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Ch.1 Introduction

David D. Caron, Lee M. Caplan, Matti Pellonpää

From: The UNCITRAL Arbitration Rules: A Commentary (1st Edition)

David D. Caron, Matti Pellonpää, Lee M. Caplan

A newer edition of The UNCITRAL Arbitration Rules is available. Latest edition (2 ed.)
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From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 06 June 2023

(p. 1) Chapter 1  Introduction

  1. The Importance of the International Arbitral Process 1

  2. The Origins and Structure of the Iran-US Claims Tribunal 3

  3. The Tribunal's Use of the UNCITRAL Arbitration Rules 6

  4. International Investment Agreements and the UNCITRAL Arbitration Rules 10

The Importance of the International Arbitral Process

We undertake this study because an effective system of international dispute resolution is indispensable to the growth of more complex transnational arrangements, and–for the foreseeable future–that system of resolution is primarily international arbitration.

The evolution of an effective and trustworthy private international arbitration system over the last half a century has had three major strands. The first strand is embodied in the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards1 which obliges the courts of state parties (1) to respect the agreement of parties to arbitrate and (2) to recognize and enforce–within certain limits–the result of such an arbitration. In essence, the treaty allows private parties to use the coercive power of national courts to implement private arrangements for international arbitration. The second strand seeks the harmonization of national arbitration statutes, that is, the national law within which the private arbitral arrangement operates and, in a sense, is regulated. This task was substantially advanced by the adoption by the United Nations Commission on International Trade Law (UNCITRAL) in 1985 of a Model Law on International Commercial (p. 2) Arbitration.2 If the second strand aimed at harmonizing the national overlay of the arbitral process, the third strand sought to provide a model for the process of arbitration itself. Many sets of procedural rules defining that process exist, for example, the rules of the International Chamber of Commerce (ICC) or the American Arbitration Association (AAA). Despite the presence of such rules, however, there was a need for rules which the international community as a whole would recognize as meeting its needs.

This book is concerned with advancing our understanding of the set of rules which were the product of this third strand of effort. In particular, after several years' work, on 28 April 1976, UNCITRAL adopted a set of procedural rules for–primarily–international commercial arbitration, the UNCITRAL Arbitration Rules.3 On 15 December of that same year, the UN General Assembly adopted a resolution,4 stating, inter alia, “that the establishment of rules for ad hoc arbitration that are acceptable in countries with different legal, social and economic systems would significantly contribute to the development of harmonious international economic relations.” In the operative part of the Resolution, the General Assembly:

  1. 1.  Recommends the use of the Arbitration Rules of the United Nations Commission on International Trade Law in the settlement of disputes arising in the context of international commercial relations, particularly by reference to the UNCITRAL Arbitration Rules in commercial contracts;

  2. 2.  Requests the Secretary General to arrange for the widest possible distribution of the Arbitration Rules.5

This book seeks to enhance the utility of these Rules by analyzing both the drafting history of the Rules and the main sources of practice interpreting and applying the Rules. This practice includes the Iran-US Claims Tribunal, NAFTA Chapter Eleven tribunals and ad hoc tribunals constituted in accordance with the UNCITRAL Rules. Because the practice of the Iran-US Claims Tribunal is so extensive and, for the time being, continues to be paramount among these sources, the following sections introduce the origins and structure of the Iran-US Claims Tribunal and the significance of its practice (p. 3) for the UNCITRAL Arbitration Rules. Since the Iran-US Claims Tribunal is near the end of its docket, if not its work, while the NAFTA Chapter Eleven arbitrations and other ad hoc tribunals will continue indefinitely, we expect the latter sources to grow in influence with time.

The Origins and Structure of the Iran-US Claims Tribunal

The 1979 Islamic revolution in Iran led to a disruption of extensive economic relations, as well as to a political crisis, between Iran and the United States of America. The developments reached their culmination in the seizure of the US Embassy in Tehran on 4 November 1979 and the deprivation of the liberties of the fifty–two Americans present. This incident led to countermeasures by the United States, notably the Presidential Decree of 14 November 1979, which froze all of Iran's assets held in the United States or in foreign branches of US banks. Iran thereby lost control of some US $10–12 billion worth of assets, a considerable portion of which were subjected to pre–judgment attachments in more than 2,000 law suits brought against Iran before US courts.

The interests of these various private parties with claims against Iran became a necessary and important element of the painstaking negotiations seeking a comprehensive settlement of the outstanding issues between the two countries. On 19 January 1981, the conclusion of several agreements led to the release of the Americans held hostage since November 1979 and the release of the frozen Iranian assets. However, to address the many outstanding claims, it was also agreed that US $1 billion of the released assets would be held in a Security Account for possible satisfaction of the claims of Americans. The validity of those claims in turn was to be adjudicated by an international arbitral tribunal: the Iran-US Claims Tribunal.6

(p. 4) The agreements between Iran and the United States are contained in the so–called Algiers Accords, which owe their names to the central intermediary role played by Algeria in the process leading to the agreements. The Accords consist of seven interrelated documents, two of which, the General Declaration7 and the Claims Settlement Declaration8, are of paramount importance in understanding the Tribunal.

The General Declaration defines the basic obligations of the state parties regarding the release of the hostages and the unblocking of the Iranian assets. The parties agreed “to terminate all litigation as between the government of each party and the nationals of the other, and to bring about the settlement and termination of all such claims through binding arbitration.”9 The General Declaration also provided for the establishment of a Security Account “to be used solely for the purpose of securing the payment of, and paying, claims against Iran in accordance with the Claims Settlement Agreement.”10

The Claims Settlement Declaration, discussed more fully below, created the machinery and set up the procedural and substantive law framework for the settlement of the claims through the arbitration procedure called for in the General Declaration. In addition to the two central Declarations, five other agreements11 were entered into with a view to aiding implementation of the General Declaration and the Claims Settlement Declaration, especially with respect to the more technical aspects of the payment mechanism and financial transactions.

The Claims Settlement Declaration contains eight articles. According to (p. 5) Article III(1), “the Tribunal shall consist of nine members or such larger multiple of three as Iran and the United States may agree are necessary to conduct its business expeditiously.” Given the fact that no agreement on a larger multiple of three was reached, three of the nine members have been appointed by Iran, three by the United States, and three others have been appointed by the six party–appointed arbitrators (or, failing their agreement, by a designated third party called the Appointing Authority).12 Most of the work of the Tribunal is conducted in three Chambers consisting of an Iranian, an American and a third–country presiding arbitrator. One of the third–country arbitrators also serves as President of the Tribunal.

According to Article II(1) of the Claims Settlement Declaration, the Tribunal was established:

…for the purpose of deciding claims of nationals of the United States against Iran and claims of nationals of Iran against the United States, and any counterclaim which arises out of the same contract, transaction or occurrence that constitutes the subject matter of that national's claim, if such claims and counterclaims are outstanding on the date of this Agreement, whether or not filed with any court, and arise out of debts, contracts (including transactions which are the subject of letters of credit or bank guarantees), expropriations or other measures affecting property rights….

The main bulk of the Tribunal's case load consists of the claims by US nationals against Iran, broadly defined elsewhere in the Declaration. According to Article III(3), such claims “shall be presented to the Tribunal either by claimants themselves or, in the case of claims of less than US $250,000, by the government of such national.” Between 20 October 1981 and 19 January 1982”13 965 claims of nationals seeking over US $250,000 were filed and 2,795 claims of nationals seeking less than US $250,000 were filed. As of a few years ago, all claims by nationals had been resolved.

In addition to claims of nationals, the Tribunal has jurisdiction over “official claims of the United States and Iran against each other arising out of contractual arrangements between them for the purchase and sale of goods and services,”14 as well as over certain interpretative disputes concerning the Algiers Accords.15 The latter category comprises the A–Cases; the former (p. 6) compromises the B–Cases. As of 2005, 107 government–to–government cases have been filed at the Tribunal: thirty–two A–Cases and seventy–five B–Cases.16

Article IV of the Claims Settlement Declaration contains provisions concerning the enforcement of the awards. The most interesting and innovative feature in this respect, however, is based on the provisions of the General Declaration concerning the establishment of the so–called Security Account out of which awards are paid to successful American parties before the Tribunal. The original amount of the account was US $1 billion, but Iran was obliged to replenish it to keep the balance at the minimum of US $500 million “until the president [of the Tribunal] has certified that all arbitral awards against Iran have been satisfied in accordance with the Claims Settlement Agreement, at which point any amount remaining in the Security Account shall be transferred to Iran.”17

Article V of the Claims Settlement Declaration deals with applicable substantive law. Although discussed in some detail later,18 it is worth noting here:

The Tribunal shall decide all cases on the basis of respect for law, applying such choice of law rules and principles of commercial and international law as the Tribunal determines to be applicable, taking into account relevant usages of trade, contract provisions and changed circumstances.

This flexible choice of law provision, together with the broad scope of the subject matter jurisdiction of the Tribunal, has provided this body with an opportunity to give interpretations on a wide variety of issues of public international law and international commercial law. The Tribunal's contribution in this regard is expected to be of lasting value.19

The Tribunal's Use of the UNCITRAL Arbitration Rules

In seeking to design an international arbitral tribunal quickly, the negotiators of the Accords fortunately had a set of procedural rules prepared by (p. 7) distinguished experts representing various legal systems of the world. Instead of lengthy negotiations on the subject, the drafters of the Claims Settlement Declaration could simply make reference to the UNCITRAL Arbitration Rules. Article III of that Declaration reads:

Members of the Tribunal shall be appointed and the Tribunal shall conduct its business in accordance with the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL) except to the extent modified by the Parties or by the Tribunal to ensure that this Agreement can be carried out. The UNCITRAL rules for appointing members of three–member tribunals shall apply mutatis mutandis to the appointment of the Tribunal.

The “Tribunal Rules,” adopted provisionally on 10 March 1982 and finally on 3 May 1983, as the procedural rules of the Iran-US Claims Tribunal were based on the UNCITRAL Rules, in accordance with the above provision of the Claims Settlement Declaration. The Tribunal's practice in applying its rules represents the most extensive body of practice concerning the UNCITRAL Rules because the Tribunal's docket was so large and most importantly because the practice of the Tribunal is public.

The significance of the Tribunal's practice is heightened by the fact that the UNCITRAL Rules themselves are increasingly important. They have been adopted as the procedural rules to be applied in many different connections: for inter–state cases, arbitration between a State and a private party, and international commercial arbitration between private parties.20 As to proceedings with public law elements, the UNCITRAL Rules play a role in the dispute settlement under the UN Convention on the Law of the Sea.21 In 1992 the Permanent Court of Arbitration adopted Optional Rules for Arbitrating Disputes Between two States, which are based on the UNCITRAL Rules.22 The Introduction to those Rules states:

Experience since 1981 suggests that the UNCITRAL Arbitration Rules provide fair and effective procedures for peaceful resolution of disputes between States concerning the interpretation, application and performance of treaties and other agreements, although they were originally designed for commercial arbitration.23

(p. 8) Undoubtedly, it was the experience of the Iran-US Claims Tribunal with respect to all its categories of claims that was in the minds of the drafters of this passage.

As further discussed in the next section, the UNCITRAL Rules have also been regarded as useful in the investment arbitration context, as evidenced by many references to the UNCITRAL Rules in bilateral investment treaties (BIT) between states and in Chapter Eleven of the NAFTA.24 In such treaties, arbitration under the UNCITRAL Rules is envisaged as the dispute settlement mechanism between a state and the investor more often than any other procedure except for arbitration under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID).25 A role for the UNCITRAL Rules is also envisaged in the proceedings conducted under the auspices of the United Nations Compensation Commission established with a view to deciding claims against Iraq arising out of the Gulf War.26

(p. 9) In addition, because the UNCITRAL Rules were originally intended to provide a procedural framework for “ordinary” commercial arbitration, they may serve as procedural rules in ad hoc arbitration27 and as institutional rules for arbitrations conducted under the auspices of arbitral institutions. Thus, a number of arbitral institutions have adopted the UNCITRAL Rules as their institutional rules for international cases.28 In addition, several well–known arbitral institutions with their own procedural rules provide services as appointing authority, as well as administrative services for arbitrations conducted under the UNCITRAL Rules.29

Thus, the UNCITRAL Rules have been widely accepted as a procedural framework to be employed in international dispute settlement. Although the acceptance of the Rules, for example, as an alternative in institutionalized commercial arbitration says little about the actual use of the Rules, the various references to UNCITRAL Rules underline their increased importance–an importance that is unique in the sense that such references are not limited to commercial arbitration but extend to inter–state arbitration and arbitration between states and private investors.

Of all the above–mentioned connections, the experience of the Iran-US Claims Tribunal with its wide range of cases remains central to understanding the UNCITRAL Rules.30 The Tribunal has more than any other body grappled with the application of these Rules. Moreover, the Tribunal's practice, unlike that of many other arbitral bodies, is public,31 thereby (p. 10) making it possible to draw lessons from that practice.32 Quickly gaining in significance is, however, the practice of investment arbitration under both Chapter Eleven of the NAFTA and under various BITs.

International Investment Agreements and the UNCITRAL Arbitration Rules

In addition to the Iran-US Claims Tribunal, disputes resolved under international investment treaties are another important and growing source of awards and decisions rendered under the UNCITRAL Arbitration Rules. Recent years have seen the proliferation of international investment agreements at the bilateral, regional, and multilateral level.33 UNCTAD reports that, as of summer 2005, a total of 2,392 bilateral investment treaties and 215 preferential trade and investment agreements have been successfully negotiated.34 Almost all of these agreements contain dispute settlement provisions granting a foreign investor recourse to various mechanisms of international arbitration, often including arbitration under the UNCITRAL Arbitration Rules. The NAFTA, the Energy Charter and the ASEAN Regional Investment Agreement are examples of regional and multilateral investment agreements that contain such provisions.35 Similar provisions are also contained in many bilateral investment (p. 11) treaties, including those influenced by the United States Model BIT program.36

UNCTAD reports that of the universe of known disputes arising under international investment treaties, so far thirty–nine have been or are being resolved under the UNCITRAL Arbitration Rules.37 Of this total number of disputes, fifteen arise under Chapter Eleven of the NAFTA, while the remaining twenty–four involve arbitration under bilateral investment treaties. Due to the recent explosion of treaty–based investor–state arbitration, these figures are sure to climb–perhaps substantially–in the coming years. The awards and decisions of international tribunals in this area have already enhanced our understanding of the interpretation and application of the UNCITRAL Arbitration Rules, and will likely grow in influence with time.(p. 12)


New York, 10 June 1958; 330 TS 3 (1959). For more discussion of the Convention, see below, Chapter 2, discussing Article 16.

See generally H Holtzmann & J Neuhaus, A Guide to the UNCITRAL Model Law on International Commercial Arbitration: Legislative History and Commentary (1989).

Reprinted in (1977) II Yearbook of Commercial Arbitration hereafter (hereafter YCA) ii, 161; 15 (1976) International Legal Materials (hereafter ILM) 702.

Reprinted in (1977) II YCA xi (Introduction by Sanders).

Regarding UNCITRAL and its workings, see the references included in the Select Bibliography at the end of this study.

The Iran-US Claims Tribunal and its practice have triggered an abundance of legal writing. References to various books and articles are made throughout the present work. A bibliography appears at the end of this study. A few important contributions of a general nature may be mentioned here: D Caron & J Crook (eds), The Iran-United States Claims Tribunal and the Process of International Claims Resolution (2000); M Mohebi, The International Law Character of the Iran-United States Claims Tribunal (1999); C Brower & J Brueschke, The Iran-United States Claims Tribunal (1998); R Lillich & D Magraw (eds), The Iran-United States Claims Tribunal: Its Contribution to the Law of State Responsibility (1998); G Aldrich, The Jurisprudence of the Iran-United States Claims Tribunal (1996); C Brower, “The Iran-United States Claims Tribunal,” 224 Recueil des Cours (1990–V) 123; D Caron, “The Nature of the Iran-United States Claims Tribunal and the Evolving Structure of International Dispute Resolution,” (1990) 84 AJIL 104; R Khan, The Iran-United States Claims Tribunal: Controversies, Cases and Contribution (1990); A Mouri, The International Law of Expropriation as Reflected in the Work of the Iran-U.S. Claims Tribunal (1994); J Westberg, International Transactions and Claims involving Government Parties: Case Law of the Iran-United States Claims Tribunal (1991).

Declaration of the Government of the Democratic and Popular Republic of Algeria, Reprinted in 1 Iran-US CTR 3 1981–82); (1981) 20 ILM 224.

Declaration of the Government of the Democratic and Popular Republic of Algeria, Concerning the Settlement of Claims by the Government of the United States of America and the Government of the Islamic Republic of Iran, Reprinted in 1 Iran-US CTR 9 (1981–82); (1981) 20 ILM 230.

General Declaration above, n 7, General Principle B.

10  Ibid, para 7.

11  Undertakings of the Government of the United States of America and the Government of the Islamic Republic of Iran with Respect to the Declaration of the Government of the Democratic and Popular Republic of Algeria, 19 January 1981; Escrow Agreement, 20 January 1981; Technical Arrangement between Banque Centrale d'Algerie and the Governor and Company of the Bank of England and the Federal Reserve Bank of New York, 20 January 1981; Technical Agreement with De Nederlandsche Bank NV, 17 August 1981; Technical Agreement with NV Settlement Bank of the Netherlands, 17 August 1981. Texts of these and certain other related documents are to be found in 1 Iran-US CTR 13 et seq. (1981–82).

12  The appointment of the arbitrators is discussed in Chapter 4 below.

13  See below, Chapter 11, discussing Article 18.

14  Article II(2).

15  See Articles III(3) and VI(4) of the Claims Settlement Declaration above, n 8.

16  R Bettauer, “The Task Remaining: The Government Cases,” in D Caron & J Crook (eds), The Iran-United States Claims Tribunal and The Process of International Claims Resolution (2000) 355

17  General Declaration, para 7. On 26 July 2005, the total amount notified for payment was “US$ 2,166,998,515.43 and the US Dollar equivalent of £ 303,196.00, DM 297,051.00 and Rls. 97,132,598 (excluding any interest to be calculated by the Escrow Agent).” Communique No. 05/3 issued by the office of the Secretary–General on 27 July 2005.

18  See below, Chapter 3, discussing Article 33.

19  See generally R Lillich & D Magraw (eds), The Iran-United States Claims Tribunal: Its Contribution to the Law of State Responsibility (1998).

20  See K Berger, International Economic Arbitration (1993) 62–64.

21  See, e.g. Article 188(c) of the UN Convention on the Law of the Sea.

22  Permanent Court of Arbitration: Optional Rules for Arbitrating Disputes between Two States, effective 20 October 1992, Reprinted in (1993) 32 ILM 572.

23  Ibid at 575.

24  For a more detailed discussion of the use of the UNCITRAL Rules in investor–state arbitration, see below, section 4.

25  See P Peters, “Dispute Settlement Arrangements in Investment Treaties,” (1991) 22 NYIL 90, 125. “Of the BITs that indicate which arbitration system is to be used, a large majority express a preference for the ICSID Rules and some others give ICSID as an option. UNCITRAL comes second and ICC arbitration as a poor third.” Ibid. For example, Article 8 of the Agreement between Finland and Estonia for the Promotion and Protection of Investments (Finnish Treaty Series 104 (1992)) provides for the submission of such disputes either to:

  1. (a)  the International Centre for Settlement of Investment Disputes … having regard to the applicable provisions of the Convention on the Settlement of Investment Disputes between States and Nationals of other States … in the event both Contracting Parties shall have become a party to the Convention; or

  2. (b)  an international ad hoc arbitral tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law as then in force. The Parties to the dispute may agree in writing to modify these Rules.

26  The Provisional Rules for Claims Procedure as adopted by decision of the Governing Council of the United Nations Compensation Commission (UNCC) taken at the 27th meeting, on 26 June 1992 (S/AC.26/1992/10), Reprinted in (1992) 31 ILM 1053, contain Article 43 on Additional Procedural Rulings. According to that provision: “Subject to the provisions of these procedures, Commissioners may make such additional procedural rulings as may be necessary to complete work on particular cases or categories of cases. In so doing, the Commissioners may rely on the relevant UNCITRAL Rules for guidance …”.

On the UNCC in general, see R Lillich (ed), The United Nations Compensation Commission: Thirteenth Sokol Colloquium (1995) 394; “United Nations Compensation Commission: Report With Decisions Of The Governing Council,” (1992) 31 ILM 1009 (Introductory Note by D Caron); C Alzamora “Reflections on the UN Compensation Commission, (1993) 9 Arb Intl 349; and “The United Nations Compensation Commission: A New Structure to Enforce State Responsibility,” (1993) 87 AJIL 144.

27  Due to the confidential nature of arbitration it is impossible to give any exact figures as to the use of the UNCITRAL Rules in ad hoc arbitration. The guess has been made, on the basis of various factors (extrapolation based on reports on arbitral practice, conversations with practitioners and the frequent insertion of references to the Rules in contracts) that “annually, and worldwide, hundreds if not thousands of such cases may take place.” Letter to the authors from the Secretariat of UNCITRAL, 1 Oct 1993.

28  Examples include the Inter–American Commercial Arbitration Commission, the Cairo International Commercial Arbitration Centre, the Kuala Lumpur Regional Centre for Arbitration, and the Hong Kong International Arbitration Centre.

29  Examples include the American Arbitration Association (AAA), the London Court of International Arbitration (LCIA), and the Stockholm Chamber of Commerce (SCC).

30  For other commentary on the UNCITRAL Rules as practiced by the Iran-US Claims Tribunal, reference can be made to: S Baker & M Davis, The UNCITRAL Arbitration Rules in Practice: The Experience of the Iran-United States Claims Tribunal (1992); J van Hof, Commentary on the UNCITRAL Arbitration Rules: The Application by the Iran-U.S. Claims Tribunal (1991).

31  For a list of certain important sources where awards and other decisions of the Tribunal are published, see Select Bibliography below. Decisions can be obtained upon payment from the Registry of the Tribunal (Parkweg 13, 2585 JH The Hague, The Netherlands).

32  We very much agree with the evaluation made by an author who states that the Iran-US Claims Tribunal:

has encountered and resolved procedural issues under the Rules that might have taken decades to arise in the normal course of economic arbitration. This case law … will ultimately lead to a better understanding and growing confidence in the smooth functioning of the Rules and will hence be included more frequently in arbitration clauses of international contracts.

K Berger above, n 20, at 63–64 (footnotes omitted).

33  See generally J Salacuse and N Sullivan, “Do BITs Really Work?: An Evaluation of Bilateral Investment Treaties and Their Grand Bargain,” (2005) 46 HILJ 1.

34  Research Note, Recent Developments in International Investment Agreements, United Nations Conference on Trade and Development, UNCTAD/WEB/ITE/2005/1 (30 Aug 2005), 1, 10. UNCTAD provides that 1,718 bilateral investment treaties are in force as of 30 August 2005.

35  Article 1120(1)(c), NAFTA; Article 26(4)(b), The Energy Charter Treaty; Article X(2), Agreement among the Government of Brunei Darussalam, the Republic of Indonesia, Malaysia, the Republic of the Philippines, the Republic of Singapore and the Kingdom of Thailand for the Promotion and Protection of Investments Manila (ASEAN Investment Agreement).

36  See Article 24(3)(b), 2004 Model BIT, available at http://www.ustr.gov/assets/Trade_Sectors/Investment/Model_BIT/asset_upload_file847_6897.pdf. On the dispute resolution provisions of earlier Model BITs, see K Vandevelde, United States Investment Treaties: Policy and Practice (1992) 163. On the dispute resolution provision in bilateral investment treaties generally, see R Dolzer & M Stevens, Bilateral Investment Treaties (1995) 147.

37  UNCTAD Note above, n 34, at 14, Figure 11.