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Journal of Energy & Natural Resources Law Volume 5, 1987 - Issue 4
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Original Articles

International Energy Arbitration: Rules and Issues

Susan M. Frank Attorney, Akin, Gump, Strauss, Hauer & Feld, Washington, D.C. and Solicitor.
&
Janet Zoe Barsy Attorney, Akin, Gump, Strauss, Hauer & Feld, Washington, D.C. The authors wish to thank Mercedes A. Waggoner for her assistance in the preparation of this article.
Pages 245-272 | Published online: 08 Jun 2015

  • See W. W. Park, “Arbitration of International Contract Disputes,” 39 Bus. Law. 1783 (August 1984) [hereinafter cited as Park]. “Arbitration is often the only dispute resolution process acceptable in business contexts where parties from different countries have rejected recourse to each other's legal system at the outset of the contractual relationship.” id.
  • In 1980, one participant to a symposium on international arbitration noted, “The rapid growth in international business relations in recent years has been accompanied by a corresponding increase in reliance on private commercial arbitration as the preferred means of dispute settlement.” R. B. Stevenson Jr., “Symposium: ICC Arbitration,” 14 J. Int'l L. & Econ. 379 (1980) [hereinafter cited as Stevenson]. See also G. R. Delaume, “State Contracts and Transnational Arbitration,” 75 Am. J. Int'l L. 784 (1981) [hereinafter cited as State Contracts], “Agreements providing for the arbitral settlement of disputes arising out of contracts between foreign sovereigns and private contracting parties have become a permanent feature of transnational commerce.” id. B. M. Cremades, “The Impact of International Arbitration on the Development of Business Law,” 31 Am. J. of Com. L. 526 (1983) [hereinafter cited as Cremades], Arbitration is playing “a crucial juridical role in the development of new international merchant law…. When businessmen resort to arbitration in order to settle their disputes they sow important seeds for the future growth of the merchant law. Besides developing a new means for efficiently anticipating and resolving disputes, arbitration is creating a body of arbitral decision making that is defining the standards of conduct of international business.“id.
  • Stevenson, supra n. 2, at 381. “Parties to a long-term contract trying to maintain harmonious underlying relationships find this especially advantageous.” Id. See also H. P. deVries, “International Commercial Arbitration: A Transnational View.” I J. Int'l Arb. 7 (1984) [hereinafter cited as deVries]
  • See R. B. von Mehren & D. W. Rivkin, “Contracts for the International Sale of Minerals,” 2 J. Int'l Arb. 49, 58–59 (1985) [hereinafter cited as Sale of Minerals], However, decisions of international arbitrators often are subjected to national courts, both during and after an award is made, as well as the fundamental issue of whether or not the arbitrators even had jurisdiction to render an award. To this end, as it will be discussed below, international arbitration rules should be chosen in view of the fact that the “crucial threshold choice” is agreeing upon a special place and specific country for the arbitration proceedings, as physical location “has important consequences for the law applicable to both substance and procedure, selection of arbitrators, enforcement of awards and substantive methods.” M. Gaudet, “The International Chamber of Commerce Court of Arbitration,” Choosing a Forum for International Commercial Arbitration, Am. Soc'y Int'l. L. Proc. 76th Ann. Mtg. 172–73 (April 21–24, 1982) [hereinafter cited as Gaudet].
  • D. J. Branson & W. M. Tupman, “Selecting an Arbitral Forum: A Guide to Cost-Effective International Arbitration,” 24 Va. J. Int'l L. 917, 918 (1984) [hereinafter cited as Branson & Tupman] “[J]Jurisdiction in international arbitration is based exclusively upon the consent of the parties.” id. at 921. Note, however, that the ICSID Rules have certain requirements. See id. at 923.
  • “Trade secrets, business information or even the fact that the arbitration is taking place at all may thus be kept private.” Sale of Minerals, supra n. 4, at 59. Confidentiality may also “increase the willingness of the losing party to comply with the award.” State Contracts, supra n. 2, at 784. For example, Article 32(5) of the UNCITRAL Rules provides that an award “may be made public only with the consent of both parties.”
  • Sale of Minerals, supra n. 4, at 59.
  • M. Ball, Structuring the Arbitration in Advance—A Check-list and Analysis, Proceedings of the Inaugural Conference of the School of International Arbitration, University of London, at 3–4 (March 1985) [hereinafter cited as Ball]. See also supra n. 2. Ironically, however, another possible benefit of international arbitration is that arbitrators are not bound by the doctrine of stare decisis and thus may be able to hear evidence and take into account unique circumstances that may not be considered by a court of law in an attempt to reach a fair decision. See infra (2nd) nn. 21 and 26 and accompanying text discussing an arbitral tribunal's mandate to act as amiable compositeur or ex aequo et bono.
  • See S. J. Stein & D. R. Wotman, “International Commercial Arbitration in the 1980s: A Comparison of the Major Arbitral Systems and Rules,” 38 Bus. Law 1685, 1686 (August 1983) [hereinafter cited as Stein & Wotman], The courts in the U.K., France, and the U.S. strongly support parties’ choice of international commercial arbitration. id. at 1687. See infra notes and accompanying text. Recently, the United Nations under the auspices of UNCITRAL has formulated a model law for nations to adopt regarding international commercial arbitration. See notes infra at 23 and accompanying text.
  • See J. Lyons “Arbitration: The Slower, More Expensive Alternative?” Am. Law. 107 (January, February 1985) [hereinafter cited as Lyons], According to one practitioner, “The advantages attributed to domestic arbitration—speed of decision, economy and, informality—are reversed in international business disputes. Delays increase because of the language barrier, geographic distance and difficulties of communication. Costs are greater because of administration and arbitrators’ fees, need for local counsel, translators, interpreters, transportation and travel expenses.” de Vries, supra n. 3, at 9.
  • Ball, supra n. 8, at 2.
  • Some developing countries have refused to submit to arbitration by entities identified too clearly as “Western,” apparently because of concerns about sovereignty. For example, the People's Republic of China has been reluctant to permit parties to commercial contracts with PRC entities to provide for third party arbitration and, until recently, has insisted on Chinese arbitration. Chinese negotiators have now accepted arbitration in accordance with the Rules of the Stockholm Chamber of Commerce in commercial contracts but are unwilling to submit to ICC or AAA arbitration in most instances. See F. Ingreselli, Resolving Contract Disputes with Chinese Firms, Nat'l L. J. 20 (September 10, 1984).
  • Other well-known institutions that provide supervisory and supporting apparatus are the London Court of International Arbitration (“LCA”) and the Arbitration Institute of the Stockholm Chamber f Commerce (“SCC”), established in 1917. LCA International Arbitration Rules (eff. January 1, 1981) are available from the International Arbitration Centre, 75 Cannon Street, London EC4N 5BH. Stein & Wotman, supra n. 9, at 1686 n. 6. The LCA “is jointly controlled by the City of London, the London Chamber of Commerce and Industry, and the Chartered Institute of Arbitrators.” deVries. supra n. 3, at 8. For discussion of SCC Rules, see Choosing a Forum for International Commercial Arbitration, Am. Soc'y Int'l L. Proc. 76th Ann. Mtg, 166–172 (April 21–24, 1982) [hereinafter cited as Choosing a Forum].
  • Institutions that promulgate their own arbitration rules include the United Nations Economic Commission for Europe (ECE) rules of procedure published in U.N. Doc. E/ECE/625 (1966); and the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), rules of procedure available from U.N. Regional Commission Liaison Unit, Room 2702, New York. New York.
  • In addition, three regional arbitration centers have been established under the auspices of the Asian-African Legal Consultative Committee, one in Kuala Lumpur, Malaysia in 1978, a second in Cairo, and a third to be set up in an African country. The Kuala Lumpur center “has entered into an agreement with ICSID that would allow ICSID arbitrations to be held in Kuala Lumpur. In addition, the center has a panel of international arbitrators who can conduct ad hoc arbitrations under the rules of UNCITRAL.” A. C. McClelland, “A Survey of Pacific Rim Commercial Arbitration.” 40 Arb. J. 3, 4 (March 1985). To date, however, the center in Kuala Lumpur has administered few arbitrations, and “[f]ew experts believe that Kuala Lumpur will develop into an important arbitration site.” id. See J. C. Wall, “The Asian-African Legal Consultative Commerce and International Commercial Arbitration,’’ Canadian Y.B. Int'l L. (1979), at 324. For an overall discussion of arbitration as a method for settling disputes in the Middle East and Africa, see M. I. M. Aboul Enein, “Arbitration Under the Auspices of the Cairo Regional Centre for Commercial Arbitration,” 2 J. Int'l Arb. 23 (1985). See also Republic of Djibouti: Code of International Arbitration. 25 I.L.M. 2 (1986).
  • Arbitration Rules of the United Nations Commission on International Trade Law, ch. V. § C, 31 U.N. GAOR Supp. (No. 17). U.N. Doc. A/31/17. As discussed below, unlike rules utilised by the ICC. AAA. or ICSID, UNCITRAL does not have an institution to conduct the proceedings.
  • Rules for the International Chamber of Commerce Court of Arbitration, reprinted in 1 Int'l Com. Arb., Doc. IV. A.3, p. 40 (C. Schmitthoff, ed. 1979). For an in-depth examination of the ICC, see W. L. Craig, W. W. Park. J. Paulssen, International Chamber of Commerce Arbitration. (Oceana Publications 1984) Symposium: ICC Arbitration.
  • Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, done at Washington. March 18. 1965. 17 U.S.T. 1270, T.I.A.S. No. 6090, 575 U.N.T.S. 159 (entered into force October 14, 1966), reprinted in 4 I.L.M. 532 (1965). See E. R. Leahy & D. F. Orienlicher.” Enforcement of Arbitral Awards Issued by the Additional Facility of the International Centre of Settlement of Investment Disputes, 2 J. Int'l Arb. 15 (1985). The Additional Facility would administer “conciliation or arbitration of investment disputes between parties, one of which is not a Contracting State or a national of a Contracting State…” id. at 16.
  • Commercial Arbitration Rules, American Arbitration Association, as amended and in effect March 1. 1986, together with. Supplementary Procedures for International Commercial Arbitration, as attended and in effect February 1, 1986. The AAA also provides administrative services both in and outside the United States to help parties and arbitrators conduct cases under the UNCITRAL rules.See “American Arbitration Association Procedures for Cases Under the UNCITRAL Arbitration Rules: A Service for International Commercial Arbitration.”
  • Arbitration has played an important rule in resolving conflicts under long-term energy development agreements arising because of subsequent changes in host government laws or policies. See Revere Copper Ind. Brass Inc. v. Overseas Private Investment Corp. 56 I.L.R. 258 (1978), and Sapphire International Petroleum Ltd. v. National Iranian Oil Co., 35 I.L.R. 136 (1967), arbitrations which concerned the adverse impact of new legislation on existing contracts. In both instances, the arbitrators held that the contracts were international in nature and, according to widely accepted principles of international law, the contract terms prevailed.
  • For an extensive discussion, analysis, and comparison of the Libyan Arbitrations, see R. B. von Mehren & P. N. Kourides, “International Arbitrations Between States and Foreign Private Parties: The Libyan Nationalization Cases,” 75 Am. J. Int'l L. 476 (1981) [hereinafter cited as von Mehren & Kourides].
  • BP Exploration Co. (Libya) Ltd. v. Government of the Libyan Arab Republic, 53 I.L.R. 297(1979) [hereinafter cited as BP Award], The BP/Libya Concession Tribunal Award (Merits) is dated October 10. 1973.
  • Texaco Overseas Petroleum Co. and California Asiatic Oil Co. v. The Government of the Libyan Arab Republic. 53 I.L.R. 389; 17 I.L.M. 3 (1978). Both the Preliminary Award, dated November 27, 1975, and the Award on the Merits, dated January 19, 1977, were handed down in the French language. See von Mehren & Kourides, supra n. 19, at 476–477 n. 2.
  • Award in the Dispute Between the Libyan American Oil Co. and The Government of the Libyan Arab Republic Relating to Petroleum Concessions, 20 I.L.M. 1 (1981). dated April 12, 1977.
  • Award in the Matter of an Arbitration Between Kuwait and the American Independent Oil Company (Aminoil), 21 I.L.M. 976 (1982) [hereinafter cited as Animoil Award). See generally P. Tschanz, “The Contributions of the Animoil Award to the Law of State Contracts,” 18 Int'l Law. 245 (Spring 1984) [hereinafter cited as Tschanz]; F. R. Teson, “State Contracts and Oil Expropriations: The Aminoil-Kuwait Arbitration.” 24 Va. J. Int'l L. 232 (1984).
  • The only participation of the Libyan Government in the arbitration process was a memorandum from that Government to the President of the International Court of Justice objecting to the appointment of a sole arbitrator in the TOPCO/CALASIATIC arbitration, von Mehren & Kourides, supra n. 19, at 489 and nn. 47 and 3 (2nd).
  • See “Setting Aside Uranium Pact,“New York Times, January 8, 1985, at D2, col. 1.
  • Because parties to ED As frequently chose to keep arbitration proceedings confidential, the authors have had to rely on informal discussion with counsel involved in such arbitrations for information, rather than published awards.
  • Several important arbitral issues which may be relevant to an energy-related EDA but were not central to either the expropriation arbitrations or the long-term supply contracts discussed in this article include severability of the arbitration clause from an EDA, interim measures to protect property, enforcement of an arbitral award, and the proper amount of damages. There is substantial support to find the autonomy and severability of an arbitration clause from the contract, so that a party cannot unilaterally abrogate its obligations to arbitrate on the grounds that the contract is invalid. The U.S. Supreme Court in Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395 (1967), decided that arbitration clauses are severable from the contract in which they are placed, so that a court may only adjudicate a claim of fraud in the inducement of the arbitration clause itself, and not a claim of fraud in the inducement of the contract. 388 U.S. at 403–404. See D. R. Thomas, “Proper law of arbitration agreements,” 1 Lloyds Mar. & Com. L.Q. 304 (1984). “When an arbitration agreement arises outside a contract and assumes the character of a submission of an existing dispute, it exists as a distinct and separate agreement from the contract to which it relates, notwithstanding that otherwise it has an inseverable logical and functional tie with the contract… In English law it is well established that an arbitration clause assumes the character of a distinct contract, albeit ancillary and subordinate to the contract in which it is embodied.” Id. See also M. F. Hoellering, “Arbitrability of Disputes.” 41 Bus. Law. 125 (1985); Tschanz, supra n. 23, at 254; Cremades supra n. 2, at 531. The UNCITRAL (Art. 21) and ICC (Art. 8, Sec. 4) Rules address the issue of severability; the ICSID and AAA Rules do not. With regard to interim measures, see UNCITRAL Rules. Art. 26, ICC Rules, Art. 8, ICSID Convention, Art. 39, and AAA Rules, Sec. 34. The principal bases for enforcement of awards outside the state where they are made are bilateral and multilateral treaties, the most popular being the U.N. Convention on the Recognition and Enforcement of Arbitral Awards (the “New York Convention”). See infra n. 52. See also UNCITRAL Rules, Art. 36, and ICC Rules, Art. 24(1). Under the ICSID Convention, an award is final and binding even if rendered in default, and is entitled to recognition and enforcement in all of the countries that have signed the convention. The issue of damages has led to one of the most lively debates regarding international commercial arbitration which is not addressed by any of the rules. See generally B. Claggett, “The Expropriation Issue Before the Iran-United States Claims Tribunal: ‘Is Just Compensation’ Required by International Law or Not?.” 16 Law & Pol'y Int'l Bus. 893 (1984).
  • “Any of the provisions of the ICSID and UNCITRAL Rules may be varied by agreement of the parties (ICSID Convention, Article 44; UNCITRAL rules. Article 1.1). The ICC Rules may be modified to fill gaps in the rules, but not to amend any provision (ICC Rules. Article 11).” Ball, supra n. 8, at 10 n. 14. The AAA Rules provide for any modification of the rules. Section 1 states, in part, “The parties shall be deemed to have made these Rules a part of their arbitration agreement whenever they have provided for arbitration by the AAA or under its Rules.”
  • S. V. Goekjian, “ICC Arbitration from a Practitioner's Perspective,” 14 J. Int'l L. & Econ. 407, 408 (1980) [hereinafter cited as Goekjian].
  • Id. at 409. For example, a statute of limitations period can be placed into an arbitration contract. Stein & Wotman, supra n. 9, at 1698. “If the parties opt for ad hoc arbitration, their agreement should specify in the arbitration clause. the location of the arbitration proceeding, the manner of establishing the arbitral tribunal, the method of paying costs, and the procedural rules which are to govern the proceedings. These rules could be either the arbitration rules of an established arbitration institution, the domestic arbitration rules of the country in which the proceeding is to be held, the arbitration rules adopted by the United Nations or similar regional agencies, or the rules could be determined in the discretion of the arbitral tribunal.” Goekjian, supra n. 29, at 409.
  • Stein & Wotman, supra n. 9. at 1696. “The AAA, ICC, and LCA will provide both these services. The AAA also has formulated a detailed set of rules for use when it has been requested to function as the administrative or appointing authority under the UNCITRAL rules.” id.
  • Id.
  • J. M. Rhodes & L. Sloan, “The Pitfalls of International Commercial Arbitration,” 17 Vand. J. Transnat'l L. 19, 23 (Winter 1984) [hereinafter cited as Rhodes & Sloan], This is to be compared to the ICSID Convention, where under Article 26, consent to arbitration is consenting to arbitration “to the exclusion of any other remedy.”
  • See P. Bellet, “Foreword: Symposium on the Iran-United States Claims Tribunal,” 16 Law & Poly Int'l Bus. 667, 669–672.
  • Ball, supra n. 8, at 15.
  • Y. Derains, “The Future of ICC Arbitration.’” 14 J. Int'l L. & Econ. 437 (1980) [hereinafter cited as Derains]
  • Gaudent, supra n. 4, at 173. In addition, “[p]arties to ad ho. or other arbitrations outside the ICC system and in particular within the UNCITRAL rules framework may draw upon the international expertise of the ICC in appointment of arbitrators by asking the Court to act as an appointing authority.” id. at 174.
  • Derains. supra n. 36, at 438–439. The ICC has established a center in Seoul, South Korea, and is studying the feasibility of locating centers in New York, Caracas, and the Middle East. id. at 439 n. 11.
  • Id. at 438.
  • Id.
  • Stein & Wotman, supra n. 9. at 1695 (citing ICC Rules, Arts. 1(2). 21. 20(2); Appendix II. Internal Rules of the Court of Arbitration at 2,3,16). “What the Court does do in supervising an arbitration is twofold. First, the secretariat assists the tribunals in all procedural matters, whether administrative facilities or legal documentation. Secondly, the Court rules require a draft award to be submitted to the Court before it becomes final. The rules allow the Court to lay down modifications as to form and to draw attention of the tribunal to matters of substance that the Court thinks likely to hamper the validity of the final award. In general the tribunals act on those suggestions in which they see, like the parties, the probability that the reaction of the Court would be similar to the reaction of state tribunals which will be asked to enforce the award.” Gaudet. supra n. 4. at 174–175.
  • See generally D. A. Soley, “ICSID Implementation: An Effective Alternative to International Conflict,” 19 Int'l Law. 521 (1985) [hereinafter cited as Soley]; G. R. Delaume, “ICSID Arbitrations in Practice.” 2 Int'l Tax & Bus. Law. 58 (1984).
  • Solev, supra n. 42, at 523.
  • Telephone interview with ICSID official (March 18, 1987).
  • de Vries, supra n. 3, at 7.
  • D. A. G. Sarre, Arbitration Clauses in the Oil Industry in the Middle East, Proceedings of the British Institute of International and Comparative Law (October 1974).
  • Id.
  • See Japan-Peru: Agreements on Development and Supply of Petroleum, 15 I.L.M. 1295 (November 1976). “British” law is, of course an inexact term given the different legal systems in Scotland and England; reference to “English” law avoids such ambiguity.
  • See “Concession Agreement for Petroleum Exploration and Production,” 14 I.L.M. 933 (July 1975”).
  • See BP Award, supra n. 20, at 302–303; von Mehren & Kourides, supra n. 19. at 481. As noted supra at n. 24, Libya chose not to participate in the arbitration so that Sole Arbitrators were named by the International Court of Justice at the request of the oil companies.
  • Tschanz, supra n. 23, at 247 n. 11 and 253 n. 36.
  • Aminoil Award, supra n. 23, at 979–980. This agreement was a compromise between the parties as Aminoil already had instituted arbitration proceedings in London, while Kuwait wanted Aminoil to present its case to the compensation committee it had set up in accordance with a government decree. Tschanz, supra n. 23. at 253.
  • The validity and binding nature of arbitration clauses are guaranteed by Article II of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) June 10, 1958, U.S.R. 2517, 21 U.S.T. 2517, T.I.A.S. No, 6997, 330 U.N.T.S. 38 (eff. Dec. 29, 1970). The Convention applies to arbitral awards “made in the territory of a State other than the State where the recognition and enforcement of such awards are sought… [and to other awards] not considered as domestic awards in the State where their recognition and enforcement are sought.” id. at Art. I, para. 1. Each contracting State has obligated itself under Article III to “recognize [such] awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon,” under conditions not substantially more onerous than the state imposes on the enforcement of domestic awards. id. at Art. III. Article V provides for five defenses: (1) lack of a valid arbitration agreement; (2) denial of a fair opportunity to be heard; (3) that the award exceeds the submission to arbitration; (4) improper composition of the arbitral body or improper arbitral procedure; and (5) that the award has not yet become binding or has been stayed.” id. at Art. V., para. 1. As of March 1987, 72 countries had ratified the New York Convention, including the United States, France, United Kingdom and Sweden, sites often chosen as arbitral fora.
  • AAA Rules, Preface at 3.
  • See supra n. 27 concerning severability.
  • Rhodes & Sloan, supra n. 33, at 21.
  • “The prevailing custom in international arbitrations is for the party-appointed arbitrators to be completely impartial. Enough doubt about this custom exists, however, that the parties may provide otherwise.” id. at 29 and accompanying n. 38. For example, one authority believes that in a three-arbitrator proceeding a party should appoint one arbitrator “who shares that party's general point of view and who comes from the same culture or legal system” so that this arbitrator can explain the position of the party who appointed him. Ball, supra n. 8, at 22.
  • As the Libyan Government chose to not participate in the arbitrations, in accordance with Clause 28 of the Deeds of Concession, BP requested, and the President of the International Court of Justice. Sir Zafrullah Khan, appointed a Sole Arbitrator, Judge Gunnar, Lagergren, President of the Court of Appeals for Western Sweden. TOPCO, CALASIATIC, and LIAMCO requested arbitration immediately after nationalisation of their assets. The Libyan Government refused, so that these three oil companies requested that the President of the International Court of Justice, then Manfred Lachs, appoint Sole Arbitrators. President Lachs subsequently appointed Rene-Jean Dupuy. Secretary General of the Hague Academy of International Law as the Sole Arbitrator in the TOPCO/CALASIATIC arbitration, and Dr. Sobhi Mahmassani, counselor-at-law of Beirut, as the Sole Arbitrator in the LIAMCO arbitration.
  • von Mehren & Kourides, supra n. 19, at 504.
  • See infra n. 15–18 and accompanying text.
  • Id. at 510. See infra nn. 29–32 and accompanying text. These cases also illustrate the importance of providing a means of appointing an arbitrator or arbitrators if one party refuses to cooperate.
  • Aminoil Award, supra n. 23, at 979. Art. II, para. 2 of the Award stated that the “‘member of the Tribunal appointed by the Government shall be Professor Doctor Hamed Sultan. The member appointed by the Company shall be Sir Gerald G. Fitzmaurice. G.C.M.G.. O.C.” The President of the International Court of Justice appointed Professor Paul Reuter as President of the Tribunal. One authority characterised the Aminoil Award as having been “unanimously arrived at by three highly respected international jurists from industralized as well as developing countries, on the basis of proceedings in which both parties fully participated.” Tschanz, supra n. 23, at 245.
  • See infra nn. 16. 33–36 and accompanying text.
  • At the time of K.G.'s request, this rule referred to neutral arbitrator in the singular. It was subsequently amended to the plural. See Supplementary Procedures for International Commercial Arbitration. AAA, February, 1986. In a hearing before an administrator. K.G. successfully argued that the reference should include all three arbitrators. In the end the dispute was arbitrated by an English barrister, an American professor and an international lawyer from Italy who was the third arbitrator.
  • Payment of arbitrator's fees should be handled carefully. Counsel to a U.S. based partnership which was a party to an oil field development agreement with the government of Israel which went to arbitration concerning the amount of royalty payments due. recently encountered problems arising from payment of a retainer fee in advance to reserve a chosen arbitrator's time. The payment was to serve either to compensate the arbitrator for his time if the arbitration did not go forward or as an advance of his arbitration fees if it did. The payment was initially not disclosed to the Israeli government. When it was, the government of Israel sued the arbitrator and the U.S. partnership for breach of the terms of the arbitration agreement which provided that each side would contribute equally to a fund from which the arbitrator would be paid. The U.S. arbitrator had not offset the advance payment against the payments he received until two and a half years into the arbitration. As a result, the Israeli court held that an arbitration was void ab initio. The case eventually settled but illustrates the pitfalls of retainer payments to arbitrators. See “Suit Hits Firm's Payment to Harvard's Abram Chayes,” Legal Times, November 17, 1986, at 1.
  • UNCITRAL Rules, Art. 5.
  • UNCITRAL Rules, Art. 6, para. 2.
  • UNCITRAL Rules, Art. 7.
  • UNCITRAL Rules, Arts. 9 & 10.
  • ICC Rules, Art. 2, para. 2.
  • ICC Rules, Art. 2, para. 4. Unlike the UNCITRAL Rules, when the parties fail initially to agree on the number of arbitrators, the Court appoints a sole arbitrator. ICC Rules, Art. 2, para. 5.
  • ICC Rules, Art. 2, para. 4.
  • ICC Rules, Art. 2, para. 1.
  • ICSID Convention, Art. 37, para. 2(a).
  • ICSID Convention, Art. 37, para. 2(b).
  • ICSID Convention, Arts. 12 & 13.
  • ICSID Convention, Art. 40.
  • ICSID Convention, Art. 14, para. 1.
  • AAA Rules, Art. 15.
  • AAA Rules, Art. 14.
  • AAA Rules, Art. 19.
  • Two authorities offer a useful summary of points to consider when choosing arbitrators: “Any well-drafted contract provision should designate the number of arbitrators, their special qualifications, the language of the proceedings, the method of selecting each arbitrator including the tie-breaking provisions, the neutrality or nonneutrality of the arbitrators, the provisions for challenges and their resolution, and the replacement of successfully challenged arbitrators.” Rhodes & Sloan, supra n. 33, at 32. In addition, “parties should define the scope of permissible communications between the party arbitrator and the neutral arbitrator, the ex parte communications between the party arbitrator and the neutral arbitrator, and the communications between the party and his arbitrator.” id. at 29–30.
  • Gaudet, supra n. 4, at 172–173. “For example, enforcement of the arbitral award may be refused under Article V of the New York Convention by the ‘competent authority where the recognition and enforcement is sought’ if it is proven that the arbitration agreement is invalid under the law of ‘the country where the award was made’ or ‘[t]he composition of the arbitral authority or the arbitral procedure was not in accordance with… the law of the country where the arbitration took place.’ “Stein & Wotman, supra n. 9, at 1696–1697. “Generally, the law of this state will be considered the lex arbitri, which will determine the validity and interpretation of the arbitration agreement, interim measures available from national courts to aid the arbitration, the conditions under which the national courts will set aside an arbitral award, and, to a certain extent, the enforceability of the award in other countries.” Ball, supra n. 8, at 16.
  • Tschanz, supra n. 23, at 256. “This is explained by the fact that the seat of arbitration is most often chosen for reasons of its neutrality and convenience, and bears no relation to the parties or the dispute.” id. at 256 n. 62. Stein & Wotman, supra n. 9, at 1697. Practical factors such as the adequacy of support facilities (including hearing rooms, interpreters, and stenographers), security and freedom to travel freely should also be considered. id.
  • See BP Award, supra n. 20. at 307–309. The BP arbitration took place in Copenhagen, Denmark, so that Sole Arbitrator Lagergren deemed the Award and procedural law to be Danish. He cited to the ARAMCO case between Saudi Arabia and the Arabian American Oil Co. in 1955 for authority. id. at 307–308. The Aminoil arbitration took place in Paris, France, and the procedural law in that arbitration was deemed to be French. See infra n. 16 and accompanying text.
  • Order 38, Rules of the Supreme Court.
  • UNCITRAL thus gives an arbitral tribunal broad discretion to consider all the circumstances in making a decision. As two authorities note, “Unlike other arbitration rules, the arbitral tribunal's determination is not limited to consideration of specific factors.” Stein & Wotman, supra n. 9, at 1697.
  • Id. at 1698 n. 75.
  • Id. at 1697.
  • Park, supra n. 1, at 1785. A related issue is the scope of the dispute to be arbitrated. Some lawyers counsel against a limited contract clause, because limitations often lead to arguments over what issues can and cannot be arbitrated. Lyons, supra n. 10. at 108. However, “The drafting of a clause which submits disputes to arbitration ideally should take into account the types of disputes likely to arise under the contract and the position of the parties at the time of the dispute.” Rhodes & Sloan, supra n. 33, at 27. “The best approach for international business contracts is to grant the arbitrator broad authority to decide disputes arising ‘in connection with’ a contract. The arbitrator can then rule on claims that are in quasi-contract and, in some cases, even tort claims.” Park, supra n. 1, at 1785. Jurisdiction has not been an issue in the arbitration of the long-term supply contracts considered herein.
  • Stein & Wotman, supra n. 9, at 1691.
  • See supra n. 50 and accompanying text. Sole Arbitrator Lagergren needed one sentence and Sole Arbitrator Mahmassani used only two pages to decide that they had jurisdiction over ther respective proceedings. See BP Award, supra n. 20, at 308; 20 I.L.M. at 39–40.
  • See supra n. 24 regarding the memorandum. Sole Arbitrator Dupuy considered and determined the issue of competence to decide his own jurisdiction, and issued a Preliminary Award to that effect. 53 I.L.R. at 389–419. He found support for the arbitration clause in the deeds of concession which specifically provided “that the sole arbitrator shall determine the applicability of the arbitration clause and procedure to be followed in the arbitration.” 53 I.L.R. at 407. See von Mehren & Kourides, supra n. 19, at 501.
  • Tschanz, supra n. 23, at 255.
  • The competence to determine one's own jurisdiction is the well-recognised rule of kompetenz-kompetenz, “a rule compelled by logic and considered to be an inherent attribute of international tribunals…” von Mehren & Kourides, supra n. 19, at 501.
  • Presumably, if parties utilised the standard UNCITRAL submission clause, there could be no question as to the validity of jurisdiction.
  • UNCITRAL Rules. Art. 21, paras. 3 and 4 provide: “A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than in the statement of defence or, with respect to a counter-claim, in the reply to the counter-claim. In general, the arbitral tribunal should rule on a plea concerning its jurisdiction as a preliminary question.”
  • UNCITRAL Rules, Art. 21, para. 4.
  • ICC Rules. Art. 8. para. 3.
  • Ball, supra n. 8. at 12.
  • ICSID Convention. Rule 41(1).
  • ICSID Convention, Rule 41(2).
  • ICSID Convention. Rule 41(3) and (4).
  • The major arbitral sites today are the United States (New York), the United Kingdom (London), France (Paris), and Sweden (Stockholm). Choosing a Forum, supra n. 13, at 166.
  • Ball, supra n. 8. at 18. “The objectives of these national laws are to provide autonomy to the arbitrators and finality to the arbitral award, while at the same time ensuring the fairness of the proceedings and the integrity of the arbitral award.” id. at 16.
  • Stein & Wotman. supra n. 9, at 1688–89 and accompanying notes. Such action is in accordance with Article II(3) of the New York Convention. id. The United States has a strong public policy favoring arbitration. See M. F. Hoellering, “Arbitration in the United States.” Am. Soc'y Int'l L. Proc. 175 (1982). “[M]odern arbitration statutes in 42 states, the Federal Arbitration Act, 9 U.S.C. § 1 (1976), and favorable court decisions have replaced ancient common law hostility to arbitration with effective machinery for prompt enforcement of arbitration agreements and awards.” id. at 176. The Federal Act deals specifically with maritime and commercial transactions arising in interstate and foreign commerce. There is also federal legislation that implements the New York Convention. See 9 U.S.C. § 201 (1976). In 1974, the U.S. Supreme Court held that the scope of arbitrability is an international arbitration should be greater than in a domestic arbitration, citing the need for a neutral forum in international commercial disputes. Scherk v. Alberto Culver. 417 U.S. 506 (1974). See Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc.. 473 U.S. 614 (1985) (Antitrust claims arbitrable pursuant to U.S. Arbitration Act as international comity, respect for capacities of foreign and transnational tribunals, and resolution of need for predictability in international commercial disputes require enforcement of arbitration clauses).
  • s.3 of the Arbitration Act permits “exclusion agreements” which refer to a particular award, to awards under a particular reference, or to any other description of awards, whether arising out of the same reference or not. The agreement need not be part of an arbitration agreement and may be concluded before or after commencement of the proceedings. If the arbitration is between domestic (English) parties, however, the exclusion agreement must be concluded after commencement of the arbitration. Stein & Wotman. supra n. 9, at 1686 (citing the Arbitration Act 1979, ch. 42, ss. 1–8). The House of Lords, in interpreting the 1979 Act held that the policy favoring autonomy of the parties to adopt arbitration to resolve international disputes prevails over the policy favoring judicial review of domestic arbitral awards. B.T.P. Tioxide Ltd. v. Pioneer Shipping Ltd. & Armada Marine S.A., 2 Lloyd's L.R. 239 (1981). See also Shenton & Toland. “London as a Venue for International Arbitration: The Arbitration Act 1979,” 12 Law & Pol'y Int'l Bus. 643 (1980).
  • Stein & Wotman, supra n. 9, at 1686 (citing Decree No. 81–500, dated May 12, 1981 (1981)). An English translation appears in Craig, Park & Paulsson, “French Codification of a Legal Framework for International Commercial Arbitration: The Decree of May 12, 1981,” 13 Law & Pol'y Int'l Bus. 727, 744–46 (1981). The highest court in France has held that the court's power of intrusion into domestic arbitrations is inapplicable to international arbitration. See Carbonneau, “The Elaboration of a French Court Doctrine on International Commercial Arbitration: A Study in Liberal Civilian Judicial Creativity,” 55 Tul. L. Rev. 1 (1980).
  • See C. A. Fleischauer, “UNCITRAL Model Law on International Commercial Arbitration,” 41 Arb. J. 17 (1986) [hereinafter cited as Fleischauer]. See generally M. F. Hoellering, “The UNCITRAL Model Law on International Commercial Arbitration,” 20 Int'l Law. 327 (1986); M. Kerr, “Arbitration and the Courts: The UNCITRAL Model Law,” 34 Int'l & Comp. L. 1 (1985).
  • “See supra n. 95.
  • Fleischauer, supra n. 9(2nd), at 20. “Of course, a ruling of the arbitral tribunal on its jurisdiction must ultimately be subject to court control. The timing of this control, however, was a highly controversial question was eventually resolved as follows. In order to prevent possible waste of time and money, Article 16(3) allows for instant court control; but to meet the conflicting concern, namely, the fear of dilatory tactics by a recalcitrant party, three safeguards are built in: a short time period for such recourse to the court, finality of the court's decision, and discretion of the arbitral tribunal to continue the proceedings, even to make an award, while the issue of its jurisdiction is pending with the court.” id.
  • Common procedural problems include “the unavailability of prescribed or familiar methods of obtaining evidence; the order, timing, and manner of pleading; the presentation of both lay and expert witness testimony; the method of proving a case, including documents, depositions, briefs and testimony; the location and language of the arbitration proceedings; and the method of choosing applicable law. One further procedural consideration is the prevention or creative use of delaying tactics.” Rhodes & Sloan, supra n. 33. at 21. The International Bar Association has written “Supplementary Rules of Evidence for Use in International Arbitration.” May 28, 1983.
  • If the parties do not provide for a specific set of international arbitral rules, under U.S. and English arbitration law, unless the parties agree otherwise, the procedural laws of the place of arbitration apply while in France either the parties or the arbitrators may select their own set of rules or choose a domestic arbitration law. Stein & Wotman. supra n. 9(1st). at 1712. See French Decree No. 81–500, dated May 12. 1981 (1981), J.O. [Journal Official de la Republique Francais] 1380, Arts. 1493 and 1494; Scherk v. Alberto-Culver Co.. 417 U.S. 506 (1974). “In United States arbitrations the tribunal will normally follow the mandatory provisions of the statutory law governing the arbitration proceedings at the place where the arbitration hearing is held. The arbitral tribunal will follow the non-mandatory provisions of such laws to the extent that they supplement, but do not contradict, the tems of the contract of the parties and the rules of the administrative institution.” Stein & Wotman, supra n. 9(1st), at 1712 n. 175.
  • See BP Award, supra n. 20, at 308–311; von Mehren & Kourides. supra n. 19, at 505–506. This is the doctrine of lex loci arbitri, which holds that the municipal law of the place of arbitration is unavoidable. See Tschanz, supra n. 23, at 255–256. “Those who contend that the substantive law to be applied must be that of some municipal law system advance a number of arguments, such as, inter alia, that international law is really not a system of law because it is not the manifestation of any sovereignty and that international law is not sufficiently developed to provide an adequate set of rules to govern contractual relations.” von Mehren & Kourides, supra n. 19, at 509–510.
  • Tschanz, supra n. 23, at 256.
  • 53 I.L.R. at 431–436. See von Mehren & Kourides, supra n. 19, at 506–507.
  • IX von Mehren & Kourides, supra n. 19, at 507 citing 20 I.L.M. at 42.
  • Familiarity with the style of pleading as well as the substance of the rules of a particular jurisdiction is an advantage for counsel arbitrating a dispute under a foreign system. In one dispute involving a long-term oil supply contract arbitrated under English procedure. U.S. counsel submitted an exhaustive written submission for the first hearing, not realising that English practice relies primarily on oral presentation.
  • Procedural choices can also have a substantial impact on cost. Lawyers for U.S. firms arbitrating under English law are frequently surprised by expenses such as instructing counsel.
  • ICC Rules, Art. 13. para. 1. See Ball, supra n. 8(1st), at 26 n. 49.
  • ICC Rules, Art. 13. para. 1. “The power to act as an amiable compositeur is the power to resolve a dispute without regard to express substantive rules of law and according to customary rules of equity and international commerce.” Ball, supra n. 8(1st), at 26 n. 49.
  • AAA Rules, Art. 29.
  • Rhodes & Sloan, supra n. 33, at 39. “Rule 29 also contains more specific provisions for the general procedure of framing the issues.” id.
  • Id. at 39.
  • Two authorities argue that that “[w]hether international law or general principles of law are or are not a system of law and whether they provide an adequate set of rules should not be debated as abstractions. The international community fully recognizes that parties to a contract, including contracts between a state and a foreign private enterprise, may choose the law to govern their contractual relations. It is also well established by international conventions and practice, general principles of law, and authoritative writings by commentators that, for purposes of such a choice, reference may be made to a body of law other than municipal law. Because the parties are not required to choose the law of their own nationality or, indeed, the law of any nationality, there is no compelling reason why they should not elect to have their contractual relations governed by principles and concepts that are not attached to any sovereign.” von Mehren & Kourides, supra n. 19(1st) at 510–511 and accompanying notes 123–124. See Tschanz, supra n.23, at 254.
  • “The power to decide a case ex aequo et bono is the power to decide on the basis of fairness and good dealing.” Ball, supra n. 8(1st), at 26 n. 49. See UNCITRAL, Rules, Art. 33; ICC, Rules, Art. 13(4); ICSID Convention Art. 42(3).
  • To avoid radical changes in national laws if the substantive law to be applied is that of a host country, an EDA may provide for a stabilisation clause that “directs the arbitral tribunal to disregard changes in host country laws made after the date of the contract, which might otherwise affect the foreign company's contractual rights or obligations.” Ball, supra n. 8(1 st), at 27.
  • BP Award, supra n. 20(1st), at 303. See von Mehren & Kourides, supra n. 19(1st). at 481–482.
  • 53 I.L.R. at 503. See von Mehren & Kourides, supra n. 19(1st), at 510.
  • 53 I.L.R. 450–457.
  • 20 I.L.M. at 32–37.
  • Tschanz, supra n. 23(1st), at 261.
  • Id. at 255. “There are advocates and arbitral ‘precedents’ for the widest range of solutions: an unavoidable municipal law, especially the lex loci arbitri, a subjection to public international law on the basis of the manner in which the arbitral tribunal is to be appointed or the choice of a particular substantive law, or on the ground that the sovereign immunity of the state party precludes application of another municipal law; transnational law; or the agreement itself. The question is frequently left unanswered. Finally, some arbitrators feel free to select a law on the basis of practical considerations.” id. at 255–256 and accompanying notes 51–58.
  • Id. at 262.
  • Id. at 263. “The solution is then similar to that provided, failing a choice of law by the parties, by Article 42 of the ICSID Convention.” id. at 262.
  • UNCITRAL Rules. Art. 33. para. 1. Paragraph 3 is similar to ICC Rules. Art. 13. para. 5: “In all cases, the arbitral tribunal shall decide in accordance with the terms of the contract and shall take into account the usages of the trade applicable to the transaction.”
  • Stein & Wotman, supra n. 9(1st), at 1713.
  • Id. at 1713 n. 179 citing Derains, “New Trends in the Practical Application of the ICC Rules of Arbitration,” 3 N.W.J. Int'l L & Bus. 39 54 (1981). “French law in this area comports with the ICC and UNCITRAL rules. The tribunal may apply whatever conflict-of-law principles it deems ‘appropriate.’ 1981 Decree, Art. 1496. The arbitral tribunal is not bound to determine the applicable substantive law on the basis of the conflicts rules of the situs of the arbitration and may take into account all relevant factors.” id. at 1713 n. 183.
  • Article 42(2) of the ICSID Convention states, “The Tribunal may not bring a finding of non liquet on the ground of silence or obscurity of the law.”
  • Rhodes & Sloan, supra n. 33(1st), at 41–42.
  • Stein & Wotman, supra n. 9(1st), at 1713. See Scherk v. Alberto-Culver Co. 417 U.S. 506 (1974), where the U.S. Supreme Court suggested that “[u]nder some circumstances, the designation of arbitration in a certain place might also be viewed as implicitly selecting the law of that place to apply to that transaction.” id. at 519 n. 13.

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