Image source: https://blog.ipleaders.in/arbitration-reference-position-india/

This article has been written by Akshay Shivshankar Petkar pursuing the Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.

Introduction

The world is a huge marketplace and lots of companies and businesses in the world want to take advantage of this opportunity. But what happens when any disputes arise between the two international commercial businesses? Now here,  international commercial arbitration comes into the picture. It provides the opportunity for businesses of different countries to settle the dispute outside the court. The mechanism aims to reduce the time in settling disputes between the two commercial parties. Investment arbitration is very different from International Commercial arbitration. A procedural mechanism that allows an investor from one country to bring arbitral proceedings against the country in which it has invested. It is also known as Investor-State Dispute Settlement. The consent of host states to investment arbitration and the various international treaties like Bilateral Investment Treaties(BIT/s), as well as certain international trade treaties, play a very crucial role in arbitration.

International commercial arbitration

International commercial arbitration is the method that provides an alternate system of resolving disputes arising under international contracts. One of the best things in commercial arbitration is that it is more accessible and flexible for foreign investors. Generally, there are two type of arbitration: 

1) Institutional arbitration (governed by Institutional rule).

2) Ad-hoc arbitration (which is not governed by institutional rule and the parties have to set up their own rule). 

International commercial arbitration can be institutional or ad-hoc.  For international arbitration there are certain institutions that provide procedures: London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC), and the Singapore International Arbitration Centre (SIAC). It is very important for the parties that the disputes arising out of the legal relationship, and solution for the same must be included in the commercial contract and signed by the parties.

In India, the governing law in relation to the arbitration is Arbitration and Conciliation Act, 1996 and is based on UNCITRAL (The United Nations Commission on International Trade Law). The 1996 act is broadly divided into two-parts, Part I talks about Domestic Arbitration and applies to all arbitration that takes place in India, and Part II talks about International Commercial Arbitration. The definition for international commercial arbitration is given in Section 2(1)(f) of the act. 

The main objectives of international commercial arbitration are to provide an easy and accessible dispute resolution mechanism and to prevent them from the time-consuming court litigation procedure. 

International investment arbitration

In international investment arbitration, the role of a foreign state and the host state seems to be important and needs to be understood. The investor country (“home state”) invests in another country (“host state”) and is also known as the investor-state dispute settlement (ISDS) Investor court system. It is the system through which the investor can sue a host state for the protection of investment. ISDS is an instrument of Public International law and contains Bilateral Investment Treaty (BIT/s) under which the state has the right to protect investors from the contracting state. 

Bilateral Investment Treaties is the establishment of an agreement that includes the terms and conditions for private investment by nationals and for the companies of one state in another state. BIT/s also ensure certain rights and protection to investors from the other contracting state. The protection according to international law where both the contracting States agree upon also includes Fair and Equitable Treatment, National Treatment, Most Favoured Nation (MFN). So, any aspersion to the investor’s right in accordance with protection has a sufficient cause to initiate investment arbitration against the host state.  

Industrial arbitration

Industrial arbitration is the mechanism that provides for dispute resolution between the industrial employer and Union, union member, or union representative to prevent legal action from taking place and to cut off the cost arising out of it in the best possible way. Taking the issue to the court is often a time-consuming, lengthy, and costly process. Taking the issue to court and breaking down negotiations may cause harm to the management and labor in this case, industrial arbitration can play a certain key role and provide a better option in order to resolve the dispute. Industrial dispute mechanism has a capacity to reduce the chances of a strike and legal action for the benefit of both management and employee and it is often beneficial for the employee than the management because it allows them more bargaining power and prevents mass layoffs in a dispute.

“According to the Industrial Dispute Act,1947, Section 2(k), industrial disputes mean any dispute or difference between employers and employee or between workman or employer or between workman or workmen, which is connected with the employment or non-employment or with the condition of labor, or of any person”. 

Under the industrial dispute act there may two types of arbitration: 

  • Voluntary Arbitration

It is important that both the parties to the dispute mutually agree to refer the matter to a third party. According to Section 10-A of the Industrial Dispute Act,1947 if failure in the process of conciliation, then it is advised that parties opt for voluntary arbitration.

  • Compulsory Arbitration

If there is such a situation where a strike seriously affects the public interest between the parties to the dispute, then there are most probable chances to bring compulsory arbitration without the willingness of parties.

Difference between international commercial arbitration and investment arbitration;

Sr.

No.

Key points

International Commercial Arbitration

Investment Arbitration

 

Relevant Treaty 

New York convention: for recognition and enforcement of the foreign award.

The treaties provide a basic framework: Public International Law. 

2.

Role of National law

In ICA “Seat” governs the arbitration and supervisory jurisdiction stands with the National Courts of the seat.

National law is relevant only if the arbitration is not governed by the treaties such as ICSID, NAFTA, etc.

3. 

Jurisdiction

In ICA the disputes over jurisdiction are mostly related to the arbitration clause, consent, and signatories.

The jurisdictional disputes in investment arbitration are very vast. The consent in it arises under the treaty and the interpretation laid down for this is the Vienna convention.

4. 

Confidentiality

The principle of Confidentiality is the most important rule in the ICA.

In investment arbitration, the convention and BITs are silent about confidentiality.

5. 

Cooling off Period (see below the chart)

No such provisions are there in ICA.

It is provided in the agreement. (Mostly arbitration agreement provides 6 months)

6. 

Duration 

The award shall be made within the period of 12 months.

The average investment arbitration takes slightly over three years

7. 

Selection of arbitrators

In ICA parties may choose for the arbitral tribunal to be constituted of a sole arbitrator or three arbitrators

In investment arbitration, ICSID provides for a panel of arbitrators from which the parties may choose arbitrators of their choice.

8. 

Cost of arbitration

The cost for ICA depends upon the place of arbitration.

Investment arbitration has a very high cost as it includes individual cost, institutional cost, tribunal costs, and council cost.

 

  • Cooling off period: it is the period wherein the host state and investor-state are engaged in the negotiations to resolve the dispute. Generally, the cooling-off period starts from serving the notice of intent.

What are the different challenges faced by them?

Arbitration is one of the most suitable alternatives to court proceedings and that is why it is difficult to imagine a world without international arbitration. Every individual has the right to contract, the right to form a relationship with others, and recognition for the same has been considered as fundamental to a healthy society. The following are the challenges to the legitimacy of the arbitration:

  • Decision maker 

The one of main advantages and features/characteristics of international arbitration is that it provides rights to parties to choose the arbitrator of their choice but this feature is also criticized on the ground of the validity of an award issued by a privately appointed arbitrator. It is pertinent that whether the legitimacy of the arbitrator is in question but the parties appointed arbitrator has an important role to consider the evidence and arguments presented by the parties.

  • Conduct of council

In international arbitration, the representative councils are often from different countries and that varies from their diversity of background and legal culture and these cannot always guide by the same values and ethical principles. This lack of a binding uniform code and the global authority to enforce it make the regulation of council conduct raise challenges before the international arbitration. 

However, the guidelines invoked in 2013 by the international bar association and published on the party representation in international arbitration resulted in the LCIA making the relevant arbitration rules. This Included mandatory general guidelines for the party’s legal representative and gave a clear view of the ethical obligations of advocates in international arbitration.

  • The efficiency of proceedings

International arbitration is a very costly and slow process and this may be one of the backdrops of this mechanism, the survey in 2015 done by Queen Marry/white & case indicates the cost (68%), lack of insight into arbitrator’s efficiency (39%), and lack of speed (36%) were among the worst characteristics of international arbitration. However, one of the options suggested to increase the efficiency was the use of bifurcation and motion of summary judgment and to establish clear ground rules at the outset of the proceedings.

How do you think we can overcome the challenges?

  • It is necessary to adopt and enforce strong conflict rules, procedure control on the appointments of arbitrators so that the parties do not abuse the right to nominate arbitrators.
  • To increase the legitimacy and impartiality there must have been a rule of ethics to ensure that the act of arbitrators is diligent.
  • This can be also suggested that if the parties agreed to on the president of the tribunal first and then nominate the other two arbitrators this would be also helpful to increase the legitimacy of the decision-maker.
  • To avoid the unethical conduct of the council it is pertinent to introduce rules or guidelines to control the unethical conduct of the council.  

Conclusion

International arbitration is the ultimate option to resolve cross-border disputes speedily. However, there is also criticism faced by international arbitration from time to time, and this criticism is taken as a challenge to improve international arbitration potentially. And these changes make international arbitration successful in this particular area.

References

  1. https://www.international-arbitration-attorney.com/investment-arbitration/
  2. https://corporate.cyrilamarchandblogs.com/2019/05/international-investment-arbitrations-international-commercial-arbitrations-guide-differences/
  3. http://arbitrationblog.kluwerarbitration.com/2019/04/04/can-investment-arbitral-awards-be-enforced-in-india/
  4. https://viamediationcentre.org/readnews/NDQ5/Settlement-of-Industrial-dispute-through-Arbitration-and-Conciliation
  5. http://arbitrationblog.kluwerarbitration.com/2017/09/19/challenges-legitimacy-international-arbitration-report-29th-annual-ita-workshop/.

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