This article is written by Meera Patel pursuing BA.LLB (Hons.) from Maharaja Sayajirao University, School of Law. This is an exhaustive article covering the fast-growing practice of international commercial arbitration.
Table of Contents
Introduction
Commercial arbitration means settling trade disputes outside the court with the help of arbitration centres or individual arbitration/ adjudicators. The evidence and cases of the dispute/ argument between two or more parties are put forward to the arbitration tribunal and the decisions given out by the adjudicators are usually agreed upon by the involved parties.
This article highlights the fact that nowadays, people tend to prefer arbitration to resolve international commercial disputes.
What is arbitration
The precise meaning of arbitration states that it is a process or method of disputes between the involved parties by helping them to land on agreeable terms. It is a part of the Alternative Dispute Resolution ‘ADR’ mechanism. The ADR mechanism aids the disputes between the involved parties who wish to avoid the money-draining, lengthy, and time shrinking process of resolving disputes within the Indian Judicial system, also known as the honourable court system of India. By using the arbitration method, the parties hire people who can be called arbitrators who can help them come to reasonably agreeable solutions which the parties are bound to agree with. It has been observed that people prefer the method of arbitration over resolving matters in courts. It is most commonly used in resolving commercial matters.
According to a judgment titled Collins vs Collins, 1858, the court passed on a precise definition for arbitration. The definition stated by the court said that any decision that has been taken by one or more person that too with or without an umpire ( also referred to as an adjudicator) on a particular matter can be observed by the court (also referred to as an arbitration office) where the disputed parties can resolve their dispute in the presence of a neutral advisor (also referred to as an adjudicator) will be known as arbitration.
In the process of arbitration, the unbiased adjudicator is supposed to create a common ground for the disputed parties so that they can agree on the legislation that has been decreed by the adjudicator and that decision will be final binding.
Types of arbitration processes
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Voluntary arbitration
the parties choose or decide to resolve their dispute through arbitration at their discretion.
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Involuntary arbitration
Mandatory arbitration can only be practised if the parties have agreed to a contract stating that they will be bound to hold all the present or future disputes to arbitration. This applies to the parties even if they change their mind because they are bound to follow the contract they signed on their own.
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Binding arbitration
For every binding arbitration, the parties are bound to accept the decision made by the arbitrator. They cannot disregard their judgment.
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Nonbinding arbitration
A non-binding arbitration process is similar to that of mediation. Even though the arbitrator is supposed to decide the final judgment of the case, the arbitrator will not be allowed to impose his decision/judgment on the parties involved. Although, unlike a mediator who is supposed to become a bridge between the disputed parties, the non-binding arbitration is entitled to determine the liability and state the quantum of payable damages. The arbitrator cannot interfere in the settlement process though.
Types of Arbitrations
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Domestic arbitration
According to Section 2(2) (7) of the Arbitration and Conciliation Act, 1996, the type of arbitration needs to happen in India only. Other than that, when the arbitrator is resolving the disputes of the two parties, he/she needs to abide by the substantive laws of India that are mentioned in the constitution of India as the cause of the dispute had originated in India hence, the parties are bound to be subject to the Indian jurisdiction even if they are posting for arbitration and not the Indian judicial system to resolve their disputes.
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International arbitration
When an arbitration happens in India which is related to either Indian or international elements whose origin is related to the subject of the involved parties dispute is known as international arbitration. The main element of this kind of arbitration is that the subject of dispute should be domiciled outside India.
Types of arbitrations that are recognized based on their rules and procedure
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Institutional arbitration
Arbitrations that take place in registered arbitral institutions are widely known as the institutional arbitrations. Even though the pastries opt for arbitration, they do have a choice to specify their wish to generate a judgment that abides by the rules that are followed by the chosen arbitral institution.
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Ad hoc arbitration
The expression ‘Ad hoc’ means when necessary or needed. In an Ad hoc arbitration, the disputed parties decide to resolve their dispute on their own without involving any institutional proceedings. These disputes range from domestic, international, and foreign arbitrations.
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Fast track arbitration
The involved parties opt for the fast track arbitration as they wish to speed up the long tedious process of arbitration as time can be an issue for many sometimes. This method is the remedy of time management as mentioned in the Arbitration and Conciliation Act, 1996.
Fundamental attributes of arbitration
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Consensual arbitration
An arbitration process can only take place if all the involved parties have agreed and given their consent to resolve their dispute using the method of arbitration. Usually, the involved parties add a clause in the contract beforehand only which binds them to resolve their disputes using an arbitrator whenever they might have any disputes.
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Parties have the authority to choose the arbitrator
Under the Indian Arbitration Act, 1940, the parties need to select their arbitrator or their preferred arbitral institution on their own. They can select as many arbitrators as they want but they should always select the arbitrators in an odd number so that the votes don’t clash.
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Arbitrators are neutral or unbiased
While choosing the arbitrators, they have the liberty to choose an adjudicator who matches their criteria of a common language, venue for the arbitration, etc. also, this gives them a bonus advantage to select an arbitrator who is a neutral party. The involved parties shouldn’t face bias.
Advantages of opting for arbitration in India
- The arbitrators are generally employed for their work based on their field of interest and expertise. They can easily deal with issues that require technical expertise. Thus, this can be counted as an advantage for the involved parties as this factor about the arbitrators maintains a good standard for resolving disputes more efficiently.
- The court process is time consuming, tedious and it drains one financially but on the other hand, the arbitration process costs less than the court process.
- The parties can select an arbitrator or a panel of arbitrators as it is more flexible and it respects their needs such as common language, time, venue, proceedings, etc.
- The unnecessary publicity reveals their privacy but in this form of resolving disputes, arbitrations provide a security blanket to the involved parties’ privacy and confidentiality.
International commercial arbitration
International commercial arbitration simply means it is a method of resolving disputes that arise from international commercial contracts without involving the judicial system (courts/ litigation). Usually, the parties that resolve their disputes with the help of this alternative method end up saving money and time. That is why before entering into any commercial contract, the parties usually add the clause that the involved parties will be entitled to resolve any disputes that might arise in the future via arbitration only. No party will be allowed to go to the court to seek aid.
Also referred to as ICA, the International Commercial Arbitration resolves all the transitional business parties through expert arbitrators instead of the court. People prefer international commercial arbitration because of reason such as:
- They get their own choice of arbitrators
- The arbitrators are usually people who are experts in their industry
- The clients have control over the rules and regulations and various other things such as the venue for the arbitration process, timings, etc
- The decision of these international firms are enforceable internationally
- The arbitration sessions are time savers and way too complicated than the litigation process.
- When we talk about international commercial disputes, if the involved parties don’t trust the foreign legal system, then the arbitration method always comes in handy for those parties
- Arbitration ensures confidentiality in international commercial disputes
History of international commercial arbitration as practice
During the medieval age, international commercial arbitration was used to resolve the arguments/ disputes between merchants and the marketplace, unlike today. This practice was very prominent in European countries, especially in England. The method of resolving commercial disputes using arbitration was normal in the Mediterranean sea as well as the Baltic Sea trade routes.
After the courts were established, the use of arbitration dropped immediately. The first international commercial arbitration statute was enforced in England which was known as the English Arbitration Act, 1889 which was later on reconsidered and merged into a new Act known as the English Arbitration Act, 1950. After this, almost all the other British Commonwealth member countries adopted the newly enforced law for their country. After this, even The USA established its arbitration statute known as the Federal Arbitration Act, 1925.
With the rise of globalization in the world, international trade took its action route along with international borders. Due to its expansion of globalization, the economic status of various countries rose at a very high speed. All these alternative methods to resolve commercial disputes were established because of the high demand for an international exchange of capital, goods, services which eventually increased various needs and wants. Hence, that is when arbitration started to become a prominent method of resolving commercial disputes again after it surged when courts were established in Europe.
All about ICC
With over 142 member countries and having solved nearly 25,000 cases until now, the International Chamber of Commerce provides a sister institution that deals with international commercial disputes. The International Court of Arbitration (ICA)is one of the most prominent international commercial dispute resolving firms. It is an arbitral tribunal.
It was established in 1923 and they have been working towards the cause of resolving the commercial disputes so that they could bridge the gap between support trade and investment with the world. One of the most essential duties of the ICA is that they tend to provide services according to the needs of the involved parties. The ICA is flexible enough to alter their services when needed.
Even though it is known as the International Court of arbitration, it is not a formal court but is an arbitration institution that works on a global level. Hence, due to this reason, they are not allowed to pass formal judgment on the disputes between the clients. As an alternative to the formal judgment, they give out judicial supervision in the name of arbitration.
The main objective behind establishing this arbitral tribunal was to ensure that all the rules laid down by the ICC were genuinely applied during arbitration processes. A panel of over 80 lawyers has been trusted to maintain the standards of the said objective.
For the benefit of their international clients, the ICA’s established official languages are English and French but at the same time, they also function and administer their cases in all the prominent languages around the world such as Arabic, German, Italian, Russian, Spanish and Chinese. Besides providing a plethora of language alternatives to maintain the comfort of a client, the ICA also manages to provide an efficient panel of arbitrators/ adjudicators, time as well as money-saving arbitration procedures, aid enforcement, and most importantly, they maintain utmost confidentiality of their clients.
Besides the member countries, 85 countries benefit from all the services provided by the ICA. Listed below are a few alternative methods of litigation that are provided and practiced by the International Court of Arbitration:
- Arbitration: The primary service the ICA provides is the arbitration method. It is a pliable and well-structured way of resolving international commercial disputes. Their final decision will be enforced everywhere in the world.
- Mediation: This technique is conducted in a more private setting due to the sensitivity of confidentiality. The arbitrator/ adjudicator usually helps out the involved parties to bridge the gap their disputes might have created and would more likely also help them to establish a common ground.
- Expertise: The ICA provides arbitrators who have expertise in their field as the expertise in technical areas is more likely to need help to assess individual technical subjects that are relevant to the case.
- DODEX: the Documentary Dispute Resolution Expertise (DODEX) is a provision of the ICC that resolves disputes which are related to documentary credits, demand, and collection and demand guarantees or assimilating the ICC banking rules in relations with the international commercial disputes.
Laws related to International commercial disputes
Since the Indian economy opened up in 1991, it attracted multiple investors from around the globe. These investors referred to arbitration over litigation. Hence, to oblige with the growing demand, the Arbitration, and Conciliation Act, 1996 was established to solve commercial disputes. Anyhow, various amendments were incorporated in the same act in 2015, 2018, and 2019 with the sole objective to reduce the role of the judicial system in the arbitration method. Also, these amendments gave a spur of encouragement to institutional arbitration by establishing the Arbitration Council of India.
As per the Section 2(1) (f) of the Arbitration Conciliation Act, 1996, the international commercial arbitration was defined as a method of resolving disputes related to the arising legal issues whether contractual or not will be inculcated under the commercial law that has already been enforced in India where:
- At least one party needs to be a citizen or a habitual resident of any country other than India.
- A corporate body that is not affiliated to India.
- An institutional body that is centrally administered or controlled from any country other than India.
Other than that, the UN conference that took place to discuss the International Trade Laws (UNCITRAL) was enforced in 1996 in the General Assembly meeting.
Conclusion
The international commercial arbitration is an uneasy going process which is the most preferred method to resolve disputes that arise due to international commercialization. This practice has been growing a lot due to the pros the method of arbitration provides when one needs to resolve their international commercial disputes in an efficient, timely, and money-saving way.
References
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