What is International Commercial Arbitration? Things You Must Know

In this age of global business expansion and transnational commercial partnerships, one may encounter several hurdles in navigating diverse legal landscapes, cultural differences, and regulatory challenges. In such cases, companies may resort to the legal expertise of professionals specialising in cross-border resolution. International Arbitration is a low-cost and efficient method well suited to resolving such disputes between international private parties.

What is International Commercial Arbitration? Read on as we delve into its workings, mechanisms and distinctive advantages over traditional legal dispute resolution methods.

What is International Commercial Arbitration?

International commercial arbitration is a method of dispute settlement between parties of different countries through the involvement of an arbitrator or a body of arbitrators. This is an alternative dispute resolution (ADR) method to traditional court proceedings, in which the disputing parties appoint an arbitrator or a panel that makes a final and binding decision.

This form of dispute resolution applies to a wide range of issues, such as contractual disputes, intellectual property conflicts, investment disagreements, and construction-related matters. International commercial arbitration is particularly favoured when the involved parties share a business relationship and aim to preserve collaboration even after resolving the dispute.

Arbitration can be institutional or ad hoc, determined by the terms outlined in the commercial contract between the parties. The dispute resolution clause in the contract specifies crucial details such as the forum, procedural rules, and governing law.

For institutional arbitration, the contract designates an arbitral institution to manage the dispute. In contrast, ad hoc arbitration involves the contract providing its own set of arbitral rules, covering aspects like the forum, arbitrators, and rules of procedure and administration.

When and Why it is Opted For?

There are numerous reasons why parties might prefer arbitration over formal litigation.

• Parties may want to avoid the steep expenses associated with court proceedings, the uncertainties tied to foreign legal systems, and potential challenges in enforcing judgments from foreign courts.
• The arbitral process is typically quicker and provides streamlined solutions compared to traditional litigation. This is due to the less formal nature of the arbitration process, which makes it more adaptable than court proceedings, which have time-consuming and extensive appeals processes.
• Unlike court decisions, arbitral awards are usually kept confidential, which is advantageous for businesses and individuals seeking to keep sensitive information private.
• Parties involved in the dispute typically have the freedom to choose arbitrators, allowing them to select individuals well-versed in the specific subject matter of the dispute, resulting in a more informed and specialised decision-making process.

Supervising Institutions

When parties opt for institutional arbitration, the rules of procedure are supplied by an arbitral institution, which also oversees and administers functions like maintaining a schedule. Parties can choose to select an international entity like the International Court of Arbitration (ICC) or a domestic institution such as the American Arbitration Association (AAA).

International Centre for the Settlement of Investment Disputes (ICSID)

ICSID, one of five autonomous entities within the World Bank Group, operates independently under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington Convention), with 140+ member States.

International Chamber of Commerce

The International Chamber of Commerce (ICC) was established in 1919 in Paris to promote global business through trade, investment, and open markets. It has housed the ICC International Court of Arbitration since 1923.

The ICC sets rules for arbitration, while its influential UCP 500 (Uniform Customs and Practice for Documentary Credits) regulates global trade.

Its Incoterms and model contracts benefit international business, while it represents business interests before governments and international organisations, holding consultative status with the UN, WTO, and various intergovernmental bodies.

UNCITRAL

Established in 1966 by the UN General Assembly, UNCITRAL (United Nations Commission on International Trade Law) focuses on promoting trade and advancing the harmonisation of international trade law. UNCITRAL serves as the primary legal entity within the UN for this field and had a crucial role in drafting the U.N. Convention on Contracts for the International Sale of Goods (CISG) in 1980.

Even though the Convention on Recognition and Enforcement of Foreign Arbitral Awards (1958) predates UNCITRAL, it contributed to promoting the New York Convention. While UNCITRAL doesn't act as an arbitrator, its widely used Arbitration Rules (1976) contribute to commercial arbitrations.

Permanent Court of Arbitration

Established through the 1899 Convention for the Pacific Settlement of International Disputes, the Permanent Court of Arbitration (PCA) is an intergovernmental organisation (IGO) based in The Hague, Netherlands. It offers diverse dispute resolution services for conflicts involving states, state entities, intergovernmental organisations, and private parties on an international scale.

London Court of International Arbitration

Established in 1883, the London Court of International Arbitration (LCIA) provides its arbitral decisions through Westlaw, accessible either individually in the LCIA database or alongside other arbitration rulings in the ICA-INST database.

Legal Frameworks

Commercial arbitration for international disputes applies various laws, including international treaties, national laws, and procedural rules from the relevant arbitral body. While arbitral awards from other cases are influential, they aren't legally binding. Arbitrators may also consider scholarly works and other secondary sources.

International Conventions

Several international agreements and conventions play a key role in International Commercial Arbitration (ICA):

• Geneva Protocol and Geneva Convention (1923, 1927) are the two earliest modern agreements on ICA.
• New York Convention (1958), or the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, replaced the Geneva Protocol and Geneva Convention so that for any state that joins, it supersedes the earlier Geneva Agreements. It ensures that international arbitration agreements and arbitral awards are being followed and implemented by all member states.
• European Convention on ICA addressed arbitration agreements, procedures, and awards. Parties and relevant declarations/reservations are accessible through the UN Treaty Collection.
• Panama Convention (1975), also known as the Inter-American Convention on International Commercial Arbitration, involves the United States and most South American nations. Signatories are listed on the General Secretariat of the Organization of American States website.
• ICSID Convention; Washington Convention (1965), International Center for the Settlement of Investment Disputes Convention governs investment disputes between states and individuals. Language, rules, and parties are available on the World Bank website.
• Convention on the Recognition and Enforcement of Foreign Judgments (1971) has five signatory countries: Albania, Cyprus, Kuwait, Netherlands, and Portugal.
• Council Regulation (EC) No. 44/2001 deals with the enforcement of arbitral decisions for European Union members.
• TheInter-American Convention on International Commercial Arbitration seeks to resolve disputes over commercial transactions through arbitral through arbitral procedure. Signatories include North and South American countries.

Bilateral Investment Treaties (BITs)

BITs are agreements between two countries allowing foreign investors to opt for international arbitration in specific investment disputes with the host country. These treaties often include provisions on the enforceability of arbitration awards.

UNCTAD's website offers a database enabling searches for all BITs signed by a specific country, complete with details on signature and entry-into-force dates. For some countries, like the United States, the Trade Compliance Center's website provides a list of active BITs with convenient links to the treaty texts.

UNCITRAL Model Law

United Nations Commission on International Trade Law (UNCITRAL) was adopted in 1985 and amended in 2006 to be included as a Model Law for implementing ICA procedures. This model law offers a comprehensive framework for conducting commercial arbitration proceedings among member nations.

The Process

The arbitration process typically begins with the disputing parties signing an arbitration agreement, which outlines the terms of the arbitral proceedings, such as procedural rules, selection of arbitrators, and the location of the arbitration. After signing this agreement, the arbitration commences.

The arbitrator or panel then reviews evidence and arguments from both sides to make a final and binding decision. This decision can only be challenged in specific situations, such as if there is a significant issue in the arbitration process or if the decision goes against public policy.

Conclusion

Now that we have answered the question 'What is International commercial arbitration?' it is evident why it is the preferred means for resolving disputes in the international business community. It serves as a private and efficient alternative to traditional court litigation, offering a mechanism to resolve conflicts within the global business arena that the involved parties can opt for voluntarily.

The process involves an arbitrator or a panel of arbitrators that issues a final and binding decision on the matter. Governed by various international conventions and national laws, it provides a comprehensive framework for conducting international commercial dispute resolution. Despite its challenges, international commercial arbitration continues to gain prominence as the preferred means for resolving disputes in the international business community.

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