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An introduction to international commercial arbitration by Eugene Duhovnikoff BA/LLB

 

General information

Arbitration has become a popular method for resolving cross border business disputes throughout the international business community. It is a consensual dispute resolution process whereby parties agree to submit to one or more persons called arbitrators any disputes, controversies or claims between them for final resolution. The agreement of the parties to refer disputes to arbitration may be contained in an arbitration clause, found in a contract or set out in a separate agreement.

Generally the parties are free to agree on how the arbitration proceedings will be conducted including the rules to govern the appointment of arbitrators, the manner in which each party’s case is to be presented and related procedures. This is referred to as a principle of party autonomy. Most arbitration proceedings are conducted in private. The local courts play only a limited role in arbitration proceedings. International commercial arbitrations may be conducted independently of the laws of the country in which they are held. This is different from international commercial litigation which is conducted within the rules of procedure of the courts of a particular country of the parties’ nomination and is subject to its jurisdiction.

The conduct of an arbitration is by an arbitrator or arbitrators who act in a judicial capacity. An arbitrator’s decision or award is final and binding and can be enforced in the courts with the same legal effect as a court’s judgment. Moreover, the arbitration award can be enforced internationally by virtue of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958.

When a dispute arises out of a business transaction the parties will generally have a choice of different mechanisms to attempt to resolve their differences. Informal dispute settlement methods –generally referred as alternative dispute resolution or ADR - may be employed. However these ADR methods (including mediation, mini trial and the use of technical experts) do not normally produce a final and binding result. If the parties are looking for a dispute resolution procedure which will result in a binding and enforceable decision the two most common choices are arbitration and litigation.

Some of arbitration advantages include:

Enforcement

Of all of the factors which argue in favor of arbitration enforceability is perhaps the single most important one. Unlike court judgments arbitral awards can easily be enforced across border thanks to the treaty system established by the New York Convention. Enforcing a civil judgment quickly in any jurisdiction usually requires the country in question to have entered in an appropriate treaty with the country whose court has made the judgment. Enforcing a court judgment obtained in one jurisdiction against a defendant’s assets in another jurisdiction usually requires a fresh action to be commenced in the courts of the country where the judgment is sought to be enforced. This may lead to the matter being re-litigated with little or no regard for the original decision of the foreign court. In turn that leads to a duplication of cost and often puts the successful litigant in no better position than if it had started proceedings in the second jurisdiction in the first place. By contrast under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 the enforcement of arbitral awards made in another Convention country is made far easier and is able to subjected to only very limited grounds of challenge. These grounds mainly relate to procedural defects. Most importantly the New York Convention does not permit an enforcing court to conduct any review of the merits of an award. So recognition and enforcement may only be denied on the grounds such as:

  1. The parties were under some incapacity or the arbitration agreement was invalid;
  2. The party against whom the enforcement is sought was denied a fair hearing;
  3. The arbitrator exceeded his or her authority or lacked jurisdiction in respect of the subject matter of the dispute; 4. The arbitral tribunal was not properly constituted;
  4. The award is not yet binding on the parties or is otherwise invalid according other laws of the country in which the award was made;
  5. The subject matter of the dispute is not abatable according to the laws of the jurisdiction in which enforcement is sought; and
  6. The recognition of the enforcement of the award would be contrary to the public policy of the jurisdiction in which enforcement is sought.

Confidentiality and Privacy

Unlike most court proceedings, arbitral hearings are conducted in private. Confidentiality is normally maintained in an arbitration proceeding and awards are not published except by the consent of the parties. Trade practices or trade secrets would not be revealed to the public at large.

Speed and Cost

The flexibility of the arbitral procedure and the finality of awards can lead to substantial savings of both time and money. Of course, it should not be assumed that arbitration is always quicker and cheaper than court proceedings but in practice the time and cost involved will depend on the procedure adopted, the degree of co-operation between the parties and the availability of arbitrators and the fees to be charged by them. Having said that, however, most disputes can be resolved more quickly and cheaply thorough arbitration than through the courts. Put another way there is a good chance of arbitration being cheaper and quicker. Hence the attraction of that available dispute resolution jurisdiction.

Neutrality

Parties to an international contract are frequently unwilling to allow their disputes to be resolved in the courts of a country which is the domicile of or is otherwise connected with the other party. Of course the argument for neutrality can sometime be overdone in that justice can often be obtained even if litigation is commenced in such country. However, concerns about a home court advantage can always be a concern for one of the parties. Sometimes these concerns are well founded, especially where the local courts and legal standards may be less developed than in other jurisdictions. This is common for the so-called emerging markets. Whatever the position the parties’ preference for a neutral venue can be met more easily in the context of a commercial arbitration rather than in submission to court’s jurisdiction.

Expertise

Many people agree that litigation is time consuming and costly. Proponents of arbitration argue that the cost of court proceedings is made even greater by the need to adduce evidence about technical matters involved in a dispute to a judge who would probably have little or no familiarity with such issues. Even in those jurisdictions where that is not the case judges often lack the experience gained from commercial as opposed to judicial involvement - let alone detailed technical in such disputes. This problem may be resolved at the start by choosing arbitrators who have a background in the relevant industry or business sector concerned and who therefore have an understanding both of technical issues and commercial realties involved.

Flexibility

Ligation before a national court requires strict adherence to its detailed rules, forms, precedents, and other procedures. By contrast arbitration permits the parties to agree on the procedure which will be followed in the course of the arbitration proceedings either at the time of their contract or by a subsequent agreement. Such flexibility permits the parties to fashion a procedure which would take into account the nature of a particular dispute and the parties’ view on the best way to resolve it. In terms of substantive law more than one national system of law may bear upon an international arbitration. Thus, there is the proper law which regulates the substantive rights and duties of the parties to the contract from which the dispute has arisen which may differ from the national law governing the interpretation of the agreement to submit the dispute to arbitration. It may also differ from the national law which the parties have expressly or by implication selected to govern the relationship between themselves and the arbitration in conduct of the arbitration.

Evidence

Strict rules of evidence such as the rule against the admission of hearsay evidence or the parole rule of contract law may be relaxed in an arbitration proceeding.

Representation

Unlike court proceedings, parties are not required to be represented by learned counsel. They are free to appoint locally qualified or foreign legal advisers, or non-legal representatives such as technical experts to represent them. This allows the parties to engage lawyers from their own jurisdictions to appear for them in an arbitration hearing. They are also able to decline to be any represented at all so that instead their managers or employees can represent the party to the arbitration.

Finality

Arbitral awards are usually final and not subject to a review on the merits. As a result the lengthy appeal procedures which can result in parties being subject to years of litigation are avoided by referring a dispute to arbitration instead of the courts.

Party Autonomy

This principle is recognized in most jurisdictions. Any court actions brought by a party in breach of the arbitration agreement will usually be stayed and parties directed to resolve their disputes by the agreed mechanism of arbitration. The parties are also able to agree on a procedure for that arbitration’s conduct. They can choose an institutional or ad hoc arbitral model. The institutional arbitrations derive from different institutional organizations which set certain arbitration rules which are often related to the particular commercial needs. Among the most well-known and recognized international arbitration institutions are the International Chamber of Commerce (ICC), the American Arbitration Association (AAA), the International Centre for Dispute Resolution (ICDR), the London Court of International Arbitration (LCIA) and the International Centre for the Settlement of Investment Disputes (ICSID). It also true that even in the ad hoc arbitration parties are still able to refer to the United Nations Commission on International Trade Law with its generally used set of procedural rules (UNICITRAL Arbitration Rules) created for ad hoc arbitration although such parties might not be bound by any arbitration institutions and their rules and instead govern arbitration on their own: 

  • International Chamber of Commerce;
  • American Arbitration Association;
  • London Court of International Arbitration; 
  • International Center for Settlement of Investment Disputes;
  • Stockholm Chamber of Commerce;
  • China International Economic and Trade Arbitration Commission; 
  • Iran-United States Claims Tribunal; and
  • other forums

 

No advice

This website contains general information about legal matters.  The information is not advice, and should not be treated as such.

 

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The legal information on this website is provided “as is” without any representations or warranties, express or implied. Reeves Duhonkioff & Associates Limited makes no representations or warranties in relation to the legal information on this website. Without prejudice to the generality of the foregoing paragraph, Reeves Duhonkioff & Associates Limited does not warrant that any legal information on this website will be constantly available, or available at all; or that the legal information on this website is complete, true, accurate, up-to-date, or non-misleading.

Professional assistance

You must not rely on the information on this website as an alternative to legal advice from your attorney or other professional legal services’ provider. If you have any specific questions about any legal matter you should consult your attorney or other professional legal services’ provider.

Reeves/Duhovnikoff & Associates Ltd. 2017

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