International Commercial Arbitration: Pros and Cons - Essay Example

?ADVANTAGES AND DISADVANTAGES1 OF INTERNATIONAL ARBITRATION LITIGATION: In simple words, litigation is defined as a process through which an argumentbetween two or more parties is taken to a court. ‘(Cambridge dictionaries)’1. The proceeding been taken by the courts as a result of charge is also termed as litigation. ‘(Collins English Dictionary, 2011)’2. However, in business contexts, litigation is defined as an action or charge brought in a court of law in order to enforce a particular and specific right. Litigation is also defined as a process by which the case is taken to a court. ‘(Murray, 2011)’3. In other words, litigation means the filing of charge against another person and bringing the case in the court of law. It is also sometimes called legal process. In litigation, it is quite often that the lawyers are hired by both the parties. However, the right of resolution rests with the court. However, litigation relates to the legal processes which usually involve civil cases. Criminal proceedings are not covered under this term. In litigation, there are two parties involved in the legal proceedings being conducted. One party is called the plaintiff. Plaintiff is the party which brings the charge in the court of law. The other party is called defendant. It is the party against which the charge is taken in the court. This party defends the case and tries to prove the charge to be falsie and void. The plaintiff and defendant may be individuals, organization or states which have brought the lawsuit before the court for resolution. ‘(Business dictionary,)’4. When the plaintiff brings a civil charge in the court of law, both the parties, that is plaintiff and defendant, are entered into the process of litigation. In courts governing civil procedures, the process of litigation consists of a number of systematic steps. These steps lead to the trial conducted by the court and ultimately, the matter is resolved by the court. However, all the disputes are not taken to the courts at once. Initially, whenever a dispute arises, the parties may try to settle the case between them. This is due to the reason that litigation may involve a number of trial proceedings which may extend to a considerable length of time. It may also be costly and time consuming. Thus, it seems better for the parties to resolve the matter without referring to a court. The case is settled if the person who is alleged to cause the injury fulfills the demands and requirements of the party who is suffered with the injury. However, if the requirements of the injured party are not fulfilled, that party may proceed to bring the lawsuit in the court of law. The litigation may be brought by serving to the defendant the copies of complaint and summons and then filing the objection and complaint in the civil court. The complaint being served to the court must contain full facts regarding the injuries being caused and then requesting monetary damages or other relief being equitable and justified. ‘(Harris, 1994)’5 In the modern world, it is considered as an art of an active litigator to know the case completely and act both proactively and reactively in order to produce logical arguments with the help of correct evidences. The use of automated techniques also helps the lawyers in winning the case. Litigation support has also been changed with the invention and development of Information technology. These technologies have helped lawyers in handling large number of cases of their clients as day to day complexity of businesses has also increased the number of litigation claims in the courts. ARBITRATION: In litigation, the case is taken to the court of law. But the process is time-consuming and expensive. Moreover, in many cases, both the parties do not reach upon a conclusion. However, they also do not prefer to refer to the court of law for the resolution of the case. For such a condition, an alternative for the litigation is introduced. It is known as ‘arbitration’. Thus, arbitration is defined as a technique which involves the resolution of the disputes by a neutral and independent third party, outside the court of law, that is, without referring to the courts. ‘(HG.org)’6. It is considered as a formal process through which both the parties agree to include a third party to bring the disagreement between them to an end. ‘(Cambridge Dictionaries, 2011)’7. Negotiation is also considered as a part of arbitration. That is why an arbitration is also sometimes considered as a setting in which the disputing parties select an independent third party to establish negotiation between them for the resolution of the problem. In such a case, the parties refer the case to one or more persons or a team of such persons. These persons are known as ‘arbiters’, ‘arbitrators’ or ‘arbitral tribunal’. Thus, arbitrator is a person who is neutral and unbiased among the conflicting parties and is chosen and selected by the conflicting parties as a one to arbitrate the disagreement and conflict among the parties. An arbitrator whether a person or tribunal can be used to resolve and settle any civil dispute. In many organizations, provisions are made that in case of disagreements, arbitrator would be consulted. The parties referring the cases to such persons agree that they will be bound by the decision of such persons or tribunal. However, it is necessary while using the technique of arbitration that the impartial third party hears both the parties and they are allowed to make arguments after which the decision is announced by the arbitrator or tribunal, as the case may be. ‘(the free dictionary, 2011)’8. Usually, the resolution of disagreements and conflicts through arbitration is an easier and less expensive technique. The arbitration is generally voluntary. However, in some cases it becomes binding by law subject to prior agreement of the parties about the referring of cases to arbitration in case of dispute and binding of the decisions of arbitration. If such an agreement is present, the arbitration does not remain voluntary. Rather, it becomes binding on both the parties. However, if no agreement exists between the parties regarding the use of arbitration and the parties decided to refer to arbitration for the resolution of dispute, the government’s arbitration laws of the country will govern the procedures regarding its use. If the country has no arbitration rules prescribed, then the arbitration rules as stated by International Chamber of commerce will be followed. ‘(businessdictionary.com)’9 In many countries and areas of the world, Alternative Dispute Resolution is used as an arbitration technique. The alternative dispute resolution technique usually refers to the mediation technique in which the resolution is made by a neutral and independent third party. The case is resolved and the conclusion is reached through negotiations between the conflicting parties. However, the case is finalized and decided by the independent third party. The use of arbitration has been gaining great popularity in the commercial sectors. Thus, the demand for such arbitration services has also been increased. The complexity in dispute resolution processes is one of the reasons of such increase in demands. In many countries, arbitration is gaining popularity as a means to settle various types of disputes between individual parties and between groups. The disputes involving parties such as labor unions, consumers and even in some cases, family settlements arrangements are dealt with in such type of resolution technique. Due to such significant importance, it is considered as an important part of Industrial relations as it is very much used by the industries for settlement of their disputes. ‘(Fiorito, 2011)’. It is also used in settling and resolving disputes at international level between states and between states and investors. However, currently the international arbitration is gaining significant popularity in resolving the cases of business and commercial matters. But still the course of international arbitration is in progress. Though the arbitration between countries is present for thousands of years but it had never remained in such a refined form ever in the past as it is today. The development of arbitration to the present developed form is the result of a struggle which comprised of hundreds of years. The arbitration technique was widely used and was included in ancient Roman and Greeks law. However, in the past, arbitrators were occasionally appointed by the contracting parties. But there were no rules present at that time regarding the reference of these parties to such arbitrator in case of dispute. This sometimes caused injustice to other party which may result in quarrelsome between these parties and even dreadful wars between nations. Arbitration was widely used in pre-colonial England for resolution of disputes. America also had established rules regarding the use of arbitration. Americans also introduced this system in their colonies. In 1768, the permanent arbitration board was first time established by New York Chamber of Commerce. ‘(Bennett, 2004)’10. The necessity of arbitration was also strongly felt after the French Revolution. Later on, the right of the citizens to refer to arbitration in case of disputes was accepted and this right was given place in the 1791 Constitution. However, the use of arbitration was very much opposed by the Court system. This is due to the reason that the courts considered arbitration as rival and a technique undermining their authority. It was also very common that the arbitrations were controlled by the courts of law. Thus, it was very hard for arbitration to grow in this situation when there was a strong check and balance upon them. The disadvantages of litigation system promoted the business communities of the world to establish an arbitration system for themselves. The result of these efforts was the establishment of International Chamber of Commerce in 1919. ICC became the voice of international business communities about the promotion of arbitration and its preference upon litigation and court system. The ICC also took steps to promote the use of arbitration for settling disputes among business communities at international level. The steps were also taken to protect, defend and support the process of arbitration. The benefits associated with international arbitration came to light with the passage of time. Some tribunals have already been established under the Arbitration Permanent Court. However, the first permanent genuine court was established in 1920 and was called ‘The International Justice Permanent Court’. ‘(A. H. A. Soons, 1990)’11. This actuated the business communities to adopt arbitration process for settling disputes. This also brought new developments in arbitration process. As a result, new institutions of arbitration started to be developed. Though the institutions had their own rules and regulations for arbitration, they conducted the arbitration processes more or less on the same basis. The differences in the rules of these arbitration institutions were principally influenced and affected by the national regulatory environment of the countries in which the institution is operating. But the flexibility of the rules framed by these different institutions may bring confusion while deciding a dispute. Thus, there rose a need t frame rules and regulations which may apply in all the dispute cases in the same way. In 1970, arbitration rules were framed under the authority of United Nations Organization. These rules came in the form of International Arbitration Act, 1974. The Act contained detailed rules and regulations about Foreign awards enforcement, commencement of International Arbitration for commercial and business disputes, the application of convention for settling disputes between a state and the residents of some other state and also some general matters to which the court must pay regard. They also include the procedures with which the arbitrators will be appointed. ‘(International Arbitration Act, 1974)’12 The flexibility of these rules also made it adoptable for both socialist and capitalist societies and for developing as well as developed countries. It is also equally applicable for civil law disputes and disputes of common law. As a result of their easy adoptability, they gained international recognition soon. In 1985, these rules were improved with the introduction of Arbitration Model law. It was accepted immediately by many countries of the world. However, some countries which did not adopt the law completely alter their own arbitration laws in accordance with this model law to a great extent. However, a revised model law approved by UN in late 2006 was introduced. This revised law allowed that the agreement regarding reference to arbitration should be in writing if it is to be enforceable at law. It was also recommended that the arbitral tribunal should be given the powers of issuing interim measures. ‘(Rees, 2010)’13 The development of arbitration rules and regulations also gave birth to two types of arbitrations. The first one is institutional arbitration which is administered and controlled by an arbitration institution. The second type is of ad hoc arbitration. The arbitration proceedings conducted under this type of arbitration are administered by the tribunal itself. However, the disputing parties are given the right to select any intermediary situation. They have a right to select arbitrators of their own choice and require them that the proceedings conducted by these arbitrators will follow the rules and regulations provided by any given arbitration institution. They may also require that the arbitral institution selected by them as a resolving party will resolve the dispute between them by following some of their regulations. ‘(Mauro Rubino, 2001)’14. Court annexed arbitration also came forward as a basic type of arbitration in the last century. Sander advocated this type of arbitration by favoring the incorporation of arbitration in judicial process. The high amount of business cases being filed with court also actuated the courts to make use of this choice. As a result, the litigants were directed by the courts to the arbitrations. However, the litigants were free to either accept the arbitral awards or to continue court proceedings. However, very high penalties were imposed if the arbitrator decisions were later confirmed by the court. ‘(International arbitration and dispute resolution: chapter 1, page 22)’ The history of arbitration shows the importance and its increasing requirement. This also shows the preference which is being given to it over litigation by the international level business communities. The advantages of the use of arbitrations have made it a best choice for the business communities to resolve their disputes. However, the effectiveness of such arbitration process is very much dependent on the effectiveness of the agreements undertaken for the use of such international arbitrations. William H. Knull identifies ten characteristics that must be present in an effective arbitration agreement to make it enforceable at law. ‘(Knull, 2010)’15 1. The agreement about submission to arbitration should be in clear terms and understandable. 2. Any exceptions to the agreement should also be unambiguous and clearly stated. 3. If negotiation precedes the arbitration, the time for the commencement of arbitration should be clearly defined. It may include the time limit within which the parties may refer to arbitration if no agreement reached within the time limit so defined. 4. The parties may also identify any institutions which would administer the arbitration process in case of dispute. 5. The rules applicable for arbitration process should also be clearly designed and should be properly applied. 6. The site of arbitration should also be clearly identified. 7. The number of arbitrators and the number of members of the arbitration tribunal should be clearly identified. The means of selection of such persons should also be clearly stated. 8. The language of the arbitration procedures should also be clearly identified. 9. The confidentiality or secrecy of the arbitral proceedings or rewards, if desired, should also be stated clearly. 10. Limitations on the powers of the arbitrations may also be imposed by the parties. It may also be agreed that the arbitrators will have no right to amend or otherwise alter these limitations. ADVANTAGES AND DISADVANTAGES OF INTERNATIONAL COMMERCIAL ARBITRATION: ADVANTAGES: The international arbitration is gaining increased popularity for the resolution of commercial international commercial disputes. The advantages associated with the use of arbitrations have actuated the businesses to refer to these instead of court of law. Various advantages associated with the use of arbitrations as opposed to litigation are as under. 1. Speedy Resolution: The resolution of the disputes may be achieved much faster than that of achieve through litigation procedures. However, the speed may be slowed down due to presence of multiple disputing parties, lawyers, arbitrators and the strategy adopted for the resolution of the disputes. This has raised great concerns and confusions and the practitioners are now questioning whether the process of arbitration is still faster procedure than litigation. However, the supporters say that arbitration is still much faster procedure due to the following reasons. a. The arbitral awards and decisions are not subjected to appeal and are thus final. On the other hand, court procedures are very lengthy due to presence of appeal procedures. Sometimes, the case is finally decided by the highest court after third or fourth review procedure. b. The rules governing the arbitration procedures are very flexible. Thus, the disputing parties and the arbitral tribunals are at liberty to a great extent to devise the procedures which are efficient for particular dispute. c. The schedules of the arbitrators are usually more flexible than that of court judges. This allows the tribunal to hear the case even in late evenings and holidays. 2. Less Costly: The arbitration is considered as less expensive and cheaper than litigation. The main reason of the arbitration being less expensive is that the arbitral awards cannot be subjected to appeals. However, many critics are of the view that the complex business arrangements have made the arbitration an expensive process. Moreover, in many countries the process of litigation is already very cheap. In such countries, the use of international arbitration for resolving disputes seems to be an expensive process. 3. Non-application of Exclusionary Rules: The rule of exclusion of any evidence does not apply on the arbitration. Anything which is relevant to the case can be treated an evidence for the case. The thing which is required to be considered as evidence must also possess the property of being non-cumulative. However, anything which is considered as irrelevant by the arbitrator may be disregarded. 4. Confidentiality: The international commercial arbitral proceedings are generally considered as confidential. This is due to the reason that the arbitrations do not conduct public hearings and are private. The proceedings are also kept confidential and no records of such proceedings are issued for public use. This characteristic of International commercial arbitration has played an important role in making them acceptable as an effective source for resolving disputes among business parties internationally. The arbitral proceedings can also be made specifically confidential by including a clause to this effect in the agreement. The conflicting parties, their lawyers and attorneys and the arbitrators may be bound with the confidential requirement if the same is provided in the agreement. On the other hand, if confidentiality requirement is not provided in the agreement, the arbitral proceedings and decisions may be issued by any party as per its own requirement or by the arbitrator for carrying out enforcement procedures. 5. Selection of Competent Person(s) as Arbitrator: The process of arbitration also generates the ability of the selection of competent person as an arbitrator. The parties may agree before appointment of the arbitrator that the people, who have reasonable expertise of the arbitration process, possess technical background and also hold reasonable qualification about the subject matter will be eligible for such appointment. The cultural and legal background of such person is also viewed. This gives an input about the ability of such person to chair such position. This increases the effective and efficient functioning of the arbitral proceedings. The appointment of competent personnel also increases the quality of decisions issued by them. 6. Freedom of choosing Unbiased Decision Maker: The disputing parties are often unwilling to refer to a country’s court for settling the dispute. This is due to the reason that another country’s court does not seem to be neutral and unbiased. However, the selection of arbitrators by mutual consensus of the parties mitigates the risk that any party would enjoy the advantage of home court and home country. This increases the confidence of the parties in the arbitration procedure as they are at liberty to select the persons to be arbitrators of their own choice. Thus, the arbitral tribunals are considered more trustworthy for resolving the international disputes. This also paves way for the implementation of the decisions of arbitration. The decision-quality also improves as a result of unbiased and neutral hearing. 7. Limited Discovery: In international arbitration, the parties are given a right to limit the discovery in arbitration. This makes the arbitration process as less burdensome. Thus, this increases the efficiency of the arbitral proceedings. The limitation mainly depends upon the discretion of the parties. In some cases, the parties agree between then the scope and extent of discovery that they would allow in the arbitration process. However, it also depends on the tribunal legal background and also on the nature of case which is being presented before the tribunal. 8. Less Adversarial Process: The process of arbitration is very much preferred by the parties who are willing to continue business relationships among themselves. This is due to the reason that the procedure is less adversarial. It helps the parties to settle their disputes without affecting their good business relationships. Thus, it does not create hostilities among international business communities and is considered as a good source of promoting long-term, good and healthy business relationships. 9. Enforceability of Arbitral Awards: The enforceability of the awards announced by the arbitration in case of international disputes is also relatively easy. This is due to the reason that the awards announced by the arbitration in one country may be enforced in the other country in which the assets of defaulting party are situated. This is due to the reason that a large number of countries promote the arbitration processes for resolving international commercial disputes. Another main reason of the enforceability of awards announced by the arbitration is that these decisions do not usually subject to appeals. The grounds, even if available to make appeals, are also limited. Thus, the decisions announced by the arbitral tribunals are solely accepted by the disputing parties and enforced completely and successfully. 10. Procedural Flexibility and Control: The arbitration statutes and rules governing arbitration procedures give the arbitrators powers which can be independently used by them. The use of discretion while deciding a case is also considered as a basic right of arbitrators. The flexibility of arbitration also allows the disputing parties to shape procedures for the use of arbitration. DISADVANTAGES: With a great number of benefits that the international arbitration has over the litigation, there are also some disadvantages associated with the use of international arbitration. 1. No Right of Appeal: The parties have no right to make an appeal even if a big mistake of law or fact is made by the arbitrator while deciding the case. The right of appeal even if provided to the parties through an agreement between them, the right is very limited. 2. No Right of Discovery: The right of discovery is also limited in international arbitration. However, the parties have a right to make complete discovery if the arbitration agreement between the parties so provide or the parties or arbitrator allows discovery. 3. Cost and Speed of Arbitration: The arbitration process is considered as a speedy and inexpensive process. However, this view about arbitration is not altogether right. The complexity involved in international business transactions and disputes has made it a slower process. Moreover, the complexity and length of arbitration processes have also made it an expensive process. The appointments of arbitration institutions, arbitrators, attorneys and lawyers have made this procedure as an expensive procedure. Moreover, as the arbitration resolves the case dealing with parties residing in different countries and belong to different nationalities, technical backgrounds and languages, the awards announced by the arbitrations are required to be translated so that it is made understandable for other parties. This also increases the cost of the arbitration process. 4. Unknown Competency: It is not always possible for the disputing parties to pre-determine the competency of the arbitrator before appointing it. The case is very obvious when an arbitration institution is appointed to decide the case between the parties. However, this drawback may be reduced if the arbitration agreements set up the level of competency and qualifications of the arbitrator. It may also be reduced if the arbitration institution checks the competency and skillfulness of their members while appointing them as arbitrators for a given particular case. Thus, the international business arbitration has a number of advantages over litigation process. Its efficiency and effectiveness of resolving international disputes has made it a speedily adopted process for dealing with international business cases. Its acceptance by a large number of countries has also made it a widely adopted procedure. However, there are some cases when litigation proves to be a better option. But the selection of arbitration or litigation as a procedure for resolving disputes solely depends on the discretion of parties, the nature of the case and the civil rights available to the parties with reference to the case. REFERENCES 1. Vicky Harris, Litigation Support Management: The Winning Edge (1994) 2. Steven C. Bennett, ESQ. Arbitration: Essential Concepts. (2004) 3. A. H. A. Soons. International Arbitration: Past and Prospects. (1990) 4. Mauro Rubino- Sammartano. International Arbitration Law and Practice. (2nd Edition, 2001) 5. Gary B. 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