What is Arbitration?
Arbitration is a form of private dispute resolution by an independent third party, who issues a binding decision. As Roy Goode describes, arbitration is an autonomous, a national institution, the procedures of which are not subject to the constraints of national laws.
This form of dispute resolution has become increasingly important due to the expansion and globalisation of cross-border investment and trade.
This has led to the creation of complex commercial relationships between businesses, investors and states. Today, arbitration is one of the primary means of resolving complex, transnational commercial disputes.
The International Chamber of Commerce is one of the largest business organisations in the world, and it administers arbitrations in accordance with its Rules.
Many businesses choose ICC arbitration to resolve disputes because the rules are straightforward, accessible and widely used.
A standard ICC arbitration clause, which may be inserted into contracts, will be drafted in the following way: ‘All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said rules.’
Structure of Arbitration
- Structure of Arbitration
- Pre-Arbitration procedure
- Advantages of Choosing Arbitration
- Drawbacks of Arbitration
Proceedings under ICC Rules
Commencing the Arbitration
Firstly, a party submits its Request for Arbitration to the Secretariat at an office specified in the Internal Rules.
The date on which the Request is received by the Secretary is deemed to be the date of commencement of the arbitration.
The Request contains detailed information of the party’s claim, such as a statement of the facts, the relief sought, the agreements in question including the arbitration agreement, proposals as to the place of the arbitration, the applicable laws and the language of the arbitration, as well as payment of the filing fee.
The Respondent must then submit an Answer to the Secretariat within 30 days from the receipt of the Request, with its own observations on the substantive dispute and the procedure of the arbitration. The Secretariat will then communicate the Answer and annexed documents to all other parties.
The Claimant must submit a reply to any counterclaim within 30 days from the date of receipt of the counterclaims communicated by the Secretariat.
The arbitral tribunal has the jurisdiction to decide any matters concerning the existence, validity or scope of the arbitration agreement.
Importantly, the arbitral tribunal will not ‘cease to have jurisdiction by reason of any allegation that the contract is non-existent…provided that the arbitral tribunal upholds the validity of the arbitration agreement.’ This is referred to as the ‘competence-competence’ principle in arbitration- the tribunal has the right to decide questions relating to its own jurisdiction.
A party may join an additional party to the arbitration. This must be done before the appointment of the arbitrator, or otherwise with the agreement of all the parties.
Constitution of the Arbitral tribunal
Disputes shall be decided either by a sole arbitrator or a panel of three arbitrators. Where the parties have not agreed on the number of arbitrators, the Court will appoint a sole arbitrator except where the Court takes the view that the dispute warrants appointing three arbitrators.
In this case, both the claimant and the respondent will nominate an arbitrator.
In respect of a Sole Arbitrator, the parties may nominate this person by agreement. Failing this, the Court will do so. With regards to a panel of three arbitrators, each party nominates one arbitrator.
Failing this, the Court does so. The third arbitrator, who acts as president of the tribunal, is appointed by the Court unless another procedure has been agreed by the parties.
If a party needs urgent interim measures that cannot await the constitution of an arbitral tribunal, it may make an application for an emergency arbitrator to the Secretariat.
If granted, the emergency arbitrator’s decision will take the form of an order. It will not bind the future arbitral tribunal, who may modify, terminate or annul the order.
Conduct of the Arbitration
When the arbitral tribunal has been constituted, the Secretariat transmits the file to it. The place of the arbitration is fixed by the Court unless otherwise agreed by the parties.
This is without prejudice to the fact that the tribunal may conduct hearings at any location it considers appropriate, after consultation with the parties and unless otherwise agreed by the latter.
Where the parties have not previously agreed, the tribunal shall decide the language of the arbitration, considering all the circumstances of the case, including the language of the contract.
The arbitral tribunal must render its final award within six months, calculated from the date of the last signature by the arbitral tribunal or by the parties of the Terms of Reference.
This may be extended by the Court following a reasoned request from the arbitral tribunal or on its own initiative, should it deem necessary.
One important amendment of the 2017 ICC Rules is that they now provide for an expedited procedure to streamline an arbitration, with a reduced scale of fees.
This procedure is automatically applicable in cases where the amount in dispute does not exceed US$ 2 million, unless the parties decide to opt out.
It will apply only to arbitration agreements concluded after 1 March 2017. One particular feature of the Expedited Procedure Rules is that the ICC Court may appoint a sole arbitrator, even if the arbitration agreement provides otherwise.
This inroad into the freedom of the contracting parties to structure the arbitration is arguably justified based on concerns of time and cost.
Source: 2017 ICC Arbitration and Mediation Rules. These can be downloaded at https://iccwbo.org/publication/arbitration-rules-and-mediation-rules/
Advantages of Choosing Arbitration
Arbitral awards are more widely and readily enforceable than court judgments as a result of the 1958 New York Convention. This is a multilateral treaty for the enforcement of arbitral awards to which more than 145 states are party.
It requires courts of contracting states to give effect to private agreements to arbitrate and to recognise and enforce arbitration awards made in other contracting states.
Where the parties to a dispute are of different nationalities, one party may prefer not to submit to the jurisdiction of another party’s national courts due to fear of bias or otherwise.
International arbitration can provide a neutral forum for dispute resolution.
The arbitration consists of international rules being applied by a multinational tribunal in a mutually acceptable venue.
Procedural flexibility, Speed and Informality
Arbitration rules are streamlined, flexible and far less complex than most national rules of civil procedure, making them better suited to parties from different jurisdictions. Parties are given far greater autonomy.
The parties to an arbitration can shape their dispute resolution process by, for example, selecting the governing law, the place of arbitration, many aspects of the arbitral procedure and, of course, arbitrators whom they believe will ensure a fair hearing of their case.
As a result, arbitrations tend to be quicker than resorting to national courts.
Arbitrators with appropriate experience
Parties can select arbitrators with relevant expertise or experience.
Although some jurisdictions have very good specialist courts (e.g. the Commercial Division of the New York Supreme Court and the English Technology and Construction Court), in others, parties run the risk of their dispute being decided by a judge with little or no relevant experience
Procedural simplicity and flexibility
Arbitration rules are generally far simpler and more flexible than court rules.
As a result, they are relatively easy to understand for parties of different nationalities, the proceedings are more easily focused on the substantive issues and the parties are better able to adapt the dispute resolution process to suit their relationship and the nature of their disputes.
There is no simple answer as to whether arbitration is cheaper than litigation. Some controlling factors are:
- The complexity of the dispute, format and length of the proceedings
- Parties’ payments for the fees of arbitrators, any administering institution and the hiring of venues for hearings
- On the other hand, there are no court fees and parties are free to agree to a process tailor-made to their dispute
Confidentiality and Privacy
Confidentiality refers to non-disclosure of specific information in public, while privacy refers to the fact that third parties are not allowed to attend arbitral conferences and hearings.
Although the two may be used interchangeably, they are not the same. There is no uniformity of application of these principles amongst countries and international arbitral institutions, but parties are free to decide the degree to which these principles apply, and to draft their arbitration clause accordingly to ensure their interests are protected.
The ability of a party to challenge an arbitral award in a country’s national courts is limited. This encourages the swift resolution of disputes.
Drawbacks of Arbitration
There are, of course, some drawbacks to arbitration.
Lack of precedent
There is no system of precedent in international arbitration and awards are not published. Some commentators have raised questions to the effect that this lack of transparency is detrimental.
Additionally, the decisions of arbitrators may be less intellectually robust than the equivalent specialist judge in a developed national court system, such as the UK.
Rights of appeal against an arbitration award are more limited than its High Court equivalent. Owing to this, some parties may feel resentment at the prospect of a harsh or unfair ruling which it may have no real opportunity to challenge.
The recent growth in arbitration demonstrates that it is a useful tool in a globalised world, where time, cost and efficiency are essential to resolving commercial disputes. However, there are certain drawbacks, which means that it may not be suitable for every dispute.
If you are considering including arbitration as an alternative means of resolving your dispute, Boccadutri International Law Firm is able to advise you on your business needs.