What is Arbitration and is It Applicable to Your Contracts?

What is Arbitration and is It Applicable to Your Contracts?

| Jan 27, 2016 | International Business, U.S. Private and Emerging Business |

IntlArb

International Commercial Arbitration is the process used by parties conducting international business to resolve contractual disputes. Distrust and uncertainty in laws, fairness of the legal process, independence of judicial systems of other nations, procedural delays, and elevated costs of pursuing legal actions in foreign countries are frequent concerns among those involved in international business. Accordingly, such concerns have encouraged the use of arbitration to resolve international commercial disputes.

There are certain essential characteristics regarding arbitration agreements, such as the requirement of a written contract with a specific clause stating that the arbitration process will be used in the event that a legal dispute arises under the terms of the contract to resolve such disputes. Parties also agree on the individuals or institutions administering the arbitration process. Additionally, the decision rendered by arbitrators, known as arbitral reward, is final and binding.

There are two kinds of arbitration administration, ad-hoc and institutional. Arbitration ad-hoc is conducted by individuals chosen by the parties to the commercial contract and the rules followed during the arbitration process are specified by the parties and their attorneys. Institutional arbitration is conducted by a major institution and the rules followed during the process are independent and neutral. Perhaps the best known arbitration institution is the International Chamber of Commerce (ICC) International Court of Arbitration. It is an experienced and renowned arbitration institution whose primary goal is to make all the necessary efforts to overcome procedural obstacles and ensure fair awards. The International Court of Arbitration applies the International Chamber of Commerce Rules of Arbitration, which can only be administered by the ICC Court.

Private parties in international contracts use arbitration as the preferred method to resolve contractual disputes. This is also the favored method for many international instruments such as treaties, international agreements, and conventions that support and facilitate the use of arbitration procedures. The United Nations has the United Nations Commission on International Trade Law (UNCITRAL), which provides a set of arbitration rules widely used in commercial relationships that include private parties in international commercial contracts, investors’ disputes with states, and disputes between states. The arbitration rules cover all aspects of the arbitration process, and the UNCITRAL works constantly to improve the rules and procedures of the arbitration administration.

The growing popularity of arbitration in the international commercial arena is reflected in the increasing number of cases submitted for arbitration, both ad-hoc or institutional. The confidential character of the arbitration process makes this alternative very attractive. The parties involved understand, and in many cases require, that the arbitration process be confidential with respect to the legal determinations made by the arbitrators and laws governing the international commercial relationship.

Individuals and corporate entities engaged in international businesses should consider arbitration clauses in their contracts when making decisions on alternative methods to resolve contractual disputes. An experienced attorney practicing international contract law would provide the necessary information and legal advice regarding arbitration clauses and enforcement of such clauses.

Sources:

  1. Gloria Miccioli, E-RG Electronic Resource Guide. International Commercial Arbitration. March 2015. https://www.asil.org/sites/default/files/ERG_ARB.pdf
  2. ICC International Court of Arbitration http://www.iccwbo.org/about-icc/organization/dispute-resolution-services/icc-international-court-of-arbitration/ (Last visited 12/15/15)
  3. United Nations Conference on Trade and Development. Dispute Settlement. International Commerce Arbitration. 5.1 International Commercial Arbitration. (2005) http://unctad.org/en/docs/edmmisc232add38_en.pdf
  4. UNCITRAL International Commercial Arbitration and Conciliation. http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration.html (Last visited 12/15/15).
  5. UNCITRAL Arbitration Rules. http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/2010Arbitration_rules.html (Last visited 12/15/15).