International Commercial Arbitration

Introduction

In the modern world, the use of international commercial agreements is spreading rapidly as a result of strengthening of international economic relations. It gets preferable to use the international commercial arbitration to resolve disputes arising from such agreements. The international commercial arbitration is an alternative designed to resolve such disputes. However, many of the major benefits of the international commercial arbitration are increasing its use in the modern times as a way to resolve international commercial disputes. The use of the international commercial arbitration has evolved to allow parties from different legal, linguistic and cultural backgrounds to resolve their disputes in a final and binding manner, typically without the formalities of the procedural rules of their own legal systems. Today some international legal acts on the international commercial arbitration are in force and they contain the major regulatory norms in this area.

General Overview on the International Commercial Arbitration

Note that, arbitration has been used for centuries, with Plato writing about arbitration amongst the ancient Greeks. In general, the international commercial arbitration adresses any case or potential dispute between parties that are usually located in two different countries. It is a private form of binding dispute resolution, conducted before an impartial tribunal, which emanates from the agreement of parties, but which is regulated and enforced by the State. The State requires the parties to honour their contractual obligation to arbitrate, provides for limited judicial supervision of the arbitral proceedings, and supports the enforcement of abritral awards in a manner similar to that for national court judgments. It can also be noted that the international commercial arbitration is used instead of litigation to resolve the disputes. It is sometimes called a hybrid form of the international dispute resolution, since it blends some elements of civil law procedure and common law procedure, while allowing the parties a significant opportunity to design the arbitral procedure under which their dispute will be resolved. Although it is optional, today many of the international commercial contracts contain a mandatory arbitration clause. It often arises from clauses included by companies in their commercial contracts with one another. This means that, if a dispute arises between them, it is compulsory for them to arbitrate their dispute rather than pursue traditional litigation. Unlike courts, arbitral tribunals in commercial disputes have no inherent jurisdiction. As noted above, their authority arises from the parties’ contract. For this reason, the parties usually take particular care in drafting provisions on the arbitration.

Arbitrations are typically conducted by either one or three arbitrator(s), referred to in each case as the ‘tribunal’. The tribunal is the equivalent of a judge or a panel of judges in court proceedings. However, the arbitrators are generally selected by parties and, by this way, the parties maintain some control over who is to determine their dispute. The tribunal’s powers and duties are fixed by the terms of the parties’ agreement, also international and national laws which apply in each case. In general, the types of law that are applied in the international commercial arbitration include international treaties and national laws, both procedural and substantive, as well as the procedural rules of the relevant arbitral institution. Previous arbitral awards carry persuasive authority, but are not binding. Scholarly commentary, or “doctrine” may also be applied. Under most leading legal systems, arbitrators are obliged to make their awards according to the applicable law unless the parties have agreed otherwise. The tribunal should follow due process and ensure that each party has a proper opportunity to present its case and defend itself against that of its opponent.

National laws generally recognize and support arbitration as a mutually exclusive alternative to litigation as a means of finally resolving disputes. Some practitioners therefore refer to arbitration as a from of the alternative dispute resolution.

There are 2 types of the international commercial arbitration:

1) institutional; and

2) ad hoc.

The terms of the contract dictate the type of the arbitration. If the parties have agreed to have an arbitral institution administer the dispute, it is an institutional arbitration. If the parties have set up their own rules for the arbitration, it is an ad hoc arbitration. The ad hoc arbitrations are conducted independently by the parties, who are responsible for deciding on the forum, the number of arbitrators, the procedure that will be followed, and all other aspects of administering the arbitration.

International Legal Acts on the International Commercial Arbitration

Today there are different arbitration treaties and conventions to which a party or nation may adhere. An important development in the spread of the international commercial arbitration was the adoption in 1976 of arbitration rules by the United Nations Commission on International Trade Law (UNCITRAL). UNCITRAL was established by a resolution of the United Nations General Assembly in 1966 to promote harmony and unity in international trade. A new version was adopted on June 25, 2010, that adopt the UNCITRAL rules. While UNCITRAL does not administer arbitration disputes, its arbitration rules may be used by any public or private entity wishing to arbitrate without the use of an international arbitration institution.

In addition, UNCITRAL in 1985 issued a Model Law on International Commercial Arbitration that has influenced the national arbitration legislation of more than 60 countries. It was amended in 2006.

In a major development, UNCITRAL adopted the Convention on Transparency in Treaty-Based Investor-State Arbitration on December 10, 2014. The Convention’s main goal is to extend the application of the UNCITRAL Rules on Transparency in Treaty-Based Investor-State Abritration. The rules were introduced to increase transparency in investor-state arbitrations by allowing for greater public access to documents and hearings.

Other international agreements on the international commercial arbitration concern enforcement arbitral awards and decisions. There are several mechanisms by which foreign arbitration awards may be enforced. Countries may agree bilaterally to enforce arbitral awards, sometimes though a treaty of friendship, commerce and navigation or through a bilateral investment treaty, of which there are now an estimated 2000. Or a multilateral agreement may be implemented. One such is the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which limits the grounds upon which arbitral awards may be attacked. The Convention provides for the enforcement of arbitral awards in more than 160 countries worldwide, subject only to limited defenses set out in the Convention.

The regional multilateral treaties on the international commercial arbitration are as following:

Inter-American Convention on International Commercial Arbitration – promulgated in 1975 and applies to members of the Organization of American States;

European Convention on International Commercial Arbitration – established under the auspices of the Economic Commission for Europe of the United Nations;

European Convention Providing a Uniform Law on Arbitration – applies to the member states of the Council of Europe;

Convention Arabe D’Amman Sur L’Arbitrage Commercial – applies to the Arab countries.

International Commercial Arbitral Institutions

There are many international commercial arbitral institutions across the world: some focus on disputes with a strong tie to the country or region in which the institution is based, some focus on disputes in particular subject matters and some are fully international in scope and are used by parties throughout the world.

The international commercial arbitral institutions which are widely used are as following:

The International Court of Arbitration of the International Chamber of Commerce – based in Paris, it was established in 1923. It can be called the most widely known international commercial arbitral institution. It oversees the arbitration process and regularly reviews the progress of pending cases. One of the Court’s most important functions is to scrutinize and approve all arbitral awards.

The Court has administered over 20,000 disputes since its creation. Also, it should be noted that the International Court of Arbitration was established as the arbitral body of the International Chamber of Commerce (ICC). In general, the dispute resolution procedures of the ICC specifically target international commercial disputes. The ICC arbitrations are confidential and offer parties the choice of arbitrators, place of arbitration, rules of law, and language of proceeding. The ICC has several dispute resolution mechanisms. The current ICC Rules of Arbitration have been in force as of January 1, 2012;

The London Court of International Arbitration (LCIA) – based in London, it was established in 1892. It is a leading international arbitral institution and is very well known internationally. The LCIA has also affiliated arbitral institutions in Dubai (DIFC-LCIA), and Mauritius (LCIA-MIAC);

The International Centre for Settlement of Investment Disputes (ICSID) – established in 1965, it is widely considered to be the leading international arbitration institution devoted to resolving investment disputes. The ICSID itself does not arbitrate disputes, but provides the framework for independent arbitration panels to resolve disputes;

The International Centre for Dispute Resolution (ICDR) – established in 1996, it is a part of the American Arbitration Association (AAA) and administers international arbitrations. Also, the AAA was established in 1926 and is frequently used for arbitrations in the US or by US-based parties;

The Organisation for the Harmonisation of Business Law in Africa (OHADA) – it is a system of business laws and institutions currently adopted by seventeen nations. Under the OHADA, the Common Court of Justice and Arbitration (CCJA) was established in Ivory Coast. The CCJA is both a judicial court and an arbitration institution which supervises the administration of arbitration proceedings in the OHADA member states;

The Hong Kong International Arbitration Centre (HKIAC) – based in Hong Kong, it was established in 1985. The HKIAC is one of the best-known international arbitral institutions in Asia, with many of its cases having a China-related element;

The Singapore International Arbitration Centre (SIAC) – based in Singapore, it was established in 1991. The SIAC is a highly respected international arbitral institution, particularly in Asia and the Indian subcontinent;

The Court of Arbitration for Sport (CAS) – established in 1984, due to the growing importance of sports on the world stage, it seeks to facilitate the arbitration or mediation of sports-related disputes by means of procedural rules that have been specifically adapted to the sports world. Based in Lausanne, Switzerland, the CAS hears disputes of either a commercial or disciplinary nature. Cases may be referred to the CAS by athletes, sports federations, organisers of sports events, sponsors or television companies;

The Inter-American Commercial Arbitration Commission (IACAC) – it administers a system for settlement, by arbitration or conciliation, of international commercial disputes throughout the western hemisphere;

The Australian Centre for International Commercial Arbitration (ACICA) – established in 1985, it aims to support and facilitate commercial international and domestic arbitrations, and to promote Sydney and the Commonwealth of Australia as a venue for the international commercial arbitration.

The rules of these institutions are suitable for use around the world and for arbitrations conducted in different languages and under various governing laws.

Other international commercial arbitral institutions are as following:

In Asia:

China: the China International Economic and Trade Arbitration Commission (CIETAC);

Japan: the Japanese Commercial Arbitration Association (JCAA);

Malaysia: the Kuala Lumpur Regional Centre for Arbitration (KLRCA);

In Europe:

Austria: the Vienna International Arbitration Centre (VIAC);

Germany: the German Institute of Arbitration (DIS);

The Netherlands: the Netherlands Arbitration Institute (NAI);

Sweden: the Arbitration Institute of the Stockholm Chamber of Commerce (SCC);

Switzerland: the Swiss Arbitration Association (ASA); the Chamber of Commerce & Industry of Geneva; the Zurich Chamber of Commerce; the World Intellectual Property Organisation Arbitration and Mediation Centre;

In the Middle East and Africa:

Bahrain: the Bahrain Chamber for Dispute Resolution (BCDR);

Egypt: the Cairo Regional Centre for International Commercial Arbitration (CRCICA);

Rwanda: the Kigali International Arbitration Centre (KIAC).

Benefits of the International Commercial Arbitration

In general, parties should consider whether or not to provide for the arbitration every time when they enter into a contract. Providing for the arbitration is particularly important if parties are in different jurisdictions or if disputes might give rise to complex technical issues.

Generally, the international commercial arbitration is considered as a consensual, enforceable, neutral, binding and private means of the international dispute resolution, which is typically faster and less expensive than domestic court proceedings.

The benefits of the international commercial arbitration are as following:

Enforceability: due to international legal acts, the potential for enforcing arbitral awards worldwide is much greater than that for court judgments. As there is little point in obtaining a court judgment that can not be enforced against suitable assets, this feature often conclusively determines the choice of arbitration for the international legal acts. The most important enforcement convention is the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Over 160 countries are party to the Convention, each of which broadly agrees to enforce arbitral awards made in other contracting States subject only to limited grounds for objection;

Neutrality: a party to the international legal act will often wish to avoid resolving disputes through local courts of another party. The abritration provides the opportunity for the neutral dispute resolution;

Confidentiality: although the degree of confidentiality afforded by the arbitration law of different jurisdictions varies, it is clear that the arbitration provides greater privacy and confidentiality than litigation. Only a few arbitrations deal with the confidentiality, so if parties want to make a provision for the confidentiality, they need to do so in their arbitration agreement. Also, if the enforcement throught the courts becomes necessary, the confidentiality might be put at risk by the court process;

Technical expertise and experience: the parties can select arbitrators with relevant expertise or experience. It should be noted that although some jurisdictions have so good specialist courts, however in others, the parties run the risk of their dispute being decided by a judge with little or no relevant experience;

Procedural simplicity and flexibility: arbitration rules are generally far simpler and more flexible than court rules. For this reason, they are relatively easy to understand for parties of different nationalities, the proceedings are more easily focused on the substantive issues and the parties are better able to adapt the dispute resolution process to suit their relationship and the nature of their disputes;

Choice of arbitrators: unlike court proceedings, in which generally parties have no input into the choice of a judge for their case, the parties to the arbitration usually appoint, nominate, or at least have some input into the selection of the arbitrator(s). Most developed arbitration laws require that all of the arbitrators be impartial. However, a party can use its choice or input into the selection process to help ensure that, as far as possible, the tribunal will understand the commercial context, the relevant issues, and the party’s procedural preferences;

Cost: the arbitration can be less expensive than a traditional court litigation. There is no simple answer as to whether the arbitration is cheaper than the litigation. As legal fees generally account for the majority of the costs of proceedings, the controlling factors are largely the complexity of the dispute, the way the proceedings are conducted and their length. In the arbitration, the parties must pay for the arbitrators, any administering institution, and the hiring of venues for hearings. On the other hand, there are no court fees and the parties are free to agree to a process tailor-made for their dispute;

Pre-emptive remedies: the arbitral tribunals are usually empowered to grant a preliminary relief. In addition, many arbitration rules provide for the appointment of an “emergency arbitrator” to consider any application for interim relief before the arbitral tribunal has been constituted to determine the substansive dispute;

Joinder of parties and related disputes: in contrast to the court proceedings, generally all parties must consent before additional parties or related disputes can be joined to an existing arbitration;

Default judgment: in some court proceedings, a judgment can be made against a party that has transgressed the rules of the court procedure without the court ruling formally on the merits of the dispute. In general, this is not available in the arbitration. Even if a party has committed serious procedural defaults or has completely ignored the arbitration process, institutional arbitration rules and national arbitration laws generally require that an arbitral tribunal still examine the merits of the claim based on whatever evidence has been provided to prove a claim to the necessary standard, the claim will still fail, regardless of the oppositing party’s procedural defaults;

Summary judgment: there is no equivalent in an arbitration of applications for a summary judgment or motions to dismiss. However, the arbitral tribunals may adopt shortened procedures in certain cases;

Appeals: appeals in the arbitration are uncommon, as distinct from challenges to the award, which generally are based on a failure to accord a party due process or the improper assumption of jurisdiction on the part of the arbitral tribunal. One of the reasons for the arbitration’s popularity is precisely because of the lack of an appeals mechanism and the certainty generated by the final award.

However, it also should be noted that there are some disadvantages of the international commercial arbitration too. The international commercial arbitration is not right for every party in every situation. It might have drawbacks, depending upon a party’s particular circumstances and objectives.

Conclusion

We consider that for better carrying out of the major features of the international commercial arbitration, the unification of the international commercial arbitral institutions and international legal acts which are in force in this area is important. Also, the aforementioned factor may be of particular importance to increasing the further appeals of parties to the international commercial arbitral institutions.

Sources

1. Carolyn B. Lamm & Eckhard R. Hellbeck, When to Arbitrate Rather Than Litigate, International Litigation Strategies and Practice 191 (B. Legum & E. Berghoff eds., 2nd ed. 2013).

2. The American Arbitration Association, Dispute-Wise Business Management: Improving Economic and Non-Economic Outcomes in Managing Business Conflicts 25, 2006.

3. The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38, https://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/New-York-Convention-E.pdf.

4. IBA Guidelines on Party Representation in International Arbitration, 2013.

5. Gary Born, International Commercial Arbitration, 3rd ed., Wolters Kluwer, 2014.

6. Conseil international pour l’arbitrage commercial. Yearbook: Commercial Arbitration, Deventer, the Netherlands: Kluwer.

7. Loukas A. Mistelis, Laurence Shore, Hans Smit, World Arbitration Reporter: International Encyclopaedia of Arbitration Law and Practice, 2nd ed., Huntington, N.Y.: Juris, 2010.

8. Daniel M. Kolkey, Richard Chernick, Barbara Reeves Neal, Practitioner’s Handbook on Arbitration and Mediation, 3rd ed., Huntington, N.Y.: Juris Net, 2012.