We’ve been asked by Kluwer to say a few words about our new book, International Arbitration and Mediation: A Practical Guide. Before explaining what we tried to accomplish, it may be worth noting what we did not set out to do, which was to write a learned treatise about international arbitration (or mediation). For that, there are plenty of admirable texts on the market that we admire and would strongly recommend.

What we decided to do instead was provide a book that complements the learned treatises, based on how the two of us have lived international dispute resolution, one as an in-house lawyer and the other as an external counsel. And we have given special attention to our mistakes. The chapters are punctuated with illustrative anecdotes taken from our own experiences, called, for lack of a better phrase that we could agree on, “Not That This Ever Really Happens…..” These vignettes are sanitized so as not to reveal our counter-parties, but we are certain there are several readers of this blog who will recognize having shared one or more of these moments with us, often from the opposing side of a table.

Our joint authorship is another matter. From our respective positions as internal and external counsel, we do not always share the same views. As our friendship and professional relationship extends back nearly a dozen years, we felt comfortable highlighting the reasons for our differences rather than trying to reconcile them. For example, John believes that parties should negotiate dispute resolution clauses to include language that provides a strategic advantage to their side in the event of a dispute. Mike prefers simplicity and balance in drafting, as he is skeptical about the ability to predict at the time a contract is being negotiated what future disputes might arise. Neither of us is likely to be convinced by the other to change our view anytime soon.

Some of the book’s “practical” features include:

- Answers to common questions, such as “how much will it cost?” and “how long will it take?” through the entire lifecycle of a dispute and the decision-points at different stages that can radically alter both costs and outcomes.
- Charts and checklists to assist parties as, for example, the steps they should consider taking when a dispute first arises, before formal proceedings are commenced.
- Measures that can help keep party expectations and legal strategies aligned, such as the use of early case assessments.
- Discussion of how to optimize commercial outcomes through international negotiation and mediation, including considerations about financial accounting rules that can apply to disputes and the impact different taxation regimes can have on outcomes achieved through settlement, arbitration, and enforcement.
- Practical considerations of how an international arbitration can be conducted, as well as an entire chapter “After the Arbitration” about what parties should expect in the way of challenge, recognition, and enforcement proceedings.

Most of all, we have attempted to make this reading about international arbitration and mediation interesting and at times even entertaining (we hope). Below are some examples from our book that highlight one of the book’s features of using illustrative vignettes:

From Chapter 3: When the Dispute Arises:

A party’s determination that an unfavorable outcome is probable will often create an obligation to make a financial reserve (provision) on its balance sheet. For companies that establish their balance sheets under the Generally Accepted Accounting Standards (GAAP), the applicable standard for setting litigation risk reserves is Financial Accounting Standard 5, or FAS 5. Under FAS 5, a pending or threatened litigation must be disclosed on a company’s financial statement if it is “reasonably possible” that there will be a loss. The level of required disclosure depends upon whether the loss is both “probable” and can be “reasonably estimated.” If both elements are satisfied, the loss must be recognized in the setting aside of a financial reserve (or provision or accrual) on the company’s financial statements.

Not that this ever really happens: how not to advise clients on dispute reserves.

Actually, this happens quite a lot. Counsel who are not experienced in GAAP accounting may take a view that clients and their auditors will want to know the maximum hypothetical risk from a dispute, rather than the most probable amount of risk. Thus, one of the authors (the in-house counsel) has occasionally had to address the letter sent by an inexperienced external counsel to auditors expressing an improbably high degree of risk from a dispute. For example, external counsel for one domestic litigation involving claims totalling over EUR 5 million informed the in-house litigation lawyer that a negative outcome was highly unlikely, given that the claims all appeared to be baseless, and the requested damages significantly inflated. But the same counsel then responded to an inquiry from the company’s external auditors, recommending a financial reserve of EUR 5 million, i.e., the full value of the claim. This created some amount of embarrassment for the in-house legal team, which had not advised the business of a need to post such a large financial reserve. The external counsel subsequently explained that in their own opinion, large companies would want to reserve the maximum potential exposure for disputes, and that is what they provided. Again, when applying FAS 5, the key concepts are probability and ‘estimability’, not a worst-case scenario.

From Chapter 4: International Settlement Negotiation and Mediation: How mediators charge and are paid?

There is no standard approach, either in domestic or international practice, as to how mediators charge. Common methods are by the hour, by the day, or via a fixed-fee inclusive of any preparatory work. As for how these costs are allocated, the commonly accepted rule is that, absent different agreement, the parties share equally the costs of the mediator (as well as any mediation facilities). The exception is when one party, for whatever reason, must cancel or reschedule the mediation. In such events, the cancelling party is responsible for the entirety of any charges incurred.

Moreover, parties should not confuse the rates a mediator quotes as reflecting that person’s qualifications, level of experience, or suitability for a particular dispute. Rather, quoted rates may reflect nothing more than what a mediator believes the market will bear, or simply what the parties in a particular dispute might be prepared to pay. It is not unheard of (and in fact may be relatively commonplace) for an inexperienced mediator in one country to charge several times the quoted rates of a highly skilled and experienced mediator in another country.

Not that this ever really happens: fees of USD 500 to USD 60,000 for the same dispute.

The parties sought a mediator who understood English law (the law of the contract) but who would also be sensitive to cultural expectations of a dispute taking place involving parties from both South-East Asia and Europe. Because the dispute involved total claims of less than USD 4 million, and the main purpose of the mediation was to avoid the costs of arbitration, the rates of proposed mediators quickly became an important consideration. The claimant initially contacted an English mediator, a barrister with experience as an arbitrator and mediator in construction disputes, who proposed to conduct a three-day mediation for USD 60,000 plus his costs for first class travel to Asia and five days in a hotel. The respondent rejected this, and contacted different mediation centers in Asia and Europe, and was quoted rates from USD 500 to USD 15,000 for a single day. The claimant then contacted an international arbitration institution (not the one provided for in the contract), which conducted a search and proposed mediators based in Hong Kong and Singapore with qualifications in English law. The parties settled on one of these candidates, whose fee for a one-day mediation (after it was renegotiated by the institution at the request of the parties) was USD 10,000, inclusive of preparation time, plus travel costs.

From Chapter 5: The Conduct of the Arbitration: Not that this ever really happens: putting jurisdiction to the tribunal despite the institution’s contrary ruling.

In institutional arbitrations systems other than the ICC and ICSID, the institution may in practice carry out a similar gatekeeper role to that found in the rules of the ICC and ICSID. This is not always welcome. For example, in one SIAC case in which one of the authors was involved, the claimant sued not only the signatory of the arbitration agreement but also its non-signatory parent, on the basis that the parties intended the non-signatory to be bound by the arbitration agreement. The SIAC refused to “accept” the claims against the parent company, on the grounds that the parent had not signed the arbitration agreement, despite vociferous protests by the claimant that this was a matter for the tribunal, not the institution. However, the claimant then ignored the institution’s position and put its claims against the parent directly before the tribunal, when it had been constituted. The tribunal permitted the claimant to assert its claims against the parent in this way, ultimately dismissing the parent’s ensuing objection to jurisdiction and proceeding to hear the merits of those claims against the parent.

Michael McIlwrath and John Savage

Professor Roger Alford’s recent posting, “The Arbitrator as Diplomat”, discusses the role of “diplomatic arbitration,” a concept with a long historical pedigree. Some of that history (and much more) is contained in the late Professor Douglas M. Johnston’s posthumous opus, The Historical Foundations of World Order: The Tower and the Arena (2008). The book was awarded the ASIL’s 2009 Certificate of Merit for a Preeminent Contribution to Creative Scholarship and was the subject of a panel discussion at the ASIL Annual Meeting in March 2009. It was feted as an extraordinary work of scholarship. As Professor W. Michael Reisman discusses in the book’s preface, Professor Johnston’s work is “the most detailed account of the history of international law.”

Although the treatment of international arbitration in The Historical Foundations of World Order: The Tower and the Arena is brief, there are some treasures. Prof. Johnston notes that legend in primitive and classical antiquity suggests that arbitration was favoured by the gods, although the gods retained a “fickle attachment to war as an honorable course of action to settle issues.” From arbitration in Sumer, Greece and Rome, Johnston turns to the Jay Treaty of 1794 as “the first early modern experiment in the peaceful settlement of international disputes” and “the modern foundation of the adjudicative model of world order.” Historical tidbits abound. For instance, when the US House of Representatives demanded access to documents relating to the Jay Treaty negotiations, President Washington asserted “executive privilege,” a precedent that “still reverberates within the American constitutional system.”

Johnston’s discussion of the 1899 Hague Peace Conference exemplifies his approach. As Professor Reisman describes in the preface:

Great history is far more than a chronological narrative. It requires a contextualization of events in their cultural, economic and technological milieu and an appreciation of their contingency. It must account for the impacts of exceptional individuals, without, as Harold Lasswell put it, rendering them taxidermical specimens. Yet it must also account for collective actions and path-driven results, the so-called “great historical forces.”

Johnston highlights the efforts of legal internationalists and the European and American peace movements in advocating for the process of international arbitration in the late 19th century. He also details the role of individuals, including Léon Victor Auguste Bourgeois, who presided over the Third Commission (and who later became President of the League of Nations), and state policy resulting in the establishment of the Permanent Court of Arbitration.

Johnston’s functionalist, multi-model approach to international law “commits the historian – and his reader – to a long story of slow and uneven human development.” At 772 pages this is not a short summer time read. Yet it remains accessible to the general reader and expert alike. It is a richly rewarding discussion of the historical foundations of the international legal system.

Gary Born’s magisterial new work International Commercial Arbitration, published in two volumes this year by Kluwer, represents, in the range and depth of its coverage, and in the rigour and perception of its analysis, the most complete exposition of the law of international commercial arbitration ever available. Yet perhaps the most remarkable thing about this book is what it represents in terms of a coming of age of the field of international commercial arbitration, such that a book of this kind could be written at all.

Born states modestly in his Introduction, that his treatise ‘is intended to be clear, direct and accessible’, and so it is. Indeed, devotees of Gary Born’s earlier works, starting with his ground-breaking, now classic case-book International Civil Litigation in United States Courts (1 ed, 1989; 4 ed, Kluwer, 2006), will already well-appreciate the ability of the author’s probing mind to unpick and present in deceptively simple terms the contentious controversies of our age. But this book sustains that research and analysis to embrace jurisprudence and doctrine from every corner of the world. It ‘rests on the premise that the treatments of international commercial arbitration in different national legal systems are not diverse, unrelated phenomena, but rather form a common corpus of international arbitration law which has a global application.’ [emphasis added]

The notion of a common corpus of international arbitration law of global application is, in the present reviewer’s estimation, something rather more than a vision of arbitration as merely an expression of the parties’ will, delocalized from national legal systems. That conception of international arbitration has been with us for at least half a century, since the work of Berthold Goldman (Goldman (1963) III Recueil des Cours 347), and has recently received the distinguished blessing of the Supreme Court of Canada (Dell Computer Corp v Union des Consommateurs 2007 SCC 34, (2007) 284, DLR (4th) 577, [51]). But an undue emphasis on arbitration as flowing solely from the will of the parties can lead to a fragmented conception of the role of the international arbitral tribunal in which ‘[e]ach tribunal is sovereign, and may retain … a different solution for resolving the same problem (AES Corp v Argentine Republic (Jurisdiction) ICSID Case No ARB/02/17 (ICSID, 2005, Dupuy P, Böckstiegel & Janeiro), [30]). Such a conception threatens to reduce arbitration to what Tennyson described two centuries ago as ‘…the lawless science of our law, / [t]hat codeless myriad of precedent, / [t]hat wilderness of single instances (Alfred Lord Tennyson ‘Aylmer’s Field’ (1793), The Collected Poems of Alfred Lord Tennyson (Wordsworth Ed, 1994) 581).

Nor is ‘international arbitration law’ simply a description of the emergence of a professional and academic community of international arbitration lawyers with common concerns about a transnational phenomenon, nurtured by their experiences in the international arbitral institutions, and by collegial discussion (Dezalay, Garth & Bourdieu, Dealing in virtue: international commercial arbitration and the construction of a transnational legal order (language and discourse) (1996)), a sort of international academy of comparative law for arbitrators.

Rather, Born’s point of departure is a conception of a legal system for arbitration, which is separate and distinct from both international law and national legal systems. There are, to be sure, differences, often important differences, between the responses of national law to such a system. But these can be critically assessed by reference to an international norm. This seems much closer to a conception of an ‘ordre juridique arbitral‘ (Gaillard, Aspects philosophiques du droit de l’arbitrage international (2008) [133]) in which the international arbitral award is seen, as the French Cour de Cassation has recently accepted, as an ‘international judicial decision’, which is not anchored to any national legal order (PT Putrabili Adyamulia v Est Epices (29 June 2007) (2008) 24 Arb Int 293, 295, note Pinsolle (2008) 24 Arb Int 277).

In starting from this premise, Born comprehensively proves his point in the way in which the greatest legal scholars have always done (and which the Academy neglects at its peril), by drawing together the apparently disparate responses of arbitrators and national courts on the central issues of arbitration into a sustained treatise, which expounds the common principles of the law. This achievement is all the more remarkable since it has been written by a lawyer and arbitrator with a distinguished and full-time practice.

The exposition of international arbitration law is pursued through 26 chapters, divided into three parts: international arbitration agreements; international arbitral procedures; and international arbitral awards. Born’s approach throughout is thematic – dividing each section by topic, and then integrating the relevant practice (whether of national law or arbitral institutions) into the discussion of that topic or issue. The approach is also methodological – it approaches each issue as a problem to be solved, critically assessing the potential solutions and the legal authority for each. This permits sustained sub-division and analysis of problems in a way which is, to this reviewer’s knowledge, not matched by any other existing arbitration text. For example, the choice of law rules applicable to an arbitration agreement, a question of great practical importance and doctrinal difficulty, is analysed over some 150 pages, and broken down into choice of law relating to formation and substantive validity; non-arbitrability; formal validity; capacity; authority; and interpretation.

The work’s utility to practitioner, arbitrator and scholar alike is greatly enhanced by the agreement of Born’s publishers on this occasion to include comprehensive tables of awards, cases, commentaries, conventions, rules and other materials, cross-referenced to the text, together with an index. This provides a means of accessing the wealth of material referred to throughout the work, and means that it can serve its primary function as a reference-work.

Born returns to consideration of the overall unity of international arbitration law at the very close of his work in a thought-provoking discussion of the doctrine of precedent in arbitration (Chapter 26). Arguing eloquently for an end to the myth that there is no room for a doctrine of precedent in Public International Law, he presents a nuanced case for reference to prior arbitral authority in international arbitration:

The historic aspirations, and contemporary development, of the international arbitral process reject any such notion of a closed elite, possessed of special knowledge of the law, and instead demand equality of access – both in presenting the parties’ cases to the arbitrators and in researching the relevant authorities which are to be presented. (2969)

This requires, Born argues:

… no absolute rule of binding precedent, but instead a pragmatic analysis that gives effect to the underlying values served by the doctrine of precedent, while permitting change, evolution and correction in the law. That is consistent with, and mandated by, the basic objectives and aspirations of the international arbitral process. (2970)

In delivering to us this monumental work of legal scholarship, Gary Born has himself contributed in no small measure to such a process. He has equipped us with the fruits of his experience and research in a text which lays claim, like no other, to becoming the terminus a quo on the law of international commercial arbitration in the 21st Century.

Professor Campbell McLachlan QC, Wellington, New Zealand

Part III of Born’s treatise concerns International Arbitral Awards. He initially points out that some 90% of international arbitral awards are voluntarily complied with. “This reflects the parties’ contractual undertakings to arbitrate and to comply with the resulting arbitral award, the efficacy of the arbitral process (which leaves the parties believing that their dispute has been fairly resolved), and the likelihood that the award can be coercively enforced….Nevertheless, not all international arbitral awards are voluntarily complied with. The ultimate test of any arbitration is therefore its ability to render an award which, if necessary, will be recognized and enforced in relevant national courts…Fortunately, in most cases, the recognition and enforcement of arbitral awards is straightforward and speedy.” (At pp. 2327, 2328.)

He continues that: “…efforts to set aside or annul an international arbitral award frequently face substantial obstacles and succeed only in rare cases.” (P. 2328.)

Chapter 21 discusses the legal framework applicable to international arbitral awards. Chapter 22 discusses the form and content of international arbitral awards. Chapter 23 discusses the correction, interpretation and supplementation of international arbitral awards. Chapter 24 examines the setting aside or annulment of international arbitral awards. Chapter 25 discusses the recognition and enforcement of international arbitral awards. Finally, Chapter 26 discusses the role of preclusion in international arbitration, including principles of res judicata and collateral (or issue) estoppel. It also examines the application of lis pendens and stare decisis principles in international arbitration.

The treatment throughout combines Born’s lucid exposition and analysis with his perceptive evaluations. The reviewer finds himself in agreement with virtually every judgment. One of the very few conclusions which this reviewer questions is the statement that, “In general, simple interest (rather than compound interest) is awarded by arbitral tribunals” (at p. 2507). That is an accurate statement of predominant, indeed virtually uniform, past practice. But whether it is an accurate statement of current practice is debatable. Certainly in the field of investment arbitration, awards of compound interest are found more and more often. And they should be. The case for compound interest if the winning party is to be made whole is, in economic terms, unanswerable.

A remarkable aspect of this remarkable treatise is the wealth and comprehensiveness of its footnotes. Most every page is a treasure trove of pertinent references. The scholar and the practitioner are led by Born’s text to the point, and the footnotes elaborate the multitude of references in support of the point.

This is not a work of light reading. It is a solid work of scholarship informed by the practitioner’s pragmatic insight. But it nevertheless a pleasure to read, or rather, to work through, because of the felicity of its style and the quality of its substance. For years to come, it will be the pre-eminent work in its important, evolving field.

Stephen M. Schwebel

This excellent treatise provides an in-depth analysis of virtually every aspect of international commercial arbitration. The book offers a comparative approach to arbitration examining the provisions of different nationals, arbitration rules and international conventions.

The present review is focused on chapters 11 and 12, which explore and explain respectively: (i) the selection, challenge and replacement of arbitrators; and (ii) the rights and duties of arbitrators. Generally, these chapters provide a thorough understanding of the diverse legal traditions that underlie these issues.

Chapter 11 comprehensively covers all issues which should be considered regarding the means of selecting the tribunal that will decide the parties’ dispute, with a comparative approach. It explains all aspects which should be taken into account before and during the proceedings. While the author indicates that there is no “optimum number of arbitrators in an international arbitration” parties should always consider “cost, diversity, speed, expertise, consistency and decisiveness”. The author explains the importance of the principle of party autonomy, as a basic pillar of arbitration, nevertheless limited by the applicable laws to safeguard the independence and impartiality of arbitrators. These limits are thoroughly described in Chapter 11, including restriction concerning nationality, qualifications, experience and independence or impartiality, while examining the different choice of law questions that may arise.

The next section moves on to describe the process of selecting an arbitral tribunal, a very important task of the parties and “among the most important decisions that a party will take”. The author recalls and clearly explains how the process is sometimes delayed or frustrated, providing a clear and thorough description of the available mechanisms when a party fails to make the arbitrator’s nomination.

In a like manner, the selection of a sole or presiding arbitrator is also dealt with. The duties of the presiding or sole arbitrator are substantial and the requirements of independence and impartiality are even more salient in these cases. Chapter 11 provides a comprehensive and practical analysis of how the presiding arbitrator may be selected in the arbitration agreement or after the dispute has arisen. Treaties, national laws and arbitration rules deal with this question differently and the author provides a clear and well-structured overview.

The author also covers under Chapter 11 the question of judicial appointment of arbitrators by national courts, explaining the advantages and disadvantages of this method of appointment, including the risks of disregarding the parties’ procedural agreement and of premature and/or conflicting actions by one or more national courts. This is a crucial question faced sometimes by many practitioners, and which is carefully considered by the author. Other forum selection and jurisdictional issues affecting the appointment of arbitrators are masterfully reviewed.

Chapter 11 is partly devoted to the procedures of challenging arbitrators in situations where a party becomes dissatisfied with the choice of an arbitrator, typically because of doubts as to the arbitrator’s impartiality or independence. The author examines the different scenarios and available procedures under the most important institution rules and national laws. The next sections move on to discuss the most relevant issues in relation to the replacement of arbitrators. The last section of chapter 11 is devoted to the question of “truncated tribunals” – i.e., where the tribunal continues the arbitration with either only two members or with three members, one of whom does not participate in the tribunal’s actions.

An essential aspect of the arbitration process concerns the status, rights and obligations of the arbitrators. Chapter 12 of the book covers the source and content of the individual arbitrator’s obligations to the parties, and his or her rights and protections, in relation to the arbitral proceedings. This chapter clearly explains different approaches that national legislations have adopted in defining the status of arbitrators. Some legislations reveal remarkably little attention to the subject, while the most developed legal systems impose various legal obligations on arbitrators. These include the duty to resolve the parties’ dispute in an adjudicatory manner, to conduct the arbitration in accordance with the parties’ agreement, to maintain the confidentiality and to fulfill their mandate. These obligations are clearly set out and explained in Chapter 12, providing an excellent guidance for students, advocates and arbitrators.

The author moves on to explain the enforcement mechanisms of the arbitrators’ obligations, including civil liability, loss of entitlement to remuneration, termination of the arbitrator’s mandate, removal or prohibition against further appointments. The arbitrator’s relationship with the parties amounts to a reciprocal contractual agreement, where both parties have certain rights and obligations. As to the arbitrator is concerned, he or she has among others, the right to remuneration and a right of cooperation from the parties in the proceedings. Furthermore, in order to carry out his task, arbitrators shall have certain immunities from civil liability, as clearly addressed in Chapter 12.

Generally, Chapter 12 provides a significant contribution in a field which gives cause for concern of every arbitration practitioner, as every issue in relation to the status of arbitrators and their liabilities continues to be controversial with little harmonization in different legal systems. The important merit of Gary Born’s work on these questions is the extensive research and analysis of virtually all important domestic and international sources.

This treatise – including the commented chapters – is in the first place an illustration of the remarkable intellectual vigor of the author. As expected from a treatise, the readers will find in chapters 11 and 12 a systematic statement and discussion of the entire subject: selection, challenge, replacement of arbitrators and their status, responsibilities liabilities and immunity. Written by a leading international arbitrator, these chapters review the legal situation and position on the abovementioned issues by different national laws, conferring the work a broad comparative feature.

The entire treatise benefits from an elegant and concise language, concentrating primarily on the exposition of the law and discussion of the different issues, without endeavoring to put a subjective approach or to add the author’s rich practical experience, without distracting the rigor of the presentation. Gary Born’s work will naturally find a leading position as an authoritative treatise and the updated counterpart of other previous important works.

Bernardo Cremades

Kluwer Arbitration Blog is pleased to announce a book discussion of Gary Born’s new book International Commercial Arbitration, which undoubtedly is one of the most important international arbitration books published in recent years. Over the course of the next two weeks we will have contributions from renowned leaders in the field of international arbitration: Judge Stephen Schwebel, Bernardo Cremades, James Carter, Paolo Michele Patocchi, and Campbell MacLachlan. Of course, Gary Born has already offered his introductory thoughts on the book here.

As an aside, I should emphasize that we have no intention of using this blog as a vehicle to promote Kluwer publications to the exclusion of the important works of other publishers. The point of the blog is to emphasize significant developments in the field of international arbitration, regardless of the source. Indeed, our next book discussion will focus on a recent book from another publisher. (If you have ideas about books worthy of discussion in the near future please email me.) But we thought the celebration of Gary Born’s magnum opus was a fitting way to introduce the idea of a book discussion to our readers. Welcome!

Roger Alford