ADVOCATES FOR INTERNATIONAL DEVELOPMENT

AT A GLANCE GUIDE TO

ARBITRATION

Prepared by lawyers from

www.a4id.org
 TABLE OF CONTENTS
1. INTRODUCTION
2. WHAT IS ARBITRATION?
3. ADVANTAGES AND DISADVANTAGES OF ARBITRATION
4. THE CHOICE OF ARBITRATION RULES
• Institutional Arbitration

• Unadministered and Ad Hoc Arbitration

5. THE SEAT OF ARBITRATION

6. A STANDARD ARBITRATION AGREEMENT AND CHECKLIST OF ISSUES TO CONSIDER
• A Standard Arbitration Agreement

• Checklist of Issues to Consider – Anatomy of an Arbitration Agreement

7. THE TRIBUNAL
8. TYPICAL STEPS IN ARBITRATION PROCEEDINGS
• Timetable

• Representation of the Parties

9. CHALLENGE AND ENFORCEMENT OF AN AWARD

10. INVESTMENT ARBITRATION
• Investment Treaties – Core Standards of Protection

• Using BITs and Multilateral Investment Treaties to Protect Foreign Investors

• Enforcement of BITs and Multilateral Investment Treaties Once a Dispute Has Arisen

• Transparency in Arbitrations Between Foreign Investors and a State: ICSID and NAFTA

For further information, please contact

Audley Sheppard (Audley.Sheppard@CliffordChance.com)

Katharina Lewis (Katharina.Lewis@CliffordChance.com)

Additional contributors from Clifford Chance LLP

Leigh Crestohl, James Dingley, Paul Coates, Greg Falkof and Michael Lightfoot.

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1. Introduction
Arbitration is a popular method of privately resolving disputes that arise out of commercial relationships
between businesses, investors and states. Disputes are an inevitable but unfortunate aspect of business life. Most
disputes are resolved through amicable negotiations. Others cannot be resolved without the assistance of an
impartial third party. When a contract is negotiated, consideration should be given to what is the most
appropriate means of finally resolving any disputes: mediation, litigation before national courts, or arbitration.

Arbitration has been used for centuries by merchants as a means of dispute resolution. It has become the
standard method for resolving disputes in certain industry sectors (such as construction, commodities, shipping
and insurance) where the arbitrators' technical expertise is particularly valued. Over the last 50 years or so,
arbitration has been embraced by the international community, with many states recognising its importance as
the primary means of resolving complex, transnational, commercial disputes. Many states have entered into
international treaties and have agreed to submit disputes with foreign investors to "investment arbitration" rather
than insisting on having disputes with foreign investors resolved by the states' national courts. The states expect
economic benefits in the form of an increase in foreign investment from being perceived as arbitration friendly.
Today, arbitration is probably the form of dispute resolution to which recourse is most frequently made in the
context of international commercial disputes.

Arbitrations are based on an express, often written, agreement between the parties to opt out of the public court
system and to have their disputes settled by private arbitrators. The parties' arbitration agreement generally
forms part of the main contract between them. Arbitration agreements are therefore concluded before a dispute
has arisen. All too often, insufficient attention is given to the drafting of arbitration agreements. Inadequate
drafting can result in significant practical and legal problems which may hamper the effective resolution of any
dispute. Even if the arbitration agreement has been adequately drafted, once a dispute has arisen, parties may
have difficulties protecting their interests and pleading their case as effectively as possible because they are not
familiar with the arbitration procedure.

This Guide is intended to assist with:

• Contract negotiation - to help parties, or those who negotiate contracts on their behalf, decide whether
arbitration is to be the preferred method of dispute resolution and, if so, how the arbitration agreement
should be drafted.

• The conduct of arbitration proceedings - to help those who find themselves faced with a dispute and about
to become involved in arbitration proceedings protect their interests to maximum effect.

The Guide, however, is no substitute for obtaining assistance from professional arbitration lawyers who can help
negotiate the arbitration agreement in the contract and who can represent the parties in the arbitration
proceedings. A4ID can help source lawyers with the relevant qualifications and experience.

The Guide seeks to address the following questions:

• What is arbitration and what are its principal advantages and disadvantages? (Sections 2 – 3)

• What matters should be considered when drafting the arbitration agreement? (Sections 4 – 7)

• What are the typical steps in arbitration proceedings? (Sections 8 – 9)

• What are the special features of investment arbitrations? (Section 10)

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• The Glossary (see Annex) explains the meaning of some of the terms which are commonly used in
international arbitration. The terms highlighted in the Guide are explained in the Glossary. The Glossary
also lists and explains additional terms not mentioned in the Guide.

2. What is Arbitration?
Arbitration is a method of private, binding dispute resolution conducted before an impartial arbitral tribunal. Arbitration
may be chosen by parties - usually recorded in an arbitration agreement in a clause at the end of a contract - as an
alternative to litigation before national courts. It emanates from the agreement of the parties but is regulated and enforced
by the states where the arbitration proceedings take place and where the arbitral award is enforced. Most states require the
parties to honour their contractual promise to arbitrate, provide for limited judicial supervision of arbitral proceedings and
support enforcement of arbitral awards in a manner similar to that of the relevant state's national court judgements.

Arbitrations are typically conducted by either one or three arbitrators, referred to in each case as the "tribunal". The
tribunal is the equivalent of a judge or panel of judges in a court action. The tribunal is generally selected by the parties
(either directly or indirectly through a third party or institution) and, as a result, the parties maintain some control over
who resolves their dispute. Arbitrators in international cases are usually experienced lawyers and / or experts in the field
in which the dispute has arisen.

The tribunal's powers and duties are fixed by the terms of the parties' arbitration agreement (including, in particular, any
arbitration rules which the parties have adopted) and the national law that applies. Under many legal systems, arbitrators
are obliged to make their final decisions, called "awards", according to the applicable law unless the parties have agreed
otherwise. (For example, the parties may empower the tribunal to decide in accordance with what it perceives to be
"fair".) The tribunal is obliged to follow due process and ensure that each party has a proper opportunity to present its
case and defend itself against that of its opponent. In all other respects, the procedure can be very flexible.

Arbitration and Alternative or Amicable Dispute Resolution (ADR)

National laws generally recognise and support arbitration as a mutually exclusive alternative form of final dispute
resolution to litigation. Some practitioners (particularly in the USA) therefore refer to arbitration as a form of
alternative dispute resolution ("ADR"). However, ADR is more often used to describe non-binding procedures
(such as mediation – please see also the At a Glance Guide to Mediation) from which the binding procedures of
litigation and arbitration can both be distinguished. In fact, non-binding procedures are not really an alternative to
litigation and arbitration because the parties must still resort to a binding procedure, such as litigation or
arbitration, unless they reach a settlement. It has been suggested that ADR be redefined as "amicable dispute
resolution", as that term emphasises that mediation and related approaches depend on the voluntary cooperation
and agreement of the parties for their dispute to be resolved.

Arbitration can also be distinguished from binding expert determination:

• Arbitrators are tasked with deciding the dispute primarily upon the basis of the parties' submissions and the
applicable law. Experts use their own expertise to come to a decision, and any submissions by the parties play
a more limited role.

• Arbitration is normally regulated by national arbitration laws, which safeguard the constitution of the tribunal
and the procedure followed. Expert determination is virtually unregulated.

• In the international context, arbitration benefits from enforcement conventions that allow direct enforcement
of awards. The decisions of the experts have the force of contract only and, to enforce them, a new a claim
for breach of contract must be brought before an arbitral tribunal or the courts.

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3. Advantages and Disadvantages of Arbitration
Parties should consider whether or not to provide for arbitration as the chosen method of dispute resolution every time
they enter into a contract. It is particularly important to do so where the parties or their assets are in different countries or
where disputes give rise to complex technical issues. The most important advantages and disadvantages of arbitration that
should be considered when deciding whether to provide for arbitration as the dispute resolution method in a contract are
listed below:

(a) Advantages

• Enforceability: Due to international conventions, the potential for enforcing arbitral awards worldwide is much
greater than that for court judgements. As there is little point in obtaining a court judgment which cannot be enforced
against suitable assets, this feature often conclusively determines the choice of arbitration over litigation for
international contracts. The most important enforcement convention is the New York Convention which provides for
the enforcement of arbitral awards in over 140 countries. (For further details on enforcement of arbitral awards, see
section 9 below.) There is no such wide-ranging convention providing for the enforcement of court judgements (the
closest being the Brussels Regulation, which is limited to parties in Europe).

• Flexibility: Arbitration rules are generally simpler and more flexible than those of court proceedings. They are
relatively easy to understand for parties of different nationalities, and the parties can adapt the dispute resolution
process to suit their relationship and the nature of their dispute. In many cases, parties (or tribunals exercising
discretion left to them by the parties) choose to follow a procedure that is similar to court proceedings. In some cases,
the parties make significant changes to court procedure. For example, they may decide that their dispute should be
determined on the basis of documents only, without a hearing.

• Neutrality: Frequently, one party will not wish to submit to the local courts of another party. For example, party A
may not be familiar with the language, legal culture or court procedure in party B's country or may fear that the
courts in party B's country are not impartial. This will be a particular worry to party A where party B is a sovereign
state, e.g. where A, a company based in Austria, has entered into a contract with B, the Republic of Bolivia.
Arbitration can provide politically neutral dispute resolution. The parties can select a neutral venue in a third country
for the arbitration (e.g. London, England), appoint a multinational tribunal, request that international procedural rules
be applied and choose a language for the proceedings with which they are comfortable (very frequently English).

• Technical expertise and experience: Parties may select arbitrators with the appropriate expertise or experience in the
subject matter of the dispute. Although some jurisdictions have very good specialist courts (e.g. the Commercial
Division of the New York Supreme Court and the English Technology and Construction Court), parties run the risk of
their dispute being decided by a judge with little or no relevant experience.

• Choice of arbitrators: Unlike court proceedings, where parties generally have no input into the choice of judge for
their case, the parties to an arbitration usually appoint, nominate or at least have some input into the selection of the
tribunal. Most developed international arbitration laws require that all the arbitrators be impartial. However, a party
can use its input into the selection process to help ensure that, as far as possible, the tribunal will understand the
commercial context, the relevant issues and the parties' procedural preferences.

• Cost / Speed / Finality: Lawyers' fees generally account for the majority of costs of proceedings (whether litigation
or arbitration). The costs of the proceedings therefore generally depends on the complexity of the dispute, the way the
proceedings are conducted and their length. Arbitration can be speedier and less costly than litigation because of the
finality of the award. Whereas a court judgment can often be appealed (prolonging matters by months and years),
parties to international contracts normally agree that there is no right of appeal on the merits from any award. In many

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 countries, awards may only be reviewed in strictly limited circumstances. (For further details on the limited grounds
for challenge of awards, see section 9.) Arbitration costs initially can be higher than those of court proceedings
because the parties have to pay for arbitrators, any administering institution and the hiring of hearing venues.
Arbitration can also take longer if the tribunal fails to impose strict deadlines. However, there are no court fees, and
the parties can agree on streamlined or "fast-track" procedures. Moreover, it is increasingly common for a successful
party to be awarded all or part of its costs of the arbitration whereas this is not the norm in litigation in many
countries.

• Privacy: Although national laws and arbitration rules vary as to the degree of confidentiality afforded to arbitration,
there can be no doubt that arbitration provides greater privacy and confidentiality than litigation (which is often
public). The parties can expect that there will be no public right of access to the hearings and can provide for the
required degree of confidentiality in their arbitration agreement, subject to any mandatory reporting obligations
imposed by law, for example where there is a requirement to record any potential exposure to liability in the context
of financial reporting. Any confidentiality might come to an end or at least be put at risk if enforcement through the
courts becomes necessary.

• Commencement of proceedings: Arbitration proceedings can often be commenced more quickly than court
proceedings. A party need generally only submit a short document to the appropriate arbitral institution and / or the
other party to start the arbitration. The commencement of court proceedings can be more complicated, e.g. requiring a
party to seek leave to serve process on the other party if that other party is abroad.

(b) Disadvantages

• Limits on tribunal's power to grant preventative or provisional remedies: While the parties can give a tribunal
most of the powers enjoyed by the courts, a tribunal does not have the power to grant penal sanctions, for example,
for contempt of court. Even if a tribunal has the power to grant a preventative or provisional remedy, such as the
power to freeze assets, there may well be merit in an application to a court if the applicant believes that the tribunal's
order would be ignored unless backed up by a penal sanction. There may also be a period of time immediately after
the commencement of the arbitration proceedings where no relief is available from the tribunal at all because the
tribunal has not yet been appointed. A party seeking pre-emptive remedies will again need to make an application to
the court.

• Limit on tribunal's power to join parties and consolidate proceedings in multi-party disputes: Only those parties
which enter into an arbitration agreement may be made parties to any resulting arbitration. It is not generally possible
to join non-parties to arbitral proceedings or to consolidate two arbitrations (i.e. to hear them together) without the
consent of all parties, including the new party joining the arbitration. In cases where consideration to the issue of
multi-party disputes is given at the time the contract is drafted, the tribunal can be given powers to consolidate and
join related disputes by obtaining advance consent from all the parties involved.

• Limits on tribunal's power to speed up the arbitration proceedings: It is rare for a party to obtain an award on the
substance of a claim in international arbitration in the absence of a full hearing at which each party orally argues its
case, presents its witnesses and cross-examines the other party's witnesses. A hearing can generally be requested by
either party. Fast-track procedures in international arbitration without a hearing are rare. However, where the parties
agree at the outset that a very quick resolution of the case may be appropriate where the dispute is clear-cut, they can
draft a clause empowering the tribunal to make rulings on preliminary issues. For example, many lenders consider
that the issue most likely to arise in a dispute under a loan agreement is whether or not the borrower has defaulted in
its loan repayments, and lenders can have a clause included empowering the tribunal to deal with this issue in an
accelerated procedure based on the parties limited written submissions only and without a hearing.

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4. The Choice of Arbitration Rules
Once the parties have chosen arbitration as their preferred method of dispute resolution, they will need to decide which
rules should govern the arbitration. Many countries have arbitration laws that provide a legal framework for the conduct of
arbitrations. Subject to mandatory requirements of the applicable national law, parties are free to agree on the procedure
for their arbitration or simply accept the default procedure under the national law. Rather than setting up a tailor-made
procedure for each contract, parties usually adopt a set of ready-made arbitration rules. These rules are amended and
supplemented by the parties in the contract and are then interpreted against the backdrop of the provisions of the national
law that applies to the arbitration.

(a) Institutional Arbitration

There are many arbitral institutions across the world. They generally have their own set of procedural rules and will
assume an involvement, to a greater or lesser extent, in the appointment of the arbitrators, the fixing of the arbitrators'
fees, the approval of the award and the general administration of the arbitration. Some institutions are fully international in
scope and used by parties throughout the world even though they may have a strong tie to the country or region in which
they are based. Others focus on disputes in particular business and legal fields.

The most prominent international arbitration institutions are:

• In Europe: The International Court of Arbitration of the International Chamber of Commerce based in Paris and the
London Court of International Arbitration.

• In the Americas: The American Arbitration Association based in New York and Dublin.

• In Asia: The Hong Kong International Arbitration Centre and the China International Economic and Trade Arbitration
Commission ("CIETAC") based in Shanghai, Beijing and Shenzhen. CIETAC administers arbitrations related to
commercial transactions and investments in China.

• In the Middle East: The Dubai International Arbitration Centre and the DIFC LCIA Arbitration Centre.

Specialist arbitral institutions for specific types of dispute include the International Centre for the Settlement of Investment
Disputes based in Washington, which is concerned exclusively with disputes between states and foreign investors (see
further section 10 below) and the World Intellectual Property Organisation Arbitration and Mediation Center based in
Geneva, which administers the resolution of intellectual property disputes.

A non-exhaustive list by region of some well known arbitral institutions

The Americas

The United States - the American Arbitration Association ("AAA" - www.adr.org) and the International Centre for
the Settlement of Investment Disputes ("ICSID" - www.worldbank.org/icsid).

Asia

China - the China International Economic and Trade Arbitration Commission ("CIETAC" - www.cietag.org.cn).

Hong Kong - the Hong Kong International Arbitration Centre ("HKIAC" - www.hkiac.org).

Japan - the Japanese Commercial Arbitration Association ("JCAA" - www.jcaa.or.jp/e/index-e.html).

Singapore - the Singapore International Arbitration Centre ("SIAC" - www.siac.org.sg).

Europe

Austria - the International Arbitration Centre for the Austrian Federal Economic Chamber

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(www.wko.at/arbitration).

England - the London Court of International Arbitration ("LCIA" - www.lcia-arbitration.com).

France - the International Court of Arbitration of the International Chamber of Commerce (the "ICC" - www.
iccarbitration.org).
Germany - the German Institute of Arbitration ("DIS" - www.dis-arb.de).
The Netherlands - the Netherlands Arbitration Institute ("NAI" - www.nai-nl.org/english).
Sweden - the Arbitration Institute of the Stockholm Chamber of Commerce ("SCC" -
www.sccinstitute.com/uk/home).
Switzerland - the Swiss Arbitration Association ("ASA" - www.arbitration-ch.org); the Chamber of Commerce &
Industry of Geneva (www.ccig.ch/pages/presentation.asp?lang=en); the Zurich Chamber of Commerce
(www.zurichcci.ch); the World Intellectual Property Organisation ("WIPO") Arbitration and Mediation Centre
(www.arbiter.wipo.int/center/index.html).
Middle East

Bahrain - the GCC Commercial Arbitration Centre (www.gcac.biz/en).

Dubai - the Dubai International Arbitration Centre (DIAC) (www.diac.ae); the DIFC LCIA Arbitration Centre.

Egypt - the Cairo Regional Centre for International Commercial Arbitration (www.crcica.org.eg).

(b) Unadministered and Ad Hoc Arbitration

In unadministered and ad hoc arbitrations, the parties choose procedural rules but there is no administration of the
arbitration by arbitral institutions. Unless the parties agree that an arbitral institution should assist with the appointment of
the tribunal, arbitral institutions will not be involved in the arbitration at all.

Unadministered arbitration under the UNCITRAL Arbitration Rules: The rules most often chosen for unadministered
arbitrations are the UNCITRAL Arbitration Rules, which were developed by the United Nations Commission on
International Trade Law (www.uncitral.org/pdf/english/texts/arbitration/arb-rules/arb-rules.pdf). The UNCITRAL
Arbitration Rules have found widespread acceptance in general commercial arbitrations and in arbitrations between states
and individuals. The UNCITRAL Arbitration Rules provide for the parties to select an appointing authority for the
tribunal that will step in if the parties cannot agree on the arbitrators to be appointed. Many arbitral institutions (such as
the ICC, the LCIA and the AAA) will serve as an appointing authority and appoint the tribunal for a fee. If the parties
have not agreed on an appointing authority and cannot agree on the appointment of the tribunal, then the UNCITRAL
Arbitration Rules provide that the Secretary General of the Permanent Court of Arbitration in The Hague select an
appointing authority.

Ad hoc arbitrations under national laws: Most countries allow parties to arbitrate ad hoc, without having adopted any
procedural rules. The parties may agree simply that any arbitration is to be conducted under the national arbitration
legislation of the country where the arbitration takes place. Most countries that have modern arbitration laws provide a
procedural framework for the arbitration (covering e.g. the appointment of the tribunal) and for any procedural disputes
that cannot be resolved by the tribunal to be referred to the courts. However, many national arbitration laws make only
limited provision for the arbitration procedure to be followed, leaving it to the parties and the tribunal to decide how the
arbitration is to be conducted. This can lead to disagreement and delay, especially before the tribunal has been appointed
and can take control of the proceedings.

Unadministered and ad hoc arbitration often arises because parties fail to provide for any institutional rules. There is a
widespread belief that ad hoc arbitration might prove cheaper than institutional arbitration because the administrative fees
charged by the institution are avoided. This belief is generally mistaken. The benefits of the institution's administrative
services in moving along the arbitration and the lower charges of arbitrators under institutional rules often outweigh the

8
administrative costs involved. Ad hoc arbitration increases the likelihood of court intervention to overcome disagreement,
which can prove expensive. Before selecting ad hoc arbitration, parties should satisfy themselves that they are not better
served by institutional arbitration or - at the very least - unadministered arbitration under the UNCITRAL Arbitration
Rules.

5. The Seat of Arbitration

The legal place or "seat" of an arbitration is not the same as the geographical location where the arbitration hearing takes
place although the seat and the location of the hearing are often the same in practice. The seat - not the location of the
hearing - determines the national law that applies to an arbitration and that provides the legal framework for the arbitration
proceedings.

Parties often determine the seat in the dispute resolution provisions of the contract. Set out below is a list of factors that
parties should take into consideration when choosing the seat:

• Is the seat in a New York Convention state? The seat of an arbitration is crucial to the enforceability of the resulting
award. Each state that is a party to the New York Convention has agreed to enforce arbitral awards made in another
contracting state, subject to limited grounds of refusal. By selecting a state that is a party to the New York
Convention, the potential for enforcement of the award is drastically increased.

• Is the national law of the seat arbitration-friendly? In choosing the seat of an arbitration, the parties determine the
national procedural law that applies to the arbitration. The procedural laws applicable in arbitration-friendly countries
restrict court intervention to measures that support arbitration and allow the parties flexibility to agree the procedure to
be followed, to choose the lawyers to represent them, to select the language in which the arbitration is to be conducted
and to appoint the tribunal. In countries that take a more hostile approach to arbitration, the courts have powers to
assume control over the dispute resolution process and intervene in the decision-making process of the tribunal.
Sometimes there are also requirements to use local lawyers and restrictions on who can act as arbitrators.

• Is local legal advice of good quality? Arbitration-friendly countries often have specialist lawyers, experts and other
staff that have the experience in, and can meet the needs of parties to, international disputes.

6. A Standard Arbitration Agreement and Checklist of Issues to Consider

(a) A Standard Arbitration Agreement

Arbitration agreements transfer the power to resolve disputes between the parties that would otherwise be held by the
courts to an arbitral tribunal. Special care needs to be given to drafting the arbitration agreement to make clear whether a
dispute falls to be decided by the courts or the tribunal. Any uncertainty in the wording of the arbitration agreement can,
and generally will, be used by the respondent to challenge and delay arbitral proceedings. Set out below is a basic
recommended arbitration clause that can be tailored to suit parties that have chosen institutional arbitration or
unadministered arbitration or the UNCITRAL Arbitration Rules.

Recommended Wording Explanatory Notes

“Any dispute, controversy or claim1, arising 1. Intended to encompass any type of difference
out of or in connection with 2 this contract, between the parties.
including any question regarding its 2. Intended to encompass contractual, quasi-contractual
existence, validity or termination3, shall be
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submitted to [name institution] to be finally and tortious claims.
resolved4 by arbitration under [name Rules], 3. Intended to avoid an argument that the agreement to
which Rules are deemed to be incorporated arbitrate is not enforceable.
by reference into this arbitration agreement5.
4. In some jurisdictions, this wording is construed a
The number of arbitrators shall be waiver of any right of appeal against the award before
the courts although express wording is recommended
[one/three]6.
(see note 8 below [link to note 8]).

The place of arbitration shall be [City and/or 5. Intended to ensure that the chosen rules form part of
Country]. the agreement.

The language to be used in the arbitral 6. If the chosen rules permit, it may be better to leave a
decision on the number of arbitrators until the size and
proceedings shall be [name language].
complexity of the dispute is known.
The award is binding from the date it is 7. Intended to avoid any argument that the award must
made7, and the parties hereby waive any right be validated by the courts of the place of arbitration
of appeal on the merits and/or any point of before it can enforced.
law8.
8. Some jurisdictions require the parties expressly to
opt-out of any rights of appeal (if they wish to).
The proceedings and the award shall be kept
confidential save as required by law9. 9. Intended to ensure confidentiality is respected.

The governing law of the contract and this 10. Advisable if there is no governing law provision
elsewhere.
arbitration agreement shall be the substantive
law of [name jurisdiction]10, without 11. Intended to avoid the application of domestic
reference to its conflict rules11.” conflict of law rules.

"The appointing authority shall be [name of 12. If the UNCITRAL Arbitration Rules are to be
adopted, wording for the designation of an appointing
institution] 12."
authority (such as the ICC, LCIA or AAA) should be
specified.

Many arbitral institutions as well as UNCITRAL publish model arbitration clauses along with their arbitration rules.

(b) Checklist of Issues to Consider - Anatomy of an Arbitration Agreement

The recommended wording and the model clauses promulgated by arbitration institutions and contained in the
UNCITRAL Arbitration Rules are basic and may well require adaptation to suit the needs of a particular contract. Set out
below is a checklist of matters that should be considered whenever an arbitration agreement is drafted.

• Alternative or Amicable Dispute Resolution (ADR): The parties may wish to include a provision requiring the
parties to attempt an ADR procedure (see above section 3(a), such as mediation (please see also the At a Glance Guide
to Mediation), before commencing (and as a means of avoiding) arbitration. There are a number of institutions, which
will assist with ADR procedures. Many arbitral institutions, including the ICC, the LCIA and the AAA (see above
section 4(a)) will administer ADR procedures. In addition, there are the Centre for Effective Dispute Resolution
("CEDR"), which is an ADR organisation based in London (www.CEDR.co.uk), the International Institute for
Conflict Prevention & Resolution based in New York (www.cpradr.org) and the Judicial Arbitration and Mediation
Services, Inc. ("JAMS") (www.jamsadr.com) based in Irvine, California. Providing for ADR as an initial method to
resolve the dispute in the contract addresses the concern many parties have that proposing ADR after a dispute has
arisen might be interpreted as a sign of weakness. However, the parties are always free to agree to an ADR procedure
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 at any stage of the arbitration proceedings. Indeed, ADR proceedings generally have a greater chance of success after
the arbitration proceedings have commenced, as the parties' respective positions are better defined and they are
therefore more inclined to settle.

• Option clauses: Parties sometimes wish to postpone the decision whether they refer a dispute to arbitration or
litigation until after the dispute has arisen. For example, if the dispute is a clear-cut default by the borrower under a
loan agreement, the lender might want to obtain a quick court decision. If the dispute is technical and requires a
detailed investigation of the facts and the applicable law, the lender might prefer to submit the dispute to arbitration.
Parties may provide an option for one or more parties to refer a dispute to arbitration or litigation in the arbitration
agreement. This requires careful legal analysis, as option clauses under some laws (but not under English law)
invalidate the arbitration agreement (for lack of certainty or, where the option is given to some parties only and not to
all, for lack of equality between the parties).

• Scope and arbitrability: The parties should decide what disputes are to be referred to arbitration. Arbitration
agreements are usually drafted widely, so as to include all differences between the parties and to include both claims
for breach of contract and other claims. The parties may wish to exclude some disputes from arbitration and instead
refer them to an expert. The parties will need to provide who should determine whether a dispute should be resolved
by arbitration or by an expert if the parties cannot agree. The parties will need to bear in mind that some disputes are
not arbitrable as a matter of public policy and/or legislation, for example, custody of a child, criminal matters and, in
some countries, anti-competition issues.

• Procedural rules: The choice of suitable arbitration rules is discussed above (see section 4). The preferred rules
should be stated in the arbitration agreement when the contract is negotiated between the parties. The applicable rules
will generally be those in force at the time when arbitration is commenced, but for certainty, the parties might wish to
provide that the rules will be those in force at the time of the agreement. The parties should also consider whether they
want to amend the arbitration rules. The arbitration agreement must comply with any mandatory rules of the seat of
arbitration (see above section 6). Any gaps in the adopted procedural rules are usually filled by looking to the rules
governing the conduct of arbitrations laid down by statute (or the courts) in the relevant jurisdiction. The parties may
wish to give consideration to whether to provide expressly that the IBA Rules on the Taking of Evidence in
International Commercial Arbitration
(www.ibanet.org/images/downloads/IBA%20rules%20on%20the%20taking%20of%20Evidence.pdf), an international
set of procedural rules, should apply, although this can be left to the tribunal to decide.

• Number and appointment of arbitrators: The number of arbitrators and method of appointment should be stated to
the extent that this is not provided for in the arbitral rules that the parties have chosen. The selection of the tribunal is
addressed below (see section 7).

• Seat of arbitration: It saves time and costs once a dispute has arisen if the preferred seat of arbitration is stated in the
agreement. The factors to be taken into account when selecting the seat are addressed above (see section 5).

• Language: If the parties speak different languages, the language of the arbitration should be set out expressly in the
arbitration agreement. This will avoid disagreement over which language to conduct the arbitration proceedings in
once the dispute has arisen. The language of the arbitration should generally be the language of the contract and/or of
the most relevant documentation and correspondence.

• Confidentiality: Confidentiality may be prescribed by some institutional rules (for example, the LCIA) or implied by
law, but the extent to which arbitration is confidential varies (as discussed above in section 3(a)). The parties may wish
to agree expressly in the arbitration agreement to keep the proceedings and the award confidential unless otherwise
required by law.
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• Interim measures: National courts generally have power to make preliminary orders to secure the amount in dispute.
For example, courts may grant interim injunctions preventing party A from removing its assets to a country where
party B will have difficulty enforcing any judgment against party A's assets. Courts may also grant orders preventing
the parties from removing or destroying documents that are relevant to the dispute. Under most arbitration rules, the
tribunal has similar (but usually more limited) powers. In the arbitration agreement, the parties may wish to extend (or
limit) the tribunal’s powers or exclude or limit the court’s powers (to the extent permitted under the applicable law).

• Speeding up the arbitration proceedings: The parties may wish to make express provision for the tribunal to have
power to issue a quick award (for example, based on documents only and without a hearing), in circumstances where
there is no reasonably arguable defence (for example, a simple claim where a payment that is due under the contract
has not been made).

• Right of appeal: In some countries, a dissatisfied party has the right to appeal an arbitral award to the courts of the
country where the award was made (on the merits of the tribunal's decision and/or the law applied by the tribunal).
Some arbitration rules (for example, the ICC and LCIA, but notably not the AAA or the UNCITRAL Arbitration
Rules) include a waiver of any rights of appeal to the extent that this is permitted under the applicable country's law.
Depending on which arbitration rules the parties have chosen, the parties will need to make an express statement in the
arbitration agreement if they want to waive any right of appeal. (The financial advantages of waiving the right to
appeal are referred to above (see section 3(a)). While parties can waive their rights to appeal an award on the merits
of the tribunal's decision and on an error by the tribunal in the application of the law, parties normally cannot waive
rights to challenge an award on procedural grounds, such as failure give proper notice to one of the parties that the
tribunal has been appointed (see further section 9(a) below).

• Multi-party contract/multiple contracts: Often a dispute arises out of a contract between more than two parties or
out of a chain of contracts (e.g. where A supplies goods to B, who supplies them to C). This is a complex area.
Specialist advice should be sought when drafting the arbitration agreement or agreements in multi-party contracts and
multiple contracts, in particular in relation to the appointment of the tribunal, joinder of parties and consolidation of
proceedings.

Appointment of the tribunal: Where there are only two parties to the dispute and they both wish to appoint a tribunal
of three arbitrators, they often agree to select one arbitrator each. If there are more than two parties, questions arise as
to how two or more claimants or respondents should appoint an arbitrator whilst maintaining equality of treatment
between the parties. The absence of equality may invalidate the award in some countries. The issue may be avoided by
providing for a sole arbitrator or by prescribing how joint claimants or respondents should appoint their arbitrator or
by requiring that all of the members of the tribunal must be appointed by an appointing authority.

Joinder of parties: Arbitration is based on the arbitration agreement between the disputing parties. Generally, all
parties must agree if the tribunal is to have the power to join a new third party to the arbitration. That third party must
also agree. Once a dispute has arisen, the disputing parties will probably not cooperate with each other and agree to
the joinder of a third party even if the joinder of that third party helps resolve the dispute. It is therefore preferable to
record the consent (as between the parties to the arbitration agreement itself, at least) in the arbitration agreement at
the outset. Of course, it will not be possible to obtain advance consent to arbitration from a third party that is not a
party to contract A which contains the arbitration agreement. However, advance consent can be obtained from the
third party if that third party is a party to contract B from the same group or chain of contracts as contract A.
Language will then need to be incorporated into contract B that links any arbitrations that may be commenced under
contract B with arbitrations launched under contract A.

Consolidation: Generally, all parties must agree if the tribunal is to have power to consolidate separate but related
arbitrations (i.e. to hear them together), and it is preferable to record such consent in the arbitration agreement.
12
 Where there are a number of contracts between different parties, all relating to one project, it may be sensible to
execute a separate "master" or "umbrella" arbitration agreement to avoid the problem that only parties to a contract
can generally enforce its terms.

• Equity clauses: It is possible to provide in the arbitration agreement that the tribunal should determine any dispute,
not according to strict law, but according to what it considers "fair" or equitable. The tribunal then acts as "amiable
compositeur" or decides "ex aequo et bono". Most institutional procedural rules exclude this power unless the parties
have expressly provided for it in their agreement.

• Mandatory and non-mandatory requirements: The law governing the arbitration agreement and/or the arbitration
law of the designated seat of arbitration may impose mandatory requirements on the parties and the tribunal. These
will need to be taken into consideration. For example, it may be a requirement that the arbitration agreement be
signed or, if a government or public law entity is involved, special requirements may apply for them to enter into an
arbitration agreement. The applicable law(s) may also have a number of non-mandatory provisions that the parties can
opt out of by expressly agreeing to do so in the arbitration agreement.

• Capacity/authority: The parties entering into the arbitration agreement must have capacity and/or authority to do so.
This is a question of a party’s national law and should be checked before the arbitration agreement is drafted. For
example, national law may exclude or limit the ability of state or public entities to enter into an arbitration agreement,
or impose a requirement for governmental or legislative consent.

• Governing law: Unnecessary argument can be avoided if the parties have expressly chosen the law governing their
commercial relationship before a dispute arises. The law governing the arbitration agreement may be different to that
governing the rest of their relationships. The parties should therefore expressly state the governing law of the
arbitration agreement in addition to the governing law of the contract.

• State immunity: Governmental entities often enjoy immunities and privileges in relation to both legal proceedings
and the enforcement of judgments or awards, particularly before foreign courts. Agreeing to refer future disputes to
arbitration is usually regarded as a waiver of immunity from the jurisdiction of the tribunal. It is not, however,
generally regarded as waiver of immunity from enforcement of any subsequent award. Where an arbitration
agreement is entered into with a governmental entity, an express waiver of immunity from enforcement should
therefore be added into the agreement.

7. The Tribunal
The tribunal nearly always consists of one or three arbitrators. In many countries, it is a requirement that the tribunal
consist of an uneven number of arbitrators to ensure that a decision is not prevented by a tie between equal numbers of
arbitrators. The parties can set out the choice between one and three arbitrators in advance in the arbitration agreement or
decide on the number of arbitrators after the dispute has arisen. Arbitration with a sole arbitrator is generally quicker and
cheaper because the parties save the fees of two extra arbitrators and because the proceedings can be conducted more
quickly, without the need to coordinate with two additional arbitrators. However, if there is a sole arbitrator, the parties
cannot each select an arbitrator and therefore may have less confidence in the tribunal's decision-making. They must rely
on one arbitrator only whose decision is final and binding. For these reasons, high value and complex international
disputes are generally referred to three arbitrators.

Most arbitration rules provide a method of appointing arbitrators. For example, sole arbitrators are agreed between the
parties or, if no agreement is reached within a specified period of time, by the chosen appointing authority. Where a three-
member tribunal is provided for, two arbitrators are usually selected by the parties, and the chairman of the tribunal is
13
either selected by the party-selected arbitrators or by the chosen appointing authority. If the parties wish to deviate from
the procedures set out in the arbitration rules, they should say so expressly in the arbitration agreement. The parties can
require that the arbitrators possess specified qualities. For example, the parties may require that the arbitrators not be of
the same nationality as the parties or that they have experience of, for example, construction disputes. Caution is required,
as the greater the number of criteria introduced by the parties into the arbitration agreement, the smaller the pool of
arbitrators from which an arbitrator can be chosen, sometimes to the point that it is impossible to find a suitable candidate.
Arbitrators need not be lawyers, but for high value disputes they often are.

The parties should seek advice from their lawyers on suitable arbitrators. Factors to be taken into account when choosing
an arbitrator include:

• the candidate's familiarity with the governing law and the applicable arbitration rules

• the candidate's legal training and experience in the relevant industry

• the candidate's legal views expressed either in academic publications or in past awards

• the language and seat of the arbitration

• interactions with the candidate in previous arbitrations or at conferences and the candidate's general reputation

• if there is a three-member tribunal, perceptions as to the candidate's ability to influence the other party-selected
arbitrator when choosing a chairman and the likelihood that the candidate's views will carry weight with the other
arbitrators when the award is prepared.

8. Typical Steps in Arbitration Proceedings

The procedure for arbitration proceedings is agreed by the parties and can take many forms. In some arbitrations, the
parties decide to dispense with an oral hearing and have the dispute resolved on the basis of written submissions only. In
others, there may be not one but several hearings because the parties have decided to split the decision on whether the
respondent is liable for breach of contract from the decision on how much compensation the respondent should pay to the
claimant.

(a) Timetable

Typically, a substantial international arbitration will take around 1.5 to 2 years from submission of the claimant's initial
request for arbitration to the issuing of the final award by the tribunal. The table below sets out the steps and timescales
typically involved in a substantial international arbitration, incorporating features of the IBA Rules of Evidence such as
document production and witness statements. (Faster arbitration proceedings may be available depending on the
complexity of the dispute and the procedure agreed by the parties.)

Number of Description of Step in Arbitration Time that Typically Passes from Step 1
Step Proceedings

Step 1 Claimant's written request for arbitration, Time starts running

including at least a summary of the claims

Step 2 Respondent's written answer, including a Step 1 + 30 days

summary of the counterclaims

14
Number of Description of Step in Arbitration Time that Typically Passes from Step 1
Step Proceedings

Step 3 Appointment of the tribunal (by the parties and Step 1 + 2 months to 3 months
/ or the appointing authority)

Step 4 Procedural hearing setting the steps and As agreed by the parties or ordered by the
timetable for the remainder of the arbitration tribunal

Step 5 Claimant's full statement of claim (if not As agreed by the parties or ordered by the
included in the request for arbitration) tribunal:

Step 1 + 3 months to 5 months

Step 6 Respondent's full defence and counterclaim (if As agreed by the parties or ordered by the
not served with the answer to the request for tribunal:
arbitration)
Step 1 + 4 months to 7 months

Step 7 Production of the documents relied on or the As agreed by the parties or ordered by the
category of documents requested by the other tribunal
party

Step 8 Exchange of witness statements As agreed by the parties or ordered by the

tribunal

Step 9 Exchange of reply or "rebuttal" witness As agreed by the parties or ordered by the
statements tribunal

Step 10 Exchange of expert reports As agreed by the parties or ordered by the

tribunal

Step 11 Meeting of experts to narrow issues in dispute As agreed by the parties or ordered by the
and sometimes to produce a joint statement of tribunal
matters agreed or in dispute

Step 12 Exchange of reply or "rebuttal" expert reports As agreed by the parties or ordered by the
tribunal

Step 13 Exchange of written pre-hearing submissions As agreed by the parties or ordered by the
tribunal

Step 14 Hearing (generally no more than 10 days) Step 1 + 9 months to 21 months

Step 15 Exchange of written closing submissions Step 1 + 12 months to 22 months

Step 16 Award Step 1 + 18 months to 24 months

(b) Representation of the Parties

Arbitration is a private process between the parties and the members of the tribunal. Others may only be present if the
parties agree. However, unless the parties have expressly agreed that they will not be represented by lawyers, a tribunal
always permits a party to be represented by a lawyer or a team of lawyers.
15
9. Challenge and Enforcement of an Award
(a) Challenge of Awards

Once the tribunal has made its final decision and issued its award, there is generally only limited scope for the losing party
to challenge the award. The law of the seat of the arbitration usually contains some provisions for challenging an award.
In addition, some arbitration rules establish an internal appeal procedure.

Challenges of awards are generally made to the courts at the seat of the arbitration. Grounds for challenge generally fall
into two broad categories, procedural grounds and substantive grounds. Procedural grounds include the failure to give
proper notice of the appointment of an arbitrator, issues of jurisdiction (e.g. where the award deals with a dispute not
covered by the arbitration agreement), lack of arbitrability where the dispute is not capable of settlement by arbitration and
a conflict between the award and the public policy of the seat of the arbitration. Substantive grounds for challenge may
exist where the tribunal makes a mistake of law.

The purpose of challenging an award before a national court at the seat of arbitration is to have it modified in some way
by the relevant court or to have the court declare that the award is to be disregarded or "annulled" or "set aside" in whole
or in part. If an award is annulled or set aside, it will usually be treated as invalid and will be unenforceable both by the
courts at the seat of arbitration and by courts elsewhere.

(b) Enforcement of Awards

While some awards are challenged by the losing party, most are complied with voluntarily. However, if the losing party
refuses to comply with the award, the winning party can have the award "recognised and enforced" by asking the courts to
recognise the award as validly made and binding on the parties and by using legal sanctions to ensure that the losing party
complies with the award. The losing party is made to pay the amount that the tribunal has determined is due to the winning
party.

There are four principal methods of enforcing an award against a losing party that is refusing to pay:

• Deposit or registration: The award is deposited or registered with a court and may then be enforced as if it is a
judgment of that court. This is the formality required for enforcement under the New York Convention (see below).

• Direct enforcement: The laws of the country of enforcement provide that, with the leave of the court, the award may
be enforced directly without any need for deposit or registration. This is the mechanism for enforcement under
English law.

• Application for recognition: It is necessary to apply to the courts for some form of recognition as a preliminary step
to enforcement. This is a requirement under French law.

• Debt claim: The award is sued on as evidence of a debt on the basis that the arbitration agreement is a contractual
promise to perform the award. This last method is cumbersome and should generally be avoided.

Enforcement usually takes place against assets. This means that, as a first step, the losing party's assets must be traced
before applying to the national court where the assets are located for an order against them. The losing party's assets are
usually located in a country other than that of the seat of arbitration. The winning party will therefore often need to
enforce the award before courts that are in a different country from the seat of the arbitration and will therefore regard the
award as foreign. For example, an award made in London or Paris, the seat of the arbitration, may need to be enforced

16
before the Swiss courts because the losing party has assets in Switzerland. The Swiss courts will regard an English or
French award as foreign to the Swiss legal system.

The most important international convention for the enforcement of foreign awards is the New York Convention.

The New York Convention

More than 140 states are party to the New York Convention and agree, broadly, to enforce foreign arbitral
awards. Some states have restricted the application of the New York Convention to enforcing awards made in
another state that is a party to the New York Convention and / or to awards that relate to disputes arising out of
commercial relationships.

A list of the contracting states can be found at

www.UNCITRAL.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html.

A state that is a party to the New York Convention undertakes to enforce awards to which the New York
Convention applies in accordance with its local procedural rules. The New York Convention does not permit any
review on the merits of an award. However, there are limited grounds on which the local courts may refuse
recognition and enforcement:

• The parties do not have the capacity to enter into the arbitration agreement or the arbitration agreement is
invalid for other reasons. The award falls outside the tribunal's jurisdiction. No proper notice of an arbitrator
or of the proceedings has been given to the parties or there has been some other form of lack of due process.
The composition of the tribunal or the procedure were not in accordance with the arbitration agreement or
with relevant law.

• The award is not binding, has been suspended or set aside.

• The dispute is not capable of settlement by arbitration. Recognition and enforcement of the award would be
contrary to the public policy of the enforcement state.

The full text of the New York Convention can be found at www.uncitral.org/pdf/english/texts/arbitration/NY-
conv/XXII_1_e.pdf.

10. Investment Arbitration

The resolution of disputes by arbitration is generally based on an arbitration agreement concluded directly between the
parties to the dispute (see above section 3). However, arbitration is also used to resolve disputes between foreign investors
and host states that fall within the scope of investment treaties concluded between two or more states. Under these treaties
foreign investors are granted the right to submit claims against the host state to arbitration even though the foreign investor
may not have entered into a direct arbitration agreement with the host state.

There has been a boom in arbitrations between foreign investors and states over the past decade. The dramatic growth of
bilateral investment treaties ("BITs") from less than 400 in the late 1980s to over 2,500 today and the adoption of
investment provisions in multilateral agreements has caused the number and value of investment arbitrations to increase
significantly.

(a) Investment Treaties - Core Standards of Protection

BITs are short agreements, often of no more than ten pages, entered into between two states. BITs provide for the mutual
promotion and protection of investments made by investors from one state in the other state. Each state promises to
encourage and create favourable conditions for investors of the other state to invest capital in the host state's territory.
BITs also prescribe certain minimum standards of protection. Crucially, BITs provide that the investor may bring a claim
for compensation against the host state in arbitration.
17
Similar provisions to those found in BITs have been adopted in economic cooperation treaties between several different
states and in free trade agreements. For example, there is the Association of South East Asian Nations ("ASEAN")
Agreement for the Protection and Promotion of Investments to which ten states are now a party, the North American Free
Trade Agreement ("NAFTA") between the US, Canada and Mexico, and the Energy Charter Treaty ("ECT") to which
more than 50 countries are a party.

The core standards of protection that can typically be found in investment treaties are:

• Protection against expropriation of investments without compensation: The term "expropriation" generally means
that an investor has been deprived of its assets or property without due process and adequate compensation. It
typically occurs following the nationalisation of an industry sector and the taking of an investor's property and has
been held to include, for example, withdrawals of operating licences and permits granted to the investor.

• Fair and equitable treatment and full protection and security: These two standards complement each other to
protect investors against state measures that are contrary to express assurances made to investors as an inducement to
invest and against deliberate or grossly careless omissions by the state in physically protecting the foreign investment,
such as police inaction.

• Non-discrimination: The three non-discrimination standards included in many investment treaties are:

National treatment - requiring the host state to the treat the foreign investor in the same way as its own nationals.

Most favoured nation treatment - requiring the host state to treat the foreign investor no less favourably than a foreign
investor from a third country.

A prohibition against arbitrary and discriminatory measures - protecting the investor against discrimination on the
basis of factors other than nationality, such as discrimination by industry sector.

• The right to repatriate investment related funds: The foreign investor may transfer funds out of the host state in
freely convertible currency. This protection includes, for example, the investor's right to make debt payments to repay
the investor's lenders, which are often banks outside the host state.

• Observance of undertakings: Many investment treaties include promises by the state to observe all undertakings it
has given to foreign investors. These provisions are also known as "umbrella clauses". The purpose of umbrella
clauses is to ensure that each state party to the treaty will respect specific undertakings towards foreign investors.

Treaty Texts

Many BITs can be found at www.unctadxi.org/templates/DocSearch____779.aspx or the websites of the Foreign

Ministries of the states that have entered into the BITs.

The ASEAN Agreement for the Protection and Promotion of Investments can be found at
www.aseansec.org/12812.htm.

The NAFTA can be found at www.nafta-sec-alena.org/DefaultSite/index_e.aspx?DetailID=78.

The ECT can be found at www.encharter.org/fileadmin/user_upload/document/EN.pdf.

(b) Using BITs and Multilateral Investment Treaties to Protect Foreign Investments

Whether a foreign investment is protected by BITs and multilateral investment treaties primarily depends on the nationality
of the foreign investor and on the host state. When making their investment in the host state, investors should check
18
whether there is anything they can do to take advantage of the protection offered by investment treaties into which the host
state has entered. Investors - with help from specialist legal counsel - should consider the issues set out below:

• What investment treaties are in effect with the host state?

• What is the scope of those investment treaties? How do they define the covered investors or investments? Which of the
core standards of protection are granted to foreign investors?

• Could the investment be structured so that it is directly or indirectly controlled by a company that is incorporated in a
state with which the host state has entered into an investment treaty?

(c) Enforcement of BITs and Multilateral Investment Treaties Once a Dispute Has Arisen

The majority of investment treaties allow the foreign investor to submit a claim for breach of treaty violation to
international arbitration. The most frequent types of arbitration specified in BITs and multilateral investment treaties are
institutional arbitrations administered by ICSID and arbitrations under the UNCITRAL Arbitration Rules (see above
section 4(b)). Awards against states in investment arbitrations are often enforced under the New York Convention (see
above section 9(b)) or under the ICSID Convention, a multilateral treaty that has been ratified by more than 140 states.
States that are a party to the ICSID Convention are required to abide by and comply with the terms of an award. This is
an important advantage of ICSID arbitration.

ICSID

ICSID (ICSID.worldbank.org/ICSID/Index.jsp) is an arm of the World Bank and was created by the ICSID
Convention (ICSID.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=RulesMain).
Unlike most forms of international commercial arbitration, ICSID arbitration operates within a completely
autonomous jurisdictional system. National courts have no jurisdiction to support or intervene directly in ICSID
proceedings. A losing party may only challenge the award before a second ICSID panel, called an "ad hoc
committee", on the basis of grounds in the ICSID Convention, and not before national courts. An ICSID award is
directly enforceable in a state as if it were a final local court judgement.

The ICSID Additional Facility

(ICSID.worldbank.org/ICSID/FrontServlet?requestType=ICSIDDocRH&actionVal=AdditionalFacilityRules) is
available for disputes in which one of the states is not a party to the ICSID Convention. One key difference is that
the award is not enforceable under the ICSID Convention, but requires an independent basis for enforcement.

(d) Transparency in Arbitrations Between Foreign Investors and a State: ICSID and NAFTA

Investment arbitrations often involve important issues in the public interest, such as health, environmental and social
concerns. For example, the foreign investment that is the subject of a dispute between the investor and the host state may
have a significant impact on the host state's environment.

Arbitral rules used to administer arbitrations often prescribe that the arbitration proceedings must be private and that third
parties may not attend the hearing. Some rules contain an additionnal requirement that the proceedings must be kept
confidential.

The ICSID Rules of Procedure for Arbitration Proceedings, however, have been amended to allow for transparency of the
proceedings and a limited amount of public participation. A list of pending cases is publicly available at the ICSID website
(see above). In addition, the ICSID Rules permit the tribunal, after consultation with the parties, to permit written
submissions from persons or groups that have an interest in the proceedings, so called "amicus curiae briefs". Hearings

19
may be opened up to third parties provided there has been no objection from the parties to the dispute. Extracts taken from
the award may be published without the parties' consent.

Disputes arising under the NAFTA have been subject to similar measures to increase transparency and public
participation.

Amendments to the UNCITRAL Arbitration Rules to reflect the need for transparency are being considered by the
Working Group currently revising the Rules.

For examples on participation of non-governmental organisations that have been involved in investment arbitrations, please
see also the At a Glance Guide to International Courts and Tribunals.

20
ANNEX – At a Glance Guide to Arbitration - Glossary

AAA: American Arbitration Association: An international arbitral institution based in New York with offices throughout
the USA as well as in Dublin, Ireland. It administers arbitrations conducted under its own rules (of which there are several
variants, such as the International Arbitration Rules, the Commercial Arbitration Rules and the Construction Industry
Arbitration Rules) and under the UNCITRAL Rules. The AAA’s current International Arbitration Rules were brought into
effect on 1 September 2000.

ADR: Alternative Dispute Resolution: A generic term for a variety of procedures, including mediation, conciliation and
mini-trials, in which an independent person (for example, a mediator or conciliator or mini-trial panel) assists the parties
to resolve their dispute. The independent person or panel cannot impose a decision, but rather seeks to facilitate the parties
reaching a mutually acceptable compromise. If this is achieved, it can be made contractually binding by the parties
entering into a settlement agreement. All forms of ADR are without prejudice vis-à-vis any subsequent arbitration or
litigation. In the USA, arbitration is often referred to as an ADR procedure, because it is alternative to litigation.

Ad hoc arbitration: An arbitration which is not administered by an arbitral institution, although it may still be run in
accordance established arbitration rules published by an arbitral institution. The UNCITRAL Arbitration Rules are
designed for use in ad hoc arbitration. Arbitration conducted under the procedure set down in national legislation is also
said to be ad hoc.

Amiable compositeur: The general intention of empowering an arbitral tribunal to act as amiable compositeur is that the
arbitral tribunal should not be bound by the application of strict legal principles, and should apply notions of fairness
rather than being bound to the parties' strict legal rights only. The parties must have expressly agreed for the arbitral
tribunal to have this power. However, the precise effect of the power differs from country to country. The power to act
as amiable compositeur is also referred to as the power to act ex aequo et bono or according to equity.

Appeal: The reconsideration of the substance of an award by a national court or a second arbitral tribunal which may
reach a different decision. There is usually no appeal against arbitral awards. Even where a right of appeal exists, it is
normally limited (for example, to questions of law) and, in any event, will more often than not be excluded altogether by
the parties. An appeal should be distinguished from an application to set the award aside (for example, for lack of
jurisdiction or procedural irregularity) or to remit the award to the arbitral tribunal (for example, to correct an error).

Applicable law: The law which applies to the arbitration. Many international arbitrations require the application of more
than one law. See also lex arbitri, lex fori, lex mercatoria and procedural law below.

Arbitrability: Whether a dispute is capable of being settled by means of arbitration. Certain national laws prohibit the
determination of some kinds of dispute by arbitration, for example, bankruptcy, matrimonial status, securities laws and
anti-competition issues. If the subject-matter of dispute is incapable of being settled by arbitration - whether under the law
of the agreement, the law of the place of arbitration or the place where the award is to be enforced - any award rendered
may be unenforceable.

Arbitration agreement: An agreement to refer disputes to arbitration. The agreement may be to refer existing disputes to
arbitration (see also submission agreement), but more commonly it refers to disputes which may arise in the future. The
dispute need not be contractual. Notwithstanding that the arbitration agreement may form part of the principal contract,
it is deemed to be a separate agreement and so will "survive" if the underlying contract is deemed void or invalid or is
terminated. (See also Kompetenz - Kompetenz.)
Award: A decision by an arbitral tribunal on one or more of the issues referred to it for determination. Awards may be
described as interim (where they may be varied by a subsequent award of the same arbitral tribunal), partial (where they
only deal with some of the issues referred to the arbitral tribunal) or final (where the issues cannot be reconsidered by the
arbitral tribunal). An “order” of the arbitral tribunal usually deals with procedural matters only.

21
B

Bilateral Investment Treaties or BITs: treaties between two states, regulating cross-border investment between the state
parties. BITs provide for dispute resolution through arbitration under the direction of institutions such as, for example,
ICSID. See also investment treaties.

CEDR: Centre for Effective Dispute Resolution: CEDR was established in London in 1990 as an independent organisation
aiming to promote the use of ADR. CEDR offers services ranging from providing mediators, conciliators and other
independent third parties to giving advice on ADR clauses.
Claimant: The party submitting a dispute to arbitration and making a demand for a remedy. See also respondent.

Competence - competence: See Kompetenz-Kompetenz.

Conciliation: A form of alternative dispute resolution (ADR) similar to mediation, where an independent third party, the
conciliator, assists the parties in trying to settle their dispute and, in so doing, may give an opinion as to the likely
outcome of legal proceedings. The conciliator has no authority to impose a settlement on the parties.

Conflict of Laws: The legal principles by which the applicable law is identified. Each jurisdiction has its own conflict of
law rules. Where the parties have not made a clear choice of law, factors such as the nationality of the parties, which party
renders the performance characteristic of the contract, where the principal obligations under the contract are to be
performed and the place and subject-matter of the arbitration, may be relevant to the determination of which law should
apply to the merits of the dispute.
Consent Award: An award in which settlement terms agreed by the parties are recorded and signed by the arbitral
tribunal. Such an award, unlike a settlement agreement, may be enforced under the New York Convention or other
award enforcement conventions.

Consolidation: The merging of two or more arbitrations. Unless all parties agree, arbitral tribunals do not normally have
the power to consolidate separate arbitrations. Where the power to consolidate may be useful, special provision should be
made in the arbitration agreement. See also joinder.

Costs of the arbitration: Generally, the costs of the arbitration include the fees and expenses of the arbitral tribunal, the
arbitral institution (if any), any experts appointed by the parties and / or the arbitral tribunal, the hiring of rooms for the
hearing, interpretation and translation, reporting services and the reasonable fees of the respective parties’ lawyers.
However, such costs generally do not include a party’s management time and the salaries of employees engaged on the
arbitration, although witnesses’ expenses are usually recoverable. It is increasingly common for a successful party to be
awarded all or part of its costs of the arbitration.

Designation of Arbitrator: See nomination.

Disclosure or Discovery: A procedure whereby the parties disclose to each other and / or the arbitral tribunal those
documents in their possession or power which relate to the issues in dispute, whether or not the documents may be
damaging to the position of the party giving disclosure. The arbitral tribunal usually has a discretion to determine the
extent (if any) of discovery which is appropriate according to the issues in dispute. See also IBA Rules of Evidence.

Domestic Arbitration: Some national laws distinguish between international and domestic arbitrations. Whilst
definitions vary, an arbitration conducted in a country of which all the parties are nationals or residents and according to
that country’s law would generally be considered domestic.

22
E

Enforcement of award: If not voluntarily complied with, an award can be enforced by applying to a national court for
recognition of the award and permission to enforce it, which usually makes available measures such as the seizure of
assets and forfeiture of bank accounts.

Equity clauses: See amiable compositeur.

Ex aequo et bono: See amiable compositeur.

Experts: The parties and / or the arbitral tribunal may appoint independent experts to give their opinions, based upon
their experience and / or qualifications, upon the matters at issue. Such experts are not to be confused with those to whom
disputes may be referred as an alternative, or precondition, to arbitration (such as adjudicators).

Geneva Convention: The Convention on the Executive of Foreign Arbitral Awards, which was signed in Geneva in 1927
(hence the Geneva Convention), provides for the enforcement of certain foreign awards in those states which have
contracted to the Convention. The Geneva Convention has now largely been superseded by the New York Convention.

IBA: International Bar Association: An organisation of international legal practitioners, national legal societies and bar
associations.

IBA Rules of Evidence: The Rules on the Taking of Evidence in International Commercial Arbitration published by the
International Bar Association in 1999. The Rules provide mechanisms for the presentation of documents, witnesses of fact,
expert witnesses and inspections, as well as for the conduct of evidentiary hearings. They strike a balance between
common law and civil law expectations concerning document production.

ICA: International Court of Arbitration: See ICC Court.

ICC: International Chamber of Commerce: The ICC provides a wide range of practical services to the international
business community, including the production of the Incoterms (international commercial sales terms - a series of
international sales terms widely used throughout the world), the International Rules for the Interpretation of Trade Terms
and the dissemination of specialist legal business information. The ICC provides a variety of procedures for the resolution
of international commercial disputes, including conciliation, the appointment of neutral experts to assist in resolving
technical and financial disputes and arbitration. The most prominent and internationally renowned service offered by the

ICC in this field is that of the ICC Court.

ICC Court: International Court of Arbitration of the International Chamber of Commerce: One of the most widely-known
international arbitral institutions. The ICC Court does not settle disputes itself, but rather appoints or confirms the arbitral
tribunals and supervises their application of the ICC Rules of Arbitration. Although the ICC Court meets in Paris, the
arbitral tribunals which it appoints may meet anywhere in the world. The Secretariat of the ICC Court, which
administers ICC arbitrations, comprises a number of experienced counsel. The current ICC Rules of Arbitration were
brought into effect on 1 January 1998.

ICSID: International Centre for the Settlement of Investment Disputes: ICSID, which was established under the
Washington Convention of 1965, is based in Washington and overseen by the World Bank. ICSID promotes the settlement
of investment disputes by conciliation and arbitration. Its procedures apply only to investment disputes between a state
party to the Washington Convention and a national of another state party to the Convention, where the parties have agreed
to ICSID arbitration or conciliation. ICSID awards are enforceable in a Washington Convention state without the
possibility of court review (including setting aside) under the national law of that state.

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Impartiality and Independence: It is a mandatory requirement of international arbitration that the arbitral tribunal is not
biased in favour of one party and treats the parties equally (impartially). Lack of impartiality is a ground for removing an
arbitrator and / or challenging an award and / or resisting enforcement. Some, but not all, arbitration rules or laws also
require that the arbitrators are not related or connected to the parties (i.e. that they are independent).

Interim relief: The courts of many countries will, where appropriate in support of an arbitration, order the attachment of
assets and the preservation or detention of property. Certain arbitration rules give the arbitral tribunal similar powers
although they will not have the sanctions available to a court in case of non-compliance.

International arbitration: Some national laws distinguish between international and domestic arbitrations. Whilst
definitions vary, an arbitration may be treated as international by virtue of the nature of the dispute, the parties’
nationalities or residences or the laws governing the dispute. The consequences of falling within either definition may be to
affect important rights such as those to set aside, remit or appeal against awards.

Investment treaties: A considerable number of countries have entered into investment treaties which are intended to
protect and promote investments made by a national of the other country. These may be bilateral (BITs) or multilateral
(for example, NAFTA). Such treaties often provide that the investor may refer an alleged breach of the treaty by the state
to international arbitration.

Joinder: The addition of a party to an existing arbitration. Unless all parties agree, arbitral tribunals do not generally
have the power to join additional parties into an arbitration. Where the power to join parties may be useful, special
provision should be made in the arbitration agreement. It is generally impossible to provide for the joinder of persons who
are not parties to the arbitration agreement. See also consolidation.

Jurisdiction: Whilst often used to refer to a national legal system, jurisdiction is also used to describe the limits of an
entity’s (such as the arbitral tribunal’s or the court’s) mandate to decide disputes between the parties, often determined
with reference to the arbitration agreement.

Kompetenz - Kompetenz (also known as competence - competence): The legal doctrine that an arbitral tribunal has
power to rule on its own jurisdiction. The doctrine is related to the doctrine of separability which provides that the
arbitration clause is a separate legal agreement between the parties which may survive the termination or invalidity of the
contract in which it is contained.

Language(s) of the Arbitration: The language(s) to be used for all matters in connection with the arbitration, such as the
parties’ written pleadings, evidence and their oral argument, as well as the award itself.

LCIA (London Court of International Arbitration): The LCIA is a leading international arbitral institution, with a
secretariat based in London. The LCIA does not settle disputes itself, but rather appoints arbitral tribunals and
administers arbitrations worldwide under either its own rules or the UNCITRAL Arbitration Rules.

Lex arbitri: The law governing the arbitration proceedings (which may be different from the law applicable to the matters
in dispute). The lex arbitri is usually the arbitration law of the country in which the arbitration takes place.

Lex fori: The law of the place of arbitration.

Lex mercatoria: A legal doctrine which recognises as a separate body of law concepts common to developed legal
systems and generally understood by those involved in international trade (for example, that parties are bound by their
agreements).

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Lex mercatoria has not yet attained uniform acceptance as a legal doctrine. However, arbitral tribunals have on occasion
decided cases in accordance with lex mercatoria in the absence of an express choice of law by the parties (see also
UNIDROIT Principles).

Litigation: Litigation describes the action or process of carrying on legal proceedings before a court of law.

Model Law on International Commercial Arbitration: The Model Law was adopted by UNCITRAL in 1985 as a
precedent for use by countries in the reform of their arbitration legislation. It aims to promote greater uniformity of
arbitration laws throughout the world. The Model Law has influenced new arbitration legislation in many countries.

Mediation: A form of alternative dispute resolution (ADR) similar to conciliation, whereby an independent third party
(the mediator) assists the parties in trying to settle their dispute. The mediator will meet separately with each party to
ascertain their objectives and expectations with the aim of finding common ground, but will generally not give any
indication as to the likely outcome of legal proceedings. A mediator has no authority to impose a settlement on the parties.

NAFTA: North American Free Trade Agreement. An investment treaty between Canada, USA and Mexico, that
regulates cross-border investment between the states and allows for dispute resolution through arbitration in the event of
disputes between investors and state parties.

New York Convention: The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral
Awards provides for the enforcement of arbitral awards in over 140 countries worldwide, subject to a limited set of
defences set out in the Convention. To take advantage of the Convention, it is generally necessary for the award to be
made in a country which is a party to the Convention.

Nomination of arbitrator: The proposal of a candidate for the role of arbitrator where the final right to decide upon the
appointment is reserved to an arbitral institution.

Panama Convention: The 1975 Inter-American Convention on International Commercial Arbitration is similar to the New
York Convention and provides for the enforcement of arbitral awards in around 20 countries in the Americas (including
the United States), subject to limited exceptions set out in the Convention. To take advantage of the Panama Convention,
it is generally necessary for the award to be made in a country that is a party to the Convention.

Party autonomy: The concept that the parties are free to elect, for example, the law to govern their relationship and the
procedure for the arbitration.

Permanent Court of Arbitration: The Permanent Court of Arbitration, based in The Hague, was established in 1899
to deal with disputes between states. In addition, its Secretary-General has the role, under the UNCITRAL Rules, of
designating the appointing authority (where the parties have failed to agree upon an arbitrator or to specify an appointing
authority themselves).

Preliminary issue: An issue which is determined prior to the main hearing on the merits; for example, whether the
arbitral tribunal has jurisdiction or which laws apply to the dispute. Resolving matters as preliminary issues can
sometimes save time and costs.

Place of arbitration: See seat of arbitration.

Procedural law: The law applicable to the procedural matters that the arbitral tribunal follows. In most cases the
procedural law is a combination of the rules of arbitration chosen by the parties and the law of the seat of arbitration.
See also applicable law, lex fora and lex mercatoria.
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Public policy: A country’s most basic notions of morality and justice. In the context of arbitration, public policy affects
such matters as arbitrability and enforcement; for example, the courts may not enforce an award determining a dispute
which arose out of an illegal contract.

Recognition of award: A national court confirming that an award is valid and binding; for example, in order to prevent a
claimant from raising, in fresh proceedings, issues which have already been decided in an arbitration.

Remission: The sending back of an award to the arbitral tribunal for reconsideration in whole or in part. The power to
remit an award may be available to a national court upon a challenge by a party.

Respondent: The defending party in an arbitration against whom proceedings are brought by the claimant.

Rules of arbitration: The rules by which the arbitral tribunal is to be appointed and the arbitration conducted. Rules of
arbitration are published by all of the major international arbitral institutions.

Seat of the Arbitration or seat: The place where the arbitration is deemed to take place and the award is made,
regardless of where any proceedings or hearings were actually conducted. The seat is important in two respects. First, the
procedural law of the seat will apply to the arbitration, determining, for example, the extent to which national courts can
intervene in the arbitral process and the grounds upon which an award may be appealed or challenged. Secondly, the seat
determines the nationality of the award, which is very important for the purposes of its enforcement under the New York
Convention.

Separability: The arbitration agreement is considered separate from the contract of which it forms a part. Therefore,
disputes arising out of or in connection with the underlying contract may be referred to arbitration, even though the
contract has come to an end or is alleged to be void or illegal. See also Kompetenz - Kompetenz.

Setting aside: The annulment of an award by a national court in the place where it was made. Setting aside should be
distinguished from appeal and remission.

Settlement: The amicable resolution of the dispute by the parties. In order to enforce any settlement under the New York
Convention or other applicable convention, the settlement terms may be recorded in a consent award.

Slip rule: Most arbitration legislation and arbitral rules allow the arbitral tribunal to correct clerical or arithmetical errors
after the award has been issued.

Sovereign (or State) Immunity: Sovereign and / or state entities usually have legal protection or immunity, both from the
jurisdiction of foreign courts or arbitral tribunals and from the enforcement of any judgment or award against them. If a
sovereign or state entity has agreed to refer disputes to arbitration, it will generally have waived immunity from the
jurisdiction of the arbitral tribunal and the courts at the seat of the arbitration. However, for the sovereign or state entity
to waive immunity from enforcement of any award against it, the sovereign or state entity will expressly need to agree to
waive immunity from enforcement in the arbitration agreement. Failure to ensure a sovereign and / or state entity waives
both kinds of immunity will render any award rendered against them of no practical effect.

Stay of court proceedings: The suspension of court proceedings commenced in breach of an agreement to arbitrate.

Submission agreement: An agreement to refer existing disputes to arbitration.

Terms of reference: A document setting out matters such as a description of the parties and their claims, a list of the
issues to be determined, the place of arbitration and particulars of the applicable procedural rules. The intention is that the
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terms of reference provide a framework within which the arbitration is to be conducted. Of the major institutional rules,
only the ICC Rules require terms of reference.

Trade Usage: The general practice in a given field of trade or business. Depending upon the applicable arbitration rules,
an arbitrator may be permitted (or even required) to take account of relevant trade usages when reaching a decision.

Tribunal: A generic term used to refer to the arbitrator or, where more than one, the arbitrators collectively.

UNDIROIT Principles: A code of principles for international commercial contracts adopted by the International Institute
for the Unification of Private Law in 1994. They reflect concepts found in many, if not all, legal systems. They are seen
to reflect lex mercatoria.

UNCITRAL: United Nations Commission on International Trade Law: In the field of international commercial arbitration
and conciliation, the work of UNCITRAL includes the adoption of Arbitration Rules (1976), Conciliation Rules (1980),
the Model Law on International Commercial Arbitration, Notes on Organizing Arbitral Proceedings (1996) and the Model
Law on Commercial Conciliation (2002). In addition, UNCITRAL actively promotes the New York Convention.

Washington Convention: The 1965 Convention on the Settlement of Investment Disputes between States and Nationals of
Other States (also known as the ICSID Convention) was formulated by the World Bank and entered into force in 1966.
The Convention provides international methods for resolving disputes through ICSID.

WIPO: World Intellectual Property Organisation: WIPO is a specialised agency of the United Nations which was created
by an International Convention signed on 14 July 1967. In 1994, the WIPO Arbitration and Mediation Centre was set up
in Geneva. The Centre provides arbitration and mediation services for disputes involving intellectual property in
accordance with rules published.

Disclaimer: This publication does not necessarily deal with every important topic or cover every aspect of the topics with
which it deals. It is not designed to provide legal or other advice.

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