LAW AND PRACTICEOF

INTERNATIONALCOMMERCIAL ARBITRATION

TfflRD EDITION

By

ALAN REDFERN MARTIN HUNTERBarrister, London; formerly the Barrister, London; Sweet & Max-Senior Litigation Partner at well Professor of International

Freshfields, FCIArb Dispute Resolution NottinghamLaw School, FCIArb

LONDONSWEET & MAXWELL

1999

TABLE OF CONTENTS

PagePreface vAcknowledgments ixAbbreviations xxvTable of Court Cases xxixTable of Arbitration Awards xxxvTable of Statutes xxxviiiTable of Major Arbitration Conventions xlüTable of International Arbitration Rules xlviTable ofCivil Codes and Table ofTreaties l

CHAPTER 1—INTRODUCTION Para

1. Key elements of International Arbitration(a) Generally 1-01(b) The arbitral process 1-03(c) Significant features of arbitration 1-05

The agreement to arbitrate 1-06The importance of the arbitration agreement 1-09Enforcement 1-10Powers conferred by the agreement 1-11The choice of arbitrators 1-12The decision ofthe arbitral tribunal 1-13Power to make binding decisions 1-14The enforcement of the award 1-15Hybrid nature of the arbitral process 1-16

(d) The meaning of "international" 1-17International and domestic arbitration contrasted 1-18

(e) The relevant criteria 1-20The international nature ofthe dispute 1-21The nationality ofthe parties 1-23The Model law criteria: a combined approach 1-25

(f) The meaning of "commercial" 1-27(g) Anatomy of a simple arbitration clause 1-29

Arbitrability 1-30Is there any needfor a dispute? 1-31Existing andfuture disputes 1-32Arising out of or in connection with this Agreement 1-33Shall be referred to and determined by arbitration 1-34Other matters 1-35

2. Why arbitrate?(a) Generally 1-36

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3.

(b) The contrast with litigationCostsLimited powers of arbitratorsInternational arbitration or litigation?Confidentiality

(c) Alternative Dispute ResolutionIntroductionWhat is meant by ADR?How does ADR work?

MediationConciliationThe UNCITRAL Conciliation RulesDispute Resolution CentresMini-trialMediation/Arbitration (Med/Arb)The neutral listener agreement"Baseball" or "last offer" arbitrationMedaloaCourt-annexed arbitrationSummary jury trialOther ADR techniquesExpert Determination (including adjudication and DisputeReview Boards)

The enforceability ofADR agreementsWhy has ADR developed as it has?

Business and cultural considerationsADR—future perspectivesThe need for judicial controlADR and Arbitration combinedAmiable Composition, equity clauses, "ex aequo et bono"

What kind of arbitration?(a) Introduction(b) Institutional and ad hoc arbitration(c) Institutional arbitration—advantages and disadvantages

AdvantagesDisadvantages

(d) Ad hoc arbitration—advantages and disadvantagesAdvantagesDisadvantages

(e) Arbitral InstitutionsWhat to look for in an arbitral Institution

(i) A degree of permanency(ii) Modern rules of arbitration

(iii) Qualified staff(iv) Reasonable chargesSome well-known institutions

The International Chamber of CommerceThe London Court of International ArbitrationThe American Arbitration AssociationThe International Arbitration Centre of the Austrian FederalEconomic Chamber, Vienna.The WIPO Arbitration Centre

(f) Arbitrations involving a State or State entityICSIDICSID proceduresICSID—an international Institution

1-381-391-401^11^»3

1^91-511-521-531-541-551-581-591-601-611-621-631-64

l-64a1-65

1-661-691-70

1-721-731-741-75

1-761-771-791-801-811-821-831-841-851-861-871-881-891-90

1-911-931-94

1-951-961-971-981-99

1-100

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ICSID's additional facility 1-103The Permanent Court of Arbitration (the PCA) 1-104

4. Claims Commissions and Tribunals 1-105(a) The Iran-United States Claims Tribunal 1-106(b) The United Nations Compensation Commission 1-108(c) The Claims Resolution Tribunal for Dormant Accounts in

Switzerland 1-1105. Regulation of International Arbitration

(a) Generally 1-111(b) The role of national law 1-113

State participation in the arbitral process(c) The role of international Conventions and the Model Law 1-115

Bilateral Investment Treaties 1-116The Geneva Protocol 1923 . 1-118The Geneva Convention of 1927 1-119The New York Convention of 1958 1-120Conventions afler 1958 1-121Regional Conventions 1-122The Model Law 1-123

(d) Practice—-national or international 1-124How procedure is determined 1-125

6. Summary 1-128

CHAPTER 2—APPLICABLE LAWS

1. Introduction(a) Generally 2-01(b) No legal vacuum 2-02(c) A complex interaction of laws 2-03

2. The law governing the arbitration(a) Introduction 2-04(b) What is the lex arbitri! 2-06(c) The seat theory 2-08(d) The lex arbitri—a procedural law? 2-09(e) Choice of a foreign procedural law 2-10(f) Peripatetic arbitrations 2-12(g) Where an award is made 2-14(h) De-localisation 2-16

The arguments considered 2-18The position in reality 2-19

(i) The "seat" theory and the lex arbitri 2-203. The law applicable to the substance

(a) Generally 2-21Crossing national frontiers 2-23

(b) The autonomy of the parties 2-24Recognition by international Conventions 2-25Time of choice 2-26Restrictions on party autonomy 2-27The Options 2-28

(c) National law 2-29Choice of a system of national law 2-30Dijferences between national laws 2-31Unsuitability for international trade 2-32National interests 2-33Unfair treatment 2-34Precluding unfair treatment 2-35

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Stabilisation clauses 2-36(d) Public International law 2-38(e) Concurrent laws 2-39

The Washington Convention 2-40The Libyan oil nationalisation arbitrations 2-41

(0 Combined laws (or the "tronc commun" doctrine) 2-43(g) The Shari'ah 2-47

Disputes governed by Shari'ah 2—48Disputes not governed by Shari'ah 2-49Arbitration at Shari'ah—general principles 2-50

(h) Transnational law (including the general principle of law; inter-national development law; the lex mercatoria; codified terms andpractices and trade usages)Introduction 2-51The general principles of law 2-53The Petroleum Development arbitration 2-54International development law 2-57The Charter of Economic Rights and Duties of States 2-48The content of international development law 2-59The lex mercatoria 2-60Codified Terms and Practices 2-65

The UNIDROIT Principles 2-66Trade usages 2-68

Authority to apply a non-national System of law 2-69Transnational law in practice 2-71

(i) Equity and good conscience 2-724. Conflict rules and the search for the applicable law

(a) Generally 2-74(b) Implied or tacit choice 2-75

Choice offorum as choice of law 2-76(c) Conflict rules 2-77

Does an international arbitral tribunal have a lexfori? 2-79(d) International Conventions, Rules of Arbitrations and national laws 2-80(e) Conclusion 2-81

CHAPTER 3—ARBITRATION CLAUSES AND SUBMISSION AGREEMENTS

1. Background(a) Generally 3-01(b) Categories of Arbitration Agreements 3-02(c) International Conventions

The Geneva Treaties 3-03(d) International Standards 3-04(e) Existing and future disputes 3-06(0 A deßned legal relationship 3-07

2. The validity of an arbitration agreement(a) Formal validity—the need for writing 3-09(b) Essential validity 3-13

Is there an agreement to arbitrate? 3-14Capacity 3-15

Natural persons 3-16Corporations 3-17States and State agencies 3-18

Arbitrability 3-21Patents and trademarks 3-23Antitrust and competition laws 3-24

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Securities transactions 3-26Bribery and corruption 3-27Fraud 3-29

Conclusion 3-303. Other important aspects of the arbitration agreement

(a) Separability 3-31(b) The Law goveming the arbitration agreement 3-35

4. Analysis of an arbitration agreement(a) Scope 3-39

Forms of wording 3-40(b) Basic elements 3-44

A valid arbitration agreement 3-47The number of arbitrators 3-48Establishment of the arbitral tribunal 3-49Ad hoc or institutional arbitration 3-50Filling vacancies in the tribunal . 3-51Place of arbitration 3-52Goveming law 3-53Default clauses 3-54Language 3-55Entry ofjudgment and rule of court clauses 3-56Other procedural matters 3-57

(c) Submission AgreementsGenerally 3-58Drafting a Submission agreement 3-59An illustration 3-60

(d) Summary 3-615. Defective arbitration clauses 3-63

(a) Inconsistency 3-64(b) Uncertainty 3-65(c) Inoperability 3-67(d) Repudiation and waiver of arbitration agreements 3-68

6. Multi-party arbitrations(a) Generally 3-69

Several parties to one contract 3-70Several contracts with different parties 3-72

(b) String arbitrations 3-75(c) Concurrent hearings 3-76(d) Court ordered consolidation 3-77(e) Consolidation by consent

Under an arbitration agreement 3-80Under institutional rules 3-81

CHAPTER 4—ESTABLISHMENT AND ORGANISATION or AN ARBITRAL TRIBUNAL

1. Background(a) Generally 4-01(b) Commencement of an arbitration 4-03

Time-limits 4-04Contractual time-limits 4-05Time-limits and public policy 4-08

(c) Commencement of an arbitration under applicable law 4-09(d) Commencement of an arbitration under institutional rules 4-10(e) Selecting an arbitral tribunal 4-12(0 Sole arbitrators and multi-arbitrator tribunals 4-14

Sole arbitrators 4-15

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Two arbitratorsThree arbitratorsFour or more arbitrators

.. Appointment of Arbitrators(a) Generally(b) Agreement of the parties(c) Trade associations(d) Professional institutions(e) Arbitral institutions(f) List Systems(g) By existing arbitrators(h) National Courts

JurisdictionPowers

(i) Designating an appointing authorityDesignation by the Secretary-General of the PCA

i. Qualities Required in International Arbitrators(a) Generally(b) Restrictions imposed by the parties(c) Restrictions imposed by the applicable law(d) Professional qualifications

Sole arbitratorThree arbitrators

(e) Language(f) Experience and outlook(g) Education and training(h) Interviewing prospective arbitrators

X. Impartiality and Independence of Arbitrators(a) Generally(b) Impartiality

Impartiality distinguished from neutrality(c) Independence

Nationality(d) Disclosure(e) Communications with the parties

5. Challenge and Replacement of Arbitrators(a) Generally(b) Grounds for challenge(c) Procedure for challenge

Challenges under the ICSID Rules(d) Waiver(e) Filling a vacancy(f) Truncated tribunals(g) Procedure following the filling of a vacancy

Transcripts(h) Insuring against a vacancy

6. The Organisation of the Arbitral Tribunal(a) Generally(b) Meetings and hearings

Meetings and hearings at which the parties are presentFixing datesfor hearingsAvoidance ofpublic holidaysLength of hearings

(c) Administrative aspectsArbitration centresArbitral institutions

4-164-174-19

4-204-214-244-254-264-274-284-294-304-314-324-33

4-354-364-374-384-394-̂ 10A-4\&r-A24-44

4-45

4-474-514-524-544-554-574-58

4-594-604-654-674-704-714-734-754-764-78

4-794-804-814-824-834-844-874-884-89

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Universities, clubs and other institutions 4—90Hotels 4-91Interpreters 4-92Verbatim records 4-93Hearing hours 4-95Relations between the parties and the arbitral tribunal 4—97Functions of the presiding arbitrator 4—98

(d) The role of an administrative secretary or registrar 4-99Institutional arbitrations • 4-100Who to appoint 4-101A model clause for the appointment ofan administrative secretary orregistrar 4-102

7. Fees and expenses of the arbitral tribunal 4-103(a) Who fixes fees? 4-104(b) Commitment or cancellation fees 4-105(c) Methods of assessing fees 4-106

The ad valorem method 4-107The "time spent" method 4-108The "fixedfee" method 4—109

(d) Negotiating arbitrators' fees 4-110. (e) Expenses of the arbitral tribunal 4-111

The reimbursement method 4-112The per diem method 4-113The ICSID System 4-114

(f) Deposits in respect of fees and expenses 4-115(g) Securing payment of the fees and expenses of the arbitral tribunal 4-116

CHAPTER 5—POWERS, DUTTES AND JURISDICTION OF AN ARBITRAL TRIBUNAL

1.

2.

4.

Background(a) Generally(b) Practical considerations

Powers of Arbitrators(a) Generally(b) Powers conferred by the parties

DirectlyIndirectly

(c) Powers conferred by Operation of lawDuties of Arbitrators

(a) Generally(b) Duties imposed by the parties(c) Duties imposed by law

. Duty to act with due careImmunityDuty to act with due diligenceDuty to act judicially

(d) Ethical duties(e) Summary

Jurisdiction(a) Generally(b) Challenges to jurisdiction

Partial challengeTotal challenge

(c) The autonomy (or separability) of the arbitration clauseWho judgesCompetence/Competence

5-015-02

5-035-04

5-065-07

5-115-125-145-155-175-195-205-235-24

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Competence 5-36Limitations on jurisdiction 5-37Award made without jurisdiction 5-38

(d) Court control 5-39Concurrent control 5-40The choices open to the arbitral tribunal 5-41

(e) Procedural aspects of resolving issues of jurisdiction 5-44The time at which issues of jurisdiction should be raised 5^15

(f) Options open to the respondent 5-46Boycott the arbitration 5-47Raise objections with the arbitral tribunal 5-4SApplication to a national court 5-49Attacking the award 5-50The combined approach 5-51Form of court Intervention 5-52

(g) International agreements on the jurisdiction of national courts 5-53

CHAPTER 6—THE CONDUCT or THE PROCEEDINGS

1. Background(a) Generally - 6-01(b) Party autonomy 6-03(c) Restrictions on party autonomy 6-06

Equaüty 6-07Public policy 6-08Arbitration rules 6-09Third parties 6-10

(d) Adversarial and inquisitorial processes 6-112. The Choice of a Place of Arbitration

(a) Generally 6-13(b) The law goveming the arbitration 6-15

Level of control 6-16The lex arbitri 6-18Local restrictions on arbitrators and representatives 6-19Ethical questions 6-20

(c) Enforceability 6-22(d) Meetings need not all be held at the seat of arbitration 6-24(e) The award should be made at the seat of arbitration 6-25(f) Changing the seat of arbitration 6-26

Agreement inoperative or incapable of being performed 6-283. Preliminary steps

(a) Generally 6-29Conduct of preliminary meetings 6-30Representation at preliminary meetings 6-31Adjournment of preliminary meetings 6-32Matters to be determined at preliminary meetings 6-33UNCITRAL Notes on Organising Arbitral Proceedings 6-34

(b) Other preliminary issues 6-35Goveming law and applicable law 6-37Separation ofliability and quantum 6-38Separation of other issues 6-41"Fast track" arbitrations 6-43The Canadian commodity price re-determination cases 6-44

(c) Avoiding delay and disruption 6-45Special procedures in small cases 6-46

4. Written Submissions

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(a) GenerallyThe function ofwritten submissionsThe need to avoid ambiguity

(b) Written pleadings in institutional rules of arbitrationDefinition of the issuesTerminologyTime-LimitsCommunication of written pleadings to the arbitral tribunalAdmissibility of counterclaims

5. Evidence(a) Generally

Common and civil law proceduresAdmissibilityBürden ofproofMethods of presenting evidence

(b) Production of documentsFavourable and unfavourable documentsCommon law practiceCivil law practiceDocuments in the possession of a third partyMethods of presenting documentsTranslations

(c) Testimony of witnessesWritten witness evidenceEvidentiary weight of witness evidenceTaking evidence overseas

(d) Expert evidenceExperts appointed by the arbitral tribunalPower to appoint expertsThe presentation of expert evidenceAlternative methods of presenting expert evidenceAdmissibility of expert evidenceCategories of expert evidence

(e) Inspection of the subject-matter of the disputePower of the arbitral tribunal to inspect the subject-matterProcedure for inspectionInspection under institutional rules of arbitration

6. Hearings(a) Generally(b) Organisation of the hearings

RepresentationPre-hearing ConferencesRevised ICSID Rules

(c) Procedure at hearingsInternational practiceExamination of witnessesWho has the last word?

(d) Ex parte hearingsRefusal to participateProcedure in ex parte hearings

7. Proceedings after the hearings(a) Generally

Post-hearing briefsFresh evidence

6 ^ 86-506-516-556-566-576-586-59

6-616-626-646-666-676-686-696-706-716-736-746-756-766-786-796-806-816-826-836-856-876-896-906-916-926-936-94

6-956-966-976-99

6-1016-1036-1046-1056-1076-1086-1096-110

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CHAPTER 7—The Role of National Courts During the Arbitration Proceedings

1. Introduction 7-01(a) The increasing independence of arbitration 7-02(b) Limitations on independence 7-03(c) A relay race 7-04

2. At the beginning of the arbitration 7-06(a) Enforcing the arbitration agreement 7-07(b) Establishing the arbitral tribunal 7-08(c) Challenges to jurisdiction 7-09

3. During the arbitration proceedings 7-10(a) Interim measures: powers of the arbitral tribunal 7-11(b) Interim measures: powers of the competent court 7-14

Incompatibility with the arbitration agreement? 7-15Should application be made to a national court or to thearbitrators? 7-17

(c) Measures relating to the preservation of evidence 7-20(d) Measures aimed at preserving the Status quo 7-25(e) Security for costs 7-29(f) Injunctions and other forms of relief 7-33

4. At the end of the arbitration(a) Judicial control of the proceedings and the award 7-34(b) Summary 7-35

CHAPTER 8—THE AWARD

1. Background(a) Generally 8-01

Achieving the intended result 8-04Definition of award 8-06

(b) Remedies 8-08Monetary compensation 8-09Punitive damages and other penalties 8-10Rectification 8-14Adaptation of contracts and filling gaps 8-15Creation of new relations 8-17Specific Performance 8-18Restitution 8-19Injunctions 8-21Declaratory relief 8-22Interest and costs 8-23

(c) Making a decisionMajority voting 8-25The bargaining process 8-28Deliberations 8-29

(d) Tribunal psychology 8-30The role of party-nominated arbitrators 8-31

2. Categories of Awards(a) Generally 8-32(b) Final awards 8-33(c) Partial and interim awards 8-34

Issues concerning the applicable law 8-36Separation of liability and quantum 8-37Umitation clauses in a contract 8-38

(d) Default awards 8-39(e) Consent awards 8_40

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3. Validity of Awards(a) Generally g_43(b) Form of the award 8-44

The arbitration agreement 8-45The law goveming the arbitration 8-47The introductory section of an award %-4%Signatures 8-49Language ofthe award 8-50

(c) Contents of the award 8-51The arbitration agreement 8-52Unambiguous 8-53Ejfective determination of the issues 8-54Reasons 8-55Different ways ofgiving reasons 8-58

(d) Time-limits 8-59The disadvantages ofmandatory time-limits 8-61Non-mandatory provisions 8-62

(e) Notifikation of awards 8-63(f) Registration or deposit of awards 8-64

4. Other Considerations(a) Res judicata effect of award 8-65

Existing disputes 8-66Subsequent disputes 8-67Effect of award on third parties 8-68

(b) Separate and dissenting opinions 8-69Dissenting opinions 8-70The position in national laws 8-71The position under institutional rules 8-72The practice in ICC arbitrations 8-73Practice at the Iran-United States Claims Tribunal 8-74Dissenting opinions as a basis for challenge 8-75

(c) Interest 8-76Contractual interest 8-78Interest for late payment 8-79

The arbitration agreement 8-80The proper law of the contract 8-81The lex arbitri 8-82

Enforcing awards that carry interest 8-83Post-award interest 8-84

(d) Costs 8-85Costs of the arbitration 8-86Costs of the parties 8-87Assessing the costs ofthe parties 8-89Requirements imposed by national law 8-92

(e) Proceedings after the award 8-93Under national law 8-94Under rules of arbitration 8-96Review procedures other than by national courts 8-99Review procedures under the ICSID Rules 8-101Publication of awards 8-102

CHAPTER 9—CHALLENGE OF ARBITRAL AWARDS

1. Background 9-01(a) The purpose of challenge 9-02(b) The meaning of challenge 9-03

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(c) Introductory remarks 9-042. Methods of challenge 9-07

(a) Internal challenge 9-08(b) Correction and interpretation of Awards; additional Awards 9-11(c) Recourse to the courts 9-12

3. Grounds for challenge(a) Lack of jurisdiction 9-13(b) Other grounds for challenge 9-17

4. Grounds for challenge under the Model Law 9-18(a) Incapacity: invalid agreement to arbitrate 9-20(b) Lack of due process 9-21(c) Issues of jurisdiction 9-24(d) Further procedural issues 9-26

Summary 9-27(e) Arbitrability 9-28(f) Public Policy 9-29(g) Conclusion 9-32

5. Substantive grounds for Challenge(a) Mistake of law 9-34(b) Mistake of fact 9 ^ 2

Summary6. Place, time and effects of Challenge

(a) Place of challenge 9-45(b) Time-limits 9 ^ 6(c) The effects of a successful challenge 9-47

CHAPTER 10—RECOGNITION AND ENFORCEMENT OF ARBITRAL AWARDS

1. Background(a) Generally 10-01(b) Performance of awards 10-03

Commercial and other pressures 10-04Arbitrator's duty to render an enforceable award 10-05Enforcement by court proceedings 10-06

(c) The general principles goveming recognition and enforcement 10-08The difference between recognition and enforcement 10-09Recognition 10-10Enforcement 10-11Purpose 10-12

(d) Place of recognition and enforcement 10-13Forum Shopping 10-14

(e) Methods of recognition and enforcement 10-15(f) Time limits 10-16(g) Consequences of refusal of recognition and enforcement 10-17

2. The Role of the International Conventions(a) Generally 10-18(b) The Geneva treaties

The Geneva Protocol of 1923 10-19The Geneva Convention of 1927 10-20

(c) The New York Convention 10-22Enforcing the agreement to arbitrate 10-23Enforcing foreign awards 10-24The first reservation: reciprocity 10-25The second reservation: commercial relationships 10-26Recognition and enforcement under the New York Convention 10-28Formalities 10-29

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3. Refusal of Recognition and Enforcement(a) Generally 10-30(b) Grounds for refusal 10-32(c) First ground for refusal: incapacity; invalid arbitration agreement 10-34(d) Second ground: no proper notice of appointment of arbitrator or of the

proceedings; lack of due process 10-35(e) Third ground: jurisdictional issues 10-36(f) Fourth ground: composition of tribunal or procedure not in accor-

dance with arbitration agreement or the relevant law 10-38(g) Fifth ground: Award not binding; suspended or set aside 10-40(h) Arbitrability 10-45(i) Public policy 10-46(j) The Washington Convention 10-49(k) Refusal of recognition and enforcement under regional Conventions

The European Convention of 1961 10-50The Moscow Convention 10-51The Panama Convention 10-52The Amman Convention 10-54Other regional Conventions 10-55

(1) The defence of State immunity 10-56Jurisdictional immunity 10-57Immunity from execution 10-58

4. Practical considerations(a) "Entry of judgment" and "rule of court" clauses 10-61(b) Favourable local law 10-63

Enforcement as a "domestic" award 10-67Enforcement as an Obligation 10-68The hierarchy of awards 10-69

(c) Options open to the successful party: a checklist 10-71(d) Options open to the unsuccessful party: a checklist 10-72

To challenge or not? 10-73(e) The need for local advice 10-74

Appendices

Appendix A—The New York Convention on the Recognition and Enforcementof Foreign Arbitral Awards A-01

Appendix B—UNCITRAL Model Law on International CommercialArbitration B-01

Appendix C—Model Arbitration Clauses for International Contracts C-01Appendix D—AAA International Arbitration Rules D-01Appendix E—ICC Rules of Arbitration E-01Appendix F—ICSID Rules of Procedure for the Institution of Conciliation And

Arbitration Proceedings F-01Appendix G—LCIA Arbitration Rules G-01Appendix H—UNCITRAL Arbitration Rules H-01Appendix I—WIPO Arbitration Rules 1-01Appendix J—UNCITRAL Notes on Organizing Arbitral Proceedings J-01Appendix K—IB A Rules on the Taking of Evidence in International Commer-

cial Arbitration K-01Appendix L—EBA Ethics for International Arbitrators L-01Appendix M—Countries that have adopted arbitration legislation based on the

UNCITRAL Model Law M-01Appendix N—Scoreboard of Adherence to Transnational Arbitration Treaties N-01

Index 651

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