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Discarding the importance of the lex
fori, advocates of the contractual theory debate that arbitration is founded
on the agreement between the parties. They refute that any convincing relationship
exists between the arbitration proceedings and the law of the place in which
the arbitration resides. They uphold that parties possess the autonomy to choose
the appropriate concerns regarding the arbitration procedures and this autonomy
should commonly not be intruded with by the influences of any form of state
power.

The contractual theory contrasts
with the jurisdictional theory, and scrutinises the nature of arbitration from
a contractual perspective. Whilst the contractualists acknowledge the reality that
arbitration proceedings and arbitration agreements can be swayed by the relevant
national laws, they maintain that arbitration possesses a contractual personality
that is derived from the parties’ arbitration agreement. Correspondingly, an
arbitration agreement is freely created among the parties, and countenances
them to regulate the time and place of arbitration, choose the arbitrators to adjudicate
their dispute and select the laws leading both technical and practical matters.

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The promoters of the contractual
theory deem that the resolution of the dispute in arbitration ought not be manipulated
by the authority of any form of state power, and that the hypothesis of pacta
sunt servanda should
reign, thereby rendering it compulsory to the parties to implement the
arbitration agreement prepared between them exclusive of the state’s burden1. Kellor
describes the following:

Arbitration
is wholly voluntary in character. The contract of which the arbitration clause
is a part is a voluntary agreement. No law requires the parties to make such a
contract, nor does it give one party power to impose it on another. When such
an arbitration agreement is made part of the principal contract, the parties
voluntarily forgo established rights in favour of what they deem to be the
greater advantages of arbitration.2

Correspondingly, besides the concessions
of arbitrability and public policy, the lex fori has relatively small stimulus
in the processes and result of the arbitration. Additionally, it has been
established that domestic arbitration laws exist solely to enhance and complete
voids in the arbitration proceedings and to offer an efficient guideline that appropriately
supervises the management of an arbitration.3

The medium of international
commercial arbitration is indubitably planned on the foundation of contractual
theory in most jurisdictions. Most courts acknowledge the necessity of having a
more versatile method of adjudication; therefore, they habitually choose to respect
the contractual theory and infer that the arbitration agreement is essentially
a contract. For example, in the case of Cereals S.A. v Tradax Export S.A.4, the court stated that
a contractual relationship was in existence between the parties and the
arbitration tribunal5.
Additionally, the court held that the arbitrators turned out to be parties to
the arbitration agreement as soon as they accepted the appointment6.
The court perceived the following: “It is the arbitration contract that the
arbitrators become parties to by accepting appointments under it. All parties
to the arbitration are, as a matter of contract (subject always to the various
statutory provisions), bound by the terms of the arbitration contract.”7

It is accurate to depict, to an
undeniable degree, the alliance between parties and arbitrators as a contract. The
contractual alliance examined in this paragraph is inclusive of two contracts: the
first being the contract between the parties (the arbitration agreement),
whilst the second is the appointment agreement between the parties and the
arbitrators. On one hand, it has already been established that, in order to commence
arbitration proceedings between two parties, a valid arbitration agreement must
be existence. On the other hand, concerning
the second type of aforementioned contract, it is imperative to note that the
selection of arbitrators cannot be approved by a singular party’s one-sided
decision, and hence consent from both the parties and the arbitrators is crucial
to ensure a valid selection of the arbitrators. Subsequently, the differences amongst
the parties are then presented to the arbitrators, the arbitrators carry out their
duties in order to resolve those differences, and then the arbitrators are
given sufficient payment in exchange for their time and efforts in delivering
the arbitral award.

The contractual theory does
not indicate a reasonable answer to the question concerning the immunity of arbitrators,
which is a premeditated measure created to circumvent proceedings being brought
against arbitrators by a discontented party. Although diverse latitudes of
immunity exist across numerous jurisdictions, arbitrators normally experience a
quasi-judicial form of immunity, which is only natural since arbitrators
perform a quasi-judicial function in the first place.

In France, there is no
explicit reference to the concern of arbitrator’s immunity in their legal
doctrines; however, it is commonly acknowledged that the discontented party ought
to submit an appeal for annulment of the award prior to initiating a civil
action against the arbitrators. In England, the House of Lords case of Sutcliffe
v Thackrah8
endows absolute immunity to arbitrators9.
The courts of the United States have further developed the issue of immunity in
comparison to the English courts, in the sense that immunity is also offered to
arbitration institutions. Judicial immunity was initially
established in the case of Bradley v Fisher10 on the consensus that:
“If civil actions could be maintained in such cases against the judges, because
the losing party should see fit to allege in his complaint that the acts of the
judge were done with partiality or maliciously or corruptly, the protection
essential to judicial independence would be entirely swept away.”11
This immunity is also extensive to arbitrators on the basis that their duties
to the parties are quasi-judicial in nature, which is corroborated in the case
of Cahn v International Union Ladies’ Garment Workers Union12.

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