International commercial arbitration

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International commercial arbitration

International contracts have parties from different countries with different legal systems, based on either civil or common law, with a great deal of discrepancy between national leg-islations. The parties are familiar with their own legal system and court proceedings. If a dispute arises, the parties automatically want to gain the advantage of having the proceed-ings “at home”. Even though the national legislation may not be in the same language as the contract, or if the national law is unsuitable for the dispute, the familiarity will still be an advantage.18 Consideration of these factors is evident when entering an international com-mercial contract. There is however a possibility to eliminate these obstacles by concluding an arbitration agreement or adding an arbitration clause to the contract.
The New York Convention is a creation of the United Nations, based on a proposal made by the International Chamber of Commerce (ICC),19 finalized and promoted in 1958.20 The national courts of each Member State interpret the New York Convention and it is unlikely that the interpretation of the articles in the New York Convention is made in an equivalent manner.21 To create a more harmonized interpretation of the New York Convention, the UNCITRAL presented a proposal to reform the New York Convention. However, the proposal did not lead to a reformation of the New York Convention. Instead, it became the foundation of the UNCITRAL Model Law.22 According to the UNCITRAL, a model law was the most effective way of harmonizing national arbitration legislation and achiev-ing a uniform interpretation of the New York Convention.23 The UNCITRAL found, that making amendments to the New York Convention would not be an effective way of har-monizing national arbitration legislation. Each Member State must individually ratify each amendment made to the New York Convention. If not all Member States ratify the amendments, deharmonization will still exist.24
The UNCITRAL, through Article 7 of the UNCITRAL Model Law, tries to create a uni-form interpretation of the writing requirement in Article II(2) of the New York Conven-tion. The UNCITRAL Model Law, adopted 27 years after the New York Convention, also includes a writing requirement, but with a broader definition.25 It includes modern ways of communication not yet invented when drafting the New York Convention.26

 Recognition and enforcement of foreign arbitral awards

The final function of the arbitration tribunal is to render an award. The award is binding for both parties. If one of the parties does not honor the award, it is possible to seek for recognition and enforcement of the award in a national court under the New York Con-vention.27 The enforcement proceedings should be instigated where the other party has its assets. The assets can be any kind of assets or if no assets exist in the State where enforce-ment is sought, the losing party will suffer liquidation.28 Therefore, with a great deal of con-sideration, it is important to choose the country where enforcement proceedings are in-itiated. An investigation might be necessary if the losing party has assets or possible assets in several States and the destructive route of forcing the counterpart to liquidation is not an option. Based on the outcome of the investigation there is a possibility to choose a State where assets can be turned into money or useful assets for your own business.29
National legal systems all over the world involve different methods to enforce foreign arbi-tral awards. There are four principal methods and Switzerland uses a method where an ar-bitral award receives the same status as a court judgment after registration of the arbitral award with a competent court. In some legal systems, as England, the award does not need to be registered and is directly enforceable. The third method is an application directed at a court for an exequatur and the fourth is to sue your counterpart based on the award. The award is then evidence of debt, based on the arbitration agreement and the contractual ob-ligations. Every State has its own procedures when handling enforcement of a foreign arbi-tral awards and it is not possible to give general guidelines on how to act in the procedure.30
If recognition and enforcement is sought in a Member State of the New York Convention, a duly authenticated original or a duly certified copy of the award has to be brought in front of the competent court.31 Besides the award, the enforcing party has to provide the original arbitration agreement or a duly certified copy of the arbitration agreement referred to in Article II(2) of the New York Convention.32 The arbitral award and the arbitration agree-ment will function as evidence for the recognition and enforcement proceedings.33
Recognition of a foreign arbitral award is not as harsh as enforcement. The recognition process implies that a court establish that a foreign arbitral award is binding for both par-ties and that they should fulfill their obligations rendered by the award.34 By this process, the recognition of an award will get the same value as a court decision.35 Due to res judicata, recognition is a defense shield for further litigations regarding the issues relating to the outcome of arbitration. If the award is recognized, the courts cannot accept litigations since the matter is already decided.36
The advantages of international commercial arbitration such as speed, confidentiality, neu-tral forum, are not adequate unless the legal framework is internationally recognized. It will only serve its purpose if arbitral awards are recognized and enforced in different countries without national courts interfering with the contents of the judgments.37

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 The arbitration agreement

If the parties seek to settle a dispute by arbitration, a valid arbitration agreement is the foundation of such a choice.38 The main function of the arbitration agreement is to prove that the parties have agreed to refer a future dispute to arbitration instead of court proceed-ings and that the parties consent to this.39 Article V(1) of the New York Convention stipu-lates when recognition and enforcement of an arbitral award may be refused, upon a claim by one of the parties. It is specified in Article V(1)(a), that if the agreement to arbitrate is not valid under the law set out in the arbitration clause or under the law of the country where the arbitral award was made, the award could be refused recognition and enforce-ment.40 The UNCITRAL Model Law has a corresponding provision to refuse recognition and enforcement if the arbitration agreement is invalid.41
One party cannot terminate the arbitration agreement without the other party’s consent. Despite termination of a contract including an arbitration clause, the consent to arbitrate survives as the arbitration clause is considered separate from the contract in which it is contained. This is the concept of separability or autonomy of the arbitration clause.42 The concept of separability in arbitration law is well established and implemented in several countries’ national arbitration acts,43 as well as in the UNCITRAL Model Law44. Separabili-ty is important if one of the parties claim the contract invalid.45
Applicable law of the arbitration agreement depends on the choice of law made in the arbi-tration clause or the contract. The parties may choose which law to govern the contract and the arbitration agreement. It is important to notice that the arbitration agreement can constitute a separate entity from the rest of the contract, by concluding an arbitration agreement completely separate from the contract instead of incorporating an arbitration clause in the contract. In the absence of choice of law, the law where the arbitration took place, lex loci arbitri, or the law governing the merits of the contract, will govern the arbitra-tion agreement.46
Not all disputes are “capable of settlement by arbitration”.47 Excluded from arbitration are mat-ters relating to the public domain, as they are generally reserved for national courts. The reservation for national courts to hear cases that fall within the public domain relates to the vast public interest in such cases.48 Each State defines what constitutes the public domain based on the social, political and economic policies of the State.49 If the parties agree to re-fer a dispute relating to the public domain to arbitration, the arbitral award will not be re-cognizable and enforceable under the New York Convention.50
Certain disputes are problematic and it is questionable if they are capable of settlement by arbitration. Disputes in intellectual property rights have traditionally not been open for set-tlement by arbitration. This is because of the vertical relationship between the State and the applicant. Disputes relating to granting a patent or a trademark are not open for settlement by arbitration. On the other hand, it is possible to make agreements about licensing a pa-tent or a trademark. This is a private agreement and the State is not a part to the contract. Such horizontal relationships are capable of settlement by arbitration.51
Another problematic area is antitrust and competition disputes. It is argued that national courts, or in Europe the European Commission, have sole jurisdiction of antitrust and competition disputes. A contract that contravenes competition and antitrust law is invalid, and so is an included clause referring future disputes to arbitration.52 Domestic antitrust disputes in the US are not capable of settlement by arbitration. However, if the contract is international, the Supreme Court in the US has allowed arbitration in some cases. The ar-gument for allowing antitrust disputes is not to put restrictions on international trade and the use of arbitration in international contracts.53
Within the European Union, the Commission has competence to rule in competition mat-ters. As the Commission is the body that deals with competition matters, the question is whether an arbitration tribunal can decide in such cases. The answer is yes, but with reser-vations. The arbitration tribunal can decide in cases where no EC body has exclusive juris-diction. In other words, the arbitration tribunal can render an award if it is a private dis-pute. The second reservation is when the Commission has started an investigation; the ar-bitration tribunal should then stay the proceedings.54
There is no clear answer to when and if, an arbitration tribunal can decide a case relating to competition law within the European Union. Without a doubt, a national court must how-ever deny recognition and enforcement of an arbitral award that violates the competition articles of the EC treaty if “domestic rules of procedure require it to grant an application for annulment founded on failure to observe national rules of public policy”.55
There are some other areas where it is questionable if disputes are capable of settlement by arbitration such as bribery, fraud, corruption and securities transactions.56 The trend is to favor arbitration in international trade. The decisive criterions, are the law governing the arbitration agreement and the law of the place of the arbitration and whether the laws allow the dispute to be capable of settlement by arbitration.57

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1 Introduction
1.1 Background
1.2 Purpose
1.3 Method
1.4 Delimitation
1.5 Outline
2 International commercial arbitration
2.1 Recognition and enforcement of foreign arbitral awards
2.2 The arbitration agreement
3 The New York Convention
3.1 Historic background
3.2 Scope of application
3.3 The writing requirement and Article II
3.3.1 Article II(1)
3.3.2 Article II(2)
3.3.2.1 The more-favorable-right-provision in Article VII(1)
3.3.2.2 Signatures or the exchange of documents
3.3.2.3 Article II(2) and the arbitration tribunal
3.3.2.4 The UN’s work on Article II(2)
3.3.2.5 The Convention on Electronic Contracts
3.3.3 Article II(3)
4 The UNCITRAL Model Law
4.1 Historic background
4.2 Scope of application
4.3 The writing requirement and Article 7
4.3.1 Option I of Article 7
4.3.2 Option II of Article 7
4.4 Electronic agreements
5 International outlook
5.1 Australia
5.1.1 The writing requirement
5.1.2 Case law
5.2 Italy
5.2.1 The writing requirement
5.2.2 Case law
5.3 Sweden
5.3.1 The writing requirement
5.3.2 Case law
6 Conclusion
References
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