International Commercial Arbitration as an Alternative Dispute Settlement Mechanism in International Trade - Coursework Example

International Law Arbitration Critically discuss the role and importance of international commercial arbitration as an alternative dispute settlement mechanism in international trade today. International Commercial arbitration involves the settlement of business related disputes which involves nationals of different countries. Countries benefit from the confidence of international investors if its delivery of justice is perceived as fair, reliable, quick and cheap, and involves procedural formalities that are not burdensome. Arbitration is recognized as having advantages in dealing with commercial disputes, including reduced expense, procedural flexibility, effectiveness, confidentiality, and finality. Further, arbitration awards are enforceable a in majority of countries under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, Whenever two or more parties are involved in a dispute, it is preferable if they were able to discuss it between themselves and arrive at an amicable solution. This is true whether the parties are members of a family, States or commercial entities. Only the parties themselves can attain a resolution that will not only resolve the dispute, but also make easy a useful future relationship (Holtzmann & Neuhaus, 1995). Arbitration is the most prominent of the private dispute settlement mechanisms, both domestically and for international commercial relations. Arbitration is hardly ever defined in national laws on arbitration as well. It is not defined by the UNCITRAL Model Law on International Commercial Arbitration as it is perceived as being “unnecessary” Its primary characteristics are: it is a mechanism for the settlement of disputes; it is consensual; it is a private procedure and it leads to a final and binding determination of the rights and obligations of the parties. If there exists an arbitration clause, the question arises whether the creditor can or must invoke the arbitration clause or, there being no dispute as to the existence of the obligation, the creditor can or must seek enforcement of the obligation by court action. The question might also arise if it appears that the parties agreed to arbitration in order to secure an enforceable award that would allow payment in the face of exchange controls that would not have allowed payment of the amount in question (Buhler & Webster, 2008). Once parties have reached an agreement to settle the dispute, there is no longer any dispute for the arbitral tribunal to consider. However, as provided in the Model Law, if, during arbitral proceedings, the parties settle the dispute, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms. The arbitral tribunal may object to recording the settlement as an award. That is a form of protection to the tribunal and to the arbitral process if the tribunal believes that an award would be improper under the circumstances. Arbitration is consensual and must be founded on the agreement of the parties. The parties must have consented to arbitrate the dispute that has arisen between and also the authority of the arbitral tribunal is limited to that which the parties have agreed. Therefore, the award made by the tribunal must settle the dispute that was submitted to it and must not pronounce on any issues or other disputes that may have arisen between the parties (Holtzmann & Neuhaus, 1995). Recognition and enforcement of the award may be denied, at the application of the party against whom it is invoked if that party presents to the competent authority where the recognition and enforcement is sought, proof that the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration. In most cases arbitration is only semi-consensual. Majority of arbitration agreements are in the form of an arbitral clause in the main contract. The arbitral clause provides for settlement of disputes would arise and it is in reference to the future. Arbitration is a private procedure and fulfills the same function as litigation in the court system. The end result is an award enforceable by the courts. Courts ensure that the proper procedures have been followed in the arbitration. This is done through their power to set aside an award or to refusing to recognize or enforce such an award. Arbitration is a private process. It was implicit that the parties, arbitrators nor any supporting staff would not disclose any information about the arbitration. There was an exception if one of the parties had to bring into play the help of a court in regard to the arbitration or to set aside or enforce an arbitral award. Arbitration leads to a final determination which is binding as to rights and obligations of the parties to arbitration. It is unnecessary for the arbitration rules to say so. The New York Convention requires the Contracting States to recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon. It is upon this foundation stone that the whole structure of international commercial arbitration is built (Bhagwati, 1978). Enforcement of the agreement, should there be ensuing failure of fulfillment of its terms, would be by legal action or arbitration, assuming a suitable arbitration clause, as would failure to fulfill any other contractual provision. “Commercial”, it has become common to speak of international “commercial” arbitration, but there is no clear concept of what is meant by “commercial”. As early as the 1923 Protocol on Arbitration Clauses, Contracting States recognized the validity of an arbitration clause “by which the parties to a contract agree to submit to arbitration all or any differences that may arise in connection with such contract relating to commercial matters or to any other matter capable of settlement by arbitration” (Holtzmann & Neuhaus, 1995). The 1961 European Convention on International Commercial Arbitration was the first international mechanism to refer to international commercial arbitration by name. Although “commercial” was not defined, the Convention was limited in application “to arbitration agreements concluded for the purpose of settling disputes arising from international trade.” Since it was expected that once the Model Law was adopted by a State, it would exist side by side with an arbitration law for all other arbitrations. It was essential to specify its extent of application. While there were a few disagreements as to the types of transactions to which it was to apply, there was enormous dithering on the part of some delegations to enlarge the definition of “commercial” further than what was envisioned in their national law for other purposes. The solution was to relegate the matter to a footnote the first time the word “commercial” appeared in the text. The footnote reads as follows: “The term ‘commercial’ should be given a wide interpretation so as to encompass issues that may arise from every relationship which is commercial in nature, whether contractual or not. Relationships which are commercial in nature include, the following transactions: any trade transaction for the supply or exchange of goods or services; distribution agreement; commercial representation or agency; factoring; leasing; construction of works; consulting; engineering; licensing; investment; financing; banking; insurance; exploitation agreement or concession; joint venture and other forms of industrial or business co-operation; carriage of goods or passengers by air, sea, rail or road” (Buhler & Webster, 2008). The modern view is that the arbitration process is to be guided by the law of the place in which it takes place. Therefore, in that sense every arbitration taking place within a State becomes a domestic arbitration in that State. However, many States draw a distinction between arbitrations that are considered to be domestic and those that are considered to be international. One of the consequences may be that the types of disputes that may be submitted to arbitration are different in an international arbitration (Bhagwati, 1978). Helping foreign arbitration ,for example, Spain, Arbitration Act 2003, provides that the courts will enforce interim orders of protection ordered by the arbitral tribunal even when the tribunal has its seat outside Spain. At the same time the parties are open to decide the place of arbitration, thereby choosing the applicable law of arbitration. The New York Convention takes cognizance of the fact that the law of arbitration could law different from that of the place of arbitration. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. in which the Supreme Court of the United States held that anti-trust claims could be submitted to arbitration when they arose in an international dispute, “even assuming that a contrary result would be forthcoming in a domestic context.” There are two primary methods of defining an international arbitration for the above-mentioned purposes. One is to consider the transaction; whether it involves a transaction that is either in a State other than the place of arbitration or that takes place in two or more States. The other considers the parties; whether they hail from different States. In the same vein, a juridical person would frequently be considered to be from the country under the law of which it came into existence. However, if the juridical person in question is a wholly or largely owned subsidiary of either a foreign natural person or a juridical person, the subsidiary could be considered to have the nationality of its parent. Investment Treaties to make a provision that a company incorporated in the host State that is a subsidiary of an investor from the other State party to the treaty shall be considered an entity of the host State and not, therefore, protected by the treaty’s provisions. However, that still leaves open the possibility that the investment in the stock of the subsidiary will be an investment covered by the treaty. No statement which is not specific can be made since the language of each and every treaty must be considered in isolation (Lew et al, 2003). In any place in which a considerable portion of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected is situated outside the State in which the parties have their places of business. Under this provision arbitration in State X between two parties from State Y in regard to a construction project situated in State Y would be an international arbitration. The parties have explicitly come to an agreement that the subject of the arbitration accord relates to more than a single country. While this last position for consideration of arbitration to be international may at first appear to be excessive, it must be born in mind that the modern doctrine is that parties are liberated to choose the situate of arbitration and that would effectively be a choice of the applicable arbitration law (Holtzmann & Neuhaus, 1995). The Model Law is very broad in its definition as to what makes arbitration international. However, the import in the Model Law is supposed be considered in its context. It is appropriate only if a State adopts the Model Law with a scope of application restricted to international commercial arbitration. In such a State characterizing an arbitral proceeding as international means that the national law based on the Model Law, rather than the national law for domestic arbitrations, would apply to it. It was anticipated that many States when adopting the Model Law would make it applicable to both domestic and international arbitrations, and that has turned out to be the case. A State that adopts the Model Law for all arbitrations would delete the definition of “international” since it would serve no purpose. Why parties choose international commercial arbitration. The reasons why parties choose international commercial arbitration to solve their disputes can be separated into reasons that are applicable to arbitration in general and those that are applicable specifically to international arbitrations. Arbitration allows the parties to make a choice of persons with specialized knowledge to adjudicate their dispute. Judges in courts are unlikely to acquire the same amount of proficiency in the technical -areas of the transactions that may be brought before them. This is the same for lawyers who represent the parties and who may later serve as arbitrators in similar transactions. In construction arbitration there may be relevant engineers or architects as well as attorneys serving as arbitrators (Bhagwati, 1978). Arbitrators are chosen for a specific dispute. Whether the arbitral tribunal is composed of a sole arbitrator or a panel of three, the tribunal remains with the arbitration from its beginning until its termination. The resulting continuity in the procedure permits the arbitrators to become thoroughly familiar with the matter in dispute. In many legal systems different aspects of the dispute will be handled by different judges who may never familiariarize themselves with the entire dispute. Procedure in arbitration is elastic and can be modified to the needs of the particular dispute. In agreement with the Model Law, most modern arbitration laws leave the details of the procedure to be followed to the agreement of the parties or to the arbitral tribunal, with the single requirement that the parties must be treated with equality and each party must be given a full opportunity of presenting his case (Holtzmann & Neuhaus, 1995).. Arbitration is not subject to appeal on the merits. What the parties lose in legal security, because errors made by the tribunal in the application of the law cannot be corrected, they gain in the reduced amount of time required to reach a final decision and reduced costs. Quicker decisions and lesser costs in comparison to legal action in the courts has been one of the established points of view in favor of arbitration. More recently, doubts have been raised as to whether arbitration is actually faster or less expensive in comparison to court cases. There is no empirical evidence that can prove the case one way or the other. There are too many variables to be considered (Buhler & Webster, 2008). Appeals within the institutions of arbitration do exist but are largely limited to certain trade association arbitration organizations. Since trade association arbitrations often involve standard form contracts or the trade association rules, the value of arbitral decisions as precedent are of great importance to the trade concerned. The most favorable situation for a party to a dispute in an international commercial transaction is to litigate in one’s own courts. Arbitration of such disputes reduces inequalities. While it is possible for the arbitration to take place in an arbitration organization located in the home country of one or the other party, it is possible for the arbitration to be administered by an arbitration body located in a different country. Furthermore, many arbitration organizations administer arbitrations throughout the world. There is a lot of competition among leading arbitration organizations to offer their services. There are concerns about the partiality of the courts when the State is a party to a dispute. It has many ways of influencing decisions in its own courts for foreigners to feel comfortable litigating against it there. One of the last reason for the present attractiveness of international commercial arbitration is the relative simplicity in enforcement of an award as opposed to the enforcement of a judgment of a foreign court. Unless there is a treaty between the State in which the judgment was issued and the State in which enforcement is sought, the requested court is under no international obligation to enforce the judgment (Lew et al,2003). References Buhler, M W & Webster, 2008. The Handbook of ICC Arbitration: Commentary, New York Holtzmann, H M & Neuhaus, J E , 1995. A Guide to the Unitary Model Law on Internation Arbitration. Safge , New York. Hunter, M & Redfern, A 2004 Law and Practice of International Commercial Arbitration 4th ed Sweet & Maxwell ,London. Stewart, E 2003 Arbitration: Commentary and Sources, First Law. Born,G.2009 International commercial arbitration, (Vol 1). Kluwer Law International, 2009 Lew,J.D.,Mistel L M & Kroll,S 2003 Comparative international commercial arbitration Kluwer Law International. Poudret ,J &Besson, S 2007 Comparative law of international arbitration Sweet & Maxwell Moses, M 2008 The principles and practice of international commercial arbitration Cambridge University Press, Cambridge. Porter, Michael (1998). On Competition. Harvard Business School Press, Cambridge Papanastassiou, Marina and Robert Pearce 1994 “Host-country determinants of the market strategies of US companies’ overseas subsidiaries”, Journal of the Economics of Business, 1,2, pp. 199-217 Furu, Patrick 2000 “Integration of technological competence in the MNC: the role of the subsidiary environment”, Management International Review, 40, 1, pp. 7-27. Bhagwati, J.N. 1978. Anatomy and Consequences of Exchange Control Regimes, Vol. 1, Studies in International Economic Relations, No.10 National Bureau of Economic Research ,New York. Balasubramanyam, V.N. 1985. “Foreign direct investment and the international transfer of technology”, in David Greenaway, ed., Current Issues in International Trade Macmillan, London pp. 159-181. Read More