The state and arbitration

3.2.1. General interest of the state in accepting and supporting international commercial arbitration

Arbitration, as a private and consensual method of resolving disputes, nonetheless depends on the willingness of the states to support it; and the states typically find it important to support arbitration for a number of reasons. The main one is needs of business community. In the face of globalization and internationalization of business transactions, international business parties have sought to efficiently resolve their disputes, and litigation has not been an optimal solution for this. Concerning litigation in the cross-border context, the parties can be concerned about issues, such as the protectionism of local courts, problems with the enforcement of foreign court judgements, and the lack of familiarity with foreign national procedural rules and languages.

Against such a background, international commercial arbitration has developed as a mechanism able to offer numerous advantages, such as flexibility in structuring the proceeding, neutrality and efficiency, and enforcement mechanisms. As such, it has become the preferred option for addressing cross-border commercial disputes.²¹⁹ Accordingly, a state seeking to strengthen its commercial

219 See supra note 2. See also, generally, Born, 70-91.; Julian Lew, Loukas Mistelis, and Stefan Kröll,

Comparative International Commercial Arbitration (Kluwer Law International, 2003), 1-9.; Redfern and Hunter,

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influence and encourage cross-border transactions has an incentive to permit international commercial arbitration and to support it.

Moreover, being a leading arbitration hub can be a source of income for the local economy.

Workplaces for local and foreign law practitioners are needed, as well as conference rooms, travel and hospitality facilities for the parties, their counsels, witnesses, and arbitrators. Acting as a host to arbitration can also build the commercial prestige of a particular state.²²⁰ Beyond that, arbitration can also help reduce the caseload of local courts.

For these reasons, states typically not only “tolerate” international commercial arbitration, but take steps to develop their arbitration regimes by, for example, modernizing their laws and arbitration institutions, and by acceding to relevant international treaties, such as the New York Convention. It can be also observed that numerous states compete in order to attract international arbitration cases, and they do so in a number of ways. This includes legal reforms that aim at updating arbitration-related regulations and supporting the modernization of the local arbitration infrastructure.²²¹

3.2.2. Need for the state’s involvement in arbitration

As mentioned above, although arbitration in its nature is a private system of resolving disputes, the relation between arbitration and the state is essential. It is so for a number of reasons. The state recognizes arbitration as a valid method of resolving disputes, but in exchange expects to exercise some degree of control over the arbitral process and its outcome – the arbitral award.²²² It is important for making sure that arbitration provides a fair way of resolving disputes.

Also, there are situations, where the assistance of the state to the arbitration proceeding is crucial to the effectiveness of the proceeding and its outcome. This is because arbitration, as a private method, is not equipped with coercive powers. Thus, arbitrators cannot force the parties to do or refrain from doing something – only the state court with its coercive powers can do that. Correspondingly, arbitration’s reach is limited to the parties, which agreed to arbitrate. Therefore, if any involvement of a non-party is required (for example, if there is a need to preserve the property in dispute, but this

1-6 & 28-31.; Margaret Moses, The Principles and Practice of International Commercial Arbitration (Cambridge University Press, 2012), 1-5.

220 Wilske and Fox, in Austrian Arbitration Yearbook (2009), 384, 386-389.

221 See, generally, ibid.; Carlevaris, in The Evolution and Future of International Arbitration, 331 et seq. ; Moser,

"How Asia Will Change International Arbitration," in International Arbitration: The Coming of a New Age?, 62 et seq.

222 Redfern and Hunter, 58.

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property is in possession of a non-party), arbitrators have no power over non-parties and again, only the state court is able to take a relevant action.

3.2.3. Specific variations of the state’s involvement in arbitration

There are various instances when the state can become involved in arbitration. This role of the state is most visible at the stage of enforcement of an arbitral award, where a losing party is not voluntarily complying with the award and, thus, the winning party has to turn to the state court to coercively enforce the award.

However, there are other instances when the state can supervise arbitration or assist it. At the beginning of the arbitration proceeding, the state, typically represented by its courts, can help the parties enforce an arbitration agreement, if, despite the existence of the agreement, one of the parties turns to the court seeking to resolve the dispute there. In such an instance, the court can support the arbitral process by declining to accept the case and directing the parties to arbitration. Furthermore, the court can also help with interim measures in aid of arbitration, when, for example, a measure for property preservation is sought. Also, the court can assist with obtaining evidence needed for the purpose of arbitration. In some situations, the court (or other authority as discussed below in this Chapter) can also help the parties to form an arbitral tribunal, which will then hear the dispute. Finally, the court has the power to set aside an arbitral award in appropriate situations.

3.2.4. Channels through which the state becomes involved in arbitration

As mentioned, the state is typically represented in arbitration by its state courts. However, the UNCITRAL Model Law allows for a state to designate a specific court or “other authority” (or both) to perform certain functions. To be more specific, Art. 6 of the UNCITRAL Model Law permits a state, which is enacting the Model Law as its enabling legislation, to designate a body – a court or “other authority” – that will perform certain functions necessary to the smooth operation of arbitral proceedings. These necessary functions include matters pertaining to the forming an arbitral tribunal (including the appointment of arbitrators, the challenge to an arbitrator, and other instances of termination of the arbitrator’s mandate), review of jurisdictional decisions of the tribunal, as well as setting-aside of an arbitral award.

Designation in the enabling legislation of a specific court or “other authority” for the purpose of handling these issues has a number of advantages. It helps the parties, and in particular foreign parties, to identify the relevant authority to turn to in the course of the arbitration proceeding. It also enables the designated court(s) or “other authority” to acquire a level of expertise in arbitration matters.

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The use of “other authority”, as prescribed by Art. 6, is especially practical for the issue of appointment of arbitrators. This function of an “appointing authority” (an authority empowered to appoint an arbitrator in the situation where parties fail to appoint one) can be better performed by a specialized body, such as an arbitration institution, rather than a court. An arbitration institution, which is familiar with the pool of arbitrators, is likely better prepared to appoint a suitable arbitrator for a particular case and can do so more quickly.²²³

In Hong Kong and Singapore, the courts of higher level and the leading arbitration institutions are both designated to deal with arbitration-related matters. Concerning Hong Kong, the HKIAC is a statutory appointing authority, while the Court of First Instance of the High Court is designated to perform all remaining functions prescribed under Art. 6 of the UNCITRAL Model Law.²²⁴ Similarly, in Singapore, the SIAC deals with the appointment of arbitrators, while the High Court in Singapore deals with the other matters prescribed under Art.6.²²⁵

It should be noted that Art. 6 does not list all instances when the state can become involved in the arbitration proceeding under provisions of the UNCITRAL Model Law. Article 6 does not mention Art.

27 addressing the court assistance in evidence taking, as well as Art. 35 and Art. 36 dealing with the recognition and enforcement of an award. The UNCITRAL Model Law does not include these specific functions in the functions performed by a designated court or “other authority”, because they are to be performed by a court, where evidence, witnesses, or the property of a losing party is located.

Further, Art. 8 of the UNCITRAL Model Law dealing with the referral to arbitration by the court in case there is an arbitration agreement, and Art. 9 concerning the interim measures requests are not listed in Art. 6. This is because these matters can only be addressed by a particular court to which a party turns when seeking to resolve a dispute before the court – despite the existence of an arbitration agreement, or when applying for an interim measure.

Accordingly, the role of the state in arbitration is typically understood as the role of state courts in arbitration, or alternatively an “other authority” for matters of appointment of arbitrators. However, it is argued that in the case of China, the notion of the “state” goes beyond the traditional understanding and extends to the Chinese arbitration institutions. It is so, because of first, the strong

223 See Holtzmann and Neuhaus, 240-241.; Binder, 71-73.

224 Section 13 of the HK Arbitration Ordinance.

225 Section 8 of the SIAA. Note also that according to Section 8(3), “any other person” can be designated by the Chief Justice to perform the appointment functions under article 11 (3) and (4) of the UNCITRAL Model Law if he or she thinks fit.

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governmental control over the arbitration institutions in China, and second, some extraordinary powers that they are given, in particular, deciding jurisdictional objections in arbitration.²²⁶

3.3. The role of the parties, the arbitral tribunal, the state court, and the arbitration