International Arbitration: A Handbook

Phillip Capper

• Publisher: Informa Law from Routledge
• Year: 2020
• ISBN:
  9781000290585
• Edition: 3
• Topic: Law
• Subtopic: Arbitration, Negotiation & Mediation in Law
• Index: Law

This essential handbook on international arbitration has been updated to include a new chapter on investment treaty arbitration, detailing the kind of investments which are covered by investment treaties, persons to whom investment treaties apply, the rights commonly provided under investment treaties, ICSID arbitration and commonly encountered issues and practical considerations. Other additions to the latest edition include: multi-tiered arbitration clauses, confidentiality, interim measures and consumer arbitration.

CHAPTER 1

INTRODUCTION

When parties enter into a contract, they should consider, amongst the many other matters of concern to them, how they will resolve any disputes arising out of the contract and how such resolution will be enforced. If the parties are domiciled in the same state, and the contract is to be performed there, then the decision may be simple. They might refer their disputes to the local state court knowing that its judgment will be enforceable against either of them. But if those parties are from different states, or if the contract is to be performed in another state, the decision is more difficult. If the dispute is to be resolved in a state court, then which court in which state, and will that court’s judgment be enforceable in other states of interest to one or other of the parties?

A party from one state is usually reluctant to agree that disputes will be referred to the courts of the other party’s state. It may have a different legal system or legal culture. There may be concerns about the independence of the judiciary. Quite apart from these considerations, neither party will wish to use a state court if its judgment cannot easily be enforced against the other party.

These issues are not new but they arise more and more frequently. “Globalisation”, “international investment”, “foreign investment”, “international trade” are phrases that are now encountered daily in the Press and other media. That “globalisation” is now a cliché shows how much international trade and investment has grown in recent years. More and more businesses are concerned with international contracts and investment with developed and developing states throughout the world.

Arbitration has, for many centuries, provided an alternative to the courts for the resolution of disputes, both domestically and internationally. However, in the last half century international arbitration has developed to the point at which it now provides a well established mechanism for resolving disputes internationally. It is a mechanism which is recognised and supported by the laws of most developed and developing nations. Indeed many states encourage the resolution of disputes by arbitration instead of through the state courts.

The aim of this book is to provide an introduction to, and overview of, international commercial arbitration for those involved with arbitration when negotiating contracts or dealing with disputes, or for those interested as part of their wider studies. The book also explains how arbitration can now be used to enforce the rights and protections offered by multilateral and bilateral investment treaties.

The intention is to provide enough to give a sufficient understanding of the subject without descending to the detail. The book identifies issues which may require more detailed consideration. In such cases reference should be made to the many in depth texts on arbitration.

In this introductory chapter, we describe what arbitration is, its essential characteristics and how it differs from other forms of dispute resolution. We describe the basic legal infrastructure of international arbitration and the role that state courts play in support of arbitration. We explain why parties to commercial contracts might wish to choose arbitration to settle their disputes and the factors to be considered when making that choice.

The intention is that this book may be read from beginning to end to provide an overall understanding of international commercial arbitration. Readers who have a general familiarity with arbitration may simply refer to the chapters which deal with the specific topic of interest.

What is arbitration and how does it differ from other forms of dispute resolution?

Arbitration may be described in general terms as a consensual, private process for the submission of a dispute for a decision of a tribunal, comprising one or more independent third persons. In making its decision, the tribunal must follow certain basic requirements, such as to act fairly and impartially, allowing each party to put its case and to respond to that of its opponent. The decision of the tribunal (referred to as the award) is final and legally binding on the parties and will be recognised and enforced by the courts of most states around the world.

Arbitration differs from court proceedings in that:

(a) arbitration is a consensual process; a party cannot be compelled to arbitrate a dispute unless it has agreed to arbitration;

(b) arbitration is a private and, under many systems of law, confidential process;

(c) in arbitration the parties have the power and freedom to:

(i) select the tribunal (or agree the method of selection) and can therefore appoint a tribunal with the qualifications and experience to decide the dispute;

(ii) choose the rules that will apply to the proceedings; and

(iii) choose the language of the arbitration.

In addition to court and arbitration proceedings, there are many alternative dispute resolution processes, referred to collectively by the acronym “ADR”. These alternative methods are described in Chapter 4. They all involve the use of a neutral third person (or persons) to assist in the resolution of the dispute. These ADR processes may be divided into those which require the third person to make a binding decision (such as expert determination) and those which do not, such as mediation.

Unlike arbitration and court proceedings, none of these ADR methods requires the third person to apply due process in reaching the decision (other than Adjudication in construction contracts, at least to some degree) and none result in a decision enforceable like a court judgment or arbitration award.

The legal infrastructure of international arbitration

If international arbitration were a physical structure, its two main foundations would be:

(a) the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (”the New York Convention”), and

(b) the United Nations Commission for International Trade Law (“UNCI-TRAL”) Model Law on International Commercial Arbitration (“the UNCITRAL Model Law”) and the UNCITRAL Arbitration Rules.

Its superstructure would consist of the laws of the states where arbitrations are conducted; together with the rules and practices of the leading international arbitral institutions. Such institutions include the International Court of Arbitration of the International Chamber of Commerce (“ICC”), the LCIA (formerly known as the London Court of International Arbitration) and the International Centre for Dispute Resolution (“ICDR”), the international division of the American Arbitration Association (“AAA”).

The New York Convention was a landmark in the development of international arbitration. It requires contracting states to enforce valid arbitration agreements and introduced a straightforward procedure for obtaining the recognition or enforcement of arbitral awards internationally. The Convention has been ratified by over 130 states, thus providing the most extensive network for the enforcement of decisions resolving disputes. The regime established by the New York Convention for the enforcement of arbitration awards far exceeds any comparable international regime for enforcing court decisions.

The New York Convention defines the specific grounds upon which recognition and enforcement of an arbitration award may be refused by a state court. One of these grounds is that the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present its case.

The NewYork Convention does not prescribe how an arbitration is to be conducted, but by listing the grounds upon which enforcement may be refused, it effectively defines the basic requirements and establishes a benchmark.

In Chapter 2 of this book we identify the applicable laws and rules that are relevant to arbitration and which must be observed by a tribunal to ensure that its award will be recognised and enforced. As there explained, the arbitration must be conducted in accordance with the relevant state’s arbitration law applying to the proceedings and in accordance with the rules that the parties have agreed will apply to the proceedings.

In the last 30 years, significant steps have been taken to ensure that states throughout the world have arbitration laws which satisfy the basic requirements of a modern arbitration law. UNCITRAL has led the way by promulgating its Model Law on arbitration and its Arbitration Rules. Extensive reference is made to the UNCITRAL Model Law and Arbitration Rules throughout this book and they are described in more detail in Chapter 2. The intention of the Model Law is to provide a precedent for those states that wish to introduce a modern arbitration law. To date, 42 states have adopted the Model Law, in whole or in part, as the basis for their national law of arbitration. Many more have based their arbitration law on the Model Law.

Finally, the legal superstructure of international arbitration includes the rules and practices of the leading arbitral institutions. Partly as a result of the activities of these arbitral institutions, supplemented by the activities of academic institutions, there is a growing body of international law and practice relating to international arbitration which is documented in the many legal journals and texts relating to arbitration. There is also a growing community of lawyers and other professionals who practise arbitration law, either by representing parties in arbitrations or by appointments as arbitrators, and who contribute to the growing culture of international arbitration.

The significance of the labels “international” and “commercial”

This book is about those arbitrations which may be characterised as “international” and “commercial”. This characterisation has significant legal implications and practical consequences.

Legal significance – “international” character

The starting point is that the NewYork Convention applies to the enforcement of awards not considered as domestic awards in the state where their recognition and enforcement is sought. The New York Convention therefore recognises that a different legal regime may apply to domestic awards.

A number of states, such as France, Italy, Singapore and Switzerland, impose different legal requirements on domestic arbitrations. It is always necessary to check the relevant state’s arbitration law for the definition of “inter-national arbitration”. Usually this will be the law of the state in which the arbitration is to take place.

In this book the definition in the UNCITRAL Model Law has been adopted. International arbitrations are those:

(a) which involve parties which have their places of business in different states, or

(b) which deal with disputes

(i) arising out of obligations to be performed, or

(ii) connected with

in a different state from the place of business of at least one of the parties.

The international nature of arbitration has a number of practical consequences. For at least one party (and some or all of the members of the tribu-nal) at least one foreign state and one foreign legal system will be involved. Dealing with a dispute which involves a foreign element, possibly in a foreign territory, is logistically more complicated and expensive than dealing with a domestic dispute. However, the location of the arbitration and the law that will apply to the contract are matters which may be agreed between the parties.

“Commercial...