International arbitration
Encyclopedia
International arbitration is a leading method for resolving disputes arising from international commercial agreements and other international relationships. As with arbitration
Arbitration
Arbitration, a form of alternative dispute resolution , is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons , by whose decision they agree to be bound...

 generally, international arbitration is a creature of contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...

, i.e., the parties' decision to submit disputes to binding resolution by one or more arbitrators selected by or on behalf of the parties and applying adjudicatory procedures, usually by including a provision for the arbitration of future disputes in their contract. The practice of international arbitration has developed so as to allow parties from different legal and cultural backgrounds to resolve their disputes, generally without the formalities of their respective legal systems.

Main Features of International Arbitration

International arbitration has enjoyed growing popularity with business and other users over the past 50 years. There are a number of reasons that parties elect to have their international disputes resolved through arbitration. These include the desire to avoid the uncertainties and local practices associated with litigation in national courts, the desire to obtain a quicker, more efficient decision, the relative enforceability of arbitration agreements and arbitral awards (as contrasted with forum selection clauses and national court judgments), the commercial expertise of arbitrators, the parties' freedom to select and design the arbitral procedures, confidentiality and other benefits.

International arbitration is sometimes described as a hybrid form of dispute resolution, which permits parties broad flexibility in designing arbitral procedures. As one example, consider the International Bar Association
International Bar Association
The International Bar Association is an international association of lawyers and lawyers' associations. The IBA's stated purpose is to promote an exchange of information between legal associations worldwide, support the independence of the judiciary and the right of lawyers to practice their...

 (IBA)'s Rules on the Taking of Evidence in International Commercial Arbitration, revised in 2010. These rules adopt neither the common law jurisdictions' broad disclosure procedures (Discovery), nor follow fully the civil law in eliminating entirely the ability to engage in some disclosure-related practices. The IBA Rules blend common and civil systems so that parties may narrowly tailor disclosure to the agreement's particular subject matter.

David Rivkin, who chaired the committee that drafted the rules, has noted that the wide adoption of these rules in international arbitration has led in practice to an unexpected use by common law practitioners to limit disclosure and by civil law practitioners to expand it. With a possibly more intuitive cause and practical effect, arbitral tribunals will often read party election of the IBA Rules as an election most akin to US-style Discovery. This is hardly surprising given the Rules' language and the IBA's close ties through the years to the American Bar Association
American Bar Association
The American Bar Association , founded August 21, 1878, is a voluntary bar association of lawyers and law students, which is not specific to any jurisdiction in the United States. The ABA's most important stated activities are the setting of academic standards for law schools, and the formulation...

 (ABA).

Rules of evidence represents just one example of the different practice that applies to international arbitration, and which distinguishes it from provincial forms of arbitration rooted in the procedures of a particular legal system. Similarly, international arbitral practice has given rise to its own non-country-specific standards of ethical conduct which are believed to apply in international proceedings and, more to the point, to the arbitrators who are appointed to conduct them.

Differences with Domestic Arbitration and Mediation

International arbitration is a significant variant of the practice in many countries of arbitration
Arbitration
Arbitration, a form of alternative dispute resolution , is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons , by whose decision they agree to be bound...

, from which it is derived and shares many features. It is not just the fact that international arbitration arises in the context of international contracts that makes it different. In the international dispute resolution community, it is widely accepted to be a different animal entirely, involving different practices and rules, and being represented by a different community of arbitrators and legal practitioners.

It is essential to draw a firm distinction between Arbitration
Arbitration
Arbitration, a form of alternative dispute resolution , is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons , by whose decision they agree to be bound...

 and Mediation or Conciliation, which are both sometimes characterized as forms of ADR (Alternative Dispute Resolution
Alternative dispute resolution
Alternative Dispute Resolution includes dispute resolution processes and techniques that act as a means for disagreeing parties to come to an agreement short of litigation. ADR basically is an alternative to a formal court hearing or litigation...

). In countries where mediation is new or struggling to be introduced as a concept, this association has given rise to the misleading impression that mediation is a form of non-binding arbitration, with the arbitrator proposing or suggesting outcomes based on an assessment of the parties' rights. In fact, arbitration and mediation or conciliation are fundamentally different: the former is a binding determination of legal rights, the latter two forms of dispute resolution involve facilitated negotiation which aims at producing a consensual settlement. The one leads to a binding determination (arbitration
Arbitration
Arbitration, a form of alternative dispute resolution , is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons , by whose decision they agree to be bound...

), the other only in the event the parties agree to settle their dispute on mutually satisfactory terms (mediation
Mediation
Mediation, as used in law, is a form of alternative dispute resolution , a way of resolving disputes between two or more parties. A third party, the mediator, assists the parties to negotiate their own settlement...

).

The Advantages of International Arbitration

For international commercial transactions, parties may face many different choices when it comes to including a mechanism for resolving disputes arising under their contract. If they are silent, they will be subject to the courts of wherever a disaffected party decides to initiate legal proceedings and believes it can obtain jurisdiction over the other party. This may not sit well with parties that need to know at the time of entering into their contract that their contractual rights will be enforced. The alternative to silence is to specify a method of binding dispute resolution, which can be either litigation before the domestic tribunal of one of the parties or arbitration. If the parties choose to resolve their disputes in the courts, however, they may encounter difficulties.

The first is that they may be confined to choosing one or the others' courts, as the courts of a third country may decline the invitation to devote their resources to deciding a dispute that does not involve any of that country's citizens, companies, or national interests. An exception to that rule is New York State, which will not entertain a forum non conveniens motion when the dispute concerns a contract that is worth one million dollars or more and in which the parties included a choice-of-law clause calling for application of New York law. The second, and perhaps more significant difficulty, is that judicial decisions are not very "portable" in that it is difficult and sometimes impossible to enforce a court decision in a country other than the one in which it was rendered.

Neutrality and Enforceability of Arbitration Awards

The ability to resolve disputes in a neutral forum and the enforceability of binding decisions are often cited as the main advantages of international arbitration over the resolution of disputes in domestic courts. And there is solid legal support for this view. The principal instrument governing the enforcement of commercial international arbitration agreements and awards is the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the "New York Convention"). The New York Convention was drafted under the auspices of the United Nations and has been ratified by more than 140 countries, including most major countries involved in significant international trade and economic transactions. The New York Convention requires that the states that have ratified it to recognize and enforce international arbitration agreements and foreign arbitral awards issued in other contracting states, subject to certain limited exceptions. These provisions of the New York Convention, together with the large number of contracting states, has created an international legal regime that significantly favors the enforcement of international arbitration agreements and awards.

As a practical matter, what that means is that an international award originating in a country that is a party to the New York Convention may be enforced in any other country that is also a signatory, as if that award were actually rendered by the domestic courts of that second country. Here is an example of this important concept: assume that parties from countries A and B have agreed to resolve their disputes in country C, and all three countries are parties to the New York Convention. This will mean that even though the arbitration will take place in country C, the resulting award can be enforced in countries A or B, as if it were a court decision rendered in the domestic courts of that country. (By contrast, there is no equivalent treaty for the international recognition of court decisions, although a draft treaty, Hague Convention of 30 June 2005 on Choice of Court Agreements, was initiated in 2005.)

Thus, parties to international contracts can decide to site their disputes in a third, neutral country, knowing that the eventual award can be easily enforced in any country that is a signatory to the New York Convention, which has been ratified by a significant majority of commercial nations (with notable exceptions like Iraq
Iraq
Iraq ; officially the Republic of Iraq is a country in Western Asia spanning most of the northwestern end of the Zagros mountain range, the eastern part of the Syrian Desert and the northern part of the Arabian Desert....

, which, not having ratified the New York Convention, cannot be assumed to give effect to arbitration decisions rendered in other countries). An international award therefore has substantially greater executory (legal) force than a domestic court decision.

Under the New York Convention, if a party to arbitration commences legal proceedings in breach of an arbitration agreement against another contracting party, the court is obligated to stay the proceedings. Chapter 2 of the Federal Arbitration Act
Federal Arbitration Act
In United States law, the Federal Arbitration Act is a statute that provides for judicial facilitation of private dispute resolution through arbitration. It applies in both state courts and federal courts, as was held in Southland Corp. v. Keating...

 sets forth the statutory basis for an American court to issue a stay in connection with contracts falling within the ambit of the New York Convention.

International Commercial Arbitration

The resolution of disputes under international commercial contracts is widely conducted under the auspices of several major international institutions and rule making bodies. The most significant are the International Chamber of Commerce
International Chamber of Commerce
The International Chamber of Commerce is the largest, most representative business organization in the world. Its hundreds of thousands of member companies in over 130 countries have interests spanning every sector of private enterprise....

 (ICC), the International Centre for Dispute Resolution (ICDR), the international branch of the American Arbitration Association
American Arbitration Association
The American Arbitration Association is a private enterprise in the business of arbitration, and one of several arbitration organizations that administers arbitration proceedings. The AAA also administers mediation and other forms of alternative dispute resolution. It is headquartered in New York...

), the London Court of International Arbitration
London Court of International Arbitration
The London Court of International Arbitration is an institution based in London, United Kingdom providing the service of international arbitration....

 (LCIA), the Hong Kong International Arbitration Centre
Hong Kong International Arbitration Centre
The Hong Kong International Arbitration Centre was established in 1985 to assist disputing parties to solve their disputes by arbitration and by other means of dispute resolution. It was established by a group of the leading business and professional people in Hong Kong to be the focus for Asia of...

, and the Singapore International Arbitration Centre (SIAC). Specialist ADR bodies also exist, such as the World Intellectual Property Organisation (WIPO), which has an arbitration and mediation center and a panel of international neutrals specialising in intellectual property and technology related disputes. See http://www.wipo.int/amc/en/.

A number of arbitral institutions have adopted the UNCITRAL Rules for use in international cases.

The most salient feature of the rules of the ICC is its use of the "terms of reference." The “terms of reference” is a summary of the claims and issues in dispute and the particulars of the procedure, and it is prepared by the tribunal and signed by the parties near the beginning of the proceedings.

In a more recent development, the Swiss Chambers of Commerce of Industry of Basel, Berne, Geneva, Lausanne, Lugano, Neuchâtel and Zurich have adopted a new set of Swiss Rules of Commercial Mediation that are designed to integrate fully with the Swiss Rules of International Arbitration that were previously adopted by these chambers to harmonize international arbitration and mediation proceedings across Switzerland. For a recent paper on these two sets of ADR rules and how they may be combined, see http://www.altenburger.ch/uploads/tx_altenburger/jl_2008_Swiss_Rules_Commercial_Mediation.pdf.

Drafting International Arbitration Clauses

Most arbitral institutions have promulgated model clauses for parties to use to authorize the institution to oversee the arbitration. A number of specialized publications regarding the drafting of international arbitration clauses are available.

A number of essential elements should be included in almost all international arbitration agreements. These include the agreement to arbitrate, a definition of the scope of disputes subject to arbitration, means for selecting the arbitrator(s), a choice of the arbitral seat and the adoption of institutional or ad hoc arbitration rules. A number of other provisions can also be included in international arbitration clauses, including the language for the conduct of the arbitration, choice of applicable law, arbitrator qualifications, interim relief, costs, procedural matters and the like.

In order to bridge the gap when parties to an international agreement have difficulty in agreeing upon an arbitral institution, some international arbitration specialists recommend using an arbitration clause that authorizes two arbitral institutions in the same city. Those clauses generally empower the party commencing the arbitration to select the arbitral institution.

Writing in the Business Law Today of the American Bar Association, Eric Sherby (Israel) suggested a mnemonic device – “BLINC LLC” – designed to enable the draftsman to remember a checklist for quickly drafting an international arbitration clause: Broad, Law, Institutional, Number, Costs, Location Language, and Carve-out.

International Arbitration Institute (IAI)

The International Arbitration Institute, headed by Emmanuel Gaillard
Emmanuel Gaillard
Emmanuel Gaillard is a practicing attorney, is a leading authority on international commercial arbitration, a law professor, and frequently acts as an arbitrator in international commercial disputes....

, was created in 2001 under the auspices of the Comité Français de l’Arbitrage (CFA) to promote exchanges and transparency in the international commercial arbitration community.

The Association for International Arbitration (AIA)

The Association for International Arbitration is a non-profit organization, founded in Paris in 2001 by Johan Billiet. The Association for International Arbitration has an increasing number of members among arbitrators and mediators of international backgrounds.

The Association was established with the aim of facilitating arbitration, mediation and general forms of dispute resolution internationally. Today, the AIA has developed into an organization dealing in the private international law field to meet the needs of the fast-growing evolution of dispute resolution within the international community. AIA provides information, training and educational activities to expand the promotion of arbitration and ADR globally by means of securing partnerships with various organizations and parties to get involved in the life of the association. The association constantly works to develop partnerships in the international realm and to provide the international community of arbitrators and ADR professionals with continuous exposure to the latest international developments, activities and opportunities in the field. AIA continually encourages the participation and contribution of its members in the pursuit of the association’s goals.

Atlanta International Arbitration Society (ATLas)

Atlanta, as host to the third-largest concentration of Fortune 500 company headquarters in the United States, the economic capital of the Southeast, and sited in one of the most arbitration-friendly states in the nation, has become a center for international arbitration. Georgia took an early lead in enacting an international arbitration-friendly state statute in 1988, becoming one of the first jurisdictions to adopt substantial portions of the 1985 UNCITRAL Model Law on International Commercial Arbitration. O.C.G.A. § 9-9-30 et seq. The Atlanta International Arbitration Society (ATLas; www.arbitrateatlanta.org), composed of scholars, judges, lawyers, business leaders, arbitrators, and other professionals who specialize in international law and arbitration, is an organization that focuses on educating, counseling, and guiding the international legal community about arbitrations in Atlanta.

International Investment Arbitration

The last few decades have seen the promulgation of numerous Bilateral Investment Treaties
Bilateral Investment Treaty
A bilateral investment treaty is an agreement establishing the terms and conditions for private investment by nationals and companies of one state in another state. This type of investment is called foreign direct investment . BITs are established through trade pacts...

 (BITs), as well as Multilateral Investment Treaties, which are designed to encourage investment in signatory countries by offering protections to investors from other signatory states. One of the significant features of some BITs is that they provide investors with the ability to resolve disputes with the host states before the International Centre for the Settlement of Investment Disputes (ICSID).

Interstate Arbitration

Arbitration has been used for centuries, including in Antiquity, for the resolution of disputes between states and state-like entities. After a period of relative disuse, Jay's Treaty between the United States and Great Britain revived international arbitration as a means of resolving inter-state disputes. The 1899 and 1907 Hague Conferences addressed arbitration as a mechanism for resolving state-to-state disputes, leading to the adoption of the Hague Conventions for the Pacific Settlement of International Disputes. The Conventions established the Permanent Court of Arbitration and a rudimentary institutional framework for international arbitration of inter-state disputes. In recent years, international arbitration has been used to resolve a number of disputes between states or state-like entities, including Eritrea v. Yemen, the Abyei Arbitration, the OSPAR Arbitration, and the Iron Rhine Arbitration.

See also

  • Arbitration
    Arbitration
    Arbitration, a form of alternative dispute resolution , is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons , by whose decision they agree to be bound...

  • Arbitration award
    Arbitration award
    An arbitration award is a determination on the merits by an arbitration tribunal in an arbitration, and is analogous to a judgment in a court of law...

  • American Arbitration Association
    American Arbitration Association
    The American Arbitration Association is a private enterprise in the business of arbitration, and one of several arbitration organizations that administers arbitration proceedings. The AAA also administers mediation and other forms of alternative dispute resolution. It is headquartered in New York...

  • Jean-Paul Beraudo
    Jean-Paul Beraudo
    Justice Jean-Paul Beraudo is a French lawyer, academic and author of legal works. He was formerly Justice at the French Supreme Court and Vice-Chairman of the ICC International Court of Arbitration...

  • Jan Paulsson
    Jan Paulsson
    Jan Paulsson is a pre-eminent scholar and practitioner in the area of international arbitration. Jan Paulsson is co-head of the international arbitration and public international law groups of Freshfields Brukhaus and Derringer. He received his A.B. from Harvard in 1971, his J.D...

  • Johan Billiet
  • Martin Hunter
    Martin Hunter
    Martin Hunter may refer to:* Martin Hunter * Martin Hunter , British Army general*Martin Hunter *Martin Hunter...

  • Albert Jan van den Berg
    Albert Jan van den Berg
    Albert Jan van den Berg is a Professor at Law and the Arbitration Chair at Erasmus University Rotterdam and the President of the Netherlands Arbitration Institute and is a visiting Professor at the University of Miami School of Law Center for International Arbitration...

  • Emmanuel Gaillard
    Emmanuel Gaillard
    Emmanuel Gaillard is a practicing attorney, is a leading authority on international commercial arbitration, a law professor, and frequently acts as an arbitrator in international commercial disputes....

  • Gary Born
    Gary Born
    Gary B. Born is an international lawyer and academic. He is chair of the International Arbitration and International litigation practices at the international law firm Wilmer Cutler Pickering Hale and Dorr LLP and the author of a number of commentaries, casebooks and other works on international...

  • Geneva Master in International Dispute Settlement (MIDS)
  • International Chamber of Commerce
    International Chamber of Commerce
    The International Chamber of Commerce is the largest, most representative business organization in the world. Its hundreds of thousands of member companies in over 130 countries have interests spanning every sector of private enterprise....

  • International Centre for the Settlement of Investment Disputes
  • International Bar Association
    International Bar Association
    The International Bar Association is an international association of lawyers and lawyers' associations. The IBA's stated purpose is to promote an exchange of information between legal associations worldwide, support the independence of the judiciary and the right of lawyers to practice their...

  • London Court of International Arbitration
    London Court of International Arbitration
    The London Court of International Arbitration is an institution based in London, United Kingdom providing the service of international arbitration....

  • Permanent Court of Arbitration
    Permanent Court of Arbitration
    The Permanent Court of Arbitration , is an international organization based in The Hague in the Netherlands.-History:The court was established in 1899 as one of the acts of the first Hague Peace Conference, which makes it the oldest institution for international dispute resolution.The creation of...

  • United Nations Commission on International Trade Law

International Arbitration Educational Programs


International Arbitration Resources

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