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Agustin, Marilou D.
Pagco, Reymond Jude P.
Perez, Crisanto
Concept of Arbitration
As defined under the ADR Act, arbitration is a voluntary
dispute resolution process in which one or more arbitrators, appointed in
accordance with the agreement of the parties or rules promulgated
pursuant to the ADR Act, resolve a dispute by rendering an award.
The primary distinction between arbitration and
mediation is that, in the former, it is the arbitrator that decides the dispute
and renders an arbitral award to conclude the arbitral proceeding; while in
the latter, it is the parties themselves who enter into and execute a
mediated settlement agreement to conclude the mediation proceeding.
As to the role of evidence and the merits of the case,
arbitration is a merit/evidence form of ADR.

Of particular importance is the classification of arbitration
based on the seat of arbitration and the presence of foreign elements.
Under this classification, arbitration is either domestic, international
commercial or foreign.
According to the ADR Act, arbitration is domestic if it is
not international in character. On the other hand, arbitration is international
if any of the following instances occur:
1. The parties’ place of business, which at the time of
the conclusion of the arbitration agreement, is in different states;
2. The place of arbitration provided in the arbitration
agreement and in which the parties have their places of business, is
outside the Philippines;
3. The place where a substantial part of the obligation
i to be performed or the place with which the subject matter of the
dispute is most closely connected, and in which the parties have their
places of business, is outside the Philippines; or
4. The parties have expressly agreed that the subject
matter of the arbitration agreement relates to more than one country.

Based on the the foregoing definitions, it is international

arbitration if any the above-enumerated instances is present. Thus, if
the parties’ places of business, place of arbitration, place of
performance of a substantial part of the obligation, or place where
the subject matter of the dispute is most closely connected, is outside
the Philippines, the arbitration is international in character.

What Is International Arbitration?

International arbitration is arbitration between companies or
individuals in different states, usually by including a provision for future
disputes in a contract
International arbitration is similar to domestic court litigation,
but instead of taking place before a domestic court it takes place before
private adjudicators known as arbitrators. It is
a consensual, neutral, binding, private and enforceable means of
international dispute resolution, which is typically faster and less
expensive than domestic court proceedings.
The use of international arbitration has evolved to allow parties
from different legal, linguistic and cultural backgrounds to resolve their
disputes in a final and binding manner, typically without the formalities of
the procedural rules of their own legal systems.

Who provides International Arbitration Rules?

Most international arbitration institutions provide rules which
govern the resolution of disputes to be resolved via arbitration.
The best-known rules of arbitration includes the following:
International Chamber of Commerce (“ICC”)
-it is an institution for the resolution of
international commercial disputes. The International Court of Arbitration is
part of the International Chamber of Commerce. The court comprises more
than 100 members from about 90 countries.[1] ICC headquarters is
in Paris, France.

London Court of International Arbitration (“LCIA”)

-it is an international institution, and is generally regarded as
the leading global forum for dispute resolution proceedings for all parties,
irrespective of their location or system of law. Although arbitrationand the
provisional of formal arbitration tribunals are the institution's main focus,
the LCIA is also active in mediation, a form of alternative dispute
resolution (ADR).

International Centre for Dispute Resolution of the American

Arbitration Association (“ICDR”)
-is an international arbitration institution established in 1966 for
legal dispute resolution and conciliation between international investors.
The ICSID is part of and funded by the World Bank Group, headquartered
in Washington, D.C., in the United States. It is an autonomous, multilateral
specialized institution to encourage international flow of investment and
mitigate non-commercial risks by a treaty drafted by the International Bank
for Reconstruction and Development's executive directors and signed by
member countries.

Singapore International Arbitration Centre (“SIAC”)

-is a not-for-profit arbitration organization based in Singapore,
which administers arbitrations under its own rules of arbitration and
the UNCITRAL Arbitration Rules. It was established in 1991 and is located
at Maxwell Chambers, formerly the Customs House.[1] SIAC arbitration
awards have been enforced in many jurisdictions including Australia, China,
Hong Kong SAR, India, Indonesia, Jordan, Thailand, UK, USA and Vietnam,
amongst other New York Convention signatories. SIAC is a global arbitral
institution providing case management services to parties from all over the

Hong Kong International Arbitration Centre (“HKIAC”)

-The Centre was established in 1985 to promote the use of
arbitration and other forms of alternative dispute resolution services in Asia.
Formed as a non-profit making company limited by guarantee under Hong
Kong law, HKIAC was originally funded with assistance from the business
community and the Hong Kong Government. Today, the Centre is
independent of both the business community and the Government, and
operates with its own budget and funds. It operates under a Council
composed of businesses and professionals of several nationalities.
Administration of arbitration is conducted by the Secretariat through the
Centre's Secretary-General. HKIAC also has an International Advisory Board
to provide guidance and advice to HKIAC on a policy level.

Investment arbitrations are often resolved under the rules of

the World Bank’s International Centre for Settlement of Investment
Disputes (“ICSID”) or the United Nations Commission on International Trade
Law (“UNCITRAL”) rules. Many arbitrations involving Russian businesses
take place under the rules of the Stockholm Chamber of Commerce (“SCC”).

What are the benefits of International Arbitration?

The first advantage of international arbitration is that it is a
nationality-neutral process. When a Korean company wishes to enter into
an agreement with a French company, it is no more likely that the Korean
company will agree to submit its disputes to the French courts than the
French company will agree to submit its disputes to the Korean courts. This
has nothing to do with the quality of those courts. It is simply a desire of
both parties to engage on a neutral playing field. International arbitration
offers this by providing for both the possibility of a neutral venue for the
parties’ dispute (e.g., Switzerland in the case of a Korean-French dispute)
and the possibility of a nationality-neutral decision-maker (e.g., in the case
of a Korean- French dispute, the sole arbitrator or chairman of the three-
member arbitral tribunal deciding the dispute will be of Swiss or another
neutral nationality).1
Confidentiality: Although the degree of confidentiality afforded
by the arbitration law of different jurisdictions (absent express provision by
the parties) varies, there can be no doubt that arbitration provides greater
privacy and confidentiality than litigation (which is often public). Few
arbitration rules deal with confidentiality (the London Court of International
Arbitration Rules are an exception in this regard) so if parties want to make
provision for confidentiality, they need to do so in their arbitration
agreement. However, if enforcement through the courts becomes
necessary, confidentiality might be put at risk by the court process, and
parties must pay regard to any mandatory reporting obligations.
Technical expertise and experience: The parties can select
arbitrators with relevant expertise or experience. Although some
jurisdictions have very good specialist courts (e.g., the Commercial Division
of the New York Supreme Court and the English Technology and
Construction Court), in others, parties run the risk of their dispute being
decided by a judge with little or no relevant experience.
Procedural simplicity and flexibility: Arbitration rules are
generally far simpler and more flexible than court rules. As a result, they are
relatively easy to understand for parties of different nationalities, the
proceedings are more easily focused on the substantive issues and the

https://www.lexology.com. International arbitration: Why to agree to it and how to avoid going through with it.
By: McDermott Will & Emery
parties are better able to adapt the dispute resolution process to suit their
relationship and the nature of their disputes. In many cases, parties (or
tribunals exercising discretion left to them by the parties) choose to follow
a procedure that is similar to court procedures, although parties might
change, for example, the scope of disclosure or waive rights of appeal.
However, in some cases, parties go much further, waiving the right to an
oral hearing or empowering the tribunal to decide according to principles
of fairness rather than according to the law. Of course, a potential drawback
arising from the flexibility and the generality of arbitration rules is that,
where the parties do not reach agreement in advance, there is a greater risk
of debate over procedure, which can cause uncertainty and lead to delays.
Choice of arbitrators: Unlike court proceedings, in which
generally parties have no input into the choice of judge for their case, the
parties to an arbitration usually appoint, nominate, or at least have some
input into the selection of the arbitrator(s). Most developed arbitration laws
require that all of the arbitrators be impartial. However, a party can use its
choice or input into the selection process to help ensure that, as far as
possible, the tribunal will understand the commercial context, the relevant
issues, and the party’s procedural preferences. The parties may agree upon
certain criteria for the arbitrators, or for the presiding arbitrator, although
they should take care not to narrow the field so far that there are difficulties
in identifying potential candidates. In arbitrations with more than one party
on either side, or where other parties might be joined in to the
proceedings, maintaining the parties’ right to choose the arbitrators (rather
than simply delegating the choice to an institution) can be particularly
challenging. For example, if one party has the right to select an arbitrator
but two parties on the other side cannot agree upon a joint selection, the
latter could claim that they were not being treated equally. Careful
consideration as to the means of appointing the arbitrators is therefore
required in such multi-party scenarios.
There is no simple answer as to whether arbitration is cheaper
than litigation. As legal fees generally account for the majority of the costs
of proceedings (whether arbitration or litigation), the controlling factors are
largely the complexity of the dispute, the way the proceedings are
conducted and their length. In arbitration, parties must pay for the
arbitrators, any administering institution, and the hiring of venues for
hearings. On the other hand, there are no court fees and parties are free to
agree to a process tailor-made for their dispute. This might be, for example,
a streamlined, “fast track” procedure (although inflexible and unrealistic
schedules can be problematic). Significantly, parties normally agree that
there is no right of appeal (on the merits) from any award (potentially
saving years of further proceedings). England is unusual in having a limited
right of appeal on a point of English law, but even this is usually excluded in
international arbitration agreements. In most jurisdictions, courts may only
review awards for strictly limited reasons, such as alleged procedural
irregularities or jurisdiction issues. International arbitral tribunals are
generally empowered to award the successful party the majority, or at least
a measure, of its costs, although practice varies depending on the
applicable rules/law and the composition of the tribunal.

Arbitration cost
Sigapore International Arbitration Court
This Schedule of Fees is effective as of 1 August 2016 and is
applicable to all arbitrations commenced on or after
1 August 2016.
Case Filing Fee+ (Non-Refundable)
Singapore PartiesS$2,140*(82262.54 php)
Overseas Parties S$2,000 (76880.87 php)
+ A filing fee is applicable to all arbitrations administered by the
SIAC, and to each claim or counterclaim.
* Fee includes 7% GST.
Administration Fees
The administration fees calculated in accordance with the Schedule below
apply to all arbitrations administered by SIAC and is the maximum amount
payable to SIAC.

Administration Fees
Sum in Dispute (S$) Administration Fees (S$)
Up to 50,000 3,800
50,001 to 100,000 3,800 + 2.200% excess
over 50,000
100,001 to 500,000 4,900 + 1.200% excess
over 100,000
500,001 to 1,000,000 9,700 + 1.000% excess
over 500,000
1,000,001 to 2,000,000 14,700 + 0.650% excess
over 1,000,000
2,000,001 to 5,000,000 21,200 + 0.320% excess
over 2,000,000
5,000,001 to 10,000,000 30,800 + 0.160% excess
over 5,000,000
10,000,001 to 50,000,000 38,800 + 0.095% excess
over 10,000,000
50,000,001 to 80,000,000 76,800 + 0.040% excess
over 50,000,000
80,000,001 to 100,000,000 88,800 + 0.031% excess
over 80,000,000
Above 100,000,000 95,000
The administration fees does not include the following:
• Fees and expenses of the Tribunal;
• Usage cost of facilities and support services for and in connection with any
hearing (e.g. hearing rooms and equipment, transcription and interpretation
services); and
• SIAC's administrative expenses.
7% GST as may be applicable.

SIAC will charge a minimum administration fee of S$3,800, payable for all
cases, unless the Registrar otherwise determines.
Arbitrator's Fees
For arbitrations conducted pursuant to and administered under these Rules,
the fee calculated in accordance with the Schedule below is the maximum
amount payable to each arbitrator, unless the parties have agreed to an
alternative method of determining the Tribunal’s fees pursuant to Rule 34.1.

Sum in Dispute Arbitrator's Fees

Up to 50,000 6,250
50,001 to 100,000 6,250 + 13.800% excess
over 50,000
100,001 to 500,000 13,150 + 6.500% excess
over 100,000
500,001 to 1,000,000 39,150 + 4.850% excess
over 500,000
1,000,001 to 2,000,000 63,400 + 2.750% excess
over 1,000,000
2,000,001 to 5,000,000 90,900 + 1.200% excess
over 2,000,000
5,000,001 to 10,000,000 126,900 + 0.700% excess
over 5,000,000
10,000,001 to 50,000,000 161,900 + 0.300% excess
over 10,000,000
50,000,001 to 80,000,000 281,900 + 0.160% excess
over 50,000,000
80,000,001 to 100,000,000 329,900 + 0.075% excess
over 80,000,000
100,000,001 to 344,900 + 0.065% excess
500,000,000 over 100,000,000
Above 500,000,000 605,000 + 0.040% excess
over 500,000,000
up to a maximum of 2,000,000

The above Arbitrator's Fees do not include 7% GST or its equivalent in the
relevant jurisdiction, as may be applicable.

This Schedule of Fees is effective as of 1 August 2016 and is applicable to

all arbitrations commenced on or after
1 August 2016.

Case Filing Fee+ (Non-Refundable)

+ A filing fee is applicable to all arbitrations administered by the
SIAC, and to each claim or counterclaim.
* Fee includes 7% GST.

Administration Fees
The administration fees calculated in accordance with the Schedule below
apply to all arbitrations administered by SIAC and is the maximum amount
payable to SIAC.

Administration Fees
Sum in Dispute (S$) Administration Fees (S$)
Up to 50,000 3,800
50,001 to 100,000 3,800 + 2.200% excess over
100,001 to 500,000 4,900 + 1.200% excess over
500,001 to 1,000,000 9,700 + 1.000% excess over
1,000,001 to 2,000,000 14,700 + 0.650% excess
over 1,000,000
2,000,001 to 5,000,000 21,200 + 0.320% excess
over 2,000,000
5,000,001 to 10,000,000 30,800 + 0.160% excess
over 5,000,000
10,000,001 to 50,000,000 38,800 + 0.095% excess
over 10,000,000
50,000,001 to 80,000,000 76,800 + 0.040% excess
over 50,000,000
80,000,001 to 100,000,000 88,800 + 0.031% excess
over 80,000,000
Above 100,000,000 95,000
The administration fees does not include the following:
• Fees and expenses of the Tribunal;
• Usage cost of facilities and support services for and in connection with
any hearing (e.g. hearing rooms and equipment, transcription and
interpretation services); and
• SIAC's administrative expenses.
7% GST as may be applicable.

SIAC will charge a minimum administration fee of S$3,800, payable for all
cases, unless the Registrar otherwise determines.

Arbitrator's Fees
For arbitrations conducted pursuant to and administered under these Rules,
the fee calculated in accordance with the Schedule below is the maximum
amount payable to each arbitrator, unless the parties have agreed to an
alternative method of determining the Tribunal’s fees pursuant to Rule 34.1.
Sum in Dispute Arbitrator's Fees
Up to 50,000 6,250
50,001 to 100,000 6,250 + 13.800% excess
over 50,000
100,001 to 500,000 13,150 + 6.500% excess
over 100,000
500,001 to 1,000,000 39,150 + 4.850% excess
over 500,000
1,000,001 to 2,000,000 63,400 + 2.750% excess
over 1,000,000
2,000,001 to 5,000,000 90,900 + 1.200% excess
over 2,000,000
5,000,001 to 10,000,000 126,900 + 0.700% excess
over 5,000,000
10,000,001 to 50,000,000 161,900 + 0.300% excess
over 10,000,000
50,000,001 to 80,000,000 281,900 + 0.160% excess
over 50,000,000
80,000,001 to 100,000,000 329,900 + 0.075% excess
over 80,000,000
100,000,001 to 344,900 + 0.065% excess
500,000,000 over 100,000,000
Above 500,000,000 605,000 + 0.040% excess
over 500,000,000
up to a maximum of 2,000,000

The above Arbitrator's Fees do not include 7% GST or its equivalent in the
relevant jurisdiction, as may be applicable.

Emergency Interim Relief Fees

The following fees shall be payable in an application for emergency interim
relief under Rule 30.2 and Schedule 1 to these Rules:

An application under Rule 30.2 and Schedule 1 must be accompanied by a

payment of the following:

1. Administration Fee for Emergency Arbitrator Applications (Non-


Overseas S$5,000
* Fee includes 7% GST.
2. Emergency Arbitrator’s Fees and Deposits: The deposits
towards the Emergency Arbitrator’s fees and expenses shall be fixed at
S$30,000, unless the Registrar determines otherwise pursuant to Schedule 1
to these Rules. The Emergency Arbitrator’s fees shall be fixed at S$25,000,
unless the Registrar determines otherwise pursuant to Schedule 1 to these

Challenge Fee (Non-Refundable)

A party submitting a notice of challenge shall make payment of the
following challenge fee pursuant to Rule 15.3:

Administration Fee for Arbitrator Challenges (Non-Refundable):

* Fee includes 7% GST.
Others Fees

Arb-Med-Arb Fees
Sing SIAC S$2,140* +
Arb- apore Parties SIMC S$1,000 = S$3,140
Med-Arb Ove SIAC S$2,000 +
rseas Parties SIMC S$1,000 = S$3,000
* SIAC Fee includes GST (7%).

Appointment Fees (Non-Refundable)

The appointment fee is payable where a request for
appointment of arbitrator(s) is made in an ad hoc case. The fee is payable
by the party requesting the appointment. A request for appointment must be
accompanied by payment of the appointment fee prescribed below.
1 2 3
arbitrator arbitrators arbitrators
Singapore S$3, S$4, S$5,
Parties 210* 280* 350*
Overseas S$3, S$4, S$5,
Parties 000 000 000
* Fees include 7% GST.

Assessment or Taxation Fees

At the end of an arbitration, or after an issue has been decided
in the course of the arbitration, the arbitrator usually makes an order for
the legal cost incurred by a party (or a part of the legal cost) to be paid by
the other party. The arbitrator usually fixes the amount of the cost to be

SIAC prefers that the arbitrator does so. But if he or she does not do so,
and the parties cannot agree on the amount, the Registrar of SIAC may be
asked to assess the amount for the parties. This process is sometimes called
"taxation" of costs. The party that requires the Registrar's services pays a
fee according to the amount of costs claimed.
Amount of Costs Claimed Assessment or Taxation
Up to 50,000 5,000
50,001 - 100,000 5,000 + 2% of excess over
100,001 - 250,000 6,000 + 1.5% of excess
over 100,000
250,001 - 500,000 8,250 + 1% of excess over
500,001 - 1,000,000 10,750 + 0.5% of excess
over 500,000
Above 1,000,000 13,250 + 0.25% of excess
over 1,000,000
Maximum 25,000

The fee is payable at the time of request for taxation.

The above fees do not include 7% GST as may be applicable.
The above schedule of assessment or taxation fees is effective as of 1 August

Pre-emptive remedies: Arbitral tribunals are often empowered

(by the parties or the applicable law) to grant preliminary relief, such as an
order freezing assets. In addition, many arbitration rules provide for the
appointment of an “emergency arbitrator” to consider any application for
interim relief before an arbitral tribunal has been constituted to determine
the substantive dispute. However, no arbitral tribunal or emergency
arbitrator can impose criminal sanctions upon a defaulting party or bind
third parties. In order to enable parties to obtain effective relief, arbitration
rules/laws commonly allow parties to apply to courts for interim relief (as
distinct from a hearing of the merits of the case) if this is not available from

the tribunal (for example, because this has not been constituted) or an
emergency arbitrator (for example, because third parties are involved).
Joinder of parties and related disputes: In contrast to court
proceedings, generally all parties must consent before additional parties or
related disputes can be joined to an existing arbitration. Whilst a few
national legal systems (e.g., the Netherlands) allow parties to apply to the
courts to order a third party to be joined to an arbitration, this is unusual.
Some arbitration rules make limited provision for joinder. In addition, if
consideration is given to this issue at the time the contract is drafted, the
difficulty can be addressed by express provisions in the arbitration
agreement. In essence, such provisions record the parties’ consent to
joinder in advance of the situation arising, and set out a procedure for the
joinder to take place. In multi-contract and/or multi-party transactions,
provisions for joinder can become complicated and require considerable
care in drafting. However, if provision is not made before a dispute arises, it
will often be difficult to obtain the consent of all parties because of their
differing selfinterests. In such circumstances, relevant parties will have to
decide whether or not to pursue separate proceedings in relation to the
third party.
Default judgment: In some court proceedings, judgment can be
made against a party that has transgressed the rules of the court procedure
without the court ruling formally on the merits of the dispute. This is
generally not available in arbitration. Even if a party has committed serious
procedural defaults or has completely ignored the arbitration process,
institutional arbitration rules and national arbitration laws generally require
that an arbitral tribunal still examine the merits of the claim based on
whatever evidence has been put before it. If insufficient evidence has been
provided to prove a claim to the necessary standard, the claim will still fail,
regardless of the opposing party’s procedural defaults.
Summary judgment: There is no exact equivalent in arbitration
of applications for summary judgment (in the English courts) or motions to
dismiss (in the US courts). However, arbitral tribunals may adopt shortened
procedures in certain cases. For example, in cases such as simple loan
defaults, the arbitral tribunal may feel that it is unnecessary to hear full
evidence or even conduct an oral hearing. Arbitral tribunals have
traditionally been more reluctant to adopt summary procedures than some
courts, perhaps in part due to the lack of an appeals mechanism. However,
in order to encourage more tribunals to take this step in appropriate cases,
some institutional rules (e.g., those of the Singapore International
Arbitration Centre) now expressly provide for a form of summary procedure
if the tribunal considers that a claim or a defence “manifestly lacks legal
merit”. Parties may also make express provision for a summary procedure in
their arbitration agreement.
Appeals: The WTO Appellate Body represents an innovation in
international law in that an international adjudication authority now
operates as a final instance to hear appeals arising from international
arbitral (panel) procedures. It is thereby strongly emulating domestic
appellate courts without, however, possessing the characteristics that make
appellate courts the institutions of justice that they are. Following this trend
in a cutting-edge fashion are several other inter-governmental
arrangements that had been either concluded (Central America Free Trade
Agreement (CAFTA), the Olivos Protocol in the Southern Common Market
(Mercosur)) or proposed (the US Congresses' 2002 Trade Promotion
Authority Act, the ICSID Discussion Paper of 22 October 2004, the third
draft Free Trade Area for the Americas). They embrace the concept of a
permanent international instance for appeal from arbitral awards,
particularly regarding investment agreements including also disputes
arising between the state (public) and the individual legal person (private).3

The Arbitrators
There can be three or a sole arbitrator.

The Concept of Appeal in International Dispute Settlement. Noemi Gal-Or
The arbitrators need not be lawyers but, for high-value
international disputes, they normally are. Parties usually seek advice from
their lawyers as to suitable arbitrators. If advises in this regard, the firm
draws upon experience of persons with the required attributes (including
experience as an arbitrator) and works with a client to identify those
arbitrators expected to follow thought processes most in tune with a
client’s case. Among the factors considered are:
• The candidate’s familiarity with the governing law and the
applicable arbitration rules
• The candidate’s background (e.g., legal training and
experience, experience in the relevant industry or similar industries)
• The language and the place of the arbitration
• The candidate’s writings (although many arbitrators are
guarded in their publicly expressed views) and past decisions/awards to the
extent known or available
• The firm’s interactions with the candidate in previous
arbitrations or at conferences, the views of Latham colleagues, and the
candidate’s general reputation
• The candidate’s ability to influence the selection of the
presiding arbitrator and the likelihood that the candidate’s views will carry
weight with the other arbitrators during deliberations.

How much does arbitration cost, and who pays?

While arbitration may seem expensive, it is almost always less
expensive than a trial. Arbitrators charge per diem—on a daily basis. Their
fees may range from $1,000 to $2,000 per day, plus expenses. The variation
is due to the geographic location and the amount of experience the
arbitrator has. Expenses may include travel expenses and meals that are
incurred with the arbitration hearing. Additionally, arbitrators charge for the
time they travel to the location of the arbitration. Travel time is usually
Additionally, each party is responsible for his or her own witness
costs and the attorney’s fees and costs associated with arbitration.
Arbitrators often have their rates published on their websites. Rates may
also be available from the Federal Mediation and Conciliation Service or
the American Arbitration Association.
The rate given is usually the rate for the full arbitration. The
usual practice is for each party to pay half of the total fees and costs unless
otherwise agreed to. In some cases, the person or entity who does not
prevail pays the full cost of arbitration. In other cases, the percentage split
may be something other than half and half, depending on the case and the
parties' incomes. This also applies to attorney's fees and costs.
Before agreeing to arbitration, make sure you answer the
following questions:
1. What are the costs and fees associated?
2. How will the cost of the arbitration be split between
you and the opposing party?
3. How will the arbitrator or arbitrators be selected?
4. Where will the arbitration take place?
5. Will the arbitrator’s decision be binding on both
An Arbitrator, Mediator, or Conciliator can receive salaries of
somewhere between 48000 and 72000 based on levels of tenure.
Arbitrators, Mediators, and Conciliators get a wage of Sixty Five Thousand
Four Hundred dollars per year.

Arbitrators, Mediators, and Conciliators obtain the most salary in Virginia,

where they can receive average pay of near $138820. The average salary for
International Arbitration Litigation Attorney Jobs is $117,834*.
Source: www.legalnature.com/arbitration
Typical Steps in an Arbitration
The procedure for an arbitration can take many forms. In some
arbitrations, parties agree that the dispute shall be resolved upon the basis
of written submissions, without a hearing. In others, such as commodity
arbitrations, the parties rely very heavily upon the arbitrator’s own
expertise, blurring the distinction between arbitration and expert
determination (the latter does not enjoy the statutory backing and
enforcement regimes applicable to arbitration).
Typically, a substantial international arbitration will include
most of the following steps (although some of the steps may overlap or
take place simultaneously):
• Claimant’s Request for Arbitration, including at least a
summary of the claims
• Respondent’s Answer, which will indicate any counterclaims
to be made
• Claimant’s Reply to Counterclaim (if appropriate) •
Appointment of the tribunal
• Procedural hearing setting the steps and timetable for the
• Claimant’s full Statement of Case (if not served with the
Request for Arbitration)
• Respondent’s full Defence and Counterclaim (if not served
with the Answer)
• Claimant’s Reply and Defence to Counterclaim
• Disclosure of the documents relied upon or of the (often very
limited) categories of documents requested by the other party
• Exchange of witness statements (sometimes followed by
rebuttal statements)
• Exchange of expert reports (sometimes followed by rebuttal
• Meeting of experts to narrow issues and joint statement of
matters agreed/in dispute
• Exchange of pre-hearing submissions • Hearing
• Post-hearing submissions
• Award
The procedure outlined above, with separate steps for
statements of case, witness statements, and expert reports is the normal
process (absent agreement of the parties or a direction from the tribunal to
the contrary) in LCIA arbitrations. In contrast, in many other arbitration
procedures (including under the ICC Rules), parties most commonly follow
the “memorials” approach, in which the parties’ statement of case / defence
are served together with witness evidence, and expert reports. In
substantial cases involving a disclosure stage, there are sometimes two (or
more) rounds of memorials, one before and one after the disclosure stage.
Ultimately, most arbitration systems are flexible and the process can be
tailored to meet the circumstances, either by agreement of the parties or by
direction(s) of the tribunal.


Many countries have arbitration laws that provide a legal
framework for the conduct of arbitrations. However, subject to mandatory
requirements of the applicable law, parties are free to agree upon the
procedure for their arbitration (or simply accept the default procedure
under that law). Rather than drafting a custom-made procedure for each
contract, parties usually adopt (and modify as appropriate) a set of tried
and tested ready-made arbitration rules. These rules (as amended or
supplemented by the parties) are then to be interpreted against the
backdrop of the arbitration law of the seat (legal place) of the arbitration.
Expedited and summary procedures
The flexibility of arbitration generally enables parties and
tribunals to adopt expedited or summary procedures in appropriate
circumstances, regardless of whether the institutional rules make express
provision for such procedures. In recent years, however, some institutions
have developed express provisions in their rules authorising, and in some
cases requiring, parties to use these types of abridged procedures. In
expedited arbitration procedures, the normal process is streamlined to
enable the final award to be delivered more quickly.
Increased speed is achieved by early case management
conferences, tight timeframes for each step in the process, and the ability
for the tribunal to dispense with an oral hearing. The ICC Expedited
Procedure Provisions supplement the traditional ICC Rules, applying either
through the express choice of the parties or, where the arbitration
agreement is concluded after 1 March 2017, if the dispute is valued at US$2
million or less (unless the parties have expressly opted out of the Expedited
Unlike the normal ICC procedure, in order to save time, there
are no Terms of Reference. The tribunal (which the ICC Court appoints) is to
hold an early case management conference and render a final award within
six months of that date. Guide to International Arbitration 17 Both the
HKIAC and SIAC include similar provisions to the ICC Expedited Procedure
Provisions in their arbitration rules. The applicable monetary threshold is
slightly higher than that of the ICC (at HK$25 million and US$6 million
respectively), but notably the expedited procedure must be requested by a
party and does not apply automatically.
The award should be rendered within six months from the time
the tribunal received its file (HKIAC) or is constituted (SIAC). The monetary
threshold applicable to the ICDR Expedited Procedure is US$250,000. A sole
arbitrator hears the proceedings and an award is to be rendered within 30
days of the oral hearing. However, tribunals decide cases worth less than
US$100,000 without a hearing. The LCIA has express provisions to expedite
the formation of the tribunal in appropriate cases. The parties and/or the
tribunal must then use the flexibility in the Rules to streamline the process
as appropriate. In summary procedures, the parties are not required to
undertake all the normal procedural steps.
Traditionally, arbitral tribunals have been wary of adopting
summary procedures, even though the broad provisions of many
institutional rules impliedly empower tribunals to do so. SIAC is an
exception amongst the institutions discussed in this Guide, in making
express provision in its rules for the early dismissal of claims or defences if
they are either “manifestly without legal merit” or “manifestly outside the
jurisdiction of the Tribunal”. Ad hoc arbitration often arises because parties
do not agree upon (or simply fail to provide for) any institutional rules. 18
Latham & Watkins Unadministered and ad hoc arbitrations: the UNCITRAL
Arbitration Rules and pure ad hoc arbitrations under national arbitration
laws Although some practitioners refer to all non-institutional arbitration as
being “ad hoc”, there is a useful distinction to be made between arbitration
under the UNCITRAL Arbitration Rules and arbitration that is purely under a
national law. The UNCITRAL Arbitration Rules (developed by the United
Nations Commission on International Trade Law) were originally developed
as a neutral alternative to the other major rule systems, which, fairly or not,
were viewed with scepticism in many capital-importing countries. However,
the UNCITRAL Arbitration Rules have been widely used in both general
commercial transactions and arbitrations between States and individuals
(they were used as the basis for the IranUS Claims Tribunal Rules and for a
number of Bilateral Investment Treaties).
The UNCITRAL Arbitration Rules have also influenced other rule
systems. If the UNCITRAL Arbitration Rules are selected, the parties may
also designate an institution to administer the arbitration (under the
UNCITRAL Arbitration Rules) or to act as an “appointing authority” to
appoint the arbitrator(s) if the system of party appointments breaks down,
and to deal with any challenges to the arbitrators. Many arbitral institutions
(such as the ICC, the LCIA, and the ICDR) will serve as an administrating or
an appointing authority under the UNCITRAL Arbitration Rules for a fee. If
no appointing authority is designated and the system of party
appointments breaks down, all is not lost as, pursuant to the UNCITRAL
Arbitration Rules, the Secretary General of the Permanent Court of
Arbitration in The Hague (a body created by the 1899 Hague Convention
for the Pacific Settlement of International Disputes) will appoint an
appointing authority.
However, the delay caused by this additional step is best
avoided by the parties designating the appointing authority in advance.
Rather than drafting a custommade procedure for each contract, parties
usually adopt (and modify as appropriate) a set of tried and tested ready-
made arbitration rules. Most jurisdictions allow parties to agree to arbitrate
without requiring parties to specify any rules or procedures. In such event,
the procedure for the appointment of the tribunal and the conduct of the
arbitration will be that provided by the law of the seat of the arbitration.
However, many national arbitration laws make only limited
provision for the procedure to be followed, leaving it to the parties and the
tribunal to decide how the arbitration will be conducted (which can lead to
disagreement and delay at the outset). Ad hoc arbitration often arises
because parties do not agree upon (or simply fail to provide for) any
institutional rules. Parties may, for example, agree that any arbitration shall
be conducted pursuant to a particular national law.
However, in an international context, parties should first satisfy
themselves that they are content with the relevant legislation and that they
are willing to go to the local courts, if necessary, to resolve difficulties.
Parties sometimes also believe that, by avoiding the fees of arbitral
institutions, ad hoc arbitration might prove cheaper than institutional
arbitration. Whilst this is possible in theory, in practice, the benefits of the
institution’s administrative services and the lower charges of arbitrators
under institutional rules can easily outweigh the costs involved, especially in
connection with large and complex disputes, in Latham & Watkins which
many procedural issues are likely to arise. Ad hoc arbitration significantly
increases the likelihood of court intervention and these potentially
significant costs must also be considered. Therefore, before selecting ad
hoc arbitration, parties should satisfy themselves that they would not be
better served by an institutional form of arbitration or by using the
UNCITRAL Arbitration Rules.


There is an important distinction between the legal place (the
seat) of any arbitration and the place where one or more of the hearings or
other procedural steps physically take place. Although the two often
coincide, in practice, it is the seat which determines the legal framework
within which the arbitration takes place, not the location where the parties
or the tribunal choose (as a matter of convenience) to meet. When
selecting the seat of arbitration, parties should consider, in particular, the
effect that this selection might have upon the conduct of the arbitration
and the potential enforceability of the ultimate award. The conduct of the
arbitration In choosing the seat of the arbitration, the parties are selecting
the procedural law that applies. For example, by selecting London, England,
as the seat, the parties bring about the application of the 1996 Arbitration
Act. The procedural laws applicable in arbitration-friendly centres (such as
London, New York, Paris, Hong Kong, and Singapore) have few mandatory
provisions and allow the parties considerable freedom to agree upon the
lawyers to represent them, the procedure to be followed, the language of
the arbitration, and the tribunal to decide their dispute. The result is that
these centres and the specialist lawyers, experts, and technical staff (such as
translators, stenographers, and IT personnel) who service them are able to
accommodate the considerable diversity of disputes arising in the
international arena. The role of the courts in connection with arbitrations in
arbitration-friendly centres is kept to a minimum; being primarily to
support the arbitration process and to assist, if necessary, with the
enforcement of the award.
In less arbitration-friendly countries, the courts have greater
powers to assume control over disputes within their jurisdiction and tend to
be more interventionist (particularly if disputes have a political dimension).
There are also sometimes constraints upon the conduct of the arbitration,
such as the requirement to use locally qualified lawyers and restrictions
upon who can act as arbitrators.

How Are International Arbitration Awards Enforced?

Thanks to a treaty known as the New York Convention, which
entered into force on 7 June 1959, arbitration awards can be enforced in
most countries unlike traditional court judgments. Over 150 countries have
ratified the New York Convention today, meaning that arbitration awards
can be enforced in approximately 3/4 of the countries recognized by the
United Nations.
The primary laws on the basis of which international arbitration
lawyers argue a case are the governing law of a contract, or the law of tort
relating to a contract, the arbitration laws of the seat of arbitration, and the
New York and Washington convention (alternatively known as the ICSID

Enforcement of arbitration award in the Philippines

Setting Aside an ICA AWARD Requirements4
1. Default in the arbitration agreement because a party
was under some incapacity or the said agreement is not valid under
the applicable law;

2. Violation of due process because the petitionerwas

not given proper notice of the appointment of an arbitrator or the
arbitral proceeding was unable to present his case;

Article 4.36(A), IRR
3. Lack or excess of jurisdiction on the part of the
arbitral award because thte award deals with a dispute not
contemplated by or notfalling within the terms of the submission to
arbitration, or contains decisions on mattera beyond the scope of
submission of the arbitration, subject to the application of the
doctrine of severability/separability;

4. Violation of the arbitration agreement becaus the

composition of the arbitral tribunal or the arbital process was not in
accordance with the agreement of the parties, unless such agreement
was in conflic with a provision of the adr act from which the parties
cannot derogate, or failing such agreement, was not in accordance
with the ADR act

Or if there is a finding from the court that:

1. The subject of the dispute is not capable of
settlement under the laws of the Republic of the Philippines; or

2. The award is in conflict with public policy of the


Venue: RTC
February 29, 2012 Enforcement of Foreign Arbitral Award
MARCH 19, 2019
Kanemitsu Yamaoka, five Philippine tuna processors, and
respondent Kingford entered into a Memorandum of Agreement (MOA),
which provided, among others, the establishment of Tuna Processors, Inc.
Due to a series of events, the licensees, including respondent
Kingford, withdrew from petitioner TPI and correspondingly reneged on
their obligations. Petitioner submitted the dispute for arbitration before the
International Centre for Dispute Resolution in the State of California, USA
and won the case against respondent.
To enforce the award, petitioner TPI filed a Petition for
Confirmation, Recognition, and Enforcement of Foreign Arbitral Award
before the RTC of Makati City.
The petition was dismissed on the ground that the petitioner
lacked legal capacity to sue in the Philippines.
Petitioner TPI now seeks to nullify the order of the trial court
dismissing its Petition for Confirmation, Recognition, and Enforcement of
Foreign Arbitral Award.
Can a foreign corporation not licensed to do business in the
Philippines, but which collects royalties from entities in the Philippines, sue
here to enforce a foreign arbitral award?

The petition is impressed with merit.
We reiterate that the foreign corporation’s capacity to sue in
the Philippines is not material insofar as the recognition and enforcement
of a foreign arbitral award is concerned.
Following the generalia specialibus non derogant principle, the
Alternative Dispute Resolution Act of 2004 shall apply in this case as the
Act, as its title – An Act to Institutionalize the Use of an Alternative Dispute
Resolution System in the Philippines and to Establish the Office for
Alternative Dispute Resolution, and for Other Purposes – would suggest, is
a law especially enacted to actively promote party autonomy in the
resolution of disputes or the freedom of the party to make their own
arrangements to resolve their disputes. It specifically provides exclusive
grounds available to the party opposing an application for recognition and
enforcement of the arbitral award.
Sec. 45 of the Alternative Dispute Resolution Act of 2004
provides that the opposing party in an application for recognition and
enforcement of the arbitral award may raise only those grounds that were
enumerated under Article V of the New York Convention, and not one of
these exclusive grounds touched on the capacity to sue of the party
seeking the recognition and enforcement of the award.
Rule 13.1 of the Special Rules provides that [a]ny party to a
foreign arbitration may petition the court to recognize and enforce a
foreign arbitral award. The contents of such petition are enumerated in Rule
13.5. Capacity to sue is not included.
Oppositely, in the Rule on local arbitral awards or arbitrations in
instances where the place of arbitration is in the Philippines, it is specifically
required that a petition to determine any question concerning the
existence, validity and enforceability of such arbitration agreement available
to the parties before the commencement of arbitration and/or a petition
for judicial relief from the ruling of the arbitral tribunal on a preliminary
question upholding or declining its jurisdiction after arbitration has already
commenced should state [t]he facts showing that the persons named as
petitioner or respondent have legal capacity to sue or be sued.
When a party enters into a contract containing a foreign
arbitration clause and, as in this case, in fact submits itself to arbitration, it
becomes bound by the contract, by the arbitration and by the result of
arbitration, conceding thereby the capacity of the other party to enter into
the contract, participate in the arbitration and cause the implementation of
the result.
The subject Resolution was REVERSED and SET ASIDE.


Most significantly, the Court’s decision in AT&T Mobility v.
Concepcion, 131 S.Ct. 1740 (2011), continues to reinforce the pro-
arbitration enforcement and FAA preemption themes in arbitration

Facts. Vincent and Liza Concepcion (P) contracted with AT&T

Mobility LCC (AT&T) (D). When they found that they had to pay tax on
phones advertised by the company as being free, they filed a case which
became a class action. The contract included a provision that all claims were
to be settled through arbitration, and also prohibited class arbitration.
AT&T(D) moved court for an order compelling arbitration as per the
contract. The Concepcions (P) opposed the action by AT&T on the grounds
that the executed contract was unacceptable in law and illegal in California
law because it did not allow class arbitration. The motion was denied by the
district court because of the class action waiver, though it approved of the
arbitration agreement in general. The court felt that bilateral arbitration
would not present the same level of deterrence as class actions, and so the
anti-class action provision was unconscionable. AT&T (D) appealed, arguing
the preeminence of the Federal Arbitration Act of 1925 (FAA) over
California law. The lower court decision was affirmed by the Ninth Circuit
Court of Appeals, finding precedent in the Discover Bank v. Superior Court,
36 Cal. 4th 148 (2005). It also stated that the Discover Bank rule was not
preempted by the FAA since it expressed the condition of unconscionability
applicable to all contracts in California. AT&T (D) appealed to the
U.S.Supreme Court.
Issue. Does the FAA preempt state law that does not allow
contracts which prohibit class action arbitration?

(Scalia, J.) No. The FAA displaces state law that prohibits
contracts which do not allow for class action arbitration. The rule stated in
the Discover Bank case which makes the enforceability of arbitration
conditional on the availability of class action arbitration, even if the parties
to the contract have agreed to disallow it, interferes with the nature of
arbitration process and is inconsistent with the FAA. It cannot be defended
under the pretext that the rule is applied only to adhesion contracts, or
non-negotiated contracts between a dominant party and another, because
this description applies to some extent to almost all consumer contracts. If
the court is concerned about this type of contract it ought to take steps to
address them in such a way as not to conflict with the FAA or to make the
FAA useless in ensuring the enforceability of arbitration agreements
according to their terms. Class arbitration, if disallowed by the parties to an
arbitration agreement, cannot be forced upon them by the Discover Bank
rule. Such an act is not in keeping with the FAA’s aims and purpose. Making
class arbitration necessary to every arbitration contract will change the very
nature of the arbitration process. It will remove the very useful element of
informality and cumber the process, increase the expenses and make
procedures more formal. It will also increase the risks to the business AT&T
(D) since it does not possess the same availability of review or appeal
procedures as litigation does. Thus AT&T will sustain immense pressure to
settle disputes which are not valid in an effort to prevent class action
arbitration. The argument that claims for small sums which might not
succeed in the litigation system require the presence of class action suits is
invalid. The reason for desiring the inclusion of class action in arbitration is
unrelated to the aim of arbitration, and the procedure contemplated is out
of keeping with the FAA. Even more, the fear that the claim in the present
suit will not be resolved unless it is made part of a class action suit is not
justified, since the arbitration offers the Concepcions more than the award
in a class action suit would. The decision is therefore reversed and the case
Dissent. Breyer, J.) The California state law disallowing contracts
with class action waivers is not a blanket policy but meant to deal with
contracts containing class action waivers which are legally unenforceable
for any reason. Such contracts may or may not be arbitration-based. Such a
law would be both in keeping with the FAA and also be within the range of
the FAA’s exception which allows courts to refuse to compel arbitration
according to contract in such case that there is sufficient reason to revoke
the contract.
Discussion. Since the arbitration contract in this case was
uniformly declared to be fair to all concerned, by all courts, the decision
may have to be viewed in this light. An agreement which is not so fair to
the consumer might evoke a different decision, and an unfair agreement
which profits only one party to the contract may be revoked as
unconscionable on its own merits, regardless of the presence or otherwise
of a class action waiver. It deals only with contracts which allow arbitration
as a means of settling disputes, and does not give any guidance as to
whether class action may be disallowed in contracts which allow litigation
to be the means of resolving disputes.

For October, 2017, the Supreme Court is poised to hear the

consolidated appeal in Epic Systems v. Lewis, pitting the National Labor
Relations Act against the Federal Arbitration Act on the viability of class
waivers in employment arbitration agreements.

Facts of the case

Epic Systems Corporation (Epic) is a Wisconsin-based healthcare
data management software company. Epic has an arbitration agreement
that requires its employees to resolve any employment-based disputes with
Epic through individual arbitration and to waive their right to participate in
or receive benefit from any class, collective, or representative proceedings.
In February 2015, former Epic employee Jacob Lewis sued Epic in federal
court individually and on behalf of similarly-situated employees and
claimed that they had been denied overtime wages in violation of the Fair
Labor Standards Act of 1938. Epic moved to dismiss the complaint and
cited the waiver clause of its arbitration agreement. The district court
denied Epic’s motion and held that the waiver was unenforceable because it
violated the right of employees to engage in “concerted activities” under
Section Seven of the National Labor Relations Act (NLRA). The U.S. Court of
Appeals for the Seventh Circuit affirmed the lower court’s decision and
added that the waiver was also unenforceable under the savings clause of
the Federal Arbitration Act (FAA). That clause provides that arbitration
agreements are to be enforced unless there legal or equitable grounds that
would render a contract unenforceable. Finding the waiver of collective
proceedings illegal under the NLRA, the appellate court held that the
arbitration agreement was unenforceable under the FAA. This case was
consolidated with Ernst & Young v. Morris and National Labor Relations
Board v. Murphy Oil USA, Inc., both cases that dealt with the relationship
between the FAA and the NLRA.

Does the National Labor Relations Act prohibit enforcement of
an agreement requiring employees to resolve disputes with the employer
through individual arbitration under the Federal Arbitration Act?

The Court held that neither the Arbitration Act's saving clause
nor the National Labor Relations Act (NLRA) supersede Congress's
instructions in the Federal Arbitration Act that arbitration agreements
providing for individualized proceedings must be enforced. Justice Neil
Gorsuch delivered the opinion for a 5-4 majority. The majority found that
the Federal Arbitration Act "instructed federal courts to enforce arbitration
agreements according to their terms" and that the NLRA "does not mention
class or collection action procedures" and thus cannot be read to displace
the Arbitration Act.

Justice Clarence Thomas filed a concurring opinion to add that

"the employees also cannot prevail under the plain meaning of the Federal
Arbitration Act."
Justice Ruth Bader Ginsburg filed a dissenting opinion in which
Justices Stephen Breyer, Sonia Sotomayor, and Elena Kagan joined. The
dissent noted the extreme imbalance between employer and employee and
Congress's attempt to remedy that imbalance in passing the NLRA and its
forerunner, the Norris-LaGuardia Act. In this context, the dissent found that
the Federal Arbitration Act should not shrink the NLRA's "protective

Proposed Federal Arbitration Fairness Legislation.

In response to concerns that arbitration may be forced on
individuals in disparate bargaining situations, legislators in both houses of
Congress have proposed the Arbitration Fairness Act of 2017 (AFA), Sen.
5373 (introduced by Sen. Franken); H.R. 1374, 115th Cong. (2017), versions
of which have been introduced in Congress nearly annually since 2007. The
AFA seeks to prohibit enforcement of pre-dispute arbitration agreements in
employment, consumer, antitrust or civil rights matters. The Findings of the
proposed AFA state that:
(1) The Federal Arbitration Act was intended to apply to
disputes between commercial entities of generally similar sophistication
and bargaining power; (2) A series of decisions by the Supreme Court of the
United States have interpreted the Act so that it now extends to consumer
disputes and employment disputes, contrary to the intent of Congress; (3)
most consumers and employees have little or no meaningful choice whether
to submit their claims to arbitration. Often, consumers and employees are
not even aware that they have given up their rights; (4) mandatory
arbitration undermines the development
of public law because there is inadequate transparency and
inadequate judicial review of arbitrators' decisions; and (5) arbitration can
be an acceptable alternative when consent to the arbitration is truly
voluntary, and occurs after the dispute arises.
By recent count, the bill has only a small chance of passing.
Does the proposed legislation revive the traditional “ouster of jurisdiction”
and judicial hostility concerns the FAA was intended to reverse?
Should the FAA apply to these types of transactions? States may
also seek to enact protective legislation.
State Arbitration Law
1. Uniform Arbitration Acts
As of 2017, the RUAA had been enacted in eighteen states
(Alaska, Arizona, Arkansas, Colorado, Florida, Hawaii, Michigan, Minnesota,
Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Oklahoma,
Oregon, Utah, Washington, and West Virginia) and in the District of
Columbia, Massachusetts, Pennsylvania, Kansas and Connecticut have
introduced bills to adopt the RUAA in 2017. Although absent from this list,
major commercial states, such as California and New York, have developed
their own arbitration statutes.

State Contract Law

While state, national, and international laws provide the legal
framework for arbitration, the basis for the law to enforce arbitration is the
parties’ agreement to choose arbitration instead of litigation to resolve a
dispute. Consider the following “contractual” elements:
a. The Arbitration Agreement. A valid arbitration agreement
triggers operation of arbitration legislation. Step one in the analysis is thus
to determine that a valid arbitration agreement exists and that the
concerned parties are bound by that agreement. Arbitration affords parties
the flexibility and certainty about how disputes will be resolved. An
arbitration agreement thus can also designate where the arbitration will be
conducted, who will administer the arbitration, procedural rules, and the
substantive law applicable to the merits of the arbitrated dispute. Consider
why these matters would be set forth in a pre-dispute arbitration clause, as
opposed to the parties deciding these matters later.
b. Private Institutional Administration and Rules. A number
of domestic and international organizations have developed procedural
rules that provide a framework for conducting an arbitration and also
provide services to administer arbitration. While these rules are not public
legislation, parties may contract to abide by these procedural rules to
govern their arbitration. Arbitration clauses frequently specify an
administering institution and application of a particular institution’s
procedural rules.
Organizations that have published institutional rules and
provide arbitration administrative functions, including assisting with
arbitrator appointment and case management, include the American
Arbitration Association (AAA), JAMS, the Financial Industry Regulatory
Authority (FINRA), the International Court of Arbitration (ICC), the London
Court of Arbitration, as well as the Court of Arbitration for Sports (CAS).
Parties may choose to have their arbitration administered by an arbitral
institution or proceed in a self-administered ad hoc arbitration. What might
be the advantages or disadvantages of these options?
c. Choice of Law Governing Merits of the Case. Parties are
free to contract under the laws of a particular state. Thus, an arbitration
agreement may also contain a choice-of-law clause, specifying the
substantive law to be applied in determining the merits of the underlying
dispute. For example, a clause may state “This agreement is governed and
shall be construed in accordance with the laws of [State A].” This may be
particularly important for transactions involving parties from different states
or countries.
See Direct TV v. Imburgia, 577 U.S. – (2015).
Facts of the case
On September 7, 2008, Amy Imburgia filed a class action lawsuit
against DIRECTV, Inc. (DIRECTV), and argued that DIRECTV had improperly
charged early termination fees to its customers. In 2011, the U.S. Supreme
Court decided AT&T Mobility LLC v. Concepcion, in which the Court held
that the Federal Arbitration Act preempted California precedent that had
previously held that, in certain circumstances, arbitration clauses in
customer agreements were unenforceable. Less than one month after that
decision, DIRECTV moved to stay or dismiss the plaintiffs’ case and compel
arbitration, which DIRECTV argued it had not done previously because it
thought the arbitration clause in its customer agreement was void under
California precedent. The trial court denied the motion and the California
Court of Appeal for the Second District affirmed by holding that the
language of the customer agreement subjected the arbitration clause to
state law.
Did the California Court of Appeal err in holding that a
reference to state law in an arbitration clause required the application of
that state law despite its preemption by the Federal Arbitration Act?
The Federal Arbitration Act preempts state law, so the court has
to enforce the arbitration agreement. Justice Stephen G. Breyer delivered
the opinion of the 6-3 majority. The Court held that requiring contract
enforcement under California state law that the Supreme Court had held
was invalid under AT&T Mobility LLC v. Concepcion would conflict with the
Federal Arbitration Act. Absent any indication that the language of the
contract is meant to refer to invalid state law, it should be construed as only
referring to valid state law, which is consistent with California state law. The
Court also noted that there was no indication that a California court would
apply state law that has been held to be invalid because it conflicts with
federal law to any other context. Even in the canon of cases that determine
that ambiguous language in a contract should be construed against the
party that drafted the language, there is no case that goes so far as to
apply invalid state law.
Justice Clarence Thomas wrote a dissent in which he argued
that the Federal Arbitration Act did not apply to state courts and therefore
did not require the court to order arbitration in this case. In her separate
dissent, Justice Ruth Bader Ginsburg wrote that the provision should be
construed against the drafting party so as to give the consumer the ability
to pursue class-based litigation. Because the relevant question should be
whether both parties agreed to be bound by relevant state law as framed
by the state legislature without considering the preemptive effect of federal
law, the California state court’s decision should control this case. Although
the Federal Arbitration Act contains a presumption in favor of arbitration,
the presumption only applies when the express agreement to arbitrate was
validly formed, which is not the case when consumers lack bargaining
power in the creation of such contracts. Justice Sonia Sotomayor joined in
the dissent.


Arbitrability and the Division of Authority between Courts
and Arbitrators
Comments & Questions --- Who Decides?
The Supreme Court has applied the same First Options/Howsam
analytical framework for the “who decides” question in labor arbitration. A
court may order arbitration of a particular dispute only where the court is
satisfied that the parties agreed to arbitrate that dispute. To satisfy itself
that such agreement exists, the court must resolve any issue that calls into
question the formation or applicability of the specific arbitration clause that
a party seeks to have the court enforce. Granite Rock Co. v. Int'l Bhd. of
Teamsters, 561 U.S. 287, 297 (2010).
Facts of the case
Granite Rock Co. filed suit against the International Brotherhood
of Teamsters under the Labor Management Relations Act ("LMRA") in a
California federal district court. Granite Rock argued that a Teamsters strike
constituted a breach of a no-strike clause in their collective bargaining
agreement ("CBA"). The district court dismissed the case, finding that
Granite Rock failed to state a claim, and denied Granite Rock's request to
compel arbitration in order to determine if the CBA had been ratified.
On appeal, the U.S. Court of Appeals for the Ninth Circuit held
that while Granite Rock's claim against the Teamsters was outside the scope
of the LMRA, the dispute should be arbitrated. The court reasoned that
both parties consented to arbitration when Teamsters asserted the
arbitration clause in its filings and when Granite Rock sued under the
contract which included the arbitration clause.
1) Does a federal court have jurisdiction to determine whether a
collective bargaining agreement was formed when it is disputed whether
any binding contract exists, but no party makes an independent challenge
to the arbitration clause?
2) Does the LMRA provide a cause of action against an
international union that is not a direct signatory to one of its local's
collective bargaining agreements, but causes a strike that breaches the CBA
for its own benefit?

The Supreme Court held that the parties' dispute over the CBA's
ratification date was a matter for the district court, not the arbitrator, to
resolve. With Justice Clarence Thomas writing for the majority, the Court
noted that the presumption that a dispute is arbitrable should only be
applied where it reflects and derives its legitimacy from, a judicial
conclusion that arbitration is what the parties intended because their
express agreement to arbitrate was validly formed, is legally enforceable,
and is best construed to encompass the dispute. The Court reasoned that
the question of when the CBA was formed is for judicial determination
because it constitutes a "judicial conclusion" needed to employ the
framework for even determining arbitrability. The Court further held that
the Ninth Circuit was correct in not recognizing a cause of action under the
LMRA. The Court recognized that because Granite Rock had not yet
exhausted other avenues of redress under such theories as state-law tort
claims, unfair labor practice claims, and federal common-law breach-of-
contract claims.
Justice Sonia Sotomayor, joined by Justice John Paul Stevens,
concurred in part and dissented in part. She agreed that the LMRA does not
recognize a new common-law cause of action. However, she argued that
the arbitration provision in the CBA did cover the dispute in question. She
reasoned the correct approach was for the Court to simply determine (1)
whether the parties had an agreement to arbitrate and (2) whether the
agreement covered the dispute. Here, she answered both inquiries in the

Consent is considered the cornerstone of international
arbitration. Yet in the last few years there has been an increasing discomfort
with this deep-rooted assumption, with a discussion emerging. Scholars
have spoken of the ‘dogma of consent’ or the ‘marginalization’ of it. The
main reason for this is that arbitration has evolved and expanded.
Multiparty situations involving complex jurisdictional issues are now quite
common, and investment arbitration has experienced an exponential
growth the last two decades. The article suggests that the consensual
nature of arbitration should be looked at from different perspectives. These
different perspectives should highlight that the consensual nature of
international arbitration is a complex phenomenon and that the
qualification of arbitration as a ‘consensual’ dispute resolution mechanism
needs to be differentiated and reconciled with the jurisdictional side of
The Arbitration Agreement
The arbitration agreement is the cornerstone of the arbitration
process, as there can be no arbitration between parties that have not
agreed to arbitrate their disputes. At the same time, the arbitration
agreement also establishes an obligation on the parties to arbitrate. While
the contractual nature of arbitration is undisputed in commercial
arbitration, the situation is less clear in investment arbitration. However, in
recent times national courts have underlined the fact that investment
arbitration also has a contractual character. This view is also shared by
leading scholars.
The consensual nature of arbitration is one of the fundamental
elements of its classical characterization. French lawyers especially have
stressed that the ‘origine volontaire de la mission de l’arbitre’ is one of the
essential criteria underpinning the notion of arbitration. The question as to
whether a particular dispute resolution mechanism qualifies as ‘arbitration’
is important because only the process of qualification can determine
whether the national laws and international conventions regulating
arbitration will be applicable or not. The issue of qualification can be of
relevance throughout the whole arbitral proceeding, ie from the time of
conclusion of the arbitration agreement until the time of recognition and
enforcement of the arbitral award.

Expression of Consent to Arbitration and Reaching of Mutual Consent

to Arbitrate
Consent to arbitration may be expressed in different ways. In
both commercial and investment arbitration the parties may express their
consent to resolve their disputes through arbitration by promise, ie through
an offer and the acceptance of that offer. In investment arbitration the host
State’s offer may be contained in a national investment law or in an
investment treaty. In investment treaty arbitration the offer is made when
mutual consent of the investment treaty’s parties—the contracting State
parties—to use arbitration as a dispute resolution mechanism for solving
disputes between host State and foreign investor is reached.At this stage
there is, however, no arbitration agreement. Indeed, an arbitration
agreement is only perfected when mutual consent between host State and
foreign investor is reached. The acceptance of the foreign investor is
therefore necessary. Moreover, parties may also express consent to
arbitration by conduct. This type of consent can especially be found in
complex commercial multiparty arbitrations. Finally, in investment
arbitration a number of investment treaties provide that the foreign
investor may express consent by performance, ie by instituting
proceedings. It has been said of this technique—of accepting the offer
through instituting proceedings—that it implies consent more than it
requires an express and specific manifestation of it. When the terms of the
offer have been accepted, mutual consent to arbitrate is reached. At this
stage an arbitration agreement is perfected. Arbitration agreements are
contracts and consent to arbitration is their substantive side. However a
contract may also be concluded by conduct of the parties that is sufficient
to show agreement, or in investment arbitration by performance.5

Investor-State Dispute Settlement(ISDS)

The Mutable and Evolving Concept of ‘Consent’ in International Arbitration – Comparing rules, laws, treaties and
types of arbitration for a better understanding of the concept of ‘Consent’. Andrea Marco Steingruber
(2012) Oxford U Comparative L Forum 2 at ouclf.iuscomp.org
What is ISDS?
ISDS, or investor-state dispute settlement, is a mechanism that
enables foreign investors to resolve disputes with the government of the
country where their investment was made (host state) in a neutral forum
through binding international arbitration.
ISDS agreements are most commonly found in international
treaties between states but may also be found in domestic legislation and
contracts. These instruments typically set out the substantive protections or
obligations that foreign investors are entitled to, the breach of which gives
rise to a right to bring a claim directly against the host state.
How many treaties include ISDS agreements?
It is not known precisely how many treaties include ISDS
agreements. Estimates range from over 3000 to 3400 treaties globally.
Many are found in bilateral investment treaties (BITs). Some are included as
chapters of free trade agreements (FTAs) such as Chapter 11 of the North
American Free Trade Agreement (NAFTA). Others form part of sector
specific treaties such as the Energy Charter Treaty (ECT).
What is the purpose of ISDS and why is it needed?
Without ISDS, many foreign investors would be left with no
meaningful remedy in the face of arbitrary, capricious or other unfair
treatment by a host state.
Historically, foreign investors had no choice but to seek to
resolve disputes with host states before the state’s own local courts.
However, they often found themselves unable to obtain full – or indeed any
– recovery. Obstacles included an absence of protections under the local
law, domestic sovereign or crown immunity rules and/or a lack of judicial
independence. Diplomatic intervention on behalf of the foreign investor, to
the extent available, was inconsistent and not always appropriate to resolve
the dispute. State-to-state dispute resolution mechanisms would politicize
otherwise private disputes. ISDS emerged in part from a desire to
depoliticize disputes by removing them from the realm of diplomacy and
inter-state relations.
What protections and remedies does ISDS offer?
Arguably, the most important procedural protection is the right
to have disputes resolved in a neutral forum, before impartial adjudicators
and in accordance with transparent rules.
Common substantive protections (breach of which may give rise
to an ISDS claim) include: fair and equitable treatment, full protection and
security, national treatment, most favoured nation treatment, no
expropriation without full (and prompt) compensation and free transfer of
Monetary compensation is the most common remedy.
However, in certain cases other remedies, including declaratory relief and
restitution, may be available. Interim relief whilst proceedings are ongoing
may also be available, including interlocutory measures to compel or
restrain a party from certain conduct (such as might aggravate the dispute
or render the dispute nugatory).
Do ISDS protections/remedies differ from those available to domestic
investors under national laws?
Depending on the host state’s legal regime, ISDS protections
and remedies can be more favorable than local law protections available to
domestic investors. For example, the local law of the host state may permit
the state to expropriate property without providing any compensation or
for less than full compensation. A domestic investor would therefore have
no recourse against state expropriation. A foreign investor, however, may
have additional rights where an applicable treaty provides for full (and
prompt) compensation, and may therefore pursue compensation under the
treaty regime through international arbitration.
Who can bring an ISDS claim?
The ISDS agreement will set out who has standing to bring a
claim. Most define who is an “investor” and what is a qualifying
“investment”. Generally, a claimant may be either an individual or an
Claimants typically must satisfy nationality criteria by
demonstrating that they: (a) are a national of a state that is a party to the
treaty containing the ISDS agreement; and (b) have an investment in the
territory of another state that is a party to the treaty.
How does ISDS work?
The specifics of ISDS agreements will vary, however most tend
to follow a pattern. There will be a notice provision requiring a claimant to
notify the host state in writing of a dispute. Some impose a “cooling off”
period in which the claimant and host state must attempt to resolve the
dispute amicably. A claimant may also be required during this period to
exhaust local remedies. Once this period has expired, and assuming no
other pre-conditions apply (e.g. mediation), the claimant may commence
The ISDS agreement will typically stipulate the rules that will
apply to the proceedings or permit the claimant to elect between certain
rules which the host state has consented to in advance. Common rules
include the ICSID Arbitration Rules, ICSID Additional Facility Rules,
UNCITRAL Arbitration Rules and ICC Rules of Arbitration.
The seat of the arbitration may be defined in the ISDS
agreement. If it is not, it may be determined by the tribunal, once
constituted, in accordance with the applicable rules. The seat is important
because it establishes the supporting legal framework for the arbitration,
including how and when the courts of the seat may intervene and the
grounds for challenging any award. Arbitrations under ICSID Arbitration
Rules do not require a seat as they are considered “de-localized” and
domestic courts have no supervisory role.
Generally the tribunal will be constituted of three arbitrators, as
opposed to a sole arbitrator. Typically, each party may nominate an
arbitrator to the panel and a president is chosen by the two party-
nominated arbitrators, in consultation with the parties.
Once the tribunal is constituted, it will set the procedure and
timetable. Usually there is a written phase (legal briefs with supporting
evidence) and an oral phase (hearing for cross-examination of witnesses
and legal argument). The arbitration may take a number of years, from
commencement through to final award.
How are ISDS awards enforced?
Anecdotal evidence suggests that voluntary compliance with
awards is not unusual. However, where an award is not voluntarily complied
with, there are two main regimes for enforcement.
If the award is an ICSID award, it may be enforced under the
Convention on the Settlement of Investment Disputes between States and
Nationals of Other States (ICSID Convention). That convention provides that
ICSID awards are to be treated as final court judgments of Contracting
States. There are 153 Contracting States to the ICSID Convention.
In the case of non-ICSID arbitrations, the award may be
enforced under the New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards 1958 (New York Convention). There
are 157 Contracting States to the New York Convention. The New York
Convention facilitates award compliance by constraining the grounds on
which a court may refuse to recognize or enforce a foreign award.
Sovereign immunity may be an obstacle to execution against a
state’s assets. Some ISDS agreements contain waivers of sovereign
immunity, including from execution against assets.
How much does ISDS cost and who bears the cost?
The cost varies from case to case. There are a number of factors
influencing cost, including the complexity of the claim, whether preliminary
defences are raised (such as a jurisdictional objection), the extent of
documentary production, and whether the proceedings are conducted in
one or multiple languages, to name but a few factors.
There is no universal principle as to who bears the cost of ISDS.
The ISDS agreement may stipulate how costs will be allocated. If it is silent,
the applicable rules may stipulate a principle of costs allocation, such as
“loser pays”. More often than not, the allocation of costs is left to the
discretion of the arbitral tribunal, which may take into account factors such
as the relative success of the parties and their conduct during the
proceedings. Arbitration costs, such as the cost of the tribunal’s fees, any
institutional fees, hearing centre rental costs etc. are often treated
separately from the costs of prosecuting or defending a claim, which
typically include legal fees, expert fees, travel costs etc.
What are the major criticisms of ISDS?
The most common criticisms levelled at ISDS in recent years
include: the risk of foreign investors challenging legitimate domestic
regulation; a lack of transparency in ISDS proceedings; a lack of consistency
in arbitral decision-making; a lack of appellate authority to correct
substantive errors and ensure consistency of outcomes; perceptions of
arbitrator bias and/or lack of independence resulting in decisions that
allegedly tend to favour investors; and the cost and time associated with
Although ISDS is not perfect, many of the criticisms levelled at it
are not supported by the empirical evidence. In 2015, the IBA issued a
statement correcting misconceptions and inaccurate information around
the debate on ISDS. For example, data shows that states have won a higher
percentage of cases than investors.
What happens when a country withdraws from a treaty with an ISDS
Most treaties containing ISDS agreements provide that the
treaty protections (including ISDS) will continue to apply for a certain
period (typically 10-15 years) after a country withdraws from the treaty.
Such a “sunset clause” will protect only those investors and investments
that qualify for protection at the time the withdrawal becomes effective.
NAFTA Chapter 11 is a notable exception, as it does not contain a sunset
clause. A notice of withdrawal under NAFTA becomes effective within six
months, and any investor claim would need to be brought within that
Financial implications of investor-State dispute settlement
Information about the level of damages being sought by investors tends to
be sporadic and unreliable. Even ascertaining the amounts sought by
foreign investors can be difficult, as the bulk ofcases are still at a
preliminary stage and under the ICSID system claimants are not obliged to
quantify their claims until after the jurisdictional stage has been completed.
Claims proceeding under other rules of arbitration may also not be
quantified at an early stage, and even when they are, counsel and investors
tend to be reticent about disclosing such information. It is nonetheless clear
that some claims involve large sums. Examples include:
* $270 million (plus substantial interest) awarded against the
Czech Republic in the Lauder case (award of 3 December 2001);
* $71 million (plus interest) awarded against Ecuador in the
Occidental case (award of 1 July 2004);
* $824 million (plus an additional $10 million as a partial
contribution to the costs, expenses and counsel's fees) awarded against
Slovakia in the CSOB case (award of 29 December 2004);

https://www.nortonrosefulbright.com. Frequently asked questions about investor-state dispute settlement
* $133.2 million (plus interest) awarded against Argentina in the
CMS Gas Transmission Company case (award of 15 May 2005).
* $266 million awarded against the Republic of Lebanon, found
to be in breach of the France-Lebanon BIT (UNCITRAL award of February
2005). Lebanon has sought to challenge that verdict in the courts of
Switzerland, where the arbitration was sited. The arbitral award has not
been published by the parties.a
* $133 million awarded against Argentina, found to be in breach
of its obligations under contracts and the United States-Argentina BIT
(ICSID award of May 2005). In September, Argentina introduced a
procedure to annul the tribunal’s award under Article 52 of the ICSID
* Recently, a series of three arbitrations were mounted by the
majority shareholders in the Yukos Corporation, alleging a violation by the
Russian Federation of the Energy Charter Treaty. These claims are for a
reported total of $33 billion, which makes them the largest known claims in
investment arbitration history.
Not all claims lead to the requested awards, however. The
amount awarded for a claim is not necessarily an indication of the real
financial magnitude of a case, since there are no penalties for claimants
filing particularly high claims. Very large claims often end up yielding very
small awards. The Metalclad vs. Mexico claim for $43 million, for example,
led to an award of less than $17 million, and S.D. Myers, in its $70 to $80
million claim against Canada, was awarded $6 million – that is, less than
10% of the amount sought. Nor do all claims brought by businesses
succeed. Indeed, a number of cases are won by States.d In August 2005, for
example, an UNCITRAL tribunal dismissed in its entirety a set of claims by
the Canadian-based Methanex Corporation, alleging violations of
investment protections in NAFTA. Methanex had claimed some $970 million
in damages.
However, even defending against claims costs money.
Investment treaty arbitration proceedings are expensive to mount. The
Metalclad Corporation is reported to have spent some $4 million on
lawyers’ and arbitrators’ fees in an arbitration against Mexico.f The Czech
Republic reportedly spent $10 million on its defence against two major
claims brought by a European-based broadcasting firm and one of its
major shareholders (Peterson, 2003). More recently, the Czech Government
announced expected legal fees of $3.3 million in 2004, and $13.8 million in
2005, to fight off similar claims (Peterson, 2004). A cursory review of cost
decisions in recent awards suggests that the average legal costs incurred by
Governments are $1to $2 million, including lawyers' fees; the costs for the
tribunal are about $400,000 or more; and the costs for the claimant are
about the same as those for the defendant.g Two recent decisions are
noteworthy in as far as the allocation of costs and attorneys' fees by the
tribunals is concerned:
* The Methanex tribunal in its decision of 3 August 2005 on the
merits awarded the burden of the full costs to the unsuccessful claimant,
including the United States' legal costs.
* The Annulment Committee, in a recent decision rendered
against the Seychelles, decided that all costs of the annulment procedures
should be borne by the State that had challenged the first award, seemingly
in an attempt to discourage frivolous annulment procedures. The
Committee made it clear that an annulment proceeding does not offer a
displeased litigant a fresh opportunity to second-guess an ICSID Tribunal's

Annex 1: Known investment treaty claims

(November 2005)
Defendant Number of claims
Argentina 42
Mexico 17
United States 11
India 9
Czech Republic 8
Egypt 8
Ecuador 7
Poland 7
Russian Federation 7
Canada 6
Republic of Moldova 5
Chile 4
Democratic Republic of the Congo 4
Kazakhstan 4
Romania 4
Ukraine 4
Hungary 3
Pakistan 3
Venezuela 3
Algeria 2
Burundi 2
Estonia 2
Georgia 2
Jordan 2
Latvia 2
Lebanon 2
Morocco 2
Philippines 2
Sri Lanka 2
Turkey 2
United Arab Emirates 2
Albania 1
Bangladesh 1
Barbados 1
Bolivia 1
Bulgaria 1
Croatia 1
El Salvador 1
France/United Kingdom 1
Germany 1
Ghana 1
Guyana 1
Indonesia 1
Kyrgyzstan 1
Lithuania 1
Malaysia 1
Mongolia 1
Myanmar 1
Paraguay 1
Peru 1
Portugal 1
Saudi Arabia 1
Serbia and Montenegro 1
Slovenia 1
Spain 1
Trinidad and Tobago 1
Tunisia 1
United Republic of Tanzania 1
Viet Nam 1
Yemen 1
Zimbabwe 1
Unknown 9

Total 219

Treaty Shopping
Another factor of concern is the possibility of “shopping” by
foreign investors for a “home country of convenience” – that is, the seeking
of home countries that have treaties with host countries where investments
are to be made. The potential for such treaty shopping was recognized in
the drafting of Chapter 11 of NAFTA, which includes a provision allowing a
party to deny the benefits of the agreement to investors that have no
“substantial business activities” in their putative home country (article
1113.2). Similar clauses can be found in BITs (e.g. in United States BITs and
a number of ASEAN country BITs), reflecting the intent of the agreements
to protect only bona fide transnational investments between the home
country and the host country. The absence of such a “denial of benefits”
provision may allow virtually any type of home country linkage to be
sufficient to allow a claim to proceed.
In principle, therefore, a contracting party to a BIT, or other IIA,
may expressly guard itself against “treaty shopping”. Conversely, this party
may permit the benefit of the IIA to pass, on the basis of a share transfer,
from a holding company in a non-contracting party to one located in a
contracting party by expressly accepting such a change. On the other hand,
the party in question could, in view of the underlying economic reality of
the case, insist that the nationality of the directors, or the effective location
of ultimate control, determine whether the benefit of the IIA should extend
to the investor and its investment. This conclusion can be drawn from the
ICSID Tribunal decision in the Autopista case.17 This case allowed the
application of the ICSID Convention to an investment where the original
investors from Mexico, which has no BIT with the host country, Venezuela,
transferred their shares to an affiliate in the United States, which does have
such a BIT. This decision was influenced by the fact that Venezuela had the
opportunity to review and reject this share transfer but chose to accept it.18
Thus, much of the responsibility for controlling “treaty shopping” is
assigned to the host country. It must decide whether to take a liberal or a
strict approach to such cases.8
What if a state chose not to pay?
Enforcing an investment arbitration award against a sovereign
State is not easy. It is particularly hard when that State firmly refuses to pay
after losing an arbitration.
Such a situation is obviously problematic for an investor. An
investor must spend considerable resources, usually in the realm of millions
of dollars, prior to receiving a favorable award. An investor’s goal, however,
and its decision to initiate investor-State arbitration, is generally predicated
on collecting payment from a State9.
This article will briefly explain how the immunity enjoyed by
sovereign States poses difficulties in enforcing investment arbitration
awards against States.
Agreements for Enforcing Investment Arbitration Awards
After having received a favorable award from an investment
arbitration tribunal, an investor hopes that the state would pay the amount
rendered in the award by the deadline fixed by the tribunal. This is the best
case scenario. Unfortunately, States are often reluctant to pay, particularly
when the amount of compensation awarded is large.
Arbitration tribunals cannot remedy this situation. They do not
have the ability to enforce awards themselves. Investors must therefore
enforce their award through the national courts of other States. Specifically,
in States who are parties to international agreements in which they have
undertaken an obligation to enforce the awards of arbitral tribunals. There
are two main agreements providing mechanisms for enforcing investment
arbitration awards:

Joseph M. Cardosi, Precluding the Treasure Hunt: How the World Bank Group Can Help Investors Circumnavigate
Sovereign Immunity Obstacles to ICSID Award Execution, (2013) p119
1. The New York Convention10
2. The ICSID Convention11
To successfully enforce an investment arbitration under these
two conventions, three things must take place:
1. A party to the convention must recognize the
2. The national court of that State party must grant its
consent as to the enforceability of the award; and
3. The national court of the State party must allow
execution of the award against assets of the other sovereign State.12
Enforcement under the New York Convention and the ICSID
ICSID awards are subject to automatic recognition of
contracting parties. Once awards survive the self-contained annulment
mechanism, by treaty they obtain the value of a final judgement of a Court
of any contracting State of the ICSID Convention. An investor in possession
of a certified copy of an ICSID award is therefore entitled to execute that
award in any contracting State.
Awards enforced under the New York Convention do not share
this privilege. Their enforceability can be refused by Courts on seven limited
grounds (Article V), such as the public policy exception.
The Conventions, however, do not differ in regard to the third
step of enforcing an investment arbitration award, which is the most
problematic: its execution.
Executing Investment Arbitration Awards against Sovereign Assets

Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958)
Convention on the Settlement of Investment Disputes between States and Nationals of Other States(1966)
Jacob A. Kuipers, Too Big to Nail: How Investor-State Arbitration Lacks an Appropriate Execution Mechanism for
the Largest Awards, 2016, p. 423
The execution stage of enforcing an investment arbitration
award is the most problematic. The majority of claimants who experience
difficulties when enforcing their award experience them at this stage.
Claimants must overcome the sovereign immunity laws of the
jurisdiction in which they are attempting to enforce their award. While
these domestic sovereign immunity laws do have some variations, they
generally protect sovereign assets from being seized.
Courts in France and Switzerland have occasionally been
somewhat more permissive in this regard. An amendment of rules in
France and a Supreme Court decision in Switzerland have, however,
appeared to put a stop to this.
A Claimant must locate commercial assets belonging to the
losing State sovereign against which execution can be sought. This is a
difficult task, as certain assets can never be considered commercial. This
includes all assets owned by a foreign central bank, or any assets allocated
for military purposes.13 Furthermore, any asset used for a governmental
purpose is immune. Locating a commercial asset is therefore very difficult.
Where Should Claimants Initiate Enforcement?
Claimants will have a very hard time enforcing awards against
sovereigns in States that consider sovereign immunity to be absolute14.
The methodology for determining the most appropriate state to
initiate enforcement is as follows. First, it is necessary to locate significant
commercial assets of the losing State in ICSID or New York Convention
Contracting States. Ideally, one would find either one substantial asset, or a
number of assets located in the same jurisdiction, valued at near the
amount awarded in the arbitration award. This prevents enforcement
proceedings in multiple jurisdictions.
After this, it is necessary to examine the application of
sovereign immunity by that jurisdiction’s competent Court as it pertains to
the protection of a foreign State’s assets. It is essential to bring the
enforcement to Courts which are investor friendly in regards to enforcing
an investment arbitration award.15

Enforcing an Investment Arbitration Award: When States Refuse to Pay by Aceris Law LLC
State Vs State International Arbitration
State-to-State Arbitration at the Permanent Court of Arbitration
The Permanent Court of Arbitration (“PCA”) has played key role
in the resolution of international disputes for well over a hundred years
now. Over the past decade, however, the PCA’s importance and activities
have significantly increased. Thirty-five investor-state arbitrations under
bilateral or multilateral investment treaties or investment laws are currently
pending at the PCA, in addition to twenty commercial arbitrations involving
states, state entities, or international organizations. Moreover, several
important and now completed state-to-state disputes have recently been
arbitrated under the auspices of the PCA, including the Abyei Arbitration
between Sudan and the Sudan People’s Liberation Movement/Army, the
Eritrea-Ethiopia Claims Commission, the Eritrea-Ethiopia Boundary
Commission, and arbitrations under the United Nations Convention on the
Law of the Sea (“UNCLOS”) between Guyana and Suriname and between
Barbados and Trinidad and Tobago. All of these arbitrations involved
international maritime or land boundary disputes with the exception of the
Eritrea-Ethiopia Claims Commission which addressed violations of
international law arising out of an armed conflict (over a disputed boundary
no less).
Currently, the PCA is administering seven active state-to-state
arbitrations. Public information is available on five of these arbitrations, four
of which involve some sort of boundary dispute: (1) a maritime and
territorial dispute between Croatia and Slovenia; (2) a maritime dispute
between Mauritius and the United Kingdom; (3) a dispute over the
diversion of a river between Pakistan and India; (4) a maritime dispute
between Bangladesh and India; and (5) a dispute over an “effect means”
provision in a bilateral investment treaty between Ecuador and the United
States. Brief background on these cases and their current procedural
posturing follows below.
The maritime boundary between Croatia and Slovenia in the Piran Bay has
been disputed since the dissolution of the former Yugoslavia in 1991.
Because Slovenia has a relatively small coast, its territorial waters are boxed
off from international waters by Croatian and Italian territorial waters, and
Slovenia seeks a direct corridor from its own territorial waters to
international waters. In addition, there are several disputed aspects of the
land boundary between the two states. The dispute has had implications
with respect to Croatia’s bid to join the European Union as Slovenia, a
member of the European Union, blocked Croatia’s accession talk for several
years out of a concern that the accession process could prejudge a solution
to the boundary dispute between the two countries. In November 2009,
however, Croatia and Slovenia signed a bilateral agreement submitting the
dispute to arbitration before a five-member ad hoc tribunal, and Croatia
signed the European Union-accession treaty in December 2011. Under
Article 4(b) of the arbitration treaty, the tribunal is to apply principles of
“international law, equity and the principle of good neighbourly relations in
order to achieve a fair and just result by taking into account all relevant
circumstances.” Article 6(2) provides that the PCA’s Optional Rules for
Arbitrating Disputes between Two States are to be the procedural rules for
the proceedings.
The tribunal was constituted earlier this year after the parties
mutually agreed on three members of the tribunal: Judge Gilbert Guillaume,
a French national; Professor Vaughan Lowe, a British national; and Judge
Bruno Simma, a German national. In addition, Croatia appointed Professor
Vudislav Vukas, a Croatian national, and Slovenia appointed Dr. Jernej
Sekolec, a Slovenian national, to the tribunal. The tribunal held a procedural
meeting with the parties in April 2012. The parties are scheduled to
exchange memorials in February 2013 and counter-memorials in November
2013. A hearing is expected to be held in early-2014.
Mauritius-United Kingdom
Mauritius commenced an arbitration against the United Kingdom in
December 2010 under UNCLOS over a dispute involving the United
Kingdom’s establishment of a Marine Protected Area (“MPA”) around the
Chagos Archipelago, a group of atolls in the Indian Ocean, the largest of
which is Diego Garcia, the location of a major U.S. military base. The MPA,
which the United Kingdom established in April 2010, prohibits fishing and
other activities within 200 nautical miles of the Chagos Archipelago.
Mauritius maintains that the MPA violates UNCLOS and other rules of
international law and seeks a declaration regarding the MPA’s legality.
The tribunal consists of five members: Professor Ivan Shearer,
the President and a Australian national appointed by the President of the
International Tribunal for the Law of the Sea (“ITLOS”); Judge Albert
Hoffmann, a South African national appointed by the President of ITLOS;
Judge James Kateka, a Tanzanian national appointed by the President of
ITLOS; Judge Rüdiger Wolfrum, a German national appointed by Mauritius;
and Judge Sir Christopher Greenwood, a British national appointed by the
United Kingdom. Mauritius challenged Judge Greenwood on the basis of
his longstanding professional relationship with the U.K. Government. The
other members of the tribunal issued a decision in November 2011
dismissing the challenge.
In May 2010, Pakistan initiated an arbitration against India under the Indus
Waters Treaty of 1960 over a dispute involving India’s Kishenganga Hydro-
Electric Project in the Kashmir region. The dispute revolves around India’s
plans to construct a 330-megawatt hydro-electric power project on the
Kishenganga River, a tributary of the Indus River. Pakistan alleges that
India’s plans will divert the course of the river, reducing its flow and making
it infeasible for Pakistan to proceeds with plans to construct its own hydro-
electric project.
The tribunal for this arbitration – referred to as the Court of
Arbitration under the treaty – was the first ever constituted under the Indus
Waters Treaty, which the World Bank played a significant role in
negotiating. The Court of Arbitration consists of seven members: Judge
Stephen M. Schwebel, the Chairman and a U.S. national appointed by the
U.N. Secretary-General pursuant to the treaty; Sir Franklin Berman, a British
national appointed by the Lord Chief Justice of England pursuant to the
treaty; Professor Howard S. Wheater, an engineer and British national
appointed by the Rector of the Imperial College of Science and Technology
in London pursuant to the treaty; Professor Jan Paulsson, a Swedish
national appointed by Pakistan; Judge Bruno Simma, a German national
appointed by Pakistan; Professor Lucius Caflisch, a Swiss national appointed
by India; and Judge Peter Tomka, a Slovakian national appointed by India.
The Court of Arbitration made two site visits to areas at issue in
the dispute on June 15-21, 2011, and February 3-6, 2012. During these
visits, the Court of Arbitration observed components of the Kishenganga
and another hydro-electric project, a gauge-discharge observation site, and
a water pumping installation.
The Court of Arbitration also issued an order on interim
measures in September 2011. Pakistan had sought an interim order
prohibiting India from proceeding with a planned diversion of water from
the Kishenganga River until the legality of the diversion could be
determined. The Court of Arbitration concluded that India could proceed
with the hydro-electric Project, including construction of a temporary
diversion tunnel and sub-surface foundations of a dam, except for “the
construction of any permanent works on or above the . . . riverbed . . . that
may inhibit the restoration of the full flow of that river to its natural
channel.” (Order on the Interim Measures Application of Pakistan Dated
June 6, 2011, dated September 23, 2011, para. 152(1)(c).) The Court of
Arbitration plans to issue a final award in late-2012 or early 2013.
In October 2009, Bangladesh instituted an arbitration against India under
UNCLOS over the delimitation of the maritime boundary between the two
countries in the Bay of Bengal. Bangladesh also arbitrated a dispute with
Myanmar over their maritime boundary in the Bay of Bengal at ITLOS in
Hamburg; ITLOS issued an award in that case in March 2012. The disputes
are of some considerable political and economic importance given the
presence of oil and gas resources in this area.
The tribunal consists of five members: Professor Dr. Rüdiger
Wolfrum, the President and a German national appointed by ITLOS;
Professor Ivan Shearer, an Australian national appointed by ITLOS;
Professor Tullio Treves, an Argentinean national appointed by ITLOS; Judge
Thomas A. Mensah, a Ghanaian national appointed by Bangladesh; and Dr.
Pemmaraju Sreenivasa Rao, an Indian national appointed by India.
Ecuador-United States
Ecuador initiated arbitral proceedings against the United States in June
2011 concerning the interpretation and application of Article II(7) of the
Ecuador-U.S. bilateral investment treaty, which provides that “[e]ach Party
shall provide effective means of asserting claims and enforcing rights with
respect to investment, investment agreements, and investment
authorizations.” Ecuador’s claim arises from an award issued by an arbitral
tribunal in March 2010 that found Ecuador had violated Article II(7) through
the failure of Ecuadorian courts to resolve several contractual disputes
brought by a subsidiary of Chevron for over ten years.
Ecuador’s position is that the “effective means” language in
Article II(7) simply incorporates customary international law relating to the
prohibition against denial of justice and therefore sets a high standard. The
tribunal in the underlying arbitration concluded that the “effective means”
provision is an independent treaty standard subject to a less-stringent
standard. (Of note, the tribunal in White Industries Australia Ltd. v. Republic
of India recently relied on the award in the underlying arbitration in
concluding that India had violated a similar “effective means” provision
where the claimant was unable to enforce a commercial arbitral award for
several years in Indian courts.) The United States maintains that the tribunal
in the state-to-state dispute lacks jurisdiction because the United States has
not taken a position on the interpretation of Article VII(2) and, therefore, no
dispute exists between the parties.
The tribunal consists of three members: Professor Luiz Olavo
Baptista, a Brazilian national and the Presiding Arbitrator; Professor Donald
McRae, a Canadian national appointed by the United States; and Professor
Raúl Emilio Vinuesa, an Argentinean national appointed by Ecuador.16

Republic of Philippines v People’s Republic of China
Part 1: History of the Dispute
The present legal proceedings began with the submission by
the Philippines of a unilateral application under UNCLOS rules on dispute
resolution on 22 January 2013. One of the singular strengths of UNCLOS is
the inclusion of a compulsory dispute settlement process – admittedly with
various exceptions and caveats – which allows one side of a dispute to
initiate proceedings before a range of dispute settlement institutions. As
with many of the disputes where there is no prior consensus on dispute
settlement, it is heard before an arbitral tribunal under Annex VII UNCLOS.
China rejected the Philippines right to bring the arbitration, and has not
participated in the proceedings at any point. Nevertheless, as Article 9 of
Annex VII UNCLOS expressly states: ‘[a]bsence of a party or failure of a
party to defend its case shall not constitute a bar to the proceedings’. The
arbitral tribunal has thus had to take special measures to ensure that
China’s interests are fully respected within the procedure and its likely
arguments considered in its deliberations. Whilst not participating in the
proceedings, China has issued various Notes Verbales and made other
statements which have given the arbitration tribunal some understanding
of the Chinese position.
Of key importance has been the scope of the legal dispute. The
international situation in the South China Sea is a complex interplay of land
and maritime disputes, involving not only the Philippines and China but
also many of the other regional States, including Malaysia, Vietnam and
Brunei, as well as other maritime powers, including, notably, the United
States. Many of the disputes revolve around questions of sovereignty of
land but, as a treaty on maritime affairs, UNCLOS does not address
territorial sovereignty, nor can its dispute resolution procedures resolve
maritime disputes that implicitly require the underlying territorial
sovereignty also to be adjudged. As a general principle of international law,
‘the land dominates the sea’ and thus a State’s sovereignty over maritime
areas flows from its sovereignty of its land territory. To avoid this
insurmountable jurisdictional issue, the Philippines’ claims were narrowly
constructed to avoid questions of territorial sovereignty, or in any way
requiring the Tribunal to delimit maritime boundaries (which would
invariably require agreement or a judgment on the sovereignty over
particular territory). Rather, the Philippines’ claims revolved around three
broad areas:
1. that all maritime entitlements in the South China
Sea are to be determined in accordance with the rules of UNCLOS,
and that in particular the Chinese claim to expansive historic rights
under its ‘Nine-Dash line’ marked out on Chinese maps is contrary to
2. that various maritime features claimed by both sides
are either low-tide elevations (which exist above the surface at low-
tide but are submerged at high-tide), and which according to
international law do not generate their own maritime zones, or that
they are rocks (in contrast to being classed as islands) and thus do
not generate substantial maritime zones beyond 12 nautical miles;
3. various disputes concerning Chinese activities in the
South China Sea, such as the construction of artificial islands and land
reclamation (which, in many cases, was allegedly causing severe
environmental harm), infringement of the Philippines’ sovereign
rights in its exclusive economic zone, allowing its fishermen to harvest
endangered species and to use harmful fishing methods, and
incidences of near-miss collisions.
The Philippines also sought for the Tribunal to find that China
had aggravated the dispute during the course of the arbitration through
various artificial construction and land reclamation activities, as well as
restricting movement of the Philippines military in a particular area.2 In all,
the Philippines brought forward 15 claims (‘Submissions’) against China.
In an initial Award on Jurisdiction and Admissibility issued on 29
October 2015, the Tribunal found that China’s absence was not a bar to the
proceedings, that the Philippines had not abused the process by initiating
the arbitration (as China had alleged), and that the Philippines had not
agreed to another dispute resolution procedure for the South China Sea
dispute that would exclude arbitration under UNCLOS. As regards the
claims themselves, the Tribunal found that it had clear jurisdiction over
seven of the claims, that it might have jurisdiction over seven of the other
claims subject to what was decided on the merits and, as regards one claim,
the Tribunal sought further clarification as to its scope. Significantly, the
Tribunal noted that it ‘does not see that any of the Philippines’ Submissions
require an implicit determination of sovereignty…The Tribunal…intends to
ensure that its decision neither advances nor detracts from either Party’s
claims to land sovereignty in the South China Sea’.3
Part 2: Award on Merits: General Issues
As previously noted, the Tribunal, in reaching its findings in the
Award of 12 July 2016, had to do so without the participation of Chinese
counsel and what undoubtedly would have been the submission of detailed
Chinese arguments, both on the law and on many technical aspects. In part
to compensate for this, the Tribunal appointed various experts to advise on
particular issues, notably navigational safety and coral reefs. Moreover,
though it did not participate, China did take the opportunity to make
numerous statements on the arbitration process as well as to write to the
individual arbitrators on various matters. Excerpts of each of these are all
included in the Tribunal’s Award. The Tribunal also made significant use of
material in the public domain, seeking views from both parties on such
sources, which China neither directly commented on, nor replied to. As a
matter of process, the Tribunal was thus seeking to ensure procedural
fairness, as well as recognising that, as a matter of law, it was not permitted
simply to accept the Philippines’ arguments but must satisfy itself ‘not only
that it has jurisdiction over the dispute but also that the claim is well
founded in fact and law’.4
In what will be perhaps the most contentious finding for China,
the Tribunal ruled against the legality of the ‘Nine-Dash line’, the Chinese
claim to historic rights in the South China Sea. The finding of the Tribunal is
extensively reasoned but at its simplest it is premised on two key findings.
First, that ‘[t]he Convention thus provides – and defines limits within – a
comprehensive system of maritime zones that is capable of encompassing
any area of sea or seabed’.5 Secondly, that ‘upon China’s accession to the
Convention…any historic rights that China may have had to the living and
non-living resources within the ‘nine-dash line’ were superseded…by the
limits of the maritime zones provided for by the Convention’.6 Indeed, the
Tribunal goes on to note that such a finding ‘should not be considered
exceptional or unexpected’.7
The Tribunal is very careful, however, to place this hugely
symbolic loss to China within the context of what it has gained by joining
UNCLOS. As a useful summary of the balancing of rights and
responsibilities which all States parties are required to respect, it is worth
quoting in full:
China’s ratification of the Convention…did not extinguish
historic rights in the waters of the South China Sea. Rather, China
relinquished the freedoms of the high seas that it had previously utilised
with respect to the living and non-living resources of certain sea areas
which the international community had collectively determined to place
within the ambit of the exclusive economic zone of other States. At the
same time, China gained a greater degree of control over the maritime
zones adjacent to and projecting from its coasts and islands. China’s
freedom to navigate the South China Sea remains unaffected.8
In addition to ruling on the Nine-Dash line, the Tribunal was
called on to characterise several maritime features, the effect of such
characterisation being then to determine the extent of its maritime
entitlement. In short, low-tide elevations – a maritime feature not visible at
high tide – creates no entitlement to a maritime zone, though it may be
used to determine the baseline from which such zones are measured.
However, rocks – a maritime feature visible at high tide – do create an
entitlement to a territorial sea of 12 nautical miles, though only an island
(Article 121(3) UNCLOS) generates an entitlement to a 200 nautical miles
continent shelf and an exclusive economic zone. Thus, this arbitration
required the Tribunal to differentiate between different maritime features,
especially between a rock and an island, the latter needing to be able to
show that it has the capacity to ‘sustain human habitation or economic life
of [its] own’. These are distinctly legal questions, but equally they are open
to factual interpretation and the existence and availability of appropriate
evidence, including photographic and satellite imagery.
Before briefly outlining the Tribunal’s findings, three comments
are worth mentioning. First, human modification of low-tide elevations –
through reclamation or artificial construction – will not change the original
nature of the feature. As the Tribunal notes, ‘[a]s a matter of law, human
modification cannot change the seabed into a low-tide elevation or a low-
tide elevation into an island’.9 Rather, ‘the Convention requires that the
status of a feature be ascertained on the basis of its earlier, natural
condition, prior to the onset of significant human modification’.10
Secondly, to determine whether something is a low-tide
elevation or a high-tide rock required the Tribunal to determine ‘high tide’;
the vertical datum. As the Tribunal notes, high tide is subject to various
possible interpretations, including ‘mean high water’, ‘mean higher high
water’ and ‘mean high water springs’. It is further complicated by the fact
that the South China Sea is a semi-enclosed sea, which affects regional tidal
patterns. The essentially scientific issue of determining the tidal range thus
posed an important issue for the Tribunal as the legal implications were
significant. The Tribunal relied heavily on historical observations by, inter
alia, the British Royal Navy and the Japanese Navy, as well as information
contained in modern Chinese charts. The Tribunal was less convinced by
the evidence submitted by the Philippines via remote sensing through
satellite imagery. Recognising its probative value in certain circumstances,
the Tribunal queries how far conclusions can be drawn from such images,
especially as ‘the time of image capture will generally not align with either
high or low tide’.11
A third issue – of direct relevance here, but undoubtedly of
general importance in the longer-term interpretation of the Convention – is
when does a rock meet the criteria to become an island? As noted above,
Article 121(3) sets out conditions of human habitation or economic life;
indeed the Tribunal spends five paragraphs discussing the ‘or’ between
these terms, concluding in fact that, in most instances, ‘humans will rarely
inhabit areas where no economic activity or livelihood is possible’.12 The
Tribunal looks deeply into the object and purpose of the Convention, the
literal meaning of the words and the travaux préparatoires of the
negotiations to ascertain its true meaning. It makes a number of important
statements. First, similarly to the assessment of low-tide elevations, its
status is to be determined ‘on the basis of its natural capacity, without
external additions or modifications’.13 Secondly, the key factor to determine
whether there is human habitation is ‘the non-transient character of the
inhabitation’, namely ‘the inhabitation of the feature by a stable community
of people for whom the feature constitutes a home and on which they can
remain’.14Thirdly, for a feature to have an ‘economic life of its own’ it must
be capable of sustaining the economic life of the inhabitants; the Tribunal
views this as not being met either when ‘[e]conomic activity…is entirely
dependent on external resources’ (including placing reliance on the
maritime resources of its surrounding waters or seabed) or when it is
‘devoted to using a feature as an object for extractive activities without the
involvement of a local population’.15
As interesting as these findings are, it is their application to the
facts of this dispute, which is likely to be particularly contentious. The
Tribunal examines in great detail the application of the criteria to the rocks
and elevations in the Spratly Islands that are above water at high-tide.
Examining the presence of potable water, and studies on vegetation and
agricultural productivity, as well as historical accounts of their use by
fishermen, the Tribunal concludes that none of the rocks meet the criteria
to be an island laid out in the Convention. The dismissal of the presence of
sufficiently sustainable groups of fishermen is likely to prove especially
controversial with China, especially as the Tribunal itself recognises that
some of these men were present ‘for comparatively long periods of
time’. 16 Nevertheless, this is as much about policy as it is the historical
record, with the Tribunal noting that it was not the purpose of the
Convention to generate expansive maritime entitlements for features
‘whose historical contribution to human settlement is as slight as that’.17 Is
this judicial interpretation of open-textured provisions or extra-judicial
decision-making? Either way, this Award will provide the new international
standard for what is an island for the purposes of the law of the sea.
On the basis of these and other findings, the Tribunal was able
to identify those features which were low-tide elevations and those which
were rocks and ruled against any being islands. For the most part, these
rulings were to the benefit of the Philippines’ claims. More importantly, for
the Philippines, by not finding any feature to be an island, the result was
that two of the most contested features – Mischief Reef and Second
Thomas Shoal (which the Tribunal had found to be low-tide elevations) –
are thus located with the established exclusive economic zone of the
Philippines, and as it is not within 200 nautical miles of any feature to which
China could possibly claim sovereignty, these key features remain part of
the maritime entitlement of the Philippines. It is worthwhile pausing here to
reflect what the Tribunal has done. It has not ruled on sovereignty but, in
effect, it has. By finding that something is a low-tide elevation (the first-
order question), incapable of being possessed by means of territoriality, the
Tribunal has in essence ruled out the question of sovereignty (a second-
order question). As a matter of formal law, it ensures a coherent and
internally logical Award, but one might wonder how far this legal deduction
will be persuasive within internal Chinese political deliberations or in
international negotiations?
Part 3: Award on Merits: Specific Findings on Marine Environmental
If much of the popular attention surrounding the Award is on
the dismissal of the Nine-Dash line, this would fail to capture the
Philippines’ multiple claims around environmental harm, the utilisation of
natural resources, and the failure of China to regulate appropriately its
fishing fleet and related complaints. In fact, the complaints upheld are
sufficiently numerous that it is useful to provide them in summary form:
1. China violated the Philippines’ sovereign rights over
non-living resources in its continental shelf by interfering in lawful
surveying activity by the Philippines.
2. China violated the Philippines’ sovereign rights over
living resources in its exclusive economic zone by issuing a
moratorium on fishing in the South China Sea, without exception to
either Philippines’ maritime zones or whether it applied to domestic
or foreign fishing fleet.
3. China violated Philippines’ sovereign rights in the
exclusive economic zone by failing to exercise due diligence in
preventing fishing by Chinese-registered vessels.
4. Notwithstanding the unresolved issue of
sovereignty over Scarborough Shoal, China acted unlawfully by
preventing traditional fishing by Filipino fishermen.18
5. China violated UNCLOS provisions on protecting the
marine environment by failing to act with due diligence in preventing
Chinese-registered vessels from undertaking harmful fishing practices
and harvesting endangered species, in particular the harvesting of sea
turtles, giant clams and the damage done to coral reefs.
6. China violated various UNCLOS provisions on
protecting the marine environment by undertaking land reclamation
activities and constructing artificial islands causing severe harm to
coral reefs.
7. China aggravated the dispute during the course of
the arbitration by continuing to undertake construction works on
various reefs, inflicting severe and irreparable harm on the natural
coral, as well as destroying evidence of the natural condition of such
These proven claims were not the only submissions made. For
instance, it was claimed that China permitted its fishermen to use
explosives and cyanide as fishing techniques. The Tribunal considered the
submissions but found it had insufficient evidence on which to
rule.19 Nevertheless, it is clear from the extent of the rulings against China
that the South China Sea is facing substantial, sustained and, in some cases,
severe environmental damage. As the Award states, in relation to the
artificial construction activities, ‘[t]he conclusions of the Tribunal-appointed
independent experts are unequivocal with respect to the more recent
construction activities, which they say have “impacted reefs on a scale
unprecedented in the region”.’20
It is not possible within the scope of this case note to provide a
detailed analysis of the application of the relevant marine environmental
provisions of UNCLOS. Nevertheless, a few key points can be made. First,
the recognition at numerous points that China is not only responsible for its
own activities which violate UNCLOS, but also for those of its nationals
where harm also occurs is significant. This latter responsibility is, however,
not an absolute one but is an obligation of conduct, framed in terms of due
diligence. This is discussed at several points in the Award, notably in
relation to its failure to prevent Chinese fishing in the Philippine exclusive
economic zone (item (c) above) and failing to prevent harmful fishing
practices and damage to sensitive ecosystems (item (e) above).
As regards the former, the Tribunal admits that exercising due
diligence over fishermen acting unlawfully cannot always be easily
determined: ‘[o]ften unlawful fishing will be carried out covertly, far from
any official presence, and it will be far from obvious what the flag State
could realistically have done to prevent it’.21 However, in this instance, the
Tribunal not only finds an absence of due diligence but also something
close to collusion between fishermen and the State; the evidence
‘support[s] an inference that China’s fishing vessels are not simply escorted
and protected, but organised and coordinated by the Government’.22
A secondary aspect of due diligence is evidenced later in the
Award where the Tribunal is discussing the obligations expected of States
to prevent ships flying their flag from breaching the environmental
provisions, in this case Articles 192 (the general obligation: ‘States have the
obligation to protect and preserve the marine environment’) and 194
(measures to prevent, reduce and control pollution). As the Tribunal notes,
relying on jurisprudence from the International Tribunal for the Law of the
Sea,23 the Seabed Disputes Chamber24 and the International Court of
Justice,25such obligations require due diligence ‘in the sense of a flag State
not only adopting appropriate rules and measures, but also ‘a certain level
of vigilance in their enforcement and the exercise of administrative
control’.26 On the facts before it, the Tribunal notes that while measures and
rules may have been adopted to prevent harmful fishing practices – namely
a 1989 Chinese wildlife law which prohibits, inter alia, the catching of sea
turtles and giant clams – ‘[t]here is no evidence…that would indicate that
China has taken any steps to enforce those rules’.27 This is to be contrasted
with the position that the Tribunal takes on the allegation of use of cyanide
and explosives, where it indicates that there is no evidence that China has
failed to enforce its own rules in this regard.28
As regards the construction of artificial islands over low-tide
elevations and reefs – activities undertaken by China itself – the obligation
is not one of due diligence, but rather can be directly imputed to it. Based
on the evidence provided and the report of experts, the Tribunal makes
some of its strongest pronouncements in relation to this submission.
Finding that the artificial island-building has ‘caused devastating and long-
lasting damage to the marine environment’, the Tribunal finds a violation of
Article 192 (the general obligation), that dredging has caused marine
pollution contrary to Article 194(1), and that it has failed to protect rare or
fragile ecosystems contrary to Article 194(5). In addition, the Tribunal finds
that China has failed to cooperate with neighbouring States under Article
197 and, as the South China Sea is a semi-enclosed sea, also violated the
obligations under Article 123 of UNCLOS.
Importantly, the Tribunal also found that China had failed to
follow the appropriate procedure necessary to undertake an impact
assessment under Article 206.29 This obligation requires a State to
undertake and communicate such an assessment where they have
‘reasonable grounds for believing that planned activities under their
jurisdiction or control may cause significant and harmful changes to the
marine environment’. Unable to finally determine whether such an impact
assessment had, in fact, been undertaken, the Tribunal noted that a key
feature of Article 206 was nevertheless its requirement that a State
communicate such an assessment, which it was apparent to the Tribunal
had not occurred either bilaterally to the Philippines or to competent
multilateral organisations. Building on the recent judgment of the
International Court in Construction of a Road (Nicaragua v Costa Rica),30 the
Tribunal noted that it was necessary for a State to do more than merely
assert that such an assessment existed; rather it had to prove its existence.
Moreover, in something akin to judicial renvoi, the Tribunal relies on China’s
own environmental impact assessment law to identify how China had failed
to comply with its own domestic requirements.31
Finally, it should be noted that the Tribunal found against China
(item (7) above) by noting how China had undertaken various
environmentally damaging activities during the period that the arbitration
had been ongoing, thus aggravating the dispute still further. In some cases
irreparable damage had now occurred to several of the maritime features.
Indeed, at Mischief Reef – perhaps aptly named – ‘China has effectively
created a fait accompli…by constructing a large artificial island…In practical
terms, the implementation of the Tribunal’s decision will be significantly
more difficult for the Parties, and Mischief Reef cannot be returned to its
original state’.32
Notwithstanding evidence of such blatant aggravation, the
Tribunal reverted to a more traditional stance when faced by a request by
the Philippines to adopt a prospective declaration as to China’s future
conduct. The Tribunal refuses to issue such a declaration believing that the
Award itself provides clarity as to each State’s respective rights and
responsibilities. In what is perhaps an inevitable, but undue, deference to
the belief in the authority of international law, the Tribunal suggests that
bad faith is not to be presumed and that as ‘[n]either Party contests’ that
they are not bound by the Convention ‘including its provisions regards the
resolution of disputes’33a more proactive declaration is unnecessary. The
evidence presented previously as to ongoing aggravation of the dispute
might have suggested differently.
The Tribunal’s Award is significant in a number of respects,
which have been outlined above. Nevertheless, this is a complex and rich
Award deserving of further scrutiny. At best, it is a classical reassertion of
the constitutional status of UNCLOS as governing each States Parties’ rights
and responsibilities under the international law of the sea. As noted above,
the Award is particularly strong on holding States to account for
environmental damage, in a way that few law of the sea cases have yet
done. On this basis, one hopes that it will set a benchmark for other
tribunals to follow. However, there is weakness here. In terms of political
reality, China is likely to pay scant regard to the Award, and has already
dismissed it.34 Nevertheless, even without formal compliance, there is no
doubt that it will change the tone of the wider debate. Such Awards, once
made, cannot be undone, and it will create the framework for future
debates and dialogues, even if some of its rulings are politically difficult or –
in light of island-building – impossible now to comply with.
Finally, one further thought. Unbeknownst to the Tribunal, this
Award is likely to have an effect – incidentally and potentially negatively –
on a very different environmental subject, namely climate change and sea-
level rise. The way in which the Tribunal reasoned against land reclamation
and artificial island building, determining the status of a maritime feature
exclusively on the basis of its natural state, or that rocks cannot be
improved externally to convert them into islands – all rational from the
perspective of State-building in the South China Sea – may need to be re-
addressed in the future in the very different context of climate change. To
the extent that UNCLOS provides a legal framework for one of the most
intractable political disputes, this surely gives some hope that it might also
provide a basis to answer other challenges erga omnes facing the wider
international community
Partial Compliance by the Great Powers to International Arbitration
Allison mentioned Nicaragua v. US and Netherlands v. Russia to
establish that non-compliance with international judicial decisions is the
norm among the great powers , but the same cases also demonstrate that
compliance is possible, even if it is partial or there is just a semblance of it.
If China would indeed mirror its great-power peers, then there could also
be some degree of compliance with the arbitral award.
In the Nicaragua case, the International Court of Justice (ICJ)
found in 1986 that the US had breached its obligations to Nicaragua for
supporting the Contra rebellion against the Sandinista administration and
for laying mines in Nicaraguan harbors. The US vowed not to comply. It had
already withdrawn from the merits phase of the proceedings (after losing in
the jurisdiction phase, which it had participated in), and after the release of
the ruling, it further withdrew from the ICJ’s compulsory jurisdiction
altogether. Nicaragua went to the UN Security Council to demand the
implementation of the ruling, but the US vetoed the proposal. Nicaragua
appealed to the UN General Assembly to secure a resolution calling for
compliance, and it succeeded. The US Congress eventually aligned itself
with the ICJ and cut off funding for the Contra rebels, as required by the
ruling, but the US President then, Ronald Reagan, did not – he even
continued to extend support covertly. But with the electoral win of George
H.W. Bush in 1989 and the electoral defeat of the Sandinistas in 1990, the
US subsequently lifted its trade embargo against Nicaragua, also as
required by the ruling. It also started giving substantial economic aid, even
though it still would not pay Nicaragua compensation.
In the Netherlands case, the International Tribunal for the Law
of the Sea called upon Russia, through a provisional ruling in 2013, to
release the Dutch-flagged Arctic Sunrise vessel it had seized from
Greenpeace International and the 30 persons onboard it had detained after
a protest against oil-drilling in the Arctic. Russia vowed not to comply. It
had not participated in the hearings at all and had instituted domestic legal
proceedings against the crew for piracy, which was eventually reduced to
hooliganism. A month after the release of the ruling, however, the Russian
parliament extended the amnesty decree to include those charged with
hooliganism, thereby allowing the Russian authorities to drop the charges
and release the detainees, as required by the ruling. In 2014, Russia also
released the Arctic Sunrise, again as required by the ruling. Nonetheless,
Russia still has not paid the Netherlands compensation.
At best, then, the evidence supports neither a case of
compliance nor non-compliance but a mixed case of partial compliance.
The great powers, namely the US and Russia, eventually demonstrated
some degree of compliance even though they had initially announced their
rejection of the rulings. Their compliance was admittedly subtle and limited,
but arguably not insignificant. Exacting a decision from an international
court can be a means for states to achieve certain ends. For Nicaragua and
the Netherlands, getting an authoritative ruling helped them deal with their
complaints against the US (i.e., its extraterritorial military and paramilitary
activities) and Russia (i.e., its illegal detention of a ship and its crew).
International judicial decisions do not stay only between the
governments involved but also spread to other domestic actors (e.g., civil
society) and foreign players (e.g., states and international organizations).
This in turn creates pressures for compliance for governments to align
themselves with such rulings. Governments who choose not to comply will
have to potentially deal with domestic opposition and a damaged
international reputation. Nicaragua and Greenpeace understood this when
they rallied the international community to raise the reputational costs of
non-compliance and gain the sympathy of key domestic actors in the US
and Russia. In a sense, the move worked: the US Congress and the Russian
government made advances toward partial compliance. Here, then, the
relevant question is whether the petitioners were able to further their
national interests after a favorable ruling. In the Nicaragua and Netherlands
cases, the answer is not as in the negative.

China’s Positive Compliance Record

China has manifestly complied with a number of international
judicial decisions in the past. Its compliance record is thin because of its
limited membership in international adjudicative bodies. China has agreed
to at least 53 conventions containing dispute-resolution mechanisms, but it
has submitted to the compulsory jurisdiction (i.e., binding adjudicative
authority) of such mechanisms in only conventions, including UNCLOS.
Among these conventions with binding dispute-resolution mechanisms,
China has been sued the most number of times under the World Trade
Organization (WTO) Dispute Settlement Understanding. In the others, China
has generally either refused to give its acceptance of compulsory
jurisdiction (it cannot be sued in these fora without its consent) or made
qualifications therein (it can only be sued over limited types of disputes).
China, for instance, has not yet made a declaration accepting compulsory
jurisdiction under the Statute of the ICJ, which is why China has not yet
been sued at the ICJ.
But in cases where it has been sued and issued a binding a
ruling, such as those in the WTO, China has generally complied. China is a
respondent to 36 cases before the WTO Dispute Settlement Body (DSB). Of
these, 12 are still pending, three are under implementation, and the
remaining 13 have had their rulings implemented, according to China. In
turn, only four of these notifications of compliance had been openly
contested by the complainant. These figures show that China commonly
abides by WTO rulings. As one scholar observes, China “is generally
adhering to the time limits set by the WTO, amending its laws when
necessary and demonstrating, in its rhetoric and behavior, that it believes
compliance with WTO rulings to be appropriate.”
China’s compliance may reflect a rational calculation that non-
compliance could lead to trade sanctions. The WTO has a more stringent
dispute-settlement mechanism compared with UNCLOS Annex VII
arbitration. In both mechanisms, cases, which may be filed unilaterally, are
heard by ad hoc tribunals whose members are selected by the disputants
from a closed list of nominees and whose decision cannot be vetoed by
and is binding to the disputants. In the WTO, however, the decision can be
rejected by the DSB, which consists of all the organization members, but
only by consensus. The decision may also be unilaterally appealed to a
permanent tribunal, the Appellate Body, whose ruling can likewise be
rejected by the DSB by consensus. Moreover, while UNCLOS lacks an
enforcement mechanism, the WTO has the DSB, which monitors the
compliance of the disputants (initiating compliance proceedings when
necessary) and authorizes temporary economic sanctions upon the request
of a disputant.
China’s compliance may also reflect a cost-benefit estimation
that abiding by WTO rulings could serve its national interests. When it
joined the WTO in 2001, China had already calculated and accepted that
the benefits of membership (i.e., increased economic growth and, by
extension, increased legitimacy for the Communist Party and increased
international economic power) outweighed the costs of committing itself
not only to various structural reforms but also to binding dispute-resolution
through the DSB. Compliance with WTO rulings could complement this
agenda of trade-led growth by aligning China’s domestic laws and
regulations with the rules of the liberal international trading regime. Of
course, unlike trade disputes, the South China Sea case entails different,
largely non-economic calculations; but, like with WTO rulings, compliance
with the arbitral award may also be in China’s national interests. Non-
compliance risks inviting more US presence in the South China Sea,
damaging the prospect of long-term economic partnerships with smaller
states (especially those targeted by the One Belt, One Road initiative), and
demonstrating an incapacity to lead a rules-based international order. If
China prefers to avoid these scenarios, then compliance could be a rational

China’s Careful Responses to the Award

China’s actions following the issuance of the final award further
suggests that it is carefully balancing its responses. China released two
statements on that day. The first was from the MFA, which simply repeated
China’s legal justifications for rejecting the arbitration as laid out in the
position paper.36 The second was from the State Council, China’s cabinet. It
did not mention the award; instead, it meant “to reaffirm China’s territorial
sovereignty and maritime rights and interests[,] . . . enhance cooperation . . .
with other countries, and uphold peace and stability in the South China
Sea.”37 The tone of this other statement is more optimistic, if not
conciliatory, than the first. Near the end of the statement, China makes a
reassuring statement:
Pending final settlement, China is also ready to make every
effort with the states directly concerned to enter into provisional
arrangements of a practical nature, including joint development in relevant
maritime areas, in order to achieve win-win results and jointly maintain
peace and stability in the South China Sea.38
Chinese State Councilor Yang Jiechi, who ranks above the
foreign minister, was also quoted making a similar statement.39

This was the first time that the term “provisional arrangements”
appeared in China’s official pronouncements.40 China’s explicit use of
“provisional arrangements” rather than “joint development” after the
issuance of the award signals its alignment with the language of
UNCLOS.41 In addition, it may be taken as an implicit recognition that only
certain portions of the South China Sea are contested because provisional
arrangements only apply to what the tribunal has clarified to be the
disputed areas. This means that provisional arrangements cannot apply in
China’s now-void nine-dash line and can only apply in the territorial seas
around high-tide features as identified by the tribunal. In contrast, the idea
of “joint development” prior to the arbitration has tended to treat almost
the entire South China Sea as a disputed area, hence China’s preference for
it. A case in point is the 2005 Joint Marine Seismic Undertaking between
China, the Philippines, and Vietnam, which was conducted near Palawan
and included the Reed Bank.
In addition to these statements, China has censored calls for
war by its citizens on the internet and disallowed public protests near the
Philippine and the US embassies.42 But the possibilities that China might
start reclamation in the Scarborough Shoal and declare an air defense
identification zone over the South China Sea are still looming. Nonetheless,
the fact that China has not yet done either after the award suggests that it
is carefully balancing its strategic interests against potential international
backlash, and that it is still calibrating its next actions on the South China

The possibility that China might comply with the arbitral award
is one not merely founded on an assumption of goodwill or a desperation
for hope; rather, it is supported by histories of partial compliance by other
great powers (i.e., the US and Russia) with high-profile international judicial
decisions, China’s own history of compliance with WTO rulings, its nominal
non-participation in the arbitration, and its careful responses to the award.
This behavior seems to indicate a recognition that China cannot fully ignore
international law and that adherence to international rules and norms can
serve its national interests. The possibility of compliance reduces, even if
only by a small degree, the pessimism over China for its actions in the
South China Sea through the years and presents some consequences to
Philippine foreign policy both in terms of outlook and tactics. There is
danger in being overly optimistic, and there are legitimate reasons to be
defensive, but these are not grounds to dismiss all prospects of any form of
compliance. There is a perceptible possibility for China’s compliance,
however partial, but one that the Philippines should not ignore.
Enforce UN ruling? Carpio lists ways
Jarius Bondoc

War never is an option. Diplomacy can fortify the UN ruling on

Manila’s row with Beijing. Supreme Court Senior Justice Antonio T. Carpio
enumerates some diplomatic initiatives, in a presentation to the Stratbase-
Albert del Rosario Institute.
There is no world policeman or sheriff to enforce the arbitral
ruling. However, states that ratified the United Nations Convention on the
Law of the Sea expressly bound themselves to comply in good faith with
decisions of arbitral tribunals created under UNCLOS. China is reneging on
this treaty obligation.
The option for the Philippines is not “talk or go to war with
China.” This is a false option, and shows a dismal lack of understanding of
international law and relations.
First, the Philippine Constitution prohibits war as instrument of
national policy. Second, the UN Charter has outlawed war as a means of
settling disputes between states. In resolving the SCS dispute, war is not
and has never been an option. That is precisely why the Philippines filed the
arbitration case against China.
If the Philippines start a war against China, it would surely lose,
and lose badly. If the Philippines is the aggressor, that will violate the
Constitution and the UN Charter. The Philippines cannot invoke the
Philippine-US Mutual Defense Treaty because the treaty is only for defense,
not for aggression. President Duterte’s oft-repeated question – whether the
US will support and join the Philippines if we go to war against China – is a
misguided question because the US is not bound by the Philippine-US
Mutual Defense Treaty to support any act of aggression by the Philippines.
If the US joins the Philippines in a war of aggression, the US will also be in
breach of the UN Charter.
China itself does not want to start a war because war will give
the US an excuse to intervene in the SCS dispute, since to defend itself the
Philippines will certainly invoke the Philippine-US Mutual Defense Treaty.
China’s strategy is to control the SCS without firing a shot. Those who raise
the issue of war with China either do not understand the Three Warfares
Strategy of China, or are scaring the Filipino people to submit to China’s
designs in the SCS.
The real and practical option for the Philippines is to “talk with
China while taking measures to fortify the arbitral ruling.” We should talk
with China on the COC, on the Code for Unplanned Encounters at Sea
(CUES) for naval and coast guard vessels, on conservation of fish stocks, on
preservation of maritime environment, and on how our fishermen can fish
in Scarborough Shoal. There are many other things to talk with China on
the SCS dispute even if China refuses to discuss the arbitral ruling.
As we talk with China, we can fortify the ruling in many ways:
(1) The Philippines can enter into a sea boundary agreement
with Vietnam on our overlapping Extended Continental Shelves in the
Spratlys, based on the ruling of the tribunal that no geologic feature in the
Spratlys generates an EEZ. Such an agreement implements part of the
arbitral ruling by state practice.
(2) The Philippines can enter into a sea boundary agreement
with Malaysia on our overlapping EEZ and ECS in the Spratlys, again based
on the ruling that no geologic feature in the Spratlys generates an EEZ.
Such agreement also implements part of the ruling by state practice.
(3) The Philippines can file an ECS claim beyond our 200 NM
EEZ in the West Philippine Sea off the coast of Luzon. If China does not
oppose, the United Nations Commission on the Limits of the Continental
Shelf (UNCLCS) will award the ECS to the Philippines, similar to our ECS
claim in Benham Rise where there was no opposition. If China opposes our
ECS claim, it will have a dilemma on what ground to invoke. If China
invokes the nine-dashed lines again, the UNCLCS will reject the opposition
because the UNCLCS is bound by the ruling of the arbitral tribunal which,
like the UNCLCS, was created under UNCLOS. If China claims an
overlapping ECS, then China will be admitting that the Philippines has a 200
NM EEZ from Luzon that negates the nine-dashed lines.
(4) The arbitral tribunal has ruled that no geologic feature in the
Spratlys generates an EEZ. The Philippines can initiate an agreement among
all ASEAN disputant states – Vietnam, Malaysia, Brunei, Indonesia and
Philippines – declaring that no geologic feature in the Spratlys generate an
EEZ that could overlap with their respective EEZs. Even if only the
Philippines, Vietnam, and Malaysia will agree to this declaration, it will
clearly remove any maritime delimitation dispute among them, leaving only
the territorial disputes. This will isolate China as the only state claiming an
EEZ from geologic features in the Spratlys.
(5) The Philippines can claim damages before an UNCLOS
tribunal for the “severe, permanent harm” to the marine environment, as
ruled by the arbitral tribunal, that China caused within Philippine EEZ in the
Spratlys because of China’s dredging and its failure to stop Chinese
fishermen from harvesting endangered species.
(6) In case China shows signs of reclaiming Scarborough Shoal,
the Philippines can file a new case before an UNCLOS arbitral tribunal to
stop the reclamation because any reclamation in Scarborough Shoal will
destroy the traditional fishing ground common to fishermen from the
Philippines, Vietnam and China as ruled by the tribunal.
The ruling involves only maritime, not territorial issues.
Enforcing it does not mean forcibly evicting China from the islands and
high-tide elevations it occupies in the SCS, as occupation of these geologic
features is a territorial issue. There are still many commentators in media
who fail to distinguish between territorial and maritime disputes, and thus
wrongly conclude that enforcing the ruling means going to war with China
on the territorial dispute.