ICC Articles

After the Second World War, the member countries of the Council for Mutual Economic Assistance (CMEA) developed a sophisticated system of international commercial arbitration for settling business disputes between economic organizations based in CMEA member States. For business disputes between these organizations and Western companies a pragmatic solution was eventually found, namely institutional arbitration in neutral countries like Switzerland and, later, Sweden and Austria. Also, the services of internationally recognized arbitration institutions such as the ICC International Court of Arbitration were used. There was usually no difficulty in enforcing arbitral awards rendered against economic entities in CMEA countries. These countries had a political interest in keeping the system running and, as such entities were directly controlled by the State, they were able to ensure that awards were actually paid.

The fall of the Berlin Wall and the demise of the CMEA marked a turning point in what was known as EastWest arbitration. All former CMEAcountries and the successor States of the former Soviet Union have since adopted arbitration laws largely based on the UNCITRAL Model Law, and their arbitration centres-for the most part attached to chambers of commerce and industry- have adopted more liberal arbitration rules. The courts of arbitration at the chambers of commerce and industry in the capitals of CMEA countries have lost their former monopoly over international commercial arbitration, and adhoc and local arbitration is now possible in most of these countries.

Despite these changes, some features of the old CMEA arbitration system still survive in former CMEA countries. This is only to be expected in such an evolutionary process, which inevitably builds upon experience established in [Page531:]

the past and cannot all of a sudden obliterate practices and expectations that local parties considered as reasonable and useful, albeit under different circumstances.

For Western companies, the enforcement of arbitral awards in former CMEA countries is now often a difficult and cumbersome matter, due, amongst other things, to uncertainties over ownership status, the frequent lack of reliable land registers and registers of companies, and the inexperience of the courts in the face of an entirely new situation.

Now that several former CMEA countries and successor States of the Soviet Union have joined the European Union, their economic relations with other member States will undoubtedly grow. Their current system of international commercial arbitration is in turn likely to be affected if their arbitral institutions become more involved in the settlement of international commercial disputes between companies in the newly enlarged European Union and if more adhoc arbitrations, which were not permitted under the old system, take place in these countries.

In this essay I will briefly draw attention to some of the differences between 'Western' arbitration and the arbitration system still existing in some former CMEA countries and which must eventually be abolished if the arbitration centres and ad hoc arbitration in these countries are to become more widely accepted by trading partners from neighbouring EU countries. To understand the issues at stake it is necessary to make a short excursion into the past.

It may be noted that some of the arbitration courts in former CMEA countries have a longer tradition than many arbitration centres in 'Western' countries. For example, the Moscow Maritime Arbitration Commission was set up in 1930 and closely followed in 1932 by the Foreign Trade Arbitration Commission of the USSR Chamber of Commerce. After the Second World War, arbitration courts were established at the Chamber of Commerce of Czechoslovakia and at the Polish Chamber of Foreign Trade in 1949 and at the Hungarian Chamber of Commerce in 1951. With the exception of the former Soviet Union and Poland, only one arbitration court was established in each country. The relevant conventions, such as the Moscow Convention, laid down the general principle of arbitration at the place of business of the respondent, although parties could agree upon the jurisdiction of a court of arbitration in a third CMEA country. [Page532:]

In 1975, in the Final Act of the Helsinki Conference on Security and Cooperation in Europe, the participating States recognized arbitration as an appropriate means of settling disputes that arise from commercial transactions relating to goods and services and contracts for industrial cooperation. They recommended that, where appropriate, organizations, enterprises and firms should include arbitration clauses in commercial contracts and industrial cooperation contracts, or in special agreements. They further recommended providing for arbitration under a mutually acceptable set of arbitration rules and allowing arbitration in a third country. As a result, arbitration has long had a place in EastWest commercial transactions and industrial cooperation. Indeed, this is probably the only example of geographically defined trading relationships where arbitration clauses were included in almost all commercial contracts.

As already mentioned, commercial arbitration had a specific role in CMEA countries at that time. The 1958 General Conditions of Delivery of Goods applicable to organizations in CMEA member countries, the 1979 version of the 1968/1975 revised General Conditions of Delivery and similar provisions in other general conditions provided that disputes arising from contracts governed by these general conditions between economic organizations of CMEA countries had to be referred to arbitration and not to the courts. The system worked satisfactorily within the CMEA.

In 1974, model Uniform Rules for arbitration courts attached to chambers of commerce and industry in CMEA countries were issued. The CMEA Executive Committee approved these rules at its 66th session and recommended to member States that the arbitration courts attached to chambers of commerce and industry should bring their arbitration rules into line with this model by 1 January 1975. The necessary amendments were made to all arbitration rules during 1975. Although the resulting rules only had to be applied to disputes between economic organizations in CMEA countries, all but one of the courts of arbitration applied them also to disputes with companies from other countries. ¹ Hence, the harmonization of the rules had a bearing on EastWest arbitration too.

CMEA arbitration was characterized by the fact that it was the only means of settling disputes between economic organizations in member States and it was necessarily institutional arbitration before the arbitration courts of the chambers[Page533:]

of commerce and industry in the capitals of the member countries. Ad hoc arbitration and arbitration before an institution outside the CMEA region was not allowed. The place of arbitration was the capital of the respondent's country. Alternatively, the only other possibility was for the parties to agree on the jurisdiction of the arbitration court in the capital of a third CMEA country. Consequently, there was no need for economic organizations from two different

CMEA countries to write an arbitration clause into their contracts if they were happy for disputes to be referred to the arbitration court of the chamber of commerce and industry in the country of the future respondent. Only if they preferred disputes to be referred to the arbitration court of the chamber of commerce and industry in the capital of a third CMEA country was it necessary to stipulate this in their contracts.

One of the aftereffects of this system is the relatively large number of defective arbitration clauses reflecting the old CMEA system and the belief that this system is also valid in Western countries. Examples of such clauses are 'arbitration before the competent court of arbitration' and 'the arbitration court in the city of Vienna'. These clauses are often found in contracts that have been drafted by companies in States newly established after the collapse of communism. This is largely due to the fact that international trade was formerly monopolized by State foreign trading companies based in the capitals of their respective countries and the inhouse counsel of these large companies were therefore practically the only people conversant with the CMEA arbitration system and arbitration worldwide. When communism collapsed, most of these inhouse counsel set up as attorneys, with the result that the companies that succeeded the former foreign trading companies and the newly established companies, especially outside the capitals and in newly established states, were staffed by less experienced people. However, it should be added that these defective clauses were also signed by Western business partners, which showed that they too were apparently not very familiar with the essential requirement in international arbitration of a valid arbitration agreement clearly indicating the agreed arbitration institution or ad hoc arbitration.

As far as my own country, Austria, is concerned, the Supreme Court has gradually adopted a realistic attitude and assumed that the drafters of contracts and arbitration clauses are often businessmen rather than lawyers. Accordingly, it has taken as the basic test for the validity of an arbitration agreement not just the language of the agreement but also what the parties reasonably intended to agree under the circumstances. This attitude has saved several arbitration clauses that would have been declared void if their language alone had been considered. [Page534:]

Another means of validating a defective arbitration clause is offered by Article IV of the European Convention on International Commercial Arbitration made in Geneva in 1961. This Convention, ratified by all CMEA countries and now valid in the successor states of the former Soviet Union, has also been ratified by Austria, Germany, France and Italy, amongst others. According to Article IV(5) of the Convention, the President of the competent Chamber of Commerce, as notified by ratifying States to the UN Economic Commission for Europe (ECE) in Geneva, ² or a Special Committee established for this purpose under the Convention, may, if requested by a claimant, determine an arbitration institution in cases where the parties have agreed to submit their disputes to a permanent arbitration institution but have not agreed or are unable to agree on the institution in question. I can attest that the President of the Austrian Federal Economic Chamber has used this power on several occasions in the past and thereby saved a good number of pathological arbitration clauses. The Geneva Convention would appear to have been wrongly branded as an EastWest convention that has become out of date since the political change in Europe, for it contains several provisions that are still useful.

The ultimate solution to the problem of pathological arbitration clauses, however, is to spread the knowledge that a correctly drafted arbitration agreement is the basis of any arbitration. This needs to be done not only in former CMEA countries but also amongst Western companies that trade with companies from the former Eastern bloc and have until now signed the pathological arbitration clauses proposed by their Eastern partners.

The new arbitration rules adopted by permanent arbitration courts in former CMEA countries since the collapse of communism have in many cases followed the worldwide approach towards globalization. This is especially true of those arbitration courts that already played an important role in former EastWest arbitration and which were run by recognized experts respected in the international arbitration community. Other arbitration courts, however, to varying degrees, still contain provisions originating from the former system. For this reason, it is necessary to mention some of the basic principles underlying the Uniform Rules referred to above, as they are still to be found in arbitration rules currently in force. [Page535:]

The Uniform Rules were based upon the traditions of continental civil procedure, as all former CMEA countries belonged to the civil law system. The rules gave the parties freedom to choose the applicable law and to waive or change provisions. Hearings were, in general, public, although this provision had no practical significance. Awards were not considered as the private property of the parties but could be-and often were published. This made sense at the time in order to avoid divergent interpretations of common CMEA provisions. Some arbitration courts still continue this practice. However, consideration should be given to adopting the position taken in Western international commercial arbitration, where arbitral proceedings and arbitral awards are regarded as private.

The rules of the former CMEA arbitration courts have always shown a preference for arbitral tribunals comprising three arbitrators. The Uniform Rules expressly allowed for the possibility of a sole arbitrator.The modern rules of arbitration courts in former CMEA countries also allow for this possibility, provided the parties agree. Failing such agreement, the dispute is decided by a threemember arbitral tribunal. This basically corresponds to the position taken in the UNCITRAL Arbitration Rules and which in 1976 reflected an internationally accepted standard. Since then, however, not least for cost considerations, a trend has emerged in favour of a sole arbitrator unless there is a good reason to have a dispute decided by three arbitrators. Many Western arbitration rules therefore delegate the decision on the number of arbitrators to an organ of the arbitration institution provided for in the arbitration rules, if the parties cannot agree upon the number of arbitrators after the dispute has arisen. It would be helpful if the rules of arbitration courts in former CMEA countries contained a similar provision. Given that they currently favour threemember tribunals if the parties have not agreed on a sole arbitrator, it is advisable at the present time for parties to agree upon the number of arbitrators in their arbitration agreement, when the nature of a possible future dispute is unknown.

The Uniform Rules said nothing about the nationality of arbitrators. Nowadays, all arbitration rules allow foreigners to act as arbitrators, although in some instances only if their names appear on a list kept by the arbitration court. I was puzzled to learn that the expression list of 'recommended' arbitrators referred to in the arbitration rules of an arbitration court in a former CMEA country meant not only that the persons listed are recommended but that the parties cannot appoint persons who are not listed. Provisions can also be found limiting the choice of a presiding arbitrator by the competent organs of arbitrations courts and/or partyappointed arbitrators to persons whose names appear on the list of arbitrators. It is time that those lists were put out simply for guidance, so that parties, partyappointed arbitrators and arbitral institutions could, if they wished, appoint people whose names[Page536:] do not appear on the lists.

Under some of the new rules of arbitration courts in former CMEA countries, a party wishing to nominate a foreign arbitrator is required to advance and, in some cases, definitively bear the additional costs caused by such appointment. The same applies if the partyappointed arbitrators wish to appoint a foreigner as the third arbitrator. In my opinion this is inadmissible in international arbitration and blatantly discriminates against a foreign party that does not appoint a local arbitrator. Any arbitration courts whose rules still contain such provisions should consider removing them for international arbitration when their rules are next revised.

The Uniform Rules provided that documents could be submitted either in the language of the contract or that of the correspondence between the parties, or the national language(s) of the country where the arbitration court was located. This is a satisfactory provision. The same cannot be said of the provision concerning the language of the proceedings: here, the Uniform Rules provided for the use of the national language(s) at the place where the arbitration court is situated, or other languages subject to the parties' consent. Similar provisions still exist in the rules of some arbitration courts in former CMEA countries. Although all of these rules allow the parties to agree otherwise, it would in my opinion be preferable to have more liberal provisions, for example leaving it to the arbitrators to decide the language(es) of the arbitration if the parties are unable to agree.

Arbitration institutions in former CMEA countries administer arbitration proceedings to a much greater degree than Western institutions. There is a trend in the West towards giving arbitrators more administrative activities whereas in former CMEA countries the secretariats of the arbitration courts still closely administer proceedings from the receipt of the statement of claim to delivery of the award to the parties. From a Western perspective they appear more akin to a commercial court than an arbitral institution. This fact is reflected in the relatively high administrative fees they charge. On the other hand, it may be said that the compulsory provision of full administrative services may be useful to arbitrators who do not have an administrative structure of their own (which would be unusual in international arbitration in the West). It would be advisable, therefore, for arbitration courts in former CMEA countries, when revising their rules, to give arbitrators the possibility of using their own administrative structure for administering a case. [Page537:]

Under the rules of most arbitration courts in former CMEA countries, administrative fees and arbitrators' fees were-and still are-calculated as a percentage of the sums in dispute, as is the case in many of the Western arbitration centres. However, the percentage of administrative fees charged by some of these courts was and is much higher than in the West and may represent up to 50 per cent of the total arbitration costs. On the other hand, the arbitrators' fees paid by some of these courts are rather marginal by Western standards. As already stated, more administration costs more money. Yet this is also a philosophical issue: whether an arbitral centre should be regarded as a profitmaking entity or a service institution that, although required to cover its expenses, is not expected to earn a surplus. In any event, the monies kept by arbitration courts for their services reduce, in practice, the sums available for arbitrators' fees. As mentioned above, consideration should be given to cutting down the present administrative structures by transferring some of the administration to the arbitral tribunal.

As a rule of thumb, good arbitrators who do not normally work fulltime in such will need to earn approximately the same money they earn in their main profession if they are to accept mandates on a regular basis. This has caused and continues to cause problems in EastWest arbitration due to the difference in the standard of living. While the remuneration of a local arbitrator in an EastWest arbitration is satisfactory according to local standards, it might be a fraction of what a Western arbitrator sitting in the same arbitration would be paid in his own country or, as good international arbitrators are often attorneysatlaw, what his law firm would require him to earn for the time spent. Names of wellknown Western arbitrators appear on the lists of arbitrators of all arbitration courts in former CMEA countries. It may be asked, however, whether these persons, if requested, would actually agree to act as arbitrators for the fees paid by these institutions. If the answer is no, it is misleading for their names to be on the lists.

I am fully aware that arbitration courts in former CMEA countries are faced with a problem if they wish to attract the services of experienced international arbitrators in their international arbitral proceedings, because the approximation of living standards will take time. As many of these arbitration courts now also administer domestic cases, an interim solution might be to introduce separate fee schedules for domestic and international cases. It may be noted that local companies already pay higher arbitrators' fees when, as is often the case, they agree to institutional arbitration in a Western country. [Page538:]

To bridge the gap between institutional arbitration rules in the West and the East, much was also done on a bilateral level in the past, although this is now largely forgotten. As an example, I will mention the activities which the Austrian Federal Economic Chamber and later its International Arbitral Centre developed with corresponding organizations in most former CMEA countries.

Like similar institutions in other countries, the Austrian Federal Economic Chamber entered into a series of bilateral cooperation agreements in the field of international arbitration. Although the detail of these agreements varied, they generally provided for mutual exchange of information and assistance in cases involving nationals of one of the countries, and sometimes contained an arbitration clause recommended for insertion in contracts between nationals of the two countries concerned. The recommended arbitration clause usually provided for arbitration through the arbitration centre in the respondent's country, or alternatively, if the claimant so chose, ad hoc arbitration under the ECE Arbitration Rules, later the UNCITRALArbitration Rules. This alternative was intended to bridge the big differences between the arbitration rules at the time. The Austrian Federal Economic Chamber made the first of these arbitration agreements with the Czechoslovak Chamber of Commerce and Industry in 1981. Several agreements of a similar kind followed with other institutions.

When I tried to negotiate a similar agreement with my then Hungarian counterpart, Gyula Sebestyén, we had a lengthy discussion about the differences between our respective arbitration rules. I pointed out that the Austrian rules were more liberal than the Hungarian rules and also that there were great differences between the schedules of the arbitration costs. At the end of this discussion Mr Sebestyén said to me: 'My dear friend, let us forget about our respective arbitration rules. There exists now a new set of rules, the UNCITRAL Arbitration Rules, which are universally recommended by the UN. Let us take these rules and let us make a schedule of arbitrator's fees and administrative expenses in a convertible currency. This would place the parties from our respective countries on an equal footing.' I was fascinated by this idea and we immediately drafted a cooperation agreement mentioning that the appointing authority under the UNCITRAL Arbitration Rules should be the President of the Chamber of Commerce and Industry in the country of the respondent (in the case of Austria, the President of the Austrian Federal Chamber of Commerce) and that the secretariat of the arbitration centre run by that Chamber should serve as administering authority. We also drew up common schedules for arbitrators' fees and administrative expenses in US dollars comparable with Western levels. This agreement was signed in October 1982 and proved to be[Page539:] successful from the very beginning. As a result, the same scheme was adopted in a new cooperation agreement with the Czechoslovak Chamber of Commerce and Industry in 1988 and was renewed with the Economic Chamber and the Agricultural Chamber of the Czech Republic in 1999. The same pattern was followed for a cooperation agreement with the Croatian Economic Chamber in 1996 and the Chamber of Commerce and Industry of Slovenia in 2003. This scheme has thus survived the political change and proved its usefulness today too, for the parties to these agreements have set up institutional arbitration facilities, mainly for bilateral trade relations, which give potential users an additional choice. A positive sideeffect of these agreements has been to enhance mutual cooperation between the arbitration courts involved, as it is in their common interest to administer arbitration cases in the same way.The success of this system suggests that other arbitration institutions could well benefit from copying it in the future.

Before ending, another example of EastWest cooperation, which has also almost been forgotten, should be mentioned, namely the socalled trilateral agreements. In January 1977, through an exchange of letters, the USSR Chamber of Commerce and Industry and the American Arbitration Association agreed on an 'Optional Arbitration Clause for Use in Contracts in USAUSSR Trade 1977' and agreed to bring this clause to the attention of business circles in their respective countries. The clause provided for arbitration under the UNCITRAL Arbitration Rules and named the Stockholm Chamber of Commerce as the appointing authority, the latter having agreed to perform the various functions referred to in the clause. The USSR Chamber of Commerce and Industry and the AAA also established a joint panel of presiding arbitrators, all of whom were nationals of third countries. Their agreement confirmed Sweden as a neutral place for EastWest arbitrations.

At the invitation of the Austrian Federal Economic Chamber, a working group of American, Hungarian and Austrian experts was set up in 1980 to study Austrian arbitration law and practice with a view to ascertaining whether they were workable for international arbitration and whether Austria would qualify as a possible place for arbitrations between American entities and Hungarian foreign trade organisations. I would like to take this opportunity to thank Judge Howard Holtzmann, who presided over the AAA delegation and who has been the spiritus rector of the whole undertaking, and Professor Ivan Száz, leader of the Hungarian delegation, for all they have done to give Austria the status of a recommendable venue for EastWest arbitrations. The report of this working group served as basis for the 1983 amendment of Austrian arbitration law in the Austrian Code of Civil Procedure. [Page540:]

Trilateral agreements of the kind mentioned above between the AAA, the USSR Chamber of Commerce and Industry and the Stockholm Chamber of Commerce were signed between the AAA, the Austrian Federal Economic Chamber and the relevant chambers in Hungary (1984), Bulgaria (1985), the CSSR (1989), Poland (1988) and the German Democratic Republic (1990).

The quality of international arbitration depends largely on the quality of the persons involved, be they officers of arbitration centres or arbitrators. One of the first requirements for EastWest arbitration to work smoothly was to establish confidence between the players from both sides. At international level, the International Council for Commercial Arbitration (ICCA), through its congresses and seminars, provided an international platform for informal contacts between practitioners of EastWest arbitration. Some of these events took place in former CMEA countries, such as the fourth ICCA congress in Moscow in 1972 and an international ICCA symposium in Warsaw 1980. Nowadays, this is no longer a problem, as there are a great many events in Europe each year where arbitration specialists can meet and exchange views.

To conclude, my intention in this contribution has been to show that we can look back to many years of fruitful cooperation between arbitration institutions in former CMEA countries and Western based on mutual trust and personal esteem and friendship between the persons involved. We are now, to a certain extent, still in a transition period during which the systems need to be brought into line with each other. I have made some critical remarks in the hope of showing where, in my opinion, further approximation of arbitration rules in central Europe would be desirable so as to prepare for greater cooperation in international arbitration within the European region. [Page541:]