What is international arbitration?
International arbitration is a process by which parties get their disputes resolved by an impartial tribunal. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (‘New York Convention’) prevails over the international arbitration proceedings. The arbitrator derives his authority from the agreement between the parties while a judge is appointed by the State. By the end of the process, the arbitrator makes a binding award. Such an award is enforceable in other countries as well. Since arbitration is based on the agreement so parties have the autonomy to choose the tribunal satisfying their needs. the parties can specify the number and qualifications of the arbitrator. Owing to the flexibility given to the procedure, arbitration is the most preferred method nowadays. Thus, resolving disputes of an international character is done via international arbitration.
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Features of international arbitration
The process of arbitration is flexibile. The parties can tailor the procedure to suit their specific needs.
The process opted in arbitration is purely confidential. If not, the parties can make the proceedings confidential in the agreement.
- Final and binding
International arbitral awards are final and binding. Other resolution methods like concilaition and mediation are mutual but will not result in a resolution unless both parties agree. On the other hand arbitral awards are not subject to appeal.
The New York Convention provides a simple procedure for enforcing international arbitral awards. The Convention is in force in approximately 145 countries. In international litigation parties have to settle the matter in national courts of one of the parties. If the loding party has no assets in that country, the winning party will need to enforce the judgment in other country. This may be subject to enforcement provisions of that country. Thus, the process becomes time-consuming and cumbersome. While comparing the two, arbitration is much more effective.
Neutrality of the forum is the pre requisite of an international arbitration. The reference to neutrality in the context of international disputes concerns the nationality of the decision maker. In international litigation the judge has the same nationality as one of the parties. Whereas in international arbitration such situation will never arise. In international arbitration sole arbitrator would be of a different nationality. Where the tribunal consists of three arbitrators the chairman of the tribunal will be a person from a third country. Thus, arbitration allows for a neutral, agreed or known procedure and a decision of a nationally neutral arbitrator.
The process of arbitration is cost-efficient in comparision to litigation. It provides great cost-effectivenss for smaller disputes.
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When should parties opt for international arbitration?
Parties should opt for international arbitration keeping into consideration all international transactions. The features of arbitration primarily form its advantages. The main advantages are neutrality, confidentiality, procedural flexibility, and the international enforceability of awards. However, arbitration is not suitable for all transactions and disputes. Still, there are some disputes that can be resolved by the intervention of the national courts only. For instance, disputes involving public laws, criminal law, and intellectual property. Also, disputes involving multiple parties can raise jurisdictional problems and may not be suitable for arbitration.
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Essential Clauses in the Arbitration Agreement
1. Arbitration agreement must be in writing
The arbitration clause must be in writing to be enforceable. Article II(1) of the New York Convention recognizes written arbitration agreements. The arbitration clause must be precise. It must make it clear that if a dispute arises it must be arbitrated. The arbitration clause must not be optional in nature. If the clause is optional in nature the other party can try to avoid arbitration when a dispute arises. Therefore, drafting an arbitration clause is of utmost importance.
2. Seat of arbitration
The choice of arbitral seat determines the country whose courts will have supervisory jurisdiction over the arbitration. The competent court can give a ruling based on:
- preliminary injunctions in aid of the arbitration
- any challenges to the arbitral award
3. Applicable law
The agreement should specify the applicable law during arbitration. The parties should specify the substantive law that shall apply to the rights and obligations arising under the contract.
4. Language of the Proceedings
The parties should specify the working language of the arbitral proceedings.
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Steps involved in arbitral process
The steps involved in the arbitral process have been provided below.
- Claimant files request for or notice of arbitration
- Respondent files response to the request or notice
- Appointment of the arbitral tribunal
- Establishment of a procedural timetable
- Jurisdictional objections
- Advance on costs
- Exchange of witness statement / expert reports
- Exchange of pre-hearing submission
- Post hearing submissions
- Conclusion of proceedings
- Enforcement of award
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Model Arbitration Clauses
Model Arbitration clauses have been drafted by different arbitration associations. These associations include the London Court of International Arbitration (LCIA), Stockholm Chamber of Commerce (SCC), Singapore International Arbitration Centre (SIAC), Hong Kong International Arbitration Centre (HKIAC), and International Institute for Conflict Prevention & Resolution (CPR).
For instance, a draft prepared by the International Chamber of Commerce stated “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.”
Another model was prepared by the International Centre for Dispute Resolution (ICDR) of the American Arbitration Association (AAA). It stated, “any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be determined by arbitration administered by the International Centre for Dispute Resolution in accordance with its International Arbitration Rules.” In addition, these drafts can be referred to while drafting an agreement.