1952 Entry of BTC Engineer Apprentices at Wandsworth - Courtesy Ken Goodison.

I started my life as an Engineer as an apprentice with the British Tanker Company in 1952 at Wandsworth Technical College in South London on a course for the Ordinary National Certificate in Marine Engineering.  The Summer vacations were sent in factories, in my case the first being G & J Weir of Cathcart, Glasgow, manufacturers of possibly the pump most likely to be found working steadily in

S.S. British Realm

ships around the World.  In my second year I worked on marine diesel engines at the works of John Kincaid in Greenock. Our third year or so was spent at sea.  I served in S.S. British Realm and M.V. British Seafarer, with the Doxford opposed piston engine. Incredibly we thought we were fast with 114 r.p.m.!  When I came to study logic later in life, it occured to me that “Seafarer” was a somewhat self-referential term to use for a ship.

 Once a week, we studied at the South Shields Marine Technical College – a Course in Power Plant Management. Years later, when I was working in the design of nuclear power plant, I had occasion to visit Clark’s yard, then part of British Shipbuilders, as a designer and buyer.  It was gratifying to be welcomed as a V.I.P. in a suit where I had been an apprentice in overalls.  Even more fascinating was when, as sole arbitrator in a matter involving the performance of a diesel power station, I returned to observe the building of a similar engine in Greenock accompanied by Counsel and Directors of both sides.

House Flag of BTC with Persian Lion

Everyone was so courteous; as an apprentice I had never been allowed through the door between the works and the office. It would be
wonderful if any one who remembers those days or recognises anyone in the photograph were to contact me using arbitrator@beresfordhartwell.com.

The anomalous nature of the “emergency” procedure arises in part from the very absence of imperium in arbitration and in part from the delays inherent in institutional arbitration. All an arbitral panel (let’s not call them a “tribunal”, that’s a word which gives a false impression of authority) can do is state what ought to be done.

Even the claimed right to invite the arbitrators to draw unfavourable inferences is questionable; each arbitrator’s obligation is to find the truth from the evidence. Nothing may conflict with that. If a party’s conduct has resulted in additional losses, or in additional cost an appropriate award may be made, but arbitrators apply judgement to the issues; they do not judge persons. Only Judges who wield the Sovereign Power may do that.

Arguably, for an arbitrator, nothing is more important than that “e”, or the lack of it, in the word “judgement”; that is what it’s all about.

Moreover, where time is of the essence, the necessary transparency of the principle of Natural Law, audi alteram partem, is a serious handicap. The ability to make an ex parte application to the Court evades that limitation and is the reason why an attorney would be wrong to suggest anything else.

Arbitration is what it is. It is not a process at Law and, in my submission, any attempt to assimilate the two leads inevitably to uncertainty. Unfortunately, too many of us like the feeling that an illusion of power brings and we forget the dictum of Lord Acton on the subject.

Far simpler to use the Court for Emergency purpose and the Arbitral panel for its proper purpose.  It is the attempt to make the arbitrators into a Court which is at the root of the modern cost and complexity of what was conceived as a simple commercial solution to the problem of disputes,

But this is the opinion of a layman and thus of no consequence!

Reproduced by permission from
International Arbitration and International Commercial Law: Synergy Convergence and Evolution. Liber Amicorum Eric Bergsten.
Editors: S. Kroll, L. A. Mistelis, P. Perales Viscasillas & V. Rogers. Chapter 12 - The Commercial Way to Justice. pp 231 – 249.
©2011 Kluwer Law International. ISBN 978-90-411-3522-3.

I have now corrected errors in the links to and from the footnotes; I regret the earlier errors and apologise.

Geoffrey M.  Beresford Hartwell[1],[2]

International Commercial Arbitration, the chosen basis of the annual Willem Vis Moot, is arguably not au fond a process at law.  It is quite simply the performance of an agreement between two parties to have a chosen third party hear and determine some difference between them.

In an ideal world, this discussion would stop there.  Often, it does.  There is a long history of commercial men taking disputes to the doyen of the appropriate trade and asking him[3] to make the decision they cannot agree upon.  They could either agree to abide by and act upon that decision, or they could agree that it would be an advisory decision to guide them in the subsequent conduct of their mutual affairs.  The agreement to a binding decision was known in England as an Arbitration Bond of which more later.

For a jurist, the concept of arbitration, and that of adjudication for that matter, has always seemed an anomaly.  For judgement in a disputed matter to be delivered by someone who has no intrinsic authority, being neither a Judge nor any other officer of the State, seems to be contrary to principle; a kind of anarchy.

Moreover, one salient consequential difficulty cannot be avoided.  If decisions, formal judgements upon disputed issues, are to be handed down by persons having neither authority nor qualification, other than that the disputing parties have made a choice, those decisions cannot be of any use to the world at large.  Those decisions may be useful to the disputing parties; they cannot stand as precedent because they have no place in the structure of public jurisprudence.

That said, there is developing a practice of citing arbitral decisions in argument, as if they were authorities.  In part, that is assisted by the practice of printing arbitral awards from the ICC[4] and elsewhere.  There is some logical, but not legal, basis in the practice: The decisions of one wise man or group of wise men, in one matter may have a degree of persuasive authority in another, even if there is no relation between the two matters.  However, circumstances alter cases and any link between one arbitration and another should be approached with care.  Certainly, in a Law examination, citing an arbitral decision as authority is likely to lose marks!

An arbitration can often look like a proceeding in Court.  There is one person or a panel of three (or rarely more) hearing more or less formal submissions, evidence and argument.  Witnesses are presented and questioned sometimes by advocates, sometimes by the tribunal aided by the advocates.  In some jurisdictions evidence may be given on oath.  Written submissions are usually provided to outline each party’s case and it has become customary to call these ‘pleadings’.  Although in historical time traders and experts used to act both as arbitrators and as the representatives of the parties, lawyers have come to dominate in both roles.  In some specialised markets the tradition of the judgement of one’s peers still holds sway, but most ordinary commercial arbitration is now conducted according to a simulacrum of the Court procedure of the State.

But arbitration, with adjudication, mediation and other private means of dealing with differences, is a form of Alternative Dispute Resolution (ADR).  If that is right, then it ought to be a genuine alternative, not a poor imitation of the Court with less formal dress.

To understand better what an alternative might be and how best to approach the study of ADR as a means of achieving the satisfactory resolution of disputes, this paper sets out to analyse the intentions, or rather the presumed intentions, of the Parties who agree to arbitrate and choose the person or persons to assist them.  The suggestion is that such an approach will facilitate more appropriate conduct of arbitral and allied proceedings.

Any attempt at analysis should start with a definition.  In recent years there have been definitions of a kind in various jurisdictions but, in the English language the definitive statement of the meaning of Arbitration is to be found in the OED[5].  It is often said that adjudication is necessarily different from the judicial approach whereas arbitration is bound by it.  The plain English meanings of the two words convey the reverse impression, and a look at the historical references in the Dictionary online will enable the reader to appreciate the distinction, such as it is.

This account will return to Adjudication later.  The Willem Vis Moot is concerned with International Arbitration and it is to Arbitration that we shall turn first.  The definition of Arbitration which the writer proposes to use is the second meaning, which is the one practitioners will recognise: The settlement of a dispute or question at issue by one to whom the conflicting parties agree to refer their claims in order to obtain an equitable decision.  For completeness one should read that definition in conjunction with the definition of an arbitration bond originally from Blackstone in 1768: Arbitration-bond a bond entered into by two or more parties to abide by the decision of an arbitrator. 

If there is one single word that must determine the way in which arbitration requires to be conducted, at the hearing, if there is to be a hearing, and during all the preliminary and subsequent elements of the process, it is the word “equitable”.  It is that word that the writer invites the reader to consider.

One must be careful; nothing in the plain language definition we have been examining suggests that “equitable” is to be treated as a legal term of art[6].  The right place to seek a meaning is an ordinary dictionary.  The OED gives “that is in accordance with equity; fair, just, reasonable”.  Those words are not legal terms of art.  Fair, just and reasonable are terms which the man in the street can recognise.

From the plain language, arbitration has to be fair; the parties have agreed that it shall be fair.   Fairness, it is suggested, has a number of essential requirements which must be met, and which have become a fundamental part of arbitral procedure; where States have enacted laws of arbitration they will, in general, have incorporated these essential requirements, but it would be a mistake to think that these laws have created the requirements.

The first requirement is that there must be a difference between the parties.  The definitions refer to claims but clearly that does not only mean claims for money (although the vast majority of claims are for money); a party may seek a declaration that he may or may not adopt a line of action or that a certain matter is thus and so.

Often there has been dispute as to whether or not there has been a bona fide difference between the parties; the simplest characterisation being by a respondent who says ‘I have not yet replied to or commented upon the claimant’s claim, therefore there is no dispute and no office, no role, for an arbitrator.’ In legal terms, the respondent pleads that there is no arbitral jurisdiction.  The argument is clearly specious.  Failure to reply in a reasonable time is a de facto denial of a claim.  Provided the appropriate steps have been taken, there is no logical objection to an arbitrator deciding whether or not there is a difference between the parties.

Defining those appropriate steps is not straightforward, which is why various provisions exist in most, if not all jurisdictions to facilitate unilateral action where a party is recalcitrant.  However, we shall examine the logical justification of such provisions.

The definition of arbitration states that the conflicting parties agree to refer their claims in order to obtain an equitable decision.  Seemingly, the use of “in order to” implies a purpose, intent on the part of both[7] parties.  It must be a common intent, because they both have agreed it.

However, fairness demands that the parties have an equal right to participate in choosing their arbitrator[8].  To give practical effect to the agreed intention, that must mean that they must have equal opportunities to take part in the appointment.  The claimant may invite the respondent to nominate an arbitrator or may nominate a person himself giving the respondent an adequate opportunity to research the nominee and object.  In theory, the next step, absent any representation from the respondent, is for the claimant to appoint the nominee on behalf of both parties, after having made clear his intention to do so.

In practice, the Court, in most jurisdictions[9],[10] can add further legitimacy to this process by considering an application by the claimant and either appointing the claimant’s nominee or appointing another instead.

There is another way of providing for an arbitrator when one or other party is in default, not cooperating with the arrangements for appointment.  The arbitration agreement itself can include the necessary steps for appointment in default or, more probably, the agreement may incorporate a set of rules, either the UNCITRAL Rules[11] or a set of institutional rules, such those of the Court of Arbitration of the International Chamber of Commerce (ICC) the Kuala Lumpur Regional Centre for Arbitration (KLRCA) or the London Court of International Arbitration (LCIA)[12].

The argument is that, if properly prepared, the process can be conducted wholly outwith the Judicial system of the State.

For many years it could be said that Arbitration Law was not the Law of the process itself but the Law of Court intervention in arbitration.  Laws such as the Arbitration (Scotland) Act 2010, however, blur the distinction by themselves incorporating sets of Rules for Arbitration.

In considering in detail the way in which arbitration might be initiated in the absence of the other party this article seeks to show that an agreement to arbitrate operates as a contractual agreement and it is as such and only as such that it has effect.

In looking at the practical requirements which the arbitration agreement implies it may be wise to consider them from the point of view of a reasonable man[13].  For example: would a reasonable man expect an arbitrator, chosen to give a fair and equitable decision, to have an undeclared interest in the outcome?  The answer as a matter of common sense is “No”; there is a maxim the origins of which are lost in the mists of time[14] nemo judex in causa sua debet esse (no-one should be judge in his own cause).  It is sometimes shortened by lawyers to omit the words should be but that misses the point.  The maxim is not imperative; there is nothing objectionable in an arbitrator who has connections with one or other party, provided that the connection is not such as would impair his judgement.  In practice, a candidate will err on the side of caution and declare every possible link with any party.

As it happens, that is one of the two Rules of Natural Justice.  The other, often quoted, is audi alterem partem (hear the other side); an imperative this time, but an unworkable one.  Taken literally it would preclude any progress in the face of a recalcitrant party.  What is a practical, logical and, it is submitted, a fair and just way to apply it is to give both parties equal and adequate opportunities to present their cases.

If there is a recalcitrant party, common sense dictates that he should be given notice of every step taken by the arbitrator or arbitrators and should be given copies of any submissions or written evidence from his opponent.  It would be prudent if any notice complied with the requirements for notice in the course of legal proceedings in the jurisdiction of the domicile of the recalcitrant party.

These same requirements inform other aspects of ADR; indeed the second principle probably should inform every aspect of life including family life.  In particular, Dispute Adjudication, about which there has been much discussion in recent years, follows Arbitration closely while remaining markedly informal in method.

A difficulty in any discussion of Adjudication is the fact that it exists in different forms.  One form is found in ad hoc contracts, construction contracts for example.  In some contracts the Adjudication remains in force unless and until superseded by litigation or arbitration.  The purpose is to achieve an interim decision in the course of the contract.  In other contracts the Adjudication can be final or may become final if not challenged within what is usually a restricted period.

In several jurisdictions, the United Kingdom[15] for example, legislation provides for an Adjudication clause to be deemed to be incorporated by law into specified classes of contract.  The present analysis will concentrate on the necessary implications of an agreement to adjudicate.  This article is, after all, on The Commercial Way to Justice.

The dictionary definition of adjudicating is either 1 an adjudging or awarding, a meaning which is said by the OED to be obsolete, or 2 a sitting in judgment, or pronouncing sentence, upon a claim which more closely describes the practice.

We are not discussing adjudication in the sense of the decision of a Judge, a servant of the State; more than a servant, the Judge embodies the power of the State.  The Judge’s role is a different matter altogether, although both the State process and the private processes are intended to lead to a fair outcome.  Essentially, what we are discussing is Adjudication by agreement.

An agreement to determine a difference by adjudication necessarily depends upon the existence of a difference.  It may be an immediately existing difference; it may be a difference arising in the future.  The agreement is between two or more parties that the difference will be put to a third party, an adjudicator who may be one person or a group of people, for their decision.

The adjudicator may be any person the parties may choose, whether directly or through the agency of an appointer.  At the risk of repetition the appointer, in turn, may be any person whether a natural person or corporate body, whom the parties may choose, either directly or in some standard form of contract.  These choices are in principle unrestrained; legislation however, may impose certain restrictions.  The British example[16] provides for a statutory scheme to be imposed if the parties to some kinds of contract[17] do not include provisions for adjudication meeting certain basic requirements.

The provisions of the British Act are worth some discussion, not least because they have been followed, more or less, by several Commonwealth countries.  The words in the Act are:

Adjudication

108 Right to refer disputes to adjudication
(1) A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section.
For this purpose “dispute” includes any difference.
(2) The contract shall—
(a) enable a party to give notice at any time of his intention to refer a dispute to adjudication;
(b) provide a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within 7 days of such notice;
(c) require the adjudicator to reach a decision within 28 days of referral or such longer period as is agreed by the parties after the dispute has been referred;
(d) allow the adjudicator to extend the period of 28 days by up to 14 days, with the consent of the party by whom the dispute was referred;
(e) impose a duty on the adjudicator to act impartially; and
(f) enable the adjudicator to take the initiative in ascertaining the facts and the law.

(3) The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement.
The parties may agree to accept the decision of the adjudicator as finally determining the dispute.
(4) The contract shall also provide that the adjudicator is not liable for anything done or omitted in the discharge or purported discharge of his functions as adjudicator unless the act or omission is in bad faith, and that any employee or agent of the adjudicator is similarly protected from liability.
(5) If the contract does not comply with the requirements of subsections (1) to (4), the adjudication provisions of the Scheme for Construction Contracts apply.
(6) For England and Wales, the Scheme may apply the provisions of the [1996 c.  23.] Arbitration Act 1996 with such adaptations and modifications as appear to the Minister making the scheme to be appropriate.
For Scotland, the Scheme may include provision conferring powers on courts in relation to adjudication and provision relating to the enforcement of the adjudicator’s decision.

The quoted section is just one of a complex piece of legislation.  It is associated with arrangements for payment in construction contracts[18].  It deals with the principle (2) The contract shall .  .  .  (e) impose a duty on the adjudicator to act impartially; and (f) enable the adjudicator to take the initiative in ascertaining the facts and the law and the practice (2) the contract shall.  .  .  (b) provide a timetable .  .  .  (c) require the adjudicator to reach a decision within 28 days .  .  .  (d) allow the adjudicator to extend the period of 28 days .  .  . 

On the face of it, where parties invoke the provision of sub-section 3 that the parties may agree to accept the decision of the adjudicator as finally determining the dispute the outcome would seem to be indistinguishable from an arbitration award.

Is a decision by an adjudicator to be regarded as identical with an arbitral award?  Most lawyers would say it was not, but an application of inductive reasoning suggests that the question deserves further consideration[19].  Different jurisdictions view arbitration through the lenses of their own legislation, but in an international context the tests are set out in the New York Convention (NYC)[20].

The important features of the NYC in the immediate context are to be found in Articles II and V Article II[21] requires States to recognise agreements in writing and broadens the definition to include signed agreements and agreement in an exchange of letters or telegrams whether signed or not (author’s addition).  Article V[22] lists the reasons which may be invoked to refuse enforcement.  The overturning of an arbitral award is a matter for the Court at the seat[23] and is therefore a matter for the law of arbitration at the seat.

Now an agreement to adjudication is likely to be in writing.  If the adjudicator conducts him or herself judiciously, he or she will conform to Article V, whether consciously or not.  The adjudicator will satisfy him or herself that the parties had the necessary legal capacity to make the agreement (V.1a), that his or her appointment was as agreed or in accordance with the appropriate law (V.1d), that proper notice was given and the parties had adequate opportunity to put their cases (V.1b).  The decision will deal only with the matters referred to the adjudicator (V.1c).

A lot is said about arbitral procedure, rather less about adjudication procedure and still less about procedures for expert determination, the third method by which a dispute inter partes may be determined by a third person of their choice.  Of Expert determination it is relevant to note that a prudent expert would do well to observe the criteria of the preceding paragraph when carrying out the task.

Digressing briefly to review what the author suggests would be best practice for determinative expertise, it would certainly allow either for a simple tripartite agreement or for one agreement between the parties and another between the parties and the expert.  The expert would satisfy himself or herself that, at least prima facie, his or her agreement was with parties who had the necessary authority, not least because that would establish a right to be paid.  Similarly, the expert would seek to ascertain that the appointment was legal, although that is often self evident.

The application of the rules of Natural Justice, nemo judex in causa sua debet esse and audi alteram partem is a more contentious question, particularly when the expert’s task is to be principally or entirely one of inspection and opinion.  The expert may be one of very few persons with the necessary knowledge and/or experience and who necessarily would have connections with one or other party.

It is probably true that, absent relevant national legislation[24], an expert may be someone with connections to one of the disputing parties.  In such a case, the knowledge and consent of the other party or parties is important if the expert opinion or decision is not to be vitiated as fraudulently obtained.

As to the second limb, the second principle, it is suggested that an expert would be wise either to hear what each party has to say or to insist that no representations are to be made.  The importance of ensuring that a party’s representations are made in the presence of the other is less intuitively obvious.  What is intuitively obvious, it is suggested, is that the expert would be unwise to act upon information given by one party in secret and on which the other has never had an opportunity to comment.

The expert’s expressed opinion or decision will, in general, be a finding of fact[25].  Whether or not the parties are to accept it, and how they are to act upon it, is a matter for the agreement between them, no concern of the expert[26].

That is a feature of ADR which is often forgotten: the fact that the neutral, expert, adjudicator, and arbitrator or, for that matter, mediator has no interest in what happens after his or her task is at an end.  That is a generalisation, the agreement by which any of those persons are put in place or the relevant legislation may provide for amendment or interpretation.  While in post, of course, the neutral should be interested in the future effect of his or her undertaking; once complete, however, the task is over.  In arbitration law and practice, the term functus officio is used; the principle applies to all tasks of the kind.  The office dies when the appointing agreement has served its purpose.

The position is different with a decision of the Court.  To disobey the Court will often itself be an offence, to be dealt with according to the criminal law.  Non-compliance with the decision of an arbitrator, adjudicator or expert, even with a mediated agreement, is a matter to be dealt with as a breach of contract, a matter of civil law.  The existence of special legislation, especially as in the case of arbitration, providing for expedited enforcement, does not alter the underlying fact that it is always the result of a contract between the parties.

The description “expedited enforcement” does, perhaps, call for explanation.  What is meant is that Courts will enforce an agreement to abide by a decision, provided that it can be proved a) that the decision is made according to the agreement and b) that the decision is one that is permissible in that jurisdiction.

Depending upon the national jurisdiction, the necessary proof will have to be established in an action; the person who made the decision may have to give evidence.  If the decision is contested, there may be a trial more or less ab initio.  In any event, the enforcement of what may be called an innominate decision making process is likely to be a complex matter.  Legislation for arbitration (and for adjudication in some jurisdictions) provides for a kind of presumption in favour of enforcement; enabling it to be expedited within the legal system.

The purpose of this paper has been in part to argue that best practice in contractual adjudication and expertise has, at least in philosophical theory, close similarities with arbitration.  Arguably the distinctions, such as they are, are suggested to be differences of procedural detail.

Earlier in the paper, it was suggested that the differences between parties that fall to be determined, whether in arbitration or by any other means, are in the main differences of fact.  That is not surprising, because ADR is concerned with contentious issues that are justiciable[27] inter partes.  They may be, and are most often, issues arising in connection with some contract between disputing parties.  Even when there is an issue of law, it will generally be of immediate relevance to the factual effects of interpretation.

Less frequently, they may arise in connection with some other relationship, as in the example of a dispute between neighbours.  Typically a dispute as to a tort such as negligence is amenable to ADR, although there may be a question as to who is ones neighbour[28].  Because ADR is voluntary, however, an agreement[29] must be made for it to take place.

To develop one’s understanding of ADR and in particular some idiosyncratic implications of the New York Convention it is necessary to be clear about the distinction between Law and Justice.  Law is the creation of the Nation States and although the general principles are shared, details and their interpretation may vary from State to State[30].

Now, in most jurisdictions, there exists a right to make almost any agreement, provided it is not for a specifically illegal purpose.  That right should be distinguished from the right to enforce that agreement at law, which may be restricted as a matter of policy.  In the United Kingdom for example, as in a great many States, gambling per se is not an offence at but there exists no right to recover a gambling debt[31] at law.

Nevertheless, there exists a regulatory institution, the Jockey Club, which administers a form of arbitration to deal with matters of Horse Racing discipline, including gambling debts, whereby a “welsher[32]” may be “warned off[33]”.  It is a powerful body; warning off may prevent a bookmaker or professional backer from making his livelihood, an extreme sanction.

The point is that the award of an arbitral tribunal (or other ADR actor) is an entity. Even if overturned it remains in existence.  It has a life of its own.

Now, bearing that in mind, consider the position under the NYC Article V.1 Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: (e) The award has . . . been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made (author’s emphasis).

The wording of the article has been much discussed but its plain meaning is essentially logical. Firstly, the burden of proof is upon the losing party. Secondly, and this has been more contentious, the right of the sovereign State where enforcement is sought to form its own view is enshrined in the word “may” which is permissive, rather than the word “shall” which would be imperative.

Notionally, one might suggest that the Court in Country A, the seat of the arbitration, could tear up the written version of the award for it to be gathered up by the winner, pasted together and taken to the Court in Country B for enforcement.  Indeed, that is precisely what has happened in a number of cases, including Chromalloy[34] and Hilmarton[35]

But if one follows the argument that an award is simply the creation of the arbitral tribunal and the joint property of the parties, that is not what has happened.  Nothing has been torn up.  Clearly the Court of Country A has done something, and that something has all the force of the State behind it.  The key, however, lies in the nature of a Sovereign state, which has defined territorial limits.

The traditional way to express this concept is to say that Country A’s writ does not run beyond its borders[36].  The justification for this is that the ultimate power of enforcement is vested in the physical ability of the State, whether it be with armed force or merely by coercion or seizure of goods.  For Country A to use its armed force on the territory of Country B is impermissible; tantamount to an act of war.

Accordingly, when the Court of Country A overrules, sets aside or vacates a purported arbitral decision, it does so for the territory of Country A.  It does not do so for Country B, although its findings will be highly persuasive and, to use the key word of Article V of the New York Convention, may be followed.

The NYC is remarkable for its simplicity.  It doesn’t attempt to define Arbitration unless it be by reference to what it is not.  It is limited to Arbitration which follows an agreement in writing, accepting that there may be Arbitration following an oral agreement, to which the NYC will not apply.  That is not to say that a Court would not enforce the decision, only that it may apply its own standards of proof.

If one considers now a process agreed by the parties, carried out even-handedly and judiciously, with the parties allowed to state their positions and present evidence in one another’s presence so that a final decision can be made, the question that remains is one of whether it is Arbitration by any other name.

Clearly, where the word “Arbitration” is used in the agreement between the parties, whether it be incorporated in a contract for some goods or services or an ad hoc agreement to resolve a dispute, a Court will accept that it is an Arbitration agreement.

Similarly, where the words “Adjudication” or “Expertise” are used, the presumption will be that the Parties intend those processes to be engaged.

While that seems straightforward, it is suggested that there exists a continuum of processes, a spectrum of dispute resolution techniques in which the inherent flexibility of those processes implies that they may overlap and may sometimes be treated in the same legal way.  This proposition, that rather than clearly defined distinct processes there is a spectrum of techniques available for the resolution of disputes was developed in papers of Tom L Beauchamp[37] and Ernan McMullin[38] in the 1980s.

In practice, only where the Award or decision is contested will the local Courts require to examine the process and whether it is an Arbitration or something else.  By local Court is meant the Court in which the contest takes place: it may be in the place where the award is made; it may be in the intended place of execution, usually where lie some assets of the loser.

In the country which is the seat of the process, whatever that process may be[39] the law of the land will prevail.  As this article has pointed out, that means that the law of the land, the law of the seat, will prevail within that country’s boundaries[40].  Outside those boundaries, in another country, if the process is seen to be Arbitration and especially if it has been unequivocally stated to be Arbitration, the NYC will ensure enforcement[41] where it has been adopted[41].

In other places, where the NYC has not been adopted, an Award may none the less be recognised, either directly, or through an action to prove and enforce the arbitration agreement.  The outcome of other processes may also be recognised if it can be proven in an action that whatever the parties contracted for has been done and done according to their agreement.

The issues in commercial arbitration are usually matters of fact.  In the Willem Vis Moot a factual matrix, which remains untested, is the foundation for a number of legal and quasi-legal issues (usually three or four of consequence, including a jurisdiction issue with little chance of success).  In this crucible of legal training (there are few if any commerçants or technicians except occasionally among the volunteer arbitrators) the Vienna Convention on the International Sale of Goods is studied in depth, because that is the principle raison d’être of the Moot which has been so superbly led by Professor Eric Bergsten through the years, first in Vienna and now also in Hong Kong.

I suggest that the words of Viscount Reading in Lanza and Weiner apply to the fundamental position regardless of the legal system so that, unless the power is either conferred by Statute or by agreement between the parties, purported orders for security are null and void. A danger could be that a tribunal that refused to proceed without security for the respondent’s costs (as opposed to it’s own fees and expenses) could be in breach of it’s duty.

Per Viscount Reading:

“The arbitrator doubted whether he had the power to make the order; and we are told in fact he thought he had not the power. In my judgment he was right and there is no such power in an arbitrator. He could have been given the power by express agreement between the parties, but it is not suggested that there was any agreement to that effect.

. . . . The dispute obviously can be determined whether security for costs be given or not. The object of the application for security for costs is not to enable the proceedings to continue in order that it may be determined by the reference whether there is a valid claim by the party in the position of a plaintiff, but to put an obstacle in the way of his proceeding until he has done an act which will provide security to the party in the position of the defendant that, should he obtain an order for costs, the amount will be paid. That has nothing whatever to do with the arbitrator ascertaining the true position between the parties in order to determine the case.”

There is an interesting article entitled Can You Seek Security for Costs in International Arbitration in Australia? by Simon Greenberg, Associate in the International Arbitration Department of Dechert LLP, Paris and Christopher Kee Lecturer, Deakin University, Melbourne and Consultant, Keelins Lawyers, Melbourne.(Australian Construction Law Newsletter #109 July/August 2006, accessed at http://www.austlii.edu.au/au/journals/AUConstrLawNlr/2006/57.pdfhttp://www.austlii.edu.au/au/journals/AUConstrLawNlr/2006/57.pdf on Monday 12 July 2010 It is relevant beyond both Construction and Australia.

Geoffrey M. Beresford Hartwell, A Chartered Engineer
Reproduced with permission from The Journal of International Arbitration, Vol. 17 No. 2, April 2000, published by Kluwer Law International.

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Derogation: 1. The partial abrogation or repeal of a law, etc. 1548. 2. Impairment of the power or authority of; detraction from 1450. 3. Lowering in value or estimation; disparagement, depreciation 1520. 4. Faliing-off in character or excellence; loss of rank 1898 – The Shorter Oxford English Dictionary 1972.

The learned and distinguished authority on Arbitration Law, Arthur Marriott QC, has said, in an address to the ICC Institute of Business Law and Practice, given on the celebration day for Michel Gaudet in 1998, and published in “Improving International Arbitration” (Benjamin G. Davies ed., ICC Publishing S.A., Paris, 1998) and more recently in the millennium edition of Arbitration, the journal of the London-based Chartered Institute of Arbitrators, that arbitration is a derogation of the Sovereign Power. It is an echo of the principle “Lex facit Arbitrum”, propounded by Professor Mann many years ago, and superficially attractive, but it will not do.

It is an understandable view, characteristic of lawyers whose background and thinking is defined within a national legal system. The concept of rights generally being in derogation of the Sovereign Power comes about because, in much legal thinking, personal rights are not the inalienable property of mankind, but only awarded by state systems of law. One could paraphrase the general view as being that the people exist for the law, rather than the law for the people. Our rights, our physical liberty and our very lives are held on sufferance. Indeed there have been, and still are, states where that is practically and very tragically true, but there is no moral principle, no principle of Natural Law, to justify the conduct of such states and the International Community does right to disapprove of them.

Of course, if that view of human rights were correct, then all human endeavour could be described as a derogation, to some degree or another, of the Sovereign Power. It is my argument, however, that such an approach is anathema to the thinking of free peoples.

I ought perhaps develop that argument. For a basis of the thinking of free peoples, I can do little better than to extract a part of the preamble to The Unanimous Declaration of the Thirteen United States of America, adopted in Congress on 4 July 1776, a date which I believe still to be celebrated in that country.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed.

That was not, I suggest, a finding, a development of principle from a basic belief. The use of the word “hold” demonstrates that it was itself, to those who drafted the Declaration, a statement of basic belief, an essential tenet, axiomatic for what followed. It was in direct contrast to the assumptions of Sovereign Power current at the time, themselves arguably modified from the idea of the divine right of kings, rooted in the concept that a state has some justification of its own, independent of and superior to the rights of the governed. The source, indeed, of such rights as the governed may have.

What the American Founding Fathers believed was that the state’s power, far from existing in its own right, was itself a derogation of the rights of the individual. The wording of the second statement of the Preamble supports that view. The just powers of a government, and no others, are derived from the consent of the governed. Semble, it has to be accepted that a government may arrogate to itself other powers, without the consent of the governed, but the preamble does not assert their legitimacy and does not assign to them the qualifier “just”.

Among the freedoms which arguably are implicit in the general structure of the preamble are freedom to communicate and, in doing so, to make promises. Systems of law, in general, recognise those freedoms and go further. Where promises involve commitments, or obligations, to another party, systems of law generally will recognise those commitments and, to protect the peace, will stand in where necessary, to enforce the rights and obligations made.

I say that systems of law generally will recognise those obligations because the recognition is not unrestricted. Certain classes of obligation, such as some of those which may arise within family arrangements, are so personal as to make it inappropriate for outsiders to enforce them; certain classes of obligation are so intangible or so trivial that the intervention of the legal system is absurd (de minimis non curat lex); certain classes of obligation are offensive to the state itself, so that they are either made illegal or merely ignored so that the state will not lend itself to their enforcement. The latter classes of obligation form a group, the group of illegal contracts, whose treatment is complex and where rules of law may vary, sometimes widely, between state jurisdictions. The whole matter of illegal contracts is one which makes for difficulties in the context of arbitration, and that is one reason why any question as to the nature of arbitration is not merely one of intellectual theorising but one of real practical importance.

Now, the essence of what I have written so far, from the Declaration of Independence to the above paragraph on the exceptions to the general principles of the freedom of contract, is that, far from being a derogation of the Sovereign Power, freedom of contract is a natural component of the general freedom of the individual. Insofar as it may be limited by the state, that is only because the state has extended its power to encompass specific aspects of contract, not that contract is itself a derogation from some wide and all-embracing power.

There is a note of caution to be introduced here. Much modern trading is conducted by entities whose existence is a product of law, a legal fiction if you will. There is a sense in which a corporation may be regarded as a legal person. The term is often used. Then it may be said that the legal person is given, by law, a restricted set of the rights attributable to natural persons and may be subject, again by law, to additional duties. That may open other questions, but I do not think that it need detract from my general argument about the nature of arbitration.

My thesis, and it is not new, is that arbitration is the product of an agreement between parties. That agreement is no derogation from the Sovereign Power, because it is an agreement which individuals have the freedom to make. Arbitration legislation does not confer the right to make such agreements or the duty to abide by them, nor does it confer on the person chosen the right to act as the parties to the agreement intend. That right is a right of the parties themselves, conferred voluntarily upon a person of their choice. Legislation does not create the arbitral process, but it may regulate it within the appropriate jurisdiction.

There is a corollary to this argument, and it has some practical implications. If the arbitral process is not a surrogate for the state, then it follows that arbitration, whether at the national or the international level, cannot resolve every issue, particularly where there is an element of public interest. It is of the nature of arbitration that the tribunal is created, directly or indirectly, by the choice of the parties. That means that an arbitrator well may be a jurist from a jurisdiction other than the seat of the arbitration and, indeed, may not be a jurist at all. There is a long tradition of arbitration, mercantile arbitration, in which the role of the arbitrator is given to an expert or to an experienced colleague of the disputants.

In an international arbitration, it is also likely that several systems of law will have links with the process. The proper law of the dispute itself, of the contract perhaps, may well differ from the law of the seat of arbitration, which differs from the law at the place where exequatur may be sought for any award and in turn differs from the law of the domicile of the two parties. (Domicile may have a relevance to a party’s legal capacity.) All that is well known, of course. The point here, however, is that, if arbitration is not a process of the state, then it cannot be taken for granted that the tribunal, however learned, will have detailed knowledge of the national laws that may relate to the arbitration.

That is why, for example, the procedural rules of state courts(1) do not apply to arbitral proceedings. Only mandatory rules of law, and those common rules which are necessarily implicit in the agreement to arbitrate, such as the requirement of fairness and Natural Justice, will govern the proceedings. Of course it is open to a state to create mandatory rules of law for arbitration within the jurisdiction of that state. Arbitral practitioners know of these, generally speaking, because they are embodied in specific codes or in legislation.

It is also why care needs to be taken with matters of so-called public policy. A state court may be deemed to know what is the public policy of the state of which it is a part. That is a part of judicial knowledge. Such judicial knowledge cannot be attributed to an arbitral tribunal, for the reasons I have suggested. It may not be composed of jurists and, even if it is so composed, they may not be of the appropriate national background. Nevertheless, public policy may be significant, and there has grown a distinction between the public policy of individual states and a more general idea of international public policy, a kind of common sense and commonly accepted view of what is right. Now is not the time to discuss that distinction, but I suggest that, if my premiss is correct, an arbitral tribunal reasonably could be expected to have a view about the latter, more general, set of principles, but not about the more detailed policy of a specific nation.

Three examples might be given. One is the question which arises where the parties have not canvassed, before the tribunal, a point of competition law(2). The competition law may be effective in the domicile of one party and not the other; it may be effective as part of the proper law of the contract; it may not. For the reasons I have suggested, the tribunal may or may not be aware of the point; they cannot be assumed to be so. What is to be done if the parties’ neglect of the point was inadvertent? What if it was intentional? Should the tribunal investigate and invite the parties to comment upon their findings?

A second interesting example is found in those notorious cases where the Award of a tribunal has been set aside in the place where it is made, but nevertheless enforced in another jurisdiction(3). The New York Convention of 1958 recognised the possibility of such a development(4). If the process were in fact a derogation from the Sovereign Power, then setting aside or nullity, from a state court of competent jurisdiction, would have the effect that the Award simply would cease to exist, so that there would be nothing for the foreign court to consider. The structure of the Convention, in my submission, is powerful evidence that the arbitral process must be something else, something sui generis, and not a derogation of the Sovereign Power.

The third example concerns the practice of arbitration itself, and perhaps other areas of Independent or Alternative Dispute Resolution. There has been a move in recent years to control dispute resolution by asserting that the conduct of proceedings and the representation of disputing parties in ADR is the practice of law, to be regulated by the Bar in some jurisdictions and directly by the court in some others. That seems to be based on the principle that such activities are in some way extensions of the legal system. It is one reason, perhaps, for making the assertion that ADR involves a derogation of the Sovereign Power and is derived from the state. Sometimes described as “protecting the lawyer’s turf”, it is arguably more akin to the seizure of territory belonging properly to others.

There is no doubt that the analytical, investigative and presentational skills of the experienced lawyer are invaluable in arbitration as elsewhere, but the drive to exclusivity may lead to mistrust and, if my thesis is right, then there is no theoretical or philosophical basis for it. Commercial ADR is a field upon which lawyer, business man and scientist meet on equal terms, to the benefit of all. I argue that there are sound reasons for that, and that it should remain so(5).

There are other practical implications to be developed, but the prime purpose of this paper is to set out the argument for the uniqueness of the arbitral process as something to be distinguished from the processes of state systems of law.

Of course, there is a derogation of the power of the state in certain respects. Voluntarily to accept the principle that a court should stay an action where an arbitration agreement has been made is an acceptance, by the state, of a limitation of its jurisdiction. It is required of signatories to the New York Convention of 1958. Voluntarily to accept that an arbitral Award may be made effective through the state’s own mechanisms, as if it were a judgement, is clearly a concession by the state, perhaps in recognition of the paramountcy of the agreement, perhaps as a matter of judicial efficiency. The practical assistance of the court is partially a recognition of the contractual nature of the process and partly an additional support of what is thought to be a laudable enterprise, but it is here that the distinction, between the twin concepts of arbitration as a creature of freedom of contract and arbitration as an extension of the legal system, starts to blur. To the lawyer, all decision making is the prerogative of the court, so another decision maker must be some kind of subordinate tribunal and its very existence a derogation of the Sovereign Power. That, I suggest, is a basis for misapprehension.

Ironically, it is in enlightened states, with modern statutes, giving a high degree of recognition and cooperation, that the distinction between arbitration tribunal and court becomes most obscured. To put the whole scene in perspective, it is instructive to contemplate a notional state in which there is no arbitration statute, but respect for the ordinary common law (or, in deference to my friends and colleagues in civil law jurisdictions, basic constitutional principles and commercial practice).

In such a state, the parties would be free to arbitrate, because that is a matter of contract. The arbitrator would be free to act, because there would be no reason to prevent it. Arguably, witnesses could not be examined on oath; that is a specific power, given in England and Wales for example, by successive arbitration statutes, but prohibited generally by other legislation (the Oaths Act). (In some other jurisdictions, witnesses are not examined on oath at all.) The Award would be made, the parties would have agreed to abide by it, so it would be enforceable as a product of their contract, if properly evidenced, subject to the arbitration having been what they reasonably could have contemplated in their agreement. A perfectly simple arbitration regime, broadly satisfactory, albeit without the valuable trimmings which legislation has provided. Moreover, if the state had adopted the New York Convention, the recognition would have been available for foreign awards and the court would not have been able to proceed with an action in the face of an arbitration agreement.

I venture to suggest that, in the absence of legislation, arbitration would have developed in a very different way, both internationally and nationally, and we would not be faced, as we now are, with the criticism that arbitration is not conducted in the way commercial men are entitled to expect. It is tempting to think that, without the detailed legislation of modern times, arbitration generally would have become a more efficient and simple process for commercial decision making, but that can only be conjecture.

Very interesting in this regard is the historical situation in Italy, where it has been recognised for years that arbitration may have two purposes, one seen in Arbitrio Rituale, a form of litigation in the private sector, a private variant of the court, more or less directly enforceable, subject to the registration of the Award, and the other in Arbitrio Irrituale, a form of commercial arbitration, which may go so far as rectifying contracts to take account of changed circumstances or to correct lacunae, whose Award, if not observed, has to be enforced as a matter of contract like any other, in the court(6). What the supporters of the derogation theory risk, I suggest, is that all arbitration may be seen as Rituale, a likelihood that already may seem all too familiar to many practitioners.

There is another way of looking at the same point. The courts of a state are not seized of a private question until the parties bring it before them. I distinguish and set on one side two matters, one the interest of the state in transactions that may attract taxation, the other transactions that may be illegal in themselves. Those are special cases. I wish to discuss, more generally, questions which may give rise to issues justiciable inter-partes.

If the private question is not in difference between the parties, there is no issue and thus nothing for the courts to consider. The Sovereign Power has no role. An “issue” necessarily is something that “issues” or “comes out”. How may it have come about that the question is not in difference between the parties? There are several possible answers to that, but three choices seem fairly evident at first sight: first that the question never became in difference, secondly that there was a difference but the parties resolved it by themselves, thirdly that there was a difference, but the parties resolved it privately with the assistance of a third party. I suggest that, however it came about, there is no issue, no justiciable issue, from any of those sets of circumstances. What might have been a justiciable issue is not, and the Sovereign Power is not invoked. Unless one argues that the right to discuss and agree a point is itself a derogation of the Sovereign Power, there has been no need for derogation.

For completeness, I say again that, when the parties have agreed something and one or the other does not honour his agreement, whether it be an oral agreement, a written agreement following a negotiation, or an arbitral award created by a third party pursuant to a private arrangement, the aggrieved party may well turn to the state for support. Then the state is free to say whether or not it will enforce the results of the agreement and, of course, it may do so on its own terms.

The state has perfect freedom to do as it pleases. The court may accept to become seized of the matter; it may not. The court may act justly; it may not. It will, however, act legally, because that is necessarily what a court does, but acting legally means only acting on its own terms(7). The court may enforce the agreement or it may make conditions for doing so; that is the effect of legislation and other sources of law. The well-known requirements for the conduct of arbitration, for example, are conditions of the kind. If they are not met, the result may not be enforced. The point is that, in general the court functions as an arm of the state. Indeed, the court personifies the Sovereign Power and necessarily it acts in accordance with political expediency, albeit often at one remove.

That is why I argue that the Sovereign Power is invoked only when a question becomes a justiciable issue. In private arbitration, an otherwise justiciable issue may be resolved between the parties by the aid or intervention of a third party, before it comes outside their relationship to become publicly justiciable. That issue falls into the realm of the court if, and only if, first, the parties do not comply with their bargain and, secondly, one elects or both elect to bring it to the court.

Nothing in what I have said seeks to suggest any limit to the authority of a court to control an arbitral process within its jurisdiction and where the appropriate Law specifically so provides. Nor does the principle I have set out seek to restrict in any way the authority of a court to recognise or not to recognise an arbitral award, or to provide or not to provide assistance to arbitration if it pleases. What I do argue, however, is that the powers of the court are a construct of positive law and not inherent in the arbitral process itself.

I hope I have established, at least in outline, why I feel, with the very greatest respect, that distinguished and erudite though the proponents of the derogation theory of arbitration may be, their theory is outmoded and a threat to the understanding and development of the arbitral process, particularly in the international field. The totalitarian concept of the Sovereign Power and of human endeavour as in derogation of that power is one shared by the extremes of the political spectrum; it may be tempting to those who seek certainty in life, but it is dangerous and, I suggest, inimical to the arbitral goal of justice.

That publication by the ICC, “Improving International Arbitration”, was subtitled the need for speed and trust. For much of the world, the state is associated with uncertainty, political influence and fear. If there is to be a system of justice in the commercial world, it must not be a derogation of any Sovereign Power, it must have its own claim to independence and the justice that follows.

Notes:

1. In this article, the word “court” is used exclusively, to mean courts which derive their authority from a state or states, either directly or indirectly as a consequence of treaties and the like. I do not include bodies such as the Arbitration Court of the ICC or the LCIA, whose use of the word is somewhat misleading.
2. As, for example in Eco Swiss China Time Ltd. v. Benetton International NV, (1999) European Court of Justice No. C-126/97.
3. Such as Société Hilmarton v. Société OTV, 1994 Rev. de l’Arbitrage 327 (Cour de Cassation 1994) or Chromalloy – In the Matter of the Arbitration of Certain Controversies between Chromalloy AeroServices and The Arab Republic of Egypt (1996) Civ. No. 94-2339 , U.S. District Court for the District of Columbia, 11 Int’l Arb. Rep. C-54 (August 1996).The matter of Hilmarton is remarkable, both for the different outcome in France and in England and for the comparison between the English case and  Soleimany -v- Soleimany, also an English case.The circumstances in the two matters had an essential similarity: in each there was a contract which involved illegality in the place at which the contract was to be carried out. Put very simply, in Hilmarton, the Algerian Law forbade payment of certain classes of commission; in Soleimanythe Iranian Law forbade the export of carpets without licence.In Hilmarton, there were two consecutive arbitrations in Switzerland. In the first, the arbitral tribunal refused to award an amount in respect of commission, basing its decision on the law of Algeria, the place of performance. That decision, the first decision, was vacated by the Court in Switzerland, but recognised in France. A second Swiss tribunal, however, decided against the Algerian law and awarded a sum which was later recognised by the Court in England. Thus the English Court decided against allowing the law in the place of performance to determine.

   In Soleimany, there was one arbitration, under Jewish Law (by agreement), before a tribunal of the Beth Din in London. The Dayan (arbitrator) decided that the Iranian Law did not determine the matter and awarded a sum (a share of the profits of sale of the carpets). In that case, however, the Court refused to recognise the award and vacated it, effectively on the basis that it contravened the law of Iran. Thus, in that case, the English Court decided in favour of allowing the law in the place of performance to determine.

   

4. Article V (1): Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that: . . . . (e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. Note that this is a discretionary power – . . . may be refused.
   
   
5. The English legislature appears to have moved to counter this trend by statute. The Arbitration Act 1996 provides (S.36) that unless otherwise agreed by the parties, a party to arbitral proceedings may be represented in the proceedings by a lawyer or other person chosen by him.
6. Some commentators argue that the distinction here described may become progressively less significant in the climate following the introduction of Law #25 of 5 January 1994, a law which modifies aspects of the code of civil procedure and has added an entire new chapter relating to international arbitration (articles 832-838).
7. Cf. Oliver Wendell Holmes Jnr: The prophecies of what the courts will do in practice, and nothing more pretentious, are what I mean by the Law. and, of course: This is a Court of Law, young man, not a Court of Justice, a distinction never to be forgottten by those who seek the latter.