Arbitration – A Quick Guide to Principles, Procedures, and Practice

Disputes arising from commercial, contractual, and other legal relationships often require efficient, fair, and flexible resolution mechanisms. Arbitration has long been the preferred alternative to litigation, offering a private, binding, and adaptable process for resolving such conflicts. This guide, which is focused on ‘cross-border’ disputes, aims to provide a basic overview of what arbitration is, and the fundamental principles, procedures, and practical considerations that the parties should be aware of when engaging in it.

What is arbitration?

Arbitration, in essence, is a form of alternative dispute resolution (ADR) where the parties agree to submit their dispute to one or more arbitrators, who render a binding decision. Unlike litigation, arbitration is generally less formal, more confidential, and can be tailored to the specific needs of the parties. This makes it particularly attractive in complex commercial disputes, where the nuances of the industry and the need for specialised knowledge are paramount.

Domestic arbitration

Domestic arbitration refers to arbitration conducted within a single country as an alternative to litigation in national courts. This is commonly achieved by including an ‘arbitration clause’ in the parties contract. This process is governed by mutually agreed-upon rules and any mandatory local legal provisions, typically that country’s national laws.

International arbitration

International arbitration involves parties from different countries submitting to a neutral forum. It is a sophisticated legal process where the claimant and defendant agree to resolve their dispute through a ‘tribunal’ of one or more independent and impartial arbitrators, selected by or on behalf of the parties. This process bypasses domestic courts entirely. The tribunal considers the claims and defences of both parties, delivering a decision based on the relevant legal framework. This decision is issued in the form of a binding award, which the parties are obligated to honour promptly. In cases of non-compliance, the award is supported by an international system for recognition and enforcement through local courts. The approach ensures a more efficient and enforceable resolution process.

Why arbitrate?

Generally speaking, if a dispute cannot be resolved amicably, the aggrieved party must, without an arbitration agreement, take the dispute to a national court, usually where the defendant resides or operates, which can disadvantage the foreign claimant. Cross-border arbitration thereby overcomes issues such as:

• Jurisdiction.
• Applicable law.
• Language differences.
• Domestic procedures that are unsuited for international cases and judges with limited experience in such disputes.

There are therefore several practical advantages of arbitration over litigation:

• Neutrality.
• Confidentiality.
• Flexibility in terms of venue and the specialism.
• Enforcement.

The agreement to arbitrate

The essence of modern international arbitration is rooted in the consent of the parties involved. This consent is established through a valid agreement to submit any disputes or differences to arbitration. Such agreements are acknowledged by both national laws and international treaties. According to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Model Law, the recognition and enforcement of an arbitral award can be denied if the parties to the arbitration agreement lacked the capacity to enter into the agreement or if the agreement itself was not valid under its governing law.

Types of arbitration agreements

Typically, an ‘agreement to arbitrate’ is included as an arbitration clause within a contract. This clause stipulates that any disputes arising from or related to the contract will be resolved through arbitration, excluding court involvement. Such clauses are designed and agreed upon at the contract’s inception, anticipating potential future disputes. While parties hope to avoid conflicts, they agree to arbitration as the resolution method should any issues arise.

A less common form of arbitration agreement is the ‘submission agreement,’ where parties agree to submit an existing dispute to arbitration. These agreements are often more detailed than arbitration clauses, as they can specify the arbitration tribunal and outline the dispute resolution process in detail once a dispute has already emerged.

International treaties and arbitration agreements

In addition to these agreements, a third type of arbitration agreement arises under international instruments, such as investment treaties. These treaties typically include a provision where each state party agrees to submit future disputes with qualifying ‘investors’ to international arbitration. The ‘investor’ is not a signatory to the treaty and may be unidentified at the treaty’s inception. Thus, the arbitration agreement functions as a ‘standing offer’ by the state to resolve any investment disputes through arbitration. A qualifying investor can ‘accept’ this offer by taking a definitive action, such as sending a Notice of Dispute or a Request for Arbitration to the state.

What are the relevant conventions?

International commercial arbitrations are typically governed by various international conventions, which member states have signed. Below is a list of the major conventions:

• Geneva Protocol and Geneva Convention These are two of the early modern agreements that laid the foundation for international commercial arbitration.

• New York Convention (United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards) The New York Convention replaced the Geneva Protocol and Geneva Convention. It is a cornerstone in international arbitration, providing a robust framework for the recognition and enforcement of foreign arbitral awards. Once a state becomes a party to the New York Convention, the Geneva Protocol and Geneva Convention no longer apply. Detailed information, including the list of parties and any declarations or reservations, is available through the UN Treaty Collection.

• European Convention on International Commercial Arbitration (ICA) This convention addresses arbitration agreements, arbitral procedures, and awards within Europe. Information about the parties to this convention and their declarations or reservations can be accessed via the UN Treaty Collection.

• Panama Convention (Inter-American Convention on International Commercial Arbitration) Established in 1975, this convention includes the United States and most South American nations and is also known as the Panama Convention. The list of signatories can be found on the website of the General Secretariat of the Organization of American States.

• ICSID Convention (International Centre for the Settlement of Investment Disputes Convention) Also known as the Washington Convention of 1965, this convention handles investment disputes between a state (or state entities) and nationals of another state that is a signatory. The convention’s text, rules, regulations, and a list of parties can be found on the World Bank’s website.

• Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters Concluded in 1971, this convention has only five signatories: Albania, Cyprus, Kuwait, Netherlands, and Portugal.

• Council Regulation (EC) No. 44/2001 This European Council regulation, dated December 22, 2000, governs jurisdiction and the recognition and enforcement of judgments in civil and commercial matters within the European Union.

• Inter-American Convention on International Commercial Arbitration The full text of this convention and the list of signatories are available on the Organization of American States website.

Where to arbitrate

When parties enter into an arbitration agreement, they can specify the seat (or legal place) of arbitration within the agreement or decide on it when arbitration proceedings begin. Selecting the place of arbitration is a critical decision, not merely a matter of geographical convenience.

Importance of an arbitration-friendly jurisdiction

The choice of arbitral seat, the juridical base of the arbitration, is arguably the most significant factor in any international arbitration. When parties select the seat in their arbitration agreement, it is generally accepted that they are placing the arbitration within the framework of that jurisdiction’s national laws.

Therefore, the parties ought to choose a location where local courts do not unduly interfere with the arbitration process and typically where the state adheres to the New York Convention which applies to the recognition and enforcement of foreign arbitral awards and the referral by a court to arbitration. This adherence ensures a straightforward and effective method for the recognition and enforcement of the arbitral tribunal’s award if necessary.

London

London is widely recognised as a leading seat for arbitration together with Singapore, as highlighted in the QMUL/White & Case Survey 2021 and previous surveys. London is recognised for its neutrality and impartiality, supported by non-interventionist courts. The city’s popularity as an arbitration hub is bolstered by common law advocates, the comprehensive Arbitration Act 1996 (recently reviewed by the Law Commission of England and Wales), and the frequent use of English law as the governing law for contracts.

The English judiciary has extensive experience in arbitration and works in close harmony with it. The Commercial Court serves as the primary supervisory court for arbitrations seated in England and Wales, ensuring a robust framework for arbitration proceedings.

Flexibility in hearing locations

Importantly, selecting the seat of arbitration does not mandate that hearings must occur there. Parties and arbitrators typically have the flexibility to conduct hearings at different locations for reasons of convenience and efficiency.

Choice of rules

The key international rules under which an arbitration might be administered are:

• USA:
  • ICDR Rules: New York with regional centres in Bahrain, Mexico City and Singapore.
  • JAMS International Arbitration Rules: California with international headquarters in London.
• Europe:
  • LCIA Rules: London, with regional centres in New Delhi, Dubai (DIFC) and Mauritius.
  • LCAM Rules: London, the London Chamber of Commerce and Industry (LCCI).
  • ICC Rules: Paris, with regional centres in Hong Kong, New York and Singapore.
  • SCC Rules: Stockholm.
• Far East:
  • HKIAC Rules: Hong Kong.
  • SIAC Rules: Singapore.
  • JCAA Rules: Tokyo.
  • CIETAC Rules: China
• Middle East:
  • DIAC Rules: Dubai.
  • DIFC-LCIA Rules: DIFC.
• International treaties/investor state dispute settlement (ISDS):
  • UNCITRAL Rules.
  • ICSID Rules.

How to start arbitration

A formal notice must be given in order to start an arbitration. In ad hoc arbitrations, this notice will be sent or delivered to the opposing party.

In an arbitration governed by the rules of an arbitral institution it is usual for the notice to be given to that institution by a ‘request for arbitration’ or similar document. The institution then notifies the respondent or respondents.

In the LCIA, Article 1 provides:

“1.1   Any party wishing to commence arbitration under the LCIA Rules (the “Claimant”) shall deliver to the Registrar of the LCIA Court (the “Registrar”) a written request for arbitration (the “Request”)”

Whereas Article 3 of the UNCITRAL Arbitration Rules provides that:

“Arbitral proceedings shall be deemed to commence on the date on which the notice of arbitration is received by the respondent.”

Similar provisions are found in the rules of other arbitral institutions.

Enforcement of an arbital award

Once an arbitral tribunal issues its final award, it completes its primary role. Despite being the result of a private dispute resolution process, the award carries significant, enduring, and potentially public legal implications. This binding decision resolves the dispute between the parties, and if not voluntarily executed, can be enforced through legal proceedings both locally and internationally under conventions such as the New York Convention.

Commitment to compliance

An agreement to arbitrate encompasses not only participation in the arbitration process but also a commitment to voluntarily comply with any resulting arbitral award. This obligation is explicitly stated in many arbitration rules. For instance, Article 35.6 of the ICC Rules mandates:

“Every award shall be binding on the parties. By submitting the dispute to arbitration under the Rules, the parties undertake to carry out any award without delay and shall be deemed to have waived their right to any form of recourse insofar as such waiver can validly be made.”

Voluntary compliance and legal enforcement

While most parties voluntarily comply with arbitral awards, there are instances where enforcement through legal channels becomes necessary. The winning party must then consider which court to approach for enforcement. Typically, this involves seeking recognition and enforcement either in the jurisdiction where the losing party resides or conducts business, or in a jurisdiction where the losing party holds assets that can be seized to satisfy the award.

Contact Us

Edwin Coe specialises in both domestic and international arbitration. For guidance on arbitration principles and procedure, please contact David Greene and Thomas Johnson of our commercial disputes team