kafedr.at.uakafedr.at.ua/_bd/6/686.pdf · INTERNATIONAL COMMERCIAL ARBITRATION Arbitration clauses in international commercial contracts are often reused from existing contracts

I NTERNAT IONAL COMMERC IAL

ARB I TRAT ION

Arbitration clauses in international commercial contracts are often reused

from existing contracts. By so doing, the parties choose to apply, for example,

either ad hoc or institutional arbitration and the UNCITRAL, ICC, LCIA,

SCC, Swiss or other arbitration rules without necessarily being aware of the

consequences. Moreover, parties often assume that an arbitration clause has

the effect of excluding any kind of interference from a court of law and of

rendering any but the chosen law redundant.

This book highlights the specific features of various forms of arbitration

and enables lawyers to make informed choices when drafting arbitration

clauses. Chapters explain the framework for arbitration, its relationship with

national law, and the features of the main arbitration institutions in Europe.

Attention is also paid to new trends in other parts of the world that may have

repercussions on the theory of international arbitration.

giuditta cordero-moss is a professor at the Department for

Private Law at the University of Oslo, where she is in charge of

International Commercial Law, International Commercial Arbitration

and Private International Law.

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INTERNATIONAL

COMMERCIAL ARBITRATION

Different Forms and their Features

Edited by

GIUDITTA CORDERO-MOSS



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International commercial arbitration : different forms and

their features / Edited by Giuditta Cordero-Moss.

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Includes index.

ISBN 978-1-107-03348-1

1. International commercial arbitration. I. Cordero-Moss, Giuditta.

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p. cm.

Includes index.

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2012032733

ISBN 978-1-107-03348-1 Hardback








ARB I TRAT ION




















INTERNATIONAL



Edited by










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p. cm.

Includes index.

ISBN 978-1-107-03348-1


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2012032733

ISBN 978-1-107-03348-1 Hardback







CONTENTS

List of contributors page vii

Introduction 1

giuditta cordero-moss

part i: Arbitration laws significance for internationaldisputes 5

1 International arbitration is not only international 7


2 International arbitration and domestic law 40

luca radicati di brozolo

part ii: Ad hoc arbitration 59

3 Ad hoc arbitration v. institutional arbitration 61

carita wallgren-lindholm

4 The UNCITRAL Arbitration Rules and their use in ad hocarbitration 82

corinne montineri

part iii: Institutional arbitration: Features of selectedarbitration institutions in Europe 107

5 Arbitration in Austria: Features of the International ArbitralCentre of the Austrian Federal Economic Chamber(VIAC) 109

werner melis

6 Arbitration in Denmark: Features 130

georg lett

v



7 Arbitration in Germany: Features of the GermanInstitution of Arbitration 144

jens bredow

8 Arbitration in Italy: Features of the Milan Chamber ofArbitration 188

stefano azzali

9 Rules of Arbitration of the International Chamber ofCommerce 204

simon greenberg and anders ryssdal

10 Arbitration in London: Features of the London Court ofInternational Arbitration 217

johannes koepp, dorine farah and peter

webster

11 Arbitration in Norway: Features of the Oslo Chamber ofCommerce 271

stephen knudtzon

12 Arbitration in Russia: Features of the InternationalCommercial Arbitration Court at the Chamber of Commerceand Industry of the Russian Federation 299

alexander s. komarov

13 Arbitration in Sweden: Features of the Stockholm Rules 321

henrik fieber and eva storskrubb

14 Arbitration under the Swiss Rules 345

daniel wehrli and marco stacher

part iv: New trends in international arbitration 379

15 Domesticating the New York Convention: The impactof the US Federal Arbitration Act 381

george a. bermann

16 New trends in international commercial arbitrationin Latin America 398

diego p. fernandez arroyo

Index 427

vi contents



CONTRIBUTORS

diego p. fernndez arroyo is professor at ComplutenseUniversity, Madrid, and School of Law of Sciences Po, Paris. He ismember of The Curatorium of The Hague Academy of InternationalLaw, former President of the American Association of PrivateInternational Law (2007/2010) and member of the InternationalArbitration Institute (IAI).

stefano azzali is active in the area of international arbitration and isa frequent speaker internationally within this area. He is SecretaryGeneral of the Milan Chamber of Arbitration and Secretary Treasurerof the International Federation of Commercial Arbitration Institutions(IFCAI).

george a. bermann is Jean Monnet Professor of EU Law, WalterGellhorn Professor of Law and Director of the European Studies Centre,Columbia University, New York. He is a leading figure in the study ofInternational and European law, both within the United States andabroad. He is Chief Reporter on the ALI Restatement of the US Law onInternational Commercial Arbitration.

jens bredow , Rechtsanwalt (Cologne) is Secretary General of theDeutsche Institution fr Schiedsgerichtsbarkeit. He publishes and lecturesinternationally within the area of international arbitration.

giuditta cordero-moss , is a professor and Director of theDepartment for Private Law at the University of Oslo, and Head of PrivateInternational Law, International Commercial Law and InternationalCommercial Arbitration. Founder and manager of the research projectArbitration and Party Autonomy, she is a former international corporatelawyer and is active as an international arbitrator.

dorine farah is an associate in the international dispute resolutiongroup of Baker Botts and is based in London, her practice focusing

vii



exclusively on international arbitration work, both public and private,with a particular emphasis on contractual disputes governed by Englishlaw and LCIA arbitration.

henrik fieber is a partner in the Stockholm office of the law firmRoschier. He regularly acts as counsel in domestic and internationalarbitrations under the ICC, SCC, and CCCF rules as well as in ad hocarbitrations in disputes spanning a range of sectors. His previousexperience includes working for the Swedish court system, as a judgein the District Court and the Court of Appeal.

simon greenberg is counsel with the international arbitration teamof Clifford Chance, Paris, where he advises clients and acts as arbitratorin international arbitrations. From January 2008 to January 2011 heserved as Deputy Secretary General of the ICC International Court ofArbitration. He previously practised international arbitration withanother leading law firm in Paris, and before that with a leading firmin Australia. He is the author or co-author of numerous articles oninternational arbitration, a lecturer at Sciences Po in Paris and at HongKong University, and a co-author of two books: InternationalCommercial Arbitration: An Asia Pacific Perspective (2010) and TheSecretariats Guide to ICC Arbitration (2012).

stephen knudtzon is a partner in the Thommessen law firm, Oslo.He is active in arbitration, particularly in the fields of insurance, shippingand construction. He is also the chairman of the Arbitration Institute ofthe Oslo Chamber of Commerce.

johannes koepp is a partner in Baker Botts, London. He is qualifiedin the jurisdictions of England and Wales and of Germany. Hehas extensive experience in the substantive and procedural laws ofboth common and other civil law jurisdictions and has publishednumerous works in the field of international arbitration. He sits as anarbitrator and was recently selected by Global Arbitration Review as oneof their 45 under 45 leading international arbitration practitioners.

alexander s. komarov is a leading expert in international arbitra-tion in Russia and a member of numerous international arbitrationinstitutions and international commissions. He is Professor and Headof International Private Law at the Russian Academy of Foreign Trade, amember of the Presidium of the International Commercial Arbitration

viii contributors



Court at the Chamber of Commerce and Industry of the RussianFederation and acted as its president from 1993 to 2010.

georg lett is a partner in the Lett law firm, Copenhagen. He is activein arbitration, particularly in the fields of insurance, finance and EU law,and has various publications in his fields of expertise. He is a member ofthe ICC Court of Arbitration.

werner melis was President of the International Arbitral Centre ofthe Austrian Federal Economic Chamber, Vienna (VIAC) and has been aVice-President of the London Court of International Arbitration(LCIA). He is active as an international arbitrator and is the author ofvarious contributions to professional journals and textbooks on interna-tional arbitration.

corinne montineri is a legal officer in the International Trade LawDivision of the United Nations Office of Legal Affairs, which alsofunctions as the Secretariat of the United Nations Commission onInternational Trade Law (UNCITRAL). She is the secretary to theUNCITRAL Working Group II on Arbitration.

luca radicati di brozolo is a professor at the Catholic University,Milan, where he is Head of Private International Law and InternationalArbitration Law. He is also a partner in the law firm Bonelli EredePappalardo, Milan, where he practises mainly in the fields of arbitration,international law and competition matters.

anders ryssdal is a partner in the law firm of Wiersholm, Oslo. Ashead of its Litigation and Arbitration Law Practice Group, he practiseswithin European law, international arbitration and litigation. He has hadmany appointments as counsel, chairman, sole arbitrator and co-arbitrator in domestic and international arbitrations. He is theNorwegian member of the ICC Court of Arbitration in Paris.

marco stacher is a senior associate in the litigation team of the lawfirm Walder Wyss, Zurich. He practises mainly as counsel in interna-tional commercial arbitration seated in Switzerland or elsewhere.

eva storskrubb is a Senior Associate in the Stockholm office of thelaw firm Roschier. She practises in the field of international disputeresolution and has experience of multi-jurisdictional cases involvingboth court litigation and arbitration in several countries. She is also aninternationally recognised specialist in EU procedural law.

contributors ix



carita wallgren-lindholm is a partner in the LindholmWallgren law firm, Helsinki. She practises in the areas of arbitration,delivery contracts and as a corporate advisor. She is active internation-ally and has published in her field of expertise.

peter webster is a member of Essex Court Chambers, London. Hewas previously a junior associate in Baker Botts London office.

daniel wehrli was a partner in the law firm of Gloor and Sieger,Zurich. He practised mainly within arbitration and commercial law. Hewas Vice President of the Swiss Arbitration Association.

x contributors



u

Introduction


Arbitration is very common for disputes arising out of internationalcommercial contracts. With an arbitration clause in the contract, dis-putes between the parties are solved by an arbitral tribunal chosen by theparties and outside of the ordinary courts.

Despite their obvious importance, arbitration clauses are not alwaysgiven their deserved attention in international contract practice. Mostcommercial parties know that it is advisable to choose arbitration, butoften they have little specific knowledge regarding the choice of arbitra-tion type that an arbitration clause entails. The drafting of a disputeresolution clause may be reduced to a copy and paste exercise usingcontracts that were used in the past; by so doing, the parties choose adhoc arbitration or institutional arbitration, the UNCITRAL, ICC, LCIA,SCC, Swiss or other Arbitration Rules, without actually being aware ofthe differences between them.

In addition, parties do not always have a precise understanding ofwhat consequences an arbitration clause has. Often parties assume thatan arbitration clause choosing a foreign venue, coupled with the choiceof a foreign law to govern the contract, has the effect of excluding anykind of interference from any court of law, and of rendering any otherlaw but the chosen law fully redundant. Parties may feel that by choosinginternational arbitration, they enter an autonomous dimension com-pletely detached from the systems of law to which their legal relationshipis connected. The parties may even assume that the arbitration law of theplace of arbitration is irrelevant.

In reality, arbitration is a complex system that deserves more thor-ough evaluation than an automatic reproduction of an arbitration clausefound in an old contract.

Arbitration depends on international conventions as well as on thenational law of the place where the arbitral tribunal has its seat.

1

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Moreover, the enforceability of an arbitral award depends on internationalconventions as well as on the national law of the place of enforcement.The interaction between the national law and international arbitrationmay lead to results that come as a surprise to those parties who relied onthe fully autonomous nature of arbitration.

In addition to the local arbitration law, other factors may influence anarbitral proceeding: the proceeding will be subject to the arbitration rulesof the chosen institution, to harmonised arbitration rules referred to bythe parties such as those issued by the UNCITRAL or to the discretion ofthe tribunal, depending on whether the arbitration clause provides forinstitutional or ad hoc arbitration. National arbitration laws may differquite considerably from each other, and there is a variety of arbitrationinstitutions to choose from.

This renders it highly advisable to make an informed decision whenwriting the arbitration clause in a contract. In turn, this assumes anunderstanding of the specific features that characterise the various arbi-tration forms, both in respect of the applicable arbitration rules and inrespect of the applicable arbitration law.

This book highlights the specific features of various forms of arbitra-tion, thus enabling an informed choice. The focus of the book is on thefeatures of the main arbitration institutions in Europe as well as on adhoc arbitration.

In addition, the book also presents new trends in other parts of theworld that cannot be ignored when dealing with international arbitrationbecause of the repercussions that they may have on the theory of interna-tional arbitration.

Part I gives an overview of the role played by national arbitration lawin international arbitration. This part is intended to give an understand-ing of the extent to which national law is relevant in the context ofinternational arbitration.

Part II discusses the main differences between ad hoc and institu-tional arbitration, and will analyse the UNCITRAL Arbitration Rules,often used in ad hoc arbitration. This part is intended to give an under-standing of the legal sources regulating ad hoc arbitration, thus enablingto make an informed choice between ad hoc and institutionalarbitration.

Part III examines the arbitration institutions in Europe that are morecommonly used for international commercial disputes: the ICC, LCIA,Swiss Rules, Arbitration Institutes in the Chambers of Commerce inAustria, Denmark, France, Germany, Italy, Norway, Russia and Sweden.

2 giuditta cordero-moss



The authors present their respective topic by highlighting the specificfeatures in respect of the following (having regard both to the applicablearbitration rules and to the applicable arbitration law):

1. Time frame for the proceeding2. Cost determination (including security)3. Procedure for the appointment of the tribunal4. Identity and role of the appointing authority5. Form of the arbitration agreement6. Interference/support by the courts (including the tribunals powers

to involve them)7. Tribunals powers ex officio8. Possibility of interim measures and their enforceability9. Multiparty arbitration (including joinder and consolidation)10. Conduct of arbitration (terms of reference, number of briefs, dis-

closure, written or oral evidence, modality of hearings, applicablelaw)

11. Confidentiality12. Institutions role13. Possibility of excluding the courts review of the awards validity14. Grounds for invalidity of the award15. Other specific features in the arbitration rules or the arbitration

law.

Part IV examines trends in other parts of the world that should not beignored when dealing with international arbitration irrespective of thegeographical area. The American Law Institutes first Restatement ofinternational commercial arbitration law is presented, an unprecedentedwork that is in the course of being issued and will certainly receiveattention even in Europe. Moreover, trends in Latin America are pre-sented. Latin America has often been considered as an arbitration-unfriendly environment and its doctrines are sometimes referred to insupport of a restrictive understanding of party autonomy in arbitration.An overview of the trends will be relevant to the general discussion onarbitration.

There are numerous publications on international arbitration. Manyof these are a presentation of, or guidelines for the procedure at a specificarbitration institution. There are also numerous detailed analyses ofvarious legal aspects of arbitration. It is entirely possible, on the basisof the existing literature, to obtain the information necessary in order tomake an informed choice of arbitration form.

introduction 3



However, it may be quite demanding under the time pressure ofcontract negotiations to identify from the wealth of information thespecific features that under the given circumstances may justify prefer-ring one form of arbitration to another.

The aim of this book is to present a reasoned comparison of variousarbitration forms, so that it becomes apparent what distinguishes onefrom the other.




PART I

Arbitration laws significance

for international disputes



1

International arbitration is not only international


Parties to international arbitration are sometimes under the impressionthat they may draft arbitration agreements and prepare arbitrationproceedings without taking national laws into consideration. Nationallaws may seem to be irrelevant if international arbitration is consideredto be an autonomous system that depends on the will of the parties andon some international instruments that are uniformly applied all overthe world. This, however, is an oversimplification.

To a large extent, arbitrations autonomy is confirmed by internationalinstruments primarily, the 1958 New York Convention on theRecognition and Enforcement of Foreign Arbitral Awards. If parties decideto submit a dispute to arbitration, according to article II of the Convention,the courts of the nearly 150 states which have ratified the Convention1mustdecline jurisdiction on that dispute. If the arbitral tribunal chosen by theparties renders an award based on the instructions given by the partiesand applies the law chosen by the parties, according to article V of theConvention, the courts of all those states have to enforce that award, subjectto a few exceptions. This is certainly enhancing the impression that arbi-tration is an autonomous system, where national laws are allowed to havean impact only to the extent that they have been chosen by the parties.

In addition, the UNCITRAL (United Nations Commission onInternational Trade Law) Model Law on International CommercialArbitration has been adopted in more than sixty countries2 and is widelyused as a reference elsewhere. The Model Law was intended as a source of

1 For an updated overview of the status of ratifications see the Conventions official site atwww.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html

2 Of the countries analysed in Part III of this book, the following have adopted the ModelLaw: Austria, Denmark, Germany, Norway and Russia. For an updated overview of thecountries that have adopted the Model Law see www.uncitral.org/uncitral/en/uncitral_-texts/arbitration/1985Model_arbitration_status.html

7



harmonisation in international arbitration. To this end, and to ensurecontinuity, it was deliberately aligned with the New York Convention.3

This contributes greatly to the harmonisation of national arbitration laws,thus enhancing the impression that arbitration law is standardised and thatthere is no need to pay attention to the peculiarities of national laws.

On this basis, sometimes arbitration is deemed to be detached fromnational laws. According to an opinion that was quite influential, espe-cially some decades ago, arbitration is international, and as such it doesnot even have a forum.4 In particular, no importance should be attachedto the legal system of the place of arbitration; this opinion assumed thatthe mere circumstance that an international arbitration happens to haveits seat in a certain state should not create any link with the legal systemof that state. The choice of place of arbitration, according to this opinion,is based on considerations of practical convenience, such as the relativevicinity to the states of both parties, the possibility of having convenientflight connections or the availability of modern and efficient meetingfacilities.

This chapter will show that the place of arbitration has a significantimpact that may affect the validity and enforceability of the arbitralaward, and that, therefore, the venue should be chosen first of all outof legal considerations (Section 1 below).

Also, this chapter will show that not only the law of the place ofarbitration, but also other national laws may have an impact on arbi-tration, and that this is quite irrespective of whether the parties havechosen them to apply or have even decided that they shall not apply: thelaw of the place of enforcement (Section 2 below) and, to a certain extent,the law applicable to the substance of the dispute (Section 3 below).

3 See the Explanatory Note by the UNCITRAL Secretariat on the Model Law onInternational Commercial Arbitration, available at www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration.html

4 See, for example, Marc Blessing, Choice of Substantive Law in InternationalArbitration, Journal of International Arbitration, 14(1997), 39ff.; Marc Blessing,Keynotes on Arbitral Decision-making: The New 1998 ICC Rules of Arbitration, ICCInternational Court of Arbitration Bulletin, (1997), 44ff.; Ole Lando, The New LexMercatoria in International Commercial Arbitration, International and ComparativeLaw Quarterly, 34(1985), 747, 765ff.; Jan Paulsson, Arbitration Unbound: AwardDetached from the Law of its State of Origin, International and Comparative LawQuarterly, 30(1981), 358ff, 362ff and 381; Jan Paulsson, Delocalisation of InternationalCommercial Arbitration: When and Why It Matters, International and ComparativeLaw Quarterly 32(1983), 53ff.




1 International arbitration and the state law of the placeof arbitration

The law of the place of arbitration (also known as the lex arbitri) affectsvarious aspects of an arbitral proceeding: the validity of the arbitrationagreement, the procedure of the arbitration and the validity of thearbitral award.

1.1 The relevance of the lex arbitri to the validity of thearbitration agreement

The jurisdiction of an arbitral tribunal on a certain dispute and theconsequent exclusion of jurisdiction by courts of law on the same disputeare based, for international arbitration, on the already mentioned NewYork Convention. In article II the Convention provides that: EachContracting State shall recognize an agreement in writing under whichthe parties undertake to submit to arbitration all or any differenceswhich have arisen or which may arise between them in respect of adefined legal relationship, whether contractual or not, concerning asubject matter capable of settlement by arbitration. Article II does notmake reference to any national law for the validity of the arbitrationagreement, and seems, therefore, to be a provision that contains allapplicable criteria for validity.

However, article V(1)(a) of the New York Convention, regulating theenforcement of an arbitral award, states that enforcement may berefused if [t]he . . . agreement referred to in article II . . . is not validunder the law to which the parties have subjected it or, failing anyindication thereon, under the law of the country where the award wasmade. The latter the lex arbitri is more commonly used: it is rare tosee an arbitration clause specifying which law governs the arbitration,and the general choice of law made by the parties to govern the con-tractual relationship does not extend to the arbitration agreement, noteven if this latter takes the form of a clause in the contract that containsthe choice of law.5 Coordination of article II and article V of theConvention may create some challenges, as will be seen immediatelybelow.

5 As a result of the separability doctrine that receives large support internationally. See, forreferences to literature and case law, Gary Born, International Commercial Arbitration(Kluwer Law International, 2009), vol. 1, pp. 312408.

international arbitration is not only international 9



1.1.1 The formal validity of the arbitration agreement

A large number of contracts contain arbitration clauses entered intoelectronically, by reference to other documents or even tacitly. Thisraises questions, particularly in relation to the requirement laid downin the New York Convention that arbitration agreements should be inwriting.

The UNCITRAL has recently recommended that the New YorkConvention be interpreted broadly so that arbitration agreementsentered into by electronic means of communication may be consideredto comply with the writing requirement.6 Also, the UNCITRAL ModelLaw on International Commercial Arbitration, originally issued in 1985,has been amended in 2006 so as to exclude any doubt regarding theadmissibility of arbitration agreements entered into electronically emphasising, however, that the clarification resulting from the amend-ment did not modify the Model Law, but simply confirmed the liberalinterpretation that was already adopted by various courts.7

National laws may vary considerably in the formal requirements theylay down for arbitration agreements. Thus, article 807 of the Italian Codeof Civil Procedure, article 178(1) of the Swiss Private International LawAct, article 1031 of the German Code of Civil Procedure and section 5 ofthe English Arbitration Act all require the arbitration agreement to be inwriting, albeit with small differences in the specification of how to meetthis requirement: under German law, for example, it is sufficient that thearbitration agreement was contained in a document sent by one party tothe other, if such a party had not raised objections in good time; underEnglish law, the criteria are also met by agreements that are made otherthan in writing, so long as they refer to terms that are in writing, andagreements that have been recorded in writing only by one party. Somecountries, however, have abolished the writing requirement altogether:article 1 of the Swedish Arbitration Act and article 310 of theNorwegian Arbitration Act recognise any arbitration agreement,

6 UNCITRAL Recommendation regarding the interpretation of article II(2) and article VII,paragraph 1, of the Convention on the Recognition and Enforcement of Foreign ArbitralAwards, done in New York, 10 June 1958, adopted by the United Nations Commissionon International Trade Lawon 7 July 2006 at its thirty-ninth session, A/RES/61/33, available atwww.uncitral.org/pdf/english/texts/arbitration/NY-conv/A2E.pdf. For a more extensive com-ment see Giuditta Cordero-Moss, Form of Arbitration Agreements: Current Developmentswithin UNCITRAL and the Writing Requirement of the New York Convention, ICCInternational Court of Arbitration Bulletin, 18(2007), 51.

7 See A/CN.9/WG.II/WP.118, para.11.




without laying down any particular form for that agreement, providedthat the parties have reached a consensus.

A similar proposal has been adopted for the UNCITRAL Model Lawon International Commercial Arbitration in 2006, but only as one of twooptions that the states adopting the Model Law may choose.8 As aconsequence, states that adopt the UNCITRAL Model Law onInternational Commercial Arbitration will, in the future, have to choosebetween one option requiring that the arbitration agreement be in writ-ing, which clarifies that electronic communication meets that require-ment, and one where there are no formal requirements at all.

The abandoning of formal requirements for the arbitration clauseraises various questions. In particular, is an arbitral award enforceableunder the New York Convention if it has been rendered on the basis ofan arbitration clause that, while valid under the applicable national law,is not in writing as required by article II of the New York Convention?Traditionally, despite the reference to national law contained in article Vof the Convention, it was widely considered that the formal require-ments of article II of the New York Convention prevail over any formalrequirements also laid down by applicable national law in the phase ofenforcement.9 This is because the New York Convention was tradition-ally thought to embody an approach more favourable to arbitration thanis found in national laws. However, now that some national laws and theamended UNCITRAL Model Law on International CommercialArbitration have become more arbitration-friendly than the New YorkConvention in respect of formal requirements for the arbitration agree-ment, it may rightly be asked whether that view should change andnational arbitration laws be given preference. This would be more inline with the wording of article V(1)(a) and with the spirit of theConvention.10

8 Article 7 has two versions in the Model Law as amended in 2006.9 For a survey of the various approaches taken by courts of different states, see theUNCITRAL Secretariat note A/CN.9/WG.II/WP.139, available at http://daccess-ods.un.org/TMP/9440393.44787598.html, paras. 1215. Only the Italian Supreme Courtseems to have held that different parameters were applied at the two stages with articleII not applying at the enforcement stage: Supreme Court decision No. 637, 20 Jan. 1995,Rivista dellArbitrato (1995) at 449 and Yearbook Commercial Arbitration XXI (1996) at602f.

10 Article VII of the New York Convention permits applying national laws that are morearbitration-friendly than the Convention itself. For a more extensive analysis seeCordero-Moss, Form of Arbitration Agreements.




1.1.2 The legal capacity of the parties to the arbitrationagreement

According to article V(1)(a) of the New York Convention, one of thegrounds for refusing recognition or enforcement of an award is that oneof the parties of the arbitration agreement was under some incapacity underits own law. The UNCITRAL Model Law has used this article of the NewYorkConvention as a basis for its own rules on annulment of awards and onthe possibility of being able to refuse recognition or enforcement; respec-tively, articles 34(2)(a)(i) and 36(1)(a)(i). Similar references to the law ofeach of the parties may be found in the arbitration law of countries that havenot adopted the Model Law. Thus, two recent court decisions rendered incountries that have not adopted theModel Law, one of the Swedish Court ofAppeal11 and one of the English Supreme Court,12 have established theineffectiveness of international arbitral awards on the basis that the arbi-tration agreement was not binding on one of the parties in accordance withthe law applicable to that party. These decisions are a reminder that the lawchosen by the parties to govern the contract does not cover all aspects of thelegal relationship between the parties, and that other laws may becomeapplicable in spite of the parties choice. The general attitude amongpractitioners sometimes seems, on the contrary, to rely fully and solely onthe law chosen by the parties and to disregard any other laws on the basisthat an international arbitral tribunal will be obliged to follow the will of theparties. Decisions like those mentioned here, therefore, may come as asurprise, although they simply give proper effect to the applicable sourcesof law.

1.1.3 The scope of the arbitration agreement

In the past, drafters of arbitration agreements devoted particular atten-tion to the wording used in defining the scope of the arbitration

11 State of Ukraine v. Norsk Hydro ASA, Svea Hovrtt, 17 December 2007, T 310806, seeITA Monthly Report, KluwerArbitration, 6(5) (2008). The losing party attempted toappeal the decision before the Supreme Court, but the Supreme Court denied leave toappeal: decision dated 2 June 2008, case no. T 33908.

12 Dallah Real Estate & Tourism Holding Co v.Ministry of Religious Affairs, Government ofPakistan [2010] UKSC 46. This decision was not based on the lack of legal capacity ofone of the parties, but on the relevance that that partys law has to the criteria for beingdeemed bound by an agreement. For a more extensive analysis and a comparisonbetween the Swedish and the English decision, see Giuditta Cordero-Moss, LegalCapacity, Arbitration and Private International Law, in K. Boele-Woelki et al. (eds.),Convergence and Divergence in Private International Law: Liber Amicorum Kurt Siehr(The Hague: Eleven International Publishing, 2010).




agreement. This seems to have been a reaction particularly to someEnglish court decisions that placed considerable emphasis on the lan-guage of the arbitration clause and drew (out of words that actually werenot intended to restrict the scope of the arbitration agreement) unex-pected conclusions on which disputes could be deemed to have beenreferred to arbitration. To cite one example, a court found that a clauserelating to arbitration of any disputes arising under a certain contractcovers only those disputes in terms of the rights and obligations createdby the contract itself, whereas a clause referring to disputes in relationto the contract or connected with the contract has a wider scope.13 Thisled to more and more detailed formulations aiming at clarifying that thearbitration agreement covers all possible disputes between the parties.These fine verbal distinctions have now been abandoned by Englishcourts: in the words of the House of Lords, these distinctions reflectno credit upon English commercial law. It may be a great disappoint-ment to the judges who explained so carefully the effects of the variouslinguistic nuances if they could learn that the draftsman [. . .] obviouslyregarded the expressions arising under this charter [. . .] and arisenout of this charter [. . .] as mutually interchangeable. [. . .][T]he timehas come to draw a line under the authorities to date and make a freshstart.14 The House of Lords affirmed that the parties are unlikely totrouble themselves too much about [the clauses] precise language or towish to explore the way it has been interpreted in the numerous author-ities, not all of which speak with one voice. [. . .][I]f the parties wish tohave issues as to the validity of their contract decided by one tribunal andissues as to its meaning or performance decided by another, they mustsay so expressly.15

In spite of the new approach by the English courts, the London Courtof International Arbitration still determines the scope of its modelarbitration clause by reference to any dispute arising out of or inconnection with this contract, including any question regarding itsexistence, validity or termination.16 This detailed formulation hasspread even beyond the area of English law: the model arbitration clause

13 Overseas Union Insurance Ltd v. AA Mutual International Insurance Co Ltd [1988] 2Lloyds Rep 63.

14 Fiona Trust & Holding Corporation and others v. Privalov and others [2008] 1 Lloyds LRep 254 at 257.

15 Ibid., at 259.16 Available at www.lcia.org/Dispute_Resolution_Services/LCIA_Recommended_Clauses.aspx.




recommended by the Arbitration Institute of the Swedish Chamber ofCommerce refers to any dispute, controversy or claim arising out of orin connection with this contract, or the breach, termination or invaliditythereof .17 Similarly, the model clause of the Swiss rules refers to Anydispute, controversy or claim arising out of or in relation to this contract,including the validity, invalidity, breach or termination thereof ,18 and themodel clause of the UNCITRAL Arbitration Rules to Any dispute, con-troversy or claim arising out of or relating to this contract, or the breach,termination or invalidity thereof .19 Along the same lines, although some-what more succinctly, the model clause of the International Chamber ofCommerce refers to All disputes arising out of or in connection with thepresent contract.20

A detailed arbitration clause is meant to counteract restrictive inter-pretations that may be imposed by the applicable arbitration law. Asimple clause may probably have the same effect in many jurisdictions,including those considered above. What a detailed arbitration clausemay not achieve, however, no matter how clear and precise it is, is toextend the scope of what the applicable arbitration law considers to bearbitrable. The matter of arbitrability will be analysed in Section 1.3.1below.

1.2 The relevance of the lex arbitri to the procedureof the arbitral proceeding

Generally, arbitration is governed by the arbitration law of the placewhere the tribunal has its venue (territoriality principle). The territor-iality principle is affirmed, for example, in article 46 of the SwedishArbitration Act, article 176 of the Swiss Private International Law Act,section 2 of the English Arbitration Act and article 1(2) of theUNCITRAL Model Law. The territoriality principle applies only to thelaw governing the arbitration procedure and does not extend to alsocover the law governing the merits of the dispute (more on the lawgoverning the merits of the dispute in Section 3 below).

17 Available at http://sccinstitute.se/engelska-16.aspx.18 Available at www.sccam.org/sa/en/clause.php.19 Available at www.uncitral.org/pdf/english/texts/arbitration/arb-rules-revised/arb-rules-revised-

2010-e.pdf.20 Available at www.iccwbo.org/court/english/arbitration/word_documents/model_clause/mc_

arb_english.txt.




Some states have opened up for the parties to choose the law govern-ing the arbitration procedure. Therefore, in these states the parties mayderogate the territoriality principle: see, for example, article 182(1) of theSwiss Private International Law Act and article 1494 of the French CivilProcedure Code. That the parties have chosen a certain law to governtheir contract, however, is not sufficient to make the chosen law appli-cable also to the procedure. If the parties wish the arbitral proceeding tobe regulated by a law different from the law of the place where thearbitral tribunal is seated, they should make specific reference to thearbitration procedure (assuming that the arbitration law of the place ofarbitration permits them to make such a choice).

It has been authoritatively commented that the choice of a foreignprocedural law is extremely unusual (and often ill-advised), as well assubject to doubts as to its validity.21 In England, a High Court decisioncommented that, in theory, it would be possible to submit arbitration to aprocedural law different from the law of the state where the arbitraltribunal has its venue, but the result would be highly unsatisfactory orabsurd.22

Irrespective of whether the parties have chosen to submit their disputeto an ad hoc or an institutional arbitration, the arbitral proceeding willthus generally be subject to the arbitration law of the state where thearbitral tribunal has its venue. If the parties have provided for proceduralrules (in an ad hoc arbitration, directly in the agreement or by referenceto the UNCITRAL Arbitration Rules; in an institutional arbitration, viathe choice of the institution), the rules provided by the parties will applyto their proceeding and will prevail over the rules contained in thenational arbitration law, if the latter permits to be derogated from byagreement of the parties. In the case of mandatory provisions of thenational arbitration law, however, the arbitration law will override thearbitration rules chosen by the parties. Examples of mandatory provi-sions are the rules on arbitrability and on due process, such asthe necessity of giving both parties the chance to be heard. In addition,the law of the place of arbitration contains rules on the powers of thearbitrators to issue interim measures, to summon witnesses and to

21 Born, International Commercial Arbitration, vol. 1, p. 1310. On the adequacy of con-sidering that the law governing the arbitral agreement is the law of the state where thetribunal is seated, see Fritz Alexander Mann, Lex Facit Arbitrum, in Pieter Sanders(ed.), International Arbitration: Liber Amicorum for Martin Domke (The Hague:Martinus Nijhoff, 1967) at pp. 164ff.

22 Union of India v. McDonnell Douglas Corp. [1993] 3 Lloyds Rep, 48.




request assistance from the local courts in such operations. Also, this lawcontains rules on the role of courts; for example, in the case of a challengeto the impartiality of the arbitral tribunal.

Arbitration laws are, usually, quite liberal in their regulation of arbi-tration. The parties desire to have as much flexibility as possible in theorganisation of a mechanism for dispute resolution that is chosen pre-cisely because it leaves ample room for private determination. If state lawstarted to regulate arbitration in detail, this method of dispute resolutionwould probably lose much of its appeal to commercial parties. However,if there were no regulation at all, the parties might fear that fundamentalprinciples of due process might be neglected. Therefore, a successfularbitration law is an instrument that manages to ensure a high degree offlexibility, though providing certain rules to protect the principle of dueprocess.

1.3 The relevance of the lex arbitri to the challengeof an arbitral award

The assumption that the legal system of the seat of arbitration (lexarbitri) has no link with the arbitration itself is not correct in otherrespects. The losing party may, in most jurisdictions, challenge, beforenational courts, the validity of an arbitral award that has been renderedin that state. This means that the courts of the state of arbitration havethe chance of controlling the validity of the award; and this is definitelyan important link between international arbitration and the forum. Thejudicial control on the arbitral award in the phase of the challenge isregulated by national arbitration law. This means that courts apply theirown law when they determine whether the award is valid or not.

In some states, awards rendered in disputes without any contact withthat state enjoy a certain detachment from the system of the forum.Swiss23 and Belgian24 law permit the parties to enter into an exclusionagreement, thus excluding the courts jurisdiction to challenge the vali-dity of the award. Also, Swedish25 law permits the parties to exclude thecontrol by Swedish courts, but only in respect of the so-called relativeinvalidity grounds, i.e. grounds that have to be invoked by one of theparties. Exclusion agreements are not allowed by Swedish law in respect

23 Article 192 of the Swiss Private International Law Act.24 Article 1717(4) of the Belgian Judicial Code.25 Article 51 of the Swedish Arbitration Act.




of absolute invalidity grounds, upon which the judge can act on his orher own motion. In most other states, as well as under the UNCITRALModel Law, the control jurisdiction of the courts cannot be excluded.

The list of grounds upon which a court may declare an award invalidvaries, as mentioned, from state to state. In some states, as in England,the judge has relatively wide powers. Among others, an English judgemay verify the arbitral tribunals application of law,26 although thepossibility of setting aside an award for error in law has been signifi-cantly restricted in the English Arbitration Act of 1996. In most otherEuropean states, the list of invalidity grounds can broadly be said tocoincide with the list contained in article 34 of the UNCITRAL ModelLaw which, in turn, coincides with the list of grounds upon which anaward may be refused enforcement under the New York Convention.These grounds may be summarised as referring to invalidity or irregu-larity in the following areas: the arbitration agreement (which is gov-erned primarily by the law of the place of arbitration, as seen inSection 1.1 above); the composition of the arbitral tribunal (whichmay be considered as part of the arbitral procedure and is thereforegoverned by the agreement between the parties, the procedural ruleschosen by the parties as well as by the law of the place of arbitration, asseen in Section 1.2 above); the procedure of the arbitration (also gov-erned by the agreement between the parties, the procedural rules chosenby the parties as well as by the law of the place of arbitration, as seen inSection 1.2 above); and the scope of power exercised by the tribunal(which is determined primarily by the agreement of the parties, but alsoby the procedural rules chosen by the parties and by the law at the placeof arbitration).27 In addition, the award can be declared invalid if there isa contrast with that states rule on arbitrability or with that states publicpolicy (ordre public), as will be seen more in detail in Sections 1.3.1 and1.3.2 below.

1.3.1 Arbitrability

There are various rules of state law that restrict the parties ability tosubmit to arbitration disputes between them. One of the main effects of

26 Section 69 of the English Arbitration Act.27 More extensively on the arbitral tribunals powers, see Giuditta Cordero-Moss,

Tribunals Powers versus Party Autonomy, in P. Muchlinski, F. Ortino andC. Schreuer (eds.), Handbook of International Law on Foreign Investment (OxfordUniversity Press, 2008).




submitting a dispute to arbitration is, as is well known, that the partiesexclude the jurisdiction of courts of law on the same dispute. The otherimportant effect of arbitration is that the winning party can present theaward for enforcement to any court in a state where the losing party hasassets. Arbitration enjoys such a significant recognition as long as thedisputed matters concern areas that national legal systems considersuitable for self-regulation by private parties. As soon as matters ofpublic policy or of special economic or social interest are touched on,however, it can seem less appropriate for a state to waive jurisdiction orto lend its courts authority to enforce private awards. In such areas withimportant policy implications, states wish to preserve the jurisdiction oftheir own courts of law: this preference is based on the assumption thatan arbitral tribunal would not be able or willing to apply the law asaccurately as a judicial court would.

In the past, a clear trend could be observed towards reducing the areasin which disputes are not deemed arbitrable. In the past decades, forexample, the US legal system has undergone a clear shift from anexpressed suspicion against arbitration, to an arbitration-friendly atti-tude;28 the same evolution can be observed in other legal systems, suchas, for example, the Swedish system.29 Notwithstanding this trend infavour of arbitrability, however, various areas of law are still deemed tobe exclusively in the hands of the courts of law. The areas wherearbitrability is excluded vary from state to state: as a general rule,arbitration is usually permitted in all matters that fall within the boun-daries of private law. This would exclude from the scope of arbitrationmatters such as taxation, import and export regulations, concession ofrights by administrative authorities, bankruptcy or the protection ofintellectual property. These matters are mostly regulated by mandatoryrules from which the parties cannot derogate. Disputes concerningaspects of commercial transactions falling within the scope of the

28 The first Supreme Court judgment recognising the arbitrability of matters that previ-ously were deemed to be for the exclusive competence of courts of law, was Scherk v.Alberto-Culver, 417 US 506 (1974). See, for further references, Paul Carrington andPaul Haagen, Contract and Jurisdiction, Supreme Court Review, 8(1997), 331, 362f.,and Jean Sternlight, Panacea or Corporate Tool? Debunking the Supreme CourtsPreference for Binding Arbitration, Washington University Law Quarterly, 74(1996),637, 652.

29 See, for example, the evolution regarding the validity of arbitration clauses entered intoin the framework of general conditions of contract, as appears from the comparison ofthree Swedish Supreme Court decisions rendered in 1949, 1969 and 1980: Lars Heuman,Current Issues in Swedish Arbitration (Stockholm: Juristforlaget, 1990), pp. 22ff.




freedom to contract, however, should be arbitrable, even if the solutionof the dispute assumes that the tribunal takes into consideration thesemandatory rules. As long as the tribunal is requested to decide upon theprivate-law consequences of these rules existence and is not required toapply or enforce any of these rules, there should be no obstacles toarbitrability.

Recently, the arbitrability exception is being used more frequently,particularly in disputes involving mandatory regulation protecting theweaker party, when this regulation belongs to the system of the courtwhere the dispute would be heard if it had not been for the arbitrationclause.30

Since the arbitrability rule may have a different scope according to thelaw it belongs to, it is necessary to find out which law determines whetherthe subject of the dispute is arbitrable or not. As already mentioned,under the New York Convention and the UNCITRAL Model Law, acourt always applies its own rules on arbitrability. Hence, the arbitrabil-ity of the dispute will be evaluated under the law of the seat of thetribunal if a court of that country is judging the validity of the award,and under the law of the place of enforcement if a court of anothercountry is asked to enforce the award.

This may lead to a situation where a court applies its own rule onarbitrability in a dispute that has no connection with that legal systemapart from it being the seat of the tribunal or where the presence of assetspermits enforcement. In this context, it may be useful to remember therationale of the arbitrability rule: the arbitrability rule is meant topreserve the jurisdiction of the courts of law in certain areas of lawthat are deemed to deserve a particularly accurate application of thelaw. This particularly affects areas of law with public policy implications,where the public interest is deemed to prevail over the freedom of theparties to regulate their own interests. The legal system does not considerprivate mechanisms of dispute resolution as sufficiently reliable in thiscontext and wishes to maintain the jurisdiction of its own national courtsof law. This rationale does not necessarily apply when the dispute has noconnection with that courts legal system, because in the absence of anarbitration agreement the court would not have jurisdiction over thedispute.

30 See Accentuate Ltd v. Asigra Inc [2009] EWHC 2655 (QB), regarding a distributionagreement. See also, in Belgium, Cass., 16.11.06; in Germany, OLGMnchen, 17.5.06; inEngland, High Court 30.10.09.




If a dispute has no connection with the legal system of the arbitral seat,therefore, the arbitrability rule should be applicable to set aside an awardor refuse enforcement only if the annulment of the award is necessary toavoid an unacceptable result reached by the arbitral tribunal.31 In itself,the fact that the arbitral tribunal has resolved a dispute that is notarbitrable under the law of the arbitral seat or of the place of enforcementwould not be unacceptable: the courts would have neither the interestnor the competence to apply their own law to that dispute. What wouldbe unacceptable is a decision made in a specific case; for example,because it has given effect to an agreement that violated a UN embargo.In short, what should be an annulment ground or ground to refuseenforcement in this situation is not the fact that the tribunal has exer-cised jurisdiction on the dispute, but the fact that the result of thedecision conflicts with the fundamental principles of the courts law. Insituations where the dispute does not have any links with the legal systemof the arbitral seat, therefore, the arbitrability clause would overlap withthe public policy rule, which will be discussed below. The evaluation ofthe awards validity or enforceability, in other words, cannot be made inadvance, automatically applying an abstract measure of arbitrability. Theevaluation of the awards validity or enforceability has to be made on thebasis of the specific decision rendered in the particular case, and bymeasuring the actual decision against fundamental principles of thecourts law.

1.3.2 Public policy

The rule of public policy has the purpose of permitting the judge not togive effect to an award that would contradict the fundamental principlesof the judges social system. It is, in the context of international arbi-tration, universally interpreted in a very narrow manner.32

31 For a more extensive analysis of the matter see Giuditta Cordero-Moss, National Ruleson Arbitrability and the Validity of an International Arbitral Award: The Example ofDisputes regarding Russian Petroleum Investments, Stockholm Arbitration Report(2001), 7.

32 See Born, International Commercial Arbitration, vol. 2, pp. 2841 ff., with extensive refer-ences, and Alan Redfern, Martin Hunter, Nigel Blackaby and Constantine Partasides,Redfern and Hunter on International Arbitration (Oxford University Press, 2009), para.11.110. See also, for a confirmation of this approach and further references, the InternationalCommercial Arbitration Committee, International Law Association Final Report on PublicPolicy as a Bar to Enforcement of International Arbitral Awards (paper presented at theInternational Law Association Conference, New Delhi, 2002). See also the International




In particular, it does not have the same function as ensuring fullcompliance with rules and principles of the judges legal system; publicpolicy is usually defined by reference not to the legal system, but to basicnotions of morality and justice,33 features essential to the moral, politicalor economic order of the country34 or to fundamental notions of mor-ality and justice.35 In a similar vein, the European Court of Justice found,regarding the applicability of the public policy exception containedin the then applicable Brussels Convention on Jurisdiction andEnforcement of Judgments, that a court cannot refuse enforcement ofa judgment solely on the ground that it considers that national orCommunity law was misapplied in that decision.36 The EuropeanCourt of Justice found that the fact that an alleged error in applyingthe law concerns rules of Community law does not alter the conditionsfor being able to rely on the clause on public policy.37 In particular, acourt cannot review the accuracy of the findings of law made in thejudgment when the enforcement of that judgment is being sought.38

Moreover, the judgment must be at variance, to an unacceptable degree,with the legal order of the enforcing state in as much as it infringes afundamental principle, and the infringement must constitute a manifestbreach of a rule of law regarded as essential or of a right recognised asbeing fundamental.39 This European Court of Justice decision was notrendered under the New York Convention, but there is no reason whythe reasoning made in respect of public policy as a ground for refusingrecognition and enforcement of judgments under the BrusselsConvention (or its successor, the Brussels I Regulation) should not alsoapply to public policy as a ground for refusing recognition and

Commercial Arbitration Committee, International Law Association Interim Report onPublic Policy as a Bar to Enforcement of International Arbitral Awards (paper presentedat the International Law Association Conference, London, 2000). This is often defined asthe pro-enforcement bias of the New York Convention, which, in turn, is considered toconstitute a principle of public policy: see Redfern et al.,Redfern andHunter on InternationalArbitration, para. 11.105.

33 Redfern et al., Redfern and Hunter on International Arbitration, paras. 11.109, 11.111and 11.112.

34 Dirk Otto and Omaia Elwan, Article V(2), in Herbert Kronke and Patricia Nacimiento(eds.), Recognition and Enforcement of Foreign Arbitral Awards: A Global Commentaryon the New York Convention (Kluwer Law International, 2010), p. 365.

35 Ibid., p. 366.36 Regie nationale des usines Renault SA v. Maxicar SpA and Orazio Formento, C.38/98,

para 33.37 Ibid., para. 32. 38 Ibid., para. 29. 39 Ibid., para. 30.




enforcement of awards under the New York Convention or as a groundto set aside an award under the UNCITRAL Model Law.

We have established that it is not the national rules that must beapplied through the public policy clause, but it is their inspiring princi-ples that have to be given effect to. It remains to attempt to define whatinspiring principles can be deemed to be those of public policy. Not everyprinciple inspiring a mandatory rule can be considered a public policyprinciple. Not even every principle inspiring an overriding mandatoryrule (i.e. one of those mandatory rules that is deemed to be so importantthat it requires to be applied even in international situations and withouttaking into consideration the general choice of law rules, also known aslois de police) can be considered as a public policy principle.40 It is onlythe fundamental principles those that constitute the basis of thesociety that can be deemed as public policy. But how can theseprinciples be identified?

There is no absolute rule to determine public policy: what is funda-mental may vary from state to state, and, even within the same state, theconceptions develop, and what was deemed public policy a decadeearlier, may not be deemed so any more.41

Court decisions in the various states annulling an award or refusing toenforce it because the award is in contrast with the courts public policyare reported in the ICCA Yearbook, Commercial Arbitration, also avail-able at www.kluwerarbitration.com. A survey of these decisions, fromthe first volume in the mid-seventies to the present time, shows that suchdecisions are not numerous. A decision that originated a wide debate inlegal literature was rendered by the EU Court of Justice in the Eco Swisscase:42 here the Court affirmed that European rules of competition law

40 Luca Radicati Di Brozolo, Arbitration and Competition Law: The Position of the Courts andof Arbitrators, Arbitration International, 27(2011), 1, 6. See also Born, InternationalCommercial Arbitration, vol. 2, pp. 2843ff.

41 The example of swap agreements and other financial derivate instruments is quitedescriptive: this kind of contract developed into a recognised financial activity in thecourse of the 1980s, and is not considered as being against fundamental principles.However, up to as late as the 1980s, courts in Germany and in Austria were consideringthem against the basic moral principles of the system that forbid gambling (so-calledDifferenzeinwand). See, for example, the decision of the Austrian Supreme Court no. 3Ob 30/83 of 1983, and of the German Supreme Court (Bundesgerichtshof) of 15 June1987. Only a few years later, the Bundesgerichtshof did not consider these agreements asviolating any fundamental principles of the German legal system, see the decision dated26.2.1991, XI ZR 349/89.

42 Eco Swiss China Time Ltd v. Benetton International N.V. C-126/97.




must be considered to belong to public policy. The wide debate thatfollowed this decision related, among other things, to the scope andeffects of the Courts findings.43 In judicial practice, at least twoapproaches have been taken to the question of the courts power regard-ing arbitral awards: the so-called maximalist and minimalist approaches.According to the former approach, the court has the power to make, inaddition to the evaluation made by the arbitral tribunal, an independentevaluation of the application of the competition law in order to ensureaccurate application of competition law. This approach is criticised andis deemed not to express the mainstream position on the subject.44 Theminimalist approach is held to prevail in court practice both in theUSA45 and in Europe, and legal literature affirms that the courts shallnot make a full review of the arbitral tribunals application of competi-tion law but shall accept the arbitral tribunals evaluation.46 That theEuropean Court of Justice has defined European competition law as partof public policy does not mean that any violation of every Europeancompetition rule will be a breach of public policy. It is only the mostserious violations that qualify, and the breach must be concrete andeffective, so that it truly jeopardises the goals of competition policy.47

Another situation where arbitral awards are traditionally deemed toconflict with public policy is where the award gives effect to an agree-ment that violates applicable rules on bribery.48

Arbitral awards rendered in commercial disputes may run the risk ofconflicting with public policy where contracts are also legal under the lawchosen by the parties, but violate, in certain areas, the law that would beapplicable if the parties had not made a choice of law. If the violated ruleswere meant to protect third-parties interests or to ensure the properfunctioning of systems such as banking and financing, an award givingeffect to those agreements may have implications in terms of publicpolicy.

43 For an overview and a summary of the debate so far, see Radicati Di Brozolo,Arbitration and Competition Law.

44 Ibid., p. 10.45 Baxter Intl v. Abbott Laboratories, 315 F. 3rd 829 (7th Cir. 2003) and American Central

Eastern Texas Gas Co. v Union Pacific Resources Group, 2004 U.S. App. LEXIS 1216 (5thCir. 2004).

46 Radicati Di Brozolo, Arbitration and Competition Law, pp. 9f.47 Ibid., pp. 6 and 11.48 For a recent critical review of the relationship between bribery and public policy in

international arbitration see James Barratt and Hayley Ichilcik, Bribery, European &Middle Eastern Arbitration Review (2011).




Many commercial agreements have implications that may affect theinterests of third parties: for example, an agreement creating a securityinterest on the assets of one party for the benefit of the other party hasimplications for the other creditors of that party, who may not count onthose assets in the case of the insolvency of the debtor. In order to givefull effect to the security interest, legal systems have various rules, such asimposing public registration of the security so that the potential creditorsare aware of the patrimonial situation of the debtor. Let us assume thatthe parties created a security interest under a law of their choice that doesnot require public registration, and that the contract contained anarbitration clause. If a dispute arises and the secured creditor obtainsan award in its favour, it will try to enforce it in the country where theassets are located and where the law actually requires registration. Theenforcement court will thus be expected to enforce an award giving effectto a contract that violates rules ensuring the proper functioning of theeconomic system. Will that award be considered as violating publicpolicy?

Another example is a shareholders agreement with provisions thatviolate the applicable company law on the competence of corporatebodies, for example, with the purpose of favouring a group of share-holders against the interests of the minority shareholders. Assuming thatan arbitral award gives effect to the agreement of the parties, thusviolating the applicable company law, will the award be valid andenforceable in the country to which the applicable company law belongs?

The nature of the public policy principle prevents us making generalassertions as to the quality of public policy for a whole area of the law:while some rules of property law or company law may protect intereststhat are deemed to be so fundamental that their disregard may contradictpublic policy, it will depend on the circumstances of the case as to whatextent the result of a specific violation actually contrasts with suchfundamental principles. On a general basis, however, it seems legitimateto affirm that the policy upon which various rules of property andcompany law are based may be deemed so strong, that a serious breachof those rules may represent a violation of public policy.49

49 This matter is the object of research in a project that I run at the University of Osloon Arbitration and Party Autonomy (APA, www.jus.uio.no/ifp/english/research/projects/choice-of-law/). For a more extensive analysis see Giuditta Cordero-Moss,International Arbitration and the Quest for the Applicable Law, Global Jurist(Advances), 8(2008), 1.


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kafedr.at.uakafedr.at.ua/_bd/6/686.pdf · INTERNATIONAL COMMERCIAL ARBITRATION Arbitration clauses in international commercial contracts are often reused from existing contracts