Table of Contents
- What is international commercial arbitration?
- Arbitration facilitates commerce.
- Arbitration is not appropriate in some situations.
- What are the various types of international commercial arbitration?
- How is arbitration different from going to court?
- Arbitration gives the parties some control over the procedure.
- International commercial arbitration costs more than going to court.
- International arbitration is not any faster in producing a final result.
- How should you choose the type of arbitration that is best for your client?
- How to choose a dispute resolution forum.
- Should you choose one arbitrator or a tribunal of three?
- How to select an arbitrator or chairman of a tribunal.
- How can you prepare for an international arbitration?
- If the applicable law is different, have the arbitrator(s) retain an expert.
- How to deal with foreign languages.
- How to deal with preliminary measures and issues.
- How will you prove your case?
- Other tactical considerations.
- What other problems should be considered in international arbitration?
- The effect of cultural considerations on international arbitration.
- The impact of different legal systems on international arbitration.
- Some ways to succeed in international arbitration.
AAA International Dispute Resolution Procedures
ICC Cost of Arbitration in Detail
LCIA Schedule of Arbitration Costs
Please imagine that you are an attorney advising a company that has proposed investing abroad or entering into a contract with a foreign company. The company attorney asks you how the company can avoid being sued in a foreign court if something goes wrong. The attorney also wants to know how the company's rights can be enforced without going into the foreigner's court. Or maybe something has already gone wrong. The in-house attorney has said: "What can we do now?"
This paper is designed to assist counsel in recommending how to respond. I describe my own experiences so that you can envision how these situations arise. I also includes some thoughts on related issues so that you can anticipate what lies ahead.
1. What is international commercial arbitration?
A. Arbitration facilitates commerce.
If the other party is agreeable, you can at any tome sign an agreement to resolve the dispute by some other means. Once your company has signed such an agreement, it is extremely unlikely that even a court in your opponent's country will hear any complaint that is filed against your company.
In order to give advice about resolving either an actual or a potential dispute with a foreign company or government, you should know at least two things: (1) What are the alternative ways to resolve the dispute? and (2) If arbitration appears to be the most appropriate solution, what are the best options for the actual or potential dispute? You should also advise your client about some of the complications and consequences of going to arbitration.
One alternative to going to court is to agree with the other party to ask a mediator to help the parties find a way to settle the dispute to the satisfaction of both parties. Another name for the process of finding a happy compromise with the aid of a third party is "conciliation.".
The other alternative for resolving a dispute is for the parties is to agree to submit the dispute to an arbitrator or to a panel of three arbitrators, who will render a binding decision, much like a judge or a court would do.
Mediation, conciliation and arbitration are all known as "alternative dispute resolution" techniques, or ADRs.
Even if your client has not agreed to an ADR in advance, it is never too late, when a dispute arises, to sign a "submission agreement." A submission agreement is one that is made by two parties after a dispute has arisen if they did not include a mediation or arbitration clause in their contract. All arbitrations require consent, either explicit in writing by a party, or because the party to a contract has been acquired by another party, in which case the acquiring party is deemed to have consented to arbitrate any claim against the company it acquired. In the case of an investor suing a government, the government's act of enacting legislation for foreign investors or signing a treaty requiring the government to arbitrate a dispute with an investor is regarded as consent by the government to arbitrate any such claim.
In either the original contract or in a submission agreement, the parties can agree to mediate or arbitrate, or agree to do both: agree to submit the dispute to a mediator first in the hope of finding a mutually acceptable solution, ideally within an agreed period of time, and at the same time, or even after the mediation has failed, to agree to arbitration.
One caveat, however: if the mediation or conciliation is not successful within an agreed length of time, you should also agree to select someone other than the mediator to be the arbitrator. Successful mediation usually requires the parties to disclose their "bottom line" to the mediator, and you usually do not want the arbitrator to know your "bottom line."Agreeing to mediate or arbitrate any dispute in advance is often the only way that a deal can be done, or an investor is willing to invest abroad. Perhaps for that reason, several developing countries have a law giving foreign investors the right to arbitrate any dispute as an alternative to having a local court decide. In any event, there are not many players with bargaining power sufficient to require that any dispute be resolved in its home court.
International commercial arbitration must be distinguished from international arbitration in the public sector, that is, arbitration between governments. There is a long history of arbitration being used to resolve international disputes over such issues as national boundaries and fishing rights. That is now the role of the Permanent Court of Arbitration in The Hague.1
One significant difference between the two is that, in public international law, national laws are often of little importance. National laws, for example, invariably include a finite statute of limitations ("SOL"), the time after the events of the dispute within which a claim must be made. They are typically three but in some cases as many as ten years. In public international law, however, the concept of timelines is treated quite differently. Instead of a specific SOL such as exist in national laws for commercial disputes, the courts talk in terms of a "period of prescription," the time after which a claim cannot be made after it has matured. In deciding whether it has jurisdiction or whether the claim has been made too long after the events in dispute, the court or arbitration tribunal will examine whether the defendant/respondent has been injured by the passage of time. In some cases, tribunals have decided that cases brought 30 years after the events in dispute are timely.
B. Arbitration is not appropriate in some situations.
In some situations, however, arbitration is not an appropriate way to resolve a dispute. Sometimes the dispute is either too big or too complicated or both. Because so much is at stake, neither party can afford to have a stranger, who is probably not familiar with the industry involved, annul the contract or impose new terms. Such disputes are simply "too big to arbitrate." And in such situations, the antagonists are better advised to negotiate a mutually acceptable solution themselves. It may not be so good for your legal business, but sometimes it is the best advice you can give.
One example of where arbitration would not have been the right choice with which I am familiar has been the disputes between some of the largest international oil companies that had invested serious amounts in Kazakhstan. When their disputes with the government have arisen, virtually none of them have ever gone to arbitration because neither the oil companies nor the government of Kazakhstan thought it could afford to be told by a third party what they have to do. The Kazakhstani government needed those oil companies' capital, know-how and equipment to develop the oil reserves in its country. The oil companies have an insatiable demand for new oil fields outside the Arab-controlled Persian Gulf. Therefore, when a dispute has arisen, the parties have preferred to work together to hash out their differences, rather than have to allow some stranger dictate a resolution.
Several years ago a consortium of large foreign oil companies seeking to develop the new oil field in the North Caspian Sea was not able to meet its contractual obligations to the government. The contract between Kazakhstan and the foreign consortium called for the production of oil by 2010 at an agreed cost of $50 billion plus a 40% contingency. But the North Caspian is unlike the older oil fields further south in the Caspian near Baku in Azerbaijan. The North Caspian is very shallow - - its average depth is less than ten feet - - and it freezes over in winter. So even to reach the island that the consortium had built to develop the oil field, they had to build brand new, shallow-draft ice breakers. The Finnish shipyards that build the world's ice breakers do not make shallow-draft models, so just building new ice breakers meant more time and money.
When it became clear that, even with the 40% contingency, the oil companies were not going to meet the estimated cost or the production timetable requirements of the contract, the Minister of Energy persuaded the government to pass a law allowing the government to expropriate the foreigners' investments. It was clear to me that the Kazakhstani Minister of Energy, with the encouragement of his American attorney, wanted to acquire the foreign consortium's assets.
The original contract had included a clause requiring international arbitration in the event of a dispute. In addition, however, the contract also included a unique provision authorizing the consortium, in the event of an expropriation, to go directly to any court anywhere in the world to obtain compensation for their investment and to stay the Kazakh government's hand until the compensation was paid.
In that situation I was advising the Minister of Justice. He agreed that allowing the foreign consortium to go into an Italian court to determine how much Kazakhstan should pay for seizing the assets would be a disaster. (I say an Italian court because the leader of the consortium was AGIP, the Italian state oil giant, since neither Total (French) nor BP (British) wanted the other company/country to be the boss.)
So the Energy Minister was not authorized by the government to push the "expropriate" button. Instead he used it to negotiate a revision of the timetable and the costs to produce oil. They were now to produce oil five years later and at a cost of $150 billion, three times the original $50 billion, but still with the 40% contingency.
In exchange the Minister obtained a larger share of the production for the Kazakh national oil company, which was already a minor member of the consortium, and an earlier payout for the government than in the original contract. The result of that, of course, was that someone in Kazakhstan had to pay a larger share of the costs because Kazakhstan had become a larger shareholder. But I expect that came out of the national oil company's budget, not out of the Minister's budget.
The situation in the North Caspian therefore illustrates not only the value of an arbitration clause to prevent being taken to a local court, but also, if you are a foreign investor, the value of a right under some circumstances to go to your own court. The contract providing for both arbitration and the right under certain circumstances to resort to a court outside the country, however, was unique in my experience.
2. What are thy various types of international commercial arbitration?
Arbitration as a business or commercial practice is largely a 20th century phenomenon. There are now three principal ways in which an international commercial arbitration can be managed. Selecting the right option is a major choice that the parties and their counsel need to make.
First, there is a governmental-type administrator of foreign investment disputes. The International Centre for the Settlement of Investment Disputes, or ICSID, is a subsidiary of the World Bank that is available for arbitrating such disputes. In China there are many panels of government employees who sit as arbitrators.
Secondly, there are many privately operated commercial organizations that are in the business of administering arbitrations. This is sometimes called institutional or administered arbitration. Among the best known institutions are the American Arbitration Association's International Center for Dispute Resolution, based in New York City; the International Chamber of Commerce ("ICC") in Paris; the London Court of International Arbitration ("LCIA"); and the Arbitration Institute, operated by the Stockholm Chamber of Commerce.
Those four are the administrators with which I have had the most experience, but there are literally dozens of such organizations throughout the world. There are arbitration administrators in most financial centers; they have existed for years in Amsterdam, Frankfurt, Geneva, Vienna and Zurich. The relatively new Association for International Arbitration in Brussels publishes a newsletter, holds conferences and has modest conference facilities, but it has not published rules and does not administer cases.
The third type of international commercial arbitration is called ad hoc arbitration because it does not involve an established administrator. Such arbitrations are conducted under rules published by a UN Committee, the UNCITRAL Rules. Those Rules allow the parties to the arbitration to take jointly all the procedural decisions for the conduct of the arbitration. A third party is involved only if the parties are not able to agree on the selection of an arbitrator or on the chairman of a three-arbitrator panel. In that situation the UNCITRAL Rules call for the Permanent Court of Arbitration in The Hague to make the appointment. But since that Court only deals only with arbitrations between governments, it will refer the selection to a commercial arbitration administrator, like the ICC or the LCIA. They will charge the parties a modest fee for making the assignment.
The oldest such private sector administrator is the Stockholm Chamber of Commerce's Arbitration Institute, which dates back to 1917. The Stockholm Chamber realized that Sweden's historic neutrality made it a natural site for settling international business disputes. That became especially important during the Cold War after World War II. A company in the West that wanted to do business in Russia, for example, could avoid having to let a court in Russia decide any dispute by agreeing to submit it to arbitration in neutral Stockholm.
The ICC in Paris was created soon after, in 1919. For the last 90 years the ICC has had the largest case load of commercial cases. For reasons that I will describe later, however, I am reluctant to select the ICC as the administrator.
In recent years the number of international commercial arbitrations has increased substantially, due to the simple fact that more people are finding that arbitration can be used successfully to resolve a dispute between parties from different nations.
In the 1960s, Donald Straus, then president of the American Arbitration Association, and José Martinez de Hoz, an attorney in Buenos Aires, worked with other Latin American lawyers to establish the Inter-American Commercial Arbitration Commission. As a director of the AAA and a Latin American Affairs major at college, I participated with Don Straus in those efforts.
The goal was to encourage businessmen in Latin America to do business in other countries in Latin America, something they were otherwise not inclined to do. Often the impediment was that they did not trust the court systems in other countries. I have been told that those barriers are now breaking down, and that companies are doing more business internationally, in part because they have found a way to resolve disputes without going into the courts of another country.
My full-time experience with international arbitration, however, began in the 1990s, when I became the Managing Partner of the office in Almaty, Kazakhstan, of my Richmond, Virginia law firm. From 1995 until 2011, my Kazakh colleagues and I represented clients in the government and in the Kazakh private sector in their disputes with other foreign businesses and investors.
I was seldom involved in the decision to include an arbitration provision in the foreigners' contracts, but since the Kazakhstani Law on Foreign Investments then in effect offered investors the option to arbitrate any dispute abroad as an alternative to litigation in a Kazakh court, there was often the opportunity to influence the parties to use an appropriate arbitral forum.
My first such case was brought by Placer Dome, a Canadian gold mining company. It had paid $10 million to preempt the competitive bidding for a Kazakh gold mine. When the Canadians discovered that the open-pit gold mine was awash in a lake filled with arsenic, however, they asked for their deposit back. But in the early years of the Kazakh Republic's independence, the government did not have an extra $10 million available. The relatively new national government had long since spent the cash.
Placer Dome, a Canadian mining company, had signed two different contracts with the Kazakh government. One provided for arbitration in Paris at the ICC. The other contract, undoubtedly drafted by a different law firm, provided for arbitration in London at the LCIA. Initially Placer Dome filed arbitration claims with both administrators, but then it received an invoice from the ICC demanding tens of thousands of dollars. The ICC fee schedule includes a charge based on the amount of damages sought and the company had put a wishful number on its alleged damages. Wishful numbers aside, what Placer Dome really wanted was to recover its deposit for the option.
After Placer Dome started the two arbitrations and the ICC had sent its bill, the U.S. law firm law firm in Paris representing the Canadians was quick to agree to consolidate all the claims before an LCIA tribunal. Then, after a few hearings on preliminary issues and an unfavorable ruling on the applicable law, all before three expensive attorneys being paid for by Placer Dome, we were also able to negotiate a settlement to repay just the deposit over time. Fortuitously, the Minister of Finance of Kazakhstan was in London at the time, to organize a Eurodollar bond issue of hundreds of millions for the Republic. It was therefore a relatively easy matter to increase the pending bond issue by the $10 million necessary to repay Placer Dome.
3. How is arbitration different from going to court?
A. Arbitration gives the parties some control over the procedure.
Companies and investors operating abroad generally want to have some control over how a dispute will be resolved. In arbitration, the parties have some control over both the procedure and the identity of the decision maker(s). Virtually all contracts with a clause requiring arbitration of any dispute name the rules of procedure for the arbitration, either by naming an administrator (ICSID or a private sector group) or by providing for use of the UNCITRAL Rules, where there is no administrator. And virtually all arbitration procedural rules give the parties the right to participate in the selection of the arbitrator, or in the case where there will be a panel of three arbitrators, the right both to name one arbitrator and to participate in the selection of the chairman.
Both parties probably also want an arbitrator who has some expertise in, or at least familiarity with, the industry involved. For that reason in the United States there are many industries that offer a panel of industry experts, which is used mostly for domestic disputes. The National Association of Securities Dealers, for example, has such a panel. That permits securities dealers to include in their engagement agreements with their clients a provision requiring arbitration of any disputes by someone on the panel. In the textile industry, where disputes often involve technical issues, there is also a panel of experts available to arbitrate disputes of such technical textile issues. But that is only feasible in international commercial arbitration when the parties agree to select an arbitrator with experience in their industry. When you are drafting an arbitration agreement, I suggest you consider that possibility.
If your client's goal is a mutually satisfactory settlement, however, then your client should also consider mediation rather than arbitration. Many Asian companies that are involved in a dispute would prefer to reach a decision that allows them to shake hands at the end of the day. That is partly, I have been told, the effect of Confucian philosophy. In the West we are inclined to think it means "saving face." I believe, however, it is also because they would like to do business with each other in the future.
A company's culture has a lot to do with its approach to arbitration or mediation. Speaking very generally, I have found that foreign companies operating in Kazakhstan have been aggressive and over-reaching, often to their disadvantage.
B. International commercial arbitration costs more than going to court.
International commercial arbitration is much more expensive than going to a national court, if only because at some point someone in the arbitration has to pay the arbitrator(s) his or her fees and expenses, the costs of a hearing facility and, in most cases, the administrator's fees. The hourly rate for the typical arbitrator in an international arbitration is often a big number - - the hourly rate of a London barrister or Queen's Counsel ("QC") makes most New York attorneys' rate look cheap, and the "1,000+ an hour" is often in pounds (or Euros), not dollars. The LCIA Rules also specifically provide that an arbitrator's hourly rate is payable not only for hearings and their preparation and writing the award, but also for their travel time.
If you elect an administered arbitration, such as the AAA or the ICC or the LCIA, there are substantial filing fees and administrative expenses. The current arbitration fee schedules of the AAA, the ICC, and the LCIA are attached as an Appendix hereto. The ICC also charges a fee to file a claim that is based on the amount that the complainant seeks to recover, and the ICC also "has the discretion to fix the costs at an amount higher or lower than that which is generated by the cost scales."
During the proceeding, the claimant is normally expected to bear the full cost of the tribunal and any administrative fees and costs. Respondent usually only shares the costs of the hearing room and the court reporter. If the respondent files a counterclaim, however, it will also have to share the tribunal costs or its counterclaim will not be considered.
A party in an arbitration can hope that, if it wins on the merits, the tribunal will include its arbitration costs and legal fees in the award, but there is not any firm rule in this respect. In fact, the arbitrator who recently dismissed a $4 billion claim by another Canadian company, World Wide Minerals ("WWM") against the Republic of Kazakhstan as not having been filed in time, did not award the Republic its legal fees. Quite the contrary; he ordered the Republic to pay half of the administrative costs of the arbitration including his own fees and expenses, which up until that time had been paid entirely by the claimant. WWM had sued because the government had refused to issue an export permit for the uranium that it had mined at an old Soviet mine it had revived and had then sold to an American company. WWM had to purchase uranium on the open market to satisfy its sale contract. In addition, WWM had an option to acquire the assets of the old mine, but the government had transferred the assets to another Kazakh company.
In dealing with a complicated statute of limitations issue in that case, the sole arbitrator found that five years of litigation in the United States ending up with a U.S. Supreme Court decision refusing to review the claim that had been dismissed on Act of State Doctrine grounds did not toll the Kazakh statute of limitations. The nominal claimant had gone broke financing the arbitration and the company had been delisted on the Toronto Stock Exchange. The continued prosecution of the claim was being financed by an "unidentified investor and law firms." An interesting twist would have developed in that case if WWM had done its legal homework. Kazakhstan and Canada had signed a Bilateral Investment Treaty ("BIT") and that BIT had a Most Favored Nation ("MFN") clause. That meant that the Canadian company could have invoked any provision of any other Kazakhstan treaty with a third country. In fact Kazakhstan had signed another BIT that obliged it to issue any government permit or license required by any investor from that third country to implement its investment in Kazakhstan. The Canadian company should have made the BIT plus MFN argument that, under the MFN clause in Canada's treaty and the other treaty, it was entitled to an export license. But by the time the "unidentified investors and law firms" were pursuing arbitration under the original contract and, a year later, under both the repealed-but-still-applicable Kazakh Foreign Investment Law and "customary international law," it probably was already too late under the three-year Kazakh statute of limitations law to make the BIT-MFN argument.
And if, when the export permit was rejected, it should have gone to arbitration instead of starting a lawsuit in federal district court in Washington, D.C., "to make the Kazakhs negotiate." In either case I expect WWM would not have gone bust because it had to buy uranium on the open market.
WWM was not my only case where gamblers had bought a claim. In the other case, the individual was suing to recover the oil refinery that he had lost to a creditor in a bankruptcy proceeding. He claimed that the Kazakh bankruptcy court order constituted expropriation. He was being paid his expenses and he would receive one sixth of any award, provided he would testify at the hearing. He testified and earned his travel expenses, but the gambler paid the Swedish tribunal its legal fees and expenses. At least in that case Kazakhstan avoided having to pay any of the costs of the arbitration other than its own legal fees.
C. International arbitration is not any faster than going to court.
International arbitration can take about as long to reach a final result as a proceeding starting in a court where the docket is reasonably current. Findings of fact and conclusions of law are not appealable, which is one of the main features of arbitration.
While the absence of an appeal as a matter of right probably shortens the time necessary for a "final result," the New York Convention on the Recognition and Enforcement of Arbitral Awards allows attacks on a final award on six separate grounds, such as "a conflict of interest of an arbitrator." In addition, however, some national laws can make an award unenforceable abroad because the issue in the arbitration was not "arbitral" in the country where the prevailing party sought to enforce the award. So finding a national court to enforce an award can be time consuming.
In some situations, national laws can actually protract and even frustrate enforcement of an award in other ways. American International Group, better known as AIG, the large U.S. insurance company, had obtained an award against the Republic of Kazakhstan from a tribunal sitting in London under the administration and rules of the International Centre for Settlement of Investment Disputes, ICSID. When AIG won its ICSID award, however, AIG nevertheless sought to collect the award in the courts in London and Brussels.2
AIG sought to collect the award by obtaining ex parte an order of a London court attaching the funds of the National Bank of Kazakhstan on deposit with ABN-Amro Bank in London. The office of the President of the Republic of Kazakhstan and the Chairman of the country's National Bank were insisting that the award be paid promptly so as to release the bank's funds. The President also wanted to avoid the threats that the U.S. Government had made if the ICSID award was not paid promptly.
But we were advised by Ali Malek, our London QC, that the attachment was illegal and I was determined to have the terrible precedent removed from the books. Ali Malek was relying on the fact that the banks in the U.K. have enhanced their attractiveness as a place for sovereign governments to deposit their national wealth by obtaining legislation that protects such deposits from seizure by creditors. Therefore when we attacked the attachment in the High Court in London, the funds of the National Bank of Kazakhstan were held by the High Court judge to be invulnerable to any attachment order. The court did not even have to consider the usual "commercial activity" issue when attachment of government funds is in issue: a sovereign asset used for commercial purposes is usually vulnerable to seizure by a creditor.
When that did not procure payment, AIG sent its vice chairman, a former U.S. Ambassador to Egypt, to lobby the then U.S. Secretary of State to visit the president of Kazakhstan. She did just that, telling President Nazarbayev that the United States would veto Kazakhstan's entry into the World Trade Organization and, perhaps even more effective, that the United States would veto his nomination to be chairman for a year of the Organization for Security and Cooperation in Europe.
If you include the time necessary to enforce an arbitration award, the total time required for an international commercial arbitration is seldom less than a year and can be as long as a court case in a two- or three-tier court system.
To make arbitration more attractive for time-sensitive claims, a few arbitration administrators, such as the ICC, the LCIA and The Netherlands Arbitration Institute, have provisions for an expedited process. The ICC, for example, has an "emergency arbitration" procedure. I only have experience with the "fast track" procedure in The Netherlands. In Rotterdam a sole arbitrator on two successive occasions, within 30 days of the hearing each time, ruled first that a Kazakh company was in breach when it refused to deliver phosphate at the low price specified in a long- term contract. The Kazakh company had signed the contract with my Dutch client before the former had been "persuaded" by the Kazakh government to sell its phosphate producing affiliate in Kazakhstan to a Kazakh national. When the Kazakh company still refused to deliver and instead shipped the unprocessed phosphate to Poland and Germany, the Dutch arbitrator, within another 30 days, issued an award that the Dutch company could enforce in the courts in Poland and Germany. A settlement and phosphate deliveries followed shortly thereafter.
But "fast track" arbitration also has its disadvantages in the time limits it imposes and I believe it is seldom preferable unless time is of the essence, as in the phosphate case.
4. How should you choose the type of arbitraton that is best suited for your client?
Arbitration strategy involves (a) selecting the appropriate administrator or using the UNCITRAL Rules for an ad hoc arbitration. Then, either in the contract or when the arbitration is at hand, (b) deciding on having a single arbitrator or a panel of three. And when a notice of arbitration has been served or your client wants to serve one, (c) selecting your arbitrator on a panel of three or, if there is to be a sole arbitrator, proposing a list of candidates.
A. How to choose a Dispute Resolution Forum.
After deciding that arbitration is the preferred course to resolve an anticipated or actual dispute, the first choices are between an administered or an ad hoc arbitration and, if the former, which institution's rules and practices best suit your situation.
To answer those questions, I suggest you first determine whether your client is more likely to be suing the other party, or is likely to be sued. The answer will depend on the nature of a likely dispute if one has not already arisen. A bank or an investor that is lending money to a borrower is much more likely to be suing the borrower in order to get paid. An investor abroad is more likely to be suing the host country, rather than the country is likely to be suing the investor to perform.
One investor sued Kazakhstan because its National Bank did not post the security that the government had agreed to deposit in the investor's bank in Switzerland. Another sued for expropriation because a bankruptcy court had awarded to a creditor the refinery he had been operating. WWM sued for damages when it was not issued an export permit.
So how do you select between administered and ad hoc arbitration, and if the former, which administrator? Your client's likely position as the complainant or the respondent dictates, in my view, whether you should arbitrate under a strict regime like the LCIA, or with a flexible ad hoc arbitration regime like the UNCITRAL Rules. The latter do not involve any schedule-setting, any 30-day deadlines or decision-making by the administrator except the designation of an arbitrator or a tribunal chairman if the parties cannot agree on one. Under the UNCITRAL Rules, everything other than such an appointment has to be agreed to between the parties. If you are a respondent in a dispute, that is usually a more attractive way of proceeding, but seldom will you have a choice unless you can persuade the claimant that another regime or site for the hearing is less expensive and more convenient for all concerned.
If on the other hand you are likely to be a complainant, you will want a final result as expeditiously as possible. Then you are better advised to arbitrate in an administered regime that has 30-day deadlines for various steps in the process. You will want to be sure that pleadings are filed on time, that hearings are held on schedule and that an award is issued within the specified time.
If you select an administered arbitration, the next decision is which one. I am comfortable with either the LCIA or the Arbitration Institute in Stockholm. Whether my client is likely to sue or to be sued, however, I try to avoid having an arbitration administered by the ICC in Paris. In my admittedly brief experience with the ICC, I found the procedure too intrusive. The ICC rules provide, for example, that after the parties have filed their claims, rejoinders and counter-claims, the arbitration tribunal will review the pleadings and give the parties a "Terms of Reference." That is a restatement of the issues as the tribunal expects the parties to debate them. After a tribunal has made its award, it is submitted to the International Court or Arbitration to review for conformity with procedure. The International Court of Arbitration, its name notwithstanding, is not an official body or even a real court. It is the creature of the ICC and consists of the representatives of the 60-plus national chambers of commerce that constitute the ICC's membership and normally meets monthly. (The U.S. Business Council is the U.S. member of the ICC.)
More important, I am concerned with the process ICC follows to name an arbitrator or a chairman. It appears to be driven by chamber of commerce politics, and I would find it difficult to agree to a process that could produce an arbitrator or a tribunal chairman like the individual that ICSID selected for my AIG matter. Like ICSID, if the ICC needs to select an English-speaking chairman, it looks at the countries where English is the native language and picks one of them that has not had such an assignment recently. It then asks the chamber of commerce in that country to nominate a candidate. The national chamber then selects a candidate and sends the name and credentials to the ICC in Paris.
I expect that the International Court of Arbitration will invariably appoint that candidate. I say "invariably" without the benefit of any authority or statistical record simply because it is highly unlikely that the Nigerian member of the International Court will veto the candidate of the Indian Chamber because hopefully the nominee of a future, English-speaking candidate will be the candidate designated by the Nigerian Chamber.
And how did the Indian Chamber select its candidate? Can we agree it is not likely to be a random selection from names in a hat? The Indian Chamber will, of course, designate the most qualified Indian arbitrator who has not been selected recently, i.e., someone who is important to the decision-makers at the Indian Chamber.
I am not criticizing the way the Indian Chamber conducts its business. I have dealt with or met several very capable Indian arbitrators. I also had the pleasure of trying a case before Justice Lahoti of the High Court in New Delhi in 1996. Under the Rules of the International Civil Aviation Organization ("ICAO"), the country where a fatal international aviation accident occurs is obliged to conduct a hearing to determine the cause of the accident. The only purpose of the hearing is to avoid such an accident's happening again. It is explicitly not for the purpose of determining individual or organization liability for the accident, and indeed the court's findings are not admissible in any lawsuit for damages.
When a Saudi Arabian Airlines ("Saudia") Boeing 747 taking off from New Delhi collided in midair with a Kazakhstani cargo plane landing at the same airport, the accident was the direct result of the fact that, at the time, the Indian Air Force allowed commercial aircraft to use only one radius to fly both into and out of New Delhi. (It was thought to better guard against a surprise attack from Pakistan, I was told.)
At the hearings before Justice Lahoti, I represented the Republic of Kazakhstan, owner of the cargo plane. Counsel for Saudia was a prominent Indian barrister whom I had met socially when the International Bar Association held a conference in India. His conduct during the hearing was such, however, that after one or two court hearings, he did not appear again for Saudia. The Saudis at the hearings must have been as discomforted by the barrister's aggressive shouting at the judge as I was surprised. (Perhaps I should not have been. While I was there a newspaper reported that one dissatisfied attorney had thrown an ink stand on his podium at the lady judge. Even more surprising was the defense of the attorney by the chairman of the Bar Association, who said in effect "boys will be boys.")
I tell the story because the Indian barrister was prominent in Indian legal and bar association circles and undoubtedly for those reasons had been designated by the World Bank's ICSID to be the chairman of a tribunal in London for an English-speaking arbitration, this one involving AIG and the Republic of Kazakhstan. Unfortunately, the Republic had not responded to several notices of arbitration and invitations to appoint an arbitrator. All such notices had been sent by ICSID to the office of the President of Kazakhstan and to the Kazakh ambassador in London. ICSID had therefore appointed an English-speaking Croatian professor as the arbitrator to represent the Republic and the aforementioned Indian barrister as chairman.
When the hearing was literally days away, it was too late for me to object to the appointment of the Indian barrister as chairman. (ICSID's administrative rules require that notices to member nations shall be sent to the representative of that nation on the ICSID Council, but it was not clear that those rules applied to notices to nations when they were parties to an arbitration. Moreover it was too late and not wise in my view to start that row.) Had I been involved when his selection was being considered, however, I could have objected on the technical grounds that he had been counsel opposing Kazakhstan in the New Delhi special court. But more important to me, I would have objected because he was much too emotional to be a judge listening to testimony by the Kazakhstani Akim (governor) of Almaty Oblast (province) as to why he had expropriated AIG's real estate development on the outskirts of the city of Almaty in order to build an arboretum. So we were stuck with the flamboyant Indian as chairman, and he was predictably merciless with the Almaty Akim, who refused to answer some of AIG counsel's questions; he would respond "next question."3
Justice Lahoti went on to become the Chief Justice of the Supreme Court of India, but unfortunately his report after the hearing was never released by the Indian government because it was critical of the New Delhi air traffic control operation and the one-radius access to the airport for allcommercial aircraft. Access to the airport over more than one radius was soon allowed, however, but I expect the then-25-year-old radar scopes in the New Delhi tower have not been replaced with equipment that can determine the altitude of the aircraft it is handling.
Because ICSID is an arm of the World Bank and has many governments to satisfy, ICSID follows a roulette wheel process of selecting candidates for arbitrator or chairman that will satisfy all the member states. I believe that the local pools from which the LCIA or the Stockholm Arbitration Institute select their arbitrators are more qualified than either the ICC or ICSID procedures.
B. Whether to Choose One or Three Arbitrators.
Unless the parties choose one or three arbitrators in the original arbitration agreement, all administrators' arbitration rules specify that, in the absence of a choice by the parties, there shall be one or there shall be three. The various rules provide one or the other. Typically parties have a short period of time after a notice of arbitration has been filed and served to make their choice, between one or three, failing which the default provision of the rules apply.
Most international commercial arbitrations, in my experience, involve three arbitrators, one appointed by each side and the chairman by agreement of the parties, or, in the absence of agreement, by the administering organization. The advantage from a party's point of view of having three is that each party can be reasonably sure that its arguments will be advocated during the tribunal's deliberations.
There are two disadvantages to having a tribunal of three. One is cost and the other is time. Obviously it costs less for the parties to pay the fees and expenses of one arbitrator. The fees for a three-arbitrator panel will not necessarily cost three time as much as a single arbitrator, however, because often the chairman undertakes the bulk of the drafting. But three arbitrators can also cost more than three times one if there is disagreement in the panel, or if the arbitration is protracted because the tribunal has problems finding times when it can convene to hold hearings or to deliberate the award.
The time that it takes a single arbitrator for the hearing, deliberation and drafting of the award is normally less because he or she is not concerned with scheduling hearings and deliberations with two other busy attorneys. A sole arbitrator obviously costs less than three, and that was probably the reason the Israelis in the Eisenberg case and a U.S. law firm suing a Kazakh mobile telephone company in an AAA arbitration both chose to go with one. Since I was representing the respondent and therefore was not going to be paying unless we lost, I did not insist on three.
When the AAA arbitrator dismissed the claim for lack of jurisdiction, however, he nevertheless ordered my client to pay half of his fee. I protested to the AAA: "how can an arbitrator who has found that he does not have jurisdiction over respondent nevertheless order it to contribute to the costs?" I never received a reply, but my client never made the payment either.
The Swedish judge who dismissed one of the two Eisenberg cases did award the Republic its legal expenses for that case, including the amount of the advances for the arbitrator's fees. Mr. Eisenberg refused to pay, however, saying "You can deduct it from the amount the Republic will owe my company in the other case." It was not worth suing to collect that award of legal costs, but I had learned my lesson: as respondent, do not advance half of the cost of the arbitration and hope to get it back if you win. I believe that professional arbitrators accept having a respondent not pay half of the tribunal's costs unless required to do so in a final award.
I have only had academic experience with arbitration in the Far East. In my lectures to 30 Chinese attorneys in a graduate program on international business arbitration here at Vrije Universiteit Brussel, I discussed the organization of domestic and "foreign" arbitration by tribunals of government employees in China. Most foreigners prefer to arbitrate a dispute with China in Hong Kong, whose arbitration administrators operates independently of the PRC operation. In theory the PRC will recognize and enforce an arbitration award made in Hong Kong, but I would not count on an award against the PRC's being enforced. In the $4 billion claim matter involving WWM, however, the parties had already selected their arbitrators and the two arbitrators had in turn, with the parties' agreement, selected a chairman with whom they had both previously worked successfully and amicably. But it was at that point in time that WWM ran out of money and sold the claim to the "unidentified investor and law firms." Purportedly for economic reasons, they opted to go with just the chairman as the sole arbitrator, to hear a reduced number of issues.
But a year later, when the "unidentified investor and law firms" were calling the shots, they sought to expand the scope of the arbitration. It was at that point that "claimant" sought to invoke the public international law principle of prescription, the since repealed Foreign Investment Law of Kazakhstan and "customary international law." We believe the investors had been advised by a distinguished Kazakh law professor that they were in difficulty with the Kazakh statute of limitations. How did we know that? We had asked the same professor who had been with us in Stockholm to give the Republic an opinion, but he had immediately declined , saying he had already given an opinion on the subject. When the professor's opinion was never offered in evidence and "claimant" changed its tune to argue public international law proscription, rather than a specific statute of limitatuions, we could guess that the professor had told the new team presenting the case that they were too late. Fortunately the arbitrator agreed with the professor.
But then the arbitrator, notwithstanding his finding that the Republic was not properly before him because the many claims were not timely, ordered the Republic to pay half his fees. Moreover, he had expressly delayed ruling on the Republic's defense that it was not a proper respondent because it had not signed the loan agreement that was the predicate for the reduced scope of the arbitration. Rather, the Kazakh company that WWM had the option to acquire had taken out the loan and signed the arbitration clause. We requested that the arbitrator amend his decision or enter an additional order. He simply sent another bill for the time he had spent denying that application.
To my great disappointment, the Ministry of Justice refused to follow up on my attack on the award of half the arbitrator's fees ($80,000), announcing that it was "the proper thing for the Republic to do." Strange, the way bureaucrats get religion, but apparently they were happy enough to have dodged a $4-billion-bullet after refusing to issue an export license. They really only wanted the case closed forever. Attacking the arbitrator's decision on costs in a court would have required filing a copy of the decision, and the Ministry of Justice most likely did not want to have the facts about denying the export permit publicly known.
C. How to select an arbitrator or a chairman.
Your next task is to select the sole arbitrator, or if there are to be a panel of three, to designate an arbitrator to represent your client on the tribunal and eventually to help select a chairman of the tribunal. When the task is to select a sole arbitrator or a chairman, the normal procedure is to exchange lists of several candidates in order of preference. If there is more than one overlap in the two lists, the parties can agree to select the common candidate with the lowest aggregate score of their ranks on the two lists. If agreement on an arbitrator cannot be achieved after a few tries, or one party opts for the administrator's choice, the administrator of the arbitration will appoint the one arbitrator or the chairman.
Under the UNCITRAL rules, which do not provide for an administrator, the appointment of an arbitrator (or a chairman) is the only time that a third party has anything to say about the process. The UNCITRAL Rules provides that, if the parties cannot agree, the appointment will be referred to the Permanent Court of Arbitration at The Hague. But that court is not concerned with commercial disputes involving private parties; it deals only with disputes between governments. So the Court will refer the issue to a commercial arbitration administrator like the LCIA or the ICC, which will make the appointment for a fee (£1,000 at the LCIA) from its list of arbitrators, or, in the ICC's case, presumably in accordance with its usual practice described above. Thus if your arbitration agreement calls for UNCITRAL arbitration, it is wise to designate some other body like the LCIA as the default appointer of the arbitrator.
If the question is instead how to select your party-appointed arbitrator for the panel of three, I believe that the first and much the most important criterion is not the intellectual skills or reputation of the candidate, but the person who is most likely to persuade the chairman. Your candidate's role is not to lecture the chairman on the law, or on anything else for that matter. In one case a Russian client had, before I was retained, appointed a distinguished Russian law professor to the tribunal that would hear the case. When the chairman of the panel and the other party's arbitrator were both Scottish barristers, my client asked me "Should we tell the professor not to lecture them?" Thankfully that case settled before there were any hearings.
To determine which candidate is most likely to be persuasive with the chairman, you need to consider who is likely to be the chairman, a consideration that had not occurred to the Russian client. You will have a role in that selection too, and you and your opponent can usually agree on a good candidate. To reach agreement on a chairman, the same exchange of lists procedure is available if consultation with your arbitrator did not produce an acceptable candidate. I think it is entirely appropriate to ask the arbitrator whom you appointed for suggestions, particularly if five names are on a list to be considered: "have you sat with another arbitrator on another case whom you found to be congenial and effective?" Indeed, it is a mistake, I think, if you don't ask your appointee
In retrospect, when I already knew that my opponent in the Stockholm case I mentioned above had appointed a Swedish attorney, and I should have known that the Stockholm Arbitration Institute would appoint another Scandinavian as chairman, I should not have appointed an American. But I knew that Bill Coleman was a diplomat who had had equally challenging missions, such as when he was appointed by the U.S. Supreme Court in civil rights cases to brief issues that the Court wanted to decide but that had not been argued by the parties. He later acknowledged to me that working with the two Scandinavians had been difficult, as I will describe later in discussing the effect of different legal systems, but it was also clear that he enjoyed the challenge.
5. How can you prepare for an international arbitration?
A. If the applicable law is different, have the tribunal appoint its own expert.
In entering into a contract calling for international arbitration, one consideration should be which national law do you want to be working with. Contracts are usually explicitly governed by a designated national law. Sometimes the tribunal has to select the appropriate national law by standard choice of law criteria, e.g., center of gravity, place of execution, etc. Very rarely, a contract is specifically governed by something other than a national law, such as lex mercatoria or ex aeguo et bono.
In any event, in international arbitration, if the applicable national law is not the arbitrator's or the tribunal's own law, the meaning of that law is itself treated as an issue of fact. I am not aware of any situation where a tribunal has referred the interpretation of a law to a national court for an advisory opinion. But arbitration panels of prominent attorneys do not want to be lectured by conflicting experts on national laws. Therefore, if the interpretation of a foreign law is likely to be an issue, it can be useful to have the tribunal retain an expert who will advise the tribunal regarding the law governing the contract dispute.
Otherwise it is desirable to have your own expert available. I had one experience where having a renowned authority available to respond to the tribunal's questions regarding the law governing the parties' contract was very fortuitous. It was the aforementioned case where I was defending against a claim that had admittedly been bought from the U.S. claimant in exchange for one sixth of any award provided he would appear and testify. Apparently the arbitration was being financed by a well-connected Kazakh, and I had been told by a Kazakh bank client that the "fix" was in for a rich settlement. The Minister of Justice must have heard the same rumor because he had retained a former Kazakh Supreme Court judge and an active law professor to monitor the hearing in Stockholm.
Their presence was fortuitous because the Tribunal asked the parties to address several questions about the Kazakh Civil Code the next day. The professor happened to be the author of the Code sections in question, so I was able to produce him to answer the Tribunal's questions. It was clearly more impressive than having my Kazakh partner, himself a distinguished former "advokat," answer the Civil Code questions.
In international commercial arbitration, any procedural question is determined by the law at the agreed site of the arbitration, not the law agreed to determine the substance of the contract. I invariably retain local counsel for that reason, but there are other reasons. In the WWM case, the applicable statute of limitations was a major issue. Swedish law treats the statute of limitations as a substantive issue, not a procedural one, and it was critical to avoid that law's ten-year limit in some situations. I offered my local counsel's opinion that, in that particular case, the limitations issue was not governed by the ten-year law of Sweden.
B. How to deal with a foreign language.
Another preliminary consideration is how to deal with a foreign language, either in a dispute resolution clause in the original contract or in a later submission agreement. If the basis for the arbitration is a national law for foreign investors or a BIT requiring the government to arbitrate a dispute, neither the law nor the treaty is likely to have a provision for dealing with a foreign language. In all such cases, therefore, it is desirable to agree in advance on how translation of testimony in a foreign language will be handled.
I have found that having a translator on your team is the best way to permit your witnesses to testify and also to verify your opponent's witnesses' testimony. Your translator can sit next to your witness and translate after each sentence. Your translator can also challenge the translator for the opponent's witnesses. Since both can be tedious operations, if there is going to be a large amount of testimony in a foreign language, having the tribunal retain a simultaneous translator would be preferable, but that will require having a sound system and headphones for counsel and observers.
The important point here is anticipate the need and make an agreed arrangement with your opponent.
C. How to deal with preliminary measures and issues.
Sometimes a party to a dispute will want some relief immediately. Local courts at the agreed site of an arbitration will usually entertain an application for an injunction pending resolution of the dispute by an arbitrator or tribunal. Applications to preserve evidence or to maintain a status quo are entirely appropriate and do not prejudice or impinge on a party's right to have the dispute resolved by arbitration.
More often one party to an arbitration will want to have a preliminary issue like jurisdiction resolved as soon as possible. It the arbitrator/tribunal does not have jurisdiction, you can avoid the expensive process of preparing witnesses to testify on the merits. One of the real advantages of arbitration is that arbitrators and tribunals are usually quick to agree to divide resolving a dispute into appropriate segments and plan to deal with them separately. Jurisdiction is an obvious preliminary issue. But also it can be wise to separate issues of liability and damages or other relief, even when some of the same witnesses will have to come back if the tribunal finds liability. Such a practical solution could have a significant effect on the time to complete the arbitration, and it also gives busy arbitrators opportunities to schedule other cases simultaneously. To be sure, courts will also entertain preliminary motions, but once a court has begun to hear testimony, it normally is disposed to try such issues in conjunction with all other issues.
D. How will you prove your client's case?
In order to determine the legitimacy of the complaint in an international arbitration, you obviously have to ask your client how he proposes to prove his case. What documents do you have? What documents do you not have? In these respects arbitration is like any other litigation.
Arbitration rules do not provide means for obtaining documents from your adversary, let alone testimony of your opponent's witnesses in advance with depositions or letters rogatory. The opportunities for "discovery" available in U.S. courts are not available to parties in arbitration. Only very recently has U.S. law made such support of parties in arbitration available.
Therefore you have to anticipate that limitation in determining whether or not you have the facts to prove your case. Do you have the proof for your client's case within your control, or do you have to get facts or testimony from the other side, or from third parties, such as the supplier to your opponent?
If you need to obtain information from third parties, where they reside is important. Local courts are more likely to support the hometown arbitration organization and require a local witness to appear. If they are located in another country, you need to determine whether there is a process to compel a witness to come from that country. A court there may at least require the witness to attend a local deposition. International arbitration has not yet advanced to the point where the "process" - - the orders of the arbitration tribunal - - are enforced internationally by courts. Arbitration tribunals cannot issue letters rogatory that can be enforceable in a foreign court. Commentators say that national courts are increasingly responsive to requests from arbitration tribunals to produce a witness for a deposition, or to attend a hearing, or even to require a third party to produce a document, but I have never been able to do that.
In making your application to the arbitrator or the tribunal, you can at least try to elaborate on what you expect the witness to say. Especially when the putative witness is in the control of your opponent, the failure of the witness to appear may be construed in your client's favor by the arbitrator.
E. Other tactical considerations.
Finally, you should consult with someone who has experience in international arbitration—not just a good litigation lawyer but someone who has actually "been there and done that." Arbitration is quite different from trying a case in a courtroom. In most respects I find it is much less confrontational. The physical setup in the facilities of the organizer are casual, usually around a large table in a conference room, or a square or "U" of tables, with the tribunal behind the table at the end of the room and the parties at the tables on the sides. The witness and the court reporter sit in the middle of the square. Water bottles and coffee cups are on the tables. There are smaller break-out rooms for the parties and the tribunal down the hall.
And the whole proceeding is less formal than in a courtroom. Witnesses are not necessarily sworn. No robes or "Hear ye, hear ye" for the panel. In addition, counsel often have known each other for years. I had three cases in Stockholm where opposing counsel had been a Swedish partner of my U.S. firm before joining a Swedish firm.
One high-tech innovation that I find an abomination is "quick notes." The testimony that the court reporter is recording or transcribing is immediately available on a computer screen in front of each member of the tribunal and any counsel that want to pay for it. I find it too diverting, but if a tribunal wants it, you are stuck. I am happy to have the day's transcript delivered to my hotel by early evening.
6. Other problems to consider in international commercial arbitration.
A. The effect of cultural practices in international arbitration.
When I am dealing with a legal problem broad, I always want to work with someone from that region who can advise me on cultural considerations, not just on local law. In one case where I had to go to Cambodia, Vietnam and Hong Kong to learn the facts about a criminal complaint filed against Squibb Pharmaceutical by U.S. AID. I was wisely advised to retain a Philippine attorney who understood how to deal with Asian cultures much better than I did and who had experience building bridges for "ugly Americans."
It is not always as obvious, as my witness from the National Bank of Pakistan showed at a trial in federal court in New York. In accordance with the universal practice on the Indian subcontinent, he emphasized his verbal agreement by moving his head from side-to-side. To show disagreement or disapproval, he would vehemently nod his head up and down. And the more he wanted to emphasize "yes" and "no," the more violently his head moved. Try that on a jury in the Southern District of New York and you quickly learn to be aware of cultural idiosyncrasies. I had to get that jury's verdict reversed by the Court of Appeals.
B. The effect of different legal systems in international arbitration.
Legal systems are different in common law counties from the systems in countries whose laws are based on the Napoleonic Code or in many countries on Dutch law. Those differences can lead to conflicts when attorneys from the two camps are involved in an arbitration.
In the arbitration in Stockholm where I had appointed Bill Coleman, the chairman of the tribunal and the arbitrator appointed by the other party were both Scandinavians. The chairman was the former attorney general of Norway who was then President of the European Free Trade Area Court. The other party's arbitrator was a Swedish attorney from a large Swedish firm. During the hearing, Bill Coleman started to cross-examine a witness for my opponent. His line of questioning, however, was to develop a theory of a defense that I had not introduced in my pleadings. His ingenious theory had simply never occurred to me and the typically U.S. legal issues he raised were alien to the Scandinavians.
Because I had not invoked the defense as part of my case, however, the two Scandinavians said it was improper for a fellow arbitrator to introduce the new issue into the case. I cannot imagine telling a U.S. or English judge that his question was improper and any answer irrelevant because the issue was not properly before the court. So Bill Coleman was quite upset when his fellow arbitrators ruled that he could not pursue that particular line of inquiry. But he had his turn. While he was the sole dissenter to their finding that the Republic had breached the contract, in the end the two Scandinavians agreed with him that the claimant was a greedy opportunist and was not entitled to any of the seven inflated claims for damages for the breach that the claimant had demanded.
It is also important to understand the legal system in other countries as it applies to arbitrations. The difference between a common law legal system and a continental legal system based on civil codes is more than just relying on legal precedents instead of relying on codes. How you prepare and present your case in a court or in an arbitration hearing is also different. Both systems rely on witness testimony and documents, but on the European continent, and therefore in Russia and Kazakhstan because their legal systems have their roots in Dutch and German law (ironically based originally on Napoleon's code), documentary evidence is paramount.
On the Continent and in Kazakhstan, no amount of sworn testimony can prove that a contract has been performed in the absence of a contemporaneous written acknowledgement that delivery has been received or that the terms of the contract have been met. It appears to me, that documentary evidence trumps testimony. When Eisenberg, the Israeli supplier of drip irrigation equipment and expertise, was claiming payment by the Kazakh farm co-op, the Eisenberg companies had receipts for this equipment and services signed by officials of the co-op. All I had was testimony of the co-op's employees that (1) the drip irrigation equipment did not work when there was so much clay in the soil and (2) the individuals who had signed the receipts had been bribed to do so with gifts of cars and trips to the beaches in Israel.
The Swedish arbitrator, who was also a judge on the Supreme Court of Sweden, should have dismissed both of the cases filed by different Eisenberg companies, not just one of them, for lack of jurisdiction. He dismissed the first, but he kept second because apparently the prospect of a fee to supplement his government salary was too inviting. The only reason he was on the Supreme Court was because he had been fired by the Swedish Foreign Office when he was ambassador to The Netherlands and the only respectable place the government could park him was on the Supreme Court of Sweden.
In any event, he was not impressed by the testimony of the employees at the hearing. His reaction to the evidence was typically continental: "The document signed by the official proved contract compliance." He then went on to hold that the Republic must honor its agreement to guarantee the debts of the farm co-op. After the contract between Eisenberg and the co-op was executed, the Republic had in fact, signed a separate, one paragraph "Guarantee " of the co-ops debts. That document did not mention the co-op's Eisenberg contract, let alone the co-op's obligation to arbitrate any dispute.
That is an example of the extension of an obligation to arbitrate to a party that did not in writing agree to arbitrate. No treaty, law or other basis for jurisdiction over the Republic was available to Eisenberg. Our Swedish counsel advised that the issue of a guarantor's ability to arbitrate had never been decided by the Swedish Supreme Court, and elsewhere a guarantor of an agreement that has an arbitration clause is not per se obliged to arbitrate.
So we sued the arbitrator, relying in part on the fact that his colleagues on the Supreme Court knew why he was there. But Swedish blood was thicker than Kazakh vodka. The Supreme Court upheld its accidental colleague's decision, and our Swedish local counsel is himself now a Judge on the Supreme Court, in his case a well earned appointment.
One of the most challenging aspects of international commercial arbitration for U.S. companies is dealing with the psychological/cultural aspects of the other party. Most international business people should not have a problem. If they have been successful in dealing with the Japanese in the past, for example, they will find that going into an arbitration with a Japanese company is not any different from going into contract negotiations with them. Forget all the foreplay; you do not have a deal until the boss has spoken.
At the same time, the cultural practices of lawyers and business people in different parts of the world are often quite different from those in the United States. Therefore, U.S. clients and attorneys may find it challenging to deal with a different culture in arbitration.
C. Some ways to succeed in international arbitration.
There is more international arbitration taking place these days as business people appreciate its value, and the practice is still evolving. To stay updated on changes in this practice area, I subscribe to International Law Office, Investment Treaty Arbitration, Investment Arbitration Reports and PLC Dispute Resolution Weekly, which publish developments in arbitration on a regular basis. Law firms submit material to the publishers for the publicity, and the material is published in summary form.
In theory, however, international arbitration is meant to be confidential and the proceedings and even the decisions are often not available to the public. But ICSID routinely publishes its decisions and many awards become matters of public record when they are filed in a court that has been asked to recognize or to overturn an award.
Thank you for your attention. You will have fun with international arbitration.
John W. Barnum
1. Arbitration itself dates back to settling disputes between the Greek city-states. Later, in the Middle Ages, city-states would agree to ask an ecclesiastic body or person to decide disputes, but its use was less frequent once nation-states emerged.
In the 19th century, arbitration between states again became a tool of diplomacy. After the Civil War in the United States, for example, the United States and Great Brittan agreed to settle the claims of the United States for the damages caused by warships built in England during the War. That international arbitration is known as "the Alabama Claims Case", the Alabama having been such a warship.
2. ICSID arbitrations are distinctive from all other arbitrations in that its awards are not recognizable or enforceable by national courts under the New York Convention. The stigma of disobeying a ruling of a World Bank body apparently was thought to be enough to encourage enforcement.
3. The Akim had previously refused the instructions of a government "working committee" hearing AIG's complaint seeking return of the property to AIG. Instead the Akim offered a larger, adjacent parcel of land. But by that time AIG had realized that it would not be able to pre-sell the houses that it was building because the capricious Akim made buying a house too risky.
By the time of the hearing, the Akim had already been demoted to a lower position in the government. He later resigned his new appointment and announced he would be a candidate for president of the country at the upcoming elections. Not long thereafter he committed "suicide" - - with three bullets in the back of his head.