International commercial arbitration today involves, with increasing frequency, foreign governments or their state-owned or controlled corporations or enterprises as parties. This chapter examines the extent to which there may be legal problems arising out of the participation of foreign states in arbitration.

Arbitrations involving foreign states or their enterprises, are essentially governed in the United States by two statutes, the Foreign Sovereign Immunities Act and the Federal Arbitration Act, and by one international convention, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958—sometimes also referred to as the New York Convention.

Because of the consensual nature of arbitration, arbitration proceedings involving foreign states do not ordinarily raise issues of sovereign immunity. If a foreign governmental entity enters into an arbitration it is likely to have abandoned any hopes of availing itself of the protections of sovereign immunity. Sovereign immunity becomes an issue in the context of arbitration in proceedings to enforce an agreement to arbitrate, to obtain provisional remedies in aid of arbitration and to enforce an arbitral award.

Enforcement of Agreements to Arbitrate

United States courts generally take a liberal approach in construing agreements to arbitrate, resolving doubts in favor of enforcement. The Federal Arbitration Act is, the Supreme Court has said, “a congressional declaration of a liberal federal policy favoring arbitration agreements.” The courts are, however, obliged, at the request of a party, to determine, as a preliminary matter, whether a particular dispute is within the scope of an arbitration clause. This practice is contrary to that of most European countries, whose courts ordinarily refer a matter to arbitration once they determine that a written agreement to arbitrate exists.

As a practical matter, the United States courts quickly refer matters to the arbitrators when, as is usual, there is a broad arbitration clause. Problems have arisen, however, as to the arbitrability of certain kinds of disputes. The courts have barred the arbitrability of certain types of domestic disputes on public policy grounds: federal securities law violations, antitrust claims and anti-racketeering (RICO) claims. In international arbitrations, on the other hand, securities laws disputes arising under “truly international agreements” have been held to be arbitrable, in view of the strong federal policy in favor of arbitrating international disputes, which overrode public policy concerns about taking federal securities law determinations away from the U.S. courts.