SCHOOL Of LEGAL STUDIES, CUSAT

ASSIGNMENT

On

International Commercial & Maritime Arbitration.

Sub.: International Commercial Arbitration - Nature, Scope & Types

Submitted on 31.10.2022

Submitted By

Ajai Raghu

II Sem, LLM

SLS, CUSAT

Email: ajai.raghu@pg.cusat.ac.in

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 TABLE OF CONTENTS

CHAPTER TOPIC PAGE NO

1. ABSTRACT 4

2. INTRODUCTION 4

3. INTERNATIONAL COMMERCIAL ARBITRATION - DEFINITION 4

4. ELEMENTS OF ARBITRATION 5

5. REASONS FOR INTERNATIONAL ARBITRATION 6

6. REGULATORY FRAMEWORK 12

6.1 UNCITRAL ARBITRATION RULES 14

7. FORMS OF ARBITRATION REFERENCES 15

7.1 AD HOC ARBITRATION 15

7.2 INSTITUTIONAL ARBITRATION 16

8. ARBITRAL INSTITUTIONS 18

9. CONCLUSION 20

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References.

1. Georgios I. Zeikos: International Commercial & Marine Arbitration: Routledge-Cavendish.

2008.
2. Emiliya Onyema: International Commercial Arbitartion & Arbitrator’s Contract: First
published 2010 by Routledge.
3. Margaret L. Moses: The Principles and Practice of International Commercial Arbitration:
CAMBRIDGE UNIVERSITY PRESS 2008.
4. Nigel Blackaby & Others: REDFERN AND HUNTER ON INTERNATIONAL arbitration: Oxford
University Press: Sixth Edition 2015

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 1. Abstract

Arbitration is “A process by which parties consensually submit a dispute to a non-governmental

decision-maker, selected by or for the parties, to render a binding decision resolving a dispute in
accordance with neutral, adjudicatory procedures affording each party an opportunity to present its
case.” Section 2(1)(f) of the Act defines an ICA as an arbitration relating to disputes arising out of a
legal relationship which must be considered commercial1, where either of the parties is a foreign
national or resident, or is a foreign body corporate or is a company, association or body of individuals
whose central management or control is in foreign hands.

2. Introduction.

Arbitration is a private system of adjudication. Arbitration is “process by which parties voluntarily refer
their disputes to an impartial third person, an arbitrator, selected by them for a decision based on the
evidence and arguments to be presented before the arbitration tribunal. 2 Arbitration is “A process by
which parties consensually submit a dispute to a non-governmental decision-maker, selected by or for
the parties, to render a binding decision resolving a dispute in accordance with neutral, adjudicatory
procedures affording each party an opportunity to present its case.” Parties who arbitrate have decided
to resolve their disputes outside of any judicial system. In most instances, arbitration involves a final
and binding decision, producing an award that is enforceable in a national court. International
arbitration is a consensual means of dispute resolution, by a non-governmental decision-maker, that
produces a legally binding and enforceable ruling. The decision-makers (the arbitrators), usually one or
three, are generally chosen by the parties. Parties also decide whether the arbitration will be
administered by an international arbitral institution, or will be ad hoc, which means no institution is
involved. The rules that apply are the rules of the arbitral institution, or other rules chosen by the
parties. In addition to choosing the arbitrators and the rules, parties can choose the place of arbitration
and the language of arbitration. In this assignment we will look into various aspects of International
Commercial Arbitration.

3. International Commercial Arbitration – Definition

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An arbitration is international if: –

a. the parties to an arbitration agreement have, at the time of the conclusion of that agreement,
their places of business in different States; or
b. one of the following places is situated outside the State in which the parties have their places
of business:

1
‘Commercial’ should be construed broadly having regard to the manifold activities which are an integral part
of international trade today (R.M. Investments & Trading Co. Pvt. Ltd. v. Boeing Co., AIR 1994 SC 1136)
2 G. Wilner, Domke on Commercial Arbitration, Sec 1.01 Rev. Ed. 1992
3
UNCITRAL Model Law on International Commercial Arbitration, with amendments as adopted in 2006.

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 i. the place of arbitration if determined in, or pursuant to, the arbitration
agreement;
ii. any place where a substantial part of the obligations of the commercial
relationship is to be performed or the place with which the subject-matter of
the dispute is most closely connected; or
c. the parties have expressly agreed that the subject matter of the arbitration agreement relates
to more than one country.

Section 2(1)(f) of the Act defines an ICA as an arbitration relating to disputes arising out of a legal
relationship which must be considered commercial4, where either of the parties is a foreign
national or resident, or is a foreign body corporate or is a company, association or body of
individuals whose central management or control is in foreign hands. Thus, under Indian law, an
arbitration with its seat in India, involving a foreign party is regarded as an ICA.

Prior to the 2015 Amendment Act, a literal interpretation of Section 2(1)(f)(iii) would yield that
even if a company had its place of incorporation as India, an arbitration could still qualify as an
ICA if the central management and control of the company was outside India. However, in the
case of TDM Infrastructure Pvt. Ltd. v. UE Development India Pvt. Ltd.,5 (“TDM Infrastructure”)
despite TDM Infrastructure Pvt. Ltd. having foreign control, the Supreme Court concluded that “a
company incorporated in India can only have Indian nationality for the purpose of the Act”. Thus,
though the Act then recognized that arbitration involving companies with management and control
outside India as an ICA, the Supreme Court still treated such arbitration involving foreign controlled
but Indian incorporated company as domestic arbitration. The 2015 Amendment Act deleted the
words ‘a company’ from the Section 2(1)(f)(iii) thereby restricting the scope therein to only body
of individuals or an association. Therefore, the current position is that if a company has its place
of incorporation as India, then the place of central management and control of the company is
irrelevant for the determination of the status of the arbitration.

4. Elements of Arbitration

Consensual Means to Resolve Disputes

It is elementary that “arbitration” is a consensual process that requires the agreement
of the parties. Article II of the New York Convention applies only to an “agreement ... under
which the parties undertake to submit to arbitration,” while Article 8 of the UNCITRAL Model
Law applies only where there is “an agreement by the parties to submit to arbitration all or
certain disputes.” Similarly, national courts uniformly hold that “arbitration is a creature that

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‘Commercial’ should be construed broadly having regard to the manifold activities which are an integral part
of international trade today (R.M. Investments & Trading Co. Pvt. Ltd. v. Boeing Co., AIR 1994 SC 1136)
5
(2008) 14 SCC 271.

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 owes its existence to the will of the parties alone,” and that “arbitration is a matter of contract
and a party cannot be required to submit to arbitration any dispute which he has not agreed
so to submit.”

Non-Governmental Decision-Maker Selected by or for the Parties

Another fundamental attribute of “arbitration” is that it involves the submission of
disputes to a non-governmental decision-maker selected by or for the parties. A defining
characteristic of arbitration is the selection of particular “arbitrators” to resolve a dispute, or
defined category of disputes; typically, arbitrators are chosen by the parties themselves or,
in the absence of agreement by the parties, by an arbitral institution chosen by the parties.
In contrast, “arbitration” does not extend to forum selection agreements, where parties agree
to submit their disputes to a specified national court.

Final and Binding Decision

A third defining characteristic of arbitration is that it produces a binding award that
decides the parties’ dispute in a final manner and is subject only to limited grounds for
challenge in national courts. Arbitration does not produce a non-binding, advisory
recommendation, which the parties are free to accept or reject; it also is not merely a process
of negotiation, during which the parties are free to agree (or not) to settle their disputes.
Instead, arbitration results in a final and binding decision by a third-party decision-maker –
the arbitrator – that can be coercively enforced against the unsuccessful party or its assets.

Use of Adjudicatory Procedures

Finally, a defining characteristic of “arbitration” is the use of impartial adjudicative
procedures which afford each party the opportunity to present its case. Forms of dispute
resolution that do not provide parties the opportunity to present their views (e.g., valuation,
where the decision-maker proceeds with an independent investigation) do not generally
constitute arbitration. Similarly, contractual provisions that give one party the right to
unilaterally decide a particular issue do not constitute arbitration.

5. Reasons for International Arbitration

Neutrality
One of the central objectives of international arbitration agreements is to provide a
neutral forum for dispute resolution, detached from the parties and their respective home-
state governments. Parties often begin to negotiate dispute resolution mechanisms with the
objective of ensuring that disputes are resolved in the forum they perceive to be the most
favourable to them – often the local courts in that party’s principal place of business. These

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courts will be convenient and familiar to the home-town party; they will also probably be
inconvenient and unfamiliar to the counter-party. However, the characteristics that make
one party’s local courts attractive to it will often make them unacceptable to counter-parties.
As a consequence, outside of lending and similar transactions, it is often impossible for either
party to obtain agreement to dispute resolution in its local courts. In these circumstances,
the reaction is almost always to seek agreement on a suitable neutral forum – a forum for
dispute resolution that does not favour either party, but affords each the opportunity to
present its case to an objective and impartial tribunal. The result, in most instances, is an
agreement to arbitrate (or, less frequently, litigate) in a neutral forum. For example, a
French and a Mexican company may agree to arbitrate their disputes in Miami, Spain or
England, while a U.S. and a Japanese or German company might agree to dispute resolution
in Switzerland, England, Canada, or Singapore. Put simply, a party typically does not agree
to arbitrate because arbitration is the most favourable possible forum, but because it is the
least unfavourable forum that the party can obtain in arm’s length negotiations.

Centralized Dispute Resolution

Another basic objective of international arbitration is to avoid the jurisdictional disputes,
choice-of-law debates and multiplicitious litigation in different national courts that attend
international litigation. Instead, international arbitration offers a centralized dispute
resolution in a single contractually selected forum. As the U.S. Supreme Court has put it:
Much uncertainty and possibly great inconvenience to both parties could arise if a suit could
be maintained in any jurisdiction [where jurisdiction could be established]. The elimination
of all such uncertainties by agreeing in advance on a forum acceptable to both parties is an
indispensable element in international trade, commerce and contracting. Empirical findings
are to the same effect. At the same time, in cases of pathologically drafted arbitration
agreements, disputes over the validity or scope of the agreement can lead to uncertainty
and expense rivalling that in international litigation – illustrating the importance of well-
negotiated and drafted international arbitration agreements.

Enforceability of Agreements and Awards

One of the objectives of contemporary legal regimes for international arbitration is
facilitating the enforcement of arbitration agreements and awards. In particular, both
international arbitration conventions (particularly, the New York Convention) and arbitration
legislation (particularly, the UNCITRAL Model Law) ensure that international arbitration
agreements are more readily, expeditiously enforced and more broadly interpreted than
forum selection clauses. This is consistently cited as a key benefit of international arbitration.
In contrast, there are only a few regional arrangements that seek to establish effective
international enforcement regimes for forum selection clauses. The most notable is the

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Brussels I Regulation in the European Union, which provides for the enforceability of forum
selection agreements designating an EU Member State’s court, subject to only limited
exceptions. There are also a few industry-specific arrangements providing enforcement
mechanisms for international forum selection clauses (such as treaties governing carriage of
goods by sea). In general, however, forum selection agreements do not benefit from
anything comparable to the enforcement mechanism of the New York Convention. Like
agreements to arbitrate, international arbitral awards enjoy the protection of the New York
Convention, as well as favourable arbitration legislation in many countries. As discussed
below, these instruments provide a “pro-enforcement” regime, with expedited recognition
procedures and only limited grounds for denying recognition to an arbitral award. In contrast,
there are again only a few regional arrangements for the enforcement of foreign court
judgments (in particular, the Brussels I Regulation), and there is no global counterpart to
the New York Convention for foreign judgments. Some major trading states, including the
United States, are party to no bilateral or multilateral agreement on the enforceability of
foreign judgments. In the absence of international treaties, the recognition of foreign
judgments is subject to local law, which often makes it difficult, if not impossible, to
effectively enforce them. As a consequence, there is generally a significantly greater
likelihood that an arbitral award will be enforced abroad (and thereby conclude the parties’
dispute) than a foreign judgment. Together with the comparatively greater enforceability of
arbitration agreements, the more reliable enforceability of arbitral awards is one of the basic
objectives, and attractions, of international arbitration.

Commercial Competence and Expertise

Another essential objective of international arbitration is to provide a competent, expert
dispute resolution process. Arbitration was historically favoured by users because it offered
a more expert, experienced means of resolving commercial disputes. This continues to be
the case today, with empirical studies emphasizing the importance of arbitrators’ commercial
expertise in decisions to make use of international arbitration. In many states, local courts
have little experience in resolving complex international disputes and face serious challenges
in reliably resolving commercial disputes. Moreover, in some states, basic standards of
judicial integrity, competence and independence are lacking. Of course, some national
judiciaries include talented judges with considerable international experience. The courts of
England, Switzerland, New York, Japan, Singapore and a few other jurisdictions are able to
resolve complex transnational disputes with a fairly high degree of reliability. Nevertheless,
even in these jurisdictions, local practices (like the jury trial or split legal profession) may
obstruct efficient and objective dispute resolution. Moreover, in most legal traditions, judges
are randomly assigned to cases, regardless of their experience. Judges are also ordinarily
generalists, often without specialization in complex commercial matters, much less a

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particular type of transaction (e.g., M&A, joint ventures) or industry (e.g., oil and gas,
insurance). In contrast, in international arbitration, the parties are able to participate in the
selection of the arbitral tribunal for their dispute. This aspect of the arbitral process is
intended to enable the parties – who have the most intimate knowledge of their
disagreements and the greatest incentive to choose a capable tribunal – to select arbitrators
with the best experience, abilities and availability for their dispute (as discussed below).
Moreover, in most substantial international arbitrations, tribunals consist of three members
(rather than a single trial judge), permitting a mix of legal and technical experience, as well
as extra sets of eyes.

Finality of Decisions
Another salient feature of international arbitration is the absence, in most cases, of
extensive appellate review of arbitral awards. Judicial review of awards in most developed
countries is narrowly confined to issues of jurisdiction, procedural fairness and public policy,
and highly deferential to the arbitrators’ substantive decisions (as discussed below). This
contrasts markedly with the availability of appellate review of first instance judgments, where
national laws allow either de novo or fairly searching review of legal, and often factual,
matters. There are both advantages and disadvantages to the general unavailability of
appellate review of awards. Dispensing with appellate review significantly reduces litigation
costs and delays (particularly when a successful appeal means that the case must be retried
in the first instance court). On the other hand, it also means that a badly wrong arbitral
decision cannot readily be corrected. In general, anecdotal and empirical evidence indicate
that business users prefer the efficiency and finality of arbitral procedures, even at the
expense of appellate rights. There are also some legal systems in which the parties have
the possibility, by contracting into or out of judicial review, to obtain a measure of appellate
review of the arbitrators’ substantive decisions, or to select a procedure that includes arbitral
appeals.

Party Autonomy and Procedural Flexibility

A further objective, and perceived advantage, of international arbitration is its
facilitation of party autonomy and procedural flexibility. As discussed below, international
arbitration conventions and national laws accord parties broad autonomy to agree upon the
substantive laws and procedures applicable to “their” arbitrations. In practice, one of the
principal reasons for granting the parties procedural autonomy is to enable them to dispense
with the technical formalities of national court proceedings and instead to tailor the
procedures to their particular disputes. Some categories of disputes call for specialized
procedures for presenting expert evidence, “fast track” procedures where time is of the

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essence, or mechanisms designed for particular commercial markets. More generally, parties
are typically free to agree upon the timetable for the arbitral process, the existence and
scope of disclosure, the modes for presentation of fact and expert evidence, the length of
the hearing(s) and other matters. The parties’ ability to adopt flexible procedures is a central
attraction of international arbitration – again, as evidenced by empirical findings.

Cost and Speed

It has long been said that arbitration offers a cheaper, quicker means of dispute
resolution than litigation. At the same time, it has become fashionable, at least in some
circles, to describe arbitration as a slower, costlier alternative. In reality, both international
arbitration and international litigation can involve significant expense and delay, and it is
wrong to make sweeping generalizations about which mechanism is necessarily quicker or
cheaper. Although arbitration is sometimes lauded for its speed and cost-effectiveness, it can
be an expensive process. This is particularly true in major international disputes, which may
involve longer written submissions, more extensive factual and expert evidence, and
lengthier hearings than international litigation – in part because, in complex matters, parties
often affirmatively want extensive, thorough proceedings. Moreover, in international
arbitration, the parties are required (subject to later allocation of costs by the tribunal) to
pay the fees of the arbitrator(s) and, usually, an arbitral institution. The parties will also have
to pay for renting hearing rooms, travel to the arbitral situs, lodging and the like.
Nonetheless, in actual practice, the expenses of arbitration will often pale in comparison with
the costs associated with parallel or multiplicitous proceedings in national courts. This can
be the case where the parties have not agreed upon an exclusive forum selection clause, or
where such a clause is held unenforceable or inapplicable. Likewise, the expenses of
arbitration will typically not approach those associated with relitigating factual issues in
national trial and appellate courts. In addition, arbitration is less likely to involve costly,
scorched-earth discovery, or prolonged disputes over service, evidentiary matters, immunity
and other litigation formalities. International commercial arbitration is also not always
speedy. Outside of some specialized contexts, major commercial disputes can require
between 18 and 36 months to reach a final award, with limited possibilities for summary
dispositions. Procedural mishaps, challenges to arbitrators and jurisdictional disputes can
delay even these fairly stately timetables, as can crowded diaries of busy arbitrators and
counsel. It is possible to expedite the proceedings, through drafting a “fast-track” arbitration
clause or adroit arbitrator selection and procedural planning, but there are limits to how
quickly a major commercial arbitration realistically can be resolved. Nonetheless, in many
jurisdictions, national court proceedings are also subject to significant delays. Judicial dockets
in many countries are over-burdened and obtaining a trial date and final decision may take
years. Further, as already noted, arbitration rarely involves the delays inherent in appellate

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 proceedings and the risk that new trial proceedings will be required. On balance, international
arbitration does not necessarily have either dramatic speed and cost advantages or
disadvantages as compared to national court proceedings. Broadly speaking, the absence of
appellate review means that arbitration is usually less slow and less expensive than litigation
– and preferable, in part, for that reason. Nonetheless, there will clearly be exceptions to
this generalization in particular cases, where arbitrators are unusually slow or particular
national courts are especially fast.

Confidentiality and Privacy of Dispute Resolution

Another objective of international arbitration is to provide a confidential, or at least
private, dispute resolution mechanism. Most national court proceedings are not confidential.
Hearings and court dockets are open to the public, competitors, press and regulators in many
countries, and parties are often free to disclose submissions and evidence to the public.
Public disclosure can encourage “trial by press release” and may impede compromises, by
hardening positions, aggravating tensions, or provoking collateral disputes. In contrast,
international arbitration is substantially more private, and often more confidential, than
national court proceedings. Arbitral hearings are virtually always closed to the press and
public, and in practice the parties’ submissions and tribunals’ awards often remain
confidential. In some (but by no means all) jurisdictions, confidentiality obligations are
implied in international arbitration agreements as a matter of law, while some arbitration
agreements or institutional arbitration rules impose such duties expressly. In general, most
international businesses prefer, and actively seek, the privacy and confidentiality that the
arbitral process offers. Confidentiality reduces the risks of aggravating the parties’ dispute,
limits the collateral damage of a dispute and focuses the parties on an amicable, business-
like resolution of their disagreements.

Arbitration Involving States and State-Entities

Finally, arbitration offers particular benefits in cases involving states and state-entities.
Under most legal systems, a state’s agreement to arbitrate constitutes a waiver of state or
sovereign immunity – almost always with regard to enforcement of the parties’ arbitration
agreement and resulting awards and sometimes with regard to enforcement of awards
against state assets. Moreover, a neutral international tribunal is often a more appropriate
decisionmaker than a national court for disputes between states or state-entities and private
parties. In practice, therefore, commercial contracts between private parties and foreign
states or state-related entities very frequently contain arbitration provisions.

6. Regulatory Frame work

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 International Treaties

International Arbitration Practice

National Laws

Arbitration Rules

Arbitration Agreement

One way to envision the regulatory framework of arbitration is in the form of an inverted
pyramid. The point is facing down, and at that point is the arbitration agreement, which affects only
the parties to it. This agreement is the underpinning for the regulatory framework governing the private
dispute resolution process. If the arbitration agreement is not valid, then the framework becomes
irrelevant, because there is no legal basis for arbitration.

On the pyramid above the Arbitration Agreement, the framework expands in terms of scope
and applicability beyond the immediate parties.

At one step above are the Arbitration rules chosen by the parties. These rules, which apply
to the arbitrations of all the parties who choose them, may be varied in a particular case by the
arbitration agreement.

At the next level of the pyramid are the National laws. Both the arbitration law of the seat of
the arbitration (the lex arbitri) and substantive laws will come into play, and they are likely to be
different national laws. Many countries have adopted as their arbitration law the UNCITRAL Model Law
on International Commercial Arbitration.

The Model Law is meant to work in conjunction with the various arbitration rules, not to conflict
with them. Thus, the Model Law also has many provisions that are essentially default provisions: that
is, they apply “unless the parties have agreed otherwise.” If the parties have chosen arbitration rules
that provide for a process or rule that is different from the Model Law, normally the arbitration rules
will govern, because they represent the parties’ choice of how to carry out the arbitration, that is, they
indicate how the parties have “otherwise agreed.

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The substantive law chosen by the parties is the national law that will be used to interpret the contract,
to determine the merits of the dispute, and to decide any other substantive issues. If the parties have
not chosen a substantive law, then the tribunal will determine the applicable substantive law.

At the next step above the national laws in the regulatory pyramid is International Arbitration
Practice, which tends to be utilized to various degrees in all arbitrations. This includes various practices
that have developed in international arbitration, some of which have been codified as additional rules
or guidelines.

There are for example, rules that have been developed by the International Bar Association on the
Taking of Evidence (see Appendix E), and on Rules of Ethics (see Appendix F). The IBA has also
produced Guidelines on Conflicts of Interest in International Arbitration (see Appendix G). The American
Arbitration Association and the American Bar Association have also produced a Code of Ethics for
Arbitrators (see Appendix H)

Finally, at the top of the inverted pyramid are any pertinent International Treaties. For most
international commercial arbitrations, the New York Convention will be the relevant treaty because it
governs the enforcement of both arbitration agreements and awards, and because so many countries
are parties to the Convention.

In addition to the New York Convention, three other important conventions are the Inter-American
Convention on International Commercial Arbitration (the Panama Convention), the European
Convention on International Commercial Arbitration, and the Convention on the Settlement of
Investment Disputes between States and Nationals of other States (the “Washington Convention” or
the “ICSID Convention”).

The Panama Convention, which has been ratified or adopted by fourteen South or Central American
countries and by the United States and Mexico, is similar in intent and effect to the New York
Convention. It has been influential in making arbitration much more acceptable in Latin American
countries.

The European Convention supplements the New York Convention in the contracting states. It provides
for a number of general issues concerning party’s rights in arbitration, and also provides specific limited
reasons for when the setting aside of an award under the national law of one Contracting State can
constitute a ground for refusing to recognize or enforce an award in another Contracting State.

The Washington Convention on the Settlement of Investment Disputes between States and Nationals
of other States is also known as the ICSID Convention because the Convention created the International
Center for the Settlement of Investment Disputes (ICSID). The ICSID Convention was promoted by the
World Bank, which wanted to encourage investors to make investments in developing countries.
Historically, investors could not bring any kind of action against a government, and had to depend upon
their own government to take up their cases against a foreign government. The ICSID Convention

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provides the opportunity for the country and the investor to arbitrate any dispute directly, either
pursuant to an arbitration agreement in a state contract, or by virtue of a bilateral investment treaty
that includes a clause whereby the state consents to arbitrate with investors covered by the treaty.

6.1 UNCITRAL Arbitration Rules

International Commercial Arbitration is governed by a complex legal regime. That regime

includes

➢ International arbitration conventions, particularly the New York Convention,

➢ National arbitration legislation, particularly local enactments of the UNCITRAL

Model Law,

➢ Institutional arbitration rules, incorporated by parties’ arbitration agreements,

and

➢ Arbitration agreements, given effect by international arbitration conventions

and national arbitration legislation.

The UNCITRAL Arbitration Rules occupy an important position in contemporary arbitration

practice. The objective of the Rules was to create a predictable procedural framework for international
arbitrations which was acceptable to common law, civil law and other legal systems, as well to capital-
importing and exporting interests. The Rules, which were first promulgated by the U.N. General
Assembly in December 1976, were revised in 2010.

Like most institutional rules, the UNCITRAL Rules prescribe a basic procedural framework for
arbitrations.

➢ This includes provisions for initiating an arbitration (Articles 3 and 4),

➢ Selection and challenge of arbitrators (Articles 7–16),

➢ Conduct of the arbitral proceedings (Articles 17–32),

➢ Choice of applicable law (Article 35),

➢ Awards (Articles 33–39) and

➢ Arbitration costs (Articles 40–43).

➢ The Rules also contain provisions (in Article 23) confirming the separability of the
arbitration clause and the tribunal’s power (competence) to consider jurisdictional
objections.

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7. Forms of Arbitration References.
The two primary forms of international commercial arbitration references are (7.1) Ad hoc
and (7.2) Institutional. Under both forms of arbitral reference, the provisions of national
arbitration laws and arbitration rules are relevant and govern various aspects of the
relationships between the parties to these contracts.

7.1 Ad hoc Arbitration

This refers to an International Commercial Arbitration reference not held under the
auspices or rules of any Arbitral Institution. Instead, parties simply agree to arbitrate, without
designating any institution to administer their arbitration. Ad hoc arbitration agreements
often select an Arbitrator or Arbitrators to resolve dispute without institutional supervision.
In Ad hoc Arbitrations, parties usually designate an appointing authority to select
Arbitrator(s) if the parties cannot agree and to consider any subsequent challenges to
members of the tribunal. Parties to an ad hoc arbitration may establish their own rules of
procedure (so long as these rules treat the parties with equality and allow each party a
reasonable opportunity of presenting its case). Alternatively, and more usually, the parties
may agree that the arbitration will be conducted without involving an arbitral institution, but
according to an established set of rules, such as those of UNCITRAL, which provide a sensible
framework within which the tribunal and the parties may add any detailed provisions as they
wish—for example rules providing for the sub mission of pre-trial briefs or the agreement
of expert reports.

Ad hoc Arbitration – Advantages & Disadvantages

One distinct advantage of an ad hoc arbitration is that it can be shaped to meet
the wishes of the parties and the facts of the particular dispute. For this to be done
efficiently and effectively, the cooperation of the parties and their advisers is
necessary; if such cooperation is forthcoming, the difference between an ad hoc
arbitration and an institutional arbitration is like the difference between a ‘tailor-
made’ suit and one that is bought ‘off the peg’. Many of the well-known arbitrations
under oil concession agreements (including the Sapphire, Texaco, BP, Liamco, and
Aminoil arbitrations) were conducted ad hoc. In practice, ad hoc arbitrations are
now usually conducted on the basis of the UNCITRAL Arbitration Rules, which the
parties agree to accept as a convenient and up-to-date set of rules. States in
particular are likely to regard the UNCITRAL Rules as a preferred option, since they
do not derive their authority from an arbitral organisation based in a particular
country, but from the United Nations itself
The principal disadvantage of ad hoc arbitration is that it depends for its full
effectiveness on cooperation between the parties and their lawyers, supported by

15
 an adequate legal system in the place of arbitration. It is not difficult to delay
arbitral proceedings, for example by refusing at the outset to appoint an arbitrator,
so that there is no arbitral tribunal in existence and no agreed book of rules to say
what is to be done. It will then be necessary to rely on such provisions of law as
may be available to offer the necessary support. Only when an arbitral tribunal is
in existence and a set of rules has been established will an ad hoc arbitration be
able to proceed if one of the parties fails or refuses to play its part in the
proceedings.

7.2 Institutional Arbitration

Institutional arbitrations are administered by specialized arbitral institutions. A number

of organizations provide institutional arbitration services for international users,
sometimes tailored to particular commercial or other needs. With an institutional
arbitration, the advantages are that the institution performs important administrative
functions. It makes sure the arbitrators are appointed in a timely way, that the
arbitration moves along in a reasonable manner, and that fees and expenses are paid
in advance. From the arbitrators’ point of view, it is an advantage not to have to deal
with the parties about fees, because that subject is handled by the arbitral institution.
The arbitration rules of the institution are time-tested and are usually quite
effective to deal with most situations that arise. Another advantage is that an award
rendered under the auspices of a well-known institution may have more credibility in
the international community and the courts. This may encourage the losing party not
to challenge an award. The best-known international commercial arbitration institutions
are the International Chamber of Commerce (“ICC”), the American Arbitration
Association (“AAA”) and its International Centre for Dispute Resolution (“ICDR”), the
London Court of International Arbitration (“LCIA”) and the Singapore International
Arbitral Centre (“SIAC”). arbitral institutions have promulgated sets of procedural rules
that apply where parties have agreed to arbitration pursuant to such rules, typically by
incorporating such rules in their arbitration agreements. These rules set out the basic
procedural framework for arbitral proceedings and typically authorize the arbitral
institution to assist in selecting arbitrators in particular disputes (that is, to serve as
“appointing authority”), to resolve challenges to arbitrators, to designate the place of
arbitration, to fix the fees payable to the arbitrators and (sometimes) to review the
arbitrators’ awards to reduce the risk of unenforceability.

It is fundamental that arbitral institutions do not themselves arbitrate the

merits of the parties’ dispute. This is the responsibility of the individuals selected by
the parties or institution as arbitrators. If parties cannot agree upon an arbitrator, most

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institutional rules provide that the host institution will act as an “appointing authority,”
to choose the arbitrators in the absence of the parties’ agreement.

Institutional Arbitration – Advantages

Rules laid down by the established arbitral institutions will usually have been
proven to work well in practice. They also will generally have undergone periodic
revision in consultation with experienced practitioners, to take account of new
developments in the law and practice of international arbitration.
The rules themselves are generally set out in a small booklet, and parties who
agree to submit any dispute to arbitration in accordance with the rules of a named
institution effectively incorporate that institution’s ‘rulebook’ into their arbitration
agreement. This automatic incorporation of an established ‘rulebook’ is one of the
principal advantages of institutional arbitration. Suppose that there is a challenge to
an arbitrator on the grounds of lack of independence or impartiality, or suppose that
the arbitration is to take place before an arbitral tribunal of three arbitrators, and the
defending party is unwilling to arbitrate and fails, or refuses, to appoint an arbitrator:
the rulebook will provide for such a situation.
Another advantage of institutional arbitration is that most arbitral institutions
provide specialist staff to administer the arbitration. They will ensure that the arbi tral
tribunal is appointed, that advance payments are made in respect of the fees and
expenses of the arbitrators, that time limits are kept in mind, and generally that the
arbitration is run as smoothly as possible.
A further feature of institutional arbitration is the situation in which the
institution itself reviews the arbitral tribunal’s award in draft form before sending it to
the parties. A review of this kind, which is built into the ICC Rules, serves as a measure
of ‘quality control’.

Institutional Arbitration – Disadvantages

Under some institutional rules, the parties pay a fixed fee in advance for the
‘costs of the arbitration’—that is, the fees and expenses of the institution and of the
arbitral tribunal. This fixed payment is assessed on an ad valorem basis. If the amounts
at stake in the dispute are considerable and the parties are represented by advisers
experienced in international arbitration, it may be less expensive to conduct the
arbitration ad hoc. On the other hand, the ability to pay a fixed amount for the

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 arbitration, however long it takes, may work to the parties’ advantage (and to the
disadvantage of the arbitrators, in terms of their remuneration).
The need to process certain steps in the arbitral proceedings through the
machinery of an arbitral institution inevitably leads to some delay in the proceedings.
Conversely, the time limits imposed by institutional rules are often unrealistically short.
Although extensions of time will usually be granted either by the institution concerned
or by the arbitral tribunal, the respondent is placed in the invidious position of having
to seek extensions of time from the outset of the case.

8. Arbitral Institutions.

An increasing number of institutions administer, or claim to administer, arbitrations. Some

serve a particular trade or industry;6 others cater primarily for a particular country or
geographic region. Each has its own set of rules, often based on the UNCITRAL Rules.167
Each centre also generally has its own model form of arbitration clause. It is sensible (but
not essential) to use one of these model forms if institutional arbitration is to be adopted.
Following are the few of the most notable Arbitral Institutions.

➢ The International Chamber of Commerce (ICC) International Court of

Arbitration

Based in Paris, with a branch office in Hong Kong, the International Chamber of
Commerce (“ICC”) is, by most accounts, the world’s leading international arbitration
institution. The ICC has promulgated a set of ICC Rules of Arbitration (which are periodically
revised, most recently as of 2012) as well as the ICC Rules of Optional Conciliation and the
ICC Rules for Expertise. The ICC Court is an administrative body that acts in a supervisory
and appointing capacity; it is the arbitrators that the ICC Court appoints that decide cases,
not the ICC Court itself

➢ The American Arbitration Association’s (AAA) International Centre for

Dispute Resolution (ICDR)

The AAA is the leading U.S. arbitral institution, and reportedly handles one of the
largest numbers of arbitral disputes in the world. ICDR has opened offices in other
countries: Dublin, Ireland, in 2001, Mexico City in 2006, and Singapore in 2006. In
Singapore, the ICDR is entering a joint venture with the Singapore International Arbitration

6
The London Maritime Arbitration Association (LMAA) receives literally thousands of requests for arbitration
per year—although not all of these cases proceed to arbitration and others may be resolved on the basis of
documents only: see term 12(b) of the LMAA Terms 2012.

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Centre (SIAC) to establish a dispute resolution center. The ICDR has reached cooperative
agreements with arbitral institutions in at least forty-three countries.

➢ The London Court of International Arbitration (LCIA)

Founded in 1892, the LCIA is, by many accounts, the second most popular
European institution for international commercial arbitration. The LCIA administers a set of
arbitration rules, the LCIA Arbitration Rules, which were extensively revised in 1998. The
LCIA is the oldest international arbitration institution, having been founded in the late
nineteenth century.

➢ Singapore International Arbitral Centre

The Singapore International Arbitration Centre (“SIAC”) was established in 1990,

initially focused on disputes arising out of construction, shipping, banking and insurance.
In recent years, the SIAC has taken steps to enhance its international reputation and, by
many accounts, is now the leading Asian international arbitral institution. The SIAC Rules
are based largely on the UNCITRAL Rules.

➢ Other Arbitral Institutions –

There are also a number of specialized arbitral institutions, dealing with industry-
specific matters, such as intellectual property, maritime, commodities, sports,
construction, insurance and labor matters. The Arbitration Institute of the Stockholm
Chamber of Commerce (SCC) became particularly well-known for handling East–West
arbitrations. The World Intellectual Property Organization (WIPO) Arbitration and
Mediation Center has rules on mediation and arbitration that are considered particularly
appropriate for technology, entertainment, and other disputes involving intellectual
property.

In addition, there are some specialized arbitral institutions such as the Grain and Feed
Trade Association (GAFTA), the London Maritime Arbitration Association (LMAA), the
Federation of Oils, Seeds, and Fats Association (FOSFA), and the London Metal
Exchange (LME), AIDA Reinsurance and Insurance Arbitration Association (“ARIAS”)
all of which have industry-based rules and procedures for resolving disputes of their
members. Court for Arbitration for sports, Switzerland deals with disputes relating to
sports.

ARBITRATIONS INVOLVING STATES

➢ ICSID Arbitrations

State or State-owned entities are generally immune from suits by individuals or

companies. The International Centre for Settlement of Investment Disputes (“ICSID”)

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 administers arbitrations and conciliations pursuant to the so-called “ICSID Convention” or
“Washington Convention” of 1965. ICSID jurisdiction is confined generally to “investment”
disputes, involving claims by foreign investors against host states;

➢ The Permanent Court of Arbitration

The PCA in the Hague was founded under the Hague Convention of 1899 on the
Pacific Settlement of Disputes, initially to administer state-to-state arbitrations. The PCA
has promulgated several sets of rules based largely on the UNCITRAL Rules, applicable to
disputes between both states and (more recently) private parties.

9. CONCLUSION

Any dispute resolution method has its problems and its downsides. International commercial arbitration
is sometimes referred to as the “least ineffective” method of resolving international disputes. Certainly,
the goal in international arbitration is to permit people from different countries and cultures to resolve
their differences in ways that leave all parties feeling that the private system of dispute resolution
serves a shared sense of justice. Arbitration gives the parties substantial autonomy and control over
the process that will be used to resolve their disputes. This is particularly important in international
commercial arbitration because parties do not want to be subject to the jurisdiction of the other party’s
court system. Each party fears the other party’s “home court advantage.” Arbitration offers a more
neutral forum, where each side believes it will have a fair hearing.

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