This article is written by Priyanka Kumar. This article elaborately explains the concept and practice of the oldest institution in the world for international dispute resolution, i.e., the Permanent Court of Arbitration (PCA). As PCA is set to complete 125 years in 2024, this article attempts to bring out some important insights into the journey of PCA over the years and its relevance in today’s world. 

This article has been published by Sneha Mahawar.

Table of Contents

Introduction

Some may think that ‘arbitration’ as an alternate dispute resolution method is a fairly new concept discovered only in modern times. The start point of international arbitration was seen when John Jay’s Treaty of 1794 was signed between the United States and the United Kingdom. While this Treaty only took into consideration the international arbitration disputes between the two nations, it did not adopt a convention on a worldwide level. The Treaty of Washington of 1871 thereafter sought to arbitrate upon the claims between the two countries that arose due to the American Civil War, with some set of guidelines governing the arbitration. However, even to this point, there was no universal legislature adopted on the subject of international arbitration. 

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It will not be a mistake to assume that arbitration gained its first introduction when the United Nations (UN) introduced the United Nations Commission on International Trade Law (UNCITRAL) Model Laws on the procedure to conduct arbitration on an international level. However, little has been known that arbitration was actually introduced on a worldwide platform in the late 19th century itself, through the establishment of the Permanent Court of Arbitration (PCA) in the year 1899. PCA was the first organisation constituted to create a forum for dispute resolution between countries through peaceful means. It made way for countries to become its contracting parties and refer disputes related to public international law such as territorial sovereignty, interpretation of various treaties, state responsibilities, etc. 

Despite being the oldest arbitral institution the world has seen, PCA continues its legacy till date. With the ideologies of PCA as the base, several other international dispute resolution organisations have been established. Through this article, the author attempts to dive into every aspect of PCA, right from its inception to its prominent practice till date. This article predominantly covers the history of PCA, its features, functions, and advantages. The article also presents PCA’s contributions to the world judiciary by enlisting some of the most famous cases decided under the head of PCA. Towards the end, the article summarises the journey of PCA to articulate whether the PCA has brought out a positive impact or not.  

What is Permanent Court of Arbitration (PCA)

The Permanent Court of Arbitration (PCA) is an international institution that conducts or facilitates the resolution of disputes through arbitration, mediation, conciliation, and other means of dispute resolution between states, state organisations, and investors. In order to carry out this facilitation, PCA provides certain services, such as the appointment of arbitrators, providing a procedure for hearings, providing a team to look after the needs of the proceedings per hearing, and ensuring an unbiased manner for conducting arbitration. In exchange for PCA’s services, the disputing parties may also agree to abide by the PCA procedural rules.

Origin of Permanent Court of Arbitration (PCA)

First Peace Conference, 1899

In the year 1899, the First Peace Conference was convened in The Hague, Netherlands, at the initiative of the then ruler, Czar Nicolas II of Russia. The conference had been held with the object of “seeking the most objective means of ensuring to all peoples the benefits of a real and lasting peace and, above all, of limiting the progressive development of existing armaments.” In other words, the First Peace Conference was convened in order to find a rather real and lasting method of maintaining peace between the nations of the world, with a special focus on resolving disputes through the mechanism of arbitration. The said conference led to the passing of The Hague Convention for the Pacific Settlement of International Disputes (PSID), 1899, containing various provisions for maintaining general peace between the signatory countries. One of the most important outcomes of this Convention was the establishment of the Permanent Court of Arbitration (PCA). The PCA was established in 1900, and it started functioning in 1902. It was situated at the Peace Palace in the Netherlands. 

Shortly after the First Peace Conference, 1899, was the Second Peace Conference held in 1907, in order to revise and re-adopt the Convention for the Pacific Settlement of International Disputes, 1907. Through the Convention of 1907, the countries of Central and South America were also invited to become contracting parties. Both the 1899 and the 1907 conventions became the founding conventions of the Permanent Court of Arbitration. The states that wish to become members of the PCA have to sign and ratify any of these conventions, either the 1899 one or the 1907 one.  

For your information: The First Peace Conference, 1899, is also marked as an important conference in the history of the world because this is the conference that led to the birth of the League of Nations, i.e., the modern day United Nations (UN), and the Permanent Court of Justice (PCJ), i.e., the modern day International Court of Justice (ICJ).

Agenda behind the formation of PCA

The Permanent Court of Arbitration (PCA) was introduced with the objective of providing an immediate recourse to arbitration and thereby facilitating international disputes between the signatory countries, i.e., inter-governmental organisations, where diplomatic talks failed. For this purpose, the PSID also formulated certain rules, laying down the procedure to be followed while resolving disputes through arbitration. The summary of this agenda was also provided under PSID 1899. 

The most distinguishing feature of PCA was that it was established as a mechanism different from the traditional courts. PCA did not force its jurisdiction upon the contracting parties and kept it rather flexible for parties to choose PCA as a neutral third party administrator or facilitator. Unlike the courts in different countries, where disputes had to be referred to in case of domestic disputes, in case of international disputes, between two countries as well as private parties of two countries, the PCA was established as an unbiased platform with its independent set of rules and arbitrators that could ultimately amicably resolve the disputes. The PCA was not supposed to have a permanent structure where its panel of arbitrators could be stationed, but instead it made it flexible for the parties to give nominations and mutually appoint the arbitrators from the panel maintained by the PCA. It, however, provides for an office at the Peace Palace in The Hague, the Netherlands. 

Working of Permanent Court of Arbitration (PCA)

PCA0, first and foremost, was introduced as a platform for resolving disputes through arbitration. What we read today about modern-day arbitration procedures and methods finds its origin in the PCA’s first set of rules. 

Constitution of Permanent Court of Arbitration (PCA)

The Permanent Court of Arbitration comprises a three-part structure consisting of the Administrative Council, Members of the Court, and the International Bureau. 

Administrative Council

The Administrative Council of the PCA consists of the diplomatic representatives of the contracting parties. These diplomats are accredited to the Netherlands. The Council is presided over by the Minister of Foreign Affairs of the Netherlands. 

The main work of the Administrative Council is to help in making and shaping all the policies of PCA from time to time. Another very important function of the Administrative Council is that it takes care of the financial budgeting and expenditures on behalf of the PCA. Additionally, when a request is made for administering a case through PCA, the request has to be approved by the Administrative Council. The Administrative Council is also responsible for the appointment of a Secretary General, who then heads the International Bureau, the third wing of the PCA. It is the task of the Council to make annual reports of the workings of PCA. 

Members of the Court 

The Members of the Court formed that wing of the Permanent Court of Arbitration, which contains the panel of arbitrators that preside over disputes referred to arbitration at PCA. These arbitrators are selected from every contracting state of the PCA. Each contracting country is required to nominate up to four persons in this panel. The members of the panel are appointed for a period of six years, subject to renewal by PCA. These panellists form the potential arbitrators, from whom the disputing parties then get to nominate and appoint their arbitrators. 

For your information: The Members of the Court together form the “national group,” and it is from this group that nominations are made to be appointed as judges of the International Court of Justice. The members of the Court of PCA and the judges of the ICJ then become entitled to nominate candidates for the Nobel Peace Prize.  

International Bureau

The International Bureau assists the parties in selecting the arbitrators. It acts as the ‘appointing authority’ of PCA. This department is the actual driving force of PCA and consists of a team of well-qualified and experienced legal and administrative staff, headed by a Secretary General. The staff of the bureau belong to various nationalities. The Secretary General is appointed for a fixed period of 5 years by the Administrative Council of the PCA and essentially holds legal, managerial, and diplomatic experience.

The main objective of the International Bureau is to administer and facilitate the disputes referred to the PCA and assist the arbitral tribunal in handling disputes by providing a list of arbitrators to appoint arbitrators. In addition, the Bureau also acts as a medium of communication between the parties and the tribunal and ensures safe custody of the documents in the dispute. It provides all sorts of administrative, logistical, technical, hospitality, and linguistic support and asserts the conduct of arbitration proceedings before the tribunal in a smooth manner. 

The Bureau was originally assigned to provide all such services for arbitrations conducted within the Netherlands; however, eventually it branched out to aid contracting parties in PCA arbitration held even outside the Netherlands. 

All questions and queries related to the PCA and the conduct of dispute resolution under the PCA are answered by the International Bureau of the PCA. 

Services provided by Permanent Court of Arbitration (PCA)

Established as the court of arbitration, PCA has, over the years, expanded its services to provide the following: 

  • Arbitration: International arbitration is administered by PCA with respect to disputes between states, with state entities, international organisations, investors, and private persons. For this purpose, PCA relies on its own set of rules as well as the other international arbitration rules established under various specific conventions. 
  • Appointing Authority: PCA also provides the limited service of allowing to take the assistance of its Secretary-General to become an appointing authority in arbitrations taking place under other international rules. The Secretary-General gets the opportunity to appoint the arbitrators, from beyond any panel or list, to hear matters of challenge to the appointed arbitrator and challenges to the fees decided by the arbitrator. 
  • Mediation / Conciliation: Along with international arbitration, PCA also provides the service to opt for other alternate dispute resolution mechanisms, such as international mediation and conciliation. It further provides that in order to conduct matters under conciliation, PCA relies upon its own rules as well as the UNCITRAL Conciliation Rules. 
  • Hearing facilities: In order to be able to conduct physical hearings smoothly throughout the world, PCA has opened its offices in The Hague, Buenos Aires, Mauritius, Vienna, and Singapore, and by entering into host country agreements and cooperation agreements, it provides hearing facilities to facilitate its services.  
  • Case administration: PCA provides services like logistical, technical, hospitality and linguistic support during the conduct of the arbitration proceedings. The International Bureau wing of the PCA appoints a person amongst them who then acts as a registrar or administrative secretary. He then performs all case administration functions pertaining to arbitration proceedings, such as forwarding parties/ arbitrator’s correspondence, maintaining records of all documents filed, informing the tribunal about the schedule of hearings, assisting the tribunal with the date, time, place of hearing, etc.  
  • Fact Finding / Commissions of Inquiry: PCA provides the service of acting as a fact finding and commission of inquiry in order to investigate certain facts, whenever it has been so referred. By this, PCA enables the setting up of a committee of five persons to investigate the facts of a particular case and provide the report.  
  • Guest tribunals: This facility is available to parties that may not want to administer their dispute under the PCA rules but may require the facility of arbitration suites, hearing rooms, etc. for assistance in an ongoing arbitration. 

Kinds of disputes administered by Permanent Court of Arbitration (PCA)

PCA originated as an institution to administer only inter-governmental disputes at first. However, as the years passed, factors such as globalisation, the rise of investor-state contracts, more acceptable methods of dispute resolution in various countries, etc. started to impact the kinds of disputes PCA was to administer. Eventually, the PCA had to redefine the scope of disputes it could cover under its umbrella, and that led to the present day variety of disputes that get referred to the PCA. 

PCA Rules, 2012 specifically provide for those disputes to be referred to PCA that are between one or more states, state-owned entities, and inter-governmental organisations that have formed a legal relationship based on either a contract or treaty or otherwise and have agreed for disputes to be referred to arbitration under the Permanent Court of Arbitration, Arbitration Rules, 2012. Thus, the following kinds of disputes can be referred to PCA: 

  • Inter-state disputes: The most common form of disputes referred to the PCA are inter-state disputes, which involve two states and arise out of violation of a contract between the two states or as a result of a violation of a treaty or convention by one of the states, causing harm and threat to the sovereignty of one of them. Such disputes can be referred to the PCA for resolution through arbitration, mediation, or conciliation. 
  • Investor-state arbitrations: These disputes involve a state and a private investor. Such investors contract with a state pursuant to a Bilateral Investment Treaty (BIT) signed between the host state and the state of the investor. Both parties here are bound by the terms of a BIT. 
  • Contract-based arbitrations, mediations, and conciliations: Some states may enter into contracts with state-entities or state-based organisations of other states. Such contracts need not be based on a BIT or a treaty or convention, but only the terms and conditions of the contract shall be the binding force between the parties. Such disputes fall under the category of contract-based disputes and can be referred to PCA for resolution through arbitration, mediation, or conciliation. 

Procedure followed by Permanent Court of Arbitration (PCA)

It is inherent that the contracting parties opting for the disputes to be referred to PCA need to have the PCA model clause included in the contract, from which the disputes are arising and being referred to PCA. The model clause, in order for parties to opt for PCA arbitration, is as follows:

“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 PCA Arbitration Rules 2012.”

Additionally, if the contracting states wish to refer disputes to the PCA where the clause was not included in the contract, they can still make a reference by mutually agreeing to the PCA. 

If only one of the parties to the dispute is a contracting state of the PCA, then in that case, the PCA provides that the parties agree in writing of their agreement to arbitrate the disputes under the PCA Arbitration Rules and of any other clause that they may wish to add or vary from the PCA on. For the governance of such disputes, PCA provides for a separate and specific set of rules by the name of “Permanent Court of Arbitration Optional Rules for Arbitrating disputes between two parties of which only one is a State”. The only point of difference with one party being a non-state is that the state loses its right of sovereign immunity from jurisdiction, if any, that were otherwise applicable, had the other party also been a state. 

PCA Arbitration Rules, 2012 

Being an administrator and facilitator of arbitration disputes, PCA has a set of rules that determine the manner and procedure in which the disputes must be conducted. These rules incorporate a step-wise commentary, right from the appointment of the arbitrator to the passing of the award and its enforcement with the contracting states. Just like the process of forming laws in a country, PCA rules have also experienced a fair share of amendments since its inception, with the most recent and current procedural rules being the Permanent Court of Arbitration Rules, 2012. In addition, the PCA provides explanatory notes as clarification for the rules published. As of today, these rules are easily available on the official website of PCA and can even be obtained in various languages like Arabic, French, Spanish, Portuguese, etc. 

The prominent features of the PCA Arbitration Rules, 2012, highlighting the conduct of arbitration proceedings as well as the role of PCA in these proceedings, are briefly explained as under:

Reference to the dispute

When a dispute is referred to PCA, it gets directed to the registry of PCA, i.e., the International Bureau wing. The party invoking arbitration is required to send the notice of arbitration to the other party, with a copy marked to the International Bureau of the PCA. Thereafter, arbitration proceedings begin as per the PCA Arbitration Rules. 

Appointment of arbitrator(s)

  • The notice of arbitration, sent by the party invoking arbitration, contains the claimant’s nomination of the sole arbitrator. Likewise, the response to the notice of arbitration is required to contain the respondent’s nomination. In cases where there are three arbitrators opted for by the parties in their agreement, the third arbitrator, i.e., the presiding arbitrator, is appointed by the two appointed arbitrators. Similarly, in cases where there are five arbitrators, the two appointed arbitrators get to choose the other three arbitrators, who amongst themselves decide the presiding arbitrator for the proceedings. 
  • The Secretary-General of the PCA acts as the body appointing the arbitrators, from amongst the names given by the parties as the nomination. The role of the Secretary-General is to ensure that the arbitrators appointed act independently and impartially and belong to the nationality of the state other than that of the parties involved in the dispute before the PCA. To provide this assurance, the PCA also takes a disclosure from the appointed arbitrators of their impartiality and independence. 
  • In any case, the appointing authority is the Secretary-General of PCA. In the event there is no agreement reached between the parties, the Secretary-General gives a list of arbitrators to both parties, who then revert with their chosen options. On the basis of the parties’ individual choices, the Secretary-General comes to a conclusion and appoints the required number of arbitrators. Together, the arbitrators form the arbitral tribunal.
  • Even after an appointment, if any of the parties doubt the independence and impartiality of the appointed arbitrators, under the PCA rules, they have the option to challenge the appointment by sending a notice of the same to the Secretary-General of the PCA. The Secretary-General then has the power to hear such a challenge and decide on the appointment of the challenged arbitrator. 
  • Once appointed, if any of the arbitrators do not turn up for the proceedings, then with the consent of the parties and of the other arbitrators, the existing arbitrator can opt for conducting the proceedings in the absence of others, or the parties can opt for appointing an arbitrator afresh. This shall entirely depend upon the stage of the arbitration proceedings. However, the important aspect is that PCA does provide this flexibility to parties in order to conduct the proceedings without any unnecessary delay. 

Hearing of arbitration proceedings

  • Under the PCA Arbitration Rules, the parties are free to decide the language in which the arbitration proceedings should be conducted and also choose a place of hearing for arbitration. They can choose to have it at the Peace Palace, which is the headquarters of the PCA, or in any of the offices of the PCA spread throughout the world. 
  • Once the parties agree to have the proceedings conducted through PCA and pay the required fees of PCA, the venue charges get included in it. However, in case the parties opt for a place where PCA does not have an office, PCA makes arrangements for the conduct of the proceedings by booking a hearing space for the parties. 
  • All the arbitration proceedings before the PCA are likely to be heard in camera, unless the parties opt for another manner of hearing. 
  • The statement of claim, being the main document stating the facts, issues, grounds, and arguments of the claimant, is submitted to the arbitral tribunal by serving a copy to the International Bureau wing of the PCA. Similarly, the statements of defense submitted by the respondents are also submitted to the tribunal, with a copy served upon the International Bureau. The statement of claim, along with the statement of defense and other documents submitted during the proceedings, form the pleadings of that particular arbitration proceeding. 
  • The PCA Arbitration Rules also provide for interim measures. This means that the parties can, before the proceedings are concluded finally, make an application to the tribunal and pray for interim, or temporary reliefs, which will last till the final award of arbitration is passed. 
  • Throughout the course of the hearings, all the applications, documents, communications, etc. between the parties and the arbitral tribunal are submitted with a copy marked to the International Bureau of PCA. 

Award

After hearing the parties arguments and evidence, the award is passed by the arbitral tribunal. From the time of referring a dispute to PCA for arbitration, right until the passing of the award, the PCA Arbitration Rules are applied to the proceedings. These rules form the procedural laws of the proceedings. However, the substantive laws, i.e., the laws as per which the merits of the dispute are to be decided, shall vary from case to case. 

While passing the award, the arbitral tribunal has to apply the laws of interpretation to the dispute, considering the parties shall be states, international organisations, or private parties, belonging to different countries and following different laws. 

  • Thus, if the disputing parties are two states, the tribunal takes into account the substantive law agreed to by the parties for interpreting the contract. This could be the laws of the country where such an agreement was signed or international laws. 
  • Secondly, if the disputing parties involved states and international organisations, then the rules of the organisation along with the substantive law agreed to by the parties for interpreting the contract shall apply. 
  • Thirdly, if the disputing parties involve international organisations and private parties, then the tribunal takes into account the rules of the orgnaisation along with the substantive law agreed to by the parties for interpreting the contract and the international trade practices for the purpose of passing the award.  

Upon the completion of the pleadings and hearing of the merits of the case, the award is passed by the arbitral tribunal. This award is then served upon the parties by the International bureau only and is accepted by the parties as final and binding upon them. Additionally, while accepting the award, every party is likely to inform the international Bureau of the laws and regulations that will be applied to the award when it is executed or enforced in the respective country. 

For your information: It is pertinent to note that the awards passed by the PCA are published on the PCA website. As of today, all the cases administered by the PCA between two states or states and international organisations and private parties are mentioned in detail on the PCA website. 

Enforcement of Permanent Court of Arbitration (PCA) awards

It is said that the strength of every award passed by an arbitration or alternate dispute resolution institution is derived from the value its awards hold while attempting to enforce it. It has already been seen that contracting states can avail the facility of having disputes referred to and administered by the PCA. It has also been seen that PCA administers disputes not just between states but also between states and private parties. But what happens after a PCA award is passed? How does one enforce it in its country? Moreso, how does the enforcement happen when one party is a private party and the other one is a state? These are the questions that pop in our minds when the aspect of a PCA award is discussed. The author intends to answer these in this part of the article. 

In 1958, the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, popularly known as “the New York Convention” was adopted in one of the conferences of the United Nations. The New York Convention was widely accepted, signed and ratified by about 160 states all across the globe. The objective of this Convention was to enable states to enforce arbitral awards that were internationally and not within their respective countries. The Convention stated the parameters to judge whether a particular international award passed, was legally correct or not. The criteria and procedure for enforcement of foreign awards was laid down in this Convention. Article I of the New York Convention specifically defined the term “arbitral awards” to mean awards passed in international ad-hoc arbitrations and also included the international arbitral awards passed by permanent arbitral institutions, in different parts of the world, to which the parties may have referred their disputes. 

Once a state ratifies the New York Convention, they adopt the same in their domestic arbitration legislations. For example, India ratified the New York Convention and thereby included the ‘New York Convention Awards’ as chapter 1 of its ‘Part II- Enforcement of Certain Foreign Awards’. Thus, any PCA award that has to be enforced in India is done by making an application for enforcement under Part II of the Arbitration and Conciliation Act, 1996. 

A PCA award is likely to fall in the ambit of a foreign arbitral award, enforceable under the New York Convention. Since the awards rendered by PCA are usually either arising out of international commercial arbitrations or international investment arbitrations, the enforcement of their resulting awards can be done in states by the use of the New York Convention. 

Interrelation between Permanent Court of Arbitration (PCA) and ICJ

The Hague Peace Conference of 1899 kick-started the talk of forming an international court of justice that could be accessed by all the contracting nations in order for an intergovernmental dispute to be resolved. The difference of a court of justice as against the Permanent Court of Arbitration was that the court of justice would have a permanent infrastructure and location and would consist of full-time judges. Thus, the International Court of Justice (ICJ), formerly known as the Permanent Court of International Justice (PCIJ), was formed in 1945 under the United Nations (UN) Charter. 

The ICJ is one of the six principal organs of the UN. It comprises 15 judges who are elected for a period of 9 years. The ICJ hears disputes between state and private bodies in a court, and for this purpose, the ICJ Rules lay down the procedure for the conduct of the disputes.

The inter-relation between the PCA and the ICJ is that the judges of the ICJ are elected from a list of people nominated by the “national group” in the PCA. The Members of the Court, which essentially form the panel of arbitrators of the PCA, are the members of the national group. They comprise four persons nominated from every contracting state of the PCA. Another point of inter-relation between the PCA and ICJ is that the head office of the PCA is situated at the Peace Palace, and the ICJ itself presides over the same Peace Palace in The Hague.

Difference between PCA and ICJ

One may wonder why the ICJ was established after the establishment and worldwide acceptance of the PCA. Although the two bodies have a correlation, yet, there are different purposes of establishment of PCA and ICJ.

While PCA was formed in 1899 as a body to administer intergovernmental disputes arising between states, private parties, states and state organisations, ICJ was formed as the judicial organ of the United Nations in 1945 as a body that could hear and adjudicate disputes referred to it by any state in the world and even give advisory opinions on issues referred to it by the United Nations and/ or any other international organisations. 

In short, PCA is a body that provides dispute resolution services, whereas ICJ is a body that acts as an actual court that settles disputes and gives legal advice. ICJ has a fixed place of adjudication, being the Peace Palace at The Hague, while the PCA has its main establishment at The Hague and offices located in different parts of the world; in addition, the PCA is flexible in providing its services if the parties choose a venue where the PCA does not have an office. Thus, unlike the PCA, the ICJ has a fixed place where adjudication of disputes happens, and the parties do not get the flexibility of choosing their adjudicators, i.e., the judges from a list of persons. 

The ICJ has the power to adjudicate disputes as well as provide an advisory opinion on matters referred to; this is an additional feature which none of the inter-state international bodies have been entrusted with. On the other hand, PCA has the power to act as the appointing authority in arbitration proceedings and provide administrative functions. It does not hold any power over the adjudication of disputes before it, except for administrative functions. Finally, once the ICJ hears a dispute and passes an order, the same becomes executable in the national legislation as a ‘foreign order’ instead of a ‘foreign award’. 

Growth chart of Permanent Court of Arbitration (PCA)

The growth and development of the Permanent Court of Arbitration since its inception till date is a tale to be spoken of. It is one of the oldest international institutions established for ensuring world peace and cordial and long-lasting relations between nations. It also brought the innovative mechanism of arbitration to life by designing a set of rules that laid a strong foundation for resolving inter-state disputes. 

Expansion in scope of disputes

The Permanent Court of Arbitration was the first of its kind to be established that dealt with disputes that arose between states, and it still remains the same. Earlier, when the PCA was established, it was only an international body that could administer inter-state disputes; however, in 1934, the Administrative Council of the PCA approved a request for the administration of arbitration between Radio Corporation of America and the Republic of China (1935), holding that the founding conventions permitted the administration of cases between states and private parties too. This set a precedent and expanded the role of PCA to include investor-state disputes. 

Panel of qualified arbitrators from all over the world

One of the most striking features of the PCA is its panel of arbitrators, also known as the Members of Court. As seen above, these arbitrators are the highest level judges, having the most distinct qualifications and experience in their respective nations. The eligibility criteria for these nominated arbitrators, as provided by the Permanent Court of Arbitration, is that they should be of “known competency in questions of international law, of the highest moral reputation, and disposed to accept the duties of arbitrators”. 

PCA allows all its contracting states to nominate up to four arbitrators to become a part of the Member of Court. Not only this, at the time of appointment, PCA acquires a disclosure from every appointing arbitrator to additionally ensure that they have no involvement with the disputing parties and that they will perform their duty as arbitrators diligently, confidentially, and, with utmost impartiality. Altogether, by glancing at the PCA panel of arbitrators, it can be inferred that not only are the arbitrators experts on legal issues and high standing, but they are also selected from every contracting nation, which assures the utmost independence and neutrality. It depicts that every contracting state in PCA gets a chance to bring their values to the table, and every nation is being respected.

It is for this reason that many of the other international conventions and treaties also bank on the PCA as the ‘appointing authority’ and for selecting arbitrators from its distinguished panel of Members of the Court. 

Worldwide accreditation 

Out of 195 countries in the world, 122 countries have signed and ratified The Hague Conventions of 1899 and 1907. This in itself shows how seriously PCA has been welcomed by the nations of the world. 

When disputes are referred to the PCA for resolution, the PCA’s International Bureau selects the most independent and impartial set of arbitrators for any given dispute. It also ensures that the arbitrators, so appointed, do not belong to the same nationality as either of the nations under dispute. This instils immense confidence in the parties about the quality of arbitrators they get through PCA. 

Moreover, PCA ensures all pleadings, communications, correspondence, and every detail of the arbitration proceedings are sent to the International Bureau and only then be forwarded to the parties and the arbitral tribunal. By doing so, PCA takes responsibility and accountability for the conduct of the entire proceedings. Since most disputes involve states, the chances of even the smallest mistakes leading to a huge financial as well as reputation loss is likely to happen. But PCA keeps its best team of qualified and experienced dignitaries to oversee the exchange of information and thereby keep the transparency as well as confidentiality of the proceedings intact. 

To add to this, the PCA awards have attained  worldwide accreditation. The PCA Arbitration Rules provide that the award passed by the arbitral tribunal shall be final and binding. A PCA award becomes eligible to be enforced in the respective state under the New York Convention, as does any other foreign arbitral award. 

All the above factors put together prove that the system of administration adopted by PCA and its awards have attained worldwide acceptance and accreditation. 

Interrelation between PCA and other internationally recognised arbitration rules 

Apart from the PCA Arbitration Rules, 2012, there are various other conventions and treaties that have, through their rules, accepted the disputes to be referred to PCA. By way of this collaboration, these conventions and treaties intended to have a fall-back mechanism so that there could be assurance of the disputes getting resolved. The disputing parties, thus, get the option to resolve their disputes through the governance and administration of the Permanent Court of Arbitration at The Hague. 

To understand a brief overview of PCA’s collaboration with international conventions and treaties, it is important to first understand the roles of these conventions and treaties. 

When most conventions and treaties came into existence, many states signed and ratified them. Upon ratification, the contracting states got the liberty to enter into inter-state agreements (or investor-state agreements, as the case may be) on the subject matter of such conventions and treaties. In such cases, that particular convention and treaty became the substantive law governing the inter-state agreement, meaning the applicable law, on the basis of which the inter-state agreement came to be formed. In the event the inter-state agreement was silent about the dispute resolution mechanism, the convention or treaty governing it would be looked into. This is where the conventions and treaties included the name of Permanent Court of Arbitration as the arbitral institution to, say, for example, appoint arbitrators from amongst its Members of Court in case the parties failed to do so within the specified time. 

Now, let us go through some of these conventions and treaties and understand how practically the PCA’s role has been included in them. 

UNCITRAL Arbitration Rules

The United Nations Commission on International Trade Law (UNCITRAL) is a body formed under the United Nations to regulate and facilitate international trade and investment. The UNCITRAL Arbitration Rules are a set of arbitration rules adopted by the United Nations for the contracting parties to opt strictly for the resolution of any present and future disputes. Whenever, for any inter-state or investor-state agreements, the parties agree that all disputes between the parties will be resolved as per the UNCITRAL Arbitration Rules, the said Rules would apply. The arbitration would be an ad-hoc arbitration, but the procedure and rules to be followed would be as per the UNCITRAL Arbitration Rules. 

Article 7 of these rules provides that in case the respondent fails to appoint an arbitrator, or in case the two arbitrators appointed by both parties fail to appoint the third arbitrator within 30 days, then the claimant may request the Secretary-General of the Permanent Court of Arbitration to select an appointing authority, and such authority can then appoint the third arbitrator. The Secretary-General may also directly appoint an arbitrator from its panel. Pursuant to the appointment of arbitrators, if there is any challenge to such an appointment, the challenge procedure shall also be decided by the Secretary-General of the PCA. For this, the UNCITRAL Rules and the PCA Rules provide that the PCA shall be paid its required fees by both parties.

In reality, however, along with acting as the appointing authority, the PCA has also been assigned the task of case administration for the entire arbitration proceedings initiated under the UNCITRAL Arbitration Rules, with the International Bureau of the PCA acting as the administrator. The parties can sometimes, in advance, also opt for referring the disputes to PCA’s administration by including the PCA model clause in their agreement. 

United Nations Convention on the Laws of the Sea (UNCLOS)

The United Nations Convention on the Laws of the Sea (UNCLOS) is yet another United Nations convention which outlines the legal framework for marine related activities between states and on international waters. 

Under Article 287(5) of the UNCLOS, it is provided that if the parties fail to decide on the mode of settlement of disputes, then such disputes may be referred to Annex VII of the UNCLOS, which shall become the default procedure for the appointment of an arbitrator and the administration of arbitration proceedings. In this way, PCA has teamed up with other institutions and assisted in the resolution of UNCLOS disputes.  

Energy Charter Treaty (ECT)

The Energy Charter Treaty (ECT) is an independent international treaty, introduced to ensure cooperation in energy dealings. This Treaty protects investors, entering into investor-state energy agreements, by ensuring no unlawful and unrighteous activities are done against the investor in a state. Until this Treaty came into existence, there was no legal framework designed as such to cooperate in the energy industry. 

The ECT disputes are resolved under the UNCITRAL Arbitration Rules, which provide for the Secretary-General of the PCA to act as the appointing authority as stated above. This is where the role of the PCA comes into play with respect to disputes covered under the ECT. 

Just like the above, some other conventions, treaties, and instruments that have included PCA as the appointing and administering authority for disputes are: P.R.I.M.E. Finance Arbitration Rules, Bank for International Settlements (BIS) Arbitral Tribunal, IBA Rules for Investor-State Mediation, The Hague Rules on Business and Human Rights Arbitration, International Labour Arbitration and Conciliation Rules, and Environmental Dispute Resolution.

Collaboration with various Bilateral Investment Treaties (BITs)

As seen above, with time, PCA’s scope of jurisdiction broadened to include investor-state disputes too. Investor-state disputes are products of investor-state agreements, usually arising out of Bilateral Investment Treaties (BITs) between two states. A BIT forms the umbrella treaty between two states, and based on such a treaty, investors from either state enter into investor-state agreements with the other state. 

The PCA has been seen as a neutral body with international recognition. It has therefore been considered by many nations as the appointing authority or the dispute resolution authority in their BITs. Some of the examples of such BITs are as follows: 

Collaboration with state legislation and other agreements 

The workings of PCA have clearly been so impressive that some of the states in the world have included PCA as the ‘appointing authority’ in their domestic arbitration legislatures. They are the Mauritian International Arbitration Act, 2008; the Nigeria Arbitration and Conciliation Act, 1990; the Burkina Faso Investment Code, 1995 (French); Green Climate Fund Contribution Agreement: Kingdom of Norway (2017); and the World Health Organisation International Health Regulations (2005). As an institution for administering arbitration claims, PCA has succeeded in marketing itself and collaborating with various state legislation and other agreements. By including itself in these agreements, it has assured itself of disputes in the future. 

One-stop database

The PCA website has been maintained in such a manner that it acts as a one-stop database to access any and every information relating to the Permanent Court of Arbitration. It is very easy to merely go to the PCA website and understand the services and functions of the PCA. 

Keeping itself at-par with the present day world, PCA has also adopted a tech savvy approach whereby it has digitised all the documents involved in a proceeding and uploaded a pdf copy of the same on the website. This can be found in the PCA Case Repository. Due to this, even if the documents are misplaced, one can easily view the contents on the PCA website. At the same time, it becomes much more convenient for the readers to gain access to the PCA cases, too from their original source. This also adds to the transparency quotient of PCA’s functioning. The contact details of PCA are also within easy reach for anyone viewing the website. Thus, PCA’s website is an exhaustive and well-maintained one that can be counted on instead of relying on any other source for reviewing the information on PCA.

Famous cases administered by Permanent Court of Arbitration (PCA)

The Permanent Court of Arbitration has a history of almost 125 years. In its lifetime, PCA has been the institution that has administered and facilitated a plethora of cases involving states, international organisations, and private investors. It is next to impossible to analyse the facts and circumstances of every case that has ever been administered by PCA. However, in its lifetime, PCA has facilitated many famous and landmark cases which have set important precedents in the international scenario. While assessing these judgements, it is also pertinent to also note the role of PCA in these cases. Some of them are listed below:

The Pious Fund of the Californias (United States v. Mexico) (1902)

Facts of the case

In the late 1600s, a charity by the name of ‘The Pious Fund’ was established in California to promote the interests of the California Catholics in the region. At that point of time, California was a part of Mexico, which was a Spanish colony. In 1842, after the independence of Mexico from Spain, the Fund passed on to the treasury of the Mexican Republic, and Mexico decided to sell the assets of the Fund and agreed to pay 6% of the revenue generated from the sale of the Fund’s properties to the California Catholic missions. However, nothing was paid.  

Around 1846, a war broke out between the United States of America and Mexico, which concluded with a peace treaty by the name of the Guadalupe Hidalgo Treaty (1848). The upper portion of California was transferred to the USA, and the lower portion remained with Mexico. Under this Treaty, it was decided that all the previously arisen claims by Mexico would be discharged. The new California government began investigating the Pious Fund. On approaching Mexico, they were refused payments.  Thus, in 1868, a commission was set up to decide on the payment of annuities from the Pious Fund. It was the claim of the USA that, being a beneficiary of the Pious Fund, California was entitled to half of 21 years (right till 1868) of the promised 6% payments. Mexico, on the other hand, contended that California had no right to claim the 6% payment, and, in any case, all claims against Mexico were discharged, thanks to the Guadalupe Hidalgo Treaty. The Commission, however, awarded in favour of California and directed Mexico to make the 6% payments until 1868. 

Soon thereafter, the USA initiated another claim against Mexico for the 6% payments to be made for the period after 1868. Mexico refused this claim, and the dispute was referred to the Permanent Court of Arbitration. Thus, in 1902, by virtue of a Treaty of Washington between the USA and Mexico, the dispute was referred to the Permanent Court of Arbitration at the Peace Palace, The Hague. 

Issues involved

Whether the USA was entitled to the annual interest of the Pious Fund, accrued right from the date of the Guadalupe Hidalgo Treaty (1868) by Mexico.

Judgement

Four arbitrators, appointed by the PCA, presided over the arbitration proceedings. In the light of an earlier arbitral award passed in 1875 and amended in 1876, the principle of res judicata was applied. However, for the period after 1868, all the arbitrators unanimously decided in favour of the USA and against Mexico. As a result, Mexico was ordered to pay the United States of America a sum of Mexican $1,4 million, along with a sum of Mexican $43,050.99 as future payments. Thus, the claims were settled once and for all. 

Role of PCA: Since PCA was established in 1899 and this case was referred to in 1902, it was the first dispute to be referred to the PCA. PCA administered the entire case, along with acting as the appointing authority. 

United States v Netherlands (1928) – Island of Palmas (or Miangas) Case

Facts of the case

This case was an inter-state arbitration initiated by the United States of America against the Netherlands, which  claimed its sovereign rights over the Island of Palmas. 

Palmas was an island located between the islands of Mindanao in the Philippines and Nanusa in the Netherlands; however, it bordered the boundaries of the Philippines. The island of the Philippines was a Spanish colony until 1898. By the Treaty of Paris, on 10th December, 1898, Spain ceded the sovereignty of Palmas to the USA. However, in 1907, an American General, by the name of Leonard Wood visited the Island of Palmas and discovered that the Netherlands also claimed its sovereign right over the Island of Palmas. In order to clear the sovereignty over the Island of Palmas, America and the Netherlands entered into an agreement in 1925 to refer the disputes to arbitration before the Permanent Court of Arbitration. 

Issue involved

Whether the Island of Palmas belonged to the territory of the USA, by virtue of the treaty of accession between the USA and Spain, or to the Netherlands, which claimed its continuous sovereign right over it?

Judgement

While delivering its judgement, the Ld. Judge observed that it was true that the Island of Palmas belonged to Spain. It was also true that, through the Treaty of Paris, Spain had ceded its right over Palmas to the USA and also informed about the same to the Netherlands. At that point, no objection or claim to the Palmas was raised by the Netherlands. Thus, the USA had an ipso jure territorial jurisdiction over the palmas and not merely an ‘inchoate jurisdiction’, meaning a right that was established on paper but yet to be completed through actually taking possession of the land. 

It was, however, also observed that by exercising continuity of rights, there was a presumption of sovereignty over the Palmas in favour of the Netherlands. It was further observed that the native states and islands of that area belonged to the East India Company, which were then given to the Netherlands around the 1700s, whereby the Netherlands exercised suzerain (sovereign) powers over these islands, which included the Island of Palmas. So technically, the Islands of Palmas belonged to the Netherlands, much before they could belong to Spain and the USA. Thus, a distinction was made between the creation of rights and the existence of rights over the Palmas. 

Therefore, even though the USA had acquired sovereign rights over the Palmas, the actual display of possession over the islands was showcased by the Netherlands, and no evidence was produced to show any display of sovereign rights by Spain or the USA over the Palmas ever. During the time of the arbitration, the Dutch had substantially developed the island of Palmas. 

Considering these arguments, it was concluded that, due to continuous and peaceful authority of sovereignty shown by the Netherlands over the Palmas, the Island of Palmas (or Miangas) formed a part of Netherlands territory, in its entirety. 

Role of PCA: In this case, the PCA acted as the administrative institution. Under the administration of PCA, a Swiss jurist, Max Huber, came to be appointed as the sole arbitrator, who then passed the award. The procedural rules followed were the 1907 Convention for the Pacific Settlement of International Disputes (PSID).

Murphy Exploration & Production Company – International vs. Republic of Ecuador (2017)  

Facts of the case

This case was an investor-state arbitration initiated by an American based company against the Republic of Ecuador in violation of the USA- Ecuador Bilateral Investment Treaty (BIT). 

In 1993, a treaty was entered into between the United States of America and the Republic of Ecuador concerning the Encouragement and Reciprocal Protection of Investment. On the basis of this, Murphy Exploration & Production Company – International, an American registered company, established its Ecuador subsidiary by the name of Murphy Ecuador Oil Company Ltd. (“Murphy Ecuador”). Murphy Ecuador was a part of a “consortium” of foreign investors that entered into an agreement with the Republic of Ecuador under “the Participation Contract”. As per this participation contract, the consortium was entitled to receive a share of the production of oil in Ecuador, and the calculation was to be done on the basis of the volume of the production of oil in the country and without any regard to the oil prices. However, when the oil prices in Ecuador spiked, the government enacted new legislation, by the name of “Law 42”, which provided that the Ecuador government would participate in the consortium’s profits received from the sale of crude oil if the market value of the oil exceeded a certain price. Initially, the Ecuador government’s participation was set at 50%, but later on, the government raised the level to 99%. 

Ecuador gave the justification that the legislation was passed due to the unexpected rise in oil prices, and keeping in mind the larger public interest. Murphy then raised a grievance that Law 42 was unilateral and unlawful, and it violated the BIT between the two countries. After passing this legislation, the government gave an option to the Consortium investors to either accept it, or negotiate it with the government or take a portion for their investment, and leave. Murphy, initially, tried to negotiate with the government, along with the other investors, but the terms were not acceptable to Murphy, who then ultimately ended up selling its interest in the consortium altogether. 

Thereafter, Murphy initiated a claim against Ecuador for breach of BIT, loss of profit that it could have received otherwise, and for interests. When the arbitration was unsuccessful, the second time Murphy initiated arbitration under the UNCITRAL Rules, and the administrative body was the PCA. 

Issues involved

  1. Whether the foreign investors in the consortium had a legitimate expectation that the terms of the Participation Contract would not be changed against the investors?
  2. Whether Law 42, when increased to 99%, breached Murphy’s legitimate expectations and the USA-Ecuador BIT?

Judgement

For the first issue, it was held that the enactment of Law 42 did not breach the FET standard of the Treaty, and despite the enactment of Law 42, the basic structure of the agreement remained in place. However, the Tribunal, for the second issue, held that while the 55% participation of Ecuador was not a breach, but when the 50% increased to 99%, it definitely did breach the legitimate expectations of the investors, including that of Murphy. Ecuador’s enactment was considered as the government’s coercive conduct in negotiations, and it was further held that pursuant to such rise, the basic terms of the Participation Contract changed and the legitimate expectation of Murphy that it would be treated fairly in a business-like manner as a contractual business partner was also breached by Ecuador. As a result, the Tribunal directed Ecuador to pay compensation for damages to Murphy, along with pre-award interest, post-award interest, and costs of arbitration.

Role of PCA: In this case, PCA played the role of only an administrative institution, while the arbitration proceedings were conducted as per the UNCITRAL Arbitration Rules. 

India and Permanent Court of Arbitration (PCA)

India ratified the 1899 Hague Convention in 1950. Since then, India has been a contracting state and member of the PCA having the liberty to refer disputes to PCA for arbitration. From the time of its ratification, there have been a few cases wherein India has been either the claimant or the respondent. Some of these prominent cases are as follows:

Case laws

Indus Waters Treaty Arbitration (2013)

This was a PCA-led arbitration between the Republic of India and the Islamic Republic of Pakistan.

Facts of the case

In 1960, the Indus Water Treaty (IWT) was signed between the Republic of India and the Islamic Republic of Pakistan over the Indus rivers. The Treaty laid down the rights and obligations of the two states with respect to the use of the Indus system of rivers, since the river crossed through both states and was used for purposes of domestic use, non-consumptive use, agricultural use, and the generation of hydro-electric power by both states. For this purpose, the eastern side of the rivers was allotted to India, which included the rivers Beas, Sutlej and Ravi, whereas the western side, which included the rivers Indus, Chenab, and Jhelum was allotted to Pakistan. 

India had two hydroelectric power projects: one was the Kishanganga project on the tributary of the Jhelum river, and the other was the Ratle project on the Chenab river. In order to go on with the development of these power projects, India proposed to modify the terms of the IWT, since that was allowed under the Treaty. However, Pakistan did not agree to this. The Treaty also provided that in case of disputes, the same shall be placed before highly-qualified engineers and to a court of arbitration or to a Court of Arbitration (CoA). Accordingly, in 2016, disputes were raised by Pakistan and referred to the Permanent Court of Arbitration by initiating a request for arbitration. 

Issues involved

Whether PCA was competent to consider and determine the disputes referred to by Pakistan?

Judgement

Pakistan’s claim mainly concerned the interpretation and application of the IWT to certain design elements of the two hydroelectric projects. It was the contention of Pakistan that India’s plan was not in line with the IWT. On the other hand, India raised an objection to the jurisdiction of PCA and argued that PCA was not the competent court to decide on the disputes between India and Pakistan under the IWT, and instead the disputes should be decided by the neutral experts, as provided in the IWT. According to India, Pakistan’s reference to the PCA was absolutely unilateral.  

The PCA rejected India’s claims and held that it is competent to decide on disputes referred to by Pakistan under the request for arbitration. It further ruled that this decision on jurisdiction shall be binding on both parties without any appeal. 

Note: The final decision on the dispute is still pending. 

Enrica Lexie Case (2020)

This was a PCA-led arbitration between the Republic of India and the Republic of Italy wherein the PCA was used to resolve a dispute between India and Italy over the killing of two Indian fishermen by Italian marines.

Facts of the case

On 15 February, 2012, about 20.5 nautical miles from the coast of India and in the Exclusive Economic Zone (EEZ) of India, an Indian vessel named ‘St. Antony’, was returning from a fishing expedition. The two Indian fishermen onboard were shot and killed while the vessel was in international waters. The captain of the Indian vessel claimed that when their vessel was returning from a fishing expedition in the Laccadive Sea, an Italian vessel by the name of ‘Enrica Lexie’ began firing at St. Antony, without any provocation, which led to the deaths of the two Indian fishermen on board. Enrica Lexie was an oil tanker flying the Italian flag. 

Shortly after the incident, the Indian navy intercepted Enrica Lexie and detained the two Italian marines at the Kochi port. Despite being detained for years, no charges were brought against them by the Indian government, and ultimately the two marines were released and sent back to Italy. A dispute was raised by the Italian government on the ground that detention without charges was a serious breach of the human rights of the Italian marines. 

The dispute was referred to the High Court of Kerala, then the Supreme Court of India. The Italian Government referred the dispute to the International Tribunal for the Law of the Sea (ITLOS) in 2015, and thereafter the dispute was then referred to the Permanent Court of Arbitration by invoking Article 287 (Annex VII, appointing authority) of the UNCLOS. 

Issues involved

Whether the Indian courts had jurisdiction to try the two Italian marines in their court?

Judgement

The Supreme Court of India found that Kerala had no jurisdiction to hear the dispute, as the incident occurred beyond 12 nautical miles from the Indian coast, which constituted international waters, and therefore a special federal court would be the right court for trying the case. The ITLOS gave a neutral decision ruling that both India and Italy should refrain from initiating any judicial or administrative measures against the Italian marines. 

The PCA finally ruled in favour of the Italian marines and held that the Italian marines were entitled to immunity and that India did not have any right to exercise criminal jurisdiction over the Italian marines in the incident. Accordingly, the PCA ordered the Indian Government to pay compensation to the captain of St. Antony and the other crew members for the loss of life, physical harm, material damage to the property, and moral harm. 

Shortcomings of Permanent Court of Arbitration (PCA)

While PCA’s acceptance has been hugely appreciated worldwide, over the years, there have also been some shortcomings noticed in the administration of PCA and the awards passed under its guise. As of today, these are merely shortcomings, and they definitely hold a chance for improvement in order to ultimately strengthen the position of PCA as it was at the time of its establishment. Some of these shortcomings are as follows:

Lack of confidentiality of PCA awards

Since all the data and documents from every proceeding are available on the PCA Case Repository, it can be argued that the PCA awards lack confidentiality. As per the PCA rules, all the proceedings before the PCA are required to be in camera. Usually, the arbitration proceedings and the award are kept confidential unless and until they are challenged before a court of law, wherein the judgement of such a challenge gets published in the law journals. However, every case that PCA has ever been a part of is openly and evidently published on its website for the viewer to download. While it may be seen as a very transparent way of functioning, it also somewhere tends to breach the aspect of confidentiality, which is the essence of every arbitration proceedings. In fact, confidentiality is one characteristic of arbitration that sets it apart from judicial proceedings. 

Absence of court supervision 

Usually, the national laws that provide for an arbitration legislation also provide for the parties to approach the courts in order to challenge an award or the conduct of the arbitral tribunal. This is done for the sole reason of maintaining a system of checks and balances between the tribunals and the courts. For example, under the Indian Arbitration and Conciliation Act, 1996, all awards passed by the arbitral tribunal can be challenged before the courts, if they fall in the challengeable categories. The courts here act as ‘supervisory jurisdiction’ and not appellate jurisdiction to keep a check on the legality of the arbitral awards.

In the case of PCA, all the powers of administration, including the appointment of arbitrators and deciding on the challenge to the arbitrators, are solely with the PCA under the PCA Arbitration Rules, 2012. There is no other body to regulate the conduct of the PCA and ensure the decisions taken by it are right and not against the public policy of the parties involved. This tends to increase the likelihood of challenge to PCA awards. 

Challenges to the enforcement of PCA awards 

Upon bare perusal of the administration of proceedings at PCA on its website, it can be seen that all proceedings are more or less concluded in a span of 5-10 years under the administration of PCA, which is commendable for heavy disputes that involve states. However, more often than it has been noticed that PCA awards get challenged by the states where the award goes for enforcement. This, in turn, results in questioning the strength of PCA awards and leads to a multiplicity of proceedings. Moreso, even though the PCA Rules provide that the awards passed by it shall be final and binding, challenging the PCA award in the national jurisdictions creates uncertainty about the finality of these awards. 

Most of the challenges to the PCA award arise from the allegation that PCA did not have the jurisdiction to take up the matter in the first place. For example, the Paris Court of Appeal set aside the PCA award in Ukraine-Russia BIT on the ground that PCA had no jurisdiction. In 2018, Ukraine obtained an arbitral award in its favour and against Russia for unlawful expropriation of its investor, Oschadbank, in Russia. However, Russia challenged it on the ground that the investment of Ukraine based company was made in Russia before the protection period as provided in the BIT, and the arbitral award was obtained fraudulently since it did not disclose this fact. Russia also argued that enforcement of the arbitral award would amount to breach of French public policy to the extent that the award had been obtained by fraud. The Paris Court of Appeal ultimately held that PCA has no temporal jurisdiction since the dispute was not covered in the period provided in the BIT and hence set aside the whole award. 

The South China Sea dispute, which was decided in favour of the Philippines by a 5-bench judge of the PCA, has also been condemned by China as being ‘null and void’. China neither accepts it nor holds it binding on China. Another example is the Indus Water Dispute between India and Pakistan, (which is still pending) wherein India’s objection to the PCA jurisdiction was overruled and the award was passed in favour of Pakistan. The Indian government is in heavy discussion about setting aside the award as the same was passed without jurisdiction.  

Increasing popularity of other arbitration institutions

With the rise in arbitration cases all over the world, multiple institutions have arisen in different parts of the world, such as the Singapore International Arbitration Centre (SIAC), London Court of International Arbitration (LCIA), Hong Kong International Arbitration Centre (HKIAC), American Arbitration Association (AAA), International Chamber of Commerce (ICC), etc. The emergence of these institutions has posed a threat to the existing stance of PCA in as much as these institutions have, time and again, introduced amendments to their rules. 

By introducing concepts like third party funding in arbitration, two-tier arbitration, binding non-signatories to arbitration agreements, anti-arbitration injunctions, and emergency arbitrators, these institutions have advanced from the traditional arbitration set-up, bringing out new concepts in the world of international arbitration. The results showcased by these institutions are also well-talked about, as can be seen from the increasing number of cases being assigned to them. 

Introduction of the ICSID Convention

The International Centre for Settlement of Investment Disputes (ICSID) is an international arbitration institution that was established in 1966 by the World Bank, especially for resolving disputes between states and investors. The ICSID Convention has been ratified by 158 states, as against 122 states in PSID. The striking feature of this convention is that it specialises only in investor-state disputes. And, as the world witnesses the growing rate of investor-state contracts, the chances of disputes in this area are also increasing, which the ICSID specialises in administering. 

The ICSID Rules have been drafted in favour of protecting the investors covered under the umbrella of BITs and are therefore being relied upon. In fact, as per the 2021 annual report published by the ICSID Convention, PCA administered 115 investor-state arbitrations arising from BITs or national investment laws and about 80 contract-based arbitrations involving states or state-owned entities. Whereas, ICSID administered 332 investor-state arbitrations alone. This makes ISCID the most frequently used institution for investor-state disputes, overtaking the PCA. 

Conclusion

The glorious 125 years of the Permanent Court of Arbitration have been nothing but extraordinarily successful. It has achieved every milestone, time and again, from being the world’s first inter-state dispute resolution institution to collaborating with various conventions, treaties, and BITs, having been included in national legislation, and the list is still going on. Despite facing competition from many arbitration institutions, it has succeeded in maintaining its stance as one of the most preferable institutions for resolving disputes. It has not only gained the trust and confidence of its contracting parties over the years, but it has also continued to market itself in the right direction and make sure it lives up to the spirit with which it was established in 1899. 

PCA’s performance is reviewed every year and displayed on the PCA website. In the year 2022, about 204 cases were referred to the PCA, out of which 112 were investor-state disputes, 88 were contract based and 4 were inter-state arbitrations. Based on this performance report, one thing is certain, PCA has come a long way. In addition to its existing services, the team at PCA is surely studying market needs and bringing about new advancements in its services consistently. 

Practically speaking, it can be quite challenging for an institution this old to survive and still find its place the same way it did when it was established. However, notably, three conclusions can be drawn from the journey of the Permanent Court of Arbitration till date. Firstly, when it comes to finding a neutral appointing authority and administrative body, especially in inter-state arbitrations, PCA has proven itself to be the most sought after institution. Secondly, PCA has acted as the parent body of arbitration in the world, which in-turn became the foundation for the modern-day arbitral institutions. Thirdly, when we talk about the increasing need for investor-state disputes, PCA has stood second in line, after the ICSID (as stated above), but still ahead of other institutions, excelling still in retaining its goodwill and brand name. Whether a party challenges the PCA award or not, the fact that so many cases are referred to the PCA definitely gives a positive assessment of its overall 125 years of existence.

Frequently Asked Questions (FAQs)

Who can be an arbitrator with the PCA?

Every contracting state is allowed to elect up to four persons from its state, having known competency in questions of international law, having the highest moral reputation and disposed to accept the duties of arbitrators. These together form the panel of arbitrators under the Member of the Court wing of the PCA.

Do parties have to opt for administration of disputes by PCA while signing the contract or can they choose it later when disputes arise?

Parties can opt for referring their disputes to PCA at the time of signing the contract or at any time later when the disputes arise. If the disputes are referred to PCA at a later date, then it has to have the mutual consent of both parties. 

Is arbitration under PCA same as arbitration under UNCITRAL Arbitration Rules?

PCA is an arbitration administering institution, while UNCITRAL Arbitration Rules are arbitration rules to conduct an ad-hoc form of arbitration, without the supervision of any institution. The inter-relation between PCA and UNCITRAL Arbitration Rules is that the disputing parties can opt for resolving their disputes as per UNCITRAL Arbitration Rules and, at the same time, choose PCA as the appointing and administering authority. This will enable PCA to appoint the arbitrators and facilitate the entire arbitration proceedings. 

Is there a fixed clause for referring disputes to PCA?

PCA has model clauses that can be included in various kinds of contracts. For example, the PCA model clause for contracts is as follows: 

“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 PCA Arbitration Rules 2012.”

Does PCA have a fixed office?

Yes, PCA has a fixed office at the Peace Palace, at The Hague, Netherlands. Besides this, PCA also has a few countries wherein it has set up its offices like Buenos Aires, Mauritius and Singapore. PCA has also entered into Host Country Agreements and Cooperation Agreements, to take up hearing facilities in some countries across the globe to facilitate its services.

Who are appointed as Members of the Court from India?

Currently, in April 2023, Hon’ble Justice Mr. K. S. P. Radhakrishnan, Hon’ble Mrs. Justice Indu Malhotra, Hon’ble Justice Mr. R. Subhash Reddy, and Hon’ble Justice Mr. Kalpesh Jhaveri were appointed to the Member of the Court of PCA, from India. 

Where can we find a sample agreement with a PCA model clause in it?

One can find the model clause sample on the PCA website. The website also displays pdf copies of agreements and treaties that have mentioned PCA as the arbitration governing body. It can be found at https://pca-cpa.org/en/resources/instruments-referring-to-the-pca/. 

A sample agreement is provided for reference on the PCA website: https://docs.pca-cpa.org/2021/02/2021/02/80d60c7c-uk-eu-withdrawal-agreement-2019.pdf 

References 

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