published by the llinois Institute for Continuing Legal Education

© 2001 by Stephen E. Smith

II. [23.2] What is an "International Arbitration"

What makes a dispute "international" in nature? Simplistically:

  1. The dispute involves nationals of two or more countries.
  2. The subject matter of the dispute renders it international.
  3. The parties agree that the matter is international in nature.

The United Nations Commission on International Trade (UNICTRAL) Model Law (Model Law) definition, recently codified in the Illinois International Commercial Arbitration Act, 710 ILCS 30/1-1, et seq. offers a more precise, but no more exacting definition of "international":

(c) An arbitration is international if:

  1. the parties to the agreement have, at the time of the conclusion of execution of that agreement, their places of business in different countries; or
  2. one of the following places is situated outside the country or countries in which the parties have their places of business: (i) the place of arbitration if determined in, or pursuant to, the arbitration agreement; (ii) the place where the predominant part of the obligations of the commercial relationship is to be performed or the place with which the subject matter of the dispute is mostly closely connected; or
  3. the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country.

(d) For the purposes of subsection (c) of the Section:

  1. If a party has more than one place of business, the place of business is that which has the closest relationship to the arbitration agreement.
  2. If a party does not have a place of business, reference is to be made to his or her habitual residence. 710 ILCS 30/1-5

The inclusion of "habitual residence" in § 1-5(d)(2) of the IICAA is only one example of the efforts amongst the drafters of the Model Law to find a compromise between countries whose legal systems are based on either common law or the Napoleonic Code. See International Shoe Co. v. State of Washington, Office of Employment Compensation & Placement 326 U.S.310, 90 L. Ed. 2d 95, 66 S.Ct.154 (1945), illustrating the convergence between the notion of "minimum contacts" and the continental construct of defendants being haled into court only in jurisdictions where their headquarters or branch office is located. The Model Law has also been adopted in some form in Illinois and nine other U.S. jurisdictions regardless of governing law. It must be pointed out that the adoption of more and more state laws has caused some controversy on the part of the text writers as to whether these "Little Model Laws" undercut the salutary effect of the Federal Arbitration Act (FAA) 9 U.S.C. §1, et. seq. because of their varying provisions and court interpretations surrounding them.

Accordingly, it is quite a simple matter for the smallest business client and its lawyer to become involved in an "international arbitration," arising from any sort of "international" commercial dealing as defined above. Of course, since all of ADR is to some degree consensual, it is necessary to provide for it by agreement of the parties. Obviously, it is preferable to decide that arbitration, rather than resort to court, is desirable when crafting the deal. Practitioners should think through and plan for all the possible issues to be encountered in the arbitration process, despite all of the parties initially agreeing that the transactions will never give rise to a dispute. Such pre-transaction work, needless to say, is seldom done. Even if the contracting parties agree that arbitration or some other form of ADR is preferable to court proceedings and are willing to spend the time and money to negotiate an all encompassing clause in that regard, they may find that certain issues elude them.

Some examples of items of importance for inclusion in an agreement to arbitrate a dispute, as reflected by the Appendices to P. Friedland’s excellent book, ARBITRATION CLAUSES FOR INTERNATIONAL CONTRACTS (2000) are:

  1. affiliates
  2. arbitrators, method of selection and number of arbitrators
  3. specific qualifications of arbitrators
  4. choice of law
  5. confidentiality
  6. costs and fees
  7. currency of award
  8. damages (consequential or punitive)
  9. discovery
  10. entry of judgment
  11. general purpose institutional clause
  12. governing arbitration law
  13. institutional model clauses
  14. interest
  15. intergovernmental organizations
  16. judicial forum (asymmetrical or sole option)
  17. judicial forum for enforcement of arbitration agreement
  18. judicial forum (exclusive or non-exclusive)
  19. judicial review (excluded or expanded)
  20. jurisdictional defenses (including waiver)
  21. jury waiver
  22. language
  23. limitations periods
  24. mediation-as-a-first step provision
  25. multi-party contracts
  26. narrow scope
  27. negotiation-as-a-first step provision
  28. non-administered arbitration (without designated set of rules)
  29. offsets
  30. place of arbitration
  31. preliminary adjudication of threshold issues
  32. provisional relief
  33. related contracts
  34. service of process
  35. sole option arbitration clauses
  36. sovereign agreements for existing disputes
  37. UNCITRAL Model Clause
  38. witness statements