11 Aug, 2022
Is international arbitration truly international?
Mediation is a dynamic, neutral, and structured process designed to assist parties as an alternative dispute resolution (ADR) mechanism. International arbitration is a dispute resolution process which is popular necessitated by the expansion and globalization of cross-border investment, trade and commerce. It emerged as a significant alternative to litigation processes in a host country for disputing parties.
This article seeks to define the arbitration process and agreement, examine some of the historic conventions that are internationally applauded, and provide details of applicability whilst confirming that this dispute resolution process is indeed globally accepted and recognized as the primary means for resolving complex transnational disputes due to its validity of process, enforceability, and autonomous impetus.
THE HISTORY OF ARBITRATION
International trade and commerce transactions are of a contractual nature and the parties accordingly are advised to include dispute resolution clauses that reflect their specific intentions if disagreements arise, in order to resolve them in a manner that maintains the business relationship. Cross-border disputes inevitably involve several legal jurisdictions, and foreign investment requires protection in the jurisdiction of the adversary’s country. Litigation and its lengthy, protracted, and costly disadvantages, as well as impartiality because of national culture of the courts or the legal bias result in disequilibrium in a system of justice. This has led to an increasing demand for dispute resolution settlement by virtue of arbitration as a neutrally grounded judicial process.
The United Nations Commission on International Trade Law provides definition of an arbitration agreement in its Article VII.
“An arbitration agreement is an agreement by the parties to submit to arbitration or certain disputes which have arisen or may arise between them in respect of a defined legal relationship, whether contractual or not.”
Essentially the parties agree that they can derogate to the jurisdiction of the domestic courts and select a private dispute mechanism composed of independent arbitrators, or a tribunal. The general principles of arbitration as defined by the English Arbitration Act 1996, are construed as below.
a. the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;
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;
c. in matters governed by this Part the court should not intervene except as provided by this Part.
The enabling mechanism is fashioned within the contract in a consensual manner, with the clauses of arbitration providing recourse to an arbitration institute of their choice, and perhaps in a third country. International arbitration is a complex machinery of interconnecting laws with at least five systems of law that may have a bearing on international arbitration:
a. The law governing the arbitration agreement;
b. The law governing the proceedings and existence of the arbitral tribunal -lex arbitri;
c. The law or the relevant legal rules governing the substantive issues, that is, the applicable law and the governing law, or the substantive law;
d. Other non-binding rules and guidelines; and
e. Finally, the law governing the enforcement of the award.
THE NEW YORK CONVENTION 1975
The Geneva Protocol, which was signed in 1923 and Geneva Convention 1927, dealt with the recognition and enforcement of international arbitration agreements. The New York Convention 1958 was most important development of the movement toward unification and modernization of national arbitration laws. The New York Convention assured the recognition, validity, and enforcement of foreign arbitration agreements, it provided for international enforcement of awards, and it also provided the Model Law on International Commercial Arbitration. The Panama Convention 1975 closely modelled this and is signed by Latin American Countries. The New York Convention has been described by Hotlzmann as “the single most important pillar on which the edifice of international arbitration rests”.
Under the Convention, each contracting state undertakes to recognize and give effect to an arbitration agreement when the requirements laid down in Article ii (1) that substantiate the internationality of the arbitration process are fulfilled:
a. the agreement is in writing;
b. it deals with existing or future disputes;
c. these disputes arise in respect of a defined legal relationship, whether contractual or not; and,
d. they concern a subject matter capable of settlement by arbitration
The non-judicial nature of the arbitration process makes it attractive, especially when foreign legal systems either fail the venture or are so protracted in time and cost, or even language which make them so complicated. Even more so, foreign judgments tend to be unenforceable outside their jurisdictions without engaging in further judicial processes, hence the global acceptance of the arbitration process is further enhanced by the fact that over 140 countries are signatories to the New York Convention.
ORGANISATIONS THAT PROVIDE INTERNATIONAL ARBITRATION
There are many different international bodies that set the rules for arbitration agreements, and the United Nations Commission on International Trade Law, commonly referred to as UNCITRAL is a further step in the growth and acceptance of arbitration. It was established in 1966 after the United Nations General Assembly adopted resolution 2205 (XXI), and was designed to “promote the progressive harmonization and unification of international trade law”. UNCITRAL’s work involves intergovernmental groups that develop the necessary rules to simplify trade transactions, encourage wider participation in existing international conventions, model laws and uniform laws and promote the codification of trade terms, provisions, and practice, more essentially looking at uniform application of international conventions in the field of international trade. The obligation on the members states therefore is binding when they are participants and they ratify the binding legal obligations, which essentially makes the provisions of the arbitration agreement internationally compliant.
Other specialist international arbitration organizations, such as the Washington DC based International Centre for the Settlement of Investment Disputes (ICSID), which operates under the World Bank, is an investment related dispute body governing bilateral investment treaties between countries, and regional multilateral treaties. The other characteristic of the ICSID system is the detachment of laws of a particular state, or the lex arbitri, and its character is enhanced through the enforcement and recognition procedures. Added to this is the World Intellectual Property Organization (“WIPO”) Arbitration and Mediation Centre. WIPO is a branch of the United Nations, and this centre provides arbitration as well as mediation services specifically for intellectual property. The International Chamber of Commerce (ICC) has several dispute resolution mechanisms, whichare confidential and offer the parties the choice of arbitrators, place of arbitration, rules of law, and language of the proceeding. The International Court of Arbitration (ICA) which was established in 1923 as the arbitral body of the ICC. It oversees and regularly reviews the processes and its most important function is the scrutiny and approval of arbitral awards, with the court having administered over 20,000 cases since creation.
ARBITRATION PROVISIONS IN CONTRACTS
The arbitration is mobilized by the drawing of “so-called terms of reference, which are a kind of contract summarizing the main position of the parties and the relief sought in the arbitration”. One of the oldest courts of arbitration is the London Court of International Arbitration, established in 1892. This court administers over cases world-wide, and acts as the appointing authority and administrator to the UNCITRAL Rules cases.
In international arbitration foreign laws have applicability. There may be wide difference in the legal regimes of countries or parties engaged in investment and trade therefore the international arbitration process must be mutually agreed by parties to the contract with the rules of procedure based on the principle of free choice of the competent authority, the international arbitration authorities selected have their own rules that are binding but work competently together to create uniformity in rule making, so that global standards and recognition of them is accepted.
One of the key principles of international arbitration is its binding nature, or finality which is married to the principle of fairness, and together these two virtues provide parties with a time and cost benefit saving. The principle of fairness matters to disputing parties, the ability to provide input into the choice of law, the seat of arbitration, the arbitration panel itself, all contribute to the pragmatic objectives. As for the finality of it, the very definition of the international arbitration process includes “a specially established mechanism for the final and binding determination of disputes”.
In Zimbabwe, the Arbitration Act (Chapter 7:15) gives effect to the Model Law on International Commercial Arbitration adopted by UNICITRAL, as well as the New York Convention of 1958. The Act therefore provides for the inclusion of arbitration provisions in contracts between domestic parties or domestic and foreign parties, as well as the resolution of disputes by arbitration domestically or outside Zimbabwe.
This article has examined the historical path of arbitration internationally, how it has emerged, and how it has developed to a refined dispute resolution status adopted by nations around the world. It is quite evident that international institutions such as the LCIA, ICC and SCC that have created specific task forces to improve on guidelines and best practices recognize the benefits of arbitration and acknowledge its positive status in dispute resolution. This provides for greater transparency, user-friendly and streamlined standards to conduct efficient, fair and effective arbitration. It is indeed an international process which may be flawed in certain jurisdictions but remains valid and demanded.