International Commercial Arbitration Lecture 4 The Establishment and

International Commercial Arbitration Lecture 4: The Establishment and Organization of an Arbitral Tribunal. Part one By Feruza Bobokulova

Establishment and Organization of AA • The establishment of an AA follows the decision to start arbitration to resolve a dispute and the sending of a notice/request for arbitration • No procedural orders or directions can be made and no useful steps can be taken in the arbitration until an arbitral tribunal has been appointed • The commencement of arbitration goes along with the establishment of the AA

Establishment and Organization of AA Time matters • Time usually starts to run against a claim from the date on which the cause of action arises. Time limits may be imposed by statutes as well as by contracts • Statutory time limits are imposed by legislation of a country and it is in the best interest of the state that litigation should be started within a reasonable time after the relevant events occurred • In contrast, contractual time limits are often short, usually, a matter of months while statutory time limits may last for years.

Establishment and Organization of AA Time limits • Most problems arise in the area of conflict of laws. In particular, there may be a difference between in both the length and the nature of the time limits laid down by different national systems of law • Civil law countries tend to classify provisions relation to time-limits as substantive, while the approach of common law countries until the second half of the 20 th century was to treat questions relation to time-limits as procedural. However, the modern tendency in common law countries is to classify ‘foreign’ laws governing time limits as matters of substance.

Establishment and Organization of AA Contractual Time limits • Contractual time-limits are sometimes drawn so tightly that they may be disregarded by some systems of law on the basis that they offend public policy

Commencement of Arbitration under Applicable Law • It is for the claimant to ensure that his claim is brought within the time-limit imposed by the contract or by the applicable law or both • If only arbitration is envisaged in the dispute resolution clause of the contract, time stops running when arbitration is started • Different legislations may require different actions to consider the proceedings as started and they may take one of the following forms: • Lodging a claim with AT, if an AT is designated in the AA; • Calling upon the opposing party to submit the dispute to the AT, if an AT is designated in the AA; • Commencing the procedure for designation of the AT as provided in the AA, or • Requiring the opposing party to appoint or to concur in the appointment of the arbitrator

Commencement of Arbitration under Institutional Rules • In order to stop time running, arbitration proceedings must be commenced in accordance with the relevant applicable law • If there is any difference between this law and any institutional rules of arbitration adopted by the parties, the applicable law prevails • ICC Rules require a party to send “A Request for Arbitration” containing a statement of the claimant’s case and particulars concerning the number and choice of arbitrators

Commencement of Arbitration under Institutional Rules • Furthermore, ICC Rules state that the date on which the Request is received by the Secretariat shall, for all purposes, be deemed to be the dame of commencement of the arbitral proceedings • In other cases, the institutional requirements for the ‘commencement of an arbitration’ may go beyond what is required by national systems of law • For example, an ICSID arbitration is deemed to have commenced only when the Secretary-General notifies the parties that all the arbitrators have accepted their respective appointments

Selecting an AT • It is difficult to choose a suitable arbitrator for a dispute which has not arisen • Ideally, each of the relevant factors should be considered by the parties after the dispute has arisen so that the most suitable arbitrator could be chosen to deal with particular dispute • The qualification of the arbitrator may have been designated in advance of any conflict, f. e. a lawyer of ‘not less than five years’ • In the event of a dispute proceeding to arbitration, the arbitral tribunal may be selected by an appointing authority nominated by the parties

Arbitrators • The establishment of an AT involves many considerations. The first concerns the number as any number of arbitrators can be chosen by the parties • The laws of most countries provide that the number of arbitrators must be uneven • Clauses providing for two arbitrators and an umpire used principally in shipping and commodities disputes, are inappropriate for international arbitration • Tribunals of five or more arbitrators are reserved for arbitration between states • In commercial cases, the choice in practice is between one and three

Sole Arbitrators • The ICC Rules provide that where the parties have not agreed upon the number of arbitrators, a sole arbitrator will be appointed, unless ‘the dispute is such as to warrant the appointment of three arbitrators’ • Appointments for meetings or hearings can be more easily arranged with a sole arbitrator than with an AT of three arbitrators, if only because there will be a smaller number of people to consult • The interests of economy are also served, since the parties will only have to bear the fees and expenses of one arbitrator rather than three • Moreover, the arbitral proceedings should be completed more quickly, since a sole arbitrator does not need to ‘deliberate’ with others • Nevertheless, in the practice of ICA, there is a clear preference for the appointment of three arbitrators in all but the smallest cases

Two Arbitrators • In certain trades and specialized markets the practice is to submit disputes to an AT of two arbitrators, with a subsequent reference to an umpire if the two partynominated arbitrators cannot agree between themselves • However, it is not a practice to be recommended in ICA • Within the context of a trade association, question related to two-arbitrator arbitrations rarely arise, if they do, they may be dealt with relatively easily by trade practice • In international arbitration, it is preferable to avoid the two arbitrator system

Three Arbitrators • Modern preference is for international commercial disputes to be referred to an AT of three arbitrators, unless the amount in dispute is small • Where the AT consists of three arbitrators, each of the parties will usually have the right to nominate one arbitrator, leaving the third arbitrator to be chosen in some other manner • Three arbitrator arbitrations are more expensive than an arbitration conducted by a sole arbitrator, and it will usually take longer to obtain an award

Four or More Arbitrators • The practice of states in appointing arbitral tribunals of five, seven or more is usually dictated by political rather than by practical considerations • In the case of the Iran-US Claims Tribunal, practical considerations led to the appointment of a tribunal of nine members, three appointed by each party and three from third countries

Appointment of Arbitrators • There are several different methods of appointing an AT. The most usual are as follows: • Agreement of the parties • Arbitral institution • List system • Existing arbitrators • Professional institution • Trade or other association • National court

Agreement of the Parties • One of the most common methods of appointing arbitrators is by agreement of the parties • In some cases the name of the person, to whom the dispute will be referred if it arises, is indicated in the contract. • This procedure should not be followed as there is no guarantee that the person designated in the agreement to act as an arbitrator will be willing and able so to act at the time when a dispute eventually arises. Nor is there any guarantee that a person chosen in advance to act as an arbitrator will be suitable to decide the particular dispute that arises

Agreement of the Parties • Where a sole arbitrator is to be appointed by agreement of the parties, it is preferable for this agreement to be reached after the dispute has arisen. There is no rigid rule or practice as to how the parties should make their choice • In such instances parties may exchange the lists with names of several arbitrators in the hope that one of them will be chosen • Not only the parties should give their consent to the chosen candidate, but that arbitrator also must give his/her consent

Agreement of the Parties • Where the AT is to consist of three arbitrators, it is usual for each party to nominate one arbitrator, leaving the third arbitrator to be appointed by one of the methods available • Sometimes a party seeking to undermine an arbitration will refuse to appoint an arbitrator; or a party-appointed arbitrator will refuse to agree on a third arbitrator • This situation can be best avoided by a provision in the arbitration agreement or in the applicable arbitration rules that allows an experienced institution to intervene and make the appointment

Arbitral Institution • Arbitral institutions invariably have mechanisms for appointing arbitrators under their own rules of arbitration • The ICC Rules, f. e. , provide that where there is to be a sole arbitrator, and the parties fail to nominate him one within 30 days from the communication of the Request for Arbitration to the other party, the arbitrator will be appointed by the ICC’s Court

Arbitral Institution • The Rules also provide that where there is to be an AT of three arbitrators, the third arbitrator will be appointed by the ICC’s Court, unless appointed by agreement of the parties within a limited time • The advantage of that the arbitral institutions and international bodies have to offer is their day to-day involvement in international arbitration. They know the qualities required in the persons they appoint and they usually know the potential candidates

List System • When a list system is used, each party compiles a list of three or four persons considered to be acceptable arbitrators • The lists are then exchanged in an attempt to reach agreement • A variation of this system is provided for in the UNCITRAL Rules, whereas the appointing authority sends each party an identical list with at least three names on it • Each party returns the list, deleting any name to which it objects and grading the remainder in order of preference • The appointing authority then chosen an arbitrator from the list, in accordance with the order of preference indicated by the parties

Existing Arbitrators • Where an AT of three arbitrators is to be constituted, the arbitration clause or submission agreement often provides that each party is to appoint one arbitrator and the two arbitrators so appointed will choose third, who acts as the presiding arbitrator • This is the most satisfactory method as the party-nominated arbitrators are likely to have confidence in the skill and judgment of their chosen presiding arbitrator; otherwise they would not have chosen the person concerned • It sometimes happen that the party-nominated arbitrators are unable to agree upon the choice of the third arbitrator • Where the arbitral institution is involved, this will provide a means of breaking the deadlock

Professional Institution • The president or a senior officer of a professional institution is often named in arbitration clauses and sometimes in submission agreements as the person who is to appoint a sole arbitrator or the presiding arbitrator of an AT if the parties fail to agree

Trade Association • An arbitration clause may provide that the appointment of an AT is to be made by a trade association or some other marketplace ‘club’ • Many groups or associations of merchants and traders prefer to resolve disputes by arbitration amongst themselves rather than by recourse to national courts or arbitration in the classic mode • The procedure followed is often quick and informal with lawyers excluded from the hearings unless the parties expressly agree otherwise

Trade Association • Trade tribunals often consist of two arbitrators. The two arbitrators, one appointed by each party, are usually experienced in the particular trade concerned • They are expected to reach their decision not merely on the basis of the evidence and arguments presented to them, but also on the basis of their own experience • If they cannot agree, the dispute is referred to an umpire

National Courts • Where the parties are unable to reach agreement upon the appointment of an arbitrator and where no one is expressly empowered to make the appointment for them, it is necessary to consider whethere is any national court that has (a) jurisdiction and (b) the power to make the necessary appointment • If the court has both jurisdiction and power, the consent of the parties is not necessary • It is sufficient for the claimant to apply to the court for the appointment of a sole arbitrator • In making such an appointment, the court will often ask the parties’ lawyer or the party-appointed arbitrator to put forward possible candidates

Jurisdiction and Powers of National Courts • A national court will have jurisdiction where the arbitration is to be conducted on its territory • The party wishing to proceed with the arbitration simply applies to the appropriate national court for the appointment to be made. A problem arises when the seat of arbitration has not been specified in the arbitration clause or submission agreement • It may be possible to persuade a court to assume jurisdiction • Failing this, the claimant may have to abandon hope of submitting the dispute to arbitration and may be forced to resort to litigation in a national court instead

Jurisdiction and Powers of National Courts • National courts are usually empowered to appoint arbitrators in circumstances in which it becomes necessary for one of the parties to a dispute to request them to do so • Wide powers to appoint arbitrators and umpires are contained in most modern national codes of law governing arbitration

Designating an Appointing Authority • Parties should recognize that it is in their common interest to choose an appointing authority by agreement – or at least, to choose a method of designating an appointing authority • One way of doing this, after the dispute has arisen, is to agree to adopt the UNCITRAL Rules, or simply the articles of those Rules that relate to the appointing authority and its functions • The parties may designate a court as the appointing authority, but the intention of the Rules is that they should nominate a person or more usually an instituion likely to maintain a list of names of suitable arbitrators • If the parties have not agreed upon an appointing authority, then after fulfilling certain preliminary requirements, a party may request the Secretary-General of the PCA to designate one

Designation by the Secretary General of the PCA • The International Bureau of the Permanent Court of Arbitration is located at the Peace Palace in the Hague, a great centre of international law built in 1913 for arbitration between states • It is also the headquarters of the ICJ • The staff of the International Bureau is headed by the Secretary-General, who performs the functions allocated to him under the UNCITRAL Rules. These include the designation of an appointing authority if the parties have not agreed on one

Designation by the Secretary General of the PCA • The first occasion on which the Secretary. General was called upon to designate an appointing authority under the UNCITRAL Rules was in 1983 in connection with the Iran. US Claims Tribunal • In the special circumstances of this tribunal, the Secretary-General chose then President of the Supreme Court of the Netherlands

Reading Materials • Redfern, A. , Hunter, M. , Blackaby, N. , and Partasides, C. , 2004. Law and Practice of International Commercial Arbitration, 4 th edn. London: Sweet and Maxwell. • Tweeddale, A. and Tweeddale, K. , 2005. Arbitration of Commercial Disptues: International English Law and Practice. Oxford: Oxford University Press.

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