Practice of International Arbitration - Essay Example

IDA264277 Arbitration v Litigation How does the practice of international arbitration differ from the practice of litigation before national courts Answer with reference to the domestic law of at least one jurisdiction. and (2) In your opinion (and given your answer to (a) above) does international arbitration offer a superior form of dispute resolution to that offered by litigation before national courts . The practice of international arbitration: An Introduction It is a private recourse to resolve the disputes chosen by the parties themselves. It is an effective way to resolve issues without turning to the courts of law. What looks like a business meeting to an outsiders, actually considers domestic law and International treatise. The parties in arbitration can choose the procedure, go for fast track arbitration, and dispense with the disclosure of documents and / or witnesses. The parties can even forego with hearing, if they wish so1. The seemingly simple process actually involves laws of four nations. First, the law that recognises and enforces the agreement of arbitration. Then law that regulates actual arbitration procedure, next the specific law or rules that arbitral tribunal has to use in the matter and finally law for recognition and enforcement of the decision of arbitral tribunal, known as arbitration award. The laws governing arbitration proceedings may be same but it is not necessarily so always. Since most of the international arbitration take place in a neutral country to which neither the arbitrating parties belong. So the law of the proceedings, as applied to the matter of the case and known as substantive or applied law, may be different from the law of enforcement of the award. For example, an arbitral tribunal sitting in England will have English law for place of arbitration but may need to apply New York law as substantive law1. Compared to the courts of law, arbitration is a "primitive' way to resolve the issues which is simple because of less formality and expense. The person deciding the dispute has the qualification that he is accepted for arbitration by two parties.2 For example two merchants disputing over damage to their goods would turn to and accept the judgement of a third, fellow merchant. Actually such had been a community practice to maintain peace and harmony among members of business community3. Why International Arbitration The answer may come from the fact that sometimes national law is not sufficient to resolve disputes between warring parties. For e.g. A corporation based in USA contracts another in Germany. The contract is for setting up a power plant in Egypt with any disputes to be arbitrated in London. Now, if a dispute arises and one of the party refuses to arbitrate or the losing party refuses to carry out the award. No national law can resolve the dispute in such case and is an International treaty was necessary to link the national laws and respecting the award (see footnote 1 p. 4). The international treaty to resolve international disputes is a result of Geneva protocols 1923 & 1927 and New York Convention 1958. The aim for such treaty was to remove all the short comings of law of courts, viz. It is to be fast while law is slow, it is to be inexpensive while law is costly, to be simple in contrast to law which is technical and is peace maker in contrast to strife creator4. The present arbitral process no longer has the simplicity of its beginning, it has incorporated somewhat more technical complexity which was needed to strengthen it to remove any loopholes leading to non acceptance of the award, particularly by the losing party. In the modern arbitral process the award is binding on both the parties and if it is not carried out voluntary by the losing party it would be enforced by the court at the expense of that party (See footnote. 1). The Arbitration Process: The first step is selection of an arbitrator, which should be done carefully. Ideally the help of an arbitral institution is a good option for international commercial disputes. It helps in: (i) To run the proceedings that are accepted and understood by arbitrators generally; (ii) A process for the selection of reliable and experienced arbitrators, and (iii) Assistance that varies from institution to institution in the management of the arbitration process.(refer footnote 10). Or the parties may opt for Ad Hoc arbitration. It requires less expenditure but the parties are dependent on timeliness and judicious ability of the arbitrator. While the institution aided arbitration process though costly but certainly is best option for handling the dispute. The significant components of the arbitration process include (footnote 1) : 1. There must be an agreement of arbitration by the parties for a valid arbitration. The agreement should be valid under the party's own national law. The agreement should necessarily be 'in writing'. The domestic law also acknowledges the written agreement. However it includes written by telecommunication means and in English arbitration law 1996 orally as well. The arbitration agreement may be added as arbitration clause or submitted separately. The most common form of arbitration agreement is the one, which is drawn to resolve already up disputes. (compromis or compromiso). 2. The valid arbitration agreement reflects that parties have agreed to resolve their disputes by arbitration. Jurists also accept autonomy of the parties in the matter and do not apply domestic law in such cases5. 3. The agreement is enforced in courts also. In case one party goes to court to get its claim, other party (or parties) to the arbitration may stop the proceedings by providing sufficient reason. So arbitration is the only legal course for participant parties. Moreover in international disputes, a party can get relief from one national court but other party may refuse to comply as the other national court may have altogether different view. 4. The arbitration agreement gives powers to the arbitral tribunal to decide the matter. It is also the basis for courts of law incase the matter goes there. Moreover, it decides the jurisdiction of arbitration. 5. The arbitral tribunal terminates the proceedings if the disputing parties decide to solve the problem by themselves in between the tribunal proceedings. The tribunal may also agree to record the settlement on the agreed terms6. The arbitration tribunal does not have power and prerogative of a court of law but its decision is binding on the parties7. 6. The tribunal's function is to give award. However it can be enforced by legal proceedings nationally and internationally. For the latter the parties should be members of New York convention. The international enforcement of award regards the national law of enforcing state to some extent only. Since the model law has minimised the intervention by the courts of law.(see footnote 1 p. 9-12) The arbitrator when authorised by the parties can use either the national procedural law or form the statutory rules to decide a dispute. Arbitrators can also be given power to formulated independent law. The latter is required when the parties undergoing arbitration belong to different national laws. It is also the case when parties do not mention national procedural law in their agreement8. The arbitration in one country occurring on the law of a different country is treated as foreign awards. This notion brought by New York convention (1958) is the basis of international arbitration. Thus if an arbitration occurs outside Germany but is based on German procedural law, it is to be treated German award. All the member countries have their arbitration law recognized by the New York Convention8. International arbitration rules: The common source of arbitration rules for all nations is UNCITRAL model laws. Further the UNCITRAL arbitration and ICC rules may be added to it. The AAA International, the Stockholm, the London and The European arbitration rules may also be referred. Some of the noteworthy principles of International arbitration are8: Autonomy of the arbitration agreement The arbitration agreement remains independent of the contract of which it is a part. So even if the contract is nullified, the agreement still works. It is to safeguard the welfare of both the parties. Validity of the Agreement The International arbitration agreement remains free from national procedural laws. A national court can not set aside the agreement. Only the Model law applies to it. Costs follow the event The usage during the proceedings, selection and appointment of the arbitrators and fixing venue of the proceedings require expenditure on behalf of the parties. International V Domestic Arbitration The international or transnational arbitration has no relation to the country where it is taking place except that it is taking place within its boundary. The parties are state entities or corporations rather than the individuals. By contrast the domestic arbitration are by the individuals involving smaller claims but very important to those who stake the claims. The powerful corporations may impose there will on smaller traders so local law has to have some control but as the model law for international arbitration indicate that there would be strict limit to the interference by local law. Many countries have even created different legal regime for international commercial arbitration9. International commercial arbitration encounter different nationalities, legalities, culture and different legal systems . The members of tribunal should give due consideration to it. In fact arbitration requires respecting every nations contexts and acting without barriers in most unbiased manner. The arbitrator should not have the rules or think in context of the nation to which he belongs. The countries do not differentiate between national and international arbitration but they have to when enforcement of arbitral awards is required. According to New York convention the foreign arbitral awards need to be enforced. These are made in the country other than the state where recognition and enforcement is to occur. To clarify the term 'international' many explanations are given. The place of residing may be foreign or their seat of work may be international. It is not that two parties belonging to same state can not have international commercial dispute. They can if it is both refer to trade in a different country10. Basically international arbitration arises from international trade, which is trade of goods or services or transfer of money from one country to the other. In some countries, the nationality of the parties determine whether business is international or not. It is best to stick to model law definition of the 'International' rather than confusing with various definitions. It states: The model law has given a wider definition of international arbitration (UNCITRAL Model Law 1985, Fig. 1): Fig. 1- 'International' as defined in UNCITRAL Model Law (1985) Litigation Vs Arbitration: If you it put simply, the arbitration is easy to understand on account of its simple terminology. One cannot, for example, pick one's judge, but certainly can pick the arbitrator; litigation comes with preexisting rules of civil procedure, whereas the parties can tailor their own rules for governing the arbitral process; and in contrast to the transparency of litigation, steps can be taken to keep arbitral proceedings confidential. Arbitration also is potentially faster and less costly than litigation11. To appreciate the simplicity of the arbitration, An analysis of available procedures must begin with an examination of the established and publicly available dispute resolution process - litigation. Its strengths are too obvious to be ignored. In most countries judges are independent, incorruptible, highly competent and available without charge to the parties. Rules of court are publicly available and provide the detailed framework for the management of cases. The process is public and a right of appeal may be available. There are, however, a number of factors that go against the choice of litigation as the ideal dispute resolution process for international commercial disputes. Principles of international law contains guidelines for the circumstances in which judgments of national courts will be recognised and enforced in other countries. A party successful in litigation in its home country will often be told that enforcement requires uncertain and expensive litigation in foreign country where a defendant's assets may be located. Other weaknesses of litigation in resolving disputes of international nature include: (i) Skyrocketing legal costs; (ii) long delays due to pending cases in the courts and the unavailability of judges and (iii) lack of flexibility and ability to control the process unlike arbitration. In addition, there may be real concerns about the reliability of the judicial system in a foreign country. This issues may not allow to raise questions because of provision of immunity and contempt of the court issues. The legal principles are often unclear while the potential costs are extremely high. The primary function of litigation in even the most developed countries is to resolve national and domestic disputes. The rules and processes are not primarily directed at the resolution of complex international commercial issues12. : Other strengths of arbitration are well-known and include: (i) adaptability and flexibility of procedure; (ii) allows direct party participation; (iii) the ability to design the process as the need be; (iv) limited or total avoidance of local court interference; (iv) capabilities and experiences of arbitrators in handling such issues; (v) Availability of administrative assistance of an arbitral institution (if one is selected); (vi) it is fast, efficient and incurs low costs; (vii) privacy which is essentially maintained by all concerned. However the very flexibility of the process at times create risks that are difficult to assess and control12. The domestic litigation in Britain: A brief discussion on domestic legal system of Britain would enable us to compare and contrast the arbitration and litigation. Though arbitration seems simple and smooth process with little roadblocks, litigation is much complex a process. The very complexity of the latter provides it immense impartiality and almost incorruptible nature of judiciary. Just as the very flexibility of arbitration creates problems beyond the disputing parties' control. Andrews 13 provides a description of English legal system. The two civil courts of first instance are country courts and high courts in England. Small claims are considered in country courts, which are located in many cities and towns. The larger sum involving cases go to high courts, which are in main provincial cities and London. There is no right to appeal against the decision of first instance courts. The permission to appeal has to be sought from these courts or from an appellate authority if so provided. Judicial appointment commission from the practicing barristers or solicitors appoints the judges in English court. English law is largely statutory. Common law is the generally binding court decisions. The English law has developed taking European regulations and also from the precedent decisions. The five principles or guarantees of English law are : Access to justice, a fair hearing , A public hearing or pronouncement of judgement, A hearing within reasonable time and a hearing before the independent and impartial tribunal established by law13. The Civil procedure Rule 1998 has further added simplification of language of law. Besides the CPR has given judges power to control the litigation unlike earlier method whereby the parties controlled the litigation. The stages of development of a case in UK civil courts has following steps13 : Pre action phase, commencements and pleading, Document disclosure between parties, trial, appeal ,enforcement. The preaction phase is the time taken from arising of the complaint to it reaching the formal civil proceeding state. The time period for these varies widely. The CPR 1998 pre - litigation protocols which should be fulfilled by the parties and their lawyers. The drafting should state all facts clearly. Often the best presented facts too may lead to some discrepancies. The parties should take decision to call witnesses and use documents for factual evidences. The claimant should provide proof of say, breach of the contract while the defendant need to use the same proof for his defense. The standard of proof is the evidence, which satisfies court that matter is substantiated. For e. g. the proof in criminal cases should be beyond reasonable doubt. International disputes in English courts On 1 March 2005, the European Court of Justice (ECJ) ruled in a landmark case dealing with the scope of Article 2 of Regulation 44/2001/EC (known as the Brussels Convention). The ruling deprived the English courts to exercise its own discretion in deciding jurisdiction related to international disputes in favour of the more rigid rules under the New York Convention14 . The English courts (and the courts of many common law countries) have, however, long recognised and practiced a discretionary power to stay proceedings brought before them in favour of the courts of another jurisdiction in circumstances where that alternative jurisdiction is established to be the more appropriate forum for the trial of the action (that is, forum conveniens). The discretion is viewed by the English courts, which deal with multi-jurisdictional disputes, as an attempt for the promotion of justice and good faith between nations14. The ECJ ruled that Article 2 is a mandatory provision in the convention that prohibits the English courts from non-exercise of jurisdiction in favour of the courts of a non-member state, even if it feels that the courts of that non-member state are the more natural forum. The ECJ accepted that the Convention only regulates jurisdiction where an "international element" is present14 The ECJ has responded to Owusu v Jackson and others case. The facts of the case are as given here: The English claimant brought proceedings in England against one English and five Jamaican defendants seeking damages in respect of life threatening injuries he sustained while on holiday in Jamaica. "The defendants all sought to challenge the jurisdiction of the English courts, arguing that Jamaica had the most real and substantial connection with the dispute and was therefore the more appropriate forum in which to try the action. The trial judge recognised that, if the English defendant had not been a party to the action, no issue would have arisen under the Convention. The claim would then have been one between an English claimant and Jamaican defendants and would be entirely outside the Convention's scope. The judge also agreed that Jamaica constituted a more appropriate forum than England for the trial of the action. However, he felt precluded from staying the proceedings as against the English defendant because of Article 2 and, as it would be inconvenient to have courts in two different jurisdictions trying the same factual issues on the same evidence, he held that he could not stay the proceedings against the Jamaican defendants either" 14 The defendants appealed and the Court of Appeal made a preliminary reference to the ECJ and hence the above judgement. The case presents an example of forum conveniens as well14. Regarding the foreign law in English courts, three concerns are important15; First is the jurisdiction. It takes into account as to which forum foreign or English is most appropriate for the dispute. The parties of a foreign dispute are apprised of the procedure ,the domestic international law and remedial measures. The cost, delay in the proceedings and fear that the information might be disclosed, may put off the parties. Now the ECJ's decision may put a hold on English courts' discretion in deciding jurisdiction for international disputes. Finally the effort to settle the matter outside court is generally encouraged for international disputes. Declining proceedings: The English court may decline, outright, the proceedings with foreign elements in three types of cases. These are concerning Brussels and Lugano conventions, The doctrine of forum non conveniens, and the non justiciability of some types of claims. The English courts decline cases which has a foreign element or those in which application of foreign law is anticipated. The reason for this may be calling the witnesses. I n English law, the witness has to come in person to testify. If there are too many foreigner witnesses, the process becomes greatly delayed. PART B: Thus, based on above discussion of litigation v Arbitration, there certainly seems advantages of arbitration to resolve, at least, the international commercial disputes. The process is simple, less costly (debatable) speedy, free from technicalities. More over since such disputes arise between very reputed parties or corporations so non- disclosures of matter and documents keep their reputation intact. Arbitration at times may lack the impartiality and non-corruptible nature of courts of law though. The national courts are though not equipped with the experience to tackle the laws of other countries, call the witnesses for oral testimony as is must in English law. It is appropriate to consider a brief comparative account of the two, litigation and arbitration, based on points suggested by John McGinley16: "Arbitration is informal": arbitrators are unbiased and are experts in the subject of the dispute, yet they have their own criteria and analyses. On the other hand, Judges cannot be acquainted well with all the technical issues of the international matters; they rely on testimony and arguments of the disputing parties to decide. Although they are provided with discretionary powers, judges can not forego rules of procedure and need absolute evidence while the rules of procedure are relaxed in arbitration. The latter thus is customized process and can also have changes provided both the parties agree. "The right to appeal is limited in arbitration": In court, the loser may appeal to higher courts. Ordinarily the arbitration award is considered final "Arbitration is generally faster and less expensive": An arbitrated dispute can be resolved in a matter of months. Arbitration proceedings may, however, drag out, depending on availability of the arbitrator, lawyers and witnesses. Litigation can take many years on account of procedure. But when started it goes on till decision made. There are provisions of appeal, which too may take considerable time. Hence the commercial parties avoid litigation unless there is no other way left "Arbitration is not inexpensive": The parties pay the arbitrators, the court reporter and sometimes a facility charge for the venue of hearing and other conveniences to the people involved. If an outside organization administers the arbitration, it takes fees which are a percentage of the amount in dispute. "The judicial process may promote settlement": The parties are not likely to take their dispute to courts for some small reasons but a party's litigation costs may sometimes go beyond the value of the expected award. The parties in such cases have no other option but to agree for negotiation. They are also encouraged by judges at various stages of the case ,to come to a settlement. This is rarely the case in arbitration. Read More