"OPTIONAL ARBITRATION CLAUSE FOR USE IN CONTRACTS IN U.S.A.-U.S.S.R. TRADE-1977" (Prepared by American Arbitration Association and U.S.S.R. Chamber of Commerce and Industry)

1. Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration. The award of the arbitrators shall be final and binding upon the parties.

2. The arbitration shall be in accordance with the UNCITRAL Arbitration Rules as in effect on the date of this contract, except that in the event of any conflict between those Rules and arbitration provisions of this contract, the provisions of this contract shall govern.

3. The Stockholm Chamber of Commerce shall be the appointing authority, except for the specific provisions contained in paragraphs number 5.1 and 5.2. 4. The number of arbitrators shall be three.

5. Each party shall appoint one arbitrator. If within fifteen days after receipt of the claimant's notification of the appointment of an arbitrator the respondent has not, by telegram or telex, notified the claimant of the name of the arbitrator he appoints. the second arbitrator shall be appointed in accordance with the following procedures:

5.1 If the respondent is a foreign trade organization of the U.S.S.R., the second arbitrator shall be appointed by the U.S.S.R. Chamber of Commerce and Industry.

5.2 If the respondent is a legal or natural person of the U.S.A.. the second arbitrator shall be appointed by the American Arbitration Association.

5.3 If within fifteen days after receipt of the request from the claimant. the U.S.S.R. Chamber of Commerce and Industry or the American Arbitration Association, as the case may be. has not, by telegram or telex. notified the claimant of the name of the second arbitrator, the second arbitrator shall be appointed by the Stockholm Chamber of Commerce.

6. The two arbitrators thus appointed shall choose the third arbitrator who will act as the presiding arbitrator of the tribunal. If within thirty days after the appointment of the second arbitrator, the two arbitrators have not agreed upon the choice of the presiding arbitrator, then at the request of either party the presiding arbitrator shall be appointed by the Stockholm Chamber of Commerce in accordance with the following procedure:

6.1 The Stockholm Chamber of Commerce shall submit to both parties an identical list consisting of the names of all of the persons listed on the then existing joint panel of presiding arbitrators established by the U.S.S.R. Chamber of Commerce and Industry and the American Arbitration Association. 6.2 Within fifteen days after receipt of this list, each party may return the list to the Stockholm Chamber of Commerce after having deleted the names to which he objects, but not more than one-half of the names on the list, and having numbered the remaining names on the list in the order of his preference. 6.3 After the expiration of the above period of time, the Stockholm Chamber of Commerce shall appoint the presiding arbitrator from among the names not deleted on the lists returned to it and in accordance with the order of preference indicated by the parties.

6.4 Should no joint panel then be available, or if all persons remaining on the lists after deletion of names by the parties are unwilling or unable to act as presiding arbitrator, the Stockholm Chamber of Commerce shall appoint as presiding arbitrator a person not on the joint panel who shall be of a nationality other than U.S.S.R. or U.S.A.

7. The arbitration, including the making of the award, shall take place in Stockholm, Sweden.

8. The parties will use their best efforts to agree on a single language for the arbitration proceedings, in order to save time and reduce costs. However, if the parties do not agree on a single language:

8.1 Each party shall present its statement of claim or statement of defense, and any further written statements in both English and Russian. 8.2 Any other documents and exhibits shall be translated only if the arbitrators so determine.

8.3 There shall be interpretation into both Russian and English at all oral hearings.

8.4 The award, and the reasons supporting it, shall be written in both Russian and English.

Abbreviated Form of the Clause

Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity thereof, shall be settled by arbitration in accordance with the "Optional Arbitration Clause for use in contracts in U.S.A.-U.S.S.R. Trade-1977" (Prepared by American Arbitration Association and U.S.S.R. Chamber of Commerce and Industry).

The Arbitration Rules of the U.N. Commission on International Trade Law (UNCITRAL Arbitration Rules) were adopted by the U.N.G.A. in Res. 31/98 on Dec. 15, 1976.

In preparation for the new arrangements, a comprehensive analysis of Swedish arbitration law was jointly conducted which led to changes in Swedish legislation in order to facilitate international arbitration. See Yearbook of Commercial Arbitration, Vol. II, p. 227. Based on the results of the joint study, the Stockholm Chamber published a book in English entitled Arbitration in Sweden containing translations of Swedish arbitration statutes.

The legal teams which prepared the model clause consisted of A. P. Belov and S. N. Lebedev for the U.S.S.R. Chamber and Howard M. Holtzmann and Gerald Aksen for the AAA. Justice Nils Mangard was chairman of the Swedish group. A. I. Golovkin, Vice Chairman of the U.S.S.R. Chamber, and D. B. Straus, President of the AAA Research Institute, and Sven Swarting, Managing Director of the Stockholm Chamber, participated in the discussions leading to the model clause. The Soviet statement made at the ceremonies marking the announcement of new arrangements read as follows:

The Optional Clause which we have jointly prepared is a good example of mutual cooperation. The purpose of our two organizations has been to contribute to the development of trade between the Soviet Union and the United States by facilitating the negotiation of contracts and by strengthening legal safeguards, although we recognized throughout our discussions that the prospects of this trade depend on many factors. It should be noted that our common efforts have been inspired by the Final Act signed in Helsinki in 1975 by the U.S.S.R., the U.S.A. and many other countries, which includes provisions encouraging wider use of arbitration for the settlement of disputes in international commerce.

News from the American Arbitration Association, Jan. 12, 1978.

UNCITRAL

Rules of Arbitration

In his remarks at the tenth session of the U.N. Commission on International Trade Law (UNCITRAL) on June 7, 1977, Howard M. Holtzmann, U.S. Alternative Representative to UNCITRAL, expressed satisfaction with the favorable attention given the UNCITRAL Arbitration Rules by various international arbitral bodies since their adoption by the U.N. General Assembly on December 15, 1976, in Resolution 31/98. Mr. Holtzmann urged the UNCITRAL Secretariat to consider studying ways of eliminating possible conflicts between the UNCITRAL Arbitration Rules and the domestic law of states and suggested that the Secretariat consider proposing a model sovereign immunity clause for use in conjunction with the UNCITRAL Arbitration Rules in transactions where states are parties.

Excerpts from Mr. Holtzmann's prepared remarks follow:

We note with great satisfaction the favorable attention which has been given in many parts of the world to the UNCITRAL Arbitral Rules during the brief period that they have been in existence for it is just a year since they were adopted by this Commission and less than six months since the General Assembly recommended their use. In that brief period much has occurred. For example:

-The new optional arrangements for arbitration in trade between the United States and the Soviet Union feature a model arbitration clause which utilizes the UNCITRAL Arbitration Rules.

-The Inter-American Commercial Arbitration Commission (IACAC)-an organization representative of all countries in North, Central and South America-has amended its arbitration rules so that effective January 1, 1978, they will be substantially identical to the UNCITRAL Arbitration Rules, with only those modifications necessary to adapt the rules to the institutional use of the IACAC.

-The London Court of Arbitration has announced its willingness to appoint arbitrators and administer cases under the UNCITRAL Arbitration Rules and has published a suggested Model Clause for that purpose.

-The American Arbitration Association and the Stockholm Chamber of Commerce are among the international arbitration centers which have agreed to appoint arbitrators and administer cases under the UNCITRAL Arbitration Rules. We are sure that there are other organizations which have done likewise but their actions have not yet come to the attention of our delegation.

All of this represents a great upsurge in international recognition of the value of arbitration—and particularly of the UNCITRAL Arbitration Rules.

.. [I]t might be possible to study whether it would be appropriate to eliminate conflicts between the UNCITRAL Arbitration Rules and domestic law by a relatively simple convention which could reverse the concept of the present article I, paragraph 2 of the UNCITRAL Rules. That paragraph, the members of the Commission will recall, provides that when the Rules conflict with provisions of domestic law from which parties cannot derogate, the domestic law shall prevail. The Secretariat might study the feasibility of a convention which would, in effect, say just the opposite: "When parties agree on the UNCITRAL Arbitration Rules and those rules conflict with domestic law, the UNCITRAL Arbitration Rules shall prevail."

Such a convention might be much simpler to draft than a detailed convention setting forth in full a universally acceptable procedural law for arbitration. Moreover, study might indicate that a number of countries have laws which do not now conflict with the UNCITRAL Arbitration Rules and, therefore, would

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have no need to adopt the new convention. That would reduce the number of places which would have to consider ratifying such a convention. Again, our delegation stresses that we do not argue for this approach at this stage. We only urge that it be given careful study.

With respect to the proposals on sovereign immunity, we agree with those who have noted the sensitivity of matters of sovereign immunity and the practical difficulties of seeking action by states on this matter in many parts of the world. A convention on sovereign immunity might take a long time to accomplish. Without abandoning possible future considerations of that longer road, the Delegation of the United States suggests that the initial study might be focused on what could prove to be a simpler mechanism.

The Sixth Committee of the General Assembly commenting on the UNCITRAL Rules "expressed satisfaction with their optional character. It was noted with approval that the Rules had been produced by the Commission not in the usual form of a draft but in the much simpler and less costly form of model rules for the parties, requiring no international convention or national legislative enactment. It was suggested that this was a method which the Commission might possibly wish to employ with respect to its future projects, whenever appropriate." [Doc. A/31/39, Par. 27].

In that spirit, the Secretariat might study an additional model clause, to be available for use in conjunction with the UNCITRAL Arbitration Rules in transactions when states are parties. In such a model clause, the state could specifically express its agreement not to invoke sovereign immunity in connection with any aspect of arbitration of a dispute arising from the transaction. A specific waiver in this form might, as a practical matter, go a long way toward achieving the purposes of the AALCC proposal.

Dept. of State File No. P78 0039-1900.

Set forth below are portions of the UNCITRAL Arbitration Rules, which may be purchased in their entirety through the United Nations (Publication Sales No. E 77.V6) or may be found in 15 International Legal Materials 701-717 (May 1976), as well as the model arbitration clause and items concerning arbitration which parties may wish to consider adding to their agreements:

Scope of application

Article 1

1. Where the parties to a contract have agreed in writing that disputes in relation to that contract shall be referred to arbitration under the UNCITRAL Arbirtation Rules, then such disputes shall be settled in accordance with these Rules subject to such modification as the parties may agree in writing.

2. These Rules shall govern the arbitration except that where any of these Rules is in conflict with a provision of the law applicable to the arbitration from which the parties cannot derogate, that provision shall prevail.

Notice of arbitration

Article 3

1. The party initiating recourse to arbitration (hereinafter called the "claimant") shall give to the other party (hereinafter called the "respondent") a notice of arbitration.

2. Arbitral proceedings shall be deemed to commence on the date on which the notification of arbitration is received by the respondent.

3. The notice of arbitration shall include the following:

(a) A demand that the dispute be referred to arbitration;

(b) The names and addresses of the parties;

(c) A reference to the arbitration clause or agreement that is invoked;

(d) A reference to the contract out of or in relation to which the dispute arises;

(e) The general nature of the claim and an indication of the amount involved, if any;

(f) The relief or remedy sought;

(g) A proposal as to the number of arbitrators (i.e. one or three), if parties have not previously agreed thereon.

4. The notice of arbitration may also include:

(a) The proposals for the appointments of a sole arbitrator and an appoint

ing authority referred to in article 6, paragraph 1;

(b) The notification of the appointment of an arbitrator referred to in !

article 7;

(c) The statement of claim referred to in article 18.

Number of arbitrators

Article 5

If the parties have not previously agreed on the number of arbitrators (i.e. one or three), and if within 15 days after the receipt by the respondent of the notice of arbitration the parties have not agreed that there shall be only one arbitrator, three arbitrators shall be appointed.

Appointment of arbitrators (articles 6 to 8)

Article 6

1. If a sole arbitrator is to be appointed, either party may propose to the other:

(a) The names of one or more persons, one of whom would serve as the sole arbitrator; and

(b) If no appointing authority has been agreed upon by the parties, the name or names of one or more institutions or persons, one of whom would serve as appointing authority.

2. If within 30 days after receipt by a party of a proposal made in accordance with paragraph 1 the parties have not reached agreement on the choice of a sole arbitrator, the sole arbitrator shall be appointed by the appointing authority agreed upon by the parties. If no appointing authority has been agreed upon by the parties, or if the appointing authority agreed upon refuses to act or fails to appoint the arbitrator within 60 days of the receipt of a party's request therefor, either party may request the Secretary-General of the Permanent Court of Arbitration at The Hague to designate an appointing authority.

3. The appointing authority shall, at the request of one of the parties, appoint the sole arbitrator as promptly as possible. In making the appointment the appointing authority shall use the following list-procedure, unless both parties agree that the list-procedure should not be used or unless the appointing authority determines in its discretion that the use of the list-procedure is not appropriate for the case:

(a) At the request of one of the parties the appointing authority shall communicate to both parties an identical list containing at least three names;

(b) Within 15 days after the receipt of this list, each party may return the list to the appointing authority after having deleted the name or names to which he objects and numbered the remaining names on the list in the order of his preference;

(c) After the expiration of the above period of time the appointing authority shall appoint the sole arbitrator from among the names approved on the lists returned to it and in accordance with the order of preference indicated by the parties;