International Arbitration

Table of Contents

Internation Arbitration

Arbitration is commonly used in international commercial disputes. Many international law principles have been developed in arbitration cases.See the separate section generally on the role of arbitration.

The essence of arbitration is that parties agree at the outset, prior to or after the dispute arises, to submit the matter for determination by an arbitrator. The courts in most jurisdictions encourage arbitration as a flexible method of determination chosen by the party.

There are advantages and disadvantages to arbitration. The arbitration may be flexible and be tailored to the type of dispute concerned. The arbitrator may, for example, be an expert in the relevant area, thereby reducing the need for expert evidence.

On the other hand, an arbitrator will not usually have as wide a range of power as a court. Arbitration may be expensive.

Some states allow arbitration proceedings to be confidential. They may require the parties to maintain confidence in the procedure. Other states have no requirements in relation to confidentiality. In contrast, courts generally hear disputes in public.

Arbitration awards may have the same status as a court decision. There exist procedures whereby they may be invested with the status and effect of a court order.

Commercial Arbitration

Commercial arbitration is intended to refer to relationships of a commercial nature. There need not necessarily be a contract. Generally, there would be at trading transaction for the supply of goods or services, a commercial agreement, factoring, lease, construction works, engineering, licensing, financing, banking, insurance, joint venture, coverage of goods, passengers by air, sea, or rail or road.

Some states have different rules for foreign and domestic arbitration. The courts may be given greater oversight for domestic or international arbitration. Ireland has recently taken steps to align its national and international arbitration laws under the Arbitration Act 2010. See the separate section in that regard.

Expert Determination

Expert determination is distinct from arbitration. It is also a feature of international dispute resolution.

With expert determination, the parties leave the determination of a particular matter to an expert. He does not act like a judge, hearing evidence and deciding contested facts. Instead, his own experience and expertise is brought to bear.

Generally, the expert’s decision may not be challenged in the absence of fraud, collusion or a very patent clear mistake. For example, an expert\’s mistake may be shown where there has been a material departure from the instructions or the scope of the task concerned.

Definition

The UNCITRAL Model Law on International Commercial Arbitration offers a definition of international arbitration. Arbitration is international if the parties to the agreement have, at the time of their agreement, a place of business in different states or one of the following places is situated outside the state to which the parties have their place of business.

the place of arbitration under the agreement,
the place where a substantial part of the obligations of the commercial relationship has to be performed,
the place with which the subject matter of the dispute is most closely connected or
the place where the parties have agreed that the subject matter of the arbitration relates to

Where a party has more than one place of business, the place of business is the one most closely connected with the arbitration agreement. Where a party does not have a place of business, the place of business is to refer to his habitual residence.

The ICC Rules of Arbitration define international arbitration as providing for the settlement of arbitration of business disputes of an international character.

New York Convention

The New York Convention on the Recognition and Enforcement of Arbitral Awards has been one of the most successful international conventions. It has been ratified by 137 states. It deals with conditions in which an award in one jurisdiction must be recognised or maybe enforced in another.

The New York Convention provides that states may apply the Convention only to commercial relationships if they so choose. Some civil law jurisdictions only allow for arbitration for commercial contracts. Non-commercial contracts are incapable of reference to arbitration. Generally, it will be clear, in commercial cases, that both parties act in the course of the business.

A more comprehensive document is the 1985- UNCITRAL Model Law on International Arbitration. In contrast to the New York convention, it deals with substantive arbitration law. It has been widely adopted with mortifications in many jurisdictions.

Of its nature, arbitration is contractual so that its terms may be incorporated by the agreement of the parties. A number of procedural rules have been developed for the conduct of international arbitration by various organisations. They may be incorporated in the relevant contract from the outset.

Procedural Rules

The 1976 UNCITRAL Arbitration Rules, the ICC Rules of Arbitration, and the rules of The International Centre for Settlement of Investment Disputes have promulgated rules for arbitration procedures. The first two may be incorporated into a contract. The last is dealt with in a separate chapter and deals with international investment disputes.

There are a number of instruments promoted by regional organisations. The Organisation of American States has published the Inter-American Convention on International Commercial Arbitration. The Panama Convention is designed for disputes between nationals of those states. It provides for arbitrations to be conducted in accordance with the rules of the Inter-American Commercial Arbitration Commission.

UNICTRAL Model Rules

The UNCITRAL Model Law provides a model law for states to adopt to provide and improve national laws on international commercial arbitration. It has, by its nature, a harmonising effect. It has been enacted in over 40 world jurisdictions.

The UNCITRAL Law covers all stages in the process, from the agreement to arbitration to enforcement. It overlaps the UNCITRAL Rules of Arbitration to a significant extent. This is an agreement incorporated by contract.

The Model Law gives considerable freedom to the parties to determine their own procedures and rules. Its rules are largely default rules which apply in the absence of contracting to the contrary. It gives a limited role to courts. The broad principle is that an arbitration award will not be set aside.

Primacy of Agreement

The starting point in any arbitration is the arbitration agreement. This arises from a contract between the party. The model law requires that the arbitration agreement is in writing.

When a dispute comes within the terms of the agreement, the courts must restrain parties from going directly to court unless a timely request is made on the basis that the agreement is null and void, inoperative, or incapable of being performed. Otherwise, courts are injuncted to respect arbitration agreements.

The Model Law does not deal with whether disputes are capable of arbitration or otherwise. However, some disputes of their nature, because of public interest, are not capable of arbitration. Courts will strike a balance between public interest and the interest in upholding arbitration.

The greater the public interest, the less likely an agreement is suitable for arbitration. For example, matters of property law, status, and marital status would not be appropriate for arbitration.

Traditionally such matters were not within the scope of arbitration because of the public interest. However, in modern times, the scope of what can be arbitrated has been extended so that some issues with a public law dimension, such as competition laws issues, may be capable of resolution between parties by arbitration.

Appointment

The Model Law gives the parties substantial freedom in the choice of arbitrator or Arbitration Tribunal. They may decide how many arbitrators there are to be. The default number is three. They are given freedom in relation to the procedure for appointment. A default procedure is laid down in the Model Law.

A clause which forms part of the contract may be treated as an independent agreement. Accordingly, even if the underlying agreement is invalid, the arbitration clause will not automatically be invalidated.

The Model Law provides for the procedure for challenging the appointment of an arbitrator. An arbitrator may only be challenged if circumstances exist which give rise to justifiable doubts as to his impartiality, qualifications or independence.

Arbitral Tribunals may generally interpret and decide on the scope of their own jurisdictions.

The Tribunal may determine its own jurisdiction in a preliminary award or in the final award.

Procedure

The Model Law provides for the procedure for the conduct of the arbitration. There is considerable freedom. Parties may adopt the appropriate language to be used. However, parties must be treated equally and given the full opportunity to present their case and dispute the other party’s case.

The Arbitral Tribunal must determine the dispute in accordance with the rules of law chosen by the party. If they have not chosen the law, it is determined by the conflicts of law rules, which the tribunal itself determines to be applicable.

The tribunal decision may decide by a majority unless the parties otherwise determine. It must be in writing and signed by the arbitrator. The Tribunal may decide disputes ex aequo et bono or as amiable compositeur if the parties expressly allowed to do so. That is, they may decide the matter on the basis of their own assessment of a just result

Courts are not entitled to intervene in arbitration awards except as provided by the Model Law. The grounds are limited to refusal of recognition on very limited grounds. They follow the New York Convention closely.

Recognition

The New York Convention is designed to make recognition and enforcement of arbitration awards easy. This gives powerful force to arbitration as a mechanism for dispute resolution. The mechanism for enforcement of arbitration disputes is more comprehensive and universal than in the case of recognition and enforcement of court judgment.

The Convention refers only to non-domestic arbitration. It applies to arbitral awards. It does not apply to court judgments, mediations and adjudications etc. The parties must have agreed to refer the dispute to arbitration. They must arise from a legal relationship. The arbitration agreement must be in writing. An electronic agreement will suffice.

The arbitration dispute must be capable of resolution by arbitration. There must not be public policy reasons, which require to be determined by courts only. States may adopt the Convention on the basis that it is only available on a reciprocal basis.

“When … acceding to this Convention … any State may on the basis of reciprocity, declare that it will apply the Convention to the recognition and enforcement of awards made only in the territory of another Contracting State. It may also declare that it will apply the Convention only to differences arising out of legal relationships, whether contractual or not, which are considered as commercial under the national law of the State making such declaration”.