In this post, PANAGIOTIS CHALKIAS reflects on some elements that have considerable influence on success of an arbitration legislation; and why courts shall always play a defining role.
This post ponders over a rather basic question that everyone involved in international commercial arbitration must find intriguing. This question concerns not only governments and legislators but also judges, lawyers, in-house counsels and broadly all dispute resolution practitioners. The purpose of this post is not to provide an exhaustive list of factors pertaining to the enactment and application of a national arbitration statute. I intend to highlight what I think are the three essential elements to take into consideration.
An easy and quick answer to my question would be that the adoption of the UNCITRAL Model Law on International Commercial Arbitration suffices (as of 2011, 66 countries have endorsed this Model Law in their legislation). However, one should ask if this suggested pattern for law-makers is enough to show a favourable preference towards arbitration. To answer this question I need also to clarify what the term “favourable” signifies. In my opinion, it has to do with the level of freedom or independence that a national legislature or judge grants to arbitration proceedings – whether it relates to the arbitration agreement, the arbitral process itself or the arbitral award. It is advisable here to remember that arbitration does not take place in vacuum. National legislation of the place of recognition and enforcement of the arbitration agreement or award will always play a determinative role.
What about the the size of a national arbitration statute? It can vary from a comprehensive set of one hundred and ten sections (see English Arbitration Act of 1996) to a succinct set of nighteen provisions (see Swiss Federal Statute on Private International Law). Since both London and Geneva are today leading seats of arbitration, experience shows that size bears no significance as long as the main phases of arbitral process are adequately regulated. Depending on how certain issues are treated, we can assess the degree of favouritism of a national legislation towards arbitration. Issues such as the arbitrability of disputes, the validity of an arbitration agreement, the power of arbitrators to order interim measures and the grounds for annulment of arbitral awards are indicators to distinguish one national arbitration statute from another.
The second consideration relates to the importance of the year of enactment of the arbitration statute. No matter how old an arbitration statute is, it is always subject to a progressive or restrictive judicial interpretation. Here, it is useful to compare the US Federal Arbitration Act of 1925, with the amendment of January 2011 of the provisions of the French Code of Civil Procedure pertaining to arbitration. It is logical to assume that the more modern French arbitration law is also more arbitration-friendly than the American one – as it is able to address issues that contemporary arbitrations most often face. Following this assumption, Singapore, an emerging arbitration market, is considering modernising its arbitration law in order to regulate, amongst others, recent developments such as the enforceability of the emergency arbitrators’ orders. This assumption can only be confirmed by the role, whether supportive or not, of national courts. This is particularly evident from the evolution of the FAA in the US over the years. A more progressive interpretation by the US Supreme Court is the only reason the FAA is still a workable statute for modern arbitration regime, despite being a legislation of the pre-second world war era.
This leads us to the third element, i.e. the power of national judges to interpret the provisions of their respective national arbitration statutes. Marija Sobat and Sumit Rai have already shown how national Courts can determine the flexibilities of a certain provision – whether pertaining to the compatibility of an arbitration clause with class action proceedings or the territorial application of the Indian Arbitration Act. I will just add as examples two controversial cases but without referring to their facts.
First, in the Putrabali case the French Cour de Cassation considered the provisions of the French arbitration law as more favourable than the provisions of the New York Convention itself. Relying on article VII of the NYC, the Court was able to bypass the ground for non-recognition under article V 1 (e) – noting that such ground does not exist in the French arbitration law. Although no one can deny that the mere absence of this ground automatically made the French arbitration law more favourable, this monistic approach certainly cannot reflect the harmonising efforts of the NYC. This judgment went even further as it did not recognise the authority of the primary jurisdiction’s ruling, ie of the English High Court’s judgment partially setting aside the arbitral award. The judgment showed once again in a comparative manner the advantage of the French arbitration law over the English Arbitration Act, which contains the unfavourable ground for challenging an award on a point of (English) law (section 69).
Second, in the Dallah case , the UK Supreme Court, acting in the capacity of the enforcement forum, interpreted the word “may” of Section 103 (5) of the English Arbitration Act in a convenient manner, overlooking the setting aside procedure where “the award has been made.” It can only be speculated whether the English court wanted to pay the French courts back in their own coin – for the French have been advocating autonomy of the arbitral system and thus ignoring the vacatur proceedings at the place of the seat of the arbitration. Additionally, the UK Supreme Court understood the power of Section 103 (2) (b) as enabling it to review the facts of the case, ie whether the arbitral tribunal’s findings on the role of the Government of Pakistan were correct. The thorough analysis of the facts (para. 41-66) showed that the UK Supreme Court gave almost no deference to the arbitral tribunal’s authority.
A comparative reading of these two cases highlight as to how dependent the success or failure of a statute is on the interpretational inclinations of municipal courts. The Lord Bingham of Cornhill aptly noted on the enactment of the English Arbitration Act in 1996 that a statute can only provide tools. “The success of the [legislation] will depend on these tools being skillfully used to fashion the product for which they were designed. This means, above all, that they should be knowledgeably used, with an understanding of their origin, and of why they were designed as they were”.
This brief analysis shows that there are several elements determining the success of an arbitration statute. To those discussed above we can add other surrounding legal or political factors, like for instance the will to promote a certain arbitral situs or the acquaintance of local judges with local or foreign arbitration proceedings. I invite readers to add their thoughts on what elements contribute, in their opinion, to the success of an arbitration statute.