Introduction
Overburdened legal systems and complex and specialised disputes require the mechanism of Alternative Dispute Resolution (“ADR”). Arbitration is one such mechanism in ADR. For this, India enacted the Arbitration and Conciliation Act, 1996 (“Act”) that strengthens the arbitration procedure and process in India.
JOIN OUR 6-WEEKS COURSE ON ARBITRATION LAW & PRACTICE LED BY WORLD’S LEADING PRACTITIONERS.
As per section 2 (1) (a) of the Act, “arbitration” means any arbitration whether or not administered by a permanent arbitral institution. In simple words, arbitration means a private procedure where parties submit their disputes to a single arbitrator or number of arbitrators through a mutual agreement between them. This route does not involve taking the matter to the court.
International Commercial Arbitration (“ICA”) is a form of alternative dispute resolution that has gained popularity in recent years as a means of resolving international commercial disputes. Unlike traditional litigation, which involves court proceedings, ICA is a private process in which a neutral third party, known as an arbitrator, facilitates the resolution of a dispute between the parties. ICA offers many advantages over traditional litigation. In this blog post, we will explore the basics of ICA, its advantages and challenges, and its increasing importance in resolving international commercial disputes.
The Fundamentals of ICA
Section 2 (1) (f) of the Act defines international commercial arbitration as an arbitration relating to disputes arising out of a legal relationship which must be considered commercial where at least one of them is a resident/national/body corporate residing or incorporated in a foreign nation; association or body of individuals having central control and management in a country outside India. Thus, under Indian law, an arbitration with its seat in India, involving a foreign party is regarded as an ICA.
ICA involves a neutral third party, known as an arbitrator, who is appointed by the parties to the dispute. The arbitrator is responsible for facilitating the resolution of the dispute between the parties by hearing evidence and arguments from both sides and issuing a binding decision, known as an arbitral award.
ICA can be initiated either by agreement between the parties or by a clause in a contract that requires disputes to be resolved through arbitration. The parties can choose the rules governing the arbitration, the location of the arbitration, the language of the arbitration, and the qualifications and experience of the arbitrator.
ICA offers many advantages over traditional litigation, including speed, cost-effectiveness, flexibility, and confidentiality.
Benefits of International Commercial Arbitration
1. Speed:
One of the main benefits of ICA is that it is often faster than traditional litigation. Court proceedings can take a long time to resolve, which can be a significant drain on resources. In contrast, ICA typically takes only a few months to complete. This is because the parties involved can set their own timeline for the arbitration, and there are fewer procedural requirements than in court proceedings.
2. Cost-Effectiveness:
ICA can be more cost-effective than traditional litigation. Court proceedings can be expensive, with high legal fees and court costs. In contrast, ICA typically involves lower fees and costs, since there are fewer procedural requirements and the parties can choose an arbitrator who charges reasonable rates.
3. Flexibility & Neutrality:
ICA offers parties more flexibility and neutrality in terms of the dispute resolution process. For example, parties can choose the rules governing the arbitration, such as the International Chamber of Commerce (ICC) Rules, the UNCITRAL Rules, or the rules of a particular arbitration institution. They can also choose the location and language of the arbitration, as well as the qualifications and experience of the arbitrator.
4. Confidentiality:
ICA is a private process, which means that the parties can keep their dispute and any settlement agreement confidential. This can be important for protecting their business interests and reputation. This is also supported by Article 30 of the London Court of International Arbitration.
5. Enforceability:
ICA awards are generally enforceable in most countries around the world, thanks to the New York Convention of 1958, which has been ratified by more than 150 countries. This means that the parties can rely on the arbitral award to resolve their dispute without having to go through lengthy and expensive court proceedings.
Challenges of International Commercial Arbitration
Despite the many advantages of ICA, there are some challenges associated with this form of dispute resolution.
One of the biggest challenges of ICA is the enforcement of arbitral awards. Although the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards provides a mechanism for the recognition and enforcement of arbitral awards in many countries but still some countries that do not enforce foreign arbitral awards or may impose additional procedural or substantive requirements. The difficulty of enforcing arbitral awards can make ICA less attractive to parties, particularly those in countries with weaker legal systems.
The selection of arbitrators is a key aspect of ICA, and parties may have different preferences as to the qualifications, nationality, and expertise of the arbitrator(s). In some cases, parties may have difficulty agreeing on an arbitrator, which can delay the proceedings and increase costs. In other cases, parties may be concerned about the potential bias of the arbitrator, particularly if one of the parties is from a country with a different legal and cultural background.
Unlike court judgments, arbitral awards are not binding precedents, and arbitrators are not required to follow previous decisions. This lack of precedent can create uncertainty and inconsistency in the interpretation and application of the law, particularly in areas where there is limited guidance from national courts or international conventions.
While confidentiality is often cited as a benefit of ICA, it can also create challenges. Confidentiality can limit the ability of parties to obtain information and evidence, which can affect the quality of the decision-making process. Moreover, the confidentiality of the proceedings can make it difficult for third parties, such as regulators or the public, to monitor and evaluate the effectiveness and fairness of the arbitration process.
While ICA is generally considered to be more cost-effective than litigation, it can still be expensive, particularly if the dispute involves complex legal or technical issues or requires extensive discovery or expert testimony. The cost of ICA can also be affected by the location and qualifications of the arbitrator, the complexity of the dispute, and the length of the proceedings.
How International Commercial Arbitration Works?
The process of ICA typically begins with the parties involved agreeing to submit their dispute to arbitration. This can be done through a clause in a contract or through a separate agreement. Once the parties have agreed to arbitration, they will usually select an arbitrator or a panel of arbitrators to hear the case.
The arbitrator(s) will then hold a hearing where both parties can present evidence and arguments in support of their position. The arbitrator(s) will then issue an award, which is binding on both parties. This award may include damages or other remedies, depending on the nature of the dispute.
Role of Courts in International Commercial Arbitration
Involvement of court in the Arbitration can be in the following ways:
- Enforcement of the arbitral award:
If a party fails to comply with the award voluntarily, the other party may seek to have the award recognized and enforced by a court. The procedure for recognition and enforcement of an arbitral award varies by country, but it generally involves filing an application with the court and providing evidence of the award and the circumstances of the case.
- Setting aside of the arbitral award:
In some cases, a party may challenge the validity or legality of the award, such as if there was a serious procedural irregularity or if the award is contrary to public policy. The procedure for setting aside an arbitral award also varies by country, but it generally involves filing a petition with the court and providing evidence to support the challenge.
Overall, while ICA is designed to avoid court involvement, courts may still play a role in certain aspects of the process.
Latest Developments in International Commercial Arbitration in 2023
One recent development in international commercial arbitration is the increasing use of technology and online platforms to conduct hearings and manage cases. The COVID-19 pandemic has accelerated this trend, as parties and arbitrators have had to adapt to remote work and social distancing requirements. This has led to the development of new tools and platforms to facilitate virtual hearings and case management.
Another development is the increasing importance of diversity and inclusion in arbitrator appointments. Many institutions and organisations have launched initiatives to promote greater diversity among arbitrators, including gender, ethnic, and geographic diversity. This is seen as a way to enhance the legitimacy and effectiveness of the arbitration process.
Latest International Trends in Commercial Arbitration in 2023
- Arbitration Emerging from the Russia Ukraine conflict: The legal and financial repercussions of the conflict have had a substantial impact on enterprises across a variety of industries globally, and more arbitrations involving Russia under investment treaties and commercial agreements are anticipated. Strategic and innovative preparation will be essential to increasing the likelihood that enforcement will be successful.
- The construction arbitration problem and the global supply chain issue: Major global projects will continue to experience challenges as a result of significant supply chain disruption. The rise in legal disputes is anticipated involving the application of important contractual terms, such as those relating to price increases, currency fluctuations, and nominated supplier agreements, as well as claims by parties of frustration, force majeure, and/or change in circumstances.
- As a result of the market turbulence, LNG disputes are growing as buyers and sellers attempt to navigate the severe market fluctuations and supply issues facing the industry, as well as the effects of sanctions and other political issues. An increase in petrol pricing disputes and other contractual disputes is expected as a result of the wider energy market volatility.
- Cybersecurity and data protection issues are becoming increasingly significant in international arbitration.
- International arbitration in the field of life sciences: The number of disputes involving the life sciences that are referred to arbitration is increasing. This is partly due to the expansion of the life sciences industry as a whole, and partly because the industry has realised that many of the features of international arbitration are suitable for resolving sectoral disputes.
Conclusion
Global convergence and harmonisation in international commercial arbitration are particularly evident in the area of judicial control of a foreign arbitral award. In most countries, the possibility to bring before a court an action for annulment of an arbitral award rendered abroad is excluded.
Arbitration trend and practice in India is changing with India’s growth in order to be able to attract foreign investment. It is clear that there still are some ambiguities in Indian arbitration law, which require judicial explanation and practically which need some major changes to solve the cross border issues through the arbitration. In conclusion, international commercial arbitration offers an efficient and effective means of resolving disputes in the global economy. While it presents some challenges, recent developments such as the use of technology, diversity initiatives, and expedited procedures demonstrate that the arbitration process is evolving and adapting to meet the needs of parties and practitioners.
References:
“Advantages and Disadvantages of International Commercial Arbitration” by Lexology – https://www.lexology.com/library/detail.aspx?g=312747c9-9f0c-4e8a-b674-c24edf7be1c9
“Enforcement of International Arbitral Awards: A Review of Key Issues and Recent Developments” by the International Bar Association (IBA) – https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=DDC0DCA8-287B-476C-A816-AD03ACB4D204
“The Pros and Cons of International Commercial Arbitration” by LexisNexis – https://www.lexisnexis.com/community/insights/newsletters/document-strategy-newsletter/2015/the-pros-and-cons-of-international-commercial-arbitration.aspx
“International Commercial Arbitration: An Overview” by the International Chamber of Commerce (ICC) – https://iccwbo.org/dispute-resolution-services/arbitration/international-commercial-arbitration/
https://www.lexology.com/library/detail.aspx?g=98901e69-aade-461d-9cb6-086a86715069
