Jurisdiction and Arbitration Agreements in International Commercial Law

Zheng Sophia Tang

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781136013522
• Edition: 1
• Topic: Law
• Subtopic: International Trade Law
• Index: Law

Arbitration and jurisdiction agreements are frequently used in transnational commercial contracts to reduce risk, gain efficacy and acquire certainty and predictability. Because of the similarities between these two types of procedural autonomy agreements, they are often treated in a similar way by courts and practitioners.

This book offers a comprehensive study of the prerequisites, effectiveness, and enforcement of exclusive jurisdiction and arbitration agreements in international dispute resolution. It examines whether jurisdiction and arbitration clauses have identical effects in private international law and whether they have been or should be given the same treatment by most countries in the world. By comparing the treatment of these clauses in the US, China, UK and EU, Zheng Sophia Tang demonstrates how, in practice, exclusive jurisdiction and arbitration agreements are enforced. The book considers whether the Hague Convention on Choice of Court Agreements could be treated as a litigating counterpart to the New York Convention, and whether it could work successfully to facilitate judicial cooperation and party autonomy in international commerce.

This book breaks new ground in combining updated materials in EU, US and UK law with unique resources on Chinese law and practice. It will be valuable for academics and practitioners working in the field of private international law and international arbitration.

1 Introduction

1 Introduction

Strategic manipulating of procedure is a potential risk in international commercial dispute resolution. Substantive and procedural advantages are relatively easy to gain in international compared with domestic transactions, caused by the conflict of different legal systems and substantive laws.¹ Effective dispute resolution is one of the key factors contributing to the success of international business practice. In order to achieve certainty and predictability, parties usually enter into dispute resolution agreements in their international civil and commercial relationship. Dispute resolution agreements record the parties’ consent on the method, the forum and the special procedural conditions to resolve their commercial disputes. Various dispute resolution agreements exist, including choice of court/jurisdiction agreements, arbitration agreements, mediation agreements, class action waiver agreements, etc. The two most important and frequently used dispute resolution agreements are choice of court agreements and arbitration agreements, which are the focus of this book. For the purpose of this book, disputer resolution agreements/clauses, thus, refer only to jurisdiction and arbitration agreements.

The functioning of dispute resolution agreements is to direct the parties to the agreed forum, either a court or an arbitral tribunal, using the agreed method, adjudication or arbitration, to resolve their disputes.² Where the parties enter into jurisdiction or arbitration agreements, they expect greater certainty, procedural efficiency and lower litigation cost. They wish their dispute to be brought in the only forum or tribunal, as designated in their agreements, and no party can freely breach the promise.

If a dispute resolution agreement is the same as other contract terms, the expectation is realistic. However, dispute resolution agreements are different from normal contract terms in that they aim to grant jurisdictional competence to an authority, while derogating other competent authorities from their jurisdiction. While state sovereignty is involved, the agreement, though aiming to resolve private matters between private parties, cannot be classified as purely ‘private’. The mixture of private rights and public power leads to the complexity of this issue. The recognition and enforcement of dispute resolution agreements, as a result, generate more perplexing problems than ordinary contract terms could. The forum, which has been designated by the parties, may not be able to accept the prorogated power because accepting such power might infringe the sovereignty of another state³ or because exercising this power is impractical.⁴ It is also possible that the subject matter concerns the interests of third parties, public policy or fundamental national interest, which is not privately disposable.⁵ More difficulty may result from the derogation effect of dispute resolution clauses, as many countries traditionally object to the idea of having courts’ authority ousted by the private agreement.⁶ The attitude to dispute resolution agreements has been largely changed in the contemporary world.⁷ However, the sceptical view of the ‘ouster’ effect has never been completely removed.⁸ The effectiveness of dispute resolution clauses, especially jurisdiction clauses, is frequently questioned in international legal practice. The original purpose of commercial parties by adopting dispute resolution agreements in their contracts is not achievable if state attitude towards dispute resolution clauses is unclear or negative.

Regardless of practice in individual countries, the world clearly witnesses the trend to support party autonomy. This is demonstrated by the international effort to establish judicial cooperation or harmonized jurisdiction rules on enforcement of procedural autonomy agreements.⁹ It is reasonable to predict that the importance of dispute resolution agreements will continue to increase in the future. Countries will further relax national law on deciding the validity and enforceability of dispute resolution agreements, and more in-depth judicial cooperation will be established in the international context to improve efficiency of dispute resolution agreements and to prevent concurrent proceedings and irreconcilable judgments.

2 Jurisdiction and arbitration agreements: comparison

A sketchy observation may lead to a conclusion that jurisdiction and arbitration agreements are the same. They do share some characteristics. Both are based on the parties’ genuine consent and need basic contractual requirements in order to be valid,¹⁰ the effect of both stems from the principle of contract freedom,¹¹ both can provide procedural certainty and reduce cost,¹² both have the effect to grant jurisdiction to the chosen court/tribunal and both (except non-exclusive jurisdiction agreements) intend to exclude any otherwise competent non-chosen forum from taking jurisdiction. They are frequently equalized by courts, which apply the same principles to both jurisdiction and arbitration agreements.¹³ In the USA, for example, the cornerstone case providing enforceability to jurisdiction agreements, Bremen v Zapata off-Shore Company,¹⁴ has been frequently quoted in cases giving effects to international arbitration agreements, because ‘an agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum-selection clause’.¹⁵ In England, exclusive jurisdiction agreements and arbitration agreements have equivalent weight when courts exercise their discretion in granting anti-suit injunctions.¹⁶ The principle of deciding whether to grant anti-suit injunctions in cases where there is an exclusive jurisdiction clause is summarized in Donohue v Armco,¹⁷ which is followed by a few cases in which it was decided to grant injunctions in supporting arbitration agreements.¹⁸

The analogy raises a question: are jurisdiction and arbitration agreements completely identical in nature and, thus, require the same treatment? This is a misunderstanding. Jurisdiction and arbitration agreements share similarities in the perspective of contract law. However, they have fundamental diversity. Arbitration agreements submit disputes to arbitral tribunals, which are private bodies, acquiring their dispute resolution power from party autonomy. Parties could designate not only the seat of the tribunal, but also the composition of the tribunal, the law applicable to the arbitration agreement, the arbitration procedure and the substance/merit of the dispute.¹⁹ They can also exclude the application of the domestic law of any countries and subject the merit of their disputes to flexible international commercial norms, such as the lex mercatoria.²⁰ Party autonomy is the foundation of arbitration. The flexibility in terms of merit and procedure exists in arbitration but not adjudication.²¹ Although most countries allow the parties to choose courts to hear their disputes, the parties cannot intervene in the procedure and conflict of laws of the court. Party autonomy is a supplement rule in adjudication to improve certainty and procedural efficiency. It is, however, not the foundation of international adjudication.

Another difference between jurisdiction and arbitration agreements is that arbitration agreements provide an alternative dispute resolution method. It is the parties’ agreement to resolve their disputes out of court, in a private tribunal. No matter how much a state wants to preserve its sovereignty, no country would demand the parties to resolve their disputes exclusively in courts. Out-of-court resolution of private differences is encouraged, or at least permitted, by most countries.²² A court, as a result, would not have much discomfort, if the parties agree to submit their dispute to arbitration. Submitting disputes to the court of another sovereign state is different. The parties do not resolve their dispute out of court, but have made a private decision that another court is more competent, or more appropriate.

The difference between jurisdiction and arbitration agreements determines the fact that some countries provide the same contractual requirements in deciding their formation and validity, while providing more stringent restrictions to the enforcement of jurisdiction agreements.²³ In other countries, even the validity requirements differ between jurisdiction and arbitration agreements.²⁴ Nevertheless, the current development shows that more countries recognize the importance of efficient dispute resolution, the necessity to enforce freely entered agreements between the parties and the national interest to promote international comity. The enforcement of jurisdiction clauses has been gradually improved, first in domestic legislation and judicial practice, then in international legal framework. An optimistic view is that an increasing number of national courts will gradually accept party autonomy in international adjudication and abandon their traditional scepticism to the private choice of another court over the local one. Jurisdiction cl...