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Chapter 1 – An overview of International ArbitrationA Introduction
Arbitration is a method of resolving international disputes involving states, individuals and
corporations. There are harmonised practices around the world, with rules of arbitration,
administered by several institutions.
Arbitration: method of resolving disputes. Disputants agree to submit their disputes to an individual
whose judgement they are prepared to trust: an arbitrator. His decision is final and binding on the
parties (because the parties agreed it should be). So arbitration is an effective way of obtaining a final
and binding decision on a dispute, without reference to a court of law (although it will be enforceable
by a court of law if the losing party fails to implement voluntarily).
Arbitral proceedings takes place in different countries, with different parties from different
nationalities. There are no formalities like in a normal court room. Parties can decide for themselves
which procedures they want to follow: autonomy of parties. This works because of national laws and
international treaties. Different systems of law apply:
1. Law that governs the international recognition and enforcement of the agreement to arbitrate.
2. Lex arbitri: law that governs the arbitration proceedings (mostly national law).
3. Law / set of rules that the arbitral tribunal is required to apply to the substantive matters in
dispute, applicable law/governing law/proper law. (may also be national law, sometimes blend
of national law and public international law/transnational law/international trade law/modern
law merchant (lex mercatoria), or fair and equitable).
4. Law that governs the international recognition and enforcement of the award of the arbitral
tribunal (mostly different than others – other country).
First arbitration was private, but there came national regulation. After, also came international rules,
for arbitration agreements and arbitral awards. Most important are:
the Geneva Protocol of 1923 (the ‘1923 Geneva Protocol’);
• the Geneva Convention of 1927 (the ‘1927 Geneva Convention’);
• the New York Convention of 1958 (the ‘New York Convention’);
• the International Centre for Settlement of Investment Disputes(ICSID) Convention of 1965 (the
‘ICSID Convention’);
• the UNCITRAL Arbitration Rules(the ‘UNCITRAL Rules’), adopted in 1976 and revised in 2010 (much
used in ad Hoc procedures).
• the UNCITRAL Model Law (the ‘Model Law’), adopted in 1985; and
• revisions to the Model Law (the ‘Revised Model Law’), adopted in 2006
Meaning of international
The term international is used to mark the difference between arbitrations that are purely national,
and those that transcend national boundaries. Also; transnational.
- In international arbitration, parties usually have no connection with the seat of arbitration (the
law of the place), as this is neutral.
- International; generally parties will be business/financial corporations/states or state entities.
Domestic mostly private individuals (usually with consumer protection).
- International: bigger sums involved.
- International: usually a separate legal regime to govern it have the same approach as the
Model law, which is designed for international commercial arbitrations.
- In some states, the state itself is only permitted to enter into arbitration agreements in respect of
international transactions.
International can have 3 different meanings in international arbitration:
1
,- International nature of the dispute . E.g.: the ICC: business disputes of an international character
(needs a foreign element – may be same nationality) – same in French law.
- Nationality of the parties . In European convention, place of residence/ seat in different
contracting states. Switserland is example, one of parties not domiciled in Switzerland. See also
New York Convention.
- Model law: Blending of above, plus reference to the chosen place of arbitration: article 1 (3):
parties have places of business in different states, or situated outside states are place of
arbitration, any place where a substantial part of the obligations of the commercial relationship
is to be performed or the place with which the subject matter of the disputed is most closely
connected or; parties have agreed that the subject matter of arbitration agreement relates to
more than one country.
- In the book: wide approach.
Meaning of commercial
Early days, some countries only commercial disputes for arbitration. The Geneva Protocol
distinguished between commercial matters and other matters capable of settlement by arbitration.
Each contracting state was free to limit obligations to contracts which were commercial. Also in the
New York Convention. In the Model law it is only in a footnote; wide interpretation.
Key elements of an international arbitration
Are:
- Agreement to arbitrate
- The need for a dispute
- Commencement of an arbitration
- Arbitral proceedings
- Decision of the tribunal
- Enforcement of the award
Agreement to arbitrate:
Is the foundation stone. Before valid arbitration, there must be a valid agreement to arbitrate.
Recognised by international treaties and national laws. New York Convention and Model Law:
enforcement of the award may be refused if the parties to the agreement were under some
incapacity or if the agreement is not valid.
- It is usually an arbitration clause in contract parties agree if any dispute arises out of the
contract, will be referred to arbitration and not to courts. This is before any dispute has arisen. It
will usually be short and to the point. Institutions have their own recommended forms of
arbitration.
- Also possible to make the agreement after the dispute has risen: submission agreement. Also:
compromise/compromise. May be institutional, or ad hoc: then detailed document dealing with
the constitution of the arbitral tribunal, the procedure to be followed, issues to decide,
substantive law, other matters. In some states this is the only valid method.
The Agreement to arbitrate may arise under international instruments, as bilateral investment treaty
(BIT) entered into by one state with another. Every dispute that might arise in the future between
itself and an investor. This is not party to the treaty. So standing offer by the state to resolve any
investment dispute by arbitration.
The New York Convention, which provides for the international recognition and enforcement of
arbitration agreements, insists that arbitration agreements should be in writing (art. II(1)). But old
traditions changed, as it is often no longer 2 parties.
2
,The model law also envisages arbitration as taking place only between parties to a written arbitration
agreement. Article 7(1) states this.
As you give up on courts of law, many laws of arbitration insist on evidence in writing. With the new
rules it however can also be oral.
The function of the arbitration agreement is to make it plain that parties have indeed consented to
resolve their disputed by arbitration. After this consent, it cannot unilaterally be withdrawn.
Arbitration is independent obligation separable from the rest of the contract, it is there even if the
contract is invalid. The tribunal is then competent to judge its own competence.
An agreement to arbitrate must be capable of being enforced at law. Not just intention or morally
binding. But if imperfect obligation; hard to recover damages if it is not happening, or order specific
performance if a party is not willing to do so. The solution in most countries is that if one party brings
the case to a normal court, the proceedings will be stopped with reference to the arbitration
agreement. Thus, it is the only way to pursue the claim. Thus, it should be enforced internationally,
this is in the Geneva Protocol and the New York convention.
An arbitration agreement also is the basic source of the powers of the arbitral tribunal. It is the
parties intentions, and maybe extra powers by the law governing the arbitration. Parties may
determine the number of arbitrators, how it is appointed, which country, what powers and what
procedure. The agreement also establishes the jurisdiction of the tribunal. Is by agreement of the
parties.
Need for a dispute
Question if the case is so clear that there is no real defence, that it is possible to go to arbitration.
some countries said that there was no dispute between parties, and normal courts can deal with it.
Now England changed it and follows the law of the New York Convention.
May also be distinction between existing and future disputes. Might be a bit more cautious to future
disputes (thus giving away rights).
A dispute must be arbitrable: capable of settlement by arbitration. May be by national laws, for
instance matrimonial statuses.
Commencement of an arbitration:
A formal notice must be given in order to start an arbitration.
In ad hoc, sent or delivered to opposing parties. The UNCITRAL Rules provide for this as well in article
3. It specifies what should be set out in the notice of arbitration. Reference to arbitration clause,
description of the claim, indication of amount involved, and statement of relief or remedy sought.
May also be proposals for the arbitrator.
Institutional arbitration; usual notice given to relevant institution by a request for arbitration. Then
the institution notifies the respondent (see art. 4 ICC rules for example, or 1 LCIA Rules, 3 Singapore,
2 Stockholm).
Generally parties are free to choose their own tribunal, or they delegate this to a third party such as a
arbitral institution. Different qualities than a normal judge. Can be said: knowledgeable in the field,
able to write awards, free of any nationality restrictions, and experienced in conducting complex
proceedings. It may be 3 arbitrators, with different nationalities and different environment.
Arbitral proceedings
3
, There are no compulsory rules of procedure in international arbitration, no volumes containing rules
of court or so. The rules that govern it are the mandatory provisions of the lex arbitri: law of place of
arbitration, and rules that parties have chosen themselves, such as the ICC or UNICTRAL arbitration
rules. The last states in article 17(1-3) that it should be equality, reasonable opportunity of
presenting the case, no unnecessary delay and expense, and to provide a fair and efficient process
for resolving the parties’ dispute. Should be a timetable. May hold hearings for presentation of
evidence.
Some institutional rules are more detailed than others, but within the broad outline of any applicable
rules parties to an international arbitration are free to follow.
Decision of the tribunal:
Frequently happens that there is a settlement. See UNICTRAL rules (36(1)): then termination
proceedings, or record settlement in form of arbitral award on agreed terms. Is not obliged to give
reasons for such award.
Otherwise the tribunal has to make an decision, in the form of a written award, powers entrusted by
the parties that the decision will be binding upon the parties. It is thus a judicial procedure.
Difficult to say how it reaches decision: If it is only one: solitary; impressions to honesty en reliability
of the witnesses, opinions on the merits etc have to be reviewed and reconsidered. If it is three, then
with more persons decisions. Try to come to the same conclusion.
Question if dissenting opinions would do good or not. Some say is good, others say it might
undermine the authority of the tribunal’s award. (Commercial awards normally not publicly available,
investment is available so more impact). May also doubt impartiality.
Enforcement of the award:
Once there is a final award, it is made by a private arbitral tribunal. It is binding upon parties, but if
not carried out voluntarily, it may be enforced by legal proceedings, locally and internationally. The
agreement is also agreement to carry out the award (see also 34-6 of the ICC Rules). Most awards are
carried out, but not always.
Which court? Usually in the court of country in which losing party resides or has place of business, or
where assets may be seized. It is necessary to have an interlinking system of national systems of law,
so that the countries will enforce the awards. International conventions are needed: most important
are New York Convention and ISCID Convention.
Summary
A private process has a public effect, with support of public authorities of states. Over the years it has
become more complex, legalistic, institutionalised and more expensive. But still a dispute, resolved
by private individuals, and be binding on parties. Will be in writing and the award usually set out the
reasons on which it is based.
B Why Arbitrate?
There are two main reasons for arbitration:
1. Neutrality: parties can choose a neutral place and tribunal. If different nationalities, a court
would be foreign: procedure, language, judges, and need other lawyers. While arbitration they
can choose tribunal, with impartial and independent arbitrators.
2. Enforcement: decision is enforceable internationally. It is a binding decision, which is final. Other
DR methods can be enforced only contractually.
Additional reasons are:
4
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