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What is Arbitration?

Recently updated on 12 Apr 2023

2 Dec 2022 - International Arbitration - Min Read 8 min
What is Arbitration?

Arbitration is a form of private dispute resolution. It is an autonomous, transnational institution whose procedures are not subject to the constraints of national laws.

Arbitration, as a form of dispute resolution by an independent third party issuing a binding decision, has become increasingly important and popular due to the increase and globalization of cross-border investment and trade.

Currently, arbitration, is one of the main means of resolving complex international trade disputes as a result of the increasingly frequent trade relations between companies, investors and states.

The International Chamber of Commerce is one of the largest business organizations in the world that handles arbitrations in accordance with its rules.

Many companies choose International Chamber of Commerce arbitration to resolve disputes because the rules are simple, accessible, and used in a straightforward manner.

It is important to contact law firms, when deciding to rely on arbitration, to choose and indicate the arbitration clauses in advance, and not to be unprepared at the time of the dispute.

Types of Arbitration

  • Regular Arbitration is when the decision, the regular award, has the same effect as a judgment.
  • Irregular Arbitration is when the decision, the irregular award, has the nature and effect of a negotiation.
  • Arbitration according to Law occurs when the Arbitrators, to reach the decision, must apply only the rules of law governing the matter.
  • Arbitration according to Justice occurs when the Arbitrators may not adhere in all respects to the rule of law and refer to broader customs or principles of justice in a broader sense, according to the concrete case, its elements, and circumstances.
  • Administered Arbitration occurs when the parties, while choosing arbitration, request the supervision of a specialized institution (such as the High Arbitration Chamber of TAI might be).
  • Ad Hoc Arbitration: occurs when the proceedings are directly regulated by the parties in the arbitration agreement entered through an arbitration clause or through a compromise, or through a specific separate act, without reference to an Arbitration Institution.
  • Documentary Arbitration: occurs when the proceedings are conducted only through the examination of written evidence and documents. It guarantees the conclusion of the proceedings in a short time because the parties waive the personal hearing, witness evidence and oral hearing. If deemed necessary, the Arbitrator may still summon the parties.

The International Chamber of Commerce (ICC) arbitration procedure. 

First, one of the parties submits its application for arbitration to the Secretariat at an office specified in the internal rules.

The date on which the application is received by the Secretary is considered the start date of the arbitration.

The application shall contain detailed information about the claim, i.e., a description of the facts, the claim, the agreements in place, including the arbitration agreement, proposals regarding the place of arbitration, applicable laws and language of arbitration, and a receipt for payment of the registration fee.

The other party must, subsequently to the request, submit a response to the Secretariat within 30 days of receipt of the request, with its comments on the dispute and the arbitration procedure.

The Secretariat will forward the response and the attached documents to all other parties.

The claimant must submit a response to the demurrer within 30 days from the date of receipt communicated by the Secretariat.

The arbitral tribunal has jurisdiction to decide any matter regarding the existence, validity, or scope of the arbitration agreement.

It is highly important to state that, the arbitral tribunal “shall not cease to have jurisdiction even in the face of an allegation that the contract is nonexistent … provided that the arbitral tribunal confirms the validity of the arbitration agreement.”

This is referred to as “Kompetenz-kompetenz,” the principle in arbitration that the court has the right to rule on matters relating to its jurisdiction.

Each individual legal system takes different approaches to the Kompetenz-Kompetenz principle, and national arbitration legislation itself varies according to the versions of the KK principle adopted.

During arbitration one party may be added to another, either before the arbitrator is appointed or with the agreement of all parties.

Constitution of the arbitral tribunal: disputes are decided by a single arbitrator or a panel of three arbitrators.

If the parties have not agreed on the number of arbitrators, the Court shall appoint a sole arbitrator, unless the Court finds that the dispute requires the appointment of three arbitrators.

Regarding a sole arbitrator, the parties may agree and appoint one person; if they fail to agree, the Court will choose that person.

As for a panel of three arbitrators, both the claimant and the respondent will appoint an arbitrator.

If they do not indicate their preference, the Court will make the choice.

The third arbitrator, who serves as the presiding arbitrator, is appointed by the court unless other procedures have been agreed upon by the parties.

If a party needs urgent interim measures that cannot wait for the establishment of an arbitral tribunal, it may apply to the Secretariat for an emergency arbitrator.

If granted, any decision of the appointed emergency arbitrator will be an order.

In contrast, it will not bind the future arbitral tribunal, which may modify, interrupt or cancel the order.

Conduct of the arbitration

When the arbitration tribunal has been constituted, the secretary shall forward the case file to it. The place of arbitration shall be fixed by the court unless the parties agree otherwise.

This is without prejudice to the fact that the Tribunal may conduct hearings at any place deemed appropriate, after consultation with the parties and, unless otherwise agreed, by the latter.

If the parties have not previously indicated it, the court shall decide the language of the arbitration.

Arbitration Award / Charges

The arbitral tribunal must render its final award within six months, a period calculated from the date of the last signature by the arbitral tribunal or by the parties to the mandate.

This may be extended by the court following a reasoned request by the arbitral tribunal or on its own initiative if it is necessarily deemed.

A major change in the rules of the International Chamber of Commerce, dated 2017, has resulted in speeding up arbitration time, with a fees reduction.

This procedure is automatically applicable in cases where the amount in dispute does not exceed US$2 million, unless the parties agree to withdraw.

It can only be applied to arbitration agreements concluded after March 1, 2017.

A particular feature of the Expedited Procedure Rules is that the Court of the International Chamber of Commerce may appoint a sole arbitrator, even if the arbitration agreement provides otherwise.

This intrusion on the freedom of the contracting parties to arrange arbitration is obviously justified by issues of time and cost.

Source: “2017 ICC Arbitration and Mediation Rules.” Can be downloaded at https://iccwbo.org/publication/arbitration-rules-and-mediation-rules/

Advantages of arbitration

Resorting to arbitration has several advantages over other forms of dispute resolution:

  • Arbitral awards are more easily enforceable than judicial awards consequently to the 1958 New York Convention. This is a multilateral treaty to promote the recognition of arbitral awards rendered within more than 145 signatory states. It requires courts of contracting states to implement private agreements for arbitration and for the recognition and enforcement of awards in arbitration made in other contracting states.
  • Neutral forum. If the parties to a dispute are of different nationalities, one party may prefer not to submit to the jurisdiction of the other party’s domestic courts, due to fears of bias or otherwise. International arbitration can provide a neutral forum for dispute resolution. Arbitration consists of international rules enforced by a multinational tribunal in a mutually agreeable location.
  • Procedural flexibility, speed, and informality. Arbitration rules are streamlined, flexible and far less complex than most domestic rules of civil procedure.

This makes them more suitable for parties from different jurisdictions. Parties have greater autonomy and can help shape their own dispute resolution process, for example, by choosing the governing law, the place of arbitration, many aspects of the arbitration procedure, and, of course, the arbitrators they feel can ensure a fair equalization of their case.

As a result, arbitrations tend to be faster than resorting to domestic courts.

Speed is also ensured by limiting the ability of a party, to challenge an arbitral award, rendered by a country’s domestic courts.

  • Arbitrators with adequate experience. Parties may choose arbitrators with appropriate skills or experience.

Although some jurisdictions have excellent specialized tribunals (e.g., the Commercial Division of the New York Supreme Court and the English Court of Technology and Construction), in others parties risk having their dispute decided by a judge with little or no experience.

  • Procedural simplicity and flexibility. Arbitration rules are generally much simpler and more flexible than court rules; as a result, they are relatively easy for people of different nationalities to understand.

Proceedings are more easily focused on substantive issues, and parties are able to tailor the dispute resolution process according to their relationship.

Costs of Arbitration

It is not easy to determine whether arbitration is cheaper than litigation. Some possible factors to test this are:

  • The complexity of the dispute, the type of dispute itself, and the possible length of the proceedings;
  • The amount of the parties’ payments to arbitrators’ commissions, to any administrators, or for the selection of venues for hearings;
  • Absence of tax costs and freedom for the parties to agree to a process appropriate to their dispute.

Confidentiality and Privacy

Confidentiality refers to the non-disclosure of specific information in public, while privacy refers to the fact that third parties are not allowed to participate in arbitration conferences and hearings.

There is no uniformity in the application of these principles among countries and international arbitration institutions, but parties are free to decide the extent to which these principles apply and to design their arbitration clause to ensure that their interests are protected.

Disadvantages of Arbitration

Arbitration is not suitable for every dispute; before resorting to it, one should consider whether it might be the right solution for one’s situation.

It should be kept in mind that it is not a precedent-setting system; in fact, for a reason of confidentiality, arbitration awards are not published.

Arbitrators’ decisions, from a specialization perspective, may be less intellectually sound than the opinion of an equivalent specialized judge in a developed court system, such as the United Kingdom.

Depending on the perspective in which one looks at it, a downside might be the difficulty of appealing against an arbitral tribunal (other than the equivalent one in the Supreme Court).

Of course, if you look at it from the perspective of timing, it could instead be a big plus.

In fact, there is a progressive use of arbitration, which shows that it is a useful tool in a globalized world where time, cost, and efficiency are essential in resolving commercial disputes.

If you are considering arbitration as an alternative means of resolving your dispute, our International Commercial Arbitration Department will be able to guide you, based on your business needs.

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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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