Introductory International Commercial Arbitration Session: Part 1

INTERNATIONAL COMMERCIAL ARBITRATION

Forms of Alternative Dispute Resolution

 Negotiation (non-binding)
 Mediation / Conciliation (non-binding) - can result in settlement agreement and become binding.
 Mini-trials (non-binding) - a private, consensual process where the attorneys for each party make
a brief presentation of the case as if at a trial. The presentations are observed by a neutral advisor
and by representatives (usually high-level business executives) from each side who have
authority to settle the dispute.
 Adjudication (binding but not necessarily final) - involves the quick resolution of disputes
between parties where an adjudicator hears the outline of both sides of the argument and makes a
fast decision within 28 days. Often the dispute is decided on paper only.
 Arbitration (binding and final)

What is arbitration?

 Contractually agreed private dispute resolution process

 Parties to a contract agree in writing to give up their rights to go to the court of jurisdiction
 Contracting parties agree have their disputes heard and decided by a neutral party of their
choosing
 The parties have great autonomy to decide:
o The neutral party
o The procedural rules
o The timing
o The neutral’s decision is as an AWARD and is final and binding

 Judges – arbitrators (tribunal), not necessarily have to be lawyers

 Claimant and Respondent are represented by party representatives
 Arbitration can be domestic (between citizens or entities of one country) or international
(between citizens or entities of different countries)
Forms of arbitration
Domestic International
 Arbitration between nationals of a country  A specially established mechanism for
 Governed by the national arbitration law the final and binding determination of
 Subject matter is determined by the laws disputes, concerning a contractual or
of the country other relationship with an international
o Employment agreements in some element, by independent arbitrators, in
countries accordance with procedures, structures
o Patent law arbitrable in certain cases in and substantive legal or non-legal
the US standards chosen directly or indirectly by
 Domestic Awards are enforceable under the parties (Julian Lew, Loukas Mistelis,
the national law in the national courts Stefan Kroll, Comparative International
Commercial Arbitration (2003)).

Arbitration agreement
  Can be a clause in a contract or a stand-alone agreement and is the basis for jurisdiction of the
tribunal because the parties agree to give up their right to go to the court and have their disputed
resolved by arbitrators.
 Can be made at the beginning of a contractual relationship OR it can agree upon after a dispute
arises in a document called a compromis, but these are rare because once a dispute arises, the
parties agree on title.
 AA can be found in documents making up of the transaction.
 AA allow parties who are brought to court to ask the court to refer it to arbitration.
 Arbitral institutions require submission of an AA before accepting a dispute.

Examples of arbitration clauses

 UNICITRAL Arbitration Rules Model Clause

Any dispute, controversy or claim arising out of or relating to this contract, or the breach, termination or invalidity
thereof, shall be settled by arbitration in accordance with the UNCITRAL Arbitration Rules as at present in force.
The appointing authority shall be the Korean court under the Korean Arbitration Act and the number of arbitrators
shall be three. The place of arbitration shall be Seoul, and the language of the arbitral proceedings shall be
Korean.

 International Chamber of Commerce Model Clause

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. The place of arbitration shall be Rome and the proceedings shall be in the Italian language.

ICA Benefits

 Neutral forum (place of proceedings, e.g. another country, not adversarial one): without the actual
or perceived inherent national prejudice.
 Party autonomy:
a) languages of the parties’ choice, applicable laws of the parties’ choice;
b) procedures chosen and controlled by the parties with default provisions in the rules, flexible as
to rules to be applied, timeline, manner of document production.
 The arbitrator doesn’t need to be a lawyer, but can be a subject matter expert (engineer, IT
expert).
 Confidential: private system whereby parties can agree the extent to which the existence, parties
to, etc. of the arbitration are confidential, who attends any meetings or hearings.
 Final and binding determination in awards enforceable under the NY Convention in member
states – the courts may not review the substance of the award (domestic awards are expressly
excluded from the NYC).
ICA
Pros Cons
 Supposed to be speedy with no backlog of  May be time consuming
cases  Can be very expensive, paying the
 Theoretically les expensive, but not arbitrators, counsel, experts, and for
always the case discovery, as increasingly guerilla tactics
 Parties are to initially share the fees of the are been used to cause delay and expense
arbitration but they can be recouped by
 the winner (not always the case in
national courts)

Arbitral Institutions

 There’re about 100 institutions or centers that administer arbitrations

 Usually named in the AA
 Each center has a set of their own procedural rules which comply with the law of the jurisdictions
in which they sit
 How does it work?
o Claimant sends a request for arbitration to the center
o The center decides if there’s an arbitration agreement
o The center decides upon and collects fees, appoints the tribunal
o The center monitors the proceedings
o The center can provide facilities and services for meetings and hearings

Arbitral Institutions or ad hoc

 The institution will decide challenges to arbitrators

 The institution distributes the awards and pays the tribunal
OR
 Arbitrations can be ad hoc in which cases the parties must agree to and rearrange all of the
aspects of the arbitration proceedings
 Some believe that an ad hoc arbitration is less expensive and the parties have more control over
the process
 The parties must do all of the administrative tasks of running an arbitration: hire the arbitrators,
negotiate their pay, decide on the procedural rules, find meeting and hearing spaces, identify a
body or court to decide challenges to arbitrators etc.
 But after a dispute arises, the parties are unlikely to agree on much, so agreeing to all of the
aspects administration could be very time consuming

Legal Framework

States: national arbitration laws

 The United Nations Commission on International Trade (UNICITRAL) Model Law on
International Commercial Arbitration of 1985
https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/19-
09955_e_ebook.pdf
 States may adopt the Model Law with their own amendments or have different laws

International Conventions: international recognition and enforcement

 The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York
Convention”) provides mutual recognition of final arbitral awards in the courts of signatories
 Investor-State Arbitration: The Washington Convention on the Settlement of Investment disputes
between States and Nationals of other States (“ICSID”), sits in Washington, D.C. It has its own
set of rules and enforcement mechanism

ICA Requirements
  International:
(3) An arbitration is international if:
(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement,
their places of business in different States; or
(b) one of the following places is situated outside the State in which the parties have their places
of business:
(i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;
(ii) any place where a substantial part 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; or
(c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to
more than one country.
 Commercial:
The term “commercial” should be given a wide interpretation so as to cover matters arising from all
relationships of a commercial nature, whether contractual or not. Relationships of a commercial nature include, but
are not limited to, 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 cooperation; carriage of goods or passengers by
air, sea, rail or road.
 Arbitrable under the relevant substantive law

Arbitration Agreement Substance I

SUBSTANCE: EXACT WORDING MATTERS

 Clearly written (there is no model clause that works for every situation, just like there is no
standard contract that works for every transaction)
 Parties agree to submit to arbitration all or any differences which have arisen or may arise
between them in respect of a defined legal relationship
 The wording determines the jurisdiction of the tribunal: a) narrow “arising under the contract”; b)
broad “arising out or in connection with the present contract”
 Parties must agree to waive their rights to go to local court
Arbitration Agreement Substance II

 Whether the arbitration is institutional or ad hoc and which rules apply

 The law governing the contract and/or the law governing the AA
 The number of arbitrators, language of the arbitration
 Can include the methos of appointment of arbitrators and if ad hoc, an appointing authority
 Place of the arbitration is the key, also called the seat

Arbitration Agreement Substance III

 Can add that the tribunal will decide the dispute “ex aequo et bono” or as “amiable compositeur”
 International Bar Association (IBA) suggests also adding: 1) The authority of the arbitral tribunal
and of the courts with respect to provisional and conservatory measures; 2) Document
production; 3) Confidentiality; 4) Allocation of costs and fees; 5) Qualifications required of
arbitrators; 6) Time limits; 7) Finality of arbitration IBA Guidelines for Drafting International
Arbitration Clauses
 Parties may state that the award is final and binding but this aspect is generally set out in the laws
and rules
 Can waive any right of appeal, which is also generally set out in the laws and rules

Legal concept of separability

 The AA is a separate or severable agreement, even if it’s part of a contract and will survive the
termination of the contract or the assertion that the contract never came into being

UNICITRAL Model Law

Article 16. Competence of arbitral tribunal to rule on its jurisdiction

(1) The arbitral tribunal may rule on its own jurisdiction, including any objections with respect to the
existence or validity of the arbitration agreement. For that purpose, an arbitration clause which forms part of a
contract shall be treated as an agreement independent of the other terms of the contract. A decision by the
arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration
clause.
 (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission
of the statement of defence. A party is not precluded from raising such a plea by the fact that he has appointed,
or participated in the appointment of, an arbitrator. A plea that the arbitral tribunal is exceeding the scope of
its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised
during the arbitral proceedings. The arbitral tribunal may, in either case, admit a later plea if it considers the
delay justified.
(3) The arbitral tribunal may rule on a plea referred to in paragraph (2) of this article either as a
preliminary question or in an award on the merits. If the arbitral tribunal rules as a preliminary question that it
has jurisdiction, any party may request, within thirty days after having received notice of that ruling, the court
specified in article 6 to decide the matter, which decision shall be subject to no appeal; while such a request is
pending, the arbitral tribunal may continue the arbitral proceedings and make an award.

 This concept is very important because it gives the tribunal the power to determine whether it has
jurisdiction, competence to determine if it has competence.