INTERNATIONAL COMMERCIAL ARBITRATION
Outline A. What is International Arbitration?
1. Defining Characteristics of Commercial Arbitration
2. Special Characteristics of International Commercial Arbitration
3. Legal Framework for International Commercial Arbitration
4. Institutional Arbitration Rules
5. International Arbitration Agreements B. An Overview of the Advantages and Disadvantages of International Arbitration C.
An Overview of Leading International Arbitration Institutions and Rules 1. Institutional Arbitration 2. Ad Hoc Arbitration 3. Leading Arbitral Institutions: a. International Chamber of Commerce International Court Of Arbitration b.
American Arbitration Association c. London Court of International Arbitration d. Other Arbitral Institutions D. An Introduction to International Treaties and Conventions Concerning International Commercial Arbitration 1. Geneva Protocol of 1923 and Geneva Convention of 1927 2. The New York Convention 3. The Inter-American Convention on International Commercial Arbitration 4. The ICSID Convention 5. Iran-United States Claims Tribunal 6.
Bilateral Treaties E. Choice Of Law in International Commercial Arbitration 1. Importance of Choice of Law Issues in International Arbitration 2. Overview Of Law Applicable to the Substance of the Parties Dispute 3. Overview of Law Applicable to the Arbitration Agreement 4.
Overview of Law Applicable to the Arbitration Proceedings 5. Conflict of Law Rules F. U.S. Legislation Concerning International Commercial Arbitration 1. Relevance of National Arbitration Legislation 2.
Introduction to the Federal Arbitration Act and Other Sources 3. The Federal Arbitration Act 4. State Arbitration Laws G. Overview of Foreign Arbitration Statutes 1. Less Supportive National Arbitration Legislation 2. Supportive National Arbitration Legislation H.
International Efforts at Harmonization of Arbitration Statutes and Rules 1. UNCITRAL Model Law on International Commercial Arbitration 2. UNCITRAL Arbitration Rules 3. IBA Supplementary Rules of Evidence 4. ABA/AAA and IBA Code of Arbitrations Ethics I. Sources of Information About International Arbitration 1.
ICCA Yearbook of Commercial Arbitration 2. Mealeys International Arbitration Report 3. Arbitration International 4. Journal du Droit International (Clunet) 5. Collection of ICC Arbitral Awards 6.
International Legal Materials 7. W. Craig, W. Park & J.
Paulsson, International Chamber Arbitration 8. A. Redfern & M. Hunter, International Chamber Arbitration 9.
Domke on Commercial Arbitration 10. Van den Berg, The New York Convention of 1958 and G.Gaja, The New York Convention 11. Holtzmann & Neuhaus, Guide to the UNCITRAL Model Law on International Commercial Arbitration
International Commercial Arbitration
International arbitration, like domestic arbitration, is a means by which a dispute can be definitively resolved, pursuant to the parties’ voluntary agreement, by a disinterested, non-governmental decision-maker. Or, in the words of the U.S. Supreme Court, an agreement to arbitrate before a specified tribunal [is], in effect, a specialized kind of forum-selection clause that posits not only the situs of suit but also the procedure to be used in resolving the dispute.
(Scherk). There are as many other definitions of arbitrations as there are commentators on the subject. (Redfern & Hunter) Commercial arbitration has several defining characteristics. First, arbitration is consensual-the parties must agree to arbitrate their differences. Second, arbitrations are resolved by non-governmental decision-makers-arbitrators do not act as government agents, but are private persons selected by the parties.
Third, arbitration produces a definitive and binding award, which is capable of enforcement through national courts. Another defining characteristic of arbitration is its flexibility, which generally permits parties to agree upon the procedures that will govern the resolution of their dispute. As a consequence, the procedural conduct of arbitrations varies dramatically across industrial sectors, arbitral institutions, and categories of disputes. In particular fields, or individual cases, parties often agree upon procedural rules that are tailor-made for their individual needs. A side from specialized fields, commercial arbitration often bears significant resemblances to commercial litigation: arbitration will usually involve the submission of written pleadings and legal argument, the presentation of written evidence and (usually) oral testimony, the application of law (in the form of judicial precedents and statutes), and the rendition of a binding award. Nevertheless, arbitral procedures are usually less formal than litigation, including on issues such as the amendment of pleadings, the admissibility of evidence, and the mode of presenting legal argument and factual material.
Moreover, arbitration generally lacks various characteristics that are common in U.S. litigation, including broad pre-trial discovery, summary judgment procedures, and appellate review. International commercial arbitration is similar in important respects to domestic arbitration. As in domestic matters, international arbitration is a consensual means of dispute-resolution, by a non-governmental decision-maker, that produces a legally binding and enforceable ruling.
In addition, however, international arbitration has several characteristics that distinguish it from domestic arbitration. Most importantly, international arbitration is often designed and accepted particularly to assure parties from different jurisdiction that their disputes will be resolved neutrally. Among other things, the parties seek a neutral decision-maker (detached from the governmental institutions and cultural biases of either party) applying internationally neutral procedural rules (rather than a particular national legal regime). In addition, international arbitration is frequently regarded as a means of mitigating the peculiar uncertainties of transnational litigation-which can include protracted jurisdictional disputes and expensive parallel proceedings-by designating a single, exclusive dispute resolution mechanism for the parties’ disagreements. Moreover, international arbitration is often seen as a means of obtaining an award that is enforceable in diverse jurisdictions. Although international arbitration is a consensual means of dispute resolution, it has binding effect only by virtue of a complex framework of national and international law.
As we will see, international commercial arbitration is subject to a specialized legal regime. International conventions, national arbitration legislation, and institutional arbitration rules provide a sophisticated legal foundation for international arbitrations. On the most universal level, the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) has been ratified by virtually all significant trading states. The Convention obliges member states to recognize and enforce both international commercial arbitration agreements and awards, subject to limited exceptions.
Other international conventions impose comparable obligations on member states. In addition, most developed trading nations, and many other states, have enacted legislation that permits enforcement of arbitration agreements and awards and judicial support of the arbitration process. National laws in such states recognize the capacity of parties to enter into binding agreements to arbitrate future commercial disputes, provide mechanisms for the enforcement of such arbitration agreements (through orders to stay litigation or to compel arbitration), and require the recognition and enforcement of arbitration awards. In addition, modern arbitration legislation limits the power of national courts to interfere in the arbitration process, either when proceedings are pending or in reviewing ultimate awards.
In some cases, arbitration statutes permit limited judicial assistance to the arbitral process-such as selecting arbitrators and arbitral forums or enforcing a tribunal’s discovery orders or provisional relief. In recent years, there have been efforts to harmonize national laws relating to international arbitration. The UNCITRAL (infra 38-39) Model Law on International Commercial Arbitration is the leading example; about ten nations (not including the United States) have adopted the law to date, and others (including the United States) are considering it. Similarly, national and international bar associations have produced rules or codes of conduct dealing with subjects such as evidence-taking and the ethics of arbitrators.
Much international commercial arbitration occurs pursuant to institutional arbitration rules. The leading international arbitration institutions are the International Chamber of Commerce, the American Arbitration Association, and the London Court of International Arbitration, each of which has adopted its own set of rules governing the procedural aspects of arbitration. All of these institutions, as well as another dozen or so less-widely known bodies, supervise arbitrations when parties agree to dispute-resolution under its auspices. In addition, the UNCITRAL Commercial Arbitration Rules are widely used in so-called ad hoc arbitrations. International commercial arbitration is consensual arbitration only occurs pursuant to an arbitration agreement between the parties.
Most arbitration agreements are included as standard clauses in commercial contracts and provide for the arbitration of any dispute that may arise in the future between the parties within a defined category. It is also possible, although much less common, for parties to an existing dispute to agree to settle their disagreement through arbitration. Arbitration agreements can, and should, address a number of potentially significant issues. These include the situs of the arbitration, the arbitration rules, the method of appointing the arbitrators and an appointing authority, as well as the number of arbitrators, the applicable law, and the language of the arbitration. (infra 44-45) A carefully-drafted arbitration agreement can address each of these and other issues, and provide the parties with a relatively efficient dispute resolution mechanism tailored to their particular needs.
A poorly-drafted arbitration agreement plants the seeds for disputes over jurisdiction and procedure, and may be unenforceable. Institutional arbitration rules and national law (including U.S. law) widely recognize the principle that arbitration agreements are separable from the underlying contract in which they appear. According to the reparability doc-trine, an arbitration clause is a district and independent agreement, supported by the separate consideration of the parties’ exchange of promises to arbitrate.
As a consequence, challenges to the existence, validity, or legality of the underlying agreement generally do not affect the validity of the arbitration agreement. The doctrine plays an important role in U.S. and other courts in limiting judicial interference in the arbitration process. Finally, under U.S. and most other national laws, certain categories of disputes or claims are non-arbitrable – not capable of settlement by arbitration (as opposed to by national courts). The categories of claims that are non-arbitrable vary from country to country, but generally involve claims under statutory protections or concerning matters of public policy.
An Overview of the Advantages and Disadvantages of International Arbitration By most appearances, the popularity of arbitration as a means for resolving international commercial disputes has increased significantly over the past several decades. Despite its apparent popularity, international arbitration has both strengths and shortcomings as a method for resolving international commercial disputes. First, international arbitration is often perceived as a means to obtain a genuinely neutral decision-maker. International disputes inevitably involve the risk of litigation before a national court, that may be biased, back-logged, or unattractive for some other reason.
Moreover, outside an unfortunately limited number of industrialized nations, local court systems simply lack the competence, resources, and traditions of evenhandedness to satisfactorily resolve many international commercial disputes. International arbitration offers a theoretically competent decision-maker satisfactory to the parties, who is, in principle, unattached to either party or any national or international regulatory authority. On the other hand, private arbitrators can have financial, personal, or professional relations with one party (or its counsel), which can, in the eyes of some observers, pose the risk of even greater partiality than the favoritism of local courts. Second, a carefully drafted arbitration clause generally permits the consolidation of disputes between the parties in a single forum pursuant to an agreement that most national courts are bound by treaty to enforce. This avoids the expense and uncertainty of multiple judicial proceedings in different national courts.
(Kerr) On the other hand, incomplete or otherwise defective arbitration clauses can result in multiple proceedings in which the scope or enforceability of the provision, as well as the merits of the parties’ dispute, are litigated; the difficulties in constructing an effective arbitration agreement and regime are particularly significant in multi-party disputes. And even well-drafted arbitration agreements often cannot foreclose the expense and delay of a litigant determined to confound the arbitral process. Moreover, a carefully-drafted forum selection clause choosing a national court to resolve all the parties’ disputes may achieve many of the benefits of an arbitration clause. Third, it is generally (but not always) true that arbitration agreements and arbitral awards are more easily and reliably enforced in foreign states than forum selection clauses or foreign court judgments. As described below, some 90 nations are signatories to the New York Convention, which obliges contracting states to enforce arbitration agreements and awards (subject to specified, limited exceptions).
In contrast, there are no world-wide treaties relating to either forum selection agreements or judicial judgments-although bilateral treaties and regional agreements like the Brussels Convention are significant. The perceived ease of enforceability of arbitral awards has contributed to fairly substantial voluntary compliance with arbitral awards, although there is no empirical data comparing such compliance to judicial judgments. In some developing and other countries, there is a widespread perception that international commercial arbitration has been developed by, and is biased towards, Western commercial interests. (Kassis) As a consequence, national law in many countries (including much of Latin America) has been hostile towards international arbitration, and can pose significant obstacles to the effective enforcement of international arbitration agreements and awards. Fourth, arbitration tends to be procedurally less formal and rigid than litigation in national courts. As a result, parties have greater freedom to agree on appropriate procedural rules and timetables, select technically expert decision-makers, involve corporate management in dispute-resolution, and the like.
On the other hand, the lack of a detailed procedural code and a sovereign decision-maker may permit party misconduct or create opportunities for an even greater range of procedural disputes between the parties. (Higgins, Brown & Roach) Fifth, arbitration typically involves less extensive discovery than is common in litigation in U.S. courts. This is generally attractive because of the attendant reduction in expense, delay, and disclosure of business secrets.
Of course, in particular disputes, one party may desire broad discovery rights, rather than the customarily more narrow rights available in arbitration. (infra 82) Sixth, international arbitration is usually confidential-as to both evidentiary proceedings and final award. This further protects business secrets and can facilitate settlement by reducing opportunities and incentives for public posturing. Seventh, the existence of an arbitration clause and a workable, predictable arbitral tribunal may create incentives for settlement or amicable conciliation. The cooperative elements that are required to constitute a tribunal, agree upon a procedural framework, and the like can sometimes help foster a climate conducive to settlement. Indeed, parties sometimes agree to conciliation (rather than binding arbitration) or to arbitration ex aequo et bono (not based on the strict application of law), in a deliberate effort to foster settlement.
On the other hand, where relations are irrevocably soured, the need for some measure of cooperation in conducting the arbitration can permit party misconduct to greatly impede the arbitral proceedings. Finally, arbitration has long been lauded as a prompt, inexpensive means of dispute resolution. That can sometimes be the case, but international arbitration is also not infrequently criticized as both slow and expensive. The difficulties in scheduling hearing dates (with busy arbitrators, counsel, and clients in different countries), the need to agree upon most procedural steps, and other factors often produce a fairly stately pace. Likewise, even its proponents acknowledge that International arbitration is an expensive process.
(Wetter) Both private arbitrators (unlike judges) and arbitral institutions (unlike courts) must be paid by the parties. And there is a wide-spread perception that some institutional fees, charged for administrative services, are unrealistically high and otherwise one-side. Given (or perhaps despite) this background, it is not difficult to find enthusiastic proponents of the arbitral process: In the realm of international commercial transactions, arbitration has become the preferred method of dispute resolution. Arbitration is preferred over judicial methods of dispute resolution because the parties have considerable freedom and flexibility with regard to choice of arbitrators, location of the arbitration, procedural rules for the arbitration, and the substantive law that will govern the relationship and rights of the parties. Equally vigorous are some critics, including those who regard arbitration as the slower, more expensive alternative, (Lyons) or who conclude that arbitration sometimes involves perils that even surpass the ‘perils of the seas.
(Layton) In fact, the truth is less clear-cut and lies somewhere between these extremes: The more enthusiastic of those sponsors have thought of arbitration as a universal panacea. We doubt whether it will cure corns or bring general beatitude. Few panaceas work as well as advertised. At bottom, if generalizations must be made, international arbitration is not much different from democracy; it is nowhere close to ideal, but it is generally better than the alternatives.
To those who have experienced it, litigation of complex international disputes in national courts is often distinctly unappealing. Despite the frustrating procedural complexities and other uncertainties, arbitration often offers the least ineffective way to finally settle the contentious disputes that inevitably arise when international transactions go away. An Overview of Leading International Arbitration Institutions and Rules I. Institutional Arbitration International arbitration can be either institutional or ad boc.
A number of organizations, located in different countries, provide institutional arbitration services. The best-known international arbitration institutions are the International Chamber of Commerce (ICC), the American Arbitration Association (AAA), and the London Court of International Arbitration (LCIA). Each of these organizations is described in detail below. These (and other) arbitral institutions have promulgated sets of procedural rules that apply where parties have agreed to arbitration pursuant to such rules. In addition, each arbitral institution has a staff (with the size varying significantly from one institution to another) and a decision-making body (or appointing authority). Among other things, institutional rules set out the basic procedural framework and timetable for the arbitration process.
In addition, such rules typically authorize the host arbitral institution to select arbitrators in particular disputes, to resolve challenges to arbitrators, to designate the place of arbitration, and (sometimes) to review the arbitrator’s awards to reduce the risk of un- enforceability on formal grounds. Of course, arbitral institutions charge an administrative fee, which can sometimes be substantial, for rendering these various services; this fee is in addition to compen …
