International Arbitration: Resolving Cross-Border Disputes Through Arbitration

INTRODUCTION

International Arbitration is a method of dispute resolution in which the parties have an agreement to get their disputes resolved by private individuals, known as arbitrators, instead of approaching a law court. This agreement of the parties consists of an arbitration clause that lays down the rules and guidelines for the arbitration process. The decision given by the arbitrators is final and binding on all the parties who have signed the arbitration agreement or contract.

The New York Convention or the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 is the main document that governs arbitration agreements and awards for 169 nations. As per this Convention, all national courts have to recognise and enforce foreign arbitral awards and arbitration agreements.[1]

This article gives an overview of the concept of international arbitration by describing its history and evolution. It also explains the four main principles or characteristics of international arbitration which are neutrality, enforceability, flexibility and confidentiality. The article also explains the three main types of international arbitration namely arbitration, investor-state arbitration and international commercial arbitration.

The article also describes the legal framework of international arbitration which consists of major international conventions such as the New York Convention (is also known as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards) and the UNCITRAL Model Law on International Commercial Arbitration. It also explains the major arbitration institutions which namely the London Court of International Arbitration (LCIA), American Arbitration Association (AAA), and the Singapore International Arbitration Centre (SIAC).

It also explains the advantages of international arbitration in resolving disputes such as speed and efficiency, expertise and specialisation, neutrality and impartiality, confidentiality and flexibility in procedures and rules.

OVERVIEW OF INTERNATIONAL ARBITRATION

1. History and Evolution

The modern form of international arbitration is traced to the Jay Treaty (1794) between the United Kingdom and the United States of America. This treaty “established three arbitral commissions to settle questions and claims arising out of the American Revolution.”[2] The Hague Conference of 1899 gave a more permanent status to international arbitration by adopting the Hague Convention. The Hague Convention dealt with the pacific settlement of international disputes, and was revised by a conference in 1907.[3]

Later, a Permanent Court of Arbitration was established at The Hague in 1899. It comprised of a panel of jurists appointed by the member governments, from which the litigant governments select the arbitrators.[4] However, the importance of the Permanent Court of Arbitration decreased due to the establishment of the Permanent Court of Justice in 1922.

Subsequently, the International Court of Arbitration was established in 1923. It aimed to settle disputes between states. However, now it also settles disputes between individuals, corporations as well as nations. “By the beginning of the 21st century, the court had arbitrated more than 10,000 disputes.”[5]

2. Key Principles and Characteristics

Following are some key principles and characteristic of international arbitration:

i. Neutrality

International arbitration is a form of dispute resolution that provides a neutral and non-biased platform for resolving cross-border disputes. The arbitrators are independent and are not influenced by any of the parties to the case.

ii. Enforceability

International arbitration awards are easier to enforce than the judgements given by foreign court.[6] The New York Convention (or the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958) has been ratified and accepted by more than 170 nations. It is a multilateral treaty aimed at the recognition and enforcement of international arbitration awards and agreements.

iii. Flexibility

International arbitration provides parties with flexibility in terms of procedures and rules. Parties to a dispute can modify the arbitration proceedings according to their needs and requirements. Parties can negotiate on various procedural aspects of the case such as the language of arbitration, the location where arbitration proceedings will be held, and the number of arbitrators.

iv. Confidentiality

Unlike traditional litigation, judgements and orders issued by international arbitral tribunal are usually not available to the public.[7] These orders and judgements are communicated only to the parties involved in these cases. The hearings of these international arbitral tribunals are generally not open to the public at large. The parties in international arbitration can also enter into an agreement to keep the contents of the case and the arbitral proceedings confidential in nature.

TYPES OF INTERNATIONAL ARBITRATION

International arbitration can be of three types which are interstate arbitration, investor-state arbitration and international commercial arbitration.

1. Interstate Arbitration

In interstate arbitration sovereign countries resolve their disputes through the process of arbitration. Here, there countries are represented by their respective governments. For example, the Red Sea Islands Arbitration between Eritrea and Yemen was aimed at settling competing claims to some uninhabited rocks in the Red Sea.[8] This interstate arbitration also provided a method to bring a military confrontation to an end in 1995.

2. Investor-state Arbitration

The second type of arbitration is investor-state arbitration. It is the fastest growing type of international arbitration. It means the adjudication of disputes between nations and private foreign investors, such as foreign nationals or companies.[9] Investor-state arbitration emerged in the second-half of the 20^th century due to a rise in the number of bilateral and multilateral investment treaties between various countries. In such bilateral and multilateral investment treaties, provision governing investors and investments from foreign countries are laid down. These treaties also provide enforcement mechanisms including the arbitration of disputes with foreign investors.

Investor-state arbitration also provides the foreign investors with a right to “sue a host government for compensation before an international arbitration tribunal when they have been aggrieved by that government’s actions.”[10]

3. International Commercial Arbitration

The third type of arbitration is international commercial arbitration, which is also the most common type of international arbitration. It is used to adjudicate disputes between parties based in different nations. A majority of such commercial arbitration cases are disputes which arise from contractual obligations between corporations. Businesses from different nations get their disputes resolved through arbitration because an international tribunal is more independent and well-versed with international business rules than an ordinary court in any country.

LEGAL FRAMEWORK FOR INTERNATIONAL ARBITRATION

1. Major International Conventions

i. New York Convention

The New York Convention is an international treaty that facilitates the enforcement of arbitration agreements and awards across nations. It was signed in 1958 and is also known as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The New York Convention has been ratified by more than 160 countries that agree to recognise and enforce the arbitration awards made in other member countries.

ii. UNCITRAL Model Law on International Commercial Arbitration

The UNCITRAL Model Law stands for United Nations Commission on International Trade Law. It provides the basic legal framework for carrying out international commercial arbitration. It aims to unify and standardise the procedural aspects of international arbitration.

2. Key Arbitration Institutions and Rules

i. London Court of International Arbitration (LCIA)

London Court of Arbitration is a private, non-profit international arbitration institution which aims at commercial dispute resolution. It administers international arbitration and mediation proceedings as well as other proceedings of other mechanisms of alternative dispute resolution.[11] London Court of Arbitration was established in London in 1892. Earlier it was known as the as the “City of London Chamber of Arbitration”. City of London Chamber of Arbitration was renamed as the London Court of Arbitration in 1981 to reflect its status as a world-leading international arbitration institution.[12]

ii. American Arbitration Association (AAA)

American Arbitration Association is a non-profit International Centre for Dispute Resolution. It is the largest private global provider of alternative dispute resolution (ADR) services in the world.[13] It helps in reducing the burden on courts of law. It also provides an economical method for dispute resolution among parties. American Arbitration Association also aims at making justice accessible to all individuals.

American Arbitration Association (AAA)-International Centre for Dispute Resolution (ICRD) also provides fair, rational, faster, and less adversarial means to handle the disputes that inevitably arise.[14]

iii. Singapore International Arbitration Centre (SIAC)

Singapore International Arbitration Centre is a non-profit international arbitration organisation that. The headquarters of Singapore International Arbitration Centre at Maxwell Chambers in Singapore on 1 July 1991. The arbitration awards given by Singapore International Arbitration Centre have been enforced by many countries which have signed the New York Convention such as India, USA, Thailand, Vietnam, Jordan, Indonesia etc. Singapore International Arbitration Centre awards these arbitration awards on the basis of UNCITRAL Arbitration Rules as well as its own rules of arbitration.

ADVANTAGES OF INTERNATIONAL ARBITRATION

The advantages of international arbitration can be delineated as follows:

1. Speed and Efficiency

International arbitration is a swifter process of dispute resolution than traditional court litigation. This is because it avoids the procedural complexities and potential backlog of cases. Arbitrators are generally more flexible, and the streamlined processes of international arbitration leads to quicker dispute resolution.

2. Expertise and Specialization

Arbitrators chosen in international arbitration proceedings have specialisation in specific areas of law. They are generally chosen for their expertise in the area of law involved to that particular dispute. This ensures that the arbitrators have a deep understanding of the subject matter, leading to more informed and accurate decisions. Parties can also select arbitrators who are experts at the legal issue involved their case. This also helps in improving the quality of the decisions given by these arbitrators.

3. Neutrality and Impartiality

International arbitration provides a neutral and impartial platform for resolution of disputes between various countries or parties/individuals belonging to different countries. It helps in avoiding the perceptions of ‘home court advantage’ that often times complicate selection of domestic courts.[15] Neutrality also helps in building the trust of parties in the fairness of the arbitration process. Arbitrators are required to act in an impartial manner and this ensures that the arbitration proceedings are impartial, fair and free from bias.

4. Confidentiality

Arbitration proceedings in international arbitration are generally private. The details of the case are not made available to the public. This confidentiality in international arbitration is beneficial for parties who want to protect their trade secrets or any kind of sensitive information. Unlike traditional court cases, which are generally non-confidential and matters of public record, international arbitration can keep the existence and content of disputes confidential.

5. Flexibility in Procedures and Rules

International arbitration provides parties flexibility in terms of procedures and rules. Parties to a dispute can modify the arbitration proceedings according to their needs and requirements. Parties can negotiate on various procedural aspects of the case such as the language of arbitration, the location where arbitration proceedings will be held, and the number of arbitrators. This allows the parties to customise the arbitration proceedings to suit their schedules and needs.

CONCLUSION

International arbitration is a crucial mechanism for resolving cross-border disputes. It has several key benefits: it is typically faster and more efficient than traditional court processes, due to the flexibility of procedures and avoidance of court backlogs. Arbitrators are often chosen for their specialised expertise, ensuring well-informed and precise decisions. The neutrality of international arbitration helps build trust among parties, as it mitigates concerns about bias and home court advantage. Confidentiality is another significant advantage, as it allows parties to protect sensitive information and trade secrets, unlike the more public nature of court proceedings.

Therefore, the key principle of international arbitration are neutrality, enforceability, flexibility and confidentiality. There are three types of international arbitration which are interstate arbitration, investor-state arbitration and international commercial arbitration.

The framework for international arbitration is robust, with conventions like the New York Convention and the UNCITRAL Model Law providing a solid foundation for the recognition and enforcement of arbitral awards. Additionally, institutions such as the London Court of International Arbitration (LCIA), American Arbitration Association (AAA), and Singapore International Arbitration Centre (SIAC offer structured and reliable platforms for conducting arbitration, enhancing its credibility and effectiveness.

In conclusion, international arbitration is a preferred method for resolving cross-border disputes due to its efficiency, expertise, neutrality, confidentiality, and flexibility. It is well-supported by international legal frameworks and reputable institutions, making it an effective and reliable alternative to traditional litigation for international parties.

Reference(s):

[1] Shonk K, ‘ International Arbitration: What It Is and How It Works’ (PROGRAM ON NEGOTIATION HARVARD LAW SCHOOL, 17 June 2024) https://www.pon.harvard.edu/daily/international-negotiation-daily/international-arbitration-what-it-is-and-how-it-works/ accessed 23 June 2024.

[2] ‘International Arbitration’ (Britannica, 7 June 2024) https://www.britannica.com/topic/arbitration/International-arbitration accessed 23 June 2024.

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] ‘What Is International Arbitration?’ (Cooley, 31 January 2023) https://www.cooley.com/news/insight/2022/2022-12-31-what-is-international-arbitration accessed 22 June 2024. 

[7] Ibid.  

[8] Shonk K, ‘ International Arbitration: What It Is and How It Works’ (PROGRAM ON NEGOTIATION HARVARD LAW SCHOOL, 17 June 2024) https://www.pon.harvard.edu/daily/international-negotiation-daily/international-arbitration-what-it-is-and-how-it-works/ accessed 23 June 2024.

[9] Ibid.  

[10] Ibid.  

[11] ‘Introduction’ (LCIA Arbitration and ADR Worldwide) https://www.lcia.org/LCIA/introduction.aspx accessed 29 June 2024. 

[12] Clea BN, ‘London Court of International Arbitration (LCIA)’ (Gambarini Camilla ed, Jus Mundi, 29 April 2024) https://jusmundi.com/en/document/publication/en-lcia accessed 30 June 2024.

[13] ‘About Us’ (American Arbitration Association) https://www.adr.org/about-us accessed 23 June 2024

[14] Ibid.

[15] Mayfield P, ‘The Benefits of International Arbitration’ (Lexology, 4 April 2023) https://www.lexology.com/library/detail.aspx?g=d17c7981-7b01-4666-8e4a-ef5f75519af3 accessed 23 June 2024.