Arbitration effective way of settling global trade disputes
21 Sep 2016 - 2:43
Arbitration dominates all other methods of settling disputes in international trade for various reasons since it is cheaper, speedier, private (and, therefore, confidential) and flexible.
This column addresses the bases of the arbitration system on international and domestic levels. It covers the principles of the arbitration system such as party autonomy, enforcement system, New York Convention, and arbitration procedures as an introduction to understand arbitration mechanism under Qatari Law.
Introduction of International
Arbitration is one method which is considered appropriate, particularly in disputes between parties from developed and developing countries. The main reason for this is that arbitration gives the parties freedom to tailor arbitral proceedings in any way they see fit. In this respect, the effectiveness of arbitration depends to a large extent on party autonomy.
The question, therefore, arises: How can parties express and exercise this freedom? This is a difficult question to answer. The concept has been researched and developed since the emergence of arbitration in the world. And it would seem from research done that there are two main factors which may help us answer the question.
First, what parties “could” do. And second, what parties “should” do. The first directly concerns the concept of party autonomy which deals with the scope of the parties’s freedom. The second is that, although the parties may have freedom to tailor arbitration to meet their needs, there is the matter of how they can effectively express this freedom. What parties can do may also depend on the local legal system and the attitude of the state court concerning arbitration. This local legal system may be the law where they want to have their dispute settled or the place where enforcement of such settlement may be sought. Therefore, the parties must abide by what the law prohibits but still have freedom to choose a location which is ‘permissive’.
In the past, most states were of the mentality that arbitration was a method of dispute resolution which competed with the state court. They, therefore, attempted to exercise as much control as possible over all arbitrations which took place in their territory.
Accordingly, the parties’ freedom to design the conduct of arbitral proceedings was restricted. This restriction has relaxed with the adoption of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitration Awards 1958, which is commonly referred to as the New York Convention. This Convention provides a universally recognised framework for foreign awards made in international commercial arbitration in that an award rendered in one country may be enforced in another country if both countries are parties to the Convention.
The aim of the New York Convention attempts to provide compromise for certain conflicts among arbitration laws by providing a framework which facilitates enforcement of foreign awards. Most importantly, this Convention gives the parties to arbitration a wider scope to agree. This is further promoted with the emergence of the UNCITRAL Model Law on International Commercial Arbitration adopted by the UN Commission on International Trade Law on June 21, 1985 and revised in 2006, which is similarly significant in the matter of party autonomy. The pre-eminent aim of the model law is to respect party autonomy and restrict the level of court interference in the practice of international commercial arbitration.
The problem of what parties “could” do now seems more relaxed. However, the problem still remains with respect to what parties can do in that what may be permitted in one jurisdiction may not be permitted in another. Another obstacle to party autonomy is the development of arbitration. The practice of arbitration in developed countries such as England, is more advanced while in the jurisdictions of developing countries its use has been more recent. The development between these two groups of jurisdictions has created problems.
The second factor is related to what parties “should” do. This factor is as important as what the parties “could” do. What the parties “should do” depends very much, if not entirely, on the experience of the parties that is it concerns practical matters. Although the parties are free to do certain things, they should not always do so. For example, in appointing an arbitrator the parties may choose a non-lawyer. However, this should not be done if the dispute involves substantive legal issues. This is good practice because such an arbitrator may run the risk of rendering an award which maybe unenforceable in other countries. In practice, parties from developed countries may have more experience than those from developing countries. This raises the question of whether arbitration is a practice of and for developed countries.
This would be an incorrect perception. Arbitration is not of and for any specific group of countries but it is a method of dispute resolution used worldwide by the business community. Its use demonstrates that the business community has more much in common than any other group in society, thus rendering the role of nationality insignificant. Notwithstanding this, cultural backgrounds may be of relevance and may affect the way businesses are conducted or disputes settled. In most cases, however, cultural differences do not contest the importance of arbitration.
Definition of arbitration
Defining the term ‘arbitration’ is not an easy task. Further, there is no clear definition found in the domestic or international laws and conventions on arbitration. Although many writers have tried to create a definition, these definitions have been or can be easily criticised. Nevertheless some writers have still tried to come up with a definition.
The result has been that the definition of arbitration has become more a matter of theory than practice. This is more so in particular in the field of international commercial arbitration which generally involves laws of more than one jurisdictions.
The term ‘arbitration’ is more difficult to define in this respect because the concept of arbitration vary from country to country. Some countries define the term broadly, while others give it a narrow definition. This problem was highlighted when the model law was being drafted.
The drafters tried to harmonise the term but failed. The final result was that the model law was classified to cover ad- hoc and institutional arbitration.
Given the scope of the model law, a definition of arbitration became necessary. The reason for this was that a definition would serve to determine the scope of arbitration laws and international conventions (such as the New York Convention).
There are several private mechanisms for third-party resolution of disputes that are sometimes very similar in character or label to arbitration, such as mediation (or conciliation). The general concepts of both mechanisms are similar but their legal effects are different.
A mediator cannot render a binding decision, but an arbitrator can. This is the same as in the case of various types of ‘free arbitration’ — such as the arbitratoirrituale in Italian law, the Dutch bindedadvies and the German Schiedsgutachten.
Basically, all these free arbitrations are procedures that often determine questions only of fact and not of law, and commonly result in decisions that are binding only as contractual provisions and not as arbitral awards. As a result of such difficulties and necessity, identification of essential elements of arbitration will be useful. We, therefore, need to look at some definitions. To do this, the examination of arbitration laws and international conventions can be useful.
Professor Rene David in (Arbitration in International Trade 1985) defines arbitration as: “Device whereby the settlement of a question, which is of interest for two or more persons, is entrusted to one or more persons — the arbitrator or arbitrators — who derive their powers from a private agreement, not the authority of a State, and who are to proceed and decide the case on the basis of such an agreement.”
In a similar vein, Albert Jan van den Berg explains arbitration as: “The resolution of a dispute between two or more parties by a third person (arbitrator) who derives his powers from an agreement (arbitration agreement) of the parties, and whose decision is binding upon them”.
Although these definitions are different in context and do not give much detail, they provide a picture of what arbitration is.
Furthermore, in examining the structure of all arbitration acts and international conventions, one can have a clearer picture of arbitration. According to the laws and conventions, there are three essential elements — arbitration must involve a dispute between the parties; arbitration must be nominated as the procedure to settle the dispute; and a binding decision must be the end result.
The basic element of arbitration is that there must be a dispute or difference between parties who agree to submit it to arbitration. Although parties may enter into an arbitration agreement, an arbitration never comes into existence until a dispute arises between the parties. In other words, there is no dispute requiring arbitration until a matter of fact or law is asserted by one side and denied by the other.
The term ‘dispute’ may refer to future, present or past disputes. The New York Convention recognises two types of disputes and provides in Article II (1) — “Each Contracting State shall recognise an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them”.
(To be continued)