25 Feb 2021
Desmond R. L. Hughes FCIArb
Last Updated: May 2020
Note: This essay was submitted as an assessment in the King’s College Dickson Poon School of Law LLM International Corporate and Commercial Law program. No part of these works may be used, modified in part or the whole without express written permission of the author.
Introduction
The global vision of improving the efficacy of world trade [1] and foreign investment [2] is enshrined in the development of international arbitration. However, in order to produce a system that spans across different common and civil law systems, provides deference to principles of autonomy, and to ensure that the best chance of states recognizing internationally produced legally binding foreign awards, a balance between internationalism and certain state based supervisory and policy functions is necessary. In order to see an overview of the extent of arbitral internationalism, I will briefly explore key components of it and the international-national balances and tension in each.
Classical International Foundation
The history of arbitration is grounded in international dispute resolution across nations ranging from ancient mythology [3], antiquity [4], European Middle Ages [5] through to the present 21st Century. Although the various types of arbitral and dispute resolution procedures have been configured under different guises over time [6], the general international nature of the various historical and modern arbitral systems has remained a consistent common theme [7].
International Choice
Scholars [8], institutions [9] and respected surveys [10] state or provide evidence that international arbitration is the globally preferred method of dispute resolution, which confirms there is an internationally available choice available for states and parties select arbitration.
International Implementing Instruments
Further, the instruments that have developed international arbitration historically range from the Geneva Protocol of 1923 [11] through to the current New York Convention [12] and UNCITRAL Model Law [13], all of un-doubtable general international character in their scope of application.
Interplay Between International and National Systems
However, the interplay between the current universal necessity of nation state involvement in ultimately supervising and assisting with arbitral procedure [14] and internationalism, results in differences in understanding of the meaning and application of international in various arbitration contexts because naturally where states are involved, there will be a national specific application of either domestic or international principles to an arbitration [15]. International arbitration therefore actually straddles foreign and domestic legal systems [16] and is often described in many aspects to be a ‘hybrid’ system [17].
As arbitration at its core is consensual and autonomous in nature [18], the limitations on consent and autonomy are also affected by the degree of international and domestic governance in arbitration. As the nature of ‘consent’ has broadened to include wider implied or mandatory consent [19] or ‘narrowed’ if you consider mandatory arbitration detracts from the relatively purer doctrine of express consent, so has the nature of ‘internationalism’ evolved within each of the key component parts of arbitration.
Domestic v. International Arbitration Disputes
Article 1(3) of the Model Law [20] provides that the applicability of its provisions which are subject to an arbitration being international are governed the test of internationality of a dispute, or the internationality of the parties, or if the parties agree amongst themselves the subject matter is international [21]. However, states have adopted the Model law with different amendments [22] with some not distinguishing between international and domestic arbitration at all [23] thereby expanding the scope of the Model Law at the election of the relevant state and the application of ‘international’. Even with this disparity between states internationally, certain scholars emphatically state that international arbitration is fundamentally different from arbitration [24] highlighting the internationality of international arbitration is a response to globalization [25] whereas domestic arbitration is simply a local alternative to a local judicial process.
International Nature of Arbitrators
In order to cope with the intersections between different legal systems, arbitral institutions, transnational and substantive law interplays, international arbitrators have emerged from relatively obscure diverse non-elite traveler and migrant background to a present day elite upper tier of arbitrators who are recognized and celebrated for their diverse international qualifications, academic activities, arbitral institute connections and their professional cosmopolitan links to multiple jurisdictions [26].
Regardless of the change in profile of the top tier arbitrators over time, they remain internationally diverse in many respects [27]. Arbitral internationalism is magnified if compared to traditional state judicial systems under which it will naturally be a prerequisite that a judge is trained to a high degree required only in the relevant state system. However international arbitrators are, like the judiciary, still subject to anchoring, framing effects, representativeness and egocentrism [28] within their sphere of operation. Although arbitrators are internationally diverse thereby contributing to the overall internationalism of arbitration, they are not exclusively so given the existence of various international courts [29] with international judges. Therefore, arbitrators contribute to the internationality of arbitration and will naturally have a unique set of skills to deal with such a system, but this is not an automatic bar to the development of an international judiciary and world commercial court, however unlikely certain commentators view such a possibility [30].
Institutional International Competition for Arbitral Services
There are a large number of internationally diverse arbitral institutions within international arbitration dealing with commercial disputes; investor-state disputes; sports, marine, grain and other specific trade segment disputes with many centres located in jurisdictions which are actively competing for dispute resolution business with the number of centres and volume of business increasing dramatically in the last century [31].
Through a commercial lens, such international competition may be viewed positively as fostering goals to provide the best services. However, viewed critically, the propagation of multiple arbitral centres through fierce competition could be viewed as too economic in nature, just as commercial objectives of arbitrators attached to such institutions or acting independently under their auspices may misshape the parties’ objectives of seeking justice for reputational recognition, economic gain or to avoiding reprimand from the implications of potential annulment [32]. However, it is this system that also highlights the international nature of competition between arbitral process providers who may also be involved in the arbitrator selection process.
The ultimate international center in terms of surveyed performance [33] and international geographical spread [34] is the ICC regarding as such by many for the longest period of time with a history in developing the international arbitral order [35]. The most recent ICC survey encompasses international diversity throughout most of its report [36].
This same international competition existing in arbitration between the institutions does not exist in state judicial systems, which operate under different state-based performance criteria and which differ from jurisdiction to jurisdiction [37].
International arbitration’s internationality is therefore grounded in the flexible nature of not only the process but the international options for commercial parties to choose an institution that suits the outcome of their negotiations and wishes. Notably, when certain states have attempted to attract more arbitrations by developing systems to allow restricted delocalization, market forces appear to view the widening of ‘internationality’ of arbitration to the exclusion of state courts as a step too far indicating there may be a commercial limit on the degree of internationality acceptable to parties and their advisers [38].
Procedural Law – National and International Interdependence
The theory of delocalization also relates to the extent that arbitration may balance the freedom of the parties to choose from an international selection, a national law to govern proceedings, applicable institutional rules and specific procedural rules. The freedom of choice of the parties in this context is ultimately grounded in a national system of the seat [39] and it is well established that for parties to be able to choose what they may perceive as a neutral seat, that this may therefore differ from the substantive law of the dispute [40].
Seat selection casts a national shadow over the international arbitral procedure, by providing a certain amount of national jurisdiction to a state to provide the necessary machinery [41] required procedurally to give effect to the process of international arbitration which comprises a range of state based powers such as the provision of relief in the form of interim measures or dealing with challenges to procedure [42], or compelling the arbitration itself. Therefore, the international effect of the choice of the seat is underpinned by the national supervisory powers of the seat.
Certain seats have a national arbitration framework where the parties, having chosen that seat expressly or by default, have to accept mandatory provisions governing procedure. The U.K.’s Arbitration Act, for example, has such a system and notably deviates considerably from the form of the UNCITRAL Model Law [43]. Therefore, such systems peculiar to a seat could be said to impinge upon the scope of the international natureof initial seat selection if the parties were not in practice involved in the process.
Procedural law in arbitration therefore seems mostly at its heart, nationally grounded, albeit with supplemental internationally constructed procedures and institutional rules.
Substantive Law
Substantive law is foremost strongly grounded in the choice of the parties [44] with a default position that the arbitral tribunal shall decide in the absence of parties’ agreement. This has caused much debate when conflict of law rules “which the tribunal considers applicable” are in play [45]. However, the internationality of choice is again evident in the range of choices available [46]. Most parties still choose a national system of law [47] [48] although the potential for expansion of the use of lex mercatoria other international rules and instruments underlines that international development of such may allow more defined uniform law as an increasingly attractive option to govern international commerce.
Treatment of Evidence – Hybrid International Approach
A major advantage for the parties in arbitration is the flexibility available to choose to be governed by an international system of taking evidence [49] which can be contrasted between the often criticized adversarial cat-and-mouse common law evidential system under which identifying the truth is not always a primary objective [50], and yet international arbitration is still not entirely adoptive of the civil law systems’ evidential procedure. In order to bridge the gap between the systems the ICC Rules allow for the designing of a suitable procedure by the arbitral tribunal not contrary to the parties’ agreement [51]. The internationality of this hybrid approach is crystallised by the common practice of adopting the IBA Rules [52], drafted by a committee mostly from civil law backgrounds which may relate to two or more of the principal reasons why internationalarbitration is the dispute resolution method of choice – avoiding specific legal systems and flexibility [53].
International Recognition and Enforcement of Arbitral Awards
The most commercially valued aspect of international arbitration is the enforceability of awards [54], more so than recognition [55], hence why parties opt out of a state system into an international system where an award debtor’s assets may be used to make an award debt whole. The New York Convention (“NYC”) is considered by many to be one of the most important and effective pieces of international legislation in existence in commercial law [56] and its structure comprising a general wide ranging global application [57] subject to narrowing provisions requiring reciprocity of participating Convention states [58] and a widely interpreted commercial element [59]. The contrast with foreign country court judgments is striking under which there is no international system [60] of recognition and enforcement [61]. The ICC, described as the “archetype of a transnational institution” [62], was instrumental in the evolution of treaties leading to the NYC and then the ICC’s body of rules and administration centered on it further emphasizing the embodiment of internationalism in international commercial arbitration.
The NYC and Model Law are further structured so that the opportunities to set aside an award are internationally limited to the seat where the award was rendered or a specifically provided for procedural law [63], whereas the opportunities for enforcement are restricted only to Convention states thus increasing the international scope of enforcement and reducing international scope of annulment.
National Interpretation and Application of Public Policy over International Matters
However, the public policy exceptions in Art V(2)(b) and UNCITRAL Model Law 34(2)(b)(ii) for setting aside limited to application at the seat or under the selected procedural law, and 36(1)(b)(ii) for potential denial of recognition of enforcement in any state by the competent authority where such is sought, leaves a wide gap for national application of an often widely and inconsistently defined ‘public policy’ exception sometimes widened to include opaque notions of natural justice and so-called ‘repugnancy’ [64].
The autonomously selected international arbitral process may be reconstituted under these grounds to parochial foundations, which may be contrary to the original wishes and choices of the parties. However, many commentators in varying degrees of strength point to the justification that states agreed to the NYC and adopted UNCITRAL Model Law with one of the conditions being that such an exception would remain [65]. The French and U.S. courts have notably attacked this concept by refusing to recognize an annulment they deem to be invalid in their jurisdiction [66].
Such cases have led to a debate as to whether or not the prism of public policy should be a national view of public policy, a national view of international public policy, or an objective view of international public policy mandatorily applied to states, and the appropriateness and viability of a potential international public order to be adopted by states which could also create uncertainty if implemented poorly [67]. Depending on approach to this and other issues, different states are more international in the field of arbitration than others, developing “pro-“or “not-so friendly” reputations [68].
Summary
International Arbitration is a unique golden thread of strong international character running through a tapestry of interwoven public and private transnational and national laws. Each element of international arbitration described above, has a different scope of internationalism and in some aspects such as public policy, national may cast a shadow over the international. The parties, when choosing international arbitration, may not be fully aware of the limitations on the international nature of the beast, but nevertheless, as many aspects of international law continue to evolve, arbitration naturally evolves alongside in a more progressively international manner.