Table of Contents

.................................................................................................................................................. 1 INTRODUCTION....................................................................................................................... 2 CONCEPT OF ARBITRABILITY ...............................................................................................2 CLASSES OF PUBLIC POLICY................................................................................................3 Public policy an a!bi"!abili"y o# i$pu"%$ ...................................................................................& I$ non'a!bi"!abili"y (u$"i#iabl% )................................................................................................& PUBLIC POLICY * ARBITRABILITY IN PRACTICE..................................................................+ ,ODERN TRENDS ON ARBITRABILITY...................................................................................URISDICTIONAL C/ALLEN0ES.............................................................................................1 T/E UNCITRAL ,ODEL LA2 * ARBITRABILITY..................................................................13 CONCLUSION......................................................................................................................... 11

INTRODUCTION
The issue of arbitrability is increasingly fashionable in international arbitration today. 1 Increase in International Trade, investment and the globalization of commerce has led to the development of international commercial arbitration as a preferred method of resolving disputes. People from diverse countries and cultural backgrounds finds attractive towards international arbitration as it espouses them an option to choose a neutral ust, confidential, organizational and cost effective means of resolving their commercial disputes. !ut on the other hand the "tate retains the power to prohibit settlement of certain categories of disputes outside its courts. The problem of #$rbitrability % must be views in the light of the protection by the "tate Courts of certain areas of &aw for their e'clusive urisdiction. $rbitrability , Therefore creates a fine balance between the public interest of the state in determination of certain categories of disputes e'clusively through its courts, and the desire of contracting parties to have their disputes resolved in private.

CONCEPT OF ARBITRABILITY
The word (arbitrability) is used in a number of senses. Traditionally, arbitrability concerns the *uestion of which type of disputes can or cannot be resolved by arbitration. + This concept is inherent in the ,ew -ork Convention on the .,CIT/$& 0odel law on the international commercial arbitration,1123 4as amended in +556 7 4 the 0odel &aw7. $rticle II 417 and 84+74a7 of the ,-C and articles 9:4+74b7 and 96417 4b74I7 of the 0odel &aw refer to arbitrability in terms of disputes (capable of settlement by arbitration). This concept therefore raises the *uestion of the validity of the arbitration agreement, which could strip an arbitrator of urisdiction to determine a matter in spite of party agreement or derail enforcement of an award.9
1

$ccess to the national court to determine a dispute is

This article has been adapted from a study pro ect presented in part fulfillment of the re*uirements for the degree of 0aster of &aws at the .niversity of "tellenbosch 411127 under the supervision of Prof ;< !utler. + ,. !lackaby and others, /edfern and =unter on International $rbitration 4+5517 , para +.111. aee also &.$ 0istelis, and ".&. !rekoulakis 4eds7,$rbitrability> International and comparative perspective 4 ?luwer &aw International,+5517,pp.9@:. 9 The Convention on the /ecognition and Anforcement of Boreign $rbitral $wards 1132 4the ,ew -ork Convention7 art.84+74a7C the .,CIT/$& 0odel &aw on International Commercial $rbitration 1123 4as amended in +5567 4the 0odel &aw7 art.9:4+74b74i7.

considered the *uintessential form of ustice. $n arbitration agreement is therefore considered to accept less than this ideal form of ustice. : It is, therefore, for each state to decide which matters should not be compromised by leaving them to be decided outside the state courts. =owever, in some Durisdictions, particularly the united "tarted of $merica, the concept of arbitrability is not ust about what sub ect@ matter is capable of resolution by arbitration agreement.3 and the scope of the arbitration agreement .6In the $merican case of MCI Telecommunications Corp v Exalon Indus Inc the learned udge argued, (Ea claim that nothing is sub ect to arbitration because there is no agreement to arbitrate must be the mother of arbitrability *uestions).F12 This statement suggests that the *uestion whether or not there is an arbitration agreement itself remains an issue of arbitrability as the arbitratorGs urisdiction to arbitrate such a matter in that conte't is dependent on the e'istence of an agreement. Thus, according to this view, beyond a statutory statement of what is and what is not arbitrable, there is also the issue of arbitrability on the basis of the agreement between the parties. <here the parties have not agreed or consented to refer an issue to the arbitrator, such a matter will remain (unarbitrable) by the arbitrator or tribunal in *uestion.

CLASSES OF PUBLIC POLICY

Two classes of public policy have been definitely identified@@domestic and international. ;omestic public policy are those sacred and inviolable notions and principles of morality and ustice which a country sets into its domestic laws and would not permit parties to a contract to alter or change by contract. They are normally many in number in comparison to international public policy principles. International public policy are those principles of the countryGs domestic public policy that it will insist on applying in an international relationship or relationship involving different nationalities. Aach country realises that it cannot impose its rules or ideas of civilisation and business 4whether called public policy or anything else7 with
: 3

$. /edfern, Law and Practice of International Commercial Arbitration 4&ondon> "weet H 0a'well, +55:7. ?.@=. !Ickstiegel, (Public Policy as a &imit to $rbitration and its Anforcement) 411th I!$ International $rbitration ;ay and .nited ,ations ,ew -ork Convention ;ay> The ,ew -ork Convention> 35 -ear, ,ew -ork, Bebruary 1, +5527, pp.1@15. 6 $.". /au, (The $rbitrability Juestion Itself) 411117 15 $m. /ev. IntGl $rb. +2F@331C $.". /au, ($rbitral Durisdiction and the ;imensions of #Consent% ) . of Te'as &aw, &aw and Acon /esearch Paper ,o. 159,1C "ee also ,. !lackaby and others, Redfern and Hunter on International Arbitration 4+5517, para +.111 F MCI Telecommunications Corp v Exalon Indus Inc 192 B.9d :+6 at :+1 41st Cir. 11127 cited in $.". /au, (The $rbitrability Juestion Itself) 411117 15 $m. /ev. IntGl $rb., +2F, 933.

respect to all transactions involving it and, or its nationals once the interest of other countries or nationals are involved. This pragmatism was well captured by $merican Courts in two fairly well known cases. In Sc er! v" Alberto#Culver Co"9 and Mitsubis i Motors Corp" v" Soler C r$ster#Pl$mout Inc": the Court observed (that all disputes must be resolved under our laws and in our Courts we cannot have trade and commerce in world markets and international waters e'clusively on our terms, governed by our laws, and resolved in our Courts).

Public policy and arbitrability of di put!

I non"arbitrability #u tifiabl! $
It may first be asked whether there is any rationale in e'cluding certain disputes from arbitration on public policy grounds while allowing Courts to ad udicate such disputes. The reason is that normally with respect to such disputes the country in *uestion desires to ensure that the accepted or prescribed domestic standard 4whether moral, political or economic7 is not compromised altered in the settlement of any particular dispute. The reasoning goes that since arbitration can be 4and often is7 e'traterritorial involving foreigners who may even be particularly averse to the prescribed standard, there is a risk of the law of the country which are derived from public policy, being ignored and awards contrary to the prescribed standard being rendered."ince arbitrations and awards are private affairs there is a risk of undermining the prescribed public policy standard without the country or ma ority of its populace even knowing. If a country decides, as the ."$ did until recently for instance, that only its domestic laws and courts should govern and ad udicate disputes on patents 4 i"e" that they are unarbitrable7 it may fear that disputes in that area may end up being settled in arbitrations contrary to those laws if they were arbitrable. It is eminently arguable however that removing disputes from arbitrability is not really effective in ensuring that the prescribed standard is adhered to. In the first place the emphasis is often placed ust on usticiability and arbitrability and there is nothing prohibiting parties from settling the disputes through the alternative dispute resolution methods like conciliation, mediation, etc, which are e*ually private and confidential proceedings. <hat a country seeks to avoid in arbitration may well be happening unabated in the alternative dispute resolution methods. $lso, nothing stops a country from making a particular class of disputes arbitrable but legislating that such disputes can only be arbitrated in accordance with the laws of that country. That way, any award made contrary to the countryGs statutory provisions that have their roots in public policy would be unenforceable in that country. It would be enforced *uite all right in

some other countries where every award, however palpably wrong, is enforceable.16 $ country can also go further in a deserving case by re*uiring the sub ection of such disputes to its law only with respect to domestic arbitrations and international but non@foreign arbitrations, for instance ones involving its nationals and, or its property or those of its nationals but held outside its shores. The essence of this would be that for awards to be enforceable in the affected cases the prescribed domestic law should be followed, while foreign awards arising out of such disputes would be enforceable either way.1F In ,igeria for instance, trade disputes can only be arbitrated under the provisions of the Trade ;isputes $ct while the $rbitration and Conciliation $ct is specifically made unapplicable.12 The reasoning would seem to have been the avoidance of certain events in the labour sector which was not particularly peaceful as at the time of the enactment of the $ct in 11F6.11 It is the contention of the author that it is better to make such disputes arbitrable even if they must be arbitrated in accordance with the local laws. It will be a rela'ation from the absolutism of non@arbitrability. Parties, foreign or indigenous, who operate under such a legal regime, would be better off than under a situation of non arbitrability. Instead of having their disputes sub ected to domestic courts of the country in *uestion 4with all the dangers of possible bias or the home advantage syndrome, delay of trials, etc.7 they can have neutral arbitrators determine the disputes in a much more convenient venue 4within or outside the country7 while still satisfying the law of the country by following it. The point being made here is that when a dispute is not arbitrable in a country it is normally usticiable only or mainly in the courts of that country .Proceedings must in that case take place inside that country however inconvenient and impracticable that may ordinarily be. It is prone to delay and the foreigner has the fear of possible bias. In many such cases the foreign party gives up or does not even go into the transaction in the first place. If the same dispute were to be arbitrable even if only the law of that country must apply, the situation is that of lesser evils. The parties can in an arbitration choose the arbitrators, a venue outside the country and even the language of the proceedings. They can, most probably, gain speed in the treatment of the dispute. That way, flow of investment and commerce will be of greater volume and the stigma of selfishness and locked gates which non@arbitrability in vital areas of economic activity always tends to give to a country will be minimised if not entirely removed. $nd in practical

terms the same result as at present would still be achieved with respect to enforceability of the awards.

PUBLIC POLICY % ARBITRABILITY IN PRACTICE

In practice as at now, there is hardly anything close to uniformity with respect to the arbitrability of particular disputes across different urisdictions. Indeed the situation is nearer to confusion than to uniformity. <hile a particular dispute would be non@arbitrable in a country on public policy grounds, it could be arbitrable in another. <hat is declared nonarbitrable sometimes becomes arbitrable with time, not because any facts have changed but ust because the societyGs mood or perception of the facts have changed. $s the years go by more disputes are being held arbitrable in each country. In the ."$, patent and antitrust disputes are now arbitrable, at least in international settings but they have not always been."everal, and generally conflicting, rules e'ist in different countries with respect to arbitrability of particular types of disputes.+: In some countries such as ,igeria, virtually all disputes are arbitrable. ;espite section 93 of ,igeriaGs Chapter 11 which enacted $rticle 1437 of the 0odel &aw into ,igerian law+3 only one legislation specifically e'cludes any dispute from arbitration. In %oe %a!pa v" Cit$ Commercial and Industrial Ent" Ltd99 the =onourable Dustice K. $ina of the Bederal =igh Court was of the opinion that the Court having urisdiction to wind up a company shall be the Bederal =igh Court within whose area of urisdiction the registered office or head office of the company is situate). =owever there is nothing in the provisions of any act to e'clude arbitration. ,ot even section F of the Bederal =igh Court $ct9F nor ;ecree 15F of 1119 which has conferred e'clusive urisdiction on that court in respect of several matters has achieved this. ,othing stops parties from doing it in arbitration and having the award effectively enforced, i"e" if the award is not obeyed voluntarily. The position of countries like ,igeria on arbitrability of disputes is to be preferred. It is certainly in that direction that most nations are going even though it seems it will be a long and slow march for many.

&ODERN TRENDS ON ARBITRABILITY

<hat is arbitrable and what is not varies globally. Lenerally, issues about public policy are not arbitrable. ;omestic legislation on arbitrability in terms of sub ect@matter coverage differs from state to state.+2 Aach state decides which dispute, in furtherance of its political, social and economic interests, may or may not be resolved by arbitration, "ome state laws e'pressly make public policy the determining factor for arbitrability.91Bor instance what was viewed as sacrosanct and thus determinable only by national courts by the legal fraternity of a particular country two decades ago may not be the same today.99 It is a'iomatic that over the years, many states have embraced the notion of international trade and its importance and have become much more liberal with the idea of arbitrating sub ect@ matters which are trade or economic related.9: In most developed countries in Aurope and $merica however, changes have been made through udicial pronouncements regarding arbitrability of public policy issues.93 It is worth noting, however, that this position is not global. Bor many developing countries the traditional view that public policy issues are not arbitrable still holds sway. It has been argued that in the conte't of less developed countries, states may need to impose very strict limits on arbitrability, especially in respect of disputes involving state entities as this is the only way for these states to retain control over foreign trade and investment, where more economically powerful traders may have an unfair advantage.9F $part from the political reasons, the private nature of arbitration and its legitimacy as a resolution method for public disputes and the *ualifications of arbitrators 4who may not be legally *ualified to determine certain legal matters7 are some of the other reasons why limits may be set on arbitrability.

'URISDICTIONAL C(ALLEN)ES
.nder the new arbitration law, the issue of arbitrability may be raised at three different stages> first, as part of an ob ection to the urisdiction of the tribunal and prior to the first step towards a contest on the merits66 C secondly, at any time during the subse*uent arbitration proceedings6F C and finally, after delivery of an arbitration award as a challenge to its enforcement or recognition.62 The comple'ity associated with urisdictional challenges stems from the fact that the arbitral tribunal and the court often have consecutive se*uential and concurrent urisdiction. The effect of s.+: of $ct F12 is that the parties to an arbitration agreement are at liberty to decide, by agreement, who determines the *uestion of arbitrability. It states> (.nless otherwise agreed by the parties, the arbitral tribunal may rule on its own urisdiction particularly in respect of 4a7 the e'istence, scope or validity of the arbitration agreementC 4b7 the e'istence or validity of the agreement to which the arbitration agreement relatesC 4c7 whether the matters submitted to arbitration are in accordance with the arbitration agreement.) It is to be observed that s.+: essentially adopts art.16 of the .,CIT/$& 0odel &aw on the doctrine of Competence@Competence but with two additional features. Birst, some of the commonly invoked matters of urisdiction are stated e'pressly. "econdly, the power of the tribunal to rule on its own urisdiction is a default power, i.e. it ac*uires the power only if the parties have not agreed otherwise. The power of the tribunal is to (rule) on the matter of urisdictionC it does not make a final decision on the matter. $ party dissatisfied with the tribunalGs ruling may repeat the application before the appointing institutionF5 or the =igh Court.F1 =owever, as the determination of the application by the appointing institution is sub ect to udicial review by the =igh Court,F+ there would be little point in following up the application before the appointing institution once the same matter comes before the =igh Court. $s there is arguably a very little value in providing e'pressly for this eventuality in the interest of avoiding unnecessary costs from gamesmanship, particularly with novice users of arbitration.

T(E UNCITRAL &ODEL LA* % ARBITRABILITY

The application of the .,CIT/$& 0K;A& &$< is limited to international commercial arbitration and and it contains an e'planatory *uasi@official definition of the term #commercial%. The *uestion of arbitrability is dealt with $rticle 1437 provides that this law shall not affect any other law of this "tate by virtue of which certain disputes may not be submitted to arbitration or may be submitted to arbitration only according to provisions other than those of this &aw. The issue of arbitrability is also relevant for other articles in the 0odel &aw, namely, $rt 3 which regulates the e'tent of court interventionC2$rt F which contains a definition of the arbitration agreementC1$rt 2 which provides for a reference to arbitration, by a court, of disputes covered by an arbitration agreement e'cept if the agreement is null and void, inoperative, or incapable of being performedC art 9:4+7 4b7 4i7 and 4ii7 which authorise a court to set aside an arbitral award if the sub ect matter of the dispute is not capable of settlement by arbitration or if the award is in conflict with public@policy considerations. $rticle 1437 was adopted because of the fact that an e'haustive list of non@arbitrable sub ect@ matter was virtually impossible and because an open list with the provision of a supplementation of non@arbitrable matters by each state would defeat the whole purpose of harmonisation, even though a great degree of certainty would be reached. $rticle 1437 also ensures that the broad definition of international commercial arbitration does not override the arbitrability provisions of national laws. $rticle 1437 is successful in clarifying that the 0odel &aw is not a self@contained and self@sufficient legal system e'cluding all national laws, especially because proposals to stipulate the le' specialis character of the 0odel &aw were ultimately not included. $rticles F and 2 of the 0odel &aw, which relate to the arbitration agreement, therefore do not contain the re*uirement as e'pressed in the comparable provision of art 11417 of the ,ew -ork Convention Mthat the dispute must relate to sub ect@matter that is capable of settlement by arbitration. =owever, this does not mean that any arbitration agreement would be enforced
2 1

It provides that ( in matters governed by this law, no Court shall intervene e'cept where so provides in this law). It provides that an arbitration agreement is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of defined legal relationship, whether contractual or not. $n arbitration agreement may be in the form of an arbitration clause in a contract or in the form of separate agreement.

under the 0odel &aw irrespective of the arbitrability of the sub ect@matter.

CONCLUSION
0uch as it leaves the determination of arbitrability of disputes to the free volition of individual nations and the achievement of uniformity to a free evolution process, the 0odel &aw is to be commended. $ uniformity achieved by volition in such a sensitive area is the only one likely to en oy adherence and longevity. $ny uniformity decreed by an international legislation like the 0odel &aw or some other sort of apparent coercion is likely to fail ab initio" In fact if the &aw had made mandatory rules on arbitrability of any sorts of disputes that alone would have made several countries re ect it completely, or to re ect that part of it that contains the rules. This would in turn defeat the aim of the &aw in that respect both in the short and long run. $s countries, especially the developed and strong ones, approach the issue of arbitrability with open minds and frank assessments of their interests 4which in the long run will invariably lie in a more global, friendly and free world economy7 their rules on arbitrability will gravitate towards a working uniformity. In that way, the &aw would have achieved its aim of harmonisation or uniformity of rules. $t such a time the &awGs pragmatic and patient approach will be indisputably vindicated. Kne day it will, unless the development of peace and the partnership of nations is again disrupted by a large scale event like a world war, whether fought with firearms or with ideology.