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International Commercial Arbitration - Law

International Commercial Arbitration   by Robert Neron

in Law    (submitted 2012-05-25)

A. Arbitration

Without a dispute, there is no arbitration. In the legal sense, arbitration is one of the techniques used in dispute resolution where cases are decided upon outside of the court. Compared to a regular court case where a judge or jury decides the case, the arbitral tribunal reviews the dispute and issues the decision. Arbitration constitutes the following characteristics: it is consensual, it is neutral, the procedure is confidential, the arbitrators are personally chosen by the parties, and their decision is final and can be easily enforced.

1. International Commercial Arbitration

1.1 In General

International commercial arbitration or international arbitration involves resolving disputes or cases related to international commercial contracts that are generally entered into by and between large international corporations or institutions or the government of different countries around the world. The resolution of these contractual disputes is the responsibility of the International Chamber of Commerce or the ICC, the American Arbitration Association (its international branch), the International Center for Dispute Resolution or the ICDR, the Hong Kong International Arbitration Center, the London Court of International Arbitration or the LCIA, the World Intellectual Property Organization or the WIPO and the Singapore International Arbitration Center or the SIAC, as the case may be.

International commercial arbitration is considered a dispute resolution hybrid due to the versatility in its arbitral proceedings. The arbitration procedures can use a combination of both common law and civil law whereby the ability to resolve a case becomes more attainable and successful. An important reason why many parties refer a case to arbitration is to avoid local court practices of litigation in different jurisdictions. Other reasons include: getting a more efficient and tailor-fit decision, having arbiters who are experts in the field and the freedom of selecting and designing the arbitral process itself, considering the flexible characteristics of the procedure.

1.1 Why International Commercial Arbitration?

The advantages of resorting to international commercial arbitration can be summarized as follows:

1. The ability to choose a specific method of solving the dispute that is fair to both parties, especially if they are from different countries where litigation and other legal complexities might hamper the resolution of their case;

2. Enforceability and neutrality are the foundations in solving the dispute. Decisions become binding on both parties. The legal basis for the recognition of the arbitral award is the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958 or otherwise known as the New York Convention;

3. The arbitrators, as chosen by the parties, are well known for their competence in their field; and

4. Confidentiality of the proceedings. Court processes and decisions are public. The arbitral process is cloaked with confidentiality and therefore appeals to those who do not want the settlement to disclosed. Most, if not all, arbitral awards have not been or are not made public.

B. United Nations Commission on International Trade Law (UNCITRAL)

1. Overview

The growing popularity of international commercial arbitration led to the creation of the United Nations Commission on International Trade Law or the UNCITRAL in 1966 with the objective of promoting progress, unifying and harmonizing international trade law.

In the area of international commercial transactions, UNCITRAL helps formulate different model rules, laws, and conventions that are accepted all over the world. The body also helps provide guides and legislative and legal recommendations and updates case law information and uniform commercial law enactments. In addition to these, seminars relating to uniform commercial law are regularly conducted and technical assistance is provided to different legal reform projects.

2. UNCITRAL Arbitration Rules

The UNCITRAL arbitration rules are a comprehensive compilation of procedural rules that are chosen by parties to guide the conduct of their arbitration proceedings. These rules include the arbitration process (which provides a model arbitral clause), the rules for choosing arbitrators and the conduct of the proceedings, and rules regarding the form, effect and how the arbitral award is interpreted.

The UNCITRAL arbitration rules were adopted in 1976* for the purpose of guiding parties proceeding with arbitration without using an international arbitration institution. In 2006, the UNCITRAL Model Law was adopted. Many countries around the world used this model for their own arbitral legislation. This 2006 revision aimed to adapt to changing arbitration practices over the years.

C. Concepts

1. The Governing Law

The arbitral tribunal is the third party in the arbitration process. As such, the law of the country or national law where such tribunal sits governs the arbitral rules of procedure unless a different jurisdictional law has been stipulated and agreed upon by both the contracting parties. Because the arbitration agreement is a contract by nature, the parties can provide the provisions therein.

2. Arbitration Clauses

Arbitration arises as a result of a dispute in a main contract. Whenever a dispute arises and in the absence of stipulation, the case will proceed to court and the tedious process of litigation begins. Most of the time irreconcilable legal and jurisdictional discrepancies arise making the case more cumbersome to pursue. To avoid this, an arbitration clause should be incorporated into the main contract. In the drafting of this clause, parties can resort to the samples provided for by the different arbitral institutions.

The important elements that an arbitration clause should include are: that both parties agree to arbitrate, the scope and definition of the disputes that will be the subject of the arbitration proceedings, the method of selecting arbiters, the place or the seat of arbitration, and that the parties are willing to adapt to arbitration rules which may either be institutional or ad hoc. These provisions, though imperative, are not mandatory and the parties can stipulate other provisions beneficial to them such as providing for more than one arbitral institution.

3. Decisions and Awards

One of the main reasons parties resort to arbitration is because judgments and decisions are easier to enforce. However, it is worth noting that due to the confidential nature of the arbitral process, including the final outcomes of the case, these decisions are not made public. As decisions are not published, there is not much that can be researched about the process and its outcomes.

D. Arbitral Institutions

1. Ad Hoc Arbitration

Ad Hoc arbitration allows the contracting parties to plan and organize their own arbitral process. This includes selecting arbitrators, specifying the rules of procedure and other laws, defining the arbitral tribunal's powers and the like. All these provisions which are not otherwise contained in a general arbitration agreement should be expressly stipulated.

However, this method is not without its disadvantages. Ad Hoc Arbitration can result in the parties not cooperating, especially if and where the case ripens into a tedious dispute. Also, commencing the arbitration process can take some time considering that it does not have a set of rules of procedure or any procedural structure similar to that of institutional arbitration.

E. Institutional Arbitration

Institutional arbitration refers to arbitration in general. It does not allow the parties to define the rules. An arbitration institution sets the procedural rules as well as performs administrative and supervisory functions which can include keeping track of the proceedings through a timetable. The only participation by the contracting parties in this situation is by choosing the international arbitration institution that will handle the case.

F. Conclusion

Globalization has in some ways contributed to the impact of resorting to international commercial arbitration over the regular litigation process. Global trade has made this method of resolving disputes the preferred form, especially since the process is basically a private one and confidentially is highly recognized, especially in determining the arbitral award.

International investments and the ongoing trade between different countries pushes the need for parties to recognize the importance of international commercial arbitration as part of their main contracts. While the issue of jurisdiction is and always will become an issue, there are a growing number of states that continuously promulgate and amend their own arbitration rules so as to conform to the changing times.