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The Compromise in International Commercial Arbitration

3 Nov 2023 - International Arbitration - Min Read 4 min
The Compromise in International Commercial Arbitration

The compromise is an agreement that governs international commercial arbitration.

International commercial arbitration is an effective out of court means to address and resolve commercial disputes between legal entities from different states.

It delegates the decision to arbitrators chosen by the parties involved.

Widely used by businesses operating globally, it is particularly suitable for resolving disputes with international aspects due to its great flexibility and the existence of international conventions, which allow the recognition of the arbitral award (resulting from it) in most parts of the world.

Arbitration Without an Arbitration Clause

Arbitration can be resorted to even if there is no arbitration clause.

In that case, once the dispute arises, the parties can enter into a contract, the so-called compromise, ratifying their intention to resolve the dispute through an arbitration agreement.

This document is of fundamental importance, as it establishes the basis for the arbitration procedure itself and has the advantage of being drafted with full knowledge of the case, as it addresses an already existing issue, the nature and implications of which are well understood.

In the past, the absence of an arbitration clause might have led parties to opt for a court dispute.

However, depending on the type of dispute, this approach would result in a waste of time and money. If the out-of-court resolution clause was not deemed necessary at the time of the contract, there is always the opportunity to decide to submit the dispute to an arbitrator or a panel of arbitrators with proven expertise in the matter.

All of this would not be possible without an agreement between the parties, which represents a good starting point at least to reach a convenient solution for everyone.

Difference Between Domestic Arbitration and International Arbitration

Arbitration agreements for domestic and international arbitration are substantially different because the distinction between a compromise and an arbitration clause pertains more to Italy than the rest of the world where they can be applied.

Internationally, they fall under the term ‘arbitration agreement,’ representing the arbitration agreement in general.

International commercial arbitration remains a preferred procedure for resolving disputes between private entities based in different states, and this nomenclatural difference does not change the substance: if there is an arbitration agreement, whether preceding the dispute or stipulated subsequently, a universally valid arbitration agreement can be reached.

It’s worth knowing that the arbitration agreement can be governed by a different law than the one applicable to the main contract it pertains to.

The Compromise: Definition and Purpose

As seen, the compromise in international commercial arbitration is an agreement where the parties involved in a dispute commit to resolving the dispute through an international commercial arbitration instead of going through the courts.

This agreement can be considered as an autonomous contract, separate from any other pre-existing commercial contracts between the parties.

It is essential because it provides a legal basis for international commercial arbitration, formalizing:

  • The decision to resort to arbitration rather than a court;
  • The appointment of arbitrators and their number;
  • The law applicable to the dispute;
  • The seat of arbitration and the language used in the proceedings;
  • The deadlines for the final arbitral decision;
  • The law applicable to the arbitration.

Advantages of the Compromise in International Commercial Arbitration

Drafting a compromise for international commercial arbitration offers undeniable advantages to companies involved in cross-border disputes, summarized as follows:

  1. Flexibility: Involved parties can tailor the arbitration to their specific needs, including the choice of seat and applicable law.
  2. Confidentiality: Unlike judicial proceedings, arbitration is often confidential, meaning sensitive information can remain out of the public sphere.
  3. Efficiency: Arbitration tends to be faster than court proceedings, allowing companies to resolve disputes more quickly.
  4. Specialization: Parties can select arbitrators with specific expertise in their industry, ensuring a better understanding of the issues at stake.

Procedures for Initiating the Compromise

The process to reach a compromise follows the following outline:

  1. Initial Negotiation
  2. Drafting the Compromise

Initial Negotiation

The process begins with initial negotiations between the parties involved. During this phase, the parties agree on the terms of the compromise, including the selection of arbitrators, the seat of arbitration, and the applicable law.

Drafting the Compromise

Once the parties have reached an agreement on the structure of the arbitration, the actual compromise is drafted.

The document must be accurate and comprehensive, as it will form the basis for the entire arbitration process. Negotiation and drafting of the compromise are fundamental moments to ensure that the arbitration proceeds smoothly and meets the expectations of all parties involved. Therefore, they should be managed by attorneys well-versed in the field (Check: The role of an International Commercial Arbitration Lawyer?).

The compromise, as well as the arbitration clause, are two effective tools that can help prevent and resolve disputes quickly, effectively, and confidentially.

Attorneys from the International Commercial Arbitration Department of Boccadutri Law Firm will answer any questions on the subject.

For further insights on the topic:

Arbitration According to Law Vs Arbitration According to Justice

Regular and Irregular Arbitration: Approach and Differences

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Calogero Boccadutri

Calogero Boccadutri is the Managing Partner of Boccadutri International Law Firm. He has trial experience in Forex, Personal Injury and Administrative litigation.

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