International Commercial Arbitration

Introduction

Arbitration is a form of Alternate Dispute Resolution (ADR) and is the only recognized substitute for normal judicial proceedings. Others like mediation and conciliation are different and special types of dispute resolution. The major difference that sets apart Arbitration from Mediation and Conciliation is that in the process of arbitration, the arbitrators can decide a settlement and make a decision that is binding on the parties.

The first and most basic necessity for the conduct of a round of arbitration is that of an arbitration agreement. Without an arbitration agreement, there cannot be a round of arbitration. In other words, arbitration is a contract-based form of ADR, meaning that there must be a clause in any contract to specify that arbitration can be used as a dispute resolution method. However, arbitration can also be agreed upon when a dispute arises.

International Commercial Arbitration as the name suggests is a dispute resolution method for parties that are in different countries and want to skip the hassle of litigating in national courts. Here arbitration can be of two types viz. Institutional and ad hoc. Institutional arbitration involves having an arbitration institution being appointed after the parties come to an agreement on arbitration and in ad hoc arbitration, a neutral individual is appointed after both the parties consent to this appointment.

Arbitration Agreement

An arbitration agreement is the most important and basic requirement. It needs to be present for a round of arbitration to happen. It can be obtained before a dispute arises where it is inserted as a clause in any contract between two parties or after a dispute arises also. Section 7 of the Arbitration and Conciliation Act, 1996 defines an arbitration agreement. It elaborates that the agreement can be in the form of a contract or as a clause in the contract between two parties[1].

Essentials of Arbitration Agreement

As all agreements go, there are three main essentials for an agreement to be called an arbitration agreement.

The first would be that it has to be written down. Section 7(4) of the Arbitration and Conciliation Act says that the agreement can be considered to be written when

1. A document signed by the parties
2. Exchange of letters or telegrams that contain the terms of the agreement[2]

The second requirement would be an intention to settle any dispute that arises through arbitration. There is no specific form for an arbitration agreement and therefore the intention to indulge in arbitration has to be specified clearly in order to be able to discern in the agreement.

The third requirement would be the signature of both parties. Since no dispute can arise when there are is only one party, the signature of both the parties are required in order to be able to conduct the arbitration. This can otherwise be known as consent. It is also considered sufficient if one party signs the agreement and the other party accepts it.

Points to be Remembered

1. Both parties can choose their own arbitrators. In the case that they don’t come to an agreement, both of the parties can appoint their own arbitrators, who in turn appoint a third arbitrator who presides over them. This is because in the process of arbitration there must be only an odd number of arbitrators.
2. In the case of both the parties being different nationalities, the arbitrator(s) appointed shouldn’t be of the same nationality as the two parties.
3. The language of the arbitration, the number of arbitrators and the mode of arbitration have to be specified and agreed to in clear and unambiguous words. In case the number of arbitrators is not specified, there shall be only one arbitrator present. In case it is specified that the mode of arbitration to be of ad hoc arbitration, no arbitration institution can interfere in the process.

Process of Arbitration

• Submission of Notice

First and foremost there needs to be a ‘notice for arbitration’ sent to the disputing party. But before this can all be done, there would be conditions stipulated that the parties solve the dispute between themselves before involving external parties. The ‘need for arbitration’ should specify the problem. The disputing party can make their choice for the arbitrator and must inform that too in the notice. Once the notice is sent, the receiver must reply to the notice within the stipulated time period and if it’s given in the clause, to select an arbitrator.

• Appointment of Tribunal

The tribunal has to be appointed next. Usually, the clause in the contract or the arbitration agreement specifies the number of arbitrators as agreed upon by the parties, but in the case that there is no specific clause saying so, the parties will have to choose an arbitrator based on the stipulated guidelines in the contract or the rules set by the arbitration institution. If it is specified that there have to be three arbitrators appointed, the parties choose one arbitrator each and the arbitrators themselves can choose the third and presiding arbitrator or the arbitration institution will appoint one to preside as the chair.

Once this is done, the parties have to agree to a common procedure to conduct the arbitration. The parties have to make written submissions of the facts of the dispute and the description of the dispute, written witness statements and if needed technical reports from experts. These documents have to be submitted both to the tribunal and the opposing party. There can be a point of contention between the two parties if there is an omission of a certain document, therefore it is advisable to consult a legal expert and find out all the documents that you’re obligated to submit to the opposing party.

• Hearing and Judgement by Tribunal

The case/dispute is argued in front of the arbitrators by the legal representatives appointed by the parties. These lawyers argue in front of the arbitrators and put in front of the arbitrators and chair the written witness statements and other technical reports by experts. These hearings can last for varying time periods and can go for hours or days or weeks or months even. It can go on for years depending on the issue. In fact, the very first commercial arbitration procedure between the United States of America and the United Kingdom (better known as the Alabama Claims) lasted for three years from 1869-1872. The arbitration procedure can go on for many rounds too.

The decision of the chair is binding and has to be respected by both the parties. Here the damages given are known as awards. The award given by the chair is binding. It can, however, be challenged just like a judicial decision can be. As long as the award is not challenged, the chair details the rights and obligations of both the parties through the award given[3].

The award can be challenged through varying factors including but not limited to the arbitration agreement and the institutional rules. Usually, the award cannot be challenged because the tribunal conducts the hearing in a diligent and honourable manner, but on the off-chance that the tribunal doesn’t conduct the case properly, or applies the wrong law to the case, or acts in an extra-judicial manner, the aggrieved party can appeal for the award to be dismissed or seek for the tribunal to perform its duties properly.

The awards given can be enforced in other countries in case the parties are of different countries, but this also depends on the jurisdiction of the area where the enforcement is to be made. It also depends on if the enforcing of the award is against state interest and can affect the state.

Conclusion

International Commercial Arbitration is not too different from any other arbitration. This is a special kind that delves in commercial disputes between two parties that are in different countries. Usually, the payment of dues, the closing of partnerships and contract breaches are the reasons why there are commercial disputes. Needless to say, arbitration is becoming the most-wanted alternative to litigation because of its similarity and faster closure of cases.

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References:

[1] Legaldesk.com. 2020. Legaldesk.Com Arbitration Agreement. [online] Available at: <https://legaldesk.com/documents/arbitration-agreement>

[2] Ibid 1

[3] Stewarts. 2020. Arbitration Process – What Is Arbitration?. [online] Available at: <https://www.stewartslaw.com/expertise/international-arbitration/arbitration-process/>