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The process of resolving disputes by way of arbitration is not new but is evident even under the Roman law during first century BC. The parties then entered into an agreement, which was submitted to arbitration and the award by thereby abided by the parties. This method of dispute resolution was considered “mild and moderate” as against the “explicit, clear-cut and exact” litigation. Arbitration has its deep roots in the England legal system.
This paper critically analyses the three most important factors paving way for the success of international commercial arbitration, namely, neutrality, ease of enforcement of arbitral awards and the positive stance of national legal systems towards arbitration. International commercial arbitration is used increasingly by international parties to solve their disputes and thus it is critical to analyze the factors that contribute towards its effortless growth and thereby analyze their scope and implementation in the UK legal system. However, these are not the only factors that have contributed to the success of international commercial arbitration rather they work in combination with others to ensure that dispute resolution through this method is viable.
In the process of international commercial arbitrators, the parties submit their disputes, not before the court but arbitrators. In such process, the arbitrators play a pivotal role. The success of international commercial arbitration is highly dependent on the role played by the arbitrators, the powers given to them under the law and their responsibilities in achieving a fair decision. It is the arbitrators who have the responsibility of ensuring a final and binding arbitral award at the end. This comes with the expectation of the parties for the arbitrators to be neutral. This neutrality is ensured in the international commercial arbitration by specifying the procedure in choosing the same.
Generally, in the arbitration procedure, there are three arbitrators wherein each party chooses one arbitrator and these two arbitrators choose the third one. This practice ensures that each party is capable of presenting its interest in the matter and at the same time neutrality of arbitrators is enforced. However, this raises concern over the neutrality of the two arbitrators chosen by parties because being appointed by the party, it is presumed that they shall favor their own party and predispose the other. Nonetheless, this concern is negated by the third arbitrator who acts as a decision maker in the majority decision and ensures that every decision is free from bias.
The first section of the Arbitration Act provides for impartiality in the arbitral proceedings. This is applicable to both the proceedings under international commercial arbitration as well as the domestic arbitration. In international commercial arbitration, the English Courts rely on the Guidelines by the International Bar Association (IBA) on Conflict of Interest as a binding source in regards to the rules of ethics. It provides for the duty of arbitrators to disclose and ensure neutrality. These guidelines are applicable on all including the party-arbitrators, tribunal chairs, and sole arbitrators. The IBA values the factor of neutrality of the party-arbitrators; however, it also provides that such arbitrator may be non-neutral if under the concerned domestic law there are provisions for imposing upon them a duty to be impartial and independent. The importance of neutrality is maintained in all proceedings of international commercial arbitration and it is considered important. The English court while deciding the Sierra Fishing Company’s casethat if any impartiality exists in a proceeding then it shall have an impact on the decision being rendered null and void. It provided that neutrality shall be observed in all cases irrespective of other factors since it ensures impartiality in judgment.
Neutral arbitrator ensures impartial decision. Arbitration should be neutral not only in regards to the country and political system to which the parties belong but also to legal system and practices that parties adhere to. However, this aspect of neutrality, particularly in relation to legal systems is often underestimated by European and American practitioners. While negotiating an international contract, superior parties resort to imposing their own rules, concepts and legal principles that are likely to be opposed by the other and this seeks to jeopardize the entire process of arbitration. Thus, to ensure neutrality is actually implemented, the arbitrators must be capable of adopting a comparative law approach and understanding legal principles of various legal systems to which parties belong.
Enforcement of Arbitral Award
An arbitral award is a final judgment passed by the arbitrator. It is of no relevance if the same is not enforced in the country of the party against whom it is part and therefore the winning party is able to enforce its rights. It is pertinent to note that in international commercial arbitration there is “arbitral award” and “foreign arbitral award”. Both of these awards are required to be enforced to ensure the success of international commercial arbitration. The foreign arbitral award is such an award that is rendered in a State not being party to the New York Convention. England provides not one but various ways in which a foreign arbitral award can be enforced, including summary procedures, registration, and action at Common law.
The main consideration while enforcing foreign arbitral award is not the cause of action but the procedure of enforcement. It was held that cause of action would not be looked when the interested party comes to enforce and recognize a foreign arbitral award before the English courts. The law is clear that when a foreign arbitral award is passed by the foreign country it shall be enforced in the same manner as a judgment of that country, provided such award in enforceable in that country in the same manner as a judgment.
However, there are issues in recognition and enforcement of arbitral awards. Courts may deny enforcement of foreign awards in their own discretion irrespective of any justification on the ground of denying such award. The major grounds for denying enforcement and recognition include the validity of the arbitration agreement, right to the fair trial, award exceeding the scope of submitting to arbitration, excess of jurisdiction, improper composition of arbitral procedure or tribunal, setting aside the award in arbitral situs, non-arbitrability of the matter, and violation of the public policy.
The UK legal system is open to arbitration and it seeks to implement arbitral awards whether passed by the courts under its jurisdiction or foreign courts. UK has not denied enforcement and recognition of foreign arbitral award unless it lacks enforceability on the grounds discussed above as mentioned in the New York Convention on the Recognition and Enforcement of Foreign Arbitral Award 1958, to which the UK has signed and ratified. The UK has adopted a progressive approach in dealing with enforcement and recognition of foreign arbitral awards.
Rapid globalization has led the path for international contracts that include clauses of international arbitration. The ease, efficacy, and availability of international arbitration have contributed to the cross-border investment, trade and commerce. Although with the changing trends and increasing acceptance of arbitration, trade and commerce are not the only issues dealt by arbitration. Arbitration laws, procedures of enforcement and other judicial practices are being modernized increasingly amongst countries. Even the number of arbitral institutions that can be chosen have increased manifold. The UNCITRAL Model law is adopted by more than 70 jurisdictions, with either no or limited amendments. These jurisdictions have sought to court practices in consonance with the Model Law. Even today wide divergence in the court practices can be seen but the objective is always to support the process of arbitration and reject any challenges that come before. Over time, the practice of courts has diverged to accept principles of arbitration and thereby to erode the lack of neutrality that is perceived by most.
Another instrument of significance importance to arbitration is the New York Convention. It seeks to provide a customary law on international convention and has been ratified by more than 160 countries. Every contracting state is required to recognize award passed by the arbitrator as binding and ensure its enforcement in accordance with the procedure of the territory wherein the award has to be executed. The legal systems have sought to ratify this convention thereby showing their acceptance to the procedures of dispute resolution through the process of international arbitration. Further, even while interpreting the Articles under the Convention, most national courts have given effect considering the intent of the drafters. For instance, courts in Australia interpreted arbitration agreement falling under the Convention to include as many claims of the part as possible.
Some countries have not only reformed their laws to support international arbitration but have gone forward to attract major international disputes. For this purpose, Singapore International Commercial Court was established in January 2015. It is lined along with the Dubai International Financial Centre Courts. These courts provide for the resolution of international disputes while offering a panel of international judges and other requirements. Such establishments have sought to promote and encourage international arbitration to ensure it achieves dominance in international dispute resolution.
The success of international arbitration is large because of the above-discussed factors; however, there are other factors that equally contribute to its success. These other factors include confidentiality and privacy of proceedings and final decision, coordination between parties in the resolution of the dispute, the finality of the decision, costs and speed interse. These factors cannot be ignored while analyzing the success of international arbitration.
Court proceedings are generally public and even so instances of “media trial” have increased in many counties. This unwanted attention of the public leads to distraction and attracts many pressure groups that are likely to influence the final judgment. In arbitration, the parties generally agree to keep the process confidential and private irrespective of whether this is provided in arbitration rules. This confidentiality seeks to preserve the arbitral proceedings.
With the increase in business, its forms and activities have also diversified. Business and trade have superseded traditional boundaries. Thus, these businesses are subject to jurisdiction and laws of courts that are not confined to national boundaries. Such difficulties can be resolved by drafting an appropriate arbitration clause to be revoked at the time of disputes. This clause should include the jurisdiction and the law to be applied to the parties. Thus, international arbitration provides parties to mutually decide the mechanism of dispute resolution at the time of entering the contract. Even after this, it cannot be said that there are no disputes concerning jurisdiction or choice of law but these are restricted.
The arbitration is one and final process of dispute resolution wherein there is no provision of appeal, revision or review, unlike the court proceedings. With appeals and review in courts, time and efforts of the parties get wasted. Thus, tailoring the procedure in accordance with the preferences and needs of parties help in saving time and cost and makes arbitration more efficient for international trade, business, and other contracts.
International commercial arbitration has developed manifold in the recent past. Countries have departed from the traditional approach and adopted this method of dispute resolution that is beneficial for the inter-country business relations. The development in international arbitration is attributed to its simple and unified legal procedures and practices. International commercial arbitration has its own defects and lacunae but these become less significant due to the principles of neutrality, enforcement, and recognition of arbitration award and positive attitude of nation-states to achieve the underlying objectives of international arbitration. From the above analysis, it is clear that a progressive approach has been adopted by nations while dealing with international arbitration. The aspects of neutrality and enforcement of award have been the driving factors for the success of international commercial arbitration. These aspects have been followed in England as mentioned under international instruments without deviation. The legal practices in the UK seek to implement the objectives and accomplish the benefits of international commercial arbitration. This paper critically analyzes how neutrality, enforcement of award and positive stance of national legal systems has helped in boosting international commercial arbitration and thereby strengthening its roots.
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