Arbitrability under the New York Convention:

the Lex Fori Revisited

by H O M A Y O O N A R F A Z A D E H *

I. T H E C O N T R O V E R S Y

UNDER T H E 1958 New York. Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the arbitrability of the subject matter of a dispute may be at issue when a national court is called upon to recognize an arbitration agreement and refer the parties to arbitration (Article II), or when the court is requested to enforce a foreign arbitral award (Article V). In both cases, the preliminary question of the law governing arbitrability needs to be answered.

This question has been the subject of much discussion and debate. National courts have contemplated - alternatively or cumulatively - the law of the forum {lex fori), the law chosen by the parties to govern the arbitration clause {lex electionis) or their contract {lex contractus), or, further, the law of the seat of the arbitral tribunal {lex arbitrii) or the place of enforcement of the award {lex executionis).'

In a recent article, Jan Paulsson traced the murky trail of incoherent court decisions and concluded mat the source of such inconsistency lies in the New York Convention itself, in particular the Convention's propensity to favour the application of the law of the forum to the issue of arbitrability.2 The author thus suggested adopting a protocol to the New York Convention or a set of guidelines for its interpretation,3 according to which, 'for the purposes of Articles II and V(l)(a), an arbitration agreement shall be considered effective in causu unless . . .

* Attorney at Law, Geneva; Python, Shifferli, Peter & Ass. 1 According to Marc Blessing, 'The Law Applicable to the Arbitration Cause and Arbitrability', in 40 Years of

Application of the New York Convention (ICCA Congress Series No. 9, 1999) 168 at p. 169 et seq., nine solutions have been advocated so far. For a review of case law, see Bernard Hanotiau, 'What Law Governs the Issue of Arbitrability' (1996) 12 Arbitration International 391.

2 Jan Paulsson, 'Arbitrability, Still Through a Glass Darkly', in Arbitration in the Next Decade (Special Supplement ICC Int'l Q. of Arb. Bull., 1999) 95. Ibid, at p. 103. UNCITRAL is currently studying possible ways of improving the New York Convention, including with respect to arbitrability: see OR GA, 54th Sess., Suppl. No. 17, UN Doc. A/54/17 (1999) and A/CN.9/WG.II/WP.108 of 14 January 2000.

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the agreement is invalid under both: (a) the law chosen by the parties to govern their agreement, and (b) the law of the country where the place of arbitration is located, . . . ' , while allowing for a restrictive application of the forum's standards under Article V(2)(a).4 This proposal, however, was regarded by Gerold Herrmann as 'thought-provoking and potentially objection-provoking', and likely to lead to 'frustrating discussions and negotiations'.5

Indeed, one can hardly deny the need for a radically new approach to the issue of arbitrability under the New York Convention. We believe, however, that the source of inconsistency is not the Convention itself, but, rather, confusing interpretations of its different provisions, coupled with an inappropriate method of analysis. First, distinct notions such as non-arbitrability per se, the validity of the arbitration clause, and the public policy exception, are often intermingled, thereby causing confusion. Secondly, regarding method, non-arbitrability has been systematically treated as a problem of conflict of law rather than conflict of jurisdiction. Together, they have led national courts to examine the issue of arbitrability by reference to foreign law rather than the law of the forum. We believe any such reference to foreign standards of arbitrability to be quite unwarranted in the context of current international arbitration law and practice.

As explicitly stated in Article V(2) (a) of the Convention, the enforcement of an award may be refused only if 'the subject matter of the differences is not capable of settlement by arbitration under the law of that country, i.e. the lex fori of the enforcement court. There is nothing to prevent a similar solution from also applying under Article II of the Convention, when recognition of the arbitration clause and referral to arbitration is sought by one of the parties to the dispute. The exclusive application of the lex fori would indeed offer a simple, clear and uniform approach to the issue of arbitrability under the Convention. Surprisingly enough, it also appears to be the only solution consistent with the widespread liberal policy in favor arbitrandum adopted by national legal systems.6

'Subparagraph V(2)(a) shall not prevent recognition and enforcement unless the non-arbitrability of the subject matter is a matter of such fundamental importance that recognition and enforcement would also violate subparagraph V(2)(b)' (Paulsson, supra n. 2, at p. 104). 'Does the World Need Additional Uniform Legislation on Arbitration? The 1998 Freshfiekls Lecture' (1999) 15 Arbitration International 211 at p. 219 er seq. The solution advocated in this article (exclusive application of the lex fori) has been advanced before (see in particular Albert J. van den Berg, The New York Arbitration Convention of 1958 (Kluwer 1981), at p. 1.52 et seq. and references in notes 96 and 98), prompting sharp criticism from renowned scholars and practitioners (in particular Bernard Hanotiau, 'L'arbitrabilite et la favor arbitrandum: un reexamen' (1994) J. D. Int. 899 at p. 923 et seq.; Paulsson, supra n. 2). However, as we shall attempt to demonstrate in section II below, this solution certainly deserves renewed consideration, and may even be re<'onstrued in the light of recent treatment of arbitrability in international disputes in court decisions and national legislation.

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II. T H E ISSUE OF ARBITRABILITY BEFORE T H E ARBITRAL TRIBUNAL

(a) Arbitrability Governed by a Substantive Rule of the Forum

The law governing the various issues that may arise in international arbitration is usually determined through the application of rules and principles of conflict of laws, which manage potential conflicts between competing domestic legal systems. Certain issues, however, are governed by substantive rules of the forum.7 The reason behind the choice of substantive rather than conflict rules is the widespread belief that international arbitration represents an institution of global rather than national interest, such that certain of its aspects are more appropriately governed by a body of rules and principles specifically tailored to its international character.8

This applies in particular to arbitrability, which is increasingly held to be governed by substantive rules of the forum. The best illustrations are Article 177 of the Swiss PIL Statute, Article 1030 of the German ZPO, and possibly the UNCITRAL Model Law.9 According to the Swiss PIL Statute, for example, all disputes involving property rights ('de nature patrimoniale') are capable of settle­ment by arbitration.

Under such legislation, the arbitral tribunal is bound to apply the forum's standards on international arbitrability and, normally, need not take account of more stringent foreign standards when ruling on its own jurisdiction. As stated by the Swiss Federal Supreme Court, it is for the claimant to bear the risk of non-enforceability of the award abroad, where the subject matter of the dispute is incapable of settlement by arbitration under the laws of other countries.10

There are, of course, limits to arbitrability. Almost all legal systems provide for exceptions -'non-arbitrable' areas - even in relation to disputes involving property rights.11 So the question remains as to how one should determine such exceptions to arbitrability, and according to which law.

Comparative case law and legal commentaries seem to suggest that the answer is to be found in the rules of international public policy, i.e. the set of mandatory

Jean Robert, 'De la regie de conflit a la regie materielle en matiere d'arbitrage', in J. C. Schultz and A. J. van den Berg, eds., The Art of Arbitration (1982) 273; see also Marc Blessing, 'Globalization (and Harmonization) of Arbitration' (1992) 9(1) J. Intl. Arb. 79 at p. 82 er seq. See Fouchard, Gaillard and Goldman, Traite de ['arbitrage commercial international (Paris, 1996) at p. 251 (no. 442); J. Gillis Wetter, 'The Internationalization of International Arbitration' (1995) 11 Arbitration International 117; Michael Kerr, 'Concord and Conflict in International Arbitration' (1997) 13 Arbitration International 121 at p. 137 er seq. Both Articles 1(5) and 34(2)(b)(i) make arbitrability subject to the laws of'this State' (i.e. the lex fori). This solution was adopted after thorough discussion: see H. M. Holtzmann and J. E. Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration (Kluwer 1989) at p. 38 er seq. and references; see also Article VI(2) of the European Convention of 1965. In ATF 118 II 353 at 3d - SJ 1993 at p. 8, in Fincantieri dated 23 June 1992, following the opinion by Lalive, Poudret and Reymond, Le droit de l'arbitrage interne er international en Suisse at pp. 305 and 308. A particularly liberal system such as Switzerland is no exception: see Lalive, Poudret and Reymond, supra n. 10 at p. 306 et seq.; for Germany, see D. P. Simms, 'Arbitrability of Intellectual Property Disputes in Germany' (1999) 15 Arbitration International 193; and infra n. 15.

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rules which are in all circumstances applicable to the merits of an international dispute. This suggestion is open to question. One may wonder if it takes adequate account of national courts' growing leniency towards the arbitrability of areas strongly marked by social and economic policies. Case law provides abundant evidence that large portions of regulatory and public policy-oriented activities are today capable of setdement by arbitration, at least where international transactions are concerned.12 In short, the so-called imperatif de police is no longer an impediment to international arbitration.13

Given that international arbitrators are generally empowered to apply inter­national public policy rules, does it still make any sense to derive the limits on arbitrability from local, foreign or transnational rules of international public policy?

(b) 'Non-arbitrability' Governed by Conflict of Jurisdiction Rules

Traditionally, 'non-arbitrability' results from public policy rules determined to be applicable to the underlying dispute pursuant to relevant conflict of laws prin­ciples.14 In our opinion, this approach is outdated.

As clearly indicated by recent case law, restrictions upon arbitrability usually stem, not from public policy rules, but from the compulsory jurisdiction of national courts prompted by public policy. As stated by the Swiss Federal Supreme Court in an obiter dictum in the Fincantieri decision,' [arbitrability could

To mention a few key decisions: the famous Mitsubishi decision by the US Supreme Court, 437 US 614 ((1986) 11 Y B Cotnm. Arb. 555), allowing arbitration of competition laws, and Scherk on securities transactions ((1976) 1 YB Comm. Arb. 203); more recently Vimar Seguros ((1996) 21 YB Comm. Arb. 773; in France, the famous Ganz decision of the Cour de Cassation ((1991) Rev. de l'Arh. 478), allowing application of public policy rules by arbitrators, and Aplix decision of the Paris Court of Appeal ((1994) Rev. de I'Arb. 164) in favour of arbitrability of competition laws; also, on EC competition laws, see the Swiss Federal Supreme Court's decision dated 28 April 1992 ((1992) Bull. ASA 368) and, with regard to corruption and fraud, National Power Corporation v. Westinghouse of 2 September 1993 ((1994) 12 Bull. ASA 244); also, on corruption and fraud, a significant decision by the Kuala Lumpur Court of Appeal in Sarawak Shell v. PPES Oil and Gas, 13 November 1997, published in (1998) 7 ADRLJ 356, and, in England, the decision in Westacre Investments v. Jugoimport et al. [2000] QB 288. For a thorough review of numerous court decisions on the subject, see contributions in Objective Arbitrability, Antitrust Disputes, Intellectual Property Disputes, ASA Special Series No. 6 (1994), and Arbitration International special issue on arbitrability, 1996, nos 2 and 4; D. Brown-Berset and L. Levy, 'Faillite et arbitrage', in (1998) 16 Bull. ASA 664. Even under French arbitration law, which has maintained the criterion of disponibilite des droits for resolving the arbitrability of international disputes, imperatif de police is not in itself a bar to arbitrators' jurisdiction: see B. Fauvaque-Casson, Libre disponibilite des droits et contlit de lois (Paris, 1996) at p. 123. Known as 'lois de police' in French, or 'international mandatory rules' in English. 5ee B. Hanotiau, 'The Law Applicable to Arbitrability', in 40 Years of Application of the New York Convention (ICCA Congress Series No. 9, 1998) 146 at p. 158 et seq.; Pierre Mayer, 'L'autonomie de l'arbitre dans l'appreciation de sa propre competence' (1989) RCADI 326; Andreas Bucher, he nouvel arbitrage international en Suisse (1988) at p. 41 etseq. (no. 97 et seq.); Vincent Heuze, commentary under Meglio v. Societe V2000 et autre, decision of French Cour de Cassation, dated 21 May 1997, in (1998) 87 Rev. crit. droit int. prive, 87 at p. 95; see also W. L. Craig, W. W. Park and J. Paulsson, International Chamber of Commerce Arbitration (1990), 81 et seq., according to whom the most relevant conflict principle should lead to the law governing the validity of the arbitration clause.

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only be denied] with regard to claims . . . exclusively reserved to the jurisdiction of a state court by provisions which must be taken into consideration for reasons of public policy'.1,5 The same approach was explicitly adopted by the Paris Court of Appeal in Almira,16 and is also to be found in the US Supreme Court Mitsubishi decision.17 The necessary prerequisite for determining 'non-arbitrability' is therefore the existence of a rule that establishes the mandatory jurisdiction of a State court to the exclusion of arbitration.18 Thus, to identify possible restrictions upon arbitrability, attention needs to be redirected and focused first on the jurisdiction of the courts.

In international disputes, the jurisdiction of a local court, and the set of conditions for recognizing the jurisdiction of foreign courts, are defined by rules and principles dealing with conflicts of jurisdiction. The jurisdiction of a State court is said to be 'international' when it bears upon a cross-border dispute, which is typically the case when the parties are located in two or more countries.

In commercial matters, the international jurisdiction of State courts can be divided into three basic categories. The first covers the courts' 'ordinary' jurisdiction over private disputes. This category is governed by principles such as personal jurisdiction (actum sequitur forum rei) and subject-matter jurisdiction (loci delicti or loci executionis). Parties can usually derogate from the ordinary competence of the courts through a forum selection clause. The second category comprises the 'quasi-mandatory' competence of the courts, which affords special protection to a weaker party and limits the parties' free choice of a forum for judicial action.19 The third category, of particular interest here, consists of the

ATF 118 II 353, supra, n. 10, at 3c, also stating that: 'Public policy would only be relevant if it imperatively required that the disputed claims be submitted to a state authority... .' It is important to mention that this obiter dictum was arrived at during a soul-searching analysis of Article 177 of the Swiss PIL Statute. In fact, the Federal Supreme Court had first emphasized that me liberal solution adopted by Article 177 of me PIL Statute 'makes no reservation in favour of the exclusive jurisdiction of state courts, in contrast to the Article 5 Concordat Intercantonal'. Nevertheless, the Court finally comes to the conclusion that if there should be any public policy restriction to Article 177 of the PIL Statute, such restriction must necessarily be derived from the exclusive jurisdiction of a State court.

16 Decision dated 16 Febuary 1989, in (1989) Rev. de I'Arb. 711: 'L'inarbitrabilite d'un litige au regard de l'ordre public ne doit pas s'entendre de l'interdiction faite aux arbitres d'appliquer des dispositions imperatives, mais seulement de statuer dans une matiere relevant par sa nature de la competence exclusive de la juridiction etatique... .'

17 In Mitsubishi (supra n. 12, at p. 559, no. 6), the US Supreme Court considered that if 'Congress intended the substantive protection afforded by a given statute to include protection against waiver of the right to a judicial forum, mat intention will be deductible from the legislative history'; and also infra n. 34. See the rather confusing debate in Germany: Simms, supra n. 11 at p. 193 et seq.

18 See Hanotiau, 'L'arbitrabilite et la favor arbitrandum: un reexamen' (1994) J. D. Int. 899 at pp. 933 (no. I l l ) and 938. See, for example, Articles 12-15 and 17 of the Brussels and Lugano Conventions on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters between European States. Of course, arbitration is expressly excluded from the scope of the Brussels and Lugano Conventions (Article 1(4)). Its provisions, cited for illustrative purposes, can nevertheless serve as a set of international standards in the field of conflicts of jurisdiction (the entry into force of the global Convention on Jurisdiction and Enforcement of Judgments in preparation by the Hague Conference on Private International Law is certainly not for the near future) and may even sometimes be applied to arbitration by analogy. As such, the reference to Article 17 of the Convention in the Van Hopplynus decision of 5 October 1994 of the Brussels

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'mandatory' competence of a given court or public authority, from which no contractual or foreign statutory derogation is permitted or recognized.20 The 'international' jurisdiction of territorial courts is mandatory because the principal claim in dispute (i) involves the creation/annulment of property rights subject to public registration and designed to produce an erga omnes effect (such as real estate and intellectual property), (ii) is of interest to the public at large (such as bankruptcy proceedings and aspects of employment policy), or (iii) involves regulatory and sovereign intervention by an administrative authority (for example, antitrust exemption under Article 85(3) of the EC Rome Treaty (Article 81(3) European Union Convention), or fiscal, social security or other economic policies).

In our opinion, there is no reason to restrict arbitrability other than for issues falling within this third category - the exercise of mandatory and exclusive jurisdiction by a State court or authority over the principal claim in dispute. There is no valid reason to adopt a more cautious attitude towards international arbitrators than to foreign judges with respect to the recognition of their jurisdiction.

Arbitration is no longer perceived as a tolerated encroachment upon the State's monopoly over justice, but as the ordinary means of resolving international commercial disputes. For parties to an international transaction, arbitration usually affords legal protection and security equal to, if not greater than, that offered by State courts. Furthermore, arbitrators are bound to respect the public-policy rules of any given country where relevant and applicable.21 Compliance with this duty is guaranteed through court scrutiny of the final award under the public policy exception, both at the stage of enforcement (Article V(2)(b)) and, in our opinion, in applications for the award to be set aside made to courts at the place of arbitration.22

True, a weaker party, as in consumer contracts, may find it excessively burdensome to pursue its claims or defence before arbitrators in unfamiliar and complex cross-border proceedings. But in the absence of a statute prescribing mandatory protection by State courts, there is no reason to rule out as a matter of

cont. Tribunal de Commerce ((1995) Rev. de l'Arb. 311; (1997) 22 YB Comm. Arb. 639), sets the example, even though the remainder of the court's reasoning is in our view flawed by inconsistency (see infra n. 35). Cf. Article 16, Brussels and Lugano Conventions, as well as other fields not covered by the Convention (Article 1). On the scope of application of Article 16 in connection with the distinction between a 'principal claim' and a 'preliminary issue', see Peter Kaye, 'Civil Jurisdiction and Enforcement of Foreign Judgements: the Application in England and Wales of the Brussels Convention' (Abingdon, Professional Books 1987) at esp. pp. 874-878. Marc Blessing, 'Mandatory Rules of Law versus Party Autonomy in International Arbitration' (1997) 14(4) J. Intl. Arb. 23. See for example ICC Award 8626 of 1996, published in French in (1999) J. D. Int. 1073, where an arbitral tribunal sitting in Geneva applied Article 85 of the EC Rome Treaty to invalidate a non­competition clause in a contract governed by the laws of the State of New York as chosen by the parties. Homayoon Arfazadeh, 'L'ordre public du fond et l'annulation des sentences arbitrales internationales en Suisse' (1995) Revue Suisse du droit international et du droit europeen 223; see, for example, the widely discussed London Court of Appeal's decision in Soleimanyv. Soleimany (1999] QB 785, in (1999) 24a YB Comm. Arb. 329 esp. at p. 341, para. 32.

Arbitrability under the New York Convention 79

principle the arbitrability of disputes arising in connection with consumer contracts. Rather, when in a given case submission of the dispute to arbitration is determined to be excessively harmful to one party, judges may always consider the arbitration agreement as ineffective or inoperative under the ordinary principles of contract law, such as duress and unconscionable conduct.23

Exceptions to arbitrability may thus be derived from a rule in force at the seat of arbitration providing for the exclusive and mandatory jurisdiction of a local or foreign authority. However, since such rules can be applied to arbitration only by analogy, a second step consists of examining the ratio legis of the rule, in order to ascertain whether its scope of application is limited to court proceedings or, on the contrary, would also justify the preclusion of international arbitration.24

To sum up, when an arbitral tribunal disregard the forum's standards on arbitrability as defined above, its award runs the risk of being challenged and set aside by courts at the seat of arbitration. Conversely, the arbitral tribunal is under no obligation to respect foreign legislation giving a foreign court exclusive jurisdiction over the dispute. It is at this point that a delicate question would arise: can reciprocity be applied and, in turn, the foreign court claiming exclusive jurisdiction be allowed to ignore the arbitrators' jurisdiction? The New York Convention deals with this problem.

III . A R T I C L E 11(1) N E W Y O R K C O N V E N T I O N : A R B I T R A B I L I T Y U N D E R T H E LEX FORI

Before examining Article 11(1), a clear distinction needs to be drawn between arbitrability per se and the validity of the arbitration clause.25

' See in particular the Tony Brower v. Gateway 2000 13 August 1998 decision of the Supreme Court of New York ((1999) 24a Y B Comm. Arb. 343; Mealey's, December 1998, 15-16). While upholding an arbitration clause in a consumer contract, the New York Court nevertheless considered the ICC arbitral procedure unconscionable, in view of the disproportionate cost thereof, and referred the parties to ad hoc arbitration. See also the Meglio v. Societe V2000 21 May 1997 decision of the French Cour de Cassation ((1998) 87 Rev. crit. droit int. prive 87) where the parties to a consumer dispute were referred to arbitration in London, in view of the fact that it related to the sale of luxury cars (see commentary by V. Heuze, (1998) 87 .Rev. crit. droit int. prive 88). It should nevertheless be mentioned that the court had based its decision to uphold the arbitration clause on the doctrine of severability. The soundness of such reasoning is highly doubtful since non-arbitrability would affect the arbitration clause even considered on its own and separately from the basic contract. With regard to the result, one should simply conclude that consumer disputes are arbitrable under French law (V. Heuze, op. cit, 88-98). For a more restrictive approach to consumer contracts, see case law discussed by Hans Van Houtte, 'Arbitration Involving Securities Transactions' (1996) 12 Arbitration International 405. Clearly, not all the subjects covered by Article 16 of the Brussels Convention, when applied by analogy, would be ipso facto non-arbitrable. Article 16(3), for example, dealing with the decisions adopted by the organs of a company and providing for the exclusive jurisdiction of the courts in whose territory the company has its headquarters is applicable only to relations between State courts and does not justify the preclusion of international arbitration: see Bernard Audit, 'Arbitration and the Brussels Convention' (1993) 9 Arbitration International 1 at pp. 3-5 and Kaye, supra n. 20, at p. 1103 and at no. 224; Matthieu de Boisseson, Le droit francais de I'arbitrage, at p. 511 (no. 591).

25 Bucher, supra n. 14, at p. 143 (no. 440); A. Redfern and M. Hunter, Droit et pratique de I'arbitrage

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(a) Validity of the Arbitration Clause and Arbitrability Distinguished

The arbitration clause is essentially a matter of private agreement. To be valid it requires valid consent by the parties. Such consent is governed by the ordinary principles of contract law, which govern the parties' expression of consent, its form, scope and reach. Arbitrability, however, when properly understood, is connected with the statutory jurisdiction of courts, the public administration of justice and the organization of the judiciary. This explains the clear distinction that arbitration laws draw between arbitrability, on the one hand, and the validity of the arbitration clause, on the other.

While arbitrability is invariably subject to the standards of the lex fori, the law governing the validity of the arbitration clause is usually subject to conflict rules (e.g. Art. 178 Swiss PIL Statute, Arts. 8(1) and 34(2)(a)(i) UNCITRAL Model Law). Indeed, national courts may resort to the conflict rules of Article V(l)(a) of the Convention for the purpose of determining the validity of the arbitration agreement under Article II(3),26 but no such reference to conflict of laws seems to be necessary for the purposes of determining arbitrability under Article 11(1).

(b) Arbitrability Governed by die Lex Fori

Nothing in Article II of the Convention indicates that arbitrability per se, unlike the causes of the nullity of the arbitration agreement, is subject to any law other than the lex fori.

According to Article 11(1), a court should recognize the parties' agreement to refer to arbitration any differences relating to 'a subject matter capable of settlement by arbitration'. Article 11(2) lays down the formal requirements of an arbitration clause. Article 11(3) then comes into play, in order to deal with mandatory referral to arbitration. Therefore, and as a matter of practical concern, the only situation directly regulated by Article II is when a local court is seized of

cont. commercial international (1994) at p. 113 / Law and Practice of International Commercial Arbitration, (2nd ed., 1991) at p. 138. American terminology is probably a major source of confusion, as the word 'arbitrability' may refer interchangeably to the scope of the arbitration agreement. This terminology has been qualified as 'unfortunate': see William Park, 'The Arbitrability Dicta in First Options v. Kaplan: What Sort of Kompetenz-Kompetenz Has Crossed the Adantic?' (1996) 12 Arbitration International 137. The term 'arbitrabilite sensu lata' (Hanotiau, supra n. 6, at p. 960) relates to the problem of the validity of the clause and should be avoided. See Julian D. M. Lew, 'The Law Applicable to die Form and Substance of the Arbitration Clause' (ICCA Congress Series No. 9, 1998) 114, esp. at pp. 141-145; Albert J. van den Berg, commentary of cases relating to Article 11(3) ((1996) 21 Y B Comm. Arb. 447, para. 221). The same author's commentary of Article 11(1) of the Convention ((1985) 10 Y B Comm. Arb. 374) shows how an overlap may occur between arbitrability and die nullity of the arbitration clause for reasons of 'public policy'. By way of illustration, one may mention a case where the illegality of the contract would be so fundamental (a contract between drug traffickers) that it would exclude arbitration of any dispute under mat contract, as illustrated by die London Court of Appeal's decision in Westacre v. Jugoimport (cf. supra n. 12). In such hypothesis, however, die arbitration clause is clearly void for reasons of illegality and public policy (Article 11(3)), rather man non-arbitrability (Article 11(1)). See also discussion of Article 11(3), infra section IV.

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an action on the merits of the dispute, and has to decide on whether it should decline jurisdiction in favour of arbitration.

In other words, Article II of the Convention, when properly construed, leaves no room for a declaratory action on the nullity of the arbitration clause.27 The Convention can at best be interpreted as permitting a declaratory action in municipal courts when provided by municipal law, but it certainly does not govern any such actions or similar types of relief.28

It must therefore be assumed mat, in the absence of an arbitration agreement, a court acting under Article II of the Convention would also be the competent authority to hear the case on the merits. As such, the arbitration clause merely constitutes an exception to the local court's inherent or statutory jurisdiction, and it is only incidentally that the local court is required to rule on the validity of the clause on the one hand and the arbitrability of the subject matter on the other.29

Whether a plea for the arbitration clause to be declared null and void must be upheld or dismissed may of course depend on the law applicable to that clause.30

However, the exclusive jurisdiction of the local court itself is another issue, which is inevitably governed by the laws of the forum itself. If the lex fori reserves the dispute to the international jurisdiction of the State court and excludes arbitration, that court is necessarily bound to assert jurisdiction, notwithstanding an otherwise valid arbitration clause.31

Let us take a familiar example. A German company licenses a German patent to a United States (US) company. The contract provides for the application of Swiss law and ICC arbitration in Geneva. A dispute arises. The US company claims that the patent is a fraud and the licence agreement consequently void. It moves to obtain the revocation of the patent in Germany, by introducing an action against the German company in the German Patentgericht, the tribunal which

As convincingly demonstrated by J.-F. Poudret,'Une action en constatation de droit au sujet de l'existence et de la validite d'une clause arbitrale est-elle recevable en droit federal ou cantonal?', in Melange Walder (1997), 341-356; opinion favoured by the Swiss Federal Supreme Court in Westland Helicopters v. AOI and others, ATF 120 II at p. 163, and recendy upheld by the Geneva Court of First Instance with regard to a foreign arbitration clause (case 3256 of 4 March 1999, unpublished). This conclusion must also logically prevail in other countries party to the New York Convention: see Dominique Hascher, 'Recognition and Enforcement of Judgments on the Existence and Validity of an Arbitration Clause under the Brussels Convention' (1997) 13 Arbitration International 33 at p. 39; Fouchard, Gaillard and Goldman, supra n. 8, 421. Contra J. van den Berg, in (1996) 21 Y B Comm. Arb. 454, para. 224. See also further discussion in relation to Kompetenz-Kompetenz, infra section IV. For example, the accelerated and facilitated judicial declaration that a party is not subject to an arbitration agreement as provided by the new German arbitration law, Article 1032(2) ZPO, or a motion to compel a party to arbitrate in common law systems. Cf. Poudret, supra n. 27; Hascher, supra n. 27, at pp. 57-58.

30 In this regard, Jan Paulsson's proposition with regard to the law applicable to the validity of the arbitration clause is perfecdy correct: see supra n. 3.

31 See the Italian Corte di Cassazione COGECO decision of 27 April 1979 ((1981) 6 Y B Comm. Arb. 229) followed to some extent by the Genoa Corte di Appello 1994 decision in Fincantieri-Cantieri Navali Italian! SpA etal. v. Ministry of Defence of Iraq, Armament & Supply Directorate & Republic of Iraq ((1996) 21 Y B Comm. Arb. 594). Jan Paulsson's criticism of this solution, supra n. 2 at p. 102, can be understood to mean only one thing: that there should be no restriction whatsoever to arbitrability. However desirable that solution may be, it is a wholly different issue which should be decided by lawmakers.

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German law vests with exclusive jurisdiction over any dispute relating to the validity of a German patent. The German company objects to the jurisdiction of the German Patentgericht by relying on Article II of the New York Convention, and proving that the dispute is arbitrable under Swiss law. If die German court upholds the arbitration plea and refers the parties to arbitration in Geneva, it may be feared mat the US company, even if successful in the arbitral proceedings, will neither be able to collect damages in Germany nor obtain revocation of the patent by the German patent office, as an arbitration award on this issue would be unenforce­able in Germany.32 The German Patentgericht is therefore bound to apply the lex fori, dismiss the arbitration plea and assert jurisdiction.33

By contrast, to allow foreign legislation to govern the jurisdiction of local courts, limit such jurisdiction, or interfere with the forum's rules on the mandatory jurisdiction of its courts is hardly conceivable. Nor may foreign legislation, or even the law of autonomy (lex electionis or lex contractus) chosen by the parties, alter, restrict or broaden the mandatory jurisdiction of local courts and thus the forum's standards of international arbitrability.34 It would not be presumptuous, therefore, for us to construe all decisions where a court has declined jurisdiction and referred the parties to arbitration as simply permitting arbitrability under the lex fori.35

In short, it is a treaty obligation for a national court applying Article II of the New York Convention to recognize a valid arbitration agreement, unless the dispute is imperatively subject to the court's own 'international' jurisdiction. If it is the exclusive jurisdiction of a foreign court or authority which is involved, and the

32 See ICC Award 6097 ((1993) 4/2 ICC Int'l Ct. of Arb. Bull. 80), where the arbitrators sitting in Geneva declared a German patent null and void, but emphasized that the award was only binding upon me parties and could not serve for die revocation of die patent, as their decision had no erga omnes effect.

' ' A second example: a Russian private bank defaults on payment for services rendered by a United Kingdom (UK) consulting company. Their contract provides for the application of French law and arbitration in Paris. Odier creditors of die Russian bank begin insolvency proceedings in Russia. According to a Russian decree, all claims against the Russian bank cease to be arbitrable and fall widiin die exclusive jurisdiction of a Russian insolvency court. The UK company fberefore submits its claims to die Russian insolvency court. The manager of external affairs of the Russian bank objects, invoking Article II New York Convention and proving that the claim remains arbitrable under applicable French arbitration law notwithstanding the insolvency proceedings. Should die Russian insolvency court dismiss die claim and refer die parties to arbitration in Paris, widi die risk of definitively preventing die UK company from recovering any money in Russian bankruptcy proceedings? In die widely cited Meadows Indemnity v. Baccala & Shoop Insurance Services decision ((1992) 17 Y B Comm. Arb. 686 at p. 691), die US Federal Court had considered tiiat 'die determination of whedier a type of claim is "not capable of settlement by arbitration" under Art. 11(1) must be made on an international scale, with reference to die laws of die countries party to die Convention'. However, and according to the same decision, reliance on such 'common' standards would become necessary only in me absence of 'subject matter exemptions to Art. 11(1)' specifically decreed by Congress, given diat 'Congress may specify categories of claims it wishes to reserve for the decision by our own courts without contravening diis Nation's obligations under the Convention'.

' ' For example, the Brussels Tribunal de Commerce, in Van Hopplynus v. Coherent, 5 October 1994 ((1997) 22 Y B Comm. Arb. 637), had admitted the arbitrability of an exclusive distributorship agreement, apparendy applying the Californian law chosen by die parties under Article II, and notwidistanding the prohibition of arbitration by the famous Article 4 of the 1961 Belgian Law. One may read mis decision simply as denying that me 1961 law could be sufficient ground for providing die mandatory jurisdiction of Belgian courts in cross-border transactions.

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lex fori recognizes such jurisdiction, the issue of Article II becomes hypothetical since the local court action must in all events be dismissed for lack of jurisdiction, regardless of any arbitration agreement.36

Does this imply that the local court should altogether disregard limits upon arbitrability prescribed under the law chosen by the parties (lex electionis) or the law of the seat of the arbitral tribunal (lex arbitrii) ?

IV. ARTICLE 11(3): ARBITRABILITY U N D E R T H E LEX ARBITRII OR T H E LEX ELECTIONIS?

Some commentators argue that non-arbitrability under a foreign legal system could render the arbitration clause 'null and void, inoperative or incapable of being performed' as provided in Article 11(3) of the Convention. They thus consider such nullity of the clause under the law chosen by the parties or the law of the place of arbitration to be a potential bar to enforcement of a future award under Article V(l)(a). Should the local court examine non-arbitrability under such foreign laws when applying Article 11(3), or prognosticate as to the possible non-enforceability of the ensuing award?

Admitting protracted litigation over the hypothetical enforcement of a future award too easily37 undermines the purpose of Article II of the Convention, which is to encourage recognition of arbitration clauses. As correctly emphasized by several court decisions, the forum's conception of arbitrability may be more liberal than that of foreign States, and it is up to the parties (for which, read claimant) to bear the risk of possible difficulties over the enforcement of the ensuing award in a foreign venue.38

Nevertheless, if the arbitration clause is duly proven to be null and void under both the foreign law chosen by the parties and the foreign law of the place of arbitration, the local court should avoid unnecessary harm to the parties, and simply assert jurisdiction and decide on the merits. However, as discussed earlier, one should be careful to distinguish between such nullity of the clause and non-arbitrability per se, which remains exclusively governed by the lex fori of the local court.

See, for example, Article 19 of the Brussels and Lugano Conventions: 'Where a court of a Contracting State is seized of a claim which is principally concerned with a matter over which the courts of another Contracting State have exclusive jurisdiction by virtue of Article 16, it shall declare of its own motion that it has no jurisdiction'. See, for example, the decision of the Court of First Instance of Lodi in Adda Officine Elettromeccaniche e Meccaniche et al. v. Alsthom Atlantique et al. ((1996) 21 Y B Comm. Arb. 580), or that of the Brussels Court of Appeal of 4 October 1985, reversing the decision of the Tribunal de Commerce ((1989) 14 Y B Comm. Arb. 618). See ATF 118 II 353, supra n. 10, and similar principles applicable to forum selection clauses - see decision of 23 December 1998, in SJ 1999, at p. 244 and ATF 124 III 134; idem Meadows Indemnity decision (supra n. 34) at p. 686.

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(a) Lex Arbitrii?

Foreign restrictions upon arbitrability, whether deriving from case law or statutory enactment, are often decisions of policy. As a result, any assessment of non-arbitrability under the foreign lex arbitrii for the purposes of Article 11(3) of the Convention may prove to be premature. Normally, both the arbitral tribunal and the court at the place of arbitration to which an application for the setting aside of the award is made would have full opportunity to examine the issue of arbitrability under the laws of the State concerned.

In our opinion, it is only in rare circumstances that non-arbitrability under the foreign lex arbitrii should be examined at the stage of mandatory referral to arbitration. A case in point would be when the petitioner before the court - the party resisting arbitration - meets the strict burden of proving that, for reasons of non-arbitrability at the place of arbitration, the arbitration clause is de facto incapable of being performed, as provided in Article II(3).39 Should doubt persist, the court must decline jurisdiction and refer the parties to arbitration in the foreign venue.

(b) Lex Electionis?

As far as the choice of law by the parties is concerned, seldom do they identify a law as specifically applicable to the arbitration agreement (lex electionis). As Jan Paulsson remarks, if there is a system somewhere that recognizes the arbitrability of the parties' dispute, it must be assumed that the parties wanted that system to govern their agreement.40 Even if it is admitted that the law chosen to govern the contract - lex contractus - should also govern the arbitration clause,41 the fact remains that the issue of arbitrability under the law chosen by the parties falls first and foremost within the jurisdiction of the arbitral tribunal itself. Under the principle of Kompetenz-Kompetenz, which prevails in most legal systems, priority is given to the arbitral tribunal to decide on its own jurisdiction, including with respect to the validity of the arbitration agreement.42 When the parties choose a

This was to some extent the reasoning followed by the French Court of Appeals in its 1 December 1993 Rawlings v. Kevorkian decision ((1994) Rev. de l'Arb., 69.5), which examined whether the dispute could indeed be arbitrated in New York, the seat of the arbitration, finding that, from a French standpoint, Article 2061 of the Civil Code was not a bar to the arbitrability of international disputes. See also the Court of First Instance of Rotterdam in Petrasol BVv. Stolt Spur Inc. ((1997) 22 YB Comm. Arb. 762). Paulsson, supra n. 2, at p. 103. e.g. Swiss PIL Statute, Article 178(2) - first alternative: validity of the arbitration clause may be based on the law specifically chosen by the parties, lex electionis; second alternative: the arbitration clause may be valid under the lex contractus. Antonias Dimolitsa, 'Separability and Kompetenz-Kompetenz' (ICCA Congress Series No. 9, 1998) at p. 217. In Compagnie de Navigation et Transports S.A., ATF 121 II, 38-42, the Swiss Federal Supreme Court decided that the validity of an arbitration agreement under Article 11(3) of the Convention must undergo the full scrutiny of the courts, since the principle of Kompetenz-Kompetenz applies only to arbitration proceedings held in Switzerland under the Swiss PIL Statute, and not those held abroad. In our opinion, the principle of Kompetenz-Kompetenz should nevertheless remain operative with regard to non-arbitrability under foreign laws if, according to Swiss conceptions, the dispute is capable of setdement by arbitration. In support of the applicability of Kompetenz-Kompetenz under Article 11(3), see Albert van den Berg's commentary of cases in (1996) 21 Y B Comm. Arb. 448, no. 222.

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law, they simply intend to seek adequate protection for their private agreement under that law. At the same time, prohibitions on arbitrability under the chosen law are not destined to safeguard the forum's fundamental conceptions of international jurisdiction, under which arbitrability is presumably permitted. Non-arbitrability under the lex electionis is therefore a matter relating primarily to the parties' private agreement, which the court should refer to arbitrators for assess­ment and determination unless, under the ordinary principles of contract law, it has manifestly and conclusively vitiated the parties' offer and acceptance to refer the dispute to arbitration.43

V. ARBITRABILITY U N D E R ARTICLE V OF T H E C O N V E N T I O N

(a) Article V(2)(a)

Construed as above, Articles V and II of the Convention should be consistent with each other with regard to arbitrability. Article V(2)(a) confirms mat, when asked to recognize and enforce a foreign arbitral award, arbitrability per se is to be decided ex officio and in accordance with the judge's lex fori. The controlling legislation is therefore mat of the forum, whether the judge is enforcing an arbitration agree­ment under Article II or an arbitration award under Article V. An award is not enforceable if the lex fori gives a local court or recognizes a foreign authority's sole jurisdiction over the subject matter, to the exclusion of arbitration.44

(b) Does Article V(l)(a) Cover Arbitrability?

Under Article V(l)(a), it is up to the party resisting enforcement of an award to prove the nullity of the arbitration agreement. In our opinion, restrictions upon

For a perfect illustration, see the reasoning in the Washington Court of Appeals Kamaya Co. Ltd et al. v. American Property Consultants Ltd decision of 27 July 1988 ((1999) 24a YB Comm. Arb. 836), following the Supreme Court's ruling in Mastrobuono ((1996) 21 YB Comm. Arb. 181): after holding that a 'fraud-in-the-inducement claim' is arbitrable under the FAA (no. 10) and that the parties' agreement 'neither unequivocally excludes fraud-in-the-inducement claims from its general arbitration provision nor unequivocally invokes Japanese arbitration law' (no. 15), the court referred the parties to arbitration of that claim in Tokyo under Japanese law, 'even assuming that under Japanese law' the claim would be held to be non-arbitrable. A foreign State cannot claim immunity from the jurisdiction of other States and invoke the exclusive jurisdiction of its own courts, since an agreement to arbitrate is itself a waiver of immunity. In the famous LIAMCO case of 18 January 1980 ((1981) 6 YB Comm Arb. 248 at p. 250), however, the District Court of Columbia refused to recognize an award issued in connection with the Libyan nationalization law on the basis of Article V(2)(a), holding, inter alia, that the Libyan law had 'vested exclusive determination of any compensation in a special committee provided for in the same law', which the District Court (albeit erroneously) felt compelled to respect pursuant to die American doctrine of Act of State. Section 2204 of the US FIA, as amended in 1988, specifically provides that the doctrine is no basis for refusing recognition to an arbitration award: see Craig, Park and Paulsson, supra n. 14, section 36-03.

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arbitrability imposed by the law chosen by the parties or that of the place of arbitration are practically irrelevant under this provision.

As a general rule, an award on jurisdiction rendered in violation of the rules on arbitrability in force at the place of arbitration is open to challenge before the courts of that country. The appropriate defence for a party wishing to resist enforcement is therefore Article V(l)(e) of the Convention, which allows for an award suspended or set aside in its country of origin not to be enforced. If the award has survived the challenge at the place of arbitration, then the foreign enforcement courts should simply dismiss the defence. If the resisting party has failed to appeal and challenge the award, enforcement courts may reasonably conclude that the petitioner has failed to prove that non-arbitrability at the seat of arbitration would be a cause of the nullity of the arbitration clause, all the more so if the forum's conception of arbitrability purportedly upholds the validity of such clause.

More moot is the attempt by a party to resist enforcement of an award by relying on non-arbitrability under the law chosen by the parties (lex electionis). When such a case arises, the arbitral tribunal must have certainly ruled on and rejected the party's objection. Since the dispute is presumably arbitrable under the enforcement court's lex fori (Article V(2)(a): see (a) above) and from the forum's point of view, restrictions upon arbitrability under the lex electionis are conse-quendy not essential to the public administration of justice, but only result from private agreement, the enforcement court should respect the arbitrators' ruling on their jurisdiction unless, pursuant to general principles of contract law, the parties' consent to refer their disputes to arbitration is fundamentally flawed.45

(c) Non-arbitrability and Public Policy Distinguished

Several commentators have expressed the view that Article V(2)(a) is tautological since its purpose and scope are already covered by the general public policy defence under Article V(2)(b).46 According to our understanding, however, non-arbitrability derives from the exclusive jurisdiction of a national court. As such, subparagraphs (a) and (b) of Article V(2) call for two different types of scrutiny. The first pertains to the jurisdiction of a State authority, and constitutes an absolute procedural bar to the recognition of an arbitral award, irrespective of its findings. The second pertains to the merits, and sets standards to be respected by arbitrators and their awards.

45 See supra section IV(b) and n. 43. See Philippe Fouchard, 'La portee internationale de l'annulation d'une sentence dans son pays d'origine' (1997) Rev. de l'Arb., 347, in whose opinion, Article V(2)(a), already covered by letter (b), should be eliminated. See also Paulsson, supra n. 2 at p. 98; van den Berg, supra n. 6 at p. 368; Hanotiau, supra n. 6 at pp. 929-930; Herrmann, supra n. 5 at p. 220.

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VI . C O N C L U S I O N

In our view, the New York Convention should be construed as follows:

• for the purposes of Article II, the subject matter of the dispute is capable of setdement by arbitration unless the court seized of an action on the merits determines that, under the laws of the forum, it has mandatory jurisdiction over the dispute, to the exclusion of arbitration;

• for the purposes of Article V(l)(a), the non-arbitrability of the subject matter cannot constitute a defence to the enforcement of an award;

• for the purposes of Article V(2)(a), recognition and enforcement of an award may be refused only if, under the laws of the forum, the subject matter of the dispute is expressly reserved to the mandatory jurisdiction of a national court or authority, to the exclusion of arbitration.

Some may consider the solution advocated in this article as too conservative; others may find it too liberal. To our mind, a less restrictive solution must first abolish the concept of arbitrability altogether, whilst a less liberal solution would place unnecessary barriers before the parties, who should have free access to a neutral and impartial tribunal of their choice. Finally, one serious concern over the exclusive application of the lex fori to the issue of arbitrability is the fear that it may enable the parties to resolve their dispute in disregard of legitimate foreign interests while enjoying legal protection in the forum State.47 This concern, however, may be adequately addressed by courts called upon to scrutinize the merits of an award in the context of applications for an award to be set aside on the ground of public policy. Yet that is another subject with its own endless debates.48

Such legitimate concerns have been voiced, for example, in relation to the liberal policy on arbitrability adopted in Switzerland. SeeJ.-F. Poudret, 'Discrepancies between the New York Convention and Chapter 12 of the Swiss PIL', in The New York Convention of 1958 (ASA Special Series No. 9) at p. 243: 'One can thus wonder if it were really opportune to choose such a criterion and want, in a typically Swiss fashion, to be wise on our own . . . at least temporarily as the German project retains the same criterion'; and Bucher, supra n. 14 at p. 41 (no. 100):'... la Suisse n'a pas interet a devenir une terre de refuge pour des arbitrages sans liens significatifs avec notre pays ... ' . With regard to the controversy over the sources of the public policy objection, see Arfazadeh, supra n. 22, at pp. 251-253.