 (1971); Paulsson, The New York Convention in International Practice – Problems of Assimilation in The New York Convention of 1958 100, 103-104 (ASA Special Series No. 9 1996); A. van den Berg, The New York Arbitration Convention of 1958 135-37 (1981). The only requirements are that the arbitration agreement satisfy the jurisdictional requirements of the New York Convention (see supra pp. 208 et seq.) and that it be valid and binding (see supra pp. 563 et seq.). 115 U.S. FAA, 9 U.S.C. §3 (“If any suit or proceeding be brought … upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement …”); Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 218 (U.S. S.Ct. 1985); Hughes, Hooker & Co. v. Am. Steamship Owners Mut. Prot. & Indem. Assoc., Inc., 2005 WL 1384055, at *4 (S.D.N.Y. 2005) (“a district court has no discretion to deny a stay if a valid agreement to arbitrate exists and the claims at issue come within the scope of that agreement”); State v. Philip Morris USA, Inc., 2006 WL 3490937 (N.C. Super. 2006); Double Sunrise Inc. v. Morrison Mgt Specialists Inc., 149 F.Supp.2d 1039, 1045 (N.D. Ill. 2001). 116 English Arbitration Act, 1996, §9(4) (“the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed”); Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); Capital Trust Inv. Ltd v. Radio Design TJ AB [2002] EWCA Civ 135 (English Court of Appeal) (“On an application under this section [9] the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.”); Halki Shipping v. Sopex Oil [1998] 1 Lloyd's Rep. 465 (English Court of Appeal); Ethiopian Oilseeds & Pulses Exp. Corp. v. Rio del Mar Foods Inc. [1990] 1 Lloyd's Rep. 86 (Q.B.); Thames Valley Power Ltd v. Total Gas & Power Ltd [2005] EWHC 2208, ¶38 (Q.B.) (“Provided the applicant has acknowledged the legal proceedings and has not taken any step in them to answer the substantive claim, the court is bound to grant him a stay unless the Arbitration Agreement is null and void, inoperative or incapable of being performed.”); Capital Trust Inv. Ltd v. Radio Design TJ AB [2002] EWCA Civ. 135 (English Court of Appeal). 117 Alberta Arbitration Act, §7; Ontario International Commercial Arbitration Act §9; Dalimpex Ltd v. Janicki, [2003] Ont. Rep. LEXIS 132 (Ontario Court of Appeal); Nanisivik Mines Ltd v. F.C.R.S. Shipping Ltd, [1994] 2 F.C. 662 (Ottawa Court of Appeal); Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643, 645 (Alberta Court of Appeal 1992) (1994).
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118 Singapore International Arbitration Act, §6(2) (“The court to
which an application has been made in accordance with subsection (1) shall make an order, upon such terms or conditions as it may think fit, staying the proceedings unless it is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.”); Coop Int'l Pte Ltd v. Ebel SA, XXVI Y.B. Comm. Arb. 832, 839 (Singapore High Court 1998) (2001) (Singapore High Court) (“Art. 8 of the Model Law requires a mandatory stay of proceedings unless the court is satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.”). 119 See authorities cited supra 203-205, 567-569, 1021 n. 95, 1026-1027 nn. 115-118. Compare Australian International Arbitration Act, 1974, §7; CTA Int'l Pty Ltd v. Sichuan Changhong Elec. Co. Ltd, BC 2002 05183 (Victoria S.Ct. 2002); Hi-Fert Pty Ltd v. Kiukiang Maritime Carriers Inc., 12(7) Mealey's Int'l Arb. Rep. C-1 (Australian Fed. Ct. 1997) (1997); Australian Granites Ltd v. Eisenwerk Hensel Bayreuth Dipl.-Ing. Burkhardt GmbH, [2001] 1QdR 461 (Queensland S.Ct. 13 June 1998); M. Jacobs, International Commercial Arbitration in Australia: Law and Practice ¶8.70 (1992). 120 See supra pp. 948-954, 978-981 & infra pp. 1059-1099, 11331136. 121 French New Code of Civil Procedure, Art. 1458(1) (“where a dispute submitted to an arbitral tribunal by virtue of an arbitration agreement is brought before a national court, such court shall decline jurisdiction”); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶666 (1999). 122 Swiss Law on Private International Law, Art. 7 (“if, in an arbitrable dispute, the parties have concluded an arbitration agreement, the Swiss court must decline jurisdiction unless …”); Berti, in S. Berti et al. (eds.), Basler Kommentar Internationales Privatrecht Art. 7, ¶17 (2d ed. 2007). 123 German ZPO, §1032(1) (“a court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if the respondent raises an objection prior to the beginning of the oral hearing on the substance of the dispute, reject the action as inadmissible unless the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed”); Geimer, in R. Zöller (ed.), Zivilprozessordnung §1032, ¶2 (26th ed. 2007). 124 Netherlands Code of Civil Procedure, Art. 1022 (“a court seized of a dispute in respect of which an arbitration agreement has been concluded shall declare that it has no jurisdiction if a party invokes the existence of the said agreement before submitting a defense, unless the agreement is invalid”) (emphasis added). 125 Belgian Judicial Code, Art. 1679(1) (“the judge seized of a dispute which is the subject of an arbitration agreement, at the request of either party, shall declare that he has no jurisdiction, unless, insofar as concerns the dispute, the agreement is not valid or has terminated …”). 126 Danisco A/S v. Novo Nordisk A/S, 2003 U.S. Dist. LEXIS 1842 (S.D.N.Y. 2003). See also Amizola v. Dolphin Shipowner, SA, 354 F.Supp.2d 689 (E.D. La. 2004) (“Because all of the elements to compel arbitration are met, the motion to stay the litigation and to compel arbitration is granted.”); Capital Trust Inv. Ltd v. Radio Design TJ AB [2002] EWCA Civ. 135 (English Court of Appeal) (“On an application under this section [§9] the court shall grant a stay unless satisfied that the arbitration agreement is null and void, http://www.kluwerarbitration.com/CommonUI/print.aspx
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inoperative, or incapable of being performed.”); Judgment of 7 September 2005, XXXI Y.B. Comm. Arb. 791, 794-95 (Israeli S.Ct.) (2006); A. Sanderson & Son v. Armour & Co Ltd 1922 S.L.T. 285 (House of Lords) (“If the parties have contracted to arbitrate, to arbitration they must go.”); Union of India v. Lief Hoegh & Co., IX Y.B. Comm. Arb. 405 (Gujarat High Court 1982) (1984) (“I do not think … that there is any discretion which the Court enjoins when it is called upon to decide whether the proceedings in the suit pertaining to a contract containing a foreign arbitral clause should be stayed under Sect. 3 of the Foreign Awards Amendment Act except in those contingencies which are specified in Sect. 3 itself. The said contingencies are that the agreement is null and void, inoperative or incapable of being performed, or in fact there is no dispute between the parties pertaining to the matter agreed to be referred under the agreement”). 127 See supra pp. 37-49. 128 See supra pp. 58-65, 92-101, 203-205 & 566-570. 129 The Anaconda v. Am. Sugar Refining Co., 322 U.S. 42 (U.S. S.Ct. 1943). See also Standard Magnesium Corp. v. Fuchs, 251 F.2d 455, 458 (10th Cir. 1957) (“If the agreement provides that where one party refuses or fails to submit to arbitration, that an arbitrator may be appointed and that the arbitration may proceed ex parte, and further provides for the procedure to be followed in such an ex parte proceeding, there is no occasion to invoke the remedy of §4. Such a remedy is necessary only in those cases where one party refuses to participate in the arbitration and a court order is necessary in order for the arbitration to proceed ex parte.”). 130 Veeder, Laws and Court Decisions in Common Law Countries and the UNCITRAL Model Law, in A. van den Berg (ed.), Preventing Delay and Disruption of Arbitration 169, 170-71 (ICCA Congress Series No. 5 1991). 131 See supra p. 1027; Sanders, Arbitration Law in Western Europe: A Comparative Survey, in M. Domke, International Trade Arbitration: A Road to World-Wide Cooperation 137-138 (1958) (“The existence of an arbitration agreement deprives the court of its jurisdiction. Courts lose their competence when the defendant relies on an arbitration agreement.”). 132 See supra pp. 1025-1027; Boateng v. Gen. Dynamics Corp., 473 F.Supp.2d 241, 252 (D. Mass. 2007) (“Defendants urge the Court to dismiss in favor of arbitration. The Court declines to do so. … Among other things, given the possibility that the arbitrator may conclude that arbitration was in fact waived, and therefore may return the case to this Court, the Court elects to stay the proceedings pending arbitration.”); Doleman & Sons v. Ossett Corp. [1912] 3 K.B. 257, 267 (English Court of Appeal). 133 See, e.g., Alford v. Dean Witter Reynolds, 975 F.2d 1161, 1164 (5th Cir. 1992) (“The weight of authority clearly supports dismissal of the case when all of the issues raised in the district court must be submitted to arbitration.”); SATCOM Int'l Group plc v. ORBCOMM Int'l Partners, LP, 49 F.Supp.2d 331, 337 n.4 (S.D.N.Y. 1999), aff'd, 205 F.3d 1324 (2d Cir. 1999) (“[T]here was previously an open question as to whether the court that orders arbitration under the Convention must dismiss the action or may retain jurisdiction in aid of arbitration. Nonetheless, it now appears that the Court may retain jurisdiction and stay the action under its inherent power to control its docket.”); RMF Nooter, Inc. v. Gleeson Constr., LLC, 2006 U.S. Dist. LEXIS 82466 (W.D. Mich. 2006) (dismissing arbitral claims and refusing to stay non-arbitral claims); Flightdocs, Inc. v. Jackson, 2005 WL 2038588, at *7 (E.D.N.Y. 2005) (dismissing action with http://www.kluwerarbitration.com/CommonUI/print.aspx
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leave to re-open proceedings in the event arbitration fails to resolve all disputed issues); Hostmark Inv. Ltd v. Geac Enter. Solutions, Inc., 2002 WL 1732360, at *3 (N.D. Ill. 2002) (same); RoadTechs Inc. v. MJ Highway Tech., Ltd, 79 F.Supp.2d 637, 640 (E.D. Va. 2000) (“it is within the district court's discretion whether to dismiss or stay an action after referring it to arbitration”). See also Stacher, You Don't Want to Go There – Antisuit Injunctions in International Commercial Arbitration, 23 ASA Bull. 640 (2005). 134 SeeChamois v. Countrywide Home Loans, 2003 WL 23022033, at *5 (S.D.N.Y. 2003) (electing to stay a litigation pending arbitration, rather than to dismiss it, based on the notion that “granting a stay, which is an unappealable interlocutory order, is preferable to dismissing an action because ‘[u]nnecessary delay of the arbitral process through appellate review is disfavored’”) (quoting Salim Oleochem. v. M/V Shropshire, 278 F.3d 90, 93 (2d Cir. 2002)). See also Ibeto Petrochem. Indus., Ltd v. M/T Beffen, 412 F.Supp.2d 285 (S.D.N.Y. 2005) (same). 135 Judgment of 2 October 1931, DFT 57 I 295 (Swiss Federal Tribunal) (“the principal effect of an arbitration agreement is not to exclude the jurisdiction of the State courts, but to transfer the right of decision to an arbitral tribunal … The negative effect, that is the exclusion of the State courts' jurisdiction, only constitutes a consequence of the positive effect.…”). 136 See infra pp. 2924-2926. 137 As noted above, there is an exception to this principle in the case of provisional measures, as to which concurrent jurisdiction exists. See supra p. 1020 & infra pp. 1972-1973, 2050-2051. 138 See supra pp. 971-981, 1020. 139 See supra pp. 877 et seq. 140 See supra pp. 889-891 & 900-904. 141 See supra pp. 924-954 & 960-964. Alternatively, Article VI(3) of the European Convention provides a variation of this approach, requiring general deference to the arbitrators' jurisdiction, subject to an exception permitting discretionary interlocutory judicial consideration of jurisdictional issues. European Convention, Art. VI(3); supra pp. 861-863. 142 Where an admittedly valid agreement to arbitrate jurisdictional disputes exists, different considerations apply. As discussed above, courts should not be free to engage in judicial consideration of jurisdictional issues where the parties have agreed to arbitrate such matters (thus giving effect to the negative obligations of the agreement to arbitrate matters of jurisdiction); in the absence of such an agreement, courts have discretion not to engage in judicial consideration of such issues, even though the courts would in principle be competent to do so, where reasons of efficiency and fairness argue for an arbitral determination. 143 See supra pp. 402-404 & 872-876. Most clearly, the French rule requiring judicial referral of all jurisdictional objections to arbitration, after arbitral proceedings have commenced, reflects a legislative preference regarding the proper allocation of initial competence over, and the best forum for initial consideration of, such objections. See supra pp. 900-904. 144 See Gergel v. High View Homes, LLC, 996 P.2d 233, 234 (Colo. App. 1999) (“The purpose of the intertwining doctrine is to prevent inconsistent determinations by different forums. If the factual and legal issues are inextricably intertwined, then the claims must not be severed because severance could result in an arbitrator infringing upon a court's duty to decide the non-arbitrable claim.”); http://www.kluwerarbitration.com/CommonUI/print.aspx
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City & County of Denver v. District Court, 939 P.2d 1353 (Colo. 1997); Byrd v. Dean Witter Reynolds, 726 F.2d 552 (9th Cir. 1984). 145 See, e.g., Wellman, Inc. v. Square D Co., 620 S.E.2d 86 (S.C. App. 2005); Lim v. Offshore Specialty Fabricators, Inc., 404 F.3d 898 (5th Cir. 2005); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co., 767 F.2d 1140 (5th Cir. 1985). 146 Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (U.S. S.Ct. 1985). See also Baggesen v. Am. Skandia Life Assur. Corp., 235 F.Supp.2d 30 (D. Mass. 2002); Buzbee, When Arbitrable Claims Are Mixed with Nonarbitrable Ones: What's A Court to Do?, 39 S. Tex. L. Rev. 663 (1998); Hahn, Dean Witter Reynolds, Inc. v. Byrd: The Unraveling of the Intertwining Doctrine, 62 Den. U.L. Rev. 789 (1985). 147 Baggesen v. Am. Skandia Life Assur. Corp., 235 F.Supp.2d 30 (D. Mass. 2002); Bro Tech Corp. v. European Bank for Reconstr. & Dev., 2000 U.S. Dist. LEXIS 17049 (E.D. Pa. 2000). 148 See infra pp. 1034-1035; AgGrow Oils, LLC v. Nat'l Union Fire Ins. Co., 242 F.3d 777 (8th Cir. 2001); Geo Vantage of Ohio, LLC v. Geovantage, Inc., 2006 U.S. Dist. LEXIS 63496 (S.D. Ohio 2006); Ballard v. Corinthian Colleges, Inc., 2006 U.S. Dist. LEXIS 57699 (W.D. Wash. 2006); MPA Constr., Inc. v. XL Specialty Ins. Co., 349 F.Supp.2d 934 (D. Md. 2004); Humbarger v. The Law Co., 2002 U.S. Dist. LEXIS 4702 (D. Kan. 2002); The Nissan Fire & Marine Ins. Co. v. Fortress Re, Inc., 2002 U.S. Dist. LEXIS 19542, at *15 (M.D.N.C. 2002) (granting a discretionary stay of trial proceedings, but not discovery). 149 Dodwell & Co. v. Moss Sec., XIX Y.B. Comm. Arb. 615 (Australian Fed. Ct.) (1990). See alsoCTA Int'l Pty Ltd v. Sichuan Changhong Elec. Co. Ltd, BC 2002 05183 (Victoria S.Ct. 2002) (granting discretionary stay of all litigation where some or most claims were clearly subject to arbitration); Judgment of 7 September 2005, XXXI Y.B. Comm. Arb. 791, 795 (Israeli S.Ct.) (2006) (“the existence [in a national court litigation] of a party who is not a party to the arbitration agreement, does not make the existing arbitration agreement between the other parties, whether in whole or in part, null and void, inoperative or an agreement incapable of being performed”). 150 See authorities cited supra pp. 203-205, 567-569, 1021, 10251028. 151 Canadian courts have held that where the parties have agreed to arbitrate some, but not all, of the disputes between them, they will stay litigation of all such matters pending outcome of the arbitral proceedings. Nanisivik Mines Ltd v. F.C.R.S. Shipping Ltd, [1994] 2 F.C. 662 (Ottawa Court of Appeal). 152 In one Canadian decision, the court held that arbitration would not be required in a dispute where some, but not all, parties to a Canadian litigation were subject to an arbitration agreement. The Court reasoned, incorrectly, that “all of these issues will have to be faced again when either party brings its recognition and enforcement application.” Kaverit Steel & Crane Ltd v. Kone Corp., XVIII Y.B. Comm. Arb. 346 (Alberta Q.B. 1991) (1993). That decision was reversed on appeal. Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994). 153 Sopac Italiana SpA v. Bukama GmbH, II Y.B. Comm. Arb. 248 (Tribunale di Milano) (1977). 154 Cairns, The Spanish Application of the UNCITRAL Model Law on International Commercial Arbitration, 22 Arb. Int'l 573, 584 (2006). http://www.kluwerarbitration.com/CommonUI/print.aspx
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155 See supra pp. 948-950 & 962-964. 156 See supra pp. 861-863; European Convention, Art. VI(3)
(“Where either party to an arbitration agreement has initiated arbitration proceedings before any resort is had to a court, courts of Contracting States subsequently asked to deal with the same subject-matter between the same parties … shall stay their ruling on the arbitrators' jurisdiction until the arbitral award is made, unless they have good and substantial reasons to the contrary.”). 157 See cases cited infra pp. 1034-1035 nn. 158-162. See alsoFibreco Pulp Inc. v. Star Shipping A/S, [1998] F.C.J. No. 297 (Fed. Ct. of Canada) (discretionary stay of litigation involving nonparties, for reasons of judicial economy); Kvaerner Enviropower Inc. v. Tanar Indus. Ltd, 24 Alta.L.R.3d 365 (Alberta Court of Appeal 1994); Condominiums Mont St.-Sauveur Inc. v. Les Constr. Serge Sauve Ltee., [1990] R.J.Q. 2783 (Quebec Court of Appeal). 158 As U.S. courts have concluded, a stay of litigation under the FAA's §3 can only bind persons that are party to an arbitration agreement. SeeIDS Life Ins. Co. v. Sun America, Inc., 103 F.3d 524, 530 (7th Cir. 1996); Coastal (Bermuda) Ltd v. E.W. Saybolt & Co., 761 F.2d 198, 203 (5th Cir. 1985) (§3 “cannot be the source of the district court's authority to stay a claim between” non-parties); Am. Home Assur. Co. v. Vecco Concrete Constr. Co., 629 F.2d 961, 964 (4th Cir. 1980); C. Itoh & Co. v. Jordan Int'l Co., 552 F.2d 1228 (7th Cir. 1977); Sam Reisfeld & Son Imp. Co. v. SA Eteco, 530 F.2d 679 (5th Cir. 1976); Hilti, Inc. v. Oldach, 392 F.2d 368 (1st Cir. 1968); Nederlandse Erts-Tankersmaatschappij NV v. Isbrandtsen Co., 339 F.2d 440 (2d Cir. 1964); Armco Steel Co. v. CSX Corp., 790 F.Supp. 311 (D.D.C. 1991); Dale Metals Corp. v. Kiwa Chem Indus. Co., 442 F.Supp. 78, 81-2 (S.D.N.Y. 1977) (stay is appropriate “even though it affects parties who are not bound to arbitrate”). CompareAm. Shipping Line, Inc. v. Massan Shipping Indus., Inc., 885 F.Supp. 499 (S.D.N.Y. 1995) (refusing to stay litigation of non-arbitrable claims, on grounds that, although common issues were involved, non-party to arbitration would not be bound by award); Montauk Oil Transp. Corp. v. SS Mut. Underwriting Ass'n (Bermuda) Ltd, 859 F.Supp. 669 (S.D.N.Y. 1994) (refusing to stay action pending arbitration, where action involved a non-party). 159 Kvaerner Enviropower Inc. v. Tanar Indus. Ltd, 24 Alta.L.R.3d 365 (Alberta Court of Appeal 1994); Fibreco Pulp Inc. v. Star Shipping A/S, [1998] F.C.J. No. 297 (Fed. Ct. of Canada); Navionics Inc. v. Flota Maritima Mexicana SA, 26 F.T.R. 148 (Fed. Ct. of Canada 1989). 160 See, e.g., Am. Recovery Corp. v. Computerized Thermal Imaging, 96 F.3d 88 (4th Cir. 1996) (decision whether to stay nonarbitrable claims is in trial court's discretion); Collins Radio Co. v. ExCell-O Corp., 467 F.2d 995, 1000 (8th Cir. 1972) (staying litigation of two non-arbitrable claims pending arbitration of related claim); Chempower, Inc. v. Robert McAlpine, Ltd, 849 F.Supp. 459 (S.D. W. Va. 1994) (“it is true that the arbitrator's findings will not be binding as to those not parties to the arbitration, [but] considerations of judicial economy and avoidance of confusion and possible inconsistent results nonetheless militate in favor of granting a stay of the entire action”); Home Life Ins. Co. v. Kaufman, 547 F.Supp. 833 (S.D.N.Y. 1982) (permitting stay of non-arbitrable issues where: “the party seeking the stay can demonstrate that he will not hinder the arbitration; that the arbitration will be concluded within a reasonable time; and that the delay will not work an undue hardship on the party opposing the stay”). But seeArmco Steel Co. v. CSX Corp., 790 F.Supp. 311 (D.D.C. 1991) (“presumption that ‘the arbitration and the http://www.kluwerarbitration.com/CommonUI/print.aspx
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lawsuit will each proceed in its normal course’”). 161 See, e.g., E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶1659 (1999) (“[T]he Paris Court of Appeals was asked to set aside the arbitrators' decision not to stay proceedings pending the outcome of an action to set aside their interim award on jurisdiction”); Judgment of 7 July 1987, 1988 Rev. arb. 649 (Paris Cour d'appel); Simmonds Capital Ltd v. Eurocom Int'l Ltd, 144 F.T.R. 230 (Fed. Ct. of Canada 1998) (confirming inherent authority to stay claims not subject to arbitration, pending related arbitration, but declining to exercise power). 162 See, e.g., Nat'l Iranian Oil Co. v. Mapco Int'l, Inc., 983 F.2d 485, 491 (3d Cir. 1992); Webb v. R. Rowland & Co., 800 F.2d 803, 808 (8th Cir. 1986); Nederlandse Erts-Tankersmaatschappij NV v. Isbrandtsen Co., 339 F.2d 440 (2d Cir. 1964); Kvaerner Enviropower Inc. v. Tanar Indus. Ltd, 24 Alta.L.R.3d 365 (Alberta Court of Appeal 1994); Fibreco Pulp Inc. v. Star Shipping A/S, [1998] F.C.J. No. 297 (Fed. Ct. of Canada); Navionics Inc. v. Flota Maritima Mexicana SA, 26 F.T.R. 148 (Fed. Ct. of Canada 1989). 163 See cases cited supra pp. 948-950 & 1034-1035. 164 For commentary, see E. Gaillard (ed.), Anti-SuitInjunctions in International Arbitration (2005); Bedard & Mascarenhas, Comverse, Inc.: Methodological Issues in Anti-Suit Injunctions, 22(2) Mealey's Int'l Arb. Rep. 1 (2007); Collins, Anti-Suit Injunctions and the Arbitration Process, in Arbitral Tribunals or State Courts: Who Must Defer to Whom? 85 (ASA Special Series No. 15 2001); Smith & Freeman, Anti-Suit Injunctions in Europe: Another Advantage of Arbitration, 20(3) Mealey's Int'l Arb. Rep. 45; Stacher, You Don't Want to Go There – Antisuit Injunctions in International Commercial Arbitration, 23 ASA Bull. 640 (2005). 165 See supra pp. 1018-1020. 166 See supra pp. 574-575. 167 See generally G. Born & P. Rutledge, International Civil Litigation in United States Courts 540 (4th ed. 2007); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶12-068 (14th ed. 2006). The standards for obtaining an antisuit injunction vary from jurisdiction to jurisdiction, but typically require a showing of an identity of parties and issues, in the domestic and foreign forums, together with some showing of oppression, violation of public policy or the like. Ibid. 168 G. Born & P. Rutledge, International Civil Litigation in United States Courts 540 (4th ed. 2007). Arbitral tribunals also occasionally issue antisuit injunctions. See infra pp. 2009-2011. 169 Pena Copper Mines Ltd v. Rio Tinto Co. Ltd [1911-13] All E.R.
Rep. 209 (English Court of Appeal) (enjoining English party not to proceed with suit in Spain against Belgian party in violation of arbitration agreement: “It is beyond all doubt that this Court has jurisdiction to restrain the Rio Tinto Co. from commencing or continuing proceedings in a foreign court if those proceedings are in breach of contract.”); Collins, Anti-Suit Injunctions and the Arbitration Process, in Arbitral Tribunals or State Courts: Who Must Defer to Whom? 85 (ASA Special Series No. 15 2001). 170 See Airbus Indus. GIE v. Patel [1998] 1 Lloyd's Rep. 631 (House of Lords). http://www.kluwerarbitration.com/CommonUI/print.aspx
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171 Aggeliki Charis Compania Maritime SA v. Pagnan SpA(The
Angelic Grace) [1995] 1 Lloyd's Rep. 87, 96 (English Court of Appeal). See alsoStarlight Shipping Co. v. Tai Ping Ins. Co. [2007] EWHC 1893 (Q.B.) (issuing antisuit injunction to prevent litigation of merits of dispute by Chinese courts before jurisdictional challenges could be considered by arbitral tribunal in English-seated arbitration); C v. D [2007] EWHC 1541 (Comm.) (Q.B.) (antisuit injunction granted against action in U.S. courts to annul award made in England, where insurance policy was governed by New York law but disputes were to be “finally and fully determined in London, England under the provisions of the English Arbitration Act”; no right to seek to annul award in New York, as “Such a challenge usurps the function of the English court which has power to grant injunctions to protect its own jurisdiction and the integrity of the arbitration process. In such a case there is an infringement of the legal right of [the Claimant] (both contractual and statutory rights) under English law and an abuse of the process of this court in the usurpation of its exclusive jurisdiction to supervise arbitrations with their seat in this country.”); Elektrim SA v. Vivendi Universal SA [2007] EWHC 571, at ¶52 (Comm.) (Q.B.) (“the court has jurisdiction … to grant an injunction to restrain a party from engaging in court proceedings in another jurisdiction, in breach of an English arbitration clause”); XL Ins. Ltd v. Owens Corning [2000] 2 Lloyd's Rep. 500 (Q.B.); Toepfer Int'l GmbH v. Coc. Cargill France [1997] 2 Lloyd's Rep. 98 (Q.B.); Cont'l Bank NA v. Aeakos Compania Naviera SA [1994] 1 Lloyd's Rep. 505 (English Court of Appeal). 172 World Pride Shipping Ltd v. Daiichi Chuo Kisen Kaisha [1984] 2 Lloyd's Rep. 489 (Q.B.) (“the American court has not yet ruled on the joint motion for continuance [of litigation]. … It seems to me that in those circ*mstances it would be much better that the [U.S.] District Court should itself rule on the motion for continuance and, if it thinks fit, stay all further proceedings on [the counterclaim” … rather than that I should seek to preempt, and perhaps even seem to dictate the decision of a foreign Court.”); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶1-008 (14th ed. 2006). 173 See, e.g., Welex AG v. Rosa Maritime Ltd [2003] 2 Lloyd's Rep. 509 (English Court of Appeal) (“the party suing in the noncontractual forum must show strong reasons for [breaching the arbitration agreement] or he faces the prospect of an injunction being granted against him”); supra pp. 1036-1037. 174 See infra pp. 1043-1044. 175 C v. D [2007] EWHC 1541 (Comm.) (Q.B.). 176 See Skandia Int'l Ins. Co. v. Al Amana Ins. & Reins. Co., XXIV Y.B. Comm. Arb. 615 (Bermuda S.Ct. 1994) (1999) (“this Court has jurisdiction to restrain foreign legal proceedings brought in breach of an arbitration agreement”); WSG Nimbus Pte Ltd v. Board of Control for Cricket in Sri Lanka, [2002] 3 Sing. L.R. 603 (Singapore High Court). 177 WSG Nimbus Pte Ltd v. Board of Control for Cricket in Sri Lanka, [2002] 3 Sing. L.R. 603, 637 (Singapore High Court). 178 The Singaporean approach rests on the view that the New York Convention affirmatively obligates states to enjoin litigations brought in violation of valid arbitration agreements, referring to “a duty to uphold [such] agreement[s].” Ibid. at 637. 179 See supra pp. 1014, 1019-1020. 180 See, e.g., LAIF X SPRL v. Axtel, SA de CV, 390 F.3d 194 (2d Cir. 2004); Paramedics Electromedicina Comercial, Ltda v. GE Med. Sys. Info. Tech., Inc., 369 F.3d 645 (2d Cir. 2004); Comverse, Inc. v. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Am. Telecomm., Inc. Chile SA, 2006 U.S. Dist. LEXIS 76791 (S.D.N.Y. 2006) (declining to issue antisuit injunction against proceedings before Chilean antitrust authorities); Affymax, Inc. v. Johnson & Johnson, 420 F.Supp.2d 876 (N.D. Ill. 2006); SG Avipro Fin. Ltd v. Cameroon Airlines, 2005 U.S. Dist. LEXIS 11117 (S.D.N.Y. 2005); Empresa Generadora de Electricidad ITABO, SA v. Corporación Dominicana de Empresas Eléctricas Estatales, 2005 WL 1705080 (S.D.N.Y. 2005); Ibeto Petrochem. Indus., Ltd v. M/T Beffen, 412 F.Supp.2d 285 (S.D.N.Y. 2005); Pepsico Inc. v. Oficina Cent. de Asesoria y Ayuda Tecnica, 945 F.Supp. 69 (S.D.N.Y. 1996) (rejecting application for antisuit injunction). See also Bedard & Mascarenhas, Comverse, Inc.: Methodological Issues in Anti-Suit Injunctions, 22(2) Mealey's Int'l Arb. Rep. 1 (2007). 181 Paramedics Electromedicina Comercial, Ltda v. GE Med. Sys. Info. Tech., Inc., 369 F.3d 645, 652 (2d Cir. 2004). See alsoChina Trade & Dev. Corp. v. MV Choong Yong, 837 F.2d 33, 35 (2d Cir. 1987) (agreeing with the general approach of first “inquiring (1) whether the parties to both suits are the same and (2) whether resolution of the case before the enjoining court would be dispositive of the enjoined action”); Gau Shan Co. v. Bankers Trust Co., 956 F.2d 1349, 1353-54 (6th Cir. 1992) (explaining different approaches among courts but holding that threshold inquiry is same). 182 Empresa Generadora de Electricidad ITABO, SA v. Corporación Dominicana de Empresas Eléctricas Estatales, 2005 WL 1705080 (S.D.N.Y. 2005). 183 LAIF X SPRL v. Axtel, SA de CV, 390 F.3d 194 (2d Cir. 2004); Paramedics Electromedicina Comercial, Ltda v. GE Med. Sys. Info. Tech., Inc., 369 F.3d 645, 654 (2d Cir. 2004); Ibeto Petrochem. Indus., Ltd v. M/T Beffen, 412 F.Supp.2d 285 (S.D.N.Y. 2005). 184 See, e.g., Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 335 F.3d 357 (5th Cir. 2003); MacPhail v. Oceaneering Int'l, Inc., 302 F.3d 274 (5th Cir. 2002); Kaepa, Inc. v. Achilles Corp., 76 F.3d 624 (5th Cir. 1996); Philips Med. Sys. Int'l BV v. Bruetman, 8 F.3d 600 (7th Cir. 1993); Seattle Totems Hockey Club, Inc. v. Nat'l Hockey League, 652 F.2d 852 (9th Cir. 1981); Cargill, Inc. v. Hartford Accident & Indem. Co., 531 F.Supp. 710 (D. Minn. 1982). 185 See, e.g., Goss Int'l Corp. v. Man Roland Druckmaschinen AG, 2007 U.S. App. LEXIS 14306 (8th Cir. 2007); Quaak v. Klynveld Peat Marwick Goerdeler Bedrijfsrevisoren, 361 F.3d 11 (1st Cir. 2004); Stonington Partners v. Lernout & Hauspie Speech Prod. NV, 310 F.3d 118 (3d Cir. 2002); Gen. Elec. Co. v. Deutz AG, 270 F.3d 144 (3d Cir. 2001); Gau Shan Co. v. Bankers Trust Co., 956 F.2d 1349 (6th Cir. 1992); China Trade & Dev. Corp. v. MV Choong Yong, 837 F.2d 33 (2d Cir. 1987); Compagnie des Bauxites de Guinea v. Ins. Co. of North Am., 651 F.2d 877, 887 (3d Cir. 1981); Laker Airways v. Sabena, Belgian World Airways, 731 F.2d 909 (D.C. Cir. 1984). 186 SG Avipro Fin. Ltd v. Cameroon Airlines, 2005 U.S. Dist. LEXIS 11117 (S.D.N.Y. 2005). See alsoIbeto Petrochem. Indus., Ltd v. M/T Beffen, 475 F.3d 56, 64-65 (2d Cir. 2007) (citing pro-arbitration policy to compel arbitration in London while enjoining a concurrent lawsuit in Nigeria); Paramedics Electromedicina Comercial, Ltda v. GE Med. Sys. Info. Tech., Inc., 369 F.3d 645, 654 (2d Cir. 2004) (invoking policy of “liberal enforcement of arbitration clauses … [which] applies with particular force in international disputes”; relying on fact that Brazilian party filed Brazilian litigation as “a tactic to evade arbitration”); Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88, 90, 99 (2d Cir. 1999) (citing http://www.kluwerarbitration.com/CommonUI/print.aspx
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pro-arbitration policy to compel arbitration in New York, while enjoining a concurrent lawsuit in the Dominican Republic); Affymax, Inc. v. Johnson & Johnson, 420 F.Supp.2d 876, 884 (N.D. Ill. 2006); Suchodolski Assocs., Inc. v. Cardell Fin. Corp., 2006 U.S. Dist. LEXIS 83169, at *4 (S.D.N.Y. 2006). 187 See, e.g., Paramedics Electromedicina Comercial, Ltda v. GE Med. Sys. Info. Tech., Inc., 369 F.3d 645, 654 (2d Cir. 2004); WalMart Stores, Inc. v. PT Multipolar Corp., 1999 U.S. App. LEXIS 31578 (9th Cir. 1999) (affirming antisuit injunction against Indonesian proceedings in violation of arbitration agreement); Storm, LLC v. Telenor Mobile Comm. AS, 2006 U.S. Dist. LEXIS 90978, at *26 (S.D.N.Y. 2006). 188 See, e.g., LAIF X SPRL v. Axtel, SA de CV, 390 F.3d 194 (2d Cir. 2004); Empresa Generadora de Electricidad ITABO, SA v. Corporación Dominicana de Empresas Eléctricas Estatales, 2005 WL 1705080, at *8 (S.D.N.Y. 2005). 189 See, e.g., Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 500 F.3d 111 (2d Cir. 2007) (upholding antisuit injunction against foreign litigation that could frustrate foreign arbitral award and U.S. judgment recognizing that award); Suchodolski Assocs., Inc. v. Cardell Fin. Corp., 2006 U.S. Dist. LEXIS 83169 (S.D.N.Y. 2006). 190 Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 335 F.3d 357 (5th Cir. 2003) (“multiple judicial proceedings on the same legal issues are characteristic of the confirmation and enforcement of international arbitral awards under the Convention”). Compare the approach of English courts supra p. 1038. 191 Gaillard, Il est interdit d'interdire: réflexions sur l'utilisation des anti-suit injunctions dans l'arbitrage commercial international, 2004 Rev. arb. 47; G. Petrochilos, Procedural Law in International Arbitration 105 (2004) (“Orders enjoining a party from continuing with proceedings commenced by that party in another forum (commonly called ‘antisuit injunctions’) are peculiar to AngloAmerican common law systems”). 192 Judgment of 10 January 1996, 3 VA 11/95, Re the Enforcement of an English Anti-Suit Injunction [1997] I.L.Pr. 320 (Oberlandesgericht Düsseldorf). 193 Ibid. The German court also reasoned: “[q]uite apart from this, the sovereignty of Germany would also be generally infringed if, as in the present case, a foreign court issued instructions to the parties to an action before a German court as to how they are to act or to enter appearance and what applications they are to make. Judicial proceedings are guaranteed to be duly conducted in accordance with the rule of law only if the parties and their representatives are able, without any restriction, to place before the court all the facts they consider necessary for assessment by the court and to make the applications required by the procedural situation, and no further demonstration of this is necessary.” 194 Turner (Gregory Paul) v. Grovit (Felix Freed Ismail), Harada Ltd and Changepoint SA, C-159/02 [2004] E.C.R. I-3565, at ¶27 (E.C.J.). See also Gaillard, Il est interdit d'interdire: refléxions sur l'utilisation des anti-suit injunctions dans l'arbitrage commercial international, 2004 Rev. arb. 47 (antisuit injunctions ignore principle of competence-competence). 195 Turner (Gregory Paul) v. Grovit (Felix Freed Ismail), Harada Ltd and Changepoint SA, C-159/02 [2004] E.C.R. I-3565, at ¶27 (E.C.J.). http://www.kluwerarbitration.com/CommonUI/print.aspx
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196 See infra pp. 1049-1055. 197 See, e.g., West Tankers Inc v. Ras Riunione Adriatica di
Sicurta et al., “The Front Comor” [2005] 2 Lloyd's Rep. 257 (Q.B.); Through Transport Mut. Ins. Ass'n (Eurasia) Ltd v. New India Assur. Ass'n Co. Ltd [2004] EWCA Civ. 1598 (English Court of Appeal). 198 Turner (Gregory Paul) v. Grovit(Felix Freed Ismail), Harada Ltd and Changepoint SA, C-159/02 [2004] E.C.R. I-3565 (E.C.J.). See Hartley, The European Union and the Systematic Dismantling of the Common Law of Conflict of Laws, 54 Int'l & Comp. L.Q. 813, 823 (2005). 199 Council Regulation (EC) No. 44/2001 of 22 December 2000, Art. 1(2)(d) (“The Regulation shall not apply to … arbitration”). 200 Marc Rich & Co. AG v. Società Italiana Impianti PA, C-190/89 [1991] I-3855, at ¶18 (E.C.J.) (“The international agreements, and in particular the abovementioned New York Convention on the recognition and enforcement of foreign arbitral awards … lay down rules which must be respected not by the arbitrators themselves but by the courts of the Contracting States. Those rules relate, for example, to agreements whereby parties refer a dispute to arbitration and the recognition and enforcement of arbitral awards. It follows that, by excluding arbitration from the scope of the Convention on the ground that it was already covered by international conventions, the Contracting Parties intended to exclude arbitration in its entirety, including proceedings brought before national courts”). In the case, the ECJ held that the EU Member States intended to exclude arbitration “in its entirety, including proceedings brought before national courts” from the scope of application of the Brussels Convention. 201 West Tankers Inc. v. Ras Riunione Adriatica di Sicurta et al., “The Front Comor” [2005] 2 Lloyd's Rep. 257 (Q.B.). 202 West Tankers Inc. v. RAS Riunione Adriatica di Sicurta et al., The “Front Comor” [2007] 1 Lloyd's Rep. 391 (House of Lords). 203 Hartley, The European Union and the Systematic Dismantling of the Common Law of Conflict of Laws, 54 Int'l & Comp. L.Q. 813, 823 (2005). 204 An antisuit injunction should generally not be available where the foreign litigation is based upon a local public policy or nonarbitrability rule, see supra pp. 766 et seq., that is consistent with the Convention, see supra pp. 520, 530-535, and which does not seek to interfere with or enjoin the arbitral process. In the latter case, an antisuit injunction would not only properly be available, but would be appropriate. 205 See supra pp. 1038-1039. 206 This was the position in much of the United States prior to the FAA. See supra pp. 39-49; Red Cross Line v. Atlantic Fruit Co., 264 U.S. 109 (U.S. S.Ct. 1924) (“an agreement to arbitrate was legal in New York and damages were recoverable for a breach thereof”); Paytonv. The Hurst Eye, Ear, Nose & Throat Hos., 318 S.W.2d 726 (Tex. Ct. App. 1958) (under Texas common law, a party “could not compel an arbitration … and is relegated to a suit for damages for any breach of the arbitration clause”). But seeMusnon v. Straits of Dover SS Co., 102 Fed. 926 (2d Cir. 1900) (declining to order more than nominal damages for breach of arbitration agreement: dispute resolution by litigation is “theoretically at least, the safest and best devised by the wisdom and experience of mankind”); Restatement (First) Contracts §550 (1932) (only “nominal damages” for breach of agreement to arbitrate).
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207 See supra p. 45; E. Gaillard & J. Savage (eds.), Fouchard
Gaillard Goldman on International Commercial Arbitration ¶631 (1999). 208 OT Africa Line Ltd v. MAGIC Sportswear Corp. [2005] EWCA Civ. 710 (English Court of Appeal) (“damages will not be easily calculable and can indeed only be calculated by comparing the advantages and disadvantages of the respective fora. This is likely to involve an even graver breach of comity than the granting of an antisuit injunction”). 209 See, e.g., Ball v. Versar, Inc., 2006 WL 2568057 (S.D. Ind. 2006); Indosuez Int'l Fin., BV v. Nacional Reserve Bank, 758 N.Y.S.2d 308 (N.Y. App. Div. 2003); Allendale Mut. Ins. Co. v. Excess Ins. Co. Ltd, 992 F.Supp. 278 (S.D.N.Y. 1998); Laboratory Corp. of Am. Inc. v. Upstate Testing Laboratory, Inc., 967 F.Supp. 295, 299 (N.D. Ill. 1997); Taylor v. Bevinco Bar Systems, 1997 U.S. Dist. LEXIS 22098 (D. Ariz. 1997). 210 See, e.g., Schiffahrtsgesellschaft Detlev von Appen GmbH v. Voest Alpine Intertrading GmbH [1997] 2 Lloyd's Rep. 279 (English Court of Appeal); Mantovani v. Caparelli SpA [1980] 1 Lloyd's Rep. 375 (English Court of Appeal). See also Dutson, Breach of An Arbitration or Exclusive Jurisdiction Clause: The Legal Remedies If It Continues, 16 Arb. Int'l 89 (2000); Wessel & North Cohen, In Tune With Mantovani: The “Novel” Case of Damages for Breach of An Arbitration Agreement, 2001 Int'l Arb.L.Rev. 65. 211 Wells v. Entre Computer Centers, Inc., 915 F.2d 1566 (4th Cir. 1990) (court knows of no case “in which a court has awarded damages because a plaintiff brought suit in a forum other than the one to which it had contractually agreed”); RGCInt'l Inv., LDC v. ARI Network Services, 2004 WL 189784 (D. Del. 2004). 212 Some national courts have raised this issue without deciding it. See Philip Alexander Sec. & Futures Ltd v. Bamberger [1996] C.L.C. 1757 (English Court of Appeal); Aggeliki Charis Compania Maritime SA v. Pagnan SpA (The Angelic Grace) [1995] 1 Lloyd's Rep. 87, 94 (English Court of Appeal). 213 See supra pp. 95-97, 203-205, 567-569; New York Convention, Arts. II(1) and II(3). See also infra pp. 2691-2699. 214 WSG Nimbus Pte Ltd v. Board of Control for Cricket in Sri Lanka, [2002] 3 Sing. L.R. 603 (Singapore High Court). 215 Judgment of 19 December 1997, Compañia Minera Condesa SA et Compañia de Minas Buenaventura SA v. BRGM-Pérou SAS, DFT 124 III 83, 86-87 (Swiss Federal Tribunal). See Perret, Parallel Actions Pending Before An Arbitral Tribunal and A State Court: The Solution under Swiss Law, in Arbitral Tribunals or State Courts: Who Must Defer to Whom? 65, 70-72 (ASA Special Series No. 15 2001); Geisinger & Lévy, Lis Alibi Pendens in International Commercial Arbitration, in ICC, Complex Arbitrations 53, 56 & n.15 (ICC Ct. Bull. Spec. Supp. 2003). 216 Judgment of 19 December 1997, Compañia Minera Condesa SA et Compañia de Minas Buenaventura SA v. BRGM-Pérou SAS, DFT 124 III 83, 86-87 (Swiss Federal Tribunal). The Swiss Federal Tribunal based its ruling on dictum in one of its previous decisions holding that the lis pendens provision of Article 9 of the Swiss Law on Private International Law could also be applied by analogy to arbitral proceedings. Judgment of 20 December 1995, DFT 121 III 495 (Swiss Federal Tribunal); infra pp. 2921-2923. The application of the priority principle under Article 9 to cases of parallel proceedings between a foreign court and an arbitral tribunal sitting in http://www.kluwerarbitration.com/CommonUI/print.aspx
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Switzerland was subsequently confirmed by the Swiss Federal Tribunal in the Fomento decision. See infra pp. 2921-2923, 29402942; Judgment of 14 May 2001, Fomento de Construcciones y Contratas SA v. Colon Container Terminal SA, DFT 127 III 279 (Swiss Federal Tribunal). 217 See infra pp. 2921-2923 & 2940-2942. 218 CBS Corp. v. WAK Orient Power & Light Ltd, 168 F.Supp.2d
403 (E.D. Pa. 2001) (“WAK's expressed intention to attempt to obtain and register in the courts of the United States of America, without leave of this court, a foreign judgment arising from a subject matter relating to the arbitral award would run afoul of this court's judgment enforcing the Arbitral Award as well as the fundamental principles undergirding the Convention.”); Am. Constr. Mach. & Equip. Corp. v. Mechanised Constr. of Pakistan, Ltd, 659 F.Supp. 426 (S.D.N.Y. 1986), aff'd, 828 F.2d 117 (2d Cir. 1987). 219 Tracomin SA v. Sudan Oil Seeds [1983] Lloyd's Rep. 384 (English Court of Appeal). 220 The argument has been rejected in England. See, e.g., Aggeliki Charis Compania Maritime SA v. Pagnan SpA (The Angelic Grace) [1995] 1 Lloyd's Rep. 87, 94 (English Court of Appeal); Through Transport Mut. Ins. Ass'n (Eurasia) Ltd v. New India Assur. Ass'n Co. Ltd [2004] EWCA Civ. 1598 (English Court of Appeal); L. Collins (ed.), Dicey Morris & Collins on The Conflict of Laws ¶16-091 (14th ed. 2006).
Effects and Enforcement of International Arbitration Agreements - D. Court Orders Enjoining Arbitration: Anti-Arbitration Injunctions Chapter 7 Gary B. Born
Author Gary B. Born
D. Court Orders Enjoining Arbitration: Anti-Arbitration Injunctions (221) Some national courts have issued injunctive relief similar in concept to antisuit injunctions against foreign litigation, forbidding a party from pursuing arbitral proceedings on the grounds that the parties' arbitration agreement was either invalid or did not cover the claims asserted before the arbitrators. Both the standards for issuing such “anti-arbitration injunctions” and the effects of such orders on arbitral tribunals raise complex issues. page "1048" 1. Anti-Arbitration Injunctions Issued by National Courts
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Source Effects and Enforcement of International Arbitration Agreements - D. Court Orders Enjoining Arbitration: Anti-Arbitration Injunctions in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. Page 1'085 of 3'270
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An anti-arbitration injunction is essentially an antisuit injunction or order, issued against a party (or arbitrators) to preclude the initiation or continuation of an arbitration. Typically, anti-arbitration injunctions are purportedly justified on the grounds that there is no valid arbitration agreement, and that one party is therefore entitled to an order preventing an illegitimate process from going forward. In most cases, anti-arbitration injunctions are part of deliberately obstructionist tactics, typically pursued in sympathetic local courts, aimed at disrupting the parties' agreed arbitral mechanism.
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It was formerly said that there is little authority on the topic of antiarbitration injunctions. (222) That is no longer true. In particular, common law courts in India, (223) Pakistan (224) and the United States, (225) have issued anti-arbitration injunctions against foreign arbitral proceedings, while English courts have recognized the possibility page "1049" of issuing such orders, (226) and while also issuing anti-arbitration orders against English-seated international arbitrations. (227) It is also sometimes said that antisuit (and anti-arbitration) injunctions are unknown in civil law jurisdictions. (228) That too is no longer true: courts in Brazil, (229) Ethiopia (230) and Indonesia (231) have recently (albeit, as discussed below, improperly) issued injunctions against foreign arbitrations. In recent years, Indian and Pakistani courts in particular have been prepared to issue injunctions against both parties and arbitrators, purporting to enjoin arbitral proceedings sited abroad. Under Indian law, an anti-arbitration injunction may be issued where it is shown that the arbitral proceedings were oppressive and vexatious and would constitute an abuse of the process of law, as defined under Indian law. (232) Similarly, Pakistani courts enjoined an arbitration that was initiated “as counterblast” to another proceeding and, thus, allegedly in bad faith, and where the dispute was non-arbitrable and subject to the exclusive jurisdiction of the Pakistani courts under Pakistani law. (233) Most U.S. courts have also been prepared in principle to issue antiarbitration injunctions, but are extremely reserved in granting such relief, doing so only in exceptional cases. (234) This can be explained in part by the fact that the FAA page "1050" implements a strong public policy in favor of arbitration and in part by the relatively cautious approach that U.S. courts take towards antisuit injunctions generally. (235) Accordingly, U.S. courts have generally declined to issue injunctive relief against participation in arbitral proceedings that are subject to the New York Convention. (236) Other U.S. courts have gone further and held that they lack the power to enjoin a foreign arbitration subject to the New York Convention. (237) English courts have adopted a comparable approach, asserting the power to issue anti-arbitration injunctions, but expressing great reluctance actually to do so. (238) In one decision, an English court held that “even assuming that continuation of the Englishseated arbitration was ‘vexatious, oppressive, or unconscionable’ … the court should not invoke the power to grant an injunction to halt the arbitral http://www.kluwerarbitration.com/CommonUI/print.aspx
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proceedings.” (239) More recently, an English court enjoined the continuation of an English-seated international arbitration, on the grounds that an earlier English court decision had page "1051" held that no valid arbitration agreement bound the parties to the arbitration. (240) Canadian courts have also claimed (and exercised) the authority to issue anti-arbitration injunctions against international arbitrations (including arbitrations seated abroad). (241) Some critics have challenged the legitimacy of any anti-arbitration injunction, on the grounds that such relief: “appears to violate conventional and customary international law, international public policy and the accepted principles of international arbitration.” (242) At first impression, these criticisms could appear to sweep too broadly. It can be argued that, in principle, there is nothing in the New York Convention (or international law generally) that forbids national courts from enjoining a party from proceeding with purported arbitral proceedings in the absence of a valid arbitration agreement: the Convention arguably protects valid arbitration agreements, not non-existent or invalid agreements. Under this view, issuance of an anti-arbitration injunction against an arbitration pursuant to a valid arbitration agreement, which is protected by the Convention, is a breach of Articles II(3) and III of the Convention (243) – but other anti-arbitration orders would not be. page "1052" Nonetheless, the better view is that issuance of an anti-arbitration injunction against an arbitration subject to the New York Convention is generally contrary to the basic legal framework for international arbitration established by the Convention; that conclusion applies regardless whether the anti-arbitration order is issued by a court in the arbitral seat or otherwise. (244) As discussed elsewhere, this regime involves no supranational authority to interpret and give effect to the Convention's provisions regarding international arbitration agreements (and awards). (245) Rather, individual Contracting States are responsible for carrying out the Convention's provisions regarding the recognition of arbitration agreements and awards, including when other Contracting States have failed to do so (246) (such as, when a Contracting State wrongfully purports to deny recognition of an arbitration agreement or to wrongfully annul an award on jurisdictional grounds). (247) What the New York Convention's structural regime implies is that Contracting States should not interfere with the ability of one another to give effect to their respective obligations under the Convention. (248) That is, a state should not take steps to prevent another Contracting State from recognizing agreements to arbitrate or arbitral awards, merely because it would not itself accord recognition to the agreement or award; put differently, a Contracting State should not seek, through page "1053" unilateral injunctive orders, to preclude other Contracting States from considering jurisdictional issues under the Convention and from complying with their obligations under the Convention. (249) It is thus the international legal framework under the Convention that argues cogently against the issuance of anti-arbitration injunctions against http://www.kluwerarbitration.com/CommonUI/print.aspx
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international arbitral proceedings and award enforcement, even though such injunctions might well be permissible and sensible in domestic matters. (250) In any event, even if the power to enjoin arbitral proceedings were recognized in principle to exist, that authority should be exercised with the utmost circ*mspection and only in rare circ*mstances. In particular, injunctions against international arbitral proceedings subject to the New York Convention (seated either locally or abroad) ought in principle never be issued on anything other than jurisdictional grounds (e.g., the absence of a valid arbitration agreement): claims that an arbitral tribunal is considering meritless or time-barred claims, or that an arbitration is duplicative and vexatious, are not proper grounds for issuing an anti-arbitration injunction or otherwise interfering with the arbitral process. Indeed, issuing anti-arbitration orders on such grounds clearly violates principles of judicial non-interference in the arbitral process, embodied in both the New York Convention and national arbitration legislation. (251) Even where one party denies the existence of a valid arbitration agreement, an anti-arbitration injunction should virtually never be issued (even assuming, contrary to the arguments above, the power to do so under the Convention is acknowledged). That is because of the risk of interfering with the arbitral tribunal's assessment of its own jurisdiction or with other national courts' assessment of the validity of the arbitration agreement (particularly courts in the arbitral seat). In virtually all instances, such determinations should be permitted to be made by the arbitral tribunal, subject to review by courts of the arbitral seat. (252) Moreover, any determination that a particular dispute is nonarbitrable or the subject of mandatory national law or public policy (within the meaning of Article V(2) of the New York Convention) ought never to be grounds for enjoining an page "1054" arbitration. Rather, in this event, a national court can permit litigation of the putatively non-arbitrable dispute to proceed before it and can refuse to recognize any arbitral award dealing with the subject, without the necessity for issuing anti-arbitration injunctive relief. That approach avoids purporting to impose individual national conceptions of non-arbitrability and public policies on foreign states. (253) Such an imposition would be inconsistent with the New York Convention's treatment of these matters as exceptional escape devices from individual Contracting State's obligations to give effect to valid arbitration agreements and awards, but not as grounds for more generally denying recognition to such agreements and awards in other states. (254) Where the parties have agreed to arbitrate jurisdictional objections (255) then it is per se forbidden for national courts to issue an antiarbitration injunction (again, even if one assumes that such injunctions are permitted in some cases). An anti-arbitration order can only even arguably be legitimate where the underlying agreement to arbitrate is non-existent, invalid, or inapplicable – conclusions which the parties' agreement to arbitrate jurisdictional disputes forbids a national court from reaching. 2. Effect of Anti-Arbitration Injunction on Arbitral Tribunal
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When a national court issues an anti-arbitration injunction, delicate issues arise as to the arbitral tribunal's authority to continue with the arbitration. A number of tribunals have refused to give effect to or comply with anti-arbitration injunctions, reasoning that the arbitrators have an independent obligation to determine their own jurisdiction. (256) One tribunal explained this rationale as follows: page "1055" “we are of the view that it would be improper, in light of our primary duty to the parties, to observe the injunctions issued by those courts [in the arbitral seat], which have already significantly delayed these proceedings, given that they have the effect of frustrating the parties' agreement to submit disputes to international arbitration. … the Arbitral Tribunal will continue to prosecute these arbitral proceedings in accordance with its duty to the parties, in a manner consistent with their arbitration agreement.” (257) This reasoning was adopted by another tribunal, which refused to comply with an anti-arbitration injunction issued by a court located in the arbitral seat (Indonesia), at the behest of the respondent (the Republic of Indonesia), instead moving the situs of the arbitral hearings to another state and continuing with the arbitration. (258) The tribunal correctly reasoned that the “purported injunction violates the Republic of Indonesia's undertakings [in the parties arbitration agreement],” and that “to prevent an arbitral tribunal from fulfilling its mandate in accordance with procedures formally agreed by the Republic of Indonesia is a denial of justice.” (259) Less persuasively, the tribunal also denied that there was any conflict (or “struggle”) between “the Indonesian courts and the Arbitral Tribunal”: “to the contrary … [t]he Jakarta Court's injunction purported to forbid pursuit of the arbitration[, but] the jurisdiction of that court is perforce limited to Indonesian territory.” (260) Because the tribunal conducted hearings outside Indonesia there was, in the tribunal's view, no breach of the Indonesian injunction. (261) The same rationale that supports an arbitral tribunal's refusal to comply with an anti-arbitration injunction, whether by a court in the arbitral seat or otherwise, also justifies a tribunal's refusal to stay the arbitral proceedings on lis pendens grounds pending litigation of the parties' dispute in a national court. (262) Indeed, as discussed below, even where the parallel litigation involves jurisdictional challenges page "1056" to the arbitral tribunal's authority, it has an independent right – and obligation – to itself proceed to consider and decide the jurisdictional challenges. (263) page "1057"
221 For commentary, see E. Gaillard (ed.), Anti-Suit Injunctions in
International Arbitration (2005) (including contributions from Gaillard, Schwebel, Baum, Lew, Schneider, de Boisséson, Lévy, Greenwood and Fouchard). 222 Cf. Schwebel, Anti-Suit Injunctions in International Arbitration: An Overview, in E. Gaillard (ed.), Anti-Suit Injunctions in http://www.kluwerarbitration.com/CommonUI/print.aspx
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International Arbitration 6 (2005) (“Scholarly analysis of the subject of anti-suit injunctions in respect of arbitration is surprisingly scarce.”). 223 Union of India v. Dabhol Power Co., IA No. 6663/2003 Suit No. 1268/2003 (Delhi High Court 2004). But seeCDC Fin. Serv. (Mauritius) Ltd v. BPL Comms., (2003) 12 SCC 140, 144 (Indian S.Ct.). 224 SGS v. Pakistan, 19 Arb. Int'l 182 (Pakistan S.Ct. 2002) (2003); The Hub Power Co. v. Pakistan WAPDA, 16 Arb. Int'l 439 (Pakistan S.Ct. 2000) (2000). See Kerr, Concord and Conflict in International Arbitration, 13 Arb. Int'l 121, 137 (1997) (describing Pakistani antisuit injunctions against arbitrations seated in Singapore and England). 225 Hull v. Norcom, Inc., 750 F.2d 1547 (11th Cir. 1985); Société Générale de Surveillance v. Raytheon European European Mgt & Sys. Co., 643 F.2d 863 (1st Cir. 1981); Shinto Shipping Co. v. Fibrex & Shipping Co., 572 F.2d 1328 (9th Cir. 1978) (concluding injunction against arbitration not warranted on the facts); Masefield AG v. Colonial Oil Indus., Inc., 2005 WL 911770 (S.D.N.Y. 2005) (enjoining arbitration of question whether non-signatories were bound by arbitration clause on grounds that there was no clear and unmistakable agreement to arbitrate jurisdictional issues and that there was no basis for concluding that non-signatories were bound by arbitration agreement). U.S. courts have rejected the argument that the FAA prohibits injunctions barring arbitration. See, e.g., Re Y & A Group Sec. Lit., 38 F.3d 380 (8th Cir. 1994) (rejecting argument that FAA precludes injunction against arbitration); SATCOMInt'l Group plc v. ORBCOMM Int'l Partners, LP, 49 F.Supp.2d 331, 342 (S.D.N.Y. 1999), aff'd, 205 F.3d 1324 (2d Cir. 1999) (it “should follow [from FAA's power to compel arbitration] that the court should have a concomitant power to enjoin arbitration where arbitration is inappropriate”; “A failure to [order the arbitration to be suspended] would frustrate the goals of arbitration, since there would be delay and increased expense as the parties litigated in both fora.”); John Hanco*ck Dist. Inc. v. Saponavo, 901 F.Supp. 194 (E.D. Pa. 1995) (enjoining arbitration of six putatively time-barred claims, while requiring arbitration of other claims); L.F. Rothschild & Co. v. Katz, 702 F.Supp. 464 (S.D.N.Y. 1988) (asserting power to enjoin arbitration); In re Bd. of Directors of Hopewell Int'l Ins. Ltd, 238 B.R. 25 (S.D.N.Y. Bankr. Ct. 1999) (enjoining any arbitration against insurance company subject to foreign insolvency administration). 226 Elektrim SA v. Vivendi Universal SA [2007] EWHC 571 (Q.B.);
Allied Marine Ltd v. Vale do Rio Doce SA [1985] 1 WLR 925 (English Court of Appeal) (possibility of anti-arbitration injunction). 227 See, e.g., Republic of Kazakhstan v. Istil Group Inc. [2007] EWHC 2729 (Comm.) (Q.B.). See also infra pp. 1051-1052 & 29442946. 228 Gaillard, The Misuse of Antisuit Injunctions, N.Y.L.J., 1 August 2002, at 3. 229 Judgment of 3 June 2003, Companhia Paranaense de Energia (Copel) v. UEG Arauncária Ltda., 21 R.D.B.A. 421 (Curitiba Court of First Instance). See also Filho & Lee, Brazil's New Public-Private Partnership Law: One Step Forward, Two Steps Back, 22 J. Int'l Arb. 419 (2005); Dos Santos, Arbitration in Brazil, 21 J. Int'l Arb. 453 (2004). http://www.kluwerarbitration.com/CommonUI/print.aspx
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230 Partial Award in ICC Case No. 10623, 21 ASA Bull. 59 (2003).
See also A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶7-33 (4th ed. 2004). 231 Unpublished Judgment of 1 April 2002, Persusahaan Pertambangan Minyak Dan Gas Bumi Negara v. Karaha Bodas Co. (District Court of Central Jakarta) (forbidding enforcement of Swiss arbitral award and purporting to impose $500,000 per day penalty for attempts to enforce). 232 Union of India v. Dabhol Power Co., IA No. 6663/2003 Suit No. 1268/2003 (Delhi High Court 2004). See also Nirma Ltd v. Lurgi Energie und Entsorgung GmbH, XXVIII Y.B. Comm. Arb. 790 (Gujarat High Court 2002) (2003) (Indian court claims jurisdiction to vacate award made in London). 233 SGS v. Pakistan, 19 Arb. Int'l 182 (Pakistan S.Ct. 2002) (2003); The Hub Power Co. v. Pakistan WAPDA, 16 Arb. Int'l 439 (Pakistan S.Ct. 2000) (2000). 234 See, e.g., Raytheon Eng'rs & Constructors, Inc. v. SMS Schloemann-Siemag AG, 2000 WL 420866 (N.D. Ill. 2000) (apparently enjoining foreign arbitration, subject to New York Convention); Am. Life Ins. Co. v. Parra, 25 F.Supp.2d 467 (D. Del. 1998) (apparently enjoining foreign arbitration, subject to New York Convention); infra p. 1051 nn. 235-237. U.S. courts have been prepared, in exceptional cases, to enjoin international arbitrations seated in the United States. See, e.g., SATCOMM Int'l Group plc v. ORBCOMM Int'l Partners, LP, 49 F.Supp.2d 331 (S.D.N.Y. 1999), aff'd, 205 F.3d 1324 (2d Cir. 1999) (preliminary injunction against international arbitration, subject to New York Convention, seated in United States); Masefield AG v. Colonial Oil Indus., Inc., 2005 WL 911770 (S.D.N.Y. 2005) (preliminary injunction against ICC arbitration, subject to New York Convention, seated in United States). 235 See supra pp. 1039-1041. See alsoURS Corp. v. Lebanese Co.
for the Dev. and Reconstr. of Beirut Central District SAL, 512 F.Supp.2d 199, 210 (D. Del. 2007) (“comity and the purposes of the New York Convention do not support issuing an injunction against a foreign arbitral proceeding”). 236 See, e.g., Murphy Oil USA, Inc. v. SR Int'l Bus. Ins. Co., 2007 WL 2752366 (W.D. Ark. 2007) (denying anti-arbitration injunction against English arbitration, relying on principles of international comity and New York Convention); Oriental Republic of Uruguay v. Chem. Overseas Holdings, Inc., 2006 U.S. Dist. LEXIS 2261 (S.D.N.Y. 2006) (“Rather, as long as the Court is satisfied that the parties agreed to arbitrate a particular dispute – including a question of arbitrability, it must enforce the parties' agreement and submit the matter to arbitration.”); Gen. Elec. Co. v. Deutz AG, 270 F.3d 144 (3d Cir. 2001) (court held that comity precluded an injunction barring Deutz from appealing foreign arbitration tribunal's ruling on issue of arbitrability and from taking further steps in arbitration thereafter). 237 URS Corp. v. Lebanese Co. for the Dev. and Reconstr. of Beirut Central District SAL, 512 F.Supp.2d 199, 208 (D. Del. 2007) (“the FAA does not authorize an injunction against a foreign arbitral proceeding”; “the French courts have primary jurisdiction over the pending arbitration [seated in France] and this court declines to extend its jurisdiction over those extraterritorial waters by enjoining the ongoing arbitration in France”). 238 Elektrim SA v. Vivendi Universal SA [2007] EWHC 571 (Q.B.) http://www.kluwerarbitration.com/CommonUI/print.aspx
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(English courts retain residual power to issue anti-arbitration injunction, as to both English and foreign arbitrations); Internet FZCO v. Ansol Ltd [2007] EWHC 226 (Comm.) (Q.B.) (same); Cetetem SA v. Roust Holding Ltd [2005] 2 Lloyd's Rep. 494 (English CA) (same). 239 Elektrim SA v. Vivendi Universal SA [2007] EWHC 571 (Q.B.) (refusing to enjoin English arbitration on the grounds that there was a parallel foreign arbitration between same parties). 240 See Republic of Kazakhstan v. Istil Group Inc. [2007] EWHC 2729 (Comm.) (Q.B.) (granting anti-arbitration injunction to prevent continuation of arbitral proceedings seated in England where English court had previously annulled arbitrator's jurisdictional award upholding existence of valid arbitration agreement: “No question therefore arises of the court failing to comply with obligations undertaken pursuant to the New York Convention. In my judgment, it would be invidious to leave it to the arbitrators to decide whether they should give preference to their own earlier decision over that of the supervisory court on precisely the same subject matter. The supervisory court has held in proceeding between [the parties] that there is no basis upon which the arbitrators have been invested with jurisdiction to determine the dispute between those parties. That should be an end of the matter.”). The consistency of this decision with the New York Convention is discussed below. See infra pp. 2944-2946. 241 Lac d'Amiante du Canada Ltee v. Lac d'Amiante du Quebec Ltee, J.Q. (Quicklaw) No. 5438 (Quebec Court of Appeal 29 November 1999) (enjoining foreign arbitration on grounds that right to arbitrate had been waived; rejecting contrary jurisdictional determination by arbitral tribunal); Shackleton, Note, 2000 Int'l Arb. L. Rev. N-6. 242 Schwebel, Anti-Suit Injunctions in International Arbitration: An Overview, in E. Gaillard(ed.), Anti-Suit Injunctions in International Arbitration 5 (2005). See also Gaillard, The Misuse of Antisuit Injunctions, N.Y.L.J., 1 August 2002, at 3; G. Petrochilos, Procedural Law in International Arbitration 105 (2004) (“It is far from settled that such injunctions should be regarded as a proper remedy at all, in particular under the New York Convention”). 243 Schwebel, Anti-Suit Injunctions in International Arbitration: An Overview, in E. Gaillard (ed.), Anti-Suit Injunctions in International Arbitration 10 (2005) (“the issuance by a court of an antisuit injunction that, far from recognizing and enforcing an agreement to arbitrate, prevents or immobilizes the arbitration that seeks to implement that agreement, is inconsistent with the obligations of the State under the New York Arbitration Convention. It is blatantly inconsistent with the spirit of the Convention. It may be said to be inconsistent with the letter of the Convention as well, at any rate if the agreement to arbitrate provides for an arbitral award made in the territory of another State.”). 244 In Switzerland, anti-arbitration injunctions are considered irreconcilable with the principle of competence-competence. SeeJudgment of 2 May 2005, 23 ASA Bull. 728-737 (Geneva Court of First Instance) (2005); B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶616 (2006). Other authorities are similar. See Bachand, Must An ICC Tribunal Comply with An Anti-Suit Injunction Issued by the Courts of the Seat of Arbitration? – Comment on Salini Costruttori SpA v. Ethiopia, 20(3) Mealey's Int'l Arb. Rep. 47 (2005); Stacher, You Don't Want to Go There – Antisuit Injunctions in International Commercial Arbitration, 23 ASA Bull. 640 (2005); Gaillard, The Misuse of Antisuit http://www.kluwerarbitration.com/CommonUI/print.aspx
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Injunctions, N.Y.L.J., 1 August 2002, at 3. It is doubtful that the competence-competence doctrine can itself be sufficient to justify a prohibition against anti-arbitration injunctions in international matters. That is because in most jurisdictions, national law permits courts, consistent with the Convention, to consider interlocutory jurisdictional disputes: if the court then concludes that there is no valid arbitration agreement, it is difficult to see why, if only a single legal system is concerned, an anti-arbitration injunction would not be appropriate. The essential factor, however, is that in an international matter, there are multiple national forums to consider and legitimately decide jurisdictional objections – making it inappropriate for one state to preempt such decisions by unilaterally forbidding any arbitration at all. 245 See supra pp. 92-101. 246 See supra pp. 92-101, 203-205 & 566-567. 247 See supra pp. 1036-1045 (antisuit injunctions), 1046-1048
(non-recognition of foreign judgments) & infra pp. 2919-2929, 29372947. 248 A state is of course free to permit litigation on the merits of the parties' claims to proceed, if it concludes that there is no valid arbitration agreement. It is also free to withhold support to what it regards as an illegitimate process (e.g., in supporting constitution of the tribunal or assisting in the taking of evidence). It is conceivable that an arbitration conducted as part of a criminal enterprise should be treated differently, in order to prevent criminal acts from being committed or continued. 249 Thus, it would plainly be improper for a state to enjoin a party
from taking steps to have an award, annulled by that court, recognized in other jurisdictions. See infra pp. 2422-2425, 26722700. 250 This support also draws support from the general principle of judicial non-interference in the arbitral proceedings, discussed infra pp. 1776-1782. This principle is directed towards arbitral proceedings pursuant to a valid arbitration agreement, but nonetheless reflects the basic premise of the Convention that judicial intervention will be directed towards either permitting a litigation to proceed on the merits (after concluding that there is no valid arbitration agreement) or annulling or denying recognition to an arbitral award – but not otherwise intervening in the arbitral process. 251 For a discussion of the principle of judicial non-interference in the arbitral proceedings, see infra pp. 1776-1782. 252 For this reason, among others, the Indian, Pakistani and Indonesian anti-arbitration orders noted above were inappropriate. See supra pp. 1049-1050. It would also appear that they were violations of the New York Convention, by virtue of forbidding the arbitration of disputes that were subject to a valid arbitration agreement. 253 See supra pp. 517-520, 530-535, 766-772, 837-841, 12641270, 1368-1376, 1765-1770, 2553-2560 & 2388-2840 for a discussion of the role of national law and public policy in determining the scope of non-arbitrability under Articles II and V of the New York Convention. 254 See supra pp. 430-431, 517-520, 766-772 & infra pp. 2553http://www.kluwerarbitration.com/CommonUI/print.aspx
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2560, 2691-2699, 2838-2840. 255 See supra pp. 969-971. 256 See, e.g., Himpurna Calif. Energy Ltd v. Republic of Indonesia, Interim Ad Hoc Award (26 September 1999) and Final Award (16 October 1999), XXV Y.B. Comm. Arb. 109 (2000) (refusing to comply with anti-arbitration injunction issued by courts of the arbitral seat); Partial Award in ICC Case No. 10623, 21 ASA Bull. 59 (2003); Decision in Unidentified ICC Case, discussed in Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 106 n.155 (2d ed. 2005) (ICC tribunal proceeds with arbitration notwithstanding Ghanaian court order, in arbitral seat, holding that disputes were non-arbitrable and enjoining arbitration). See alsoJudgment of 16 July 2002, 21 ASA Bull. 120 (Swiss Federal Tribunal) (2003) (refusing to recognize Jamaican anti-arbitration injunction, ordering stay of Swiss arbitration on grounds that arbitration should be conducted in Jamaica). 257 PartialAward in ICC Case No. 10623, 21 ASA Bull. 59, 99 (2003). 258 See Himpurna Calif. Energy Ltd v. Republic of Indonesia, Interim Ad Hoc Award (26 September 1999) and Final Award (16 October 1999), XXV Y.B. Comm. Arb. 109 (2000) See also infra pp. 1730-1732. 259 Ibid. at ¶73 (reciting Procedural Order of 7 September 1999). 260 Ibid. at ¶114. 261 This conclusion is far from clear. It is common in many jurisdictions for in personam injunctions to have extraterritorial effect. G. Born & P. Rutledge, International Civil Litigation in United States Courts 541-60 (4th ed. 2007). It is difficult to imagine that the Indonesian court took any different view. The real basis for the tribunal's decision was that its independent assessment was that a valid arbitration agreement bound the parties and that the Indonesian court's contrary conclusion was illegitimate. 262 See infra pp. 2933-2950 for a discussion of the lis pendens doctrine in this context. As discussed above, most national arbitration legislation recognizes the power of arbitrators to continue with an arbitration notwithstanding a pending jurisdictional challenge in national courts. See supra pp. 877-878, 928-930. 263 See supra pp. 1055-1057 & infra pp. 2937-2947.
Interpretation of International Arbitration Agreements Chapter 8 Gary B. Born
Author Gary B. Born
Interpretation of International Arbitration Agreements (1) This Chapter examines the interpretation of international arbitration agreements. The Chapter first addresses the rules of construction which are applied in different legal systems in interpreting the scope http://www.kluwerarbitration.com/CommonUI/print.aspx
Source Interpretation of International Arbitration Agreements in Gary B. Born , Page 1'094 of 3'270
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of arbitration agreements, and then addresses a number of recurrent interpretative issues that arise in practice. The Chapter also examines interpretative issues concerning the exclusivity of arbitration agreements.
International Commercial Arbitration, (Kluwer Law International 2009) pp. 1059 - 1059
page "1059"
1 For commentary, see Horn, The Arbitration Agreement in Light of
Case Law of the UNCITRAL Model Law (Arts. 7 and 8), 2005 Int'l Arb. L. Rev. 142 (2005); Klein, Disagreements on the Scope of An Arbitration Clause, 7(2) ICC Ct. Bull. 26 (1996); D. Joseph, Jurisdiction and Arbitration Agreements and Their Enforcement ¶¶4.46-4.61 (2005); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶473482 (1999); B. Hanotiau, Complex Arbitration passim (2005); Karrer, Pathological Arbitration Clauses, Malpractice, Diagnosis and Theories, in The International Practice of Law, Liber Amicorum for Thomas Baer and Robert Karrer 109 (1998); Leboulanger, MultiContract Arbitration, 13(4) J. Int'l Arb. 43 (1996); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶7-59 to 7-80 (2003); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶¶3-37 to 3-72 (4th ed. 2004); Schlosser, in F. Stein & M. Jonas (eds.), Kommentar zur Zivilprozessordnung §1029, ¶¶18 et seq. (22d ed. 2002); Sykes, The Contra Proferentem Rule and the Interpretation of International Commercial Arbitration Agreements: The Possible Uses and Misuses of A Tool for Solutions to Ambiguities, 8 Vind. J. Int'l Comm. L. Arb. 65 (2004); Ten Cate, Multi-Party and Multi-Contract Arbitrations: Procedural Mechanisms and Interpretation of Arbitration Agreements under U.S. Law, 15 Am. Rev. Int'l Arb. 133 (2004); F.-X. Train, Les contrats liés devant l'arbitre du commerce international (2003); J.-P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶¶334-350 (2d ed. 2002); Overby, Arbitrability of Disputes under the Federal Arbitration Act, 71 Iowa L. Rev. 1137 (1986).
Chapter 8: Interpretation of International Arbitration Agreements - A. Introduction Chapter 8 Gary B. Born
Author Gary B. Born
This Chapter examines the interpretation of international arbitration agreements. The Chapter first addresses the rules of construction which are applied in different legal systems in interpreting the scope of arbitration agreements, and then addresses a number of recurrent interpretative issues that arise in practice. The Chapter also examines interpretative issues concerning the exclusivity of arbitration agreements. http://www.kluwerarbitration.com/CommonUI/print.aspx
Source Chapter 8: Interpretation of International Arbitration Agreements - A. Introduction in Gary
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A. Introduction International arbitration agreements are creatures of contract. (2) Parties are almost entirely free to draft their arbitration clauses in whatever way they choose. As a page "1059" consequence, like other contracts, arbitration agreements vary widely in language, length, sophistication and quality. (3) Inevitably, like other types of contracts, arbitration agreements give rise to frequent questions of interpretation, particularly concerning the scope of the matters referred to arbitration. In the words of one impatient commentator, there is an “irritatingly large quantity of court litigation relating to the width of arbitral clauses.” (4)
B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 1059 - 1059
To a substantial extent, developed national legal systems have formulated specialized rules for interpreting international arbitration agreements, specifically designed to facilitate the arbitral process. These interpretative principles generally provide for liberal construction of arbitration agreements, both to allow an expansive dispute resolution mechanism and to prevent drafting errors or ambiguities from frustrating the parties' agreement to arbitrate. Nonetheless, where the parties have excluded a particular matter from the scope of their arbitration agreement, it is elementary that “arbitration is simply a matter of contract between the parties; it is a way to resolve those disputes – but only those disputes – that the parties have agreed to submit to arbitration.” (5) As noted above, disputes over the interpretation of arbitration agreements raise particular issues of competence-competence, which are often resolved in favor of arbitral determination of such disputes. (6) As also noted above, the interpretation of arbitration agreements raises choice-of-law questions. (7) Both of these issues are also addressed below. page "1060"
2 See supra pp. 12-13, 65-68, 172-180. 3 See supra pp. 655-659. 4 A. Samuel, Jurisdictional Problems in International Commercial
Arbitration 123-24 (1989). 5 First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (U.S. S.Ct. 1995) (emphasis added). SeeCzarina ex rel Halvanon Ins. v. W.F. Poe Syndicate, 358 F.3d 1286, 1291 (11th Cir. 2004) (“arbitration is a creature of contract and thus the powers of an arbitrator extend only as far as the parties have agreed they will extend”); Walkinshaw v. Diniz [2000] 2 All E.R. (Comm.) 237 (Q.B.); Sonatrach Petroleum Corp.(BVI)v. Ferrell Int'l Ltd [2002] 1 All E.R. (Comm.) 627 (Q.B.); Judgment of 3 October 2000, Nejapa Power Co. LLC v. CEL, 19 ASA Bull. 796, 798 (Swiss Federal Tribunal) (2001) (“Among other prerequisites, an arbitral tribunal has jurisdiction only in case the dispute is within the scope of the arbitration agreement.”). 6 See supra pp. 931-937, 974-975 & infra pp. 1087-1089. 7 See supra p. 561 & infra pp. 1084-1087. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Interpretation of International Arbitration Agreements - B. Scope of Arbitration Agreement Chapter 8 Gary B. Born
Author Gary B. Born
B. Scope of Arbitration Agreement The most frequent issue that arises in the interpretation of international arbitration agreements concerns the “scope” of the parties' agreement. That is, what category of disputes, disagreements, or claims have the parties agreed to arbitrate? In practice, as discussed below, disputes about the scope of an arbitration clause generally concern questions of whether the language of the parties' agreement extends to all contractual claims under a particular contract (or, instead, only a specified sub-set page "1060" of such claims) or whether non-contractual claims (i.e., tort, delict, breach of non-contractual or statutory protections) are subject to arbitration.
Source Interpretation of International Arbitration Agreements - B. Scope of Arbitration Agreement in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 1060 - 1128
1. International Arbitration Conventions International arbitration conventions do not expressly address questions concerning interpretation of the scope of arbitration agreements. The New York Convention acknowledges the necessity of interpreting the scope of an arbitration agreement, and provides for the non-recognition of awards that exceed the scope of the agreement to arbitrate. (8) More fundamentally, Articles II(1) and II(3) of the Convention require giving effect to the parties' agreement regarding the scope of those disputes that they wish (and do not wish) to submit to arbitration. (9) The Convention does not, however, prescribe any rules governing the interpretative process. (10) Despite this, and as discussed below, the basic “pro-arbitration” objectives of the Convention and other leading international arbitration conventions have been relied upon by national courts in developing liberal rules of construction of international arbitration agreements. (11) The authorities discussed below are applicable both in disputes over recognition of arbitration agreements under Article II and in disputes over recognition of arbitral awards under Article V(1)(c). (12) 2. National Arbitration Legislation Like the New York Convention, national arbitration legislation recognizes the need for interpreting the scope of arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreements, but generally without prescribing rules of construction. There are very few exceptions to this approach. (13) The UNCITRAL Model Law is representative of most national legislation in its approach to interpretation. Article 8 of the Model Law provides for the dismissal page "1061" or suspension of litigation of “a matter which is the subject of an arbitration agreement,” referring to matters falling within the arguable scope of the parties' arbitration agreement. (14) Articles 34 and 36 of the Model Law (concerning recognition and annulment of awards) are similar, contemplating that determinations need to be made as to what matters the parties have and have not agreed to submit to arbitration. Nonetheless, none of these provisions further address issues of construction of the arbitration agreement. (15) Other national arbitration statutes are similar to the Model Law, recognizing the need for interpretation of arbitration agreements, but not specifying rules of construction or interpretation. (16) That is true under the FAA, the French New Code of Civil Procedure, the Swiss Law on Private International Law, the Japanese Arbitration Law and almost all other developed arbitration legislation. (17) page "1062" 3. Applicability of General Rules of Contract Interpretation to International Arbitration Agreements As a consequence of the silence of international conventions and national legislation, the interpretation of international arbitration agreements has in most cases been a matter for national courts and arbitral tribunals. The starting point for interpretation has ordinarily been general principles of national contract law. (18) In addition, as discussed below, the pro-arbitration policies of the New York Convention and other international arbitration conventions, as well as the similar policies of national legislation, have significantly influenced the interpretation of such agreements. (19) It is almost uniformly held or assumed that generally-applicable rules of contract construction apply to the interpretation of international arbitration agreements. Arbitral tribunals routinely refer to generallyapplicable canons of contract interpretation, often not derived from any single national legal system, in determining the meaning and scope of arbitration agreements. (20) Similarly, national courts often begin their analysis of the scope of an international arbitration agreement by applying ordinary rules of contract interpretation. (21) In the words of one Australian court, page "1063" “[a]rbitration clauses are contractual provisions … and are governed by the ordinary rules of contractual interpretation.” (22) These generally-applicable rules of contract interpretation include principles of ascertaining the parties' objective intentions, (23) contra proferentem, (24) the specific page "1064" prevailing over the general, (25) giving effect to all parts of the parties' agreement, (26) ut res magis valeat quam pereat, (27) notions of good faith (28) and common usage of terms at the time of the agreement. (29) In principle, other generally-applicable rules of http://www.kluwerarbitration.com/CommonUI/print.aspx
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contract construction are also applicable to the interpretation of arbitration agreements. One recurrent interpretative issue is the extent to which the parties' post-contractual conduct or statements can be used to interpret an arbitration agreement. Different legal systems adopt different approaches to this question, with page "1065" English courts generally excluding post-contractual conduct/statements (30) and many other courts and tribunals admitting such materials. (31) (Such evidence can be particularly compelling where a party has claimed in one forum that disputes are subject to arbitration, and then subsequently objects to an arbitral tribunal's jurisdiction. (32) ) 4. Presumptions Regarding Scope of International Arbitration Agreement To a greater extent than many other contractual provisions, arbitration clauses are relatively standard and formulaic, (33) but must deal with unforeseen and widely varying circ*mstances and claims. As a consequence, contractual language will often not specifically resolve or address issues relating to the coverage of an arbitration clause. Instead, general rules of interpretation and presumptions regarding the parties' intent play an important and often decisive role in ascertaining the meaning of such agreements. (34) This use of presumptions to interpret arbitration agreements has long been a feature of many legal systems. page "1066" a. “Pro-Arbitration” Presumptions Regarding Scope of International Arbitration Agreement In a number of jurisdictions, national law provides that international arbitration agreements should be interpreted in light of a “proarbitration” presumption. Derived from the policies of leading international arbitration conventions and national arbitration legislation, and the parties' likely objectives, this type of presumption provides that a valid arbitration clause should generally be interpreted expansively and, in cases of doubt, extended to encompass disputed claims. That is particularly true where an arbitration clause encompasses some of the parties' disputes and the question is whether it also applies to related disputes, so that all such controversies can be resolved in a single proceeding (rather than in multiple proceedings in different forums). i. U.S. Federal Arbitration Act In the United States, the U.S. Supreme Court and lower federal courts have repeatedly and emphatically applied an unusually strong presumption that parties to an arbitration agreement intended to resolve all their disputes by arbitration. (35) In one leading international decision, the Court declared that “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.” (36) Or, as the Supreme Court put it even more expansively in another decision, arbitration must be compelled unless the court can say with “positive assurance that the arbitration clause is not susceptible to an interpretation that covers the asserted dispute.” (37) http://www.kluwerarbitration.com/CommonUI/print.aspx
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The stated rationale for the foregoing presumption rests on the FAA's “pro-arbitration” objectives and on the parties' objective, good faith intentions. As one court has reasoned, there is a “statutory policy of rapid and unobstructed page "1067" enforcement of arbitration agreements,” requiring “a liberal reading of arbitration agreements.” (38) Lower U.S. courts have consistently followed this vigorously “proarbitration” rule of interpretation. (39) U.S. judicial decisions involving international arbitration agreements under the New York Convention have adopted an especially broad approach to interpretation, expressly distinguishing international cases from purely domestic ones. (40) In the words of one court, the pro-arbitration rule of interpretation “applies with special force in the field of international commerce.” (41) The rationale is that reasonable business people contemplate that arbitration will provide a single, centralized mechanism for resolving their disputes when they enter into an international arbitration agreement, (42) that this approach serves public interests in page "1068" fairness and efficiency, as well as private ones, and that the law should therefore presume in favor of arbitrability. (43) This “pro-arbitration” rule of interpretation has been applied by U.S. courts in a wide variety of circ*mstances. The presumption is applicable equally to “narrow,” as well as to “broad,” arbitration clauses; (44) to both contractual and non-contractual page (45) "1069" claims; and to arbitrations seated in both the United (46) States and abroad. (47) Nonetheless, the language and circ*mstances of the parties' arbitration agreement remain the foundation of decisions concerning the scope of those disputes that are subject to arbitration (48) : the FAA's “pro-arbitration” presumption is important, but it cannot operate in the absence of contractual language. In some instances, arbitration clauses contain exceptions to the general scope of the agreement to arbitrate. For example, as discussed below, parties sometimes choose to exclude particular contractual obligations (e.g., payment obligations, intellectual property rights, technical matters) from the scope of the arbitration clause, (49) instead subjecting these obligations to either specialized dispute resolution provisions (e.g., expert determination) or a choice-of-court clause. (50) In these instances, U.S. courts have sometimes declined to interpret the arbitration clause page (51) "1070" broadly. The same rationale applies where the parties enter into related or parallel contracts. This approach is mistaken. Every arbitration clause is by its nature limited (whether to a particular transaction, contract, or aspect of a contract). The important point in interpreting any such clause is that the parties' choice of arbitration to resolve some set of disputes should presumptively be interpreted as including related disputes, and thus ensuring a single dispute resolution forum (rather than multiple forums), save where the parties agree to the contrary: put most simply, the fact that the parties defined a limited arbitral jurisdiction does not suffice to negate the reasons for interpreting the scope of that agreement liberally, given the gains in efficiency and fairness from doing so, rather than narrowly. (52) This is consistent http://www.kluwerarbitration.com/CommonUI/print.aspx
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with the better-reasoned U.S. authority on the topic (cited above). (53)
The “pro-arbitration” rule of interpretation adopted by U.S. courts applies only to interpreting the scope of an existent arbitration agreement, and not to determining whether a valid arbitration agreement exists. The U.S. Supreme Court made this clear in First Optionsof Chicago v. Kaplan, (54) and lower U.S. courts have almost uniformly adopted the same distinction, holding that “the federal policy favoring arbitration is most applicable in determining the scope of arbitration agreements, rather than whether an arbitration agreement actually exists.” (55) As discussed above, page "1071" U.S. courts approach the question whether or not an arbitration agreement actually exists by applying generallyapplicable contract law principles, often without relying on the same “pro-arbitration” presumption used in interpreting the scope of an existent agreement. (56) ii. Swiss Law on Private International Law Other national arbitration regimes also take pro-arbitration approaches to the interpretation of international arbitration clauses, albeit usually not with precisely the same strong presumption in favor of arbitration that U.S. courts apply. Thus, Swiss courts and commentators have generally concluded that arbitration agreements are subject to basic rules of contract interpretation, no differently from other types of agreements. (57) In addition, there is also authority under Swiss law for a “pro-arbitration” presumption in interpreting the scope of arbitration agreements. (58) The Swiss Federal Tribunal has held that, “if it is established that an arbitration clause exists, there is no reason to interpret that clause restrictively,” and it must instead be “assumed that the parties wish for an embracing jurisdiction of the arbitral tribunal, given that they have concluded an arbitration agreement.” (59) As with the approach adopted by U.S. courts, this “pro-arbitration” rule of interpretation under Swiss law applies only to interpreting the scope of an existent arbitration agreement, and not to determining whether a valid arbitration agreement page "1072" exists. On the contrary, as discussed above, Swiss courts generally apply a relatively strict standard of proof to the issue of existence of a valid arbitration agreement. (60) iii. Germany Like U.S. and Swiss authorities, German courts have held that valid arbitration agreements should be liberally interpreted. A decision of the Hamburg Oberlandesgericht declared “in case of doubt an arbitration clause is not to be interpreted restrictively, but rather extensively.” (61) The court's rationale was that a comprehensive settlement of the parties' dispute is preferable to piecemeal, multiplicitous litigation. Another leading German decision reasoned that a “liberal” construction of arbitration clauses is required, because, “[i]f the parties choose to resolve their disputes by arbitration as opposed to by the state courts, they have certain motives and reasons for doing so,” and this intention must be presumed to extend to “disputes that frequently arise under the http://www.kluwerarbitration.com/CommonUI/print.aspx
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contractual relationship in question.” (62) iv. English Arbitration Act Likewise, English judicial authority has recently abandoned traditional, sometimes restrictive, modes of construction, (63) and adopted an approach similar to that in the United States, Switzerland and Germany. In the words of a 2007 English Court of Appeal decision in Fiona Trust & Holding Corp. v. Privalov, affirmed by the House page "1073" of Lords, “any jurisdiction or arbitration clause in an international commercial contract should be liberally construed.” (64) As the court explained: “we consider that the time has now come for a line of some sort to be drawn and a fresh start made at any rate for cases arising in an international commercial context. Ordinary businessmen would be surprised at the nice distinctions drawn in the cases and the time taken up by argument in debating whether a particular case falls within one set of words or another very similar set of words. If businessmen go to the trouble of agreeing that their disputes be heard in the courts of a particular country or by a tribunal of their choice they do not expect (at any rate when they are making the contract in the first place) that time and expense will be taken in lengthy argument about the nature of particular causes of action and whether any particular cause of action comes within the meaning of the particular phrase they have chosen in their arbitration clause. … [I]t seems to us any jurisdiction or arbitration clause in an international commercial contract should be liberally construed.” (65) As with decisions in other jurisdictions, (66) the English court relied on the desirability of “one-stop arbitration,” particularly in international matters, in affirming a relatively broad “pro-arbitration” rule of interpretation. In the House of Lords' words: “The proposition that any jurisdiction or arbitration clause in an international commercial contract should be liberally construed promotes legal certainty. It serves to underline the golden rule that if the parties wish to have issues as to the validity of their contract decided by one tribunal and issues as to its meaning or performance decided by another, they must say so expressly. Otherwise they will be taken to have agreed on a single tribunal for the resolution of all such disputes.” (67) page "1074" Thus, under English law, fine distinctions between different formulae used in many arbitration clauses are now treated as relatively unimportant to commercial entities, (68) and the more significant consideration is the parties' desire for a single neutral, competent and efficient dispute resolution forum. v. Other Jurisdictions Decisions in other jurisdictions have also invoked pro-arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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policies, of varying degrees of intensity, in concluding that various types of claims were within the scope of the arbitration agreement. (69) Particularly in more recent decisions, Australian courts have apparently adopted a limited pro-arbitration rule of interpretation, while rejecting more expansive U.S. presumptions. (70) Canadian authorities reflect a more liberal approach to interpretative issues. According to a Canadian appellate decision: “The law [of Ontario] also includes a relatively recent, and clear, shift in policy towards encouraging parties to submit their differences to consensual dispute resolution mechanisms outside of the regular court stream. … At the very least, where the language of the arbitration clause is capable of bearing two interpretations, and one of those interpretations fairly provides for arbitration, the courts should lean towards honoring that option…” (71) page "1075" Similarly, in the words of an arbitral award applying the UNCITRAL Rules, there is a “tendency … not only to a non-restrictive but even to an expansive view of international arbitration[ ] [clauses].” (72) Recent amendments to the Italian Code of Civil Procedure codify a pro-arbitration rule of interpretation, making Italy one of the first jurisdictions to legislatively address this issue. (73) There is much to recommend the Italian legislative approach, which other jurisdictions can be expected to follow. In sum, courts in many jurisdictions, as well as arbitral awards, have adopted a “pro-arbitration” rule of construction, interpreting arbitration agreements expansively. This rule of interpretation effectuates the parties' likely intentions, as well as national and international policies favoring arbitration as a means of international dispute resolution. b. “Restrictive” Presumptions Regarding Scope of International Arbitration Agreement Not all authorities or national laws adopt the “pro-arbitration” approach to the interpretation of arbitration agreements that prevails in the United States, Switzerland, Germany, Canada, England, Italy and elsewhere. On the contrary, a few authorities (almost exclusively older ones) have held that arbitration clauses must be interpreted restrictively, resolving doubts about the coverage of particular disputes against coverage. The “restrictive” presumption is generally explained on the grounds that arbitration is a derogation from otherwise available access to civil justice and the “natural judge” of the contract, and that such derogations must be page "1076" (74) construed narrowly, or that the arbitral process suffers from various deficiencies, and therefore should not be encouraged. (75) For example, the Paris Cour d'appel has interpreted the phrase “all disputes related to the interpretation of the contract” as not encompassing disputes concerning the performance of the contract. (76) Some French commentators also conclude that international arbitration agreements must be interpreted restrictively. (77) Italian judicial decisions prior to the recent amendment of the Italian Code http://www.kluwerarbitration.com/CommonUI/print.aspx
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of Civil Procedure are similar. (78)
page "1077"
Likewise, under some early U.S. state court decisions, arbitration agreements were construed narrowly with respect to their scope. (79) According to one New York court, “[t]he agreement to arbitrate must be express, direct, and unequivocal as to the issues or disputes to be submitted to arbitration.” (80) These state law rules have almost uniformly been held preempted (or superseded) by the FAA where international or interstate commerce is involved. (81) A limited number of (usually older) international arbitral awards have also applied restrictive presumptions to the interpretation of the scope of arbitration agreements. These awards have concluded that arbitration clauses must be interpreted “strictly” or “restrictively.” (82) c. No “Pro-Arbitration” or “Restrictive” Presumption Another body of authorities have held that international arbitration agreements should be interpreted without resort to either a “proarbitration” or a “restrictive” presumption. These authorities have instead sought to ascertain the parties' precise intentions, by reference to the language and circ*mstances of the arbitration agreement, without relying on any external, arbitration-specific rules of construction. Although recent decisions have adopted a different approach, English courts historically did not appear to rely on either “proarbitration” or “anti-arbitration” presumptions. Rather, English courts traditionally placed significant emphasis on the precise wording of arbitration clauses, drawing relatively fine distinctions page "1078" between slightly different verbal formulae. (83) Judicial interpretation of particular formulae in previous cases, although not necessarily binding, were frequently referred to and relied on. (84) As discussed above, however, English courts have more recently adopted a fundamentally different approach, embracing a proarbitration rule of interpretation of the scope of arbitration agreements in international commercial transactions. (85) Similar to the historic English approach, a few older international arbitral awards also refused to apply either a “pro-arbitration” or “anti-arbitration” presumption. For example, a 1983 ICSID award reasoned that “a convention to arbitrate is not to be construed restrictively, nor, as a matter of fact, broadly or liberally. It is to be construed in a way which leads to find out and to respect the common will of the parties.” (86) page "1079" d. Interpretation of Arbitration Agreements in Specialized Institutional Settings As discussed elsewhere, there are numerous specialized arbitral institutions, generally associated with particular markets or trade associations. (87) Examples include the commodities, shipping and construction industries. (88) The arbitrations arising under such institutional rules are often highly-technical, trade proceedings. A substantial argument can be made that otherwise applicable arbitration-specific interpretative presumptions should not be applied http://www.kluwerarbitration.com/CommonUI/print.aspx
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to model arbitration clauses incorporating such institutional rules. The rationale would be that parties to such arbitration clauses ordinarily consider arbitration as only involving a technical inquiry into a relatively limited set of contractual disputes, and not broader issues. On the other hand, many of the considerations favoring “one-stop” dispute resolution and disfavoring fine distinctions between different formulae used in standard arbitration clauses apply with equal force in this context. There is little authority concerning this argument, although it underscores the general point that rules of construction must be applied to particular contractual relations between particular parties, as a means of discerning, not overriding, the parties' true intentions. e. Relationship Between Competence-Competence Doctrine and Rules of Interpretation In some jurisdictions, there is a relationship between competencecompetence principles and rules for interpreting arbitration agreements. That relationship is not always clearly acknowledged, but can be of substantial importance. As discussed elsewhere, when presented with the question of whether an arbitration agreement exists and encompasses a dispute presented to them, some national courts do not consider these issues on the merits, but instead perform only a prima facie review. (89) Under the UNCITRAL Model Law, for example, better-reasoned judicial decisions have held that interpretation of the scope of the arbitration clause is for the arbitral tribunal (subject to subsequent judicial review), and not for interlocutory judicial determination. (90) Similarly, some U.S. courts have suggested that the FAA's “proarbitration” rules of construction are in part a means page "1080" of allocating the competence of courts and arbitrators in interpreting the scope of arbitration agreements. That is, some U.S. courts have presumed that arbitration agreements are very broad for purposes of deciding whether to refer a dispute to arbitration, but subject to the arbitral tribunal's (and an enforcing court's) ultimate power to adopt a narrower interpretation of the clause. (91) In any of the foregoing circ*mstances, the courts' “interpretation” of the arbitration clause is in fact more of a procedural, preliminary view, not directed to the merits of what the agreement actually provides, but only towards the question of who should decide this issue in the first instance. This is in fact an application of the competence-competence doctrine, not a definitive interpretation of the parties' agreement. On the other hand, as discussed elsewhere, many national courts' interpretations of arbitration clauses will ordinarily be binding decisions on the merits, with preclusive effects. (92) They will not be mere procedural steps, or prima facie determinations, but final interpretations of the substantive scope of the arbitration agreement. The same will generally be true with regard to judicial decisions in actions to annul or recognize an award, where the court's interpretation of the arbitration agreement will be on the merits. (93) In considering the appropriate standards to be applied to issues of interpretation by national courts, and the consequences of interlocutory judicial decisions, it is essential to have regard to the foregoing issues. Failure to do so will result in applying inappropriate http://www.kluwerarbitration.com/CommonUI/print.aspx
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legal standards, either to interpretation of the parties' arbitration agreement or the preclusive effect of a judicial decision on the arbitrators' award. (94) f. Future Directions: Presumptions Regarding Scope of International Arbitration Agreement It is fundamental that the scope of an agreement to arbitrate is a matter of contract, subject to the parties' will, which will be given effect by Article II of the New York Convention and the provisions of developed national arbitration statutes. It is nonetheless perfectly appropriate, and indeed necessary, to adopt arbitration-specific presumptions in construing the scope of international arbitration agreements. It is correctly observed that parties typically address dispute resolution provisions at the page "1081" end of contractual negotiations and devote little attention to their terms. (95) Even where counsel are involved, they frequently incorporate model clauses recommended by leading arbitral institutions, (96) with limited independent evaluation of questions of scope. Even where such issues are considered, including by counsel, it is very difficult to deal with issues of scope in advance and in the abstract. In these circ*mstances, overly close attention to the specific wording of arbitration agreements can be misleading and artificial. (97) This is well-illustrated by the lack of real analytic clarity or guidance provided by judicial decisions attempting to parse the formulae used in arbitration clauses. (98) The more reliable and authentic expression of the parties' intentions is their choice of international arbitration to resolve their disputes. As discussed above, that choice carries with it a presumptive desire for a single, neutral, efficient and competent dispute resolution mechanism, in order to avoid jurisdictional disputes and multiplicitous litigations. (99) These expectations are materially advanced through an expansive interpretation of the scope of international arbitration agreements. At the same time, such an approach also serves the public interest by avoiding unproductive litigation (“the irritatingly large quantity of court litigation” (100) ) and by encouraging international commerce. Accordingly, in most cases, the better approach to the interpretation of international arbitration agreements is a robust “pro-arbitration” presumption in favor of encompassing disputes within a valid arbitration agreement. Although this presumption should not be used to rewrite the parties' agreement, in all cases of doubt about the scope of an international arbitration agreement, such clauses should page "1082" be interpreted to include, rather than to exclude, disputes and to ensure insofar as possible that all of the parties' disagreements are resolved in a single forum, rather than in multiple, possibly contradictory proceedings. A “pro-arbitration” presumption is particularly – but not only – appropriate in instances where the parties have agreed to arbitrate their disputes under a contract and the question is whether noncontractual disputes related to the same contract also fall within the scope of the arbitration clause. In these circ*mstances, very few business men or women would conceive that different forums should decide different parts of their dispute, with the ensuing duplication of effort, expense and possibility of inconsistent results. (101) Rather, in http://www.kluwerarbitration.com/CommonUI/print.aspx
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these circ*mstances, the strong presumption should be that the parties desired a single dispute resolution mechanism before one decision-maker. As discussed above, some courts have declined to apply “proarbitration” interpretative presumptions where an arbitration clause contains exceptions. (102) There is some force to this approach, but only where disputes regarding the dividing line between arbitration and other dispute resolution mechanisms are concerned. Insofar as the affirmative reach of the arbitration clause, vis-à-vis other matters, is concerned, it should be interpreted expansively as in other circ*mstances: the fact that the parties defined a limited scope of jurisdiction for the arbitrators does not negate the reasons for interpreting their agreement liberally, given the benefits in efficiency and fairness that arise from doing so. (103) This best achieves the parties' objective, good faith intentions. page "1083" 5. Choice of Law Applicable to Interpretation of Arbitration Agreement The interpretation of arbitration agreements raises choice-of-law issues. Assuming that the parties have not otherwise agreed, possible options for the law governing construction of an arbitration clause include: (a) the law of the state where judicial enforcement proceedings are pending; or (b) the law chosen by the parties to apply to, or the law otherwise applicable to, the arbitration agreement. (104) a. Law of Judicial Enforcement Forum Few courts have addressed the question of what law governs interpretation of an international arbitration agreement in any detail. Many courts have either not considered the question of applicable law (simply interpreting arbitration agreements by reference to general principles of law) or have without explanation applied the law of the judicial enforcement forum. (105) In the United States, for example, there is a substantial body of precedent holding that federal common law derived from the FAA applies to the interpretation of international arbitration agreements by U.S. courts. In Mitsubishi Motors Corp. v. Soler Chrysler, for example, the U.S. Supreme Court cited the existence of a body of “federal substantive law” and used this body of law to interpret an arbitration agreement plainly governed by foreign law. (106) Notwithstanding a choice-of-law clause in the underlying contract selecting Swiss law, the Court reasoned: “The first task of a court … is to determine whether the parties agreed to arbitrate that dispute. The court is to make this determination by applying the ‘federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act.’ And that body of law counsels that questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration. … The Arbitration Act establishes page "1084" that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor http://www.kluwerarbitration.com/CommonUI/print.aspx
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of arbitration, whether the problem at hand is the construction of the contract language itself or [otherwise].” (107) The Supreme Court applied federal law (and the FAA's “proarbitration” presumption) (108) notwithstanding the fact that the arbitration agreement in question provided for arbitration in Japan and was governed by either Japanese or Swiss law. (109) Other U.S. decisions have generally followed the course adopted in Mitsubishi, holding that the FAA governs the interpretation of arbitration agreements in U.S. courts, (110) including in international cases, (111) and including where the parties' agreement contains a choiceof-law clause selecting non-U.S. law. (112) page "1085" Despite this, a not inconsiderable number of lower U.S. court decisions appear to apply, or lean towards applying, foreign law to the interpretation of the parties' arbitration agreement. (113) These courts have reasoned that the parties' choice-of-law agreement applies, among other things, to issues of interpretation of the scope of their arbitration clause and that this choice should be given effect. (114)
b. Law Governing Substantive Validity of Arbitration Agreement A number of other national courts have applied the law governing the substantive validity of the arbitration agreement to issues of interpretation, typically without detailed discussion. German courts appear to hold that the law governing the substantive validity of an arbitration agreement governs its interpretation. (115) German commentators adopt the same view. (116) Similarly, under Swiss law, the construction of international arbitration agreements is subject to the law governing the substantive page "1086" validity of the (117) agreement. Courts in other jurisdictions have adopted the (118) same approach. c. Future Directions: Choice of Law Governing International Arbitration Agreement It is not clear that the interpretation of international arbitration agreements should be governed by the law of the judicial enforcement forum, as some national courts have held. Rather, if a national law is to be applied, the interpretation of an international arbitration agreement should be subject to the law applicable to the existence and validity of the agreement. (119) This approach would produce more uniform results than application of the law of the judicial enforcement forum (which would vary depending on where litigation is brought) and would in most cases more closely accord with the parties' intentions. At the same time, the general and increasing international acceptance of “pro-arbitration” interpretative presumption should make the choice of law concerning this issue less important in the future. Indeed, a substantial argument can be made that the pro-arbitration policies of Article II of the New York Convention, and the parties' expectations for a single, centralized dispute resolution mechanism, give rise to an international rule of construction of arbitration agreements subject to the Convention.
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6. Allocation of Competence to Decide Disputes Over Scope of Arbitration Agreement Disputes about the validity and scope of arbitration agreements raise preliminary questions concerning the allocation of competence – between national courts and arbitral tribunals – over the resolution of such disputes. (120) As discussed above, different legal systems have adopted different resolutions of this issue. (121) The argument that arbitrators, rather than national courts, should in the first instance resolve disputes over the scope of the arbitration agreement is more compelling than with almost any other jurisdictional issue. (122) Where the parties accept that there is an existent, valid arbitration agreement, and the issue is whether page "1087" this agreement extends to particular issues or claims, then the case for initial arbitral resolution of this issue (subject to judicial review at the award enforcement stage) is overwhelming, absent contrary indication of the parties' intent. This is because it will ordinarily be most efficient for the arbitral tribunal to resolve disputes over the scope of an arbitration clause, rather than face prospects of multiple and conflicting national court decisions. Equally important, most decisions about the scope of an arbitration clause are inextricably intertwined with the interpretation of the parties' underlying contract (because the arbitration clause invariably will encompass disputes “relating to” or “arising under” the parties' underlying contract, which in turn requires ascertaining the substantive scope of the contract). (123) Accordingly, it is the arbitral tribunal that is the authoritative decision-maker for one critical aspect of the jurisdictional determination (indeed, often the most important aspect of this determination). It almost inevitably follows that the parties should, absent contrary indication, be understood as having granted the tribunal the power to determine the scope of its own jurisdiction; indeed, until the arbitrators have interpreted the underlying contract, it is very difficult or impossible for a court to determine the scope of the arbitration clause. (124) National courts have not always reached results consistent with the analysis. The U.S. Supreme Court held in First Options and subsequent decisions that “a disagreement about whether an arbitration clause in a concededly binding contract applies to a particular type of controversy” is presumptively for interlocutory judicial determination. (125) Although some U.S. courts have granted discretionary stays of page "1088" judicial consideration of (126) scope disputes, other U.S. decisions have undertaken interlocutory judicial consideration of disputes regarding the scope of the arbitration agreement. (127) In contrast, courts in other jurisdictions have permitted arbitral tribunals to make preliminary jurisdictional decisions regarding the scope of the arbitration agreement, typically subject to subsequent judicial review. (128) In a substantial number of commercial cases, particularly in the United States, arbitral tribunals are held to have a more significant type of competence-competence. In particular, as discussed above, U.S. courts have held that typical institutional arbitration rules constitute agreements granting the arbitrators the power finally to decide disputes regarding the scope of the arbitration agreement. (129) Similarly, some U.S. courts have also held that “broad” http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration agreements (as distinguished from “narrow” agreements) grant the arbitrators power to finally resolve scope issues. (130) In both of these categories of cases, an arbitral tribunal's decision regarding the scope of an arbitration agreement is subject to only minimal subsequent U.S. judicial review. (131) Although courts in other states typically recognize the validity of agreements to arbitrate jurisdictional disputes, (132) there is little authority outside the United States applying this principle in the context of scope disputes. page "1089" 7. Formulae Used to Define Scope of International Arbitration Agreement There are a limited number of fairly standard formulae used in arbitration agreements to describe the scope of such provisions. The most common terms cover (a) “all” or “any”; (b) “disputes,” “differences,” claims, or controversies; (c) “arising out of,” “in connection with,” “under,” or “relating to”; (d) the parties' “agreement,” “contract,” the “works,” or some broader set of contractual arrangements between the parties. These various formulae are generally used, in varying ways, in the model clauses recommended by leading arbitral institutions and by commentators. (133) For example, the model ICC arbitration clause provides: “All disputes arising out of or in connection with the present contract shall be finally settled under the [ICC] Rules.” (134) Similarly, the recommended clause accompanying the UNCITRAL Rules provides: “Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules.” (135) The intent of leading model international arbitration clauses is to apply expansively to all disputes relating to a particular contract, regardless of legal formulation. (136) That is consistent with the practical objective of providing a single, neutral and expert forum for efficiently resolving the parties' disputes. As already discussed, fine distinctions in wording are artificial, or worse, obscuring the underlying commercial purposes of agreements to arbitrate. (137) page "1090" Inevitably, disputes have arisen about the phrases used in leading model arbitration clauses, producing a variety of national court (and arbitral) decisions interpreting each of them. The precedential weight of these authorities is open to much doubt, even within a single legal system. Some courts have rightly observed that a particular verbal formulation may have very different intended meanings in different sets of contractual circ*mstances. (138) Other courts have correctly questioned whether it is realistic or accurate to draw fine distinctions between different verbal formulae, which most parties will not have appreciated or intended (139) : indeed, the notion that business men or women compare different formulae, such as “arising out of,” “relating to,” or “in connection with,” is difficult to accept in most settings. Nonetheless, particularly in jurisdictions that have not adopted pro-arbitration presumptions or rules of interpretation, previous judicial and arbitral decisions interpreting particular phrases http://www.kluwerarbitration.com/CommonUI/print.aspx
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or language can still be relevant, and sometimes decisive, in subsequently construing other agreements. The interpretation of each aspect of formulae commonly used in international arbitration agreements is discussed below. a. “All” or “Any” Disputes Some arbitration clauses provide for arbitration of “all” or “any” disputes or differences without any further qualification or description. For example, an agreement may simply provide “[a]ll disputes shall be decided by arbitration.” In contrast, other arbitral clauses refer only to “disputes” (as in, “Disputes relating to this contract …”). Various authorities have interpreted the “all disputes” or “any disputes” formulae broadly, usually concluding that they extend to all disputes page "1091" having any plausible factual or legal relation to the parties' agreement or dealings. (140) The use of the words “all” or “any” may also argue in favor of a tribunal's competence-competence over issues of interpretation, (141) and in favor of broad remedial authority. (142) It is unclear, however, why the addition of the word “all” or “any” should materially affect analysis. A simple reference to “disputes” should not be interpreted to mean “some” or “most” disputes; it ordinarily means “all” or “any” disputes even if that is not said explicitly. Arguably the qualifier (“any” or “all”) serves to underscore the parties' intentions, but, given the formulaic nature of arbitration clauses, even that hypothesis is doubtful. b. “Disputes,” “Differences” and “Claims” Most arbitration clauses provide for arbitration of all “disputes” or “differences,” (143) while some clauses also (or instead) refer to “claims” or “controversies.” (144) These formulations encompass any sort of disagreement, dispute, difference, or claim that may be asserted in arbitral proceedings. (As discussed above, leading international page "1092" arbitration conventions and national arbitration legislation apply only to agreements to arbitrate “disputes.” (145) ) Some national courts have held that a “dispute” or “difference” does not exist unless there is really a controversy between the parties (which led to sterile analyses of pre-litigation correspondence). (146) Similarly, some courts have examined the substantive merits of the parties' positions, holding that a “dispute” did not exist where one party's position was indefensible. (147) More recently, most national courts have sensibly adopted broad interpretations of the terms “dispute,” “difference” and “controversy.” (148) c. “Relating To” Courts in almost all jurisdictions have concluded that the phrase “relating to” extends an arbitration clause to a broad range of disputes. Although formulations vary, U.S. courts have repeatedly concluded that the “relating to” formula encompasses noncontractual, as well as contractual, claims and “that it reaches any disputes that “touch” or have a factual relationship to the parties' http://www.kluwerarbitration.com/CommonUI/print.aspx
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contract. (149) English (150) and page "1093" Canadian (151) courts have also interpreted the phrase “relating to” broadly. The same holds true for Swiss (152) and French (153) case law; where the phrase “relating to” is used, it must be assumed that the parties wished the arbitrators to have an all-embracing jurisdiction. Other decisions are similar. (154) d. “In Connection With” National courts from a wide variety of jurisdictions around the world have also concluded that the phrase “in connection with” is broad. Thus, United States, (155) page "1094" English, (156) Canadian, (157) Indian, (158) Hong Kong (159) and Australian (160) courts have all interpreted the phrase “in connection with” liberally. A leading Canadian decision, rendered with regard to the ICC's model clause (“All disputes arising out of or in connection with the present contract”), reasoned: “A dispute meets the test set by the submission if either claimant or defendant relies on the existence of a contractual obligation as a necessary element to create the claim, or to defeat it.” (161) e. “Arising Under” Authorities have reached divergent interpretations of agreements to arbitrate all disputes “arising under” a contract. Some national courts have concluded that arbitration clauses using the formulation “arising under” are broad (comparable to “relating to” or “in connection with”) while others have held that the formulation is “narrow.” The latter approach was adopted in England, where courts historically interpreted the “arising under” formula as limited to claims based on the parties' contract. Among other things, some English courts concluded that the “arising under” formula did not encompass various tort claims that did not directly involve application of the parties' contractual commitments, (162) or claims based on pre-contractual representations or post-contractual commitments. (163) Following older page "1095" English authority, Australian courts also adopted a narrow interpretation of the “arising under” formula, holding that it does not reach tort claims. (164) As discussed above, more recent English and Australian authority has abandoned these distinctions, at least with regard to international arbitration agreements. (165) Recent decisions from other jurisdictions are similar. (166) Some U.S. courts have also interpreted “arising under” formula narrowly, although neither consistently nor particularly restrictively. Some older U.S. judicial decisions have held that the phrase is narrow, and does not encompass non-contractual claims. (167) Other U.S. courts, particularly in recent years, have reached the opposite conclusion, holding that the “arising under” phrase is broad. (168) page "1096" f. “Arising Out Of”
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Authorities are also divided in their interpretations of “arising out of” clauses. Some older U.S. judicial decisions concluded that the formula is narrow, equating it with “arising under” provisions. (169) Other U.S. courts have suggested that “arising out of” is a broader formulation than “arising under.” (170) Likewise, in contrast to their interpretation of the “arising under” formula (as discussed immediately above), English courts historically held that “arising out of” language ordinarily extended to tort claims which relate to the parties' contractual dealings and obligations. (171) page "1097" (172) (173) Similarly, German and Swiss courts have given such wording a broad interpretation. g. “Broad” versus “Narrow” Arbitration Clauses Some U.S. courts have distinguished between “broad” and “narrow” clauses. Different U.S. courts have accorded these two formulae different definitions, and have attached different consequences to each categorization. Among other things, some courts have indicated that a “broad” (but not a “narrow”) clause will attract a “proarbitration” rule of construction (174) and/or grant the arbitrators competence-competence to decide disputes over the scope of the clause. (175) Other courts have attached more complicated results to the “broad”/“narrow” distinction. (176) page "1098" The better view is that a sharp distinction between “broad” and “narrow” clauses is generally difficult to justify. There is some force to the notion that a clause which is broadly-drafted should confer competence-competence to decide scope disputes. (177) Beyond this, however, the general pro-arbitration presumption – like other rules of contract interpretation should ordinarily apply equally to both broad and narrow clauses. (178) Equally, it is difficult to justify a general distinction between “broad” and “narrow” clauses. In reality there is a spectrum of arbitration agreements, the scope of which ranges from very broad to very narrow, making it largely artificial to categorize such provisions as either “broad” or “narrow.” 8. Applicability of International Arbitration Agreements in Commonly-Recurring Factual Circ*mstances There are a variety of specific factual or legal contexts in which questions about the scope of international arbitration agreements recur with particular frequency. These typically concern various types of legal claims or contractual settings, such as the applicability of an arbitration clause to a non-contractual (or statutory) claim, to various types of contractual claims, and to multicontract and multiparty disputes. The most frequent examples of these issues are discussed below. a. Applicability of Arbitration Agreements to Non-Contractual Claims There is no prohibition in most developed jurisdictions – either common law (179) or page "1099" civil law (180) – against the arbitration of non-contractual claims. On the contrary, as discussed above, Article II(1) of the New York Convention defines an arbitration agreement as including differences arising from a relationship http://www.kluwerarbitration.com/CommonUI/print.aspx
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“whether contractual or not.” (181) This formulation is paralleled in many national arbitration statutes. (182) Although this language acknowledges that non-contractual claims may be the subject of valid arbitration agreements, (183) it provides no direct guidance in interpreting particular arbitration clauses to determine whether they in fact encompass tort claims. Article II(1) does, however, imply that non-contractual claims should be treated no less favorably with regard to interpretation than contractual claims. (184) Questions frequently arise as to whether particular non-contractual claims are within the scope of an arbitration clause. Although providing for the arbitrability of non-contractual claims, nothing in the New York Convention (or other leading international arbitration instruments), or in most national arbitration statutes, directly addresses this interpretative question. National courts have generally approached the question whether a particular non-contractual claim falls within an arbitration clause on a case-by-case basis. In page "1100" so doing, they have generally applied the pro-arbitration presumptions, and other generally-applicable rules of construction, that are used in other contexts. Lower U.S. courts have frequently addressed cases where termination of a contract, or other conduct relating to the parties' basic contractual relationship, leads to tort claims (such as fraud, defamation, negligence, or unfair competition). The “pro-arbitration” presumption under the FAA is generally applicable to tort claims. (185) In addition, it is frequently said that a party may not defeat an arbitration clause by casting its claims in tort, rather than contract. (186) Taking this approach, a number of U.S. decisions have held on particular facts that various tort claims were page "1101" within (187) the scope of particular arbitration agreements. In other cases, tort claims have been held to fall outside the scope of the parties' arbitration agreement. (188) page "1102" Similarly, claims for punitive or exemplary damages that are based on non-contractual causes of action have been held to fall within the parties' arbitration agreement. (189) Authorities from other jurisdictions have also held tort claims to be within particular arbitration clauses. That is true of awards (190) and court decisions. (191) page "1103" On the other hand, depending on the facts, some arbitral awards (192) and judicial decisions (193) have held that particular non-contractual claims fall outside the parties' arbitration agreement. As in the United States, courts in other jurisdictions have rejected efforts by parties to cloak their claims in non-contractual guise to avoid the effect of an arbitration agreement. (194) Some authorities have attempted to develop general standards for determining whether tort claims fall within the scope of an arbitration agreement. These efforts seek to articulate standards applicable where the parties' arbitration clauses are silent, or state only general formulae such as “all disputes,” “arising under” and “relating to.” Among other things, these authorities have considered whether noncontractual claims involved “significant aspects of [parties' contractual] relationship,” (195) “go[] to the core” of parties' contractual relations, (196) “derive from the [contractual] relationship,” (197) have “a sufficiently close connection [to] the http://www.kluwerarbitration.com/CommonUI/print.aspx
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transaction,” (198) or “greatly overlap” with contractual claims. (199) Recent Italian legislation adopts a similar approach, providing that an arbitration clause will presumptively be interpreted to encompass “all disputes arising from the contract or from the relationship to which the agreement refers.” (200) page "1104" b. Applicability of Arbitration Agreements to Claims Based on Statutory Protections in Common Law Jurisdictions In common law jurisdictions, it is sometimes argued that statutory claims are not subject to the parties' arbitration agreement. (201) (This argument is seldom encountered in the same terms in civil law systems, where most claims are “statutory” in some sense.) Both common law and civil law courts have frequently concluded that particular statutory claims are within the scope of the parties' arbitration agreement. That is particularly true in the United States, (202) but also in other jurisdictions. (203) Nonetheless, on specific facts, some courts have held that particular statutory claims were not within the scope of the parties' arbitration agreement. (204) page "1105" The U.S. Supreme Court has held that the application of arbitration clauses to statutory claims should generally be subject to no different rules of interpretation than contractual claims. The Court declared in Mitsubishi Motors that “[t]here is no reason to depart from these [pro-arbitration interpretative] guidelines where a party bound by an arbitration agreement raises claims founded on statutory rights.” (205) Other U.S. courts have affirmed that analysis. (206) Similarly, a number of U.S. courts have also said that the scope of an arbitration clause is determined by reference to the factual allegations underlying the parties' claims, regardless of the “legal labels” attached to the claims. (207) On the other hand, some national courts have remarked that “an arbitration clause is no doubt designed primarily to cover claims for breach of contract.” (208) Similarly, one recent Australian decision rejected the application of a broadly-drafted arbitration agreement to a statutory claim, holding that this is not what the parties would have likely intended: “In choosing arbitrators with commercial backgrounds, the parties indicated a choice for the practical solution of disputes of the kind referred to the arbitrators. But to read [the parties' agreement] as contemplating a reference to such persons of a problem of considerable private international legal complexity, let alone the application of a foreign (Australian) law in the form of the Trade Practices legislation, would seem to contradict a desire for a practical outcome. We should not attribute such a bizarre intention to these parties.” (209) This observation is both dated (reflecting an era when regulation and private rights of action were less pervasive) and misconceived (ignoring the fact that businesses enter into arbitration agreements to resolve all their disputes with one another, page "1106" relating to their transaction, regardless of legal characterization). (210) Certainly, there is no reason to think that the parties will not http://www.kluwerarbitration.com/CommonUI/print.aspx
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select arbitrators with the appropriate appreciation of issues of “private international legal complexity” where that is what the dispute calls for. The better view is that of the U.S. Supreme Court in Mitsubishi Motors, affirming the applicability of pro-arbitration interpretative rules to all claims or disputes, regardless of their legal basis: “There is no reason to depart from the [pro-arbitration] guidelines where a party bound by an arbitration agreement raises claims founded on statutory rights.” (211) c. Disputes Concerning Performance or Interpretation of Contract Arbitration clauses are sometimes drafted ill-advisedly, to refer only to disputes concerning the “interpretation” or “construction” of the parties' contract. This formulation is sometimes borrowed from the context of choice-of-law clauses, where it also unhappily appears. (212)
Some national courts have interpreted clauses referring only to disputes about the “interpretation” of the parties' contract as excluding claims for breach of contract. (213) Other courts and tribunals have reached more expansive conclusions, holding that the parties could not have intended to submit only contract disputes about interpretation (and not performance or the like) to arbitration. (214) Where clauses refer to disputes concerning “performance and interpretation” of the contract, courts are obviously more likely to read the provision expansively. (215) page "1107" d. Disputes Concerning Existence, Validity, or Legality of Contract A related issue is whether an arbitration agreement extends to disputes concerning the existence, validity, or legality of the underlying contract. This is a related, but distinguishable issue from that addressed by the competence-competence doctrine, which concerns the allocation of competence between national courts and arbitrators to consider challenges to the arbitration agreement. (216) Rather, this question involves the scope of the arbitration agreement, and, in particular, whether the agreement to arbitrate encompasses disputes about the existence or validity of the parties' underlying contract. Some institutions' model arbitration clauses extend to disputes concerning the validity or existence of the underlying contract, (217) leaving no question as to the arbitrators' jurisdiction to consider such matters. Even absent such language, arbitration agreements presumptively extend to questions regarding the existence, validity and termination of the underlying contract. (218) Both common law (219) and page "1108" civil law (220) courts have reached this conclusion. Addressing this issue, one English court declared that there is a “golden rule that if the parties wish to have issues as to the validity of their contract decided by one tribunal and issues as to its meaning or performance decided by another, they must say so expressly.” (221) This approach is well-reasoned: it is essential in order to provide a single, centralized forum for dispute resolution, as http://www.kluwerarbitration.com/CommonUI/print.aspx
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parties presumptively desire, (222) and to prevent tactical obstruction of the arbitral process. Consistent with this, very few decisions hold that arbitral clauses do not extend to disputes concerning the validity, existence, or termination of the underlying contract. (223) page "1109" e. Applicability of International Arbitration Agreement in MultiContract Contexts Disputes sometimes arise where the parties have entered into a number of different agreements, either simultaneously or consecutively, each with (or sometimes without) a separate dispute resolution mechanism. This can create procedural difficulties, with the potential for parallel or overlapping arbitrations and litigations under different dispute resolution clauses. (224) It also gives rise to questions of whether an arbitration clause in one contract applies to disputes under the provisions of another contract. Those drafting international agreements should ordinarily ensure that a single, unitary dispute resolution mechanism governs all of the parties' various relations. (225) If such a global dispute resolution provision exists, either in a stand-alone agreement (providing an arbitration mechanism for disputes in a series of related substantive contracts) or as a clause in a single umbrella agreement, then application of the clause to disputes arising under several contracts is not controversial: there is no reason that an arbitration clause in one contract cannot encompass disputes under another contract, or coordinate dispute resolution mechanisms, provided that this is what the parties agreed. Frequently, however, the parties' drafting efforts lack this foresight, and disputes arise regarding the scope and interaction of overlapping or parallel dispute resolution provisions. If multiple contracts exist between two or more parties, without reference to one single dispute resolution agreement, numerous national courts (226) and arbitral page "1110" tribunals (227) have nonetheless been willing to conclude in principle that disputes under one contract are arbitrable under an arbitration provision of a different contract. This is the commercially-sensible result, which typically effectuates the true intentions of reasonable parties. Nonetheless, the extent to which this result will apply in particular cases depends on the parties' agreements and the nature of their dispute. One recurrent factual setting arises when the same parties enter into a series of contracts related to a single project or enterprise, only some of which contain dispute resolution provisions. In these cases, the question arises whether an arbitration clause in one agreement extends to disputes under other agreements. This is a question of the parties' intent, but, in largely fact-specific decisions, courts have endeavored to construe the parties' contracts in a commerciallysensible manner that, insofar as possible, permits a single, centralized dispute resolution mechanism. So long as the parties to the relevant contracts are the same, and the contracts all relate to a single project, or course of dealing, U.S., (228) French, (229) page "1111" English, (230) Swiss, (231) German (232) and other courts have generally been willing to hold that an arbitration clause in one agreement extends to related agreements (provided that the other agreements do not contain inconsistent arbitration or forum http://www.kluwerarbitration.com/CommonUI/print.aspx
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selection clauses). One commentator has described the decisions of national courts in this context as follows: “the courts have uniformly concluded that if two agreements between the same parties are closely connected and one finds its origin in the other, or is the complement or the implementation of the other, the absence of an arbitration clause in one of the contracts does not prevent disputes arising from the two agreements from being submitted to an arbitral tribunal and decided together.” (233) Arbitral tribunals have generally reached very similar results, (234) including in cases page "1112" where multiple contracts contain identically-worded arbitration clauses. (235) Despite this, in situations where the relevant agreements lack a sufficiently close commercial or temporal relationship, or involve distinct matters, then an arbitration clause in one contract is likely to be held inapplicable to disputes under the other contract. (236) As one arbitral tribunal reasoned, in holding that an ICC arbitration clause in an agency contract did not encompass disputes under two subsequent assistance agreements between the same parties: “the two ‘secondary’ contracts … represent neither a fulfillment nor an amendment of the previous contractual relationship i.e., the agency agreement, but something completely new, which gives the parties different duties and obligations which are not directly connected with the agency. One thing is to promote the sale of products, another thing is ‘renting’ premises and personnel for carrying out a contract of sale … as well as taking care of shipments and customs clearances.” (237) Of course, the ultimate touchstone is the intentions of the parties and the language of the arbitration clause, which may address the matter either expressly or by implication (by being drafted in either particularly broad or narrow terms). Greater difficulties arise, in any factual situation, if the identities of the parties to related contracts differ (as can often occur in construction projects, joint ventures, insurance settings and other scenarios). In these circ*mstances, except where all parties can be bound through non-signatory principles to an arbitration agreement, (238) page "1113" there is little prospect for applying an arbitration clause in one agreement to disputes under a different contract with different parties. (239) Similarly, the existence of separate arbitration provisions in related agreements has generally been held to be strong evidence that disputes under the various agreements were meant to be arbitrated under different dispute resolution provisions – not those of some other contract. (240) This is particularly true where different contracts contain different arbitration clauses (e.g., one ICC clause and the other an AAA clause; one Swiss arbitral seat and one Tokyo seat). (241) Even where an identical arbitration clause (e.g., a model clause from a leading institution) is simply repeated verbatim in multiple contracts, it is sometimes said not to be the “same” clause, http://www.kluwerarbitration.com/CommonUI/print.aspx
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giving rise to the possibility of separate arbitrations (and arbitral tribunals) under each separate substantive contract, with each arbitration limited to a single, specific agreement. Arbitral tribunals have generally sought to avoid this latter result, (242) at least where different contracts involve the same parties. (243) Similar issues arise when one or more of a related group of contracts contain(s) a forum selection clause, and other contract(s) contain(s) an arbitration clause. In these cases, and absent contrary indication, some courts have sought to give broad effect to arbitration clauses, refusing to conclude that the forum selection clause page "1114" overrides or qualifies them. (244) One court justified this conclusion with the following reasoning: “the scope of the arbitration clause as an expression of the will of the parties is far wider than that of a jurisdiction clause, in that it has the effect of vesting the arbitrators with the power to judge, thereby excluding the intervention of State Courts, whereas the jurisdiction clause only designates the court which is territorially competent to decide the disputes.” (245) It is debatable whether the court's minimization of the significance of a forum selection clause is universally applicable: in many cases, the contractual choice of particular national courts has substantial commercial and legal importance, and should not necessarily be subjugated to a parallel arbitration agreement. (246) Thus, many arbitral tribunals appear to have concluded that the inclusion of a forum selection clause in one agreement, and an arbitration clause in a related agreement, will ordinarily signify the parties' expectation for separate dispute resolution mechanisms. (247) Similarly, indications that two contracts were intended to be treated separately (for example, in their merger or integration provisions) have sometimes been relied upon in holding that the arbitration clause in one agreement does not cover disputes under the other contract. (248) page "1115" f. Applicability of International Arbitration Agreement in Context of Successive Contracts A closely-related factual scenario involves successive contracts between the same or similar parties (as distinguished from related contracts entered into at the same time). Where one, but not all, of the successive contracts contains an arbitration clause, questions can arise as to whether such a clause extends to disputes under subsequent (or earlier) contracts. As in other contexts, courts have looked to the language and relationship of the parties' agreements in order to determine their intent, while generally presuming that the parties desired a single, sensible and efficient dispute resolution mechanism. (249) French courts have held that an arbitration clause in the earlier of two or more related agreements extends to disputes under later contracts, notwithstanding the absence of any dispute resolution provision in such contracts, provided there is a sufficiently close connection between the agreements. (250) Courts in the U.S., (251) page "1116" Germany (252) and Switzerland (253) have generally adopted the same approach, as have arbitral awards. (254) http://www.kluwerarbitration.com/CommonUI/print.aspx
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A recurrent question is whether disputes under a settlement agreement, that lacks an arbitration clause, will be subject to an arbitration agreement in the preceding contract (out of which disputes arose). Some courts have held, in general, that the preexisting arbitration clause presumptively applies to disputes under subsequent agreements, that attempt to resolve disagreements under the earlier contracts. (255) Indeed, a recent arbitral award declared that “the survival of the arbitration clause in case of a settlement or novation agreement, as a matter of principle, is a general rule of arbitration law.” (256) Other decisions held that disputes page "1117" under subsequent settlement agreements (which lacked arbitration clauses) were not subject to arbitration under earlier contracts. (257) g. Applicability of International Arbitration Agreement Following Termination of Underlying Contract The mere fact that a dispute does not arise, and a party does not assert claims, until after the parties' underlying contract has terminated does not necessarily prevent the dispute from being arbitrated pursuant to a separable arbitration clause in the underlying (and expired) contract. It is settled law in most developed jurisdictions that termination of the parties' underlying contract does not necessarily or ordinarily terminate the parties' arbitration agreement. As discussed above, this is a consequence of the separability presumption which permits the arbitration agreement to survive the underlying contract. (258) The consequences of termination of the parties' underlying contract for an arbitration clause are in principle a question of the parties' intent. It is possible that upon termination of their underlying contract parties would wish for their arbitration agreement: (a) to terminate for all purposes (including resolution of pre-existing disputes); (b) to terminate for purposes of future disputes (but not pre-existing disputes, including disputes about termination of the parties' underlying contract); or (c) not to be affected at all. In most cases, neither the parties' arbitration clause nor their underlying contract will address these issues. As with other matters of construction, determining the effect of termination of the parties' underlying contract on the arbitration clause will therefore ordinarily be dependent on the application of presumptions based on the parties' likely intentions and sound policy. (259) In principle, “pro-arbitration” rules of construction should apply to the temporal scope of arbitration agreements. (260) Most authorities have concluded that termination of an underlying contract does not affect the existence or applicability of an arbitration clause insofar as pre-termination disputes are concerned. A leading U.S. Supreme Court decision on the issue in a domestic context is Nolde Bros., Inc. v. Bakery & Confectionary Workers Union, where the Court held that “the parties' obligations under their arbitration clause survived contract termination when the dispute was over an page "1118" obligation arguably created by the expired agreement.” (261) Numerous national court decisions (in the United States, (262) France (263) and elsewhere (264) ) and arbitral (265) awards page "1119" have considered whether particular arbitration agreements were applicable, notwithstanding termination http://www.kluwerarbitration.com/CommonUI/print.aspx
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of the parties' underlying agreement, typically upholding application of the clause to pre-termination and termination disputes. This result is sensible: only where the parties expressly provide for such a result, should termination of a contract be interpreted to terminate an associated arbitration agreement with regard to either pre-existing disputes (known or unknown) or to disputes relating to the termination itself. A different result has been reached by both common law (266) and civil law (267) authorities with regard to unrelated post-termination disputes (except where specific substantive obligations survive termination of the main contract). Again, absent contrary agreement, this makes commercial sense: termination of the parties' underlying contract should also be interpreted to terminate the arbitration agreement with regard to future disputes unrelated to the prior contract or the termination itself. (268) If, in terminating an agreement, parties adopt a different dispute resolution mechanism from that in their original agreement, then courts will be more likely to find that an arbitration clause in that agreement has also been terminated. (269) page "1120" h. Applicability of International Arbitration Agreement to PreExisting Disputes It is, of course, possible to conclude an arbitration agreement which applies to an existing dispute. (270) Indeed, in earlier eras, so-called “submission agreements” – which provided for arbitration of existing disputes – were the only form of arbitration agreement which was enforceable in some jurisdictions. (271) More frequently, parties enter into commercial contracts, containing ordinary arbitration clauses, which are later invoked with respect to disputes arising before the contract was made. This gives rise to interpretative questions, as to whether the arbitration clause was intended to have retroactive application. In the United States, “courts routinely enforce retroactive arbitration agreements when … this is consistent with the parties' intentions.” (272) On particular facts, however, courts have declined to order arbitration of disputes arising before the contract containing the arbitration clause was entered into on the grounds that the parties had not intended their arbitration agreement to encompass such disputes. (273) It is debatable whether otherwise applicable “pro-arbitration” rules of interpretation apply, at least with full force, where parties have singled out a particular, existing dispute for arbitration. 9. International Arbitration Agreements Incorporating Institutional Arbitration Rules As discussed elsewhere, arbitration agreements frequently incorporate (or attempt to incorporate) institutional arbitration rules. It is settled law in most jurisdictions that such incorporations are permitted and in principle effective. (274) Indeed, this is the whole purpose of such rules and the manner in which they are invariably used. page "1121" When parties agree to arbitrate under institutional rules, they are deemed to have incorporated those rules into their agreement, and http://www.kluwerarbitration.com/CommonUI/print.aspx
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are therefore bound by such rules. (275) Many institutional rules grant the administering institution the power to interpret and apply its rules, typically with an exclusion of judicial review. (276) Courts have generally afforded arbitral institutions broad discretion in interpreting institutional rules and given effect to such interpretations. (277) A recurrent issue is what version of an institution's rules the parties have incorporated. The issue arises because, as discussed above, arbitral institutions periodically revise their institutional rules in light of practical experience. (278) The general rule, absent contrary agreement, is that the version of the institutional rules in force at the time the parties' agreement was formed will apply. (279) page "1122" Some arbitration agreements only partially incorporate institutional rules, or purport to alter generally-applicable institutional rules. (280) For example, an arbitration agreement may only select an arbitral institution as appointing authority (and not generally incorporate its rules), (281) or only select the institution's procedural rules (and not the institution as appointing authority), (282) or incorporate some (but not all) provisions of a set of procedural rules. Great care should be taken in drafting provisions that purport to alter applicable institutional rules, both because such rules typically reflect tested, reliable procedures (283) and because ill-considered alterations may have pathological results that could invalidate the entire agreement to arbitrate. (284) In general, the parties' specifically negotiated agreement will prevail over general institutional rules. (285) On the other hand, courts should be slow to conclude page "1123" that the parties intended to alter the provisions of institutional rules that they have incorporated absent clear language to this effect (given the difficulties and unexpected results such changes can produce). (286) 10. Scope of Arbitration Agreement and Scope of Choice-ofLaw Clause As discussed above, it is common (and advisable) for international commercial contracts to contain both an arbitration clause and a choice-of-law clause. (287) The two provisions are closely-related and must frequently be applied to the same issues. Nonetheless, as a practical matter, arbitration clauses and choice-of-law clauses are often drafted in differing terms. For example, choice-of-law clauses sometimes provide that the parties' “agreement shall be governed by the law of State X,” while arbitration clauses often apply to “all disputes relating to” the parties' agreement. (288) It is well-settled that choice-of-law and arbitration clauses may, if the parties so agree, have different scopes. (289) In practice, however, such differences are usually not intended, particularly where the parties agree to subject their contract to the “neutral” law of a third country forum (e.g., London, Switzerland, New York). Accordingly, it is ordinarily appropriate to avoid fine distinctions between the language of choice-of-law and arbitration clauses, and to interpret them as consistently as possible with one another. In some jurisdictions, however, a choice-of-law clause arguably http://www.kluwerarbitration.com/CommonUI/print.aspx
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cannot validly encompass at least certain mandatory law issues, or tort or similar claims, because page "1124" of public policy considerations. (290) In these instances, there will almost inevitably be differences in the effective scope of arbitration and choice-of-law clauses. The existence of mandatory law or public policy restrictions on the scope of choice-of-law agreements does not affect the scope or validity of the arbitration agreement and the arbitrators are in principle able to apply the relevant national mandatory law rules. (291)
11. Exceptions to Scope of International Arbitration Agreements Even where the parties have agreed to arbitration, there may be claims or disputes that one party does not want submitted to arbitration. In these circ*mstances, arbitration clauses can be drafted with exceptions for specified disputes or categories of issues. (292) The validity of such provisions is generally undisputed and, in appropriate contexts, carefully-drafted exceptions may serve important commercial purposes. Nonetheless, exceptions to the scope of arbitration agreements should be used and drafted cautiously, because they can lead to jurisdictional disputes and other uncertainties. (293) As discussed above, the existence of exceptions in an arbitration agreement should not affect otherwise applicable “pro-arbitration” rules of interpretation insofar as the affirmative scope of the agreement to arbitrate is concerned. (294) a. Validity of Intellectual Property Rights Some intellectual property owners wish to preclude any arbitral consideration of disputes concerning the authorization to use, or the ownership or validity of their intellectual property rights or, more broadly, concerning their intellectual property page "1125" rights (295) generally. Aside from issues of public policy, (296) this is because of uncertainties about the availability of interim relief and the mistaken perception that arbitrators may lack the expertise to correctly and efficiently resolve complex intellectual property disputes. (297) Exceptions of this sort frequently are drafted along the following lines: “All disputes arising out of or relating to this Agreement, except Licensed Mark Disputes (as defined below), shall be finally resolved by arbitration in accordance with [identify institutional rules]. Licensed Mark Disputes shall constitute all disputes relating to the Licensor's ownership of, the validity of, or the registration of any Licensed Mark.” (298) Courts have upheld, without serious question, the validity of arbitration agreements containing exceptions of this character. (299) page "1126" b. Injunctive Relief for Intellectual Property Rights Licensors of intellectual property also sometimes wish to expressly retain the right to seek immediate judicial remedies against unauthorized uses of their property by licensees. Among other things, licensors may insist on preserving their ability to obtain http://www.kluwerarbitration.com/CommonUI/print.aspx
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preliminary injunctive relief from national courts in the place where unauthorized use of their property occurs, rather than first proceeding through an arbitration and then enforcing the award locally. As discussed below, both national law and institutional rules frequently permit parties to seek provisional measures in aid of arbitration from national courts, notwithstanding their agreement to arbitrate. (300) In many cases, this will offer sufficient procedural protection for intellectual property right licensors. Nonetheless, parties sometimes wish to ensure further flexibility to seek injunctive relief in national courts against unauthorized use of intellectual property rights, using language along the following lines: “Any violation of Article [X] hereof [relating to patents, trademarks, designs or copyright] would cause irreparable injury to [Licensor]. [Licensor] may, in addition to any other rights under this Agreement and notwithstanding the arbitration agreement contained in this Article [XX], seek specific performance of Article [X] and injunctive relief in any court of competent jurisdiction against any violation of such Article [X].” (301)
In general, exceptions such as these may create more problems than benefits. They may conflict with the parties' chosen institutional rules, or applicable law, while making parallel proceedings more likely. Nevertheless, there is little serious question as to their validity. c. Payment Obligations Parties sometimes seek to exclude payment obligations from the scope of arbitration clauses. The theory underlying this approach is that arbitral proceedings will take several months to get underway and that some arbitrators may be more likely than national courts to adopt Solomonic decisions that dilute contractually crisp payment obligations. (302) Financial institutions in particular sometimes exclude payment page "1127" obligations from the parties' arbitration agreement. For example, one party's payment obligations can be placed in a single article of the underlying contract, which can then be excluded from the scope of the arbitration clause: “With the exception of Buyer's payment obligations under Article [X] hereof, all claims, controversies, disputes and disagreements arising under or relating to this Agreement shall be finally resolved by arbitration …” The enforceability of such provisions is not subject to serious doubts. (303) In general, however, sophisticated advisers counsel against this approach. The jurisdictional and other uncertainties that result from such a bifurcated dispute resolution scheme usually outweigh any potential benefits. Of course, if payment (or other) obligations are excluded from an arbitration agreement, then a separate forum selection agreement for such disputes is usually appropriate. page "1128"
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8 New York Convention, Art. V(1)(c) (“a difference not
contemplated by or not falling within the terms of the submission to arbitration”). See infra pp. 2798-2803. Article V(1)(c) uses the phrase “submission to arbitration” rather than “arbitration agreement,” and likely was intended to refer, in the first instance, to either the parties' submissions to the arbitral tribunal or their postdispute submission agreement. See supra pp. 891-894. The provision nonetheless also encompasses the parties' underlying arbitration agreement, which limits the scope of issues that may be submitted to arbitration. See also supra pp. 891-894 & infra pp. 2607-2610, 2798-2799. 9 New York Convention, Arts. II(1) & II(3); supra pp. 94-96, 203205, 567-569. 10 The Inter-American Convention and the European Convention take the same approach. Inter-American Convention, Art. 5(1)(c); European Convention, Arts. V(1), IX(1)(c). 11 See infra pp. 1066-1083. 12 See infra pp. 2798-2803. See also infra pp. 2606-2611 (annulment of awards). 13 See, e.g., Italian Code of Civil Procedure, Art. 808-quarter, added by Italian Legislative Decree of 2 February 2006; infra p. 1076. 14 UNCITRAL Model Law, Art. 8(1) (“A court before which an action is brought in a matter which is the subject of an arbitration agreement shall refer the parties to arbitration.…”). As discussed above, Article 8 of the Model Law is best interpreted as requiring that determinations regarding the scope of an arbitration clause be made in the first instance by the arbitral tribunal (rather than a national court). The arbitrators' interpretation of the scope of the arbitration clause is then subject to subsequent judicial review in proceedings to annul or recognize the arbitral award. See infra pp. 2606-2611; UNCITRAL Model Law, Arts. 34(2)(a)(iii) (arbitral award may be set aside by a court if “the award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration … ”), 36(1)(a)(iii). See supra pp. 891-894, 974-975. As also discussed above, Article 8(1) contemplates only a prima facie review of the scope of an arbitration clause by a national court (“a matter which is the subject of an arbitration agreement”), subject to eventual judicial review in an annulment or recognition action. See supra pp. 891-894. 15 UNCITRAL Model Law, Arts. 34(2)(a)(iii) (“the award deals with
a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration”); 36(1)(a)(iii). See infra pp. 2606-2611, 2798-2803. 16 One of the few exceptions is Italy. See Italian Code of Civil Procedure, Art. 808–quarter; infra p. 1076. 17 U.S. FAA, 9 U.S.C. §3 (“If any suit or proceeding be brought … upon any issue referable to arbitration … the court in which such suit is pending, upon being satisfied that the issue involved in such suit http://www.kluwerarbitration.com/CommonUI/print.aspx
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or proceeding is referable to arbitration under such an agreement, shall … stay the trial of the action”); Swiss Law on Private International Law, Art. 7 (“If the parties have made an arbitration agreement concerning an arbitrable dispute …”); French New Code of Civil Procedure, Art. 1458(2) (“If the arbitral tribunal has not yet been seized of the matter, the national court shall … decline jurisdiction unless the arbitration agreement is manifestly void”); English Arbitration Act, 1996, §30 (“Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own substantive jurisdiction, that is, as to … whether there is a valid arbitration agreement”); Belgian Judicial Code, Art. 1679(1) (“The judge seized of a dispute which is the subject of an arbitration agreement shall, at the request of either party, declare that he has no jurisdiction”); Russian Federation Law on International Commercial Arbitration, Art. 8 (“A court in which an action is brought in a matter which is the subject of an arbitration agreement shall … stay its proceedings and refer the parties to arbitration”); Japanese Arbitration Law, Art. 14. 18 See infra pp. 1063-1066. This is similar to the rules governing the substantive validity of the arbitration agreement. See supra pp. 640-642, 707. 19 See infra pp. 1066-1083. 20 See, e.g., Preliminary Award in ICC Case No. 2321, I Y.B. Comm. Arb. 133 (1976); Partial Award in ICC Case No. 7920, XXIII Y.B. Comm. Arb. 80, 80 (1998) (applying “general principles of contract interpretation” to “reach[] the same result” as other methods of analysis); Interim Award in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312, 317 (2000) (“an arbitral tribunal should construe the validity and scope of an arbitration clause in accordance with the general principles of the interpretation of contracts, i.e., seeking the real and common intent of parties, based on the wording of the clause, and the principle of confidence or good faith”); Partial Award in ICC Case No. 10623, 21 ASA Bull. 59, 82, 106 (2003) (relying on “a generally accepted principle of contract interpretation … that contracts should be interpreted as a whole, so that their provisions make sense together”); McCollough & Co., Inc. v. Ministry of Post, Telegraph & Telephone, Iran-USAward 225-89-3 (22 April 1986), XII Y.B. Comm. Arb. 316, 318 (1987) (“When there is an apparent difference of meaning between two equally authentic texts of a contract, drawn up in two languages, one first should try, in accordance with general principles of contract interpretation, to construe the contract in such a way as to reconcile the two texts.”); Amco Asia Corp. v. Republic of Indonesia, Award on Jurisdiction, ICSID Case No. ARB/81/1 (25 September 1983), 23 Int'l Legal Mat. 351 (1983); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶476 (1999). 21 See, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (U.S. S.Ct. 1995); Fleetwood Enters. Inc. v. Gaskamp, 280 F.3d 1069, 1073 (5th Cir. 2002); EEOC v. Frank's Nursery & Crafts, Inc., 177 F.3d 448, 460 (6th Cir. 1999) (“Under the FAA, then, courts must treat an agreement to arbitrate as a contract that embodies bargained-for exchange where a party consents to the resolution of their substantive claims in an arbitral forum instead of a judicial one. Because courts are to treat agreements to arbitrate as all other contracts, they must apply general principles of contract interpretation to the interpretation of an agreement covered by the FAA.”); Haviland v. Goldman, Sachs & Co., 736 F.Supp. 507, 509 (S.D.N.Y. 1990) (“Arbitration agreements are contractual obligations which are governed by general principles of contract interpretation.”); Judgment of 21 November 2003, DFT 130 III 66 (Swiss Federal Tribunal); Judgment of 15 March 1990, Sonatrach v. http://www.kluwerarbitration.com/CommonUI/print.aspx
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K.C.A. Drilling Ltd, 1990 Rev. arb. 921 (Swiss Federal Tribunal); Judgment of 8 February 1991, 1991 NJW-RR 602 (Oberlandesgericht Munich). See also Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶49 (2000); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶472, 476 (1999); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶7-60 (2003). 22 Walter Rau Neusser Oel und Fett AG v. Cross Pac. Trading Ltd, XXXI Y.B. Comm. Arb. 559, 564 (Australian Fed. Ct. 2005) (2006). 23 See, e.g., Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 626 (U.S. S.Ct. 1985) (“as with any other contract, the parties' intentions control, but those intentions are generously construed as to issues of arbitrability”); Amco Asia Corp. v. Republic of Indonesia, Award on Jurisdiction, ICSID Case No. ARB/81/1 (25 September 1983), 23 Int'l Legal Mat. 351, 359 (1983) (“taking into account the consequences of their commitments the parties may be considered as having reasonably and legitimately envisaged”); Interim Award in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312, 317 (2000) (“in accordance with the general principles of the interpretation of contracts, i.e., seeking the real and common intent of parties, based on the wording of the clause, and the principle of confidence or good faith.”). 24 See, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (U.S. S.Ct. 1995); Paul Revere Variable Annuity Ins. Co. v. Kirschhofer, 226 F.3d 15, 25 (1st Cir. 2000) (“numerous courts have employed the tenet of contra proferentem in construing ambiguities in arbitration agreements against the drafters.”); Shaw Group Inc. v. Triplefine Int'l Corp., 322 F.3d 115, 121 (2d Cir. 2003); Judgment of 7 February 2002, SA Alfac v. Société Irmac Importacão, commércia e industria Ltda, 2002 Rev. arb. 413 (Paris Cour d'appel); Judgment of 1 February 1979, Techniques de l'Ingénieur v. Sofel, 1980 Rev. arb. 97, 98 (Paris Tribunal de grande instance); Award in ICC Case No. 8261, 4 Unif. L. Rev. 170 (1999); First Travel Corp. v. Islamic Republic of Iran, Award No. 206-34-1 (3 December 1985), XII Y.B. Comm. Arb. 257 (1987); Amco Asia Corp. v. Republic of Indonesia, Award on Jurisdiction, ICSID Case No. ARB/81/1 (25 September 1983), 23 Int'l Legal Mat. 351 (1983); Aamco Transmissions Inc. v. Kunz, (1991) 97 Sask.R. 5 (Sask. Court of Appeal); Sykes, The Contra Proferentem Rule and the Interpretation of International Commercial Arbitration Agreements: The Possible Uses and Misuses of A Tool for Solutions to Ambiguities, 8 Vind. J. Int'l Comm. L. Arb. 65 (2004). But seeFalcone Bros. P'ship v. Bear Stearns & Co., Inc., 699 F.Supp. 32, 34 (S.D.N.Y. 1988) (where party “contend[ed] that any ambiguities in the customer agreements should be resolved in their favor since defendants drafted the agreements,” the court noted that “[t]his general principle of contract interpretation is, however, displaced in this context by the more specific rule requiring that any doubts concerning the scope of arbitrable issues be resolved in favor of arbitration”); Hudson v. ConAgra Poultry Co., 484 F.3d 496, 503 (8th Cir. 2007) (same). 25 See, e.g., Karnette v. Wolpoff & Abramson, LLP, 444 F.Supp.2d 640, 646 (E.D. Va. 2006) (in context of interpreting an arbitration agreement, “[a]n age-old precept of contract interpretation requires that agreements be interpreted as a whole to give meaning to all terms, but when provisions conflict so that all cannot be given full weight, the more specific clauses are deemed to reflect the parties' intentions – a specific provision controls a general one”); Final Award in ICC Case No. 5946, XVI Y.B. Comm. Arb. 97, 102 (1992) http://www.kluwerarbitration.com/CommonUI/print.aspx
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(“Under the rule of interpretation lex specialis derogat legi generali the more specific provision takes precedence over the more general one”); Dr. Horst Reineccius v. Bank for Int'l Settlements, Partial Award in Permanent Court of Arbitration (22 November 2002), XXVIII Y.B. Comm. Arb. 100, 130 (2003) (“Insofar as the lex specialis in this case … provides an answer to the questions arising in this case, the Tribunal would not be permitted to turn to international law”). 26 See, e.g., Mastrobuono, 514 U.S. at 63 (“cardinal principle of contract construction: that a document should be read to give effect to all its provisions to render them consistent with each other”); Hudson v. ConAgra Poultry Co., 484 F.3d 496, 503 (8th Cir. 2007); Energy Transp., Ltd v. MV San Sebastian, 348 F.Supp.2d 186 (S.D.N.Y. 2004) (“cardinal doctrines of contract interpretation instruct courts to read a contractual document in a manner that confers meaning on all of its terms and renders the terms consistent with one another”); Award in ICC Case No. 1434, 103 J.D.I. (Clunet) 978, 982 (1976) (“prefer[ring] the interpretation which gives meaning to the words, rather than that which renders them useless or nonsensical”); Award in ICC Case No. 3380, VII Y.B. Comm. Arb. 116 (1982); Award in ICC Case No. 3460, 108 J.D.I. (Clunet) 939 (1981); Award in ICC Case No. 5754, excerpted in W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration 90 (3d ed. 2000) (“The [arbitration] clause must always be interpreted as part of, and in the light of, the particular contract in which it appears.”); Kuwait v. Am. Independent Oil Co., Ad Hoc Award (24 March 1982), 21 Int'l Legal Mat. 976 (1982). 27 See, e.g., Partial Award in ICC Case No. 7710, 128 J.D.I. (Clunet) 1148 (2001) (applying principle of ut res magis valeat quam pereat to interpretation of arbitration agreement). 28 See, e.g., Československa obchodní banka, as v. Slovak Republic, Decision on Jurisdiction, ICSID Case No. ARB/97/4 (24 May 1999), 14 ICSID Rev.-For. Inv. L.J. 251, 263 (1999) (“any convention, including conventions to arbitrate, should be construed in good faith, that is to say by taking into account the consequences of the commitments the parties may be considered as having reasonably and legitimately envisaged.”); Interim Award in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312, 317 (2000) (“principle of confidence or good faith”). 29 See, e.g., Final Award in ICC Case No. 6955, XXIVa Y.B. Comm. Arb. 107, 123-25 (1999); Ad Hoc Award of 29 May 1979, VII Y.B. Comm. Arb. 81 (1982). But seeDecision in Case No. DEC 12A1-FT, Request for decision regarding four issues of dispute arising in connection with the establishment and operation of the Security Account provided for in the Algiers Declaration, Iran-United States Claims Tribunal, Case A/1 (Issues I, III and IV) (3 August 1982), 1 Iran-US C.T.R. 189 (1981) (tribunal found trade usage conflicted with the terms of the agreement, upholding language of agreement). 30 Chitty on Contracts, ¶12-126 (29th ed. 2004) (“Subsequent actions are therefore inadmissible to interpret a written agreement, although they are admissible to show whether there was a contract and what the terms of the contract were, either originally or by variation, or as the basis for an estoppel.”). 31 Restatement (Second) Contracts §202(4) (1981) (“Where an agreement involves repeated occasions for performance by either party with knowledge of the nature of the performance and opportunity for objection to it by the other, any course of performance accepted or acquiesced in without objection is given great weight in the interpretation of the agreement.”); U.S. UCC §2http://www.kluwerarbitration.com/CommonUI/print.aspx
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208; Filanto SpA v. Chilewich Int'l Corp., 789 F.Supp. 1229, 1241 (S.D.N.Y. 1992) (“in determining the intent of a party[,] due consideration is to be given to any subsequent conduct of the parties” and that “[i]n this case, … it is particularly strong evidence” that a party “recognized itself to be bound by all the terms” of a contract, including its arbitration agreement); U.N. Convention on Contracts for the International Sale of Goods, Art. 8(3). For international arbitral awards considering the parties' postcontractual conduct in interpreting an arbitration agreement, seeSaudi Arabia v. Arabian Am. Oil Co. (Aramco), Ad Hoc Award (23 August 1958), 27 I.L.R. 117, 198 (1963); Award in ICC Case No. 7792, 122 J.D.I. (Clunet) 993, 996 (1995). 32 See, e.g., Award in ICC Case Nos. 7604 and 7610, in J.-J.
Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 510 (2003); In Re Transrol Navegacao SA, 782 F.Supp. 848 (S.D.N.Y. 1991). This scenario can also sometimes be addressed under estoppel principles. See infra pp. 1193-1198. 33 As discussed above, most arbitral institutions have adopted model or recommended arbitration clauses, which are widely used in commercial practice. See supra pp. 175-176, 180. 34 See, e.g., First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (U.S. S.Ct. 1995); Mitsubishi Motors Corp. v. Soler ChryslerPlymouth, Inc., 473 U.S. 614, 626 (U.S. S.Ct. 1985); Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); Judgment of 20 December 1995, DFT 121 III 495 (Swiss Federal Tribunal); Walter Rau Neusser Oel und Fett AG v. Cross Pac. Trading Ltd, XXXI Y.B. Comm. Arb. 559 (Australian Fed. Ct. 2005) (2006). 35 See, e.g., First Options, 514 U.S. at 945 (in domestic case, the FAA “insist[s] upon clarity before concluding that the parties did not want to arbitrate a related matter”); Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (U.S. S.Ct. 1983) (in domestic case, “the [FAA] establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability”); AT&T Tech., Inc. v. Comm. Workers, 475 U.S. 643, 650 (U.S. S.Ct. 1986) (in domestic case, “In the absence of any express provision excluding a particular grievance from arbitration, we think only the most forceful evidence of a purpose to exclude the claim from arbitration can prevail”) (quoting United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 584-85 (U.S. S.Ct. 1960)). See authorities cited infra pp. 1067-1072. 36 Mitsubishi Motors Corp., 473 U.S. at 626. 37 United Steelworkers of Am., 363 U.S. at 582-83 (domestic arbitration). 38 Moses H. Cone Mem. Hosp., 460 U.S. at 22 n.27, 23. 39 See, e.g., Ford Motor Co. v. Ables, 207 Fed.Appx. 443, 446 (5th Cir. 2006) (“[W]e are mindful that ‘due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself must be resolved in favor of arbitration.’”) (quoting Volt Info. Sciences, Inc. v. Bd. of Trustees, 489 U.S. 468, 475-76 (U.S. S.Ct. 1989)); Highlands Wellmont Health Network, Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 576-77 (6th Cir. 2003) (“[T]here is a general presumption of arbitrability”); Simula, http://www.kluwerarbitration.com/CommonUI/print.aspx
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Inc. v. Autoliv, Inc., 175 F.3d 716, 726 (9th Cir. 1999) (there is an “emphatic federal policy in favor of arbitral dispute resolution”); David L. Threlkeld & Co. v. Metallgesellschaft Ltd, 923 F.2d 245, 250-51 (2d Cir. 1991) (“[F]ederal policy strongly favors arbitration as an alternative dispute resolution process”); Sedco, Inc. v. Petroleos Mexicanos Mexican Nat'l Oil Co., 767 F.2d 1140, 1145 (5th Cir. 1985); Gestetner Holdings plc v. Nashua Corp., 784 F.Supp. 78 (S.D.N.Y. 1992) (“where claims may be understood to raise an arbitrable issue, arbitration must be compelled, even if the claims can also be characterized another way”). Compare McDonnell Douglas Fin. Corp. v. Pa. Power & Light Co., 858 F.2d 825, 831 (2d Cir. 1988) (“federal policy alone cannot be enough to extend the application of an arbitration clause far beyond its intended scope”). 40 See, e.g., Mitsubishi Motors Corp., 473 U.S. 614; Standard Bent Glass Corp. v. Glassrobots Oy, 333 F.3d 440, 450 (3d Cir. 2003) (federal policy in favor of arbitration “applies with special force in the field of international commerce”); Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 720 (9th Cir. 1999) (“strong federal policy favoring arbitral dispute resolution … applie[s] with special force in the field of international contracts”); Riley v. Kingsley Underwriting Agencies, Ltd, 969 F.2d 953 (10th Cir. 1992); David L. Threlkeld & Co., 923 F.2d at 248 (“the policy in favor of arbitration is even stronger in the context of international business transactions”); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, SA, 863 F.2d 315 (4th Cir. 1988); Société Generale de Surveillance v. Raytheon European Mgt & Sys. Co., 643 F.2d 863 (1st Cir. 1981); Tyco Valves & Controls Distrib. v. Tippins, Inc., 2006 WL 2924814 (W.D. Pa. 2006) (there is a “strong federal policy in favor of arbitration over litigation,” particularly in international commerce); Prograph Int'l Inc. v. Barhydt, 928 F.Supp. 983 (N.D. Cal. 1996) (“broad construction of arbitration clauses in international agreements”); Meadows Indem. Co. v. Baccala & Shoop Ins Serv., Inc., 760 F.Supp. 1036, 1041 (E.D.N.Y. 1991) (“the liberal federal arbitration policy applies with special force in the field of international commerce”). 41 Penzoil Explor. and Prod. Co. v. Ramco Energy Ltd, 139 F.3d 1061, 1065 (5th Cir. 1998). 42 See supra pp. 74-76. 43 The U.S. Supreme Court has also explained, the question of whether the parties intended a particular type of dispute to be subject to arbitration “arises when the parties have a contract that provides for arbitration … [In these circ*mstances, and g]iven the law's permissive policies in respect to arbitration, … one can understand why the law would insist upon clarity before concluding that the parties did not want to arbitrate a related matter.” First Options, 514 U.S. at 945. 44 See, e.g., Ivax Corp. v. B. Braun of Am., Inc., 286 F.3d 1309, 1320 n.23 (11th Cir. 2002) (rejecting argument that presumption in favor of arbitrability should not be applied to “narrow” arbitration clauses); Chevron U.S.A., Inc. v. Consolidated Edison Co., 872 F.2d 534, 537-38 (2d Cir. 1989) (“even a narrow arbitration clause must be construed in light of the presumption in favor of arbitration”); Manifest Corp. v. Random House, Inc., 2007 WL 1974911, at *7 (D. Ore. 2007); Advanstar Comm. Inc. v. Beckley-Cardy, Inc., 1994 WL 176981, at *3 (S.D.N.Y. 1994) (“A narrow arbitration clause must be construed in favor of arbitration”); Gestetner Holdings plc v. Nashua Corp., 784 F.Supp. 78 (S.D.N.Y. 1992) (“narrow” arbitration clause subject to FAA's pro-arbitration rules of interpretation: “even a narrow arbitration clause must be construed in light of the presumption in favor of arbitration”). But see Local 827, Int'l Bhd of http://www.kluwerarbitration.com/CommonUI/print.aspx
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Elec. Workers, AFL-CIO v. Verizon New Jersey, Inc., 458 F.3d 305, 310 (3d Cir. 2006) (distinguishing “narrow arbitration clause” where court “refused to apply the presumption of arbitrability” from “broad arbitration clauses” where court “applied the presumption”); Cummings v. FedEx Ground Package Sys., Inc., 404 F.3d 1258, 1261 (10th Cir. 2005) (“First, recognizing there is some range in the breadth of arbitration clauses, a court should classify the particular clause as either broad or narrow. Next, if reviewing a narrow clause, the court must determine whether the dispute is over an issue that is on its face within the purview of the clause, or over a collateral issue that is somehow connected to the main agreement that contains the arbitration clause. Where the arbitration clause is narrow, a collateral matter will generally be ruled beyond its purview. Where the arbitration clause is broad, there arises a presumption of arbitrability and arbitration of even a collateral matter will be ordered if the claim alleged implicated issues of contract construction or the parties' rights and obligations under it.”); HartfordAircraft Lodge 743 v. Hamilton Sunstrand Corp., 403 F.Supp.2d 200, 208 (D. Conn. 2005) (“A ‘broad’ arbitration clause gives rise to a presumption of arbitrability for any claim that implicates issues of contract construction or the parties' rights and obligations under it. If an arbitration clause is ‘narrow,’ a dispute will generally be arbitrable only if it concerns an issue that is on its face within the purview of the clause.”). Cf. Title Setters and Title Finishers etc. v. Spring St. Dev. Urban Renewal, LLC, 2007 WL 922286, at *6 (E.D.N.Y. 2007) (“Although where to place this arbitration clause along the broadnarrow spectrum is difficult, this clause is sufficiently broad to justify a presumption that disputes concerning the CBA are arbitrable.”); Int'l Ass'n of Machinists and Aerospace Workers v. ISP Chemicals Inc., 2006 WL 3420294, at *3 (W.D. Ky 2006) (“The Court must examine whether the arbitration clause is broad or narrow to determine the strength of the presumption in favor of arbitrability.”); GMAC Comm. Corp. v. Niagara Mohawk Power Corp., 1990 WL 64535, at *2 (S.D.N.Y. 1990) (“When a clause is deemed narrow, the policy in favor of arbitration does not have the strong effect which it would if the court were considering a broad arbitration clause.). 45 See, e.g., Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (U.S. S.Ct. 1989); Mitsubishi Motors Corp., 473 U.S. at 626 (“There is no reason to depart from the [pro-arbitration] guidelines where a party bound by an arbitration agreement raises claims founded on statutory rights”); Southland Corp., 465 U.S. at 15; Roby v. Corp. of Lloyd's, 996 F.2d 1353 (2d Cir. 1993); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840 (2d Cir. 1987); Singer v. Jefferies & Co., 571 N.Y.S.2d 680, 683 (N.Y. 1991) (“A court's obligation under the [FAA] to liberally interpret and enforce arbitration agreements is not diminished when the underlying controversy involves a violation of a Federal statute”). 46 See, e.g., First Options, 514 U.S. at 945; Moses H. Cone Mem. Hosp., 460 U.S. at 24-25; United States Fire Ins. Co. v. Nat'l Gypsum Co., 101 F.3d 813, 816 (2d Cir. 1996); Fleck v. E.F. Hutton Group, Inc., 891 F.2d 1047 (2d Cir. 1989). 47 See, e.g., Mitsubishi Motors Corp., 473 U.S. at 640; Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 478-80 (9th Cir. 1991); Sea Bowld Marine Group, LDC v. Oceanfast Pty, Ltd, 432 F.Supp.2d 1305, 1309 (S.D. Fla. 2006); Best Concrete Mix Corp. v. Lloyd's of London Underwriters, 413 F.Supp.2d 182 (E.D.N.Y. 2006); Nakamura Trading Co. v. Sankyo Corp., 2006 WL 1049608, at *1 (N.D. Ill. 2006); Boston Telecomm. Group, Inc. v. Deloitte Touche Tohmatsu, 278 F.Supp.2d 1041, 1043 (N.D. Cal. 2003) (“The federal substantive law of arbitrability establishes a clear federal policy http://www.kluwerarbitration.com/CommonUI/print.aspx
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favoring arbitration”; dismissing suit in favor of arbitration in Canada); Ibeto Petrochem. Indus., Ltd v. M/T Beffen, 412 F.Supp.2d 285, 291, 293 (S.D.N.Y. 2005). 48 See, e.g., Local 827, Int'l Bhd of Elec. Workers, AFL-CIO v. Verizon New Jersey, Inc., 458 F.3d 305, 310 (3d Cir. 2006) (“Where the arbitration provision is narrowly crafted, we cannot presume, as we might if it were drafted broadly, that the parties here agreed to submit all disputes to arbitration.”); Louis Dreyfus Negoce SA v. Blystad Shipping & Trading Inc., 252 F.3d 218, 225 (2d Cir. 2001) (“When parties use expansive language in drafting an arbitration clause, presumably they intend all issues that touch matters within the main agreement to be arbitrated, while the intended scope of a narrow arbitration clause is obviously more limited.”); Philips v. Newell Co., 1997 WL 181191, at *3 (S.D.N.Y. 1997) (“[A] court is constrained by the principle that arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit. Thus, although even a narrow arbitration clause must be construed in light of the presumption in favor of arbitration, the court is not free to disregard the explicit boundaries set by the agreement to arbitrate.”). 49 See infra pp. 1125-1128. 50 See supra p. 67; G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 42-44 (2d ed. 2006). 51 See, e.g., Louis Dreyfus Negoce SA v. Blystad Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir. 2001) (“Where the arbitration clause is narrow, a collateral matter will generally be ruled beyond its purview”); Cornell Univ. v. UAW Local 2300, etc., 942 F.2d 138, 140 (2d Cir. 1991) (where collective bargaining agreement limited arbitration to disputes relating directly to its terms, a claim arising under other terms is not arbitrable); Rochdale Village, Inc. v. Public Serv. Employees Union, Local No. 80, 605 F.2d 1290, 1295 (2d Cir. 1979) (“if an arbitration clause covers only employee grievances, the court should not compel arbitration of questions of contract termination”). See also supra pp. 1069-1070 nn. 44, 48. 52 Where disputes regarding the dividing line between arbitration and other dispute resolution mechanisms are concerned, an expansive interpretation of the arbitration clause may be inappropriate. Where parties have deliberately opted for parallel dispute resolution mechanisms, that intention should be given effect. 53 See supra p. 1069 n. 44. 54 See First Options, 514 U.S. at 944-45 (“In this manner, the law treats silence or ambiguity about the question ‘who (primarily) should decide arbitrability’ differently from the way it treats silence or ambiguity about the question ‘whether a particular merits-related dispute is arbitrable because it is within the scope of a valid arbitration agreement’ – for in respect to this latter question the law reverses the presumption. SeeMitsubishi Motors Corp., 473 U.S. at 626 (‘[A]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration’).”). 55 DeMarco Calif. Fabrics, Inc. v. Nygard Int'l Ltd, 1990 U.S. Dist. LEXIS 3842 (S.D.N.Y. 1990). See alsoKristian v. Comcast Corp., 446 F.3d 25, 35 (1st Cir. 2006) (“generally speaking, the presumption in favor of arbitration applies to the resolution of scope questions.… A scope question arises when the parties have a contract that provides for arbitration of some issues and it is unclear whether a specific dispute falls within that contract.”); United Steelworkers of Am. v. Titan Tire Corp., 204 F.3d 858, 860 (8th Cir. 2000) (“we must first consider whether a valid agreement to arbitrate exists. … If a valid agreement exists, we then consider the scope of http://www.kluwerarbitration.com/CommonUI/print.aspx
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the agreement”); Teamsters Local Union No. 688 v. Indus. Wire Prods., Inc., 186 F.3d 878, 881 (8th Cir. 1999) (“[W]hen an arbitration clause exists in a contract, there is a presumption of arbitrability unless it is clear that the arbitration clause is not susceptible of an interpretation that covers the dispute.”); Chevron U.S.A., Inc. v. Consolidated Edison Co., 872 F.2d 534, 537 (2d Cir. 1989); Heinhuis v. Venture Assoc. Inc., 1991 U.S. Dist. LEXIS 8190 (E.D. La. 1991); Astor Chocolate Corp. v. Mikroverk, Ltd, 704 F.Supp. 30, 33 n.4 (E.D.N.Y. 1989). But see Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469 (9th Cir. 1991); Filanto SpA v. Chilewich Int'l Corp., 789 F.Supp. 1229 (S.D.N.Y. 1992). 56 See supra pp. 640-642, 644 et seq. As also discussed above, a number of U.S. decisions have adopted different presumptions in considering the existence or validity of international arbitration agreements, requiring either reduced or heightened standards of proof. See supra pp. 649-652. 57 Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 923 (Swiss Federal Tribunal); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶49 (2000) (“The parties' expressions of intent with regard to the arbitration agreement are interpreted pursuant to Article 1 et seq. CO”). 58 Judgment of 19 May 2003, 22 ASA Bull. 344, 348 (Swiss Federal Tribunal) (2004). See also B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶422 (2006). 59 Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 923 (Swiss Federal Tribunal). See also Judgment of 8 July 2003, DFT 129 III 675, 681 (Swiss Federal Tribunal) (“one has to take into account the parties' wishes to have disputes resolved by arbitral tribunal”); T. Rüede & R. Hadenfeldt, Schweizerisches Schiedsgerichtsrecht 74 (2d ed. 1993) (“it corresponds to the interest of reasonable parties to assume that they generally wanted embracing jurisdiction of an arbitral tribunal if they entered into an arbitration agreement”). 60 See supra pp. 645-647; Judgment of 8 July 2003, DFT 129 III 675, 680 (Swiss Federal Tribunal); Judgment of 16 October 2001, 2002 Rev. arb. 753, 758 (Swiss Federal Tribunal); Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 923 (Swiss Federal Tribunal). 61 Judgment of 17 February 1989, XV Y.B. Comm. Arb. 455, 464 (Hanseatisches Oberlandesgericht Hamburg) (1990). See also Judgment of 10 December 1970, 1971 BB 369 (German Bundesgerichtshof); Judgment of 4 October 2001, 2002 NJW-RR 387 (German Bundesgerichtshof); Judgment of 25 September 2006, 2006 OLGR München 906 (Oberlandesgericht Munich); Judgment of 20 April 1977, IV Y.B. Comm. Arb. 261 (Landgericht Hamburg) (1979). 62 Judgment of 8 February 1991, 1991 NJW-RR 602, 603 (Oberlandesgericht Munich). See also Voit, in H.-J. Musielak (ed.), Kommentar zur Zivilprozessordnung §1029, ¶23 (5th ed. 2007) (“Which disputes are covered by the arbitration agreement is to be determined through interpretation. It is generally considered, that the parties want to refer a dispute in its totality to the arbitral tribunal.”); Judgment of 4 November 1993, 1994 NJW-RR 425, 426 (Landgericht Mönchengladbach) (if a valid arbitration agreement exists, the scope of the disputes falling under it is to be interpreted widely); Judgment of 17 February 1989, XV Y.B. Comm. Arb. 455, 464 (Hanseatisches Oberlandesgericht Hamburg) (1990). http://www.kluwerarbitration.com/CommonUI/print.aspx
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63 As discussed below, English courts historically did not apply any
“pro-arbitration” assumption and instead tended to draw relatively fine, technical distinctions between different formulae commonly encountered in arbitration clauses. See infra pp. 1078-1079. 64 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). 65 Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). See also Ulysess Compania Naviera SA v. Huntingdon Petroleum Serv., The Ermoupolis [1990] 1 Lloyd's Rep. 160, 164 (Q.B.) (“Clearly, the matters to be proved, and therefore the potential issues, greatly overlap. That such closely related claims should be subject to different forms of dispute resolution, arbitration and litigation, possibly in different jurisdictions, would, in my view, hold no attraction for the reasonable businessman versed in the business of shipping.”). 66 See supra pp. 1067-1073. 67 Fiona Trust & Holding Corp. v. Privalov [2007] UKHL 40 (House of Lords). The Court excluded cases where there was a dispute as to whether any contract at all had ever been made as not being subject to this interpretative rule. 68 See supra pp. 1073-1075 & infra pp. 1078-1079. 69 See W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.07 (3d ed. 2000) (“there must be a heavy presumption in favor of arbitrability. If anything is clear, it is that the very existence of the arbitration clause proves that the parties wanted disputes arising under it to be resolved in the manner provided.”). 70 See, e.g., Walter Rau Neusser Oel und Fett AG v. Cross Pac. Trading Ltd, XXXI Y.B. Comm. Arb. 559, 564 (Australian Fed. Ct. 2005) (2006) (arbitration agreements “are governed by the ordinary rules of contract interpretation” and “a liberal approach to their meaning should be given, without any policy attempting to restrict their scope”; “The courts will assume that the parties did not intend the inconvenience of having possible disputes from their transaction being heard in two places. … [But] there is no legal rule that a dispute necessarily falls within an arbitration clause unless the court can be persuaded with ‘positive assurance’ that the clause is not susceptible of any meaning that would include the dispute with the clause.”); Stericorp. Ltd v. Stericycle Inc., XXXI Y.B. Comm. Arb. 549, 556 (Victoria S.Ct. 2005) (2006) (arbitration agreements are “not to be read narrowly”); Francis Travel Mktg Pty Ltd v. Virgin Atlantic Airways Ltd, (1996) 39 NSWLR 160 (N.S.W. Court of Appeal) (“When parties to a commercial contract agree, at the time of making the contract, and before any disputes have yet arisen, to refer to arbitration any dispute or difference arising out of the agreement, their agreement should not be construed narrowly. They are unlikely to have intended that different disputes should be resolved before different tribunals, or that the appropriate tribunal should be determined by fine shades of difference in the legal character of individual issues, or by the ingenuity of lawyers in developing points of argument.”). 71 Onex Corp. v. Ball Corp., 12 B.L.R.2d 151, 158-60 (Ontario Court of Justice 1994). See also Canadian Nat'l Railway Co. v. Lovat Tunnel Equip. Inc., 174 D.L.R.4th 385 (Ontario Court of Appeal 1999); Dalimpex Ltd v. Janicki, [2000] O.J. No. 2927 (Ontario S.Ct.) (where scope of arbitration clause is susceptible of two http://www.kluwerarbitration.com/CommonUI/print.aspx
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interpretations, it should be interpreted as providing for arbitration); Duferco Int'l Inv. Holding (Guernsey) Ltd v. Pan Fin. Ins. Co., [1996] O.J. No. 549 (Ontario Court of Justice); Crystal Rose Home Ltd v. Alberta New Home Warranty Programme, 27 Alta.L.R.3d 122 (Alberta Q.B. 1994). CompareKaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994) (arguably rejecting pro-arbitration rule of construction). 72 Wintershall AG v. Gov't of Qatar, Partial Ad HocAward (5 February 1988), 28 Int'l Legal Mat. 795, 811 (1989). See also Award in ICC Case No. 9759, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 89-90 (2001) (interpretation of arbitration agreement “goes beyond the requirements of a strict literal interpretation. To the contrary, when the parties insert an arbitration agreement in their contract, one should presume that their intent was to establish an effective machinery for the settlement of disputes”); Award in ICC Case No. 9288, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 122 (2001) (Swiss tribunal applies most favorable rule of interpretation available, by analogy to Article 178(2) of Swiss Law on Private International Law). 73 Italian Code of Civil Procedure, Art. 808-quarter, added by Italian Legislative Decree of 2 February 2006 (“In case of doubt, the arbitration agreement shall be interpreted in the sense that the arbitral jurisdiction extends to all disputes arising from the contract of from the relationships to which the agreement refers.”). 74 E.g., Award in ICC Case No. 4392, 110 J.D.I. (Clunet) 907, 908 (1983). See also supra pp. 576-580. 75 Hi-Fert Pty Ltd v. Kiukiang Maritime Carriers Inc., 90 FCR 1 (Australian Fed. Ct. 1998) (“In choosing arbitrators with commercial backgrounds, the parties indicated a choice for the practical solution of disputes of the kind referred to the arbitrators. But to read [the parties' agreement] as contemplating a reference to such persons of a problem of considerable private international legal complexity, let alone the application of a foreign (Australian) law in the form of the Trade Practices legislation, would seem to contradict a desire for a practical outcome. We should not attribute such a bizarre intention to these parties.”). This reasoning is confused and impossible to accept. 76 Judgment of 25 January 1972, Marcel Quijano Aguero v. Laporte, 1973 Rev. arb. 158 (Paris Cour d'appel). See also Judgment of 11 March 1986, Compagnie d'assurance La Zurich v. Bureau central français, Gaz. Pal. 1986 1.298 (Paris Cour d'appel) (“The arbitration agreement must be strictly interpreted as it departs from the norm – and in particular from the usual rules as to the jurisdiction of the courts.”). CompareJudgment of 13 March 1978, Hertzian v. Electronska Indus., 1979 Rev. arb. 339 (French Cour de cassation) (arbitration clause “for all disputes arising during performance [of the contract]” encompasses disputes arising from termination of contract). 77 R. David, L'arbitrage commercial international en droit comparé 272 (1968-69); Derains, Observations – Cour d'appel de Paris 10 March 1995 – Tardivel v. SA Cejibe, 1996 Rev. arb. 125; Derains & Schaf, Clauses d'arbitrage et groupes de sociétés, 1985 Int'l Bus. L.J. 231; Derains, Chronique des sentences arbitrales, 108 J.D.I. (Clunet) 943 (1981). Compare E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶480 (1999) (“this principle [of restrictive interpretation] is generally rejected in international arbitration … The interpretation of arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreements by French courts has, likewise, never been strict or restrictive … It is equally inappropriate to resort to a general principle of interpretation”). 78 See supra p. 1076. See, e.g., Judgment of 10 March 2000, Krauss Maffei Verfahrenstechnik GmbH v. Bristol Myers Squibb, XXVI Y.B. Comm. Arb. 816, 821 (Italian Corte di Cassazione) (2001), confirming Judgment of 28 July 1998, Glencore Int'l AG v. Soc. Comm. Alluminio Nord, 1998 Foro it., Rep. voce Arbitraton No. 68 (Italian Corte di Cassazione) (“if there is a doubt as to the scope of the clause, a restrictive interpretation must be preferred, which affirms the jurisdiction of the [Italian] courts”). Italian courts also held that, as referring a dispute to foreign arbitrators means a derogation from the jurisdiction of the courts, an arbitral clause must indicate the subject matter of future disputes in a clear and unequivocal manner and, if there is a doubt as to the scope of the clause, a restrictive interpretation must be preferred, affirming the jurisdiction of the courts. SeeJudgment of 28 July 1998, Glencore Int'l AG v. Soc. Comm. alluminio Nord, 1998 Foro it., Rep. voce Arbitraton No. 68 (Italian Corte di Cassazione); Judgment of 24 October 1979, 1979 Giustizia Civile Mass. 2444 (Italian Corte di Cassazione). 79 See, e.g., Daimler Chrysler Corp. v. Franklin, 814 N.E.2d 281
(Ind. Ct. App. 2004) (“Parties are only bound to arbitrate those issues that by clear language they have agreed to arbitrate”); State ex rel. City Holding Co. v. Kaufman, 609 S.E.2d 855 (W. Va. 2004) (stock option disputes were not included in the scope of an arbitration clause); Terminex Int'l Co. v. Michaels, 668 So.2d 1013, 1015 (Fla. Ct. App. 1996) (ambiguity as to whether personal injury claims were covered by an arbitration agreement in a contract for termite extermination should be resolved against arbitrating the dispute); A.F.C.O. Metals, Inc. v. Local Union 580, 638 N.Y.S.2d 585 (N.Y. 1995); Shuffman v. Rudd Plastic Fabrics Corp., 407 N.Y.S.2d 565, 566 (N.Y. App. Div. 1978) (“If equivocal, the scope of a commercial arbitration clause must be read conservatively”); Allstate Ins. Co. v. Cook, 21 Ariz.App. 313 (Ariz. Ct. App. 1974); Flood v. Country Mut. Ins. Co., 41 Ill.2d 91, 94 (1968) (“clear language” required; “arbitration agreements will not be extended by construction or implication”). 80 Gangel v. De Groot, 393 N.Y.S.2d 698 (N.Y. 1977). 81 See supra pp. 135-141, 206, 485-492, 571-572; DiMercurio v. Sphere Drake Ins. plc, 202 F.3d 71 (1st Cir. 2000); KKW Enters. Inc. v. Gloria Jean's Gourmet Coffees Franchising Corp., 184 F.3d 42, 49 (1st Cir. 1999); Progressive Cas. Ins. Co. v. CA Reaseguradora Nacional de Venezuela, 991 F.2d 42 (2d Cir. 1993). 82 See, e.g., Award in ICC Case No. 2138, in S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 242 (1990) (arbitral clause must be interpreted restrictively); Preliminary Award in ICC Case No. 2321, I Y.B. Comm. Arb. 133 (1976) (“I agree so far with the defendants that an arbitration clause may have, as to its scope, to be interpreted strictly.”); Partial Award in ICC Case No. 7920, XXIII Y.B. Comm. Arb. 80 (1998) (concluding that scope of arbitration clause is to be interpreted “strictly,” but validity of clause is governed by “principle of effectiveness”). 83 Overseas Union Ltd v. AA Mut. Int'l Ins. Co. Ltd [1988] 1 FTLR 421, 425 (Q.B.) (“The question is always one of construction, giving the words of the arbitration clause their natural and proper meaning http://www.kluwerarbitration.com/CommonUI/print.aspx
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in the circ*mstances of the case.”); R. Merkin, Arbitration Law ¶¶5.39 et seq. (2004 & Update 2007). See also Renusagar Power Co. v. Gen. Elec. Co. & Int'l Chamber of Commerce, X Y.B. Comm. Arb. 431, 433 (Indian S.Ct. 1984) (1985) (“Whether a given dispute … comes within the scope or purview of an arbitration clause … is a question of what the parties intend to provide and what language they employ.”). 84 Astro Vencedor Compania Naviera SA of Panama v. Mabanaft GmbH, The Damianos [1971] 2 All E.R. 1301, 1305 (English Court of Appeal); Overseas Union Ltd v. AA Mut. Int'l Ins. Co. Ltd [1988] 1 FTLR 421 (Q.B.); R. Merkin, Arbitration Law ¶¶5.39, 5.61 (2004 & Update 2007); D. Joseph, Jurisdiction and Arbitration Agreements and Their Enforcement ¶¶4.46-4.48 (2005) (“[I]t is necessary to consider … which disputes fall within the ambit of the agreement. This is a matter of construction and ought to be resolved by arriving at the parties' presumed mutual intention using ordinary principles of construction”). Detailed reviews of this jurisprudence and the fine distinctions that emerged can be found in Walter Rau Neusser Oel und Fett AG v. Cross Pac. Trading Ltd, XXXI Y.B. Comm. Arb. 559 (Australian Fed. Ct. 2005) (2006). 85 See supra pp. 1073-1075; Fiona Trust & Holding Corp. v.
Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). 86 Amco Asia Corp. v. Republic of Indonesia, Award on Jurisdiction, ICSID Case No. ARB/81/1 (25 September 1983), 23 Int'l Legal Mat. 351, 359 (1983). See also Interim Award in ICC Case No. 4145, XII Y.B. Comm. Arb. 97, 100 (1987) (endorsing an “interpretation, based on the investigation of the real intention of the parties, [that] has nothing to do with extensive or restrictive interpretation”); Partial Award on Jurisdiction and Admissibility in ICC Case No. 6474, XXV Y.B. Comm. Arb. 279, 310 (2000) (“there is no valid reason, why, under either Swiss law or under general principles, [an arbitration clause] should be given either ‘a restricted interpretation’ or an ‘extensive interpretation.’”); Interim Award in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312, 316 (2000) (“the interpretation of an arbitration clause, like that of any clause in a contract, depends primarily upon the wording of that clause”). 87 See supra pp. 82-84. 88 See, e.g., AAA Construction Industry Arbitration Rules; Scottish Construction Arbitration Code, Chartered Institute of Arbitrators – Scottish Branch; ARIAS Procedures for the Resolution of U.S. Insurance Reinsurance Disputes. SMA Arbitration Rules. 89 See supra pp. 877 et seq. (especially supra pp. 877, 881-891, 900-904, 904-907). 90 See supra pp. 891-894. Similarly, in France, prior to commencement of an arbitration, courts only inquire whether an arbitration agreement is patently void or inapplicable to the dispute; thereafter, jurisdictional issues are for resolution by the arbitrator, subject to later judicial review. See supra pp. 900-904; French New Code of Civil Procedure, Art. 1458; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶672 (1999). 91 See, e.g., Gulf Guar. Life Ins. Co. v. Connecticut Gen. Life Ins. Co., 304 F.3d 476 (5th Cir. 2002); Republic of Nicaragua v. Standard Fruit Co., 937 F.2d 469, 475-77 (9th Cir. 1991); Boston Telecomm. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Group, Inc. v. Deloitte Touche Tohmatsu, 278 F.Supp.2d 1041 (N.D. Cal. 2003). 92 See supra pp. 981-986 & infra pp. 1087-1089, 1090-1128 (citing authorities; passim). 93 See infra pp. 2606-2611. In many cases, the parties will have agreed that the arbitrators have the authority to interpret the arbitration agreement. In these instances, judicial review of the merits of the tribunal's decision will be either non-existent or highly deferential. See supra pp. 931-937, 962-963, 974-975 & infra pp. 2611, 2790-2791, 2800. 94 The preclusive effects of national court decisions on jurisdictional issues is discussed elsewhere. See supra pp. 981-986 & infra pp. 2611, 2790-2791, 2800, 2919-2929. 95 See Rogers, Fit and Function in Legal Ethics: Developing A Code of Conduct for International Arbitration, 23 Mich. J. Int'l L. 341, 403-404 (2002) (“Often, arbitration agreements are an afterthought thrown into a contract by corporate attorneys who have little experience with arbitration and are hoping that the possibility of a dispute is distant and improbable.”); Baker & Stabile, Arbitration of Antitrust Claims: Opportunities and Hazards for Corporate Counsel, 48 Bus. Law. 395, 413 (1993) (arbitration clauses often “included in agreements almost as afterthoughts”). 96 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 44-61 (2d ed. 2006). 97 See Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal) (“If business men go to the trouble of agreeing that their disputes be heard in the courts of a particular country or by a tribunal of their choice they do not expect (at any rate when they are making the contract in the first place) that time and expense will be taken in lengthy argument about the nature of particular causes of action and whether any particular cause of action comes within the meaning of the particular phrase they have chosen in their arbitration clause.”), aff'd, [2007] UKHL 40 (House of Lords); Griffin v. Semperit of Am., Inc., 414 F.Supp. 1384 (S.D. Tex. 1976). 98 For good examples of bad analysis, see, e.g., Walter Rau Neusser Oel und Fett AG v. Cross Pac. Trading Ltd, XXXI Y.B. Comm. Arb. 559 (Australian Fed. Ct. 2005) (2006); Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc., 90 FCR 1 (Australian Fed. Ct. 1998); Good(e) Business Systems, Inc. v. Raytheon Co., 614 F.Supp. 428 (W.D. Wisc. 1985). 99 See supra pp. 67-68. 100 A. Samuel, Jurisdictional Problems in International Commercial Arbitration 123-24 (1989); supra pp. 1060-1061. 101 See supra pp. 1066-1076; Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 922 (Swiss Federal Tribunal); Judgment of 17 February 1989, XV Y.B. Comm. Arb. 455, 464 (Hanseatisches Oberlandesgericht Hamburg) (1990). 102 See supra pp. 1070-1072. Some courts have gone further and held that exceptions must be narrowly interpreted. BAE Sys. Aircraft Controls, Inc. v. Eclipse Aviation Corp., 224 F.R.D. 581, 586 (D. Del. 2004) (compelling arbitration despite exception for the use or disclosure of confidential information); Judgment of 29 February 1996, 1996 OLGR Bremen 139 (Hanseatisches Oberlandesgericht Bremen). http://www.kluwerarbitration.com/CommonUI/print.aspx
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103 As noted above, many U.S. courts have correctly reasoned that
the existence of exceptions to an arbitration clause does not imply that the general affirmative scope of the clause is intended to be narrow. See supra pp. 1068-1069; Acquaire v. Canada Dry Bottling, 906 F.Supp. 819, 836 (E.D.N.Y. 1995) (rejecting argument that existence of two contractual exceptions to arbitration agreement implies that agreement's scope was intended to be narrow); RosoLino Beverage Distrib., Inc. v. Coca-Cola Bottling Co., 749 F.2d 124, 126 (2d Cir. 1984) (same). See also Münch, in G. Lüke & P. Wax (eds.), Münchener Kommentar zur Zivilprozessordnung §1029, ¶38 (2d ed. 2001) (given presumption that parties desire a comprehensive decision, any exclusions must be carefully drafted). 104 It is also occasionally suggested that the interpretation of international arbitration agreements should be governed by the procedural law of the arbitration and the law governing the parties' underlying contract. See supra pp. 409 et seq. for a discussion of the choice of law governing arbitration agreements. 105 See infra pp. 1084-1086; Mitsubishi Motors Corp., 473 U.S. at 626 (applying FAA's pro-arbitration presumption to arbitration clause in contract governed by Swiss law providing for arbitration in Japan); Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43 (3d Cir. 1978); Rhone Mediterranee etc. v. Achille Lauro, 555 F.Supp. 481, 484-85 (D.V.I. 1982); Schlosser, in F. Stein & M. Jonas (eds.), Kommentar zur Zivilprozessordnung Anhang §1061, ¶46 (22d ed. 2002); Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶422 (2d ed. 1989); Haas, in F.-B. Weigand (ed.), Practitioner'sHandbook on International Arbitration 511-512 (2002). 106 473 U.S. 614, 626 (U.S. S.Ct. 1985). See alsoFirst Options, 514 U.S. at 945; Dean Witter Reynolds, Inc., 470 U.S. 213; Moses H. Cone Mem. Hosp., 460 U.S. 1; supra pp. 1067-1072. 107 Mitsubishi Motors Corp., 473 U.S. at 626. 108 See supra pp. 1067-1072. 109 Mitsubishi Motors Corp., 473 U.S. at 614. 110 See, e.g., Kristian v. Comcast Corp., 446 F.3d 25, 63 (1st Cir. 2006); Gen. Elec. Co. v. Deutz AG, 270 F.3d 144, 154 (3d Cir. 2001); Chiron Corp. v. Ortho Diagnostic Systems, Inc., 207 F.3d 1126, 1130-31 (9th Cir. 2000); McPheeters v. McGinn, Smith & Co., 953 F.2d 771 (2d Cir. 1992); Mayaja, Inc. v. Bodkin, 803 F.2d 157, 161 (5th Cir. 1986); Zell v. Jacoby-Bender, Inc., 542 F.2d 34, 36-7 (7th Cir. 1976); ChampionsWorld, LLC v. U.S. Soccer Fed., Inc., 487 F.Supp.2d 980, 985 (N.D. Ill. 2007); Innovative Eng'g Solutions, Inc. v. Misonix, Inc., 458 F.Supp.2d 1190, 1194 (D. Ore. 2006); First Citizens Munic. Corp. v. Pershing Div. of Donaldson, Lufkin & Jenrette Sec. Corp., 546 F.Supp. 884 (N.D. Ga. 1982); Griffin v. Semperit of Am., Inc., 414 F.Supp. 1384 (S.D. Tex. 1976); 1745 Wazee LLC v. Castle Builders Inc., 89 P.3d 422, 425 (Colo. App. 2003). 111 See, e.g., Kamaya Co. v. Am. Prop. Consultants, Ltd, 959 P.2d 1140 (Wash. App. Ct. 1998) (applying FAA to scope of arbitration clause); Powell v. Sphere Drake Ins. plc, 988 P.2d 12 (Wash. Ct. App. 1999) (“Whether a particular dispute is governed by an arbitration clause is thus a matter of federal law”); Nicaragua v. Standard Fruit Co., 937 F.2d 469 (9th Cir. 1991); CIT Project Fin., LLC v. Credit Suisse First Boston LLC, 2004 WL 2941331 (N.Y. S.Ct. 2004); A/S J. Ludwig Mowinckels Rederiv. Dow Chem. Co., 255 N.E.2d 774, 778 (N.Y. 1970). CompareStone v. Doerge, 328 F.3d 343, 345 (7th Cir. 2003) (plainly erring in holding that “Most http://www.kluwerarbitration.com/CommonUI/print.aspx
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interpretative disputes must be resolved under state law.”). 112 See, e.g., Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 43 (3d Cir. 1978) (“It is true that, if the parties agree that certain disputes will be submitted to arbitration and that the law of a particular jurisdiction will govern the resolution of those disputes, federal courts must effectuate that agreement. However, whether a particular dispute is within the class of those disputes governed by the arbitration and choice of law clause is a matter of federal law.”); Innovative Eng'g Solutions, Inc. v. Misonix, Inc., 458 F.Supp.2d 1190 (D. Ore. 2006) (although parties' agreement provided that state law govern its construction, federal law determined the scope of the agreement's arbitration clause); Sea Bowld Marine Group, LDC v. Oceanfast Pty, Ltd, 432 F.Supp.2d 1305, 1309 (S.D. Fla. 2006); Chloe Z Fishing Co. v. Odyssey Re (London) Ltd, 109 F.Supp.2d 1236, 1252 (S.D. Cal. 2000) (applying federal law to determine scope of arbitration agreement because neither the “choice-of-law provision governing the [insurance] policies or the reference of disputes ‘to arbitration in London’ in the arbitral clauses themselves subject the scope of the arbitration clause to English law”); Westbrook Int'l, LLC v. Westbrook Tech., Inc., 17 F.Supp.2d 681, 684 (E.D. Mich. 1998); Rhone Mediterranee etc. v. Lauro, 555 F.Supp. 481, 484 (D.V.I. 1982). 113 See, e.g., Ford v. NYLCare Health Plans of Gulf Coast, Inc., 141 F.3d 243, 248 n.6 (5th Cir. 1998) (applying law chosen by choice-of-law clause to scope of arbitration clause); In re Oil Spill by Amoco Cadiz et al., 659 F.2d 789 (7th Cir. 1981) (apparently relying on English law to interpret scope of arbitration clause, but also relying on FAA's presumption of arbitrability); SMG Swedish Machine Group, Inc. v. Swedish Machine Group, Inc., 1991 WL 10662 (N.D. Ill. 1991) (applying Swedish law to determine whether an arbitration clause was mandatory); Al-Salamah Arabian Agencies Co. v. Reece, 673 F.Supp. 748, 750 (M.D.N.C. 1987) (assuming Saudi Arabian law applied, but, in absence of proof, looking to FAA); G.B. Michael v. SS Thanasis, 311 F.Supp. 170 (N.D. Cal. 1970) (suggesting application of foreign law selected in choice-of-law clause to govern interpretation of arbitration clause); Savannah Sugar Refining Corp. v. SS Hudson Deep, 288 F.Supp. 181 (S.D.N.Y. 1968) (applying “British” law to interpretation of arbitration agreement); Fox v. The Giuseppe Mazzini, 110 F.Supp. 212, 213-14 (E.D.N.Y. 1953) (“it would seem that since the contract between the parties was executed in London, the interpretation to be given to the arbitration clause is to be that of British law rather than the law of this country”); Kamaya Co. v. Am. Prop. Consultants, Ltd, 959 P.2d 1140 (Wash. App. Ct. 1998) (applying Japanese rules of contract interpretation). 114 See supra pp. 426-459; Felman Prod. Inc. v. Bannai, 476 F.Supp.2d 585 (S.D. W.Va. 2007) (parties chose English law to govern and the FAA “simply requires courts to enforce privately negotiated agreements to arbitrate, like other contracts, in accordance with their terms”); Palmco Corp. v. JSC Techsnabexport, 448 F.Supp.2d 1194, 1199 (C.D. Cal. 2006) (parties chose Swedish law to govern their contract). 115 See, e.g., Judgment of 17 November 1995, 1996 RIW 239, 240 (Oberlandesgericht Düsseldorf) (the scope of an arbitration agreement was determined according to English law, which was applicable to the agreement); Judgment of 7 April 1989, 1990 RIW 585, 586 (Oberlandesgericht Munich) (applying Swiss contra preferentem rule to an arbitration agreement subject to Swiss law); Judgment of 15 May 2006, 2006 NJOZ 2836 (Oberlandesgericht Stuttgart) (court applies Article 8 of Vienna Sale of Goods http://www.kluwerarbitration.com/CommonUI/print.aspx
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Convention to the interpretation of an arbitration clause). 116 See, e.g., Geimer, in R. Zöller (ed.), Zivilprozessordnung §1029, ¶108 (26th ed. 2007); Münch, in G. Lüke & P. Wax (eds.), Münchener Kommentar zur Zivilprozessordnung §1029, ¶18 (2d ed. 2001); Schlosser, in F. Stein & M. Jonas (eds.), Kommentar zur Zivilprozessordnung Anhang §1061, ¶46 (22d ed. 2002); Wagner, in F.-B. Weigand (ed.), Practitioner's Handbook on International Arbitration 698 (2002) (interpretation of arbitration agreement is subject to the general rules governing contracts). 117 B. Berger & F. Kellerhals, Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶414 (2006); Wenger, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 178, ¶23 (2000). 118 See, e.g., Recyclers of Australia Pty Ltd v. Hettinga Equip. Inc., (2000) 175 A.L.R. 725 (Australian Fed. Ct.) (applying FAA's proarbitration principles of interpretation to arbitration clause governed by Iowa law); Judgment of 17 December 1991, Gatoil v. Nat'l Iranian Oil Co., 1993 Rev. arb. 281 (Paris Cour d'appel) (applying, pursuant to usual French choice-of-law analysis, international law to international arbitration agreement). 119 See supra pp. 425 et seq. 120 See supra pp. 851 et seq. 121 See supra pp. 877-966. 122 See supra pp. 891-894, 931-937, 974-975. 123 See supra pp. 891-894, 931-937, 974-975 & infra pp. 10931098; Sharon Steel Corp. v. Jewell Coal & co*ke Co., 735 F.2d 775, 779 (3d Cir. 1984) (“[T]he [FAA] gives the arbitrator the power to determine the scope of the arbitration clause as well as the substantive merits of the claim.… [A] case in which the scope of arbitrability affects the merits of the claim is a stronger candidate for an arbitration.”); Nat'l R.R. Passenger Corp. v. Chesapeake & Ohio Ry. Co., 551 F.2d 136, 140 (7th Cir. 1977) (“‘When the judiciary undertakes to determine the merits of a grievance under the guise of interpreting the … (arbitration clause), it usurps a function which … is entrusted to the arbitration tribunal.’”) (quoting United Steelworkers v. Am. Mfg Co., 363 U.S. 564, 569 (U.S. S.Ct. 1960)); I. & F. Corp. v. Int'l Ass'n of Heat & Frost Insulators, Local 8, 493 F.Supp. 147, 150 (S.D. Ohio 1980) (“There are three recognized exceptions … to the general proposition that arbitrability is for the court. The first such exception applies where the arbitrability issue unavoidably implicates the merits of the underlying controversy.”); In re Praetorian Realty Corp., 373 N.Y.S.2d 151 (N.Y. App. Div. 1975), aff'd, 389 N.Y.S.2d 315 (N.Y. 1976); Nationwide Gen. Ins. Co. of Am. v. Inv. Ins. Co., 371 N.Y.S.2d 463, 466 (N.Y. 1975). 124 See also supra pp. 974-975. 125 Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (U.S. S.Ct. 2002). See also Nat'l Am. Ins. Co. v. SCOR Reins. Co., 362 F.3d 1288, 1290 (10th Cir. 2004) (court must examine “the scope of that agreement and then determine whether plaintiffs' claims fall within its scope”); Smoothline Ltd v. N. Am. Foreign Trading Corp., 2000 WL 1015949 (S.D.N.Y. 2000) (considering scope of arbitration clause and concluding that dispute is not subject to arbitration), rev'd, 249 F.3d 147 (2d Cir. 2001); Chloe Z Fishing Co. v. Odyssey Re (London) Ltd, 109 F.Supp.2d 1236 (S.D. Cal. 2000) (interpreting scope of arbitration clause); supra pp. 931-932. 126 See supra pp. 948-950. 127 See supra pp. 931-932. http://www.kluwerarbitration.com/CommonUI/print.aspx
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128 See,e.g., supra pp. 891-894, 900-904, 904-907; Astro
Vencedor Compania Naviera SA of Panama v. Mabanaft GmbH, The Damianos [1971] 2 All E.R. 1301, 1309 (English Court of Appeal); Empresa Exportadora De Azucar v. Industria Azucarera Nacional SA, The Playa Larga and Marble Islands [1983] 2 Lloyd's Rep. 171, 182-183 (English Court of Appeal); Fletamentos Maritimos SA v. Effjohn Int'l BV [1996] 2 Lloyd's Rep. 304, 309-310 (Q.B.); Wealands v. CLC Contractors [1999] 2 Lloyd's Rep. 739, 745-749 (English Court of Appeal); Continental Comm. Sys. Corp. v. Davies Telecheck Int'l, Inc., [1995] B.C.J. No. 2440 (B.C. S.Ct.) (scope of arbitration clause is for arbitral tribunal to decide); Amec E & C Services Ltd v. Nova Chemicals (Canada) Ltd, 25 C.L.R.3d 47 (Ontario S.Ct. 2003) (“if I find that the dispute between the parties … is one that is arguably covered by the arbitration clause, I should make no definitive determination on that issue and should refer that matter to the Arbitral Tribunal for a decision in the first instance.”); Judgment of 4 June 2002, SA Alstom Power Turbomachines v. Masson ès qual., 2003 Rev. arb. 134, 135 (Besançon Cour d'appel) (“it is for the arbitral tribunal to define the validity and the scope of its mandate”); Judgment of 26 June 2001, Société Am. Bureau of Shipping v. Copropriété Maritime Jules Verne, 2001 Rev. arb. 529 (French Cour de cassation civ. 1e) (“the priority of the arbitral tribunal to decide on the existence, validity and scope of the arbitration agreement”); Judgment of 13 January 2005, 2005 NJW 1125 (German Bundesgerichtshof) (arbitral tribunal can decide disputes regarding the scope of the arbitration agreement, subject to judicial review). Compare Fouchard, Note on Judgment of 7 February 2002 (Paris Cour d'appel), 2002 Rev. arb. 417, 420 (“The Paris Cour d'appel recognizes the courts' power to interpret an arbitral clause.”). 129 See supra pp. 932-934. 130 See supra pp. 935-937. 131 See supra pp. 931-937, 954-958. 132 See supra pp. 969-971. 133 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 39 (2d ed. 2006). 134 Standard ICC Arbitration Clause, see www.iccarbitration.org (emphasis added). 135 Model Arbitration Clause, see UNCITRAL Rules, Art. 1 (emphasis added). 136 See, e.g., J.J. Ryan Sons, Inc. v. Rhone Poulenc Textile, SA, 863 F.2d 315 (4th Cir. 1988) (“the International Chamber of Commerce's recommended clause which provides for arbitration of ‘[a]ll disputes arising in connection with the present contract’ must be construed to encompass a broad scope of arbitrable issues. The recommended clause does not limit arbitration to the literal interpretation or performance of the contract. It embraces every dispute between the parties having a significant relationship to the contract regardless of the label attached to the dispute”); Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 387 (2d ed. 2005) (“[the standard ICC arbitration clause] is broadly worded in order to embrace all disputes arising out of or in connection with the contract, which will confer the widest possible jurisdiction on the Arbitral Tribunal.”); J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶7-63 (2003) (“The International Chamber of Commerce's recommended clause which provides for arbitration of ‘[a]ll disputes arising in connection with the present contract’ must be construed to encompass a broad scope of http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitrable issues. The recommended clause does not limit arbitration to the literal interpretation or performance of the contract. It embraces every dispute between the parties having a significant relationship to the contract regardless of the label attached to the dispute.”); Bond, How to Draft An Arbitration Clause (Revisited), 1(2) ICC Ct. Bull. 14, 17 (1990). 137 See supra pp. 1066-1076. 138 See, e.g., Overseas Union Ltd v. AA Mut. Int'l Ins. Co. Ltd [1988] 1 FTLR 421, 425 (Q.B.) (“reported decisions in earlier cases, even of high authority, cannot necessarily be binding in later cases, unless exceptionally the relevant words and all the relevant circ*mstances are the same in both cases”); Seifert v. United States Home Corp., 750 So.2d 633, 636 (Fla. 1999) (“Not surprisingly, courts have given different meaning to clauses on the basis of the actual terminology used”); Medanic v. Citicorp Inv. Servs., 954 So.2d 1210 (Fla. Dist. Ct. App. 2007); Ashville Inv. Ltd v. Elmer Contractors Ltd [1988] 3 W.L.R. 867 (English Court of Appeal); Harbour Ass. Co. (UK) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1993] 3 All E.R. 897 (English Court of Appeal). 139 See, e.g., Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); Louis Dreyfus Negoce SA v. Blystad Shipping & Trading Inc., 252 F.3d 218, 225 (2d Cir. 2001); D. Joseph Long v. Louis L. Silver and Hertz Herson & Co., LLP, 248 F.3d 309, 315 (4th Cir. 2001); Roby v. Corp. of Lloyd's, 996 F.2d 1353, 1361 (2d Cir. 1993) (“[w]e find no substantive difference in the present context between the phrases ‘relating to,’ ‘in connection with’ or ‘arising from’”); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, SA, 863 F.2d 315, 321 (4th Cir. 1988) (differences are “largely semantic”); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 848 & 854 (2d Cir. 1987); Stamford Holding Co. v. Clark, 2003 U.S. Dist. LEXIS 4542, at *16-17 (D. Conn. 2003); Schlosser, in F. Stein & M. Jonas (eds.), Kommentar zur Zivilprozessordnung §1029, ¶18 (22d ed. 2002); J.P. Lachmann, Handbuch für die Schiedsgerichtspraxis ¶339 (2d ed. 2002). 140 See, e.g., Forwood & Co. v. Watney (1880) LJQB 447 (Q.B.); In re Hohenzollern Aktien Gesellschaft für Locomotivbahn and City of London Contract Corp. (1886) 54 LT 596 (English Court of Appeal) (“all disputes” means “all disputes that may arise between the parties in consequence of this contract having been entered into”); Astro Vencedor Compania Naviera SA of Panama v. Mabanaft GmbH, The Damianos [1971] 2 All E.R. 1301 (English Court of Appeal); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, SA, 863 F.2d 315, 321 (4th Cir. 1988); Mgt & Tech. Consultants SA v. Parsons-Jurden Int'l Corp., 820 F.2d 1531, 1534-35 (9th Cir. 1987) (“An agreement to arbitrate ‘any dispute’ without strong limiting or excepting language immediately following it logically includes not only the dispute, but the consequences naturally flowing from it – here, the amount of additional compensation”); Aggeliki Charis Compania Maritima SA v. Pagnan SPA(The Angelic Grace) [1994] 1 Lloyd's Rep. 168, 174 (Q.B.); Judgment of 6 March 1996, Société Farhat Trading Co. v. Société Daewoo, 1997 Rev. arb. 69 (French Cour de cassation civ. 1e). 141 See supra pp. 1091-1092. 142 “Were we to confine our analysis to the plain language of the arbitration clause, we would have little trouble concluding that a contract clause which bound the parties to ‘settle’ “all disputes' through arbitration conducted according to rules which allow any form of ‘just and equitable’ ‘remedy or relief’ was sufficiently broad to http://www.kluwerarbitration.com/CommonUI/print.aspx
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encompass the award of punitive damages.” Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (U.S. S.Ct. 1995). 143 UNCITRAL Rules, Art. 1, Model Arbitration Clause (“dispute, controversy or claim”); VIAC Rules, Model Clause (“disputes”); Standard ICC Arbitration Clause; LCIA Rules, Model Clause (“dispute”); HKIAC Rules, Arbitration Clause for International Arbitration Administered by the HKIAC (“dispute, controversy or claim”); ICSID Arbitration Rules, Model Clauses (“disputes”); JapanAmerican Trade Arbitration Agreement (“disputes, controversies, or differences”). 144 AAA Commercial Rules, Model Clause (“controversy or claim”); ICDR Rules, Model Clause (same). See, e.g., ICDR Model Clause. 145 See supra p. 301. 146 See supra p. 301; Guangdong Agri. Co. v. Conagra Int'l (Far East) Ltd [1993] Arb. & Disp. Res. L.J. 100 (H.K. High Court, S.Ct. 1992); M. Mustill & S. Boyd, Commercial Arbitration 123 (2d ed. 1989). The English Arbitration Act, 1996, has effectively overruled these decisions under English law. English Arbitration Act, 1996, §82(1). See supra p. 301. 147 See Ibid. This position has been largely abandoned in more recent decisions. See Ibid. 148 See, e.g., Judgment of 11 April 1996, OIP v. Pyramide, 1996 Rev. arb. 467 (Paris Cour d'appel); Orkney Islands Council v. Charles Brand Ltd, 2002 SLT 100, 102-03 (Orkney Islands, Outser House 2001); Public Serv. Elec. & Gas Co. v. Local 94 IBEW, 140 F.Supp.2d 384, 395 (D.N.J. 2001); Caithness P.I. Corp. v. Prod. Inc., 1992 WL 266316 (D. Kan. 1992); Cales v. Armstrong World Indus., Inc., 2003 WL 1798671, at *15-21 (Ohio Ct. App. 2003). 149 See, e.g., Pennzoil Explor. and Prod. Co. v. Ramco Energy Ltd, 139 F.3d 1061 (5th Cir. 1998) (“relating to” language in arbitration agreement is “broad”; clause not limited to claims under contract, and also reaches claims that “‘touch’ matters covered by” the contract); Am. Recovery Corp. v. Computerized Thermal Imaging, 96 F.3d 88, 93 (4th Cir. 1996) (“arising out of or relating to” parties' agreement is “broad” clause, covering “all disputes having a significant relationship to the consulting agreement regardless of whether those claims implicated the terms of the consulting agreement”); Swensen's Ice Cream Co. v. Corsair Corp., 942 F.2d 1307, 1309 (8th Cir. 1991); In re Kinosh*ta & Co., 287 F.2d 951, 953 (2d Cir. 1961); McDonnell Douglas Corp. v. Kingdom of Denmark, 607 F.Supp. 1016, 1019 (E.D. Mo. 1985) (“‘relating to’ is generally regarded as broad rather than narrow language”); Overseas Union Ltd v. AA Mut. Int'l Ins. Co. Ltd [1988] 1 FTLR 421 (Q.B.). See alsoPPG Indus., Inc. v. Pilkington plc, 825 F.Supp. 1465 (D. Ariz. 1993) (“The word ‘involving’ is … expansive” and “carries the same meaning here as ‘relating to’”). 150 See, e.g., Ashville Inv. Ltd v. Elmer Contractors Ltd [1988] 3 W.L.R. 867 (English Court of Appeal); Overseas Union Ltd v. AA Mut. Int'l Ins. Co. Ltd [1988] 1 FTLR 421 (Q.B.); X Ltd v. Y Ltd [2005] EWHC 769 (TCC) (“The phrase “relating to the contract” embraces claims for misrepresentation or negligent misstatement, which cause a party to enter into the contact”). CompareLawson v. Wallasey Local Board (1882-83) LR 11 Q.B.D. 229 (Q.B.); Printing Machinery Co. v. Linotype and Machinery Ltd [1912] Ch 566 (Ch.) (“in relation to” does not encompass rectification claim); Crane v. HegemanHarris Co. (1939) 4 All E.R. 68 (English Court of Appeal) (same). See alsoFiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords). http://www.kluwerarbitration.com/CommonUI/print.aspx
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151 See, e.g., Woolco*ck v. Bushert, (2004) 36 C.C.E.L.3d 211
(Ontario Court of Appeal) (“The words ‘relating to’ enjoy a wide compass”); Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994); Microcell Solutions Inc. v. ASP Wirelessnet Inc., 2005 CanLII 7121 (Ontario S.Ct. of Justice). 152 See, e.g., Judgment of 20 December 1995, DFT 121 III 495 (Swiss Federal Tribunal); Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 923 (Swiss Federal Tribunal) (“If it is certain that there is … an arbitration clause, then there are no longer grounds for an especially restrictive interpretation; …”). See also B. Berger & F. Kellerhals Internationale und interne Schiedsgerichtsbarkeit in der Schweiz ¶¶465-468 (2006); Abdulla, in G. Kaufmann-Kohler & B. Stucki (eds.), International Arbitration in Switzerland: A Handbook for Practitioners 19 (2004). 153 See, e.g., Judgment of 8 March 1990, 1990 Rev. arb. 675 (Paris Cour d'appel); Judgment of 2 May 1967, 1967 Bull. Civ. No. 207 (French Cour de cassation civ. 2e) (arbitration clause in an agency contact, covering all disputes “relating to” the agency contract, applicable to disputes regarding sales under the contract by one of the parties to a third company). 154 See, e.g., Origin Energy Resources Ltd v. Benaris Int'l NV and Woodside Energy Ltd, XXX Y.B. Comm. Arb. 371, 378 (Tasmanian S.Ct. 2002) (2005) (“The parties have employed the terms … ‘arising out of or relating to’ the agreement. These terms provide an extremely wide ambit of the type, or category, of matter to be settled by arbitration”). CompareAllergan Pharm. Inc. v. Bausch & Lomb Inc., (1985) 7 A.T.P.R. 40-636 (N.S.W. Dist. Reg. 1985) (clause covering disputes “arising out of or relating to” contract does not reach events that were merely part of the background of the agreement). 155 See, e.g., Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 720 (9th Cir. 1999) (“in connection” formula “must be interpreted liberally”); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, SA, 863 F.2d 315, 321-22 (4th Cir. 1988) (clause covering “‘all disputes arising in connection with the present contract’ must be construed to encompass a broad scope of arbitrable issues … It embraces every dispute between the parties having a significant relationship to the contract regardless of the label attached to the dispute”); Prograph Int'l Inc. v. Barhydt, 928 F.Supp. 983, 989 (N.D. Cal. 1996); Good(e) Business Systems, Inc. v. Raytheon Co., 614 F.Supp. 428 (W.D. Wisc. 1985) (“the plain meaning of the phrase ‘arising in connection with’ suggests a broader scope for the arbitration clause than a phrase such as ‘arising out of’ or ‘arising under’, which seem to limit the clause to disputes concerning the contract itself”). CompareAcquaire v. Canada Dry Bottling, 906 F.Supp. 819, 835 (E.D.N.Y. 1995) (arbitration clause covering disputes “concerning the interpretation or application” of an agreement is “broad”). 156 See, e.g., Ashville Inv. Ltd v. Elmer Contractors Ltd [1988] 3 W.L.R. 867 (English Court of Appeal) (“in connection with” encompasses claim for rectification); Lonrho Ltd v. Shell Petroleum Co. Ltd, IV Y.B. Comm. Arb. 320 (Ch. 1978) (1979). 157 See, e.g., Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994) (“arising out of or in connection with” “extends beyond rights and duties created by the contract”). 158 See, e.g., Renusagar Power Co. v. Gen. Elec. Co. & Int'l Chamber of Commerce, X Y.B. Comm. Arb. 431 (Indian S.Ct. 1984) (1985) (“arising in connection with” is language “of the widest http://www.kluwerarbitration.com/CommonUI/print.aspx
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amplitude and content”). 159 See, e.g., Tommy C.P. Sze & Co. v. Li & Fung (Trading) Ltd, 2002 HKCU LEXIS 1634 (H.K. Court of First Instance, High Court) (“in any way connected therewith” are “very wide words”). 160 See, e.g., Walter Rau Neusser Oel und Fett AG v. Cross Pac. Trading Ltd, XXXI Y.B. Comm. Arb. 559 (Australian Fed. Ct. 2005) (2006) (“arising out of” has a “wide meaning” and is synonymous with “in connection with”). 161 Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994). 162 CompareWoolf v. Collis Removal Serv. [1948] 1 K.B. 11, 18 (dicta) (English Court of Appeal); Chimimport plc v. G. D'alesio SAS, The Paola D'Alesio [1994] 2 Lloyd's Rep. 366 (Q.B.); Ashville Inv. Ltd v. Elmer Contractors Ltd [1988] 3 W.L.R. 867 (English Court of Appeal) (misrepresentation claims not caught by “arising under” language, but were covered by the words “in connection therewith”). 163 See, e.g., R. Merkin, Arbitration Law ¶¶7.47 to 7.59 (2004 & Update 2007); Fillite (Runcorn) Ltd v. Aqua-Lift (1989) The Times, 28 February 1989 (English Court of Appeal) (“arising under” clause does not extend to question whether pre-contractual statements were incorporated into contract); Leif Hoegh & Co. v. Maritime Mineral Carriers Ltd, The Marques de Bolarque [1982] 1 Lloyd's Rep. 68 (Q.B.) (“arising under” clause does not extend to question whether parties entered into new contract). 164 Recyclers of Australia Pty Ltd v. Hettinga Equip. Inc., (2000) 175 A.L.R. 725 (Australian Fed. Ct.). See also Hi-Fert Pty Ltd v. Kiukiang Maritime Carriers Inc., 90 FCR 1 (Australian Fed. Ct. 1998). For a Canadian case seeKaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994). 165 See supra pp. 1073-1075; Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); Walter Rau Neusser Oel und Fett AG v. Cross Pac. Trading Ltd, XXXI Y.B. Comm. Arb. 559 (Australian Fed. Ct. 2005) (2006) (noting “width of the phrase ‘arising out of’ in this context and its synonymity with the expression ‘in connection with’”). 166 See, e.g., Origin Energy Resources Ltd v. Benaris Int'l NV and Woodside Energy Ltd, XXX Y.B. Comm. Arb. 371, 378 (Tasmanian S.Ct. 2002) (2005) (“The parties have employed the terms … ‘arising out of or relating to’ the agreement. These terms provide an extremely wide ambit of the type, or category, of matter to be settled by arbitration”). 167 See, e.g., United Steelworkers of Am. v. Duluth Clinic, Ltd, 413 F.3d 786, 789-90 (8th Cir. 2005); Lebanon Chem. Corp. v. United Farmers PlantFood, Inc., 179 F.3d 1095, 1101 (8th Cir. 1999) (holding an arbitration clause “narrow” that required arbitration of all disputes “arising from a contract started or concluded under these Rules”); Tracer Research Corp. v. Nat'l Env. Serv. Co., 42 F.3d 1292 (9th Cir. 1994) (misappropriation of trade secrets claim not within scope of arbitration agreement covering disputes “arising hereunder”); In re Kinosh*ta & Co., 287 F.2d 951, 953 (2d Cir. 1961) (holding that “arising under” or “arising out of” does not encompass a claim of fraud in the inducement of the underlying contract); Bristol-Myers Squibb Co. v. SR Int'l Business Ins. Co. Ltd, 354 F.Supp.2d 499 (S.D.N.Y. 2005) (“dispute[s] arising under” policy does not encompass fraudulent inducement); Coffman v. Provost Umphrey Law Firm, LLP, 161 F.Supp.2d 720, 725 (E.D. Tex. 2001) http://www.kluwerarbitration.com/CommonUI/print.aspx
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(interpreting a clause mandating arbitration of “any dispute or claim arising under this partnership agreement” as narrow); Good(e) Business Systems, Inc. v. Raytheon Co., 614 F.Supp. 428 (W.D. Wisc. 1985) (“arising under” and “arising out of” are narrower than “in connection with”). 168 See, e.g., Schoenduve Corp. v. Lucent Tech. Inc., 442 F.3d 727 (9th Cir. 2006) (agreement covering any dispute “arising out of or relating to” reached claims based on quasi-contract or estoppel); ACE Capital Re Overseas, Ltd v. Cent. United Life Ins. Co., 307 F.3d 24, 26 (2d Cir. 2002); Belke v. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023, 1028 (11th Cir. 1982), overruled on other grounds, Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213 (U.S. S.Ct. 1985) (“An arbitration clause covering disputes arising out of the contract or business between the parties evinces a clear intent to cover more than just those matters set forth in the contract.”); Boylan v. Logan, 2000 WL 1676963 (Conn. App. 2000) (fraud in inducement of contract covered by clause covering disputes “arising out of or related to” contract). 169 See, e.g., Lebanon Chem. Corp. v. United Farmers PlantFood, Inc., 179 F.3d 1095, 1101 (8th Cir. 1999) (arbitration clause covering disputes “arising from a contract started or concluded under these Rules” held “narrow”); Auchter Co. v. Zagloul, 949 So.2d 1189, 1194 (Fla. Dist. Ct. App. 2007) (“‘arising out of’ has been interpreted by [Florida's] Supreme Court as intended ‘to encompass virtually all disputes between the contracting parties, including related tort claims’”); Reddam v. KPMG LLP, 2004 U.S. Dist. LEXIS 28639 (C.D. Cal. 2004) (“arbitration clauses containing the phrases ‘arising from’ or ‘arising out of’ are usually construed narrowly”); Tracer Research Corp. v. Nat'l Env. Serv. Co., 42 F.3d 1292 (9th Cir. 1994) (“the ‘arising out of’ language is of the same limited scope as the ‘arising under’ language” and does not reach misappropriation of trade secrets); Texaco, Inc. v. Am. Trading Transp. Co., 644 F.2d 1152, 1154 (5th Cir. 1981) (“arising out of” clause evidences “restrictive language”). See alsoBritton v. Co-op Banking Group, 4 F.3d 742, 749 (9th Cir. 1993) (Brunetti, J., dissenting) (discussing “arising under” and “arising out of” clauses). 170 See, e.g., Am. Recovery Corp. v. Computerized Thermal Imaging, 96 F.3d 88, 93 (4th Cir. 1996); Louis Dreyfus Negoco SA v. Blystad Shipping & Trading, Inc., 252 F.3d 218 (2d Cir. 2001) (distinguishing between “arising under” and “arising from”); Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress, Int'l, Ltd, 1 F.3d 639 (7th Cir. 1993) (“any dispute between contracting parties that is in any way connected with their contract could be said to ‘arise out of’ their agreement and thus be subject to arbitration under a provision employing this language”). 171 See, e.g., Empresa Exportadora de Azucar v. Industria Azucarera Nacional SA, The Playa Larga and The Marble Island [1983] 2 Lloyd's Rep. 171 (English Court of Appeal); Fahem & Co. v. Mareb Yemen Ins. Co. [1997] 2 Lloyd's Rep. 738 (Q.B.) (tort claims covered by “arising out of”); The Eschersheim [1976] 2 Lloyd's Rep. 1 (House of Lords) (negligence claim caught by “arising out of”); Ulysses Compania Naviera SA v. Huntingdon Petroleum Serv., The Ermoupolis [1990] 1 Lloyd's Rep. 160 (Q.B.) (conversion claim covered by “arising in any way whatsoever out of”); Paczy v. Haendler & Natermann GmbH [1979] FSR 420 (Q.B.) (equitable obligation of employee not to misuse confidential information was within scope of arbitration clause covering disputes “arising out of or in connection with” the contract of employment). These authorities are of limited significance following the decisions http://www.kluwerarbitration.com/CommonUI/print.aspx
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of the English Court of Appeal and House of Lords in Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords), adopting an expansive rule of construction of arbitration agreements. See supra pp. 1073-1075. 172 See Judgment of 24 September 1985, 1986 NJW 2202, 2203
(Oberlandesgericht Frankfurt) (reference to all disputes “arising out of this contract” also included disputes relating to promissory notes referred to in the contract). 173 SeeJudgment of 7 July 1962, DFT 88 I 100 (Swiss Federal Tribunal); T. Rüede & R. Hadenfeldt, Schweizerisches Schiedsgerichtsrecht 74 (2d ed. 1993). 174 See supra pp. 1068-1070; Collins & Aikman Prods. Co. v. Building Sys., Inc., 58 F.3d 16, 20 (2d Cir. 1995) (“[A] court should decide at the outset whether the arbitration agreement is broad or narrow. If broad, then there is a presumption that the claims are arbitrable. The clause in this case, submitting to arbitration ‘any claim or controversy arising out of or relating to the agreement,’ is the paradigm of a broad clause. Thus, … these claims are presumptively arbitrable.”); Bank of Am., NA v. Diamond State Ins. Co., 2002 WL 31720328, at *2 (S.D.N.Y. 2002) (same). 175 See supra pp. 935-937. 176 See, e.g., United Steelworkers of Am. v. Duluth Clinic, Ltd, 413 F.3d 786, 788-89 (8th Cir. 2005) (“If the clause is narrow, then the court determines whether the dispute involves an agreement collateral to the agreement containing the arbitration clause. Only if the clause is broad does the court analyze whether the dispute relates to the subject matter of the agreement.”); Cummings v. FedEx Ground Package Sys., Inc., 404 F.3d 1258, 1262 (10th Cir. 2005) (same); Louis Dreyfus Negoce SA v. Blystad Shipping & Trading Inc., 252 F.3d 218, 223 (2d Cir. 2001) (“To determine whether a particular dispute falls within the scope of an agreement's arbitration clause, a court should undertake a three-part inquiry. First, recognizing there is some range in the breadth of arbitration clauses, a court should classify the particular clause as either broad or narrow … Next, if reviewing a narrow clause, the court must determine whether the dispute is over an issue that ‘is on its face within the purview of the clause,’ or over a collateral issue that is somehow connected to the main agreement that contains the arbitration clause.… Where the arbitration clause is narrow, a collateral matter will generally be ruled beyond its purview. … Where the arbitration clause is broad, ‘there arises a presumption of arbitrability,’ and arbitration of even a collateral matter will be ordered if the claim alleged ‘implicates issues of contract construction or the parties' rights and obligations under it.’”); Hornbeck Offshore (1984) Corp. v. Coastal Carriers Corp., 981 F.2d 752, 754-55 (5th Cir. 1993) (“This circuit distinguishes between broad and narrow arbitration clauses. If the clause is broad, the action should be stayed and the arbitrators permitted to decide whether the dispute falls within the clause. On the other hand, if the clause is narrow, the matter should not be referred to arbitration or the action stayed, unless the court determines that the dispute falls within the clause.”); Buell Door Co. v. Architectural Systems, Inc., 2002 WL 1968223, at *4 (N.D. Tex. 2002) (same). 177 See supra pp. 935-937. 178 This is discussed above. See supra pp. 1068-1070, 1081-1083. 179 See, e.g., Hudson v. ConAgra Poultry Co., 484 F.3d 496, 503 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(8th Cir. 2007) (tort claims are arbitrable); Telecom Italia, SpA v. Wholesale Telecom Corp., 248 F.3d 1109, 1114 (11th Cir. 2001) (“The longstanding rule is that where the arbitration clause is broad, the tort claim will be arbitrable if the claim is either directly or indirectly related to the subject matter of the contract”); Ford v. NYLCare Health Plans of Gulf Coast, Inc., 141 F.3d 243, 250-51 (5th Cir. 1998); Fleck v. E.F. Hutton Group, Inc., 891 F.2d 1047, 1049-52 (2d Cir. 1989); In re Oil Spill by Amoco Cadiz et al., 659 F.2d 789, 794 (7th Cir. 1981); Legg, Mason & Co. v. Mackall & Coe, Inc., 351 F.Supp. 1367 (D.D.C. 1972); Kaverit Steel & Crane Ltd v. Kone Corp., XIX Y.B. Comm. Arb. 643 (Alberta Court of Appeal 1992) (1994) (“The Convention and Act … cover both contractual and noncontractual commercial relationships. They thus extend their scope to liability in tort so long as the relationship that creates liability is one that can fairly be described as ‘commercial.’ In my view, a claim that a corporation conspired with its subsidiaries to cause harm to a person with whom it has a commercial relationship raises a dispute ‘arising out of a commercial legal relationship, whether contractual or not’.”); Sojuznefteexport v. JOC Oil Ltd, XV Y.B. Comm. Arb. 384, 427 (Bermuda Court of Appeal 1989) (1990) (“It has now been established that even claims in tort which have a close connection with the contract may be ‘claims arising out of or in connection with’ the contract.”); English Arbitration Act, 1996, §6(1) (non-contractual claims may be arbitrated); supra pp. 302-303. 180 See, e.g., Judgment of 16 November 1987, XVI Y.B. Comm. Arb. 585 (Italian Corte di Cassazione) (1991) (arbitration clause encompassed tort, unjust enrichment and restitution claims); Judgment of 3 May 1980, Kabushiki Kaisha Ameroido Nihon v. Drew Chemical Corp., VIII Y.B. Comm. Arb. 394 (Yokohama District Court) (1983) (arbitration clause encompassed tort claims); Judgment of 23 June 1992, Fincantieri-Cantieri Navali Italiani SpA v. M and Arbitration Tribunal, XX Y.B. Comm. Arb. 766 (Swiss Federal Tribunal) (1995); Judgment of 16 June 1976, Dame Krebs v. Milton Stern, 1977 Rev. arb. 269 (French Cour de cassation civ. 1e); Judgment of 11 December 1981, Bureau de recherches géologiques et minières v. Société Patina Int'l NV, 1982 Rev. arb. 311 (Paris Cour d'appel); Judgment of 11 October 1954, 1982 Dalloz 388 (French Cour de cassation); Judgment of 17 March 1976, DFT 102 Ia 493, 504-508 (Swiss Federal Tribunal); Judgment of 24 November 1965, 1965 NJW 300 (German Bundesgerichtshof); Judgment of 20 April 1977, IV Y.B. Comm. Arb. 261 (Landgericht Hamburg) (1979). See also Briner, in S. Berti et al. (eds.), International Arbitration in Switzerland Art. 177, ¶¶9-20 (2000); Abdulla, in G. Kaufmann-Kohler & B. Stucki (eds.), International Arbitration in Switzerland: A Handbook for Practitioners 21-22 (2004); Gonzalez, The Treatment of Tort in ICC Arbitral Awards, 13(2) ICC Ct. Bull. 39 (2002). 181 New York Convention, Art. II(1). See supra pp. 58-61. Other international and national arbitration instruments are similar. See European Convention, Art. I(1)(a); Inter-American Convention, Art. 1; supra p. 302. The Geneva Protocol had also contemplated the arbitration of non-contractual claims, providing in Article I for the arbitration of “all or any differences that may arise in connection with [a] contract relating to commercial matters or to any other matter capable of settlement by arbitration.” Geneva Protocol, Art. I. See supra pp. 58-61, 301-303. 182 See, e.g., UNCITRAL Model Law, Art. 7(1); English Arbitration
Act, 1996, §6(1); Swiss Law on Private International Law, Art. http://www.kluwerarbitration.com/CommonUI/print.aspx
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177(1); French New Code of Civil Procedure, Art. 1442. 183 See supra pp. 302-303. 184 Seesupra pp. 1068-1070; Mitsubishi Motors Corp., 473 U.S. at 626 (“There is no reason to depart from these [pro-arbitration interpretative] guidelines where a party bound by an arbitration agreement raises claims founded on statutory rights”). 185 See, e.g., Fyrnetics (H.K.) Ltd v. Quantum Group, Inc., 293 F.3d 1023, 1030 (7th Cir. 2002) (under the FAA, tort claims are subject to an arbitration clause if based on factual allegations that fall within scope of the provision); Ford v. NYLCare Health Plans of Gulf Coast, Inc., 141 F.3d 243, 250-51 (5th Cir. 1998); Collins & Aikman Prods. Co. v. Building Sys., Inc., 58 F.3d 16, 22 (2d Cir. 1995); Acevedo Maldonado v. PPG Indus., Inc., 514 F.2d 614 (1st Cir. 1975) (“it is immaterial whether claims are in contract or in tort”); Pest Mgt, Inc. v. Langer, 2006 WL 2741921 (Ark. Ct. App. 2006); Osteomed, LP v. Koby Indus., LP, 2006 U.S. Dist. LEXIS 84639 (N.D. Tex. 2006); Cycle Sport, LLC v. Dinli LP, 2004 U.S. Dist. LEXIS 7550 (E.D. La. 2004); Fazio v. Lehman Bros., 268 F.Supp.2d 865, 871 (N.D. Ohio 2002) (under FAA, “[t]ort claims are subject to a contractual arbitration provision if based on factual allegations that fall within the scope of the provision”). See also supra pp. 10671070. 186 See, e.g., CD Partners, LLC v. Grizzle, 424 F.3d 795, 801 (8th Cir. 2005) (a “plaintiff may not avoid an otherwise valid arbitration provision merely by casting its complaint in tort. The touchstone of arbitrability in such situations is the relationship of the tort alleged to the subject matter of the arbitration clause.”); Ford v. NYLCare Health Plans of Gulf Coast, Inc., 141 F.3d 243, 250-51 (5th Cir. 1998) (“Basing the arbitrability of an action merely on the legal label attached to it would allow artful pleading to dodge arbitration of a dispute otherwise ‘arising out of or relating to’ (or legally dependent on) the underlying contract. To avoid this contrivance, courts look at the facts giving rise to the action and to whether the action ‘could be maintained without reference to the contract’.…”); Collins & Aikman Prods. Co. v. Building Sys., Inc., 58 F.3d 16, 22 (2d Cir. 1995) (plaintiff cannot “avoid the broad language of [an] arbitration clause by the casting of its complaint in tort”); Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Int'l, Ltd, 1 F.3d 639, 643 (7th Cir. 1993) (“We have routinely held that a party may not avoid a contractual arbitration clause merely by ‘casting its complaint in tort.’#”); Estate of Athon v. Conseco Fin. Servicing Corp., 88 S.W.3d 26, 30 (Mo. Ct. App. 2002) (party cannot avoid language of arbitration clause by casting its complaint in tort); Rhodes v. Amega Mobile Home Sales, Inc., 186 S.W.3d 793, 798 (Mo. Ct. App. 2006) (party cannot avoid the broad language of an arbitration clause by “casting its complaint in tort” rather than contract. Arbitration of a tort claim is only applicable where the “tort claim arises directly out of a dispute regarding the terms of the parties' contract”); Am. Int'l Radio, Inc. v. Rohill Eng'g, BV, 2007 U.S. Dist. LEXIS 33056, at *5 (N.D. Ill. 2007) (“When the claims are related to a contract containing an arbitration clause, as these are, it is of no matter that the claims sound in tort, rather than contract.”); Polar Comm. Corp. v. Oncor Comm., Inc., 927 F.Supp. 894 (D. Md. 1996) (parties may not “dress what is essentially a contract case in the garb of tort or other theories in order to avoid the effect of a compulsory arbitration clause”); Hinson v. Jusco Co., 868 F.Supp. 145 (D.S.C. 1994); Tac Travel Am. Corp. v. World Airways, Inc., 443 F.Supp. 825 (S.D.N.Y. 1978). 187 See, e.g., Ferro Corp. v. Garrison Indus., Inc., 142 F.3d 926, 927-18 (6th Cir. 1998) (refusing to interpret arbitration agreement to http://www.kluwerarbitration.com/CommonUI/print.aspx
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exclude fraudulent inducement claims); Peoples Sec. Life Ins. Co. v. Monumental Life Ins. Co., 867 F.2d 809 (4th Cir. 1989) (arbitration agreement covering disputes “believed to constitute a breach or violation of” the parties' agreement, held to cover fraudulent inducement claim); Mar-Len of La., Inc. v. Parsons-Gilbane, 773 F.2d 633, 637 (5th Cir. 1985) (arbitration agreement covering “any dispute arising under” the agreement or “with respect to the interpretation or performance of” the agreement held to cover duress claims); Altshul Stern & Co. v. Mitsui Bussan Kaisha, Ltd, 385 F.2d 158 (2d Cir. 1967) (fraud and conspiracy claims subject to arbitration); Meadows Indem. Co. v. Baccala & Shoop Ins. Serv., Inc., 760 F.Supp. 1036, 1044-45 (E.D.N.Y. 1991) (fraud claims arbitrable); Eastern Europe, Inc. v. Transportmaschinen, Exp,-Imp., Inc., 658 F.Supp. 612 (S.D.N.Y. 1987) (indemnity action “arises from” parties' agreement); Baselski v. Paine Webber, Jackson & Curtis Inc., 514 F.Supp. 535, 539 (N.D. Ill. 1981) (breach of fiduciary duty claim subject to arbitration); Legg, Mason & Co. v. Mackall & Coe, Inc., 351 F.Supp. 1367 (D.D.C. 1972) (disparagement, defamation, theft of business secrets claims subject to arbitration); Sears Authorized Termite & Pest Control v. Sullivan, 816 So.2d 603, 605606 (Fla. 2002) (“The tort claims are therefore directly related to the contract. … It is not necessary to stretch the scope of the arbitration clause in order to encompass these claims.”); Kamaya Co. v. Am. Prop. Consultants, Ltd, 959 P.2d 1140 (Wash. App. Ct. 1998) (rejecting argument that, interpreted under Japanese law, broad arbitration clause excluded fraudulent inducement claims). 188 See, e.g., Telecom Italia, SpA v. Wholesale Telecom Corp., 248 F.3d 1109, 1116-17 (11th Cir. 2001) (tortious interference claim not subject to arbitration because it was not the “immediate, foreseeable result of the performance of contractual duties”); Northern Cal. Newspaper Guild Local 52 v. Sacramento Union, 856 F.2d 1381, 1383 (9th Cir. 1998) (clause “limit[ing] arbitrable disputes to those involving ‘application of’ the agreement” limited scope to disputes “involving construction of the substantive provisions of the contract”); Tracer Research Corp. v. National Env. Serv. Co., 42 F.3d 1292 (9th Cir. 1994) (misappropriation of trade secrets claim not within scope of arbitration agreement covering disputes “arising hereunder”); Armada Coal Exp., Inc. v. Interbulk, Ltd, 726 F.2d 1566, 1568 (11th Cir. 1984) (tort claims based on foreign attachment held not subject to arbitration where agreement covered “any dispute arising during the execution of the Charter Party”); Texaco, Inc. v. Am. Trading Transp. Co., 644 F.2d 1152 (5th Cir. 1981) (tort claims outside broad arbitration clause); Fuller v. Guthrie, 565 F.2d 259, 261 (2d Cir. 1977) (“wholly unexpected tortious behavior” outside scope of arbitration clause); Necchi SpA v. Necchi Sewing Machine Sales Corp., 348 F.2d 693, 698 (2d Cir. 1965); Hackman v. Dickerson Realtors, Inc., 2007 WL 2570297 (N.D. Ill. 2007) (agreement to arbitrate “contractual disputes” does not cover tortious interference claims); Bristol-Myers Squibb Co. v. SR Int'l Business Ins. Co. Ltd, 354 F.Supp.2d 499 (S.D.N.Y. 2005) (fraudulent inducement claims not within scope of arbitration clause); Sarantakis v. Gruttadauria, 2003 U.S. Dist. LEXIS 4002, at *16 (N.D. Ill. 2003) (“Pure tort claims that can be asserted without reference to the contract, however, remain outside the provision's scope.”); Fazio v. Lehman Bros., 268 F.Supp.2d 865, 871 (N.D. Ohio 2002) (“Tort claims are outside the scope of the arbitration provision if they can be asserted independently without reference to the contract”); Sutton v. Hollywood Enter. Corp., 181 F.Supp.2d 504, 510-12 (D. Md. 2002) (“logically untenable” that a video membership agreement was contemplated to cover claims arising out of accusations of theft); http://www.kluwerarbitration.com/CommonUI/print.aspx
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Hersman, Inc. v. Fleming Co., Inc., 19 F.Supp.2d 1282, 1286-87 (D. Ala. 1998), aff'd, 180 F.3d 271 (11th Cir. 1999) (tort claims outside scope of clause because the plaintiff's allegations were independent of obligations imposed by the agreement); Popper v. Monroe, 673 F.Supp. 1228, 1230-31 (S.D.N.Y. 1987) (defamation claim outside scope of clause because it had “no material relationship to the contractual relation with the parties”); Michele Amoruso e Figli v. Fisheries Dev. Corp., 499 F.Supp. 1074 (S.D.N.Y. 1980) (arbitration clause did not reach claims of fraudulent inducement or illegality of underlying contract); Discount Foods, Inc. v. Supervalu, 711 So.2d 992 (Ala. 1998) (“intentional tort of interference with business relations stemmed not from the parties' contractual dealings, but from an alleged separate and distinct act'; “The parties” arbitration provision, although broad, cannot be construed to encompass intentional torts of the parties that are separate and distinct from the dealings that gave rise to the signing of the document containing the arbitration provision in the first place.”). 189 See infra pp. 2485-2487. 190 See, e.g., Partial Award in ICC Case No. 12363, 24 ASA Bull. 462, 465-67 (2006); Amco Asia Corp. v. Republic of Indonesia, Decision on Annulment, ICSID Case No. ARB/81/1 (16 May 1986), 25 Int'l Legal Mat. 1441, 1454 (1986) (annulling decision while upholding ruling on jurisdiction over the tort claim, “The ad hoc Committee … does not think of ‘international tort’ and ‘investment dispute’ as comprising mutually exclusive categories”); Award in ICC Case No. 5779, 115 J.D.I. (Clunet) 1206 (1988). 191 See, e.g., Woolf v. Collis Removal Serv. [1948] 1 K.B. 11 (English Court of Appeal); Astro Vencedor Compania Naviera SA of Panama v. Mabanaft GmbH, The Damianos [1971] 2 All E.R. 1301 (English Court of Appeal); Lonrho Ltd v. Shell Petroleum Co. Ltd, IV Y.B. Comm. Arb. 320 (Ch. 1978) (1979); Almare Societa di Navigazione SPA v. Derby and Co. Ltd, The Almare Prima [1989] 2 Lloyd's Rep. 376 (Q.B.); Ulysess Compania Naviera SA v. Huntingdon Petroleum Serv., The Ermoupolis [1990] 1 Lloyd's Rep. 160 (Q.B.); Judgment of 16 June 1976, Dame Krebs v. Milton Stern, 1977 Rev. arb. 269 (French Cour de cassation civ. 1e); Judgment of 11 December 1981, Bureau de recherches géologiques et minières v. Société Patina Int'l NV, 1982 Rev. arb. 311 (Paris Cour d'appel); Judgment of 11 October 1954, 1982 Dalloz 388 (French Cour de cassation); Judgment of 17 March 1976, DFT 102 Ia 493, 504-508 (Swiss Federal Tribunal); Judgment of 24 November 1965, 1965 NJW 300 (German Bundesgerichtshof); Judgment of 20 April 1977, IV Y.B. Comm. Arb. 261 (Landgericht Hamburg) (1979); Judgment of 12 November 1987, 1988 NJW 1215 (German Bundesgerichtshof); Canada Packers Inc. v. Terra Nova Tankers Inc, XXII Y.B. Comm. Arb. 669 (Ontario Court of Justice 1992) (1997); Judgment of 22 October 1976, SA Tradax Export v. Spa Carapelli, III Y.B. Comm. Arb. 279 (Florence Corte di Appello) (1978); Judgment of 16 November 1987, XVI Y.B. Comm. Arb. 585, 586-587 (Italian Corte di Cassazione) (1991) (arbitration clause encompassed tort, unjust enrichment, and restitution claims: “all disputes directly or indirectly arising under the contract fall within the scope of the arbitration clause, i.e., not only disputes concerning a modification of the original contractual stipulations, alternative performance, or restitution claims for undue payment, but also disputes in which the [claim] does not directly arise under the contract, but which – as in claims for undue enrichment and settlement – ensue from the execution of the contract”); Judgment of 3 May 1980, Kabushiki Kaisha Ameroido Nihon v. Drew Chemical Corp., VIII Y.B. Comm. Arb. 394 (Yokohama District Court) (1983) (arbitration clause http://www.kluwerarbitration.com/CommonUI/print.aspx
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encompassed tort claims). 192 See, e.g., Award in ICC Case No. 5103, 115 J.D.I. (Clunet) 1206 (1988); Award in ICC Case No. 5477, in S. Jarvin, Y. Derains & J.-J. Arnaldez (eds.), Collection of ICC Arbitral Awards 1986-1990 358 (1994); Award in ICC Case No. 6309, 118 J.D.I. (Clunet) 1046 (1991); Partial Award in ICC Case No. 7319, XXIVa Y.B. Comm. Arb. 141 (1999) (unfair competition claim within arbitration clause); Interim Award in ICC Case No. 7893, XXVII Y.B. Comm. Arb. 139, 150-151 (2002); Final Award in Italian Arbitration Association in Case No. 41/92 (1993), XXII Y.B. Comm. Arb. 178, 180 (1993). 193 See, e.g., Judgment of 22 March 1976, II Y.B. Comm. Arb. 248 (Tribunale de Milano) (1977); Judgment of 4 September 1987, JLMB 88/309, 309-10 (Liege Cour d'appel) (arbitration clause covering disputes “arising out of the contract” does not cover tort claims related to the main contract); Chimimport plc v. G. D'Alesio SAS, The Paolo d'Alesio [1994] 2 Lloyd's Rep. 366, 372 (Q.B.). 194 Walter Rau Neusser Oel und Fett AG v. Cross Pac. Trading Ltd, XXXI Y.B. Comm. Arb. 559 (Australian Fed. Ct. 2005) (2006) (“The courts will presume that the parties did not intend the inconvenience of having possible disputes from their transaction being heard in two places. This may be seen to be especially so in circ*mstances where disputes can be given different labels, or placed into different juridical categories, possibly by reference to the approaches of different legal syste s.”). 195 Morgan v. Smith Barney, Harris Upham & Co., 729 F.2d 1163 (8th Cir. 1984). 196 Aspero v. Shearson Am. Express, Inc., 768 F.2d 106, 109 (6th Cir. 1985); Summer Rain v. Donning Company/Publishers, Inc., 964 F.2d 1455 (4th Cir. 1992). 197 Kroll v. Doctor's Assoc., Inc., 3 F.3d 1167, 1170 (7th Cir. 1993). See Blinco v. Green Tree Servicing LLC, 400 F.3d 1308, 1312 (11th Cir. 2005) (claim involving a non-party to the contract); Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39, 47 (3d Cir. 1978); Svedala Industries, Inc. v. Home Ins. Co., 921 F.Supp. 576, 579 (E.D. Wis. 1995); McMahon v. RMS Elec., Inc., 618 F.Supp. 189, 192 (S.D.N.Y. 1985). 198 Woolf v. Collis Removal Serv. [1948] 1 K.B. 11, 18 (English Court of Appeal). 199 Ulysses Compania Naviera SA v. Huntingdon Petroleum Serv., The Ermoupolis [1990] 1 Lloyd's Rep. 160, 163-164 (Q.B.). 200 Italian Code of Civil Procedure, Art. 808–quarter. 201 In some jurisdictions, particular categories of non-contractual claims may be non-arbitrable. For a discussion of the nonarbitrability doctrine, seesupra pp. 766 et seq. 202 See, e.g., Mitsubishi Motors Corp., 473 U.S. at 626 (antitrust); Roby v. Corp. of Lloyd's, 996 F.2d 1353 (2d Cir. 1993) (federal securities and RICO claims); S+L+H SpA v. Miller-St. Nazianz, Inc., 988 F.2d 1518 (7th Cir. 1993) (disputes under Wisconsin Fair Dealership Law); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, SA, 863 F.2d 315, 319-20 (4th Cir. 1988) (state unfair competition act claims); Valero Refining, Inc. v. M/T Lauberhorn, 813 F.2d 60, 62-63 (5th Cir. 1987) (RICO); PPG Indus., Inc. v. Pilkington plc, 825 F.Supp. 1465 (D. Ariz. 1993) (antitrust); Cook Chocolate Co. v. Salomon Inc., 684 F.Supp. 1177 (S.D.N.Y. 1988) (Commodities Exchange Act, RICO, and fraud claims); Sharp Elec. Corp. v. Branded Prod., Inc., 604 F.Supp. 239, 243 (S.D.N.Y. 1984) (Texas state antitrust claim); Lawson Fabrics, Inc. v. Akzona Inc., 355 F.Supp. 1146 (S.D.N.Y. 1973) (Lanham Act). See also supra pp. http://www.kluwerarbitration.com/CommonUI/print.aspx
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1068-1070. 203 See, e.g., Judgment of 19 May 1993, Société Labinal v. Sociétés Mors et Westland Aerospace, 1993 Rev. arb. 645 (Paris Cour d'appel); Judgment of 5 January 1999, Zanzi v. de Coninck, 1999 Rev. arb. 260 (French Cour de cassation civ. 1e); Judgment of 28 April 1992, XVIII Y.B. Comm. Arb. 143 (Swiss Federal Tribunal) (1993); New Zealand v. Mobil Oil New Zealand Ltd, XIII Y.B. Comm. Arb. 638 (Wellington High Court 1987) (1988) (arbitration clause encompasses dispute arising out of competition law provisions of §27 Commerce Act 1986); IBM Australia Ltd v. Nat'l Dist. Serv. Ltd, (1991) 22 NSWLR 466 (N.S.W. S.Ct.) (arbitration clause encompasses claims under the Australian Trade Practices Act 1974); QH Tours Ltd v. Ship Design and Mgt (Aust.) Pty. Ltd, (1991) 105 ALR 371 (Australian Fed. Ct.) (claim under the Australian Trade Practices Act 1974 for deceptive conduct within arbitration clause); Editions Chouette Inc. v. Desputeaux, 2003 SCC 17 (Canadian S.Ct.) (copyright claims within arbitration clause). 204 See, e.g., Washburn v. Societe Commerciale De Reassurance, 831 F.2d 149, 151 (7th Cir. 1987) (RICO claims not within arbitration agreement); Hoffman v. Aaron Kamhi, Inc., 927 F.Supp. 640 (S.D.N.Y. 1996) (statutory claims not within scope of poorly-drafted arbitration clause); Church v. Gruntal & Co., 698 F.Supp. 465, 469 (S.D.N.Y. 1988) (federal securities claims not within arbitration agreement); In re Barney's Inc., 206 B.R. 336 (S.D.N.Y. Bankr. 1997) (arbitration clause does not extend to claims in bankruptcy proceeding); In re Magi Capital Partners LLP [2003] EWHC 2790 (Ch.) (Q.B.) (arbitration clause does not extend to insolvency proceedings); Exeter City AFC Ltd v. Football Conference Ltd [2004] EWHC 831 (Ch.) (arbitration clause in articles of association of company cannot extend to application by minority shareholder under §459 Companies Act 1985 for unfair prejudice); R. Merkin, Arbitration Law ¶3.17 (2004 & Update 2007); Fillite (Runcorn) Ltd v. Aqua-Lift (1989) The Times, 28 February 1989 (English Court of Appeal). 205 Mitsubishi Motors Corp., 473 U.S. at 626. 206 See, e.g., Rodriguez de Quijas v. Shearson/Am. Express, Inc., 490 U.S. 477 (U.S. S.Ct. 1989); Southland Corp., 465 U.S. at 15; Roby v. Corp. of Lloyd's, 996 F.2d 1353 (2d Cir. 1993); Fleck v. E.F. Hutton Group, Inc., 891 F.2d 1047 (2d Cir. 1989); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840 (2d Cir. 1987); Good(e) Business Systems, Inc. v. Raytheon Co., 614 F.Supp. 428 (W.D. Wisc. 1985) (“there is no presumption against arbitration of statutory claims”); Singer v. Jefferies & Co., 571 N.Y.S.2d 680 (N.Y. 1991) (“A court's obligation under the [FAA] to liberally interpret and enforce arbitration agreements is not diminished when the underlying controversy involves a violation of a federal statute”). 207 Ford v. NYLCare Health Plans of Gulf Coast, Inc., 141 F.3d 243, 250-51 (5th Cir. 1998); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, SA, 863 F.2d 315, 319 (4th Cir. 1988); Osteomed, LP v. Koby Indus., LP, 2006 U.S. Dist. LEXIS 84639, at *3 (N.D. Tex. 2006) (“whether a claim is subject to the arbitration clause depends on the factual allegations contained in the complaint, not the causes of action asserted”); Hinson v. Jusco Co., 868 F.Supp. 145 (D.S.C. 1994). 208 Lonrho Ltd v. Shell Petroleum Co. Ltd, IV Y.B. Comm. Arb. 320, 321-22 (Ch. 1978) (1979). 209 Hi-Fert Pty Ltd v. Kiukiang Maritime Carriers Inc., 90 FCR 1 (Australian Fed. Ct. 1998). 210 See supra pp. 1081-1083. http://www.kluwerarbitration.com/CommonUI/print.aspx
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211 See supra pp. 1067-1072; Mitsubishi Motors Corp., 473 U.S. at
626. 212 G. Born, International Arbitration and Forum Selection
Agreements: Drafting and Enforcing 108-110 (2d ed. 2006). 213 See Judgment of 25 January 1972, Quijano Aguero v. Marcel Laporte, 1973 Rev. arb. 158 (Paris Cour d'appel); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶517 (1999); Northern Cal. Newspaper Guild Local 52 v. Sacramento Union, 856 F.2d 1381, 1383 (9th Cir. 1998) (clause “limit[ing] arbitrable disputes to those involving ‘application of” the agreement’ limited scope to disputes “involving construction of the substantive provisions of the contract”). 214 See, e.g., Green v. Short, 2007 WL 257082, at *5 (N.C.Super. 2007) (“any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.”) (quoting Moses H. Cone Mem. Hosp., 460 U.S. at 24-25); Martindale v. Sandvik, Inc., 173 N.J. 76, 96 (N.J. 2002) (“the arbitration provision here does not contain any limiting references. Its wording provided plaintiff with sufficient notice at the time she signed the agreement that all claims relating to employment with and termination … would be resolved through arbitration”); N. River Ins. Co. v. Allstate Ins. Co., 866 F.Supp. 123, 127 (S.D.N.Y. 1994). 215 See, e.g., Judgment of 9 March 1972, Lefrère René v. Les Pétroles Pursan, 1972 RTD Com 344 (Paris Cour d'appel); Judgment of 17 January 2002, SA Peinture Normandie v. SA Olin Lanctuit, 2002 Rev. arb. 202 (Paris Cour d'appel); Judgment of3 October 2000, Nejapa Power Co. LLC v. CEL, 19 ASA Bull. 796, 798 (Swiss Federal Tribunal) (2001); ET Plus SA v. Jean-Paul Welter [2005] EWHC 2115, 2126 (Comm.) (Q.B.); Judgment of 23 December 2004, Cau Taulina v. TotalFinaElf Espana, IntADR (Madrid Court of Appeal). 216 See supra pp. 853-855. 217 LCIA Rules, Model Clause (“Any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination …”); Swiss International Arbitration Rules, Model Clause. Other model clauses do not contain such language. E.g., Standard ICC Arbitration Clause. 218 Mayer, Note on Judgments of 28 November 1989 and 8 March 1990 (Paris Cour d'appel), 1990 Rev. arb. 675, 685 (“What is true is that the clause fulfills … a particular function which is relevant to all other clauses and, in particular, to the substantive clauses: it submits disputes arising out of them to arbitration. For this function to be fully guaranteed, it must also extend to claims relating to the existence and the validity of the contract”). 219 See, e.g., ACE Capital Re Overseas, Ltd v. Cent. United Life Ins. Co., 307 F.3d 24, 33 (2d Cir. 2002) (“decisions within this Circuit show that the arbitration clause in the present case is a broad one that must be held to encompass a claim of fraudulent inducement of the contract in general”); Abram Landau Real Estate v. Bevona, 123 F.3d 69, 74 (2d Cir. 1997) (where arbitration clause provided that “[a] Contract Arbitrator shall have the power to decide all differences arising between the parties to this agreement as to interpretation, application or performance of any part of this agreement,” court held: “[The] Agreement contained a broad arbitration clause submitting to arbitration all disputes between the parties involving the interpretation of any provision of the Agreement. This provision http://www.kluwerarbitration.com/CommonUI/print.aspx
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surely covers a dispute involving the validity of the ‘evergreen clause’ and, therefore, is a proper subject for arbitration.”); Rochdale Village, Inc. v. Public Serv. Employees Union, Local No. 80, 605 F.2d 1290, 1295-1296 (2d Cir. 1979) (“If a court finds that the parties have agreed to submit to arbitration disputes ‘of any nature or character,’ or simply ‘any and all disputes,’ all questions, including those regarding termination [of the underlying contract], will be properly consigned to the arbitrator.”); Local Union No. 4, Int'l Bhd of Elec. Workers v. Radio Thirteen-Eighty, Inc., 469 F.2d 610, 614-615 (8th Cir. 1972) (requiring the parties to arbitrate whether a collective bargaining agreement had been terminated or was still in force because of the broad nature of the arbitration clause); Rainbow Inv., Inc. v. Super 8 Motels, Inc., 973 F.Supp. 1387, 1391 (M.D. Ala. 1997) (“the language of the arbitration clause – ‘We and you will submit any controversy or claim relating to the offer, sale, negotiation, performance, interpretation, enforcement, termination and validity of this Agreement and all related agreements between you … and us … to binding arbitration’ – is certainly broad enough to cover all of the claims and arguments advanced by [plaintiff], including: whether a separate, oral agreement existed; whether that oral agreement was breached …; whether the written franchise agreement was fraudulently procured; … and even whether there was a ‘meeting of the minds.’”); Boylan v. Logan, 2000 WL 1676963 (Conn. App. 2000) (issue of fraud in inducement of contract was arbitrable under agreement covering disputes “arising out of or related to” the agreement). 220 See, e.g., Judgment of 27 February 1970, 6 Arb. Int'l 79 (1990) (German Bundesgerichtshof) (“In case of doubt, the clause that an arbitral tribunal shall decide upon differences and disputes arising out of a contract means that the arbitral tribunal must also decide whether or not the contract is valid and which consequences its invalidity might have.”); Judgment of 28 May 1979, 1979 NJW 2567, 2569 (German Bundesgerichtshof) (“[in case of doubt] the arbitral tribunal has a comprehensive competence which includes [the power] to decide about the validity of the main contract”); Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 923 (Swiss Federal Tribunal) (“[T]he arbitration clause, even if it is – as often the case – connected to the principal agreement in one single document, has an independent import as a procedural agreement to the extent that it is to be presumed in case of doubt that the parties intended to submit to arbitration not only disputes as to performance of the mutual contractual obligations, but also whether their agreement validly came into existence.”). 221 Fiona Trust & Holding Corp. v. Privalov [2007] UKHL 40, at ¶26 (House of Lords). See alsoIbid. at ¶13 (“if any businessman did want to exclude disputes about the validity of a contract, it would be comparatively easy to say so.”). 222 See supra pp. 74-76, 1081-1083. 223 See, e.g., Large v. Conseco Fin. Servicing Corp., 292 F.3d 49 (1st Cir. 2002); Campaniello Imp. Ltd v. Saporiti Italia SpA, 117 F.3d 655 (2d Cir. 1997); Fiona Trust & Holding Corp. v. Privalov [2007] 1 All E.R. (Comm.) 891 (English Court of Appeal), aff'd, [2007] UKHL 40 (House of Lords); Wealands v. CLC Contractors [1999] 2 Lloyd's Rep. 739, 745-749 (English Court of Appeal); Empresa Exportadora De Azucar v. Industria Azucarera Nacional SA, The Playa Larga and Marble Islands [1983] 2 Lloyd's Rep. 171, 182-183 (English Court of Appeal); Harbour Ass. Co. (UK) Ltd v. Kansa Gen. Int'l Ins. Co. Ltd [1993] 3 All E.R. 897 (English Court of Appeal) (arbitrator to decide whether or not a contract was void for initial illegality); Continental Comm. Sys. Corp. v. Davies Telecheck Int'l, Inc., [1995] B.C.J. No. http://www.kluwerarbitration.com/CommonUI/print.aspx
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2440 (B.C. S.Ct.); Judgment of 4 June 2002, SA Alstom Power Turbomachines v. Masson ès qual., 2003 Rev. arb. 134, 135 (Besançon Cour d'appel) (“it is for the arbitral tribunal to define the validity and the scope of its mandate”); Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921, 923 (Swiss Federal Tribunal) (in case of doubt there is a presumption that parties indended to have their dispute as to the valid conclusion of the underlying agreement resolved in arbitral proceedings). 224 These are addressed below. See infra pp. 2948-2949. 225 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 40-42 (2d ed. 2006); Leboulanger, Multi-Contract Arbitration, 13(4) J. Int'l Arb. 43 (1996); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶513 (1999); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶¶3-38, 3-42 (4th ed. 2004); B. Hanotiau, Complex Arbitration ¶¶425-428 (2005). 226 See, e.g., Judgment of 31 May 2001, UNI-KOD sarl v. Ouralkali, XXVI Y.B. Comm. Arb. 1136 (Paris Cour d'appel) (2001) (arbitration clause in joint venture agreement applied to contracts implementing joint venture); Collins & Aikman Prods. Co. v. Building Sys., Inc., 58 F.3d 16 (2d Cir. 1995) (disputes under one agreement are arbitrable, at least in part, under arbitration clause in second agreement; arbitrators to consider issue more fully); ARW Explor. Corp. v. Aguirre, 45 F.3d 1455 (10th Cir. 1995) (where five of six related agreements included arbitration clauses, disputes under sixth agreement could be arbitrated); J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, SA, 863 F.2d 315 (4th Cir. 1988) (arbitration clause in distribution agreement applied to subsequent contracts implementing distributorship); Associated Brick Mason Contractors, Inc. v. Harrington, 820 F.2d 31 (2d Cir. 1987) (arbitration clause in collective bargaining agreement encompassed disputes under related agreement); Becker Autoradio U.S.A., Inc. v. Becker Autoradiowerk GmbH, 585 F.2d 39 (3d Cir. 1978) (dispute over subsequent oral agreement subject to arbitration provision in prior written agreement); B.F. Goodrich Co. v. McCorkle, 865 S.W.2d 618 (Tex. Ct. App. 1993) (dispute under one contract subject to arbitration under arbitration clause in separate contract); Judgment of 19 October 2000, 16 Sch 01/00, reported at www.dis-arb.de (Oberlandesgericht Schleswig) (arbitration clause in framework agreement applicable to subsequent sales orders). Compare Nova (Jersey) Knit Ltd v. Kamgarn Spinnerei GmbH [1977] 1 Lloyd's Rep. 463 (House of Lords). See also Cohen, Arbitrage et groupes de contrats, 1997 Rev. arb. 471. 227 See, e.g., Award in Zurich Chamber of Commerce, Case No. 273/95 (31 May 1996), XXIII Y.B. Comm. Arb. 128 (1998); Société Ouest Africaine des Bétons Industriels v. Republic of Senegal, ICSID Award No. ARB/82/1 (25 February 1988), XVII Y.B. Comm. Arb. 42 (1992) (two contracts held part of single economic project, with arbitration clause in one contract applying to the other); B. Hanotiau, Complex Arbitration ¶¶259-262 & Appendix at 330 (2005). 228 See, e.g., Int'l Ambassador Programs, Inc. v. Archexpo, 68 F.3d 337, 340 (9th Cir. 1995) (arbitration clause in one of two related contracts applies to disputes under other contract; if agreements are unrelated, then opposite conclusion); J.A. Jones, Inc. v. Bank of Tokyo-Mitsubishi, Ltd, 1999 U.S. Dist. LEXIS 5284 (E.D.N.C. 1999) (“when a subsidiary contract without an arbitration provision is read in conjunction with a primary contract with an arbitration provision, a dispute arising under the secondary contract may be arbitrated”); http://www.kluwerarbitration.com/CommonUI/print.aspx
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Mississippi Phosphates Corp. v. Unitramp Ltd, 11(12) Mealey's Int'l Arb. Rep. E-1 (S.D. Miss. 1996) (1996); G.D. Searle & Co. v. Metric Constr., Inc., 572 F.Supp. 836 (N.D. Ga. 1983) (invoking FAA's “proarbitration” policy to hold that parties' subsequent agreement to submit two specific disputes to arbitration did not supersede prior, broad agreement to arbitrate). CompareRiley Mfg Co. v. Anchor Glass Container Corp., 157 F.3d 775, 781 (10th Cir. 1998) (merger clause in settlement agreement excludes application of arbitration clause in earlier contract to disputes under settlement agreement). 229 See, e.g., Judgment of 23 November 1999, Société Glencore Grain Rotterdam v. Société Afric, 2000 Rev. arb. 501 (Paris Cour d'appel) (arbitration clause in sales contract held to apply to disputes under related, back-to-back sales contract); Judgment of 14 May 1996, Société Sigma Corp v. Société Tecni-Ciné-Phot, 1997 Rev. arb. 535 (French Cour de cassation civ. 1e); Judgment of 5 March 1991, Pepratx v. Fichou, 1992 Rev. arb. 66 (French Cour de cassation com.); Judgment of 29 March 1990, 1992 Rev. arb. 66 (Bobigny Tribunal de commerce). 230 See, e.g., Al-Naimi v. Islamic Press Agency Inc. [2000] 1 Lloyd's Rep. 522, 524 (English Court of Appeal); Fletamentos Maritimos SA v. Effjohn Int'l BV [1996] 2 Lloyd's Rep. 304 (Q.B.) (arbitration clause in cooperation agreement held to apply to disputes under subsequent vessel purchase agreement, implementing first agreement); Nova (Jersey) Knit Ltd v. Kammgarn Spinnerei GmbH [1977] 1 Lloyd's Rep. 463 (House of Lords). 231 See Judgment of 28 July 1988, 7 ASA Bull. 304 (Bülach District Court of Zurich) (1989); Swiss International Arbitration Rules, Art. 4(1). 232 See, e.g., Judgment of 19 October 2000, 16 Sch 01/00, reported at www.dis-arb.de (Oberlandesgericht Schleswig) (arbitration clause in framework agreement applicable to subsequent sales orders); Judgment of 28 November 1963, 1964 NJW 591, 592 (settlement agreement amending a contract remains subject to the arbitration clause included in the earlier contract) (German Bundesgerichtshof); Judgment of 5 December 1994, 13 ASA Bull. 247 (Oberlandesgericht Dresden) (1995) (arbitration clause extends to contract amendments). 233 B. Hanotiau, Complex Arbitrations ¶281 (2005). See also J. Lew, L. Mistelis & S. Kröll, Comparative International Commercial Arbitration ¶¶7-44 to 45 (2003). 234 See, e.g., Award in Zurich Chamber of Commerce, Case No. 273/95 (31 May 1996), XXIII Y.B. Comm. Arb. 128 (1998) (disputes under framework agreements held to apply to disputes under implementing agreements: “Where in the top layer agreements the parties have provided for a particular type of arbitration, any dispute that arises under a contract of a lower layer … claimant's claims will be governed by the top layer arbitration clause unless there is a different arbitration clause or a jurisdiction clause on a lower level or in the contract under which a particular specific dispute arises”); Société Ouest Africaine des Bétons Industriels v. Republic of Senegal, ICSID Award No. ARB/82/1 (25 February 1988), XVII Y.B. Comm. Arb. 42 (1992) (disputes under two agreements, without arbitration clause, subject to ICSID arbitration clause in establishment agreement); Award in Bulgarian Chamber of Commerce and Industry, Case No. 60/1980 (1 October 1980), XII Y.B. Comm. Arb. 84 (1987) (arbitration clause in sales agreement applied to disputes under related loan agreement between same parties); Award in ICC Case No. 8708, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, http://www.kluwerarbitration.com/CommonUI/print.aspx
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289 Recueil des Cours 9, 120 (2001) (interpreting arbitration clause as applying to all related agreements); Final Award in ICC Case No. 5759, XVIII Y.B. Comm. Arb. 34 (1993); Interim Award in ICC Case No. 4367, XI Y.B. Comm. Arb. 134 (1986) (arbitration clause in sales contract encompasses disputes under promissory notes issued pursuant to sales contract). 235 See, e.g., Award in ICC Case No. 10526, 126 J.D.I. (Clunet) 1179, 1180-1181 (2001) (arbitral tribunal upholds its jurisdiction to decide disputes under two separate contracts, between same parties and containing identical arbitration clauses). 236 See, e.g., Award in ICC Case No. 7154, 121 J.D.I. (Clunet) 1059 (1994) (tribunal refused to apply arbitration clause contained in three contracts to a fourth, similar contract, despite similar subject matter: “one cannot admit as sufficient an implicit arbitration clause” and “the [fourth] contract … did not contain such a reference”); Award in ICC Case No. 7375, 11(12) Mealey's Int'l Arb. Rep. A-1, A26 to 27 (1996) (“[e]xamples where arbitration may have to be affirmed despite of the absence of an arbitration clause between the parties, or some of them, exist in situations such as … where a contract (containing an arbitration clause) must be regarded as being the base or master agreement such that future separate or ancillary agreements, amendments or supplementary agreements must be deemed to have been made under the ‘umbrella’ of the arbitration clause contained only in that base or master agreement”; tribunal found it only had jurisdiction over contract containing arbitration clause and not over eight related contracts, due to lack of sufficient nexus). 237 Partial Award in ICC Case No. 8420, XXV Y.B. Comm. Arb. 328, 340 (2000); B. Hanotiau, Complex Arbitration ¶¶325-326 (2005). 238 The circ*mstances in which non-signatories are bound by an agreement to arbitrate are discussed below, see infra pp. 1131 et seq. 239 See, e.g., Intertec Contracting A/S v. Turner Steiner Int'l SA, 2000 WL 709004, at *7 (S.D.N.Y. 2000); Grundstad v. Ritt, 106 F.3d 201 (7th Cir. 1997); Schlosser, in F. Stein & M. Jonas (eds.), Kommentar zur Zivilprozessordnung §1029, ¶33 (22d ed. 2002); Münch, in G. Lüke & P. Wax (eds.), Münchener Kommentar zur Zivilprozessordnung §1029, ¶20 (2d ed. 2001); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶260 (2d ed. 2007). 240 See, e.g., Award in Zurich Chamber of Commerce, Case No. 273/95 (31 May 1996), XXIII Y.B. Comm. Arb. 128, 135 (1998); Nordin v. Nutri/System, Inc., 897 F.2d 339, 345 (8th Cir. 1990); Netherlands Curacao Co., NV v. Kenton Corp., 366 F.Supp. 744 (S.D.N.Y. 1973). 241 See, e.g., Award in ICC Case No. 4392, 110 J.D.I. (Clunet) 907 (1983); Final Award in ICC Case No. 6829, XIX Y.B. Comm. Arb. 167 (1994); Klöckner Industrie-Anlagen GmbH v. United Republic of Cameroon, ICSID Case No. ARB/81/2 (21 October 1983), X Y.B. Comm. Arb. 71 (1985); Judgment of 11 April 2002, SA JDA Software France et autres v. SA Kiabi, 2003 Rev. arb. 1252 (Paris Cour d'appel) (slightly different arbitration clauses in two related contracts held to apply, respectively, to disputes under each of the two contracts). 242 See, e.g., Interim Award in ICC Case No. 3879, XI Y.B. Comm. Arb. 127, 132-33 (1986) (award set aside by the Swiss Federal Tribunal: “[T]he series of documents concluded constitutes an indivisible whole and the four States thus truly demonstrated their http://www.kluwerarbitration.com/CommonUI/print.aspx
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desire to act together, by joining together under one name. The similarity of the clauses used in the various contracts can only serve to bear out this interpretation. It follows that the Tribunal is not merely competent as regards each of these States, AOI and ABH, but is justified in adjudicating upon their cases in one and the same award.”); Final Award in ICC Case No. 5989, XV Y.B. Comm. Arb. 74 (1990); Final Award in ICC Case No. 7184, 8(2) ICC Ct. Bull. 63 (1997); Judgment of 31 October 1989, Kis France SA and KIS Photo Indus. SA v. Société Générale, XVI Y.B. Comm. Arb. 145, 147 (Paris Cour d'appel) (1991). But see Interim Award in ICC Case No. 7893, XXVII Y.B. Comm. Arb. 139 (1997) (ICC arbitration clauses in two contracts held to be separate). 243 Final Award in ICC Case No. 5989, XV Y.B. Comm. Arb. 74 (1990). 244 See supra pp. 1070-1072; Judgment of 11 April 2002, SA JDA Software France et autres v. SA Kiabi, 2003 Rev. arb. 1252 (Paris Cour d'appel) (on multicontract context, existence of forum selection clause does not “ruin” arbitration agreements); Judgment of 18 April 1989, 1990 Rev. arb. 915 (Paris Cour d'appel); Judgment of 1 December 1995, Ministère de l'Agriculture d'Irak v. Hochtief, 1996 Rev. arb. 456 (Paris Cour d'appel); Judgment of 11 January 1995, 1997 Rev. arb. 471 (Paris Cour d'appel); Walkinshaw v. Diniz [2000] 2 All E.R. (Comm.) 237 (Q.B.); Sonatrach Petroleum Corp. (BVI)v. FerrellInt'lLtd [2002] 1 All E.R. (Comm.) 627 (Q.B.). 245 Judgment of 29 November 1991, Dist. Chardonnet v. Fiat Auto France, 1993 Rev. arb. 617 (Paris Cour d'appel). 246 Compare the similar reservations in B. Hanotiau, Complex Arbitrations ¶299 (2005). See alsoJudgment of 9 December 1987, G.I.E. Acadi v. Thomson-Answare, 1988 Rev. arb. 573 (Paris Cour d'appel) (treating subsequent forum selection clause as “waiver” of earlier arbitration agreement). In similar circ*mstances, the Swiss Federal Tribunal held that a forum selection clause contained in a settlement agreement replaced an arbitration clause contained in an earlier agreement to the contrary (absent evidence of an intention). Judgment of 20 December 1995, DFT 121 III 495 (Swiss Federal Tribunal). 247 See, e.g., Award in ICC Case No. 2272, in S. Jarvin & Y.
Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 11 (1990); Award in ICC Case No. 4392, 110 J.D.I. (Clunet) 907 (1983) (interpreting arbitration clause restrictively and concluding that it did not extend to disputes under agreement with forum selection clause). 248 Clarence Holdings Ltd v. Prendos Ltd, [2000] D.C.R. 404 (Auckland District Court). 249 See supra pp. 74-76, 1081-1083. 250 See, e.g., Judgment of 14 May 1996, Société Sigma Corp. v. Société Tecni-Ciné-Phot, 1997 Rev. arb. 535 (French Cour de cassation civ. 1e) (arbitration clause in distribution agreement held to apply to disputes under second agreement intended to resolve disputes under first agreement); Judgment of 5 March 1991, Pepratx v. Fichou, 1992 Rev. arb. 66 (French Cour de cassation com.) (arbitration clause in share transfer agreement held to apply to disputes under second agreement, intended to fix amounts due under first agreement). See alsoJudgment of 25 March 1983, Sorvia v. Weinstein Int'l Disc Corp., 1984 Rev. arb. 363 (Paris Cour d'appel) (arbitration clause in sales confirmation was tacitly accepted by the http://www.kluwerarbitration.com/CommonUI/print.aspx
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other party, where prior transactions between the same parties contained the same clause); Judgment of 18 March 1983, Société Quémener et Fils v. Société Van Dijk France, 1983 Rev. arb. 491 (Paris Cour d'appel) (parties tacitly incorporated arbitration clause into an earlier agreement, where all the parties' subsequent invoices contained the clause). CompareJudgment of 9 December 1987, G.I.E. Acadi v. Thomson-Answare, 1988 Rev. arb. 573 (Paris Cour d'appel) (rejecting extension of arbitration clause in one contract to subsequent contracts between the same parties on the grounds that the later contract contained forum selection clause); Judgment of 8 March 1995, 1997 Rev. arb. 547 (Paris Cour d'appel) (arbitration clause in subsequent option agreement held inapplicable to previous franchise agreement); Judgment of 21 June 1990, Compagnie Honeywell Bull SA v. Computacion Bull de Venezuela CA, 1991 Rev. arb. 96 (Paris Cour d'appel) (arbitration clause in distribution agreement not applicable to disputes under subsequent maintenance agreement). 251 See, e.g., Nestle Aters N. Am., Inc. v. Bollman, 2007 WL 2962842 (6th Cir. 2007) (arbitration agreement in initial contract applies to disputes arising from subsequent deed, where dispute required reference to initial contract; also reasoning that “an arbitration clause in a later agreement should not be read backward into an earlier agreement merely because the later agreement had a boilerplate ‘merger’ clause”); Hart Enter. Int'l, Inc. v. Anhui Provincial Imp. & Exp. Corp., 888 F.Supp. 587 (S.D.N.Y. 1995) (arbitration clause in sales agreement applied to claims arising from subsequent settlement agreement (which did not contain an arbitration clause) dealing with disputes under sales agreement); Hinson v. Jusco Co., 868 F.Supp. 145 (D.S.C. 1994) (arbitration clause in one agreement and applied to disputes under all agreements); G.D. Searle & Co. v. Metric Constr., Inc., 572 F.Supp. 836 (N.D. Ga. 1983) (parties' subsequent agreement to submit two specific disputes to arbitration did not supersede prior, broad agreement to arbitrate); Primex Int'l Corp. v. Wal-Mart Stores, Inc., 657 N.Y.S.2d 385 (N.Y. 1997) (arbitration pursuant to clause in expired contract permitted, notwithstanding absence of arbitration clause in later agreement). 252 See, e.g., Judgment of 31 May 2007, III ZR 22/06, 2007 SchiedsVZ 215, 216-217 (German Bundesgerichtshof); Judgment of 27 February 2004, 2004 SchiedsVZ 161, 162 (Oberlandesgericht Düsseldorf); Schlosser, in F. Stein & M. Jones (eds.), Kommentar zur Zivilprozessordnung §1029, ¶20 (22d ed. 2002). 253 See, e.g., Judgment of 15 March 1990, Sonatrach v. K.C.A. DrillingLtd, 1990 Rev. arb. 921 (Swiss Federal Tribunal) (arbitration clause in underlying contract applicable to disputes arising out of amendment to contract). 254 See, e.g., Award in ICC Case No. 5117, in S. Jarvin, Y. Derains & J.-J. Arnaldez (eds.), Collection of ICC Arbitral Awards1986-1990 274, 275 (1994) (arbitration clauses in construction contracts encompass disputes under work orders issued pursuant to contracts); Final Award in ICC Case No. 6998, XXI Y.B. Comm. Arb. 54 (1996) (subsequent letter agreement with forum selection clause did not modify implementation agreement's arbitration clause); Interim Award in ICC Case No. 7929, XXV Y.B. Comm. Arb. 312 (2000) (arbitration clause in partnership agreement encompassed disputes under subsequent cooperation agreement, to the extent they concerned “unified contractual scheme); Partial Award in ICC Case No. 8420, XXV Y.B. Comm. Arb. 328 (2000) (arbitration clause in initial sales agency agreement held not to encompass disputes under two subsequent agreements, between same parties, on grounds that they concerned different matters). CompareShenzhen http://www.kluwerarbitration.com/CommonUI/print.aspx
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Nan Da Indus. Trade United Co. v. FM Int'l Ltd, XVIII Y.B. Comm. Arb. 377 (H.K. High Court, S.Ct. 1991) (1993) (successive contracts, with clauses specifying differing arbitral institutions, held to contain independent dispute resolution mechanisms). 255 See, e.g., Niro v. Fearn Int'l, Inc., 827 F.2d 173, 175 (7th Cir. 1987) (settlement agreement was “an arbitrable subject when the underlying dispute is arbitrable, except in circ*mstances where the parties expressly exclude the settlement agreement from being arbitrated”); Coody Custom Homes, LLC v. Howe, 2007 Tex. App. LEXIS 3603 (Tex. App. 2007) (the parties' subsequent agreement to settle their disputes did not supersede the arbitration provision or exclude arbitration); Stamford Holding Co. v. Clark, 2003 U.S. Dist. LEXIS 4542, at *22 (D. Conn. 2003); Judgment of 31 May 2007, III ZR 22/06, 2007 SchiedsVZ 215, 216-217 (German Bundesgerichtshof); Judgment of 3 November 1983, LM §38 ZPO Nr. 23 (German Bundesgerichtshof); Judgment of 28 November 1963, 1964 NJW 591, 592 (German Bundesgerichtshof). 256 Award in ICC Case No. 9473, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 97 (2001). 257 See, e.g., Shanghai Foreign Trade Corp. v. Sigma Metallurgical Co., XXII Y.B. Comm. Arb. 609, 614-616 (N.S.W. S.Ct. 1996) (1997); Goss-Reid Assoc. v. Tekniko, 54 Fed.Appx. 405, 407 (5th Cir. 2002) (concluding that second agreement among parties to original contract, which contained no arbitration clause and stated that the agreement “supersedes all prior agreements,” rescinded the parties' prior arbitration agreement in original contract); Flexi-Van Corp. v. Orzeck, 1988 U.S. Dist. LEXIS 17312, at *6 (D.N.J. 1988) (second settlement release meant to supersede and terminate earlier settlement agreement and its arbitration provision). 258 Application of the separability presumption in the context of termination of the parties' agreements is discussed above. See supra pp. 367-369, 747-751, 941-942. 259 See supra pp. 1066 et seq. 260 See supra pp. 1066-1076. 261 430 U.S. 243, 250 (U.S. S.Ct. 1977). See also Litton Fin. Printing Div. v. Nat'l Labor Relations Board, 501 U.S. 190, 206 (U.S. S.Ct. 1991) (limiting Nolde to cases where dispute “involves facts and occurrences that arose before expiration, where an action taken after expiration infringes a right that accrued or vested under the agreement, or where, under normal principles of contract interpretation, the disputed contractual right survives expiration of the remainder of the agreement”). 262 See, e.g., Aspero v. Shearson Am. Express, Inc., 768 F.2d 106, 108 (6th Cir. 1985) (“duty to arbitrate does not necessarily end when the contract is terminated”); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Hovey, 726 F.2d 1286, 1290 (8th Cir. 1984) (“The language of the agreement is broad and the term ‘arising out of’ contemplates that for some controversies the arbitration agreement will survive the employment relationship.”); Downing v. Merrill Lynch, Pierce, Fenner & Smith, 725 F.2d 192, 195 (2d Cir. 1984); Necchi SpA v. Necchi Sewing Machine Sales Corp., 348 F.2d 693 (2d Cir. 1965); Putnam v. Teletech Holdings, 2007 U.S. Dist. LEXIS 18745, at *13-15 (D. Colo. 2007) (arbitration provision survives the termination of a contract, but not where the parties expressly agree to terminate it); Otan Inv., LLC v. Trans Pac. Trading, Ltd, 2006 U.S. Dist. LEXIS 26761, at *8 (D. Wash. 2006) (arbitration provision survived termination of a contract unless there is clear evidence that the parties intended to override such a presumption); Greenberg & http://www.kluwerarbitration.com/CommonUI/print.aspx
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Assocs., Inc. v. Cohen, 2005 U.S. Dist. LEXIS 36638, at *16 (D. Colo. 2005) (“[a]n arbitration provision in a contract survives the termination of that contract unless the parties expressly or clearly imply an intent to override this presumption”); Encore Prods., Inc. v. Promise Keepers, 53 F.Supp.2d 1101, 1108-09 (D. Colo. 1999) (agreement that terminated contract containing arbitration clause encompassed by that clause because “no clear showing of an implied intent to repudiate the arbitration clause in the [prior agreement]”); Organizing Comm. for the 1998 Goodwill Games, Inc. v. Goodwill Games, Inc., 919 F.Supp. 21 (D.D.C. 1995) (rejecting argument that arbitration agreement ceased to have effect upon termination of underlying contract); Batson Yarn and Fabrics Mach. Group, Inc. v. Saurer-Allma GmbH-Allgauer Maschinenbau, 311 F.Supp. 68 (D.S.C. 1970). 263 See, e.g., Judgment of 31 May 2001, UNI-KOD sarl v. Ouralkali, XXVI Y.B. Comm. Arb. 1136 (Paris Cour d'appel) (2001) (“the expiry of the contracts … did not cancel the parties' obligation to settle the disputes arising in connection with their contractual obligations by arbitration”); Judgment of 4 March 1986, 1987 Rev. arb. 167, 168 (Paris Cour d'appel), confirmed by Judgment of 10 May 1988, 1988 Rev. arb. 639 (French Cour de cassation); Judgment of 21 September 1993, 13 ASA Bull. 68, 71 (Vaud Court of Appeal) (1995); Judgment of 25 November 1966, Société des mines d'Orbagnoux v. Fly Tox, 1967 Dalloz 359 (French Cour de cassation civ. 2e). 264 See, e.g., Judgment of 20 December 1995, DFT 121 III 495, 500 (Swiss Federal Tribunal); Judgment of 15 March 1990, Sonatrach v. K.C.A. Drilling Ltd, 1990 Rev. arb. 921 (Swiss Federal Tribunal). 265 See, e.g., Award in Bulgarian Chamber of Commerce and Industry, Case No. 88/1972 (23 June 1973), IV Y.B. Comm. Arb. 189 (1979) (“The fact that the contract was terminated cannot render inoperative the arbitration agreement concluded between the parties for the resolution of disputes arising out of this contract”); Award in ICC Case No. 2438, 103 J.D.I. (Clunet) 969 (1976); Final Award in ICC Case No. 7626, XXII Y.B. Comm. Arb. 132, 137 (1997) (“under Indian law – as under most systems of law – an arbitration clause constitutes a separate and autonomous agreement between the parties, which survives any termination of the main agreement in which it is contained, unless the arbitration agreement itself is expressly terminated”). 266 See Nat'l R.R. Passenger Corp. v. Boston & Maine Corp., 850 F.2d 756 (D.C. Cir. 1988) (even in cases with very broad arbitration clauses, the presumption in favor of arbitrating disputes over contract duration can be overcome by a clear showing that the parties intended for the underlying contract to expire or terminate before the dispute arose); Local 703 etc. v. Kennicott Bros. Co., 771 F.2d 300 (7th Cir. 1985) (arbitration clause not applicable to dispute arising from events occurring six months after contract expired); Bogen Comm. v. Tri-Signal Integration, Inc., 2006 U.S. Dist. LEXIS 10497, at *10 (D.N.J. 2006) (arbitration clause does not apply after the time of the “unambiguous and narrow language of the Agreement's expiration date”); Virginia Carolina Tools, Inc. v. Int'lTool Supply, Inc., 793 F.Supp. 664 (W.D.N.C. 1992), aff'd, 984 F.2d 113 (4th Cir. 1993) (arbitration clause no longer effective because underlying option contract had expired); Boston Printing Pressmen's Union v. Potter Press, 141 F.Supp. 553 (D. Mass. 1956), aff'd, 241 F.2d 787 (1st Cir. 1956). See generally Annotation, Enforcement of Contractual Arbitration Clause as Affected by Expiration of Contract Prior to Demand for Arbitration, 5 A.L.R.3d http://www.kluwerarbitration.com/CommonUI/print.aspx
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1008. 267 See, e.g., Judgment of 16 January 2001, 4 Ob 330/00h (Austrian Oberster Gerichtshof) (“An arbitration clause contained in a contractual relationship shall be regarded as an ancillary agreement which shares the legal fate of the main contract and ceases to exist when the parties mutually dissolve the main agreement. This legal consequence will also apply when there is a unilateral dissolution of the main contract provided that the other party subsequently consented thereto and thereby acknowledged the validity of the unilateral dissolution.”); Judgment of 17 April 1996, 7 Ob 2097/96z (Austrian Oberster Gerichtshof) (“While the arbitration agreement usually stays valid even in a case of unilateral termination of the main contract or invalidity of the main contract ab initio or termination due to time lapse, in case of consensual termination of the main contract, the arbitration clause is also deemed terminated.”). 268 A similar result can usually be achieved by an interpretation of the arbitration clause (proceeding on the basis that it has not been terminated): most clauses will by their terms not extend to disputes unrelated to the underlying contract. 269 See, e.g., Transcore Holdings, Inc. v. Rayner, 104 S.W.3d 317 (Tex. App. 2003) (termination letter contained forum selection clause, which was held to release prior arbitration agreement). 270 See Geneva Protocol, Art. I; New York Convention, Art. II(1) (“all or any differences which have arisen or which may arise”); European Convention, Art. I(2)(a); supra p. 303. 271 See supra pp. 37-39, 144-146. 272 Dean Witter Reynolds, Inc. v. Prouse, 831 F.Supp. 328, 331 (S.D.N.Y. 1993). See, e.g., Zink v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 13 F.3d 330 (10th Cir. 1993) (rejecting “contention that an agreement to arbitrate a dispute must pre-date the actions giving rise to the dispute”); Carlisle v. CitiMortgage, Inc., 2007 U.S. Dist. LEXIS 38424, at *9 (D. Mo. 2007) (arbitration agreements can include claims that arose before execution of agreement); Boulet v. Bangor Sec., 324 F.Supp.2d 120, 125 (D. Me. 2004) (arbitration agreement explicitly addressing retroactivity); Fehribach v. Ernst and Young, LLP, 2003 U.S. Dist. LEXIS 6462, at *14 (S.D. Ind. 2003) (noting that if there were a slight amendment in the arbitration agreement's language, “it would have been easy to give retroactive effect to the arbitration clause”); Whisler v. H.J. Meyers & Co., 948 F.Supp. 798 (N.D. Ill. 1996) (arbitration clause covers disputes arising before clause was entered into); Clark v. Kidder, Peabody & Co., 636 F.Supp. 195, 197 (S.D.N.Y. 1986); Prestera v. Shearson Lehman Bros., Inc., 1996 WL 10095 (D. Mass. 1986); Hamilton v. Dean Witter Reynolds, Inc., 1989 WL 89434 (W.D. Pa. 1989). 273 Church v. Gruntal & Co., 698 F.Supp. 465 (S.D.N.Y. 1988). 274 See supra p. 704. 275 See, e.g., St. Lawrence Explosives Corp. v. Worthy Bros. Pipeline Corp., 1997 WL 187332, at *1 (2d Cir. 1997) (“It is well settled that ‘a clause [in an arbitration agreement] providing for the settlement of controversies by arbitration pursuant to the rules of the American Arbitration Association’ … is ‘sufficient to incorporate th[ose] rules into the agreement.’”); Koch Oil, SA v. Transocean Gulf Oil Co., 751 F.2d 551, 554 (2d Cir. 1985) (parties bound by their agreement to AAA Rules); Reed & Martin, Inc. v. Westinghouse Elec. Corp., 439 F.2d 1268 (2d Cir. 1971) (parties selecting institutional arbitration rules are bound by those rules); Bothell v. Hitachi Zosen Corp., 97 F.Supp.2d 1048 (W.D. Wash. 2000); http://www.kluwerarbitration.com/CommonUI/print.aspx
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Diemaco v. Colt's Mfg Co., 11 F.Supp.2d 228, 232 (D. Conn. 1998) (“When parties agree to arbitrate before the AAA and incorporate the Commercial Arbitration Rules into their agreement, they are bound by those rules and by the AAA's interpretation.”); Silvester Tafuro Design, Inc. v. Sachs, 1996 WL 257668, at *4 (S.D.N.Y. 1996) (court held that by incorporating the AAA rules into the contract, the parties agreed to all provisions of the AAA rules); Paley Assocs., Inc. v. Universal Woolens, Inc., 446 F.Supp. 212, 214 (S.D.N.Y. 1978) (“‘[I]t is settled doctrine that a reference in a contract to another writing, sufficiently described, incorporates that writing.’ This doctrine is applied generally to AAA rules incorporated by reference.”); Compagnie des Bauxites de Guinee v. Hammermills, Inc., 1992 WL 122712, at *1-6 (D.D.C. 1992) (ICC Rules incorporated into arbitration agreement). 276 See, e.g., ICC Rules, Art. 1(2); LCIA Rules, Art. 29(1); ICDR Rules, Art. 36. 277 See, e.g., Koch Oil, SA v. Transocean Gulf Oil Co., 751 F.2d 551 (2d Cir. 1985) (AAA Commercial Rules give AAA reasonable discretion to interpret time limits in Rules); Reeves Bros., Inc. v. Capital-Mercury Shirt Corp., 962 F.Supp. 408 (S.D.N.Y. 1997) (“Where … the parties have adopted [particular institutional arbitration] rules, the parties are also obligated to abide by the [relevant arbitral institution's] determinations under those rules”); Judgment of 15 May 1985, Raffineries de pétrole d'Homs et de Banias v. Chambre de commerce internationale, 1985 Rev. arb. 141 (Paris Cour d'appel) (“the provisions of the Rules of the [ICC] Court of Arbitration, which constitute the law between the parties, must be applied to the exclusion of all other rules”); Judgment of 17 June 1997, 1998 Rev. arb. 414 (French Cour de cassation civ. 1e) (“[the rules chosen in an arbitration agreement] serve as the parties' procedural law.”). Compare AT&T Corp. v. Saudi Cable Co. [2000] 2 Lloyd's Rep. 127, 134-135 (English Court of Appeal). 278 See supra pp. 148-149, 153-154. 279 See, e.g., ICDR Rules, Art. 1(1) (“Where parties have agreed in writing to arbitrate disputes under these International Arbitration Rules or have provided for arbitration of an international dispute by the International Centre for Dispute Resolution or the American Arbitration Association without designating particular rules, the arbitration shall take place in accordance with these rules, as in effect at the date of commencement of the arbitration, subject to whatever modifications the parties may adopt in writing.”); VIAC Rules, Art. 1(2) (“If the parties have agreed to the jurisdiction of the Centre, these arbitration rules (‘Vienna Rules’) shall thereby apply in the version valid at the time of commencement of the proceedings.”); Swiss International Arbitration Rules, Art. 1(3) (“These Rules shall come into force on January 1st, 2004 and, unless the parties have agreed otherwise, shall apply to all arbitral proceedings in which the Notice of Arbitration is submitted on or after that date.”); DIS Rules, §1-2 (“Unless otherwise agreed by the parties, the Arbitration Rules in effect on the date of commencement of the arbitral proceedings apply to the dispute.”). 280 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 57 (2d ed. 2006). 281 Award in CRCICA Case No. 40/1992 (15 December 1995), in M.E. Alam Eldin (ed.), Arbitral Awards of the Cairo Regional Centre for International Commercial Arbitration 95 (2000) (describing arbitration provision using Cairo Rules but designating PCA as appointing authority). 282 Bovis Land Lease Pte Ltd v. Jay-Tech Marine & Projects Pte http://www.kluwerarbitration.com/CommonUI/print.aspx
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Ltd, [2005] SGHC 91 (Singapore High Court); Final Award in ICC Case No. 9797, 18 ASA Bull. 514, 515 (2000) (describing arbitration provision using ICC Rules but designating Swiss court as appointing authority under certain circ*mstances). For an award rejecting the argument that the parties' arbitration agreement only incorporated the ICC Rules, but did not select the ICC as appointing authority, seeAward in ICC Case No. 9548, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 87 (2001) (“Over the years, [the model ICC arbitration clause] has been inserted probably in hundreds of thousands of contracts, and it has been invoked, and applied, in thousands of cases, all over the world. There can be no doubt about its meaning. The recommended clause clearly sets forth the parties' agreement that, for all disputes arising under their contract, jurisdiction is conferred to an arbitrator appointed in accordance with the ICC Rules, and acting in accordance with these rules.”). 283 See supra pp. 153-154. 284 The ICC will not, for example, permit agreements amending the
treatment of the Terms of Reference, the fixing of the arbitrators' fees by the ICC Court, or the scrutiny and approval of ICC awards by the ICC Court. M. Bühler & T. Webster, Handbook of ICC Arbitration 23 (2005); Y. Derains & E. Schwartz, A Guide to the ICC Rules of Arbitration 314-15, 358 (2d ed. 2005). 285 A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶3-46 (4th ed. 2004); Gelinas, Arbitration Clauses: Achieving Effectiveness, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 47 (ICCA Congress Series No. 9 1999). See alsoSzuts v. Dean Witter Reynolds, Inc., 931 F.2d 830, 831-32 (11th Cir. 1991). 286 Gelinas, Arbitration Clauses: Achieving Effectiveness, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 47 (ICCA Congress Series No. 9 1999); Paulsson, Vicarious Hypochondria and Institutional Arbitration, 6 Arb. Int'l 226 (1990). 287 See supra pp. 172-180. 288 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 74-75 (2d ed. 2006). See also supra p. 179 et seq. 289 E.g., S+L+H SpA v. Miller-St. Nazianz, Inc., 988 F.2d 1518 (7th Cir. 1993) (disputes excluded from contract's choice-of-law clause nonetheless subject to contract's arbitration clause). As discussed above, most authorities hold that a limitation on the scope of arbitrable disputes, imposed by the chosen substantive law, will not ordinarily limit the scope of the arbitration clause. See supra pp. 769-770; Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52 (U.S. S.Ct. 1995) (holding that parties to a contract containing a New York choice-of-law provisions could still claim punitive damages, excluded by New York non-arbitrability rules, if the arbitration agreement so permitted; the choice-of-law provision does not include special rules limiting the authority of arbitrators); New South Fed. Sav. Bank v. Anding, 414 F.Supp.2d 636, 650 (D. Miss. 2005) (choice-of-law provision encompasses “substantive principles” that state courts would apply, but does not include any http://www.kluwerarbitration.com/CommonUI/print.aspx
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“special rules limiting the authority of arbitrators”). 290 See infra pp. 2170-2198. 291 See supra pp. 770-772 & infra pp. 2219-2220. An exception to
this is where applicable law also purports to render certain claims non-arbitrable, an issue discussed in detail above. See supra pp. 766 et seq. 292 See, e.g., Provencher v. Dell, Inc., 409 F.Supp.2d 1196, 1199 (C.D. Cal. 2006) (arbitration clause “does not apply to claims against Dell arising under the applicable written warranty. Such claims may be pursued in any court of competent jurisdiction”); Kelly v. Camillo, 2006 WL 2773600 (Conn. Super. 2006) (arbitration clause excluded non-compete terms from its scope); In re Dillard Dep't Stores, Inc., 2006 WL 508629 (Tex. 2006) (arbitration agreement excluded worker's compensation claims); State ex rel. City Holding Co. v. Kaufman, 609 S.E.2d 855 (W. Va. 2004) (arbitration clause excluded payment obligations). See supra pp. 1070-1072, 1082-1083. 293 G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 42-44 (2d ed. 2006). 294 See supra pp. 1068-1072, 1082-1083. 295 See Holtzman & Kichaven, Recent Developments in Alternative Dispute Resolution, 40 Tort Trial & Ins. Prac. L.J. 211, 217 (2005) (“Standard arbitration clauses frequently exclude breach of confidentiality and intellectual property claims because of employers' perceived need for immediate provisional injunctive relief.”); Drahozal, Nonmutual Agreements to Arbitrate, 27 J. Corp. L. 537, 553 (2002) (“Thus, arbitration clauses may exclude trademark and other intellectual property disputes from arbitration because of the high costs of a mistaken award and the importance of emergency relief and legal precedent in protecting intellectual property interests.”); Drahozal, “Unfair” Arbitration Clauses, 2001 U. Ill. L. Rev. 695, 739 (68% of domestic U.S. franchise agreements in sample excluded trademark disputes); Davis, ADR Well-Suited to Handle Franchise Case, Alt. to High Cost Litig., Sept. 1992, at 131. 296 In some jurisdictions, disputes over the ownership or validity of intellectual property (particularly patents) may raise non-arbitrable issues of public policy. See supra pp. 805-808. 297 This perception is particularly ironic given the availability of specialized arbitral mechanisms such as WIPO. See supra pp. 167168. 298 See G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 43 (2d ed. 2006). See also Ferguson v. Countrywide Credit Indus., Inc., 298 F.3d 778, 781 nn.12 (9th Cir. 2002); Stirlen v. Supercuts, Inc., 60 Cal.Rptr.2d 138, 142 (Cal. Ct. App. 1997). In these instances, a forum selection clause should be utilized, preferably alone or alternatively in combination with an arbitration clause applicable to arbitrable issues. 299 See, e.g., SCO Group, Inc. v. Novell, Inc., 2006 U.S. Dist. LEXIS 59295 (D. Utah 2006) (excepting disputes concerning certain “Pre-existing Technology” and “Enhancements” thereto); Bischoff v. DirecTV, Inc., 180 F.Supp.2d 1097 (C.D. Cal. 2002) (excepting certain disputes such as those involving intellectual property rights of the parties or of DirecTV's operating licenses); Battle v. Prudential Ins. Co. of Am., 973 F.Supp. 861, 862 (D. Minn. 1997) (excepting disputes involving the insurance business of any member which is also an insurance company); AT&T Corp. v. Vision One Sec. Sys., 914 F.Supp. 392, 394 (S.D. Cal. 1995) (agreement excepts http://www.kluwerarbitration.com/CommonUI/print.aspx
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“disputes relating to … compliance with the Trademarks Section of this Agreement”). 300 See infra pp. 1972-1973, 2050-2051, 2930-2933. 301 See G. Born, International Arbitration and Forum Selection Agreements: Drafting and Enforcing 42-43 (2d ed. 2006). Such exceptions can also be graduated, depending upon the time at which they are invoked: “Prior to the appointment of the arbitrator(s), either party may seek provisional or interim measures from any court of competent jurisdiction. After the appointment of the arbitrator(s), the arbitrator(s) shall have exclusive power to consider and grant requests for provisional or interim measures.” 302 See Drahozal, “Unfair” Arbitration Clauses, 2001 U. Ill. L. Rev. 695, 740 (32% of franchise agreements in sample excluded collection claims from arbitration clause). 303 But seeShowmethemoney Check Cashers, Inc. v. Williams, 27 S.W.3d 361 (Ark. 2000).
Interpretation of International Arbitration Agreements - C. Exclusivity of Arbitration Agreement Chapter 8 Gary B. Born
Author Gary B. Born
C. Exclusivity of Arbitration Agreement Another important analytical issue in the interpretation of an arbitration agreement is whether arbitration is intended to be the parties' exclusive remedy, or whether it is only a permissive option that leaves either party free to resort to litigation in national courts or other forums. At least in theory, an arbitration agreement might be “non-exclusive.” (304) That is, like a non-exclusive forum selection clause, (305) an arbitration agreement might permit either party to commence binding arbitration, but not forbid the other party from also pursuing other forms of dispute resolution (such as litigation in national courts). (306)
Source Interpretation of International Arbitration Agreements - C. Exclusivity of Arbitration Agreement in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 1128 - 1129
It is extremely unlikely that parties would intend an arbitration agreement to be non-exclusive (and, if they did so, it would almost always be very unwise). As discussed above, parties enter into international arbitration agreements in large part to avoid the necessity of litigating in national courts and to avoid the expense, delay page "1128" and uncertainty of multiplicitous litigation in different jurisdictions. (307) A “non-exclusive” agreement to arbitrate would accomplish none of these objectives, and would in fact contradict them. Similarly, the basic assumption of the New York Convention, and other leading international arbitration instruments, is that arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreements are exclusive. Thus, Article II(3) of the Convention provides that national courts “shall refer the parties to arbitration” if they have made a valid arbitration agreement covering their dispute. (308) As discussed above, other international conventions and national legislation are to the same effect. (309) In each instance, the prevailing assumption is that, if the parties have agreed to arbitrate certain disputes, they have also agreed not to litigate those disputes. (310)
Accordingly, even assuming parties might validly agree to the contrary, national courts and arbitral tribunals invariably either hold or assume that international arbitration agreements are exclusive, precluding litigation of arbitrable matters in national courts. (311) Indeed, the matter is considered so well-established that it is virtually never litigated. As a matter of contract, there would seem to be nothing that would forbid parties from entering into a non-exclusive arbitration agreement, however ill-advised it may appear. Such an arrangement might be appropriate in intellectual property agreements or in loan documentation where one party might wish to be able to pursue claims against the other in both one certain forum (arbitration) and also in any other available jurisdiction. In most cases, however, it would be very unusual, and likely equally ill-advised, for parties to desire arbitrability as a non-exclusive means of dispute resolution. Indeed, as discussed above, there are doubts as to whether a nonexclusive agreement to arbitrate would even constitute an “arbitration agreement” under applicable national and international legal regimes, at least where the results of the arbitral process were not binding. (312) page "1129"
304 This is related to, but distinguishable, from the notion that an
arbitration clause can arguably be “non-mandatory,” not binding the parties to either participate in the arbitral proceeding or accept the award. See supra pp. 687-690. 305 See supra p. 67. 306 It is instructive to compare the interpretation of arbitration agreements to that of forum selection clauses. In some jurisdictions (notably the United States), forum selection clauses are presumptively permissive. That is, an agreement to submit disputes to the courts of State X will allow litigation in State X, but will not exclude litigation in other states that possess jurisdiction under applicable law. See G. Born & P. Rutledge, International Civil Litigation in United States Courts 436-37 (4th ed. 2007). In some other jurisdictions, particularly in Europe, the opposite presumption applies to forum selection agreements. Ibid. The same presumption in favor of exclusivity is reflected in Art. 3 & 5 of the Hague Convention of 30 June 2005 on Choice of Court Agreements, available at www.hcch.net. 307 See supra pp. 71-90. 308 New York Convention, Art. II(3). 309 See supra pp. 202-207, 565-574. 310 This is consistent with the usual “negative” effects of an agreement to arbitrate. See infra pp. 1020 et seq. http://www.kluwerarbitration.com/CommonUI/print.aspx
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311 For a decision rejecting the contention that an arbitration clause
was non-exclusive, see Judgment of 30 May 1994, XX Y.B. Comm. Arb. 745 (Tokyo High Court) (1995). Compare Howard Fields & Assoc. v. Grand Wailea Co., 848 F.Supp. 890 (D. Haw. 1993) (apparently interpreting arbitration clause as non-exclusive, but then staying litigation because of FAA's strong pro-arbitration policies). 312 It is arguable that a non-exclusive agreement to arbitrate would not be subject to the New York Convention or national arbitration legislation, on the theory that it would not be an arbitration agreement. See supra pp. 211 et seq. (especially 235-241); Judgment of 23 October 1972, II Y.B. Comm. Arb. 239 (Landgericht Heidelberg) (1977) (“The New York Convention is also based on the principle that arbitration agreements within the meaning of the Convention are only those which exclude ordinary court proceedings”). It is also unclear what status a putative award would have if rendered following a non-exclusive arbitral process. In particular, it is unclear whether such an award would be final and binding (like most awards) or merely advisory and non-binding (given the nonexclusive character of the arbitral process). See supra pp. 235-241 & infra pp. 2350-2352, 2815-2826. In the latter case, it would be unclear whether the parties' agreement, and resulting decision, constituted arbitration agreements or awards under applicable national arbitration legislation. See supra pp. 235-241 & infra pp. 2350-2352.
Parties to International Arbitration Agreements Chapter 9 Gary B. Born
Author Gary B. Born
Parties to International Arbitration Agreements (1) An issue which arises recurrently in connection with the enforcement of international arbitration agreements is the identity of the parties to such agreements: what entities page "1131" are bound by, and what entities may invoke, an international arbitration agreement? This Chapter first discusses the basic principle that international arbitration page "1132" agreements are, as consensual instruments, binding only on the parties to such agreements. Second, the Chapter examines the various legal doctrines that have been used to give effect to arbitration agreements vis-a-vis entities that did not execute such agreements (“non-signatories”), including theories of agency, alter ego status (or veil piercing), “group of companies,” estoppel, guarantor relations, third-party beneficiary rights, succession, assignment, assumption and miscellaneous other grounds. Third, the Chapter examines the choice-of-law rules governing the foregoing issues. Fourth, the Chapter discusses the allocation of competence, between national courts and arbitral http://www.kluwerarbitration.com/CommonUI/print.aspx
Source Parties to International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 1131 - 1133
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tribunals, to decide disputes regarding the identity of the parties to an international arbitration agreement. Finally, the Chapter addresses the subjects of arbitration in corporate contexts and “class arbitrations.” page "1133"
1 For commentary, see J.-M. Ahrens, Die subjektive Reichweite
internationaler Schiedsvereinbarungen und ihre Erstreckung in der Unternehmensgruppe (2001); Alford, Binding Sovereign NonSignatories, 19(3) Mealey's Int'l Arb. Rep. 27 (2004); Bagot & Henderson, Not Party, Not Bound? Not Necessarily: Binding Third Parties to Maritime Arbitration, 26 Tul. Mar. L.J. 413 (2002); Busse, Privity to An Arbitration Agreement, 2005 Int'l Arb. L. Rev. 95; Byrnes & Pollman, Arbitration, Consent and Contractual Theory: The Implications of EEOC v. Waffle House, 8 Harv. Neg. L. Rev. 289 (2003); de Boisséson & Duprey, L'arbitrabilité subjective en matière de droit des sociétés, II Les Cahiers de l'Arbitrage 121 (2004); Delvolvé, Multipartism: The Dutco Decision of the French Cour de Cassation, 9 Arb. Int'l 197 (1993); Delvolvé, Final Report on MultiParty Arbitrations of the ICC Commission on International Arbitration, 6(1) ICC Ct. Bull. 26 (1995); Derains, L'extension de la clause d'arbitrage aux non-signataires – La doctrine des groupes de sociétés, 241 (ASA Special Series No. 8 1994); DiLeo, The Enforceability of Arbitration Agreements by and against Nonsignatories, 2 J. Am. Arb. 31 (2003); Gaffney, The Group of Companies Doctrine and the Law Applicable to the Arbitration, 19(6) Mealey's Int'l Arb. Rep. 47 (2004); Girsberger & Hausmaninger, Assignment of Rights and Agreement to Arbitrate, 8 Arb. Int'l 121 (1992); Habegger, Arbitration and Groups of Companies, 2002 Euro. Bus. Org. L. Rev. 516; Habegger, Extension of Arbitration Agreements to Non-Signatories and Requirements of Form, 22 ASA Bull. 398 (2004); B. Hanotiau, Complex Arbitrations ¶¶1-213 (2005); Hanotiau, Arbitration and Bank Guarantees – An Illustration of the Issue of Consent to Arbitration in Multicontract-Multiparty Disputes, 16(2) J. Int'l Arb. 15 (1999); Hanotiau, Problems Raised by Complex Arbitrations Involving Multiple Contracts-Parties-Issues – An Analysis, 18 J. Int'l Arb. 253 (2001); Hanotiau, Non-Signatories in International Arbitration: Lessons from Thirty Years of Case Law, in A. van den Berg (ed.), International Arbitration 2006: Back to Basics? 341 (ICCA Congress Series No. 13 2006); Hosking, The Third Party Non-Signatory's Ability to Compel International Commercial Arbitration: Doing Justice Without Destroying Consent, 4 Pepp. Disp. Resol. L.J. 469 (2003-2004); Hosking, NonSignatories and International Arbitration in the United States: The Quest for Consent, 20 Arb. Int'l 289 (2004); ICC, Multi-Party Arbitration: Views from International Arbitration Specialists (1991); ICC, Guide on Multiparty Arbitration (1982); ICC, Complex Arbitrations – Perspectives on Their Procedural Implications (ICC Ct. Bull. Spec. Supp. 2003); Jagusch & Sinclair, The Impact of Third Parties on International Arbitration – Issues of Assignment, in A. Mistelis & J. Lew (eds.), Pervasive Problems in International Arbitration 291 (2006); Jarvin, The Group of Companies Doctrine, in The Arbitration Agreement – Its Multifold Critical Aspects 181 (ASA Special Series No. 8 1994); Lamm & Aqua, Defining the Party – Who Is A Proper Party in An International Arbitration Before the American Arbitration Association, 2002 Int'l Arb. L. Rev. 84; Leadley http://www.kluwerarbitration.com/CommonUI/print.aspx
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& Williams, Peterson Farms: There Is No Group of Companies Doctrine in English Law, 2004 Int'l Arb. L. Rev. 111; Leboulanger, Multi-Contract Arbitration, 13(4) J. Int'l Arb. 43 (1996); Lévy & Stucki, Switzerland: The Extension of the Scope of An Arbitration Clause to Non-Signatories, 2005 Int'l Arb. L. Rev. N-5; Mourre, L'impact de la réforme de la clause compromissoire sur les litiges relatifs aux sociétés, II Les Cahiers de l'Arbitrage 125 (2004); Nicklisch, MultiParty Arbitration and Dispute Resolution in Major Industrial Projects, 11(4) J. Int'l Arb. 57 (1994); Pimm, Jurisdiction over Non-Signatories to the Arbitration Agreement – Can Arbitrators Pierce the Corporate Veil?, 2003 Asian Disp. Res. 5; Pinsolle, L'admission directe de l'estoppel en droit français, 2005 Rev. arb. 993; Pinsolle, Distinction entre le principe de l'estoppel et le principe de bonne foi dans le droit du commerce international, 125 J.D.I. (Clunet) 905 (1998); Poudret, Arbitrage multipartite et droit Suisse, 9 ASA Bull. 8 (1991); Poudret, L'extension de la clause d'arbitrage: approches française et suisse, 122 J.D.I. (Clunet) 893 (1995); Poudret, Un statut privilégié pour l'extension de l'arbitrage aux tiers?, 22 ASA Bull. 390 (2004); Sandrock, Extending the Scope of Arbitration Agreements to NonSignatories, in The Arbitration Agreement – Its Multifold Critical Aspects 165 (ASA Special Series No. 8 1994); Sandrock, “Intra” and “Extra-Entity” Agreements to Arbitrate and Their Extension to NonSignatories under German Law, 19 J. Int'l Arb. 423 (2002); Sandrock, Arbitration Agreements and Groups of Companies, 27 Int'l Law. 941 (1993); Sandrock, Groups of Companies and Arbitration, 2005 Tijdschrift voor Arbitrage 3; Sandrock, Die Aufweichung einer Formvorschrift und anderes mehr – Das Schweizer Bundesgericht erlässt ein befremdliches Urteil, 2005 SchiedsVZ 1; Savage & Leen, Family Ties: When Arbitration Agreements Bind Non-Signatory Affiliate Companies, 2003 Asian Disp. Res. 16; Schwartz, Multiparty Arbitration and the ICC: In the Wake of Dutco, 10(3) J. Int'l Arb. 5 (1993); Sentner, Who Is Bound by Arbitration Agreements? Enforcement by and against NonSignatories, 6 Bus. L. Int'l 55 (2005); Smit, When Does An Arbitration Clause Extend to A Guarantee That Does Not Contain It?, 2003-1 Stockholm Arb. Rep. 273; Stauffer, L'extension de la portée de la clause arbitrale à des non-signataires, in The Arbitration Agreement – Its Multifold Critical Aspects 229 (ASA Special Series No. 8 1994); Stipanowich, Arbitration and the Multiparty Dispute: The Search for Workable Solutions, 72 Iowa L. Rev. 473 (1987); Townsend, The Non-Signatory Problem, 3 ADR Currents 19 (1998); Uloth & Rial, Equitable Estoppel as A Basis for Compelling Nonsignatories to Arbitrate – A Bridge Too Far?, 21 Rev. Litig. 493 (2002); Vidal, The Extension of Arbitration Agreements within Groups of Companies: The Alter Ego Doctrine in Arbitral and Court Decisions, 16(2) ICC Ct. Bull. 63 (2005); Werner, Jurisdiction of Arbitrators in Case of Assignment of An Arbitration Clause: On A Recent Decision by the Swiss Supreme Court, 8(2) J. Int'l Arb. 13 (1991); Wetter, A Multiparty Arbitration Scheme for International Joint Ventures, 3 Arb. Int'l 2 (1987); Whitesell & Silva-Romero, Multiparty and Multicontract Arbitration: Recent ICC Experience, in ICC, Complex Arbitrations 7 (ICC Ct. Bull. Spec. Supp. 2003); Wilske, Shore & Ahrens, The “Group of Companies Doctrine” – Where Is It Headed?, 17 Am. Rev. Int'l Arb. 73 (2006); Woolhouse, Group of Companies Doctrine and English Arbitration Law, 20 Arb. Int'l 435 (2004); Yang, Who Is A Party? The Case of the NonSignatory (Assignment), 2005 Asian Disp. Res. 43.
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Parties to International Arbitration Agreements - A. Introduction Chapter 9 Gary B. Born
Author Gary B. Born
A. Introduction As discussed above, international commercial arbitration is fundamentally consensual in nature. (2) As a consequence, the effects of an arbitration agreement apply only to the agreement's parties, and not to others. (3) Presumptively, and in most instances, the parties to an arbitration agreement will be its formal signatories. Nonetheless, as detailed below, there are a number of bases by which non-signatories may be held to be parties to – and consequently both bound and benefited by – an arbitration agreement.
Source Parties to International Arbitration Agreements - A. Introduction in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 1133 - 1142
1. International Arbitration Agreements Are Binding on the “Parties” and Not Others The principle that the rights and obligations of an arbitration agreement apply only to the agreement's parties is a straightforward application of the doctrine of privity of contract, recognized in both civil and common law jurisdictions. (4) In some legal page "1133" systems, the identity of the parties to an arbitration agreement is referred to as a question of the “subjective” scope of the arbitration agreement. (5) Both international arbitration conventions and national arbitration legislation adopt the non-controversial principle that an agreement to arbitrate binds only the parties to such agreement. Article II(1) of the New York Convention impliedly recognizes the subjective limits on the binding nature of arbitration agreements, providing that Contracting States “shall recognize an agreement in writing under which the parties undertake to submit [their disputes] to arbitration.” (6) Other international conventions are similar. (7) Each of these instruments rests on the principle that an arbitration agreement is a contract between, and binding on, the “parties” to that agreement, and not on other persons. Equally, each of these instruments requires recognition of arbitration agreements insofar as their “parties,” and not other entities, are concerned. (8) National law also recognizes the limited subjective scope of arbitration agreements. Article 7(1) of the UNCITRAL Model Law defines an arbitration agreement as “an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them.” (9) Other national arbitration legislation is similar. (10) Even in the absence of statutory provisions to this effect, settled law in all developed jurisdictions provides that it is the parties to an international arbitration agreement – and not other persons – that are bound page "1134" by the agreement. (11) Equally, as discussed below, it is only parties to the arbitration http://www.kluwerarbitration.com/CommonUI/print.aspx
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agreement that are subject to the arbitrators' awards of relief, (12) disclosure orders (13) and provisional measures. (14) One arbitral award analyzed the subject as follows: “Contrary to litigation in front of state courts where any interested party can join or be adjoined to protect its interests, in arbitration only those who are parties to the arbitration agreement expressed in writing could appear in the arbitral proceedings either as claimants or as defendants. This basic rule, inherent in the essentially voluntary nature of arbitration, is recognized internationally by virtue of Article II of the New York Convention.” (15) Similar references to the consensual nature of an arbitration agreement, and its lack of effects on third parties, are found in French law: “The law of arbitration, based on the consensual nature of the arbitration clause, does not allow to extend to third parties, foreign to the contract, the effects of the disputed contract, and bars any forced intervention or guarantee procedures.” (16) Leading institutional rules also uniformly assume that only parties to an arbitration agreement are bound by that agreement. Article 1(1) of the UNCITRAL Rules provides that the Rules apply “[w]here the parties to a contract have agreed page "1135" in writing that disputes in relation to that contract shall be referred to arbitration” under the UNCITRAL Rules. (17) Other leading arbitration rules are similar. (18) 2. Signatories to the Arbitration Agreement In most cases, the parties to an arbitration agreement are – and are only – the entities that formally executed, and expressly assumed the status of parties to, the underlying contract containing the arbitration clause. In the vast majority of cases, the way to determine the parties to the arbitration clause is simply to look at the signature page, and/or the recitals of a contract, and see what entities are designated there. (19) It is these “signatories” that are party to the arbitration agreement, and that are therefore bound by, and able to enforce, the provisions of that agreement. Despite the foregoing, the party that executes a contract is not necessarily a party to either that agreement or the arbitration clause associated with it. Under most legal systems, an agent or representative may execute an agreement on behalf of its principal, producing the result that the principal is a party to the agreement (but the agent or representative is not). (20) The most obvious and frequent application of this rule is when agreements are executed on behalf of corporate or other legal entities by their officers or agents, with the result that the corporate or other legal entity is a party to the agreement, but the officer or agent is not. (21) The more general point is that, while signatory status is usually a basis for concluding that an entity is a party to a contract, this is http://www.kluwerarbitration.com/CommonUI/print.aspx
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ultimately an issue of page "1136" applicable contract law. That law will usually, but not necessarily, provide that signatories are parties to the agreements that they execute. 3. Legal Bases for Subjecting Non-Signatories to the Arbitration Agreement: Generally-Applicable Rules of Contract Law Conversely, it is also clear that entities that have not formally executed an arbitration agreement, or the underlying contract containing an arbitration clause, may be bound by the agreement to arbitrate. As one U.S. court held: “Arbitration is consensual by nature … It does not follow, however, that under the [FAA] an obligation to arbitrate attaches only to one who has personally signed the written arbitration provision. This court has made clear that a non-signatory party may be bound to an arbitration agreement if so dictated by the ‘ordinary principles of contract and agency.’” (22) Or, in the words of a leading European commentator, “[p]ersons other than the formal signatories may be parties to the arbitration agreement by application of the theory of apparent mandate or ostensible authority or because they are third-party beneficiaries [or on other grounds].” (23) A variety of legal theories have been invoked under different legal systems to bind entities that have not executed an arbitration agreement. These include agency (actual and apparent), alter ego, implied consent, “group of companies,” estoppel, third-party beneficiary, guarantor, subrogation, legal succession and ratification or page "1137" assumption theories. (24) In each of these instances, non-signatories of a contract can be bound by, and may invoke, the arbitration clause contained within it. More broadly, it is widely-held that “general” or “ordinary” principles of contract and agency law govern the question whether a nonsignatory is party to an agreement to arbitrate. (25) The principal bases by which non-signatories may be bound by an arbitration agreement are discussed in the following sections of this Chapter. Judicial case law and commentary on international arbitration sometimes make reference to the “extension” of an arbitration agreement to non-signatories, (26) or page "1138" to “third (27) parties,” on the basis of one or more of the foregoing theories. These expressions appear inaccurate, in that they imply that an entity which is not a party to an arbitration agreement is nonetheless subject to its effects, by virtue of something other than the parties' consent. Contrary to the references to “extension” or “third parties,” most of the theories discussed below provide a basis for concluding that an entity is in reality a party to the arbitration agreement – which therefore does not need to be “extended” to a “third party” – because that party's actions constitute consent to the agreement, notwithstanding the lack of its signature or execution. (28) The arbitration agreement is therefore not ordinarily “extended,” but rather the true parties that have consented to the arbitration agreement are identified. Also preliminarily, it should be obvious, but is nonetheless http://www.kluwerarbitration.com/CommonUI/print.aspx
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fundamental, that each of the legal doctrines discussed below is the basis or framework for determining whether a particular nonsignatory is bound by an agreement to arbitrate, but not the conclusion. Each of these doctrines provides the structure for evaluating particular contractual language and factual settings, which must be examined to determine the parties' intentions and the legal consequences of those intentions in particular cases. In many instances, analysis proceeds on a fact-intensive, case-by-case basis. One arbitral award put this clearly: “the question of whether persons not named in an agreement can take advantage of an arbitration clause incorporated therein is a matter which must be decided on a case-by-case basis, requiring a close analysis of the circ*mstances in which the agreement was made, the corporate and practical relationship existing on one side and known to those on the other side of the bargain, the actual or presumed intention of the parties as regards rights of non-signatories to participate in the arbitration agreement, and the extent to which and the circ*mstances under which nonsignatories subsequently became involved in the performance of the agreement and in the dispute arising from it.” (29) page "1139" Although analysis differs under each of the non-signatory doctrines discussed below, in all cases the inquiry is whether particular facts satisfy applicable legal standards for either establishing consent to an arbitration agreement or a non-consensual basis for binding an entity to the agreement. The focus in many cases involving questions of non-signatory status is on the parties' intentions. (30) In particular, the focus is on the parties' intentions – actual or presumed – that their arbitration agreement will accomplish the purposes for which such agreements are designed. (31) This inquiry recurs in various forms under most of the legal doctrines discussed below, and is central to explaining the application of these doctrines. One aspect of this inquiry is the underlying requirement in all developed legal systems that parties act in good faith, which often affects the assessment of issues of consent in the non-signatory context. (32) The focus in some non-signatory contexts is not limited to issues of consent. Rather, in a few instances, applicable law will subject an entity to an arbitration agreement even if it did not consent – or even intend – to be bound by that agreement. This result is mandated by the force of applicable law, typically under theories of veil piercing (alter ego), estoppel, apparent authority, or succession. (33) It is also often said that subjecting a non-signatory to an arbitration agreement is an exceptional act. As noted above, the ordinary mode of acceding to a commercial contract is through formal execution by or on behalf of all parties. (34) Although other modes of binding a non-signatory are possible, they are often characterized as exceptions that must be established by the party relying on them. (35) Further, courts, (36) page "1140" arbitral tribunals (37) and other authorities (38) have emphasized that non-signatories are only http://www.kluwerarbitration.com/CommonUI/print.aspx
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exceptionally bound by agreements to arbitrate and that care must be exercised in reaching this conclusion. It is sometimes said that such reserve should be particularly pronounced when a signatory seeks to assert claims against a nonsignatory. (39) It is difficult to see, however, why different standards should apply depending on whether a non-signatory is the party invoking, or the party resisting, arbitration. Arbitration is a matter of consent and, in particular, consent to arbitrate particular disputes with particular counter-parties, not consent to arbitrate generally or with the entire world. In principle, therefore, there is no reason to think that a signatory to an arbitration agreement with one party is more likely to be willing to arbitrate against a different (non-signatory) party, than a nonsignatory to the agreement would be willing to arbitrate against a signatory. Arbitration is a consensual means of dispute resolution, between specified parties, and there is no justification for assuming that signatories to an agreement to arbitrate with particular counterparties intended to arbitrate with other, non-parties, absent application of one of the legal grounds discussed below. 4. Distinction between Jurisdiction and Substantive Liability Finally, it is well-settled that there is a distinction between jurisdiction and substantive liability. (40) An entity may be a party to an arbitration agreement (despite its non-signatory status), but not liable substantively in the parties' underlying page "1141" dispute; conversely, an entity may not be bound by an arbitration agreement, despite being liable in the underlying dispute. This is a consequence of both the separability presumption (pursuant to which an entity may become party to an arbitration agreement, but not the underlying contract) (41) and potentially differing standards of jurisdiction and substantive liability. (42) page "1142"
2 See supra pp. 64-68, 211-254 & 1059-1060. 3 See supra pp. 1004 et seq. That extends to both the positive
legal effects (i.e., the requirement that a party arbitrate, rather than litigate, its disputes and that it participate in good faith in the arbitral process) and the negative legal effects (i.e., the requirement that parties not litigate disputes which are subject to arbitration). See supra pp. 1004-1020, 1020-1048. 4 See, e.g., UNIDROIT, UNIDROIT Principles of International Commercial Contracts Art. 1.3 (“A contract validly entered into is binding upon the parties.”) (emphasis added); Restatement (Second) Contracts §304 (1981) (“A promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty.”) (emphasis added); G. Treitel, The Law of Contract 616 (12th ed. 2007); Müller & Keilmann, Beteiligung am Schiedsverfahren wider Willen?, 2007 SchiedsVZ 113, 114; Judgment of 11 May 1993, 1997 Rev. arb. 599 (French Cour de cassation com.).
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5 See Judgment of 16 October 2003, 22 ASA Bull. 364, 384 (Swiss
Federal Tribunal) (2004); Habegger, Extension of Arbitration Agreements to Non-Signatories and Requirements of Form, 22 ASA Bull. 398, 400 (2004); Lévy & Stucki, Switzerland: The Extension of the Scope of An Arbitration Clause to Non-Signatories, 2005 Int'l Arb. L. Rev. N-5; P. Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶424 (2d ed. 1989). 6 New York Convention, Art. II(1) (emphasis added). See also New York Convention, Art. II(3) (“an action in a matter in respect of which the parties have made an agreement”) (emphasis added). 7 European Convention, Arts. I(1)(a), I(2)(a) (arbitration agreement “shall mean either an arbitral clause in a contract or an arbitration agreement, the contract or arbitration agreement being signed by the parties …”) (emphasis added); Inter-American Convention, Art. 1 (“An agreement in which the parties undertake to submit to arbitral decision any differences that may arise or have arisen between them with respect to a commercial transaction is valid.”) (emphasis added). 8 New York Convention, Art. II(3) (courts must “refer the parties to arbitration”) (emphasis added). 9 UNCITRAL Model Law, Art. 7(1) (emphasis added). 10 See, e.g., French New Code of Civil Procedure, Art. 1442 (“An arbitration clause is an agreement whereby the parties to a contract commit themselves to refer to arbitration the disputes their contract may give rise to.”) (emphasis added); German ZPO, §1029(1) (“‘Arbitration agreement’” is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.”) (emphasis added); Japanese Arbitration Law, Art. 2(1) (“‘[A]rbitration agreement’ shall mean an agreement by the parties to submit to one or more arbitrators the resolution of all or certain civil disputes which have arisen or which may arise in respect of a defined legal relationship.”) (emphasis added). 11 See, e.g., United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582 (U.S. S.Ct. 1960); InterGen NV v. Grina, 344 F.3d 134, 142-43 (1st Cir. 2003); Bridas SAPIC v. Gov't of Turkmenistan, 345 F.3d 347, 353-54 (5th Cir. 2003); E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, 269 F.3d 187, 19495 (3d Cir. 2001); Intertec Contracting A/S v. Turner Steiner Int'l, SA, 2000 WL 709004 (S.D.N.Y. 2000) (“arbitration agreement contained in [the contract] is restricted to the immediate parties to that contract”); Judgment of 15 November 1978, 1980 Rev. arb. 69 (French Cour de cassation com.); Judgment of 19 December 1986, O.I.A.E.T.I. v. SOFIDIF et O.E.A.I. S.E.R.U., EURODIF et C.E.A., 1987 Rev. arb. 359 (Paris Cour d'appel). 12 See infra pp. 2478-2479. 13 See infra p. 1891. 14 See infra pp. 1965-1966. 15 Banque Arabe et Int'l d'Inv. v. Inter-Arab Inv. Guarantee Corp., Ad Hoc Award (17 November 1994), XXI Y.B. Comm. Arb. 13, 18 (1996). See Award in ICC Case No. 5721, 117 J.D.I. (Clunet) 1019 (1990) (“arbitration is essentially based upon the principle of consent;” “Clearly, an arbitral tribunal has power only with respect to the parties to the arbitration.”); Interim Award in ICC Case No. 7337, XXIVa Y.B. Comm. Arb. 149 (1999). See also Hanotiau, Problems Raised by Complex Arbitrations Involving Multiple Contracts-PartiesIssues – An Analysis, 18 J. Int'l Arb. 253, 256 (2001). http://www.kluwerarbitration.com/CommonUI/print.aspx
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16 Judgment of 19 December 1986, O.I.A.E.T.I. v. SOFIDIF et
O.E.A.I. S.E.R.U., EURODIF et C.E.A., 1987 Rev. arb. 359 (Paris Cour d'appel); Gaillard, L'affaire Sofidif ou les difficultés de l'arbitrage multipartite (à propos de l'arrêt rendu par la Cour d'appel de Paris le 19 décembre 1986), 1987 Rev. arb. 359. 17 UNCITRAL Rules, Art. 1(1) (emphasis added). 18 ICC Rules, Art. 6(1) (ICC Rules apply “[w]here the parties have agreed to submit to arbitration under” them); ICDR Rules, Art. 1(1) (ICDR Rules apply “[w]here parties have agreed in writing to arbitrate disputes under” them); Preamble of the LCIA Rules (“[w]here any agreement, submission or reference provides in writing and in whatsoever manner for arbitration under the rules of the LCIA,” “the parties shall be taken to have agreed” to them); Preamble of the ICSID Arbitration Rules. 19 See, e.g., Bridas SAPIC v. Gov't of Turkmenistan, 345 F.3d 347 (5th Cir. 2003) (“to be subject to arbitral jurisdiction, a party must generally be a signatory to a contract containing an arbitration clause”); Republic of Ecuador v. ChevronTexaco Corp., 376 F.Supp.2d 334 (S.D.N.Y. 2005) (signature of agreement is “customary implementation of an agreement to arbitrate”); Final Award in ICC Case No. 10758, 128 J.D.I. (Clunet) 1171, 1176 (2001) (2005) (“if the Claimant had intended [the non-signatory] to be a party to either the Contract or its arbitration clause it could have so insisted at that time”). There are instances in which unincorporated divisions, branches, or similar entities that lack separate legal identities are involved in disputes. These entities are not separate legal persons and are merely treated as part of the corporate entity within which they are subsumed. 20 See infra pp. 1142-1148. 21 See infra pp. 1142-1144, 1146-1148. As discussed below, there
are instances where national law may extend the benefits of the arbitration clause to officers or representatives of a corporate party. See infra pp. 1146-1148, 1199-1201. 22 Thomson-CSF, SA v. Am. Arbitration Ass'n, 64 F.3d 773, 776 (2d Cir. 1995). See also Merrill Lynch Inv. Managers v. Optibase, Ltd, 337 F.3d 125, 130 (2d Cir. 2003); E.I. DuPont de Nemours & Co. v. Rhone Poulenc Fiber & Resin Intermediates, 269 F.3d 187 (3d Cir. 2001); Int'l Paper Co. v. Schwabedissen Maschinen & Anlagen GmbH, 206 F.3d 411 (4th Cir. 2000); McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir. 1994); Interocean Shipping Co. v. Nat'l Shipping and Trading Corp., 523 F.2d 527, 539 (2d Cir. 1975) (“The mere fact that a party did not sign an arbitration agreement does not mean that it cannot be held bound by it.”); Fisser v. Int'l Bank, 282 F.2d 231, 233 (2d Cir. 1960); Alamria v. Telcor Int'l, Inc., 920 F.Supp. 658, 669 (D. Md. 1996) (“there is no strict requirement that only signatories to an agreement be susceptible to compelled arbitration”); Oriental Comm. and Shipping Co. (U.K.) Ltd v. Rosseel, NV, 609 F.Supp. 75 (S.D.N.Y. 1985). 23 B. Hanotiau, Complex Arbitrations ¶12 (2005). International arbitral institutions also must consider arguments regarding the admissibility of requests for arbitration against non-signatories. See Whitesell & Silva-Romero, Multiparty and Multicontract Arbitration: Recent ICC Experience, in ICC, Complex Arbitrations 7 (ICC Ct. Bull. Spec. Supp. 2003); infra pp. 2093-2095. 24 See, e.g., Merrill Lynch Inv. Managers v. Optibase, Ltd, 337 F.3d http://www.kluwerarbitration.com/CommonUI/print.aspx
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125, 131 (2d Cir. 2003) (five non-signatory theories); Smith/Enron Cogeneration Ltd P'ship v. Smith Cogeneration Int'l, Inc., 198 F.3d 88 (2d Cir. 1999); Thomson-CSF, 64 F.3d at 776 (five theories of contract and/or agency law that would permit binding nonsignatories: incorporation by reference, assumption, agency, veilpiercing, and estoppel); Judgment of 19 May 2003, 22 ASA Bull. 344, 348 (Swiss Federal Tribunal) (2004) (“in principle, an arbitration clause is binding only on those parties which have entered into a contractual agreement to submit to arbitration, whether directly or indirectly through their representatives. Exceptions to this rule arise in cases of legal succession, retroactive approval of an arbitration clause or attempts to pierce the corporate veil of a legal entity in the case of abusive objections to the clause”). 25 See, e.g., Merrill Lynch Inv. Managers, 337 F.3d at 130 (“Traditional principles of agency law may bind a nonsignatory to an arbitration agreement.”); E.I. DuPont de Nemours, 269 F.3d 187; Int'l Paper Co., 206 F.3d 411, 416-417 (“Well-established common law principles dictate that in an appropriate case, a non-signatory can enforce, or be bound by, an arbitration provision in a contract executed by other parties.”); McCarthy v. Azure, 22 F.3d 351, 355 (1st Cir. 1994) (federal common law rules for binding non-signatories “dovetail[] precisely with general principles of contract law”); Fisser, 282 F.2d at 233 (“It does not follow, however, that under the [FAA] an obligation to arbitrate attaches only to one who has personally signed the written arbitration provision. … Ordinary contract principles determine who is bound by such written provisions and of course parties can become contractually bound absent their signatures. It is not surprising then to find a long series of decisions which recognize that the variety of ways in which a party may become bound by a written arbitration provision is limited only by generally operative principles of contract law.”); Oriental Comm. and Shipping Co., 609 F.Supp. at 78 (“Ordinary contract and agency principles determine which parties are bound by an arbitration agreement, and parties can become contractually bound absent their signatures.”); R. Merkin, Arbitration Law ¶¶17.39 to 17.40 (2004 & Update 2007) (“general rule of agency”); Award in ICC Case No. 10504, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 103 (2001) (“application of the principle of good faith considered as a basic requirement in international business relations”). 26 See, e.g., Poudret, L'extension de la clause d'arbitrage: approches française et suisse, 122 J.D.I. (Clunet) 893 (1995); Sandrock, Extending the Scope of Arbitration Agreements to NonSignatories, in The Arbitration Agreement – Its Multifold Critical Aspects 165 (ASA Special Series No. 8 1994); Stauffer, L'extension de la portée de la clause arbitrale à des non-signataires, in The Arbitration Agreement – Its Multifold Critical Aspects 229 (ASA Special Series No. 8 1994). Compare J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶250 (2d ed. 2007). 27 Bridas SAPIC, 345 F.3d at 355 (“[F]ederal courts have held that so long as there is some written agreement to arbitrate, a third party may be bound to submit to arbitration.”). 28 This is true with regard to agency, third party beneficiary, guarantor, subrogation, implied consent and group of companies. This rationale does not apply to alter ego, estoppel and succession (merger) theories where considerations of applicable corporate law, good faith or equity can require treating an entity as a party to an agreement to arbitrate. See infra pp. 1142 et seq.; B. Hanotiau, Complex Arbitrations ¶6 (2005). http://www.kluwerarbitration.com/CommonUI/print.aspx
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29 Interim Award in ICC Case No. 9517, quoted in B. Hanotiau,
Complex Arbitrations ¶203 (2005). See also Bridas SAPIC, 345 F.3d at 355-56 (“Who is actually bound by an arbitration agreement is a function of the intent of the parties, as expressed in the terms of the agreement”); Whitesell & Silva-Romero, Multiparty and Multicontract Arbitration: Recent ICC Experience, in ICC, Complex Arbitrations 7, 8-9 (ICC Ct. Bull. Spec. Supp. 2003); Vidal, The Extension of Arbitration Agreements within Groups of Companies: The Alter Ego Doctrine in Arbitral and Court Decisions, 16(2) ICC Ct. Bull. 63 (2005). 30 See, e.g., Bridas SAPIC, 345 F.3d at 355-56 (“Who is actually bound by an arbitration agreement is a function of the intent of the parties, as expressed in the terms of the agreement”); McCarthy, 22 F.3d at 355 (“give effect to the mutual intentions of the parties”); Whitesell & Silva-Romero, Multiparty and Multicontract Arbitration: Recent ICC Experience, in ICC, Complex Arbitrations 7, 8-9 (ICC Ct. Bull. Spec. Supp. 2003); Vidal, The Extension of Arbitration Agreements within Groups of Companies: The Alter Ego Doctrine in Arbitral and Court Decisions, 16(2) ICC Ct. Bull. 63 (2005). 31 See supra pp. 71-90. 32 Blessing, Extension of the Arbitration Clause to Non-Signatories, in The Arbitration Agreement – Its Multifold Critical Aspects 151, 162 (ASA Special Series No. 8 1994) (“Again, the ‘heart’ of all the above notions or doctrines clearly is the bona fides principle, respectively the requirement to act in faith and the notion that positions or defences which stand in contradiction to the exigencies to act in good faith will not deserve legal (or arbitral) protection.”). 33 See infra pp. 1148-1150, 1153-1166, 1185-1187, 1193-1198. 34 See supra pp. 661-662. Alternatively, parties may exchange orders, invoices, or other communications. See supra pp. 591-592, 667-671. 35 See, e.g., Bridas SAPIC, 345 F.3d at 359 (“This is not to say that the decision to apply the alter ego doctrine to bind a parent is made routinely.”); Bel-Ray Co. v. Chemrite Ltd, 181 F.3d 435, 444 (3d Cir. 1999). 36 See, e.g., Smith Enron Cogeneration, 198 F.3d 88, 97 (“a court should be wary of imposing a contractual obligation to arbitrate on a non-contracting party”); InterGen NV, 344 F.3d at 143 (“[C]ourts should be extremely cautious about forcing arbitration in situations in which the identity of the parties who have agreed to arbitrate is unclear.”) (quoting McCarthy, 22 F.3d at 355); Westmoreland v. Sadoux, 299 F.3d 462, 465 (5th Cir. 2002) (non-signatory bound by arbitration agreement only “in rare circ*mstances”); Judgment of 20 January 2006, C04/174HR (Netherlands Hoge Raad) (non-signatory can be bound to arbitration agreement only in exceptional circ*mstances). 37 J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶227 (2d ed. 2007) (only a quarter of some 30 published awards recognized extension of arbitration clause to nonsignatories). 38 Blessing, Extension of the Arbitration Clause to Non-Signatories, in The Arbitration Agreement – Its Multifold Critical Aspects 151, 160 (ASA Special Series No. 8 1994) (“an extension of the scope, reach and effects of an arbitration clause to a non-signatory third party has only been affirmed if very special circ*mstances existed which justified or necessitated such extension”). 39 W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶11.05 (3d ed. 2000) (“arbitral jurisdiction http://www.kluwerarbitration.com/CommonUI/print.aspx
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over non-signatory parties is more easily established when they act as claimants than when they are sought to be joined as respondents.”); Merrill Lynch Inv. Managers, 337 F.3d at 131 (“[I]t matters whether the party resisting arbitration is a signatory or not”); Smith/Enron Cogeneration Ltd P'ship v. Smith Congeneration Int'l Inc., 198 F.3d at 97 (2d Cir. 1999) (“[A] court should be wary of imposing a contractual obligation to arbitrate on a non-contracting party”). 40 See G. Born & P. Rutledge, International Civil Litigation in United States Courts 166, 173 (4th ed. 2007); P. Blumberg, K. Strasser, N. Georgerkopoulos & E. Gouvin, Blumberg on Corporate Groups §25.05 (2d ed. 2005). 41 See supra pp. 357 et seq. 42 P. Blumberg, K. Strasser, N. Georgerkopoulos & E. Gouvin, Blumberg on Corporate Groups §25.05 (2d ed. 2005).
Parties to International Arbitration Agreements - B. Legal Bases for Binding Non-Signatories to International Arbitration Agreements Chapter 9 Gary B. Born
Author Gary B. Born
B. Legal Bases for Binding Non-Signatories to International Arbitration Agreements Although the principle that arbitration agreements are consensual is straightforward, the application of this principle gives rise to numerous and complex issues. In particular, there are a wide range of circ*mstances in which entities that do not themselves execute a contract (“non-signatories”) may nonetheless be parties to, and bound by or permitted to invoke, the associated arbitration agreement. 1. Legal Bases for Binding Non-Signatories to International Arbitration Agreements
Source Parties to International Arbitration Agreements - B. Legal Bases for Binding NonSignatories to International Arbitration Agreements in Gary B. Born , International Commercial Arbitration, (Kluwer Law International 2009) pp. 1142 - 1211
The principal legal bases for holding that a non-signatory is bound (and benefited) by an arbitration agreement are discussed below. These bases include both purely consensual theories (e.g., agency, assumption, assignment) and non-consensual theories (e.g., estoppel, alter ego). Each of these various theories gives rise to both substantive and choice-of-law issues. The authorities discussed below, which address these issues, are relevant both in actions to enforce agreements to arbitrate and in actions to annul or recognize arbitral awards. (43)
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a. Agency Relationship The simplest, least controversial circ*mstance in which a nonsignatory will be bound by an arbitration agreement is when an agent executes a contract on behalf of its principal. It is well-settled, under all developed legal systems, that one party (an “agent” or similar representative) may in certain circ*mstances legally bind another party (a “principal”) by its acts. (44) Among other things, an agent may enter page "1142" into contracts, including arbitration agreements, which will be legally-binding on its principal, (45) although not necessarily on the agent. (46) Consistent with these principles, a number of arbitral awards (47) and national page "1143" court decisions (48) have held that, in appropriate cases, an entity may be bound as principal by an arbitration agreement which it has not signed, but which was executed on its behalf by an agent. For the most part, general principles of agency law have been applied in the specific context of international arbitration agreements. In the words of one court, “[the] theories under which nonsignatories may be bound to the arbitration agreements of others … arise out of common law principles of contract and agency law.” (49) Other courts have referred to “traditional principles of agency law” or “ordinary principles of contract and agency law.” (50) Principles of agency law in developed legal systems require proof that the agent was granted authority, express or implied, to enter into the relevant contractual relationships on behalf of the principal. (51) In one highly-publicized decision during the 1980s, the Swiss Federal Tribunal annulled an award applying an agency theory to bind a sovereign state to an arbitration clause. The arbitral tribunal had held that four Middle Eastern states were bound by a contract, including its arbitration clause, which had been entered into by an international organization that the four states had founded. (52) The Swiss Federal Tribunal annulled the award on the application page "1144" of one of the states, reasoning that there was insufficient evidence that the state had granted the international organization power to bind the state to an arbitration agreement (53) : “The arbitration clause cannot be opposed to a party which did not sign it unless this party is nevertheless bound by the clause by the signature of an entity or third party empowered to act on behalf of the first party, on the basis of an act granting to that entity or third party the power to refer a dispute to arbitration.” (54)
It is generally essential that the agency relationship pertain to the specific contract, and arbitration agreement, in dispute. (55) Nonetheless, it is possible under some legal systems for one party to have a “general” agency relationship with its principal, not limited to any specific contract or transaction, which would result in all (or many) agreements entered into by the agent being binding on the principal. (56) In practice, this result is unlikely in most settings, for reasons explained by one recent English decision:
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page "1145" “In commercial terms the creation of a corporate structure is by definition designed to create separate legal entities for entirely legitimate purposes which would often if not usually be defeated by any general agency relationship between them.” (57) Accordingly, care should be taken in applying theories of general agency to conclude that one party's contract was binding on another party, by virtue of the first party's status as a general agent for the latter. Nonetheless, there are cases where one party so consistently acts entirely on behalf of, and at the direction of, another party that a general agency relationship will be found. (58) Despite the applicability of ordinary agency principles to international arbitration agreements, (59) there are exceptions to this approach, which arise from the peculiar character of arbitration agreements. In particular, some authorities have held that an agent may invoke an arbitration agreement contained in a contract which it executes on behalf of a principal, (60) notwithstanding the fact that the agent would not be bound by the substantive terms of the underlying contract (made on behalf of the principal). (61) Likewise, as discussed below, a few authorities have reached similar results with regard to corporate officers and employees, sued for actions taken in the course of their employment, holding that they may invoke arbitration clauses contained in their employer's contracts with the adverse third party. (62) This approach does not rest on a straightforward analysis of the traditional contractual consequences of the page "1146" principal-agency relations, which would provide that the agent and/or employee is not a party to the underlying contract. Instead, as discussed below, the approach is an exceptional one, which appears to be primarily attributable to the need to provide substantive protections for the agent and/or employee against joinder in oppressive litigation and to prevent parties from circumventing their agreements to arbitrate through satellite litigation. (63) More generally, it is essential to consider issues of agency with regard specifically to the arbitration agreement (and not only the underlying contract). This is a straightforward application of the separability presumption. (64) In most instances, an agency relation will either exist, or not, for both the underlying contract and the arbitration agreement. Nonetheless, there may be instances where a principal-agent relation is said to exclude conclusion of an arbitration agreement or allegedly applicable national law will be said to impose particular requirements on the conclusion of arbitration agreements by agents. (65) Determining the relevant legal standards for establishing an agency relationship presents choice-of-law questions (also discussed below). (66) Most authorities have applied national law to the question of agency status (rather than international principles). (67) Lower U.S. courts have generally applied federal common law agency principles, derived from the Restatement (Second) of Agency, rather than applying the law of any particular jurisdiction. (68)
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In some cases, it is suggested that the law applicable to the question whether a principal is bound by an arbitration agreement is that of the agency agreement (between the putative principal and agent) itself. The better view, however, is that the law governing a principal's status as a party to an arbitration agreement should page "1147" be either (a) that of the place where the agent was either headquartered or acted, (69) or (b) that of the arbitration agreement itself, insofar as other parties to the arbitration agreement are concerned, as with other issues of formation. (70) These alternative choices rest on the assumption that the law governing the principal-agent relationship will likely not be known or readily accessible to a counter-party, who ought to be able to rely on the law governing the agreement to arbitrate. In principle, as with other choice-of-law issues in the context of arbitration agreements, (71) a validation principle should apply to the effects of an agency relationship on a non-signatory party's status under an arbitration agreement. If either the law governing the underlying arbitration agreement or the law governing the agency relationship would subject the principal (or the agent) to the arbitration agreement, then the non-signatory should be bound. b. Apparent or Ostensible Authority Closely related to agency as a basis for concluding that an entity is party to an arbitration agreement is ostensible or apparent authority. (72) This is referred to as the “principle of appearance” or “mandat apparent” in some jurisdictions. (73) page "1148" Under the apparent authority theory, a party may be bound by another entity's acts purportedly on its behalf, even where those acts were unauthorized, if the putative principal created the appearance of authorization, leading a counter-party reasonably to believe that authorization actually existed. (74) In particular, this theory of apparent authority can bind the “apparent” principal to a contract (including an arbitration agreement) entered into putatively on its behalf by the “apparent” agent. (75) This doctrine rests in part on principles of contract law and good faith, aimed at objectively identifying the parties to a contract, but also on notions akin to estoppel and abuse of right, which operate independently from principles of consent. (76) page "1149" As with agency, the apparent authority doctrine raises choice-of-law issues. Possibly applicable national laws include the law governing the arbitration agreement, the law of the state where the putative principal's or putative agent's conduct occurred, or the law of the state where the counterparty apprehends the putative principal's conduct or statements. (77) There are few principled grounds for choosing among these options, providing the basis for a substantial argument that, where international commercial contracts are concerned, a specialized rule of international law governing apparent authority should apply. (78) Such a rule would not upset private expectations (for example, reflected in choice-of-law agreements), given that the apparent authority does not rest on http://www.kluwerarbitration.com/CommonUI/print.aspx
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principles of consent. c. Implied Consent As discussed above, it is not only by formal execution of an agreement, as a specifically-identified contractual party, that an entity can become a party to that agreement. Under most developed legal systems, an entity may become party to a contract, including an arbitration agreement, impliedly – typically, either by conduct or non-explicit declarations, as well as by express agreement or formal execution of an agreement. (79) In general, ordinary principles of contract law apply to issues of implied consent (as to other issues) with respect to arbitration agreements. (80) The fundamental question in the context of implied consent is whether the parties' objective intention was that a particular entity be a party to the arbitration page "1150" In general, merely clause. (81) Although the non-signatory's intent is often most controversial, the intention of other parties to be bound by the agreement to arbitrate with the non-signatory is also necessary. (82) That is, even if a non-signatory intended to be bound by the arbitration agreement, one must also determine whether the signatory (and other) parties to the agreement accepted it as such: for commercial or other reasons, signatories to an arbitration agreement may wish to extend their obligations to arbitrate only to those entities that have signed the agreement, and not to others. Questions of implied consent arise in numerous factual settings. Some arbitral tribunals (83) and national courts (84) have held that performance of some or all of the obligations of a contract, even when unsigned by a counter-party, can bind a party to that agreement, including its arbitration provision. Other tribunals have held that a company's awareness of a contract (including an arbitration clause) between other parties, and its confirmation of one aspect of the underlying contract, does not necessarily make the company a party to the arbitration clause. (85) In general, merely page "1151" incidental involvement in contractual performance has fairly consistently been held insufficient to constitute consent to the underlying contract. (86) As with other non-signatory issues, it is essential to consider questions of implied consent in the context of the separability presumption. (87) It is a party's implied consent to arbitrate – not to deliver or purchase goods – that is decisive. Nonetheless, in most instances, a party's consent to the underlying contract will carry with it consent to the associated arbitration clause, although there are circ*mstances where this will not be the case. (88) Again, performance or involvement in performance of only isolated aspects of a contract is less likely to constitute consent to the arbitration clause than broad involvement in many or central aspects of the contractual relationship. There are also instances in which a party's conduct after a dispute arises evidences its implied consent to an arbitration clause. A classic example of such consent is where a non-signatory party affirmatively invokes an arbitration clause or fails to object when another party invokes the clause against it. (89) (This factual scenario is often also considered under principles of estoppel. (90) ) http://www.kluwerarbitration.com/CommonUI/print.aspx
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It remains essential, however, that all the relevant parties agree to a non-signatory's inclusion as a party to the arbitration agreement. (91) page "1152" As with other non-signatory doctrines, questions of implied consent raise choice-of-law issues. Questions of implied consent should be governed by the law applicable to the arbitration agreement, as is the case with other questions of formation. (92) Given the contractual character of the implied consent doctrine, this approach is in keeping with private expectations (subject to the validation principle and to international prohibitions against discriminatory national laws). (93) U.S. courts are divided with regard to the choice of law governing implied consent. Some courts have applied principles of federal common law, (94) while other courts have applied state (or foreign) law. (95) A few U.S. courts have concluded that, when a nonsignatory objects to being subjected to an arbitration clause, the existence of consent on its part is governed by federal common law, while the question of consent by a non-signatory who seeks to invoke an arbitration clause is governed by any choice-of-law agreement associated with the clause. (96) d. Alter Ego and Veil-Piercing (97) Authorities from all developed jurisdictions hold that a party who has not assented to a contract containing an arbitration clause may nonetheless be bound by the clause if that party is an “alter ego” of an entity that did execute, or was otherwise page "1153" a party to, the agreement. The alter ego doctrine is referred to in German as “Durchgriff,” in French as “levee du voile social” (98) and in some English language contexts as “piercing” or “lifting” the “corporate veil.” The International Court of Justice explained the doctrine in Barcelona Traction as follows: “the process of ‘lifting the corporate veil’ or ‘disregarding the legal entity’ has been found justified and equitable in certain circ*mstances or for certain purposes. The wealth of practice already accumulated on the subject in municipal law indicates that the veil is lifted, for instance, to prevent misuse of the privileges of legal personality, as in certain cases of fraud or malfeasance, to protect third persons such as creditor or purchaser, or to prevent the evasion of legal requirements or of obligations.” (99) Definitions of “alter ego” vary widely in different legal systems, and are applied in a number of different contexts. (100) The essential theory of the “alter ego” doctrine is that one party so dominates the affairs of another party, and has sufficiently misused such control, that it is appropriate to disregard the two companies' separate legal forms, and to treat them as a single entity. In the context of arbitration agreements, demonstrating an “alter ego” relationship under most developed legal systems requires convincing evidence that one entity dominated the day-to-day actions of another and/or that it exercised this power to work fraud or other injustice or inequity on a third party or to evade statutory or other legal http://www.kluwerarbitration.com/CommonUI/print.aspx
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obligations. (101) The “alter ego” doctrine differs from principles of agency or implied consent, in that the parties' intentions are not decisive; rather, the doctrine rests on overriding page "1154" considerations of equity and fairness, which mandate disregarding an entity's separate legal identity in specified circ*mstances. (102) Many national courts have been circ*mspect in applying the alter ego doctrine. In England, an alter ego relationship may be found where the corporate structure is used to evade mandatory legal obligations or the enforcement of existing and legitimate third party rights. (103) In a recent decision, an English court declared: “English law insists on recognition of the distinct legal personality of companies unless the relevant contract or legislation requires or permits a broad interpretation to be given to references to members of a group of companies or the legal personality is a mere façade or sham or unlawful device.” (104) page "1155" Likewise, in Switzerland, courts will only disregard the corporate form in exceptional circ*mstances, amounting to fraud or an abuse of right. (105) German courts are also cautious in applying veilpiercing (Durchgriff) theories, (106) requiring fraud or other misconduct. (107) Indeed, some German authorities question (wrongly) whether the veil-piercing theory, which is traditionally used for purposes of substantive liability, may ever be used to bind nonsignatories to arbitration agreements. (108) While also relying on a potentially-expansive “group of companies” theory (discussed below), (109) French courts appear willing, often without clearly distinguishing the doctrines, (110) to disregard corporate identities in cases amounting page "1156" to fraud. (111) Courts in other jurisdictions are also prepared to pierce the corporate veil, at least in some circ*mstances. (112) U.S. courts have often been more willing than many other authorities to apply an alter ego analysis to subject a non-signatory to an arbitration agreement. (113) According to one U.S. decision: “To apply the alter ego doctrine to justify the disregard of a corporate entity, the court must determine that there is such unity of interest and ownership that separate personalities of the corporations no longer exist, and that failure to disregard the corporate form would result in fraud or injustice.” (114) Even in U.S. courts, the standard for establishing alter ego status is ordinarily difficult to satisfy. The starting point is a strong presumption that a parent corporation and its affiliates are legally separate and distinct entities. (115) In the memorable words of one early authority: page "1157" “Normally, the corporation is an insulator from liability on claims of creditors. … Limited liability is the rule not http://www.kluwerarbitration.com/CommonUI/print.aspx
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the exception; and on that assumption large undertakings are rested, vast enterprises are launched, and huge sums of capital attracted.” (116) Many U.S. courts have also held that piercing the corporate veil is an exceptional action, in both international and other contexts, requiring persuasive evidence to overcome the separate corporate identities of the parties. (117) The existence of overlapping boards of directors and management, 100% share ownership and common corporate logos or trademarks are not sufficient to establish (or even particularly probative of) alter ego status. (118) page "1158" Most U.S. courts have held that overcoming the presumption of separateness requires showing: (a) the domination and control of a corporate affiliate, including disregard of corporate formalities, such that it has no separate identity or existence, (119) and (b) fraudulent or collusive misuse of that control, or equivalent misconduct, to the injury of other parties. (120) In cases of complete domination or control of one company's day-to-day activities by another company, this may in some circ*mstances be independently sufficient to piece the corporate veil. (121) page "1159" U.S. judicial decisions have generally conducted fairly extensive factual inquiries in deciding claims of domination or control. (122) Different U.S. authorities have identified a variety of factors that are relevant to an inquiry into control for purposes of alter ego status. (123)
In a recent U.S. decision arising from the attempted recognition of an international arbitral award, the court considered fifteen “private law” factors and six “public law” factors, (124) which it described as always “concerned with reality and not form.” (125) Assessing these various factors, the court held that a state-owned page "1160" entity was not financially independent from the foreign state that owned it, and that the foreign state's intentional “bleeding [of] a subsidiary to thwart creditors is a classic ground for piercing the corporate veil.” (126) The court also noted that “[u]ndercapitalization is often critical in alter ego analysis.” (127) As noted above, many U.S. courts have held that there must be a showing of fraud or other wrongful or inequitable conduct in order to bind a non-signatory to an arbitration agreement. (128) As explained by one U.S. court: “While complete domination of the corporation is the key to piercing the corporate veil, … such domination, standing alone, is not enough; some showing of a wrongful or unjust act toward plaintiff is required.” (129) Other courts have expressed the same view, (130) although the weight of authority holds that, in some circ*mstances, sufficiently page "1161" extensive day-to-day control or domination is sufficient to pierce the corporate veil. (131) Typically, alter ego status can only be established with respect to an entity or person which owns shares (directly or indirectly), or holds a corporate position, in a company. Nonetheless, in unusual cases, other sorts of control relationships or corporate affiliations have been http://www.kluwerarbitration.com/CommonUI/print.aspx
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regarded as sufficient to establish alter ego status. (132) International arbitral tribunals have also generally been circ*mspect in applying alter ego theories. Most awards have required persuasive evidence of overlapping ownership, management and (often) involvement in negotiation and performance of the contract, as well as (occasionally) affirmative statements that the affiliated company is involved in the transactions in question. (133) Usage of a common logo, brand, or trademark is generally not a decisive factor in alter ego analysis, (134) nor is the mere fact of overlapping management or supervisory boards or shared employees. (135) page "1162" On the other hand, fraudulent or similarly abusive misconduct, (136) undercapitalization of a corporate body, (137) deliberate tortious actions, (138) or siphoning off of assets (resulting in undercapitalization) (139) are strong indicators of an alter ego relationship. A number of awards have also relied on the existence of reasonable, good faith mistake or confusion as to the identity or character of a counterparty. (140) As one tribunal explained, in the context of an effort to subject a controlling shareholder to the arbitration agreement: “arbitration is essentially based upon the principle of consent. So too, any extension of the scope of application of the arbitration clause must have a voluntary basis. Of course, such an intention can be merely implicit, otherwise any discussion of extension would have no meaning …. [T]he fact that two companies belong to the same group, or that a shareholder has a dominant position, are never sufficient, in and of themselves, to legally justify lifting the corporate veil. … One would entertain this exception where confusion is fostered by the group or by the majority shareholder. … An arbitrating body must be very circ*mspect in matters of extending the effect of a clause to a director or manager who has acted strictly in an official page "1163" capacity. Any such extension presupposes that the artificial person has been no more than the business implement of the natural person, so that one can ascribe to the natural person the contracts and undertakings signed by the artificial person.” (141) Other awards have emphasized the importance of principles of good faith in conducting an alter ego analysis. (142) This approach parallels that of most national courts (summarized above) (143) and the expectations of parties engaged in international commercial transactions, being to give effect to corporate forms, save in exceptional cases. As with other non-signatory theories, the critical question in the alter ego context is whether one party's relationship with another justifies treating it as a party to the agreement to arbitrate (not the underlying contract). (144) There may, for example, be instances where one party's domination of another party's participation in a particular transaction (or in an arbitration) results in it being bound by the associated agreement to arbitrate, notwithstanding the absence of http://www.kluwerarbitration.com/CommonUI/print.aspx
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any such control or alter ego relationship more generally. More frequently, however, an alter ego relationship will exist with regard to a particular commercial contract or relationship, which will also be applied with regard to the associated arbitration agreement. (145) Finally, as with other bases for binding non-signatories to arbitration agreements, questions of alter ego status and veil piercing raise choice-of-law questions. Some authorities have applied the law of the state of incorporation of a company to the question whether the company's corporate veil may be pierced. (146) The weight of authority rejects this analysis, (147) instead applying either international page "1164" principles (148) or general principles of law. (149) Thus, a leading U.S. Supreme Court decision held that the question whether to pierce the veil of a Cuban state-owned company was governed by principles of international law (rather than Cuban law). (150) The Court reasoned: “To give conclusive effect to the law of the chartering state in determining whether the separate juridical status of its instrumentality should be respected would permit the state to violate with impunity the rights of third parties under international law while effectively insulating itself from liability in foreign courts.” (151) page "1165" Accordingly, the Court applied veil-piercing principles “common to both international law and federal common law” (152) (reflecting an approach bearing close similarities to the “cumulative” choice-of-law analyses adopted in a number of contemporary arbitral awards): (153)
“Our decision today announces no mechanical formula for determining the circ*mstances under which the normally separate juridical status of a government instrumentality is to be disregarded. Instead, it is the product of the application of internationally recognized equitable principles to avoid the injustice…” (154) This authority is persuasive, and applies more broadly to veilpiercing issues arising in determining whether either state or nonstate entities are parties to an international arbitration. As with the doctrines of apparent authority and estoppel, (155) it is artificial to select the law of any particular national jurisdiction to define those circ*mstances in which basic principles of fairness and good faith in international business dealings require disregarding a corporate identity conferred by national law and subjecting a party to an international arbitration agreement. Rather, uniform international principles better achieve the purposes of the veil piercing doctrine, without materially interfering with the parties' expectations. (156) e. The “Group of Companies” Doctrine (157) Another significant, but controversial, basis for binding nonsignatories to an arbitration agreement is the “group of companies” doctrine. Under this principle, page "1166" non-signatories of a contract may be deemed parties to the associated arbitration clause http://www.kluwerarbitration.com/CommonUI/print.aspx
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based on factors which are often roughly comparable to those relevant to alter ego analysis. In particular, where a company is part of a corporate group, is subject to the control of (or controls) a corporate affiliate that has executed a contract and is involved in the negotiation or performance of that contract, then it may in some circ*mstances invoke or be subjected to an arbitration clause contained in that contract, notwithstanding the fact that it has not executed the contract. Unlike other bases for binding a non-signatory to an arbitration agreement (such as agency, alter ego, estoppel, third-party beneficiary, or assignment), the group of companies doctrine was developed specifically in the arbitration context and is not typically invoked outside that context. In part for that reason, the doctrine has given rise to very substantial controversy. (158) The weight of earlier (and later) authority adopting the group of companies doctrine was French. (159) One of the seminal group of companies decisions is the Interim Award in ICC Case No. 4131, between Dow Chemical Company (“Dow”), together with various of its subsidiaries, and Isover Saint Gobain (“Isover”). (160) Several of Dow's 100% subsidiaries (but not Dow itself) and Isover (by assumption) were signatories of several contracts containing ICC arbitration clauses. Various page "1167" difficulties arose under the contracts, leading Dow and three of its subsidiaries to commence an ICC arbitration pursuant to the contractual arbitration clauses. In response, Isover challenged the arbitral tribunal's jurisdiction to hear claims asserted by Dow, as well as one of its subsidiaries, on the grounds that they had not executed the agreement in question. The arbitral tribunal issued an award which upheld the rights of Dow and its subsidiaries to invoke the arbitration clause. The tribunal applied what it referred to as general principles of international arbitration law, (161) reasoning: “Dow Chemical France at the time of signature of the 1965 contracts as well as the negotiations which led to the 1968 contract, appeared to be at the center of the organization of the contractual relationship with the companies succeeded by the present Defendant. Moreover, this relationship could not have been formed without the approval of the American parent company, which owned the trademarks under which the relevant products were to be marketed in France … [I]t is indisputable … that Dow Chemical Company has and exercises absolute control over its subsidiaries having either signed the relevant contracts or, like Dow Chemical France, effectively and individually participated in their conclusion, their performance, and their termination.” (162) The tribunal referred to earlier arbitral awards, concluding, with a measure of overstatement, (163) that they “progressively create case law which should be taken into account, because it draws conclusions from economic reality and conforms to the needs of international commerce, to which rules specific to international arbitration, themselves successively http://www.kluwerarbitration.com/CommonUI/print.aspx
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elaborated, should respond.” (164) The tribunal concluded that “irrespective of the distinct juridical identity of each of its members, a group of companies constitutes one and the same economic reality (une réalité économique unique),” and that the arbitration clause bound all the Dow companies which, “by virtue of their role in the conclusion, performance, or termination of the contracts containing said clauses, and in accordance with the mutual intention of all parties to the proceedings, appear to have been veritable parties to these contracts or to have been principally concerned by them and the page "1168" disputes to which they may give rise.” (165) The award was subsequently upheld by the Paris Cour d'appel, rejecting Isover's application for annulment. (166) The Dow Chemical award has been cited or followed by a substantial body of subsequent international arbitration authority as establishing the “group of companies” theory. (167) A more recent award summarizes the theory as follows: “When concluding, performing, nonperforming and renegotiating their contractual relations with [defendants], the three claimant companies appear, pursuant to the common intention of all parties engaged in the procedure, to have been real parties to all the contracts. In its formulation and in its spirit, this analysis is based on a remarkable and approved tendency of arbitral rulings favoring acknowledgement, under those circ*mstances, of the unity of the group. … The security of international commercial relations requires that account should be taken of its economic reality and that all the companies of the group should be held liable one for all and all for one for the debts of which they either directly or indirectly have profited at this occasion.” (168) This formulation is particularly expansive, arguably departing from the Dow Chemical group of companies analysis by permitting an entity to be deemed party to an arbitration agreement without regard to the parties' intentions, and instead based on general notions of the “security of international commercial relations.” The foregoing analysis would misstate the group of companies doctrine, incorrectly conflating it with an (overly expansive) alter ego analysis. The better, and more common, approach to the group of companies doctrine has been to ascertain the parties' objective intentions in entering into a particular transaction, and specifically to determine whether a specific non-signatory was intended to be page "1169" bound (and benefited by the agreement in question). (169) General presumptions concerning the parties' desire for security are relevant to ascertaining the parties' intentions in particular transactions, but it is those intentions that are the cornerstone of the group of companies doctrine. It is clear, under most formulations, that the “group of companies” doctrine must be applied with caution, (170) and that it requires showing more than a non-signatory's membership in a group of companies. (171) Rather, the doctrine provides that a non-signatory may be bound by an arbitration agreement where a group of http://www.kluwerarbitration.com/CommonUI/print.aspx
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companies exists and the parties have engaged in conduct (such as page "1170" negotiation or performance of the relevant contract) or made statements (172) indicating the intention, assessed objectively and in good faith, that the non-signatory be bound and benefited by the relevant contracts. (173) Some authorities have also suggested (as with the alter ego doctrine) that some showing of fraud or comparable lack of good faith is necessary to bind a non-signatory to an arbitration agreement under the group of companies doctrine. (174) In contrast, a few decisions appear to have focused page "1171" entirely (and, as discussed below, incorrectly) on the mere existence of a group of companies. (175)
As noted above, and as has been frequently observed, the group of companies doctrine “depends on the intentions of the parties.” (176) This observation is generally correct, but must be qualified. The statement underscores the fact that the affiliation of companies (and/or individuals) or the membership of companies in a related corporate group does not by itself suffice to bind them to one another's arbitration agreements. As with other consent-based legal doctrines in the non-signatory field, such as guarantee, implied consent, assumption, assignment, or agency, the decisive question is whether all of the circ*mstances of the parties' relationship evidence an intention by the parties to bind a non-signatory to a particular arbitration agreement. (177) This reflects a fundamental difference between the alter ego doctrine and the group of companies doctrine. The alter ego theory is a rule of law that is invoked to disregard or nullify the otherwise applicable effects of incorporation or separate legal personality. The outcome of this analysis is that one entity is deemed either nonexistent or merely an unincorporated part of another entity. This result is often achieved without regard to the parties' intentions at the time of contracting, based on considerations of equity and good faith. (178) In contrast, the group of companies doctrine is ordinarily a means of identifying the parties' intentions, which does not disturb or affect the legal personality of the entities in question. Rather, as usually formulated, the group of companies doctrine is akin to principles of agency or implied consent, whereby the corporate affiliations among distinct entities provide the foundation for concluding that they were intended to be parties to an agreement, notwithstanding their formal status as non-signatories. (179) page "1172" Consistent with this distinction, most decisions relying on the group of companies doctrine involve facts which indicate that nonsignatories in a group of companies were intended by the parties to be bound by an arbitration agreement. (180) The most straightforward application of this aspect of the group of companies theory is at the time of formation of a contract, when the group of companies doctrine is applied to hold that a non-signatory was intended to be bound by the signatories' contract and arbitration agreement. (181) (This result is sometimes reached even without page "1173" adopting the “group of companies” label. (182) ) Nonetheless, the doctrine can also apply subsequently, as an instance of a non-signatory's assumption of contractual obligations. http://www.kluwerarbitration.com/CommonUI/print.aspx
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(183) This was foreseen by the Dow Chemical decision, (184) and has been confirmed in subsequent awards (185) and judgments. (186)
Not all authorities have been receptive to the group of companies doctrine and some national courts have been affirmatively hostile. English courts have expressly rejected the doctrine as a matter of English law. (187) As one English court put it, in page "1174" emphatic terms, “the Group of Companies doctrine … forms no part of English law.” (188) English commentary has also generally been skeptical regarding the group of companies doctrine. (189) Swiss courts have been more ambivalent. Some Swiss commentators have concluded that “Swiss law ignores the notion of group of companies” (190) Swiss judicial authority is mixed, with some decisions suggesting that the group of companies doctrine would not be recognized under Swiss law (191) and other decisions implying the opposite. (192) A Dutch court has also annulled an arbitral award which had relied on the group of companies doctrine to hold a non-signatory party to an arbitration agreement. (193) Similarly, a number of published arbitral awards have declined to apply the group of companies doctrine to non-signatory respondents. (194) That has been page "1175" particularly true in arbitrations seated in Switzerland or England. (195) Particularly in light of the hesitations or rejection reflected in some national court decisions, it is important to note that the group of companies doctrine ordinarily concerns only the parties to the arbitration agreement, not the underlying contract. It is entirely possible for non-signatories to become party to an agreement to arbitrate without thereby becoming party to the underlying commercial contract. (196) Properly understood, the group of companies doctrine rests on the presumption that commercial parties within corporate groups engaged in a business transaction will ordinarily desire – when entering into a contract – that their arbitration agreements provide efficient, centralized dispute resolution mechanisms for all disputes relating to a particular transaction. (197) That assumption, in turn, argues for interpreting an arbitration agreement to encompass those members of a corporate group, involved in a transaction, without altering the identities of the parties to the underlying contracts. English and Swiss authorities declaring that the group of companies doctrine is no part of national law (198) are rhetorically impressive in their invocations of corporate identities and party autonomy. They nonetheless miss the essential focus, and importance, of the doctrine and arrive at unsatisfactory conclusions. Properly understood, the group of companies doctrine is a way of applying well-accepted principles of agency and implied consent to agreements to arbitrate in the context of modern, multiparty business transactions, in order that the parties' true objectives and intentions can be ascertained. Whether denominated “group of companies,” or something else, is less important than is the effective interpretation and enforcement of dispute resolution mechanisms among commercial parties. Critical to this effort is the premise that http://www.kluwerarbitration.com/CommonUI/print.aspx
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companies in a corporate group can agree to be bound by an agreement to arbitrate, in order to ensure the efficacy of that agreement between its signatories, without signing the arbitration agreement and without being bound by the underlying contracts. (199) Giving effect to this principle serves in particular to prevent the circumvention of an arbitration through satellite litigation by nonsignatory corporate affiliates of signatories – with each set of parties contriving extracontractual theories to justify home-court litigation. From this perspective, criticism of the group of companies doctrine is ultimately page "1176" unsatisfyingly, missing the fundamental commercial objectives of agreements to arbitrate international disputes. It is also important to recognize that the group of companies doctrine can extend beyond situations where the intention of the parties was to bind the non-signatory. Limiting application of the doctrine solely to cases of consent would omit an important aspect of the group of companies theory. (200) In some instances, neither the affiliated entities in a group of companies nor the counterparty will have “intended” – in a subjective sense – that these entities be bound, either at the inception of their contract or later. Indeed, the affiliated company may have deliberately structured its affairs in an effort not to be contractually bound by an arbitration agreement, while the counterparty may have been unaware of, or misled as to, the affiliated company's involvement. Accordingly, in some cases, the group of companies doctrine operates precisely to correct mistaken subjective assumptions or understandings at the time of contracting, by looking through ordinarily-applicable legal forms and contractual arrangements. (201) In this respect, the doctrine can be applied in a manner similar to principles of alter ego, apparent authority, estoppel and abuse of right, relying on principles of good faith, equity and objective intent to supplement or correct subjective intentions of the parties to an arbitration agreement. (202) The group of companies doctrine raises choice-of-law issues (particularly given the different approaches of Swiss, English, French and other courts to the subject). French courts, and arbitral tribunals seated in France, have generally treated the group of companies doctrine as a rule of international law. (203) Other arbitral awards page "1177" adopt the same analysis. (204) In principle, however, the better view is that, insofar as the group of companies doctrine is directed towards ascertaining the existence of consent or assumption, the national law governing the arbitration agreement should apply (subject to the validation principle and to international prohibitions against discriminatory and idiosyncratic national laws (205) ). Where the group of companies doctrine is applied as a variation of estoppel or alter ego principles, then international principles are appropriate (for reasons outlined elsewhere). (206) f. Third-Party Beneficiaries In some legal systems, non-parties to a contract may, in certain circ*mstances, claim the benefits of that contract as third-party beneficiaries. (207) In such circ*mstances, the third party may either be able to invoke or may be bound by an arbitration clause contained in the contract. This analysis is well-stated in a recent http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitral award: “It is generally accepted that if a third party is bound by the same obligations stipulated by a party to a contract and this contract contains an arbitration page "1178" clause or, in relation to it, an arbitration agreement exists, such a third party is also bound by the arbitration clause, or arbitration agreement, even if it did not sign it.” (208) Applying this analysis, a number of national courts and arbitral tribunals have held that a party who invokes the provisions of a contract, claiming third-party beneficiary rights, is bound by the arbitration clause contained in the contract, (209) and also entitled to invoke that clause. (210) On the other hand, some courts or tribunals have parsed the language of arbitration clauses or other contractual provisions carefully, holding in some circ*mstances that they were drafted so as not to extend to third-party beneficiaries. (211) The essential inquiry in all of these cases is the parties' page "1179" intentions: did they or did they not intend to confer rights under the arbitration agreement on third parties? The goal of this analysis is to determine the parties' objective, good faith intentions with regard to the arbitration agreement. (212) Nonetheless, in some instances, the conclusion that a non-signatory party is bound by, or may invoke, an arbitration clause on third-party beneficiary grounds may involve considerations akin to estoppel. (213) For example, one court held that a company was “equitably estopped” from resisting arbitration against the respondent because “the very basis of [its] claim [in the dispute was] that [the respondent] breached the duties and responsibilities assigned and ascribed to [the respondent] under [an] agreement” with a third party. (214) Although ostensibly analyzed as an issue of third-party beneficiary rights, the true basis for such decisions is estoppel (discussed below). (215) Issues of third-party beneficiary status should in principle be governed by the law applicable to the arbitration agreement (or, less likely), the underlying contract. That is because the third-party beneficiary's status is a question related to formation of the arbitration agreement, which should be governed by the same law as other issues of formation. (216) Alternatively, a few authorities have reasoned that the basis for subjecting a third-party beneficiary to an arbitration clause is the grant of substantive rights under the underlying contract, which carry with them the associated arbitration clause; as such, the law applicable to the underlying third-party beneficiary rights would arguably govern the question whether the third-party beneficiary is subject to the arbitration clause. (217) g. Guarantors (218) It is not uncommon in international commercial transactions for one party to guarantee the obligations of another party under a contract that the guaranteeing party does not itself execute. (219) When this occurs, questions may arise as to the extent to which the guarantor is bound by provisions of the underlying contract – including particularly its arbitration clause. http://www.kluwerarbitration.com/CommonUI/print.aspx
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A number of arbitral awards (220) and courts (221) have held, without detailed analysis, that guarantors are bound by arbitration clauses in the guaranteed contracts. page "1181" Particularly in common law jurisdictions, some courts have reached similar results by applying estoppel principles. (222) On the other hand, other authorities have rejected claims that a guarantor is a party to an arbitration agreement; these authorities have invoked various grounds, including that the guarantee does not introduce the guarantor into the contractual relationship between the guaranteed party and its counterparty. (223) Some European courts have been particularly hesitant to conclude that the guarantor is bound (or benefited) by an arbitration clause in the underlying, guaranteed contract. (224) On the other hand, some Continental decisions appear to have held broadly that arbitration agreements are binding on guarantors of the underlying contract. (225) As in other non-signatory contexts, the correct analysis requires consideration of the relations between the parties and the contractual language that they have adopted. The language of the guarantee agreement and the underlying arbitration clause will be significant in ascertaining whether the parties intended that the guarantor be bound (and benefited) by the arbitration clause in the underlying page "1182" contract. (226) If the guarantee agreement is narrowly drafted (227) or if the arbitration clause refers specifically and only to identified parties, (228) then the guarantor will likely not be bound by the arbitration agreement. The nature of the guarantee and the guarantor's contractual role is also important. A bank that provides a guarantee of contractual payments, or similar performance by a third party, should ordinarily not be considered to have been accepted as (nor to have consented to status as) a party to the underlying contract, much less the arbitration clause in that contract. (229) On the other hand, where a corporate parent or affiliate, or a related state entity, guarantees the performance of an affiliated company under a contract, then the guarantee relationship will often evidence the parties' intention that the guarantor be bound by the arbitration clause in the guaranteed contract. (230) Typically, the more commercially-significant the role page "1183" of the guarantor in performance of the underlying contract or transaction, the more likely it will be that the parties intended the guarantor to be a party to the arbitration agreement. In some cases, it has been argued that a non-signatory “ratified” a contract containing an arbitration clause and therefore became bound by that agreement. (231) In general, such arguments have been analyzed in the same manner as claims based upon guarantee agreements. Issues relating to the application of the guarantor doctrine to nonsignatories have often been held to be governed by the national law applicable to the underlying guarantee relationship. That is the approach taken by most national courts and arbitral tribunals. (232) The better view, however, is that a validation principle applies, providing that a guarantor is subject to an arbitration agreement if either the law governing the underlying guarantee agreement or the law governing the arbitration agreement provides for this result. (233)
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page "1184" h. Succession (234) It is well-settled that an entity that does not execute an arbitration agreement may become a party thereto by way of legal succession. (235) The most common means of such succession is by a company's merger or combination with the original party to an agreement. Under many national legal regimes, corporate or company law permits the merger or combination of two or more previously separate legal entities into either a new legal entity or one of the preexisting legal entities. (236) The consequence of such “mergers” or “business combinations” is that the “merged” or “surviving” entity will be the owner of all the assets and liabilities (including contract rights and obligations) of the previously-existing entities. (237) When such a combination page "1185" occurs, most national laws provide that the merged or surviving entity succeeds by operation of law as a party to the contracts, including the arbitration agreements, of the previously-existing entities. (238) National courts (239) and arbitral awards (240) have held that the same result generally applies in other instances of corporate succession, when one entity assumes the rights and obligations of another entity as a matter of page (241) "1186" applicable national company law. Most authorities have held that the national law governing the issue of succession also applies to a non-signatory's succession to an arbitration agreement. (242) i. Assignment and Other Transfers of Contractual Rights (243) In contemporary commerce, contracts are frequently transferred from one party to another by way of assignment, novation, assumption, or other contractual transfer mechanisms. In these circ*mstances, disputes sometimes arise as to whether the transferee or assignee of a contract is bound by an arbitration clause contained in the transferred/assigned agreement. (244) page "1187" Some early judicial decisions suggested that arbitration agreements were not capable of being transferred, apparently on the theory that they were “personal” obligations, which were specific to and binding upon only the original parties. (245) These decisions have been superseded, and it is now almost universally accepted that parties have the contractual autonomy to transfer or assign arbitration agreements, just as they have the power to assign or transfer other types of contracts. (246) Again, the touchstone in such cases should be the intention of the parties, both in the original agreement and in the assignment. In principle, an assignment of a contract should have the effect of conveying the arbitration clause associated with the contract, as one associated part of the parties' agreement, to the assignee, at least absent some sort of contractual or legal prohibition that renders the assignment ineffective. (247) Indeed, under French law, page http://www.kluwerarbitration.com/CommonUI/print.aspx
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"1188" there is a presumption of “automatic” assignment of the arbitration clause together with the underlying contract. (248) Similarly, in the United States, most courts have held that, when a contract is transferred from one party to another entity, the arbitration clause passes along with the underlying contract. (249) The same is generally true in civil law jurisdictions, (250) including in Switzerland, where recent decisions of the Swiss Federal Tribunal have confirmed that a valid assignment of the underlying contract automatically transfers the arbitration agreement. (251) Nonetheless, in some jurisdictions, the autonomous nature of the agreement to arbitrate is occasionally asserted as a reason why the arbitration clause should not be transferred automatically with the underlying contract. (252) In England, although some authorities support the position that the arbitration clause is transferred automatically with the underlying contract, other authorities suggest that an agreement to arbitrate is not automatically transferred. (253) page "1189" Particularly in common law jurisdictions, close attention is paid to the wording and intention of the original arbitration clause and the subsequent assignment contract, to determine whether the parties intended to provide for assignment of the arbitration clause. (254) If the assignment agreement excluded the arbitration clause, then this will ordinarily be sufficient to prevent the assignee from becoming a party to that clause. (255) There may also be circ*mstances in which assignment of an arbitration clause produces results inconsistent with the parties' intentions (i.e., a U.S. company agrees to arbitrate under CIETAC Rules in China with a German company, and then one of the parties purportedly assigns the agreement to a Chinese state-owned entity). If an assignment of an arbitration clause is validly effected, then the assignee will have rights (and obligations) under the clause. In addition, the original assignor may also retain such rights (either as to pre-assignment events or generally, depending on the terms of the assignment and any restrictions on assignability). (256) There are often contractual limits on assignment in commercial agreements that may forbid one party from assigning the underlying contract, either absolutely or without its counter-party's consent. These contractual limits may render a purported assignment invalid or ineffective. There may also be instances where a contract cannot legally be transferred or assigned, at least without regulatory approvals. If the assignment of the underlying contract and the arbitration clause are in violation of a contractual restriction, then the putative assignee arguably has no rights under the arbitration clause (since the contract and arbitration clause were page "1190" arguably never assigned). (257) In some jurisdictions, however, an assignment in breach of a contractual prohibition is presumptively not invalid, even if it is wrongful, but rather is effective while giving rise to a damages claim for breach of the anti-assignment provision. (258)
The wrongful assignment of a contract also gives rise to issues under the separability presumption. It is at least theoretically http://www.kluwerarbitration.com/CommonUI/print.aspx
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possible that an arbitration clause will have been validly assigned even if the underlying contract has not been (and vice versa). (259) There are instances in which an arbitration agreement is purportedly assigned during the pendency of an arbitration. While finding the validity of an assignment in such circ*mstances “rather more difficult” than pre-arbitration assignments, some national courts have generally permitted post-arbitration assignments. (260) This may be subject to the conditions that the arbitrator consent to the assignment. (261) page "1191" As with other non-signatory theories, questions of assignment give rise to choice-of-law issues. (262) Commentators have noted the lack of uniform rules concerning the assignment of arbitration agreements. (263) In the absence of applicable international rules, arbitrators and commentators have tended to look to domestic legal regimes for a solution. There is also a lack of uniformity between national legal systems as to what law should determine whether an arbitration agreement has been validly assigned. In some jurisdictions, the question whether an arbitration agreement has been validly assigned is treated as a procedural matter to be determined by the law of the arbitral seat. (264) In other jurisdictions, the substantive law that governs the underlying contract has been applied to determine issues of assignability. (265) As in other contexts, the better view is that validation principle should apply to the assignability of the arbitration clause, upholding the assignment if that is the result under either the law governing the assignment agreement or the arbitration agreement. (266) j. Subrogation Under many national legal systems, there are circ*mstances where one party may be subrogated to the contractual rights of another party. This frequently occurs in the case of insurers, who are subrogated to the rights of insureds. In these circ*mstances, the insurer is typically entitled to invoke (and is bound by) the arbitration provisions of the insured's underlying contract (from which the page "1192" subrogated rights arise). (267) In principle, the validation principle should apply to the effects of subrogation on an arbitration agreement. (268) k. Estoppel and Related Doctrines (269) Particularly in common law jurisdictions, “estoppel” is a wellrecognized legal doctrine, which can be invoked to preclude parties from denying that they are party to arbitration (or other) agreements. (270) In these jurisdictions, “estoppel” is defined in various ways, but generally means that a party is precluded by considerations of page "1193" good faith and equity from acting inconsistently with its own statements or conduct. (271) It is sometimes said that the doctrine of estoppel is not, as such, http://www.kluwerarbitration.com/CommonUI/print.aspx
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extant in most civil law jurisdictions. According to one commentator, estoppel is “rarely applied” in Continental European arbitrations. (272) Nonetheless, similar conceptions exist under rubrics of good faith, abuse of right, or venire contra factum proprium, (273) or in connection with the group of companies doctrine. (274) A number of authorities, particularly in common law jurisdictions, have recognized estoppel or related doctrines as a basis for either permitting a non-signatory to invoke an arbitration agreement or holding that a non-signatory is bound by an arbitration agreement. These authorities have held that, where a non-signatory claims or exercises rights as a party under a contract, which contains an arbitration clause, the non-signatory will typically be estopped from denying that it is a party to the arbitration clause. (275) Similarly, where a party invokes an page "1194" arbitration clause in national court proceedings, claiming rights under that clause, it will ordinarily be estopped from subsequently denying that it is bound by the arbitration agreement in other proceedings. (276) Some U.S. courts have adopted a theory of “equitable estoppel” for application to questions of arbitral jurisdiction. (277) Estoppel principles have frequently been applied to hold that a party is bound by the arbitration clause associated with the substantive contractual rights that it claims: that is, if a party claims or exercises rights under a contract, then it is ordinarily bound by the arbitration clause in that contract. As one U.S. court put it: “In short, [plaintiff] cannot have it both ways. It cannot rely on the contract when it works to its advantage and ignore it when it works to its disadvantage.” (278) Other courts have gone further, holding that a party page "1195" that receives a “direct benefit” under a contract is estopped from denying that it is a party to the contract's arbitration clause. (279)
It is sometimes said that the proper application of the estoppel doctrine is as a “shield,” and not as a “sword.” In particular, some courts have held that estoppel is most (or only) appropriate where a non-signatory claimant seeks to invoke an arbitration agreement against a signatory to the arbitration agreement, but less frequently in the reverse posture (where a signatory seeks to bind a nonsignatory to an arbitration clause): “[Courts] have been willing to estop a signatory from avoiding arbitration with a non-signatory when the issues the non-signatory is seeking to resolve in arbitration are intertwined with the agreement that that estopped party has signed…” (280) page "1196" Conversely, other courts have suggested the reverse, indicating that a signatory may more readily pursue claims that a non-signatory is estopped from challenging an arbitration clause than the reverse. (281)
In principle, it is difficult to see why estoppel should not be equally available to both signatories and non-signatories, albeit perhaps under different analyses. For example, when a non-signatory to a contract claims rights under that contract on third-party beneficiary, subrogation, or similar grounds, the signatories to that contract http://www.kluwerarbitration.com/CommonUI/print.aspx
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should be entitled to invoke the contract's arbitration clause against the non-signatory claimant, just as the non-signatory claimant itself invokes the contract. Consistent with this reasoning, some U.S. courts have allowed estoppel to be used as a “sword,” permitting a signatory to demand that a non-signatory arbitrate its claims. (282) As noted above, civil law jurisdictions do not necessarily recognize the estoppel doctrine as such. (283) Nonetheless, the principles of good faith and equity or fairness that underlie the doctrine are universal, and are recognized, among other things, in the New York Convention. (284) As a consequence, civil law authorities have reached comparable results by different avenues. (285) page "1197" For example, in a recent decision, the Swiss Federal Tribunal disregarded the requirement for a “signed” arbitration agreement where the clause was included in a bill of lading that was exchanged by the parties. The Tribunal relied on the parties' ongoing business relations within the legal framework of the same general contractual conditions, including an arbitration clause, and reasoned that obligations of good faith precluded one of the parties from invoking a formal signature requirement. (286) Similarly, the Austrian Oberster Gerichtshof recently relied on concepts of venire contra factum proprium and abuse of right to bind a party to an arbitration agreement notwithstanding formal defects in the agreement. (287) Principles of estoppel and related doctrines have not frequently been the subject of choice-of-law analysis. It is difficult to formulate predictable conflicts rules applicable to the subject, because of the diversity of connecting factors: for example, if a party based in State A asserts the existence of an arbitration clause, providing for arbitration in State B, during litigation in State C, against a party based in State D, in connection with disputes under a contract governed by the law of State E, what state's law should apply? As in other non-consensual contexts, the better approach in these circ*mstances is to apply international principles of estoppel and good faith, rather than engaging in an unpredictable, potentially arbitrary choice-of-law analysis. (288) l. Ratification A non-signatory (and non-party) to an agreement may subsequently become a party to that agreement by ratification. (289) Ratification can occur with regard to arbitration agreements, as well as with other forms of commercial contracts. (290) For example, page "1198" Party A to an arbitration agreement may ratify Party B's assignment of Party B's rights and duties under the arbitration agreement to a third party. Likewise, in the case of novation, a new contract generally replaces a previous contract and one of the original parties is substituted for a new party. (291) The same choiceof-law rules that apply to guarantee/guarantor relations (292) should also apply in the context of ratification. m. Corporate Officers and Directors Some national courts have adopted what appear to be sui generis http://www.kluwerarbitration.com/CommonUI/print.aspx
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rules with regard to the application of arbitration clauses to officers and directors of companies who have executed the arbitration agreement. In virtually all such cases, the officers and directors of the corporate party will not be parties to the relevant contract. Even in cases where a company's officers or directors execute a contract on behalf of the company, they do not ordinarily thereby become parties to the contract. (293) Occasionally, however, litigation relating to the underlying dispute will include the officers and directors (or other agents) of one or both parties, with claims being asserted personally against individual officers and directors. In these cases, the officers and directors may frequently seek to invoke the arbitration agreement (or, conversely, may have the arbitration agreement invoked against them). As noted above, some U.S. courts have permitted the officers and directors of a corporate party to invoke the arbitration clause in that party's underlying commercial contracts, notwithstanding the fairly obvious fact that the individual officers and directors are not parties to the underlying contract under ordinary page "1199" contractual principles. (294) In these circ*mstances, a number of U.S. decisions have held that corporate employees, sued for actions taken in the course of their employment, may invoke arbitration clauses contained in their employer's contracts with the adverse third party. (295) Some Canadian (296) and German (297) decisions appear to involve similar reasoning. These decisions are not unanimously followed even in the United States. (298) One U.S. court rejected them on the following grounds: “courts must not offer contracts to arbitrate to parties who failed to negotiate them before trouble arrives. To do so frustrates the ability of persons to settle their affairs against a predictable backdrop of legal rules – the cardinal principle to all dispute resolution.” (299) Outside the United States and a few other jurisdictions, this approach of permitting corporate employees or agents to invoke arbitration agreements, to which they are not parties, has not been widely considered. (300) The treatment of corporate officers by some U.S. and other courts does not rest on a routine analysis of the traditional contractual consequences of the page "1200" principal-agency relations, which would instead usually provide that the agent and/or employee is not a party to the underlying contract. (301) The separability doctrine might provide an explanation for this approach if one reasoned that the officers and directors of a corporate signatory were intended to enjoy the benefits of the arbitration agreement, even if they are not parties to the underlying contract. These results would be exceptional ones, which appear to be primarily attributable to the parties' presumed intentions to provide procedural protections for their respective agents and/or employees against joinder in oppressive litigation and to avoid the circumvention of agreements to arbitrate through the medium of satellite litigation against related parties and individuals. As one court explained: “When contracting parties agree to arbitrate all disputes … they generally intend to include disputes about their agents' actions because ‘as a general rule, http://www.kluwerarbitration.com/CommonUI/print.aspx
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the actions of a corporate agent on behalf of the corporation are deemed the corporation's acts.’ If arbitration clauses only apply to contractual signatories, then this intent can only be accomplished by having every officer and agent (and every affiliate and its officers and agents) either sign the contract or be listed as a third party beneficiary.” (302) On the other hand, in reverse circ*mstances (i.e., when an adverse party sought, over the agent's objections to assert claims against it in arbitral proceedings), courts and tribunals have been reluctant to hold that the agent or employee is subject to arbitral jurisdiction. (303)
n. Shareholder Derivative Rights In some legal systems, a shareholder of a company may in certain circ*mstances act for the company itself; in general, these circ*mstances are narrowly circ*mscribed, involving only cases where the company's interests are damaged and the company's management refuses to take steps to protect those interests, page "1201" despite demands that it do so, ordinarily because of some sort of self-dealing. (304) When a shareholder is permitted by applicable substantive law to act on behalf of a company to enforce a contract, questions may arise whether the shareholder may invoke (and is bound by) an arbitration clause in the contract. Historically, there was judicial aversion to the arbitration of shareholder derivative suits. Objections to arbitrability were based on a perceived lack of the shareholders' assent to an arbitration agreement. (305) More recently, some courts have shifted the focus of consent away from the assent of individual shareholders, towards an inquiry into the corporation's consent to arbitrate. (306) These courts have reasoned that, in a derivative suit, shareholders stand in the shoes of the corporation, asserting its rights and privileges, and “those they choose to sue [may not] be deprived of defenses they could assert against the corporation's claims.” (307) In principle, there is no reason that a minority (or other) shareholder should not be permitted to invoke an arbitration clause of one of the signatories to that agreement, provided that applicable national corporate law permits the shareholder to act on behalf of the signatory. This conclusion was adopted in Frederick v. First Union Securities, Inc., where a plaintiff-shareholder brought a derivative suit against a brokerage firm for allegedly participating in a scheme with company officials to manipulate the market and engage in insider trading. (308) The court held that the plaintiff was compelled to arbitrate his claim because the agreement between the corporation and the brokerage firm, which established the brokerage firm's duties and pursuant to which the plaintiff had brought suit, contained an arbitration clause, and the plaintiff was bringing suit on behalf of the company. (309) The court also held page "1202" that the broad language of the arbitration clause, which provided that it applied to “all claims or controversies” between the corporation and the brokerage firm, argued for arbitration of the plaintiff's claims. (310) o. State Non-Signatories (311) http://www.kluwerarbitration.com/CommonUI/print.aspx
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States and state entities are important actors in international commercial transactions and the international arbitral process. Indeed, one of the reasons that parties choose to arbitrate their international disputes is to ensure that states and state entities can be required to participate in, and be bound by the results of, such processes. (312) Disputes sometimes arise as to whether a state or state entity is party to an international arbitration agreement. The same legal rules that apply to private parties in such disputes should in principle also apply to state entities. (313) Nevertheless, some national court decisions have demonstrated a deep-seated, but misconceived, reluctance to hold that non-signatory states (or state entities) are bound by international arbitration agreements. One leading example was the frequently-debated Pyramids case, where agreements (that included an ICC clause, providing for arbitration seated in Paris) to construct a complex tourist resort were entered into between foreign investors and an Egyptian state entity. The agreements were negotiated with the participation of the Egyptian Ministry of Tourism, whose involvement in the contractual performance was both necessary and expressly contemplated. Following the page "1203" signature page of the agreement, the Minister for Tourism executed the contract, with a declaration that the agreement was “approved, agreed and ratified by the Ministry of Tourism.” (314) After disputes arose, and the foreign investor commenced an ICC arbitration in Paris, the Egyptian Ministry of Tourism resisted on jurisdictional grounds. The arbitral tribunal rejected the objection, reasoning inter alia that “it does not seem in any way unlikely or improbable that the government would have wished that all disputes concerning the same project would go to the same tribunal. In this connection one should remember that … the transaction as a whole is to be viewed as a unified contractual scheme … [T]he Claimant in future disputes might well have been either the Egyptian government or [its state-owned entity] or both.” (315) Despite the tribunal's analysis, and the Ministry of Tourism's signed declaration, the Paris Cour d'appel annulled the award, holding that the signed declaration did not evidence an intention to become a party to the agreement. (316) That conclusion is inconsistent with the weight of international authority, and difficult to reconcile with the plain language and obvious intentions of the signed statement that the Ministry of Tourism “approved, agreed and ratified” the contractual terms. An equally misconceived decision was reached by an ICC arbitral tribunal in a dispute between Libya and a foreign investor. The Libyan state-owned oil company and the investor had negotiated a “suspension agreement,” dealing with a period of force majeure, which a representative of the Libyan state had executed with the declaration “Approved and Endorsed.” (317) Nonetheless, the tribunal held that Libya was not a party to the agreement, or the http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration clause, on the grounds that it had only signed in its capacity as a regulatory authority. (318) These decisions reflect an unsatisfactory view of the manner in which regulatory authorities exercise their powers. They also risk producing unfair fact-finding and legal decisions, by absenting what is often a key party from the dispute resolution process. p. Joint Venture Relations A seldom-applied, but potentially important, theory of non-signatory status is that of joint venture liability. Although not frequently invoked, some authorities have held that one joint venture partner's commitment to arbitrate disputes related to the page "1204" (319) joint venture binds other joint venture partners. Similar results can be reached through principles of “civil conspiracy,” as applied in some national legal systems. (320) In both cases, considerations similar to those arising under the group of companies doctrine arise, (321) often justifying application of an agreement to arbitrate to nonsignatories. 2. Future Directions: Legal Bases for Binding Non-Signatories to Arbitration Agreements For the most part, authorities are agreed that consent is usually the essential foundation for ascertaining whether a particular entity is a party to an arbitration clause. Whatever legal construct is utilized, the beginning and ending question is ordinarily whether the parties, with their actions considered objectively and on the basis of commercial good faith, intended that a particular entity be a party to the arbitration clause. This question arises in numerous contexts – ranging from implied assent, to guarantee, to incorporation and assumption, to subrogation, to agency, to group of companies analysis – but the fundamental inquiry remains the same in each case. (322) And, again in each instance, the resolution of this question requires careful analysis of the language used in the parties' agreements, the parties' actions and the commercial background of the parties' dealings. There are instances in which national courts lose sight of this principle. In one decision, the Paris Cour d'appel declared: “in the law of international arbitration, the effects of the arbitration clause extend to parties which are directly implicated in the performance of the contract as long as their situation and their activities give rise to the presumption that they were aware of the existence and of the scope of the page "1205" arbitration clause in order for the arbitrator to be seized of all economical and legal aspects of the dispute.” (323) Similarly, one U.S. appellate decision held that a non-signatory was bound by an arbitral award because it had “related and congruent interests” with the parties, (324) while another decision relied on a “nexus between the parties.” (325) Thoughtful commentators have concluded that these types of decisions rely on general considerations of equity and efficiency, rather than a contractual
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analysis, to support broad extensions of arbitration clauses. (326) There are substantial grounds for criticizing these various decisions and for accepting the foregoing assessment of their analyses. The fact that a party is “directly implicated” in contractual performance and “aware of” an arbitration clause, or had “congruent interests,” should generally be insufficient, without more, to subject that party to an arbitration agreement. Rather, save where alter ego, estoppel, or similar non-consensual theories are involved, it remains essential to root the application of arbitration agreements to non-signatories in the parties' intentions and in generally-applicable contractual and legal principles. This is required by the bedrock requirement that arbitration agreements are consensual instruments, (327) and is necessary for reasons of commercial predictability. The touchstone should be whether the parties intended that a nonsignatory be bound by and benefit from the arbitration clause. Answering that question cannot be achieved through abstract generalizations, but requires focused consideration of the arbitration clause's language and the relations and dealings among the parties in a specific factual setting. On the other hand, some courts have erred in the opposite direction, declining to extend arbitration clauses to non-signatories, on the basis of overly-formalistic page "1206" analyses that ignore the parties' objective, good faith expectations. For example, in one recent decision, a U.S. appellate court considered a dispute in which the certain subsidiaries of one company (“Company A”) entered into contracts (containing arbitration clauses) with certain subsidiaries of a second company (“Company B”). (328) After disputes arose, Company A initiated U.S. litigation against Company B, carefully structuring its claims to avoid inclusion of either party's subsidiaries, or any contractual claims, in the litigation. Although the claims were a fairly transparent device to circumvent the underlying arbitration clause, the U.S. court rejected the argument that the parent companies were obligated to arbitrate with one another. Among other things, it reasoned (329) that both companies were “sophisticated commercial actors” that were “quite deliberate in constructing and deploying an elaborate web of affiliates” to negotiate the transaction, and there was “no compelling policy objective” that would be furthered by a finding of alter ego. (330) Although formally plausible, and consistent with rhetoric about the parties' freedom to structure their corporate and commercial relations, this analysis overlooks the separability of the arbitration agreement and the fundamental objectives of parties that conclude international arbitration agreements. As discussed above, it is precisely to avoid expensive, time-consuming litigation in multiple, potentially-partisan forums, with potentially inconsistent and uncertain results, that parties agree to arbitrate. (331) Permitting non-signatory corporate affiliates to assert claims based on the parties' underlying transactions and agreements, avoiding the express terms of the arbitration agreement, frustrates these objectives and the parties' agreement to arbitrate in a very fundamental way. This reflects the most powerful rationale for page "1207" the group of companies doctrine, being that corporate affiliates of the signatory to an international arbitration agreement should not be permitted to circumvent or frustrate that agreement through the device of satellite litigation. This is not a http://www.kluwerarbitration.com/CommonUI/print.aspx
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question of extending the arbitration agreement on the basis of a priori formulae, but of identifying what parties – acting in good faith – should be regarded as having consented to arbitrate. In this regard, it is important to apply the various legal bases for binding non-signatories specifically to the agreement to arbitrate (as distinguished from the underlying contract). It bears emphasis that the parties' intentions – both actual and presumed – will often be different with regard to their arbitration agreement, and its dispute resolution mechanism, than with regard to their underlying commercial contracts. That is, there will readily be cases where the parties desire a unified dispute resolution mechanism, particularly one extending to all the members of a corporate group involved in a particular transaction, without altering the allocations of substantive contractual rights contained in the underlying contracts. The foregoing considerations suggest that most criticisms of the group of companies doctrine (332) are unjustified. The doctrine is virtually unique, in that it was developed specifically with application to the agreement to arbitrate, rather than to other types of contracts. (333) The fundamental rationale for the group of companies doctrine, not always well-articulated by its proponents, is to preserve the efficacy of the signatories' agreement to arbitrate. An agreement to arbitrate has the objective of centralizing the parties' disputes in a single, neutral, expert forum: as already noted, satellite litigation by or against corporate affiliates frustrates this objective entirely, returning the parties to the very jockeying for local court advantage that their agreement to arbitrate was meant to prevent. The group of companies doctrine serves – sensibly – to prevent this sort of circumvention and frustration of arbitration agreements. It permits corporate affiliates who have become materially involved in the signatories' negotiation and performance to be subjected to (and benefited by) the signatories' agreement to arbitrate: the critical consideration in determining whether the doctrine binds a nonsignatory is whether the signatories to the arbitration agreement would, considered objectively and in good faith, have intended to bind (and benefit) their affiliates to their agreement to arbitrate. In many instances, while the signatories may very well have had no intention at all to bind corporate affiliates to the underlying contract, they will have intended to bind those affiliates to their dispute page "1208" resolution mechanisms – for the simple reason that this is necessary in order to make it work. (334) (This rationale is generally limited to the group of companies doctrine, involving corporate affiliates, and does not extend to other mechanisms for binding non-signatories that are not corporate affiliates.) As discussed above, national courts in a number of jurisdictions apply a presumption in favor of arbitrability in interpreting the scope of an admittedly valid arbitration agreement. (335) A few lower courts have also applied this presumption to the question whether a particular party is bound by an arbitration agreement. The same analysis may explain various of the more expansive decisions of some courts identifying the parties that are bound by international arbitration agreements. (336) For the reasons already explained, however, it is inappropriate to adopt the same approach to issues of interpretation as to the question of a non-signatory's status; the strong “pro-arbitration” presumptions that apply in the context of interpreting a valid http://www.kluwerarbitration.com/CommonUI/print.aspx
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arbitration agreement are not fully applicable in the context of determining whether an arbitration agreement binds a party. (337) Nonetheless, as also discussed above, it is appropriate to apply a liberal standard of proof of consent that takes into account the proarbitration policies of the New York Convention and national arbitration legislation. (338) For the reasons already discussed, this approach makes particular sense in the context of corporate affiliates and groups of companies, where there are strong reasons to conclude that parties who have entered into an arbitration agreement do not intend or desire for it to be circumvented by corporate affiliates, but rather that it will centralize all of the disputes related to the parties' transactions in a single, neutral forum. Finally, in limited circ*mstances, entities may be bound by arbitration agreements by operation of law, without regard to questions of intent. Cases of succession (through merger or similar doctrines) are the most obvious examples. (339) The same is true with regard to doctrines of veil-piercing and estoppel, where a party's actions subject it to an arbitration agreement, signed by another entity, regardless of questions of assent or intent. (340) It is critical to distinguish such cases, page "1209" which do not involve contractual analysis, conceptually from other non-signatory theories, which do. Although these doctrines are only exceptionally applicable, they play an essential role in ensuring the fairness of the international arbitral process. 3. Formal Validity and Non-Signatories Application of the theories discussed above to bind a non-signatory raises questions of compliance with applicable formal requirements, under many legal regimes, for a “written” arbitration agreement. (341) There has been surprisingly little attention to issues of form in non-signatory cases, with the issue apparently often not being raised. Many courts have apparently concluded, usually without discussion, that there is no requirement under the New York Convention (or national law) that an arbitration agreement be signed by all the parties thereto. In principle, this conclusion is difficult to accept. Although form requirements are archaic, for the reasons discussed above, (342) where they exist these requirements logically must apply for the benefit of each party: a party as to whom the “signature” or “exchange” requirements under the Convention or national law were not satisfied would, in principle, not be bound by the agreement. Nonetheless, those authorities who have addressed the issue have adopted a variety of means of avoiding or satisfying applicable form requirements in non-signatory contexts. There is, of course, no rule forbidding an agreement from being signed by one entity on behalf of another entity (most obviously, in the case of agency relations). (343) For example, although Article II(2) of the Convention requires an arbitration agreement “signed by the parties,” it is clear that a “party's” signature can be provided by another entity on its behalf (most obviously, an agent, subrogator, or alter ego). To the same effect, one may also reason that the “writing” requirement of the New York Convention and most national laws can be satisfied by the existence of a written arbitration agreement, http://www.kluwerarbitration.com/CommonUI/print.aspx
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which may be consented to by an exchange of writings (e.g., guarantees, assignments, agency agreements). More broadly, some page "1210" authorities have held that form requirements apply only to the arbitration agreement itself and not to extra-contractual mechanisms by which an entity may succeed to or assume a party's obligations and rights under that agreement (e.g., by merger, group of companies, alter ego); this effectively reduces the relevance of form requirements in non-signatory contexts to a very small set of cases. (344) Other authorities have reasoned that “no overly strict requirements should apply to the formal validity of an extension of the arbitration clause to a third party.” (345) In reality, the lack of attention to form requirements in non-signatory contexts is further indication of the extent to which these requirements fail to reflect commercial practice and substantial justice. (346) Given this, there is little satisfactory justification for extending these requirements beyond their role with regard to the initial formation of arbitration agreements. page "1211"
43 See infra pp. 2568-2573, 2777-2797. 44 See J. Herbots (ed.), International Encyclopaedia of Laws –
Contracts, ¶425 Austria, ¶472 France, ¶223 Hong Kong, ¶609 India, ¶251 New Zealand, ¶331 Romania, ¶344 Spain, ¶358 Sweden (Update January 2007); UNIDROIT, UNIDROIT Principles of International Commercial Contracts Art. 2.2 (2004) (“Authority of Agents”); Restatement (Third) Agency §2.01 (2006); Judgment of 22 November 1950, DFT 76 I 338, 351-54 (Swiss Federal Tribunal); Final Award in ICC Case No. 6268, XVI Y.B. Comm. Arb. 119 (1991) (upholding arbitration agreement where buyer's agent had actual authority to enter into both the arbitration agreement and the underlying contract). 45 See J. Herbots (ed.), International Encyclopaedia of Laws – Contracts, Austria ¶445, Belgium ¶438, Denmark ¶358, France ¶488 (Update January 2007); Restatement (Third) Agency §1 (2006) (“Agency is the fiduciary relationship that arises when one person (a “principal”) manifests assent to another person (an “agent”) that the agent shall act on the principal's behalf and subject to the principal's control, and the agent manifests assent or otherwise consents so to act”); M. Storck, JurisClasseur Civil Code, Art. 1119, Fasc. Unique, ¶1 (2002) (“Agency is a mechanism through which a person, the agent, accomplishes a legal act in the name and for the account of another person, the principal, which will be directly bound by the effects of that act.”). 46 Typically, where the agency relationship is disclosed, the principal, but not the agent, will be a party to the contract. See, e.g., Capital Trust Inv. Ltd v. Radio Design TJ AB [2002] EWCA Civ 135 (English Court of Appeal); Electrosteel Castings Ltd v. Scan-Trans Shipping & Chartering Sdn Bhd [2002] EWHC 1993 (Comm.) (Q.B.); Judgment of 26 June 2003, Baba Ould Ahmed Miske v. Société AVC Shipping, 2006 Rev. arb. 143 (Paris Cour d'appel); Judgment of 23 October 2003, Société Kocak Ilac Fabrikasi AS v. SA Laboratoires Besins Int'l, 2006 Rev. arb. 149 (Paris Cour d'appel); McCarthy, 22 F.3d at 360-61 (“It is well settled that when an agent acts on behalf http://www.kluwerarbitration.com/CommonUI/print.aspx
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of a disclosed principal, the agent will not be personally liable for a breach of the contract, unless there is clear and explicit evidence of the agent's intention to be bound.”); La Societe Nationale Pour La Recherche v. Shaheen Natural Resources Com., Inc., 585 F.Supp. 57, 63 n.3 (S.D.N.Y. 1983), aff'd, 733 F.2d 260 (2d Cir. 1984) (“an agent acting on behalf of a disclosed principal will not be liable on the contract”); Lerner v. Amalgamated Clothing and Textile Workers Union, 938 F.2d 2 (2d Cir. 1991) (refusing to compel an agent to arbitration because he only acted on behalf of his principal and never intended to assume personal liability); Restatement (Second) of Agency §328 (1958). See also Principles of European Contract Law Art. 3:202 (1999) (“Where an agent is acting within its authority as defined by Article 3.201, its acts bind the principal and the third party directly to each other. The agent itself is not bound to the third party.”); UNIDROIT, UNIDROIT Principles of International Commercial Contracts Art. 2.2.3 (2004) (“where an agent acts within the scope of its authority and the third party knew or ought to have known that the agent was acting as an agent, the acts of the agent shall directly affect the legal relations between the principal and the third party and no legal relation is created between the agent and the third party.”); Restatement (Third) Agency §6.01 (2006). 47 See, e.g., Antoine Biloune v. Ghana Inv. Centre, Ad Hoc Awards (27 October 1989 and 30 June 1990), XIX Y.B. Comm. Arb. 11 (1994); Award in CRCICA Case No. 2/1994 (July 1995), in M.E. Eldin (ed.), Arbitral Awards of the Cairo Regional Centre for International Commercial Arbitration 141-144 (2000). See also Hosking, Non-Signatories and International Arbitration in the United States: The Quest for Consent, 20 Arb. Int'l 289, 292 (2004); Lamm & Aqua, Defining the Party – Who is A Proper Party in An International Arbitration Before the American Arbitration Association, 2002 Int'l Arb. L. Rev. 84, 88; E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶468-69 (1999); Hanotiau, Problems Raised by Complex Arbitrations Involving Multiple Contracts-Parties-Issues – An Analysis, 18 J. Int'l Arb. 253, 258-260 (2001). 48 See, e.g., Keytrade USA, Inc. v. Ain Temouchent M/V, 404 F.3d 891, 896-97 (5th Cir. 2005); Harvey v. Joyce, 199 F.3d 790 (5th Cir. 2000); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1122 (3d Cir. 1993); Arriba Ltd v. Petroleos Mexicanos, 962 F.2d 528, 536 (5th Cir. 1992); Hester Int'l Corp. v. Fed. Republic of Nigeria, 879 F.2d 170, 176 (5th Cir. 1989); Interbras Cayman Co. v. Orient Victory Shipping Co., 663 F.2d 4 (2d Cir. 1981); In re Herlofson Mgt A/S and Ministry of Supply, Kingdom of Jordan, 765 F.Supp. 78 (S.D.N.Y. 1991); Judgment of 14 October 1987, Ampafrance v. Wasteels, 1988 Rev. arb. 288 (French Cour de cassation civ. 2e); Judgment of 8 December 1999, 18 ASA Bull. 546 (Swiss Federal Tribunal) (2000); Judgment of 22 December 1992, 14 ASA Bull. 646, 649 (Swiss Federal Tribunal) (1996). 49 Thomson-CSF SA, 64 F.3d at 776. 50 See, e.g., Bridas SAPIC, 345 F.3d at 356 (“Ordinary principles of contract and agency law may be called upon to bind a nonsignatory to an agreement whose terms have not clearly done so.”); InterGen NV v. Grina, 344 F.3d 134, 142-43, 147-48 (1st Cir. 2003) (“[i]t is hornbook law that an agent can commit its (nonsignatory) principal to an arbitration agreement”; applying “traditional principles of agency law”); Phoenix Canada Oil Co. Ltd v. Texaco, Inc., 842 F.2d 1466 (3d Cir. 1988) (“usual agency principles”); Interbras Cayman Co. v. Orient Victory Shipping Co., 663 F.2d 4 (2d Cir. 1981); Judgment of 22 December 1992, 14 ASA Bull. 646, 649 (Swiss Federal Tribunal) (1996) (citing principle of reliance http://www.kluwerarbitration.com/CommonUI/print.aspx
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(“vertrauenbegründendes Verhalten”) to conclude that under Spanish law, no special mandate was required for agent to bind principal); R. Merkin, Arbitration Law ¶¶17.39 to 17.40 (2004 & Update 2007) (“general rule of agency”). 51 J. Herbots (ed.), International Encyclopaedia of Laws – Contracts, Austria ¶427, France ¶474, India ¶621, Ireland ¶240, New Zealand ¶261, Sweden ¶365 (Update January 2007); Bridas SAPIC, 345 F.3d at 357 (agency is “the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control and consent by the other so to act”) (quoting Restatement (Second) Agency §1(1) (1958)). 52 Interim Award in ICC Case No. 3879, XI Y.B. Comm. Arb. 127 (1986). Among other things, the tribunal reasoned: “The mandatory force of the arbitration clause cannot be dissociated from that of the substantial contractual commitments; the reply to the question as to whether the four states are bound by the acts of [the organization they founded] must always be the same, whether the procedural aspect of the arbitration clause is involved, or that of the substantive law concerning the financial obligations of the four states.” 53 The remaining three states did not seek annulment of the award, which therefore remained in effect insofar as they were concerned. Judgment of 19 July 1988, XVI Y.B. Comm. Arb. 180, 181 (Swiss Federal Tribunal) (1991). 54 Judgment of 19 July 1988, XVI Y.B. Comm. Arb. 180, 181 (Swiss Federal Tribunal) (1991). The Swiss Federal Tribunal also refused to treat the international organization established by the four states as their agent (or alter ego): “The predominant role played by these states in [the international organization] … cannot affect [the organization's] independence and legal personality, nor can it lead to the conclusion that [the organization] bound the founding states when dealing with third parties.” XVI Y.B. Comm. Arb. at 181. 55 InterGen NV, 344 F.3d at 143 (“the requirements for … vicarious responsibility [under an agency theory] are exacting”; “InterGen may have had an agency relationship with a Bechtel entity for certain (limited) purposes, the record is bereft of any evidence suggesting that a Bechtel entity acted as InterGen's agent in committing to carry out” the arbitration agreement); Phoenix Canada Oil Co. Ltd v. Texaco, Inc., 842 F.2d 1466 (3d Cir. 1988) (“Not only must an [agency] arrangement exist … so that one acts on behalf of the other and within usual agency principles, but the arrangement must be relevant to the [legal obligation in dispute]”). 56 Restatement (Third) Agency § 2.01, comment d (2006) (“Courts have long distinguished between ‘general agents’ and ‘special agents,’ a distinction that rests on both the objects of the discretion granted an agent and the mode of regulating the agent's exercise of discretion. The labels matter less than the underlying circ*mstances that warrant their application…. The prototypical general agent is a manager of a business, who has authority to conduct a series of transactions and who serves the principal on an ongoing as opposed to an episodic basis.”); W. Bowstead & M. Reynolds, Bowstead and Reynolds on Agency ¶1-041 and ¶3-025 (18 ed. 2006); G. Born & P. Rutledge, International Civil Litigation in United States Courts 188-190 (4th ed. 2007). 57 Peterson Farms Inc. v. C&M Farming Ltd [2004] 1 Lloyd's Rep. 603 (Q.B.). 58 In some cases, agency principles are conflated with alter ego analysis. Bridas SAPIC, 345 F.3d at 358 (“Courts occasionally apply the alter ego doctrine and agency principles as if they were http://www.kluwerarbitration.com/CommonUI/print.aspx
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interchangeable. … The two theories are, however, distinct”). This is not analytically sound: the two legal bases are distinct and should be addressed separately. See, e.g., Pan Eastern Explor. Co. v. Hufo Oils, 855 F.2d 1106, 1130-33 (5th Cir. 1988); House of Koscot Dev. Corp. v. Am. Line Cosmetics, Inc., 468 F.2d 64 (5th Cir. 1972); Weisser v. Mursam Shoe Corp., 127 F.2d 344, 348 (2d Cir. 1942). 59 See supra pp. 1137-1141, 1142-1146. 60 See, e.g., CD Partners, LLC v. Grizzle, 424 F.3d 795, 789-800 (8th Cir. 2005) (allowing non-signatories to enforce arbitration agreement when non-signatories were officers of signatory party); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110 (3d Cir. 1993) (same); Roby v. Corp. of Lloyd's, 996 F.2d 1353 (2d Cir. 1993) (same); Arnold v. Arnold Corp., 920 F.2d 1269, 1282 (6th Cir. 1990) (applying “well-settled principle affording agents the benefits of arbitration agreements made by their principal”); Kruse v. AFLAC Int'l, Inc., 458 F.Supp.2d 375 (E.D. Ky. 2006); Thomas v. A.R. Baron & Co., 967 F.Supp. 785, 788 (S.D.N.Y. 1997) (allowing agent to invoke arbitration agreement “in line with wide judicial consensus on this issue”); Leopold v. Delphi Internet Services Corp., 1996 WL 628593 (E.D. Pa. 1996); Chase v. Check, 158 F.R.D. 59 (E.D. Pa. 1994); Brown v. Centex Homes, 171 N.C.App. 741, 746 (N.C. Ct. App. 2005). 61 See, e.g., Lerner v. Amalgamated Clothing & Textile Workers Union, 938 F.2d 2 (2d Cir. 1991). 62 See infra pp. 1199-1201. Although these decisions are not unanimously followed even in the United States, decisions in a few other jurisdictions appear to involve similar reasoning. See Ibid. 63 See infra pp. 1199-1201. 64 See supra pp. 311 et seq. 65 See supra pp. 635-639. In many instances, such laws would conflict with the New York Convention. See supra p. 638. 66 See supra pp. 557, 638 & infra pp. 1211-1220. 67 See, e.g., Hague Convention of 14 March 1978 on the Law Applicable to Agency, Art. 11 (internal law of state where agent had business establishment or acted); Final Award in ICC Case No. 6268, XVI Y.B. Comm. Arb. 119 (1991) (applying New York law); Joseph L. Wilmotte & Co. v. Rosenman Bros., 258 N.W.2d 317 (Iowa 1977); Restatement (Second) Conflict of Laws §292 (1971). 68 See, e.g., Int'l Paper Co., 206 F.3d at 417 & 384 F.3d at 160; E.I. DuPont de Nemours, 269 F.3d at 198 (“traditional principles of agency law”); InterGen NV, 344 F.3d at 147-48; Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1122 (3d Cir. 1993); In re Oil Spill by Amoco Cadiz, et al., 659 F.2d 789, 795-96 (7th Cir. 1981); Thomson-CSF SA, 64 F.3d at 776; Interocean Shipping Co., 523 F.2d at 537; Republic of Ecuador v. ChevronTexaco Corp., 376 F.Supp.2d 334, 353 (S.D.N.Y. 2005); In re Hidrocarburos y Derivados, CA v. Lemos, 453 F.Supp. 160 (S.D.N.Y. 1977). But see Wren Dist., Inc. v. Phone Mate, Inc., 600 F.Supp. 1576, 1580-81 (E.D.N.Y. 1985) (“state contract law principles”); Farkar Co. v. R.A. Hanson DISC, Ltd, 441 F.Supp. 841, 845 (S.D.N.Y. 1977), modified, 583 F.2d 68 (2d Cir. 1978), modified on other grounds, 604 F.2d 1 (2d Cir. 1979). 69 See, e.g., Hague Convention of 14 March 1978 on the Law Applicable to Agency, Art. 11, Pfeiffer, Hague Convention on the Law Applicable to Agency, 26 Am. J. Comp. L. 434, 435-436, 439 (19771978) (law applicable to relations between principal and third party is internal law of state where agent had business establishment or acted); Judgment of 4 September 2003, XXX Y.B. Comm. Arb. 528 http://www.kluwerarbitration.com/CommonUI/print.aspx
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(Oberlandesgericht Celle) (2005) (law of place where the agent acted). 70 See supra pp. 425 et seq.; Restatement (Second) Conflict of Laws §292 (1971), entitled “Contractual Liability of Principal to Third Person,” applies the law of “the state which, with respect to the particular issue, has the most significant relationship to the parties and the transaction under the principles stated in §6.” In many cases, the law with the most significant relationship to the question whether a non-signatory principal is party to an arbitration agreement would be that of the arbitration agreement. But see Final Award in ICC Case No. 6268, XVI Y.B. Comm. Arb. 119 (1991) (“we would not resort to a choice of law in the contract itself to determine in the first instance whether that contract binds [an entity] which contends it is not a party to the contract.”). 71 See supra pp. 497-504, 514-516, 550-552, 557-558. 72 See UNIDROIT, UNIDROIT Principles of International Commercial Contracts Art. 2.2.5(2) (2004) (“where the principal causes the third party reasonably to believe that the agent has authority to act on behalf of the principal and that the agent is acting within the scope of that authority, the principal may not invoke against the third party the lack of authority of the agent.”); Restatement (Third) Agency §2.03 (2006) (“Apparent authority is the power held by an agent or other actor to affect a principal's legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal's manifestations”); Chitty on Contracts ¶31056 (29th ed. 2004). 73 See, e.g., Judgment of 7 October 1999, Société Russanglia v. Société Delom, 2000 Rev. arb. 288 (Paris Cour d'appel) (“principle of appearance applicable in international commercial relations”); Schmidt-Szalewski, in J. Herbots (ed.), Encyclopedia of International Contract Law ¶477 France (1999) (describing doctrine of apparent agency under French law (“mandat apparent“)). 74 See, e.g., UNIDROIT, UNIDROIT Principles of International Commercial Contracts Art. 2.2.5 (2004); Schmidt-Szalewski, in J. Herbots (ed.), Encyclopedia of International Contract Law ¶242 France (1999) (French courts decide whether apparent authority existed based on whether third person could legitimately have relied on apparent authority, considering factors such as “nature of the purported contract; the agent's and the third party's profession and experience; the use by the agent of the principal's headed notepaper; the past habit to act in the principal's name, and even the usual lack of autonomy of the apparent agent towards the principal”); 12 Williston on Contracts §35.11 (4th ed. 1990) (under general principles of U.S. contract law, “[a]n agent has power to make contracts which will bind his principal not only when actually authorized to do so by express words or inference of fact, but also in cases where the principal did not intend to confer such authority on the agent but, nevertheless, held out to the public or to the person with whom the agent dealt an appearance of authority.”). 75 See, e.g., Award in ICC Case No. 1434, 103 J.D.I. (Clunet) 978 (1976) (controlling person of group of companies led counter-party to “justifiably believe that he engaged all of the companies of the group that he managed”); Award in ICC Case No. 5730, 117 J.D.I. (Clunet) 1029 (1990); Award in ICC Case No. 10504, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 103 (2001) (“What French law calls ‘la théorie du mandat apparent’ (the principle of apparent authority) is generally accepted in international arbitration.”); Award http://www.kluwerarbitration.com/CommonUI/print.aspx
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in Zurich Chamber of Commerce, Case No. 188/1991 (11 February 1993), 14 ASA Bull, 623 (1996) (Chinese official had apparent authority to bind Chinese state entity); Interbras Cayman Co. v. Orient Victory Shipping Co., 663 F.2d 4, 6-7 (2d Cir. 1981); Alamria v. Telcor Int'l, Inc., 920 F.Supp. 658, 669 (D. Md. 1996); Judgment of 7 October 1999, Société Russanglia v. Société Delom, 2000 Rev. arb. 288 (Paris Cour d'appel). 76 See, e.g., Award in ICC Case No. 10504, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 103 (2001) (“It is no more than an application of the principle of good faith considered as a basic requirement in international business relations”); Miller v. Mueller, 343 A.2d 922, 926 (Md. App. 1975) (“Apparent authority may arise when the actions of the principal, reasonably interpreted, cause a third person to believe in good faith that the principal consents to the acts of the agent.”); Biggs v. U.S. Fire Ins. Co., 611 S.W.2d 624, 629 (Tex. 1981) (“[a]pparent authority is based on the doctrine of estoppel”); Geneva Convention on Agency in the International Sale of Goods, Art. 14(2) (17 February 1983) (not in force) (“[Where the conduct of the principal causes the third party reasonably and in good faith to believe that the agent has authority to act on behalf of the principal and that the agent is acting within the scope of that authority, the principal may not invoke against the third party the lack of authority of the agent.”); W. Bowstead & M. Reynolds, Bowstead and Reynolds on Agency ¶8-029 (18th ed. 2006) (in English law, doctrine based on “weak form” of estoppel); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶470 (1999). 77 See Restatement (Second) Conflict of Laws §292 (1971); L. Collins (ed.), Dicey, Morris & Collins on The Conflict of Laws ¶16009 (14th ed. 2006); Blessing, The Law Applicable to the Arbitration Clause, in A. van den Berg (ed.), Improving the Efficiency of Arbitration Agreements and Awards: 40 Years of Application of the New York Convention 168, 176-177 (ICCA Congress Series No. 9 1999); B. von Hoffmann & K. Thorn, International Privatrecht 302 (9th ed. 2007); Heldrich, in O. Palandt, Bürgerliches Gesetzbuch EGBGB Anhang Art. 32, ¶3 (66th ed. 2007); Schlosser, Das Recht der internationalen privaten Schiedsgerichtsbarkeit ¶352 (2d ed. 1989). 78 See infra pp. 1212-1214. 79 See supra pp. 661-671; J. Herbots (ed.), International Encyclopaedia of Laws – Contracts ¶109 Austria, ¶37 Belgium, ¶163 Denmark, ¶46 France (Update January 2007); UNIDROIT, UNIDROIT Principles of International Commercial Contracts Art. 2.1.1 & comment 2 (2004); Award in ICC Case No. 5721, 117 J.D.I. (Clunet) 1019, 1024 (1990) (“Of course, such an intention can be merely implicit, otherwise any discussion of extension would have no meaning ….”); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶499 (1999) (nonsignatory's involvement in negotiation of agreement can raise inference that parties' intention was for non-signatory to be bound). See also Stone v. Doerge, 245 F.Supp.2d 878, 882 (N.D. Ill. 2002) (“constructive consent to apply an agreement to arbitrate between a client and the clearance broker to the introducing broker may not be implied in the absence of an investor's actual intention (either express, i.e., a written or oral statement, or implied, i.e., from conduct) to be bound”). 80 See supra pp. 1137-1142. 81 This question gives rise to choice-of-law questions (addressed http://www.kluwerarbitration.com/CommonUI/print.aspx
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below). See infra pp. 1211 et seq. 82 W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.09 (3d ed. 2000). The requirement for both parties' consent is implicit in both international conventions and national law. See, e.g., New York Convention, Art. II(3) (“the parties have made an agreement”); Inter-American Convention, Art. 1 (“An agreement in which the parties undertake to submit to arbitral decision any differences …”); UNCITRAL Model Law, Art. 7(1) (“an agreement by the parties to submit to arbitration”). 83 See, e.g., Partial Award in ICC Case No. 6000, 2(2) ICC Ct. Bull. 31, 34 (1991) (company subject to arbitration clause because it was “involved in the conclusion, the performance and the termination of the contracts in dispute”); Final Award in ICC Case No. 6519, 2(2) ICC Ct. Bull. 34, 35 (1991) (“scope of an arbitration clause may be extended to non-signatory companies with separate legal significance only if they played an active role in the negotiations leading to the clause, or if they are directly implicated in the agreement”); Final Award in ICC Case No. 9771, XXIX Y.B. Comm. Arb. 46 (2004) (party's continued involvement in performance of contract confirmed its position as a party, despite assignment of contract to another company). 84 See, e.g., Judgment of 28 November 1989, 1990 Rev. arb. 675 (Paris Cour d'appel) (party's performance of contractual obligations of another entity constituted consent to underlying agreement, including arbitration clause); Gvozdenovic v. United Air Lines, Inc., 933 F.2d 1100, 1105 (2d Cir. 1991) (“agreement [to arbitrate] may be implied from the party's conduct”). See also Lamm & Aqua, Defining the Party – Who Is A Proper Party in An International Arbitration Before the American Arbitration Association, 2002 Int'l Arb. L. Rev. 84, 88 (“A party may be bound by an arbitration clause that it has not signed if its subsequent conduct indicates that it has assumed the obligation to arbitrate”). 85 See, e.g., Award in ICC Case No. 5721, 117 J.D.I. (Clunet) 1019 (1990) (the “extension of the arbitration clause must have a voluntary foundation,” and finding no consent where the nonsignatory was not the “focus of the contractual agreements”); Award in ICC Case No. 6769, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1991-1995 456 (1997). Compare Judgment of 30 November 1988, Korsnas Marma v. Durand-Auzias, 1989 Rev. arb. 691 (Paris Cour d'appel) (court apparently presumed the non-signatory's intention to be bound from its awareness of the arbitration clause). See also J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶256 (2d ed. 2007). 86 See, e.g., Award in ICC Case No. 2138, in S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 242 (1990); Interim Award in ICC Case No. 4504, 113 J.D.I. (Clunet) 1118 (1986) (role of non-signatories in negotiation and performance of contract was insufficient to warrant conclusion they had assumed contract); Award in ICC Case No. 4972, in S. Jarvin, Y. Derains & J.J. Arnaldez (eds.), Collection of ICC Arbitral Awards 1986-1990 380 (1994); Final Award in ICC Case No. 6519, 2(2) ICC Ct. Bull. 34 (1991) (one of three non-signatory affiliates bound by agreement, because of involvement in negotiations and performance; two, lessinvolved affiliates, not bound); Award in ICC Case No. 6673, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1991-1995 429 (1997) (non-signatory parent of signatory to license agreement is not a party to that agreement, or its arbitration clause, by virtue of ownership of licensed property); Award in http://www.kluwerarbitration.com/CommonUI/print.aspx
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Geneva Chamber of Commerce of 24 March 2000, 21 ASA Bull. 781 (2003) (insufficient evidence that conduct indicated consent to agreement or arbitration clause). See also J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶254 (2d ed. 2007). 87 See supra pp. 1141, 1147. 88 See supra pp. 396-402, 642-643. 89 See supra pp. 671-673; Final Award in ICC Case No. 7453, XXII Y.B. Comm. Arb. 107 (1997); Award in ICC Case Nos. 7604 and 7610, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 510 (2003) (reliance on arbitration clause to resist jurisdiction of court in national court litigation signifies party's consent to clause); Gvozdenovic v. United Air Lines, Inc., 933 F.2d 1100, 1105 (2d Cir. 1991); In re Transrol Navegacao SA, 782 F.Supp. 848, 851 (S.D.N.Y. 1991) (implied agreement to arbitrate based on party's claim in court proceedings that it was subject to arbitration clause). 90 See infra pp. 1193-1198. 91 See Final Award in ICC Case No. 7453, XXII Y.B. Comm. Arb. 107 (1997) (one signatory had not accepted non-signatory as a party and therefore there was no arbitration agreement). See also Lamm & Aqua, Defining the Party – Who Is A Proper Party in An International Arbitration Before the American Arbitration Association, 2002 Int'l Arb. L. Rev. 84, 85. 92 See supra pp. 426 et seq. 93 See supra pp. 514-516. 94 See, e.g., Shaw Group, Inc. v. Triplefine Int'l Corp., 2001 WL 883076, at *1 (S.D.N.Y. 2001); BS Sun Shipping Monrovia v. Citgo Petroleum Corp., 2007 WL 2572093, at *9 (S.D.N.Y. 2007); Fyrnetics (H.K.) Ltd v. Quantum Group, Inc., 2003 WL 164220, at *2 (N.D. Ill. 2003). 95 See, e.g., Motorola Credit Corp. v. Uzan, 388 F.3d 39, 51-53 (2d Cir. 2004) (applying Swiss law); Int'l Minerals & Res., SA v. Pappas, 96 F.3d 586, 592 (2d Cir. 1996) (applying English law). 96 See, e.g., Republic of Ecuador v. ChevronTexaco Corp., 376 F.Supp.2d 334, 355 (S.D.N.Y. 2005) (“a choice-of-law clause will govern where a non-signatory to a particular arbitration agreement seeks to enforce that agreement against a signatory, but not where a signatory seeks to enforce the agreement against a signatory”); Motorola Credit Corp., 388 F.3d at 51 (“if defendants wish to invoke the arbitration clauses in the agreements at issue, they must also accept the Swiss choice-of-law clauses that govern those agreements.”). See also supra pp. 436-438, 449, 485-497. 97 For commentary, see B. Hanotiau, Complex Arbitrations ¶¶98, 126 (2005); Hosking, Non-Signatories and International Arbitration in the United States: The Quest for Consent, 20 Arb. Int'l 289 (2004); Pimm, Jurisdiction over Non-Signatories to the Arbitration Agreement – Can Arbitrators Pierce the Corporate Veil?, 2003 Asian Disp. Res. 5; Savage & Leen, Family Ties: When Arbitration Agreements Bind Non-Signatory Affiliate Companies, 2003 Asian Disp. Res. 16; Vidal, The Extension of Arbitration Agreements within Groups of Companies: The Alter Ego Doctrine in Arbitral and Court Decisions, 16(2) ICC Ct. Bull. 63 (2005); P. Blumberg, K. Strasser, N. Georgerkopoulos & E. Gouvin, Blumberg on Corporate Groups §§10-14 (2d ed. 2005); Note, Piercing the Corporate Law Veil: The Alter Ego Doctrine Under Federal Common Law, 95 Harv. L. Rev. 853 (1982).
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98 Cohen, L'engagement des sociétés à l'arbitrage, 2006 Rev. arb.
35, 61; Poudret, L'originalité du droit français de l'arbitrage au regard du droit comparée, Bulletin d'information (French Cour de cassation) no 589 du 15/12/2003 available at www.courdecassation.fr. 99 Case Concerning the Barcelona Traction, Light & Power Co., [1970] I.C.J. Rep. 3, 38-39 (I.C.J.). 100 Alter ego analysis is also applicable to attribute the substantive liability of one entity to another formally-distinct entity and to attribute jurisdictional contacts for purposes of national court jurisdiction. See, e.g., Arriba Ltd v. Petroleos Mexicanos, 962 F.2d 528 (5th Cir. 1992) (“Borrowing some familiar terms from American corporate law, Arriba argues that Pemex's status as a government agency is a sham that should not be respected. The separate legal identities of Pemex, the Union and the Commission have blurred into a single functional entity, making each of them “alter egos” of the other and permitting Arriba to “pierce the veil” to reach Pemex's assets.”); G. Born & P. Rutledge, International Civil Litigation in United States Courts 165 et seq. (4th ed. 2007). 101 Typically, one party will claim that its counterparty is the alter ego of other entities, rather than a party claiming that it is itself the alter ego of other entities. In the rare cases where the reverse is argued, national courts have generally rejected it. Gen. Elec. Co. v. Deutz AG, 270 F.3d 144 (3d Cir. 2001). 102 See, e.g., First Nat'l City Bank v. Banco Para El Comercio Exterior de Cuba, 462 U.S. 611, 629 (U.S. S.Ct. 1983) (“[O]ur cases have long recognized “the broader equitable principle that the doctrine of corporate entity, recognized generally and for most purposes, will not be regarded when to do so would work fraud or injustice.”); Bridas SAPIC, 345 F.3d at 359 (noting alter ego “doctrine's strong links to equity”; “The laws of agency, in contrast, are not equitable in nature, but contractual, and do not necessarily bend in favor of justice”); InterGen, 344 F.3d at 134 (“As a general rule, the [alter ego] doctrine is thought to be equitable in nature. Consequently, it can be invoked only where equity requires the action to assist a third party.”); In re Cambridge Biotech Corp., 186 F.3d 1356, 1376 (Fed. Cir. 1999) (“The concept of ‘piercing the corporate veil’ is equitable in nature and courts will pierce the corporate veil ‘to achieve justice, equity, to remedy or avoid fraud or wrongdoing, or to impose a just liability.’”); Award in ICC Case No. 8385, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 474 (2003) (“The final question is to what extent the juridical fiction which is the basis of legal entities must give way to the reality of human behavior and cease to protect those who hide behind the corporate veil in order to promote their own interests at the cost of those who dealt with the company.”); Ad Hoc Award in Geneva of 1991, 10 ASA Bull. 202, 209 (1992) (“principle of good faith in business matters requires that the legal independence of [the subsidiary] be disregarded, because relying on it constitutes an abuse of rights on the part of the respondent which clearly harms the legitimate interests of the claimant”); Interim Award in ICC Case No. 3879, Westland Helicopters Ltd v. Arab Org. for Indus., XI Y.B. Comm. Arb. 127, 132 (1986) (“Equity, in common with the principles of international law, allows the corporate veil to be lifted, in order to protect third parties against an abuse which would be to their detriment.”). 103 Adams v. Cape Indus. plc [1990] Ch. 433 (English Court of Appeal). See also Roussel-Uclaf v. G.D. Searle & Co. [1978] 1 Lloyd's Rep. 225 (Q.B.); Nova (Jersey) Knit Ltd v. Kammgarn http://www.kluwerarbitration.com/CommonUI/print.aspx
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Spinnerei GmbH [1977] 1 Lloyd's Rep. 463 (House of Lords) (subsidiary held to be party to arbitration agreement signed by parent because “[t]he two parties and their actions are … so closely related on the facts of this case”). Compare DHN Food Distributors Ltd v. London Borough of Tower Hamlets [1976] 3 All E.R. 462, 466 (English Court of Appeal). Arbitral tribunals sitting in London and applying English law have generally reached similar conclusions. Final Award in ICC Case No. 7626, XXII Y.B. Comm. Arb. 132 (1997). See also infra pp. 1174-1176. 104 Acatos & Hutchenson plc v. Watson [1995] 1 BCLC 218 (Ch.). See Adams v. Cape Indus. plc [1990] Ch. 433 (English Court of Appeal); Woolfson v. Strathclyde Regional Council [1978] SLT 159, 161 (House of Lords) (“it is appropriate to pierce the corporate veil only where special circ*mstances exist indicating that it is a mere facade concealing the true facts.”). 105 See, e.g., Judgment of 1 September 1993, 14 ASA Bull. 623 (Swiss Federal Tribunal) (1996); Judgment of 29 January 1996, 14 ASA Bull. 496 (Swiss Federal Tribunal) (1996); Judgment of 16 October 2003, 22 ASA Bull. 364 (Swiss Federal Tribunal) (2004) (controlling shareholder of various companies used them as tools for personal interests and it would be contrary to good faith to interpose corporate form); Judgment of 24 November 2006, DFT 4C.327/2005 (Swiss Federal Tribunal). Arbitral tribunals sitting in Switzerland have generally reached similar results. See, e.g., Ad Hoc Interim Award of 9 September 1983, XII Y.B. Comm. Arb. 63, 72 (1987) (noting that under Swiss law, piercing the corporate veil is possible in case of “inadmissible abuse of the separation of legal entities,” that is “where a corporation is used inappropriately as a shield against liability and is essentially under the influence of a natural or legal person”); Poudret, L'extension de la clause d'arbitrage: approches française et suisse, 122 J.D.I. (Clunet) 893, 913 (1995) (“Swiss law ignores the notion of group of companies … and is resolutely committed to the legal independence of the company in relation to its sole shareholder or of the subsidiary in relation to the parent company. It will only be disregarded in exceptional circ*mstances, where the fact of resorting to such a subsidiary to escape one's obligations would amount to fraud or to a patent abuse of right.”). Compare Ad Hoc Award in Geneva of 1991, 10 ASA Bull. 202 (1992) (piercing corporate veil based on total domination of subsidiary). As discussed below, Swiss courts have adopted an ambivalent attitude to the group of companies doctrine. See infra pp. 1175-1176. 106 Schlosser, Das Recht der internationalen privaten
Schiedsgerichtsbarkeit ¶426 (2d ed. 1989); Sandrock, Groups of Companies and Arbitration, 2005 Tijdschrift voor Arbitrage 3. 107 Judgment of 25 September 2003, 2004 NJW-RR 1504 (German Bundesgerichtshof); Judgment of 17 September 2001, 2001 DStR 1853 (German Bundesgerichtshof). See also Gross, Zur Inanspruchnahme Dritter vor Schiedsgerichten in Fällen der Durchgriffshaftung, 2006 SchiedsVZ 194, 195. 108 Müller & Keilmann, Beteiligung am Schiedsverfahren wider Willen?, 2007 SchiedsVZ 113, 116-117; Gross, Zur Inanspruchnahme Dritter vor Schiedsgerichten in Fällen der Durchgriffshaftung, 2006 SchiedsVZ 194, 195. 109 See infra pp. 1166-1178 et seq. http://www.kluwerarbitration.com/CommonUI/print.aspx
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110 See E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman
on International Commercial Arbitration ¶505 (1999); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶¶255-256 (2d ed. 2007). 111 Judgment of 11 June 1991, Orri v. Société des Lubrifiants Elf Aquitaine, 1992 Rev. arb. 73 (French Cour de cassation civ. 1e). Compare Judgment of 26 November 1986, Société Sponsor AB v. Lestrade, 1988 Rev. arb. 153 (Pau Cour d'appel) (“whereas [the parent company] played an important role in the conclusion of the promise to purchase, it played no lesser role as regards its nonperformance. Consequently, the third party is such in appearance only, and in fact seems to be the soul, the inspiration, in other words, the mastermind of the contracting party”). 112 See, e.g., Trans-Pac. Shipping Co. v. Atlantic & Orient Trust Co. Ltd, [2005] F.C. 311 (Fed. Ct. of Canada) (permitting veilpiercing claims to proceed). 113 See Hicks v. Bank of Am., NA, 218 Fed.Appx. 739, 746 (10th Cir. 2007) (original purchaser of promissory note properly compelled to arbitrate even though claims arose from lawsuit initiated by subsequent purchaser because original and subsequent purchaser operated as alter egos); Bridas SAPIC v. Gov't of Turkmenistan, 447 F.3d 411, 416-20 (5th Cir. 2006) (binding non-signatory to arbitration agreement based on alter ego theory, because parent both committed fraud or injustice and used subsidiary's financial dependence to perpetuate such wrong); Cigna Prop. and Cas. Ins. Co. v. Polaris Pictures Corp., 159 F.3d 412, 422 (9th Cir. 1998); Wm. Passalacqua Builders, Inc. v. Resnick Dev. South, Inc., 933 F.2d 131, 138-139 (2d Cir. 1991); McAllister Bros., Inc. v. A & S Transp. Co., 621 F.2d 519 (2d Cir. 1980); Interocean Shipping Co., 523 F.2d at 539 (“[i]n an appropriate situation, the corporate veil may be pierced and a party may be held bound to arbitrate as the signatory's alter ego”); Hodak v. Madison Capital Mgt, LLC, 2007 WL 1434875, at *4-*5 (E.D. Ky. 2007); CAMOFI Master LDC v. College P'ship, Inc., 452 F.Supp.2d 462, 472-74 (S.D.N.Y. 2006); Smoothline Ltd v. N. Am. Foreign Trading Corp., 2002 WL 31885795 (S.D.N.Y. 2002); Oriental Comm. and Shipping Co., 609 F.Supp. at 78 (ordering discovery to determine whether plaintiff was alter ego of signatory to arbitration agreement). See also Hosking, NonSignatories and International Arbitration in the United States: The Quest for Consent, 20 Arb. Int'l 289 (2004); Lamm & Aqua, Defining the Party – Who Is A Proper Party in An International Arbitration Before the American Arbitration Association, 2002 Int'l Arb. L. Rev. 84. 114 Oriental Comm. and Shipping Co., 609 F.Supp. at 78. 115 Bridas SAPIC, 345 F.3d at 356 (“presumption of independent status”); InterGen NV, 344 F.3d at 148-49 (declining to extend arbitration agreement to non-signatory despite fact that nonsignatory is parent corporation of signatories to agreement and stating that strong public policy considerations favor “deferring to the principle of limited liability – a principle that we have called ‘the cornerstone of corporate law’”); Gorill v. Icelandair/Flugleidir, 761 F.2d 847, 853 (2d Cir. 1985); Am. Renaissance Lines, Inc. v. Saxis SS Co., 502 F.2d 674, 677 (2d Cir. 1974) (“absent findings of fraud or bad faith, a corporation … is entitled to a presumption of separateness from a sister corporation … even if both are owned and controlled by the same individuals”). 116 Anderson v. Abbott, 321 U.S. 349, 362 (U.S. S.Ct. 1944). 117 See, e.g., Bridas SAPIC, 447 F.3d at 416 (“[t]he alter ego doctrine, like all variations of piercing the corporate veil doctrine, is http://www.kluwerarbitration.com/CommonUI/print.aspx
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reserved for exceptional cases”); Consorcio Rive v. Briggs of Cancun, Inc., 82 Fed.Appx. 359 (5th Cir. 2003); Dayhoff, Inc. v. H.J. Heinz Co., 86 F.3d 1287 (3d Cir. 1996) (rejecting veil-piercing argument); United Int'l Holdings, Inc. v. The Wharf (Holdings) Ltd, 76 F.3d 393 (10th Cir. 1996); ARW Explor. Corp., 45 F.3d at 1461 (“Courts do not lightly pierce the corporate veil, ‘even in deference to the strong policy favoring arbitration’”); Hester Int'l Corp., 879 F.2d 170 (declining to pierce corporate veil: “the two factors of 100% ownership and appointment of the Board of Directors cannot by themselves force a court to disregard the separateness of the juridical entities”); In re Multiponics, Inc., 622 F.2d 709, 724-25 (5th Cir. 1980) (“[W]e must remember that the alter ego doctrine and piercing of the corporate veil are truly exceptional doctrines, reserved for those cases where the officers, directors or stockholders utilized the corporate entity as a sham to perpetuate a fraud, to shun personal liability, or to encompass other truly unique situations.”); Ceska Sporitelina v. Unisys Corp., 1996 U.S. Dist. LEXIS 15435 (E.D. Pa. 1996), aff'd, 116 F.3d 467 (3d Cir. 1997) (rejecting veil-piercing). 118 See, e.g., United States v. Bestfoods, 524 U.S. 51, 69 (U.S. S.Ct. 1998) (“well-established principle that directors and officers holding positions with a parent and its subsidiary can and do ‘change hats’ to represent the two corporations separately, despite their common ownership”); Smith v. S & S Dundalk Eng'g Works, Ltd, 139 F.Supp.2d 610, 621 (D.N.J. 2001) (“Mere identity of corporate logos, without more, cannot be sufficient to establish that one company dominated another's business activities or acted as the alter ego of it.”); Corrigan v. USX Corp., 2005 WL 2621981, at *6 (N.D. Ohio 2005); Dewhurst v. Telenor Invest AS, 83 F.Supp.2d 577, 588 (D. Md. 2000) (“Stock ownership and the sharing of directors, however, are insufficient grounds in themselves to justify disregarding the corporate form”); AT&T Global Info. Solutions Co., v. Union Tank Car Co., 29 F.Supp.2d 857, 867 (S.D. Ohio 1998); Japan Petroleum Co. (Nigeria) Ltd v. Ashland Oil Co., 456 F.Supp. 831 (D. Del. 1978) (interlocking boards of directors and management, and parent company involvement in subsidiary's decision-making, not sufficient to warrant veil-piercing or agency relationship); In re Merrill Lynch Trust Co., FSB, 2007 WL 2404845, at *3 (Tex. S.Ct. 2007) (“A corporate relationship is generally not enough to bind a nonsignatory to an arbitration agreement”). 119 See, e.g., Restatement (Second) Conflict of Laws §52, comment b (1971) (parent must “so control[] and dominate[] the subsidiary as in effect to disregard the latter's independent corporate existence”); United States v. Scophony Corp. of Am., 333 U.S. 795 (U.S. S.Ct. 1948); Bridas SAPIC, 345 F.3d at 359 (“The corporate veil may be pierced to hold an alter ego liable for the commitments of its instrumentality only if (1) the owner exercised complete control over the corporation with respect to the transaction at issue, and (2) such control was used to commit a fraud or wrong that injured the party seeking to pierce the veil”); InterGen NV, 344 F.3d at 148-49; Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130, 134 (2d Cir. 1997). 120 See, e.g., Anderson v. Abbott, 321 U.S. at 362 (“there are occasions when the limited liability sought to be obtained through the corporation will be qualified or denied…. The cases of fraud make up part of that exception. But they do not exhaust it. An obvious inadequacy of capital, measured by the nature and magnitude of the corporate undertaking, has frequently been an important factor in cases denying stockholders their defense of limited liability.”); Taylor v. Standard Gas & Elec. Co., 306 U.S. 307, http://www.kluwerarbitration.com/CommonUI/print.aspx
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322 (U.S. S.Ct. 1939) (“the doctrine of corporate entity … will not be regarded when so to do would work fraud or injustice”); Bridas SAPIC, 345 F.3d at 359 (“The corporate veil may be pierced to hold an alter ego liable for the commitments of its instrumentality only if (1) the owner exercised complete control over the corporation with respect to the transaction at issue and (2) such control was used to commit a fraud or wrong that injured the party seeking to pierce the veil.”); Consorcio Rive, 82 Fed.Appx. 359; Gardemal v. Westin Hotel Co., 168 F.3d 588 (5th Cir. 1999); Am. Fuel Corp. v. Utah Energy Dev. Co., 122 F.3d 130 (2d Cir. 1997); United Elec. Radio & Mach. Workers v. 163 Pleasant St. Corp., 960 F.2d 1080, 1092-93 (1st Cir. 1992) (“Veil piercing cannot occur without some degree of moral culpability on the parent corporation's part”); Interocean Shipping Co., 523 F.2d at 539; Am. Renaissance Lines, 502 F.2d at 677; Fisser, 282 F.2d at 238; Smoothline Ltd v. N. Am. Foreign Trading Corp., 2002 WL 31885795 (S.D.N.Y. 2002); In re Hidrocarburos y Derivados, CA v. Lemos, 453 F.Supp. 160 (S.D.N.Y. 1977); Coastal States Trading, Inc. v. Zenith Nav. SA, 446 F.Supp. 330, 336-37 (S.D.N.Y. 1977); T.N.S. Holdings, Inc. v. MKI Sec. Corp., 703 N.E.2d 749 (N.Y. 1998) (refusing to pierce corporate veil absent “showing that through its domination [the non-signatory] misused the corporate form for its personal ends so as to commit fraud or wrongdoing or avoid any of its obligations”); Wallace ex rel. Cencom Cable Income Partners v. Wood, 752 A.2d 1175, 1184 (Del. Ch. 1999) (“a sham and exist for no other purpose than as a vehicle for fraud”). See also P. Blumberg, K. Strasser, N. Georgerkopoulos & E. Gouvin, Blumberg on Corporate Groups §12.03 (2d ed. 2005). 121 See, e.g., First Nat'l City Bank, 462 U.S. at 621-23 (separate corporate status may be disregarded when “a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created”); Alejandre v. Telefonica Larga Distancia, de Puerto Rico, Inc., 183 F.3d 1277, 1284 (11th Cir. 1999); Dewhurst, 83 F.Supp.2d 577 (treating domination/control and inequitable conduct as separate grounds for piercing corporate veil). 122 See Bridas SAPIC, 345 F.3d at 359 (“Alter ego determinations are highly fact-based, and require considering the totality of the circ*mstances in which the instrumentality functions”); Bhd of Locomotive Eng'rs v. Springfield Terminal Railway Co., 210 F.3d 18 (1st Cir. 2000) (“federal standard “for when it is proper to pierce the corporate veil is notably imprecise and fact-intensive”). 123 For typical lists, see Carte Blanche (Singapore) Pte Ltd v. Diners Club Int'l, Inc., 2 F.3d 24 (2d Cir. 1993) (absence of corporate formalities; inadequate capitalization; financial dealings between parent and subsidiary; overlap in ownership, officers, directors, and personnel; common office space, address, and phone numbers; business discretion of allegedly dominated company; whether companies deal with each other at arms' length; whether companies are separate profit centers; parent's payment or guarantee of subsidiary's debts; subsidiary's use of parent's property); Smoothline Ltd v. N. Am. Foreign Trading Corp., 2002 WL 31885795 (S.D.N.Y. 2002); Andrew Martin Marine Corp. v. Stork-Werkspoor Diesel BV, 480 F.Supp. 1270 (E.D. La. 1979) (common ownership, common directors or officers, financing, capitalization, payment of expenses, use of property, sources of business, observance of legal formalities, integration of operations, control). For comparable lists from non-U.S. contexts, see Schlosser, Arbitration Clauses in Maritime Contracts and Their Binding Effect on Groups of Companies, 11(4) J. Int'l Arb. 127, 129-132 (1994); Ad Hoc Award in Geneva of 1991, 10 ASA Bull. 202 (1992). http://www.kluwerarbitration.com/CommonUI/print.aspx
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When alter ego is sought between a state and another entity, some decisions take additional criteria into account. Bridas SAPIC, 447 F.3d at 418 (“‘[P]ublic law’ factors held relevant in this court's cases, to determine whether a state agency shares the state's Eleventh Amendment sovereign immunity [are]: (1) whether state statutes and case law view the entity as an arm of the state; (2) the source of the entity's funding; (3) the entity's degree of local autonomy; (4) whether the entity is concerned primarily with local, as opposed to statewide, problems; (5) whether the entity has the authority to sue and be sued in its own name; and (6) whether the entity has the right to hold and use property.”); infra pp. 1157-1161. 124 See Bridas SAPIC, 345 F.3d at 360; Bridas SAPIC, 447 F.3d at
418 ((1) whether state statutes and case law view the entity as an arm of the state; (2) the source of the entity's funding; (3) the entity's degree of local autonomy; (4) whether the entity is concerned primarily with local, as opposed to statewide, problems; (5) whether the entity has the authority to sue and be sued in its own name; and (6) whether the entity has the right to hold and use property). 125 See Bridas SAPIC, 345 F.3d at 360 n.11; Bridas SAPIC, 447 F.3d at 418 (“(1) the parent and subsidiary have common stock ownership; (2) the parent and subsidiary have common directors or officers; (3) the parent and subsidiary have common business departments; (4) the parent and subsidiary file consolidated financial statements; (5) the parent finances the subsidiary; (6) the parent caused the incorporation of the subsidiary; (7) the subsidiary operated with grossly inadequate capital; (8) the parent pays salaries and other expenses of subsidiary; (9) the subsidiary receives no business except that given by the parent; (10) the parent uses the subsidiary's property as its own; (11) the daily operations of the two corporations are not kept separate; (12) the subsidiary does not observe corporate formalities … [(13)] whether the directors of the ‘subsidiary’ act in the primary and independent interest of the ‘parent’; [(14)] whether others pay or guarantee debts of the dominated corporation; and [(15)] whether the alleged dominator deals with the dominated corporations at arm's length.”). 126 See Bridas SAPIC, 447 F.3d at 419-420 (Turkmen party's $19,000 capitalization was “a paltry sum to finance oil and gas exploration and production” and was “funded by a State Oil and Gas Development Fund expressly rendered immune from seizure” under a newly enacted Turkmen law, Turkmen party's revenues were diverted to the State Oil and Gas Fund that also collected revenues from other state-owned entities and costs of arbitration were paid entirely from this State Fund). See also infra pp. 1203-1204. 127 447 F.3d at 418. In contrast, in InterGen NV v. Grina, the court rejected the defendant's attempt to compel InterGen, an energy company and non-signatory to the arbitration agreement, to arbitrate despite the fact that InterGen's two subsidiaries, with whom InterGen shared many of the same employees, directors and officers, were signatories to the agreement. 344 F.3d 134, 148-49 (1st Cir. 2003). The court reasoned that “[c]ommon ownership and common management, without more, are insufficient to override corporate separateness and pave the way for alter ego liability.” 344 F.3d at 148-49. The court noted that the alter ego doctrine is an equitable principle, and concluded that considerations of equity did not require a finding of alter ego in the particular case. 344 F.3d at 149-50. 128 See supra p. 1159. http://www.kluwerarbitration.com/CommonUI/print.aspx
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129 Freeman v. Complex Computing Co., 119 F.3d 1044, 1053 (2d
Cir. 1997) (quoting Morris v. New York State Dept. of Taxation & Fin., 603 N.Y.S.2d 807, 811 (Ct. App. 1993)) (emphasis added). 130 See Bridas SAPIC, 345 F.3d at 360 n.11 (“Once it has been determined that the corporate form was used to effect fraud or another wrong upon a third-party, alter ego determinations revolve around issues of control and use.”); Subway Equip. Leasing Corp. v. Sims (In re Sims), 994 F.2d 210, 217-18 (5th Cir. 1993); Interocean Shipping Co., 523 F.2d at 539 (even if company has “no mind of its own,” showing of fraud or something akin to fraud is needed); Presbyterian Church of Sudan v. Talisman Energy, Inc., 453 F.Supp.2d 633, 689 (S.D.N.Y. 2006) (“a corporation will only be found to be a facade when it was established as a device to evade existing obligations to other parties”); Wren Dist., Inc. v. PhoneMate, Inc., 600 F.Supp. 1576 (E.D.N.Y. 1985); In re Sunstates Corp. S'holder Litig., 788 A.2d 530, 534 (Del. Ch. 2001) (“[T]o pierce the corporate veil based on an agency or ‘alter ego’ theory, the corporation must be a sham and exist for no other purpose than as a vehicle for fraud”). 131 See supra pp. 1159-1160; First Nat'l City Bank, 462 U.S. 611 (separate corporate status may be disregarded when “a corporate entity is so extensively controlled by its owner that a relationship of principal and agent is created”); Alejandre v. Telefonica Larga Distancia, de Puerto Rico, Inc., 183 F.3d 1277, 1284 (11th Cir. 1999); Dewhurst, 83 F.Supp.2d 577 (treating domination/control and inequitable conduct as separate grounds for piercing corporate veil). 132 See, e.g., Freeman v. Complex Computing Co., 119 F.3d 1044 (2d Cir. 1997) (holding that an “equitable owner” of a corporation may be held its alter ego, even where he is not a shareholder, officer, director or employee); Bhd of Locomotive Eng'rs v. Springfield Terminal Railway Co., 210 F.3d 18 (1st Cir. 2000) (“While alter ego liability may be most common in an ordinary parentsubsidiary context, ‘the equitable doctrine of piercing the corporate veil is not limited to the parent-subsidiary relationship.’”); C.M. Corp. v. Oberer Dev. Co., 631 F.2d 536, 538 (7th Cir. 1980) (“separate corporateness of affiliated corporations owned by the same parent may be equally disregarded under the proper circ*mstances.”); Minnesota Power v. Armco, Inc., 937 F.2d 1363, 1364 (8th Cir. 1991). 133 See, e.g., Award in ICC Case No. 1434, 103 J.D.I. (Clunet) 978 (1976) (corporate identities were of “secondary importance” and parties intended to bind affiliate); Partial Award in ICC Case No. 6000, 2(2) ICC Ct. Bull. 31 (1991); Ad Hoc Interim Award of 9 September 1983, XII Y.B. Comm. Arb. 63 (1987); Award in ICC Case No. 8385, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 474 (2003) (“The piercing, or not, of the corporate veil very much depends on the circ*mstances of each case. Some elements are nearly always considered as necessary. They comprise a significant direct control measure of the activities of the subsidiary by the parent company or the shareholder and the insolvability of the former …. An illegitimate behavior of the subsidiary, instigated by the parent company, towards the person seeking to pierce the corporate veil is another element that can facilitate this piercing …. It is therefore the facts of the case that impose the solution.”). 134 Award in ICC Case Nos. 7604 and 7610, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 510 (2003). 135 See, e.g., Award in ICC Case No. 8385, in J.-J. Arnaldez, Y. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 474, 479 (2003) (“a significant degree of direct control over the activities of a subsidiary by a parent company or its stakeholders and the insolvency of the subsidiary… in general … is not enough.”); Award in ICC Case No. 5721, 117 J.D.I. (Clunet) 1019, 1024 (1990) (“[T]he fact that two companies belong to the same group, or that a shareholder has a dominant position, are never sufficient, in and of themselves, to legally justify lifting the corporate veil.”). 136 See, e.g., Award in ICC Case No. 8163, 16(2) ICC Ct. Bull. 77 (2005) (non-signatory not subject to arbitration agreement under veil-piercing doctrine in absence of abuse of right or use of company as sham); Award in ICC Case No. 8385, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 474 (2003) (“The cessation of significant activities by the subsidiary and its directors is also a factor which facilitates lifting the corporate veil. And if the control and effective management of the subsidiary by the parent corporation contribute to making an action against the subsidiary illusory, lifting the corporate veil is all the more imperative.”). 137 Ad Hoc Award in Geneva of 1991, 10 ASA Bull. 202 (1992) (undercapitalization of subsidiary warrants piercing corporate veil). 138 Award in ICC Case No. 8385, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 474 (2003) (“wrongful conduct by the subsidiary at the direction of the party towards the person seeking to pierce the corporate veil is a further element that facilitates piercing the veil.”); Interim Award in ICC Case No. 3879, XI Y.B. Comm. Arb. 127, 131 (1986) (“Equity, in common with the principles of international law, allows the corporate veil to be lifted, in order to protect third parties against an abuse which would be to their detriment”) (citing Case Concerning the Barcelona Traction, Light and Power Co., [1970] I.C.J. Rep. 3, 40 (I.C.J.)). 139 See, e.g., Ad Hoc Award in Geneva of 1991, 10 ASA Bull. 202 (1992) (piercing the corporate veil where subsidiary had been wrongly dissolved and assets necessary for honoring obligations to creditors had been transferred to parent company); Bridas SAPIC, 447 F.3d at 420 (“Intentionally bleeding a subsidiary to thwart creditors is a classic ground for piercing the corporate veil.”). 140 See, e.g., Award in ICC Case No. 5730, 117 J.D.I. (Clunet) 1029 (1990) (individual who deceived counterparty as to identity of companies that signed arbitration agreement held subject to agreement on alter ego grounds). 141 Award in ICC Case No. 5721, 117 J.D.I. (Clunet) 1019, 1024 (1990) (emphasis added). 142 See authorities cited supra p. 1163 n. 138. 143 See supra pp. 1158-1160. 144 See also supra pp. 1141-1142, 1147-1148, 1152-1153. 145 That is the case in virtually all of the authorities cited in this section. 146 See, e.g., Kalb, Voorhis & Co. v. Am. Fin. Corp., 8 F.3d 130 (2d Cir. 1993) (“The law of the state of incorporation determines when the corporate form will be disregarded and liability will be imposed on shareholders”); Soviet Pan Am Travel Effort v. Travel Committee, Inc., 756 F.Supp. 126 (S.D.N.Y. 1991). Other authorities have applied a cumulative choice-of-law analysis. Award in ICC Case No. 8385, in J.-J. Arnaldez, Y. Derains & D. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 474 (2003) (“all three systems [international, New York and Belgian] recognize that, at least in some instances, the corporate veil may be pierced”). 147 See, e.g., Award in ICC Case No. 8385, in J.-J. Arnaldez, Y.
Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 474 (2003) (“third parties who deal with the corporations cannot properly be regarded to have united themselves with the corporation in a venture to be controlled by the law of the corporation's creation. This is especially true of third parties from other countries who are necessarily less acquainted with the law of the state of incorporation.”); Restatement (Second) Conflict of Laws §307, Reporters Note (1971) (“A state may impose liability upon a shareholder of a foreign corporation for an act done by the corporation in the state, if the state's relationship to the shareholder is sufficient to make reasonable the imposition of such liability upon him.”); Derains, Comment on Award in ICC Case No. 8385, 124 J.D.I. (Clunet) 1072 (1997) (“the lex societatis plays no role. The question is to assess the scope of an arbitration clause and not to rule on the operation of a legal entity, whose very existence as far as the contractual partner is concerned is under question”). See also infra pp. 1211-1220. 148 See, e.g., First Nat'l City Bank, 462 U.S. at 621-23 (citing International Court of Justice in Case Concerning The Barcelona Traction, Light & Power Co., [1970] I.C.J. Rep. 3 (I.C.J.)). 149 See, e.g., Interim Award in ICC Case No. 4131, IX Y.B. Comm. Arb. 131, 134 (1984) (citing “usages … of international commerce”); Award in ICC Case No. 5721, 117 J.D.I. (Clunet) 1019 (1990) (basis of decision is lex mercatoria: “a non-national rule constructed from international commercial usage alone”); Award in ICC Case No. 8385, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 474 (2003) (tribunal applied “law which best corresponds to the needs of the international business community, which is not in conflict with the legitimate expectations of the parties, which produces uniform results and offers a reasonable solution to the dispute.”); Interim Award in ICC Case No. 9873, 16(2) ICC Ct. Bull. 85 (2005) (citing no national law for veil piercing analysis); Jarvin, The Group of Companies Doctrine, in The Arbitration Agreement – Its Multifold Critical Aspects 181, 196 (ASA Special Series No. 8 1994) (“the traditional approach to the problem that the arbitrators take, is done without reference to any particular law …. The existence of an intention to be bound to an arbitration agreement is demonstrated without reference to a particular law; it is a matter of facts and of evidence, not law.”); United States v. Bestfoods, 524 U.S. 51, 62-64 (U.S. S.Ct. 1998) (“[T]here is an equally fundamental principle of corporate law, applicable to the parent-subsidiary relationship as well as generally, that the corporate veil may be pierced and the shareholder held liable for the corporation's conduct when, inter alia, the corporate form would otherwise be misused to accomplish certain wrongful purposes, most notably fraud, on the shareholder's behalf.”); Taylor v. Standard Gas & Elec., Co., 306 U.S. 307, 322 (U.S. S.Ct. 1939) (“[T]he broader equitable principle that the doctrine of corporate entity, recognized generally and for most purposes, will not be regarded when so to do would work fraud or injustice.”). 150 First Nat'l City Bank, 462 U.S. at 621-22 (law of state of incorporation applies to internal affairs of corporation, but “[d]ifferent conflicts principles apply … where the rights of third parties external http://www.kluwerarbitration.com/CommonUI/print.aspx
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to the corporation are at issue”). As discussed in text, the U.S. Supreme Court applied an international legal standard for corporate veil piercing, holding that “the principles governing this case are common to both international law and federal common law, which in these circ*mstances is necessarily informed both by international law principles and by articulated congressional policies.” See also infra pp. 1212-1214. 151 First Nat'l City Bank, 462 U.S. at 621-22. 152 First Nat'l City Bank, 462 U.S. at 623. 153 See supra pp. 483-484 & infra pp. 2128-2130. 154 First Nat'l City Bank, 462 U.S. at 621-22. 155 See supra pp. 1148-1150 (apparent authority) & infra pp. 11931199 (estoppel). 156 See infra pp. 1212-1214. 157 For commentary, see J.-M. Ahrens, Die subjektive Reichweite internationaler Schiedsvereinbarungen und ihre Erstreckung in der Unternehmensgruppe 128 et seq. (2001); Derains, L'extension de la clause d'arbitrage aux non-signataires – La doctrine des groupes de sociétés, 241 (ASA Special Series No. 8 1994); Gaffney, The Group of Companies Doctrine and the Law Applicable to the Arbitration, 19(6) Mealey's Int'l Arb. Rep. 47 (2004); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶¶500-506 (1999); Habegger, Arbitration and Groups of Companies, 2002 Euro. Bus. Org. L. Rev. 516; Jarvin, The Group of Companies Doctrine, in The Arbitration Agreement – Its Multifold Critical Aspects 181 (ASA Special Series No. 8 1994); Leadley & Williams, Peterson Farms: There Is No Group of Companies Doctrine in English Law, 2004 Int'l Arb. L. Rev. 111; Poudret, Trois remarques à propos de la théorie des groupes de sociétés, 13 ASA Bull. 145 (1995); Sandrock, “Intra” and “Extra-Entity” Agreements to Arbitrate and Their Extension to Non-Signatories under German Law, 19 J. Int'l Arb. 423 (2002); Sandrock, Arbitration Agreements and Groups of Companies, 27 Int'l Law. 941 (1993); Sandrock, Groups of Companies and Arbitration, 2005 Tijdschrift voor Arbitrage 3; Sandrock, Die Aufweichung einer Formvorschrift und anderes mehr – Das Schweizer Bundesgericht erlässt ein befremdliches Urteil, 2005 SchiedsVZ 1; Savage & Leen, Family Ties: When Arbitration Agreements Bind Non-Signatory Affiliate Companies, 2003 Asian Disp. Res. 16; Schwartz, Multiparty Arbitration and the ICC: In the Wake of Dutco, 10(3) J. Int'l Arb. 5 (1993); Vidal, The Extension of Arbitration Agreements within Groups of Companies: The Alter Ego Doctrine in Arbitral and Court Decisions, 16(2) ICC Ct. Bull. 63 (2005); Wilske, Shore & Ahrens, The “Group of Companies Doctrine” – Where Is It Headed?, 17 Am. Rev. Int'l Arb. 73 (2006); Woolhouse, Group of Companies Doctrine and English Arbitration Law, 20 Arb. Int'l 435 (2004). 158 For criticisms of the group of companies doctrine, see Habegger, Extension of Arbitration Agreements to Non-Signatories and Requirements of Form, 22 ASA Bull. 398, 398-404 (2004); Poudret, Un statut privilégié pour l'extension de l'arbitrage aux tiers?, 22 ASA Bull. 390, 390-97 (2004); Sandrock, Groups of Companies and Arbitration, 2005 Tijdschrift voor Arbitrage 3, 6 (“doctrine must be rejected for several reasons”; “not clear-cut and definite”; “confusingly blurred”); Wilske, Shore & Ahrens, The “Group of Companies Doctrine” – Where Is It Headed?, 17 Am. Rev. Int'l Arb. 73, 77 et seq. (2006) (“no serious theoretical groundwork was done to justify its application”). A recent overview indicated that only a small number of jurisdictions http://www.kluwerarbitration.com/CommonUI/print.aspx
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surveyed had expressly recognized the group of companies doctrine. J. Wessel & A. Gsell (eds), Getting the Deal Through: Arbitration in 24 Jurisdictions Worldwide (2006). 159 There were, however, decisions that adopted essentially
identical analysis in other jurisdictions. See, e.g., Map Tankers, Inc, Owner v. MOBIL Ltd, Charter,Partial Final Award in Society of Maritime Arbitrators, Case No. 1510 (28 November 1980), VII Y.B. Comm. Arb. 151, 153 (1982) (“It is neither sensible nor practical to exclude the claims of companies who have an interest in the venture and who are members of the same corporate family”). 160 IX Y.B. Comm. Arb. 131 (1984). The arbitral tribunal was comprised of distinguished academics; it was chaired by Professor Pieter Sanders (one of the principal negotiators and drafters of the New York Convention), and the co-arbitrators were Professor Berthold Goldman and Professor Michel Vasseur. 161 IX Y.B. Comm. Arb. at 133. 162 IX Y.B. Comm. Arb. at 135. 163 It is doubtful that earlier arbitral awards had adopted reasoning that could fairly be characterized as the group of companies theory. See, e.g., Award in ICC Case No. 1434, 103 J.D.I. (Clunet) 978 (1976); Award in ICC Case No. 2375, 103 J.D.I. (Clunet) 973 (1976). 164 IX Y.B. Comm. Arb. at 136. 165 IX Y.B. Comm. Arb. at 135. The tribunal reiterated elsewhere that “the circ*mstances and the documents analyzed above show that such application conforms to the mutual intent of the parties.” Ibid. at 136-137. 166 Judgment of 21 October 1983, Société Isover-Saint-Gobain v. Société Dow Chem. France, 1984 Rev. arb. 98 (Paris Cour d'appel) (group of companies doctrine is “not seriously contested … as a usage of international commerce”). Subsequent French judicial decisions also approved awards based on the group of companies doctrines, albeit not always relying expressly on that doctrine. See, e.g., Judgment of 7 October 1999, Société Russanglia v. Société Delom, 2000 Rev. arb. 288 (Paris Cour d'appel); Judgment of 11 June 1991, Orri v. Société des Lubrifiants Elf Aquitaine, 1992 Rev. arb. 73 (French Cour de cassation civ. le); Judgment of 26 November 1986, Société Sponsor AB v. Lestrade, 1988 Rev. arb. 153 (Pau Cour d'appel) (group of companies doctrine “accepted in law”). 167 See, e.g., Award in ICC Case No. 5103, 115 J.D.I. (Clunet)
1206 (1988); Partial Award in ICC Case No. 5894, 2(2) ICC Ct. Bull. 25 (1991); Final Award in ICC Case No. 6519, 2(2) ICC Ct. Bull. 34 (1991); Interim Award in ICC Case No. 6610, XIX Y.B. Comm. Arb. 162 (1994); Jarvin, The Group of Companies Doctrine, in The Arbitration Agreement – Its Multifold Critical Aspects 181 (ASA Special Series No. 8 1994). 168 Award in ICC Case No. 5103, 115 J.D.I. (Clunet) 1206 (1988). 169 See, e.g., Partial Award in ICC Case No. 6000, 2(2) ICC Ct. Bull. 31, 34 (1991) (“it is largely admitted that by virtue of a usage of the international trade, where a contract, including an arbitration clause, is signed by a company which is a party to a group of companies, the other company or companies of the group which are involved in the execution, the performance and/or the termination of http://www.kluwerarbitration.com/CommonUI/print.aspx
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the contract are bound by the arbitration clause, provided the common will of the parties does not exclude such an extension, and even more so where the common will of the parties was to include a company of the group in the contractual relationship, even if such company did not formally sign the contract”); Award in ICC Case Nos. 7604 and 7610, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 510 (2003) (“[A]lthough the existence of a group is the first condition for joining a third party to the arbitration proceedings, it is also necessary to determine the parties' actual intention at the time of the facts or, at the very least the intention of the non-signatory third party.”). See also E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶501 (1999) (“The existence of the parties' consent is thus clearly the key issue”). There are some cases, involving considerations of estoppel, abuse of right, or good faith principles, where members of a corporate group would be bound by an arbitration agreement notwithstanding the parties' intentions. See infra pp. 1176-1178, 1193-1199. 170 See, e.g., Interim Award in ICC Case No. 4504, 113 J.D.I.
(Clunet) 1118 (1986) (expressing doubt regarding group of companies doctrine); Award in ICC Case No. 5721, 117 J.D.I. (Clunet) 1019, 1024 (1990) (“where a company or individual appears to be the pivot of the contractual relations in a particular matter, one should carefully examine whether the parties' legal independence ought not, exceptionally, be disregarded in the interests of making a global decision.”); Final Award in ICC Case No. 10758, 128 J.D.I. (Clunet) 1171 (2001) (group of companies must “be treated with caution”). 171 See, e.g., Final Award in ICC Case No. 10758, 128 J.D.I. (Clunet) 1171 (2001) (“The extension of an arbitration agreement to a non-signatory is not a mere question of corporate structure or control, but rather one of the non-signatory's participation in the negotiations, conclusion or performance of the contract, or its conduct towards the other party that the Arbitral Tribunal can infer.”); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.09 (3d ed. 2000); Derains, Note, 110 J.D.I. (Clunet) 905, 906 (1983) (“Only these companies of the group that played a part in the negotiation, conclusion or termination of the contract may thus find themselves bound by the arbitration clause, which, at the time of the signature of the contract, virtually bound the economic entity constituted by the group. Beyond the general principle, the arbitrators should thus appreciate on a case-by-case basis not only the existence of an intention of the members of the group to bind it as a whole, but also and especially, if such an intent is established, its practical effects vis-à-vis each of the companies of the group considered separately.”). 172 See, e.g., Award in ICC Case No. 5103, 115 J.D.I. (Clunet) 1206 (1988) (all members of group participated without distinction in performance of contract; upholding application of clause to nonsignatories); Award in ICC Case No. 5721, 117 J.D.I. (Clunet) 1019, 1024 (1990) (“The membership of two companies in the same group or the domination by one shareholder are never, in themselves, sufficient reasons to justify the automatic lifting of the corporate veil. However, when one company or one individual appears to be the linchpin of the contractual relationship in a particular matter, it should be carefully examined whether the legal independence of the parties should exceptionally be dismissed in favor of an overall assessment. http://www.kluwerarbitration.com/CommonUI/print.aspx
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One will accept such an exception when confusion maintained by the group or the majority shareholder is apparent”); Final Award in ICC Case No. 6519, 2(2) ICC Ct. Bull. 34 (1991) (the effects of an arbitration clause can be extended only to non-signatory companies which have distinct legal status if they were effectively or implicitly represented or if they played an active role during the preceding negotiations, or if they are directly concerned by the agreement which contains the arbitration clause). 173 See, e.g., Interim Award in ICC Case No. 4131, IX Y.B. Comm. Arb. 131, 135 (1984) (“in accordance with the mutual intention of all parties”); Award in ICC Case No. 5103, 115 J.D.I. (Clunet) 1206 (1988) (“the common intention of all parties”); Award in ICC Case No. 7155, 123 J.D.I. (Clunet) 1037 (1996) (no evidence of common intention to bind non-signatories); Award in ICC Case Nos. 7604 and 7610, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 510, 511 (2003) (authorities “recognize the extension of the legal effects of an arbitration agreement to a non-signatory third party when the circ*mstances of the operation under analysis show the existence of a common intention of the parties to the proceedings to consider this third party to be concerned directly by this operation or to be an actual party to the agreement containing the arbitration clause, or when the circ*mstances allow the presumption that this third party accepted to be subject to such agreement”); Final Award in ICC Case No. 11160, 16(2) ICC Ct. Bull. 99 (2005) (“active participation of [non-signatory] in the negotiation, preparation and conclusion of the Contract, and in some respects in the performance under it, determines that the intention of the parties can be reasonably inferred as to the extension of said Contract and the arbitration clause to [the nonsignatory]”); Award in ICC Case No. 11405, quoted in B. Hanotiau, Complex Arbitrations ¶105 n.142 (2005) (“there is no general rule, in French international arbitration law, that would provide that nonsignatory parties members of a same group of companies would be bound by an arbitration clause, whether always in or in determined circ*mstances. What is relevant is whether all parties intended nonsignatory parties to be bound by the arbitration clause. Not only the signatory parties, but also the non-signatory parties should have intended (or led the other parties to reasonably believe that they intended) to be bound by the arbitration clause …”). 174 See, e.g., Award in ICC Case No. 5721, 117 J.D.I. (Clunet) 1019 (1990) (“where a company or an individual appears to be the pivot of the contractual relations in a particular matter, one should carefully examine whether the parties' legal independence ought not, exceptionally, be disregarded in the interests of making a global decision. This exception is acceptable in the case of confusion deliberately maintained by the group or by the majority shareholder.”); Interim Award in ICC Case No. 6610, XIX Y.B. Comm. Arb. 162 (1991); Unpublished Ad Hoc Award of 3 March 1999, excerpted in de Boisséson, Joinder of Parties to Arbitral Proceedings: Two Contrasting Decisions, in Complex Arbitrations 19, 21 (ICC Ct. Bull. Spec. Supp. 2003). See also B. Hanotiau, Complex Arbitrations ¶¶104-213 (2005); E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶501 (1999); Vidal, The Extension of Arbitration Agreements within Groups of Companies: The Alter Ego Doctrine in Arbitral and Court Decisions, 16(2) ICC Ct. Bull. 63 (2005). 175 Award in ICC Case No. 2375, 103 J.D.I. (Clunet) 973 (1976). 176 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶504 (1999). See also supra p. 1169. http://www.kluwerarbitration.com/CommonUI/print.aspx
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177 See Hanotiau, L'arbitrage et les groupes de sociétés, II Cahiers
de l'arbitrage 11, 113 (2004) (“the existence of a group of companies gives a special dimension to the question of behavior as an expression of consent”). 178 See supra pp. 1153-1166. 179 See supra pp. 1169-1172; Partial Award in ICC Case No. 6000, 2(2) ICC Ct. Bull. 31, 34 (1991) (“[I]t is largely admitted that … where a contract, including an arbitration clause, is signed by a company which is a party to a group of companies, the other company or companies of the group which are involved in the execution, the performance and/or the termination of the contract are bound by the arbitration clause, provided the common will of the parties does not exclude such an extension, and even more so where the common will of the parties was to include a company of the group in the contractual relationship, even if such a company did not formally sign the contract.”) (emphasis added); Final Award in ICC Case No. 6519, 2(2) ICC Ct. Bull. 34, 35 (1991) (“[W]ithout denying the economic reality of a ‘group of companies,’ the scope of an arbitration clause may be extended to non-signatory companies with separate legal significance only if they played an active role in the negotiations leading to the agreement containing the clause, or if they are directly implicated in the agreement.”); Judgment of 31 October 1989, Kis France SA and KIS Photo Indus. SA v. Société Générale, XVI Y.B. Comm. Arb. 145 (Paris Cour d'appel) (1991) (arbitrator had correctly “inferred from the contractual relationships between the two groups of companies that there was a common intention of the parties” to be jointly bound) (emphasis added). 180 See supra pp. 1166-1174; Award in ICC Case No. 1434, 103 J.D.I. (Clunet) 978 (1976) (agreement stated that it was entered into on behalf of corporate group); Award in ICC Case No. 2375, 103 J.D.I. (Clunet) 973 (1976) (contract between two parent companies bound subsidiaries of each); Interim Award in ICC Case No. 4131, IX Y.B. Comm. Arb. 131 (1984) (parent company either signed contracts for subsidiaries or participated in their conclusion, performance and termination); Partial Award in ICC Case No. 5894, 2(2) ICC Ct. Bull. 25 (1991) (parent companies party to several contracts because “these agreements create a tight network of obligations to be discharged by or for the companies concerned”); Partial Award in ICC Case No. 8910, 127 J.D.I. (Clunet) 1085, 1094 (2000) (group of companies participated in negotiation of contract and common intent was for companies to be bound by arbitration clause). See also E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶500 (1999) (“[I]t is not so much the existence of a group that results in the various companies of the group being bound by the agreement signed by only one of them, but rather the fact that such was the true intention of the parties.”); J. Lew, L. Mistelis, & S. Kröll, Comparative International Commercial Arbitration ¶¶6–73, 6–74 (2003). Compare Hanotiau, Problems Raised by Complex Arbitrations Involving Multiple Contracts-Parties-Issues – An Analysis, 18 J. Int'l Arb. 253, 272 (2001) (“it seems that only a substantial involvement is considered sufficient to constitute consent or ratification. Some cases however suggest that a party's conduct should not necessarily be regarded as an expression of a party's implied consent; rather a party's substantial involvement in the negotiation and performance of the contract and the knowledge of the existence of the arbitration clause have a standing of their own, as a substitute for consent.”). 181 See, e.g., Final Award in ICC Case No. 6519, 2(2) ICC Ct. Bull. 34 (1991) (non-signatory joint venture bound by arbitration clause, http://www.kluwerarbitration.com/CommonUI/print.aspx
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because of central involvement in negotiations; two parent company non-signatories not bound by arbitration clause); Final Award in ICC Case No. 11160, 16(2) ICC Ct. Bull. 99 (2005) (non-signatory special purpose vehicle, which was involved during contract formation, subject to arbitration clause). Compare Award in ICC Case No. 7155, 123 J.D.I. (Clunet) 1037 (1996) (two non-signatories not bound because they were not part of corporate group when contract was concluded); Interim Award in ICC Case No. 4504, 113 J.D.I. (Clunet) 1118 (1986) (non-signatory not bound by arbitration clause, despite involvement of its representatives in negotiation and execution of contract). 182 See, e.g., Halcot Nav. Ltd v. Stolt-Nielsen Transp. Group, 491 F.Supp.2d 413 (S.D.N.Y. 2007) (time charterer and voyage charterer permitted to invoke arbitration clause against vessel owner, where clause was in time charter); Redmon v. Society & Corp. of Lloyds, 434 F.Supp.2d 1211 (M.D. Ala. 2006) (insurance underwriters and insurers both permitted to invoke arbitration clause); Fluor Daniel Intercont'l Inc. v. Gen. Elec. Co., 1999 WL 637236 (S.D.N.Y. 1999) (parent of signatory to construction contract, including arbitration clause, permitted to invoke clause). 183 See supra pp. 1169-1172; Judgment of 18 December 2001, LUKoil-Permnefteorgsintez, LLC v. MIR, 20 ASA Bull. 482 (Swiss Federal Tribunal) (2002) (upholding award finding non-signatory bound by arbitration clause because it assumed payment and other obligations under underlying contract). 184 Interim Award in ICC Case No. 4131, IX Y.B. Comm. Arb. 131, 134 (1984) (referring to “conclusion, execution or performance” of contract). 185 See, e.g., Award in ICC Case No. 7155, 123 J.D.I. (Clunet) 1037 (1996) (application of group of companies doctrine to related companies created after the contract was completed); Final Award in ICC Case No. 11160, 16(2) ICC Ct. Bull. 99 (2005) (piercing corporate veil after assessing, inter alia, the entities involved in the contract's performance). 186 See, e.g., Judgment of 30 November 1988, Korsnas Marma v. Durand-Auzias, 1989 Rev. arb. 691 (Paris Cour d'appel) (“an arbitration clause in an international contract has a validity and an effectiveness of its own, such that the clause must be extended to parties directly implicated in the performance of the contract and in any disputes arising out of the contract, provided that it has been established that their respective situations and activities raise the presumption that they were aware of the existence and scope of the arbitration clause, and irrespective of the fact that they did not sign the contract containing the arbitration agreement.”) (quoted in E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶505 (1999)). 187 See, e.g., Peterson Farms Inc. v. C&M Farming Ltd [2004] 1 Lloyd's Rep. 603 (Q.B.); Caparo Group Ltd v. fa*gor Arrasate Sociedad Coop. [2000] Arb. & Disp. Res. L.J. 254 (Q.B.). In Peterson Farms, an experienced ICC arbitral tribunal treated nonsignatory affiliates of an Indian respondent as parties to the arbitration agreement, thereby permitting them to recover damages in the arbitration; the tribunal's decision rested on the conclusion that, under Arkansas law, which was treated by the parties as identical to English law, “one company in the group can bind the other members to an agreement if such a result conforms to the mutual intentions of all of the parties and reflects the good usage of international commerce.” Peterson Farms Inc. v. C&M Farming Ltd http://www.kluwerarbitration.com/CommonUI/print.aspx
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[2004] 1 Lloyd's Rep. 603 (Q.B.). The English court rejected that analysis, holding that “the tribunal's approach to the issue is open to a number of substantial criticisms and is seriously flawed in law,” ultimately concluding, as noted in text, that “the Group of Companies doctrine … forms no part of English law.” Ibid. It is unclear whether English courts would give effect to foreign arbitral awards where a non-signatory was held subject to an arbitration agreement based upon the group of companies doctrine. Wilske, Shore & Ahrens, The “Group of Companies Doctrine” – Where Is It Headed?, 17 Am. Rev. Int'l Arb. 73, 81-82 (2006). In principle, there is no reason that an English court should not do so, provided that the law properly applicable to the agreement to arbitration contains a group of companies doctrine. 188 Peterson Farms Inc. v. C&M Farming Ltd [2004] 1 Lloyd's Rep.
603 (Q.B.). See also In re Scaplake [1978] 2 Lloyd's Rep. 380 (Q.B.). 189 See, e.g., Gaffney, The Group of Companies Doctrine and the Law Applicable to the Arbitration, 19(6) Mealey's Int'l Arb. Rep. 47 (2004); Leadley & Williams, Peterson Farms: There Is No Group of Companies Doctrine in English Law, 2004 Int'l Arb. L. Rev. 111; Wilske, Shore & Ahrens, The “Group of Companies Doctrine” – Where Is It Headed?, 17 Am. Rev. Int'l Arb. 73, 81-82 (2006); Woolhouse, Group of Companies Doctrine and English Arbitration Law, 20 Arb. Int'l 435 (2004). 190 Poudret, L'extension de la clause d'arbitrage: approches française et suisse, 122 J.D.I. (Clunet) 893, 913 (1995). 191 Judgment of 29 January 1996, 14 ASA Bull. 496 (Swiss Federal Tribunal) (1996) (rejecting arguments that non-signatory parent company was subject to arbitration clause, principally on veilpiercing/alter ego grounds). 192 Judgment of 16 October 2003, 22 ASA Bull. 364, 382 (Swiss Federal Tribunal) (2004) (refusing to annul award where arbitral tribunal, seated in Switzerland, applied Lebanese law, and group of companies doctrine, to bind non-signatory shareholder). 193 Judgment of 20 January 2006, C04/174HR (Netherlands Hoge Raad) (requiring that agreement to arbitrate be clear and unequivocal and affirming annulment of arbitral award binding nonsignatory affiliates). 194 See, e.g., Award in ICC Case No. 2138, in S. Jarvin & Y. Derains (eds.), Collection of ICC Arbitral Awards 1974-1985 242 (1990) (refusing to apply group of companies doctrine to nonsignatory respondent; “it was not demonstrated that [it] would have accepted the arbitration clause if it had signed the contract”); Award in ICC Case No. 3742, 111 J.D.I. (Clunet) 910 (1984); Partial Award in ICC Case No. 4402, IX Y.B. Comm. Arb. 138 (1984); Interim Award in ICC Case No. 4504, 113 J.D.I. (Clunet) 1118 (1986) (nonsignatory not subject to arbitration agreement under group of companies doctrine in Swiss-seated arbitration); Award in ICC Case No. 5281, 7 ASA Bull. 313 (1989) (same); Interim Award in ICC Case No. 6610, XIX Y.B. Comm. Arb. 162 (1994) (same); Final Award in ICC Case No. 9839, XXIX Y.B. Comm. Arb. 66 (2004) (non-signatory not subject to arbitration agreement under group of companies doctrine); Partial Award in ICC Case No. 10818, 16(2) ICC Ct. Bull. 94 (2005) (non-signatory not subject to arbitration agreement because it was not interchangeable in contract performance). http://www.kluwerarbitration.com/CommonUI/print.aspx
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195 See, e.g., Award in Geneva Chamber of Commerce of 24
March 2000, 21 ASA Bull. 781 (2003) (“the principle according to which a company may be considered a party to a contractual undertaking made by another company as a consequence of the fact that both companies belong to a group which constitutes one economic reality, does not exist in Switzerland de lege lata.”); Ad Hoc Award in Geneva of 1991, 10 ASA Bull. 202 (1992) (no group of companies doctrine in Swiss law); Interim Award in ICC Case No. 4504, 113 J.D.I. (Clunet) 1118 (1986); Award in ICC Case No. 8385, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 474 (2003). 196 See generally supra pp. 662-664, 1152, 1141 & 1147. 197 See supra pp. 72-76. 198 See supra pp. 1174-1176. 199 Compare the comparable treatment of corporate officers and directors under some national legal systems. See infra pp. 11991201 See also infra pp. 1209-1210. 200 See, e.g., Award in ICC Case No. 9138, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 132-133 (2001) (group of companies doctrine designed to “avoid manipulations which are contrary to the principle that in performing their contractual obligations the parties have to act in good faith”); Award in ICC Case No. 5721, 117 J.D.I. (Clunet) 1019, 1024 (1990) (“where a company or an individual appears to be the pivot of the contractual relations in a particular matter, one should carefully examine whether the parties' legal independence ought not, exceptionally, be disregarded in the interests of making a global decision. This exception is acceptable in the case of confusion deliberately maintained by the group or by the majority shareholder”). 201 An application of alter ego analysis in these circ*mstances may sometimes be more appropriate than application of a group of companies analysis. As noted above, the former is directed towards disregarding separate corporate forms in cases of fraud and similar conduct. See supra pp. 1153-1162. 202 See, e.g., Ad Hoc Interim Award of 9 September 1983, XII Y.B. Comm. Arb. 63 (1987) (considering abuse of right as being the basis for the “group of companies” analysis); Vidal, The Extension of Arbitration Agreements within Groups of Companies: The Alter Ego Doctrine in Arbitral and Court Decisions, 16(2) ICC Ct. Bull. 63 (2005). 203 In Interim Award in ICC Case No. 4131, IX Y.B. Comm. Arb. 131, 133 (1984), the tribunal held that: “the sources of law applicable to determine the scope and the effects of an arbitration clause providing for international arbitration do not necessarily coincide with the law applicable to the merits of a dispute submitted to such arbitration. The tribunal shall, accordingly, determine the scope and effects of the arbitration clauses in question, and thereby reach its decision in regarding jurisdiction, by reference to the common intent of the parties to these proceedings, such as it appears from the circ*mstances that surround the conclusion and characterize the performance, and later the termination of the contracts in which they appear. In doing so, the tribunal, following, in particular, French case law relating to international arbitration should also take into account, usages conforming to the needs of international commerce, in particular, in the presence of a group of companies.” See also Judgment of 26 November 1986, Société Sponsor AB v. Lestrade, 1988 Rev. arb. 153 (Pau Cour d'appel) http://www.kluwerarbitration.com/CommonUI/print.aspx
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(group of companies doctrine “is acknowledged at law.”). 204 Award in ICC Case No. 8385, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1996-2000 474 (2003) (applying lex mercatoria). 205 See supra pp. 514-516 See also infra pp. 1214-1217. 206 See infra pp. 1212-1214 for a discussion of these principles. 207 See J. Herbots (ed.), International Encyclopaedia of Laws – Contracts ¶138 (Australia), ¶240 (Austria), ¶280 (Denmark), ¶609 (India), ¶253 (Romania) (1999); UNIDROIT, UNIDROIT Principles of International Commercial Contracts Art. 5.2.1 (2004); Restatement (Second) Contracts §304 (1981) (“A promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty.”) (emphasis added); Schmidt-Szalewski, in J. Herbots (ed.), Encyclopedia of International Contract Law ¶285 France (1999) (according to French law “a contract may incidentally affect third parties, by creating rights demurrable against them, or by giving rise to a duty of care to a third party. The fact of the contract may thus be invoked against third parties and by them.”). In England, the Contracts (Rights of Third Parties) Act, 1999, provides in §8 that, where a substantive term of a contract is subject to an arbitration agreement, then that term cannot be conferred on a third-party beneficiary without also subjecting that party to the arbitration agreement. English Contracts (Rights of Third Parties) Act, 1999, §§1, 8; R. Merkin, Arbitration Law ¶¶17.39 to 17.41 (2004 & Update 2007). The Act also permits exclusion of third-party beneficiary rights. Contracts (Rights of Third Parties) Act, 1999, §1. 208 Final Award in ICC Case No. 9762, XXIX Y.B. Comm. Arb. 26
(2004). 209 See, e.g., Nauru Phosphate Royalties, Inc. v. Drago Daic Interests, Inc., 138 F.3d 160, 166 (5th Cir. 1998) (confirming award against non-signatory third-party beneficiaries); Spear, Leeds & Kellogg v. Cent. Life Assur. Co., 85 F.3d 21, 27 (2d Cir. 1997); Fink v. Carlson, 856 F.2d 44, 46 n.3 (8th Cir. 1988) (“Of course, if the third party beneficiary seeks to enforce the contract, he will be bound by the contract's limitations …”); Black & Veatch Int'l Co. v. Wartsila NSD N. Am., Inc., 1998 U.S. Dist. LEXIS 20732 (D. Kan. 1998) (third-party beneficiary of underlying contract bound by arbitration clause contained in contract); Bevere v. Oppenheimer & Co., 862 F.Supp. 1243 (D.N.J. 1994) (party asserting claims under agreement is bound by arbitration clause contained in agreement); Benton v. Vanderbilt Univ., 137 S.W.3d 614 (Tenn. 2004); TractorTrailer Supply Co. v. NCR Corp., 873 S.W.2d 627 (Mo. Ct. App. 1994) (third party beneficiary that invokes contract is bound by arbitration clause contained therein); Judgment of 9 September 1999, 1999 BayobLGZ 255, 267 (Bavarian Oberstes Landesgericht) (arbitration agreement can be concluded with effect for third party beneficiaries). 210 See, e.g., Newby v. Enron Corp., 391 F.Supp.2d 541 (S.D. Tex. 2005) (“non-signatories may enforce arbitration agreements if they were intended third-party beneficiaries”); Nisshin Shipping Co. v. Cleaves & Co. [2004] 1 All E.R. (Comm.) 481 (Q.B.) (brokers, who had status as third party beneficiaries of charter parties, entitled to arbitrate against party thereto). 211 See, e.g., Final Award in ICC Case No. 9839, XXIX Y.B. Comm. Arb. 66 (2004) (payment provisions of contract contradicted http://www.kluwerarbitration.com/CommonUI/print.aspx
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third-party beneficiary argument); Brantley v. Republic Mortg. Ins. Co., 424 F.3d 392, 396-97 (4th Cir. 2005) (non-signatory could not enforce arbitration agreement as third party beneficiary because agreement “does not clearly indicate that, at the time of contracting, the parties intended to provide [the non-signatory] with a direct benefit”); Zurich Am. Ins. Co. v. Watts Indus., Inc., 417 F.3d 682 (7th Cir. 2005) (declining to extend arbitration clause to defendant who neither sought nor received benefits under contract); Tamayo v. Brainstorm USA, 93 Fed.Appx. 126, 128 (9th Cir. 2004) (denying defendant's motion to compel arbitration because, had the parties intended defendant to be third-party beneficiary, “such intent easily could have been expressed in the [arbitration] agreement”); McCarthy v. Azure, 22 F.3d 351, 362 n.16 (1st Cir. 1994) (“Because third-party beneficiary status constitutes an exception to the general rule that a contract does not grant enforceable rights to nonsignatories, a person aspiring to such status must show with special clarity that the contracting parties intended to confer a benefit on him”: declining to extend arbitration agreement to non-signatory claiming to be third-party beneficiary because agreement did not evidence such intent, and requirements for binding third party beneficiary “are not satisfied merely because a third party will benefit from performance of the contract”); In re Infocure Sec. Lit., 210 F.Supp.2d 1331 (N.D. Ga. 2002) (“third parties may sue on the contract only if the contract was intended for their incidental benefit”); Hugh Collins v. Int'l Dairy Queen, Inc., 2 F.Supp.2d 1465 (N.D. Ga. 1998) (where arbitration clause applied to the “parties hereto” the third party beneficiary could invoke it, but where arbitration clause referred specifically to defined parties, not including third party beneficiary, the latter could not invoke it). 212 See, e.g., E.I. DuPont de Nemours, 269 F.3d 187 (“Under third party beneficiary theory, a court must look to the intentions of the parties at the time the contract was executed. Under the equitable estoppel theory, a court looks to the parties' conduct after the contract was executed.”); McCarthy, 22 F.3d at 362 (“the crux in third-party beneficiary analysis … is the intent of the parties”). More than merely incidental benefits must ordinarily be involved to confer third-party beneficiary status. See, e.g., Am. Bureau of Shipping v. Tencara Shipyard SpA, 170 F.3d 349, 352 (2d Cir. 1999) (ordering arbitration because the nonsignatory received direct benefits of a lower insurance rate and ability to sail under French flag as result of agreement containing arbitration provision); Cargill Int'l, SA v. M/T Pavel Dybenko, 991 F.2d 1012, 1019-20 (2d Cir. 1993) (“it isn't enough that some benefit incidental to the performance of the contract may accrue to it”); Dannewitz v. Equicredit Corp. of Am., 333 Ill.App.3d 370, 373 (Ill. App. 2002) (“Where it is shown that the signatories to the agreement intended that the nonsignatories were to derive benefits from the agreement and where the arbitration clause itself is susceptible to this interpretation, then arbitration is proper.”). 213 See infra pp. 1193-1198; Sunkist Soft Drinks, Inc. v. Sunkist
Growers, Inc., 10 F.3d 753 (11th Cir. 1993); Hughes Masonry Co., 659 F.2d at 838. 214 Hughes Masonry Co., 659 F.2d at 838; Thomson-CSF, 64 F.3d 773 (if party “directly benefited” from underlying contract, “it would be estopped from avoiding arbitration” pursuant to arbitration clause in contract). 215 See infra pp. 1193-1198. http://www.kluwerarbitration.com/CommonUI/print.aspx
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216 See supra pp. 425 et seq. 217 See, e.g., Am. Patriot Ins. Agency, Inc. v. Mut. Risk Mgt, Ltd,
364 F.3d 884, 890 (7th Cir. 2004) (remanding to district court to determine whether under the law governing the underlying contract the plaintiff is the third-party beneficiary and therefore subject to the contract's arbitration agreement). Also applicable are the validation principle (discussed above, supra pp. 497-504, 514-516) and international principles prohibiting discriminatory and idiosyncratic national law rules (discussed above, supra pp. 504-514, 514-516). 218 For commentary, see Hanotiau, Arbitration and Bank
Guarantees – An Illustration of the Issue of Consent to Arbitration in Multicontract-Multiparty Disputes, 16(2) J. Int'l Arb. 15 (1999); Leurent, Guaranties bancaires et arbitrage, 1990 Rev. dr. aff. int'l 414; Smit, When Does An Arbitration Clause Extend to A Guarantee that Does Not Contain It?, 2003-1 Stockholm Arb. Rep. 273. 219 Hanotiau, Arbitration and Bank Guarantees – An Illustration of the Issue of Consent to Arbitration in Multicontract-Multiparty Disputes, 16(2) J. Int'l Arb. 15 (1999); P. Wood, Comparative Law of Security and Guarantees 334 et seq. (1995) (describing various forms of guarantees in international business); Ruiz Del Rio, Arbitration Clauses in International Loans, 4(3) J. Int'l Arb. 45, 50 (1987) (describing “the practically unavoidable presence of guarantors” in context of international arbitrations); R. Bertrams, Bank Guarantees in International Trade ¶1-1 (3d ed. 2004). 220 See, e.g., Hanotiau, Arbitration and Bank Guarantees – An Illustration of the Issue of Consent to Arbitration in MulticontractMultiparty Disputes, 16(2) J. Int'l Arb. 15 (1999) Partial Award in ICC Case No. 3896,110 J.D.I. (Clunet) 914 (1983). 221 See, e.g., Judgment of 16 May 2002, Case No. T 4496-01 (Svea Court of Appeal), reprinted and discussed in S. Jarvin & A. Magnusson (eds.), International Arbitration Court Decisions 643 (2006) (upholding award declaring that guarantor (by state entity) was bound by arbitration clause in guaranteed contract); Judgment of 16 March 1978, Inex Film and Inter-Export v. Universal Pictures, 1978 Rev. arb. 501 (Paris Cour d'appel); Kvaerner v. Bank of TokyoMitsubishi, 210 F.3d 262, 265 (4th Cir. 2000) (compelling guarantor to arbitrate dispute on underlying contract because guaranty agreement mandated that “the same ‘rights and remedies’” be available to parties as under contract); Maxum Found., Inc. v. Salus Corp., 779 F.2d 974 (4th Cir. 1985); Exchange Mut. Ins. Co. v. The Haskell Co., 742 F.2d 274 (6th Cir. 1984); Compania Espanola de Petroleos SA v. Nereus Shipping, SA, 527 F.2d 966 (2d Cir. 1975); Son Shipping Co. v. De Fosse & Tanghe, 199 F.2d 687, 688 (2d Cir. 1952); Dev. Bank of Philippines v. Chemtex Fibers Inc., 617 F.Supp. 55 (S.D.N.Y. 1985) (guarantor of loan agreement, that also signed loan agreement, bound by arbitration clause in that agreement); Banque de Paris et des Pays-Bas v. Amoco Oil Co., 573 F.Supp. 1464 (S.D.N.Y. 1983); Midland Tar Distilleries, Inc. v. M/T Lotus, 362 F.Supp. 1311, 1313 (S.D.N.Y. 1973); Lowry & Co. v. SS Le Moyne D'Iberville, 253 F.Supp. 396, 398 (S.D.N.Y. 1966); In re Hidrocarburos y Derivados, CA v. Lemos, 453 F.Supp. 160 (S.D.N.Y. 1977). 222 See, e.g., Astra Oil Co. v. Rover Nav. Ltd, 344 F.3d 276 (2d Cir. 2003); Choctaw Generation Ltd v. Am. Home Assur. Co., 271 F.3d 403 (2d Cir. 2001) (surety may invoke arbitration clause in http://www.kluwerarbitration.com/CommonUI/print.aspx
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underlying contract); Fujian Pac. Elec. Co. v. Bechtel Power Corp., 2004 U.S. Dist. LEXIS 23472 (N.D. Cal. 2004) (claims against guarantor, related to claims against guaranteed parties which were being arbitrated, stayed). 223 See, e.g., Bridas SAPIC, 345 F.3d at 357 (“typically a guarantor cannot be compelled to arbitrate on the basis of an arbitration clause in a contract to which it is not a party”); Asplundh Tree Expert Co. v. Bates, 71 F.3d 592, 595 (6th Cir. 1995) (guarantor not generally bound by arbitration clause in guaranteed contract); Proshred Holdings Ltd v. Conestoga Document, 2002 WL 1067328, at *3 (N.D. Ill. 2002) (“guarantors for the performance of a contract are bound by the arbitration clause in that contract only when they expressly agree to the obligation to arbitrate”); Grundstad v. Ritt, 166 F.3d 867 (7th Cir. 1999); Hester Int'l Corp., 879 F.2d at 176; Interocean Shipping Co., 523 F.2d 527; Nissho Iwai Corp. v. Mizushima Marinera SA, 1996 WL 904562, at *3 (D.N.J. 1996); Taiwan Nav. Co. v. Seven Seas Merchants Corp., 172 F.Supp. 721 (S.D.N.Y. 1959). 224 See, e.g., Judgment of 22 November 1977, 1978 Rev. arb. 461 (French Cour de cassation com.); Judgment of 16 July 1992, 1993 Rev. arb. 611 (French Cour de cassation civ. 1e) (guarantor not bound by an arbitration clause in the guaranteed contract); Judgment of 7 July 1994, Uzinexport-Import Romanian Co. v. Attock Cement Co., 1995 Rev. arb. 107 (Paris Cour d'appel) (corporate guarantor of turnkey contract not party to arbitration clause in contract). See also Hanotiau, Arbitration and Bank Guarantees – An Illustration of the Issue of Consent to Arbitration in MulticontractMultiparty Disputes, 16(2) J. Int'l Arb. 15 (1999). 225 See, e.g., Judgment of 26 May 2005, Interactive Television, SA v. Satcom Nederland BV y Banco de Bilbao Vizcaya, SA, Case No. 4680/1998, http://jur.poderjudicial.es (Spanish Tribunal Supremo) (arbitration clause binding on those companies “directly implicated in the execution of the contract”; claimant permitted to pursue arbitration against non-signatory guarantor). 226 See W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶5.10 (3d ed. 2000) (“The answer depends to a considerable extent on the wording of the guarantee”). 227 See, e.g., ITT Hartford Life & Annuity Ins. Co. v. Amerishare Inv., Inc., 133 F.3d 664, 669-70 (8th Cir. 1998) (denying nonsignatory guarantors right to compel arbitration because, among other things, guarantee agreements do not obligate guarantors to assume rights and duties in underlying marketing contract); Compania Espanola de Petroleos SA, 527 F.2d at 973 (“[t]he determination of whether a guarantor is bound by an arbitration clause contained in the original contract necessarily turns on the language chosen by the parties in the guaranty”; distinguishing broader language in guaranty and arbitration clauses at issue from narrower language of such clauses in other cases); Minera Alumbrera Ltd v. Fluor Daniel, Inc., 1999 WL 269915, at *5 (S.D.N.Y. 1999) (denying non-signatory guarantor right to compel arbitration when arbitration clause at issue “applies only to disputes ‘arising from’ and/or ‘arising under,’ in contrast with clauses that state that they apply to ‘[a]ll disputes arising in connection with the present contract’”); O & Y Landmark Assoc. of Virginia v. Nordheimer, 725 F.Supp. 578 (D.D.C. 1989). 228 See, e.g., Asplundh Tree Expert Co. v. Bates, 71 F.3d 592 (6th Cir. 1995); United States Fidelity & Guaranty Co. v. Westpoint Constr. Co., 837 F.2d 1507 (11th Cir. 1988); Imp. Exp. Steel Corp. v. Mississippi Valley Barge Line Co., 351 F.2d 503 (2d Cir. 1965); The http://www.kluwerarbitration.com/CommonUI/print.aspx
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Rice Co. (Suisse) v. M/V Nalinee Naree, 2007 WL 26794, at *1 (S.D. Tex. 2007) (“Where the restrictive ‘owner/charterer’ language is used in the arbitration clause, it is indeed difficult to bind to that clause one who is not a signatory to the charter party.”); Trade Arbed Inc. v. M/V Kandalaksha, 2003 WL 22097460 (S.D.N.Y. 2003); Progressive Cas. Ins. Co., 802 F.Supp. at 1079 (“It is well settled in this circuit that an arbitration agreement restricted to the immediate parties does not bind a non-party, notwithstanding words of incorporation or reference in a separate contract by which that non-party is bound.”); Continental U.K. Ltd v. Anagel Confidence Compania Naviera, SA, 658 F.Supp. 809, 814 (S.D.N.Y. 1987). Compare Gruntstad v. Ritt, 106 F.3d 201 (7th Cir. 1997) (guarantor not bound by arbitration clause referring to “parties”). 229 See, e.g., Grundstad v. Ritt, 166 F.3d 867 (7th Cir. 1999); Interocean Shipping Co., 523 F.2d at 539; Phelps Dodge Corp. v. Schumacher Elec. Corp., 2004 WL 3992 (N.D. Ill. 2004); Dunn Indus. Group, Inc. v. City of Sugar Creek, 112 S.W.3d 421, 435-36 (Mo. 2003). Compare Kvaerner v. Bank of Tokyo-Mitsubishi, 210 F.3d 262 (4th Cir. 2000) (bank guarantor bound to arbitration clause in guaranteed contract by virtue of guarantee giving guarantor same “rights and remedies” as guaranteed party). 230 See, e.g., Judgment of 16 March 1978, Inex Film and InterExport v. Universal Pictures, 1978 Rev. arb. 501, 515 (Paris Cour d'appel) (guarantor subject to arbitration clause in underlying contract); Award in Bulgarian Chamber of Commerce and Industry, Case No. 60/1980 (1 October 1980), XII Y.B. Comm. Arb. 84 (1987) (same); Choctaw Generation Ltd v. Am. Home Assur. Co., 271 F.3d 403 (2d Cir. 2001) (granting non-signatory guarantor's motion to compel arbitration when guarantee incorporated by reference, and intertwined with, master construction contract already in arbitration among signatories); Astra Oil Co. v. Rover Nav. Ltd, 344 F.3d 276 (2d Cir. 2003); United States Fidelity Co. v. West Point Constr. Co., 837 F.2d 1507 (11th Cir. 1988) (guarantor subject to arbitration clause in underlying contract); Israel v. Chabra, 2005 WL 589400 (S.D.N.Y. 2005); Fujian Pac. Elec. Co. v. Bechtel Power Corp., 2004 U.S. Dist. LEXIS 23472 (N.D. Cal. 2004); HG Estate LLC v. Corporacion Durango SA de CV, 271 F.Supp.2d 587, 592-95 (S.D.N.Y. 2003) (finding that parent corporation, which had signed guarantee and indemnification agreements, could compel arbitration on underlying contract even if it was non-signatory). See also E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶498 (1999) (guarantor is not typically bound by arbitration clause “unless it can be established from other circ*mstances that the parties' true intentions in drawing up the guarantee were that the guarantor–often the parent company–would be party to the arbitration agreement”). 231 See, e.g., Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993) (non-signatory local affiliate, who used a trade name pursuant to an agreement that it ratified which contained an arbitration clause, was estopped from relying on its nonsignatory status to avoid arbitrating under the agreement); Int'l Paper Co., 206 F.3d at 418. 232 E.g., Minera Alumbrera Ltd v. Fluor Daniel, Inc., 1999 WL 269915 (S.D.N.Y. 1999) (applying law governing the guarantee to determine whether guarantor was bound to arbitration agreement). 233 See supra pp. 497-504, 514-516. 234 For commentary, see Cremades, Problems That Arise From Changes Affecting One of the Signatories to the Arbitration Clause, 7(2) ICC Ct. Bull. 29 (1996); P. Blumberg, K. Strasser, N. http://www.kluwerarbitration.com/CommonUI/print.aspx
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Georgerkopoulos & E. Gouvin, Blumberg on Corporate Groups §32.04, 32-10 et seq. (2d ed. 2005). 235 See, e.g., Judgment of 19 May 2003, 22 ASA Bull. 344, 348 (Swiss Federal Tribunal) (2004) (“in principle, an arbitration clause is binding only on those parties which have entered into a contractual agreement to submit to arbitration, whether directly or indirectly through their representatives. Exceptions to this rule arise in cases of legal succession”); Judgment of 8 February 2000, 2000 RTD Com. 596 (French Cour de cassation civ. 1e) (“international arbitration clause is binding on any party that is a successor to one of the contractual partners”); Int'l Bhd Elec. Workers, Local No. 234 v. Witcher Elec., Inc., 1990 WL 89315, at *4 (9th Cir. 1990) (“a party not a signatory to an arbitration agreement cannot be forced to arbitration until and unless the court has found that it is bound by the agreement as … successor of the signatory company”). 236 See, e.g., Mercantile Home Bank & Trust Co. v. United States, 96 F.2d 655, 659-60 (8th Cir. 1938) (in both consolidations and mergers “the new corporation acquires all the assets, property rights, and franchises of the dissolved corporations, and their stockholders become its stockholders”); 19 Am.Jur.2d Corporations §2168 (2007) (“A merger is often defined as the absorption of one corporation by another”); 15 Fletcher Cyclopedia Corporations §7041 (2007) (“Strictly speaking, a merger means the absorption of one corporation by another; the latter retains its name and corporate identity with the added capital, franchises and powers of the merged corporation.”); French Civil Code, Art. 1844-4 (“A company … can be absorbed by another company or participate to the constitution of a new company by means of merger”); Swiss Federal Law on Mergers, Demergers, Transformation and Transfer of Assets, Art. 3; German Umwandlungsgesetz, §1. 237 See, e.g., Award in ICC Case No. 2626, 105 J.D.I. (Clunet) 980 (1978) (conversion of limited liability company into a joint stock corporation had effect of transferring obligations of limited liability company to joint stock corporation as its successor); Award in ICC Case No. 6754, in J.-J. Arnaldez, Y. Derains & D. Hascher (eds.), Collection of ICC Arbitral Awards 1991-1995 600 (1997) (restructuring of state companies, resulting in the transfer of all assets and liabilities, including contractual rights and obligations, of company B to company C). See also A. Bonnasse, JurisClasseur Sociétés, Traité, Fasc. 161-10 ¶11 (2001) (“The universal transmission of assets, arising out of successoral rules, means that the entire rights and obligations of the absorbed company are automatically transferred to the absorbing company”); Swiss Federal Law on Mergers, Demergers, Transformation and Transfer of Assets, Art. 22; German Umwandlungsgesetz, §20(1)1; 19 Am.Jur.2d Corporations §2254 (2007) (“[U]nless there is some provision to the contrary, either in the statute or agreement of consolidation or merger, the consolidated or resulting corporation succeeds to the powers, privileges, and property of the constituents or merged corporation.”). 238 See, e.g., Fyrnetics (H.K.) Ltd v. Quantum Group, Inc., 293 F.3d 1023, 1029 (7th Cir. 2002) (successor company bound by arbitration agreement that was signed by entity that was merged into successor company and then dissolved); Judgment of 13 June 1963, 1964 Rev. arb. 125 (Paris Cour d'appel); Judgment of 9 June 1998, C. Srl v. L.S. SA, 16 ASA Bull. 653 (Swiss Federal Tribunal) (1998); Award in ICC Case No. 3281, 109 J.D.I. (Clunet) 990 (1982) (“[I]t results from the terms of the minutes of the Shareholders meeting [approving the merger between Z and X] that Z is subrogated in all the rights and obligations of X, notably on those http://www.kluwerarbitration.com/CommonUI/print.aspx
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resulting from [the arbitration agreement].”); Award in ICC Case No. 3742, 111 J.D.I. (Clunet) 910 (1984). See also E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶715 (1999); A. Redfern & M. Hunter (eds.), Law and Practice of International Commercial Arbitration ¶3-36 (4th ed. 2004); J.-F. Poudret & S. Besson, Comparative Law of International Arbitration ¶290 (2d ed. 2007). 239 See, e.g., Judgment of 15 October 1997, MS “EMJA” Braack Schiffahrts KG v. Wartsila Diesel Aktiebolag, XXIV Y.B. Comm. Arb. 317 (Swedish S.Ct.) (1999) (“It must generally be accepted that where a change in parties has taken place by a universal assignment, the universal successor is bound by the arbitration clause…”); Judgment of 8 February 2000, 2000 RTD Com. 596 (French Cour de cassation civ. 1e) (“The international arbitration clause is binding on any party that is a successor to one of the contractual partners.”); AT&S Transp., LLC v. Odyssey Logistics & Tech. Corp., 803 N.Y.S.2d 118 (N.Y. App. Div. 2005) (sale of substantially all assets of predecessor company constituted de facto merger and bound successor company to arbitration agreement signed by predecessor); Vann v. Kreindler, Relkin & Goldberg, 54 N.Y.2d 936, 938 (N.Y. App. Div. 1981) (“By treating that agreement as continuing in force after the dissolution of the original partnership, the members of the successor partnership demonstrated their intention to be governed by that agreement's arbitration clause”). 240 See, e.g., Award in ICC Case No. 2626, 105 J.D.I. (Clunet) 980 (1978); Interim Award in ICC Case No. 3879, XI Y.B. Comm. Arb. 127 (1986) (noting possibility of transfer of rights/duties under arbitration agreement by “universal succession”); Award in ICC Case No. 6223, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 142 (2001) (signatory to arbitration agreement had been merged into another entity, and ceased to exist, meaning that only latter entity was party to arbitration agreement); Interim Award in ICC Case No. 7337, XXIVa Y.B. Comm. Arb. 149, 153 (1999) (“It is a general principle of law that a contract can bind only the parties that have entered into it. There are, however, exceptions. A party may be substituted by universal succession or singular succession. An agreement to arbitrate is therefore valid between the parties and their legal successors.”); Final Award in ICC Case No. 9762, XXIX Y.B. Comm. Arb. 26 (2004) (one state ministry held to be successor to earlier ministry and therefore bound by contract and arbitration clause). 241 See, e.g., John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 548-51 (U.S. S.Ct. 1964) (holding that employer, who was successor to merged entity that had entered into arbitration agreement with employees, was bound by arbitration agreement because there was “substantial continuity of identity,” and public policy argues in favor of binding successor entities to arbitration agreements in such circ*mstances); Award in ICC Case No. 2626, 105 J.D.I. (Clunet) 980 (1978) (“The dominant trend in case law holds that an arbitration agreement is not only valid between the parties, but can also be relied upon against their heirs, their legatees, their assignees and all those acquiring obligations. The only exceptions are cases where the arbitration agreement is drafted in such a way as to exclude successors and assignees.”). 242 Courts usually apply the same law to determine succession to an arbitration agreement without analysis. See, e.g., Fyrnetics (H.K.) Ltd v. Quantum Group, Inc., 293 F.3d 1023 (7th Cir. 2002); AT&S Transp., LLC v. Odyssey Logistics & Tech. Corp., 803 N.Y.S.2d 118 (N.Y. App. Div. 2005) (sale of substantially all assets of predecessor http://www.kluwerarbitration.com/CommonUI/print.aspx
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company constituted de facto merger and bound successor company to arbitration agreement signed by predecessor). The better view is that the validation principle applies, providing for succession to the arbitration agreement if that result would be obtained under either the law governing the underlying succession (e.g., the merger) or the arbitration agreement. Further, national law rules of succession would be subject to international prohibitions against discriminatory and idiosyncratic legislation. See supra pp. 497-504, 514-516. Thus, if local law provided that all obligations of a locally-incorporated company were transferred in a merger or other reorganization, with the exception of agreements to arbitrate (either generally or with foreign companies), that limitation would be ineffective under the Convention's neutrality and non-discrimination principles. 243 For commentary, see Girsberger & Hausmaninger, Assignment
of Rights and Agreement to Arbitrate, 8 Arb. Int'l 121 (1992); Jagusch & Sinclair, The Impact of Third Parties on International Arbitration – Issues of Assignment, in A. Mistelis & J. Lew (eds.), Pervasive Problems in International Arbitration 291 (2006); MantillaSerrano, International Arbitration and Insolvency Proceedings, 11 Arb. Int'l 67 (1995); Werner, Jurisdiction of Arbitrators in Case of Assignment of An Arbitration Clause: On A Recent Decision by the Swiss Supreme Court, 8(2) J. Int'l Arb. 13 (1991); Yang, Who Is A Party? The Case of the Non-Signatory (Assignment), 2005 Asian Disp. Res. 43. 244 Similar issues may arise in cases of transfer or assumption of some (but not all) contractual rights or duties. See, e.g., Trippe Mfg Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005) (“Under New York law, the assignee of rights under a bilateral contract is not bound to perform the assignor's duties under the contract unless he expressly assumes that obligation … That said, when an assignee assumes the liabilities of an assignor, it is bound by an arbitration clause in the underlying contract.”); Fyrnetics (H.K.) Ltd, 293 F.3d at 1029 (finding a non-signatory successor bound by agreement to arbitrate contained within license agreement when it paid royalties under that agreement); Judgment of 18 December 2001, LUKoilPermnefteorgsintez, LLC v. MIR, 20 ASA Bull. 482 (Swiss Federal Tribunal) (2002) (transferee assumed obligations and indebtedness of contracting party, which carried with it the obligation to arbitrate); GMAC Comm. Credit LLC v. Springs Indus., Inc., 171 F.Supp.2d 209 (S.D.N.Y. 2001) (assignee was subject to underlying contract's arbitration clause because, among other things, arbitration is contractual remedy, not obligation, and assignee did not secure waiver); Gruntal & Co., Inc. v. Steinberg, 854 F.Supp. 324, 335-36 (D.N.J. 1994) (assignee not bound by arbitration provision when assignee expressly renounced assumption of obligations of assignor prior to closing date on asset purchase agreement); Cone Constr., Inc. v. Drummond Cmty. Bank, 754 So.2d 779 (Fla. Dist. Ct. App. 2000) (assignee was subject to underlying contract's arbitration clause); Thomson-CSF, 64 F.3d 773 (parent did not assume obligation of recently purchased subsidiary's obligation to subsidiary's supplier to arbitrate disputes because parent did not manifest intention to be bound by agreement and explicitly disavowed any obligations arising out of agreement); Gvozdenovic, 933 F.2d at 1105; Matter of Arbitration Between Keystone Shipping Co. and Texport Oil Co., 782 F.Supp. 28 (S.D.N.Y. 1992). 245 E.g., Cotton Club Estates Ltd v. Woodside Estates Co. [1928] 2 http://www.kluwerarbitration.com/CommonUI/print.aspx
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K.B. 463 (K.B.). 246 See Girsberger & Hausmaninger, Assignment of Rights and Agreement to Arbitrate, 8 Arb. Int'l 121 (1992). 247 See, e.g., Judgment of 15 October 1997, MS “EMJA” Braack Schiffahrts KG v. Wartsila Diesel Aktiebolag, XXIV Y.B. Comm. Arb. 317 (Swedish S.Ct.) (1999) (assignee is bound by arbitration clause, provided it “knew or should have known of the clause”); Donel Corp. v. Kosher Overseers Ass'n of Am., 2001 WL 228364, at *3 (S.D.N.Y. 2001) (assignee of contract may invoke arbitration clause in contract); Cedrela Transp. Ltd v. Banque Cantonale Vaudoise, 67 F.Supp.2d 353, 355 (S.D.N.Y. 1999) (assignee of contract may invoke arbitration clause in contract); Shayler v. Woolf [1946] Ch. 320 (English Court of Appeal); Schiffahrtsgesellschaft Detlev von Appen GmbH v. Voest Alpine Intertrading GmbH [1997] 2 Lloyd's Rep. 279 (English Court of Appeal); Partial Award in ICC Case No. 6000, discussed in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 127 (2001) (could not be … denied that assignment of underlying contract entailed assignment of arbitration clause); Award in ICC Case No. 9801, in Grigera Naón, Choice-of-Law Problems in International Commercial Arbitration, 289 Recueil des Cours 9, 147 (2001) (“an arbitration clause must be considered an ancillary right (Nebenrecht) to the assigned principal rights which … follow the assigned rights”). 248 E. Gaillard & J. Savage (eds.), Fouchard Gaillard Goldman on International Commercial Arbitration ¶716 (1999). See also Award in ICC Case No. 7154, 121 J.D.I. (Clunet) 1059 (1994), Note, Derains. 249 Courts have reached this position applying general principles of the law of assignment. See, e.g., Asset Allocation and Mgt Co. v. Western Employers Ins. Co., 892 F.2d 566, 574 (7th Cir. 1989) (arbitration agreement may be invoked against assignee); Lipman v. Haeuser Shellac Co., 289 N.Y. 76, 81 (N.Y. 1942); S & L Vending Corp. v. 52 Thompkins Ave. Restaurant, Inc., 274 N.Y.S.2d 697 (N.Y. App. Div. 1966); Star-Kist Foods, Inc. v. Diakan Hope, SA, 423 F.Supp. 1220, 1222–23 (C.D. Cal. 1976). See also Annotation, Arbitration Provisions of Contract as Available to or against Assignees, 142 A.L.R. 1092 (1943); 6 Am.Jur.2d Associations and Clubs §119 (1963); A. Corbin, 4 Corbin on Contracts §892 (1951 & Supp. 1991); G. Wilner, Domke on Commercial Arbitration §13.3 (3d ed. & Update 2006). 250 See Girsberger & Hausmaninger, Assignment of Rights and Agreement to Arbitrate, 8 Arb. Int'l 121 (1992); W. Craig, W. Park & J. Paulsson, International Chamber of Commerce Arbitration ¶11.05 (3d ed. 2000) (“in the absence of clear proof of contrary intent, it should be presumed that assignees of contract rights will enjoy the benefits and burdens of the arbitration clause”); Judgment of 11 September 1979, VI Y.B. Comm. Arb. 230 (Italian Corte di Cassazione) (1981) (bill of lading, containing arbitration clauses, assigned to purchaser of goods, who may invoke arbitration clauses); Judgment of 2 October 1997, 1998 NJW 371 (German Bundesgerichtshof) (assignment of contractual right presumptively implies assignment of a related arbitration clause). 251 See Judgment of 9 May 2001, 20 ASA Bull. 80 (Swiss Federal Tribunal) (2002). See also Judgment of 7 August 2001, 20 ASA Bull. 88 (Swiss Federal Tribunal) (2002). 252 See Award in ICC Case No. 7050, in Grigera Naón, Choice-ofLaw Problems in In
