Litigation between States in the International Court of Justice (ICJ) was considered earlier in the Manual. This chapter will look at litigation in the national courts. National courts may be used in the context of international commercial disputes for a variety of purposes, for example:
* as a forum for resolving disputes in cases where one or more of the parties is an 'overseas' or foreign party;
* as support machinery for the arbitral process;
* as a forum for challenging or enforcing foreign commercial arbitral awards.
Despite the increasing use of international commercial arbitration backed up by the New York Convention, litigation in the national courts is probably still the major international dispute resolution process in use.
In the context of international contracts, the major problem in relation to litigation is the prospect for one of the parties of that litigation taking place in the courts of a foreign country, conducted in a foreign language and under a foreign system of law. However, litigation may be the dispute resolution process used for a variety of reasons:
* No contractual provision is made for dispute resolution;
* The bargaining power of one party is such that it is able to insist that litigation takes place in the courts of a country of its choosing;
* It is a deliberate, consensual choice of the parties. For example, parties may choose the English courts as the forum for resolution of any disputes that may arise under the contract, and additionally may choose English law as the law to govern that contract. More than 80 per cent of the cases heard in the Commercial Court in London have no connection with England in the sense that either the subject matter of the contract has no connection with the country or one or more of the parties is not English.64
An example of overseas parties litigating in the English courts is given in Box 10.
Box 10: National Courts as a Dispute Resolution Forum: BHP v Dalmine
In the case of BHP Billiton Petroleum and others v Dalmine SpA, the Defendant, Dalmine, appealed to the Court of Appeal against a judgment of Mr Justice Cresswell. The Claimant, BHP, was the operator of an oil and gas field in the Irish Sea. Dalmine, an Italian steel maker, manufactured steel pipes used in the construction of a sub-sea gas pipeline. The pipeline suffered sulphide stress corrosion cracking. The cracks started in the weld root between the sections of pipe and then propagated through the weld metal on the adjacent pipe. BHP found that the pipes adjacent to the leak sites were out of specification because the carbon equivalent value exceeded 0.40 per cent, making the steel less resistant to crack propagation.
In proceedings against Dalmine, BHP discovered that the steel maker had fraudulently misrepresented the carbon value of the pipes during the manufacturing and supply process. Dalmine accepted responsibility for that fraud and accepted that BHP had relied on the false documents.
Mr Justice Cresswell found that on the balance of probability the incorporation of non-compliant pipe did cause the pipeline to fail and that the pipeline would not otherwise have failed. The Judge found in favour of BHP and ordered damages to be assessed. The Court of Appeal dismissed the appeal.
A full report of the case can be found at  EWCA Civ 170.
Most states support the arbitral process while at the same time exercising a degree of control over that process. For example, the English Arbitration Act of 1996 supports arbitration in a number of ways, both by filling gaps where the parties have failed to make some necessary provision for the operation of the arbitral process and by giving powers to the court to assist the arbitral process. (The UNCITRAL Model Law on International Commercial Arbitration, on which the English Act is structured, is considered in Chapter 17.)
The 'gap-filling' aspect of the English Act may be of less importance to an international commercial arbitration held in England in circumstances where the parties have provided in their contract for arbitration under the Rules of one of the major international commercial arbitral institutions, such as the London Court of International Arbitration (LCIA) or the International Chamber of Commerce (ICC). Such Rules contain detailed provisions for the conduct of an arbitration, running from the commencement of the arbitration through to the making of the final award.
However, where the arbitration provisions made in the relevant contract are sketchy ("arbitration London"), the English Act gives full supporting machinery for the conduct ofPage 189 an arbitration whose 'seat' is England. The framework provided by the Act operates from the commencement of the arbitration and the appointment of the tribunal right through to the making of and enforcement of the award.
The Departmental Advisory Committee on Arbitration Law (DAC), under the chairmanship of Lord Justice Mustill (now Lord Mustill), advised the British Government on the proposed Act. In its Report in June 1989, the DAC advised against England, Wales and Northern Ireland adopting the UNCITRAL Model Law and recommended instead that there should be a new and improved Arbitration Act that should comprise a statement in statutory form of the more important principles of the English law of arbitration. However, consideration should be given "to ensuring that any such new statute should, as far as possible, have the same structure and language as the Model Law, so as to enhance its accessibility to those who are familiar with the Model Law".
The DAC also recommended that the new Act should apply both to domestic and international arbitrations and should not be limited to the subject matter of the Model Law.
Part I of the 1996 English Arbitration Act deals with introductory matters; the arbitration agreement; stay of legal proceedings; commencement of arbitral proceedings; the arbitral tribunal (appointment, resignation, death and the filling of vacancies); jurisdiction of the arbitral tribunal; the arbitral proceedings; powers of the court in relation to arbitral proceedings; the award; costs; powers of the court in relation to the award; and miscellaneous and supplementary provisions.
Part II is largely concerned with domestic arbitration. Part III deals with the recognition and enforcement of foreign arbitral awards, namely Geneva Convention awards and New York Convention awards. Part IV contains general provisions.
The English Act leaves the arbitral process largely in the hands of the parties. For example, the parties may make provisions in their arbitration agreement relating to the appointment of a tribunal. But to the extent that the parties have failed to make those provisions, the Act contains the necessary framework for the appointment and replacement of arbitrators. However, there are certain 'mandatory provisions' that apply regardless of the will of the parties. These include the provisions in Section 9 relating to the stay of litigation where parties have agreed to arbitrate, and the provisions in Section 66 relating to the enforcement of the award.
Stay of litigation
Section 9 of the Act contains a major support mechanism for the arbitral process. It operates to prohibit one of the parties from using litigation in circumstances where an agreement has been made between the parties to utilise arbitration as the dispute resolution process: "a party to an arbitration agreement against whom legal proceedings are brought... in respect of a matter which under the agreement is to be referred toPage 190 arbitration may... apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter".
The court shall grant the application unless satisfied that the arbitration agreement is "null and void, inoperative, or incapable of being performed" - the wording of the provision contained in Article II.3 of the New York Convention.
Composition of the tribunal
Sections 15-27 of the Act contain provisions dealing with the appointment of the arbitral tribunal in circumstances where the parties themselves have not agreed such provisions. The Sections deal also with the resignation and death of arbitrators and the filling of vacancies. In addition, Section 24 gives power to the court to remove an arbitrator: Any party to arbitral proceedings may apply to the court to remove an arbitrator on various grounds, including the existence of circumstances that "give rise to justifiable doubts as to his impartiality".
Jurisdiction of the tribunal
Section 30 contains another important 'gap-filling' provision dealing with competence / competence:
"Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own substantive jurisdiction, that is, as to -
(a) whether there is a valid arbitration agreement,
(b) whether the tribunal is properly constituted, and
(c) what matters have been submitted to arbitration in accordance with...