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International Commercial Arbitration – An Overview

arbitration agreement

What is International Commercial Arbitration?

“International commercial arbitration” has three elements. First is that there is an arbitration agreement; secondly; the arbitration is of international as opposed to domestic in character, and thirdly it relates to commercial matters. An arbitration is international in character if –

a) the parties to an arbitration have, at the time of the conclusion of an agreement, their places of business in different countries or,

b) one of the following places is situated outside the country in which the parties have their places of business – (i) the place of arbitration if determined in, or pursuant to the arbitration agreement, (ii) any place where a substantial part of the obligations of the commercial relationship is to be performed or the place with which the subject-matter of the dispute is most closely connected or,

c) the parties have expressly agreed that the subject-matter of the arbitration agreement relates to more than one country.

The term “commercial” has not been specifically defined in the said Model law. But for the purpose of interpretation of the term “commercial”, it should be given an interpretation so as to cover matters arising from all relationships of a commercial nature whether contractual or not. The term “International commercial arbitration” has also been defined under section 2(f) of the Arbitration and Conciliation Act, 1996.

Arbitration Agreement

The arbitration agreement by the parties to submit any dispute between them to arbitration is the foundation of modern international commercial arbitration. Such an agreement must be in writing for all practical purposes. Such an agreement may be by way of a clause in a contract or independent of the contract signed by the parties or it may appear from letters or telegrams etc. exchanged between the parties. There may be an existing dispute or future dispute which by the arbitration agreement is referred to arbitration and the process is generally termed as submission. The arbitration clause is in standard form which is internationally accepted in diverse activities i.e. shipping, insurance, commodity trading, banking, and major civil engineering project, etc.

The legal structure of international commercial arbitration in India can be historically traced to –

(1) The protocol on Arbitration clauses 1923 (Geneva Protocol).

(2) The international convention on the Execution of Foreign Arbitral Awards 1927 (Geneva Convention).

(3) The Arbitration (Protocol and Convention) Act, 1937

(4) The International Convention on the Recognition and Enforcement of Arbitral Awards, 1958 (New York Convention).

(5) The Foreign Awards (Recognition and Enforcement) Act, 1961

(6) UNCITRAL Model Law on International Commercial Arbitration

(7) UNCITRAL Arbitration Rules

(8) The Arbitration and Conciliation Act, 1996.

Besides, there are some other international rules of different organizations which govern international commercial arbitration such as the ICC Rules of Arbitration, LCIA Rules, WIPOArbitration Rules, etc.

History

The practice of arbitration for the settlement of disputes between countries originated in Greece as far back as 600 B.C. But the modern history of international arbitration between countries may be traced to the Treaty of Amily, and the Jay Treaty of 1794. The practice of mixed commission for arbitration was followed by a number of states in the nineteenth century. A departure from this practice was made in the case of the Alabama claims (1872), where a collegiate body was constituted by the nomination of each party. At the Hague Peace Conference of 1899, The Hague Convention contained a set of rules for arbitral procedures and established a Permanent Court of Arbitration with its seat at the Hague. It is more “a device for facilitating the creation of ad hoc tribunal” than a court. During the life of the League of Nations, arbitration was one of the modes to maintain international peace and security in the world. Article 33(1) of the United Nations Charter provides the reference to arbitration for the settlement of the dispute which is likely to endanger the maintenance of international peace and security.

An international arbitration between countries

When a country resorts to arbitration against another country, it may do so on its own or on behalf of individuals to whom it is prepared to extend diplomatic protection. It is still the current practice for countries to extend their diplomatic protection to individuals so as to bring claims on their behalf against another country. For the resolution of disputes between sovereign nations two particular forms of arbitral tribunal need special mention. They are the Permanent Court of Arbitration (PCA) and the International Court of Justice (ICJ) which are both located at The Hague in the Netherlands.

The International Court of Justice (ICJ) was created after the Second World War as “the principal judicial organ of the United Nations” and all members of the United Nations are ipso facto parties to the Statute of the Couritratt.

Special mention may be made to the two international organizations which offer special facilities for the conduct of international commercial arbitrations. These are PCA at the Hague and the International Centre for the Settlement of Investment Disputes (ICSID) at Washington. Private arbitration i.e. arbitration between a country and a private party may be held at PCA under the Rules of arbitration formulated in 1962 which is shortly known as “Rules of arbitration and conciliation for settlement of international disputes between the two parties of which only one is a country.”

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