International Commercial Arbitration Lecture: Introduction to International Commercial Arbitration By Feruza Bobokulova

What is Arbitration? Arbitration is a private method of dispute resolution chosen by the parties themselves as an effective way of putting an end to disputes between them, without recourse to courts of law “Arbitration was mainly conceived of in the past as an institution of peace, the purpose of which was not primarily to ensure the rule of law, but rather to maintain harmony between persons who were destined to live together” – a French commentator

Features of Arbitration Four significant features of international commercial arbitration: The agreement to arbitrate The choice of arbitrators The decision of the arbitral tribunal The enforcement of the award

Agreement to Arbitrate An agreement by the parties to submit to arbitration any disputes or differences between them is the foundation stone of modern ICA If there is to be a valid arbitration, there must first be a valid agreement to arbitrate, which is recognized both by national laws and international treaties An arbitration agreement is usually spelt out in the main contract, as an ‘arbitration clause’ or it may be set down in a separate ‘submission to arbitration’ There may be as well ‘standing offers’ to arbitrate disputes that may be contained in the bilateral investment treaties

Agreement to Arbitrate There must be a written evidence of the agreement to arbitrate The New York Convention will only give recognition and enforcement to an arbitration agreement if it is ‘in writing’ that is defined as follows: “The term ‘agreement in writing’ shall include an arbitral clause in a contract or an arbitration agreement, signed by the parties or contained in an exchange of letters or telegrams”

Agreement to Arbitrate An arbitration agreement, which is drawn up to deal with disputes that have already arisen between the parties is generally known as a submission agreement, a compromis, or a compromiso It is a fairly detailed document, dealing with the constitution of the arbitral tribunal, the procedure to be followed, the issues to be decided, the substantive law, and other matters

Agreement to Arbitrate The most significant element of the arbitration agreement is that it shows the consent of the parties to resolve a dispute through arbitration The element of consent is indispensable because there is no valid arbitration without it

Agreement to Arbitrate Once the parties have validly given their consent to arbitration, this consent cannot be unilaterally withdrawn Even if the AA forms part of the original contract between the parties and that contract comes to an end, the obligation to arbitrate survives. It is an independent obligation separable from the rest of the contracts

Enforcement of the AA If one of the parties to an AA brings proceedings in a national court in breach of that agreement, those proceedings will be stopped at the request of any other party to the AA unless there is good reason why should not be If a party wishes to pursue its claim, it must honor the agreement it has made and do so by arbitration AA is also a basic source of the powers of the arbitral tribunal AA also establishes the jurisdiction of the arbitral tribunal

Choice of Arbitrators One of the features that distinguishes arbitration from litigation is the fact that the parties to an arbitration are free to choose their own tribunal. However, this freedom is undermined when the choice is made by a third party “The choice of the persons who compose the arbitral tribunal is vital and often the most decisive step in an arbitration. It has rightly been said that arbitration is only as good as the arbitrators”

Decision of the Arbitral Tribunal Sometimes the settlement may be reached between the parties in the course of the arbitral proceedings In this case, as recognized by UNCITRAL Rules, “If, before the award is made, the parties agree on a settlement of the dispute, the arbitral tribunal shall either issue an order for the termination of the arbitral proceedings or if requested by both parties and accepted by the tribunal, record the settlement in the form of an arbitral award on agreed terms. The arbitral tribunal is not obliged to give reasons for such an award” If, however, the parties cannot resolve their dispute, the arbitral tribunal will resolve the dispute for them by making a decision in the form of a written award

The Enforcement of the Award Once the AT makes the award, it comes to an end Award constitutes a binding decision on the dispute between the parties If it is not carried out voluntarily, the award may be enforced by legal proceedings – both locally and internationally. New York Convention on the Recognition and Enforcement of Arbitral Awards 1958 is the international treaty contributing greatly to the enforcement of awards

Arbitrability There are some disputes, which in the words of the New York Convention, concern a subject-matter which is not ‘capable of settlement by arbitration’. Criminal cases, family, and labor disputes are the examples of such disputes For public policy reasons, national laws will regard certain matters as more suitable for settlement by the courts than by a private system of dispute resolution.

Why Arbitrate? There are two main reasons to choose arbitration First, arbitration gives the parties an opportunity to choose a ‘neutral’ forum and a ‘neutral’ tribunal Secondly, arbitration – if carried out to the end- leads to a decision, which is enforceable against the losing party not only in the place where it is made, but also internationally, under the provisions of New York Convention

Why Arbitrate? There are other reasons that make arbitration an attractive alternative to litigation The flexibility of arbitral proceedings and the confidentiality of the arbitration process Confidentiality is not attributable to the process only, but also to the award too, which may only be made public with the consent of the parties

Disadvantages of Arbitration Costs Limited powers of arbitratiors No joinder of parties or general inability to bring multi-party disputes before the same tribunal Conflicting awards

International Arbitration or National Litigation? In a domestic context, parties who are looking for a binding decision on a dispute will usually have an effective choice between a national court and national arbitration In an international context there is no such choice. There is no international court to deal with international commercial disputes Therefore, choice is between recourse to a national court and recourse to international arbitration

International Arbitration or National Litigation? A claimant, who decides to take court proceedings will, in the absence of any agreed submission to the jurisdiction of a particular court, usually be obliged to have recourse to the courts of the defendant’s home country, place of business, or resident To the claimant, this court will be foreign in every sense of that word Moreover, the court may be unaccustomed to international commercial transactions and laws and practices may be inadequate If one of the parties is a state or a state entity, national courts will be more unattractive

What Kind of Arbitration? Ad hoc arbitration is one which is conducted pursuant to rules agreed by the parties themselves or laid down by the arbitral tribunal Parties are free to work out and establishes rules of procedure for themselves, so long as these rules treat the parties with equality and allow each party a reasonable opportunity of presenting its case Alternatively and more usually, the relevant arbitration clause will provide for the arbitration to be conducted according to an established set of rules such as the UNCITRAL Arbitration Rules

What Kind of Arbitration? Institutional arbitration is one that is administered by a specialist arbitral institution under its own rules of arbitration There are a number of such institutions and they are ICSID, ICC, LCIA, and others Institutional arbitration is more preferred because of automatic incorporation of the rules of that institution Another advantage of institutional arbitration is that most arbitral institutions provide trained staff to administer the arbitration

Institutional Arbitration Another advantage is that institution itself reviews the AT’s award in draft form before it is sent to the parties. This is undertaken by the ICC Under some institutional rules, the parties pay a fixed fee in advance for the costs of the arbitration Another disadvantage is the delay, which results from the need to process certain steps in the arbitral proceedings through the machinery of the arbitral institution involved

Ad Hoc Arbitration One distinct advantage of ad hoc arbitration is that it may be shaped to meet the wishes of the parties and the facts of the particular dispute. However, it is a time consuming process to draft special rules for an ad hoc arbitration The greater flexibility offered by ad hoc arbitration means that many important arbitrations involving a state party are conducted on this basis The principal disadvantage of ad hoc arbitration is that it depends for its full effectiveness on cooperation between the parties and their lawyers

Reading Materials Redfern, A., Hunter, M., Blackaby, N., and Partasides, C., 2004. Law and Practice of International Commercial Arbitration, 4th edn. London: Sweet and Maxwell. Tweeddale, A. and Tweeddale, K., 2005. Arbitration of Commercial Disptues: International English Law and Practice. Oxford: Oxford University Press.

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