International Investment Arbitration & The Role of National Courts

International Investment Arbitration & The Role of National Courts


Usama Malik, Advocate High Court, LL.B (London), LL.M (Warwick) Chairman International Legal Affairs Committee Lahore High Court Bar Association Word Count: 4273


This research essay elaborates upon the nature, purpose and structure of international arbitration, along with exploring the relationship between national courts (particularly national courts at the seat of arbitration) and arbitral tribunals. The essay will delve into a critical analysis of the extent of justifiable involvement of national courts in arbitral proceedings and what can be considered to be unjust interference of national courts at the seat of arbitration. This analysis will take into account certain legal limitations that have been placed on national courts to curb their intervention in arbitration. Furthermore, the research essay will also deliberate upon the supportive role of the national courts in bolstering the practice of international arbitration. Lastly, the author will elaborate upon mechanisms that can counter the authoritarian attitude of national courts seeking to infringe the powers of the arbitration tribunal.


International arbitration is essentially an efficacious method of solving supranational disputes. The relationship of national courts and the arbitral tribunals is perplexing as it lacks clear parameters within which the two systems can interact. According to Professor Jan Paulsson, "the great paradox of arbitration is that it seeks the co-operation of the very public authorities from which it wants to free itself."^1^ Parties to arbitration proceedings often choose arbitral tribunals over national courts to resolve their disputes for a myriad reasons. However, this does not denote that there is no space for collaboration between arbitral tribunals and domestic courts. National courts and arbitral tribunals frequently interact during various stages of the proceedings. It is said that, "the relationship between national courts and arbitral tribunals swings between forced cohabitation and true partnership.^2^ This partnership between national courts and arbitral tribunals can take the shape of unwarranted interference by the judiciary in the arbitral process. National courts can at times impede arbitration proceedings due to their unnecessary intervention.

This essay seeks to highlight the relationship between the process of international arbitration and national courts, particularly those at the seat of arbitration. The object of this paper is to analyze the extent of justifiable involvement of national courts in arbitral proceedings. The paper in part I seek to explain the nature of international arbitration and highlight the basic structure and principles of this process. It shall then, in part II discuss various legal limitations that have been placed on national courts to curb their intervention in arbitration. Key international instruments and judicial decisions will be discussed in order to elaborate upon thereduced role of judiciary in arbitral proceedings.

The essay in part III shall deliberate on the supportive role of the national courts, mainly those at the seat of arbitration in augmenting the practice of international arbitration. Part IV of the essay shall focus on instances of unjust intrusion of national courts of the seat in the workings of the arbitral tribunal. Part V of my discourse shall briefly describe mechanisms to counter the authoritarian attitude of national courts that seeks to infringe the powers of the tribunal.

++Part I: Nature of International Arbitration++

International arbitration has become the most efficacious and viable procedure of solving cross-border commercial cases.^3^ This process exists in its own separate domain and is independent of national courts and jurisdictions. However, despite having an independent character, international arbitration does frequently depend on the support and assistance of national jurisdictions for enforcement and recognition of arbitration agreements.^4^

The parties to a dispute need to have a binding arbitration agreement in order to refer their differences to arbitration. The process of international arbitration is a substitute for national courts. Through their choice of arbitration, parties have deliberately precluded the jurisdiction of national courts. It has the advantage of being more adaptable, private and confidential than proceedings in national courts.^5^ National courts also lack the expertise, which are required to tackle complicated international business dealings.^6^

The parties are completely independent to choose the governing law and rules. This aspect of international arbitration is based on the principle of party autonomy, which has become globally recognized garnering its support from various international conventions and national statues.^7^ The principle of party autonomy is inextricably linked with the selection of the seat of arbitration. The seat is the name of the state where the award of the tribunal would be made and the arbitration has its official, legal and juridical seat. Selecting the seat of arbitration depends upon individual preferences of the parties and it varies from case to case.

However, several repercussions follow from this choice, including the selection of procedural law that would be applied and the national courts responsible for its application. The national courts of the seat are also designated to ensure the continuation of the arbitration process and the invalidation of the award if the need arises.^8^ The seat is therefore of paramount importance in the process of international arbitration.

The doctrine of separability is another key element of the international arbitration process. This principle empowers the arbitral tribunal or the national courts to sever the arbitration agreement from the contents of the main contract between the parties.^9^ The doctrine aims to protect the arbitration agreement, even if the parent contract is rendered ineffective. In the case of Premium Nafta Products Ltd v. Fili Shipping Co. Ltd, the House of Lords on the basis of this principle decided that charges of bribery relating to the main contract does not render the arbitration clause void per se.^10^ This concept elucidates the autonomous nature of the arbitration agreement, which continues to exist, and does not depend on the validity of the main contract.

Furthermore, the principle of competence-competence enables an arbitral tribunal to decide on questions of its jurisdiction. This notion gives the arbitral tribunal superiority over the national courts of the seat to determine questions relating to its jurisdiction.^11^

The paradox of international arbitration lies in the fact that despite its independent nature, it cannot effectively work without the aid and support from national courts particularly those at the seat of arbitration. However, national courts particularly those at the seat can at times impede the workings of the arbitral tribunal due to unjust interference in the process. Nonetheless, different international legislation has aimed to curtail the authoritarian role of the courts in the arbitration process over the course of the 20th century.

++Part II: Limits on Judicial Intervention++

The extent of court intrusion in the arbitral process has been constrained over the past century. The Model law expressly affirms that the situations in which the courts can lawfully intervene in arbitration must be specified within the law.^12^ Historically the judiciary adopted a preventive approach towards the development of arbitration as a dispute resolution mechanism. National laws and courts showed resentment towards the progression of arbitration as it was viewed as a threat to the jurisdiction of the state and its national courts.^13^ This hostile attitude towards arbitration prevailed in almost all the jurisdictions throughout the world.^14^

However, this attitude of containment and control started changing with the ratification of the Geneva protocol in 1923 by many western states including the United States and England. Article 4 of the Protocol obliged the courts of the signing states to enforce arbitration agreements. After the Protocol, the Geneva Convention of 1927 was concluded which addressed the inherent shortcomings of the Protocol and introduced the duty of enforcing arbitral awards on national courts of the signatory states.^15^ This was a major step towards enhancing the ambit of arbitration as awards of the tribunal lacks its binding force without judicial enforcement.

In 1958, the New York Convention further facilitated the process of enforcement of foreign arbitral awards. The convention stipulated a much more effective and uncomplicated method for obtaining enforcement. It also provided for a broader and effectual regime for validating arbitration agreements than the Geneva Convention.^16^ The Convention also sought to abolish the necessity of double exequatur, which was introduced under the 1927 convention. Until the promulgation of the New York convention, arbitral awards had to be approved and rubber-stamped by the courts of the seat in order to be enforced elsewhere. The eradication of this requirement was a decisive leap towards a more pro-enforcement structure.^17^

This not only improved the efficacy of the arbitration process but also made it easy for the parties involved to enforce the award without unnecessary delay and complications. The role of the courts at the seat was also curtailed, as the need for their prior approval for enforcement in another country was eliminated.

Certain legal precedents also played a vital role in dwindling the control of national courts at the seat of arbitration and strengthening the practice of arbitration. Leading among these was the decision of the House of Lords in 1942. The case of Heyman v. Darwins discarded the notion that the arbitration agreement ceases to exist; if the main contract of which it forms a part is violated or rendered void. Their Lordships decided that the arbitration clause stands valid and the parties can still enforce their right to arbitration. This verdict introduced the doctrine of separability, mentioned above, which is an important feature of international arbitration.^18^

Nonetheless, the most important step towards limiting the degree of control of the national courts of the seat came with the introduction of UNCITRAL Model Law in 1985. The most significant provision to this regard was article 5 of the Model Law. Article 5 of the law states, "In matters governed by this law, no court shall intervene except where so provided in this law"^19^ . The UNCITRAL commentary on the Draft Model Law provides that, "Its effect would, thus, be to exclude any general or residual powers given to the courts in a domestic system which are not listed in the model law. "^20^

The wording of the commentary prohibits national courts to evoke their jurisdictional powers in matters governed by the arbitration agreement.^21^ Article 5 binds national courts including those at the seat to intervene in circumstances provided under the Model Law. The law permits court intervention under article 8 to stay court proceedings, article 9 to grant interim measures, article 11 and 13 relating to the appointment of arbitrators, article 16 to determine the jurisdiction of the tribunal, article 27 to assist the tribunal in taking evidence and article 34, 35 and 36 covers the enforcement, recognition and setting aside of arbitral awards.^22^

The list provided above is exhaustive and the national courts are under a duty to adhere to it. These controls have significantly diminished the influence of national courts over arbitral proceedings. These laws aim to transform the attitude of the national courts particularly those of the seat, to assist and encourage the arbitral process and to become its ally rather than an antagonist.

++Part III: Supportive Function of National Courts++

National courts, particularly those at the seat of arbitration provide succor and aid to the arbitral process at various stages. This essential responsibility of the courts has been recognized by the legislative system of almost all the countries.^23^ International instruments that govern international arbitration have recognized the function of courts in facilitating the arbitral process. Article 2(3) of the New York convention^24^ and article 2 of the Model Law^25^ have acknowledged the need of national courts intervention in the arbitral process.

The association of the arbitral process and national courts has been labeled as an "executive partnership" to enhance the efficacy of international arbitration.^26^ In the case of Copp e Levalin N.V. v Ken-Ren Fertilisers & Chemicals, Lord Mustill emphasized on this issue stating, "there is the plain fact, palatable or not, that it is only a court possessing coercive powers which could rescue the arbitration if it is in the danger of foundering."^27^

There are four distinct stages during which the court can come to the aid of the arbitral process. The national courts can indulge in the process prior to the establishment of the tribunal, at the start of the arbitration, during the course of the arbitration proceedings and finally when the award is being enforced. However, it is important to note that in all these phases, the utmost duty of the court lies in giving effect to the arbitration agreement.^28^

++Before the Creation of the Tribunal++

Before the start of the arbitration process, problems can arise when one party begins court proceedings in violation of the arbitration agreement. National courts have the duty to refer the matter back to arbitration by staying the court proceedings.^29^ This vital role of the courts is also envisaged in article 8 of the Model Law.^30^ In doing so, the courts must decide on the question of validity and legality of the arbitration agreement. The courts over the years have developed a progressive approach in interpreting arbitration agreements. They look at the substance of the agreement rather than its form in order to give preference to the true intention of the parties.^31^

If there exists a legitimate arbitration agreement the dispute must be referred back to arbitration. This deters the party fleeing from their contractual obligations under the arbitration agreement and ensures that the dispute be resolved through arbitration.

++At the Onset of Proceedings++

Furthermore, the national courts of the seat can become involved at the commencement of the arbitration. They are empowered under article 11 of the model law to appoint arbitrators in case of disagreement between the parties.^32^ The appointment of arbitrators can become a critical issue where the parties are adamant on the appointment of arbitrators of their choice.

The courts of the seat performing their complimentary role can appoint arbitrators in order to avoid a deadlock.^33^ The national courts in this scenario, enables the establishment of the arbitral tribunal and protects the entire process from being delayed or becoming defunct.

++During the Course of Proceedings++

National courts also supports the process of arbitration by making interim orders on application by one of the parties.^34^ This power has been vested in the national courts by virtue of article 9 of the Model Law.^35^ The Indian High court in the case of Olex Focas Pvt. Ltd v. Skoda Export Co Ltd held that the court has the power to make interim orders for the purposes of securing and preserving challenged property.^36^ It is important to note that both the arbitral tribunal and national courts have the authority to make such orders. However, in situations where such orders are aimed towards binding third parties, who are not party to the arbitration agreement, national courts remain the most viable forum, as the mandate of the tribunal cannot be extended to include third parties.^37^

Additionally, the national courts of the seat under article 27 of the Model Law are authorized to assist the tribunal in gathering evidence related to the dispute. This may be done on an application to the court by the tribunal itself or by any of the parties involved. This stipulation only applies to the courts at the seat of arbitration, as article 27 does not permit support from national courts in collecting evidence from foreign countries.^38^ The courts at this stage provide valuable backing to facilitate the smooth running of the whole process.

++After the Award has been Rendered++

The most important role of national courts becomes evident after the tribunal has rendered an award. At this stage the courts of the enforcing state as well as those at the seat of arbitration become involved. The courts of the seat become important when the losing party seeks to challenge the legitimacy of the award in order to render it void. The successful party would endeavor to enforce the award at the place of enforcement if it is different from the seat.^39^

In most cases the defeated party would voluntarily comply with the award. However, situations arise where the losing party is unwilling to conform. National courts of the enforcing state must enforce the award after being approached by the successful party. This is so because the whole process of arbitration would be futile if the award is not fully enforced in letter and spirit.^40^

It is obvious that without the cooperation and backing of national courts, especially those at the seat of arbitration, the whole process of arbitration can be disarrayed. The role of national courts as facilitators cannot be disputed. They provide the arbitral tribunal with the coercive means of enforcing their decision. Interim orders issued by the court are imperative in maintaining the status quo between the parties. The role of the courts is also crucial during the establishment of the tribunal as disputes relating to choice of arbitrators and validity of arbitration agreement can often surface. Such situations cannot be solved without the help from national courts. However, problem arises when the arbitral process is impeded due to unjustified intervention from the judiciary. These interferences can disrupt and undermine the development and progression of arbitration.

++Part IV: Judicial Interference in Arbitration++

Despite various limits placed on the role of court intervention in the arbitral process, national courts, including those at the seat, make frequent attempts to destabilize the whole process. Such efforts undermine the principle of party autonomy and the choice made by the parties to resolve their dispute through arbitration. These actions can be seen as a struggle by judges to safeguard their jurisdiction.^41^ National courts of the seat can interfere with the conduct of the tribunal on the question of jurisdiction of the tribunal. Furthermore, Courts can grant anti-arbitration injunctions to halt the proceedings of the tribunal and can at times revoke the authority of the arbitrators derailing the whole process.

++Jurisdictional Issues++

National courts of the seat frequently interfere with the principle of competence-competence, which gives the arbitral tribunal the authority to decide on its own jurisdiction. Verdicts from national courts of the seat may state that the judiciary, rather than the tribunal has the jurisdiction to decide on the issue. Such scenarios arise where the courts decide to intervene in the process on application by the party seeking to avoid the arbitration agreement.^42^

These situations transpire not withstanding article 16 of the Model Law, which specifically recognizes the primary role of the tribunal to rule on its jurisdiction and the national courts are given a secondary role to revisit the existence and validity of the arbitration agreement.^43^ The ruling of the Indian Supreme Court in the case of S.B.P .v. Patel Engineering came in clear violation of article 16 and the principle of competence-competence. It reduced the power of the tribunal and increased the authority of the chief justice to decide on issues of jurisdiction.^44^

++Anti-Arbitration Injunctions++

Furthermore, anti-arbitration injunctions are the most authoritarian and effectual mechanism at the disposal of national courts of the seat in order to intercede in arbitrations. These can be used to preclude the formation of the tribunal before the start of the arbitration proceedings. Moreover, these are also employed during the course of the proceedings to prevent the tribunal from functioning.^45^ According to Judge Stephen Schwebel, "anti-arbitration injunctions are one of the gravest problems of contemporary international commercial arbitration."^46^

These injunctions were developed in common law systems and are rarely used in civil law jurisdictions. Additionally, the use of such orders in common law jurisdictions like England, which are regarded as arbitration friendly, are minimal. It is imperative to note that such injunctions are mostly used in developing countries, which hold an intimidating attitude towards arbitration.^47^ There can be no explanation for the usage of such injunctions to derail arbitration. A simple reading of Article 5 of the Model Law implies the prohibition on such measures.

However, such injunctions are still used by national courts to obstruct the arbitral process. The infamous case of Hub Power Co. v. WAPDA portrays such an example. The case surrounded a foreign investment agreement that called for International Chamber of Commerce (hereafter ICC) arbitration in London. However, the arbitrary decision of the Supreme Court of Pakistan rendered the issue in question as not fit for arbitration and stopped the proceedings in its track.^48^ Such decisions by national courts hinder the development of international arbitration and breach the tenets of international arbitration law.

++Repealing the Authority of Arbitrators++

Another area where national courts can impeach the mandate of the arbitral tribunal is revoking the authority of arbitrators. Arbitrators are required to follow certain rules of conduct, which are essential to uphold the integrity of the tribunal. However, parties can still challenge the appointment of arbitrators on account of their failures to comply with those minimum standards. These challenges are often driven for the purposes of interrupting and delaying the arbitration proceedings by one of the parties, rather than an honest concern regarding the reliability of the arbitrators.^49^

International arbitration institutions like the ICC allows for such challenges to be made before the institution under Article 11 of the ICC rules, in order to avoid a stalemate in arbitration. These rules limit the interference of national courts to a later stage when the final award is being challenged. The rules are designed to constrain the intervention of national courts in arbitration. Nonetheless, despite these provisions, there are instances where national courts of the seat have aimed to disrupt the arbitral proceedings.

Such a case of uncalled judicial intervention by the national courts of the seat can be seen in Saipem v. Petrobangla . The dispute originated out of an agreement concerning the construction of a gas pipeline in Bangladesh. The contract called for ICC arbitration with Bangladesh as the seat. The Supreme Court of Bangladesh in clear violation of the ICC rules unilaterally revoked the authority of all three arbitrators on account of miscarriage of justice jeopardizing the whole process of arbitration.^50^

These incidences of court intervention endanger the process of arbitration rather than facilitating it. Such instances also curb the development of the practice of international commercial arbitration. The national courts of the states including the seat, due to their paramount importance in supporting the whole process of arbitration, should refrain from invading the mandate of the arbitral tribunal. Such situations violate the basic principle of party autonomy and judicial non-interference that is enshrined in various international legal instruments like the New York convention and the Model Law. Nonetheless, certain steps can be taken to alleviate the situation of undue court intervention in arbitral proceedings.

++Part V: Possible Solutions++

One of the plausible remedies to counter the effects of unwarranted interference of national courts lies in discounting such measures of hostility. Parties and arbitrators can ignore the orders of the courts that impede the proceedings of the tribunal.^51^ However, discrediting such measures comes at a cost especially where the intervention comes from the national courts of the seat. The fortune of the award can be at peril as the national court of the seat can set aside the award and render it unenforceable.^52^ Arbitrators therefore would need to take a balanced approach, and act within certain boundaries when departing from faulty decisions from national courts.

Another form of redress can be availed through holding States responsible for the unjust conduct of their national courts. This can be a ground for state responsibly under investment treaties. The notion of making states liable for the wrongful conduct of their institutions including the judiciary is codified in Article 4 of the UN Convention on Responsibility of States for Internationally Wrongful Acts 2001.^53^ Foreign investors who frequently resort to international arbitration for resolving disputes can invoke state responsibility on the grounds of denial of justice.

This has been made possible due to the recent expansion of bilateral investment treaties and regional trade regimes like the North American Free Trade Agreement (NAFTA). Those investors who suffer due to active interference by national courts in arbitration proceedings can seek help from international arbitration tribunals by bringing their claims.^54^ This will not only facilitate the victims of national courts intervention but shall also deter national courts from disrupting the process of arbitration in future cases.


It can be said that national courts of the states and those at the seat of arbitration strengthen the practice of international arbitration. The process of arbitration cannot operate smoothly without their support. The arbitral tribunal requires external aid from national courts at various stages of the proceedings. The establishment of the arbitral tribunal can be threatened without the assistance of national courts. Furthermore, the courts provide a facilitative role during the course of proceedings by issuing interim orders and offering services in collecting evidence. The value of the arbitral award can be reduced to voluntary compliance if the courts do not enforce it. All these instances call for a close affiliation between the arbitral tribunals and national courts.

Nonetheless, national courts should assume the role of an associate rather than an adversary. Several laws and judicial decisions have limited the interference of courts in arbitration. This has been done to improve the efficacy of the arbitral process and to safeguard the principal of party autonomy. However, national courts can still intervene in the process undermining the basic principles of international commercial arbitration. National courts should not transgress their boundaries hampering the proceedings of the arbitral tribunal.

They need to comprehend their task, which is to further the interests of the arbitral tribunals instead of impeaching their authority. Arbitrators and parties involved in the process can choose to ignore the unjustified orders of the national courts and can hold the states internationally liable for the conduct of their judiciary. It is imperative that the national courts maintain a balance when intervening in the arbitral proceedings. They should purport to uphold the sanctity and primacy of the arbitration agreement and give effect to the parties' intention.


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HubPowerCo.v.WAPDA, Supreme Court of Pakistan, June20, 2000, 16 Arb. Int'l 439 (2000).

* Heyman v Darwins Ltd [1942] AC 356; [1942] 1 All ER 337

* Jan Paulsson, Arbitration in Three Dimensions (1st edn, London School of Economics and Political Science Law Department 2010) <<>>

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* Nigel Blackaby and others, Redfern and Hunter On International Arbitration (Oxford University Press 2009)


* Premium Nafta Products Limited (20th Defendant) and others (Respondents) v. Fili Shipping Company Limited (14th Claimant) and others (Appellants)[2007] UKHL 40

* Rajesh Babu 'International Commercial Arbitration and The Developing Countries' (2006) 4 AALCO Quarterly Bulletin << =981123>>


* Sameer Sattar, ENFORCEMENT OF ARBITRAL AWARDS AND PUBLIC POLICY: SAME CONCEPT, DIFFERENT APPROACH? << Templates/media/files/Misc%20Documents/Enforcement-of-Arbitral-Awards-Public-Policy.pdf>>

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* S.B.P.v.Patel Engineering,(2006)A.I.R.2006S.C.450.

* Saipcm S.P.A. v. The Bangladesh Oil Gas & Mineral Corp. (Petrobangla), No. 7934/CK, ASA BULLETIN 18,

* SA Coppee Lavalin NV v Ken-Ren Chemicals and Fertilisers Ltd [1994] 2 Lloyd's Rep. 109, 116 (H.L.)

* United Nations Commission on International Trade Law, UNCITRAL Model Law on International Commercial Arbitration 1985: with amendments as adopted in 2006 (Vienna: United Nations, 2008), available at en/uncitral_texts/arbitration/1985Model_arbitration.html < en/uncitral_texts/arbitration/1985Model_arbitration.html>>

* United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, opened for signature June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S.38 available at <>> "

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