International Arbitration: Lecture 2
Dr. Matteo Zambelli
[email protected]
University of West London
School of Law
1
Overview
A. The arbitration agreement.
B. Arbitrability in international arbitration.
C. Parties to an arbitration agreement.
D. Key elements of an arbitration agreement.
E. Standard arbitration clauses.
F. Q&A.
2
The arbitration agreement
⚫ Contractual basis. Apart from statutory arbitration, the basis of arbitration is
contract.
⚫ The rights and obligations of the parties to arbitrate their dispute arise from
the arbitration agreement they have concluded.
⚫ The arbitration tribunal’s power to make an award which binds the parties is
dependent upon the existence of an arbitration agreement which is both valid
and sufficiently broad in scope to encompass the claims and disputes
referred to it.
3
(cont.)
⚫ Where there was no arbitration clause or agreement before the dispute
arose, parties may submit their dispute to arbitration through a
submission agreement.
⚫ The New York Convention 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 or which
may arise between them in respect of a defined legal relationship,
whether contractual or not, concerning subject matter capable of
settlement by arbitration.” (Article 11(1).)
4
(cont.)
⚫ According to the doctrine of separability (“autonomie”) the invalidity of the main
(or “host”) contract does not necessarily result in the arbitration clause also being
invalid or non-existent. When the parties conclude a contract containing an
arbitration clause, therefore, they are regarded as concluding two separate
agreements.
⚫ This legal fiction was developed to make arbitration a more practical and efficient
method of dispute resolution. Without the doctrine of separability, an arbitral
tribunal would be precluded from determining any issue that raised the validity or
existence of the main contract, because of the risk that the tribunal had no
jurisdiction to act.
5
Formal validity of an arbitration agreement
⚫ For an arbitration agreement (either in the form of a clause compromissoire or a
submission agreement) to be valid it must be in writing. Article II(2) of the New York
Convention stipulates that an “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“.
⚫ In England the relevant provisions of the Arbitration Act 1996 are consistent with the
writing requirement in New York Convention. An agreement “in writing” is very broadly
defined in the Arbitration Act 1996. Any of the following categories of agreement fall
within the Arbitration Act 1996:
⚫ An agreement “made in writing”. Any agreement “made in writing” is recognised under
section 5(2)(a) of Act. This category would cover any document, whether or not it is
signed by the parties, setting out an arbitration agreement, including a contract which
contains an arbitration clause.
⚫ An agreement made by an exchange of communications in writing (section 5(2)(b)). In
Hong Kong, an exchange of communications between one of the parties and a third party
(in that case, a local court) was held to qualify as an agreement in writing for the
purposes of the Model Law where the relevant letters were copied to the other party also
(Jianxi Provincial Metal and Minerals Import and Export Corporation v Sulanser Co Ltd
[1996] ADRLJ 249).
6
(cont.)
⚫ An agreement otherwise than in writing by reference to terms which are in writing
(section 5(3)): an example of facts falling within section 5(3) is afforded by Heifer
International Inc v Christiansen [2007] EWHC 3015 (TCC) where the claimant’s
representative showed D5 a copy of a contract which the claimant had concluded with
D4, and which incorporated an arbitration clause. The claimant informed D5 that the
same conditions would apply to its own contract, and the contract was then concluded.
The court held that this amounted to a contract between the parties which was made
otherwise than in writing, but by reference to terms which are in writing, within the
meaning of section 5(3).
⚫ An agreement which is evidenced in writing (section 5(2)(c) and 5(4)): In National Boat
Shows Limited v Tameside Marine [2001] W.L. 1560826, the court held that an
arbitration agreement had been evidenced in writing by virtue of the fact that one party
had accepted an offer to be bound by the terms of the arbitration agreement, contained
in a prospectus, by returning and submitting the application form to which the prospectus
related.
⚫ An exchange of written submissions (section 5(5)): this section envisages the exchange
of formal submissions, rather than mere informal correspondence. The existence of the
arbitration agreement must be clearly stated in the submissions. The words “in his
response” show that complete silence on the part of the respondent would not satisfy the
section.
7
(cont.)
⚫ Meaning of “writing”: Section 5(6) of the Arbitration Act 1996 states that:
“references…to anything being written or in writing include its being recorded by
any means.” This is an inclusive definition, though it is difficult to think of anything
that might fall outside the specified category of “recorded by any means”.
⚫ An arbitration or other agreement which is not made in writing is still a valid and
enforceable agreement under English Law. Section 81(1)-(b) of the Arbitration Act
1996 expressly states that: “nothing in this Part shall be construed as excluding
the operation of any rule of law consistent with the provisions of this Part, in
particular any rule of law as to…the effect of an oral arbitration agreement.”
⚫ However, any award issued pursuant to an oral arbitration agreement would be
extremely difficult to enforce abroad because it will fall outside the scope of the
New York Convention.
8
(cont.)
⚫ The position in France: arbitration agreements in international arbitration are not
subject to any formal requirements (Article 1507, Code of Civil Procedure). Article
1515 of the Code of Civil Procedure requires that the arbitration agreement, or a
copy of it, must be provided at the stage of the award’s recognition and
enforcement. However, commentators agree that this does not require that the
arbitration agreement is in writing, but only that the agreement is evidenced in a
written document.
⚫ A recurring issue before the French courts is whether an arbitration agreement is
binding when it is merely incorporated by reference into the contract giving rise to
the dispute. In many decisions, the Cour de cassation has made it clear that
courts will give effect to an arbitration clause contained in a separate document
(for example, general terms and conditions) incorporated by reference into a
contract, even if the clause is not explicitly referred to in the main contract,
provided the other party was aware of the reference to it and did not object to it
(Cour de cassation, first civil chamber, Prodexport v FMT Productions, Case No
95-17.603 (3 June 1997)).
9
(cont.)
⚫ The position in Switzerland: an arbitration agreement must be made in writing,
by telegram, telex, telecopier or any other means of communication that allows it
to be evidenced by a text (Article 178(1), Private International Law Act 1989). If
the formal requirements are not fulfilled, the arbitration agreement is invalid.
However, neither a signature nor an exchange of documents is required to fulfil
the form requirements.
⚫ The position in Germany: the formal requirements for an enforceable arbitration
agreement are (Section 1031 Civil Procedure Rules):
⚫ The arbitration agreement must be contained either in a document signed by the parties or in an
exchange of letters, faxes, telegrams or other means of telecommunication that provide a record of the
agreement (separate rules apply if which a consumer is a party).
⚫ The form requirement is deemed to have been complied with, if the arbitration agreement is contained
in a document transmitted from one party to the other party (or by a third party to both parties) and, if no
objection was raised in good time, the contents of the document are considered to be part of the
contract according to common usage (commercial letter of confirmation).
⚫ The parties can also refer to an arbitration agreement contained in the standard terms and conditions of
one of the parties.
⚫ An arbitration agreement is also concluded by the issue of a bill of lading, if the latter contains an
express reference to an arbitration clause in a charter party.
10
(cont.)
⚫ Model Law (2006 – Option I):(1) “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. (2) The arbitration agreement shall be in writing.
(3) 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. (4) 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 useable for subsequent reference; “electronic communication” means any
communication that the parties make by means of data messages; “data message”
means information generated, sent, received or stored by electronic, magnetic, optical
or similar means, including, but not limited to, electronic data interchange (EDI),
electronic mail, telegram, telex or telecopy. (5) 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. (6)
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.
11
(cont.)
⚫ Arbitrating under a clause in an earlier or later contract: in some cases, the
courts have found that claims arising under one contract can be arbitrated under
an arbitration clause contained in a second, earlier contract: es. in C v D1, D2 and
D3 [2015] EWHC 2126 (Comm), the court held that claims arising under an earlier
contract were arbitrable under a later agreement. A contrary conclusion was
reached in X Ltd v Y Ltd [2005] EWHC 769 (TCC), where the links between the
two contracts were more tenuous, and each contract contained its own
independent arbitration regime.
⚫ Is there a dispute? the question of what amounts to a “dispute” has given rise to
a substantial amount of litigation, particularly in the context of stay applications.
For a dispute to exist, the defendant need not necessarily have denied the claim.
The existence of a dispute can be inferred from silence in the face of a claim.
Moreover, it is now clear that an admitted but unpaid claim is nevertheless a
“dispute” (see Exfin Shipping (India) Ltd Mumbai v Tolani Shipping Co Ltd
Mumbai [2006] EWHC 1090 (Comm)).
⚫ Was there a defined legal relationship? For an arbitration agreement to be valid
it must arise out of a “defined legal relationship” between the parties, whether
contractual or not.
12
Arbitrability in international arbitration
⚫ The term “arbitrability”, as it is understood in most jurisdictions apart from the US
where it carries a wider meaning, refers to the question of whether a particular
issue in dispute is capable of being resolved by arbitration or whether, according
to the relevant governing law, it must be resolved by the national courts. It is,
therefore, a jurisdictional question, in the sense that the tribunal will lack
jurisdiction to determine disputes that are inarbitrable.
⚫ There is no uniform international code or law that prescribes what is arbitrable in
any given jurisdiction.
13
(cont.)
⚫ The New York Convention 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 or which may
arise between them in respect of a defined legal relationship, whether contractual or not,
concerning subject matter capable of settlement by arbitration.” (Article 11(1).)
⚫ “Recognition and enforcement of an arbitral award may also be refused if the competent
authority of the country in which recognition and enforcement is sought finds that: (a) the
subject matter of the difference is not capable of settlement by arbitration under the law
of that country … ” (Article V(2)(a).)
⚫ The UNCITRAL Model Law provides that:
⚫ “An arbitral award may be set aside by the court specified in Article 6 only if … the court
finds that … the subject matter of the dispute is not capable of settlement by arbitration
under that law of this State.” (Article 34(2)(b)(i).)
⚫ “Recognition or enforcement of an arbitral award, irrespective of the country in which it
was made, may be refused … if the court finds that the subject of the dispute is not
capable of settlement by arbitration under the law of this State.” (Article 36(1)(b)(i).)
14
(cont.)
⚫ What is, or is not, arbitrable is usually prescribed by the national laws of the
relevant jurisdiction. These laws might be contained in the statutes or legal codes
of a particular country, or in the common law. Es. section 1030 of the German
Arbitration Law 98 provides that any claim concerning an economic interest can
be subject to an arbitration agreement. Where a claim does not involve an
economic interest, an arbitration agreement is effective to the extent that the
parties are entitled to conclude a settlement on the issue in dispute.
⚫ By contrast, the English Arbitration Act 1996 does not define what is arbitrable. It
preserves the common law on arbitrability (section 81(1)(a)) and, in accordance
with the provisions of the New York Convention, provides that recognition and
enforcement of an award may be refused if the arbitration award is about a matter
that is not capable of settlement by arbitration (section 103(3)).
15
(cont.)
⚫ Which law governs issues of arbitrability? The issue of arbitrability may be raised
before a court or before an arbitral tribunal. Generally, if the issue is being dealt
with by a court, the court will look to its own country’s laws (law of the forum) to
decide the matter. Often the question of whether an issue is arbitrable raises
issues of public policy governed by the law of the forum.
⚫ In Docket No. 34 SchH 18/13, the Higher Regional Court of Munich dealt with the
question of which law is to be applied to the question of arbitrability if a party
raises tort claims and the seat of the arbitration is in Germany. It was held that, if
the parties have agreed on an arbitration clause with the place of arbitration in
Germany, only German law is to be applied to the question of arbitrability, and
foreign law is irrelevant. The court held that it was necessary to accept the risk
that an arbitral award rendered in Germany might not be confirmed abroad, in
order to ensure the uncomplicated application of German arbitration law.
16
(cont.)
⚫ Two of the most important features of arbitration are that it is a private,
confidential means of dispute resolution, and that it is consensual. Only the
parties who have agreed to arbitrate can be required to be part of the process,
and only those who are party to the arbitration agreement can be bound by any
resulting award.
⚫ As a matter of policy, these features of arbitration may make it unsuitable for
resolving certain disputes, and in every legal system, some types of disputes are
reserved for a nation’s judicial or other official public systems of dispute resolution.
In general terms, a dispute may be inarbitrable where the state requires ultimate
control over the outcome of the dispute for social or economic reasons, or where
the state wishes to retain ultimate control over fundamental rights (such as
ownership of property).
⚫ This may occur where: (a) it is in the public interest that these types of disputes
are resolved by the state or public judiciary taking into account the wider social
impact of such decisions; (b) the nature of the dispute will inevitably result in third
parties being affected by the outcome of the decision.
17
(cont.)
⚫ The international (as opposed to domestic) nature of the dispute may be relevant
when deciding whether a particular dispute is arbitrable or not. It may be important
to uphold an arbitration agreement between international parties even where the
subject matter might not be considered arbitrable in a domestic context. This is so
as not to undermine the established systems of international trade and commerce,
as well as to respect the authority and capabilities of foreign and international
tribunals.
⚫ The US Supreme Court decided in Mitsubishi Motors Corp v Soler ChryslerPlymouth (1985) that, despite the well-established principle that anti-trust laws were
not arbitrable, it would uphold the arbitration clause in an anti-trust case that
involved international parties.
⚫ Similarly, in France, Article 2059 of the Civil Code provides that parties may submit
to arbitration those rights that they are free to dispose of. Article 2060 provides that
questions of personal status and capacity, or those relating to divorce or to judicial
separation of disputes, and more generally all areas that concern public policy, may
not be submitted to arbitration. However, the French Court of Cassation has held
that these Articles do not strictly apply to international arbitration proceedings.
18
(cont.)
⚫ While French courts take a liberal approach to arbitrability, there are types of
dispute that may not be arbitrable:
⚫ In most jurisdictions certain family law issues are considered inarbitrable for public
policy reasons and because they may directly impact on the liberty of individuals (for
example, divorce or child custody disputes). In Japan, the Arbitration Law (Law No 138
of 2003), which is based on Article 13(1) of the Model Law, provides that divorce and
separation disputes are not arbitrable. By contrast, in England, there has been a
change in attitude amongst some family law practitioners and a move towards
encouraging arbitration in financial or property aspects of family law disputes.
⚫ It is generally accepted in all jurisdictions that insolvency issues, such as bankruptcy
proceedings, are not arbitrable. In England in Syska (Elektrim SA) v Vivendi Universal
SA and others [2009] EWCA Civ 677 the Court of Appeal considered the effect of
foreign bankruptcy proceedings on an existing London Court of International Arbitration
arbitration seated in London. Under Council Regulation (EC) 1346/2000 (which
provided a common framework for insolvency proceedings – it has been recast on 20
May 2015 by Regulation (EU) 2015/848), the court held that it was for the arbitrators
seated in London, applying English law as the law of the member state (as it then was)
where the arbitration proceedings were pending, to determine whether the arbitration
could continue. The court decided in this case that the arbitration should continue.
19
(cont.)
⚫ In many EU countries, disputes directly affecting the existence or validity of a
registered IP right are unlikely to be considered arbitrable. In Germany, for example,
nullity of patent proceedings falls within the exclusive jurisdiction of state courts, such
as the Federal Patent Court in Germany. Where the dispute is not about the validity of
the IP right, but about the rights and obligations arising out of a contract concluded in
relation to such a right (for example, licensing agreements), there are usually fewer
objections to arbitrability.
⚫ Competition and anti-trust laws are designed to protect and ensure free trade within
a specific market. These laws are often recognised as part of the public policy of the
legal system and are generally mandatory in character. In Eco Swiss Time Ltd v
Benetton International NV (Case C-126/97) [1999] ECR I-3055, the Netherlands made
a reference to the ECJ under Article 234 of the EC Treaty, asking whether a domestic
court is obliged to grant a claim for annulment of an arbitral award if the award infringes
Article 85 of the EU Treaty (what is now Article 101 of the Treaty on the Functioning of
the European Union (TFEU)).The ECJ ruled that the award must be annulled if the
domestic court’s procedural rules require it to annul on grounds of breach of national
rules of public policy.
⚫ It is argued that tax-related disputes should not be arbitrable because the collection of
taxes concerns a state’s sovereignty and is therefore not suitable for private dispute
resolution.
20
(cont.)
⚫ In some Middle Eastern states, commercial agency contract disputes may not be
arbitrable. For example, under Kuwaiti Law, Article 285 of the Commercial Code
provides that any dispute relating to commercial representation shall be referred to the
competent court in the place of the performance of the contract. Article 286 provides
that the judge shall evaluate the damages despite any agreement to the contrary.
⚫ Many countries have laws that, for public policy reasons, protect consumers from what
are seen as unfair and onerous terms in contracts. Individual consumers are protected
because they do not have the same level of commercial and legal knowledge or
bargaining power as the companies that they contract for goods or services with.
Where arbitration agreements form part of the company’s standard terms and
conditions, it may be argued that, as a matter of public policy, individuals should not be
deemed to have agreed to where they have not had the opportunity to actively and
freely agree to such an arbitration clause. This argument raises, in turn, an issue as to
the arbitrability of the underlying dispute. In England, consumer disputes are arbitrable.
However, if an arbitration agreement relates to a claim for less than £5,000 it is
deemed to be unfair and will not be binding on the consumer under the Unfair Terms in
Consumer Contracts Regulations 1994 (SI 1999/2083), section 91, AA 1996 and the
Unfair Arbitration Agreements (Specified Amount) Order 1999 (SI 2167/99).
21
Parties to an arbitration agreement
⚫ A tribunal that has jurisdiction over the dispute and can only bind the parties to the
arbitration. Whether a tribunal has jurisdiction over a dispute depends on the consent of
both parties to arbitrate the dispute as given (validly?) in the arbitration agreement
between them.
⚫ Capacity: an arbitration agreement is binding on the parties to it provided that each
party had the required capacity to enter into it. The incapacity is to be judged under the
law applicable to the party to the arbitration agreement. The incapacity may relate to
the age or competence of a party to enter into the arbitration agreement. Alternatively, it
may relate to whether the party is prohibited from entering into an arbitration agreement
by the law applicable to it. Es. The Swedish Court of Appeal decision of State of
Ukraine v Norsk Hydro ASA, Svea Hovrätt, 17 December 2007, T 3108-06 considered
first the legal capacity to enter into an agreement with binding effects for the
represented party, and affirmed that it is governed by the law applicable to that party –
irrespective of what law the parties agreed on to govern the contract. The Court
proceeded to investigate whether the signatories made use of the authority to bind the
principal, which investigation also was based on the law and practice prevailing in the
jurisdiction of the party in question, and not on the law governing the contract.
22
(cont.)
⚫ Third parties to arbitration agreements: non-signatories to arbitration
agreements may need to be joined, for example, where there are multiple but
interdependent contracts, or where multiple parties are involved in a commercial
transaction but only some of them are parties to the agreement containing the
arbitration clause.
⚫ Under French law, a non-signatory may be joined to an arbitration under the
“group of companies doctrine“. Under that doctrine, French courts and arbitral
tribunals applying French law extend arbitration agreements to non-signatories in
the same group only if: (a) the non-signatory played a part in the conclusion,
performance or termination of the contract containing the arbitration agreement;
(b) it was the common intention (express or implied) of the parties that the nonsignatory be bound by the contract and the arbitration clause within it. Dow
Chemical Group v Isover-Saint-Gobain (ICC Case No. 4131 Interim Award, Sept.
23, 1982).
23
(cont.)
⚫ The group of companies doctrine under French law has no counterpart in English
law (Peterson Farms Inc v C&M Farming Ltd [2004] EWHC 121 (Comm), Langley
J at paragraph 62). In Peterson Farms, an English court set aside an arbitral
award in favour of non-signatories, holding that the substantive law applicable to
the contract also governs the arbitrator’s jurisdiction over non-signatories.
Whether a non-signatory may be deemed to be a party to an arbitration is
generally examined through the prism of section 82(2) of the Arbitration Act 1996,
which provides that references to a party in an arbitration agreement include any
person claiming “under or through” a party to the agreement. In accordance with
this provision, when a third party to an agreement containing an arbitration clause
makes a claim under this agreement, this third party becomes a person claiming
under or through a party to the arbitration agreement, and thereby a party to the
arbitration agreement for the purposes of the AA 1996. The third party can
become bound to refer the dispute to arbitration in accordance with that arbitration
agreement (The London Steam-Ship Owners’ Mutual Insurance Association Ltd v
The Kingdom of Spain, the French State [2013] EWHC 3188 (Comm)).
24
(cont.)
⚫ A non-signatory to an arbitration agreement can become a party to an arbitration
under that agreement by way of the Contracts (Rights of Third Parties) Act 1999.
Section 8 of the 1999 Act expressly envisages the applicability of section 1 to
arbitration agreements. The English Court of Appeal has recently held, however,
that one may not impose an obligation to arbitrate on a third party who did not
intend to be bound by an arbitration agreement (Fortress Value Recovery Fund I
LLC and others v Blue Skye Special Opportunities Fund LP and others [2013]
EWCA Civ 367).
⚫ Additionally, a non-signatory may be treated as a party to the arbitration by
piercing the corporate veil. One example is where a company had been used by a
beneficial owner as a device to commit fraud (Hashem v Shayif [2008] EWHC
2380; Antonio Gramsci Shipping Corp and others v Stepanovs [2011] EWHC 333
(Comm)). However, the exact circumstances in which it would be appropriate to
pierce the corporate veil remain unclear. In VTB Capital plc v Nutritek International
Corp and others [2013] UKSC 5, the UK Supreme Court confirmed the courts’
power to pierce the corporate veil but did not elaborate on the circumstances in
which it may do so.
25
(cont.)
⚫ In Egiazaryan and others v OJSC OEK Finance and another [2015] EWHC 3532
(Comm), the parties accepted the tribunal’s finding that a Russian Civil Code
provision stipulating that parent companies are jointly and severally liable for the
acts of their subsidiaries, extended to the obligation to arbitrate. On this basis, the
court ruled that a Russian non-signatory to the English law arbitration agreement
could be joined to the arbitration.
⚫ In the US in Bridas S.A.P.I.C. v. Government of Turkmenistan, 447 F.3d 411 (5th
Cir. 2006), the Fifth Circuit reversed a decision of the district court that vacated a
$495 million arbitral award against a foreign government. The court confirmed the
arbitral tribunal’s award deciding that the government was a proper party to the
arbitration and that the tribunal had the authority to adjudicate the dispute. Rather
than defer to the tribunal’s analysis, the court reviewed the facts and the law and
concluded that the undercapitalization of the instrumentality and the government’s
conduct in connection with the parties’ joint venture agreement made it impossible
for the objectives of the joint venture agreement to be realized. The court noted
that intentionally bleeding a subsidiary to thwart creditors is a classic ground for
piercing the corporate veil.
26
(cont.)
⚫ Assignment: as a matter of English law, where contractual rights are assigned,
the assignee will usually be bound by any applicable arbitration agreement
contained in the original contract. This is because the duty to arbitrate is an
“inseparable component of the transferred rights” (West Tankers Inc v Ras
Riunione Adriatica Di Sicurta SpA [2005] EWHC 454 (Comm)).
⚫ Subrogation: usually occurs where an insurer pays an insured and is then
entitled to enforce the insured’s claims against third parties. As with assignment,
in the case of an English arbitration agreement English law governs the
enforceability of the subrogated claims (West Tankers Inc v Ras Riunione
Adriatica Di Sicurta SpA [2005] EWHC 454 (Comm)) and as a general rule,
subrogated insurers will be bound by any arbitration agreement that applies to the
subrogated rights or claims.
27
(cont.)
⚫ Novation: a novation occurs where a third party replaces one of the original
parties to a contract. A novation is a three-way contract that extinguishes the
original contract and replaces it with another, in which a third party takes up the
rights and obligations that duplicate those of one of the original parties to the
agreement. The third party is treated as if he had been a party to the agreement
from the outset and, therefore, is bound by any arbitration agreement contained in
the original contract. It appears that the new party can join in arbitration
proceedings commenced by the original parties, by obtaining the consent of the
arbitrator appointed by his predecessor, and notifying the other parties and
arbitrators of his claim and of his submission to the arbitral tribunal (Charles M
Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd (The Smaro) [1998] EWHC
1206 (Comm)).
28
Key elements of an arbitration agreement
⚫ As noted above at the core of all arbitration proceedings is the parties’ agreement
to arbitrate. Therefore, ensuring that the arbitration clause is drafted effectively
and adapted to the parties’ needs is of utmost importance. Badly drafted
arbitration clauses can give rise to time consuming litigation and jeopardise the
chances of enforcing an award.
⚫ Effective arbitration agreements share the following eight characteristics:
1. Is clear as to which form of dispute resolution is chosen.
2. Specifies the seat of the arbitration.
3. Specifies the law governing the arbitration agreement.
4. Addresses the qualifications and appointment of arbitrators.
5. Addresses the language of proceedings and the type of law to be applied by the
tribunal.
6. States whether institutional rules apply.
7. States clearly any obligations of confidentiality.
8. Is tailored to the needs of the parties as regards procedure and remedies.
29
(cont.)
⚫ Clarity on type of dispute resolution: one should be clear as to which type of
dispute resolution has been chosen. This is particularly the case when “hybrid”
provisions, that provide for more than one type of dispute resolution (for example,
ADR followed by arbitration; or arbitration in the option of one party, failing which
litigation), are adopted. Such clauses can often be disputed as to their true
meaning and intent.
An example of such a dispute can be found in Kruppa v Benedetti & Anor [2014]
EWHC 1887 (Comm), where the Commercial Court considered whether a clause
requiring the parties to “endeavour” to resolve the dispute through arbitration
constituted an “arbitration agreement” under section 6(1) of the Arbitration Act
1996. The “Governing Law and Jurisdiction” clause provided: “Law of England
and Wales. In the event of any dispute between the parties pursuant to this
Agreement, the parties will endeavour to first resolve the matter through Swiss
arbitration. Should a resolution not be forthcoming the courts of England shall
have non-exclusive jurisdiction.” The Court dismissed the application for a stay of
proceedings, on the ground that there was no arbitration agreement. The judge
held that the clause did not require the parties to refer any dispute to arbitration, it
merely envisaged the parties attempting to refer the matter to arbitration.
30
(cont.)
⚫ Seat of arbitration: the choice of the seat of arbitration is vital as it will have a
decisive bearing on many practical aspects of the arbitration, including:
⚫ The availability of interim or supportive remedies from local courts (for example, freezing
injunctions, saisie conservatoire).
⚫ The practical enforceability of the arbitration agreement. Some courts are hostile to the
ousting of their jurisdiction (unusual in developed jurisdictions) and will require proof of
special formalities connoting express acceptance by the parties.
⚫ The prospect of enforcement of the award: C v D [2007] EWCA Civ 1282.
If one fails to specify the seat of the arbitration in the agreement, then some rules
provide for determination of the seat by the tribunal or arbitral institution (see
article 14, ICC Rules 1998; article 18, ICC Rules 2012 and 2021; article 16, LCIA
Rules 1998; article 16.2, LCIA Rules 2014 and 2020; article 18, UNCITRAL Rules
2010 and 2013; article 16, UNCITRAL Rules 1976). If no relevant rules apply,
then, for arbitrations with an English connection, the Arbitration Act 1996 contains
default rules for determining the seat. But it is quicker, cheaper and more certain
to specify the seat in advance. The seat does not necessarily have to be the same
as the place where hearings are convened. If one wishes to provide separately for
the place of any hearing (venue), then it is possible to do so.
31
(cont.)
⚫ Governing law of the arbitration agreement: with an international element to the
contract, in addition to specifying the seat, it is often a good idea to specify the
governing law of the arbitration agreement. Failure to do so may lead to uncertainty
if the court has to determine the issue. Neither the Convention on the law applicable
to contractual obligations (80/934/EEC) 1980 (Rome Convention) or Regulation (EC)
593/2008 on the law applicable to contractual obligations (Rome I) applies to the
arbitration agreement and the arbitration agreement is severable from the remainder
of the contract for this purpose.
It will be convenient for the governing law of the arbitration agreement to coincide
with the seat, in order to avoid any conflict of laws issues.
32
(cont.)
⚫ The appointment and qualifications of arbitrators:
⚫ The arbitration agreement shall include a mechanism for appointing a tribunal. In the case of
institutional arbitration (as opposed to ad hoc), the institution will appoint the tribunal. It is also
possible to specify institutions (such as the LCIA) as appointing bodies without the arbitration
taking place under their auspices. The number of arbitrators on the tribunal should be specified
(usually one or three). An even number should be avoided. If a number is not agreed, the
Arbitration Act 1996 provides for a sole arbitrator. One of the most important matters to
consider is provision of a default mechanism, to avoid costly applications to court.
⚫ It is possible to specify the qualifications that an arbitrator is to have. However, care must be
taken if you decide to include this sort of provision. If qualifications are defined too narrowly,
there may be an insufficiently large pool of arbitrators who are able or willing to accept
appointment. If the qualifications are defined too loosely (for example, “commercial man”), this
can give rise to satellite disputes, or a finding that the appointed tribunal has no jurisdiction to
act. Similarly, it is not a good idea to specify an individual arbitrator. If the named person was
unable or unwilling to act when a dispute arose, the arbitration clause would be incapable of
being performed.
⚫ If institutional arbitration is chosen, the applied set of rules may contain provisions relating to
qualifications and number of arbitrators. For example, the ICC Rules contain a presumption in
favour of a sole arbitrator (rule 8, ICC Rules 1998; rule 12, ICC Rules 2012 and 2021) (though
the parties can agree otherwise). The LCIA Rules contain provisions relating to the
qualifications and nationality of arbitrators (rules 5.3 and 6, LCIA Rules 1998; rules 5.4 and 6,
LCIA Rules 2014 and 2020).
33
(cont.)
⚫ The language of the proceedings and the type of law to be applied: a choice
of language will help prevent time consuming arguments about which language
should prevail where the parties come from different linguistic backgrounds. When
making this decision, one should consider the language of the relevant documents
and the parties’ native languages.
It may be helpful to include a choice of law provision. Often the contract will
contain a choice of law clause; however also any non-contractual claims need to
be addressed. It is often convenient to provide that all disputes between the
parties (whether contractual or not) are to be governed by a specified law.
If the language and law in the arbitration agreement are not specified, then the
tribunal will determine these matters (see sections 34(2)(b) and 46, Arbitration Act
1996; articles 16 and 17, ICC Rules 1998; articles 20 and 21, ICC Rules 2012 and
2021; articles 17.3 and 22.3, LCIA Rules 1998; articles 17.4 and 22.3, LCIA Rules
2014 and 2020; articles 19 and 35, UNCITRAL Rules 2010 and 2013; articles 17
and 33, UNCITRAL Rules 1976). However, these matters may be the subject of
dispute if not clearly specified in advance.
34
(cont.)
⚫ Whether institutional rules are to be applied: if it has been decided that
arbitration shall subject to institutional supervision, or ad hoc arbitration but
subject to institutional rules, this should be stated clearly. One should ensure
familiarity the latest version of the rules, and that there is nothing in them that is
inconsistent with the remainder of the contract.
There is a presumption that the most recent version of the rules applies. By the
time a dispute has arisen, the rules may have been amended. If it has been
decided that the “old” rules should apply, then this should be stated expressly in
the arbitration clause.
35
(cont.)
⚫ Obligations of confidentiality: there is doubt as to the precise scope of the duty
in English law to keep the arbitration private and confidential. If confidentiality is
important, then consider including an express confidentiality agreement, along
with a remedy for breach.
Article 21.3 of the ICC rules 1998, article 28.3 of the UNCITRAL Rules 2010 and
2013 and article 25.4 of the UNCITRAL Rules 1976 include limited obligations of
privacy in connection with hearings (by providing that non-parties are not entitled
to be present at hearings). Article 19.4 of the LCIA rules 1998, 2014 and 2020
contains a similar provision and article 30 of the LCIA Rules 1998, 2014 and 2020
further contains an express obligation of confidentiality. By contrast, article 22.3 of
the ICC Rules 2012 and 2021 confers on the tribunal a more extensive power to
make orders concerning the confidentiality of the arbitration proceedings or of any
other matters in connection with the arbitration. Some rules also address the
confidentiality of the award. For example, rule 34.5 of the UNCITRAL Rules 2010
expressly precludes disclosure of the award unless the parties consent or are
compelled by law.
36
(cont.)
⚫ Tailoring the clause to the needs of the parties.
⚫ It is not usually advisable to set out a detailed procedure in the clause. This will
be determined by the tribunal after the dispute has arisen, by reference to any
applicable rules and the AA 1996. However, one should consider whether there
are aspects of procedure or powers that one may want to address in advance. For
example:
⚫ Conferring power to make provisional awards (similar to interim payments) (see section 39, Arbitration
Act 1996).
⚫ Requiring the tribunal to apply the strict rules of evidence in determining any dispute (see section
34(2)(f), Arbitration Act 1996).
⚫ Whether to expressly provide that permission of the court is still required, if there is an agreement to an
appeal on a point of law (section 69(2), Arbitration Act 1996) (see Royal & Sunalliance Insurance Plc v
BAE Systems (Operations) Ltd and others [2008] EWHC 743 (Comm): no permission required to appeal
arbitration award where parties’ agreement silent).
⚫ If certain remedies are to be excluded (for example, punitive damages) this should be specified.
Similarly, if the performance of the contract should continue pending any arbitration this should be
specified together with a remedy in the event of breach.
⚫ One should not set unrealistically high expectations, such as short time limits that will likely be broken
once a dispute has arisen.
.
37
(cont.)
⚫ In the negotiation of multiple contracts may be expedient for disputes arising under all
contracts to be determined in a single arbitration, in this case this should be provided for in the
arbitration agreement contained in each contract. Particular problems may arise if not all
parties wish to be bound by the arbitration clause, or if the arbitration clause is enforceable at
the option of only one or more (but not all) of the parties, in which case the agreement and
award may not be enforceable under article 2(1) of the New York Convention.
If one wishes for an award to bind a third party (such as a guarantor), without making them a
party to the arbitration itself, then a provision to that effect is to be included in the contract of
guarantee.
⚫ If one wishes to provide for time limits that differ from the statutory limitation periods this will
need to be included in the clause. Similarly, one may wish to consider specifying addresses
for service or excluding the use of email as a means of commencing arbitration.
⚫ If one contracting party is a sovereign state or agency, the contract needs to provide for a
waiver of sovereign immunity (both as to jurisdiction and execution) in order for the
arbitration agreement, and any award issued pursuant to it, to be fully effective.
⚫ The Arbitration Act 1996 provides for some supervision of an arbitration whose seat is in
England. An exclusion agreement can reduce but not eliminate the extent of that supervision.
What can be excluded is the right to seek a determination by the court on a preliminary point
of law (which is in any event unusual) and the right to seek leave to appeal against the
tribunal’s award on a point of English law.
.
38
Some badly drafted arbitration clauses
⚫ Clause 1 “English law – arbitration, if any, London according ICC Rules”.
⚫ Clause 2 “In case of dispute the parties undertake to submit to arbitration, but in
case of litigation the Tribunal de la Seine shall have exclusive jurisdiction”.
39
(cont.)
⚫ Clause 3 “Any dispute … between the Parties arising out of or relating to this
Agreement which cannot be settled amicably shall be referred to and determined
by arbitration in the Hague under the International Arbitration Rules”.
⚫ Clause 4 “Disputes arising in connection with this agreement shall be referred to
Mr X acting as sole arbitrator. The seat of the arbitration shall be London”.
40
(cont.)
⚫ Clause 5 “Any disputes arising under this contract shall be submitted to the
exclusive jurisdiction of the Indian courts. Disputes arising in connection with the
execution and performance of this contract shall be referred to arbitration in
London”.
⚫ Clause 6 “Arbitration at local chamber of commerce”.
41
(cont.)
⚫ Clause 7 “Any dispute arising in connection with this contract shall be referred to
arbitration. The tribunal shall publish its award within 2 months of the reference to
arbitration”.
⚫ Clause 8 “Any dispute shall be solved by arbitration, but if the parties do not
agree on the award, the Tribunal of Tunis shall be competent”.
42
Some standard arbitration clauses
⚫ UNCITRAL’s standard recommended arbitration clauses under the 2013
arbitration rules:
⚫ “Any dispute, controversy or claim arising out of or relating to this contract, or the breach,
termination or invalidity thereof, shall be settled by arbitration in accordance with the
UNCITRAL Arbitration Rules.

⚫	Note – Parties should consider adding: (a) The appointing authority shall be … (name of institution or person);

(b) The number of arbitrators shall be … (one or three);
(c) The place of arbitration shall be … (town and country);
(d) The language to be used in the arbitral proceedings shall be … .”
⚫ The UNCITRAL Rules (2013) also provide a possible waiver statement:
⚫ “Note – If the parties wish to exclude recourse against the arbitral award that may be
available under the applicable law, they may consider adding a provision to that effect as
suggested below, considering, however, that the effectiveness and conditions of such an
exclusion depend on the applicable law.
⚫ Waiver: The parties hereby waive their right to any form of recourse against an award to
any court or other competent authority, insofar as such waiver can validly be made under
the applicable law.”.”
43
(cont.)
⚫ International Chamber of Commerce (ICC) – ICC Arbitration Rules 2021:
⚫ General: “All disputes arising out of or in connection with the present contract shall be
finally settled under the Rules of Arbitration of the International Chamber of Commerce
by one or more arbitrators appointed in accordance with the said Rules.”.
⚫ Clause to Protect Confidentiality: “The parties agree to keep confidential the existence
of the arbitration, the arbitral proceedings, the submissions made by the parties and the
decisions made by the arbitral tribunal, including its awards, except as required by
applicable law and to the extent not already in the public domain.”
⚫ Clause Providing for ADR Before Arbitration: “In the event of any dispute arising out
of or in connection with the present contract, the parties agree to submit the matter to
settlement proceedings under the ICC Mediation Rules. If the dispute has not been
settled pursuant to the said Rules within 45 days following the filing of a Request for
Mediation or within such other period as the parties may agree in writing, such dispute
shall be finally settled under the Rules of Arbitration of the International Chamber of
Commerce by one or more arbitrators appointed in accordance with the said Rules of
Arbitration.”
44
(cont.)
⚫ London Court of International Arbitration (LCIA):
⚫ General (future disputes): “Any dispute arising out of or in connection with this contract,
including any question regarding its existence, validity or termination, shall be referred to
and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be
incorporated by reference into this clause.. The number of arbitrators shall be [one/three].
The seat, or legal place, of arbitration shall be [City and/or Country]. The language to
be used in the arbitral proceedings shall be [ ]. The governing law of the contract shall be
the substantive law of [ ].“.
⚫ General (existing disputes – submission agreement): “A dispute having arisen
between the parties concerning [ ], the parties hereby agree that the dispute shall be
referred to and finally resolved by arbitration under the LCIA Rules. The number of
arbitrators shall be [one/three]. The seat, or legal place, of arbitration shall be [City and/or
Country]. The language to be used in the arbitral proceedings shall be [ ]. The governing
law of the contract [is/shall be] the substantive law of [ ].”
Clause Providing for ADR Before Arbitration: “In the event of a dispute arising out of
or relating to this contract, including any question regarding its existence, validity or
termination, the parties shall first seek settlement of that dispute by mediation in
accordance with the LCIA Mediation Rules, which Rules are deemed to be incorporated
by reference into this clause. If the dispute is not settled by mediation within [ ] days of
the commencement of the mediation, or such further period as the parties shall agree in
writing, the dispute shall be referred to and finally resolved by arbitration under the LCIA
Rules, which Rules are deemed to be incorporated by reference into this clause.…..”
45
(cont.)
⚫ Swiss Chambers’ Arbitration Institution:
⚫ General: “Any dispute, controversy or claim arising out of, or in relation to, this contract,
including the validity, invalidity, breach, or termination thereof, shall be resolved by arbitration in
accordance with the Swiss Rules of International Arbitration of the Swiss Chambers’ Arbitration
Institution in force on the date when the Notice of Arbitration is submitted in accordance with
these Rules.
The number of arbitrators shall be … (“one”, “three” or “one or three”);
The seat of the arbitration shall be in … (name of city in Switzerland, unless the parties agree
on a city in another country);
The arbitral proceedings shall be conducted in … (insert desired language).”
⚫ American Arbitration Association (AAA):
⚫ General (future disputes): “ny controversy or claim arising out of or relating to this contract, or
the breach thereof, shall be settled by arbitration administered by the American Arbitration
Association in accordance with its Commercial Arbitration Rules, and judgment on the award
rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.”
⚫ Existing disputes: “We, the undersigned parties, hereby agree to submit to arbitration
administered by the American Arbitration Association under its Commercial Arbitration Rules
the following Controversy: (describe briefly). We further agree that the above controversy be
submitted to (one) (three) arbitrator(s). We further agree that we will faithfully observe this
agreement and the rules, that we will abide by and perform any award rendered by the
arbitrator(s), and that a judgment of any court having jurisdiction may be entered on the award.”
46
(cont.)
⚫ World Intellectual Property Association (WIPO):
⚫ General (future disputes): “Any dispute, controversy or claim arising under, out of or
relating to this contract and any subsequent amendments of this contract, including,
without limitation, its formation, validity, binding effect, interpretation, performance,
breach or termination, as well as non-contractual claims, shall be referred to and finally
determined by arbitration in accordance with the WIPO Arbitration Rules. The arbitral
tribunal shall consist of [a sole arbitrator][three arbitrators]. The place of arbitration shall
be [specify place]. The language to be used in the arbitral proceedings shall be [specify
language]. The dispute, controversy or claim shall be decided in accordance with the law
of [specify jurisdiction].”
⚫ Expedited Arbitration: “Any dispute, controversy or claim arising under, out of or
relating to this contract and any subsequent amendments of this contract, including,
without limitation, its formation, validity, binding effect, interpretation, performance,
breach or termination, as well as non-contractual claims, shall be referred to and finally
determined by arbitration in accordance with the WIPO Expedited Arbitration Rules. The
place of arbitration shall be [specify place]. The language to be used in the arbitral
proceedings shall be [specify language]. The dispute, controversy or claim shall be
decided in accordance with the law of [specify jurisdiction].”
47
(cont.)
⚫ Hong Kong International Arbitration Centre (HKIAC):
⚫ General (future disputes): “Any dispute, controversy, difference or claim arising out of
or relating to this contract, including the existence, validity, interpretation, performance,
breach or termination thereof or any dispute regarding non-contractual obligations arising
out of or relating to it shall be referred to and finally resolved by arbitration administered
by the Hong Kong International Arbitration Centre (HKIAC) under the HKIAC
Administered Arbitration Rules in force when the Notice of Arbitration is submitted. The
law of this arbitration clause shall be … (Hong Kong law).* The seat of arbitration shall be
… (Hong Kong). The number of arbitrators shall be … (one or three). The arbitration
proceedings shall be conducted in … (insert language).”**.”
⚫ Ad hoc arbitration under UNCITRAL Rules: “Any dispute, controversy, difference or
claim arising out of or relating to this contract, including the existence, validity,
interpretation, performance, breach or termination thereof or any dispute regarding noncontractual obligations arising out of or relating to it shall be referred to and finally
resolved by arbitration administered by the Hong Kong International Arbitration Centre
(HKIAC) under the UNCITRAL Arbitration Rules in force when the Notice of Arbitration is
submitted, as modified by the HKIAC Procedures for the Administration of Arbitration
under the UNCITRAL Arbitration Rules. *The law of this arbitration clause shall be …
(Hong Kong law).* The place of arbitration shall be … (Hong Kong). The number of
arbitrators shall be … (one or three). The arbitration proceedings shall be conducted in …
(insert language).” **”
48
(cont.)
⚫ Stockholm Chamber of Commerce (SCC):
⚫ Combined clause (Value based): “Any dispute, controversy or claim arising out of or in
connection with this contract, or the breach, termination or invalidity thereof, shall be
finally settled by arbitration administered by the Arbitration Institute of the Stockholm
Chamber of Commerce (the “SCC”).”
“The Rules for Expedited Arbitrations shall apply where the amount in dispute does not
exceed EUR 100,000. Where the amount in dispute exceeds EUR 100,000 the
Arbitration Rules shall apply. The Arbitral Tribunal shall be composed of a sole arbitrator
where the amount in dispute exceeds EUR 100,000 but not EUR 1,000,000. Where the
amount in dispute exceeds EUR 1,000,000, the Arbitral Tribunal shall be composed of
three arbitrators. The amount in dispute includes the claims made in the Request for
Arbitration and any counterclaims made in the Answer to the Request for Arbitration.”
Recommended additions:
The seat of arbitration shall be […].
The language to be used in the arbitral proceedings shall be […].
This contract shall be governed by the substantive law of […].
49
Q&A
Any Questions?
50