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Redfern and Hunter on International Arbitration, 6th Edition by Blackaby, Nigel; Partasides, Constantine; Redfern, Alan; Hunter, Martin (1st September 2015)

2 Agreement to Arbitrate

Nigel Blackaby, Constantine Partasides QC, Alan Redfern, Martin Hunter

From: Redfern and Hunter on International Arbitration (6th Edition)

Nigel Blackaby, Constantine Partasides, Alan Redfern, Martin Hunter

From: Investment Claims (http://oxia.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.  Subscriber: null; date: 07 July 2020

Subject(s):
Arbitrability — Admissibility — Confidentiality

(p. 71) Agreement to Arbitrate

A.  Overview

(a)  Introduction

2.01  The agreement to arbitrate is the foundation stone of international arbitration.1 It records the consent of the parties to submit to arbitration—a consent that is indispensable to any process of dispute resolution outside national courts.2 Such processes depend for their very existence upon the agreement of the parties. Many attach great importance to the wishes of the parties—to l’autonomie de la volonté. Indeed, some go so far as to suggest that this consent, together with an appropriate set of rules, is sufficient to turn international arbitration into an autonomous, delocalised process that takes place independently of national law. For most, this goes too far.3 It attaches too much importance to the wishes of the parties and not enough to the framework of national laws within which the arbitral process must take place. Nevertheless, the consent of the parties remains the essential basis of a voluntary system of international arbitration.4

(p. 72) (b)  Categories of arbitration agreement

2.02  There are two basic types of arbitration agreement: the arbitration clause and the submission agreement. An arbitration clause looks to the future, whereas a submission agreement looks to the past. The first, which is most common, is usually contained in the principal agreement between the parties and is an agreement to submit future disputes to arbitration. The second is an agreement to submit existing disputes to arbitration.

2.03  In this book, the terms ‘arbitration clause’ and ‘submission agreement’ are used according to these descriptions. Arbitration clauses are usually short, whilst submission agreements are often long. This is not because of any particular legal requirement; it is simply a reflection of the practicalities of the situation. An arbitration clause that deals with disputes that may arise in the future does not usually go into too much detail, since it is not known what kind of disputes will arise and how they should best be handled. Indeed, although the parties to a contract may agree to an arbitration clause, they hope that there will be no need to invoke it. Usually, they insert a short model clause, recommended by an arbitral institution, as a formality. By contrast, a submission agreement deals with a dispute that has in fact already arisen—and so it can be tailored to fit precisely the circumstances of the case. In addition to indicating the place of arbitration and the substantive law, it generally names the arbitrators, sets out the matters in dispute, and even (if thought appropriate) provides for the exchange of written submissions and other procedural matters.5

2.04  Most international commercial arbitrations take place pursuant to an arbitration clause in a commercial contract.6 These clauses are often ‘midnight clauses’—that is, the last clauses to be considered in contract negotiations, sometimes late at night or in the early hours of the morning. Insufficient thought is given to how disputes (p. 73) are to be resolved (possibly because the parties are reluctant to contemplate falling into dispute), and an inappropriate and unwieldy compromise is often adopted,7 for example a wrong choice (or no choice at all) of the substantive law or of the place of arbitration. If a dispute arises and arbitration proceedings begin, these matters must consequently be dealt with before any progress can be made with the real issues.

2.05  Later, this chapter deals separately with arbitration clauses and submission agreements, since different considerations apply to each. First, however, some general observations should be made. They apply equally to both types of arbitration agreement and derive from the international conventions governing arbitration.

(c)  International conventions

2.06  Although this topic is considered in Chapter 1, it is worth giving a brief summary here. The 1923 Geneva Protocol and the 1927 Geneva Convention dealt with the recognition and enforcement of international arbitration agreements and the execution of foreign arbitral awards. These were then followed by various regional conventions,8 until eventually the most important convention in the field of international commercial arbitration, the New York Convention, was promulgated in 1958.

2.07  The New York Convention continued where the Geneva treaties left off.9 Its title as a ‘Convention on the Recognition and Enforcement of Foreign Arbitral Awards’ is a partial misnomer. The Convention’s starting point is, in fact, the recognition and enforcement of arbitration agreements.10 Having provided for recognition of the validity and enforceability of arbitration agreements, it also provides for the international enforcement of awards that comply with the specified criteria.11

2.08  Closely modelled12 on the New York Convention, the 1975 Panama Convention13 was signed by the United States and a significant number of Latin American states, and marked another step forward in the recognition of arbitration as an established method of resolving disputes in a regional context.

(p. 74) (d)  International standards

2.09  The effect of these and other conventions on arbitration,14 whether international or regional, has been to establish the requirement for a valid international arbitration agreement and to indicate the parameters within which such an agreement will operate.

2.10  Unlike Venus, these Conventions did not arise fully formed from the sea.15 Instead, they reflect the provisions to be found in developed arbitration laws and in the practice of arbitral institutions, such as the International Chamber of Commerce (ICC). In turn, they—together with the Model Law—have played an important part in modernising and harmonising state laws governing arbitration. An arbitration agreement that provides for international arbitration must take account of these international requirements. If it fails to do so, the arbitration agreement, and any award made under it, may not qualify for international recognition and enforcement.

2.11  In seeking to establish the ‘international requirements’, the starting point has to be the New York Convention. This has been described as ‘the single most important pillar on which the edifice of international arbitration rests’,16 and one that ‘perhaps could lay claim to be the most effective instance of international legislation in the entire history of commercial law’.17 Under the Convention, each contracting state undertakes to recognise and give effect to an arbitration agreement when the following requirements are fulfilled:

  • •  the agreement is in writing;

  • •  it deals with existing or future disputes;

  • •  these disputes arise in respect of a defined legal relationship, whether contractual or not; and

  • •  they concern a subject matter capable of settlement by arbitration.

2.12  These are the four positive requirements of a valid arbitration agreement, laid down in Article II(1) of the New York Convention.18 A further two requirements are, in (p. 75) effect, added by the provisions of Article V(1)(a),19 which stipulates that recognition or enforcement of an award may be refused if the party requesting refusal is able to prove that the arbitration agreement was made by a person under incapacity or that the agreement was invalid under the applicable law. Expressed positively,20 these represent additional requirements to the effect that:

  • •  the parties to the arbitration agreement must have legal capacity under the law applicable to them;

  • •  the arbitration agreement must be 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. (In the words used earlier in the New York Convention, in Article II(3), the agreement must not be ‘null and void, inoperative or incapable of being performed’.)

In Part B of this chapter, each of these requirements is considered in turn.

B.  Validity of an Arbitration Agreement

(a)  Formal validity—need for writing

2.13  All of the international conventions on arbitration that have already been mentioned, as well as Option 1 of the Model Law, require that an agreement to arbitrate shall be ‘in writing’. The reason for imposing this requirement is self-evident. A valid agreement to arbitrate excludes the jurisdiction of the national courts21 and means that any dispute between the parties must be resolved by a private method of dispute resolution—namely, arbitration. This is a serious step to take, albeit one that has become increasingly commonplace. Good reasons therefore exist for ensuring that the existence of such an agreement should be clearly established. This is best done by producing evidence in writing, although, as already noted in Chapter 1, the trend in modern national legislation has moved towards the relaxation of this formal requirement.22

2.14  Article II(2) of the New York Convention defines ‘writing’ as follows: ‘The term “agreement in writing” shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.’

(p. 76) 2.15  The requirement for signature by the parties has given rise to problems in some states,23 but the general view is that a signature is not necessary, provided that the arbitration agreement is in writing.24

2.16  There has, however, been a revolution in communications since the New York Convention was drawn up in 1958. Telegrams, which were a frequent method of communicating an urgent message in writing, were largely replaced first by telex, later by fax, and now by email. This change is reflected in the Model Law, which goes much further than the New York Convention in its definition of ‘writing’, and has itself been the subject of important recommended interpretations and revisions.25

2.17  As revised in December 2006, the version of the Model Law now contains both a long and a short form option for Article 7. Option 1 provides as follows:26

[…]

  1. (3)  An 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.

  2. (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.

  3. (5)  Furthermore, an arbitration agreement is in writing if it is contained in an exchange of statements of claim and defence in which the existence of an agreement is alleged by one party and not denied by the other.

  4. (6)  The reference in a contract to any document containing an arbitration clause constitutes an arbitration agreement in writing, provided that the reference is such as to make that clause part of the contract.

(p. 77) 2.18  Option 1 has brought the Model Law into line with current practice, as reflected by national legislation and court decisions. For instance, an exchange of telexes between two firms of brokers in Paris containing the simple statement ‘English law—arbitration, if any, London according ICC Rules’ has been held to be a valid arbitration agreement, providing for arbitration in London under the ICC Rules, with English law as the substantive law of the contract.27

2.19  However, whilst the formal requirements may be relaxed, there is almost inevitably a requirement for at least a permanent record (‘useable for subsequent reference’ in the terms of the Model Law) from which a written transcription can be made. For example, the Netherlands Arbitration Act 1986 requires that the arbitration agreement shall be proven by an instrument in writing expressly or impliedly accepted by the parties.28 For its part, as mentioned in Chapter 1, Swiss law requires an agreement to be made in writing or by means of communication that allows it to be evidenced by a text. Section 178(1) of the Swiss Private International Law Act 1987 (Swiss PIL) states simply: ‘As regards its form, an arbitration agreement shall be valid if made in writing, by telegram, telex, telecopier or any other means of communication which permits it to be evidenced by a text.’29

2.20  Thus, for the purposes of the Model Law Option 1, the requirement for writing may now be satisfied where there is a record ‘in any form’ of the content of the arbitration agreement.

2.21  Moreover, where a party takes part in an arbitration without denying the existence of an arbitration agreement,30 it will, in the normal course, be bound by implied consent. In some systems of law, an oral agreement to arbitrate will be regarded as being ‘in writing’ if it is made ‘by reference to terms which are in writing’, or if an oral agreement ‘is recorded by one of the parties, or by a third party, with the authority of the parties to the agreement’.31 In these modern arbitration laws, (p. 78) there has, in effect, been a triumph of substance over form: as long as there is some written evidence of an agreement to arbitrate, the form in which that agreement is recorded is immaterial.32

2.22  Option 2 goes a step further. It does not refer to a writing requirement at all, but rather provides that it is sufficient to show ‘agreement by the parties to submit to arbitration all or certain disputes’.33 This reflects the latest position under some systems of law that arbitration agreements are not subject to any requirements of form. For instance, article 1507 of French Decree 2011-48 provides that ‘an arbitration agreement shall not be subject to any requirements as to its form’.34

2.23  However, a degree of caution is necessary. First, even courts in jurisdictions familiar with international arbitration still sometimes refuse to enforce arbitration agreements that are not in a written document signed by the parties or otherwise contained in an exchange of communications between the parties.35 Secondly, an arbitration agreement that is regarded as valid by an arbitral tribunal or court in one country may not be so regarded by the courts of the country in which the award falls to be enforced.36 By way of example, the Norwegian Court of Appeal refused recognition of an award rendered in London because an exchange of emails did not, in its view, satisfy the writing requirement of Article II(2) of the New York Convention. Although such an electronic exchange was valid and sufficient to evidence the existence of an arbitration agreement as a matter of the law of the place of arbitration—that is, English law—the Court held that the validity of the arbitration agreement was to be separately assessed by the local enforcement authority and that ‘it should not be sufficient for enforcement that the arbitral award is valid according to the law of the country in question’ (in this case, England, the place of arbitration).37

(p. 79) 2.24  Finally, there remain states in which special requirements of form are imposed in respect of agreements to arbitrate.38 Accordingly, the relevant national law must be examined if there is reason to believe that the formal validity of an arbitration agreement is likely to be questioned under that law.

(b)  A defined legal relationship

2.25  Almost all international arbitrations arise out of contractual relationships between the parties. However, for the purposes of both the New York Convention and the Model Law, it is sufficient that there should be a ‘defined legal relationship’ between the parties, whether contractual or not. Plainly, there has to be some contractual relationship (real or implied) between the parties, since there must be an agreement to arbitrate to form the basis of the arbitral proceedings. Given the existence of such an agreement, the dispute submitted to arbitration may be governed by principles of delictual or tortious liability rather than (as is usually the case) by the law of contract.

2.26  Thus, in Kaverit Steel Crane Ltd v Kone Corporation,39 Kaverit commenced court proceedings alleging that Kone had breached certain licence and distribution agreements. Kone sought a stay and a reference to arbitration pursuant to the arbitration clause in the agreements. The clause stated that all disputes ‘arising out of or in connection with this contract’ would be referred to arbitration. The Alberta Queen’s Bench Division refused the stay on the grounds that some of the claims by Kaverit contained allegations that went beyond breach of contract, for example conspiracy and inducing breach of contract. The court held that these tort-based claims fell outside the scope of the arbitration clause.

2.27  However, the Alberta Court of Appeal held that the wording of the arbitration clause was wide enough to bring within its scope any claim that relied on the existence of a contractual relationship, even if the claim itself was a claim in tort.40 To give an example: because the claim alleging ‘conspiracy by unlawful means to harm [Kaverit]’ relied upon a breach of contract as the source of the ‘unlawfulness’, that dispute should be referred to arbitration. However, it was held that those claims that were not based on the existence of a contract should proceed to trial, not arbitration.41

(p. 80) 2.28  Thus, subject to any provisions of the relevant applicable law, the terms of an arbitrator’s jurisdiction and powers in any particular case depend on a proper construction of the arbitration agreement. The arbitral tribunal must consider the dispute in question and then elicit from the arbitration agreement whether or not the parties intended a dispute of the kind in question to be resolved by arbitration.42

(c)  A subject matter capable of settlement by arbitration

2.29  In determining whether a dispute is capable of settlement by arbitration, one is asking whether a dispute is ‘arbitrable’. Arbitrability, in the sense in which it is used both in this book and generally, involves determining which types of dispute may be resolved by arbitration and which belong exclusively to the domain of the courts. Both the New York Convention and the Model Law are limited to disputes that are ‘capable of settlement by arbitration’.43

2.30  This requirement is dealt with in more detail later in this chapter.44 Suffice to say for now that, in principle, any dispute should be just as capable of being resolved by a private arbitral tribunal as by the judge of a national court. However, it is precisely because arbitration is a private proceeding with public consequences45 that some types of dispute are reserved for national courts, the proceedings of which are generally in the public domain. It is in this sense that they are not ‘capable of settlement by arbitration’. National laws establish the domain of arbitration as opposed to that of the local courts. Each state decides which matters may or may (p. 81) not be resolved by arbitration in accordance with its own political, social, and economic policy.

C.  Parties to an Arbitration Agreement

(a)  Capacity

2.31  Parties to a contract must have legal capacity to enter into that contract, otherwise it is invalid. The position is no different if the contract in question happens to be an arbitration agreement. The general rule is that any natural or legal person who has the capacity to enter into a valid contract has the capacity to enter into an arbitration agreement. Accordingly, the parties to such agreements include individuals, as well as partnerships, corporations, states, and state agencies.

2.32  If an arbitration agreement is entered into by a party who does not have the capacity to do so, the provisions of the New York Convention (or the Model Law, where applicable) may be brought into operation, either at the beginning or at the end of the arbitral process. At the beginning, the requesting party asks the competent court to stop the arbitration on the basis that the arbitration agreement is void, inoperative, or incapable of being performed.46 At the end of the arbitral process, the requesting party asks the competent court to refuse recognition and enforcement of the award on the basis that one of the parties to the arbitration agreement is ‘under some incapacity’47 under the applicable law.

2.33  The rules governing capacity to contract can be found in the standard textbooks on the law of contract. They vary from state to state. In the context of an arbitration agreement, it is generally necessary to have regard to more than one system of law. In practice, the issue of capacity rarely arises in international arbitration. Nevertheless, it may be helpful to look briefly at the kind of questions that may arise, first in relation to individuals and corporate entities, and secondly—more importantly perhaps—in relation to states and state entities.

(i)  Natural persons

2.34  The New York Convention and the Model Law, where applicable, require the parties to an arbitration agreement to have the capacity to enter into that agreement ‘under the law applicable to them’.48 More correctly, this should perhaps refer to the ‘law or laws’ applicable to them. The capacity of an individual to enter into a contract within the state of his or her place of domicile and residence will depend upon the law of that state—but, in the context of an international contract, it may (p. 82) become necessary to have regard also to the law of the contract. For instance, a person aged 20 may well have the capacity to enter into an agreement under his or her own law, but not under the law governing the transaction in question. If that transaction were to turn out badly, a party who lacks capacity under one or other of the two systems of law might rely upon this as a reason for not carrying out the contract (or any agreement to arbitrate contained within it). However, there may be an applicable rule of law that defeats such ingenuity. For instance, Article 13 of the Rome I Regulation,49 which applies among EU member states, provides:

In a contract concluded between persons who are in the same country, a natural person who would have capacity under the law of that country may invoke his incapacity resulting from the law of another country, only if the other party to the contract was aware of that incapacity at the time of the conclusion of the contract or was not aware thereof as a result of negligence.

(ii)  Corporations

2.35  The capacity of a corporation to enter into a contract is governed primarily by its constitution and the law of its place of incorporation. A corporation is required to act through its directors and officers in accordance with its constitution and its own governing law. If a corporation enters into a transaction that goes beyond its power (in other words, a transaction that is ultra vires) and the transaction turns out badly, it would be open to the corporation to contend that the agreement was not binding on it and that it was not obliged to arbitrate any dispute. To guard against this possibility, it is not unusual for states to have specific rules of law that restrict or abrogate the doctrine of ultra vires, so as to protect persons dealing in good faith with corporations.50

2.36  In addition to issues of corporate governance, the laws of some states may restrict a corporation from initiating arbitration in certain circumstances relating to the status of the corporate entity itself. For example, a number of states within the United States have statutes that restrict a corporation that is not ‘in good standing’ under the laws of that state from initiating any type of legal proceeding, including arbitration. Thus the failure of a corporation to maintain its good standing could be the basis of an application (or ‘motion’, to borrow from the US legal lexicon) to stay or dismiss an international arbitration filed by such corporation.

(p. 83) (iii)  States and state agencies

2.37  It would be unusual to encounter a corporation that insisted, in its constitution, that any disputes should be referred to the courts, rather than to arbitration. It is less unusual, however, to find states or state agencies that are not permitted to refer disputes between themselves and a private party to arbitration. In France, for example, under article 2060 of the Civil Code, disputes concerning public collectives and public establishments, and all matters involving public policy, may not be referred to domestic arbitration.51 However, certain industrial and commercial public entities may be authorised by decree to enter into arbitration agreements. Moreover, disputes arising out of industrial or commercial activities of public entities may be referred to international arbitration.52 In Belgium, public law entities were at one time prohibited from concluding arbitration agreements. This prohibition has now been abolished, but some restrictions remain.53 In Brazil, the higher courts have consistently ruled that a state body is not prohibited from agreeing to resolve disputes by arbitration and is bound by any such agreement.54 In other countries, the state or state agency must obtain the approval of the relevant authorities before entering into an agreement for international commercial arbitration.55

(p. 84) 2.38  This means that, before entering into an arbitration agreement with a foreign state or state entity, it is advisable to check that the persons entering into the contract on behalf of the state or state agency have the necessary authority to do so. It is also wise to check that any necessary procedures for obtaining consent to an arbitration agreement have been followed. Indeed, it is sensible to include a statement to this effect in the contract.56

2.39  It is plainly unsatisfactory for a state or state agency to be entitled to rely on its own law to defeat an agreement into which it has entered freely. A praiseworthy attempt to deal with this problem was made in the European Convention of 1961. This provided that persons considered by the law applicable to them to be ‘legal persons of public law’ should have the right to conclude valid arbitration agreements. It also provided that if a state were to wish to limit this facility in some way, it should say so on signing, ratifying, or acceding to the Convention.57 Although the European Convention has met with only limited success, progressive states have dealt with the problem by adopting a similar approach. Swiss law, for example, provides that:

If a party to the arbitration agreement is a state or enterprise or organisation controlled by it, it cannot rely on its own law in order to contest its capacity to be a party to an arbitration or the arbitrability of a dispute covered by the arbitration agreement.58

This is a provision that all states would do well to follow, and there is now, in any event, a growing international consensus to the effect that where a state entity has agreed to resolve disputes by international arbitration, it cannot rely on its own domestic laws in order to avoid submitting to the arbitral process.59

2.40  Some writers60 have argued that restrictions imposed by a state on its capacity to enter into an arbitration agreement should not be qualified as issues of capacity, but rather as issues of arbitrability. It is argued that the restriction is self-imposed and could be waived at any time by the state concerned. It is not a true limitation on capacity, such as the protection of persons under mental disability. Accordingly, (p. 85) it should be treated as a matter of ‘subjective arbitrability’, rather than as a matter of capacity.61

2.41  In practice, the important point is that there may be restrictions on the power of a state or state entity to enter into an arbitration agreement, whether these restrictions are qualified as matters of capacity or of subjective arbitrability. Legal advisers and others dealing with a state or state entity should be aware of this point.

(b)  Third parties to the arbitration agreement

2.42  Party consent is a prerequisite for international arbitration. Such consent is embodied in an agreement to arbitrate, which, as discussed earlier,62 will generally be concluded ‘in writing’ and signed by the parties. The requirement of a signed agreement in writing, however, does not altogether exclude the possibility that an arbitration agreement concluded in proper form between two or more parties might also bind other parties. Third parties to an arbitration agreement have been held to be bound by (or entitled to rely on) such an agreement in a variety of ways: first, by operation of the ‘group of companies’ doctrine, pursuant to which the benefits and duties arising from an arbitration agreement may, in certain circumstances, be extended to other members of the same group of companies; and secondly, by operation of general rules of private law—principally those governing assignment, agency, and succession. Thus, by way of example: the affiliate of a signatory to an arbitration clause may find itself a co-respondent in arbitration proceedings; an assignee of an insurance contract may be able to commence arbitration against the insurer of the original insured party; a principal may find itself bound by an arbitration agreement signed by its agent; or a merged entity may continue to prosecute arbitral proceedings commenced by one of its original constituent entities.

(i)  The ‘group of companies’ doctrine

2.43  A number of arbitral tribunals and national courts have been called upon to consider whether an arbitration agreement concluded by a company may be binding on its group affiliates, by reason of the group being a ‘single economic reality’.63 Such attempts are often motivated by the stated aim of finding the ‘true’ party in interest—and, of greater practical importance, of targeting a more creditworthy member of the relevant group of companies.

(p. 86) 2.44  Although an objection of principle may readily be made—namely, that corporate personality is created precisely in order to contain liability within a particular corporate entity—in practice much will depend on the construction of the arbitration agreement in question, as well as the circumstances surrounding the entry into, and performance of, the underlying contract.64

2.45  The Dow Chemical case65 has been invoked as the leading authority on the ‘group of companies’ doctrine. In that case, a claim was successfully brought before an ICC tribunal not only by the companies that had signed the relevant agreements, but also by their parent company, a US corporation, and a French subsidiary in the same group. However, a subsequent ICC tribunal ruled that ‘there is no general rule in French international arbitration law that would provide that non-signatory parties members of the same group of companies would be bound by an arbitration clause.’66 The Swiss and English courts have also refused to accept that a third party may be bound by an arbitration agreement merely because it has a legal or commercial connection to one of the parties.67

2.46  Some now argue that the Dow Chemical award and the judgment of the Paris Cour d’Appel confirming the award have been misinterpreted, and do not in fact lend support to an independent ‘group of companies’ doctrine. They note that, on a close reading of the decision, the tribunal’s analysis was based on the parties’ common intention, and its decision may be explained by reference to the traditional requirement for consent in international arbitration.68

2.47  In fact, the tribunal found that:

[T]‌he arbitration clause expressly accepted by certain of the companies of the group should bind the other 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 (p. 87) been veritable parties to these contracts or to have been principally concerned by them and the disputes to which they may give rise.69

2.48  The tribunal did refer to the relevant group of companies in that case as ‘one and the same economic reality [une réalité économique unique]’.70 However, it reached its decision on the basis of ‘the intention common to all companies involved’, and referred only ‘subsidiarily’ to the notion of a ‘group of companies’.71

2.49  Recent case law confirms that where a court or tribunal is tasked with determining whether a third party is bound by an arbitration agreement, it will focus on the parties’ common intention72 and may consider a variety of factors in this regard, including: (a) whether the non-signatory actively participated in the conclusion of the contract containing the arbitration agreement;73 (b) whether the non-signatory has a clear interest in the outcome of the dispute;74 and (c) whether the non-signatory is party to a contract that is ‘intrinsically inter-twined’ with the contract under which the dispute has arisen.75

2.50  Accordingly, the Dow Chemical case may perhaps be best characterised as authority for the proposition that ‘conduct can be an expression of consent and that among all the factual elements … the existence of a group of companies may be relevant’.76

(iii)  Third-party beneficiaries of rights under a contract

2.52  Under some systems of law, a third party may also enforce rights conferred under the terms of a contract in certain circumstances. The English Contracts (Rights of Third Parties) Act 1999 provides that a third party (‘A’) may enforce a contractual term where the contract expressly provides that A may do so or purports to confer a benefit on A.79 Where the contract contains an arbitration agreement, the third party is bound by the agreement and constrained to follow the arbitral process.80

2.53  A similar principle exists in France. The Cour de Cassation has held that where a contract conferring a benefit on a third party (stipulation pour autrui) contains an arbitration clause, the third party is obliged to refer any claim to arbitration. Moreover, that party is precluded from objecting to the tribunal’s jurisdiction if it is joined to an action as a respondent.81 The Italian courts have also confirmed that, in certain circumstances, once a third party decides to take the benefit of a contract, it can be bound to abide by all of the terms of the contract, including any arbitration agreement.82 The US courts have invoked the principle of estoppel to similar effect.83

(p. 89) (iv)  Assignment, agency, and succession

Assignment

2.54  The effect of an assignment of a contract on an arbitration clause contained therein will be determined principally by reference to the law governing the assignment in question, as well as the law governing the arbitration agreement. If the arbitration agreement is assignable under the relevant laws, there will be a further question as to the particular form, if any, which the assignment must take. This requirement must not be confused with the writing requirement that applies to the arbitration agreement itself.

2.55  Different laws take differing positions on whether an arbitration agreement should be presumed as having been assigned along with the main contract. Some laws, for example German, French, and English laws, make this presumption.84 New York law also adopts this general presumption, albeit with certain limited exceptions.85 The Swedish Supreme Court appears to have adopted a middle position—namely, that an arbitration clause will be presumed to be assignable if the parties have not expressly agreed otherwise, but that, once assigned, it will operate vis-à-vis the assignee only if that party has actual or constructive knowledge of the arbitration clause.86

Arbitration agreements concluded by agents

2.56  The binding effect of an arbitration agreement concluded by an agent on behalf of a principal involves questions of authority (that is, the agent’s ability to bind the principal to such agreements) and allied questions of necessary form.87 Thus an ICC tribunal invited to determine (p. 90) whether a principal was bound by an arbitration agreement concluded by its agent distinguished between the law governing the arbitration agreement (in that case, the law of the seat of the arbitration), the laws that governed the agent’s capacity to conclude an arbitration agreement on behalf of the principal (the law of the principal’s registered office), and the form in which such capacity should have been conferred on the agent (the law of the jurisdiction in which the agreement between the agent and the principal was concluded).88

2.57  National laws feature substantial differences on questions of necessary form (that is, whether the principal’s written authorisation is required) and content (that is, whether the principal’s authorisation need expressly envisage the conclusion of an arbitration agreement). For example, both Swiss and Austrian law require the principal expressly to authorise an agent to enter into an arbitration agreement on its behalf in order for that principal to be bound by such an agreement, but only Austrian law requires such express authorisation to be in writing.89 Under Italian,90 French,91 and German92 law, no particular form of authorisation is required.

Succession and novation

2.58  Questions of succession in international arbitration arise most often in connection with companies, rather than natural persons.93 The general rule is that arbitration agreements, like other contracts, enure to the benefit of universal successors of companies94—that is, the entities that succeed (p. 91) them as a result, for example, of a voluntary merger,95 or by operation of law. Such questions involve the status of a company and are thus generally to be resolved by reference to the law of its incorporation (or, in respect of natural persons, by reference to the law of succession).96

(c)  Joinder and intervention

2.59  Unlike litigation in state courts, in which third parties can often be joined to proceedings, the jurisdiction of an arbitral tribunal to allow for the joinder or intervention of third parties to an arbitration is limited. The tribunal’s jurisdiction derives from the will of the parties to the arbitration agreement and therefore joinder or intervention is generally only possible with the consent of all parties concerned.97 As between the original parties to the arbitration agreement, such consent may be either express, implied, or by reference to a particular set of arbitration rules agreed to by the parties that provide for joinder.98

2.60  Following recent revisions to many of the main institutional rules, most now contain a specific provision for joinder of third parties to an arbitration.99 For example, Article 7(1) of the ICC Rules provides that:

A party wishing to join an additional party to the arbitration shall submit its request for arbitration against the additional party (the ‘Request for Joinder’) to the Secretariat. The date on which the Request for Joinder is received by the Secretariat shall, for all purposes, be deemed to be the date of the commencement of arbitration against the additional party. … No additional party may be joined after the confirmation or appointment of any arbitrator, unless all parties, including the additional party, otherwise agree. The Secretariat may fix a time limit for the submission of a Request for Joinder.

(p. 92) 2.61  Some rules now set out a detailed procedural framework for joinder applications,100 but most are still silent on the issue. The Swiss Rules and the Rules of the Hong Kong International Arbitration Centre (HKIAC) also allow for intervention—that is, a third party may, of its own initiative, request to participate in the arbitration.101

2.62  Parties should be mindful that joining a third party to arbitration proceedings may be problematic if the tribunal has already been constituted. It is important to ensure that all parties are treated equally and, if relevant, that the procedure for participation in the appointment of the tribunal is respected.102

D.  Analysis of an Arbitration Agreement

(a)  Scope

2.63  An arbitration agreement confers a mandate upon an arbitral tribunal to decide any and all of the disputes that come within the ambit of that agreement. It is important that an arbitrator should not go beyond this mandate.103 If he or she does so, there is a risk that his or her award will be refused recognition and enforcement under the provisions of the New York Convention. Article V(1)(c) provides that recognition and enforcement may be refused: ‘If the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or if it contains decisions on matters beyond the scope of the submission to arbitration … ’ The Model Law contains an almost identical provision to the effect that an award may be set aside by the competent court, as well as refused recognition and enforcement, if it ‘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’.104

2.64  There are, in general, three categories of claim that are potentially within the scope of an arbitration agreement. These are:

  • •  contractual claims (including claims incidental to the contract, such as quantum meruit);

  • (p. 93) •  claims in tort; and

  • •  statutory claims.

The first two are self-explanatory. The third relates to those claims that arise out of legislation that might bind the parties, such as securities and antitrust legislation. In all three categories of claim, it is necessary to determine whether a particular claim or defence has a sufficient connection with the contract to be covered by the arbitration agreement on its terms.105 Likewise, in relation to statutory claims, the arbitral tribunal or a judge may need to examine a claim or defence in relation to the wording of the arbitration agreement in order to decide whether there is a sufficiently close connection. In all such cases, the form of words used in the arbitration agreement will be important.

(i)  Forms of wording

2.65  It is important to ensure that the wording adopted in an arbitration agreement is adequate to fulfil the intentions of the parties. Usually, when parties agree to resolve any disputes between them by arbitration, they intend such recourse to arbitration to be mandatory, rather than optional. Accordingly, the arbitration agreement should be drafted so as to make clear that resolving disputes by arbitration is not only the parties’ right, but also their obligation.106 Similarly, where parties include an arbitration agreement in their contract, they usually intend to resolve all disputes between them by this method (unless a specific exception is made). Accordingly, the arbitration agreement should be drafted in broad, inclusionary terms, rather than referring only certain categories of dispute to arbitration and leaving others to the jurisdiction of national courts.107

2.66  Fortunately, most national courts now regard arbitration as an appropriate way of resolving international commercial disputes and, accordingly, seek to give effect to arbitration agreements wherever possible,108 rather than seek to narrow the scope (p. 94) of the agreement so as to preserve the court’s jurisdiction. Thus the English Court of Appeal referred to a ‘presumption of one-stop arbitration’ in the interpretation of the arbitration agreement that is increasingly reflected in law and practice around the world.109 Similarly, the Swiss Federal Tribunal tends to interpret arbitration clauses broadly: a general reference to ‘disputes related to the agreement’ may extend to claims arising out of ancillary or connected contracts, provided that those contracts do not contain different dispute resolution clauses.110

2.67  Where an issue does arise as to the scope of an arbitrator’s jurisdiction, the issue may fall to be determined by the arbitrator (possibly at the outset of the arbitration) or by a competent court (for example where enforcement of the award is sought). There is a chance that the answer will differ according to the tribunal before which it is raised: in general, arbitrators are likely to take a less restrictive approach than the courts. This is understandable. An arbitrator is likely to consider that, because there are disputes between the parties, it would be sensible to try, as far as possible, to resolve them all in the same set of proceedings. A national court would no doubt be sympathetic to this approach—but it would nevertheless have it in mind that, unlike an arbitral award, its judgment might set a precedent for the future.111 Whatever the tribunal, its decision will depend upon its interpretation of the words of the arbitration agreement and the intention of the parties, in the light of the law that governs that agreement.

2.68  General words such as ‘claims’, ‘differences’, and ‘disputes’ have been held by the English courts to encompass a wide jurisdiction in the context of the particular agreement in question.112 In the United States, the words ‘controversies or claims’ have similarly been held to have a wide meaning, and if other words are used, it may be considered that the parties intended some limitation on the kind of disputes referred to arbitration.113

(p. 95) 2.69  Linking words such as ‘in connection with’, ‘in relation to’, ‘in respect of’, ‘with regard to’, ‘under’,114 and ‘arising out of’115 may also be important in any dispute as to the scope of an arbitration agreement. However, in Fiona Trust,116 the English courts drew a line under this debate as a matter of English law. Arriving at a broad interpretation of the arbitration clause in question, the Court of Appeal held as follows:

For our part 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 any businessman did want to exclude disputes about the validity of a contract, it would be comparatively simple to say so.117

2.70  Finally, when considering the scope of the arbitration agreement and in addition to the form of words used, the parties, by their conduct in referring a matter to arbitration, may be taken as impliedly agreeing to confer on the arbitrator jurisdiction beyond that which would have existed pursuant to the arbitration clause. Accordingly, a claim in tort that may not be within the scope of the arbitration clause may nevertheless come within an arbitrator’s jurisdiction where the parties address that claim in the arbitral proceedings, without reservation as to jurisdiction.118

(b)  Basic elements

2.71  There is no shortage of learned commentaries on the drafting of an arbitration agreement.119 They are of little importance or relevance, except to those specialists (p. 96) in arbitration who may be called upon to draft a particularly complicated arbitration clause, or who may be asked to prepare a detailed submission agreement for use in a major arbitration.120 International commercial arbitrations usually take place pursuant to a standard form arbitration clause, recommended either by the arbitral institution to which they refer, such as the ICC, International Centre for Dispute Resolution (ICDR), or the London Court of International Arbitration (LCIA), or by the United Nations Commission on International Trade Law (UNCITRAL). Any subsequent arbitration takes place according to the rules of either the institution concerned or of UNCITRAL, and these rules will generally be adequate to guide the process from beginning to end, including (if necessary) the constitution of the arbitral tribunal, the filling of any vacancies, the exchange of written submissions, and so on. Where the parties wish to provide for ad hoc arbitration, but not to make use of the UNCITRAL Rules, it will generally be sufficient to adopt a clause that makes it clear that all disputes are to be referred to arbitration. Also, the clause should specify that this is to take place in a state that has a modern law of arbitration, which, if necessary, will provide for the appointment of arbitrators, the filling of vacancies, and so on. In France, for example, a simple clause such as ‘Resolution of disputes: arbitration, Paris’, whilst not recommended, would be held as a valid submission to arbitration in an international commercial contract.121 The French law on international arbitration would then give such support to the arbitral process as required, including appointment of the arbitral tribunal under article 1493 of the French New Code of Civil Procedure.

2.72  Arbitration clauses are usually drawn in wide terms, to ensure that all disputes that arise out of or in connection with a particular contract or contractual relationship are referred to arbitration. It is possible to limit arbitration to certain disputes, leaving others to the courts, but this is not generally desirable.122 If a dispute does (p. 97) arise, there may well be a threshold issue as to whether or not it is a dispute that is covered by the arbitration clause—in other words, a dispute about what kind of dispute it is.

2.73  As already indicated, where parties agree to put an arbitration clause into their contract, they will usually select a standard form, or ‘model’, clause, either from one of the arbitral institutions or from an internationally recognised authority such as UNCITRAL. These model clauses are widely drawn. The UNCITRAL model refers to ‘[a]‌ny dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof’. Similar language is used in the ICC and LCIA model forms.

2.74  Where a model clause is used, it is sensible to supplement it by reference to the number of arbitrators, the place of arbitration, the law or laws governing the arbitration clause and the contract of which it forms part, the language of the arbitration, and so on. Otherwise any problems that arise in these respects and on which the parties cannot agree will have to be resolved by the relevant arbitral institution or by the arbitral tribunal itself.

2.75  There follows a note of the key elements of an arbitration clause, including those that may usefully supplement a model clause. Since these key elements have already been discussed, either in this or the preceding chapter, the note is brief.

(i)  A valid arbitration agreement

2.76  First, there must be a valid arbitration agreement. In particular, it must be made clear, as it is in the model clauses, that the parties intend that any and all disputes between them shall be finally resolved by arbitration. Examples of defective clauses in which such an intention was not made clear are given later in this chapter.

(ii)  Number of arbitrators

2.77  In an international arbitration, there should be an uneven number of arbitrators, and it is suggested that, in general, three at most will be sufficient.123 The system of appointing only two arbitrators, with an ‘umpire’ or ‘referee’ to adjudicate between them if they cannot agree, may be appropriate for arbitrations within a defined trade or commodity association, but is impracticable for the generality of international arbitrations.

(iii)  Establishment of the arbitral tribunal

2.78  This important subject is dealt with in Chapter 4.

(p. 98) (iv)  Ad hoc or institutional arbitration

2.79  Whether the tribunal will be ad hoc or institutional is one of the most important decisions that has to be taken—and, of course, it has to be taken at the wrong time. In an ideal world, it would be possible to wait until any disputes had arisen and then decide, according to their importance and complexity, how they should best be handled. Would a simple ad hoc agreement, backed by a modern system of arbitration law, be sufficient to dispose of the disputes without involving a national court124 or an arbitral institution?125 If not, would it be sensible to enlist the help and support (and the rules) of one of the arbitral institutions, and if so, which institution: the ICC, the LCIA, or the ICDR? Or would it be better, given the complexity of the dispute, the amount of money involved, the expertise likely to be required, and the importance of the issues to be resolved, to negotiate a detailed submission agreement?

2.80  These questions would be best answered when a dispute arises. But the reality is that, by this stage, the parties, like a divorcing couple, may not be talking to each other—or, at most, will be doing so only through their lawyers. Accordingly, good sense dictates that the agreement to arbitrate should be negotiated and concluded at the same time as the contract to which it relates. As one commentator has expressed it: ‘The primary objective, in inserting an arbitration clause in a contract, is to ensure that when the time comes—that is, when a dispute parts the parties—neither one will be able to escape arbitration … ’126

2.81  The choice between ad hoc and institutional arbitration has already been considered in Chapter 1,127 and need not be repeated here. The criteria by which an arbitral institution should be judged are also considered in that chapter.128

(v)  Filling vacancies in the tribunal

2.82  During the course of an arbitration, it may sometimes be necessary to replace an arbitrator, whether because his or her appointment has been successfully challenged, or because he or she has died, or for some other reason, such as incapacity. The rules of the established arbitral institutions contain comprehensive provisions to cover such contingencies,129 as do modern laws of arbitration.130 Where there is a submission agreement that is intended, as far as possible, to be self-contained,131 provisions for filling any vacancies in the tribunal must be spelled out in some detail.

(p. 99) (vi)  Place of arbitration

2.83  The place of arbitration is another decision of major importance. It constitutes the seat of the arbitration and the law of that place governs the arbitral proceedings. This is fully considered in Chapter 3. It is advisable for the parties themselves to choose a suitable place of arbitration, rather than to leave the choice to others. In doing so, as discussed in Chapter 3, they should locate their arbitration in a state the laws of which are adapted to the needs of modern international commercial arbitration and which is a party to the New York Convention. They should also take account of practical matters, such as distance, availability of adequate hearing rooms, backup services, and so on.

(vii)  Governing law

2.84  The parties’ contract should contain a choice of law clause and they should also consider making express provision for the governing law of the arbitration agreement. In Sulamérica,132 the English Court of Appeal held that where parties have not expressly agreed on a governing law for their arbitration agreement, their choice of law for the main contract will be a ‘strong indication’ that they wished to adopt the same law for the arbitration agreement. Where the contract does not contain a ‘choice of law’ clause (or the arbitration agreement is not part of a contract), the court will turn to the parties’ choice of seat in order to determine the law with which the arbitration agreement has its ‘closest and most real connection’. Again, this topic is discussed in full in Chapter 3.133

(viii)  Default clauses

2.85  It is important that the failure or refusal of one of the parties to take part should not frustrate an arbitration. The defaulting party is usually the respondent, who sees that it has nothing to win and may have much to lose by taking part in proceedings that are likely to lead to an award against it. Exceptionally, however, a claimant may lose heart in the face of a substantial counterclaim. It may then be the respondent who wishes to proceed. The rules of the arbitral institutions usually contain adequate default provisions; so too does Article 30 of the UNCITRAL Rules, which provides:

1.  If, within the period of time fixed by these Rules or the arbitral tribunal, without showing sufficient cause:

  1. (a)  The claimant has failed to communicate its statement of claim, the arbitral tribunal shall issue an order for the termination of the arbitral proceedings, unless there are remaining matters that may need to be decided and the arbitral tribunal considers it appropriate to do so;

  2. (p. 100) (b)  The respondent has failed to communicate its response to the notice of arbitration or its statement of defence, the arbitral tribunal shall order that the proceedings continue, without treating such failure in itself as an admission of the claimant’s allegations; the provisions of this subparagraph also apply to a claimant’s failure to submit a defence to a counterclaim or to a claim for the purpose of a set-off.

2.  If a party, duly notified under these Rules, fails to appear at a hearing, without showing sufficient cause for such failure, the arbitral tribunal may proceed with the arbitration.

3.  If a party, duly invited by the arbitral tribunal to produce documents, exhibits or other evidence, fails to do so within the established period of time, without showing sufficient cause for such failure, the arbitral tribunal may make the award on the evidence before it.

Where there is no default clause in the relevant rules of arbitration, it is sensible to include one in the arbitration clause.

(ix)  Language

2.86  It is both customary and logical for the language of the arbitration to be the language of the contract. This will be the usual position in an institutional arbitration, although the arbitral tribunal usually has discretion to direct that other languages may be used or that documents may be admitted in their original language without the need for a translation. Thus, by way of notable example, Article 20 of the ICC Rules expressly provides that, ‘in the absence of an agreement by the parties, the Arbitral Tribunal shall determine the language or languages of the arbitration, due regard being given to all relevant circumstances, including the language of the contract’.

2.87  Sometimes, a contract is made in two languages, each to be of equal authenticity. In such cases, simultaneous translations at the hearing of the arbitration may be unavoidable (although it slows down the proceedings and is not inexpensive).

(x)  Multi-tier clauses

2.88  Parties to an arbitration agreement may decide that, prior to submitting any dispute to arbitration, they want to attempt an amicable settlement of the matter through direct negotiations or third-party assisted non-binding procedures such as mediation. Clauses that envisage an escalation of the dispute through at least two different forms of dispute resolution procedure are called ‘multi-tier’ dispute resolution clauses.134

(p. 101) 2.89  The advantage of such clauses is that they require the parties to explore fully the possibility of amicable settlement prior to the launch of often lengthy, expensive, and disruptive arbitral proceedings. The disadvantage is that if amicable settlement is possible, the parties are likely to explore the possibility in any event at the time that the dispute arises, and if it is not, the pre-arbitral tiers simply delay and obstruct the launch of determinative proceedings. Views therefore vary as to the merits of such clauses, although there tends to be general agreement on at least one aspect: if an arbitration clause is going to begin by requiring amicable negotiations between the parties, it should require that such discussions necessarily involve members of senior management who have not been personally implicated in the underlying dispute.

2.90  Until recently, clauses providing for amicable discussions or negotiations have been dismissed by the English courts as ‘a bare agreement to negotiate’, which ‘has no legal content’ and is therefore unenforceable.135 Following the decision in Cable & Wireless,136 there has been a marked shift in the English courts’ position. In that case, the High Court acknowledged that ‘there is an obvious lack of certainty in a mere undertaking to negotiate … because a court would have insufficient objective criteria to decide whether one or both parties were in compliance or breach of such a provision’.137 However, it held that a multi-tier clause may be enforceable if it provides for ‘a sufficiently certain and definable minimum duty of participation’, and remarked that where the clause contains ‘an unqualified reference to ADR [alternative dispute resolution]’, that minimum duty ‘should not be hard to find’.138

2.91  Many multi-tier clauses have since failed the certainty threshold established in Cable & Wireless. In Sulamérica,139 the English High Court held that the parties’ agreement to ADR was unenforceable because there was no clear undertaking to enter into mediation, no clear provision for the appointment of a mediator, and no clearly defined mediation process. Most recently, in Tang Chung Wah,140 the English High Court refused to enforce a multi-tier clause on the basis that it was ‘too equivocal’ and ‘too nebulous’, and contained no ‘guidance as to the quality or nature of the attempts to be made to resolve a dispute’.141 The Swiss courts adopted (p. 102) a similar approach in X GmbH,142 in which the multi-tier clause did not provide any procedural framework for negotiations and did not prescribe a time limit for the initiation of conciliation proceedings.

2.92  Courts in other jurisdictions are more readily prepared to give effect to an agreement to engage in a non-binding ADR process. The Australian courts, for instance, consider that an agreement to negotiate in good faith entails an undertaking to behave in a particular manner and is therefore more than a mere ‘agreement to agree’.143 Similarly, the Singapore High Court has held that a bare agreement to mediate is valid and enforceable, referring to the traditional Asian value of promoting friendly negotiations and settlement whenever possible.144

2.93  Irrespective of the applicable law, care should always be taken when drafting multi-tier clauses to define the ADR procedure clearly (for example stipulating a specific time period, such as thirty days, for negotiations between senior management), along with the parties’ respective obligations.145

(xi)  Sole option clauses

2.94  Under ‘sole option’, or ‘unilateral option’, clauses, one party has a choice as to whether to bring a claim in a specified forum other than the dispute resolution forum that binds the other party.

2.95  The English courts have consistently ruled that sole option clauses are valid and enforceable under English law. In Law Debenture Trust,146 the relevant legal instruments provided that disputes would be resolved by the English courts but the bondholders would have the right to refer a claim to arbitration if they so wished. The court stated:

I give no weight to the use … of pejorative terms such as ‘veto’. Nor is it correct so [sic] say that the provisions are somehow less than even handed in any relevant way. They give an additional advantage to one party, but so do many contractual provisions.147

(p. 103) 2.96  The courts of many other jurisdictions have also confirmed that sole option clauses are valid and enforceable under their domestic laws.148

2.97  In Russia, the position is more problematic. In Russian Telephone Co.,149 the Presidium of the Supreme Arbitrazh Court held that an arbitration agreement that gave one party the sole option to refer disputes to the Russian courts instead of ICC arbitration in London violated the principle of procedural equality between litigating parties and was therefore unenforceable. However, it did not strike out the clause altogether; instead, it construed the clause so that both parties had the choice to either arbitrate or litigate.150

2.98  The position under French law is also uncertain following X v Banque Privée Edmond de Rothschild Europe (Rothschild).151 In that case, the dispute resolution clause restricted one party to litigate in a specific court, but provided that the other party (a bank) was free to select ‘any other court of competent jurisdiction’. The Cour de Cassation held that the clause was ‘potestative in nature’ and ‘for the sole benefit of the Bank’, and was therefore contrary to the Brussels Regulation.152 It remains to be seen whether the Rothschild case will prove authoritative where a sole option clause involves recourse to arbitration.153

(xii)  Other procedural matters

2.99  Other procedural matters need to be covered only in a clause providing for ad hoc arbitration, or where the parties wish to deviate in certain respects from the rules that they have adopted in their arbitration clause. An example is where the parties adopt the UNCITRAL Rules, but wish the presiding arbitrator to make an award as if he or she were sole arbitrator in the event that a majority award is not possible.154

(p. 104) 2.100  The parties may also wish to confer special powers on the arbitral tribunal that do not normally exist under the law governing the arbitration or under the rules of the relevant arbitral institution, if any.155 These additional powers may enable the arbitral tribunal to grant remedies that otherwise might not be available under the applicable law. For example, power may be given to order a party to provide security in relation to an amount in dispute, either by paying it into a special account established in the name of the arbitral tribunal or into some other blocked escrow account.156

(c)  Separability

2.101  The concept of the separability of the arbitration clause157 is both interesting in theory and useful in practice.158 It means that the arbitration clause in a contract is considered to be separate from the main contract of which it forms part and, as such, survives the termination of that contract. Indeed, it would be entirely self-defeating if a breach of contract or a claim that the contract was voidable were sufficient to terminate the arbitration clause as well; this is one of the situations in which the arbitration clause is most needed.

2.102  Separability thus ensures that if, for example, one party claims that there has been a total breach of contract by the other, the contract is not destroyed for all purposes. Instead:

It survives for the purpose of measuring the claims arising out of the breach, and the arbitration clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration clause is not one of the purposes of the contract.159

2.103  Another method of analysing this position is that there are, in fact, two separate contracts: the primary, or main, contract concerns the commercial obligations of the parties; the secondary, or collateral, contract contains the obligation to resolve any disputes arising from the commercial relationship by arbitration. This secondary contract may never come into operation—but if it does, it will form the basis for the appointment of an arbitral tribunal and for the resolution of any dispute arising out of the main contract.

2.104  The doctrine of separability is endorsed by institutional and international rules of arbitration, such as those of UNCITRAL, which state in the context of pleas as to the jurisdiction of an arbitral tribunal that ‘an arbitration clause that forms part of (p. 105) a contract shall be treated as an agreement independent of the other terms of the contract’.160 Following the provisions of the UNCITRAL Rules, Article 16(1) of the Model Law provides that:

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.

2.105  Similarly, Article 23(2) of the LCIA Rules stipulates that, for the purpose of a ruling on jurisdiction:

[A]‌n 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 (of itself) the non-existence, invalidity or ineffectiveness of the arbitration clause.161

2.106  In the Gosset case,162 the French Cour de Cassation recognised the doctrine of separability in very broad terms, as follows:

In international arbitration, the agreement to arbitrate, whether concluded separately or included in the contract to which it relates, is always save in exceptional circumstances … completely autonomous in law, which excludes the possibility of it being affected by the possible invalidity of the main contract.

2.107  Five years later, the US Supreme Court also recognised the separability of the arbitration clause in the Prima Paint case,163 and modern laws on arbitration confirm the concept. Swiss law, for example, provides that ‘[t]‌he validity of an arbitration agreement cannot be contested on the ground that the main contract may not be valid’.164

2.108  More recently, the Chinese courts have also accepted that:

Where the main contract is not concluded (null) or does not come into effect after conclusion (void), it will not influence the effect of the arbitration clause (p. 106) agreed by the parties, as the arbitration clause is completely separable from the main contract.165

2.109  An increasing number of countries166 have made their position clear by making the separability of the arbitration clause part of their laws on arbitration.167 The number of states in which the concept has not yet been accepted is steadily diminishing.168

2.110  An independent (or autonomous) arbitration clause thus gives the arbitral tribunal a basis on which to decide on its own jurisdiction, even if it is alleged that the main contract has been terminated by performance or by some intervening event. Some laws and rules go further, to establish that the arbitration clause will survive even if the main contract that contains it proves to be null and void.169 However, this must depend on the reason for which the contract is found to be null and void (that is, is it a reason that will also affect the ‘separate’ arbitration agreement?), and whether it is void ab initio.

2.111  While the doctrine of separability is now accepted in principle in all developed arbitral jurisdictions, application of the doctrine continues to vary—even within jurisdictions—in circumstances in which the main contract is argued never to have come into existence at all.

2.112  In England, section 7 of the Arbitration Act 1996 provides that an arbitration agreement contained in another agreement ‘shall not be regarded as invalid, non-existent or ineffective because that other agreement … did not come into existence’.170 The doctrine received approval and confirmation by the English (p. 107) courts in Fiona Trust,171 in which the House of Lords, confirming the decision of the Court of Appeal, held that the arbitrators, not the courts, should determine whether the underlying contract was void for illegality, unless the illegality was directed at the arbitration clause in particular.172 By way of international comparison, in China, the courts are also now regularly applying the principle in accordance with international practice.173

2.113  It will be appreciated from what has been said that there is a direct connection between the autonomy of the arbitration clause and the power (or competence) of an arbitral tribunal to decide upon its own jurisdiction (or competence). This power (that of ‘competence/competence’, as it is sometimes known) is discussed in Chapter 5, which deals with jurisdiction and other issues.

(d)  Summary

2.114  As already stated, most arbitrations take place pursuant to an arbitration clause in a ‘contract’. Where the parties decide that any dispute between them will be submitted to arbitration under the rules of a particular arbitral institution, the model clause recommended by that institution should be incorporated into the contract. Where the parties decide that the services of an arbitral institution are unlikely to be required, but that they would nevertheless like to adopt an existing set of rules, they should incorporate the recommended UNCITRAL arbitration clause into the contract.

2.115  Where such arbitration clauses are adopted, most national courts will recognise and give effect to the parties’ wishes to arbitrate any disputes between them. These model clauses bring with them a set of rules that are self-sufficient, and which should be enough to guide the arbitral tribunal and the parties from the beginning to the end of the arbitral process.

2.116  Nonetheless, it would be advisable to add to the model clause at least three of the basic elements of an arbitration agreement discussed—namely, the number of arbitrators, the place of arbitration, and the governing law of the contract. It may (p. 108) also be, or may become, necessary to identify the law governing the arbitration agreement.174

2.117  If the parties do not require the services of an arbitral institution and do not wish to adopt the UNCITRAL Rules, a simple submission to arbitration—adapted from one of the model clauses—would be sufficient in theory. In practice, however, it is sensible not only to provide for the number of arbitrators, the place of arbitration, and the governing law, but also to consider such provisions as those relating to the establishment of the arbitral tribunal, the filling of vacancies, and the failure or refusal of a party to take part in the arbitration.

2.118  The fact that the parties have agreed in their arbitration clause to an arbitration under institutional rules does not prevent them from agreeing, when a dispute has arisen, to a different method of resolving the dispute. Thus they may switch from, say, an ICC arbitration to an ad hoc arbitration or vice versa—but if they do so, a new arbitration agreement should be made, submitting the existing dispute (by way of submission agreement) to arbitration.

E.  Submission Agreements

2.119  The position of the parties and their advisers in dealing with a submission agreement is radically different from the position that exists when an arbitration clause is being written into a contract. First, a dispute has actually arisen and usually this means that there will be a hostile element in the relationship. Secondly, the legal advisers know what kind of dispute they are facing, and they will wish to structure the arbitration to deal with it efficiently and appropriately. Thirdly, the interests of the parties may conflict, in that the claimant usually wants a speedy resolution, whereas the respondent may consider that it will be to its advantage to create delay.175 For all of these reasons, the negotiation of a submission agreement may be a lengthy process. However, the importance of ‘getting it right’ cannot be overemphasised.

2.120  The submission agreement should contain many, if not all, of the basic elements of an arbitration agreement. In addition, it should contain a definition, or at least an outline, of the disputes that are to be arbitrated.

2.121  It is also possible to include in the submission agreement procedural arrangements, such as for production of documents, exchange of written submissions and (p. 109) witness statements, the timetable to be followed, and other matters. On balance, however, it is probably better to deal with such questions in a separate document, perhaps with the assistance of the arbitral tribunal once the arbitration has commenced.

2.122  The importance of ensuring that the submission agreement deals with all of these matters emerges clearly from the Turriff arbitration, which took place at the Peace Palace in The Hague.176 During the course of the proceedings, two of the three arbitrators originally appointed resigned and the respondent withdrew, leaving the arbitration to proceed as a default arbitration.177 The resignation of the presiding arbitrator on grounds of ill health was dealt with by agreement; the Canadian chairman was replaced by a Dutch judge. The withdrawal of the government from the arbitration could not be dealt with by agreement, since by then all cooperation between the parties had ceased. However, the arbitral tribunal had express power under the submission agreement to proceed in default (that is, in the absence of one of the parties). It decided to do so and a date was fixed for an adjourned hearing. A third crisis prevented this: the Sudanese arbitrator failed to attend the adjourned hearing. One of the arbitrators, who had been delegated by the arbitral tribunal to deal with procedural matters, fixed a new date for the hearing. He ordered that, in the absence of the Sudanese arbitrator, Turriff’s oral argument and evidence should be presented before two members of the arbitral tribunal (that is, a truncated tribunal), and should be fully recorded, authenticated, and preserved.178

2.123  Under the submission agreement, it was for the government to appoint a new arbitrator179 within sixty days. When it failed to do so, Turriff asked the president of the International Court of Justice (ICJ) to make the appointment, which he did, whereupon the remaining two arbitrators were deemed to have been reappointed. In this way, a new arbitral tribunal was constituted—and the hearing then continued ex parte as before, with the new arbitrator reading the transcript of the previous days’ proceedings, in order to acquaint himself with the facts. In April 1970, the arbitral tribunal issued an award under which the government was ordered to pay (p. 110) compensatory damages, together with an additional sum to cover Turriff’s legal costs and the costs, fees, and expenses of the arbitral tribunal.180

F.  Arbitrability

(a)  Introduction

2.124  Arbitrability, in the sense in which it is used both in this book and generally,181 involves determining which types of dispute may be resolved by arbitration and which belong exclusively to the domain of the courts. Both the New York Convention and the Model Law are limited to disputes that are ‘capable of settlement by arbitration’.182

2.125  In principle, any dispute should be just as capable of being resolved by a private arbitral tribunal as by the judge of a national court. Article 2059 of the French Civil Code, for example, provides that ‘all persons may enter into arbitration agreements relating to the rights that they may freely dispose of’. Although article 2060 further provides that parties may not agree to arbitrate disputes in a series of particular fields (such as family law) and ‘more generally in all matters that have a public interest [plus généralement dans toutes les matières qui intéressent l’ordre public]’, this limitation has been construed in a very restrictive way by French courts. Similarly, section 1 of the Brazilian Arbitration Act of 1996 (Law No. 9307) states that parties may settle disputes through arbitration as long as the subject matter relates to freely transferable rights.183

2.126  However, it is precisely because arbitration is a private proceeding with public consequences184 that some types of dispute are reserved for national courts, the proceedings of which are generally in the public domain. It is in this sense that they are not ‘capable of settlement by arbitration’.

(p. 111) 2.127  National laws establish the domain of arbitration, as opposed to that of the local courts. Each state decides which matters may or may not be resolved by arbitration in accordance with its own political, social, and economic policy. In some Arab states, for example, contracts between a foreign corporation and its local agent are given special protection by law, and, to reinforce this protection, any disputes arising out of such contracts may be resolved only by the local courts.185 In the United States, the arbitration of certain types of dispute that engage public policy appears to be under legislative attack. At the time of writing, a Bill (the ‘Arbitration Fairness Act of 2015’) in the United States, which has yet to be voted on, proposes to invalidate any pre-dispute arbitration clause in relation to employment, consumer, antitrust, and civil rights disputes on the grounds that the weaker of the parties in reality has little or no meaningful choice as to whether to select arbitration.186 The legislators and courts in each country must balance the domestic importance of reserving certain matters of public interest to the courts against the more general public interest in allowing people the freedom to arrange their private affairs as they see fit.187 In the international sphere, the interests of promoting international trade, as well as international comity, have proven important factors in persuading the courts to treat certain types of dispute as arbitrable.188

2.128  If the issue of arbitrability arises, it is necessary to have regard to the relevant laws of the different states that are, or may be, concerned. These are likely to include: the law governing the party involved, where the agreement is with a state or state entity; the law governing the arbitration agreement; the law of the seat of arbitration; and the law of the ultimate place of enforcement of the award.

(p. 112) 2.129  Whether or not a particular type of dispute is ‘arbitrable’ under a given law is, in essence, a matter of public policy for that law to determine. Public policy varies from one country to the next, and indeed changes over time.189 The most that can be done here is to indicate the categories of dispute that may fall outside the domain of arbitration.

2.130  Reference has already been made in passing to contracts of agency, for which special provision may be made in some states as a matter of public policy. More generally, criminal matters and those that affect the status of an individual or a corporate entity (such as bankruptcy or insolvency) are usually considered to be non-arbitrable. In addition, disputes over the grant or validity of patents and trade marks may not be arbitrable under the applicable law. These various categories of dispute are now considered in greater detail.

(b)  Categories of dispute for which questions of arbitrability arise

(i)  Patents, trade marks, and copyright

2.131  Whether or not a patent or trade mark should be granted is plainly a matter for the public authorities of the state concerned, these being monopoly rights that only the state can grant. Any dispute as to their grant or validity is outside the domain of arbitration.190 However, the owner of a patent or trade mark frequently issues licences to one or more corporations or individuals in order to exploit the patent or trade mark, and any disputes between the licensor and the licensee may be referred to arbitration. Indeed, disputes over such intellectual property rights are commonly referred to international arbitration—first, because this gives the parties an opportunity to select for themselves a tribunal of arbitrators experienced in such matters, and secondly (and perhaps more importantly), because of the confidentiality of arbitral proceedings, which helps to provide a safeguard for trade secrets.191

2.132  Unlike patents or trade marks, copyright is an intellectual property right that exists independently of any national or international registration and may be freely (p. 113) disposed of by parties. There is therefore generally no doubt that disputes relating to such private rights may be referred to international arbitration.192

(ii)  Antitrust and competition laws

2.133  Adam Smith, writing in the eighteenth century, said: ‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’193 This early distrust of monopolies and cartels finds its modern echo in increasingly wide-ranging antitrust (or competition) legislation across the world. Amongst national legislators, the United States has been prominent, beginning with the celebrated Shearman Act in 1890. Similarly, in 1958, the (then) European Community adopted rules of law that were to be directly applicable in all member states, and which prohibit agreements and arrangements having as their object or effect the prevention, restriction, or distortion of competition,194 as well as any abuse of a dominant position,195 within what is now the European Union. Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU) have historically been enforced primarily by the European Commission, which has the power to investigate, to prohibit behaviours, to impose heavy fines, and also to grant exemptions pursuant to Article 101(3) TFEU where appropriate in light of the wider benefits of the activity or agreement that infringes Article 101.196

2.134  What can an arbitral tribunal do when confronted with an allegation that the contract under which the arbitration is brought is itself an illegal restraint of trade, or in some other way a breach of antitrust law? For example, in disputes between the licensor of a patent and the licensee, it has become almost standard practice for the licensor to allege (amongst a series of defences) that, in any event, the licence agreement is void for illegality. In general, an allegation of illegality should not prevent an arbitral tribunal from adjudicating on the dispute even if its finding is that (p. 114) the agreement in question is indeed void for illegality. This is because, under the doctrine of separability,197 the arbitration clause in a contract constitutes a separate agreement and survives the contract of which it forms part. More specifically, it is now widely accepted that antitrust issues are arbitrable. In France, the arbitrability of competition law issues is well established, having been acknowledged in the Mors/Labinal case in 1993198 and reaffirmed by the Cour de Cassation in 1999.199 Likewise, in Switzerland, the arbitrability of EU competition law was recognised by a decision of the Federal Tribunal in 1992,200 in which the Tribunal found that ‘[n]‌either Article 85 of the [EU] Treaty nor Regulation 17 on its application forbids a national court or an arbitral tribunal to examine the validity of that contract’.

2.135  The US Supreme Court had already adopted this approach in the well-known Mitsubishi case.201 At one time, it was held in the United States that claims under the antitrust laws were not capable of being resolved by arbitration, but had to be referred to the courts. In the American Safety case,202 the reaction of the court was that:

A claim under the antitrust laws is not merely a private matter … Antitrust violation 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 the Courts.203

2.136  However, in Mitsubishi, the US Supreme Court decided, by a majority of five to three, that antitrust issues arising out of international contracts were arbitrable under the Federal Arbitration Act. This was so despite the public importance of the antitrust laws, the significance of private parties seeking treble damages as a disincentive to violation of those laws, and the complexity of such cases. In its judgment, the Court stated:

[W]‌e conclude that concerns of international comity, respect for the capacities of foreign and transnational tribunals and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require (p. 115) that we enforce the parties’ agreement, even assuming that a contrary result would be forthcoming in a domestic context.204

However, the Court went on to point out that the public interest in the enforcement of antitrust legislation could be asserted, if necessary, when it came to enforcement of any award made by the arbitral tribunal. It stated that:

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. The [New York Convention] reserves to each signatory country the right to refuse enforcement of an award where the ‘recognition or enforcement of the award would be contrary to a public policy of that country’.205

2.137  In this way, rather than question whether antitrust issues are arbitrable, later decisions tend to focus—at least in the European Union and United States—on the extent of a state court’s power to review arbitral awards in relation to disputes that raise competition issues. In its landmark decision in Eco Swiss China Time Ltd v Benetton International NV,206 the European Court of Justice (ECJ) identified Article 81 of the EU Treaty (now Article 101 TFEU) as a matter of public policy that would justify the annulment or refusal of enforcement of an award that ignores it. In the context of a challenge to an award that gave effect to a licence agreement that was alleged, only after the award had been rendered, to violate Article 81 of the EU Treaty, the ECJ ruled 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 85 of the Treaty [now Art. 81 TEU], where its domestic rules of procedure require it to grant an application for annulment founded on failure to observe national rules of public policy.207

2.138  Although, in Eco Swiss, the ECJ did not explicitly rule on whether arbitrators have a duty to apply Article 81 EC ex officio if the parties themselves made no reference to it, this decision is generally seen—at the very least—as implying that arbitrators should do so or risk the annulment of their award on grounds of a violation of public policy.208 However, some uncertainty remains as to how serious the alleged (p. 116) violation of competition law must be in order to justify the annulment of an award. The Paris Cour d’Appel has refused to annul an award that failed to address competition issues, on the basis that there was no ‘flagrant, effective and concrete’ violation of public policy.209 Indeed, the prevailing view seems to be that a ‘minimalist’ standard of review is appropriate.210

(iii)  Securities transactions

2.139  An earlier ruling by the Supreme Court in a dispute under the US Securities Act of 1933 foreshadowed the decision in Mitsubishi. In 1953, the Supreme Court had held that disputes under the Securities Act were not arbitrable.211 In 1974, however, the Court held that such disputes were arbitrable in an international commercial arbitration. The case was Scherk v Alberto-Culver,212 in which the Supreme Court said that a ‘parochial refusal by the courts of one country to enforce an international arbitration agreement’ would not only frustrate the purpose of the agreement, but also ‘damage the fabric of international commerce and trade and imperil the willingness and ability of businessmen to enter into international commercial agreements’.213 In subsequent cases, the Court went on to accept the arbitrability of securities disputes in US domestic arbitration.214

2.140  Other national securities laws, existing as they do to protect vulnerable consumers, restrict the resolution of disputes thereunder to the national courts. By way of example, German securities legislation expressly restricts the availability of (p. 117) arbitration to commercial cases in which both parties are established businesses or companies.215

(iv)  Insolvency

2.141  Issues of arbitrability arise in respect of insolvency law as a result of the conflict between the private nature of arbitration and the public-policy-driven collective procedures provided for under national insolvency laws.216 Courts and tribunals in various countries have sought to identify where the boundary of arbitrability should lie and which insolvency issues are only suitable for resolution by a court. In this regard, a distinction can be made between ‘core’, or ‘pure’, insolvency issues, which are inherently non-arbitrable (for example matters relating to the adjudication of the insolvency itself or the verification of creditors’ claims),217 and the remaining circumstances of other cases involving the insolvency of one of the parties to a commercial arbitration agreement. The precise location of this dividing line varies between countries and will depend in part on national insolvency laws.

2.142  In the United States, the national bankruptcy courts were traditionally reluctant to defer their jurisdiction to arbitrators except in exceptional circumstances.218 The approach now is for the courts to look at the type of dispute before them and to determine whether there are any core insolvency issues in play that deprive an arbitral tribunal of jurisdiction.219

2.143  In the European Union,220 EC Council Regulation 1346/2000 establishes a common framework for insolvency proceedings. The Regulation provides, inter alia, that the law of the country in which insolvency proceedings are commenced shall determine the effect of those insolvency proceedings on other proceedings brought by individual creditors, including arbitration proceedings, with the exception of (p. 118) proceedings that are pending, which shall be determined by the law of the member state in which the lawsuit is pending.221

2.144  In Switzerland, the insolvency of one of the parties will not generally affect the arbitration agreement and arbitrators retain a wide jurisdiction to decide disputes relating to insolvency issues, including claims made on behalf of the estate itself.222 German law also adopts a liberal approach to arbitrability in this context, with arbitrators having jurisdiction to determine all disputes relating to bankruptcy proceedings other than ‘pure’ insolvency issues, such as the appointment of an administrator, the collection and distribution of assets, and the reorganisation of a business.223

2.145  In Argentina, any arbitration agreement to which an insolvent company is party will automatically terminate upon the court entering a bankruptcy decree, unless the arbitral tribunal has already been constituted.224 In Brazil, bankruptcy procedures are considered to be non-arbitrable.225 However, a company’s bankruptcy will not affect the validity of an arbitration agreement to which the company is party.226

2.146  Under English law, it is difficult to enforce an arbitration agreement against an insolvent party in circumstances under which the trustee in bankruptcy does not consent. The Arbitration Act 1996 introduced a specific procedure into the English Insolvency Act 1986, which allows a trustee in bankruptcy to adopt or reject an arbitration agreement. If it elects to reject the arbitration agreement, then arbitral proceedings can be brought only with the consent of the company’s creditors and the court, which will look at all of the circumstances of the case to determine whether the dispute in question ought to be referred to arbitration.227 This (p. 119) apparently reflects the more general rule under English law that allows a trustee to refuse to acknowledge ‘unprofitable’ contracts. Should the trustee elect to confirm the arbitration agreement in a particular case, it becomes binding and enforceable both by and against the trustee.

(v)  Bribery and corruption

2.147  Issues of bribery or corruption in the procurement or performance of a contract raise important questions of public policy. In its 2002 final report on public policy as a bar to the enforcement of international arbitral awards, the Committee on International Arbitration of the International Law Association (ILA) reviewed the development of the concept of public policy during the latter part of the twentieth century, and concluded that there was an international consensus that corruption and bribery are contrary to international public policy.228

2.148  So what is an arbitral tribunal to do if there is a dispute as to the performance of an international commercial agreement and it is said, as an excuse for non-performance, that the agreement had for its object the payment of bribes or some other fraudulent inducement? This issue was first raised in 1963 before a distinguished Swedish jurist, Judge Lagergren, who was acting as sole arbitrator in ICC Arbitration No. 1110.229

2.149  This landmark arbitration involved a dispute as to whether an agreement entered into in 1950 for the payment to Mr X of a 10 per cent commission on the value of industrial equipment then required for a particular public energy project in Argentina also covered the sale of equipment in 1958 for another similar project. Testifying before Judge Lagergren, Mr X stated that he ceded certain ‘participations’ to ‘influential personalities’ among a ‘clique of people which had a controlling influence upon the Government’s economic policy’. Witnesses for the respondent (a foreign supplier) testified that they understood that most of the money was for ‘Peron and his boys’ as the only way in which to ‘get business of any scale in Argentina’.

2.150  Finding the contract to be ‘condemned by public decency and morality’ because it ‘contemplated the bribing of Argentine officials for the purpose of obtaining the hoped-for business’, Judge Lagergren found that such a dispute was not arbitrable, stating that the parties to such a contract had ‘forfeited the right to ask for assistance of the machinery of justice’.230

(p. 120) 2.151  The modern approach—based on the concept of separability,231 which has now received widespread acceptance both nationally and internationally—is that an allegation of illegality does not in itself deprive the arbitral tribunal of jurisdiction.232 On the contrary, it is generally held that the arbitral tribunal is entitled to hear the arguments and receive evidence, and to determine for itself the question of illegality.233 Thus, in Switzerland, in a case involving a consultancy agreement, the Swiss Federal Tribunal decided that even if a consultancy agreement were, in effect, an agreement to pay a bribe (and this was not alleged, still less proven), the arbitration agreement would survive.234

2.152  Rather than raising questions of arbitrability, allegations of corruption made in an arbitration now raise the rather more substantive questions of proof and, if proven, the consequences of such impropriety under the relevant law.235 Accepting without question the arbitrability of allegations of impropriety, an ad hoc arbitral tribunal acting under the UNCITRAL Rules addressed allegations of corruption put before it thus:

The members of the Arbitral Tribunal do not live in an ivory tower. Nor do they view the arbitral process as one which operates in a vacuum divorced from reality. The arbitrators are well aware of the allegations that commitments by public (p. 121) sector entities have been made with respect to major projects in Indonesia without adequate heed to their economic contribution to public welfare, simply because they benefited a few influential people. The arbitrators believe that cronyism and other forms of abuse of public trust do indeed exist in many countries, causing great harm to untold millions of ordinary people in a myriad of insidious ways. They would rigorously oppose any attempt to use the arbitral process to give effect to contracts contaminated by corruption.

But such grave accusations must be proven … Rumours or innuendo will not do.236

2.153  If an allegation of corruption is made in plain language in the course of the arbitration proceedings, the arbitral tribunal is clearly under a duty to consider the allegation and to decide whether or not it is proven.237 It remains less clear, however, whether an arbitral tribunal has a duty to assume an inquisitorial role and to address the question of corruption on its own initiative where none is alleged. Initiating its own investigation and rendering a decision on the outcome of such a self-initiated investigation might leave a tribunal open to charges of straying into territory that is ultra petita.238 Conversely, a failure to address the existence of such illegality may threaten the enforceability of an award and thus may sit uncomfortably with an arbitral tribunal’s duty under some modern rules of arbitration to use its best endeavours to ensure that its award is enforceable.239 Striking the right balance between these competing considerations may not be easy. For now, the extent of an arbitral tribunal’s duty—if any—to probe matters of illegality of its own motion remains unclear.240

(vi)  Fraud

2.154  Where allegations of fraud in the procurement or performance of a contract are alleged, there appears to be no reason for the arbitral tribunal to decline (p. 122) jurisdiction.241 Indeed, in the heat of battle, such allegations are frequently made, although much less frequently proven. Where a claim put forward in the course of an arbitration is found to be fraudulent, it will be for the arbitral tribunal to dismiss it. However, problems may arise, as they did in Fougerolle,242 if the alleged fraud is not discovered until an award has been made. An ICC tribunal rejected a claim by Fougerolle, the subcontractor under a turnkey contract, to the effect that it had encountered unexpected ground conditions; in a partial award, the arbitrators ordered Fougerolle to repay monies to its main contractor. Some months later, it became known that the main contractor was relying on the same grounds as had been put forward by Fougerolle (which the main contractor had denied and which the tribunal arbitrators had rejected) in support of its own claims against the engineer. The arbitral tribunal refused to review its award, on the basis that it had been made and could not be reversed at that stage, the award having been approved by the ICC Court. The Paris Cour d’Appel stated that the award could be annulled if fraud was proved—but, in the event, it was decided that there had been no fraud.243

(vii)  Natural resources

2.155  Although states enjoy sovereignty over natural resources found within their territories, in most jurisdictions of the world no questions of arbitrability arise in relation to commercial disputes relating to those natural resources. Arbitral tribunals have invariably distinguished between the sovereignty itself and the commercial decisions made by states in the exercise of that sovereignty.

2.156  Thus, in one 1982 case, the state party challenged the arbitrability of a dispute on the grounds that the arbitral tribunal could not ‘pronounce upon the responsibility for the rupture of the Contract made between the parties’ without simultaneously judging ‘the decision made by the Utopian Government in the exercise of its national sovereignty to renounce the exploitation of natural resources’.244 In order to avoid this problem, the tribunal made an important distinction between the governmental decision itself (to stop the exploitation of natural resources—that is, the exercise of sovereignty), which was unchallengable and the financial (p. 123) consequences of that decision in relation to the disputed contract, which could be determined by arbitration.

(viii)  Corporate governance disputes

2.157  In most jurisdictions, parties are free to submit corporate governance disputes to arbitration. By way of example, the Dutch courts have held that a dispute concerning the validity of a shareholders’ meeting or resolution is not arbitrable.245

2.158  But this is not the case everywhere: a series of decisions by the Russian courts, for example, has cast doubt on the arbitrability of corporate disputes under Russian law. In Maximov v Novolipetsky Metallurgicheskiy Kombinat,246 both the lower courts and the Supreme Arbitrazh Court found that ‘corporate’ disputes are under the special jurisdiction of the arbitrazh courts pursuant to articles 33 and 225(1) of the Arbitrazh Procedural Code, and are therefore non-arbitrable.247

2.159  In England, the courts have recently reaffirmed that arbitral tribunals have wide powers to rule on corporate governance matters. In Fulham Football Club,248 shareholder disputes were described as ‘essentially internal disputes about alleged breaches of the terms or understandings upon which the parties were intended to co-exist as members of the company’.249 The Court held that there was no reason why an ‘unfair prejudice’ claim should be ‘inherently unsuitable’ for determination by arbitration. The applicable test in each case is whether:

… the matters in dispute … engage third party rights or represent an attempt to delegate to the arbitrators what is a matter of public interest which cannot be determined within the limitations of a private contractual process.250

(p. 124) (c)  Conclusion

2.160  The significance of ‘arbitrability’ should not be exaggerated. It is important to be aware that it may be an issue, but in broad terms most commercial disputes are now arbitrable under the laws of most countries.251

G.  Confidentiality

2.161  The confidentiality of arbitral proceedings has traditionally been considered to be one of the important advantages of arbitration. Unlike proceedings in a court of law, where press and public are generally entitled to be present, an international arbitration is not a public proceeding. It is essentially a private process and therefore has the potential for remaining confidential. Increasingly, however, confidentiality cannot generally be relied upon as a clear duty of parties to arbitral proceedings. Parties concerned to ensure the confidentiality of their proceedings would therefore do well to include confidentiality provisions in their agreement to arbitrate, or in a separate confidentiality agreement concluded at the outset of the arbitration.

2.162  In this section, the authors explore:

  • •  the distinction between privacy and confidentiality;

  • •  the classical position and current trend as far as confidentiality is concerned;

  • •  the confidentiality of the award;

  • •  confidentiality in investor–state arbitrations; and

  • •  institutional arbitral rules on confidentiality.

(a)  Privacy and confidentiality

2.163  As far as the hearing is concerned, the major institutional rules are in agreement: the hearing is private. Article 26(3) of the ICC Rules states:

The Arbitral Tribunal shall be in full charge of the hearings, at which all the parties shall be entitled to be present. Save with the approval of the Arbitral Tribunal and the parties, persons not involved in the proceedings shall not be admitted.

The rules of the ICDR, LCIA, International Centre for the Settlement of Investment Disputes (ICSID), and World Intellectual Property Organization (WIPO) contain similar provisions, as do the rules of such commercial arbitration organisations as the Austrian Federal Economic Chamber, the Swiss Chambers’ Arbitration Institution, the China International Economic and Trade Arbitration (p. 125) Commission (CIETAC), and the Japanese Commercial Arbitration Association (JCAA).252

2.164  Article 28(3) of the UNCITRAL Rules spells out the position in similar terms:

Hearings shall be held in camera unless the parties agree otherwise. The arbitral tribunal may require the retirement of any witness or witnesses, including expert witnesses, during the testimony of such other witnesses, except that a witness, including an expert witness, who is a party to the arbitration shall not, in principle, be asked to retire.

The ‘privacy’ of arbitration hearings is therefore uncontroversial. And if the hearing is to be held in private, it would seem to follow that the documents disclosed and the evidence given at that hearing should also be—and should remain—private. In principle, there would seem to be no point in excluding non-participants from an arbitration hearing if they can later read all about it in printed articles or on an authorised website. However, a broader duty of confidentiality in international arbitration is now far from clear.

(b)  Confidentiality—classical position

2.165  A general principle of confidentiality in arbitrations under English law, which might be said to represent the classical view, was spelled out by the English Court of Appeal in Dolling-Baker v Merrett.253 Subsequently, in Hassneh Insurance Co of Israel v Mew,254 the English High Court recognised the existence of an implied duty of confidentiality as the natural extension of the undoubted privacy of the hearing in an international commercial arbitration:

If it be correct that there is at least an implied term in every agreement to arbitrate that the hearing shall be held in private, the requirement of privacy must in principle extend to documents which are created for the purpose of that hearing. The most obvious example is a note or transcript of the evidence. The disclosure to a third party of such documents would be almost equivalent to opening the door of the arbitration room to that third party. Similarly witness statements, being so closely related to the hearing, must be within the obligation of confidentiality. So also must outline submissions tendered to the arbitrator. If outline submissions, then so must pleadings be included.255

2.166  In Ali Shipping Corporation v ‘Shipyard Trogir’,256 the English Court of Appeal reaffirmed this classical position. The Court stated that the confidentiality rule was founded on the privacy of arbitral proceedings and that an implied term as to the (p. 126) confidentiality of arbitration was a term that ‘arises as the nature of the contract itself implicitly requires’, which the law would imply as a necessary incident of a definable category of contractual relationship.257 The Court acknowledged, however, that ‘the boundaries of the obligations of confidence which thereby arise have yet to be delineated’.258

2.167  The classical position was reaffirmed by the English Court of Appeal in the case of John Forster Emmott v Michael Wilson & Partners Ltd,259 in which it was held that:

[C]‌ase law over the last 20 years has established that there is an obligation, implied by law and arising out of the nature of arbitration, on both parties not to disclose or use for any other purpose any documents prepared for and used in the arbitration, or disclosed or produced in the course of the arbitration, or transcripts or notes of the evidence in the arbitration or the awards, and not to disclose in any other way what evidence has been given by any witness in the arbitration. The obligation is not limited to commercially confidential information in the traditional sense.260

2.168  In so reaffirming, the Court of Appeal nevertheless noted that the duty of confidentiality in arbitration proceedings was not absolute and went on to consider its limitations as follows:

[T]‌he content of the obligation may depend on the context in which it arises and on the nature of the information or documents at issue. The limits of that obligation are still in the process of development on a case-by-case basis. On the authorities as they now stand, the principal cases in which disclosure will be permissible are these: the first is where there is consent, express or implied; second, where there is an order, or leave of the court (but that does not mean that the court has a general discretion to lift the obligation of confidentiality); third, where it is reasonably necessary for the protection of the legitimate interests of an arbitrating party; fourth, where the interests of justice require disclosure, and also (perhaps) where the public interest requires disclosure.261

2.169  This echoes what is a constant theme in English decisions on the implied duty of confidentiality—namely, that it exists, but is subject to limitations that remain to be determined on a case-by-case basis.262 The Singapore courts have adopted a similar approach, accepting the existence of an implied duty of confidentiality, but stipulating that they will impose such a duty ‘only to the extent that it is reasonable to do so’.263

(p. 127) (c)  Confidentiality—the current trend

2.170  Notwithstanding the foregoing, the current trend in international arbitration is to diminish—or at least to question—the confidentiality of arbitral proceedings as a whole. This trend seems to have been considerably influenced by arbitrations in which there was a genuine public interest—in the sense that the decision of the arbitral tribunal would in some way affect the general public. For example, in Esso Australia Resources Ltd v The Honourable Sidney James Plowman and ors,264 the High Court of Australia concluded that whilst the privacy of the hearing should be respected, confidentiality was not an essential attribute of a private arbitration. Specifically, the court found that a requirement to conduct proceedings in camera did not translate into an obligation prohibiting disclosure of documents and information provided in, and for the purpose of, the arbitration. The court then concluded that although a certain degree of confidentiality might arise in certain situations, it was not absolute. In the particular case before the court, ‘the public’s legitimate interest in obtaining information about the affairs of public authorities’ prevailed.265

2.171  In respect of this final point, one of the judges discussed the standards for disclosure in respect of information that is of legitimate interest to the public and held that:

The courts have consistently viewed governmental secrets differently from personal and commercial secrets. As I stated in The Commonwealth of Australia v John Fairfax and Sons Ltd, the judiciary must view the disclosure of governmental information ‘through different spectacles’. This involves a reversal of the onus of proof: the government must prove that the public interest demands non-disclosure.266

2.172  In another Australian case,267 the appellate court decided that an arbitrator had no power to make a procedural direction imposing an obligation of confidentiality that would have had the effect of preventing the government from disclosing to a state agency, or to the public, information and documents generated in the course of the arbitration that ought to be made known to that authority or to the public. It was said that public health and environmental issues were involved:

Whilst private arbitration will often have the advantage of securing for the parties a high level of confidentiality for their dealing, where one of those parties is a government, or an organ of government, neither the arbitral agreement nor the general procedural powers of the arbitrator will extend so far as to stamp on the governmental litigant a regime of confidentiality or secrecy which effectively destroys or limits the general governmental duty to pursue the public interest.268

(p. 128) 2.173  In the United States, neither the Federal Arbitration Act nor the Uniform Arbitration Act contain a provision requiring the parties or the arbitrators to keep secret arbitration proceedings in which they are involved. As a consequence, unless the parties’ agreement or applicable arbitration rules provide otherwise, the parties are not required by US law to treat as confidential the arbitration proceedings and what transpires in them.269

2.174  In United States v Panhandle Eastern Corporation,270 Panhandle brought a motion before a US federal district court for a protective order, preventing the disclosure of documents relating to arbitration proceedings between it and Sonatrach, the Algerian national oil and gas company. In support of its motion, Panhandle argued that disclosure to third parties of documents related to the arbitration would severely prejudice Panhandle’s ongoing business relationship with both Sonatrach and the Algerian government.

2.175  The court denied the motion on the grounds that Panhandle had failed to satisfy the ‘good cause’ requirements of rule 26(c) of the Federal Rules of Civil Procedure and that the filing was untimely, but it proceeded to address the question of confidentiality and, having rejected the existence of an express confidentiality agreement between the parties, gave no credence to the existence of an implied obligation.271 This decision has been followed in subsequent US cases in which the courts have refused to find a duty of confidentiality in the absence of an express contractual provision or the adoption of a set of arbitration rules containing such a provision.272

2.176  The Supreme Court of Sweden has also rejected the idea of a general implied duty of confidentiality in arbitration proceedings.273 The same position prevails in Norway: absent an agreement to the contrary, arbitration proceedings and decisions by the tribunal are not subject to any duty of confidentiality.274

(d)  Award

2.177  Some institutional rules of arbitration, including those of ICSID, provide that the award may be made public only with the consent of the parties.275

(p. 129) 2.178  It has always been recognised, however, that there are circumstances in which an award may need to be made public, for example for the purpose of enforcement by a national court. In Hassneh Insurance Co of Israel v Mew276 —a case mentioned earlier—the judge concluded that an award and the reasons contained in that award were different in character from the other elements of the arbitration proceedings (such as notes and transcripts of evidence, witness statements, submissions, and pleadings, all of which were, in his view, covered by the principle of privacy stemming from the fact that arbitration hearings were held in private). He found that the award was potentially a public document for the purposes of supervision by the courts or enforcement in them, and therefore could be disclosed without the consent of the other party or the permission of the court if—but only if—the party seeking disclosure needed to do so in order to assert or protect its legal rights vis-à-vis a third party.277 This position is now reflected in many of the institutional arbitration rules.

2.179  In addition to the disclosure of awards where required by law, disclosure of a kind takes place when an arbitral institution—such as the ICC—publishes ‘edited and redacted’ copies of arbitral awards as a guide for the benefit of lawyers and arbitrators.278

2.180  Article 27(4) of the ICDR Rules provides that an award may be made public ‘only with the consent of all parties or as required by law’.279 These Rules provide that, unless otherwise agreed by the parties, selected awards may be made publicly available, with the names of the parties and other identifying features removed. If the award has become publicly available through enforcement proceedings or otherwise, then the names need not be removed.

2.181  In England, the Privy Council had to consider in Aegis v European Re280 whether an arbitration award in one arbitration under a reinsurance agreement could be relied upon by the winning party in another arbitration under the same agreement, (p. 130) despite an express confidentiality agreement in respect of the first arbitration. The case came to the Privy Council on appeal from the Court of Appeal of Bermuda and disclosure of the award was allowed. The Privy Council said that the legitimate use of an earlier award in a later, also private, arbitration between the same parties was not the kind of mischief against which the confidentiality agreement was directed. This decision has been rightly described as:

… eminently sensible in the circumstances of the case. The private and, in theory, confidential nature of arbitration should not mean that the parties can go on arbitrating the same point ad infinitum until they get the result they prefer.281

2.182  In France, the Paris Cour d’Appel ruled, in Aita v Ojjeh,282 that the mere bringing of court proceedings to challenge an arbitration award violated the principle of confidentiality in that it caused ‘a public debate of facts which should remain confidential’. The judgment also contains dicta to the effect that it is in ‘the very nature of arbitral proceeding that they ensure the highest degree of discretion in the resolution of private disputes, as the two parties had agreed’.283 More recently, however, and in line with the modern trend, the Paris Cour d’Appel in Nafimco284 found that the claimant failed to ‘show the existence and foundation of such a duty in French international arbitration law’.

(e)  Confidentiality in investor–state arbitrations

2.183  In the Cockatoo Dockyard case,285 the Australian court concluded that whilst there was a ‘high level of confidentiality’ in arbitral proceedings, this should not prevent disclosure where the public interest was concerned. It is this concern for the public interest—and for the public’s ‘right to know’—that has led to the erosion of the principle of confidentiality in arbitral proceedings. The need to balance the private interest in confidentiality against the possible public interest in disclosure may be seen in arbitrations that have taken place under the treaty that established the North American Free Trade Agreement (NAFTA).

(p. 131) 2.184  In the early 1980s, an international arbitral tribunal applying the ICSID Arbitration Rules in Amco v Republic of Indonesia286 held that ‘as to the “spirit of confidentiality” of the arbitral procedure, it is right to say that the Convention and the Rules do not prevent the parties from revealing their case’. Balanced against this finding, the Amco tribunal nonetheless referred to a general duty existing under international law not to exacerbate an ongoing international dispute, and relied on the existence of this duty to recommend to the parties that they should ensure that their public statements about cases in which they were involved were both short and accurate.

2.185  In the years since Amco, tribunals applying the ICSID Rules, including NAFTA tribunals, have striven to achieve the same balance. For example, in Metalclad Corporation v United Mexican States,287 Mexico made an application for a confidentiality order, pursuant to Article 1134 of NAFTA (‘Interim measures of protection’) and Article 28 of the (then) ICSID Additional Facility Rules (‘Procedural orders’). The tribunal dismissed the application, finding that:

There remains nonetheless a question as to whether there exists any general principle of confidentiality that would operate to prohibit discussion of the arbitration proceedings by either party. Neither the NAFTA nor the ICSID (Additional Facility) Rules contain any express restriction on the freedom of the parties in this respect. Though it is frequently said that one of the reasons for recourse to arbitration is to avoid publicity, unless the agreement between the parties incorporates such a limitation, each of them is still free to speak publicly of the arbitration … Indeed, as has been pointed out by the Claimant in its comments, under US security laws, the Claimant, as a public company traded on a public stock exchange in the US, is under a positive duty to provide certain information about its activities to its shareholders, especially regarding its involvement in a process the outcome of which could perhaps significantly affect its share value.

The above having been said, it still appears to the Arbitral Tribunal that it would be of advantage to the orderly unfolding of the arbitral process and conducive to the maintenance of working relationships between the Parties if during the proceedings they were both to limit public discussion of the case to a minimum, subject only to any externally imposed obligation by which either of them may be legally bound.288

2.186  In another NAFTA arbitration, R Loewen and Loewen Corporation v United States of America,289 the US government requested that all filings, as well as the minutes of oral proceedings, be treated as open and available to the public. Loewen did not oppose public disclosure, but requested that the disclosure take place only after the conclusion of the arbitration. The tribunal rejected the US government’s (p. 132) request, referring to Article 44(2) of the ICSID Additional Facility Rules, which provide that minutes of hearings should not be published without the consent of the parties.290

2.187  Although the tribunal rejected the US government’s request, it did not recognise any general duty of confidentiality; rather, it rejected Loewen’s submission that each party is under an obligation of confidentiality in relation to the proceedings. In its award on jurisdiction, the tribunal summarised its conclusions as follows:

In its Decision the Tribunal rejected the Claimants’ submission that each party is under a general obligation of confidentiality in relation to the proceedings. The Tribunal stated that in an arbitration under NAFTA, it is not to be supposed that, in the absence of express provision, the Convention or the Rules and Regulations impose a general obligation on the parties, the effect of which would be to preclude a Government (or the other party) from discussing the case in public, thereby depriving the public of knowledge and information concerning government and public affairs. The decision concluded by repeating the comment made by the Metalclad Tribunal, namely that it would be of advantage to the orderly unfolding of the arbitral process if during the proceedings, the parties were to limit public discussion to what is considered necessary.291

2.188  The trend towards greater transparency in investor–state arbitration has emerged more clearly in recent years. In Biwater Gauff (Tanzania) Ltd v United Republic of Tanzania,292 the tribunal recognised that the 2006 ICSID Rules reflected this overall trend towards transparency. The tribunal considered the balance between transparency and what it referred to as the integrity of the arbitral process, and concluded that some confidentiality controls were warranted, but ought to be ‘carefully and narrowly delimited’.293 Ultimately, the tribunal did not prevent the parties from discussing the case in public, or from publishing awards and other decisions by the tribunal, but restricted the disclosure of records of hearings, submissions, and witness statements.

2.189  Reflecting this trend towards transparency, UNCITRAL has published the UNCITRAL Rules on Transparency in Treaty-based Investor–State Arbitration.294 The rules provide for the publication of all documents, including the notice of (p. 133) arbitration, written pleadings, and lists of exhibits (and expert reports and witness statements, if any person so requests). Public access to hearings is guaranteed and interested third parties are entitled to make submissions. However, tribunals have discretion to order that certain documents should remain confidential if they contain protected information or if their disclosure would undermine the integrity of the arbitral process.

(f)  Revisions to rules of arbitration

2.190  The increasing number of arbitrations in which there is a legitimate public interest, such as the NAFTA arbitrations just discussed and the ICSID arbitrations to be discussed later, has led to an erosion of the concept of confidentiality, with pleadings and awards being publicly available on the Internet and elsewhere. Many arbitration institutions have therefore amended their rules to impose an express duty of confidentiality upon the parties, but this may be overridden if it is judged that the public interest so requires.

2.191  Article 30 of the LCIA Rules imposes an express duty of confidentiality on the parties to the arbitration as follows:

30.1  The parties undertake as a general principle to keep confidential all awards in the arbitration, together with all materials in the arbitration created for the purpose of the arbitration and all other documents produced by another party in the proceedings not otherwise in the public domain, save and to the extent that disclosure may be required of a party by legal duty, to protect or pursue a legal right, or to enforce or challenge an award in legal proceedings before a state court or other legal authority.

30.2  The deliberations of the Arbitral Tribunal shall remain confidential to its members, save as required by any applicable law and to the extent that disclosure of an arbitrator’s refusal to participate in the arbitration is required of the other members of the Arbitral Tribunal under Articles 10, 12, 26 and 27.

30.3  The LCIA does not publish any award or any part of an award without the prior written consent of all parties and the Arbitral Tribunal.

2.192  Similar restrictions are imposed under other major institutional rules.295 One notable exception is the ICC Rules, although its internal statutes stress the ‘confidential nature’ of the ICC Court’s work, which must be respected by all participants in whatever capacity.296 In general, many institutional rules recognise the importance of confidentiality in arbitral proceedings, which may well involve the disclosure of commercial or financial information, proprietary ‘know-how’, and other so-called trade secrets that the parties may not wish to be made publicly available.

(p. 134) 2.193  The WIPO Arbitration Rules carry the protection of ‘trade secrets’ much further, as might be expected from an organisation concerned with the protection of intellectual property rights. Article 52 of the WIPO Rules defines ‘confidential information’ as any information, regardless of the medium in which it is expressed:

(a)  … which is:

  1. (i)  in the possession of a party;

  2. (ii)  not accessible to the public;

  3. (iii)  of commercial, financial or industrial significance; and

  4. (iv)  treated as confidential by the person possessing it.

[…]

2.194  On application by the relevant party, the tribunal may classify such information as ‘confidential’,297 effectively restricting its disclosure to the tribunal and the parties. In exceptional circumstances, the tribunal may delegate this duty to a ‘confidentiality adviser’ who will determine whether the information is to be so classified, and if so, to whom it may be disclosed, in whole or in part.298 As an additional safeguard, the tribunal may appoint the ‘confidentiality adviser’ as an expert to report on specific issues on the basis of the confidential information, without disclosing that information either to the other party or to the tribunal itself.299

2.195  For completeness, it should be noted that the WIPO Rules extend the protection of confidentiality to the very existence of the arbitration,300 to disclosures made during the arbitration,301 and to the award.302 The duty of confidentiality is also, of course, imposed upon the tribunal and the WIPO centre itself.303

(g)  Conclusion

2.196  One of the advantages of arbitration is that it is a private proceeding, in which the parties may air their differences and grievances, and discuss their financial circumstances, their proprietary ‘know-how’, and so forth, without exposure to the gaze of the public and the reporting of the media. The fact that arbitral hearings are held in private still remains a constant feature of arbitration. However, to ensure the confidentiality of the entire proceedings, it is increasingly necessary to rely on an express provision of the relevant rules (for example those of the LCIA or of WIPO), or to enter into a specific confidentiality agreement as part of the agreement to arbitrate, or at the outset of proceedings304 (and it seems that this may be (p. 135) overridden in some jurisdictions if the relevant court considers it to be in the public interest that it should be).

H.  Defective Arbitration Clauses

2.197  The principal defects found in arbitration clauses are those of inconsistency, uncertainty, and inoperability. The argument as to whether an arbitration clause suffers from one or more of these defects is likely to be raised where, for example, a party takes action in a national court in relation to a dispute and the defendant seeks a stay of the proceedings on the basis of the existence of the arbitration clause. In such circumstances, the application for a stay may be opposed on the basis that the arbitration agreement was ‘inoperative or incapable of being performed’.305

(a)  Inconsistency

2.198  Where there is an apparent inconsistency in the clause, most national courts usually attempt to give a meaning to it, in order to give effect to the general intention of the parties, which was to submit disputes to arbitration. This is the case in England, where the courts uphold a clause and strike out an inconsistent provision if it is clear that the ‘surviving clause’ carries into effect the real intention of the parties and the ‘discarded clause’ would defeat the object of the agreement.306

(p. 136) (b)  Uncertainty

2.199  Similarly, as regards uncertainty, the courts of most countries generally try to uphold an arbitration provision307 unless the uncertainty is such that it is difficult to make sense of it. The same is true of institutions. By way of example, the German courts have shown themselves time and again ready to give effect to clauses that are a long way from certain. In 2006, the Stuttgart court found that a clause referring disputes ‘without resource [sic] to the ordinary court to Stockholm, Sweden’ to be a reference to arbitration under the Stockholm Chamber of Commerce.308 In the same year, the Oldenburg court held that a reference to ‘the International Court of Arbitration (Internationales Schiedsgericht) in Austria’ was a reference to the international arbitration centre of the Austrian Federal Economic Chamber.309 The Singapore courts have recently upheld an agreement to refer disputes to ‘the Arbitration Committee at Singapore under the rules of the International Chamber of Commerce’.310 For its part, the ICC has in the past accepted the following vague and imprecise formulations as references to the ICC Court: ‘the official Chamber of Commerce in Paris, France’; ‘the Arbitration Commission of the Chamber of Commerce and Industry of Paris’; and ‘a Commission of Arbitration of French Chamber of Commerce, Paris’.311

2.200  From time to time, however, courts and institutions are confronted with clauses that simply fail for lack of certainty.312 Examples are:

  1. (1)  ‘In the event of any unresolved dispute, the matter will be referred to the International Chamber of Commerce’;

  2. (2)  ‘All disputes arising in connection with the present agreement shall be submitted in the first instance to arbitration. The arbitrator shall be a well-known Chamber of Commerce (like the ICC) designated by mutual agreement between both parties’;

  3. (3)  ‘Any and all disputes arising under the arrangements contemplated hereunder … will be referred to mutually agreed mechanisms or procedures (p. 137) of international arbitration, such as the rules of the London Arbitration Association’; and

  4. (4)  ‘For both parties is a decision of Lloyd or Vienna stock exchange binding and both will subjugate to the International Chamber of Commerce’.

The problem with the first example is that even if the broad reference to the ICC is taken to be a reference to the ICC Court in Paris, the clause by itself does not stipulate whether the unresolved dispute is to be settled by arbitration or by conciliation or by some other procedure. The second example provides for arbitration ‘in the first instance’, but fails to provide intelligibly for the appointment of an arbitral tribunal. Even if the parties were to agree upon ‘a well-known Chamber of Commerce’ as arbitrator, this would be of no avail, since arbitrators must be individuals. The third example requires the future agreement of the parties on ‘mutually agreed mechanisms or procedures’. The fourth is simply meaningless.

2.201  Further examples of what have been referred to as ‘pathological arbitration clauses’ are to be found in Craig, Park, and Paulsson’s commentary on ICC arbitration.313 Two of the more flagrant examples include:

  1. (1)  ‘In case of dispute (contestation), the parties undertake to submit to arbitration but in case of litigation the Tribunal de la Seine shall have exclusive jurisdiction’;314 and

  2. (2)  ‘Disputes hereunder shall be referred to arbitration, to be carried out by arbitrators named by the International Chamber of Commerce in Geneva in accordance with the arbitration procedure set forth in the Civil Code of Venezuela and in the Civil Code of France, with due regard for the law of the place of arbitration’.315

The latter clause is given as an example of a ‘disastrous compromise’, which might lead to extensive litigation (unrelated to the merits of the dispute) to sort out any contradictions in the various laws stated to be applicable.316

(c)  Inoperability

2.202  Article II(3) of the New York Convention states that:

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, at the request of one of the parties, refer the parties to arbitration, unless it (p. 138) finds that the said agreement is null and void, inoperative or incapable of being performed.317

The reference to the agreement being ‘null and void’ refers to the arbitration agreement itself, since, as seen in the discussion of the principle of separability, in most countries the nullity of the main contract does not necessarily affect the validity of the arbitration agreement. An arbitration agreement is ‘null and void’ if it is ‘devoid of legal effect’, for example owing to mistake, duress, or fraud.318 At first sight, it is difficult to see a distinction between the terms ‘inoperative’ and ‘incapable of being performed’. However, an arbitration clause is inoperative where it has ‘ceased to have legal effect’319 as a result, for example, of a failure by the parties to comply with a time limit, or where the parties have repudiated,320 or by their conduct impliedly revoked, the arbitration agreement.321 By contrast, the expression ‘incapable of being performed’ appears to refer to more practical aspects of the prospective arbitration proceedings. It applies, for example, if it is for some reason impossible to establish the arbitral tribunal.322 Courts tend to construe these provisions narrowly, to avoid offering a ‘back door’ for a party wishing to escape the arbitration agreement.323

2.203  An inability to pay advances on the costs of the arbitration,324 or to make payment of an award,325 should not mean that an arbitration clause is inoperative or incapable of being performed. However, in India, it has been held in the past that a stay of court proceedings should be refused on the grounds that exchange control regulations would prevent payments in foreign currency to the arbitrators and other overseas expenses of those participating in a foreign arbitration.326

(p. 139) I.  Waiver of the Right to Arbitrate

2.204  In certain circumstances, a party may waive its right under an arbitration agreement to have a dispute finally settled by arbitration. Under most laws, such a waiver will typically require a statement, or conduct, that amounts to a clear and unequivocal renunciation of the right to arbitrate. Such a renunciation can be found in a party’s participation in national court proceedings in which the parties, subject matter, and the relief sought327 are identical to actual or prospective arbitration proceedings.

2.205  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 not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.328

2.206  Under section 9(3) and (4) of the English Arbitration Act 1996, a party wishing to stay court proceedings brought in breach of an arbitration agreement must make its application before taking any step in those proceedings in answer to the other party’s substantive claim. In Eagle Star Insurance,329 the English House of Lords (now the Supreme Court) summarised the position as follows:

[I]‌n order to deprive a defendant of his recourse to arbitration a ‘step in the proceedings’ must be one which impliedly affirms the correctness of the proceedings and the willingness of the defendant to go along with a determination by the Courts of law instead of arbitration.330

Applying this test, the Law Lords concluded that an application to strike out a defective statement of claim did not constitute a ‘step in the proceedings’.331

(p. 140) 2.207  A similar approach prevails in Australia. The courts require proof that a party has ‘unequivocally abandoned’ its right to arbitrate by taking steps that are wholly inconsistent with an intention to have the dispute finally settled by arbitration.332 In La Donna v Wolford,333 the Supreme Court of Victoria found that a party had waived its right to arbitrate by applying for security for costs in court proceedings. The Court reasoned as follows:

[The party] sought an advantage, or at least sought to impose upon La Donna a burden, which was based upon the proposition that the litigation would proceed in this Court, that the defendant would take steps, and that the defendant would incur costs in taking those steps, in that litigation in this Court. This step was an unequivocal abandonment of the alternative course, being an application for a stay and a consequent arbitration.334

2.208  In certain circumstances, a party may maintain its right to arbitrate while taking substantive steps in court proceedings, for example by expressly reserving its rights under the arbitration agreement. In Eisenwerk Hensel Bayreuth GmbH v Australian Granites Ltd,335 a party filed a defence in court proceedings and the Australian courts held that there had been no waiver, noting that the party was faced with the immediate threat of a default judgment and had filed a cover letter with its defence, confirming that it had no intention of discontinuing the arbitration proceedings that it had already instituted.

2.209  Under Canadian law, a party may waive its right to arbitrate if it files a defence or counterclaim in court proceedings.336 In China, the first court hearing is the final opportunity for any party to raise any objection to the court’s jurisdiction on the ground that the dispute is covered by an arbitration agreement.337

2.210  The US courts have traditionally been reluctant to find that a party has waived its right to arbitrate unless: (a) the party had knowledge of its right to arbitrate; (b) the party acted inconsistently with that right, and (c) the inconsistency caused prejudice.338 In Louisiana Stadium v Merrill Lynch,339 this test was satisfied in (p. 141) circumstances under which a party filed and pursued an action in the courts, then waited eleven months to invoke the arbitration agreement.

2.211  A party may also lose its right to arbitrate if there is a lengthy delay in the prosecution of its claim(s). Under the English Arbitration Act 1996, an arbitral tribunal has the power to dismiss a claim on broadly the same grounds as a national court may strike out claims in litigation.340 The 1996 Act provides that, unless otherwise agreed by the parties, the tribunal may dismiss the claim if it is satisfied that there has been inordinate and inexcusable delay on the part of the claimant in pursuing its claim, and that the delay either gives rise (or is likely to give rise) to a ‘substantial risk’ that a fair resolution of the dispute is not possible, or that it has caused (or is likely to cause) serious prejudice to the respondent.341

J.  Multiparty Arbitrations

(a)  Introduction

2.212  When several parties are involved in a dispute, it is usually considered desirable that the issues should be dealt with in the same proceedings, rather than in a series of separate proceedings. In general terms, this saves time and money. More importantly, it avoids the possibility of conflicting decisions on the same issues of law and fact, since all issues are determined by the same tribunal at the same time. In national courts, it is generally possible to join additional parties, or to consolidate separate sets of proceedings. In arbitration, however, it is difficult, and sometimes impossible, to achieve this, because the arbitral process is based upon the agreement of the parties. As a working group of the ICC’s Commission on International Arbitration noted in its Final Report on Multi-party Arbitrations:

The difficulties of multi-party arbitrations all result from a single cause. Arbitration has a contractual basis; only the common will of the contracting parties can entitle a person to bring a proceeding before an arbitral tribunal against another person and oblige that other person to appear before it. The greater the number of such persons, the greater the degree of care which should be taken to ensure that none of them is joined in the proceeding against its will.342

(p. 142) 2.213  Where there is a multiparty arbitration, it may be because there are several parties to one contract, or it may be because there are several contracts with different parties that have a bearing on the matters in dispute. It is helpful to distinguish between the two.

(i)  Several parties to one contract

2.214  It is increasingly common—particularly in international trade and commerce—for individuals, corporations, or state agencies to join together in a joint venture, or consortium, or in some other legal relationship of this kind, in order to enter into a contract with another party or parties. Where such a contract contains an arbitration clause and a dispute arises, the members of the consortium or joint venture may decide that they would each like to appoint an arbitrator. This is what happened in Dutco.343 Dutco had entered into a contract with a consortium of two German companies and, when disputes a