Advantages of International Commercial Arbitration

Discuss about the International Commercial Arbitration.

International commercial arbitration has become a common method of resolving disputes that involve commercial entities. There are some of the biggest cases which have gone to the arbitration table for resolution. One of these cases includes Mitsubishi Motors Corp vs. Soler Chrysler- Plymouth Inc. One of the major advantages of this method is that it eases the time in which awards are rendered. In a foreign jurisdiction, the debtor can have assets which can be domiciled by the creditors. That ease has been partly due to the New York Convention a treaty of 1958 which allowed countries to enforce awards arbitration from other independent jurisdictions.

Parties entering into international commercial transactions find it very endearing to international arbitration. Parties to international contracts always have arbitration clauses that tend to protect their rights and eliminate uncertainties when a dispute arises.

A court may however render a given dispute as non-arbitral. This is in rise to growing public interest and a highly conflicting policy concern. A court has higher authority and power than the courts of arbitration. It can render a case or a conflict non-arbitral if it’s highly charged. The Federal Arbitration Act (FAA) allows arbitration of international disputes under the UN convention on foreign arbitral awards. The court may reject arbitration on the scope of public Policy Exception. In a recent landmark ruling, the US Supreme court ruled that in the case of Mitsubishi Motors Corp .v. Soler Chrysler- Plymouth Inc. those private antitrust claims are arbitral in transaction arising from international trade.

In this case, the court ruled in five-to-three decisions that if a contract has a broad agreement of arbitration, policy that favors arbitration overrides domestic public policy against antitrust claims. They mentioned that arbitration claims need not be specifically mention a given requirement. Statutory provision and treaties in antitrust claim that arbitration can be overruled by a court of law. In Mitsubishi- Soler there was an alternative public policy concern which means that arbitration could have contravened the public interest countervailing the holding company. The agreement was enforceable.

In order to comply with this rule, the ICSID arbitration rules require the arbitrators to sign a declaration stating that there is no “reason why they should not serve in the Arbitration Court”. While the absence of conflicts of interest is sought, a subjective suspicion about the referee does not disqualify him

Disadvantages of International Commercial Arbitration

As a consequence of the ethical principles of impartiality and independence that we have analyzed, certain ethical duties of the arbitrators arise, which have been specially included in the Codes of Ethics of both the International Bar Association (IBA) and the American Arbitration Association (AAA), known as: disclosure duty; duty of communication, duty of care; and duty of confidentiality, which we will analyze.

When it comes to the method of arbitration, most corporations fall into three categories. The first category is those that are in favor of arbitration for a particular transaction whenever necessary, those that do not agree on arbitration unless they are given no other alternative or means of settling a dispute and those who have basically no policy and therefore will make ad hoc decisions on issues raised on a particular matter. Corporations that do not want arbitration do so often because they have had bad experiences in the past. Arbitration awards are not appealed and therefore due to limited grounds of appealing they prefer other methods which can be appealed. An appeal is paradoxical in cases of arbitration.

The lack of appeal in arbitration makes it too risky. The time and size of the commercial case will be a determining factor in arbitration cases.

Due to the relative privacy and consensual nature of the arbitration process, business participants prefer commercial arbitration as a way of settling disputes. However, the role of national courts has been put on the spotlight because of the way some reverse arbitration decisions.  This has highlighted the weaknesses of commercial arbitration as a way of settling disputes.  Even though parties choose arbitrators, select substantial laws governing the merits of the case, design procedures etc.  It is not uncommon for arbitral tribunal awards to be performed under pressures. It is also possible that in some circumstances, parties would refuse to perform arbitral wards, which has compelled arbitration to turn to existing power to enforce arbitral awards.  This has prompted the involvement of national courts, which has shown one weakness of the arbitration process. Commercial arbitration has developed from domestic to international and in this process it has created more chances of national courts intervention and restrictions of lex loci arbitri.

According to Professor Goode international commercial arbitration has forced the pace of change in arbitration process. Delocalization movement started as a result of excessive judicial interference with party autonomy. Although the delocalization process is still ongoing, it has led to the freeing of commercial arbitration from the constraints of national laws.

Role of National Courts in International Commercial Arbitration

The delocalization theory attempts to create a delocalized arbitration that is free from lex loci arbitri. This theory suggests that national laws should not control international commercial arbitration. It however acknowledges that the laws of the place of enforcement should conditionally govern arbitral awards.  However, Redfern and Hunter were skeptical of this theory because they thought that in practice delocalization theory could not be realized. On the other hand, proponents of this theory hope that one day international commercial arbitration will be having no interference from national laws.

Jurisdiction theory gives primary importance to the role of national law in the arbitration process. It suggests that the law of the arbitration place supersedes any agreement that the parties may have made. Thus, the place of arbitration is of utmost importance.  This theory shows that international commercial arbitration is still being influenced by the state laws.

According to I.C.C.L.R Article 397, arbitral awards made in foreign states  should be recognized and enforced by contracting states. Although there are exceptions to this, for example, there is discretion 38 that gives powers to national courts of contracting states to decide according to their relevant domestic laws; they can therefore refuse to enforce the arbitral awards. This shows that international commercial arbitration still has a lot of weaknesses due to interference by national courts.

The Regulations of the International Arbitration Centers, aimed at resolving International Trade disputes, reflect the ethical principles of impartiality and independence, in order to ensure that the arbitrator who must know and resolve is apt to decide fairly and disinterested the controversy submitted to his knowledge.[1]In this regard, we will analyze in particular the rules given by the arbitration regulations of the UNCITRAL, AAA, LCIA and IBA. This allows us to ascertain the extent in which national courts are affected by international commercial arbitration.

The persons designated to be included in the lists must enjoy wide consideration. Moral, have recognized competence in the field of law, trade, industry or finance, and inspire full confidence in their impartiality of judgment. Competition in the field of law will be a particularly relevant circumstance for the persons designated in the lists of arbitrators. “

In order to comply with this rule, the ICSID arbitration rules require the arbitrators to sign a declaration stating that there is no “reason why they should not serve in the Arbitration Court”.While the absence of conflicts of interest is sought, a subjective suspicion about the referee does not disqualify him. [2]This is the case, as for example in the Amco v. Indonesia, the defendant proposed the disqualification of the plaintiff’s arbitrator, as it had given a tax consultancy to the person controlling the plaintiffs, as well as the existence of a profit sharing agreement between the plaintiff’s legal representative and the arbitrator. This proposed inability was rejected, as it was not considered sufficiently relevant in the circumstances of the case. However, in another case Holiday Inns v. Morocco, the plaintiff’s arbitrator had to resign when he disclosed that four years earlier he had been Director of one of the plaintiffs’ companies.

Delocalization and Jurisdiction Theories

Although this rule only speaks of the “independence” of the arbitrators, and says nothing about the “impartiality” of the same, this does not mean that the arbitrators may lack the latter, since simply the history from the establishment of this rule it is clear that the term “independence”, although difficult to define, was considered better than “impartiality” insofar as it is an objective concept, while impartiality refers, in general, to a mental state whose determination may be impossible (more than by arbitrator himself at the time of appointment).

This code is not mandatory for the parties or for the arbitrators, unless expressly agreed in this regard.[3] However, they are delivered in a series of standards that serve as a pattern of conduct for arbitrators, establishing as fundamental rule the following: “The arbitrators shall act diligently and effectively to provide the parties with a fair and effective decision of the litigation, be and remain impartial “(article 1).Then, in  article 3, various situations are established that can configure a partial or dependent behavior of the referee; namely: existence of material interest of the arbitrator in the outcome of the dispute; if the arbitrator favors one of the parties or has a prejudice in relation to the subject matter of the dispute; there will be dependency when there are relations between the arbitrator and the parties or with someone closely related to one of the parties.

[4]Likewise, the Ethics Rules of the IBA give different rules regarding some ethical duties of the arbitrators, known as disclosure; Communication; of diligence; and of confidentiality, which will be analyzed later in this work. All these reduce the risk of interference by national courts if the code of ethics is followed.

The English courts have held that the mere appearance of bias is sufficient to disqualify a referee. Thus, in the case of Veritas Shipping Corp. and Anglo-Canadian Cement, Ltd. the London Court removed the arbitrator appointed by one of the parties in arbitration, since he appointed himself as the arbiter of the defendant, in his capacity as Administrative Director of said entity. The basis of this ruling was that arbitrators should not only act impartially, but should also pretend to do so.

Given the referral that, for the recognition of foreign awards, is made by Article 46 of Law 60/2003 of Arbitration to the rules established in the civil procedural order for the enforcement of judgments, it seems that the applicable procedure is the content in the aforementioned articles 52 to 55 of the Law on International Legal Cooperation. This weakens the arbitral process.[5]In accordance with article 52.1, the competence to hear requests for exequatur of foreign judicial decisions is the responsibility of the Courts of First Instance, except in the case of resolutions that deal with matters of competence of the Mercantile Courts, in which case the jurisdiction is attributed to the latter, as provided by number 2 of that article.

Ethical Duties of Arbitrators

To understand applicable in block to the exequatur of foreign awards the cited norms, it would result that the competence for the knowledge of the exequatur of the same ones would have been notably altered, with respect to its previous regime contained in the article 955 of the Law of Civil Procedure of 1881 whose content was left indicated in the introduction.

However, despite the new regulation, we understand that the competence for the recognition of foreign awards continues to be attributed to the Civil and Criminal Chambers of the Superior Courts of Justice in accordance with the provisions of the Organic Law of the Judiciary whose article 73.1 in section c), introduced by the Organic Law 5/2011 of May 20 supplementary to the Organic Law 11/2011 of the reform of Law 60/2003 of Arbitration.[6] Establishes the competence of the Civil and Criminal Chambers of the Superior Courts of Justice to hear the functions of support and control of arbitration established in the law, as well as requests for exequatur of arbitral awards or foreign rulings, unless, in accordance with the agreement in the treaties or the rules of the European Union, correspond your knowledge to another Court or Court.

The international nature of a significant number of litigation arising in cyberspace often creates the need in the last resort to have a judicial or arbitral decision recognized abroad or enforced. In this sense, the example of the different treatment and assessment that States grant to freedom of expression is often given. Thus, in the United States, in the light of the First Amendment of the Constitution, local judges usually reject the recognition and execution of those decisions that limit that freedom condemning for defamation or for certain illegal content. [7]This situation was revealed precisely in the case “Yahoo” in which, remember, a French judge ordered the company Yahoo Inc. to place a device that would filter certain web pages in order to prevent French Internet users having access to illicit content accessible through the portal. For its part, the recognition and execution of said French judgment was requested from a California court, which rejected the request on the grounds that that decision clearly violated its public order, externalized, in this case, in the First Amendment of the Constitution of the United States.

On the other hand, both internal and conventional source regulations, for the purpose of recognition or enforcement of a foreign judgment or award, request a series of external conditions or formal requirements, such as the presentation of written, legalized and translated documentation, incompatible with the dematerialization of new technologies. However, we do not forget that these formalities could be overcome if we resort to the criterion of functional equivalence.

Likewise, the pertinent provisions regarding indirect jurisdiction require that judicial decisions or arbitral awards emanate from a competent jurisdictional or arbitral body, according to the rules of the requested State on international jurisdiction. However, there are no uniformly accepted criteria with regard to the determination of the competent judge in the field of electronic contracts of an international nature. This uncertainty, then, greatly hinders the subsequent recognition or execution of a foreign decision.

Another obstacle presents, on some occasions, the requirement according to which the party against whom the decision is intended to be executed must have been duly cited and the exercise of its right of defense must have been guaranteed. In this sense, we could ask ourselves if we would qualify as a citation that complies with the minimum guidelines of due process to a notification made online in a cyber arbitration. Or if a hearing carried out in the virtual space, without the physical presence of the parties or the arbitrator, guarantee the right of defense.

Conclusion

Recognition and enforcement of the award in international commercial arbitration will be respected by the national courts if two parties that are in conflict will face each other. Arbitration has a limited window for appeal and therefore the arbitration should be done in the interest of all parties to the conflict. Arbiters should not be partisan but rather give independent decisions to give arbitration decisions confidence. Corporations that do not want arbitration do so often because they have had bad experiences in the past. Arbitration awards are not appealed and therefore due to limited grounds of appealing they prefer other methods which can be appealed. An appeal is paradoxical in cases of arbitration.

References

Ahmad Ali Ghouri, Law And Practice Of Foreign Arbitration And Enforcement Of Foreign Arbitral Awards In Pakistan (Springer 2013)

Gary Born, International Commercial Arbitration (Wolters Kluwer Law & Business 2014)

Gary Born, International Commercial Arbitration (Kluwer Law Internat 2014)

Handbook On Commercial Arbitration

Interim Measures In International Commercial Arbitration (Maklu 2007)

James Gaitis and others, The College Of Commercial Arbitrators Guide To Best Practices In Commercial Arbitration (Juris 2017)

John G Collier, Conflict Of Laws (Cambridge University Press 2004)

Julian D. M Lew, Loukas A MistelisStefanKro?ll, Comparative International Commercial Arbitration(Kluwer Law International 2003)

Martins Paparinskis, The International Minimum Standard And Fair And Equitable Treatment (Oxford Univ Press 2014)

William BlackstoneThomas McIntyre Cooley, Commentaries On The Laws Of England (Lawbook Exchange 2003)

Gary Born, International Commercial Arbitration (Wolters Kluwer Law & Business 2014).

Interim Measures In International Commercial Arbitration (Maklu 2007).

William Blackstone and Thomas McIntyre Cooley, Commentaries On The Laws Of England (Lawbook Exchange 2003).

Gary Born, International Commercial Arbitration (Wolters Kluwer Law & Business 2014).

Julian D. M Lew, Loukas A Mistelis and Stefan Kro?ll, Comparative International Commercial Arbitration (Kluwer Law International 2003).

William Blackstone and Thomas McIntyre Cooley, Commentaries On The Laws Of England (Lawbook Exchange 2003).

Martins Paparinskis, The International Minimum Standard And Fair And Equitable Treatment (Oxford Univ Press 2014).