Modern international arbitration: 150 years young

By Douglas Harrison

Law360 Canada (August 29, 2022, 1:42 PM EDT) --
Douglas Harrison
Douglas Harrison
This summer marks the 150th anniversary of what many consider to be the beginning of modern international arbitration: the release of the award in the Alabama Claims Arbitration, held in Geneva in 1872 between the United States and Britain.

In the aftermath of the American Civil War, many in the United States called for Britain to compensate for the damage done to U.S. merchant shipping by Confederate commerce raiders that had been constructed in British shipyards despite Britain’s declared neutrality during the conflict.

While these ships roamed the high seas, U.S. shipowners were forced to pay higher insurance premiums, lay vessels up, or transfer them to foreign flags. The CSS Alabama was the most notorious of the raiders. It was built in Liverpool, ostensibly as a Spanish cargo ship, but after its launch in 1862, sailed to the Azores where it was fitted out for warfare, took on an English crew and hoisted the Confederate flag. It captured and sank 58 U.S. merchant ships before it was sunk by the USS Kearsarge off Cherbourg, France, in June 1864 (see illustration).

Talk of British compensation started before the war ended and was heated. At one point, Massachusetts Sen. Charles Sumner, the head of the Senate Foreign Relations Committee, declared that “Canada would be a good start” as the price Britain should pay. Demands for Britain to cede Canada faded as many Americans came to believe that Canada would one day seek to be annexed in any event.

By late 1870, the focus of discussion was on some form of dispute settlement. By this time there were other simmering disputes between the U.S. and Britain including the Fenian Raids into Canada, access to east coast fisheries and control of the San Juan Islands. In early 1871, a Joint High Commission that included Sir John A. Macdonald, met to address these issues. In May it concluded the Treaty of Washington, which included an agreement to submit the U.S. shipping claims to arbitration.

Interstate arbitrations had been conducted several times during the 19th century, including a number between the U.S. and Britain over the demarcation of the U.S.-Canadian border. What distinguished this arbitration was that the parties agreed to have neutral arbitrators form a majority on the tribunal and that a quasi-judicial process was adopted.

The arbitration’s terms of reference stipulated, among other things, that a neutral government must use due diligence to prevent belligerents from using its ports either to fit out warships or as a base of operations, and must diligently prevent any ship intended for war from leaving its jurisdiction. By accepting that these principles of international law were in effect at the relevant time, the British effectively conceded liability before the arbitration got underway.

The U.S. selected as its party-appointed arbitrator Charles Francis Adams, who had been the American minister in London when the CSS Alabama was built. The British chose Lord Chief Justice Sir Alexander Cockburn. The neutrals were Viscount D’Itajuba, the Brazilian minister in Paris, Jakob Staempfli, a former president of the Swiss Confederation, and Frederico Count Sclopis di Salerno, an Italian senator, who was selected as chair. None of the latter three were conversant in English and had to rely on French translations of the documents. The U.S. counsel team was headed by two former attorneys-general, William M. Evarts and Caleb Cushing, along with Morrison R. Waite, later chief justice of the United States. The lead British counsel was Sir Roundell Palmer, a former attorney general and later lord chancellor.

The parties exchanged written submissions in late 1871. The U.S. submission set off a firestorm when the British saw the U.S. was making a claim not only for direct damage to U.S. shipping but also for indirect damages including higher insurance costs, loss of business, impediments to trade and loss of economic growth. These indirect claims were thought to exceed US$2 billion, or about US$30 trillion today. The treaty’s terms were somewhat vague on this point, but the British asserted that the indirect claims should be excluded.

The parties’ reply submissions were delivered in April while they continued to negotiate the issue of the indirect claims. After a great deal of diplomatic manoeuvring and brinksmanship among both counsel and arbitrators, the matter was eventually laid before the tribunal, which declared (with the parties’ implicit consent) that the indirect claims were beyond its consideration.

The tribunal held 32 sessions, 27 of which included the parties. On July 22, 1872, it ruled 4-1 that Britain was responsible for the damage done by the CSS Florida. In mid-August, it dismissed the U.S. claim regarding the CSS Georgia but unanimously held Britain responsible for the CSS Alabama and, by 3-2, for the CSS Shenandoah (in the case of the latter, only from when it had taken on an Australian crew in February 1865).

The U.S. sought damages of US$24 million. On Sept. 14, 1872, the tribunal, with Lord Justice Cockburn dissenting, awarded the U.S. US$15.5 million in gold (about GBP225 billion today). Britain paid up within the time allowed by surrendering U.S. bonds of an equivalent value.

While the Alabama Claims Arbitration is often cited as the staring point of modern arbitration, it had features that would be unacceptable today: Adams and Cockburn frequently discussed the case and the acceptability of the outcome with their respective countries’ counsel; Adams was in a conflict of interest having served as the American minister in London at the time of the events in question and having tried to get the British to stop these ships from leaving the shipyards; the tribunal lacked the ability to rule on its own jurisdiction, and its deliberations were held mostly in the presence of counsel.

Whether the Alabama Claims Arbitration was an arbitration in the modern sense, it did lead to many more interstate arbitrations over the subsequent decades, including three significant ones involving the U.S. and Britain over sealing rights in the Bering Sea, the boundary between British Guiana and Venezuela, and the Alaska-Canada boundary. A general treaty of arbitration between the U.S. and Britain was signed in the late 1890s but ultimately failed to gain enough support in the U.S. Senate to be ratified. However, both countries sent delegations to the Hague Peace Conferences in 1899 and 1907, which paved the way for the eventual establishment of the Permanent Court of International Justice in 1920, its successor the International Court of Justice, and organizations such as the International Court of Arbitration of the International Chamber of Commerce and the American Arbitration Association.

Douglas Harrison in an independent commercial arbitrator, mediator and lawyer and chair of the Toronto Commercial Arbitration Society.

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The Lawyer's Daily, LexisNexis Canada, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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