Eric A. Schwartz
King & Spalding Hukuk Bürosu (Paris)
I. Preliminary Remarks
There are today a large number of organizations around the world that provide services in relation to international arbitration. Some of these are international organizations, such as the International Court of Arbitration of the International Chamber of Commerce, the Permanent Court of Arbitration, the International Centre for the Settlement of Investment Disputes, the World Intellectual Property Organization and the LCIA. Others are regional or national organizations, such as the American Arbitration Association, the Stockholm Chamber of Commerce, the Hong Kong International Arbitration Centre, the Singapore International Arbitration Centre, the Cairo Regional Centre for International Commercial Arbitration, CIETAC, the Dubai International Arbitration Centre and I could, of course, go on and on.
There has never been more recourse to international arbitration than there is today–the caseload of the ICC, for example, has increased by almost 250% in the last 20 years–and more and more arbitral institutions (although not necessarily all) are benefiting from the rise in international arbitration worldwide. This is a trend that is likely to continue, with international arbitration now widely accepted around the world as the preferred method of resolving international commercial disputes (and certain other kinds of disputes as well).
So what is the role of the arbitral institution and what qualities must it possess in order to compete successfully for a share of the expanding market for international arbitration services? In the time that has been allotted to me this afternoon, I propose to say a few words, first, about the functions of the arbitral institution, then to address the qualities that I believe that it is important for such an institution to have and, finally, what other elements are necessary for its success. Over the years, I have seen some arbitration institutions prosper and others disappear.
II. Functions of an Arbitral Institution
Arbitral institutions occupy a space between the parties to the arbitration and the arbitrators. They do not themselves arbitrate the parties’ disputes. That is the responsibility of the arbitrators. Broadly speaking, arbitral institutions have three basic functions: (i) to offer a service; (ii) to administer it; and (iii) to try to ensure that it is legally valid and effective. In doing so, however, it is important to appreciate that they are administrative bodies and do not exercise judicial functions. The decisions that they take therefore are not generally to be regarded as being dispositive of a parties’ rights, although they may, of course, have an important impact on the conduct of an arbitral proceeding.
During the early years of the last century, one of the greatest challenges to arbitral institutions was to establish the validity and efficacy of the arbitral process. Then, the laws of many countries did not recognize an arbitration clause as binding if concluded prior to a dispute arising, there were not yet international conventions on the recognition and enforcement of arbitral awards, and the courts of many countries had broad powers of intervention in and control over the arbitral process. Arbitral institutions exerted considerable influence over the development of a legal framework that is both favorable to arbitration and that helps to ensure the efficacy of the process. It was, of course, and still is today in their interest to do so. A point that I will come back to a little later is that, without an arbitration-friendly legal environment and a supportive judiciary, an arbitral institution cannot thrive.
While not all arbitral institutions are the same, and there are substantial differences among them with respect to the services that they offer, all of the major international institutions undertake the following tasks: (i) they make (and revise) arbitration rules; (ii) they provide information and possibly training with respect to those rules; and (iii) they designate arbitrators and perform other administrative tasks in connection with arbitrations held under their rules (although sometimes they purport to administer arbitrations under the rules of other institutions, which has become the subject of considerable controversy). They may, of course, also administer arbitrations under the UNCITRAL Rules.
I do not intend to say much about rule-making or training, save that a large number of institutions have, in drafting rules, relied heavily on, or simply adopted, with minor modifications, the UNCITRAL Rules. (The international rules of the AAA (ICDR) are a good example of this.) Others have found inspiration in the ICC Rules. Still others have devised their own rules. In many cases, the provisions of those rules have borrowed heavily from the law and legal traditions of the country where the institution is located–this is true, to some extent, even in the case of the ICC Rules, which, although intended to be international, are aligned in many respects with concepts to be found in French law, which, in the ICC’s early years (although much less today), had considerable influence over the way in which the rules were drafted. The same can be said in respect of the LCIA Rules, the SCC rules and other rules, which are designed to ensure that they are consistent with local arbitration legislation.
Over the course of the last few decades there has been considerable harmonization in the rules of arbitration institutions. Nevertheless, many differences remain, and there are also a number of differences among the services performed by different institutions in respect of the arbitrations that they administer.
Among the most important tasks performed by most or many institutions, I would mention the following:
- Performing a gatekeeper function, i.e, determining whether to allow an arbitration to proceed
- Appointing or confirming the appointment of arbitrators
- Deciding upon challenges of arbitrators
- Extending deadlines, e.g., for the issuance of the award
- Determining the fees of arbitrators and controlling their expenditures
- Possibly determining whether parties may be joined to the arbitration or arbitration proceedings consolidated
- Possibly determining the place of the arbitration
In addition, certain institutions, such as the ICC, may perform distinctive functions such as, in the case of the ICC, scrutinizing and approving as to their form the Tribunal’s award (a function that at one time was regarded as very controversial in Turkey).
In performing such functions, the arbitral institution is in a position to aid the arbitral process in a number of important ways. Among the benefits that an institution can confer on the process, one of the most important is the elimination of the possible need for the parties to refer to the courts if difficulties arise in setting in motion, or during, the arbitration. As has been observed, it is usually because the parties wish to avoid appearing before the courts that they have agreed to arbitration. However, in the absence of an arbitral institution empowered to take the various decisions that may be necessary to permit an arbitral tribunal to be constituted and for an arbitration to proceed, the parties may have no recourse other than to the courts in order to get the arbitration started, when one of them refuses to participate or cooperate.
In addition, by assuming responsibility for the determination of the arbitrators’ fees and expenses, the institution saves the parties from having to enter into potentially awkward discussions with the arbitrators as to such matters and helps to ensure that the arbitrators’ fees and expenses remain within reasonable limits.
In respect of the time that an arbitration takes as well, the involvement of an institution ought to be able to assist by bringing pressure to bear on the arbitrators to get on with their work.
There are, of course, limits to what any institution can accomplish, and there are a number of important issues that arise in relation to the exercise of an institution’s functions that are worthy of mention and that may hopefully give rise to some discussion:
(i) What are the proper limits on an institution’s gatekeeper function? This gives rise, in turn, to the broader question of: what matters should be decided by the institution and what matters are better left to the arbitral tribunal?
The very first issue that an arbitration institution will face upon the receipt of a request for arbitration is whether to accept to administer the arbitration: is there an arbitration agreement between the parties? does it refer to the rules of the institution? are the parties named in the request the same as the parties to the agreement? and so on and so forth. The issue arises in all of these circumstances as to the whether the institution should make a determination as to whether the arbitration should be allowed to proceed or whether the request should simply be referred to the arbitral tribunal to be constituted. This is what I mean when I refer to a “gatekeeper function”. Should the arbitral institution undertake to ensure that parties are not put to the trouble and expense of having to deal with an arbitration request where clearly there is no arbitration agreement between the parties?
This is a function that has been assumed by some institutions, more or less formally. That is the case for example at the ICC where its Court will make a prima facie decision concerning the existence or not of an ICC arbitration agreement. In effect, what it is determining is whether there is manifestly not an arbitration agreement, in which case it will not refer the matter to an arbitral tribunal. In all other cases, it will allow the arbitration to proceed, and it will be for the arbitral tribunal to examine any issues of a jurisdictional nature that have been raised by the parties.
Exercising such a function can raise delicate issues for an institution. Imagine, for example, an arbitration agreement entered into between a company and a governmental authority. The company commences an arbitration against the governmental authority, but at the same time names the State, who has not signed the arbitration agreement, as a second respondent. Should the institution undertake to decide whether the arbitration should be allowed to proceed against the State, or should the institution instead set the arbitration in motion against the State and leave the issue to the arbitral tribunal once constituted? This, in turn, leads, to a broader question: what types of matters relating to the organization of an arbitration proceeding should be decided by an institution and what matters are better left to the arbitral tribunal? This is a question that the ICC recently had to face when amending its arbitration rules to provide for multi-party arbitration. Who should decide, for example, whether parties may be joined to the arbitration proceedings or whether arbitration proceedings should be consolidated: the institution or the arbitrators?
(ii) How should an institution go about appointing arbitrators?
There is probably no more important decision in any arbitration proceeding than the appointment of the arbitrators. But different arbitration institutions carry out this important task in different ways.
First of all, with respect to the designation of arbitrators by the parties, some institutions permit the parties to appoint arbitrators, while others will only allow the parties to nominate arbitrators, who are then required to be appointed (LCIA) or confirmed (ICC) by the institution. Before confirming or appointing the arbitrators so nominated, the institution will generally undertake to verify the independence, impartiality and possibly also the availability of the arbitrator who has been nominated, usually on the basis of a statement of independence or other form of disclosure. This is obviously a critical task, and the question may arise as to how far the institution should itself go in performing it. Should it take the initiative of carrying out its own related investigations? What should it do if it possesses information that the arbitrators who have been nominated have not themselves disclosed.
Similar issues will arise when the institution is called upon to appoint a sole arbitrator or the president of a tribunal. How should it go about this task? Should it constitute an approved panel, from which arbitrators are to be selected, and if so how is such a panel to be assembled? And who, within the institution, is to make the selection? An individual, a committee or other group? It will in any event be vital to the institution, its integrity and reputation to be able to ensure that such appointments are made and seen to be made in a neutral, objective manner, without any undue influence or favoritism.
(iii) How should challenges of arbitrators be decided?
Equally critical is the process that is put in place to decide upon challenges of arbitrators. There are unfortunately more and more such challenges, and different institutions have different ways of dealing with them. Every institution has to decide, first of all, who shall decide upon the challenge: an individual, a committee or panel (as in the case of the LCIA) or a larger body (as in the case of the ICC Court). How transparent should the process be? Who should have the right to comment on the challenge? Are the comments to be seen by all participants in the arbitration? Are reasons to be given for the decision? Should it be published? There is currently a very big divergence in this respect between the practices of the LCIA, which produces a reasoned decision in the case of a challenge, and the ICC and many other institutions, which do not, a subject about which I will say more in just a moment.
(iv) How should arbitrators’ fees be paid?
Deciding upon the remuneration of arbitrators is, as I have said, a task whose importance cannot be underestimated. But how is it to be done? Basically, there are three approaches: (i) on the basis of time spent; (ii) on the basis of the amount in dispute; or (iii) based on a combination of these and possibly other factors, such as for example, the efficiency with which the arbitrators have carried out their work? This third approach is essentially the one that has been adopted by the ICC, which as you probably know, uses a scale providing for a minimum and maximum amount. However, within that scale there is room for the exercise of considerable discretion, taking into account all of the relevant circumstances.
Even with the assistance of a scale, institutions have no more delicate a task than deciding upon the arbitrators’ remuneration. For the parties, the amounts awarded to the arbitrators may often seem too high; for the arbitrators, they may often seem too low–so striking a fair balance between the expectations of each will often present a challenge. Moreover, questions may arise as to how the arbitrators within a tribunal are to be remunerated, relative to each other. How much should the president receive, as opposed to the co-arbitrators? Should the co-arbitrators always be paid the same? What if one is from New York and the other from Bangladesh?
(v) How much transparency should there be in institutional decision-making? Should reasons be given?
The rules of most arbitral institutions do not require them to give reasons for their decisions. In fact, some rules, such as those of the ICC, explicitly provide that the reasons for the ICC Court’s decisions in respect of the confirmation, challenge or confirmation of an arbitrator shall not be communicated (Article 11(5)). That are a numbers of reasons for this: (i) the decisions in respect of such matters are often taken collectively by a group of individuals who may have slightly different reasons for the group’s collective decision; (ii) the need to produce a reasoned decision might delay the issuance of the decision (and the proceedings); (iii) the decisions taken are considered to be of an administrative nature and may, at least in respect of a challenge or replacement, be reconsidered by the courts, either during the arbitration or when the award is issued (depending on the venue of the proceedings); and (iv) the reasons given might subsequently be used by one of the parties as a pretext to create further difficulties for the proceedings. While this has been the long-standing position of a number of institutions, we live in a world today where there is increasingly little tolerance of non-transparency in relation to institutional decision-making, and the traditional position of the ICC has been under attack for some time. One prominent institution–the LCIA–has adopted a different view, and, as I have said, now provides the parties’ with written, reasoned decisions on challenges, which are then published. It remains to be seen whether this will be the beginning of a new trend or remain the exception to the general rule.
(vi) Should parties be free to derogate from an arbitral institution’s rules? Who is authorized to interpret an institution’s rules: the institution, the arbitrators or both?
These may appear to be somewhat esoteric questions, but they do arise in practice, and the first may have particularly profound consequences for the arbitral institution.
With respect to the first, it is the position of some institutions, such as the ICC, that it will not accept certain, important derogations from its rules, and it may refuse to administer an arbitration when such derogations are made, e.g., where the parties derogate from the requirement of independence for all arbitrators, or the preparation of Terms of Reference or the scrutiny of awards. In issuing rules to the public, an arbitral institution may be said to make an offer to the public to administer arbitrations in accordance with such rules. However, it has no obligation to administer a case where the parties have modified the rules in such a manner as to alter the nature or integrity of the process that it has offered to administer. Some institutions have no such scruples, and do not have a problem with administering their rules where they have been altered by the parties. In fact, some institutions are prepared to administer arbitrations under the rules of other institutions–but that is a subject for another day.
With regard to the interpretation of an institution’s rules, it will, of course, ordinarily be the institution that interprets the rules insofar as they relate to the tasks that the institution itself is required to perform. But as to other matters, e.g., whether the rules permit h arbitral tribunal to make a particular kind of order, an institution may permit the arbitral tribunal to interpret the rules, sometimes on the theory that the rules form part of the contract between the parties. The effect of this approach, however, is that the rules may not be consistently applied, particularly as relatively little information may be available to arbitral tribunals regarding relevant precedents.
(vii) What degree of legal recourse should be available against the decisions of an institution? Should institutions enjoy immunity for the decisions that they make?
Although the functions of an institution are generally characterized as administrative, some of an institution’s decisions may have considerable impact on a case, such as whether to agree to administer an arbitration or to decide to replace an arbitrator. There have been numerous instances of arbitral institutions being sued in respect of such or other matters, although rarely with success. In this regard, institutions generally enjoy broad discretion with respect to the decisions entrusted to them, and it will therefore often be difficult to establish that a particular decision is clearly improper or that the institution has otherwise violated a duty to the parties. Nevertheless, as arbitration has become increasingly hard fought, it is reasonable to expect that the actions of arbitral institutions will become the focus of greater attention, and the recent experience of institutions such as the ICC bears witness to that.
Many arbitral institutions such as the ICC have sought to protect themselves by incorporating in their rules broad provisions excluding their liability. This I believe is consistent with a general consensus that has emerged that it is necessary to protect the process and its participants against abusive litigation that may undermine its efficacy, except in cases where the waiver of the institution’s liability would not be possible at law.
III. Qualities that it is Important for an Arbitral Institution to Have
Having now described some of the principal functions of arbitration institutions and some of the related issues that arise, I wish to say a few words about the qualities that it is important for an arbitral institution to have in carrying out those functions, particularly if it aspires to administer arbitrations concerning international disputes.
There are, it seems to me, at least three broad requirements that an institution needs to be able to satisfy.
The first is a structure that ensures its independence, impartiality and neutrality. It must be, and perceived to be, completely independent of anyone who may be perceived as having an interest in arbitrations administered by it and also ensure that this applies to all those who act in the name of and for the institution. Thus, it is important that the institution be independent of the State. It is equally important that it function autonomously from any other body, such as a chamber of commerce, to which it may be attached. Many institutions have also found that, to appear truly international and neutral, it is useful to have as their most senior officers, persons of a foreign nationality. Thus, for example, the President of the London-based LCIA is an American, the President of the Paris-based ICC Court is English, the chairman of the Singapore International Arbitration Center is an Australian, and the German DIS has just appointed as its Secretary General an Italian. In addition, a board composed of persons from around the world can be very useful in creating an international image.
Second, the institution must have efficient staff and adequate resources to ensure that arbitrations can be administered expeditiously. This almost goes without saying. The institution should be seen to be facilitating a speedy process. It must therefore not be seen to be slowing it down unreasonably. And the staff also needs to be proficient in dealing with international arbitrators and counsel.
Third, an institution must have sufficient financial support to ensure that it will be able to survive several initial lean years. Once an arbitration institution opens its doors, it may take a long time before it receives its first cases. The institution’s arbitration clause has to be included in contracts and enough time is required to pass for disputes to arise under those contracts. Potential users need to have confidence, in the case of a new institution, that when inserting a clause in a contract providing for arbitration under the auspices of that institution that the institution will still be in existence when the dispute arises. So a new institution generally requires the support of an organization that inspires confidence on the part of the public.
IV. Other Elements Necessary for an Institution’s Success
But even if all of the ingredients just mentioned are in place to provide for a wonderful arbitration institution, there are two more elements, external to the institution, that are vital to its success. The first is an arbitration-friendly legal environment in which to operate. An arbitration institution is unlikely to attract many international cases unless the country in which it operates, and many of its arbitrations are presumably situated, has a modern international arbitration law that is supportive of international arbitration. Second, and equally important, the local courts must also be seen as being supportive of the process. These two factors have been the keys to the success of the world’s major international arbitration institutions. The success of any such institution here in Turkey will therefore go hand in hand with the efforts that all of you have been making to ensure that Turkey enjoys a good reputation as a venue for international arbitration.
*Bu tebliğ, 24 Mayıs 2012 tarihinde gerçekleştirilen Uluslararası Tahkim Kongresi’nin 3. oturumunda sunulmuştur.