Proskauer on International Litigation and Arbitration:
Managing, Resolving, and Avoiding Cross-Border Business or Regulatory Disputes
- Although parties are free to determine the procedure applicable to their arbitration, national laws also have a significant impact on arbitral proceedings. In particular, the arbitral proceedings themselves are governed by a procedural law, which is usually referred to as “lex arbitri” or “curial law.” This law is often not the same as the law governing the parties’ contract.
- While the parties are free to choose the applicable lex arbitri, they rarely do so and usually select only the law governing their contract. In such cases, the lex arbitri will be the law of the country in which the arbitration has its situs.
- The scope of issues governed by the lex arbitri varies from country to country. Most importantly, however, that law will determine the scope of judicial intervention in arbitration proceedings. National international arbitration statutes often also contain provisions on, inter alia, the appointment of arbitrators, party autonomy, and the ability of arbitrators to grant provisional measures.
- The New York Convention grants a prominent role to the lex arbitri by allowing awards to be vacated by courts of the nation “under the law of which the award was made,” and by recognizing the violation of applicable lex arbitri as one of the exceptions to enforceability of arbitral awards.
- In the past decade, many countries have enacted laws favoring international arbitration by limiting legal procedural requirements and allowing for court intervention where it is helpful to rather than disruptive of an effective arbitration process.
- Federal Arbitration Act
- The federal statute governing arbitral proceedings in the US is the Federal Arbitration Act (“FAA”) (codified at 9 U.S.C. §1 et seq.), which was passed by Congress in 1925. The FAA creates a favorable legal environment for international arbitration. It addresses agreements and awards that affect interstate or foreign commerce, and implements both the New York Convention and the Panama Convention.
- The FAA sets forth the rule that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
- The Supreme Court has over the years held that the FAA creates substantive federal law that is binding on both state and federal courts and preempts inconsistent state laws. The FAA requires courts, at the request of a party, to stay proceedings where the issues involved are subject to arbitration and to issue orders compelling arbitration of such issues.
- The FAA allows district courts to assist arbitrators in taking evidence by compelling the attendance of a witness at an arbitral hearing. The FAA also states the grounds on which an award can be vacated (including corruption, fraud, arbitrator partiality and excess of powers) or corrected (in the even of an evident miscalculation or an ultra petita decision).
- US courts are very supportive of international arbitration and generally consider that judicial review of an arbitration award should be very narrowly limited.
- U.S. State Laws – New York
- While the FAA preempts inconsistent state laws on arbitration, it does not “occupy the entire field” of international arbitration and allows state laws to address matters that are not covered by the federal statute. All US states have adopted laws on arbitration, and a growing number of states have passed laws addressing international arbitration specifically.
- As an example, the New York statute, codified at N.Y. C.P.L.R. Article 75, addresses a broad range of issues on which the FAA remains silent. The statute contains sections on the court appointment of arbitrators, the conduct of hearings, evidence, the timing on an award, and the process for confirming or vacating an award. For instance, courts are granted the power to appoint an arbitrator where the arbitration agreement does not provide for a method of appointment or if the agreed method fails.
- Another noteworthy provision designed to protect awards provides that a party waives the objection that an award was not made within the time required unless it notifies the arbitrator in writing of his objection prior to the delivery of the award.
- The statute provides that, unless the award is vacated or modified, courts are to confirm awards upon the application of a party made within one year of the award. Unusually, it provides for the possibility for a third party to request a vacatur under certain circumstances.
- Pursuant to a revision of 2006, the statute grants courts the authority to issue provisional remedies at the request of a party to an international arbitration where the award to be rendered would otherwise be rendered ineffectual. Notably, the statute does not require any nexus between the arbitration and New York.
- UNCITRAL Model Law
- In addition to developing arbitration rules (discussed supra, at Section IV. 3. (c)), UNCITRAL in 1985 produced a “Model Law on International Commercial Arbitration,” which the United Nations General Assembly recommended be given “due consideration by all states in view of the desirability of uniformity of the law of arbitral procedures and the specific needs of international commercial arbitration practice.”
- And in fact, a considerable number of countries have enacted the Model Law, either as is or with certain modifications. By July 2007, the following countries or territories had adopted the Model Law: Australia, Austria, Azerbaijan, Bahrain, Bangladesh, Belarus, Bulgaria, Cambodia, Canada, Chile, Hong Kong Special Administrative Region, Macau Special Administrative Region, Croatia, Cyprus, Denmark, Egypt, Germany, Greece, Guatemala, Hungary, India, Iran, Ireland, Japan, Jordan, Kenya, Lithuania, Madagascar, Malta, Mexico, New Zealand, Nicaragua, Nigeria, Norway, Oman, Paraguay, Peru, the Philippines, Poland, Republic of Korea, Russian Federation, Singapore, Spain, Sri Lanka, Thailand, Tunisia, Turkey, Ukraine, Scotland, Bermuda, Zambia, and Zimbabwe.
- The following states within the United States have also incorporated the Model Law, or variations of it, into their legislative codes: California, Connecticut, Illinois, Louisiana, Oregon and Texas. The state adoption of the Model Law has created some overlap between state law and the FAA, raising potential preemption issues.
- The Model Law addresses the enforcement of arbitration agreements, the appointment of and challenges to arbitrators, the jurisdiction of arbitrators, the availability of provisional measures, the conduct of arbitral proceedings, discovery, the taking of evidence, the applicable law, setting aside and vacating awards, and the recognition and enforcement of awards, including the bases for non-recognition.
- It provides, for instance, that the parties are free to determine the number and the method of appointment of arbitrators, and that failing such determination, three arbitrators are to be appointed, each party appointing one and the two chosen arbitrators selecting the third.
- The Model Law specifically grants arbitrators the ability to rule on their own jurisdiction (principle of Kompetenz-Kompetenz), and to provide interim measures of protection.
- The Model Law requires arbitral awards to be recognized and enforced, except under specified circumstances (including incapacity, a failure to notify a party of the proceedings, an award that rules on issues outside the scope of the arbitration, an award that has already been set aside, etc.)
< Previous Section