How Do You See the Future of International Commercial Arbitration?

Introduction

Features of International Commercial Arbitration.

The Evolution of International Commercial Arbitration.

The Present Phase of International Commercial Arbitration.

The On-going Crisis in International Commercial Arbitration.

The future of International Commercial Arbitration.

Conclusion.

Introduction

“International arbitration has become the principal method of resolving disputes between states, individuals and corporations in almost every aspect of international trade, commerce and investment. [1] ” With its widespread importance in the present world where the commercial life demands a quick and timely activity, international arbitration appears to be catchy and many businesses have started to rely on it. The concept of arbitration is quite simple. The parties in a dispute agree to submit their controversies and any other disagreements which they encounter in the course of their business; to the person whose judgment or the expertise is trusted by both the parties. Each party puts forward its case with sufficient proofs or any other material evidence to support their claim to this private individual or the arbitrator, who then considers the facts and the arguments, makes a decision which is binding upon both the parties. The decision is to be construed final and binding as the parties themselves have agreed that it has to be, rather than by any coercive or the binding power of any state. International arbitration is the leading method of resolving disputes mainly from international commercial agreements and international disputes. [2] Arbitration is the efficient way of obtaining a final decision which is binding without any reference to the court of law and its formalities. With its growing popularity and need for such an effective device, many lawyers and accountants have established exclusive groups of arbitration specialists. Even states have started to modernize its laws to be arbitration friendly. [3] “Arbitration was first conceived in response to perceived imperfections in the traditional court system. [4] It’s defining characteristic and virtue was simply that it is different to judicial processes yet leads to a resolution of disputes between the parties. It did not mimic the lengthy, expensive and technical procedures of litigation, but instead promised to provide a more flexible and efficient means of resolving disputes. Often arbitrators were people with technical expertise in the area in dispute who were respected by the parties for that expertise. It is clear that arbitration has hundreds of years of pedigree to substantiate its value and importance as an ADR method. The features are undoubtedly attractive to disputants in a cost conscious environment.” [5]

Features of International Commercial Arbitration:

International commercial arbitration is constantly growing as a dynamic dispute resolution process. It is for its distinct character, while interacting with the national law when ever and where ever required; the arbitration process operates on a different plane where the will of the parties and rules of non-national institutions and international treaties and guidelines control the process. International arbitration is a mixture of comparative law and private international law. This enables to expand its horizons beyond the aspects of national law and bypass the lengthy procedures and attitudes of the national courts. [6] The awards of the arbitration are easily enforced as opposed to general national court judgments. Another important feature of international arbitration is that where the parties have an option to choose a neutral seat rather than submitting to any of the national law of the parties in dispute. The procedure of arbitration is less complex than normal court proceedings and the parties are free to choose and design the arbitral process and confidentiality. Therefore it is easy for the parties who come from different legal systems such as common law or civil law jurisdictions. The arbitrators are selected by the parties who they think have considerable expertise over the subject matter in dispute and familiarity over national laws and business rules which are to be applied. The cost of litigation is cheaper when compared to the standard court fees and the parties can agree upon the fees and the procedural aspects.

The evolution of International Arbitration:

The concept of arbitration existed even before the present legal systems came into light. Arbitration has been viewed as the dispute resolution mechanism in one form or the other across the globe which dates back to thousands of years. [7] It is one of oldest dispute resolution mechanism man has ever started to learn. The process of arbitration often involves applying basic principles for the settlement of dispute. “Two merchants, in dispute over the price or quality of goods delivered, would turn to a third, whom they knew and trusted for a decision on that dispute and would agree to abide by that decision without further question; or two traders, arguing over equipment that one claimed to be defective, would agree to settle the dispute by accepting the judgment of a fellow dealer. And they would do this, not because of any legal sanction, but because this was what was expected of them in the community within which they carried on their business.” [8] Prior to the development of international arbitration, the arbitration was restricted to domestic issues and within the national boundaries. Soon after the advent of globalisation, where the commercial business have started to creep into international boundaries, need for an international arbitration and a set procedure to be followed has arisen as the state is not competent to decide the matters outside its national jurisdiction. Therefore an international treaty or convention is required to bridge the gap between national laws and so far as providing worldwide enforcement of both arbitration contracts and also the arbitral awards passed by the arbitral tribunal constituted for the same purpose. The landmarks which helped in development of the modern law and the practise of international commercial arbitration are: [9]

“The Geneva Protocol of 1923 (the 1923 Geneva Protocol) [10]

The Geneva Convention of 1927 (the 1927 Geneva Convention). [11]

The New York Convention of 1958 (the New York Convention). [12]

The UNCITRAL Arbitration Rules (the UNCITRAL Rules) adopted by resolution of the General Assembly of the United Nations in December 1976. [13]

The Washington Convention of 1965 (the Washington Convention). [14]

The UNCITRAL Model Law (the Model Law) adopted by the United Nations Commission on International Trade Law in June 1985. [15]

Revisions to the Model Law (the Revised Model Law) adopted in December 2006. [16] ”

The New York Convention of 1958 plays a prominent role in the development of International Arbitration. It aims to study the recognition and enforcement of foreign arbitral awards (where the seat of the tribunal is other than the territory of national law of the parties). It also explains the referral by the court to arbitration. The courts of the contracting parties have to give effect to an agreement to arbitrate when seized of an action. The UNCITRAL model suggests a pattern for law makers in the common law and civil law jurisdictions. It is known to the followers of both legal traditions. The model relies on the fundamental aspects of law and thus law makers are free to incorporate the provisions of the model law and also follow it for international arbitration agreements. The London court of international arbitration rules serves as the base for dealing with arbitration involving major international businesses based in different jurisdictions. It is a typical combination of both the civil and common law systems and thus offers parties a flexibility of choosing and agrees on the procedural aspects of the arbitration. The Brussels I regulation offers a simplified system of recognition and enforcement of foreign arbitral awards. The Brussels I regulation excludes arbitration within its ambit so as to coherent with New York convention of 1958. [17]

The Present Phase of the International Commercial Arbitration:

The contemplation about the international commercial arbitration as an effective measure to the traditional court system is always in question. But in the present time savvy world of businesses, arbitration process started to look appealing for its cost cutting ability and fair results. Moreover the commercial arbitration is more sought for its flexibility to appoint a neutral person who has some specific knowledge and expertise over the subject matter in dispute unlike in traditional court practices where it takes ages for it to decide on the specific commercial oriented issues. Though arbitration procedure has become the dominant method of settling international disputes outside the court, it definitely needs legislative interventions and court assistance for its effective functioning. The recent survey undertaken by Queen Mary university of London [18] has revealed the emerging trends in international arbitration. The survey revealed that that “88 per cent of the participating corporations had used arbitration and 86 per cent of corporate counsel revealed they were satisfied with international arbitration, with 18 per cent very satisfied. This apparent popularity of international arbitration is also reflected by empirical data from the world’s largest international arbitration bodies. For example, the ICC had a 10 per cent increase in cases filed from 2007 to 2008, while the HKIAC and LCIA had increases of 34.38 per cent and 15.33 per cent respectively in the same period”. [19] In view of the above statistics it is clearly evident that the commercial business has started to embrace arbitration not only for its enduring advantages but also for the quick and speed results it delivers and also to end the dispute early which saves lot of money for the both the parties. There are two types of arbitration, in which ad-hoc arbitration has the arbitration agreement specifying the selection of rules, appointment of the arbitrators, powers of arbitrators. The UNCITRAL model law is chosen for its flexibility. The law based on UNCITRAL model law accords importance to party autonomy, severability of the arbitration clause and competence of the arbitral tribunal. [20] The other major international arbitration institutions are doing well in deed. The rules and procedure followed by the institutions are providing coherence with substance and procedure in arbitration. They are still protecting the distinct feature of the arbitration by adapting themselves to the newer technological trend and other evolving needs. [21] The major institutions are

International chamber of Commerce (ICC) Paris,

American Arbitration Association (AAA), New York,

London Court of International Arbitration (LCIA) London

Swiss Arbitration Association (ASA)

Kuala Lumpur Regional centre for Arbitration (KLRCA)

The international Chamber of Commerce (ICC) is the premier institution of arbitration in the present world. It is not a court of law but administrative body for arbitrations in ICC. [22] The American Arbitration Association (AAA) is not the typical institution or centre for promotion of arbitration and conduct of arbitral proceedings. It is a non serving as a non-profit organisation currently. [23] The (SWA) is the long standing host of the Switzerland for arbitration proceedings under the ICC Rules. It is not a arbitral institution and it follows no specific rules and it is a non profit organisation. The KLRCA is established in 1978 and is been supported by Malaysian government and it is not a agency or branch of the government. It is consultative organisation for to provide a forum for settlement of disputes by arbitration in trade, commerce and investment in the Asia-pacific region. [24]

The on-going crisis in international commercial arbitration:

It is no doubt that that international commercial arbitration is more often sought for settlement of disputes out of court but one must also bear in mind the difficulty in challenging and enforcing the international commercial awards with the growing influence of the state legislatures and the courts. “The New York Convention is silent in relation to the matters that may be considered by a court upon the bringing of a challenge to an arbitral award at the seat of arbitration. Thus, the extent to which a commercial arbitral award may be challenged at a particular seat will depend upon the legislation promulgated by the relevant legislature”. [25] The states interpret the New York convention principles according to the principles of their constitution and also the governing domestic law. The legislations imposed cause hurdles to the enforcement of awards which are refused to be enforced stating that they are against the public policy. Therefore there is lack of co-ordination between courts and legislation which is major concern for enforcement of arbitral awards in a foreign state.

Future of international commercial arbitration:

The steady growths of international trade across the globe will definitely vouch for arbitration and thereby can expect a steep increase in arbitration cases. “The future of international arbitration may well depend, at least in part, on the ability of arbitrators, signatories to arbitration agreements, and courts to maintain the integrity of the international arbitral process.” [26] The ad hoc or international arbitration cannot serve the purpose unless proper training is given to the arbitrators and counsel who conduct it. [27] The arbitrators must be mindful of the objectives which the parties to the arbitration desire to achieve and try to cater to their needs and thereby ensuring the growth and popularity to increase in the coming years. [28] The counsel to the arbitration proceedings needs to be chosen who specialises in international arbitration and have sound knowledge of the subject matter of the dispute and a person who can cater to the needs of the party with some regional and local law knowledge. The reputation and availability of the counsel also plays an important role. Therefore it is proposed to have long standing relationship with the specialist arbitration firms by the corporations for representing in the international commercial arbitrations. [29] With regards to the non coherence of the legislations and national courts, it is proposed that a new International Arbitration court of appeal of enforcement is to be established by United Nations convention. “As its name suggests, the Appeal and Enforcement Court would have the authority to consider the issues now considered by courts at the seat of the arbitration as well as the matters considered by courts at the place, or places, of enforcement.” [30] It therefore reduce the risk of national court or the home court of the either parties cannot impose their will on the outcome of international dispute and thereby subsequent delays in interpreting the award can be cut down and this would work advantageous to cut the expenses involved in the enforcement of the process. The establishment of a new Appeal and enforcement no way undermines the authority of the national courts or in contravention to the New York convention rules; it only serves as an option to the parties to arbitrate their dispute under New York Convention rules or a self contained system which minimises the interference of the national courts. It is further asserted that the support of the national court would is definitely vital for the smooth functioning of the process and to protect the integrity of international arbitration. [31]

Conclusion:

With the growing importance and positive outlook towards the international commercial arbitration as a dispute resolution process, there is a need to address the concerns of the users of international arbitration where the assets and huge chunks of money is at stake. As 95% of the corporations are using the international arbitration, the increase in number is projected. [32] The concerns of the users include and not limited to the above discussed, “The establishment of a standing International Arbitration Court of Appeal and Enforcement by way of a UN Convention acceded to by sovereign states would ensure that commercial disputes would be resolved by specialists, in a neutral forum, in private and in a manner that could be expected to be more predictable, less costly and more efficient than the current practice of inter-national commercial arbitration. It has even been suggested that a global commercial arbitration system would promote international trade and investment by reducing the risk that potential commercial disputes would be determined by a counter-party’s home courts.” [33]

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