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Arbitration and the Exhaustion of Local Remedies

Published online by Cambridge University Press:  28 March 2017

Stephen M. Schwebel  and
J. Gillis Wetter
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Extract

Where a state and an alien agree in a contract to arbitrate disputes relating to the contract, in terms which indicate that arbitration is to be the exclusive remedy, need the alien exhaust any other remedy before an international claim may be presented relating to a dispute which falls within the scope of the arbitration clause ?

Type
Research Article
Information
American Journal of International Law , Volume 60 , Issue 3 , July 1966 , pp. 484 - 501
Copyright
Copyright © American Society of International Law 1966

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References

1 The authors wish to express their appreciation for a research grant of the Svenska Handelsbanken 's Social Science Research Fund.

2 Convention on the Settlement of Investment Disputes between States and Nationals of Other States Submitted to Governments by the Executive Directors of the International Bank for Reconstruction and Development and Accompanying Report of the Executive Directors, March 18, 1965; 4 Int. Legal Materials 532, 524 (1965). The Convention will come into force 30 days after the date of deposit of the twentieth instrument of ratification, acceptance or approval.

3 Convention, loo. cit. 536.

4 Report of the Executive Directors, loo. cit. 528-529. 484

5 International Bank for Reconstruction and Development, Preliminary Draft of a Convention on the Settlement of Investment Disputes between States and Nationals of Other States, Oct. 15, 1963, p . 33.

6 Ibid. 34.

7 The Agreement, dated Jan. 16, 1965, is reprinted in Platt's, Oilgram News Service, Spec. Supp., May 4, 1965, Vol. 43, No. 85-Y, p. 10.Google Scholar

8 The Agreement is reprinted in Platt's, Oilgram News Service, Spec. Supp., Oct. 5, 1954, Vol. 32, No. 192-A, p. 1;Google Scholar and in 2 Hurewitz, Diplomacy in the Near and Middle East 348-383 (1956).

9 The cases examined do not include the significant number of unpublished awards of the Court of Arbitration of the International Chamber of Commerce. See Böekstiegel,“Arbitration of Disputes between States and Private Enterprises in the International Chamber of Commerce,” 59 A.J.I.L. 579-586 (1965).

10 To the four eases discussed below, there should be added the award in Société Européenne d'Études et d'Entreprises v. the Government of Yugoslavia (1956), [1957] I.L.R. 761, which was attacked by Yugoslavia.

11 Apart from the cases analyzed below, there are instances of a state refusing arbitration which have not been the source of subsequent international proceedings, for lack of international jurisdiction or otherwise. E.g., Iraq is known to have declined to arbitrate a certain dispute with the Iraq Petroleum Company, and Lebanon reportedly failed to name an arbitrator in another case to which the Iraq Petroleum Company was party.

12 P.C.I.J., Series C, No. 78, pp. 7-8.

13 Ibid. 116.

14 Ibid. 117 (authors’ translation).

15 Ibid. 214.

16 Ibid. 40.

17 P.C.I. J., Series A, No. 9.

18 The Swiss Memorial quoted the Chorzów holding that “ … one party cannot avail himself of the fact that the other has not fulfilled some obligation or has not had recourse to some means of redress, if the former party has, by some illegal act, prevented the latter from fulfilling the obligation in question, or from having recourse to the tribunal which would have been open to him.'’ Ibid. 31.

19 P.C.I. J., Series C, No. 78, p. 132.

20 Ibid. 133-134.

21 Ibid. 160.

22 Ibid. 193 (authors’ translation).

23 Ibid. 346.

24 Ibid. 311-312.

25 I.C.J. Pleadings, Anglo-Iranian Oil Co. Case (United Kingdom v. Iran).

26 Ibid. 279-280.

27 Ibid. 268. The original French text is reproduced at pp. 256-257.

28 Ibid. 269. Art. 21 of the Convention also provided in part: ’ ‘ This Concession shall not be annulled by the Government and the terms therein contained shall not be altered either by general or special legislation in the future, or by administrative measures or any other acts whatever of the executive authorities.''

29 Ibid. 81-82.

30 Ibid. 122.

31 Ibid. 122-123 (footnotes omitted).

32 Ibid. 18-19.

33 Ibid. 288 (authors’ translation).

34 Ibid. 291 (authors’ translation).

35 Ibid. 304-305.

36 Observations and Submissions presented by the Government of the United Kingdom of Great Britain and Northern Ireland to the Preliminary Objection lodged by the Imperial Government of Iran, ibid. 365.

37 Ibid. 367.

38 Ibid. 501 (authors’ translation).

39 The Court quoted this limited Iranian reliance on the rule of exhaustion of local remedies in these terms: “That the claim concerning the amount of the compensation due to the Anglo-Iranian Oil Company is also inadmissible, because that Company has not yet exhausted the local remedies provided by Iranian Law.” (Anglo-Iranian Oil Co. case [jurisdiction], Judgment of July 22, 1952, [1952] I.C.J. Rep. 93, 99.)

40 Ibid. 555-556, 642.

41 The company was the holder of five concessions in Lebanon, whose Cahiers des Charges (General Conditions) provided for arbitration in the terms quoted.

42 I.C.J. Pleadings, “Électricité de Beyrouth” Company Case (France v. Lebanon), p. 57 (authors’ translation).

43 Ibid. 14.

44 Ibid. 58 (authors’ translation).

45 Ibid. 48.

46 “Électricité de Beyrouth” Company Case, Order of July 29, 1954, [1954] I.C.J. Rep. 107-108.

47 I.C.J. Pleadings, Case Concerning the Compagnie du Port, des Quais et des Entrepôts de Beyrouth and the Société Radio-Orient (France v. Lebanon), p. 7.

48 Ibid. 9.

49 Ibid. 39 (authors’ translation).

50 Ibid. 67.

51 Ibid. 70 (authors’ translation).

52 Ibid. 89.

53 Ibid. 91-92 (authors’ translation).

54 Ibid. 93.

55 Case Concerning the Compagnie du Port, des Quais et des Entrepôts de Beyrouth and the Soeiété Radio-Orient (France v. Lebanon), Order of Aug. 31, 1960, [1960] I.C.J. Rep. 5.

56 In the case of The Société Commercial de Belgique, P.C.I.J., Series A/B, No. 78, Belgium sought the Court's declaration that all the provisions of two arbitral awards rendered in proceedings between the Soeiété Commercial and Greece were binding upon the Greek Government without reservation. The awards were rendered pursuant to an arbitration clause which provided for arbitration of “ all disputes of every kind,” for ultimate appointment of an umpire by “ t h e President of the International Court of Arbitration at The Hague,” and for the final character of the award. (At p. 166.) The Court held that, “since the arbitral awards … are, according to the arbitration clause under which they were made, ‘final and without appeal', and since the Court has received no mandate from the Parties in regard to them, it can neither confirm nor annul them either wholly or in p a r t . “ (At p. 174.) In speaking of “ t h e definitive and obligatory character of the arbitral awards,” it further held that: ” I f the awards are definitive and obligatory, it is certain that the Greek Government is bound to execute them and to do so as they stand… . “ (At p. 176.)

57 Yugoslavia did maintain before the umpire that “ t h e cancellation of the contract resulted in cancellation of the arbitration clause and thus did away with the right to have recourse to arbitration” this submission was rejected by the umpire. Interlocutory Award of the Umpire, The Losinger & Co. Case, P.C.I.J. Series C, No. 78, pp. 109- 111. Yugoslavia did not, however, rely on this argument before the Permanent Court of International Justice.

58 See the quotation at note 36 above. The Comment on the Preliminary Draft of a Convention on the Settlement of Investment Disputes between States and Nationals of Other States, referred to above at note 6, is to the effect that a mutual intent to exclude remedies other than arbitration would oblige a municipal court to dismiss a claim brought before it.

59 Sohn and Baxter, Convention on the International Responsibility of States for Injuries to Aliens, Draft No. 12 with Explanatory Notes, 1961, p. 165.

60 See Art. 22 of the Convention, Sees. (E) and (F), quoted at p. 490.

61 See pp. 491-492 above.

62 See p. 494 at note 44 above.

63 Sohn and Baxter, op. cit.

64 Note 4 above.

65 At p. 486.

66 For example, a contract of Oct. 23, 1964, between the Government of the Bahama Islands and Home Lines, Inc., a Panamanian corporation, provides for arbitration of disputes, the sole arbitrator, who shall hold or have held high judicial office in the United Kingdom or Canada, being named by the parties or ultimately by the Supreme Court of the Bahama Islands. Art. 26 (2) provides that: ’ ‘ Either party may demand that a dispute or claim as set forth in the preceding paragraph be made the subject of arbitration in accordance with the provisions of the Arbitration Act of the Bahama Islands or any statutory modification or reenactment thereof for the time being in force.” (Unpublished.)

67 Professors Sohn and Baxter contend, however, that: ” I f a procedure exists under the law of the responsible State whereby the alien may through action before the courts either compel resort to the arbitral machinery providedunder the agreement, or secure judicial enforcement of the decision of the arbitral tribunal against a State not complying with the award, or seek review of the propriety of the decision of the arbitral tribunal, there can be little doubt that the alien must exhaust his judicial as well as arbitral remedy. The obligation of seeking judicial redress may thus exist even though the contract or concession states that the special form of arbitration provided is the exclusive remedy as to all disputes arising under the agreement. If, however, the procedure stipulated in the contract or concession does not under the law of the responsible State lend itself to judicial enforcement or review, it may constitute the sole available remedy, especially if the co*tract or concession itself has the status of a law of the respondent State as well as that of an agreement to which that State is aparty . “ (Op. cit. 164-165.) It is submitted that Professors Sohn and Baxter, in this passage, fail to distinguish between arbitral remedies governed by municipal law and those governed by a law other than the municipal law of the contracting state. As noted above, it is believed that the latter type of arbitral process does not require the exhaustion of any remedies of the contracting state. See in support of this conclusion, Bourquin, “Arbitration and Economic Development Agreements,” 15 The Business Lawyer 860-872, at 870-871 (1960). See also Hyde, “Economic Development Agreements,” 105 Hague Academy Recueil des Course 271-374, at 352 (1962); Young, “Remedies of Private Claimants Against Foreign States,” Proceedings of the 1961 Institute on Private Investments Abroad (1961), pp. 45-100, at 57; and American Branch of the International Law Association, Report of the Committee on Nationalization of Property, Proceedings and Committee Reports 1957- 1958, pp. 61-85, at 75, note 25.

68 Professors Sohn and Baxter describe arbitration, including that under a contract such as the Iranian Consortium Agreement, as a “local remedy” (loc. cit.), a description which appears accurate when applied to an arbitration whose procedure is governed by the law of the contracting state. It may be questioned whether an arbitration in which the umpire is foreign and internationally appointed, which takes place abroad, and applies another law, substantively or procedurally, or both, is a “local remedy.“

69 Interhandel Case, Judgment of March 21, 1959, [1959] I.C.J. Rep. 6, 27. See also Bagge, “Intervention on the Ground of Damage Caused to Nationals, with Particular Reference to Exhaustion of Local Remedies and the Rights of Shareholders,” 34 Brit. Yr. Bk. of Int. Law 169 (1958).

70 cf Sapphire International Petroleums Limited v. National Iranian Oil Company (1963)The whole of the award in this arbitration is unpublished, but extracts from it— unrelated to the issue discussed here—have been quoted, inter alia, by Lalive, “Contracts between a State or a State Agency and a Foreign Company,” 13 Int. and Comp. Law Q. 987-1021, at 1011-1021 (1964). The umpire in the Sapphire case held that the arbitration proceedings were governed by the procedural law of the Canton of Vaud and were “subject to the judicial sovereignty of Vaud” (authors’ translation). For a critique of the umpire's holding, see Suratgar, “ T h e Sapphire Arbitration Award, The Procedural Aspects: A Report and a Critique,” 3 Columbia Journal of Transnational Law 153, 184-185, 198-203 (1965).

71 A negative answer to that question is suggested by the award in Saudi Arabia v. Arabian American Oil Company (Aramco) (1958), 27 I.L.R. 117, 155-156, where the tribunal held that the law of Geneva, the tribunal's seat, could not be applied as the procedural law of the arbitration, on the ground of the jurisdictional immunity of states. See to the same effect Bourquin, loc. cit. at 870-871. In contrast with the Sapphire case, the tribunal in the Aramco ease held that the law governing the procedure of the arbitration was international law. Whether the law of another state, or international law, is held to govern the procedure of the arbitration, the result is the same for the question under analysis: in neither case need any local remedies, pertaining to arbitration or otherwise, be exhausted if the contracting state fails to arbitrate in accordance with its contractual obligation.

72 Cf. Law, The Local Remedies Rule in International Law 93-98 (Geneva and Paris, 1961), and the sources there cited. See also Garcia Amador, “International Responsibility, Third Report by F. V. Garcia Amador, Special Rapporteur,” 1958 I.L.C. Yearbook ( II ) 59-60, 72.