International arbitration

International arbitration is a leading method for resolving disputes arising from international commercial agreements and other international relationships. As with arbitration generally, international arbitration is a creation of contract, i.e., the parties' decision to submit disputes to binding resolution by one or more arbitrators selected by or on behalf of the parties and applying adjudicatory procedures, usually by including a provision for the arbitration of future disputes in their contract.^[1] The practice of international arbitration has developed so as to allow parties from different legal and cultural backgrounds to resolve their disputes, generally without the formalities of their respective legal systems.

Main Features of International Arbitration

International arbitration has enjoyed growing popularity with business and other users over the past 50 years. There are a number of reasons that parties elect to have their international disputes resolved through arbitration. These include the desire to avoid the uncertainties and local practices associated with litigation in national courts, the desire to obtain a quicker, more efficient decision, the relative enforceability of arbitration agreements and arbitral awards (as contrasted with forum selection clauses and national court judgments), the commercial expertise of arbitrators, the parties' freedom to select and design the arbitral procedures, confidentiality and other benefits.

International arbitration is sometimes described as a hybrid form of dispute resolution, which permits parties broad flexibility in designing arbitral procedures. As one example, consider the International Bar Association (IBA)'s Rules on the Taking of Evidence in International Commercial Arbitration, revised in 2010.^[2] These rules adopt neither the common law jurisdictions' broad disclosure procedures (Discovery), nor follow fully the civil law in eliminating entirely the ability to engage in some disclosure-related practices. The IBA Rules blend common and civil systems so that parties may narrowly tailor disclosure to the agreement's particular subject matter.

David Rivkin,^[3] who chaired the committee that drafted the rules, has noted that the wide adoption of these rules in international arbitration has led in practice to an unexpected use by common law practitioners to limit disclosure and by civil law practitioners to expand it. With a possibly more intuitive cause and practical effect, arbitral tribunals will often read party election of the IBA Rules as an election most akin to US-style Discovery. This is hardly surprising given the Rules' language and the IBA's close ties through the years to the American Bar Association (ABA).

Rules of evidence represents just one example of the different practice that applies to international arbitration, and which distinguishes it from provincial forms of arbitration rooted in the procedures of a particular legal system. There are a variety of approaches to international arbitration at the national level, even where model laws have been adopted.^[4] These approaches can be further impacted by arbitral rules that may be agreed between the parties. Similarly, international arbitral practice has given rise to its own non-country-specific standards of ethical conduct which are believed to apply in international proceedings and, more to the point, to the arbitrators who are appointed to conduct them.^[5]

Differences with Domestic Arbitration and Mediation

International arbitration is a significant variant of the practice in many countries of arbitration, from which it is derived and shares many features. It is not just the fact that international arbitration arises in the context of international contracts that makes it different. In the international dispute resolution community, it is widely accepted to be a different animal entirely, involving different practices and rules, and being represented by a different community of arbitrators and legal practitioners.^[6]

It is essential to draw a firm distinction between Arbitration and Mediation or Conciliation, which are both sometimes characterized as forms of ADR (Alternative Dispute Resolution). In countries where mediation is new or struggling to be introduced as a concept, this association has given rise to the misleading impression that mediation is a form of non-binding arbitration, with the arbitrator proposing or suggesting outcomes based on an assessment of the parties' rights. In fact, arbitration and mediation or conciliation are fundamentally different: the former is a binding determination of legal rights, the latter two forms of dispute resolution involve facilitated negotiation which aims at producing a consensual settlement.^[7] The one leads to a binding determination (arbitration), the other only in the event the parties agree to settle their dispute on mutually satisfactory terms (mediation).

The Advantages of International Arbitration

For international commercial transactions, the parties may face many different choices when it comes to including a mechanism for resolving disputes arising under their contract. If they are silent, they will be subject to the courts of wherever a disaffected party decides to initiate legal proceedings and believes it can obtain jurisdiction over the other party. This may not sit well with parties that need to know at the time of entering into their contract that their contractual rights will be enforced. The alternative to silence is to specify a method of binding dispute resolution, which can be either litigation before the domestic tribunal of one of the parties or arbitration. If the parties choose to resolve their disputes in the courts, however, they may encounter difficulties.

The first is that they may be confined to choosing one or the others' courts, as the courts of a third country may decline the invitation to devote their resources to deciding a dispute that does not involve any of that country's citizens, companies, or national interests. An exception to that rule is New York State, which will not entertain a forum non conveniens motion when the dispute concerns a contract that is worth one million dollars or more and in which the parties included a choice-of-law clause calling for application of New York law.^[8] The second, and perhaps more significant difficulty, is that judicial decisions are not very "portable" in that it is difficult and sometimes impossible to enforce a court decision in a country other than the one in which it was rendered.

Neutrality and Enforceability of Arbitration Awards

The ability to resolve disputes in a neutral forum and the enforceability of binding decisions are often cited as the main advantages of international arbitration over the resolution of disputes in domestic courts. And there is solid legal support for this view. The principal instrument governing the enforcement of commercial international arbitration agreements and awards is the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the "New York Convention").^[9] The New York Convention was drafted under the auspices of the United Nations and has been ratified by more than 140 countries, including most major countries involved in significant international trade and economic transactions.^[10] The New York Convention requires the states that have ratified it to recognize and enforce international arbitration agreements and foreign arbitral awards issued in other contracting states, subject to certain limited exceptions.^[11] These provisions of the New York Convention, together with the large number of contracting states, has created an international legal regime that significantly favors the enforcement of international arbitration agreements and awards.^[12]

As a practical matter, what that means is that an international award originating in a country that is a party to the New York Convention may be enforced in any other country that is also a signatory, as if that award were actually rendered by the domestic courts of that second country. Here is an example of this important concept: assume that parties from countries A and B have agreed to resolve their disputes in country C, and all three countries are parties to the New York Convention. This will mean that even though the arbitration will take place in country C, the resulting award can be enforced in countries A or B, as if it were a court decision rendered in the domestic courts of that country. (By contrast, there is no equivalent treaty for the international recognition of court decisions, although a draft treaty, the Hague Convention of 30 June 2005 on Choice of Court Agreements, was concluded in 2005, but had as of 2013 not entered into force).

Thus, parties to international contracts can decide to site their disputes in a third, neutral country, knowing that the eventual award can be easily enforced in any country that is a signatory to the New York Convention, which has been ratified by a significant majority of commercial nations (with notable exceptions like Iraq, which, not having ratified the New York Convention, cannot be assumed to give effect to arbitration decisions rendered in other countries). An international award therefore has substantially greater executory (legal) force than a domestic court decision.

Under the New York Convention, if a party to arbitration commences legal proceedings in breach of an arbitration agreement against another contracting party, the court is obligated to stay the proceedings. Chapter 2 of the Federal Arbitration Act sets forth the statutory basis for an American court to issue a stay in connection with contracts falling within the ambit of the New York Convention.^[13]

Time and Cost of Arbitration Versus Litigation

As there are no appeals in international arbitration disputes should, on average, be faster than domestic court proceedings with multiple levels of appeals. Since disputes do not take as long to resolve they should also, in theory, be less expensive than domestic litigation. In practice, whether international arbitration will be faster and less expensive depends significantly on the domestic jurisdiction that will be hearing a case and other factors. The ICC and other arbitration institutions have proposed a variety of measures that Parties may take to ensure that the time and cost of international arbitration remains reasonable.^[14] The rapid development of international arbitration boutiques by some of the most well-known arbitrators and lawyers over the past five years has been largely ascribed to a desire to modify the cost structure for the resolution of disputes via international arbitration.^[15] The more recent advent of international arbitration legal networks between boutique law firms also clearly targets a reduction in the average cost of international arbitration.^[16]

Other Advantages of International Arbitration

Other advantages of international arbitration over domestic litigation that are frequently cited include:

• Industry experts can be chosen as arbitrators rather than more generalist judges.
• International arbitration can be more flexible that domestic litigation.
• International arbitration can be confidential, which is useful if the parties wish to continue their business relationship.^[17]
• International arbitration can provide better-quality justice than many domestic court systems, which are overburdened or, at times, corrupt.^[18]

International Commercial Arbitration

The resolution of disputes under international commercial contracts is widely conducted under the auspices of several major international institutions and rule making bodies. The most significant are the International Chamber of Commerce (ICC), JAMS International, the British Columbia International Commercial Arbitration Centre (BCICAC, Canada), the International Centre for Dispute Resolution (ICDR), the international branch of the American Arbitration Association, the London Court of International Arbitration (LCIA), the Hong Kong International Arbitration Centre, and the Singapore International Arbitration Centre (SIAC). Specialist ADR bodies also exist, such as the World Intellectual Property Organisation (WIPO), which has an arbitration and mediation center and a panel of international neutrals specialising in intellectual property and technology related disputes. See http://www.wipo.int/amc/en/.

A number of arbitral institutions have adopted the UNCITRAL Rules for use in international cases.

The most salient feature of the rules of the ICC is its use of the "terms of reference." The "terms of reference" is a summary of the claims and issues in dispute and the particulars of the procedure, and it is prepared by the tribunal and signed by the parties near the beginning of the proceedings.^[19]

In a more recent development, the Swiss Chambers of Commerce of Industry of Basel, Berne, Geneva, Lausanne, Lugano, Neuchâtel and Zurich have adopted a new set of Swiss Rules of Commercial Mediation that are designed to integrate fully with the Swiss Rules of International Arbitration that were previously adopted by these chambers to harmonize international arbitration and mediation proceedings across Switzerland. For a recent paper on these two sets of ADR rules and how they may be combined, see http://www.altenburger.ch/uploads/tx_altenburger/jl_2008_Swiss_Rules_Commercial_Mediation.pdf.

Drafting International Arbitration Clauses

Most arbitral institutions have promulgated model clauses for parties to use to authorize the institution to oversee the arbitration. A number of specialized publications regarding the drafting of international arbitration clauses are available.^[20]

A number of essential elements should be included in almost all international arbitration agreements. These include the agreement to arbitrate, a definition of the scope of disputes subject to arbitration, means for selecting the arbitrator(s), a choice of the arbitral seat and the adoption of institutional or ad hoc arbitration rules.^[21] A number of other provisions can also be included in international arbitration clauses, including the language for the conduct of the arbitration, choice of applicable law, arbitrator qualifications, interim relief, costs, procedural matters and the like.

In order to bridge the gap when parties to an international agreement have difficulty in agreeing upon an arbitral institution, some international arbitration specialists recommend using an arbitration clause that authorizes two arbitral institutions in the same city. Those clauses generally empower the party commencing the arbitration to select the arbitral institution.^[22]

Writing in the Business Law Today of the American Bar Association, Eric Sherby (Israel) suggested a mnemonic device – “BLINC LLC” – designed to enable the draftsman to remember a checklist for quickly drafting an international arbitration clause: Broad, Law, Institutional, Number, Costs, Location Language, and Carve-out.^[23]

International Arbitration Institute (IAI)

The International Arbitration Institute, headed by Emmanuel Gaillard, was created in 2001 under the auspices of the Comité Français de l’Arbitrage (CFA) to promote exchanges and transparency in the international commercial arbitration community.

The Association for International Arbitration (AIA)

The Association for International Arbitration is a non-profit organization, founded in Paris in 2001 by Johan Billiet. The Association for International Arbitration has an increasing number of members among arbitrators and mediators of international backgrounds.

The Association was established with the aim of facilitating arbitration, mediation and general forms of dispute resolution internationally. Today, the AIA has developed into an organization dealing in the private international law field to meet the needs of the fast-growing evolution of dispute resolution within the international community. AIA provides information, training and educational activities to expand the promotion of arbitration and ADR globally by means of securing partnerships with various organizations and parties to get involved in the life of the association. The association constantly works to develop partnerships in the international realm and to provide the international community of arbitrators and ADR professionals with continuous exposure to the latest international developments, activities and opportunities in the field. AIA continually encourages the participation and contribution of its members in the pursuit of the association’s goals.

International Investment Arbitration

The legal protection of Foreign Direct Investment is guaranteed by a network of more than 2750 Bilateral Investment Treaties (BITs), Multilateral Investment Treaties, most notably the Energy Charter Treaty and number of Free Trade Agreements containing chapter on investment protection through Investor-state dispute settlement, such as NAFTA. The majority of these International Investment Agreement provides foreign investors with a substantive legal protection and direct means for redress against states for breaches of such treaties, usually before the International Centre for the Settlement of Investment Disputes (ICSID) or before an ad hoc tribunal established pursuant to UNCITRAL Rules. The overall number of concluded cases reached 244. Of these, approximately 42% were decided in favour of the State and approximately 31% in favour of the investor. Approximately 27% of the cases were settled.^[24]

Interstate Arbitration

Arbitration has been used for centuries, including in antiquity, for the resolution of disputes between states and state-like entities.^[25] After a period of relative disuse, Jay's Treaty between the United States and Great Britain revived international arbitration as a means of resolving inter-state disputes. The 1899 and 1907 Hague Conferences addressed arbitration as a mechanism for resolving state-to-state disputes, leading to the adoption of the Hague Conventions for the Pacific Settlement of International Disputes. The Conventions established the Permanent Court of Arbitration and a rudimentary institutional framework for international arbitration of inter-state disputes.^[26] In recent years, international arbitration has been used to resolve a number of disputes between states or state-like entities, including Eritrea v. Yemen,^[27] the Abyei Arbitration,^[28] the OSPAR Arbitration,^[29] and the Iron Rhine Arbitration.^[30]

See also

• Charles C. Adams, Jr.
• Arbitration
• Arbitration award
• American Arbitration Association
• Jean-Paul Beraudo
• Gary Born
• Johan Billiet
• Emmanuel Gaillard
• Geneva Master in International Dispute Settlement (MIDS)
• International Bar Association
• International Centre for the Settlement of Investment Disputes
• International Chamber of Commerce
• Albert Jan van den Berg
• London Court of International Arbitration
• Jan Paulsson
• Permanent Court of Arbitration
• United Nations Commission on International Trade Law
• Siegfried H. Elsing
• Kompetenz-kompetenz

Lectures

• Lecture by Georges Abi-Saab entitled The International Judicial Function in the Lecture Series of the United Nations Audiovisual Library of International Law
• Lecture by Stephen M. Schwebel entitled The Merits (and Demerits) of International Adjudication and Arbitration in the Lecture Series of the United Nations Audiovisual Library of International Law

External links

Wikisource has the text of a 1920 Encyclopedia Americana article about International arbitration.

International Arbitration Educational Programs

• Stockholm University, Master of International Commercial Arbitration Law
• European Mediation Training for Practitioners of Justice - EMTPJ
• University of Miami School of Law LL.M. International Arbitration
• School of International Arbitration, Queen Mary, University of London
• Arbitration Academy / Académie de l'Arbitrage, Summer Courses in Paris
• Master Arbitrage et Commerce International, University of Versailles
• Straus Institute for Dispute Resolution at the Pepperdine University School of Law

International Arbitration Resources

• Straus Institute for Dispute Resolution at Pepperdine University School of Law
• International Arbitration Institute (IAI)
• The Association for International Arbitration (AIA)
• S.I. Strong, International Commercial Arbitration: A Guide for U.S. Judges, Federal Judicial Center, December 2012, 152 pp.
• International Commercial Arbitration Resources
• E. Gaillard, Legal Theory of International Arbitration, Martinus Nijhoff Publishers, May 2010, 202 pp.
• International Arbitration Search Engine
• Fouchard Gaillard Goldman On International Commercial Arbitration, Kluwer, 1999 (and its French edition, Traité de l’arbitrage commercial international, Litec 1996)
• CMS Guide to Arbitration (a summary of international arbitration law in 32 jurisdictions)
• International Arbitration Books
• CMS Guide to Arbitration: Resources and Materials (common arbitration rules and references)

References