Julian D M Lew*

The authority and jurisdiction of arbitrators are in every instance dependant upon two factors: the autonomy of the parties and the laws of the competent national jurisdictions. Arbitration, as an alternative forum to national courts for the determination of disputes arising out of international commercial and other relationships, can only take place if agreed to by the disputants, either in advance, ie, in an arbitration agreement (normally an arbitration clause in a contract), or by way of a submission to arbitration of a specified existing dispute. It is because arbitration will generally be resorted to only if the parties have so agreed, that it is most accurately described as a private dispute settlement mechanism.1

In addition to the agreement of the parties, the relevant national laws also, directly or indirectly, influence the effectiveness of an arbitration agreement. If an arbitration agreement does not cover the nature of the dispute submitted to arbitration or is in respect of a subject-matter which the law prohibits from being dealt with by arbitration, it will be ineffective: it will neither be recognised nor enforced under the laws of an interested legal system. Thus, for example, if a particular subject-matter cannot be submitted to arbitration under the law of the place of arbitration or under the law governing the contract, then the arbitration agreement will be unenforceable.2

In such circumstances, if the arbitrator's jurisdiction and authority are challenged he may determine that he is legally unable to undertake the arbitration, or certain parts of it, on the grounds that, eg, the subject-matter is not capable of settlement by arbitration3 and will stop the proceedings and allow the parties to seek to determine and enforce their rights and remedies in another forum. If the arbitrator does continue with the arbitration and proceed to reach an award on the merits, he does so with the knowledge that if he did not validly have jurisdiction he runs the risk that the award will be defective 74 and either the party against whom it is made will seek to have it set aside, or the award will simply be unenforceable.4

Regardless of the implications of the law on an arbitration agreement, the principal issue to be determined in any case is the extent of the parties' autonomy, as this is the basis of every arbitration agreement. In the absence of the parties' express agreement there can be no arbitration, and the parties must seek their remedies before the competent national courts. The authority of arbitrators to determine specific disputes arising out of a contract or other contractual relationship is based on the parties having directly specified or impliedly indicated that particular disputes or types of dispute `arising out of or in connection with such contract' should be resolved by arbitration. It is also for the parties to determine the form of arbitration, ie, ad hoc or institutional, and should they wish all other technical and procedural matters affecting the arbitration. Failure of an arbitrator to stay within the parameters of his authority as set forth in the arbitration agreement or as otherwise specified by the parties could result in the award being set aside or un.enforceable.5

Two separate issues arise where the authority or jurisdiction of the arbitrators is in issue. First, who should determine the authority or jurisdiction of the arbitrator: he himself or a competent national court? Essentially the arbitrator's jurisdiction may be questioned either on the grounds that the arbitration agreement does not cover the issue in dispute, or because the arbitration agreement is void due, for example, to the subject-matter being one which the relevant law precludes from being submitted to arbitration. Second, some matters are precluded from being submitted to arbitration under the mandatory provisions of the applicable law or public policy (ordre public), irrespective of the will of the parties.

Notwithstanding the existence of an arbitration agreement, questions may be raised in many instances as to the validity or effectiveness of an arbitration agreement. In some cases one party may, for various reasons and with hindsight, wish to avoid arbitration and prefer the dispute to be considered by national courts. This situation may manifest itself as a result of different actions taken by one of the parties.

First, one party could start court proceedings on the dispute leaving it for the other party to seek a stay of those proceedings on the basis of an existing and valid arbitration agreement. Whether such a stay is granted would be a question to be determined by the national courts. Essentially it would depend on the validity of the arbitration agreement, the attitude of the court to arbitration, and the balance of convenience. As a general rule most national courts will defer to arbitration proceedings provided the arbitration is in respect of a defined legal relationship, whether contractual or not, concerning a subject-matter capable of settlement by arbitrafion6 and `unless it finds that 75 the agreement is null and void, inoperative or incapable of being performed'.7

Second, it may be possible for a party to petition the court for a declaration that the arbitration agreement is void or, in the particular circumstances, should have no effect.8 Such a declaration may be sought for various reasons: to clarify various differences between the parties, or to open the way to seek the setting aside of an award in another country, or as a prelude to defending an action to enforce an award. The obtaining of such a declaration would depend on criteria of national law, whether the arbitration agreement concerns a subject-matter that can be settled by arbitration, `is null and void, inoperative or incapable of being performed', and national and international public policy.9

The third situation is, I believe, the most common: it is where one of the parties challenges the arbitrator's authority and jurisdiction in front of the arbitrator. The challenge may be raised as soon as the arbitrator gives notice of his appointment, requires the parties to appear before him, makes an order as to procedure, time-table or discovery, or at any later stage.10 The party challenging the arbitrator's jurisdiction will present his arguments either on a general basis, that the arbitration agreement is null and void, inoperative, incapable of being performed, etc, or on some specific ground, that the dispute does not fall within the scope of the arbitration agreement, or the subject-matter is one that cannot under its proper law or for some other reason be submitted to arbitration. In some circumstances, the challenging party may reserve his position so that his challenge to the arbitrators cannot be construed as an acceptance of the arbitrators jurisdiction. In this situation, in the event that the arbitrator should decide that he does have jurisdiction to hear and make an award on the merits, the challenging party will have to decide whether to participate in the arbitration and present his case on its merits, or to stand back and allow the arbitrator to make his award on the basis of the evidence presented by the claimant only, and then to seek either to have the award set aside in the courts or to challenge it when the claimant looks to enforce the award.11

The principal question which has long been a source of confusion is whether the arbitrator has the right to determine his own jurisdiction. The reasons for 76 the challenge to the arbitrator's authority or jurisdiction may be various: it may relate to the subject-matter of the dispute or the purport of the arbitration agreement; equally, it may give rise to fundamental questions as to the validity of the main contract in which the arbitration agreement is included and the arbitration agreement in itself. In this latter situation it would be argued that as the main contract is null and void, eg, induced by fraud or for an illegal purpose, so all its provisions including the arbitration clause, are void and of no effect. Accordingly, it should follow, as the arbitration provision is void ab initio, the arbitrator has no authority to undertake any arbitration proceedings, not even to determine the validity of the main contract and whether, in fact, the main contract is null and void (eg, was there fraud or is the purpose illegal, and is this sufficient to nullify both the main contract and the arbitration agreement?).

The main issue then is who should decide the validity of the main contract, ie, national court or arbitrators, and whether the arbitration agreement stands and falls with the main contract? Traditionally most legal systems considered that questions of the arbitrators' jurisdiction should be determined by the national courts. This was particularly the position in England where, under the old case stated method, it was possible for an arbitrator to refer the question to the court.12

However, in recent years, with the increase in the use of arbitration to resolve international trade issues and the development of a body of rules and practices for international commercial arbitration, the laws of many countries have altered to uphold the effect of an arbitration agreement even where the validity of the main contract is in issue or is void. This situation recognised the doctrine of `separability' for the arbitration agreement, treating it as additional to and separate from the main contract, thus surviving the completion, termination or voiding of the main contract.13

Thus in the Gosset case14 the French Cour de Cassation declared that the arbitration clause was separate from the contract, and if the main contract was void the arbitration agreement only became void if the reason for the nullity of the main contract also affected the arbitration agreement. The same concept was endorsed by the United States Supreme Court in Prima Paint v Flood & Conklin15 where it was alleged that the contract had been induced by fraud. The court held:

`Except where the parties otherwise intend arbitration clauses as a matter of federal law are separable from the contracts in which they are embedded, and where no claim is made that fraud was directed to the arbitration clause itself, a broad arbitration clause will be held to encompass arbitration of the claim that the contract itself was induced by fraud.'16

English law still appears not to have adopted the separability doctrine as fully as other countries.17 It would appear that where a contract is illegal and therefore void ab initio, an agreement to arbitrate contained therein is also 77 void18 and whilst questions concerning the existence of the contract may be considered by the arbitrator, his award will not be binding and may be reconsidered by the courts.

The doctrine is today also recognised in most of the international arbitration rules. Accordingly, Article 8 of the Rules of the ICC Court of Arbitration provides:

3. Should one of the parties raise one or more pleas concerning the existence or validity of the agreement to arbitrate, and should the Court be satisfied of the prima facie existence of such an agreement, the Court may, without prejudice to the admissibility or merits of the plea or pleas, decide that the arbitration shall proceed. In such a case any decision as to the arbitrator's jurisdiction shall be taken by the arbitrator himself.

4. Unless otherwise provided, the arbitrator shall not cease to have jurisdiction by reason of any claim that the contract is null and void or allegation that it is inexistent provided that he upholds the validity of the agreement to arbitrate. He shall continue to have jurisdiction, even though the contract itself may be inexistent or null and void, to determine the respective rights of the parties and to adjudicate upon their claims and pleas.' (Emphasis added)

Similarly, Article 16 of the UNCITRAL Model Law on International Commercial Arbitration provides:

(1) The arbitral tribunal has the power to rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a contract shall be treated as an agreement independant of the other terms of the contract. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.' (Emphasis added)

Although the provisions of some national laws may not yet have adopted the liberalism of the ICC Rules and the UNCITRAL Model Law, it would appear that today an arbitrator appointed pursuant to a valid arbitration agreement in respect of a dispute arising out of an international contract, has the widest powers and duties to consider all aspects of his authority and jurisdiction. He should not decline jurisdiction or refuse to consider and reach a decision on a particular issue, merely because one of the parties has raised an objection to his jurisdiction or indicated that he will seek to have the arbitrator's award set aside or challenge it when enforcement is sought. Rather he can and should consider the extent of his authority and his jurisdiction under the arbitration agreement, the validity of the main contract in which the arbitration agreement is included, and notwithstanding his conclusion on this matter, the rights and obligations of the parties in the prevailing situation.

Furthermore, even if he concludes that the main contract is invalid, this does not affect the arbitrator's authority under the arbitration agreement, and his award on any of these matters will generally be recognised and enforced subject to the provisions of the New York Convention.

Although arbitrators are free and indeed have a duty to investigate fully the extent of their jurisdiction, the questions as to their competence become even more strenuously contested where serious issues of mandatory law or public policy are involved. An award made in contradiction to or merely ignoring a mandatory law or public policy could subsequently be set aside or be unenforceable. In this regard, Article V.2 of the New York Convention provides that the court where recognition and enforcement are sought may refuse such recognition and enforcement if it finds:

(a) The subject-matter of the difference is not capable of settlement by arbitration under the law of that country; or

(b) The recognition or enforcement of the award would be contrary to the public policy of that country.'

These same conditions are equally grounds for a court to set aside the award. Thus an arbitrator should always be mindful of his fundamental duty to reach a just and fair award which is valid and enforceable: if it is not, the whole arbitration will have been for nothing.

There are certain subject-matters which have a `public policy' character and immediately give rise to fundamental challenges to the arbitrator's jurisdiction. We shall deal here with two particular questions: (1) anti-trust law, and (2) bribery and corruption. It is often alleged that the existence of questions affecting either of these matters precludes the arbitrator immediately from hearing the dispute and reaching a decision on the merits.

The regulations that protect the essential fabric of the market economy system have traditionally been considered to have mandatory application and a public policy character.

The application and effect of these rules differ in the territory of application. This is perhaps most notable in the distinction between the European Economic Community and the United States anti-trust rules. In the United States there is no procedure for obtaining an administrative ruling or clearance for a particular arrangement, except in the case of a merger or acquisition. Violation of anti-trust law is a felony punishable by a fine of up to US$1 million. Furthermore, any party injured by reason of such a breach may bring a civil action which, if successful, gives rise to treble damages. In the EEC, by contrast, punitive damages inter partes are not recoverable; however, very high fines may be imposed by the Commission of the European Communities (`EC Commission') for contracts, practices or arrangements which are considered to affect or restrict free competition between Member States.

In the event of a dispute arising out of an international commercial contract that provides for arbitration, the question arises how the arbitrator should react in the event of an issue of anti-trust law being raised. Specifically, can an arbitrator consider the merits of a dispute that involve the determination of certain competition law questions, or should he decline jurisdiction and direct the parties either to the national courts or competent executive organs to resolve the anti-trust issue before he considers the merits of the dispute.

In both the EEC and the United States the law and attitude on this matter is 79 in a state of evolution. We shall consider briefly the rules of both systems and the position that arbitrators should and do generally take where their jurisdiction is challenged because of anti-trust implications.

Article 85(1) of the Treaty of Rome 1957 prohibits as incompatible with the common market all agreements, decisions and concerted practices `which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market'. Such agreements or decisions are declared to be `automatically void'19 subject to express exemption being given from Article 85(1) for agreements, decisions and concerted practices which contribute

`to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.'20

Only the EC Commission has the power to grant exemption from Article 85 -Council Regulation 17. However, until such time as the EC Commission shall have initiated proceedings under Regulation 17 with respect to a particular arrangement, `the authorities of the Member States . . . remain competent to apply Article 85(1)'.21 To facilitate the granting of exemptions, under Article 85(3), the EC Commission has issued several block exemptions22 which automatically exempt transactions that would otherwise fall within Article 85(1) - normally on terms that any arbitration award on an automatically exempted agreement be notified to the EC Commission - thus precluding the parties from the obligation to notify the agreement to the EC Commission with a request for exemption from Article 85.

There has been uncertainty as to how an arbitrator should act when faced with a question of EEC law. Clearly he is bound to apply relevant EEC law provisions as they are incorporated into the laws of Member States; and failure to do so could render an award unenforceable, particularly where the particular EEC law has mandatory effect.23 However, arbitrators are not considered to be a `court or tribunal of Member States' for the purposes of a reference under Article 177 of the Treaty of Rome.24 In the circumstances 80 then, can an arbitrator be considered `an authority' of a Member State for the purpose of applying Article 85(1), prior to the EC Commission being involved? Or should an arbitrator decline jurisdiction immediately the relevance of Article 85(1) is raised? No definitive answers exist arid the EC Commission has stayed away from the debate.25 Nonetheless, from the earliest times, it has generally been thought that except where an issue is reserved exclusively for the jurisdiction of the EC Commission or some other Community organ, an arbitrator is not prevented by ordre public communautaire from determining his own jurisdiction in the light of EEC law.26

In reality, the attitude arid action of an arbitrator faced with an EEC anti-trust issue should be influenced by pragmatism rather than principle. Whilst an arbitrator may have been appointed pursuant to a valid agreement entered into bona fide by the parties, he must always be mindful that his award must be enforceable: if it is not, then the arbitrator fails the parties. Practically then, if one party should challenge the arbitrator's jurisdiction on the basis that the main contract is void contrary to Article 85(1) arid the arbitration agreement falls with the main contract, the arbitrator's duty, to both parties, is to investigate the facts arid relevant issues to reach at least an initial opinion as to whether Article 85(1) has been infringed.27 The generally recognised doctrine of separability must be accepted as extending to EEC anti-trust law, notwithstanding the public policy character of Article 85.

On the other hand, three fundamental limitations to this position must be recognised. First: in view of the complexity of Article 85 and the criteria that are normally taken into account by the EC Commission when determining its applicability to a particular factual situation, the arbitrator's decision can be, at best, prima facie. Whilst it will enable him to reject spurious and totally unjustifiable claims, which may be intended primarily to deprive the arbitrator of jurisdiction, the arbitrator's award cannot definitively resolve the fundamental issue, viz, whether the main contract did violate Article 85(1), due primarily to the fact that much of the economic data which the EC Commission would take into account is not available to him. However, the arbitrator's award should be considered dispositive inter partes: if enforcement of the award is sought, a court should generally recognise the arbitrator's award unless there is some manifest inconsistency or error. If one party remains dissatisfied arid considers the arbitrator to be wrong on the basic issue, he could notify the contract to the EC Commission and request negative 81 clearance28 though it is hard to imagine any circumstances where this would be in the best interests of the parties.

Second: if the arbitrator decides that the main contract does violate Article 85(1), he cannot make a decision as to the applicability of Article 85(3). This power is expressly granted to the EC Commission alone; not even a national court can do so. Thus even if the arbitrator should conclude that a contract or arrangement is void under Article 85(2), he cannot proceed to consider the merits of the dispute. The disappointed party may still, however, notify the contract to the EC Commission for exemption under Article 85(3), and if the party advises the arbitrator of his intention to do so, the arbitrator will almost certainly agree to stay the arbitration proceedings until after the decision of the EC Commission. On the other hand the arbitrator is free to decide that a contract does not violate Article 85(1) because it falls within a particular block exemption, he should not, of his own volition, refer the matter to the EC Commission for exemption under Article 85(3).

Third: if the main contract is void under Article 85(2), the arbitrator is empowered, pursuant to the doctrine of separability, to decide issues which are incidental or peripheral to the main contract, eg, to unravel the rights of the parties, order payment, repayment and restitution, and other property rights which were the subject-matter of the contract. These are matters which one would normally expect to fall within the arbitrator's jurisdiction and it is believed the parties would be able, notwithstanding the main contract being null and void ab initio, to enforce the arbitrator's award within these restricted confines.

Notwithstanding its pre-eminent position in world trade, the United States has not always shown the most liberal attitude towards arbitration: in fact it only adhered to the New York Convention in 1970. However, the Arbitration Act of 1925 recognises the position of arbitration as a dispute settlement mechanism in inter-state and international trade,29 and the Supreme Court decision in Prima Paints,30 recognising the separability of an arbitration agreement from the main contract, shows an approach to arbitration akin to that in Europe.

It is perhaps due to the `primacy' accorded anti-trust law in the United States,31 that one respected commentator has stated:

`. . . nothing seems more well established than the rule that anti-trust claims are not subject to arbitration.'32

However, in the recent decision of the United States Supreme Court in Mitsubishi Motors Corporation v Soler Chrysler-Plymouth Inc the accepted 82 rule that arbitrators cannot decide questions concerning anti-trust law was held not to apply to international (as opposed to domestic) arrangements.33

In the Mitsubishi Motors case a distributorship contract between related Japanese, Puerto Rican and United States parties contained a provision that all `disputes, controversies or differences which may arise between [Mitsubishi and Soler] . . . shall be finally settled by arbitration in Japan in accordance with the rules and regulations of the Japan Commercial Arbitration Association'. The dispute arose when Soler failed to meet its obligations under the distributorship agreement, and Mitsubishi petitioned for an order compelling Soler to submit to arbitration. Soler denied Mitsubishi's claims and counter-claimed, inter alia, that the agreement could not be referred to arbitration as certain of its provisions had the effect of dividing the United States market and were therefore in violation of the Sherman Act. The United States Court of Appeals, First Circuit Court had held34 that the anti-trust rules of the United States were of such importance that by allowing them to affect the arbitrability of an issue could not be considered parochial.35 This decision was further explained on the grounds that due to the public policy character36 of the Sherman Act, the arbitration agreement did not concern `a subject-matter capable of settlement by arbitration' as required in Article II(1) of the New York Convention and could therefore not be enforced by virtue of Article V(2)(a) of the New York Convention. However, the decision was reversed by the United States Supreme Court, which held that in international transactions it was open to arbitrators to rule on an allegation that the transaction violated United States antitrust laws.37

The meaning of public policy has been for many years, and remains, the subject of debate and diverging views. Initially a national doctrine, public policy has expanded to have effect beyond ordinary national territorial jurisdiction. Although certain basic concepts have become recognised as reflecting public policy, there still remains uncertainty, in the absence of an applicable mandatory law considered to have a public policy character as to what arrangements or actions are contrary to public policy. It is often difficult to define public policy, but courts are generally able to identify when a specific issue does not accord with public policy.

Most national laws recognise two levels of public policy: that applicable to purely domestic situations and that which applies where there is some international element. It is the latter type of public policy, `international public policy' (ordre public international), which is relevant in the context of 83 international arbitration. Thus a national court having to determine whether to enforce a foreign arbitral award would only refuse to do so if its content violates the international public policy of the forum.

An international arbitrator must be mindful of two types of public policy: the national international public policy of the country or countries in which the award may need to be enforced, and truly international38 or transnational public policy.39 This international public policy is not concerned with any national influences - albeit internationally orientated, but rather reflects only the fundamental standards of the international community, covering both trading standards and other humanitarian criteria, and is developed from common standards of national policies, as well as fundamental concepts which have been embodied in international conventions or other international instruments. Examples of international public policy of this type would include the maintenance of the basic human rights as set out in the United Nations Declaration, preventing terrorism, avoiding abuses by multi-national companies and eliminating bribery and corruption.

On a practical level how does international public policy affect the jurisdiction of an arbitrator? Essentially one party could challenge the arbitrator's jurisdiction on the ground that the base contract is void ab initio due to being contrary to international public policy, thus rendering the arbitration agreement void as well. In circumstances where international public policy is alleged to deprive the arbitrator of jurisdiction, as in all other cases where his jurisdiction is challenged, it is considered to be incumbent upon him to verify the facts and determine whether the contract is, in fact, contrary to some principle of supra-national public policy. The fact that the main contract is unenforceable due to its being for a purpose that violates supra-national public policy should not leave the arbitration clause without effect.

One recent award40 in which arbitrators sought to uphold international public policy concerned several inter-related contracts between two Yugoslav entities, and Dutch and Swiss entities. One of these contracts was fictitious with the sole object of getting round the restrictions of Yugoslav foreign exchange controls. The arbitrators held:

`These fictitious operations, giving rise to a credit which is itself fictitious, are contrary not only to Yugoslav legislation, but also to ethical and moral standards.

In general, any contract having an object contrary to the imperative laws or public policy, to ethics and moral standards is null and void absolutely. It is so according to the Austrian General Civil Code, Article 879, in force in Croatia and Slovenia in 1974, and according to the Yugoslav law on contractual obligations which came into force in 1978.

This principle is admitted in every country and all laws. It constitutes an international rule, an element of common law of contract in the international domain.'41

The arbitrators accordingly held all the related contracts to be affected by the invalidity of the fictitious contract and to be void and rendered an award accordingly.42

Most of the situations which appear to be contrary to international public policy, eg, contracts for bribing or corrupting Government officials,43 smuggling, drug trafficking, fighting as a mercenary or terrorist action, kidnapping or murder, are unlikely even to come to arbitration. However, in recent years arbitrators have on several occasions been faced with issues which violate international public policy. In this context, two specific issues exist. First, should the arbitrator raise the issue of international public policy if the parties do not argue the point and wish the matter to be considered on ist merits? Second, if the arbitrator finds the contract to violate international public policy should he stay his jurisdiction or reach an award on the merits.

The issue of international public policy in a particular transaction may become apparent because the arbitrator identifies it as a major influence on or the object of the contract, or because one of the parties specifically raises the issue in the arbitration.44 The first situation arose in the now well-known Argentine bribery case45 where the arbitrator was asked to determine entitlement to commission due to a contract having been obtained as a result of the agent's `activities' on behalf of the tendering company. Notwithstanding that neither party raised the issue of public policy and that they both wanted the matter considered on its merits, the Swedish arbitrator, Judge Gunnar Lagergren, held the object of the contract which he found was bribery, to be contrary to the public policy of all the systems of law involved and to be void: he therefore refused to make an award on the merits.

International public policy was brought into issue by one of the parties in a recent ICC case46 in which the Iranian plaintiff sought commissions for obtaining contracts for the Greek defendant with the Iranian Government. The defendant claimed that the plaintiffs efforts had not been dispositive in leading to the contract being awarded, and, moreover, that the agreement was void as the plaintiff's function had been to influence Iranian Government officials through secret payments and commissions. Although there was no evidence to prove conclusively that the plaintiff attempted to or did bribe Iranian Government officials, the Austrian arbitrator took cognisance of the endemic corruption of the previous Iranian regime and the success of the plaintiff's efforts on behalf of the defendant. Referring to the Argentine bribery case, the arbitrator held the base agreement to be void and rendered his award accordingly refusing to order commission payments for the plaintiff.47

These two awards reflect the obligations of arbitrators, accepted as private guardians of international commercial transactions and the developers of the lex mercatoria, to uphold the fundamental and accepted standards of international trade and not to fall into the role of enforcing international practices regardless of whether they concur with prevailing applicable law and accepted international commercial standards. In this capacity, there is justification for the arbitrator to react to a manifest violation of international public policy, even though the. issue has not been raised by either party.

This commitment ties in to the requirement that an arbitrator should ensure the award is ultimately enforceable in a national court as is well illustrated in the recent decision in Northrop Corporation v Triad Financial Establishment.48 A contract had been made which involved the payment of `commissions' to an agent in respect of arms sales to Saudi Arabia. The payment of commissions in this case was contrary to the United States Foreign Corrupt Practices Act and the Saudi Arabian Decree No 1275, of September 17, 1975. The arbitrators held that commission was payable to the agent under the contract, but the California Federal District Court refused to enforce the award on the grounds that the base contract was illegal under both United States and Saudi law and was therefore unenforceable. Although the court's decision was based on the legality of the commission arrangement and the United States' international public policy, contracts for the corruption of government employees are now generally recognised as contrary to supra-national public policy, which is perhaps the correct basis upon which the arbitrators should have refused to make an award in favour of the commission being payable.49

* The author acknowledges the assistance in the preparation of this paper of Adam Samuel, BA (Oxon), barrister-at-law, Calker Scholar of the Institut Suisse de Droit Comparé.
1 J Robert, L'Arbitrage: droit interne, droit international prive, 5th edition, Dalloz, Paris 1983,No 1 at 3; English House of Lords judgment in Bremer Vulkan v South India Shipping Corporation [ 1981) AC 909, at 983.
2 New York Convention, Article II(1) and (2); UNCITRAL Model Law, Article 8(1) .
3 New York Convention, Article II(1) and (2).
4 New York Convention, Article V(1)(a), (c) and (2): UNCITRAL Model Law, Article 36(1)(a)(i) and (iv) and (b).
5 New York Convention, Article V(1)(a) and (c); UNCITRAL Model Law, Article 36(1)(iii) and (iv).
6 New York Convention, Article II(1).
7 New York Convention, Article II(3); UNCITRAL Model Law, Article 16(1).
8 This possibility exists particularly in England; see Mustill and Boyd, The Law and Practice of Commercial Arbitration in England, Butterworths, 1983, at 514-15.
9 By corollary, in the United States a party can seek an order of a court that the other party submit to arbitration in respect of a specified matter: Arbitration Act 1925, Section 4.
10 With specific reference to the issue of the arbitrator's jurisdiction, to obviate situations of one party raising the matter late on in the proceedings when he anticipates the award may not be in favour and he wishes to prepare the ground for a possible application for the award to be annulled or as a defence against enforcement, the UNCITRAL Model Law has expressly provided: `A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than in the statement of defence' - Article 16(2). See also, European Convention on International Commercial Arbitration, Geneva, 1961 Article V(1).
11 In some jurisdictions a party who makes it clear that his participation is without prejudice to his subsequent right to challenge the award, does not waive that right. See, with respect to England, Mustill and Boyd, op cit 519-20. In other legal systems, the parties may be better off arguing the issue of the arbitrator's authority and withdrawing from the arbitration and challenging the arbitrators authority in the courts if his challenge does not succeed: eg, Switzerland, see: Le contrat International: L'arbitrage international, vol 1, Repertoire de droit international prive suisse, Berne, Staempfli, 1982, No 207-210.
12 Section 21, Arbitration Act 1950, repealed by Section 1 Arbitration Act 1979.
13 See, eg, Article 8, Concordat suisse; French Code of Civil Procedure, Article 1466.
14 Cass Civ, May 7, 1963.
15 388 US 395 (1967).
16 Ibid, at 402.
17 See Mustill and Boyd, op cit, at 78-82.
18 Joe Lee Ltd v Lord Dalmeny [1927] 1 Ch 300.
19 Article 85(2).
20 Article 85(3).
21 Regulation 17, Article 9(1).
22 See, eg, Regulation No 1983/83, on the Application of Article 85(3) of the Treaty to Categories of Exclusive Distribution Agreements; Regulation No 184/83, on the Application of Article 85(3) of the Treaty to Categories of Exclusive Purchase Agreements.
23 Ie, Community Regulations and Decisions are directly applicable in all Member States and have mandatory application - Article 189 Treaty of Rome.
24 European Court of Justice, Case No 102/81, March 23, 1982; Nordsee Deutsche Hochseefischerei Nordstern GmbH v Reederei Mond Hochseefischerei Nordstern AG & Co, and Friedrich Busse Hochseefischerei Nordstern AG & Co [1982] ECR 1095. This problem can be avoided under English law through the possibility of an appeal to the High Court, the court (rather than the arbitrators) will refer a question of EEC law to the ECJ: Section 1(2), Arbitration Act 1979; Bulk Oil (Zug) AG v Sun International Ltd [1983] 2 Lloyd's Rep 587.
25 The attitude of the EC Commission to arbitration as a dispute settlement mechanism was always - albeit not openly - slightly hostile. The early drafts of the directive on block exemption for patent licence agreements contained a provision, as have many decisions exempting specific arrangements from Article 85(1) of the Treaty, that any decision of arbitrators relating to the arrangement must be sent to the EC Commission. This is contrary to the fundamental principle of confidentiality arid privacy in arbitration.
26 A resolution adopted at the second ICCA conference held in Rotterdam in 1966 stated that `subject to the exclusive jurisdiction granted to the Community authorities, it falls to the arbitrators seized of disputes involving community law, to verify their authority arid to decide on the merits of Community public policy under the control of the appropriate authorities.' [1966] Revue de (Arbitrage (Special) 62. This resolution was strongly opposed by an influential group led by Maitre Jean Robert.
27 This is in fact the policy that has been followed in practice. See cases discussed in Julian DM Lew, Applicable Law in International Commercial Arbitration, Oceana, 1978, at paras 340-1.
28 Regulation 17, Article 2.
29 Op cit.
30 Section 2 of the Arbitration Act provides that an arbitration clause in a maritime commercial transaction `shall be valid, irrevocable and enforceable'.
31 Timberg, `Anti-trust Aspects of Patent Litigation Arbitration and Settlement', in Arbitration and the Licensing Process, R Goldscheider and M de Hass, eds, Licensing Executive Society International, New York, 1981, at No 3-39.
32 Mitsubishi Motors Corporation v Soler Chrysler-Plymouth Inc, 24 ILM 1064 (1985).
33 Reversing the decision of the United States Court of Appeals, First Circuit.
34 723 F 2d 155 (1983).
35 In this respect the Court had in mind the Supreme Court decision in Bremen v Zapata Off-Shore Co, 497 US 1, at 9.
36 It is noteworthy that the Court classified the Sherman Act as of such importance that it applied in an international arrangement which extended beyond the territory of the United States, distinguishing Scherk v Alberto-Culver Co, 417 US 506 (1974) where the securities legislation was held to only have mandatory effect, excluding a reference to arbitration, in such situations which involve United States residents.
37 See supra, Introduction at 3-4.
38 See Lew, op cit, at paras 407, 413.
39 Matray, `Arbitrage et ordre public transnational' in The Art of Arbitration: Essays on International Arbitration Liber Amicorum Pieter Sanders, eds J C Schultsz and A J van den Berg, Kluwer, 1982, at 241.
40 ICC Case No 2730/1982. Translation by the author.
41 Op cit, at 917-8.
42 This award appears to give national imperative laws an international or supra-national effect which is akin to the United Kingdom doctrine not to enforce a contract contrary to the law of a foreign and friendly state: Foster v Driscoll [1929] 1 KB 470; Regazonni v K C Sethia (1944) Ltd [1958] AC 301. As a general rule, the principle may be too widely construed.
43 El Kosheri and Leboulanger, `L'arbitrage face a la corruption et aux trafics d'influence' [1984] Revue de l'Arbitrage 3.
44 El Kosheri and Leboulanger, op cit, at 6, suggest bribery will be raised before arbitrators by a plaintiff who was to have benefited from the bribery had it been successful and is now seeking to recover money paid, or by a defendant when a plaintiff claims commissions to which he is entitled under an `agency' contract and the defendant alleges that the contract, even if successful, was for bribery and therefore illegal.
45 ICC Case No 1110/1963, reported in Lew, op cit, at para 423.
46 ICC Case No 3916/1982 , 111 Clunet 930 (1984).
47 See also, ICC Case No 3916/1981, reported in a comment in 111 Clunet 920-921 (1984).
48 593 F Supp 928 (1984).
49 This case is being appealed and the result is awaited with interest.