Originally from American Review of International Arbitration, Vol. 29, No. 3

The success of international arbitration is undeniably due to its ever-increasing detachment from the legal orders of States. This is evidenced in particular by the diminishing influence of the law of the seat or the submission of arbitral disputes to non-State rules.  A form of a-territoriality or “delocalization” of international arbitration certainly exists, explaining the success of this alternative method of dispute resolution, at least in part.

In these circumstances, confronting arbitration with extraterritorial rules adopted by States or communities of States may seem to be paradoxical.  Although arbitration has no significant territorial ties with States, it may be affected by their domestic or regional laws, especially those which provide for their extraterritorial application.

This article will analyze the impact of extraterritorial laws and regulations on arbitral proceedings. In particular, this article will explore the risks that extraterritorial sanctions are likely to exert on arbitral practice.  To that effect, Part I will discuss the notion of extraterritoriality of laws.  Part II will analyze the effect  of extraterritorial laws in international arbitration, while Part III will discuss the effect of extraterritorial laws on the subject matter of the dispute.

I.  EXTRATERRITORIALITY OF LAWS

The notion of extraterritoriality implies the exercise by a State or a regional organization of its legislative power to apprehend certain legal situations located at least partially outside its geographical territory, and therefore situations occurring in another State’s territory.  It could be more precisely defined as when “the powers of a State (legislative, executive or jurisdictional) govern legal relationships located outside that State’s territory.” Beyond this definition, a more significant issue lies in the legality of the extraterritorial exercise by a State or a group of States’ powers under public international law.  The question therefore arises as to whether this extraterritoriality can be deemed systematically unlawful under public international law, thereby entailing the international responsibility of the State or of the regional organization concerned.