Also, international commercial arbitration is important because, unlike mediation, once the parties have agreed to set up the arbitration for the resolution of a dispute, their right to withdraw will be construed as a breach of the arbitration agreement.
. International arbitration is a mechanism for dispute settlement that provides an alternative to litigation for international commercial disputes. It plays the vital roles of:
a) Enforceability of Arbitral Awards — Arbitration awards can be challenged under very limited circumstances.
b) Impartiality of Decision Maker — Neither party may be able to find neutral tribunal in other country.
c) Confidentiality — Arbitrations and awards are normally private; court proceedings and judgments are public.
d) Technical Expertise — Parties may choose arbitrators with technical backgrounds.
e) Discovery — Because discovery is limited in arbitration, it is less burdensome, yet available.
f) Expense — Arbitration is usually less expensive than litigation.
Well-established institutions include the London Court of International Arbitration and the Arbitration Institute of the Stockholm Chamber of Commerce; newer institutions include those in Singapore and Vancouver. The Permanent Court of International Arbitration has recently updated its rules and prepared to act more along the lines of the ICC and AAA.
These institutions do not themselves "decide" arbitration cases. The arbitrations often take place not in the home city of the institution, but at a location designated by the parties or arbitrators. Rather, for a fee, arbitral institutions administer arbitrations including receiving and distributing pleadings, and perhaps appointing arbitrators or reviewing an award for technical accuracy usually in connection with a decision by the parties to use the arbitration rules of the institution. These rules regulate such issues as the choice of arbitrators, the process of replacing an ill or deceased arbitrator, challenges to arbitrators for lack of independence, how and when parties file their pleadings, provisional remedies, the power of the arbitrators to hear witnesses, language(s) of the proceeding, evidentiary issues, and the drafting and signing of the arbitral award. Most institutional rules allow the parties to modify the rules to some extent, and to "fill in the gaps" where the rules are silent. Parties thus look to the institution and its rules to resolve issues that are often not negotiated by the parties before they sign a contract.
While the rules of the various arbitral institutions contain similar provisions on many issues, there are important differences among the various institutional rules. Take, for example, the situation in which two parties have agreed that arbitration is to be before a three-arbitrator tribunal. The ICC rules generally provide that each party nominates an arbitrator, with the third arbitrator being chosen by an ICC body unless the parties have provided that the party- appointed arbitrators agree on a third arbitrator within a fixed time-period. The UNCITRAL rules provide for a similar procedure, except that when the party-appointed arbitrators cannot agree either on the third, presiding arbitrator or on an institution to appoint that arbitrator, the Secretary-General of the Permanent Court of Arbitration at The Hague, upon application by a party, chooses the appointing authority for that arbitrator.
Regardless of whether arbitration is governed by ad hoc or institutional arbitration rules, it is also subject to municipal law. Since international arbitration is a creature of contract, an arbitration agreement may specify which jurisdiction's substantive law will govern the rights and duties of the parties in connection with the agreement, or it may allow the arbitrators to act as cordial compositors or to decide disputed matters ex aequo et bono (according to justice and fairness, rather than specific legal rules). Of course, as with any contractual clause, an arbitral choice-of-law clause may not be used to avoid otherwise-applicable mandatory municipal law.
In addition, virtually all jurisdictions consider disputes in some subject areas of the law inappropriate for resolution by arbitration. Those subject areas vary greatly from country to country, and often reflect the country's sense of what is particularly vital to its national legal interests. For example, under French law, bankruptcy matters are inarbitrable.
International arbitrations are governed also by municipal procedural law, most frequently by the law of the jurisdiction in which the arbitral tribunal sits. This law, known as the lex loci arbitri, may be crucial in resolving procedural issues that arise. Thus, arbitral tribunals often meet in a jurisdiction with an arbitration law that is both developed and supportive of arbitration as a dispute resolution mechanism.
In the United States, both state and federal law govern international arbitration. Many states have their own state statutes on arbitration generally. Whereas a few states, such as New York, drafted original arbitration laws, many states have adopted arbitration laws based on the Uniform Arbitration Act, itself modelled on the Federal Arbitration Act. In addition, several states, including Florida, California, Georgia, Texas and Connecticut have adopted special statutes for international arbitration. The passage of these statutes, which are based in whole or in part on the UNICITRAL arbitration rules, often was motivated by a desire to attract international arbitration, and the business and revenue connected with it, to the state.
The Federal Arbitration Act ("FAA") governs arbitrations involving transactions in interstate or foreign commerce. It is a relatively narrow statute that focuses on the relationship of the courts to the arbitral process.
In overcoming legislative and judicial hostility to arbitration agreements, the FAA and interpretative jurisprudence have established a "broad principle of enforceability" of arbitration clauses.
Upon the completion of an arbitration, the winning party often seeks judicial enforcement of the arbitral award. In the context of international arbitration, enforcement frequently occurs within the framework of a bilateral or multilateral treaty. The most important of these is the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, frequently known as the New York Convention. In force for some 109 countries, including the United States and many of the United States' main trading partners, the Convention has greatly increased the ease of enforcing international arbitral awards, thus strengthening the international arbitral regime.
The basic feature of the Convention is that signatory states agree to recognize and enforce agreements in writing to submit issues to arbitration, and to enforce arbitral awards based upon those agreements. A party need not go to the court at the seat of the arbitral tribunal in order to have an arbitral award recognized in a judgment. Rather, the moving party need supply only the award and the agreement upon which it was based, and fulfil certain authentication and translation requirements for those documents, in the jurisdiction in which recognition or enforcement is sought.
The Convention also severely limits the reasons for which recognition and enforcement of an arbitral award may be refused. These reasons include: a party lacked capacity under applicable law, the agreement to arbitrate was invalid under the law chosen by the parties or the law of the country where the award was made, parties were not given proper notification of the arbitral proceeding, the arbitration was not conducted in accordance with the arbitration agreement or with applicable law, the award addressed matters beyond the scope of the agreement to arbitrate, the subject matter of the dispute was not capable of settlement by arbitration in the enforcing country, or the recognition and enforcement of the award would violate the enforcing country's public policy.
The Convention applies to both "recognition" and "enforcement" of foreign arbitral awards. "Enforcement" of an award involves the taking of an award by a successful claimant into national courts, whereas a successful defendant in an arbitration proceeding may have the arbitral award "recognized" in other jurisdictions in order to prevent further court claims by the losing arbitration claimant.
U.S. courts generally have interpreted the Convention in keeping with the Convention's goals, thus making the enforcement of international arbitral awards quicker and easier than before. The very ratification of the Convention by the United States has played a role in the development of the ever-more-favourable stance of the U.S. courts vis-à-vis international arbitration.
From the above, it can clearly be seen that international commercial arbitration has broadened its horizons as an alternative dispute settlement mechanism.
The strengthening of the international arbitral system has created many reasons for parties to choose international commercial arbitration over court litigation. Parties often prefer a neutral dispute resolution forum, such that no party need submit to the jurisdiction of the courts of another party's home nation. In many cases, the parties may choose their own judge(s), who may come from a neutral jurisdiction, who often have knowledge in the field in question, and who, with the exception of illness or death, virtually always decide a case from beginning to end (thus eliminating the possibility of having different judges hearing different motions or other aspects of a complex claim). Independent of court build-up, the parties, in conjunction with the arbitrators, set their own schedule, and follows their own procedural rules. The arbitration proceedings are, at least in principle, non-public, thus allowing parties, especially those with long-standing relationships, to resolve their disputes away from public scrutiny.
In conclusion, International arbitration is defined as a systematically style of dispute resolution privately agreed to by contractual parties. The system creates a process, whereby an appointed private judge acting as a neutral having expertise in the disputed area, conducts a hearing without the normal formal civil court proceedings (Jones, 1994). Arbitration is a process and system of dispute resolution dating back, and has developed internationally as a customary practice originating over the centuries .Although the proceedings are entirely private, arbitral decisions are rendered on the predicate of international law (treaty, and/or customary law) and enforced via treaty. In view of the above, however, international commercial arbitration is viewed as an alternative dispute resolution mechanism to that of municipal (law of one’s own nation) litigation and the uncertainties relative domestic court rulings. Therefore, the fundamental purpose and importance of international commercial arbitration is to promote, harmonize, and facilitate the growth of international trade and commerce.
Essentially, commercial international arbitration finds governance and enforcement via pertinent multilateral or bilateral convention, treaty, or agreement . Most notable are the United Nations Convention on Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), and the United Nations Commission on International Trade law Model Rules of Arbitration (UNCITRAL) . The effective and predictable enforcement of arbitral proceeding are greatly enhanced and facilitated by such treaty and convention law. With the above, and because: a.) international commercial arbitration leads to more predictable outcomes than international domestic municipal law decisions, b.) is also less expensive than litigation c.) provides faster resolution to disputes, and finally, d.) most international entities prefer private negotiation to resolving disputes rather than litigation. Therefore, arbitration is the preferred mechanism for resolving international commercial disputes.anking when private, wealthy individuals used their capital to
International Commercial Arbitration like every other dispute resolution mechanism has its merits and demerits. It has the merit of being consensual, resolution of disputes by non-governmental decision-makers and it results in a binding award enforceable through National Courts. It is procedurally less formal and rigid than litigation in National Courts. It also has the merits of confidentiality to protect business interest. If judicial intervention is reduced to the minimum necessary for ensuring effective justice, it is also less expensive.
The future of international arbitration may well depend, at least in part, on the ability of arbitrators, signatories to arbitration agreements, and courts to maintain the integrity of the international arbitral process.
BIBLIOGRAPHY
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J.C.T Chuah, Law of International Trade (2nd Edition,2001, Sweet & Maxwell)
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Shmitthoff’s Export Trade (10th Edition by Leo D’Arcy et al, Sweet & Maxwell)
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H. Van Houtte, The Law of International Trade (1995)
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A. Redfern, Law and Practice of International Commercial Arbitration (3rd Edition, 1999) London Sweet & Maxwell
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J. Hill, Law Relating to International Commercial Disputes (
2nd Edition, 1998)
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UNICITRAL; Model Law of International Commercial Arbitration (Legislative History Documents) Volume 1
(from the Seller)
These documents effectively “guarantee” that the goods were “sold” and are “en route” to the Buyer. The Buyer is secure in the fact that he has “bought” the items or services and the Seller is secure that the Letter of Credit, which was delivered to him prior to the loading or release of the goods, will “guarantee” payment if he complies with the terms of the Letter of Credit. This type of transaction takes place every day throughout the world, in every jurisdiction and without any fear that the issuing bank wi is of an acceptable stature, usually A to AAA credit rated (Standard & Poor’s).
The Letter of Credit is issued in a way that has been recognized by the Bank for International Settlements (BIS) and the International Chamber of Commerce (ICC) and is subject to the Uniform Rules of Collection for Documentary Credits (ICC 400/500). This type of instrument is normally called a Documentary Letter of Credit (DLC) and is always trade transaction related, with an underlying sale of goods or services between the applicant (Buyer) and the beneficiary (Seller).
During the evolution of the trade related Letters of Credit, a number of institutions began to issue Standby Letters of Credit (SLC). A conventional Standby Letter of Credit, like a conventional Letter of Credit, is an irrevocable obligation in the form of a Letter of Credit issued by a bank on behalf of its customer. These credit instruments were effectively a surety or guarantee that if the applicant (Buyer) failed to pay or perform under the terms of a transaction, the bank would take over the liability and pay the beneficiary (Seller). They did not have to be issued for a particular transaction (although they could be), but rather they were usually used to “standby” after issuance, waiting to secure the transaction when it took place. In the United States, banks are prohibited by regulation from providing formal guarantees and instead offer these instruments as a functional equivalent of a guarantee. An SLC can be primary (direct draw on the bank) or secondary (available in the event of default by the customer to pay the underlying obligation).
As these Standby Letters of Credit were effectively contingent liabilities based upon the potential formal default or technical default of the applicant, they are held “off-balance sheet” accounting practices. During the period when SLC’s were being evolved and used, the banks and their customers began to see the profitable situation created by the “off-balance sheet” positioning of the instruments. In real terms, the holding of the Standby Letters of Credit was also considered a “contingent” liability and, as such, was held off-balance sheet, a less regulated accounting treatment. Due to constraints being imposed on the banks by government regulatory bodies, the use of these “off-balance sheet” items as a financial tool to effectively adjust the capital/asset ratios of the banks was seen to be a prudent and profitable method of staying within the regulations and yet achieving the desired capital ratios.
At the request of the central bank Governors of the Group of Ten countries a Study Group was established in early 1985 to examine innovations in, or affecting, the conduct of international banking. The Study Group carried out extensive discussions with international commercial and investment banks that were the most active in the market for the main new financial instruments. The purposes were both to improve central bank knowledge of those instruments and their markets as the situation existed in the second half of 1985. Further, the discussions provided a foundation for considering the financial instruments implications for the stability and functioning of the international financial institutions and markets, for monetary policy, and for banks’ financial reporting and statistical reporting of international financial development projects. Alongside this work, the Basle Supervisors’ Committee has undertaken a study of the prudential aspects of banking innovations and a report on the management of banks’ off-balance sheet exposures and their supervisory implications was published by that Committee and the Bank for International Settlements in March 1986.
The growth of these instruments can be attributed generally to the same factors affecting the trend towards securitization, with two additional influences. Firstly, bankers have been attracted to off-balance sheet business because of constraints imposed on their balance sheets, notably regulatory pressure to improve capital ratios, and because they offer a way to improve the rate of return earned on assets. Secondly, for similar reasons, banks have sought ways to hedge interest rate exposure without inflating balance sheets, as would occur with the use of the interbank market.
Schmitthoff’s Export Trade; The Law and Practice of International Trade
Schmitthoff’s Export Trade; The Law and Practice of International Trade
H. Van Houte; The Law of International Trade
J.C.T Chuah; Law of International Trade
Schmitthoff’s Export Trade; The Law and Practice of International Trade
J.C.T Chuah; Law of International Trade
J. Hill, Law Relating to International Commercial Disputes
A. Redfern, Law and Practice of International Commercial Arbitration