Born - CH 3 - Formation and Validity of Int Arb Agreements
Born - CH 3 - Formation and Validity of Int Arb Agreements
Born - CH 3 - Formation and Validity of Int Arb Agreements
1 A central issue in the enforcement of international arbitration agreements concerns the standards
for formation and validity of such agreements. These standards play an essential role in ensuring
that international arbitration agreements are enforced in an effective and efficient manner, and are
of substantial practical importance in the arbitral process.
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4 Different approaches have been taken to the standard of proof required to establish the
existence of an arbitration agreement. Some authorities have required a heightened standard of
proof, as compared to other contracts, holding that the parties’ agreement to arbitrate must be
clearly demonstrated or that waiver of access to national courts must be express. (231) Other
authorities have required a relaxed standard of proof, relying on the pro-arbitration policies of the
New York Convention and national arbitration legislation. (232) Finally, a few authorities apply the
same standard of proof required for the formation of other types of contracts. (233)
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The validity of arbitration agreements may also be challenged on the grounds of duress (or
wrongful threat). Duress has generally required the showing of a wrongful act or threat compelling
involuntary submission. In practice, most efforts to meet this standard for arbitration agreements in
commercial settings have failed, although there are exceptions (particularly in cases involving
individuals). Claims of duress must, in principle, be directed at the agreement to arbitrate itself, as
opposed to the underlying contract; in some instances, however, it is difficult to distinguish between
duress directed at the arbitration clause and duress directed at the underlying contract (e.g.,
signature of a contract at gunpoint).
[5] Illegality
26 It is elementary in most jurisdictions that an illegal agreement is not enforceable. In most
instances, courts and tribunals rely on the separability presumption to conclude that claims
attacking the legality of the underlying contract do not affect the arbitration agreement. (257) In
rare cases, courts have suggested that some types of illegality of the underlying contract may also
render the associated arbitration agreement invalid: “The English court would not recognize an
agreement between … highwaymen to arbitrate their differences any more than it would recognize
the original agreement to split the proceeds.” (258) Claims of illegality are also sometimes directed
at the parties’ arbitration agreement itself. These claims ordinarily involve the doctrine of “non-
arbitrability,” discussed below, rather that the illegality or invalidity of the arbitration agreement
itself.
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Neither the Convention nor the Model Law prescribe additional substantive or choice-of-law rules
with regard to capacity. In the absence of legislative guidance, the requirement that a party have
capacity to enter into an arbitration agreement is often identical to requirements for capacity for
other contracts. For example, generally-applicable contract defenses going to capacity – such as
mental incompetence, minority and limitations in constitutive corporate documents – apply to
arbitration agreements, just as they do to other acts.
A recurrent issue arises from agreements entered into by states or state-related entities. In some
instances, states attempt to disavow their international arbitration agreements, citing provisions of
national law restricting the power of government entities to conclude such agreements. Most
authorities disfavor such efforts, providing that a state may not invoke its own law to deny its
capacity to have made a binding agreement to arbitrate. (260)
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(less clearly) prejudice to the adverse party. Moreover, the party seeking to establish waiver under
the FAA bears a heavy burden of proof and doubts are resolved against finding a waiver.
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securities regulatory legislation; in other jurisdictions, securities claims may be the subject of a
valid agreement to arbitrate.
[3] Bankruptcy
38 In most jurisdictions, only courts (often specialized courts) have the authority to commence,
administer and conclude bankruptcy cases, including proceedings that liquidate a bankrupt
company, reschedule its debts, operate it under some form of receivership, or distribute pro rata
payments to creditors. Disputes concerning these “core” bankruptcy functions are almost
universally considered non-arbitrable, whether in domestic or international arbitrations. (271)
It is much more controversial whether disputes merely involving a bankrupt entity as a party (e.g., a
dispute arises between the debtor and a counterparty, under a contract containing an arbitration
clause) or raising questions of bankruptcy law (e.g., the continued effect of a contract), may be
resolved in arbitration. Different legislative regimes reach different conclusions about these types
of disputes. In many such cases, the desirability of a centralized, usually “pro-debtor,” forum for
resolving all or most disputes involving the debtor is weighed against that entity’s pre-existing
commitment to resolve disputes by international arbitration, with different legal systems adopting
different resolutions. The weight of authority supports narrow non-arbitrability rules in this context,
with international arbitration agreements of bankrupt entities often being given effect.
disputes, infringement claims). Other states treat disputes arising from trade sanctions or
embargoes as non-arbitrable, although the more frequent approach is to treat such disputes in the
same manner as antitrust disputes.
References
227) Article II of the New York Convention applies only to an “agreement … under which the
parties undertake to submit to arbitration,” while Article 8 of the Model Law applies only
where there is an “arbitration agreement,” defined as requiring “an agreement by the
parties to submit to arbitration all or certain disputes.” These provisions require the existence
of a validly-formed agreement to arbitrate, failing which there will be nothing for national
courts or arbitrators to enforce.
228) G. Born, International Commercial Arbitration 741-42 (2d ed. 2014).
229) Issues of formal validity of the arbitration agreement are discussed below. See infra Chapter
3: Formation and Validity of International Arbitration Agreements marginnumber
[14] to Chapter 3: Formation and Validity of International Arbitration Agreements
marginnumber [21]. See also G. Born, International Commercial Arbitration 656 et seq., 739-
43 (2d ed. 2014).
230) See G. Born, International Commercial Arbitration 800–01 (2d ed. 2014).
231) See G. Born, International Commercial Arbitration 752–54 (2d ed. 2014).
232) See G. Born, International Commercial Arbitration 754–55 (2d ed. 2014).
233) See G. Born, International Commercial Arbitration 756 (2d ed. 2014).
234) See G. Born, International Arbitration and Forum Selection Agreements: Drafting and
Enforcing 38 et seq. (4th ed. 2013).
235)
See supra Chapter 1: Introduction to International Arbitration marginnumber [49] to Chapter
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