Impecunious parties in international commercial arbitration

Abstract

Abstract This article discusses the possible effects that a party’s lack of funds can have on the arbitration agreement. It explains the different theories used to deal with this issue and proposes to classify them into substantive and jurisdictional solutions, depending on whether they propose an actual answer or examine it from a competence–competence perspective, thus simply deferring the question to the arbitrators without further guidance. The former category can also be divided into two further subgroups, in accordance with the weight given to the contractual nature of arbitration or to its jurisdictional nature. Finally, the article proposes a uniform solution under the New York Convention, arguing that impecuniosity might fall under the ‘incapable of being performed’ exception of article II(3). It concludes by proposing a narrow construction of this exception and putting forward four factors that practitioners should consider when deciding whether impecuniosity can void or suspend the effects of arbitration agreements.