d. Other Arbitral Institutions
In addition to the AAA, ICC, and LCIA, numerous small arbitral institutions exist. Among the better known are the International Center for the Settlement of Investment Disputes (”ICSID”), the Inter-American Commercial Arbitration Commission (”IACAC”), the Arbitration Institute of the Stockholm Chamber of Commerce, the Arbitral Center of the Federal Economic Chamber in Vienna, the Hong Kong International Arbitration Center, the German Arbitration Institute, the Cairo Regional Center and the Regional Center for Arbitration at Kuala Lumpur.
An Introduction to International Treaties and Conventions Concerning International Commercial Arbitration
Industrialized trading nations have long sought to establish a stable, predictable legal environment in which international commercial arbitration can occur. Because national arbitration laws have varied, and still vary, considerably, substantial uncertainties often attend the enforcement of international Arbitral agreements and awards. To reduce these uncertainties, major trading nations have entered into international treaties and conventions designed to facilitate the transnational enforcement of arbitration awards and agreements.
International agreements concerning commercial arbitration originally took the form of bilateral treaties. Later, multilateral conventions sought to facilitate international arbitration by encouraging the recognition of arbitration agreements and awards. The first such modern convention was the Montevideo Convention, signed in 1889 by various Latin American states. Like other early efforts in the field, the Montevideo Convention attracted few signatories and had little practical impact.
1. Geneva Protocol of 1923 & Geneva Convention of 1927
In 1923, at the behest of the International Chamber of Commerce, the Geneva Protocol of 1923 was adopted under the auspices of the League of Nations. The Protocol was ultimately ratified by the United Kingdom, Germany, France, Japan, India, Brazil, and about a dozen other nations. Although the United States did not ratify the Protocol, the nations that did represented a very significant portion of the international trading community at the time.
The Protocol’s primary focus was to require the enforcement of arbitration agreements (with respect to both existing and future disputes). In Addition, the Protocol also sought to facilitate the enforceability of Arbitral awards, although it addressed only the enforcement of awards within the state where they were made.
The Protocol was augmented by the Geneva Convention for the Execution of Foreign Arbitral Awards of 1927. The Geneva Convention expanded the enforceability of arbitration awards rendered pursuant to arbitration agreements subject to the Geneva Protocol. It did so by requiring the enforcement of such awards within any contracting state (rather than only within the state where they were made).
The Geneva Protocol and Convention were major early steps towards an effective international framework for commercial arbitration. Nevertheless, in substantive terms, both agreements were subject to significant limitations on their scope, and the Convention was not widely ratified. More important, because of an apparent dearth of international commercial arbitrations at the time, neither agreement received much practical application nor had much practical effect.
2. The New York Convention
The successor to the Geneva Protocol and the Geneva Convention was the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Often referred to as the “New York Convention,” the treaty is by far the most significant contemporary international agreement relating to commercial arbitration. The Convention is reproduced in Appendix B.
The Convention was signed in 1958 in New York after lengthy negotiations under U.N. auspices. The Convention is widely regarded as “the most important Convention in the field of arbitration and ? the cornerstone of current international commercial arbitration. It is set forth in English, French, Spanish, Russian, and Chinese texts, all of which are “equally authentic.”
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.” (Scherk) In broad outline, the Convention: (a) requires national courts to recognize and enforce foreign Arbitral awards, subject to specified exceptions. (b) not with standing the Convention’s more limited title, requires national courts to recognize the validity of arbitration agreements (subject to specified exceptions), and (c) requires national courts to refer parties to arbitration when they have entered into a valid agreement to arbitrate that is subject to the Conventions.
The New York Convention made significant improvements in the regime of the Geneva Convention of 1927. Particularly important was its shifting of the burden of proving the validity of Arbitral awards and agreements. In the words of the President of the U.N. Conference on the Convention:
It 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 procedure, 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.
Equally important to the Convention’s success was timeliness, becoming available in the 1960s and 1970’s, as world trade began significantly to expand.
Despite its contemporary significance, the New York Convention initially attracted relatively few signatories. The Convention was drafted at the United Nations Conference on Commercial Arbitration held in New York in 1958. Twenty-six of the forty-five countries participating in the Conference ratified the Convention, but the United States did not, nor did it do so for some time. Many other nations, including the United Kingdom, Sweden, and most Latin American and African states, also failed to ratify the Convention for some time thereafter. In 1970, however, the United States reconsidered its position and acceded to the Convention. Over time, other states took the same course, and today some 90 nations have ratified the Convention, including many Latin American, African, Asian, and Eastern European states. In ratifying the Convention, many states have attached reservations that can have significant consequences in private disputes.
Article VII (1) of the New York Convention specifically provides that it 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). That has been interpreted by U.S. courts in a “pro-enforcement” fashion, to permit agreements and awards to be enforced under either the Convention or another treaty (if it is applicable).
In virtually all countries, the New York Convention has been implemented through national legislation. The effect of the Convention is therefore dependent on both the content of such national legislation and the interpretation given by national courts to both the Convention and national implementing legislation. “An important aim of the Convention’s drafters was uniformity: they sought to establish a single, stable set of legal rules for the enforcement of Arbitral agreements and awards.” (Van den Berg) The fulfillment of that aim is dependent upon the willingness of national legislatures and courts, in different signatory states, to adopt uniform interpretations of the Convention. In general, however, national courts have performed adequately, but no better, in arriving at uniform interpretations of the Convention.
3. The Inter-American Convention on International Commercial
Arbitration
After the pioneering Montevideo Convention in 1889, much of South America effectively turned its back on international commercial arbitration. Only Brazil ratified the Geneva Protocol of 1923, and even it did not adopt the Geneva Convention. South American states were reluctant to ratify the New York Convention, for the most part only beginning to do so in the 1980’s.
Nevertheless, in 1975 the United States and most South American nations negotiated the Inter-American Convention on International Commercial. Arbitration, also known as the “Panama Convention.” The United States ratified the Convention in 1990; other parties include Mexico, Venezuela, Columbia, Chile, Ecuador, Peru, Costa Rica, El Salvador, Guatemala, Honduras, Panama, Paraguay and Uruguay. The Inter-American Convention is similar to the New York Convention in many respects. Among other things, it provides for the general enforceability of arbitration agreements, Arbitral awards, subject to specified exceptions similar to those in the New York Convention.
The Inter-American Convention introduces a significant innovation, not present in the New York Convention, by providing that where the parties have not expressly agreed to any institutional or other arbitration rules, the rules of procedure of the “Inter-American Commercial Arbitration Commission” (”IACAC”) will govern. In turn, the Commission has adopted rules that are almost identical to the UNCITRAL Arbitration Rules. Less desirably, the Convention also departs from the New York Convention by omitting provisions dealing expressly with judicial proceedings brought in national courts in breach of an arbitration agreement.
4. The ICSID Convention
The International Center for the Settlement of Investment Disputes (”ICSID”) is a specialized arbitration institution, established pursuant to the so called “Washington Convention” of 1965. ICSID was established at the initiative of the International Bank for Reconstruction and Development, and is based at the World Bank’s Washington bead quarters.
The ICSID Convention is designed to facilitate the settlement of a limited range of “investment disputes” that the parties have specifically agreed to submit to ICSID. Investment disputes are defined as controversies that arise out of an “investment” and arise between a signatory state or state entity (but not a private entity) and a national of another signatory state. As to such disputes, the Convention provides both conciliation and arbitration procedures.
The Convention contains a number of 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. Second, ICSID Awards are theoretically directly enforceable in signatory states, without any method of appeal in national courts. 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 annual, awards; if an award is annulled it may be resubmitted to a new Arbitral tribunal.
Nearly 100 countries, from all geographical regions of the world, have ratified the ICSID Convention. Unfortunately, relatively few cases have been brought under the Convention. Moreover, the practical value and future prospects for the Convention have been significantly threatened by the annulment of several ICSID awards by ad hoc panels assigned to review awards. In addition, uncertainty as to the jurisdictional scope of the Convention and the appointment mechanism have led many to question ICSID’s usefulness as a means of dispute resolution.
5. Iran-United States Claims Tribunal
The Iran-United States Claims Tribunal is one of the most recent, and most ambitious, international claims commissions. The Tribunal was established pursuant to the so-called Algiers Accords, which resolved portions of the legal disputes arising from the Iranian seizure of U.S. hostages during Jimmy Carter’s administration. 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 define jurisdiction over claims arising from U.S. Iran hostilities; three tribunal members were appointed by the United States, three by Iran, and three from neutral states. The tribunal adopted the UNCITRAL Arbitration Rules (with some modifications) and has issued a substantial number of decisions (many of which are published).
6. Bilateral Treaties
A number of nations have entered into bilateral treaties dealing principally or incidentally with international arbitration. They provide generally for the reciprocal recognition of Arbitral awards made in the territory of the contracting states. The United States has included an article relating to arbitration in many of its bilateral Friendship, Commerce and Navigation treaties, including those with Belgium, Denmark, France, Germany, Greece, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Netherlands, Nicaragua, Pakistan, Thailand, and Togo.
The standard U.S. FCN provision is:
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 recordings 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.
U.S. courts have interpreted such provisions liberally.
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.” (Scherk) Although arbitration often does avoid some of the difficulties of transnational litigation, it gives rise to its own complex choice of law issues.
Importance of Choice of Law Issues in International Arbitration
“It is important to distinguish four separate choice of law issues that can arise in international commercial arbitration: (a) the substantive law governing the merits of the parties’ contract and other claims; (b) the substantive law governing the parties’ arbitration agreement; (c) the law applicable to the arbitration proceedings (often called the “curial law” or the “Lex arbitri”); and (d) the conflict of law rules applicable to select each of the foregoing laws.” (infra 97-98) Although not common, it is possible for each of these four issues to be governed by a different national law.
These choice of law issues often 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 at different stages of the Arbitral process can be critical.
Overview of Law Applicable to the Substance of the Parties’ Dispute
The parties’ underlying dispute will ordinarily be resolved under some legal system’s rules of law. In the first instance, it will usually be the arbitrators who determine the substantive law applicable to the parties’ dispute. International arbitrators typically give effect to the parties’ agreements concerning applicable law. The principal exception is where mandatory national laws or public policies purport to override private contractual arrangements.
Where the parties have not agreed upon the law governing their dispute, the Arbitral tribunal must select such a law. In so doing, the tribunal must in principle refer to a conflict of laws rule. Although the historical practice was to apply the national conflict of laws rules of the Arbitral situs, more recent practice appears to be moving towards recognition of an international body of conflict of laws rules.
Overview of Law Applicable to the Arbitration Agreement
As noted above, arbitration agreements are regarded under most national laws and institutional arbitration rules as “separable” from the underlying contract in which they appear. One consequence of this is the possibility that the parties’ arbitration agreement will be governed by a different national law than that governing the parties’ underlying contract. Moreover, U.S. courts have generally insisted on applying U.S. law to the interpretation and enforceability of international arbitration agreements in U.S. courts.
Overview of the Law Applicable to the Arbitration Proceedings