What is International Commercial Arbitration Court?

By Martha Onate Inaingo

Published on: 27 September 2023 at 10:30 IST

Disputes may arise between individuals, organizations, governments or countries, however the nature of the disputes and the subjects of the disputes determine how such disputes would be resolved. Generally, the disputes could be resolved through any of the dispute resolution processes: Arbitration, negotiation, mediation and litigation. Disputes that are of cross national borders are more complicated than the ones within national borders.

In recent times most of the international disputes that arise as a result of economic, contractual and political relationships, are resolved through the process of International arbitration in arbitral institutions know as International Arbitration Courts.

There are various International Courts of Arbitration that are particular to the kind of international dispute sought to be resolved. There are no restrictions as to nationality of the parties or arbitrators, location, language or law applicable to the court.

Unlike domestic court judgments, international arbitration awards are enforcement in nearly all countries of the world, making international arbitration the leading mechanism for resolving international disputes.

This article aims to delve into the general concept of international arbitration, the types of international arbitration (the crux of which is international commercial arbitration), its mechanics, how it stands out from other methods of resolving disputes and the role of the international arbitration court.

The International Court of Arbitration

The Permanent Court of Arbitration was the first institution established by treaty in 1899 for the purpose of providing a variety of dispute resolution services to intergovernmental organizations and the international community at large.^[1]

The International Chamber of Commerce (ICC) International Court of Arbitration is an autonomous body of the International Chamber of Commerce.^[2] It is also an arbitral institution established in 1923 as part of the ICC and headquartered in Paris.^[3] Despite being called a court, it cannot make formal judgments on disputed matters. The court’s functions are stipulated in Article 1 of the Statutes of the International Court of Arbitration, to include exercising judicial supervision over arbitration proceedings, ensuring the application of the 2021 ICC Rules of Arbitration, appointment, replacement and confirmation of nominated arbitrators by the parties, scrutinizing and approving all arbitral awards to reinforce quality and enforceability and assisting parties and arbitrators to overcome procedural obstacles.^[4]

Most international arbitration institutions provide rules which govern the resolution of disputes to be resolved via arbitration. The best-known rules of arbitration include those of the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA), the International Centre for Dispute Resolution of the American Arbitration Association (ICDR), and the rules of the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC). Investment arbitrations are often resolved under the rules of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) or the United Nations Commission on International Trade Law (UNCITRAL) rules.^[5]

What Is International Arbitration?

Arbitration is a process in which the parties to a dispute agree to have a neutral person or panel to resolve the dispute and reach a binding decision based on previously agreed terms and rules. In International arbitration the dispute is also referred to an impartial tribunal or panel which gives a binding decision based on International law.^[6]

The primary laws on which international arbitration is based are the governing laws of a contract or agreement, or the law of tort in relation to the contract, the arbitration laws of the seat of arbitration, procedural and substantive international treaties and national laws, as well as the procedural rules of the relevant arbitral institution, and the New York and Washington convention (alternatively known as the International Center for Settlement of Disputes- ICSID Convention).

The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, also known as the New York Convention, is one International law that governs arbitration agreements and awards for 169 nations. The Convention requires national courts to recognize and enforce foreign arbitral awards and arbitration agreements.^[7]

International arbitration is therefore, a method of dispute resolution where the parties agree to resolve their disputes before private arbitrators instead of a national court. For most cross-border transactions, international arbitration is generally recognized as the preferred dispute resolution mechanism because it creates a neutral forum, awards are usually easier to enforce than court judgments, and parties can choose who decides their dispute.^[8]

International arbitration is similar to arbitration under municipal laws, which takes place before arbitrators or adjudicators in recognized institutions under International law. This process is usually consensual, neutral, binding, private and enforceable means of international dispute resolution, which is typically faster and less expensive than domestic court proceedings.

International arbitration can be used to resolve any dispute that is considered to be “arbitrable,” this covers from State-to-State disputes the majority of which are commercial or contractual disputes.^[9] International arbitration has evolved to resolve disputes between parties in a final and binding manner, without formalities of the procedural rules of the legal systems peculiar to the parties or subjects of the disputes.

Significant Features of International Arbitration

International arbitration is often described as a hybrid form of international dispute resolution because of how it blends elements of civil law procedure and common law procedure, while allowing the parties a significant level of flexibility to design or influence the arbitral procedure under which their dispute will be resolved. International Arbitration has the following key characteristics:^[10]

Enforceability

One of the main advantages of international arbitration over litigation is that in most countries, international arbitration awards are easier to enforce than foreign court judgments. Over 170 countries have ratified a multilateral treaty for the recognition and enforcement of International arbitration agreements and awards called the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (also known as the New York Convention). Under the New York Convention, non-domestic arbitral awards are enforceable in any of the ratifying states subject to certain narrow exceptions.

Neutrality

International arbitration provides a neutral platform for resolving cross-border disputes. This is particularly important when the parties want to avoid giving the other local court any advantage, or where the domestic judicial system of one party may be unfamiliar, complex, or challenging to navigate.

Privacy and Confidentiality

Unlike court proceedings and filings, the submissions, rulings, and orders issued by an international arbitral tribunal are generally not available to the public and are communicated only to the parties. Hearings are also not open to the public. Further, the parties can agree that the existence and content of the arbitration will be kept confidential.

Choice of Arbitrators

Parties can specify any qualifications for arbitrators in their arbitration clause, such as experience in a certain area of the law, industry, subject area, or otherwise select arbitrators that have the background or expertise they know that are relevant to the case.

Finality

Generally, an arbitration award is final and binding and there is no right of appeal. Also, awards usually cannot be set aside (or vacated) except under limited circumstances; mostly centered on due process or the power of the arbitrators, and not the merits of the award.

Autonomy

Since, International arbitration is a private and mutually agreed-upon form of dispute resolution, it is less formal than judicial proceedings and allows the parties a degree of flexibility and autonomy to agree on things like how the arbitration should be conducted, the procedural rules, and where the arbitration hearing should be held.

Types of International Arbitration

There are three main types of international arbitration with principles and processes that re in common, however, the type of dispute, nature of the rules or terms agreed by the parties to apply in the case of any dispute determine the type of arbitration to be considered.^[11] The types of arbitration are discussed below:

Investment Arbitration

This is recent phenomenon that is rapidly growing and gaining recognition as one of the types of International arbitration. It concerns the initiation of arbitration proceedings by foreign investors against States on the basis of bilateral or multilateral investment treaties, or domestic laws providing consent to arbitration by the State. It may be the only recourse in response to the expropriation of private investments by a State e.g Petroleum Expropriation in foreign countries.

Investment arbitration otherwise known as, Investor-state arbitration gives foreign investors the right to “sue a host government for compensation before an international arbitration tribunal when they have been aggrieved by that government’s actions.”^[12] This marks a radical departure from earlier methods of settling such disputes, which required the investors to rely on diplomatic protection by their home countries. By 2021, investors had sued 124 governments in over 1,100 cases brought under the category of investor-state arbitration; many of which resulted in arbitral awards totaling hundreds of millions of dollars.^[13]

Interstate Arbitration

In interstate arbitration, countries or states are represented by their governments to resolve disputes between them through arbitration. Although, interstate arbitration is essentially a legal process, it cannot be viewed only in legal terms because that would mean overlooking its tactical and strategic importance in enabling contending states under appropriate conditions to settle significant international conflicts.^[14]

One classical example is the Red Sea Islands Arbitration between Eritrea and Yemen which was aimed at settling competing claims to some uninhabited rocks in the Red Sea. But the International arbitration had the broader advantage of providing a face-saving way to end a dangerous military confrontation in 1995 that threatened an important global trade route.^[15]

In 2013, the Rules were further amended to incorporate the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration, application of which is promoted by United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (New York, 2014) or the Mauritius Convention on Transparency.^[16]

Despite its potential power of interstate arbitration as a means of resolving international conflict it is seldom utilized remains a largely forgotten item at the bottom of the dispute settlement toolbox, overlooked in books, articles, and courses in conflict resolution.^[17] Utilizing this form of arbitration would result to greater good, global peace and healthy diplomatic relations among nations.

International Commercial Arbitration

International trade and the global economy have made international commercial contracts and transactions to be on the rise. These days Commercial contracts between private persons, organizations, companies and governments cut across more than one State. ^[18]

In the course of executing these contracts, disputes may arise and because of the international nature of the contracts, resorting to municipal courts may not be suitable because of the risk of exposing the subject matter of the suit to the public, national prejudice of the host legal systems and wasting business time in litigation. This makes International Commercial Arbitration (ICA) to be desirable, because it is fast, efficient and for the confidentiality.

As a result, most contracts between corporations from different countries contain a dispute resolution clause specifying that any disputes arising under the contract will be handled through arbitration rather than litigation.^[19]

International commercial arbitration is governed by various international conventions and national laws, including the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. This model law provides a comprehensive framework for the conduct of international commercial arbitration proceedings.^[20]

What is the Role of the International Commercial Arbitration Court?

Although different international commercial courts opt for different arbitration features by infusing greater flexibility into their proceedings, appointing foreign nationality judges, permitting foreign lawyers to appear before them, allowing parties to agree on private and confidential proceedings and expanding the enforceability of their judgments by turning court judgments into arbitral awards. By allowing parties to shape proceedings by their agreement, international commercial courts offer tailor-made proceedings and increased flexibility.^[21]

Rights and Responsibilities of Parties in an International Commercial Arbitration

First and foremost, the Parties must agree to arbitrate and the most common way they do so is by including an arbitration clause in their commercial agreements. In the circumference that there is no arbitration clause in the agreement, parties can also agree to submit a dispute to arbitration for resolution after it has arisen. This is called a submission agreement.^[22] The submission agreement would contain the aforementioned elements and once the other party accepts the request, the dispute would be referred to arbitration.^[23]

A typical arbitration agreement is very short. For instance, the clause can be according to the International Chamber of Commerce (ICC) model arbitration clause, which merely reads:

All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.^[24]

In the arbitration clause, the parties can agree on critical parts of the arbitral process, specifying the arbitral institution that will administer the arbitration, the number of arbitrators and how they will be appointed, the forum or legal place of arbitration (also called the ‘seat’), the language of the arbitration, procedural rules and the governing law of the arbitration (which does not need to be the same as the substantive law governing the contract).

What is the scope of the Arbitrators’ Authority?

The scope of the arbitrators’ authority is determined by the arbitration clause and the law of the seat of arbitration. The arbitral process concludes with the arbitrators issuing a final award, which is binding on the parties and can be enforced in most courts around the world. There is usually no right of appeal and the award can only be set aside (or vacated) on limited grounds.

Why International Commercial Arbitration?

There are several advantages to using international commercial arbitration to resolve cross-border disputes.

Arbitration is often faster and more efficient than traditional litigation. This is because arbitration proceedings are usually less formal and more flexible than court proceedings, which can be time-consuming and costly.
Arbitration allows the parties involved in the dispute to choose their own arbitrator or panel of arbitrators. This means that the parties can select an arbitrator or arbitrators who have expertise in the subject matter of the dispute, leading to a more informed and fair decision.
Arbitration is often more confidential than traditional litigation. Court proceedings are usually public, which means that sensitive information about the parties involved in the dispute can be made public. In contrast, arbitration proceedings are usually private, which means that the parties can keep the details of the dispute confidential.
Arbitration awards are easier to enforce across borders than court judgments. This is because most countries have signed the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which provides a framework for the recognition and enforcement of arbitration awards in different countries.

Conclusion

International arbitration is a consensual, neutral, binding, private and enforceable means of resolving or settling international dispute, based on International law and by an international arbitration panel or institution which is typically faster and less expensive than domestic court proceedings. Unlike domestic court judgments, international arbitration awards can be enforced in nearly all countries of the world, making international arbitration the leading mechanism for resolving international disputes.

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