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Unformatted text preview: P1: SBT 9780521866668pre CUUS131/Moses 978 0 521 86666 8 This page intentionally left blank i March 27, 2008 12:50 P1: SBT 9780521866668pre CUUS131/Moses 978 0 521 86666 8 March 27, 2008 THE PRINCIPLES AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION The Principles and Practice of International Commercial Arbitration provides the reader with immediate access to understanding the world of international arbitration. Arbitration has become the dispute resolution method of choice in international transactions. This book explains how and why arbitration works. It provides the legal and regulatory framework for international arbitration, as well as practical strategies to follow and pitfalls to avoid. It is short and readable, but comprehensive in its coverage of the basic requirements, including the most recent changes in arbitration laws, rules, and guidelines. In the book, the author includes insights from numerous international arbitrators and counsel, who tell firsthand about their own experiences of arbitration and their views of the best arbitration practices. Throughout the book, the principles of arbitration are supported and explained by the practice, providing a concrete approach to an important means of resolving disputes. Margaret L. Moses is Professor of Law at Loyola University Chicago School of Law. She teaches international commercial arbitration, international business transactions, European community law, international trade finance, and contracts. Professor Moses is also the Director of the International Program at Loyola and coaches the Vis Moot International Arbitration teams, which compete in Vienna and Hong Kong. i 12:50 P1: SBT 9780521866668pre CUUS131/Moses 978 0 521 86666 8 ii March 27, 2008 12:50 P1: SBT 9780521866668pre CUUS131/Moses 978 0 521 86666 8 March 27, 2008 The Principles and Practice of International Commercial Arbitration Margaret L. Moses Loyola University Chicago School of Law iii 12:50 CAMBRIDGE UNIVERSITY PRESS Cambridge, New York, Melbourne, Madrid, Cape Town, Singapore, São Paulo Cambridge University Press The Edinburgh Building, Cambridge CB2 8RU, UK Published in the United States of America by Cambridge University Press, New York Information on this title: © Margaret L. Moses 2008 This publication is in copyright. Subject to statutory exception and to the provision of relevant collective licensing agreements, no reproduction of any part may take place without the written permission of Cambridge University Press. First published in print format 2008 ISBN-13 978-0-511-50629-1 eBook (EBL) ISBN-13 978-0-521-86666-8 hardback ISBN-13 978-0-521-68562-7 paperback Cambridge University Press has no responsibility for the persistence or accuracy of urls for external or third-party internet websites referred to in this publication, and does not guarantee that any content on such websites is, or will remain, accurate or appropriate. P1: SBT 9780521866668pre CUUS131/Moses 978 0 521 86666 8 March 27, 2008 Contents Foreword Preface 1. Introduction to International Commercial Arbitration A. Purpose B. Defining Characteristics 1. Consent 2. Non-Governmental Decision-Makers 3. A Final and Binding Award C. Advantages of Arbitration D. Disadvantages of Arbitration E. The Regulatory Framework F. Institutional Arbitration v. Ad Hoc Arbitration G. Arbitral Institutions 1. The International Chamber of Commerce (ICC) International Court of Arbitration 2. The American Arbitration Association’s (AAA) International Center for Dispute Resolution (ICDR) 3. The London Court of International Arbitration (LCIA) 4. Other Arbitral Institutions H. Arbitrations Involving States 1. ICSID Arbitrations 2. The Permanent Court of Arbitration I. Other Dispute Resolution Methods 1. Mediation 2. Conciliation 3. Neutral Evaluation 4. Expert Determination page xiii xvii 1 1 2 2 2 2 3 4 5 9 10 10 11 11 12 12 12 13 13 13 14 14 14 v 12:50 P1: SBT 9780521866668pre CUUS131/Moses 978 0 521 86666 8 vi March 27, 2008 CONTENTS 5. Mini-Trials 6. Last Offer Arbitration (Baseball Arbitration) J. Conclusion 15 15 15 2. The Arbitration Agreement A. Function and Purpose 1. Arbitration Clauses and Submission Agreements 2. Separability B. Validity 1. The Writing Requirement a. Recommended Interpretation of Articles II and VII b. Amendment to Article 7 of UNCITRAL Model Law c. U.N. Convention on Use of Electronic Communications d. Other Article 7 Issues e. Effect of the More Favorable Right Provision 2. A Defined Legal Relationship 3. Capable of Being Settled by Arbitration 4. Null and Void, Inoperable or Incapable of Being Performed a. Null and Void b. Inoperable c. Incapable of Being Performed C. Binding Nonsignatories 1. Group of Companies 2. Equitable Estoppel 3. Veil Piercing/Alter Ego 17 17 17 18 18 20 23 24 3 Drafting the Arbitration Agreement A. Essential Requirements 1. Choice of Arbitrators 2. Place of Arbitration 3. Language of the Arbitration 4. Substantive Law B. Additional Provisions 1. International Bar Association Rules on Taking Evidence 2. Preliminary Relief 3. Technical Expertise 4. MultiStep Dispute Resolution Clauses 5. Dispositive Motions 6. Legal Fees and Costs 7. Confidentiality 8. Expanded Judicial Review 39 40 42 43 43 44 44 27 28 28 30 31 31 32 32 32 33 34 35 36 44 45 46 46 47 48 49 50 12:50 P1: SBT 9780521866668pre CUUS131/Moses 978 0 521 86666 8 CONTENTS 9. Waiver of State Immunity 10. Multiparty Agreements C. Conclusion 4 Applicable Laws and Rules A. Importance of the Law B. Delocalization v. Territoriality 1. Arguments Favoring Delocalization 2. Arguments Opposing Delocalization 3. Some Modern Approaches to Delocalization a. Sports Arbitrations b. Online Arbitrations C. The Lex Mercatoria 1. Definition of the Lex Mercatoria 2. Application of the Lex Mercatoria a. Contracts between States b. Contracts between a State and a Private Company D. The Parties’ Choice of Law 1. The Law Governing the Arbitral Proceedings 2. The Rules Governing the Arbitral Proceedings 3. The Law Governing the Arbitration Agreement 4. The Law Governing Arbitrability 5. The Law Governing the Contract a. National or International Law b. Lex Mercatoria c. Unrelated National Law d. D´epec¸age e. Renvoi f. Ex Aequo et Bono and Amiable Compositeur E. When Parties Fail to Choose the Seat or the Governing Law 1. Failure to Choose the Seat 2. Failure to Choose a Governing Law 3. Conflicts of Law 4. Voie Indirecte 5. Voie Directe F. An Arbitrator’s Duty to Apply the Law 1. Law or Equity 2. Duty to Render an Enforceable Award 3. Applying the Law a. The Lex Arbitri b. Mandatory Law c. Mandatory Law and Public Policy March 27, 2008 vii 51 52 53 55 55 56 56 57 57 58 58 60 60 62 62 63 63 64 65 65 68 69 69 70 70 72 73 74 75 75 76 76 77 77 78 78 79 80 80 80 81 12:50 P1: SBT 9780521866668pre CUUS131/Moses 978 0 521 86666 8 viii March 27, 2008 CONTENTS 5 Judicial Assistance for Arbitration A. Enforcement of Arbitration Agreements 1. Extent of Judicial Review 2. Competence-Competence B. Anti-Suit Injunctions 1. Anti-Suit Injunctions in the United States 2. Anti-Suit Injunctions in Europe C. Interim Measures 1. Kinds of Interim Measures 2. Tribunal or Court – Where to Go for Interim Relief 3. Basis for Interim Measures 4. Enforcement of Interim Measures D. Court Assistance in Obtaining Evidence 1. Procedural Orders 2. National Laws Concerning Court Assistance 3. Summons Issued by U.S. Arbitrators 4. Tribunal in the United States Seeking Evidence Outside the United States 5. Court Assistance in the United States to Foreign Tribunals 6 The Tribunal A. Appointment of Arbitrators 1. How Many Arbitrators? 2. Qualifications a. Knowledge and Experience b. Lawyers or Nonlawyers c. Professors as Arbitrators d. Language Fluency e. Availability f. Reputation g. Specifications and Requirements 3. Method of Selection a. Three Arbitrators i. The Rules ii. The Practice (1) Choosing the Party-Appointed Arbitrators (Coarbitrators) (2) Choosing the Presiding Arbitrator (The Chair of the Tribunal) b. A Sole Arbitrator 84 85 85 88 92 93 97 100 100 102 105 106 107 107 108 109 112 113 116 116 117 117 117 118 118 119 119 120 120 120 121 121 122 122 124 127 12:50 P1: SBT 9780521866668pre CUUS131/Moses 978 0 521 86666 8 March 27, 2008 CONTENTS B. C. D. E. F. G. c. Ad Hoc Arbitration 4. Interviewing Prospective Arbitrators Obligations of Arbitrators 1. Independence and Impartiality a. The IBA Guidelines on Conflicts of Interest i. Part I: The General Standards ii. Part II: Practical Application of the General Standards b. The 1987 IBA Rules of Ethics for Arbitrators c. American Arbitration Association (AAA)–American Bar Association (ABA) Code of Ethics for Arbitrators in Commercial Disputes 2. Other Obligations Challenges to the Arbitrator Flawed Conduct of Arbitrators Replacement of Arbitrators Arbitrator Immunity Costs and Fees 7 The Arbitral Proceedings A. Beginning the Arbitration B. Preliminary Matters C. Written Submissions D. The Hearing 1. Chair Can Decide Procedural Issues 2. Scheduling the Hearings 3. Place of the Hearing 4. Language of the Hearing 5. Local Bar Requirements 6. Closed Hearings 7. Record of Proceedings 8. Technology 9. Time Limits per Side 10. Default of Appearance 11. Expedited Proceedings E. Presenting Evidence 1. IBA Rules of Evidence 2. Burden of Proof 3. Documentary Evidence a. Hearsay Evidence b. Authentication c. Document Requests ix 127 128 130 130 131 131 133 136 137 138 140 145 146 147 148 150 151 153 159 160 160 160 161 161 162 162 162 162 163 163 164 164 165 165 167 167 167 168 12:50 P1: SBT 9780521866668pre CUUS131/Moses 978 0 521 86666 8 x March 27, 2008 CONTENTS d. Arbitrator Discretion 4. Fact Witnesses a. Testimony Prior to the Hearing b. Witness Statements c. Who Can Testify d. Meeting with Witnesses e. Examining Witnesses f. Arbitrator Intervention g. Availability of Witnesses h. Compelling Witness Testimony 5. Expert Witnesses F. Post-Hearing Proceedings 169 170 170 170 171 171 172 174 175 175 175 178 8 The Award A. Difference in “Orders” and “Awards” B. Types of Awards 1. Final Award 2. Partial and Interim Awards 3. Consent Award 4. Default Award C. Validity of the Award 1. Formalities 2. Communication 3. Time-Limits 4. Concurring and Dissenting Views 5. Scrutiny of the Draft Award 6. Finality, Clarity, Scope D. Remedies and Costs 1. Monetary Damages 2. Interest 3. Other Remedies 4. Costs E. Res Judicata Effect of the Award F. Confidentiality of the Award G. Post-Award Proceedings 179 179 180 180 181 183 183 184 184 184 185 185 185 186 186 186 186 187 187 188 189 191 9 Attempts to Set Aside an Award A. Methods of Challenge B. Grounds of Challenge 1. Jurisdictional Challenges 2. Procedural Challenges 3. Challenges Based on the Merits 193 193 194 195 195 196 12:50 P1: SBT 9780521866668pre CUUS131/Moses 978 0 521 86666 8 March 27, 2008 CONTENTS C. Time Limitations D. Effects of a Successful Challenge xi 199 199 10 Enforcement of the Award A. Application of International Conventions B. Principles Governing Recognition and Enforcement C. Requirements for Enforcement 1. Scope 2. Jurisdiction and Forum Non Conveniens 3. Procedures for Enforcement D. Grounds for Nonenforcement under the Convention 1. Incapacity and Invalidity 2. Lack of Notice or Fairness 3. Arbitrator Acting in Excess of Authority 4. The Tribunal or the Procedure Is Not in Accord with the Parties’ Agreement 5. The Award Is Not Yet Binding, or Has Been Set Aside a. A Binding Award b. Effect of a Vacated Award c. The Article V(1)(e) Loophole d. The Court’s Discretion to Ignore the Article V(1) (e) Loophole e. Deference to Local Law under Article VII f. Enforcement of Vacated Awards 6. The Last Two Defenses under Article V a. Subject Matter Not Arbitrable b. Public Policy Conclusion 202 202 203 204 204 205 207 208 208 211 211 11 Investment Arbitration A. Growth of Foreign Investment and Investment Arbitration B. Investor Protection 1. The Washington (ICSID) Convention a. Background b. ICSID Jurisdictional Requirements i. Consent ii. Contracting State or National of Another Contracting State iii. Legal Disputes and Investments c. Special Features of ICSID Arbitrations 220 212 212 212 213 214 214 214 214 216 216 218 219 220 221 221 221 222 222 223 225 225 12:50 P1: SBT 9780521866668pre CUUS131/Moses March 27, 2008 978 0 521 86666 8 xii CONTENTS i. Delocalization ii. Recognition, Enforcement, and Execution iii. Publication of Awards d. Additional Facility Rules 2. Bilateral Investment Treaties (BITs) a. Background b. Substantive Rights c. Enforcing Rights under a BIT 3. Multilateral Investment Treaties 4. Investor Protection Legislation C. Overlap of Treaty-Based Rights and Contract-Based Rights 1. The Source of the Right 2. Umbrella Clauses 3. Distinguishing Contract and Treaty Claims 4. Coordinating Contracts with Treaties 225 226 228 228 229 229 229 231 231 232 233 233 234 236 239 Appendices A: The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (The New York Convention) (1958) 241 B: UNCITRAL Model Law on International Commercial Arbitration (original 1985 version) 247 C: Annex I: Revised Articles of the UNCITRAL Model Law on International Commercial Arbitration (2006) 261 D: Annex II: UNCITRAL Recommendation Regarding the Interpretation of Article II, Paragraph 2, and Article VII, Paragraph 1, of the New York Convention 267 E: IBA Rules on Taking Evidence in International Commercial Arbitration 270 F: IBA Rules of Ethics for International Arbitrators (1987) 281 G: IBA Guidelines on Conflicts of Interests in International Arbitration 287 H: The AAA–ABA Code of Ethics for Arbitrators in Commercial Disputes 306 I: Model Clauses 320 J: Useful Arbitration Websites 323 Index 331 12:50 P1: SBT 9780521866668pre CUUS131/Moses 978 0 521 86666 8 March 27, 2008 Foreword Professor Moses’ book is appearing at an auspicious time. The year 2008 marks the fiftieth anniversary of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), the keystone on which the entire edifice of international commercial arbitration is built. The anniversary will be celebrated in arbitration circles by events around the world. It is little remarked, but 2008 is also the eighty-fifth anniversary of the 1923 Protocol on Arbitration Clauses. Although the New York Convention is currently by far the more important, the 1923 Protocol was the more revolutionary. It marked the first occasion on which the international community through the League of Nations agreed upon a multilateral text in the field of arbitration. It was followed four years later by the 1927 Convention for the Execution of Foreign Arbitral Awards. The Protocol and the Convention were highly successful, but both were flawed. At the instance of the International Chamber of Commerce, the United Nations undertook the revision that resulted in the New York Convention. For the modern student, scholar, and practitioner this may be all ancient history. However, it is important to remember just how recent the development of international commercial arbitration is. Arbitration has, of course, a long history. Depending on how it is defined, one can find examples going back to Roman times and even before. However, once the modern nationstate asserted the monopoly of law creation in the late eighteenth and early nineteenth centuries, it was only natural that there would be a concomitant assertion of a monopoly (or something akin to it) of dispute settlement by the courts. The manifestation was a common rule that predispute arbitration agreements were not enforceable as such. The refusal by the respondent to enter into the arbitration might be treated as a breach of contract leading to a claim for damages. However, because it was normally impossible to show that any damages had arisen, a claim for damages was of no value. xiii 12:50 P1: SBT 9780521866668pre xiv CUUS131/Moses 978 0 521 86666 8 March 27, 2008 FOREWORD The 1923 Protocol and the 1925 Federal Arbitration Act, both designed to allow for the enforcement of predispute arbitration agreements, date from the same period. During the inter-war years there was a growth in the use of arbitration, but there was still little that could be considered to be international commercial arbitration as it is understood today. Any arbitration of an international commercial dispute was conducted under national rules that seldom took the international aspect of the dispute into consideration. That began to change with the adoption of the New York Convention in 1958. This change was quickly followed by the European Convention on International Commercial Arbitration of 1961, which was the first international text to use the words “international commercial arbitration.” There was further progress in 1966 with the European Convention Providing a Uniform Law on Arbitration, unsuccessful though it was, and the Arbitration Rules of the United Nations Economic Commission for Europe, which have been widely used. To this observer’s eyes the final breakthrough came with the adoption of the UNCITRAL Arbitration Rules in 1976 and the UNCITRAL Model Law on International Commercial Arbitration in 1985. The UNCITRAL Arbitration Rules were the first to reconcile some of the procedural differences between the civil law and the common law. The Model Law introduced the idea that it would be appropriate to have separate rules for domestic arbitrations and for international arbitrations, thereby liberating international arbitration from many of the policy constraints that continue to be thought appropriate for domestic arbitration in many countries. Those two related texts have provided the template for modern institutional arbitration rules and for national legislation on arbitration, both international and domestic. The institutional changes brought about by the various texts had another important effect that was more in the nature of a change in attitude. Although “international commercial arbitration” as a distinct area of law was first announced in 1961 in the European Convention, it is the past thirty years that have seen the development of a body of rules and procedures that are unique to it and that are generally recognized in much of the world. There is by now general agreement on the basic procedures to be followed in an international commercial arbitration. It has become common to describe arbitration as the preferred method for resolving international commercial disputes. There are a number of ways in which it is preferable to litigation, of which only a few of the more salient need to be mentioned. Arbitration is certainly better than litigating a dispute in the other party’s courts, which would otherwise be the usual result for one of the parties. Even if one could feel confident that those courts were unbiased, they might operate in a different language and with a civil procedure that is unfamiliar. Under modern arbitration laws the dispute can be 12:50 P1: SBT 9780521866668pre CUUS131/Moses FOREWORD 978 0 521 86666 8 March 27, 2008 xv arbitrated in a neutral third country to which neither party belongs. Because of the New York Convention, an arbitral award is more easily enforced throughout the world than are decisions of foreign courts. The most significant of the advantages of arbitration over litigation of international commercial disputes that are relevant to this book is that it is easily possible to pick a seat for the arbitration that allows the parties to be represented by their regular counsel. That is not possible when litigating in a foreign court. Local counsel must be engaged to handle the dispute. While local counsel may be expert in the local procedure and may be highly competent, they are strangers to the client and perhaps to its regular counsel, with all the possibilities of misunderstanding the relevant business culture and legal dynamics that motivated the client. It is far preferable that counsel familiar with th...
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