East Meets West

Tradition, Globalization and the Future of Arbitration

by Fali Nariman>

THE TOPIC that the organizers have chosen for this paper is not at all surprising. East does meet West in Sydney, since geographically Australia is East but its people - most Australians - culturally and by tradition look West.

In the world of arbitration, however; East did not meet West, not for a long time. For many years, the rules and practices of* international arbitration were looked upon as being solely for the protection of businesses of the Western industrial world, which led to a chasm of distrust ill the developing and underdeveloped world. When public corporations from the Third World were unsuccessful in disputing claims of large multinational corporations, they always expressed their disappointment with the system, not with the merit or demerit of the cases that were lost. In fact, in 1963, after the kingdom of Saudi Arabia lost a famous international arbitration case1 (wrongly, it was asserted), a ministerial decree2 was promptly issued by the Saudi Government prohibiting all public corporations in the state from submitting either to a foreign law, or to the jurisdiction of foreign courts or even to foreign arbitration.

But distrust of international arbitration was not confined only to losers. In Egypt and North Africa, mistrust of international arbitration had deep roots3 and continued to cause misgivings. In a memoir presented at a Conference of Sovereigns and Heads of State of OPEC countries, as late as 1975, it was recorded that "Western arbitrators", because they belonged to a certain hemisphere and social system, had a conception of law that was a reflection of their own system. "They have a tendency", the memoir went on, "to consider that the arguments of the Third World client are devoid of any legal basis, and hold them to be ineffective once they failed to correspond with their own conception of the law".4

In Latin America, there was traditional hostility to the very concept of arbitration because of the memory of arbitral awards rendered in the nineteenth century in connection with border disputes between underdeveloped countries in Latin America and major Western powers.5

Until recently, even in the continent of Europe, Spanish tradition had been opposed to international arbitration. Professor Frederico de Castro, former judge of the International Court of Justice, who taught many generations of Spanish speaking lawyers, wrote as late as 1979 that the arbitration clause "was imposed by the more or less hidden forces who direct international trade in order to free themselves from any legal provision that might stand in their way". He raised the spectre of a co ordinated international campaign by industrial nations aimed at "turning arbitration into a mythical rite against which any criticism would be seen as the commission of an act of sacrilege.6 Harsh words, but as Lord Keynes said, "words have sometimes to be harsh since they represent an assault on the thoughts of the unthinking".

As for the reaction in Asia, it is best exemplified by the response of one Asian country to an invitation to participate at an international event. In the early 1980s, the ICC Court was organizing celebrations in connection with its projected 60th anniversary. Letters were sent from Paris to various governments and institutions abroad inviting them to send speakers to the conference. A high government official of a particular country replied that whilst the invitation was very much appreciated, Asia had a very old civilization which had imbibed the experience of negotiation and conciliation which were the preferred means of resolving disputes; that the subject of arbitration did not hold much interest for his country, and the invitation to send a speaker was politely declined. This reaction reflected the deep rooted Asian notion of dispute settlement in a close knit traditional society. It also reflected a widely held view that Western solutions to problems of conflict resolution are of little relevance to the East: until very recently, for many Asians arbitration was basically viewed as a "Western invention".7

When the 60th anniversary celebrations of the ICC Court actually did take place in Paris in 1983 all these views and experiences came to the fore - head on! At one of the sessions Judge Howard Holtzmann from the United States stressed the idea of judge and arbitrator being partners in a system of international justice, confident that he was expressing a widely held view, but Judge Keba M'baye, President of the Supreme Court of Senegal, and later a judge of the International Court of Justice, interjected to say that he did not agree. He said that the "notion that there is a system of international justice would not be shared by some countries notably in Africa, Asia and Latin America who still see arbitration as a foreign judicial institution imposed upon them". He reminded his listeners of the hostility of African courts to arbitrations by foreign tribunals, and said: "as everybody knows, arbitration is seldom freely agreed to by the developing countries. It is often included in contracts of adhesion the signature of which is essential to the survival of these countries". He also complained that developing countries were rarely the venue of an international arbitration and even more rarely produced arbitrators.

Keba M'baye was a realist, but he was also a jurist with a vision. At the same Paris Conference in 1983, he also said that international arbitration would, gradually and over time, gain Third World recognition when it gained Third World confidence. At the turn of this new millennium it does appear that that time has now come. Things have changed.

In 2002, in ICC arbitrations alone, more arbitrators have been appointed from developing countries in Asia, Africa and Latin America than every before.8 And more venues for ICC international arbitrations are located in the Third World - more than at any time in the past.9

Arbitrators, literally hundreds of them, hailing from different states and from varied legal disciplines, are now striving to do their best. But the best is sometimes not good enough. There is an increasing awareness in the commercial world, for instance, that "lawyering" is not the most ideal method of dispute resolution - that excessive judicialisation of the arbitration process causes bottlenecks and delays.10 A uniformly adversarial posture (or procedure) is seen in many parts of the world that are not Western as not the only way of resolving business disputes. There are other ways which have been tried and found satisfactory in other cultural locations.

Besides, it is sometimes said that in the conscience of every arbitrator there is a mediator of a conciliator11 who is asleep and the cultural problem is how to wake him up! The obvious answer. of course, is to draft a suitably wide dispute resolution clause. Acronyms are in fashion and ARBMED (a multiple dispute resolution clause) is useful ill certain types of international commercial cases, and quite successful as well.12

In an experience shared at a recent international conference by a former Secretary General of 'the ICC13 he told us that in ad hoc international arbitration in respect of a contract dispute, after two years of protracted arbitral proceedings on questions of liability and ascertainment of damages, on the date sot for arguments on liability, the arbitral tribunal suggested resort to mediation. The suggestion was accepted by the parties and, through the auspices of' SIDA, the matter was then settled in conciliation in a couple of days and for double the amount first quoted by the other party with payment by cheque within a week!

But conciliation and arbitration are different. As Pieter Sanders once perceptively said, they are like 'couples agreeing to live together but seen as living apart'. In a lecture on arbitration in Oceania (at least in Australia) ADR is taboo. Sir Laurence Street has written, 'Australians must discard any suggestion that ADR is to be understood as arbitration'14 So if in the conscience of any international arbitrator in this country there lurks a mediator or a conciliator who is asleep, let us not awaken him. But the 'go-go' world of globalisation moves on and the West is showing the way. The LCIA is organising moves on and the West is showing the way. The LCIA is organising a symposium in London later this month and the topic is 'The Marriage of Arbitration and ADR'! - that old-fashioned word is back, no longer linked to couples, but concepts!

Globalisation of arbitration began initially with the Geneva Protocol of 1923 and the Geneva Convention on the Execution of Foreign Arbitral Awards of 1927. But these international instruments were largely ineffective. Only six states on the Asian continent15 became parties to it, only two of them from the continent of Africa16. Not a single state from the Americas subscribed either to the Geneva Protocol 192317 or the 1927 Convention18 and these instruments ultimately went the way of the League of Nations which had sponsored them. In England, the Lord Chancellor and Attorney General came close to resigning in protest at the British Cabinet's decision to sign the Geneva Protocol 1923, simply because these high officials could not view with equanimity any multilateral treaty where the United Kingdom could not control which other states became privy to its reciprocal rights and obligations. All of this was in the heyday of the British Empire.

But by the 1940s, the sun was already setting on the British Empire. I was a student at this time, in a Catholic missionary college in Bombay, and I recall with some amusement the prescient sense of history with which one of the Jesuit fathers always responded when we greeted him. "How are you, father?" we would ask solicitously, only to receive a chuckled response 'Like the British Empire my son, slowly disintegrating'. With the disintegration of the British and other colonial empires, the establishment of independent nation states and the increased growth of trade between them, there arose a fresh need to provide an acceptable and independent legal mechanism that would help people to resolve disputes of a commercial nature arising between inhabitants and entities in different states. Three great events helped this along: the New York Convention 1958, the Uncitral Arbitration Rules 1976 and the Uncitral Model Law 1985.

First, about the New York Convention. The failure of the 1927 Geneva Convention as an effective treaty for enforcing foreign awards stimulated the search for something more efficient. In 1953, the International Chamber of Commerce (the ICC) took the initiative for drafting a new instrument concerning foreign arbitration awards and submitted it to the United Nations. This was to become the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. This Convention is now recognised by as many as 160 nation states around the world, and by this fact alone it is reckoned as the most successful multilateral convention so far adopted by the United Nations. Under the Convention, almost at one bound, foreign arbitral awards have become more acceptable, more easily enforceable than foreign judgments.19

The UNCITRAL Arbitration Rules 1976 were followed by the UNCITRAL Model Law 1985 - they were put together with the assistance of a wide range of experts hailing from different regions of the world. The drafting body for these two instruments was UNCITRAL, the United Nations Commission on International Trade Law, which was itself chosen on a regional basis from amongst members of the United Nations in order to ensure that it was broadly representative of the world's principal legal, social, cultural and economic systems: nine members were from Africa, seven from Asia, five from Eastern Europe, six from Latin America, and nine from Western Europe "and others". The others included Australia, Canada, New Zealand and the United States. The legislative history of the Model Law, so painstakingly framed and discussed and then received and finally adopted by the Commission, is a great success story. It is indicative of how an international body, by consensus, can draft an instrument for adoption by varying political, cultural and economic systems in the East and in the West. On 11 December 1985, the General Assembly of the United Nations put its stamp of approval on the Model Law when it adopted a Resolution recommending that all states give consideration to the Model Law view of the desirability of uniformity in law of arbitral procedures and the specific needs of international commercial arbitration practice. Whilst the action of the UN General Assembly marked the successful conclusion of the drafting phase of the Model Law, it signalled at the same time the start of a new phase, the effort to secure enactment by nation states throughout the world of modern arbitration legislation based on the Model Law. There are now 37 countries20 in five different continents that have adopted or adapted the Model Law.

But it was the New York Convention that had really set the ball rolling in synthesizing different cultural systems and helped to make transnational awards readily "transportable" from one Convention state to another, and enforceable in each of them. The Convention had been adopted in 1958 in an imperfect world of sovereign nation states. After more than 45 years and 160 ratifications, it still remains an imperfect world of sovereign nation states. State sovereignty is a major barrier to the development of a new universal rule of law whether in arbitration or in any other form of global activity.

At an anniversary celebration in London in 1993, celebrating 100 years of the founding of the LCIA, the London Court of International Arbitration, Stephen Schwebel, the American judge of the International Court of Justice, and Howard Holtzmann, judge on the Iran-US Claims Tribunal, each spoke of their "dream" - for the creation of a new international court to resolve disputes that arose over challenges to the validity of international commercial arbitral awards. But Schwebel and Holtzmann were tilting at windmills, the windmills of national sovereignty. Like Don Quixote in the popular musical play current at the time (Man from La Mancha), they were "dreaming the impossible dream".

The real problem about an international or transnational court was, and still is, that it would be a creature of independent sovereign states, and independent sovereign states too often act like billiard balls which collide and do not cooperate. In the Foreword to a book published a few years ago commemorating the 50th anniversary of the International Court of Justice (the world's highest but least powerful court), its then President wrote about that judicial body's inherent infirmities. "This institution" wrote Judge Bedjaoi, "carries a genetic heritage rendered vulnerable by the chromosomes of state sovereignty and therefore by its very nature seldom spared by the crises, commotions and maladies which affect inter state relations".21

I pay tribute to the foresight and wisdom of the framers of the New York Convention for having recognised in 1958 the singular importance of sovereign national courts to whom its main provisions are addressed. They saw, long before anyone else had, that national courts simply could not be ignored and that without the aid and assistance of local municipal courts, transnational arbitral awards would never be effectively enforced.

And after 45 years, the scene has not changed. What is needed to achieve a greater globalisation of the New York Convention is not an amendment of its provisions, as some academics have suggested, but the strengthening of the support system by a wider dissemination of the UNCITRAL Model Law. Until then, we will just have to be content with the present regime of national courts in different states operating under different legal systems, giving recognition to and enforcing foreign arbitral awards, and on some - hopefully few - occasions, surprising us by not doing so.22

Enforcement of arbitral awards is the justification of all international commercial arbitration and the role of the New York Convention is directed to this end. The essence of the Convention is the specific of limited grounds on which recognition and enforcement of an award may be refused. That the arbitrator has misinterpreted facts or law is not a defence to enforcement. The court's scrutiny is strictly limited to ascertaining whether the award gives rise to a possible refusal of enforcement on one of the narrow grounds mentioned in Article V, and the process of scrutiny does not involve an evaluation of the arbitrator's findings.23

But here again varied attitudes prevail, due to traditional and cultural differences. Not all judges in the contracting states are as yet mentally adjusted to the limited role of the court before which a foreign award is brought for recognition and enforcement. Some judges simply will not accept that an award that is believed to have produced an unjust result must be enforced, and accordingly when perusing foreign awards and the limited grounds available under the New York Convention for their enforcement they have been known to import their own individual beliefs about the "justice of the case", and then try and fit their predilections into the public policy ground - an exercise contrary to the avowed intent and purpose of Article V(2)(b).

At an ICCA Conference in Seoul in 1996, Professor Whitmore Gray from the United States mentioned the case of a young Thai lawyer seeking enforcement of a foreign award in a court in Thailand, a state party to the New York Convention. Professor Gray was present during the hearing. The judge said to the lawyer that it was his legal duty to satisfy himself about the substantive fairness of the award. The lawyer decided, on his feet, that any attempt to "educate" the judge at this time about the court's limited role under the New York Convention would prejudice his client's changes of enforcement, so he deliberately, albeit reluctantly, went through the process of proving the award's substantive fairness, and fortunately for this client he succeeded. I had a similar experience many years ago in the Western Trition case (1988) when it was being argued in the Bombay High Court. I had to "persuade" the judges that the award (in that case made in London) was not "perverse". Such persuasion is not only unnecessary, it is contrary to the plain language and spirit of the Convention. And yet this is the on the ground reality in many countries around the world.

International arbitration, like reputation, rests on public confidence and the principal member of the public whose confidence is essential to sustain a foreign award is the local judge in the court of enforcement - and local judges react differently in different jurisdictions. Dr Gerold Herrmann, former Secretary General of UNCITRAL (now President of the LCIA) has described this as the "hi fi factor" in international arbitration. It is attitudes, not mere words, that contribute to the building of this "hi fi factor". It is believed in many parts of the world that it is quite unfair to expect judges to attach too much significance to a piece of paper signed by an arbitrator, howsoever eminent in some far away part of the world, of whose name or reputation the judge in the court of enforcement has not even heard!

The answer to the question as to why a seemingly "unjust", sometimes "palpably wrong" foreign award is to be enforced in a country which is a party to the New York Convention is: because that is what the parties have agreed. This consensual nature of international arbitration is one of the key elements required in every judge's mindset, whether that judge sits in a court in the East or in the West. The judge must have the mental discipline to realise the true role of a court of enforcement, which is not a court of original decision making.

In every consensual system of dispute resolution, the proclaimed rule is "if you choose to go to Caesar you must take Caesar's judgment" (a quote attributed to a great commercial judge, Lord Justice Scrutton).24 But the resolution of the dispute must be fairly reached. It must be seen to be fair, as in that somewhat apocryphal story attributed to Alexander the Great. When in his cups one evening, Alexander sentenced a soldier to death. The soldier said "I want to appeal". "Ah" said the conqueror taunting him, "to whom would you go in appeal?". Back came the answer "I will appeal from Alexander drunk to Alexander sober". The great man growled and dozed off into a stupor. Next morning, when he awoke he had the grace to admit he was drunk the previous evening. He sent for the soldier and revoked his death sentence.

The real problem about enforcing foreign awards around the globe is the need for a greater awareness amongst judges of the mutual benefits of international arbitration and above all of its consensual nature. They need to know, for instance, that so great is the sanctity attached to a foreign award under the New York Convention that Article V provides that even if one of the seven circumstances mentioned therein is not satisfied, it is not obligatory for the court to refuse recognition and enforcement - a view which has received support from judgments of courts in the United States and in France. In separate decisions, courts in each of these countries have enforced an ICC award rendered in Cairo under the governing law of Egypt even after the final appellate court in Egypt had set it aside.25

Globalisation does not always result in harmonization. Since how national courts actually function depends a great deal on the knowledge, quality and equipment of its judges (and of the lawyers appearing before them and assisting them) the need for widening of the awareness base of the New York Convention becomes apparent, amongst both judges and lawyers. At a one day celebration in New York in 1998 on the occasion of the 40th anniversary of the New York Convention, in response to a kite flying question from the floor as to whether it would be appropriate to speak publicly about the need for "training" judges, a distinguished former Chief Justice of the Court of Appeal of the United States said positively and frankly, "having been a judge for 26 years. I have no hesitation in saying that judges do need training and education". Another judge (from Canada) opined, a bit more guardedly, "that in an adversarial system of justice I would say that you must educate the bar so as to help the judges" - a more diplomatic way of expressing the same thought!

The truth is that, notwithstanding a proliferation of arbitration journals, many judges and lawyers, even in contracting states, are still woefully ignorant of the provisions of the 1958 Convention and more significantly of its professed thrust and application. This is not a criticism, much less a condemnation. To be ignorant of something is not to be an ignoramus. After all, it was the famous lexicographer Dr Samuel Johnson, who when asked by the inquisitive lady why he defined the word "pastern" in his dictionary as "the knee of a horse", responded with "ignorance, madam, pure ignorance".26 We can only know so much as falls within our ken, not more. Few practising lawyers are exposed to the problems and vagaries of transnational arbitration. Even fewer judges have the opportunity to acquaint themselves with the provisions of the New York Convention.

This is not new - it is the fate of many "successful" international treaties. That major human rights treaty, the International Covenant on Civil and Political Rights (the "ICCPR") has been ratified by as many as 144 states, but it is still widely unknown, even amongst lawyers and judges in countries that have ratified it. In a Foreword to a book of essays published in 1995 under the title International Covenant on Civil and Political Rights and United Kingdom Law, Judge Roslyn Higgins, then a long serving member on the UN Human Rights Committee and since then a judge of the International Court of Justice, has written about the low profile of the Political Covenant in the United Kingdom: "The public have never heard of it at all, but then more disconcertingly perhaps nor have people who really should be well informed on these things. I speak here of Members of Parliament, of journalists and indeed of much of the rest of the human rights world". Having said her little word about the rest, this is what she had to say about the judiciary: "Judges, of course know of the European Convention. They know the problems about its application. However, they do not even know for the most part of the existence of the Covenant and even those judges who are now possibly calling for the incorporation of the European Convention know virtually nothing about the Covenant. They are surprised when one tells them there is another unincorporated human rights treaty that they might like to be thinking about at the same time. What is it they say and where do I find a copy?

The international arbitration community needs to have an effective response to a similar query in the minds and on the lips of judges around the world - not only as to where a copy of the 1958 Convention can be had, but about the real drift and true meaning and intention of its provisions and how they must be applied. In the end it is judges of national courts who drive the Convention train in each contracting state and it is the responsibility of those long experienced in international arbitration to help them drive it in the right direction.

But the arbitral world is truly global and it has gone far beyond the New York Convention. We live in an age of accelerated economic convergence not matched, however, by a convergence of national legal systems, and the need for development in the Third World has called for new solutions. It is now more than 35 years since another international convention, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, came into force (the Washington Convention 1965). The Convention is now ratified by 153 nation states around the world: from the East and from the West (in fact more from the East than from the West).27 It provides for a system of settlement by conciliation and arbitration of investment disputes between a state party to the Convention and the nationals of the other state. The International Centre for Settlement of Investment Disputes at Washington ("ICSID") is the institution which administers the Convention. when the Convention was opened for signature in the late 1960s it was hailed as a great achievement of World Bank diplomacy and for innovative thinking in the pursuit of increased international investment for development.

It has put in place a general system of compulsory arbitration against contracting states for all matters relating to international investment at the instance of private actors in international economic relations. Bilateral trade relations are based on law - not statute law, but law in the international sense of treaty making. This law is in the form of BITs (Bilateral Investment Treaties). There are more than 1,200 such BITs in existence today. Many of these have been signed in the last 10 years in numerous areas of emerging markets.28 They have given a stimulus to the globalisation of the world economy by providing increasing investment opportunities to the developed world, with corresponding advantages and benefits to the developing countries.

Such treaties are negotiated and signed between states, but they confer on present and future foreign investors in contracting states the right to arbitrate a wide range of grievances arising from the action of a large number of public authorities within the states, whether or not any specific arbitration agreement has been concluded by the latter with the particular complainant. These BITs confer contractual rights on the investors even though there is no direct contractual relationship between the investor and the state in which the investment is made, nor with any of the state agencies. All this helps promote expansion of the global economy under the aegis of an international legal order.

This novel approach is different from the methodology of dealing with an aggregation of complaints brought by governments on behalf of their nationals before a pre constituted public body such as the World Trade Organisation ("WTO"). Contrasted with traditional inter party arbitration agreements, where the arbitral award is governed by the provisions of the New York Convention, under the aegis of the BITs investors of a state (signatory to the treaty) are conferred direct rights of action against the other state (also signatory to the treaty) in which the investment is made, the word "investment" being widely construed. Most BITs include obligations, claims and rights having economic value. We now have (thanks to the ingenuity of the legal fraternity) a "rule of law" regime in which investors in foreign countries, through the instrumentality of bilateral treaties, can exercise direct rights of action against the state entity in which the investment is made without contractual relations with it.29 BITs have heralded a new form of international commercial arbitration, ie "arbitration without privity". And the caseload of ICSID arbitrations has grown. At the turn of the new millennium, by 2000, 69 cases (66 arbitrations and 3 conciliations) had been registered under the Washington Convention and a further 7 arbitrations under the Additional Facility Rules.30 Arbitrations have now helped to foster an international legal framework with a reach different from, and even wider than, that envisaged in the New York Convention 1958.

Despite the globalisation of arbitration, cultural diversity persists and it is also reflected in arbitration rules and arbitration agreements. In the arbitration law of the People's Republic of China, for instance, there is a special provision not found in the arbitration laws of other countries. It stipulates that an arbitrator must withdraw from an arbitration not only where he (or she) is a close relative of the party or has a personal interest in the case, but also where "the arbitrator has privately met with the party or agent or accepted any invitation for entertainment or gift from a party or agent".31. Which shows how important appearances are amongst some people and in some cultures.

Arbitration agreements can be and sometimes are sui generis. My friend and colleague on the ICC Court, Professor Toshiro Sawada, recently surprised me with a specially-tailored arbitration clause that had come to his notice - and since it was in Japanese he helpfully translated it for me. He tells me that the clauses are not a product of his imagination: they were actually negotiated and agreed to in a construction contract executed with a German engineering firm in Japan many years ago. They were drafted not by a Japanese lawyer, but by European counsel who also spoke fluent Japanese. The clauses provide for contingencies no arbitration clause has so far envisaged. But we must live and learn:

(1) Should either party come to fear that the arbitrator is insane for reasons it comes to know after commencement of the arbitration it may consult with the other party, and should both parties agree that the arbitrator is likely to be insane they should serve a notice of doubt on the Arbitrator.

Matters giving rise to a notice of doubt must be extreme, including but not limited to continuous making of senseless remarks ... absentmindedness and queer conduct such as dancing alone in public without cause. The parties may serve a notice of doubt only once during the arbitration.

(2) On such notice of doubt being served the arbitrator may not refuse medical examination by a psychiatric specialist at one of the hospitals listed in appendix 1.

(3) If in the opinion of the psychiatric specialist the examination would require more than 4 weeks or the psychiatric specialist is unable to conclude that the arbitrator is positively insane then the arbitrator shall be deemed to be not insane. The medical examination shall be at the parties' cost and shall be conducted under the condition that the result will be made known only to the arbitrator and the parties.

(4) If the arbitrator is found insane he shall resign in which event he shall not be entitled to the fee for the services he will be rendered.

(5) If the arbitrator is found insane each party shall pay to the arbitrator a get well fee of 100,000 yen and one half of the disbursements in the amount the arbitrator will have expended in connection with the arbitration. If the arbitrator is found not insane as a result of the examination the parties shall jointly provide him with a letter of apology and each party shall pay a so sorry fee of 1,000,000 yen to the arbitrator which they may treat as damages for tax purposes. The arbitrator however may not claim the time spent for medical examination as time spent for arbitration.

(6) Whilst the provisions of these clauses are not intended to permit the parties to take the arbitrator to the hospital by force, it does not bar the parties from initiating judicial proceedings for the removal of the arbitrator. Such proceedings may be resorted to only where the arbitrator refuses to subject himself to medical examination or where the parties are not satisfied with the findings of the psychiatrist that the arbitrator is not insane. If parties initiate judicial proceedings and fail to remove the arbitrator each party shall pay a nuisance fee of 2,000,000 yen to the arbitrator. During such proceedings the arbitration may proceed but the arbitrator may not render an award. If rendered, such award may not be enforced.

With such detailed sanity clauses in place, international arbitrators now face the prospect of being compensated with a get well fee, a so sorry fee, or a nuisance fee even when they do not perform their arbitral function.

But if you think that these sanity clauses are far too fanciful, please think again. In August 2003 an American, Candice Reed,32 wrote an interesting article in the New York Times about her husband Ralph. He was a healthy, intelligent 54-year old, who one day suddenly became disorientated and confused. He became absent-minded and made senseless remarks. Hours after the onset of his symptoms the doctor diagnosed a strange disorder known as 'transient global amnesia', a temporary brain affliction that actually affects 24 persons in every 100,000! All of which goes to show that Shakespeare was right: "there are more things in Heaven and Earth, Horatio, than are dreamt of in your philosophy".

But to revert to something less unusual and more pertinent, in the absence of any universally recognised standard setting body, the conduct of international commercial arbitration depends very much on the composition of the arbitral tribunal. Statutes and Conventions lay down general principles (arbitrators must be free of bias, must respect the limits of their authority, treat both parties with equality and give each of them equal opportunity to present their case, etc). Even Rules of Arbitral Institutions give arbitrators a very wide discretion as to how facts are to be proved and how contracts must be interpreted. And parties from different cultural backgrounds often feel short changed or mistreated with regard to (for instance) witness statements, questions to be asked in cross examination, calling and examination of experts, how the law is to be proved, and so on. It is sometimes said that procedural diversity in arbitration serves to "enliven the game", but arbitrators must try to avoid surprises, by giving parties the impression that the "game" that is being played is "American football and British rugby at the same time, never knowing whether and when the ball will be thrown forward".33

How, then, should a "missed" arbitral tribunal function, when it consists of members reared in different legal effectively, it must function in a spirit of collegiality.

Benjamin Cardozo, that great and learned American judge who never made it to his country's highest court, tried to explain how appellate judges overcome individual predilections and prejudices in decision making. His thesis was that the different and varying perspectives of the members of an appellate bench "balance one another". So it is a mixed arbitral tribunal - from the West and the East - each member learns the need for a diversity of approach, and is sensitised to be aware of and appropriately respond to varied perceptions and expectations amongst different parties coming from divergent social and cultural backgrounds.

As to the future of arbitration, I believe it is bright, but perhaps that is only because the future of litigation is not. An English judge, who wished to remain anonymous, once famously said, "Litigation is an activity that has not markedly contributed to the happiness of mankind". If arbitration is not to suffer the same fate, I would suggest that judges in national courts raise their sights and adopt a transnational outlook, remembering always the true consensual nature of all international arbitration.

I would also suggest that arbitrators - international arbitrators - adjust their sights as well, with robust judgment and a clearer articulation of the decisions made. A good arbitrator is one who writes acceptable reasons for stated conclusions, reasons that satisfy the loser as well as the winner. In the future in international arbitration, East must meet West not in conflict or distrust as before, but in harmony - symbiotic harmony.

I come from the land where the Buddha was born. He had prescribed with prescient wisdom five principles that must be observed by a wise ruler when resolving disputes amongst his subjects. This is how they have been recorded in The Teaching of Buddhish.34

First, examine the truthfulness of the facts presented;
Second, ascertain that they fall within jurisdiction;
Third, enter into the minds of the parties to the dispute so that the judgment to be rendered be a just one;
Fourth, pronounce the verdict with kindness not harshness; and
Fifth, judge with sympathy.

International arbitrators, whether they hail from the East or from the West, whether their cultural background is from the First World or the Third World, cannot possibly go wrong if they follow these five simple principles laid down more than 2,000 years ago.

< The Clayton Utz International Arbitration, held annually under the auspices of the University of Sydney, was delivered at the Banco Court, Supreme Court of New South Wales, on 11 September 2003
1 Arbitration between Arabian-American International Oil Ca v. Kingdom of Saudi Arabia (1963) 27 International Law Reports 17
2 Council of Ministers, Decree No 58 of 17 1 1383, corresponding to February 1963
3 At the 12th International Arbitration Congress in Vienna in November 1994, my friend and distinguished colleague Prof. Ahmed El-Kosheri, in his presentation on Islamic law, recalled the initially favourable reception of arbitration as a legitimate method for settlement of disputes, since it was recommended in the Holy Quran. But in the seventh century there was a disastrous arbitral award rendered by two arbitrators which sharply divided the community, divorcing the Shiites (or Shias) from the Sunnis; a division which is still a perennial source of friction. This catastrophic experience in arbitration caused much psychological hostility in the entire Muslim world to all forms of arbitration in matters which concerned the community's public interest. It persists even today and is manifested whenever there is an award rendered contrary to what is perceived to be an Islamic state's national interest
4 Memoir of 1975, quoted by Doyen Ahmed Mahiou, Professor of the University of Algiers, in his commentary on "Reconciling Arbitration with the Needs of Public Corporations while Preserving its Advantages in 60 Years On: a Look at the Future, 60th Anniversary of the ICC International Court of Arbitration (ICC, 1984), pp 198 242.
5 See commentary of Dr Daniel B Bendahan, Professor of the Faculty of Law, University of Caracas in 60 Years On, supra n. 4 at pp 79-84: "I had no choice but to give you a very gloomy though accurate picture of international arbitration in Latin America.
6 Referred to by Bernard M Cremades, "States and Public Enterprises as International Commercial Partners in 60 Years On, supra n 4 at 178-179 Mr Cremades recalls his own experience that many South American states are afraid of arbitration since it is conducted within the context of a "Western institution" and would tend to favour the investor's point of view.
7 See Michael J. Moser "Arbitration in Asia: an Overview" in "International Commercial Arbitration in Asia". Special Supplement to (1998) ICC International Court of Arbitration Bulletin (November) 6-10.
8 ICC Bulletin records that in 1992, 5-19 arbitrators from 17 different countries of the world took up their arbitral duties, of which only three arbitrators were from Latin-American countries eight arbitrators were from South Asian countries, and 34 arbitrators were from Africa and the Middle East. In the decade after this, the numbers had increased. In 2002, there were 964 arbitrators from 62 different countries around the world: 63 arbitrators were from Latin-American countries, 34 arbitrators from South Asian countries and 50 arbitrators from Africa and the Middle East (Source: (1993) 4(1) ICC Bulletin (May) 6 and (2003) 14(1) ICC Bulletin (Spring) 12).
9 ICC Bulletin also records that in 1992, only one ICC arbitration took place in Latin-America six in South Asian countries and five in African countries. In the decade after this in 2002 the numbers increased: 13 ICC arbitrations were held in Latin-American countries, in 26 ICC arbitrations the venues were in South Asian countries and in 10 ICC arbitrations the venues were in Africa (Source: (1993) 4(1) ICC Bulletin (May) 6 and (2003) 14(1) ICC Bulletin (Spring) 12).
10 We lawyers are not altogether blameless for the "judicialization" of arbitration. At present, the firm belief amongst users and practitioners of ADR is that the farther away the lawyer arbitrator is kept from ADR, the brighter the chances of a settlement; the less "lawyering" there is in commercial dispute resolution, the better.
11 We lawyers are not altogether blameless for the 'judicialization' of arbitration. At present, the firm belief amongst users and practitioners of ADR is that the farther away the lawyer-arbitrator is kept from ADR, the brighter the chances of a settlement; the less 'lawyering' there is in commercial dispute resolution, the better.
12 s is provided for in the Arbitration Law of British Columbia and also under the New Arbitration Law in Brazil; also in the Indian Arbitration and Conciliation Act 1996
13 Stephen Bond at the 75th anniversary celebrations for the ICC Court in Geneva, September 1998
14 Sir Laurence Street, Languages of Alternative Dispute Resolution (ADRLI, 1992), p145
15 India, Japan, New Zealand, Pakistan, Thailand and Hong Kong
16 Kenya and Mauritius
17 Geneva Protocol on Arbitration Clauses 1923.
18 Geneva Convention on the Execution of Foreign Arbitral Awards 1927.
19 As a consequence of the widespread acceptance of the New York Convention, binding arbitral awards issued by ad hoc tribunals, which with only modest exaggeration can be described as largely composed of amateurs, proceeding confidentially, pursuant to no detailed rules of procedures, and subject to only marginal judicial review, are more readily entitled to enforcement in most countries of the world than the decisions of professional judges, rendered after public proceedings pursuant to established procedural codes and subject to correction on appeal: comment of Richard Hulbert, then Vice President, ICC Court of International Arbitration: Arbitrators and Judges: An Uncertain Boundary in ICC Special Bulletin recording the proceedings of the 75th Anniversary of the ICC in Geneva, 25 September 1988.
20 On the Asian continent: Bahrain, Hong Kong, India, Iran, Macau, South Korea, Singapore, Sri Lanka, Australia, New Zealand; on the African continent: Cyprus, Egypt, Jordan, Kenya, Madagascar, Malta, Nigeria, Oman, Zambia, Zimbabwe; on the European continent: Belarus, Bulgaria, Germany, Greece, Hungary, Ireland, Lithuania, Russian Federation, Scotland, Tunisia, Ukraine; on the American continent: Bermuda, Canada, United States, Guatemala, Mexico and Peru.
21 Judge Mohammed Bedjaoi (President of the ICJ) in his Foreword to The International Court of Justice 1946-1996 (Kluwer Law International). This is how another President of the ICJ had described the Court: The Court is not a great player on the world stage. But in view of the incremental nature of the processes of promotion of peace and progress the role of the Court is positive and significant: Stephen Schwebel, Impact of the International Court of Justice (Boutros Boutros Ghali Amicorum Liber, 1998).
22 In a masterly review of national court decisions that have refused enforcement under the New York Convention 1958 - "the unfortunate few" - Albert Jan van den Berg concludes as follows: "This review of Court decisions in which enforcement of an arbitral award was refused under the Convention shows that the number of such cases is surprisingly small, given that the Convention is now being applied by judges in a large number of Contracting States with diverse legal and cultural perspectives. Most of the cases of refusal are the result of mistakes of one kind or another: parties drafting inadequate clauses, arbitral tribunals not paying sufficient attention to the conduct of the proceedings, or courts misunderstanding the meaning of the Convention. As a result, the cases of refusal do not provide any argument for modifying the Convention. Rather, the "unfortunate few" simply constitute a collection of lessons to be learned by parties, arbitrators, arbitral institutions and national courts in order to ensure the efficacy and enforceability of awards. These "exceptions" prove the general rule of enforcement, and therefore underscore how successful the New York Convention has been.
23 Under the Geneva Convention 1927, the procedural law of the place of arbitration had to be taken into consideration for the composition of the arbitral tribunal and the arbitration procedure. But thanks to the initiative of the ICC this was avoided in the New York Convention: where parties have agreed on the composition of the arbitral tribunal and the arbitration procedure, the procedural law of the place of arbitration is disregarded (Art V(i)(d)).
24 In the judgment of the Court of Appeal (in England) in African and Eastern Indaya Ltd v White Palma Ltd (1930) 36 Lloyd's Rep. 113 at 116.
25 Judgment of 31 July 1996 of the US District Court of Columbia in Chromalloy Aeroservices Inc. (US) v Arab Republic of Egypt 939 ESupp 907; extracts in (1997) XXII ICCA Yearbook 1001-1012; and judgment of 14 January 1997 of the Court of Appeal Paris in Arab Republic of Egypt v Chromalloy Aeroservices Inc. (US); extracts in (1997) XXII ICCA Yearbook 691-695. At a function in New York commemorating the 40th anniversary of the New York Convention (10 June 1998), the question as to under what circumstances an enforcement judge in a national court operating under the New York Convention could disregard the annulment of an award by a foreign court and enforce the award notwithstanding that annulment was answered by Jan Paulsson as follows: "The enforcement judge should determine whether the basis of the annulment by the judge in the place of arbitration was consonant with international standards. If so, it is an International Standard Annulment, and the award should not be enforced. If the basis of the annulment was one not recognised in international practice, or if it was based on an intolerable criterion, the judge is faced with a Local Standard Annulment. He should disregard it and enforce the award. One may expect that such an approach would lesson the temptation to issue Local Standard Annulments. It is also to be noted that this solution is entirely consistent with the 1961 Geneva Convention and so contributes to harmonisation in the right direction. Jan Paulsson said that this suggestion could (and should) become part of any supplement or protocol to the Convention, but one of its attractions was that it did not require such a protocol: the solution was already available to individual national systems by virtue of the discretion built into Art V (See Enforcing Awards Under the New York Convention: Experience and Prospects (United Nations, New York 1999), p.26).
26 Boswell, Life of Johnson (1735), vol 1, p 293 quoted in Oxford Dictionary of Quotations (2nd edn, Oxford University Press), p 270
27 In the Asian continent including the Middle East, 35 countries have ratified the Washington Convention and in Africa 49 countries have ratified it: 39 countries in Europe and 30 countries in and around the Americas have also ratified the Convention.
28 See R Dolzer and M Stevens, Bilateral Investment Treaties (1995).
29 Eg the Energy Charter Treaty signed by 49 states (as at December 1994) including major countries producing and purchasing power in the energy field such as France, Germany, Italy, Japan, Netherlands, Russia, Spain and the United Kingdom. Article 26 of the Energy Charter Treaty is different from existing provisions made in BITs - it is better drafted and should be a forerunner of what to expect in treaty making in the future. If the investor wishes to avail itself of arbitration under the Treaty, it has the further option of choosing among three sets of rules: either those of ICSID (ie the Washington Convention (1965) or the UNCITRAL Model Law 1985, or arbitration under the Rules of the Stockholm Chamber of Commerce.
30 See Foreword by the late Ibrahim Shihata to Christoph Schrewer. The ICSID Convention: a Commentary (Cambridge University Press 2001). The updated figures available on the ICSID website (www.workbank.org/icsid) for 2003 (up to 19 August) shows that 24 arbitration cases were newly regulated in 2003.
31 See Arbitration Law of the People's Republic of China 1994, s34(4)
32 New York Times "News Service", as reproduced in the Indian Express, New Delhi, 25 August 2003: Candice Reed and the doctors were convinced (after taking a second and even a third opinion) that Ralph had experienced this rare, but real phenomenon. Dr Thomas Chippendale, a neurologist and a research director at the University of California at San Diego, was quoted as saying: I see about 150 cases a year - there are probably many more out there that have been confused with symptoms of a stroke.
33 As felicitously put by Prof William Park: See Arbitration's Discontent: of Elephants and Pornography in (2001) 17(3) Arbitration International 265.
34 The Teaching of Buddhish (Buddhist Promotions Foundations (Bukhyo Dendo Kyaokai), Tokyo).

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