How Does International Commercial Arbitration Work?

by Gonzalo Law | Feb 10, 2016 | International Business, U.S. Private and Emerging Business

International Commercial Arbitration is the process used by parties conducting international business to resolve contractual disputes. Some of the frequent reasons that parties often favor arbitration is the general mistrust and uncertainty in laws, lack of fairness in the legal process, lack of independence of judicial systems of other nations, procedural delays, and elevated costs of pursuing legal actions in foreign countries. Accordingly, parties have often favored arbitration to resolve international commercial disputes.

There are certain essential characteristics of arbitration agreements. One is the requirement of a written contract with a specific clause stating that the arbitration process will be used if a legal dispute arises under the contract terms. Parties also agree on the individuals or institutions administering the arbitration process. Another common term the decision rendered by arbitrators, known as arbitral reward, is final and binding.

There are two kinds of arbitration, ad-hoc and institutional. Arbitration ad-hoc is conducted by individuals the parties choose. The rules followed during the arbitration process are specified by the parties and their attorneys in advance. Institutional arbitration is conducted by a major institution and the rules followed during the process are independent and already in existence. Perhaps the best known arbitration institution is the International Chamber of Commerce (ICC) International Court of Arbitration. It is an experienced and renowned arbitration institution. The primary goal of the ICC is to make all the necessary efforts to overcome procedural obstacles and ensure fair awards. The International Court of Arbitration applies the ICC Rules of Arbitration, which can only be administered by the ICC Court.

In addition to private parties, governments also use arbitration as a way to resolve disputes. This is often seen when arbitration is incorporated into treaties, international agreements, and conventions. The United Nations has the United Nations Commission on International Trade Law (UNCITRAL), which provides a set of arbitration rules widely used in commercial relationships that include private parties in international commercial contracts, investors’ disputes with states, and disputes between states. The arbitration rules cover all aspects of the arbitration process, and UNCITRAL works constantly to improve the rules and procedures of arbitration administration.

The growing popularity of arbitration in the international commercial arena is reflected in the increasing number of cases submitted for arbitration, both in the ad-hoc and institutional context. The confidential character of the arbitration process makes this alternative very attractive. The parties involved understand, and in many cases require, that the arbitration process be confidential with respect to the legal determinations made by the arbitrators and laws governing the international commercial relationship.

Individuals and corporate entities engaged in international business should review the arbitration clauses in their contracts before deciding on alternative methods to resolve disputes. An experienced attorney practicing international contract law can explain the implications of your clause and how to enforce it.

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