INTERNATIONAL COMMERCIAL ARBITRATION: THE NEED FOR NATIONAL COURTS IN ARBITRATION
Author :RAHUL RANJAN and ANKITA RANAWAT (INSTITUTE OF LAW, NIRMA UNIVERSITY 2ND YEAR BA.LLB )
Abstract:-
International arbitration has become one of the effective means of dispute resolution. In arbitration, parties to a dispute agree to resolve the dispute using private means rather than resorting to public courts. Submitting disputes arising out of international commerce, trade or investment to arbitration has become attractive, for various reasons, including the privacy of the arbitral proceedings, the control of the process by the parties to the dispute and the expertise of arbitrators. In recent times, most states have enacted legislation that seeks to restrict interferences of the courts in arbitration proceedings. However, arbitration by its private nature has to rely on the support of national courts, for appropriate orders and enforcement of its decisions. This research paper seeks to scrutinize how national courts has been made to aid international commercial arbitration and whether the courts have been supportive in making the arbitral process effective.
Introduction
Arbitration is a system of justice, born of merchants. In one form or another, it has been in existence for thousands of years.[1] The origins of arbitration go back to dispute settlement usages in ancient times in Europe in Greece and Rome, including Roman law, and in Asia. Arbitration has been an effective mechanism of settling disputes since ancient times in Greece, Egypt and Rome. Amusingly, the major reasons because of which parties opted for arbitration in ancient times, specifically; congestion, adjournments and expensive nature of litigation in the courts, remains the same today. In modern times however, arbitration has become more eye-catching for varied reasons such as its privacy, party control of the process and the international recognition and enforcement of arbitral awards, as against courts judgements. Basically, Arbitration offers parties the opportunity to settle down their disputes using private means, the results of which would be binding and enforceable.
When it comes down to it, parties to arbitration express their desire for speedy and efficient justice; nevertheless such conduct was initially regarded as denying the state, it’s sovereign right to administer justice, through the national courts. From the 17th century, arbitration was exposed to resentments by courts and legislators, who claimed judicial sovereignty for the state. Arbitration suffered setbacks due to the resentments, because as a private process its efficiency depended on the sustenance of national courts. Gradually however, pro-arbitration conventions emerged, aimed at encouraging international trade and investment among states and citizens of different states. The Geneva Protocol of 1923, The Geneva Convention of 1927, The New York Convention of 1958 and UNCITRAL Model Law of 1985 are about the most significant international conventions that have advanced international arbitration to its modern eminence.
As a result of these international conventions, most states have ratified legislations that seek to restrict negative interference of courts in arbitration proceedings. For example, legislations in the England and The USA, as well as courts decisions have sought to enforce the doctrine of sanctity of contract, thereby protecting arbitral processes.[2]
As a private practise, arbitration ends with an award which can only be enforced by a national court in the enforcement state. There is hence a link between arbitration and national courts, through national legislations.[3] This research paper seeks to examine how national courts have been made to succour international commercial arbitration and weather the court has been supportive in making arbitral process effective.
What Is International Commercial Arbitration?
International Commercial Arbitration is the process of resolving business disputes between or among transnational parties through the use of one or more arbitrators rather than through the courts. It requires the agreement of the parties, which is usually given via an arbitration clause that is inserted into the contract or business agreement. The decision is usually binding.[4]
Why there is a need for International Commercial Arbitration?
The practice of international arbitration has advanced so as to allow parties from different legal and cultural backgrounds to resolve their disputes, usually without the regulations of their individual legal system. The advent of modern international commercial arbitration is attributable to increasing growth in international trade, commerce and investment between states and foreign companies. As the number of international commercial disputes proliferates, so too does the use of arbitration to resolve them. The non-judicial nature of arbitration makes it both attractive and effective for several reasons. There may be distrust of a foreign legal system on the part of one or more of the parties involved in the dispute. In addition, litigation in a foreign court can be time-consuming, complicated and expensive. Further, a decision rendered in a foreign court is potentially unenforceable. On the other hand, arbitral awards have a great degree of international recognition. For example, more than 140 countries have agreed to abide by terms of the Convention on the recognition and enforcement of foreign arbitral awards of 1958 known as the New York Convention, 1958. While national arbitration is governed by a single law, international commercial arbitration however operates within a context of different laws, both national and international,[5] including international conventions, such as the New York Convention, the Geneva Convention and the International Convention for the Settlement of Investment Disputes (ICSID). Another reason for choosing arbitration is that the process is administered by the panel of arbitrators who are agreed upon by both parties. These arbitrators may have specialized competence in the relevant field. Arbitral awards are usually final and binding.
Basic elements of International Commercial Arbitration
International Commercial Arbitration has the following basic elements:
i. Arbitration is consensual – Arbitration can only take place it the parties have agreed to it, in the form of an arbitration agreement.
ii. Arbitrators are neutral – Arbitrators resolving the dispute are independent and impartial.
iii. Arbitration awards are binding – Arbitration results in an award that binds all parties to the proceedings.
iv. Arbitration is private – Arbitration proceedings are not public and results are often confidential.
v. Arbitration is enforceable – Arbitration awards may be enforced in most parts of the world.
Types of International Commercial Arbitration
International Commercial Arbitration is of two basic types, which are Institutional Arbitration and Ad Hoc Arbitration.
Institutional Arbitrationis one held under the supervision of arbitration institutions. These institutions apply their procedural rules to the arbitral process, thus promoting speed and efficiency.[6]Parties engage in ad hoc arbitration, if they do not employ the services of arbitration institutions, such as the International Chamber of Commerce (ICC).
Early Conflicts Between International Commercial Arbitration And National Courts
The conflicts between international commercial arbitration and the courts could be traced to Rome, where arbitration agreements were not recognized by the courts. The courts would then not examine the agreement to arbitrate, but the existence of the double promise.[7] The rivalry between commercial arbitration and the courts spread to England, France, Germany and the USA. The English Parliament enacted successive Arbitration Acts which persistently maintained the supervisory powers of the courts over arbitral proceedings, through the special case procedure, enabling courts to set aside awards for error of law and fact.[8]
The hostility came to an end in England with the enactment of the Arbitration Act of 1996, which gave validity to arbitration agreements and empowered the courts to stay proceedings of claims subject to valid arbitration agreements; thus offering support to the arbitral process. The Act also gave recognition to arbitral tribunals’ competence to resolve jurisdictional objections[9]. In France, the 1806 Napoleonic Code of Civil Procedure restricted arbitration agreements and procedures. The Code particularly made agreements to arbitrate future disputes unenforceable.[10]In 1843 the Court de Cessation in France, held that an agreement to arbitrate future disputes could only be enforced, if it identified the particular disputes and specified the individual arbitrators. The reason for this was that, waiver of access to judicial protections and guarantees by the courts, were not to be permitted in the abstract.[11]
In Germany, there was legislative support for arbitration, but the courts demonstrated their hostility by setting aside arbitral awards on grounds that the tribunals failed to comply with provisions of the civil code.[12]The difficulties became worsened in between the wars, because arbitration was regarded as an effort by private individuals, to exclude their activities from the sovereign power of the government.[13]Commercial arbitration took a new form after Germany had ratified the Geneva Protocol of 1923.[14] In Africa, Asia, Latin America and the Middle East, commercial arbitration encountered hostilities from the courts, even though these regions had historical and traditional experience with arbitration. Most governments in these regions, under the doctrine of state supremacy, enacted laws and implemented policies that limited the efficacy of commercial arbitration, until most of the countries ratified the New York Convention of 1958, making them adopt international arbitration rules.[15]
The Attitudinal Transformation of National Courts
The courts in Europe and the USA had to change their hostile attitude against commercial arbitration, through the enactment of legislations mainly after the Geneva Protocol of 1923, which enjoined courts of contracting states to enforce arbitration agreements.[16]
Following the Protocol was the Geneva Convention of 1927, which was signed to remedy
obvious weakness in the Protocol, particularly the scope of enforcing awards. As a result
Awards could be enforced in any contracting state. However, commercial arbitration still
faced impediments through the doctrine of double exequatur. This required an arbitral award
to be proved in the courts of the seat of arbitration and also in the enforcing state.[17]
The New York Convention was signed in 1958, doing away with the double exequatur
problem and enjoining contracting states to recognize and enforce foreign arbitral awards in
their territories, as well as enforcing arbitral agreements. The New York Convention has been
described as, one international instrument that has developed modern commercial arbitration,
by promoting respect for binding commitments, whether they have been entered into by
private parties or governments.[18] It can be argued that since the 1990’s, international commercial arbitration has become independent, so attractive and major developed nations are now competing to be selected as seats of arbitration. It was for such reason that Belgium, in 1985, reformed it national laws to totally exclude its courts from interfering in arbitral proceedings. Belgium however had to review this policy by giving its courts essential supervisory powers to aid the arbitral process. The Belgium experience demonstrates the need for national courts to support the arbitral process efficiency. It also confirms that national courts could exist on its own but arbitration cannot exist without the courts.
A Case For Total Independence of Commercial Arbitration
In arbitration, the preference is for private resolution of disputes; therefore, it makes sense to insist that courts do not interfere in the arbitral process. However, being a private process, arbitration is not self-executing and has to rely on the coercive powers of the courts during and after the arbitral proceedings to ensure its efficacy.[19] International commercial arbitration is held within the legal framework of sovereign states, which are enforced by the courts. For example, a host state, through its national law on arbitration, the lex arbitri, determines whether arbitrators can compel attendance of witnesses and or administer oath to witnesses. Even though national courts involvement in arbitration seems to be an invasion on the principle of party autonomy, in reality arbitration will continue to depend on the courts to sustain its integrity.[20] With time however, arbitration now enjoy considerable measure of independence, subject only to procedural supervision of the courts. In general courts now enforce parties’ agreement to arbitrate, recognize parties’ choice of law and the authority of arbitrators to determine their own jurisdiction, and enforce arbitral awards, ensuring the efficiency of arbitration.[21]
The Role of National Courts In International Commercial Arbitration
The debate in international commercial arbitration is what scale of judicial intervention should be allowed. Parties in arbitration want a prompt, less expensive and final resolution of the dispute, whilst states also want to ensure, that the arbitral process is just and impartial.[22] While it is argued that arbitration must be free from courts, in order to be effective, it is also accepted that arbitration needs the support of national courts to be effective.[23] Flowing from this contention laws and rules has been formulated to balance the competing interests. The involvement of courts in modern commercial arbitration generally begins even before the arbitral tribunal is established, when the courts are used to protect evidence, to avoid damage.[24] The courts then enforce arbitration agreements for the arbitral process to start; during the pendency of the arbitration itself, it issues interim orders and at the end of the arbitration, it either recognizes and enforces, or set aside arbitral awards. Rather than discuss the role of the courts at each stage, I shall discuss the stand taken by the courts generally, on the major concepts of international commercial arbitration without which the arbitral process cannot hold.
1. The Arbitration Agreement – Arbitration is based on a valid agreement to arbitrate. The New York Convention requires that arbitration agreement be in writing and signed by the parties. This calls for two things from the courts. First, it must determine whether an arbitration agreement is valid and then whether to enforce it. The courts generally have developed a progressive approach in interpreting the validity of arbitration agreements. In determining the validity of arbitration clause, most courts progressively look at the substance, rather than form, thereby enforcing parties ‘contractual intentions.[25] The courts generally enforce arbitration agreements, subject only to issues of public policy.
2. The Concept of Arbitrability – This concept relates to disputes that can be settled by arbitration, and normally depends on public policy of states.The courts role is to decide whether a dispute is arbitrable or not. In recent times, some courts have expanded the scope of arbitration to cover subjects like securities and antitrust law, which traditionally are regarded as public policy issues.[26] It is obvious that the courts attitude has been influenced by the need to promote international trade as well as attaining some uniformity in international arbitration.[27]
3. The Concept of Separability – This concept means the arbitration agreement contained in a contract exist independently and survive the main contract. The courts have given recognition to this concept which is the source of arbitral tribunal’s authority. In the English case of Heyman v. Darwins Ltd[28], the court held that the arbitration clause will survive to decide the mode of settling the dispute, even when the contract fails.
4. The Concept of Competence- competence – This describes the power of the arbitral tribunal to decide on issues of its own jurisdiction. Flowing from the concept of separability, the tribunals are accorded the legal right to determine their own competence. The UNCITRL and the ICC Rules vest arbitral tribunals with this right which is recognized and enforced by courts.[29] In the SNE v. Joc Oil case, the arbitral tribunal assumed jurisdiction on the basis of the competence- competence concept. The Court of Appeal of Bermuda confirmed the tribunal’s decision and enforced the award.[30]
5. Challenge to Arbitrators – In general, arbitrators are enjoined to be independent and impartial in the performance of their duties. Parties in arbitration therefore can challenge arbitrators who fail to observe this duty. The courts are normally called upon to set aside arbitral awards on grounds that the tribunal was partial or bias. In general, arbitrators are enjoined to be independent and impartial in the performance of their duties. Parties in arbitration therefore can challenge arbitrators who fail to observe this duty. The courts are normally called upon to set aside arbitral awards on grounds that the tribunal was partial or bias.
6. Recognition and enforcement of awards – The fact that arbitration is binding and final can only be affirmed by the courts. The recognition and enforcement of awards by courts creates res judicata and issue estoppel.[31] If a losing party fails to satisfy the award, the victorious party would invoke the powers of the court to enforce the award just like a court judgment.
This research reveals that with regards to the scope and extent of courts intervention in arbitration, there is universal consensus supporting courts role in recognizing and enforcing arbitral awards, without which arbitration will lack efficacy. The courts also preserve the integrity of the arbitral process, by setting aside awards on stated good grounds, when such awards are challenged on grounds for example, that a party was not given equal opportunity to advance his case.
Conclusion
Arbitration is private in nature, as such parties will need courts to enforce the arbitration agreement and also enforce arbitral awards. The reality therefore is that without courts support, the arbitral process cannot be effective. This explains why some countries are not attractive to international arbitration, for the simple reason that their courts are not supportive to arbitration. It was for this same reason that compelled Belgium to review its policy on court involvement in arbitration in 1998.
The fact that without the courts, arbitration will be ineffective is buttressed by the example from Pakistan, which is less developed in international arbitration. The increasing growth in international trade and investments among states and private
companies, demands making international commercial arbitration more effective, a way out is reforming national statutes on arbitration and sensitizing national courts to support the arbitral process, without which arbitration will remain ineffective, particularly in developing economies.
[1] “Sources for the History of Arbitration” by Derek Roebuck (1998) 14 Arb Intl.; “Cleopatra Compromised: Arbitration in Egypt in the first century BC” (2008) 74 Arbitration 3, pg. 263
[2] Fox William, Jnr., INTERNATIONAL COMMERCIAL AGREEMENTS, 3rd edition., pg. 331-332
[3] Redfern and Hunter, LAW AND PRACTICE OF INTERNATIONAL COMMERCIAL ARBITRATION,pg. 13,
[4] Gloria Miccoili, International Commercial Arbitration, available at http://www.asil.org/erg/?page=arb , last visited on April 20, 2014.
[5] Hans Van Houtte, THE LAW OF INTERNATIONAL TRADE, Ch-11
[6] Article 24 of ICC Rules require Arbitral Tribunal to render award within six months of signing Terms of Reference.
[7] Fox William, supra note 5, at 286.
[8] Id., at 293.
[9] Lew, Julian, et. al. Comparative International Commercial Arbitration, page358
[10] Gary Born, supra note 1, at 45
[11] Judgment of 10th July,1843 in Cie L’Alliance v. Prunier, 1992 Rev. Arb.404.
[12] Gary Born, supra note 1, at 35.
[13] Id., at 35
[14] Redfern and Hunter, supra note 6, at 80
[15] Gary Born, supra note 1, at 39
[16] Article IV of the Protocol
[17] Redfern and Hunter supra note6, at page 80.
[18] Kofi Annan, ex-UN, Secretary-General at the 40th Anniversary celebrations of the New York Convention. New York, 10th June, 1998, posted on VLE.
[19] Redfern and Hunter, supra note6, at 388
[20] Id., at 388
[21] Id., at 388
[22] Okezie, Chukwumerije, Judicial Supervision of Commercial Arbitration, 1999 Arbitration International, Vol.15,No.2
[23] Redfern, A, International Commercial Arbitration: Jurisdiction Denied: The Pyramid Collapse, JBL 15 (1986)
[24] Lew J., Supra note14, at 367.
[25] Redfern and Hunter, supra note6, at 160.
[26] Buhring-Uhle, supra note40, at 60
[27] Redfern and Hunter, supra note6, at 164
[28] Heyman v. Darwins Ltd, [1942] 1 All E.R. 337
[29] Article 21 of UNCITRAL Article6(4) of ICC
[30] Redfern and Hunter, supra note6, at 302
[31] Redfern and Hunter, supra note6, at 516