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...Article 1. Diverging National Interpretations 2. Why a Single Harmonized Approach Is Desirable C. Ensuring a Truly International Duty of Referral to Arbitration II. THE DOCTRINAL FRAMEWORK A. The Purpose of a Readily Enforceable International Arbitration Agreement 1. Avoiding Domestic Courts 2. Avoiding Dilatory Tactics 3. The Most Common Dilatory Techniques B. The Effects of the Arbitration Agreement 1. Positive Effects Under the New York Convention 2. Positive Effects Under the UNCITRAL Model Law and the UNCITRAL Arbitration Rules 3. Negative Effects Under the New York Convention 4. Negative Effects Under the Model Law III. COURT REFERRAL TO ARBITRATION A. Is the Duty of Referral a Uniform Mandatory Rule? 1. The Dangers Associated With the Use of Domestic Procedural Devices 2. The Obligation to Refer the Parties to Arbitration B. Court Referral to Arbitration: Conditions of Referral to Arbitration 1. The Law Applicable to the Validity of the Arbitration Agreement 2. The Principle of Autonomy of the Arbitration Agreement 3. Request of a Party C. The Relationship Between Article H and the Applicable Municipal Laws 1. The Importance of Letting the Arbitrators Decide First IV. THE CASE LAW APPROACH A. France 1. The Duty of Referral Under the French Code of Civil Procedure 2. The Relationship Between Article H of the New York Convention and Article 1458 of the French Code of Civil Procedure 3. The Prima Facie Standard of Review B. The French Liberal Approach to the Issue of Substantive Validity 1. The Hecht Decision 2. The Dalico Decision 3. The Bomar Oil Saga C. The United States 1. The U.S. Supreme Court's Pro-Enforcement Bias 2. The Scherk Decision 3. The Mitsubishi Decision 4. The Preconditions for Referral Under the Ledee v. Ceramiche Ragno Doctrine D. The U.S. Judicial Scrutiny on the Validity of International Arbitration Agreements: The Applicable Provisions 1. Federal Law v. State Contract Law 2. The Federalist Approach 3. The State Contract Law Approach: The First Options Standard of Review E. Italy 1. Referral to Arbitration in the Italian Legal System 2. The Strict Standard of Review of Italian Courts: Form Over Substance 3. The Strange Case of Krauss Maffei v. Bristol Myers Squibb V. SECURING THE EFFECTS OF ARBITRATION AGREEMENTS UNDER THE NYC: THE PROPOSED HARMONIZED SOLUTION A. A Comparison of the Different Standards of Enforcement: Advantages and Shortcomings 1. Summary of the U.S. Approach 2. Summary of the French Approach 3. Summary of the Italian Approach B. The French Prima Facie Standard of Review as the Best Harmonized Solution 1. The Obstacles to an Amendment of Article H of the New York Convention 2. The Advantages of the French Interpretive Method C. The Suggested Interpretive Solution: Judicial Review of Arbitration Agreements at the Final Stage Only VI. CONCLUSIONS
I. INTRODUCTORY REMARKS
A. The Role and the Interpretation of Article H of the New York Convention
There is little doubt that the arbitration agreement is the pillar of international arbitration. (1) The enforcement of an arbitration agreement entails a number of important effects, among which the following are the most relevant:
* the parties' rights and duties to commence the arbitration proceedings;
* the competence of the arbitral tribunal to decide the controversy;
* the national courts' duties to refer the parties to arbitration;
* the parties' rights to seek enforcement of an arbitral award based on their agreement to arbitrate.
To produce these effects, the arbitration agreement is enforced under a relevant set of norms, either domestic or international. Presently, it is well known that the greatest majority of the international arbitration agreements concluded throughout the world fall under the sphere of application of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC, New York Convention, or Convention). (2) The NYC is considered the most successful private international law treaty of the twentieth century. (3) Since its adoption, more than 130 countries have entered it into force (hereinafter the Contracting States). (4) The Convention expressly deals with the arbitration agreement under article II, which provides that:
1. Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.
2. The term "agreement in writing" shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams.
3. The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. (5)
The broad wording of this rule shows that the Convention has an immense impact on the effectuation of arbitration agreements in the Contracting States. Article II governs both the enforcement of arbitration clauses and their requirements in every corner of the world. Over time, the interpretation of this provision has become increasingly complicated due to a high number of diverging applications by national courts and arbitral tribunals in several jurisdictions.
Many of these interpretive discrepancies have been ascribed to the last minute inclusion of article II in the NYC. (6) In fact, the NYC was originally meant to deal only with arbitral awards, not with arbitral clauses. The drafters' initial intention was to address the issue of arbitration agreements in a separate protocol, but, during one of the last New York conference meetings, they decided to include a provision on agreements in the NYC. (7) From the outset, article II suffered from a lack of coordination with other provisions of the Convention.
1. The Interpretive Concerns Regarding Article H of the New York Convention
Unfortunately, the last-minute inclusion of article II is only one of the factors that gives rise to interpretive concerns of the NYC. Several of the current shortcomings of this provision are related to the adoption of new arbitration laws in the Contracting States, which often seem better equipped to deal with the enforcement of international arbitration agreements rather than the NYC as a treaty. (8)
Further, although article II is held to be a uniform provision, which supersedes municipal laws, (9) the interplay between domestic arbitration rules and the NYC is often inevitable and leads to conflicting interpretations.
The NYC does not govern every step of the enforcement of an international arbitration agreement and leaves many issues under the domain of domestic statutes and rules. (10) At a preliminary stage, Contracting States' courts apply article II together with their domestic arbitration statutes when a party objects to their jurisdiction pursuant to an arbitration agreement. (11) This practice, however, is extremely risky at a later stage, since the Convention sets forth under article V(1)(a) a specific ground for refusing the recognition of an arbitral award rendered pursuant to an invalid arbitral clause. (12) In doing so, article V plainly requires the arbitration agreement to comply with the requirements of article II. For that reason, a preliminary review of the validity of an arbitration agreement by a court pursuant to article II is essential to ensure a successful enforcement of the award at a later stage. This is why article II plays a double role: It is the key provision for the commencement of the arbitration proceedings, and it is also a precondition for the enforcement of the arbitral award. (13)
B. The Importance of a Single Harmonized Interpretation of Article II
1. Diverging National Interpretations
Notwithstanding the importance of article II within the NYC's system and its impact on the practice of international arbitration, little has been done to ensure that national courts achieve a harmonized interpretive standard for this provision. No one can, or should, object to the need to promote arbitration as an invaluable instrument for the resolution of international commercial disputes. Indeed, the arbitration agreements must be given effect because the benefits of arbitration often outweigh its drawbacks. (14) Yet, the need for an ever-increasing effective enforcement of arbitration agreements must lead the parties, the judges, and the arbitrators to strive for a consistent harmonized application of the NYC. From a policy perspective, the ratification of the Convention by virtually all the countries of the world should encourage, rather than discourage, a true international interpretation of this instrument, which should not depend on the domestic interpretations rendered in each jurisdiction. So far, however, municipal courts have expressed very different views on how to apply article II, undermining the predictability of their outcomes. Extremely different interpretive standards can be found, for example, in American, French, or Italian case law on article II of the NYC. (15) There is great uncertainty even on the most basic legal notions underlying article II. Caught by frustration, some legal commentators suggested that this provision be interpreted in the light of more enabling national statutes or even in the light of international business practices. (16)
2. Why a Single Harmonized Approach Is Desirable
This Article purports to suggest that a single harmonized approach to the use of article II of the NYC can lead to a more efficient effectuation of international arbitration clauses. A survey of the case law dealing with this provision will provide the empirical basis of this theory. The single harmonized approach is desirable for two main reasons: (1) to achieve legal certainty and predictability in all the NYC Contracting States and (2) to provide the parties to arbitration agreements with confidence in this alternative dispute resolution legal instrument.
To achieve these goals, the application of the NYC must stay free from domestic arbitration law and procedural law concepts. Unfortunately, the unwarranted use of "domestic legal interpretations" in international arbitration is increasing. (17) Although domestic arbitration statutes are an important source of interpretation for the agreements not falling under the sphere of application of the NYC, in many instances article II of the NYC is disregarded even when it should be applied. Further, the use of "parochial" legal concepts dealing with purely domestic arbitration agreements tends to frequently spill in the international arena.
In this respect, it is a matter of concern that if one jurisdiction supports the interpretation and effectuation of arbitration agreements under domestic legal standards, other jurisdictions will refuse to enforce the awards within their borders. (18) In fact, the plain disregard of the wording of the NYC or its narrow reading by a court in country A, at the time of referral to arbitration, can jeopardize an efficient enforcement of arbitral awards in country B. For instance, under the article V grounds for refusal, (19) courts of country B may refuse to enforce an award because the parties did not effectively agree to arbitrate pursuant to article II. Thus, a court in country A may cause the parties to initiate arbitration, even when the agreement did not comply with article II of the NYC, but then in country B the winning party will face the risk that the award may be refused under article V.
To prevent the arising of a chaotic situation, the proposed single harmonized interpretation of article II of the NYC must be supported by the majority of the Contracting States to ensure a sufficient degree of predictability among the international business community. To reach the preferable harmonized solution, it is of utmost importance to compare the different judicial views on the issue.
The preferable application of article II should constitute a balance between the need to enforce the parties' promise to arbitrate and the need to protect the parties' actual consent to arbitrate. In this respect, the crucial issue concerning the application of article II of the NYC is the duty of the domestic courts to refer the parties to arbitration. (20)
C. Ensuring a Truly International Duty of Referral to Arbitration
The achievement of a harmonized and truly international interpretation of the duty of referral under article II(3) will enable the parties to reasonably rely on the effectuation of their arbitration clauses by the municipal judges. (21) Unfortunately, this is not always an automatic consequence of the NYC's entry into force in a signatory country. In fact, it is over simplistic to state that courts pay deference to arbitration agreements in any case, merely because they are bound by the NYC. (22)
The first challenge, which a party to an arbitration agreement must face every time it seeks to initiate the proceedings against the opposing party, is the duty of referral. It is at this stage that the judge has to make a fundamental decision: To let, or not to let, the parties arbitrate. It is unnecessary to point to the theoretical importance of an arbitration agreement, if in practice the judges do not uphold the duty of referral. To do so, judges must be aware of the international character of their obligation to refer the parties for arbitration. This business leaves no room for a discretionary choice by the domestic courts. (23) First, the obligation at hand stems from an international treaty. Next, it is based on the principle of international comity. Hence, the refusal to let the parties arbitrate their dispute is an exceptional remedy, which is applied to prevent irreparable harm to one party. No easy exit strategy should be available to the recalcitrant party of an arbitration agreement. However, municipal courts have expressed very different views on this matter. (24) Due to the very large number of Contracting States to the NYC, this analysis will be based mainly, albeit not exclusively, on the body of case law of the United States, Italy, and France. These countries constitute a significant example of the diverging solutions reached by the courts in the interpretation and review of arbitral clauses under article II of the NYC. These judges interpret the duty of referral under standards, which rest on different legal foundations.
Parts II and III of this Article will explore the effects of international arbitration agreements along with the relationship between the NYC and municipal arbitration statutes. Part IV will analyze the distinctive features of the judicial interpretive method of France, Italy, and the United States with respect to the duty of referral to arbitration and the standard of review for the validity of arbitration agreements. Finally, Part V will explore international arbitration policy issues and propose a new interpretation of article II of the NYC that purports to enhance the efficient use of arbitration agreements and secure their effectiveness.
II. THE DOCTRINAL FRAMEWORK
A. The Purpose of a Readily Enforceable International Arbitration Agreement
1. Avoiding Domestic Courts
The parties to an international contract choose to arbitrate for a number of reasons that have been widely discussed in legal literature. (25) The main reason is to avoid the inefficiencies and the delays of litigation in domestic courts. (26) An international arbitration agreement is a very peculiar contract. It is entered into for the primary purpose of avoiding domestic jurisdictions and picking experienced private adjudicators who can better handle an international dispute than an average domestic court. (27) The parties to an arbitration agreement freely decide to appoint their arbitrators--or to request an arbitral institution to appoint them--and are likely to select the place of arbitration along with the applicable substantive rules. Most often the parties will select a neutral country as the seat of their arbitration proceedings. This choice is often the result of a compromise between the different opposing interests involved in the transaction. Thus, the parties have an incentive to craft the arbitration agreement according to their specific needs and to attempt to use the most precise language possible. An accurate drafting of the arbitration agreement will reduce potential controversy on the meaning of the clause, both at the start of the arbitration proceedings and at the later stage of enforcement of the award. (28) Additionally, a well-written arbitration agreement will enable the parties to waive the jurisdiction of a domestic court expeditiously. It is well known that a poorly drafted arbitration agreement may eventually jeopardize a party's chances to commence arbitration. (29)
2. Avoiding Dilatory Tactics
The vast majority of published case law on the NYC deals with problems of enforceability of arbitration agreements because, before dismissing the agreements' competence, the courts must determine as a preliminary issue whether the parties consented to arbitrate. (30) One of the most common and unwanted situations (31) that occur in practice is the following: Party A and party B conclude a contract, which embodies an arbitration clause. Later, a dispute arises and party B, normally the party in breach of contract, will file a lawsuit before a court of its home country against party A, alleging a lack of consent to arbitrate and the invalidity of the arbitral clause. Party A will then object to the competence of that court and request a referral to arbitration under article II(3) of the NYC. (32)
At this point it is essential to assess the validity of the clause to determine whether the parties should be permitted to proceed with their arbitration. Thus, Professor van den Berg pointed out that the first purpose of a readily enforceable arbitration agreement is "to ensure that parties seeking to obstruct the arbitration are not able to do so by exploiting court proceedings concerning the existence, scope, and validity of the arbitration agreement." (33)
If party B's claim is upheld, it will have an enormous impact on the effectiveness of an arbitration clause because the court may not only deny referral to arbitration, but may also nullify the clause. Further, B's success in court will force A to start litigation in a foreign country and to incur high costs to enforce its right to commence the arbitration proceedings. This hypothetical case is very likely to occur in the Contracting States of the NYC, (34) and the courts seized by the issue will reach very different conclusions on whether the parties should be referred to arbitration. Yet, the validity objection to the arbitration clause is only one of the many dilatory tactics that a recalcitrant party can pursue to avoid arbitration. (35)
3. The Most Common Dilatory Techniques
Other dilatory strategies include, but are not limited to the following: (a) the challenge of the arbitrators; (b) the request for conservative measures; (c) the filibustering of a party-appointed arbitrator; (d) the failure to pay the arbitrators' deposit; and (e) the unjustified failure of a party to participate in the hearings. (36) This is why even a perfectly drafted arbitration clause may still not completely guarantee a successful start of the arbitration proceedings. Unlike other objections, however, the invalidity of the arbitration agreement, if upheld, will be final; that is, it will preclude the use of arbitration. Thus, it is crucial to secure the effects of arbitration agreements from the outset because the parties need be protected against obstructions and delays in the arbitral process. (37)
B. The Effects of the Arbitration Agreement
1. Positive Effects Under the New York Convention
From a doctrinal perspective, the enforcement of an international arbitration agreement triggers two distinct sets of effects: positive effects and negative effects. (38) The first kind of effects, positive, can essentially be described as the power of the arbitration agreement to compel the parties to commence the arbitration proceedings. This principle can be examined in both of the following cases: (A) from the perspective of a domestic court and (B) from the perspective of an arbitral tribunal.
In case (A), it should be noted that the NYC expressly endorses the positive effects doctrine pursuant to article II(3), which imposes a duty upon a court to "refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative, or incapable of being performed." (39) Thus, the positive effects doctrine is recognized throughout the world in all the NYC Contracting States. The rule of article II(3) is also incorporated in the arbitration law of England and governs all arbitration agreements, whether domestic or foreign. (40)
In case (B), the positive effect of the arbitration agreement is that it grants authority to the arbitral tribunal to rule on its own jurisdiction. This calls into question the universally accepted (41) principle of kompetenz-kompetenz, (42) also known as the French expression competence-competence. (43) Under this principle, once an arbitral tribunal is constituted, it has the power to proceed with its task of rendering an award. (44) The tribunal has no duty to stay the proceedings if a domestic court is seized with an action, and which aims to declare the arbitration agreement null and void. (45)
2. Positive Effects Under the UNCITRAL Model Law and the UNCITRAL Arbitration Rules
Under the positive effects doctrine, the arbitral tribunal is empowered to rule on objections concerning its jurisdiction, including the validity of the arbitration agreement. The competence-competence principle is frequently discussed by legal commentators (46) and can be found in almost all (47) domestic arbitration statutes, (48) especially in the jurisdictions (49) that implemented the 1985 UNCITRAL Model Law on International Commercial Arbitration (Model Law or ML). (50) The Model Law expressly sets forth this principle in article 16: "The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract." (51)
Even if some legal systems did not expressly incorporate this principle, the parties can always choose to make reference in their arbitration agreement to the 1976 UNCITRAL Rules or the rules of the most important arbitral institutions, for example, the ICC Rules, (52) which incorporate the doctrine of kompetenz-kompetenz. For instance, article 21(1) of the UNCITRAL Rules provides that "the arbitral tribunal shall have the power to rule on objections that it has no jurisdiction, including any objections with respect to the existence or validity of the arbitration clause or of the separate arbitration agreement." (53)
It is clear from this language that under the positive effects doctrine, the arbitral tribunal has the first word on the validity of the arbitration agreement. The arbitrators are entitled to decide on the parties' objection, with priority over the courts. (54)
3. Negative Effects Under the New York Convention
Professors Fouchard, Gaillard, and Goldman define the negative effects of the arbitration agreement as the power to prevent the courts from deciding the controversy. (55) Under this view, courts should take a very limited scrutiny on the validity of arbitration agreements and should refrain from holding jurisdiction unless they find the arbitration clause to be manifestly null and void. As Professor Barcelo pointed out in a recent paper, the "primary policy justification for this approach is to prevent a party from obstructing or delaying arbitration." (56)
In international arbitration disputes, the negative-effects doctrine seeks to facilitate a waiver of the jurisdiction of domestic courts. Under the NYC, the negative effects are laid down in article II(3), according to which:
The court of a Contracting State, when seized of an action in a matter in respect of which the parties have made an agreement within the meaning of this article, shall, at the request of one of the parties, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. (57)
4. Negative Effects Under the Model Law
The negative effects principle for article II(3) of the NYC is mirrored in article 8(1) of the Model Law:
A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the said agreement is null and void, inoperative or incapable of being performed. (58)
Thus, once the existence of an arbitration agreement is contested, the competent domestic court must stay its proceedings and let the arbitrators decide the controversy, unless it finds the agreement to arbitrate null and void or the matter not capable of being settled by arbitration. (59)
In spite of this clear and efficient rule, the extent to which a court may decide to exercise discretion in reviewing the validity of the arbitration agreement greatly differs from country to country. Because the international arbitration treaties do not provide a harmonized standard of review, the door is left open for undesired judicial review of the arbitral clauses through the lenses of domestic substantive law. Such attitude might eventually jeopardize the whole purpose of the positive- and negative-effects doctrines.
III. COURT REFERRAL TO ARBITRATION
A. Is the Duty of Referral a Uniform Mandatory Rule?
1. The Dangers Associated With the Use of Domestic Procedural Devices
According to Professor van den Berg, "[T]he mandatory character of the referral by a court to arbitration pursuant to article II(3) is an internationally uniform rule," which supersedes domestic law along with the judge's discretionary power. (60) Yet, although the principles just discussed are recognized in virtually all of the Contracting States to the NYC, the level of deference that courts pay to them may be different. Because the NYC is silent on many issues, the extent to which the effects of the arbitration agreement are recognized largely depends on the domestic implementing statutes and national case law. Furthermore, not all judges are aware of the "internationally uniform rule" and they keep a domestic interpretive attitude when seized with a request to enforce an arbitration agreement. (61) Often, the courts read the "mandatory" rule of article II in light of their domestic procedural law principles. (62) Domestic procedural technicalities strongly contribute to undermine the uniform mandate of article II(3) of the NYC. (63) To save time and effort, courts prefer to treat the enforcement of the arbitration agreement as a domestic procedural matter only, rather than an international one. Hence, the interpretation of an international arbitral clause is almost by habit entangled with many unnecessary domestic jurisdictional and procedural issues, which often lead courts to retain jurisdiction over the matter.
In the United States, domestic procedural concepts lead the courts to affirm that they should first decide whether an arbitral tribunal has jurisdiction to hear a dispute. (64) Further, domestic procedural concepts enable the parties to challenge the validity of the arbitration agreement with independent suits, which seek to nullify the arbitral clause. (65) These domestic procedural devices impose a sure limitation on the effects of the arbitration agreement and delay the commencement of international arbitral proceedings. However, domestic procedural law can be necessary to deal with issues not expressly governed by the NYC. In this respect, unlike article VI(1) (66) of the 1961 Geneva Convention or article 8(1) (67) of the Model Law, which both require the party to invoke the existence of the arbitration agreement before submitting the first statement on the substance of the dispute, article II(3) of the NYC does not indicate the time limit for this action. (68) Consequently, when the NYC applies, this issue must be decided under the applicable domestic procedural law. (69) These differences can create sharp contradictions in the case law of the Contracting States. With special regards to the central issue of the validity of the arbitration agreement, it should be stressed that there is a tendency to review the parties' agreement to arbitrate under domestic substantive contract law principles.
In the United States, the courts use an extensive power of review over NYC arbitration agreements. They often render a final decision on the scope, validity, or termination of the arbitration agreement, rather than simply deciding if the agreement is null and void. (70) The arbitrators, not the courts, should look closely at the issue of validity. In Italy, courts are excessively focused on formal requirements under article II(2) and have often declared the arbitral clause null and void pursuant to a narrow reading of the concept of arbitration agreement "in writing." (71)
In light of these preliminary considerations, it can be argued that, although article II(3) aims to create a uniform system of enforcement for arbitration agreements, its mandate has been so far disregarded by many municipal courts that it is hardly still perceived as an international uniform rule. This means that in some countries the courts do not actually feel bound by a uniform duty of referral, even though their statutes recognize this principle. It follows that courts retain jurisdiction more often than necessary. (72)
2. The Obligation to Refer the Parties to Arbitration
The meaning of the third paragraph of article II is ambiguous because it fails to clarify what the court should do when seized with an arbitrable matter. Presently, when the existence of an arbitration agreement is invoked before a municipal court, the court has the following options: (73) (a) dismiss the case, (b) stay the court proceedings and wait for the arbitrators to rule on their jurisdiction, (c) compel the parties to arbitrate the dispute, (74) or (d) hold the arbitration agreement invalid and retain jurisdiction over the controversy.
In most countries, especially those of civil law tradition, the courts do not have the power to compel the parties to initiate arbitration; thus, they can merely render a preliminary procedural decision to stay their own proceedings. (75) Actually, if a party refuses to arbitrate in spite of a court's stay order, there might be a problem with the arbitrators' appointment, but a mere refusal to arbitrate will not prevent the arbitral tribunal from deciding the matter. (76) Thus, a court order to compel arbitration is not required because many arbitration laws provide for gap-filling mechanisms of court intervention for the appointment of the arbitrators. (77) These mechanisms eventually lead to the formation of the arbitral tribunal in spite of a party's refusal to appoint its arbitrator. (78) Unfortunately, however, the NYC does not address this issue and fails to provide the interpreter with sufficient guidelines. The lack of clear language inevitably encourages the judges to follow their domestic procedural rules for all the aspects concerning the enforcement of an international arbitration agreement. Many courts then fail to interpret the duty of referral as a broad international uniform concept and treat it simply like any other domestic issue. The courts do not feel bound by the treaty rule and enjoy wide discretion on whether the parties' agreement to arbitrate should be enforced.
B. Court Referral to Arbitration: Conditions of Referral to Arbitration
Under article II of the NYC, a court has a duty to refer the parties to arbitration only if three preliminary conditions are met: (a) the arbitration agreement is valid; (79) (b) the matter is capable of being settled by arbitration; (80) and (c) the party files a request to arbitrate. (81)
1. The Law Applicable to the Validity of the Arbitration Agreement
The validity of the arbitration agreement raises a twofold set of issues: formal issues and substantive issues. The judges and the arbitrators must first establish whether the agreement possesses at least the minimum formal requirements required by the NYC (the formal issue). Next, judges and arbitrators must determine whether the parties had freely consented to the agreement without fraud, duress, incapacity, or other impediments (the substantive issue).
Formal Validity
Article II(2) sets forth a uniform writing requirement, which is a necessary precondition for all arbitration agreements that fall under the NYC. This provision provides a definition of a written arbitration agreement: "The term 'agreement in writing' shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams." (82)
Judge Neil Kaplan severely criticized the writing requirement of the NYC because of its rigidity and failure to address the needs of international business practitioners. (83) Accordingly, it has been suggested that international arbitration calls for greater flexibility, and, in response to this need, many national laws have progressively loosened their writing requirements for arbitration agreements. (84) Some domestic arbitration statutes contain a definition of agreement in writing that is more extensive than that of article II(2) of the NYC. (85) Thus, it is open to debate whether article II(2) is still a uniform provision that must supersede national law even when the latter is more favorable to the enforcement of the arbitration agreement. (86)
Further, the writing requirement is probably one of the most important conditions for enforcement because virtually every judge who deals with referral to arbitration must first assess the formal validity of the arbitration agreement. First, validity means compliance with the formal standards set forth by article II(2). This is an essential concept because there is a presumption of sorts that, if both parties have agreed in writing to arbitrate, the cautionary and evidentiary function of the requirement of article II(2) are met and the judge will be reassured that the parties really intended to arbitrate their dispute. Therefore, Professor van den Berg suggested that once the formal requirements of article II are satisfied, it is very unlikely that a judge will retain its jurisdiction and refuse to refer the parties to arbitration. (87)
Although this is conventional wisdom, not every arbitration agreement is a neatly written clause highlighting the parties' consent. Most often, instead, the practical circumstances lead the parties to only partially comply with such requirements, which, as Judge Kaplan observed, may no longer be at step with commercial practices. (88)
Frequently, it must be determined whether the parties actually concluded the arbitration agreement by simply performing the contract even though they had not expressly accepted the arbitration clause with an exchange of written documents. (89) Another issue is that of nonsignatory parties to the arbitration agreement, (90) for instance, subcontractors, reinsurers, or assignees of the main contract, who did not formally accept the clause. In a number of cases the courts have struggled to determine whether the writing requirements of article II are met and whether a valid agreement in writing is concluded. (91) Compliance with the formal requirements is thus an essential prerequisite for the validity of the arbitration agreement and constitutes the foundation of article II of the NYC, even though courts take a different approach with the interpretation of this requirement. In this regard, Italian courts have construed the meaning of an agreement in writing very narrowly. (92)
Substantive Validity
Substantive validity of the arbitration agreement is also a preliminary issue for court referral to arbitration. It involves the assessment of the parties' actual consent to arbitrate and whether the consent existed or was tainted by fraud, violence, or unconscionability. (93) This must be decided under the substantive law applicable to the arbitration agreement. (94) Yet, article II does not govern issues of lack of consent, duress, fraud, or unconscionability, which may have affected the parties' decision to conclude the arbitration agreement. (95) A court may often face a daunting task when choosing the substantive law applicable to the arbitration agreement because the conflict of laws rules provide little or no guidance on this point.
If the parties did not choose the applicable law, under the principle of autonomy, (96) the law of the arbitration agreement is not necessarily that of the main contract in which the clause is embedded, (97) even though in practice the law of the main contract also governs the arbitration agreement. (98) Thus, the issue of the law applicable to the arbitration agreement is an extremely complex topic that falls outside the scope of this Article. (99) Suffice it to say that some authors and many court decisions, especially French decisions, (100) have expressed concern that the validity of the international arbitration agreement should not depend on considerations specific to any of the laws that might be connected to the case. On several occasions courts examined the validity of the arbitration agreement under existing transnational substantive law rules, such as lex mercatoria, (101) or even the 1980 Vienna Sales Convention. (102) However, U.S. courts do not share this approach, as they normally apply either state common law contract principles or federal common law principles. (103) Italian courts, on the other hand, do not focus on this conceptual distinction and normally apply the substantive law of the main contract.
The Residual Role of Conflict of Laws Approach
The NYC does not indicate which law should apply to the validity of the arbitration agreement. (104) It simply enables the domestic court to retain the case if it finds the clause null and void, inoperative, or incapable of being performed. (105) In the absence of the parties' choice, the judges can either resort to the choice of law method or to the substantive contract law rules of the forum (lex fori). (106) The choice of law method for the law applicable to international arbitration agreements has been advocated by some authors, (107) who point to the conflicts rule of Article V(1)(a). This provision states that:
Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:
(a) The parties to the agreement referred to in article II were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made. (108)
This argument, however, does not take into account that the rule applies only at the stage of enforcement of the arbitration award. The rule cannot help the judge determine which law should apply when reviewing the issue of validity at the referral stage. (109) A drafter of the NYC stated that the proposal to include the article V(1)(a) choice of law rule into article II had...
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