Is the Philippines Arbitration Claim Against China “Bizarre” and “Futile”?

by Julian Ku

As this Voice of America report notes, the Philippine government is determined to forge ahead with its UNCLOS arbitration, even though China is refusing to participate in the arbitration. This seems to be a sensible strategy, at least from a legal point of view, because it is plainly within its legal rights to do so.

But would a one-party arbitration be futile?  The VOA quotes Prof. Myron Nordquist of UVA on this point:

But how would one-party arbitration work, exactly? Professor Myron Nordquist of the Center for Oceans Law and Policy at the University of Virginia calls the situation “quite bizarre.”

“For one thing, it is doomed to failure because if the party won’t consent to the arbitration there is then no enforcement,” said Nordquist. “How would they expect a country that didn’t want to have a dispute settled by third parties to feel in any sense bound by a decision where they didn’t even participate?”

I agree the situation is odd, but it is not unprecedented.  The Annex VII provisions clearly contemplate situations where one party refuses to appoint an arbitrator by giving the power to the President of ITLOS to appoint the rest of the tribunal.  Moreover, general international arbitral practice is to allow arbitrations to proceed even when one party (like China) boycotts the whole proceeding. (See Gary Born, International Commercial Arbitration, at 449-50). In such cases, the tribunal typically continues to give notice to the boycotting party, and will reach a reasoned award based on its own assessment of the law and facts. It does not typically simply accept the participating party’s submissions as true.

Moreover, I take issue with Professor Nordquist’s conclusion that the arbitration is “doomed to failure because if the party won’t consent to the arbitration there is then no enforcement.”  His statement embeds a variety of (understandable) misunderstandings about the nature of Annex VII arbitration.

First of all, let’s be clear.  China has already consented to Annex VII arbitration, at least with respect to allowing a tribunal to be constituted and to determine whether it has jurisdiction in a dispute. China consented when it acceded to UNCLOS. All China has done so far is refuse to appoint an arbitrator.

Second, as any private international commercial arbitrator could tell you, consent to an arbitration does not in any way guarantee enforcement.  Indeed, in private commercial arbitrations, judicial enforcement proceedings are common and necessary to force parties to comply with arbitral awards.

To put this another way, if China had participated in the arbitration by appointing an arbitrator, I don’t think it would have affected its likelihood of complying with any arbitral award.  UNCLOS does not have any sanctions regime akin to, say the Dispute Settlement Understanding of the WTO, so China would not face any formal sanctions if it failed to comply with an arbitral award.

All of this is a long way of saying, the decision by the Philippines to continue with the arbitration (sans China) is not really any more futile than if China had fully participated.  In both situations, China would likely not have complied  with any unfavorable award.  Any award is only going to be useful to rally other countries to the Philippines’ side as well as in marshaling global public opinion to its cause (as Prof. Nordquist does note).  Indeed, it seems that the Philippines’ American lawyer is banking on the negative reputational effects of this case eventually pushing China to come around to participate in the arbitration. (FWIW, I am skeptical that the Chinese government can be manipulated this way, especially since domestic public opinion in China leans in the opposite direction.)

For this to work, though, the Philippines has got to try to educate the global media more effectively. Headlines from USA Today, for instance, describing China as rejecting “UN Mediation” only make things murkier for them.  China is going to play the “we-just-want-to-negotiate-unlike-you-troublesome-Filipinos” card.  The Philippines needs to play the “we-are-just-asking-for-the-arbitration-that-you-consented-to” card.  So far, they are not doing all that well.

http://opiniojuris.org/2013/02/21/is-the-philippines-arbitration-claim-against-china-bizarre-and-futile/

5 Responses

  1. Does anyone know whether a monetary award granted by an Annex VII tribunal could be enforceable under the New York Convention? I see that China has a reservation to the New York Convention restricting it to commercial relationships, so enforcement or recognition under the Convention is probably not available in the current case. But in general, where no such reservation exists, does an award granted by an Annex VII tribunal qualify for recognition and/or enforcement under the New York Convention?

  2. I’ll just note here that the Chinese media has jumped on Prof. Nordquist’s remarks to help denigrate the Philippines’ decision to continue with the arbitration. http://china.huanqiu.com/local/2013-02/3668458.html  I doubt that is Prof. Nordquist’s intention, but his remarks will help build the case that continuing with this one-sided arbitration is somehow strange and the fault of the Philippines. 

  3. Interesting question Daniel. No commercial reservation and assume the place of arbitration is in a state other than that in which enforcement is sought (as opposed to the non-domestic route). I think Article V 2 on subject matter or public policy might be invoked to refuse recognition and enforcement. Also would look at LOS for the insertion of these obligations in the context of other state international law obligations. For China I would imagine an effort to enforce there would come up against the Chinese reservation on jurisdiction if one sought to enforce there. Could may e event assert Arr V 1 grounds as an arbitration not in accordance with the parties agreement to arbitrate given China limited subject matter arbitrability. I am sure someone will come along with a cite to state practice.

    Great post Julian. Yes consent to arbitration but is there consent to arbitrate this dispute. I agree that default arbitration is bizarre but it is perfectly legal and happens many times. The award is rendered and then one seeks enforcement. Difficult spot for the arbitrators to not have the benefit of both sides views but that is where they’d end up.

    As to th Chinese press latchimg onto Prof Norquist’s comments, I suspect the Phillipines team no exactly what they are doing and are laughing at the Chinese press reaction. I suspect Chinese arbitration specialists from places like CIETAC are watching this with a much more sophisticated view of the stakes.

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