The use of international arbitration is preferred by parties involved in cross-border disputes due to its ability to provide them with a neutral forum and its ease of enforcing awards. Its sophistication continues to grow. Who decides the dispute and how does it work are some of the questions that remain regarding its implementation.
This Quickguide aims to introduce the basics of international arbitration and how it works. It also provides a comparison between court litigation and arbitration.
What is arbitration?
Unlike court litigation, arbitration provides a binding final outcome. It is regarded as an alternative to traditional court proceedings, and it should not be ignored by state courts.
In an arbitration agreement, the parties agree to have their dispute resolved by an appointed decision-maker or panel of arbitrators. This usually happens through the provision of arbitration in the contract. The agreement should also include the number of arbitrators and the legal place where the arbitration will be held.
The arbitration process generally begins with a hearing, where both parties can present their arguments. After that, the tribunal will issue its decision. Usually, the dispute will be decided according to the law governing the contract.
Why choose to arbitrate?
When it comes to resolving disputes, lawyers often advise their clients to choose the method that is most advantageous to them. This can be either arbitration or litigation, depending on the circumstances and the location of the parties.
The main advantages of international arbitration are its ability to resolve disputes quickly and easily, its ability to choose the arbitrators, and its ability to maintain a neutral environment. Usually, parties prefer to resolve their disputes in a neutral country.
Selecting a seat of the arbitration
One of the most important factors that a party should consider when it comes to arbitration is the location of the arbitration. Usually, parties agree to have the dispute resolved in a certain country. This ensures that the arbitration will be held in a certain language. This is also beneficial for various reasons, such as the involvement of the courts and the legislative framework.
Most countries have legislation that governs the procedures used for international arbitrations. This does not replace the rules that the parties have chosen, but it provides a framework that will allow them to follow the procedures efficiently. This is done through the use of a model law that was developed by the UNCITRAL2 organization.
The laws governing international arbitration also provide a safety net where agreement is not yet reached. They usually allow parties to adopt procedures and appoint arbitrators, but they also require certain elements of the process to be followed.
Support of the courts
One of the most important steps that a country takes when it comes to implementing international arbitration is to establish a national law that gives the courts the power to resolve certain aspects of the dispute. These include the ability to freeze assets and obtain evidence.
Enforcement of Awards
The country’s national law and the judiciary’s attitude toward international arbitration are also taken into account to determine if they will be supportive of the process.
The national identity of the arbitration also extends to the award. For instance, if arbitration is held in London, the award will be regarded as English. This is also beneficial when it comes to enforcing the award.
Some countries that are members of the Convention on the International Civil and Political Rights will only enforce awards made in other countries.
The location of the arbitration and the level of support that the courts in the chosen seat can provide are also taken into account to determine if the process will proceed. Some of the most popular seats that are commonly used for international arbitration are London, Geneva, and Singapore.
The procedures used for international arbitration are the rules that govern the conduct of the process. Parties are also required to decide if they want to use an ad hoc or institutional arbitration.
Institutional or ad hoc?
Institutional arbitration is carried out by an institution that has chosen to adopt the rules of the arbitration. These rules are usually designed to provide a framework for the proceedings, and they can be used to accommodate unforeseen issues.
The various international arbitration centres that are commonly used include the London Court of Arbitration, the HKIAC, and the China International Trade Arbitration Commission.
An ad hoc arbitration is also conducted under the rules that were adopted for the purpose of the dispute. Although the parties can draft the rules themselves, they usually leave the decisions regarding the procedures and the composition of the panel to the arbitrators.
Although ad hoc arbitration is generally more effective than institutional arbitration, it lacks the necessary support to operate properly. This is because it usually takes a long time for disputes to develop. Another issue that can arise with ad hoc arbitration is the ability to delay the proceedings.
Aside from these, parties also have to deal with the additional administrative issues that come with an ad hoc arbitration. Although it avoids the need to pay fees, institutional arbitration is preferred if the parties are knowledgeable about the process.
Unlike national courts, an arbitration tribunal does not have inherent jurisdiction to resolve disputes. Instead, it only has jurisdiction if all parties agree to participate in the process. This is done by inserting an arbitration clause into the agreement that the parties have made.
One of the disadvantages of having consensual arbitration is that it can prevent arbitrators from joining other parties in the dispute resolution process.
Although the rules of international arbitration centres have been revised to address this issue, it can still be very difficult for parties to join a third party in the arbitration.
The neutrality of the Arbitration
Unlike national courts, an arbitration panel can offer a neutral forum for resolving disputes. It can be composed of arbitrators from various nationalities. This ensures that the decisions made by the panel are not influenced by the backgrounds of the other members.
Since the parties to an arbitration have a great deal of choice in how they resolve their disputes, they can also choose their own decision-maker. This is unlike commercial litigation, where the disputes are handled by appointed judges.
This type of panel can also be used for certain types of disputes, such as those involving technical issues or parties from different jurisdictions.
Privacy and confidentiality
Commercial parties are usually more inclined to participate in arbitration due to the confidentiality and privacy it provides. Usually, hearings take place in private. Both the parties and the arbitrators agree that the details of the proceedings will be kept confidential.
conclusion and Final determinations
Although the laws governing international arbitration generally do not allow for the challenge of an award, the parties can still choose to limit their options by following certain rules. This ensures that they can avoid the costly and time-consuming appeals process.
Enforceability of Awards
One of the main advantages of arbitration is the ability to enforce awards. This is facilitated by a United Nations convention that allows states to recognize and enforce foreign arbitral awards. Over 160 countries have already ratified the Convention.
A party that was not given adequate notice of the appointment of an arbitrator or the arbitration proceedings can also be considered a victim of fraud.
The composition of an arbitration panel or the arbitration procedure itself could also be considered fraudulent.
Although an award is not final and binding, it can still be considered invalid if it does not comply with the public policy of the contracting state.
An analysis of international arbitration awards shows that they are usually complied with. Although there are not always states that follow proper procedures when it comes to enforcing awards, the New York Convention can help.
An arbitration agreement is also a valid contract to arbitrate. Usually, a pre-cursor to arbitration is included in the contract that the parties enter into. This usually requires the parties to resolve disputes arising out of or in connection with the contract in arbitration.
The composition of the arbitration panel, the number of arbitrators, and the procedures that will govern the arbitration are some of the important factors that are considered when it comes to choosing an arbitration venue.
One of the most important factors that a party should consider when it comes to drafting an arbitration agreement is the scope of the agreement. If the dispute does not fall within the scope of the agreement, it can still be considered invalid.
An arbitration clause in a contract is a self-contained contract that can be used even if the main contract is not valid. This ensures that the parties can still resolve their disputes.
Usually, disputes are referred to one or more arbitration panels. In most cases, the parties agree on the composition of the panel and the rules of the arbitration.
When a party does not have an agreement with the other side, it is usually the institution that makes the appointment of an arbitrator.
The fee that the parties are required to pay for the services rendered by the arbitrator is usually up-front. If the dispute is being handled by an institution, the fee that the institution is required to pay is also usually calculated based on the time that the members spent in the arbitration.
The main duties of an arbitration panel are to determine the merits of a case fairly and efficiently and to follow proper procedures in order to avoid unnecessary expenses.
The procedures that are used by different arbitration institutions vary depending on the type of dispute and the nature of the case. These rules cover various aspects of the arbitration process, such as the establishment of the tribunal, the conduct of the proceedings, and the determination of costs.
Due to the increasing number of parties using arbitration, the institutions that provide services to these parties regularly update their rules. Some of these include providing fast-track procedures and allowing early disposal of cases.
Although the procedures used by different institutions vary, they generally provide parties with an opportunity to present their case through written submissions. Some institutions, such as the International Center for Settlement of Investment Disputes (ICC), require parties to provide evidence and legal submissions at the same time.
Usually, the arbitration ends in a hearing that is agreed upon by the parties. The award should be delivered within six months, and the parties should be able to agree on a schedule.
An arbitration award is similar to a judgment in litigation. It is issued only after the parties have agreed on the terms of the agreement and the reasons for its award. Usually, an award is written in a way that includes all the details of the case.
Unlike in court cases, awards can’t be challenged unless they have been affected by a serious irregularity. For instance, if the tribunal exceeded its powers, it might have failed to follow the agreed procedure.