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The Scope of Arbitration in International Commercial Arbitration

Release time：2024-02-21 10:01:34

In international commercial arbitration, the scope of arbitration is one of the core issues in Foreign-related Civil Relationships. The effectiveness of the arbitration agreement, enforceability of arbitration awards, and annulment or non-enforcement of arbitration awards are directly linked to the precise definition of arbitrable matters. This article will focus on the foundation, expansion, and specific areas of arbitrable scope in international commercial arbitration.

I. Foundation of Arbitrable Scope

(I) Valid Arbitration Agreements

1.      Real intent of the parties as the basis for the validity of arbitration agreements

Both parties must mutually express their willingness to submit disputes to arbitration, and this intention should be acknowledged by the other party. Otherwise, a unilateral arbitration request lacks legal effectiveness. In cases of fraud, the validity of the arbitration agreement should not be categorically denied; rather, its defects should be acknowledged, and the final determination of its validity should be entrusted to the defrauded party. If the defrauded party confirms the agreement's validity, it can be considered effective after rectification; otherwise, it will be deemed invalid. Additionally, the parties' expressions of intent must be clear and affirmative, indicating the characteristic that the parties will submit the dispute to arbitration and exclude the jurisdiction of the courts.

2.      The formal legality of an arbitration agreement is a key element

The scope of arbitrable matters in international commercial arbitration primarily relies on the validity of the arbitration agreement. Arbitration agreements must meet certain formal requirements, typically in writing. While definitions of written agreements may slightly differ in documents such as the “The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards” (referred to as “the New York Convention”) and “The UNCITRAL Model Law on International Commercial Arbitration” (referred to as the “Model Law”), they both emphasize the necessity of a written form. Although legal requirements for arbitration agreements may vary among countries, many countries generally stipulate that arbitration agreements must be in writing, including countries like the UK, the US, Japan, etc. Specifically, written forms may include signed documents, letters, telegrams, etc. Therefore, parties should carefully adhere to relevant regulations when forming arbitration agreements.

Since the signing of the New York Convention in 1958, significant changes have occurred in the international business community, resulting in a series of commercial practices. In arbitration practice, based on the principle of effectiveness of arbitration agreements, the interpretation of "written" form is no longer limited to literal interpretation; instead, it explores whether the parties really intended to submit the dispute to arbitration. For example, even if parties have not signed a written arbitration agreement, it may be considered reached through other written documentation. Moreover, modern national laws tend to relax the requirements of written form to adapt to the rapid development of commerce. In 1985, the Model Law expanded the scope of written arbitration agreements. In addition, some countries such as Germany, Switzerland, Sweden, the Netherlands, the UK, the US, and South Korea have amended arbitration laws to provide a more flexible arbitration environment for parties.

3.      Arbitration agreements must cover arbitrable disputes

This involves limitations imposed by national laws on the scope of arbitration. The content of the arbitration agreement must not violate mandatory legal provisions and principles of public policy, especially disputes subject to arbitration should comply with the relevant laws of the country. Public order and good morals are fundamental principles for maintaining national social interests and morals, and non-arbitrable matters typically include issues related to public and social interests, civil status, family relationships, etc.

4.      Arbitration agreements must clearly designate arbitral institutions

In institutional arbitration cases, China's arbitration law currently stipulates that an agreement will only be considered valid if the parties explicitly agree on the existence and uniqueness of the arbitral institution in the agreement. The determination of the arbitral institution is crucial because permanent arbitral institutions usually have the authority to accept and arbitrate cases only when the agreement expressly indicates that disputes will be submitted to them for arbitration. Failure to specify the name of the arbitral institution may result in the rejection of case acceptance.

 

(II) Arbitrability of Disputes

The arbitrability of disputes refers to the situation where, if the dispute falls outside the statutorily arbitrable scope, the arbitration agreement may be considered invalid. Regulations on arbitrable matters in international public policy and national law directly impact the progress of arbitration. For example, the arbitrability of intellectual property disputes, securities disputes, and bankruptcy disputes varies under different national laws.

The fundamental reason for these differences lies in the divergent definitions of "commercial matters" across various national regulations and international conventions. For instance, Article 1(1) of the Model Law provides some explanations and enumerations in a footnote: “‘commercial’ should be given a wide interpretation so as to cover matters arising from all relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but are not limited to, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business cooperation; carriage of goods or passengers by air, sea, rail or road.”

In addition, some countries have made reservations on the New York Convention, stating that the convention only applies to cases they consider to be commercial matters. According to Article 1(3) of the New York Convention, a contracting state may declare that the convention applies only to “differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration.” China has made such a reservation, as stated in the “Notice of the Supreme People's Court on the Implementation of the ‘Convention on the Recognition and Enforcement of Foreign Arbitral Awards’ Acceded to by China” (Fa(Jing)Fa[1987]No.5): "In accordance with the commercial reservation declaration made by China upon its accession to this Convention, China will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered commercial under the national law of the People's Republic of China. "Legal relationships, whether contractual or not, which are considered commercial" means the economic rights and obligations arising from contracts, torts or relevant legal provisions, such as purchase and sale of goods, lease of property, project contracting, processing, technology transfer, equity or contractual joint adventure, exploration and development of natural resources, insurance, credit, labor service, agency, consultation service, marine, civil aviation, railway or road passenger and cargo transportation, product liability, environment pollution, marine accident, and ownership disputes, except disputes between foreign investors and the host government." China's arbitration law also provides regulations and exclusions for corresponding situations, including contract disputes and other property interest disputes, but exceptions include non-commercial disputes such as marriage, adoption, guardianship, and administrative disputes that should be handled by administrative authorities.

In general, the effectiveness of arbitration agreements is limited by the definition of commercial matters. Regulations of various countries and interpretations of international conventions regarding commercial matters are ambiguous, requiring discretionary judgment by arbitration tribunals or courts in specific cases.

II. Specific Areas of Arbitrable Matters

(I) Commercial Contract Disputes

One of the most common areas in international commercial arbitration is commercial contract disputes. The arbitration agreement reached by the parties in a contract allows disputes arising from contract performance to be resolved through arbitration. The arbitrability of commercial contract disputes has been widely recognized, becoming a typical case in international commercial arbitration.

(II) Trade and Investment Disputes

International trade and investment disputes are also important areas in international commercial arbitration. Arbitration clauses in trade contracts and investment agreements provide parties with a means to resolve disputes. Resolving trade and investment disputes through arbitration helps expedite the dispute resolution process and reduces unnecessary legal proceedings.

III. Expansion of Arbitrable Matters

     (I) Arbitrability of Intellectual Property Disputes

     Intellectual property disputes have always been a concerned matter in the field of international commercial arbitration. Due to the involvement of property rights and personal rights, the feasibility of arbitration has been controversial. In most common law jurisdictions, intellectual property disputes are generally considered arbitrable but with certain limitations. In civil law jurisdictions, the arbitrability of intellectual property disputes largely depends on the related judicial jurisdiction and can be broadly categorized into three main trends: (1) jurisdictions explicitly allowing complete arbitration of intellectual property disputes, including patent infringement, for example, Switzerland and Belgium, and jurisdictions explicitly prohibiting the submission of intellectual property disputes to arbitration, such as South Africa; (2) accepting jurisdictions adjudication or ancillary decisions on patent validity among the parties, however, are not universal; (3) without a clearly defined legal jurisdiction over this matter, the arbitrability remains a subject of debate.

As international economic trade continues to develop, many countries are adopting a more lenient attitude, acknowledging the arbitrability of intellectual property disputes. This provides parties with more options and promotes the resolution of intellectual property disputes.

(II) Arbitrability of Securities Disputes

There are differences among countries regarding the arbitrability of securities disputes. Some countries have more advanced and open laws, recognizing the arbitrability of securities disputes. This helps resolve disputes arising from securities transactions and enhances the efficiency of commercial dispute resolution. However, certain countries still maintain a reserved attitude towards the arbitrability of securities disputes, requiring careful consideration.

(III) Arbitrability of Bankruptcy Disputes

Bankruptcy disputes involve core issues of national public policy, and most countries believe that only courts have the authority to adjudicate bankruptcy cases. However, in some countries, specific provisions regarding bankruptcy disputes may confer arbitrability. The United States is one such example, allowing arbitration for disputes between creditors and bankrupt entities, but disputes related to bankruptcy procedures are generally not arbitrable.

Conclusion

The scope of arbitrability in international commercial arbitration directly affects the validity of arbitration agreements and the enforcement of awards. Effective arbitration agreements, clearly defined arbitrable matters, and expansion into specific areas are all issues that must be carefully considered in international commercial arbitration. Parties choosing for arbitration as a means of dispute resolution should fully understand relevant legal provisions to ensure the effectiveness of their arbitration agreements and the resolution of disputes in international arbitration.

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