The elements o f the classical characterization o f the concept of arbitration

Lecture 1. The Notion, Historical Evolution and Consensual Nature of the Arbitration

PLAN

Characterization of Arbitration and its consensual nature.

1.1 The Classical Characterization o f Arbitration

1.2 The consensual nature o f arbitration

1.3 An alternative to national courts

1.4. The discontent with the classical characterization of arbitration, in particular with its consensual nature

The Historical Evolution o f the Concept and the Consensual Nature o f Arbitration

2.1The traditional concept o f arbitration

2.2 The modern concept of arbitration

2.3The UNCITRAL Model Law’s

International conventions and investment treaties

Characterization o f Arbitration

Consent is controlling factor of jurisdiction in international arbitration. Consent not only establishes jurisdiction, but it also determines its extent. Therefore, not surprisingly, the consensual nature has been seen as one of the distinctive features of arbitration. However, with the growing acceptance of arbitration as a dispute resolution mechanism the concept and the consensual nature of arbitration have evolved over time. Nowadays the acceptance of the use of arbitration to resolve disputes finds expression in a number of instruments. Likewise, consent to arbitration can be expressed in different ways.

A. The Classical Characterization o f Arbitration

The classical characterization of the concept of arbitration is still influenced by the form of arbitration which is considered to have existed since the dawn of commerce, and which for many years has been the predominant one: commercial arbitration. It has been pointed out that there is no legal definition for arbitration. Indeed, as arbitration is a dynamic dispute resolution mechanism varying according to law and international practice, national laws do not attempt a final definition of it. At most, a definition can be inferred from the provisions defining the arbitration agreement contained in the various legislations. On the other hand, definitions o f‘arbitration’ have been provided by legal authors.

Party autonomy as the primary source of the arbitration jurisdiction

The crucial difference between arbitration and courts thus lies in the fact that the basis of the jurisdiction of an arbitral tribunal is the will of the parties, while courts owe their competence to the procedural norms of a State or of an international convention. Moreover national courts have a constitutional role.

Freedom o f contract embraces two closely connected, but nonetheless distinct, concepts:

• it indicates that contracts are based on mutual agreement;

• it emphasizes that the creation of a contract is the result of a free choice, unhampered by external control such as government or legislative interference.

In arbitration the freedom of contract, as the primary rule that governs the law, practice, and regulation of arbitration in the vast majority of national j urisdictions, allows the parties to write their own rules of arbitration—indeed, it permits them to have the agreement establish the law of arbitration for that particular transaction: the parties can customize the arbitral process to fit their needs, eliminate legal rules or trial techniques that might prove inconvenient or unsuitable, and maintain procedural elements they believe necessary to achieve fairness, finality, and functionality.

The elements o f the classical characterization o f the concept of arbitration

Arbitration is a mechanism for dispute resolution by private individuals. Arbitrators do not hold public office and are not vested with pre-existing jurisdictional powers, which they acquire only because of the parties’ consent. The parties may, within the limits of the relevant law, confer powers upon the arbitral tribunal directly or indirectly. They have the ultimate power to determine the form, structure, system and other details of the arbitration. However, while the jurisdictional function of the arbitrators is fundamentally analogous to that of judges, arbitrators have no capability to make use of the coercive powers over property and persons that are conferred by the State upon a national court when exercising their function.

The reason for this is that the source of the jurisdictional authority of arbitral tribunals is strictly private.

1.2The consensual nature o f arbitration

The principal characteristic of arbitration is that it is chosen by the parties by concluding an agreement to arbitrate. This is considered the foundation stone of international commercial arbitration, as it records the consent of the parties to submit to arbitration—a consent which is indispensable to any process of dispute resolution outside national courts. Such processes depend for their very existence upon the agreement of the parties. Hence this element of consent is essential, as without it there can be no valid arbitration. The contractual arrangement must be understood broadly, in the sense that the parties’ consent can be given in different ways and successively. Therefore, the contractual nature of arbitration does not mean that the arbitration agreement must be ‘reciprocal’, it give the parties the same right to refer disputes to arbitration. Indeed, it is possible to confer upon one party the unilateral right to initiate an arbitration proceeding. Notwithstanding these particularities, in investment arbitration—like in commercial arbitration—the attempt to emancipate arbitration from a State justice system is clear and unavoidable. It has also been observed that continental European jurists,32 in particular, attach great importance to the wishes of the parties.

1.3 An alternative to national courts

By agreeing to arbitration the parties remove their relationships and disputes from the

jurisdiction of national courts altogether. In fact, the parties not only choose not to submit their disputes to the default national courts but, by refusing to conclude a jurisdiction agreement, they also choose not to submit the disputes to alternative national courts. However, this aspect of the characterization of arbitration has, with regard to international arbitration, been criticized as well. Lalive argued that to speak of removal of the dispute from ordinary State jurisdiction has no or, at least, another sense in international arbitration, where one of the essential scopes of the arbitration agreement is precisely to prevent the conflict of jurisdictions and to remedy the extreme incertitude which in general reigns with regard to the determination of this ‘ordinary judge’. Moreover, it has been observed that while a forum selection clause is concerned with the rules that determine which forum may hear a dispute, the arbitration agreement is an act which vests jurisdictional power in a given jurisdiction in the first place (here, a specified arbitral tribunal). Therefore, arbitration agreements, contrarily to jurisdiction agreements which keep the dispute within the boundaries of the jurisdiction of national courts, take it to a different adjudicatory forum. The result of this difference in the nature of the arbitration agreement is that certain assumptions have been made regarding the parties’ presumed intent in including such a clause in their contractual relations. Indeed, because of the specific nature and far-reaching consequences of choosing an arbitration clause, there is a presumption that the level of intent—the volitional intensity— from parties who consent to insert such clauses is greater than the level of intent in selecting a mere forum selection clause.

1.4. The discontent with the classical characterization of arbitration, in particular

with its consensual nature

Complex multiparty situations in commercial arbitration have led scholars to speak about the marginalization of consent or to pose the question of whether a modern approach to consent is perhaps emerging. Moreover the expansion of the use of arbitration in fields other than traditional commercial arbitration has also changed the perception of arbitration and, in particular, its consensual nature. The following passage reflects this changed view: More and more, the classical concept of arbitration based on consent is being supplemented by other concepts of arbitration which largely ignore this requirement. This is so especially in the areas of sport, consumer transactions, and investment arbitrations based on treaties or national statutes. This is only natural, as arbitration becomes the most common method for

settling international disputes. One may choose to cling to the dogma o f consent and when no true and meaningful consent exists, rely on a fiction o f consent. But if we merely preserve the appearance of consent, this justification for arbitration is no longer compelling. Indeed, it may be more accurate and intellectually honest to simply admit that arbitration without consent exists. Having made that admission, one can then investigate the requirements that have come to replace consent.