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Court intervention in arbitral proceedings in countries adopting the uncitral model law on international… Biukovic, Ljiljana 2000

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COURT INTERVENTION IN ARBITRAL PROCEEDINGS IN COUNTRIES ADOPTING THE UNCITRAL MODEL LAW ON INTERNATIONAL COMMERCIAL ARBITRATION: AN IMPACT OF LEGAL CULTURE ON RECEPTION (CASE STUDIES OF CANADA HONG KONG AND RUSSIA) by LJILJANABIUKOVIC B.C.L., University of Belgrade, 1986 LL.M., Central European University, Budapest College, 1995 LL.M. University of British Columbia, 1995 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY in THE FACULTY OF GRADUATE STUDIES (Faculty of Law) We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA October 1999 © Ljiljana Biukovic, 1999 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Department of L A W The University of British Columbia Vancouver, Canada Date Z£ ( O o i r c w k ^ DE-6 (2/88) A B S T R A C T This thesis explores problems regarding the reception the UNCITRAL Model Law on International Commercial Arbitration (ML) in Canada, Hong Kong and Russia. Focusing on the relationship between national courts and arbitrators, it argues that the M L fosters gradual harmonization of law on international arbitration, while accommodating the particular needs of the legal cultures and traditions of Canada, Hong Kong and Russia. The importance of this study derives from the fact that the experience of these three countries has been, and it still is, a guide for a number of other countries considering the adoption of the M L and modification of their arbitration laws. First, the thesis explores the implementation of the M L at the national level, in each of the countries of adoption in order determine, the legal changes, i f any, brought about by the adoption. The hypothesis is that legal borrowing can lead to different results in countries with different legal traditions, different levels of economic development and different political structures. At this level the analysis focuses on statutory frameworks and judicial practice in these countries. Second, the thesis compares the results from the study at the national level in order to explore the ways in which the same pattern (that is, the ML) has been modified to reflect the socio-economic environment and principles of old systems, and to determine changes to the original model. The hypothesis is that arbitral tribunals are promoters of a new "internationalized" legal culture and that national judges and courts, in comparison, are more likely to reflect local or national legal cultures. The thesis concludes that variations in the application and interpretation of the M L in the three countries does not mean that the M L cannot bring about the harmonization of laws. However, the M L is not a transplantation or duplication of foreign law, but a project of reception. In that way, the M L serves as a basis for creativity, rather than representing the imposition of a new, and perhaps, inappropriate; legal culture. i i TABLE OF CONTENTS Abstract " Table of Contents .V... . . . . . . : . ' . iii Acknowledgements vii CHAPTER ONE INTRODUCTION 1 A. Scholarly Context 7 B. Conceptual Framework , ; .' 17 C. The Structure of the Thesis 21 D. Methodology 22 E. Value of the Research 25 CHAPTER TWO: UNCITRAL Model Law 28 A. Background 28 B. Legislative History of the ML 39 C. The Basic Principles of the ML 47 1. Party Autonomy : 48 2. Limited Court Intervention 54 (i) Court Intervention Outside Article 5 58 (ii) Public Policy Issue .......... 59 3. Independence of Arbitral Tribunal 63 (i) The Right of Arbitrators to Rule on Their Jurisdiction ....64 - Severability of Arbitration Clause 65 - The Kompetenz-Kompetenz Principle 67 (ii) The Right of Arbitrators to Provide Interim Measures ...71 (iii) The Right of Arbitrators to Appoint Experts 73 4. Procedural Fairness 73 D. Basic Paradox: Importance of Court Assistance 75 E. Conclusion: What is so Special About the ML? 80 CHAPTER THREE: A Case Study Begins 90 A. Canada Before Adoption of the ML 90 1. Arbitration in Common Law Provinces 92 1.1. Judicial Control of Arbitration Before 1979 97 (i) Arbitrability 98 (ii) Stay of Courts Proceedings: Discretion of Judges 102 (iii) Special Case Procedure 106 (iv) Misconduct and Error in Law 108 (v) Enforcement of Arbitral Awards 109 1.2. Judicial Control From 1979 to 1985 114 (i) English Case Law 115 (ii) Canada Reluctant to Accept English Modifications 117 2. Arbitration in Quebec 119 (i) Impact of French Law and Practice 121 (ii) Changes After Zodiak 123 (iii) Arbitrability and Public Order 125 (iv) Stay of Courts Proceedings 127 (v) Kompetenz-Kompetenz and Severability 129 (vi) Enforcement of Arbitral Awards 131 B. Arbitration in Hong Kong Before the Adoption of the ML 133 1. Common Law Dominance in the Chinese Environment 133 (i) Direct Application of English Law on Arbitration 137 (ii) Important Decisions of Hong Kong High Court 140 2. 1982: The New Era Begins 142 (i) Wharf Proprieties: Impact of Hong Kong Case Law 146 (ii) Nema Guidance Applied in Hong Kong 147 (iii) Enforcement of Arbitral Awards 150 (iv) Hong Kong International Arbitration Centre 153 C. Arbitration in Russia and Soviet Union 154 1. Pre-Soviet Period: Early Days 155 2. Soviet Period: Arbitrazh Courts v. Arbitration 160 (i) State Arbitration or Arbitrazh Courts 164 (ii) Treteiskii sud or Courts of Conciliation 166 (iii) International Commercial Arbitration 168 3. Post-Soviet Period: End of Socialist Era 173 iv D. Conclusion 182 CHAPTER FOUR: Reading Between the Lines at the Law-Making Level 185 A. The Canadian Experiment 185 1. Modifications and Additions to the ML 192 2. The Basic Principles of the ML 196 3. The Establishment of Arbitration Centres in Canada 201 B. Hong Kong Brings the ML to Asia 205 1. The Growth of the HKIAC from 1989 to 1997 206 (i) Modifications and Additions to the ML 207 (ii) The Basic Principles 215 (iii) HKIAC ... 216 2. Transition Period (1997-2047) 217 (i) Modifications of the ML 218 (ii) The Basic Principles 223 C. Russian Move Towards Modern Arbitration Centre 224 1. Modification and Additions to the ML 225 (i) Scope of Application 227 (ii) Supremacy of International Law 231 (iii) Ad hoc and Institutional Arbitration 233 (iv) Appointment of Arbitrators 235 (v) Substantive Law of a Dispute 242 (vi) Recognition and Enforcement of Arbitral Awards 244 2. The Basic Principles 249 3. Arbitration Courts in Moscow and St. Petersburg 255 D. Conclusion 256 CHAPTER FIVE: Court Decisions on the M L 259 A. Introduction 259 B. Canada: The First Adoption of the ML..:.. 264 1. In the Beginning.!.!...!::.'. 265 (i) Importance of the Intention of the Parties to Arbitrate..266 (ii) Lack of Domestic Practice 270 (iii) Maritime Disputes as Tests for the ML 273 (iv) The Seminal Case: Quintette 276 2. The Coming of Age of the ML 279 (i) What is a "Commercial" Transaction? 280 (ii) The Broad Meaning of the term "Agreement in Writing" '. 282 (iii) Resolved Dilemma: No Residual Court Jurisdiction... 284 (v) Courts Involvement and Interim Measures 290 (vi) Enforcement of Foreign Arbitral Awards 303 3. Conclusion 308 C. HK Search for Adequate Dispute Resolution Mechanisms 310 1. Courts and Initiators of Legislative Changes 311 (i) Broad Definition of the term "International" 312 (ii) "Agreement in Writing" 314 (iii) Interim Measures and Kompetenz-Kompetenz 319 (iv) Enforcement of Foreign Awards 322 2. Perils to Hong Kong Legislative and Judicial Independence 323 (i) The Heibei Case 325 (ii) The Ng Case: The Heibei Guidance Revised 327 3. Conclusion 328 D. Russian Style Market Economy Conclusion : 330 J. New Law v. OldCulture.'.'.*. 331 (i) Denial of Tribunal's Jurisdiction 331 (ii) Public Policy Arguments Invoked by Parties 334 2. Rule of Law and Problems with Infrastructure in Russia 335 (i) Enforcement of Foreign Awards in Practice 336 (ii) Aerostar and the New York Convention 338 3. Conclusion 339 E. Conclusions 340 CHAPTER SIX: Conclusions I,!..,.... 345 BIBLIOGRAPHY 353 International Materials 374 National Statutes 376 Table of Cases 380 A C K N O W L E D G E M E N T There have been numerous people and institutions that have greatly assisted me in my graduate studies. To begin with, I am greatly indebted to the Soros Foundation for the opportunity to pursue graduate studies outside my home country and Professor Tibor Varady of the Central European University for teaching me the basics of international commercial arbitration. Then, I would like to thank the Faculty of Law of the University of British Columbia for providing me with a University Graduate Fellowship. I am extremely grateful to my supervisor Professor Robert K. Paterson for his excellent supervision, encouragement and patience to corriment'on numerous drafts and papers. My thanks must also go to my second and third supervisors, Professor Pitman B. Potter and Mr. Henri C. Alvarez, who devoted much of their expertise and time to this thesis. In addition, I am grateful for guidance and comments of Professor Claire Cutler, Univeristy of Victoria, who was my fourth supervisor. I wish to thank Lillian Ong, Frances Wong, Joanne Chung, Mary Mitchell and Sandra Wilkins for helping me finding my way through the graduate program and the Law Library. I am gratefully indebted to Rebecca Brown, Down Mills, Obiora Okafor and Obiora Aginam, my colleagues from the Faculty of Law, U B C for their friendship over the past four years. Above all, I thank my mother, father and sister in Belgrade, an my husband Goran and son Philip for believing in me. This thesis is dedicated to them. vii C H A P T E R O N E : I N T R O D U C T I O N Arbitration is an optional private process for settling international commercial disputes often favoured by parties reluctant to litigate in national courts. It is a "creation" of the parties to a dispute.' Since arbitration can only function within the framework of a particular legal system, the law on international commercial arbitration first emerged as a patchwork of diverse national laws on arbitration. The growth of international trade, the increasing complexity of international transactions and the disappointment with the regulation of international trade by these various national laws fostered a climate conducive to unification and harmonization of these laws under the auspices of various international organisations, including the United Nations. On 17 December 1966 the United Nations established the Commission on International Trade Law [hereinafter UNCITRAL] . 2 UNCITRAL is a body of world experts which has as its main purpose the progressive harmonization and unification of the national laws governing international trade. Its approach to harmonization has been to rely on model laws rather than on 1 T. Varady, "On the Sources of Relevant Norms" in T. Varady, ed., International Commercial Arbitration: Course Materials (Budapest: Central European University, 1993) at 49. 2 Resolution 2205/21 (17 December 1966). For a comment on birth and goals of UNCITRAL see the opening addresses of Professors Laszlo Reczei and John O. Honnold and of Aron Broches in Proceedings of the Congress of the UNCITRAL held in New York, 18-22 May 1992. See UNCITRAL, Uniform Commercial Law in the Twenty-First Century: Proceedings of the Congress of the United Nations Commission on International Trade Law (New York: United Nations, 1995) 5-13. international conventions.' Briefly, model laws are flexible and informal proposals drafted by experts for the use of national legislators. Model laws may be initiated by national bodies, by international intergovernmental or non-governmental organisations or by specialist agencies. Unlike international conventions, internationally drafted model laws do not have the force of international law. There is no need for a formal diplomatic conference to adopt model laws or to amend them. There is no obligation for states to ratify and enforce such drafts in their territories. More importantly, model laws may be adopted in their entirety, or in part, or they may simply be taken as general ideas from which to create national laws. In other words, only when they are adopted at a national level (or by departmental governments in a federal state) do model laws acquire the force of law. The UNCITRAL Model Law on International Commercial Arbitration [hereinafter the ML] was adopted in 1985.4 It was drafted by a Working Group of UNCITRAL consisting of world experts in the field of international commercial -1 Model laws had been used by various international organisations at least three decades before U N C I T R A L drafted its first model law in 1985. For example, in 1951 Red Cross International Committee drafted a model law for the protection of the Red Cross emblem and title. Yet, it is important to notice that previously drafted model laws were legislative directions for developing countries. In 1965 the United International Bureaux for the Protection of Intellectual Property drafted a model law for developing countries on inventions. The same agency proposed in 1967 a model law for developing countries on marks, trade names and acts of unfair competitions. The World Intellectual Property Organisation drafted two model laws for developing countries. In 1970 it prepared a model law on industrial design and in 1975 on appellations of origin and indications of source. . • • 4 UNCITRAL Model Law on International Commercial Arbitration was adopted on 21 June 1985 by the General Assembly Resolution A/40/17, 40 GAOR Supp. No. 53. A/40/53. Resolution 40/72 (11 December 1985). 2 arbitration on the initiative of the Asian-African Legal Consultative Committee [hereinafter the A A L C C ] . The policy objectives of the M L are as follows: "[a] the liberalisation of international commercial arbitration by limiting the role of national courts, and by giving effect to the doctrine of the 'autonomy of the wi l l ' , allowing the parties freedom to choose how their disputes should be determined; [b] the establishment of a certain defined core of mandatory provisions to ensure fairness and due process; [c] the provision of a framework for the conduct of international commercial arbitration, so that in the event of the parties being unable to agree on procedural matters, the arbitration 'would nevertheless be capable of being completed; and [d] the establishment of other provisions to aid the enforceability of awards and to clarify certain controversial practical issues."3 The General Assembly of the United Nations pointed out in 1985 that legal uniformity governing arbitral procedures was desirable and recommended that "all States give due consideration to the UNCITRAL Model Law on International Commercial Arbitration."6 At the time of completion of this dissertation, over 30 states had enacted legislation based on the M L . 7 5 See UN Doc. A / C N . 9/207 (14 May 1981) paragraphs 16-17 cited in A. Redfern & M . Hunter, Law and Practice of International Commercial Arbitration (London: Sweet & Maxwell, 1994) at 509. h Resolution 40/72 (1 1 December 1985). 7 Australia, Bahrain, Bermuda, Bulgaria, Canada, Cyprus, Egypt, Germany, Guatemala, Hong Kong (Special Administrative Region), Hungary, India, Islamic Republic of Iran, Ireland, Kenya, Lithuania, Malta, Mexico, New Zealand, Nigeria, Oman, Peru, Russian Federation, Singapore, Sri Lanka, Tunisia, Ukraine, within the United kingdom of Great Britain and Northern Ireland: Scotland; within the United States of America: California, Connecticut, Oregon and Texas; and Zimbabwe are listed by the International Trade Law Branch of the United Nations Office of Legal Affairs, in Status of Conventions and Model Laws, last updated on 18 May 1999, at 14. Also available online: UN homepage <http://w\vw.uncitral.oru/en-index.htm>, (data accessed 23 July 1999). But, note that Pieter Sanders lists additional US states: Florida, Georgia, North Carolina and Ohio. See P. Based on the number of countries' which have adopted the M L , one can conclude that it is the most successful of the several UNCITRAL model laws.8 However, the extent to which progressive harmonization of laws based on it has been achieved is yet to be evaluated. This thesis proposes one of the possible methods for such an evaluation— investigation of the reception of the M L in Canada, Hong fCong and Russia9 and the impact which the M L made on the local legal cultures in these three countries. This thesis focuses, on one hand, on the nature ,of changes that have occurred in national laws after the adoption of the M L and, on the other hand, on those changes made to the M L itself upon its adoption by the various countries. The thesis takes the view that the most important issue concerning the M L is the relationship between national courts and Sanders, "Unity and Diversity in the Adoption of the Model Law" (1995) 11 Arb. Int'l 1 at 3. U l f Franke, the Head of the Arbitration Institute of Stockholm, said that the law adopting the M L is Sweden is scheduled to take effect on 1 April 1999. See J. Lindroth, "Sweden Prepares Arbitration Law," 77ze National Law Journal (14 December 1998) A l l . ,s Other UNCITRAL model laws are the 1987 model law on international credit transfer (re-drafted in 1992 and used as a model for the EU Directive on credit transfer), the 1993 model law on the procurement of goods, construction and services (adopted by Albania, Kyrguzstan, Poland and Slovakia), the 1996 model law on electronic commerce (adopted by the Republic of Korea, Singapore and Illinois) and the 1997 model law on cross border insolvency. See the report of the International Trade Law Branch of the United Nations Office of Legal Affairs, Status of Conventions and Model Laws, last updated on 18 May 1999 at 14-15. Also available online: U N homepage <http://www.uncitra 1.org/en-index.hi:m> (data accessed 23 July 1999). 9 The Parliament of Canada adopted the M L in 17 June 1986 (Commercial Arbitration Act), which came into force on 10 August-1986; R. S.C. 1985, c. 17 (2m l Supp.). Hong ICong adopted the M L in 1989 but it came into effect in 1990 as the Arbitration Ordinance (Cap. 341), amended by the Arbitration (Amendment)(No.2) Ordinance (No. 64 of 1989), effective 6 April 1990. The Russian Federation adopted the M L in 1993 as the 'Law on International Commercial Arbitration [hereinafter the LICA] on 7 July 1993, V S N D & V S RF No. 32 (1993), item 4 international arbitration tribunals. Accordingly, this thesis investigates several aspects of court intervention in arbitral proceedings under the parameters of the M L in Canada, Hong Kong and Russia; enforcement of the agreement to arbitrate by stay of proceedings, the ordering of interim measures, judicial review of awards and, finally, recognition and enforcement of foreign arbitral awards. This thesis arrives at two conclusions. First, it finds that the M L , by fostering gradual harmonization of the law on international arbitration, is a flexible model for stabilization. Then, it concludes that the M L , despite its inevitable standardization, actually accommodates the particular needs of the legal cultures and traditions of adopting countries. This dissertation is based on the premise that research into the M L on International Commercial Arbitration is important for several reasons related both to the nature of the M L and to its reception. The first reason for looking into the M L is because arbitration in general has been an efficient alternative to litigation for international business. Indeed, arbitration was the subject of numerous international conferences and treaties long before the UNCITRAL projects.10 Secondly, there is a need to examine the reception of the M L in the context of concerns that harmonization and unification of laws jeopardise national identity and legal culture. This issue is particularly important in the 1240; Rossiiskaia Gazeta of August 1993. 1(1 For example, the Protocol on Arbitration Clauses, 24 September 1923, XXVII L.N.T.S. 158 [hereinafter the 1923 Geneva Protocol on Arbitration Clauses'], the Convention on the Execution of Foreign Awards, 26 September 1927, XCII L.N.T.S. 302 [hereinafter the 1927 Geneva Convention on the Execution of Foreign Awards], the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards, 10 June 1958, 330 U.N.T.S. 3, entered into force on 7 June 1959 [hereinafter the New York Convention]. case of developing countries. For this reason, the origins of the M L need to be explored and its basic principles analysed. Also, the way the M L has been received in a particular country, including any changes to local legal systems caused by its reception, should be identified. The third reason for this research is that interest in the M L has grown remarkably over the past decade. Many, countries which needed to up-date or establish dispute resolution mechanisms looked into it as a suitable standard." The importance of a study of the reception of the M L in Canada, Hong Kong and Russia derives from the fact that the experience of these three countries has been, and still is, a guide for a significant number of other countries considering the adoption of the M L . 1 2 Fourth, the reception of the M L has made the business of arbitration more competitive. Although the extent to which mere adoption of the M L can transform any country or city into an important international venue is debatable, arbitration centres established or reorganised in adopting countries at least gained the advantage of having a transparent, user-friendly law written in the official languages of the United Nations, and approved by leading world experts. Several countries, which did not adopt the M L changed their laws to meet the M L standards or even went beyond the M L . 1 3 These countries assumed that a liberal approach " A. Asouzu, "Arbitration in Africa: Agenda for Reform" (1997) A . D . R . L J . 373 at 377. 1 2 Japan, South Korea, Thailand and Greece have been considering the possibility of adopting the M L . 1 1 For example, England passed a new law on arbitration in 1996 which in many ways follows the solutions provided for in the M L (Arbitration Act 1996, 1996 c.23) See a discussion on new English Arbitration Act in Chapter Four of the thesis. On the other hand Belgian Judicial Code (Code judiciaire) of 21 March 1985, Sixth Part: Arbitration, went beyond the M L providing that there would be no right to appeal for setting aside award made in Belgium if both parties are foreigners. Ironically, this unprecedented solution did improve the popularity of Belgium as a arbitration venue. 6 to arbitration would encourage foreign parties to arbitrate in their centres. Finally, the M L is significant because, by limiting the courts' involvement in arbitral proceedings, it places limits on a state's sovereignty. Accordingly, it is important to investigate how M L adopting countries, such as Canada, Hong Kong and Russia, balanced the need to protect state sovereignty against the private interests of the parties involved in arbitration. A. Scholarly Context Many scholars have addressed some of the questions raised by this study, but not in the same context. As a general matter, arbitration has been studied by anthropologists, sociologists, lawyers and political scientists. Even though anthropologists and sociologists do not address the M L itself, their impressive studies of dispute resolution mechanisms in different societies offer a meaningful historical background to research on arbitration. Richard Abel and Laura Nader, for example, deal with comparative research into dispute resolution methods in different societies.14 They suggest that different societies or different cultures prefer different dispute resolution mechanisms. Indeed, the field work of sociologists and anthropologists reveals that in Western legal culture litigation is the method of dispute resolution most frequently employed, while traditional 1 4 See, for example, R. Abel, "A Comparative Theory of Dispute Institutions in Society" (1973) 8 Law & Soc'y Rev. 217, L. Nader & H.F. Todd, eds., The Disputing Process: Law in Ten Societies (New York: Columbia University Press, 1978). 7 Latin American, Asian and African cultures have always preferred conciliation, mediation and customary arbitration. The last mentioned is a type of arbitration in which the parties voluntarily agree to submit their dispute to the family head or elders in the community and agree in advance to be bound by the resulting decision.13 Some sociologists, such as Lawrence Friedman, argue that the development of law correlates to the development of a special type of culture which he calls the legal culture.16 He then defines legal culture as ideas, values, knowledge, behaviour and attitudes and opinions people in each society hold with regard to their laws and legal system.17 Friedman assumes that most of the failures in legal development come as a result of the unqualified export of the Western legal traditions worldwide.18 Following the idea of exportation of Western laws, Alan Watson develops a theory of legal transplantation explaining the development of law as a series of borrowings of laws or 1 3 See a definition of customary arbitration in T.O. Elias, The Nature of African Customary Law (Manchester: University of Manchester Press, 1956) at 212. 1 6 L. Friedman, "On Legal Development" (1969)'24 Rutgers L.Rev. 11 and The Legal System.: A Social Science Perspective (New York, 1975). 1 7 L. Friedman, "The Republic of Choice: Law, Authority & Culture (Cambridge: Harvard University Press, 1990) at 4. See also J. Bell, "English Law and French Law—Not so Different?" (1995) 48 Curr. Leg. Probs. 63 at 70. See also J. Sanders & V. Lee Hamilton, "Legal Cultures and Punishment Repertoires in Japan, Russia, and the United States" (1992) 26 Law & Soc'y Rev. 117 at 120. But see R. Cotterrell, "The Concept of Legal Culture" in D. Nelken, ed., Comparing Legal Cultures (Aldershot: Dartmouth, 1997) 13. Roger Cotterrell criticises Friedman's concept of legal culture for lacking clarity and for being theoretically incoherent. From Friedman's work and various definitions of legal culture it is impossible to determine the scope of the concept, says Cotterrell. See ibid, at 15. 1 8 L. Friedman, "On Legal Development"; supra note 16 at 28. 8 legal norms from one legal system into another.'9 John Merryman argues that after the spread of Roman law across Europe, the French model of codification and the American model of a constitution are the widest distributed legal transplants in modern history.20 Sandra Burman and Barbara Harrel-Bond are concerned with the concept of imposition of foreign laws, arguing that the reception of Western laws by non-Western cultures took place in the form of formal enforcement. In other words, they talk about voluntary and involuntary reception.21 Professor Masaji Chiba analyses the interaction of six Asian cultures and indigenous laws with received Western laws.22 He concludes that the whole structure of law in a non-Western country consists of three levels. These are: official laws sanctioned by the legitimate authority, unofficial laws sanctioned in practice by the general consensus of the population, and-a legal postulate as a value principle or system connected with a particular official or unofficial law. Reception of law starts at the first level but impacts the second and third levels. 1 9 A. Watson, Legal Transplants: An Approach to Comparative Law (Edinburgh: Scottish Academic Press, 1974) [hereinafter Legal Transplants]. Watson examines the phenomenon of transplantation by considering, for example, the reception of Roman Law in medieval Europe, the spread of English law through the countries of the Commonwealth, and the influence of the French Code civil on the codification of civil laws on the European continent. 2 0 J. Meryman, "On the Convergence (and Divergence) of Civil Law and Common Law" in M . Cappelletti, ed., New Perspectives for a Common Law of Europe (Leyden: Sijthoff, 1978) 195 at 208. 2 1 S. Burman & B. Harrel-Bond, eds., The Imposition of Law (London: Academic Press, 1979) . 2 2 M Chiba, ed., Asian Indigenous Law in Interaction with Received Law (London: KPI, 1986). Authors of this project examine the reception of Western laws in Hindu, Buddhist, Sunni-Islamic, Islamic, Shinto and multi-religious societies. 9 Gianmaria Ajani, 2 3 Thomas Waelde and James Gunderson24 investigate legislative reforms in the transition economies of Central and Eastern Europe [hereinafter CEE] in the light of the theory of legal transplantation. They argue that CEE countries adopted (or borrowed or imported or transplanted) Western laws to make the short-cut to market economy status. Wolfgang Wiegand explores the reception of American Law in Western Europe, comparing its reception with that of the Roman law in medieval Europe.25 In summary, it is important to notice that all these studies point to some kind of conflict between the indigenous or pre-existing law and the foreign law which is received or borrowed or imported by one country from one or more other countries (not from an international organisation or agency). Many legal scholars from developing countries, such as Professor M . Sornarajah, ICJ Judge Keba Mbaye, dr. Amazu Asouzu and Samson Sempasa have debated that the reception of the M L imposes a standard-setting foreign to the tradition of the borrower.26 Professor Sornarajah is concerned with the substantive rules applicable in arbitration of foreign investment contracts. The freedom of choice of these rules as defined in the M L , 2 > G. Ajani, "By Chance and Prestige: Legal Transplants in Russia and Eastern Europe" (1995)43 Am. J. Comp. L. 93. 2 4 T. Waelde & J. Gunderson, "Legislative Reform in Transition Economies: Western Transplants—A Short-Cut to Social Market Economy Status" (1994) 43 I.C.L.Q. 347. 2 3 W. Wiegand, "The Reception of American Law in Europe" (1991) 39 Am. J. Comp. L. 229 at 229. 2 6 M . Sornarajah, "The UNCITRAL Model Law: A Third World Viewpoint" (1989) 6 .1. Int'l Arb. 7 [hereinafter "UNCITRAL Model Law"], K. Mbaye J., " A Discussion" in ICC, 60 Years of ICC Arbitration: A Look'at the Future (Paris: ICC, 1984) 293, F.S. Nariman, "Courts and Arbitrators: Paradigms of Arbitral Autonomy" (1991) 15 Boston U. Int'l L.J. 185, A. Asouzu, supra note 11, S. Sempasa, "Obstacles to International Commercial Arbitration in African Countries" (1992) 41 I.C.L.Q. 387. 10 says Sornarajah, usually results in application of Western legal principles. This leads to better protection of foreign (Western) investors.27 Judge Mbaye explains that for countries in Africa, Asia and Latin America international commercial arbitration means arbitration before European or American tribunals. Samson Sempasa emphasises that the European laws have always dictated trends in international business law. On the other hand, African countries followed these trends first directly applying European laws imposed in former colonial days and then modelling their new laws upon the European patterns.28 Both Sempasa and Sornarajah conclude that the M L will be successful in developing countries only if it remains sufficiently neutral and thus avoids the charge of being weighted in favour of developed countries.29 Even though most of these authors disregard the importance of the origins of the M L and the fact that the reception of the M L is a purely voluntary act of a state, they rightly stressed that the mere adoption of the M L will not ensure development of arbitration in developing countries/10 Education of local lawyers, better organisation of courts and establishment of arbitration centres should also be a part of the legal reform. A number of sociologists and political scientists have demonstrated that the harmonization of rules on international commercial arbitration can also be discussed within the broader context of globalisation.31 Notwithstanding the ambiguity of the 3 7 M . Sornarajah, "UNCITRAL Model Law," ibid, at 9-10. 2 8 S. Sempasa, supra note 26 at 390 and 408. 2 9 S. Sempasa, supra note 26 at 407 and M . Sornarajah, "UNCITRAL Model Law" supra note 26 at 10. See, for example, A. Asouzu, supra note 11 at 380. A D. Leebron, "Claims for Harmonization: A Theoretical Framework" (1996) 27 Can. 11 concept, globalisation has become an analytical framework for numerous studies concerned with the different ways in which domestic legislation reflects change in the international context.12 Although providing valuable information on harmonization and globalisation these studies usually fail to distinguish the M L , with its unique features, from other international treaties. To reiterate, the M L is not an international convention which must be ratified by member-states within certain period of time and without any changes (expect where provided for by the convention itself). It is not enforceable as international law. The M L attempts to standardize a great number of rules and principles on international commercial arbitration, but it also fails to define many important terms and institutions of arbitration. Legal scholars are usually more focused on the ways in which arbitration operates within the legal system and with the basic principles of arbitral proceedings rather than on the social context of law. It is difficult to find any book on commercial arbitration written Bus. L.J. 63, M . Boodman, "The Myth of Harmonization of Laws" (1991) 39 Am. J. Comp. L. 699, A. Rossett, "Unification, Harmonization, Restatement, Codification and Reform in International Commercial Law" (1992) 40 Am. J. Comp. L. 683, A. Tita, "Globalisation: A New Political and Economic Space Requiring Supranational Governance" (1998) 32 J. World Tr. 47, H. Fix-Fierro & S. Lopez-Ay Hon, "The Impact of Globalization on the Reform of the State and the Law in Latin America," [hereinafter "Globalisation in Latin America"] (1997) 19 Houston J. of Int.'l L. 785, E .M. Fox. "Harmonizations of Law and Procedures in a Globalized World: Why, What, and How?" (1991/92) 60 Antitrust L. J. 593; A. Kastely, "Unification and Community: A Rhetorical Analysis of the UN Sales Convention (1988) 8 Nw. J. Int'l L. & Bus. 574; G. Walker & M . Fox, "Globalization: An Analytical Framework" (1996) 3 Ind. J. Global Legal Stud. 119, at 119-120, J.Delbriick, "Globalization of Law, Politics, and Markets- Implications for Domestic Law: A European Perspective" (1993) 1 Ind. J. Global Legal. Stud. 9 at 10, J. Mittelman, "The Dynamics of Globalisation" in J. Mittelman, ed., Globalisation: Critical Reflections (London: Lynne Reinner Publishers, 1996) 1 at 3. 3 2 G. Walker & M . Fox, "Globalization: An Analytical Framework" (1996) 3 Ind. .1. Global Legal Stud. 119, at 119-120. 12 since 1985 which does not comment on the M L . Alan Redfren and Martin Hunter33 deal with the M L extensively, so do Sir Michael Mustill, 3 4 M . Sornarajah,33 Rubino Mauro-Samartano,36 Rene David 3 7 and Mark Huleatt-James,38 to name but a few authors. The body of literature on the UNCITRAL M L is growing.39 The classic volume is Harold Holtzmann's and Joseph Neuhaus's historical guide to the M L which gathers all the reports, discussions and commentaries of the Working Group in an attempt to reveal the nature of the M L . 4 0 Isaak Dore offers a useful overview of the framework of international commercial arbitration created by UNCITRAL,'" while, in a recent publication, Christian Biihring-Uhle examines a combination of arbitration, the M L and mediation in his effort " A. Redfren & M . Hunter, Law and Practice of International Commercial Arbitration (London: Sweet and Maxwell, 1994). 3 4 M Mustill & S. Boyd, The Law and Practice of Commercial Arbitration in England (London: Butterworths, 1989). , : i M . Sornarajah, International Commercial Arbitration: The Problem of State Contracts (Singapore: Longman, 1990). , 6 M . Rubino-Sammartano, International Arbitration Law (Deventer: Kluwer Law and Taxation Publishers, 1989). 3 7 R. David, Arbitration in International Trade (Deventer: Kluwer Law and Taxation Publishers, 1985). 3 8 M . Huleatt-James, International Commercial Arbitration: A Handbook (New York: L L P , 1996). , 9 A useful sources of such type of bibliography is recently provided by Derek Roebuck in his article "Sources For the History of Arbitration''' (1998) 14 Arb. Int'l 239. 4 0 H. Holtzmann, & J.E. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (Deventer: Kluwer Law and Taxation Publishers, 1989) [hereinafter A Guide to Model Law}. 4 1 I. Dore, The UNCITRAL Framework for Arbitration in Contemporary Perspective (London: Graham & Trotman, 1993). to find the best method for resolution of international commercial disputes.'12 Neil Kaplan, .Mil Spruce, Theresa Cheng and Michael Moser provide an insight into Hong Kong practice after the acceptance of the M L . 4 3 Over the past three decades, however, some legal scholars have also addressed the importance of considering elements of legal culture in the context of international arbitration. There are several aspects of arbitration.proceedings on which legal culture can impact. The parties to international commercial arbitrations are often of different nationalities. They usually speak different languages. They are represented by lawyers from different countries and with different approaches to arbitration. For example, some are more litigious, while others rely more on mediation. Arbitration proceeding may take place in a third country, and thus, may link parties to an additional legal culture, that of the forum. This means that the procedural rules can be determined by legislation which is a part of the particular legal tradition of the place of arbitration. For example, there are differences between the procedural rules of the civil law and the common law systems. The place of arbitration will also determine the relationship between the courts and tribunals.44 The cultural origins of the arbitrators are also of considerable concern to the parties. Regardless of the strict requirements for impartiality and neutrality, many parties to arbitration proceedings find that the legal culture of the arbitrators' origins is an 4 2 C. Buhring-Uhle, Arbitration and Mediation in International Business (The Hague: Kluwer Law International, 1996). 4 3 N . Kaplan, J. Spruce, T. Y W Cheng, Hong Kong Arbitration: Cases and Materials (Hong Kong: Butterworths, 1991) and N . Kaplan, J. Spruce, M . Moser, Hong Kong and China Arbitration: Cases and Materials (Hong Kong: Butterworths, 1994). 4 4 For further discussion on this issue see B . M . Cremedas, "Overcoming the Clash of 14 important element in their decision-making. Finally, international commercial arbitration is affected by the particular culture of the country or countries in whose court recognition and enforcement of an award is sought. A l l these elements were discussed at the 1996 international arbitration conference "International Dispute Resolution: Towards an International Arbitration Culture."43 This was a gathering of international arbitrators to discuss strategies for overcoming the influence of a particular national legal culture in international disputes. At this conference, some speakers suggested that international arbitrators have to accept the ideas, values and principles of a wider international legal culture.46 Gerold Herrmann, Secretary of UNCITRAL, discussed reception of the M L as a means of creating such a culture.47 However, Herrmann does not clarify what would be the culture of the M L , nor did other participants at the conference offer any sort of definition of an international arbitration culture. Legal Cultures: The Role of Interactive Arbitration" (1998) 14 Arb. Int'l 157. ' b See ICCA Congress Series No. 8 available as A J . Van den Berg, ed., International Dispute Resolution: Towards an International Arbitration Culture (The Hague: Kluwer Law International, 1998)[hereinafter International Arbitration Culture], The conference dealt with the following issues: - Is there a growing international arbitration culture? - Is there an expanding culture that favours combining arbitration, conciliation or other dispute resolution procedures? - To what extent do arbitrators in international cases disregard the bag and baggage of national systems? and - When and where do national courts reflect an international culture when deciding issues relating to international commercial arbitration? 4 6 G. Bernini, "Is There a Growing International Arbitration Culture" in International Arbitration Culture (The Hague: Kluwer Law International, 1998) 41 at 44. 4 7 G. Herrmann, "UNCITRAL's Basic Contribution to the International Arbitration Culture in International Arbitration Culture (The Hague: Kluwer Law International, 15 Another perspective on arbitration culture is provided by Yves Dezelay and Bryant Garth.48 They argue that the process of internationalization has transformed both the market for international commercial arbitration and the legal profession in various Western countries. They find that competition for the arbitration business has become very intense since American law firms established offices in Europe. In the past, the market for arbitration was influenced solely by the European legal culture of so-called "grand old gentlemen." However, explain Dezaley and Garth, the arrival of the American practitioners to the major European cities has brought about a new legal culture and a new generation of arbitrators—so-called young "technocrats." At this point, Dezaley and Garth opine, two legal cultures and two generations of arbitrators are in conflict. It is notable that the authors mentioned above use different terminology to talk about the relationship between domestic law and foreign law which is brought into the domestic legal system. This thesis, however, does not discuss terminology problems. It uses the term "reception" to mean the interaction between the received law and the pre-existing legal framework. It thus focuses on the adoption of the law at a law-making level, on implementation and interpretation of the received law by the legal profession and on structural and institutional changes caused by such interaction. The most important general point this dissertation draws from the above presented socio-historical, political and legal surveys is that a slavish devotion to voluntarily adopted or imposed 1998) 49 at 49. 4 8 Y. Dezelay & B . Garth, Dealing in Virtue: International Commercial Arbitration and the Construction of a Transnational Legal Order (Chicago: University of Chicago Press, 1996) [hereinafter Dealing in Virtue]. 16 foreign laws has not always proven effective and effective for recipients. International models were not created to deal with problems native to a particular adopting country. From this point the dissertation moves on to explore what can occur when the agreed-upon standard itself allows for modification and specialization at the hands of its recipients. B. Conceptual Framework This thesis attempts to create a new direction by combining various aspects of the analytical approaches discussed in the previous section. Based on the assumption that legal culture is an important component of its corresponding legal system, the argument will be made that such culture is a significant determinant of the way in which the M L is implemented in a particular country. This thesis, therefore, makes a thorough exploration of the pre-existing legal cultures in each of three representative adopting countries. Canada, Hong Kong and Russia, and then identifies changes caused by acceptance of the M L . Recognizing that the M L is accompanied by elements of a new arbitration culture, which it attempts to define broadly as a unique balance of the M L ' s basic principles of party autonomy, limited court intervention, independence of the arbitral tribunal and procedural fairness, the thesis then investigates the existence of these elements within the framework of the three systems under examination. A l l theoretical arguments are tested 17 through a detailed case study on the reception of the M L at the legislative level and at that of application and implementation. Thus this thesis examines the M L in the light of socio-legal theories about legal culture and the reception of law. In order to illustrate that the M L is a flexible and suitable pattern for changing the regime of arbitration in countries with different legal systems this thesis asks and attempts to answer five groups of research questions. As already mentioned, the first group of questions is related specifically to the pre-existing legal cultures in Canada, Hong Kong and Russia. In this context, the thesis attempts to find out if, and how, arbitration was previously used in these countries-for resolution of commercial disputes and, if so, what were the characteristics of the previous legal framework of arbitration. The question is also asked as to whether any of the basic principles of the M L formed part of the previous legal systems, particularly with respect to the way arbitration was treated by the courts. The second group of questions concerns the relationship between domestic laws on arbitration and international conventions before adoption of the M L . For example, the thesis analyses the impact of the Geneva Protocol on Arbitration Clauses 1923,'K the Geneva Convention on the Execution of Foreign Awards I927M> and the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards 19585i on arbitration laws in Canada, Hong Kong and Russia. The main legislative goals behind adoption of the M L in the three countries are the third object of focus. In this "L) The 1923 Geneva Protocol on Arbitration Clauses, supra note 10. 5 0 The 1927 Geneva Convention on the Execution of Foreign Awards, supra note 10. 5 1 The 1958 New York Convention, supra note 10. 18 context, the thesis also investigates why these countries chose to accept the assistance of UNCITRAL and to import the UNCITRAL model and why they rejected drafting their own laws. The fourth question then is how the M L was adopted in each of the three countries. More specifically, the thesis examines whether the particular adopting country modified the M L original text and the extent to which any such modification reflect the legal culture of the adopting country. It also looks at whether these modifications have changed the unique balance among the M L ' s four basic principles. Finally, the thesis attempts to determine how the national courts responded to the legislative changes and what the practical consequences were of limiting the jurisdiction of the courts and extending the powers of arbitrators. This thesis focuses on only three adopting countries—Canada, Hong Kong and the Russian Federation—for a number of reasons. First, since the thesis discusses the influence of legal borrowing on the legal culture of the borrower, it is important to choose adopting countries that represent different legal cultures. Canada, which was the first country to adopt the M L , has been included as representative of the legal traditions of the Western developed countries. Furthermore, it is a unique example of mixed common law and civil law legal cultures. Hong Kong has been chosen because it is an important Pacific Rim centre where Asian and European (British) cultures converge and where a new legal system can be expected to emerge from the synthesis of the English colonial legal system and the Chinese legal system.32 Of all the major trading states of the 3 2 Y. Dezaley & B. Garth, Dealing In Virtue, supra note 48. 19 European civil law tradition only Russia and Germany33 have accepted the M L . 3 4 Russia has been selected for examination because it represents the culture of the emerging markets of Central and Eastern Europe, as well as the civil law countries. The second reason to focus on these three countries is the timing with which they adopted the ML—Canada in 1986,55 Hong Kong in 1990,56 and Russia in 1993.57 Thus, it is possible to evaluate the capacity of the original text to meet the diverse needs of borrowers over what is almost an entire decade from the mid-eighties to the mid-nineties. The third reason for thus limiting the field of research is a practical one—the financial and time constraints of doctoral studies. An examination of all adopting countries would be a task for an institution rather than for an individual. 3 1 German Arbitration Act which introduced the M L text into its Tenth Book of the Code of Civil Procedure (ZPO) entered into force on 1 January 1998 replacing the old rules originating from 1879. Available in English in International Handbook on Commercial Arbitration, Suppl. 26 (National Reports), February 1998. 3 4 However, the M L influenced their modification of arbitration laws. See P. Sanders, P. Sanders, "Unity and Diversity", supra note 7. Indeed, Pieter Sanders writes that "the impact of the M L is such that no State, modernizing its arbitration law will do so without taking it inter alia into account". See ibid, at 1. 5 5 S.C. 1986, Chapter 22. 3 6 To repeat, the Hong Kong Arbitration Ordinance (Cap. 341) as amended by the Arbitration (Amendment)(No.2) Ordinance (No. 64 of1989), effective 6 April 1990. 5 7 To repeat, the LICA, V S N D & V S RF No. 32 (1993), item 1240; Rossiiskaia Gazeta of August 1993. 20 C . The Structure of the Thesis This thesis is organised in six chapters. Chapter One establishes the basic hypothesis of the research and explains the concept and methodology. Chapter Two explores the origins of the M L . it analyses the drafting process, defines the basic principles of the M L and compares them with the principles of various international conventions on dispute resolution. The conclusion drawn in this chapter is twofold. First, that the M L is an international instrument of a unique nature aimed primarily at helping states to modernise their national laws and only indirectly at harmonization of the rules of international commercial arbitration. Second, that evaluation of the M L harmonization mission, based solely on the analysis of a textual adoption, is premature and would, even at a later date, be incomplete. Chapter Two suggests that such an evaluation would have to include, in particular, an analysis of court decisions on arbitration. In this context, it hypothesises that the extent to which the M L is currently replicated in adopting countries depends on their legal cultures. In other words, it depends on the ways in which pre-existing laws defined the relationship between the courts and arbitration tribunals and on the ways in which the courts have interpreted their function in relation to arbitral proceedings. Chapter Three tests this hypothesis by exploring legal cultures in the pre-adoption period in Canada, Hong Kong and Russia. This descriptive, historical approach helps to show the extent of legal changes initiated by adoption of the M L . A further test is provided in Chapter Four. It opens case studies on the implementation of specific 21 principles of the M L in Canada, Hong Kong and Russia. Then, it underlines the basic changes at the law-making level and concludes that not only was the M L introduced in three different ways but it was also modified differently to meet the distinctive needs of each adopting country. In Chapter Five, the impact which these legal reforms have had on the courts is scrutinised through a comparative study of court decisions in Canada, Hong Kong and Russia. The analysis is limited to the issues of enforcing an arbitral agreement and ordering a stay of proceedings, ordering interim measures, and enforcing arbitral awards. On the basis of arguments established in the previous chapters, Chapter Six concludes that the M L is not only a flexible way to standardise law, but it is also a method to achieve subsequent harmonization of laws, which benefits both adopting and non-adopting countries. D . Methodology The methodology of this thesis is determined by its basic research interest—which is, as stated above, the impact of the reception of the M L on the legal cultures in the adopting counties. The purpose of the research is to determine the ways in which the same pattern functions in the legal frameworks of the different countries. Such an evaluation is based on the comparative study of three legal systems—Canadian, Hong Kong and Russian. Indeed, the comparative approach facilitates the study of particular •22 phenomena, such as international commercial arbitration and the adoption of the M L , in the light of their political, social or economic purpose.38 The advantage of the comparative method is that it produces a better understanding of national laws3 9 and of harmonised laws.60 The need for a comparative approach is also predetermined by the nature of international arbitration itself. Such arbitration involves parties and arbitrators from different countries and legal systems, who usually use different languages to communicate. Moreover, the meaning of legal terms is dependent on the legal culture in which the person using them normally works.61 Consequently, differences may be encountered with respect to all aspects of commercial arbitration, starting from drafting the arbitration agreement to the determination of material and procedural rules and, finally, to enforcement of the award itself. In addition, national courts use comparative methods not only to interpret and to apply foreign laws but also to fill in gaps which might exist in the domestic legal system.62 For all these reasons, this thesis uses the comparative method to assist in understanding better the differences and similarities in 5 8 H.C. Gutteridge, Comparative Law: An Introduction to the Comparative Method of Legal Study and Research (Cambridge: University Press, 1949). 3 9 R. David & G. Breirley, Major Legal Systems in the World Today, 3rd ed. (London: Sweet & Maxwell, 1985) at 6-8; also O. Kahn-Freund, "Comparative Law as an Academic Subject (1966) 82 L.Q.R. 40 at 59-60. • 6 0 M . Bogdan, Comparative Law (Tano: Kluwer Law & Taxation Publishers, 1994) at 30-32. 6 1 P. Hercog, "The Need For a Comparative Perspective" in T. Carboneau, ed., Resolving Transnational Disputes Through International Arbitration (Charlottesvile: University of Virginia Press, 1984) 75 at 76. 6 2 M . Bogdan, Comparative Law, supra note 60 at 32-33. interpretation and application of the M L in the adopting countries. The comparative method is applied to the legal history and traditions of formal discourse of the three countries of adoption. This serves to emphasise the significance of the wide differences in historical background and to overcome possible bias of a purely Western perspective in evaluating the changes in legal culture initiated by reception of the M L . Specifically, the thesis examines primary and secondary legislation: statutes on arbitration and related case studies, and then articles, books and experts' opinions on the topic. This leads to both contractive and integrative comparisons— that is, comparison of both differences and similarities.63 Here, the attention is paid to the differences, since it is these which cause the M L to be modified or re-defined. This thesis also applies comparative legal history as a method to better understand the inner logic of the legal system that surrounds arbitration. To that end, legal history is used to examine the genesis of institutions of international commercial dispute resolution in the three countries, and to examine (dis)continuity in the legal behaviour of judges and arbitrators. It is a test of the extent to which legal institutions can maintain the characteristics of an old legal system that has been succeeded by another. For the case study, the thesis uses a variety of available sources including national gazettes and journals, which publishcourt decisions on international commercial arbitration. The case study includes analysis of approximately one hundred court 6 3 R. Schlesinger: The Past and Future of Comparative Law (1995) 43 Am. J.Comp. L. 477 at 477. 24 decisions and reference is made to at least one hundred additional decisions. For clarity of analysis, cases are categorised under three headings—those in which the important issue is the arbitration agreement itself and the appointment of arbitrators, those for which interim measures and the arbitral proceedings themselves are the central issues and those cases involving the recognition and enforcement and the setting aside of awards. Then, the thesis also looks at the publications of the International Chamber of Commerce (ICC) and the International Council of Commercial Arbitration's (ICCA) Yearbook International Arbitration64 E. Value of the Research Although there is a surfeit of scholarly literature dealing with international commercial arbitration, several important benefits can be derived from the further study this thesis represents. The conceptual benefit will be an argument that it is possible to create a model law which is a flexible framework for legal reforms in countries which have different legal cultures and are at different political and economic levels of development. In this context, the thesis argues that the M L is a good start for such legal reforms. The conceptual novelty is that this thesis does not consider the ML as simply a Yearbook International Arbitration is published by published by Kluwer and Taxation 25 piece of legislation, but also sees it as a pattern of social behaviour and an indicator of a particular culture. It implements the traditional legal method of case study which is the analysis of the application of legal rules in particular cases, but also examines the behaviour of courts in the new environment set up by the M L . In this context, the thesis acknowledges that globalisation of laws is an inevitable process which goes along with economic and political globalisation. But, the thesis suggests that this globalisation of laws is likely to manifest itself in a widespread adoption of similar rules for international trade rather than in the duplication of one pattern around the world. This thesis will provide the first comprehensive study known to this author of international commercial arbitration in countries of different legal cultures which have adopted the M L . So far, only separate studies of Canadian and Hong Kong case law on arbitration have been undertaken and there has been no published study of the Russian experience. There is also an innovation in the methodology of research. Arbitration and the M L have commonly been analysed in the context of traditional legal discourse, either relying on the positivist study of the statutory framework or on case studies (analysis of court and arbitration decisions, when available). However, the M L has not yet been studied in the context of legal transplantation.and, theories about the convergence of legal cultures. This thesis debates three existing approaches to the reception of transplanted law—the law and development movement perspective on legal reforms, legal sociology and its concept of legal culture, and the legal anthropology perspective on mixed legal Publishers (Deventer, The Netherlands). 26 systems and mixed cultures. In this context, this thesis attempts to reach at better understanding of the impact which legal culture has on the reception of "foreign" patterns of dispute resolution. 27 C H A P T E R T W O : U N C I T R A L M L This chapter reviews some historical aspects of the drafting of the M L in order to provide an introduction to a later discussion of its unificatory effects with respect to national laws. Hence, this chapter elaborates on the four principles which are generally understood to be the foundations of the M L . These are the principles of party autonomy, limited court intervention, independence of arbitral tribunals and procedural fairness. Specifically, this chapter calls attention to their presence or absence outside the ML—that is, in the national laws of the adopting countries and in other international instruments. Then, the chapter discusses the basic paradox of international commercial arbitration that its success ultimately depends on judicial respect for arbitration agreements and awards. The chapter concludes with a debate on two criticisms of the nature of the ML—whether it is just another legal transplant and whether it is a global law. A. Background Arbitration as institution of conflict resolution is as old as humankind and older than State courts.65 From the earliest Egyptian era to Greek and Roman times, through the 6 5 J. Jakubowski, "Reflections on the Philosophy of International Commercial Arbitration and Conciliation" in J. C. Schultsz & A.J. Van Den Berg, The Art of Arbitration: Essays on International Arbitration Liber Amicorum Pieter Sanders (Deventer: Kluwer Law and 28 development of merchant laws in medieval Europe and the heydays of laissez-faire, the use of arbitration in commercial disputes has gradually increased among nearly all nations and cultures.66 Ironically, arbitration has been the subject of numerous treaties, Taxation Publishers, 1982) 175 at 175. Lord' Mustill also argues that "commercial arbitration must have existed since the dawn of commerce." See M . J. Mustill, "Arbitration: History and Background" (1989) 6 J. IntT Arb. 43 at 43. 6 6 Thomas Oekmke finds the earliest evidence of use of arbitration in Egypt, in 1 500 B.C. and much later, in 600 B.C. in Greece. See T. Oemke, Commercial Arbitration (Rochester/San Francisco: LCP/BW, 1987) at 17. But Miguel Leon Portilla finds that the existence of arbitration in Mexico dates back to the Aztecs. See in L . M . Martines, "Changes in Mexico," New York Law Journal (7 January 1999) C2. For an overview of the development of arbitration in general see J.Jakubowski, ibid., at 175-176. See also H. T. King Jr., & M . A . LeForestier, "Arbitration in Ancient Greece"(1994) 49 Disp. Resol. J. 39. For an overview of arbitration in England see N . Kaplan, J. Spruce & M . Moser, " A Short History of Arbitration" in their book Hong Kong and China Arbitration, supra note 43 at xxxiii-lxv. It is possible to argue that the concept of international commercial arbitration is established and developed in Western Europe. But, domestic arbitration as a private dispute resolution outside of courts existed in different forms in all societies. In Moslem Arab countries, in Asia and in Africa traditional arbitration was known in the form which is close to amiable compositor or conciliation in Western Europe. See G. Herrmann, "The Arbitration Agreement as the Foundation of Arbitration and its Recognition by the Courts" [hereinafter "Arbitration Agreement"] in A.J. van den Berg, International Arbitration in Changing World International Arbitration in Changing World: ICCA Bahrain Conference 1993 (Deventer:"Kluwer;-Law and Taxation Publishers, 1993) [hereinfter ICCA Bahrain Conference] 41 at 42. Traditionally Arab laws were strongly influenced by Islam and its religious law which has some references to arbitration. Significant is that, according to religious law, disputes are to be submitted to sole arbitrator who must be male and Muslim. In a number of countries the M L was a pattern for modernisation of such laws. See an overview in P. Sanders, "Arbitration-Chapter 12" in International Encyclopedia of Comparative Lav,' (Dordrecht: Martinus Nijhoff Publishers, 1996) [hereinafter "Arbitration"] at 43-47. In his address to the First Euro-Arab Arbitration Conference in Tunisia in 1985 Professor Mezghani says that even though Arabs viewed the European-style-arbitration with certain suspicions, they admitted that such arbitration would prove to be a necessity. See Professor Mezhani's address as cited in G. . Herrmann, "Overcoming Regional Differences: Arbitral Practice, Comparative .Law. and the Approximation of Laws" in P. Sanders, ed., Arbitration in Settlement of International Commercial Disputes Involving the Far East and Arbitration in Combined Transportation, IX International Arbitration 29 Congress Tokyo, 31 May - 3 June 1988 (Deventer: Kluwer Law and Taxation Publishers. 1989) [hereinafter Tokyo Congress] 291 at 293. African countries did have informal systems for settling disputes before they received the Western European concept of arbitration in.the 18"' and 19"' centuries. Before the reception of the European laws, arbitration was used as a method of resolving inter-tribal and family disputes in Africa. See S. Sempasa, supra note 26 at 407. But see A. Asouzu, supra note 11 at 373, who finds the use of arbitration for domestic disputes in Africa still being modest. In most African countries a traditional form of arbitration was a sole arbitrator, usually the family head. Traditionally, an arbitrator would make his award public. See S. Asante, "The Perspectives of African Countries on International Commercial Arbitration" in S. Mueller & W. Mijs, eds., The Flame Rekindled (Dordrecht: Martinus Nijhoff Publishers, L993) 139 at 145. See also T.O Elias, The Nature of African Customary Law (Manchester: University of Manchester Press, 1956). The traditional African arbitration was removed by the European concepts extended to the African colonies of France, England, Spain, Portugal, Germany and Belgium. Note, however, that South Africa was' influenced by the Roman-Dutch legal system. For a detailed discussion on arbitration in Africa see II.11. Eugene Cotran & A. N.E. Amissah, eds., Arbitration in Africa (The Hague: Kluwer Law International, 1996). Traditional Asian legal culture favours negotiation and conciliation over litigation and arbitration. Indeed, court litigation is something that Asians try to avoid whenever possible. Arbitration was influenced by the Western concept in many Asian countries— former European colonies. For example Hong Kong and Singapore were influenced by the English arbitration law, Indonesia by the Dutch law. But see Y . Taniguchi, "Commercial Arbitration in Japan" in P Sanders, ed., Tokyo Congress, ibid., 29 at 29. Taniguchi emphasises that Japanese merchants commonly do not rely on arbitration. Ibid. In many Asian countries conciliation is usually seen as the first step in dispute resolution, and arbitration as the second. See T. Houzhi, "International Commercial Arbitration in the Far East-the PRC Example" in P Sanders, ed:, Tokyo Congress, ibid., 43 at 55. The distrust of Spanish and Portuguese laws and practice in Latin American countries has been for many years the main reason for the hostility vis-a-vis arbitration in the region. See H A . Gringera Naon, "Arbitration in Latin America: Overcoming Traditional Hostility" (1985) 5 Arb. Int'l 137 at 137. As previously mentioned, information on the use of arbitration in Mexico dates back to the Aztec era. See L. M . Martines, ibid. Indeed, Luis Martinez explains that durin the Conquista, the king of Spain established the Consulado de Mexico as a specialised court for commercial matters which was administred by former merchants. The court lasted until 1821. See, ibid. Strongly influenced by the Calvo Doctrine and hostility toward Spanish and Portuguese imported laws, Latin American countries, after gaining independence in the beginning of the 19th century, became very reluctant to submit investment disputes with the foreign element to arbitration. But international arbitration have beensubject to numerous regional treaties starting as early as in the late 19th century and the early 1920s. For an overview on international treaties signed by Latin American countries see R. E. Echeverria & J.L. 30 books and articles, doctoral and master theses, conference and seminar papers, case digest and reports, but none gives a perspective of modern arbitration as a phenomenon of continuous change.67 Arbitration is usually referred to as a process of dispute resolution by one or more persons empowered to decide a case outside of the ordinary judicial process on the basis of a private agreement concluded between two or more parties to that dispute.68 Many authors, such as Jean Gabriel Castel, Patrick O'Keefe, Alan Redfred and Martin Hunter, argue that arbitration appears to be more effective and attractive method of resolution of trade dispute then litigation?69 Parties want fair, neutral and universally accepted awards and believe they can obtain such awards from a third party rather than Siqueiros, "Arbitration in Latin American Countries" in P. Sanders, ed., Tokyo Congress, ibid., 81 at 85-90. 6 7 See M.J. Mustill, "Sources For the History of Arbitration: Foreword" (Special Research Issue) (1998) 14 Arb. Int'l 235 at 235. The whole volume is devoted to the problem of writing the grand history of arbitration. 6 X According to Halsbury's Laws of England arbitration is: "the process by which a dispute or difference between two or more parties as to their mutual legal rights and liabilities is referred to and determined judicially with binding effect by the application of law by one or more persons (arbitral tribunal) instead of a court of law." Continental European legal scholars also agree with some elements of the English definition: that arbitration is consensual process of dispute resolution outside the court 1 system. In other words, arbitration is "a device whereby the settlement of a question, which is of interest for one or more persons, is entrusted to one or more other persons-the arbitrator or arbitrators-who derive their powers from a private agreement, not the authority of a State, and who are to proceed and decide the case on the basis of such an agreement." See R. David, supra note 37 at 5. 6 9 On advantages of arbitration over litigation see J.-G. Castel, "International Commercial Arbitration" in D.P. Edmond, Commercial Dispute Resolution (Aurora, ON: Canada Law Book Inc., 1989) 121 at 122. See also-P.O'Keefe, Arbitration in International Trade (Sydney: Prosper Law Publications, 1975) at i ; and A. Redfren & M . Hunter, supra note 5 at xiii. 31 from a court.70 Traditionally, the choice of parties to utilise arbitration is understood in negative terms—that is, as a decision.to exclude court jurisdiction.71 So, arbitration allows a party to avoid the unknown, possibly a "non-user-friendly" legal system in the opposing party's country72 and protects him or her from "hometown justice" in a foreign court. 7 3 In addition, arbitration offers the advantage of having independent and impartial arbitrators or experts decide a dispute. It offers confidentiality, voluntariness, speed and flexibility and is a usually low cost procedure which culminates in a final, binding disposition which is sometimes easy to enforce.74 What makes arbitration awards'easy to enforce is the fact that 120 countries have 7 0 E. Green, 'international Commercial Dispute Resolution: Courts, Arbitration and Mediation—Introduction. (1997) 15 B.U. Int'l L.J. 175 at 176. 7 1 G. Herrmann, "Arbitration Agreement", supra note 66, 41 at 41. 7 2 Professor Eric Green finds that parties agree to arbitrate because they "fear having to litigate under a different country's substantive rules, cope with foreign procedures, and rely on legal resources far from home in an alien culture that may favour a domestic party and be biased against the foreigner. " See E. Green, supra note 70 at 176. Green insists that such fear experience both business people from all legal cultures and from all countries involved in international trade." He finds that Europeans and Asians fear the American adversarial system as much as American-based companies may fear the Nigerian courts. Ibid. 7 3 W. Park, "Arbitration Avoids 'Hometown Justice' Overseas" The National L.J., Monday, May 4, 1998, p. CI8. 7 4 See J.C. Castel, Canadian Conflict of Laws (Toronto: Butterworths, 1997) at 123, M . Domke, On Arbitration (S. Francisco: Bancroft-Whitney Co., 1987) at 15; L. Kennedy, "Enforcing International Commercial Arbitration Agreements and Awards Not Subject to the New York Convention" (1983) 23 Va. J. Int'l L. 75 at 75-76. But see A. Rovine, "Fast-Track Arbitration: A Step Away from Judicialization of International Arbitration" in "R. Lillich & C. Brower, eds., International Arbitration in the 2Is1 Century: Towards "Judicialization" and Uniformity (Irvington: Transnational Publishers, Inc., 1994) 45 at 46: "...procedural details governing written submissions, affidavits, expert testimony, and extended hearings with direct and cross-examination of witnesses have all introduced formalism, judicial style, and diminished flexibility into arbitration." 32 signed the New York Convention75 and have thereby agreed on the requirements which arbitration agreements and awards must meet in order to obtain judicial recognition in the signatory countries.76 This unification of the rules on recognition and enforcement of arbitration awards gives certainty and predictability to international transactions and determines to a great extent the choice of dispute resolution mechanisms. On the other hand, the great diversity of national laws on international commercial arbitration leads to situations in which business people cannot predict court rulings on disputes arising from their transactions. Thus, because business people will have to deal with only one set of rules rather than with a large number of different bodies of rules, the unification of laws on dispute resolution can increase the level of common knowledge of dispute resolution norms. From the beginning, arbitration has been governed by national laws, which obviously differed from state to state.77 The need to unify the framework for international 7 5 Information cited by the Internationa) Trade Law Branch of the United Nation Office of Legal Affairs, Status of Conventions and Model Laws, last updated on 18 May 1999, available online: UN homepage <http://wv>'Av.uncitral.ora/en-index.htm>(data accessed 23 July 1999). 7 6 Possibility to enforce an arbitral award is very important reason for deciding to arbitrate instead to litigate because many countries, including major trading states such as the United States, are not parties to any treaty for enforcement of foreign judgments. 7 7 Adam Samuel, for example, writes about three generations of arbitration laws in Europe that have been drafted in Europe starting from the French Revolution in 18'1' century which declared arbitration to be the premier form of adjudication. Samuel says that in the 19"' century the first generation of arbitration laws had been drafted as a part of laws of civil procedure (for example, 1854 Common Law Procedure Act in England and 1879 Code of Civil Procedure in Germany). Later, as a result of harmonization efforts of international organisation, the second generation of laws was enacted (in France in 1925, in Sweden in 1929, in England in 1934, to name but a few). The third generation of arbitration laws came in the 80-ties after the harmonization and unification within European Union on one hand and development of international trade on the other hand (in 33 arbitration became evident during the 1920s while ideas were being developed for the unification of rules on international trade in general. The arguments for unification were twofold: inadequate protection of international trade under the national laws and the need to develop a clear, predictable and stable private system of dispute resolution. These unification attempts resulted in the establishment of the International Chamber of Commerce (1919), its Court of Arbitration (1923), and the appearance of two important international treaties—the 1923 Geneva Protocol on Arbitration Clauses1* and the 1927 Geneva Convention on the Execution of Foreign Awards.19 In 1926, German law professor Arthur Nussbaum edited the first yearbook of international arbitration.<so In Latin America, the 1889 Montevideo Treaty and the 1911 Bolivian Convention provided for the recognition and enforcement of judgments and arbitral awards rendered on civil matters in any of the signatory states when certain procedural and substantive requirements were met.81 England in 1979, in France in 1980-81, in Austria and Italy in 1983, in Belgium in 1985, in The Netherlands in 1986 and in Switzerland in 1987). See A. Samuel, "Arbitration in Western Europe—A Generation of Reform (1991) 7 Arb. Int'l 319 at 319-320. 7 8 The 1923 Geneva Protocol on Arbitration Clauses, supra note 10. 7 9 The 1927 Geneva Convention on the Execution of Foreign Awards, supra note 10. 8 0 See A. Samuel, " A Generation of Reform", supra note 77 at 320. 8 1 R.E. Echevarria & J.L. Siqueros, supra note 66 at 86-87. The 1889 Montevideo Treaty on International Procedural Law, signed on 11 January 1889 (OEA/Ser.Q/1 1.8 CJ1-14. 1973) was superseded by the Bolivian Convention on the Enforcement of Foreign Awards, signed on 18 July 1911 at Caracas, Venezuela, which practically reproduced the provisions of the 1889 Treaty. Those provisions on recognition and enforcement of foreign judgments or arbitral awards were later replaced by the provisions of the 1928 Bustamante Code (the Convention on Private International Law, 82 L.N.T.S. 120), signed at Havana, Cuba, the most ambitions four book codification of the Latin American private international law. See also L. Kos-Rabcewicz-Zubkowski, "Contributions Which Multilateral Conventions and Model Laws Can make to the Development of Arbitration: 34 During the past 25 years UNCITRAL, an international body specifically engaged in the progressive harmonization and unification82 of the law on international trade, has contributed considerably to the process of unification and furthered progressive harmonization and unification of the law on international trade.83 According to UNCITRAL Resolution 2205/XXI of 17 December 1966, harmonization aims at similarity in laws of two or more states. On the other hand, unification aims at identical laws. It is interesting that Endre Ustor, a member of the International Law Commission8 4 in the 1960s, explained that harmonization may be achieved " i f legislator of one State follows the example of foreign laws" or, in other words, borrows or transplants foreign laws. 8 5 Unification, says Ustor, takes place mostly through bilateral or multilateral agreement and the drafting work of international agencies. Unification was also seen as Inter-American Relations" in P. Sanders, ed., New Trends in the Development of International Commercial Arbitration and the Role of Arbitral and Other Insitutions -ICCA Congress Series no. I (Deventer: Kluwer, 1983) [hereinafter New Trends in Arbitration} 86 at 92. 8 2 Resolution 2205/21, Chapter II, par.8 (17 December 1966). 8 3 On the work of UNCITRAL see Z. Yuqing, "Principles of Interpretation of a Uniform Law and Functions of 'travaux preparato ires'', Commentaries and Case Collections For Interpretation of a Uniform Law" in UNCITRAL, Uniform Commercial Law in the Twenty-First Century: Proceedings of the Congress of the UNCITRAL, New York, 18-22 May 1992 (New York: United Nations, 1995) [hereinafter UNCITRAL's Proceedings] 41 at 42. 8 4 The International Law Commission was established by the General Assembly of the United Nations in 1947 (Resolution 174/2 of 21 November 1947) to promote the progressive development of international law arid its codification. The Commission has 34 members who do not act as representatives of their governments but serve in their individual capacity. For more details on the objectives of the Commission, see its web-site <lutp:/Avww.un.or<£.law/ilc/ilcintro.htm > (data accessed on 5 October 1999). 8 5 E. Ustor, "Progressive Development of International Trade Law: A New Programme of the U N " (1967) 7 lndian.1. Int'l L.159 at 173. 35 unification of interpretation and application-:86 Three pillars of international commercial arbitration (the New York Convention,*1 the M L and the UNCITRAL Arbitration Rules 8 8 are the result of its various strategies for unification. Usually, "[w]here maximum uniformity is important UNCITRAL employs the international treaty or convention."89 Where there is need for greater adjustment to local conditions, instead of relying on the convention technique, UNCITRAL prepares a model law. 9 0 Finally, "when even greater flexibility is needed, UNCITRAL prepares standard rules or provisions that the parties can make effective by contract."91 The UNCITRAL Arbitration Rules are an example of this third technique of unification. International commercial arbitration is also facilitated by a number of global and regional treaties as a means of resolution of inter-state commercial disputes and private commercial disputes. These include the Convention of the Settlement on Investment Disputes Between States and Nationals of Other States (the ICSID Convention)-92 the *6Ibid., at 172. 8 7 Thus, although the New York Convention was not initiated or drafted by UNCITRAL, UNCITRAL promoted it. As Albert Jan Van Den Berg pointed out, "when UNCITRAL was established in 1967, 31 States were parties to the Convention. Now, 25 years later [in 1992-added] UNCITRAL's promotional efforts have resulted in 85 States being parties to the Convention. See A. J. Van Den Berg, "Some Practical Question Concerning the 1958 New York Convention of the Recognition and Enforcement of Foreign Arbitral Awards" in UNCITRAL's Proceedings, supra note 83, 212 at 212. 8 8 Adopted on 28 April 1976, Resolution 31/98 (15 December 1976), U N Sales No. E77.V.6 App. D. , \ , t . 8 9 J. Honnold, "Goals of Unification" in UNCITRAL's Proceedings, supra note 83, 11 at 12. 9 0.1. Honnold, ibid. 9 1 J. Honnold, ibid. 92 Convention on the Settlement of Investment Disputes Between States and Nationals of General Agreement on Tariffs and Trade (GATT) 9 3 and, most recently, the WTO documents of the Uruguay Round; 9 4 the European Convention on International Commercial Arbitration (European Convention);95 and the Inter-American Convention on International Commercial Arbitration (Panama Convention).96 Based on the conviction that arbitration promotes and facilitates international trade,97 the North American Free Trade Agreement (NAFTA) 9 8 provides for arbitration for the resolution of Other States, 18 March 1965, 575 U.N.T.S. 159 [hereinafter ICSID or the Washington Convention]. As the name suggests, the mechanism for dispute resolution—arbitration (and conciliation) through the International Centre for Settlement of Investment Disputes is established only for specific types of cases (those which arise from contracts for investments) and for disputes which involve states and private persons as disputants. That means that ICSID does not deal with purely private disputes (between two private parties). As of 8 April, 1996, the ICSID Convention was signed by 138 countries. See (1995) X X Y . B . Comm. Arb. 853. 93 General Agreement on Tariffs and Trade, 30 October 1947, 33 U.N.T.S. 187, Can. T.S. 1947 no. 27 (entered into force 1 January 1948)[hereinafter GATT]. 9 4 Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations (Final Act), 15 April 1994,33 I .L.M. 1143, which in Article I established World Trade Organisation (Agreement Establishing the World Trade Organisation)[hereinafter WTO]. 95 European Convention on International Commercial Arbitration, 21 April 1961, 484 U.N.T.S. 364 no. 7041 (entered into force on 7 January 1964)[hereinafter European Convention]. It is applicable to "disputes arising from international trade between physical or legal persons" See Article 1(1 )(b) of the European Convention. 96 Inter-American Convention on International Commercial Arbitration, 30 January 1975, 1:2 I .L.M. 339 (entered into force 16 June 1976)[hereinafter Panama Convention]. 9 7 P. Hay & J. Fitzpatrick, "The Future of the North American Free Trade Agreement: A Comparative Analysis of the Role of Regional Economic Institutions and the Harmonization of Law in North America and Western Europe" (1996) 19 Houston J. Int'l L. 1 at 67-68. 98 North American Free Trade Agreement Between the Government of Canada, the Government of Mexico and the Government of the United Stales, 17 December 1992, Can. T.S. 1994 no.2, 32 I .L.M. 289 (implemented into Canadian law by the North America Free Trade Implementation Act, S.C. 1993, c.44, entered into force 1 January 1994)[hereinafter NAFTA]. NAFTA provides for the use of arbitration for disputes 37 international investment disputes. Not surprisingly, the most recent draft of the Multilateral Agreement on Investment (MAI) 9 9 also provides for arbitration in accordance with ICSID, the ICSID Additional Facility Rules, the UNCITRAL Arbitration Rules, or the Rules of Arbitration of the I C C . 1 0 0 Thus, it appears that arbitration is considered the most suitable mechanism for resolution of the various disputes that may arise Prom almost all types of international transactions. Criticism of changes in the rules for international commercial arbitration usually arises out of the aforementioned concerns over globalisation, unification and harmonization of international trade law. Developing countries manifest distrust for the harmonising character of uniform rules, arguing that most of these rules have been formulated in Western Europe (with the participation of the United States and Japan in recent decades) and proposed to the rest of the world "for the sake of the common between State Parties (that is, at the public level) in Chapter 20. However, it also imposes an obligation on NAFTA Parties to encourage the use of arbitration (and other means of alternative dispute resolution) for private commercial disputes within the free trade area in art. 2022. Chapter 11 deals specifically with investment disputes when one party is a private investor (from the NAFTA's State-Party) and another party is the State-Party. For the recent study of NAFTA's mechanism of dispute resolution, see D. Lopez, "Dispute Resolution Under N A F T A : Lessons from the Early Experience" (1997) 32 Texas Int'l L.J. 164. 9 9 The Council of the Organisation for Economic Co-operation and Development (the OECD) initiated the most recent negotiations on substantive investment rules in May 1995. MAI is currently under negotiation, and, if passed, will regulate investment issues in twenty-nine OECD countries. The MAI was based on the investment provisions of the NAFTA but sets out some differences, such as- the scope of application of the treaty, possibility of reservations, and basic definitions of investment, to name a few. Draft text (DAFFE/MAI(97)1/REV2) available online:<http://www.web.net/coc/maitext.htmi > (data accessed on 20 October, 1999). 1 0 0 MAI Article D.2.c.i.-iv. 38 good." 1 0 1 Developing countries claim that such unification does not take their disadvantaged position into consideration. On the other hand, developed countries do not believe that their laws need to be modified for the purpose of modernisation and unification. They argue that their laws are already modern enough to deal with complex international transactions and are sufficiently well known to serve as a ground of reference for businesspeople around the world. In addition, a new awareness which has emerged among arbitration practitioners, that of arbitration as "a direct witness of the interaction among different legal cultures,"102 has brought a new perspective to the harmonization process. This "cultural" perspective has long been considered in the sociological study of law but only recently has it become the subject of discussion among lawyers and legal scholars.103 B. Legislative History of the M L In the mid-1970s, the A A L C C 1 0 4 send an important message to the United 1 0 1 J. Delbriick, "Globalization of Law, Politics, and Markets-Implications for Domestic Law: A European Perspective" (1993) 1 Ind. J. Global Legal. Stud. 9, at 11. 1 0 2 B. Cremedas, "Clash of Legal Cultures", supra note 44 at 160. 1 0 3 It has been recognised recently by a distinguish arbitratior Mr. Bernardo Cremades, for example, that "when arbitration becomes transnational, the cultural unity is disrupted and the resulting kaleidoscope of different cultural patterns gives rise to a multiplicity of images affecting each stage of the arbitration proceeding." See B. Cremades, ibid, at 160. 1 0 4 A A L L C C was established in 1956 as an intergovernmental organization originally with a membership of seven states but it gown later to comprise all the major states in Asia and Africa and a number of observer-delegations from Latin America and Europe. 39 Nations—that a great number of Asian and African countries were dissatisfied with the international regime of commercial arbitration.105 Notwithstanding the fact that the A A L C C suggestions for changes focused primarily on the procedural rules of conduct for international arbitration and on the 1958 New York Convention,^ it provided the initiative for a new model law which was immediately recognized as one of the UN's greatest achievements in the field of arbitration.107 First, the A A L C C was concerned with ensuring that in arbitral proceedings full effect would be given to the autonomy of the parties. In general, the question of party autonomy arose with respect to the freedom of the parties to choose procedural rules other than those of the place of arbitration and those of the place where it would be necessary for the award to be recognised and enforced. It should be recalled that in the 1970s there was still hostility in Asia and Africa (as well as in Latin America) towards arbitration. Developing countries, many of which were once colonies, saw international Its role encompasses everything from formulation of legal principles and advisory opinions to its members on particular legal problems, examination of the rules on international trade and economic relations, progressive development of international law, economic cooperation, and improvement of the position of member states in international organisations. For more discussion on the major goals of the A A L C C see, for example, H. Wen-Zhi, "Cooperation Between UNIDROIT and the A A L C C " in UNIDROTT, International Uniform Law in Practice (New York: Oceana Publishers, 1988) 91. 1 0 5 The A A L C C 17th session held of 5 July 1976 at Kuala Lumpur. The Decision of the A A L C C on International Commercial Arbitration is reproduced in the Secretariat Note A/CN/127 (20 October 1976). 1 0 6 For the text of the A A L C C ' s decision on international commercial arbitration made on 5 July 1976 at Kuala Lumpur see also H. Holtzmannn & J. Neuhaus, A Guide to Model Law, supra note 40 at 1162. 1 0 7 P. Sanders, "Chapter 12: Arbitration" in the International Encyclopedia of Comparative Law (Dordrecht: Martinus Nijhoff Publishers, 1996) at 25. 40 arbitration as an imposed method of dispute resolution,108 one which was governed by old-fashioned European laws and for which their own countries were almost never the venue.1 0 9 Indeed, because of their weak bargaining position in relation to the companies and businesses of developed countries, they felt compelled to accept London or Paris as a venue. Moreover, Asian and African countries, accustomed to the flexible and informal procedural rules of their own traditional arbitration (or conciliation), feared that the national laws of the place of arbitration would dictate a use of a complicated procedure in which they were not skilled. Furthermore, they feared that even the procedural rules drafted or agreed upon by the parties to arbitration proceedings might be disregarded by both arbitrators and the courts. For these reasons, they wanted stronger protection in place to ensure procedural fairness and due process, not by way of judicial review of the procedure or the award, but through an adequate legislative framework. They wanted a regime of international arbitration designed to protect the freedom of parties to choose the applicable rules and to oblige arbitrators and the courts to take the intention of all the parties more fully into consideration. This suspicion of international commercial arbitration also arose from the involvement of developing countries in arbitrations over oil investment contracts during the 1950s and 1960s. Some arbitrators used the theory of internationalization of oil investment contracts to isolate state contracts from the control of a state party arguing that national laws of developing countries were unsuitable as a 1 0 8 See M . Sornarajah, "UNCITRAL Model Law", supra note 26 at 7 and also a discussion of the ICJ judge Keba Mbaye, in ICC, 60 Years of ICC Arbitration: A Look at the Future (Paris: ICC, 1984) 293 at 295. See also F.S. Nariman, "Courts and Arbitrators: Paradigms of Arbitral Autonomy" (1997) 15. Boston U. Int'l L. J. 185 at 189. 1 0 9 See S. Sempasa, supra note 26 and S. Asante, supra note 66. 41 means to regulate international commerce.110 The A A L C C suggested that UNCITRAL should consider the possibility of preparing a protocol to the New York Convention which would ensure party autonomy whilst safeguarding fairness in arbitral proceedings. The second proposal which the A A L C C made to UNCITRAL was related to concerns about the misuse of sovereign immunity. There have been a number of situations where state agencies of developing countries, particularly in Latin America, often become involved in arbitration with private parties from developed countries. In general, these agencies could benefit from the ability to rely upon the state immunity privilege. As envisioned by the Calvo Doctrine1 1 1 and stipulated in the Calvo Clause, 1 1 2 1 1 0 See, for example, the Abu Dhabi case (1951) 18 I.L.R. 144 and Ruler of Qatar v. International Maritime Oil Company (1953) 20 I.L.R. 534. 1 1 1 Argentinean diplomat and scholar Carlos Calvo formulated the Calvo Doctrine in the late 19th century as a way of protection of Latin American countries from diplomatic intervention of Western countries seeking remedies for their companies operating in Latin America. The two basic principles of the Calvo Doctrine are: (a) independence and equality of sovereign states which enjoy the right to absolute freedom from interference of other states through force or diplomacy and (b) foreigners should be given equal treatment with nationals, which means foreigners have to seek redress in local courts and not by diplomatic intervention. For more on the Calvo Doctrine see D. Shea: The Calvo Clause (Oxford: Oxford University Press, 1955).-1 1 2 The Calvo Clause was formulated by the countries which accepted the Calvo Doctrine. It appeared in their constitutions (Mexico and Bolivia, for example) and in foreign investment contracts. There are 3 elements of the Calvo Clause: (1) equal treatment of nationals and foreigners, (2) exclusive jurisdiction of the host country and application of local law, (3) limitation of diplomatic protection. For further discussion on the Calvo Clause see: D. Manning-Cabrol, "The Imminent Death of the Calvo Clause and the Rebirth of the Calvo Principle: Equality of Foreign and National Investors" (1995) 26 Law and Policy in Int'l Bus. 1169, K. Dalrymple, "Politics and Foreign Direct Investment: The Multilateral Investment Guarantee Agency and the Calvo Clause (1996) 29 Cornell Int'l L.J. 161 and C. Baker & L.J. Yoder, "ICSID and the Calvo Clause; a Hindrance to Foreign Direct Investment in L D C ' s " (1989) 5 J. Disp. Resol. 75. See also North American Dredging Co. of Texas v. United Mexican State (1926) 4 Rev. Int'l Arb. Awards. 42 state agencies might rely on the sovereign immunity from any international claim and on the right of the state to resolve (investment) disputes with foreign investors by its courts and in accordance with its laws. The misuse of sovereign immunity in foreign investment transactions had already been addressed in the ICSID Convention to which some of the A A L C C countries were signatories. However/the A A L C C wanted to go beyond the restriction placed by the ICSID Convention on the use of this privilege. It proposed that a new set of arbitration rules should be created in order to preclude government agencies, which have already entered into agreements requiring the arbitration of disputes, from relying on sovereign immunity as a means of avoiding arbitration proceedings or enforcement of an unfavourable award.1 1 3 In sum, the A A L C C was of the view that the invoking of sovereign immunity would bring in an element of uncertainty to the main transaction and to arbitration. In particular, it might be unclear whether state agencies lack capacity to enter into a valid arbitration agreement or an agreement to arbitrate implies a waiver of the claim to jurisdictional immunity. In response to the A A L C C report, UNCITRAL rejected the idea of developing a protocol to the New York Convention. UNCITRAL concluded that any change to the New York Convention would require agreement by all of the parties, which would be a time consuming and complicated procedure. Instead, it proposed to establish uniform standards of arbitral procedure in the flexible form of a model law which would have 1 1 3 See the following cases related to the issue of state sovereignty: Mellenger v. New Brunswick Development Corporation [1971] 1 W.L.R. 604; Czarnikow Ltd. v. Centrala Handly Zagranicznego 'Rolimpex' [1978] 1 A l l E.R. 81; [1978] 2 Al l E.R. 1043; Award 2139/1974 (1974) III Y .B . Comm. Arb. 220,-Iptrade International S.A. (France) v. Federal Rebuplic of Nigeria (1978) 17 I.L.M. 1395 and Maritime International Nominees Establishment v. The Republic of Guinea (1981) 20 I.L.M. 669. 43 party autonomy as its paramount principle and which would also emphasise the procedural fairness identified by the A A L C C as being of major importance. UNCITRAL also rejected the second A A L C C proposal declaring that it would not deal with sovereign immunity. UNCITRAL's attitude was that the issue was "a part of a more general and complex problem having an obviously political and public international law character."114 It is interesting that UNCITRAL decided to advance party autonomy not only with respect to the rights of the parties to choose (and create) procedural rules but also as to the choice of substantive law. However, this position was considered by scholars from Asia and Africa to be excessive in comparison with the original proposal of the A A L C C . The resulting new concerns of the A A L C C were based on the premise that arbitrators might use their powers determined in article 28(2) of the M L to go beyond the interest of the parties. The scenario feared by the A A L C C was the following. The parties are free to choose the applicable law and they are free to determine the powers of the arbitrators but, if the parties fail to determine the applicable law, then the arbitrators may feel free to take into account trade usage and lex mercatoria or any other rules they consider applicable.115 At this point a general criticism of broad interpretation of arbitrator's powers begins. It is based largely on the argument that trade usage and lex mercatoria were created by Western European merchants and that a resort to such standards brings parties from 1 1 4 Chapter III of The 1977 Commission Report A/32/17 (24 August 1977) as reproduced in H. Holtzmann & .I.E. Neuhaus, A Guide to Model Law, supra note 40 at I 169. 1 1 5 M . Sornarajah, "UNCITRAL Model Law", supra note 26 at 17. 44 developing countries into an unfavourable position.1 1 6 This A A L C C criticism highlighted the complexity of UNCITRAL task and the importance of providing for limits to the powers of arbitrators, including the limits provided for in article 28(3) to act ex aequo et bono only with the specific agreement of the parties. The task of drafting the M L was given to the already existing UNCITRAL Working Group on International Contract Practices composed of representatives of 15 states"7 but experts from very many countries, representing different legal systems and cultures assisted it. To begin with, the Working Group held extensive consultations with the A A L C C , with the International Council for Commercial Arbitration (ICCA) and with the Arbitration Commission of the ICC. Then, a great number of individual experts were consulted. In sum, more then fifty states representing all regions and legal and economic systems and more then fifteen international organisations participated in the drafting 1 1 6 See also A. Rogers, "Contemporary Problems in International Commercial Arbitration" (1989) 17 Int'l Bus. Law. 154 at 158: "It seems to me that this approach equates universality with only the European world. This alleged universal law merchant held no sway in India, or China and even less in the less developed or undiscovered parts of the world." However, there are some suspicious towards the powers of arbitrators to act ex aequo al bono on behalf of developed countries, mainly with common law tradition. For example, see M . J. Mustill, "Contemporary Problems in International Commercial Arbitration: A Response" (1989) 17 Int'l Bus. Law. 161. Lord Mustill asks at 161: "Can parties effectively contract to have their disputes decided by arbitrators who are empowered to apply no defined principles, but merely their own ideas of what is fair? What is the status of any resulting award?" 1 1 7 The UNCITRAL Working Group on International Contract Practices [hereinafter the Working Group] initially included Austria, Czechoslovakia, France, Ghana, Guatemala, Hungary, India, Japan, Kenya, Philippines, Sierra Leone, Trinidad and Tobago, USSR, United Kingdom of Great Britain and Northern Ireland and United States of America. However, the growing interest of other states resulted in the enlargement of the Working Group in 1983 to include all 36 states members to.UNCITRAL. 45 phase.118 The UNCITRAL Secretariat did much preparatory work and collected data on national arbitration laws. Finally, during its five sessions in the period 1982-1984, the Working Group prepared a draft model law. After an extraordinary discussion during the 18th session, UNCITRAL established the final'text of the M L . 1 1 9 The final text had 36 articles divided into eight chapters.120 The last two chapters incorporated the New York Convention almost in its entirely.121 In that way UNCITRAL accomplished its task and finalised the three-pillar system of international arbitral justice. 1 2 2 The United Nations has recommended to its members that the M L should be considered for adoption.1 2 3 In general, the M L appears as a set of procedural rules which rely on party autonomy and provide a framework for arbitral proceedings when the parties themselves 1 1 8 G. Herrmann, "Introductory Notes to the UNCITRAL M L on International Commercial Arbitration" (1985) 1 Uniform L. Rev. 285 at 288. Holtzmann & Neuhaus mentioned that representatives from 62 states and 18 international organisations were present as members and observers. See H. Holtzmann & J.E. Neuhaus, A Guide to Model Law, supra note 40 at 13. 1 1 9 See the Report of the UNCITRAL of 21 August 1985, UN Doc. A/40/17. 1 2 0 Chapter I - general provisions (on the scope of application and basic definitions of the ML) ; Chapter II - arbitration agreement (on form and the substance of the arbitration clause itself); Chapter II - composition of arbitral tribunal; Chapter IV - jurisdiction of arbitral tribunal; Chapter V - conduct .of arbitral- proceedings; Chapter VI - making of award and termination of proceedings; Chapter VII - recourse against award and Chapter VIII - recognition and enforcement of awards. 1 2 1 Note, however, that the M L provides for enforcement of international awards which in the context of the territoriality principle of the New York Convention encompasses both foreign and domestic awards. 1 2 2 H. Holtzmann, "The Conduct of Arbitral Proceedings," a report submitted to ICCA-Interim Meeting at Lausanne, P. Sanders, ed., UNCITRAL's Project for a Model Law on International Commercial Arbitration, ICCA Congress Series No. 2 (Deventer: Kluwer Law and Taxation Publishers, 1984) [hereinafter ICCA Congress Series No. 2] 125 at p. 159. Holtzmann found the three-pillar system consisting of the 1958 New York Convention, the 1976 UNCITRAL Arbitration Rules and the 1985 M L . 46 fail to specify the procedure. The M L is applicable to international commercial arbitration. Even though the M L starts with definitions of "international" and "commercial", it remains silent on a great number of basic concepts contained in the text (arbitrability, liability of arbitrators, costs and interests, consolidation, to name but a few). 1 2 4 The basic principles, even though not stated in the M L itself, can be identified as party autonomy, limited court intervention, independence of the arbitral tribunal and fairness of procedure. A l l of these principles will be elaborated upon in the next heading. C . Basic Principles of the M L Notwithstanding the flexibility of the M L , which allows modification to the original text by the adopting state, the M L , as a framework for dispute resolution, is at its most efficient only if the delicate balance of its four basic principles is preserved. These four principles are not novel to the M L . They have existed in numerous international treaties and conventions and in the laws of various countries. The principles of party autonomy, independence of arbitral tribunals, limited court intervention and procedural fairness were incorporated into the two pillars of the international arbitration system which existed before the M L — the New York Convention and the UNCITRAL 1 2 3 The General Assembly of the United Nations Resolution 40/72 (11 December 1985). 1 2 4 For a non-exhaustive list of matters not governed by the M L see the commentary of the Working Group and the Secretariat as reproduced by H. Holtzmann and J.E. Neuhaus, 47 Arbitration Rules. However, with the M L , all of these principles gained more importance and achieved a unique balance not found within the individual national legal frameworks. 1. Party Autonomy According to the first report of the UNCITRAL Secretariat, "[pjrobably the most important principle on which the M L should be based is the freedom of parties ... to tailor 'the rule of the game' to their specific needs."125 This principle of party autonomy principle is not only a basic principle of contract law of all modern states and economies, but also the fundamental principle of international trade and investment.126 It has been recognised in general principles of law and international treaties such as the 1923 Geneva Protocol on Arbitration Clauses, the 1929 Geneva Convention on the Execution of Foreign Arbitral Awards121 as well as the New York Convention^2* to name but a few. A Guide to Model Law, supra note 40 at 218. 1 2 5 The First Secretariat Note, A/CN.9/207 (14 May 1981), para 17. 1 2 6 K - H . Bockstiegel, "The Role of Party Autonomy in International Arbitration' (1997) 52:3 Disp. Resol. J. 24 at 25. 1 2 7 The 1923 Geneva Protocol, supra note 10, article 2: "The arbitral procedure, including the constitution of the arbitral tribunal, shall be governed by the will of the parties and by the law of the country in whose territory the arbitration takes place." [emphasis added]. The 1927 Geneva Convention, supra note 10, article 1(c) provides that to obtain recognition or enforcement it shall be necessary "that the award has been mate by the Arbitral Tribunal provided for in the submission to arbitration or constituted in the manner agreed upon by the parties and in conformity with the law governing the arbitration procedure." [emphasis added]. 1 2 8 Article V(c)(d) of the New York Convention, supra note 10, indirectly says that 48 Also, even though the UNCITRAL Arbitration Rules do not directly address party autonomy, they make reference to it indirectly— by describing the authorities and duties of the tribunal if the parties fail to determine them.1 2 9 Indeed, it should be noted that the M L regulates only voluntary arbitration. Hence, it leaves a broad discretion to the parties to define procedural and substantive rules which will govern the arbitration, providing for minimal requirements as to the form and content of arbitration agreements. Even the requirement for written form in article 7 (2) of the M L is imposed primarily for the purpose of compliance with the provisions of the New York Convention, specifically Article 11(2).130 For these reasons, it is correct to say that the M L sees consensus of the parties as the cornerstone of arbitration and the agreement to arbitrate as an expression of the principle of freedom of contract. The M L enables parties to determine practically the whole pattern of arbitration. Namely, the parties have the right to enter into arbitration; to establish the arbitral tribunal; to decide on the place of arbitration; to choose the procedural rules, the rules of evidence, the language, and the rules of law applicable to the merit of their dispute. Article l(3)(c) of the M L confers on the parties, if they expressly agree that the recognition and enforcement of award can be refused if the will of the parties was not obeyed by arbitrators in the way that: "(c) the award deals with the difference not contemplated by or not falling within the terms of the submission to arbitration; (d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties." [emphasis added]. 1 2 9 See in particular articles 5,7,12 and 16 of the UNCITRAL Arbitration Rules, supra note 88. 1 3 0 Article 7 of the M L uses Article II (2) of the New York Convention, as a guideline, but it extends the list of written means, which can be accepted as being valid arbitration agreements. While the latter refers to an exchange of letters or telegrams, the former lists an exchange of letters, telex, telegrams or other means of telecommunication. 49 subject matter of their dispute is of an international character, the freedom to opt for the application of the M L . This is a controversial provision. At the first glance, it appears that the parties may choose to apply the M L even in a situation when other requirements for its application are not met. At the time of drafting of the M L , this option was vehemently objected to both the UNCITRAL Working Group and the UNCITRAL Secretariat on the grounds that parties might use this option as a means of escaping from mandatory provisions of the their domestic law that would normally be applicable to their dispute, or even to arbitrate a dispute which would not otherwise be arbitrable.131 In order to secure that paragraph (3) would not affect the legislation of states about arbitrability, the Working Group proposed that a new paragraph (article 1(5)) be added expressing the lex specialis character of the M L . This paragraph emphasizes that a dispute shall not be submitted to arbitration if any laws of the adopting states define such a dispute as non-arbitrable. In addition, the provisions in the M L articles 34 and 36, respectively, allow national courts to refuse to recognise or enforce an award on the grounds that the dispute to which it relates was not arbitrable under the lex fori. The right of the parties to proceed with arbitration, once written agreement is reached in accordance with article 7, is protected primarily by article 8(1). This article provides that when an action is brought before a court, the court will refer the parties to arbitration whenever the requirements with respect to the validity of an arbitration agreement are met. Clearly, this measure is in accordance with the basic intention of the drafters to utilise the compulsory power of state courts in order to protect private methods 1 3'See a discussion provided in H. Holtzmannn & J. E. Neuhaus, A Guide to Model Law, supra note 40 at 29-32. 50 of dispute resolution. Also, it should be noted that article 8(1) explicitly provides that a party can take the initiative to seek such protection.132 The articles which regulate the composition of an arbitral tribunal (articles 10(1), 11(2), 13(1)); those which regulate the conduct of arbitral proceedings (article 19(1), 20(1) and 22(1); and that which determine the law applicable to the substance of the dispute (article 28(1)), prioritise in the most explicit way party autonomy regarding mandatory provisions and judicial intervention. They establish almost exclusive rights for the parties, which are only restricted by the court's right to intervene for the purpose of due process.133 According to articles 10(1), 11(2) and 13(1), for example, the parties are free to decide the number of arbitrators and free to determine the procedure for appointment and challenge of arbitrators. Only if the parties fail to decide so, or if their attempt is unsuccessful, will the M L rules be applicable134 and will the courts or other authorities (determined by national laws) intervene.135 Again, the initiative belongs primarily to the parties, and only subsequently to courts. As to the conduct of arbitral proceedings, most of the articles also favour freedom of parties, conferring authority to the arbitrators only i f the parties fail to act. Article 1 3 2 Article 8(1): "A court shall ... if a party so request... refer the parties to arbitration 1 3 3 For detailed discussion on the purpose of limited court intervention see M.E. McNerney & C.L. Esplugues, "International Commercial Arbitration: The UNCITRAL Model Law" (1989) 9 Boston College Int'l & Comp. L. Rev. 47 at 47, and G. Herrmann, "The British Columbia Enactment of the UNCITRAL Model Law" in R.K. Paterson & B. Thomson, eds., UNCITRAL Arbitration Model Law in Canada: Arbitration Legislation [hereinafter Model Law in Canada](Toronto: Carswell, 1987) at 68. 1 3 4 Articles 10(2), 11 (3)(4)(5). 1 3 5 Articles 11(3) and 13(3). 51 19, 1 3 6 which provides the most liberal framework for arbitral proceedings, allows the parties to decide freely the procedural rules that will govern the arbitration. Here, they are limited only by the general conditions of due process accepted by the majority of legal systems—equal treatment of parties (article 18), the right to a hearing (article 24(1)), and the right to appoint and question experts (article 26). There have been some objections that such formalised and detailed requirements are contrary to the right of the parties to have a quick, uncomplicated resolution of their dispute, and that they lead to the judiciarization of arbitration proceedings.137.Obviously, the needs for certainty, fairness, and equality in arbitration procedures have to be balanced with party autonomy and the need for flexibility. Although the parties are limited by due process with respect to the conduct of arbitral proceeding, they are free to choose the place of arbitration,138 the language139 and the rules of law applicable to the substance of the dispute.140 The choice of the place of arbitration is important for at least three reasons. First, it determines the applicability of the M L itself1 4 1 and the nature of the arbitration.142 Secondly, it determines the place of 1 3 6 The drafters have called article 19 the "Magna Carta of arbitral procedure"; see the Seventh Secretariat Note, Analytical Commentary on Draft Test A/CN.9/264 (25 March 1984). 1 3 7 R. Lillich & C. Brower, eds., supra note 74 at Introduction ix. 1 3 8 Article 20. 1 3 9 Article 22. ' • 1 4 0 Article 28. 1 4 1 Article 1(2). 1 4 2 Article l(3)(b)(i). 52 the arbitration award.1 4 3 Finally, the choice of the place of arbitration determines the recognition and enforcement of the award.1 4 4 To reiterate, only if the parties fail to choose the place of arbitration will the arbitrators get the power to make such a choice. The solution provided in article 28 with respect to the choice of the law applicable to the merits of a dispute is one of the strongest indications that the M L prioritises party autonomy. First, article 28 provides that the parties are free to choose any rules of law they want to be applied by arbitrators in deciding on the substance of the dispute.145 It further determines that the term "national laws" should refer to the substantive laws, not the conflict of laws rules. 1 4 6 Conversely, when the arbitrator is authorised to choose the applicable law, his/her choice will be determined by the conflict of laws rules. 1 4 7 Thus, only the parties are free to choose any legal system they want; only they are free to combine rules from several systems in order to make a suitable framework for their transaction. The real issue here is whether the parties can use the power conferred on them in article 28 to set aside mandatory rules of law affecting the main contract.148 The 1 4 3 Article 31(3). 1 4 4 Article 36(a). 1 4 3 Article 28(l):"The arbitral tribunal shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute..." 1 4 6 Article 28(1): "...Any designation of the law or legal system of a given State shall be construed, unless otherwise expressed, as directly referring to the substantive law of that State and not to its conflict of laws rules." [emphasis added] 1 4 7 Article 28(2): "Falling any designation by the parties, the arbitral tribunal shall apply the law determined by the conflict of laws rules which it considers applicable." 1 4 8 Yves Derains cites several cases on the issue in his article "Public Policy and the Law Applicable to the Dispute in International Arbitration", in P. Sanders, ed., Comparative Arbitration Practice and Public Policy in Arbitration; ICCA Congress Series no. 3 (Deventer: Kluwer Law and Taxation Publisher, 1987) [hereinafter ICCA Congress 53 only limit imposed on the parties freedom to choose substantive law arises in articles 34 and 36 of the M L in the post-award stage of the procedure. In other words, if a mandatory rule of law has not been applied the national court may set aside an award for being against public policy (article 34(2)(b)(ii)). It may also be against public policy for a national court to recognise and to enforce such an award in some situations (article 36(l)(b)(2)). After the analysis provided above, it is. possible to conclude that the M L represents a significant attempt to broaden party autonomy in arbitral proceedings in order to meet the desire of parties to settle their disputes in private. However, recourse to national courts has not been eliminated. The extent of court involvement in arbitration within the M L framework is explored in the following section. 2. Limited Court Intervention The basic idea of balancing party autonomy and judicial intervention is that Series no. 3] 238 at 242-254. One case involves two companies—one from East Germany and one from West Germany. See also an award of June 1976 reported in (1979) IV Y.B . Comm. Arb. 197. Two companies concluded a .licence agreement and made the contract subject to the law of East Germany. At tlie same "time, the contract was void according to the mandatory rules of West Germany. In fact, it was contrary to the Article 85 of the Treaty Establishing the European Community, 25 March 1957. Arbitrators decided to examine the intention of the parties in order to find out whether they wanted to escape from the mandatory competition rules. They decided that the law of East Germany should be applicable. 54 arbitration and the courts are complementary legal processes. Arbitrators and courts are partners in a system of international commercial justice and not antagonists or competitors.149 The most important article that defines this balance is article 5 which reads: "In matters governed by this Law, no court shall intervene except where so provided in this Law." In other words, article 5 establishes the principle of express exclusion of judicial intervention in arbitral proceedings to'the extent'provided for in the other provisions of the M L . There had been some concern even within the Working Group, and especially on behalf of the English delegation,150 that this limitation would result in an unnecessary restriction in the scope of judicial control over arbitration. The reason for such an opinion is the English tradition of courts supervising private dispute resolution.151 However, these objections did not change the plan of the drafters to opt for a minimum of court intervention in arbitral proceedings. The answer advanced to the objection was that the area governed by the M L was not defined precisely and that this, in fact, gave both 1 4 9 This idea was first presented at the ICCA's 6th International Congress on Arbitration in March 1978. See "Resolutions of the Working Group II: Arbitration and Courts", in Proceedings of the Sixth International Arbitration Congress, Mexico City, 13-16 March 1978 (1979) IV Y . B . Comm. Arb. xxii, para.2 . ". 1 5 0 See U K Comments A/CN.9/263/ADD.2 (21 May 1985) in H. Holtzmannn & J.E. Neuhaus, A Guide to Model Law, supra note 40 at 224-228. 1 5 1 See M . J. Mustill, " A New Arbitration Act for the UK? The Response of the Departmental Advisory Committee to the UNCITRAL Model Law" (1990) 6 Arb. Int'l 3 at 8 [hereinafter " U K Response to Model Law"]. •55 arbitrators and judges a certain amount of discretion.152 Court intervention is provided for in the M L articles at all stages of proceedings. Article 6 implicitly draws the line between two groups of articles which regulate court intervention. This article allows states, following their own hierarchies of judicial function, to decide which court or other authority will act supportively and supplementary to the parties' authority153 in the appointment of the arbitrators,154 challenge of arbitrators,155 failure or impossibility of arbitrators to act,1 5 6 determination of preliminary questions of arbitrators'jurisdiction157 and the setting aside of an award. 1 5 8 Article 9 explicitly gives a party the right of to seek from the court interim measures of protection, while article 17 empowers arbitrators to grant interim measures of protection.159 Finally, article 27 calls for court intervention in the taking and 1 5 2 See, H. Holtzmannn & J.E. Neuhaus, A Guide Model Law, supra note 40 at 217. 1 5 3 For example, in BCICAA, this authority; is. conferred on the Chief Justice of the Supreme Court of British Columbia (article 11(4)(5)) or to the Supreme Court itself (13(3)). In Russia, the LICA provides that these functions will be performed by the President of the Russian Chamber of Commerce and Industry (article 6). Until 1996, the appointing authority in Flong Kong was the High Court, but then the 1996 Ordinance (No. 75 of 1996) conferred the function to the FIK1AC (section 12(1)(2)).. 1 5 4 Article 11 (3)(4). 1 5 5 Article 13(3). 1 5 6 Article 14. 1 5 7 Article 16(3). 1 5 8 Article 34(2). . : l 5 ' ' Article 9: "It is not incompatible with,an arbitration agreement for a party to request, before or during arbitral proceedings, from a court an interim measure of protection and for a court to grant such measure." Article 17: "Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order any party to take such interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject-matter of the dispute. 56 preservation of evidence in arbitral proceedings.160 The parties will seek interim measures of protection from the courts for two reasons..First, because it may be the exclusive power of courts to order certain types of interim protection161 and second, because although the arbitrators might have the authority to grant interim measures, only courts have the power to enforce them. It is for the latter reason that the effectiveness of arbitration and its independence from the courts is questioned. Moreover,'this situation sheds more light on the issue of concurrent power of arbitrators and courts.162 Besides the fact that arbitration lacks the enforcement mechanisms the courts possess, the problem is in the private nature of the arbitration itself. Since arbitration is established on a consensual basis, its measures are directed only at the parties from the arbitration agreement. In contrast, the courts' measures can be addressed to anyone, not only to the parties involved in the case before court. In short, by providing for court assistance only upon the request of a party or of the arbitral tribunal itself, or in other words by preventing courts from sua sponte actions with respect to measures of interim protection, the M L moved the pendulum from judicial intervention towards arbitration. The arbitral tribunal may require any party to provide appropriate security in connection with such measure." 1 6 ( 1 Article 27: "The arbitral tribunal or a party with the approval of the arbitral tribunal may request from a competent court of this State assistance in taking evidence. To court may execute the request within its competence and according to its rules on taking evidence." 1 6 1 For instance, Mareva injunction, or an injunction to attach bank accounts. 1 6 2 On concurrent power of arbitration and courts see M . McNerney & C.E. Esplugues, 57 (i) Court Intervention Outside Article 5 According to article 5, the M L explicitly determines the extent of permissible court intervention. However, in a number of their notes and reports the Working Group and the Secretariat have offered lists of issues that definitely remain outside the M L . These issues, for example, include the capacity of parties to conclude the arbitration agreement, the impact of state immunity, the contractual relations between the parties and the arbitrators, fixing of fees and costs and requests for deposits or security, consolidation of arbitral proceedings, competence of arbitrators to adapt contracts, enforcement of courts of interim measures ordered by the arbitrators, the period of time for enforcement of arbitral awards and the liability of arbitrators for misconduct or error.1 6 3 The Working Group and the Secretariat have suggested, without dwelling on the point, that it should be legislatures or even courts, but certainly not the parties to arbitration, who should decide whether or not court intervention is warranted in a particular case.164 Thus, the issue.of arbitrability of a dispute may vary from state to state, and from case to case. supra note 133 at 57. 1 6 3 For the full list of matters not governed by the M L see H. Holtzmann & J. E. Neuhaus, A Guide to Model Law, supra note 40 at 218. 164 Ibid., at 219. 58 (ii) Public Policy Issue This analysis will not elaborate on the use of the term "public policy" in the context of international arbitration165. Neither will it go into a detailed legal comparison between article V of the New York Convention and articles 34 and 36 of the M L , which are near duplicates of article V 1 6 6 . Since arbitrability167 and public policy 1 6 8 issues are two concerns which courts examine ex officio, the emphasis in this thesis will be on the ex officio actions of courts or other authorities with respect to the setting aside of awards (article 34(2)(b)), and actions of courts with respect to the refusal to recognise and enforce awards (article 36(l)(b)).1 6 9 The concept of arbitrability is, in fact, also a public policy limitation upon the scope of arbitration.170 In articles 34 and 36 reference is made to the issue of arbitrability in terms of so-called objective arbitrability: that is, what can be arbitrated.171 The 1 6 5 For a detailed discussion see P. Lalive, "Transnational (or Truly International) Public Policy and International Arbitration" in P. Sanders, ed., ICCA Congress Series No. 3, supra note 148, at 258. 1 6 6 Grounds for setting aside an award in article 34(2) and for refusal of recognition and enforcement of an award in article 36 of the M L are the same as the grounds for refusal of recognition and enforcement of the foreign award provided in Article V of the New York Convention. 1 6 7 Article 34(2)(b)(i) and article 36(l)(b)(i). 1 6 8 Article 34(2)(b)(ii) and article 36(l)(b)(ii). 1 6 9 Article 34(2)(a) and article 36(l)(a) impose the obligation to furnish certain proofs on the party which applies to the court. 1 7 0 A. Redfern & M . Hunter, supra note 5 at 105; also A. J. Van Den Berg, The New York Arbitration Convention of 1958 (Deventer: Kluwer Law and Taxation Publishers, 1981) at 360 [hereinafter New York Convention]. 1 7 1 On objective and subjective arbitrability see K.-H. Bockstiegel, "Public Policy and 59 arbitrability is to be determined by the law of. the country where the setting aside or recognition and enforcement of award is sought. Thus, that country's public policy will decide what will be arbitrable. However, non-arbitrable issues may, after a certain time, become arbitrable.172 Usually, non-arbitrable issues are within the field of the laws on competition law, bankruptcy, intellectual property rights, and matrimonial status.173 The M L does not resolve the ambiguity of the issue of arbitrability. In general, article 1(5) of the M L leaves the issue of arbitrability outside the domain of the principle of party autonomy and the M L itself.1 7 4 This leads us to the second problem—public policy. The phrase itself, controversial at the time the M L was drafted, was much debated by the Working Group of UNCITRAL. This debate reveals a great uncertainty with respect to the actual meaning of the notion and its place within articles 34 and 36. Even the legislative history of the drafting cannot offer reliable guidelines.175 It is significant that the "public policy problem" had appeared earlier since, under Article V(2) of the New York Convention, public policy is grounds for refusal to enforce awards. The prevailing opinion at the time of drafting the M L was that the notion of Arbitrability" in P. Sanders, ed., ICCA Congress Series No.3 at 188. 1 7 2 See Mitsubishi Motors v. Soler Chrysler-Plymouth Inc. 473 U.S. 614 (1985). 1 7 3 For example, the French Civil Code of 1804 (Code civil des Franqais) mandates that "one can arbitrate with respect to all rights of which one can dispose freely" (article 2059), but cannot submit to arbitration "questions of status and capacity of persons, questions relating to divorce and separation, or questions respecting controversies that concern public entities or public establishments and more generally any matter that concerns the public order" (article 2060). 1 7 4 Article 1(5): "This Law shall not affect any other law of this state by virtue of which certain disputes may not be submitted to arbitration...". 1 7 5 See discussion provided in H. Holtzmannn & J. E. Neuhaus, A Guide to Model Law, supra note 40 at 918-920. 60 "public policy" had to be interpreted narrowly, otherwise it could be misused to enable a losing party to inappropriately avoid enforcement of an arbitration award. When public policy has to be interpreted by national courts and according to national laws, the uncertainty may be even greater because public policy is highly dependent upon national legal culture. For instance, when public policy has to be determined according to Russian Law, courts have to look into the Fundamentals of Civil Legislation of the USSR.176 The explanation there is that public policy represents the fundamental principles of Russian law. Such a broad and thus vague definition allows broad scope for court interpretation. In summary, the M L , by choosing to pattern important provisions after the New York Convention Article V, failed to bring more certainty to the determination of the limits of ex officio court intervention with respect to subject-matter arbitrability and public policy. Since public policy has traditionally been used as a ground for refusal.to enforce both foreign arbitral awards and foreign court judgments,177 it is surprising that the M L failed to propose an original solution. UNCITRAL chose, instead, to maintain the solution adopted in the New York Convention. Because the term public policy could be understood as having different meanings in different legal systems, the Working Group was not able to reach a solution acceptable to all participants. Moreover, the Working Group and the Secretariat in discussing the term "public policy" referred to "the fundamental notions and principles of justice", but not to "the political stance or 176 Fundamentals of Civil Legislation, enacted on 21 October 1991, in force since 1 January 1995. 1 7 7 J. A. Van Den Berg, The New York Convention, supra note 170 at 360. 61 international policies of a State."178 In other words, the term "public policy was deemed to encompass fundamental principles of law and justice in substantive and procedural respects."179 Unfortunately, this formulation of the M L could give rise to the suspicion that international commercial arbitration lacks certainty since enforcement of awards might be refused on the basis of a vague concept. This means that the meaning of the words "public policy" will depend on domestic judicial interpretations such as in the well-known Mitsubishi Motors v Soler Chrysler-Plymouth Inc., case, where the Supreme Court of the United States held that disputes involving important regulatory issues, such as those arising under the U.S. federal antitrust laws, were arbitrable.180 By expanding the scope of international arbitration to encompass antitrust issues arising under international contracts the Supreme Court of the United States sent an important message to other jurisdictions to consider changing their own attitudes regarding the arbitrability of statutory claims support of international commercial arbitration. 1 7 8 The Report of the UNCITRAL on the work of its eighteenth session A/40/17 (3-21 June 1985) para. 296. 179 Ibid., para. 297. 1 8 0 In Mitshubishi, the Supreme Court.of the United States enforced an arbitration clause in the contract between Mitsubishi, a Japanese car manufacturer, and Soler, a Puerto Rico based dealership. Soler insisted that the dispute was not arbitrable, because it involved the issues mandatory governed by the United States antitrust laws. The Court rejected Soler's argument and held that the arbitration clause had to be enforced under the New York Convention. More important the Court emhasized that "concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes, all require enforcement of the arbitration clause in question, even assuming that a contrary result would be forthcoming in a domestic context." See the judgment delivered by-Justice Blackmun in Mitsubishi Motors v. Soler Chrysler-Plymouth Inc. 473 U.S. 614 (1985) at 615. 62 3. Independence of Arbitral Tribunal As a principle of the M L , independence of the arbitral tribunal refers to a number of powers conferred on arbitrators in order to enable them to carry on arbitral proceedings and to render awards. Arbitral independence can also refer to the relationship between the arbitrators and any of the parties,181 though this topic will not be discussed below. Specifically, the principle of independence of arbitral tribunals encompasses the right of arbitrators to rule on their competence, the power to provide interim measures of protection, and the right to appoint experts to assist them.1 8 2 The sources of these powers are the parties' agreements to arbitrate, on one hand, and the national law, on the other. Consequently, the authority of arbitrators cannot be broader than provided for by the parties and by the national law. 1 8 3 This is consistent with the principle of party autonomy and the fact that arbitration is a procedure voluntarily undertaken by the parties.184 The types of disputes which arbitrators have jurisdiction to settle are specifically agreed to by the parties and set out in the Scope of Arbitration clause. By opting for particular procedural rules, the parties further determine limits to the procedural powers of arbitrators and the ways in which arbitrators are to arrive at their awards. However, national law sets limits to both party autonomy and to the powers of arbitrators in two 1 8 1 A. Redfren & M . Hunter, supra note 5 at 218-226. 1 8 2 R. Paterson, "An Overview" in R. Paterson & B. Thomson, Model Law in Canada, supra note 133 at 114. 1 8 3 S. Jarvin, "The Sources and Limits of the Arbitrator's Powers" (1994) Arb. Int'l 140 at 140. 1 8 4 C M . Schmitthoff, "Defective Arbitration Clauses" (1975) J. Bus. L. 9 at 9. 63 ways. First, it determines what can be arbitrated; then, it establishes a number of mandatory procedural rules. In this sense, the M L sets certain mandatory rules in order to protect procedural fairness. (i) The Right of Arbitrators to Rule on Their Jurisdiction This right is governed by article 16 of the M L . The first paragraph of this article incorporates two principles which largely determine the independence of arbitral tribunals—severability of arbitration clause and Kotnpetenz-Kompetenz. Kompetenz-Kompetenz deals directly with the power of arbitrators to rule on their own jurisdiction, while the severability principle deals with the validity and autonomy of an arbitration clause as distinct from the main contract. The two principles have been embodied within the same paragraph of article 16 to emphasise their close relationship: "(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement [Kompetenz-Kompelenz]. For that purpose, an arbitration clause, which forms part of a contract, shall be treated as an agreement independent of the other terms of the contract [severability]. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause [severability]."185 In some international proposals186 and national laws adopting the M L , the two principles are incorporated in separate paragraphs in order to clarify their meaning and 1 8 5 A l l italicised emphases added. 1 8 6 See, for example, article 21(1 )(2) of the UNCITRAL Arbitration Rules, supra note 88. 64 interrelation.187 The BCICAA, for example, separates the two principles in the following way: Section 16 "(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objection with respect to the existence or validity of the arbitration agreement [Kompelenz-Kompelenz], and for that purpose, (a) an arbitration clause with forms part of a contract shall be treated as an agreement independent of the other terms of the contract [severability], and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause [severability]." Thus, although these principles were adopted by' some countries in a slightly different form, their meaning has been preserved as defined in the M L itself. Severability of Arbitration Clause The severability principle "significantly curtails judicial interference with arbitration,"188 confining it to "situations in which the validity of the arbitration clause itself is in question."189 The severability principle has been widely adopted, and in similar 1 8 7 See, for example, relevant provisions of the statutes of Canadian provinces. 1 8 8 G. Delaume, "Court Intervention in Arbitral Proceedings" in T. Carboneau, Resolving Transnational Disputes Through International Arbitration (Charlottesville: The University of Virginia Press, 1984) 195 at 204-205. 1 8 9 G. Delaume, ibid., at 205. • 65 form, in most European countries and in the United States.190 As previously mentioned, severability is incorporated into article 21(2) of the UNCITRAL Arbitration Rules. 1 9 1 The provision for arbitration may be a clause of the main contract or may form a separate agreement. In the latter case, it is almost universally accepted that invalidity of the main contract does not affect the validity of the arbitration agreement and the jurisdiction of the arbitrators. Such acceptance, when an arbitration clause is contained in the main contract, has not always been so widespread. However, it has gradually been accepted in England and in countries influenced by English traditional law. 1 9 2 As a result, the English approach has come closer to the continental European approach.193 Indeed, severability has been recognised in Belgium, France, Germany, Greece, Italy, the 1 9 0 See A. Samuel, Jurisdictional Problems in International Commercial Arbitration: A Study of Belgian, Dutch, English, French, Swedish, Swiss, U.S. and West German Law (Zurich: Schulthess Plygraphischer Verlag, 1989) at 155. 1 9 1 But, it is not directly addressed in the 1961 European Convention, supra note 95, nor in the ICSID, supra note 92, and the Panama Convention, supra note 96. 1 9 2 Severability was widely discussed by the House of Lords in Heyman v. Darwins, Ltd. [1942] A .C . 356. Their Lordships dealt with the availability of the arbitration clause included in the contract which had been repudiated. They decided to stay proceedings but the arguments given separately by their Lordships reveal the great controversy of the issue. According to Viscount Simon L.C. , "an arbitration clause is a written submission, agreed to by the parties to the contract, and like'other written submissions to arbitration, must be construed according to its language and in the light of the circumstances in which it is made." See Heyman v. Darwins, Ltd., ibid at 366. Consequently, Viscount Simon L.C. moves on and concludes that "it is fallacious to say that because the contract has "come to an end' before performance begins, the situation, so far as the arbitration clause is concerned, is the same as though the contract had never been made." See, ibid., at 368. 1 9 3 In Bremer Vulkan Schijjbau und Maschinenfabrik v. South India Shipping Corporation Ltd. [1981] 2 W.L.R. 141, the English Court of Appeal adopted an approach favourable to the severability doctrine ruling that an arbitration agreement "is, in strict analysis, a separate contract, ancillary to the main contract." See, ibid., at 166. 66 Netherlands, Sweden and Switzerland,1 9 4 as well as in the former USSR and the socialist bloc countries.195 In general, the continental approach assumes that since an arbitration clause is severable, the authority of arbitrators is not disputable as long as it derives from a valid arbitration agreement.196 Therefore, an arbitral tribunal may rule on a dispute which arises from the main contract. However, this is subject to another assumption, that the arbitration clause is valid and broad enough to include any dispute regarding the validity, interpretation or performance of the contract.197 In other words, a problem may arise as to the question of the arbitrator's jurisdiction when an arbitration agreement itself is not valid. The M L provides a solution by adopting the Kompetenz-Kompetenz principle. • • • , The Kompetenz-Kompetenz Principle This principle originated in German law which provided that parties might confer 1 9 4 See G. Delaume, supra note 188 at 204. 1 9 5 See W.E. Butler, Arbitration in the Soviet Union (New York: Oceana Publication, Inc., 1989) at 5. The approach was confirmed in a number of cases—such as V/O Eksportles v. S.A. Lemayer Freres (Belgium), the FTAC award of 6 October 1952, and V/O Sojuznefteeksport v. Joint Stock Company of A. Moroni & K. Keller (Venice), the FTAC award of 7 January 1960, reported in W.E. Butler, ibid.., as the awards no. 40 and 75 respectively. 1 9 6 See G. Delaume, supra note 188 at 204. 1 9 7 The importance of a broadly drafted arbitration clause to enjoy the advantages of the severability principle has been emphasised by C. Schmitthoff, " The Jurisdiction of the Arbitrators" in J.C. Schultz & A. J. Van den Berg, The Art of Arbitration (Deventer: Kluwer Law and Taxation Publishers, 1982) at 291-292 and J. Bagwell, "Enforcement of Arbitration Agreements: The Severability Doctrine in the International Arena: Republic of Nicaragua v. Standard Fruit Co.," (1992) 22 Ga. J. Int'l Comp. L. 487 at 500-501. 67 on arbitrators the power to rule on their own jurisdiction and that an arbitrators' ruling, not the courts, would be the last word on the issue.1 9 8 The principle was accepted in modified form by other legal systems of continental Europe to confer on arbitrators the power to rule provisionally on the existence, validity and scope of an arbitration agreement, the last word being given to courts.199 This modified principle is incorporated, for example, in the 1961 European Convention,200 in the ICSID Convention2^ and in the UNCITRAL Arbitration Rules. 2 0 2 The Kompetenz-Kompetenz principle also includes the power to decide on whether the tribunal is correctly established.203 Some authors find that the principle means "no more than that arbitrators can look into questions that affect their jurisdiction without waiting for a court to do so." 2 0 4 1 9 8 As explained in P. Schlosser, "The Competence of Arbitrators and of Courts" (1992) 8 Arb. Int'l 189 at 199. 1 9 9 However, Schlosser argues that the principle has been modified in Germany by a decision of the Federal Court in 1988 (Wertpapiermitteilungen 1988, 1430) to mean that the arbitrators have the "first shot" regarding the scope of arbitration agreement. See P. Schlosser, ibid., at 203. 2 0 0 The European Convention, supra note 95, article V(3): "Subject to any subsequent judicial control provided for under the lex fori, the arbitrator whose jurisdiction is called in question shall be entitled to proceed with the arbitration, to rule on his own jurisdiction and to decide upon the existence or the validity of the arbitration agreement or of the contract of which the agreement forms part." 2 0 1 The ICSID Convention, supra note 92, article 41(1): "The Tribunal shall be the judge of its own competence." 2 0 2 The UNCITRAL Arbitration Rules, supra note 88, article 21(1): "The arbitral tribunal shall have the power to rule on objections that it has no jurisdiction, including any objections with respect to the existence or validity of the arbitration clause or the separate arbitration agreement." 2 0 3 P. Schlosser, supra note 198 at 200. 2 0 4 W. Park, "Text and Context in International Dispute Resolution" (1997) 15 B.U. Int'l 68 The M L established Kompetenz-Kompetenz as a mandatory principle and the parties may not contract out the right of arbitrators to rule on jurisdiction. However, the M L does not give all the powers to arbitrators. Their decision on jurisdiction is not res judicata, but only the initial ruling on the issue. If certain procedural requirements set out in article 16(3) have been met, the M L allows concurrent court proceedings.205 In addition, the courts can deal with the issue in a number of other situations. For example, when ruling in the context of article 8(1) to stay proceedings and to refer a matter to arbitration, a court can decide on the issue of jurisdiction. In can also deal with the jurisdiction of arbitrators after the award has been made, i.e., when deciding to set aside the award (article 34), or when deciding on recognition and enforcement of the award (articles 35 and 36). In short, according to the M L arbitrators may rule on their jurisdiction sua sponte (article 16(1)), on the initiative of a party (article 16(2)), in the form of interim award or in the form of a final award on the merits (article 16(3)).206 Finally, a party unsatisfied with the arbitrators' ruling may bring the issue before a national court (article 16(3)). To conclude, the M L adopted the modified Kompetenz-Kompetenz principle which gives arbitrators the "first shot" at the jurisdictional issue, while the "last shot" or a L.J. 191 at 201. 2 0 5 Article 16(3): "If the arbitral tribunal rules as a preliminary question that it has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court specified in article 6 to decide the matter, which decision shall be subject to no appeal." 2 0 6 But see, for example, article 21(1)-offhe UNCITRAL Arbitration Rules, supra note 88, which provided that arbitral tribunal rules "on objections" of a party that it has no jurisdiction. 69 final decision is reserved for the court.207 In that way the Working Group tried to balance two different approaches to the problem of division of powers between the courts and arbitrators. For a number of common law countries, accustomed to court supervision over arbitration, the Kompetenz-Kompetenz principle was a step too far. For example, England was reluctant to accept the extended powers of arbitrators primarily fearing errors in law and procedural misconduct and considering "last shot" type court intervention to be a waste of the parties' time and money. On the other hand, the civil law countries which had earlier adopted the Kompetenz-Kompetenz principle (either pure or modified) 2 0 8 opted for the principle as the means of avoiding dilatory tactics by a resistant party. Article 16(3) has been included as a compromise which gives the initiative to arbitrators to decide the issue sua sponte as a preliminary question, but also gives the right to a party to ask for a court decision on this arbitral preliminary ruling. Arbitrators do have the discretion to admit an untimely plea, but not in the post-award phase. The intention of the Working Group and the Secretariat was to preclude a party which fails to act in a timely fashion from raising the jurisdictional objection in the post-award phase—that is, at the stage of setting aside or enforcing the awards.209 Examination by the courts of the issue 2 0 7 The expressions the "first and last shot" have been borrowed from Gerold Herrmann, the Secretary of UNCITRAL. See. G. Herrmann, "The Arbitration Agreement", supra note 66 at 48. 2 0 8 In addition to the pure principle as originally established in German law, professor Schlosser calls pure Kompetenz-Kompetenz the solution provided for in article 1468(1) of the French 1981 Code of Civil Procedure which gives the jurisdiction to arbitrators to have the first shot even if the arbitral tribunal has not been appointed and thus no proceedings have been started. See P. Schlosser,.supra note 198 at 201. 2 0 9 See the Fifth Working Group Report, A/CN.9/246 (6 March 1984) as reproduced in Holtzmann and Neuhaus, A Guide to Model Law, supra note 40 at 510. It should be noted, however, that both the Working Group and the Secretariat emphasised that this 70 will not stop the ongoing arbitration, but ruling by the court on the issue is final. (ii) The Right of Arbitrators to Provide Interim Measures This right has already been mentioned in the section on limited court intervention. To reiterate, there are some measures that may be ordered by an arbitral tribunal, and there are some measures that can be ordered only by the courts. Article 17 "Unless otherwise agreed by the parties, the arbitral tribunal may, at the request of a party, order any party to take such interim measure of protection as the arbitral tribunal may consider necessary in respect to the subject-matter of the dispute. The arbitral tribunal may require any party to provide appropriate security in connection with such measure." Thus article 17 of the M L , which empowers arbitrators to order interim measures of protection at the request of a party, does not specify the types of measures which may be so ordered. It is also silent on the enforcement of such measures. There is no doubt that arbitrators may order interim measures only with respect to the parties to a dispute and only if necessary to protect the subject matter of the dispute. That power derives from the contractual nature of arbitration. However, the M L does not specify this power as a preclusion does not mean that a court ruling on setting aside or enforcement of an award is not going to examine the issue on their own initiative. Yet, such an examination will come only in the context of examination of arbitrability of a subject matter of a dispute and public policy. See H. Holtzmann and J.E. Neuhaus, A Guide to Model Law, supra note 40 at 483. 71 mandatory power, which means that the parties may decide otherwise. In this context, it is important to note that article 9 of the M L permits a party to seek interim measures of protection from a national court. Thus, it is clear that a decision by the parties not to empower the arbitral tribunal to order interim measures of protection does not mean that the parties have completely given up their right to seek interim measures. On the contrary, this rather confirms that the parties have a right to choose the protection they consider to be the most appropriate. As far as the enforcement of interim measures is concerned, the silence of the M L should be interpreted as a decision of the Working Group to leave the enforcement function to courts in order to avoid transformation of arbitration into another type of a court.2 1 0 Hotlzmann and Neuhause reveal that there was extensive discussion with respect to determination of the types of interim measures which may be awarded by arbitrators. Those mentioned initially were: measures to preserve goods by depositing them with a third person or selling perishable items; opening bank letters of credit; using or maintaining machines or completing phases of construction, where necessary, to prevent irreparable harm; preserving evidence until a later stage of the proceedings; and measures to protect trade secrets and proprietary information.211 In the end, the Working Group declined to provide a non-exhaustive list of measures. Consequently, the arbitral tribunal may order any measure except a measure that is binding upon third parties or a measure that can be enforced only with the appropriate power of the courts (such as the Mareva 2 1 0 Z. Stalev, "Interim Measures of Protection in the Context of Arbitration" in A. J. Van den Berg, ed., ICCA Bahrain Conference, supra note 66, at 107. 2 1 1 See Ii. Hotzmann & J.E. Neuhaus, A Guide to Model Law, supra note 40 at 531. 72 injunction or the Anton Piller order). (iii) The Right of Arbitrators to Appoint an Expert to Assist Them This is also a non-mandatory right which the parties may agree not to confer on the arbitrators. Article 26 of the M L enables arbitrators to gain more knowledge on the particular subject matter of a dispute by giving them the right to appoint an ex officio expert without the express authorisation of the parties. However, assistance of such an appointed expert on special issues does not mean his or her involvement in decision-making. Decision-making is given solely to arbitrators. Moreover, in accordance with the protection of the principle of the procedural fairness, not only are the parties given the opportunity to examine experts appointed by the tribunal, but they have the right to call their own experts (article 26(2)). 4. Procedural Fairness The imperative of procedural fairness is not novel to the M L . It is a fundamental principle of modern laws. The M L incorporates the principle in a number of articles such as articles 1 8, 24(1), 26 and 34(2)(a)(ii). In the M L it has at least two dimensions. One is 73 equal treatment of the parties, which means that both parties should have the same opportunity to present their case, and that the same procedural rules will be applied for both the claimant and the respondent. The second dimension is that the parties will be protected from procedural failures of the arbitrators. In other words, it is a mandatory duty of arbitrators to protect fairness during the course of arbitration. Lack of procedural fairness may be a grounds for setting aside an award or for the rejection of recognition and enforcement of an award. It should be noted that the M L article 34(2)(a)(ii) and the New York Convention article V(l)(b) establish the same basis for action against an award: the party making the application was not given- proper notice of the appointment of an arbitrator or of the arbitral proceedings, or was otherwise unable to present his/her case. There have been some objections that the detailed, strict and formal requirements of articles 18, 24(1) and 26 are contrary to the right of the parties to have a quick, uncomplicated resolution of their dispute.212 However, the Working Group found that the needs for certainly, fairness and equality, or simply for the protection of due process, should not be subrogated to in the name of the need for flexibility and better protection of party autonomy.213 2 1 2 R. Lillich & C. Brower, eds., supra note 74 at ix. 7 4 D. Basic Paradox: Importance of Court Assistance Although arbitration offers parties a non-judicial means for dispute resolution, it relies upon the compulsive power of the courts. There are three stages of arbitral proceedings when powers exercised by the courts are important. First of all, the parties' agreement to arbitrate cannot be enforced without a competent court authority. Then, courts provide necessary assistance to arbitrators during the proceedings whenever the conduct of arbitration depends on the use of measures which cannot be enforced by the arbitral tribunal itself (such as the power to order certain interim measures, to take evidence, etc.). Finally, courts give binding effect to arbitral awards. The nature of the relationship between arbitration and courts is the reason for debate about the effectiveness of arbitration and its independence from national courts. To paraphrase Jacques Werner, the question still remains as to why would international business people want the court to help in their arbitral proceedings if they insist, at the same time, on recognition of party autonomy, independence of international arbitration and limitation of court intervention?214 The M L tries to resolve this basic paradox starting from the premise that arbitration and the courts are complementary legal processes and that they are not antagonistic or competitive.215 Moreover, the M L closely follows the lines of the Resolutions of ICCA"s 6th International Arbitration Congress held in 1978: 2 1 3 Seventh Secretariat Note A/CN.9/264 (25 March 1985). 2 1 4 J. Werner, "Should the New York Convention be Revised to Provide for Court Intervention in Arbitral Proceedings?" (1989) 6 J. Int'l Arb. 113 at 116. 2 1 5 See, supra note 147. 75 "While arbitration is a process created by and responsive to the will of the parties, it is nevertheless governed by national laws and international treaties and cannot function effectively without the support of national courts which interpret and enforce those laws and treaties. The understanding and cooperation of judges of national courts is, therefore, a vital and indispensable element in establishing and maintaining international commercial arbitration."216 In this sense, the M L represents an attempt to support the private resolution of disputes and to allow states, at the same time, to protect their interests and public policy objectives.217 Drafters of the M L believed that this task would best be achieved by establishing the principle of limited court intervention as a deterrent to unwanted court interference in arbitration proceedings. Yet, one might argue that it is impossible to establish a uniform threshold for all adopting countries since "what is considered in one country as beneficial court assistance is regarded by users from other judicial systems as inappropriate intervention." 2 1 8 In other words, if the M L sets too high a threshold for court intervention, many countries might reject adoption of the M L because they would see such a limitation as a limitation to their sovereignty. On the other hand, if the threshold is set too low, then the national courts would get too much supervisory power, which is contrary to the basic principles of the M L itself—party autonomy and the 216 Ibid, para. 3.. 2 1 7 Dr. Ivan Szasz, Hungary's representative in UNCITRAL and Chair of the Working Group of UNCITRAL on the M L , says that the M L is "a well balanced solution [...] in the interest of both the parties and the states concerned"; see I. Szasz, "Introduction to the Model Law of UNCITRAL on International Commercial Arbitration" in P.Sanders, ed., ICCA Congress Series No.2, supra note 122 at 37; also W. C Graham, "The Internationalisation of Commercial Arbitration in Canada: A Preliminary Reaction" (1987-1988) 13 Can. Bus. L.J. 2 at 8: "[T]he M L seeks to maintain a balance between the needs for state control over arbitration as a private dispute resolution system...". 2 1 8 W. Melis, "Arbitration and the Courts-Report III" in P. Sanders ed., ICCA Congress 76 independence of the arbitral tribunal. For a country concerned with the preservation of state sovereignty in regulating arbitral proceedings and with the continuity of its own legal culture and its own concept of judicial powers, the most controversial article of the M L is the one on the extent of court intervention. "In matters governed by this Law, no court shall intervene except where so provided in this Law" determines article 5. This article clearly provides for application of the M L as lex specialis and, thus, it provides for supremacy of the M L over national laws. Accordingly, the provision reads that court intervention in arbitral proceedings is limited only to situations expressly listed in other provisions of the M L . Conversely, article 5 does not exclude court intervention in any matter not regulated in the M L . 2 1 9 There is no doubt that article 5 contributes to the uniformity of national regimes on court intervention and to certainty for the parties and arbitrators about situations in which the courts are allowed to interfere (cases of incapacity to contract, invalidity of the agreement, mistakes in rendering the award). It is an attempt to "exclude any general or residual powers given to the courts in a domestic system which are not listed in the M L . " 2 2 0 But, on the other hand, it might appear to be contrary to the traditional relationship between the courts and arbitration in a particular country of adoption.221 series no. 2, ibid. 83 at 85. 2 1 9 Seventh Secretariat Note Analytical Commentary on Draft Text A/CN.9/264 (25 March 1985) as reported in FI. Holtzmannn and .1. E. Neuhaus, A Guide to Model Law, supra note 40 at 229. 2 2 0 See ibid, at 228. 2 2 1 M . J. Mustill, " U K Response to Model Law", supra note 151 at 8: "There are 77 Comments from the Canadian observer, Mark Jewett, at the UNCITRAL Working Group reveal that while the provisions of article 5 are in keeping with the legal tradition in Quebec, difficulty might be expected in limiting court intervention in provinces governed by common law. 2 2 2 Similar comments have been made by Duncan Wallace who suggested that, in the past, civil law countries have shown much less interest in or exercised much less control by the courts over commercial arbitration law than have common law countries.223 English representatives in the Working Group also expressed reservations with respect to such a limitation on court intervention. In particular, they considered exclusion of the possibility of recourse to the court on questions of law to be unnecessary.224 One of the points made by the English representatives was that a great number of businesspeople choose the United Kingdom as the venue tor their arbitration in order to retain the possibility of such judicial control. Lord Mustill warned that such court power should not be understood as English hostility towards arbitration because historical reasons ... beyond saying that in Acts of Parliament dating from 1698 the legislature has demonstrated a wish to strengthen arbitration by lending the coercive power of the courts to remedy the serious, and indeed on occasion fatal, vulnerability of arbitration to the bad faith of a party who would not abide by the agreement to submit disputes to arbitration, or co-operate in the conduct of the reference, or honour the arbitrator's award." 2 2 2 Mr. Mark Jewett, observer for Canada, noted in H. Holtzmannn and J. E. Neuhaus, A Guide to Model Law, supra note 40 at 236 para. 35; 2 2 3 D. Wallace, Q.C. "Control by the Courts: a Plea for More, Not Less" (1990) 6:3 Arb. Int'l 253 at 253. The famous Report of the so-called Mustill Commission made the same point: "Throughout the long history of arbitration law in England and Wales there lias been a closer relationship between the arbitral process and the courts than is the case in most civil law countries." See M.J. Mustill, " U K Response to Model Law", supra note 151 at 7-8. 2 2 4 See A/Cn.9/263/ ADD.2 (21 May 1985) (UK Comments), H. Holtzmannn and J. E. Neuhaus, A Guide to Model Law, supra note-40 at 224-227. 78 "the power to intervene in a pending reference on the ground of procedural impropriety-was never exercised in modern times. Power to set aside or remit an award was very sparingly exercised."225 In the context of the above discussion it is important to note that no other delegation from a common law country made comments similar to that of the English delegation. Moreover, Canada and Hong Kong, both strongly influenced by the English statutes on arbitration before their adoption of the M L , found article 5 to be satisfactory and did not object to the draft text of the Working Group. 2 2 6 For the purpose of this thesis it is important to mention the comments of the Russian (at that time Soviet) and Chinese delegations. They both advocated an even lower degree of judicial control over arbitral proceedings.227 Professor Sergei Lebedev of the USSR concluded that the discussions on article 5 "revealed the different concepts of arbitration which existed in different countries" and that "it was important to consider what relationship the M L would have with existing national legislation on judicial intervention after its adoption."2 2 8 In the next chapter of this thesis, this relationship, with reference to Canada, Hong Kong and Russia, will be considered further. 2 2 5 M.J.Mustill, " U K Response to Model Law", supra note 151 at 8. 2 2 6 See a discussion of Mr.Jewett of Canada on article 5 in FI.Holtzmaunn and J. E. Neuhaus, A Guide to Model Law, supra note 40 at 236. 2 2 7 See a discussion of Professor Sergei Lebedev of the Soviet Union and Houzhi Tang of China on article 5 in H.Holtzmannn and J. E. Neuhaus, A Guide to Model Law, supra note 40 at 236. 2 2 8 See S. Lebedev, ibid. 79 E. Conclusion: W h a t is so Special About the M L ? The overview of the historical background and the basic principles of the M L has been presented for two reasons. The first reason is to determine those characteristics which distinguish the M L from other projects on international commercial arbitration. The second reason is to reveal what makes the M L a suitable setting for national laws and, accordingly, its reception a desirable means of legal reform. Thus, this section will be a summary of the chapter and an introduction to the case study set out in the next chapter. It has been explained that the M L has a special flexible form which allows adopting countries to choose their own means of adoption. In this context, the U N C I T R A L mission appears to be realistic—that is, to harmonise rather than to unify arbitration laws. This approach also suggests that UNCITRAL appreciates that different legal and cultural backgrounds may cause the M L to be applied and interpreted differently. Indeed, the decision by UNCITRAL to propose a model law, not a convention, was an attempt to overcome problems which some earlier conventions on arbitration had faced. For example, in 1966 the Council of Europe proposed the Strasbourg Uniform Law of Arbitration229 for the EC member states. Despite the fact that the Convention allows reservations on fifteen items, only Belgium adopted it. In short, the M L is seen as a step-by-step process for the unification and 2 2 9 European Convention Providing a Uniform Law on Arbitration, Council of Europe, Strasbourg 1966, Eur. T.S. 56 (20 January 1966). 80 modernisation of national laws. 2 3 0 It incorporates a great number of international rules and standards on commercial arbitration, but it does not define many important terms and institutions, such as arbitration,231 arbitrability, liabilities of arbitrators, costs and interests. However, it is still seen as the most ambitious of UNCITRAL's projects aimed at the harmonization and unification of private law 2 3 2 and as "one of the best examples of constructive co-operation between North, South, East and West." 2 3 3 Lord Justice Mustill clarifies the international role of the M L and categories four varieties of addressees: 1. states with no developed law and practice in the field of arbitration; 2. states with a reasonably up-to-date body of arbitration law which has not been been greatly used in practice; 3. states with an outdated or inaccessible body of arbitration law; 4. states with an up-to-date body of arbitration law, and with a sufficient volume of arbitrations over a sufficient period to have permitted the growth of an expertise in putting their law into practice.234 Despite the enthusiasm of the drafters and "intense and clever propaganda by the UNCITRAL Secretariat"235 the M L has been criticised by many authors. It is possible to 2 3 0 K. Sono, "Introductory Address" in P. Sanders ed., ICCA Congress No.2, supra note 122, 27 at 28. 2 3 1 However, it defines terms "international" and "commercial" in Article 1(2). 2 3 2 H . M . Al-Bahama, "Keynote Speech" at the conference in A. J. van den Berg, ed. ICCA Bahrain Conference, supra note 66, 26 at 34. 2 3 3 M . Hunter, The UNCITRAL Model Law" (1985) Int'l Bus. 405. 2 3 4 M.J.Mustill, " U K Response to Model Law", supra note 151 at 13. 2 3 5 P. Lalive, "The New Swiss Law On International Arbitration (1988) 4:1 Arb. Int'l 2, at 5. 81 distinguish two types of critics: one from the perspective of developing countries, and another from the perspective of developed countries. Both sides criticise the principle of limited court intervention but with different arguments. Criticism from developed countries (primarily England) is rooted in the common law approach that courts are executive partners providing greater effectiveness to the arbitral process.236 It is emphasised that the courts' rights of supervision were introduced to protect the interests of the parties—to protect them from misconduct of arbitrators and to provide them with the right of appeal on questions of law. 2 3 7 On the other hand, critics from developing countries are concerned that the M L , by re-imposing the doctrine of arbitrability, which includes some public interest issues, indirectly infringes their sense of legal nationalism and greatly reduces the intervention by the domestic courts. As Sornarajah explains, above mentioned concerns have their basis in "the idea that all domestic control over a situation occurring within the territorial jurisdiction of a state could be removed from its jurisdiction by invoking the magic formula of international commercial arbitration."238 Notwithstanding the fact that developing countries (primarily the members of the A A L C C ) initiated the work of UNCITRAL on the M L , 2 3 9 those countries criticised the adopted principles as being based solely on traditions of the West. 2 4 0 This is consistent 2 3 6 M . Kerr, "Arbitration and the Courts: The UNCITRAL Model Law", (1985) 34 I.C.L .Q. 1 at 2. 2 3 7 MJ.MustiH, " U K Response to Model Law", supra note 151 at 8. 2 3 8 M . Sornarajah, "UNCITRAL Model Law", supra note 26 at 12. 2 3 9 See for further discussion M . Sornarajah, "UNCITRAL Model Law", supra note 26 at 9-11, and I. Szasz, supra note 216 at 34. 2 4 0 M . Sornarajah, "UNCITRAL Model Law", supra note 26 at 9-11. 82 with the attitude that globalisation of laws is the gradual trend to recognise the primacy of the Western legal traditions in the form of global or transnational law over domestic law. 2 4 1 In this context, the M L provisions are considered to be a codification of principles of free trade, party autonomy and lex mercatoria, which serve the interests of developed states.242 Paradoxically, the majority of adopting countries have been developing countries which have already experienced the consequences of legal transplantation and the application of foreign laws during colonial times.2 4 3 On the other hand, the most developed countries (those accused of post-modern colonialism and export of legal traditions) rejected the adoption of the M L as a solution for reformation of their laws on arbitration. In summary, the most important reason they advanced for rejection of the M L was the fact that their legal systems were already modernised in keeping with economic and political globalisation and that the M L would not improve their already advanced arbitration laws. Indeed, some European countries enacted new arbitration laws before the M L was drafted. For example, England enacted an Arbitration Act in 197 9 2 4 4 , France in 1981, 2 4 5 Italy in 1983 2 4 6 and Belgium in 19 8 5. 2 4 7 Some other countries like the Netherlands, Switzerland and Spain decided not to 2 4 1 H. Fix-Fierro & S. Lopez-Ayllon, "Globalization in Latin America", supra note 31 at 789-790. 2 4 2 M . Sornarajah, "UNCITRAL Model Law", supra note 26 at 17. 2 4 3 For example, Egypt, Kenya, Mexico, Nigeria, Peru, Sri Lanka, Tunisia, to name a few. 2 4 4 Arbitration Act, 1979, c.42. 245 Code of Civil Procedure, article 1442-1507 (Decret Loi no. 81-500) J.O. May 14, 1981. 2 4 6 Law no. 28 (The Law of Feb. 9, 1983), 44 Gaz. Uff. Leg. Ital. I, Feb. 15, 1983. 2 4 7 Belgium Judicial Code, Sixth Part: Arbitration, art. 1717(4) 1972)(amended March incorporate the M L despite the fact that their new statutes were passed after the M L was proposed.248 Incompatibility of the M L with existing legal systems was emphasised by both civil law and common law developed countries.249 On the other hand, all of those critics found that the M L could be a well-suited model 2 5 0 and a valuable legislative package251 for developing countries and countries without much experience or without modern legislation on the subject.252 This attitude led to considerable reluctance on the part of developing countries to adopt the M L , which was deemed as largely the creation of the developed countries. As previously explained, Alan Watson first described the concept of legal reform through borrowing of laws or particular rules from one society into another.253 27, 1985). 2 4 8 See Dutch Code of Civil Procedure, art 1020 et. seq. 1986, Swiss Federal Act on Private International Law of December 18, 1987, ch.12 art. 176-194, and Spanish Law nr. 36/1988 of December 5, 1988. 2 4 9 For critics from the common law perspective see M . Kerr, supra note 236, M.J. Mustill, " U K Response to Model Law Law", supra note 151 at 5. Michael Kerr criticises the M L for "giving uncontrollable powers to arbitrators" which establishes them "free from all [those] checks and balances on unrestricted authority" M . Kerr, ibid., at 16. For critics from the civil law perspective see Pierre Lalive, who concludes that "From the point of view of a country like Switzerland, with a long tradition and experience in arbitration, the M L appears to be, rather than an ideal modern legislation, and interesting compromise between conflicting approaches, reached on several points at the level of the 'lowest common denominator' and more valuable politically speaking than because of its intrinsic value." See P. Lalive, supra note 235 at 5. 2 5 0 W. L. Graig, "Uses and Abuses of Appeal from Awards", (1988) 4:3 Arb. Int'l. 174 at 225. 2 5 1 M . Kerr, supra note 236 at 16. 2 5 2 P. Lalive, supra note 235 at 5. 253 A . Watson, Legal Transplants, supra note 19.. > 84 Transplantation thus occurs as the borrowing or duplication of rules of a foreign legal system into the system of a host country. The history of law, says Watson, is packed with examples of legal transplantation. Medieval Europe transplanted Roman law. In the 19th century, during the Napoleonic conquest, the continental European countries transplanted the French Civil Code of 1804. North America, Asia and Africa transplanted both common law and civil law. English colonies transplanted English common law. The usual reason for transplantation is the need to reform pre-existing laws or to till wide gaps caused by the lack of adequate laws in the host country. The single law or a large body of law that is borrowed is a legal transplant. A pure legal transplant, in the Watsonian context, is where the original is- being borrowed unchanged. Accordingly, a legal transplant duplicates the original. On the contrary, the M L , as demonstrated in this chapter, is a flexible document made to be modified by adopting countries. UNCITRAL gives some suggestions on what could and should be considered for modification by adopting countries, but these are not mandatory instructions. Thus, the M L is not a pure legal transplant. Even Watson, in his later works, admitted that unmodified legal transplants could hardly be efficient in, cases.where the economic and cultural gaps between the country of origin and the borrower are significant.254 However, Watson's focus here is on those changes to the transplants which are necessitated by post-transplantation changes to the entire legal system. Diversity of interpretation and application makes the M L more distinct from the original version and, at the same time, enhances it by making it more easily updated and capable of development along with the 2 5 4 A. Watson, Legal Origins and I^egal Change '(London: The Hambledon Press, 1991) 85 rest of the legal system. Is the M L a global law? The concept of global law is rather nebulous. It has recently been defined as "a legal order in its own right which should not be measured against the standards of national legal systems."255 A number of authors believe that lex mercatoria, a general and autonomous body of international principles of law applicable to international merchants,256 is the closest to the concept of global law. 2 5 7 Detailed examination of lex mercatoria, suitable as the subject of an entire doctoral thesis, is outside the scope of this one. Briefly, the origins of the concept of "/ex mercatoria" are found in the writings of Eduard Lamber, Clive Schmitthoff, Berthold Goldman and Philippe Kahn 2 5 8 but it is Goldman who has developed the theory. However, although the theory has been discussed extensively,259 it has not been universally accepted. Goldman's at 295. 2 5 5 G. Teubner, ed., Global Law Without a Slate (Aldershot: Dartmouth, 1996) at 5 [hereinafter Global Law]. Teubner also identifies as the main characteristics of global law: boundaries (global law transcends traditional territorial boundaries), sources of law (global law is produced in self-organised processes of 'structural coupling of law'), independence (high level of institutional insulation) and unity (worldwide unity). Ibid., at 7-8. 256 p o r further discussion on lex mercatoria see Lord Justice Mustill, "The New Lex Mercatoria: The First Twenty Five Years" (1988) 4 Arb. Int'l 86, F. De Ly, International Business Law and Lex mercatoria (The Hague: North Holland, 1992), T. Carbonneau, ed., Lex mercatoria and Arbitration (New York: Transnational Juris Publications, 1990), M.T. Medwig, "The New Law Merchant: Legal Rhetoric and Commercial Reality" (1993) 24 L & Pol. Int'l Bus. 589, 2 5 7 H.-J. Mertens, "Lex mercatoria: A Self-applying System Beyond National Law?," G. Teubner, "Foreword: Legal Regimes of Global Nation-state Actors," all in G. Teubner, ed., Global Law, supra note 255 at 3-31. 2 5 8 See bibliography of the four authors in F. De Ly, supra note 256 at 209-232 and accompanying footnotes 3-136. 2 5 9 Ibid. 86 lex mercatoria includes substantive transnational rules, custom and usage, contract, general principles of law and international commercial arbitration as its most important elements.260 He defines it as "a set of principles and customary rules spontaneously referred to or elaborated in a framework of international trade, without reference to a particular national system of law." 2 6 1 Thus, it is a body of substantive law which includes the common customs and usage of the business community, general principles of law, rules of international organisations, standard form contracts and the reports of arbitral awards.262 Even this list of sources of lex mercatoria is not settled. What are the general principles of law and what are the common customs? The threshold issue here is to determine the extent to which the M L fits into the lex mercatoria category. First of all, the M L is a set of procedural rules. The extent to which it refers to substantive rules is fairly limited. Indeed, only in the context of article 28 and the right of the parties and arbitrators to use particular substantive law to resolve a dispute, does the M L indirectly refer to lex mercatoria. In other words, the parties are free to choose any law, including lex mercatoria as the substantive law. Arbitrators have to respect the choice of the parties. If the parties fail to make a choice, the M L gives guidelines which, in the original version, does not necessarily lead to application of lex mercatoria. (This can be, however, changed by an adopting country, as will be discussed in the next chapter.) In practice, there has been a number of cases of the application of 260 p o r a brief overview of Goldman's theory of lex mercatoria see B. Goldman, Lex mercatoria; Forum Internationale No. 3 (Deventer, Kluwer Law , 1983) 3. 2 6 1 B. Goldman, ibid., at 116. 2 6 2 O. Lando, "The Lex mercatoria in.International Commercial Arbitration" (1985) 34 I.C.L.Q. 747 at 749. 87 anational or transnational commercial law or lex mercatoria in arbitral awards outside of the M L . In some cases, such as B.P. v. Libya,263 Texaco v. Libya264 and LIAMCO v. Libya265 the parties to international business transactions decided that their transactions should be subject to an international body of rules. 2 6 6 In some other cases, in the absence of the parties' choice, arbitral tribunals made international conflict of law rules or general principles of private international law or lex mercatoria or transnational law as the applicable law. 2 6 7 Those awards are still subject to debates between the proponents and 2 6 3 B.P. v. Z%a(1979) 53 I.L.R. 297. . 264 Texaco v. Libya (1979) 53.1.L.R. 389.' 265 LIAMCO v. Libya (1982) 62 l.L.R. 141. 2 6 6 In the three Libyian cases cited in supra 254-256 the choice of law clause determined that the matter of concession "shall be governed by and interpreted in accordance with the principles of law of Libya common to the principles of international law and in the absence of such common principles then by and in accordance with the general principles of law, including such of those principles as may have been applied by international tribunal." [emphasis added] 2 6 7 See, for example, arbitrators' direct reference to lex mercatoria in Pabalk Ticaret Ltd. Sirketi (Turkey) v. Norsolor S.A. (France), award of 26 October 1979, no. 3131 (1984) IX Y.B . Comm. Arb. 109 at 1 10: "Faced with the difficulty of choosing a national law the application of which is sufficiently compelling, the Tribunal considered that it was appropriate, given the international nature of the agreement, to leave aside any compelling reference to a specific legislation, be it Turkish or French, and to apply the international lex mercatoria." See also arbitrators' reference to "international principles of law" in Deutche Schachtbau und Tiefbohrgesellschaft mbH (DST) (FR Germ.) et al. v. The Government of the State of R'as Al Khaimah (UAE) and the R'as Al Khaimah Oil Company (Rakoil) (UAE), award in case no. 3572 of 1982, (1989) XIV Y . B . Comm. Arb. I l l at 117: "[17] Reference either to law of any one of the companies, or of such State of the State on whose territory one or several of these contracts were entered into, may seem inappropriate, for several reasons. [18] The Arbitration Tribunal will refer to.what has become common practice in international arbitrations particularly in the field of oil drilling concessions and especially to arbitrations located in Switzerland...[J9] The Arbitration Tribunal therefore holds internationally accepted principles of law governing contractual relations to be the proper law applicable to the merits of this case." [emphasis added]. 88 the opponents of the lex mercatoria concept. In conclusion, those debates emphasise that lex mercatoria is not a complete system of law, and arbitration awards based on such an incomplete system are subject to the rules of public policy of the countries of enforcement. To conclude, the M L is not stateless, global law, because its principles derive from national practice and national legal systems. It codifies but it does not invent principles. It indirectly refers to lex mercatoria but is not lex mercatoria since it is not a substantive law. In short, the M L appears to furnish a" flexible pattern for changing the arbitration regimes in different countries by establishing its unique balance of four basic principles (party autonomy, limited court intervention, independence of arbitral tribunals and fairness of procedure), and offering elements for a new arbitration culture to adopting states. To evaluate the impact of the M L and its new arbitration culture on three adopting countries, this thesis starts with an investigation of these countries' pre-existing laws and legal cultures. . .... 89 C H A P T E R T H R E E : A Case Study Begins The history of arbitration in Canada, Hong Kong and Russia are explored below as a way of introduction to the reception of the M L in each country. This chapter examines the nature of the relationship between courts and arbitral tribunals in pre-adoption periods and reveals the constraints the old legislation placed on arbitration. It also analyses how the fact that all three countries have developed so-called mixed legal systems268 has influenced the emergence of a distinct arbitration culture. A. Canada Before the Adoption of the M L As previously mentioned, the old legal framework for arbitration in Canada was the English Arbitration Act of 1889 (in the common law provinces) and the Code of Civil Procedure (in Quebec), which was modelled on the French civil law. 2 6 9 There were no 2 6 8 The concept of a mixed legal system refers to a system which is not based on a pure and national concepts of law, but emerges as a disparate system of law from the contacts of various legal systems and legal traditions. For a detail discussion on mixed legal systems see H.P. Glenn, "Quebec: Mixite and Monism" in E. Oriicu, E. Attwooll & 'S . Coyle, eds., Studies in Legal Systems: Mixed and Mixing (The Hague: Kluwer Law International, 1996) 1 and E. Oriicu, "Mixed and Mixing Systems: A Conceptual Search" in E. Oriicu, E. Attwooll & S. Coyle, ibid., 335. 2 m Arbitration Act 1889 {An Act for Amending and Consolidating the Enactments Relating to Arbitration, 1889, 52 & 53 Vict. c. 49 [hereinafter Arbitration Act 1889]) in common 90 federal statutes on arbitration. Rather, in each province, there was one law on arbitration that was applicable to both international and non-international and commercial and non-commercial arbitration.270 Canadian legislation on arbitration remained unchanged for a long time due to various political reasons271 and economic factors,272 despite the fact that the English legislation changed significantly twice in the period from the Arbitration Act 1889, until the Arbitration Act 1979.™ law provinces, and the Code of Civil Procedure 1965 (R.S.Q. c.-25 1965) in Quebec. For more on Quebec's modifications of rules on international commercial arbitration see S. Weinstern, "The Emergence of International Commercial Arbitration in Canada" (1988) 43 Arb. J. 3. Also, see J.E.C. Brierley, "Quebec's New (1986) Arbitration Law" (1987-88) 13 Can. Bus.L.J. 58; A. Prujiner, "Les Nouvelles Regies de l'Arbitrage au Quebec" (1987) Revue de l'Arbitrage 425; and L. Kos-Rabcewicz-Zubkowski, subtitle "Quebec" in "International Commercial Arbitration Laws in Canada; Adaptation of UNCITRAL Model Law on International Commercial Arbitration" (1986) 5 J. Int'l Arb. 43 [hereinafter "Adaptation of Model Law in Canada"]. 2 7 0 L. Kos-Rabcewicz-Zubkowski, "International Commercial Arbitration in the Common Law Provinces of Canada" (1989) 44:3 Arb. J. 14 at 14. 2 / 1 The complexity of the federal system and constitutional framework, with legislative powers divided between the Federal Parliament and the provinces, was the most important obstacle to changes and accession to international arbitration treaties. The Constitutional Act of 1867 (previously known as the British North America Act, 1867, 30 & 31 Vict, c.3) in section 92 enumerated the exclusive powers of provincial legislatures which includes property and civil rights as well as the administration of justice in the Provinces (s. 92(13)(14)). These powers were interpreted to encompass legislation on arbitration and the enforcement of arbitration awards. See more in O. Davidson, "International Commercial Arbitration Law in Canada" (1991) 12 Nw. J. Int'l L. & Bus. 97 at 99-100. See also L. Kos-Rabcewicz-Zubkowski, "Adaptation of Model Law in Canada," supra note 269 at 43. 2 7 2 A restrictive economic policy kept more than 75 percent of Canadian international transactions limited to the United States. Canada and USA had a good record of litigation of commercial disputes and had no major problems with reciprocal enforcement of judgments. 2 7 3 After the Arbitration Act 1889, supra note 269, the following new arbitration statutes were enacted in England: Arbitration Act, 1934, 24 & 25 Geo. 5, c.14 [hereinafter Arbitration Act 1934] Arbitration Act, 1950, 14 Geo. 6, c.27 (Eng.) [hereinafter Arbitration Act 1950], Arbitration Act, 1979, Eliz. c; 42 [hereinafter Arbitration Act 91 1. Arbitration in Common Law Provinces Since the end of the nineteenth and the beginning of the twentieth century all common law provinces, as well as all colonies of Great Britain, had legislation based on or the same as English law. The reception of English law in each Canadian province depended on a province's history. For example, English law was brought to the Canadian west in 1670 by the Hudson's Bay Company but reception in provinces acquired by settlement officially only started when the colonial legislature enacted its first statute.27'1 In general, all provinces except Quebec received English common law officially in the period from 1758 to 1870.275 With the Statute of Westminster of 193 1 2 7 6 the British Parliament yielded the capacity to legislate for Canada, unless Canada so requested. However, the English common law continued to have a significant impact on Canada and on Canadian courts.277 Professor Gerald Gall enumerates the most important principles and values of the British legal tradition which have become the cornerstone of the 1979]. 2 7 4 G. Gall, The Canadian Legal System, 3rd ed. (Toronto: Carswell, 1990) at 51-52. Gall explains that it was under the Hudson's Bay Company's Charter of 3 May 1670 that the British settlers brought English common law and statutory law. 2 7 3 Officially the reception of English law in New Brunswick and Nova Scotia occurred in 1758, Prince Edward Island in 1773, Ontario on 15 October 1792, and Newfoundland in 1832. British Columbia received English law on 19 November 1858. In the Northwest Territories, Manitoba, Alberta and Saskatchewan the reception came on 15 July 1870 or after the British North America Act of 1867, supra note 271, established the Dominion of Canada. See G. Gall, ibid, at 51. 276 Statute of Westminster, 1931, 22 & 23 Geo. 5, c.4. 2 , 7 G. Gall, supra note 274 at 53. 92 Canadian legal system: the doctrine of responsible government, the doctrine of the rule of law, the doctrine of parliamentary sovereignty, the independence of the judiciary and the jury trial, stare decisis,278 and British influence on legal education and the legal profession.279 Legal education in Canada began in the English tradition. Education of lawyers in England itself started as a five-year apprenticeship to a barrister. Before Oxford and Cambridge universities' law schools introduced law as an academic discipline at the end of the eighteenth century,280 the Inns of Court had been the most important centres of legal education. After the mid-nineteenth century systematic legal education based on academic studies started to prevail over practice oriented training. Traditional legal education in Canada started as training in law offices. In 1872, the Law Society of Upper Canada, founded in 1797, was granted responsibility for training of prospective lawyers. Admission to the bar followed a similar pattern to that of the English Inns of Court. Apprenticeship was the major mode of legal education during the nineteenth century in Canada. In 1883, the first faculty of law, the Dalhousie Law School, was founded in Halifax, Nova Scotia.281 It was not until the foundation of the Canadian Bar Association 2 7 8 Before 1949 Canadian courts were bound to follow English high courts' decisions. As of 1949, the Supreme Court of Canada became the final court in Canada and decisions of the House of Lords and the Privy Council are no longer binding on Canadian courts. 2 7 9 G. Gall, supra note 274 at 57 and 59. 2 8 0 The University of London introduced law as an academic discipline in mid-ninetheen century. See J. McLaren, "The History of Legal Education in Common Law Canada" in J. R. Matas & D. Mccawley, eds, Legal Education in Canada (Montreal: Federation of Law Societies of Canada, 1987) 111 at 113. 2 8 1 See more in J. Willis, A History of Dalhousie Law School (Toronto: University of Toronto Press, 1979). 93 in 1914 that a university-based system of legal education emerged in Canada. Not surprisingly, even before 1889 the English arbitration law had become a model for the legislatures of the Canadian common law provinces.282 The English law provided that the parties could submit for arbitration all present or future disputes in a written submission which did not have to "name arbitrators initially.28"1 The court had great control over arbitration, from its establishment until the award was rendered. Thus, it is possible to say that the Arbitration Act 1889 established the system of judicial control over arbitration.284 The courts were given a broad discretion to stay proceedings and to set aside an award for misconduct of arbitrators or for error of law. A special case procedure was established by the Common Law Procedure Act of 1854285 to give arbitrators the power to ' The first such legislation was passed in 1873 by Prince Edward Island as sections 211-225 of its Judicature Act. Then followed British Columbia (British Columbia enacted the Arbitration Act in 1893 but it was in 1869 that the Cz'v/7 Procedure Ordinance as the first legislative act had regulated the procedures relating to arbitration. See The Law Reform Commission of British Columbia, Arbitration; Working Paper No. 25 (Vancouver, The Commission, 1979) [hereinafter British Columbia Law Reform Commission Working Paper No. 25] at 9. Nova Scotia enacted its legislation in 1895, Ontario in 1897, the Northwest Territories in 1898, Manitoba in 1900, Alberta and New Brunswick in 1907, and Saskatchewan in 1919. See B. Claxton, "Commercial Arbitration Under Canadian Law" (1943) 21 Can. Bar Rev. 174. 28"' The Arbitration Act 1889, supra note 269, section 27. 2 8 4 Mustill and Boyd, however, find that the Arbitration Act 1889, supra note 269, as well as Arbitration Act 1934, supra note 273, and Arbitration Act 1950, supra note 273, also made some improvements in the enforceability of the agreement to arbitrate, primarily removing the procedure for making the submission a rule of court and making a submission irrevocable without a leave of the court. See M.J. Mustill & S.C. Boyd, The Law and Practice of Commercial Arbitration in England, 2nd ed. (London: Butterworths, 1989) at 445-446 [hereinafter Arbitration in England]. 2X5Common Law Procedure Act, 1854, 17 & 18 Vict. c. 125 [hereinafter 1854 Act) section 5. "Arbitrator may state special case: It shall.be lawful for the arbitrator upon any 94 state the award or part of it in the form of a special case for court. The Arbitration Act 1889 kept the special case procedure at the discretion of the arbitrators.286 At the same time, that the Arbitration Act established so-called "consultative cases" as a possibility for arbitrators to state any question of law for the opinion of the courts in a form of a special case in a pending arbitration.287 In addition to all these limitations on the powers of arbitrators, it is important to mention that arbitrators were not permitted to act as amiable compositeurs. They were required to make their decisions according to the law and not ex aequo et bono. Regardless of the existence of eight common law jurisdictions, the 1931 Conference of Commissioners on Uniformity of Legislation found that the common law provinces of Canada had achieved a sufficient level of uniformity (resemblance to the English Arbitration Act 1889) and that any further unification at the federal level was unnecessary.288 Given the framework of the English Arbitration Act 1889 and the English compulsory reference under this Act, or upon any reference by consent of parties where the submission is or may be made a rule or order of any of the superior courts of law or equity at Westminster, if he shall think fit, and if it is not provided to the contrary, to state his award, as to the whole or any part thereof, in the form of a special case for the opinion of the Court, and when an action is referred, judgment, if so ordered, may be entered according to the opinion of the Court." 28<'Arbitration Act 1889, supra note 269, section 7. "Powers of arbitrators: The arbitrators or umpire acting under a submission shall, unless the submission expressed a contrary intention, have power : ... (b) to state an award as to the whole or part thereof in the form of a special case for the opinion of the Court..." 287Arbitration Act 1889, supra note 269, section 19. Statement of case pending arbitration: "Any referee, arbitrator, or umpire, may at any stage of the proceedings under a reference, and shall, if so directed by the court, state in the form of a special case for the opinion of the court any question of law arising in the course of reference." 2 8 8The eight common law jurisdictions are. Alberta, British Columbia, Manitoba, New Brunswick, Nova Scotia, Ontario, Prince Edward Island and Saskatchewan. 95 common law, the arbitration process in all provinces except Quebec was understood as "a somewhat suspicious departure from the court's normal jurisdiction and something that courts could only tolerate as long as the courts controlled the process."289 Accordingly, courts not only exercised broad supervisory powers over arbitration, but also hesitated to give a reference to arbitration in a number of situations.290 The following historical overview will be organised in two parts. The first part examines the development of common law related to arbitration before 1979 while the second part deals with some of the influences the English Arbitration Act 1979 and English case law had on Canadian practice before the adoption of the M L . Newfoundland was not included in the Report of the Conference on Uniformity of Legislation because it joined Canada in 1949. Quebec is a civil law jurisdiction. On the report of the Committee see L. Kos-Rabcewisz-Zubkowski, Commercial and Civil Law Arbitration in Canada (Ottawa: University of Ottawa Press, 1978) [hereinafter Arbitration in Canada] at 13. It is important to notice that Prince Edward Island had the arbitration provisions found in the English statutes prior to 1889. A l l other common law provinces had arbitration acts based on the English Arbitration Act 1889 [Alberta, R.S. 1922 c. 98; British Columbia, R.S. 1924, c. 13; Manitoba, R. S. 1913, c.9; New Brunswick, R.S. 1927, c.126; Nova Scotia, R.S'. 1923, c.227; Ontario, R.S. 1927, c. 97; Saskatchewan R.S. 1920, c.55). See also "The Report on the Draft Provincial Arbitration Act Submitted by the Canadian Chamber of Commerce," (1931) 19 Proceedings of the Canadian Bar Association 274. 2 8 9 P. Davidson, "International Commercial Arbitration Law in Canada," (1991) 12 Nw. .1. Int'l L. & Bus. 97 at 98. 2 9 0 But, this author found an interesting ruling of the court in Ontario which suggested a rather liberal interpretation of the submission and exceptional support for arbitration. In Carveth v. Fortune (1862) 12 U.C.C.P. 504 the court held that the Court should always incline to support awards unless they appear to be manifestly unjust and that a liberal interpretation should be given to submission, with a view to carrying out the intention of the parties. 96 1.1. Judicial Control of Arbitration Before 1979 Professor Castel concluded that in all common law provinces, as well as in English law itself, three points were essential to a system of arbitration: "(1) the validity of the submission (that is, the written agreement to submit present or future differences to arbitration), (2) the power of the court to assist in the implementation of the arbitration (for example, by staying court proceedings when there is a submission), and (3) the enforcement of the award (by leave of the court of judge) in the same manner as a judgment or order to the same effect."291 In sum, in order for arbitration to commence, the existence of a dispute and the existence of a submission were necessary.292 Most provincial acts provided for a written form of a submission.^ However, the signatures of both parties were not understood as a strict requirement for agreement.294 In the early days, a submission or an arbitration agreement was seen as a part of the main contract. In other words, the principle of severability was not recognised and an arbitration clause was held inoperative if the 2 9 1 J.-G. Castel, "Canada and International Arbitration" (1981) 36:1 Arb. J. 5 at 6. 2 9 2 In an early Ontario case of Cruickshank v. Corby (1880), 30 U.C.C.P. 466 (Ont.H.C), affirmed (1880), 5 O.A.R. 415 (CA.) the court summarised the general requirements for arbitration as follows: "To every award are five things incident: matter of controversy, submission, parties to the submission, arbitrators, and delivering up the award." [emphasis added] 2 9 3 See for example British Colombia Arbitration Act, R.S.B.C. 1960, c. 14, or Ontario Arbitration Act, R.S.O. 1970 c. 25. 2 9 4 In McSweeney v. Wallace (1870), 8 N.S.R. 83 (CA.) and in Lyon v. Morgan [1917] 2 W.W.R. 224 (B.C.C.A.) the courts held that even if there was no written agreement signed by parties, where both parties participate in the arbitration proceedings, objection could not then be taken after the award was rendered. See also Nolan v. Ocean Accident Corp. (1903) 5 O.L.R. 544 (C.A.). •97 whole contract was cancelled ; 5 or its existence otherwise denied.296 Accordingly, the issue as to whether the main contract was in existence or void ab initio was to be decided by the courts, not by arbitrators.297 That was consistent with the traditional English law, which did not recognise the Kompetenz-Kompetenz principle and severability (except for a limited number of reasons).298 (i) Arbitrability In 1918, in Stokes-Stephens Oil Co. v. McNaught,29'' the Supreme Court of Canada held that the intention of the parties to refer a dispute to arbitration should be taken into consideration and that the issue of the scope of arbitration clause was not within the exclusive competence of the Court. In Twentieth Century Fox Corp. v. Broadway 293 Cox Towing Line v. Dunfield&Co. (1922) 49 N.B.R. 313, 68 D.L.R. 133 (C.A.). 296 Canadian Motion Picture Productions Ltd v. Maynard Film Distributing Co [1949] O.R. 736, [1949] 4 D.L.R. 458 (H.C.). 2 9 7 K. McLaren & E.E. Palmer, Q.C., The Law and Practice of Commercial Arbitration (Toronto: The Carswell Company Ltd., 1982) at 62. 2 9 8 See in particular the English case Heyman v. Darwins [1942] A.C . 356, [1942] 1 A l l E.R. 337 at 345 on Kompetenz-Kompetenz and at 347 (Lord Macmillan) on severability. For later English cases, decided after 1979, see Bremer Vulkan Schiffbau and Maschinenfabrik v. South India Shipping Corporation Ltd. [1981] A.C. 909 and Astro Valiente Compania Naviera S.A. v. Government of Pakistan Ministry of Food (The "Emmanuel Coloctronis" (NO. I)) [1982] 1 Lloyd's L. Rep. 298. But see Dr. C. Chatterjee, "Legal Aspects of Severability of Arbitration Clauses: An English Perspective" (1996) 4 A.D.R.L.J . 297 at 297: "English law recognises the principle of severability or the autonomy of an arbitration clause in a contract. Judicial pronouncements in this regards have not been consistent." Charles Chatterjee, however, admits that in Heyman v. Darwings an arbitration clause lost its autonomous character. See C. Chatterjee, ibid., at 298-299. 299 Stokes-Stephens Oil Co. v. McNaught (1918),'57 S.C.R. 549, [1919] 44 D.L.R. 682. 98 Theatres Ltd.;' ' the Court of Appeal in Saskatchewan held that " i f on the hearing of an arbitration it appears that the dispute is as to whether there ever has been a binding contract between the parties, such a dispute cannot be covered by an arbitration clause in the challenged contract and that question has to be decided by the court." In Canadian Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co.,m the New Brunswick Supreme Court (Queen's Bench Division) also held that disputes respecting validity of contracts with arbitration clause could not be decided in arbitral proceedings. A submission had to refer to resolution of a dispute that was deemed arbitrable. However, what was arbitrable in Canada before the adoption of the M L ? Clearly, a criminal prosecution could not be referred to arbitration.302 The court usually addressed the issue of arbitrability when ruling on a stay of proceedings, then in a so-called special case procedure and, finally, in the post-award stage, when the court had to decide on setting aside an award. Initially, arbitral tribunals had jurisdiction to hear and decide any case where a dispute arose from facts but not from, questions of law. In Stokes-Stephens Oil Co. v. McNaught, the Supreme Court of Canada held that if the sole matter to be dealt with by the arbitrators was a question of law, a stay of the action might be properly refused. 3 0 3 In Macdonald v. North Western Biscuit Co., 3 0 4 the Court of Appeal in Alberta 300 Twentieth Century Fox Corp. v. Broadway Theatres Ltd. (1951) 1 W.W.R. (N.S.) 785, [1951] 3 D.L.R. 105 (Sask. C.A.). Canadian Industries Ltd. v. St. Anne-Nackawic Pulp & Paper Co. (1975) 10 N.B.R. (2d) 68 (S.C.). 302 Fraser v. Escolt (1865), 1 C.L.J. 324, 1 U.C.L.J. (N.S.) 324 (U.C. Practice Ct.). ",03 Stokes-Stephens Oil Co. v. McNaught, supra note 299 at 689. 304 Macdonald v. North Western Biscuit Co. [1924] 1 W.W.R. 795, [1924] 1 D.L.R. 987 (Alta. C A . ) 99 found that a dispute before arbitration was a question of law which could be properly referred by the arbitrators to the Court. In British Columbia, the Court of Appeal in Famous Cloak & Suit Co. v. Phoenix Assurance Co.; 3 0 3 decided to stay proceedings after finding that no important question of law was to be disputed before arbitrators. As pointed out by some authors, almost everything related to contractual obligations between parties could be related to the issues of law and thus be found non-arbitrable by the court.306 When one party wanted to go to court despite the fact that an arbitration agreement existed, the court would not stay proceedings if a matter of law or mixed facts and law had to be determined. Neither would the court stay the proceedings if interpretation of the contract was involved.3 0 7 This position was confirmed by the court in Chappelle v. Watt™ which held that even where the arbitration agreement covered a question of law as a small part of the dispute the court might have sufficient reason for 305 Famous Cloak & Suit Co. v. Phoenix Assurance Co. (1931), 44 B.C.R. 120 (C.A.). But see Calvin v. McPherson (1854) 4 U.C.C.P. 150. Here the court held that questions of law might be referred to arbitration. 3 0 6 J. Keefe & T. Heintzman, "The Enforceability of the Agreement to Arbitrate in Canada" in International Commercial Arbitration and ICC Arbitral Practice (Toronto: Canadian Bar Association, 1991) at 4. 307 M.J.O'Brien Ltd. v. Seaman Kent Co. Ltd., (1928) 62 O.L.R. 160 at 161, 3 D.L.R. 43 at 44 and the commentary on the case by L. Kos-Rabcewicz-Zubkowski, Arbitration in Canada, supra note 288 at 72. But see R. McLaren & E.E. Palmer, Q.C., supra note 297 who explain at 36 that generally, the application would be granted if the arbitration clause was broad enough to cover the issues involved, even if those issues were solely matters of law, liability or questions of damages. Clearly, the authors refer to Stokes-Stephens Co. v. McNaught, supra note 299, and the decision of the Supreme Court of Canada which upheld the application for stay explaining that the stay should be granted if the arbitration clause is broad enough to cover issues involved. Ibid., at 684. In particular, the reference is given to the opinion of Anglin J. who emphasised that where the important questions of facts were to be determined, the circumstances that important questions of law were also involved would not justified the refusal of a stay. See ibid, at 689. 100 refusing a stay. In Jussem v. Nissan Automobile Co. (Canada) Ltd./0'' the High Court in Ontario dismissed the application to stay proceedings and held that the court would not stay the proceedings if it found that there were substantial questions of law involved. What would, then remain for arbitration to decide? Nothing more than minor problems— accounting or technical points of fact.310 However, with the development of trade and especially with the increased Canadian involvement in international trade, this approach has been curtailed, as has the English approach since the Arbitration Act 1979 was enacted. This will be explained in detail in the next section of this chapter. Initially, a submission to arbitration was revocable at any time before an award was made. The making of a submission did not remove the jurisdiction of the court. Moreover, any arbitration agreement which provided for the exclusion of the court's jurisdiction was deemed illegal and void as being contrary to public policy.'" However, the principle of revocability of submission was later modified to mean that a submission was irrevocable, except by the leave of the court.312 The issue of the removal of the court's jurisdiction was, in a certain way, related to cases involving the so-called Scott v. /Ivery313 clause. Indeed, in the cases involving Scott v. Avery clauses the parties made ™ Chappelle v. Watt [1947] 1 W.W.R. 349, at 350-351; affirmed [1947] 2 W.W.R. 240. 309 Jussem v. Nissan Automobile Co. (Canada) Ltd. [1973] 1 O.R. 697 at 698. ," ) N . Barbour, Judicial Respect for International Commercial Arbitration Agreements in Canadian Courts under the New York Convention and UNCITRAL Model Law ( L L . M . Thesis, University of British Columbia, 1996) at 128. 3 1 1 R. McLaren & E.E. Palmer, Q.C., supra note 297 at 30. 3 1 2 See, for example, Arbitration Act, R:S.B:C. • 1960 c. 14 and Arbitration Act, R.S.O. 1980, c. 25. 313 Scott v. Avery (1855) 5 H.L.C. 811,10 E.R. 1121. 101 arbitration a condition precedent to litigation and thus prevented themselves from proceeding in court until an arbitral award was rendered. In other words, the Scott v. Avery clause wa