Published online by Cambridge University Press: 09 July 2003
Drawing on the analytical framework developed by Barbara Koremenos, Charles Lipson, and Duncan Snidal in the Rational Design project, I seek to shed light on the striking institutional differences among the various methods of international commercial dispute resolution for private parties. These methods include recourse to public courts and more frequently to private international courts, such as the International Court of Arbitration of the International Chamber of Commerce or the London Court of International Arbitration, as well as recourse to so-called ad hoc arbitration and alternative dispute-resolution techniques, such as conciliation and mediation. The key institutional dimensions along which these methods of international dispute resolution vary are (1) procedural and adaptive flexibility, and (2) centralization of procedural safeguards and information collection. I explain why different methods of international commercial dispute resolution are selected. I argue that these methods respond to the varying institutional needs of different types of disputes and disputants. Such needs can be explained in terms of the severity of the enforcement problem, uncertainty about the preferences or behavior of contractual partners, and uncertainty about the state of the world.
I am grateful to Ken Abbott, Beth Yarbrough, Barbara Koremenos, Charles Lipson, Ronald Mitchell, Antonio Ortiz, and Duncan Snidal for excellent comments on earlier drafts. I also thank Debbie Davenport, Miles Kahler, Robert Keohane, Lisa Martin, Jeffrey Stacey, and the participants of the Rational Design project, the Program on International Politics, Economics, and Security (PIPES) at the University of Chicago, and a seminar at Harvard University Business School for helpful suggestions. Special thanks to Dominique Hascher, General Counsel and Deputy Secretary General of the International Court of Arbitration of the International Chamber of Commerce in Paris, for inviting me to do an internship at the court in 1998, and to Anne-Marie Whitesell for welcoming me to her legal team at the court. I benefited greatly from discussions on international commercial arbitration with Adrian Winstanley of the London Court of International Arbitration, Eva Müller of the Arbitration Institute of the Stockholm Chamber of Commerce, as well as Gerald Aksen, Lucienne Carasso Bulow, Alessandra Casella, Yves Dezalay, Bryant Garth, Thomas Heller, Christian Joerges, William Park, Susan Rose-Ackerman, Martin Shapiro, Anne-Marie Slaughter, Hans Smit, Francis Snyder, Job Taylor, and Raymund Werle.
1. Two notable exceptions are Lipson 1985; and Cutler 1995.
2. Redfern and Hunter 1991, xv. Information mainly comes from tapping the experience of the principal arbitral institutions or by looking at individual cases that come before the courts, either as a result of enforcement proceedings or because an arbitral award is challenged by the losing party.
3. Brown 1993.
4. Kerr, Lord Justice of England, preface to Craig, Park, and Paulsson, 1990, xii.
5. The Economist, 18–24 July 1992, 17Google Scholar, survey on the legal profession. See also Wetter 1995.
6. The only exception is the European Court of Justice, which may deal with certain disputes between private parties under European Community law. Redfern and Hunter 1991, 25; Burley and Mattli 1993; Mattli and Slaughter 1995 and 1998a,b.
7. The term jurisdiction clause in an international contract is generally used to describe a forum selection that designates a public court to hear a case, while an arbitration clause refers to private international dispute resolution.
8. Even if the parties have contractually agreed to use one method, they may switch to another if they feel that the latter is more appropriate for a given dispute.
9. Mustill and Boyd 1989, 38–50.
10. This definition is suggested in the United Nations Commission for International Trade Law (UNCITRAL) Model Law, Art. 1(1), fn.
11. Institutional arbitration is also referred to in the literature as “administered” or “supervised” arbitration. On institutional arbitration, see Slate 1996; Hoellering 1994; Vigrass 1993; Graving 1989; and Lowenfeld 1993.
12. Another major institution is the American Arbitration Association. Its focus is primarily on domestic arbitration; for this reason, it is omitted from the discussion in this study. (Yearly, it handles about forty thousand domestic and two hundred international arbitration cases.)
13. Due to limited space, I focus primarily on international commercial arbitration and not the more specialized arbitration as offered, for example, by the Society of Maritime Arbitration (New York), the Grain and Feed Trade Association (London), and various stock and commodity exchanges. Nevertheless, I would argue that the framework used here does shed light on some key institutional features of commodity trade and maritime arbitration. See also Mentschikoff 1961; Harris, Summerskill, and Cockerill 1993; Summerskill 1993; Covo 1993; and Johnson 1991 and 1993.
14. As illustrated later, the distinction between suppliers and demanders is useful analytically, but in practice it is often blurred because methods for resolving private disputes are provided mostly by private organizations run and funded by firms themselves.
15. Koremenos, Lipson, and Snidal, this volume.
16. Krasner 1983, 2.
17. Keohane 1984, 93.
18. A related point is made in Demsetz 1969.
19. Williamson 1975 and 1985.
20. Yarbrough and Yarbrough have recently added to this list various forms of trade liberalization. Their analysis provides a good example of how NIE can enrich the study of international institutional arrangements. See Yarbrough and Yarbrough 1992.
21. Williamson 1985, 20, 32.
23. Beth Yarbrough, pers. comm. with the author.
24. René David, a leading French expert of international arbitration, notes that “secrecy, which is one of the reasons why arbitration is resorted to by the parties, is easily extended … to everything concerning arbitration.” See David 1985, 31.
25. Cost is a factor, unrelated to flexibility, that is frequently said to distinguish litigation from arbitration. Arbitration centers, for example, claim that litigation is much more expensive than arbitration. This need not necessarily be true, however. First, although litigants do not pay the salary of a judge, parties involved in arbitration must pay the fees and expenses of the arbitrators. Second, litigants are not charged for using the public facilities of the courts of law, but the parties in arbitration pay the administrative fees and expenses of an arbitral institution and these can be substantial, particularly when they are assessed by reference to the amount in dispute. In short, arbitration may or may not be less expensive than litigation; much depends on the specifics of the case and the attitudes of the parties to a dispute. Consequently, in the analytical part of the study I do not consider cost as an institutional dimension.
26. Casella 1996; see also Dezalay and Garth 1996.
27. Mitchell 1904, 12–13.
30. Benson 1989. See also Milgrom, North, and Weingast 1990; Greif, Milgrom, and Weingast 1994; and Cutler 1995.
31. For this reason, ADR is sometimes combined with an adjudicatory process as a fall-back solution. For example, a contract may provide for a specific time limit to start some form of mediation or negotiation after which arbitration becomes the only method available. Park 1997b.
32. In ad hoc arbitration, parties may rely nevertheless on an “appointing authority” (for example, a court, an arbitral institution, or the chairman of a trade association) to appoint arbitrators.
33. On ad hoc arbitration, see Aksen 1991; and Arkin 1987.
34. Most of the information about these forums comes from interviews I conducted during an internship at the ICA and visits to the LCIA and the SCC in March and April 1998.
35. Craig, Park, and Paulsson 1990, 25–27.
36. Before 15 June 1989, the court's name was Court of Arbitration of the International Chamber of Commerce.
37. Craig, Park, and Paulsson 1990, xxi. The ICA is supplemented by four other ICC bodies dealing with the settlement of international commercial disputes. They are the Commission on International Arbitration, which advises on the development of ICC Rules of Conciliation and Arbitration; the International Maritime Arbitration Organization; the International Center for Technical Expertise; and the Standing Committee on Regulation of Contractual Relations, which gives parties the possibility of referring to a neutral outsider to adjust contracts whose performance is threatened by fundamentally changed circumstances. See Craig, Park, and Paulsson 1990, 27–28.
38. Redfern and Hunter 1991, xvi. See also Gentinetta 1973.
39. ICC arbitral tribunals are composed of one or three arbitrators.
40. The ICA returns roughly 15–20 percent of the awards to the arbitrators for revision. See Dezalay and Garth 1996, 47–48; and Smit 1994, especially 68–72.
41. See Craig, Park, and Paulsson 1990; and The ICC International Court of Arbitration Bulletin, various issues.
42. The ICC International Court of Arbitration Bulletin, various issues.
43. “Users' councils” have been set up to keep the international business community apprised of the arbitration services offered by the LCIA and to identify the changing needs of business to be able to respond quickly to these needs. Membership in these councils is by invitation; members include lawyers, arbitrators, and multinational industrial, commercial, and trading organizations.
44. SCC 1988, para. 2.
46. See, for example, Cooter and Landa 1984; and Landa 1981. See also Greif 1992; and Curtin 1984.
47. For examples, see Auerbach 1983. See also Ellickson 1991.
48. Galanter 1993, 24.
49. See also Galanter 1981. For examples of embedded forums, see Doo 1973; Columbia Journal of Law and Social Problems 1970; Bernstein 1992; and Maitland 1936.
50. Macaulay 1963, 63.
52. Note that I am interested in knowing not which dispute-resolution clause the parties write into a contract but which method they ultimately use. The contractual provision may differ from the actual method used. For example, parties that write an ICC arbitration clause into their contract may decide to use ad hoc arbitration when a dispute erupts. Similarly, parties may choose some form of arbitration rather than complying with a jurisdiction clause. Some contracts have no provision for resolving disputes; in these cases the parties will choose the appropriate forms when disputes erupt, provided the parties have an interest in settling their disputes. Coe 1997, 56, 161.
53. On the role of hostages in economic exchange, see Williamson 1983; and Kronman 1985.
54. Vigrass 1993, 469. See also Graving 1989, 368.
55. Hunter et al. 1993, 73. See also Perlman and Nelson 1983, 232; Coe 1997, 44–49; and Park 1997b.
56. Myers 1991. See also Schwartz 1995; Stipanowich 1996; and Vagts 1987.
57. Myers 1991, 316.
58. The example is based on an actual ICC arbitration case. The names of the parties have been omitted. The case captures many of the features typical of institutional arbitration, notably in licensing, distributorship, construction, and sale of goods. About 70 percent of ICC arbitration cases fall into these categories.
59. Aksen 1991, 12.
61. Principles of due process include transparency of the arbitral process, the right of the parties to be called and heard, and equal treatment of the parties in the exchange of pleadings, in evidentiary matters, in resort to expertise proceedings, and in the holding of hearings.
62. In other words, when the winning party applies to a national court for recognition and enforcement of the award.
63. Aksen 1991, 22. See also David 1985, 45; and Hunter et al. 1993, 10.
64. See Craig, Park, and Paulsson 1990, 32–33; and David 1985, 50.
65. The type of problem that can arise in ad hoc arbitration is illustrated in a recent case (Intercarbon Bermuda v. Caltex Trading and Transport), where one party refused to proceed with an arbitration pursuant to an arbitration clause that provided for no institution to set the arbitration in motion. The claimant was forced to spend seven years in litigation before obtaining a federal court order compelling arbitration. Park 1995, 70. See also Coulson 1993; Aksen 1991, 8–9; and Paulsson 1993, 438.
66. David 1985, 11.
67. The examples are drawn from Hunter et al. 1993. See also Park 1997a.
68. See UN Doc E/Conf. 26/SR., 1–25. The standard work on this treaty is Berg 1981. Besides the New York Convention, there are at least two other international enforcement conventions, the 1975 Inter-American Arbitration Convention (also called the Panama Convention) and the 1961 European Convention on International Commercial Arbitration. In addition to these conventions, many bilateral commercial and investment treaties contain enforcement provisions. For a brief historical account of the development of the various enforcement conventions, see Redfern and Hunter 1991, 60–64; see also Sanders 1996, 41–42; and Jackson 1991.
69. Hunter et al. 1993, 19. Art. III of the New York Convention provides that convention states shall recognize foreign awards as “binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon,” subject to no conditions more onerous than those imposed on domestic awards.
70. Park 1995, 55–56.
71. Aksen 1991, 14.
72. Based on interviews at the ICA (April 1998), the SCC Institute (April 1998), and law firms in New York (October 1998).
73. On institutional flexibility and its relationship to uncertainty, see also the studies in this volume by Oatley, Richards, and Rosendorff and Milner.
74. Neill 1988, 235. For confirming evidence of the importance of this point, see recent survey results in Bühring-Uhle 1996, 136–37.
75. Redfern and Hunter 1991, 24; see also Jones 1958, 464; and Kerr 1987.
76. This account draws on Mnookin 1994.
77. Robert Mnookin at Geneva Global Arbitration Forum (21 October 1993); see Mnookin, Méan, and Robine 1994, 141–42.
78. It became clear that Fujitsu's paramount interest was to develop IBM-compatible software, but it demanded access only to external interface information, not information about internal design of IBM programs. IBM in turn was interested in ensuring that Fujitsu did not copy internal design information and that it received adequate compensation for external interface information contained in IBM programs extracted by Fujitsu.
79. Based on interviews at the ICA, Paris (April 1998)Google Scholar. One area that several interviewees identified as likely to generate heavy arbitration activity is telecommunications, the fastest growing sector of most industrialized economies. Privatization of government-owned network operators, deregulation, and the introduction of cross-border competition are fundamentally changing the industry; and many telecommunication disputes are expected to involve intellectual property issues. Interviews at the Commission of the European Union, Brussels (March 1998)Google Scholar, and the LCIA, London (April 1998)Google Scholar.
80. Slater 1982, 177–78.
81. Gruson 1982, 17. The vast majority of loan agreements select British or New York law, in part because of these laws' strict approach to the concepts of breach of contract and sanctity of contract.
82. “To accelerate the loan” means to terminate a lending relationship and declare all amounts outstanding under the loan agreement immediately due and payable.
83. Slater 1982, 195–96.
84. Cates and Isern-Feliu 1983, 28–29, 34.
85. Wood 1980, 71–73; see also Slater 1982, 197; and Cates and Isern-Feliu 1983, 28–36.
86. Ryan 1982, 89–132.
87. Koremenos, Lipson, and Snidal, this volume.
88. Butler 1992, 44.
89. Toope 1990, 255.
90. Broches 1979, 374; see also Gray and Kingsbury 1992.
91. Art. 1 of the agreement is quoted in Carter and Trimble 1991, 332–33.
92. On sovereignty costs in the context of regional and international legalization, see Abbott and Snidal 2000; Mattli 1999; and Mattli 2000.
93. Shea 1955.
94. 1967 OPEC resolution quoted in Craig, Park, Paulsson 1990, 647.
95. Art. 55 of Washington Convention.
96. Art. 18 of the Draft Convention of State Immunity by the International Law Commission, and Commentary on Article 18 in the Report of the International Law Commission; quoted in Sanders 1996, 73.
97. Carter and Trimble 1991, 366.
98. Sanders 1996, 81.