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Arbitrability Under the New York Convention: the Lex Fori Revisited

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Arbitrability Under the New York Convention: the Lex Fori Revisited Arbitrability under the New York Convention: the Lex Fori Revisited by HOMAYOON ARFAZADEH* I. THE CONTROVERSY UNDER THE 1958 New York. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the arbitrability of the subject matter of a dispute may be at issue when a national court is called upon to recognize an arbitration agreement and refer the parties to arbitration (Article II), or when the court is requested to enforce a foreign arbitral award (Article V). In both cases, the preliminary question of the law governing arbitrability needs to be answered. This question has been the subject of much discussion and debate. National courts have contemplated - alternatively or cumulatively - the law of the forum {lex fori), the law chosen by the parties to govern the arbitration clause {lex electionis) or their contract {lex contractus), or, further, the law of the seat of the arbitral tribunal {lex arbitrii) or the place of enforcement of the award {lex executionis).' In a recent article, Jan Paulsson traced the murky trail of incoherent court decisions and concluded mat the source of such inconsistency lies in the New York Convention itself, in particular the Convention's propensity to favour the application of the law of the forum to the issue of arbitrability.2 The author thus suggested adopting a protocol to the New York Convention or a set of guidelines for its interpretation,3 according to which, 'for the purposes of Articles II and V(l)(a), an arbitration agreement shall be considered effective in causu unless ... * Attorney at Law, Geneva; Python, Shifferli, Peter & Ass. 1 According to Marc Blessing, 'The Law Applicable to the Arbitration Cause and Arbitrability', in 40 Years of Application of the New York Convention (ICCA Congress Series No. 9, 1999) 168 at p. 169 et seq., nine solutions have been advocated so far. For a review of case law, see Bernard Hanotiau, 'What Law Governs the Issue of Arbitrability' (1996) 12 Arbitration International 391. 2 Jan Paulsson, 'Arbitrability, Still Through a Glass Darkly', in Arbitration in the Next Decade (Special Supplement ICC Int'l Q. of Arb. Bull., 1999) 95. Ibid, at p. 103. UNCITRAL is currently studying possible ways of improving the New York Convention, including with respect to arbitrability: see OR GA, 54th Sess., Suppl. No. 17, UN Doc. A/54/17 (1999) and A/CN.9/WG.II/WP.108 of 14 January 2000. ARBITRATION INTERNATIONAL, Vol. 17, No. 1 © LCIA, 2001 73 74 Arbitration International Volume 17 Number 1 the agreement is invalid under both: (a) the law chosen by the parties to govern their agreement, and (b) the law of the country where the place of arbitration is located, ...', while allowing for a restrictive application of the forum's standards under Article V(2)(a).4 This proposal, however, was regarded by Gerold Herrmann as 'thought-provoking and potentially objection-provoking', and likely to lead to 'frustrating discussions and negotiations'.5 Indeed, one can hardly deny the need for a radically new approach to the issue of arbitrability under the New York Convention. We believe, however, that the source of inconsistency is not the Convention itself, but, rather, confusing interpretations of its different provisions, coupled with an inappropriate method of analysis. First, distinct notions such as non-arbitrability per se, the validity of the arbitration clause, and the public policy exception, are often intermingled, thereby causing confusion. Secondly, regarding method, non-arbitrability has been systematically treated as a problem of conflict of law rather than conflict of jurisdiction. Together, they have led national courts to examine the issue of arbitrability by reference to foreign law rather than the law of the forum. We believe any such reference to foreign standards of arbitrability to be quite unwarranted in the context of current international arbitration law and practice. As explicitly stated in Article V(2) (a) of the Convention, the enforcement of an award may be refused only if 'the subject matter of the differences is not capable of settlement by arbitration under the law of that country, i.e. the lex fori of the enforcement court. There is nothing to prevent a similar solution from also applying under Article II of the Convention, when recognition of the arbitration clause and referral to arbitration is sought by one of the parties to the dispute. The exclusive application of the lex fori would indeed offer a simple, clear and uniform approach to the issue of arbitrability under the Convention. Surprisingly enough, it also appears to be the only solution consistent with the widespread liberal policy in favor arbitrandum adopted by national legal systems.6 'Subparagraph V(2)(a) shall not prevent recognition and enforcement unless the non-arbitrability of the subject matter is a matter of such fundamental importance that recognition and enforcement would also violate subparagraph V(2)(b)' (Paulsson, supra n. 2, at p. 104). 'Does the World Need Additional Uniform Legislation on Arbitration? The 1998 Freshfiekls Lecture' (1999) 15 Arbitration International 211 at p. 219 er seq. The solution advocated in this article (exclusive application of the lex fori) has been advanced before (see in particular Albert J. van den Berg, The New York Arbitration Convention of 1958 (Kluwer 1981), at p. 1.52 et seq. and references in notes 96 and 98), prompting sharp criticism from renowned scholars and practitioners (in particular Bernard Hanotiau, 'L'arbitrabilite et la favor arbitrandum: un reexamen' (1994) J. D. Int. 899 at p. 923 et seq.; Paulsson, supra n. 2). However, as we shall attempt to demonstrate in section II below, this solution certainly deserves renewed consideration, and may even be re<'onstrued in the light of recent treatment of arbitrability in international disputes in court decisions and national legislation. Arbitrability under the New York Convention 75 II. THE ISSUE OF ARBITRABILITY BEFORE THE ARBITRAL TRIBUNAL (a) Arbitrability Governed by a Substantive Rule of the Forum The law governing the various issues that may arise in international arbitration is usually determined through the application of rules and principles of conflict of laws, which manage potential conflicts between competing domestic legal systems. Certain issues, however, are governed by substantive rules of the forum.7 The reason behind the choice of substantive rather than conflict rules is the widespread belief that international arbitration represents an institution of global rather than national interest, such that certain of its aspects are more appropriately governed by a body of rules and principles specifically tailored to its international character.8 This applies in particular to arbitrability, which is increasingly held to be governed by substantive rules of the forum. The best illustrations are Article 177 of the Swiss PIL Statute, Article 1030 of the German ZPO, and possibly the UNCITRAL Model Law.9 According to the Swiss PIL Statute, for example, all disputes involving property rights ('de nature patrimoniale') are capable of settle­ ment by arbitration. Under such legislation, the arbitral tribunal is bound to apply the forum's standards on international arbitrability and, normally, need not take account of more stringent foreign standards when ruling on its own jurisdiction. As stated by the Swiss Federal Supreme Court, it is for the claimant to bear the risk of non- enforceability of the award abroad, where the subject matter of the dispute is incapable of settlement by arbitration under the laws of other countries.10 There are, of course, limits to arbitrability. Almost all legal systems provide for exceptions -'non-arbitrable' areas - even in relation to disputes involving property rights.11 So the question remains as to how one should determine such exceptions to arbitrability, and according to which law. Comparative case law and legal commentaries seem to suggest that the answer is to be found in the rules of international public policy, i.e. the set of mandatory Jean Robert, 'De la regie de conflit a la regie materielle en matiere d'arbitrage', in J. C. Schultz and A. J. van den Berg, eds., The Art of Arbitration (1982) 273; see also Marc Blessing, 'Globalization (and Harmonization) of Arbitration' (1992) 9(1) J. Intl. Arb. 79 at p. 82 er seq. See Fouchard, Gaillard and Goldman, Traite de ['arbitrage commercial international (Paris, 1996) at p. 251 (no. 442); J. Gillis Wetter, 'The Internationalization of International Arbitration' (1995) 11 Arbitration International 117; Michael Kerr, 'Concord and Conflict in International Arbitration' (1997) 13 Arbitration International 121 at p. 137 er seq. Both Articles 1(5) and 34(2)(b)(i) make arbitrability subject to the laws of'this State' (i.e. the lex fori). This solution was adopted after thorough discussion: see H. M. Holtzmann and J. E. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration (Kluwer 1989) at p. 38 er seq. and references; see also Article VI(2) of the European Convention of 1965. In ATF 118 II 353 at 3d - SJ 1993 at p. 8, in Fincantieri dated 23 June 1992, following the opinion by Lalive, Poudret and Reymond, Le droit de l'arbitrage interne er international en Suisse at pp. 305 and 308. A particularly liberal system such as Switzerland is no exception: see Lalive, Poudret and Reymond, supra n. 10 at p. 306 et seq.; for Germany, see D. P. Simms, 'Arbitrability of Intellectual Property Disputes in Germany' (1999) 15 Arbitration International 193; and infra n. 15. 76 Arbitration International Volume 17 Number 1 rules which are in all circumstances applicable to the merits of an international dispute. This suggestion is open to question. One may wonder if it takes adequate account of national courts' growing leniency towards the arbitrability of areas strongly marked by social and economic policies.
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