This article is written by Suryansh Singh, a 3rd-year law student from Indore Institute of law. This article mainly discusses the role of domestic courts in influencing the International Commercial Arbitration process.
As it can be seen that the colossal and radical boom in international trade and investment sector around the globe has resulted in the staggering growth of our economy. Though such tremendous growth in international trade and investment has tended to propel our economy, it most certainly gives rise to various contractual and trade disputes. Globalization has become one of the reasons which have triggered various countries of the world to take appropriate measures of dispute resolution.
One such mechanism is the International Commercial Arbitration which tends to resolve investment or trade disputes. Generally, people are in favor of the resolution through arbitration instead of getting it done by litigation, which is considered to be more time consuming and expensive.
However, judicial independence and intervention is also required in order to ensure fairness in the functioning of the arbitral process and for the protection of the interest of the public. The court’s supervision is required so that the arbitral system should not be damaged. Both the arbitral system and the judicial control should go hand in hand and the balance is to be maintained.
In general, the term ‘Arbitration’ is used comprehensively in order to resolve disputes between the parties without the intervention of courts. It is a mechanism that is used as an alternative dispute resolution by the parties through there in order to get the dispute resolved. In the case of arbitration, the matter is presented before one or more arbitrators acting as a competent authority and the decision of the arbitrators is binding.
In India, the concept of Arbitration has been embedded under ‘The Arbitration and Conciliation Act, 1996’. Section 2(1)(a) of the Act states that the term arbitration means any arbitration whether or not administered by a permanent arbitral institution.
International Commercial Arbitration
International Commercial Arbitration is the mechanism used by parties to resolve any contractual or trade disputes arising out of international trade or investment. The process of this mechanism is free from the proceedings of the court. The mechanism of the International Commercial Arbitration is opted by parties in order to avoid the various technicalities and long procedures of the court.
This form of dispute resolution aims to resolve the matter economically or cost-efficiently and avoids unnecessary delays in its proceedings. The consent of the parties plays an important role in resolving the dispute arising on the matter referred to a competent authority who produces an award which can be enforced by the domestic courts.
Under section 2 (1)(f) of the Arbitration and Conciliation Act, 1996 the term International Commercial Arbitration means a mechanism of resolving disputes which arises out of legal or business relationships, whether possessing contractual character or not, considered as commercial, in the eyes of law in force in India and where one of the parties to the agreement who is not a resident of India, any corporate body situated outside India, any association whose central authority or headquarter is situated in any other country or the government of any other country.
This process of dispute resolution tends to resolve any matter arising between the parties residing in different territories. They opt for this method to avoid the long procedure of the court and can get the matter resolved on their terms. This procedure is considered to be cost-efficient and less time-consuming.
This process of the arbitration includes all the terms and conditions that were already specified in the arbitration agreement and the award is produced on the basis of this arbitration agreement.
Indian perspective regarding international commercial arbitration
As stated above, the mechanism of the International Commercial Arbitration is the process which deals with the contractual or trade dispute where the parties residing in different countries. This concept of International Commercial Arbitration is followed by Indian law. When one of the parties involved in the matter is residing in a different country or is of foreign nationals and the arbitration seat is of India then in such case, the matter falls under the ambit of International Commercial Arbitration (Part I of the Arbitration and Conciliation Act). However, the matter falls under part II of the arbitration and conciliation Act if the seat is outside India.
What are the types of arbitration?
There are two types of International Commercial Arbitration popularly known as Ad Hoc and Institutional. Parties involved in the dispute have the liberty to choose either of the methods. Both Ad hoc and institutional commercial arbitration tend to resolve disputes on the basis of facts and circumstances of the matter with certain advantages and disadvantages to it.
Ad hoc arbitration
This type of dispute resolution is used by the parties involved in the matter free from arbitral assistance. The parties are obligated to specify all the aspects of this arbitration, for example, the procedure of conducting this arbitration, the number of arbitrators appointed for this matter, etc.
Options available to parties who seek this type mechanism of arbitration in which the parties proceed without the rules drawn for them contains
- Alteration in rules drawn by any arbitral institution.
- Including or incorporating various procedures enacted by statute.
- Including rules drawn with the very purpose of dealing with the matters (international or national disputes) of ad hoc arbitration.
This type of dispute resolving mechanism is used by the parties involved in the matter in which there is an institution specialized with a character which aids the arbitration process as drawn and provided by such institution. It is essential to understand that it is the arbitrators that possess the power to arbitrate and not the institution.
The procedural structure regarding the arbitration process has been enshrined under the institutional rules. These institutional rules also lay down certain important factors which authorizes the arbitral institution to be the appointing authority in case if the parties involved in the matter can’t agree, aid or help arbitrators whenever required, chalk out the timetable for the proceedings of the matter and decide the place of arbitration, sets or decides the fees to be charged by the parties involved in the matter by the arbitrators and in certain conditions review the arbitral award in order to avoid the unenforceability.
These institutions provide assistance to the arbitrators chosen by the parties involved in the matter.
What are the basic features of institutional arbitration?
Following are the essential features of an institutional arbitration
The agreement to arbitrate
The institutional arbitration is formed on the consent of the parties involved in the matter. There exist two forms of agreements regarding arbitration.
(1) Arbitration agreement enshrined with the arbitration clause referring the future disputes to arbitration.
(2) A submission agreement formed after the dispute has arisen.
Generally, without a legally sanctioned arbitration agreement, the award may not be enforced under the New York convention.
The choice of the arbitrators
The parties involved in the matter are conferred with the power and are at full liberty to appoint their own arbitrators who may possess extraordinary skills and knowledge regarding the subject matter of the dispute.
The decisions of the arbitral tribunal
The decision of the arbitral tribunal is in the form of an award which is final and binding on the parties involved in the matter. These arbitral awards are not subjected to any formal appeal, though the decision of the arbitral tribunal can be questioned.
The enforcement of the award
Awards issued by the arbitral tribunal courts are enforceable and binding on the parties involved in the matter. It can be enforced at an international parameter under the New York convention.
What is the role of the judiciary in the International Commercial Arbitration?
The question always arises on whether the intervention of the judiciary in the process of arbitration is required. Parties seek the process of arbitration in order to resolve the matter promptly, economically. It is argued that the arbitral process shall be free from any kind of judicial intervention in order to remain effective, but it is also contended that the role of courts in the arbitral process is necessary in order to impart just and fair decision. So in order to neutralize the following contentions, various laws and rules were formulated.
What are the theories behind judicial intervention?
In order to ascertain the level at which judicial intervention should take place must depend upon the essential nature of the arbitration. There are three different theories formulated on the particular issue. The first theory emphasizes the arbitration agreement and the arbitral award which should be considered similar to a court judgment. The second theory states that the award generated from an arbitration agreement is inseparable.
Thus an arbitral award falls under the ambit of contract and is slightly different from a court judgment. The third theory states that an arbitral award is similar to a court judgment only when the order of the court is needed for the enforcement, thus theory is considered to be a compromise between the first and second theory.
These three theories are popularly known as “jurisdictional theory”, the “contractual theory” and the “mixed theory”. Later on, a fourth theory was also developed which was known as the autonomous theory.
The jurisdictional theory
According to this theory arbitral process lies under the ambit of law, and a state is conferred with the power to regulate its process. While the theory states that the arbitral process in an independent process and is formed on an agreement between the parties involved in the matter but the validity of the agreement and the award, the powers conferred on the arbitrators and the enforceability of the award depends upon the law.
The parties to the matter are permitted by the law to resolve the matter through arbitration. Even after having extremely similar functions the only distinction between the arbitral process and the function of the court is that the arbitrators are appointed by the parties involved in the matter and judges are appointed by the state. This theory mainly focuses on the power of state law over the arbitral process.
This theory states that arbitration is based on an agreement formed between the parties involved in the matter in order to resolve the dispute. It gives importance to the contractual character of the arbitration agreement. Without an agreement, no parties can compel another to arbitrate a dispute however there certain situations in which the parties can be compelled to arbitrate for example compulsory arbitration.
Issues relating to the constitution of the arbitral tribunal is to be decided through an arbitration agreement. It is due to the arbitration agreement that the award issued by the arbitral tribunal is enforced and recognized.
Fixed or hybrid theory
This theory is considered to be a compromise between the jurisdictional theory and the contractual theory. According to this theory, arbitration is a private agreement between the parties with the exclusive jurisdiction of the court in the dispute.
This theory establishes a new perception regarding the process of arbitration. According to this theory, arbitration is an independent system. In order to remain effective and retain its true nature, it shall remain autonomous and free from any kind of judicial intervention.
What is the role played by domestic courts in International Commercial Arbitration?
Courts play an important role in modern commercial arbitration and it’s as the involvement of the court in the arbitral process is necessary to protect evidence and to avoid damages. It recognizes the arbitration agreement between the parties involved in the matter and enforces the arbitral award. The role of domestic courts in International Commercial Arbitration is considered to be very crucial.
The Arbitration agreement
An arbitration is formed on an agreement between the parties involved in the matter which is legally sanctioned and binding on the parties. Under the New York Convention and the UNCITRAL model law requires that in order to take recourse of arbitration parties must initiate an agreement which then is referred to the court in order to determine its validity and whether to enforce it.
Arab African energy corp. ltd v. Olieproduckten Nederland BB.
In the instant case, the courts adopted a more progressive and comprehensive approach in interpreting the legality of an arbitration agreement.
Courts while determining the validity of the arbitration clause emphasizes the substance rather than on form. New York conventions and the model law directs the courts of contracting states to refer the matter for the arbitral process in order to resolve the dispute. The arbitration agreement is generally enforced by the courts, where the matter is of public policy.
Mitsubishi v. Solar Chrysler Plymouth Inc. 42 U.S 614(1985)
In the instant case the US Supreme Court in spite of public policy issues, by sustaining appeal where the federal court assumes exclusive jurisdiction in the matters in spite of arbitration agreement.
The domestic courts play a crucial role in validating the parties autonomy requiring them to resolve the dispute by referring the matter for arbitration where they have mutual consent to accept the terms of the valid arbitration agreement. Under certain situations, if a party to the valid agreement goes to the court for litigation and another party invokes the jurisdiction of the agreement then the court is bound to stay any action brought before it.
Boart Sweden AB v. NYA Stromnes AB(1992), 50 C.L.R.74(B.C.S.C.)
In the instant case it was stated that parties giving their consent in a contract where the claim is to be decided by the arbitrators instead of taking the assistance of the court, the parties shall be bound to hold that contract.
Chastain v. Robinson-Humphrey Co.957 F. 2d 851(11th Cr. 1992)
In the instant case, the Chastain court held that a contract signed by the parties under the normal circumstances within the purview of an arbitration provision becomes a sufficient ground for the court to send any dispute for arbitration. Under these circumstances, the parties mutually agree to resolve any dispute through the arbitral process including the from the validity of the contract.
Challenges to the arbitrators
Arbitrators are the authorities appointed by the parties involved in the matter in order to give an independent and unbiased performance in order to resolve the dispute. The arbitrators can be challenged by the parties if they failed to execute their functions properly. Generally, the courts intervene to set aside the awards issued if any question is raised regarding the decision of the tribunal which is considered to be partial or biased
Szilard v Szaz
In the instant case, the Supreme Court of Canada decided that parties involved in the matter must enjoy a sense of confidence and suspicion that the arbitrator is partial which will render an award being set aside.
There is a distinction between the term impartiality and independence. As enshrined under the English arbitration act 1996 impartiality becomes the ground for the parties involved in the matter to challenge the appointment of the arbitrators.
AT&T Corporation v. Saudi Cables corp.
In the instant case, the court set aside the award issued by the arbitrator due to the nondisclosure of the business even though actual impartiality was not established.
The domestic court in order to maintain a fair and independent arbitral process keeps a check on the arbitrators. The domestic courts generally perform their supervisory jurisdiction to ensure impartial resolution of the disputes.
The island territory of curacao v. solitron device Inc.
In the instant case, the court decided not to set aside award even when the grounds of objection were known but were not taken promptly.
Interim measures by the domestic court
Domestic court possesses the power of taking interim measures on application by the parties under certain circumstances including such measures that may appear fair and convenient to the courts.
Domestic courts assistance while taking the evidence
Article 27 enshrined under the model law states that either the arbitral tribunal or the parties involved in the matter after taking the approval of the tribunal can approach the court seeking its assistance in taking evidence. After the request made by the arbitral tribunal or the parties, the court may under its jurisdiction execute the request to its rules on taking evidence. Under the model law parties to the matter are not at liberty to give consent to preclude the court’s competence in taking evidence.
If the domestic court’s assistance promotes International Commercial Arbitration instead of emphasizing the national arbitration laws then the scope of article 27 and other various provisions remains narrow in the ambit of national arbitration laws.
Recognising and enforcement of awards by domestic courts
An arbitration agreement and the award becomes binding when it is enforced by the courts. The party satisfying the award shall invoke powers of the courts in order to enforce the award and make it legally sanctioned like a courts judgment.
Under the New York Convention, the court’s intervention to enforce an award is regarding the matter related to public policy.
In the instant case of Soleimany v Soleimany, the English court under its competence denied enforcing the award based on the grounds of public policy as the contract between the parties was subject to the criminality of tax evasion.
Any sort of uncertainty or ambiguity in the arbitral process can be challenged by the parties to the matter or the parties are conferred with the power to appeal if there is any substantial question of law arising out of the award. In order to become an effective resolution mechanism, the arbitration recognizes the role of domestic courts. It is the duty of the domestic court to preserve the integrity of the arbitral process.
The concept of Arbitrability
The concept of arbitrability generally deals with the matters which are to be settled through arbitration and which is closely linked to the state policy. It depends upon the court to decide whether the dispute is arbitrable nature or not.
The concept of Separability
The concept of separability means an agreement of arbitration which retains its contractual character and exists independently. Domestic courts acting as a direct source for arbitral tribunals authority has also been recognized by the concept of separability.
Heyman v. darwins ltd.(1942) AC 356
In the instant case, the court held that even if the contract fails the arbitration clause relating to the matter will survive in order to resolve the dispute.
The concept of competence- competence
The principle of competence-competence is loosely based on article 16 of the UNCITRAL under which it has been stated that the arbitral tribunal may operate from its own jurisdictional competence with compliance to the existing arbitration agreement. For this instance, an arbitration clause consisting of a part of a contract shall be treated as agreement free from other contractual terms. Coming down from the concept of separability, the arbitral tribunal is conferred with the power to determine their own competence to determine the matter. Following international conventions and standards confer rights on the tribunal which is recognized by the courts.
The foundation of this concept is based on the tribunal’s competence to rule on its own jurisdiction even though the decision of the tribunal may be altered or cancelled by the court.
Dalmia dairy industries v. National bank of Pakistan,(1978) 2 Lloyds’ Rep.223
In the instant case, the English court of appeal validated the rule of ICC conferring power on the arbitrators to decide the dispute or matter in their own competence.
SNE v. Joc oil case
In the instant case, the arbitral tribunal issued the award over the matter by assuming its competence through the concept of competence-competence. This decision was backed up by the court of appeal of Bermuda.
By conferring the right over the arbitral tribunal to determine their competence decreases the intervention of domestic courts and promotes International Commercial Arbitration.
It can be concluded that arbitration is an alternative mechanism used by the parties involved in the matter in order to resolve the dispute. Under this process the parties through mutual consent enter into an agreement and award is issued by the arbitral tribunal which is to be enforced by the court. Thus arbitration needs the assistance of the court in order to remain effective. As it can be seen that with the colossal and radical boom in the international trade and investment around the globe has resulted in the staggering growth of our economy.
Though such tremendous growth in international trade and investment has tend to propel our economy it most certainly gives rise to various contractual and trade disputes. Globalization has become one of the reasons which have triggered various countries of the world to take appropriate measures of dispute resolution.
One such mechanism is the International Commercial Arbitration which tends to resolve investment or trade disputes. Generally, people are in favour of the resolution through arbitration instead of getting it done by litigation, which is considered to be more time consuming and expensive.
However, judicial independence and intervention are also required in order to ensure fairness in the functioning of the arbitral process and for the protection of the interest of the public. The courts supervision is required so that the arbitral system should not be damaged. Both the arbitral system and the judicial control should go hand in hand and the balance is to be maintained.
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