NHRC General Commentary
NHRC General Commentary
Abstract
This study aims to evaluate the effectiveness of international arbitration in resolving
international commercial disputes. The study provides a critical review of the role of
arbitrators in conducting proceedings and developing laws due to the internationalisation
of modern commercial law and investigates the International Bodies that are involved in
International Commercial Arbitration. It covers the International Chamber of Commerce
and the United Nations Commission for International Trade Law and their significant role
in the development of commercial arbitration. Also analyzes the "New York Convention"
text, which is a crucial piece of legislation in the recognition and enforcement of arbitral
awards globally. Moreover, the study highlights the current challenges confronting
International Commercial Arbitration and sets out the potential challenges it could face in
the future. Finally, in the Conclusion, the study summarizes the current role of International
Arbitration in the modern world. Finally, this study concludes by outlining the current role
of international arbitration in the modern world.
1. INTRODUCTION
International agreements and international trade are the life blood of nations. Therefore,
those engaged in international commerce have a vested interest that commercial
agreements are honored and, ultimately, that in the event of a dispute between the parties
they have open to them a competent dispute resolution process which is capable of issuing
an award which is recognised and enforceable internationally. International commercial
arbitration is currently the preferred option for the resolution of cross-border disputes. It
was appropriately referred to by Robert Brinder as the 'servant of international business
and trade' .
This work assesses the role of international arbitration in seeking to resolve international
commercial disputes in light of the statement that in contemporary times 'arbitrators tend
to enjoy a greater freedom in conducting proceedings' and developing laws due to the
'internationalisation' due to the more informal nature of modern commercial law.
The first section of the work shall explore the "Some of the International Bodies Involved
in International Commercial Arbitration". The topics covered here shall be the International
Chamber of Commerce and United Nations Commission for International Trade Law and
the role that they have played in the development of commercial arbitration. The following
section shall take a look at "International Commercial Arbitration". Following this, the
work shall analyse the text of the "New York Convention", given that it is a crucial piece
1
Department of Law, Majmaah University, AL-Majmaah, Saudi Arabia, Email: a.alharbi@mu.edu.sa
532 A Critical Study to the Role of International Arbitration in the Resolution of International
Business Disputes
of legislation in the recognition and enforcement of arbitral awards globally. The following
chapter, "The Challenges Confronting International Commercial Arbitration", shall set out
the challenges which international commercial arbitration is facing and could face in the
future. The next section explores the "The Arbitration Agreement / Clause". Finally, the
Conclusion shall conclude by outlining the current role of International Arbitration in the
modern world.
2. LITERATURE REVIEW
2.1. Some of the International Bodies Involved in International Commercial Arbitration
2.1.1 International Chamber of Commerce
In 1923 the International Chamber of Commerce ('ICC') established an arbitration
mechanism aimed at settling disputes in matters concerning international trade. Generally
speaking, the ICC has played a pivotal role in international arbitration. For instance, the
ICC was involved with other parties in the drafting of the Protocol on Arbitration Clauses
1923 and the Convention on the Execution of Foreign Arbitral Awards 1927. Further, it was
the ICC who submitted a draft document to the United Nations referred to as the
Convention on the Recognition and Enforcement of International Arbitral Awards in 1953,
which later became the New York Convention. The ICC now plays a fundamental role in
administering and handling international commercial arbitrations.
2.1.2 United Nations Commission for International Trade Law ('UNCITRAL')
Established in 1966, UNCITRAL was formed to work towards the gradual transformation
and harmonisation of the laws pertaining to international commercial arbitration and
international trade. The UNICTRAL is ideally placed to formulate rules for this purpose
as it is well positioned, being a UN body, to coordinate and follow the progress of other
work in this field. The Model Law produced by UNICTRAL is intended to act as a template
for states to use as an aide in drafting their respective arbitration laws to ensure conformity
and uniformity in the field of international arbitration. The Model Law is a comprehensive
document covering preliminary matters such as the drafting of the arbitration agreement /
clause through to jurisdictional matters and the role which the national courts play in
recognizing and enforcing an arbitral award.
The main focus of UNCITRAL is on the legal relationships between international parties.
The Model Law devised by UNCITRAL was intended to be utilized by governments,
making adjustments as they see fit, to incorporate the law as their own national arbitration
law. UNCITRAL Model Law on International Commercial Arbitration 1985 is aimed at
governing the procedure of arbitrations in the national jurisdiction fora. This Law has
facilitated the harmonisation of national arbitration laws. The Model Law specifically states
that it only applies to matters regarded as 'international'. For the law to be applicable, Article
1(3) of the Model Law defines an 'international' matter as one in which (i) the parties to an
agreement have their businesses residing in different states; (ii) the seat of the arbitration
ought to be in neutral state (neither falling within any of the states where either of the parties
businesses are located); and (iii) the subject matter is related to any matter other than the
place where the seat of the arbitration is to take place.
Under the Model Law, an arbitral award is regarded as legally binding. Further, Article
36(1) of the Model Law states that recognition and / or enforcement of an arbitral award
may only be refused in limited circumstances, namely: (i) the arbitration agreement is
deemed invalid, or the parties were incapacitated in some way; (ii) adequate notice was not
furnished to the party against whom the award is being made relating to the appointment
of the arbitrator or the arbitration proceedings; (iii) the arbitration agreement has in some
way been contravened or the arbitral award is in breach of the laws where the arbitration
hearing is held; and (iv) the award has been set aside or suspended by a national court of
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the country where the seat of the arbitration is. Further, the UNCITRAL Arbitration Rules
of 1976 are used by parties all over the world and incorporated into their agreements.
2.1.3 The UNICTRAL Model Law text
The Model Law, which was amended in 2006, is accepted worldwide. A country can adopt
the Model Law, modifying it as required and incorporating it into their national law. The
Model Law is an attractive option as many countries desire to attract parties from overseas
to enter cross-border agreements and the Model Law facilitates this by providing familiarity
and uniformity in the arbitration laws of different states.
Article 4 sets out a waiver of the right to object. Further, under Chapter 4, a party can
challenge the jurisdiction of the arbitration panel, but this right shall be forfeited unless it
is exercised immediately and promptly. Article 5 of the Law provides transparency by
requiring that no court shall intervene in arbitration proceedings, thereby instilling
confidence in those involved in such proceedings that the arbitral award shall offer finality.
The form that the arbitration shall take is governed by Article 7, which the parties usually
agree upon in advance. There are also penalties available to arbitrators for those who flout
the procedure. For instance, in the event that a party attempts to obstruct the arbitral
process, the party in default can risk losing the case (see Article 25).
In accordance with Ch. 4(A), this provision deals with the enforceability of interim
measures. Whilst, the issuance of an award can be done on agreed terms (see Article Ch.6),
a party who is not satisfied with an arbitral award is entitled to challenge the award but only
on the ground of a violation of process (see Ch. 7). That is to say that the court can set aside
an award if it is contrary to public policy. Furthermore, under Ch. 8, a part can make a
request that an award be set aside (This provision has been modelled on Article V(1)(e) of
New York Convention). It ought to also be mentioned that UNCITRAL rules govern the
procedure and conduct of arbitrations and do not provide rights and obligations to the
parties.
2.2 International Commercial Arbitration
International commercial arbitration developed as a means of resolving differences
between parties to international cross-border transactions. The popularity of this method of
dispute resolution in international contracts is due to a variety of factors. Overall, the
benefits of including an arbitration agreement in international contracts outweigh the
implications of not doing so. An international contract that does not have an arbitration
agreement included within the contract could, in the event of a dispute, be subject to the
myriad of private international law rules, which would result in uncertainty for the parties
to such agreements. This would not only result in uncertainty between parties to cross-
border transactions, however, it would also act as a disincentive to international investment
and international commerce as a whole.
One of the benefits of international commercial arbitration is that it is generally more cost-
effective than litigation. Further, the procedures adopted are simpler. However, this may
not always be the case as procedures in complex cases can similar to those of a national
court system .
There is also greater scope for arbitration proceedings to be quicker if a suitable procedure
is adopted. Furthermore, arbitrators tend to be technically qualified which can assist in
facilitating a sound and quicker outcome to a case involving relatively straightforward legal
issues but complex factual points. Furthermore, arbitration tends to be more flexible and
accommodating than litigation, whereby the parties can often arrange a hearing date which
is mutually convenient. Another appealing fact about arbitration over litigation is the fact
that arbitration affords confidentiality for the parties concerned, whilst in the national court
system the proceedings are in the public domain. Finally, and perhaps of most significance
in the world of international commerce, arbitration proceedings are of a less confrontational
nature than the adversarial approach adopted by court proceedings. This is not surprising
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can also constitute such an agreement (Article II, para. 2). Should a national court of a
Contracting State be seized of a matter found to be within the ambit of the Convention, the
court shall, 'at the behest of one of the parties and in the absence of a finding that the said
agreement is null or void, refer the matter to arbitration.
Further under Article III Contracting States are required to recognize an arbitral award as
having binding effect and therefore must enforce them pursuant to their own national
arbitration laws. In addition, the parties ought to not be required to undergo more
burdensome conditions, or have to pay higher fees when seeking recognition or
enforcement of their award, than it would be required to seek to enforce a domestic award
(see Article III). Article VI of the Convention provides that there is a requirement that an
arbitral award and the arbitration agreement, as defined by Article II, be furnished to the
court.
The right of a party against whom the recognition and enforcement of an arbitral award is
invoked can challenge this only in circumstances falling within Article V, para. 1(a)-(e),
namely, inter alia, the arbitration agreement is invalid under the applicable law, proper
notice of the appointment or the arbitrator or arbitration proceedings was not furnished, the
issue is outside the remit of the arbitral panel, the composition of the arbitration panel or
procedure adopted was not in accordance with the arbitration agreement / clause and / or
"The award has been invalidated by a competent court." or is yet to become binding on the
parties.
It is also open to the State seized with an arbitral award under the New York Convention to
refuse to recognize or enforce an award if it is found that the subject matter is incapable of
being settled by arbitration pursuant to the laws of that country (see Article V, para. 2(a)),
or the State considers that the recognition or enforcement would go against public policy
(see Article V, para. 2(b)).
Article VII (para. 1) of the Convention also provides that multilateral or bilateral
agreements entered into by Contracting States pertaining to the recognition and
enforcement of arbitral awards are not affected by the Convention, nor do the provisions
deprive a party to an arbitral award of any right to enforce or have recognised an award in
an manner that is open to him.
The arbitration law of Contracting States, party to the Convention shall govern the
procedure of the arbitration hearing. Accordingly, the enforcement of the New York
Convention awards can differ from state to state.
Despite this, the New York Convention has proved to be 'one of the most successful treaties
in commercial law' . It affords international investors and those entering cross-border
commercial transactions with confidence that they have entered binding commitments. The
beneficiaries of the Convention are both private parties and governments.
The success and appeal of the Convention is largely due to the fact that enforcing an arbitral
award under the Convention is easier than seeking to enforce a judgment from a national
court. Further, the success of the Convention is also due to the number of States that have
signed / ratified the treaty. Currently there are 117 States party to the treaty (as at 1999).
The confidence instilled in parties to international commercial arbitrations by the
Convention is in the legal certainty which it offers to those engaged in cross-border
transactions in Contracting States. Parties doing business in States that are yet to become
parties to the Convention are exposed to a higher level of risk, which ultimately renders the
transaction more costly, due to the requirement of additional security, protracted
negotiations, and also an increase in transaction costs.
536 A Critical Study to the Role of International Arbitration in the Resolution of International
Business Disputes
3. METHODOLOGY
The study provides a critical review of the role of arbitrators in conducting proceedings and
developing laws due to the internationalisation of modern commercial law and investigates
the International Bodies that are involved in International Commercial Arbitration. It covers
the International Chamber of Commerce and the United Nations Commission for
International Trade Law and their significant role in the development of commercial
arbitration.
4. DISCUSSION
4.1 The Challenges Confronting International Commercial Arbitration
The increasing number of parties to cross-border transactions has inevitably results in a
greater demand for a dispute resolution mechanism at the international level. More
agreements being entered, means more disputes between parties. This results in more
arbitration or litigation being pursued in order to resolve their differences. International
commercial arbitration has to date filled this role. However, there is still a distinct lack of
appropriately qualified and properly equipped arbitrators to consider such disputes.
In 1997, more than 85% of arbitrators appointed were residing in either Europe or the
United States and Canada , whilst under 60% of the parties to arbitrations conducted by the
ICC were from such countries. Further, the seat of the arbitration was, in virtually 90% of
the cases, located in the Western part of the world. Albeit such choices were normally made
by the parties themselves, this data indicates that there is greater confidence in the legal
systems and arbitrators deriving from the West than from other parts of the world .
This distinction clearly raises a problem if international commercial arbitration is to be seen
globally as an acceptable and effective means of resolving international commercial
disputes around the globe. This lack of venues and suitably qualified arbitrators in other
parts of the world could result in, inter alia, more parties seeking to resolve their disputes
by initiating proceedings in their national court system. This can present a myriad of
problems, not least the differing jurisdictional issues, the additional expense, the problems
trying to enforce an award and, more importantly, the damage that this could have on a
continuing business relationship.
On a further note, the involvement of the court system in arbitration cases can generally
prove problematic. For instance, the backlog of cases, the often protracted proceedings, the
higher costs levied in relation to management of cases and the need to appoint counsel to
attend the hearing. This nullifies the benefits of referring a dispute to arbitration in the first
place.
Albeit, these problems could be remedied somewhat by ensuring that the courts role as a
supervisor of the arbitration is confined strictly to the enforcement aspect of the arbitral
award and not becoming involved at the venue of arbitration.
A party against whom an arbitral award has been made can challenge the recognition and
enforceability of such an award in the national court of a Contracting State, if such a party
'furnishes to the competent authority where the recognition and enforcement is sought,
proof' of one or more of the points set out at Article V(1)(a)-(e). Accordingly, whilst arbitral
awards made by a Contracting State to the Convention do provide a degree of finality and
legal certainty given that they are binding, in the event of a dispute between the parties,
there is scope to challenge the validity of such an award if a party can satisfy one or more
of the aforementioned points as set out at Article V.
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The rationale for the position taken by the English courts, in the event of foreign
proceedings being issued in clear breach of an arbitration agreement, appears to be that
without granting the injunction against the foreign proceedings, a party to the agreement
shall be deprived of a contractual right, in circumstances where the award of damages in
such instances would be regarded as an inadequate remedy. Given that this jurisdiction is
discretionary, however, good reason ought to be established first as to why it the discretion
ought to be exercised in any given case.
Overall, the position of court systems in different countries differs on this point. The
English courts are inclined to approach the matter by granting a stay of foreign proceedings
in favour of allowing the arbitration to proceed in the agreed manner, in the absence of
compelling reasons against this course of action: The El Amria . In short, the courts
normally hold the parties to their bargain.
5. CONCLUSION
Arbitration is becoming increasingly more popular as a means of solving international
commercial disputes. One of the attractions of arbitration as a means of dispute resolution
in international commercial contracts is the informality that arbitration affords. Whilst
arbitrators do enjoy greater freedom in conducting proceedings than the less flexible
procedures of the court system, that is in no way to suggest that this is at the expense of a
just outcome to the case. It is apparent from the various institutional bodies and sets of rules
applicable to arbitration that the arbitral system has remained closely guarded to ensure that
the procedures adopted, whether for an ad hoc or institutionalised arbitration hearing,
follow a prescribed set of rules designed to facilitate a just outcome for both parties.
The New York Convention, for instance, has played a fundamental role in galvanising
arbitral awards as being binding and enforceable around the globe. Provisions such as these
act as a catalyst to encourage cross-border transactions and international investment
between parties who would otherwise be reluctant to enter contractual arrangements until
they were assured that there exists a competent system means of dispute resolution in the
event that differences arise between the parties. The introduction of the New York
Convention in the field of international commercial arbitration has made great strides in
instilling confidence in parties to international commercial agreements, that in the event of
a dispute, should an arbitral award be made in their favour, they can have the award
recognised and enforced internationally, in a Contracting State.
Arbitration is therefore likely to continue to be a preferred choice for the resolution of
international commercial disputes for years to come. The ongoing work in this area that is
being carried out by institutions such as UNCITRAL, ICC or the LCIA, to name but a few,
has helped to educate and equip arbitrators and arbitration centres to become more client
focused and therefore better able to accommodate the differing needs of merchants or
investors around the world.
Whilst international commercial arbitration is a long way off from establishing a central
jurisdiction for the enforcement of arbitral awards, or a uniform set of rules for the
procedure of enforcement of awards, arbitrators are enjoying this greater freedom whilst
ensuring that the awards they issue are in the interests of all parties concerned by remaining
binding and enforceable.
References
Text Books:
A. Redfern and Martin Hunter, Law and Practice of international Commercial Arbitration, 2004,
Sweet & Maxwell (London)
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Abdullah Dhaidan Alharbi 539
J. Murdoch and W. Hughes, Construction Contracts: Law and Management, Fourth Edition, 2008,
Taylor & Francis
R. Bradgate, F. White, Commercial Law, 2007, Oxford University Press
Cases:
Aggeliki Charis Compania Maritima SA v. Pagnan SpA - Angelic Grace [1995] 1 Lloyd's Rep 87
1995 CA
Continental Bank N.A. v. Aeakos Compania Naviera SA, [1994] 1 WLR 588
Erich Gasser GmbH v. MISAT Srl [2005] QB 1
The El Amria [1981] 2 Lloyd's Rep 119
Turner v. Grovit [2005] 1 AC 101
UK Statute:
The Arbitration Act 1996
Journals / Articles:
N. Kaplan (Chairman), New Developments on Written Form, 1999, Hong Kong International
Arbitration Centre
N. Pengelley, Judicial Comity and Angelic Grace, Arbitration and Dispute Resolution Law Journal,
Vol., 1999, pp.196-207
Enforcing Arbitration Awards under the New York Convention: Experience and Prospects, UN, 1999
R. Briner (Chairman), Philosophy and Objective of the Convention, International Court of
Arbitration of the International Chamber of Commerce, 1999
International Conventions/Treaties:
New York Convention, Convention on the Recognition and Enforcement of Foreign Arbitral Awards
Done at New York, 10 June 1958; entered into force, 7 June 1959 United Nations, Treaty Series,
vol. 330, p. 38, No. 4739 (1959)
UNCITRAL Arbitration Rules, 1978
UNCITRAL Model Law, 1985
Lectures:
Judge Kenneth Keith, Aspects of the Judicial Process in National and International Courts and
Tribunals, www.uncitral.org
Mr Jernej Sekolec, The Role of UNCITRAL in the Harmonisation and the Modernisation of the Law
of International Trade Law, www.unictral.org
Mr Jernej Sekolec, International Commerical Arbitration, www.unictarl.org
Stephen Schwebel, The Merits (and Demerits) of International Adjudication and Arbitration,
www.uncitral.org
Internet Sources:
www.google.com
www.uncitral.org