International Commercial

Arbitration
• International commercial arbitration is a method of resolving disputes
between private parties arising out of commercial transactions
conducted across national boundaries that allows the parties to avoid
litigation in national courts.
• resolving business disputes between ---------transnational parties ------
------through the use of one or more arbitrators ------ rather than
through the courts.
International Commercial Arbitration
• It requires the agreement of the parties, which is
• usually given via an arbitration clause inserted into the contract or
business agreement.
• The decision is usually binding.
• One of the most popular methods of dispute resolution in
international trade.
• The increasing significance of inter-state trade and the links it forges
between enterprises across borders help develop international
methods of dispute resolution
• Dispute Settlement Mechanisms for Business–
• Domestic courts/ Mediation/Arbitration
• Business Disputes – DSM – speedier, Inexpensive, effective , efficient,
reliable, confidential, amicable, private.
• Arbitration as a Dispute Resolution Mechanism
ICA as a preferred mode of DRM in International
Trade
• Expansion of international trade –Lead to emergence of
Supranational Jurisdiction
• Cross border Transactions – Cross border Disputes
• Business Disputes – DSM – speedier, Inexpensive, effective , efficient,
relable, confidential, amicable, private.
• Don’t want to subject themselves to Legal Systems of other countries
• Enforcement of arbitral awards Vs execution of Foreign Judgments
Nature of Arbitration as a method of Dispute Resolution

Arbitration- Court adjudication (Close Connection)—

• Distinct from Diplomatic DSM(med)
• Judicial method- application of Law
• Legal consequences and outcome – (Binding) arbitral awards
• Arbitrator discharge judicial functions “Judge
Sharp Contrast –
Private and Consensual method
Party autonomy
Arbitration has no standing body as Courts
Arbitration is characterized as having a number of
distinct advantages over proceedings in national
courts
• A written agreement to resolve disputes by the use of impartial arbitration.
• Such a provision may be inserted in a contract for the resolution of future
disputes, or
• may be a submission agreement to arbitrate an existing dispute
• Provides an independent venue for the resolution of any dispute between
the parties by judges of their own selection.
• The dispute is handled by experts
• The award rendered is final and enforceable in different jurisdictions.
• It is a confidential process that may help minimize the effects of a dispute
between the parties.
Meaning of “International”
1. The international character of the dispute - Foreign element even
if the parties are nationals of same country
ICC Arbitration
2. “Nationality Test” Nationality of the Parties – involves reviewing
nationality, place of residence or place of business of parties ---
Adopted by European Convention on International commercial
arbitration of 1961
3. The Model law
Article 3 of UNCITRAL Model law – “International”
Arbitration is international if:
a) the parties to an arbitration agreement have, at the time of the conclusion of the
agreement, their places of business in different states; or
b) one of the following places is situated outside the state in which the parties have
their places of business;
• c) any place of arbitration if determined in, or pursuant to, the arbitration
agreement;
• d) any place where a substantial part of the obligations of the commercial
• relationship is to be performed or the place with which the subject matter of the
• matter is most closely connected; or
• e) the parties have expressly agreed that the subject matter of the arbitration
• agreement relates to more than one country
UNCITRAL Model Law
• The Model Law designed to apply international commercial
arbitration that some definition of the term “international was
essential”
The dispute is international if –
I. The parties are of different nationalities – Article 1(3)(a)
II. The business is of international character – Article 1(3)(b)(ii)
III. The parties have agreed that the subject matter of the arbitration
agreement relates to more than one country – Article 1(3)(c)
IV. The agreed place of arbitration is outside the states in which
parties are situated – Article 1 (3)(b)(i)
Whether or not a particular arbitration is international, will depend
upon the provisions of relevant national law.
• E.g – Spain is one of the countries to adopt the wide definition in the
Spanish Arbitration Act 2003, as amended by Arbitration amendment
Act 2011 section 3.
 Meaning of “Commercial”
Commercial reservation
• Adopted by China when ratified NY Convention 1987
• India – ICA defined as an arbitration relating to legal relationships that
are considered to be commercial under the law in force in India.
Geneva Protocol of 1923, “Commercial Reservation” - allows a State to
apply the Convention only to “differences arising out of legal
relationships, whether contractual or not, which are considered as
commercial under the national law of the State making such
declaration”.
Reservation by the states is also allowed Under the New York
Convention Art 1 (3)
"commercial matters" and "any other matters" in
the New York Convention:
Primary focus on commercial disputes:
• The core purpose of the NYC is to facilitate the recognition and
enforcement of international commercial arbitration awards, meaning
"commercial matters" are the primary subject area covered by the treaty.
Flexibility with "any other matters":
• While "commercial matters" is the primary focus, Article 1(3) allows states
to make reservations when signing the Convention, potentially extending
its application to "any other matters" considered arbitrable under their
domestic law.
Interpretation by courts:
• Whether a specific dispute falls under "commercial matters" or "any other
matters" is ultimately decided by the courts in the country where
enforcement is sought, taking into account the specific facts of the case
and the relevant legal interpretations.
regarding "any other matters"
State reservations:
• When a state signs the New York Convention, it can declare that it will only apply
the Convention to "commercial matters" or may include specific categories of
"other matters" based on its domestic law.
Public policy considerations:
• Even if a dispute falls under "any other matters," courts may still refuse
enforcement if it violates fundamental public policy principles.
The footnote to Article 1.1 of the UNCITRAL Model Law on
International Commercial Arbitration
• provides an example list of relationships that are considered
commercial.
• The footnote emphasizes that the term "commercial" should be
interpreted broadly
Section 2(f) of Indian Arbitration and Conciliation
Act, 1996,
ICA means --an arbitration relating to arising out of legal relationships,
whether contractual or not, considered as commercial under the law in
force in India and where at least one of the parties is-
a) an individual who is a national of, or habitually resident in, any
country other than India; or
b) a body corporate which is incorporated in any country other than
India; or
c) a company or an association or a body of individuals whose central
management and control is exercised in any country other than India;
or
d) the Government of a foreign country;
Principles of International Commercial Arbitration
• Consensual dispute resolution process
1. Party Autonomy – Arb designed by the parties themselves--Choose
– the arbitrators/ procedural laws/ applicable law
• Parties define the issues or subject matter to be decided by Arbitral
tribunal.
• It provides procedural flexibility, which allows parties to engage in an
efficient, confidential and fair process leading to a final, binding and
enforceable award.
• Arbitrators are neutral – maintain good standard as expertise.
• Party autonomy is described by the authors of Redfern and Hunter in
the following terms:

"Party autonomy is the guiding principle in determining the procedure

to be followed in an international commercial arbitration. It is a
principle that has been endorsed not only in national laws, but by
international arbitral institutions and organizations. The legislative
history of the Model Law shows that the principle was adopted without
opposition..."
UNCITRAL. The most important principle on which
the model law should be based is the
Freedom of parties to tailor the rule of game to their specific needs.
The model law expressly permits
• the parties to specify the international nature of the arbitrable
subject matter (Art. 1(3)(c));
• choose institutionalized arbitration and rules (Art. 2(d));
• agree on the manner in which written communications are deemed
received (Art. 3(1));
• determine the number of arbitrators (Art. 10(1));
• determine the procedure for arbitrator appointment (Art. 11(2));
• agree on a procedure for arbitrator challenge (Art. 13(1));
• determine the procedure for conduct of the arbitral proceedings (Art.
21);
• determine the language(s) to be used (Art. 22(1));
• agree to the manner and time frames governing presentation of
claims (Art.23(1));
• agree to oral hearings (Art. 24(1));
• agree as to defaults (Art. 25) and experts appointed by the tribunal
(Art. 26);
• choose the law(s) which will govern the proceedings (Art. 28(1)); and
• authorize the arbitrators to decide ex aequo et bono or as amiable
compositeur (Art. 28(3))
Before Commencement of After establishment of Tribunal
Arbitration • the freedom of the parties to
Under the arb agreement – DRS determine the arbitral procedure may
of own Choice Art 18 of be circumscribed.
UNCITRAL Model Law • When the constitution of an arbitral
• Choice of arbitrators tribunal brings into existence a new
set of contractual relationships
• Choose the Form – adhoc/ concerning the arbitrators
institution • The arbitration agreement must be a
• Choice of procedure valid one according to the law which
governs it.
• Place of arb, Language of • The arbitral procedure itself should
arbitration comply with the mandatory rules of
• Choice of substantive law to law of the lex arbitri.
govern disputes
Section 1(b) of the Arbitration Act, 1996 (UK) which states that the
provisions of Part 1 of the Act are founded on stated principles including:
"(b) the parties should be free to agree how their disputes are resolved,
subject only to such safeguards as are necessary in the public interest."
Article 21 of the 2011 ICC Arbitration Rules,
“[t]he parties shall be free to agree upon the rules of law to be applied by
the arbitral tribunal to the merits of the dispute.”
The second scenario is that in which the parties have remained silent as to
the law applicable to their relationship. In such circumstances, laws on
arbitration and arbitration rules provide for the arbitrators’ power to
determine the applicable law.
2. Separability -Arbitration Clause ‘staying alive’
• the agreement to arbitrate contained in an arbitration clause is
regarded as a separate agreement from the rest of the contract
between the parties; and so it may continue to exist when for all
other purposes the contract itself is at an end.
• The arbitration clause survives the termination, voidance or invalidity
of the main contract.
• arbitration is not ‘dying’ together with the main contract.
• The principal that the arbitration agreement is separate/autonomous
from the main contract has long been established by the case law
accepted from the early 1940s. in Heyman v. Darwins Ltd. [1942]
The most significant changes in the area of the autonomy of arbitration agreement
came in 1985, with the introduction of the UNCITRAL Model Law on International
Commercial Arbitration. Article 16(1) of the UNCITRAL Model reproduces the term
of
Article 21(2) of the UNCITRAL Arbitration Rules and provides that:
• “An arbitration clause which forms part of a contract shall be treated as an
agreement independent of the other terms of the contract. A decision by the
arbitral tribunal that the contract is null and void shall not entail ipso jure the
invalidity of the arbitration clause”.
3.Competence - Competence
• Arbitrator can decide on its own competence.
• The authority vested in an Arbitral Tribunal to deliberate upon and
resolve conflicts pertaining to its jurisdiction encompassing matters
like the presence, validity, legality, and ambit of the parties’
arbitration agreement.
• In jurisdictions that have adopted the UNCITRAL Model Law,
arbitrators typically hold the ultimate authority to decide on the
validity of the arbitration agreement in most instances.
Section 30 of the English Arbitration Act, 1996
• Tribunal may decide on its own jurisdiction ---enacts the principle of
competence competence which is also a part of international arbitral
jurisprudence.
These principles taken together provide that once an arbitral tribunal is
constituted, a party cannot derail the arbitral process by means of an
allegation:
(a) that the underlying contract is void and therefore, there is no valid
arbitral agreement/clause, and/or;
(b) that the tribunal has no jurisdiction and that the matter must be
referred to the court.
first arbitral institution which recognized the doctrine of
separability of the
• arbitration agreement was the ICC in 1955.
• Article 6(4) provides that: “Arbitral tribunal shall continue to have
jurisdiction to determine the respective rights of the parties and to
adjudicate their claims and pleas even though the contract itself may
be non-existent or null and void”.
• Section 7 of English Arbitration Act 1996 (UK) that reads:
• “Unless otherwise agreed by the parties, an arbitration agreement
which forms or was intended to form part of another agreement
(whether or not in writing) shall not be regarded as invalid, non-
existent or ineffective because that other agreement is invalid, or did
not come into existence or has become ineffective, and it shall for that
purpose be treated as a distinct agreement.”
• The arbitration agreement therefore “floats” clear of the agreement
embodying the main obligations between the parties.
• Art. 23.1 of the LCIA Rules provides (in almost identical terms to sec.
7):
“…and arbitration clause which forms or was intended to form part of
another agreement shall be treated as an arbitration agreement
independent of that other agreement. A decision by the Arbitral
Tribunal that such other agreement is non-existent of ineffective shall
not entail ipso jure the non-existence, invalidity or ineffectiveness of the
arbitration clause.”
The New York Convention 1958 makes no direct reference to principle
of separability.
It just states that recognition and enforcement of the award may be
refused if the party against whom such measures are sought can
establish that the arbitration agreement “is not valid under the law to
which the parties have subjected it or, failing any indication thereon,
under the law of the country where award was made.”
Consequences of Separability Doctrine:
Direct Indirect
1. arbitration agreement is • arbitrators have the power to
unaffected by the status of the rule on their own jurisdiction.
main contract. • The competence-competence
2. the arbitration agreement may and separability principles are
be governed by the law different closely linked and have similar
from the governing the main objective.
contract.
• such agreements will not
necessarily be governed by rules
of the same nature and origin as
those governing the
maincontract
 4. Enforceability

The enforcement of foreign arbitral awards is regulated primarily by

the New York Convention on the Recognition and Enforcement of
foreign Arbitral Awards (1958) as it facilitates
• the recognition and enforcement of the arbitral awards
internationally.
• It has been ratified by many states and therefore ensures,
• to a great extent, a uniform and effective treatment of arbitral
awards’ enforceability.
The enforcement of foreign judicial decisions, does not enjoy the
same uniform treatment.
• The principles of international cooperation and of judicial proceedings
are recognised in many states,
• but implementation of the principles, which results in the recognition
and enforcement of foreign judicial decisions,
• is left to the internal legislation of the single states or to bilateral or
multilateral treaties concerning specific areas
Main reason for ICA best for Int. Commercial Disputes
• Limitation of the reasons for challenge, as well as grounds for refusal
of enforcement of the award
• It is one of the common characteristics of recently enacted or
amended arbitration statutes, in particular with respect to
international arbitration.
• Articles 7-9 of UNCITRAL Model Law provide for enforcement of
arbitration agreements by the courts.
GROUNDS FOR CHALLENGING THE ENFORCEABILITY OF
ARBITRAL AWARD:

The English Arbitration Act ---provides a limited number of grounds on

which an award will not be enforced.
The most important ground is set out in Section 66(3) that the tribunal
lacked the substantive jurisdiction to make the award.

--- it is the lex fori or the law of the forum which

would be applicable in deciding whether a particular award should be
enforced and whether enforcement would be contrary to any public
policy.
The grounds are set out in Section 103(2) of the Act and are taken
almost directly from the New York Convention:
• A party to the agreement was under some incapacity;
• The arbitration agreement was not valid under the law to which the
parties subjected it to
• The party against whom the award was made was not given proper
notice of the appointment of the arbitrator or of the arbitration
proceedings or was otherwise unable to present his case.
• Award goes beyond the scope of subject matter of arbitration
• The composition of Tribunal not accordance with the agreement
• Award currently set aside or suspended by the competent authority
Parties to the Dispute
• Interstate
• State and non state actor
• Two non state actors
Way Arbitartion conducted
• Ad hoc
• Institutional arbitration
Subject Matter of the dispute
 Commercial law disputes
 Investment disputes
 Boundary determination
 Constructiona nd infrastructure
 Transfer of financial services
Ad hoc Arbitration
• In international commercial arbitration,
"ad hoc arbitration" refers to a dispute resolution process where
1. the parties create their own rules and procedures for the
arbitration,
2. without relying on a pre-established arbitral institution
• ad hoc arbitration clauses are longer and more detailed than
institutional arbitration clauses, especially in terms of the procedure
for the arbitration such as how the arbitrators are to be appointed,
how many arbitrators should be there etc
• (UNCITRAL) Arbitration Rules are the most common for the conduct
of this kind of arbitral proceedings.
• If the parties do not agree on any rules or the procedure, usually
default provisions of the law of the place of arbitration will be
applicable.
"institutional arbitration"
• External specialist institution supports + supervises + regulates –the
arbitral Process
• utilizes the rules and administrative support provided by a recognized
arbitration institution like
the ICC (International Chamber of Commerce) or
• the LCIA (London Court of International Arbitration)
• SIAC Singapore International Arbitration Center
• HKIAC Hong Kong International Arbitration Center
Role of Arbitral Institutions
Can assist in many steps or be hands off
Broadly ----
• Selection of arbitrators
• Procedure to Challenge the arbitrators
• Rules governing the arbitration
• Administrative assistance
Note – Some institutions also render the service of Review of Arbitral
Award
Key differences between ad hoc and institutional
arbitration:
Rule Governance:
• In ad hoc arbitration, parties must agree on the specific rules to govern the
proceedings, often using the UNCITRAL Arbitration Rules as a base, while
institutional arbitration follows the established rules of the chosen institution.
Administrative Support:
• Institutional arbitration provides administrative support like arbitrator selection,
case management, and fee collection through the institution, whereas in ad hoc
arbitration, the parties are responsible for managing these aspects themselves.
Flexibility:
• Ad hoc arbitration offers greater flexibility to tailor the process to the specific
needs of the dispute, while institutional arbitration provides a more standardized
procedure.
Cost:
• Ad hoc arbitration can potentially be less expensive due to the lack of
institutional fees, but can also be more complex to manage if the parties do not
have experience in setting up an arbitration process.
: When to choose ad hoc arbitration
Small disputes: When the dispute value is relatively small and the cost of using an institution
might be disproportionate.
Specific needs: When the parties have unique requirements that cannot be fully accommodated by
existing institutional rules.
Faster resolution:In situations where a quick resolution is needed and the parties are comfortable
managing the administrative aspects.
When to choose institutional arbitration:
Complex disputes:
• When the dispute is complex and requires a structured process with established procedures.
Neutrality and fairness:
• To benefit from the reputation and expertise of an established institution in managing the
arbitration process.
International recognition:
• When the parties want to ensure the enforceability of the award in different jurisdictions.
 Adv and Disadv
Ad Hoc Institutional
Adv Adv
• Greatest degree of autonomy • Pre existing set of rules of
• Procedural Flexibility procedure
• No administrative Fees • pool of arbitrators.
• streamlined processes
Disadv • Institutional resources, and well-
established administrative
• Lack of Panel of arbitrators mechanisms
• No external supervision • improve predictability and reduce
procedural conflicts

Disadv
• Additional Cost
 The main arbitral institutions
• International Chamber of Commerce (ICC)
• London Court of International Arbitration (LCIA)
• Permanent Court of Arbitration (PCA)
• Stockholm Chamber of Commerce Arbitration Institute (SCC)
• Swiss Chambers’ Arbitration Institution (SCAI)
• The International Centre for Dispute Resolution (ICDR), in the international
branch of the American Arbitration Association (AAA)
• Singapore International Arbitration Centre (SIAC)
• Hong Kong International Arbitration Centre (HKIAC)
• China International Economic and Trade Arbitration Commission (CIETAC)
• Arbitration Center of the World Intellectual Property Organization (WIPO)
Historical Growth of ICA
Ancient Greece : disputes relating to indepence and sovereignty
Middle Ages:
• Pope, King or Emperor as arbitrator
• Ways of resolving disputes between marketplace and merchants – did
not resemble the modern day practice
• Practice was common in European countries especially in England.
Arbitration almost Disappeared
1648 – Peace Treaties of Westphalia followed by 30 years war in Europe
and the primacy of sovereignty .
Courts established – drop in use of Arbitration
Contd…
End of 18th and 19th Century – Arbitration Resurfaced
• English Arbitration Act 1889 – English Arbitration Act 1950
• US Arbitration Statute established – Federal Arbitration Act 1925.
The Jade Treaty arbitration
• Signed between Great Britain and USA
• To settle outstanding issues following the American war of
independence
Remarkable Mechanism established under treaty
3 Types of Commissions were established
• 1 for boundary disputes between two states
• 2nd and 3rd commission – disputes relating to
1. Claims of compensation due to British nationals for debts owned to
them by US nationals which will be compensated by U.S
2. Claims from U.S nationals against Great Britain for treatment of their
property subsequent to the independence of the United States.
Jade Treaty Arbitration
• Paved way for Modern form of Arbitration
1.Settle disputes between two states but also for disputes between
nationals of one state and another state.
2. Its et the Precedence since decisions of the commissions were based
on law and contained reasons
3. Commissions were composed exclusively of nationals of both the
parties
The Albama Claims Arbitration

• Damages suffered by the U.S government due to attacks on Union

ships by Confederate navy ships.
• Ships were built in British Shipyards during the American cilvil war .
One of the ships was The CSS albama
-1871Washington Treaty – Signed between U.S and UK
-An international arbitration tribunal in Geneva
-Ruled in Favour of Us
Set an important precedent to successfully settle interstate claims
through arbitration.
Independence of Tribunal was enhanced--
The Tribunal – 1st time – composed of majority of arbitrators who were
not nationals of one of the state’s party to the dispute (resemble the
current practice )
Establish the rule that parties to the dispute can freely determine the
law applicable to to the dispute and that can include non binding
rules or so called soft laws
• Series of several interstate arbitrations paved way ---for 1899 Hague
Convention – Creating Permanent Court of Arbitration PCA
• an intergovernmental organization providing a variety of dispute
resolution services to the international community.
Arbitration in The 20th Century
• 1950’s and 1960’s – End of Colonial Period
• International trading opportunities- apparent
• Globalisation – expansion of Economies
• International and National Governments – Focus – support these
opportunities
• New World – National vision replaced by Global Visions
An international and neutral infrastructure for international arbitration
• Emergence and acceptance
• This was started in 1958, when the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards was
concluded. Today this is the cornerstone of international arbitration,
to which over 168 countries are party.
The landmarks which helped in development of the modern
law and the practise of international commercial arbitration
are:

• “The Geneva Protocol of 1923 (the 1923 Geneva Protocol)

• The Geneva Convention of 1927 (the 1927 Geneva Convention).
• The New York Convention of 1958 (the New York Convention).
• The UNCITRAL Arbitration Rules (the UNCITRAL Rules) adopted by resolution of
the General Assembly of the United Nations in December 1976.
• The Washington Convention of 1965 (the Washington Convention).
• The UNCITRAL Model Law (the Model Law) adopted by the United Nations
Commission on International Trade Law in June 1985.
• Revisions to the Model Law (the Revised Model Law) adopted in December
2006. ”
• The New York Convention of 1958 plays a prominent role in the development of
International Arbitration
• Arbitration is a consensual dispute resolution process based on the
parties' agreement to submit their disputes for resolution to an
arbitral tribunal usually composed, of one or three independent
arbitrators appointed by or on behalf of the parties.
• An arbitration is conducted in accordance with the terms of the
parties' arbitration agreement which are often found in the provisions
of a commercial contract or applicable investment treaty.
• Arbitration is known for its procedural flexibility, which allows parties
to engage in an efficient, confidential and fair process leading to a
final, binding and enforceable award.
• Arbitration awards are enforceable in over 150 countries around the
world due to the application of the New York Convention on the
Recognition and Enforcement of Foreign Arbitral Awards (the New
York Convention)
 Arbitration
• the most traditional form of private dispute resolution.
• Parties often select arbitrators on the basis of substantive expertise.
• Arbitration is a binding procedure.
• Arbitration is adjudicatory, as opposed to advisory, because of the
fact that the arbitrator (usually a retired judge or attorney) renders a
decision at the end of an arbitration hearing, and that decision is final
and binding, subject only to a very limited court review.
• It is often "administered" by a private organization that maintains lists
of available arbitrators and provide rules under which the arbitration
will be conducted. Such organizations can also manage the arbitration
in whole or in part