(PDF) The Growing Autonomy of International Commercial Arbitration

ITable of Contents

The Growing Autonomy

of International

Commercial Arbitration

II Table of Contents

Beiträge zum Internationalen Wirtschaftsrecht

Contributions on International Commercial Law

herausgegeben von Professor Dr. Klaus Peter Berger, LL.M., Köln

Band 3

IIITable of Contents

The Growing Autonomy

of International

Commercial Arbitration

Markus A. Petsche

Sellier.

European Law Publishers

IV Table of Contents

ISBN 10 3-935808-83-6

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VTable of Contents

Acknowledgments

I wish to thank the Austrian Federal Ministry for Education, Science and

Culture for awarding me a generous scholarship to pursue doctoral studies at

the European University Institute in Florence. I am particularly grateful to

my supervisor Professor Christian Joerges who continuously stimulated and

enriched my reflection. I also wish to thank Professor Franco Ferrari, Hauser

Global Professor at NYU Law School, for his useful comments on the final

draft of the dissertation. I am further indebted to Ms. Sylvie Picard Renaut,

head of the documentation centre of the International Court of Arbitration

of the International Chamber of Commerce, for granting me access to pre-

cious sources on the law of international commercial arbitration. I also wish

to extend thanks to my former colleagues and friends (the adjective ‘former’

characterising mainly the collegial relationship) Sami Houerbi and Detlev

Kuehner for their moral support in the final stages of the writing of the dis-

sertation. Finally and most importantly, I wish to express my deepest grati-

tude and love to my parents for their unconditional support and encourage-

ment – well beyond the scope of this dissertation.

Markus A. Petsche

VI Table of Contents

VIITable of Contents

Table of Contents

Acknowledgments V

Table of Contents VII

Introduction 1

Chapter 1

Theoretical foundations and practical manifestations of the increasing

autonomy of international commercial arbitration 7

I. The Legitimacy of the Autonomy of International Commercial

Arbitration: An Analysis of the Interests of the Actors Involved 7

A. Interests of the consumers of international commercial arbitration:

The potential ‘superiority’ of arbitration over ordinary litigation 8

1. Arbitration as a more expeditious dispute settlement modus 10

2. Arbitration as a means to respond to the specific normative

needs of international commercial dispute resolution 11

a. The concept of internationality 12

b. ‘Neutrality’ of the applicable substantive law (substantive

neutrality) 13

i) Substantive neutrality in general 13

ii) Substantive neutrality in international commercial

arbitration 14

c. Party-autonomy 16

d. Procedural neutrality 18

i) Procedural neutrality in general 18

ii) Procedural neutrality in international commercial

arbitration 20

VIII Table of Contents

B. State interests: Benefits derived from the development of arbitral

dispute resolution 21

1. Alleviation of the onus on the overburdened State courts and

the economic benefits associated with arbitration 21

2. The Growth of international commerce and the preservation of

global peace 23

C. Interests of the legal profession 24

II. Practical Manifestations of the Autonomy of International

Commercial Arbitration: Institutional Framework of the Pursuit of

Increased Autonomy 25

A. UNCITRAL 26

1. The New York Convention ‘on the Recognition and

Enforcement of Foreign Arbitral Awards’ 27

2. The UNCITRAL Arbitration Rules 28

3. The UNCITRAL Model Law 29

B. Arbitration institutions 31

1. The role of arbitration institutions in ensuring procedural

efficiency 31

2. The role of arbitration institutions in ensuring the autonomy of

the arbitral award 33

3. The particular role of the ICC as a contributor to the

elaboration of international trade law 35

III. Summary 36

Chapter 2

The autonomy of the law applicable to the merits 37

I. The Drawbacks of the Conflict of Laws Method 38

A. Classical drawbacks of the conflict of laws 39

IXTable of Contents

1. Illegitimacy of the prevalence of conflict of laws justice (or

private international law justice) over material justice 39

2. Complicating factors and unpredictability of the conflict of laws 41

a. Characterisation 42

b. The renvoi 43

c. The preliminary (or incidental) question 44

d. Lex forism of State courts 45

e. The impact of the complicating factors on the predictability of

the conflict of laws 45

B. The inappropriateness of the application of domestic laws to

international commercial transactions and the inability of the

conflict of laws to ensure substantive neutrality and party-

autonomy 46

1. The inability of the conflict of laws to ensure substantive

neutrality 46

2. The inability of the conflict of laws to ensure party-autonomy 47

II. The Unification and Liberalisation of International Trade Law 48

A. The unification of conflict of laws rules: A means to ensure

international normative harmony 49

B. Traditional tools to achieve substantive unification and

liberalisation 51

1. Substantive unification and liberalisation at the international

level: The adoption of uniform laws 51

2. Substantive unification and liberalisation at the domestic level:

The adoption of material rules of private international law 53

C. The doctrine of lex mercatoria or transnational law 55

1. Terminology 55

2. Historical background and evolution of the doctrine of lex

mercatoria 56

X Table of Contents

3. The lex mercatoria doctrine as a means to promote the

unification and liberalisation of international trade law 60

4. Recognition of lex mercatoria by the State 62

a. Validity of choice-of-law clauses providing for the application of

lex mercatoria 62

b. The arbitrator’s right to apply lex mercatoria in the absence of a

choice-of-law clause concluded by the parties 64

i. Application of the conflict of laws rules of the arbitral seat 64

ii. Application of the most ‘appropriate’ conflict of laws rules 65

iii. The voie directe method 66

iv. The tronc commun doctrine 66

v. Lex mercatoria 67

5. Future perspectives: The application of lex mercatoria by State

courts 68

III. Summary 69

Chapter 3

The procedural autonomy of international commercial arbitration 71

I. The Autonomy of the Arbitration Agreement and the Doctrine of

Separability 71

A. Functions of the doctrine of separability 73

1. Separability and Kompetenz-Kompetenz 73

2. Separability and the validity of the arbitration agreement 74

B. Aspects of separability: from separability to ‘autonomy from all

national laws’ 76

1. Private international law autonomy and the submission of the

arbitration agreement to its ‘own’ law 76

2. Autonomy from all national laws 79

II. Kompetenz-Kompetenz 81

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A. Concurrent jurisdiction of State courts 82

1. Procedural channels of challenges to arbitral jurisdiction 83

2. The extent of court review of the validity of the arbitration

agreement 84

3. The preliminary award on jurisdiction 85

B. The priority rule 86

III. The Appointment and Challenge of Arbitrators 87

A. The limited autonomy of ad hoc arbitration 88

B. The autonomy of institutional arbitration 89

1. The availability of mechanisms increasing the autonomy of

appointment and challenge procedures 90

2. Court review of institutional decisions 90

IV. The Arbitrator’s Power to Order Interim and Conservatory

Measures 92

A. The concept of interim and conservatory measure 92

B. Recognition of the power of arbitrators to order interim or

conservatory measures 93

C. The courts’ concurrent jurisdiction to order interim or conservatory

measures 94

1. The limited powers of arbitrators 94

2. Court assistance 95

V. Summary 97

Chapter 4

The autonomy of the arbitral award: the restricted scope of court

control of the arbitral award 99

I. The Prohibition of Review on the Merits (révision au fond) 99

A. The meaning of (the prohibition of) review on the meits 99

XII Table of Contents

B. The prohibition of review on the merits of foreign and domestic

arbitral awards 101

1. The distinction between foreign and domestic arbitral awards 101

2. The prohibition of review on the merits of foreign arbitral

awards 102

3. The prohibition of review on the merits of domestic arbitral

awards 103

C. Exceptional review on the merits 105

1. England: The question of English law 105

2. United States: Manifest disregard of the law (the manifest

disregard exception) 106

a. The meaning of manifest disregard of the law 106

b. A controversial issue: The applicability of the manifest

disregard exception to New York Convention awards 109

i) The concept of the New York Convention award 109

ii) The applicability of the manifest disregard exception to

New York Convention awards 110

II. The Limitation of the Number of Grounds Invalidating Arbitral

Awards 111

A. Grounds aimed at the protection of the parties’ autonomy of will 111

1. Lack of validity of the arbitration agreement 111

2. Non-compliance with the will of the parties by the arbitral

tribunal 112

B. Grounds aimed at safeguarding procedural fairness 113

1. Lack of independence or impartiality of an arbitrator 113

2. Breach of due process 114

C. Grounds aimed at preserving State interests 115

1. Arbitrability 115

2. Public policy 117

XIIITable of Contents

III. The Restrictive Interpretation of the Grounds Invalidating Arbitral

Awards 118

A. The decline of the traditional hostility vis-à-vis arbitration and the

non-arbitrability doctrine 119

1. Arbitration as a threat to the State monopoly of justice 119

2. Arbitration as a threat to decisional accuracy 119

3. Arbitration as a threat to public policy 120

4. Arbitration as an ‘inappropriate’ dispute settlement mechanism 122

B. The tacit waiver of the right to challenge an award on the basis of a

breach of due process or the lacking impartiality/independence of

an arbitrator 123

1. The tacit waiver as a manifestation of the estoppel principle 123

2. Recognition of the tacit waiver by legislators and courts 124

3. The scope of waivable claims 125

C. The lowering of the due process standard 126

IV. Summary 127

Chapter 5

The autonomy of the arbitral award: Internationalisation of the

standards of review of arbitral awards 129

I. Decreasing Recourse to the Conflict of Laws Method for the

Purposes of Assessing the Enforceability of Arbitral Awards 130

A. The traditional predominance of conflict of laws rules 130

1. The doctrine of localisation of international arbitration (and

arbitral awards rendered in international arbitration) 131

2. The nationalisation of international arbitration (and arbitral

awards rendered in international arbitration) 132

B. Delocalisation of arbitral awards 133

XIV Table of Contents

1. The theoretical foundations of delocalisation (judicial and

legislative) 134

2. Legislative delocalisation in practice 135

C. The internationalisation of court review of arbitral awards 135

1. The rationale of internationalisation 136

2. The internationalisation of court review of arbitral awards and

dualistic approach to arbitration 137

a. Internationality of arbitration 138

i) The definition of international arbitration by the Swiss

Private International Law Statute (PILS) 139

ii) The economic approach of the French Nouveau Code de

Procédure Civile (NCPC) 139

iii) Recourse to alternative criteria: the UNCITRAL Model

Law (Model Law) and the Italian Codice di Procedura

Civile (CPC) 140

iv) The impact of the will of the parties and the phenomenon

of ‘agreed’ internationality 140

b. Dualistic arbitration legislation 141

c. Dualistic case-law or ‘hidden dualism’ 143

II. International Standards of Review of Arbitral Awards 144

A. Objective arbitrability 144

1. The lacking necessity to depart from the conflict of laws

method 144

2. Legislative material rules: The German and Swiss examples 145

3. The elaboration of international standards by the courts: The

American example 146

a. From the Bremen to Mitsubishi 146

b. Recognition of the specificity of international arbitration 147

XVTable of Contents

c. Reliance on the New York Convention’s purpose of unifying

standards of enforcement of arbitral awards 149

B. Public policy 151

1. The genesis of the concept of international public policy:

Domestic, international, and transnational (or ‘truly

international’) public policy 151

2. International public policy as a tool to increase the autonomy of

arbitral awards: Methodological approaches 153

a. Statutory reference to international public policy 153

b. A narrow reading of the public policy exception under the New

York Convention 154

c. Elaboration of international public policy standards by the

courts: The American example 155

III. Summary 156

Chapter 6

The autonomy of the arbitral award: judicial delocalisation 159

I. Judicial Delocalisation of the Arbitral Proceedings 159

A. Delocalisation and party autonomy 160

B. Delocalisation and the lack of legitimacy of the application of the

law of the seat 161

C. Delocalisation in practice: Institutionalisation and practical limits

of delocalisation 163

II. The Declining Role of the Action to Set Aside 164

A. The judicial delocalisation of arbitral awards and the question of

the international effectiveness of a decision setting aside an arbitral

award 164

B. The judicial delocalisation of arbitral awards in recent arbitration

statutes: A chronology of events 165

XVI Table of Contents

1. The Belgian Law of 27 March 1985 on International

Arbitration 165

2. Article 192 of the 1987 Swiss PILS and its influence on

Tunisian and Swedish arbitration law 165

III. Judicial Precedents Enforcing Arbitral Awards Set Aside in the

Country of Origin 166

A. Legal bases 166

1. The ‘more favourable right’ provision contained in Article VII

of the New York Convention 166

2. The optional character of the refusal to enforce an award in

accordance with Article V(1)(e) of the New York Convention 167

3. The specific regime applicable under the 1961 Geneva

Convention 168

B. Controversy 169

IV. The Interests Involved in the Enforcement of Arbitral Awards Set

Aside in the Country of Origin 171

A. The lack of involvement of State interests 171

B. The ‘false’ conflict between effectiveness of the arbitral award and

predictability 172

C. The conflict between effectiveness of the arbitral award and

decisional (normative) harmony 174

V. Possible Ways of Reconciling International Normative Harmony

and Effectiveness of Arbitral Awards 176

A. The general acceptance of international standards of control 176

B. The conditional recognition of decisions setting aside arbitral

awards 177

VI. The Reorganisation of the International Enforcement System: De-

centralisation and Centralisation of the International Enforcement

System 178

XVIITable of Contents

A. The de-centralisation of the international enforcement system 179

B. The centralisation of the international enforcement system and the

establishment of a central authority having exclusive jurisdiction to

rule on the enforceability/validity of arbitral awards 181

VII. Summary 182

Conclusion 183

Bibliography 189

0

1Introduction

Introduction

Classically conceived of as an alternative dispute resolution method, arbitra-

tion has become, today, the ordinary means of solving international com-

mercial disputes.1 Indeed, despite the lack of statistical data indicating the

actual share of arbitration in the international dispute resolution ‘market’,2

scholarly writers and practitioners habitually concur that international busi-

ness operators tend to prefer arbitration to State court litigation.3 The grow-

ing popularity of arbitration as a mechanism to solve international business

disputes is illustrated, inter alia, by the proliferation of institutions adminis-

tering international commercial arbitration4 and the steady growth of the

caseload of these institutions.5

Like most phenomena of great practical significance, the development of

international commercial arbitration raises basic theoretical issues. At the

heart of these lies the question of the role of the State. Lawyers and sociolo-

gists, in fact, habitually consider that international commercial arbitration

calls into question the – already severely damaged – classical theory of State

sovereignty.6 Indeed, as a quintessentially private dispute resolution mecha-

1 See, for example, F. Gélinas, ‘Arbitration and the Challenge of Globalization’, 17 J. Int.

Arb., p. 117 et seq.

2 See D. B. Caron, ‘Remarks’, 1991 ASIL Proc., p. 65 et seq., at 67: ‘… there exists a

market in international dispute resolution in which mechanisms, whether public or pri-

vate, compete with one another for adoption… the ability of parties to choose from this

amalgam of mechanisms creates a market in which the potential consumers – the par-

ties – decide which mechanism best suits their objectives.’

3 This preference is due to the alleged ‘advantageousness’ of arbitration when compared

to ordinary litigation. On this issue, see infra, Chapter 1, at 8.

4 A number of (new) arbitration institutions or centres have been set up recently. These

include, for example, the ‘Centre de conciliation et d’arbitrage de Tunis’, the ‘St. Pe-

tersburg International Commercial Arbitration Court’, the ‘Corte arbitrale nazionale e

internazionale di Venezia’, and the ‘Centre d’arbitrage de la Chambre de commerce,

d’industrie et d’agriculture de Dakar’.

5 This can be illustrated, for example, by the growth of the caseload of the ICC Interna-

tional Court of Arbitration. The Court received 352 requests for arbitration in 1993,

384 in 1994, 427 in 1995, 433 in 1996, 452 in 1997, 466 in 1998, 529 in 1999, 541 in

2000, 566 in 2001, and 593 requests in 2002. See the 1998 Statistical Report, ICC

Bull., Vol. 10, n° 1 (1999) and the 2002 Statistical Report, ICC Bull., Vol. 14, n° 1

(2003).

6 See, for example, A. Berlinguer, ‘Impartiality and Independence of Arbitrators in Inter-

national Practice’, 1995 Am. Rev. Int’l. Arb., p. 339 et seq., at 341 where the author re-

2 Introduction

nism, international commercial arbitration supposedly infringes on the

State’s exclusive judicial powers, i.e. on the State’s monopoly of justice.7

Arguably, the development of international commercial arbitration, inas-

much as it has led to the emergence of an ‘autonomous’ body of rules elabo-

rated by the international business community, also calls into question the

State’s exclusive legislative powers.8

By laying excessive emphasis on how international commercial arbitration

undermines classical State prerogatives, the academic debate draws a some-

what distorted picture of the relationship between arbitral dispute resolution

and the State. Indeed, theoretical constructions tend to overlook the fact

that the effectiveness of the arbitral process relies, at least in part, on the

State’s ‘attitude’ vis-à-vis arbitration.9

The effectiveness of the arbitral process comprises 1) the effectiveness of the

arbitral proceedings, understood as the ability of the arbitral proceedings to gen-

erate, within a limited period of time, an arbitral award and 2) the effectiveness

of the arbitral award, i.e. the actual performance of the arbitral award by the

parties. As the parties do not always voluntarily comply with the arbitral

award, the effectiveness of the arbitral award supposes enforceability.

Both aspects of the effectiveness of the arbitral process pay tribute to the

legislative and judicial environment. Indeed, where the unhampered con-

fers to the need felt by State legislators to ‘protect judicial sovereignty … from the in-

creasing proliferation of private means of dispute resolution.’ As far as the development

of international commercial arbitration in Latin America is concerned, see B. M. Cre-

mades, ‘Overcoming the Clash of Legal Cultures: The Role of Interactive Arbitration’,

1998 Arb. Int’l, p. 157 et seq., at 171: ‘Voices had been raised against international

commercial arbitration as a threat to the state’s sovereignty.’ For a sociological analysis

of the decline of the theory of State sovereignty, see, for example, J. Chevallier, L’Etat

post-moderne (2003).

7 See, for example, R. David, L’arbitrage dans le commerce international (1982), at 75-76.

8 This autonomous body of rules is habitually referred to as lex mercatoria. On this issue,

see supra, Chapter 2, at 55.

9 See, for example, Chr. Seraglini, Lois de police et justice arbitrale internationale (2001), at

28: ‘Pour que l’arbitrage constitue un mode de règlement efficace des litiges du commerce inter-

national …il doit être doté d’une force contraignante prévisible. Un certain nombre d’attributs

lui sont alors indispensables … Or, l’institution arbitrale ne peut revêtir de tels attributs sans le

concours des Etats.’; W. M. Reisman, Systems of Control in International Adjudication and

Arbitration Breakdown and Repair (1992), at 107: ‘Private international commercial arbi-

tration depends, for its effectiveness, on substantial and predictable governmental and

intergovernmental support… parties are unlikely to invest the time and money neces-

sary to prosecute an arbitration if, upon award, the loser cannot be compelled to honor

it… There are many opportunities to frustrate an arbitration. National courts are the

critical defense line against such efforts.’

3Introduction

duct of the arbitral proceedings encounters an obstacle, the effectiveness of

the arbitral proceedings might require interference by the courts. Similarly,

where the parties do not voluntarily comply with the arbitral award, the

effectiveness of the arbitral award rests upon the courts’ willingness to en-

force it.10

Although, as we have mentioned, the academic discourse tends to overesti-

mate the independence of international commercial arbitration, it rightly

stresses the alteration of the nature of State interference with the arbitral

process. Indeed, as the ‘old judicial hostility to arbitration’11 declines, the

attitude of State legislators and courts increasingly witnesses an ‘emphatic…

policy in favor of arbitral dispute resolution.’12 The State courts’ interfer-

ence, in fact, is increasingly aimed at ensuring the effectiveness of the arbi-

tral process. In fact, during the arbitral proceedings, State courts tend to act

as mere ‘juges d’appui’,13 i.e. they intervene to the sole purpose of helping the

arbitral tribunal overcome possible procedural hurdles. As far as the enforce-

ability of the arbitral award is concerned, State courts exercise an increas-

ingly limited review of arbitral awards.

Conceptually, the pursuit of greater effectiveness of the arbitral process is

reflected by the ‘autonomy’ of international commercial arbitration.14

Rather than by a unique definition, the concept of the autonomy of interna-

tional commercial arbitration is best explained by way of reference to the

various aspects of this autonomy. One can, first of all, distinguish between

the different ‘levels’ of the autonomy of international commercial arbitra-

tion. These include the autonomy of the arbitration agreement, the auton-

omy of the arbitral proceedings, and the autonomy of the arbitral award. A

further distinction can be drawn according to the ‘nature’ of autonomy (the

nature of autonomy answers the question: vis-à-vis what is international

commercial arbitration autonomous?). Indeed, if the concept of autonomy

10 See, for example, M. Gaudet, ‘The Enforcement of Awards Relating to International

Trade’, in ICCA Congress series n° 6, p. 203 et seq., at 203: ‘The enforcement of the

award is the key to the effectiveness of arbitration.’

11 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614 (1985).

12 Scherck v. Alberto-Culver Co., 417 U.S. 506 (1974).

13 This French expression (literally: ‘supporting court’) expresses the idea that State courts

only interfere with the arbitral proceedings in order to assist arbitral tribunals. On this

question, see M. Rubino-Sammartano, International Arbitration Law and Practice, at 379.

14 On the concept of autonomy of international commercial arbitration, see, in general,

R. Goode, ‘The Role of the Lex Loci Arbitri in International Commercial Arbitration’,

2001 Arb. Int’l, p. 19 et seq.; J. L. Sequeiros, ‘Arbitral Autonomy and National Sover-

eign Authority in Latin America’, in T. E. Carbonneau (ed.), Lex Mercatoria and Arbi-

tration, p. 219 et seq.

4 Introduction

refers, in the first place, to the relationship between international commer-

cial arbitration and the State courts, it also describes the relationship be-

tween international commercial arbitration and domestic laws.15

This study argues that the growing autonomy of the arbitral process consti-

tutes the Leitmotiv of recent legislative developments in the field of interna-

tional commercial arbitration. Most scholarly writings, in fact, refer, in one

way or another, to the concept of autonomy.16 The increasing autonomy of

the arbitral process is, indeed, inherent to all theories or principles designed

to apply to international commercial arbitration. Whether it is the principle

of Kompetenz-Kompetenz, the principle of the separability of the arbitration

agreement, the concept of the juge d’appui, the prohibition of révision au

fond, the abolition of the double exequatur requirement, the recourse to mate-

rial rules of private international law, the tronc commun doctrine, the theory

of delocalisation or the doctrine of lex mercatoria, they all contribute to in-

creasing the autonomy of international commercial arbitration vis-à-vis

national courts and laws.

Focusing on the autonomy of international commercial arbitration, this

study necessarily covers a wide range of topics. Indeed, the question of the

relationship between arbitration and the State (courts and laws) – which the

concept of autonomy qualifies – arises in connection with all aspects of arbi-

tration. As we have mentioned, this question arises in relation to all stages

of the arbitral process (arbitration agreement, arbitral proceedings, arbitral

award) and lies in the heart of virtually all theories and principles elaborated

in the field. Each of these could be the topic of a doctoral dissertation.

Due to the breadth of the chosen subject, the positive law (‘black letter

law’) relating to the various legal issues falling under the scope of this study

cannot be dealt with in great detail. As the reader understands, this lack of

detail is intentional. It is, indeed, inevitable in a study aimed not at discuss-

ing a particular narrowly-framed or ‘specialised’ issue, but at explaining a

general trend or evolution, of which the narrowly-framed question is but one

particular manifestation.

15 Indeed, as we will see, both the law applicable to the merits of international disputes

(see infra, Chapter 2) and the law governing the enforcement of arbitral awards ren-

dered in such disputes (see infra, Chapter 5) become increasingly ‘internationalised’.

16 See, for example, J. Savage and E. Gaillard (eds.), Fouchard, Gaillard, Goldman on Inter-

national Commercial Arbitration, at 184 where the authors refer to the autonomy of arbi-

tral awards and specify that such autonomy is reflected by the inavailability of review on

the merits; H. G. Gharavi, The International Effectiveness of the Annulment of an Arbitral

Award, at 166 where the author explains that ‘[i]nternational commercial arbitration

has evolved towards a regime of autonomy’. Gharavi rightly draws the distinction be-

tween ‘autonomy vis-à-vis State authorities’ and ‘autonomy … vis-à-vis national laws’.

5Introduction

A – false – impression of incompleteness might also be gained with respect

to the scope of the legal comparison performed. Indeed, the study primarily

deals with the arbitration laws in force in Austria, England, Germany,

France, Italy, Switzerland, and the United States, with particular emphasis

laid – due to the author’s legal education –, on French law. One might argue

that the selection, inasmuch as it focuses on the laws of – mostly European –

industrialised nations, is not representative of arbitration law on a global

scale. While this is accurate, it is also true that the selected laws (especially

English, French, and Swiss law) have had, and still have, a considerable

impact on arbitration laws adopted world-wide. In addition, it must not be

forgotten that the law on international commercial arbitration has been

harmonised significantly through the adoption and wide recognition of the

UNCITRAL Model Law and the New York Convention, two instruments to

which particular attention is paid throughout this dissertation.

Relying on the observation that international commercial arbitration is

becoming increasingly autonomous, this thesis pursues a twofold objective.

First, it aims to establish the theoretical foundations, i.e. the legitimacy17 of

the growing autonomy of international commercial arbitration. Second, it

analyses the various levels of this autonomy, emphasis being laid on the

examination of the tools allowing the achievement of such increased auton-

omy. Some of these tools – and the underlying theoretical considerations –

stand in contradiction with traditional legal thinking in – and beyond – the

field of international commercial arbitration. As is illustrated, inter alia, by

the lex mercatoria debate, the relevance of the developments discussed in this

thesis considerably exceeds the scope of international commercial arbitra-

tion. In fact, they reflect, more generally, the way in which the law adapts to

the phenomenon of globalisation.18

In accordance with the objectives pursued, this dissertation is divided into

six Chapters. Chapter 1 examines the theoretical foundations and practical

manifestations of the increasing autonomy of international commercial

arbitration. Based on an analysis of the interests of the actors involved, it

establishes the legitimacy of this increasing autonomy. It also provides an

overview of the institutional framework of the pursuit of increased auton-

omy. Chapters 2 to 6 examine the different levels of autonomy. In light of

its particular significance and explanatory function with respect to the other

17 For the author’s understanding of the concept of ‘legitimacy’, see infra, Chapter 1, at 7.

18 On the legal aspects of globalisation, see, for example, E. Loquin and C. Kessedjian, La

Mondialisation du Droit (2000); J. Basedow and T. Kono (eds.), Legal Aspects of Global-

ization – Conflict of Laws, Internet, Capital Markets and Insolvency in a Global Economy

(2000); J. Wiener, Globalization and the Harmonization of Law (1999).

6 Introduction

aspects of the autonomy of international commercial arbitration,19 the

autonomy of the law applicable to the merits – strictly speaking an aspect of

the autonomy of the arbitral award –20 is examined first (Chapter 2). Chap-

ter 3 analyses the autonomy of the arbitral proceedings. Chapters 4 to 6

explore the autonomy of the arbitral award, i.e. the limited extent of judicial

review of arbitral awards. Chapter 4, examining the prohibition of révision au

fond and the limitation of the number of grounds invalidating arbitral

awards, focuses on the restricted ‘scope’ of such review. Chapter 5 argues

that international standards of enforcement progressively replace (purely)

domestic standards. Chapter 6 shows that court control of arbitral awards is

becoming increasingly ‘de-localised’ or ‘decentralised’, i.e. independent of

the judicial review exercised at the seat of the arbitral tribunal (also referred

to as ‘the country of origin’).

Introduction

19 As we will see, the lex mercatoria doctrine aims to unify and liberalise the substantive

law applicable to international commercial transactions. The objectives underlying

such unification and liberalisation can be (and have been) transposed to the procedural

level.

20 The acceptance of the recourse to lex mercatoria or transnational law is, indeed, an

aspect of the enforceability of arbitral awards.

7Foundations and manifestations of increasing autonomy

Chapter 1

Theoretical foundations and practical

manifestations of the increasing autonomy of

international commercial arbitration

Foundations and manifestations of increasing autonomy

This Chapter examines the theoretical foundations and practical manifesta-

tions of the increasing autonomy of international commercial arbitration.

Section I analyses the theoretical foundations of the autonomy of interna-

tional commercial arbitration. These theoretical foundations refer to the

legitimacy of the autonomy of international commercial arbitration. In order

to establish this legitimacy, this study resorts to an analysis of the interests of

the actors involved in international commercial arbitration. Viewing law as

a tool the primary function of which consists in serving the interests of soci-

ety (and, generally, in solving conflicts between contrasting interests), this

dissertation assumes that the legitimacy of a rule, solution or development

rests upon the ability of that rule, solution or development to best serve the inter-

ests of society (to achieve the most ‘equitable’ compromise between the competing

interests). The interest-analysis will reveal that the autonomy of interna-

tional commercial arbitration, insofar as it serves the interests of all actors

involved, constitutes a legitimate development. Section II, relying upon the

conclusions drawn in Section I, provides a general overview of the practical

manifestations of the autonomy of international commercial arbitration and,

more particularly, of the institutional framework of the pursuit of increasing

autonomy of international commercial arbitration.

I. The Legitimacy of the Autonomy of International Commercial

Arbitration: An Analysis of the Interests of the Actors

Involved

Legitimacy of the autonomy of international arbitration

International commercial arbitration involves the interests of 1) the inter-

national business community, 2) States, and 3) the legal profession. Indeed,

from an economic viewpoint, arbitration constitutes a service21 involving

21 Especially common lawyers emphasise this dimension of arbitration. See, for example,

R. Coulson, ‘Will the Growth of Alternative Dispute Resolution (ADR) in America be

Replicated in Europe?’, 9 J. Int. Arb. 3, p. 39 et seq., at 40: ‘… it is clear that private dis-

pute resolution services have become a business service’.

8 Legitimacy of the autonomy of international arbitration

the members of the legal profession (arbitrators, law firms, arbitration insti-

tutions) as service providers and international business operators as consum-

ers. The position of States and State legislators is more complex. On the one

side, they are anxious to protect vital public interests. On the other, the

prospective benefits deriving from the arbitration ‘business’ prompt them to

fulfil service provider functions.22

Section A examines the interests of the consumers of international com-

mercial arbitration. It should not be misunderstood as a reaffirmation of the

classical cliché according to which arbitration is necessarily ‘superior’ to or-

dinary litigation. Indeed, Section A argues that the superiority of arbitration

over ordinary litigation is, to a large extent, merely ‘potential’ and that the

achievement of such superiority relies upon the ability of the governing

normative framework to ensure the ‘effectiveness’ of arbitration. Section B is

intended to demonstrate that the development of international commercial

arbitration does not threaten, but serve State interests. Section C addresses

the profitability of international commercial arbitration for the legal profes-

sion.

A. Interests of the consumers of international commercial

arbitration: The potential ‘superiority’ of arbitration over

ordinary litigation

Arbitration is commonly viewed as offering the parties a number of substan-

tial advantages in comparison to litigation before the courts.23 The classical

For a more nuanced view, see J. Werner, ‘Who Controls Speed? A Few Reflections on

the Relationship between Parties and Arbitrators in ICC Arbitration’, in Davis,

Benjamin G.(ed.), Improving International Arbitration - Liber Amicorum Michel Gaudet,

International Chamber of Commerce, Paris, 1998, p. 99 et seq., at 101: ‘whereas the An-

glo-American legal tradition sees the arbitrator in the first place as a provider of ser-

vices, … the civil, and more particularly the French, legal tradition sees the arbitrator

endowed with jurisdictional functions akin to those of a court judge, with the conse-

quence that arbitrators are afforded the same respect as State court judges’.

22 See infra, at 21.

23 The advantageousness of arbitration constitutes a recurring feature of the literature on

the subject. See, for example, A. Redfern and M. Hunter, Law and Practice of Interna-

tional Commercial Arbitration, at 23; J. Savage and E. Gaillard (eds.), Fouchard, Gaillard,

Goldman on International Commercial Arbitration, at 1; G. Born, International Commercial

Arbitration in the United States (1994), at 5; H. M. Holtzmann and J. E. Neuhaus, A

Guide to the UNCITRAL Model Law on International Commercial Arbitration, at 3;

P. Sanders, Quo Vadis Arbitration Sixty Years of Arbitration Practice, pp. 2-6.

9Foundations and manifestations of increasing autonomy

advantages of arbitration include speed,24 cost-efficiency,25 confidentiality,26

flexibility and neutrality.27

However, some writers express doubts as to the advantageousness of arbitral dispute

resolution. See, in particular, K. P. Berger, International Economic Arbitration, at 5 refer-

ring to the ‘often-cited but sometimes overestimated greater attractiveness of interna-

tional economic arbitration’ (footnote omitted); M. Kerr, ‘Arbitration v. Litigation, the

Macao Sardine Case’, 15 Int’l. Bus. Lawy. 4, p. 152 et seq.

24 Legal writers concord to affirm the relevance of speed in international commercial

arbitration. See, for example, R. Amoussou-Guénou, ‘L’émergence d’un besoin de rapid-

ité : la réponse des législations modernes relatives à l’arbitrage, des tribunaux nationaux

et des Etats’, in Davis, Benjamin G.(ed.), Improving International Arbitration - Liber

Amicorum Michel Gaudet, International Chamber of Commerce, Paris, 1998, p. 158 et seq.;

R. H. Kreindler, ‘Speedier Arbitration as a Response to Changes in World Trade: a

Necessary Goal or a Threat to the Expectations of the Parties?’, in Davis, Benjamin

G.(ed.), Improving International Arbitration - Liber Amicorum Michel Gaudet, International

Chamber of Commerce, Paris, 1998, p. 180 et seq.; A. I. Okekeifere, ‘Commercial Arbi-

tration as the Most Effective Dispute Resolution Method – Still a Fact or Now a Myth?’,

15 J. Int. Arb. 4, p. 81 et seq.; M. Rubino-Sammartano, ‘The Arbitrator’s Role in Secur-

ing Speed in Arbitration’, in Davis, Benjamin G.(ed.), Improving International

Arbitration - Liber Amicorum Michel Gaudet, International Chamber of Commerce, Paris,

1998, p. 147 et seq.

25 See, in general, M. O’Reilly, Costs in Arbitration Proceedings (1995); M. E. Schneider,

‘Lean Arbitration: Cost Control and Efficiency Through Progressive Identification of

Issues and Separate Pricing of Arbitration Services’, 1994 Arb. Int’l, p. 119 et seq.;

K. Wilson, ‘Saving Costs in International Arbitration’, 1990 Arb. Int’l, p. 151 et seq.

On the difficulties of ensuring cost-efficiency in the particular context of maritime

arbitration, see M. A. Van Gelder, ‘Maritime Arbitration: Quo Vadis? Have Delays and

Costs Caused us to Lose the Way?’ 12 J. Int. Arb. 1, p. 79 et seq.

26 See, in general, M. Collins, ‘Privacy and Confidentiality in Arbitration Proceedings’,

1995 Arb. Int’l, p. 321 et seq.; P. Neill, ‘Confidentiality in Arbitration’, 1996 Arb. Int’l,

p. 287 et seq.; L. E. Trakman, ‘Confidentiality in International Commercial Arbitra-

tion’, 2002 Arb. Int’l, p. 1 et seq. For sceptical views as to the confidentiality of arbitral

dispute resolution, see L. Y. Fortier, ‘The Occasionally Unwarranted Assumption of

Confidentiality’, 1999 Arb. Int’l, p. 131 et seq.; J. Paulsson and N. Rawding, ‘The Trou-

ble with Confidentiality’, 1995 Arb. Int’l, p. 303 et seq.

27 When speaking of the neutrality of arbitration, one habitually refers to the neutrality of

the decision-making authority or the applicable procedural rules, i.e. to the procedural

aspect of neutrality. On this issue, see infra, at 18. Substantive neutrality relates to the

neutrality of the applicable substantive rules. On this aspect of neutrality, see infra,

at 13. The achievement of substantive neutrality is the underlying objective of legal

unification and the lex mercatoria doctrine. On these questions, see infra, Chapter 2.

10 Legitimacy of the autonomy of international arbitration

However, arbitration is not inherently ‘superior’ to ordinary litigation.28

Indeed, as we have seen, the effectiveness of the arbitral process relies, in

part, on the governing normative framework.29 Arbitration should, there-

fore, rather be viewed as a ‘potentially’ advantageous means of dispute reso-

lution.

This Section is aimed at examining the potentiality of arbitral dispute reso-

lution in light of the insufficiencies of ordinary litigation. A distinction can

be drawn between the general deficiencies of ordinary litigation, i.e. essen-

tially its slowness, and its inability to respond to the ‘specific needs’ of inter-

national commercial dispute resolution.

1. Arbitration as a more expeditious dispute settlement modus

The main deficiency of State court litigation lies in its slowness. This slow-

ness derives from several factors. It is due, first of all, to a drastic increase of

the State courts’ case-load. The overburdening of State courts has led to

considerable delay in the adjudication of cases.30 The slowness of ordinary

litigation also stems from the extensive availability of means of recourse,

substantially prolonging the adjudicatory process. Indeed, most legal systems

provide for a two-level review of judgments consisting of an appeal from the

initial judgment (Berufungsbeschwerde, appel) and a further appeal from the

judgment rendered by the appellate jurisdiction (cassation appeal, pourvoi en

cassation). The initial appeal involves a time-consuming review on the mer-

its (révision au fond) of the decision, i.e. on the facts and the law.31 If this

extensive judicial review aims to ensure the fairness (or ‘rightness’) of judi-

28 That the ‘superiority’ of arbitration depends on various factors including the applicable

arbitration laws is argued, for example, by M. Wang, ‘Are Alternative Dispute Resolu-

tion Methods Superior to Litigation in Resolving Disputes in International Com-

merce?,’ 2000 Arb. Int’l, p. 189 et seq.

29 See supra, Introduction, at2-3.

30 See, as far as the United States are concerned, P. H. Lindblom, ‘The Privatization of

Justice: Some Aspects of Recent Developments in American and Swedish Procedural

Law’, in M. Sumampouv and others (eds.), Law and Reality – Essays on National and In-

ternational Procedural Law in Honour of Cornelius Carel Albert Voskuil, p. 199 et seq., at

203 where the author refers to the 1991 fact sheet ‘The President’s council on competi-

tiveness, Agenda for civil justice reform in America’ of the American Bar Association.

According to this document, Federal district court filings have increased almost 300%

over the last 30 years and, as a consequence, delays of 3 to 5 years are not uncommon.

See also M. Rubino-Sammartano, ‘Is Arbitration to be Just a Luxury Clinic?’, 7 J. Int.

Arb. 3, p. 25 et seq., at 27; M. Wang, op. cit.

31 The subsequent appeal is generally confined to the sole legal issues.

11Foundations and manifestations of increasing autonomy

cial decisions and uniformity of the law, it also considerably lengthens the

litigation process.

Moreover, the parties are increasingly inclined to exercise the available

means of recourse. This increasing willingness to challenge State court

judgements reflects the progressively declining acceptance of these judge-

ments by the parties. Indeed, on the one side, the time-constraints faced by

State courts cast doubts on their ability to adequately solve international

commercial disputes of growing technical and legal complexity. On the

other side, State court judgements, insofar as they are an expression of the

State’s sovereign powers, do not encounter the same degree of acceptance as

decisions rendered in the framework of a private dispute settlement modus.

Recourse to arbitration allows litigating parties to increase the celerity of the

adjudicatory process. Indeed, while some aspects of arbitral dispute resolu-

tion – such as the enforceability of arbitral awards – are situated outside the

sphere of party-autonomy, others and, in particular, the expeditiousness of

the procedure, largely lie in the hands of the parties. The parties are, indeed,

free to tailor the arbitral procedure according to their needs and preferences.

They might, for example, agree on time-limits for the accomplishment of

the various steps of the procedure, including the rendering of the arbitral

award. Recourse to arbitration also allows the parties to have the dispute

submitted to individuals which they select, inter alia, in consideration of

their availability. All of these factors constitute an incentive for the parties

to voluntarily comply with the arbitral award.32

2. Arbitration as a means to respond to the specific normative needs of

international commercial dispute resolution

The specific normative needs of international commercial dispute resolution

comprise substantive needs, i.e. the needs of international commerce, and

procedural needs, i.e. needs related to the resolution of disputes. The exis-

tence of specific substantive normative needs has served as the theoretical

32 See G. R. Delaume, ‘Reflections on the Effectiveness of International Arbitral Awards’,

12 J. Int. Arb. 1, p. 5 et seq., at 5 where the author recalls the traditional view according

to which the ‘overwhelming majority’ of arbitral awards are voluntarily complied with.

Although this view is contradicted by the current phenomenon of ‘judicialisation’ of

international commercial arbitration, Delaume rightly emphasises that ‘spontaneous

compliance with the award can be attributed to the parties’ conviction that they have

been fairly treated and have no valid reason to complain.’ See also M. Gaudet, ‘The En-

forcement of Awards Relating to International Trade’, in ICCA Congress series n° 6,

p. 203 et seq., at 203.

12 Legitimacy of the autonomy of international arbitration

basis for the doctrine of lex mercatoria.33 It also underlies the dualistic legisla-

tive approach, i.e. the approach characterised by the adoption of separate

sets of rules applying to domestic and international arbitration.34

Although the specificity of the normative needs of international commerce

is rarely challenged, the question of the consistency of these needs has sel-

dom – or never – been addressed. In an attempt to fill this gap, this Section

suggests a definition of the specific needs of international commerce. To this

purpose, it examines, in the first place, the meaning(s) of the concept of

internationality. On the basis of this examination, it argues that the specific

substantive needs essentially consist of 1) ‘substantive neutrality’ and 2)

party-autonomy. This Section further discusses the procedural needs of in-

ternational commercial dispute resolution (mainly ‘procedural neutrality’).

It aims to show how recourse to arbitration allows both substantive and

procedural needs to be adequately addressed.

a. The concept of internationality

The practical relevance of the concept of internationality lies essentially in

the applicability of rules specifically designed to govern international legal

relationships. Such rules comprise conflict of laws conventions,35 uniform

laws, and other instruments specifically governing international legal rela-

tionships. In other words, the definition of ‘internationality’ is aimed at

framing the factual circumstances that call for the application of specific

rules. Traditional definitions of internationality rely either on ‘legal’ criteria

(better: criteria related to the identity of the parties) or ‘economic’ criteria

(better: criteria related to the characteristics of the transaction). Legal crite-

ria of internationality include the parties’ nationality, habitual residence or

domicile. Economic criteria comprise the place of conclusion and the place

or places of performance of the agreement. In practice, reliance on legal

33 See infra, Chapter 2.

34 See infra, Chapter 5.

35 This explains why internationality has often been assimilated to the existence of a

conflict of laws. Indeed, it is traditionally considered that contracts giving rise to a con-

flict of laws are international contracts. Today, however, this view is controversial. In-

deed, the scope of the 1980 Rome Convention on the Law Applicable to Contractual

Obligations is generally not considered to be confined to international contracts, even

though such a confinement is argued by authoritative writers. See, especially, the

‘Giuliano-Lagarde report’, [1980] O.J. C282, p. 1 et seq., at 10.

13Foundations and manifestations of increasing autonomy

criteria is generally preferred.36 However, economic criteria are also – some-

times implicitly – called upon.37

Some writers distinguish between ‘objective’ internationality and ‘subjec-

tive’ internationality38. While objective internationality refers to interna-

tionality deriving from the application of the legal and/or economic criteria

outlined above, subjective internationality relates to the extranéité (‘foreign-

ness’) of the contract (or dispute) from the point of view of the judge. Ac-

cording to this definition, all legal relationships are likely to be (or become)

subjectively international. Indeed, an objectively domestic dispute may,

through its submission to the courts of a foreign State, become subjectively

international. Subjective internationality does not reflect factual circum-

stances warranting the application of specific rules. It is, therefore, more

accurately referred to as ‘foreign from the point of view of the court’.

b. ‘Neutrality’ of the applicable substantive law (substantive neutrality)

Neutrality is often quoted as the principal advantage inherent to arbitral

dispute resolution. Speaking of neutrality, one usually refers to ‘procedural’

neutrality and, in particular, to the neutrality (or impartiality) of the deci-

sion-making authority, i.e. of the arbitrators. Neutrality does, however, also

play a significant role at the substantive level.

i) Substantive neutrality in general

By substantive neutrality one refers to the fact that the parties are, as far as

the selection of the applicable substantive law is concerned, ‘set on an equal

footing’. Substantive neutrality implies, in other words, that the selection of

the applicable substantive law does not contravene the principle of equality

of the parties. More than to the actual impact of the application of a particu-

lar law on the parties’ rights and duties, substantive neutrality relates to

equal predictability of the applicable substantive law. In fact, the internation-

36 See, for example, Article 1 of the Convention on the International Sale of Goods

(CISG), Article 2 of the Convention on Agency in the International Sale of Goods,

and Article 1 of the Convention on the Law Applicable to Contracts for the Interna-

tional Sale of Goods.

37 See, for example, Article 1 of the 1980 Rome Convention on the Law Applicable to

Contractual Obligations, and Article 1 of 1978 Convention on the Law Applicable to

Agency.

38 On this distinction, see P. Mayer, Droit international privé, at 11.

14 Legitimacy of the autonomy of international arbitration

ality of an agreement, especially where this internationality is based upon

‘legal’ criteria of internationality, threatens equal predictability. Indeed,

where a contract involves, for example, a party domiciled or residing in

State A and a party domiciled or residing in State B, the application of the

law of either of the parties undermines equal predictability.

One possible remedy to the problem of substantive neutrality consists in the

application of the law of a third country (a ‘third law’). A French manufac-

turer and a German distributor might, for example, agree on the application

of English law. If such choice-of-law-clauses are not infrequently encoun-

tered in contractual practice, they are nevertheless often considered as an

undesirable compromise. Indeed, the selection of a third law, rather than en-

suring the parties’ equal ‘familiarity’ with the applicable substantive law,

leads to the parties’ equally limited knowledge of that law. Moreover, from a

practical perspective, some legal systems might not recognise the validity of

a choice-of-law clause selecting the law of a country to which the contract

bears no material connection.39

The ‘dilemma’ of substantive neutrality is rooted in the substantial differ-

ences distinguishing the laws of the legal systems to which the parties per-

tain. If, in fact, the domestic laws of State A and State B were identical, it

would be irrelevant whether the laws of State A or those of State B apply.

The achievement of substantive neutrality therefore requires uniformity of

the law. This explains why international law-making efforts in the field of

international commerce traditionally focus on the unification of the law.

ii) Substantive neutrality in international commercial arbitration

International commercial arbitration, relying on doctrinal suggestions and

practical necessities, has been able to solve the ‘dilemma’ of substantive

neutrality. Indeed, international commercial arbitration has been able to

provide litigating parties with an increasingly unified legal framework. This

is essentially due to the fact that arbitrators, contrary to State court judges,

39 Most legal systems have traditionally been reluctant to admit such choice-of-law

clauses. This reluctance still characterises the laws of some countries. In the United

States, for example, a choice-of-law is apparently only valid where the chosen law has

some relationship with the parties or the transaction. On the position in American law,

see Scoles and Hay, p. 660 et seq. quoted by J. Collins (ed.), Dicey & Morris on The Con-

flict of Laws, Vol. 2, at 1212. Today, however, the parties’ right to choose the law of a

country to which the contract bears no connection is widely admitted. It is notably rec-

ognised by the 1980 Rome Convention.

15Foundations and manifestations of increasing autonomy

are not under the classical duty to ‘apply the law’.40 Indeed, while State

courts necessarily apply domestic laws (either the domestic law of the forum

or, under application of the forum’s conflict of laws rules, the domestic law

of a foreign State), arbitrators have progressively freed themselves from the

constraints of domestic laws.41 This departure from domestic laws has facili-

tated legal unification.

A key-role in the achievement of substantive neutrality has been played by

the doctrine of lex mercatoria. This doctrine argues the existence (or progres-

sive elaboration) of a body of rules – consisting mainly of general principles

of law and trade usages – specific to international commercial transactions.

As such, lex mercatoria constitutes a uniform set of rules. The acceptance of

the lex mercatoria doctrine was facilitated by the trend towards delocalisa-

tion42 – and, in particular, legislative delocalisation – of international com-

mercial arbitration. Legislative delocalisation has, in fact, allowed arbitrators

to depart not only from the substantive, but also from the conflict of laws

rules of the arbitral seat.

Rather than to a well-established comprehensive set of rules, lex mercatoria

refers to a still unaccomplished process of ‘codification’. The difficulties

associated with the elaboration – or identification – of uniform rules at the

international level have prompted arbitrators to pursue uniformity at the

level of the particular legal relationship at stake. This pursuit has led to the

elaboration of the tronc commun doctrine. Under this doctrine, the arbitrator

applies rules that are common to the legal systems to which the parties

pertain.43

If the arbitrator has played a major role in the achievement of substantive

neutrality, it must not be forgotten that he is, above all, an agent of the

parties and that, as a consequence, his powers derive from the will of the

40 In this sense, see, for example, K. S. Carlston, ‘Psychological and Sociological Aspects

of the Judicial and Arbitration Processes’, in International Arbitration Liber Amicorum for

Martin Domke, p. 44 et seq., at 48: ‘The arbitrator is expected to take cognizance of the

law and to show respect for the law in his decision. He is not, however, the judge who is

required to apply only the law in reaching his decision.’ See also P. Mayer, ‘Reflections

on the International Arbitrator’s Duty to Apply the Law – The 2000 Freshfields Lec-

ture’, 2001 Arb. Int’l, 235 et seq.

41 See F. Gélinas, ‘Arbitration and the Challenge of Globalization’, 17 J. Int. Arb. 4,

p. 117 et seq., at 122: ‘International arbitrators have gradually freed themselves from

their traditional obligation to refer to national laws, including conflict of law provi-

sions, when parties to an arbitration have not agreed upon the law governing their in-

ternational contract’ (footnote omitted).

42 See infra, Chapters 5 and 6.

43 See infra, Chapter 2, at 76.

16 Legitimacy of the autonomy of international arbitration

parties. The arbitrator cannot (or should not), indeed, act against the will of

the parties. He cannot, for example, choose to apply lex mercatoria where the

parties have expressly submitted the dispute to French or English law.

Rather than on arbitral discretion, the achievement of substantive neutrality

thus relies on the recognition of increased party-autonomy with regard to

the selection of the applicable law.

c. Party-autonomy44

In addition to substantive neutrality, international commercial contracts

also require the recognition of an extensive scope of party-autonomy. Con-

trary to substantive neutrality – which characterises the relationship estab-

lished between the parties – party-autonomy pertains to the relationship

between the State(s), on the one side, and the parties, on the other. Indeed,

party-autonomy can be defined as the parties’ ability to freely shape their con-

tractual relationship. This freedom supposes a reduced extent of interference

(or regulation) by the State. This interference is generally intended to rem-

edy contractual disequilibria, i.e. to protect ‘weaker’ parties such as consum-

ers or workers. Recently, the German Federal Constitutional Court has

qualified the elimination of contractual disequilibria as the ‘main task of

civil law’.45

Party-autonomy, like the more general concept of autonomy, comprises two

aspects. Indeed, party-autonomy refers not only to a need felt by interna-

tional business operators, but also to the decreased legitimacy (or necessity)

of State interference. Both aspects can be encountered in international

commercial arbitration. Indeed, State legislators and courts are willing to

recognise the increased party-autonomy claimed by the parties to interna-

tional commercial disputes.

44 On the fundamental role party-autonomy plays in the context of international commer-

cial arbitration see, in general, K. P. Berger, ‘Party Autonomy in International Eco-

nomic Arbitration: A Reappraisal’, 1993 Am. Rev. Int’l. Arb., p. 1 et seq.; St. R. Bond,

‘Party Autonomy: The Choice of Place’, 1992 Arb. Int’l, p. 83 et seq. On the possible

conflict between party autonomy and State interests see, for example, M. Blessing,

‘Mandatory Rules of Law versus Party Autonomy in International Arbitration’, 14 J.

Int. Arb. 4, p. 23 et seq., K. H. Böckstiegel, ‘The Recognition of the Principle of Party

Autonomy in International Arbitration: Treaties, National Legislation, Courts’, Ad-

dress presented at the 13th Joint Colloquium of the ICC International Court of Arbitra-

tion, AAA and ICSID at New York, 15 November 1996.

45 BVerfG 89, p. 214 et seq, at 231, referred to by K. P. Berger, The Creeping Codification of

the Lex Mercatoria, at 15.

17Foundations and manifestations of increasing autonomy

The recognition by the State of an enlarged scope of party-autonomy relies

on both the commercial character and the internationality of the underlying

legal relationships. As far as the commercial character of international

commercial transactions is concerned, one must remember that these trans-

actions are generally characterised by the equal bargaining powers of the

parties. This equality explains the limited need for interference by the State

and the resulting ‘classical’ autonomy of commercial law. This autonomy

relates to both the sources and dispute settlement mechanisms of commer-

cial law. Indeed, while on the one hand, commercial law consists to a large

extent of – codified – trade usages and practices, on the other, commercial

courts are generally comprised of members of the business community rather

than of professional judges.

As to the internationality of international commercial transactions, it also

generates specific needs. First of all, domestic contracts do not (classically)

give rise to a conflict of laws, i.e. they do not involve a choice-of-law by the

parties.46 In an international contract, on the contrary, the parties’ freedom

to select the applicable law is, especially in light of the requirement of sub-

stantive neutrality, of fundamental importance. Moreover, domestic con-

tracts do not generally call for dispute resolution through arbitration. In-

deed, several of the main advantages of arbitration (especially procedural

and substantive neutrality) are limited to international dispute resolution.

The Internationality of a contract also raises the question of the currency of

payment. The parties might, for example, want payment to be performed in

a foreign currency, i.e. in a currency that differs from the currency of the

place of performance. In all these cases, parties expect restrictive domestic

provisions not to be applicable.

The necessity of increased party-autonomy also results from the growing

complexity of international commercial contracts.47 The emergence of ‘com-

plex contracts’ is due to ‘the technical, economic and social development of

the last one hundred years’.48 According to Frick, the ‘tremendous increase

in technical and scientific knowledge and feasibility on the one hand and

[the] enormous specialization of companies on the other hand’ have caused

‘more and more projects [to] become so complex that they cannot be under-

taken by a single, even large company.’49 Complex international contracts

are typically associated with special problems for which domestic laws do not

provide appropriate answers. Indeed, as Frick has demonstrated, domestic

46 In recent times, however, this view is becoming increasingly controversial.

47 See, in particular, J. G. Frick, Arbitration and Complex International Contracts (2001).

48 See J. G. Frick, op. cit., at 3.

49 Ibid.

18 Legitimacy of the autonomy of international arbitration

laws traditionally focus on exchange or ‘discrete’ contracts and neglect com-

plex or ‘relational’ contracts.50

Another factor reducing the legitimacy of interference by the State consists

in the internationality of international commercial transactions. Indeed,

international legal relationships, by definition, involve nationals of different

States and/or the territories of different States. Nationality and territoriality

are, according to classical public international law doctrine, the two bases of

the State’s sovereign powers (and, most importantly, its legislative and judi-

cial competence). The internationality of a legal relationship therefore leads

to a fragmentation or division of such powers between the various States

involved. As a result, each individual State only has a limited interest in

‘controlling’ international legal relationships.

d. Procedural neutrality

i) Procedural neutrality in general

Procedural neutrality can be defined as the fact that the conduct of the arbitral

proceedings does not violate the principle of equality of the parties. Procedural

neutrality embraces two components. The first component of procedural

neutrality consists in the neutrality of the applicable procedural rules (pro-

cedural neutrality stricto sensu). Procedural neutrality stricto sensu must be

understood as equality between the parties with respect to knowledge of, and

familiarity with, the applicable procedural rules.

The second component of procedural neutrality relates to the neutrality of

the adjudicating authority, i.e. the neutrality of the arbitrator/s (adjudica-

tory neutrality). Adjudicatory neutrality essentially refers to impartiality and

independence vis-à-vis the parties.51 One particular aspect of impartiality

and independence relates to the nationality of the arbitrator or to his/her

50 The distinction between ‘discrete’ and ‘relational’ contracts has been suggested by

American scholars. See, in particular, I. R. Macneil, ‘Economic Analysis of Contractual

Relations’, 75 Northwestern U. L. Rev. 1981, p. 1018 et seq.; I. R. Macneil, ‘Widerstände

gegen die Idee des komplexen Langzeitvertrages’, in Der komplexe Langzeitvertrag, Hei-

delberger Kolloquium Technologie und Recht 1986, p. 225 et seq.

51 Some writers view neutrality of the adjudicatory body as the main rationale of recourse

to arbitration in international disputes. See, for example, E. A. Schwartz, ‘Reconciling

Speed with Justice in International Arbitration’, in Davis, Benjamin G.(ed.), Improving

International Arbitration - Liber Amicorum Michel Gaudet, International Chamber of

Commerce, Paris, 1998, p. 44 et seq., at 44. On adjudicatory neutrality in general, see

W. W. Park, ‘Neutrality, Predictability and Economic Co-operation’, 12 J. Int. Arb. 4,

p. 99 et seq.; A. S. Rau, ‘On Integrity in Private Judging’, 1998 Arb. Int’l, p. 115 et seq.

19Foundations and manifestations of increasing autonomy

‘cultural neutrality’. According to Park, this neutrality can be defined as

‘reversibility’. Park rightly argues that ‘[a]n adjudication process is neutral if

the parties’ nationalities could be reversed (French plaintiff becomes Ameri-

can, and American defendant becomes French) without changing the result

in the case.’52 In international litigation, cultural neutrality cannot easily be

ensured. Indeed, the rules on international procedure generally allocate

jurisdiction to the courts of the country of one of the parties involved. Simi-

larly, forum-selection clauses habitually refer to the courts of the country of

one of the parties.

Specific problems with regard to adjudicatory neutrality arise where State

interests are involved. In such circumstances, the courts’ independence vis-

à-vis the national government is, indeed, subject to doubts. Due to the de-

velopment of State contracts, i.e. contracts concluded between a State or

State entity and a private party, this problem of independence has gained

increasing practical significance. The striking contractual disequilibrium

associated with the submission of disputes to the courts of the State party

explains the international business community’s efforts to have States accept

the necessity of arbitral dispute resolution.

Procedural neutrality can be achieved by submitting disputes to the courts of

a third country.53 However, this option entails several disadvantages. First,

the validity of such a choice-of-forum clause is not unanimously admitted –

although international conventions tend to recognise the parties’ right to

select a forum deprived of any objective link with the dispute –54 and the

designated courts could decline jurisdiction. Second, litigation before for-

eign courts implies several practical inconveniences such as the conduct of

the proceedings in the local language, the lack of familiarity with the proce-

dural rules, and the need to resort to local counsel.

52 See W. W. Park, op. cit., at 103.

53 Even in international arbitration the parties frequently choose to have the arbitration

conducted in a third country. On this point, see Y. Derains, ‘France as a Place for Inter-

national Arbitration’, in J. Schultsz and A. J. Van den Berg (eds.), The Art of Arbitra-

tion, p. 111 et seq., at 111.

54 This is the case of the 1968 Brussels Convention on Jurisdiction and the Enforcement

of Judgments in Civil and Commercial Matters). For commentary, see especially

H. Gaudemet-Tallon, Les Conventions de Bruxelles et Lugano, at 88 where the author

emphasises the possibility, for the parties, to attribute jurisdiction to the courts of a

State to which the legal relationship at issue is not ‘objectively connected’.

20 Legitimacy of the autonomy of international arbitration

ii) Procedural neutrality in international commercial arbitration

Recourse to arbitration allows improvement of both aspects of procedural

neutrality. As far as procedural neutrality stricto sensu is concerned, the par-

ties have the possibility to tailor their ‘own’ procedural rules or to refer to

‘neutral’ institutional rules. Institutional rules are neutral insofar as they do

not generally reflect the particularities of a given domestic legal system.55

They are also minimalistic, i.e. they do not, for example, prescribe the way

in which hearings are to be conducted or evidence is to be taken. This

leaves considerable leeway to the parties and, in practice, to the arbitral

tribunal. Through their procedural decisions or orders, arbitral tribunals

perform a normative function.

This normative role of arbitral tribunals has initiated a process of unification

of the conduct of international arbitration proceedings. One essential fea-

ture of this process consists in the reconciliation of different approaches, in

particular those followed in civil law systems on the one side and common

law systems on the other. It eventually leads, as some argue, to the creation

of a ‘common law of procedure’ or a ‘procedural lex mercatoria’.56 This

common procedural law arguably ‘combine[s] the best elements of both legal

systems while avoiding their pitfalls.’57

Recourse to arbitration also favours adjudicatory neutrality. It allows the

achievement of both cultural neutrality and, where State interests are in-

volved, independence vis-à-vis the State concerned. Recourse to arbitration,

indeed, enables the parties to submit their dispute to an individual(s) who is

(are) a national of a ‘third’ State. Adjudicatory neutrality does not clash

with the practice according to which the parties, where they decide to sub-

mit the dispute to a three-member arbitral tribunal, each select an arbitrator

who shares their nationality. Adjudicatory neutrality is, in fact, ensured

through the selection of the presiding arbitrator. Institutional rules generally

require presiding (or sole) arbitrators not to have the same nationality as any

of the parties involved.58

55 This is, in particular, the case of the UNCITRAL Arbitration Rules (see infra, at 28.)

and of the ICC Rules.

56 See A. F. Lowenfeld, ‘International Arbitration as Omelette: What Goes into the Mix’,

in Conflicting Legal Cultures in Commercial Arbitration Old Issues and New Trends, p. 19

et seq., at 24.

57 See S. Lazareff, ‘International Arbitration: Towards a Common Procedural Approach’,

in Conflicting Legal Cultures in Commercial Arbitration, p. 31 et seq., at 31. The same

opinion is expressed by M. Kerr, ‘Concord and Conflict in International Arbitration’,

1997 Arb. Int’l, p. 121 et seq., at 126.

58 See, as far as ICC arbitration is concerned, Article 9(5) of the ICC Rules.

21Foundations and manifestations of increasing autonomy

B. State interests: Benefits derived from the development of arbitral

dispute resolution

1. Alleviation of the onus on the overburdened State courts and the

economic benefits associated with arbitration

The fact that most State court systems are overburdened is undeniable. The

development of arbitral dispute resolution is, therefore, warmly welcomed by

State legislators. As Böckstiegel rightly observes,

‘The case load of national courts has increased in many countries to such an

extent that the feeling of competition which national judges used to have

sometimes towards arbitration has turned into a sigh of relief by the courts

with regard to any case which they do not have to take up because it is sub-

jected to arbitration’ (footnote omitted).59

However, this transfer of one portion of litigation from State courts to arbi-

tral tribunals has, in the past, encountered fierce resistance.60 In fact, it was

considered both a threat to State sovereignty and a step towards ‘lawless-

ness’. Indeed, on the one side, arbitral dispute resolution calls into question

the State’s classical monopoly of the administration of justice. On the other

side, arbitrators have, in the past, often been considered as poorly qualified

and ‘not well enough acquainted with the principles of law or equity, to

administer either effectually in complicated cases’.61 Such apprehensions are

rare today, except as far as recent developments, especially in the field of

59 See K.-H. Böckstiegel, ‘The Role of National Courts in the Development of an Arbitra-

tion Culture’, in ICCA Congress series n° 8, p. 219 et seq., at 224. For a similar view, see

A. Berlinguer, ‘Impartiality and Independence of Arbitrators in International Practice’,

1995 Am. Rev. Int’l. Arb., p. 339 et seq., at 339: ‘[arbitration] has relieved overcrowded

court dockets’.

60 See, for example, the opinion of Justice Blackmun in Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614 (1985) quoted by G. Born, International Commer-

cial Arbitration in the United States (1994), at 354: ‘… national courts will need to “shake

off the old judicial hostility to arbitration,” and also their customary and understandable

unwillingness to cede jurisdiction of a claim arising under domestic law to a foreign or

transnational tribunal.’

61 See Tobey v. County of Bristol et al., 23 Fed. Cas. 1313, 1321-23 (CCD. Mass. 1845)

referred to by M. Rubino-Sammartano, International Arbitration Law and Practice, at 6.

On judicial hostility towards arbitration in general, see D. Roebuck, ‘The Myth of Judi-

cial Jealousy’, 1994 Arb. Int’l, p. 395 et seq., esp. at 403.

22 Legitimacy of the autonomy of international arbitration

arbitrability, are concerned.62 This is largely due to the fact that State courts

still have ‘the last word’. The availability of means of recourse against arbi-

tral awards is, indeed, quasi-unanimously affirmed.63

If the alleviation of the burden on State court systems contributes to con-

taining the State justice budget, the growing popularity of arbitral dispute

resolution also yields direct economic benefits. In fact, the conduct of arbi-

tral proceedings on the territory of a given State is a source of substantial

income for that State. The profitability of arbitration for the hosting State

results from the various expenses associated with the conduct of arbitral

proceedings such as hotel costs, the rental of conference rooms and equip-

ment, disbursements related to translation and other supporting services.

Having understood that arbitration is a lucrative business, most State legisla-

tors have entered into a genuine legislative competition to attract the great-

est possible number of arbitral proceedings.64 This legislative intent is well

illustrated by the travaux préparatoires and parliamentary debates relating to

recently adopted arbitration statutes.65 The struggle for an increased portion

in the arbitration market has sometimes led State legislators to adopt exces-

sively liberal arbitration statutes. Some countries have, in fact, excluded

judicial control of arbitral awards, either by ex lege effect or on the basis of

an agreement between the parties.66 The extensive scope of application of

62 See especially the sharp criticisms of the Mitsubishi decision expressed by T. E. Carbon-

neau, ‘The Exuberant Pathway to Quixotic Internationalism: Assessing the Folly of

Mitsubishi’, 19 Vand. J. Trans. L. (1986), p. 263 et seq.; J. Werner, ‘Application of

Competition Laws by Arbitrators – The Step Too Far’, 12 J. Int. Arb. 1, p. 21 et seq.

63 See infra, Chapter 4.

64 On the legal problems of legislative competition in the field of international commer-

cial arbitration, see K. P. Berger, International Economic Arbitration, pp. 7-13. For a de-

tailed account of the motivation underlying the adoption of recent arbitration Statutes,

see A. L. Marriott, ‘Pros and Cons of More Detailed Arbitration Laws and Rules’, in

ICCA Congress series n° 7, p. 65 et seq., at 66-67.

65 In England, for example, enactment of the 1979 Arbitration Act was expected to yield

an increase in revenues of about 500 million £. See W. L. Craig, W. W. Park and

J. Paulsson, International Chamber of Commerce Arbitration, at 467 (citing Lord Cullen

Ashborne). See also Lord Mustill, ‘A New Arbitration Act for the United Kingdom?

The Response of the Departmental Advisory Committee to the UNCITRAL Model

Law’, 1990 Arb. Int’l, p. 3 et seq., at 19 where the author refers to the need of ‘keeping

in step with international trends in arbitration law’.

66 In Belgium, prior to the reform of 19 May 1998, recourse against arbitral awards was

excluded where the dispute had no objective link with Belgium. Under the current re-

gime, the exclusion of all means of recourse requires an agreement by the parties (a so-

called exclusion agreement). This is also the position taken in Swiss arbitration law. For

23Foundations and manifestations of increasing autonomy

some international arbitration statutes and the phenomenon of agreed in-

ternationality further illustrate this tendency.67

2. The Growth of international commerce and the preservation of global

peace

In his welcoming letter addressed to the participants of ICCA’s eighth con-

gress, Ronald Reagan, then President of the United States, wrote:

‘Today, world trade has increased to a level requiring a more expansive and

effective system for dispute resolution. In promoting and developing such a

system, international arbitrators can help to lessen conflict, promote har-

mony, and bring world peace closer to fulfilment.’68

This statement summarises the widely taken view according to which dis-

pute resolution through arbitration 1) has a positive impact on the devel-

opment of international trade and 2) helps to ensure the peacefulness of

international relations. This view is also considered to constitute the basic

rationale of the initiatives to unify and modernise international arbitration

law. The Preamble of the UNCITRAL Model Law, for example, refers to

the ‘value of arbitration as a method of settling disputes in international

commercial relations’ and states that ‘the establishment of a model law…

contributes to the development of harmonious international economic

relations’.69

The basic economic consideration lies in the assumption that the develop-

ment of international commerce leads to a general increase in wealth and

prosperity. This opinion is, however, not shared by everyone. Some argue, in

fact, that the globalisation of international trade and the development of

international arbitration widen the gap between the rich and the poor. In-

ternational law-making efforts to unify international trade law and, in par-

ticular, the lex mercatoria doctrine arguably aim to perpetuate the ‘hegem-

ony’ of industrialised countries.70 While such accusations must be considered

a more detailed analysis of the exclusion of means of recourse against arbitral awards,

see infra, Chapter 6, at 170.

67 See the definitions of ‘internationality’ of arbitration in Swiss and Italian arbitration

law and the Model Law. See infra, Chapter 5, at 138 et seq.

68 See welcoming letter, in ICCA Congress Series n° 3.

69 See H. M. Holtzmann and J. E. Neuhaus, A Guide To The UNCITRAL Model Law, at 3.

70 See J. L. Sequeiros, ‘Arbitral Autonomy And National Sovereign Authority in Latin

America’, in T. E. Carbonneau (ed.), Lex Mercatoria And Arbitration, p. 219 et seq., at

219: ‘The scepticism towards this form of arbitration [international arbitration] resides

in a historical suspicion of European and North American colonialism…’.

24 Legitimacy of the autonomy of international arbitration

carefully, they should not, however, be given too much weight, especially in

light of the fact that international commerce does not consist exclusively –

not even primarily – of north/south exchanges.

Interestingly, while most States are in agreement as to the necessity of pro-

moting arbitration as a means of solving international business disputes, the

various States are also individually interested in having the greatest possible

piece of the growing arbitration ‘cake’. Legislative cooperation and legisla-

tive competition therefore co-exist in the field of international arbitration.

If, on the one hand, international legislative efforts are aimed at the unifica-

tion of arbitration law, legislative competition entails the pursuit of com-

petitive advantages and implies, therefore, the adoption of different, more

‘attractive’ provisions. Today, world-wide unification largely absorbs legisla-

tive competition. This is due, in part, to the progressive acceptance of the

delocalisation of international arbitration and the decreasing relevance of

the localisation of the arbitral seat.71

C. Interests of the legal profession

Most major international law firms, over the last decade, have opened arbi-

tration departments operating independently of existing litigation struc-

tures.72 The development of the arbitration sector does not, however, genu-

inely lead to additional profits as it forms part, from a functional perspective,

of the litigation market.73 Nevertheless, arbitration provides a few distin-

guished lawyers with the opportunity of acceding to the prestigious function

of an international arbitrator and of earning sometimes considerable

71 One aspect of delocalisation, indeed, consists in the possibility of applying foreign

procedural rules. Parties can, for example, provide for arbitration in London while refer-

ring to French procedural law, i.e. French arbitration law. For a more detailed analysis

of the various dimensions of delocalisation, see infra, Chapters 5 (legislative delocalisa-

tion) and 6 (judicial delocalisation).

72 On the more general impact of globalisation on contemporary legal practice, see, for

example, W. J. L. Calkoen, ‘Internationalization of the Legal Profession’, in N. P. Vogt

and others (eds.), The International Practice of Law – Liber Amicorum for Thomas Bär and

Robert Karrer, p. 153 et seq.

73 Indeed, arbitration constitutes an alternative to ordinary litigation. This implies, as

N. Katzenbach suggests, that ‘business leaders [do not] have expectations about arbitra-

tion that significantly differ from expectations about any other method of dispute reso-

lution.’ See N. Katzenbach, ‘Business Executives and Lawyers in International Trade’,

in International Chamber of Commerce, 60 Years of ICC Arbitration – A Look at the

Future, ICC Publication n° 412, Paris, 1984, p. 67 et seq., at 69.

25Foundations and manifestations of increasing autonomy

amounts of (pocket) money.74 Indeed, becoming an international arbitrator

constitutes an extremely attractive career move and represents, in the eyes

of the legal community, the highest degree of professional accomplish-

ment.75

The profitability of international arbitration for the legal profession is some-

times overestimated. Dezalay and Garth, for example, argue that the efforts

to promote international commercial arbitration are primarily aimed at

serving the interests of its producers (essentially arbitrators) rather than

consumer interests.76 Lord Mustill argues that

‘[l]egislation which purports to be “consumer-led”… tends in practice to be

driven by a comparatively small number, not of consumers, but of arbitration

professionals with strong ideas of their own.’

Such statements are exaggerated. Indeed, we have seen that arbitral dispute

resolution entails a series of genuine potential advantages for the parties to

international business disputes.

II. Practical Manifestations of the Autonomy of International

Commercial Arbitration: Institutional Framework of the

Pursuit of Increased Autonomy

Institutional framework of the pursuit of increased autonomy

Arbitration is everybody’s darling. The convergence between the interests of

the international business community, States and the legal profession ex-

plains the strong public policy in favour of recourse to arbitration and en-

74 See, for example, A. S. Rau, ‘On Integrity in Private Judging’, 1998 Arb. Int’l, p. 115 et

seq. As far as institutional arbitration is concerned, see, for example, the fees table of

the ICC Rules reproduced, amongst others, in A. Redfern and M. Hunter, Law and

Practice of International Commercial Arbitration, at 537. With respect to ad hoc arbitra-

tion, one must mention Professor Lalive’s historic 4,697,258 pounds sterling fee in the

Westland arbitration. For a contrary view, see J. Paulsson, ‘Ethics, Elitism, Eligibility’,

14 J. Int. Arb. 4, p. 13 et seq., at 14: ‘… the prospect of financial rewards is doubtless a

less motivating factor than non-specialists might imagine… Arbitrators who are much

in demand are likely to have the ability and the opportunity to earn at least equal re-

wards in other endeavours.’

75 This explains why renowned law professors, experienced lawyers of major international

law firms or retired judges make every effort to hold arbitrator positions. On this point,

see Y. Dezalay and B. G. Garth, Dealing in Virtue – International Commercial Arbitration

and the Construction of a Transnational Legal Order (1996), Chapter 2, p. 18 et seq.

76 See Y. Dezalay and B. G. Garth, op. cit., Chapter 3, p. 33 et seq.; L. Nottage, ‘The Vicis-

situdes of Transnational Commercial Arbitration and the Lex Mercatoria: A View from

the Periphery’, 2000 Arb. Int’l, p. 53 et seq.

26 Institutional framework of the pursuit of increased autonomy

forcement of arbitral awards.77 The pursuit of increased autonomy of arbitral

dispute resolution therefore serves as a Leitmotiv of arbitration statutes and

international arbitration conventions. This Section provides an overview of

the institutions involved in this pursuit.

A. UNCITRAL78

The works accomplished by UNCITRAL (the United Nations Commission

on International Trade Law), set up by General Assembly Resolution

2205(XXI) of 17 December 1966, are of primary importance. UNCITRAL’s

main task consists in furthering the progressive harmonisation and unifica-

tion of international trade law, in particular by ‘preparing or promoting the

adoption of new international conventions, model laws and uniform laws’.79

UNCITRAL has recently been described as the ‘core legal body within the

United Nations system in the field of international trade law, [with a man-

date]… to promote efficiency, consistency and coherence in the unification

and harmonization of international trade law.’80 UNCITRAL’s contributions

to the world-wide unification of arbitration law include the 1958 New York

Convention,81 the UNCITRAL Arbitration Rules,82 and the UNCITRAL

77 In this sense, see, for example, R. Coulson, ‘Will the Growth of Alternative Dispute

Resolution (ADR) in America be Replicated in Europe?’, 9 J. Int. Arb. 3, p. 39 et seq.,

at 40.

78 For general commentary on the role of UNCITRAL, see E. A. Farnsworth, ‘Uncitral

and the Progressive Development of International Trade’, in Law and international trade,

Festschrift C. M. Schmitthoff (1973), p. 145 et seq.; G. Hermann, ‘The contribution of

Uncitral to the development of international trade law’, in N. Horn & C. M. Schmit-

thoff (eds.), The Transnational Law of International Commercial Transactions (1982), p. 35

et seq.; P. Volken, ‘Fünfundzwanzig Jahre UNCITRAL’, 1992 RSDIE, p. 133 et seq.

79 See General Assembly Resolution 2205(XXI).

80 See General Assembly Resolution 40/71, 40 GAOR Supp. No. 53, A/40/53, at 307.

81 Although the Convention was prepared by the United Nations prior to the existence of

UNCITRAL, promotion of the Convention is an integral part of the Commission’s

programme of work. For commentary on the New York Convention, see A. J. Van den

Berg, The New York Arbitration Convention of 1958 (1981). See also J. Robert, ‘La Con-

vention de New York du 10 juin 1958 pour la reconnaissance et l’exécution des sen-

tences arbitrales étrangères’, 1958 Dalloz, Chron. 223; H. Motulsky, ‘L’évolution ré-

cente en matière d’arbitrage international’, 1959 Rev. Arb., p. 3 et seq.; S. M. Schwebel,

‘A Celebration of the United Nations New York Convention on the Recognition and

Enforcement of Foreign Arbitral Awards’, 1996 Arb. Int’l, p. 83 et seq.

82 For commentary, see I. I. Dore, Arbitration and Conciliation Under the UNCITRAL Rules:

A Textual Analysis (1986); I. I. Dore, The UNCITRAL Framework for Arbitration in Con-

27Foundations and manifestations of increasing autonomy

Model Law.83 These three instruments create ‘a unified legal framework for

the fair and efficient settlement of disputes arising in international commer-

cial relations’.84 They mark the ‘continual search for improvements’ of arbi-

tration law.85

1. The New York Convention ‘on the Recognition and Enforcement of

Foreign Arbitral Awards’

Ratified by more than 120 States, the New York Convention has considera-

bly facilitated the international enforcement of arbitral awards. It has, in-

deed, substantially improved the regime applicable under the 1923 and 1927

Geneva Conventions.86

First, the New York Convention has laid down the exclusion of review on

the merits, i.e. on the arbitrators’ interpretation of the facts and application

of the law. Recognition and enforcement of an award can be refused only on

a limited number of grounds.87 It cannot, for example, be refused on the

grounds that the reasoning is in contradiction with the decision or the rea-

soning is itself contradictory.88 In addition to the prohibition of review on

the merits, the Convention has also shifted the burden of proof from the

temporary Perspective (1993). See also J. P. Greenbaum, Uncitral Arbitration Rules –

‘Rules For All Seasons’, LL.M. Thesis, European University Institute, Florence (1985).

83 For commentary, see H. M. Holtzmann and J. E. Neuhaus, A Guide to the UNCITRAL

Model Law on International Commercial Arbitration (1989); A. Broches, Commentary on

the UNCITRAL Model Law on International Commercial Arbitration (1990). See also

G. Herrmann, ‘Does the World Need Additional Uniform Legislation on Arbitration?

The 1998 Freshfields Lecture’, 1999 Arb. Int’l, p. 211 et seq.

84 See General Assembly Resolution 40/72, 40 GAOR Supp. No. 53, A/40/53, at 308

(adopted 11 December 1985).

85 See M. Rubino-Sammartano, International Arbitration Law and Practice, at 965.

86 See the 1923 Geneva Protocol on Arbitration Clauses, 27 League of Nations Treaty

Series 158 (1924) and the 1927 Geneva Convention on the Execution of Foreign

Awards, 92 League of Nations Treaty Series 302 (1929-1930).

87 See Article V(1) and V(2) of the New York Convention. The grounds upon which

recognition and enforcement may be refused include 1) the invalidity of the arbitration

agreement, 2) breach of due process, 3) excess of the scope of the arbitration agreement

by the arbitrators, 4) lack of compliance with the parties’ agreement upon the composi-

tion of the arbitral tribunal or the procedural rules, 5) non-arbitrability and, 6) viola-

tion of public policy.

88 See the decision of the Swedish Supreme Court in GNMTC v. Götaverken of 13 August

1979, 1980 Rev. Arb., p. 555 et seq.

28 Institutional framework of the pursuit of increased autonomy

party seeking to the party resisting enforcement of an arbitral award. The

party resisting enforcement must establish the existence of one of the

grounds listed in Article V.89

The New York Convention has also abolished the burdensome double ex-

equatur requirement. Indeed, under the 1927 Geneva Convention an award

could only be enforced if it had become ‘final’ in the country in which it was

rendered. In practice, this meant that exequatur or leave to enforcement had

to be granted in the country of origin.90 Under the New York Convention,

enforcement of an award can be sought where the award has become ‘bind-

ing’ in the country of origin.91

Progress has also been achieved by freeing the arbitration agreement and

arbitral award from the ‘constraints’ of domestic laws. The New York Con-

vention has, in fact, adopted international standards (material rules) with

respect to the formal validity of the arbitration agreement92 and the arbitral

procedure.93 The adoption of such standards supposes decreasing relevance

of the law of the arbitral seat (according to the Convention, ‘the law of the

country where the award was made’), i.e. delocalisation of international

commercial arbitration.

2. The UNCITRAL Arbitration Rules

The value of the 1976 UNCITRAL Arbitration Rules must be assessed in

conjunction with the New York Convention and the UNCITRAL Model

law. Indeed, as we have seen, the UNCITRAL Arbitration Rules form part

of what can be considered as a ‘unified legal framework’ of international

business dispute resolution.94

The main characteristic of the UNCITRAL Arbitration Rules lies in their

‘universality’. Contrary to most institutional arbitration rules, they do not

89 Lacking arbitrability and violation of public policy, however, can be raised by the court

ex officio.

90 See A. J. Van den Berg, op. cit., p. 266 et seq.

91 On the meaning of ‘binding’, see A. J. Van den Berg, op. cit., p. 337 et seq.

92 Contrary to the 1927 Geneva Convention, the New York Convention does not subject

the formal validity of the arbitration agreement to the law of the arbitral seat. Indeed,

Article II establishes an international standard requiring the arbitration agreement to

be an ‘agreement in writing’, i.e. ‘an arbitral clause in a contract or an arbitration

agreement, signed by the parties or contained in an exchange of letters or telegrams’.

93 Article V(1)(d) recognises the parties’ right to agree upon the composition of the arbi-

tral tribunal and the arbitral procedure. Only where the parties have not concluded an

agreement to that effect will the law of the arbitral seat be applicable.

94 See supra, at 27, fn 84.

29Foundations and manifestations of increasing autonomy

have a particular national or regional flavour.95 The UNCITRAL Arbitra-

tion Rules were, in fact, ‘designed to serve in all legal, economic, and social

systems, in practically all kinds of disputes, and in all geographic regions.’96

The UNCITRAL Arbitration Rules are intended to apply to ad hoc arbitra-

tion.97 Indeed, institutional arbitration follows, in principle, the relevant

institutional rules. The availability of a pre-established set of procedural

rules constitutes the main feature of institutional arbitration. Providing

parties to an ad hoc arbitration with such a set of procedural rules therefore

leads to a paradoxical – but welcome – ‘institutionalisation’ of ad hoc arbitra-

tion. In the framework of this institutionalisation, the UNCITRAL Arbitra-

tion Rules remedy another classical shortcoming of ad hoc arbitration, i.e.

the absence of a decision-making and problem-solving authority. Indeed,

they entrust the Secretary General of the Permanent Court of Arbitration at

The Hague with the task of resolving – though indirectly – problems linked

to the appointment and challenge of arbitrators.98

3. The UNCITRAL Model Law

As we have seen, the New York Convention only deals with the enforcement

of foreign arbitral awards. It does not deal with the enforcement of domestic

awards, nor does it directly address issues such as the validity of the arbitra-

tion agreement, the appointment of arbitrators, or the conduct of the arbi-

tral proceedings. This has been done by the UNCITRAL Model Law.

Adopted in 1985,99 the Model Law constitutes a necessary point of reference

for State legislators enacting new arbitration laws or reforming existing legis-

95 See J. P. Greenbaum, op. cit.

96 See H. M. Holtzmann and J. E. Neuhaus, A Guide to the UNCITRAL Model Law on

International Commercial Arbitration, at 7.

97 See the 2nd recital of the Preamble of General Assembly Resolution 31/98.

98 See Articles 6 and 12 of the UNCITRAL Arbitration Rules. The Secretary General of

the Permanent Court of Arbitration does not himself/herself function as an appointing

authority. He/she merely designates an appointing authority where the parties have

failed to do so or where the appointing authority designated by the parties does not fulfil

its task.

99 See General Assembly Resolution of 11 December 1985 referred to supra, at 30, fn 79.

30 Institutional framework of the pursuit of increased autonomy

lation.100 As of 20 March 2003, 36 countries have adopted arbitration laws

based upon the Model Law.101

Like the New York Convention, the Model Law contributes to the world-

wide unification of the law of international commercial arbitration. It pro-

vides a liberal normative framework ensuring the effectiveness of the arbitral

proceedings and the enforceability of the arbitral award. Commentators

often say that the Model Law ‘modernises’ international arbitration law.102

The Model Law restates a number of fundamental principles of arbitration

law such as the separability of the arbitration agreement,103 the arbitrators’

Kompetenz-Kompetenz,104 and the prohibition of review on the merits.105 The

Model Law also contains a series of more ‘modern’ provisions. It recognises,

for example, the power of arbitrators to order interim measures.106

The Model Law’s unificatory effect must be viewed in connection with the

New York Convention. Indeed, the Model Law’s provisions on enforcement

of both domestic and foreign arbitral awards are identical to the ones con-

tained in the New York Convention.107 Taken together, the Model law and

the New York Convention create a unified legal framework for the enforce-

ment of arbitral awards. This has put an end to the classical approach sub-

jecting domestic awards to more extensive judicial review.108

100 See P. Sanders, ‘Unity and Diversity in the Adoption of the Model Law’, 1995 Arb.

Int’l, p. 1 et seq.

101 For an updated list of countries that have enacted legislation based on the Model Law,

see the UNCITRAL website: www.uncitral.org/english/status/status-e.htm.

102 See H. M. Holtzmann and J. E. Neuhaus, op. cit, pp. 14-15.

103 See Article 16(1) of the Model Law providing in relevant part that ‘an arbitration

clause which forms part of a contract shall be treated as an agreement independent of

the other terms of the contract.’

104 See Article 16 (1) of the Model Law providing in relevant part that ‘[t]he arbitral tribu-

nal may rule on its own jurisdiction, including any objections with respect to the exis-

tence or validity of the arbitration agreement.’

105 See Articles 34 and 36 of the Model Law.

106 See Article 17 of the Model Law. This provision does not, however, address the ques-

tion of the enforcement of such measures.

107 Compare Articles 34 and 36 of the Model Law with Article V of the New York Con-

vention.

108 See infra,Chapter 4, at 102-103.

31Foundations and manifestations of increasing autonomy

B. Arbitration institutions

Today, international commercial arbitration is administered by approxi-

mately 70 institutions established in 44 countries.109 These include, for ex-

ample, the International Court of Arbitration of the International Chamber

of Commerce (ICC), the London Court of International Arbitration

(LCIA), the American Arbitration Association (AAA), the China Interna-

tional Economic Trade Arbitration Commission (CIETAC), and the Inter-

national Arbitration Centre of the Austrian Federal Economic Chamber.

The role played by arbitration institutions is best explained by reference to

their ‘home-made’ arbitration rules. Indeed, the essential characteristic of an

‘ICC arbitration’, for example, lies in its being conducted in accordance

with the ICC Rules of Arbitration.110 Institutional arbitration rules specify

the function the arbitration institution is to perform. Generally speaking,

this function consists in ensuring the unhampered conduct of the arbitral

proceedings, i.e. procedural effectiveness, and compliance with or enforce-

ability of the arbitral award, i.e. autonomy of the arbitral award.

1. The role of arbitration institutions in ensuring procedural efficiency

Most institutional rules expressly refer to the objective of expeditious dis-

pute resolution. The pursuit of this objective is considered as a general duty

of the arbitral tribunal. Under the AAA Rules, for example, the arbitral

tribunal ‘shall conduct the proceedings with a view to expediting the resolu-

tion of the dispute.’111 Other institutional rules contain similar provisions.112

109 See Martindale-Hubell International Arbitration and Dispute Resolution Directory 1998,

p. 337 et seq. For a detailed description of arbitral institutions, see also P. J. Davidson

and L. Kos-Rabcewicz-Zubkowski, Commercial Arbitration Institutions: An International

Directory and Guide.

110 Article 1 of the ICC Rules provides that ‘[t]he function of the Court is to provide for

the settlement by arbitration of business disputes of an international character in accor-

dance with the Rules of Arbitration of the International Chamber of Commerce …’.

111 See Article 16(2) of the AAA Rules.

112 See, in particular, Article 14(1) of the LCIA Rules stating the arbitral tribunal’s general

duty to ‘adopt procedures suitable to the circumstances of the arbitration, avoiding un-

necessary delay or expense’ (emphasis added) and Article 20(1) of the ICC Rules relat-

ing to the establishment of the facts.

32 Institutional framework of the pursuit of increased autonomy

The expeditious resolution of the dispute requires, first of all, that dilatory

tactics be prevented. Dilatory tactics can be defined as procedural behaviour

aimed principally at delaying the constitution of the arbitral tribunal or the

conduct of the proceedings. Examples of dilatory tactics include the refusal

to nominate one’s arbitrator and the challenge of an arbitrator. In order to

prevent dilatory tactics, institutional rules generally grant the institution

decision-making powers allowing the various issues to be solved quickly.

Arbitration institutions are, for example, empowered 1) to appoint an arbi-

trator where a party fails to do so and 2) to decide upon the challenge of an

arbitrator.

Another means to promote procedural expeditiousness consists in setting

time limits for the rendering of the award. Many institutional rules provide

for such time limits.113 Time limits range from six to nine months. This

amount of time frequently proves insufficient – especially where the facts of

the dispute are complex. It is therefore often necessary to extend the initial

time limit. However, extensions are not granted automatically. Indeed, the

possibility of an extension should not prevent the arbitral tribunal from

attempting to render the award within the initial time limit. Arbitration

rules therefore generally require extensions to be approved of by the insti-

tution.114

One particularly useful tool to speed up the arbitral procedure consists in the

progressive or preliminary identification of issues.115 This progressive or pre-

liminary identification of issues is a characteristic feature of ICC arbitra-

tion.116 Indeed, the ICC Rules require the arbitral tribunal to draw up ‘terms

of reference’, i.e. a document setting out the particulars of the dispute in-

cluding a ‘list of issues to be determined’ by the arbitral tribunal.117 The

establishment of terms of reference has sometimes been criticised for being

‘time consuming without bringing commensurate benefits’.118 Today, how-

113 See Article 24(1) of the ICC Rules, Article 52 of the CIETAC Rules, and Article 33 of

the SCC Rules. The LCIA and AAA Rules do not impose time limits on the arbitral

tribunal.

114 See, for example, Article 24(2) of the ICC Rules: ‘The Court may extend this time

limit pursuant to a reasoned request from the Arbitral Tribunal or on its own initiative

if it decides it is necessary to do so.’

115 See, in general, M. E. Schneider, ‘Lean Arbitration: Cost Control and Efficiency

Through Progressive Identification of Issues and Separate Pricing of Arbitration Ser-

vices’, 1994 Arb. Int’l, p. 119 et seq.

116 See, M. E. Schneider, op. cit.

117 See Article 18 of the ICC Rules.

118 This criticism is reported by W. L. Craig, W. W. Park and J. Paulsson, International

Chamber of Commerce Arbitration, at 274.

33Foundations and manifestations of increasing autonomy

ever, the usefulness of drawing up terms of reference appears to have gained

general acceptance.119

The increasing number of enforcement and setting aside proceedings, some-

times referred to as the process of ‘judicialisation’, has caused international

commercial arbitration to be partly deprived of its characteristic expedi-

tiousness.120 The emergence of Fast-Track Arbitration, i.e. arbitration under

simplified procedural rules granting extended powers to the arbitral tribunal,

is sometimes considered as a response to this phenomenon.121 The increasing

popularity of Fast-Track Arbitration has caused some arbitral institutions to

adopt specific rules to that purpose.122 However, Fast-Track Arbitration

essentially suits disputes involving a rather simple factual framework and a

moderate amount of claim.123

2. The role of arbitration institutions in ensuring the autonomy of the

arbitral award

It is often said that parties to a dispute are more likely to comply with an

arbitral award than with a court judgment. However, the classical view ac-

cording to which 90 percent of all arbitration awards are voluntarily com-

119 See A. Redfern and M. Hunter, Law and Practice of International Commercial Arbitration,

at 51.

120 On the judicialisation of international commercial arbitration and the resulting prob-

lem of delay, see, for example, J. Frick, Arbitration and Complex International Contracts, at

242; F. S. Nariman, ‘The Spirit of Arbitration – The Tenth Annual Golf Lecture’, 2000

Arb. Int’l, p. 261 et seq.; A. I. Okekeifere, ‘The Uncitral Model Law and the Problem of

Delay in International Commercial Arbitration’, 14 J. Int. Arb. 4, p. 81 et seq.;

A. I. Okekeifere, ‘Commercial Arbitration as the Most Effective Dispute Resolution

Method – Still a Fact or Now a Myth?’, 15 J. Int. Arb. 4, p. 81 et seq.

121 See J. Frick, op. cit., at 243; E. Gaillard, ‘Fast-Track Arbitration and Beyond: Is There

Emerging a New Need for Speed in International Commercial Arbitration?’, in Davis,

Benjamin G.(ed.), Improving International Arbitration - Liber Amicorum Michel

Gaudet, International Chamber of Commerce, Paris, 1998, p. 28 et seq.

122 See, for example, the ‘SCC Rules for Expedited Arbitrations’ which entered into force

on 1 July 1995. Other arbitral institutions, including the International Chamber of

Commerce, have preferred to merely amend the existing Rules. Article 32 of the ICC

Rules, for example, allows the parties to shorten the various time limits contained in

the Rules.

123 See E. Müller, ‘Fast-Track Arbitration – Meeting Demands of the Next Millenium’,

15 J. Int. Arb. 3, p. 5 et seq.

34 Institutional framework of the pursuit of increased autonomy

plied with124 can no longer be defended in the contemporary era of increas-

ing judicialisation of international commercial arbitration. This explains

why arbitration institutions are increasingly concerned with enforceability.

Enforceability supposes that the arbitral procedure and award comply with

the laws of the country in which enforcement is sought. Arbitration institu-

tions rely on various means in order to ensure this compliance. One of these

means relates to the role they perform with respect to the appointment and

replacement of arbitrators. This allows them to warrant the arbitrators’ in-

dependence and impartiality. It also enables arbitration institutions to exer-

cise some control on the overall qualifications of arbitrators. This control of

the ‘quality’ of arbitrators indirectly warrants the quality, i.e. enforceability,

of the arbitral award. Indeed, an arbitral award is only as ‘good’ as the arbi-

trator.125

Another tool to ensure enforceability consists in the preliminary scrutiny of

the arbitral award by the arbitration institution. As far as the major interna-

tional arbitration institutions are concerned, such scrutiny of the draft award

is performed only under the ICC Rules.126 The review by the ICC Interna-

tional Court of Arbitration focuses on formal aspects of the award. These

include the question of whether the arbitrators have or have not exceeded

the scope of the arbitration agreement.127 As regards the substance, the

Court’s role is limited to highlighting problematic issues.128 Indeed, the arbitral

tribunal can render its decision without taking the Court’s suggestions into

account. In practice, however, it will generally carefully consider the Court’s

remarks.

124 For a classical view, see G. R. Delaume, ‘Reflections on the Effectiveness of Interna-

tional Arbitral Awards’, 12 J. Int. Arb. 1, p. 5 et seq., at 5: ‘… it is commonly stated

that, in the overwhelming majority, awards are voluntarily complied with.’

125 See H. A. Grigera Naon, ‘Factors to Consider in Choosing an Efficient Arbitrator’, in

ICCA Congress series n° 9, p. 286 et seq., at 312 where the author emphasises ‘the deci-

sive impact of decisions on the choice of arbitrators on the quality of arbitral proceed-

ings and arbitral due process.’ See also P.-A. Gélinas, ‘Arbitration Clauses: Achieving

Effectiveness’, in ICCA Congress series n° 9, p. 47 et seq., at 47: ‘There can be… no good

arbitration without good arbitrators’; O. Glossner, ‘Sociological Aspects of Interna-

tional Commercial Arbitration’, in J. Schultsz and A.J. Van den Berg (eds.), The Art of

Arbitration, p. 143 et seq., at 144 recalling the proverb: ‘L’arbitrage vaut ce que vaut

l’arbitre’ (‘the arbitration is worth as much as the arbitrator’).

126 See Article 27 of the ICC Rules.

127 The tracing of the borderline between formal and substantive aspects can, at times, be

difficult. See J. Savage and E. Gaillard (eds.), Fouchard, Gaillard, Goldman on Interna-

tional Commercial Arbitration, at 751.

128 Article 27 of the ICC Rules states in relevant part that the Court may ‘draw its [the

arbitral tribunal’s] attention to points of substance’ (emphasis added).

35Foundations and manifestations of increasing autonomy

An interesting aspect of the efforts made by arbitral institutions in order to

ensure the enforceability of arbitral awards regards the relationship between

national arbitration laws and institutional rules. As we have seen, enforce-

ability is conditional upon the award’s compliance with domestic arbitration

laws. Institutional rules must therefore be compatible with these laws. They

must also adapt to changes in the law. This is well illustrated by the Dutco

decision of the French Cour de cassation of 7 January 1992 which clarified

the meaning that has to be given, in the context of multi-party arbitration,

to the principle of equality of the parties.129

The Court held that this principle is violated in a multi-party arbitration in

which the claimant nominates one arbitrator and the two co-defendants,

having different interests at stake, are to jointly nominate (against their

will) the second party-nominated arbitrator. It thereby overruled the deci-

sion of the Cour d’appel of Paris which considered that the joint nomination

by the co-defendants did not adversely affect the parties’ equal rights. The

Dutco decision prompted arbitration institutions and, in particular, the ICC

to pay increased attention to the problems arising in connection with multi-

party arbitration.130 A new provision specifically addressing the appointment

of arbitrators in multi-party arbitration was included in the 1998 ICC

Rules.131 This provision allows co-defendants (‘multiple Respondents’) or co-

claimants (‘multiple Claimants’) to refuse joint nomination. If the parties

cannot reach agreement on an alternative method of appointment of the

arbitrators, the Court appoints all members of the arbitral tribunal.

3. The particular role of the ICC as a contributor to the elaboration of

international trade law

The ICC has contributed decisively to the elaboration of the principal in-

ternational instruments on international arbitration law including the New

York Convention and the UNCITRAL Model law.132 One of the most sig-

129 See the decision of the Cour de cassation of 7 January 1992, B.K.M.I. v. Dutco,

1992 Rev. Arb., p. 470 et seq.

130 See E. A. Schwartz, ‘Multi-Party Arbitration and the ICC In the Wake of Dutco’, 10 J.

Int. Arb. 3, p. 5 et seq., at 14: ‘The ICC is now reflecting upon the possible need for

amendments to its Rules in order to deal with situations like that encountered in

Dutco.’

131 See Article 10 of the ICC Rules.

132 See, for example, O. Glossner, ‘The Influence of the International Chamber of Com-

merce upon Modern Arbitration’, in International Chamber of Commerce, 60 Years of

ICC Arbitration – A Look at the Future, ICC Publication n° 412, Paris, 1984, p. 399

36 Summary

nificant contributions consisted in a ‘Draft Convention’ on the enforcement

of international arbitral awards which served as a basis for the 1958 New

York Convention.133

The ICC’s quasi-normative function is not, however, restricted to interna-

tional commercial arbitration. It extends to all trade-related areas. The ICC,

in fact, codifies trade usages and practices and elaborates codes, rules, and

model contracts in various fields. The most notable works comprise the

Uniform Customs and Practice for Documentary Credits (UCP 500) and the

so-called Incoterms (standard international trade definitions).134

III. Summary

Summary

The increasing autonomy of international commercial arbitration consti-

tutes a legitimate development. In fact, it serves the interests of all the ac-

tors involved in international commercial arbitration, i.e. of businessmen,

lawyers and the State. Most importantly, arbitration provides international

business operators with a potentially superior means of dispute resolution.

This potential superiority of arbitration essentially derives from its ability to

adequately address the specific needs of international commercial dispute

resolution. These needs comprise substantive and procedural neutrality and

an enlarged scope of party-autonomy. As we will see in Chapter 2, the pur-

suit of substantive neutrality and increased party-autonomy underlies the

growing autonomy of the applicable substantive law.

The pursuit of increased autonomy constitutes the Leitmotiv of contemporary

law on international commercial arbitration. It has led to the emergence of a

sophisticated institutional framework (including both intergovernmental

and private institutions) advocating the growing autonomy of international

commercial arbitration. The following Chapters illustrate the critical role

played by this institutional network.

et seq., esp. at 401: ‘Every … development in the field of modern commercial arbitration

has been affected by ICC influence and benefited from ICC cooperation.’

133 International Chamber of Commerce, ‘Enforcement of international arbitral awards –

Report and preliminary draft convention’ (ICC Publication n° 174, 1953), reprinted in

ICC Bulletin, Vol. 9, n° 1 (1998), p. 32 et seq.

134 See J. Savage and E. Gaillard (eds.), Fouchard, Gaillard, Goldman on International Com-

mercial Arbitration, at 187: ‘the ICC performs a vital regulatory function in codifying the

usages of international commerce …’.

37The autonomy of the law applicable to the merits

Chapter 2

The autonomy of the law applicable to the merits

The autonomy of the law applicable to the merits refers to the applicability, in

the context of international arbitration, of rules of law that differ from the rules of

law applied by State courts. This autonomy is habitually considered to be re-

flected by the applicability of lex mercatoria or ‘transnational’135 law. As such,

it is based on the – debatable – assumption that State courts do not (and

cannot) apply lex mercatoria.136

Several studies137 and countless articles138 have been devoted to the doctrine

of lex mercatoria. One can, therefore, doubt whether it is possible to ‘add’

anything to the discussion. However, rather than clarifying the concept of

lex mercatoria, the academic debate has generated a great amount of confu-

sion. Indeed, the lex mercatoria doctrine has given rise to a largely ideological

135 On the usage and meaning of the term ‘transnational’ see infra at 55.

136 For a discussion of the possible application of lex mercatoria by State courts, see infra

at 68.

137 See, especially, K. P. Berger, The Creeping Codification of the Lex Mercatoria; K. P. Berger

(ed.), The Practice of Transnational Law; T. E. Carbonneau (ed.), Lex Mercatoria and Ar-

bitration – A Discussion of the New Law Merchant, Revised Edition (1998); F. Galgano,

Lex Mercatoria, Il Mulino (2001).

138 See, among many others, J. Bart, ‘La lex mercatoria au Moyen-Age : mythe ou réalité ?’,

in C. Leben, E. Loquin and M. Salem (eds.), Souverainté étatique et marchés

internationaux à la fin du 20ème siècle (Mélanges en l’honneur de Philippe Khan), Dijon,

2000, p. 9 et seq.; A. Fall, ‘Defence and Illustration of the Lex Mercatoria in Maritime

Arbitration’, 15 J. Int. Arb. 1, p. 83 et seq.; L. Y. Fortier, ‘The New, New Lex Mercatoria,

or, Back to the Future’, 2001 Arb. Int’l, p. 121 et seq.; Ph. Kahn, ‘Droit international

économique, droit du développement, lex mercatoria : concept unique ou pluralisme des

ordres juridiques ?’, in Etudes offertes à Berthold Goldman, p. 97 et seq.; P. Lagarde, ‘Ap-

proche critique de la lex mercatoria’, in Etudes offertes à Berthold Goldman, p. 125 et seq.;

E. Loquin, ‘Où en est la lex mercatoria ?’, in C. Leben, E. Loquin and M. Salem (eds.),

Souverainté étatique et marchés internationaux à la fin du 20ème siècle (Mélanges en

l’honneur de Philippe Khan), Dijon, 2000, p. 23 et seq.; A. F. Lowenfeld, ‘Lex Mercatoria:

An Arbitrator’s View’, 1990 Arb. Int’l, p. 133 et seq. ; Lord Mustill, ‘The New Lex Mer-

catoria: The First Twenty-five Years’, in Liber Amicorum for Lord Wilberforce, p. 149

et seq.; J. Ning, ‘The Status of Lex Mercatoria in International Commercial Arbitration’,

1996 Am. Rev. Int’l. Arb., p. 163 et seq.; J. Paulsson, ‘La lex mercatoria dans l’arbitrage

CCI’, 1990 Rev. Arb., p. 55 et seq.; C. Schmitthoff, International Business Law: A New

Law Merchant, Current Law and Social Problems (1961), p. 129 et seq.; C. Stoecker, ‘The

lex mercatoria: To What Extent does it exist?’, 7 J. Int. Arb. 1, p. 101 et seq.

38 The Drawbacks of the Conflict of Laws Method

– and even emotional – ‘battle’ fought between the lex mercatorists and their

opponents.139 The debate has, in fact, focused on the fruitless question of the

– abstract – definition of the concept of lex mercatoria and, in particular, on

the question of whether lex mercatoria constitutes an autonomous legal order.

Rarely has the lex mercatoria doctrine been analysed in the light of the objec-

tives that it pursues (or could pursue) and the function that it performs.140

This Chapter attempts to fill this gap. It analyses the function of the lex

mercatoria doctrine against the background of the specific normative needs

of international commerce. As we have seen in Chapter 1, these needs con-

sist of neutrality of the applicable substantive law (substantive neutrality)

and recognition of extensive party-autonomy. These needs are satisfied

through the adoption of uniform (substantive neutrality) and liberal (party-

autonomy) rules. This explains why international law-making efforts in the

field of international trade traditionally focus on unification and liberalisa-

tion.141

According to a widely held view, the main obstacle to the achievement of

these objectives lies in the application of the conflict of laws method. Sec-

tion 1, therefore, examines the drawbacks of the conflict of laws theory and,

in particular, its inability to provide international commercial transactions

with a uniform and liberal normative framework. Section 2 analyses the tools

employed to overcome this particular shortcoming of the conflict of laws

method. It discusses both traditional ways of pursuing the unification and

liberalisation of international trade law and the lex mercatoria doctrine.

I. The Drawbacks of the Conflict of Laws Method

The Drawbacks of the Conflict of Laws Method

The fact that legal theory – and practising lawyers – resort(s) to a particular

method for the purposes of addressing a particular legal problem does not

necessarily mean that the method used ideally serves the interests involved.

The application of a particular method may, indeed, be merely due to the

unavailability of a ‘more appropriate’ alternative. This more appropriate

alternative is destined to progressively replace the ‘traditional’ method. The

conflict of laws method – apparently – is subject to such a process of re-

placement.

139 This battle is ongoing. See, for example, E. Gaillard, ‘Thirty Years of Lex Mercatoria:

Towards the Discriminating Application of Transnational Rules’, in ICCA Congress se-

ries n° 7, p. 582 et seq., at 583: ‘[t]he lex mercatoria continues to be hotly debated, with a

number of extremists on each side.’

140 One of the few exceptions consists of K.P. Berger, The Creeping Codification of the Lex

Mercatoria.

141 See supra, Chapter 1.

39The autonomy of the law applicable to the merits

Few methods elaborated by legal theorists have encountered more hostility

and given rise to more controversy than the conflict of laws method. While

some speak of the ‘crisis’ of the conflict of laws,142 others envision an era in

which the conflict of laws ‘finds its place in the museum of law’.143 More

cynically, Prosser – back in 1953 – characterised the conflict of laws as a

‘dismal swamp filled with quaking quagmires and inhabited by learned but

eccentric professors who theorize about mysterious matters in a strange and

incomprehensible jargon’.144

This Section discusses the considerations underlying such critical voices. To

this purpose, it distinguishes between what is habitually considered as the

‘classical drawbacks’ of the conflict of laws and the aforementioned inability

of the conflict of laws to ensure, in the context of international trade relations,

substantive neutrality and party autonomy (also referred to as the ‘inappropri-

ateness of applying domestic rules to international commercial transac-

tions’). This Section argues that, while the classical drawbacks of the con-

flict of laws only relate to the – sometimes problematic – practical workabil-

ity of the conflict of laws, the inappropriateness of applying domestic rules to

international commercial transactions constitutes a ‘fundamental’ deficiency

(i.e. a deficiency that relates to the objective or ‘philosophy’ underlying the

conflict of laws method).

A. Classical drawbacks of the conflict of laws

1. Illegitimacy of the prevalence of conflict of laws justice (or private

international law justice) over material justice

Today, it is generally admitted that the conflict of laws does not entail a

conflict of sovereignty, i.e. a conflict between sovereign States.145 Indeed,

142 G. Kegel, Rec. Cours 1964, at 89 et seq.

143 A. Kassis, ‘L’arbitre, les conflits de lois et la lex mercatoria’, in Proceedings of the 1st Inter-

national Commercial Arbitration Conference, p. 133 et seq., at 133: ‘Il y a longtemps que

l’internationaliste privatiste rêve d’entendre sonner le glas de la méthode conflictuelle, de voir le

jour où elle aura trouvé sa place dans les oubliettes ou, au mieux, dans le musée du droit.’

(‘For a long time, conflict lawyers have been hoping that the conflict method … will be

forgotten and that it will find its place in the museum of law’, translation by the

author.)

144 W. Prosser, ‘Interstate Publication’, 1953 Mich. L. Rev., p. 959 et seq., at 971 referred to

by K. P. Berger, The Creeping Codification of the Lex Mercatoria, at 12.

145 The opposite view was, however, predominant in the past. This is reported, for exam-

ple, by P. Mayer, Droit international privé, p. 43: ‘Non seulement la doctrine, mais les légis-

40 The Drawbacks of the Conflict of Laws Method

the solving of a conflict of laws arising from an international legal relation-

ship is rightly considered to merely involve private interests.146 This percep-

tion has contributed to what is habitually termed the ‘neutrality’ of conflict

of laws rules, i.e. the fact that conflict of laws rules designate the applicable law

without taking into consideration the substance of the laws involved.

The conflict of laws attempts to ‘localise’ a given legal relationship, i.e. to

determine the – geographical – ‘seat’ of this relationship.147 In order to per-

form this localisation, the conflict of laws resorts to so-called connecting

factors. These factors vary according to the nature of the legal problem at

issue. The ultimate aim, though, remains the determination of the country

to which the legal relationship bears the ‘closest connection’.148

The focus of the conflict of laws on ‘geographical’ localisation is often con-

sidered to lead to the – presumably illegitimate – prevalence of conflict of

laws justice over substantive justice’.149 That this criticism has not remained

a dead letter is particularly well illustrated by the evolution of American

conflict of laws doctrine. American conflict lawyers have, indeed, come up

with – from a European perspective – revolutionary approaches. The most

significant of these consists in the application of the ‘better rule of law’ (or

‘better law’).150 This approach, however, carries an obvious risk of lex

forism.151 Indeed, as the laws of a given State reflect the conception of justice

lateurs et la jurisprudence, avaient jusqu’au XVIIIème siècle conçu le conflit de lois et le conflit

de juridictions comme des conflits de souveraineté’. (‘Not only legal scholars, but also legis-

lators and courts perceived, up to the 18th century, the conflict of laws and jurisdiction

as a conflict of sovereignty’, translation by the author).

146 For a detailed analysis of the history of conflict of laws theory, see Barile, ‘Fonction

historique du droit international privé’, Rec. Cours, 1965, III, p. 30 et seq.; Gutzwiller,

‘Le développement historique du droit international privé’, Rec. Cours, 1929, IV, p. 348

et seq.

147 This view has most famously been defended by Friedrich Carl von Savigny, System des

heutigen Römischen Rechts (1849),VIII.

148 The closest-connection rule can be considered as a general principle of private interna-

tional law. It has been codified in Articles 4(1) and (5) of the Rome Convention on the

Law Applicable to Contractual Obligations.

149 See G. Kegel, Internationales Privatrecht, 5th ed., at 72: ‘Private International Law justice

prevails over material justice’ (translation by the author). (‘Die internationalprivatrecht-

liche Gerechtigkeit geht vor der materiellrechtlichen’).

150 See R. A. Leflar, ‘Choice-Influencing Considerations in Conflicts Law’, 1966 NYU

L. Rev., p. 267 et seq.

151 The term lex forism refers to the systematic application of the lex fori, i.e. of the law of

the forum. Lex forism is based on the ancient principle of territoriality according to

which the courts of a particular territorial entity may only apply the law of this entity.

On this issue, see, for example, P. Mayer, Droit international privé (1987), at 33.

41The autonomy of the law applicable to the merits

of that State, courts will generally consider domestic laws to achieve the

more equitable or ‘just’ result and to be the ‘better’ law. Despite – or because

of – the lex forism inherent to it, the better law doctrine has occasionally

been referred to by the courts.152 The second restatement on the conflict of

laws, however, provides for a most-significant-relationship test closely re-

sembling continental European objective localisation.153

Rather than reflecting the intent to restore material justice, the elaboration

of the better law doctrine (and of similar doctrines) represents an effort to

take State interests into consideration. As is illustrated by Babcock v. Jack-

son,154 the better law doctrine is, indeed, inseparably linked with the ‘gov-

ernmental interests analysis’, a test by which the applicable law is deter-

mined on the basis of the policy interests of the jurisdictions involved. As

far as private interests are concerned, material justice and conflict of laws

justice, do not, in fact, stand in contradiction to each-other. In fact, while

material justice defines the ‘just solution’ to a particular legal problem, con-

flict of laws justice determines the legal system that provides this ‘just solu-

tion’. Conflict of laws justice is, thus, neither opposed nor distinct from

material justice. Rather, it constitutes an additional dimension of material

justice, specific to international legal relationships, i.e. conflict of laws jus-

tice forms part of material justice.

2. Complicating factors and unpredictability of the conflict of laws

Several ‘complicating factors’155 inherent to the conflict of laws method

allegedly contribute to diminish its predictability. The first such factor con-

sists in the so-called ‘characterisation’156 (qualification) of the legal question.

Characterisation relates to the process of the determination of the connect-

ing factor that links a legal problem to (the laws of) a given country. Since

152 See, in particular, the decision of the Court of Appeal of New York of 9 May 1963 in

Babcock v. Jackson, 12 N.Y. 2d 473; 191 N.E. 2d 279 (1963).

153 See 2nd Restatement of the Law, Conflict of laws, Section 188(1) relating to the law

applicable in the absence of an effective choice by the parties: ‘The rights and duties of

the parties with respect to an issue in contract are determined by the local law of the

state which, with respect to that issue, has the most significant relationship to the

transaction and the parties…’

154 12 N.Y. 2d 473; 191 N.E. 2d 279 (1963).

155 See P. Mayer, Droit international privé, at 146.

156 The problem of characterisation was first perceived by French and German lawyers.

They referred to it as ‘qualification’ or ‘Qualifikation’. See L. Collins (ed.), Dicey and Mor-

ris on the Conflict of Laws, Vol. 1, at 34.

42 The Drawbacks of the Conflict of Laws Method

there are, traditionally, various categories157 of legal questions associated

with a specific connecting factor, it is necessary to determine to which cate-

gory the legal problem at issue pertains, i.e. to ‘characterise’ the legal prob-

lem.

Other complicating factors derive from the necessity to reconcile various,

sometimes contrasting interests. These interests essentially include conflict

of laws interests (the interests of conflict of laws justice), on the one side,

and so-called Ordnungsinteressen (roughly, ‘interests of order’), on the other.

The relevance of these Ordnungsinteressen is grounded, as Kegel teaches, on

the assumption that law ‘must not be too complicated and not too difficult

to find. It must be uniformly applied and its rules must match. A useable

order is necessary.’158

The conflict of laws specific Ordnungsinteressen consist in the international

and domestic decisional (or normative) harmony (äusserer Entscheidungs-

einklang and innerer Entscheidungseinklang). The pursuit of these objectives

has led to the elaboration of the theories of the renvoi and of the preliminary

question, examined below.

In addition to characterisation, renvoi and preliminary question, the practi-

cal workability of the conflict of laws arguably encounters an obstacle in the

State courts’ – quite understandable – inclination to disregard conflict of

laws rules and to systematically apply the law of the forum (lex forism).

a. Characterisation159

The characterisation of a given legal question can be problematic. A few

examples will illustrate the difficulties that might arise when ‘characterising’

a specific legal issue. Doubts may arise, for example, in relation to the law

applicable to the question of ownership of immovable property. This ques-

tion is traditionally perceived to form part of the Realstatut or statut réel160

and hence to be governed by the lex rei sitae (the law of the State where the

157 Lasting influence has been exercised by the theory of ‘statutes’ (Statutentheorie, théorie

des statuts) which dates back to the twelfth century. Roughly, it distinguished between

legal problems relating to property (Realstatut, statut réel), persons (Personalstatut, statut

personnel) and so-called mixed legal problems (gemischtes Statut, statut mixte).

158 See G. Kegel and K. Schurig, Internationales Privatrecht, at 77 (free translation).

159 For some fundamental writings on characterisation see, for example, B. Ancel, ‘L’objet

de la qualification’, Clunet 1980, p. 227 et seq.; Hoppe, Die Qualification von Rechtssätzen

(1970); Rigaux, La théorie des qualifications en droit international privé (1956); Wengler,

‘Réflexions sur la technique de qualification en droit international privé’, 1954 Rev.

crit., p. 661 et seq.

160 See supra, at 42, fn. 157 on the theory of statutes.

43The autonomy of the law applicable to the merits

property is located). An alternative view, however, considers this problem to

be linked to the contract or acte juridique that generated the property right.

The latter approach, therefore, argues in favour of the application of the lex

contractus (the law governing the contract).161

Another difficult issue is the question of the law applicable to the validity of

a contract concluded by a person allegedly lacking the necessary capacity.

This question can be considered to relate either to the category ‘substantive

requirements of validity of contracts’ or to ‘legal capacity’. Depending on the

view taken, the question will therefore be governed either by the lex contrac-

tus or by the law of the State of which the person in question is a national or

resident (the ‘personal’ law). Numerous other legal questions pose similar

problems.162

b. The renvoi163

A further complicating factor consists in the so-called renvoi. Aimed at

ensuring international normative harmony,164 the renvoi is based on the

taking into consideration of foreign conflict of laws rules. Where, for exam-

ple, the conflict of laws rules of State A designate the law of State B, one

must apply the conflict rules of State B. Technically, when the conflict rules

of State B refer to the law of State A, one speaks of renvoi au premier degré or

Rückverweisung. When the conflict rules of State B designate the law of a

third country, this is referred to as renvoi au premier degré or Weiterver-

weisung.

Today, the admissibility of both types of renvoi is well-established with re-

spect to most legal areas.165 If the application of the renvoi furthers interna-

tional normative harmony, it also, to some extent, jeopardises the predict-

161 In practice, both laws are generally considered as applicable. While the lex contractus is

primarily applicable, the lex rei sitae applies where the interests of third parties are con-

cerned.

162 See, for example, H. Van Houtte, The Law of International Trade, at 18: ‘Is the validity

of the memorandum and articles of association of a company… “a question concerning

a company” or “a question concerning a contract”?’

163 On the renvoi in general, see Derruppé, ‘Plaidoyer pour le renvoi’, Trav. Com. fr. dr. int.

pr., 1964-1966, p. 181 et seq.; Foyer, ‘Requiem pour le renvoi’, Trav. Com. fr. dr. int. pr.,

1980-1981, p. 105 et seq.

164 Strictly speaking, only the renvoi au second degré furthers international normative

harmony.

165 See, as far as French private international law is concerned, P. Mayer, op. cit.,

pp. 148-149.

44 The Drawbacks of the Conflict of Laws Method

ability of the applicable law. Indeed, this predictability supposes knowledge

not only of the conflict of laws rules of the forum, but also of those in force

in the jurisdiction the law of which is designated by the forum’s conflict of

laws norms. One must, therefore, concur with Robert when he observes that

‘the renvoi is regrettable inasmuch as it is a source of uncertainty and, even

worse, of unpredictability as to the law applicable to a factual situation arising

in the forum’ (translation by the author, emphasis added). 166 However, as

we will see, the renvoi does not necessarily diminish the predictability of the

applicable law.

c. The preliminary (or incidental) question167

Like the renvoi, the theory of the preliminary question is intended to ensure

normative harmony at the international level. This theory argues that,

where a legal problem (the ‘main question’) requires a ‘preliminary question’

to be answered, the preliminary question should not be submitted to the law

that is ‘normally’ applicable (i.e. the law designated by the forum’s conflict

of laws rules), but to the law determined in accordance with the conflict of

laws rules of the State whose laws govern the main question. Where, for

example, the question of the succession rights of an adoptive child (the

principal question) is submitted to the laws of State A, the preliminary ques-

tion of the validity of the adoption is to be governed by the law designated

by the conflict of laws rules of State A.

The law applicable to the preliminary question therefore varies according to

the nature of the principal question. This inevitably leads to domestic nor-

mative contradiction. In most legal systems, the majority view rightly con-

siders that the preliminary question, like any legal question, is governed by

its ‘own’ law, i.e. the law designated by the forum State’s conflict of laws

rules.168 However, the elaboration – and occasional application –169 of the

166 See Jean Robert, ‘De la règle de conflit à la règle matérielle en matière d’arbitrage in-

ternational (spécialement en droit international privé français)’, in J. Schultsz and

A. J. Van den Berg (eds.), The Art of Arbitration, p. 273 et seq., at 273: ‘… le renvoi est

fâcheux, en ce qu’il est source d’incertitude et, bien plus, d’imprévisibilité quant au droit fi-

nalement applicable à une situation de fait apparue au for.’(emphasis added).

167 The ‘discovery’ of the problem of the preliminary question is usually attributed to Mel-

chior and Wengler. See Melchior, Die Grundlagen des Deutschen Internationalen Privat-

rechts (1932), p. 245 et seq., Wengler, ‘Die Vorfrage im Kollisionsrecht’, (1934) 8 Rabels

Z, p. 148 et seq.

168 See, as far as French law is concerned, P. Mayer, op. cit, pp. 165-171.

169 See, for example, the decision rendered on 21 April 1931 by the French Cour de cass-

ation in the Ponnoucannamale case, 1932 Rev. dr. int. pr., p. 526 et seq.

45The autonomy of the law applicable to the merits

theory of the preliminary question has, at least temporarily, cast doubts on

the predictability of the conflict of laws.

d. Lex forism of State courts

Another alleged obstacle to the predictability of the conflict of laws relates

to its application by the courts. Indeed, courts tend to be reluctant to apply

conflict of laws rules. Instead, they prefer to systematically apply the laws of

the forum. Commenting on the application of the conflict of laws by English

courts, Carter – quite ironically – remarks that

‘[a]n impartial observer surveying the overall operation in practice of pur-

ported choice of law could scarcely avoid being struck by the paucity of cases

in which the eventual outcome has been that a law other than the lex fori

has actually been applied.’170

This lex forism of State courts is essentially due to three factors. First of all, it

is due to the State court judges’ limited ‘awareness’ of conflict of laws issues.

State court judges, in fact, do not always realise that a particular legal prob-

lem involves a conflict of laws. The State courts’ Heimwärtsstreben171 also

derives from the courts’ insufficient knowledge of – possibly applicable –

foreign laws. The difficulty of access to, and understanding of, foreign laws

incites State court judges to refer to the – well-known – domestic law. Fi-

nally, lex forism also results from the State court judges’ typical ‘chauvinistic’

attitude, i.e. from their belief that the law of the forum is ‘superior’ to for-

eign laws.

e. The impact of the complicating factors on the predictability of the

conflict of laws

The impact of the complicating factors on the predictability of the conflict

of laws is often overestimated. Characterising the conflict of laws as a ‘jump

in the dark’172 is not entirely accurate. Indeed, although it might diminish

predictability, the complexity of the conflict of laws method does not neces-

sarily entail a loss of predictability. Predictability will, in fact, depend on the

170 See P. B. Carter, ‘Choice of Law: Methodology or Mythology?’, in C. Dominicé,

R. Patry and C. Reymond (eds.), Etudes de droit international en l’honneur de Pierre Lalive,

Bâle/Francfort-sur-le-Main, 1993, p. 11 et seq., at 16.

171 See G. Kegel, op. cit., at 81.

172 L. Raape, Internationales Privatrecht (1961), at 90, referred to by K. P. Berger, The Creep-

ing Codification of the Lex Mercatoria, at 10.

46 The Drawbacks of the Conflict of Laws Method

users’ (the parties’ and their counsel’s) ability to master the conflict of laws’

methodological complexity. Rather than being ‘capricious’, the conflict of

laws simply is a more ‘demanding’ discipline.

As regards, more significantly, the predictability of the law applicable to

international (commercial) agreements, it is, to a large extent, ensured by

the quasi-unanimous recognition of the principle of party-autonomy. In fact,

virtually all legal systems allow parties to an international agreement to

freely select the law governing their contract.173

B. The inappropriateness of the application of domestic laws to

international commercial transactions and the inability of the

conflict of laws to ensure substantive neutrality and party-

autonomy

In the preceding Section, we have demonstrated that the conflict of laws

method does not necessarily entail reduced predictability of the applicable

law. The conflict of laws is, however, unable to respond to the specific nor-

mative needs of international commerce, i.e. it is incapable of ensuring sub-

stantive neutrality and party-autonomy. This inability reflects the inappro-

priateness of applying domestic laws to international commercial transac-

tions.

1. The inability of the conflict of laws to ensure substantive neutrality

As we have seen in Chapter 1, the achievement of substantive neutrality

constitutes a genuine ‘dilemma’ for the conflict of laws. On the one side, the

application of the law of one of the parties contravenes substantive neutral-

ity. On the other side, none of the possible alternative scenarios ensures

substantive neutrality without considerably lowering predictability. The

application of a ‘third’ law, in particular, rather than ensuring the parties’

equal familiarity with the applicable law, leads to the parties’ equally limited

knowledge of the applicable law.

The inability of the conflict of laws to ensure substantive neutrality is some-

times referred to as the ‘arbitrariness’ of the conflict of laws. In one of his

contributions to the International Encyclopaedia of Comparative Law,

David observed that

‘ … this question [the question of which national system of law should gov-

ern a legal relationship of international character] gave rise to the greatest of

173 It is true, however, that parties do not always make use of their right to select the appli-

cable law.

47The autonomy of the law applicable to the merits

difficulties … for the obvious reason that to subject a relationship which is

ex hypotesi international to a national system of law will always be largely

arbitrary. ’174

2. The inability of the conflict of laws to ensure party-autonomy

Contrary to substantive neutrality, party autonomy does not pertain to the

relationship between the parties, but to the ‘qualitative’ insufficiency of

domestic laws for the purposes of international commercial agreements. This

qualitative insufficiency rests on the assumption that domestic rules are

essentially designed to govern domestic legal relationships and are, there-

fore, not ‘suitable’ for international legal relationships.175 This assumption,

in turn, is based upon the fact that legislative competence, insofar as it con-

stitutes an attribute of State sovereignty, is necessarily confined to the do-

mestic territory and population. According to the traditional theory of terri-

toriality, ‘a state is sovereign within its own borders and … its law and its

courts have the exclusive right to determine the legal effect of acts done …

within those borders.’176 It further rests upon the traditionally limited num-

ber of international legal relationships.

The inappropriateness of subjecting international commercial agreements to

domestic rules constitutes, as Berger puts it, the ‘basic dilemma of interna-

tional commercial law’.177 Berger rightly observes that

‘[t]he natural territorial limitation of the principles and rules contained in

domestic laws necessarily leads to the nationalization of international com-

mercial cases, a phenomenon that is irreconcilable with the interests of the

international business community’ (emphasis added).178

174 R. David, ‘The International Unification of Private Law’, in International Encyclopedia of

Comparative Law, Vol. 2, at 141.

175 See, for example, R. Goode, ‘The Role of the Lex Loci Arbitri in International Commer-

cial Arbitration’, 2001 Arb. Int’l, p. 19 et seq., at 21: ‘Why… should parties to an inter-

national contract be locked into a national law that in all probability was designed pri-

marily for domestic transactions?’

176 R. Goode, op. cit. , at 24.

177 See K. P. Berger, The Creeping Codification of the Lex Mercatoria, at 9.

178 Ibid. See also D. Rivkin, ‘Lex Mercatoria and Force Majeure’ in Transnational Rules in

International Commercial Arbitration, ICC Publication 480/4, p. 161 et seq., at 163: ‘With

the modern increase in international trade and commerce, national commercial law has

often proved inadequate to international business needs and the resolution of disputes

involving international contracts (footnote omitted).’

48 The Unification and Liberalisation of International Trade Law

This nationalisation habitually entails the application of rules that are too

restrictive for the purposes of international business transactions. Examples

of such excessively restrictive norms include rules providing for judicial

control of the contractual equilibrium, prohibiting the issuance of guaran-

tees on first demand by private individuals, and invalidating contracts con-

cluded to the benefit of third parties.179

The qualitative insufficiency of domestic laws is not, however, confined to

the context of international commerce. The failure of domestic laws to en-

sure a satisfactory degree of party-autonomy, in fact, forms part of the more

general phenomenon of the decreasing ability of (State) law to provide

commercial activity with an adequate normative framework. Indeed, Ber-

ger’s statement emphasising the inability of domestic law to keep pace with

the ‘fast evolution and… high degree of specialization’180 of (international)

commercial practice also applies to domestic commerce. As has already been

explained, complex contracts such as construction and civil works contracts,

turnkey agreements, technology transfer or mining concessions are con-

cluded not only at the international, but also at the domestic level.181 Thus,

the focus of private law codifications (such as the German BGB or the Swiss

Code des Obligations) on ‘exchange’ contracts as opposed to complex or ‘rela-

tional’ contracts reflects not only the specific unsuitability of statutory law

for the purposes of international commerce, but also its general inability to

adapt to a drastically accelerated technological progress.

II. The Unification and Liberalisation of International Trade Law

The Unification and Liberalisation of International Trade Law

This Section examines the tools resorted to in order to unify and liberalise

the law of international trade. These tools consist of ‘traditional’ tools (the

adoption of uniform laws, recourse to material rules of private international

law) and the lex mercatoria doctrine. Prior to examining these tools, how-

ever, we will briefly discuss the international unification of conflict of laws

rules. Indeed, in addition to substantive unification and liberalisation, inter-

national law-making efforts traditionally also focus on the unification of

conflict of laws norms. These parallel efforts on the conflict of laws plane

reflect, to some extent, the considerable difficulties encountered by substan-

tive unification and liberalisation. Indeed, as David rightly stresses, it is

179 See K. P. Berger, op. cit., at 16.

180 Ibid.

181 See supra, Chapter 1, at 16 et seq.

49The autonomy of the law applicable to the merits

‘easier to come to an agreement on conflict of laws rules than on the sub-

stantive rules to be applied to international relations. ’182

A. The unification of conflict of laws rules: A means to ensure

international normative harmony

The international unification of conflict of laws rules aims to ensure interna-

tional normative harmony. Indeed, if (the courts of) all jurisdictions subject

a given legal relationship to the same law, they will, in all likelihood, pro-

vide the same answer to a particular legal question arising in connection

with that relationship. Inasmuch as it preserves international normative

harmony, the unification of conflict of laws rules prevents forum shopping,

i.e. an attitude consisting in selecting a forum in view of the applicable con-

flict of laws norms.

The main actor promoting the worldwide unification of conflict of laws rules

is the Hague Conference on Private International Law, established in 1893.

More than 20 international conventions have been elaborated under its

auspices and are currently in force. As far as international trade is con-

cerned, conflict of laws conventions have been adopted in a variety of areas

including international sale of goods (1955 and 1986), products liability

(1973) and agency (1978).183 At the European level, the most significant

achievement consists in the adoption of the 1980 Rome Convention on the

Law Applicable to Contractual Obligations.184

The principal accomplishments of these conflict of laws conventions are

twofold. First, the conventions have codified the widely accepted principle

of party-autonomy.185 This principle – declared one of ‘the fundamental

182 R. David, ‘The International Unification of Private Law’, in International Encyclopedia of

Comparative Law, Vol. 2, at 141, commenting on the setting up of the Hague Confer-

ence on Private International Law.

183 For the text of these Conflict of Laws Conventions, see, for example, A. Prujiner, Trea-

ties and International Documents used in International Trade Law, Montreal, (1992). On

the Convention on the Law Applicable to Agency, see H. L. E. Verhagen, Agency in

Private International Law, The Hague, (1995).

184 On the Convention in general see P. Lagarde, ‘Le nouveau droit international privé des

contrats après l’entrée en vigueur de la Convention de Rome du 19 juin 1980’, 1991

Rev. crit., p. 287 et seq.

185 See Article 7 of the Convention on the Law Applicable to the International Sale of

Goods (CLAISG), Article 3 of the Rome Convention, Article 5 of the Convention on

the Law Applicable to Agency (CLAA).

50 The Unification and Liberalisation of International Trade Law

principles of private international law’ by the Institut de droit international –186

had, in fact, been well established in all contracting states. In addition, the

drafters of some conventions have considerably enlarged the scope of appli-

cation of these and, therefore, the scope of application of the principle of

party-autonomy. The Rome Convention, for example, provides that it ap-

plies to all situations ‘involving a choice between the laws of different coun-

tries.’187 This provision has generally been interpreted as meaning that the

scope of application of the Convention (and of the principle of party-

autonomy) extends to ‘purely’ domestic contracts.188 As is again illustrated

by the Rome Convention, some conflict of laws conventions also widen the

scope of party-autonomy inasmuch as they enlarge the array of possible

choices. The Rome Convention, in fact, allows the parties to choose the law

of a State to which the contract bears no material connection. Considering

that the possibility of selecting a ‘third’ law has long been controversial and

is still not fully recognised in a number of jurisdictions,189 the inclusion of

such a provision represents substantial progress, in particular with regard to

substantive neutrality.

The second principal achievement relates to the determination of the appli-

cable law in the absence of a party-choice to this effect. In this respect, con-

flict of laws conventions invariably refer to the so-called ‘closest-

connection-test’,190 which constitutes, as we have noted, the ‘modern’ way of

expressing Savigny’s idea of the ‘seat’ of a legal relationship. Conflict of laws

conventions habitually provide guidelines as to how this closest connection

is to be determined. As is indicated by the Rome Convention, one generally

considers that the contract is most closely connected with the State of resi-

dence of the party effecting the performance that is ‘characteristic of the

contract’.191 Conflict of laws conventions governing particular contracts

specify which performance is to be considered as ‘characteristic’.192

186 Résolutions de l’Institut de droit international, 1957-1991 (1992), at 409.

187 Article 1(1) of the Convention.

188 See P. Lagarde, op. cit., at 294.

189 In the United States, for example, party-autonomy has traditionally been rejected.

Today, it is accepted provided that the law chosen has some relationship with the par-

ties or the transaction. On this aspect, see J. Collins (ed.), Dicey and Morris on The Con-

flict of Laws, Vol. 2, at 1212.

190 See Article 8(3) of the CLAISG, Articles 4(1) and 4(5) of the Rome Convention,

Article 6, third § of the CLAA.

191 See Article 4(2) of the Rome Convention.

192 In a sale for goods, the seller’s performance presumably is the characteristic one. In an

agency contract, it is the performance of the agent. See Articles 8(1) of the CLAISG

and 6, 1st § of the CLAA.

51The autonomy of the law applicable to the merits

B. Traditional tools to achieve substantive unification and

liberalisation

One can distinguish between unification and liberalisation at the interna-

tional and at the domestic level. According to the level at which these ob-

jectives are pursued, the focus varies. While, at the international level, the

emphasis lies on unification,193 liberalisation constitutes the principal con-

cern at the domestic level.

1. Substantive unification and liberalisation at the international level: The

adoption of uniform laws

Uniform laws are comprehensive statutes specifically governing international legal

relationships. They contain exclusively substantive or material rules, i.e. rules

applying to the substance of the legal relationships they are intended to

govern. They co-exist with the rules applying to domestic legal relation-

ships.

Uniform law conventions have been adopted in a number of fields including

agency,194 bills of exchange and promissory notes,195 and transport.196 Par-

ticular attention has been devoted to the unification of the international

sale of goods.197 Initial efforts in this area have led to the adoption of the

193 Indeed, some authors rightly point out that unification supposes international co-

operation. See, for example, G. Bernini, ‘Recent Legislations and International Unifica-

tion of the Law on Arbitration’, in Proceedings of the 1st International Commercial Arbitra-

tion Conference, p. 315 et seq., at 315: ‘The goal of harmonization can obviously be

reached only through legislative enactments at the level of the interested national

States.’

194 See the 1983 Convention on Agency in the International Sale of Goods (CAGEN).

195 See the United Nations Convention on International Bills of Exchange and Interna-

tional Promissory Notes. For the text of this convention, see A. Prujiner, Treaties and

International Documents used in International Trade Law, p. 105 et seq.

196 See the 1929 Warsaw Convention governing the liability of the carrier in air transport.

See also the CMR and CIM Conventions relating respectively to road and rail

transport.

197 See C. M. Bianca and M. J. Bonell, Commentary on the International Sales Law – The

1980 Vienna Sales Convention, at 3: ‘In the last decades major efforts have been made for

the international unification of important areas of law and from the beginning the topic

of sales law has occupied a pre-eminent position.’

52 The Unification and Liberalisation of International Trade Law

1964 Hague Conventions. Implemented by only nine States, these Conven-

tions clearly failed to achieve the expected worldwide unification of interna-

tional sales law. Significant improvement, however, has been brought about

by the 1980 Vienna Convention (Convention on the International Sale of

Goods or CISG).198

The poor success of the 1964 Hague Conventions illustrates the difficulties

that the elaboration and application of uniform laws typically encounter.199

As regards the elaboration of uniform laws, the main obstacle lies in the

quasi-impossibility of drafting a ‘universally acceptable’ document. Indeed,

where the various legal systems follow fundamentally different approaches,

these differences might frustrate any attempt to reach some ‘common

ground’.

As far as the application of uniform laws is concerned, their notorious in-

comprehensiveness substantially reduces the unificatory effect.Uniform laws,

indeed, do not generally cover all aspects of the legal relationships to which

they relate. Issues that do not fall under a particular uniform law are, there-

fore, governed by the applicable domestic law. The CISG, for example, does

not apply to ‘the validity of the contract or any of its provisions or of any

usage’.200 Under the CISG, these questions are examined in accordance with

the law of the State in which the seller has his place of business.201 This

leads to an – undesirable –202 fragmentation or dépeçage of the legal relation-

ship at issue.

Such dépeçage may also occur where courts are called upon to fill gaps of

uniform laws. Although uniform laws generally provide for independent gap-

filling, i.e. gap-filling in conformity with the respective convention’s general

198 For commentary on the CISG see : P. Schlechtriem, Commentary on the UN Convention

on the International Sale of Goods; A. Prujiner, Treaties and Documents used in Interna-

tional Trade Law; C. M. Bianca and M. J. Bonell, op. cit.; V. Heuzé, La vente internation-

ale de marchandises. See also B. Knapp, ‘Unification internationale des règles et désigna-

tion du droit applicable’, in Mélanges en l’honneur de Yvon Loussouarn, p. 219 et seq.

199 On these difficulties see, in particular, H. M. Holtzmann, ‘Key Factors for the Success of

Uniform International Commercial Texts’, in C. Dominicé, R. Patry and C. Reymond

(eds.), Etudes de droit international en l’honneur de Pierre Lalive, Bâle/Francfort-sur-le-

Main, 1993, p. 257 et seq.

200 See Article 4(a) of the Convention.

201 See Article 8(1) of the Convention on the Law Applicable to Contracts for the Inter-

national Sale of Goods.

202 See P. Lagarde, ‘Le dépeçage dans le droit international privé des contrats’, 1975 Riv.

dir. int. priv. e proc., p. 649 et seq.

53The autonomy of the law applicable to the merits

principles,203 such gap-filling may prove impossible. In this event, courts

must have recourse to domestic laws.204

Another obstacle preventing the effective functioning of uniform laws re-

lates to the lack of uniform interpretation. This uniform interpretation re-

quires, in fact, that uniform law provisions be construed independently of

domestic heuristic methods, which means that the concepts referred to in

uniform laws must not be given the meaning they are attributed in the do-

mestic context. Instead, they are to be interpreted in consideration of their

international character and the need to promote their uniform appli-

cation.205

In practice, however, State court judges frequently prove unable (or unwill-

ing) to construe uniform laws independently of the particularities of their

respective domestic legal systems. As we have already observed with respect

to ‘cultural neutrality’ and lex forism, the attitude of State court judges is,

almost inevitably, moulded by the legal system to which they pertain.

2. Substantive unification and liberalisation at the domestic level: The

adoption of material rules of private international law

Contrary to conflict of laws rules, material rules of private international law

(‘material rules’) apply to the substance of a given legal relationship, i.e.

they provide a substantive solution to a particular legal problem. At the

international level, as we have seen, material rules are adopted in the form

of uniform laws. At the domestic level, material rules can be either adopted

by way of a legislative act (statutory material rules)206 or elaborated by the

courts (judge-made material rules).

Some authors consider that the adoption of material rules primarily aims to

promote substantive unification. Steindorff, for example, views (judge-

made) material rules as a means to achieve substantive neutrality at the

dispute settlement stage.207 He argues that judges should, based on a com-

parative examination, elaborate rules that take into account the content of

the laws of both (or all) parties involved. His understanding of the material

rules method therefore closely resembles the tronc commun doctrine, exam-

203 See, for example, Article 7(2) of the CISG.

204 See P. Schlechtriem, op. cit., at 66.

205 See, for example, Article 7(1) of the CISG.

206 An often-cited example of statutory material rules is the Czechoslovakian Code of

International Commerce. See, for example, P. Mayer, Droit international privé, at 12.

207 See E. Steindorff, Sachnormen im Internationalen Privatrecht (1958).

54 The Unification and Liberalisation of International Trade Law

ined infra.208 In practice, however, the focus of material rules lies on liberali-

sation. Indeed, unification, inasmuch as it implies the adoption of identical

rules in different jurisdictions, necessarily supposes consensus at the interna-

tional level. Material rules, however, are specific to one particular State and,

therefore, lack this consensus. The practice of material rules reveals, in fact,

that the circumvention of the conflict of laws method is essentially aimed at

avoiding the application of possibly restrictive foreign rules. The predomi-

nance of the objective of liberalisation is well illustrated by the French ex-

ample. Indeed, French courts have elaborated various material rules liberalis-

ing the regime applicable to international contracts. These material rules

include the rule allowing parties to an international contract freely to

choose the currency of account (monnaie de compte), the rule authorising

indexation clauses prohibited in domestic law,209 and the rule recognising

the validity of arbitration agreements.210 Liberalisation also appears to be the

primary objective of statutory material rules. The 1987 Swiss PILS, for ex-

ample, contains numerous liberal material rules, in particular as far as inter-

national arbitration is concerned. Under the Swiss PILS, material rules gov-

ern the validity of arbitration agreements211 and some aspects of the enforce-

ability of arbitral awards.212

Although the material rules method pursues a legitimate objective, it is

flawed by serious methodological defects. Indeed, it is generally presented as

an alternative method of private international law, equivalent to the con-

flict of laws. However, even though this is not openly expressed, the mate-

rial rules method entails the systematic application of domestic law, i.e. it

implies lex forism. As we have seen, lex forism not only relies on the unten-

able assumption of the superiority of domestic law to foreign laws, but also

stands in contradiction to domestic conflict of laws norms.

More accurately, the material rules of a particular jurisdiction should only be

applied where the conflict of laws mechanism leads to the application of the

domestic law of that jurisdiction.213 This is, indeed, how uniform law con-

208 On the tronc commun doctrine, see infra at 66.

209 Cour de cassation, 21 June 1950, 1950 Rev. crit., p. 609 et seq.

210 See the Mardelé and Dambricourt decisions quoted infra, Chapter 5, at 139, fn. 567.

211 As far as the validity of arbitration clauses is concerned, see Article 177 of the Swiss

PILS relating to objective and subjective arbitrability.

212 See, for example, Article 190(2)(d) of the Swiss PILS. According to this provision, the

arbitral procedure need not comply with a particular domestic law. Swiss enforcement

courts merely examine whether ‘the principle of equal treatment of the parties or their

right to be heard in adversarial procedure’ has been observed.

213 See P. Mayer, Droit international privé, at 12: ‘… le procédé direct de réglementation ne doit

pas se substituer au procédé indirect, mais se combiner avec lui.’ (‘The direct means of regu-

55The autonomy of the law applicable to the merits

ventions function. The 1980 Convention on the International Sale of

Goods, for example, only applies if both parties are established in a contract-

ing State or if the conflict of laws rules lead to the application of the law of a

contracting State.214 This means that the Convention applies in all cases in

which the law of a contracting State would be applicable according to the

forum’s conflict of laws rules. It does not, therefore, apply where the conflict

rules designate the law of a non contracting State.

C. The doctrine of lex mercatoria or transnational law

1. Terminology

When characterising what supposedly constitutes the emerging autonomous

law of international commerce, most authors use the term ‘transnational’. In

fact, frequent references can be found to the concept of ‘transnational

rules’215 or ‘transnational law’.216 In addition, one increasingly encounters

expressions such as ‘transnational trade relations’217 or ‘transnational tribu-

nals’,218 which indicate a rather abusive recourse to the concept of ‘trans-

national’.

In light of the general acceptance and usage of the term ‘transnational law’,

the lack of attempts to define this concept is surprising. Although some

authors have provided comprehensive accounts of the emergence, evolution

lation should not be substituted for the indirect one, but be combined with it’, transla-

tion by the author).

214 See Article 1(1) of the Convention.

215 See, for example, B. Goldman, ‘Nouvelles réflexions sur la Lex Mercatoria’, in

C. Dominicé, R. Patry and C. Reymond (eds.), Etudes de droit international en l’honneur

de Pierre Lalive, Bâle/Francfort-sur-le-Main, 1993, p. 241 et seq., at 244 where the au-

thors refers to ‘transnational principles, rules and usages’ (translation by the author); E.

Gaillard, ‘Transnational Law: A Legal System or a Method of Decision Making?’, 2001

Arb. Int’l, p. 59 et seq., at 62; H. Grigera Naon, ‘Enforceability of Awards Based on

Transnational Rules under the New York, Panama, Geneva and Washington Conven-

tions’, in Transnational Rules in International Commercial Arbitration, ICC Publication

480/4, p. 125 et seq.

216 See, for example, the articles contained in K. P. Berger (ed.), The Practice of Transna-

tional Law (2001) and, esp. K. P. Berger, ‘The New Law Merchant and the Global Mar-

ket Place – A 21st Century View of Transnational Commercial Law’, p. 1 et seq.

217 See, for example, P. Bernardini, The Italian Law on Arbitration – Text and Notes, preface.

218 Mitsubishi Motors Corp. V. Soler Chrysler-Plymouth, Inc. 473 U.S. 614 (1985) referring

to ‘respect for the capacities of foreign or transnational tribunals’ (emphasis added).

56 The Unification and Liberalisation of International Trade Law

and function of the doctrine of transnational law,219 they appear not to have

attributed particular weight to the elaboration of a definition of the concept

of transnational law.

Some writers have emphasised the fact that transnational law ‘transcends’

national boundaries.220 This ‘transcending’ nature, however, also character-

ises classical international law, i.e. inter-State law. Most authors, therefore,

agree that the main distinguishing feature of transnational law lies in its

private as opposed to public (i.e. State) origin.221 However, even this alleged

characteristic of transnational law does not plainly match the habitual views

on the sources of transnational law. It is, for instance, not compatible with

the classical view according to which general principles of law – which do

not derive from private normative activity, but from a comparative examina-

tion of the rules contained in the various domestic legal systems – form part

of transnational law.

Transnational law is thus best defined by way of reference to the objectives

that is pursues. As we have seen, the doctrine of transnational law or lex

mercatoria aims to create a uniform and liberal normative framework for

international commercial transactions. Transnational law therefore com-

prises all rules that satisfy these criteria. Designed to apply in the context of

international commerce, this doctrine is more accurately referred to as lex

mercatoria. This expression will be preferred in the later course of this study.

2. Historical background and evolution of the doctrine of lex mercatoria

An impressive amount of literature has been devoted to the lex mercatoria

doctrine.222 The countless number of articles and books on this subject re-

219 See, in particular, K. P. Berger, The Creeping Codification of the Lex Mercatoria (1999);

K. P. Berger (ed.), The Practice of Transnational Law (2001).

220 See, for example, H. J. Berman and F. J. Dasser, ‘The “New” Law Merchant and the

“Old”: Sources, Content, and Legitimacy’, in T. E. Carbonneau (ed.), Lex Mercatoria

and Arbitration (1998), p. 53 et seq.

221 From the beginning, lex mercatoria or transnational law has been conceived of as a

means of self-regulation of the international business community. See, for example,

B. Goldman, ‘Nouvelles réflexions sur la Lex Mercatoria’, in C. Dominicé, R. Patry and

C. Reymond (eds.), Etudes de droit international en l’honneur de Pierre Lalive,

Bâle/Francfort-sur-le-Main, 1993, p. 241 et seq., at 244.

222 See supra, at 42.

57The autonomy of the law applicable to the merits

flect one of the greatest controversies in the history of legal theory, a battle

fought between the lex mercatorists and their opponents.223

The lex mercatoria concept such as developed by its founding-fathers Gold-

man and Schmitthoff224 is based on the observation that international com-

merce is to a large extent governed by a specific body of rules consisting

mainly of general principles of law and trade usages. According to Goldman,

these ‘transnational principles, rules and usages’, rather than being imposed

by state or interstate authorities, are ‘formed or adopted spontaneously in

the course of the conclusion or functioning of these [international economic

relations].’225 Through this normative activity, the international business

community strives to respond to the specific normative needs of interna-

tional business transactions. These specific needs of international business

arguably are ‘the very raison d’être of recourse to transnational rules, these

rules having been conceived and developed in response to the perceived

inadequacies of national legal orders.’226

Based on the observation of the normative autonomy of international trade,

the lex mercatoria doctrine claims recognition of lex mercatoria rules by State

legislators and courts. It aims to legitimise recourse to these rules both by

parties (through choice-of-law clauses) and by decision-making authorities.

The lex mercatoria doctrine, therefore, supposes a re-definition of the con-

cept of law, traditionally understood as rules enacted by the State. It is thus

not surprising that the lex mercatoria doctrine should have emerged in the

context of international arbitration. Indeed, unlike State court judges, arbi-

trators are not generally considered to be bound by the duty to apply the

law.227 Moreover, as Sandrock points out, ‘arbitrators do not like to be bound

223 See, for example, E. Gaillard, ‘Thirty Years of Lex Mercatoria: Towards the Discriminat-

ing Application of Transnational Rules’, in ICCA Congress series n° 7, p. 582 et seq.,

esp. at 583.

224 Fundamental writings of Goldman and Schmitthoff include: B. Goldman, ‘Frontières du

droit et lex mercatoria’, 1964 Archives de philosophie du droit, p. 177 et seq.; B. Goldman,

1977-1979 Trav. com. fr. dr. int. pr., p. 221 et seq.; B. Goldman, ‘La lex mercatoria dans

les contrats et l’arbitrage internationaux : réalité et perspectives’, 1979 Clunet, p. 475

et seq.; C. Schmitthoff, ‘International Business Law: A New Law Merchant’, 1961 Cur-

rent Law and Social Problems, p. 129 et seq.

225 B. Goldman, ‘Nouvelles réflexions sur la Lex Mercatoria’ in C. Dominicé, R. Patry and

C. Reymond (eds.), Etudes de droit international en l’honneur de Pierre Lalive,

Bâle/Francfort-sur-le-Main, 1993, p. 241 et seq., at 244 (free translation).

226 See E. Gaillard, ‘Transnational Law: A Legal System or a Method of Decision Making?’,

2001 Arb. Int’l, p. 59 et seq., at 62.

227 See P. Mayer, ‘Reflections on the International Arbitrator’s Duty to Apply the Law.

The 2000 Freshfields Lecture’, 2001 Arb. Int’l, p. 235 et seq.

58 The Unification and Liberalisation of International Trade Law

by national legal prescriptions which, from their point of view, often belong

to a foreign system of law with which they are not familiar’.228

It is in the light of the objectives of the lex mercatoria doctrine that the evo-

lution of the debate and, in particular, some of the early contentions must be

assessed. If Goldman and other representatives of the ‘French School’229

argue that lex mercatoria constitutes an autonomous legal order,230 they do so,

as we have explained, mainly in order to legitimate recourse to its rules.

Indeed, if lex mercatoria constitutes a ‘legal order’, then its rules must be

considered as ‘law’ and the application of these rules be upheld by state au-

thorities.

Of particular importance in this respect is the question of whether arbitra-

tors can, in the absence of a choice-of-law by the parties, apply lex mercato-

ria. Indeed, where the parties have selected lex mercatoria, its application

simply rests on an expansion of the scope of party-autonomy. In the absence

of such a party-choice, the application of lex mercatoria supposes a different

theoretical basis. It supposes, in fact, that lex mercatoria constitutes the

‘proper law’ of international commerce. The characterisation of lex mercato-

ria therefore is of great practical relevance.

The lex mercatoria doctrine as outlined above has encountered fierce resis-

tance in large parts of the academic world. Critics reject the view according

to which lex mercatoria constitutes an autonomous legal order comparable to

the State legal order. They argue, inter alia, that lex mercatoria lacks the

comprehensiveness of the State legal order. In an attempt to determine the

substance of lex mercatoria, Lord Mustill has drawn up a list of twenty rules

that he considers to form part of it.231 He concludes that, ‘incomplete as it

may be, [it] seems rather a modest haul for twenty-five years of international

arbitration.’232

Sensitive to these criticisms, the new generation of lex mercatorists has

sought to come up with more acceptable alternative approaches. The cur-

228 See O. Sandrock, ‘How Much Freedom Should an International Arbitrator Enjoy? –

The Desire for Freedom from Law v. The Promotion of International Arbitration’, 1992

Am. Rev. Int’l. Arb., p. 30 et seq., at 32.

229 This expression is borrowed from K. P. Berger, ‘The New Law Merchant and the Global

Market Place – A 21st Century View of Transnational Commercial Law’, in K. P. Berger

(ed.), The Practice of Transnational Law, p. 3 et seq., at 6.

230 See, for example, B. Goldman, op. cit., at 249: ‘Nous pensons donc qu’il existe bien un

ordre juridique de la lex mercatoria.’ (‘I therefore think that lex mercatoria is a legal order’,

free translation).

231 See M. Mustill, ‘The New Lex Mercatoria: The First Twenty-five Years’, in Liber Ami-

corum for Lord Wilberforce, p. 149 et seq., at 178.

232 Ibid.

59The autonomy of the law applicable to the merits

rent status of the lex mercatoria debate can be summarised by Ning’s observa-

tion according to which

‘neither the school of thought embracing the wide concept of lex mercatoria

as an autonomous anational legal order sufficient to serve as the independ-

ent law of international contracts, nor the school of thought that entirely

rejects the existence of lex mercatoria as law, is acceptable.’233

In line with the compromise suggested by Ning are the views expressed by

Gaillard. He argues that lex mercatoria constitutes a decision-making method

rather than a set of rules.234 The approach advocated by Gaillard consists in

‘deriving the substantive solution to the legal issue at hand not from a par-

ticular law selected by a traditional choice-of-law process, but from a com-

parative law analysis which will enable the arbitrators to apply the rule

which is the most widely accepted, as opposed to a rule which may be pecu-

liar to a legal system or less widely recognized.’235

Gaillard’s view of lex mercatoria as a methodological approach centred on a

‘comparative law analysis’ emphasises the normative function of arbitrators.

Such conferral of normative powers upon arbitrators is sometimes perceived

as blurring the borderline between decisions en droit and decisions rendered

ex æquo et bono.236 Sandrock observes in this respect that

‘… there is a clear boundary between (normal) arbitrators in charge of ap-

plying strict legal rules, on the one hand, and (special) arbitrators authorized

to decide ex aequo et bono or as amiables compositeurs, i.e. in equity, on the

other. Without proper authorization by the parties, this boundary must

never be transgressed by a (normal) arbitrator. His power does not reach

beyond the limits of strict law. Rendering a decision in equity would be ultra

vires for him.’237

Although decisions rendered ex æquo et bono are not per se undesirable, the

arbitrator’s intent to reach a ‘fair’ solution should, as Sandrock’s statement

suggests, not prevail over the principle of party-autonomy.

That the fears expressed by Sandrock are exaggerated has been demon-

strated by Berger. His most accurate analysis of the lex mercatoria concept

233 See J. Ning, ‘The Status of Lex Mercatoria in International Commercial Arbitration’,

1996 Am. Rev. Int’l. Arb., p. 163 et seq., at 197.

234 See E. Gaillard, ‘Transnational Law: A Legal System or a Method of Decision Making?’

2001 Arb. Int’l, p. 59 et seq.

235 See E. Gaillard, op. cit., at 62.

236 On the concept of equity in the particular context of international litigation and arbi-

tration, see U. Scheuner, ‘Decisions ex aequo et bono by International Courts and Arbi-

tral Tribunals’, in International Arbitration Liber Amicorum for Martin Domke,

at 275 et seq.

237 See O. Sandrock, op. cit., at 54.

60 The Unification and Liberalisation of International Trade Law

and doctrine has significantly improved the quality of the debate. Though

not opposed to Gaillard’s methodological suggestions, Berger lays emphasis

on the substantive dimension of lex mercatoria, i.e. on its quality as a body of

rules. According to Berger, lex mercatoria does not exclusively – not even

primarily – derive from arbitral decision-making. Instead, it is subject to a

process of codification by ‘formulating agencies’ such as UNCITRAL,

UNIDROIT,238 or the ICC. In fact, Berger believes that lex mercatoria ‘is

capable of being codified in norm-like principles and rules together with

commentary-like explanations, thus providing international legal practitio-

ners with a means to apply [it] in every day legal practice.’239

3. The lex mercatoria doctrine as a means to promote the unification and

liberalisation of international trade law

As a means to respond to the specific normative needs of international

commerce, lex mercatoria constitutes, by definition, a uniform and liberal

body of rules.240 Suggested definitions of lex mercatoria reflect these charac-

teristics. Rivkin, for example, defines lex mercatoria as an ‘amalgam of public

international law, certain uniform laws, general principles of law, rules of

international organizations, customs and usages of international trade, stan-

dard forms contracts, and arbitral case law.’241 The various components of lex

mercatoria are, thus, all characterised by a high degree of uniformity and

liberalism. General principles of law,242 for example, are principles that are

238 The UNIDROIT Principles of International Commercial Contracts constitute one of

the most accomplished attempts to codify lex mercatoria. On this issue, see G. Baron,

‘Do the UNIDROIT Principles of International Commercial Contracts Form a New Lex

Mercatoria?’ 1999 Arb. Int’l, p. 115 et seq. Additional literature on the UNIDROIT

Principles includes, among others, R. Hill, ‘A Businessman’s View of the UNIDROIT

Principles’, 13 J. Int. Arb. 2, p. 163 et seq.

239 K. P. Berger, The Creeping Codification of the Lex Mercatoria, at 3.

240 See A. Redfern and M. Hunter, The Law and Practice of International Commercial Arbi-

tration, at 118 where the authors state that one of the advantages of lex mercatoria rules

lies in their ‘uniform application’ and the avoidance of the ‘vagaries of different na-

tional laws.’

241 See D. Rivkin, ‘Enforceability of Arbitral Awards Based on Lex Mercatoria’, 1993 Arb.

Int’l, p. 67 et seq., at 67.

242 On the meaning of this concept, see E. Gaillard, ‘La distinction des principes généraux

du droit et des usages du commerce international’, in Etudes offertes à Pierre Bellet, p. 203

et seq., at 204: ‘By general principles of international trade law one understands all those

rules which do not pertain to a single legal system, but which derive from the compari-

son of domestic laws, or directly from international sources’ (free translation). See also

61The autonomy of the law applicable to the merits

recognised in all or a great number of legal systems.243 Customs and usages of

international trade are applied irrespectively of geographical locations; they

transcend national boundaries. The same can be said with respect to the

other components of lex mercatoria.

As has been explained, lex mercatoria refers less to an already established set

of rules than to an ongoing codification process. The lex mercatoria doctrine

therefore serves as a legitimisation for the progressive unification and liber-

alisation of international trade law. It encourages both (inter-) State and

private efforts to this effect. While the former include, for example, uniform

laws and the UNIDROIT Principles, the latter refer, inter alia, to private

codification of trade practices and arbitral case law.244 Arbitral decision-

making, in fact, helps clarifying whether a particular rule forms part of lex

mercatoria.245 Moreover, arbitral awards increasingly assume a precedent

function. This explains why arbitral case law is frequently considered to

form part of lex mercatoria.246

P. Juillard, ‘Existe-t-il des principes généraux du droit international économique ?’, in J.-

P. Costa, A. Damien, Y. Gaudemet and D. Hascher (eds.), L’internationalité dans les insti-

tutions et le droit – Convergences et défis (Etudes offertes à Alain Plantey) , p. 243 et seq.;

N. Wühler, ‘Application of General Principles of Law’, in ICCA Congress series n° 7,

p. 565 et seq.

243 The question of when a rule qualifies as a general principle of law or as a ‘transnational’

rule is, however, highly controversial. Contrasting opinions are expressed with respect

to a number of rules. See, for example, P. Bowden, ‘L’interdiction de se contredire au

détriment d’autrui (Estoppel) as a Substantive Transnational Rule in International

Commercial Arbitration’, in Transnational Rules in International Commercial Arbitration,

ICC Publication 480/4, p. 125 et seq.

244 The very concept of arbitral case law is sometimes challenged. It is argued that, contrary

to State court judgments, arbitral awards 1) do not constitute binding precedents and 2)

cannot serve as such since they are generally not published. One could therefore not

speak of arbitral ‘case law’. See, J. Paulsson, ‘La Lex Mercatoria dans l’arbitrage CCI’,

1990 Rev. Arb., p. 55 et seq., at 55. However, it cannot be denied that arbitrators in-

creasingly refer to prior arbitral decisions in order to motivate their own decision. Even

Paulsson recognises this evolution of the practice of international arbitration. See

J. Paulsson, op. cit., at 56-57.

245 See K. P. Berger, The Creeping Codification of the Lex Mercatoria. In an annexe, Berger

lists 78 lex mercatoria principles with an impressive amount of references to national

laws, private codifications, and arbitral case law.

246 See D. Rivkin, op. cit.

62 The Unification and Liberalisation of International Trade Law

4. Recognition of lex mercatoria by the State

Authorising the parties to select lex mercatoria as the law applicable to the

agreement or dispute constitutes a first step towards its general acceptance

by State legislators and courts. From this perspective, the recognition of the

validity of an arbitral award based upon lex mercatoria derives from an exten-

sion of the scope of private international law party-autonomy. Recognition

of the right of arbitrators to apply lex mercatoria in the absence of a choice-

of-law by the parties, on the other hand, marks its acceptance as the appro-

priate normative body for international commerce.

a. Validity of choice-of-law clauses providing for the application of lex

mercatoria

The parties’ right to have their contract governed by (and disputes decided

in accordance with) lex mercatoria receives increasing support by legislators

and courts.247 This is particularly well reflected by the terminological shift

from ‘law’ to ‘rules of law’ characterising recently adopted arbitration stat-

utes. Under these statutes, the parties are not required to select a particular

domestic law; they may refer to ‘rules of law’. This trend, initiated by the

1980/81 French decrees,248 has been followed in numerous countries includ-

ing the Netherlands,249 Italy,250 Germany,251 and Switzerland.252 It is also

reflected in the UNCITRAL Model Law.253

The validity of choice-of-transnational law-clauses is also recognised in

countries that are traditionally hostile towards the lex mercatoria doctrine

such as England and the United States. In England, prior to the enactment

of the 1996 Arbitration Act, courts were generally reluctant to authorise

247 See, in general, H. Grigera Naon, op. cit., p. 89 et seq.

248 See Article 1496 of the French NCPC.

249 See Article 1054 of the Dutch Code of Civil Procedure. For commentary see, A.V.M.

Struycken, ‘La lex mercatoria dans le droit des contrats internationaux’, in L’Evolution

Contemporaine du Droit des Contrats – Journées Renée Savatier, Poitiers, 24-25 October

1985, (1986), p. 207 et seq., at 227.

250 See Article 834 of the Italian Code of Civil Procedure and commentary by P. Bernar-

dini, op. cit., at 26.

251 See Article 1054 of the German ZPO.

252 See Article 187 of the Swiss PILS. For commentary see Marc Blessing, ‘The New Inter-

national Arbitration Law in Switzerland – A significant Step Towards Liberalism’,

5 J.Int’l.Arb. 9, p. 60 et seq.; Pierre Lalive and Emmanuel Gaillard, ‘Le nouveau droit de

l’arbitrage international en Suisse’, 1989 Clunet, p. 905 et seq., at 945.

253 See Article 28(1) of the Model Law.

63The autonomy of the law applicable to the merits

recourse to lex mercatoria. They frequently associated lex mercatoria with

excessive arbitral discretion and unpredictability. In the Court of Appeal’s

decision in Home and Overseas Insurance,254 for example, Parker L. J. ob-

served in an obiter dictum:

‘I have no hesitation in accepting Mr. Clarke’s submission that a clause

which purported to free arbitrators to decide without regard to the law and

according, for example, to their own notices of what would be fair would not

be a valid arbitration clause.’

Although Home and Overseas Insurance does not expressly address this issue,

it is generally considered to prohibit recourse to lex mercatoria. In Deutsche

Schachtbau,255 however, the Court of Appeal confirmed an award based not

on a given domestic law, but on ‘internationally accepted principles of law

governing contractual relations.’ This liberal attitude seems to prevail in the

1996 Arbitration Act. The Act provides, as a general rule, that the arbitral

tribunal shall decide the dispute in accordance with ‘the law chosen by the

parties’.256 However, if the parties so agree, the arbitral tribunal shall decide

the dispute in accordance with ‘such other considerations as are agreed by

them or determined by the tribunal’ (emphasis added).257 These ‘other con-

siderations’ are, in particular in light of the landmark case Deutsche Schacht-

bau, generally considered to include lex mercatoria.258 A similar trend can be

observed in the United States.259

254 Home and Overseas Insurance Co. Ltd. V. Mentor Insurance Co. (UK) Ltd., [1989] 3 All

E.R. 74; [1989] 1 Lloyd’s Rep. 473 (C.A.).

255 Deutsche Schachtbau- und Tiefbohrgesellschaft mbH v. Ras Al Khaimah National Oil Co.

[1987] 2 Lloyd’s Rep. 246.

256 See Section 46(1)(a).

257 See Section 46(1)(b).

258 See J. Savage and E. Gaillard (eds.), Fouchard, Gaillard, Goldman on International Com-

mercial Arbitration, at 804; S. R. Shackleton, ‘The Applicable Law in International

Commercial Arbitration Under the New English Arbitration Act’, 1997 Arb. Int’l,

p. 375 et seq. However, at 378-79, Shackleton argues that ‘the application of transna-

tional rules will not result from any inherent vocation, but only by way of party auton-

omy and state licence’. He further states that the ‘idea that international transactions

are distinct from domestic contracts and may be governed by specific substantive rules

evolved at the international level is thus firmly rejected by the new Act which rests on

a notion of the primacy of national law.’

259 See Ministry of Defense v. Gould, Inc., 887 F.2d 1357 (9th Cir. 1989).

64 The Unification and Liberalisation of International Trade Law

b. The arbitrator’s right to apply lex mercatoria in the absence of a choice-

of-law clause concluded by the parties

The question of whether the arbitrator has the power to apply lex mercatoria

lacking a party-agreement to that effect forms part of the more general ques-

tion of the determination of the applicable law in the absence of a choice-

of-law by the parties.260 Various methods have been conceived in response to

this question. The development of these methods clearly indicates a trend

towards the application of transnational rules or lex mercatoria. This evolu-

tion has been facilitated by the acceptance of the decreasing relevance of

the localisation of the arbitral seat.

i. Application of the conflict of laws rules of the arbitral seat

The view according to which the arbitrator is bound to apply the conflict of

laws rules of the arbitral seat is based on the doctrine of localisation of in-

ternational arbitration. Most famously defended by Mann,261 this doctrine

argues that the localisation of the arbitral seat (and, as a result, of the arbi-

tral proceedings) in the territory of a given State (referred to as ‘the seat’)

entails jurisdiction of the courts and applicability of the laws of that State

(judicial and legislative localisation). Legislative localisation claims, in the-

ory, the applicability of both the procedural and the substantive laws of the

seat. In reality, the latter has never been argued by the proponents of local-

isation. The applicability of the substantive laws of the seat, indeed, stands

in contradiction with the fundamental principle of private international law

party-autonomy.262

As far as the applicable procedural law (including conflict of laws rules) is

concerned, arbitrators traditionally consider themselves to be bound by the

260 On this question in general see, for example, B. Goldman, ‘L’arbitre, les conflits de lois

et la lex mercatoria’, in Proceedings of the 1st International Commercial Arbitration Confer-

ence, p. 103 et seq.; F.-E. Klein, ‘The Law to be Applied by the Arbitrators to the Sub-

stance of the Dispute’, in J. Schultsz and A. J. Van den Berg (eds.), The Art of Arbitra-

tion, p. 189 et seq.; J. Lew, ‘Relevance of Conflict of Laws Rules in the Practice of Arbi-

tration’, in ICCA Congress series n° 7, p. 447 et seq.

261 See F. Mann, ‘Lex Facit Arbitrum’, in Liber Amicorum Martin Domke, p. 157 et seq., at

164: ‘The law of the arbitration tribunal’s seat initially governs the whole of the tribu-

nal’s life and work. In particular, it governs the validity of the submission, the creation

and composition of the tribunal, the rules of the conflict of laws to be followed by it, its

procedure, the making and publication of its award.’

262 For a more detailed analysis of the doctrine of localisation, see infra Chapter 5 at 133

and Chapter 6 at 159 et seq.

65The autonomy of the law applicable to the merits

law of the seat. In ICC case n° 5460, for example, the arbitrator sitting in

England considered himself compelled to apply English conflict of laws rules.

Though predominant in the past, this approach has been substantially

eroded in recent years.263

ii. Application of the most ‘appropriate’ conflict of laws rules

The first step towards the recognition of lex mercatoria consists in freeing the

arbitrator from the laws of the arbitral seat. Instead of following the conflict

of laws rules of the seat, the arbitrator applies the conflict of laws rules that

he considers as the most appropriate. Such an approach has been adopted by

the drafters of the UNCITRAL Model law.264 It has also been followed in

England265 and the United States.266

When determining the most appropriate conflict of laws rules, arbitrators

generally take into account the requirement of equal predictability of the

applicable rules.267 Arbitrators therefore tend to apply conflict of laws rules

that are common to the legal systems of the parties involved. In ICC case

n° 6281, for example, the sole arbitrator, when addressing the question of

the law applicable to a sales contract concluded between an Egyptian and a

Yugoslav party, examined both Egyptian and Yugoslav private international

law. He decided to apply Yugoslav law since ‘all applicable rules on interna-

tional private law refer [to it].’268 Alternatively, arbitrators apply what they

perceive as general principles of the conflict of laws. The Rome Convention

is frequently considered to incorporate such general principles.269

263 See G. Born, International Commercial Arbitration in the United States (2001) at 104.

264 See Article 28(2) of the Model Law providing that in the absence of a choice of law by

the parties ‘the arbitral tribunal shall apply the law determined by the conflict of laws

rules which it considers applicable’.

265 See Section 46(3) of the 1996 English Arbitration Act.

266 See G. Born, op. cit., at 526.

267 For an overview of the methods followed by arbitrators in the determination of the most

appropriate conflict of laws rules see, for example, P. Lalive, ‘Les règles de conflits de

lois appliquées au fond du litige par l’arbitre international siégeant en Suisse’, 1976 Rev.

Arb., p. 155 et seq.

268 See S. Jarvin, Y. Derains and J.-J. Arnaldez, Collection of ICC awards, Vol. II,

pp. 249-250.

269 See J. Lew, ‘Relevance of Conflict of Laws Rules in the Practice of Arbitration’, in

ICCA Congress series n° 7, p. 447 et seq., at 448.

66 The Unification and Liberalisation of International Trade Law

iii. The voie directe method

According to the voie directe method, the arbitrator is freed not only from all

domestic systems of private international law, but more generally from the

conflict of laws mechanism as such. Instead of selecting or formulating a

particular conflict of laws rule, the arbitrator directly applies the law that he

considers appropriate.

Conceptually, however, the voie directe method is not entirely accurate.

Indeed, the determination of the substantive applicable law necessarily sup-

poses the solving of a conflict between various laws. The only notable differ-

ence with respect to the preceding methodological approach (i.e. the appli-

cation of the most appropriate conflict of laws rules) consists in the omission

of the conflict of laws rule or principle followed by the arbitrator. In prac-

tice, arbitrators adopting the voie directe approach generally motivate their

selection of the applicable law. In ICC case n° 4132,270 for example, the

arbitral tribunal referred to what it termed the ‘centre-of-gravity’ or ‘closest-

connection’ test.271 The arbitral tribunal held that ‘the centre-of-gravity test,

such as suggested by the defendant, would no doubt be relevant for the pur-

poses of solving this question [the determination of the applicable law].’272 It

concluded that Korean law was applicable because the contract was to be

performed mainly in Korea.

iv. The tronc commun doctrine

The methodological developments examined above all relate to the mecha-

nism by which the substantive applicable law is determined. They are lo-

cated at the conflict of laws level. The tronc commun doctrine,273 on the

contrary, operates at the substantive law level. By departing from domestic

laws, it sets the stage for lex mercatoria.

270 See Collection of ICC Arbitral Awards, Vol. I, p. 456 et seq. For commentary, see Yves

Derains, ‘Possible Conflict of Laws Rules and the Rules Applicable to the Dispute’, in

ICCA Congress series n° 2, p. 169 et seq., at 178.

271 Some statutes expressly provide for the application by the arbitrators of the closest-

connection test. This is the case of Italy, for example. See Article 834 of the Italian

Code of Civil Procedure.

272 See Collection of ICC Arbitral Awards, Vol. I, at 457 (free translation).

273 On the tronc commun doctrine in general, see B. Ancel, ‘The Tronc Commun Doctrine:

Logics and Experience in International Arbitration’, 7 J. Int. Arb. 3, p. 65 et seq.;

M. Rubino-Sammartano, ‘Le Tronc Commun des lois nationales en présence (réflexion

sur le droit applicable par l’arbitre international)’, 1987 Clunet, p. 133 et seq.

67The autonomy of the law applicable to the merits

Under the tronc commun doctrine, arbitrators apply, where possible, rules

that are common to the legal systems to which the parties pertain, i.e. the

tronc commun (‘common trunk’) of these systems. The tronc commun doc-

trine therefore helps to ensure substantive neutrality, which arguably con-

forms with the intention of the parties. According to Ancel,

‘the arbitrator should not … choose the provisions of the law of one con-

tracting party, provisions which, because of their peculiarity cannot be

deemed to have been known by the other party … The contracting parties,

however, can be expected to be conversant with the provisions of the law

common to both of them.’274

Various arbitral decisions have followed the tronc commun method.275 In

ICC case n° 2886,276 for example, the sole arbitrator, when examining the

question of the law applicable to an agency agreement involving a German

and a Yugoslavian party, held both Yugoslavian and German law to be ap-

plicable.

Conceived of as a method applied at the dispute settlement stage, the tronc

commun doctrine encounters increasing popularity in the practice of con-

tract drafting. In the ‘Channel Tunnel’ agreement, for example, the parties

agreed to submit the agreement to ‘the principles common to both English

law and French law’.277

v. Lex mercatoria

Even though numerous jurisdictions allow the parties to select lex mercatoria

as the applicable law, many are reluctant to confer equivalent powers upon

arbitrators. The UNCITRAL Model Law, for example, restricts the arbitra-

tor’s possible choices to domestic laws. The travaux préparatoires illustrate,

however, that the conferral upon arbitrators of the right to refer to lex merca-

toria did not encounter fundamental objections. The adoption of a more

‘cautious’ provision is, indeed, generally viewed as means to counterbalance

the progressive step taken with respect to the parties’ choice of the applica-

ble law. 278

274 See B. Ancel, op. cit., at 67.

275 See, for example, the decision in ICC case n° 1990, Yearbook 1978, 28; decision in ICC

case n° 3327, Y. Derains, ‘Chronique des sentences arbitrales’, 1982 Clunet, at 971.

276 1978 Clunet, p. 966 et seq.

277 The Channel Tunnel Group Ltd and France Manche SA v. Balfour Beatty Construction Ltd

et al., 10 J .Int. Arb. 3, p. 59 et seq., at 59.

278 See H. M. Holtzmann and J. E. Neuhaus, A Guide to the UNCITRAL Model Law on

International Commercial Arbitration, pp. 769-770.

68 The Unification and Liberalisation of International Trade Law

Although not (yet) widely accepted, the arbitrator’s power to apply lex mer-

catoria in the absence of a choice-of-law by the parties is recognised in lead-

ing arbitration nations such as Switzerland and France. Under Swiss arbitra-

tion law, the arbitral tribunal may apply the ‘rules of law with which the

case has the closest connection’.279 The reference to ‘rules of law’ is generally

considered to include lex mercatoria.280 Similarly, the French NCPC provides

for the application of ‘the rules of law’ which the arbitrator considers ‘appro-

priate’.281 Some of the major arbitral institutions including the ICC have

followed the same path.282

5. Future perspectives: The application of lex mercatoria by State courts

The lex mercatoria doctrine has emerged and prospered in the framework of

international commercial arbitration. As has been explained, the ability of

lex mercatoria to ensure substantive neutrality and party-autonomy consti-

tutes an advantage of the arbitral process when compared to ordinary litiga-

tion. As such, it contributes to the attractiveness of arbitration as a method

of solving international commercial disputes. This implies that State courts

do not (and cannot) apply lex mercatoria. As Baron rightly observes,

‘[o]utside arbitration, national courts do not yet apply the lex mercatoria as

law governing a contract.’283 Most national systems of private international

law, in fact, require parties and courts to select the domestic law of a particu-

lar country, thereby excluding the applicability of lex mercatoria.284

The principal obstacle to the admission of lex mercatoria in ordinary litiga-

tion arises, as we have seen, from the traditional perception of the function

of the judge. According to this view, the judge owes a duty to the State to

apply the law. As Mayer puts it:

‘A judge’s mission and obligations are clear: they consist in rendering justice,

i.e. in defining the respective rights of the parties as they result from the

applicable law. This is all that the parties expect of the judge. They do not

279 Article 187(1) of the Swiss PILS.

280 See, for example, G. Walter, W. Bosch and J. Brönnimann, Internationale Schiedsge-

richtsbarkeit in der Schweiz, pp. 191-192.

281 See Article 1496 of the French NCPC.

282 See Article 17(1) of the ICC Rules and Article 22(3) of the LCIA Rules.

283 See G. Baron, op. cit., at 130.

284 See, for example, Articles 3 and 4 of the 1980 Rome Convention on the Law Applica-

ble to Contractual Relations.

69The autonomy of the law applicable to the merits

expect him to upset the established order so as to impose, in breach of the

law, what he subjectively considers as fair.’285

Being under a duty to apply the law, courts are bound to apply the forum

State’s conflict of laws rules. These necessarily refer to the domestic laws of a

particular jurisdiction.

This traditional view draws a somewhat distorted picture of the judicial

function. It neglects that judges, rather than owing a duty to the State, owe

a duty to society and, more particularly, to litigating parties. The classical

duty to apply the law should, indeed, be viewed as a means to comply with

the hypothetical will of the parties and, therefore, as a tool to ensure pre-

dictability. This explains, for example, why many jurisdictions allow courts,

if the parties so wish, to decide ex æquo et bono. Similarly, State legislators

and courts, as we have seen, increasingly recognise the validity of lex merca-

toria in the context of international arbitration. Why should they oppose

application of lex mercatoria by the courts? Some writers, in fact, envision

recourse to lex mercatoria in ordinary litigation. Baron, for example, argues

that

‘if judges keep enforcing arbitral awards based on the lex mercatoria … they

might eventually come to the conclusion that the lex mercatoria should not

be limited to arbitration and should stimulate a wider debate for their appli-

cation by national courts.’286

III. Summary

Summary

The conflict of laws method does not adequately respond to the needs of

international commercial transactions. This insufficiency is not – contrary

to what is commonly suggested – due to the lacking predictability of the

conflict of laws. Rather, it stems from the fundamental inappropriateness of

applying domestic rules – generally designed to apply to domestic legal rela-

tionships – to international transactions. In fact, the application of domestic

rules – implicit in the conflict of laws approach – constitutes an obstacle to

the achievement of substantive neutrality and extensive party-autonomy.

In order to solve this basic dilemma, international legislative efforts tradi-

tionally focus on the unification and liberalisation of international trade

law. Traditional tools of unification and liberalisation such as uniform laws

or domestic material rules of private international law have, however, been

of limited success.

285 See P. Mayer, ‘Reflections on the International Arbitrator’s Duty to Apply the Law -

The 2000 Freshfields Lecture’, 2001 Arb. Int’l, 235 et seq., at 238.

286 Ibid.

70 Summary

The recent re-discovery of the medieval lex mercatoria must be viewed in the

light of this limited success. Indeed, the lex mercatoria doctrine, by arguing

the progressive elaboration (‘creeping codification’) of a world law of inter-

national trade, promotes the unification and liberalisation of the law of

international commerce. The success of the lex mercatoria doctrine is well

illustrated by the growing recognition of lex mercatoria by State legislators

and courts. In fact, recent arbitration laws not only allow the parties to se-

lect lex mercatoria as the applicable law, but also increasingly empower arbi-

trators to resort to lex mercatoria in the absence of a choice-of-law by the

parties. Such application of lex mercatoria represents the last stage of an evo-

lution by which arbitrators have progressively departed from the classical

conflict of laws method.

71The procedural autonomy of arbitration

Chapter 3

The procedural autonomy of international

commercial arbitration

The procedural autonomy of arbitration

Stricto sensu, the procedural autonomy of international commercial arbitra-

tion refers to non-interference of State courts in the arbitral proceedings.

For the purposes of this study, however, procedural autonomy is understood

as embracing the autonomy of the arbitration agreement. Indeed, the auton-

omy of the arbitration agreement affects, as we will see, procedural auton-

omy stricto sensu.

This Chapter explores the various aspects of the procedural autonomy of

international commercial arbitration. Section 1 examines the autonomy (or

separability) of the arbitration agreement. It discusses both the function(s)

of the doctrine of separability and its various dimensions. Section 2 ad-

dresses the principle of Kompetenz-Kompetenz according to which arbitrators

have the authority to rule – at least provisionally – on their jurisdiction.

Section 3 deals with issues arising in relation to the constitution of the arbi-

tral tribunal, i.e. with the appointment and challenge of arbitrators. It aims

to show how the institutionalisation of international commercial arbitration

has shielded the appointment and challenge of arbitrators from court inter-

ference. Section 4 examines the power of arbitrators to order and enforce

provisional or conservatory measures.

I. The Autonomy of the Arbitration Agreement and the

Doctrine of Separability287

Autonomy and the Doctrine of Separab ility

According to the separability doctrine ‘an arbitration agreement, even

though included in and related closely to an underlying contract, is a sepa-

rate and autonomous agreement.’288 As Judge Schwebel famously put it,

287 See, in general, F.-E. Klein, ‘Du caractère autonome de la clause compromissoire, no-

tamment en matière d’arbitrage international (Dissociation de la nullité de cette clause

de celle du contrat principal)’, 1961 Rev. Arb., p. 48 et seq.; P. Mayer, ‘L’autonomie de

l’arbitre international dans l’appréciation de sa propre compétence’, 217 Rec. Cours,

p. 323 et seq.; P. Mayer, ‘The Limits of Severability of the Arbitration Clause’, in ICCA

Congress series n° 9, p. 261 et seq.; S. M. Schwebel, ‘The Severability of the Arbitration

Agreement’, in International Arbitration: Three Salient Problems (1987), pp. 1-60.

288 See G. Born, International Commercial Arbitration in the United States (1994), at 192.

72 Autonomy and the Doctrine of Separability

‘when the parties to an agreement containing an arbitration clause enter

into that agreement, they conclude not one but two agreements’.289

Separability or severability relates to the relationship between the arbitra-

tion agreement and the main contract. Although the term autonomy is

often considered to have identical meaning,290 its usage should be confined

to what some authors call ‘autonomy from all national laws’.291

Today, the separability of the arbitration agreement from the main contract

is well established. It is recognised in many jurisdictions including Austria,292

England,293 Germany,294 France,295 Italy,296 Switzerland297 and the United

States.298 It features in the UNCITRAL Model law299 and the rules of the

major arbitration institutions.300

289 See S. M. Schwebel, op. cit., p. 1 et seq., at 5.

290 Especially German and French writers refer to the separability doctrine as ‘autonomy’.

291 This concept is used especially by French scholars. See J. Savage and E. Gaillard,

Fouchard, Gaillard, Goldman on International Commercial Arbitration, at 197.

292 See IHCA, National Reports, Vol. 1, Austria, at 6.

293 See Section 7 of the 1996 Arbitration Act. Section 7 restates the separability doctrine

as expressed in the decision of the Court of Appeal in Harbour v. Kansa [1993] QB 701,

Yearbook, Vol. XX (1995), at 771 which re-interpreted the earlier decision of the House

of Lords in Heyman v. Darwins [1942] AC 356.

294 See Section 1040 of the German ZPO.

295 Articles 1458 and 1466 of the French NCPC implicitly recognise the separability of the

arbitration agreement. In the context of international arbitration, separability has been

admitted as early as 1963 in the Gosset decision. See Cour de cassation, 7 May 1963,

Gosset, 1963 Rev. Arb., p. 60 et seq.

296 Italy was arguably the first country to have recognised the separability of the arbitration

agreement. Decisions affirming separability date back to 1930. See IHCA, National Re-

ports, Vol. 2, Italy, at 14 and the reference to three decisions of the Corte di Cassazione,

in particular to a judgment rendered on 23 June 1937. Today, the principle is expressed

in Article 808, 3rd para. of the CPC.

297 See Article 178(3) of the Swiss PILS.

298 Whether separability is recognised under the FAA is controversial. The Supreme Court

has nevertheless laid down the principle in the Prima Paint case in 1967. See Prima

Paint v. Flood & Conklin, 388 U.S. 395, 402 (1967).

299 See Article 16(1) of the Model law.

300 See Article 21(2) of the UNCITRAL Rules, Article 6(4) of the ICC Rules, Article

14(1) of the LCIA Rules and Article 15(2) of the AAA Rules.

73The procedural autonomy of arbitration

A. Functions of the doctrine of separability

The doctrine of separability is generally considered to be closely linked to

the principle of Kompetenz-Kompetenz. Rejecting this classical view, this

Section attempts to explain that separability and Kompetenz-Kompetenz

operate at different levels. It argues that the main function of separability

consists in promoting the validity of the arbitration agreement.

1. Separability and Kompetenz-Kompetenz

In most writings on the subject, the relationship between separability and

Kompetenz-Kompetenz is unclear. Fouchard, Gaillard and Goldman state that

the two principles are ‘closely linked’, ‘partially overlapping’ or ‘inter-

twined’.301 Dimolitsa rightly points out that ‘[t]here is sometimes confusion

between the two rules’.302 According to the majority view, separability is the

indispensable theoretical basis for the Kompetenz-Kompetenz principle. Sev-

eral scholars argue that separability constitutes

‘the first stage of the process which results in the arbitrators being able to

determine their own jurisdiction… [Separability] thus allows the examina-

tion by the arbitrators of jurisdictional challenges based on the alleged inef-

fectiveness of the disputed contract.’303

Such a statement overlooks the fact that separability and Kompetenz-

Kompetenz are not situated at the same level. Indeed, while separability is a

substantive rule, Kompetenz-Kompetenz is a procedural rule. The main legal

consequence of separability is, in fact, that the invalidity of the main con-

tract does not necessarily extend to the arbitration agreement. Considering

that the validity of the arbitration agreement constitutes a prerequisite of

the arbitrator’s jurisdiction, separability increases the arbitrator’s ‘scope’ of

jurisdiction, i.e. it affects the substance of the arbitrator’s jurisdiction. In-

deed, according to the separability doctrine, the arbitrator has jurisdiction to

decide on the merits of the dispute as long as the arbitration agreement

remains unaffected by the invalidity of the main contract.

The Kompetenz-Kompetenz principle, on the contrary, does not operate at

the substantive law level. It does not mean that the arbitrator has jurisdic-

301 See J. Savage and E. Gaillard (eds.), op. cit., at 213-214.

302 See A. Dimolitsa, ‘Separability and Kompetenz-Kompetenz’, in ICCA Congress series

n° 9, p. 217 et seq., at 217.

303 See J. Savage and E. Gaillard (eds.), op. cit., at 214.

74 Autonomy and the Doctrine of Separability

tion in certain circumstances or over certain types of disputes. It merely

provides that the arbitrator has the power to rule – subject to review by the

courts – on his own jurisdiction. If the arbitrator’s decision on jurisdiction

were final, Kompetenz-Kompetenz would affect the substance of the arbitra-

tor’s jurisdiction. To date, however, not a single legal system allows the

arbitrator to be the final judge of his jurisdiction. Kompetenz-Kompetenz

therefore merely serves as a tool to achieve greater procedural efficiency. In

fact, it prevents the arbitral proceedings from being interrupted by dilatory

challenges to the arbitrator’s jurisdiction.

2. Separability and the validity of the arbitration agreement

As has been explained, separability implies that the validity of the arbitra-

tion agreement is independent of the validity of the main contract or, more

precisely, that it is assessed independently of the validity of the main con-

tract. An arbitration agreement can therefore be valid despite the invalidity

of the main agreement. Hence, separability favours the validity of arbitra-

tion agreements.

Although separability is sometimes considered as a doctrine specific to in-

ternational commercial arbitration, it is not properly innovative. Indeed, the

‘divisibility’ or ‘severability’ of the various clauses of a contract is recognised

in most countries’ laws on contracts. Divisibility means that the invalidity of

a particular clause does not necessarily entail the invalidity of the contract

as such.304 In most legal systems, the invalidity of a particular clause only

extends to the entire contract where the clause at issue is ‘essential’ to the

contractual equilibrium.305 The French law on consumer contracts is illustra-

tive of the severability principle. Under this legislation, clauses that unduly

disadvantage the consumer party (clauses abusives) are ‘deemed not written’

(réputées non-écrites), i.e. they are invalid. The other clauses of the contract,

however, remain valid. This example illustrates that severability aims to

304 This is the view taken by most legal systems and notably in France, England, Germany

and Switzerland. See, as far as French law is concerned, F. Terré, Ph. Simler and Y. Le-

quette, Droit civil - Les obligations, 6th ed., p. 327 et seq. For the position adopted in Eng-

lish law, see Chitty on Contracts, General Principles, 27th ed., p. 878 et seq. See also Arti-

cle 139 of the German BGB and Article 20(2) of the Swiss Code des Obligations.

305 The ‘essential aspect’ test is applied in various jurisdictions. It aims to reflect the hypo-

thetical will of the parties. Indeed, it assumes that the parties would not have concluded

the contract without the invalid clause whenever that clause constitutes an ‘essential

aspect’ of the contract. Swiss and German law expressly refer to the parties’ presumed

intent.

75The procedural autonomy of arbitration

enhance the validity of agreements by ‘saving’ the valid part. The separabil-

ity of the arbitration agreement relies upon a similar mechanism.

As we have already mentioned, the theoretical justification of separability

lies in the hypothetical will of the parties. Indeed, separability assumes that

the parties would have concluded the contract even if it did not comprise

the invalid clause. The separability of the arbitration clause, more particu-

larly, rests upon the assumption that the parties intended to have claims

relating to the validity of the main contract decided by the arbitral tribunal.

The hypothetical will of the parties does, however, not suffice in order to

‘save’ the arbitration clause. The arbitration clause must, indeed, satisfy the

general requirements of validity of contracts. Indeed, separability does not

mean validity. In fact, some grounds of invalidity affecting the main con-

tract necessarily affect the arbitration agreement. This is what some writers

refer to as the ‘limits of severability’ of the arbitration clause.306 Mayer, for

example, rightly emphasises that the arbitration clause

‘cannot be seen as a separate agreement… [because] [o]ne cannot provide for

arbitration in a vacuum… Thus, an arbitration clause is indeed one among

many clauses that make up a single agreement.’307

Some examples of grounds of invalidity necessarily affecting both the main

contract and the arbitration agreement will illustrate the limits of severabil-

ity. Where, for example, a party’s assent is lacking (it has not signed the

contract), this necessarily affects the arbitration clause. The nullity of the

main contract generally also extends to the arbitration agreement where one

party lacks the capacity or authority to conclude a contract. Such problems

may arise, for example, when corporate executives enter into agreements on

behalf of their company without being properly authorised.

Separability does, however, matter where the transaction contemplated by

the main agreement violates mandatory or public policy norms such as anti-

trust legislation, for example. It is therefore not surprising that the severabil-

ity doctrine should have been elaborated in connection with illegal con-

tracts or contracts contravening public policy. Confined to these hypothe-

ses, the separability doctrine is of – relatively – modest practical significance.

This significance, however, increases due to a ‘direct consequence’308 of

separability, namely the fact that the arbitration clause can be governed by

its ‘own’ law, i.e. a law different from the one applying to the main contract

(this is referred to as private international law autonomy of the arbitration

agreement).

306 See P. Mayer, op. cit., p. 261 et seq.

307 See P. Mayer, op. cit., at 262.

308 See J. Savage and E. Gaillard (eds.), op. cit., at 209, 212.

76 Autonomy and the Doctrine of Separability

B. Aspects of separability: from separability to ‘autonomy from all

national laws’

1. Private international law autonomy and the submission of the

arbitration agreement to its ‘own’ law

Under the separability doctrine, as we have seen, the arbitration agreement

and the main contract constitute two separate agreements. Separability thus

aims to ensure the validity of the arbitration agreement where the main

contract infringes mandatory or public policy rules. This understanding of

separability therefore focuses on its ‘independence’ of the main contract.

However, separability comprises another aspect. Indeed, separability allows

the arbitration agreement to be governed by a law different from the law

governing the main contract, i.e. by its ‘own’ law. Separability thus entails

private international law autonomy of the arbitration agreement or, as

French scholars put it, ‘autonomy of connection’ (autonomie de rattache-

ment). Private international law autonomy is habitually viewed as deriving

from the independence of the arbitration agreement.309 That separability

would encompass private international law autonomy was, however, not

clear from the outset. Indeed, separability was ‘initially [merely] intended as

a means of isolating the arbitration agreement from flaws affecting the main

contract.310 Early case law recognising the separability principle did not ex-

plicitly refer to private international law autonomy. In the 1963 Gosset deci-

sion, for example, the French Cour de cassation simply stated that

‘the arbitration agreement, whether concluded separately or included in the

contract to which it relates, shall… have full legal autonomy and shall not

be affected by the fact that the aforementioned contract may be invalid‘ (emphasis

added).311

Even today, statutory provisions affirming the separability of the arbitration

agreement merely refer to the independence of the arbitration agreement.

The UNCITRAL Model law, for example, provides that

‘… 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.’312

309 Ibid.; G. Born, op. cit., at 154: ‘An arbitration agreement is regarded… as “separable”

from the underlying contract to which it relates. As a consequence, it is frequently said

that the arbitration provision of an agreement may be governed by a different law from

that applicable to the underlying agreement.’ (footnotes omitted).

310 See J. Savage and E. Gaillard (eds.), op. cit., at 214.

311 Cour de cassation, 7 May 1963, Gosset, 1963 Rev. Arb., p. 60 et seq.

312 See Article 16(1) of the Model law.

77The procedural autonomy of arbitration

Private international law autonomy entails the – rather theoretical – possi-

bility, for the parties, to submit the main contract and the arbitration

agreement to different laws. In practice, this is virtually unheard of.313 Pri-

vate international law autonomy therefore has more practical relevance

where the parties have not chosen the law applicable to the arbitration

agreement, i.e. where the arbitral tribunal or State courts are called upon to

determine that law.

As has been explained, the doctrine of separability intends to free the arbi-

tration agreement from the law that governs the main contract. It thus relies

on the assumption that, in the absence of a contrary choice-of-law clause,

the law governing the main agreement necessarily applies to the arbitration

clause. In reality, however, the applicability of the lex contractus to the arbi-

tration agreement has never been universally accepted. Indeed, the theory of

localisation of international arbitration has led a number of scholars to argue

the applicability of the lex situs (the law of the arbitral seat). Although this

is the minority view, it has been taken by several legislators314 and is not

infrequently expressed in arbitral case law. It has been followed, for example,

in ICC cases n° 5730 and 5832 (both 1988). In case n° 5730, the arbitral

tribunal addressed the question of the law applicable to an arbitration clause

contained in a contract subjected to Greek law. The arbitral tribunal held

that French law was applicable to the arbitration agreement on the grounds

that, inter alia, the seat of the arbitral tribunal was located in Paris.315 Such

an approach also prevails in the New York and the 1961 Geneva Conven-

tions. Article V(1)(a) of the New York Convention provides that an award

may not be enforced where the arbitration agreement ‘is not 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’ (emphasis added).

Like the New York Convention, the 1961 Geneva Convention provides for

subsidiary applicability of the ‘law of the country in which the award is to be

made’.316

Despite the inaccuracy of the underlying assumption, private international

law autonomy has helped to promote the validity of arbitration agreements.

313 In the several hundred cases that the author was involved in as Assistant Counsel at the

ICC International Court of Arbitration, he has never encountered choice-of-law

clauses submitting the arbitration agreement to a law differing from the law governing

the main contract.

314 Most importantly, this approach has been adopted by the Swiss Concordat.

315 S. Jarvin, Y. Derains and J.-J. Arnaldez, Collection of ICC Arbitral Awards, Vol. II, p. 410

et seq., at 415.

316 See Article VI(2)(b) of the Convention relating to judicial examination of the validity

of arbitral awards at the pre-award stage.

78 Autonomy and the Doctrine of Separability

It has, in fact, allowed arbitrators and courts to avoid the application of laws

subjecting arbitration agreements to – excessively – strict validity require-

ments. An example of such a requirement is provided by Article 795 of the

Senegalese Code of Civil Procedure. This provision requires arbitration

agreements to ‘specify the claims and state the names of the arbitrators’.317

The arbitrators’ tendency to apply laws favouring the validity of the arbitra-

tion agreement is well illustrated by ICC case n° 6719 (1991). Relying on

the discretionary powers conferred upon them by the ICC Rules, the arbitra-

tors chose to assess the validity of the arbitration clause under Swiss law –

the law of the seat. They held that

‘lacking an express or tacit choice by the parties as regards the law applicable

to the arbitration clause, the Tribunal will apply Swiss law.’318

The arbitrators opted for Swiss law and against Italian law – the law of the

main contract – relied upon by the defendants in order to avoid the ‘uncer-

tainties’ of Italian law.319 Commenting on the inclination of arbitrators’ to

apply a law favouring the validity of the arbitration agreement, Born states

that

‘the dominant theme of international arbitral awards dealing with the law

governing arbitration agreements has been the validation principle. Arbitra-

tors strive to apply a law that will give effect to the parties’ arbitration

agreement.’320

Born’s validation principle also constitutes a Leitmotiv of recent court rulings

and legislative acts. Article 178(2) of the Swiss PILS, for example, provides

that,

‘as regards substance, an arbitration agreement shall be valid if it conforms

either to the law chosen by the parties, or to the law governing the subject-

matter of the dispute, in particular the law governing the main contract, or

if it conforms to Swiss law.’

By resorting to alternative conflict of laws rules, Article 178(2) of the Swiss

PILS clearly favours the validity of arbitration agreements. Article 178(2) is

frequently considered as a legislative model to be followed.321

317 See ICC case 6840 (1991), in J.-J. Arnaldez, Y. Derains and D. Hascher, Collection of

ICC Arbitral Awards, Vol. 3, at 469. The defendant contended the nullity of the arbitra-

tion agreement on the grounds that it did not comply with Article 795 of the Senegal-

ese Code of Civil Procedure.

318 See J.-J. Arnaldez, Y. Derains and D. Hascher, op. cit., Vol. 3, at 569.

319 See J.-J. Arnaldez, Y. Derains and D. Hascher, op. cit., at 573.

320 See G. Born, op. cit., at 161.

321 See Ph. Fouchard, ‘Suggestions to Improve the International Efficacy of Arbitral

Awards’, in ICCA Congress series n° 9, p. 601 et seq., at 604, 605.

79The procedural autonomy of arbitration

2. Autonomy from all national laws

The search for increased effectiveness of arbitration agreements has led to

the recognition of even more extensive private international law autonomy,

sometimes referred to as autonomy from all national laws.322 One can ob-

serve a development similar to the evolution of the question of the law ap-

plicable to the merits of the dispute. Indeed, we have seen that arbitrators,

in the absence of an agreement by the parties, enjoy considerable freedom in

the determination of the – most appropriate – applicable law. This freedom

ultimately results in the possibility of applying transnational rules under the

tronc commun and lex mercatoria doctrines.323 According to the ‘autonomy

from all national laws’ theory, the arbitration agreement is subject to a simi-

lar shift from national to transnational law. This theory shares the basic

objective underlying the lex mercatoria doctrine: freeing international legal

relationships from the constraints of domestic law.

A first reference to autonomy from all national laws can be found in the

1972 decision of the French Cour de cassation in the Hecht case.324 Subse-

quent decisions by French courts have confirmed the Hecht ruling.325 In

Menicucci v. Mahieux, for example, the Cour d’appel of Paris stated that the

arbitration agreement ‘is valid independently of any reference to a national

law.’326 As Oppetit rightly observes, these decisions affirm the validity of the

arbitration agreement ‘without any reference to the law governing that

agreement: the concept of linking the agreement to a particular law disap-

pears entirely.’327 In Dalico, the Cour de cassation not only excluded the ap-

plicability of all national laws to the arbitration agreement, but held, more

generally, that arbitration agreements are, as a matter of principle, valid.

The Court stated that

‘by virtue of a substantive rule of international arbitration, the arbitration

agreement is legally independent of the main contract containing or refer-

322 See J. Savage and E. Gaillard, op. cit., p. 214 et seq.

323 See supra, Chapter 2.

324 Cour de cassation, 4 July 1972, Hecht v. Buisman’s, 1972 Clunet, p. 843 et seq. For the

1970 decision of the Cour d’appel of Paris see, for example, 1971 Clunet, p. 833 et seq.

325 See, among many others, Cour d’appel of Paris, 13 December 1975, Menicucci v. Ma-

hieux, 1977 Clunet, p. 106 et seq.; Cour d’appel of Toulouse, 26 October 1982, Sieur Be-

har v. Monoceram, 1984 Clunet, p. 603 et seq.

326 Menicucci v. Mahieux, supra, fn 325.

327 See B. Oppetit’s note on the decision of the Cour de cassation in Hecht v. Buisman’s,

1972 Clunet, p. 843 et seq.

80 Autonomy and the Doctrine of Separability

ring to it, and the existence and effectiveness of the arbitration agreement

are to be assessed, subject to the mandatory rules of French law and interna-

tional public policy, on the basis of the parties’ common intention, there

being no need to refer to any national law.’328

Despite the general acceptance of this terminology, the Hecht, Menicucci and

Dalico decisions do not properly affirm the arbitration agreement’s ‘auton-

omy from all national laws’. Indeed, the principles referred to in these deci-

sions and, in particular, the validity principle of Dalico are rules elaborated

by the French courts. As such they form part of the French law on interna-

tional commercial arbitration. French courts referring to these rules do not

properly shield the arbitration agreement from ‘all national laws’; they

merely prevent the application of foreign laws. When applying Dalico’s va-

lidity principle, courts, in fact, apply a French rule specific to international

arbitration. Rather than freeing the arbitration agreement from all national

laws, this ‘substantive rule of international arbitration’329 merely reflects the

co-existence of two separate sets of rules governing domestic arbitration on

the one and international arbitration on the other hand (this is habitually

referred to as the ‘dualistic’ approach).

In Hecht, the courts addressed the validity of an arbitration agreement con-

tained in an international agency contract expressly subjected to French

law. The party opposing enforcement of the award argued that the arbitra-

tion clause was invalid on the grounds that French law prohibited arbitra-

tion agreements between merchants and non-merchants. In order to affirm

the validity of the arbitration clause, both the Cour d’appel and the Cour de

cassation resorted to the autonomy from all national laws principle. Recourse

to this principle allowed them to exclude the application of the prohibition

contained in French law and, more generally, of all domestic laws. Recourse

to the principle of autonomy from all national laws was, however, not neces-

sary. Indeed, the arbitration clause could have been ‘saved’ under French

law. Rather than excluding all national laws, the courts could have clarified

that, under the applicable law (French law), arbitration agreements are, as a

general rule, valid. As a material rule of private international law, the valid-

ity principle excludes ipso facto the application of foreign laws.

Exclusion of all national laws – with the exception of the lex fori – would

have been necessary, however, had the arbitration agreement not been gov-

erned by French law. Had it been subjected, for example, to English law –

assuming that English law contains a provision similar to the French prohi-

bition – then it would have been necessary to rely on autonomy from all

328 Cour de cassation, 20 December 1993, Comité populaire de la municipalité de Khoms El

Mergeb v. Dalico Contractors, 1994 Rev. Arb., p. 116 et seq. (translation by J. Savage and

E. Gaillard, op. cit., at 230).

329 See the Dalico decision referred to supra, fn 328.

81The procedural autonomy of arbitration

national laws in order to legitimate the application of the validity principle.

Such a mechanism, rather than being based on the exclusion of all national

laws, relies, as we have seen in Chapter 2, upon the systematic application of

the material rules of private international law of the forum.

II. Kompetenz-Kompetenz330

Kompetenz-Kompetenz

As we have seen, the Kompetenz-Kompetenz principle empowers arbitrators

to rule – subject to court review – on their own jurisdiction. By removing, at

least to some extent, the question of arbitral jurisdiction from the scope of

jurisdiction of the courts, Kompetenz-Kompetenz furthers the procedural

autonomy of international commercial arbitration. Like separability, the

principle of Kompetenz-Kompetenz is quasi-universally recognised.331 It is well

established in Austria,332 England,333 France,334 Germany,335 Italy,336 Switzer-

land,337 and the United States.338 It is provided for by the UNCITRAL

Model Law339 and most institutional arbitration rules.340

330 On Kompetenz-Kompetenz in general, see A. Dimolitsa, op. cit., p. 217 et seq.; E. Gail-

lard, ‘L’effet négatif de la compétence-compétence’, in J. Haldy, J.-M. Rapp and Ph.

Ferrari (eds.), Etudes de procédure et d’arbitrage en l’honneur de Jean-François Poudret,

Lausanne, 1999, p. 387 et seq.; M. Jalili, ‘Kompetenz-Kompetenz: Recent U.S. and U.K.

Developments’, 13 J. Int. Arb. 4, p. 169 et seq.; E. Mezger, ‘Compétence-compétence

des arbitres et indépendance de la convention d’arbitrage dans la Convention dite Eu-

ropéenne sur l’Arbitrage Commercial International de 1961’ in Commercial Arbitration

Essays In Memoriam Eugenio Minoli, p. 315 et seq.; W. W. Park, ‘The Arbitrability Dicta

in First Options v. Kaplan: What Sort of Kompetenz-Kompetenz Has Crossed the At-

lantic?’ 1996 Arb. Int’l, p. 137 et seq.

331 One of the few jurisdictions rejecting Kompetenz-Kompetenz is China. Article 20 of the

Arbitration Law of the People’s Republic of China provides that claims regarding the

validity of arbitration agreements are decided by the Arbitration Commission (the arbi-

tral institution) or the People’s Court.

332 See IHCA Vol. 1, National Reports, Austria, p. 11.

333 See Sections 30 and 31 of the 1996 Arbitration Act.

334 See Article 1466 of the NCPC.

335 See Section 1040 of the ZPO.

336 Italian law distinguishes according to whether the arbitral tribunal has or has not yet

been constituted. The Kompetenz-Kompetenz principle applies only with respect to the

former hypothesis. See the decision by the Corte de Cassazione of 8 July 1996, 1997 Riv.

arb., p. 325 et seq.

337 See Article 186(1) of the Swiss PILS.

82 Kompetenz-Kompetenz

Despite its wide recognition, the precise meaning of the Kompetenz-

Kompetenz principle varies from one jurisdiction to another. Indeed, the

question of whether and, in the affirmative, how courts should exercise con-

current jurisdiction is controversial. Opposed to the courts’ concurrent juris-

diction, some claim that court review of arbitral jurisdiction should only be

performed at the enforcement stage. Accordingly, arbitrators would have the

‘first word’ on their jurisdiction. This explains why this approach is habitu-

ally referred to as the ‘priority rule’.341 The majority opinion, however, fa-

vours the courts’ concurrent jurisdiction.

The controversy surrounding the understanding of the Kompetenz-Kompetenz

principle highlights the recurring contrast between the objectives of adjudi-

catory speed and enforceability. On the one side, adjudicatory speed requires

the exclusion of court litigation, at least where such litigation delays the

conduct of the arbitral proceedings. Adjudicatory speed supposes, in particu-

lar, the prevention of dilatory challenges to the arbitral tribunal’s jurisdic-

tion. On the other side, an early court ruling confirming the jurisdiction of

the arbitral tribunal ensures that the arbitral award will not be set aside on

the grounds that the arbitral tribunal lacked jurisdiction.

A. Concurrent jurisdiction of State courts

Although the courts’ concurrent jurisdiction helps to increase the enforce-

ability of the arbitral award, the pursuit of enforceability is not the main

reason underlying the principle of concurrent jurisdiction. Indeed, the

courts’ concurrent jurisdiction is systemically inevitable. It derives from the

link between arbitral jurisdiction and the jurisdiction of the courts. Arbitra-

tion being an alternative means of dispute resolution, State courts necessar-

ily have jurisdiction where arbitrators lack jurisdiction, i.e. in particular

where the arbitration clause is invalid.

338 See, for example, Robert Lawrence Co. v. Devonshire Fabrics, Inc., 271 F.2d 402 (2d Cir.

1959); Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395 (1967).

Some decisions, however, have rejected the Kompetenz-Kompetenz doctrine, in particu-

lar where arbitrability was disputed. See G. Born, op. cit., pp. 219-221.

339 See Article 16(1) of the Model law.

340 See, in particular, Article 6(2) of the ICC Rules, Article 23(1) of the LCIA Rules, and

Article 15(1) of the AAA Rules.

341 See A. Dimolitsa, op. cit., at 244.

83The procedural autonomy of arbitration

1. Procedural channels of challenges to arbitral jurisdiction

Most commonly, arbitral jurisdiction is challenged through the initiation of

proceedings on the merits before a State court. In such a case, the defen-

dant, relying on the arbitration agreement, denies the jurisdiction of the

State court. The examination of the jurisdiction of the arbitral tribunal (i.e.

of the validity of the arbitration agreement) forms part of the court’s assess-

ment of its own jurisdiction. In such a scenario, courts necessarily inquire

into the validity – or existence – of the arbitration agreement.

In addition, some legal systems allow an alternative way of challenging arbi-

tral jurisdiction. This consists of an application to the courts to have the

arbitration agreement declared invalid. Such a declaratory action is avail-

able in a number of jurisdictions including, for example, England,342 Switzer-

land,343 and the United States.344 The admissibility of this declaratory action,

however, differs from one country to another. While, under Swiss law, the

declaratory action only is admissible where the arbitral proceedings have not

yet been initiated,345 English and U.S. law allow such an application to be

filed even subsequently to the initiation of the proceedings. The availability

of a declaratory action has been heavily criticised, especially by some Swiss

writers.346 They view it as an unwelcome additional means of delaying pro-

ceedings and hampering the conduct of the arbitral proceedings. Such criti-

cisms are, however, warranted only to a limited extent. Indeed, under most

arbitration laws, court litigation on the validity of the arbitration agreement

does not prevent the arbitral tribunal from conducting the proceedings and

rendering a decision on the merits. Under the Model law, for instance,

where an action has been brought before the courts,

342 See Section 32 of the 1996 Arbitration Act.

343 See the decision of the Federal Tribunal of 26 January 1987 in Ali and Fahd Shobokshi

and General Agencies Corporation (GAC) v. Saiecom SA and Nicola Rivelli, reproduced in

Yearbook, Vol. XV (1990), p. 505.

344 See the decision of the US Court of Appeals, 6th Circuit, of 7 June 1995 in George

Fischer Foundry Systems Inc. v. Adolph H. Hottinger Maschinenbau GmbH, reproduced in

Yearbook Vol. XXII (1997), p. 897.

345 See the decision of the Obergericht of the Canton Zurich, 1991 ZR 90, p. 132 et seq.

referred to by J.-F. Poudret, ‘Une action en constatation de droit au sujet de l’existence

ou la validité d’une clause arbitrale est-elle recevable en droit fédéral ou cantonal ?’,

Recht und Rechtsdurchsetzung, Festschrift für Hans Ulrich Walder zum 65. Geburtstag,

p. 341 et seq.

346 See, in particular, J.-F. Poudret, op. cit.

84 Kompetenz-Kompetenz

‘arbitral proceedings may nevertheless be commenced or continued, and an

award may be made, while the issue is pending before the court.’347

2. The extent of court review of the validity of the arbitration agreement

If one admits the courts’ concurrent jurisdiction to rule on the validity of the

arbitration agreement, the question arises of whether such review should be

comprehensive (‘full’, ‘in depth’) or confined to the assessment of prima facie

validity. Comprehensive review is sometimes opposed because of its lenghty

duration and alleged delaying effect. However, as we have mentioned, court

litigation on the validity of arbitration agreements does not entail a stay of

the arbitral proceedings.348 The duration of court proceedings relating to the

validity of the arbitration agreement has, therefore, no impact on adjudica-

tory speed.

However, in-depth review of the validity of the arbitration agreement might

give rise, if not to delay, then to substantial legal costs. Prima facie examina-

tion of the validity of the arbitration agreement reduces these costs because

it allows ‘centralization of litigation concerning the existence and validity of

the arbitration agreement’.349

In practice, most legal systems allow the courts to fully examine the validity

of the arbitration agreement. The UNCITRAL Model law, for example,

provides that a court

‘before which an action is brought in a matter which is the subject of an

arbitration agreement shall… refer the parties to arbitration unless it finds

that the agreement is null and void, inoperative or incapable of being per-

formed’.350

This provision is generally considered as involving full review of the validity

of the arbitration agreement. Comprehensive review is also performed by the

courts of such leading arbitration nations as Austria,351 England,352 Ger-

many353 and Switzerland.354 Court decisions in these jurisdictions are, how-

ever, not always unequivocal. Under Swiss law, for example, recent case law

distinguishes according to whether the seat of the arbitral tribunal is located

in Switzerland or abroad. Only where the arbitral seat is located abroad do

347 Article 8(2) of the Model Law.

348 See supra.

349 See J. Savage and E. Gaillard, op. cit., p. 412, 413.

350 See Article 8(1) of the Model Law.

351 See, in particular, the OGH decision of 2 October 1935, SZ 17/131.

352 See Section 32 of the 1996 Arbitration Act.

353 See Section 1032(1) of the ZPO implementing the language of the Model law.

354 See the decisions referred to at 21, fn. 62.

85The procedural autonomy of arbitration

the courts perform a full examination of the validity of the arbitration

agreement.355 As far as German law is concerned, prior to the enactment of

the 1998 Arbitration Law, courts arguably performed a mere prima facie ex-

amination of the validity of arbitration agreements.356 Whether German

courts will continue to do so under the new law – implementing Article 8(1)

of the Model law – is uncertain.

Only few countries clearly favour prima facie review. Support for prima facie

examination can be found, for example, in Article II(3) of the New York

Convention. Although this provision is sometimes interpreted as implying

in-depth review of arbitration agreements, Van den Berg states that,

‘having regard to the “pro-enforcement bias” of the Convention, the words

[null and void, inoperative or incapable of being performed] should be con-

strued narrowly, and the invalidity of the arbitration agreement should be

accepted in manifest cases only.’357

Prima facie examination also is implicit in the wording of Article VI(3) of

the 1961 Geneva Convention.358 As to domestic legislation and case law,

France plays a pioneering role in the promotion of prima facie review of arbi-

tral jurisdiction. The position adopted by French courts, indeed, reflects the

priority rule as outlined above. It will be examined infra.

3. The preliminary award on jurisdiction

In order to solve the conflict between enforceability of the arbitral award

and adjudicatory speed, many jurisdictions allow the arbitral tribunal to

render a preliminary award on jurisdiction. The possibility of dealing with

jurisdiction in a preliminary award rather than in the award on the merits is

expressly provided for by the UNCITRAL Model law359 and strongly rec-

ommended by a number of domestic arbitration statutes. Article 186(3) of

the Swiss PILS, for example, provides that ‘[t]he arbitral tribunal shall, in

355 See the decision of the Federal Tribunal of 16 January 1995 in Compagnie de Navigation

et Transports S.A. v. MSC Mediterranean Shipping Company S.A., 1995 ASA Bull.,

p. 503 et seq. and the decision of the same Tribunal of 29 April 1996 in Fondation M v.

Banque X, 1996 ASA Bull., p. 527 et seq.

356 See A. Dimolitsa, op. cit., at 240.

357 See A. J. Van den Berg, The New York Arbitration Convention of 1958, at 155.

358 See Article VI(3) of the Convention providing that courts asked to examine the valid-

ity of an arbitration agreement ‘shall stay their ruling on the arbitrator’s jurisdiction un-

til the award is made, unless they have good and substantial reasons to the contrary.’

359 See Article 16(3) of the Model law.

86 Kompetenz-Kompetenz

general, decide on its own jurisdiction by a preliminary decision’ (emphasis

added).

The rendering of a preliminary award allows the question of arbitral jurisdic-

tion to be finally solved at an early stage. Indeed, under the laws of most

countries, the arbitral tribunal’s decision on jurisdiction, whether it affirms

or declines jurisdiction, is subject to a means of recourse.’360 Article 16(3) of

the Model law, for example, provides that,

[i]f the arbitral tribunal rules as a preliminary question that it has jurisdic-

tion, any party may request, within thirty days after having received notice

of that ruling, the court specified in article 6 [court or other authority for

certain functions of arbitration assistance and supervision] to decide the

matter.’

The rendering of a preliminary award on jurisdiction thus prevents the

award on the merits from being set aside on the grounds that the arbitral

tribunal lacked jurisdiction.

B. The priority rule

According to the priority rule, as we have seen, the arbitral tribunal has the

‘first word’ on its jurisdiction. Court review of the arbitral tribunal’s jurisdic-

tional ruling – affirming its jurisdiction – is thus postponed to the enforce-

ment stage. The priority rule therefore excludes, at least in theory, concur-

rent court jurisdiction. However, as we have observed, such exclusion is

impracticable in the light of the fact that State courts, when examining

their own jurisdiction, necessarily inquire into the validity of the arbitration

agreement. In practice, the priority rule is thus reflected not by the exclu-

sion of concurrent court jurisdiction, but by the limited extent of the courts’

examination of the validity of the arbitration agreement, i.e. by prima facie

examination.

A useful illustration of the application of the priority rule is provided by

French law. Under French law, where the dispute has not yet been submit-

ted to the arbitral tribunal, the courts shall decline jurisdiction ‘unless the

arbitration agreement is manifestly void.’ (emphasis added).361 Where the

360 The availability of a means of recourse against awards on jurisdiction is, however, con-

troversial. Opponents argue that an award on jurisdiction merely constitutes an interim

award, not subject to setting aside proceedings. This view is taken, inter alia, by P. La-

live, J.-F. Poudret and Cl. Reymond, Le nouveau droit de l’arbitrage interne et international

en Suisse (1989), pp. 405-406.

361 See Article 1458, 2nd § of the NCPC. For an application of this provision, see, for ex-

ample, Paris Court of Appeal, 7 December 1994, Société V 2000 v. Société Project XJ 220

ITD et al., 1996 Rev. Arb., p. 245 et seq.

87The procedural autonomy of arbitration

dispute has been submitted to the arbitral tribunal, the courts must decline

jurisdiction where the arbitration agreement ‘exists’, i.e. the courts do not

even perform a prima facie examination of the validity of the arbitration

agreement.362

The priority rule puts the conflict between adjudicatory speed and enforce-

ability of the arbitral award into a new perspective. In fact, it places in-

creased trust in the ability of arbitrators to ‘rightly’ decide on their jurisdic-

tion. As Dimolitsa notes,

‘[i]t is hard to see why there should be any reason for fearing… the way in

which the arbitrators will decide on their jurisdiction. Such fear… would

not appear to be justified in the light of arbitral practice… courts and arbi-

tral tribunals fulfil essentially equivalent roles in rendering justice… good

co-operation between the two requires that courts intervene only after the

arbitration award has been issued’.363

Relying on the assumption that arbitrators accurately solve jurisdictional

issues, some authors claim that arbitrators should, where the parties so agree,

have not only the ‘first’, but also the ‘last’ word on jurisdiction. Accordingly,

the parties would be empowered to exclude court review on the arbitral

tribunal’s jurisdictional findings. Such an exclusion agreement conforms to

the traditional understanding of the Kompetenz-Kompetenz doctrine in Ger-

many.364 It has also been defended by Schmitthoff. He views the availability

of such an exclusion agreement as a logical implication of the admission of

the general exclusion of court review of the arbitral award (which is, how-

ever, rare).365 He argues that the parties must be able to ‘exclude the rule

that the arbitrator cannot finally decide on his own jurisdiction’ and that

‘the courts should respect the contract of the parties, provided that the arbi-

trator exercises this power in good faith’.366

III. The Appointment and Challenge of Arbitrators

The Appointment and Challenge of Arbitrators

362 See Article 1458, 1st § of the NCPC.

363 See A. Dimolitsa, op. cit., at 241.

364 See W. Heiermann, Die Kompetenz-Kompetenz der Schiedsgerichte und die Einrede des

Schiedsvertrages, Festschrift für Ottoarndt Glossner zum 70. Geburtstag, p. 129 et seq.,

at 130; P. Schlosser, ‘The Competence of Arbitrators and of Courts’, 1992 Arb. Int’l,

p. 189 et seq., at 203.

365 On the possibility of excluding court review of arbitral awards, see infra Chapter 6

at 164.

366 See Cl. Schmitthoff, ‘The Jurisdiction of the Arbitrator’, in J. Schultsz and A.J. Van

den Berg (eds.), The Art of Arbitration, p. 285 et seq., at 293.

88 The Appointment and Challenge of Arbitrators

Another aspect of the procedural autonomy of international commercial

arbitration relates to the resolution of problems that arise in connection

with the constitution of the arbitral tribunal, i.e. in connection with the

appointment and challenge of arbitrators. The increased autonomy of ap-

pointment and challenge procedures essentially stems from the growing

institutionalisation of international arbitration. Institutional arbitration

rules, in fact, provide for specific mechanisms dealing with issues regarding

the appointment and challenge of arbitrators. In ad hoc arbitration, the func-

tion that arbitral institutions are entrusted with is performed by the State

courts.

A. The limited autonomy of ad hoc arbitration

Ad hoc arbitration is best defined by reference to institutional arbitration.

Indeed, it is characterised by the absence of the services provided by arbitral

institutions. The nature of these services is described in the relevant institu-

tional arbitration rules. These rules, as we have mentioned, generally in-

clude provisions aimed at solving difficulties related to the appointment and

challenge of arbitrators. In ad hoc arbitration, autonomous appointment and

challenge procedures must be agreed upon by the parties. Where the parties

have not agreed on particular methods for the appointment and challenge of

arbitrators, they must have recourse to the courts.

Ad hoc arbitration lacks not only a ready-made set of procedural rules, but

also, most importantly, a decision-making and ‘appointing’ authority. In the

absence of such an authority, ‘[i]t is easy to delay arbitral proceedings by

refusing to appoint an arbitrator, or by challenging the impartiality of one of

the arbitrators’.367 As Redfern and Hunter state, ad hoc arbitration ‘depends

for its full effectiveness upon a spirit of co-operation between the parties and

their lawyers’.368 Lacking such a ‘spirit of co-operation’, the effective func-

tioning of ad hoc arbitration relies on assistance by the courts.

A few examples will help to understand the nature of the problems that

might arise in connection with the appointment and challenge of arbitra-

tors. As far as the appointment of arbitrators is concerned, one must distin-

guish according to whether the arbitral tribunal is composed of three or one

arbitrator (the ‘sole arbitrator’). Where the arbitral tribunal comprises three

arbitrators, difficulties arise 1) if one party fails to appoint ‘its’ co-arbitrator

and/or 2) if the parties (in practice, frequently the two party-appointed arbi-

trators) are unable to agree on the chairman of the arbitral tribunal. Where

367 See A. Redfern and M. Hunter, Law and Practice of International Commercial Arbitration,

at 48.

368 Ibid.

89The procedural autonomy of arbitration

the case is to be submitted to a sole arbitrator, the appointment procedure is

disturbed if the parties do not agree on the arbitrator to be nominated. In

order to solve the difficulties arising in these scenarios, most legal systems

including England,369 Germany,370 France,371 Italy,372 Switzerland373 and the

United States374 provide for court intervention. Recourse to the State courts

is also provided for by the UNCITRAL Model law.375

As far as the challenge of arbitrators is concerned, one must remember that

arbitrators, like State court judges, must be independent and impartial.

These fundamental requirements are recognised in virtually all legal sys-

tems.376 Ideally, issues of lacking independence or impartiality are dealt with

prior to the appointment. In the worst scenario, lacking independence or

impartiality may, as we will see, cause the arbitral award to be set aside or

denied recognition and enforcement. During the arbitral proceedings, alle-

gations of lacking independence or impartiality may be raised in the context

of a challenge of an arbitrator. Under most countries’ laws, State courts are

largely involved in such challenges.377 Although many arbitration laws allow

the arbitral tribunal to hear challenges directed against an arbitrator – and

the challenged arbitrator to withdraw from his office – the courts can be

called upon to decide if the challenge is unsuccessful.378

B. The autonomy of institutional arbitration

International commercial arbitration is becoming increasingly institutional-

ised.379 While the caseload of established arbitration institutions increases,

new arbitration institutions or centres are being set up throughout the

world. As we have already mentioned, institutionalisation largely rests upon

369 See Section 18 of the 1996 Arbitration Act.

370 See Section 1035(3) of the ZPO.

371 See Article 1454 of the NCPC.

372 See Article 810 of the CPC.

373 See Article 179(2) of the PILS.

374 See Section 5 of the FAA.

375 See Articles 11(3) and (4) of the Model Law.

376 See infra Chapter 4 at 113.

377 See, for example, Article 180 of the Swiss PILS, Article 1454 of the French NCPC,

Section 1037 of the German ZPO, Article 811 of the Italian CPC, Section 24 of the

1996 English Arbitration Act.

378 See, for example, Article 13(3) of the Model Law.

379 On the increasing institutionalisation of international commercial arbitration, see

J. Savage and E. Gaillard, op. cit., at 33.

90 The Appointment and Challenge of Arbitrators

the assumption that institutional arbitration is more ‘efficient’ than ad hoc

arbitration.380 Institutional rules notably allow issues of appointment and

challenge to be addressed more efficiently.

1. The availability of mechanisms increasing the autonomy of

appointment and challenge procedures

As far as the appointment of arbitrators is concerned, some arbitral institu-

tions such as the ICC, for example, exercise a general monitoring function.

Indeed, under the ICC rules, in order for a nomination to be effective, it

must be confirmed by the institution, i.e. the Secretary General of the ICC

International Court of Arbitration (‘the Court’). If the Secretary General

does not confirm a nomination, the question is submitted to the Court.381

In addition to this general monitoring function, arbitration institutions

solve difficulties arising in connection with the appointment and challenge

of arbitrators. Indeed, appointment is entrusted with the arbitration institu-

tion where a party fails to nominate a co-arbitrator and where the parties are

unable to agree on the sole arbitrator/chairman to be appointed.382 Arbitra-

tion institutions play a similar role with respect to the challenge of arbi

trators.383

Arbitral institutions thus perform a function that is otherwise (i.e. in ad hoc

arbitration) performed by the courts. Whether the involvement of arbitral

institutions in the appointment and challenge of arbitrators constitutes a

genuine transfer of competence from State courts to arbitral institutions

depends, however, on whether State courts review institutional decisions.

Recent developments suggest that such reviewing is in decline.

2. Court review of institutional decisions

In order for arbitration institutions to efficiently deal with issues regarding

the appointment and challenge of arbitrators, institutional decisions should

not be subject to subsequent court control, neither by means of a direct

challenge of the decision (direct review), nor in the context of enforcement

or setting aside proceedings (indirect review). The exclusion of direct review

380 Ibid.

381 See Article 9(2) of the ICC Rules.

382 See Articles 8(3) and 8(4) of the ICC Rules, Article 7(2) of the LCIA Rules, Articles

6(3) and 6(4) of the AAA Rules.

383 See Article 11(3) of the ICC Rules, Article 10(1) of the LCIA Rules, Article 8(1) of

the AAA Rules.

91The procedural autonomy of arbitration

may be defended on the basis of a transfer of competence from State courts

to arbitral institutions. It is, in fact, generally admitted that a State court’s

ruling on the appointment or challenge of an arbitrator is not subject to

appeal.384 Relying on the transfer theory, one can argue that institutional

decisions, like decisions issued by State courts, should escape subsequent

review.

The prohibition of indirect review is of particular significance. Indeed, indi-

rect review potentially threatens the enforceability of the arbitral award. If,

for example, a decision rejecting a challenge is overruled at the enforcement

stage, i.e. if the courts consider that the challenged arbitrator lacked inde-

pendence or impartiality, the arbitral award is set aside or denied enforce-

ment and the arbitral proceedings must be reinitiated ab initio. Similarly, if,

where the arbitration institution has accepted a challenge and replaced the

arbitrator in question, a court finds that the arbitrator should not have been

replaced, such a court ruling jeopardises the enforceability of the arbitral

award.

In most countries, the courts’ attitude vis-à-vis institutional decisions reveals

an – unsatisfactory – compromise between the autonomy of institutional

decision-making and the concern with independence and impartiality of

arbitrators. On the one side, institutional decisions relating to the appoint-

ment and challenge of arbitrators are generally not subject to direct review.

As is illustrated by the decision of the French Cour de cassation in Opinter,385

the exclusion of direct review rests upon the characterisation of institutional

decisions as administrative decisions.386 On the other side, the courts of most

countries indirectly review institutional decisions in the context of enforce-

ment or setting aside proceedings.387 The fact that an arbitral institution has

rejected the challenge of an arbitrator, for example, does not prevent the

courts from examining, at the enforcement stage, allegations of lacking in-

dependence or impartiality. Issues of independence and impartiality are, in

fact, considered as too fundamental for them to be finally addressed by arbi-

tral institutions.388

384 See, for example, Article 13(3) of Model Law. See also Cour d’appel of Paris, 6 April

1990, Philipp Brothers v. Icco, 1990 Rev. Arb., p. 880 et seq.

385 Cour de cassation, 7 October 1987, Opinter France v. S.A.R.L. Dacomex, 1987 Rev. Arb.,

p. 479 et seq.

386 Indeed, only arbitral awards are subject to means of recourse. Administrative decisions

are generally considered not to constitute arbitral awards.

387 See, for example, the decision of the Swiss Federal Court of 30 June 1994 in Hitachi Ldt.

v. SMS Schloemann Siemag AG, 1997 ASA Bull., p. 99 et seq.

388 See A. Berlinguer, ‘Impartiality and Independence of Arbitrators in International Prac-

tice’, 1995 Am. Rev. Int’l. Arb., p. 339 et seq., at 365 where the author observes that, as

92 The Arbitrator’s Power to Order Interim and Conservatory Measures

IV. The Arbitrator’s Power to Order Interim and Conservatory

Measures

The Arbitrator’s Power to Order Interim and Conservatory Measures

A. The concept of interim and conservatory measure

Interim and conservatory measures refer to a wide array of measures pursuing

varying objectives. While this study uses the concept of ‘interim and conser-

vatory measure’ – to be found, for example, in the ICC rules389 – some arbi-

tration laws resort to a different terminology. The UNCITRAL Model law,

for example, refers to ‘interim measures of protection’390; the Swiss PILS to

‘provisional or protective measures’.391

An understanding of the concept of interim and conservatory measures is

best gained through an examination of the underlying objectives. Three

main purposes can be distinguished. Some measures are designed to avoid

any irreparable harm being done to one of the parties. Where, for example, a

licensor accuses his licensee of unlawful competition, it might, under spe-

cific circumstances, be appropriate to order the licensee not to manufacture

and market the competing product until a decision on the merits has been

rendered. Other measures are aimed at ensuring the effectiveness of the

decision, especially its enforceability. It might, for example, be appropriate

to attach the assets of one of the parties. Another category of measures is

intended to ensure the efficiency of the proceedings and, more particularly,

the efficiency of the fact-finding process. These measures relate to the taking

and preservation of evidence.

Interim or conservatory measures are adopted as ‘orders’ by which the arbi-

tral tribunal requires one of the parties – or a third party – to observe a cer-

tain behaviour. As such, these measures presuppose the existence of a spe-

cific power, the so-called ‘authority to command’ (pouvoir de commande-

ment). Authority to command does not in itself comprise the power to en-

force an order. Such enforcement powers are traditionally considered as an

attribute of State sovereignty and, therefore, as vested exclusively with State

courts. These powers are comprised in what is habitually referred to as the

courts’ imperium.392

a general rule, ‘the courts of the country where the arbitration takes place exercise a re-

view of the final decision’ and that ‘this review is aimed at ensuring that questions of

independence or impartiality have been solved according to the criteria set forth by the

controlling national law.’

389 See Article 23 of the ICC Rules.

390 See Article 17 of the Model Law.

391 See Article 183(3) of the Swiss PILS.

392 On imperium, see, in particular, Ch. Jarrosson, ‘Réflexions sur l’imperium’, in Etudes

offertes à Pierre Bellet (1991), p. 245 et seq.; P. Mayer, ‘Imperium de l’arbitre et mesures

93The procedural autonomy of arbitration

B. Recognition of the power of arbitrators to order interim or

conservatory measures

Arbitrators are traditionally deprived of the power to order interim or con-

servatory measures, i.e. of authority to command. This derives from the

classical view according to which authority to command is inseparably

linked with imperium. Lack of imperium, in fact, calls into question the use-

fulness of allocating authority to command. The traditional reluctance to

recognise the arbitrators’ authority to command is illustrated by the German

ZPO prior to the 1998 reform.393 It can still be found in the Swiss Concor-

dat394 and the arbitration laws of Austria,395 Greece,396 and Italy.397

Today, however, most recently adopted arbitration statutes recognise the

power of arbitrators to order interim or conservatory measures. This power is

recognised, for example, in England,398 France,399 Germany,400 Switzerland,401

and the United States.402 It is also granted under the UNCITRAL Model

Law. In fact, Article 17 of the Model law provides that,

‘[u]nless otherwise agreed by the parties, the arbitral tribunal may, at the

request of a party, order any party to take such interim measures of protec-

tion as the arbitral tribunal may consider necessary in respect of the subject-

matter of the dispute.’

The arbitrator’s power to render interim or conservatory measures is further

recognised by the major institutional arbitration rules including those of the

ICC,403 the LCIA,404 the AAA,405 and UNCITRAL.406

provisoires’, in J. Haldy, J.-M. Rapp and Ph. Ferrari (eds.), Etudes de procédure et

d’arbitrage en l’honneur de Jean-François Poudret, Lausanne, 1999, p. 437 et seq.

393 See Article 1036 of the ZPO.

394 See Article 26 of the Concordat.

395 See IHCA Vol. 1, Country Reports, Austria, Suppl. 1, p. 9.

396 See Article 889 of the Greek Code of Civil Procedure.

397 See Article 818 of the CPC.

398 See Section 38(4) to (6) of the 1996 Arbitration Act.

399 See Article 1479 of the NCPC.

400 See Section 1041 of the ZPO.

401 See Article 183(1) of the Swiss PILS.

402 See IHCA Vol. 4, Country Reports, United States, Suppl. 28, p. 37.

403 See Article 23(1) of the ICC Rules.

404 See Article 25(1) of the LCIA Rules.

405 See Article 21 of the AAA Rules.

406 See Article 26 of the UNCITRAL Rules.

94 The Arbitrator’s Power to Order Interim and Conservatory Measures

Although the above statutes and rules recognise the power of arbitrators to

render interim or conservatory measures, they do not (and, as far as institu-

tional rules are concerned, they cannot) confer enforcement powers upon

them. As to the Model law, it does not deal with the question of the en-

forcement of orders issued by arbitrators. The Working Group, in fact, de-

cided ‘not to address this question because it touched on matters dealt with

in laws of national procedure and court competence’.407 The laws and rules

in question therefore separate authority to command from imperium.

The absence of enforcement powers does not necessarily mean, however,

that interim or conservatory measures issued by arbitral tribunals are ineffec-

tive. Despite their not being enforceable as such, they are, in practice, gen-

erally complied with. Arbitrators can rely on alternative means of con-

straint, at least as far as orders addressed to the parties are concerned.

Schwartz rightly argues that,

‘[u]ltimately, of course, the arbitrators’ greatest source of coercive power

resides in their position as arbiters of the merits of the dispute between the

parties. Parties seeking to appear before the arbitrators as good citizens who

have been wronged by their adversary would generally not wish to defy in-

structions given to them by those whom they wish to convince of the justice

of their claims.’408

The recognition of the arbitrators’ authority to command calls for a re-

definition of the role that courts are to play with respect to interim and

conservatory relief. More particularly, it raises the question of whether and

how State courts should exercise concurrent jurisdiction.

C. The courts’ concurrent jurisdiction to order interim or

conservatory measures

1. The limited powers of arbitrators

As we have seen, the powers of arbitrators are limited. Although many laws

and institutional rules grant them authority to command, they are generally

deprived of enforcement powers. Where the addressee of an order issued by

the arbitral tribunal fails to comply with that order, the arbitral tribunal –

contrary to a court – cannot, therefore, charge a court officer with its en-

forcement. Such enforcement requires intervention by the courts.

407 See H. M. Holtzmann and J. E. Neuhaus, A Guide to the UNCITRAL Model Law on

International Commercial Arbitration, at 531.

408 See E. Schwartz, Conservatory and Provisional Measures in International Arbitration, ICC

Publication n° 519, p. 45 et seq., at 59.

95The procedural autonomy of arbitration

The powers of arbitrators are particularly limited where they are to be exer-

cised vis-à-vis third parties. Indeed, authority to command is habitually

considered to be linked to the contractual nature of arbitration. It arguably

constitutes an accessory to the tasks that arbitrators are entrusted with by

the parties. No such contractual basis can be relied upon in order to legiti-

mate authority to command vis-à-vis third parties. Hence, arbitral tribunals

cannot, for example, enjoin a bank to attach the accounts of one of the

parties or compel a third party to witness before them.

In order to legitimate authority to command vis-à-vis third parties, some

writers emphasise the judicial nature of arbitration. Indeed, one generally

admits that arbitration is both a contractual and a judicial institution.409 In

practice, however, virtually no law on arbitration vests arbitral tribunals

with authority to command vis-à-vis third parties. In France, for example,

Article 1460 of the NCPC relating to the conduct of the arbitral proceed-

ings does not refer to Article 11(2) of the NCPC which empowers courts to

order the production of documents by third parties.410 In England, although

arbitrators are empowered to order provisional relief,411 enforcement of these

orders requires court intervention.412

2. Court assistance

Courts occasionally refuse to grant interim relief in relation to disputes sub-

mitted to arbitration. In McCreary Tire & Rubber Co. v. Seat S.p.A., for

example, the US Federal Court of Appeals (3d Circuit) held that

McCreary’s recourse to the courts to obtain an attachment order constituted

a ‘violation of McCreary’s agreement to submit the underlying disputes to

arbitration’ and that McCreary’s application sought ‘to by-pass the agreed

upon method of settling disputes.’413 According to the McCreary Court, the

granting of interim or conservatory measures by the courts is incompatible

with submission to arbitration. This case illustrates how the ‘emphatic fed-

409 See, for example, R. David, L’arbitrage dans le commerce international, at 109: ‘Les discus-

sions relatives à la nature juridique de l’arbitrage ne peuvent mener à des conclusions sûres car

l’arbitrage a une nature hybride.’ (‘The discussion relating to the legal nature of arbitra-

tion cannot lead to final conclusions because arbitration has a hybrid nature’, transla-

tion by the author).

410 See, for example, Article 1460(1) of the French NCPC.

411 See Section 39 of the 1996 Arbitration Act.

412 Section 42 of the 1996 Arbitration Act.

413 501 F.2d 1032 (3d Cir. 1974).

96 The Arbitrator’s Power to Order Interim and Conservatory Measures

eral policy in favor of arbitration’414 is sometimes misunderstood – and ap-

plied. Indeed, the affirmation of the autonomy of arbitral dispute resolution

by the McCreary Court is, inasmuch as the arbitrators lack the power to

render the requested measure, counterproductive. The autonomy of the

arbitral process is not, in fact, an end in itself, but a means to ensure proce-

dural efficiency.

The efficiency of interim or conservatory measures pays tribute to the courts’

role as juge d’appui, i.e. to assistance by the courts. In order for this assistance

to be helpful, it is necessary to establish efficient mechanisms of co-

operation between arbitral tribunals and the courts. Such mechanisms are

aimed at avoiding the classical problems of concurrent jurisdiction. One of

these problems relates to the fact that courts may order measures that the

arbitral tribunal does not approve of or considers as inappropriate. Efficient

co-operation therefore supposes that arbitral tribunals render interim or

conservatory measures and that the courts merely intervene in order to en-

sure that these measures are complied with.

In practice, such mechanisms are available under several arbitration laws.

Under the UNCITRAL Model Law, for example, ‘[t]he arbitral tribunal…

may request from a competent court… assistance in taking evidence.’415

Under the Swiss PILS this co-operation mechanism is available not only

with respect to the taking of evidence, but also, more generally, in connec-

tion with provisional and protective measures.416 An interesting method of

co-operation can be found in the Ohio Code. Section 2712.36 of this Code

states, in fact, that a court should not grant an interim measure ‘[u]nless the

party shows that an application to the arbitral tribunal for the measure of

protection would prejudice the party’s rights and that an interim measure of

protection from the court is necessary to protect their rights.’417 According

to this provision, courts therefore only have subsidiary jurisdiction to order

interim or conservatory measures.

Conflicting decisions are another problem of concurrent jurisdiction. These

can be avoided through the co-operation mechanisms described above. In

the absence of such mechanisms, the question arises of how decisional con-

flicts should be solved. In order not to encroach on the autonomy of the

arbitral proceedings, a decision rendered by the arbitral tribunal should pre-

vail over a State court decision. This implies, as Fouchard, Gaillard and

414 Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614 (1985).

415 See Article 27 of the Model Law.

416 See Articles 183 and 184 of the Swiss PILS. Article 183 provides that, if a party does

not comply with a provisional or protective measure ordered by the arbitral tribunal,

‘the arbitral tribunal may request the assistance of the competent court.’ Article 184

states a rule similar to the one expressed by Article 27 of the Model Law.

417 See A. Redfern and M.Hunter, op. cit., at 349.

97The procedural autonomy of arbitration

Goldman rightly note, that arbitrators should be able to ‘order the parties to

abandon the implementation of a protective measure previously obtained

from a court.’418

V. Summary

Summary

A number of doctrines and developments have allowed arbitral proceedings

to increasingly escape State court interference. First, the doctrine of separa-

bility has contributed significantly to the improvement of the effectiveness

of arbitration agreements. Initially conceived of as mere independence of

the main agreement, separability has evolved into private international law

autonomy and, ultimately (at least in some jurisdictions), into a validity

principle. Second, the doctrine of Kompetenz-Kompetenz – sometimes incor-

rectly considered as necessarily relying on separability – has shifted jurisdic-

tional issues and, in particular, the question of the validity of the arbitration

agreement, from State courts to the arbitral tribunal. Third, the growing

institutionalisation of international commercial arbitration has increased

the autonomy of appointment and challenge procedures. However, in most

countries, court review of institutional decisions is inconsistent with the

general pro-arbitration policy. Indeed, the unavailability of a direct means of

recourse implies that institutional decisions can only be reviewed at the

enforcement stage, which unduly jeopardises the enforceability of the arbi-

tral award. Fourth, most recently adopted arbitration statutes recognise the

power of arbitrators to order interim or conservatory measures. The conferral

of such powers calls for a re-organisation of the co-operation between arbi-

tral tribunals and State courts, considering, in particular, the lacking en-

forcement powers of arbitrators. As a general conclusion, it can be said that

the procedural dimension of international commercial arbitration illustrates

that autonomy is not an end in itself, but a means to ensure the effective

functioning of the arbitral process. As long as arbitral tribunals are not

vested with powers equal to those of State courts, the latter’s role as juges

d’appui is indispensable to the effectiveness of international commercial

arbitration.

418 See J. Savage and E. Gaillard, op. cit., at 723.

98 Summary

99The restricted scope of court control of arbitral awards

Chapter 4

The autonomy of the arbitral award:

the restricted scope of court control

of the arbitral award

The restricted scope of court control of arbitral awards

The main aspect of the autonomy of international commercial arbitration

consists in the autonomy of the arbitral award. This autonomy relies, in the

first place, on the restricted scope or extent of court control. Today, most

legal systems subject arbitral awards to increasingly limited court review.

This trend reflects the growing autonomy of the arbitral award.

This Chapter aims to shed light on the progressive acceptance of limited

court review. Section 1 examines the principle according to which courts

cannot review the merits of arbitral awards, i.e. the arbitrator’s interpreta-

tion of the facts and application of the law. Section 2 analyses the limited

number of grounds upon which arbitral awards can be set aside or refused

recognition and enforcement, i.e. invalidated. Section 3 shows how the

restrictive interpretation of these grounds further increases the autonomy of

arbitral awards.

I. The Prohibition of Review on the Merits (révision au fond)419

The Prohibition of Review on the Merits (ré vision au fond)

A. The meaning of (the prohibition of) review on the meits

The prohibition of review on the merits must be understood as meaning that

courts do not examine whether the arbitral tribunal has rightly decided the

case. Accordingly, courts do not review the arbitrator’s interpretation of the

facts and application of the law. As far as the interpretation of the facts is

concerned, courts do not inquire into the arbitral tribunal’s evaluation of

evidence. They refuse, for example, to hear claims alleging that the arbitral

tribunal has distorted documentary evidence.420 Courts also refrain from

reviewing the arbitrators’ interpretation of the contract. This is well illus-

419 Most authors support the prohibition of review on the merits. A contrary view is ex-

pressed, however, by I. N. D. Wallace, ‘Control by the Courts: A Plea for More, not

Less’, 1990 Arb. Int’l, p. 253 et seq., at 258: ‘The desire for a correct decision greatly

outweighs any wish for speed and premature finality’.

420 J. Savage and E. Gaillard (eds.), Fouchard Gaillard Goldman on International Commercial

Arbitration, at 923.

100 The Prohibition of Review on the Merits (révision au fond)

trated by a recent decision of the Svea Court of Appeal (Sweden).421 In this

case, the respondents claimed that the arbitral award should not be enforced

because the arbitral tribunal had exceeded its jurisdiction, inter alia by ruling

with regard to a product which had not existed at the time of the contract-

ing (the parties had entered into three agreements relating to the transfer of

intellectual property rights to an invention owned by the respondents). The

Court of Appeal held that this claim ‘cannot be resolved until the Agree-

ment [the Assignment Agreement] has been interpreted’ and that ‘[s]uch an

interpretation goes to the merits of the arbitral award, which cannot be

considered by the Court of Appeal’.422

As regards the application of the law, Courts do not examine whether the

arbitral tribunal has applied the appropriate rule of law or whether it has

correctly applied that rule. In particular, courts do not question the arbitral

tribunal’s determination of the applicable law – except where it contrasts

with a choice-of-law clause concluded by the parties.423 A German decision

rendered under the New York Convention, for example, held that the objec-

tion that the arbitrator wrongly applied German law to the substance of the

dispute was not an admissible defence.424

The prohibition of review of the merits also implies that courts do not inves-

tigate the consistency of the decision or of the underlying reasoning. They

do not, for example, examine whether the decision is consistent with the

reasoning, nor do they appraise the consistency of the reasoning itself. A

classical example of the latter aspect is provided by the Swedish Supreme

Court decision of 13 August 1979 in Götaverken v. GNMTC.425 The Libyan

respondent GNMTC resisted enforcement of the award by alleging that the

arbitral tribunal, although it had declared in the reasoned part of the award

that GNMTC was justified in refusing to take delivery of the vessels con-

structed by the other party, had ordered GNMTC in the decisional part of

the award to take delivery of the vessels. The Swedish Supreme Court re-

fused to address this objection on the grounds that the New York Conven-

tion prohibits review of the merits of arbitral awards.

421 See the decision of the Svea Court of Appeal of 21 March 2001, Case Ö 4859-00, re-

produced in Yearbook, Vol. XXVII (2002), p. 551 et seq., at 553.

422 Ibid.

423 Non-compliance by the arbitral tribunal with an express choice-of-law by the parties is

generally considered to compromise the enforceability of the arbitral award. In France,

for example, violation of an express choice-of-law would constitute a failure to comply

with the ‘mission’ conferred upon the arbitrators in the sense of Article 1502(3) NCPC.

On this issue, see J. Savage and E. Gaillard (eds.), op. cit., at 946.

424 See Landgericht of Zweibrücken, 11 January 1978 (F.R. Germ. n° 16) quoted by

A. J. Van den Berg, The New York Arbitration Convention of 1958, at 269.

425 1980 Rev. Arb., p. 555 et seq.

101The restricted scope of court control of arbitral awards

B. The prohibition of review on the merits of foreign and domestic

arbitral awards

1. The distinction between foreign and domestic arbitral awards

Arbitral awards are generally considered to have a nationality, i.e. to be

connected to a particular State. This State is habitually referred to as the

‘country of origin’ of the award.426 The practical significance of the distinc-

tion lies in the application of different legal regimes of court control of arbi-

tral awards. Indeed, a – direct – means of recourse (action to set aside or to

vacate the award, recours en annulation) is available only with respect to

domestic awards. A French arbitral award, for example, can only be chal-

lenged before the French courts. In addition, all arbitral awards, i.e. domes-

tic and foreign arbitral awards, are subject to court control in the context of

enforcement proceedings.

Such an organisation of court control serves the consistency of enforcement

of arbitral awards at the international level, i.e. of the international en-

forcement system. Indeed, this system is based upon centralisation of court

control in the country of origin. Most authors only implicitly refer to this

centralisation.427 Van den Berg, for example, when commenting on the

Götaverken decision in which the Swedish Supreme Court had granted en-

forcement of the arbitral award, states that ‘[t]he only possibility for

GNMTC [the respondent] to contest the award was to institute setting aside

proceedings in [the country of origin].428 The effectiveness of the centralisa-

tion of court control is ensured through the internationally binding effect of

the decision of the courts of the country of origin – 429 although this effect

traditionally only applies to decisions setting aside an arbitral award.430

426 See, for example, J. Savage and E. Gaillard (eds.), op. cit., at 915; P. Mayer, ‘Revisiting

Hilmarton and Chromalloy’, in ICCA Congress series n° 10, p. 165 et seq., at 168.;

A. J. Van den Berg, op. cit., at 350.

427 For an express reference to the objective of centralisation of court control at the arbitral

seat, see B. Leurent and N. Meyer Fabre, ‘La reconnaissance en France des sentences

rendues à l’étranger, l’exemple franco-suisse’, 1995 ASA Bull., p. 118 et seq., at 131.

428 See A. J. Van den Berg, op. cit., at 271.

429 However, as will be shown in Chapter 6, this internationally binding effect is becoming

increasingly disputed.

430 Indeed, where the courts of the country of origin affirm the enforceability of an arbitral

award, courts of other countries may, according to the traditional view, nevertheless

deny recognition and enforcement of the award in question.

102 The Prohibition of Review on the Merits (révision au fond)

The distinction between domestic and foreign arbitral awards poses the

question of the criterion/criteria to be relied upon in order to determine the

country of origin of an arbitral award. In this respect, all legal systems recog-

nise the significance of the place of the making431 of the arbitral award or

place of arbitration,432 i.e. of the arbitral seat. However, some countries such

as Germany and France traditionally consider that the nationality of the

award (also) derives from the applicable procedural rules.433 An award ren-

dered under English procedural law would therefore be considered as an

English award, even if the seat of the arbitral tribunal were located in Swit-

zerland, for example. The duality of the criteria used in order to determine

the nationality of an arbitral award stands in contrast with the objective of

centralisation of court control in one country. Indeed, an arbitral award

might be considered to have two nationalities and therefore to be subject to

setting aside proceedings in two countries. This creates an evident risk of

normative contradiction.

2. The prohibition of review on the merits of foreign arbitral awards

In most countries, the prohibition of review on the merits has first been

admitted with respect to foreign arbitral awards. Indeed, legislative efforts to

liberalise international arbitration law initially focused on the enforcement

of arbitral awards abroad, i.e. on the enforcement of foreign awards. In fact,

the improvement of enforcement abroad was considered the principal tool

to ensure the effective functioning of international commercial arbitration.

It was also regarded as a more realistic objective than the adoption of a uni-

form law (or model law) governing enforcement of domestic arbitral awards.

The prohibition of review on the merits of foreign awards was further facili-

tated by the acceptance of the principle of centralisation of court control in

the country of origin. Indeed, this centralisation implies that court control

of arbitral awards is to be performed primarily in the country of origin – via

431 The ‘place of the making’ of the arbitral award reflects the terminology of the New York

Convention (Article V) which refers to the country ‘where the award was made’.

432 The term ‘place of arbitration’ is synonymous to ‘place of the making’ of the arbitral

award. It is used, for example, in the ICC Rules of Arbitration (Article 14).

433 See A. J. Van den Berg, op. cit., at 22-28, esp. at 27 where the author comments on the

German legislation implementing the New York Convention. Today, however, neither

French nor German law resorts to this criterion in order to determine the nationality of

an arbitral award. A country still linking the nationality of the arbitral award to the ap-

plicable procedural law is Brazil. See H. G. Gharavi, The International Effectiveness of the

Annulment of an Arbitral Award, at 21.

103The restricted scope of court control of arbitral awards

the action to set the award aside.434 Accordingly, foreign arbitral awards

need not be subjected to extensive court control.

Already prohibited under the 1927 Geneva Convention on the Execution of

Foreign Arbitral Awards,435 review on the merits is also excluded under the

1958 New York Convention. Indeed, review on the merits is not included in

the Convention’s exhaustive list of grounds upon which recognition and

enforcement may be refused.436 Court judgments relating to the enforcement

of Convention awards have consistently confirmed this principle. In a re-

cent decision, the Spanish Supreme Court – referring to a decision of the

Constitutional Court – stated that,

‘by its nature, enforcement does not allow a review of the merits of the dispute

other than to the extent necessary to ascertain that public policy is not vio-

lated (emphasis added).’437

3. The prohibition of review on the merits of domestic arbitral awards438

Restricting the scope of court control of foreign awards – in particular by

prohibiting review on the merits – does not suffice to ensure the enforceabil-

ity of arbitral awards. Indeed, as we have seen, enforceability traditionally

supposes that the arbitral award has not been set aside in the country of

origin. Improved enforceability of arbitral awards therefore necessitates re-

duced court control in the country of origin.

The acceptance of decreased court control in the country of origin is due to

several factors. On the one side, it reflects the general trend towards liberali-

434 In this sense, see, for example, P. Mayer, ‘L’exécution des sentences arbitrales dans les

pays de droit romaniste’, in L’exécution des sentences arbitrales, ICC Publication n° 440/6,

p. 47 et seq., at 49.

435 See Articles 1 and 2 of the Convention.

436 See Article V of the Convention. The grounds listed include the invalidity of the

arbitration agreement (V(1)(a)), a breach of due process (V(1)(b)), ultra petita

(V(1)(c)), the irregular constitution of the arbitral tribunal or irregular conduct of the

arbitral proceedings (V(1)(d)), the setting aside of the arbitral award in the country of

origin (V(1)(e)), non-arbitrability (V(2)(a)), and a violation of public policy

(V(2)(b)).

437 See the Supreme Court decision of 17 February 1998, exequatur proceedings nos.

3586/1996 and 2977/1996, reproduced in Yearbook, Vol. XXVII (2002), 533 et seq.,

at 539.

438 For a comparative examination of the extent to which State courts review the merits of

domestic arbitral awards, see D. Kokkini-Iatridou, ‘Judicial Recourse against the Arbi-

tral Award: A Comparative Synthesis’, in Law and Reality, p. 157 et seq.

104 The Prohibition of Review on the Merits (révision au fond)

sation of international commercial arbitration. On the other, it is linked to

the progressive erosion of the doctrine of localisation and, more particularly,

of judicial localisation of international commercial arbitration.439 Indeed,

many scholars question judicial localisation of arbitral awards in the country

of origin. They doubt the existence of a significant link between the arbitral

award and the country of origin. They argue, in fact, that the arbitral seat is

not necessarily materially linked to the dispute, i.e. to the parties or the

underlying transaction. Further, they oppose the assimilation of arbitral

awards to court judgments and the resulting exclusive availability of means

of recourse in the country of origin. Such assimilation arguably contrasts

with the private nature of arbitration.

With the growing acceptance of delocalisation and the declining relevance

of the distinction between domestic and foreign awards, the distinction

between international and domestic arbitration gains increased significance.

Indeed, one increasingly associates the liberal flavour of enforcement re-

gimes with the internationality of the dispute rather than with the foreign-

ness of the arbitral award.440 The liberal stand taken with respect to foreign

awards can therefore be considered to be linked to the internationality of

the underlying dispute. In fact, the question of the enforcement of the arbi-

tral award abroad generally only arises where the arbitration is international.

Commenting on the scope of application of the New York Convention, Van

den Berg rightly observes that ‘[i]t scarcely occurs in practice… that en-

forcement of an award concerning a domestic affair [is] sought abroad.’441

The enforcement regimes relating to foreign awards, on the one side, and

domestic awards rendered in international arbitration, on the other, there-

fore tend to be identical. This trend is particularly well illustrated by French

law. Indeed, under French law a unique body of law governs the enforce-

ment of both foreign awards and ‘awards made in international arbitra-

tion’.442 This tendency can also be found in the works of UNCITRAL. In-

deed, Article 34 of the Model Law – designed to apply to international com-

mercial arbitration – relating to the means of recourse against arbitral awards

is substantially identical to Article V of the New York Convention govern-

ing the enforcement of foreign awards. That is why it is often said that the

439 For a more detailed analysis of the doctrines of localisation and delocalisation, see infra

Chapters 5 and 6.

440 See P. Mayer, op. cit., at 49 where the author comments on the tendency to limit court

control of awards rendered in international disputes (‘en matière internationale’).

441 See A. J. Van den Berg, op. cit., at 18.

442 See NCPC, Book IV, Title VI on ‘Recognition of, enforcement of, and recourse against

arbitral awards made abroad or in international arbitration’ (translation by J. Savage

and E. Gaillard, op. cit., at 1014).

105The restricted scope of court control of arbitral awards

various instruments adopted by UNCITRAL create a ‘unified legal frame-

work’443 for the settlement of international business disputes.

C. Exceptional review on the merits

Only few legal systems subject arbitral awards rendered in international

commercial disputes to review on the merits. These include, for example,

Argentina and Iraq.444 This Section does not examine such categorical refus-

als of the prohibition of review on the merits. Instead, it focuses on legal

systems that exclude, as a matter of principle, review on the merits, but

authorise it in exceptional circumstances. The most telling examples of such

exceptional review on the merits are provided by English and American law.

Under English law, the parties may, in specific circumstances, appeal to the

court on a ‘question of English law’.445 In the United States, the courts, al-

though they do not examine the merits of the dispute, nevertheless examine

whether the arbitrators have not ‘manifestly disregarded’ the law.

Both the appeal on a question of English law and the manifest disregard

exception reflect an attempt to ensure a minimum degree of correctness of

arbitral decision-making. They are illustrative of the difficult reconciliation

of speed as one of the principal advantages of arbitral dispute resolution with

decisional accuracy. The legitimacy of these exceptions to the absence of

révision au fond derives from the hypothetical will of the parties. Indeed,

most writers are of the opinion that parties, when providing for dispute reso-

lution through arbitration, cannot be considered to agree to plainly wrong

decisions. This Section provides an overview of the question of English law

and manifest disregard.

1. England: The question of English law

Section 69(1) of the 1996 Arbitration Act provides that ‘a party to arbitral

proceedings may… appeal to the court on a question of law arising out of an

award made in the proceedings.’ However, this right to appeal is subject to

various restrictions and limitations. First – and most importantly –, the right

443 See General Assembly Resolution 40/72, 40 GAOR Supp. No. 53, A/40/53, p. 308

(adopted 11 December 1985).

444 See Article 758 of the Argentine Code of Civil and Commercial Procedure and Articles

273 and 274 of the Iraqi Code of Civil Procedure cited by G. Born, International Com-

mercial Arbitration (2001), at 810.

445 Section 69 of the 1996 Arbitration Act.

106 The Prohibition of Review on the Merits (révision au fond)

to appeal may be excluded by the parties (one speaks of an ‘exclusion agree-

ment’). Indeed, Section 69 of the Act does not form part of the mandatory

provisions referred to in Section 4 and listed in Schedule 1 of the Act. An

agreement to dispense with reasons for the award is considered as an exclu-

sion agreement.446 Second, the right to appeal is confined to questions of

English law.447 No appeal is therefore available where the merits of the case

are governed by a foreign law. Third, leave to appeal is given only if ‘the

determination of the question [of law] substantially affect[s] the rights of one

or more of the parties’.448 Hence, an insignificant or inconsequential point

will not qualify.449 Finally, an appeal is admissible only where the arbitral

decision is ‘obviously wrong’ or, if the question at stake is one of general

public importance, ‘open to serious doubt’.

2. United States: Manifest disregard of the law (the manifest disregard

exception)450

a. The meaning of manifest disregard of the law

Manifest disregard of the law as a ground upon which arbitral awards can be

set aside or denied recognition and enforcement stems from Wilko v. Swan

where the U.S. Supreme Court remarked that ‘[i]n unrestricted submis-

sions… the interpretations of the law by the arbitrators, in contrast to mani-

fest disregard are not subject, in the federal courts, to judicial review for

error in interpretation.’451 According to a widely held view, manifest disre-

gard requires more than erroneous interpretation of the facts – and especially

of the parties’ agreement – or application of the law. In Stavborg v. National

Metal Converters, Inc.,452 for example, the Federal Court for the 2nd Circuit

refused to reverse the award ‘even though it [was] based on a clearly errone-

ous interpretation of the contract.’ In National Oil Corp. v. Libyan Sun Oil

Co.,453 the Federal Court for the 8th Circuit remarked that ‘[a] mere error of

446 Section 69(1), 2nd recital.

447 Section 82( 1).

448 Section 69(3)(a).

449 See B. Harris, R. Planterose and J. Tecks, The Arbitration Act 1996 - A Commentary

(1997), at 255-256.

450 See, in general, Note, ‘Manifest Disregard of the Law in International Commercial

Arbitration’, 1990 28 Colum. J. Trans. L. 449.

451 346 U.S. at 436-37.

452 500 F.2d 424 (2d Cir. 1974).

453 733 F.Supp. 800 (D. Del. 1990).

107The restricted scope of court control of arbitral awards

law would not, however, be sufficient grounds to refuse recognition of the

award.’

If judicial decisions clarify what circumstances do not amount to manifest

disregard of the law, they do not, however, provide a clear definition of what

manifest disregard consists of. Several decisions have rightly stated that the

manifest disregard standard referred to in the Wilko decision is ‘not easily

defined’.454 In fact, manifest disregard of the law as an exception to the pro-

hibition of révision au fond is necessarily ambiguous. It seems to require a

particularly serious mistake on the part of the arbitrators (a ‘manifest’ mis-

take) determinable only by way of reference to an inherently vague ‘reason-

able arbitrator’ standard. An express reference to such a standard can be

found in Merrill Lynch, Pierce, Fenner & Smith v. Bobker where the Federal

Court for the second Circuit held that, in order to qualify as manifest disre-

gard, an error of law must be ‘obvious and capable of being readily and in-

stantly perceived by the average person serving as arbitrator’ (emphasis

added).455 The lacking certainty as to the definition of manifest disregard of

the law frequently produces divided courts.456

Manifest disregard is frequently associated with the irrationality of the award

or the fact that the arbitrator has ignored the applicable law or has deliber-

ately refused to apply it. In Ainsworth v. Kurnick,457 for example, the Federal

Court for the 11th Circuit vacated an award on the grounds that no rational

legal theory justified the arbitrator’s conclusion. In Shearson Lehman Broth-

ers, Inc. v. Hedrich, the Court vacated an award because the arbitrators had

‘impermissibly ignored the unambiguous contract language’.458 Questions of

contract interpretation – such as the one raised in the Shearson decision –

constitute, in fact, the bulk of the cases in which manifest disregard is al-

leged. In Granite Worsted Mills, Inc. v. Aaronson Cowen, Ltd.,459 for example,

the arbitrator had awarded Claimant damages of an amount substantially

exceeding the contractual limitation on damages. In this respect, the Court

observed that the arbitrator ‘may, indeed, refuse to enforce such a damage

limitation clause on the ground of unconscionability or on other grounds’.

Since, however, in the case at stake, the arbitrator had not explained that

454 For example, San Martine Compania de Navegacion, SA v. Saguenay Terminals Ltd.,

293 F.2d 796, 801 n.4 (9th Cir. 1961).

455 808 F.2d 930, 933 (2d. Cir. 1986).

456 See, for example, the dissenting opinion of Judge Mansfield in Stavborg v. National

Metal Converters, Inc. (see infra, at 108) and the dissenting opinion of Judge Breitel in

Granite Worsted Mills, Inc. v. Aaronson Cowen Ltd. (see infra at 106).

457 960 F.2d 939 (11th Cir. 1992).

458 639 N.E.2d 228 (Ill. App. 1994).

459 25 N.Y.2d 451 (1969).

108 The Prohibition of Review on the Merits (révision au fond)

he had intentionally excluded the contractual limitation on damages, the

Court held that ‘it can only be concluded that the arbitrator has exceeded

his powers’ and therefore vacated the award.460 That clear misinterpretations

of the contract and/or ignorance of certain contract provisions do not gener-

ally lead to vacatur is illustrated by the aforementioned Stavborg decision.

The contrast between Granite and Stavborg illustrates the lack of consensus

as to the exact meaning of manifest disregard. Attempts to define manifest

disregard by reference to a specific level of ‘seriousness’ of the mistake made

by the arbitrator have been largely unsuccessful. The manifest disregard

exception must probably be understood not as sanctioning mere decisional

inaccuracy, but a serious procedural flaw. Several court decisions do, in fact,

link manifest disregard to other grounds invalidating arbitral awards. The

Granite Court, for example, referred to, and based its decision on, excess of

powers by the arbitrators (‘it can only be concluded that the arbitrator has

exceeded his powers’). Other decisions suggest that manifest disregard con-

stitutes a breach of due process. This viewpoint is implicit in Judge Mans-

field’s dissenting opinion in Stavborg. He states that,

‘Although we are obligated to avoid frustrating the purpose of arbitration,

which is to resolve disputes quickly and inexpensively by minimizing judicial

review or interference, we may not go so far as to countenance a wholly

baseless and irrational award. To do so would be to deny due process.’

Alternatively, manifest disregard of the law could be relied upon under the

public policy exception. Decisions in manifest disregard of the law can, in-

deed, be considered to be contrary to public policy as defined in Parsons &

Whittemore and subsequent decisions, i.e. to ‘fundamental principles of law’

or the ‘most basic notions of morality and justice’.461

460 25 N.Y.2d 451 (1969).

461 Parsons & Whittemore Overseas Co. v. Société Générale de l’Industrie du Papier, 508 F.2d

969 (2d Cir. 1974).

109The restricted scope of court control of arbitral awards

b. A controversial issue: The applicability of the manifest disregard

exception to New York Convention awards

i) The concept of the New York Convention award462

As has been explained, one habitually distinguishes between domestic and

foreign arbitral awards.463 While the enforcement of domestic awards is gov-

erned by the relevant domestic provisions, enforcement of foreign awards

falls, in most jurisdictions, under international Conventions and, more par-

ticularly, under the New York Convention.

American courts have adopted a singular approach with respect to the dis-

tinction between domestic and foreign awards. Indeed, they do not, strictly

speaking, inquire into the domestic or foreign nature of arbitral awards.

Instead, they merely examine whether an award qualifies as a ‘New York

Convention award’, i.e. whether the New York Convention is applicable.

Interestingly, the American definition of the New York Convention award

differs substantially from the widely recognised definition of the ‘foreign’

arbitral award as an award rendered in a foreign country. Indeed, under

American law, the localisation of the place of the making of the arbitral

award (or the arbitral seat) is of limited relevance. Greater significance is

attributed to the internationality of the arbitration, i.e. of the dispute. An

example of this approach is provided by Bergesen v. Joseph Muller Corp.

where the Federal Court for the 2nd Circuit addressed the question of the

applicability of the New York Convention to an award rendered in the

United States (New York) in a dispute involving a Norwegian and a Swiss

party.464 The Court held that the Convention was applicable because the

award was ‘made within the legal framework of another country, e.g., pro-

nounced in accordance with foreign law or involving parties domiciled or

having their principal place of business outside the enforcing jurisdiction.’465

Conversely, where an award is rendered abroad, American courts may con-

462 See, in general, P. Contini, ‘International Commercial Arbitration’, 1959 Am. J. Comp.

L. 283, at 292-294; Deshpande, ‘Jurisdiction Over ‘Foreign’ and ‘Domestic’ Awards in

the New York Convention’, 1991 Arb. Int’l 123; M. R. Feldman, ‘An Award Made in

New York Can be a Foreign Arbitral Award’, 1984 Arb. J., p. 14 et seq.; A. J. Van den

Berg, ‘When is an Arbitral Award Non-Domestic under the New York Convention of

1958?’, 1985 Pace L. Rev. 25.

463 See supra, at 119.

464 710 F.2d 929 (2d Cir. 1983).

465 Ibid.

110 The Prohibition of Review on the Merits (révision au fond)

sider the award not to fall under the New York Convention if the dispute

involves exclusively American parties. Such a position is suggested, inter alia,

by Brier v. Northstar Marine Inc. where the United States Magistrate Court

held that an arbitration agreement providing for arbitration in London was

not subject to the New York Convention on the grounds that it had been

concluded between two American nationals.466

The American view on the applicability of the New York Convention con-

trasts with the most authoritative commentaries on the subject and stands in

clear contradiction to the approach followed in the great majority of all

other contracting States. Indeed, the applicability of the New York Conven-

tion to ‘non-domestic’ awards merely served to accommodate States in

which the nationality of the award is determined by reference to the appli-

cable procedural law.467 The term ‘non-domestic’ was not in any way in-

tended to allow contracting States to retain the applicability of the New

York Convention on the basis of other criteria. As has been noted, the re-

course to alternative criteria determining the applicability of the New York

Convention and, by implication, the availability of a means of recourse

against the award, undermines the objective of centralisation of court con-

trol of arbitral awards.

Although the assimilation of arbitral awards rendered in international dis-

putes to foreign arbitral awards is conceptually inaccurate, the purpose un-

derlying this approach is in line with the widespread trend to liberalise the

regime applicable to international arbitration. From the American perspec-

tive, the application of the New York Convention to domestic awards ‘ren-

dered in international arbitration’ remedies the absence of dualistic legisla-

tion, i.e. the absence of a specific regime applicable to international arbitra-

tion.468

ii) The applicability of the manifest disregard exception to New York

Convention awards

The availability of the manifest disregard exception possibly diminishes the

enforceability of arbitral awards. In light of the appropriateness of applying a

particularly liberal regime to foreign awards and awards rendered in interna-

tional arbitration, New York Convention awards should probably not be

subject to manifest disregard review.469 The unavailability of the manifest

466 1992 WL 350292 (D.N.J. 1992).

467 See A. J. Van den Berg, The New York Arbitration Convention of 1958, at 23.

468 For a discussion of the dualistic approach to arbitration, see infra, Chapter 5, at 168.

469 In this sense, see L. Niddam, ‘L’exécution des sentences arbitrales aux Etats-Unis’, 1993

Rev. Arb., p. 13 et seq., at 59.

111The restricted scope of court control of arbitral awards

disregard exception is confirmed by the exhaustive nature of the exceptions

set out by the Convention.470 Hence, the applicability of the manifest disre-

gard exception to New York Convention awards not only lacks theoretical

legitimacy, but also contradicts the unequivocal wording of the Convention.

Most courts therefore rightly consider New York Convention awards not to

be subject to manifest disregard review.471 In M & C Corp. v. Erwin Behr

GmbH, for example, the Federal Court for the 6th Circuit held that the

Convention’s exclusive grounds for relief ‘do not include miscalculations of

fact or manifest disregard of the law’.472 Some decisions, however, affirm the

availability of the manifest disregard exception to New York Convention

awards.473

II. The Limitation of the Number of Grounds Invalidating

Arbitral Awards

Limitation of the grounds invalidating arbitral awards

The prohibition of review on the merits implies that arbitral awards can be

set aside or refused recognition and enforcement only upon a limited num-

ber of grounds. These grounds seek to safeguard fundamental party rights

and State interests. This Section provides a brief overview of how the pro-

tection of these rights and interests is reflected in the law on enforcement of

arbitral awards. It distinguishes between grounds aimed at the protection of

the parties’ autonomy of will, grounds aimed at safeguarding procedural

fairness, and grounds aimed at preserving State interests.

A. Grounds aimed at the protection of the parties’ autonomy of will

1. Lack of validity of the arbitration agreement

As we have seen, the contractual nature of arbitration implies that the arbi-

tral award derives its legitimacy (and validity) from the will of the parties,

i.e. from the arbitration agreement. A party cannot thus be considered as

470 Article V of the Convention.

471 For example, Yusuf Ahmed Alghanim & Sons, W.L.L. v. Toys “R” Us, Inc., 126 F.3d 15

(2d Cir. 1997), cert. Denied, 118 S.Ct. 1042 (1998); Saudi Iron & Steel Co. v. Stemcor

USA Inc., 1997 WL 642566 (S.D.N.Y. 1997).

472 87 F.3d 844, 851 (6th Cir. 1996).

473 Office of Supply, Government of the Republic of Korea v. New York Navigation Co., 496

F.2d 377, 379-80 (2d Cir. 1972); Jamaica Commodity Trading Co. V. Connell Rice &

Sugar Co., 1991 U.S. Dist. Lexis 8976 (S.D.N.Y. July 3, 1991).

112 Limitation of the grounds invalidating arbitral awards

bound by an arbitral award if it has not consented to arbitral dispute resolu-

tion. The validity of the arbitral award therefore necessarily depends on the

validity of the arbitration agreement. This explains why the New York Con-

vention and virtually all legal systems view a valid arbitration agreement as

the conditio sine qua non of a valid arbitral award.474

2. Non-compliance with the will of the parties by the arbitral tribunal

A first aspect of non-compliance with the will of the parties consists in dis-

regarding the parties’ will in relation to the composition of the arbitral tri-

bunal. This might occur, for example, where, in an institutional arbitration,

the parties agree on specific qualifications of the arbitrators to be appointed

and the arbitral institution appoints individuals who lack these qualifica-

tions. Ideally, however, such problems are dealt with and solved at the ap-

pointment stage and do not (re)surface in the context of enforcement or

setting aside proceedings.

Other aspects of non-compliance with the will of the parties relate to the

‘mission’475 that the parties have conferred upon the arbitrators. This mission

comprises the conduct of the arbitral proceedings and the rendering of the

award. As far as the arbitral proceedings are concerned, the New York Con-

vention and the great majority of arbitration laws require the arbitral tribu-

nal to ensure that they are conducted ‘in accordance with the agreement of

the parties’.476 With regard to the rendering of the award, compliance with

the mission conferred upon the arbitral tribunal must be understood as

meaning that the arbitral tribunal must decide neither ultra petita nor infra

petita. The New York Convention and some national arbitration laws con-

template only the ultra petita or ‘excess of powers’ hypothesis.477 In other

474 See Article V(1)(a) of the New York Convention, Article 34(2)(a)(i) of the Model

Law, Article 1502(1) of the French NCPC, Article 190(2)(b) of the Swiss PILS, Arti-

cle 829(1) of the Italian CPC, Section 1059(2)(1)(a) of the German ZPO, Section 67

of the English AA.

475 Article 1502(3) French NCPC.

476 See Article V(1)(c) and (d) of the New York Convention, Article 34(2)(a)(iv) of the

Model Law, Article 1502(3) of the French NCPC, Article 190(2)(a) of the Swiss PILS,

Article 829(2) of the Italian CPC, Section 1059(2)(1)(d) of the German ZPO, Section

68(2)(c) of the English AA.

477 See Article V(1)(c) of the New York Convention, Article 34(2)(a)(iii) of the Model

Law, Section 1059(2)(1)(c) of the German ZPO, Section 10(a)(4) of the American

FAA.

113The restricted scope of court control of arbitral awards

legal systems, however, both ultra petita and infra petita constitute an obstacle

to the validity of the arbitral award.478

B. Grounds aimed at safeguarding procedural fairness

1. Lack of independence or impartiality of an arbitrator479

One fundamental requirement of procedural fairness lies in the independ-

ence and impartiality of the adjudicating authority. While most sets of insti-

tutional arbitration rules lay down such requirements,480 statutory provisions

on the enforcement of arbitral awards do not generally contain an express

reference to them. Only a few legal systems expressly refer to lack of inde-

pendence or impartiality as a ground invalidating arbitral awards.481 Indeed,

in most legal systems the lack of independence or impartiality of an arbitra-

tor can be relied upon under the more general due process requirement or

under the public policy exception.

478 See Article 1502(3) of the French NCPC, Article 190(2)(c) of the Swiss PILS, Article

829(4) of the Italian CPC, Section 68(2)(b) and (d) of the English AA.

479 On this issue in general, see P. Bellet, ‘Des arbitres neutres et non-neutres’, in

C. Dominicé, R. Patry and C. Reymond (eds.), Etudes de droit international en l’honneur

de Pierre Lalive, Bâle/Francfort-sur-le-Main, 1993, p. 399 et seq.; A. Berlinguer, ‘Imparti-

ality and Independence of Arbitrators in International Practice’, 1995 Am. Rev. Int’l.

Arb., p. 339 et seq.; Th. Clay, L’arbitre, Paris, (2001); M. S. Donahey, ‘The Independ-

ence and Neutrality of Arbitrators’, 9 J. Int. Arb. 4, p. 31 et seq.; M. Henry, ‘Les obliga-

tions d’indépendance et d’information de l’arbitre à la lumière de la jurisprudence ré-

cente’, 1999 Rev. Arb. 193; M. Henry, Le devoir d’indépendance de l’arbitre, Paris, (2001);

J. Kendall, ‘Barristers, Independence and Disclosure’, 1992 Arb. Int’l, p. 287 et seq.;

A. F. Lowenfeld, ‘An Arbitrator’s Declaration of Independence’, 1991 ASA Bull., p. 85

et seq.; M. L. Smith, ‘Impartiality of the Party-Appointed Arbitrator’, 1990 Arb. Int’l,

p. 320 et seq.

480 See Articles 9 and 10 of the UNCITRAL Rules, Art. 7(1) of the ICC Rules, Article

10(3) of the LCIA Rules, Articles 7 and 8 of the AAA Rules.

481 See, for example, Section 68(2) of the English AA referring to Section 33 which states

the arbitral tribunal’s duty to ‘act fairly and impartially’, Section 10(a)(2) of the Ameri-

can FAA providing for vacation of arbitral awards where ‘there was evident partiality or

corruption in the arbitrators’.

114 Limitation of the grounds invalidating arbitral awards

2. Breach of due process482

In virtually no legal system can an arbitral award be enforced if it has been

rendered in breach of due process. As Asouzu rightly observes,

‘[t]he worthy desire to secure the rapidity of arbitral proceedings and finality

of awards must be balanced against the equally important need to protect

the [parties’] basic procedural rights’.483

Due process is generally understood as referring to the parties’ ability to

present their respective cases and implies, inter alia, that the parties be given

proper notice of the appointment of the arbitrators and the arbitration pro-

ceedings.484 Due process can be violated where the arbitral tribunal refuses to

postpone a hearing or to hear evidence pertinent and material to the con-

troversy.485 In several civil law systems, due process is referred to as ‘principe

de la contradiction’486 or ‘principio del contradditorio’.487 This terminology em-

phasises the parties’ right to not only raise legal arguments, but also rebut the

ones raised by the opponent. The Swiss PILS, for example, speaks of the

parties’ ‘right to be heard in adversarial procedure’.488 Under the English

Arbitration Act, one aspect of the arbitral tribunal’s general duty consists in

‘giving each party a reasonable opportunity of putting his case and dealing

with that of his opponent’.489 More generally, due process implies that the

parties be ‘treated equally’.490

482 On due process in the context of international arbitration, see, inter alia, S. Guinchard,

‘L’arbitrage et le respect du contradictoire (à propos de quelques décisions rendues en

1996)’, 1997 Rev. Arb., p. 185 et seq.; C. Kessedjian, ‘Principe de la Contradiction et

Arbitrage’, 1995 Rev. Arb., p. 381 et seq.

483 A. A. Asouzu, ‘A Threat to Arbitral Integrity’, 12 J. Int. Arb. 4, p. 145 et seq., at 160.

484 New York Convention Article V(1)(b).

485 Section 10(a)(4) American FAA.

486 Article 1502(4) French NCPC.

487 Article 829(9) Italian CPC.

488 Article 190(2)(d) Swiss PILS.

489 Section 33 of the English Arbitration Act.

490 For an express reference to the principle of equal treatment of the parties, see Article

190(2)(d) Swiss PILS.

115The restricted scope of court control of arbitral awards

C. Grounds aimed at preserving State interests

1. Arbitrability491

The enforceability of an arbitral award generally supposes ‘arbitrability’ of

the dispute. One distinguishes between ‘subjective’ and ‘objective’ arbitrabil-

ity.492 By subjective arbitrability one designates the ability of State or State

owned entities to resort to arbitration. Today, the practical significance of

subjective arbitrability is decreasing as most countries recognise the arbitra-

bility of disputes involving States or State entities. Moreover, many legal

systems prevent State parties from relying on national provisions restricting

subjective arbitrability. The Swiss PILS, for example, clearly states that a

State party ‘cannot rely on its own law in order to contest its capacity to be

a party to an arbitration or the arbitrability of the dispute covered by the

491 The literature on arbitrability is vast. On arbitrability in general, see, for example,

C. E. Alfaro and F. Guimarey, ‘Who Should Determine Arbitrability? Arbitration in a

Changing Economic and Political Environment’, 1996 Arb. Int’l, p. 415 et seq.; H. Ar-

fazadeh, ‘Arbitrability under the New York Convention: the Lex Fori Revisited’, 2001

Arb. Int’l, p. 73 et seq.; K.-H. Böckstiegel, ‘Public Policy and Arbitrability’, in ICCA

Congress series n° 3, p. 177 et seq.; B. Hanotiau, ‘What Law Governs the Issue of Arbi-

trability ?’, 1996 Arb. Int’l, p. 391 et seq.; A. Kirry, ‘Arbitrability: Current Trends in

Europe’, 1996 Arb. Int’l, p. 373 et seq.; M. Lalonde, ‘The Evolving Definition of Arbi-

tration and Arbitrability’, in ICCA Congress series n° 9, p. 189 et seq.; J. T. McLaughlin,

‘Arbitrability: Current Trends in the United States’, 1996 Arb. Int’l, p. 113 et seq.;

H. Raeschke-Kessler, ‘Some Developments on Arbitrability and Related Issues’, in

ICCA Congress series n° 10, p. 44 et seq.; A. S. Rau, ‘The Arbitrability Question Itself’,

1999 Am. Rev. Int’l. Arb., p. 287 et seq.; A. Rogers, ‘Arbitrability’, 1994 Arb. Int’l,

p. 263et seq.

On the arbitrability of particular types of disputes, see, for example, J. Beechey, ‘Arbi-

trability of Anti-trust/Competition Law Issues – Common Law’, 1996 Arb. Int’l, p. 179

et seq.; M. Blessing, ‘Arbitrability of Intellectual Property Disputes’, 1996 Arb. Int’l,

p. 191 et seq.; J.H. Dalhuisen, ‘The Arbitrability of Competition Issues’, 1995 Arb. Int’l,

p. 151 et seq.; J. J. Jr. Kerr, ‘Arbitrability of Securities Law Claims in Common Law Na-

tions’, 1996 Arb. Int’l, p. 171 et seq.; D. W. Plant, ‘Arbitrability of International Prop-

erty Issues in the United States’, 1994 Am. Rev. Int’l. Arb., p. 11 et seq.; D. P. Simms,

‘Arbitrability of Intellectual Property Disputes in Germany’, 1999 Arb. Int’l, p. 193

et seq.

492 On this distinction, see, in particular, K. H. Böckstiegel, op. cit., at 181.

116 Limitation of the grounds invalidating arbitral awards

arbitration agreement.’493 The courts of numerous countries have recognised

this principle.494

The practically more significant aspect of arbitrability relates to arbitrability

of the subject matter or objective arbitrability. Indeed, arbitrability provi-

sions contained in domestic laws or international conventions generally

refer exclusively to objective arbitrability.495 Subjective arbitrability is, in

fact, usually considered to form part of the broader question of the validity of

the arbitration agreement.496 Although the requirement of objective arbitra-

bility is applied quasi-universally, not all legal systems contain express provi-

sions to that effect. The laws of countries such as France, Switzerland, Italy,

the United States and England, indeed, view the arbitrability requirement as

falling under the scope of the more general public policy exception.497

493 Article 177(2) Swiss PILS.

494 See, for example, the following decisions: decision of 2 May 1966 of the French Cour de

cassation in Trésor Public v. Galakis, 1967 Rev. crit., p. 553 et seq.; decision of the Eng-

lish High Court in Gatoil International Inc. v. National Iranian Oil Co., XVII Yearbook

(1992), p. 587 et seq.; decision of the Italian Corte di Cassazione of 9 May 1996 in Société

Arabe des Engrais Phosphates et Azotes – SAEPA v. Société Industrielle d’Acide Phosphori-

que et d’Engrais – SIAPE, XXII Yearbook (1997), p. 737 et seq.

495 See Article V(2)(a) New York Convention, Article 34(2)(b)(i) UNCITRAL Model

Law, Section 1059(2)(2)(a) German ZPO.

496 See supra, at 111.

497 See Article 1502(5) French NCPC, Article 190(2)(e) Swiss PILS. In Italy, England and

the United States the courts consider arbitrability as an aspect of public policy.

117The restricted scope of court control of arbitral awards

2. Public policy498

Under the New York Convention499 and the laws of virtually all countries,500

non-compliance with public policy constitutes a ground invalidating an

arbitral award. While the laws of most civil law systems expressly provide for

a public policy exception,501 in most common law systems the public policy

ground derives from judicial precedents.502 These legal systems, however,

generally contain statutory provisions relating to one particular aspect of

public policy: fraud. Indeed, the American FAA, for example, provides that

an arbitral award may be vacated where it ‘was procured by corruption,

fraud, or undue means.’503 A similar provision can be found in the English

Arbitration Act.504

498 On this issue in general, see K.-H. Böckstiegel, op. cit., p. 177 et seq.; C. N. Brower,

‘Correction and Completion of Awards; Enforcement of Partial and Final Awards; Col-

laboration by Courts for an Award to be Effective; Impact of “International Public Pol-

icy” on Arbitration’, in ICCA Congress series n° 6, p. 213 et seq.; Y. Derains, ‘Public Pol-

icy and the Law Applicable to the Dispute in International Arbitration’, in ICCA Con-

gress series n° 3, p. 227 et seq.; C. B. Kuner, ‘The Public Policy Exception to the En-

forcement of Foreign Arbitral Awards in the United States and West Germany Under

the New York Convention’, 7 J. Int. Arb. 4, p. 71 et seq.; P. Lalive, ‘Transnational (or

Truly International) Public Policy and International Arbitration’, in ICCA Congress se-

ries n° 3, p. 257 et seq.; C. Liebscher, ‘European Public Policy – A Black Box?’, 17 J. Int.

Arb. 3, p. 73 et seq.; L. Matray, ‘Arbitrage et ordre public transnational’, in J. Schultsz

and A.J. Van den Berg (eds.), The Art of Arbitration, p. 241 et seq.; P. Mayer, ‘La sen-

tence contraire à l’ordre public au fond’, 1994 Rev. Arb., p. 615 et seq.; J.-B. Racine,

L’arbitrage commercial international et l’ordre public, Paris, (1999); S. M. Schwebel and

S. G. Lahne, ‘Public Policy and Arbitral Procedure’, in ICCA Congress series n° 3,

p. 205 et seq.

499 Article V(2)( b).

500 See fn. 54.

501 See, for example, Article 1502(5) French NCPC, Article 190(2)(e) Swiss PILS,

Article 1059(2)(2)(b) German ZPO, Article 34(2)(b)(ii) of the UNCITRAL

Model Law.

502 As far as the United States are concerned, see, for example, Misco, Inc. v. United Paper

Workers Int’l Union, 484 U.S. 29 (1987); W.R. Grace & Co. v. Local Union 749, Int’l

Union of the United Rubber Workers, 461 U.S. 757, 766 (1983).

503 Section 10(a)(1) American FAA.

504 Section 68(2)(g) English AA.

118 Restrictive interpretation of the grounds invalidating awards

III. The Restrictive Interpretation of the Grounds Invalidating

Arbitral Awards

Restrictive interpretation of the grounds invalidating awards

As we have seen, arbitral awards can be invalidated only upon a limited

number of grounds. Such limitation increases the autonomy of arbitral

awards. This autonomy is further enhanced through the restrictive interpreta-

tion of the grounds invalidating arbitral awards.

This restrictive interpretation relies primarily on the decline of the tradi-

tional hostility vis-à-vis arbitration.505 The State’s reluctance to tolerate

arbitral dispute resolution is essentially reflected by the reduced scope of –

objectively – arbitrable disputes. In fact, disputes involving public policy

issues such as antitrust, intellectual property or bankruptcy are traditionally

considered to be non-arbitrable. In recent years, however, the attitude of

State legislators and courts has changed drastically.506 Today, most States

welcome the development of arbitration as a means of settling international

commercial disputes. This arbitration-friendly climate has led to the broad-

ening of the scope of arbitrable disputes. The expansion of an arbitration-

friendly climate has prompted legislators and courts to design tools aimed at

restricting the scope of application of the grounds invalidating arbitral

awards.

This Section pursues a twofold objective. First, it will highlight the irration-

ality of the assumptions underlying the traditional hostility vis-à-vis arbitra-

tion as reflected by the non-arbitrability doctrine. Second, it provides an

overview of some methods restricting the applicability of the grounds invali-

dating arbitral awards. These are 1) the tacit waiver of the right to challenge

an award on the basis of a breach of due process or the lacking impartial-

ity/independence of an arbitrator and 2) the lowering of the due process

standard as a consequence of the relevance of speed as an objective pursued

by the parties.

505 This hostility is expressly referred to in the US Supreme Court’s decision in Mitsubishi

Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (U.S. Supreme Court 1985)

where the Court noted that ‘[i]f [international arbitral institutions] are to take a central

place in the international legal order, national courts will need to “shake off the old ju-

dicial hostility to arbitration,” and also their customary and understandable unwilling-

ness to cede jurisdiction of a claim arising under domestic law to a foreign or transna-

tional tribunal.’ For a view arguing that judicial hostility towards arbitration is, to some

extent, a ‘myth’, see D. Roebuck, ‘The Myth of Judicial Jealousy’, 1994 Arb. Int’l, p. 395

et seq.

506 See, for example, M. Rubino-Sammartano, International Arbitration Law and Practice, at

5 where the author speaks of a shift from ‘hostility to favour’.

119The restricted scope of court control of arbitral awards

A. The decline of the traditional hostility vis-à-vis arbitration and

the non-arbitrability doctrine

1. Arbitration as a threat to the State monopoly of justice

As has been explained in Chapter 1, arbitration is classically considered as a

threat to one of the State’s prerogatives: the State’s monopoly of justice.

According to this view, arbitration constitutes an undesirable privatisation

of an exclusive State function. Berlinguer rightly states that the ‘judicial

aversion to arbitration’ derives from the perceived necessity to ‘protect judi-

cial sovereignty and public litigation from the increasing proliferation of

private means of dispute resolution.’507 It is believed that, in order for the

judicial system to function effectively, judicial decisions must only be ren-

dered by organs of the State, i.e. State courts. Judicial or quasi-judicial pow-

ers of private individuals are therefore excluded. This perception is irrational

insofar as it entails some degree of personification of the State: the State is

represented as an individual frightened by the perspective of being deprived

of part of his powers. Such a view is largely inadequate. Indeed, if the State

is concerned with maintaining ‘law and order’ and ensuring the effective

administration of justice, it has no reason to be reluctant to delegate part of

its powers to non-State entities or private individuals, at least as long as

State courts exercise some degree of judicial review of arbitral decisions. In

addition, as we have seen, delegation of a portion of the State courts’ case-

load to arbitral tribunals diminishes the overburdening of the State court

system.508

2. Arbitration as a threat to decisional accuracy

Arbitration is classically considered as threatening the accuracy or fairness

of (quasi) judicial decisions. This view rests upon the assumption that arbi-

trators are generally considerably less qualified than State court judges. Al-

though this view has always been controversial, it nevertheless adequately

reflects the traditional arbitration-sceptical attitude observed by a large

507 A. Berlinguer, ‘Impartiality and Independence of Arbitrators in International Practice’,

1995 Am. Rev. Int’l. Arb., p. 339 et seq., at 341.

508 See supra, Chapter 1, at 21.

120 Restrictive interpretation of the grounds invalidating awards

number of courts. This attitude is well illustrated by an obiter dictum of Jus-

tice Story in Tobey v. County of Bristol et al.509 He observed that arbitrators

‘are not ordinarily well enough acquainted with the principles of law or

equity, to administer either effectually in complicated cases; and hence it

has often been said, that the judgment of arbitrators is but rusticum judicium.

Ought then a court of equity to compel a resort to such a tribunal, by which,

however honest and intelligent, it can in no case be clear that the real legal

or equitable rights of the parties can be fully ascertained or perfectly

protected?’

Today – and probably also in the past –, sceptical attitudes such as the one

expressed by Justice Story are (were) largely inappropriate.510 Indeed, general

statements regarding the skills of international arbitrators are problematic.

The diversity of the education and experience of the individuals serving as

international arbitrators does not, in fact, allow any generalisation. Today,

many authors argue a reversed version of Justice Story’s statement. They

claim that international arbitrators are frequently more qualified than State

court judges. Arguably, this is due, on the one side, to the steadily growing

complexity of international commercial transactions511 and the resulting

need to submit disputes to specialised lawyers, selected by reason of their

expertise in a particular field. On the other side, the superior qualification of

arbitrators allegedly can be explained against the background of the interna-

tionality of the dispute and the resulting need for culturally open-minded,

cosmopolitan individuals who are familiar with several legal systems. Cos-

mopolitanism and knowledge of foreign laws and languages are evidently not

qualities inherent to the function of State court judges.

3. Arbitration as a threat to public policy

The concern with the arbitrators’ ability to ensure compliance with public

policy is partly rooted in the assumption that arbitrators are less qualified

than State court judges and are therefore more likely to ‘get their decision

wrong’. This concern constitutes the main rationale of the non-arbitrability

doctrine. Another reason underlying this doctrine lies in the belief that

arbitrators have no particular interest in ensuring that public policy rules are

509 23 Fed. Cas. 1313, 1321-23 (CCD. Mass. 1845).

510 See V. Raghavan, ‘Heightened Judicial Review of Arbitral Awards – Perspectives from

the UNCITRAL Model Law and the English Arbitration Act of 1996 on some US De-

velopments’, 15 J. Int. Arb. 3, p. 103 et seq., at 133 where the author refers to ‘the false

premise that arbitrators are incompetent persons who are not capable of making mature

decisions like the judiciary’.

511 On this issue, see supra, Chapter 1, at 16 et seq.

121The restricted scope of court control of arbitral awards

complied with. As an agent of the parties, the arbitrator is assumingly not

concerned with public or State interests. This assumption neglects the fact

that arbitrators must – and do – take public policy rules into consideration

in order to avoid ‘their’ award being declared invalid in subsequent enforce-

ment or setting aside proceedings.

Not only the theoretical foundation, but also the implementation of the

non-arbitrability doctrine lacks coherence. Indeed, according to the classical

non-arbitrability doctrine, all disputes involving public policy issues, i.e. all

disputes involving the application of public policy rules, are non-

arbitrable.512 This approach reaches far beyond the objective of safeguarding

public policy. Let us illustrate this with an example. According to the non-

arbitrability doctrine, one category of non-arbitrable disputes consists in

disputes relating to intellectual property rights. Such disputes might, for

example, involve the question of the validity of a patent or a trademark. The

validity of patents and trademarks is subject, in most countries, to the exclu-

sive competence of specialised State authorities.513 The centralisation with

State authorities allows general publicity of the registration and validity of

patents and trademarks. Such publicity is indispensable to entities or indi-

viduals wishing to register a particular patent or trademark or to acquire a

portion of intellectual property rights through assignment. It follows that

ordinary courts or arbitral tribunals may not contradict the rulings of a given

specialised authority on the validity of intellectual property rights.514 This

should not, however, necessarily lead to non-arbitrability of disputes involv-

ing the validity of intellectual property rights. In order not to infringe on the

monopoly of the various State authorities, it suffices, in fact, to have arbitral

tribunals comply with the rulings of these authorities. Non-arbitrability is

even less understandable when it is argued with respect to contracts regard-

ing the transfer of intellectual property rights. Nothing warrants, for exam-

ple, the non-arbitrability of a claim relating to the termination or perform-

ance of a licence agreement.

512 In France, for example, courts traditionally consider that disputes ‘involving’ public

policy are necessarily non-arbitrable. As late as 1954, the Cour d’appel of Paris held that

an arbitral tribunal could not hear a dispute relating to the performance of a contract

involving taxable goods on the grounds that ‘the legal or regulatory provisions relating

to the taxation of goods are a matter of public policy’ (translation by the author). See

decision of the Cour d’appel of 9 February 1954, Société anonyme agricole v. Torris, 1954

Dalloz, Jur. at 192.

513 See H. Raeschke-Kessler, ‘Some Developments on Arbitrability and Related Issues’, in

ICCA Congress series n° 10, p. 44 et seq., at 52.

514 Ibid., at 52 where the author draws the conclusion that ‘in most countries an arbitral

tribunal is not authorised … to declare it [the patent] invalid.’

122 Restrictive interpretation of the grounds invalidating awards

Today, many jurisdictions tend to recognise the arbitrability of disputes

involving public policy issues and, as a consequence, the right of arbitrators

to apply public policy rules. When assessing the validity of the main con-

tract, arbitrators may, for instance, apply antitrust legislation. According to

this approach, objective non-arbitrability merely derives from the exclusive

jurisdiction of State authorities. Such exclusive jurisdiction may relate, for

example, to the validity of intellectual property rights.

4. Arbitration as an ‘inappropriate’ dispute settlement mechanism

Although the question of its actual scope is highly controversial, the princi-

ple of non-arbitrability, i.e. the fact that certain categories of disputes can-

not or should not be solved by arbitration, is unanimously affirmed. Even

the most authoritative commentaries on international commercial arbitra-

tion do not seem to question the non-arbitrability principle. Fouchard, Gail-

lard and Goldman, for example, state that

‘[i]n any society, it is quite understandable that the legislature should consider

that certain types of disputes should not be left to a private dispute resolu-

tion mechanism such as arbitration. Even in an international context this is

a legitimate concern. For example, it is not appropriate for arbitrators to pro-

nounce a divorce or hear a paternity dispute.’ (emphasis added).515

However, nothing warrants the conclusion that arbitration is, for the pur-

poses of solving specific disputes, not appropriate. The main – rational – re-

striction to arbitrability lies in the privity of contract (effet relatif des con-

trats). An arbitration agreement and the award rendered on the basis of this

agreement may only bind the parties to the said agreement. Disputes involv-

ing or affecting the rights of third parties are therefore non-arbitrable. Pro-

tection of the rights of third parties is, as we have seen, the principal argu-

ment in favour of disputes in which the arbitral tribunal is called upon to

decide on the validity of an intellectual property right. It also allegedly le-

gitimates the non-arbitrability of divorce disputes. However, the borderline

between disputes which affect the rights of third parties and disputes which

do not cannot easily be traced. Indeed, most disputes affect, in some way,

the rights – in a broad sense – of third parties. A dispute between buyer and

seller relating to the validity of the sales agreement, for example, affects the

rights of a subsequent buyer. Any dispute involving monetary claims (basi-

cally any dispute) affects the position of the creditors to the parties in dis-

pute. As to divorce cases – referred to in the above statement –, they affect,

in the first place, the rights of the litigating spouses. While the concern with

the publicity of the marital status is understandable in light of the necessity

515 See J. Savage and E. Gaillard (eds.), op.cit., at 331.

123The restricted scope of court control of arbitral awards

to inform interested third parties, nothing logically prevents arbitral tribu-

nals from hearing divorce cases as long as the decisions are registered an

made available to the public.

B. The tacit waiver of the right to challenge an award

on the basis of a breach of due process or the lacking

impartiality/independence of an arbitrator

1. The tacit waiver as a manifestation of the estoppel principle

Derived from a rule of Roman law (‘non concedit venir contra factum pro-

prium’), the estoppel principle owes its present denomination to English civil

procedure. According to this principle, no one may set himself in contradic-

tion to his own previous conduct. In other words, a party to a trial may not

adopt a position that contradicts its prior procedural behaviour.516

Today, the estoppel principle is frequently resorted to in the context of in-

ternational commercial arbitration. This explains why some writers view it

as a general principle of (international arbitration) law517 or a rule of lex

mercatoria.518 Transposed to the hypothesis of a breach of due process or

lacking impartiality/independence of an arbitrator, the estoppel principle

must be understood as precluding a party from relying on an alleged proce-

dural irregularity or the lacking impartiality/independence of an arbitrator at

the enforcement stage, if it has not raised the issue before the arbitral tribu-

nal itself within a reasonable period of time.519 One considers that the party

in question, through its inaction, tacitly consents to the procedural decision

or agrees to the nomination/appointment of a given arbitrator and, hence,

waives its right to raise the issue in subsequent enforcement or setting aside

proceedings.

516 On the estoppel principle in general and its relevance in public international law, see

D. Carreau, Droit international (1991), p. 215 et seq.

517 See, for example, E. Gaillard, ‘L’interdiction de se contredire au détriment d’autrui

comme principe général du droit du commerce international’, 1985 Rev. Arb.,

241 et seq.

518 K. P. Berger, The Creeping Codification of the Lex Mercatoria, at 295.

519 For an in-depth analysis of the issue, see L. Cadiet, ‘La renonciation à se prévaloir des

irrégularités de la procédure arbitrale’, 1996 Rev. Arb., p. 3 et seq.

124 Restrictive interpretation of the grounds invalidating awards

2. Recognition of the tacit waiver by legislators and courts

Most countries’ legal systems recognise the tacit waivability of claims relat-

ing to breaches of due process or lack of impartiality/independence of arbi-

trators. However, express legislative references to the tacit waiver are rare.

Such references can be found, for example, in the Model law and the Eng-

lish Arbitration Act. As far as the Model Law is concerned, Article 4 states

that

‘[a] party who knows that any provision of this Law from which the parties

may derogate from or any requirement under the arbitration agreement has

not been complied with and yet proceeds with the arbitration without stat-

ing his objection to such non-compliance without undue delay … shall be

deemed to have waived his right to object.’

The wording of Article 4 of the Model Law indicates that the tacit waivabil-

ity is confined to non-mandatory provisions of the Model Law and provi-

sions of the arbitration agreement. Issues of due process or lack of impartial-

ity/independence of arbitrators seem to be excluded from the scope of appli-

cation of Article 4.520 As such, Article 4 of the Model Law differs from Sec-

tion 77(1) of the English Arbitration Act according to which,

‘[i]f a party to arbitral proceedings takes part, or continues to take part, in

the proceedings without making,… any objection… (b) that the proceed-

ings have been improperly conducted… (d) that there has been any other

irregularity affecting the tribunal or the proceedings, he may not raise that

objection later, before the tribunal or the court, unless he shows that,… he

did not know and could not with reasonable diligence have discovered the

grounds for objection.’521

Similarly broad definitions of the tacit waiver have been adopted by the

Swiss, French and American Courts. In Switzerland, the Federal Court, in

its decision of 7 September 1993 held that ‘the violation [of due process]

must be brought to the attention of the arbitral tribunal; otherwise the party

is not allowed to prevail itself of the alleged irregularity at the enforcement

stage.’522 In France, the Paris Court of Appeals, in a decision of 7 July 1994,

held that the party claiming the violation of due process had waived its right

to invoke the alleged violation in the courts since

‘[it] had knowledge of the contested documents, and had the possibility,

which it deliberately rejected by “deeming” the session to be ended, to re-

spond to these [documents] or to solicit an opportunity in which to do so

520 H. M. Holtzmann and J. E. Neuhaus, A Guide to the UNCITRAL Model Law on Interna-

tional Commercial Arbitration (1989), p. 196 et seq.

521 For a decision applying Section 77(1) see, for example, Minmetals Germany GmbH v.

Ferco Steel Ltd, [1999] 1 All E.R. 315.

522 Federal Court, 7 September 1993, Semaine Judiciaire 94, 133 et seq.

125The restricted scope of court control of arbitral awards

from the arbitral tribunal, which did not deliver its ruling until a year

later.’523

Similar decisions have been handed down by several American courts.524 In

Laminoirs etc. v. Southwire Co., for example, the Court held that the failure

to object to the decision of the ICC International Court of Arbitration ex-

tending the deadline for the rendering of the arbitral award prevents the

parties from challenging the award on the basis of non-compliance with the

initial 6-month time-limit.

If the tacit waiver is widely recognised, some legal systems are nevertheless

reluctant to admit the possibility of waiving the right to claim procedural

flaws. In Italy, for example, arguably, ‘none of the grounds for the setting

aside of the award under paragraph 1 [of Article 829 of the Codice di Proce-

dura Civile] (errores in procedendo) [i.e. procedural irregularities] may be

waived…’ 525 It is, however, debatable whether Italian law generally excludes

the waivability of such claims or whether it merely prohibits express waivers

at the outset of the arbitral proceedings.

3. The scope of waivable claims

The waivability of claims relating to the violation of basic procedural rights

or an arbitrator’s independence/impartiality – although generally recognised

– is not unproblematic. Indeed, it is debatable whether such claims, which

‘go to the very heart of arbitral fairness’526 should, in fact, be waivable. The

question arises of whether the validity of the arbitral award should prevail

over the preservation of the parties’ basic procedural rights and/or whether

the tacit waiver constitutes an adequate sanction of a party’s inaction.

Technically, the waivability of the right to avail oneself of a serious proce-

dural irregularity potentially contradicts the habitual division between

grounds invalidating arbitral awards which must be invoked by the parties

523 CA Paris, 7 July 1994, Uzinexportimport Romanian Co. v. Attock Cement Co., 1995 Rev.

Arb. 107.

524 See, for example International Standard Elec. Corp. v. Bridas Sociedad Anonima Petrolera,

745 F.Supp. 172 (S.D.N.Y. 1990); La Société Nationale etc. v. Shaheen Natural Resources

Co., 585 F.Supp.57, 62 (S.D.N.Y. 1983), aff’d, 733 F.2d 260 (2d Cir.), cert. Denied, 469

U.S. 883 (1984); Laminoirs etc. v. Southwire Co., 484 F.Supp. 1063, 1066 (N.D. Ga

1980).

525 P. Bernardini, The Italian Law on Arbitration Text and Notes, at 22, fn. 58.

526 Marino v. Writers Guild of Am., 992 F.2d 1480, 1484 (9th Cir. 1993).

126 Restrictive interpretation of the grounds invalidating awards

and grounds which are raised ex officio by the enforcement court.527 Indeed,

enforcement courts may raise arbitrability and public policy issues ex officio.

It follows that issues of arbitrability and public policy are not comprised in

the sphere of party-autonomy. As a consequence, parties should not be able

to effectively waive the right to claim such issues, simply because the courts

can raise them on their own initiative. As far as breaches of due process or

lack of impartiality/independence of arbitrators are concerned, they are

generally considered to form part of public policy, i.e. they are considered to

embody the procedural aspect of public policy.528

C. The lowering of the due process standard

The enforceability of an arbitral award supposes compliance with the re-

quirements of due process. Due process, as has been explained, refers to the

parties’ basic procedural rights and implies, inter alia, that the parties be

granted a full or at least satisfactory opportunity to present their respective

cases.529 Like other standards of review of arbitral awards, due process is in-

creasingly internationalised.530 This leads to a lowering of the standard of

review. A lowering effect can, however, also be attributed to the pre-

eminence of the objective of speed in international commercial arbitration.

Indeed, as has been explained in Chapter 1, the attractiveness of arbitration

as a means to settle international business disputes rests, in part, on the

greater expeditiousness of arbitral dispute resolution.

The lowering of the requirements of due process is not expressly provided for

by arbitration laws or institutional arbitration rules – although the minimal-

ism of legislative and institutional due process provisions indicates that only

fundamental breaches will warrant the vacation or non-enforcement of an

award. It is, nevertheless, occasionally relied upon by the courts when reject-

ing claims alleging a breach of due process. This is well illustrated by the

decision of the Federal Court for the 2nd Circuit in Parsons & Whittemore

527 See Article V of the New York Convention and the distinction drawn between grounds

that have to be established by the parties (Article V(1)) and grounds that can be raised

by the enforcement court (Article V(2)).

528 On the meaning of the concept of procedural public policy, see J. Savage and E. Gail-

lard, op. cit., at 957 where the authors explain, inter alia, the relationship between due

process and the broader concept of procedural public policy.

529 See supra, at 113.

530 Indeed, although the dissertation does not specifically address this issue, one can note

that due process is subject to a process of internationalisation similar to the one charac-

terising the non-arbitrability and public policy exceptions. On this question, see infra,

Chapter 5, at 144 et seq.

127The restricted scope of court control of arbitral awards

Overseas Co. v. Société Générale de l’Industrie du Papier.531 Parsons & Whit-

temore Overseas (Overseas) sought vacation of the arbitral award on the

grounds that the arbitral tribunal had refused to delay proceedings in order

to accommodate the speaking schedule of one of Overseas’ witnesses. The

Court denied Overseas’ application. It observed that the

‘inability to produce one’s witnesses before an arbitral tribunal is a risk in-

herent in an agreement to submit to arbitration. By agreeing to submit dis-

putes to arbitration, a party relinquishes his courtroom rights – including

that to subpoena witnesses – in favor of arbitration “with all its well known

advantages and drawbacks.”’532

IV. Summary

Summary

The scope of court control of arbitral awards is narrowing progressively. The

principle of the prohibition of review on the merits has gained universal

acceptance. Exceptional révision au fond – performed even in leading arbitra-

tion nations such as England and the United States – illustrates the diffi-

culty of reconciling adjudicatory speed and decisional accuracy or fairness.

The exclusion of review on the merits implies that arbitral awards can only

be invalidated upon a limited number of grounds. These are essentially

aimed at protecting the parties’ fundamental procedural rights and public

policy interests. They are generally interpreted restrictively. This is largely

due to the decline of the traditional hostility vis-à-vis arbitration, already

mentioned in Chapter 1. Illustrative examples of this restrictive interpreta-

tion include 1) the tacit waiver of the right to rely upon a breach of due

process or an arbitrator’s lacking independence or impartiality at the en-

forcement stage and 2) the lowering of the due process standard. In Chap-

ter 5, we will examine the internationalisation of the standards of review of

arbitral awards, which further reduces the extent of court control.

531 508 F.2d 969 (2d Cir. 1974).

532 Washington-Baltimore Newspaper Guild, Local 35 v. The Washington Post Co., 442 F.2d

1234, 1288 (1971).

128 Summary

129The internationalisation of the standards of review of awards

Chapter 5

The autonomy of the arbitral award:

Internationalisation of the standards

of review of arbitral awards

The internationalisation of the standards of review of awards

As has been explained, the autonomy of arbitral awards is reflected by the

limited extent of court review. In Chapter 4, we have seen how the accep-

tance of the principle of the prohibition of review on the merits and the

limitation of the number of grounds invalidating arbitral awards have con-

tributed to increasing the autonomy of arbitral awards. This Chapter is in-

tended to explain how recourse to international rather than domestic stan-

dards of review, i.e. the internationalisation of the standards of review, fur-

ther increases the autonomy of arbitral awards.

International standards of review can be defined as standards that are ap-

plied at the international level, i.e. in several or a large number of jurisdic-

tions.533 Domestic standards are standards that are not applied at the inter-

national level, i.e. standards that are peculiar to one or a few legal systems

(they are sometimes referred to as ‘purely’ domestic standards). Representing

a common denominator between various jurisdictions, international stan-

dards are generally more liberal than domestic ones.

International standards can be elaborated at the international or at the do-

mestic level. At the international level, the adoption of international in-

struments such as the New York Convention and the UNCITRAL Model

Law has had little impact on the internationalisation of the standards of

review of arbitral awards. Indeed, while these instruments harmonise the

grounds invalidating arbitral awards, they do not generally specify the appli-

cable standards. Instead of instituting international standards, the New York

Convention and the Model Law lay down conflict of laws rules referring to

domestic laws (which frequently incorporate domestic standards). As far as

the adoption of international standards at the domestic level is concerned, it

supposes the taking into consideration of foreign laws and judicial decisions.

It illustrates that the application of the domestic law of a particular State

does not necessarily entail application of a domestic standard.

533 Rather than distinguishing between domestic and international standards, one could,

probably more accurately, distinguish different degrees of internationality reflecting the

varying extent to which a given standard is recognised at the international level. Re-

course to the distinction between domestic and international standards requires, indeed,

an inevitably arbitrary appraisal of when a particular standard qualifies as an interna-

tional standard.

130 Decreasing recourse to the conflict of laws method

Recourse to the conflict of laws method is habitually considered to consti-

tute the main obstacle to the application of international standards of re-

view. This view is based upon the – inaccurate, as we have seen – assump-

tion that domestic rules (the application of which is implied by the recourse

to conflict of laws norms) necessarily incorporate domestic standards. Depar-

ture from the conflict of laws method is, thus, only necessary insofar as do-

mestic laws (and, more specifically, the law applicable to the particular as-

pect of the enforceability of the arbitral award) resort to domestic stan-

dards.534 From the perspective of individual States, the suppression of the

conflict of laws method constitutes a tool allowing the circumvention of

domestic standards contained in foreign domestic laws.

This Chapter analyses the progressive internationalisation of the standards

of review of arbitral awards. Section 1 examines the declining recourse to

the conflict of laws method for the purposes of assessing the enforceability of

arbitral awards. Section 2, using objective arbitrability and public policy as

examples, discusses the elaboration and practical application of interna-

tional standards.

I. Decreasing Recourse to the Conflict of Laws Method for the

Purposes of Assessing the Enforceability of Arbitral Awards

Decreasing recourse to the conflict of laws method

A. The traditional predominance of conflict of laws rules

The enforcement provisions of the most widely applied international in-

struments, i.e. of the New York Convention and the UNCITRAL Model

Law, contain a series of conflict of laws rules referring to a variety of na-

tional laws. These laws include the law selected by the parties, the ‘personal’

law of the parties, the law of the seat of the arbitral tribunal and the law of

the enforcement jurisdiction.535 The reference to the law of the seat of the

arbitral tribunal reflects the doctrine of localisation of international arbitra-

tion. Recourse to conflict of laws rules – and the resulting application of

domestic laws – characterises the broader phenomenon of ‘nationalisation’

of international arbitration.

534 P. Read, ‘Delocalization of International Commercial Arbitration: its Relevance in the

New Millenium’, 1999 Am. Rev. Int’l. Arb., p. 177 et seq., at 178.

535 See infra at 132.

131The internationalisation of the standards of review of awards

1. The doctrine of localisation of international arbitration (and arbitral

awards rendered in international arbitration)

The doctrine or theory of localisation of international arbitration rests on

the assumption that the geographical localisation of what is considered as

the ‘seat’ of the arbitral tribunal entails (or should entail) ‘legal localisation’

of both the arbitral proceedings and the arbitral award. According to a fa-

mous statement by Mann,

‘[t]he law of the arbitration tribunal’s seat initially governs the whole of the

tribunal’s life and work. In particular, it governs the validity of the submis-

sion, the creation and composition of the tribunal, the rules of conflict of

laws to be followed by it, its procedure, the making and publication of the

award.’536

While this statement lays emphasis on ‘legislative localisation’, i.e. on the

applicability of the laws of the seat of the arbitral tribunal, legal localisation

comprises another aspect: judicial localisation. Judicial localisation consists

in the allocation of jurisdiction to the courts of the arbitral seat. This aspect

of localisation will be examined more closely in Chapter 6.537

As has been explained,538 the theory of legislative localisation cannot realis-

tically claim – and actually never has claimed – that the law of the seat

should govern all aspects of the enforceability of an arbitral award. Legisla-

tive localisation, in fact, clashes with the well established principle of pri-

vate international law party autonomy. Some aspects of the enforceability of

arbitral awards are, indeed, traditionally governed by the law selected by the

parties. Others are habitually subject to the law of the enforcement jurisdic-

tion. The limited impact of localisation theory on contemporary arbitration

law is illustrated by the New York Convention and UNCITRAL Model

Law. Under these instruments, the scope of legislative localisation is re-

stricted to 1) the validity of the arbitration agreement539 and 2) the ‘compo-

sition of the arbitral authority and arbitral procedure’.540 In addition, legisla-

tive localisation is only subsidiary, i.e. it only applies where the parties have

536 See F. Mann, ‘Lex facit arbitrum’, in Liber Amicorum Martin Domke, p. 157 et seq.,

at 164.

537 See infra at 161.

538 See supra, Chapter 4.

539 See Articles 34(2)(a)(i) and 36(1)(a)(i) of the Model Law and Article V(1)(a) of the

New York Convention.

540 See Articles 34(2)(a)(iv) and 36(1)(a)(iv) of the Model Law and Article V(1)(d) of

the New York Convention.

132 Decreasing recourse to the conflict of laws method

not selected the applicable rules. Party-autonomy thus prevails over loca-

lisation.

2. The nationalisation of international arbitration (and arbitral awards

rendered in international arbitration)

Nationalisation of arbitral awards rendered in international disputes consists

in the application, to these awards, of domestic rather than international

rules (i.e. rules contained in international instruments). Nationalisation

therefore frequently entails the application of domestic standards.

Various rules contained in the New York Convention and in the UN-

CITRAL Model Law reflect nationalisation. The national laws referred to

include the law chosen by the parties, the ‘personal’ law of the parties, the

law of the arbitral seat (localisation) and the law of the enforcement forum.

The law selected by the parties applies to 1) the validity of the arbitration

agreement, 2) the composition of the arbitral tribunal and 3) the arbitral

procedure.541 The ‘personal’ law of the parties applies to the parties’ capacity

to conclude an arbitration agreement, i.e. to the question of subjective arbi-

trability.542 The law of the enforcement forum governs issues that involve

the interests of the enforcement forum: arbitrability and public policy.543

The nationalisation of arbitral awards generates problems identical to those

arising in connection with the nationalisation of international commerce in

general.544 The main problem lies in the inappropriateness of applying do-

mestic rules – at least where these rules incorporate domestic standards – to

arbitral awards rendered in international commercial disputes. This inappro-

priateness stems from the inability of domestic standards to create a uniform

and, most importantly, liberal normative framework. Another drawback of

nationalisation of arbitral awards consists in the lacking predictability of the

domestic law applicable to a particular aspect of enforceability. In fact, in

various settings, the determination of the applicable law proves to be highly

541 See the provisions referred to supra, at 131, fn. 539.

542 See Articles 34(2)(a)(i) and 36(1)(a)(i) of the Model Law and Article V(1)(a) of the

New York Convention.

543 See Articles 34(2)(b) and 36(1)(b) of the Model Law and Article V(2) of the New

York Convention.

544 On nationalisation of international commerce, see K. P. Berger, The Creeping Codifica-

tion of the Lex Mercatoria, esp. at 9 where the author argues that ‘the natural territorial

limitation of the principles and rules contained in domestic laws necessarily leads to the

nationalization of international commercial cases, a phenomenon that is irreconcilable

with the interests of the international commercial community.’

133The internationalisation of the standards of review of awards

problematic. A striking example of this is provided by the question of the

law applicable to arbitrability. As Böckstiegel rightly observed,

‘[A]greement on the conclusion that there is disagreement seems to be the

only common denominator that one can find between arbitrators, courts and

publicists regarding the question which is the applicable law on arbitrability

(footnote omitted).’545

Possible answers to the question of the law applicable to arbitrability en-

compass the law applicable to the arbitration agreement, the lex causae, the

law applicable to the procedure and the law of the enforcement jurisdic-

tion.546 As Kirry points out, ‘[n]one of these… references appears to be satis-

factory.’547 Kirry concludes that ‘the issue of arbitrability should be resolved

by applying substantive rules rather than the law designated pursuant to a

conflict of laws analysis.’548

B. Delocalisation of arbitral awards

The theory of delocalisation opposes the localisation approach outlined

above.549 It applies principally to judicial localisation, i.e. it is essentially

intended to challenge the exclusive – or primary – jurisdiction of the courts

of the arbitral seat. As we will see in this Section, delocalisation claims are

also raised, although to a lesser extent, in relation to legislative localisation.

The minor relevance of legislative delocalisation can be explained against

the background of the limited extent of legislative localisation in contempo-

rary arbitration law.

545 K.-H. Böckstiegel, ‘Public Policy and Arbitrability’, ICCA Congress Series n° 3, p. 177

et seq., at 184.

546 On the question of the law applicable to arbitrability see, for example, H. Arfazadeh,

‘Arbitrability under the New York Convention: the Lex Fori Revisited’, 2001 Arb. Int’l,

p. 73 et seq.; B. Hanotiau, ‘What Law Governs the Issue of Arbitrability?’, 1996 Arb.

Int’l, p. 391 et seq.; J. D. M. Lew, ‘The Law Applicable to the Form and Substance of the

Arbitration Clause’, ICCA Congress series n° 9, p. 114 et seq.

547 A. Kirry, ‘Arbitrability: Current Trends in Europe’, 1996 Arb. Int’l, p. 373 et seq.,

at 379.

548 Ibid.

549 On the concept of delocalisation see, for example, P. Read, op. cit., p. 177 et seq.;

M. Secomb, ‘Shades of Delocalisation – Diversity in the Adoption of the UNCITRAL

Model Law in Australia, Hong Kong and Singapore’, 17 J. Int. Arb. 2, p. 123 et seq.

134 Decreasing recourse to the conflict of laws method

1. The theoretical foundations of delocalisation (judicial and legislative)

Delocalisation theory calls into question the assumptions underlying the

doctrine of localisation. The doctrine of legislative delocalisation, in par-

ticular, rejects the view according to which an arbitral award derives its

validity from the law of the seat. It argues that localisation rests upon an

inaccurate representation of the arbitral process. Proponents of delocalisa-

tion rightly observe that, contrary to State courts, arbitral tribunals do not,

strictly speaking, have a seat. As early as 1958, Aubert noted that by using

the term ‘arbitral seat’,

‘[o]ne artificially transposes in the field of arbitration a terminology that is

adapted to the particular needs of the State court system. Obviously, an

arbitral tribunal does not have territorial jurisdiction. It only has jurisdiction

in personam, deriving from a private agreement… [An arbitral seat] is by no

means indispensable; frequently, the contract does not even mention it.

And it should be from this secondary or fortuitous element that one is to

deduce… to law applicable [to a legal relationship]?’ (translation by the

author)550

As Aubert’s statement illustrates, legislative delocalisation claims that local-

isation through the seat is largely fictitious. It rightly emphasises that, in

practice, the arbitral seat is not necessarily the place that is most closely

connected with the dispute and/or the arbitral proceedings. In fact, it fre-

quently occurs that, while the arbitral seat is situated in State A, the hear-

ings are held in State B and the arbitral award is signed in States C, D and E,

these States being the places of residence of the members of the arbitral

tribunal.551

550 J. F. Aubert, 1958 Rev. crit., at 372 quoted by H. G. Gharavi, The International Effective-

ness of the Annulment of an Arbitral Award, at 107, fn. 382: ‘On transpose artificiellement

dans le domaine de l’arbitrage une terminologie qui est adaptée aux besoins de l’organisation

judiciaire des Etats. Une cour arbitrale n’a manifestement aucune compétence territoriale. Sa

compétence n’est que personnelle, puisqu’elle repose sur un accord privé… [Un siège arbitral]

n’est nullement indispensable ; souvent le contrat n’en parle pas. Et ce serait de cet élément

secondaire, voire fortuit, que l’on déduirait… la législation qui… serait applicable [à un rapport

de droit] ?’

551 In this sense, see M. Pryles, ‘Foreign Awards and the New York Convention’, 1993 Arb.

Int’l, p. 259 et seq., at 261 where the author analyses the concept of the ‘place where the

award is made’. In this respect, Pryles observes: ‘… in international arbitrations, there

are often factors pointing at several states. The parties themselves, and usually the arbi-

trator, will commonly be resident in different states. The arbitral hearings will usually

be held in one state but it is possible for hearings to be held in more than one state…

The arbitrator may sign the award in the state where the hearings are held or may sign

it elsewhere.’

135The internationalisation of the standards of review of awards

2. Legislative delocalisation in practice

The era of legislative delocalisation was allegedly inaugurated by the 1958

Aramco award.552 In this case, the arbitral tribunal applied, in the absence of

a choice-of-law by the parties, international law – rather than the law of the

arbitral seat – to the merits of the dispute. Another major step towards legis-

lative delocalisation of arbitral awards has been made by the New York

Convention. One of the Convention’s merits, indeed, consists in its contri-

bution to the legislative delocalisation of the arbitral procedure. In fact,

under the 1923 Geneva Protocol, the arbitral procedure was governed by

both the will of the parties and the law of the arbitral seat.553 Under the New

York Convention, as we have seen, the law of the seat only plays a subsidi-

ary role.554

Several recent arbitration statutes deprive the law of the arbitral seat even of

this subsidiary role. The enforcement provisions of the Swiss PILS and the

French NCPC, for example, do not include any reference to the law of the

arbitral seat. Neither the validity of the arbitration agreement, nor the con-

stitution of the arbitral tribunal and arbitral procedure is subjected, failing

an agreement between the parties, to the laws of the seat. Swiss and French

courts have continuously held that, in the absence of conflict of laws provi-

sions, the enforceability of arbitral awards is to be assessed on the basis of

material rules specific to international arbitration.555 The application of such

material rules leads to the internationalisation (or de-nationalisation) of

court review of arbitral awards.

C. The internationalisation of court review of arbitral awards

The New York Convention and UNCITRAL Model Law refer, as we have

seen, not only to the law of the arbitral seat, but also to other domestic laws,

in particular to the ‘personal’ law of the parties and the law of the enforce-

ment jurisdiction. In Chapter Two, we have established the inappropriate-

ness of applying domestic rules – at least where they are designed to merely

552 1963 I.L.R., p. 117 et seq.

553 Article 2 of the Protocol.

554 See supra.

555 Courts resort to material rules, for instance, in order to assess objective arbitrability. On

this question see supra, Chapter 3, at 79 (Autonomy from all national laws) and infra,

at 144 (International standards of review of arbitral awards).

136 Decreasing recourse to the conflict of laws method

govern domestic legal relationships – to international legal relationships.

This general observation can be transposed to the enforcement of arbitral

awards rendered in international commercial disputes.

1. The rationale of internationalisation

One reason underlying the application of material rules specific to interna-

tional arbitration relates to the basic dilemma of conflict of laws theory, i.e.

to the fact that the conflict of laws is aimed at subjecting international legal

relationships – which are, by definition, linked to two or more countries – to

the domestic law of one particular State.556 In order to legitimate this ap-

proach, conflict of laws theory resorts, as we have seen, to the concept of the

‘seat’ of the legal relationship.

The determination of this seat is frequently arbitrary. No compelling reasons

require, for example, that an international sales agreement be considered to

have its seat in the country in which the seller is located.557 In the context of

international arbitration, the determination of the ‘seat of the arbitral

award’ proves even more difficult. Indeed, the arbitral award can be consid-

ered to be linked, in one way or another, to a variety of countries including

the country/ies in which the parties are located, the country/ies of perform-

ance of the agreement, the country/ies in which the arbitrator/s is/are lo-

cated, the country of the arbitral seat, the country/ies in which the hearings

were conducted, the country/ies in which the arbitral award was signed, and

the country in which enforcement is sought. That the involvement of such a

large number of countries – characteristic of international arbitration – con-

siderably affects the significance of the ‘seat’ has been demonstrated above

in relation to the question of arbitrability.

Another reason legitimating recourse to material rules consists in the pursuit

of increased enforceability of arbitral awards. The application of material

rules, in fact, excludes possibly restrictive foreign laws. From the perspective

of countries observing an arbitration-friendly attitude, the application of

foreign rules potentially threatens the enforceability of arbitral awards. As

Fouchard puts it,

556 See the statement of R. David, Chapter 2 at 46.

557 The applicability of the law of the seller is, however, almost universally recognised. It is

notably affirmed by Article 8 of the Hague Convention on the Law Applicable to Con-

tracts for the International Sale of Goods.

137The internationalisation of the standards of review of awards

‘there is a risk that the conflicts rule may lead to an inappropriate solution if

it is founded on an archaic law or on a law which simply does not take into

account the specific needs of international arbitration.’558

2. The internationalisation of court review of arbitral awards and dualistic

approach to arbitration

As has been explained, the internationalisation of court review of arbitral

awards refers to the application of material rules specific to international

arbitration. The contribution of international instruments such as the New

York Convention and the UNCITRAL Model Law to internationalisation

has been limited. Indeed, these instruments were essentially aimed at the

approximation of the various domestic laws on international arbitration.

Rather than instituting uniform rules, they lay down so-called minimum

standards. Commenting on the New York and Geneva Conventions, de

Boisséson observes that

‘[i]t was not simply because the authors of these Conventions were powerless

to create uniform rules that they allowed the Contracting States a certain

freedom to interpret and enforce the objectives assigned to them, but most

likely it was also because they were aware that uniformity is an objective

that is neither realistic nor desirable in matters of international arbi-

tration.’559

If de Boisséson’s statement must be approved of insofar as it emphasises the

harmonising – as opposed to unifying – effect of the New York and Geneva

Conventions, one cannot concur with de Boisséson’s conclusion that unifi-

cation is undesirable. On the contrary, as Bernini rightly observes, ‘unifica-

tion of national rules on arbitration is… a worthy dream.’560 Indeed, as we

have seen, the unification of the law of international arbitration constitutes

the basic purpose of the process of internationalisation examined in this

Chapter.

In the absence of unification by means of international instruments, such

unification rests upon the initiative of individual States. A pivotal role in

this respect is played by the dualistic (as opposed to monistic) approach to

558 Ph. Fouchard, ‘Suggestions to Improve the International Efficacy of Arbitral Awards’, in

ICCA Congress series n° 9, p. 601 et seq., at 605.

559 M. de Boisséson, ‘Enforcement in Action: Harmonization Versus Unification’, in ICCA

Congress series n° 9, p. 593 et seq., at 593.

560 G. Bernini, ‘Recent Legislations and International Unification of the Law on Arbitra-

tion’, in Proceedings of the 1st International Commercial Arbitration Conference, p. 315

et seq., at 339.

138 Decreasing recourse to the conflict of laws method

arbitration. This approach consists in subjecting domestic and international

arbitration to two separate sets of rules. The dualistic approach has been

followed, for example, by the French, Italian and Swiss legislators. Not all

countries, however, have enacted dualistic arbitration legislation. Indeed,

monistic legislation has been adopted – even recently – in countries such as

Austria, England, Germany and the United States. In most – if not all – of

these countries, however, the courts draw a distinction according to the

domestic or international nature of the dispute (one can speak of ‘hidden’

dualism).

a. Internationality of arbitration

The concept of internationality is only relevant in the framework of dualis-

tic arbitration statutes. This Section thus focuses on the definitions of in-

ternationality contained in dualistic arbitration laws such as those in force

in France, Italy, and Switzerland. It further considers the definition of in-

ternationality found in the UNCITRAL Model Law on International Com-

mercial Arbitration (emphasis added).

These definitions rely upon the traditional legal and/or economic criteria.561

However, some laws adopt more extensive definitions of internationality.

These definitions take into consideration factors such as the localisation of

the arbitral seat (i.e. subjective internationality)562 and even the will of the

parties. They do not, therefore, view internationality as an objective charac-

teristic of a given legal relationship. Such definitions contradict the basic

purpose of the concept of internationality, i.e. the determination of circum-

stances giving rise to specific normative needs. By providing disputants with

a particularly liberal – and supposedly attractive – normative framework,

they essentially aim to increase or preserve the national share in the world-

wide ‘arbitration market’.563

561 See supra, Chapter 1. For a comparative analysis of the criteria of internationality re-

ferred to in recent arbitration Statutes (with an emphasis on Swiss law), see J.-F.

Poudret, Critères d’extranéité de l’arbitrage international et droit communautaire, p. 22 et seq.

562 See supra, Chapter 1.

563 See, for example, as far as Switzerland is concerned, P. M. Patocchi and E. Geisinger,

Code de droit international privé suisse annoté, at 430: ‘The new Act on International Ar-

bitration essentially aims to replace the cantonal rules and provisions of the Concordat

by a unique legal regime doing justice to Switzerland’s good reputation as an arbitral forum in

international business’ (free translation, emphasis added).

139The internationalisation of the standards of review of awards

i) The definition of international arbitration by the Swiss Private

International Law Statute (PILS)

Article 176 of the Swiss PILS provides that an arbitration is international if

‘at least one of the parties has neither its domicile nor its habitual residence

in Switzerland’. This definition, rather than resorting to classical criteria of

internationality, subordinates the applicability of the regime applying to

international arbitration to the existence of an élément d’extranéité (foreign

element) from the viewpoint of the Swiss arbitral seat.564 The definition

contained in Article 176 does not, therefore, reflect objective international-

ity. The Swiss rules governing international arbitration possibly apply to

domestic – though foreign – disputes. From the perspective of the parties to

an arbitration, Article 176 opens the door to the regime applicable to inter-

national arbitration to every non-Swiss domestic dispute.

ii) The economic approach of the French Nouveau Code de Procédure

Civile (NCPC)

Article 1492 of the NCPC provides that ‘[a]n arbitration is international

when it involves the interests of international trade.’ This definition results

from the codification of a long-lasting case law relating to international

contracts initiated by the Pélissier du Besset,565 Mardelé566 and Dambricourt567

precedents. In Mardelé and Dambricourt, where the validity of arbitration

clauses contained in commercial contracts concluded between two French

parties was at stake, the Cour de cassation, in order to overcome the prohibi-

tion of arbitration clauses by French law, held that said prohibition did not

apply to transactions ‘involv[ing] the interests of international trade’.

If the definition of international arbitration found in Article 1492 undoubt-

edly amounts to some degree of tautology (international arbitration = inter-

564 See P. Lalive, J. F. Poudret and C. Reymond, Le droit de l’arbitrage interne et international

en Suisse, at 292: ‘… le caractère international de l’arbitrage [est] provoqué par l’extranéité

d’une au moins des parties et la présence du siège du tribunal arbitral en Suisse.’ (‘… the in-

ternationality of arbitration stems from the foreignness of at least one of the parties and

the localisation of the arbitral seat in Switzerland’, translation by the author).

565 Cour de cassation, 17 May 1927, Pélissier du Besset v. The Algiers Land and Warehouse Co.

Ltd., D.P., Pt. I, at 25.

566 Cour de cassation, 19 February 1930, Mardelé v. Muller, 1931 Rev. crit., at 514.

567 Cour de cassation, 27 January 1931, Dambricourt v. Rossard, Sirey 1931, Pt. I, at 41.

140 Decreasing recourse to the conflict of laws method

national commerce), French courts applying Article 1492 have clarified the

concept of the ‘involvement [by the transaction] of the interests of interna-

tional trade’. Indeed, the courts continuously hold that the ‘involvement of

the interests of international trade’ must be understood as entailing a ‘trans-

fer of goods, services or funds across national boundaries’.568 Other criteria

such as the nationality of the parties, the law applicable to the contract or to

the arbitration, and the place of arbitration are therefore irrelevant for the

purposes of determining the internationality of an arbitration.

iii) Recourse to alternative criteria: the UNCITRAL Model Law (Model Law)

and the Italian Codice di Procedura Civile (CPC)

Under the Model Law, internationality derives, in the first place, from the

fact that the parties have their places of business in different States.569 Sub-

sidiarily, the Model Law resorts to economic criteria according to which an

arbitration is international if ‘any place where a substantial part of the obli-

gations of the commercial relationship is to be performed or the place with

which the subject-matter of the dispute is most closely connected’ is ‘situ-

ated outside the State in which the parties have their places of business’.570

In Italy, Article 832 of the CPC provides that an arbitration is international

either if 1) at least one of the parties has its domicile or actual place of busi-

ness abroad or if 2) a substantial part of the obligations arising out of the

relationship to which the dispute refers must be performed abroad. Although

it is argued that ‘the two alternative criteria [adopted by Article 832] are

both present in the UNCITRAL Model law’,571 it must be noted that the

legal criterion of Article 832, like Article 176 of the Swiss PILS, merely

requires the dispute to be foreign from the point of view of the Italian arbi-

tral seat.

iv) The impact of the will of the parties and the phenomenon of ‘agreed’

internationality

While some laws on arbitration allow the parties to exclude the application

of the rules pertaining to international arbitration by entering a so-called

568 See J. Savage and E. Gaillard (eds.), Fouchard, Gaillard, Goldman on International Com-

mercial Arbitration, at 58.

569 See Article 1(3)(a).

570 See Article 1(3)(b)(ii).

571 See P. Bernardini, The Italian Law on Arbitration: Text and Notes, at 25, fn. 72.

141The internationalisation of the standards of review of awards

‘exclusion agreement’,572 other arbitration statutes – such as those based on

the Model Law and, to a certain extent, Swiss and Italian arbitration law –

allow them to opt in for the regime applicable to international arbitration.

As has already been explained, Swiss and Italian arbitration law enable for-

eign parties to have domestic disputes governed by the rules applicable to

international arbitration through the localisation of the arbitral seat in Swit-

zerland or Italy. As far as the Model Law is concerned, it does not only con-

tain a – heavily criticised – 573 provision similar to Article 176 of the Swiss

PILS and Article 832 of the Italian CPC, 574 but it also recognises the in-

ternationality of an arbitration on the grounds that ‘the parties have ex-

pressly agreed that the subject-matter of the arbitration agreement relates to

more than one country’.575 If, according to Broches, this provision (Article

1(3)(c)) was initially intended to ‘cover all cases, not already covered by

subparagraphs (a) and (b), in which “the subject matter of the arbitration

agreement is otherwise related to more than one State”’,576 the final wording

of Article 1(3)(c) implements the opting in clause proposed, inter alia, by

the Australian delegate.577 Despite the unconditional character of the opting

in clause contained in Article 1(3)(c), some authors doubt whether courts

will give effect to an opting in where the transaction satisfies neither legal

nor economic criteria of internationality.578

b. Dualistic arbitration legislation

As we have mentioned, dualistic arbitration legislation can be defined as

legislation containing two separate bodies of rules governing respectively

domestic and international arbitration. In practice, this implies the adoption

of separate statutes or acts, i.e. self-contained sets of provisions. Examples of

jurisdictions having adopted dualistic arbitration legislation include France

(1980/81), Switzerland (1987) and Italy (1994). The basic rationale under-

lying the dualistic approach to arbitration consists in the acceptance of the

572 See, for example, Article 176(2) of the Swiss PILS stating that the provisions relating

to international arbitration ‘shall not apply where the parties have in writing excluded

its application and agreed to the exclusive application of the procedural provisions of

cantonal law relating to arbitration.’

573 See A. Broches, IHCA, Vol. IV, ‘Commentary on the UNCITRAL Model Law’, at 14.

574 See Article 1(3)(b)(i).

575 See Article 1(3)(c).

576 See A. Broches, op. cit., at 17.

577 See A. Broches, op. cit., at 19.

578 See A. Broches, op. cit., at 20.

142 Decreasing recourse to the conflict of laws method

‘specificity’ of international arbitration, i.e. of the existence of needs ‘spe-

cific’ to international arbitration. Indeed, like international commerce in

general, international arbitration is characterised by normative needs differ-

ent from the normative needs of domestic arbitration. As Bernini observes,

‘International arbitration is the answer to well known needs, stemming from

international trade and cooperation, which are totally different from the

needs which may call for arbitration within the framework of a domestic

economy.’579

In light of its theoretical accuracy, the dualistic approach is generally ap-

proved of. Prefacing his commentary on the 1994 Italian Arbitration Act,

Bernardini, for example, states that the ‘[introduction]… in the Italian legal

system [of] a separate regulation of international arbitration’ underlines ‘the

importance attributed to this method of dispute settlement in transnational

trade relations.’ … Emphasising the specificity of international arbitration,

Berger concludes that

‘the dualistic approach of the drafters of the ML [UNCITRAL Model Law]

and the Swiss and French legislature… presents the superior and more effi-

cient legislative concept.’580

The appropriateness of distinguishing between domestic and international

arbitration implies the adoption not only of separate, but also, and most

importantly, of different rules. Such differentiation is well illustrated by the

French example. Under French law, a first fundamental distinction is drawn

with respect to the rules applicable to the merits. Indeed, the possibility of

applying transnational law or lex mercatoria is generally considered to be

confined to international arbitration.581 Another distinction relates to the

available means of recourse. While arbitral awards rendered in domestic

disputes are subject to appellate review, i.e. review on the merits (révision au

fond), arbitral awards rendered in international disputes are only subject to

579 G. Bernini, op. cit., p. 339. See also Ph. Fouchard, op. cit., at 611: ‘when a State applies

to an international arbitration which takes place on its soil the rules promulgated for its

domestic arbitrations, it inevitably gives to such arbitration a national flavour; it makes

this more local; it stamps on such arbitration its legal and cultural conception of its own

national system of justice, and submits the arbitration to all the constraints which it

considers appropriate for an arbitration which only concerns its own nationals and its

economy.’

580 See K. P. Berger, International Economic Arbitration, 748.

581 Comp. Article 1474 of the NCPC (relating to domestic arbitration) with Article 1496

of the NCPC (relating to international arbitration). Although both provisions refer to

‘rules of law’ instead of ‘law’, Article 1496 contains, unlike Article 1474, an express ref-

erence to ‘trade usages’. Judicial decisions have recognised the selection of lex mercatoria

as the lex contractus only in the context of international arbitration.

143The internationalisation of the standards of review of awards

an action to set aside and are, thus, not re-examined on the merits.582 A

further distinction, linked to the availability of different means of recourse,

pertains to the extent of court control and, more particularly, to the appli-

cable public policy standard. While, as we have seen, arbitral awards ren-

dered in domestic arbitration need to comply with domestic public policy,583

arbitral awards rendered in international arbitration must only be in con-

formity with international public policy.584 Several other differences charac-

terise the legal regimes governing international arbitration, on the one

hand, and domestic arbitration, on the other.

c. Dualistic case-law or ‘hidden dualism’

Despite the theoretical ‘superiority’ of the dualistic approach, several coun-

tries, including Austria, Germany, England and the United States have

enacted – even recently – monistic arbitration legislation. In England, the

adoption of the 1996 Arbitration Act pays tribute to the Report established

by Lord Mustill (the ‘Mustill Report’). In his report, Mustill suggested that

the Arbitration Act ‘should in general apply to domestic and international

arbitration alike’. As to the 1998 German Arbitration Act, it appears that

the German legislator has followed Sanders’ recommendation according to

which Germany should ‘when modernising its arbitration law… also [like

the Dutch legislator] consider drafting one law, applicable to both domestic

and international arbitration’.585

These countries’ preference for monistic arbitration legislation mainly stems

from practical considerations. Indeed, monistic legislation, especially insofar

as it avoids the intricacies of tracing the borderline between domestic and

international arbitration, arguably constitutes the more user-friendly legisla-

tive model. Indeed, proponents of the monistic approach point at the

vagueness inherent to some definitions of internationality – such as the one

contained in Article 1492 of the French NCPC (‘an arbitration is interna-

tional if it involves the interests of international trade’). They further disap-

prove of the partial reliance, by statutes on international arbitration, on

their domestic counterparts. Indeed, international arbitration statutes fre-

quently refer to the rules applicable to domestic arbitration or, even worse,

contain a general reference to those rules, specifying that these rules are

582 Comp. Article 1482 of the NCPC (relating to domestic arbitration) with Article 1504

of the NCPC (relating to international arbitration).

583 See Article 1484, 6° of the NCPC.

584 See Article 1502, 5° of the NCPC.

585 K. P. Berger, op. cit., at 747.

144 International Standards of Review of Arbitral Awards

applicable to international arbitration unless expressly derogated from by the

international arbitration statute.586 Admittedly, such drafting deteriorates

the legibility and accessibility of the rules governing international arbitra-

tion. However, this drawback, rather than reflecting a fundamental flaw of

the dualistic approach, merely reflects the insufficiency of the legislative

technique adopted.

Although several countries have adopted monistic arbitration legislation, in

all of these the courts draw a distinction according to the domestic or inter-

national nature of the dispute. As this distinction is not enshrined in a stat-

ute, one speaks of judicial or ‘hidden’ dualism. Judicial dualism is well illus-

trated by the American example. The liberal attitude of American courts, in

fact, only applies to international arbitration. As we will see in Section II,

this liberal attitude rests upon the specificity of international commerce or,

as some courts have put it, on ‘the requirements of expanding international

trade’.587

Conceived of as a remedy against the inappropriateness of monistic legisla-

tion, hidden dualism is, however, generally incapable of laying down a com-

prehensive set of rules responding to the specific needs of international arbi-

tration. Moreover, the introduction of distinctions through the ‘backdoor’ of

judicial decisions diminishes the user-friendliness.588 Indeed, hidden dualism

requires practitioners to examine not only the relevant arbitration statute,

but also – possibly numerous and complex – judicial precedents.

II. International Standards of Review of Arbitral Awards

International Standards of Review of Arbitral Awards

A. Objective arbitrability

1. The lacking necessity to depart from the conflict of laws method

Forming part of the broader question of the validity of the arbitration

agreement, objective arbitrability could be – and often is – considered to be

586 See, for example, Article 832 of the Italian Codice di Procedura Civile: ‘… the provisions

of Chapters I to V of this Title [Arbitration] shall apply… insofar as they are not dero-

gated from by this Chapter [International Arbitration].’

587 See, for example, The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 8-9 (1972).

588 In this sense, see K. P. Berger, op. cit., at 748 where the author comments on the monis-

tic Dutch Arbitration Act of 1986: ‘… developing special rules for international arbitra-

tions outside the Act itself would contravene one of the basic premises of arbitration

laws designed for foreign practitioners: arbitration laws should be readily comprehensi-

ble from the statutory law alone without having to refer to the case law of the domestic

courts (footnote omitted).’

145The internationalisation of the standards of review of awards

governed by the law applicable to the said agreement. Strictly speaking,

however, there is no ‘law applicable to the arbitration agreement’. Indeed,

the validity of an arbitration agreement comprises formal validity and vari-

ous aspects of substantive validity (general requirements of validity of con-

tracts, subjective arbitrability, and objective arbitrability). Each of these

aspects may be governed by a different law.

Under the New York Convention and UNCITRAL Model Law, objective

arbitrability is determined in accordance with the laws of the enforcement

jurisdiction.589 This conflict of laws rule, insofar as it entails the application

of the domestic law of the enforcement court, does not give rise to the diffi-

culties that arise in connection with the application of – possibly restrictive

– foreign laws. The internationalisation of the arbitrability standard does

not, therefore, require departure from the conflict of laws approach.

Alternative suggestions in order to escape the application of the domestic

standards of the enforcement jurisdiction include Paulsson’s proposal to

have arbitrability determined by alternative conflict of laws rules. According

to this proposal, a dispute would be arbitrable if arbitrability is established

under either the law chosen by the parties or the law of the enforcement

jurisdiction. With respect to the New York Convention, Paulsson suggests

the adoption of a protocol laying down a catalogue of arbitrable and non-

arbitrable issues. To date, these proposals have not led to any amendments

to the New York Convention or any other international instruments.

2. Legislative material rules: The German and Swiss examples

Material rules applying to arbitrability have been adopted in several jurisdic-

tions. These include, inter alia, Switzerland and Germany. As far as Swiss

law is concerned, Article 177 of the PILS provides that ‘[a]ny dispute in-

volving property can be the subject-matter of an arbitration.’ It thereby

establishes a standard specific to international arbitration. Indeed, as far as

domestic arbitration is concerned, Article 5 of the Concordat provides that

‘[t]he arbitration may relate to any right of which the parties may freely

dispose unless the suit falls within the exclusive jurisdiction of a State au-

thority by virtue of a mandatory provision of the law’. As Briner rightly

observes in his commentary on Article 177 of the Swiss PILS, Article 5 of

the Concordat amounts to an adaptation – not to a suppression – of the

conflict of laws method insofar as

589 See Articles 34(2)(b)(i) and 36(1)(b)(i) of the Model Law and Article V(2)(a) of the

New York Convention.

146 International Standards of Review of Arbitral Awards

‘both the free disposition of the subject-matter of the arbitration as well as

possible exclusive jurisdiction of a state court have to be examined based on

the applicable conflict of law rules.’590

As far as German law is concerned, Section 1030 of the ZPO contains a

provision similar to Article 177 of the Swiss PILS. It provides that ‘any

claim involving an economic interest can be the subject of an arbitration

agreement’.

3. The elaboration of international standards by the courts: The American

example

a. From the Bremen to Mitsubishi

Three landmark decisions of the US Supreme Court – sometimes referred to

as a ‘trilogy’591 – adequately summarise the status of (non-)arbitrability under

American law. These decisions are The Bremen v. Zapata Off-Shore Co.,592

Scherck v. Alberto-Culver Co.593 and Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc.594

In The Bremen, the U.S. Supreme Court affirmed the validity, in the context

of international contracts, of forum selection clauses allocating jurisdiction

to the courts of a foreign country. It thereby rejected the traditional view

according to which agreements ousting the jurisdiction of U.S. courts are

contrary to public policy and, thus, not enforceable. Although The Bremen

addressed the question of the validity of forum selection agreements rather

than the issue of arbitrability, its ratio decidendi has been transposed, by sub-

sequent decisions, to the validity of arbitration agreements.

Scherck involved the purchase by Alberto-Culver, an American corporation,

of three businesses incorporated in Germany and Liechtenstein. Although

the contract contained an arbitration clause providing for arbitration in

Paris under the ICC Rules, Alberto-Culver, alleging fraudulent representa-

tions in violation of the 1934 Securities and Exchange Act, filed a lawsuit in

the U.S. District Court for the District of Illinois. Both the District Court

and the Court of Appeals, relying on the Supreme Court’s decision in Wilko

590 R. Briner, commentary on Article 177 of the Swiss PILS, in S. V. Berti (ed.), Interna-

tional Arbitration in Switzerland, at 318.

591 Société Nationale Algérienne pour la Recherche, la Production, le Transport, la Transforma-

tion et la Commercialisation des Hydrocarbures v. Distrigas Corp., 80 B.R. 606,

613 (D. Mass. 1987).

592 407 U.S. 1 (1972).

593 417 U.S. 506 (1974).

594 473 U.S. 614 (1985).

147The internationalisation of the standards of review of awards

v. Swan595 according to which an arbitration agreement does not preclude

the buyer of a security from initiating proceedings in a federal court, denied

the enforceability of the arbitration agreement. The Supreme Court, how-

ever, held that ‘crucial differences’ – all linked to the international nature of

the transaction – distinguished the facts in Wilko from the ones characteris-

ing Scherck. It thus reversed the decision of the Court of Appeals, thereby

affirming the arbitrability of claims arising under U.S. securities laws.

Mitsubishi involved a distributorship agreement concluded between Mitsubi-

shi, a Japanese car-manufacturer, and Soler, a Puerto Rican distributor. The

agreement contained an arbitration clause providing for arbitration in Japan

under the Rules of the Japan Commercial Arbitration Association. As a

dispute arose, Mitsubishi applied to the U.S. District Court for the District

of Puerto Rico in order to obtain an order compelling arbitration. Soler filed

various counterclaims including, inter alia, a claim alleging violations of the

Sherman Act. The District Court referred the parties to arbitration. The

Court of Appeals, considering that antitrust claims are, even in the context

of international transactions, not arbitrable, reversed the District Court’s

ruling. The Supreme Court, taking into consideration the specific needs of

international commerce, reversed the decision of the Court of Appeals.

b. Recognition of the specificity of international arbitration

In his analysis of the motivation underlying the The Bremen, Scherck, and

Mitsubishi decisions, Donahey distinguishes three recurring ‘themes’: ‘the

requirements of expanding international trade, the respect for the agreement

made by the parties to an international transaction, and the need for pre-

dictability in international dealings’.596 While the first theme relates to the

objective of safeguarding – or increasing – the United States’ share in inter-

national commerce, the second and third themes express the tools allowing

the achievement of this objective. Indeed, the liberal attitude adopted in

accordance with these themes aims to not discourage foreign enterprises

from conducting business with U.S. corporations. Moreover, the second and

third themes appear to be largely identical insofar as predictability derives

from ‘the respect for the agreement made by the parties’.

As Donahey rightly observes, these three themes constitute recurring fea-

tures of the decisions examined above. With respect to the requirements of

expanding international trade the The Bremen Court noted that

595 346 U.S. 427 (1953).

596 M. S. Donahey, ‘From The Bremen to Mitsubishi (and beyond): International Arbitra-

tion adrift in U.S. waters’, 1996 Am. Rev. Int. Arb., p. 149 et seq., at 151.

148 International Standards of Review of Arbitral Awards

‘[t]he expansion of American business and industry will hardly be encour-

aged if, notwithstanding solemn contracts, we insist on a parochial concept

that all disputes must be resolved under our laws and in our courts… We

cannot have trade and commerce in world markets and international waters

exclusively on our terms, governed by our laws, and resolved in our

courts.’597

This holding has been referred to by the Court in both the Scherck598 and the

Mitsubishi599 decisions.

As far as compliance with the parties’ agreement and predictability are con-

cerned, the The Bremen Court stressed that

‘[i]t cannot be doubted for a moment that the parties sought to provide for a

neutral forum for the resolution of any disputes… Manifestly much uncer-

tainty and possibly great inconvenience to both parties could arise if a suit

could be maintained in any jurisdiction… The elimination of all such uncer-

tainties by agreeing in advance on a forum acceptable to both parties is an

indispensable element in international trade, commerce, and contracting.’600

Quite similarly, the Scherck Court remarked that

‘[a] contractual provision specifying in advance the forum in which disputes

shall be litigated… is… an almost indispensable precondition to achieve-

ment of the orderliness and predictability essential to any international

business transaction.’601

The Mitsubishi decision contains a similar reference to the requirements of

predictability.602 The The Bremen, Scherck, and Mitsubishi decisions specifi-

cally address the validity of arbitration agreements (a forum selection

agreement in The Bremen) contained in international contracts. These deci-

sions are not, a priori, applicable to domestic contracts. In fact, the Mitsubishi

Court stated that

‘concerns of international comity, respect for the capacities of foreign or

transnational tribunals, and sensitivity to the need of the international

commercial system for predictability in the resolution of disputes require

that we enforce the parties’ agreement, even assuming that a contrary result

would be forthcoming in the domestic context.’603 (emphasis added).

597 407 U.S. at 8-9.

598 417 U.S. at 516-17.

599 473 U.S. at 629.

600 407 U.S. at 13-14.

601 417 U.S. at 516.

602 473 U.S. at 631.

603 473 U.S. at 631.

149The internationalisation of the standards of review of awards

c. Reliance on the New York Convention’s purpose of unifying standards

of enforcement of arbitral awards

If the elaboration, by the courts, of international standards relies essentially

on the ‘specificity of international commerce’, a textual basis allowing re-

course to such standards is provided by the New York Convention’s unifying

character. American courts have repeatedly drawn upon this unifying char-

acter. In Scherck, for example, the Supreme Court stated that the New York

Convention aims to

‘encourage the recognition and enforcement of commercial arbitration

agreements in international contracts and to unify the standards by which

agreements to arbitrate are observed and arbitral awards are enforced in the sig-

natory countries.’ (emphasis added).604

In practice, the adoption of international standards of objective arbitrability

has been facilitated by the wording of Article II of the New York Conven-

tion, relating to the enforceability of arbitration agreements. Indeed, Article

II does not subject the enforceability of arbitration agreements to the domes-

tic law(s) of (a) particular State(s). The absence of a conflict of laws provi-

sion in Article II has often been construed, by commentators and courts, as

requiring the application of international standards. Friedland and Hornick,

for example, argue that

‘[b]oth the text of the Convention and the travaux suggest strongly that

Article V’s choice-of-law rules should not be read into Article II, and that

disputes under Article II should be resolved based on a potentially different,

international standard.’605

Although a literal interpretation of the relevant Convention provisions

indicates that the application of international standards is confined to Arti-

cle II hypotheses, no theoretical considerations support such a differentia-

tion. Indeed, if one admits the appropriateness of having arbitrability estab-

lished in conformity with international standards – as we do – it would be

illogical to resort to domestic standards at the award-enforcement stage. In

addition, as we have seen, Article V(2)(a)’s reference to the law of the en-

forcement jurisdiction does not preclude the application of international

604 417 U.S. 506, 520 n. 15 (1974).

605 P. D. Friedland and R. N. Hornick, ‘The Relevance of International Standards in the

Enforcement of Arbitration Agreements under the New York Convention’, 1995 Am.

Rev. Int’l. Arb., p. 149 et seq., at 154. For a similar view, see P. Sanders, ‘A Twenty-

Years Review of the Convention on the Recognition and Enforcement of Foreign Arbi-

tral Awards’, 1979 Int’l Lawy., p. 269 et seq., at 286.

150 International Standards of Review of Arbitral Awards

standards. If, in fact, Article V(2)(a) requires the courts to assess arbitrabil-

ity on the basis of their domestic rules, this does not prevent the courts from

applying material rules specific to international arbitration.

Commentators distinguish three methods allowing the adoption of interna-

tional standards under the New York Convention.606 First, international

standards can be elaborated through the ‘internationalisation of Federal

law’. According to this approach, American courts, when assessing the arbi-

trability of a particular dispute, apply domestic arbitrability provisions ad-

justed to the necessities of international commercial dispute resolution. In

practice, such an approach often entails the non-application of provisions

prohibiting recourse to arbitration. An illustration of this method is pro-

vided, for example, by the Supreme Court’s decision in Mitsubishi where the

Court held the antitrust claims raised by Soler to be arbitrable, while em-

phasising the possibility that ‘a contrary result would be forthcoming in a

domestic context’.607

Second, the elaboration of international standards can draw upon what is

referred to as ‘international commercial law’. Under this approach, an arbi-

tration agreement is invalid only where this invalidity is based upon ‘an

internationally recognised defense such as duress, mistake, fraud or

waiver’.608 In other words, ‘the determination of whether a type of claim is

“not capable of settlement by arbitration” must be made on an international

scale, with reference to the laws of the countries party to the Convention.’609

Reference to the laws of foreign countries also characterises the third

method, according to which international standards may be derived from

‘comparative law’, i.e. from the analysis of decisions of the courts of foreign

countries. This approach is followed, in particular, where courts are called

upon to interpret New York Convention provisions.610 As such, the com-

parative law approach constitutes an application of the general principle

according to which the interpretation of public international law should

take into account decisions of foreign courts. This principle was affirmed by

the Supreme Court as early as 1815. In Thirty Hogsheads of Sugar v. Boyle,

Chief Justice Marshall observed that

‘The decisions of the Courts of every country, so far as they are founded

upon a law common to every country will be received, not as authority, but

606 See P. D. Friedland and R. N. Hornick, op. cit.

607 See supra, at 148, fn. 599.

608 Rhône Méditerranée Compagnia Francese Di Assicurazioni E Riassicurazioni v. Lauro,

712 F.2d 50, 53 (3d Cir. 1983).

609 Meadows Indemnity Co. Ltd v. Baccala & Shoop Ins. Serv., Inc., 1991 U.S. Dist. Lexis

4144 (E.D.N.Y. 1991).

610 See, for example, Int’l Standard Elec. Corp. v. Bridas Sociedad Anonima Petrolera, Indus. Y

Comercial, 745 F. Supp. 172, at 177-178.

151The internationalisation of the standards of review of awards

with respect. The decisions of the Courts of every country show how the law

of nations, in the given case, is understood in that country, and will be con-

sidered in adopting the rule which is to prevail in [the United States].’611

B. Public policy

1. The genesis of the concept of international public policy: Domestic,

international, and transnational (or ‘truly international’) public policy

Public policy is classically perceived as ‘an unruly horse that carries its rider

to unpredictable destinations’.612 This unpredictability is due, on the one

side, to the evolving or ‘dynamic’613 character of public policy and, on the

other side, to the ambiguity inherent in the concept of public policy.614 In-

deed, if it can be held that public policy constitutes the ‘inviolable part’615 of

a legal system, i.e. the rules that, due to their fundamental nature, cannot be

derogated from, the characterisation of a rule as a public policy rule is highly

subjective.

In private international law, public policy (where it is violated) functions as

a ground precluding the application of foreign law or the recognition and

enforcement of foreign court judgements (one speaks of the public policy

‘exception’). The public policy concept relied upon in this connection de-

parts from ‘purely’ domestic public policy inasmuch as it exercises merely an

effet atténué.616 This effet atténué implies the recognition in State A of rights

acquired in State B despite the fact that the acquisition of such rights con-

travenes the (domestic) public policy of State A.617 The effet atténué thus

611 13 U.S. (9 Cranch) 191, 198 (1815).

612 See, for example, Katzenbach, ‘Conflicts on an Unruly Horse: Reciprocal Claims and

Tolerances in Interstate and International Law’, 1956 65 Yale L. J., p. 1087 et seq. re-

ferred to by G. Born, International Commercial Arbitration (2001), at 816.

613 See J. D. M. Lew, L. A. Mistelis and St. M. Kröll, Comparative International Commercial

Arbitration (2003), at 723.

614 See, for example, J. D. M. Lew, L. A. Mistelis and St. M. Kröll, op. cit., at 722: ‘It is

difficult, if not impossible, to define the concept of public policy.’

615 See G. Kegel, Internationales Privatrecht (2000), at 453 where the author defines public

policy as the ‘unantastbaren Bereich der eigenen Rechtsordnung’.

616 See P. Mayer and V. Heuzé, Droit international privé (2001), p. 140 et seq.

617 For an illustration of the effet atténué in the context of international commercial arbitra-

tion, see the decision of the Cour Supérieure de Justice of Luxembourg dated 24 Novem-

ber 1995, reproduced in Yearbook, Vol. XXI, p. X et seq., at 617: ‘… public policy is only

152 International Standards of Review of Arbitral Awards

constitutes an adaptation of public policy to the requirements of the interna-

tional context.618

Recourse to the concept of international public policy in relation to the

recognition and enforcement of arbitral awards reflects a similar process of

adaptation. Indeed, the internationality of a given legal relationship calls

into question the legitimacy of the exclusive application of the laws of one

particular State and, by way of consequence, of the public policy of that

State. International legal relationships should, accordingly, only be required

to comply with international public policy, i.e. the rules the fundamental

character of which is recognised at the international level (i.e. in all or a

large number of jurisdictions). International public policy represents, in

other words, the common denominator of the various domestic public

policies.

This common denominator is sometimes referred to as ‘transnational’619 or

‘universal’620 public policy. Some authors, however, draw a distinction be-

tween international and transnational public policy.621 They argue that

courts, when assessing the compliance of arbitral awards with the require-

ments of international public policy, necessarily resort to a domestic concep-

tion of international public policy. Arbitrators, on the other hand, since

they ‘do not belong to any particular legal system’, have recourse to ‘truly

international public policy’.622

This distinction is, at the very least, debatable. It implies, in fact, that State

courts cannot adopt an ‘objective’ approach to international public policy

and that, therefore, the courts of each country apply their ‘own’ interna-

tional public policy. The distinction between international and transna-

tional public policy therefore betrays the basic purpose of the recourse to the

concept of international public policy, namely the departure from purely

domestic standards. No compelling reason warrants the application of differ-

to be considered in its attenuated form, and is less demanding than it would have been

if the same rights had been acquired in Luxembourg.’

618 See P. Mayer and V. Heuzé, op. cit, at 138 where the authors explain that private inter-

national law public policy differs from domestic public policy (‘[L]e domaine de l’ordre

public au sens du droit international privé … ne coïncide pas avec celui de l’ordre public au

sens du droit interne’).

619 See, in particular, P. Lalive, ‘Transnational (or Truly International) Public Policy and

International Arbitration’, in ICCA Congress series n° 3, p. 257 et seq.

620 See, for example, R. H. Kreindler, 4 J. W. I. 2, p. 239 et seq., at 243.

621 See J. Savage and E. Gaillard, op. cit., at 954-955.

622 Ibid.

153The internationalisation of the standards of review of awards

ent standards of international public policy by State courts on the one hand

and arbitral tribunals on the other.623

2. International public policy as a tool to increase the autonomy of arbitral

awards: Methodological approaches

a. Statutory reference to international public policy

Only few statutes on (international) arbitration contain an express reference

to international as opposed to domestic public policy (or public policy tout

court). This is due to the continued limited acceptance of, and vagueness

inherent to, the concept of international public policy. The UNCITRAL

Model Law, for example, refers to domestic public policy, i.e. to the public

policy of the arbitral seat (as far as actions to set aside are concerned)624 or

the relevant enforcement jurisdiction (as far as enforcement proceedings are

concerned).625

An express reference to the requirements of international public policy can

be found in French arbitration law. French law distinguishes, as we have

seen, according to the domestic/international nature of arbitration and the

domestic/foreign nature of the arbitral award. While domestic arbitral

awards need to conform to domestic public policy,626 arbitral awards ‘made

abroad or in international arbitration’ only need to be compatible with in-

ternational public policy.627

This distinction between international and domestic public policy is fre-

quently relied upon by the courts. In Intrafor Cofor, for example, the Cour

d’appel of Paris held that

‘a breach of domestic public policy … does not provide the grounds on

which to appeal against a ruling granting enforcement in France of a foreign

arbitral award, because Article 1502 5° only refers to cases in which the

623 Indeed, even those who distinguish between international and transnational public

policy admit that courts could/should ‘draw inspiration from concepts widely accepted

outside [the home jurisdiction] and take into consideration ‘instruments adopted by in-

ternational organizations’. See J. Savage and E. Gaillard, op. cit., at 955.

624 See Article 34(2)(b)(ii) of the Model Law.

625 See Article 36(1)(b)(ii) of the Model Law.

626 See Article 1484(6) of the NCPC.

627 See Article 1502(5) of the NCPC.

154 International Standards of Review of Arbitral Awards

recognition and enforcement of an award would be contrary to international

public policy’628 (emphasis added).

Intrafor Cofor illustrates that the basic purpose underlying the recourse to

international public policy lies in restricting the scope of the public policy

exception. Indeed, as Fouchard, Gaillard and Goldman rightly state, ‘inter-

national public policy is at the heart of domestic public policy’ and ‘a rule

which is not even a matter of domestic public policy could not [therefore] be

considered as belonging to international public policy.’629

b. A narrow reading of the public policy exception under the New York

Convention

Under the New York Convention, enforcement and recognition of an arbi-

tral award may be refused if the arbitral award contravenes the public policy

of the enforcement jurisdiction.630 Despite this wording, authoritative com-

mentators consider that the New York Convention refers to international

public policy. Van den Berg, for example, claims that, ‘considering the legis-

lative history of Article V(2)(b), the Convention can be said to refer to

“international public policy” as distinct from “domestic public policy”’. Van

den Berg’s definition of international public policy, however, reflects the

somewhat hybrid concept of ‘domestic international public policy’, men-

tioned above.631

Lacking an express reference to international public policy, court decisions

under the New York Convention have drawn on the general pro-

enforcement bias of the Convention.632 In Parsons & Whittemore Overseas

628 See the decision of the Cour d’appel of Paris of 12 March 1985, Intrafor Cofor v. Gag-

nant, 1985 Rev. Arb., p. 299 et seq. (translation by J. Savage and E. Gaillard, op. cit.,

at 954).

629 See J. Savage and E. Gaillard, op. cit., at 954.

630 See Article V(2) of the Convention providing for refusal to recognise and enforce an

arbitral award where ‘[t]he recognition or enforcement of the award would be contrary

to the public policy of [the] country [where recognition and enforcement is sought].’

631 See, A. J. Van den Berg, The New York Arbitration Convention of 1958, at 360: ‘It should

be pointed out that even if public policy is acknowledged to be “international”, its basis

is national as it can be sanctioned only by a national judge.’

632 This pro-enforcement bias is illustrated, inter alia, by the shift of the burden of proof

from the party requesting to the party resisting enforcement (when compared to the

1927 Geneva Convention) and the availability of a limited number of grounds upon

which recognition and enforcement may be refused. For a commentary of recent

American case law reflecting such pro-enforcement bias, see D. E. Wagoner, U.S. Court

155The internationalisation of the standards of review of awards

Co. v. Société Générale de l’Industrie du Papier, for example, the United States

Court of Appeals for the Second Circuit observed that

‘… the Convention’s public policy defense should be construed narrowly.

Enforcement of foreign arbitral awards may be denied on this basis only

where enforcement would violate the forum State’s most basic notions of

morality and justice.’633

Numerous subsequent decisions have confirmed the view expressed by the

Parsons Court.634

c. Elaboration of international public policy standards by the courts: The

American example

As we have seen, decisions rendered by American courts under the New

York Convention frequently refer to the narrow interpretation of the Con-

vention’s public policy exception. Under both the domestic FAA and the

New York Convention, courts generally address the question of the applica-

ble public policy standard. While a number of decisions refer to national

public policy,635 several courts have resorted to an international public pol-

icy standard. In Parsons (mentioned above),636 the United States Court of

Appeals for the Second Circuit held that the application of the public policy

exception required ‘supranational emphasis’ rather than reliance on ‘na-

tional political interests’.

The precise meaning of this reference to international (or ‘supranational’)

public policy is, however, unclear. Born distinguishes three possible defini-

tions of international public policy (which are not mutually exclusive).

According to Born, international public policy might refer to either ‘sub-

demonstrates pro-enforcement bias in a comprehensive review of a CIETAC award under the

New York Convention, 1998 ASA Bull., p. 289 et seq.

633 508 F.2d 969 (2d Cir. 1974).

634 For recent decisions holding that the New York Convention’s public policy exception

must be construed narrowly, see, for example, the following decisions of the United

States District Court for the Southern District of New York: decision of 9 October

2002, reproduced inYearbook 2003, p. 1043 et seq.; decision of 14 May 2003, reproduced

in Yearbook 2003, p. 1271 et seq.; decision of 8 January 2002, reproduced in Yearbook

2003, p. 863 et seq.

635 See, for example, Waterside Ocean Nav. Co. v. International Nav., 737 F.2d 150, 152 (2d

Cir. 1984); Mc-Donnell Douglas Corp. v. Kingdom of Denmark, 607 F.Supp. 1016 (E.D.

Mo. 1985); La Société Nationale etc. v. Shaheen Natural Resources Co., 585 F.Supp. 57,

63 (S.D.N.Y. 1983).

636 See supra, at 139, fn 567.

156 Summary

stantive norms derived from international sources and not from U.S. (or

other municipal) sources’, ‘national public policies subject to international

standards’ or ‘national public policies intended to have international appli-

cation’.637

At least the first two definitions correspond to the concept of international

public policy as outlined above (‘the common denominator of the various

domestic public policies’). Indeed, they both build upon consensus at the

international level. As to the third definition (‘national public policies in-

tended to have international application’), it refers to the extra-territorial

application of some public policy rules or lois de police and reflects domestic

public policy considerations. However, courts rarely recognise such extra-

territorial application. Many courts, in fact, consider that certain national

public policies are not deemed to apply in international disputes, mainly

because of ‘countervailing systemic interests in permitting consensually

arranged certainty in such disputes’.638

In conclusion, it can be held that the recourse to international rather than

domestic public policy is well-established in the United States, especially

under the New York Convention. The fact that it is not (yet) unanimously

recognised can be explained against the background of the principle of the

narrow construction of the public policy concept (defined as the ‘most basic

notions of morality and justice’), which achieves a similar result, i.e. it helps

to reduce the scope of the public policy exception.

III. Summary

Summary

The enforceability of arbitral awards is traditionally assessed on the basis of

domestic laws designated by the forum’s conflict of laws rules. This applica-

tion of domestic laws entails the nationalisation of international commercial

arbitration and court review of arbitral awards. One aspect of such nationali-

sation consists in localisation, i.e. in the systematic application of the laws

of the arbitral seat. Today, court review of arbitral awards is becoming in-

creasingly de-localised and internationalised. Indeed, as the multi-

connectedness of the arbitral process deprives the concept of the arbitral

‘seat’ of its very meaning, the theoretical flaws of the doctrine of localisation

can no longer be overlooked. The inappropriateness of the nationalisation of

international commercial arbitration, on the other hand, derives from the –

637 See G. Born, op. cit., at 822.

638 See G. Born, op. cit., at 823 referring to Mitsubishi Motors Corp. v. Soler Chrysler Ply-

mouth Inc., 473 U.S. 614 (1985) where the Court affirmed the arbitrability of antitrust

claims in international disputes, while implicitly denying such arbitrability in the do-

mestic context.

157The internationalisation of the standards of review of awards

already discussed – inability of domestic laws to respond to the specific needs

of international commerce. In contemporary arbitration law, internationali-

sation is reflected by the dualistic approach of arbitration. This approach

consists of the adoption of rules specific to international arbitration. Such

specific rules generally incorporate international standards of review of arbi-

tral awards, i.e. standards recognised and applied at the international level.

The most striking examples of the elaboration of such international stan-

dards are the arbitrability and public policy standards.

158 Summary

159The autonomy of the arbitral award: judicial delocalisation

Chapter 6

The autonomy of the arbitral award:

judicial delocalisation

The autonomy of the arbitral award: judicial delocalisation

In Chapter 5, we have seen how the theory of legislative delocalisation has

contributed to the acceptance and elaboration of international – rather than

domestic – standards of court review.639 This Chapter deals with the impact

of the theory of judicial delocalisation, i.e. the theory which objects to the

allocation of jurisdiction (to set aside arbitral awards and interfere with the

arbitral proceedings) to the courts of the arbitral seat.

Section 1, drawing upon the conclusions reached in Chapter 3, discusses –

by way of introduction – judicial delocalisation of the arbitral proceedings.

Section 2 examines the decline of the role played by the action to set aside

in the international enforcement system. Sections 3, 4, 5 and 6 explore the

specific problem of the enforcement of arbitral awards set aside in the coun-

try of origin. Section 3 examines judicial precedents enforcing arbitral

awards set aside in the country of origin and the sharp criticisms that these

decisions have provoked. Section 4, commenting on these decisions, analy-

ses the interests involved in the enforcement of awards set aside in the coun-

try of origin. It argues, contrary to a commonly-held view, that this case law,

rather than reflecting a ‘malfunctioning’640 of the international enforcement

system, constitutes an unavoidable side-effect of the trend towards increas-

ing autonomy of international commercial arbitration. Section 5 reviews

various proposals put forward to solve the ‘dilemma’ of the enforcement of

awards set aside in the country of origin. Section 6 suggests a re-organisation

of the international enforcement system.

I. Judicial Delocalisation of the Arbitral Proceedings

Judicial Delocalisation of the Arbitral Proceedings

In Chapter 3, we discussed the increasing autonomy of the arbitral proce-

dure. We emphasised both the decreasing interference of State courts with

the arbitral proceedings and the growth of the powers of arbitrators, in par-

ticular the recognition of their power to order interim or conservatory meas-

639 See supra, at 144 et seq.

640 See H. G. Gharavi, The International Effectiveness of the Annulment of an Arbitral Award,

at 5 where the author underlines that the enforcement of awards set aside in the coun-

try of origin is ‘sufficiently troublesome and heretical for the term “malfunctioning” to

be objectively employed before any prior debate.’

160 Judicial Delocalisation of the Arbitral Proceedings

ures.641 Rather than interfering with the arbitral proceedings, we observed,

State courts assist arbitral tribunals (or the parties) in solving particular

difficulties arising, for example, in relation to (the issuing or enforcement of)

provisional measures or the constitution of the arbitral tribunal. This sup-

portive function of State courts is well described by the widely-used French

expression juge d’appui (supporting court). If the juge d’appui concept reflects

the growing autonomy of the arbitral proceedings vis-à-vis the State courts,

it does not, however, address the question of the determination of the courts

having jurisdiction to interfere with the arbitral proceedings. Indeed, one

traditionally considers that arbitral proceedings are necessarily governed by

the procedural law of the arbitral seat. As Rubino-Sammartano says,

‘[f]or a long time it has been held… that the choice by the parties of the

place of arbitration automatically involved the application of the local pro-

cedural law’.642

Today, on the contrary, one increasingly recognises the possibility of delo-

calising the arbitral procedure, i.e. of ‘freeing’ the arbitral procedure from

the law of the arbitral seat.643 Such delocalisation derives, on the one side,

from the acceptance of extensive party-autonomy. On the other side, it

reflects the illegitimacy of the application of the law of the seat.

A. Delocalisation and party autonomy

In private international law, party-autonomy has, for a long time, been rec-

ognised with respect to the applicable substantive law.644 The question of the

applicable procedural law, however, does not arise in the traditional context

of ordinary litigation. Indeed, it is well established that every court applies

its ‘own’ procedural law. The question of the applicable procedural law is,

thus, specific to international arbitration.

Today, as we have mentioned above, an increasing number of jurisdictions

allow the parties to exclude the applicability of the procedural law, i.e. of

the arbitration law (at least its non-mandatory provisions), of the arbitral

641 See supra, Chapter 3, at 92 et seq.

642 M. Rubino -Sammartano, International Arbitration Law and Practice, at 476.

643 In practice, this ‘freeing’ from the procedural law of the arbitral seat does not generally

entail the selection of a different national procedural law. It merely reflects the lacking

necessity – especially in the context of institutional arbitration – to rely upon a national

procedural law.

644 In England, private international law party-autonomy was allegedly recognised as early

as 1760 in Robinson v. Bland. In France, this principle was affirmed by the Cour de cass-

ation in the 1910 case American Trading Co. See P. Mayer, Droit international privé,

at 450.

161The autonomy of the arbitral award: judicial delocalisation

seat. Under French law, for instance, the parties ‘may, directly or by refer-

ence to arbitration rules, determine the procedure to be followed in the

arbitral proceedings; [they] may also submit the proceedings to a specified

procedural law’ (emphasis added).645 Similar provisions can be found in the

laws of Italy,646 Switzerland,647 and England.648 The decision of the Queen’s

Bench division of the English High Court in Dallal v. Bank Mellat is illustra-

tive of this trend. The Court held that

‘[i]t is a fallacy to suppose that arbitral proceedings must take their authority

from the local municipal law of the country within which they take place. It

is, of course, overwhelmingly the normal position that they acquire their

validity and competence from that source. The curial law is normally, but

not necessarily, the law of the place where the arbitration proceedings are

held… English law does not deny the possibility of a different curial law’ (empha-

sis added).649

Parties are, thus, free to select the procedural law of another State and/or to

refer to a set of institutional rules. In practice, however – at least as far as

institutional arbitration is concerned – parties do not generally refer to a

particular national procedural law.650

B. Delocalisation and the lack of legitimacy of the application of the

law of the seat

In Chapter 5, we stressed the theoretical weakness of the doctrine of local-

isation.651 This general observation can be transposed to judicial localisation

and, in particular, to judicial localisation of the arbitral proceedings. The

lack of legitimacy of judicial localisation supplements party-autonomy as a

theoretical basis for the delocalisation approach. It is practically relevant

where the parties have not chosen the applicable procedural law or where

they have only referred to institutional rules. Indeed, as we have seen, delo-

calisation theory argues that, in the absence of a choice by the parties, the

arbitrators enjoy considerable freedom in determining the applicable proce-

dural law or rules.

645 Article 1494, 1st recital of the NCPC.

646 Article 816 of the CPC.

647 Article 182(2) of the PILS.

648 Section 4 of the 1996 Arbitration Act.

649 High Court of England, Q.B., (1986) 1 All ER 239.

650 See infra at 163 on the ‘practical limits of delocalisation’.

651 See supra, Chapter 5, at 133.

162 Judicial Delocalisation of the Arbitral Proceedings

An evolution similar to the one characterising the issue of the applicable

substantive law is requested and/or predicted by part of legal scholarship. In

fact, several writers, by defending theories such as the procedural tronc com-

mun652 or the procedural lex mercatoria,653 favour an extension of the process

of liberalisation and unification of the substantive law applicable to interna-

tional commercial transactions to the procedural law/rules applied in inter-

national commercial arbitration.

In practice, however, the procedural law of the seat is, for a number of rea-

sons (some of which are examined below), generally considered to be of – at

least – subsidiary applicability. Although some arbitral tribunals have, in the

absence of a choice-of-law by the parties, refused to apply the procedural law

of the arbitral seat, the great majority of arbitral decisions presume that the

parties intended to have the arbitral procedure governed by the law of the

seat.654 This presumption can be overridden only where the parties expressly

subjected the arbitral proceedings to the law of another jurisdiction. This

approach is well illustrated by Lord Mustill’s following holding in the Chan-

nel Tunnel case:

‘Certainly there may sometimes be an express choice of a curial law which is

not the law of the place where the arbitration is to be held: but in the ab-

sence of an explicit choice of this kind, or at least some very strong pointer

in the agreement to show that such choice was intended, the inference that

652 See M. Rubino-Sammartano, op. cit., at 497 referring to the aforementioned case Dallal

v. Bank Mellat where the High Court of England held that ‘there is no reason in princi-

ple why the curial law of a Tribunal cannot derive from more than one legal system’.

653 See C. Stoecker, ‘The Lex Mercatoria To What Extent does it Exist?’, 7 J. Int. Arb. 1,

p. 101 et seq. and the reference to H. Smit, ‘A-national arbitration’, 1989 Tul. L. R.,

p. 632 et seq.; J. Thorens, ‘L’arbitre international au point de rencontre des traditions du

droit civil et de la common law’, in C. Dominicé, R. Patry and C. Reymond (eds.),

Etudes de droit international en l’honneur de Pierre Lalive, Bâle/Francfort-sur-le-Main,

1993, p. 693 et seq.; S. H. Elsing and J. M. Townsend, ‘Bridging the Common Law –

Civil Law Divide in Arbitration’, 2002 Arb. Int’l, p. 59 et seq., at 61 where the authors

refer to the emergence of a ‘middle ground’ in the field of discovery. See also C. Kessed-

jian, ‘Principe de la contradiction et arbitrage’, 1995 Rev. Arb., p. 381 et seq., at 406;

A. F. Lowenfeld, ‘International Arbitration as Omelette: What goes into the Mix’, in

Conflicting Legal Cultures in Commercial Arbitration Old Issues and New Trends, p. 19

et seq., at 24 where the author argues the existence of ‘a kind of lex mercatoria for arbi-

tral procedure’.

654 For decisions in this sense, see, for example, Saudi Arabia v. Aramco, 1963 27 I. L. R.

117 (application by the arbitral tribunal of Danish procedural law in light of the fact

that Copenhagen is the place of arbitration); ICC case n° 5029 quoted by G. Born, In-

ternational Commercial Arbitration, at 421 (application of Dutch procedural law in view

of the fact that the arbitral forum is located in the Netherlands).

163The autonomy of the arbitral award: judicial delocalisation

the parties when contracting to arbitrate in a particular place consented to

having the arbitral process governed by the law of the place is irresistible.’655

C. Delocalisation in practice: Institutionalisation and practical limits

of delocalisation

Despite its theoretical accuracy, the practical impact of delocalisation theory

on the arbitral procedure is low. One reason for this limited practical rele-

vance lies in the progressive institutionalisation of international commercial

arbitration.656 As we have seen, arbitral institutions provide the litigating

parties with comprehensive sets of arbitration rules, designed to address all

issues likely to arise during the arbitral proceedings. Institutional rules are,

thus, self-sufficient and do not, generally, need to be supplemented by statu-

tory provisions. Indeed, in practice, parties opting for institutional arbitra-

tion merely refer to the institution under the auspices of which the arbitra-

tion is to be conducted without selecting a national procedural law.657

The reduced practical significance of procedural delocalisation can also be

explained against the background of the progressive liberalisation of interna-

tional commercial arbitration law. Indeed, as we have mentioned, most

recent arbitration laws are characterised by ‘regulatory paucity’.658 Accord-

ingly, parties (and arbitrators) enjoy considerable freedom in shaping the

arbitral procedure. In light of the generalisation of this non-interventionist

approach, the question of whether the arbitration law of State X or the arbi-

tration law of State Y applies becomes increasingly irrelevant.

655 Channel Tunnel Group Ltd. et al. v. Balfour Beatty Construction Ltd. et al., 1993 ASA

Bull., I, 97.

656 On the institutionalisation of international commercial arbitration and the role of

arbitration institutions in ensuring procedural efficiency and autonomy of the arbitral

award, see supra, Chapter 1, at 31.

657 In the several hundred cases that the author was involved in as Assistant Counsel at the

ICC International Court of Arbitration, the parties only exceptionally selected a na-

tional law of procedure.

658 K. P. Berger, International Economic Arbitration, at 749 where the author comments on

the Swiss PILS which ‘use[s] nineteen short articles to deal with the intricate problems

of international economic arbitration.’

164 The Declining Role of the Action to Set Aside

II. The Declining Role of the Action to Set Aside

The Declining Role of the Action to Set Aside

A. The judicial delocalisation of arbitral awards and the question of

the international effectiveness of a decision setting aside an

arbitral award

The traditional – localised – international enforcement system is character-

ised by 1) the exclusive availability of an action to set aside at the arbitral

seat and 2) the international effect of a decision setting aside an arbitral

award. Such an organisation of court control serves, as we have observed in

Chapter 4, the consistency of the international enforcement system.659 It is

based upon the centralisation of court control in the country of origin.

Delocalisation theory opposes the international effectiveness of a decision

vacating an arbitral award and, more generally, the availability of a means of

recourse at the arbitral seat. Indeed, in the absence of a ‘privileged link’

between the arbitral award and the arbitral seat,660 the validity/enforceability

of an arbitral award should not be subjected to the exclusive jurisdiction of

the courts of the seat. Accordingly, arbitral awards should not, as a general

rule, be subject to any ‘direct’ means of recourse; their enforceability should

only be examined in the context of enforcement proceedings. Like the va-

lidity of a contract, the validity/enforceability of an arbitral award should be

assessed independently by the courts of the various possible enforcement

jurisdictions.661

659 See supra, Chapter 4, at 101.

660 See infra, Chapter 5.

661 The methodological assimilation of arbitral awards to contracts is argued, inter alia, by

S. Bollée, Les méthodes du droit international privé à l’épreuve des sentences arbitrales (doc-

toral dissertation, University of Paris I Panthéon-Sorbonne, defended on 26 November

2003, to be published with Economica). In his dissertation, the author claims that arbi-

tral awards, due to their nature as ‘private acts’ should not be subject to the enforce-

ment and recognition procedures applicable to court judgements. Instead, their validity

should be assessed in accordance with the law designated by the applicable conflict of

laws rules.

165The autonomy of the arbitral award: judicial delocalisation

B. The judicial delocalisation of arbitral awards in recent arbitration

statutes: A chronology of events

1. The Belgian Law of 27 March 1985 on International Arbitration662

The Belgian Law of 27 March 1985 on International Arbitration ‘revolu-

tionised’ the law on international arbitration. By inserting Article 1717(4)

into the Judicial Code, the 1985 Law provided, as far as disputes involving

exclusively non-Belgian parties are concerned, for ex lege exclusion of the

action to set aside arbitral awards. Article 1717(4) stated that

‘[t]he Belgian Court can take cognizance of an application to set aside only if

at least one of the parties to the dispute decided in the arbitral award is ei-

ther a physical person having Belgian nationality or residing in Belgium, or a

legal person formed in Belgium or having a branch (une succursale) or some

seat of operation (un siège quelconque d’opération) there.’663

In the era of ‘legislative competition’,664 the 1985 Law reflects an attempt to

increase the attractiveness of Belgium as a forum for arbitral dispute resolu-

tion. That the 1985 Law did not yield the expected benefits is indicated by

the subsequent abrogation of Article 1717(4) and its replacement by a less

‘radical’ provision, similar to Article 192 of the Swiss PILS, examined

beneath.665

2. Article 192 of the 1987 Swiss PILS and its influence on Tunisian and

Swedish arbitration law

Article 192 of the Swiss PILS provides that, where the dispute involves

exclusively non-Swiss parties, the latter ‘may, by an express statement in the

arbitration agreement or by a subsequent agreement in writing, exclude all

setting aside proceedings’. Contrary to Article 1717(4) of the Belgian Judi-

cial Code, Article 192 merely provides for optional exclusion of the action

to set aside. This approach, rather than reflecting delocalisation theory, is

662 For general commentary on this law, see H. Van Houtte, ‘La loi belge du 27 mars 1985

sur l’arbitrage international’, 1986 Rev. Arb., p. 29 et seq.; J. Paulsson, ‘Arbitration un-

bound in Belgium’, 1986 Arb. Int’l, p. 68 et seq.

663 Translation of IHCA, Supp. 5, May 1986.

664 K. P. Berger, op. cit., pp. 1-23.

665 See B. Hanotiau and G. Block, ‘La loi du 19 mai 1998 modifiant la legislation belge

relative à l’arbitrage’, 1998 ASA Bull., p. 528 et seq.

166 Precedents enforcing awards set aside in the country of origin

based on the extension of the ambit of party-autonomy to the question of

the available means of recourse. Many commentators regard the optional

exclusion of Swiss law as a model to be followed. However, for several rea-

sons, few other countries have adopted provisions similar to Article 192 of

the Swiss PILS. These include Tunisia666 and Sweden.667

III. Judicial Precedents Enforcing Arbitral Awards Set Aside in the

Country of Origin668

Precedents enforcing awards set aside in the country of origin

A. Legal bases

1. The ‘more favourable right’ provision contained in Article VII of the

New York Convention

As we have seen, the principal purpose of the New York Convention con-

sists in establishing minimum standards applicable to the enforcement of

foreign arbitral awards.669 The harmonisation achieved by the New York

Convention must therefore be viewed as a mere side-effect of this objective.

Indeed, harmonisation constitutes a tool serving the purposes of liberalising

(i.e. facilitating) the international enforcement of arbitral awards. That the

New York Convention’s main concern lies in liberalisation rather than uni-

fication is clearly indicated by Article VII(1). Indeed, Article VII(1) states

that

‘[t]he provisions of the present Convention shall not… deprive any inter-

ested party of any right he may have to avail himself of an arbitral award in

the manner and to the extent allowed by the law or the treaties of the coun-

try where such award is sought to be relied upon.’

Virtually all decisions (under the New York Convention) enforcing arbitral

awards set aside in the country of origin are, at least in part, based upon

Article VII(1) of the Convention. Article VII(1) has, indeed, been relied

upon by the French courts in Norsolor,670 Hilmarton671 and Chromalloy672 and

666 See Article 78(6) of the 1993 Tunisian Arbitration Code.

667 See Section 51 of the 1999 Swedish Arbitration Act. This approach had already been

endorsed in 1989 by the Swedish Supreme Court in Solel Boneh, quoted by J. Savage and

E. Gaillard, Fouchard, Gaillard, Goldman on International Commercial Arbitration, at 912.

668 Courts of four jurisdictions have enforced arbitral awards set aside in the country of

origin. These include France, Belgium, Austria, and the United States.

669 See supra, Chapter 1, at 27.

670 Cour de cassation, 9 October 1984, Palbak Ticaret Sirketi v. Norsolor, 1985 Rev. Arb.,

p. 341 et seq.

167The autonomy of the arbitral award: judicial delocalisation

by the United States District Court for the District of Columbia in

Chromalloy.673 In Hilmarton, the French Cour de cassation upheld the decision

of the Cour d’appel enforcing an award set aside in Switzerland. The Court,

having quoted Article VII(1), stated that

‘[t]he provision of Art. V(1)(e) of the Convention – according to which

exequatur must be denied to an award which has been set aside in the coun-

try in which it was made – does not apply when the law of the country

where enforcement is sought permits enforcement of such an award…

Hence OTV may, under Art. VII of the Convention, avail itself of the

French provisions on international arbitration in order to request exequatur

of the award in France.’674

Similarly, in Chromalloy, the United States District Court for the District of

Columbia, observing that Chromalloy ‘maintain[ed] all rights to the en-

forcement of this arbitral award that it would have in the absence of the

Convention’, concluded that ‘the Federal Arbitration Act provid[ed] it

[Chromalloy] with a legitimate claim to enforcement of the award.’675

2. The optional character of the refusal to enforce an award in accordance

with Article V(1)(e) of the New York Convention

In Chromalloy, where enforcement of an award set aside in Egypt was sought,

the United States District Court held that,

‘[u]nder the Convention, “Recognition and enforcement of the award may

be refused” if Egypt furnishes to this Court “proof that … [t]he award has…

been set aside… by a competent authority of the country in which, or under

the law of which, that award was made."… In the present case, the award

was made in Egypt, under the laws of Egypt, and has been nullified by the

court designated by Egypt to review arbitral awards. Thus, the Court may, at

its discretion, decline exequatur to enforce the award.’

The optional character of the refusal to enforce awards set aside in the coun-

try of origin rests upon a literal – erroneous as critics argue – interpretation

671 Cour de cassation, 23 March 1994, Société Hilmarton Ltd. v. Société OTV, XIX Yearbook,

1994, p. 655 et seq.

672 Cour d’appel of Paris, 14 January 1997, Chromalloy Aeroservices, Inc. v. The Arab

Republic of Egypt, XXII Yearbook 1997, p. 692 et seq.

673 In the Matter of the Arbitration of Certain Controversies Between Chromalloy Aeroservices c/

The Arab Republic of Egypt, 939 F. Supp. 907 (D.C. Circ. 1996).

674 Cour de cassation, 23 March 1994, Société Hilmarton Ltd. v. Société OTV, XIX Yearbook,

1994, p. 655 et seq., at 657.

675 See supra, at 166, fn. 672.

168 Precedents enforcing awards set aside in the country of origin

of Article V of the Convention. Indeed, it argues that the use of the verb

‘may’ rather than ‘must’ is indicative of the enforcement courts’ discretion-

ary power to enforce arbitral awards set aside in the country of origin.676 This

approach – although maintainable in light of the general pro-enforcement

bias of the Convention – has encountered fierce criticism from the great

majority of legal writers. These criticisms are examined infra.677

3. The specific regime applicable under the 1961 Geneva Convention

Although, under the New York Convention, the question of the mandatory

nature of the refusal to enforce an award set aside in the country of origin is

a controversial issue, the New York Convention does not, in any event,

distinguish according to the grounds upon which the courts of the country of

origin have vacated the award. The problem inherent to this approach, in

particular under the assumption that the refusal to enforce an award vacated

in the country of origin is mandatory, lies in the impossibility, for the en-

forcement court, to question the legitimacy of the decision setting aside the

arbitral award. An arbitral award can, indeed, be vacated on the basis of a

so-called ‘local standard of annulment’,678 i.e. a standard that is not widely

recognised and, thus, excessively restrictive.

The 1961 Geneva Convention solves this problem. Article IX(1) of the

Convention, in fact, confines the international effectiveness of a decision

setting aside an arbitral award to a limited number of grounds upon which

the award in question has been set aside in the country of origin. These

grounds do not include the non-arbitrability and public policy exceptions,

nor do they include a provision similar to Article V(1)(e) of the New York

Convention.679

A useful illustration of the application of Article IX(1) of the Geneva Con-

vention by the courts is provided by the Austrian Supreme Court’s decision

676 See J. Paulsson, ‘May or Must under the New York Convention: An Exercise in Syntax

and Linguistics’, 1998 Arb. Int’l, p. 227 et seq.

677 See infra, at 169.

678 The distinction between local standards of annulment and international standards of

annulment is generally attributed to J. Paulsson. From this author see, in particular,

‘The Case for Disregarding LSAs (Local Standard Annulments) under the New York

Convention’, 1996 Am. Rev. Int. Arb., p. 99 et seq., at 99 where the author defines lo-

cal standard annulments as ‘local particularities’ such as, for example, annulment on the

grounds that the arbitral award is not signed by all arbitrators. For further writings on

this topic see J. Paulsson, ‘Enforcing Arbitral Awards Notwithstanding a Local Standard

Annulment (LSA)’, 1998 n° 1 ICC Bulletin, p. 14 et seq.

679 See Art. IX of the Convention.

169The autonomy of the arbitral award: judicial delocalisation

in Radenska.680 In this case, the Court of Appeal of Graz had refused to en-

force an award set aside by the Slovenian courts on the grounds that it con-

travened Slovenian public policy. The Austrian Supreme Court reversed the

lower court’s decision holding that

‘[t]he non-accordance of an arbitral award with the public policy of the

State in which it has been set aside is not included in the list of Art. IX of

the European Convention. This means that an arbitral award which has

been set aside in its country of origin for violation of domestic public policy

can remain effective in the other Contracting States, the public policy of

which it does not violate (endnote omitted).’681

B. Controversy

The decisions enforcing arbitral awards set aside in the country of origin

have encountered sharp criticism. However, most critics, rather than chal-

lenging the theoretical legitimacy of these decisions,682 merely disapprove

the textual bases relied upon, i.e. the recourse to Article VII(1) of the New

York Convention and the semantic distinction between ‘must’ and ‘may’.

They argue that the New York Convention, drafted ‘at a time when the

“double exequatur” requirement had just been eliminated after considerable

struggle’,683 cannot possibly be interpreted as allowing the enforcement of

awards vacated in the country of origin. They doubt whether the domestic

provisions relied upon in conjunction with Article VII(1) of the Conven-

tion do, in fact, authorise the enforcement of awards set aside in the country

of origin. Gharavi, for example, claims that, in Hilmarton, the provisions of

the French NCPC ‘could very well be used to reach a contrary outcome,

(i.e. the refusal of enforcement of an annulled award), for violation of inter-

national public policy on the basis of Article 1502(5).’684 Similar criticism

680 See Yearbook, Vol. XXIV (1999), p. 919 et seq., esp. at 924.

681 Ibid.

682 Indeed, most writers approve attempts to free the arbitral award from undue constraints

of the country of origin. See, for example, M. De Boisséson, ‘Enforcement in Action:

Harmonization Versus Unification’, in ICCA Congress series n° 9, p. 593 et seq., at 595:

‘… it appears that after due reflection we must approve the Hilmarton and Chromalloy

decisions.’

683 H. G. Gharavi, op. cit., at 81.

684 Ibid. For a similar view, see also P. Sanders, The New York Convention on the Recognition

and Enforcement of Foreign Arbitral Awards, 6 Netherlands Int. L. Rev., at 55.

170 Precedents enforcing awards set aside in the country of origin

has been raised vis-à-vis the Chromalloy Court’s decision to have recourse to

Chapter 1 of the FAA.685

Particularly fierce resistance has been encountered by the ‘discovery’686 of

the optional character of the refusal to enforce an arbitral award where one

of the grounds set out by Article V is established. Indeed, most writers con-

sider that Article V does not confer such discretionary powers upon en-

forcement courts. Sanders, to whom the use of the term ‘may’ is generally

attributed, observes that,

‘[a]t the 1958 NY Conference “may” was not discussed at all. It certainly

would have provoked an interesting debate if one of the delegates had ob-

served that “may” grants discretionary power to the enforcement judge. In

my understanding “may” points to the requirement that the party against

whom enforcement is sought must first have proven that one of the follow-

ing grounds exists… In conclusion, enforcement of an annulled award can-

not be based upon the use of “may” in the heading of Article V.’687

Support for this widely held view can also be found in the French language

version of the New York Convention.688 Indeed, in the French language, the

wording of Article V implies that, where one of the grounds laid down by

Article V is established, the refusal to enforce the award is mandatory.

Only to a limited extent do critics challenge the theoretical legitimacy of

the enforcement of awards set aside in the country of origin. Some of them

raise arguments pertaining to the traditional localisation approach. Van den

Berg, for example, is of the opinion that,

‘[w]hen an award has been annulled in the country of origin, it has become

non existent in that country. The fact that the award has been annulled

implies that the award was legally rooted in the arbitration law of the coun-

try of origin. How then is it possible that courts in another country can con-

sider the same award as still valid? … for a legal practitioner this phenome-

non is inexplicable.’689

That, contrary to the view expressed by Van den Berg, the enforcement of

arbitral awards vacated in the country of origin is, by no means, inexplicable

685 See H. G. Gharavi, ‘The Legal Inconsistencies of Chromalloy’, 1997 Mealey’s Int. Arb.

Report, Vol. 12, n° 5, p. 22 et seq.; R. W. Hulbert, ‘A Contract Misconstrued, a Law

Misapplied, and an Opportunity Foregone’, ICSID-FILJ, Vol. 13.1, at 134-35.

686 Ph. Fouchard, ‘Suggestions to Improve the International Efficacy of Arbitral Awards’, in

ICCA Congress series n° 9, p. 601 et seq., at 607-608.

687 P. Sanders, Quo Vadis Arbitration? Sixty Years of Arbitration Practice, at 77.

688 In the French version, Article V reads: ‘La reconnaissance et l’exécution ne seront re-

fusées…’ (recognition and enforcement ‘shall’ only be refused…).

689 A.J. Van den Berg, ‘Annulment of Awards in International Arbitration’, in R. Lillich

and Ch. Brower (eds.), International Arbitration in the 21st Century: ‘Judicialization’ and

‘Uniformity’?, at 161.

171The autonomy of the arbitral award: judicial delocalisation

or ‘irrational’ is clearly illustrated by the adoption of the 1961 Geneva Con-

vention, examined above. In addition, it should be noted that the Radenska

decision rendered under the Geneva Convention has not given rise to any

controversy comparable to the one surrounding equivalent decisions handed

down under the New York Convention.

IV. The Interests Involved in the Enforcement of Arbitral Awards

Set Aside in the Country of Origin

Interests involved in the enforcement of awards set aside

In Chapter One, in order to establish the legitimacy of the increasing

autonomy of international arbitration, we have analysed the interests related

to the development of arbitration as a means of settling international busi-

ness disputes.690 In this Section, we examine the interests involved in the

enforcement of arbitral awards vacated in the country of origin. This exami-

nation will demonstrate that the enforcement of arbitral awards set aside in

the country of origin, rather than reflecting a ‘malfunctioning’691 of the in-

ternational enforcement system, constitutes an inevitable side-effect of the

progressive liberalisation of international commercial arbitration.

A. The lack of involvement of State interests

In Chapter 2 we mentioned that, in conflict of laws theory, the determina-

tion of the applicable law does not, as such, involve State interests. In this

respect, we observed that the conflict of laws does not give rise to a conflict

between sovereign States. This observation can be transposed to the recog-

nition and enforcement of foreign court judgements. Indeed, a court judge-

ment the recognition or enforcement of which is sought abroad can be pre-

sumed to involve an international dispute, i.e. a dispute arising in connec-

tion with an international legal relationship. The internationality of the

underlying legal relationship calls into question the legitimacy of the exclu-

sive jurisdiction of the courts of one particular State or, at least, the legiti-

macy of the international effectiveness of the decisions rendered by these

courts. That jurisdiction to hear international disputes is not exclusive, but

shared is illustrated by domestic and international provisions on interna-

tional jurisdiction. Indeed, these provisions generally lay down a series of

690 See supra, Chapter 1, at 7 et seq.

691 H. G. Gharavi, The International Effectiveness of of the Annulment of an Arbitral Award,

at 5.

172 Interests involved in the enforcement of awards set aside

alternative criteria attributing jurisdiction to the courts of a particular

State.692

In light of these remarks, statements emphasising that the enforcement of

arbitral awards set aside in the country of origin violates international com-

ity or constitutes ‘a return to the principle of absolute territorialism’693 are

out of place. One cannot, indeed, concur with Fouchard when he states

that,

‘by depriving the foreign annulment decision of effect, the host State adopts

a nationalistic attitude, hardly compatible with the requirements of interna-

tional comity’ (translation by the author). 694

Nor can one approve Oppetit’s statement according to which,

‘in reality, under the cover of “liberalism”, “international allocation of juris-

diction” or “co-ordination”, [the enforcement of arbitral awards set aside in

the country of origin] consists in allowing each State to independently fix

the extent of control it exercises on international awards without taking

into account the control exercised on such awards in other foreign coun-

tries. Is this not only a way of declaring: chacun pour soi?’ (translation by the

author)695

B. The ‘false’ conflict between effectiveness of the arbitral award

and predictability

The effectiveness (i.e. enforceability) of the arbitral award forms part of the

factors prompting international business operators to prefer arbitration to

ordinary litigation.696 Indeed, the effectiveness of the arbitral award condi-

692 See, as far as the European Union is concerned, the Bruxelles-Lugano Convention.

Under the Convention, jurisdiction to hear contractual disputes may be based upon the

localisation of the domicile of the Respondent or on the localisation of the principal

place of performance of the contract.

693 H. G. Gharavi, op. cit., at 123.

694 Ph. Fouchard, ‘La portée internationale de l’annulation de la sentence arbitrale dans

son pays d’origine’, 1997 Rev. Arb., at 343: ‘en privant d’effet le jugement étranger

d’annulation, l’Etat d’accueil de la sentence adopte une attitude nationaliste, peu compatible

avec les exigences de la courtoisie internationale.’

695 B. Oppetit, 1995 crit., at 359-360: ‘en réalité, sous couleur de “libéralisme”, de “répartition

internationale de compétences” ou de “coordination”, il s’agit, pour l’essentiel, de laisser

chaque Etat fixer souverainement l’étendue du contrôle qu’il entend pratiquer sur les sentences

internationales sans avoir à se soucier du contrôle exercé dans les autres pays étrangers sur les

mêmes sentences. N’est-elle qu’une autre manière de proclamer: chacun pour soi ?’

696 See J. Savage, E. Gaillard (eds.), op. cit., at 885 where the authors state that ‘given the

widespread ratification of international conventions on the recognition and enforce-

173The autonomy of the arbitral award: judicial delocalisation

tions the effective functioning of the arbitral process and, thus, the useful-

ness of resorting to arbitration as a dispute settlement mechanism. The rec-

ognition of the enforceability of arbitral awards set aside in the country of

origin favours the effectiveness of arbitral awards. Indeed, through its denial

of the internationally binding effect of the setting aside decision, it restricts

the territorial scope of invalidity of the arbitral award to the country of

origin.

In addition to the effectiveness of the arbitral award, business operators have

an understandable interest in being able to predict the economic and legal

consequences of the transactions they perform, including the settlement of

disputes arising in connection with these transactions. It is often argued that

the enforcement of arbitral awards vacated in the country of origin contrasts

with the objective of predictability. Fouchard, for example, maintains that

the parties, when selecting the place of arbitration,

‘wish or accept that the award be subject to the control of the courts of the

seat and be possibly set aside since this is a prerogative which is quasi-

universally attributed [to the courts of the seat]. To refuse to give interna-

tional effect to such setting aside is to betray the common intention of the

parties’ (translation by the author).697

Such a view is not totally accurate. Indeed, predictability – in relation to the

enforcement of arbitral awards – merely supposes that the parties have

knowledge of the relevant legal provisions. This knowledge enables the par-

ties to predict possible scenarios. Well-informed parties are therefore aware

of the possibility of enforcing arbitral awards set aside in the country of ori-

gin and can take this fact into account when ‘planning’ the arbitration.

The lack of predictability of the enforcement of arbitral awards set aside in

the country of origin can only be argued where the parties are not well-

informed as to the relevant legal framework. However, even with respect to

poorly informed parties, can lack of predictability only be contended where

predictability is assessed at the time of the setting aside of the arbitral award.

Only where the arbitral award has been set aside is it sensible to claim that

its enforcement abroad is exceptional and, thus, unpredictable. If, on the

other hand, one determines predictability at the pre-award stage, it is the

denial of enforcement abroad which constitutes the less probable, i.e. the

unpredictable, event.

ment of arbitral awards, an arbitral award will generally be easier to enforce than a for-

eign court judgment’ (footnote omitted).

697 Ph. Fouchard, op. cit., at 343: ‘… elles [les parties] ont souhaité ou accepté que la sentence

soit soumise au contrôle du juge du siège et qu’elle y soit éventuellement annulée, puisque c’est

une prérogative qui lui est presque universellement reconnue. Refuser de donner un effet inter-

national à cette annulation, c’est trahir leur volonté commune.’

174 Interests involved in the enforcement of awards set aside

C. The conflict between effectiveness of the arbitral award and

decisional (normative) harmony

In addition to the effectiveness of the arbitral award and predictability, ‘in-

terests of order’698 must be taken into consideration. As we have already

mentioned in Chapter Two, the interests of order relate to the presumed

necessity of ensuring the ‘orderliness’ or ‘coherence’ of a domestic or inter-

national legal system. One essential aspect of this orderliness consists in

domestic and international normative (or decisional) harmony.

The enforcement of arbitral awards set aside in the country of origin (poten-

tially) threatens both domestic and international normative harmony. As far

as lacking international normative harmony is concerned, it is inherent to

the enforcement of arbitral awards vacated in the country of origin. Such

enforcement, in fact, implies that one arbitral award is invalid and unen-

forceable in State A (the country of origin), while it is valid and enforceable

in State B. Alternatively, if, following the setting aside of the arbitral award

in the country of origin and the initiation of new arbitral proceedings, a

second arbitral award is rendered, this award might be enforceable in State

A (the country of origin), while the first award – possibly standing in con-

tradiction with the second – might be enforceable in State B. This particular

manifestation of the lack of domestic normative harmony is illustrated by

the Hilmarton scenario. Indeed, in the Hilmarton case, the first arbitral

award, rejecting Hilmarton’s payment claim, was enforced by the French

Courts, while the second arbitral award, upholding Hilmarton’s claim, was

enforced in Switzerland (the country of origin) and England.699

As far as lack of domestic normative harmony is concerned, it does not nec-

essarily flow from the enforcement of an arbitral award set aside in the coun-

try of origin. Rather, it results from the insufficient ability of the domestic

procedural rules of the State in question to ensure internal normative har-

mony. Whether, where an arbitral award has been enforced by the courts of

State A, a decision setting aside this award or a second arbitral award – ren-

dered subsequently to the setting aside of the award – can be enforced in

State A, depends on the domestic procedural rules of that State. That a lack

of domestic normative harmony may possibly occur in practice has been

demonstrated by the Hilmarton case. Despite the decision of the Tribunal de

Grande Instance of Paris of 27 February 1990 (subsequently confirmed by the

decision of the Cour d’appel of Paris of 19 December 1991) enforcing the

698 See supra, Chapter 2 at 42.

699 See the decision of the High Court of Justice, Queen’s Division of 24 May 1994 referred

to by Gharavi, op. cit., at 122. For commentary on this decision, see P. Lastenouse, ‘Le

contrôle de l’ordre public lors de l’exécution en Angleterre de la seconde sentence Hil-

marton’, 1999 Rev. Arb., p. 867 et seq.

175The autonomy of the arbitral award: judicial delocalisation

first arbitral award, the Tribunal de Grande Instance of Nanterre, on 25 Feb-

ruary 1993 and 22 September 1993 respectively, enforced 1) the second

arbitral award and 2) the decision setting aside the first arbitral award.700

The decisions of the Tribunal de Grande Instance were subsequently con-

firmed by the Cour d’appel of Versailles.701 In order to have this legal ‘aberra-

tion’ solved, the parties, relying on Article 618 of the NCPC, requested a

decision from the Cour de cassation. The Cour de cassation, on 10 June 1997,

annulled the decisions rendered by the Cour d’appel of Versailles.702

Considering that only a lack of international normative harmony necessarily

results from the enforcement of arbitral awards set aside in the country of

origin, only this aspect of normative disharmony must be taken into account

when weighing the effectiveness of the arbitral award against the interests of

order. When balancing these conflicting interests, it can be held that the

lack of international decisional harmony constitutes a minor disadvantage.

Such decisional disharmony is not, indeed, peculiar to the international

enforcement of arbitral awards. Quite the contrary, it is a common figure of

both the conflict of laws and the recognition and enforcement of foreign

court judgements. In fact, in conflict of laws theory (and practice), so-called

‘limping legal relationships’ (hinkende Rechtsverhältnisse, relations juridiques

boîteuses) are generally tolerated. In fact, due to the diversity of domestic

conflict of laws rules,703 the validity of a legal relationship can, by the courts

of different States, be assessed in accordance with different laws. It follows

that the legal relationship in question can be considered as valid in State A

and invalid in State B.

Limping legal relationships, although admittedly undesirable, are generally

considered to be legitimate in light of the principle of equal sovereignty of

States. Equal sovereignty of States also underlies the ability to refuse to rec-

ognise and enforce foreign court judgements. Indeed, it is generally accepted

that the courts of each State may independently assess the enforceability of

foreign court decisions. No legal system does, in fact, provide for uncondi-

tional recognition and enforcement of foreign court judgements. No persua-

sive reasons can be put forward in support of the view that State courts

700 See the decision of the Tribunal de Grande Instance of 22 September 1993, 1994 RTD

com., at 702.

701 See decision of the Cour d’appel of Versailles of 29 June 1995, 1995 Rev. Arb., p. 638 et

seq. See also the commentary by E. Gaillard in 1996 JDI, p. 120 et seq.

702 For commentary see 1997 Rev. Arb., p. 376 et seq.; 1997 JDI, p. 1033 et seq.

703 On the problems arising from such diversity (in particular the so-called ‘forum shop-

ping’) and the resulting necessity to unify conflict of laws rules at the international

level, see supra, Chapter 2, at 49.

176 Reconciling normative harmony and effectiveness of awards

should not freely assess the enforceability of foreign court decisions setting

aside arbitral awards.

It ensues that a lack of international normative harmony, rather than re-

flecting an ‘anomaly’,704 constitutes an ineluctable consequence of the prin-

ciple of equal sovereignty of States. In light of the wide-spread arbitration-

friendly climate and ‘pro-enforcement bias’, State courts may (rightly) privi-

lege the effectiveness of arbitral awards over the preservation of interna-

tional decisional harmony and, thus, choose to enforce arbitral awards set

aside in the country of origin. In this respect, the interest analysis has re-

vealed that the affirmation of the enforceability of arbitral awards vacated in

the country of origin may appropriately solve the conflict between effective-

ness of arbitral awards on the one and normative harmony on the other

hand. It can thus be concluded that international normative disharmony

constitutes, in an international system which lacks a central decision-

making authority, a necessary side-effect of the progressive liberalisation and

delocalisation of international arbitration.

V. Possible Ways of Reconciling International Normative

Harmony and Effectiveness of Arbitral Awards

Reconciling normative harmony and effective ness of awards

Despite the appropriateness of sacrificing international normative harmony

to the effectiveness of arbitral awards, a lack of normative harmony, insofar

as it compromises the interests of order, admittedly constitutes a drawback of

the enforcement of arbitral awards set aside in the country of origin. It must

thus be asked whether it is possible to safeguard international normative

harmony while ensuring (a reasonable degree of) effectiveness of arbitral

awards. This Section examines possible ways to achieve that objective.

A. The general acceptance of international standards of control

As has been mentioned, the preservation of international normative har-

mony is incompatible with the enforcement of arbitral awards set aside in

the country of origin. Indeed, international normative harmony rests upon

the internationally binding effect of the decision to set aside. The effective-

ness of arbitral awards, on the other hand, supposes acceptance of a limited

extent of court control.

The reconciliation of international normative harmony and effectiveness of

arbitral awards requires a global acceptance of limited court control of arbi-

tral awards. Indeed, as we have seen, the enforcement of arbitral awards set

704 See H. G. Gharavi, op cit., at 5.

177The autonomy of the arbitral award: judicial delocalisation

aside in the country of origin – and the non-recognition of the decision

vacating the award – generally results from the fact that the scope of court

control exercised in the country of origin exceeds the scope of court review

authorised in the enforcement jurisdiction.705 In other words, while the en-

forcement jurisdiction subjects arbitral awards to a limited extent of court

review, the country of origin provides for a more extensive control. From the

perspective of a ‘liberal’ enforcement jurisdiction, the necessity of independ-

ently assessing the enforceability of an arbitral award is conversely propor-

tionate to the degree of acceptance of the principle of limited court control

in the country of origin. Only where all jurisdictions subject (domestic)

arbitral awards to the same limited extent of court review, can possible con-

flicts between international normative harmony and effectiveness of arbitral

awards be avoided.

Although an increasing number of domestic laws on international arbitra-

tion recognise the principle of limited court control,706 many jurisdictions

subject arbitral awards to a more extensive review. Especially the recogni-

tion of the appropriateness of resorting to international rather than domestic

standards of review remains limited. In fact, not even the UNCITRAL

Model Law expressly bans the recourse to domestic standards and, in par-

ticular, to a domestic standard of public policy.707

B. The conditional recognition of decisions setting aside arbitral

awards

As long as the world-wide unification of the rules pertaining to court control

of domestic arbitral awards (and judicial attitudes) remains wishful thinking,

conflicts between the objectives of normative harmony and effectiveness of

arbitral awards are unavoidable. Indeed, the independent evaluation, by the

enforcement court, of the enforceability of an arbitral award stands in con-

trast with international normative harmony. One possible way of solving

this conflict lies in the ‘conditional recognition’ of the decision vacating an

arbitral award. According to this approach, enforcement courts, rather than

705 In Hilmarton, for example, the (first) arbitral award was set aside by the Swiss courts in

accordance with Article 36(f) of the Swiss Intercantonal Concordat which provides for

annulment on the grounds of ‘arbitrariness’ of an award. No such provision is contained

in French law.

706 See supra, Chapter 4, at 111 et seq.

707 See Article 34(2)(b)(ii) of the Model Law providing that an arbitral award may be set

aside where ‘the award is in conflict with the public policy of this State [the State in

which recognition and enforcement are sought].’

178 Reorganisation of the international enforcement system

assessing the enforceability of the arbitral award, examine – in the first

place – the decision setting the arbitral award aside. Where the decision to

set aside is based upon an international as opposed to local standard, the

enforcement court is bound by that decision. Where, on the contrary, the

decision to set aside is based upon a local standard, the enforcement court

can freely assess the enforceability of the arbitral award in question. Such a

proposal – based on the distinction between ‘international standards of an-

nulment’ and ‘local standards of annulment’ – has, been made, most fa-

mously, by Paulsson.708 Without entering the debate as to the – often criti-

cised –709 practicability of the suggested approach, one can note that it

clearly solves the conflict in favour of the effectiveness of arbitral awards.

The conditional recognition approach implies that, under certain circum-

stances, enforcement courts are bound by the decision setting the arbitral

award aside and do not, therefore, examine the enforceability of that award.

In reality, however, enforcement courts, insofar as they examine the

ground/s upon which the arbitral award has been vacated, always examine

– to a certain extent – the arbitral award itself. Indeed, enforcement courts

recognise the decision to set aside where it is based upon a ground recog-

nised by the laws of the enforcement jurisdiction. Interpretational differ-

ences left aside, this means that enforcement courts will recognise the deci-

sion to set aside only where, in identical circumstances, they themselves

would also set the arbitral award aside. Hence, the decision setting aside

does not per se have any internationally binding effect.

VI. The Reorganisation of the International Enforcement System:

De-centralisation and Centralisation of the International

Enforcement System

Reorganisation of the international enforcement system

More than the practical disturbances deriving from the enforcement of arbi-

tral awards set aside in the country of origin, theoretical considerations call

for a re-organisation of the international enforcement system. These consid-

erations are summed up in the theory of judicial delocalisation, discussed

earlier. Practical implementation of delocalisation theory leads to the sup-

pression of the action to set aside in the country of origin (at the seat). This

shift from a localised to a delocalised international enforcement system may

708 See supra.

709 See especially H. G. Gharavi, op. cit., at 149 where the author states that the impracti-

cability of the suggested approach mainly derives from the fact that it requires ‘the con-

sensus of a significant number of States on the international grounds which it desires to

impose’ and that ‘it is improbable that such condition could ever be met.’

179The autonomy of the arbitral award: judicial delocalisation

result either in de-centralisation or in centralisation of the international

enforcement system.

A. The de-centralisation of the international enforcement system

Like the centralisation approach examined infra, de-centralisation supposes

the unavailability, at the arbitral seat, of a – direct – means of recourse

against the arbitral award. Thus, judicial control of arbitral awards is only

performed in the context of enforcement proceedings. Since enforcement

can be sought in virtually all jurisdictions (in practice it is sought where the

party resisting enforcement has assets) and since the courts in these jurisdic-

tions freely decide whether or not to enforce a given arbitral award, one

speaks of a de-centralised system.

As we have seen, some countries, by adopting de-localised legislation, have

contributed to the de-centralisation of the international enforcement sys-

tem. These countries include, as we observed, Belgium, Switzerland, Sweden

and Tunisia.710 However, since the laws in these countries provide for op-

tional rather than ex lege exclusion of the action to set aside, the de-

centralising effect remains limited.

Among legal scholars, de-centralisation is supported, inter alia, by Fouchard.

In a recent article, Fouchard, discussing various reform scenarios in the af-

termath of the Hilmarton and Chromalloy decisions, argues that

‘the most preposterous [solution] is not the least logical. It would consist in

suppressing the action to set aside… The only control that [arbitral awards]

would be subjected to would be performed where recognition and enforce-

ment are sought in a particular jurisdiction… The ultimate justification [of

this solution] is a logical one: why set aside an award if it is not to be en-

forced in that country? And why set it aside if such setting aside is not effec-

tive abroad? Is it not unreasonable, considering the current status of conflict

of laws theory, that a State court may dictate to other countries their atti-

tude towards an award, which is, after all, merely a private act? …

As the French Cour de cassation observed, an arbitral award is not integrated

in the legal order of the State on the territory of which it has been rendered;

like a contract, [an arbitral award] does not have a nationality’ (translation

by the author).711

710 See supra, at 165.

711 Ph. Fouchard, op. cit., at 351-52: ‘La [solution la] plus saugrenue n’est pas la plus illogique.

Elle consisterait à supprimer tout recours en annulation… Le seul contrôle dont [les sentences

arbitrales] seraient l’objet aurait lieu lors d’une demande de reconnaissance et d’exécution dans

un pays déterminé… Sa justification ultime est d’ordre logique : pourquoi annuler une sentence

180 Reorganisation of the international enforcement system

Fouchard’s main arguments relate to 1) the lack of international effect of the

decision to set aside and 2) the characterisation of the arbitral award as a

contract or, as he puts it, a ‘private act’. While the first argument appears to

be merely rhetorical – insofar as the actual judicial practice is irrelevant for

the purposes of determining the ‘right’ solution – the second argument, on

the contrary, raises the question that lies at the heart of the (de)localisation

debate: the characterisation of the arbitral award. As we have explained, the

traditional localisation approach is based upon the – prima facie reasonable –

assimilation of arbitral awards to court judgements, i.e. upon the characteri-

sation of arbitral awards as quasi-judicial acts. This characterisation gener-

ates the necessity of linking the arbitral award to a particular legal order or

jurisdiction.712

De-centralisation such as it is argued by Fouchard has few supporters. Some

– somewhat stubborn – opponents of de-centralisation limit their objections

to the classical localisation arguments. Poudret, for example, in his reply to

Fouchard, states that

‘one can reply that the setting aside is justified insofar as the award is not in

conformity with the law that governs it [the award] and that the parties

have, once again, chosen directly or indirectly’ (translation by the au-

thor).713

Emphasising its judicial nature, other writers oppose – not very convinc-

ingly – the arbitral award’s characterisation as a contract. Revisiting the

Chromalloy case, Wahl argues that

‘[c]ontracts, marriage or adoption are based mainly on reciprocal promises…

Arbitration on the other hand derives its existence mainly from concessions

of the national judicial monopoly… To the extent that arbitration as a

process aims to produce an award with legal consequences, the jurisdictional

role of arbitration needs to be recognised and respected.’714

si elle n’a pas à être exécutée dans ce pays ? Et pourquoi l’annuler si cette annulation n’a pas

d’effet à l’étranger ? N’est-il pas déraisonnable, en l’état actuel du droit international

privé,qu’un juge étatique veuille ou puisse dicter aux autres pays leur attitude à l’égard d’une

sentence, qui n’est après tout qu’un acte juridique privé ? Comme le disait la Cour de cassation

française, une sentence arbitrale n’est pas insérée dans l’ordre juridique de l’Etat sur le terri-

toire duquel elle a été rendue ; pas plus qu’un contrat, elle n’a pas de nationalité.’

712 This explains why arbitral awards are generally considered to have a ‘nationality’. On

this point, see supra Chapter 4.

713 J.-F. Poudret, ‘Quelle solution pour en finir avec l’affaire Hilmarton ?’, 1998 Rev. Arb.,

at 7: ‘on peut répondre que l’annulation se justifie dans la mesure où la sentence n’est pas con-

forme à la loi qui la régit et que les parties ont, une fois encore, choisie directement ou indirec-

tement.’

714 Ph. Wahl, ‘Enforcement of Foreign Arbitral Awards Set Aside in their Country of

Origin – The Chromalloy Case Revisited’, 1999 J. Int. Arb., at 136.

181The autonomy of the arbitral award: judicial delocalisation

The observation of the judicial nature of arbitration prompts Robert to af-

firm that the ‘[binding character of an arbitral award] is superior to the one

of a contract insofar as it [the contract] becomes enforceable only once a

court has declared it enforceable’.715

B. The centralisation of the international enforcement system and

the establishment of a central authority having exclusive

jurisdiction to rule on the enforceability/validity of arbitral

awards

An alternative approach to the de-centralisation of the international en-

forcement system consists in its centralisation. In addition to the abolition

of the classical action to set aside, such centralisation requires the estab-

lishment of a central authority having exclusive jurisdiction to decide on the

enforcement/validity of arbitral awards. The setting up of such a central

authority has notably been advocated by Holtzmann.716 The system envi-

sioned by Holtzmann closely resembles the mechanism instituted under the

1965 Washington Convention establishing the International Centre for the

Settlement of Investment Disputes (ICSID). According to Holtzmann,

‘[t]he new international court for resolving disputes on the enforcement of

arbitral awards… is designated to remove the risks inherent in the present

regime of the New York Convention which… requires recourse to municipal

courts… The new court would have exclusive jurisdiction over questions of

whether recognition and enforcement of an international arbitration award

may be refused… Each State that adheres to the new Convention would

thereby undertake an international treaty obligation to execute judgments of

the new international court’.717

Other proponents of the establishment of such an international court in-

clude Schwebel718 and Gharavi.719

715 J. Robert , L’arbitrage droit interne droit international privé (1983), p. 187: ‘… [la force

obligatoire de la sentence arbitrale] est supérieure à celle du contrat, en ce que celui-ci ne devi-

endra exécutoire qu’après une décision judiciaire contradictoire qui l’ordonne.’

716 See H. M. Holtzmann, ‘A Task for the 21st Century: Creating a New International

Court for Resolving Disputes on the Enforceability of Arbitral Awards’, in The Interna-

tionalisation of International Arbitration - The LCIA Centenary Conference (1993).

717 Ibid.

718 S. M. Schwebel, ‘The Creation and Operation of an International Court of Arbitral

Awards’, in The Internationalisation of International Arbitration - The LCIA Centenary

Conference, pp. 116-117.

719 H. G. Gharavi, op. cit., at 166.

182 Summary

Assessing the usefulness of the creation of the prospected international

court, one must bear in mind that the principal objective of such a proposal

lies in the preservation of international normative harmony. In other words,

the suggested de-centralisation merely relates to the organisational or proce-

dural dimension of the international enforcement system. It does not itself,

in fact, affect the ‘substance’ of the law governing the enforcement of arbi-

tral awards. This substantive aspect, however, constitutes the main objec-

tive pursued by the international law-making efforts in the field of interna-

tional arbitration. Indeed, as we have seen, such efforts are directed towards

the progressive liberalisation and unification of the law of international

arbitration. As far as the achievement of this objective is concerned, the

establishment of an international court – such as argued by Holtzmann – is

largely irrelevant. This explains why the setting up of a central authority is

generally thought of as complementing substantive unification of the law

governing court control of arbitral awards.

VII. Summary

Summary

Contemporary international commercial arbitration law is characterised not

only by legislative, but also by judicial delocalisation. As the judicial delo-

calisation of the arbitral proceedings illustrates, judicial localisation is not

only incompatible with the principle of party-autonomy, but also, and more

importantly, fundamentally inappropriate.

Judicial delocalisation of arbitral awards is implicit in the declining role of

the action to set aside. Arbitration laws providing for optional or ex lege

exclusion of this means of recourse are illustrative of this decline. The de-

creasing legitimacy of the exclusive availability of a means of recourse at the

arbitral seat has led to the phenomenon of enforcement of awards set aside

at the seat (i.e. in the country of origin). The controversy that this phe-

nomenon has provoked relates more to the legal argumentation underlying

decisions enforcing arbitral awards set aside in the country of origin than to

their actual legitimacy. Indeed, an analysis of the interests involved in the

enforcement of arbitral awards set aside in the country of origin reveals the

potential soundness of privileging the effectiveness of arbitral awards over

international normative harmony. Although (occasional) lack of interna-

tional normative harmony is, by no means, disastrous, the enforcement of

annulled awards nevertheless provides an incentive to re-think the interna-

tional enforcement system. The re-organisation of this system could lead

either to its centralisation or de-centralisation. The latter approach is advo-

cated by several authors, generally in conjunction with the establishment of

an international court having exclusive jurisdiction over the international

enforcement of arbitral awards.

183Conclusion

Conclusion

Preliminary Remark

In this study, we have examined the increasing autonomy of international

commercial arbitration, i.e. the changing relationship between international

commercial arbitration and State authorities. As we have mentioned in the

Introduction, this phenomenon explains most doctrinal and practical devel-

opments in contemporary arbitration law. In fact, the (search for) increased

autonomy constitutes the Leitmotiv and clé de lecture in this field.

As has been explained in the Introduction, the author has preferred to deal

with the general question of the autonomy of international commercial

arbitration rather than with one particular narrowly defined question. Al-

though these more specific topics (for example, ‘the arbitrability of intellec-

tual property disputes’, ‘the capacity of states to submit to arbitration’ or ‘the

independence of party-appointed arbitrators’) certainly raise interesting

questions, they do not themselves reflect a specific development or phe-

nomenon, but merely form part of it. In the author’s view, such studies run

the risk of not drawing a ‘complete picture’. To draw a full picture – the

reader will have understood it – has been the author’s aim.

Conclusion

International commercial arbitration is becoming increasingly autonomous.

This increased autonomy characterises both the procedural (arbitration

agreement, arbitral proceedings)720 and the substantive or normative dimen-

sion (arbitral award)721 of international commercial arbitration. The auton-

omy relates, as we have seen, to the position of arbitration vis-à-vis both

State courts (limited interference in the arbitral proceedings, restricted con-

trol of arbitral awards) and domestic laws (application of international stan-

dards of enforceability of arbitral awards,722 application of lex mercatoria or

transnational law to the merits of the dispute).723 The increasing autonomy

720 See supra, Chapter 3.

721 See supra, Chapters 2, 4, 5, and 6.

722 Such standards, as we have seen, are frequently applied in relation to the validity of the

arbitration agreement, objective arbitrability, and public policy. See supra, Chapter 5.

723 See supra, Chapter 2.

184 Conclusion

with regard to domestic laws has led to substantial liberalisation and unifica-

tion of the law of international commercial arbitration.

As we have explained, the growing autonomy of international commercial

arbitration constitutes a legitimate and appropriate development. In fact, it

serves the interests of all actors involved and, most importantly, the interests

of the consumers of international commercial arbitration, i.e. of interna-

tional business operators. For them, arbitration represents a potentially supe-

rior, i.e. more efficient dispute resolution mechanism. The unanimous rec-

ognition of the legitimacy of increased autonomy has allowed the establish-

ment of an elaborate institutional and normative framework aimed at im-

proving the effectiveness of international commercial arbitration. The un-

paralleled normative achievements of UNCITRAL and vital organisational

support of numerous arbitration institutions – led by the International

Chamber of Commerce – have created a uniquely hospitable environment

for international commercial arbitration.

In addition to this general observation, a number of more specific conclu-

sions can be drawn. First and most importantly, the study has suggested a

simple and precise definition of the unanimously affirmed, but habitually

vaguely described specific normative needs of international commerce.

These needs have allowed us to explain the progressive internationalisation

of not only the applicable substantive law,724 but also of the procedural law,

i.e. arbitration law.725 This study has further attempted to shed new light on

classical doctrines such as Kompetenz-Kompetenz, separability, localisation or

non-arbitrability and to question their coherence (separability, localisation)

and legitimacy (non-arbitrability, localisation). It has, more generally,

sought to connect various apparently isolated phenomena and show how

they interact or form part of a single more general development (for exam-

ple, uniform laws, material rules of private international law, the voie directe

method, the tronc commun doctrine, and the lex mercatoria doctrine).

As this thesis is primarily aimed at providing a general explanation and

discussion of the growing autonomy of international commercial arbitration,

many – practical – questions remain unanswered. At the centre of these lies

the question of the ‘ideal’ extent of court intervention in the arbitral process

and, more particularly, of the ‘ideal’ extent of court control of arbitral

awards. Indeed, as we have seen, the necessity of (the availability of) court

control is universally accepted. Although most jurisdictions prohibit review

on the merits, they expect the arbitral process to comply with fundamental

requirements of justice. Although some jurisdictions have excluded (direct)

724 See supra, Chapter 2.

725 See supra, Chapter 5.

185Conclusion

means of recourse against arbitral awards,726 all of these subject arbitral

awards to court review in the context of enforcement proceedings.

One might, of course, wonder to what extent this court control is ‘real’.

Indeed, many arbitral awards – although certainly not the classically argued

90% – are still voluntarily complied with by the parties, probably as a conse-

quence of the well-known ‘alternative means of constraint’ of the interna-

tional business community. In addition, one might argue that the increas-

ingly limited scope of court control turns this control into a mere ‘formality’

by which an arbitral award is quasi-automatically transformed into an en-

forceable court judgement. Regardless of how accurate such views may be,

one thing is certain: where the arbitral award is not voluntarily abided by,

the party seeking enforcement must have recourse to the courts, which, on

this occasion, will exercise some form of control.

The question of the ‘ideal’ or most ‘appropriate’ extent of court control is

therefore inevitable. Almost as inevitable is the conclusion that no final

answer can be given to this question. Indeed, the extent of court control

must take into account a number of factors. The main such factor is the

quality of the work performed by the individuals serving as arbitrators,

which obviously is subject to variations and cannot be finally assessed. What

cannot be doubted, however, is that fundamental rights and values (i.e.

public policy rules) should be preserved. Like contracts in general, arbitral

awards, in order to be valid/enforceable, must not violate such rights and

values. Numerous jurisdictions have, de facto, chosen to merely require the

arbitral process not to disregard these rights and values. All grounds upon

which arbitral awards can be set aside or denied recognition and enforce-

ment in these jurisdictions, in fact, relate to the protection of basic rights

and values.727

The question of the ‘ideal’ extent of court control illustrates the difficult

reconciliation of efficiency of the arbitral process (measured by time and

money: how fast is a decision obtained and how much does it cost?) and

decisional fairness (how fair or ‘just’ is the decision?). Increased court con-

trol of the arbitral award, in fact, leads to an increase in fairness and a de-

crease in efficiency. Indeed, more extensive court control leads to the in-

validation of a greater number of arbitral awards, i.e. to a multiplication of

the cases in which no decision is obtained, which decreases the overall effi-

ciency. Conversely, decreased court control leads to an increase in efficiency

and a decrease in fairness. In light of these propositions, it is clear that no

system is able to ensure both full efficiency and fairness. No clear guidelines

are available for the solving of the conflict between these competing values.

726 See supra, Chapter 6, at 165.

727 This is true with respect to all jurisdictions examined in this study.

186 Conclusion

In addition to the conclusions that are specific to the topic, one can draw

some more general conclusions. One such conclusion relates to the old ‘wis-

dom’ – or cliché, as some might say – of comparative law according to which

different legal systems do not generally pursue different objectives, but

merely employ different means in order to achieve identical or similar objec-

tives. This proposition holds true with respect to the classical common law /

civil law divide. Various issues examined in this study illustrate the pattern

similarity of objectives / diversity of means. One example of this is provided

by the adoption of rules specific to international (as opposed to domestic)

arbitration. In the United States, in particular, the absence of dualistic arbi-

tration legislation has necessitated a conceptually inconsistent approach to

the New York Convention’s scope of application. Indeed, defying formal

logic, American doctrine considers that it is the internationality of the dis-

pute rather than the foreignness of the award that triggers the application of

the Convention.728 It thereby achieves a result similar to the one achieved

by dualistic legislation such as enacted in France, for example.

This last observation leads us to another general conclusion, which is that

law is not so much concerned with formal logic or coherence, but more with

the attainment of specific objectives or policies. Several issues examined in

the thesis illustrate this. The principle of separability, for example, possibly

entails the applicability to the arbitration agreement of a law different from

the one governing the main contract, even in the absence of an express

party-agreement to that effect. But is it sensible to claim that one particular

clause of a contract should, at the conflict of laws level, be connected to a

different country and hence to a different law? This form of separability

(private international law autonomy) defies rational thinking. The doubtful

rationality of private international law autonomy constitutes the price to

pay for achieving the underlying objective: to further the validity of the

arbitration agreement. That it is this objective rather than some logical

necessity which explains private international law autonomy is illustrated by

the fact that this principle has ultimately become – or at least prepared the

ground for – the ‘validity principle’.729 Another example is provided by the

material rules method, which – presented as an alternative method to the

conflict of laws – arguably consists in the application of internationally rec-

ognised rules. However, as we have seen, material rules of private interna-

tional law more accurately reflect the policy of the jurisdiction that has

adopted said rules rather than truly international rules.730

The study has further revealed the unavoidable conflict between the differ-

ent basic objectives pursued by law and legal rules: fairness, effectiveness,

728 See supra, Chapter 4, at 109.

729 See supra, Chapter 3, at 79 et seq.

730 See supra, Chapter 2, at 53 et seq.

187Conclusion

and predictability. Fairness or ‘justice’ is the essence of law; no legal rule

claims not to be fair. Fairness sometimes clashes with effectiveness. This

conflict is, as we have seen, inherent to the general question of the extent of

court control of arbitral awards. It is particularly well illustrated by the con-

trast between the general acceptance of the prohibition of révision au fond

and the re-introduction of review on the merits through doctrines such as

manifest disregard of the law.731 Although this aspect has not been empha-

sised, fairness may also clash with predictability. This is due to the fact that

the generality or abstract nature of (codified) legal rules – which ensures

their predictability – may lead to ‘unfair’ results in isolated cases. More rele-

vant for the purposes of this study is the conflict between effectiveness and

predictability. Such a conflict is often alleged, as we have seen, with respect

to the question of the enforcement of arbitral awards set aside in the country

of origin. However, as we have demonstrated, such allegations miss the

point.732 Indeed, the enforcement of annulled arbitral awards generates a

tension not between effectiveness and predictability, but between effective-

ness and international normative harmony, i.e. the interests of order.733

Positioning the discussion at the level of the conflict between these basic

values and objectives is, in the author’s opinion, vital for an in-depth under-

standing of the topic. It is the only way to ensure the meaningfulness of

doctrinal debates and intellectual constructions. At the same time, however,

the arbitrariness of solving such basic conflicts in one way or another reveals

that few, if any, legitimate answers can be given to the numerous emerging

practical questions. Providing such answers was not, thus, the principal aim

of this study; instead, it was primarily intended to raise new questions and

stimulate the reader’s reflection.

731 See supra, Chapter 4, at 106 et seq.

732 See supra, Chapter 6, at 172.

733 See supra, Chapter 6, at 173.

188 Conclusion

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