INTRODUCTION

TO
INTERNATIONAL
COMMERCIAL ARBITRATION
Dr. Madhuri Irene
Dispute Resolution in International Trade and Commerce
• International trade thrives on trust and smooth transactions. However, disagreements
and conflicts are inevitable, making effective dispute resolution mechanisms crucial
for maintaining stability and fostering growth.
Need for Dispute Resolution:
• Complexities of International Trade: Contracts span borders, involving different legal
systems, cultural nuances, and languages. This complexity amplifies the risk of
misunderstandings and disputes.
• Protection of Rights and Interests: Businesses need enforceable mechanisms to
protect their rights and interests when trade agreements go awry. This covers issues
like breach of contract, intellectual property infringement, and trade barriers.
• Maintaining Predictability and Confidence: Knowing that fair and efficient dispute
resolution options exist enhances trade confidence and encourages investment.
• Avoiding Costly Litigation: Litigating trade disputes through national courts can be
lengthy, expensive, and often ineffective due to jurisdictional hurdles. Alternative
dispute resolution methods offer faster and more cost-effective solutions.
 Importance of Effective Dispute Resolution:
• Efficient and Timely Resolution: Effective mechanisms lead to swift and
fair resolution of disputes, minimizing disruptions and losses for
businesses.
• Preserving Relationships: Alternative dispute resolution methods like
mediation and arbitration can preserve commercial relationships by
fostering communication and mutual understanding.
• Enhanced Trade Facilitation: Reliable dispute resolution systems
encourage cross-border trade by reducing risks and uncertainties for
businesses.
• Promoting Stability and Investment: A predictable and transparent
dispute resolution environment promotes long-term stability and attracts
foreign investment.
 Mechanisms for Dispute Resolution:
• International Trade Agreements: Many agreements, like the WTO
Dispute Settlement Understanding, include built-in dispute resolution
mechanisms for member countries.
• Arbitration: This widely used method involves independent arbitrators
who issue binding decisions. It offers flexibility, confidentiality, and
expertise in international trade matters.
• Mediation: A neutral mediator facilitates communication and
negotiation between parties to reach mutually agreeable solutions. It
helps preserve relationships and focuses on win-win outcomes.
• Litigation: This traditional approach involves national courts, but its
complexity and long duration often make it less suitable for
international trade disputes.
 Different Modes of International Dispute Resolution
• Negotiation: Pros: Cost-effective, preserves relationships, allows for flexibility and tailored solutions.
Cons: Time-consuming, may not be effective for complex disputes or power imbalances. Best for: Early-stage
disputes, situations where amicable resolution is desired.
• Mediation: Pros: Neutral facilitator guides communication, enhances understanding, and encourages
compromise. Cons: Requires willingness from both parties, outcome not binding, mediator lacks decision-
making power. Best for: Reaching mutually agreeable solutions, preserving relationships, resolving
communication breakdowns.
• Arbitration: Pros: Binding decisions, faster than litigation, flexible procedural rules, often chosen for specific
expertise. Cons: Costly, less transparent than judicial systems, potential for arbitrator bias. Best for: Complex
technical disputes, parties seeking final and enforceable decisions, privacy concerns.
• Litigation: Pros: Established legal framework, accessible remedies, opportunity for appeals. Cons: Lengthy and
expensive, subject to national court procedures and delays, inflexible and public process. Best for: Disputes
involving public law issues, serious breaches of contract, seeking precedent-setting judgments.
• Other Mechanisms:
• Good Offices/Conciliation: Neutral third party facilitates communication and helps parties negotiate directly.
• Expert Determination: Technical experts provide binding decisions on specific issues within a dispute.
• Mini-trials: Abbreviated trials with simplified procedures, providing non-binding preliminary assessments.
 Choosing the Right Mode:
• The ideal mode of dispute depends on several factors, including:
• Nature of the dispute: Complexity, technical aspects, financial
stakes.
• Relationship between parties: Cooperative or adversarial, desire
to preserve the relationship.
• Urgency of resolution: Need for speed or time for negotiation.
• Cost limitations: Budgetary constraints.
• Legal framework: Applicable treaties, contracts, or national laws.
 International Arbitration
• International arbitration is a fascinating and increasingly prominent mode of dispute resolution
for settling cross-border disagreements
• Meaning: International arbitration is a private, consensual, and binding method where parties
appoint neutral arbitrators to resolve their disputes outside the national court system.
• These arbitrators, chosen for their expertise in the relevant field (e.g., trade law, finance),
decide the case based on the parties' arguments and evidence. Their decisions are final and
binding, enforceable in most countries under the New York Convention.
• Advantages of International Arbitration:
• Neutrality: Avoids potential bias of national courts, particularly in politically sensitive contexts.
• Flexibility: Parties can tailor the proceedings to their specific needs and choose applicable
rules and procedures.
• Expertise: Arbitrators can be chosen based on their specific knowledge of the relevant
industry or legal issue.
• Confidentiality: Proceedings are often confidential, protecting sensitive business information.
• Enforcement: Awards are generally enforceable under the New York Convention, simplifying
cross-border enforcement.
• Speed: Compared to national courts, arbitration tends to be faster and more efficient.
 Types of International Arbitration:
• Institutional Arbitration: Conducted under the auspices of an arbitral institution
like the International Chamber of Commerce (ICC) or the London Court of
International Arbitration (LCIA), which provide established rules and procedures.
• Ad hoc Arbitration: Parties design the procedural framework themselves, with less
reliance on institutional rules.
Key Stages:
• Agreement to Arbitrate: Parties include an arbitration clause in their contract,
specifying the chosen arbitral institution or rules.
• Dispute Arises: When a dispute arises, a party initiates the arbitration process.
• Tribunal Formation: Parties appoint or agree on arbitrators, forming the arbitral
tribunal.
• Proceedings: The tribunal conducts hearings, takes evidence, and hears arguments
from both parties.
• Award: The tribunal issues a binding award resolving the dispute, often
accompanied by reasoning.
• Enforcement: The winning party can seek enforcement of the award in a national
court of any country that is party to the New York Convention.
 kinds of International commercial disputes
• International commercial disputes encompass a wide range of disagreements that arise between
entities from different countries in the context of cross-border trade and business dealings.
• Contractual Disputes:
• Breach of contract, Force Majeure, Interpretation of Contractual Terms- Ambiguous clauses or
conflicting interpretations which lead to disagreements about rights and obligations.
• Intellectual Property Disputes:
• Trademark and Copyright Infringement, Patent Disputes, Trade Secrets Misappropriation, Sharing
or using confidential business information without authorization, any matter lead to legal claims.
• Regulatory and Trade Disputes:
• Antitrust and Competition Law Violations, Import and Export Restrictions, Dumping and
Subsidies, Financial and Investment Disputes
• Breach of Loan Agreements: Failure to repay loans or comply with loan terms and conditions,
legal action by lenders.
• Investment Disputes: Foreign Exchange Regulations Etc.,
• Other Types:
• Product Liability Disputes
• Transportation and Logistics Disputes
• Construction and Infrastructure Disputes
 International Commercial Arbitration and International Investment Arbitration
International Commercial Arbitration International Investment Arbitration
Parties: Primarily private businesses or Parties: States and foreign investors (usually
individuals engaged in commercial activities. companies or individuals).
Disputes: Contractual disputes, intellectual Disputes: Investor-state disputes arising from
property violations, regulatory and trade investments made in a host country, often involving
issues, financial and investment disputes breaches of treaties or investment
(exceptions apply), product agreements, expropriation of assets, discriminatory
liability, transportation and logistics treatment, unfair regulatory measures.
issues, construction and infrastructure Legal Framework: Investment treaties
disputes. (BITs, Multilateral Agreements), customary
Legal Framework: Contracts, national international law, principles of state
laws, applicable trade agreements, arbitration responsibility, investment arbitration rules
rules (e.g., ICC, LCIA, UNCITRAL Model Law). (e.g., ICSID, UNCITRAL Arbitration Rules).
Focus: Protecting private commercial Focus: Protecting the rights and interests of foreign
interests, enforcing contractual investors, promoting foreign direct investment, and
obligations, and achieving swift and final ensuring fair and equitable treatment.
resolution of disputes.
 Differences and Similarities
Key Differences: Similarities:
• Subject Matter: ICA deals with private 1. Both offer an alternative to
commercial disputes, while IIA focuses on
disputes between investors and states national court litigation.
regarding investments. 2. Both are based on consent of
• Nature of Parties: ICA involves private
entities, while IIA involves states and the parties and involve neutral
investors. national laws, and specific arbitrators.
agreements
• Legal Basis: ICA relies on contracts, , while 3. Both aim for final and binding
IIA draws on investment decisions.
treaties, international law, and arbitration
rules. 4. Both have established
• Objectives: ICA aims for resolution of procedural rules and enforcement
commercial disputes and enforcement of
contractual obligations, while IIA seeks to mechanisms.
protect foreign investments and ensure fair
treatment of investors by states.
 International Commercial Arbitration – Growth and Historical Development
• The rise of International Commercial Arbitration (ICA) as a preferred method for resolving
cross-border disputes is a fascinating story, marked by steady growth and significant
historical milestones. Here's a closer look at its trajectory:
• Early Beginnings (18th - 19th Century):
• Scattered Cases: Early instances of international arbitration appeared in treaties and specific
agreements, resolving trade disputes between nations or private parties.
• Limited Recognition: National courts often viewed arbitration with scepticism, raising
concerns about enforceability and potential conflicts with domestic laws.
• Jay Treaty (1794): This landmark agreement between the United States and Great Britain
established three mixed commissions to settle outstanding claims stemming from the
American Revolution, highlighting the potential of arbitration for complex international
disputes.
• Institutionalization (Early 20th Century):
• Rise of Chambers of Commerce: International chambers of commerce like the International
Chamber of Commerce (ICC) emerged, offering arbitration services and establishing
standardized arbitral rules, promoting consistency and predictability.
• New York Convention (1958): This landmark treaty standardized the enforcement of arbitral
awards across contracting states, significantly boosting confidence in ICA and simplifying
enforcement procedures.
• Increased Use: With improved legal frameworks and institutional support, ICA became a
more attractive option for businesses seeking quicker, more flexible, and potentially less
expensive alternatives to national courts.
 Contd..
• Modern Expansion (Late 20th - 21st Century):
• Globalization: The surge in international trade and investment fueled the demand
for efficient dispute resolution mechanisms, further propelling ICA's growth.
• Specialization: Arbitration institutions and individual arbitrators developed
expertise in specific fields like construction, maritime, and intellectual property,
catering to the diverse needs of businesses.
• Technological Advancements: Virtual hearings, online document sharing, and other
tools enhanced accessibility and efficiency, making ICA even more attractive for
global disputes.
• Current Landscape and Future Trends:
• Continued Growth: ICA remains the dominant method for resolving international
commercial disputes, with case numbers reaching new highs annually.
• Emerging Challenges: Issues like arbitrator selection, transparency, and cost
concerns are receiving increasing attention, prompting efforts to improve and
adapt procedures.
• Focus on Diversity: Efforts to increase diversity in the arbitral community and
address concerns about potential bias are ongoing, aiming to further strengthen
the legitimacy and fairness of ICA.
 Principles of Interpretation of International Commercial Arbitration
• The interpretation of International Commercial Arbitration (ICA) agreements and awards rests on a set of well-
established principles aimed at ensuring fairness, predictability, and efficiency in resolving cross-border disputes.
Here are some key principles:
• 1. Pro-Arbitration Principle: Arbitral agreements are interpreted generously to uphold their validity and effectiveness.
Courts typically lean towards upholding arbitration agreements unless there are strong grounds for refusing.
• 2. Autonomy of the Parties: Parties have significant autonomy to shape the arbitral process. They can choose the
applicable law, the number and qualifications of arbitrators, the procedural rules, and other aspects of the arbitration.
• 3. Good Faith and Fair Dealing: Parties, arbitrators, and all participants in the arbitral process are expected to act in
good faith and with due regard for fairness throughout the proceedings.
• 4. Interpretation in Context: The arbitration agreement and award should be interpreted in light of the relevant context,
including the surrounding circumstances, the purpose of the agreement, and the applicable law.
• 5. Transnational Interpretation: Arbitrators often apply a "transnational" approach, considering legal principles from
various jurisdictions and international trade practices, particularly when the chosen law is vague or silent on an issue.
• 6. Literal Interpretation: While context is important, clear and unambiguous language in the agreement or award will
generally be given its literal meaning.
• 7. Substantive and Procedural Rules: Arbitrators typically have some flexibility in applying procedural rules, but
substantive laws governing the underlying dispute must be applied correctly.
• 8. Separability of Clauses: If one provision of the arbitration agreement is deemed invalid, it will not necessarily affect
the validity of the entire agreement.
• 9. Public Policy Exceptions: Courts may refuse to enforce arbitral awards that violate fundamental public policy or are
contrary to the law of the forum.
• 10. Finality of Awards: Arbitral awards are generally final and binding, with limited grounds for appeal or challenge.
 UNCITRAL Model Law on International Commercial Arbitration
• United Nations established the United Nations Commission on International Trade Law (UNCITRAL) in
1966. The move was in response to the rapid rise of global trade that took place in the 1960s. At the time,
national governments recognized the need for harmonized global standards to replace the various
national and regional regulations which, until then, largely governed international trade.
• The official function of UNCITRAL is to modernize and harmonize the rules of international business.
The organization is responsible for helping to facilitate international trade and investment. It is
headquartered in New York with annual sessions held alternatively in Vienna.
• Adopted by the United Nations Commission on International Trade Law (UNCITRAL) in 1985, with
amendments in 2006, it has been adopted or used as a reference point by over 100 countries, making it a
cornerstone of the global arbitration landscape.
Key features of the Model Law:
• Promotes arbitration: The Model Law encourages the use of arbitration for resolving international
commercial disputes by providing a clear and predictable legal framework.
• Flexibility: Parties are granted significant autonomy to shape the arbitral process, including choosing
the number and qualifications of arbitrators, the applicable law, and the procedural rules.
• Neutrality: The Model Law ensures the neutrality of the arbitral process by protecting parties from undue
interference by national courts.
• Efficiency and Speed: The Model Law promotes efficient and expeditious proceedings by setting time
limits and providing mechanisms for streamlining the process.
• Enforceability: Awards issued under the Model Law are generally enforceable in over 160 countries
under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards .
UNCITRAL's Core Activities:
• Developing model laws and legal guides: The Model Law on International Commercial
Arbitration is just one example. UNCITRAL has also drafted model laws on topics like
electronic commerce, conciliation, and international payment systems.
• Harmonizing and unifying international trade law: This involves identifying inconsistencies in
national laws and proposing solutions to create a more uniform legal framework for cross-
border trade and investment.
• Promoting international cooperation in trade law: UNCITRAL facilitates dialogue and
cooperation between governments, businesses, and other stakeholders on trade law issues.
• Providing technical assistance: UNCITRAL offers technical assistance to developing
countries to help them improve their legal frameworks for trade and investment.
• Conducting research and studies: UNCITRAL conducts research on various trade law issues
and publishes reports and other resources to inform policymakers and practitioners.
• UNCITRAL's Structure and Governance:
• Commission: The main decision-making body of UNCITRAL, consisting of representatives
from 36 states elected by the United Nations General Assembly.
• Working Groups: Open to all UN member states, focused on specific topics and drafting
model laws and legal guides.
• Secretariat: Provides administrative and technical support to the Commission and Working
Groups.
• Impact of UNCITRAL:
• Harmonization: The Model Law has contributed significantly to the
harmonization of national arbitration laws, bringing greater
consistency and predictability to international commercial arbitration.
• Increased use of arbitration: The Model Law has played a key role in
the increased use of arbitration as a preferred method for resolving
international commercial disputes.
• Improved legal framework: The Model Law has provided a robust legal
framework for arbitration, addressing common issues and gaps in
national laws.
• Significant contribution to the development of international trade
law: UNCITRAL's model laws and legal guides have been widely
adopted and have helped to harmonize and unify international trade
law.
• Promoted the use of arbitration: The Model Law on International
Commercial Arbitration has been instrumental in making arbitration a
more attractive option for resolving international commercial disputes.
• Supported developing countries: UNCITRAL's technical assistance
programs have helped developing countries to improve their legal
frameworks for trade and investment.
UNCITRAL Model Law on International Commercial Arbitration (1985), with
amendments as adopted in 2006
• The Model Law is designed to assist States in reforming and modernizing their laws on arbitral
procedure so as to take into account the particular features and needs of international
commercial arbitration.
• It covers all stages of the arbitral process from the arbitration agreement, the composition and
jurisdiction of the arbitral tribunal and the extent of court intervention through to the
recognition and enforcement of the arbitral award.
• It reflects worldwide consensus on key aspects of international arbitration practice having been
accepted by States of all regions and the different legal or economic systems of the world.
• Amendments to articles 1 (2), 7, and 35 (2), a new chapter IV A to replace article 17 and a new
article 2 A were adopted by UNCITRAL on 7 July 2006.
• The revised version of article 7 is intended to modernise the form required of an arbitration
agreement to better conform with international contract practices.
• The newly introduced chapter IV A establishes a more comprehensive legal regime dealing with
interim measures in support of arbitration. As of 2006, the standard version of the Model Law is
the amended version.
• The original 1985 text is also reproduced in view of the many national enactments based on this
original version.
 Important definitions under Arbitration and Conciliation Act, 1996
The Arbitration and Conciliation Act, 1996 applies to both domestic and international commercial arbitration:
"International Commercial Arbitration": Section 2(1)(f) of the defines international commercial arbitration as
disputes arising out of the legal relationship where one of the parties is a citizen, resident, or habitually residing
out of India
Sec.2(1)(e) “Court” means (ii) in the case of international commercial arbitration, the High Court in exercise of
its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter.
Sec.11(9): In the case of appointment of sole or third arbitrator in an international commercial arbitration, the
Supreme Court or the person or institution designated by that Court] may appoint an arbitrator of a nationality
other than the nationalities of the parties where the parties belong to different nationalities.
Sec. 28. Rules applicable to substance of dispute.—(1) (b) in international commercial arbitration,— (i) the
arbitral tribunal shall decide the dispute in accordance with the rules of law designated by the parties as
applicable to the substance of the dispute
Sec. 29A. Time limit for arbitral award.— (1) Provided that the award in the matter of international commercial
arbitration may be made as expeditiously as possible and endeavour may be made to dispose of the matter
within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23
PART IA- ARBITRATION COUNCIL OF INDIA
PART II - ENFORCEMENT OF CERTAIN FOREIGN AWARDS (44-60) New York Convention, Geneva Convention
Awards
THE FIRST SCHEDULE- CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL
AWARD
Arbitrability in International Commercial Arbitration
• Arbitrability, in the context of international commercial arbitration, refers
to the capability of a dispute to be settled through arbitration. It's a
crucial concept ICA because it determines whether a particular dispute
can be brought before an arbitral tribunal instead of a state court.
“arbitrability determines the point at which the exercise of contractual
freedom ends and the public mission of adjudication begins
• To understand the prevailing international situation with regard to
arbitrability, three important aspects are to be studied.
1. Law applicable to questions of arbitrability,
2. The limitations imposed in different countries, or Substantive Rules on
Objective arbitrability; and
3. Whether arbitration tribunals have the right and duty to deal with the
issue of arbitrability on their own initiative.(Lack of arbitrability)
• LAW APPLICABLE TO QUESTIONS OF ARBITRABILITY:
• Despite the generally prevailing tendency to increase the scope of arbitrable disputes
national laws frequently differ from each other.
• A number of disputes which are not arbitrable under the law of one country are arbitrable
in another country where the interests involved are considered to be less important
• International Conventions vs. National Laws: Under the various conventions the
obligations of national courts to enforce arbitration agreements and awards only exist
where the dispute is arbitrable.
• The New York Convention provides for the law of arbitrability only from the perspective
of enforcement. Art-V (2) (a) provides – “Recognition and enforcement of an arbitral
award may also be refused if the competent authority in the country where recognition
and enforcement is sought finds that: The subject matter of the difference is not capable
of settlement by arbitration under the law of that country .
• Meadows Indemnity Vs. Shoop Insurance Services XVII YBCA 686 1992. The claimant
initiated court proceedings in the US, despite an arbitration agreement, alleging that the
dispute in question was not arbitrable under the law of Guernsey, where it was
incorporated and where an award would have been enforced. The court had to decide
whether to enforce the arbitration agreement under Article II New York Convention or
whether the claim was not arbitrable
• SUBSTANTIVE RULES ON OBJECTIVE ARBITRABILITY:
• Every national law determines which types of disputes are the exclusive
domains of national courts and which can be referred to arbitration.
• This differs from state to state reflecting the political, social and
economic prerogatives of the state, as well as its general attitude towards
arbitration.
• It involves a balancing of the mainly domestic importance of reserving
certain matters for exclusive decision of courts with the more general
public interest of promoting trade and commerce through an effective
means of dispute settlement.
• Therefore, the decision may be different in cases arising in a purely
national context from that in relation to international transaction.
• Ex: IPR matters, Insolvency and Bankruptcy matters, Investment
ILLEGALITY AND FRAUD:
• Allegations of illegality and fraud have always raised serious problems
as to the arbitrability of dispute.
• In conjunction with the acceptance of the doctrine of Separability it has
become increasingly accepted the allegations of illegality of the main
contract do not necessarily lead to the non-arbitrability of the dispute.
• This is only where the provisions which lead to illegality are of such kind
that they require the dispute to be decided by state courts.
• One type of provisions which has led to divergent views in this context is
United Nations embargoes.
• In connection with Iraq embargo legislation Italian and Swiss courts came
to opposing conclusions as to the arbitrability of the dispute.
• LACK OF ARBITRABILITY :
• In the majority of cases the non-arbitrality of a dispute is raised by
one party seeking to preclude arbitration.
• It may prefer to have the dispute decided by the courts. There are,
however, cases where none of the parties invokes the lack of
arbitrability.
• They may either not have realized it or may have an interest in having
their dispute settled in private.
• example, parties to contracts involving bribery or certain illegal conduct
may accept the need for their dispute to be resolved but may not want
the relevant authorities to be informed about their contract which will
invariably be the case if the dispute is dealt with in the courts.
• Key Points about Arbitrability:
• No universal definition: There's no single, universally accepted definition of arbitrability in ICA. It can
vary depending on the applicable law, the nature of the dispute, and the specific arbitration agreement.
• Presumption of arbitrability: Generally, there's a presumption that disputes are arbitrable unless they fall
within specific exceptions or limitations. This means the burden of proof lies with the party arguing
against arbitration.
• Common exceptions: Certain types of disputes are often considered non-arbitrable, including:
• Public policy concerns: Disputes involving fundamental public policy issues, such as criminal matters,
antitrust, or certain consumer protection laws.
• Non-derogable rights: Disputes involving non-derogable rights, like those relating to family law or
insolvency.
• Sovereign immunity: Disputes involving states or their emanations, unless they explicitly agree to
arbitration.
• Determining arbitrability: The law governing the arbitration agreement or the arbitration itself usually
determines whether a dispute is arbitrable. This can be complex, involving conflict of laws principles and
analysis of specific provisions.
• Impact on proceedings: The question of arbitrability can be raised at various stages of the arbitration
process, potentially leading to court proceedings to determine the issue before the arbitration can
proceed.