Role of arbitration in international trade disputes

Introduction

Basic Definition: Arbitration is basically solving a dispute without going to a court of law. This is settled by a third party which is nowhere involved in the matter. The decision made by the third party is, however, binding to the involved parties. This is an example of an alternative dispute settlement mechanism aiming at a settlement outside the court.

Legal Definition: “The submission of a dispute to an unbiased third person designated by the parties to the controversy, who agree in advance to comply with the award— decision to be issued after a hearing at which both parties have an opportunity to be heard. It is one of several kinds of Alternative Dispute Resolution which provide parties to a controversy with a choice other than litigation. Unlike litigation, arbitration takes place outside of courts: an impartial third party is selected by the two parties in the name of an impartial arbitrator.”[1]

Importance of Arbitration in international trade disputes

As we all know that international trade is one of the most important things to keep the world moving at the required pace. There are a number of countries which depend on international trade as the primary source of their income and almost all countries, no matter how enormous their economy is, benefit from international trade. Now there is bound to have a sort of competition with other countries to be ahead in this race and make more money. Everyone is in a catfight to reduce their imports and maximize their profits by maximizing exports, so there would certainly be disputes. Now instead of taking it to the World Trade Organization (WTO) or to international courts to clear out this matter, countries may adopt arbitration. Arbitration is less money involves less tedious and certainly consumes much less time than the normal process of solving disputes. Since both the parties would mutually be choosing the arbitrator, there are minimal chances of partiality. Since arbitration involves a much lesser number of people, the process is highly confidential. The WIPO (World Intellectual Property Organization) Rules specifically protect the confidentiality of the existence of the arbitration, any disclosures made during that procedure, and the award. In certain circumstances, the WIPO Rules allow a party to restrict access to trade secrets or other confidential information that is submitted to the arbitral tribunal or a confidentiality advisor to the tribunal.[2] The next advantage is the amount of flexibility arbitration offers and it could be that the decision of the arbitrator is very easy and quick to enforce.

Area of Improvement in the Process of Arbitration in International Disputes

One of the areas of improvement may be that in some countries like India, there is still interference from the courts. Though it has been corrected to some extent by newer legislations still, the courts could interfere in the process of arbitration in limited areas. There could be the reluctance of the parties to appoint an arbitrator for whatever reason, but this does impact this whole process negatively in the long run. In such a case, the court has to appoint an arbitrator and this is usually done from a retired pool of judges which is nothing but an extension of the court processes.

History of Arbitration Mechanism in International Trade Disputes

We cannot the fact that arbitration existed as early as the 7th century in the Greek culture where there was no legal framework so this was the only way to resolve disputes. In the middle ages as well when the Church was in power, the process of arbitration continued to ensure peace. In the 17th century, there began arbitrations on an international level where the wars between two nations had a role of arbitration to settle. The 18th century saw the rise of many political philosophers who wanted peace on a global level. “In the middle decades of the nineteenth century, arbitration became more common than ever before. Great and little powers alike had constant recourse thereto. because the industrial revolution gradually rendered the lifetime of nations more complex through the development of the means of communication and therefore the exploitation of untouched tracts of territory, minor differences between governments became everyday matters.”[3] After the formulation of the League of Nations, the Hague International Court of Justice came into the picture and then the process of international arbitrations was streamlined. “There are negotiations currently going in the United Nations Commission on International Trade Law (UNCITRAL) that may lead to new developments.” Then, since the initiation of the WTO, it has been resolving disputes when it comes to international trade.

Legislations

There is a collection of national, international laws, and Laws laid down by the International Court of Arbitration, WTO and UNCITRAL, which govern the process of international arbitration inclusive of international trade disputes But here we cannot rely on the rules of any single organization. The UNCITRAL Arbitration Rules of 1976 have been widely used and have become the model on which many institutional arbitration rules are based. The Model Law of 1985 has been the basis of most arbitration statutes adopted since then.[4] The UNCITRAL Arbitration Rules were followed in the Model Law in 1985. These rules allow the parties to have full flexibility in deciding the arbitrator, the place, time etc. The International Court of Arbitration of the International Chamber of Commerce is the independent arbitration body of ICC. The statutes of the court are outlined in various appendices which specify the definition, the time limit when all can we proceed for arbitration and many other things. Now, if two countries have certain disputes and they proceed to arbitration, we cannot ignore the rules of that particular nation. For example, if one of the countries in India, the provisions laid down in Arbitration and Conciliation Act, 1996 have to be considered.

To what extent a party retains control of its legal destiny by choosing the arbitration route?

A-1) We know that arbitration as a method of dispute resolution is better than the courts in a number of ways. One fact that we cannot afford to ignore is that once the parties mutually confirm that they would be going for arbitration, turning back would be very difficult. Since specific procedures have not been laid down as to when a party can choose arbitration most countries go for this method as it is relatively less time-consuming. But there are no provisions in case any party is dissatisfied with the decision of the arbitrator. Since it is legally binding on both the parties a review of the same is not a cakewalk. When this takes place on a global scale, the review of the decisions becomes even more difficult. So, a question arises, ‘Has the person gone for arbitration limited his legal destiny had he not gone for arbitration’ as is the court of law reviewing a decision is not that difficult. If the same person had gone for the case in court, maybe the decision could have been reviewed and changed as well even though the decision is legally binding in both the cases. Another situation could be that the decision of the arbitrator is unlawful in the sense that different countries have different rules for trading business etc so the decision may not fit well in all cases, so there must be a provision for proceeding with this as well. Arbitrators may also be driven by personal motives or could be influenced by one of the parties in the form of money or might, so there must exist a system for checks that this must not happen as it defeats the sole purpose of the arbitration.

Conclusion

So, after all the points discussed above, it is clear that arbitration as a process has been in existence since the very beginning of disputes! Where there is a problem there is a solution. In my opinion, it is a process that takes place at the convenience of both the parties involved and is widely used in the modern world but we cannot and must not forget the loopholes due to economic disparity, conflicting laws and other things discussed above. A system of international arbitration when conducted by tribunals of high integrity and thoughtful understanding which are backed by laws of the international trading countries of the world, would give assurance to merchants and manufacturers of all countries that the barrier of commercial disputes can be easily surmounted no matter how grave the dispute is. So, arbitration is being given more importance as the day progresses as, all in all, it saves time and money, which serves as the ultimate aim.

Author(s) Name: Gurasis Singh Grover (Indian Institute of Management (IIM) Rohtak)

References:

[1] “Arbitration” (The Free Dictionary) <https://legal-dictionary.thefreedictionary.com/arbitration> accessed April 19, 2022

[2] DE CASTRO I and GADKOWSKI A, “Confidentiality and Protection of Trade Secrets in … – Wipo” (2020) <https://www.wipo.int/export/sites/www/amc/en/docs/confidentialitytradesecrets.pdf> accessed April 19, 2022

[3]Fraser H, “Cornell Law Scholarship – Scholarship@Cornell Law: A …” (1926) <https://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=1236&context=clr> accessed April 19, 2022

[4]“II – Home | Unctad” <https://unctad.org/system/files/official-document/edmmisc232add38_en.pdf> accessed April 19, 2022

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