Part II Legal Framework: Courts, Statutes and Treaties, A Arbitral Jurisdiction, 3 The Contours of Arbitral Jurisdiction

From: Arbitration of International Business Disputes: Studies in Law and Practice (2nd Edition)

William W. Park

Content type:: Book content

Product:: International Commercial Arbitration [ICMA]

Published in print:: 20 September 2012

ISBN:: 9780199657131

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(p. 201) 3 The Contours of Arbitral Jurisdiction*

A. Introduction

In A Tale of Two Cities Charles Dickens spins a story about love, sacrifice and redemption in London and Paris during the French Revolution. Two men are devoted to the same woman, the charming Lucie Manette. The suitor who eventually marries Lucie is a French exile named Charles Darnay, who is unjustly condemned to death in Paris for the crimes of his cruel uncle. The other, a drunken English lawyer named Sydney Carton, ultimately takes the place of his rival at the guillotine, thus finding moral nobility through an act far better than he had ever done before.

Controversies over arbitral jurisdictional rarely raise such interesting Dickensian narratives. However, a tale of not two, but three cases, each decided by the U.S. Supreme Court, might serve as a springboard from which to examine how jurisdictional functions are allocated between courts and arbitrators.

In Howsam v. Dean Witter Reynolds¹ a broker-customer dispute arose from alleged misrepresentations about the quality of an investment. The Court gave the arbitrators a green light to determine whether their power to hear the case was affected by time limits contained in the arbitration rules.

Pacificare Health Systems v. Book ² involved a controversy between doctors and managed health-care organizations. Here the Court essentially allowed the arbitrators themselves to determine whether they could grant treble damages in a RICO (Racketeer Influenced and Page Id: 201References(p. 202) Corrupt Organizations Act) claim under an arbitration clause which explicitly denied them the power to award punitive damages.³

A plurality of the Court followed a similar line of reasoning in Green Tree Financial Corp v. Bazzle,⁴ which involved an attempt at class-action arbitration of disputes arising from consumer loan agreements. Once again, the Supreme Court punted the question to the arbitrator himself.

All cases address the vexed matter of which threshold preconditions for arbitration are to be determined by judges and which are for arbitrators. The issue is not only “who decides what,” but also “who decides who decides.”⁵ In the United States, this question may arise either when courts are asked to compel arbitration⁶ or when they are reviewing an award.⁷ Analysis usually implicates the twin doctrines referred to as “separability” (the validity of the arbitration clause is determined independently from that of the main agreement) and “compétence-compétence” (arbitrators have jurisdiction to determine their own jurisdiction, at least as a preliminary matter).⁸

B. Arbitration and Asset Management

Background: foxes, chickens and juries

Securities arbitration has been a particularly fruitful ground for jurisdictional conflict. The investor generally tells of a nest egg lost due to a financial adviser’s misconduct, with golden years of retirement now turned into a financially harsh old age due to unsuitable investments. The adviser, of course, usually replies that the customer was well aware of the risks and pushed hard for aggressive growth stocks.⁹

The jurisdictional tug-of-war in securities arbitration has been driven by several not-always-consistent themes. First, there exists a distrust of civil juries, composed of individuals who Page Id: 202References(p. 203) themselves may have had problems with financial institutions, and thus are likely to be sympathetic to the investor alleging mistakes by the broker and institutional adviser.¹⁰

Parallel to this distrust of the civil justice system there exists in many quarters an equally deep distrust of arbitrators, who have often been portrayed as foxes guarding the chickens, with a bias toward the financial service providers rather than the customers.

There is a third theme, however. Arbitrators may not always be objective in determining their jurisdiction, since their fees depend on their rulings on the scope of their power. Although a broker normally seeks to have the merits of a customer dispute decided by arbitrators (expected to be more “reasonable” than juries on liability and damages), the broker will not necessarily want arbitration of jurisdictional questions. In particular, with respect to time bars (arbitrations must be filed within a certain number of years after the alleged broker misbehavior) financial institutions generally want courts to determine jurisdiction. Arbitrators are paid if they accept jurisdiction, while judges are paid the same salary regardless of whether they hear a case—or so we would hope. By going to court on time-related eligibility questions, a financial institution thinks it is maximizing the chances that the arbitration will be barred. In most cases this would also mean that the claim is not allowed due to the statute of limitations.

For decades, the question of what jurisdictional determinations could be made by an arbitrator was moot, since the basic distrust of arbitrators (the foxes who would guard the chicken coop) generally meant there was no arbitration of securities transactions. Except in international cases,¹¹ courts traditionally refused to enforce arbitration clauses that implicated either the 1933 Securities Act or the 1934 Securities Exchange Act.¹² Interpreting these two pieces of legislation was considered too important for the private sector. Therefore, since most investment portfolios contain stocks and bonds, accusations of misfeasance by financial advisers generally ended up in court.

In 1989 the situation changed due to liberalization of limits on subject matter arbitrability by the U.S. Supreme Court.¹³ In part the attitude shift may have been due to the Securities Exchange Commission (SEC) playing a more active role in supervising the self-regulatory organizations, such as the National Association of Securities Dealers (NASD), under whose auspices securities arbitration proceeded. And in part the change in attitude might have been related to the perceived need to relieve congestion in judicial dockets.

In any event, the result was a wholesale adoption of arbitration by the securities industry, to a point where many securities law questions are no longer addressed by courts at all. Much of the law has thus been frozen during the past dozen years, with few judicial precedents to fertilize legal development.

Page Id: 203References(p. 204) Howsam v. Dean Witter Reynolds

In Howsam v. Dean Witter¹⁴ the drama played itself out through an investment in limited partnerships whose performance proved unsatisfactory, causing the investor to allege broker misrepresentation of the investment’s quality. The brokerage firm then filed suit in federal court requesting an injunction against the arbitration on the ground that the original investment advice was more than six years old, and thus barred by the NASD “eligibility rule” requiring that any claim be brought within six years of the relevant occurrence.¹⁵

The reason such time bars are so frequently invoked is that the investor is a bit like a casino gambler: happy when winning, and likely to complain only in the event of a loss.¹⁶ If stock rises in value, there will be no grumbling that the investment advice was “unsuitable.” Only when things later go sour will the broker be accused of misbehavior, even though the purchase of securities might be many years in the past.¹⁷

Resolving a split among the circuits over who (Judge or arbitrator) decides on “eligibility” requirements, the U.S. Supreme Court in Howsam held that time limits were for the arbitrator. An opinion by Breyer paid lip service to the principle that judges would normally decide gateway jurisdictional matters unless the parties clearly provided otherwise. However, the Court presumed (rightly or wrongly) the parties’ intent that the NASD Rules be construed by the arbitrators themselves, who were supposed to possess (according to the Court) special familiarity and expertise in interpreting these rules.¹⁸

Not so fast: waiver of constitutional rights in Kloss v. Jones

The decision in Howsam must be read against the backdrop of Kloss v. Jones,¹⁹ in which the highest state court in Montana reminded us that state law concerns may occasionally trump otherwise valid grants of adjudicatory authority to arbitrators. In refusing to compel arbitration against a financial adviser accused of negligence and breach of fiduciary duty, the Montana court held the arbitration clause to be an impermissible attempt to waive basic rights guaranteed by the Montana constitution.

The state court decision bears out the old saying that “hard facts can make bad law.” A 95-year-old widow was allegedly taken advantage of by an investment adviser in Great Falls, Montana. The adviser had persuaded her to create a trust, and then proceeded to fund the trust by selling assets from her personal brokerage account.

When the widow began to have second thoughts, she called her nephew, who dutifully helped her begin litigation against the adviser for fraud, negligence, breach of fiduciary Page Id: 204References(p. 205) obligations, and deceptive business practices. The adviser invoked the arbitration clauses contained in the account-opening documents.

The Montana Supreme Court found that the arbitration clause involved a waiver of rights guaranteed by the Montana Constitution: access to courts and trial by jury. The arbitration clause, contained in a contract of adhesion, had purported to waive these rights, which the Court referred to as “sacred” and “inviolable.”²⁰ This waiver was not within the weaker party’s “reasonable expectation” and thus was held to be unenforceable.

This avenue of attack is significant. The state court addressed waiver of constitutional rights in general, rather than saying that an arbitration clause was per se unconscionable, thus running less risk of conflict with the Federal Arbitration Act (FAA).

While the FAA implements a policy favorable to arbitration, it contains a significant (albeit unintended) escape hatch by providing that arbitration clauses are enforceable except “on such grounds as exist at law or in equity for the revocation of any contract.”²¹ Since the United States has no general federal law of contracts,²² one must look to state law for the basic common law grounds for contract revocability. What Congress most likely had in mind for revocability were classic contract defects such as fraud and duress. However, some states started to push things further, and occasionally imposed special grounds for revocability of arbitration clauses, usually within the context of consumer or employee protection legislation.²³ For example, at one point Montana passed a law stating that an arbitration clause was revocable unless in capital letters and underlined.

The U.S. Supreme Court has held, however, that state law cannot target arbitration for special burdens that would defeat the policy of the FAA.²⁴ In other words, a state might say that all contracts must be in capital letters, but could not say that only arbitration clauses must be in capital letters.

Here we return to our nonagenarian widow in Montana. When the court in Kloss v. Jones struck down the arbitration clause, it did not single out arbitration itself for attack. Rather the court applied principles of law “generally applicable to all contracts” in order to protect citizens against waiver of constitutional rights. Arguably, therefore, the refusal to enforce the arbitration clause did not run afoul of federal arbitration policy.

C. Racketeering and the Practice of Medicine

Pacificare Health Systems

The U.S. Supreme Court added to its panoply of pronouncements implicating arbitral jurisdiction with a decision arising from litigation between physicians and several managed Page Id: 205References(p. 206) health-care organizations. In Pacificare Health Systems v. Book²⁵ a group of doctors had filed a nationwide class action against several health maintenance organizations. The physicians alleged, inter alia, that the organizations had conspired to refuse proper reimbursement for services provided under the health plans to which the physicians had agreed.

The legal basis for the doctors’ action included claims under RICO.²⁶ What made this line of attack attractive for the plaintiff physicians is that the RICO statute allows awards of treble damages, amounting to three times any actual damage proven.

There was a catch, however. The physicians had agreed to resolve disputes with the health-care providers through arbitration. And some of the arbitration agreements to which they had agreed were explicit in prohibiting arbitrators from awarding punitive damages.²⁷

The District Court refused to hold the physicians to their agreement to arbitrate, reasoning that if arbitrators could not award punitive damages this would mean that there was no meaningful relief for violations of RICO, which presumptively were of such public importance as to be non-waivable in a pre-dispute arbitration agreement. The Eleventh Circuit agreed, and the health-care organizations appealed.²⁸

The meaning of punitive damages

In a relatively brief opinion by Justice Scalia, a unanimous U.S. Supreme Court²⁹ upheld the health-care organizations’ right to compel arbitration. The key to the Court’s reasoning is its assumption about the ambiguity of the term “punitive damages” and the nature of treble damages in the RICO statute. The Court found uncertainty in the parties’ intent to prohibit punitive damages,³⁰ and suggested that some judicial decisions had given treble damage a compensatory character, “serving remedial purposes in addition to punitive objectives.”³¹

Consequently, the Court said it would be “mere speculation” whether an arbitrator would or would not interpret the punitive damage prohibitions in a way that might cast doubt on the permissibility of treble damages. The Court labeled as “abstract” the question of “whether it is for courts or arbitrators to decide enforceability in the first instance.”³² Since it would be “mere speculation” to presume that arbitrators might deny themselves the power to grant punitive damages, the court would not “take upon itself the authority to decide the antecedent question of how the ambiguity [concerning punitive damages] is to be resolved.”³³

Page Id: 206References(p. 207) In short, the Court seemed to give the arbitrators de facto power to determine their own jurisdiction by interpreting the meaning of “punitive damages” as used in the agreement to arbitrate. If the arbitrators held that treble damages under RICO were not “punitive” in the context of the physicians’ claims, then by definition these damages would be within their jurisdiction.

****

D. Conclusion

Where does all this leave us? The decisions in Howsam, Pacificare and Bazzle are plausible. However, the presumptions about the parties’ intent may not be self-evident. If a case is not eligible for arbitration later than six years following the broker’s misbehavior, can one even speak of an “arbitrator” for an arbitration begun in the seventh year? If a contract prohibits arbitrators from awarding the punitive two-thirds of treble damages, can arbitrators give themselves this power merely by saying that punitive damages are not punitive? If an agreement to arbitrate is intended to provide bilateral dispute resolution, can an arbitrator turn the proceedings into a multilateral process? Do the cases presume their own conclusions and imply that arbitrators can bootstrap themselves into a job simply by defining contract terms in a way that accords with the desired scope of arbitral power?

The heart of the jurisdictional dilemma is that language, while often ambiguous, is not infinitely plastic.³⁴ Some contract terms with a jurisdictional significance may well fall within the spectrum of matters the parties intended the arbitrator to interpret. Others, however, do not. Much depends on the precise context of the jurisdictional issues, which are increasingly (and unfortunately) called “arbitrability questions” in many decisions.³⁵

To illustrate, the Second Circuit recently held that an International Chamber of Commerce (ICC) arbitrator may address claims for costs incurred in a court action allegedly brought in breach of an arbitration clause.³⁶ This is hardly remarkable. In reaching the conclusion that the parties bargained to arbitrate “questions of arbitrability,”³⁷ the Court simply noted that the parties had signed a broad arbitration clause, which would be given effect under the ICC Rules.³⁸

Page Id: 207References(p. 208) Let us change the facts a bit, however. Imagine that a contract provides for arbitration under the rules of the American Arbitration Association, but the claimant files its request for arbitration with the ICC, which it perceives as likely to appoint an arbitrator predisposed to claimant’s case. It is difficult to see how an ICC arbitrator could render a binding award, absent modification of the parties’ agreement.³⁹

Or, to invoke another example, let us envisage two merchants who agree to arbitrate disputes arising out of the sale of fruit. The arbitrators might rule on whether “fruit” was used in the botanical sense (the contents of any developed seed plant ovary) to include pecans as well as apples.⁴⁰ However, it is not at all evident that a court, when asked to enforce an award or compel arbitration, should accept an arbitrator’s determination that “fruit” includes typewriters.

The matter would not be so serious if the arbitrators’ jurisdictional decision was only preliminary, subject to a clearly understood right of post-award judicial review. Unfortunately, the trio of recent Supreme Court decisions on arbitration do not make clear (at least to this author) that a second look by the judiciary is in all events guaranteed.

Notwithstanding the current American unhappiness with France, the way French law deals with arbitral jurisdiction is worthy of note. In Paris, the arbitrators’ power to decide their own jurisdiction operates in tandem with an explicit provision for challenges to an arbitrator’s competence after an award is rendered.⁴¹ This system conserves judicial resources by delaying review until the end of the process, when the parties may have settled or the arbitrator might have gotten it right. A preliminary jurisdictional determination before a hearing on the merits is quite a different matter from a final jurisdictional award to which courts must defer.

Much of the work in allocating tasks between courts and arbitrators will turn on characterization of the analytic task. One formulation might ask: “May persons who call themselves arbitrators determine their jurisdiction free from judicial review?” An affirmative answer would be conceptually problematic, implying that a piece of paper labeled “award” could be enforced without regard to the legitimate mission of the alleged arbitrator.

An alternate phraseology could pose the jurisdictional question differently: “By agreeing to arbitrate, did the parties intend to waive their right to have courts determine a particular jurisdictional precondition to arbitration (such as time bars) or a particular substantive question (such as liability for costs of litigation begun in breach of the arbitration agreement)?” Answering the latter question would require a factual inquiry into the parties’ true intent. On this matter, considerable analytical toil remains.

References

Footnotes:

* Adapted from The Contours of Arbitral Jurisdiction: Who Decides What?, 3 Int’l Arb. News 2 (*ABA, Summer 2003).

¹ 537 U.S. 79 (2002).

² 538 U.S. 401 (2003), reversing Re Humana Inc. Managed Care Litigation, 285 F. 3d. 971 (11th Cir. 2002).

³ The physicians had filed claims under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 et seq., discussed later.

⁴ 539 U.S. 444 (2003).

⁵ For an intriguing recent case in which an arbitrator’s jurisdictional decision was challenged on grounds of procedural irregularity, see Aoot Kalmneft v. Glencore International A.G. [2002] 1 Lloyd’s Rep. 128 (QB, 27 July 2001), 2001 WL 825106 concerning an ad hoc London arbitration between an oil trading company and an oil production entity in the Republic of Kalmykia. The oil trader claimed that it had paid for oil never delivered, while the production company alleged it had been the victim of fraud by one of its officers, who allegedly had no authority to conclude the agreement. When the sole arbitrator ruled in a preliminary decision that he had jurisdiction, the production entity challenged this interim award, inter alia, on the grounds that a finding of validity for the arbitration clause prejudged the case on the merits with respect to the binding nature of the main agreement. Justice Coleman rejected the challenge, finding that an arbitrator may “rule on his own jurisdiction at the outset, even if that involves deciding whether there was a binding contract to arbitrate and even if his decision on that matter gives rise to a conclusion in respect of a major issue on the merits of the underlying claim in the arbitration.” Ibid. para. 84.

⁶ 9 U.S.C. § 4 provides that courts may compel arbitration “upon being satisfied that the making of the agreement for arbitration…is not in issue.”

⁷ 9 U.S.C. § 10 permits vacatur of an award “where the arbitrators exceeded their powers.”

⁸ See generally Alan Scott Rau, The Arbitrability Question Itself, 10 Am. Rev. Int’l Arb. 287 (1999).

⁹ The so-called “Seven Deadly Sins” of securities transactions are hardly as exciting as the classic offenses: lust, gluttony, sloth, anger, envy, pride and greed—although the last of these often plays a role in broker misbehavior. The catalogue of common transgressions includes (i) churning, (ii) unauthorized trading, (iii) unsuitable trading, (iv) intentional misrepresentation, (v) broker ignorance, (vi) misappropriation and (vii) outside business activities of the employee relating to investment marketing that is attributed to the employer. See David E. Robbins, Seven Deadly Sins that Lead to Arbitration Disaster, 820 Pli/Corp 489, Practising Law Institute, Corporate Law and Practice Course Handbook Series (Jul.–Aug. 1993).

¹⁰ A large part of the drama derives from the jury’s power to award not only compensation for loss, but also additional “exemplary” or “punitive” damages to rebuke allegedly willful misbehavior. For a recent decision vacating a large punitive damage award against a Wall Street brokerage firm, see Sawtelle v. Waddell & Reed, 754 N.Y.S. 2d 264 (N.Y.A.D., 1st Dept., 11 February 2003). In an action by a terminated mutual fund broker, the $25 million punitive portion of a $27 million award was held to be grossly excessive and to constitute manifest disregard of the law.

¹¹ See Scherk v. Alberto-Culver Co., 417 U.S. 506 (1974) (securities disputes arbitrable in a German-American contract at a time when prohibited in a domestic contract).

¹² See Wilko v. Swan, 346 U.S. 427 (1953), overruled in Shearson/American Express v. McMahon, 482 U.S. 220 (1987) (fraud claims under Exchange Act §10b). Ironically, Wilko has lived on in its dictum which posited “manifest disregard of the law” as an extra-statutory round for judicial review.

¹³ See Rodriguez de Quijas v. Shearson/American Express, 490 U.S. 477 (1989), concerning Securities Act, §12(2) claims.

¹⁴ 537 U.S. 79 (2002). The unanimous decision was written by Justice Breyer. A concurrence by Justice Thomas rested solely on the basis that New York law (applicable to the contract in question) had held that time bars under the National Association of Securities Dealers (NASD) Rules are for arbitrators to decide.

¹⁵ NASD Code of Arbitration, § 10304 (formerly Rule 15), states that no dispute “shall be eligible for submission to arbitration…where six (6) years have elapsed from the occurrence or event giving rise to the…dispute.”

¹⁶ While the investment in Howsam had occurred sometime between the account opening in 1986 and its closing in 1994, the arbitration was begun only in 1997.

¹⁷ One recalls the vignette from the 1942 movie Casablanca, starring Humphrey Bogart and Ingrid Bergman. The French police captain, played by Claude Rains, closed down Rick’s Café because he was “shocked” to find gambling going on—all the while being quite happy to take his winnings.

¹⁸ The court also noted that § 10324 of the NASD Rules (formerly Rule 35) gave arbitrators power to “interpret and determine the applicability of all provisions under the [NASD] Code.”

¹⁹ 310 Mont. 123, 54 P. 3d 1 (2002), on rehearing 57 P. 3d 41, cert. denied, 538 U.S. 956 (2003). For a rather harsh critique of Kloss, see Carroll E. Neesemann, Montana Court Continues its Hostility to Mandatory Arbitration, ABA Dispute Res. J. 22 (Feb.–Apr. 2003).

²⁰ Ibid. Special Concurrence by Nelson, at para. 55.

²¹ 9 U.S.C. § 2.

²² Sixty-five years ago in Erie R.R. v. Tompkins, 304 U.S. 64 (1938), the U.S. Supreme Court (attempting to prevent forum shopping between state and federal fora) stated: “Except in matters governed by the Federal Constitution or by acts of Congress, the law to be applied in any case is the law of the state.” Ibid. 78.

²³ For better or for worse, in the United States no general federal statutes exist for consumer protection. The basic contract framework for employment law (outside the collective bargaining framework) is also often left to the states.

²⁴ Doctor’s Associates v. Casarotto, 517 U.S. 681 (1996). For other U.S. Supreme Court attempts to rationalize the role of state arbitration law, see e.g. Mastrobuono v. Shearson Lehman, 514 U.S. 52 (1995); Allied-Bruce v. Dobson, 513 U.S. 265 (1995); Volt v. Stanford, 489 U.S. 468 (1989).

²⁵ 538 U.S. 401, reversing Re Humana Inc., Managed Care Litigation, 285 F. 3d 971 (11th Cir. 2002), which had affirmed the District Court decision Re Managed Care Litigation, 132 F. Supp. 2d 989 (S.D. Fla. 2000).

²⁶ 18 U.S.C. § 1961–1968. § 1341 and 1342. Section 1964 provides that a person injured by violations of RICO shall recover “threefold the damages he sustains” as well as attorney’s fees. See generally Norman Abrams, A New Proposal for Limiting Private RICO, 37 UCLA L. Rev. 1 (1989).

²⁷ The various arbitration clauses provided that “punitive damages shall not be awarded [in the arbitrations]”; “arbitrators…shall have no authority to award any punitive or exemplary damages”; and “arbitrators…shall have no authority to award extra contractual damages of any kind, including punitive or exemplary damages.” See clauses quoted in the U.S. Supreme Court decision, 538 U.S. 401, 405.

²⁸ The Court of Appeals based much of its analysis on Paladin v. Avnet Computer Technologies, Inc., 134 F. 3d 1054 (11th Cir. 1998), holding that where limitations on remedies contained in an arbitration clause prevented a plaintiff from obtaining “meaningful relief” for a statutory claim, the arbitration clause would be unenforceable with respect to that claim.

²⁹ Justice Thomas took no part in consideration or decision of the case.

³⁰ 538 U.S. 401, 405.

³¹ Referring to statutory remedies such as those at issue in RICO claims, Justice Scalia described treble damages as lying “on different points along the spectrum between purely compensatory and strictly punitive awards.” 538 U.S. 401, 405–6, quoting Cook County v. U.S. ex rel. Chandler.

³² Ibid. 406.

³³ Ibid. 405.

³⁴ In this regard, one remembers the line by Lewis Carroll, “When I use a word…it means just what I choose it to mean—neither more or less.” Lewis Carroll (pseudonym for Charles Lutwidge Dodgson), Through the Looking Glass (1872).

³⁵ American courts often use “arbitrability” interchangeably with “jurisdiction.” This is regrettable, since it blurs useful distinctions between an arbitrator who may not hear a case because of the parties’ drafting choice, and an arbitrator lacking power because non-waivable legal norms prohibit him to consider the disputed subject matter. It is true that when arbitrators lack jurisdiction, a dispute is not arbitrable. However, the term would be better reserved to instances where the subject matter of a dispute has been declared off limits by the relevant legal system. In this sense, antitrust and securities disputes were traditionally non-arbitrable in the United States, and employment and consumer controversies remain non-arbitrable in many parts of Europe, at least under pre-dispute arbitration agreements.

³⁶ Shaw Group v. Triplefine International Corp., 322 F. 3d 115 (2nd Cir. 2003). The arbitration clause at issue covered disputes “concerning or arising out of [the parties’] Agreement.”

³⁷ Ibid. 125.

³⁸ In light of the Court’s citation to Article 6(2) of the ICC Rules, there may have been some confusion in the court about the difference between the ICC Court and the arbitrators themselves. The former has power only to make a preliminary (prima facie) determinations of jurisdiction, while the in-depth decisions are reserved for the arbitrator.

³⁹ The hypothetical is presented only by way of illustration, the author being well aware that the ICC’s excellent personnel and efficient internal controls would make such an attempt at fraud highly unlikely. For a real case in which an award rendered by an improperly constituted tribunal was refused enforcement, see Encyclopaedia Universalis S.A. v. Encyclopaedia Britannica, 2003 WL 22881820 (S.D.N.Y., December 2003).

⁴⁰ In this connection, one remembers a late 19th century customs case in which the U.S. Supreme Court held that in common parlance tomatoes were vegetables rather than fruit, and thus not free of import duty under a free list for “fruits,” but taxed at 10% ad valorem under a tariff on “vegetables.” See Nix v. Hedden, 149 U.S. 304 (1893).

⁴¹ NCPC, Arts. 1483 (for domestic arbitration) and 1502 (for international cases). In addition, NCPC, Art. 1458 provides that if an arbitral tribunal has already taken jurisdiction of a matter, courts must declare themselves incompetent to hear the case. If an arbitral tribunal has not yet been constituted, court litigation will go forward only if the alleged arbitration agreement is clearly void (manifestement nulle).

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