Introduction
Today, International Commercial Arbitration has become a highly competitive field which attracts many very large companies to cope with the problems it raises. As a result of these widespread dealings throughout the world however, some complicated problems have arisen. In fact, the huge capacity of commercial dealings creates some obstacles regarding the different legislation from part of the world to another. In particular, international commercial arbitration seeks to be the sole controller of commercial disputes, whilst local authorities upholds their right to exercise decision making over the arbitration which takes place on their territories. The efforts of international conventions such as the New York convention and UNICITRAL Model Law have encouraged the arbitration process to become autonomous, and to become globalized. However, the facts reflect the opposite in some cases. In addition, the idea o f delocalization theory attempts to remove the unjustified intervention of the lex loci arbitri in order to assist its right in governing arbitration. But to what extent has delocalization theory conceded to the lex loci arbitri? What is the reality in respect of globalized arbitration? Has arbitration achieved its goal to become autonomous? These aspects will be discussed in this paper by attempting to explore reality.
The definition and analysis of the issue
It is important to indicate briefly the essential characteristics of the lex loci arbitri as well as the delocalization theory. This needs to be done in order to understand the relationship between them, and to evaluate the extent to which delocalization theory should be conceded to lex loci arbitri.
Generally, in international commercial arbitration however, the parties which may come from different national locations may choose a place which has no relationship with their own commercial dealings. Consequently, the place of arbitration usually takes on a neutral hue. In practical terms, international commercial arbitration is governed by the law in the country in which arbitration has taken place. Therefore, the seat of the arbitration law, the lex loci arbitri, and the selection of the fundamental law of arbitration which governs the crucial issues of disputes between the parties, may be fundamentally different. For instance, the parties which decide to undertake arbitration in France may choose Swiss law or New York law in order to resolve their disputes with regard to fundamental commercial issues. However, in such a case, the arbitration procedures will be controlled by French law. Although the parties to the arbitration have the freedom of choice to decide their own place and arbitration law, they should obey the authority of the place of arbitration by invoking their arbitration procedures in terms of the lex loci arbitri.1
“The lex loci arbitri is the Latin term for "law of the place where arbitration is to take place" in the Conflict of Laws”2
Accordingly, the lex arbitri is the governing law with regard to arbitration. It includes the rules of procedure that establishes a principle related to the settlement of the arbitration. The lex loci arbitri vigorously seeks to fulfill the will of the parties by conducting the arbitration in accordance with the principles of local law. Additionally, the rules of the lex loci arbitri authorize the practice of the arbitration to be supported and agreed by the competent court in order to settle the arbitration which encounters obstacles, for example, the composition of an arbitral tribunal in the case of a vacancy. Furthermore, the rules of the lex loci arbitri provide for arbitral tribunal procedures by the competent court. For example, if the arbitrators are unqualified or if they are unable to conduct the arbitration for any reason.3
On the other hand, it can be said that if any law is qualified to resolve commercial disputes, similarly, the arbitration is also. This conception will lead the argument related to the delocalization theory which can be interpreted in terms of the idea of the arbitration autonomous.4 The arbitration institutions seek to stand alone in governing arbitration, so that they can achieve arbitration autonomy in dealing with commercial circumstances. However, many advantages and facilities can be obtained by unifying the law of international commercial arbitration. In addition, some effective elements can be saved such as time, cost and effort, when international commercial arbitration becomes global. Arbitration would then have standard procedures that would be suitable for conducting arbitration proceedings anywhere without intervention from the arbitral tribunal. At this stage, there are no provisions required by the arbitral tribunal of any state where the arbitration may be held. This means that the law would not be affected by the geography of place, and it would be unified wherever it takes place with regard to arbitration.
Indeed, the conception of globalizing the lex arbitri can be accepted in theory, but in practice it could not be applied. As has been mentioned, the authorities of each country have their own local features and techniques of law with regard to how commercial disputes should be best handled locally. Therefore, countries exercise power over arbitration which takes place on their territories. This ensures that arbitration will be conducted through its arbitral tribunal procedures, especially in those developed countries which have well established jurisdictional sovereignty and a good reputation for dealing with arbitration circumstances.
In fact, these barriers which limit the autonomy of arbitration can be avoided by assuming two theoretical solutions. The first, which actually cannot be totally reliable as a solution, is for the law of the place, lex loci arbitri, to overcome the domination which attempts to govern international commercial arbitration proceeding in that country. This solution can be made effective by the principles of model laws of arbitration. Modern laws have taken regard of the privacy of the arbitration process. In this way, they prevent their courts from intervening in the proceedings of the arbitration process except if they are allowed to do so.5 The second solution is to separate an international commercial arbitration from the authority of the lex loci arbitri so that it cannot govern the arbitration. This is named the delocalization theory. The idea behind this theory is to void the dualism of domination from authorities which are the lex loci arbitri and the courts of award enforcement. The delocalization theory seeks to confer the authority only on the courts of award enforcement. This flexible procedure would allow a huge and unlimited area of the world to be accessible for international commercial arbitration.
As a result, the system of international commercial arbitration would be able to apply their rules wherever in the world, irrespective of geography.6
The autonomy of the parties is the substantive matter in terms of the delocalization theory. Arguably, the issue was discussed in order to settle the procedures with regard to autonomy on the basis of arbitration. In fact, the subject of autonomy appears to rely on two assumed discussions. The first is that international commercial arbitration seems to be adequately organized by its own procedures, and the parties will have to apply the rules which they are already provided with by international commercial institutions such as ICC, ICDR, or by the rules of ad hoc arbitration. Nevertheless, the majority of international commercial arbitrations can proceed without any intervention or support from the lex arbitri. This can be seen every day in many contractual relationships which are adopted as being much easier to arrange than those which require difficult arrangements. However, we cannot ignore the fact that the law of the lex loci arbitri plays an important role in supporting arbitrations, not only by filling gaps during the process of arbitration such as vacancies and substitutions, but also to provide the authority of the law in order to empowering the arbitral tribunal. Furthermore, the law of the lex loci arbitri will be effective on behalf of the parties by recognizing the award. The second discussion in sustaining the idea of delocalization theory is indicated by the limitation of intervention to the arbitration. By this we mean that intervention would be acceptable just at the last stage of the arbitration which is the award enforcement. Legally, in this way, the country has no any legal connection to the arbitration, and the arbitration would be globalized and delocalized. As a result, it can be seen that the majority of laws still believe that the two positions - locally and globally - are equivalent in importance in order to unify the relationship between the region and the arbitration which may take place in it. This can apparently be seen in dealing with the New York Convention7 as well as the Model Law.8
The struggle to obtaining the authority of the arbitration between the delocalization theory and lex loci arbitri
In the middle of the 1950s, the New York Convention and the ICC (the International Court of Arbitration) both shared in forming a draft and advocating that arbitration be delocalized. However, the required ambition was for international commercial arbitration to become isolated from the governing of national law systems. On the contrary, the troublesome thing was that the unjustified intervention of national courts sought to exercise their power in limited authority to control the commercial disputes, whilst arbitration is capable to resolve them. The interventions of national courts could interrupt the international commercial arbitration proceedings. The national courts could attempt to intervene in arbitration proceedings for illusory reasons, because they think that the local rules could be more successful than the arbitration procedures. Accordingly, they overrode the right of arbitration as well as the wills of the parties involved. Therefore, the parties did not prefer national laws to be the instrument for resolving disputes between them, and that because of the complications to the system that arose from these rules.
However, arbitration had achieved the best quality of outcome in dealing with commercial circumstances. In addition, it met the wishes of the parties with high levels of efficiency which gave a solution without spending lots of time and effort. As it is, the commercial matters have been suffering from the struggle of the authorities between the national courts and the arbitration process. Who is eligible to control the arbitration? In fact, the parties have decided that their dispute mechanisms should be conducted by arbitration. They actually benefit from the element of autonomy, although they cannot apply this situation until the end of the arbitration, because the national courts will impose their authority on the arbitration in order to enforce the award. Currently, the situation should be changed as a matter of urgency so as to consider the wills of the parties and the autonomy of the arbitration. In fact, the authority of international commercial arbitration does not exist but in their field of specialization which concerns trade matters it should have the entire right to deal with all kinds of commercial matters in their domain. In this way, the national courts should set aside their authority and open the way for international arbitration to improve the system by deciding its own procedures.9
During the last few decades, the value of arbitration law has been developed dramatically. This can be divided into two contrasting arguments.
Firstly, and more popularly admissible, is that arbitration is controlled by the law of the nation or by the rules of the region or what may be called the lex arbitri. Secondly, national law or rules of the region have lower potency in exercising their power over the arbitration procedures. These two arguments can be discussed as follows:
1- The laws of the nation or rules of the region are controlling the arbitration procedures.10
Arguably, the law controlling arbitration can be defined precisely by examining the reality of the application. This suggests two points of analysis as follows:
• The examination of “subjectivity” which traces to the will of the parties involved. It depends on the powerful contractual factor of the arbitration. It involves the idea that the parties to the arbitration are entitled to choose their own laws which will control their arbitration procedures, irrespective of the region in which the arbitration is to be held.11
• The examination of the “objectivity” or the regional which traces to the region or the forum of the arbitration. This examination depends on the juridical factor of the arbitration and on the conception of the similarity between the arbitration procedures and the jurisdiction procedures of the national courts.12
This examination has been agreed by the UNISITRAL Model Law on international commercial law,13 and it is agreed also by most countries. Some of others have brought together both mechanisms which are the subjective examination (the will of the parties) and the objective examination (the region of arbitration). As a result of this examination, it can be recognized that the law of the region (the objective examination) is the prevalent approach as model law and it appears to be applied in the majority of countries. As an example of the countries that apply the model law (the objective examination), Germany has one of the most developed laws in the world. In accordance with the procedures in the old book 10 of the German ZPO, the parties were free to decide their own arbitration law even if it does not agree with the law of the region.14 Accordingly, the parties can decide to apply the arbitration law of France in Germany. In this situation, the German arbitration procedures cannot be applied, and the enforcement of the award would be adopted according to the France arbitration procedures.
However, the opposite is possible as the parties could decide on using the Germany arbitration procedures wherever in the world, and can claim to do the arbitration in accordance with Germany arbitration procedures.15 In contrast, a number of pieces of legislation have been enacted recently, which seek to practice the procedures of national law. These include chapter 12 of the civil international law of Switzerland Act (1978) “if the seat of the arbitration is in Switzerland”16, the same legislation has been acted by English law,17 Dutch,18 Italian,19 and Swedish.20
2- The national law or rules of the region have lower potency in exercising power over the arbitration procedures.21
On the other hand, even though the law of the nation or rules of the region are still controlling the arbitration process but it loses ground in terms of their potency in controlling the arbitration procedure. The motives and causes can be be shown in two important examples as follows:
A- The place of the arbitration is not a legal standing to be exercising on the arbitration.22
In fact, there are no reasonable attachments between the arbitration procedures and the geography of the place. The arbitration could be held where the parties have agreed. Additionally, the hearings can be carried out in some location different from the place of the arbitration. This is what has been agreed by the Model Law as well as national laws, and by the majority of the arbitration institutions. Therefore, a neutral area is generally chosen as the place of the arbitration because of some requirements. For example, the gap in relationships between parties, such as nationality, which requires changing the place of the arbitration to the satisfaction of all parties. Furthermore, some requirements such as witnesses or arbitrators or even the procedures of the arbitration can lead to the proceedings or hearings being moved from one place to another. In addition, the place of the arbitration can forfeit its legal standing by considering the growth of technology transactions. The place of the arbitration does not make any sense in light of dealings on the internet or by modern telecommunications connections, even if could be assumed that the place of the arbitration is the area where the connection comes from. It is, in fact, inapplicable. However, the arbitration which is controlled in accordance with telecommunications connections is not considered as an ensured instrument. In this way, the conception of the authority of place is nonexistent.23
Similarly, the same issue has been raised with regard to international games around the world. Where should the arbitration be held if disputes arise between international players or their institutions? There is no complete answer to this question as the place of arbitration is not related to any particular area. Accordingly, the parties have the right to decide the place and the law which governs their arbitration procedures. By doing so, the place which is decided upon by the parties concerned will ultimately be decided by the law of the arbitration, and then this law will govern the arbitration. Accordingly, this linkage will adduct the subjective examination to the objective examination in order to set out a similar final conclusion. 24
In the last few decades, delocalization theory has been discussed seriously. The fact is that this theory attempts to avoid the hostile characteristics of the rules of arbitration.
Therefore, sociable and fraternal arbitration achieves this goal. For this reason, the delocalization theory is paid close attention to in international arguments.25
B- The unanimity of the principal components of the arbitration mechanism has become widespread within national laws.26
The arbitration laws have become more and more concordant. As a result, they are now much more reciprocal. The fact is that, despite the fact that the majority of arbitration laws are still below expectations, the mainstream arbitration laws seem to be increasing within the various systems of law at the national level. In such a situation, national laws will lose their influence over arbitration. This concordant has been evaluated by the New York Convention (1958)27 as well as by the UNICITRAL Model Law.28 These two institutions have successfully achieved a degree of regularity between arbitration and national laws. Kaufmann has suggested that:
“...Over 130 States have decided to adhere to the New York Convention and more than 40 States or subdivisions thereof have adopted the Model Law.29 Numerous other enactments in the 1980s and 1990s, even if they have not followed the Model Law, have steadily moved towards harmonization...”30Globalization of Arbitral Procedure.
Consequently, as a fundamental effect which has been carried out by this regulation, the final legislation indicates a real unanimity confirming three rudimentary principles, the autonomy of the procedural rudiments of the parties, the right in processing, and the procedural potency or qualification. The first two rudiments have originated adequately through national arbitration systems. The procedural potency has been supported by lots of professional academic writers, and it has attracted careful attention by the lexloci arbitri as well as by the national courts. In fact, it has not had such good consideration as the first two rudiments. It has been postponed until we have eliminated the disagreement of the various laws. However, the lex loci arbitri or national courts could be agreed to be the main rudiments, but not the whole detailed specifications. Hence, the rate of the acceptation on these rudiments between laws is uneven. 31
Refusal to accept delocalized contracts and arbitration in England
The case of Amin Rasheed Shipping Company against Kuwait Insurance Company has been decided by the House Lords (Lord Diplok together with Lord Roskill, Lord Brandon of Oakbrook, Lord Brightman and Lord Wilberforce)32. This case refers to the widely known principals of the proper law of contract in the disagreement of laws. The alleging party, a shipping company established in Liberia and practicing its activities through a the central office in Kuwait, demanded against the libellee, which was the Kuwait Insurance Company with branches in Kuwait, in accordance with the policies of Lloyd’s Marine Act (1906). This involved the FC & S (free of capture and seizure) principle Which was introduced to be demanded and to be defrayed in Kuwait? They claimed a complete forfeiture in accordance with the policies which brought the claim under the jurisdiction of the English courts. In this context, the rules should permit the dispute to be resolved in the external jurisdiction.33
The House of Lord has applied English law. The Lords have agreed unanimously that the policy was controlled by English Jurisdiction. The Lord Diplok suggested that the reality of the matter asserts that there was no national law of marine insurance to decide the matter at the time when the policies were arrived in Kuwait. Moreover, it was impossible to appoint the reciprocal duties and beneficiaries between the parties without referring to the English enactments and the construction of the jurisdiction. They decided, according to the current situation, to go back to detailed specifications of the marine policies. English law was used to apply the proper law directly when the parties deal with contracts that adhere to the Standard English types, for instance, a Lloyd’s policies or agreements on salvage.34
Conclusion
In conclusion, the reality is that delocalisation theory has been argued successfully in international arenas. It has been used to lobby the majority of international opinion makers such as the New York Convention as well as the UNICITRAL Model Law which have assisted arbitration to become autonomous. The fact is that delocalisation theory in some ways has won achieved its aims with limited capacity in persuading some nations to accept the theory in law. However, we can recognise that the refusal to accept delocalisation theory is primarily due to local sovereign authority. Additionally, the arguments were based on a confutation of national laws, the competency of the delocalisation theory and even the shortcomings of the lex loci arbitri are evident. However, the real situation is that delocalisation theory will be activated only if national laws (the lex loci arbitri) allow this to happen.
References
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• Jan PAULSSON, arbitration unbound: award detached from the law of its country of region.1991.
• Wikipidia, available at: http://en.wikipedia.org/wiki/Main_Page.
• Farhan AL- Farhan L.L.M. In International Commercial Law, INTERNATIONAL COMMERCIAL ARBITRATION (2002) THE PROCEDURAL LAW APPLICABLE
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