Conference on Rules for Institutional Arbitration and Mediation

20 January 1995, Geneva, Switzerland

The Arbitral Decision
by Gerold Herrmann (*)
Secretary, United Nations Commission on International Trade Law (UNCITRAL), Vienna

INTRODUCTION

The arbitral award, as the major and ultimate arbitral decision, constitutes the goal of arbitral proceedings, ensuring the final and binding settlement of the dispute. Even if, as is often true in institutional and ad hoc arbitration alike, the arbitrating parties reach a settlement by agreement, an arbitral decision comes into play, usually in the form of a consent award; above all, the likelihood of a settlement agreement, whether or not proposed or facilitated by the arbitrator, does not alter the objective of arbitral proceedings, namely to terminate the dispute by a final decision, which most clearly distinguishes arbitration from the other dispute settlement method interchangeably called conciliation or mediation.

In view of the importance of the arbitral award, all sets of arbitration rules contain some provisions on awards. They tend to deal, at varying levels of detail, with such matters as how awards and other decisions are being made, what substantive rules and form requirements are to be complied with, what the effects of arbitral decisions are and under what circumstances awards might be changed.

The following survey is designed to examine the relevant portion of the new WIPO Arbitration Rules in comparison with the rules of other arbitration institutions as well as the UNCITRAL Arbitration Rules ("UAR"). These latter Rules of the United Nations Commission on International Trade Law deserve particular attention here for a number of reasons: they are being used worldwide in ad hoc as well as administered or institutional arbitrations, they have been adopted by many institutions either as their own institutional rules or, especially by older institutions and now also by the WIPO Arbitration Center, as additional, alternative arbitration rules; and they have been used as a model or basis for most of the recently promulgated arbitration rules, bearing witness to the continuing and undiminished attractiveness of the UNCITRAL Arbitration Rules which, despite their age of almost 20 years, are not in need of revision.

The comparative examination further covers the sets of arbitration rules of the following selected arbitral institutions (many of which also use the UNCITRAL Arbitration Rules or have used them as a model for their own rules):

- AAA: American Arbitration Association (International Rules)

- CCIG: Chamber of Commerce and Industry of Geneva

- DIS: German Institution for Arbitration

- EDF: European Development Fund

- HCC: Court of Arbitration attached to the Hungarian Chamber of Commerce

- ICC: International Chamber of Commerce

- JCAC: Japan Commercial Arbitration Commission

- LCIA: London Court of International Arbitration

- NAI: Netherlands Arbitration Institute

- PCA: Permanent Court of Arbitration (Optional Rules for Arbitrating Disputes Between Two Parties of Which Only One is a State)

- VIE: International Arbitral Centre of the Federal Economic Chamber, Vienna

- ZAGR: Croatian Chamber of Commerce (Zagreb Rules)

LAWS APPLICABLE TO THE SUBSTANCE OF THE DISPUTE, THE ARBITRATION AND THE ARBITRATION AGREEMENT

The portion of the WIPO Arbitration Rules dealing with awards and other decisions opens with a particularly important and in part innovative provision on the different laws applicable to the substance of the dispute, the arbitration and the arbitration agreement (Article 59).

The provisions in paragraph (a) as to how to decide the substance of the dispute are modelled on the UNCITRAL Arbitration Rules (33 UAR) and in substance close to the UNCITRAL Model Law (28 MAL). They guarantee party autonomy by declaring as applicable "the law or rules of law" chosen by the parties (like 28 MAL and 46 NAI), thus including, for example, rules of a convention elaborated on the international level but not yet in force, while most other arbitration rules refer merely to the choice of a "law" or "laws" (e.g. 13 ICC, 33 UAR, 29 AAA, 16 VIE, 13 HCC, 38 ZAGR).

In the provisions on how the arbitrator is to determine the applicable law, failing a choice by the parties, a similar divergence appears (with 59 WIPO opting for "the law or rules of law"), coupled with a more crucial divergence on the way of finding that law or those rules of law. While most arbitration rules (e.g. 13 ICC, 33 UAR, 29 AAA, 16 VIE, 33 PCA, 21 DIS) point to the more traditional way, used, e.g., in the European Convention on International Commercial Arbitration (Geneva, 1961), of following the conflict-of-laws rules considered applicable, the WIPO Arbitration Rules (like 46 NAI) opt for the more direct way of making the arbitrator apply the law or rules of law "that it determines to be appropriate." However, the divergence should not be overestimated since the reasons that lead the arbitrator to select the appropriate substantive law tend to be similar to the connecting factors used in conflict-of-laws rules; after all, the arbitrator has discretion as to which conflict-of-laws rule it considers applicable (in the sense of "appropriate," as is clear from the French term "appropriée") and is, of course, not bound (like a national judge would be) to follow the private international law rules of the place of arbitration or of the seat of the arbitral institution (as prescribed in one set of arbitration rules: 13 HCC).

Article 59 WIPO obliges the arbitrator to have due regard to the terms of any relevant contract and to take into account applicable trade usages. A rule to this effect is found in most sets of arbitration rules, some of which use somewhat stricter wording (e.g. "shall decide in accordance with," 33 UAE; "shall observe," 16 VIE). Yet, it is submitted that "having due regard" should be interpreted as meaning "in accordance with," save for the obvious exception, equally applicable to the stricter wording, that a term of the contract is invalid or proven to be contrary to the intentions of the parties. It should further be noted that the introducing words "in all cases" (taken from 33 UAR) are intended to make it clear that the rule is applicable not only in an arbitration according to law but extends to an arbitration ex aequo et bono or an amiable composition. That type of arbitration is to be used only if so expressly authorized by the parties - a rule found in all sets of arbitration rules addressing the issue (interestingly enough, the rule is in one set of arbitration rules (45 NAI) limited to international cases; for domestic cases the rule is reversed (providing a glimpse of the history of arbitration) in that the arbitrator has to decide as amiable compositeur unless otherwise expressly agreed by the parties.

The second kind of law dealt with in article 59 WIPO is the law applicable to the arbitration, the so-called lex arbitri which concerns primarily the arbitral proceedings, including the important questions of court involvement. That law is, according to paragraph (b), the arbitration law of the place of arbitration, unless the parties have validly chosen another arbitration law. Such other choice, even where permitted, is in fact rarely made by parties, especially because of the considerable practical and legal difficulties resulting therefrom. Above all, most national laws prescribe (like 1 MAL) the application of the arbitration law of the place of arbitration, without, of course, preempting parties from incorporating foreign arbitration law provisions into their arbitration agreement; moreover, the applicable arbitration law is often indirectly chosen by the very choice of the place of arbitration. The rule in paragraph (b) itself is thus of limited practical effect; it basically states what the legal situation is anyway, except that it introduces a potentially stricter requirement by recognizing a contrary agreement by the parties only if made expressly. The real value of this rule becomes apparent when one looks at the next provision to which paragraph (b) as well as paragraph (a) constitute a "lead in."

The important and innovative rule on the law applicable to the arbitration agreement reads as follows:

This rule constitutes a novelty: none of the other examined sets of arbitration rules contains a rule on this point, except for one set (13 LCIA) which, however, does not provide any guideline as to which law applies to the arbitration agreement but, following the English tradition, merely stipulates the power of the arbitrator to determine the rules of law governing the arbitration agreement - a power not specifically mentioned in other sets of rules probably because it is regarded as obvious. As regards the substance of the rule in paragraph (c) of Article 59 WIPO, it reflects a modern tendency of taking into account the law applicable to the substance of the dispute rather than determining the form, existence, validity and scope of the arbitration agreement exclusively by the law applicable to the arbitration, unless another law had been chosen for that particular determination; that latter rule is the traditional solution adopted by the 1958 New York Convention (Article V(1)(a)), except for the issue of form that is uniformly regulated by the Convention itself, and followed by the UNCITRAL Model Law (Articles 34 (2)(a) and 36 (1)(a)). The modern rule of paragraph (c) is strengthened by the liberal alternative, adopted in various conflict-of-laws systems for form requirements, of letting suffice the fulfilment of the criteria in one of two (alternative) laws, that is, the more liberal of them, thus favouring validity and breadth of scope of the arbitration agreement.

As a practical matter, the rule leads to potentially more favourable results in two situations, first, where the parties have chosen a substantive law without expressly stating that law to be applicable also to the arbitration agreement, and secondly, where, failing such choice, the arbitrator determines as applicable the substantive law of a country other than that of the lex arbitri; the result would in fact be more favourable if the rules on arbitration agreements in the substantive-law jurisdiction are more liberal than those of the lex arbitri. Yet, another important proviso needs to be added: the rule can have its favourable effect only if (and, if so, to the extent) recognised by any mandatorily applicable law since the rule, like all provisions of arbitration rules, is contractual in character and therefore subject to any provisions of law from which parties may not derogate.

CURRENCY AND INTEREST

The same proviso needs to be borne in mind when looking at the next provision (60 WIPO) according to which money awards may be rendered in any currency (paragraph (a)) and simple or compound interest may be awarded on any awarded sum, at a freely determined appropriate rate and for a freely determined period (paragraph (b)). The proviso may be especially relevant to the portion of the rule according to which the arbitrator would not be bound by legal rates of interest (which, by the way, should be interpreted as statutory rates or any rates established by case law but not as contractual rates).

The rules on currency and interest are closely modelled on Article 16.5 of the LCIA Rules which is in fact the only examined set of arbitration rules containing a provision on those two points. Such singularity is probably due to the earlier mentioned English tradition of spelling out specific powers regarded by others as self-evident and, as regards interest, the legal uncertainty stemming from an English statute that has been followed in other common-law jurisdictions as well.

As regards other jurisdictions, the practical effect of the rule might be limited; yet, it certainly transmits a liberal signal and clarifies matters in those cases where such specific powers might be doubtful unless expressly granted to the arbitrator. Such clarification might be especially useful as regards the period for which interest may be payable since it helps to overcome artificial distinctions between the periods before and after the award, based on the misconceived equation of court litigation and arbitration.

DECISION-MAKING

Article 61 WIPO deals with the decision-making process in a panel of arbitrators. Like all other examined sets of arbitration rules addressing the issue, it adopts the principle that any award, order or other decision shall be made by a majority. However, it qualifies the principle by entrusting the presiding arbitrator, in the absence of a majority, to make the decision like a sole arbitrator. This solution of a tie-breaking vote in case of deadlock has been adopted by some arbitration rules (e.g. 19 ICC, 16.3 LCIA, 32.1 EDF, 38.2 HCC) while others compel the arbitrators to consider the matter further until a majority is reached so as not to reduce the influence of party-appointed arbitrators (e.g. 48 NAI, 27 AAA, 20 DIS, 31 PCA, 35 ZAGR).

Rules joining this second school of thought usually make an exception for questions of procedure and often follow the UNCITRAL Arbitration Rules (31 (2)) by providing that, when there is no majority or when the arbitral tribunal so authorizes, the presiding arbitrator may decide on his own, subject to revision, if any, by the arbitral tribunal (e.g. 27.2 AAA, 31(2) PCA, 35 ZAGR; also 32.1 EDF). It may be added that, even without any of the qualifications of the majority principle, presiding arbitrators are customarily regarded as authorized to decide alone routine matters of procedure or logistics.

FORM AND NOTIFICATION OF AWARDS

The provisions of Article 62 (a)-(d) WIPO dealing with the form and contents of awards are very similar to those found in other sets of arbitration rules and closely modelled on the UNCITRAL Arbitration Rules (31). Paragraph (a) lists the various possible types of arbitral awards, while

paragraph (b) sets forth the requirement of writing (like all other arbitration rules, except 40 HCC which allows in appropriate cases to announce the award, or its operative provisions, orally to the parties present at the hearing) as well as that of stating the date of the award and the place of arbitration (as specifically required also in most other sets of arbitration rules, sometimes with a list of additional requisites as regards the contents of the award); as expressly stated in Article 39 (c) WIPO, the award shall be deemed to have been made at the place of arbitration.

Paragraph (c) requires the award to state its reasons, unless that requirement has been validly waived by the parties or, as provided for in Article 65 (b), the award is a consent award recording an agreed settlement. Again, this requirement is found in most other international sets of arbitration rules, including those of common law jurisdictions where non-reasoned awards used to be the rule (e.g. 16.1 LCIA, 28.2 AAA, 33.4 EDF, 23.1 DIS, 39 HCC, 36(2) ZAGR, 33(3) PCA and, requiring reasons to be stated in a concise manner, 29(1) CCIG).

Paragraph (c) requires, again in conformity with all other arbitration rules addressing the matter, the award to be signed by the arbitrator or arbitrators that took the decision and requires, where an arbitrator fails to sign, a statement of the reason for the absence of the signature. Since one likely reason for the failure is disagreement with the decision, some arbitration rules provide further details according the disagreeing arbitrator a certain right, such as allowing a dissenting opinion as part of the award or separate from it (thus 48.4 NAI) or entitling the minority to a mention in the award of the fact that it was made by majority (thus 18.1 VIE).

According to the innovative paragraph (e), the arbitrator may consult the WIPO Arbitration Center with regard to matters of form, particularly to ensure the enforceability of the award. While the idea of ensuring enforceability is expressly mentioned as a general duty in two sets of arbitration rules (26 ICC, 20.2 LCIA), the WIPO provision of optional consultation is novel, at least in that it puts on paper what is probably practiced by a number of arbitral institutions and what might be of special value in the context of a newly established arbitral institution. There is, of course, a world of difference between this procedure, where not only the consultation is optional, but also the compliance with any counsel by the Center, and the compulsory scrutiny of the awards by the ICC Court of Arbitration, with binding modifications as to form and non-binding suggestions on points of substance (21 ICC).

Paragraphs (f) and (g) regulate the details of the notification of the award and of the availability of further copies. The mechanics are in essence the same as those used by other institutions, except for certain differences in detail due to different organs or officers of the institution being involved (e.g. 25, 23(1) ICC, 16.4 LCIA, 49, 50 NAI, 50 JCAC, 30 CCIG, 18 VIE, 24.1 DIS). While only some sets of arbitration rules provide for the deposit of the award with a court if required by law (e.g. 50 NAI, 28.8 AAA, 24 DIS) or for its storage with the institution for a certain period (e.g. 18.5 VIE, 50(3) NAI), institutional rules are almost uniform in using the trade term "cash against documents" by making the notification or delivery of the award dependent on the complete payment of the arbitration costs.

TIME PERIOD FOR DELIVERY OF THE FINAL AWARD

Probably everyone would agree that arbitral proceedings should be expeditiously conducted and completed, although not everyone is equally obsessed with the maxim "velocity is of the essence." Yet, there is little agreement on what arbitration rules can and should do in support of that goal. Some sets of arbitration rules set time-periods for rendering the award, such as 6 months after the establishment of Terms of Reference (18 ICC, with the power of the Court to extend that period and with the additional power to determine the manner in which the dispute is to be resolved, if no such extension is granted), or five weeks, at the most eight weeks, after determining that the proceedings have matured enough to render the award (48 JCAC), or within 30 (or, if a foreigner is arbitrator, 60) days after closing the hearings (40 HCC), or within 6 months (31(d) CCIG for the nowadays fashionable expedited procedure). Others, apparently not believing in artificially fixed time-periods and elaborate schemes of extensions that always risk termination of the arbitrator's mandate by oversight, indicate the exhortation by general words such as "promptly" (28.1 AAA), "as soon as possible" (43.1 NAI, 33.1 EDF) or "expeditiously" (20(1) DIS), while yet others do not seem to believe in the effectiveness of any such wording, leaving the matter - like many other expectations - to the diligence of the arbitrator and its selection, to the extent that the speed of the proceedings in fact depends on the arbitrator and not on the parties and their counsel.

Within the above range of attitudes, the WIPO Arbitration Rules steer a somewhat innovative middle course. Article 63(a) sets a period of 9 months for the proceedings and another 3 months for making the final award; both fixations are, however, softened by the words "should, wherever reasonably possible." Unlike other arbitration rules fixing time-periods, Article 63 does not adopt a scheme of extensions to be granted by the Center (or the parties); instead, it requires the arbitrator to send a status report to the Center when one of the above time-periods expires without the goal having been achieved and then again at the end of each ensuing third part of the original period.

EFFECT OF AWARD

Like most other sets of arbitration rules (e.g. 32(2) UAR, 24(2) ICC, 16.8 LCIA, 28.1 AAA, 51 NAI, 33(3) EDF, 18.4 VIE, 42 HCC, 36(1) ZAGR), Article 64(a) WIPO commits the parties to carry out the award without delay. It adds the provision found in few other rules (24(2) ICC, 16.8 LCIA) that the parties waive their right to any form of appeal or recourse to a court or other judicial authority, insofar as such waiver may validly be made under the applicable law. To the extent that previous court decisions on identical or similar wording in other sets of arbitration rules can be relied upon, that provision will be regarded by English courts as a valid exclusion agreement under the 1979 Act and by Swiss courts not as an effective exclusion of setting aside under the 1987 Act on Private International Law.

Article 64(b) WIPO declares the award to be effective and binding on the parties as from its communication, again like most other sets of arbitration rules, although with somewhat differing wording (e.g. "final" 24(1) ICC; "res iudicata" and "binding" 51 NAI; "final and binding" 32(2) UAR, 28.1 AAA, 42 HCC, 36(1) ZAGR; "final" and "res iudicata" 25 DIS).

SETTLEMENT OR OTHER GROUNDS FOR TERMINATION

According to Article 65(a) the arbitrator may suggest that parties explore settlement at such times as it may deem appropriate. The wording is carefully crafted since attitudes and views on settlement suggestions by the arbitrator are far from uniform and rarely expressed in arbitration rules (e.g. 19(1) DIS).

General agreement exists, however, in respect of the possibility, laid down in paragraph (b), of recording an agreed settlement in a consent award. Yet, some divergence exists as to whether the arbitrator is bound by a joint request of the parties (thus 65 WIPO) or whether it has discretion to reject the request (thus 34(1) UAR), for example, in case of violation of public policy.

Paragraph (c), modelled on the UNCITRAL Arbitration Rules (34(2)), provides for termination of the proceedings when their continuation has become unnecessary or impossible. It may be noted that this provision, like the corresponding one of the UNCITRAL Model Law (Article 32(2)), would also cover the situation of "want of prosecution," i.e. where for an inordinate period of time both parties remain passive so that the arbitration cannot proceed.

CORRECTION OF THE AWARD AND ADDITIONAL AWARD

Again closely modelled on the UNCITRAL Arbitration Rules (Articles 36 and 37), Article 66 WIPO empowers the arbitrator to correct any clerical or similar error in the award or to make an additional award for any submitted, but not yet decided claim; similar provisions are found in most other elaborate sets of arbitration rules (e.g. 17.1-3 LCIA, 52, 53 NAI, 31 AAA, 37, 38 EDF, 41 HCC, 40, 41 ZAGR). However, the WIPO Arbitration Rules do not envisage the possibility of an interpretation of the award as provided for in the UNCITRAL Arbitration Rules (art. 37) and some other rules (e.g. 31 AAA, 36 EDF, 39 ZAGR, 35 PCA).

CONCLUSION

In respect of various matters (e.g. form requirement) the provisions of the examined sets of arbitration rules are identical or at least similar, due in part to generally held expectations and international requirements as laid down, in particular, in the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. However, there exist a number of considerable differences, for example as regards the extent of control exercised by arbitral institutions. Moreover, divergent (yet equally reasonable) solutions have been adopted in respect of eternally debatable questions (e.g. decision-making by panel of arbitrators) on which reasonable men or women may differ. Finally, arbitration rules differ widely as regards their level of detail or their courage of stating what others regard as obvious and redundant. The WIPO Arbitration Rules combine the best features of established and recognized arbitration rules and present the state of the art in a particularly elaborate manner.

* The views expressed in this paper are personal ones and do not necessarily reflect the views of UNCITRAL.

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