Arbitration

The U.S. Supreme Court has held that the Federal Arbitration Act (FAA) of 1925 established a public policy in favor of arbitration. For the first six decades of its existence, courts did not allow arbitration for "federal statutory claims" through a bright-line "nonarbitrability" doctrine, but in the 1980s the Supreme Court of the United States reversed and began to use the act to require arbitration if included in the contract for federal statutory claims.[21] Although some legal scholars believe that it was originally intended to apply to federal courts only, courts now routinely require arbitration due to the FAA regardless of state statutes or public policy unconscionability determinations by state courts.[21] In consumer law, standard form contracts often include mandatory predispute arbitration clauses which require consumer arbitration. Under these agreements the consumer may waive their right to a lawsuit and a class action. In 2011, one of these clauses was upheld in AT&T Mobility v. Concepcion.[21]

Several arbitration organizations exist, including the American Arbitration Association and JAMS. The National Arbitration Forum also conducts arbitrations, but it no longer conducts consumer arbitrations pursuant to a consent decree entered into in 2009 because of evidence that it had been biased toward, and had incentives that favored, credit card companies over cardholders. The AAA was also asked to exit the business,[22] but has not done so.

The Korean Arbitration Act is the main law governing arbitration in the Republic of Korea. The official body which resolves disputes via arbitration is the Korean Commercial Arbitration Board. Legal professionals and corporations, in Korea, are increasingly preferring arbitration to litigation.[23] The number of arbitrations, in Korea, is increasing year on year.[24]

According to Michael Hay, a lawyer who specialised in North Korean law, North Korea has an advanced arbitration system even compared to developed countries, and foreign companies face an even playing field in dispute resolution. Arbitration cases could be concluded in as little as six months. According to Hay, North Korea maintains an advanced dispute resolution system in order to facilitate foreign investment.[25]

The United States and Great Britain were pioneers in the use of arbitration to resolve their differences. It was first used in the Jay Treaty of 1795 negotiated by John Jay, and played a major role in the Alabama Claims case of 1872 whereby major tensions regarding British support for the Confederacy during the American Civil War were resolved. At the First International Conference of American States in 1890, a plan for systematic arbitration was developed, but not accepted. The Hague Peace Conference of 1899, saw the major world powers agreed to a system of arbitration and the creation of a Permanent Court of Arbitration. Arbitration was widely discussed among diplomats and elites in the 1890–1914 era. The 1895 dispute between the United States and Britain over Venezuela was peacefully resolved through arbitration. Both nations realized that a mechanism was desirable to avoid possible future conflicts. The Olney-Pauncefote Treaty of 1897 was a proposed treaty between the United States and Britain in 1897 that required arbitration of major disputes. The treaty was rejected by the U.S. Senate and never went into effect.[26]

American President William Howard Taft (1909–1913) was a major advocate of arbitration as a major reform of the Progressive Era. In 1911 Taft and his Secretary of State Philander C. Knox negotiated major treaties with Great Britain and with France providing that differences be arbitrated. Disputes had to be submitted to the Hague Court or other tribunal. These were signed in August 1911 but had to be ratified by a two thirds vote of the Senate. Neither Taft nor Knox consulted with members of the Senate during the negotiating process. By then many Republicans were opposed to Taft, and the president felt that lobbying too hard for the treaties might cause their defeat. He made some speeches supporting the treaties in October, but the Senate added amendments Taft could not accept, killing the agreements.[27]

The arbitration issue opens a window on a bitter philosophical dispute among American progressives. some, led by Taft looked to legal arbitration as the best alternative to warfare. Taft was a constitutional lawyer who later became Chief Justice; he had a deep understanding of the legal issues.[28] Taft's political base was the conservative business community which largely supported peace movements before 1914. However, his mistake in this case was a failure to mobilize that base. The businessmen believed that economic rivalries were cause of war, and that extensive trade led to an interdependent world that would make war a very expensive and useless anachronism.

However, an opposing faction of American progressives, led by ex-president Theodore Roosevelt, ridiculed arbitration as foolhardy idealism, and insisted on the realism of warfare as the only solution to serious disputes. Taft's treaties with France and Britain were killed by Roosevelt, who had broken with his protégé Taft in 1910. They were dueling for control of the Republican Party. Roosevelt worked with his close friend Senator Henry Cabot Lodge to impose those amendments that ruined the goals of the treaties. Lodge thought the treaties impinge too much on senatorial prerogatives.[29] Roosevelt, however, was acting to sabotage Taft's campaign promises.[30] At a deeper level, Roosevelt truly believed that arbitration was a naïve solution and the great issues had to be decided by warfare. The Rooseveltian approach had a near-mystical faith of the ennobling nature of war. It endorsed jingoistic nationalism as opposed to the businessmen's calculation of profit and national interest.[31]

Although no general arbitration treaty was entered into, Taft's administration settled several disputes with Great Britain by peaceful means, often involving arbitration. These included a settlement of the boundary between Maine and New Brunswick, a long-running dispute over seal hunting in the Bering Sea that also involved Japan, and a similar disagreement regarding fishing off Newfoundland.[32]

American Secretary of State William Jennings Bryan (1913–1915) worked energetically to promote international arbitration agreements, but his efforts were frustrated by the outbreak of World War I. Bryan negotiated 28 treaties that promised arbitration of disputes before war broke out between the signatory countries and the United States. He made several attempts to negotiate a treaty with Germany, but ultimately was never able to succeed. The agreements, known officially as "Treaties for the Advancement of Peace," set up procedures for conciliation rather than for arbitration.[33] Arbitration treaties were negotiated after the war, but attracted much less attention than the negotiation mechanism created by the League of Nations.

By far the most important international instrument on arbitration law is the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, usually simply referred to as the "New York Convention". Virtually every significant commercial country is a signatory, and only a handful of countries are not parties to the New York Convention.

Some other relevant international instruments are:

• The Geneva Protocol of 1923
• The Geneva Convention of 1927
• The European Convention of 1961
• The Washington Convention of 1965 (governing settlement of international investment disputes)
• The Washington Convention (ICSID) of 1996 for investment arbitration
• The UNCITRAL Model Law on International Commercial Arbitration of 1985, (revised in 2006).[34]
• The UNCITRAL Arbitration Rules (providing a set of rules for an ad hoc arbitration)
• The Sri Lankan Arbitration Act of 1995

It is often easier to enforce arbitration awards in a foreign country than court judgments. Under the New York Convention 1958, an award issued in a contracting state can generally be freely enforced in any other contracting state, only subject to certain, limited defenses. Only foreign arbitration awards are enforced pursuant to the New York Convention. An arbitral decision is foreign where the award was made in a state other than the state of recognition or where foreign procedural law was used.[35] In most cases, these disputes are settled with no public record of their existence as the loser complies voluntarily,[36] although in 2014 UNCITRAL promulgated a rule for public disclosure of investor-state disputes.[36]

Virtually every significant commercial country in the world is a party to the Convention while relatively few countries have a comprehensive network for cross-border enforcement of judgments their courts. Additionally, the awards not limited to damages. Whereas typically only monetary judgments by national courts are enforceable in the cross-border context, it is theoretically possible (although unusual in practice) to obtain an enforceable order for specific performance in an arbitration proceeding under the New York Convention.

Article V of the New York Convention provides an exhaustive list of grounds on which enforcement can be challenged. These are generally narrowly construed to uphold the pro-enforcement bias of the Convention.

Certain international conventions exist in relation to the enforcement of awards against states.

• The Washington Convention 1965 relates to settlement of investment disputes between states and citizens of other countries. The Convention created the International Centre for Settlement of Investment Disputes (or ICSID). Compared to other arbitration institutions, relatively few awards have been rendered under ICSID.[37]
• The Algiers Declaration of 1981 established the Iran-US Claims Tribunal to adjudicate claims of American corporations and individuals in relation to expropriated property during the Islamic revolution in Iran in 1979. The tribunal has not been a notable success, and has even been held by an English court to be void under its own governing law.[38]

The duties of a tribunal will be determined by a combination of the provisions of the arbitration agreement and by the procedural laws which apply in the seat of the arbitration. The extent to which the laws of the seat of the arbitration permit "party autonomy" (the ability of the parties to set out their own procedures and regulations) determines the interplay between the two.

However, in almost all countries the tribunal owes several non-derogable duties. These will normally be:

• to act fairly and impartially between the parties, and to allow each party a reasonable opportunity to put their case and to deal with the case of their opponent (sometimes shortened to: complying with the rules of "natural justice"); and
• to adopt procedures suitable to the circumstances of the particular case, so as to provide a fair means for resolution of the dispute.[40]

Generally speaking, by their nature, arbitration proceedings tend not to be subject to appeal, in the ordinary sense of the word. However, in most countries, the court maintains a supervisory role to set aside awards in extreme cases, such as fraud or in the case of some serious legal irregularity on the part of the tribunal. Only domestic arbitral awards are subject to set aside procedure.

In American arbitration law there exists a small but significant body of case law which deals with the power of the courts to intervene where the decision of an arbitrator is in fundamental disaccord with the applicable principles of law or the contract.[41] However, this body of case law has been called into question by recent decisions of the Supreme Court.[42]

Unfortunately there is little agreement amongst the different American judgments and textbooks as to whether such a separate doctrine exists at all, or the circumstances in which it would apply. There does not appear to be any recorded judicial decision in which it has been applied. However, conceptually, to the extent it exists, the doctrine would be an important derogation from the general principle that awards are not subject to review by the courts.

The overall costs of arbitration can be estimated on the websites of international arbitration institutions, such as that of the ICC,[43] the website of the SIAC[44] and the website of the International Arbitration Attorney Network.[45] The overall cost of administrative and arbitrator fees is, on average, less than 20% of the total cost of international arbitration.[46]

In many legal systems – both common law and civil law – it is normal practice for the courts to award legal costs against a losing party, with the winner becoming entitled to recover an approximation of what it spent in pursuing its claim (or in defense of a claim). The United States is a notable exception to this rule, as except for certain extreme cases, a prevailing party in a US legal proceeding does not become entitled to recoup its legal fees from the losing party.[47]

Like the courts, arbitral tribunals generally have the same power to award costs in relation to the determination of the dispute. In international arbitration as well as domestic arbitrations governed by the laws of countries in which courts may award costs against a losing party, the arbitral tribunal will also determine the portion of the arbitrators' fees that the losing party is required to bear.

Arbitration in its common law form developed in England; in the Middle Ages, tribunals such as the Courts of the Boroughs, of the Fair and of the Staple arose as the Royal Courts were not designed for trade disputes, and trade with foreigners was otherwise unenforceable.[51] In the mid-16th century, common law courts developed contract law and the Admiralty court became accessible for disputes with foreign merchants, broadening the venues for trade disputes.[51] Courts became suspicious of arbitration; for example, in Kill v. Hollister (1746), an English court ruled that the arbitration agreement could 'oust' courts of law and equity of jurisdiction.[52] Merchants, however, retained provisions to settle disputes among themselves, but tension between the arbitration proceedings and courts eventually resulted in the Common Law Procedure Act 1854 which provided for the appointment of arbitrators and umpires, allowed courts to 'stay proceedings' when a disputant filed a suit despite an agreement to arbitrate, and provided a process for arbitrators to submit questions to a court.[51] Later, the Arbitration Act 1889 was passed, followed by other Arbitration Acts in 1950, 1975, 1979 and 1996. Arbitration Act 1979 in particular limited judicial review for arbitration awards.[51]

Arbitration was common in the early United States, with George Washington serving as an arbiter on an occasion.[51] The United States had a notable difference from England, however, in that unlike England, its courts generally did not enforce executory agreements (binding predispute agreements) to arbitrate.[53] This meant that prior to an award, a claimant could sue in court even if they had contractually agreed to settle disputes by arbitration. After the award, courts reviewed the judgment, but generally deferred to the arbitration,[53] although the practice was not consistent.[52]

The lack of enforcement of predispose agreements led to the Federal Arbitration Act of 1925,[52][53] with New York leading with a state law enforcing predispose agreements.[51] In 1921, the American Bar Association drafted the Federal Arbitration Act based on the New York law, which was passed in 1925 with minor changes.[51] In the next decade, the American Arbitration Association promoted rules and facilitated arbitrations through appointments.[51]

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• Born, Gary (2009) International Commercial Arbitration Kluwer
• Buhring-Uhle, Christian and Kirchhof, Gabriele Lars (2006) Arbitration and Mediation in International Business 2nd Ed.
• Craig, W. Laurence; Park, William W.; Paulsson, January (2001) International Chamber of Commerce Arbitration Oxford University Press
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• Dezalay, Yves and Garth, Bryant G. (1998) Dealing in Virtue: International Commercial Arbitration and the Construction of a Transnational Legal Order
• Dugan, Christopher; Wallace, Jr., Don; Rubins, Noah (2005) Investor-State Arbitration Oxford University Press
• Lew, Julian; Mistelis, Loukas; Kroell, Stefan (2003) Comparative International Commercial Arbitration
• The Permanent Court of Arbitration (2000) International Alternative Dispute Resolution: Past, Present and Future
• PWC (2008) International Arbitration: Corporate Attitudes and Practices
• Redfern, A. and Hunter, M. (2004) Law and Practice of International Commercial Arbitration 4th Ed.
• Schreuer, Christoph H. (2001) The ICSID Convention: A Commentary Cambridge University Press – (International Centre for Settlement of Investment Disputes)
• Stuyt, Alexander, ed. Survey of International Arbitrations: 1794–1970 (1990)
• Nuwan Weerasrkara Sri Lankan Arbitrator
• Varady, Tibor; Barcelo, John J.; Von Mehren, Arthur Taylor (2006) International Commercial Arbitration 3rd Ed.