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Geoffrey Hartwell
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Geoffrey Hartwell
This paper was first published at the meeting of the Swiss Arbitration Association in Zürich on 2 February 1996 and is reproduced by kind permission of the Association and of the Chartered Institute of Arbitrators.
It is often said that the process of arbitration is a creation of law. In many jurisdictions, arbitration is regulated as if it were a part of the state legal system, private only in the sense that those taking part are not employed by the state. One of the consequences of this approach is the assertion that arbitrators, even in an international context, have some overriding responsibility to the public interest or to the concept of ordre publique.
In my submission, however, the New York Convention of 1958 is entirely consistent with a different view. Certainly it has a link with state legal systems; it records an agreement by subscribing states that properly made arbitral agreements and the awards which result from them will be enforced; it recognises the pragmatic right of states to refuse to enforce decisions which are counter to the policy of those states. There is nothing principled about that. Power is with the state and one may expect, as a condition of recognition of awards in general, that a state reserves the right not to act counter to its own beliefs and interests. A convention which did not accept that would simply not be observed in practice.
The basis of the Convention is the agreement. Agreements are not created by law; they are created by people. The principle pacta sunt servanda is not a principle of law, although it is a principle recognised by law. The expression pacta sunt servanda, which lies at the root of all human commerce and is the basis upon which commercial principles of law are built, is not even an axiom which has to be assumed before a philosophical justification of law can be constructed. It is quite simply a truism. An unassailable fact. A mathematician would describe it as an equivalence -pacta = servanda, so to speak.
It is not a statement that pacts should be observed, or agreements followed. The definition is recursive; if a bargain is not to be followed, it is simply not a bargain. The law of contract is about the way in which a bargain will be enforced at law. In certain of its aspects it may be about the circumstances in which a party will be excused his bargain or in which a bargain will be undone by process of law. The law is not, however, the source of the bargain; the nature of bargains is itself a source of law, a supra-legal principle, a fundamental necessity of human life itself. Arguably then, where systems of law have to deal with commercial matters, they must first recognise the principle; generally they do. Both secular and religious systems of law recognise the duty, the overriding duty, of honouring a promise.
Because the principle is a truism, it may be said to be morally neutral. No judgement is made as to whether the pact is good or bad. Society, however, may decide that certain pacts should not exist, or that, if they are allowed to exist, it will not support them. Law will give effect to such matters of social or political policy. Thus we have, in the various jurisdictions of the world, pacts that the state will allow to exist but will not honour or enforce (gambling arrangements for example) pacts that can be destroyed by the intervention of the state (voidable contracts) pacts that are not permitted in law to exist at all (void ab initio) and the extreme category of pacts the formation of which is, of itself, an offence against the state. Arguably, the principle pacta sunt servanda precedes the law in these examples, but law places limits upon the extent to which the principle is free. Generally, the freedom to make a promise is limited only within the jurisdiction of the law which purports to limit it; there are, however, aspects which some jurisdictions seek to impose more widely (USA Anti-Trust legislation is an example) but that is a topic for another occasion.
The arbitral process is not a creation of law, although it has similarities and, like other aspects of life, is governed by it. Arbitration is the creation of a promise between the disputing parties; it is the determination of differences between parties, by the parties themselves through the services of a third party or third parties whim they employ for the purpose.
How does this argument draw comfort from the New York Convention? The answer to that question lies in the structure and wording of the Convention itself.
The essence of the Convention is that the subscribing Nations agree that their nationals will abide by an agreement to arbitrate and that those who agree to determine their differences themselves, with the aid of a person, or persons, or Institution of their own choice will be allowed to do so without the intervention of a state court. In other words, where contracting parties have agreed to decide issues without recourse to law, they will have the opportunity to do so. A recalcitrant party is not exempted. That is entirely in accordance with the principle of the promise.
There are several provisions which loosely could be said to be in the general category of "due process" requirements. Again it is suggested that these are not interventions of law. All can be said to be requirements that the parties and the arbitral tribunal comply with what common-sense requires as part of the bargain - fairness is to be presumed.
One necessary intervention of law, for which the convention provides, comes into the provision that an award set aside where it is made will not be enforced. That is a fetter on the freedom to promise, but a necessary one, because the Court of which exequatur is requested may not be in a position to enquire into what has been done in another jurisdiction and the award in question has been made a legal nullity in its own home, so to speak. It is conceivable, however, that there might be matters where such an intervention was not appropriate and there have been jurisdictions in which an award in an international matter simply would not be examined by a local Court at all. The provision for awards locally set aside, therefore, is not absolute but is a practical limitation to the freedom upon which we are reflecting in this note.
The final intervention, the feature of the Convention without which few states would be prepared to accept the validity of arbitration at all, is that any state, of whose courts exequatur is sought and who may be called upon to support the award with the power of the state, has a right to refuse where the award is contrary to public policy. That has been described already as a pragmatic right of the state (although, where states are concerned, the distinction between a right and a practical power is probably academic).
Subject to those two limitations, which are limitations of practical politics, the Convention seems, therefore, to be a Convention in which the subscribing nations agree to support a private regime of determination which is based upon a philosophical principle rather than upon any formally recognised system of law. To that extent, I argue that the Convention supports a supra-legal view of the nature of agreements between persons. Where the agreement is between legal entities, rather than natural persons, other matters come into play, of which the legal capacity of the legal entity is a key example, but again, that is outwith this discussion.
What, if any, are the practical implications of this "lawless" approach to arbitration? As to substantive issues, there are few practical implications. In construing a contractual or other relationship, an arbitral tribunal will address itself almost entirely to the legal regime which the parties adopted for their arrangements and will decide in accordance with that regime of substantive law (although it may be an indeterminate regime as "according to accepted principles of law" or it may be subjective as in "according to the justice of the matter"). In the procedural area, however, this approach serves to remind those concerned of the important distinction between the law and custom which govern procedure in state courts, and may or may not be of assistance elsewhere, and the mandatory rules, generally few in number, with which other deciders must comply. Because arbitration is, of its nature, distinct and separate from the process of law, it follows that those legal practices which are not mandatory need not be employed in arbitration. (Nevertheless, where legal practices have developed as an aid to justice, they may well be of practical assistance outside the court system.)
A corollary to this meta-jurisprudential approach to arbitration is that there will be some rare occasions on which the legal and arbitral analysis of an issue may fall to be considered. Although such instances are rare and likely to involve issues which are in some way special as to their facts, they repay contemplation.
A case which has had some notoriety concerned a Contract which was almost overtly a Contract for bribery to be carried out on behalf of a commercial concern. A Contract for pots-de-vin. The arbitrator decided against the Claimant who sought to be paid what he claimed to be commission in respect of contracts which were not contemplated at the time of the agreement, which did not produce any business. He did so on the basis, put simply, that the Contract was not one which could in conscience be enforced. The reference has been analysed and discussed at length, notably by the late Gillis Wetter and it is not the present writer's intention to do other than use it to pose this question: is the arbitrator to be seen i) as a judge with an international jurisdiction, with a duty to enforce an international ordre publique, or is he or she ii) no more than a person chosen and put in place by the parties, who must expect him or her to conduct themselves in such matters at least according to their private conscience, or is the arbitrator iii) to be someone with a pragmatic eye to the practicability of enforcement in a jurisdiction which is likely to hold the assets of a paying party and thus unwilling to make an award which will not be enforced? Three fundamentally different ways of looking at the task, each leading more or less to the same result.
It is the submission of this note that arbitration differs fundamentally from litigation as to the basis of the arbitrator's role; that arbitration falls to be considered solely as a contractual creation sui generis rather than as a branch of any known legal system; and that the New York Convention can be construed as a practical device which recognises that view of arbitration while providing a link to the legal systems of the subscribing nations. One might go further and perhaps open a debate by suggesting that the provisions of the Convention itself are all that is required of legislation, whether for international or, mutatis mutandis, for domestic arbitration.
Whether this theoretical musing is of assistance in dealing with the issues of a specific reference may be open to conjecture. It is offered, however, not as an alternative to conventional legal analysis but as one method of analysing procedural questions in arbitration from a non-legal standpoint. That, in turn, may be a step towards the consideration of how the process of commercial arbitration may be returned to the control of the parties (who are, after all, our employers).
© G.M.Beresford Hartwell, February 1996
