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Content uploaded by Ali Taha Akrem
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All content in this area was uploaded by Ali Taha Akrem on Dec 08, 2023
Content may be subject to copyright.
GIRNE AMERICAN UNIVERSITY
GRADUATE SCHOOL OF SOCIAL SCIENCES
Girne
April 2013
International Commercial Arbitration
A Comparative Study
By
Ali Taha Akrem
B. A. Degree in Law, at Salahaddin University – Iraq/Arbil
Submitted to the
Graduate School of Social Sciences
In partial fulfillment of the requirements for the
Master Degree
In
International Business Law
Supervisor
Latif Aran LLB;LLM (Int.Law) ph.d (In Prog.)
International Commercial Arbitration A Comparative Study
1
Statement of Originality
I certify that this dissertation, and the research used in it, are the
product of my own work and that any ideas or quotations from
the work of other people, published or otherwise, are fully
acknowledged in accordance with the standard referencing
practices of the discipline.
.
International Commercial Arbitration A Comparative Study
2
Acknowledgements
First of all I would like to express my sincere gratitude to:
• My supervisor, Latif Aran LLB; LLM (Int. Law) PhD (EU Law) (In.
Prog), whose support and advice were valuable throughout the project. I
really appreciate his encouragement, guidance, and support in the hardest
time in my life, and I want to thank him for giving me the opportunity of
writing a thesis under his supervision.
• I would like to thank my dear wife, who stood by me. She was always
there when needed. Her precious advice lightened my way.
• Special thanks go to my brothers, sisters and especially my parents for
their love, support and guidance throughout my studies.
• Finally, I offer my regards to all of those who supported me during the
completion of the thesis, especially Prof. Dr. Rizgar Qadr as my teacher
from Salahaddin University.
Above all my thanks is paid to Allah Almighty for His gift of life and good
health. Faith has made it possible for me to reach this stage in my academic
career and of course to complete this program.
Ali
International Commercial Arbitration A Comparative Study
3
Glossary of Abbreviations
AAA American Arbitration Association
ABA American Bar Association
ADR Alternative Dispute Resolution
ARB Arbitration
APC Arab Potash Company
Barbados Is a Sovereign Island Country in the Lesser Antilles
BCICAC British Columbia International Commercial Arbitration
Centre
CRCICA Cairo Regional Centre for International Commercial
Arbitration
CCP Code of Civil Procedure
E-SIGN Electronic Signature
EDI Electronic Data Interchange
EJIL European Journal of International Law
ICCP Iraqi Code of Civil Procedure
ICSID International Centre for Settlement of Investment
Disputes
ICC International Chamber of Commerce
ICDR International Centre for Dispute Resolution
LCIA London Court on International Arbitration
NIA Netherlands Arbitration Institute
SCC Stockholm Chamber of Commerce
UNCITRAL United Nation Commission on International Trade
and Commerce
UK United Kingdom
U. S United States
VIAC Vienna International Arbitration Institute
International Commercial Arbitration A Comparative Study
4
WIPO World Intellectual Property Organization
WTO The World Trade Organization
LEX MERCATORIA General Principles of Law, Transnational Rules, a Method
of Decision Making, Customary Commercial Law
LEX ARBITRI Deals with the Formal Validity of the Arbitration
Agreement, Governs the Arbitral Proceedings
International Commercial Arbitration A Comparative Study
5
Table of Contents
Statement of Originality 1
Acknowledgments 2
Glossary of Abbreviations 3
Contents 5
Abstract 8
Introduction 10
Objectives of the Study 14
Statement of the Research Problem 15
I. International Commercial Arbitration and Arbitration
Agreement
A. International Commercial Arbitration 16
a. What is International Commercial Arbitration? 16
b. Advantages of International Commercial Arbitration 19
c. Disadvantages of International Commercial Arbitration 22
d. When is an Arbitration “International”? 25
i. Nature of the Dispute 27
ii. Identity of the Parties 28
iii. Legal Standards 31
B. Arbitration Agreement 32
a. The Existence of Dispute 35
b. Legal Nature of the Arbitration Agreement 37
i. The parties to the Arbitration Agreement 37
ii. Capacity of the Parties to the Arbitration Agreement 39
1. Natural Person 42
International Commercial Arbitration A Comparative Study
6
2. Corporations 43
3. States and State Entities 44
c. Existence of an Agreement 48
d. Validity of the Arbitration Agreement 49
i. The Objective Requirements for the Arbitration Agreement 50
ii. The Formalities Requirements for the Arbitration Agreement 51
1. Writing 53
2. Signature 63
iii. Other Requirements for the Arbitration Agreement 64
e. Law Applicable to the Arbitration Agreement 65
f. Termination of the Arbitration Agreement 73
II. Composition of Arbitral Tribunal and Arbitration
Proceedings
A. Composition of Arbitral Tribunal 75
a. Number of Arbitrators 75
b. Appointment of Arbitrators 80
c. Qualifications for Becoming an Arbitrator 82
B. Arbitration Proceedings 86
a. The Conduct of the Proceedings 86
b. Place of Arbitration 88
c. Language of Arbitration 92
d. Commencement of Arbitral Proceedings 94
e. Law Applicable to the Arbitration Proceedings 96
i. The Jurisdictional Theory 101
ii. The Delocalization Theory 103
International Commercial Arbitration A Comparative Study
7
III. Law Governing Substantive Issues and Arbitration
Award
A. Law Governing Substantive Issues 105
a. Party Autonomy 107
b. Implied Choice of Law 110
c. Restrictions on Parties Autonomy 112
d. Choice by Arbitrators 114
e. The Positions of the Iraqi and Egyptian Laws on Law
Governing Substantive Issues 118
B. Arbitration Award 121
a. The Final Award 121
b. Form of Award 123
c. Judicial Review of Arbitral Awards 124
d. Challenging the Award 125
e. Enforcement of Foreign Arbitral Awards 127
f. Recognition and Enforcement of the Award 129
g. Refuse to Implement Arbitral Award 131
Conclusion 134
Bibliography 137
International Commercial Arbitration A Comparative Study
8
Abstract
International Commercial Arbitration-A Comparative Study
Ali Taha Akrem
Master of International Business Law (LLM) Thesis
Supervisor
Latif Aran LLB; LLM (Int.Law) ph.d (In Prog.)
This research aimed at discovering the best way to resolve international business
problems and to unite legislations on the law applicable to international commercial
arbitration, through comparison between legislations, institutional arbitration rules and
international conventions on international commercial arbitration, and to find out
common rules applicable to international commercial disputes.
This research consists of three main parts:
Part one: It is a general introduction about international commercial arbitration; this
part deals with arbitration and legal background of international commercial arbitration.
It also discloses with which law shall be applied to the arbitration agreement; in this
way, the light is shed upon supranational laws for example the Model Law, Arbitration
Rules and International Conventions, which may be applied during the resolution of
disputes.
International Commercial Arbitration A Comparative Study
9
Part two: It focused on some of today’s practice problem of international commercial
arbitration which deals with the composition of Arbitral Tribunal and arbitration
proceedings with the help of the some specific case studies.
Third part: It deals with significant issues which are applicable by law to the subject
matter of disputes and enforcement of arbitral award which explains the position of
some national laws, international conventions and international arbitration institutions.
International Commercial Arbitration A Comparative Study
10
Introduction
When doing international business with other countries or business people in
other countries, the parties to an arbitration agreement shall take potential disputes into
account. It is quite normal that disputes may rise at any time in the daily commercial
life; therefore we need dispute resolution mechanisms to resolve our problems.
Negotiation should always be the first step in resolving a dispute. Most of these disputes
can luckily be resolved by direct negotiations. If we cannot resolve our problems by
negotiating, then the best mechanism to resolve them would be applying International
Commercial Arbitration instead of going to the courts.
1
Lawsuits should always be a last resort for businessmen. The disadvantages are
many. The first and most obvious a disadvantage is that it is a costly process. If one
party lost the case, then the loser has to pay not only his own legal costs but also the
costs of the other party. Even if the case is won full legal costs are not always
recovered.
2
It is the task of the state to solve the disputes through judicial authority.
Arbitration is authorized to settle these disputes as means of alternative dispute
resolution and laws have been enacted which include rules to ensure the integrity of the
arbitration proceedings and the judgment based on these procedures.
3
Arbitration at this stage is the method often used to settle the disputes that rise
between individuals and institutions. Arbitration has multiple advantages: speed in
adjudicating, saving time and effort, keeping trade secrets of third parties, and resolving
1
Bradgate, Robert-White, Fidelma, Commercial Law-Legal Practice Course Guide, 1st Edition, Oxford
University Press, New York, United States, 2008, p. 487.
2
MacIntyre, Ewan, Business Law, 5th Edition, Pearson, UK, 2010, p. 62.
3
Gaillard, Emmanuel, Legal Theory of International Arbitration, 1st Edition, MartinusNijhoff Publishers,
Netherland, 2010, p. 2.
International Commercial Arbitration A Comparative Study
11
conflicts. The world is now living the era of economic, globalization and adoption of
open market policy and in most countries of the world, there is a movement to increase
foreign investments, which entails increased international economic relations in general
and trade in particular. Therefore, there is a need to apply arbitration which is natural
and optimal for the settling of arising disputes. It is even possible to say metaphorically
that the parent in the settlement of disputes arising from international contracts is
arbitration, and taking disputes to the courts is the exception. The International
Commercial Arbitration became important in the late nineteenth century and continued
in importance during the twentieth century. During this period, several agreements and
protocols for the regulation of international commercial arbitration were made, including
the Uruguay Convention of 1889, amended in 1940, containing the procedural rules for
the application of international commercial arbitration; the Geneva Protocol of 1923
which included arbitration clauses in the era of the League of Nations; the Geneva
Convention of 1927 on the implementation of the provisions of the foreign arbitral; and
the New York Convention of 1958, which has replaced the Geneva Convention of 1927
which is related to the recognition and enforcement of foreign arbitral awards. More
than 120 states signed the New York Convention, making it the most important
convention in the field of law, which was then reinforced by the European Convention
on Arbitration of 1961, in addition to several bilateral agreements on international
commercial arbitration.
4
There are some established international arbitration centres in
major countries, such as the Dutch Institute for Arbitration, the American Arbitration
Association, the International Chamber of Commerce and the London Court of
4
Khalid, Mohammed, Encyclopedia of International Commercial Arbitration, 1st Edition, Dar Al-Shuruq,
Cairo, 2002, p. 131.
International Commercial Arbitration A Comparative Study
12
Arbitration; and the final device for resolving disputes is the World Trade Organization
(WTO).
5
An arbitration agreement may be in the form of an arbitration clause in a contract
or in the form of a separate agreement. Another important feature of arbitration is that
awards made by Arbitral Tribunal, in contrast to the decision or recommendations of
conciliators and mediators, are binding on the parties to a dispute. Arbitrators perform
the judicial function of resolving the parties’ dispute based on their determination of the
rights and obligations of the parties. In addition, international arbitral awards could be
appealed against inappropriate courts. The essential elements of an international
commercial arbitration are thus its consensual and binding nature, and the active role
played by the participants in choosing the arbitrators and determining the procedure for
resolving their disputes.
6
International commercial arbitration is counted as the most important means for
arbitrators to resolve contract disputes in the field of international trade and investment
relations. International commercial arbitration is important, particularly in business
affairs. For centuries, international arbitration has been a preferred means for settling
transnational commercial disputes, as well as other important categories of international
commercial disputes. Businesses’ demonstrated preference for arbitration as a mechani-
sm for resolving their international disputes has become even more pronounced in the
past several decades, as international trade and investment have burgeoned, and as
international commerce has expanded and become more complex, so the practical
importance of international commercial arbitration is one of the reasons that the subject
5
Ibid., p. 132.
6
Chukwumerije, Okezie, Choice of Law in International Commercial Arbitration, 1st Edition, Greenwood
Press, United States, 1994, p. 3.
International Commercial Arbitration A Comparative Study
13
warrants study by business people, companies, lawyers, arbitrators, judges and
legislators.
I will try in this study to shed light on this subject, which has particular
importance as a result of growing arbitration activity in the world. This research
provides an analysis and review of the following: provisions of the laws related to
arbitration, regulations of the permanent arbitration centres, and international conven-
tions on international commercial arbitration.
International Commercial Arbitration A Comparative Study
14
Objectives of the Study
This research aims to introduce international commercial arbitration as a
significant means of resolving international commercial disputes, and to discover the
applicable laws for international trade disputes. It also aims to find out the most
important international legislation which governs international commercial arbitration
and the applicable law to the subject matter of the dispute and procedures, and the
applicable law to the arbitral award. In addition, it aims to finding out the best way for
businessmen to resolve their problems by a conducting a comparative study of
international commercial arbitration.
International Commercial Arbitration A Comparative Study
15
Statement of the Research Problem
Because the parties to a dispute are often from different nations, regions or
countries, they come with their varied point of views, varied national laws, varied
international arbitration institutions and international conventions on international
commercial arbitration. Parties have differences addressing the disputes that may arise,
especially on the applicable law and the place and language of the arbitration. For
example, what is the law that might be applicable to an international commercial
arbitration matter? Also in many cases, the party who loses the case tries to challenge
the arbitration award, and in this case, there are conflicting views between scholars and
varying laws about ways to challenge it, so how can losing parties challenge the arbitral
award?
International Commercial Arbitration A Comparative Study
16
I. International Commercial Arbitration and Arbitration Agreement
A. International Commercial Arbitration
a. What is International Commercial Arbitration?
International Commercial Arbitration is a process to resolve international business
disputes, which occurs between two or more parties from different countries or regions,
when parties to a dispute are voluntarily agree to bring their problem before international
commercial arbitration centres as an impartial body or independent, and is a legal
technique to resolve international trade problems.
7
When the parties to a dispute agree to
refer the dispute to arbitration, they agree that their dispute should be resolved by an
arbitrator rather than court.
8
It is common for an arbitration clause to be a term of contracts between
businesses; the parties to a dispute may subsequently agree to submit a dispute to
arbitration. Any person acceptable to the parties may act as their arbitrator. In practice,
they will tend to choose somebody with skill and experience in the relevant field. The
role of arbitrator has become professionalised and the Institute of Arbitrators regulates
the standards of its members.
9
7
Goode, Roy, Commercial Law, 3rd Edition, Penguin Group, London, UK, 2004, p. 1162.
8
MacIntyre, op. cit., p. 63.
9
Adams, Alix, Law for Business Students, 6th Edition, Paerson Education Limited, England, 2010, p. 52.
International Commercial Arbitration A Comparative Study
17
Arbitration is a process whereby parties to a dispute voluntarily refer their
dispute to an impartial body (third person), an arbitrator, selected by them, for a decision
based on evidence and arguments to be presented by their representatives before him.
The parties agree in advance that the arbitrator's decision, “the award” will be binding
upon them; also the arbitral award can be appealed by the parties to a dispute. By this
definition we can distinguish arbitration from other means of dispute resolution:
1. It is consensual process which offers finality;
2. It is a private process: hearings are in private and decisions are usually not
published
3. It offers parties the opportunity to choose their own arbitrator(s), often on the
basis of some expert skill or knowledge but, like a high court judge, the arbitrator
must be impartial and independent, and the procedures followed by both parties
can be similar.
10
In an arbitration, disputing parties submit their dispute to a neutral third party,
called an arbitrator. This arbitrator is empowered by the parties to reach a binding
decision resolving the controversy. The binding nature of an arbitrator's decision is the
major feature distinguishing it from other means of dispute resolution. Arbitration may
result when parties to dispute agree to submit their disagreement to an arbitrator, when
parties to a business contract include an arbitration clause in their agreement in case a
dispute arises, or when legislation requires that this particular type of dispute be
arbitrated.
11
10
Bradgate-White, op. cit., p. 488.
11
Corley, Robert et. al., The Legal and Regulatory Environment of Business, 11th Edition, McGraw-Hill,
U.S, 1999, p. 64.
International Commercial Arbitration A Comparative Study
18
The difference between adjudication and arbitration is that, at least in the
perception of states, is that, arbitration is more flexible overall because the principle of
party autonomy governs the process. Therefore, international arbitration is traditionally
considered as more yielding to sovereignty than litigation before an international court.
12
Arbitration originally became popular at the market place; differences between parties as
to the quality and quantity of goods used to be settled by means experts on the basis of
their knowledge and expertise in the trade concerned. This type of arbitration was not
usually concerned with legal issues. Arbitration concerned with legal issues and court
proceedings are very similar in terms of procedures; one of the reasons why arbitration
is preferred by the business community is that in many countries the arbitration process
seems to be rather faster than court proceedings. The party autonomy rule in arbitration
provides another attraction of arbitration.
13
In recent years, potential litigants have been
encouraged to resolve their disputes without resorting to formal legal action in the
courts. A court appearance may be very costly and public method to resolving a dispute.
12
Peters, Anne, “International Dispute Settlement-A Network of Cooperation Duties”, European Journal
of International Law, Vol. 14, No. 1, 2003, p. 7.
13
Chatterjee, Charles-Lefcovitch, Anna, Alternative Dispute Resolution-A Practical Guide, 1st Edition,
Routledge, UK, 2008, p. 24.
International Commercial Arbitration A Comparative Study
19
b. Advantages of International Commercial Arbitration
International arbitration has for many years been the main form of dispute
resolution in certain fields of business activity such as commodity sales, construction
and shipping. Arbitration is said to avoid many of the drawbacks of litigation and to
offer the following advantages:
1. Speed:
14
to a businessperson time is a very important commodity. Unnecessary delays
in the process of resolving a commercial dispute are inimical to the proper formulation
of business policies and the efficient pursuit of business activities. For a long time
arbitration has been marketed as a speedy system of dispute resolution. If this view is
correct, arbitration would afford available alternative to those who view delays in
litigation as one reason why public legal system have proved inefficient in handling the
problems of businesspeople. However, it is not invariably true that arbitration is more
expeditious than litigation. In most cases the same factors that make the process of
litigation protracted are also present in arbitration. The taking of evidence consumes
time, and where the arbitrators reside in different countries they have to coordinate their
time so as to be available for hearings. Furthermore, judicial interventions in the
enforcement of awards or in the process of arbitration ensure that some the delays
inherent in litigation sometimes filter into arbitration.
15
2. Costs Savings: International commercial Arbitration cost business people less than
going to court; it is not unusual to hear the suggestion that arbitration is cheaper than
litigation. One rationale for this view is that the speedy nature of arbitration curtails the
14
Bradgate-White, op. cit., p. 488.
15
Chukwumerije, op. cit., p. 7.
International Commercial Arbitration A Comparative Study
20
costs incurred in the arbitral process. However, arbitration is not always speedier than
litigation. Moreover, the additional costs that have to be borne by the parties to a dispute
may result in the process being more expensive than litigation. In an arbitration, unlike
in a litigation, the parties have to pay the salaries or fees of the arbitrators and other
personnel such as secretaries, used during the arbitration. Additionally, they have to pay
for facilities, such as the conference rooms, that are provided by the State in a litigation.
Furthermore, where the arbitration is conducted under the auspices of an arbitral
institution, the parties to a dispute have to pay administrative fees that may be
substantial when they are based on the amount of money in dispute. Travel costs of the
parties, their lawyers, the arbitrators, and witnesses to the site of arbitration may further
compound the cost of arbitration. International commercial arbitrations are not
inexpensive; they are usually suitable for disputes involving large sums of money or
where the parties to a dispute are willing to pay top price for the benefit of selecting
those they deem competent to resolve their dispute.
16
3. Neutrality of Forum: international commercial arbitration is often perceived as
ensuring a genuinely neutral decision maker in disputes between parties from different
countries. International commercial disputes inevitably involve the risk of litigation
before a national court of one of the parties, which may be biased, or unattractive for
some other reason. Moreover, outside an unfortunately limited number of industrializes
nations, local court systems simply lack the competence, experience, resources and
traditions of even handedness satisfactorily to resolve most international commercial
disputes. International commercial arbitration offers a theoretically competent decision-
maker satisfactory to the parties to a dispute, who is, in principle, independent of any
16
Ibid., p. 8.
International Commercial Arbitration A Comparative Study
21
national or international government authority. On the other hand, private arbitrators can
have financial, professional or personal relations with one party. In the eyes of some
observers, this increases the risk of even greater partiality than the favoritism of local
courts.
17
4. Privacy: International commercial arbitration is usually more confidential than
judicial proceedings as to submissions, evidentiary hearings and final award. This
protects commercial confidences and business, and can facilitate settlement by reducing
opportunities and incentives for public posturing. However, few arbitrations are entirely
confidential, with disclosures often occurring by means of judicial enforcement actions,
unilateral party action, regulatory inquires, or otherwise.
18
5. Flexibility: Tribunals are not bound by their own precedents; but they are bound by
relevant decisions reached by the courts.
19
6. Where relations are irrevocable soured, the need for some measure of cooperation
between the parties to a dispute in conducting the arbitration can permit party
misconduct to greatly impede dispute resolution.
20
7. Arbitration also has the advantages of submitting many disputes to experts for
solution. For example, if the issue involves whether a building has been properly
constructed, the matter could be submitted to an architect for resolution. If it involves
the technical accounting problem, it could be submitted to a certified public account-
ant.
21
17
Born, Gary, International Commercial Arbitration-Commentary and Materials, 2nd Edition, Kluwer
Law International, Netherland, 2001, p. 7.
18
Ibid., p. 8-9.
19
Adams, op. cit., p. 55.
20
Born, op. cit., 2nd Edition, p. 9.
21
Corley et.al., op. cit., 9th Edition, p. 105.
International Commercial Arbitration A Comparative Study
22
8. Freedom to choose the arbitrator, who may have trade experience or technical
qualification.
22
9. The binding nature of an arbitrator's decision is the major feature distinguishing it
from other means of dispute resolution.
23
10. Arbitration agreements and arbitral awards are generally (but not always) more
easily and reliably enforced in foreign states than foreign court judgments.
11. Arbitration tends to be procedurally less formal than litigation in national court. As a
result, parties have greater freedom to agree on appropriate procedural rules.
24
Therefore
a Tribunal hearing is less intimidating.
25
12. They can solve the problem without government intervention.
13. They may resolve the problem easily.
14. Balance of power: arbitrators have the same power to resolve the dispute as the
courts do.
26
c. Disadvantages of International Commercial Arbitration
Arbitration will be more suitable where the nature of the dispute is one of fact
especially of a technical character. On the other hand, litigation will be preferred where
the issue is one of law.
27
As mentioned above, to a large extent some of the
disadvantages of the international arbitration are the same as the advantages, just viewed
from a different perspective. For example, less discovery may be generally viewed as an
22
Bradgate-White, op. cit., p. 488.
23
Corley et.al., op. cit., 11th Edition, p. 64
24
Born, op. cit., 2nd Edition, p. 9.
25
Adams, op. cit., p. 55.
26
Malanczuk, Peter, Akhurst’s Modern Introduction to International law, 7th Edition, Routledge, UK,
1997, p. 304.
27
Kian, Catherine, Resolving Disputes by Arbitration-What You Need to Know, 1st Edition, Singapore
University Press, Singapore, 1998, p. 23.
International Commercial Arbitration A Comparative Study
23
advantage. Nonethless, certain kinds of disputes, which typically involve extensive
discovery, such as antitrust disputes, are increasingly arbitrated. These kinds of disputes
often require the aggrieved party to prove a violation that it can only prove if it has
sufficient access to documents under the control of the effending party. Less discovery
in this kind of case means less of a chance for a claiment to meet its burden of proof.
Moreover, lack any right of appeal may be a benefit in terms of ending the dispute, but if
an arbitrator has rendered a decision that is clearly wrong on the law or the facts, the
lack of ability to bring an appeal can be frustrating to a party.
28
Some of the disadvantages of international commercial arbitration:
1. No access to legal aid. There is no state-funded representation for most tribunal
hearings, which may unfairly prejudice the chances of the claimant. At employment
tribunals the employer is usually able to afford legal representation, while employees
may be unrepresented unless help is provided by their trade union or other pressure
group. At the Social Security Tribunal, claimants have to dispute their cases with a body
which has considerable experience of such hearings, and do not always receive the
assistance they need from panel members.
29
2. Arbitration may become highly complicated.
3. Arbitration agreements are sometimes contained in ancillary agreements.
4. Unlike court judgments, arbitration awards themselves are not directly enforceable. A
party to a dispute seeking to enforce an arbitration award must resort to judicial
remedies, called an action to "confirm" an award.
30
Although appeal to the courts against
28
Moses, Margaret. The Principle and Practice of International Commercial Arbitration, 1st Edition,
Cambridge University Press, U.S, 2008, p. 4.
29
Adams, op. cit., pp. 55-56.
30
Http://en.wikipedia.org/wiki/Arbitration#Advantages_and_disadvantages, 10 October, 2012.
International Commercial Arbitration A Comparative Study
24
a Tribunal decision may be possible, there is no universal rule, and rights vary according
to which Tribunal is involved.
31
5. Arbitrators have fewer powers than the courts to obtain evidence from the parties and
to expedite the proceedings, they may lack necessary legal knowledge, ultimately
necessitating an appeal, which will increase the cost.
6. Arbitration prejudice the national sovereignty of the States, International Commercial
Arbitration interfere with national sovereignty, especially in the contracts to which the
State or a public institutions party state waive jurisdiction of its national justice in
adjudicating disputes Streptococcus all, prompting many countries to refrain from
resorting to arbitration to interfere with the national sovereignty.
32
7. Commercial arbitration procedures are not necessarily appropriate unless the
contracting parties are in a position of equal bargaining power.
33
8. Also in multiparty disputes, an arbitral tribunal frequently does not have the power to
join all relevant parties, even though all may be involved in some aspect of the same
dispute. Because the Tribunal’s power derives from the consent of the parties, if a party
has not agreed to arbitrate, usually it cannot be joined in the arbitration. A tribunal
generally does not have the right to consolidate similar claims of different parties, even
if it would be more efficient for all concerned to do so.
34
31
Adams, op. cit., p. 56.
32
Usman, Ghaylan, “International Commercial Arbitration and the ambitions to be taking in the Iraqi legal
system”, The Judicial and Legislation magazine, Published on, http://tqmag.net/body.asp?field= newsarab
ic&id =553&page_namper=p3, 6-11-2012.
33
Adams, op. cit., p. 52.
34
Moses, op. cit., p. 5.
International Commercial Arbitration A Comparative Study
25
d. When is an Arbitration “International”?
Traditionally, there are three means of determining whether an arbitration is
international or not, (a) the nature of the dispute, (b) the nationality of the parties, (c) the
legal standard. Article 1 (1) of ICC Rules of Arbitration provides that:
“The function of the Court is to provide for the settlement by arbitration of
business disputes of an international character in accordance with the Rules of
Arbitration of the International Chamber of Commerce”
35
A combination of the approaches can be found in the Article 1 (3) of
UNCITRAL. Model Law on International Commercial Arbitration which provides that:
1. The parties to an arbitration agreement have, at the time of the conclusion of that
agreement, their places of business in different States; or
2. One of the following places is situated outside the State in which the parties have
their places of business:
a. The place of arbitration if determined in, or pursuant to, the arbitration
agreement;
b. Any place where a substantial part of the obligations of the commercial
relationship is to be performed or the place with which the subject-matter of the
dispute is most closely connected; or
35
Article 1 (1) of ICC Rules of Arbitration, 1998.
International Commercial Arbitration A Comparative Study
26
c. The parties have expressly agreed that the subject matter of the arbitration
agreement relates to more than one country.
36
It is essential to know what is meant by the international nature of arbitration, as
that is central to the private international law regime governing arbitration and to the
associated methodological ambiguity and controversy. In private international law, the
international nature of a relationship or institution is generally examined with a view to
establishing a connection with a particular national legal system. Without international-
lity, there can be no conflict of laws. The existence of conflict of laws also naturally
arises in the context of arbitration. However, that is neither the only nor the most
importance consequence of the international nature of arbitration. Instead, it is
increasingly frequent for the main consequence of the international nature of arbitration
to be whether or not a set of specific substantive rules applies to it. In view of their very
different effect, those two aspects of the international nature of arbitration must be
carefully distinguished, not least because the definition of what is meant by the word
“internationality” differs in each case. In order to determine whether or not arbitration is
connected to a specific legal order, its international nature will be defined on the basis of
certain legal criteria. However, where the international nature of arbitration is a
condition governing the application of specific substantive rules, it will be established
using economic criteria drawn from the substance of the dispute.
37
The question of whether a dispute is international or not in character has usually
been answered by reference to either one of two questions. Firstly, the international
36
Article 1 (3) of UNCITRAL Model Law on International Commercial Arbitration, By the United
Nations Commission on International Trade Law, 21 June, 1985.
37
Goldman, Fouchard, On International Commercial Arbitration, 1st Edition, Kluwer Law International,
Netherland, 1999, p. 45.
International Commercial Arbitration A Comparative Study
27
nature of the agreement may be defined by reference to the nature of the dispute;
secondly, by reference to the identity of the parties and thirdly, by the legal standards.
i. Nature of the Dispute
There may be aspects of a national arbitration system which parties to a dispute
consider undesirable, in particular the possibility of judicial reference, and so they may
turn to international arbitration to resolve their issues.
38
Rather than examine who are the
parties to the arbitration the ICC (International Chamber of Commerce) looks at the
nature of the dispute to decide whether or not it has the power to the dispute in
question.
39
Article 1 (1) of ICC Rules of Arbitration provides that:
“The function of the Court is to provide for the settlement by arbitration of
business disputes of an international character in accordance with the Rules of
Arbitration of the International Chamber of Commerce (the “Rules”). If so
empowered by an arbitration agreement, the Court shall also provide for the
settlement by arbitration in accordance with these rules of business disputes not
of an international character”.
40
The first criterion examines the nature of the dispute between the parties and
categorizes the arbitration as international if the dispute implicates international
38
Bradgate-White, op. cit., p. 505.
39
Tweeddale, Keren-Tweddale, Andrew, A practical Approach to Arbitration Law, 1st Edition, Blackstone
Press Limited, UK, 1998, pp. 273-274.
40
Article 1 of ICC Rules of Arbitration, 1998.
International Commercial Arbitration A Comparative Study
28
commercial interests.
41
Certain countries, such as France, also look at the nature of
dispute decide whether an agreement is international or not. Article 1492 of the French
Code of Civil Procedure, Decree Law No. 81-500 of 12 May 1981 states that: “an
arbitration is international when it involves the interests of international trade”.
However, the courts of France have held that regard should also be had to other elements
such as the nationality of the parties to determine whether or not the contract is of
international character.
42
The international nature of the arbitration does not mean that the parties must
necessarily be of different nationalities. For example, a contract is concluded between
two nationals of the same state for performance in another country, or when it is
concluded between a state, and subsidiary of a foreign company doing business in that
country. The nature of the dispute test less artificial than the identity of the parties test
because it concentrates on the attributes of the dispute, thereby embracing cases where
parties resident in the same state engage in international business transaction.
43
ii. Identity of the Parties
The second method focuses on the identity of the arbitrating parties; their
nationality or habitual place of residence, if they are individuals; or their place of
incorporation, or the seat of their management and control, if they are corporate entities.
This approach is exemplified by the European Convention on International Commercial
Arbitration, which applies to arbitration agreement concluded for the purpose of settling
disputes arising from international business between legal and physical persons having,
41
Chukwumerije, op. cit., p. 4.
42
Tweeddale-Tweddale, op. cit., p. 274.
43
Chukwumerije, op. cit., pp. 4-5.
International Commercial Arbitration A Comparative Study
29
when concluding the agreement, their habitual place of residence or their seat in
different Contracting States. The Swiss law governing international commercial
arbitration also incorporates this approach. Article 176 (1) of the Swiss Private
International Law Act limits the application of the chapter on international arbitration to
cases where the seat of arbitration is situated in Switzerland and, at the time the
arbitration agreement was concluded, at least one of the parties had neither its domicile
nor its habitual residence in Switzerland.
44
However, the articles of the New York
Convention do not help in clarifying what is a domestic arbitration agreement. Article 1
states that:
“This Convention shall apply to the recognition and enforcement of arbitral
awards made in the territory of a State other than the State where the
recognition and enforcement of such awards are sought, and arising out of
differences between persons, whether physical or legal. It shall also apply to
arbitral awards not considered as domestic awards in the State where their
recognition and enforcement are sought”.
45
This method of defining international arbitration is very limiting in that it
excludes some situations where the dispute being arbitrated has a foreign element. For
instance, parties resident in the same country may have a dispute about a subject matter
located in a foreign country. Focusing on the identity of the parties in cases like this
obscures the fact that the nature of the subject matter in dispute imports an international
element into the dispute, an element that may be crucial in the resolution of the dispute.
44
Ibid., pp. 3-4.
45
Article 1 of New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958.
International Commercial Arbitration A Comparative Study
30
This method also categorizes as domestic cases involving a foreign party who has
representative place of business in the country of the other party. For instance, a
transactional corporation based in the United States may have a representative office in
Sydney through which it deals with its Australian customers. To characterize an
arbitration between such a corporation and one of its Toronto customers as domestic
fails to recognize the fact that the dealing between the parties are, as a practical matter,
of an international nature.
46
The definition adopts both the identity of the parties and the nature of the dispute
tests, in addition to two other ones the “situs test” (situation of the arbitration
proceedings outside the place of business of one of the parties) and the “opt-in test” (the
parties expressly agree that the subject matter of the arbitration agreement relates to
more than one country). This definition effectively expands the test of internationality,
although the-opt in provision may create some difficulties. The opt-in clause gives the
parties the opportunity to internationalize an arbitration with exclusively domestic
elements merely by stating that, the subject matter of their arbitration agreement relates
to more than one country. This provision objectionable in that national of the same State
seeking to benefit from the liberal treatment of international commercial arbitration may
find tenuous grounds for proclaiming that their agreement relates to more than one
country, and thereby internationalize their arbitration proceedings. There is evidence that
drafts of the Model Law were aware of this possibility. It was understood by those who
participated in drafting Model Law that the States will be prepared to allow the “opting-
in” only if an element of internationality is present. Such elements should have been that
not all of the following places are situated in the same State: place of offer of contract
46
Chukwumerije, op. cit., pp. 3-4.
International Commercial Arbitration A Comparative Study
31
containing the arbitration clause or of separate arbitration agreement; place of
corresponding acceptance; place of performance of contract or of location of subject
matter; place of registration or incorporation or nationality of each party; place of
arbitration.
47
On the other hand, the nature of dispute and the identity of the parties are the two
main methods of determining when an arbitration is international, although the Model
Law on International Commercial Arbitration introduces additional methods. It is crucial
to remember that the answer to the question whether an arbitration is domestic or
international is always to be found in the provisions of the relevant national law.
48
iii. Legal Standards
The legal standard or the Law Applicable to the arbitration proceedings means
that if the law applicable to the arbitration proceedings is national law counting domestic
arbitration; however, if the applicable law is foreign law counting international
arbitration, it is the same as if arbitration is subject to the provisions of the International
Convention counting international arbitration. However, this trend is subjected to several
criticisms, including the possibility of the conduct of the arbitration proceedings in
several countries, for then the laws that govern its procedures apply as a result of the
movement of the arbitrators between several countries.
49
47
Ibid., pp. 5-6.
48
Ibid., p. 6.
49
Usman, Ghaylan, op. cit.
International Commercial Arbitration A Comparative Study
32
B. Arbitration Agreement
The parties’ arbitration agreement is frequently contained in a clause or clauses
that are embedded in the parties’ commercial contract. The agreement to arbitrate is thus
entered into before any dispute has arisen, and is intended to provide a method of
resolution in the event that a dispute will arise. However, if there is no arbitration clause
in the parties’ contract, and a dispute arises, at that time the parties can nonetheless enter
into an agreement to arbitrate, if both sides agree. Such an agreement is generally
referred to as a submission agreement. However, submission agreement are much less
common than arbitration clauses in contracts, because once a dispute arises, the parties
often cannot agree on anything. For that reason, it is generally better for the parties to
agree to arbitrate at the beginning of the relationship, when they are still on good
terms.
50
Article VII of the UNCITRAL Model Law on International Commercial
Arbitration defines the arbitration agreement as:
“Arbitration agreement" is an agreement by the parties to submit to arbitration
all or certain disputes which have arisen or which may arise between them in
respect of a defined legal relationship, whether contractual or not. An
arbitration agreement may be in the form of an arbitration clause in a contract
or in the form of a separate agreement”
51
50
Moses, op. cit., p. 17.
51
Article VII of UNCITRAL Model Law on International Commercial Arbitration, By the United Nations
Commission on International Trade Law, 21 June, 1985.
International Commercial Arbitration A Comparative Study
33
Also in accordance with Article 251 of the Iraqi Code of Civil Procedures of
1969, an agreement on arbitration may be made in relation to a specific or existing
dispute, as well as in relation to future disputes which may arise from a contract. An
agreement on arbitration may be made as a clause in the contract or as a separate
contract, except in insurance policies where an arbitration agreement must be in a form
of a separate contract.
52
There are two types of arbitration agreement: The first, the submission, is an
agreement to refer existing disputes to arbitration. This is known in continental parlance
as a compromise. The second, the arbitration clause, is an agreement to refer any future
dispute to arbitration. In continental parlance it is known as the clause compromissoire.
The arbitration clause which is usually part of a large commercial agreement is the more
common source of arbitration.
53
An arbitration clause is significantly different from the substantive agreement in
which it is contained. While the latter outlines the rights and obligations of the parties to
a dispute, the former contains the procedure for resolving any disputes that have arisen
or may arise under the substantive agreement. Thus the one may be described as
substantive and the other procedural.
54
The distinction between an arbitration clause and a submission agreement is
reflected in some national laws. Article 1442 of the French Code of Civil Procedure, for
example, states that an arbitration clause is “an agreement by which the parties to a
contract undertake to submit to arbitration a dispute which may arise with respect to the
52
Saleh, Majid, “Arbitration in Iraq”, Arab Law Quarterly, Vol.19, 2004, pp. 267-276. Puplished on,
http://www.iraqilawconsultant.com/publications.html, 15/11/2012.
53
Chukwumerije, op. cit., p. 29.
54
Ibid., p. 30.
International Commercial Arbitration A Comparative Study
34
contract.” Article 1447 of the same code also defines a submission as “an agreement by
which the parties to an existing dispute refer the matter to arbitration by one or more
persons”. Arbitration clauses are not fully recognized in some countries. To illustrate, in
France the general rule is that an arbitration clause is not binding on the parties to a
dispute, except where relates to commercial matters or if it is part of international
contract. Submission agreements in international contracts are generally recognized by
most states and international conventions. One such convention is the New York
convention of 1958 on the recognition and enforcement of foreign arbitral awards, which
provides that: “each contracting state shall recognize an agreement in writing under
which the parties undertake to submit to arbitration all or any differences which have
arisen between them.”
55
And in accordance with the Egyptian arbitration law, the
arbitral agreement is an agreement by which the parties agree to resort to arbitration as a
means of resolving all or some of the disputes which arose or which may arise between
them in connection with a specific legal relationship, contractual or non-contractual.
56
Most of the arbitration laws and conventions define the arbitration agreement as a
written agreement and required to be in writing. For example, Article 1 of Arab
convention on commercial arbitration (Amman convention) states that:
"The Agreement to Arbitrate means the written agreement by which the parties
agreed to resort to arbitration before or after the dispute arose”.
57
55
Ibid., pp. 29-30.
56
Article 10 of Egyptian Arbitration Law, No. 27, 1994.
57
Article 1 of Arab Convention on Commercial Arbitration-Amman Convention, 14 April, 1987.
International Commercial Arbitration A Comparative Study
35
Also, the Australian Commercial Arbitration Act defines the arbitration agreement as:
“Arbitration agreement means an agreement in writing to refer present or future disputes
to arbitration”.
58
a. The Existence of Dispute
When a private company or government decided to do international trade with
other party in another country, region or state, there are a number of reasons may lead to
occur disputes. The disputes submitted to arbitration by the parties under an arbitration
agreement must be “arbitrable”. The concept of arbitrability is related to the nature of
the disputed rights. The arbitration agreement determines what disputes can be
submitted to arbitration.
59
For example according Barbados International Commercial
Arbitration Act, Part I (3), the term of “commercial” shall be given a wide interpretation
so as to cover matters arising from all relationships of commercial nature, whether
contractual or not and relationships of a commercial nature include the following
transaction:
• Any trade transaction for the supply or exchange goods or services;
• Distribution agreement;
• Commercial representation or agency;
• Factoring;
• Licensing;
• Investment;
58
Part 1 (4) of Australian Commercial Arbitration Act, No. 8, 1986.
59
United Nation Conference on Trade and Development, International Commercial Arbitration Dispute
Settlement-The Arbitration Agreement, New York and Geneva, 2005, p. 22.
International Commercial Arbitration A Comparative Study
36
• Financing;
• Banking;
• Insurance;
• Exploitation agreement or concession;
• Joint venture and other forms of industrial or business cooperation; and
• Carriage of goods or passengers by air, sea, rail or road.
60
All agreement which provides for determination of matters other than differences
or disputes is not an arbitration agreement; likewise the court will not refer the matter to
arbitration if liability is not disputed or if the contention advanced had never been put to
the claimant, so that there is no dispute, or the right to dispute liability has been lost by
law or under the contract. The court could also refuse a stay if it considered the claim
was not disputable.
61
60
Part 1 (3) of Barbados International Commercial Arbitration Act, 2007.
61
Goode, op. cit., p. 1176.
International Commercial Arbitration A Comparative Study
37
b. Legal Nature of the Arbitration Agreement
The arbitration agreement is a contract in which the parties to a contract
exchange promises with the legal intention to be bound to the performance of those
promises. Thus parties to the arbitration agreement must possess legal capacity to
conclude such a contract. To understand the legal nature of arbitration we have to
explain: (the parties to the arbitration agreement and their legal capacity to contract, the
agreement to arbitrate, the intention of the parties to conclude legal relations, and the
nature of the promise contained in the arbitration agreement).
62
i. The Parties to the Arbitration Agreement
Parties to the arbitration agreement are the main disputants in the arbitral
reference and also are the same parties to the main transaction from which the dispute
evolves. The parties’ consent is the basic requirement for the arbitration agreement.
Their intention to submit to arbitration must unequivocally arise from the agreement.
Identifying the parties to any particular arbitration agreement is of primary importance
since it is only such persons or entities that shall be bound by its terms, as in any other
contract. Usually an examination of the arbitration agreement will reveal those who are
parties to it. The need to identify parties to the written arbitration agreement arises in
situations where one party denies that it is bound by the arbitration agreement. Such
enquiries are usually found in arbitration references dealing with multiparty, joinder and
non-signatory issues, and where the very existence of the agreement is contested.
62
Onyema, Emilia, International Commercial Arbitration and the Arbitrator’s Contract, 1st Edition,
Routledge, UK, 2010, p. 9.
International Commercial Arbitration A Comparative Study
38
Identifying parties to a written document is relatively straight forward since the names
and description of the parties will be contained in the document. Where however there is
no written record of the agreement, identifying parties to the agreement becomes
problematic. Where the arbitration agreement is contained as a clause in another
contract, the wording in the clause will usually refer to the same parties covered by the
main contract. Physical persons who can sue and be sued under their personal laws can
be parties to arbitration agreements, the arbitrator’s contract and the contract between
the disputing parties and the arbitration institution. In an ICC final award, between a
French manufacturer as claimant and a German distributor as defendant, the arbitrator
declined to exercise jurisdiction over the couple that signed the contract on behalf of the
distributor-company, since there was no valid arbitration agreement between the couple
and the French manufacturer. In this case under German law, the company had not been
registered by the time the arbitration agreement was signed. This decision reflects the
fact that an individual needs to validly conclude an arbitration agreement to be a party to
it and, by extension, to all other contracts emanating from it.
63
63
Ibid., pp. 9-10.
International Commercial Arbitration A Comparative Study
39
ii. Capacity of the Parties to the Arbitration Agreement
The parties to the arbitration agreement must have legal capacity to enter into the
contract; otherwise the parties’ lack of capacity to submit to arbitration entails the
invalidity of the arbitration agreement.
64
The issue of a party’s capacity to enter into
arbitration agreement is no different from any other contract in this respect.
65
The position is no different; the general rule is that any natural person or legal
person who has the capacity to enter into a contract has the capacity to enter into an
arbitration agreement. If the parties entered into arbitration agreement in which one of
the party does not have the legal capacity to do so, the provision of the New York
convention or the Model Law on international commercial arbitration may be brought
into operation, either at the beginning or at the end of the process. At the beginning of
the process, the requesting party asks the competent court to stop the arbitration, based
on that the arbitration agreement is void, incapable of being performed. Also at the end
of the arbitration process, the requesting party asks the competent court to refuse
enforcement of the award and recognition, based on the fact that one of the party to the
arbitration agreement does not have capacity to enter into arbitration agreement under
the applicable law. In practice, the problem of capacity rarely arises in international
commercial arbitration. Nevertheless, lack of capacity is a ground for objection to an
arbitration agreement. It may be useful to look briefly at the kind of questions that may
64
United Nation Conference on Trade and Development, International Commercial Arbitration Dispute
Settlement-The Arbitration Agreement, New York and Geneva, 2005, p. 16.
65
Greenberg, Simon-Kee, Christopher-Weeramantry, J, International Commercial Arbitration-an Asia
Pacific Perspective, 1st Edition, Cambridge University Press, New York, 2011, p. 169.
International Commercial Arbitration A Comparative Study
40
arise; (in relation to individuals and corporate entities, and more importantly in relation
to states and state entities).
66
A question of capacity often becomes a point of dispute when one of the parties
is a state entity, where a state official or body (such as ministry) has signed the
arbitration agreement, a question may arise as to whether that signature binds the state
itself. This issue has been considered by Dunham and Greenberg. The authors observe
that nation states should not be permitted to rely on their own laws to escape an
arbitration agreement. This principle is also recognized in international arbitral
jurisprudence. One leading example is ICC Case No 1939 rendered in 1971 in which the
tribunal stated: “international order public would vigorously reject the proposition that a
state organ, dealing with foreigners, having openly, with knowledge and intent,
concluded an arbitration clause that inspires the co-contractant’s confidence, could
thereafter, whether in the arbitration or in execution proceedings, invoke the nullity of its
own promise. The principle that a state may not rely on its national laws to escape its
obligation to arbitrate appears as a truly international public law provision for
international arbitration law which is independent from the content of the domestic law
of the state concerned.
67
The legal capacity of the parties to an arbitration agreement is regulated under
the personal law of the individual and the law of the place of incorporation or
registration of the legal entity. Since the arbitration agreement emanates from the
underlying transaction, it is the same law that governs questions of legal capacity of the
parties under the main contract that will determine the same question as it affects the
66
Redfern, Alan-Hunter, Martin, Law and Practice of International Commercial Arbitration, 4th Edition,
Sweet and Maxwell, London, UK, 2004, p. 145.
67
Greenberg-Ker-Weeramantry, op. cit., pp. 169-170.
International Commercial Arbitration A Comparative Study
41
arbitration agreement. Legal capacity is necessary as a requirement because the
arbitration agreement is a contract entered into by the parties to a dispute. The parties to
an arbitration agreement must have legal capacity to contract under the relevant
regulatory law. This may be the law of the individual’s place of habitual residence or
domicile or the law of the place where the company is registered or has its principal
place of business. Where a registered company has more than one place of business, the
Model Law of international commercial arbitration provides that: ‘the place with the
closest relationship to the arbitration agreement’, shall be deemed the place of business.
Therefore the law of that place would apply to determine the capacity of the company to
enter into the arbitration agreement and by implication the arbitrator’s contract and the
contract with the arbitration institution.
68
The capacity of the party to enter into an arbitration agreement is governed by
contract law principles. The general common law principle is that all persons should be
bound by the contracts that they make. This general rule is subject to a number of
exceptions. Persons under age of 18 years and mentally ill persons have a qualified
capacity. Corporate bodies, individuals, partnerships, and public authorities will
generally all be bound by arbitration agreement that they make.
69
The parties to such
agreements include individuals, corporations, partnerships, states and state agencies:
68
Onyema, op. cit., p. 14.
69
Tweeddale-Tweddale, op. cit., p. 86.
International Commercial Arbitration A Comparative Study
42
1. Natural person
The New York Convention of 1958 for Enforcement and Recognition of Foreign
Arbitral Awards and the Model Law on international commercial arbitration, require the
parties to an arbitration agreement to have the capacity to enter into binding contract
under the law applicable to them. The capacity of an individual to enter into a binding
contract within the state of his place residence and domicile will depend upon the law of
that state; but in the framework of an international contract it may become necessary to
have regard to the law of the contract. For example a person aged ninety may well have
the capacity to enter into arbitration under his or her personal law, but may not have the
capacity to enter into an arbitration agreement under the law governing the transaction in
question. If that transaction turned out badly, a party who not have the capacity to enter
into an arbitration agreement under one or other of the two systems of law might rely
upon this as a reason for not enforce the contract. However, there can be an applicable
rule of law that defeats such sophistry.
70
For example the Rome convention provides
that:
“In a contract between persons who are in the same country, a natural person
who would have capacity under the law of that country may invoke his incapacity
resulting from another law only if the other party to the contract was aware of
his incapacity at the time of the conclusion of the contract or was not aware
thereof as a result of negligence”
71
70
Redfern-Hunter, op. cit., pp. 145-146.
71
Article 9 of the Rome Convention on the Law Applicable to Contractual Obligation, 1980.
International Commercial Arbitration A Comparative Study
43
2. Corporations
The capacity of a corporation to enter into a binding contract is governed by the
law of its place of incorporation. However, as with an individual, in the framework of an
international commercial agreement it may well be necessary to the law governing that
agreement. For instance, a corporation may be prevented under its constitution from
dealing in securities anywhere in the world, also may be allowed to do so in another
country by the law of that country. If a corporation enters into a business transaction that
goes beyond its power and the transaction turns out badly, it would be open to the
corporation to contend that, the agreement was not binding on it. Also it was not obliged
to arbitrate any dispute.
72
Corporate bodies are bound by contracts even where the purpose of the contract
is outside the company’s memorandum of association. The arbitration clause can be
enforced by any person who deals with the company in good faith. A corporate body
that has been created by statute also has the capacity to enter into arbitration agreement,
subject to any provision expressed in its constitution to the contrary. Where there is a
partnership, any partner who enters into a contract which contains an arbitration clause
binds the whole partnership. A distinction has to be drawn, however, between future and
existing disputes. A partner cannot enter into an arbitration agreement to refer an
existing dispute to arbitration, only a future dispute. To refer an existing dispute to
arbitration the other partner would need to adopt or agree to the arbitration, either
expressly or impliedly by their conduct.
73
For example, both Salini Costruttori S.p.A.
72
Redfern-Hunter, op. cit., p. 145.
73
Tweeddale-Tweddale, op. cit., p. 86
International Commercial Arbitration A Comparative Study
44
and Italstrade S.p.A, incorporated under the laws of Italy as the Claimants against the
Hashemite Kingdom of Jordan or the respondent, and request for arbitration from
ICSID, dated 8 August 2002.
74
An unincorporated body has no legal identity and therefore cannot be a party to a
contract such as an arbitration agreement, unless it is given express or implied authority
by statute. Any member of an unincorporated body who enters into a contract without
the authority of the other members is bound by it, but it does not bind all the persons
who from time to time are members of the association. However if some of the members
expressly or implied authorised the entry into the contract then the contract is binding on
them under the principle of agency law.
75
3. States and State Entities
The traditional sovereignty of the state and the immunity flowing from it has
many facets which may impinge of the capability of a private contracting party to pursue
arbitration against state. In particular:
1. Since each state is considered sovereign in its own territory, the general principle
of international law the courts of a foreign state will regard as outside their
competence and non-justifiable issues concerning “acts of state” performed by the
first state within its own jurisdiction;
2. A state may not in principle be impleaded before the courts of a foreign state
without the first state’s consent;
74
ICSID Case No. ARB/02/13, Between Both Salini Costruttori S.p.A. and Italstrade S.p.A Against the
Hashemite Kingdom of Jordan, 2002.
75
Tweeddale-Tweddale, op. cit., p. 87.
International Commercial Arbitration A Comparative Study
45
3. The constitution of a state may contain limitation on the power of the state to
enter into commercial contracts or to submit to arbitration agreement; and
4. The law of a state may contain provisions limiting the range of persons having
power to bind the state to contracts.
76
It is a widely accepted principle of international commercial arbitration that a state on
whose behalf an arbitration agreement has been concluded cannot set up as a bar to
jurisdiction its internal law restricting the capacity of the state to enter into the
arbitration agreement or authority of the person entering into it on behalf of the state.
77
It
would be unusual for states and state agencies to encounter a corporation whose
constitution insisted that all disputes should be referred to the courts, rather than to
arbitration. Arbitration nowadays is almost always the preferred method of resolving
international commercial disputes. For example, ICSID Case No. (ARB/08/2) between
ATA Construction, Industrial and Trading Company from Turkey, against The
Hashemite Kingdom of Jordan. There was a contract between the ATA Company and
the Arab Potash Company (APC) for a construction project in Jordan. The dike
constructed by ATA for the Arab Potash Company collapsed when APC start to
continue work. When the Hashemite kingdom of Jordan went to the Jordanian court and
claimed against the Turkish Company, the Jordanian Court decided this mistake
belonged to the ATA Company. Then, the ATA Company decided to bring the case
before international commercial arbitration to resolve and brought the case before the
International Centre for Settlement of Investment Disputes (ICSID). After the
presentation of evidence by both parties, the Arbitral Tribunal decided that the decision
76
Goode, op. cit., pp. 1195-1196.
77
Ibid., p. 1197.
International Commercial Arbitration A Comparative Study
46
of the Jordanian court is unlawful because the court is a state controlled body in Jordan.
Then, the Tribunal decided the mistake which led to the collapse of the dike belonged to
APC not to ATA because the ATA Company finished their work in the best way without
any technical mistakes, and the dike collapsed while under the supervision of the Arab
Potash Company (APC). The Hashemite Kingdom of Jordan lost the case.
78
Also in France, under Article 2060 of the Civil Code, disputes relating with
public collectives, public establishments and all matters involving public policy may not
be referred to arbitration to resolve it. However certain commercial public entities and
industrial may be authorized by decree to enter into arbitration agreements. Furthermore,
disputes arising out of commercial or industrial activities may be referred to
international commercial arbitration. This means that before entering into arbitration
agreement with another state entity or a foreign state it is advisable to check that the
persons entering into an arbitration agreement on behalf of state agencies or behalf of
the state have the necessary authority to do so. Additionally, it is wise to check that any
necessary procedures for obtaining consent to an arbitration agreement are obtained. If
one of the parties to the arbitration agreement is a state or organization controlled by it
or enterprise, it cannot rely on its own law in order to contest its own capacity to be a
party to an arbitration agreement or to enter into an arbitration agreement or the
arbitrability of a dispute covered by the arbitration agreement. In fact, the significant
point is that there may be restriction on the power of a state or state entity to enter into
an arbitration agreement if this restriction is qualified as matters of subject arbitrability
78
International Centre for Settlement of Investment Disputes, Washington, D.C., Summary of the Case
No. ARB/08/2, May 18, 2010 Between the Hashemite kingdom of Jordan and ATA Construction,
Industrial and Trading Company from Turkey.
International Commercial Arbitration A Comparative Study
47
or of capacity. Legal advisers or other dealing with a state or state entity must be aware
of this point.
79
Capacity of foreign states, a foreign state can be a party to an arbitration
agreement if its constitution permits. Enforcement of an arbitration award in the courts
of England is permitted against a foreign state under section 1 of the State Immunity Act
1978. However provides exceptions. A foreign state will not be bound by an arbitration
award if the parties have so agreed or if the arbitration is between two states. If an award
is made against a state then the state may seek to protect itself by pleading that it has
immunity from execution. In order to overcome this problem a State would have had to
agree to exclude this right to immunity in the arbitration agreement or alternatively the
party claiming will have to show that the funds which it seeks to claim are funds held for
a commercial purpose.
80
It means that a state can be entered into arbitration agreement,
protect itself by present evidence to the arbitrators. For example, in ICSID case No.
ARB/03/11 involving the Joy Mining Machinery Limited Company from the U.S and
the Arab Republic of Egypt, the Joy Mining Machinery Company went to Egyptian to
bring out the phosphate in Abu Tarttur. The dispute in this case arose when the
American Company (Joy Mining), after beginning work, asserted that there were
geological problems in the mine site as well as poor management by Arab Republic of
Egypt and breach of contract. So Joy Mining decided to bring the case on February 26,
2003 before the International Center for the Settlement of Disputes (ICSID) to resolve.
The center appointed a date to meet with both parties, and after both parties presented
their evidence, and arbitrators discussed the matter, Arbitral Tribunal decided in favor of
79
Redfern-Hunter, op. cit., pp. 147-148.
80
Tweeddale-Tweddale, op. cit., p. 88.
International Commercial Arbitration A Comparative Study
48
the Arab Republic of Egypt: They decided that Arab Republic of Egypt had provided
proper facilities for the Joy Mining Company, so the Arab Republic of Egypt won the
case.
81
c. Existence of an Agreement
The most common way in which arbitration arises is by the voluntary agreement
of the parties either before or after a dispute has arisen.
82
Generally an agreement comes
into existence when a valid and unequivocal offer is accepted. The arbitration agreement
is a bilateral contract in which both parties make legally binding promises to each other.
To amount to a valid offer, the communication, has to be ‘an expression of willingness
to contract on specified terms, made with the intention that it is to become binding as
soon as it is accepted by the person to whom it is addressed’. Acceptance on the other
hand is defined as ‘a final and unqualified expression of assent to the terms of the offer’.
Applying these objective definitions to the conclusion of the arbitration agreement, one
party (offeror) makes an offer to arbitrate disputes arising from the underlying
transaction to the other party (offeree) which the offeree accepts. This description of
how the arbitration agreement is concluded is quite straightforward. The difficulty lies in
identifying the exact time when the offer is accepted and by which of the parties to the
agreement. This will depend on whether the agreement is a clause in a main contract or a
standalone submission agreement. In the case of a clause, it can be argued that the offer
is made at the same time as the offer in the underlying contract, since the arbitration
81
International Centre for Settlement of Investment Disputes, Washington D.C., Summary of the Case
No.ARB /03/11, 6 August, 2004, Between Joy Mining Machinery Limited Company Against Arab
Republic of Egypt.
82
Marsh, S-Soulsby, J, Business Law, 3rd Edition, McGRAW Hill Book Company, UK, 1985, p. 34.
International Commercial Arbitration A Comparative Study
49
agreement is a clause or more appropriately a term of the main contract. If this analysis
is correct then the offeror is the same party in both the main contract and the arbitration
agreement. In a submission agreement the offer is made after the dispute arises by the
party who unequivocally communicates its intention to arbitrate the resulting dispute to
the other contracting party. The initiating party is the offeror while the party to whom
the offer was made becomes the offeree. The offeree is at liberty to accept or reject the
offer to arbitrate the dispute. If the offeree accepts the offer, then the arbitration
agreement is concluded. It is only after this offer has been accepted and an agreement
concluded that the parties can commence the arbitral reference. This same analysis will
apply in a battle of forms situation, to determine whether the parties actually concluded
an arbitration agreement, where the clause is contained as a clause in the standard form
contract of one of the contracting parties.
83
d. Validity of the Arbitration Agreement
The arbitration agreement must be valid under the law applicable to it. Matters on
the validity of the arbitration agreement are divided into two parts, those that deals with
issues of those on substantive validity which seek to prove what the parties agreed on
(The Objective Requirements for the Arbitration Agreement) and formal validity which
seek to prove that there is an arbitration agreement in existence (The Formality
Requirements for the Arbitration Agreement). Matters on the validity of the arbitration
agreement are determined by the law applicable to the arbitration agreement or the law
of the state where the award was made, or the proper law of the main contract, or in
83
Onyema, op. cit., p. 15.
International Commercial Arbitration A Comparative Study
50
accordance with the intention of the parties to the arbitration agreement without
reference to any particular national law.
84
i. The Objective Requirements for the Arbitration Agreement
The objective conditions for the arbitration agreement must be available and
these conditions consist of three components. The first is an acceptance in which the
arbitration agreement is a consensual contracts binding on both parties. This convenes
once the valid offer is accepted, and the parties’ acceptance is sufficient for this to take
place. The parties to a dispute must have eligibility to make an arbitration agreement.
This eligibility is the capacity to act in asserting disputed rights to be resolved by
arbitration; any party can be held to an arbitration agreement only if he/she has such
eligibility. The personal law of the parties to the agreement must be referred to in order
to see the legal rules governing capacity matters, and this law either to be the law of the
country in which the person is a national or the law of the country in which they reside.
The second is the subject of contract. The subject of the contract shall be possible, shall
not be illegal and shall not be impossible.
85
For example in accordance with the Iraqi
Code of Civil Procedures and Egyptian arbitration law, arbitration is not permitted in
matters where compromise is not allowed; arbitration is permitted only in matters where
compromise is allowed.
86
The third condition is the reason for a contract. The reason for the arbitration
agreement is the willingness of the parties to withdraw the dispute from the hands of
84
Ibid., p. 17.
85
Usman, op. cit.
86
Article 254 of the Iraqi Code of Civil Procedures, No. 83, 1969, & Article 11 of Egyptian Arbitration
Law, No. 27, 1994.
International Commercial Arbitration A Comparative Study
51
judges and put it in the hands of arbitrators to resolve it. The reason for a contract shall
be legal and shall not be illegal. As mentioned above when one party (offeror) makes an
offer to arbitrate disputes arising from the underlying transaction to the other party
(offeree) which the offeree accepts, the contract comes into existence if the offer is
accepted by another party to a dispute
87
ii. The Formality Requirements for the Arbitration Agreement
According to the (UNCITRAL), Model Law on International Commercial
Arbitration, the arbitration agreement must be written and signed by the parties. Article
7 (2) provides that:
“The arbitration agreement shall be in writing. An agreement is in writing if it is
contained in a document signed by the parties or in an exchange of letters, telex,
telegrams or other means of telecommunication which provide a record of the
agreement, or in an exchange of statements of claim and defence in which the
existence of an agreement is alleged by one party and not denied by another. The
reference in a contract to a document containing an arbitration clause
constitutes an arbitration agreement provided that the contract is in writing and
the reference is such as to make that clause part of the contract”.
88
When the parties agree to arbitrate, the question of the arbitration agreement’s validity is
critical Arbitration is creature of consent and that consent should be freely, knowingly,
87
Usman, op. cit.
88
Article 7 (2) of UNCITRAL Model Law on International Commercial Arbitration, By the United
Nations Commission on International Trade Law, 21 June, 1985.
International Commercial Arbitration A Comparative Study
52
and competently given. Therefore, to establish that parties have actually consented,
many national laws, as well as the New York Convention, require that an arbitration
agreement be in writing. In addition, the Convention requires that, in some
circumstances the written agreement be signed by both parties to a dispute. The issue of
whether the agreement was in writing, signed and therefore valid, is likely to arise when
one party seeks to renege on its agreement to arbitrate. Although the party may have
agreed to arbitrate, after a dispute arises it may decide that it would rather go to court,
and will therefore commence litigation. In addition, the issue of the arbitration
agreement’s applicability to specific parties may arise when one party asserts that it
never signed the agreement, or when a non-signatory tries to enforce the agreement
against a signatory. In these cases, a party may call upon the court for assistance.
89
For
example, the New York Convention in Article II provides that:
1. Each Contracting State shall recognise an agreement in writing under which the
parties undertake to submit to arbitration all or any differences which have arisen
or which may arise between them in respect of a defined legal relationship,
whether contractual or not, concerning a subject matter capable of settlement by
arbitration.
2. The term ‘agreement in writing’ shall include an arbitral clause in a contract or an
arbitration agreement, signed by the parties or contained in an exchange of letters
or telegrams.
3. The court of a Contracting State, when seized of an action in a matter in respect of
which the parties have made an agreement within the meaning of this Article,
shall, at the request of one of the parties, refer the parties to arbitration, unless it
89
Moses, op. cit., pp. 18-19.
International Commercial Arbitration A Comparative Study
53
finds that the said agreement is null and void, inoperative or incapable of being
performed.
90
International arbitration agreements are enforceable under the New York
convention, even though the title of the convention does not mention agreements; it is
called the convention on the Recognition and Enforcement of Foreign Arbitral Award.
Nonetheless, the convention deals with arbitration agreement in Article II, in accordance
with Article II, Contracting States must recognize arbitration agreements in writing. If
the court is seized of a matter that is in fact the subject matter of a binding arbitration
agreement, the court must stay the proceedings and refer the parties to a dispute to
arbitration.
91
1. Writing
Under most arbitration laws, the arbitration agreement is required to be in writing.
An agreement to arbitrate contains a legally enforceable promise made by an individual
or entity to opt out of its legally protected right to apply to a national court for the
resolution of a covered dispute, and to seek resolution of the same dispute through the
private dispute resolution mechanism of arbitration. Most national laws consider this a
promise of utmost seriousness, consent to which should be clearly evidenced, and the
best means of evidencing such consent is by writing.
92
Most states authorizing voluntary
arbitration require the agreement to be in writing; for example, Article 252 of Iraqi Code
of Civil Procedures (ICCP) provides that: “the agreement on arbitration can only be
90
Article II of New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, 1958.
91
Moses, op. cit., p. 19.
92
Onyema, op. cit., p. 17.
International Commercial Arbitration A Comparative Study
54
approved in writing.”
93
Also in accordance with the Egyptian arbitration law, without a
written form, an arbitration agreement is considered null and void. So arbitration
agreement shall be in writing. Article 12 of Egyptian arbitration law provides that:
“The arbitral agreement must be concluded in writing; otherwise it shall be null and
void. It shall be in writing if included in a document signed by both parties or in
letters, cables or other means of written communication exchanged between
them”.
94
According to the Draft Commercial Arbitration Law for Adoption by the
National Assembly in its Imminent Session on 14 May 2010, an arbitration agreement
must be made in writing, and the following agreements are regarded as made in writing:
1. An agreement established by communication between the parties by telegram,
fax, telex, email or other forms as stipulated by law;
2. An agreement established by written communication between the parties; and
3. An agreement recorded in writing by a lawyer, a notary public or a competent
authority
95
Online arbitration is a new form of arbitration which has developed with the
increase of uses of the Internet. Some of the arbitration institutions with long traditions
are providing dispute resolution services online. For example, the World Intellectual
Property Organization, the International Chamber of Commerce and the American
93
Article 252 of Iraqi Code of Civil Procedure, No. 83, 1969.
94
Article 12 of Egyptian Arbitration Law, No. 27, 1994.
95
Brown, Mayer, Draft Commercial Arbitration Law for Adoption by the National Assembly in its
Imminent Session, Legal Update Litigation & Dispute Resolution, Vietnam, 14 May, 2010. Published on,
http://www.may erbrown.com/public_docs/Draft-Commercial-Arbitration-Law-Adoption.pdf. 11/01/2013.
International Commercial Arbitration A Comparative Study
55
Arbitration Association conduct arbitration procedures online.
96
Sometimes arbitration
agreement may be formed by electronic means. As I mentioned, in traditional
arbitrations, the arbitration agreement should be in writing. For example, Article II (2) of
the New York Convention on the Recognition and Enforcement of Foreign Arbitral
Awards states that: “the term, agreement in writing, shall include an arbitral clause in a
contract or arbitration agreement, signed by the parties or contained in an exchange of
letters or telegrams”. Another important regulation about international arbitration is the
European Convention on International Commercial Arbitration. According to Article I
(2) (a) of the European Convention, an arbitration agreement shall mean either an
arbitral clause in a contract or an arbitration agreement being signed by parties, or
contained in an exchange of letters, telegrams, or in a communication by teleprinter and,
in relations between States whose laws do not require that an arbitration agreement be
made in writing, any arbitration agreement concluded in the form authorized by these
laws.
97
Electronic commerce is experiencing continued rapid growth, and contractual
practices are constantly changing. The aim is to show that international commercial
arbitration law can cope with the peculiarities of electronic commerce, even if these
peculiarities (especially dematerialization) have an impact on the methods of dispute
resolution. Online dispute resolution helps reduce the costs of dispute resolution.
Secondly, it encourages better enforcement of the solution recommended or imposed by
96
Armağan, Bozkurt, “Online International Arbitration”, Ankara Law Review, Vol. 4, No. 1, Summer,
2007, pp. 83-93.
97
Ibid.
International Commercial Arbitration A Comparative Study
56
the chosen institution.
98
One of the requirements of international agreements is the
signature. It is the same as when the contract is concluded on a website that invites the
user to fill out an electronic form and to click on the “I accept” button, it could be
argued. It could also be argued that if the clause appears in an electronic contract, it has
not been signed by the parties, as required by the first alternative in Article II (2). In
reality, the acceptance of the electronic signature in different legal systems by adoption
of the UNCITRAL Model Law on Electronic Signatures or by transposition of Directive
1999/93/EC on Electronic Signatures leads to the conclusion that the clause is valid as
long as the signature processes are secure. In any event, the conclusion that such a clause
is valid can also be reached by applying the second alternative in Article II (2), namely
that acceptance of an offer on a website constitutes an exchange of data comparable to
the exchange of letters or telegrams.
99
Electronic Signatures are used in electronic
communication, electronic documents and electronic transactions, which take place in
channels that are not always secure, either because they are open networks to which
everyone has access, like the internet, or because, in the case of closed networks,
unauthorized persons may gain access to them through attacks.
100
When a disagreement
between parties that have stipulated an arbitration agreement cannot be resolved, it is up
to the claimant to refer the matter to the Arbitral Tribunal. This referral can be drawn up
and sent electronically. Secure electronic signature technology allows the Arbitral
Tribunal to be certain that the referral e-mail is indeed sent by the person claiming to be
the author. The arbitral institution then informs the respondent of the existence of the
98
United Nation Conference on Trade and Development, International Commercial Arbitration-Electronic
Arbitration, New York and Geneva, 2003, p. 6.
99
Ibid., p. 20.
100
Laborde, Carolina, Electronic Signatures in International Contract, 1st Edition, Peter Lang, Frankfurt,
2008, p. 21.
International Commercial Arbitration A Comparative Study
57
proceedings by e-mail. The referral by the claimant and the notification to the
respondent can perfectly well be done by e-mail if the arbitration rules to which the
litigants have signed up so provide.
101
In some countries, including the United States,
India and members of the European Union, electronic signatures have legal
significance.
102
For example, in the United States, the Revised Uniform Arbitration Act
of 28 August 2000 provides for the use of electronic signature by the arbitrators, and its
Article 33 is accepted by the various states in the United State.
103
Also European Union
as a whole, and its Member States have well developed regulations regarding legal
treatment of electronic signatures, their scope and hair applicability to contracts and
other transactions, as well as different technical regulations and specifications. Software
products for e-signing currently available on the markets of European countries differ in
scope and use of technology. While many of them comply with national laws and
standards, an enterprise working internationally will have difficulty integrating them in
single software architecture, synchronizing and harmonizing their work. The European
Council issues recommendations to Member States through Directives. The main
document dealing with electronic signatures is Directive 1999/93/EC adopted on 1
September, 1999. In brief, it assesses necessity of legal recognition of electronic
signatures, and the direction towards making them secure and non-reputable. Seven
years after directive acceptance, on 15 March 2006, the European Council issued
document analyzing the acceptance of the directive by the Member States. It reports
major compliance of Member States legislative systems with the Directive. In addition,
101
Ibid., p. 32.
102
http://en.wikipedia.org/wiki/Digital_signatures, 10/ 04/ 2013.
103
United Nation Conference on Trade and Development, International Commercial Arbitration-
Electronic Arbitration, New York and Geneva, 2003, p. 51.
International Commercial Arbitration A Comparative Study
58
the Commission issued a list of generally recognized standards in accordance with the
Directive; for example, the French Law of 13 March 2000 adapts the Civil Code of the
Republic, thus making electronic signatures legally acceptable. This implementation of
the Directive 1999/93/EC gives legal value to electronic signatures and makes
documents signed hereby legally admissible. Also German Law of Basic Conditions for
Electronic Signatures was adopted on 16 May 2001. It follows Directive 1999/93/EC,
and repeals the older Digital Signature Act, part of Federal law on Information and
Communication Services of 1 August 1997. The law prescribes necessary security
infrastructure to make electronic signatures accepted at par with their handwritten
counterparts. An Ordinance on Electronic Signatures, adopted on 16 November 2001,
further elaborates on standard minimum technical requirements for technology of digital
signing and verification. And the Spain Electronic signature Law of 19 December 2003
repeals Royal Decree of the same name issued in 1999, thus harmonizing Spanish law
with requirements of the Directive. The main impact of the law on Spanish society is
through establishment of a legal basis for nationwide use of national electronic ID card.
The Royal Decree of 23 December 2005 amends national legislation towards acceptance
of electronic signature by private parties and corporate entities. Recently, Spain has
adopted detailed specification of electronic invoices. What is particularly important is
that the Law of Public Sector Contracts of 30 October 2007 mandates use of electronic
invoice in transactions between public businesses. All the invoices should be protected
by the application of electronic signatures.
104
Also legislation passed in the U.S., Canada, U.K., Australia, New Zealand, and
most nations around the world establishes the legality of e-signatures. Documents signed
104
http://www.eldos.com/security/Articles/5743.php, 11/04/2013.
International Commercial Arbitration A Comparative Study
59
online with legally compliant e-signature software are as valid and binding as traditional
pen-and-paper documents Electronic Signatures in Global and National Commerce Act
(U.S) The E-SIGN Act, passed by Congress in June, 2000, is the premier federal law
ensuring the legality of documents executed with e-signatures in the United States. The
E-SIGN Act states that contracts with electronic signatures may not be denied legal
effect or ruled unenforceable because they were created digitally. Similar in structure
and content to the EU Directive, the U.K.’s Electronic Communications Act promotes
the legal validity of e-signatures and provides guidance on data storage, encryption
services, and electronic communications for residents of England, Scotland, and Wales.
In addition Australia’s Electronic Transactions Act defines a regulatory framework for
electronic transactions and states that no transaction will be invalidated because it was
completed electronically.
105
Similarly, the Turkish International Arbitration Law does
not exclude technological developments. Under Article 4 of Turkish International
Arbitration Law, arbitration agreements shall be in writing. In order to fulfill this
condition, an arbitration agreement shall be a written document signed by the parties or
contained in an exchange of letters, telegrams, telex, fax or an electronic medium.
Therefore under Article 4, an arbitration agreement by electronic means will be accepted
as valid under Turkish Law.
106
E-mail is a way of document transfer which increases flexibility and efficiency,
similar to fax transmission. Using electronic signatures in an arbitration agreement will
help protect the parties. For example Turkey has had an electronic signature law since
2004. According to this law, it has been accepted that a secure electronic signature is the
105
http://www.e-signature.com/e-signature-law/, 07/04/2013.
106
Armağan, op. cit., pp. 83-93.
International Commercial Arbitration A Comparative Study
60
equivalent of a manual signature; therefore a document signed with an electronic
signature would have the same legal effects as one signed manually. However, if a
proper electronic signature has not been used and one of the parties claims that he did
not send the e-mail, an evidentiary problem will occur. Nevertheless, this kind of
problems is not unique to electronic signatures because a similar situation may occur
with fax, telex or telegram transmissions.
107
Also Article 1 of BCICAC (British Columbia International Commercial Arbitration
Centre) provides that:
(2) Where
a) Parties have agreed in writing to submit a dispute which has arisen or may arise
between them in respect of a defined legal relationship, whether contractual or
not, to arbitration under the rules of the BCICAC; and
b) The arbitration referred to in (a) is an international commercial arbitration; the
arbitration shall be conducted in accordance with these Rules.
(3) The parties to arbitration under these Rules may modify the Rules by agreement in
writing.
108
In addition Section 4 of Australian commercial arbitration act of 1996 states that:
“arbitration agreement means an agreement in writing”.
109
Thus an arbitration agreement
in writing is still the best evidence of the promises made by the parties on this issue and
is still to be encouraged.
110
Also in accordance with the UNCITRAL model law on
107
Ibid., pp. 83-93.
108
Article 1 of British Columbia International Commercial Arbitration Centre, 1 January, 2000.
109
Section 4 of Australian Commercial Arbitration Act, No. 8, 1986.
110
Onyema, op. cit., p. 17.
International Commercial Arbitration A Comparative Study
61
international commercial arbitration, arbitration agreement must be made in writing and
signed by the parties to a dispute, Article 7 provides that:
1. An arbitration agreement is in writing if its content is recorded in any form,
whether or not the arbitration agreement or contract has been concluded orally,
by conduct or by other means.
2. The requirement that an arbitration agreement be in writing is met by an
electronic communication if the information contained therein is accessible so as
to be usable for subsequent reference; ‘electronic communication’ means any
communication that the parties make by means of data messages, magnetic,
optical or similar means, including but not limited to electronic data interchange
(EDI), electronic mail, telegram, telex or telecopy.
3. Furthermore, an arbitration agreement is in writing if it is contained in an
exchange of statements of claim and defence in which the existence of an
agreement is alleged by one party and not denied by the other.
4. The reference in a contract to any document containing an arbitration clause
constitutes an arbitration agreement in writing, provided that the reference is
such as to make that clause part of the contract.
111
One explanation for the writing requirements is ensuring that parties are
adequately aware of their waiver of otherwise-available access to national courts and
judicial remedies when agreeing to arbitrate and of the gravity of their commitment to
arbitrate. In this respect, the “writing” requirement for arbitration agreements is similar
111
Article 7 of UNCITRAL Model Law on International Commercial Arbitration, By the United Nations
Commission on International Trade Law, 21 June, 1985.
International Commercial Arbitration A Comparative Study
62
in its rationale to form requirements under various national laws for matters such as real
property transaction or testaments, where special form requirements apply. This
rationale is sometimes supported by agreements that waiver of access to judicial
remedies should require special formalities to ensure due notice and reflection: the
protection of the parties concerning from entering into ill-thought-out commitments
involving the renunciation of their right of access to normal courts and judges.
112
Another example is Netherlands Arbitration Act; Article 102 of the Netherlands
Arbitration Act provides that:
“The arbitration agreement shall be proven by instruments in writing. For this
purpose an instrument in writing which provides for arbitration or refers to
standard conditions providing for arbitration is sufficient, provides that this
instrument is expressly or impliedly accepted by or on behalf of the other
party”.
113
The 1986 Act abolished the possibility which existed under the Old Dutch Act that an
arbitration agreement be concluded orally.
114
112
Born, Gary, International Commercial Arbitration, 1st Edition, Kluwer Law International, Netherland,
2009, pp. 584 -585.
113
Article 12 of Netherland Arbitration Act, 1986.
114
Jan, Albert-Berg, Den, International Commercial Arbitration-Important Contemporary Questions, 1st
Edition, Kluwer Law International, Netherland, 2003, p. 57.
International Commercial Arbitration A Comparative Study
63
2. Signature
The European Convention on International Commercial Arbitration, Article II
(1) provides that the convention applies to:
“Either an arbitral clause in a contract or an arbitration agreement, the contract
or arbitration agreement being signed by the parties or contained in an
exchange of letter, telegrams or in communication by teleprinter”.
115
This provision improves modestly on Article II (2) of the New York Convention.
It makes clear that parties’ “letters,” “telegrams” and similar communications need not
be signed, while expanding (slightly) the category of “telegrams” to include
“communication by teleprinter”. On the other hand, the European convention’s more
precise drafting makes it very difficult to avoid the conclusion that a contract must be
signed (while telexes, letters, or similar communications need not be). This continues the
New York convention’s undesirable application of relatively archaic form requirements
to international commercial arbitration agreement.
116
The New York Convention
requires the arbitration agreement to be signed so that where the arbitration agreement is
contained as a clause in the main contract then the signature of execution of the main
contract suffices for purposes of the validity of the arbitration clause. The Model Law
Option I takes into account modern forms of communication including in particular
electronic communication, the option carefully does not mention signature, though
signature is required under the original version of the Model Law (1985). This reflects
115
Article II (1) of European Convention on International Commercial Arbitration, 1961.
116
Born, op. cit., 1st Edition, p. 600.
International Commercial Arbitration A Comparative Study
64
the generally accepted view that signature is not required as long as the arbitration
agreement is in writing or its existence not denied by one party when alleged by the
other party.
117
iii. Other Requirements for the Arbitration Agreement
Other requirements for the arbitration agreements are a legal relationship
between the parties and objective arbitrability which refers to the nature of the subject
matter of the underlying transaction from which the disputes to be arbitrated emanate.
The requirement for a defined legal relationship means that the underlying transaction is
not limited to those of a contractual nature but will cover disputes arising from tortuous
or delictual liabilities. The disputes submitted to arbitration by the parties under an
arbitration agreement must be “arbitrable.” The concept of arbitrability is related to the
nature of the disputed rights. The discussions on objective arbitrability concentrate on
the question means disputes arising from a particular subject matter can be submitted to
arbitration for resolution. The requirement of a defined legal relationship also affects
the issue of arbitrability.
118
Defined legal relationship is also a requirement under some
international conventions and laws, for example, both the New York Convention (article
II.1.) and the Model Law (article 7.1.) establish that, “the arbitration agreement must
refer to differences which have arisen or which may arise between them in respect of a
defined legal relationship, whether or not contractual.” In addition to those generic
requirements, the arbitration agreement must refer to a concrete and specific legal
relationship between the parties. The parties must have a legal link, which has given or
117
Onyema, op. cit., p. 19.
118
Ibid., pp. 19-20.
International Commercial Arbitration A Comparative Study
65
may give rise to the controversies submitted to arbitration. Although this legal
relationship will most frequently be of a contractual nature, it may well be non-
contractual, provided that it can be identified and delimited.
119
e. Law Applicable to the Arbitration Agreement
The law applicable to the arbitration agreement governs the formation, validity,
enforcement and termination of the arbitration agreement. It deals with such aspects as
the formal requirements of the arbitration agreement, the arbitrability of its subject
matter, its autonomy in relation to the contract in which it is contained, the arbitrators’
capacity to rule on their own jurisdiction and the extent to which judicial review is
admissible. The applicable law also determines whether or not the submission agreement
is required.
120
The substantive law governing the contract does not necessarily have to
be in the arbitration clause, but it is not a bad idea to put it there. Its location within the
arbitration clause should prevent one side from arguing that the substantive law
governing the contract may not necessarily be the substantive law governing the
arbitration agreement. No matter where they put it, however, the parties should
definitely specify the substantive law they have agreed upon, in order to avoid
unnecessary disputes at the time of the arbitration.
121
The law applicable to the
arbitration agreement should be distinguished from the law governing the capacity of the
parties to arbitrate (subjective arbitrability) and the amenability of the subject matter of a
dispute to arbitration (objective arbitrability). The law governing the arbitration
119
United Nation Conference on Trade and Development, International Commercial Arbitration Dispute
Settlement-The Arbitration Agreement, New York and Geneva, 2005, p. 22.
120
Ibid., p. 11.
121
Moses, op. cit., p. 44.
International Commercial Arbitration A Comparative Study
66
agreement applies to limited issues of consent such as whether or not the agreement was
induced by fraud, undue influence, or misrepresentation, and the interpretation, effect,
and scope of an arbitration agreement.
122
An anomaly in the present state of judicial and
arbitral practice on the law governing arbitration agreements is that the determination of
the applicable law to the arbitration agreement depends on the stage at which the issue
arises. Thus, the answer to the question of the applicable taw to arbitration agreement
depends on whether the issue arises: (1) when enforcement of an arbitration agreement is
sought before a national judge, (2) when a jurisdictional objection is raised before an
arbitrator, (3) when an application is made to set aside an award, or (4) when the
recognition and enforcement of an award is requested. The determination of applicable
law to the arbitration agreement in cases where the issue arises before a national judge
depends on national conflict of law rules of the court involved, because a national court
is bound to apply the conflict law of its situs. Under the rules of most jurisdictions the
law applicable to an arbitration agreement is that chosen by the parties. In the absence of
an express choice by the parties, there is generally a presumption that the applicable law
is the law of the place where the arbitration held. For example, this position is adopted
under Egyptian law.
123
For example, Article VI of the European Convention on
International Arbitration provides that:
“Except for the parties capacity to conclude the arbitration agreement, its
validity or invalidity must, failing an agreement of the parties to contrary be
judged under the law of the country in which the award is made”
124
122
Chukwumerije, op. cit., p. 34.
123
Ibid., pp. 34-35.
124
Article VI of the European Convention on International Commercial Arbitration, 1961.
International Commercial Arbitration A Comparative Study
67
The primacy granted to the choice of the parties in determining the law
applicable to the arbitration agreement is consistent with the consensual nature of
arbitration. However, it is submitted that it is somewhat artificial to utilize the law of the
place where an arbitration is to be held as an alternative and determinative test
determining the law governing arbitration agreements, where the parties choose the
place of arbitration themselves, there is reasonable basis for using the law of the place of
arbitration as an alternative test, as the place of arbitration is closely connected to the
parties agreement. However, in cases where the place of arbitration is chosen by third
party (as is often done in institutional arbitrations in instances where the parties to a
dispute fail to make an express choice), application of the law of the place of arbitration
would amount to granting third parties the power to designate the law governing an
arbitration agreement to which they are not parties.
125
The need to determining the law
governing an arbitration agreement may arise where a jurisdictional objection is raised
before an Arbitral Tribunal, for example, where a party alleges that his or her consent
was the product of a fraudulent misrepresentation or that the agreement was void under a
given law of his or her consent was the product of a fraudulent misrepresentation.
Arbitral Tribunal generally respect the parties express choice of law to govern their
arbitration agreement. In the absence of an express choice of law by the parties, arbitral
practices diverge. There are four identifiable ways used by Arbitral Tribunal to
determine applicable law. One group of arbitrators holds that in the absence of the
parties’ choice of applicable law, the arbitration agreement is governed by the law of the
place of arbitration. Another group of arbitrators views the law governing the substance
of the dispute as equally applicable to the arbitration agreement. Also some arbitrators
125
Chukwumerije, op. cit., p. 35.
International Commercial Arbitration A Comparative Study
68
believe that the rules of the arbitral institution chosen by the parties govern the
arbitration agreement. For example in ICC Case No. 5486, a joint venture agreement
among Belgian and Spanish companies contained an arbitration Clause that provided for
arbitration in either Paris, Madrid or New York, depending on the identity of the party
who instituted the proceedings. In determining the law governing the arbitration clause
the arbitrators said: For The purpose of this arbitration proceeding the parties have
expressly agreed to apply the ICC rules of arbitration rather than a specific national
procedural law and such specific reference to the rules of an international arbitration
institution converts such rules into the source of law governing the arbitration
agreement, therefore, the appraisal of the validity of the arbitration agreement clause
must be made in accordance with the ICC Rules of Arbitration.
126
It must be noted at the
outset that it is the existence of the doctrine of separability or autonomy of the
arbitration clause that gives relevance to this discussion. The submission agreement
being a separate contract, both physically and legally, clearly makes the concept of its
own governing law easy to grasp unlike the arbitration clause, which raises the
(legitimate) question of why one clause in a contract should be governed by a separate
law from all other clauses in the same contract. The law applicable to the arbitration
agreement refers to the proper law of the arbitration agreement. This may be a national
law or set of legal rules. That the legal nature of this agreement is contractual, so that,
just as in any other contract, it must have a law by which the obligations and rights of
the parties to it shall be regulated. It is therefore important to determine what law applies
to the arbitration agreement for this purpose. A party can challenge the validity of the
arbitration agreement at any time before it is performed, upon commencement of its
126
Ibid., pp. 36-37.
International Commercial Arbitration A Comparative Study
69
performance and when challenging an arbitral award made on the basis of the arbitration
agreement. A jurisdictional challenge will be pursued before a national court (or
arbitration institution) when one party seeks to enforce the arbitration agreement (before
the commencement of an arbitral proceeding). Upon commencement of the arbitral
reference, jurisdictional challenges will be pursued before the arbitral tribunal in the first
instance with the opportunity of challenging the decision of the arbitral tribunal before a
national court. At the stage where recognition and enforcement of the resulting award
based on the arbitration agreement is sought, a jurisdictional challenge can still be raised
before a national court.
127
When an application is made to set aside an award on the ground that the
arbitration agreement from which the award arises is invalid, the law governing the
arbitration agreement is determined in accordance with the laws of the country where the
application is made. The Model Law which hopes to harmonize legislative practices in
countries that adopt it, gives primacy to the law chosen by the parties, and, in the
absence of the parties’ choice, to the law of the place where application to set aside the
award is made. This provision differs markedly from the position in cases where the
enforcement of an arbitration agreement is sought, for example, when the recognition
and enforcement of an award is sought; the New York Convention is the focal point for
the recognition and enforcement of awards. It provides that recognition and enforcement
of the award may be refused if 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.
128
127
Onyema, op. cit, p. 22.
128
Chukwumerije, op. cit., p. 37.
International Commercial Arbitration A Comparative Study
70
The first consideration in the analysis to determine the law applicable to the
arbitration agreement is to determine whether the parties have expressly chosen a law or
set of legal rules to govern the interpretation and regulation of the arbitration agreement.
In such situations the choice made by the parties (by virtue of the principle of party
autonomy) will apply whether the arbitration agreement is a clause or a self standing
agreement. In support of this assertion, Article 178 (2) of the Swiss Federal Arbitration
Law provides, ‘an arbitration agreement is valid if it conforms to the law chosen by the
parties’. However, it must be acknowledged that in practice it is very rare for parties to
expressly agree on a distinct law that will apply to the arbitration clause in their contract.
It is more probable for parties to agree on such a proper law in a submission agreement.
Thus in identifying the law applicable to the arbitration agreement, the first option is to
apply whatever express or implied law the parties have chosen.
129
Where the parties have not made any choice, the Swiss Federal Arbitration Law
will then subject the arbitration agreement to, ‘the law governing the subject matter of
the dispute, in particular the main contract or to Swiss law’. Another option will be to
apply conflict of law rules. This may be the conflict of law rules of the place with the
closest connection to the arbitration agreement. This test implicates analysing various
connectors to identify that (or those) which are closest to the arbitration agreement.
There are various connectors that may influence the determination of the law applicable
to the arbitration agreement. These include the place where the agreement to arbitrate
was made or concluded. Another connector exists where the parties have made an
express choice of a substantive law to govern the main contract as provided under the
Swiss Federal Arbitration Law. Redfern and Hunter support this connector on the
129
Onyema, op. cit., p. 22.
International Commercial Arbitration A Comparative Study
71
ground that, it is reasonable and safe to assume that the choice of a substantive law in
the main contract also applies to govern the arbitration agreement which is one clause in
the main contract. The third connector is the seat of arbitration (provided for under s. 48
of the Arbitration Act of Sweden). For example, The application of the law of the seat of
arbitration is supported by Article V (1) (a) of the New York Convention which refers to
the arbitration agreement being valid under the law to which the parties have subjected it
or in the absence of such law, ‘under the law of the country where the award was made’
and in some national rules the award is deemed to be made under the law of the seat of
arbitration.
130
Furthermore, when the recognition and enforcement of awards is sought, the
New York Convention is focal point for the recognition and enforcement of awards. It
provides that recognition and enforcement of an award may refused, if the arbitration
agreement is not valid under the law to which that parties have subjected it or, failing
any indication thereon, under the law of the country where the award was made.
131
The European Convention provides a hierarchy of laws in determining the law
applicable to the arbitration agreement. It requires the courts of contracting states faced
with the question to examine, (a) the law to which the parties have subjected the
arbitration agreement (choice by the parties); (b) the law of the country in which the
award was made (by default, the law of the seat of arbitration); (c) the application of
conflict rules of the court seised of the question; (d) if the validity question is based on
arbitrability then the law of the country whose courts are seised of the question. Lew,
Mistelis and Kröll in support of the application of the law of the seat posit “Where the
130
Ibide., p. 23
131
Chukwumerije, op. cit., p. 37.
International Commercial Arbitration A Comparative Study
72
actual existence of an arbitration agreement is challenged and in the absence of an
otherwise clearly applicable law, it is the law of the place of arbitration which
determines the standards against which the existence of the arbitration agreement has to
be verified.” An examination of some cases show that courts may apply a law under
which the arbitration agreement will be valid and enforceable (which may fall within
any of the categories discussed above) as against one under which the same agreement
will be invalid.
132
The validity of the arbitration agreement may be challenged in different
jurisdictions, before arbitral panels or courts, as the case may be, and at different stages
of the proceedings. The substantive law has been finally identified, the interplay
between such substantive law and multilateral arbitration conventions, like the New
York Convention is far from being clear.
133
Although the lex arbitri usually deals with the formal validity of the arbitration
agreement, the law governing the arbitration agreement’s substantive validity could be
any of a number of laws. It will, however, most likely be either the law of the place of
arbitration, or the substantive law chosen by the parties. Validity of an arbitration
agreement is for the most part a question of consent, and whether there is consent is
governed by ordinary principles of contract law. The two most likely where the question
of the arbitration agreement’s validity arise are at the beginning of the proceeding, when
one party resists arbitration, and at the award stage, when the losing party has two tries
to defeat the arbitration award. A losing party can first try to set aside the award at the
132
Onyema, op. cit., p. 23.
133
Ferrari, Franco-Kroll, Stefan, Conflicts of Laws in International Arbitration, 1st Edition, European Law
Publisher GmbH, Munich, Germany, 2011, p. 35.
International Commercial Arbitration A Comparative Study
73
place of arbitration. Second, it can challenge enforcement of the award in the
enforcement jurisdiction. The question of what law applies can be raised at any time.
134
f. Termination of the Arbitration Agreement
The arbitration agreement may be terminated by vitiating factors such as fraud,
mistake, misrepresentation, duress and undue influence, which affect the consent of one
or more parties to the arbitration agreement.
135
The death of the arbitrator is not a ground
for termination of the arbitration agreement, either. Again, although we should analyze
the provisions of the applicable law, the common solution is to replace the arbitrator. For
example, Section 26.2 of the English Arbitration Act provides that the authority of an
arbitrator is personal and ceases on his death. Section 27 provides the way to fill the
vacancy. In that case, the parties are free to agree whether and, if so, how the vacancy is
to be filled. If there is no such agreement, the provisions of sections 16 (procedure for
appointment of arbitrators) and 18 (failure of appointment procedure) apply in relation
to the filling of the vacancy as in relation to an original appointment.
136
The arbitration agreement can be terminated like most contracts by agreement of
the parties, in the event of the breach of a fundamental term or condition of the contract
and by abandonment. The agreement may be rendered ineffective if it is found to be
inoperable or incapable of being performed. An agreement that is found to be null and
void evidences a lack of the parties’ consent to arbitrate and so never came into
existence. While an agreement that is inoperative indicates the parties’ intended to
134
Moses, op. cit., p. 65.
135
Goldman, op. cit., p. 437.
136
United Nation Conference on Trade and Development, International Commercial Arbitration Dispute
Settlement-The Arbitration Agreement, New York and Geneva, 2005, p. 30.
International Commercial Arbitration A Comparative Study
74
arbitrate but the agreement was drafted in such a vague, ambiguous or pathological
manner that this intention (to arbitrate) became difficult or impossible to effect. An
arbitration agreement is incapable of being performed when there is again a clear
intention by the parties to arbitrate their dispute but a frustrating event (external to the
agreement) that happens subsequent to its conclusion makes its performance impossible.
So, an arbitration agreement that is null and void culminates in the termination of the
agreement while one that is either inoperative or incapable of being performed may still
be rescued. It has already been clarified above that the arbitration agreement will not be
terminated simply by the termination (or repudiation) of the underlying substantive
contract. It has been argued that the primary obligation of the parties under the
arbitration agreement is to refer any resulting and covered dispute to arbitration in
accordance with its terms.
137
137
Onyema, op. cit., p. 24.
International Commercial Arbitration A Comparative Study
75
II. Composition of Arbitral Tribunal and Arbitration Proceedings
A. Composition of Arbitral Tribunal
Most arbitration rules provide important clauses for the number of arbitrators, a
method for appointing them, if the parties do not specify the number or a mechanism for
their appointment.
a. Number of Arbitrators
Another issue relates to the number of arbitrators to hear a dispute. It is common
to use one arbitrator who is considered objective and impartial. Any person the disputing
parties agree upon can be an arbitrator. It is also common to have a panel of three
arbitrators. In such cases, each party selects an arbitrator and the two so selected choose
a third. It is not surprising that when this procedure is used, allegations of bias are often
made by the losing party. Courts generally do not allow such allegations to form a basis
for overturning a panel’s award unless there is evidence of overt corruption or
misconduct in the arbitration proceedings. Since such evidence usually is difficult to
obtain, allegations of bias normally do not impact the results of arbitration.
138
Composition of Arbitral Tribunal is subject to the will of the parties to a dispute and
their agreement. According to some national laws and international conventions, the
138
Corely, et. al., op. cit., 11th Edition, p. 73.
International Commercial Arbitration A Comparative Study
76
parties are free to determine the number of arbitrators; however, some national laws and
conventions determine the number of arbitrators to be chosen by the parties to a dispute.
For example, in accordance with the Iraqi Code of Civil Procedures the number of the
arbitrators and the method of their appointment are subject to the agreement of the
parties, but “the number of arbitrators must be an uneven number”.
139
Unlike Iraqi Law,
the Egyptian Arbitration Act determines the number of the arbitrators; in default of
agreement on the number of arbitrators the Arbitral Tribunal shall be composed of three
arbitrators. Article 15 of Egyptian Arbitration Law provides that:
1. The Arbitral Tribunal is composed, by agreement between the parties, of one
arbitrator or more. In default of agreement on the number of arbitrators, the
Tribunal shall be composed of three arbitrators.
2. If there is more than one arbitrator, the Tribunal must, on pain of nullity, be
composed of an odd number.
140
Egyptian law like Iraqi law gives the freedom to the Parties to a dispute to determine the
number of arbitration, but if the parties to a dispute do not determine the number of
arbitrators, the Tribunal shall be composed of three arbitrators.
Generally the parties to a dispute may choose the number of arbitrators to decide
their dispute. Some nations have prohibitions against arbitration by an even number of
arbitrators, for example France (in domestic arbitration), the Tunisia, Egypt, Netherland,
Portugal and Italy. In some of these states judicial authority essentially converts an even
number of arbitrators into agreement on odd numbers of arbitrators, by providing for the
appointment of an additional arbitration. However, in certain country, local legislation
139
Article 257 of Iraqi Code of Civil Procedures, No. 83, 1969.
140
Article 15 of Egyptian Arbitration Law, No. 27, 1994.
International Commercial Arbitration A Comparative Study
77
simply invalidates any arbitration agreement that specifies the number of arbitrators
rather than substituting an odd number.
141
For example, Article 10 of Draft Law on
International Commercial Arbitration of the Republic of Macedonia provides that:
1. The number of arbitrators must be odd.
2. If the parties have failed to determine the number of arbitrators, the number of
arbitrators shall be three.
142
As well as according some international commercial arbitration conventions, the
parties are free to determine the number of arbitrators; however, some conventions
determine the number of arbitrators, to be chosen by the parties to a dispute. For
example, the Amman Arab Convention on International Commercial Arbitration has
organized the issue of the composition of Arbitral Tribunal in Article 15 (1) which
provides that:
“The Arbitral Tribunal shall be made up of three members, but the parties may
agree on a sole arbitrator”.
143
Also Article 10 of Model Law on international commercial arbitration which is called
UNCITRAL provides that:
1. The parties are free to determine the number of arbitrators.
2. Failing such determination, the number of arbitrators shall be three.
144
141
Born, op. cit., 1st Edition, p. 1352.
142
Article 10 of Draft Law on International Commercial Arbitration of the Republic of Macedonia, Based
on: UNCITRAL Model Law on International Commercial Arbitration (United Nations document A/40/17,
Annex I), Adopted on 21 June 1985.
143
Article 15 (1) of Arab Convention on Commercial Arbitration-Amman Convention, 14 April, 1987.
144
Article 10 of UNCITRAL Model Law on International Commercial Arbitration, By the United Nations
Commission on International Trade Law, 21 June, 1985.
International Commercial Arbitration A Comparative Study
78
In addition, some of national laws and institutional arbitration determine the
specific period to choose arbitrators by the parties to a dispute. For example, Article 5 of
the British Columbia International Commercial Arbitration Center which is called
(BCICAC), states that:
1) The parties may agree on the number of arbitrators before or within 30 days after
commencement of the arbitral proceedings.
2) If the parties have not so agreed, the number of arbitrators shall be three unless
the Centre, in its discretion, determines that a sole arbitrator shall constitute the
Tribunal.
3) In determining whether a sole arbitrator should be constituted as the Tribunal, the
Centre shall have regard to the amount in dispute, the nature and complexity of
the dispute and any other factor it considers relevant.
145
In addition, the International Chamber of Commerce make it clear that situations
vary widely, and give the freedom to the parties to a dispute to determine sole arbitrator
or three arbitrators, and define the duration for determining arbitrators. Article 8 of ICC
Rules of Arbitration states that:
1. The disputes shall be decided by a sole arbitrator or by three arbitrators.
2. Where the parties have not agreed upon the number of arbitrators, the Court shall
appoint a sole arbitrator, save where it appears to the Court that the dispute is
such as to warrant the appointment of three arbitrators. In such case, the Claimant
shall nominate an arbitrator within a period of 15 days from the receipt of the
notification of the decision of the Court, and the Respondent shall nominate an
145
Article 5 of British Columbia International Commercial Arbitration Centre, 1 January, 2000.
International Commercial Arbitration A Comparative Study
79
arbitrator within a period of 15 days from the receipt of the notification of the
nomination made by the Claimant.
3. Where the parties have agreed that the dispute shall be settled by a sole arbitrator,
they may, by agreement, nominate the sole arbitrator for confirmation. If the
parties fail to nominate a sole arbitrator within 30 days from the date when the
Claimant’s Request for Arbitration has been received by the other party, or within
such additional time as may be allowed by the Secretariat, the sole arbitrator shall
be appointed by the Court.
4. Where the dispute is to be referred to three arbitrators, each party shall nominate
in the request and the answer, respectively, one arbitrator for confirmation. If a
party fails to nominate an arbitrator, the appointment shall be made by the Court.
The third arbitrator, who will act as chairman of the Arbitral Tribunal, shall be
appointed by the Court, unless the parties have agreed upon another procedure for
such appointment, in which case the nomination will be subject to confirmation
pursuant to Article 9. Should such procedure not result in a nomination within the
time limit fixed by the parties or the Court, the third arbitrator shall be appointed
by the Court
146
Through the above it is clear that the general rule to the composition of Arbitral
Tribunal is to return to the will of the parties, but in the absence of agreement between
the parties to a dispute on any part related to the composition of Arbitral Tribunal, the
rule is to refer the matter to the concerned authority as regulated by the national law of
each state.
146
Article 8 of ICC Rules of Arbitration, 1998.
International Commercial Arbitration A Comparative Study
80
b. Appointment of Arbitrators
In an arbitration with three arbitrators, in many national laws and international
conventions, each party shall appoint one arbitrator, and the two arbitrators thus
appointed shall appoint the third arbitrator; if a party fails to appoint the arbitrator within
30 days of receipt of a request to do so from the other party, or if the two arbitrators fail
to agree on the third arbitrator within 30 days of their appointment, the appointment
shall be made, upon request of a party, by the court. In arbitration with a sole arbitrator,
if the parties are unable to agree on the arbitrator, arbitrators shall be appointed, upon
request of a party, by the court.
147
For example, Article 17 of Egyptian Arbitration Law
provided that:
“If the Arbitral Tribunal is composed of a sole arbitrator, the court referred
shall select him on the basis of a request by one of the parties. But if the Arbitral
Tribunal is composed of three arbitrators, each of the parties shall select one
arbitrator and the two arbitrators shall then select a third. If either party fails to
appoint his arbitrator within 30 days from being requested to do so by the other
party, or if the two arbitrators fail to select a third arbitrator within the 30 days
following the appointment of the more recently appointed one among them”.
148
On the other hand, in complex, high value disputes, parties generally prefer to
have three arbitrators. Although having three arbitrators is much more expensive than
147
Article 11 of UNCITRAL Model Law on International Commercial Arbitration, By the United Nations
Commission on International Trade Law, 21 June, 1985.
148
Article 17 of Egyptian Arbitration Law, No. 27, 1994.
International Commercial Arbitration A Comparative Study
81
having one, and organizing the schedules for hearings can be difficult, when there are
substantial amount of money at stake, most parties feel more comfortable with three
arbitrators. With respect to the complexity of the issues, three minds are generally better
than one at absorbing all the necessary information, and arriving at a reasonable
resolution. In addition when the parties are from different culture or legal background, a
party may want at least one arbitrator to have some knowledge and understanding of its
own culture and legal system. In such a case, the parties may agree and may put in their
arbitration clause that each party will appoint one arbitrator, and the two party-appointed
arbitrators will choose the third arbitrator, who will serve as chair.
149
There is no provision in Iraqi laws excluding the appointment of non-Iraqi
arbitrators, so it is possible to appoint foreign arbitrators and foreign experts in
arbitration proceedings in Iraq. In a dispute arising from a contract between the Iraqi
Construction Company and the dissolved Reconstruction Council of Iraq, the dispute
was referred to a single foreign arbitrator chosen by the parties. The decision of the
arbitrator was subject to an appeal on other grounds, and was approved by the Court of
Cassation as correct and binding.
150
In cases in which there are three or more than two
parties to arbitration, and they want the ability to select their own arbitrator, arbitration
clause may fail if it provides that each party may appoint its own arbitrator. For example
Article 18 (4) of the Arab Convention on Commercial Arbitration provides that: “The
arbitrators appointed by the Bureau may not be nationals of one of the parties.”
151
The
options for solving this matter in the arbitration clause can be categorized as follows:
149
Moses, op. cit., p. 42.
150
Saleh, op. cit., pp. 267-276.
151
Article 18 (4) of Arab Convention on Commercial Arbitration, 14 April, 1987.
International Commercial Arbitration A Comparative Study
82
1) If there are three parties, each party appoints its own arbitrator, and these three
appointed one among them who will be the presiding arbitrator.
2) If the parties to a dispute agree to group themselves together into some groups to
jointly appointing an arbitrator, the parties then can jointly appoint an
arbitrator.
152
c. Qualifications for Becoming an Arbitrator
Parties also may want to set forth specific qualifications that the arbitrators
should have, such as experience or expertise in a particular field, or the ability to speak a
particular language. One should be careful, however, not to specify so many
characteristics that it becomes impossible to find arbitrators who meet all of the
qualifications. This could possibly result in invalidating the arbitration clause.
153
There
are no qualifications required for the arbitrators, but they must be impartial and must
possess full legal capacity. Also, there is no provision excluding the appointment of non-
Iraqi arbitrators, therefore it is possible to appoint foreign arbitrators and foreign experts
in arbitration proceedings in Iraq. For example according the Iraqi Code of Civil
Procedure, an arbitrator can be disqualified by the court for reasons such as existence of
an employment relationship, or if there is a friendship or enmity between the arbitrator
and the party concerned, or if the arbitrator has already rendered an opinion on the case,
or has accepted presents or payment.
154
And it is a notable that the Iraqi Code of Civil
152
Article 25 (1) of ICC Rules of Arbitration, 1998 & Article 26 (3) of LCIA Arbitration Rules, 1 January,
1998.
153
Moses, op. cit., p. 43.
154
Saleh, op. cit., pp. 267-276.
International Commercial Arbitration A Comparative Study
83
Procedures (ICCP) has laid down other reasons for disqualification of a judge or
arbitrator, such as:
1. If there is a blood or marriage relationship;
2. The arbitrator must also have no interest in the dispute;
3. They should not be an agent of either party.
155
The decision of the court to appoint an arbitrator is final and not subject to
appeal. But a party may challenge before the same court the appointment of an arbitrator
on the grounds of certain disqualifying reasons and request the court to disqualify an
arbitrator, which the court had appointed before. These disqualifying grounds are the
same as those applicable to judges. Also according to Article 260 of the ICCP, an
arbitrator may not resign, unless he has justified reasons, and cannot be dismissed
unilaterally by one party.
156
Egyptian law unlike Iraqi law determine another conditions for the arbitrators,
such as the arbitrator may not be deprived of his civil rights, Article (502) of the
Egyptian Code of Civil Procedures provides that:
“May not be the arbitrator minors or interdicted or deprived of his civil rights
because of a criminal sentence or bankrupt not rehabilitated".
157
In addition, some international arbitration laws and international arbitration
institutions require the arbitrators to disclose any circumstances relating with their
impartiality and independence. For example, Article 12 of UNCITRAL Model Law on
155
Article 91 of Iraqi Code of Civil Procedures, No. 83, 1969.
156
Saleh, op. cit., pp. 267-276.
157
Article 502 of Egyptian Code of Civil Procedures, No. 13, 1968.
International Commercial Arbitration A Comparative Study
84
International Commercial Arbitration determines the condition for arbitrators, which
provides that:
1) When a person is approached in connection with his possible appointment as an
arbitrator, he shall disclose any circumstances likely to give rise to justifiable
doubts as to his impartiality or independence. An arbitrator, from the time of his
appointment and throughout the arbitral proceedings, shall without delay disclose
any such circumstances to the parties unless they have already been informed of
them by him.
2) An arbitrator may be challenged only if circumstances exist that give rise to
justifiable doubts as to his impartiality or independence, or if he does not possess
qualifications agreed to by the parties. A party may challenge an arbitrator
appointed by him, or in whose appointment he has participated, only for reasons
of which he becomes aware after the appointment has been made.
158
Also in accordance with the British Columbia International Commercial
Arbitration, an arbitrator shall be and remain at all times wholly independent and
impartial.
159
To start the arbitration process, the arbitrators should be available in several
conditions, so that they can carry out the task entrusted to him. These are the conditions
to be met in the arbitrator. Generally an arbitrator must be a natural person and may not
be a Juristic Person. If the arbitration agreement appoints a juristic person the mission of
the latter is limited to appointing the Arbitral Tribunal. Also they must have full legal
158
Article 12 of UNCITRAL Model Law on International Commercial Arbitration, By the United Nations
Commission on International Trade Law, 21 June, 1985.
159
Article 10 of British Columbia International Commercial Arbitration, 1 January, 2000.
International Commercial Arbitration A Comparative Study
85
capacity in accordance with their personal law.
160
Also according ICC Rules of
Arbitration, in an arbitration with a sole arbitrator or the chairman of the Arbitral
Tribunal shall be of a nationality other than those of the parties. However, in suitable
circumstances and provided that neither of the parties objects within the time limit fixed
by the Court, the sole arbitrator or the chairman of the Arbitral Tribunal may be chosen
from a country of which any of the parties is a national.
161
It is advisable for the parties to include in the arbitration agreement provisions
concerning the number of arbitrators and, if possible, the qualifications or requirements
to be met by them. In ad hoc arbitration, these specifications will avoid long discussions
and possible legal actions. In the case of institutional arbitration, although the
institution’s rules contain solutions for the case of silence by the parties, such solutions
will never be as good as those agreed upon by the parties.
162
However, some laws
require particular qualification for the arbitrator, for example, to be a lawyer, or judge.
For example, in accordance with the Article 12 of the Spanish arbitration law, the
arbitrators must be lawyers or judges in the case to resolve the dispute, in accordance
with the provisions of the law”.
163
160
Abdul Hamid El-Ahdab, Jalal El-Ahdab, Arbitration with the Arab Countries, Third Revised and
Expanded Edition , Kluwer Law International, Netherland, 2011, p. 745.
161
Article 9 (4) of ICC Rules of Arbitration, 1998.
162
United Nation Conference on Trade and Development, International Commercial Arbitration Dispute
Settlement-The Arbitration Agreement, New York and Geneva, 2005, p. 3.
163
Article 12 of Spanish Arbitration Law, No. 36, 1988.
International Commercial Arbitration A Comparative Study
86
B. Arbitration Proceedings
a. The Conduct of the Proceedings
The parties to an arbitration agreement may expressly agree in the arbitration
agreement the procedures to be adopted in