«ICCA’S GUIDE TO THE INTERPRETATION OF THE 1958 NEW YORK CONVENTION: A HANDBOOK FOR JUDGES INTERNATIONAL COUNCIL FOR COMMERCIAL ARBITRATION ICCA’S ...»
Practice in this field shows that courts seem generally to follow a guiding principle to the effect that an arbitration agreement is valid where it can be reasonably asserted that the offer to arbitrate – in writing – was accepted (that there has been a “meeting of the minds”).
This acceptance may be expressed in different ways, and is fact-specific.
It is clear that an arbitration agreement signed by both parties or an arbitration clause incorporated into a signed contract satisfies the writing requirement. There is no need for a separate signature of the arbitration clause.
In addition, under Article II(2) an arbitration agreement contained in an exchange of letters, telegrams or similar communications meets the written form. In this case, and as opposed to the first part of Article II(2) – which refers to “arbitral clause in a contract or an arbitration agreement, signed by the parties” – there is no requirement that the letters and telegrams be signed.
Despite those clear situations, there are settings where the formal validity of arbitration agreements may be challenged. Some common
ICCA Guide to the NYC CHAPTER II
The Convention is silent on this matter. There is no explicit indication whether arbitration clauses incorporated by reference comply with the formal requirement established in Article II.
The solution to this issue should be case-specific. In addition to considering the status of the parties – e.g., experienced businesspersons – and the usages of the specific industry, cases where the main document explicitly refers to the arbitration clause included in standard terms and conditions would be more easily found in compliance with the formal requirements set out in the Convention’s Article II than those cases in which the main contract simply refers to the application of standard forms without any express reference to the arbitration clause.
The criterion of formal validity should be the communication of the referenced document containing the arbitration clause to the other party to which it is opposed prior to or at the time of the conclusion of or adherence to the contract. If evidence is produced of the fact that the parties were or should have been actually aware of the existence of an arbitration agreement incorporated by reference, courts have been generally inclined to uphold the formal validity of the arbitration agreement.
For example, arbitration clauses may be considered as agreed when they are contained in tender documents referred to in standard terms and conditions,1 or in standard terms and conditions referred to in purchase
1. France: Cour d’Appel, Paris, 26 March 1991 (Comité Populaire de la Municipalité d’El Mergeb v. Société Dalico Contractors) Revue de l’Arbitrage 1991, p. 456.
orders – provided that the former have been attached or form part of the latter.2 Courts have diverging opinions on whether a reference in a bill of lading to a charter-party containing an arbitration agreement is sufficient.
Here too, the recommended criterion is whether the parties were or should have been aware of the arbitration agreement. If the bill of lading specifically mentions the arbitration clause in the charter-party, it is generally considered sufficient.3 Courts have been less often willing to consider a general reference to the charter-party sufficient.4 Moreover, a bill of lading that merely refers to a charter-party that contains an arbitration clause may not constitute the agreement of the consignee to submit potential disputes to arbitration, when the charter-party was not communicated to the consignee.5
2. United States: United States District Court, Western District of Washington, 19 May 2000 (Richard Bothell and Justin Bothell/Atlas v. Hitachi, et al., 19 May 2000, 97 F.Supp.2d. 939 (W.D. Wash. 2000); Yearbook Commercial Arbitration XXVI (2001) pp. 939-948 (US no. 342).
3. Spain: Audencia Territorial, Barcelona, 9 April 1987 (Parties not indicated) 5 Revista de la Corte Española de Arbitraje (1988-1989); Yearbook Commercial Arbitration XXI (1996) pp. 671-672 (Spain no. 25).
4. United States: United States District Court, Southern District of New York, 18 August 1977 (Coastal States Trading, Inc. v. Zenith Navigation SA and Sea King Corporation) Yearbook Commercial Arbitration IV (1979) pp. 329-331 (US no. 19) and United States District Court, Northern District of Georgia, Atlanta Division, 3 April 2007 (Interested Underwriters at Lloyd’s and Thai Tokai v. M/T SAN SEBASTIAN and Oilmar Co. Ltd.) 508 F.Supp.2d (N.D. GA. 2007) p. 1243; Yearbook Commercial Arbitration XXXIII (2008) pp. 935-943 (US no. 619);
Philippines: Supreme Court of the Republic of the Philippines, Second Division, 26 April 1990 (National Union Fire Insurance Company of Pittsburgh v. Stolt-Nielsen Philippines, Inc.) Yearbook Commercial Arbitration XXVII (2002) pp. 524-527 (Philippines no. 1).
5. France: Cour de Cassation, 29 November 1994, no. 92-14920.
ICCA Guide to the NYC
CHAPTER II(ii) Arbitration clause in contractual document not signed but subsequently performed by all parties according to its terms Here, consent to submit the dispute to arbitration is to be established in the light of the circumstances of the case, as a clear-cut line cannot be drawn.
• Contract offer is sent with an arbitration clause and confirmed. However, the confirmation contains general reservations or conditions subsequent Here a distinction should be made between acceptance of an offer and counteroffer. It is reasonably safe to assume that the arbitration agreement can be upheld in so far as it has not been expressly objected to. That is, general reservations usually do not affect the agreement to arbitrate. Similarly, any potential conditions subsequent (e.g., stipulations such as “this confirmation is subject to details”) would not affect the arbitration clause, which can be deemed as already firmly consented to.6
• Contract offer containing an arbitration clause is sent by a party to the other, who does not reply but nonetheless performs the contract This situation raises the issue of tacit consent to arbitration or “implied arbitration”. Economic operations are frequently carried out on the basis of summary documents such as purchase orders or booking notes, which do not necessarily require a written reply from the other party.
6. United States: United States Court of Appeals, Second Circuit, 15 February 2001 (US Titan Inc. v. Guangzhou ZhenHua Shipping Co.) 241 F.3d (2nd Cir. 2001) p. 135;
Yearbook Commercial Arbitration XXVI (2001) pp. 1052-1065 (US no. 354).
In principle, tacit acceptance would not meet the writing requirement under the Convention and some courts have endorsed this view.7 However, in line with the understanding that the Convention sought to go along with international trade practices, some courts have held that tacit acceptance of an offer made in writing (i.e., through performance of contractual obligations8 or the application of trade usages that allow for the tacit conclusion of arbitration agreements)9 should be considered as sufficient for purposes of Article II(2).
In 2006, UNCITRAL amended Article 7 (Definition and form of the arbitration agreement) of its Model Law on International Commercial Arbitration (see Annex II), providing two Options. Option I introduced
a flexible definition of an agreement in writing:
“Article 7(3). An arbitration agreement is in writing if its content is recorded in any form, whether or not the arbitration agreement or contract has been concluded orally, by conduct, or by other means.” This definition recognizes a record of the “contents” of the agreement “in any form” as equivalent to traditional writing. The written form is still needed.
Option II eliminated the writing requirement.
7. See, e.g., Germany: Oberlandesgericht, Frankfurt am Main, 26 June 2006 (Manufacturer v. Buyer) IHR 2007 pp. 42-44; Yearbook Commercial Arbitration XXXII (2007) pp. 351-357 (Germany no. 103).
8. United States: United States District Court, Southern District of New York, 6 August 1997 (Kahn Lucas Lancaster, Inc. v. Lark International Ltd.) Yearbook Commercial Arbitration XXIII (1998) pp. 1029-1037 (US no. 257).
9. Germany: Bundesgerichtshof, 3 December 1992 (Buyer v. Seller) Yearbook Commercial Arbitration XX (1995) pp. 666-670 (Germany no. 42).
ICCA Guide to the NYC
CHAPTER IIAlthough these amendments do not have direct impact on the New York Convention they are an indication of a trend toward a liberal reading of the Convention’s requirement.
In addition, UNCITRAL has recommended that Article II(2) of the New York Convention be applied “recognizing that the circumstances described therein are not exhaustive” (see this Chapter above at IV.2.1 and Annex II).
(iii) Arbitration agreement contained in exchange of electronic communications The wording of Article II(2) was intended to cover the means of communication that existed in 1958. It can be reasonably construed as covering equivalent modern means of communication. The criterion is that there should be record in writing of the arbitration agreement. All means of communication that fulfil this criterion should then be deemed as complying with Article II(2), which includes faxes and e-mails.
With respect to e-mails, a conservative approach indicates that the written form under the Convention would be fulfilled provided that signatures are electronically reliable or the effective exchange of electronic communications can be evidenced through other trustworthy means. This is the approach that has been endorsed by UNCITRAL in its 2006 amendment of the Model Law (see Annex III).
IV.3. DOES THE ARBITRATION AGREEMENT EXIST AND IS IT SUBSTANTIVELY VALID?
As any other contracts, arbitration agreements are subject to rules of formation and substantive validity. This is summarily suggested by Article II(3) which provides that a court should comply with a request of referral to arbitration unless it finds that the putative arbitration
agreement is “null and void, inoperative or incapable of being performed”.
As stated above, it should be kept in mind that arbitration agreements that come within the scope of the Convention are presumed valid.
IV.3.1. Theoretical Background Although Article V(1)(a) refers in its first part to the law to which the parties have subjected the arbitration agreement as the applicable law to the validity of the arbitration agreement (see Chapter III), in practice parties rarely choose beforehand the law that is to govern the formation and substantive validity of their arbitration agreement. This determination is therefore to be made by the court seised of a challenge thereto. There are several possibilities but some of the most commonly adopted solutions are either (as mentioned in the Convention) the law of the arbitral seat which may be in a country other than that of the court (Article V(1)(a) second rule, by analogy), the lex fori or the law governing the contract as a whole. Some jurisdictions have also upheld the validity of an arbitration agreement without reference to any national law referring instead exclusively to the parties’ common intention. In general, the driving force behind the choice of the substantive law appears to be the one more favourable to the validity of the arbitration agreement.10
10. A formulation of this approach is set out in Article 178(2) of the Swiss Private
International Law Act which provides:
“As to substance, the arbitration agreement shall be valid if it complies with the requirements of the law chosen by the parties or the law governing the object of the dispute and, in particular, the law applicable to the principal contract, or with Swiss law.”
IV.3.2. Practice The terms “null and void, inoperative or incapable of being performed” were not addressed by the drafters. The following developments aim at giving a meaning to those terms.
(i) “Null and void” The “null and void” exception can be interpreted as referring to cases in which the arbitration agreement is affected by some invalidity from the outset. Typical examples of defences falling within this category include fraud or fraudulent inducement, unconscionability, illegality or mistake.
Defects in the formation of the arbitration agreement such as incapacity or lack of power should also be included (see also Chapter III at IV.1, Article V(1)(a) incapacity).
If the court accepts the severability principle (see this Chapter above at III.3), only the invalidity of the arbitration agreement, rather than the invalidity of the main contract, would prevent the court from referring the parties to arbitration. By way of example, a contract the subject matter of which is the sharing of a market in violation of competition rules is illegal. However, such illegality does not affect the consent to submit related disputes to arbitration as expressed in an arbitration clause contained in the contract.
(ii) “Inoperative” An inoperative arbitration agreement for the purposes of Article II(3) is an arbitration agreement that was at one time valid but that has ceased to have effect.
The “inoperative” exception typically includes cases of waiver, revocation, repudiation or termination of the arbitration agreement.
Similarly, the arbitration agreement should be deemed inoperative if the
same dispute between the same parties has already been decided before a court or an arbitral tribunal (res judicata or ne bis in idem).
(iii) “Incapable of being performed” This defence includes cases where the arbitration cannot proceed due to physical or legal impediments.